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PAROL EVIDENCE BPI v. FIDELITY & SURETY COMPANY OF THE PHIL GR No.

L-26743 October 19, 1927 The original action was commenced by BPI against the Laguna Coconut Oil Co. and the Fidelity and Surety Company on August 25, 1922. The Fidelity and Surety Company interposed a demurrer to the plaintiff's complaint which was sustained by the trial court. The plaintiff thereupon filed an amended complaint. The Fidelity and Surety Company again demurred to the amended complaint, and again it was sustained. Plaintiff appealed to the Supreme Court where the ruling was reversed and the case remanded for further proceedings. On the return of the record to the lower court, the Fidelity and Surety Company filed an answer. The Laguna Coconut Oil Co. made no defense, and judgment by default was obtained against it. The case was submitted to the court upon a stipulation of facts. Upon the pleadings and the agreed facts, the trial court rendered judgment against the Fidelity and Surety Company of the Philippine Islands for the full amount of the note, with interest. From this judgment, the Fidelity and Surety Company appealed to be well taken, for the principal reason that the action involved a reformation of the contract of guaranty, which was not put in issue by the pleadings. Accordingly, the judgment was reversed and the action dismissed, "without prejudice to the bringing of another action upon the same cause." On October 20, 1925, BPI commenced a new action against the defendant, the Fidelity and Surety Company, in the CFI of Manila. The defendant demurred. The trial court overruled the demurrer, and the defendant answered. Evidence was produced on behalf of the plaintiff. The judgment was in favor of the plaintiff. It is from this judgment that the defendant has appealed, assigning six errors which, it is alleged, were committed by the trial court. Our decision should now conclude the judicial warfare. Laguna Coconut Oil Co. executed in favor of the Philippine Vegetable Oil Company, Inc. a promissory note:
LAGUNA COCONUT OIL CO. Vegetable Oil Manufacturers Manila, P. I. P50,000 One month after date, we promise to pay to the Philippine Vegetable Company, Inc., or order at the City of Manila, Philippine Island, the sum of fifty thousand pesos (P50,000) Philippine currency; value received. In case of non-payment of this note at maturity, we agree to pay interest at the rate of nine per cent (9%) per annum on the said amount and the further sum of P5,000 in full, without any deduction as and for costs, expenses and attorney's fees for collection whether actually incurred or not. Manila, Philippine Islands, April 26, 1920.

LAGUNA COCONUT OIL CO. BY (Sgd.) BALDOMERO COSME President On May 3, 1920, the Fidelity and Surety Company of the Philippine Islands made a notation on the note reading as follows: MANILA, May 3, 1920

For value, received, we hereby obligate ourselves to hold the Laguna Coconut Oil Co. harmless against loss for having discounted the foregoing note at the value stated therein. FIDELITY AND SURETY CO. OF THE PHILIPPINE ISLANDS By (Sgd.) J. ELMER DELANEY Vice-President Cedula F-3443, Jan. 2,1920, Manila, P.I. Attest: (Sdg.) A.D. TANNER Secretary-Treasurer Cedula F-3447, Jan. 2, 1920, Manila, P. I.

On May 4, 1920, the Philippine Vegetable Oil Company endorsed the note in blank and delivered it to BPI. At least after maturity of the note, demand for its payment was made on the Laguna Coconut Oil Co., the Philippine Vegetable Oil Company, and the Fidelity and Surety Company of the Philippine Islands, all of whom refused to pay, the Laguna Coconut Oil Co. being admittedly insolvent. The correspondence of the bank with the Fidelity and Surety Company is in the record, and is emphasized by the plaintiff as indicative of responsibility assumed by the defendant, but is objected to by the defendant as for minor importance. The effort of the plaintiff on its last appearance in the trial court was to connect up the promissory note of P50,000 with an existing obligation of the Philippine Vegetable Oil Company in the form of another promissory note. The evidence was also intended to demonstrate that a clear error had been committed when reference was made to the Laguna Coconut Oil Co. in the notation on the note. The plaintiff's theory was confirmed by the trial judge. His Honor emphasized that the note could not have been discounted by the Laguna Coconut Oil Co., and that this must logically have been done by the Bank of the Philippine Islands. Without paying particular attention to certain of the assignment of errors, let us ascertain if this position is tenable and if the plaintiff has made out its case. OPINION According to section 285 of the Code of Civil Procedure, a written agreement is presumed to contain all the terms of the agreement. The Civil Code has articles to the same effect. However, the Code of Civil Procedure permits evidence of the terms of the

agreement other than the contents of the writing in the following case: Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, is put in issue by the pleadings. This provision of our local law was construed by the United States Supreme Court in the well-known case of the Philippine Sugar Estates Development Company vs. Government of the Philippine Islands ([1917], 247 U. S.385). It was there announced that the courts of equity will reform a written contract where, owing to mutual mistake, the language used therein did not fully or accurately express the agreement and intent of the parties. It was also stated that the relief by way of reformation will not be granted unless the proof of mutual mistake be "of the clearest and most satisfactory character." The court finally said that the evidence introduced by the appellant met these stringent requirements. Our local decisions have applied the rule that the amount of evidence necessary to sustain a prayer for relief where it is sought to impugn a fact in a document is always more than a mere preponderance of the evidence. (Centenera vs. Garcia Palicio [1915], 29 Phil., 470; Mendozana vs. Philippine Sugar Estates Development Co. and De Garay [1921], 41 Phil., 475.) Has the plaintiff carried the burden of proof in this manner and to this extent? That is the question. In reaching out to consider the possibilities of the case, we are first confronted with the language of the court when the case was last here. Mr. Justice Ostrand, in the course of the opinion in that instance, observed: "The writing upon which the action is brought does not in terms show any obligation in favor of the plaintiff and the action can only be maintained upon the theory that the writing does not express the true intent of the parties. We may surmise that the guarantee in question was intended for the benefit of the party who subsequently discounted the note, but we cannot be certain." It was then pointed out that the note may have been merely an accommodation note, and that the guaranty may have been intended for the protection of the maker. However, the parties have not seen fit to take advantage of this suggestion. An examination of the note and the guaranty discloses that in the notation to the note the word "hold" is interlined. This indicates that the Vice-President of the Fidelity and Surety Company had his particular attention called to the language of the note, and corrected the typewritten matter by inserting in ink the word quoted. That the writer of the notation fell into a further error in obligating the company to the Laguna Coconut Oil Co. may be possible. That the writer may have had in mind to use the words Philippine Vegetable Oil Company, Inc. may also be possible. The names of the two parties before the guarantor were Laguna Coconut Oil Co. and Philippine Vegetable Oil Company, Inc. The guaranteeing company could not very well

have assumed that the Bank of the Philippine Islands at a later date was contemplating discounting the note. It is also apparent on the face of the note that it was to draw interest at maturity. This fact would disprove discount of the note by the Bank of the Philippine Islands on or before May 3, 1920. In truth, it is not certain that the bank ever did discount the note. At least, plaintiff in its second amended complaint averred that the promissory note "was discounted by Philippine Vegetable Oil Company, Inc." The bookkeeping entries of the bank are hardly competent against a stranger to the transaction, such as the defendant in this case. Moreover, it will not escape notice that one entry at least in plaintiff's Exhibit E has been changed by erasing the words "y Fidelity and Surety Co. of the Phil. Islands" and substituting "Philippine Vegetable Oil Co. garatizado p. Fidelity & Surety Co. of the Phil. Islands." The book entries taken at their face value are not conclusive. The correspondence between the parties fails to disclose either an express or implied admission that the defendant had executed the guaranty in question in favor of the plaintiff bank. There is nothing in these exhibits from which any such admission can be inferred. An attempt to interpret the correspondence merely leads open further into the field of speculation. Yet the rule is that an admission or declaration to be competent must have been expressed in definite, certain, and unequivocal language. (1 R. C. L., 481.) Here the exhibits are couched in language which is neither definite, certain, nor unequivocal for nowhere do they contain an admission of a guaranty made by the defendant company for the protection of the Bank of the Philippine Islands. To justify the reformation of a written instrument upon the ground of mistake, the concurrence of three things are necessary: First, that the mistake should be of a fact; second, that the mistake should be proved by clear and convincing evidence; and, third, that the mistake should be common to both parties to the instrument. The rule is, as has been above stated, that the mistake must be mutual. There may have been a mistake here. It would, however, seem to be straining the natural course of events to hold the Fidelity and Surety Company of the Philippine Islands a party to that mistake. It may be that the majority has not approached a decision in this case in a spirit of tolerant sympathy. The plaintiff has filed three distinct and conflicting complaints. It has not remained loyal to any one theory of the case. For instance, it has alleged at various times that the guaranty of the defendant was in favor of the Laguna Coconut Oil Co., and that the guaranty was in favor of the Bank of the Philippine Islands; that the note was discounted by the Philippine Vegetable

Oil Company and that the note was discounted by the Bank of the Philippine Islands; that there was no mutual mistake and that there was mutual mistake. The court was thus justified in its statement when the case was here before when it said: In view of the fact that the case has been pending for several years, that it has been before this court once before, and that the plaintiff has had ample opportunity to remedy the defect in its pleadings, we would be warranted in definitely absolving the appellant from the complaint, but the majority of the court is of the opinion that the plaintiff should be given another opportunity to prosecute its claim." With all the various pleadings, all the various incidents, all the various facts, all the various legal principles, and all the various possibilities to the forefront, we cannot bring ourselves to conclude that the plaintiff, by proof of the clearest and most satisfactory character constituting more than a preponderance of the evidence, has established a mutual mistake. Instead, the proof is left far behind that goal. In accordance with the foregoing, the judgment appealed from will be reversed, and the proceedings definitely dismissed, without special pronouncement as to costs in either instance. This order will also serve to deny the two motions of reconsideration filed by the appellee. LECHUGAS v. CA GR No. L-39972 & L-40300 August 6, 1986 This petition for review invokes the parol evidence rule as it imputes grave abuse of discretion on the part of the appellate court for admitting and giving credence to the testimony of the vendor regarding the sale of the disputed lot. The testimony is contrary to the contents of the deed of sale executed by the vendor in favor of the petitioner. The petitioner filed a complaint for forcible entry with damages against the private respondents, alleging that the latter by means of force, intimidation, strategy and stealth, unlawfully entered lots A and B, corresponding to the middle and northern portion of the property owned by the petitioner known as Lot No. 5456. She alleged that they appropriated the produce thereof for themselves, and refused to surrender the possession of the same despite demands made by the petitioner. The complaint was dismissed. Petitioner appealed to the then CFI of Iloilo where the case was docketed as Civil Case No. 5055. While the above appeal was pending, the petitioner instituted another action before the CFI of Iloilo for recovery and possession of the same property against the private respondents. This case was docketed as Civil Case No. 5303. The two cases were tried jointly. After trial, the court rendered judgment. The dispositive portion of the decision states:

Wherefore, premises rendered, to wit:

considered,

judgment

is

a. dismissing the complaints in two cases; b. declaring defendants except Salvador Anona and Jose Lozada as owners and lawful possessors of the land in question together with all the improvements thereon; c. dismissing the claim for damages of all defendants except that of Jose Lozada; d. ordering plaintiff to pay defendant Jose Lozada the sum of P500.00 as attorney's fees and the amount of P300.00 as litigation expenses; and e. ordering plaintiff proceedings. to pay the costs of both

The petitioner appealed to the Court of Appeals but the latter sustained the dismissal of the cases. Hence, this petition with the petitioner making the following assignments of errors: I THAT THE RESPONDENT COURT ERRED IN CONSIDERING PAROL EVIDENCE OVER THE OBJECTION OF THE PETITIONER IN ORDER TO VARY THE SUBJECT MATTER OF THE DEED OF DEFINITE SALE (EXHIBIT A) ALTHOUGH THE LAND THEREIN IS DESCRIBED AND DELIMITED BY METES AND BOUNDS AND IdENTIFIED AS LOT NO. 5456 OF LAMBUNAO CADASTRE. II THAT THE RESPONDENT COURT ERRED IN CONSIDERING THE THEORY OF THE DEFENDANTSAPPELLEES FOR THE FIRST TIME ON APPEAL THAT THE LAND DESCRIBED IN THE DEED OF SALE (EXHIBIT A) IS LOT NO. 5522 INSTEAD OF LOT NO. 5456 OF THE LAMBUNAO CADASTRE, THEIR ORIGINAL THEORY BEING THAT THE DEED OF SALE (EXHIBIT A) IS NULL AND VOID AB INITIO BECAUSE LEONCIA LASANGUE CAN NOT SELL THE LAND IN QUESTION IN 1950 SINCE IT WAS ALLEGEDLY SOLD IN 1941 BY HER FATHER EMETERIO LASANGUE. III THAT THE RESPONDENT COURT CANNOT REFORM THE DEED OF DEFINITE SALE BY CHANGING ITS SUBJECT MATTER IN THE ABSENCE OF STRONG, CLEAR AND CONVINCING EVIDENCE AND ON THE STRENGTH OF LONG TESTIMONY OF THE VENDOR AND ALTHOUGH NO DIRECT ACTION FOR REFORMATION WAS FILED IN THE COURT OF ORIGIN. A summary of the facts which brought about the controversy is contained in the findings of the appellate court: Plaintiff Victoria Lechugas testified that she bought the land now subject of this litigation from Leoncia Lasangue as evidenced by a public "Deed of Absolute Sale" which plaintiff had caused to be registered in the Office of the Register of Deeds; preparatory to the execution of the deed Exhibit "A", plaintiff had the land

segregated from the bigger portion of 12 hectares owned by Leoncia Lasangue by contracting a private land surveyor, the Sirilan Surveying Office, to survey the land on December 3, 1950 and establish its boundaries, shape, form and area in accordance with the said plan which was attached to exhibit A as Annex A thereof. She also states that she caused the declaration of the said portion of six hectares subject of Exhibit A in her name beginning the year 1951 under tax declaration No. 7912, paid taxes on the same land, and has taken possession of the land through her tenants Jesus Leoncio, Roberta Losarita and Simeon Guinta, who shared one-half of the produce of the riceland with her, while she shouldered some of the expenses in cultivation and seeds, and one-third share in other crops, like coffee beans, bamboos, coconuts, corn and the like. xxx xxx xxx Plaintiff's declaration is corroborated by her tenant Simeon Guinta who testifies that the land subject of the complaint was worked on by him 1954 when its former tenant, Roberto Lazarita, now deceased, left the land. As tenant thereof, he planted rice, corn peanuts, coffee, and other minor products, sharing the same with the owner, plaintiff Victoria Lechugas; that on June 14, 1958, while witness was plowing Lot A preparatory to rice planting, defendants entered the land and forced him to stop his work. Salvador Anona and Carmelita Losa, particularly, told witness that if he (witness) would sign an affidavit recognizing them as his landlords, they would allow him to continue plowing the land. On that occasion, Salvador Anona, David Loza and Jose Loza were carrying unsheathed bolos, which made this witness very afraid, so much so that he left the land and reported the matter to Victoria Lechugas who reportedly went to the Chief of Police of Lambunao to ask the latter to intervene. The advise however of the chief of police, who responded to the call of plaintiff, was not heeded by the defendants who stayed adamantly on Lot A and refused to surrender the possession thereof to plaintiff appropriating the harvest to themselves. This witness further declares that on June 24, 1958, defendants entered Lot B of the land in question, situated on the northern portion, and cut the bamboo poles growing thereof counted by plaintiff's brother and overseer in the land, Bienvenido Laranja, to be 620 bamboo poles all in all. Despite the warning of the overseer Laranja, defendants did not stop cutting the bamboos, and they remained on the land, refusing to leave the same. To top it all, in June of 1959, defendants, not contended with just occupying the middle and northern portions of the land (Lots A and B), grabbed the whole parcel containing six hectares to the damage and prejudice of herein plaintiff, so that plaintiff was left with no other recourse but to file Civil Case No. 5303 for ownership, recovery of possession and damages. Defendants, on the other hand, maintain that the land which plaintiff bought from Leoncia Lasangue in 1950 as evidenced by the deed exhibit A, is different from the land now subject of this action, and described in paragraph 2 of plaintiff's complaint. To prove this point, defendants called as their first witness plaintiff herself (pp. 6167, t.s.n., Tuble), to elicit from her the reason why it was that although her vendor Leoncia

Lasangue was also residing at the municipality of Lambunao, Iloilo, plaintiff did not care to call her to the witness stand to testify regarding the Identity of the land which she (plaintiff) bought from said vendor Leoncia Lasangue; to which query witness Lechugas countered that she had tried to call her vendor, but the latter refused, saying that she (Lasangue) had already testified in plaintiff's favor in the forcible entry case in the Justice of the Peace Court. In connection with her testimony regarding the true Identity of the land plaintiff, as witness of defendants, stated that before the execution of Exhibit "A" on December 8, 1950 the lot in question was surveyed (on December 3, 1950) by the Sirilan Surveyor Company after due notice to the boundary owners including Leoncia Lasangue. Defendant's evidence in chief, as testified to by Carmelita Lozada (pp. 100-130, t.s.n., Trespeces; pp. 131-192, t.s.n., Tuble) shows that on April 6, 1931 Hugo Loza father of Carmelita Loza and predecessor-ininterest of the rest of the heirs of herein defendants, (with the exception of Jose Loza and Salvador Anona) purchased a parcel of land from one Victorina Limor as evidenced by the deed "Venta Definitiva" (exhibit 3, pp. 49-50, folder of exhibits). This land, containing 53,327 square meters is bounded on the north by Ramon Lasangue, on the south by Emeterio Lasangue and covered by tax declaration No. 7346 (exhibit 3-9, p. 67, Id.) in vendor's name; that immediately after the sale, Hugo Loza took possession of the said parcel of land and declared the same in his name (exhibit 3-10, p. 67, folder of exhibits) starting the year 1935. On March 17, 1941, Hugo Loza bought from Emeterio Lasangue a parcel of land with an area of four hectares more or less, adjoining the land he (Loza) had earlier bought from Victoria Limor, and which sale was duly evidenced by a public instrument (exhibit 2, pp. 35-36, folder of exhibits). This property had the following boundaries, to wit: on the north by Eladio Luno, on the south, by Simeon Lasangue, on the west, by Gregorio Militar and Emeterio Lasangue and on the east, by Maximo Lasangue and Hipolito Lastica (exhibit 2, exhibit 2-B, p. 37, Id). After the execution of the deed of sale, Exhibit 2, Hugo Loza cause the transfer of the declaration in his own name (tax declaration No. 8832, exh. 2-C, p. 38, Id.) beginning 1945, and started paying the taxes on the land (exhibits 2-d to 2-i, pp. 39-44, Id.). These two parcels of land (that purchased by Hugo Loza in 1941 from Emeterio Lasangue, and a portion of that bought by him from Victoria Limor sometime in 1931) were consolidated and designated, during the cadastral survey of Lambunao, Iloilo in 1959 as Lot No. 5456; while the remaining portion of the lot bought from Victorina Limor, adjoining Lot 5456 on the east, was designated as Lot No. 5515 in the name of the Heirs of Hugo Loza. Defendants claim that the lot bought by plaintiff from Leoncia Lasangue as evidenced by exhibit A, is situated south of the land now subject of this action and designated during cadastral survey of Lambunao as Lot No. 5522, in the name of Victoria Lechugas. xxx xxx xxx Leoncia Lasangue, plaintiff's vendor in exhibit A, testifying for defendants (pp. 182-115, t.s.n., Tambagan; pp. 69-88, t.s.n., Tuble) declared that during his lifetime her father, Emeterio Lasangue,

owned a parcel of land in Lambunao, Iloilo, containing an area of 36 hectares; that said Emeterio Lasangue sold a slice of 4 hectares of this property to Hugo Loza evidenced by a deed of sale (Exh. 2) dated March 17, 1941; that other sales were made to other persons, leaving only some twelve hectares out of the original 36; that these 12 hectares were transferred by her parents in her (witness) name, being the only child and heir; that on December 8, 1950, she (Leoncia Lasangue) sold six hectares of her inherited property to Victoria Lechugas under a public instrument (exhibit A) which was prepared at the instance of Victoria Lechugas and thumbmarked by herself (the vendor). Refuting plaintiff's contention that the land sold to her is the very land under question, vendor Leoncia Lasangue testifies that: Q. But Victoria Lechugas declared here that, by means of this document, exhibit 'A', you sold to her this very land in litigation; while you declared here now that this land in litigation was not included in the sale you made of another parcel of land in her favor. What do you say about that? A. I only sold six (6) hectares to her. Q. And that was included in this land in litigation? A. No. xxx xxx xxx Q. Did you tell her where that land you were selling to her was situated? xxx xxx xxx A. On the South. Q. South side of what land, of the land in litigation? A. The land I sold to her is south of the land in litigation. xxx xxx xxx Q. What portion of these thirty-six (36) hectares of land did you sell actually, according to your agreement with Victoria Lechugas, and was it inside the thirty-six (36) hectares of land or a portion on one of the sides of thirty-six (36) hectares? A. It is on the edge of the whole land. Q. Where is that edge? on the north, east, west or south? A . This edge. (witness indicating the lower edge of the piece of paper shown into her) Q. Do you know what is east, that is, the direction where the sun rises? A. I know what is east. Q. Do you know where the sun sets ? A. The sun sets on the west.

Q. If you are standing in the middle of your land containing thirty-six (36) hectares and facing the east, that is, the direction where the sun rises, where is that portion of land sold to Victoria Lechugas, on your left, on your right, front of you or behind you? A. On my right side. (Witness indicating south). (Testimony of Leoncia Lasangue, pp. 209-211, rollo) (emphasis supplied). On the basis of the above findings and the testimony of vendor Leoncia Lasangue herself, who although illiterate was able to specifically point out the land which she sold to the petitioner, the appellate court upheld the trial court's decision except that the deed of sale (Exhibit A) was declared as not null and void ab initio insofar as Leoncia Lasangue was concerned because it could pass ownership of the lot in the south known as Lot No. 5522 of the Lambunao Cadastre which Leoncia Lasangue intended to sell and actually sold to her vendee, petitioner Victoria Lechugas. In her first assignment of error, the petitioner contends that the respondent Court had no legal justification when it subjected the true intent and agreement to parol evidence over the objection of petitioner and that to impugn a written agreement, the evidence must be conclusive. Petitioner maintains, moreover, that the respondent Court relied so much on the testimony of the vendor who did not even file a case for the reformation of Exhibit A. The contentions are without merit. The appellate court acted correctly in upholding the trial court's action in admitting the testimony of Leoncia Lasangue. The petitioner claims that Leoncia Lasangue was the vendor of the disputed land. The petitioner denies that Leoncia Lasangue sold Lot No. 5522 to her. She alleges that this lot was sold to her by one Leonora Lasangue, who, however, was never presented as witness in any of the proceedings below by herein petitioner. As explained by a leading commentator on our Rules of Court, the parol evidence rule does not apply, and may not properly be invoked by either party to the litigation against the other, where at least one of the parties to the suit is not party or a privy of a party to the written instrument in question and does not base a claim on the instrument or assert a right originating in the instrument or the relation established thereby. (Francisco on Evidence, Vol. VII, part I of the Rules of Court, p. 155 citing 32 C.J.S. 79.) In Horn v. Hansen (57 N.W. 315), the court ruled: ...and the rule therefore applies, that as between parties to a written agreement, or their privies, parol evidence cannot be received to contradict or vary its terms. Strangers to a contract are, of course, not bound by it, and the rule excluding extrinsic evidence in the construction of writings is inapplicable in such cases; and it is relaxed where either one of the parties between whom the question arises is a stranger to the written agreement, and does not claim under or through one who is party to it. In such case the rule is binding upon neither. ...

In the case of Camacho v. Municipality of Baliuag, 28 Phil. 466, this Court held that parol evidence which was introduced by the municipality was competent to defeat the terms of the plaintiff's deed which the latter executed with the Insular Government. In his concurring opinion, Justice Moreland stated: It should be noted in the first place, that there is no written instrument between the plaintiff and the municipality, that is, between the parties to the action; and there is, therefore, no possibility of the question arising as to the admissibility of parol evidence to vary or contradict the terms of an instrument. The written instrument that is, the conveyance on which plaintiff bases his action was between the Insular Government and the plaintiff, and not between the municipality and the plaintiff; and therefore, there can arise, as between the plaintiff and defendant no question relative to the varying or contradicting the terms of a written instrument between them ... The petitioner's reliance on the parol evidence rule is misplaced. The rule is not applicable where the controversy is between one of the parties to the document and third persons. The deed of sale was executed by Leoncia Lasangue in favor of Victoria Lechugas. The dispute over what was actually sold is between petitioner and the private respondents. In the case at bar, through the testimony of Leoncia Lasangue, it was shown that what she really intended to sell and to be the subject of Exhibit A was Lot No. 5522 but not being able to read and write and fully relying on the good faith of her first cousin, the petitioner, she just placed her thumbmark on a piece of paper which petitioner told her was the document evidencing the sale of land. The deed of sale described the disputed lot instead. This fact was clearly shown in Lasangue's testimony: Q. And how did you know that that was the description of the land that you wanted to sell to Victoria Lechugas? R. I know that because that land came from me. S. But how were you able to read the description or do you know the description? A. Because, since I do not know how to read and write and after the document was prepared, she made me sign it. So I just signed because I do not know how to read. xxx xxx xxx Q. What explanation did she make to you? A. She said to me, 'Manang, let us have a document prepared for you to sign on the land you sold to me.' So, after the document was prepared, I signed. Q. Did you tell her where that land you were selling to her was situated? xxx xxx xxx A. On the South.

Q. South side of what land, of the land in litigation? A. The land I sold to her is south of the land in litigation. Q. Did you tell her that before preparing the document you signed? A. Yes, I told her so because I had confidence in her because she is my first cousin. (pp. 198-207, rollo) From the foregoing, there can be no other conclusion but that Lasangue did not intend to sell as she could not have sold, a piece of land already sold by her father to the predecessor-in-interest of the respondents. The fact that vendor Lasangue did not bring an action for the reformation of Exhibit "A" is of no moment. The undisputed fact is that the respondents have timely questioned the validity of the instrument and have proven that, indeed Exhibit "A" does not reflect the true intention of the vendor. There is likewise no merit in the contention of the petitioner that the respondents changed their theory on appeal. Respondents, from the very start, had questioned and denied Leoncia Lasangue's capacity to sell the disputed lot to petitioner. It was their contention that the lot was sold by Leoncia's father Emeterio Lasangue to their father, Hugo Loza wayback in 1941 while the alleged sale by Leoncia to the petitioner took place only in 1950. In essence, therefore, the respondents were already attacking the validity of Exhibit "A". Moreover, although the prior sale of the lot to their father may have been emphasized in their defenses in the civil cases filed against them by the petitioner in the lower court, nevertheless in their affirmative defense, the respondents already raised doubt on the true intention of Leoncia Lasangue in signing Exhibit "A" when they alleged that..." Leoncia Lasangue, publicly, and in writing repudiated said allegation and pretension of the plaintiff, to the effect that the parcel of land now in litigation in the present case "WAS NOT INCLUDED in the sale she executed in favor of the plaintiff ... . Consequently, petitioner cannot impute grave abuse on the part of the appellate court and state that it allowed a change of theory by the respondents for the first time on appeal for in reality, there was no such change. The third issue raised by the petitioner has no merit. There is strong, clear, and convincing evidence as to which lot was actually sold to her. We see no reason to reverse the factual findings of both the Court of First Instance and the Court of Appeals on this point. The "reformation" which the petitioner questions was, in fact, intended to favor her. Instead of declaring the deed of sale null and void for all purposes, the Court upheld its having passed ownership of Lot No. 5522 to the petitioner. WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED for lack of merit with costs against the petitioner.

SO ORDERED. SALIMBANGON v. TAN GR No. 185240 January 20, 2010 This case is about the admissibility of testimony that tends to modify a written agreement among the parties and the extinction of the easement of right of way upon consolidation in one person of the ownership of the dominant and the servient estates. The Facts and the Case Guillermo Ceniza died intestate on July 11, 1951, leaving a parcel of land at Poblacion, Mandaue City. Twenty years later on July 17, 1973 his children Benedicta, Guillermo, Jr., Victoria, Eduardo, and Carlos executed an extrajudicial declaration of heirs and partition, adjudicating and dividing the land among themselves as follows: 1. To Benedicta T. Cabahug, Lot A subject to a perpetual and grat[u]itous road right of way 1.50 m. wide along its NW. boundary in favor of Lots B, E, and D, of the subdivision; 2. To Eduardo Ceniza, Lot B subject to a perpetual and grat[u]itous road right of way 1.50 m. wide along its SW. boundary in favor of Lots A, D & E of the subdivision; 3. To Carlos Ceniza, Lot C; 4. To Guillermo Ceniza Jr., Lot D subject to a perpetual and grat[u]itous road right of way 1.50 m. wide along its NE. boundary in favor of Lot B and E of the subdivision; and 5. To Victoria Ceniza, Lot E, subject to a perpetual and grat[u]itous road right of way 1.50 m. wide along its SW. boundary in favor of Lot D of the subdivision.1 Lots A, B, and C were adjacent to a city street. But Lots D and E were not, they being interior lots. To give these interior lots access to the street, the heirs established in their extrajudicial partition an easement of right of way consisting of a 3-meter wide alley between Lots D and E that continued on between Lots A and B and on to the street. The partition that embodied this easement of right of way was annotated on the individual titles issued to the heirs. Roughly, the lots including the easement of right of way would take the following configurations, 2 not drawn here to accurate size and proportion but illustrative of their relative locations: But, realizing that the partition resulted in an unequal division of the property, the heirs modified their agreement by eliminating the easement of right of way along Lots A, D, and E, and in its place, imposed a 3meter wide alley, an easement of right of way, that ran exclusively along the southwest boundary of Lot B from Lots D and E to the street.3 Thus:

Victoria (now petitioner Victoria Salimbangon) later swapped lots with Benedicta with the result that Victoria became the owner of Lot A, one of the three lots adjacent to the city street. Victoria and her husband (the Salimbangons) constructed a residential house on this lot and built two garages on it. One garage abutted the street while the other, located in the interior of Lot A, used the alley or easement of right of way existing on Lot B to get to the street. Victoria had this alley cemented and gated. Subsequently, however, respondent spouses Santos and Erlinda Tan (the Tans) bought Lots B, C, D, and E from all their owners. The Tans built improvements on Lot B that spilled into the easement area. They also closed the gate that the Salimbangons built. Unable to use the old right of way, the Salimbangons lodged a complaint with the City Engineer of Mandaue against

the Tans. For their part, the Tans filed an action with the Regional Trial Court (RTC) of Mandaue against the Salimbangons in Civil Case MAN-3223 for the extinguishment of the easement on Lot B and damages with application for preliminary injunction. 4 The Salimbangons filed their answer with counterclaims. After hearing or on February 9, 2001 the RTC rendered judgment, upholding the Salimbangons easement of right of way over the alley on Lot B, the lot that belonged to the Tans. The court pointed out that the easement in this case was established by agreement of the parties for the benefit of Lots A, D, and E. Consequently, only by mutual agreement of the parties could such easement be extinguished. The RTC declined, however, to award damages to the Salimbangons. Both parties appealed to the Court of Appeals (CA) in CA-G.R. CV 73468. On July 27, 2007 the CA 5 reversed the RTC decision, extinguished the easement of right of way established on the alley in Lot B of the Tans, and denied the Salimbangons claim for damages. The court ruled that based on the testimony of one of the previous owners, Eduardo Ceniza, the true intent of the parties was to establish that easement of right of way for the benefit of the interior lots, namely, Lots D and E. Consequently, when ownership of Lots B, D, and E was consolidated into the Tans, the easement ceased to have any purpose and became extinct. The Salimbangons filed a motion for reconsideration but the CA denied the same in its resolution of October 14, 2008. This prompted them to file the present petition. Questions Presented Two questions are presented: 1. Whether or not the CA erred in admitting in evidence contrary to the parol evidence rule Eduardo Cenizas testimony respecting the true intent of the heirs in establishing the easement of right of way as against what they stated in their written agreement; and 2. Whether or not the CA erred in ruling that the easement of right of way established by the partition agreement among the heirs for the benefit of Lot A has been extinguished. The Courts Ruling One. The Salimbangons point out that the CA ought to have rejected Eduardo Cenizas testimony that the heirs had intended to establish the easement of right of way solely for the benefit of the interior Lots D and E which had no access to the city street. The partition agreement also made Lot A, now owned by the Salimbangons, a beneficiary of that easement. Thus: 2. To Eduardo Ceniza [now the Tans], Lot B subject to a perpetual and grat[u]itous road right of way 1.50 m. wide along its SW. boundary in favor of Lots A, D & E of the subdivision; The parol evidence rule, said the Salimbangons, precluded the parties from introducing testimony that tended to alter or modify what the parties had agreed on above.

But the exclusionary provision of the parol evidence rule admits of exceptions. Section 9, Rule 130 of the Revised Rules on Evidence states: Sec. 9. Evidence of written agreements. - When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake or imperfection in the written agreement; (b) The failure of the written agreement to express the true intent and agreement of the parties thereto; (c) The validity of the written agreement; or (d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. The term "agreement" includes wills. (7a) Here, the Tans had put in issue the true intent and agreement of the parties to the partition when they alleged in their complaint that, contrary to what paragraph 2 quoted above seems to imply, the easement was actually for the benefit of Lots D and E only. The complaint thus said: So that in the same partition instrument, the said heirs voluntarily agreed to establish the so-called "perpetual and gratuitous easement of road right of way" along LOT A, with 1.50 meters wide and along LOT B, with the same 1.50 meters wide. Understandably, this servitude voluntarily constituted on LOTS A and B was had for the benefit and use by the owners of LOTS D (Guillermo Ceniza, Jr.) and E (defendant Victoria Ceniza Salimbagon).7 (Underscoring supplied) Consequently, with the above averment, the Tans were entitled to introduce evidence to establish the true intent and agreement of the parties although this may depart from what the partition agreement literally provided. At any rate, as the CA said, the Salimbangons did not object at the hearing to admission of Eduardo Cenizas testimony even when this seemed at variance, as far as they were concerned, with the partition agreement among the heirs. Consequently, the Salimbangons may also be deemed to have waived their right to now question such testimony on appeal. Two. The Salimbangons point out that the partition agreement among the heirs established in their favor, as owners of Lot A, an easement of right of way on Lot B from the interior of their lot to the city street. Since theirs was an easement established by agreement of the parties, only by mutual agreement could the same be extinguished.

But, firstly, as Eduardo Ceniza testified, the true agreement of the heirs was for the establishment of an easement of right of way for the benefit solely of the lots that did not have direct access to the street, namely Lots D and E. His testimony made sense.1avvphi1 As originally constituted in that agreement, each of Lots A and B was to contribute a strip of 1.5 meters between them that when combined formed a 3-meter wide alley leading from Lots D and E to the street. To the extent that Lots A and B retained the right to use the 1.5-meter portion that they contributed to the establishment of the easement, the agreement gave their owners the right to use the common alley as well. As Eduardo testified, however, the true intent of the heirs was to give Lots D and E access to the street. Lots A and B did not need this alley since they were facing the street.1avvphi1 Consequently, when the owner of Lots D and E also became the owner of Lot B, the easement of right of way on Lot B became extinct by operation of law. 8 The existence of a dominant estate and a servient estate is incompatible with the idea that both estates belong to the same person. Secondly, there is no question that when the heirs realized that it was not fair to take strips of 1.5 meters from each of Lots A, D, and E for the easement of right of way when these lots were already small, the heirs executed a "Cancellation of Annotation of Right of Way, etc." that cancelled the easement of right of way they earlier established on Lots A, D, and E and in its place imposed a 3-meter wide easement of right of way solely on Lot B. Although the "cancellation" document did not say so, it was implicit that the changed location of the easement cancelled not only the 1.5-meter strip of easement imposed on Lot A of the Salimbangons but also their right to use the new 3-meter easement alley that lay entirely on Lot B. Strictly speaking, if the Salimbangons insist that their right as dominant estate under the original partition agreement remains, then that would be partly on a 1.5-meter strip of their own Lot A and partly on the equivalent 1.5-meter strip on the side of Lot B, not on the new 3-meter alley established entirely on Lot B. The point is that, obviously, in establishing the new easement of right of way, the heirs intended to abandon the old one. Since this 3-meter alley on Lot B directly connected Lots D and E to the street, it is also obvious that only the latter lots were its intended beneficiary. And, with the ownership of Lots B, D, and E now consolidated in a common owner, namely, the Tans, then the easement of right of way on Lot B may be said to have been extinguished by operation of law.9 ACCORDINGLY, this Court DENIES the petition and AFFIRMS in all respects the decision dated July 27, 2007 and resolution dated October 14, 2008 of the Court of Appeals in CA-G.R. CV 73468. SO ORDERED.

GR No. 177710 October 12, 2009


The Case This is an appeal under Rule 45 from the Decision[1] dated July 20, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83595, which declared the Kasulatan ng Bilihang Tuluyan ng Lupa[2] (Kasulatan) valid as between the parties, but required respondents to return the amount of PhP 50,000 to petitioners. Also assailed is the March 30, 2007 CA Resolution[3] denying petitioners motion for reconsideration. The Facts Petitioner Ramon Lequin, husband of petitioner Virginia Lequin, is the brother of respondent Salome L. Vizconde and brother-in-law of respondent Raymundo Vizconde. With this consanguine and affinity relation, the instant case developed as follows: In 1995, petitioners, residents of Diamond Court, Brixton Ville Subdivision, Camarin, Caloocan City, bought the subject lot consisting of 10,115 square meters from one Carlito de Leon (de Leon). The sale was negotiated by respondent Raymundo Vizconde. The subject lot is located near the Sto. Rosario to Magsaysay road in Aliaga, Nueva Ecija. Adjacent thereto and located in between the subject lot and the road is a dried up canal (or sapang patay in the native language). In 1997, respondents represented to petitioners that they had also bought from Carlito de Leon a 1,012square meter lot adjacent to petitioners property and built a house thereon. As later confirmed by de Leon, however, the 1,012-square meter lot claimed by respondents is part of the 10,115-square meter lot petitioners bought from him. Petitioners believed the story of respondents, since it was Raymundo who negotiated the sale of their lot with de Leon. With the consent of respondents, petitioners then constructed their house on the 500-square meter half-portion of the 1,012 square-meter lot claimed by respondents, as this was near the road. Respondents residence is on the remaining 512 square meters of the lot. Given this situation where petitioners house stood on a portion of the lot allegedly owned by respondents, petitioners consulted a lawyer, who advised them that the 1,012-square meter lot be segregated from the subject lot whose title they own and to make it appear that they are selling to respondents 512 square meters thereof. This sale was embodied in the February 12, 2000 Kasulatan where it was made to appear that respondents paid PhP 15,000 for the purchase of the 512-square meter portion of the subject lot. In reality, the consideration of PhP 15,000 was not paid to petitioners. Actually, it was petitioners who paid respondents PhP 50,000 for the 500-square meter portion where petitioners built their house on, believing respondents representation that the latter own the 1,012-square meter lot. In July 2000, petitioners tried to develop the dried up canal located between their 500-square meter lot and

Sps. LEQUIN v. Sps. VIZCONDE

the public road. Respondents objected, claiming ownership of said dried up canal or sapang patay. This prompted petitioners to look into the ownership of the dried up canal and the 1,012 square-meter lot claimed by respondents. Carlito de Leon told petitioners that what he had sold to respondents was the dried up canal or sapang patay and that the 1,012square meter lot claimed by respondents really belongs to petitioners. Thus, on July 13, 2001, petitioners filed a Complaint[4] for Declaration of Nullity of Contract, Sum of Money and Damages against respondents with the Regional Trial Court (RTC), Branch 28 in Cabanatuan City, praying, among others, for the declaration of the February 12, 2000 Kasulatan as null and void ab initio, the return of PhP 50,000 they paid to respondents, and various damages. The case was docketed as Civil Case No. 4063. The Ruling of the RTC On July 5, 2004, after due trial on the merits with petitioners presenting three witnesses and respondents only one witness, the trial court rendered a Decision[5] in favor of petitioners. The decretal portion reads: WHEREFORE, viewed from the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows: 1. Declaring the KASULATAN NG TULUYANG BILIHAN dated February 12, 2000 as NULL and VOID; and 2. Ordering the defendants:

Aggrieved, respondents Decision to the CA. The Ruling of the CA

appealed

the

above

RTC

The appellate court viewed the case otherwise. On July 20, 2006, it rendered the assailed Decision granting respondents appeal and declaring as valid the Kasulatan. The fallo reads: WHEREFORE, premises considered, the Appeal is GRANTED. The Kasulatan ng Bilihang Tuluyan dated February 12, 2000 is declared valid. However, Spouses Raymundo Vizconde and Salome Lequin Vizconde are hereby ordered to return to the plaintiffs the amount of P50,000.00 without interest. SO ORDERED.[7] In reversing and vacating the RTC Decision, the CA found no simulation in the contract of sale, i.e., Kasulatan. Relying on Manila Banking Corporation v. Silverio,[8] the appellate court pointed out that an absolutely simulated contract takes place when the parties do not intend at all to be bound by it, and that it is characterized by the fact that the apparent contract is not really desired or intended to produce legal effects or in any way alter the juridical situation of the parties. It read the sale contract (Kasulatan) as clear and unambiguous, for respondents (spouses Vizconde) were the buyers and petitioners (spouses Lequin) were the sellers. Such being the case, petitioners are, to the CA, the owners of the 1,012-square meter lot, and as owners they conveyed the 512-square meter portion to respondents. The CA viewed petitioners claim that they executed the sale contract to make it appear that respondents bought the property as mere gratuitous allegation. Besides, the sale contract was duly notarized with respondents claiming the 512-square meter portion they bought from petitioners and not the whole 1,012square meter lot as alleged by petitioners. Moreover, the CA dismissed allegations of fraud and machinations against respondents to induce petitioners to execute the sale contract, there being no evidence to show how petitioners were defrauded and much less the machinations used by respondents. It ratiocinated that the allegation of respondents telling petitioners that they own the 1,012-square meter lot and for which petitioners sold them 512 square meters thereof does not fall in the concept of fraud. Anent the PhP 50,000 petitioners paid to respondents for the 500-square meter portion of the 1,012-square meter lot claimed by respondents, the CA ruled that the receipt spoke for itself and, thus, required respondents to return the amount to petitioners. On March 30, 2007, the CA denied petitioners Motion for Reconsideration of the above decision through the assailed resolution. Hence, petitioners went to this Court. The Issues I THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN NOT CLEARLY STATING IN THE

(a) to return to the plaintiffs the amount of FIFTY THOUSAND PESOS which they have paid in the simulated deed of sale plus an interest of 12% per annum to commence from the date of the filing of this case; (b) To pay the plaintiffs moral damages in the amount of Php50,000.00; (c) To pay exemplary damages of Php50,000.00;

(d) To pay attorneys fees in the amount of Php10,000.00; and (e) To pay the costs of suit.

SO ORDERED.[6] The RTC found the Kasulatan allegedly conveying 512 square meters to respondents to be null and void due to: (1) the vitiated consent of petitioners in the execution of the simulated contract of sale; and (2) lack of consideration, since it was shown that while petitioners were ostensibly conveying to respondents 512 square meters of their property, yet the consideration of PhP 15,000 was not paid to them and, in fact, they were the ones who paid respondents PhP 50,000. The RTC held that respondents were guilty of fraudulent misrepresentation.

ASSAILED DECISION AND RESOLUTION THE FACTS AND LAW ON WHICH THE SAME WERE BASED; II THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN NOT GIVING DUE CREDENCE TO THE FINDINGS OF FACTS OF THE TRIAL COURT AND HOW THE LATTER APPRECIATED THE TESTIMONIES GIVEN BY THE WITNESSES; III THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN FINDING THAT THERE WAS NO FRAUD ON THE PART OF THE RESPONDENTVIZCONDES; IV THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN CONSIDERING THAT THE KASULATAN NG BILIHANG TULUYAN IS A VALID CONTRACT OF SALE; V THE HONORABLE COURT OF APPEALS, WITH ALL DUE RESPECT, ERRED IN NOT CONSIDERING THAT THE RESPONDENTS DID NOT HAVE THE FINANCIAL CAPACITY TO PURCHASE THE SUBJECT LAND FROM THE PETITIONERS.[9] The Courts Ruling The petition is meritorious. The issues boil down to two core questions: whether or not the Kasulatan covering the 512 square-meter lot is a valid contract of sale; and who is the legal owner of the other 500 square-meter lot. We find for petitioners. The trial court found, inter alia, lack of consideration in the contract of sale while the appellate court, in reversing the decision of the trial court, merely ruled that the contract of sale is not simulated. With the contrary rulings of the courts a quo, the Court is impelled to review the records to judiciously resolve the petition. It is true that this Court is not a trier of facts, but there are recognized exceptions to this general rule, such as when the appellate court had ignored, misunderstood, or misinterpreted cogent facts and circumstances which, if considered, would change the outcome of the case; or when its findings were totally devoid of support; or when its judgment was based on a misapprehension of facts.[10] As may be noted, the CA, without going into details, ruled that the contract of sale was not simulated, as it was duly notarized, and it clearly showed petitioners as sellers, and respondents as buyers, of the 512-square meter lot, subject matter of the sale. But the CA misappreciated the evidence duly adduced during the trial on the merits. As established during the trial, petitioners bought the entire subject property consisting of 10,115 square meters from Carlito de Leon. The title of the subject property was duly transferred to petitioners names. Respondents, on the other hand, bought the dried up canal consisting of 1,012 square meters from de Leon. This dried up canal is adjacent to the subject property of petitioners and is the lot or area between

the subject property and (Sto. Rosario to Magsaysay).

the

public

road

The affidavit or Sinumpaang Salaysay[11] of de Leon attests to the foregoing facts. Moreover, de Leons testimony in court confirmed and established such facts. These were neither controverted nor assailed by respondents who did not present any countervailing evidence. Before this factual clarification was had, respondents, however, made a claim against petitioners in 1997 when subject lot was re-surveyed by petitionersthat respondents also bought a 1,012 square-meter lot from de Leon. Undeniably, the 1,012 square meters was a portion of the 10,115 square meters which de Leon sold to petitioners. Obviously, petitioners respected respondents claimif not, to maintain peace and harmonious relationsand segregated the claimed portion. Whether bad faith or ill-will was involved or an honest erroneous belief by respondents on their claim, the records do not show. The situation was further complicated by the fact that both parties built their respective houses on the 1,012 square-meter portion claimed by respondents, it being situated near the public road. To resolve the impasse on respondents claim over 1,012 square meters of petitioners property and the latters house built thereon, and to iron out their supposed respective rights, petitioners consulted a notary public, who advised and proposed the solution of a contract of sale which both parties consented to and is now the object of the instant action. Thus, the contract of sale was executed on February 12, 2000 with petitioners, being the title holders of the subject property who were ostensibly selling to respondents 512 square meters of the subject property while at the same time paying PhP 50,000 to respondents for the other 500 square-meter portion. From the above considerations, we conclude that the appellate courts finding that there was no fraud or fraudulent machinations employed by respondents on petitioners is bereft of factual evidentiary support. We sustain petitioners contention that respondents employed fraud and machinations to induce them to enter into the contract of sale. As such, the CAs finding of fact must give way to the finding of the trial court that the Kasulatan has to be annulled for vitiated consent. Anent the first main issue as to whether the Kasulatan over the 512-square meter lot is voidable for vitiated consent, the answer is in the affirmative. A contract, as defined in the Civil Code, is a meeting of minds, with respect to the other, to give something or to render some service.[12] For a contract to be valid, it must have three essential elements: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. The requisites of consent are (1) it should be intelligent or with an exact notion of the matter to which it refers;

(2) it should be free; and (3) it should be spontaneous. In De Jesus v. Intermediate Appellate Court,[13] it was explained that intelligence in consent is vitiated by error, freedom by violence, intimidation or undue influence, and spontaneity by fraud. Article (Art.) 1330 of the Civil Code provides that when consent is given through fraud, the contract is voidable. Tolentino defines fraud as every kind of deception whether in the form of insidious machinations, manipulations, concealments or misrepresentations, for the purpose of leading another party into error and thus execute a particular act. [14] Fraud has a determining influence on the consent of the prejudiced party, as he is misled by a false appearance of facts, thereby producing error on his part in deciding whether or not to agree to the offer. One form of fraud is misrepresentation through insidious words or machinations. Under Art. 1338 of the Civil Code, there is fraud when, through 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. Insidious words or machinations constituting deceit are those that ensnare, entrap, trick, or mislead the other party who was induced to give consent which he or she would not otherwise have given. Deceit is also present when one party, by means of concealing or omitting to state material facts, with intent to deceive, obtains consent of the other party without which, consent could not have been given. Art. 1339 of the Civil Code is explicit that failure to disclose facts when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. From the factual milieu, it is clear that actual fraud is present in this case. The sale between petitioners and de Leon over the 10,115 square-meter lot was negotiated by respondent Raymundo Vizconde. As such, Raymundo was fully aware that what petitioners bought was the entire 10,115 square meters and that the 1,012-square meter lot which he claims he also bought from de Leon actually forms part of petitioners lot. It cannot be denied by respondents that the lot which they actually bought, based on the unrebutted testimony and statement of de Leon, is the dried up canal which is adjacent to petitioners 10,115square meter lot. Considering these factors, it is clear as day that there was deception on the part of Raymundo when he misrepresented to petitioners that the 1,012-square meter lot he bought from de Leon is a separate and distinct lot from the 10,115-square meter lot the petitioners bought from de Leon. Raymundo concealed such material fact from petitioners, who were convinced to sign the sale instrument in question and, worse, even pay PhP 50,000 for the 500 squaremeter lot which petitioners actually own in the first place. There was vitiated consent on the part of petitioners. There was fraud in the execution of the contract used on petitioners which affected their

consent. Petitioners reliance and belief on the wrongful claim by respondents operated as a concealment of a material fact in their agreeing to and in readily executing the contract of sale, as advised and proposed by a notary public. Believing that Carlito de Leon indeed sold a 1,012-square meter portion of the subject property to respondents, petitioners signed the contract of sale based on respondents representations. Had petitioners known, as they eventually would sometime in late 2000 or early 2001 when they made the necessary inquiry from Carlito de Leon, they would not have entered or signed the contract of sale, much less pay PhP 50,000 for a portion of the subject lot which they fully own. Thus, petitioners consent was vitiated by fraud or fraudulent machinations of Raymundo. In the eyes of the law, petitioners are the rightful and legal owners of the subject 512 square-meter lot anchored on their purchase thereof from de Leon. This right must be upheld and protected. On the issue of lack of consideration, the contract of sale or Kasulatan states that respondents paid petitioners PhP 15,000 for the 512-square meter portion, thus: Na kaming magasawang Ramon Lequin at Virginia R. Lequin, nawang may sapat na gulang, pilipino at nakatira sa 9 Diamond Court, Brixton Ville Subdivision, Camarin, Kalookan City, alang-alang sa halagang LABINGLIMANG LIBONG PISO (P 15,000.00) salaping pilipino na binayaran sa amin ng buong kasiyahang loob namin ng magasawang Raymundo Vizconde at Salome Lequin, nawang may sapat na gulang, pilipino at nakatira sa Sto. Rosario, Aliaga, Nueva Ecija, ay amin naman ngayon inilipat, ibinigay at ipinagbili ng bilihang tuluyan sa naulit na magasawang Raymundo Vizconde at Salome Lequin, at sa kanilang mga tagapagmana ang x x x.[15] On its face, the above contract of sale appears to be supported by a valuable consideration. We, however, agree with the trial courts finding that this is a simulated sale and unsupported by any consideration, for respondents never paid the PhP 15,000 purported purchase price. Section 9 of Rule 130 of the Revised Rules on Evidence gives both the general rule and exception as regards written agreements, thus:

SEC. 9. Evidence of written agreements .When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake or imperfection in written agreement; (b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or (d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. The term agreement includes wills. The second exception provided for the acceptance of parol evidence applies to the instant case. Lack of consideration was proved by petitioners evidence aliunde showing that the Kasulatan did not express the true intent and agreement of the parties. As explained above, said sale contract was fraudulently entered into through the misrepresentations of respondents causing petitioners vitiated consent. Moreover, the evidence of petitioners was uncontroverted as respondents failed to adduce any proof that they indeed paid PhP 15,000 to petitioners. Indeed, having asserted their purchase of the 512-square meter portion of petitioners based on the Kasulatan, it behooves upon respondents to prove such affirmative defense of purchase. Unless the party asserting the affirmative defense of an issue sustains the burden of proof, his or her cause will not succeed. If he or she fails to establish the facts of which the matter asserted is predicated, the complainant is entitled to a verdict or decision in his or her favor.[16] In the instant case, the record is bereft of any proof of payment by respondents and, thus, their affirmative defense of the purported purchase of the 512-square meter portion fails. Thus, the clear finding of the trial court: 2. x x x [I]t was established by the plaintiffs [petitioners] that they were the ones who paid the defendants the amount of FIFTY THOUSAND PESOS (Php50,000.00) and execute a deed of sale also in favor of the defendants. In a simple logic, where can you find a contract that a VENDOR will convey his real property and at the same time pay the VENDEE a certain amount of money without receiving anything in return?[17] There can be no doubt that the contract of sale or Kasulatan lacked the essential element of consideration. It is a well-entrenched rule that 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 null and void ab initio forlack of consideration. [18] Moreover, Art. 1471 of the Civil Code, which provides that if the price is simulated, the sale is void, also applies to the instant case, since the price purportedly paid as indicated in the contract of sale was simulated for no payment was actually made.[19] Consideration and consent are essential elements in a contract of sale. Where a partys consent to a contract of sale is vitiated or where there is lack of consideration due to a simulated price, the contract is null and void ab initio. Anent the second issue, the PhP 50,000 paid by petitioners to respondents as consideration for the transfer of the 500-square meter lot to petitioners must

be restored to the latter. Otherwise, an unjust enrichment situation ensues. The facts clearly show that the 500-square meter lot is legally owned by petitioners as shown by the testimony of de Leon; therefore, they have no legal obligation to pay PhP 50,000 therefor. Art. 22 of the Civil Code provides that every person who through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. Considering that the 512 square-meter lot on which respondents house is located is clearly owned by petitioners, then the Court declares petitioners legal ownership over said 512 square-meter lot. The amount of PhP 50,000 should only earn interest at the legal rate of 6% per annum from the date of filing of complaint up to finality of judgment and not 12% since such payment is neither a loan nor a forbearance of credit.[20] After finality of decision, the amount of PhP 50,000 shall earn interest of 12% per annum until fully paid. The award of moral and exemplary damages must be reinstated in view of the fraud or fraudulent machinations employed by respondents on petitioners. The grant of damages in the concept of attorneys fees in the amount of PhP 10,000 must be maintained considering that petitioners have to incur litigation expenses to protect their interest in conformity to Art. 2208(2) [21] of the Civil Code. Considering that respondents have built their house over the 512-square meter portion legally owned by petitioners, we leave it to the latter what course of action they intend to pursue in relation thereto. Such is not an issue in this petition. WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the CA Decision dated July 20, 2006 and Resolution dated March 30, 2007 in CA-G.R. CV No. 83595 are hereby REVERSED and SET ASIDE. The Decision of the RTC, Branch 28 in Cabanatuan City in Civil Case No. 4063 is REINSTATED with the MODIFICATION that the amount of fifty thousand pesos (PhP 50,000) which respondents must return to petitioners shall earn an interest of 6% per annum from the date of filing of the complaint up to the finality of this Decision, and 12% from the date of finality of this Decision until fully paid.