G.R. No.

L-13403

March 23, 1960

RAMON E. SAURA, plaintiff-appellant, vs. ESTELA P. SINDICO, defendant-appellee.

Anacleto Magno for appellant.
Espeque and Jalandoni for appellee.
REYES, J. B. L., J.:
Appeal on issues of law from an order of the Court of First Instance of Pangasinan
dismissing plaintiff's complaint for damages.
From the records it appears that Ramon E. Saura and Estela P. Sindico were contesting for
nomination as the official candidate of the Nacionalista Party in the fourth district of
Pangasinan in the congressional elections of November 12, 1957. On August 23, 1957,
the parties entered into a written agreement bearing the same date, containing among
other matters stated therein, a pledge that
Each aspirant shall respect the result of the aforesaid convention, i.e., no one of us
shall either run as a rebel or independent candidate after losing in said convention.
In the provincial convention held by the Nacionalista Party on August 31, 1957, Saura was
elected and proclaimed the Party's official congressional candidate for the aforesaid
district of Pangasinan. Nonetheless, Sindico, in disregard of the covenant, filed, on
September 6, 1957, her certificate of candidacy for the same office with the Commission
on Elections, and she openly and actively campaigned for her election. Wherefore, on
October 5, 1957, plaintiff Saura commenced this suit for the recovery of damages. Upon
motion of the defendant, the lower court, in its order of November 19, 1957, dismissed
the complaint on the basis that the agreement sued upon is null and void, in tat (1) the
subject matter of the contract, being a public office, is not within the commerce of man;
and (2) the "pledge" was in curtailment of the free exercise of elective franchise and
therefore against public policy. Hence, this appeal.
We agree with the lower court in adjudging the contract or agreement in question a
nullity. Among those that may not be the subject matter (object) of contracts are certain
rights of individuals, which the law and public policy have deemed wise to exclude from
the commerce of man. Among them are the political rights conferred upon citizens,
including, but not limited to, once's right to vote, the right to present one's candidacy to
the people and to be voted to public office, provided, however, that all the qualifications
prescribed by law obtain. Such rights may not, therefore, be bargained away curtailed
with impunity, for they are conferred not for individual or private benefit or advantage but
for the public good and interest.
Constitutional and statutory provision fix the qualifications of persons who may be eligible
for certain elective public offices. Said requirements may neither be enlarged nor reduced
by mere agreements between private parties. A voter possessing all the qualifications
required to fill an office may, by himself or through a political party or group, present his
candidacy without further limitations than those provided by law.
Every voter has a right to be a candidate for public office if he possesses the
qualifications required to fill the office. It does not necessarily follow that he can be
the candidate of a particular political party. The statute provides when and how one
may be a candidate of a political party. If he cannot fill the requirement so as to be
the candidates of the political party of his choice, he may still be a candidate at the
general election by petition. The right of the voter to vote at the general election
for whom he pleases cannot be limited. (Roberts vs. Cleveland, Secretary of State
of State of New Mexico, 48 NM 226, 149 P (2d) 120, 153 A.L.R. 635, 637-638)
(Emphasis supplied)
In common law, certain agreements in consideration of the withdrawal of candidates for
office have invariably been condemned by the courts as being against public policy, be it
a withdrawal from the race for nomination or, after nomination, from the race for election.
(See notes in 37 L. R. A. (N.S.) 289 and cases cited therein; 18 Am. Jur. Sec. 352, pp. 399400)
In the case at hand, plaintiff complains on account of defendant's alleged violation of the
"pledge" in question by filing her own certificate o candidacy for a seat in the Congress of
1|OBLICON-Art.1347-1379

the Philippines and in openly and actively campaigning for her election. In the face of the
preceding considerations, we certainly cannot entertain plaintiff's action, which would
result in limiting the choice of the electors to only those persons selected by a small
group or by party boses.
The case of Pendleton vs. Pace, 9 S.W. (2nd) 437, cited by the appellant, is clearly
inapplicable. The court there only sanctioned the validity of an agreement by the
opposing candidates for nomination setting aside and re-submitting the nomination for
another primary election on account of the protest or contest filed by the losing candidate
in the first primary election. To abandon the contest proceedings, the candidates for
nomination agreed to submit again their nomination to the electors in the subsequent
primary.
Appellant likewise cites and quotes a portion of our ruling in Monsale vs. Nico, 83 Phil.,
758; 46 Off. Gaz., 210, to the effect that it is not incompetent or a candidate to withdraw
or annul his certificate of candidacy. This is not in point, for while we stated there that he
may do so, there being no legal prohibition against such a voluntary withdrawal, it does
not follow, nor did we imply anywhere in the decision, that in case there is any agreement
or consideration for such a withdrawal, said agreement or consideration should be held
valid or given effect.
We find it unnecessary to discuss the other points raised by the parties.
Wherefore, the order of dismissal appealed from is hereby affirmed. No pronouncement
as to costs.
G. R. No. 158149

February 9, 2006

BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF COMMERCE), Petitioner,

vs.
PERLA P. MANALO and CARLOS MANALO, JR., Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals
(CA) in CA-G.R. CV No. 47458 affirming, on appeal, the Decision 2 of the Regional Trial
Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-89-3905.
The Antecedents
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known
as the Xavierville Estate Subdivision, with an area of 42 hectares. XEI caused the
subdivision of the property into residential lots, which was then offered for sale to
individual lot buyers.3
On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and
The Overseas Bank of Manila (OBM), as vendee, executed a "Deed of Sale of Real Estate"
over some residential lots in the subdivision, including Lot 1, Block 2, with an area of
907.5 square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The
transaction was subject to the approval of the Board of Directors of OBM, and was
covered by real estate mortgages in favor of the Philippine National Bank as security for
its account amounting to P5,187,000.00, and the Central Bank of the Philippines as
security for advances amounting to P22,185,193.74.4 Nevertheless, XEI continued selling
the residential lots in the subdivision as agent of OBM.5
Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr.
Carlos Manalo, Jr. who was in business of drilling deep water wells and installing pumps
under the business name Hurricane Commercial, Inc. For P34,887.66, Manalo, Jr. installed
a water pump at Ramos residence at the corner of Aurora Boulevard and Katipunan
Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot
in the Xavierville subdivision, and offered as part of the downpayment the P34,887.66
Ramos owed him. XEI, through Ramos, agreed. In a letter dated February 8, 1972, Ramos
requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots
and the terms of payment could be fixed and incorporated in the conditional
2|OBLICON-Art.1347-1379

sale.6 Manalo, Jr. met with Ramos and informed him that he and his wife Perla had chosen
Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters.
In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the
lots. He also pegged the price of the lots at P200.00 per square meter, or a total
of P348,060.00, with a 20% down payment of the purchase price amounting
to P69,612.00 less the P34,887.66 owing from Ramos, payable on or before December 31,
1972; the corresponding Contract of Conditional Sale would then be signed on or before
the same date, but if the selling operations of XEI resumed after December 31, 1972, the
balance of the downpayment would fall due then, and the spouses would sign the
aforesaid contract within five (5) days from receipt of the notice of resumption of such
selling operations. It was also stated in the letter that, in the meantime, the spouses may
introduce improvements thereon subject to the rules and regulations imposed by XEI in
the subdivision. Perla Manalo conformed to the letter agreement.7
The spouses Manalo took possession of the property on September 2, 1972, constructed
a house thereon, and installed a fence around the perimeter of the lots.
In the meantime, many of the lot buyers refused to pay their monthly installments until
they were assured that they would be issued Torrens titles over the lots they had
purchased.8 The spouses Manalo were notified of the resumption of the selling operations
of XEI.9 However, they did not pay the balance of the downpayment on the lots because
Ramos failed to prepare a contract of conditional sale and transmit the same to Manalo
for their signature. On August 14, 1973, Perla Manalo went to the XEI office and
requested that the payment of the amount representing the balance of the downpayment
be deferred, which, however, XEI rejected. On August 10, 1973, XEI furnished her with a
statement of their account as of July 31, 1973, showing that they had a balance
of P34,724.34 on the downpayment of the two lots after deducting the account of Ramos,
plus P3,819.6810 interest thereon from September 1, 1972 to July 31, 1973, and that the
interests on the unpaid balance of the purchase price ofP278,448.00 from September 1,
1972 to July 31, 1973 amounted to P30,629.28.11 The spouses were informed that they
were being billed for said unpaid interests.12
On January 25, 1974, the spouses Manalo received another statement of account from
XEI, inclusive of interests on the purchase price of the lots.13 In a letter dated April 6,
1974 to XEI, Manalo, Jr. stated they had not yet received the notice of resumption of Leis
selling operations, and that there had been no arrangement on the payment of interests;
hence, they should not be charged with interest on the balance of the downpayment on
the property.14 Further, they demanded that a deed of conditional sale over the two lots
be transmitted to them for their signatures. However, XEI ignored the demands.
Consequently, the spouses refused to pay the balance of the downpayment of the
purchase price.15
Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his
house. In a letter dated June 17, 1976, XEI informed Manalo, Jr. that business signs were
not allowed along the sidewalk. It demanded that he remove the same, on the ground,
among others, that the sidewalk was not part of the land which he had purchased on
installment basis from XEI.16 Manalo, Jr. did not respond. XEI reiterated its demand on
September 15, 1977.17
Subsequently, XEI turned over its selling operations to OBM, including the receivables for
lots already contracted and those yet to be sold.18 On December 8, 1977, OBM warned
Manalo, Jr., that "putting up of a business sign is specifically prohibited by their contract
of conditional sale" and that his failure to comply with its demand would impel it to avail
of the remedies as provided in their contract of conditional sale.19
Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of
Title (TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in
favor of the OBM.20 The lien in favor of the Central Bank of the Philippines was annotated
at the dorsal portion of said title, which was later cancelled on August 4, 1980. 21
Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from
OBM. CBM wrote Edilberto Ng, the president of Xavierville Homeowners Association that,
as of January 31, 1983, Manalo, Jr. was one of the lot buyers in the subdivision. 22 CBM
reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in the
subdivision.23
3|OBLICON-Art.1347-1379

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going
construction on the property since it (CBM) was the owner of the lot and she had no
permission for such construction.24 She agreed to have a conference meeting with CBM
officers where she informed them that her husband had a contract with OBM, through
XEI, to purchase the property. When asked to prove her claim, she promised to send the
documents to CBM. However, she failed to do so.25 On September 5, 1986, CBM reiterated
its demand that it be furnished with the documents promised,26 but Perla Manalo did not
respond.
On July 27, 1987, CBM filed a complaint27 for unlawful detainer against the spouses with
the Metropolitan Trial Court of Quezon City. The case was docketed as Civil Case No.
51618. CBM claimed that the spouses had been unlawfully occupying the property
without its consent and that despite its demands, they refused to vacate the property.
The latter alleged that they, as vendors, and XEI, as vendee, had a contract of sale over
the lots which had not yet been rescinded.28
While the case was pending, the spouses Manalo wrote CBM to offer an amicable
settlement, promising to abide by the purchase price of the property (P313,172.34), per
agreement with XEI, through Ramos. However, on July 28, 1988, CBM wrote the spouses,
through counsel, proposing that the price of P1,500.00 per square meter of the property
was a reasonable starting point for negotiation of the settlement.29 The spouses rejected
the counter proposal,30 emphasizing that they would abide by their original agreement
with XEI. CBM moved to withdraw its complaint31 because of the issues raised.32
In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM
filed its complaint against the spouses Manalo, the latter filed a complaint for specific
performance and damages against the bank before the Regional Trial Court (RTC) of
Quezon City on October 31, 1989.
The plaintiffs alleged therein that they had always been ready, able and willing to pay the
installments on the lots sold to them by the defendants remote predecessor-in-interest,
as might be or stipulated in the contract of sale, but no contract was forthcoming; they
constructed their house worth P2,000,000.00 on the property in good faith; Manalo, Jr.,
informed the defendant, through its counsel, on October 15, 1988 that he would abide by
the terms and conditions of his original agreement with the defendants predecessor-ininterest; during the hearing of the ejectment case on October 16, 1988, they offered to
pay P313,172.34 representing the balance on the purchase price of said lots; such tender
of payment was rejected, so that the subject lots could be sold at considerably higher
prices to third parties.
Plaintiffs further alleged that upon payment of the P313,172.34, they were entitled to the
execution and delivery of a Deed of Absolute Sale covering the subject lots, sufficient in
form and substance to transfer title thereto free and clear of any and all liens and
encumbrances of whatever kind and nature.33 The plaintiffs prayed that, after due
hearing, judgment be rendered in their favor, to wit:
WHEREFORE, it is respectfully prayed that after due hearing:
(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale
over subject lots in favor of the plaintiffs after payment of the sum of P313,172.34,
sufficient in form and substance to transfer to them titles thereto free and clear of
any and all liens and encumbrances of whatever kind or nature;
(b) The defendant should be held liable for moral and exemplary damages in the
amounts of P300,000.00 and P30,000.00, respectively, for not promptly executing
and delivering to plaintiff the necessary Contract of Sale, notwithstanding repeated
demands therefor and for having been constrained to engage the services of
undersigned counsel for which they agreed to pay attorneys fees in the sum
of P50,000.00 to enforce their rights in the premises and appearance fee
of P500.00;
(c) And for such other and further relief as may be just and equitable in the
premises.34
In its Answer to the complaint, the defendant interposed the following affirmative
defenses: (a) plaintiffs had no cause of action against it because the August 22, 1972
letter agreement between XEI and the plaintiffs was not binding on it; and (b) "it had no
4|OBLICON-Art.1347-1379

record of any contract to sell executed by it or its predecessor, or of any statement of

accounts from its predecessors, or records of payments of the plaintiffs or of any
documents which entitled them to the possession of the lots."35 The defendant, likewise,
interposed counterclaims for damages and attorneys fees and prayed for the eviction of
the plaintiffs from the property.36
Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an
amicable settlement of the case by paying P942,648.70, representing the balance of the
purchase price of the two lots based on the current market value.37 However, the
defendant rejected the same and insisted that for the smaller lot, they payP4,500,000.00,
the current market value of the property.38 The defendant insisted that it owned the
property since there was no contract or agreement between it and the plaintiffs relative
thereto.
During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional
Sale executed between XEI and Alberto Soller;39 Alfredo Aguila,40 and Dra. Elena SantosRoque41 to prove that XEI continued selling residential lots in the subdivision as agent of
OBM after the latter had acquired the said lots.
For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI
proposed to sell the two lots subject to two suspensive conditions: the payment of the
balance of the downpayment of the property, and the execution of the corresponding
contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to
execute the corresponding contract of conditional sale and forfeited the P34,877.66
downpayment for the two lots, but did not notify them of said forfeiture. 42 It alleged that
OBM considered the lots unsold because the titles thereto bore no annotation that they
had been sold under a contract of conditional sale, and the plaintiffs were not notified of
XEIs resumption of its selling operations.
On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the
defendant. The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant
(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1
and 2, Block 2 of the Xavierville Estate Subdivision after payment of the sum
of P942,978.70 sufficient in form and substance to transfer to them titles thereto
free from any and all liens and encumbrances of whatever kind and nature.
(b) Ordering the defendant to pay moral and exemplary damages in the amount
of P150,000.00; and
(c) To pay attorneys fees in the sum of P50,000.00 and to pay the costs.
SO ORDERED.43
The trial court ruled that under the August 22, 1972 letter agreement of XEI and the
plaintiffs, the parties had a "complete contract to sell" over the lots, and that they had
already partially consummated the same. It declared that the failure of the defendant to
notify the plaintiffs of the resumption of its selling operations and to execute a deed of
conditional sale did not prevent the defendants obligation to convey titles to the lots
from acquiring binding effect. Consequently, the plaintiffs had a cause of action to compel
the defendant to execute a deed of sale over the lots in their favor.
Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a)
not concluding that the letter of XEI to the spouses Manalo, was at most a mere contract
to sell subject to suspensive conditions, i.e., the payment of the balance of the
downpayment on the property and the execution of a deed of conditional sale (which
were not complied with); and (b) in awarding moral and exemplary damages to the
spouses Manalo despite the absence of testimony providing facts to justify such awards. 44
On September 30, 2002, the CA rendered a decision affirming that of the RTC with
modification. The fallo reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure
"P942,978.70" appearing [in] par. (a) of the dispositive portion thereof is changed to
5|OBLICON-Art.1347-1379

"P313,172.34 plus interest thereon at the rate of 12% per annum from September 1,
1972 until fully paid" and (b) the award of moral and exemplary damages and attorneys
fees in favor of plaintiffs-appellees is DELETED.
SO ORDERED.45
The appellate court sustained the ruling of the RTC that the appellant and the appellees
had executed a Contract to Sell over the two lots but declared that the balance of the
purchase price of the property amounting toP278,448.00 was payable in fixed amounts,
inclusive of pre-computed interests, from delivery of the possession of the property to the
appellees on a monthly basis for 120 months, based on the deeds of conditional sale
executed by XEI in favor of other lot buyers.46 The CA also declared that, while XEI must
have resumed its selling operations before the end of 1972 and the downpayment on the
property remained unpaid as of December 31, 1972, absent a written notice of
cancellation of the contract to sell from the bank or notarial demand therefor as required
by Republic Act No. 6552, the spouses had, at the very least, a 60-day grace period from
January 1, 1973 within which to pay the same.
Boston Bank filed a motion for the reconsideration of the decision alleging that there was
no perfected contract to sell the two lots, as there was no agreement between XEI and
the respondents on the manner of payment as well as the other terms and conditions of
the sale. It further averred that its claim for recovery of possession of the aforesaid lots in
its Memorandum dated February 28, 1994 filed before the trial court constituted a judicial
demand for rescission that satisfied the requirements of the New Civil Code. However, the
appellate court denied the motion.
Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the
CA rulings. It maintains that, as held by the CA, the records do not reflect any schedule of
payment of the 80% balance of the purchase price, or P278,448.00. Petitioner insists that
unless the parties had agreed on the manner of payment of the principal amount,
including the other terms and conditions of the contract, there would be no existing
contract of sale or contract to sell.47 Petitioner avers that the letter agreement to
respondent spouses dated August 22, 1972 merely confirmed their reservation for the
purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the
price of P200.00 per square meter (or P348,060.00), the amount of the downpayment
thereon and the application of the P34,887.00 due from Ramos as part of such
downpayment.
Petitioner asserts that there is no factual basis for the CA ruling that the terms and
conditions relating to the payment of the balance of the purchase price of the property
(as agreed upon by XEI and other lot buyers in the same subdivision) were also applicable
to the contract entered into between the petitioner and the Respondents. It insists that
such a ruling is contrary to law, as it is tantamount to compelling the parties to agree to
something that was not even discussed, thus, violating their freedom to contract.
Besides, the situation of the respondents cannot be equated with those of the other lot
buyers, as, for one thing, the respondents made a partial payment on the downpayment
for the two lots even before the execution of any contract of conditional sale.
Petitioner posits that, even on the assumption that there was a perfected contract to sell
between the parties, nevertheless, it cannot be compelled to convey the property to the
respondents because the latter failed to pay the balance of the downpayment of the
property, as well as the balance of 80% of the purchase price, thus resulting in the
extinction of its obligation to convey title to the lots to the Respondents.
Another egregious error of the CA, petitioner avers, is the application of Republic Act No.
6552. It insists that such law applies only to a perfected agreement or perfected contract
to sell, not in this case where the downpayment on the purchase price of the property
was not completely paid, and no installment payments were made by the buyers.
Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the
respondents of cancellation or rescission of the contract to sell, or notarial demand
therefor. Petitioner insists that its August 5, 1986 letter requiring respondents to vacate
the property and its complaint for ejectment in Civil Case No. 51618 filed in the
Metropolitan Trial Court amounted to the requisite demand for a rescission of the contract
to sell. Moreover, the action of the respondents below was barred by laches because
despite demands, they failed to pay the balance of the purchase price of the lots (let
alone the downpayment) for a considerable number of years.
6|OBLICON-Art.1347-1379

For their part, respondents assert that as long as there is a meeting of the minds of the
parties to a contract of sale as to the price, the contract is valid despite the parties
failure to agree on the manner of payment. In such a situation, the balance of the
purchase price would be payable on demand, conformably to Article 1169 of the New Civil
Code. They insist that the law does not require a party to agree on the manner of
payment of the purchase price as a prerequisite to a valid contract to sell. The
respondents cite the ruling of this Court in Buenaventura v. Court of Appeals48 to support
their submission.
They argue that even if the manner and timeline for the payment of the balance of the
purchase price of the property is an essential requisite of a contract to sell, nevertheless,
as shown by their letter agreement of August 22, 1972 with the OBM, through XEI and the
other letters to them, an agreement was reached as to the manner of payment of the
balance of the purchase price. They point out that such letters referred to the terms of
the terms of the deeds of conditional sale executed by XEI in favor of the other lot buyers
in the subdivision, which contained uniform terms of 120 equal monthly installments
(excluding the downpayment, but inclusive of pre-computed interests). The respondents
assert that XEI was a real estate broker and knew that the contracts involving residential
lots in the subdivision contained uniform terms as to the manner and timeline of the
payment of the purchase price of said lots.
Respondents further posit that the terms and conditions to be incorporated in the
"corresponding contract of conditional sale" to be executed by the parties would be the
same as those contained in the contracts of conditional sale executed by lot buyers in the
subdivision. After all, they maintain, the contents of the corresponding contract of
conditional sale referred to in the August 22, 1972 letter agreement envisaged those
contained in the contracts of conditional sale that XEI and other lot buyers executed.
Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L. Co. 49
The respondents aver that the issues raised by the petitioner are factual, inappropriate in
a petition for review on certiorari under Rule 45 of the Rules of Court. They assert that
petitioner adopted a theory in litigating the case in the trial court, but changed the same
on appeal before the CA, and again in this Court. They argue that the petitioner is
estopped from adopting a new theory contrary to those it had adopted in the trial and
appellate courts. Moreover, the existence of a contract of conditional sale was admitted in
the letters of XEI and OBM. They aver that they became owners of the lots upon delivery
to them by XEI.
The issues for resolution are the following: (1) whether the factual issues raised by the
petitioner are proper; (2) whether petitioner or its predecessors-in-interest, the XEI or the
OBM, as seller, and the respondents, as buyers, forged a perfect contract to sell over the
property; (3) whether petitioner is estopped from contending that no such contract was
forged by the parties; and (4) whether respondents has a cause of action against the
petitioner for specific performance.
The rule is that before this Court, only legal issues may be raised in a petition for review
on certiorari. The reason is that this Court is not a trier of facts, and is not to review and
calibrate the evidence on record. Moreover, the findings of facts of the trial court, as
affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case
falls under any of the following exceptions:
(1) when the conclusion is a finding grounded entirely on speculations, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible;
(3) where 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; (6) when the Court
of Appeals, in making its findings went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings are
contrary to those of the trial court; (8) when the findings of fact are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not disputed by the
respondents; and (10) when the findings of fact of the Court of Appeals are premised on
the supposed absence of evidence and contradicted by the evidence on record. 50
We have reviewed the records and we find that, indeed, the ruling of the appellate court
dismissing petitioners appeal is contrary to law and is not supported by evidence. A
careful examination of the factual backdrop of the case, as well as the antecedental
proceedings constrains us to hold that petitioner is not barred from asserting that XEI or
7|OBLICON-Art.1347-1379

OBM, on one hand, and the respondents, on the other, failed to forge a perfected contract
to sell the subject lots.
It must be stressed that the Court may consider an issue not raised during the trial when
there is plain error.51Although a factual issue was not raised in the trial court, such issue
may still be considered and resolved by the Court in the interest of substantial justice, if it
finds that to do so is necessary to arrive at a just decision,52 or when an issue is closely
related to an issue raised in the trial court and the Court of Appeals and is necessary for a
just and complete resolution of the case.53 When the trial court decides a case in favor of
a party on certain grounds, the Court may base its decision upon some other points,
which the trial court or appellate court ignored or erroneously decided in favor of a
party.54
In this case, the issue of whether XEI had agreed to allow the respondents to pay the
purchase price of the property was raised by the parties. The trial court ruled that the
parties had perfected a contract to sell, as against petitioners claim that no such
contract existed. However, in resolving the issue of whether the petitioner was obliged to
sell the property to the respondents, while the CA declared that XEI or OBM and the
respondents failed to agree on the schedule of payment of the balance of the purchase
price of the property, it ruled that XEI and the respondents had forged a contract to sell;
hence, petitioner is entitled to ventilate the issue before this Court.
We agree with petitioners contention that, for a perfected contract of sale or contract to
sell to exist in law, there must be an agreement of the parties, not only on the price of the
property sold, but also on the manner the price is to be paid by the vendee.
Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or
conditional, one of the contracting parties obliges himself to transfer the ownership of
and deliver a determinate thing, and the other to pay therefor a price certain in money or
its equivalent. 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 the price. From the averment
of perfection, 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.55 On the other hand, when the contract of sale or
to sell is not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.56
A definite agreement as to the price is an essential element of a binding agreement to
sell personal or real property because it seriously affects the rights and obligations of the
parties. Price is an essential element in the formation of a binding and enforceable
contract of sale. The fixing of the price can never be left to the decision of one of the
contracting parties. But a price fixed by one of the contracting parties, if accepted by the
other, gives rise to a perfected sale.57
It is not enough for the parties to agree on the price of the property. The parties must also
agree on the manner of payment of the price of the property to give rise to a binding and
enforceable contract of sale or contract to sell. This is so because the agreement as to
the manner of payment goes into the price, such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price.58
In a contract to sell property by installments, it is not enough that the parties agree on
the price as well as the amount of downpayment. The parties must, likewise, agree on the
manner of payment of the balance of the purchase price and on the other terms and
conditions relative to the sale. Even if the buyer makes a downpayment or portion
thereof, such payment cannot be considered as sufficient proof of the perfection of any
purchase and sale between the parties. Indeed, this Court ruled in Velasco v. Court of
Appeals59 that:
It is not difficult to glean from the aforequoted averments that the petitioners themselves
admit that they and the respondent still had to meet and agree on how and when the
down-payment and the installment payments were to be paid. Such being the situation, it
cannot, therefore, be said that a definite and firm sales agreement between the parties
had been perfected over the lot in question. Indeed, this Court has already ruled before
that a definite agreement on the manner of payment of the purchase price is an essential
element in the formation of a binding and enforceable contract of sale. The fact,
therefore, that the petitioners delivered to the respondent the sum ofP10,000.00 as part
of the downpayment that they had to pay cannot be considered as sufficient proof of the
8|OBLICON-Art.1347-1379

perfection of any purchase and sale agreement between the parties herein under article
1482 of the New Civil Code, as the petitioners themselves admit that some essential
matter the terms of payment still had to be mutually covenanted.60
We agree with the contention of the petitioner that, as held by the CA, there is no
showing, in the records, of the schedule of payment of the balance of the purchase price
on the property amounting to P278,448.00. We have meticulously reviewed the records,
including Ramos February 8, 1972 and August 22, 1972 letters to respondents,61 and find
that said parties confined themselves to agreeing on the price of the property
(P348,060.00), the 20% downpayment of the purchase price (P69,612.00), and credited
respondents for theP34,887.00 owing from Ramos as part of the 20% downpayment. The
timeline for the payment of the balance of the downpayment (P34,724.34) was also
agreed upon, that is, on or before XEI resumed its selling operations, on or before
December 31, 1972, or within five (5) days from written notice of such resumption of
selling operations. The parties had also agreed to incorporate all the terms and conditions
relating to the sale, inclusive of the terms of payment of the balance of the purchase
price and the other substantial terms and conditions in the "corresponding contract of
conditional sale," to be later signed by the parties, simultaneously with respondents
settlement of the balance of the downpayment.
The February 8, 1972 letter of XEI reads:
Mr. Carlos T. Manalo, Jr.
Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City
Dear Mr. Manalo:
We agree with your verbal offer to exchange the proceeds of your contract with us to
form as a down payment for a lot in our Xavierville Estate Subdivision.
Please let us know your choice lot so that we can fix the price and terms of payment in
our conditional sale.
Sincerely yours,
XAVIERVILLE ESTATE, INC.
(Signed)
EMERITO B. RAMOS, JR.
President
CONFORME:
(Signed)
CARLOS T. MANALO, JR.
Hurricane Rotary Well Drilling62
The August 22, 1972 letter agreement of XEI and the respondents reads:
Mrs. Perla P. Manalo
1548 Rizal Avenue Extensionbr>Caloocan City
Dear Mrs. Manalo:
This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidationsubdivision plan as amended, consisting of 1,740.3 square meters more or less, at the
price of P200.00 per square meter or a total price of P348,060.00.
It is agreed that as soon as we resume selling operations, you must pay a down payment
of 20% of the purchase price of the said lots and sign the corresponding Contract of
Conditional Sale, on or before December 31, 1972, provided, however, that if we resume
selling after December 31, 1972, then you must pay the aforementioned down payment
and sign the aforesaid contract within five (5) days from your receipt of our notice of
resumption of selling operations.

9|OBLICON-Art.1347-1379

In the meanwhile, you may introduce such improvements on the said lots as you may
desire, subject to the rules and regulations of the subdivision.
If the above terms and conditions are acceptable to you, please signify your conformity
by signing on the space herein below provided.
Thank you.
Very truly yours,
XAVIERVILLE ESTATE, INC. CONFORME:
By:
(Signed)
EMERITO B. RAMOS, JR.

(Signed)
PERLA P. MANALO

President Buyer63
Based on these two letters, the determination of the terms of payment of
the P278,448.00 had yet to be agreed upon on or before December 31, 1972, or even
afterwards, when the parties sign the corresponding contract of conditional sale.
Jurisprudence is that if a material element of a contemplated contract is left for future
negotiations, the same is too indefinite to be enforceable.64 And when an essential
element of a contract is reserved for future agreement of the parties, no legal obligation
arises until such future agreement is concluded.65
So long as an essential element entering into the proposed obligation of either of the
parties remains to be determined by an agreement which they are to make, the contract
is incomplete and unenforceable.66 The reason is that such a contract is lacking in the
necessary qualities of definiteness, certainty and mutuality.67
There is no evidence on record to prove that XEI or OBM and the respondents had agreed,
after December 31, 1972, on the terms of payment of the balance of the purchase price
of the property and the other substantial terms and conditions relative to the sale.
Indeed, the parties are in agreement that there had been no contract of conditional sale
ever executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees. 68
The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case
because the issue of the manner of payment of the purchase price of the property was
not raised therein.
We reject the submission of respondents that they and Ramos had intended to
incorporate the terms of payment contained in the three contracts of conditional sale
executed by XEI and other lot buyers in the "corresponding contract of conditional sale,"
which would later be signed by them.69 We have meticulously reviewed the respondents
complaint and find no such allegation therein.70 Indeed, respondents merely alleged in
their complaint that they were bound to pay the balance of the purchase price of the
property "in installments." When respondent Manalo, Jr. testified, he was never asked, on
direct examination or even on cross-examination, whether the terms of payment of the
balance of the purchase price of the lots under the contracts of conditional sale executed
by XEI and other lot buyers would form part of the "corresponding contract of conditional
sale" to be signed by them simultaneously with the payment of the balance of the
downpayment on the purchase price.
We note that, in its letter to the respondents dated June 17, 1976, or almost three years
from the execution by the parties of their August 22, 1972 letter agreement, XEI stated,
in part, that respondents had purchased the property "on installment basis."71 However,
in the said letter, XEI failed to state a specific amount for each installment, and whether
such payments were to be made monthly, semi-annually, or annually. Also, respondents,
as plaintiffs below, failed to adduce a shred of evidence to prove that they were obliged
to pay the P278,448.00 monthly, semi-annually or annually. The allegation that the
payment of the P278,448.00 was to be paid in installments is, thus, vague and indefinite.
Case law is that, for a contract to be enforceable, its terms must be certain and explicit,
not vague or indefinite.72
10 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

There is no factual and legal basis for the CA ruling that, based on the terms of payment
of the balance of the purchase price of the lots under the contracts of conditional sale
executed by XEI and the other lot buyers, respondents were obliged to pay
the P278,448.00 with pre-computed interest of 12% per annum in 120-month
installments. As gleaned from the ruling of the appellate court, it failed to justify its use of
the terms of payment under the three "contracts of conditional sale" as basis for such
ruling, to wit:
On the other hand, the records do not disclose the schedule of payment of the purchase
price, net of the downpayment. Considering, however, the Contracts of Conditional Sale
(Exhs. "N," "O" and "P") entered into by XEI with other lot buyers, it would appear that the
subdivision lots sold by XEI, under contracts to sell, were payable in 120 equal monthly
installments (exclusive of the downpayment but including pre-computed interests)
commencing on delivery of the lot to the buyer.73
By its ruling, the CA unilaterally supplied an essential element to the letter agreement of
XEI and the Respondents. Courts should not undertake to make a contract for the parties,
nor can it enforce one, the terms of which are in doubt.74 Indeed, the Court emphasized in
Chua v. Court of Appeals75 that it is not the province of a court to alter a contract by
construction or to make a new contract for the parties; its duty is confined to the
interpretation of the one which they have made for themselves, without regard to its
wisdom or folly, as the court cannot supply material stipulations or read into contract
words which it does not contain.
Respondents, as plaintiffs below, failed to allege in their complaint that the terms of
payment of the P278,448.00 to be incorporated in the "corresponding contract of
conditional sale" were those contained in the contracts of conditional sale executed by
XEI and Soller, Aguila and Roque.76 They likewise failed to prove such allegation in this
Court.
The bare fact that other lot buyers were allowed to pay the balance of the purchase price
of lots purchased by them in 120 or 180 monthly installments does not constitute
evidence that XEI also agreed to give the respondents the same mode and timeline of
payment of the P278,448.00.
Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain
thing at one time is not admissible to prove that he did the same or similar thing at
another time, although such evidence may be received to prove habit, usage, pattern of
conduct or the intent of the parties.
Similar acts as evidence. Evidence that one did or did not do a certain thing at one time
is not admissible to prove that he did or did not do the same or a similar thing at another
time; but it may be received to prove a specific intent or knowledge, identity, plan,
system, scheme, habit, custom or usage, and the like.
However, respondents failed to allege and prove, in the trial court, that, as a matter of
business usage, habit or pattern of conduct, XEI granted all lot buyers the right to pay the
balance of the purchase price in installments of 120 months of fixed amounts with precomputed interests, and that XEI and the respondents had intended to adopt such terms
of payment relative to the sale of the two lots in question. Indeed, respondents adduced
in evidence the three contracts of conditional sale executed by XEI and other lot buyers
merely to prove that XEI continued to sell lots in the subdivision as sales agent of OBM
after it acquired said lots, not to prove usage, habit or pattern of conduct on the part of
XEI to require all lot buyers in the subdivision to pay the balance of the purchase price of
said lots in 120 months. It further failed to prive that the trial court admitted the said
deeds77 as part of the testimony of respondent Manalo, Jr.78
Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts
must contend with the caveat that, before they admit evidence of usage, of habit or
pattern of conduct, the offering party must establish the degree of specificity and
frequency of uniform response that ensures more than a mere tendency to act in a given
manner but rather, conduct that is semi-automatic in nature. The offering party must
allege and prove specific, repetitive conduct that might constitute evidence of habit. The
examples offered in evidence to prove habit, or pattern of evidence must be numerous
enough to base on inference of systematic conduct. Mere similarity of contracts does not
present the kind of sufficiently similar circumstances to outweigh the danger of prejudice
and confusion.
11 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

In determining whether the examples are numerous enough, and sufficiently regular, the
key criteria are adequacy of sampling and uniformity of response. After all, habit means a
course of behavior of a person regularly represented in like circumstances. 79 It is only
when examples offered to establish pattern of conduct or habit are numerous enough to
lose an inference of systematic conduct that examples are admissible. The key criteria
are adequacy of sampling and uniformity of response or ratio of reaction to situations. 80
There are cases where the course of dealings to be followed is defined by the usage of a
particular trade or market or profession. As expostulated by Justice Benjamin Cardozo of
the United States Supreme Court: "Life casts the moulds of conduct, which will someday
become fixed as law. Law preserves the moulds which have taken form and shape from
life."81 Usage furnishes a standard for the measurement of many of the rights and acts of
men.82 It is also well-settled that parties who contract on a subject matter concerning
which known usage prevail, incorporate such usage by implication into their agreement, if
nothing is said to be contrary.83
However, the respondents inexplicably failed to adduce sufficient competent evidence to
prove usage, habit or pattern of conduct of XEI to justify the use of the terms of payment
in the contracts of the other lot buyers, and thus grant respondents the right to pay
the P278,448.00 in 120 months, presumably because of respondents belief that the
manner of payment of the said amount is not an essential element of a contract to sell.
There is no evidence that XEI or OBM and all the lot buyers in the subdivision, including
lot buyers who pay part of the downpayment of the property purchased by them in the
form of service, had executed contracts of conditional sale containing uniform terms and
conditions. Moreover, under the terms of the contracts of conditional sale executed by XEI
and three lot buyers in the subdivision, XEI agreed to grant 120 months within which to
pay the balance of the purchase price to two of them, but granted one 180 months to do
so.84 There is no evidence on record that XEI granted the same right to buyers of two or
more lots.
Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may
be considered certain if it be so with reference to another thing certain. It is sufficient if it
can be determined by the stipulations of the contract made by the parties thereto 85 or by
reference to an agreement incorporated in the contract of sale or contract to sell or if it is
capable of being ascertained with certainty in said contract;86 or if the contract contains
express or implied provisions by which it may be rendered certain;87 or if it provides some
method or criterion by which it can be definitely ascertained.88 As this Court held in
Villaraza v. Court of Appeals,89 the price is considered certain if, by its terms, the contract
furnishes a basis or measure for ascertaining the amount agreed upon.
We have carefully reviewed the August 22, 1972 letter agreement of the parties and find
no direct or implied reference to the manner and schedule of payment of the balance of
the purchase price of the lots covered by the deeds of conditional sale executed by XEI
and that of the other lot buyers90 as basis for or mode of determination of the schedule of
the payment by the respondents of the P278,448.00.
The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light
Company91 is not applicable in this case because the basic price fixed in the contract
was P9.45 per long ton, but it was stipulated that the price was subject to modification "in
proportion to variations in calories and ash content, and not otherwise." In this case, the
parties did not fix in their letters-agreement, any method or mode of determining the
terms of payment of the balance of the purchase price of the property amounting
to P278,448.00.
It bears stressing that the respondents failed and refused to pay the balance of the
downpayment and of the purchase price of the property amounting to P278,448.00
despite notice to them of the resumption by XEI of its selling operations. The respondents
enjoyed possession of the property without paying a centavo. On the other hand, XEI and
OBM failed and refused to transmit a contract of conditional sale to the Respondents. The
respondents could have at least consigned the balance of the downpayment after notice
of the resumption of the selling operations of XEI and filed an action to compel XEI or
OBM to transmit to them the said contract; however, they failed to do so.
As a consequence, respondents and XEI (or OBM for that matter) failed to forge a
perfected contract to sell the two lots; hence, respondents have no cause of action for
specific performance against petitioner. Republic Act No. 6552 applies only to a perfected
contract to sell and not to a contract with no binding and enforceable effect.
12 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. CV No. 47458 is REVERSED and SET ASIDE. The Regional Trial Court of
Quezon City, Branch 98 is ordered to dismiss the complaint. Costs against the
Respondents.
SO ORDERED.
G.R. No. 154413 August 31, 2005
SPS. ALFREDO R. EDRADA and ROSELLA L. EDRADA, Petitioners,
vs.
CARMENCITA RAMOS, SPS. EDUARDO RAMOS, Respondents.
DECISION
Tinga, J.:
In this Petition1 under Rule 45, petitioner Spouses Alfredo and Rosella Edrada (petitioners)
seek the reversal of the Former Second Division of the Court of
Appeals Decision2 and Resolution3 in CA-G.R. CV No. 66375, which affirmed
the Decision of Regional Trial Court (RTC) of Antipolo City, Branch 71,4 in Civil Case No. 964057, and denied the Motion for Reconsideration5 therein.
Respondent spouses Eduardo and Carmencita Ramos (respondents) are the owners of two
(2) fishing vessels, the "Lady Lalaine" and the "Lady Theresa." On 1 April 1996,
respondents and petitioners executed an untitled handwritten document which lies at the
center of the present controversy. Its full text is reproduced below:
1st April 1996
This is to acknowledge that Fishing Vessels Lady Lalaine and Lady Theresa owned by
Eduardo O. Ramos are now in my possession and received in good running and
serviceable order. As such, the vessels are now my responsibility.
Documents pertaining to the sale and agreement of payments between me and the
owner of the vessel to follow. The agreed price for the vessel is Nine Hundred Thousand
Only (P900,000.00).
(SGD.) (SGD.)
EDUARDO O. RAMOS ALFREDO R. EDRADA
(Seller) (Purchaser)
CONFORME: CONFORME:
(SGD.) (SGD.)
CARMENCITA RAMOS ROSIE ENDRADA6
Upon the signing of the document, petitioners delivered to respondents four (4)
postdated Far East Bank and Trust Company (FEBTC) checks payable to cash drawn by
petitioner Rosella Edrada, in various amounts totaling One Hundred Forty Thousand Pesos
(P140,000.00). The first three (3) checks were honored upon presentment to the drawee
bank while the fourth check for One Hundred Thousand Pesos (P100,000.00) was
dishonored because of a "stop payment" order.
On 3 June 1996, respondents filed an action against petitioners for specific performance
with damages before the RTC, praying that petitioners be obliged to execute the
necessary deed of sale of the two fishing vessels and to pay the balance of the purchase
price. In their Complaint,7 respondents alleged that petitioners contracted to buy the two
fishing vessels for the agreed purchase price of Nine Hundred Thousand Pesos
(P900,000.00), as evidenced by the above-quoted document, which according to them
evinced a contract to
buy. However, despite delivery of said vessels and repeated oral demands, petitioners
failed to pay the balance, so respondents further averred.
13 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Belying the allegations of respondents, in their Answer with Counterclaim,8 petitioners

averred that the document sued upon merely embodies an agreement brought about by
the loans they extended to respondents. According to petitioners, respondents allowed
them to manage or administer the fishing vessels as a business on the understanding
that should they find the business profitable, the vessels would be sold to them for Nine
Hundred Thousand Pesos (P900,000.00). But petitioners "decided to call it quits" after
spending a hefty sum for the repair and maintenance of the vessels which were already in
dilapidated condition.
After trial, the RTC rendered a Decision9 dated 22 February 1999, the dispositive portion
of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants and the latter are ordered to pay to the former the amount of Eight Hundred
Sixty Thousand Pesos (P860,000.00) with legal interests thereon from June 30, 1996 until
fully paid; the amount of P20,000.00 as attorneys fees and the cost of suit.
The counterclaim of the defendants for moral and exemplary damages and for attorneys
fees is dismissed for lack of merit.
SO ORDERED.10
The RTC treated the action as one for collection of a sum of money and for damages and
considered the document as a perfected contract of sale. On 19 April 1999, petitioners
filed a Motion for Reconsideration which the RTC denied in an Order11 dated 2 July 1999.
Both parties appealed the RTC Decision. However, finding no reversible error in the
appealed decision, the Court of Appeals, in its Decision,12 affirmed the same and
dismissed both appeals. Only petitioners elevated the controversy to this Court.
Petitioners raised the nature of the subject document as the primary legal issue. They
contend that there was no perfected contract of sale as distinguished from a contract to
sell. They likewise posed as sub-issues the purpose for which the checks were issued,
whether replacement of the crew was an act of ownership or administration, whether
petitioners failed to protest the dilapidated condition of the vessels, and whether the
instances when the vessels went out to sea proved that the vessels were not
seaworthy.13 It is also alleged in the petition that the true agreement as between the
parties was that of a loan.
Evidently, the petition hinges on the true nature of the document dated 1 April 1996.
Normally, the Court is bound by the factual findings of the lower courts, and accordingly,
should affirm the conclusion that the document in question was a perfected contract of
sale. However, we find that both the RTC and the Court of Appeals gravely
misapprehended the nature of the said document, and a reevaluation of the document is
in order.14 Even if such reevaluation would lead the court to examine issues not raised by
the parties, it should be remembered that the Court has authority to review matters even
if not assigned as errors in the appeal, if it is found that their consideration is necessary in
arriving at a just decision of the case.15
In doing so, we acknowledge that the contending parties offer vastly differing accounts as
to the true nature of the agreement. Still, we need not look beyond the document dated 1
April 1996 and the stipulations therein in order to ascertain what obligations, if any, have
been contracted by the party. The parol evidence rule forbids any addition to or
contradiction of the terms of a written agreement by testimony or other evidence
purporting to show that different terms were agreed upon by the parties, varying the
purport of the written
contract. Whatever is not found in the writing is understood to have been waived and
abandoned.16
We disagree with the RTC and the Court of Appeals that the document is a perfected
contract of sale. A contract of sale is defined as an agreement whereby one of the
contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefore a price certain in money or its
equivalent.17 It must evince the consent on the part of the seller to transfer and deliver
and on the part of the buyer to pay.18
14 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

An examination of the document reveals that there is no perfected contract of sale. The
agreement may confirm the receipt by respondents of the two vessels and their purchase
price. However, there is no equivocal agreement to transfer ownership of the vessel, but
a mere commitment that "documents pertaining to the sale and agreement of
payments[are] to follow." Evidently, the document or documents which would formalize
the transfer of ownership and contain the terms of payment of the purchase price, or the
period when such would become due and demandable, have yet to be executed. But no
such document was executed and no such terms were stipulated upon.
The fact that there is a stated total purchase price should not lead to the conclusion that
a contract of sale had been perfected. In numerous cases,19 the most recent of which
is Swedish Match, AB v. Court of Appeals,20 we held that before a valid and binding
contract of sale can exist, the manner of payment of the purchase price must first be
established, as such stands as essential to the validity of the sale. After all, such
agreement on the terms of payment is integral to the element of a price certain, such
that a disagreement on the manner of payment is tantamount to a failure to agree on the
price.
Assuming arguendo that the document evinces a perfected contract of sale, the absence
of definite terms of payment therein would preclude its enforcement by the respondents
through the instant Complaint. A requisite for the judicial enforcement of an obligation is
that the same is due and demandable. The absence of a stipulated period by which the
purchase price should be paid indicates that at the time of the filing of the complaint, the
obligation to pay was not yet due and demandable.
Respondents, during trial, did claim the existence of a period. Respondent Carmencita
Ramos, during cross-examination, claimed that the supposed balance shall be paid on 30
June 1996.21 But how do respondents explain why the Complaint was filed on 3 June
1996? Assuming that the 30 June 1996 period was duly agreed upon by the parties, the
filing of the Complaint was evidently premature, as no cause of action had accrued yet.
There could not have been any breach of obligation because on the date the action was
filed, the alleged maturity date for the payment of the balance had not yet arrived.
In order that respondents could have a valid cause of action, it is essential that there
must have been a stipulated period within which the payment would have become due
and demandable. If the parties themselves could not come into agreement, the courts
may be asked to fix the period of the obligation, under Article 1197 of the Civil
Code.22 The respondents did not avail of such relief prior to the filing of the
instant Complaint; thus, the action should fail owing to its obvious prematurity.
Returning to the true nature of the document, we neither could conclude that a "contract
to sell" had been established. 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 prospective buyer upon fulfillment of the condition agreed upon, that is,
full payment of the purchase price.23
A contract is perfected when there is concurrence of the wills of the contracting parties
with respect to the object and the cause of the contract. In this case, the agreement
merely acknowledges that a purchase price had been agreed on by the parties. There was
no mutual promise to buy on the part of petitioners and to sell on the part of respondents.
Again, the aforestated proviso in the agreement that documents pertaining to the sale
and agreement of payments between the parties will follow clearly manifests lack of
agreement between the parties as to the terms of the contract to sell, particularly the
object and cause of the contract.
The agreement in question does not create any obligatory force either for the transfer of
title of the vessels, or the rendition of payments as part of the purchase price. At most,
this agreement bares only their intention to enter into either a contract to sell or a
contract of sale.
Consequently, the courts below erred in ordering the enforcement of a contract of sale
that had yet to come into existence. Instead, the instant Complaint should be dismissed.
It prays for three reliefs arising from the enforcement of the document: execution by the
petitioners of the necessary deed of sale over the vessels, the payment of the balance of
the purchase price, and damages. The lower courts have already ruled that damages are
unavailing. Our finding that there is no perfected contract of sale precludes the finding of
15 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

any cause of action that would warrant the granting of the first two reliefs. No cause of
action arises until there is a breach or violation thereof by either party. 24 Considering that
the documents create no obligation to execute or even pursue a contract of sale, but only
manifest an intention to eventually contract one, we find no rights breached or violated
that would warrant any of the reliefs sought in the Complaint.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court
of Appeals areREVERSED and SET ASIDE. The case before the Regional Trial Court is
ordered dismissed. no pronouncement as to costs.
SO ORDERED.
G.R. Nos. 173090-91

September 7, 2011

UNION BANK OF THE PHILIPPINES, Petitioner,

vs.
SPOUSES RODOLFO T. TIU AND VICTORIA N. TIU, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari seeking to reverse the Joint Decision 1 of the
Court of Appeals dated February 21, 2006 in CA-G.R. CV No. 00190 and CA-G.R. SP No.
00253, as well as the Resolution2 dated June 1, 2006 denying the Motion for
Reconsideration.
The factual and procedural antecedents of this case are as follows:
On November 21, 1995, petitioner Union Bank of the Philippines (Union Bank) and
respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a
Credit Line Agreement (CLA) whereby Union Bank agreed to make available to the
spouses Tiu credit facilities in such amounts as may be approved. 3 From September 22,
1997 to March 26, 1998, the spouses Tiu took out various loans pursuant to this CLA in
the total amount of three million six hundred thirty-two thousand dollars
(US$3,632,000.00), as evidenced by promissory notes:
PN No.

Amount in
US$

Date
Granted

**OMITTE
D**
US$3,632,000
.004
On June 23, 1998, Union Bank advised the spouses Tiu through a letter5 that, in view of
the existing currency risks, the loans shall be redenominated to their equivalent
Philippine peso amount on July 15, 1998. On July 3, 1998, the spouses Tiu wrote to Union
Bank authorizing the latter to redenominate the loans at the rate of US$1=P41.406 with
interest of 19% for one year.7
On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring
Agreement.8 The Restructuring Agreement contains a clause wherein the spouses Tiu
confirmed their debt and waived any action on account thereof. To quote said clause:
1. Confirmation of Debt The BORROWER hereby confirms and accepts that as of
December 8, 1999, its outstanding principal indebtedness to the BANK under the
Agreement and the Notes amount to ONE HUNDRED FIFTY[-]FIVE MILLION THREE
HUNDRED SIXTY[-]FOUR THOUSAND EIGHT HUNDRED PESOS (PHP 155,364,800.00)
exclusive of interests, service and penalty charges (the "Indebtedness") and further
confirms the correctness, legality, collectability and enforceability of the Indebtedness.
The BORROWER unconditionally waives any action, demand or claim that they may
otherwise have to dispute the amount of the Indebtedness as of the date specified in this
Section, or the collectability and enforceability thereof. It is the understanding of the
parties that the BORROWERs acknowledgment, affirmation, and waiver herein are
material considerations for the BANKs agreeing to restructure the Indebtedness which
16 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

would have already become due and payable as of the above date under the terms of the
Agreement and the Notes.9
The restructured amount (P155,364,800.00) is the sum of the following figures:
(1) P150,364,800.00, which is the value of the US$3,632,000.00 loan as redenominated
under the above-mentioned exchange rate of US$1=P41.40; and (2) P5,000,000.00, an
additional loan given to the spouses Tiu to update their interest payments.10
Under the same Restructuring Agreement, the parties declared that the loan obligation to
be restructured (after deducting the dacion price of properties ceded by the Tiu spouses
and adding: [1] the taxes, registration fees and other expenses advanced by Union Bank
in registering the Deeds of Dation in Payment; and [2] other fees and charges incurred by
the Indebtedness) is one hundred four million six hundred sixty-eight thousand seven
hundred forty-one pesos (P104,668,741.00) (total restructured amount).11 The Deeds of
Dation in Payment referred to are the following:
1. Dation of the Labangon properties Deed executed by Juanita Tiu, the mother of
respondent Rodolfo Tiu, involving ten parcels of land with improvements located in
Labangon, Cebu City and with a total land area of 3,344 square meters, for the
amount of P25,130,000.00. The Deed states that these properties shall be leased to
the Tiu spouses at a monthly rate of P98,000.00 for a period of two years.12
2. Dation of the Mandaue property Deed executed by the spouses Tiu involving
one parcel of land with improvements located in A.S. Fortuna St., Mandaue City,
covered by TCT No. T-31604 and with a land area of 2,960 square meters, for the
amount of P36,080,000.00. The Deed states that said property shall be leased to
the Tiu spouses at a monthly rate of P150,000.00 for a period of two years.13
As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real
Estate Mortgage in favor of Union Bank over their "residential property inclusive of lot and
improvements" located at P. Burgos St., Mandaue City, covered by TCT No. T-11951 with
an area of 3,096 square meters.14
The spouses Tiu undertook to pay the total restructured amount (P104,668,741.00) via
three loan facilities (payment schemes).
The spouses Tiu claim to have made the following payments: (1) P15,000,000.00 on
August 3, 1999; and (2) another P13,197,546.79 as of May 8, 2001. Adding the amounts
paid under the Deeds of Dation in Payment, the spouses Tiu postulate that their
payments added up to P89,407,546.79.15
Asserting that the spouses Tiu failed to comply with the payment schemes set up in the
Restructuring Agreement, Union Bank initiated extrajudicial foreclosure proceedings on
the residential property of the spouses Tiu, covered by TCT No. T-11951. The property was
to be sold at public auction on July 18, 2002.
The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T.
Young and Rosenda T. Tiu, filed with the Regional Trial Court (RTC) of Mandaue City a
Complaint seeking to have the Extrajudicial Foreclosure declared null and void. The case
was docketed as Civil Case No. MAN-4363. 16 Named as defendants were Union Bank and
Sheriff IV Veronico C. Ouano (Sheriff Oano) of Branch 55, RTC, Mandaue City.
Complainants therein prayed for the following: (1) that the spouses Tiu be declared to
have fully paid their obligation to Union Bank; (2) that defendants be permanently
enjoined from proceeding with the auction sale; (3) that Union Bank be ordered to return
to the spouses Tiu their properties as listed in the Complaint; (4) that Union Bank be
ordered to pay the plaintiffs the sum of P10,000,000.00 as moral
damages, P2,000,000.00 as exemplary damages, P3,000,000.00 as attorneys fees
and P500,000.00 as expenses of litigation; and (5) a writ of preliminary injunction or
temporary restraining order be issued enjoining the public auction sale to be held on July
18, 2002.17
The spouses Tiu claim that from the beginning the loans were in pesos, not in dollars.
Their office clerk, Lilia Gutierrez, testified that the spouses Tiu merely received the peso
equivalent of their US$3,632,000.00 loan at the rate of US$1=P26.00. The spouses Tiu
further claim that they were merely forced to sign the Restructuring Agreement and take
up an additional loan of P5,000,000.00, the proceeds of which they never saw because
this amount was immediately applied by Union Bank to interest payments.18
17 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

The spouses Tiu allege that the foreclosure sale of the mortgaged properties was invalid,
as the loans have already been fully paid. They also allege that they are not the owners
of the improvements constructed on the lot because the real owners thereof are their copetitioners, Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T.
Tiu.19
The spouses Tiu further claim that prior to the signing of the Restructuring Agreement,
they entered into a Memorandum of Agreement with Union Bank whereby the former
deposited with the latter several certificates of shares of stock of various companies and
four certificates of title of various parcels of land located in Cebu. The spouses Tiu claim
that these properties have not been subjected to any lien in favor of Union Bank, yet the
latter continues to hold on to these properties and has not returned the same to the
former.20
On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily
and validly entered into by both parties. Presenting as evidence the Warranties embodied
in the Real Estate Mortgage, Union Bank contends that the foreclosure of the mortgage
on the residential property of the spouses Tiu was valid and that the improvements
thereon were absolutely owned by them. Union Bank denies receiving certificates of
shares of stock of various companies or the four certificates of title of various parcels of
land from the spouses Tiu. However, Union Bank also alleges that even if said certificates
were in its possession it is authorized under the Restructuring Agreement to retain any
and all properties of the debtor as security for the loan.21
The RTC issued a Temporary Restraining Order22 and, eventually, a Writ of Preliminary
Injunction23 preventing the sale of the residential property of the spouses Tiu. 24
On December 16, 2004, the RTC rendered its Decision25 in Civil Case No. MAN-4363 in
favor of Union Bank. The dispositive portion of the Decision read:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the
Complaint and lifting and setting aside the Writ of Preliminary Injunction. No
pronouncement as to damages, attorneys fees and costs of suit.26
In upholding the validity of the Restructuring Agreement, the RTC held that the spouses
Tiu failed to present any evidence to prove either fraud or intimidation or any other act
vitiating their consent to the same. The exact obligation of the spouses Tiu to Union Bank
is therefore P104,668,741.00, as agreed upon by the parties in the Restructuring
Agreement. As regards the contention of the spouses Tiu that they have fully paid their
indebtedness, the RTC noted that they could not present any detailed accounting as to
the total amount they have paid after the execution of the Restructuring Agreement.27
On January 4, 2005, Union Bank filed a Motion for Partial Reconsideration, 28 protesting the
finding in the body of the December 16, 2004 Decision that the residential house on Lot
No. 639 is not owned by the spouses Tiu and therefore should be excluded from the real
properties covered by the real estate mortgage. On January 6, 2005, the spouses Tiu filed
their own Motion for Partial Reconsideration and/or New Trial. 29 They alleged that the trial
court failed to rule on their fourth cause of action wherein they mentioned that they
turned over the following titles to Union Bank: TCT Nos. 30271, 116287 and 116288 and
OCT No. 0-3538. They also prayed for a partial new trial and for a declaration that they
have fully paid their obligation to Union Bank.30
On January 11, 2005, the spouses Tiu received from Sheriff Oano a Second Notice of
Extra-judicial Foreclosure Sale of Lot No. 639 to be held on February 3, 2005. To prevent
the same, the Tiu spouses filed with the Court of Appeals a Petition for Prohibition and
Injunction with Application for TRO/Writ of Preliminary Injunction.31 The petition was
docketed as CA-G.R. SP No. 00253. The Court of Appeals issued a Temporary Restraining
Order on January 27, 2005.32
On January 19, 2005, the RTC issued an Order denying Union Banks Motion for Partial
Reconsideration and the Tiu spouses Motion for Partial Reconsideration and/or New
Trial.33
Both the spouses Tiu and Union Bank appealed the case to the Court of Appeals.34 The
two appeals were given a single docket number, CA-G.R. CEB-CV No. 00190. Acting on a
motion filed by the spouses Tiu, the Court of Appeals consolidated CA-G.R. SP No. 00253
with CA-G.R. CEB-CV No. 00190.35
18 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

On April 19, 2005, the Court of Appeals issued a Resolution finding that there was no
need for the issuance of a Writ of Preliminary Injunction as the judgment of the lower
court has been stayed by the perfection of the appeal therefrom. 36
On May 9, 2005, Sheriff Oano proceeded to conduct the extrajudicial sale. Union Bank
submitted the lone bid ofP18,576,000.00.37 On June 14, 2005, Union Bank filed a motion
with the Court of Appeals praying that Sheriff Oano be ordered to issue a definite and
regular Certificate of Sale.38 On July 21, 2005, the Court of Appeals issued a Resolution
denying the Motion and suspending the auction sale at whatever stage, pending
resolution of the appeal and conditioned upon the filing of a bond in the amount
of P18,000,000.00 by the Tiu spouses.39 The Tiu spouses failed to file said bond.40
On February 21, 2006, the Court of Appeals rendered the assailed Joint Decision in CAG.R. CV No. 00190 and CA-G.R. SP No. 00253. The Court of Appeals dismissed the Petition
for Prohibition, CA-G.R. SP No. 00253, on the ground that the proper venue for the same is
with the RTC.41
On the other hand, the Court of Appeals ruled in favor of the spouses Tiu in CA-G.R. CV
No. 00190. The Court of Appeals held that the loan transactions were in pesos, since
there was supposedly no stipulation the loans will be paid in dollars and since no dollars
ever exchanged hands. Considering that the loans were in pesos from the beginning, the
Court of Appeals reasoned that there is no need to convert the same. By making it appear
that the loans were originally in dollars, Union Bank overstepped its rights as creditor,
and made unwarranted interpretations of the original loan agreement. According to the
Court of Appeals, the Restructuring Agreement, which purportedly attempts to create a
novation of the original loan, was not clearly authorized by the debtors and was not
supported by any cause or consideration. Since the Restructuring Agreement is void, the
original loan ofP94,432,000.00 (representing the amount received by the spouses Tiu of
US$3,632,000.00 using the US$1=P26.00 exchange rate) should subsist. The Court of
Appeals likewise invalidated (1) the P5,000,000.00 charge for interest in the Restructuring
Agreement, for having been unilaterally imposed by Union Bank; and (2) the lease of the
properties conveyed in dacion en pago, for being against public policy. 42
In sum, the Court of Appeals found Union Bank liable to the spouses Tiu in the amount
of P927,546.79. For convenient reference, we quote relevant portion of the Court of
Appeals Decision here:
To summarize the obligation of the Tiu spouses, they owe Union Bank P94,432,000.00.
The Tiu spouses had already paid Union Bank the amount of P89,407,546.79. On the
other hand, Union Bank must return to the Tiu spouses the illegally collected rentals in
the amount of P5,952,000.00. Given these findings, the obligation of the Tiu spouses has
already been fully paid. In fact, it is the Union Bank that must return to the Tiu spouses
the amount of NINE HUNDRED TWENTY[-]SEVEN THOUSAND FIVE HUNDRED FORTY[-]SIX
PESOS AND SEVENTY[-]NINE CENTAVOS (P927,546.79).43
With regard to the ownership of the improvements on the subject mortgaged property,
the Court of Appeals ruled that it belonged to respondent Rodolfo Tius father, Jose Tiu,
since 1981. According to the Court of Appeals, Union Bank should not have relied on
warranties made by debtors that they are the owners of the property. The appellate court
went on to permanently enjoin Union Bank from foreclosing the mortgage not only of the
property covered by TCT No. T-11951, but also any other mortgage over any other
property of the spouses Tiu.44
The Court of Appeals likewise found Union Bank liable to return the certificates of stocks
and titles to real properties of the spouses Tiu in its possession. The appellate court held
that Union Bank made judicial admissions of such possession in its Reply to Plaintiffs
Request for Admission.45 In the event that Union Bank can no longer return these
certificates and titles, it was mandated to shoulder the cost for their replacement. 46
Finally, the Court of Appeals took judicial notice that before or during the financial crisis,
banks actively convinced debtors to make dollar loans in the guise of benevolence,
saddling borrowers with loans that ballooned twice or thrice their original loans. The Court
of Appeals, noting "the cavalier way with which banks exploited and manipulated the
situation,"47 held Union Bank liable to the spouses Tiu for P100,000.00 in moral
damages,P100,000.00 in exemplary damages, and P50,000.00 in attorneys fees.48
The Court of Appeals disposed of the case as follows:
19 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us

permanently enjoining Union Bank from foreclosing the mortgage of the residential
property of the Tiu spouses which is covered by Transfer Certificate of Title No. 11951 and
from pursuing other foreclosure of mortgages over any other properties of the Tiu
spouses for the above-litigated debt that has already been fully paid. If a foreclosure sale
has already been made over such properties, this Court orders the cancellation of such
foreclosure sale and the Certificate of Sale thereof if any has been issued. This Court
orders Union Bank to return to the Tiu spouses the amount of NINE HUNDRED
TWENTY[-]SEVEN THOUSAND FIVE HUNDRED FORTY[-]SIX PESOS AND SEVENTY[-]NINE
CENTAVOS (P927,546.79) representing illegally collected rentals. This Court also orders
Union Bank to return to the Tiu spouses all the certificates of shares of stocks and titles to
real properties of the Tiu spouses that were deposited to it or, in lieu thereof, to pay the
cost for the replacement and issuance of new certificates and new titles over the said
properties. This Court finally orders Union Bank to pay the Tiu spouses ONE HUNDRED
THOUSAND PESOS (P100,000.00) in moral damages, ONE HUNDRED THOUSAND PESOS
(P100,000.00) in exemplary damages, FIFTY THOUSAND PESOS (P50,000.00) in attorneys
fees and cost, both in the lower court and in this Court.49
On June 1, 2006, the Court of Appeals rendered the assailed Resolution denying Union
Banks Motion for Reconsideration.
Hence, this Petition for Review on Certiorari, wherein Union Bank submits the following
issues for the consideration of this Court:
1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR WHEN IT CONCLUDED THAT THERE WERE NO DOLLAR LOANS OBTAINED BY
[THE] TIU SPOUSES FROM UNION BANK DESPITE [THE] CLEAR ADMISSION OF
INDEBTEDNESS BY THE BORROWER-MORTGAGOR TIU SPOUSES.
2. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR WHEN IT NULLIFIED THE RESTRUCTURING AGREEMENT BETWEEN TIU
SPOUSES AND UNION BANK FOR LACK OF CAUSE OR CONSIDERATION DESPITE THE
ADMISSION OF THE BORROWER-MORTGAGOR TIU SPOUSES OF THE DUE AND
VOLUNTARY EXECUTION OF SAID RESTRUCTURING AGREEMENT.
3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR WHEN IT PERMANENTLY ENJOINED UNION BANK FROM FORECLOSING THE
MORTGAGE ON THE RESIDENTIAL PROPERTY OF THE TIU SPOUSES DESPITE THE
ADMISSION OF NON-PAYMENT OF THEIR OUTSTANDING LOAN TO THE BANK BY THE
BORROWER-MORTGAGOR TIU SPOUSES;
4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR WHEN IT FIXED THE AMOUNT OF THE OBLIGATION OF RESPONDENT
SPOUSES CONTRARY TO THE PROVISIONS OF THE PROMISSORY NOTES,
RESTRUCTURING AGREEMENT AND [THE] VOLUNTARY ADMISSIONS BY BORROWERMORTGAGOR TIU SPOUSES;
5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR WHEN IT RULED ON THE ALLEGED RENTALS PAID BY RESPONDENT SPOUSES
WITHOUT ANY FACTUAL BASIS;
6. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR WHEN IT HELD WITHOUT ANY FACTUAL BASIS THAT THE LOAN OBLIGATION
OF TIU SPOUSES HAS BEEN FULLY PAID;
7. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR WHEN IT HELD WITHOUT ANY FACTUAL BASIS THAT THE HOUSE INCLUDED
IN THE REAL ESTATE MORTGAGE DID NOT BELONG TO THE TIU SPOUSES.
8. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR IN ORDERING UNION BANK TO RETURN THE CERTIFICATES OF SHARES OF
STOCK AND TITLES TO REAL PROPERTIES OF TIU SPOUSES ALLEGEDLY IN THE
POSSESSION OF UNION BANK.
9. WHETHER OR NOT THE COURT OF APPEALS VIOLATED THE DOCTRINES AND
PRINCIPLES ON APPELLATE JURISDICTION.
20 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

10. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND

REVERSIBLE ERROR IN AWARDING DAMAGES AGAINST UNION BANK. 50
Validity of the Restructuring Agreement
As previously discussed, the Court of Appeals declared that the Restructuring Agreement
is void on account of its being a failed novation of the original loan agreements. The Court
of Appeals explained that since there was no stipulation that the loans will be paid in
dollars, and since no dollars ever exchanged hands, the original loan transactions were in
pesos.51 Proceeding from this premise, the Court of Appeals held that the Restructuring
Agreement, which was meant to convert the loans into pesos, was unwarranted. Thus,
the Court of Appeals reasoned that:
Be that as it may, however, since the loans of the Tiu spouses from Union Bank were peso
loans from the very beginning, there is no need for conversion thereof. A Restructuring
Agreement should merely confirm the loans, not add thereto. By making it appear in the
Restructuring Agreement that the loans were originally dollar loans, Union Bank
overstepped its rights as a creditor and made unwarranted interpretations of the original
loan agreement. This Court is not bound by such interpretations made by Union Bank.
When one party makes an interpretation of a contract, he makes it at his own risk, subject
to a subsequent challenge by the other party and a modification by the courts. In this
case, that party making the interpretation is not just any party, but a well entrenched and
highly respected bank. The matter that was being interpreted was also a financial matter
that is within the profound expertise of the bank. A normal person who does not possess
the same financial proficiency or acumen as that of a bank will most likely defer to the
latters esteemed opinion, representations and interpretations. It has been often stated in
our jurisprudence that banks have a fiduciary duty to their depositors. According to the
case of Bank of the Philippine Islands vs. IAC (G.R. No. 69162, February 21, 1992), "as a
business affected with public interest and because of the nature of its functions, the bank
is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship." Such fiduciary relationship
should also extend to the banks borrowers who, more often than not, are also depositors
of the bank. Banks are in the business of lending while most borrowers hardly know the
basics of such business. When transacting with a bank, most borrowers concede to the
expertise of the bank and consider their procedures, pronouncements and
representations as unassailable, whether such be true or not. Therefore, when there is a
doubtful banking transaction, this Court will tip the scales in favor of the borrower.
Given the above ruling, the Restructuring Agreement, therefore, between the Tiu spouses
and Union Bank does not operate to supersede all previous loan documents, as claimed
by Union Bank. But the said Restructuring Agreement, as it was crafted by Union Bank,
does not merely confirm the original loan of the Tiu spouses but attempts to create a
novation of the said original loan that is not clearly authorized by the debtors and that is
not supported by any cause or consideration. According to Article 1292 of the New Civil
Code, in order that an obligation may by extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the
new obligations be on every point incompatible with each other. Such is not the case in
this instance. No valid novation of the original obligation took place. Even granting
arguendo that there was a novation, the sudden change in the original amount of the loan
to the new amount declared in the Restructuring Agreement is not supported by any
cause or consideration. Under Article 1352 of the Civil Code, contracts without cause, or
with unlawful cause, produce no effect whatever. A contract whose cause did not exist at
the time of the transaction is void. Accordingly, Article 1297 of the New Civil Code
mandates that, if the new obligation is void, the original one shall subsist, unless the
parties intended that the former relation should be extinguished at any event. Since the
Restructuring Agreement is void and since there was no intention to extinguish the
original loan, the original loan shall subsist.52
Union Bank does not dispute that the spouses Tiu received the loaned amount of
US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of
US$1=P26.53 However, Union Bank claims that this does not change the true nature of the
loan as a foreign currency loan,54 and proceeded to illustrate in its Memorandum that the
spouses Tiu obtained favorable interest rates by opting to borrow in dollars (but receiving
the equivalent peso amount) as opposed to borrowing in pesos.55
We agree with Union Bank on this point. Although indeed, the spouses Tiu received peso
equivalents of the borrowed amounts, the loan documents presented as evidence, i.e.,
21 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

the promissory notes,56 expressed the amount of the loans in US dollars and not in any
other currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank
in dollars, the amount stipulated in said loan documents. Thus, before the Restructuring
Agreement, the spouses Tiu were bound to pay Union Bank the amount of
US$3,632,000.00 plus the interest stipulated in the promissory notes, without converting
the same to pesos. The spouses Tiu, who are in the construction business and appear to
be dealing primarily in Philippine currency, should therefore purchase the necessary
amount of dollars to pay Union Bank, who could have justly refused payment in any
currency other than that which was stipulated in the promissory notes.
We disagree with the finding of the Court of Appeals that the testimony of Lila Gutierrez,
which merely attests to the fact that the spouses Tiu received the peso equivalent of their
dollar loan, proves the intention of the parties that such loans should be paid in pesos. If
such had been the intention of the parties, the promissory notes could have easily
indicated the same.
Such stipulation of payment in dollars is not prohibited by any prevailing law or
jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil
Code provides:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if
it is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld 57 the
continued effectivity of Republic Act No. 529, which took effect earlier on June 16, 1950.
Pursuant to Section 158 of Republic Act No. 529, any agreement to pay an obligation in a
currency other than the Philippine currency is void; the most that could be demanded is
to pay said obligation in Philippine currency to be measured in the prevailing rate of
exchange at the time the obligation was incurred.59 On June 19, 1964, Republic Act No.
4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to
the nullity of agreements to pay in foreign currency.60
On April 13, 1993, Central Bank Circular No. 1389 61 was issued, lifting foreign exchange
restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and
foreign currency loans, however, prior Bangko Sentral approval was required. On July 5,
1996, Republic Act No. 8183 took effect,62 expressly repealing Republic Act No. 529 in
Section 263 thereof. The same statute also explicitly provided that parties may agree that
the obligation or transaction shall be settled in a currency other than Philippine currency
at the time of payment.64
Although the Credit Line Agreement between the spouses Tiu and Union Bank was
entered into on November 21, 1995,65 when the agreement to pay in foreign currency was
still considered void under Republic Act No. 529, the actual loans,66 as shown in the
promissory notes, were taken out from September 22, 1997 to March 26, 1998, during
which time Republic Act No. 8183 was already in effect. In United Coconut Planters Bank
v. Beluso,67 we held that:
[O]pening a credit line does not create a credit transaction of loan or mutuum, since the
former is merely a preparatory contract to the contract of loan or mutuum. Under such
credit line, the bank is merely obliged, for the considerations specified therefor, to lend to
the other party amounts not exceeding the limit provided. The credit transaction thus
occurred not when the credit line was opened, but rather when the credit line was availed
of. x x x.68
Having established that Union Bank and the spouses Tiu validly entered into dollar loans,
the conclusion of the Court of Appeals that there were no dollar loans to novate into peso
loans must necessarily fail.
Similarly, the Court of Appeals pronouncement that the novation was not supported by
any cause or consideration is likewise incorrect. This conclusion suggests that when the
parties signed the Restructuring Agreement, Union Bank got something out of nothing or
that the spouses Tiu received no benefit from the restructuring of their existing loan and
was merely taken advantage of by the bank. It is important to note at this point that in
the determination of the nullity of a contract based on the lack of consideration, the
debtor has the burden to prove the same. Article 1354 of the Civil Code provides that
22 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

"[a]though the cause is not stated in the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary."
In the case at bar, the Restructuring Agreement was signed at the height of the financial
crisis when the Philippine peso was rapidly depreciating. Since the spouses Tiu were
bound to pay their debt in dollars, the cost of purchasing the required currency was
likewise swiftly increasing. If the parties did not enter into the Restructuring Agreement in
December 1999 and the peso continued to deteriorate, the ability of the spouses Tiu to
pay and the ability of Union Bank to collect would both have immensely suffered. As
shown by the evidence presented by Union Bank, the peso indeed continued to
deteriorate, climbing to US$1=P50.01 on December 2000.69 Hence, in order to ensure the
stability of the loan agreement, Union Bank and the spouses Tiu agreed in the
Restructuring Agreement to peg the principal loan at P150,364,800.00 and the unpaid
interest at P5,000,000.00.
Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring
Agreement was vitiated by fraud and mistake, alleging that (1) the Restructuring
Agreement did not take into consideration their substantial payment in the amount
of P40,447,185.60 before its execution; and (2) the dollar loans had already been
redenominated in 1997 at the rate of US$1=P26.34.70
We have painstakingly perused over the records of this case, but failed to find any
documentary evidence of the alleged payment of P40,447,185.60 before the execution of
the Restructuring Agreement. In paragraph 16 of their Amended Complaint, the spouses
Tiu alleged payment of P40,447,185.60 for interests before the conversion of the dollar
loan.71 This was specifically denied by Union Bank in paragraph 5 of its Answer with
Counterclaim.72Respondent Rodolfo Tiu testified that they made "50 million plus" in cash
payment plus "other monthly interest payments,"73 and identified a computation of
payments dated July 17, 2002 signed by himself.74 Such computation, however, was never
formally offered in evidence and was in any event, wholly self-serving.
As regards the alleged redenomination of the same dollar loans in 1997 at the rate of
US$1=P26.34, the spouses Tiu merely relied on the following direct testimony of Herbert
Hojas, one of the witnesses of Union Bank:
Q: Could you please describe what kind of loan was the loan of the spouses Rodolfo
Tiu, the plaintiffs in this case?
A: It was originally an FCDU, meaning a dollar loan.
Q: What happened to this FCDU loan or dollar loan?
A: The dollar loan was re-denominated in view of the very unstable exchange of the
dollar and the peso at that time,
Q: Could you still remember what year this account was re-denominated from dollar
to peso?
A: I think it was on the year 1997.
Q: Could [you] still remember what was then the prevailing exchange rate between
the dollar and the peso at that year 1997?
A: Yes. I have here the list of the dollar exchange rate from January 1987 (sic). It
was P26.34 per dollar.75
Neither party presented any documentary evidence of the alleged redenomination in
1997. Respondent Rodolfo Tiu did not even mention it in his testimony. Furthermore,
Hojas was obviously uncertain in his statement that said redenomination was made in
1997.
As pointed out by the trial court, the Restructuring Agreement, being notarized, is a
public document enjoying a prima facie presumption of authenticity and due execution.
Clear and convincing evidence must be presented to overcome such legal
presumption.76 The spouses Tiu, who attested before the notary public that the
Restructuring Agreement "is their own free and voluntary act and deed," 77 failed to
present sufficient evidence to prove otherwise. It is difficult to believe that the spouses
23 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Tiu, veteran businessmen who operate a multi-million peso company, would sign a very
important document without fully understanding its contents and consequences.
This Court therefore rules that the Restructuring Agreement is valid and, as such, a valid
and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to
March 26, 1998 which had a total amount of US$3,632,000.00.
Validity of the Foreclosure of Mortgage
The spouses Tiu challenge the validity of the foreclosure of the mortgage on two grounds,
claiming that: (1) the debt had already been fully paid; and (2) they are not the owners of
the improvements on the mortgaged property.
(1) Allegation of full payment of the mortgage debt
In the preceding discussion, we have ruled that the Restructuring Agreement is a valid
and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to
March 26, 1998 in the total amount of US$3,632,000.00. Thus, in order that the spouses
Tiu can be held to have fully paid their loan obligation, they should present evidence
showing their payment of the total restructured amount under the Restructuring
Agreement which was P104,668,741.00. As we have discussed above, however, while
respondent Rodolfo Tiu appeared to have identified during his testimony a computation
dated July 17, 2002 of the alleged payments made to Union Bank,78 the same was not
formally offered in evidence. Applying Section 34, Rule 13279 of the Rules of Court, such
computation cannot be considered by this Court. We have held that a formal offer is
necessary because judges are mandated to rest their findings of facts and their judgment
only and strictly upon the evidence offered by the parties at the trial. It has several
functions: (1) to enable the trial judge to know the purpose or purposes for which the
proponent is presenting the evidence; (2) to allow opposing parties to examine the
evidence and object to its admissibility; and (3) to facilitate review by the appellate court,
which will not be required to review documents not previously scrutinized by the trial
court.80 Moreover, even if such computation were admitted in evidence, the same is selfserving and cannot be given probative weight. In the case at bar, the records do not
contain even a single receipt evidencing payment to Union Bank.
The Court of Appeals, however, held that several payments made by the spouses Tiu had
been admitted by Union Bank. Indeed, Section 11, Rule 8 of the Rules of Court provides
that an allegation not specifically denied is deemed admitted. In such a case, no further
evidence would be required to prove the antecedent facts. We should therefore examine
which of the payments specified by the spouses Tiu in their Amended Complaint 81 were
not specifically denied by Union Bank.
The allegations of payment are made in paragraphs 16 to 21 of the Amended Complaint:
16. Before conversion of the dollar loan into a peso loan[,] the spouses Tiu had
already paid the defendant bank the amount of P40,447,185.60 for interests;
17. On August 3, 1999 and August 12, 1999, plaintiffs made payments in the
amount of P15,000,000.00;
18. In order to lessen the obligation of plaintiffs, the mother of plaintiff Rodolfo T.
Tiu, plaintiff Juanita T. Tiu, executed a deed of dacion in payment in favor of
defendant involving her 10 parcels of land located in Labangon, Cebu City for the
amount of P25,130,000.00. Copy of the deed was attached to the original complaint
as Annex "C";
19. For the same purpose, plaintiffs spouses Tiu also executed a deed of dacion in
payment of their property located at A.S. Fortuna St., Mandaue City for the amount
of P36,080,000.00. Copy of the deed was attached to the original complaint as
Annex "D";
20. The total amount of the two dacions in payment made by the plaintiffs
was P61,210,000.00;
21. Plaintiffs spouses Tiu also made other payment of the amount
of P13,197,546.79 as of May 8, 2001;82
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In paragraphs 4 and 5 of their Answer with Counterclaim,83 Union Bank specifically denied
the allegation in paragraph 9 of the Complaint, but admitted the allegations in
paragraphs 17, 18, 19, 20 and 21 thereof. Paragraphs 18, 19 and 20 allege the two deeds
of dacion. However, these instruments were already incorporated in the computation of
the outstanding debt (i.e., subtracted from the confirmed debt of P155,364,800.00), as
can be gleaned from the following provisions in the Restructuring Agreement:
a.) The loan obligation to the BANK to be restructured herein after deducting from the
Indebtedness of the BORROWER the dacion price of the properties subject of the Deeds of
Dacion and adding to the Indebtedness all the taxes, registration fees and other expenses
advanced by the bank in registering the Deeds of Dacion, and also adding to the
Indebtedness the interest, and other fees and charges incurred by the Indebtedness,
amounts to ONE HUNDRED FOUR MILLION SIX HUNDRED SIXTY-EIGHT THOUSAND SEVEN
HUNDRED FORTY-ONE PESOS (PHP104,668,741.00) (the "TOTAL RESTRUCTURED
AMOUNT").84
As regards the allegations of cash payments in paragraphs 17 and 21 of the Amended
Complaint, the date of the alleged payment is critical as to whether they were included in
the Restructuring Agreement. The payment ofP15,000,000.00 alleged in paragraph 17 of
the Amended Complaint was supposedly made on August 3 and 12, 1999. This payment
was before the date of execution of the Restructuring Agreement on December 21, 1999,
and is therefore already factored into the restructured obligation of the spouses.85 On the
other hand, the payment ofP13,197,546.79 alleged in paragraph 21 of the Amended
Complaint was dated May, 8, 2001. Said payment cannot be deemed included in the
computation of the spouses Tius debt in the Restructuring Agreement, which was
assented to more than a year earlier. This amount (P13,197,546.79) is even absent86 in
the computation of Union Bank of the outstanding debt, in contrast with
the P15,000,000.00 payment which is included87 therein. Union Bank did not explain this
discrepancy and merely relied on the spouses Tius failure to formally offer supporting
evidence. Since this payment of P13,197,546.79 on May 8, 2001 was admitted by Union
Bank in their Answer with Counterclaim, there was no need on the part of the spouses Tiu
to present evidence on the same. Nonetheless, if we subtract this figure from the total
restructured amount (P104,668,741.00) in the Restructuring Agreement, the result is that
the spouses Tiu still owe Union Bank P91,471,194.21.
(2) Allegation of third party ownership of the improvements on the mortgaged lot
The Court of Appeals, taking into consideration its earlier ruling that the loan was already
fully paid, permanently enjoined Union Bank from foreclosing the mortgage on the
property covered by Transfer Certificate of Title No. 11951 (Lot No. 639) and from
pursuing other foreclosure of mortgages over any other properties of the spouses Tiu. The
Court of Appeals ruled:
The prayer, therefore, of the Tiu spouses to enjoin the foreclosure of the real estate
mortgage over their residential property has merit. The loan has already been fully paid.
It should also be noted that the house constructed on the residential property of the Tiu
spouses is not registered in the name of the Tiu spouses, but in the name of Jose Tiu
(Records, pp. 127-132), the father of appellant and petitioner Rodolfo Tiu, since 1981. It
had been alleged by the Tiu spouses that Jose Tiu died on December 18, 1983, and, that
consequently upon his death, Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T.
Young and Rosenda T. Tiu became owners of the house (Records, p. 116). This allegation
has not been substantially denied by Union Bank. All that the Union Bank presented to
refute this allegation are a Transfer Certificate of Title and a couple of Tax Declarations
which do not indicate that a residential house is titled in the name of the Tiu spouses. In
fact, in one of the Tax Declarations, the market value of the improvements is worth only
P3,630.00. Certainly, Union Bank should have been aware that this Tax Declaration did
not cover the residential house. Union Bank should also not rely on warranties made by
debtors that they are the owners of the property. They should investigate such
representations. The courts have made consistent rulings that a bank, being in the
business of lending, is obligated to verify the true ownership of the properties mortgaged
to them. Consequently, this Court permanently enjoins Union Bank from foreclosing the
mortgage of the residential property of the Tiu spouses which is covered by Transfer
Certificate of Title No. 11951 and from pursuing other foreclosure of mortgages over any
other properties of the Tiu spouses. If a foreclosure sale has already been made over such
properties, this Court orders the cancellation of such foreclosure sale and the Certificate
of Sale thereof if any has been issued, and the return of the title to the Tiu spouses.88
25 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

We disagree. Contrary to the ruling of the Court of Appeals, the burden to prove the
spouses Tius allegation that they do not own the improvements on Lot No. 639, despite
having such improvements included in the mortgage is on the spouses Tiu themselves.
The fundamental rule is that he who alleges must prove.89 The allegations of the spouses
Tiu on this matter, which are found in paragraphs 35 to 3990 of their Amended Complaint,
were specifically denied in paragraph 9 of Union Banks Answer with Counterclaim. 91
Upon careful examination of the evidence, we find that the spouses Tiu failed to prove
that the improvements on Lot No. 639 were owned by third persons. In fact, the evidence
presented by the spouses Tiu merely attempt to prove that the improvements on Lot No.
639 were declared for taxes in the name of respondent Rodolfo Tius father, Jose Tiu, who
allegedly died on December 18, 1983. There was no effort to show how their co-plaintiffs
in the original complaint, namely Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T.
Young and Rosenda T. Tiu, became co-owners of the house. The spouses Tiu did not
present evidence as to (1) who the heirs of Jose Tiu are; (2) if Juanita T. Tiu, Rosalinda T.
King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu are indeed included as heirs; and
(3) why petitioner Rodolfo Tiu is not included as an heir despite being the son of Jose Tiu.
No birth certificate of the alleged heirs, will of the deceased, or any other piece of
evidence showing judicial or extrajudicial settlement of the estate of Jose Tiu was
presented.
In light of the foregoing, this Court therefore sets aside the ruling of the Court of Appeals
permanently enjoining Union Bank from foreclosing the mortgage on Lot No. 639,
including the improvements thereon.
Validity of Alleged Rental Payments on the Properties Conveyed to the Bank via Dacion en
Pago
The Court of Appeals found the lease contracts over the properties conveyed to Union
Bank via dacion en pago to be void for being against public policy. The appellate court
held that since the General Banking Law of 200092mandates banks to immediately
dispose of real estate properties that are not necessary for its own use in the conduct of
its business, banks should not enter into two-year contracts of lease over properties paid
to them through dacion.93 The Court of Appeals thus ordered Union Bank to return the
rentals it collected. To determine the amount of rentals paid by the spouses Tiu to Union
Bank, the Court of Appeals simply multiplied the monthly rental stipulated in the
Restructuring Agreement by the stipulated period of the lease agreement:
For the Labangon property, the Tiu spouses paid rentals in the amount of P98,000.00 per
month for two years, or a total amount of P2,352,000.00. For the A.S. Fortuna property,
the Tiu spouses paid rentals in the amount ofP150,000.00 per month for two years, or a
total amount of P3,600,000.00. The total amount in rentals paid by the Tiu spouses to
Union Bank is FIVE MILLION NINE HUNDRED FIFTY- TWO THOUSAND PESOS
(P5,952,000.00). This Court finds that the return of this amount to the Tiu spouses is
called for since it will better serve public policy. These properties that were given by the
Tiu spouses to Union Bank as payment should not be used by the latter to extract more
money from the former. This situation is analogous to having a debtor pay interest for a
debt already paid. Instead of leasing the properties, Union Bank should have instructed
the Tiu spouses to vacate the said properties so that it could dispose of them. 94
The Court of Appeals committed a serious error in this regard. As pointed out by
petitioner Union Bank, the spouses Tiu did not present any proof of the alleged rental
payments. Not a single receipt was formally offered in evidence. The mere stipulation in a
contract of the monthly rent to be paid by the lessee is certainly not evidence that the
same has been paid. Since the spouses Tiu failed to prove their payment to Union Bank of
the amount ofP5,952,000.00, we are constrained to reverse the ruling of the Court of
Appeals ordering its return.
Even assuming arguendo that the spouses Tiu had duly proven that it had paid rent to
Union Bank, we nevertheless disagree with the finding of the Court of Appeals that it is
against public policy for banks to enter into two-year contracts of lease of properties
ceded to them through dacion en pago. The provisions of law cited by the Court of
Appeals, namely Sections 51 and 52 of the General Banking Law of 2000, merely provide:
SECTION 51. Ceiling on Investments in Certain Assets. Any bank may acquire real
estate as shall be necessary for its own use in the conduct of its business: Provided,
however, That the total investment in such real estate and improvements thereof,
26 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

including bank equipment, shall not exceed fifty percent (50%) of combined capital
accounts: Provided, further, That the equity investment of a bank in another corporation
engaged primarily in real estate shall be considered as part of the bank's total investment
in real estate, unless otherwise provided by the Monetary Board.
SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims.
Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or
convey real property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the
course of its dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust
deeds held by it and such as it shall purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above
paragraph shall be disposed of by the bank within a period of five (5) years or as may be
prescribed by the Monetary Board: Provided, however, That the bank may, after said
period, continue to hold the property for its own use, subject to the limitations of the
preceding Section.
Section 52.2 contemplates a dacion en pago. Thus, Section 52 undeniably gives banks
five years to dispose of properties conveyed to them in satisfaction of debts previously
contracted in the course of its dealings, unless another period is prescribed by the
Monetary Board. Furthermore, there appears to be no legal impediment for a bank to
lease the real properties it has received in satisfaction of debts, within the five-year
period that such bank is allowed to hold the acquired realty.
We do not dispute the interpretation of the Court of Appeals that the purpose of the law is
to prevent the concentration of land holdings in a few hands, and that banks should not
be allowed to hold on to the properties contemplated in Section 52 beyond the five-year
period unless such bank has exerted its best efforts to dispose of the property in good
faith but failed. However, inquiries as to whether the banks exerted best efforts to
dispose of the property can only be done if said banks fail to dispose of the same within
the period provided. Such inquiry is furthermore irrelevant to the issues in the case at bar.
Order to Return Certificates Allegedly in Union Banks Possession
In the Amended Complaint, the spouses Tiu alleged95 that they delivered several
certificates and titles to Union Bank pursuant to a Memorandum of Agreement. These
certificates and titles were not subjected to any lien in favor of Union Bank, but the latter
allegedly continued to hold on to said properties.
The RTC failed to rule on this issue. The Court of Appeals, tackling this issue for the first
time, ruled in favor of the Tiu spouses and ordered the return of these certificates and
titles. The appellate court added that if Union Bank can no longer return these certificates
or titles, it should shoulder the cost for their replacement.96
Union Bank, asserting that the Memorandum of Agreement did not, in fact, push through,
denies having received the subject certificates and titles. Union Bank added that even
assuming arguendo that it is in possession of said documents, the Restructuring
Agreement itself allows such possession.97
The evidence on hand lends credibility to the allegation of Union Bank that the
Memorandum of Agreement did not push through. The copy of the Memorandum of
Agreement attached by the spouses Tiu themselves to their original complaint did not
bear the signature of any representative from Union Bank and was not notarized. 98
We, however, agree with the finding of the Court of Appeals that despite the failure of the
Memorandum of Agreement to push through, the certificates and titles mentioned therein
do appear to be in the possession of Union Bank. As held by the Court of Appeals:
Lastly, this Court will order, as it hereby orders, Union Bank to return to the Tiu spouses
all the certificates of shares of stocks and titles to real properties of the Tiu spouses in its
possession. Union Bank cannot deny possession of these items since it had made judicial
27 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

admissions of such possession in their document entitled "Reply to Plaintiffs request for
Admission" (records, pp. 216-217). While in that document, Union Bank only admitted to
the possession of four real estate titles, this Court is convinced that all the certificates
and titles mentioned in the unconsummated Memorandum of Agreement (Records, pp.
211-213) were given by the Tiu spouses to Union Bank for appraisal. This finding is
further bolstered by the admission of the Union Bank that it kept the titles for safekeeping
after it rejected the Memorandum of Agreement. Since Union Bank rejected these
certificates and titles of property, it should return the said items to the Tiu spouses. If
Union Bank can no longer return these certificates and titles or if it has misplaced them, it
shall shoulder the cost for the replacement and issuance of new certificates and new
titles over the said properties.99
As regards Union Banks argument that it has the right to retain said documents pursuant
to the Restructuring Agreement, it is referring to paragraph 11(b), which provides that:
11. Effects of Default When the BORROWER is in default, such default shall have the
following effects, alternative, concurrent and cumulative with each other:
xxxx
(b) The BANK shall be entitled to all the remedies provided for and further shall have the
right to effect or apply against the partial or full payment of any and all obligations of the
BORROWER under this Restructuring Agreement any and all moneys or other properties
of the BORROWER which, for any reason, are or may hereafter come into the possession
of the Bank or the Banks agent. All such moneys or properties shall be deemed in the
BANKs possession as soon as put in transit to the BANK by mail or carrier.100
In the first place, notwithstanding the foregoing provision, there is no clear intention on
the part of the spouses Tiu to deliver the certificates over certain shares of stock and real
properties as security for their debt. From the terms of the Memorandum of Agreement,
these certificates were surrendered to Union Bank in order that the said properties
described therein be given their corresponding loan values required for the restructuring
of the spouses Tius outstanding obligations. However, in the event the parties fail to
agree on the valuation of the subject properties, Union Bank agrees to release the
same.101 As Union Bank itself vehemently alleges, the Memorandum of Agreement was
not consummated. Moreover, despite the fact that the Bank was aware, or in possession,
of these certificates,102 at the time of execution of the Restructuring Agreement, only the
mortgage over the real property covered by TCT No. T-11951 was expressly mentioned as
a security in the Restructuring Agreement. In fact, in its Reply to Request for
Admission,103 Union Bank admitted that (1) the titles to the real properties were submitted
to it for appraisal but were subsequently rejected, and (2) no real estate mortgages were
executed over the said properties. There being no agreement that these properties shall
secure respondents obligation, Union Bank has no right to retain said
certificates.1avvphi1
Assuming arguendo that paragraph 11(b) of the Restructuring Agreement indeed allows
the retention of the certificates (submitted to the Bank ostensibly for safekeeping and
appraisal) as security for spouses Tius debt, Union Banks position still cannot be upheld.
Insofar as said provision permits Union Bank to apply properties of the spouses Tiu in its
possession to the full or partial payment of the latters obligations, the same appears to
impliedly allow Union Bank to appropriate these properties for such purpose. However,
said provision cannot be validly applied to the subject certificates and titles without
violating the prohibition against pactum commissorium contained in Article 2088 of the
Civil Code, to the effect that "[t]he creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them[;] [a]ny stipulation to the contrary is null and
void." Applicable by analogy to the present case is our ruling in Nakpil v. Intermediate
Appellate Court,104 wherein property held in trust was ceded to the trustee upon failure of
the beneficiary to answer for the amounts owed to the former, to wit:
For, there was to be automatic appropriation of the property by Valdes in the event of
failure of petitioner to pay the value of the advances. Thus, contrary to respondent's
manifestations, all the elements of a pactum commissorium were present: there was a
creditor-debtor relationship between the parties; the property was used as security for
the loan; and, there was automatic appropriation by respondent of Pulong Maulap in case
of default of petitioner.105 (Emphases supplied.)

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This Court therefore affirms the order of the Court of Appeals for Union Bank to return to
the spouses Tiu all the certificates of shares of stock and titles to real properties that
were submitted to it or, in lieu thereof, to pay the cost for the replacement and issuance
of new certificates and new titles over the said properties.
Validity of the Award of Damages
The Court of Appeals awarded damages in favor of the spouses Tiu based on its taking
judicial notice of the alleged exploitation by many banks of the Asian financial crisis, as
well as the foreclosure of the mortgage of the home of the spouses Tiu despite the
alleged full payment by the latter. As regards the alleged manipulation of the financial
crisis, the Court of Appeals held:
As a final note, this Court observes the irregularity in the circumstances [surrounding]
dollar loans granted by banks right before or during the Asian financial crisis. It is of
common knowledge that many banks, around that time, actively pursued and convinced
debtors to make dollar loans or to convert their peso loans to dollar loans allegedly
because of the lower interest rate of dollar loans. This is a highly suspect behavior on the
part of the banks because it is irrational for the banks to voluntarily and actively proffer a
conversion that would give them substantially less income. In the guise of benevolence,
many banks were able to convince borrowers to make dollar loans or to convert their
peso loans to dollar loans. Soon thereafter, the Asian financial crisis hit, and many
borrowers were saddled with loans that ballooned to twice or thrice the amount of their
original loans. This court takes judicial notice of these events or matters which are of
public knowledge. It is inconceivable that the banks were unaware of the looming Asian
financial crisis. Being in the forefront of the financial world and having access to financial
data that were not available to the average borrower, the banks were in such a position
that they had a higher vantage point with respect to the financial landscape over their
average clients. The cavalier way with which banks exploited and manipulated the
situation is almost too palpable that they openly and unabashedly struck heavy blows on
the Philippine economy, industries and businesses. The banks have a fiduciary duty to
their clients and to the Filipino people to be transparent in their dealings and to make
sure that the latters interest are not prejudiced by the formers interest. Article 1339 of
the New Civil Code provides that the failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential relations, constitutes fraud.
Undoubtedly, the banks and their clients are bound by confidential relations. The almost
perfect timing of the banks in convincing their clients to shift to dollar loans just when the
Asian financial crisis struck indicates that the banks not only failed to disclose facts to
their clients of the looming crisis, but also suggests of the insidious design to take
advantage of these undisclosed facts.106
We have already held that the foreclosure of the mortgage was warranted under the
circumstances. As regards the alleged exploitation by many banks of the Asian financial
crisis, this Court rules that the generalization made by the appellate court is unfounded
and cannot be the subject of judicial notice. "It is axiomatic that good faith is always
presumed unless convincing evidence to the contrary is adduced. It is incumbent upon
the party alleging bad faith to sufficiently prove such allegation. Absent enough proof
thereof, the presumption of good faith prevails."107 The alleged insidious design of many
banks to betray their clients during the Asian financial crisis is certainly not of public
knowledge. The deletion of the award of moral and exemplary damages in favor of the
spouses Tiu is therefore in order.
WHEREFORE, the Petition is PARTIALLY GRANTED. The Joint Decision of the Court of
Appeals in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253 dated February 21, 2006 is
hereby AFFIRMED insofar as it ordered petitioner Union Bank of the Philippines to return
to the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu all the certificates of shares of
stock and titles to real properties that were submitted to it or, in lieu thereof, to pay the
cost for the replacement and issuance of new certificates and new titles over the said
properties. The foregoing Joint Decision is hereby SET ASIDE: (1) insofar as it permanently
enjoined Union Bank of the Philippines from foreclosing the mortgage of the residential
property of respondent spouses Rodolfo T. Tiu and Victoria N. Tiu which is covered by
Transfer Certificate of Title No. 11951; (2) insofar as it ordered Union Bank of the
Philippines to return to the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu the
amount of P927,546.79 representing illegally collected rentals; and (3) insofar as it
ordered Union Bank of the Philippines to pay the respondent spouses Rodolfo T. Tiu and
Victoria N. Tiu P100,000.00 in moral damages, P100,000.00 in exemplary
damages,P50,000.00 in attorneys fees and cost, both in the lower court and in this Court.
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No further pronouncement as to costs.

SO ORDERED.
G.R. No. 180705

November 27, 2012

EDUARDO M. COJUANGCO, JR., Petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Of the several coconut levy appealed cases that stemmed from certain issuances of the
Sandiganbayan in its Civil Case No. 0033, the present recourse proves to be one of the
most difficult.
In particular, the instant petition for review under Rule 45 of the Rules of Court assails
and seeks to annul a portion of the Partial Summary Judgment dated July 11, 2003, as
affirmed in a Resolution of December 28, 2004, both rendered by the Sandiganbayan in
its Civil Case ("CC") No. 0033-A (the judgment shall hereinafter be referred to as "PSJ-A"),
entitled "Republic of the Philippines, Plaintiff, v. Eduardo M. Cojuangco, Jr., et al.,
Defendants, COCOFED, et al., BALLARES, et al., Class Action Movants." CC No. 0033-A is
the result of the splitting into eight (8) amended complaints of CC No. 0033 entitled,
"Republic of the Philippines v. Eduardo Cojuangco, Jr., et al.," a suit for recovery of illgotten wealth commenced by the Presidential Commission on Good Government
("PCGG"), for the Republic of the Philippines ("Republic"), against Eduardo M. Cojuangco,
Jr. ("Cojuangco") and several individuals, among them, Ferdinand E. Marcos, Maria Clara
Lobregat ("Lobregat"), and Danilo S. Ursua ("Ursua"). Each of the eight (8) subdivided
complaints, CC No. 0033-A to CC No. 0033-H, correspondingly impleaded as defendants
only the alleged participants in the transaction/s subject of the suit, or who are averred as
owner/s of the assets involved.
Apart from this recourse, We clarify right off that PSJ-A was challenged in two other
separate but consolidated petitions for review, one commenced by COCOFED et al.,
docketed as G.R. Nos. 177857-58, and the other, interposed by Danilo S. Ursua, and
docketed as G.R. No. 178193.
By Decision dated January 24, 2012, in the aforesaid G.R. Nos. 177857-58 (COCOFED et
al. v. Republic) and G.R. No. 178193 (Ursua v. Republic) consolidated cases 1 (hereinafter
collectively referred to as "COCOFED v. Republic"), the Court addressed and resolved all
key matters elevated to it in relation to PSJ-A, except for the issues raised in the instant
petition which have not yet been resolved therein. In the same decision, We made clear
that: (1) PSJ-A is subject of another petition for review interposed by Eduardo Cojuangco,
Jr., in G.R. No. 180705, entitled Eduardo M. Cojuangco, Jr. v. Republic of the Philippines,
which shall be decided separately by the Court,2and (2) the issues raised in the instant
petition should not be affected by the earlier decision "save for determinatively legal
issues directly addressed therein."3
For a better perspective, the instant recourse seeks to reverse the Partial Summary
Judgment4 of the anti-graft court dated July 11, 2003, as reiterated in a Resolution5 of
December 28, 2004, denying COCOFEDs motion for reconsideration, and the May 11,
2007 Resolution6 denying
COCOFEDs motion to set case for trial and declaring the partial summary judgment final
and appealable, all issued in PSJ-A. In our adverted January 24, 2012 Decision in
COCOFED v. Republic, we affirmed with modification PSJ-A of the Sandiganbayan, and its
Partial Summary Judgment in Civil Case No. 0033-F, dated May 7, 2004 (hereinafter
referred to as "PSJ-F).7
More specifically, We upheld the Sandiganbayans ruling that the coconut levy funds are
special public funds of the Government. Consequently, We affirmed the Sandiganbayans
declaration that Sections 1 and 2 of Presidential Decree ("P.D.") 755, Section 3, Article III
of P.D. 961 and Section 3, Article III of P.D. 1468, as well as the pertinent implementing
30 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

regulations of the Philippine Coconut Authority ("PCA"), are unconstitutional for allowing
the use and/or the distribution of properties acquired through the coconut levy funds to
private individuals for their own direct benefit and absolute ownership. The Decision also
affirmed the Governments ownership of the six CIIF companies, the fourteen holding
companies, and the CIIF block of San Miguel Corporation shares of stock, for having
likewise been acquired using the coconut levy funds. Accordingly, the properties subject
of the January 24, 2012 Decision were declared owned by and ordered reconveyed to the
Government, to be used only for the benefit of all coconut farmers and for the
development of the coconut industry.
By Resolution of September 4, 2012,8 the Court affirmed the above-stated Decision
promulgated on January 24, 2012.
It bears to stress at this juncture that the only portion of the appealed Partial Summary
Judgment dated July 11, 2003 ("PSJ-A") which remains at issue revolves around the
following decretal holdings of that court relating to the "compensation" paid to petitioner
for exercising his personal and exclusive option to acquire the FUB/UCPB shares.9 It will be
recalled that the Sandiganbayan declared the Agreement between the PCA and
Cojuangco containing the assailed "compensation" null and void for not having the
required valuable consideration. Consequently, the UCPB shares of stocks that are subject
of the Agreement were declared conclusively owned by the Government. It also held that
the Agreement did not have the effect of law as it was not published as part of P.D. 755,
even if Section 1 thereof made reference to the same.
Facts
We reproduce, below, portions of the statement of facts in COCOFED v. Republic relevant
to the present case:10
In 1971, Republic Act No. ("R.A.") 6260 was enacted creating the Coconut Investment
Company ("CIC") to administer the Coconut Investment Fund ("CIF"), which, under Section
8 thereof, was to be sourced from a PhP 0.55 levy on the sale of every 100 kg. of copra.
Of the PhP 0.55 levy of which the copra seller was or ought to be issued COCOFUND
receipts, PhP 0.02 was placed at the disposition of COCOFED, the national association of
coconut producers declared by the
Philippine Coconut Administration ("PHILCOA" now "PCA") as having the largest
membership.
The declaration of martial law in September 1972 saw the issuance of several presidential
decrees ("P.D.") purportedly designed to improve the coconut industry through the
collection and use of the coconut levy fund. While coming generally from impositions on
the first sale of copra, the coconut levy fund came under various names x x x. Charged
with the duty of collecting and administering the Fund was PCA. Like COCOFED with which
it had a legal linkage, the PCA, by statutory provisions scattered in different coco levy
decrees, had its share of the coco levy.
The following were some of the issuances on the coco levy, its collection and utilization,
how the proceeds of the levy will be managed and by whom and the purpose it was
supposed to serve:
1. P.D. No. 276 established the Coconut Consumers Stabilization Fund
("CCSF") and declared the proceeds of the CCSF levy as trust fund, to be
utilized to subsidize the sale of coconut-based products, thus stabilizing the
price of edible oil.
2. P.D. No. 582 created the Coconut Industry Development Fund ("CIDF") to
finance the operation of a hybrid coconut seed farm.
3. Then came P.D. No. 755 providing under its Section 1 the following:
It is hereby declared that the policy of the State is to provide readily
available credit facilities to the coconut farmers at preferential rates;
that this policy can be expeditiously and efficiently realized by the
implementation of the "Agreement for the Acquisition of a Commercial
Bank for the benefit of Coconut Farmers" executed by the PCA; and
31 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

that the PCA is hereby authorized to distribute, for free, the shares of
stock of the bank it acquired to the coconut farmers.
Towards achieving the policy thus declared, P.D. No. 755, under its
Section 2, authorized PCA to utilize the CCSF and the CIDF collections to
acquire a commercial bank and deposit the CCSF levy collections in said
bank interest free, the deposit withdrawable only when the bank has
attained a certain level of sufficiency in its equity capital. The same
section also decreed that all levies PCA is authorized to collect shall not
be considered as special and/or fiduciary funds or form part of the
general funds of the government within the contemplation of P.D. No.
711.
4. P.D. No. 961 codified the various laws relating to the development of
coconut/palm oil industries.
5. The relevant provisions of P.D. No. 961, as later amended by P.D. No. 1468
(Revised Coconut Industry Code), read:
ARTICLE III
Levies
Section 1. Coconut Consumers Stabilization Fund Levy. The PCA is
hereby empowered to impose and collect the Coconut Consumers
Stabilization Fund Levy, .
.
Section 5. Exemption. The CCSF and theCIDF as well as all
disbursements as herein authorized, shall not be construed as
special and/or fiduciary funds, or as part of the general funds of the
national government within the contemplation of PD 711; the
intention being that said Fund and the disbursements thereof as herein
authorized for the benefit of the coconut farmers shall be owned by
them in their private capacities: . (Emphasis supplied)
6. Letter of Instructions No. ("LOI") 926, s. of 1979, made reference to the
creation, out of other coco levy funds, of the Coconut Industry Investment
Fund ("CIIF") in P.D. No. 1468 and entrusted a portion of the CIIF levy to UCPB
for investment, on behalf of coconut farmers, in oil mills and other private
corporations, with the following equity ownership structure:
Section 2. Organization of the Cooperative Endeavor. The UCPB, in its
capacity as the investment arm of the coconut farmers thru the CIIF
is hereby directed to invest, on behalf of the coconut farmers, such
portion of the CIIF in private corporations under the following
guidelines:
a) The coconut farmers shall own or control at least (50%) of the
outstanding voting capital stock of the private corporation acquired thru
the CIIF and/or corporation owned or controlled by the farmers thru the
CIIF . (Words in bracket added.)
Through the years, a part of the coconut levy funds went directly or indirectly
to finance various projects and/or was converted into various assets or
investments.11 Relevant to the present petition is the acquisition of the First
United Bank ("FUB"), which was subsequently renamed as United Coconut
Planters Bank ("UCPB").12
Apropos the intended acquisition of a commercial bank for the purpose stated
earlier, it would appear that FUB was the bank of choice which Pedro
Cojuangcos group (collectively, "Pedro Cojuangco") had control of. The plan,
then, was for PCA to buy all of Pedro Cojuangcos shares in FUB. However, as
later events unfolded, a simple direct sale from the seller (Pedro) to PCA did
not ensue as it was made to appear that Cojuangco had the exclusive option
to acquire the formers FUB controlling interests. Emerging from this
elaborate, circuitous arrangement were two deeds. The first one was simply
32 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

denominated as Agreement, dated May 1975, entered into by and between

Cojuangco for and in his behalf and in behalf of "certain other buyers", and
Pedro Cojuangco in which the former was purportedly accorded the option to
buy 72.2% of FUBs outstanding capital stock, or 137,866 shares (the "option
shares," for brevity), at PhP 200 per share. On its face, this agreement does
not mention the word "option."
The second but related contract, dated May 25, 1975, was denominated as
Agreement for the Acquisition of a Commercial Bank for the Benefit of the
Coconut Farmers of the Philippines. It had PCA, for itself and for the benefit of
the coconut farmers, purchase from Cojuangco the shares of stock subject of
the First Agreement for PhP200.00 per share. As additional consideration for
PCAs buy-out of what Cojuangco would later claim to be his exclusive and
personal option, it was stipulated that, from PCA, Cojuangco shall receive
equity in FUB amounting to 10%, or 7.22%, of the 72.2%, or fully paid shares.
And so as not to dilute Cojuangcos equity position in FUB, later UCPB, the
PCA agreed under paragraph 6 (b) of the second agreement to cede over to
the former a number of fully paid FUB shares out of the shares it (PCA)
undertakes to eventually subscribe. It was further stipulated that Cojuangco
would act as bank president for an extendible period of 5 years.
Apart from the aforementioned 72.2%, PCA purchased from other FUB
shareholders 6,534 shares of which Cojuangco, as may be gathered from the
records, got 10%..
While the 64.98% portion of the option shares (72.2% 7.22% = 64.98%)
ostensibly pertained to the farmers, the corresponding stock certificates
supposedly representing the farmers equity were in the name of and
delivered to PCA. There were, however, shares forming part of the aforesaid
64.98% portion, which ended up in the hands of non-farmers. The remaining
27.8% of the FUB capital stock were not covered by any of the agreements.
Under paragraph # 8 of the second agreement, PCA agreed to expeditiously
distribute the FUB shares purchased to such "coconut farmers holding
registered COCOFUND receipts" on equitable basis.
As found by the Sandiganbayan, the PCA appropriated, out of its own fund, an
amount for the purchase of the said 72.2% equity, albeit it would later
reimburse itself from the coconut levy fund.
And per Cojuangcos own admission, PCA paid, out of the CCSF, the entire acquisition
price for the 72.2% option shares.13
As of June 30, 1975, the list of FUB stockholders included Cojuangco with 14,440 shares
and PCA with 129,955 shares.14 It would appear later that, pursuant to the stipulation on
maintaining Cojuangcos equity position in the bank, PCA would cede to him 10% of its
subscriptions to (a) the authorized but unissued shares of FUB and (b) the increase in
FUBs capital stock (the equivalent of 158,840 and 649,800 shares, respectively). In all,
from the "mother" PCA shares, Cojuangco would receive a total of 95,304 FUB (UCPB)
shares broken down as follows: 14,440 shares + 10% (158,840 shares) + 10% (649,800
shares) = 95,304.15
We further quote, from COCOFED v. Republic, facts relevant to the instant case:16
Shortly after the execution of the PCA Cojuangco Agreement, President Marcos issued,
on July 29, 1975, P.D. No. 755 directing x x x as narrated, PCA to use the CCSF and CIDF
to acquire a commercial bank to provide coco farmers with "readily available credit
facilities at preferential rate" x x x.
Then came the 1986 EDSA event. One of the priorities of then President Corazon C.
Aquinos revolutionary government was the recovery of ill-gotten wealth reportedly
amassed by the Marcos family and close relatives, their nominees and associates.
Apropos thereto, she issued Executive Order Nos. (EO) 1, 2 and 14, as amended by E.O.
14-A, all series of 1986. E.O. 1 created the PCGG and provided it with the tools and
processes it may avail of in the recovery efforts;17 E.O. No. 2 asserted that the ill-gotten
assets and properties come in the form of shares of stocks, etc., while E.O. No. 14
conferred on the Sandiganbayan exclusive and original jurisdiction over ill-gotten wealth
33 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

cases, with the proviso that "technical rules of procedure and evidence shall not be
applied strictly" to the civil cases filed under the EO. Pursuant to these issuances, the
PCGG issued numerous orders of sequestration, among which were those handed out x x
x against shares of stock in UCPB purportedly owned by or registered in the names of (a)
the more than a million coconut farmers, (b) the CIIF companies and (c) Cojuangco, Jr.,
including the SMC shares held by the CIIF companies. On July 31, 1987, the PCGG
instituted before the Sandiganbayan a recovery suit docketed thereat as CC No. 0033.
xxxx
3. Civil Case 0033 x x x would be subdivided into eight complaints, docketed as CC 0033A to CC 0033-H.
xxxx
5. By Decision of December 14, 2001, in G.R. Nos. 147062-64 (Republic v.
COCOFED),18 the Court declared the coco levy funds as prima facie public funds. And
purchased as the sequestered UCPB shares were by such funds, beneficial ownership
thereon and the corollary voting rights prima facie pertain, according to the Court, to the
government.
xxxx
Correlatively, the Republic, on the strength of the December 14, 2001 ruling in Republic v.
COCOFED and on the argument, among others, that the claim of COCOFED and Ballares
et al., over the subject UCPB shares is based solely on the supposed COCOFUND receipts
issued for payment of the RA 6260 CIF levy, filed a Motion for Partial Summary Judgment
RE: COCOFED, et al. and Ballares, et al. dated April 22, 2002, praying that a summary
judgment be rendered declaring:
a. That Section 2 of [PD] 755, Section 5, Article III of P.D. 961 and Section 5,
Article III of P.D. No. 1468 are unconstitutional;
b. That x x x (CIF) payments under x x x (R.A.) No. 6260 are not valid and
legal bases for ownership claims over UCPB shares; and
c. That COCOFED, et al., and Ballares, et al. have not legally and validly
obtained title over the subject UCPB shares.
Right after it filed the Motion for Partial Summary Judgment RE: COCOFED, et al. and
Ballares, et al., the Republic interposed a Motion for Partial Summary Judgment Re:
Eduardo M. Cojuangco, Jr., praying that a summary judgment be rendered:
a. Declaring that Section 1 of P.D. No. 755 is unconstitutional insofar as it validates
the provisions in the "PCA-Cojuangco Agreement x x x" dated May 25, 1975
providing payment of ten percent (10%) commission to defendant Cojuangco with
respect to the FUB, now UCPB shares subject matter thereof;
b. Declaring that x x x Cojuangco, Jr. and his fronts, nominees and dummies,
including x x x and Danilo S. Ursua, have not legally and validly obtained title over
the subject UCPB shares; and
c. Declaring that the government is the lawful and true owner of the subject UCPB
shares registered in the names of Cojuangco, Jr. and the entities and persons
above-enumerated, for the benefit of all coconut farmers. x x x
Following an exchange of pleadings, the Republic filed its sur-rejoinder praying that it be
conclusively declared the true and absolute owner of the coconut levy funds and the
UCPB shares acquired therefrom.19
We quote from COCOFED v. Republic:20
A joint hearing on the separate motions for summary judgment to determine what
material facts exist with or without controversy then ensued. By Order of March 11, 2003,
the Sandiganbayan detailed, based on this Courts ruling in related ill-gotten cases, the
parties manifestations made in open court and the pleadings and evidence on record,
34 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

the facts it found to be without substantial controversy, together with the admissions
and/or extent of the admission made by the parties respecting relevant facts, as follows:
As culled from the exhaustive discussions and manifestations of the parties in open court
of their respective pleadings and evidence on record, the facts which exist without any
substantial controversy are set forth hereunder, together with the admissions and/or the
extent or scope of the admissions made by the parties relating to the relevant facts:
1. The late President Ferdinand E. Marcos was President x x x for two terms
under the 1935 Constitution and, during the second term, he declared Martial
Law through Proclamation No. 1081 dated September 21, 1972.
2. On January 17, 1973, he issued Proclamation No. 1102 announcing the
ratification of the 1973 Constitution.
3. From January 17, 1973 to April 7, 1981, he x x x exercised the powers and
prerogative of President under the 1935 Constitution and the powers and
prerogative of President x x x the 1973 Constitution.
He x x x promulgated various P.D.s, among which were P.D. No. 232, P.D. No.
276, P.D. No. 414, P.D. No. 755, P.D. No. 961 and P.D. No. 1468.
4. On April 17, 1981, amendments to the 1973 Constitution were effected
and, on June 30, 1981, he, after being elected President, "reassumed the title
and exercised the powers of the President until 25 February 1986."
5. Defendants Maria Clara Lobregat and Jose R. Eleazar, Jr. were PCA Directors
x x x during the period 1970 to 1986 x x x.
6. Plaintiff admits the existence of the following agreements which are
attached as Annexes "A" and "B" to the Opposition dated October 10, 2002 of
defendant Eduardo M. Cojuangco, Jr. to the above-cited Motion for Partial
Summary Judgment:
a) "This Agreement made and entered into this ______ day of May, 1975
at Makati, Rizal, Philippines, by and between:
PEDRO COJUANGCO, Filipino, of legal age and with residence at 1575
Princeton St., Mandaluyong, Rizal, for and in his own behalf and in
behalf of certain other stockholders of First United Bank listed in Annex
"A" attached hereto (hereinafter collectively called the SELLERS);
and
EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence at
136 9th Street corner Balete Drive, Quezon City, represented in this act
by his duly authorized attorney-in-fact, EDGARDO J. ANGARA, for and in
his own behalf and in behalf of certain other buyers, (hereinafter
collectively called the BUYERS)";
WITNESSETH: That
WHEREAS, the SELLERS own of record and beneficially a total of
137,866 shares of stock, with a par value of P100.00 each, of the
common stock of the First United Bank (the "Bank"), a commercial
banking corporation existing under the laws of the Philippines;
WHEREAS, the BUYERS desire to purchase, and the SELLERS are willing
to sell, the aforementioned shares of stock totaling 137,866 shares
(hereinafter called the "Contract Shares") owned by the SELLERS due to
their special relationship to EDUARDO COJUANGCO, JR.;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants herein contained, the parties agree as follows:
1. Sale and Purchase of Contract Shares
35 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Subject to the terms and conditions of this Agreement, the

SELLERS hereby sell, assign, transfer and convey unto the
BUYERS, and the BUYERS hereby purchase and acquire, the
Contract Shares free and clear of all liens and encumbrances
thereon.
2. Contract Price
The purchase price per share of the Contract Shares payable by
the BUYERS is P200.00 or an aggregate price of P27,573,200.00
(the "Contract Price").
3. Delivery of, and payment for, stock certificates
Upon the execution of this Agreement, (i) the SELLERS shall
deliver to the BUYERS the stock certificates representing the
Contract Shares, free and clear of all liens, encumbrances,
obligations, liabilities and other burdens in favor of the Bank or
third parties, duly endorsed in blank or with stock powers
sufficient to transfer the shares to bearer; and (ii) BUYERS shall
deliver to the SELLERS P27,511,295.50 representing the Contract
Price less the amount of stock transfer taxes payable by the
SELLERS, which the BUYERS undertake to remit to the appropriate
authorities. (Emphasis added.)
4. Representation and Warranties of Sellers
The SELLERS respectively and independently of each other
represent and warrant that:
(a) The SELLERS are the lawful owners of, with good
marketable title to, the Contract Shares and that (i) the
certificates to be delivered pursuant thereto have been
validly issued and are fully paid and non-assessable; (ii) the
Contract Shares are free and clear of all liens,
encumbrances, obligations, liabilities and other burdens in
favor of the Bank or third parties x x x.
This representation shall survive the execution and delivery
of this Agreement and the consummation or transfer hereby
contemplated.
(b) The execution, delivery and performance of this
Agreement by the SELLERS does not conflict with or
constitute any breach of any provision in any agreement to
which they are a party or by which they may be bound.
(c) They have complied with the condition set forth in
Article X of the Amended Articles of Incorporation of the
Bank.
5. Representation of BUYERS
xxxx
6. Implementation
The parties hereto hereby agree to execute or cause to be
executed such documents and instruments as may be required in
order to carry out the intent and purpose of this Agreement.
7. Notices
xxxx
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands at the place and on the date first above written.
36 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

PEDRO COJUANGCO
(on his own behalf and in
behalf of the other
listed in Annex "A" hereof)
(SELLERS)

EDUARDO COJUANGCO, JR.

(on his own behalf and in
behalf
Sellers of the other Buyers)
(BUYERS)

By:
EDGARDO J. ANGARA
Attorney-in-Fact
xxxx
b) "Agreement for the Acquisition of a Commercial Bank for the Benefit of the
Coconut Farmers of the Philippines, made and entered into this 25th day of
May 1975 at Makati, Rizal, Philippines, by and between:
EDUARDO M. COJUANGCO, JR., Filipino, of legal age, with business
address at 10th Floor, Sikatuna Building, Ayala Avenue, Makati, Rizal,
hereinafter referred to as the SELLER;
and
PHILIPPINE COCONUT AUTHORITY, a public corporation created by
Presidential Decree No. 232, as amended, for itself and for the benefit
of the coconut farmers of the Philippines, (hereinafter called the
BUYER)"
WITNESSETH: That
WHEREAS, on May 17, 1975, the Philippine Coconut Producers
Federation ("PCPF"), through its Board of Directors, expressed the
desire of the coconut farmers to own a commercial bank which will be
an effective instrument to solve the perennial credit problems and, for
that purpose, passed a resolution requesting the PCA to negotiate with
the SELLER for the transfer to the coconut farmers of the SELLERs
option to buy the First United Bank (the "Bank") under such terms and
conditions as BUYER may deem to be in the best interest of the coconut
farmers and instructed Mrs. Maria Clara Lobregat to convey such
request to the BUYER;
WHEREAS, the PCPF further instructed Mrs. Maria Clara Lobregat to
make representations with the BUYER to utilize its funds to finance the
purchase of the Bank;
WHEREAS, the SELLER has the exclusive and personal option to buy
144,400 shares (the "Option Shares") of the Bank, constituting 72.2% of
the present outstanding shares of stock of the Bank, at the price of
P200.00 per share, which option only the SELLER can validly exercise;
WHEREAS, in response to the representations made by the coconut
farmers, the BUYER has requested the SELLER to exercise his personal
option for the benefit of the coconut farmers;
WHEREAS, the SELLER is willing to transfer the Option Shares to the
BUYER at a price equal to his option price of P200 per share;
WHEREAS, recognizing that ownership by the coconut farmers of a
commercial bank is a permanent solution to their perennial credit
problems, that it will accelerate the growth and development of the
coconut industry and that the policy of the state which the BUYER is
required to implement is to achieve vertical integration thereof so that
coconut farmers will become participants in, and beneficiaries of the
development and growth of the coconut industry, the BUYER approved
the request of PCPF that it acquire a commercial bank to be owned by
the coconut farmers and, appropriated, for that purpose, the sum of
P150 Million to enable the farmers to buy the Bank and capitalize the
37 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Bank to such an extension as to be in a position to adopt a credit policy

for the coconut farmers at preferential rates;
WHEREAS, x x x the BUYER is willing to subscribe to additional shares
("Subscribed Shares") and place the Bank in a more favorable financial
position to extend loans and credit facilities to coconut farmers at
preferential rates;
NOW, THEREFORE, for and in consideration of the foregoing premises
and the other terms and conditions hereinafter contained, the parties
hereby declare and affirm that their principal contractual intent is (1) to
ensure that the coconut farmers own at least 60% of the outstanding
capital stock of the Bank; and (2) that the SELLER shall receive
compensation for exercising his personal and exclusive option to
acquire the Option Shares, for transferring such shares to the coconut
farmers at the option price of P200 per share, and for performing the
management services required of him hereunder.
1. To ensure that the transfer to the coconut farmers of the Option
Shares is effected with the least possible delay and to provide for
the faithful performance of the obligations of the parties
hereunder, the parties hereby appoint the Philippine National
Bank as their escrow agent (the "Escrow Agent").
Upon execution of this Agreement, the BUYER shall deposit with
the Escrow Agent such amount as may be necessary to
implement the terms of this Agreement x x x.
2. As promptly as practicable after execution of this Agreement,
the SELLER shall exercise his option to acquire the Option Share
and SELLER shall immediately thereafter deliver and turn over to
the Escrow Agent such stock certificates as are herein provided to
be received from the existing stockholders of the Bank by virtue
of the exercise on the aforementioned option x x x.
3. To ensure the stability of the Bank and continuity of
management and credit policies to be adopted for the benefit of
the coconut farmers, the parties undertake to cause the
stockholders and the Board of Directors of the Bank to authorize
and approve a management contract between the Bank and the
SELLER under the following terms:
(a) The management contract shall be for a period of five
(5) years, renewable for another five (5) years by mutual
agreement of the SELLER and the Bank;
(b) The SELLER shall be elected President and shall hold
office at the pleasure of the Board of Directors. While
serving in such capacity, he shall be entitled to such
salaries and emoluments as the Board of Directors may
determine;
(c) The SELLER shall recruit and develop a professional
management team to manage and operate the Bank under
the control and supervision of the Board of Directors of the
Bank;
(d) The BUYER undertakes to cause three (3) persons
designated by the SELLER to be elected to the Board of
Directors of the Bank;
(e) The SELLER shall receive no compensation for managing
the Bank, other than such salaries or emoluments to which
he may be entitled by virtue of the discharge of his function
and duties as President, provided x x x and

38 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

(f) The management contract may be assigned to a

management company owned and controlled by the
SELLER.
4. As compensation for exercising his personal and exclusive
option to acquire the Option Shares and for transferring such
shares to the coconut farmers, as well as for performing the
management services required of him, SELLER shall receive
equity in the Bank amounting, in the aggregate, to 95,304 fully
paid shares in accordance with the procedure set forth in
paragraph 6 below;
5. In order to comply with the Central Bank program for increased
capitalization of banks and to ensure that the Bank will be in a
more favorable financial position to attain its objective to extend
to the coconut farmers loans and credit facilities, the BUYER
undertakes to subscribe to shares with an aggregate par value of
P80,864,000 (the "Subscribed Shares"). The obligation of the
BUYER with respect to the Subscribed Shares shall be as follows:
(a) The BUYER undertakes to subscribe, for the benefit of
the coconut farmers, to shares with an aggregate par value
of P15,884,000 from the present authorized but unissued
shares of the Bank; and
(b) The BUYER undertakes to subscribe, for the benefit of
the coconut farmers, to shares with an aggregate par value
of P64,980,000 from the increased capital stock of the
Bank, which subscriptions shall be deemed made upon the
approval by the stockholders of the increase of the
authorized capital stock of the Bank from P50 Million to
P140 Million.
The parties undertake to declare stock dividends of P8 Million out
of the present authorized but unissued capital stock of P30
Million.
6. To carry into effect the agreement of the parties that the
SELLER shall receive as his compensation 95,304 shares:
(a) The Escrow Agent shall, upon receipt from the SELLER of
the stock certificates representing the Option Shares, duly
endorsed in blank or with stock powers sufficient to transfer
the same to bearer, present such stock certificates to the
Transfer Agent of the Bank and shall cause such Transfer
Agent to issue stock certificates of the Bank in the following
ratio: one share in the name of the SELLER for every nine
shares in the name of the BUYER.
(b) With respect to the Subscribed Shares, the BUYER
undertakes, in order to prevent the dilution of SELLERs
equity position, that it shall cede over to the SELLER 64,980
fully-paid shares out of the Subscribed Shares. Such
undertaking shall be complied with in the following manner:
upon receipt of advice that the BUYER has subscribed to the
Subscribed Shares upon approval by the stockholders of the
increase of the authorized capital stock of the Bank, the
Escrow Agent shall thereupon issue a check in favor of the
Bank covering the total payment for the Subscribed Shares.
The Escrow Agent shall thereafter cause the Transfer Agent
to issue a stock certificates of the Bank in the following
ratio: one share in the name of the SELLER for every nine
shares in the name of the BUYER.
7. The parties further undertake that the Board of Directors and management
of the Bank shall establish and implement a loan policy for the Bank of
39 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

making available for loans at preferential rates of interest to the coconut

farmers x x x.
8. The BUYER shall expeditiously distribute from time to time the shares of
the Bank, that shall be held by it for the benefit of the coconut farmers of the
Philippines under the provisions of this Agreement, to such, coconut farmers
holding registered COCOFUND receipts on such equitable basis as may be
determine by the BUYER in its sound discretion.
9. x x x x
10. To ensure that not only existing but future coconut farmers shall be
participants in and beneficiaries of the credit policies, and shall be entitled to
the benefit of loans and credit facilities to be extended by the Bank to
coconut farmers at preferential rates, the shares held by the coconut farmers
shall not be entitled to pre-emptive rights with respect to the unissued
portion of the authorized capital stock or any increase thereof.
11. After the parties shall have acquired two-thirds (2/3) of the outstanding
shares of the Bank, the parties shall call a special stockholders meeting of
the Bank:
(a) To classify the present authorized capital stock of P50,000,000
divided into 500,000 shares, with a par value of P100.00 per share into:
361,000 Class A shares, with an aggregate par value of P36,100,000
and 139,000 Class B shares, with an aggregate par value of
P13,900,000. All of the Option Shares constituting 72.2% of the
outstanding shares, shall be classified as Class A shares and the
balance of the outstanding shares, constituting 27.8% of the
outstanding shares, as Class B shares;
(b) To amend the articles of incorporation of the Bank to effect the
following changes:
(i) change of corporate name to First United Coconut Bank;
(ii) replace the present provision restricting the transferability of
the shares with a limitation on ownership by any individual or
entity to not more than 10% of the outstanding shares of the
Bank;
(iii) provide that the holders of Class A shares shall not be entitled
to pre-emptive rights with respect to the unissued portion of the
authorized capital stock or any increase thereof; and
(iv) provide that the holders of Class B shares shall be absolutely
entitled to pre-emptive rights, with respect to the unissued
portion of Class B shares comprising part of the authorized capital
stock or any increase thereof, to subscribe to Class B shares in
proportion t the subscriptions of Class A shares, and to pay for
their subscriptions to Class B shares within a period of five (5)
years from the call of the Board of Directors.
(c) To increase the authorized capital stock of the Bank from P50 Million
to P140 Million, divided into 1,010,800 Class A shares and 389,200
Class B shares, each with a par value of P100 per share;
(d) To declare a stock dividend of P8 Million payable to the SELLER, the
BUYER and other stockholders of the Bank out of the present authorized
but unissued capital stock of P30 Million;
(e) To amend the by-laws of the Bank accordingly; and
(f) To authorize and approve the management contract provided in
paragraph 2 above.

40 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

The parties agree that they shall vote their shares and take all the necessary
corporate action in order to carry into effect the foregoing provisions of this
paragraph 11, including such other amendments of the articles of
incorporation and by-laws of the Bank as are necessary in order to implement
the intention of the parties with respect thereto.
12. It is the contemplation of the parties that the Bank shall achieve a
financial and equity position to be able to lend to the coconut farmers at
preferential rates.
In order to achieve such objective, the parties shall cause the Bank to adopt a
policy of reinvestment, by way of stock dividends, of such percentage of the
profits of the Bank as may be necessary.
13. The parties agree to execute or cause to be executed such documents
and instruments as may be required in order to carry out the intent and
purpose of this Agreement.
IN WITNESS WHEREOF x x x
PHILIPPINE COCONUT AUTHORITY
(BUYER)
By:
EDUARDO COJUANGCO, JR.
(SELLER)

MARIA CLARA L. LOBREGAT

xxxx
7. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the x x
x (PCA) was the "other buyers" represented by defendant Eduardo M. Cojuangco, Jr. in the
May 1975 Agreement entered into between Pedro Cojuangco (on his own behalf and in
behalf of other sellers listed in Annex "A"of the agreement) and defendant Eduardo M.
Cojuangco, Jr. (on his own behalf and in behalf of the other buyers). Defendant Cojuangco
insists he was the "only buyer" under the aforesaid Agreement.
8. Defendant Eduardo M. Cojuangco, Jr. did not own any share in the x x x (FUB) prior to
the execution of the two Agreements x x x.
9. Defendants Lobregat, et al., and COCOFED, et al., and Ballares, et al. admit that in
addition to the 137,866 FUB shares of Pedro Cojuangco, et al. covered by the Agreement,
other FUB stockholders sold their shares to PCA such that the total number of FUB shares
purchased by PCA increased from 137,866 shares to 144,400 shares, the OPTION
SHARES referred to in the Agreement of May 25, 1975. Defendant Cojuangco did not
make said admission as to the said 6,534 shares in excess of the 137,866 shares covered
by the Agreement with Pedro Cojuangco.
10. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the
Agreement, described in Section 1 of Presidential Decree (P.D.) No. 755 dated July 29,
1975 as the "Agreement for the Acquisition of a Commercial Bank for the Benefit of
Coconut Farmers" executed by the Philippine Coconut Authority" and incorporated in
Section 1 of P.D. No. 755 by reference, refers to the "AGREEMENT FOR THE ACQUISITION
OF A COMMERCIAL BANK FOR THE BENEFIT OF THE COCONUT FARMERS OF THE
PHILIPPINES" dated May 25, 1975 between defendant Eduardo M. Cojuangco, Jr. and the
PCA (Annex "B" for defendant Cojuangcos OPPOSITION TO PLAINTIFFS MOTION FOR
PARTIAL SUMMARY JUDGMENT RE: EDUARDO M. COJUANGCO, JR. dated September 18,
2002).
Plaintiff refused to make the same admission.
11. As to whether P.D. No. 755 and the text of the agreement described therein was
published, the Court takes judicial notice that P.D. No. 755 was published in x x x volume
71 of the Official Gazette but the text of the agreement x x x was not so published with
P.D. No. 755.

41 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

12. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the
PCA used public funds x x x in the total amount of P150 million, to purchase the FUB
shares amounting to 72.2% of the authorized capital stock of the FUB, although the PCA
was later reimbursed from the coconut levy funds and that the PCA subscription in the
increased capitalization of the FUB, which was later renamed the x x x (UCPB), came from
the said coconut levy funds x x x.
13. Pursuant to the May 25, 1975 Agreement, out of the 72.2% shares of the authorized
and the increased capital stock of the FUB (later UCPB), entirely paid for by PCA, 64.98%
of the shares were placed in the name of the "PCA for the benefit of the coconut farmers"
and 7,22% were given to defendant Cojuangco. The remaining 27.8% shares of stock in
the FUB which later became the UCPB were not covered by the two (2) agreements
referred to in item no. 6, par. (a) and (b) above. "There were shares forming part of the
aforementioned 64.98% which were later sold or transferred to non-coconut farmers.
14. Under the May 27, 1975 Agreement, defendant Cojuangcos equity in the FUB (now
UCPB) was ten percent (10%) of the shares of stock acquired by the PCA for the benefit of
the coconut farmers.
15. That the fully paid 95.304 shares of the FUB, later the UCPB, acquired by defendant x
x x Cojuangco, Jr. pursuant to the May 25, 1975 Agreement were paid for by the PCA in
accordance with the terms and conditions provided in the said Agreement. 16.
Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the
affidavits of the coconut farmers (specifically, Exhibit "1-Farmer" to "70-Farmer")
uniformly state that:
a. they are coconut farmers who sold coconut products;
b. in the sale thereof, they received COCOFUND receipts pursuant to R.A. No.
6260;
c. they registered the said COCOFUND receipts; and
d. by virtue thereof, and under R.A. No. 6260, P.D. Nos. 755, 961 and 1468,
they are allegedly entitled to the subject UCPB shares.
but subject to the following qualifications:
a. there were other coconut farmers who received UCPB shares although they
did not present said COCOFUND receipt because the PCA distributed the
unclaimed UCPB shares not only to those who already received their UCPB
shares in exchange for their COCOFUND receipts but also to the coconut
farmers determined by a national census conducted pursuant to PCA
administrative issuances;
b. there were other affidavits executed by Lobregat, Eleazar, Ballares and
Aldeguer relative to the said distribution of the unclaimed UCPB shares; and
c. the coconut farmers claim the UCPB shares by virtue of their compliance
not only with the laws mentioned in item (d) above but also with the relevant
issuances of the PCA such as, PCA Administrative Order No. 1, dated August
20, 1975 (Exh. "298-Farmer"); PCA Resolution No. 033-78 dated February 16,
1978.
The plaintiff did not make any admission as to the foregoing qualifications.
17. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. claim that the
UCPB shares in question have legitimately become the private properties of the
1,405,366 coconut farmers solely on the basis of their having acquired said shares in
compliance with R.A. No. 6260, P.D. Nos. 755, 961 and 1468 and the administrative
issuances of the PCA cited above.
18. On the other hand, defendant Cojuangco, Jr. claims ownership of the UCPB shares,
which he holds, solely on the basis of the two Agreements. (Emphasis and words in
brackets added.)

42 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

On July 11, 2003, the Sandiganbayan issued the assailed PSJ-A, ruling in favor of the
Republic, disposing insofar as pertinent as follows:21
WHEREFORE, in view of the foregoing, we rule as follows:
xxxx
C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.)
dated September 18, 2002 filed by plaintiff.
1. Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and
defendant Eduardo M. Cojuangco, Jr. dated May 25, 1975 nor did it give the
Agreement the binding force of a law because of the non-publication of the said
Agreement.
2. Regarding the questioned transfer of the shares of stock of FUB (later UCPB) by
PCA to defendant Cojuangco or the so-called "Cojuangco UCPB shares" which cost
the PCA more than Ten Million Pesos in CCSF in 1975, we declare, that the transfer
of the following FUB/UCPB shares to defendant Eduardo M. Cojuangco, Jr. was not
supported by valuable consideration, and therefore null and void:
a. The 14,400 shares from the "Option Shares";
b. Additional Bank Shares Subscribed and Paid by PCA, consisting of:
1. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of
the authorized but unissued shares of the bank, subscribed and paid by
PCA;
2. Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the
increased capital stock subscribed and paid by PCA; and
3. Stock dividends declared pursuant to paragraph 5 and paragraph 11
(iv) (d) of the Agreement.
3. The above-mentioned shares of stock of the FUB/UCPB transferred to defendant
Cojuangco are hereby declared conclusively owned by the plaintiff Republic of the
Philippines.
4. The UCPB shares of stock of the alleged fronts, nominees and dummies of
defendant Eduardo M. Cojuangco, Jr. which form part of the 72.2% shares of the
FUB/UCPB paid for by the
PCA with public funds later charged to the coconut levy funds, particularly the CCSF,
belong to the plaintiff Republic of the Philippines as their true and beneficial owner.
Let trial of this Civil Case proceed with respect to the issues which have not been
disposed of in this Partial Summary Judgment. For this purpose, the plaintiffs Motion Ad
Cautelam to Present
Additional Evidence dated March 28, 2001 is hereby GRANTED. 22 (Emphasis and
underlining added.)
As earlier explained, the core issue in this instant petition is Part C of the dispositive
portion in PSJ-A declaring the 7.22% FUB (now UCPB) shares transferred to Cojuangco,
plus the other shares paid by the PCA as "conclusively" owned by the Republic. Parts A
and B of the same dispositive portion have already been finally resolved and adjudicated
by this Court in COCOFED v. Republic on January 24, 2012.23
From PSJ-A, Cojuangco moved for partial reconsideration but the Sandiganbayan, by
Resolution24 of December 28, 2004, denied the motion.
Hence, the instant petition.
The Issues
Cojuangcos petition formulates the issues in question form, as follows:25
43 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

a. Is the acquisition of the so-called Cojuangco, Jr. UCPB shares by petitioner

Cojuangco x x x "not supported by valuable consideration and, therefore, null and
void"?
b. Did the Sandiganbayan have jurisdiction, in Civil Case No. 0033-A, an "ill-gotten
wealth" case brought under EO Nos. 1 and 2, to declare the Cojuangco UCPB shares
acquired by virtue of the Pedro Cojuangco, et al. Agreement and/or the PCA
Agreement null and void because "not supported by valuable consideration"?
c. Was the claim that the acquisition by petitioner Cojuangco of shares representing
7.2% of the outstanding capital stock of FUB (later UCPB) "not supported by
valuable consideration", a "claim" pleaded in the complaint and may therefore be
the basis of a "summary judgment" under Section 1, Rule 35 of the Rules of Court?
d. By declaring the Cojuangco UCPB shares as "not supported by valuable
consideration, and therefore, null and void", did the Sandiganbayan effectively
nullify the PCA Agreement? May the Sandiganbayan nullify the PCA Agreement
when the parties to the Agreement, namely: x x x concede its validity? If the PCA
Agreement be deemed "null and void", should not the FUB (later UCPB) shares
revert to petitioner Cojuangco (under the PCA Agreement) or to Pedro Cojuangco, et
al. x x x? Would there be a basis then, even assuming the absence of consideration
x x x, to declare 7.2% UCPB shares of petitioner Cojuangco as "conclusively owned
by the plaintiff Republic of the Philippines"?26
The Courts Ruling
I
THE SANDIGANBAYAN HAS JURISDICTION OVER THE SUBJECT MATTER OF THE
SUBDIVIDED AMENDED COMPLAINTS, INCLUDING THE SHARES ALLEGEDLY ACQUIRED BY
COJUANGCO BY VIRTUE OF THE PCA AGREEMENTS.
The issue of jurisdiction over the subject matter of the subdivided amended complaints
has peremptorily been put to rest by the Court in its January 24, 2012 Decision in
COCOFED v. Republic. There, the Court, citing Regalado27and settled jurisprudence,
stressed the following interlocking precepts: Subject matter jurisdiction is conferred by
law, not by the consent or acquiescence of any or all of the parties. In turn, the issue on
whether a suit comes within the penumbra of a statutory conferment is determined by
the allegations in the complaint, regardless of whether or not the suitor will be entitled to
recover upon all or part of the claims asserted.
The Republics material averments in its complaint subdivided in CC No. 0033-A included
the following:
CC No. 0033-A
12. Defendant Eduardo M. Cojuangco, Jr. served as a public officer during the Marcos
administration. During the period of his incumbency as a public officer, he acquired
assets, funds and other property grossly and manifestly disproportionate to his salaries,
lawful income and income from legitimately acquired property.
13. Defendant Eduardo M. Cojuangco, Jr., taking undue advantage of his association,
influence, connection, and acting in unlawful concert with Defendants Ferdinand E.
Marcos and Imelda R. Marcos, AND THE INDIVIDUAL DEFENDANTS, embarked upon
devices, schemes and stratagems, to unjustly enrich themselves at the expense of
Plaintiff and the Filipino people, such as when he
a) manipulated, beginning the year 1975 with the active collaboration of
Defendants x x x Maria Clara Lobregat, Danilo Ursua etc., the purchase by . . . (PCA)
of 72.2% of the outstanding capital stock of the x x x (FUB) which was subsequently
converted into a universal bank named x x x (UCPB) through the use of the Coconut
Consumers Stabilization Fund (CCSF) being initially in the amount of
P85,773,100.00 in a manner contrary to law and to the specific purposes for which
said coconut levy funds were imposed and collected under P.D. 276, and with
sinister designs and under anomalous circumstances, to wit:

44 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

(i) Defendant Eduardo Cojuangco, Jr. coveted the coconut levy funds as a
cheap, lucrative and risk-free source of funds with which to exercise his
private option to buy the controlling interest in FUB; thus, claiming that the
72.2% of the outstanding capital stock of FUB could only be purchased and
transferred through the exercise of his "personal and exclusive action option
to acquire the 144,000 shares" of the bank, Defendant Eduardo M. Cojuangco,
Jr. and PCA, x x x executed on May 26, 1975 a purchase agreement which
provides, among others, for the payment to him in fully paid shares as
compensation thereof 95,384 shares worth P1,444,000.00 with the further
condition that he shall manage and control the bank as Director and President
for a term of five (5) years renewable for another five (5) years and to
designate three (3) persons of his choice who shall be elected as members of
the Board of Directors of the Bank;
(ii) to legitimize a posteriori his highly anomalous and irregular use and
diversion of government funds to advance his own private and commercial
interests, Defendant Eduardo Cojuangco, Jr. caused the issuance by
Defendant Ferdinand E. Marcos of PD 755 (a) declaring that the coconut levy
funds shall not be considered special and fiduciary and trust funds and do not
form part of the general funds of the National Government, conveniently
repealing for that purpose a series of previous decrees, PDs 276 and 414,
establishing the character of the coconut levy funds as special, fiduciary, trust
and governmental funds; (b) confirming the agreement between Defendant
Eduardo Cojuangco, Jr. and PCA on the purchase of FUB by incorporating by
reference said private commercial agreement in PD 755;
(iii)To further consolidate his hold on UCPB, Defendant Eduardo Cojuangco, Jr.
imposed as consideration and conditions for the purchase that (a) he gets one
out of every nine shares given to PCA, and (b) he gets to manage and control
UCPB as president for a term of five (5) years renewable for another five (5)
years;
(iv) To perpetuate his opportunity to deal with and make use of the coconut
levy funds x x x Cojuangco, Jr. caused the issuance by Defendant Ferdinand E.
Marcos of an unconstitutional decree (PD 1468) requiring the deposit of all
coconut levy funds with UCPB, interest free to the prejudice of the
government.
(v) In gross violation of their fiduciary positions and in contravention of the
goal to create a bank for the coconut farmers of the country, the capital stock
of UCPB as of February 25, 1986 was actually held by the defendants, their
lawyers, factotum and business associates, thereby finally gaining control of
the UCPB by misusing the names and identities of the so-called "more than
one million coconut farmers."
14. The acts of Defendants, singly or collectively, and/or in unlawful concert with
one another, constitute gross abuse of official position and authority, flagrant
breach of public trust and fiduciary obligations, brazen abuse of right and power,
and unjust enrichment, violation of the constitution and laws of the Republic of the
Philippines, to the grave and irreparable damage of Plaintiff and the Filipino
people.28
In no uncertain terms, the Court has upheld the Sandiganbayans assumption of
jurisdiction over the subject matter of Civil Case Nos. 0033-A and 0033-F. 29 The Court
wrote:
Judging from the allegations of the defendants illegal acts thereat made, it is fairly
obvious that both CC Nos. 0033-A and CC 0033-F partake, in the context of EO Nos. 1, 2
and 14, series of 1986, the nature of ill-gotten wealth suits. Both deal with the recovery of
sequestered shares, property or business enterprises claimed, as alleged in the
corresponding basic complaints, to be ill-gotten assets of President Marcos, his cronies
and nominees and acquired by taking undue advantage of relationships or influence
and/or through or as a result of improper use, conversion or diversion of government
funds or property. Recovery of these assetsdetermined as shall hereinafter be discussed
as prima facie ill-gottenfalls within the unquestionable jurisdiction of the
Sandiganbayan.30
45 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

P.D. No. 1606, as amended by R.A. 7975 and E.O. No. 14, Series of 1986, vests the
Sandiganbayan with, among others, original jurisdiction over civil and criminal cases
instituted pursuant to and in connection with E.O. Nos. 1, 2, 14 and 14-A. Correlatively,
the PCGG Rules and Regulations defines the term "Ill-Gotten Wealth" as "any asset,
property, business enterprise or material possession of persons within the purview of E.O.
Nos. 1 and 2, acquired by them directly, or indirectly thru dummies, nominees, agents,
subordinates and/or business associates by any of the following means or similar
schemes":
(1) Through misappropriation, conversion, misuse or malversation of public funds or
raids on the public treasury;
(2) x x x x
(3) By the illegal or fraudulent conveyance or disposition of assets belonging to the
government or any of its subdivisions, agencies or instrumentalities or governmentowned or controlled corporations;
(4) By obtaining, receiving or accepting directly or indirectly any shares of stock,
equity or any other form of interest or participation in any business enterprise or
undertaking;
(5) Through the establishment of agricultural, industrial or commercial monopolies
or other combination and/or by the issuance, promulgation and/or implementation
of decrees and orders intended to benefit particular persons or special interests;
and
(6) By taking undue advantage of official position, authority, relationship or
influence for personal gain or benefit. (Emphasis supplied)
Section 2(a) of E.O. No. 1 charged the PCGG with the task of assisting the President in
"The recovery of all ill-gotten wealth accumulated by former President Marcos, his
immediate family, relatives, subordinates and close associates including the takeover
or sequestration of all business enterprises and entities owned or controlled by them,
during his administration, directly or through nominees, by taking undue advantage of
their public office and/or using their powers, authority, influence, connections or
relationship." Complementing the aforesaid Section 2(a) is Section 1 of E.O. No. 2
decreeing the freezing of all assets "in which the Marcoses their close relatives,
subordinates, business associates, dummies, agents or nominees have any interest or
participation."
The Republics averments in the amended complaints, particularly those detailing the
alleged wrongful acts of the defendants, sufficiently reveal that the subject matter thereof
comprises the recovery by the Government of ill-gotten wealth acquired by then President
Marcos, his cronies or their associates and dummies through the unlawful, improper
utilization or diversion of coconut levy funds aided by P.D. No. 755 and other sister
decrees. President Marcos himself issued these decrees in a brazen bid to legalize what
amounts to private taking of the said public funds.
xxxx
There was no actual need for Republic, as plaintiff a quo, to adduce evidence to show that
the Sandiganbayan has jurisdiction over the subject matter of the complaints as it leaned
on the averments in the initiatory pleadings to make visible the jurisdiction of the
Sandiganbayan over the ill-gotten wealth complaints. As previously discussed, a perusal
of the allegations easily reveals the sufficiency of the statement of matters disclosing the
claim of the government against the coco levy funds and the assets acquired directly or
indirectly through said funds as ill-gotten wealth. Moreover, the Court finds no rule that
directs the plaintiff to first prove the subject matter jurisdiction of the court before which
the complaint is filed. Rather, such burden falls on the shoulders of defendant in the
hearing of a motion to dismiss anchored on said ground or a preliminary hearing thereon
when such ground is alleged in the answer.
xxxx
Lest it be overlooked, this Court has already decided that the sequestered shares are
prima facie ill-gotten wealth rendering the issue of the validity of their sequestration and
46 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

of the jurisdiction of the Sandiganbayan over the case beyond doubt. In the case of
COCOFED v. PCGG, We stated that:
It is of course not for this Court to pass upon the factual issues thus raised. That function
pertains to the Sandiganbayan in the first instance. For purposes of this proceeding, all
that the Court needs to determine is whether or not there is prima facie justification for
the sequestration ordered by the PCGG. The Court is satisfied that there is. The cited
incidents, given the public character of the coconut levy funds, place petitioners
COCOFED and its leaders and officials, at least prima facie, squarely within the purview of
Executive Orders Nos. 1, 2 and 14, as construed and applied in BASECO, to wit:
"1. that ill-gotten properties (were) amassed by the leaders and supporters of the
previous regime;
"a. more particularly, that (i) Ill-gotten wealth was accumulated by x x x Marcos, his
immediate family, relatives, subordinates and close associates, x x x (and) business
enterprises and entities (came to be) owned or controlled by them, during x x x (the
Marcos) administration, directly or through nominees, by taking undue advantage of their
public office and using their powers, authority, influence, connections or relationships;
"b. otherwise stated, that there are assets and properties purportedly pertaining to the
Marcoses, their close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly, through or as a
result of the improper or illegal use of funds or properties owned by the Government x x x
or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by
taking undue advantage of their office, authority, influence, connections or relationship,
resulting in their unjust enrichment x x x;
xxxx
2. The petitioners claim that the assets acquired with the coconut levy funds are
privately owned by the coconut farmers is founded on certain provisions of law, to wit
Sec. 7, RA 6260 and Sec. 5, Art. III, PD 1468 (Words in bracket added; italics in the
original).
xxxx
E.O. 1, 2, 14 and 14-A, it bears to stress, were issued precisely to effect the recovery of illgotten assets amassed by the Marcoses, their associates, subordinates and cronies, or
through their nominees. Be that as it may, it stands to reason that persons listed as
associated with the Marcoses refer to those in possession of such ill-gotten wealth but
holding the same in behalf of the actual, albeit undisclosed owner, to prevent discovery
and consequently recovery. Certainly, it is well-nigh inconceivable that ill-gotten assets
would be distributed to and left in the hands of individuals or entities with obvious
traceable connections to Mr. Marcos and his cronies. The Court can take, as it has in fact
taken, judicial notice of schemes and machinations that have been put in place to keep
ill-gotten assets under wraps. These would include the setting up of layers after layers of
shell or dummy, but controlled, corporations31 or manipulated instruments calculated to
confuse if not altogether mislead would-be investigators from recovering wealth
deceitfully amassed at the expense of the people or simply the fruits thereof. Transferring
the illegal assets to third parties not readily perceived as Marcos cronies would be
another. So it was that in PCGG v. Pena, the Court, describing the rule of Marcos as a "well
entrenched plundering regime of twenty years," noted the magnitude of the past
regimes organized pillage and the ingenuity of the plunderers and pillagers with the
assistance of experts and the best legal minds in the market.32
Prescinding from the foregoing premises, there can no longer be any serious challenge as
to the Sandiganbayans subject matter jurisdiction. And in connection therewith, the
Court wrote in COCOFED v. Republic, that the instant petition shall be decided separately
and should not be affected by the January 24, 2012 Decision, "save for determinatively
legal issues directly addressed" therein.33 Thus:
We clarify that PSJ-A is subject of another petition for review interposed by Eduardo
Cojuangco, Jr., in G.R. No. 180705 entitled, Eduardo M. Cojuangco, Jr. v. Republic of the
Philippines, which shall be decided separately by this Court. Said petition should
accordingly not be affected by this Decision save for determinatively legal issues directly
addressed herein.34 (Emphasis Ours.)
47 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

We, therefore, reiterate our holding in COCOFED v. Republic respecting the

Sandiganbayans jurisdiction over the subject matter of Civil Case No. 0033-A, including
those matters whose adjudication We shall resolve in the present case.
II
PRELIMINARILY, THE AGREEMENT BETWEEN THE PCA AND EDUARDO M. COJUANGCO, JR.
DATED MAY 25, 1975 CANNOT BE ACCORDED THE STATUS OF A LAW FOR THE LACK OF
THE REQUISITE PUBLICATION.
It will be recalled that Cojuangcos claim of ownership over the UCPB shares is hinged on
two contract documents the respective contents of which formed part of and reproduced
in their entirety in the aforecited Order35 of the Sandiganbayan dated March 11, 2003.
The first contract refers to the agreement entered into by and between Pedro Cojuangco
and his group, on one hand, and Eduardo M. Cojuangco, Jr., on the other, bearing date
"May 1975"36 (hereinafter referred to as "PC-ECJ Agreement"), while the second relates to
the accord between the PCA and Eduardo M. Cojuangco, Jr. dated May 25, 1975
(hereinafter referred to as "PCA-Cojuangco Agreement"). The PC-ECJ Agreement allegedly
contains, inter alia, Cojuangcos personal and exclusive option to acquire the FUB
("UCPB") shares from Pedro and his group. The PCA-Cojuangco Agreement shows PCAs
acquisition of the said option from Eduardo M. Cojuangco, Jr.
Section 1 of P.D. No. 755 incorporated, by reference, the "Agreement for the Acquisition of
a Commercial Bank for the Benefit of the Coconut Farmers" executed by the PCA.
Particularly, Section 1 states:
Section 1. Declaration of National Policy. It is hereby declared that the policy of the State
is to provide readily available credit facilities to the coconut farmers at preferential rates;
that this policy can be expeditiously and efficiently realized by the implementation of the
"Agreement for the Acquisition of a Commercial Bank for the benefit of the Coconut
Farmers" executed by the Philippine Coconut Authority, the terms of which "Agreement"
are hereby incorporated by reference; and that the Philippine Coconut Authority is hereby
authorized to distribute, for free, the shares of stock of the bank it acquired to the
coconut farmers under such rules and regulations it may promulgate. (Emphasis Ours.)
It bears to stress at this point that the PCA-Cojuangco Agreement referred to above in
Section 1 of P.D. 755 was not reproduced or attached as an annex to the same law. And it
is well-settled that laws must be published to be valid. In fact, publication is an
indispensable condition for the effectivity of a law. Taada v. Tuvera 37 said as much:
Publication of the law is indispensable in every case x x x.
xxxx
We note at this point the conclusive presumption that every person knows the law, which
of course presupposes that the law has been published if the presumption is to have any
legal justification at all. It is no less important to remember that Section 6 of the Bill of
Rights recognizes "the right of the people to information on matters of public concern,"
and this certainly applies to, among others, and indeed especially, the legislative
enactments of the government.
xxxx
We hold therefore that all statutes, including those of local application and private laws,
shall be published as a condition for their effectivity, which shall begin fifteen days after
publication unless a different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the
President in the exercise of legislative powers whenever the same are validly delegated
by the legislature, or, at present, directly conferred by the Constitution. Administrative
rules and regulations must also be published if their purpose is to enforce or implement
existing law pursuant also to a valid delegation.38
We even went further in Taada to say that:
Laws must come out in the open in the clear light of the sun instead of skulking in the
shadows with their dark, deep secrets. Mysterious pronouncements and rumored rules
48 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

cannot be recognized as binding unless their existence and contents are confirmed by a
valid publication intended to make full disclosure and give proper notice to the people.
The furtive law is like a scabbarded saber that cannot feint, parry or cut unless the naked
blade is drawn.39
The publication, as further held in Taada, must be of the full text of the law since the
purpose of publication is to inform the public of the contents of the law. Mere referencing
the number of the presidential decree, its title or whereabouts and its supposed date of
effectivity would not satisfy the publication requirement.40
In this case, while it incorporated the PCA-Cojuangco Agreement by reference, Section 1
of P.D. 755 did not in any way reproduce the exact terms of the contract in the decree.
Neither was acopy thereof attached to the decree when published. We cannot, therefore,
extend to the said
Agreement the status of a law. Consequently, We join the Sandiganbayan in its holding
that the PCA-Cojuangco Agreement shall be treated as an ordinary transaction between
agreeing minds to be governed by contract law under the Civil Code.
III
THE PCA-COJUANGCO AGREEMENT IS A VALID CONTRACT FOR HAVING THE REQUISITE
CONSIDERATION.
In PSJ-A, the Sandiganbayan struck down the PCA-Cojuangco Agreement as void for lack
of consideration/cause as required under Article 1318, paragraph 3 in relation to Article
1409, paragraph 3 of the Civil Code. The Sandiganbayan stated:
In sum, the evidence on record relied upon by defendant Cojuangco negates the presence
of: (1) his claimed personal and exclusive option to buy the 137,866 FUB shares; and (2)
any pecuniary advantage to the government of the said option, which could compensate
for generous payment to him by PCA of valuable shares of stock, as stipulated in the May
25, 1975 Agreement between him and the PCA.41
On the other hand, the aforementioned provisions of the Civil Code state:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Emphasis supplied) 42
Art. 1409. The following contracts are inexistent and void from the beginning:
xxxx
(3) Those whose cause or object did not exist at the time of the transaction;43
The Sandiganbayan found and so tagged the alleged cause for the agreement in
question, i.e., Cojuangcos "personal and exclusive option to acquire the Option Shares,"
as fictitious. A reading of the purchase agreement between Cojuangco and PCA, so the
Sandiganbayan ruled, would show that Cojuangco was not the only seller; thus, the option
was, as to him, neither personal nor exclusive as he claimed it to be. Moreover, as the
Sandiganbayan deduced, that option was inexistent on the day of execution of the PCACojuangco Agreement as the Special Power of Attorney executed by Cojuangco in favor of
now Senator Edgardo J. Angara, for the latter to sign the PC-ECJ Agreement, was dated
May 25, 1975 while the PCA-Cojuangco Agreement was also signed on May 25, 1975.
Thus, the Sandiganbayan believed that when the parties affixed their signatures on the
second Agreement, Cojuangcos option to purchase the FUB shares of stock did not yet
exist. The Sandiganbayan further ruled that there was no justification in the second
Agreement for the compensation of Cojuangco of 14,400 shares, which it viewed as
exorbitant. Additionally, the Sandiganbayan ruled that PCA could not validly enter, in
behalf of FUB/UCPB, into a veritable bank management contract with Cojuangco, PCA
having a personality separate and distinct from that of FUB. As such, the Sandiganbayan
concluded that the PCA-Cojuangco Agreement was null and void. Correspondingly, the
49 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Sandiganbayan also ruled that the sequestered FUB (UCPB) shares of stock in the name
of Cojuangco are conclusively owned by the Republic.
After a circumspect study, the Court finds as inconclusive the evidence relied upon by
Sandiganbayan to support its ruling that the PCA-Cojuangco Agreement is devoid of
sufficient consideration. We shall explain.
Rule 131, Section 3(r) of the Rules of Court states:
Sec. 3. Disputable presumptions.The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:
xxxx
(r) That there was a sufficient consideration for a contract;
The Court had the occasion to explain the reach of the above provision in Surtida v. Rural
Bank of Malinao (Albay), Inc.,44 to wit:
Under Section 3, Rule 131 of the Rules of Court, the following are disputable
presumptions: (1) private transactions have been fair and regular; (2) the ordinary course
of business has been followed; and (3) there was sufficient consideration for a contract. A
presumption may operate against an adversary who has not introduced proof to rebut it.
The effect of a legal presumption upon a burden of proof is to create the necessity of
presenting evidence to meet the legal presumption or the prima facie case created
thereby, and which if no proof to the contrary is presented and offered, will prevail. The
burden of proof remains where it is, but by the presumption, the one who has that burden
is relieved for the time being from introducing evidence in support of the averment,
because the presumption stands in the place of evidence unless rebutted.
The presumption that a contract has sufficient consideration cannot be overthrown by the
bare uncorroborated and self-serving assertion of petitioners that it has no consideration.
To overcome the presumption of consideration, the alleged lack of consideration must be
shown by preponderance of evidence. Petitioners failed to discharge this burden x x x.
(Emphasis Ours.)
The assumption that ample consideration is present in a contract is further elucidated in
Pentacapital Investment Corporation v. Mahinay:45
Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful
unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of the Rules of
Court, the following are disputable presumptions: (1) private transactions have been fair
and regular; (2) the ordinary course of business has been followed; and (3) there was
sufficient consideration for a contract. A presumption may operate against an adversary
who has not introduced proof to rebut it. The effect of a legal presumption upon a burden
of proof is to create the necessity of presenting evidence to meet the legal presumption
or the prima facie case created thereby, and which, if no proof to the contrary is
presented and offered, will prevail. The burden of proof remains where it is, but by the
presumption, the one who has that burden is relieved for the time being from introducing
evidence in support of the averment, because the presumption stands in the place of
evidence unless rebutted.46 (Emphasis supplied.)
The rule then is that the party who stands to profit from a declaration of the nullity of a
contract on the ground of insufficiency of considerationwhich would necessarily refer to
one who asserts such nullityhas the burden of overthrowing the presumption offered by
the aforequoted Section 3(r). Obviously then, the presumption contextually operates in
favor of Cojuangco and against the Republic, as plaintiff a quo, which then had the
burden to prove that indeed there was no sufficient consideration for the Second
Agreement. The Sandiganbayans stated observation, therefore, that based on the
wordings of the Second Agreement, Cojuangco had no personal and exclusive option to
purchase the FUB shares from Pedro Cojuangco had really little to commend itself for
acceptance. This, as opposed to the fact that such sale and purchase agreement is
memorialized in a notarized document whereby both Eduardo Cojuangco, Jr. and Pedro
Cojuangco attested to the correctness of the provisions thereof, among which was that
Eduardo had such option to purchase. A notarized document, Lazaro v. Agustin 47 teaches,
"generally carries the evidentiary weight conferred upon it with respect to its due
50 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

execution, and documents acknowledged before a notary public have in their favor the
disputable presumption of regularity."
In Samanilla v. Cajucom,48 the Court clarified that the presumption of a valid
consideration cannot be discarded on a simple claim of absence of consideration,
especially when the contract itself states that consideration was given:
x x x This presumption appellants cannot overcome by a simple assertion of lack of
consideration. Especially may not the presumption be so lightly set aside when the
contract itself states that consideration was given, and the same has been reduced into a
public instrument will all due formalities and solemnities as in this case. (Emphasis ours.)
A perusal of the PCA-Cojuangco Agreement disclosed an express statement of
consideration for the transaction:
NOW, THEREFORE, for and in consideration of the foregoing premises and the other terms
and conditions hereinafter contained, the parties hereby declare and affirm that their
principal contractual intent is (1) to ensure that the coconut farmers own at least 60% of
the outstanding capital stock of the Bank, and (2) that the SELLER shall receive
compensation for exercising his personal and exclusive option to acquire the Option
Shares, for transferring such shares to the coconut farmers at the option price of P200 per
share, and for performing the management services required of him hereunder.
xxxx
4. As compensation for exercising his personal and exclusive option to acquire the Option
ShareApplying Samanilla to the case at bar, the express and positive declaration by the
parties of the presence of adequate consideration in the contract makes conclusive the
presumption of sufficient consideration in the PCA Agreement. Moreover, the option to
purchase shares and management services for UCPB was already availed of by petitioner
Cojuangco for the benefit of the PCA. The exercise of such right resulted in the execution
of the PC-ECJ Agreement, which fact is not disputed. The document itself is
incontrovertible proof and hard evidence that petitioner Cojuangco had the right to
purchase the subject FUB (now UCPB) shares. Res ipsa loquitur.
The Sandiganbayan, however, pointed to the perceived "lack of any pecuniary value or
advantage to the government of the said option, which could compensate for the
generous payment to him by PCA of valuable shares of stock, as stipulated in the May 25,
1975 Agreement between him and the PCA."49
Inadequacy of the consideration, however, does not render a contract void under Article
1355 of the Civil Code:
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence. (Emphasis
supplied.)
Alsua-Betts v. Court of Appeals50 is instructive that lack of ample consideration does not
nullify the contract:
Inadequacy of consideration does not vitiate a contract unless it is proven which in the
case at bar was not, that there was fraud, mistake or undue influence. (Article 1355, New
Civil Code). We do not find the stipulated price as so inadequate to shock the courts
conscience, considering that the price paid was much higher than the assessed value of
the subject properties and considering that the sales were effected by a father to her
daughter in which case filial love must be taken into account. (Emphasis supplied.)s and
for transferring such shares to the coconut farmers, as well as for performing the
management services required of him, SELLER shall receive equity in the Bank
amounting, in the aggregate, to 95,304 fully paid shares in accordance with the
procedure set forth in paragraph 6 below. (Emphasis supplied.)
Vales v. Villa51 elucidates why a bad transaction cannot serve as basis for voiding a
contract:
x x x Courts cannot follow one every step of his life and extricate him from bad bargains,
protect him from unwise investments, relieve him from one-sided contracts, or annul the
effects of foolish acts. x x x Men may do foolish things, make ridiculous contracts, use
51 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

miserable judgment, and lose money by them indeed, all they have in the world; but not
for that alone can the law intervene and restore. There must be, in addition, a violation of
law, the commission of what the law knows as an actionable wrong, before the courts are
authorized to lay hold of the situation and remedy it. (Emphasis ours.)
While one may posit that the PCA-Cojuangco Agreement puts PCA and the coconut
farmers at a disadvantage, the facts do not make out a clear case of violation of any law
that will necessitate the recall of said contract. Indeed, the anti-graft court has not put
forward any specific stipulation therein that is at war with any law, or the Constitution, for
that matter. It is even clear as day that none of the parties who entered into the two
agreements with petitioner Cojuangco contested nor sought the nullification of said
agreements, more particularly the PCA who is always provided legal advice in said
transactions by the Government corporate counsel, and a battery of lawyers and
presumably the COA auditor assigned to said agency. A government agency, like the PCA,
stoops down to level of an ordinary citizen when it enters into a private transaction with
private individuals. In this setting, PCA is bound by the law on contracts and is bound to
comply with the terms of the PCA-Cojuangco Agreement which is the law between the
parties. With the silence of PCA not to challenge the validity of the PCA-Cojuangco
Agreement and the inability of government to demonstrate the lack of ample
consideration in the transaction, the Court is left with no other choice but to uphold the
validity of said agreements.
While consideration is usually in the form of money or property, it need not be monetary.
This is clear from Article 1350 which reads:
Art. 1350. In onerous contracts the cause is understood to be, for each contracting party,
the prestation or promise of a thing or service by the other; in remuneratory ones, the
service or benefit which is remunerated; and in contracts of pure beneficence, the mere
liability of the benefactor. (Emphasis supplied.)
Gabriel v. Monte de Piedad y Caja de Ahorros52 tells us of the meaning of consideration:
x x x A consideration, in the legal sense of the word, is some right, interest, benefit, or
advantage conferred upon the promisor, to which he is otherwise not lawfully entitled, or
any detriment, prejudice, loss, or disadvantage suffered or undertaken by the promisee
other than to such as he is at the time of consent bound to suffer. (Emphasis Ours.)
The Court rules that the transfer of the subject UCPB shares is clearly supported by
valuable consideration.
To justify the nullification of the PCA-Cojuangco Agreement, the Sandiganbayan centered
on the alleged imaginary option claimed by petitioner to buy the FUB shares from the
Pedro Cojuangco group. It relied on the phrase "in behalf of certain other buyers"
mentioned in the PC-ECJ Agreement as basis for the finding that petitioners option is
neither personal nor exclusive. The pertinent portion of said agreement reads:
EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence at 136 9th Street
corner Balete Drive, Quezon City, represented in this act by his duly authorized attorneyin-fact, EDGARDO J. ANGARA, for and in his own behalf and in behalf of certain other
buyers, (hereinafter collectively called the "BUYERS"); x x x.
A plain reading of the aforequoted description of petitioner as a party to the PC-ECJ
Agreement reveals that petitioner is not only the buyer. He is the named buyer and there
are other buyers who were unnamed. This is clear from the word "BUYERS." If petitioner is
the only buyer, then his description as a party to the sale would only be "BUYER." It may
be true that petitioner intended to include other buyers. The fact remains, however, that
the identities of the unnamed buyers were not revealed up to the present day. While one
can conjure or speculate that PCA may be one of the buyers, the fact that PCA entered
into an agreement to purchase the FUB shares with petitioner militates against such
conjecture since there would be no need at all to enter into the second agreement if PCA
was already a buyer of the shares in the first contract. It is only the parties to the PC-ECJ
Agreement that can plausibly shed light on the import of the phrase "certain other
buyers" but, unfortunately, petitioner was no longer allowed to testify on the matter and
was precluded from explaining the transactions because of the motion for partial
summary judgment and the eventual promulgation of the July 11, 2003 Partial Summary
Judgment.
52 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Even if conceding for the sake of argument that PCA is one of the buyers of the FUB
shares in the PC-ECJ Agreement, still it does not necessarily follow that petitioner had no
option to buy said shares from the group of Pedro Cojuangco. In fact, the very execution
of the first agreement undeniably shows that he had the rights or option to buy said
shares from the Pedro Cojuangco group. Otherwise, the PC-ECJ Agreement could not have
been consummated and enforced. The conclusion is incontestable that petitioner indeed
had the right or option to buy the FUB shares as buttressed by the execution and
enforcement of the very document itself.
We can opt to treat the PC-ECJ Agreement as a totally separate agreement from the PCACojuangco Agreement but it will not detract from the fact that petitioner actually acquired
the rights to the ownership of the FUB shares from the Pedro Cojuangco group. The
consequence is he can legally sell the shares to PCA. In this scenario, he would resell the
shares to PCA for a profit and PCA would still end up paying a higher price for the FUB
shares. The "profit" that will accrue to petitioner may just be equal to the value of the
shares that were given to petitioner as commission. Still we can only speculate as to the
true intentions of the parties. Without any evidence adduced on this issue, the Court will
not venture on any unproven conclusion or finding which should be avoided in judicial
adjudication.
The anti-graft court also inferred from the date of execution of the special power of
attorney in favor of now Senator Edgardo J. Angara, which is May 25, 1975, that the PCECJ Agreement appears to have been executed on the same day as the PCA-Cojuangco
Agreement (dated May 25, 1975). The coincidence on the dates casts "doubts as to the
existence of defendant Cojuangcos prior personal and exclusive option to the FUB
shares."
The fact that the execution of the SPA and the PCA-Cojuangco Agreement occurred
sequentially on the same day cannot, without more, be the basis for the conclusion as to
the non-existence of the option of petitioner. Such conjecture cannot prevail over the fact
that without petitioner Cojuangco, none of the two agreements in question would have
been executed and implemented and the FUB shares could not have been successfully
conveyed to PCA.
Again, only the parties can explain the reasons behind the execution of the two
agreements and the SPA on the same day. They were, however, precluded from
elucidating the reasons behind such occurrence. In the absence of such illuminating
proof, the proposition that the option does not exist has no leg to stand on.
More importantly, the fact that the PC-ECJ Agreement was executed not earlier than May
25, 1975 proves that petitioner Cojuangco had an option to buy the FUB shares prior to
that date. Again, it must be emphasized that from its terms, the first Agreement did not
create the option.It, however, proved the exercise of the option by petitioner.
The execution of the PC-ECJ Agreement on the same day as the PCA-Cojuangco
Agreement more than satisfies paragraph 2 thereof which requires petitioner to exercise
his option to purchase the FUB shares as promptly as practicable after, and not before,
the execution of the second agreement, thus:
2. As promptly as practicable after execution of this Agreement, the SELLER shall exercise
his option to acquire the Option Shares and SELLER shall immediately thereafter deliver
and turn over to the Escrow Agent such stock certificates as are herein provided to be
received from the existing stockholders of the bank by virtue of the exercise on the
aforementioned option. The Escrow Agent shall thereupon issue its check in favor of the
SELLER covering the purchase price for the shares delivered. (Emphasis supplied.)
The Sandiganbayan viewed the compensation of petitioner of 14,400 FUB shares as
exorbitant. In the absence of proof to the contrary and considering the absence of any
complaint of illegality or fraud from any of the contracting parties, then the presumption
that "private transactions have been fair and regular"53 must apply.
Lastly, respondent interjects the thesis that PCA could not validly enter into a bank
management agreement with petitioner since PCA has a personality separate and distinct
from that of FUB. Evidently, it is PCA which has the right to challenge the stipulations on
the management contract as unenforceable. However, PCA chose not to assail said
stipulations and instead even complied with and implemented its prestations contained in
said stipulations by installing petitioner as Chairman of UCPB. Thus, PCA has waived and
53 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

forfeited its right to nullify said stipulations and is now estopped from questioning the
same.
In view of the foregoing, the Court is left with no option but to uphold the validity of the
two agreements in question.
IV
COJUANGCO IS NOT ENTITLED TO THE UCPB SHARES WHICH WERE BOUGHT WITH PUBLIC
FUNDS AND HENCE, ARE PUBLIC PROPERTY.
The coconut levy funds were exacted for a
special public purpose. Consequently, any
use or transfer of the funds that directly
benefits private individuals should be
invalidated.
The issue of whether or not taxpayers money, or funds and property acquired through
the imposition of taxes may be used to benefit a private individual is once again posed.
Preliminarily, the instant case inquires whether the coconut levy funds, and accordingly,
the UCPB shares acquired using the coconut levy funds are public funds. Indeed, the very
same issue took center stage, discussed and was directly addressed in COCOFED v.
Republic. And there is hardly any question about the subject funds public and special
character. The following excerpts from COCOFED v. Republic,54 citing Republic v.
COCOFED and related cases, settle once and for all this core, determinative issue:
Indeed, We have hitherto discussed, the coconut levy was imposed in the exercise of the
States inherent power of taxation. As We wrote in Republic v. COCOFED:
Indeed, coconut levy funds partake of the nature of taxes, which, in general, are enforced
proportional contributions from persons and properties, exacted by the State by virtue of
its sovereignty for the support of government and for all public needs.
Based on its definition, a tax has three elements, namely: a) it is an enforced proportional
contribution from persons and properties; b) it is imposed by the State by virtue of its
sovereignty; and c) it is levied for the support of the government. The coconut levy funds
fall squarely into these elements for the following reasons:
(a) They were generated by virtue of statutory enactments imposed on the coconut
farmers requiring the payment of prescribed amounts. Thus, PD No. 276, which created
the (CCSF), mandated the following:
"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in
other coconut products, shall be imposed on every first sale, in accordance with the
mechanics established under RA 6260, effective at the start of business hours on August
10, 1973.
"The proceeds from the levy shall be deposited with the Philippine National Bank or any
other government bank to the account of the Coconut Consumers Stabilization Fund, as a
separate trust fund which shall not form part of the general fund of the government."
The coco levies were further clarified in amendatory laws, specifically PD No. 961 and PD
No. 1468 in this wise:
"The Authority (PCA) is hereby empowered to impose and collect a levy, to be known as
the Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of copra
resecada, or its equivalent delivered to, and/or purchased by, copra exporters, oil
millers, desiccators and other end-users of copra or its equivalent in other coconut
products. The levy shall be paid by such copra exporters, oil millers, desiccators and
other end-users of copra or its equivalent in other coconut products under such rules and
regulations as the Authority may prescribe. Until otherwise prescribed by the Authority,
the current levy being collected shall be continued."
Like other tax measures, they were not voluntary payments or donations by the people.
They were enforced contributions exacted on pain of penal sanctions, as provided under
PD No. 276:
54 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

"3. Any person or firm who violates any provision of this Decree or the rules and
regulations promulgated thereunder, shall, in addition to penalties already prescribed
under existing administrative and special law, pay a fine of not less than P2, 500 or more
than P10,000, or suffer cancellation of licenses to operate, or both, at the discretion of
the Court."
Such penalties were later amended thus: .
(b) The coconut levies were imposed pursuant to the laws enacted by the proper
legislative authorities of the State. Indeed, the CCSF was collected under PD No. 276, ."
(c) They were clearly imposed for a public purpose. There is absolutely no question that
they were collected to advance the governments avowed policy of protecting the
coconut industry.
This Court takes judicial notice of the fact that the coconut industry is one of the great
economic pillars of our nation, and coconuts and their byproducts occupy a leading
position among the countrys export products; .
Taxation is done not merely to raise revenues to support the government, but also to
provide means for the rehabilitation and the stabilization of a threatened industry, which
is so affected with public interest as to be within the police power of the State .
Even if the money is allocated for a special purpose and raised by special means, it is still
public in character. In Cocofed v. PCGG, the Court observed that certain agencies or
enterprises "were organized and financed with revenues derived from coconut levies
imposed under a succession of law of the late dictatorship with deposed Ferdinand
Marcos and his cronies as the suspected authors and chief beneficiaries of the resulting
coconut industry monopoly." The Court continued: ". It cannot be denied that the
coconut industry is one of the major industries supporting the national economy. It is,
therefore, the States concern to make it a strong and secure source not only of the
livelihood of a significant segment of the population, but also of export earnings the
sustained growth of which is one of the imperatives of economic stability. (Emphasis
Ours.)
The following parallel doctrinal lines from Pambansang Koalisyon ng mga Samahang
Magsasaka at Manggagawa sa Niyugan (PKSMMN) v. Executive Secretary55 came next:
The Court was satisfied that the coco-levy funds were raised pursuant to law to support a
proper governmental purpose. They were raised with the use of the police and taxing
powers of the State for the benefit of the coconut industry and its farmers in general. The
COA reviewed the use of the funds. The Bureau of Internal Revenue (BIR) treated them as
public funds and the very laws governing coconut levies recognize their public character.
The Court has also recently declared that the coco-levy funds are in the nature of taxes
and can only be used for public purpose. Taxes are enforced proportional contributions
from persons and property, levied by the State by virtue of its sovereignty for the support
of the government and for all its public needs. Here, the coco-levy funds were imposed
pursuant to law, namely, R.A. 6260 and P.D. 276. The funds were collected and managed
by the PCA, an independent government corporation directly under the President. And, as
the respondent public officials pointed out, the pertinent laws used the term levy, which
means to tax, in describing the exaction.
Of course, unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to
boost the governments general funds but to provide means for the rehabilitation and
stabilization of a threatened industry, the coconut industry, which is so affected with
public interest as to be within the police power of the State. The funds sought to support
the coconut industry, one of the main economic backbones of the country, and to secure
economic benefits for the coconut farmers and far workers. The subject laws are akin to
the sugar liens imposed by Sec. 7(b) of P.D. 388, and the oil price stabilization funds
under P.D. 1956, as amended by E.O. 137.
From the foregoing, it is at once apparent that any property acquired by means of the
coconut levy funds, such as the subject UCPB shares, should be treated as public funds or
public property, subject to the burdens and restrictions attached by law to such property.
COCOFED v. Republic, delved into such limitations, thusly:
55 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

We have ruled time and again that taxes are imposed only for a public purpose. "They
cannot be used for purely private purposes or for the exclusive benefit of private
persons." When a law imposes taxes or levies from the public, with the intent to give
undue benefit or advantage to private persons, or the promotion of private enterprises,
that law cannot be said to satisfy the requirement of public purpose. In Gaston v. Republic
Planters Bank, the petitioning sugar producers, sugarcane planters and millers sought the
distribution of the shares of stock of the Republic Planters Bank (RPB), alleging that they
are the true beneficial owners thereof. In that case, the investment, i.e., the purchase of
RPB, was funded by the deduction of PhP 1.00 per picul from the sugar proceeds of the
sugar producers pursuant to P.D. No. 388. In ruling against the petitioners, the Court held
that to rule in their favor would contravene the general principle that revenues received
from the imposition of taxes or levies "cannot be used for purely private purposes or for
the exclusive benefit of private persons." The Court amply reasoned that the sugar
stabilization fund is to "be utilized for the benefit of the entire sugar industry, and all its
components, stabilization of the domestic market including foreign market, the industry
being of vital importance to the countrys economy and to national interest."
Similarly in this case, the coconut levy funds were sourced from forced exactions decreed
under P.D. Nos. 232, 276 and 582, among others, with the end-goal of developing the
entire coconut industry. Clearly, to hold therefore, even by law, that the revenues
received from the imposition of the coconut levies be used purely for private purposes to
be owned by private individuals in their private capacity and for their benefit, would
contravene the rationale behind the imposition of taxes or levies.
Needless to stress, courts do not, as they cannot, allow by judicial fiat the conversion of
special funds into a private fund for the benefit of private individuals. In the same vein,
We cannot subscribe to the idea of what appears to be an indirect if not exactly direct
conversion of special funds into private funds, i.e., by using special funds to purchase
shares of stocks, which in turn would be distributed for free to private individuals. Even if
these private individuals belong to, or are a part of the coconut industry, the free
distribution of shares of stocks purchased with special public funds to them, nevertheless
cannot be justified. The ratio in Gaston, as articulated below, applies mutatis mutandis to
this case:
The stabilization fees in question are levied by the State for a special purpose that of
"financing the growth and development of the sugar industry and all its components,
stabilization of the domestic market including the foreign market." The fact that the State
has taken possession of moneys pursuant to law is sufficient to constitute them as state
funds even though they are held for a special purpose.
That the fees were collected from sugar producers etc., and that the funds were
channeled to the purchase of shares of stock in respondent Bank do not convert the funds
into a trust fund for their benefit nor make them the beneficial owners of the shares so
purchased. It is but rational that the fees be collected from them since it is also they who
are benefited from the expenditure of the funds derived from it. .56
In this case, the coconut levy funds were being exacted from copra exporters, oil millers,
desiccators and other end-users of copra or its equivalent in other coconut
products.57 Likewise so, the funds here were channeled to the purchase of the shares of
stock in UCPB. Drawing a clear parallelism between Gaston and this case, the fact that
the coconut levy funds were collected from the persons or entities in the coconut
industry, among others, does not and cannot entitle them to be beneficial owners of the
subject funds or more bluntly, owners thereof in their private capacity. Parenthetically,
the said private individuals cannot own the UCPB shares of stocks so purchased using the
said special funds of the government.58 (Emphasis Ours.)
As the coconut levy funds partake of the nature of taxes and can only be used for public
purpose, and importantly, for the purpose for which it was exacted, i.e., the development,
rehabilitation and stabilization of the coconut industry, they cannot be used to benefit
whether directly or indirectly private individuals, be it by way of a commission, or as the
subject Agreement interestingly words it, compensation. Consequently, Cojuangco cannot
stand to benefit by receiving, in his private capacity, 7.22% of the FUB shares without
violating the constitutional caveat that public funds can only be used for public purpose.
Accordingly, the 7.22% FUB (UCPB) shares that were given to Cojuangco shall be returned
to the Government, to be used "only for the benefit of all coconut farmers and for the
development of the coconut industry."59
56 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

The ensuing are the underlying rationale for declaring, as unconstitutional, provisions that
convert public property into private funds to be used ultimately for personal benefit:
not only were the laws unconstitutional for decreeing the distribution of the shares of
stock for free to the coconut farmers and therefore negating the public purposed declared
by P.D. No. 276, i.e., to stabilize the price of edible oil and to protect the coconut industry.
They likewise reclassified the coconut levy fund as private fund, to be owned by private
individuals in their private capacities, contrary to the original purpose for the creation of
such fund. To compound the situation, the offending provisions effectively removed the
coconut levy fund away from the cavil of public funds which normally can be paid out only
pursuant to an appropriation made by law. The conversion of public funds into private
assets was illegally allowed, in fact mandated, by these provisions. Clearly therefore, the
pertinent provisions of P.D. Nos. 755, 961 and 1468 are unconstitutional for violating
Article VI, Section 29 (3) of the Constitution. In this context, the distribution by PCA of the
UCPB shares purchased by means of the coconut levy fund a special fund of the
government to the coconut farmers is, therefore, void.60
It is precisely for the foregoing that impels the Court to strike down as unconstitutional
the provisions of the PCA-Cojuangco Agreement that allow petitioner Cojuangco to
personally and exclusively own public funds or property, the disbursement of which We so
greatly protect if only to give light and meaning to the mandates of the Constitution.
As heretofore amply discussed, taxes are imposed only for a public purpose. 61 They must,
therefore, be used for the benefit of the public and not for the exclusive profit or gain of
private persons.62 Otherwise, grave injustice is inflicted not only upon the Government
but most especially upon the citizenrythe taxpayersto whom We owe a great deal of
accountability.
In this case, out of the 72.2% FUB (now UCPB) shares of stocks PCA purchased using the
coconut levy funds, the May 25, 1975 Agreement between the PCA and Cojuangco
provided for the transfer to the latter, by way of compensation, of 10% of the shares
subject of the agreement, or a total of 7.22% fully paid shares. In sum, Cojuangco
received public assets in the form of FUB (UCPB) shares with a value then of ten million
eight hundred eighty-six thousand pesos (PhP 10,886,000) in 1975, paid by coconut levy
funds. In effect, Cojuangco received the aforementioned asset as a result of the PCACojuangco Agreement, and exclusively benefited himself by owning property acquired
using solely public funds. Cojuangco, no less, admitted that the PCA paid, out of the
CCSF, the entire acquisition price for the 72.2% option shares.63 This is in clear violation of
the prohibition, which the Court seeks to uphold.1wphi1
We, therefore, affirm, on this ground, the decision of the Sandiganbayan nullifying the
shares of stock transfer to Cojuangco. Accordingly, the UCPB shares of stock representing
the 7.22% fully paid shares subject of the instant petition, with all dividends declared,
paid or issued thereon, as well as any increments thereto arising from, but not limited to,
the exercise of pre-emptive rights, shall be reconveyed to the Government of the Republic
of the Philippines, which as We previously clarified, shall "be used only for the benefit of
all coconut farmers and for the development of the coconut industry." 64
But apart from the stipulation in the PCA-Cojuangco Agreement, more specifically
paragraph 4 in relation to paragraph 6 thereof, providing for the transfer to Cojuangco for
the UCPB shares adverted to immediately above, other provisions are valid and shall be
enforced, or shall be respected, if the corresponding prestation had already been
performed. Invalid stipulations that are independent of, and divisible from, the rest of the
agreement and which can easily be separated therefrom without doing violence to the
manifest intention of the contracting minds do not nullify the entire contract. 65
WHEREFORE, Part C of the appealed Partial Summary Judgment in Sandiganbayan Civil
Case No. 0033-A is AFFIRMED with modification. As MODIFIED, the dispositive portion in
Part C of the Sandiganbayans Partial Summary Judgment in Civil Case No. 0033-A, shall
read as follows:
C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.)
dated September 18, 2002 filed by Plaintiff.
1. Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and
defendant Eduardo M. Cojuangco, Jr. dated May 25, 1975 nor did it give the
57 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Agreement the binding force of a law because of the non-publication of the said
Agreement.
2. The Agreement between PCA and defendant Eduardo M. Cojuangco, Jr. dated May
25, 1975 is a valid contract for having the requisite consideration under Article
1318 of the Civil Code.
3. The transfer by PCA to defendant Eduardo M. Cojuangco, Jr. of 14,400 shares of
stock of FUB (later UCPB) from the "Option Shares" and the additional FUB shares
subscribed and paid by PCA, consisting of
a. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the
authorized but unissued shares of the bank, subscribed and paid by PCA;
b. Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the increased
capital stock subscribed and paid by PCA; and
c. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv) (d)
of the PCA-Cojuangco Agreement dated May 25, 1975. or the so-called
"Cojuangco-UCPB shares" is declared unconstitutional, hence null and
void.1wphi1
4. The above-mentioned shares of stock of the FUB/UCPB transferred to defendant
Cojuangco are hereby declared conclusively owned by the Republic of the
Philippines to be used only for the benefit of all coconut farmers and for the
development of the coconut industry, and ordered reconveyed to the Government.
5. The UCPB shares of stock of the alleged fronts, nominees and dummies of
defendant Eduardo M. Cojuangco, Jr. which form part of the 72.2% shares of the
FUB/UCPB paid for by the PCA with public funds later charged to the coconut levy
funds, particularly the CCSF, belong to the plaintiff Republic of the Philippines as
their true and beneficial owner.
Accordingly, the instant petition is hereby DENIED.
Costs against petitioner Cojuangco.
SO ORDERED.
G.R. No. L-27010

April 30, 1969

MARLENE DAUDEN-HERNAEZ, petitioner,

vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of
Quezon City, HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON
VALENZUELA, respondents.
R. M. Coronado and Associates for petitioner.
Francisco Lavides for respondent.
REYES, J.B.L., Acting C.J.:
Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of
Quezon City (Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for breach
of contract and damages, denying reconsideration, refusing to admit an amended
complaint, and declaring the dismissal final and unappealable.
The essential facts are the following:
Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint
against herein private respondents, Hollywood Far East Productions, Inc., and its President
and General Manager, Ramon Valenzuela, to recover P14,700.00 representing a balance
allegedly due said petitioner for her services as leading actress in two motion pictures
produced by the company, and to recover damages. Upon motion of defendants, the
respondent court (Judge Walfrido de los Angeles presiding) ordered the complaint
dismissed, mainly because the "claim of plaintiff was not evidenced by any written
document, either public or private", and the complaint "was defective on its face" for
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violating Articles 1356 and 1358 of the Civil, Code of the Philippines, as well as for
containing defective allege, petitions. Plaintiff sought reconsideration of the dismissal and
for admission of an amended complaint, attached to the motion. The court denied
reconsideration and the leave to amend; whereupon, a second motion for reconsideration
was filed. Nevertheless, the court also denied it for being pro forma, as its allegations
"are, more or less, the same as the first motion", and for not being accompanied by an
affidavit of merits, and further declared the dismissal final and unappealable. In view of
the attitude of the Court of First Instance, plaintiff resorted to this Court.
The answer sets up the defense that "the proposed amended complaint did not vary in
any material respect from the original complaint except in minor details, and suffers from
the same vital defect of the original complaint", which is the violation of Article 1356 of
the Civil Code, in that the contract sued upon was not alleged to be in writing; that by
Article 1358 the writing was absolute and indispensable, because the amount involved
exceeds five hundred pesos; and that the second motion for reconsideration did not
interrupt the period for appeal, because it was not served on three days' notice.
We shall take up first the procedural question. It is a well established rule in our
jurisprudence that when a court sustains a demurrer or motion to dismiss it is error for
the court to dismiss the complaint without giving the party plaintiff an opportunity to
amend his complaint if he so chooses. 1 Insofar as the first order of dismissal (Annex D,
Petition) did not provide that the same was without prejudice to amendment of the
complaint, or reserve to the plaintiff the right to amend his complaint, the said order was
erroneous; and this error was compounded when the motion to accept the amended
complaint was denied in the subsequent order of 3 October 1966 (Annex F, Petition).
Hence, the petitioner-plaintiff was within her rights in filing her so-called second motion
for reconsideration, which was actually a first motion against the refusal to admit the
amended complaint.
It is contended that the second motion for reconsideration was merely pro forma and did
not suspend the period to appeal from the first order of dismissal (Annex D) because (1) it
merely reiterated the first motion for reconsideration and (2) it was filed without giving
the counsel for defendant-appellee the 3 days' notice provided by the rules. This
argument is not tenable, for the reason that the second motion for reconsideration was
addressed to the court' refusal to allow an amendment to the original complaint, and this
was a ground not invoked in the first motion for reconsideration. Thus, the second motion
to reconsider was really not pro forma, as it was based on a different ground, even if in its
first part it set forth in greater detail the arguments against the correctness of the first
order to dismiss. And as to the lack of 3 days' notice, the record shows that appellees had
filed their opposition (in detail) to the second motion to reconsider (Answer, Annex 4); so
that even if it were true that respondents were not given the full 3 days' notice they were
not deprived of any substantial right. Therefore, the claim that the first order of dismissal
had become final and unappealable must be overruled.
It is well to observe in this regard that since a motion to dismiss is not a responsive
pleading, the plaintiff-petitioner was entitled as of right to amend the original dismissed
complaint. In Paeste vs. Jaurigue 94 Phil. 179, 181, this Court ruled as follows:
Appellants contend that the lower court erred in not admitting their amended
complaint and in holding that their action had already prescribed. Appellants are
right on both counts.
Amendments to pleadings are favored and should be liberally allowed in the
furtherance of justice. (Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1
of Rule 17, Rules of Court, a party may amend his pleading once as a matter of
course, that is, without leave of court, at any time before a responsive pleading is
served. A motion to dismiss is not a "responsive pleading". (Moran on the Rules of
Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended their complaint before it was
answered, the motion to admit the amendment should not have been denied. It is
true that the amendment was presented after the original complaint had been
ordered dismissed. But that order was not yet final for it was still under
reconsideration.
The foregoing observations leave this Court free to discuss the main issue in this petition.
Did the court below abuse its discretion in ruling that a contract for personal services
involving more than P500.00 was either invalid of unenforceable under the last paragraph
of Article 1358 of the Civil Code of the Philippines?
59 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

We hold that there was abuse, since the ruling herein contested betrays a basic and
lamentable misunderstanding of the role of the written form in contracts, as ordained in
the present Civil Code.
In the matter of formalities, the contractual system of our Civil Code still follows that of
the Spanish Civil Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the
spirit and intent of the parties over formalities: hence, in general, contracts are valid and
binding from their perfection regardless of form whether they be oral or written. This is
plain from Articles 1315 and 1356 of the present Civil Code. Thus, the first cited provision
prescribes:
ART. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. (Emphasis supplied)
Concordantly, the first part of Article 1356 of the Code Provides:
ART. 1356. Contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present....
(Emphasis supplied)
These essential requisites last mentioned are normally (1) consent (2) proper subject
matter, and (3) consideration or causa for the obligation assumed (Article 1318). 3 So that
once the three elements exist, the contract is generally valid and obligatory, regardless of
the form, oral or written, in which they are couched.lawphi1.nt
To this general rule, the Code admits exceptions, set forth in the second portion of Article
1356:
However, when the law requires that a contract be in some form in order that it
may be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable....
It is thus seen that to the general rule that the form (oral or written) is irrelevant to the
binding effect inter partes of a contract that possesses the three validating elements of
consent, subject matter, and causa, Article 1356 of the Code establishes
only two exceptions, to wit:
(a) Contracts for which the law itself requires that they be in some particular form
(writing) in order to make themvalid and enforceable (the so-called solemn contracts). Of
these the typical example is the donation of immovable property that the law (Article
749) requires to be embodied in a public instrument in order "that the donation may be
valid", i.e., existing or binding. Other instances are the donation of movables worth more
than P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article
748); contracts to pay interest on loans (mutuum) that must be "expressly stipulated in
writing" (Article 1956); and the agreements contemplated by Article 1744, 1773, 1874
and 2134 of the present Civil Code.
(b) Contracts that the law requires to be proved by some writing (memorandum) of its
terms, as in those covered by the old Statute of Frauds, now Article 1403(2) of the Civil
Code. Their existence not being provable by mere oral testimony (unless wholly or partly
executed), these contracts are exceptional in requiring a writing embodying the terms
thereof for their enforceability by action in court.
The contract sued upon by petitioner herein (compensation for services) does not come
under either exception. It is true that it appears included in Article 1358, last clause,
providing that "all other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one." But Article 1358 nowhere provides that the
absence of written form in this case will make the agreement invalid or unenforceable. On
the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are
binding and enforceable by action or suit despite the absence of writing.
ART. 1357. If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article, the contracting parties may
compel each other to observe that form, once the contract has been perfected. This
60 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

right may be exercised simultaneously with the action the contract. (Emphasis
supplied) .
It thus becomes inevitable to conclude that both the court a quo as well as the private
respondents herein were grossly mistaken in holding that because petitioner Dauden's
contract for services was not in writing the same could not be sued upon, or that her
complaint should be dismissed for failure to state a cause of action because it did not
plead any written agreement.
The basic error in the court's decision lies in overlooking that in our contractual system it
is not enough that the law should require that the contract be in writing, as it does in
Article 1358. The law must further prescribe that without the writing the contract is not
valid or not enforceable by action.
WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered
remanded to the court of origin for further proceedings not at variance with this decision.
Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc.,
and Ramon Valenzuela.
G.R. No. 102784 April 7, 1997
ROSA LIM, petitioner,
vs.
COURT OF APPEALS AND PEOPLE OF THE PHILIPPINES, respondents.
RESOLUTION

HERMOSISIMA, JR., J.:

Acting on the motion for reconsideration filed by petitioner Rosa Lim praying for her
acquittal, this Court takes a second hard look at the present case in the light of the
various arguments raised by the movant.
Petitioner Rosa Lim was charged with, and subsequently convicted of, the crime of estafa
as defined under Art. 315, par. 1(b) of the Revised Penal Code before Branch 92 of the
Regional Trial Court of Quezon City. 1 This conviction was affirmed by the Court
Appeals. 2 Aggrieved by the decision of the appellate court, Rosa Lim filed a petition for
review under Rule 45 before the Supreme Court. This Court subsequently sustained the
ruling of the Court of Appeals, hence, this Motion for Reconsideration seeking the reversal
of our decision dated February 28, 1996.
Her motion for reconsideration is anchored on the following grounds:
I. THE COURT A QUO FAILED TO CONSIDER EVIDENCE TO THE EFFECT THAT
THE TRUE AGREEMENT BETWEEN THE PARTIES WAS A SALE ON CREDIT AND
NOT AN AGENCY TO SELL AS BROUGHT OUT IN THE CROSS-EXAMINATION
MADE BY THE PRIVATE PROSECUTOR ON THE PETITIONER AND AURELIA
NADERA AS WELL AS ON THE CROSS EXAMINATION MADE ON THE
COMPLAINANT BY THE COUNSEL FOR THE PETITIONER; and
II. ON THE ISSUE OF WHETHER OR NOT THE PETITIONER RETURNED THE RING
VALUED AT P169,000.00 TO COMPLAINANT THRU AURELIA NADERA, THE
COURT A QUO FAILED TO CONSIDER CONCLUSIVE EVIDENCE THAT SAID RING
WAS IN FACT RETURNED TO COMPLAINANT AS SHOWN BY THE FACT THAT SHE
FILED A CRIMINAL CASE AGAINST AURELIA NADERA FOR ISSUING A BOUNCING
CHECK IN THE AMOUNT OF P169,000.00 WHICH SHE ISSUED IN PAYMENT OF
THE RING IN THE REGIONAL TRIAL COURT OF QUEZON CITY.
It will be recalled that the facts of this case are as follows:
Rose Lim arrived in Manila from Cebu City sometime in October, 1987 with her friend
Aurelia Nadera. On October 8, 1987, they went to the Williams Apartelle in Timog, Quezon
City, where they met Victoria Suarez, a jewelry dealer. Suarez and Nadera knew each
61 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

other since the latter often sold jewelry for the former on commission basis. Nadera had
previously introduced Rosa Lim to Suarez as a wealthy businesswoman.
Lim was offered two pieces of jewelry by Suarez to wit: one (1) 3.35 carat diamond ring
worth P169,000.00 and one (1) bracelet worth P170,000.00. The pieces were to be sold
by Lim on commission. Accordingly, Lim signed a receipt prepared by Nadera for Suarez,
which stated that:
THIS IS TO CERTIFY, that I received from Vicky Suarez the following jewelry:
Description Price
1 ring 3.35 solo P169,000.00
1 bracelet 170,000.00

Total P339,000.00
in good condition, to be sold in CASH ONLY within . . . days from date of signing
receipt:
if I could not sell, I shall return all the jewelry, within the period mentioned
above; if I would be able to sell, I shall immediately deliver and account the
whole proceeds of sale thereof to the owner of the jewelries [sic] at his/her
residence; my compensation or commission shall be the over-price on the
value of each jewelry quoted above. I am prohibited to sell any jewelry on
credit or by installment; deposit, give for safekeeping; lend, pledge or give as
security or guaranty under any circumstance or manner, any jewelry to other
person or persons,
I sign my name this . . . day of . . . 19 . . . at Manila.
____________________________________
Signature of Persons who received jewelries [sic]
Address: _________________________________________3
On October 12, 1987, before departing for Cebu, Lim called up Mrs. Suarez by
telephone to inform her that she was no longer interested in the ring and the
bracelet. Suarez replied that she was busy at the time and instructed her to
return the pieces of jewelry to Nadera instead, who would in turn give them
back to Suarez. Lim then returned the jewelry to Nadera who issued a
handwritten receipt dated October 12, 1987. 4 On March 21, 1988, Suarez,
thru her counsel, sent Lim a demand letter asking for the return of the ring.
Lim, also thru counsel, sent a response letter to Suarez averring that she had
already returned both ring and bracelet to Nadera and as such, she no longer
had any liability to Suarez insofar as the said items were concerned. Irked,
Suarez filed a complaint for estafa under Article 315, par. 1 (b) against Rosa
Lim. Trial ensued thereafter.
During the trial, Lim asserted that she had already returned both the bracelet
and ring to Nadera. This was admitted by Nadera during her direct
examination before the trial court:
Q: Do you know if Rosa Lim returned the jewelries
[sic]?
A: She gave the jewelries [sic] to me.
Q: Why did Rose Lim give the jewelries [sic] to you?
A: Rosa Lim called up Vicky Suarez the following
morning and told Vicky Suarez that she was going
home to Cebu and asked if she could give the
jewelries [sic] to me.
Q: And when did Rosa Lim give you the jewelries
[sic]?
62 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

A: Before she left for Cebu. 5

Nadera further testified that she issued a check in favor of Suarez in payment
for the ring which Lim had previously returned to her:
Q: What happened to the ring?
A: I sold it.
xxx xxx xxx
Q: Whet happened to the proceeds of the sale of the
ring?
A: The check that was paid to me bounced. So my
check also
bounced. 6
After another thorough and painstaking scrutiny of the records of this case,
we have decided to act favorably on the petitioner's motion. Thus, upon a
careful and deliberate consideration of the errors assigned by the petitioner,
as well as of prevailing jurisprudence, we are convinced that Rosa Lim must
be acquitted.
Rosa Lim asserts that she gave both the bracelet and the ring to Aurelia
Nadera for it to be returned to Suarez and that it was Suarez herself who
instructed her to do so. Suarez, on the other hand, refutes this contention by
saying that she could not have entrusted the return of the pieces of jewelry to
Nadera since the latter already owed her a substantial amount of money and
that to entrust the return of the said ring would be to tantamount to undue
risk on her part. However, Suarez herself admitted that the bracelet was in
fact received by her from Nadera:
ATTY. TORIO: Now, Mrs. Witness, you said that the
bracelet was returned to you, is it not true that this
bracelet was returned by Aurelia Nadera?
A: I already answered that.
COURT: What was the answer?
WITNESS: It was returned by Aurelia Nadera. 7
It is highly unlikely that Lim, if she truly had any intention of defrauding
Suarez, would still make an effort to return the bracelet, considering that as
between the two items, it is the more expensive one. Moreover, the Court of
Appeals in examining the facts of this case held that there was indeed such
are turn:
. . . This claim (that the ring had been returned to Suarez thru
Nadera) is disconcerting. It contravenes the very terms of Exhibit
A. The instruction by the complaining witness to appellant to
deliver the ring to Aurelia Nadera is vehemently denied by the
complaining witness, who declared that she did not authorize
and/or instruct appellant to do so. And thus, by delivering the ring
to Aurelia without the express authority and consent of the
complaining witness, appellant assumed the right to dispose of
the jewelry as if it were hers, thereby committing conversion, a
clear breach of trust, punishable under Article 315, par. 1 (b),
Revised Penal Code. (emphasis ours)
In other words, it has been established that the ring which is the subject of
the prosecution for estafa was indeed returned, albeit to a person whom
Suarez claims has no authority to receive said item.

63 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Generally, the delivery to a third person of the thing held in trust is not a
defense in estafa. As enunciated in the earlier case of United States vs.
Eustaquio: 8
When merchandise is received for sale on commission, under the
obligation to return the same, or its value, and is thereafter
delivered to a third person without the knowledge or authority of
the owner, the two elements which constitute the crime of estafa
exist: (a) the deceit by which it was intended to defraud; and (b)
the damage caused the owner.
However, this rule has already been modified in subsequent cases. In People
vs. Nepomuceno 9 andPeople vs. Trinidad, 10 it has been held that:
In cases of estafa the profit or gain must be obtained by the
accused personally, through his own acts, and his mere
negligence in permitting another to take advantage or benefit
from the entrusted chattel cannot constitute estafa under Article
315 paragraph 1-b, of the Revised Penal Code; unless of course
the evidence should disclose that the agent acted in conspiracy
or connivance with the one who carried out the actual
misappropriation, when the accused would be answerable for the
acts of his co-conspirators. If there is no such evidence, direct or
circumstantial, and if the proof is clear that the accused herself
was the innocent victim of her sub-agent's faithlessness, her
acquittal is in order. (emphasis ours)
Aurelia Nadera herself admits that she received both the bracelet and the
ring in question from Lim. In her testimony, she had no qualms in admitting
that she sold the ring in question and that she issued a check in favor of
Suarez as payment for said ring. She also admitted that such check had
bounced. She is now facing a criminal case for violation of Batas Pambansa
Blg. 22 instituted by Suarez herself. It is significant to note that the amount of
the bouncing check issued by Nadera as payment to Suarez corresponds to
the amount of the ring given by Suarez to Lim P169,000.00.
We cannot conceive of any motive on the part of Nadera in admitting not only
receiving the ring, but also issuing, in payment thereof, a bouncing check,
save the desire to tell the truth, in order that one who is innocent of any
crime would not be erroneously convicted. For, the same can only be to her
detriment, considering that she is now facing a criminal charge herself. That
she and Lim are very good friends is of no moment, as it is inconceivable that
she would admit as fact what did not actually happen, when such admission
could very well lead to her own incarceration. Nadera's admission is a
declaration against her own interest made under oath. It must thus be given
full weight and credence.
Rose Lim's assertion that she had returned the ring in question to Nadera, in
addition to the latter's unswerving testimony admitting the same, raises
reasonable doubt as to Lim's liability for estafa. Conversion or
misappropriation has not been sufficiently proven. As held in the case
of People vs.Lopez: 11
When a demand for the delivery of the thing promised, or the
return of the money delivered in trust, is made, and such demand
is not fulfilled within a reasonable time, a presumption arises that
the amount has been misappropriated. This inference, however, is
only deducible when the explanation given by the accused for his
failure to account for the money is absolutely devoid of
merits. Where the explanation does not completely destroy the
presumption but at least raises reasonable doubt that accused
had misappropriated the amount in question, acquittal is in order.
It is well-settled that the essence of estafa thru misappropriation is the
appropriation or conversion of money or property received to the prejudice of
the owner. The words "convert" and "misappropriate" connote an act of using
or disposing of another's property as if it were one's own or devoting it to a
64 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

purpose or use different from that agreed upon. To misappropriate for one's
own use includes, not only conversion to one's personal advantage, but also
every attempt to dispose of the property of another without right. 12
Rosa Lim's sole purpose in delivering the pieces of jewelry to Aurelia Nadera,
was for Nadera to effect their return to Victoria Suarez. By no stretch of the
imagination can the act of returning said items to its rightful owner, although
through the mediation of a third party, be considered as conversion or
misappropriation. Verily, that said act manifested Rosa Lim's recognition that
the pieces of jewelry do not belong to her. In doing so, she acknowledged
Suarez' right of dominion over them. Thus, it cannot be regarded as
conversion or misappropriation in its true sense sufficient to convict her for
estafa. Lim did not deliver the bracelet and the ring to Nadera so that the
latter may re-sell them as her sub-agent. Her only purpose was to have them
returned to their rightful owner. Moreover, she delivered the said pieces of
jewelry to one who is not a total stranger, but to a person known to both her
and Suarez and who, from all indications, enjoy their mutual trust and
confidence. To reiterate, this raises reasonable doubt as to the presence of
any criminal intent ascribed to her by the prosecution.
The act of Lim in returning the items to Nadera only shows that she had
reason to believe that the latter had the authority to receive the same. This
belief was inspired by the fact that at the time of the said transaction
between Lim and Suarez, it was Nadera herself, in behalf of Suarez, who
prepared the receipt to be signed by Lim. 13 In addition, Nadera was the one
who introduced Suarez and Lim to each other. Hence, Rosa Lim can at most
be held negligent in returning the ring to one whose authority to receive the
same was subsequently refuted. Consequently, for negligently assuming
Nadera's authority to receive the ring, Lim cannot be held criminally liable.
Settled it is in our jurisprudence that there can be no estafa through
negligence. At worst, she should only be held civilly liable. Accordingly, we
hold her liable to pay Vicky Suarez the full amount of the ring as actual
damages plus legal interest in the amount of six percent (6%) from the time
of extrajudicial demand.
WHEREFORE, the Motion for Reconsideration is GRANTED. The decision dated
February 28, 1996 is hereby MODIFIED. Petitioner Rosa Lim is hereby
ACQUITTED of any criminal liability, but is held civilly liable in the amount of
P169,000.00 as actual damages, plus legal interest, without subsidiary
imprisonment in case of insolvency.
No pronouncement as to cost.
SO ORDERED.
G.R. No. L-22487

May 21, 1969

ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their

respective husbands, HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO
LACANDALO, ISABEL ATILANO and GREGORIO ATILANO, plaintiffs-appellees,
vs.
LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants.
Climaco and Azcarraga for plaintiff-appellee.
T. de los Santos for defendants-appellants.
MAKALINTAL, J.:
In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535
of the then municipality of Zamboanga cadastre. The vendee thereafter obtained transfer
certificate of title No. 1134 in his name. In 1920 he had the land subdivided into five
parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively. On May
18 of the same year, after the subdivision had been effected, Eulogio Atilano I, for the
sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his brother
Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129 in his
name. Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were likewise sold
to other persons, the original owner, Eulogio Atilano I, retaining for himself only the
65 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

remaining portion of the land, presumably covered by the title to lot No. 535-A. Upon his
death the title to this lot passed to Ladislao Atilano, defendant in this case, in whose
name the corresponding certificate (No. T-5056) was issued.
On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his
wife Luisa Bautista, he and his children obtained transfer certificate of title No. 4889 over
lot No. 535-E in their names as co-owners. Then, on July 16, 1959, desiring to put an end
to the co-ownership, they had the land resurveyed so that it could properly be
subdivided; and it was then discovered that the land they were actually occupying on the
strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as
referred to in the deed, while the land which remained in the possession of the vendor,
Eulogio Atilano I, and which passed to his successor, defendant Ladislao Atilano, was lot
No. 535-E and not lot No. 535-A.
On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased, filed
the present action in the Court of First Instance of Zamboanga, alleging, inter alia, that
they had offered to surrender to the defendants the possession of lot No. 535-A and
demanded in return the possession of lot No. 535-E, but that the defendants had refused
to accept the exchange. The plaintiffs' insistence is quite understandable, since lot No.
535-E has an area of 2,612 square meters, as compared to the 1,808 square-meter area
of lot No. 535-A.
In their answer to the complaint the defendants alleged that the reference to lot No. 535E in the deed of sale of May 18, 1920 was an involuntary error; that the intention of the
parties to that sale was to convey the lot correctly identified as lot No. 535-A; that since
1916, when he acquired the entirety of lot No. 535, and up to the time of his death,
Eulogio Atilano I had been possessing and had his house on the portion designated as lot
No. 535-E, after which he was succeeded in such possession by the defendants herein;
and that as a matter of fact Eulogio Atilano I even increased the area under his
possession when on June 11, 1920 he bought a portion of an adjoining lot, No. 536, from
its owner Fruto del Carpio. On the basis of the foregoing allegations the defendants
interposed a counterclaim, praying that the plaintiffs be ordered to execute in their favor
the corresponding deed of transfer with respect to lot No. 535-E.
The trial court rendered judgment for the plaintiffs on the sole ground that since the
property was registered under the Land Registration Act the defendants could not acquire
it through prescription. There can be, of course, no dispute as to the correctness of this
legal proposition; but the defendants, aside from alleging adverse possession in their
answer and counterclaim, also alleged error in the deed of sale of May 18, 1920, thus:
"Eulogio Atilano 1.o, por equivocacion o error involuntario, cedio y traspaso a su hermano
Eulogio Atilano 2.do el lote No. 535-E en vez del Lote No. 535-A."lawphi1.et
The logic and common sense of the situation lean heavily in favor of the defendants'
contention. When one sells or buys real property a piece of land, for example one
sells or buys the property as he sees it, in its actual setting and by its physical metes and
bounds, and not by the mere lot number assigned to it in the certificate of title. In the
particular case before us, the portion correctly referred to as lot No. 535-A was already in
the possession of the vendee, Eulogio Atilano II, who had constructed his residence
therein, even before the sale in his favor even before the subdivision of the entire lot No.
535 at the instance of its owner, Eulogio Atillano I. In like manner the latter had his house
on the portion correctly identified, after the subdivision, as lot No. 535-E, even adding to
the area thereof by purchasing a portion of an adjoining property belonging to a different
owner. The two brothers continued in possession of the respective portions the rest of
their lives, obviously ignorant of the initial mistake in the designation of the lot subject of
the 1920 until 1959, when the mistake was discovered for the first time.
The real issue here is not adverse possession, but the real intention of the parties to that
sale. From all the facts and circumstances we are convinced that the object thereof, as
intended and understood by the parties, was that specific portion where the vendee was
then already residing, where he reconstructed his house at the end of the war, and where
his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and
that its designation as lot No. 535-E in the deed of sale was simple mistake in the drafting
of the document.1wphi1.et The mistake did not vitiate the consent of the parties, or
affect the validity and binding effect of the contract between them. The new Civil Code
provides a remedy for such a situation by means of reformation of the instrument. This
remedy is available when, there having been a meeting of the funds of the parties to a
contract, their true intention is not expressed in the instrument purporting to embody the
66 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

agreement by reason of mistake, fraud, inequitable conduct on accident (Art. 1359, et

seq.) In this case, the deed of sale executed in 1920 need no longer reformed. The parties
have retained possession of their respective properties conformably to the real intention
of the parties to that sale, and all they should do is to execute mutual deeds of
conveyance.
WHEREFORE, the judgment appealed from is reversed. The plaintiffs are ordered to
execute a deed of conveyance of lot No. 535-E in favor of the defendants, and the latter
in turn, are ordered to execute a similar document, covering lot No. 595-A, in favor of the
plaintiffs. Costs against the latter.
G.R. No. 107112 February 24, 1994
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC.
(CASURECO II),respondents.
Ernesto P. Pangalangan for petitioners.
Luis General, Jr. for private respondent.

NOCON, J.:
The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine that where a
person by his contract charges himself with an obligation possible to be performed, he
must perform it, unless its performance is rendered impossible by the act of God, by the
law, or by the other party, it being the rule that in case the party desires to be excused
from performance in the event of contingencies arising thereto, it is his duty to provide
the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision was included therein, namely,
Article 1267 which provides:
When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in
whole or in part.
In the report of the Code Commission, the rationale behind this innovation was explained,
thus:
The general rule is that impossibility of performance releases the obligor.
However, it is submitted that when the service has become so difficult as to
be manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns out to be so
difficult as to have been beyond their contemplation, it would be doing
violence to that intention to hold their contemplation, it would be doing
violence to that intention to hold the obligor still responsible. 2
In other words, fair and square consideration underscores the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of
Appeals of Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case
before us. Stated differently, the former insists that the complaint should have been
dismissed for failure to state a cause of action.
The antecedent facts, as narrated by respondent Court of Appeals are, as follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as
well as long distance telephone service in Naga City while private respondent Camarines
Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established for the
purpose of operating an electric power service in the same city.

67 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by
petitioners in the operation of its telephone service the electric light posts of private
respondent in Naga City. In consideration therefor, petitioners agreed to install, free of
charge, ten (10) telephone connections for the use by private respondent in the following
places:
(a) 3 units The Main Office of (private respondent);
(b) 2 Units The Warehouse of (private respondent);
(c) 1 Unit The Sub-Station of (private respondent) at Concepcion Pequea;
(d) 1 Unit The Residence of (private respondent's) President;
(e) 1 Unit The Residence of (private respondent's) Acting General Manager;
&
(f) 2 Units To be determined by the General Manager. 3
Said contract also provided:
(a) That the term or period of this contract shall be as long as the party of the
first part has need for the electric light posts of the party of the second part it
being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part is forced to stop, abandoned [sic] its
operation as a public service and it becomes necessary to remove the electric
lightpost; (sic) 4
It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay,
then a member of the Board of Directors of private respondent and at the same time the
legal counsel of petitioner.
After the contract had been enforced for over ten (10) years, private respondent filed on
January 2, 1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642
against petitioners for reformation of the contract with damages, on the ground that it is
too one-sided in favor of petitioners; that it is not in conformity with the guidelines of the
National Electrification Administration (NEA) which direct that the reasonable
compensation for the use of the posts is P10.00 per post, per month; that after eleven
(11) years of petitioners' use of the posts, the telephone cables strung by them thereon
have become much heavier with the increase in the volume of their subscribers,
worsened by the fact that their linemen bore holes through the posts at which points
those posts were broken during typhoons; that a post now costs as much as P2,630.00; so
that justice and equity demand that the contract be reformed to abolish the inequities
thereon.
As second cause of action, private respondent alleged that starting with the year 1981,
petitioners have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor,
Camarines Sur, all outside Naga City, without any contract with it; that at the rate of
P10.00 per post, petitioners should pay private respondent for the use thereof the total
amount of P267,960.00 from 1981 up to the filing of its complaint; and that petitioners
had refused to pay private respondent said amount despite demands.
And as third cause of action, private respondent complained about the poor servicing by
petitioners of the ten (10) telephone units which had caused it great inconvenience and
damages to the tune of not less than P100,000.00
In petitioners' answer to the first cause of action, they averred that it should be dismissed
because (1) it does not sufficiently state a cause of action for reformation of contract; (2)
it is barred by prescription, the same having been filed more than ten (10) years after the
execution of the contract; and (3) it is barred by estoppel, since private respondent seeks
to enforce the contract in the same action. Petitioners further alleged that their utilization
of private respondent's posts could not have caused their deterioration because they
have already been in use for eleven (11) years; and that the value of their expenses for
the ten (10) telephone lines long enjoyed by private respondent free of charge are far in
excess of the amounts claimed by the latter for the use of the posts, so that if there was
any inequity, it was suffered by them.
68 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Regarding the second cause of action, petitioners claimed that private respondent had
asked for telephone lines in areas outside Naga City for which its posts were used by
them; and that if petitioners had refused to comply with private respondent's demands
for payment for the use of the posts outside Naga City, it was probably because what is
due to them from private respondent is more than its claim against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that their
telephone service had been categorized by the National Telecommunication Corporation
(NTC) as "very high" and of "superior quality."
During the trial, private respondent presented the following witnesses:
(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf,
declared that it was petitioner Maggay who prepared the contract; that the understanding
between private respondent and petitioners was that the latter would only use the posts
in Naga City because at that time, petitioners' capability was very limited and they had
no expectation of expansion because of legal squabbles within the company; that private
respondent agreed to allow petitioners to use its posts in Naga City because there were
many subscribers therein who could not be served by them because of lack of facilities;
and that while the telephone lines strung to the posts were very light in 1977, said posts
have become heavily loaded in 1989.
(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance
Department, declared that the posts being used by petitioners totalled 1,403 as of April
17, 1989, 192 of which were in the towns of Pili, Canaman, and Magarao, all outside Naga
City (Exhs. "B" and "B-1"); that petitioners' cables strung to the posts in 1989 are much
bigger than those in November, 1977; that in 1987, almost 100 posts were destroyed by
typhoon Sisang: around 20 posts were located between Naga City and the town of Pili
while the posts in barangay Concepcion, Naga City were broken at the middle which had
been bored by petitioner's linemen to enable them to string bigger telephone lines; that
while the cost per post in 1977 was only from P700.00 to P1,000.00, their costs in 1989
went up from P1,500.00 to P2,000.00, depending on the size; that some lines that were
strung to the posts did not follow the minimum vertical clearance required by the
National Building Code, so that there were cases in 1988 where, because of the low
clearance of the cables, passing trucks would accidentally touch said cables causing the
posts to fall and resulting in brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent
and Manager of Region V of NEA, declared that according to NEA guidelines in 1985 (Exh.
"C"), for the use by private telephone systems of electric cooperatives' posts, they should
pay a minimum monthly rental of P4.00 per post, and considering the escalation of prices
since 1985, electric cooperatives have been charging from P10.00 to P15.00 per post,
which is what petitioners should pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the Office of Services of private
respondent, testified on the poor service rendered by petitioner's telephone lines, like the
telephone in their Complaints Section which was usually out of order such that they could
not respond to the calls of their customers. In case of disruption of their telephone lines, it
would take two to three hours for petitioners to reactivate them notwithstanding their
calls on the emergency line.
(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of
Directors asked him to study the contract sometime during the latter part of 1982 or in
1983, as it had appeared very disadvantageous to private respondent. Notwithstanding
his recommendation for the filing of a court action to reform the contract, the former
general managers of private respondent wanted to adopt a soft approach with petitioners
about the matter until the term of General Manager Henry Pascual who, after failing to
settle the matter amicably with petitioners, finally agreed for him to file the present
action for reformation of contract.
On the other hand, petitioner Maggay testified to the following effect:
(1) It is true that he was a member of the Board of Directors of private respondent and at
the same time the lawyer of petitioner when the contract was executed, but Atty.
Gaudioso Tena, who was also a member of the Board of Directors of private respondent,
was the one who saw to it that the contract was fair to both parties.
69 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

(2) With regard to the first cause of action:

(a) Private respondent has the right under the contract to use ten (10) telephone units of
petitioners for as long as it wishes without paying anything therefor except for long
distance calls through PLDT out of which the latter get only 10% of the charges.
(b) In most cases, only drop wires and not telephone cables have been strung to the
posts, which posts have remained erect up to the present;
(c) Petitioner's linemen have strung only small messenger wires to many of the posts and
they need only small holes to pass through; and
(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga
City are according to standard and comparable to those of PLDT. The accidents
mentioned by private respondent involved trucks that were either overloaded or had
loads that protruded upwards, causing them to hit the cables.
(3) Concerning the second cause of action, the intention of the parties when they entered
into the contract was that the coverage thereof would include the whole area serviced by
petitioners because at that time, they already had subscribers outside Naga City. Private
respondent, in fact, had asked for telephone connections outside Naga City for its officers
and employees residing there in addition to the ten (10) telephone units mentioned in the
contract. Petitioners have not been charging private respondent for the installation,
transfers and re-connections of said telephones so that naturally, they use the posts for
those telephone lines.
(4) With respect to the third cause of action, the NTC has found petitioners' cable
installations to be in accordance with engineering standards and practice and comparable
to the best in the country.
On the basis of the foregoing countervailing evidence of the parties, the trial court found,
as regards private respondent's first cause of action, that while the contract appeared to
be fair to both parties when it was entered into by them during the first year of private
respondent's operation and when its Board of Directors did not yet have any experience
in that business, it had become disadvantageous and unfair to private respondent
because of subsequent events and conditions, particularly the increase in the volume of
the subscribers of petitioners for more than ten (10) years without the corresponding
increase in the number of telephone connections to private respondent free of charge.
The trial court concluded that while in an action for reformation of contract, it cannot
make another contract for the parties, it can, however, for reasons of justice and equity,
order that the contract be reformed to abolish the inequities therein. Thus, said court
ruled that the contract should be reformed by ordering petitioners to pay private
respondent compensation for the use of their posts in Naga City, while private respondent
should also be ordered to pay the monthly bills for the use of the telephones also in Naga
City. And taking into consideration the guidelines of the NEA on the rental of posts by
telephone companies and the increase in the costs of such posts, the trial court opined
that a monthly rental of P10.00 for each post of private respondent used by petitioners is
reasonable, which rental it should pay from the filing of the complaint in this case on
January 2, 1989. And in like manner, private respondent should pay petitioners from the
same date its monthly bills for the use and transfers of its telephones in Naga City at the
same rate that the public are paying.
On private respondent's second cause of action, the trial court found that the contract
does not mention anything about the use by petitioners of private respondent's posts
outside Naga City. Therefore, the trial court held that for reason of equity, the contract
should be reformed by including therein the provision that for the use of private
respondent's posts outside Naga City, petitioners should pay a monthly rental of P10.00
per post, the payment to start on the date this case was filed, or on January 2, 1989, and
private respondent should also pay petitioners the monthly dues on its telephone
connections located outside Naga City beginning January, 1989.
And with respect to private respondent's third cause of action, the trial court found the
claim not sufficiently proved.
Thus, the following decretal portion of the trial court's decision dated July 20, 1990:

70 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

WHEREFORE, in view of all the foregoing, decision is hereby rendered

ordering the reformation of the agreement (Exh. A); ordering the defendants
to pay plaintiff's electric poles in Naga City and in the towns of Milaor,
Canaman, Magarao and Pili, Camarines Sur and in other places where
defendant NATELCO uses plaintiff's electric poles, the sum of TEN (P10.00)
PESOS per plaintiff's pole, per month beginning January, 1989 and ordering
also the plaintiff to pay defendant NATELCO the monthly dues of all its
telephones including those installed at the residence of its officers, namely;
Engr. Joventino Cruz, Engr. Antonio Borja, Engr. Antonio Macandog, Mr. Jesus
Opiana and Atty. Luis General, Jr. beginning January, 1989. Plaintiff's claim for
attorney's fees and expenses of litigation and defendants' counterclaim are
both hereby ordered dismissed. Without pronouncement as to costs.
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of
Appeals. In the decision dated May 28, 1992, respondent court affirmed the decision of
the trial court, 5 but based on different grounds to wit: (1) that Article 1267 of the New
Civil Code is applicable and (2) that the contract was subject to a potestative condition
which rendered said condition void. The motion for reconsideration was denied in the
resolution dated September 10, 1992. 6Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent court:
1) in making a contract for the parties by invoking Article 1267 of the New
Civil Code;
2) in ruling that prescription of the action for reformation of the contract in
this case commenced from the time it became disadvantageous to private
respondent; and
3) in ruling that the contract was subject to a potestative condition in favor of
petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable
primarily because the contract does not involve the rendition of service or a personal
prestation and it is not for future service with future unusual change. Instead, the ruling in
the case of Occea, et al. v. Jabson, etc., et al., 7 which interpreted the article, should be
followed in resolving this case. Besides, said article was never raised by the parties in
their pleadings and was never the subject of trial and evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an action for reformation of
contract would lie and may prosper, there must be sufficient allegations as
well as proof that the contract in question failed to express the true intention
of the parties due to error or mistake, accident, or fraud. Indeed, in
embodying the equitable remedy of reformation of instruments in the New
Civil Code, the Code Commission gave its reasons as follows:
Equity dictates the reformation of an instrument in order that the
true intention of the contracting parties may be expressed. The
courts by the reformation do not attempt to make a new contract
for the parties, but to make the instrument express their real
agreement. The rationale of the doctrine is that it would be unjust
and inequitable to allow the enforcement of a written instrument
which does not reflect or disclose the real meeting of the minds of
the parties. The rigor of the legalistic rule that a written
instrument should be the final and inflexible criterion and
measure of the rights and obligations of the contracting parties is
thus tempered to forestall the effects of mistake, fraud,
inequitable conduct, or accident. (pp. 55-56, Report of Code
Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code
provide in essence that where through mistake or accident on the part of
either or both of the parties or mistake or fraud on the part of the clerk or
typist who prepared the instrument, the true intention of the parties is not
expressed therein, then the instrument may be reformed at the instance of
71 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

either party if there was mutual mistake on their part, or by the injured party
if only he was mistaken.
Here, plaintiff-appellee did not allege in its complaint, nor does its evidence
prove, that there was a mistake on its part or mutual mistake on the part of
both parties when they entered into the agreement Exh. "A", and that
because of this mistake, said agreement failed to express their true intention.
Rather, plaintiff's evidence shows that said agreement was prepared by Atty.
Luciano Maggay, then a member of plaintiff's Board of Directors and its legal
counsel at that time, who was also the legal counsel for defendant-appellant,
so that as legal counsel for both companies and presumably with the interests
of both companies in mind when he prepared the aforesaid agreement, Atty.
Maggay must have considered the same fair and equitable to both sides, and
this was affirmed by the lower court when it found said contract to have been
fair to both parties at the time of its execution. In fact, there were no
complaints on the part of both sides at the time of and after the execution of
said contract, and according to 73-year old Justino de Jesus, Vice President
and General manager of appellant at the time who signed the agreement
Exh. "A" in its behalf and who was one of the witnesses for the plaintiff (sic),
both parties complied with said contract "from the very beginning" (p. 5, tsn,
April 17, 1989).
That the aforesaid contract has become inequitous or unfavorable or
disadvantageous to the plaintiff with the expansion of the business of
appellant and the increase in the volume of its subscribers in Naga City and
environs through the years, necessitating the stringing of more and bigger
telephone cable wires by appellant to plaintiff's electric posts without a
corresponding increase in the ten (10) telephone connections given by
appellant to plaintiff free of charge in the agreement Exh. "A" as
consideration for its use of the latter's electric posts in Naga City, appear,
however, undisputed from the totality of the evidence on record and the
lower court so found. And it was for this reason that in the later (sic) part of
1982 or 1983 (or five or six years after the subject agreement was entered
into by the parties), plaintiff's Board of Directors already asked Atty. Luis
General who had become their legal counsel in 1982, to study said
agreement which they believed had become disadvantageous to their
company and to make the proper recommendation, which study Atty. General
did, and thereafter, he already recommended to the Board the filing of a court
action to reform said contract, but no action was taken on Atty. General's
recommendation because the former general managers of plaintiff wanted to
adopt a soft approach in discussing the matter with appellant, until, during
the term of General Manager Henry Pascual, the latter, after failing to settle
the problem with Atty. Luciano Maggay who had become the president and
general manager of appellant, already agreed for Atty. General's filing of the
present action. The fact that said contract has become inequitous or
disadvantageous to plaintiff as the years went by did not, however, give
plaintiff a cause of action for reformation of said contract, for the reasons
already pointed out earlier. But this does not mean that plaintiff is completely
without a remedy, for we believe that the allegations of its complaint herein
and the evidence it has presented sufficiently make out a cause of action
under Art. 1267 of the New Civil Code for its release from the agreement in
question.
xxx xxx xxx
The understanding of the parties when they entered into the Agreement Exh.
"A" on November 1, 1977 and the prevailing circumstances and conditions at
the time, were described by Dioscoro Ragragio, the President of plaintiff in
1977 and one of its two officials who signed said agreement in its behalf, as
follows:
Our understanding at that time is that we will allow NATELCO to
utilize the posts of CASURECO II only in the City of Naga because
at that time the capability of NATELCO was very limited, as a
matter of fact we do [sic] not expect to be able to expand
because of the legal squabbles going on in the NATELCO. So, even
at that time there were so many subscribers in Naga City that
72 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

cannot be served by the NATELCO, so as a mater of public service

we allowed them to sue (sic) our posts within the Naga City. (p. 8,
tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to the electric
posts of plaintiff were very light and that very few telephone lines were
attached to the posts of CASURECO II in 1977, said posts have become
"heavily loaded" in 1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite the increase in the
volume of appellant's subscribers and the corresponding increase in the
telephone cables and wires strung by it to plaintiff's electric posts in Naga
City for the more 10 years that the agreement Exh. "A" of the parties has
been in effect, there has been no corresponding increase in the ten (10)
telephone units connected by appellant free of charge to plaintiff's offices and
other places chosen by plaintiff's general manager which was the only
consideration provided for in said agreement for appellant's use of plaintiffs
electric posts. Not only that, appellant even started using plaintiff's electric
posts outside Naga City although this was not provided for in the agreement
Exh. "A" as it extended and expanded its telephone services to towns outside
said city. Hence, while very few of plaintiff's electric posts were being used by
appellant in 1977 and they were all in the City of Naga, the number of
plaintiff's electric posts that appellant was using in 1989 had jumped to
1,403,192 of which are outside Naga City (Exh. "B"). Add to this the
destruction of some of plaintiff's poles during typhoons like the strong
typhoon Sisang in 1987 because of the heavy telephone cables attached
thereto, and the escalation of the costs of electric poles from 1977 to 1989,
and the conclusion is indeed ineluctable that the agreement Exh. "A" has
already become too one-sided in favor of appellant to the great disadvantage
of plaintiff, in short, the continued enforcement of said contract has
manifestly gone far beyond the contemplation of plaintiff, so much so that it
should now be released therefrom under Art. 1267 of the New Civil Code to
avoid appellant's unjust enrichment at its (plaintiff's) expense. As stated by
Tolentino in his commentaries on the Civil Code citing foreign civilist
Ruggiero, "equity demands a certain economic equilibrium between the
prestation and the counter-prestation, and does not permit the unlimited
impoverishment of one party for the benefit of the other by the excessive
rigidity of the principle of the obligatory force of contracts (IV Tolentino, Civil
Code of the Philippines, 1986 ed.,
pp. 247-248).
We therefore, find nothing wrong with the ruling of the trial court, although
based on a different and wrong premise (i.e., reformation of contract), that
from the date of the filing of this case, appellant must pay for the use of
plaintiff's electric posts in Naga City at the reasonable monthly rental of
P10.00 per post, while plaintiff should pay appellant for the telephones in the
same City that it was formerly using free of charge under the terms of the
agreement Exh. "A" at the same rate being paid by the general public. In
affirming said ruling, we are not making a new contract for the parties herein,
but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to
avoid unjust enrichment by appellant at the expense of plaintiff, said
arrangement to continue only until such time as said parties can re-negotiate
another agreement over the same
subject-matter covered by the agreement Exh. "A". Once said agreement is
reached and executed by the parties, the aforesaid ruling of the lower court
and affirmed by us shall cease to exist and shall be substituted and
superseded by their new agreement. . . .. 8
Article 1267 speaks of "service" which has become so difficult. Taking into consideration
the rationale behind this provision, 9 the term "service" should be understood as referring
to the "performance" of the obligation. In the present case, the obligation of private
respondent consists in allowing petitioners to use its posts in Naga City, which is the
service contemplated in said article. Furthermore, a bare reading of this article reveals
that it is not a requirement thereunder that the contract be for future service with future
unusual change. According to Senator Arturo M. Tolentino, 10 Article 1267 states in our law
the doctrine of unforseen events. This is said to be based on the discredited theory
73 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

of rebus sic stantibus in public international law; under this theory, the parties stipulate in
the light of certain prevailing conditions, and once these conditions cease to exist the
contract also ceases to exist. Considering practical needs and the demands of equity and
good faith, the disappearance of the basis of a contract gives rise to a right to relief in
favor of the party prejudiced.
In a nutshell, private respondent in the Occea case filed a complaint against petitioner
before the trial court praying for modification of the terms and conditions of the contract
that they entered into by fixing the proper shares that should pertain to them out of the
gross proceeds from the sales of subdivided lots. We ordered the dismissal of the
complaint therein for failure to state a sufficient cause of action. We rationalized that the
Court of Appeals misapplied Article 1267 because:
. . . respondent's complaint seeks not release from the subdivision contract
but that the court "render judgment modifying the terms and conditions of
the contract . . . by fixing the proper shares that should pertain to the herein
parties out of the gross proceeds from the sales of subdivided lots of subject
subdivision". The cited article (Article 1267) does not grant the courts (the)
authority to remake, modify or revise the contract or to fix the division of
shares between the parties as contractually stipulated with the force of law
between the parties, so as to substitute its own terms for those covenanted
by the parties themselves. Respondent's complaint for modification of
contract manifestly has no basis in law and therefore states no cause of
action. Under the particular allegations of respondent's complaint and the
circumstances therein averred, the courts cannot even in equity grant the
relief sought. 11
The ruling in the Occea case is not applicable because we agree with respondent court
that the allegations in private respondent's complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. We, therefore, release the
parties from their correlative obligations under the contract. However, our disposition of
the present controversy does not end here. We have to take into account the possible
consequences of merely releasing the parties therefrom: petitioners will remove the
telephone wires/cables in the posts of private respondent, resulting in disruption of their
service to the public; while private respondent, in consonance with the contract 12 will
return all the telephone units to petitioners, causing prejudice to its business. We shall
not allow such eventuality. Rather, we require, as ordered by the trial court: 1) petitioners
to pay private respondent for the use of its posts in Naga City and in the towns of Milaor,
Canaman, Magarao and Pili, Camarines Sur and in other places where petitioners use
private respondent's posts, the sum of ten (P10.00) pesos per post, per month, beginning
January, 1989; and 2) private respondent to pay petitioner the monthly dues of all its
telephones at the same rate being paid by the public beginning January, 1989. The
peculiar circumstances of the present case, as distinguished further from the Occea
case, necessitates exercise of our equity jurisdiction. 13 By way of emphasis, we reiterate
the rationalization of respondent court that:
. . . In affirming said ruling, we are not making a new contract for the parties
herein, but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to
avoid unjust enrichment by appellant at the expense of plaintiff . . . . 14
Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings
and was never the subject of trial and evidence has been passed upon by respondent
court in its well reasoned resolution, which we hereunder quote as our own:
First, we do not agree with defendant-appellant that in applying Art. 1267 of
the New Civil Code to this case, we have changed its theory and decided the
same on an issue not invoked by plaintiff in the lower court. For basically, the
main and pivotal issue in this case is whether the continued enforcement of
the contract Exh. "A" between the parties has, through the years (since
1977), become too inequitous or disadvantageous to the plaintiff and too onesided in favor of defendant-appellant, so that a solution must be found to
relieve plaintiff from the continued operation of said agreement and to
prevent defendant-appellant from further unjustly enriching itself at plaintiff's
expense. It is indeed unfortunate that defendant had turned deaf ears to
plaintiffs requests for renegotiation, constraining the latter to go to court. But
although plaintiff cannot, as we have held, correctly invoke reformation of
74 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

contract as a proper remedy (there having been no showing of a mistake or

error in said contract on the part of any of the parties so as to result in its
failure to express their true intent), this does not mean that plaintiff is
absolutely without a remedy in order to relieve itself from a contract that has
gone far beyond its contemplation and has become so highly inequitous and
disadvantageous to it through the years because of the expansion of
defendant-appellant's business and the increase in the volume of its
subscribers. And as it is the duty of the Court to administer justice, it must do
so in this case in the best way and manner it can in the light of the proven
facts and the law or laws applicable thereto.
It is settled that when the trial court decides a case in favor of a party on a
certain ground, the appellant court may uphold the decision below upon some
other point which was ignored or erroneously decided by the trial court
(Garcia Valdez v. Tuazon, 40 Phil. 943; Relativo v. Castro, 76 Phil. 563; Carillo
v. Salak de Paz, 18 SCRA 467). Furthermore, the appellate court has the
discretion to consider an unassigned error that is closely related to an error
properly assigned (Paterno v. Jao Yan, 1 SCRA 631; Hernandez v. Andal, 78
Phil. 196). It has also been held that the Supreme Court (and this Court as
well) has the authority to review matters, even if they are not assigned as
errors in the appeal, if it is found that their consideration is necessary in
arriving at a just decision of the case (Saura Import & Export Co., Inc. v. Phil.
International Surety Co. and PNB, 8 SCRA 143). For it is the material
allegations of fact in the complaint, not the legal conclusion made therein or
the prayer, that determines the relief to which the plaintiff is entitled, and the
plaintiff is entitled to as much relief as the facts warrant although that relief is
not specifically prayed for in the complaint (Rosales v. Reyes and Ordoveza,
25 Phil. 495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To
quote an old but very illuminating decision of our Supreme Court through the
pen of American jurist Adam C. Carson:
"Under our system of pleading it is the duty of the courts to grant
the relief to which the parties are shown to be entitled by the
allegations in their pleadings and the facts proven at the trial, and
the mere fact that they themselves misconstrue the legal effect
of the facts thus alleged and proven will not prevent the court
from placing the just construction thereon and adjudicating the
issues accordingly." (Alzua v. Johnson, 21 Phil. 308)
And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the
Honorable Supreme Court also held:
We rule that the respondent court did not commit any error in
taking cognizance of the aforesaid issues, although not raised
before the trial court. The presence of strong consideration of
substantial justice has led this Court to relax the well-entrenched
rule that, except questions on jurisdiction, no question will be
entertained on appeal unless it has been raised in the court below
and it is within the issues made by the parties in their pleadings
(Cordero v. Cabral, L-36789, July 25, 1983, 123 SCRA 532). . . .
We believe that the above authorities suffice to show that this Court did not
err in applying Art. 1267 of the New Civil Code to this case. Defendantappellant stresses that the applicability of said provision is a question of fact,
and that it should have been given the opportunity to present evidence on
said question. But defendant-appellant cannot honestly and truthfully claim
that it (did) not (have) the opportunity to present evidence on the issue of
whether the continued operation of the contract Exh. "A" has now become too
one-sided in its favor and too inequitous, unfair, and disadvantageous to
plaintiff. As held in our decision, the abundant and copious evidence
presented by both parties in this case and summarized in said decision
established the following essential and vital facts which led us to apply Art.
1267 of the New Civil Code to this case:
xxx xxx xxx

75 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

15

On the issue of prescription of private respondent's action for reformation of contract,

petitioners allege that respondent court's ruling that the right of action "arose only after
said contract had already become disadvantageous and unfair to it due to subsequent
events and conditions, which must be sometime during the latter part of 1982 or in
1983 . . ." 16 is erroneous. In reformation of contracts, what is reformed is not the contract
itself, but the instrument embodying the contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and therefore, cannot be an element
in the determination of the period for prescription of the action to reform.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written
contract must be brought within ten (10) years from the time the right of action accrues.
Clearly, the ten (10) year period is to be reckonedfrom the time the right of action
accrues which is not necessarily the date of execution of the contract. As correctly ruled
by respondent court, private respondent's right of action arose "sometime during the
latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was asked
by (private respondent's) Board of Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private respondent's)
cause of action to ask for reformation of said contract should thus be considered to have
arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this
case was filed, ten (10) years had not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing purely potestative about
the prestations of either party because petitioner's permission for free use of telephones
is not made to depend purely on their will, neither is private respondent's permission for
free use of its posts dependent purely on its will.
Apart from applying Article 1267, respondent court cited another legal remedy available
to private respondent under the allegations of its complaint and the preponderant
evidence presented by it:
. . . we believe that the provision in said agreement
(a) That the term or period of this contract shall be as long as the
party of the first part[herein appellant] has need for the electric
light posts of the party of the second part [herein plaintiff] it
being understood that this contract shall terminate when for any
reason whatsoever, the party of the second part is forced to stop,
abandoned [sic] its operation as a public service and it becomes
necessary to remove the electric light post [sic]"; (Emphasis
supplied)
is invalid for being purely potestative on the part of appellant as it leaves the
continued effectivity of the aforesaid agreement to the latter's sole and
exclusive will as long as plaintiff is in operation. A similar provision in a
contract of lease wherein the parties agreed that the lessee could stay on the
leased premises "for as long as the defendant needed the premises and can
meet and pay said increases" was recently held by the Supreme Court in Lim
v. C.A., 191 SCRA 150, citing the much earlier case of Encarnacion v.
Baldomar, 77 Phil. 470, as invalid for being "a purely potestative condition
because it leaves the effectivity and enjoyment of leasehold rights to the sole
and exclusive will of the lessee." Further held the High Court in the Lim case:
The continuance, effectivity and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and
uncontrolled choice of the lessee between continuing the
payment of the rentals or not, completely depriving the owner of
any say in the matter. Mutuality does not obtain in such a
contract of lease of no equality exists between the lessor and the
lessee since the life of the contract is dictated solely by the
lessee.
The above can also be said of the agreement Exh. "A" between the parties in
this case. There is no mutuality and equality between them under the aforequoted provision thereof since the life and continuity of said agreement is
made to depend as long as appellant needs plaintiff's electric posts. And this
is precisely why, since 1977 when said agreement was executed and up to
1989 when this case was finally filed by plaintiff, it could do nothing to be
76 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

released from or terminate said agreement notwithstanding that its continued

effectivity has become very disadvantageous and inequitous to it due to the
expansion and increase of appellant's telephone services within Naga City
and even outside the same, without a corresponding increase in the ten (10)
telephone units being used by plaintiff free of charge, as well as the bad and
inefficient service of said telephones to the prejudice and inconvenience of
plaintiff and its customers. . . . 18
Petitioners' allegations must be upheld in this regard. A potestative condition is a
condition, the fulfillment of which depends upon the sole will of the debtor, in which case,
the conditional obligation is void. 19 Based on this definition, respondent court's finding
that the provision in the contract, to wit:
(a) That the term or period of this contract shall be as long as the party of the
first part (petitioner) has need for the electric light posts of the party of the
second part (private respondent) . . ..
is a potestative condition, is correct. However, it must have overlooked the other
conditions in the same provision, to wit:
. . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to
stop, abandoned (sic) its operation as a public service and it becomes
necessary to remove the electric light post (sic);
which are casual conditions since they depend on chance, hazard, or the will of a third
person. 20 In sum, the contract is subject to mixed conditions, that is, they depend partly
on the will of the debtor and partly on chance, hazard or the will of a third person, which
do not invalidate the aforementioned provision. 21 Nevertheless, in view of our discussions
under the first and second issues raised by petitioners, there is no reason to set aside the
questioned decision and resolution of respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated
May 28, 1992 and its resolution dated September 10, 1992 are AFFIRMED.
SO ORDERED.
G.R. No. 128991

April 12, 2000

YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO

PORMIDA, petitioners,
vs.
HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RTC,
Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC., respondents.

KAPUNAN, J.:
Reformation. of an instrument is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the
parties when some error or mistake has been committed. 1 It is predicated on the
equitable maxim that equity treats as done that which ought to be done. 2 Therationale of
the doctrine is that it would be unjust and unequitable to allow the enforcement of a
written instrument which does not reflect or disclose the real meeting of the minds of the
parties. 3 However, an action for reformation must be brought within the period
prescribed by law, otherwise, it will be barred by the mere lapse of time. The issue in this
case is whether or not the complaint for reformation filed by respondent Leyte Gulf
Traders, Inc. has prescribed and in the negative, whether or not it is entitled to the
remedy of reformation sought.
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent
corporation) filed a complaint for reformation of instrument, specific performance,
annulment of conditional sale and damages with prayer for writ of injunction against
petitioners Yolanda Rosello-Bentir and the spouses Samuel and Charito Pormida. The case
was docketed as Civil Case No. 92-05-88 and raffled to Judge Pedro S. Espina, RTC,
Tacloban City, Branch 7. Respondent corporation alleged that it entered into a contract of
77 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

lease of a parcel of land with petitioner Bentir for a period of twenty (20) years starting
May 5, 1968. According to respondent corporation, the lease was extended for another
four (4) years or until May 31, 1992. On May 5, 1989, petitioner Bentir sold the leased
premises to petitioner spouses Samuel Pormada and Charito Pormada. Respondent
corporation questioned the sale alleging that it had a right of first refusal. Rebuffed, it
filed Civil Case No. 92-05-88 seeking the reformation of the expired contract of lease on
the ground that its lawyer inadvertently omitted to incorporate in the contract of lease
executed in 1968, the verbal agreement or understanding between the parties that in the
event petitioner Bentir leases or sells the lot after the expiration of the lease, respondent
corporation has the right to equal the highest offer.
In due time, petitioners filed their answer alleging that the inadvertence of the lawyer
who prepared the lease contract is not a ground for reformation. They further contended
that respondent corporation is guilty of laches for not bringing the case for reformation of
the lease contract within the prescriptive period of ten (10) years from its execution.
Respondent corporation then filed its reply and on November 18, 1992, filed a motion to
admit amended complaint. Said motion was granted by the lower court. 4
Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be
dismissed on the ground of prescription.
On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order
dismissing the complaint premised on its finding that the action for reformation had
already prescribed. The order reads:
ORDER
Resolved here is the defendants' MOTION TO DISMISS PLAINTIFF'S complaint on
ground of prescription of action.
It is claimed by plaintiff that he and defendant Bentir entered into a contract of
lease of a parcel of land on May 5, 1968 for a period of 20 years (and renewed for
an additional 4 years thereafter) with the verbal agreement that in case the lessor
decides to sell the property after the lease, she shall give the plaintiff the right to
equal the offers of other prospective buyers. It was claimed that the lessor violated
this tight of first refusal of the plaintiff when she sureptitiously (sic) sold the land to
co-defendant Pormida on May 5, 1989 under a Deed of Conditional Sale. Plaintiffs
right was further violated when after discovery of the final sale, plaintiff ordered to
equal the price of co-defendant Pormida was refused and again defendant Bentir
surreptitiously executed a final deed of sale in favor of co-defendant Pormida in
December 11, 1991.
The defendant Bentir denies that she bound herself to give the plaintiff the right of
first refusal in case she sells the property. But assuming for the sake of argument
that such right of first refusal was made, it is now contended that plaintiffs cause of
action to reform the contract to reflect such right of first refusal, has already
prescribed after 10 years, counted from May 5, 1988 when the contract of lease
incepted. Counsel for defendant cited Conde vs. Malaga, L-9405 July 31, 1956
and Ramos vs. Court of Appeals, 180 SCRA 635, where the Supreme Court held that
the prescriptive period for reformation of a written contract is ten (10) years under
Article 1144 of the Civil Code.
This Court sustains the position of the defendants that this action for reformation of
contract has prescribed and hereby orders the dismissal of the case.
SO ORDERED.

On December 29, 1995, respondent corporation filed a motion for reconsideration of the
order dismissing the complaint.
On January 11, 1996, respondent corporation filed an urgent ex-parte motion for issuance
of an order directing the petitioners, or their representatives or agents to refrain from
taking possession of the land in question.

78 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution, was
assigned to the RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. Navidad was
designated in his place.
On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself
from hearing the case. Consequently, the case was re-raffled and assigned to RTC,
Tacloban City, Branch 8, presided by herein respondent judge Mateo M. Leanda.
On May 10, 1996, respondent judge issued an order reversing the order of dismissal on
the grounds that the action for reformation had not yet prescribed and the dismissal was
"premature and precipitate", denying respondent corporation of its right to procedural
due process. The order reads:
ORDER
Stated briefly, the principal objectives of the twin motions submitted by the
plaintiffs, for resolution are:
(1) for the reconsideration of the Order of 15 December 1995 of the Court
(RTC, Br. 7), dismissing this case, on the sole ground of prescription of one (1)
of the five (5) causes of action of plaintiff in its complaint for "reformation" of
a contract of lease; and,
(2) for issuance by this Court of an Order prohibiting the defendants and their
privies-in-interest, from taking possession of the leased premises, until a final
court order issues for their exercise of dominical or possessory right thereto.
The records of this case reveal that co-defendant BENTER (Yolanda) and plaintiff
Leyte Gulf Traders Incorporation, represented by Chairman Benito Ang, entered into
a contract of lease of a parcel of land, denominated as Lot No. 878-D, located at
Sagkahan District, Tacloban City, on 05 May 1968, for a period of twenty (20) years,
(later renewed for an additional two (2) years). Included in said covenant of lease is
the verbal understanding and agreement between the contracting parties, that
when the defendant (as lessor) will sell the subject property, the plaintiff as (lessee)
has the "right of first refusal", that is, the right to equal the offer of any other
prospective third-party buyer. This agreement (sic) is made apparent by paragraph
4 of the lease agreement stating:
4. IMPROVEMENT. The lessee shall have the right to erect on the leased
premises any building or structure that it may desire without the consent or
approval of the Lessor . . . provided that any improvements existing at the
termination of the lease shall remain as the property of the Lessor without
right to reimbursement to the Lessee of the cost or value thereof.
That the foregoing provision has been included in the lease agreement if only to
convince the defendant-lessor that plaintiff desired a priority right to acquire the
property (ibid) by purchase, upon expiration of the effectivity of the deed of lease.
In the course of the interplay of several procedural moves of the parties herein, the
defendants filed their motion to admit their amended answer to plaintiff's amended
complaint. Correspondingly, the plaintiff filed its opposition to said motion. The
former court branch admitted the amended answer, to which order of admission,
the plaintiff seasonably filed its motion for reconsideration. But, before the said
motion for reconsideration was acted upon by the court, the latter issued an Order
on 15 December 1995, DISMISSING this case on the lone ground of prescription of
the cause of action of plaintiff's complaint on "reformation" of the lease contract,
without anymore considering the remaining cause of action, viz.: (a) on Specific
Performance; (b) an Annulment of Sale and Title; (c) on Issuance of a Writ of
Injunction, and (d) on Damages.
With due respect to the judicial opinion of the Honorable Presiding Judge of Branch
7 of this Court, the undersigned, to whom this case was raffled to after the
inhibition of Judge Roberto Navidad, as acting magistrate of Branch 7, feels not
necessary any more to discuss at length that even the cause of action for
"reformation" has not, as yet, prescribed.

79 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

To the mind of this Court, the dismissal order adverted to above, was obviously
premature and precipitate, thus resulting denial upon the right of plaintiff that
procedural due process. The other remaining four (4) causes of action of the
complaint must have been deliberated upon before that court acted hastily in
dismissing this case.
WHEREFORE, in the interest of substantial justice, the Order of the court, (Branch 7,
RTC) dismissing this case, is hereby ordered RECONSIDERED and SET ASIDE.
Let, therefore, the motion of plaintiff to reconsider the Order admitting the
amended answer and the Motion to Dismiss this case (ibid), be set for hearing on
May 24, 1996, at 8:30 o'clock in the morning. Service of notices must be effected
upon parties and counsel as early as possible before said scheduled date.
Concomitantly, the defendants and their privies-in-interest or agents, are hereby
STERNLY WARNED not to enter, in the meantime, the litigated premises, before a
final court order issues granting them dominical as well as possessory right thereto.
To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome C.
Lawsin, the defendants may, if they so desire, file their answer or rejoinder thereto,
before the said petition will be set for hearing. The latter are given ten (10) days to
do so, from the date of their receipt of a copy of this Order.
SO ORDERED.

On June 10, 1996, respondent judge issued an order for status quo ante, enjoining
petitioners to desist from occupying the property. 7
Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking
the annulment of the order of respondent court with prayer for issuance of a writ of
preliminary injunction and temporary restraining order to restrain respondent judge from
further hearing the case and to direct respondent corporation to desist from further
possessing the litigated premises and to turn over possession to petitioners.
On January 17, 1997, the Court of Appeals, after finding no error in the questioned order
nor grave abuse of discretion on the part of the trial court that would amount to lack, or
in excess of jurisdiction, denied the petition and affirmed the questioned order. 8 A
reconsideration of said decision was, likewise, denied on April 16, 1997. 9
Thus, the instant petition for review based on the following assigned errors, viz:
6:01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION FOR
REFORMATION IS PROPER AND JUSTIFIED UNDER THE CIRCUMSTANCES OF THE
PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION FOR
REFORMATION HAS NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION TO BUY IN A
CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED RENEWAL OF SUCH LEASE;
AND,
6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS QUO ANTE ORDER
IS NOT AN INJUNCTIVE RELIEF THAT SHOULD COMPLY WITH THE PROVISIONS OF
RULE 58 OF THE RULES OF COURT. 10
The petition has merit.
The core issue that merits our consideration is whether the complaint for reformation of
instrument has prescribed.1awp++i1
The remedy of reformation of an instrument is grounded on the principle of equity where,
in order to express the true intention of the contracting parties, an instrument already
executed is allowed by law to be reformed. The right of reformation is necessarily an
invasion or limitation of the parol evidence rule since, when a writing is reformed, the
result is that an oral agreement is by court decree made legally
effective. 11 Consequently, the courts, as the agencies authorized by law to exercise the
80 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

power to reform an instrument, must necessarily exercise that power sparingly and with
great caution and zealous care. Moreover, the remedy, being an extraordinary one, must
be subject to limitations as may be provided by law. Our law and jurisprudence set such
limitations, among which is laches. A suit for reformation of an instrument may be barred
by lapse of time. The prescriptive period for actions based upon a written contract and for
reformation of an instrument is ten (10) years under Article 1144 of the Civil
Code. 12 Prescription is intended to suppress stale and fraudulent claims arising from
transactions like the one at bar which facts had become so obscure from the lapse of time
or defective memory. 13 In the case at bar, respondent corporation had ten (10) years
from 1968, the time when the contract of lease was executed, to file an action for
reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years after the
cause of action accrued, hence, its cause of action has become stale, hence, time-barred.
In holding that the action for reformation has not prescribed, the Court of Appeals upheld
the ruling of the Regional Trial Court that the 10-year prescriptive period should be
reckoned not from the execution of the contract of lease in 1968, but from the date of the
alleged 4-year extension of the lease contract after it expired in 1988. Consequently,
when the action for reformation of instrument was filed in 1992 it was within ten (10)
years from the extended period of the lease. Private respondent theorized, and the Court
of Appeals agreed, that the extended period of lease was an "implied new lease" within
the contemplation of Article 1670 of the Civil Code, 14under which provision, the other
terms of the original contract were deemed revived in the implied new lease.
We do not agree. First, if, according to respondent corporation, there was an agreement
between the parties to extend the lease contract for four (4) years after the original
contract expired in 1988, then Art. 1670 would not apply as this provision speaks of an
implied new lease (tacita reconduccion) where at the end of the contract, the lessee
continues to enjoy the thing leased "with the acquiescence of the lessor", so that the
duration of the lease is "not for the period of the original contract, but for the time
established in Article 1682 and 1687." In other words, if the extended period of lease was
expressly agreed upon by the parties, then the term should be exactly what the parties
stipulated, not more, not less. Second, even if the supposed 4-year extended lease be
considered as an implied new lease under Art. 1670, "the other terms of the original
contract" contemplated in said provision are only those terms which are germane to the
lessee's right of continued enjoyment of the property leased. 15 The prescriptive period of
ten (10) years provided for in Art. 1144 16 applies by operation of law, not by the will of
the parties. Therefore, the right of action for reformation accrued from the date of
execution of the contract of lease in 1968.
Even if we were to assume for the sake of argument that the instant action for
reformation is not time-barred, respondent corporation's action will still not prosper.
Under Section 1, Rule 64 of the New Rules of Court, 17 an action for the reformation of an
instrument is instituted as a special civil action for declaratory relief. Since the purpose of
an action for declaratory relief is to secure an authoritative statement of the rights and
obligations of the parties for their guidance in the enforcement thereof, or compliance
therewith, and not to settle issues arising from an alleged breach thereof, it may be
entertained only before the breach or violation of the law or contract to which it
refers. 18 Here, respondent corporation brought the present action for reformation after an
alleged breach or violation of the contract was already committed by petitioner Bentir.
Consequently, the remedy of reformation no longer lies.
We no longer find it necessary to discuss the other issues raised considering that the
same are predicated upon our affirmative resolution on the issue of the prescription of the
action for reformation.
WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals dated
January 17, 1997 is REVERSED and SET ASIDE. The Order of the Regional Trial Court of
Tacloban City, Branch 7, dated December 15, 1995 dismissing the action for reformation
is REINSTATED.1wphi1.nt
SO ORDERED.
G.R. No. 133643

June 6, 2002

RITA SARMING, RUFINO SARMING, MANUEL SARMING, LEONORA VDA. DE LOY,

ERLINDA DARMING, NICANDRA SARMING, MANSUETA SARMING, ARTURO
CORSAME, FELY CORSAME, FEDERICO CORSAME, ISABELITA CORSAME, NORMA
81 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

CORSAME, CESAR CORSAME, RUDY CORSAME, ROBERTA CORSAME, ARTEMIO

CORSAME, ELPIDIO CORSAME, ENRIQUITA CORSAME, and GUADALUPE CORSAME
TAN,petitioners,
vs.
CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD FLORES, LUISA FLORES,
SATURNINA ORGANISTA, REMEDIOS ORGANISTA, OFELIA ORGANISTA, LYDIA
ORGANISTA, ZOSIMO ORGANISTA, DOMISIANO FLORES, FLORITA FLORES,
EDUARDO FLORES, BENIGNA FLORES, ANGELINA FLORES, MARCIAL FLORES, and
MARIO FLORES, respondents.
QUISUMBING, J.:
This petition for review assails the decision1 dated September 23, 1997 of the Court of
Appeals in CA-G.R. CV No. 39401, which affirmed the decision 2 of the Regional Trial Court,
Branch 41 in Negros Oriental, Dumaguete City and the resolution3 dated April 21, 1998
denying petitioners' motion for reconsideration.
The facts as culled from records are as follows:
Petitioners are the successors-in-interest of original defendant Silveria Flores, while
respondents Cresencio Dy and Ludivina Dy-Chan are the successors-in-interest of the
original plaintiff Alejandra Delfino, the buyer of one of the lots subject of this case. They
were joined in this petition by the successors-in-interest of Isabel, Juan, Hilario, Ruperto,
Tomasa, and Luisa and Trinidad themselves, all surnamed Flores, who were also the
original plaintiffs in the lower court. They are the descendants of Venancio4 and Jose5, the
brothers of the original defendant Silveria Flores.
In their complaint for reformation of instrument against Silveria Flores, the original
plaintiffs alleged that they, with the exception of Alejandra Delfino, are the heirs of
Valentina Unto Flores, who owned, among others, Lot 5734, covered by OCT 4918-A; and
Lot 4163, covered by OCT 3129-A, both located at Dumaguete City.
After the death of Valentina Unto Flores, her three children, namely: Jose, Venancio, and
Silveria, took possession of Lot 5734 with each occupying a one-third portion. Upon their
death, their children and grandchildren took possession of their respective shares. The
other parcel, Lot 4163 which is solely registered under the name of Silveria, was subdivided between Silveria and Jose. Two rows of coconut trees planted in the middle of this
lot serves as boundary line.
In January 1956, Luisa, Trinidad, Ruperto and Tomasa, grandchildren of Jose and now
owners of one-half of Lot 4163, entered into a contract with plaintiff Alejandra Delfino, for
the sale of one-half share of Lot 4163 after offering the same to their co-owner, Silveria,
who declined for lack of money. Silveria did not object to the sale of said portion to
Alejandra Delfino.
Before preparing the document of sale, the late Atty. Deogracias Pinili, Alejandra's lawyer,
called Silveria and the heirs of Venancio to a conference where Silveria declared that she
owned half of the lot while the other half belonged to the vendors; and that she was
selling her three coconut trees found in the half portion offered to Alejandra Delfino for
P15. When Pinili asked for the title of the land, Silveria Flores, through her daughter,
Cristita Corsame, delivered Original Certificate of Title No. 4918-A, covering Lot No. 5734,
and not the correct title covering Lot 4163. At that time, the parties knew the location of
Lot 4163 but not the OCT Number corresponding to said lot.
Believing that OCT No. 4918-A was the correct title corresponding to Lot 4163, Pinili
prepared a notarized Settlement of Estate and Sale (hereinafter "deed") duly signed by
the parties on January 19, 1956. As a result, OCT No. 4918-A was cancelled and in lieu
thereof, TCT No. 5078 was issued in the names of Silveria Flores and Alejandra Delfino,
with one-half share each. Silveria Flores was present during the preparation and signing
of the deed and she stated that the title presented covered Lot No. 4163.
Alejandra Delfino immediately took possession and introduced improvements on the
purchased lot, which was actually one-half of Lot 4163 instead of Lot 5734 as designated
in the deed.
Two years later, when Alejandra Delfino purchased the adjoining portion of the lot she had
been occupying, she discovered that what was designated in the deed, Lot 5734, was the
82 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

wrong lot. She sought the assistance of Pinili who approached Silveria and together they
inquired from the Registry of Deeds about the status of Lot 4163. They found out that
OCT No. 3129-A covering Lot 4163 was still on file. Alejandra Delfino paid the necessary
fees so that the title to Lot 4163 could be released to Silveria Flores, who promised to
turn it over to Pinili for the reformation of the deed of sale. However, despite repeated
demands, Silveria did not do so, prompting Alejandra and the vendors to file a complaint
against Silveria for reformation of the deed of sale with damages before the Regional Trial
Court of Negros Oriental, Branch 41, docketed as Civil Case No. 3457.
In her answer, Silveria Flores claimed that she was the sole owner of Lot 4163 as shown
by OCT No. 3129-A and consequently, respondents had no right to sell the lot. According
to her, the contract of sale clearly stated that the property being sold was Lot 5734, not
Lot 4163. She also claimed that respondents illegally took possession of one-half of Lot
4163. She thus prayed that she be declared the sole owner of Lot 4163 and be
immediately placed in possession thereof. She also asked for compensatory, moral, and
exemplary damages and attorney's fees.
The case lasted for several years in the trial court due to several substitutions of parties.
The complaint was amended several times. Moreover, the records had to be reconstituted
when the building where they were kept was razed by fire. But, earnest efforts for the
parties to amicably settle the matters among themselves were made by the trial court to
no avail.
On September 29, 1992, the trial court found in favor of herein respondents, who were
the plaintiffs below, decreeing as follows:
WHEREFORE, this Court finds the preponderance of evidence in favor of the
plaintiffs and veritably against the defendants and, as such, renders judgment
accordingly, thereby ORDERING the defendants, the heirs of the deceaseddefendant SILVERIA FLORES and her successors-in-interest the following:
1) To enter into the reformation of the subject contract or execute a mutual
conveyance of sale, by making the one-half (1/2) eastern portion of Lot 4163, the
subject of the document of sale, in favor of plaintiff, the late Alejandra Delfino or
her heirs and/or successors-in-interest;
2) To sign a document ceding to the heirs of the heirs of Maxima Flores and
Venancio Flores the excess of her one-third (1/3) share; and further ordering the
heirs of the late Alejandra Delfino to correspondingly sign a document for the return
of the one-half (1/2) portion of Lot 5734 to the original registered owners, in
exchange thereby;
3) To pay to the heirs of the late plaintiff Alejandra Delfino, the sum of P5,000.00 as
actual damages and the sum of P10,000.00 as moral damages;
4) To pay P2,000.00 as attorney's fees plus the costs of this suit.
SO ORDERED.6
According to the trial court, the claims of herein respondents were anchored on valid
grounds. It noted that Alejandra had been occupying one-half portion of Lot 4163 since
1956 and it was the one pointed to her by the vendors. Citing the case of Atilano vs.
Atilano7, it ruled that when one sells or buys real property, he sells or buys the said
property as is shown to her and as he sees it, at its actual setting and by its physical
metes and bounds, not by the mere lot number assigned to it in the certificate of title.
Thus, it concluded that from the facts and circumstances of the case, it is clear that the
object of the sale, as understood by the parties, was that portion "Y" of Lot 4163 and that
its designation as Lot 5734 in the document of sale was a simple mistake in the drafting
of the document, which mistake, however, did not vitiate the consent of the parties or
affect the validity and the binding effect of the contract between them. Hence, the
remedy of reformation of instrument is proper. 8
Petitioners appealed the decision to the Court of Appeals, which affirmed the ruling of the
trial court as follows:
WHEREFORE, the appealed decision is hereby AFFIRMED. Costs against defendantsappellants.
83 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

SO ORDERED.9
In affirming the decision of the trial court, the Court of Appeals agreed that the real
intention of the parties was for the sale of Lot 4163 which Alejandra Delfino had been
occupying, and the designation of Lot 5734 in the deed was a mistake in the preparation
of the document. It noted that Silveria Flores did not object when Alejandra Delfino took
possession of one-half portion of Lot 4163 immediately after the sale, considering that it
was Silveria's son, Michael Corsame, who developed the area purchased by Alejandra. 10
Aggrieved but undeterred, the successors-in-interest of defendant Silveria Flores
seasonably filed their petition for review under Rule 45 of the Rules of Court. They assail
the decision of the Court of Appeals on the following grounds:
1. THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT FAILED TO
ORDER THE DISMISSAL OF CIVIL CASE NO. 3457 FOR LACK OF CAUSE OF ACTION.
2. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE
ERROR IN LAW AND JURISPRUDENCE WHEN IT FAILED TO RULE THAT, BASED ON
THE UNDISPUTED EVIDENCE ON RECORD AND THE SETTLEMENT OF ESTATE AND
SALE ITSELF, THE PLAINTIFFS HAVE NO CAUSE OF ACTION AGAINST SILVERIA
FLORES BECAUSE SHE DID NOT SELL HER LAND TO ALEJANDRA DELFINO. HENCE
SILVERIA FLORES CANNOT BE BOUND NOR PREJUDICED BY THE CONTRACT OF SALE
ENTERED BY ALEJANDRA DELFINO AND HER CO-PLAINTIFFS (CAPITOL INSURANCE &
SURETY CO INC. V. CENTRAL AZUCARERA DEL DAVAO, 221 SCRA 98; OZAETA V. CA,
228 SCRA 350).
3. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE
ERROR WHEN IT FAILED TO PRONOUNCE THAT SILVERIA FLORES WHO IS NOT A
PARTY TO THE CONTRACT OF SALE INVOLVING LOT NO. 5734 COVERED BY OCT NO.
4918-A CANNOT BE LEGALLY COMPELLED BY ALEJANDRA DELFINO THRU AN ACTION
FOR REFORMATION OF CONTRACT TO EXECUTE A "CONVEYANCE OF SALE"
INVOLVING LOT NO. 4163 COVERED BY OCT NO. 3129-A OWNED AND REGISTERED
SOLELY IN THE NAME OF SILVERIA FLORES.
4. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE
FACTS WHEN IT RULED THAT THE OBJECT OF THE CONTRACT OF SALE WAS LOT NO.
4163 COVERED BY OCT NO. 3129-A, DESPITE THE UNASSAILABLE FACT THAT THE
OBJECT OF THE SETTLEMENT AND SUBJECT OF THE CONTRACT OF SALE WAS LOT
NO. 5734 COVERED BY OCT NO. 4918-A.
5. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE
FACTS IN NOT UPHOLDING THAT THERE WAS NO MISTAKE IN THE DRAFTING OF THE
DOCUMENT AS WELL AS IN THE OBJECT OF THE SETTLEMENT OF ESTATE AND SALE
BECAUSE THE DOCUMENT WAS PREPARED BY ATTY. DEOGRACIAS PINILI, THE
LAWYER OF ALEJANDRA DELFINO.
6. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE
FACTS WHEN IT RULED THAT THE GRANDCHILDREN OF JOSE FLORES ARE OWNERS
AND COULD SELL THE ONE-HALF (1/2) PORTION OF LOT NO. 4163 TO ALEJANDRA
DELFINO DESPITE THE INCONTROVERTIBLE EVIDENCE THAT LOT NO. 4163 COVERED
BY OCT NO. 3129-A IS REGISTERED AND SOLELY OWNED BY SILVERIA FLORES WHO
IS PAYING THE REAL PROPERTY TAXES.
7. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE
ERROR IN LAW WHEN IT DISREGARDED ARTICLE 1370 OF THE CIVIL CODE OF THE
PHILIPPINES AND PERTINENT JURISPRUDENCE RELEVANT TO THIS CASE EVEN IF THE
TERMS OF THE SETTLEMENT OF ESTATE AND SALE ARE CLEAR AND LEAVE NO
DOUBT ON THE INTENTION OF THE CONTRACTING PARTIES.
8. THE COURT OF APPEALS AND THE TRIAL COURT GRAVELY ERRED IN
DISREGARDING SETTLED JURISPRUDENCE THAT A PUBLIC DOCUMENT EXECUTED
AND ATTESTED THROUGH THE INTERVENTION OF A NOTARY PUBLIC IS EVIDENCE OF
THE FACTS IN CLEAR, UNEQUIVOCAL MANNER AND TO CONTRADICT IT THERE MUST
BE CLEAR AND CONVINCING EVIDENCE NOT MERELY PREPONDERANT EVIDENCE
(GEVERO VS. INTERMEDIATE APPELLATE COURT, G.R. NO. 77029, AUGUST 30,
1990; ZAMBO V. COURT OF APPEALS, 224 SCRA 855; REBULDEDA V. IAC, 155 SCRA
84 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

520;CHILIANCHIN V. COQUINCO, 84 PHIL. 714; CENTENERA V. GARCIA PALICIO, 29

PHIL. 470).
9. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE
ERROR WHEN IT SUBSTITUTED, REVISED AND MODIFIED THE AGREEMENT OF THE
PARTIES DESPITE THE ABSENCE OF FRAUD, MISTAKE, INEQUITABLE CONDUCT OR
ACCIDENT.
10. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT
FAILED TO RULE ON THE ISSUE OF WHETHER THE TRIAL COURT GRAVELY ERRED IN
ORDERING THE HEIRS OF SILVERIA FLORES TO PAY ACTUAL AND MORAL DAMAGES
AS WELL AS ATTORNEY'S FEES TO THE HEIRS OF ALEJANDRA DELFINO. 11
After careful consideration, we find the following relevant issues for our resolution: (1)
whether or not there is a cause of action for reformation of instrument against Silveria
Flores, and consequently the petitioners; (2) whether or not reformation of the subject
deed is proper by reason of mistake in designating the correct lot number; and (3)
whether or not the heirs of Alejandra Delfino are entitled to actual and moral damages
including attorney's fees.
In seeking the reversal of the appellate court's decision, the heirs of Silveria Flores, herein
petitioners, ascribe to the appellate court several errors: first, the Court of Appeals
committed error in failing to appreciate that there is no cause of action against Silveria as
she was never a party to the contract of sale; second, the appellate court erred in giving
probative value to the biased testimony of Trinidad Flores to the effect that Lot No. 4163
was subdivided into two, one-half of which is occupied by her and her
siblings; and third, the appellate court erred in not considering the fact that Silveria is the
only registered owner of Lot 4163. Petitioners submit that the evidence adduced is
insufficient to sustain a decision in respondents' favor.
Respondents, for their part, maintain that the present petition is pro forma as it does not
raise any new matter worth considering. They also assert that the arguments and issues
raised by petitioners have been more than adequately and exhaustively discussed by the
trial court as well as the Court of Appeals.12
On the first issue, petitioners contend that there is no cause of action against them and
their predecessor-in-interest, Silveria Flores, because she and they were not parties to the
contract sought to be reformed.
However, a close perusal of the deed would show that Silveria Flores was a party to the
contract. She is not only the seller of the coconut trees worth P15 but she was also one of
the heirs entitled to the estate of Venancio and Maxima, one of the heirs of Jose Flores.
Her name did not appear as one of the sellers of one-half lot to Alejandra Delfino because
she never sold her share. What was sold was the one-half share of Jose Flores, as
represented by his heirs. It is also established that it was Silveria Flores herself who
delivered the subject lot to the vendee Alejandra Delfino. Said the lower court:
The truth of the matter, is that what the plaintiffs-vendors really intended to sell
and what Alejandra Delfino intended to buy, of which both of the parties agreed to
be the subject of the transaction, was actually that parcel of land, with two rows of
coconut trees as the dividing line, and which lot is known as Lot 4163. This lot, on
the western portion, was the very portion which was pointed to and delivered to
Alejandra Delfino by the original defendant Silveria Flores and her two children,
together with the vendors on January 19, 1956. When the title to the said property
was delivered to the notary public, for the preparation of the document of sale, the
title that was delivered was for Lot 5734. So, the document, that was executed, was
done by reason of mistake, inequitable conduct and accident, because the said
document did not express the true and real agreement and intention of the
contracting parties. What was made to appear in the said document was the sale of
the one-half portion of another lot. Lot 5734, when in truth and in fact, the subject
property sold was Lot 4163.13 (Underscoring and italics supplied.)
Through her actions, Silveria Flores had made the parties to the deed believe that the lot
intended to be the object of the contract was the same lot described in the deed. Thus,
by mistake or accident, as well as inequitable conduct, neither she nor her successors-ininterest could deny involvement in the transaction that resulted in a deed that now ought
to be reformed.
85 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Worth stressing, the existence of a cause of action is not determined by one's

involvement in a contract. Participation in a contract is not an element to determine the
existence of a cause of action. The rule is that only the allegations in the complaint may
properly be considered in ascertaining the existence of a cause of action. Lack of cause of
action must appear on the face of the complaint and its existence may be determined
only by the allegations of the complaint. Consideration of other facts is proscribed and
any attempt to prove extraneous circumstances is not allowed.14
The test of sufficiency of the facts found in a complaint as constituting a cause of action is
whether or not, admitting the facts alleged, the court can render a valid judgment upon
the same in accordance with the prayer in the complaint.15 An examination of the
complaint16 shows herein respondents, as plaintiffs in the trial court, are entitled to the
relief of reformation of instrument if the following factual allegations of respondents are
deemed admitted, to wit: (1) that Silveria is a co-owner of Lots No. 5734 and 4163, in
different shares; (2) that the heirs of Jose, her co-owner in Lot No. 4163, offered to sell to
her their one-half share but she declined for lack of money; (3) that said share was later
sold to Alejandra; (4) that Silveria was asked to deliver the title of Lot No. 4163 but
instead she delivered the title of Lot No. 5734; (5) that after the sale, Alejandra occupied
one-half portion of Lot No. 4163 while Lot No. 5734 was still in the possession of Venancio
and the heirs of Maxima and Silveria; (6) that it was only when Alejandra was about to
buy the adjacent lot that she realized that what was indicated in the Settlement of Estate
and Sale was Lot No. 5734 and not 4163. In sum, we find that the original plaintiffs in the
trial court alleged sufficient facts in the complaint that properly constituted a cause of
action against the defendants.
On the second issue, petitioners contend respondents failed to show, specifically, a cause
of action for the reformation of the instrument in question. Reformation is that remedy in
equity by means of which a written instrument is made or construed so as to express or
conform to the real intention of the parties.17 As provided in Article 1359 of the Civil Code:
Art. 1359. When, there having been a meeting of the minds of the parties to a
contract, their true intention is not expressed in the instrument purporting to
embody the agreement by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument to the
end that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the
minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract.
An action for reformation of instrument under this provision of law may prosper only upon
the concurrence of the following requisites: (1) there must have been a meeting of the
minds of the parties to the contact; (2) the instrument does not express the true intention
of the parties; and (3) the failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident.18
All of these requisites, in our view, are present in this case. There was a meeting of the
minds between the parties to the contract but the deed did not express the true intention
of the parties due to mistake in the designation of the lot subject of the deed. There is no
dispute as to the intention of the parties to sell the land to Alejandra Delfino but there
was a mistake as to the designation of the lot intended to be sold as stated in the
Settlement of Estate and Sale.
While intentions involve a state of mind which may sometimes be difficult to decipher,
subsequent and contemporaneous acts of the parties as well as the evidentiary facts as
proved and admitted can be reflective of one's intention. The totality of the evidence
clearly indicates that what was intended to be sold to Alejandra Delfino was Lot 4163 and
not Lot 5734. As found by both courts below, there are enough bases to support such
conclusion. We particularly note that one of the stipulated facts during the pre-trial is that
one-half of Lot 4163 is in the possession of plaintiff Alejandra Delfino "since 1956 up to
the present."19 Now, why would Alejandra occupy and possess one-half of said lot if it was
not the parcel of land which was the object of the sale to her? Besides, as found by the
Court of Appeals, if it were true that Silveria Flores was the sole owner of Lot 4163, then
she should have objected when Alejandra Delfino took possession of one-half thereof
immediately after the sale. Additionally, we find no cogent reason to depart from the
conclusion of both the Court of Appeals and the trial court, based on the evidence on
record, that Silveria Flores owns only one-half of Lot 4163. The other half belongs to her
86 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

brother Jose, represented now by his grandchildren successors-in-interest. As such, the

latter could rightfully sell the land to Alejandra Delfino.
Furthermore, on record, it has been shown that a spot investigation conducted by a duly
licensed surveyor revealed that Lot 4163 is subdivided into two portions, one belonging to
Silveria Flores and the other to the heirs of Jose Flores.20 As found by the trial court, if
indeed it was Lot 5734 that was sold, then Silveria Flores was occupying more than her
share of the inherited lot. Thus:
x x x That, with respect to Lot No. 5734 and Lot No. 4292, in an on-the-spot
investigation, made by a licensed surveyor, Mr. Rilthe Dorado, his findings thereon
show that Silveria Flores is in possession on the western portion of Lot 5734, with
an area of more than one-half and, to be exact, with an area of 2,462, in spite of the
fact that she is the registered owner only of a one-third (1/3) share; and admitting,
for the sake of argument, that it was the one-half portion, of Lot 5734, that was
sold, why should Silveria Flores possess more than 2,190 square meters, which is
the 1/2 of Lot 5734, Isabel Flores, the daughter of Venancio Flores is possessing the
middle portion, with an area of only 884 square meters; and Trinidad Flores Nodado,
in representation of her aunt, Maxima Flores, is possessing an area of 1,034 sq. m.21
As a matter of fact, the trial court also found that in spite of her title over Lot 4163,
Silveria recognized the right of Jose's grandchildren over one-half portion of the
property.22 The trial court gave credence to the testimony of Trinidad Flores, one of the
grandchildren, who testified as follows:
Q:
During the lifetime of Jose and Silveria when they were possessing Lot
4163, did they subdivide it because they were possessing it in common?
A:

They subdivided it into two halves.

xxx

Q:
And after Jose and Silveria subdivided Lot 4163, they possessed their
respective shares of Lot 4163?
A:

Yes.
xxx

Q:
Now you said that you are the heirs of Jose and Roman Flores (father and
son) and so when they died this portion of Lot 4163 devolved on you, did you ever
take possession of Lot 4163?
A:

Yes, we, the brothers and sisters immediately took possession of it.23

On cross-examination, Trinidad sufficiently explained why the title to Lot No. 4163 is in
the name of Silveria Flores alone. Thus:
Q:

Now, this Lot No. 4163, do you know if this lot is also titled?

A:
Yes, it was titled, only in the name of Silveria Flores because my aunt was
not able to go with her; only my aunt was alone at that time.24
xxx
Q:
And as you have stated earlier, that what you are intending to sell was Lot
4163 to plaintiff Alejandra Delfino, and during this time that you sold this intended
lot 4163, you were not aware this particular lot 4163 was titled exclusively in the
name of Silveria Flores, is that correct?
A:
I knew already that the said lot was already titled, but it was titled only in
the name of Silveria Flores because she was the only one who went there to have it
titled in her name. And at the time of the sale of the lot, we demanded for the title
from Silveria Flores, and what she delivered was the 5734 (sic).25
Petitioners now claim that the foregoing testimony of Trinidad Flores was biased. But we
note that the appellate court sustained the trial court's reliance on her testimony, which
87 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

both found to be credible. As consistently held, factual findings of the trial court,
especially when affirmed by the appellate court, are binding upon this Court26and entitled
to utmost respect.27 Considering these findings, we see no reason to disturb the trial
court's finding, affirmed by the Court of Appeals, that the object of the contract of sale, as
intended and understood by the parties, was Lot 4163 covered by OCT 3129-A which
Alejandra, and now her heirs, have been occupying. The designation of the lot in the deed
of sale as Lot 5734, covered by OCT 4918-A, was a mistake in the preparation of the
document. Thus, we concur in the conclusion reached by the courts a quo that
reformation of the instrument is proper.
However, on the matter of damages, the award of actual damages in the amount
of P5,000 lacks evidentiary support. Actual damages if not supported by the evidence on
record cannot be granted.28 Moral damages forP10,000 was also improperly awarded,
absent a specific finding and pronouncement from the trial court that petitioners acted in
bad faith or with malice. However, the award of attorney's fees for P2,000 is justified
under Article 2208(2) of the Civil Code,29 in view of the trial court's finding that the
unjustified refusal of petitioners to reform or to correct the document of sale compelled
respondents to litigate to protect their interest.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39401
is AFFIRMED with MODIFICATION. It is hereby ordered that the document entitled
Settlement of Estate and Sale be reformed by changing the phrase "Lot 5734" to "Lot
4163" found in the sixth paragraph of the deed, thereby ceding in favor of respondents
one-half portion of Lot 4163 instead of Lot 5734. The award to respondents of attorney's
fees in the amount of P2,000 is affirmed. However, the award of actual damages in the
amount of P5,000 and of moral damages in the amount ofP10,000 are both SET ASIDE.
No pronouncement as to costs.
SO ORDERED.
A.C. No. 4914

March 3, 2004

SPOUSES JENELINE DONATO and MARIO DONATO, complainants,

vs.
ATTY. ISAIAH B. ASUNCION, SR., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
This is a complaint for disbarment filed by spouses Jeneline and Mario Donato against
Atty. Isaiah B. Asuncion, Sr.
The complaint alleges that on July 22, 1994, complainant spouses and respondent Atty.
Asuncion, Sr. executed a Contract to Sell wherein the latter conveyed to the former his
parcel of land with an area of 10,776 square meters (or 1.0776 hectare) situated at San
Miguel, Pangasinan covered by Tax Declaration No. 34-12256. The parties agreed that the
purchase price is in the amount of P187,500.00 payable by installments.
On December 20, 1994, after the complainants had paid the last installment, the parties
executed a Deed of Absolute Sale. This document was prepared by respondent wherein
he made it appear that the consideration is only P50,000.00 in order to reduce the
amount of the corresponding capital gain tax.
More than two years later, or on January 10, 1997, the National Power Corporation
(NAPOCOR) filed with the Regional Trial Court (RTC), Branch 46, Urdaneta, Pangasinan, an
action for eminent domain, docketed as Civil Case No. U-6293. Among the parcels of land
being expropriated was the lot purchased by complainants for which NAPOCOR was
willing to pay P3,000,000.00.
Respondent then offered his legal services to complainants and demanded 12% of
whatever amount they will receive from NAPOCOR.
When respondent learned that complainants intended to hire the services of another
lawyer, he threatened them by filing with the RTC, Branch 45, Urdaneta, Pangasinan Civil
Case No. U-6352 for reformation of instrument. In his complaint, he alleged that the
contract executed by the parties is not a deed of sale but an equitable mortgage because
88 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

the price of the lot (P50,000.00) stated in the contract is unusually inadequate compared
to NAPOCORs offer of P3,000,000.00.
The complaint further alleges that in filing Civil Case No. U-6352 for reformation of
instrument, respondent "has dragged them to useless and expensive litigation." His act is
"contrary to law and morality" which warrants his disbarment.
In his comment on the instant administrative complaint, respondent claimed that
complainants violated the rule on forum shopping. According to him, the issue raised in
this administrative complaint and in complainants answer to his complaint in Civil Case
No. U-6352 for reformation of instrument is the same, i.e., "the legality and morality" of
the filing of this civil case.
In a Resolution dated February 7, 1998, we referred this case to the Integrated Bar of the
Philippines (IBP) for investigation, report and recommendation.
In her Report and Recommendation dated March 3, 2003, Atty. Rebecca Villanueva-Maala,
IBP Hearing Commissioner, made the following findings:
"After a careful study and consideration of the facts and evidence presented, we find
respondent to have committed gross misconduct. In the Civil Case No. U-6352 before the
RTC, Branch 45, Urdaneta City, for Reformation of Instrument, respondent was not telling
the truth when he alleged under paragraph 6 That although the document is captioned
Deed of Absolute Sale, the true intention of the parties is not expressed by reason of
mistake on the part of the person who drafted the document, because the instrument
should be equitable mortgage x x x. Between the complainants and the respondent, it is
the latter who knows about the law, be it the difference between a Deed of Absolute Sale
and an Equitable Mortgage. And because he is the lawyer and he has a law office
together with his son, it is presumed that he was the one who prepared the Deed of
Absolute Sale wherein the consideration indicated was only P50,000.00. We believed
complainants that the Deed of Absolute Sale was prepared by respondent to lessen the
amount of capital gain tax. Respondent cannot deny that he was the one who prepared
the Deed of Absolute Sale as shown by his letters to Myrna Tugawin (sister of Jeneline
Donato) dated 31 August 1994, 1 September 1994 and 20 December 1994. After the
lapse of several years, respondent filed the complaint for Reformation of Instrument
because he realized that the price paid to him by complainants was unusually inadequate
in view of the fact that the same land was being purchased by NAPOCOR
for P3,000,000.00.
"The contention of respondent that this administrative complaint is a violation of the rule
on forum shopping is without merit. There is forum shopping when as a result of an
adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or
certiorari) in another (First Phil International Bank vs. CA, 252 SCRA 259), or when he
institutes two or more actions or proceedings grounded on the same cause, on the
gamble that one or the other court would make a favorable disposition (Chemphil Export
& Improt Corp. vs. CA, 251 SCRA 257)."
and recommended that complainant be suspended from the practice of law for one (1)
year.
In its Resolution No. XV-2003-345, the IBP Board of Governors adopted and approved the
Report of Commissioner Maala with the recommendation that respondent be suspended
from the practice of law for only six (6) months.
We sustain the finding of the Hearing Commissioner that respondent was not telling the
truth when he alleged in his complaint for reformation of instrument that the intention of
the parties is not expressed therein; that what they intended to execute was a deed of
equitable mortgage, not a deed of absolute sale; and that the mistake was committed by
the person who drafted the instrument.
We observe that the Deed of Absolute Sale was executed by the parties on December 14,
1994. However, respondent filed Civil Case No. U-6352 for reformation of instrument only
on April 23, 1997, or after two years, four months and nine days. Why did it take him
more than two years to realize that the previous contract did not express the true
intention of the parties? The reason for this delay can be gleaned from the allegations in
his complaint in Civil Case No. U-6352 for reformation of instrument. He alleged that the
Deed of Absolute Sale should have been an equitable mortgage since the consideration
89 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

stated therein is only P50,000.00, while the NAPOCOR has agreed to purchase the lot
for P3,000,000.00. It is thus clear that it was only when he knew that the value of the lot
suddenly increased by leaps and bounds that he thought of filing the complaint for
reformation of instrument.
At this point, it bears stressing that respondent does not dispute complainants
contention that they paid himP187,500.00, not P50,000.00. As earlier mentioned,
complainants explained that the latter price was specified in the deed of absolute sale in
order to reduce the amount of the corresponding capital gain tax.
We likewise sustain the finding of Commissioner Maala that the Deed of Absolute Sale
was prepared by respondent himself, as shown by his letters to Myrna Tugawin, sister of
complainant Jeneline Donato. In his letter dated August 31, 1994, respondent informed
Myrna that "a Deed of Sale will be executed by us" (referring to him and the
complainants). In his letter of September 1, 1994, respondent asked Myrna to
bring P50,000.00 on September 3, 1994 "for the execution of the Deed of Absolute Sale."
And in his letter dated December 20, 1994, respondent requested Myrna to bring
complainants "balance" on December 22, 1994. If it were true that the contract between
the parties is an equitable mortgage, why did he prepare a different one a Deed of
Absolute Sale?
We find respondent guilty of gross misconduct.
A lawyer may be suspended or disbarred for any misconduct showing any fault or
deficiency in his moral character, honesty, probity or good demeanor. 1 Section 27, Rule
138 of the Revised Rules of Court mandates:
"SEC. 27. Disbarment or suspension of attorneys by Supreme Court, grounds therefor. A
member of the bar may be disbarred or suspended from his office as attorney by the
Supreme Court for any deceit, malpractice, or other gross misconduct in such office,
grossly immoral conduct, or by reason of his conviction of a crime involving moral
turpitude, of for any violation of the oath which he is required to take before admission to
practice, or for a willful disobedience appearing as an attorney for a party to a case
without authority to do so. The practice of soliciting cases at law for the purpose of gain,
either personally or through paid agents or brokers, constitutes malpractice.
x x x."
In SPO2 Jose B. Yap vs. Judge Aquilino A. Inopiquez, Jr.,2 we explained the concept of gross
misconduct as any inexcusable, shameful or flagrant unlawful conduct on the part of a
person concerned in the administration of justice which is prejudicial to the rights of the
parties or to the right determination of the cause. Such conduct is generally motivated by
a premeditated, obstinate or intentional purpose. The term, however, does not
necessarily imply corruption or criminal intent.
In committing such gross misconduct, respondent violated his solemn oath as a lawyer
imposing upon himself the following duties, thus:
"I, ______________, do solemnly swear that I will maintain allegiance to the Republic of the
Philippines; I will support its Constitution and obey the laws as well as the legal orders of
the duly constituted authorities therein; I will do no falsehood, nor consent to the doing of
any in court; I will not wittingly or willingly promote or sue any groundless, false or
unlawful suit, nor give aid nor consent to the same; I will delay no man for money or
malice, and will conduct myself as a lawyer according to the best of my knowledge and
discretion with all good fidelity as well to the courts as to my clients; and I impose upon
myself this obligation without any mental reservation or purpose of evasion. So help me
God."
By filing the unfounded complaint for reformation of instrument to obtain financial gain,
respondent did not only abuse and misuse the judicial processes, but likewise harassed
the complainants and forced them to litigate unnecessarily. Indeed, his act was intended
to advance his own interest at the expense of truth and the administration of justice, a
manifestation of flaw in his character as a lawyer.
The practice of law is a sacred and noble profession. It is a special privilege bestowed
only upon those who are competent intellectually, academically and morally. 3 We have
been exacting in our demand for integrity and good moral character of members of the
90 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Bar.4 We expect them at all times to uphold the integrity and dignity of the legal
profession5 and refrain from any act or omission which might lessen the trust and
confidence reposed by the public in the integrity of the legal profession. 6
Any gross misconduct of a lawyer in his profession or private capacity is a ground for the
imposition of the penalty of suspension or disbarment because good character is an
essential qualification for the admission to the practice of law and for the continuance of
such privilege.7 We agree with the IBP Board of Governors that respondent should be
suspended from the practice of law for six (6) months for gross misconduct.
Incidentally, respondents defense of forum shopping is utterly bereft of merit. Suffice it
to state that complainants did not institute two actions grounded on the same cause of
action on the supposition that one or the other court might look with favor upon them.
WHEREFORE, respondent ATTY. ISAIAH B. ASUNCION, SR. is found GUILTY of GROSS
MISCONDUCT and is hereby SUSPENDED from the practice of law for a period of SIX (6)
MONTHS effective from notice.
Let a copy of this Decision be entered in the personal records of respondent as a member
of the Bar; and be furnished the Bar Confidant, the IBP, and the Court Administrator for
circulation to all courts in the country.
SO ORDERED.
G.R. No. 107606 June 20, 1996
MERCEDES N. ABELLA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and CONRADO COLARINA, respondents.
RESOLUTION

FRANCISCO, J.:p
On May 26, 1987, petitioner Mercedes N. Abella, as lessor, and private respondent
Conrado Colarina, as lessee, signed a contract of lease 1 of a portion of Juanabel Building
situated at Elias Angeles Street, Naga City. The duration of the contract is from "July 1,
1987 until July 1, 1991" 2 or for a term of four (4) years 3 with a stipulated monthly rental
of Three Thousand Pesos (P3,000.00). 4 Upon the signing of the contract, Colarina paid an
amount of Forty Thousand Pesos (P40,000.00) to Abella which the latter acknowledged by
issuing the corresponding receipt. 5 Intending to use the premises for his pawnshop
business, Colarina introduced thereon certain improvements 6 for which he spent Sixty
Eight Thousand Pesos (P68,000.00). Colarina paid the monthly rental on a regular basis
but discontinued payment from November 1987 to April 1988. 7 Thereafter, Abella then
made repeated demands to pay with notice of extrajudicial rescission pursuant to
paragraph thirteen (13) 8 of the lease contract which were all unheeded. Thus, Abella took
possession of the premises on May 1, 1988, with the assistance of the Naga City PNP and
some Barangay officials 9 who made an inventory 10 of all the items found therein.
On May 5, 1988, Colarina filed an action for "enforcement of contract of lease with
preliminary mandatory injunction and damages" 11 against Abella before the Regional Trial
Court (RTC) of Naga. After trial, the lower court among others ordered: (1) Abella to return
the amount of Forty Thousand Pesos (P40,000.00) less Eighteen Thousand Pesos
(P18,000.00) representing unpaid rental from November-December, 1987, to April, 1988
or for a period of six (6) months, or the sum of TWENTY TWO THOUSAND Pesos
(P22,000.00) to Colarina together with the destroyed and removed materials and
improvements introduced by him in the premises leased; and (2) the dismissal of the case
for lack of merit. 12
On appeal, the respondent Court of Appeals reversed the decision of the trial court and
ordered petitioner Abella: (1) to restore to Colarina the possession of the leased premises
under the same terms and conditions stated in the contract of lease; (2) to restore in the
premises the improvements introduced by Colarina which were demolished or removed
by Abella or to pay the value thereof in the sum of P68,000.00, with interest until fully
paid; and (3) to pay the costs of the Suit. 13 Aggrieved, Abella filed this petition for review
91 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

on certiorari faulting the respondent Court of Appeals with five assigned errors which
basically dwell on the following issues, to wit: (1) whether or not respondent Colarina
violated the contract of lease warranting its extrajudicial rescission; and (2) whether or
not possession of the premises may properly be restored to Colarina.
Anent the first issue. It is not disputed that petitioner received the sum of forty thousand
pesos (P40,000.00) from Colarina. 14 Petitioner and Colarina, however, are at loggerheads
with respect to the purpose of such payment. The trial court agreed with the petitioner
that the amount represents only a "goodwill money" given to the latter by Colarina in
payment for the privilege to occupy the vacant portion of Juanabel Building. 15 On the
other hand, the respondent Court of Appeals sided with Colarina and held that the same
is an "advance deposit to answer for any rental which Colarina may fail to pay." 16 We
uphold the findings of the respondent Court of Appeals.
Our careful review of the record reveals that Colarina did not violate the subject contract
of lease with respect to his rental obligation in view of his payment of forty thousand
pesos. Reproduced hereunder are the contents of the receipt acknowledging the
acceptance by the petitioner of the said amount of forty thousand pesos:
RECEIVED FROM MR. CONRADO O. COLARINA THE SUM OF FORTY THOUSAND
PESOS (P40,000.00) AS ADVANCE DEPOSIT, TO ANSWER FOR ANY RENTAL
WHICH MR. CONRADO COLARINA MAY FAIL TO PAY DURING THE TERM OF THE
LEASE AS PER CONTRACT, DATED 26TH DAY OF MAY, 1987 NOTARIZED
BEFORE NOTARY PUBLIC OSCAR VILLAMORA, DOC. NO. 398; PAGE NO. 80;
BOOK NO. 9, SERIES OF 1987, THIS 26TH DAY OF MAY, 1987, AT NAGA CITY.
(Emphasis supplied.)
(Sgd.) MERCEDES
N. ABELLA 17
It is a cardinal rule in the interpretation of contracts that "if the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties, the literal meaning
of its stipulations shall control". 18 The above-quoted receipt is clear and unequivocal that
the disputed amount is an advance deposit which will answer for any rental that Colarina
may fail to pay. No amount of extrinsic aids are required and no further extraneous
sources are necessary
in order to ascertain the parties' intent, determinable as it is, from the receipt itself. 19
We are, thus, more convinced that the receipt expresses truly the parties' intent on the
purpose of said payment as against the oral testimony of the petitioner that said amount
is but only a "goodwill money". Without any doubt, oral testimony as to a certain fact,
depending as it does exclusively on human memory, is not as reliable as written or
documentary evidence. 20 "I would sooner trust the smallest slip of paper for truth", said
Judge Limpkin of Georgia, "than the strongest and most retentive memory ever bestowed
on mortal man." 21 This is especially true in this case where such oral testimony is given
by the petitioner himself, a party to the case who has an interest in its outcome, and by
Jesus Hipolito, a witness who claimed to have received a commission from the
petitioner. 22 In addition, the trial court itself has found that this receipt is genuine when it
brushed aside the petitioner's claim that her signature appearing thereon was a
forgery. 23 The authenticity of the receipt further enhances its probative value as against
the oral testimony of the petitioner and of her witness.
We also find unmeritorious petitioner's contention that the receipt failed to reflect her
true intention warranting a reformation thereof. Petitioner, being of age and a
businesswoman, is presumed to have acted with due care and to have signed the receipt
in question with full knowledge of its contents and import. 24 Equally unmeritorious is
petitioner's insistence that Colarina procured her signature "thru fraud and any other
deceitful means", 25 an issue which was never raised below. It is a settled rule that an
issue which was not threshed out below may not be raised for the first time on appeal.
Moreover, no iota of evidence was ever adduced at the trial to support her allegation of
fraud. The reformation of said receipt simply lacks basis.
Hence, we rule that respondent Colarina was not yet in arrears with his rental payment
when petitioner took possession of the leased premises on May 1, 1988. Accordingly,
petitioner's rescission of the subject contract of lease was improper.

92 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

The second issue, however, has been rendered moot and academic by the timely
expiration of the term of the subject contract of lease on July 1, 1991. 26 Colarina,
therefore, has no more right to be restored to the possession of the leased premises, said
right being coterminous with the term of the contract.
WHEREFORE, the decision of the Court of Appeals is MODIFIED. Petitioner Mercedes N.
Abella is hereby ordered to:
1. return to private respondent Conrado Colarina the amount of Forty Thousand Pesos
(P40,000.00) less Eighteen Thousand Pesos (P18,000.00) (unpaid rental from November,
1987 to April, 1988 or for a period of six (6) months), or the sum of TWENTY TWO
THOUSAND Pesos (P22,000.00);
2. pay private respondent Colarina the sum of Sixty Eight Thousand Pesos (P68,000.00),
representing the value of the improvements demolished, with legal interest reckoned
from May 1, 1988, the date when petitioner took possession of the premises, until fully
paid.
SO ORDERED.
G.R. No. 116635 July 24, 1997
CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner,
vs.
COURT OF APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.

PANGANIBAN, J.:
A contract of repurchase arising out of a contract of sale where the seller did not have
any title to the property "sold" is not valid. Since nothing was sold, then there is also
nothing to repurchase.
Statement of the Case
This postulate is explained by this Court as it resolves this petition for review
on certiorari assailing the January 20, 1993 Decision 1 of Respondent Court of Appeals 2 in
CA-G.R. CV No. 36473, affirming the decision 3 of the trial court 4which disposed as
follows: 5
WHEREFORE, judgment is hereby rendered dismissing the complaint for no
cause of action, and hereby:
1. Declaring the private writing, Exhibit "C", to be an option to
sell, not binding and considered validly withdrawn by the
defendants for want of consideration;
2. Ordering the plaintiffs to return to the defendants the sum of
P30,000.00 plus interest thereon at the legal rate, from the time
of filing of defendants' counterclaim until the same is fully paid;
3. Ordering the plaintiffs to deliver peaceful possession of the two
hectares mentioned in paragraph 7 of the complaint and in
paragraph 31 of defendants' answer (counterclaim);
4. Ordering the plaintiffs to pay reasonable rents on said two
hectares at P5,000.00 per annum or at P2,500.00 per cropping
from the time of judicial demand mentioned in paragraph 2 of the
dispositive portion of this decision, until the said two hectares
shall have been delivered to the defendants; and
5. To pay the costs.
SO ORDERED.
The Antecedent Facts
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The facts, which appear undisputed by the parties, are narrated by the Court of Appeals
as follows:
Two (2) parcels of land are in dispute and litigated upon here. The first has an
area of 1 hectare. It was formerly owned by Victorino Nool and covered by
Transfer Certificate of Title No. T-74950. With an area of 3.0880 hectares, the
other parcel was previously owned by Francisco Nool under Transfer
Certificate of Title No. T-100945. Both parcel's are situated in San Manuel,
Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now
the appellants, seek recovery of the aforementioned parcels of land from the
defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre,
now the appellees.
In their complaint, plaintiff-appellants alleged inter alia that they are the
owners of subject parcels of land, and they bought the same from Conchita's
other brothers, Victorino Nool and Francisco Nool; that as plaintiffs were in
dire need of money, they obtained a loan from the Ilagan Branch of the
Development Bank of the Philippines, in Ilagan, Isabela, secured by a real
estate mortgage on said parcels of land, which were still registered in the
names of Victorino Nool and Francisco Nool, at the time, and for the failure of
plaintiffs to pay the said loan, including interest and surcharges, totaling
P56,000.00, the mortgage was foreclosed; that within the period of
redemption, plaintiffs contacted defendant Anacleto Nool for the latter to
redeem the foreclosed properties from DBP, which the latter did; and as a
result, the titles of the two (2) parcels of land in question were transferred to
Anacleto Nool; that as part of their arrangement or understanding, Anacleto
Nool agreed to buy from plaintiff Conchita Nool the two (2) parcels of land
under controversy, for a total price of P100,000.00, P30,000.00 of which price
was paid to Conchita, and upon payment of the balance of P14,000.00,
plaintiffs were to regain possession of the two (2) hectares of land, which
amounts defendants failed to pay, and the same day the said
arrangement 6 was made; another covenant 7 was entered into by the parties,
whereby defendants agreed to return to plaintiffs the lands in question, at
anytime the latter have the necessary amount; that plaintiffs asked the
defendants to return the same but despite the intervention of the Barangay
Captain of their place, defendants refused to return the said parcels of land to
plaintiffs; thereby impelling them (plaintiffs) to come to court for relief.
In their Answer, defendants-appellees theorized that they acquired the lands
in question from the Development Bank of the Philippines, through negotiated
sale, and were misled by plaintiffs when defendant Anacleto Nool signed the
private writing, agreeing to return subject lands when plaintiffs have the
money to redeem the same; defendant Anacleto having been made to
believe, then, that his sister, Conchita, still had the right to redeem the said
properties.
The pivot of inquiry here, as aptly observed below, is the nature and
significance of the private document, marked Exhibit "D" for plaintiffs, which
document has not been denied by the defendants, as defendants even
averred in their Answer that they gave an advance payment of P30,000.00
therefor, and acknowledged that they had a balance of P14,000.00 to
complete their payment. On this crucial issue, the lower court adjudged the
said private writing (Exhibit "D") as an option to sell not binding upon and
considered the same validly withdrawn by defendants for want of
consideration; and decided the case in the manner above-mentioned.
There is no quibble over the fact that the two (2) parcels of land in dispute
were mortgaged to the Development Bank of the Philippines, to secure a loan
obtained by plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the nonpayment of said loan, the mortgage was foreclosed and in the process,
ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4
for defendants). After DBP became the absolute owner of the two parcels of
land, defendants negotiated with DBP and succeeded in buying the same. By
virtue of such sale by DBP in favor of defendants, the titles of DBP were
cancelled and the corresponding Transfer Certificates of Title (Annexes "C"
and "D" to the Complaint) issued to the defendants. 8
94 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the
one-year redemption period was from March 16, 1982 up to March 15, 1983 and that the
mortgagors' right of redemption was not exercised within this period. 9 Hence, DBP
became the absolute owner of said parcels of land for which it was issued new certificates
of title, both entered on May 23, 1983 by the Registry of Deeds for the Province of
Isabela. 10 About two years thereafter, on April 1, 1985, DBP entered into a Deed of
Conditional Sale 11 involving the same parcels of land with Private Respondent Anacleto
Nool as vendee. Subsequently, the latter was issued new certificates of title on February
8, 1988. 12
The Court of Appeals ruled:

13

WHEREFORE, finding no reversible error infirming it, the appealed Judgment is

hereby AFFIRMED in toto. No pronouncement as to costs.
The Issues
Petitioners impute to Respondent Court the following alleged "errors":
1. The Honorable Court of Appeals, Second Division has misapplied the legal
import or meaning of Exhibit "C" in a way contrary to law and existing
jurisprudence in stating that it has no binding effect between the parties and
considered validly withdrawn by defendants-appellees for want of
consideration.
2. The Honorable Court of Appeals, Second Division has miserably failed to
give legal significance to the actual possession and cultivation and
appropriating exclusively the palay harvest of the two (2) hectares land
pending the payment of the remaining balance of fourteen thousand pesos
(P14,000.00) by defendants-appellees as indicated in Exhibit "C".
3. The Honorable Court of Appeals has seriously erred in affirming the
decision of the lower court by awarding the payment of rents per annum and
the return of P30,000.00 and not allowing the plaintiffs-appellants to reacquire the four (4) hectares, more or less upon payment of one hundred
thousand pesos (P100,000.00) as shown in Exhibit "D". 14
The Court's Ruling
The petition is bereft of merit.
First Issue: Are Exhibits "C" and "D" Valid and Enforceable?
The petitioner-spouses plead for the enforcement of their agreement with private
respondents as contained in Exhibits "C" and "D," and seek damages for the latter's
alleged breach thereof. In Exhibit C, which was a private handwritten document labeled
by the parties as Resibo ti Katulagan or Receipt of Agreement, the petitioners appear to
have "sold" to private respondents the parcels of land in controversy covered by TCT No.
T-74950 and TCT No. T-100945. On the other hand, Exhibit D, which was also a private
handwritten document in Ilocano and labeled as Kasuratan, private respondents agreed
that Conchita Nool "can acquire back or repurchase later on said land when she has the
money." 15
In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined
by her co-petitioner-husband) invokes Article 1370 of the Civil Code which mandates that
"(i)f the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control." Hence, petitioners
contend that the Court of Appeals erred in affirming the trial court's finding and
conclusion that said Exhibits C and D were "not merely voidable but utterly void and
inexistent."
We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only
to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals
ruled that the principal contract of sale contained in Exhibit C and the auxiliary contract
of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears
to find support in Dignos vs. Court of Appeals, 16 where the Court held:
95 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is null
and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of land
at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on
the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid
one. 17 Verily, Article 1422 of the Civil Code provides that "(a) contract which is the direct
result of a previous illegal contract, is also void and inexistent."
We should however add that Dignos did not cite its basis for ruling that a "sale is null and
void" where the sellers "were no longer the owners" of the property. Such a situation
(where the sellers were no longer owners) does not appear to be one of the void contracts
enumerated in Article 1409 of the Civil Code. 18 Moreover, the Civil Code 19itself
recognizes a sale where the goods are to be "acquired . . . by the seller after the
perfection of the contract of sale," clearly implying that a sale is possible even if the seller
was not the owner at the time of sale, provided he acquires title to the property later on.
In the present case however, it is likewise clear that the sellers can no longer deliver the
object of the sale to the buyers, as the buyers themselves have already acquired title and
delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to
be inoperative 20 and may thus fall, by analogy, under item no. 5 of Article 1409 of the
Civil Code: "Those which contemplate an impossible service." Article 1459 of the Civil
Code provides that "the vendor must have a right to transfer the ownership thereof
[object of the sale] at the time it is delivered." Here, delivery of ownership is no longer
possible. It has become impossible.
Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a
person who is not the owner thereof, and who does not sell them under authority or with
consent of the owner, the buyer acquires no better title to the goods than the seller had,
unless the owner of the goods is by his conduct precluded from denying the seller's
authority to sell." Here, there is no allegation at all that petitioners were authorized by
DBP to sell the property to the private respondents. Jurisprudence, on the other hand,
teaches us that "a person can sell only what he owns or is authorized to sell; the buyer
can as a consequence acquire no more than what the seller can legally transfer." 21 No
one can give what he does not have nono dat quod non habet. On the other hand,
Exhibit D presupposes that petitioners could repurchase the property that they "sold" to
private respondents. As petitioners "sold" nothing, it follows that they can also
"repurchase" nothing. Nothing sold, nothing to repurchase. In this light, the contract of
repurchase is also inoperative and by the same analogy, void.
Contract of Repurchase
Dependent on Validity of Sale
As borne out by the evidence on record, the private respondents bought the two parcels
of land directly from DBP on April 1, 1985 after discovering that petitioners did not own
said property, the subject of Exhibits C and D executed on November 30, 1984.
Petitioners, however, claim that they can exercise their alleged right to "repurchase" the
property, after private respondents had acquired the same from DBP. 22 We cannot accede
to this, for it clearly contravenes the intention of the parties and the nature of their
agreement. Exhibit D reads:
WRITING
N
o
v
.
3
0
,
1
9
8
4

96 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

That I, Anacleto Nool have bought from my sister Conchita Nool a land an
area of four hectares (4 has.) in the value of One Hundred Thousand
(100,000.00) Pesos. It is our agreement as brother and sister that she
can acquire back or repurchase later on said land when she has the money.
[Emphasis supplied].
As proof of this agreement we sign as brother and sister this written
document this day of Nov. 30, 1984, at District 4, San Manuel, Isabela.
S
g
d
A
N
A
C
L
E
T
O
N
O
O
L
Anacl
eto
Nool
Sgd Emilio Paron
Witness
S
g
d
C
o
n
c
h
i
t
a
N
o
o
l
Conc
hita
Nool
23

One "repurchases" only what one has previously sold. In other words, the right to
repurchase presupposes a valid contract of sale between the same parties. Undisputedly,
private respondents acquired title to the property from DBP, and not from petitioners.
Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not
affected by the nullity of the latter, still petitioners do not thereby acquire a right to
repurchase the property. In that scenario, Exhibit D ceases to be a "right to repurchase"
ancillary and incidental to the contract of sale; rather, it becomes an accepted unilateral
promise to sell. Article 1479 of the Civil Code, however, provides that "an accepted
97 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

unilateral promise to buy or sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration distinct from the price." In
the present case, the alleged written contract of repurchase contained in Exhibit D is
bereft of any consideration distinct from the price. Accordingly, as an independent
contract, it cannot bind private respondents. The ruling in Diamante vs. CA 24 supports
this. In that case, the Court through Mr. Justice Hilario G. Davide, Jr. explained:
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when the vendor reserves the right
to repurchase the thing sold, with the obligation to comply with the provisions
of article 1616 and other stipulations which may have been agreed upon.
In Villarica, et al. Vs. Court of Appeals, et al., decided on 29 November 1968,
or barely seven (7) days before the respondent Court promulgated its
decisions in this case, this Court, interpreting the above Article, held:
The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can not longer reserve
the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some
other right like the option to buy in the instant case. . . .
In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this
Court had already ruled that "an agreement to repurchase becomes a
promise to sell when made after the sale, because when the sale is made
without such an agreement, the purchaser acquires the thing sold absolutely,
and if he afterwards grants the vendor the right to purchase, it is a new
contract entered into by the purchaser, as absolute owner already of the
object. In that case the vendor has nor reserved to himself the right to
repurchase.
In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another occasion
to apply the foregoing principle.
Hence, the Option to Repurchase executed by private respondent in the
present case, was merely a promise to sell, which must be governed by
Article 1479 of the Civil Code which reads as follows:
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.
Right to Repurchase Based on
Homestead or Trust Non-Existent
Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land
Act 25 and (2) an implied trust relation as "brother and sister." 26
The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The
brothers, together with Conchita Nool and Anacleto Nool, were all siblings and heirs
qualified to repurchase the two parcels of land under Sec. 119 of the Public Land Act
which provides that "(e)very conveyance of land acquired under the free patent or
homestead provisions, when proper, shall be subject to repurchase by the applicant, his
widow or legal heirs, within a period of five years from the date of conveyance."
Assuming the applicability of this statutory provision to the case at bar, it is indisputable
that Private Respondent Anacleto Nool already repurchased from DBP the contested
properties. Hence, there was no more right of repurchase that his sister Conchita or
brothers Victorino and Francisco could exercise. The properties were already owned by an
heir of the homestead grantee and the rationale of the provision to keep homestead lands
within the family of the grantee was thus fulfilled. 27
98 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

The claim of a trust relation is likewise without merit. The records show that private
respondents did not purchase the contested properties from DBP in trust for petitioners.
The former, as previously mentioned, in fact bought the land from DBP upon realization
that the latter could not validly sell the same. Obviously, petitioners bought it for
themselves. There is no evidence at all in the records that they bought the land in trust
for private respondents. The fact that Anacleto Nool was the younger brother of Conchita
Nool and that they signed a contract of repurchase, which as discussed earlier was void,
does not prove the existence of an implied trust in favor of petitioners.
Second Issue: No Estoppel in Impugning the
Validity of Void Contracts
Petitioners argue that "when Anacleto Nool took the possession of the two hectares, more
or less, and let the other two hectares to be occupied and cultivated by plaintiffsappellant, Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon
and his actuation is within the ambit of estoppel . . . 28 We disagree. The private
respondents cannot be estopped from raising the defense of nullity of contract, specially
in this case where they acted in good faith, believing that indeed petitioners could sell the
two parcels of land in question. Article 1410 of the Civil Code mandates that "(t)he action
or defense for the declaration of the inexistence of a contract does not prescribe." It is a
well-settled doctrine that "as between parties to a contract, validity cannot be given to it
by estoppel if it is prohibited by law or it is against public policy (19 Am. Jur. 802). It is not
within the competence of any citizen to barter away what public policy by law seeks to
preserve." 29 Thus, it is immaterial that private respondents initially acted to implement
the contract of sale, believing in good faith that the same was valid. We stress that a
contract void at inception cannot be validated by ratification or prescription and certainly
cannot be binding on or enforceable against private respondents. 30
Third Issue: Return of P30,000.00 with Interest
and Payment of Rent
Petitioners further argue that it would be a "miscarriage of justice" to order them (1) to
return the sum of P30,000.00 to private respondents when allegedly it was Private
Respondent Anacleto Nool who owed the former a balance of P14,000.00 and (2) to order
petitioners to pay rent when they "were allowed to cultivate the said two hectares." 31
We are not persuaded. Based on the previous discussion, the balance of P14,000.00
under the void contract of sale may not be enforced. Petitioners are the ones who have
an obligation to return what they unduly and improperly received by reason of the invalid
contract of sale. Since they cannot legally give title to what they "sold," they cannot keep
the money paid for the object of the sale. It is basic that "(e)very person who through an
act of performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the
same." 32 Thus, if a void contract has already "been performed, the restoration of what
has been given is in order." 33 Corollarily and as aptly ordered by respondent appellate
court, interest thereon will run only from the time of private respondents' demand for the
return of this amount in their counterclaim. 34 In the same vein, petitioners' possession
and cultivation of the two hectares are anchored on private respondents' tolerance.
Clearly, the latter's tolerance ceased upon their counterclaim and demand on the former
to vacate. Hence, their right to possess and cultivate the land ipso facto ceased.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals
affirming that of the trial court is hereby AFFIRMED.
SO ORDERED.
G.R. No. 117355

April 5, 2002

RIVIERA FILIPINA, INC., petitioner,

vs.
COURT OF APPEALS, JUAN L. REYES, (now deceased), substituted by his heirs,
namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B.
Reyes, PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT CORPORATION,
CORNHILL TRADING CORPORATION and URBAN DEVELOPMENT BANK,respondents.
DE LEON, JR., J.:
99 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Before us is a petition for review on certiorari of the Decision1 of the Court of

Appeals2 dated June 6, 1994 in CA-G.R. CV No. 26513 affirming the Decision 3 dated March
20, 1990 of the Regional Trial Court of Quezon City, Branch 89 dismissing Civil Case No.
Q-89-3371.
Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on August 31,
19894 to compel the defendants therein Juan L. Reyes, now deceased, Philippine Cypress
Construction & Development Corporation (Cypress), Cornhill Trading Corporation
(Cornhill) and Urban Development Bank to transfer the title covering a 1,018 square
meter parcel of land located along EDSA, Quezon City for alleged violation of Rivieras
right of first refusal.
It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity)
executed a Contract of Lease with Riviera. The ten-year (10) renewable lease of Riviera,
which started on August 1, 1982, involved a 1,018 square meter parcel of land located
along Edsa, Quezon City, covered and described in Transfer Certificate of Title No. 186326
of the Registry of Deeds of Quezon City in the name of Juan L. Reyes.5
The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in favor
of Prudential Bank. Since the loan with Prudential Bank remained unpaid upon maturity,
the mortgagee bank extrajudicially foreclosed the mortgage thereon. At the public
auction sale, the mortgagee bank emerged as the highest bidder. The redemption period
was set to expire on March 7, 1989. Realizing that he could not possibly raise in time the
money needed to redeem the subject property, Reyes decided to sell the same.6
Since paragraph 11 of the lease contract expressly provided that the "LESSEE shall have
the right of first refusal should the LESSOR decide to sell the property during the term of
the lease,"7 Reyes offered to sell the subject property to Riviera, through its President
Vicente C. Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However,
Angeles bargained for Three Thousand Five Hundred Pesos (P3,500.00) per square meter.
Since Reyes was not amenable to the said price and insisted on Five Thousand Pesos
(P5,000.00) per square meter, Angeles requested Reyes to allow him to consult the other
members of the Board of Directors of Riviera.8
Seven (7) months later, or sometime in October 1988, Angeles communicated with Reyes
Rivieras offer to purchase the subject property for Four Thousand Pesos (P4,000.00) per
square meter. However, Reyes did not accept the offer. This time he asked for Six
Thousand Pesos (P6,000.00) per square meter since the value of the property in the area
had appreciated in view of the plans of Araneta to develop the vicinity. 9
In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes,
informed Riviera that Reyes was selling the subject property for Six Thousand Pesos
(P6,000.00) per square meter, net of capital gains and transfer taxes, registration fees,
notarial fees and all other attendant charges. He further stated therein that:
In this connection, conformably to the provisions stipulated in Paragraph/Item No.
11 of your CONTRACT OF LEASE (Doc. No. 365, Page No. 63, Book No. X, Series of
1982, of the Notarial Registry of Notary Public Leovillo S. Agustin), notice is served
upon your goodselves for you to exercise "the right of first refusal" in the sale of
said property, for which purpose you are hereby given a period of ten (10) days
from your receipt hereof within which to thus purchase the same under the terms
and conditions aforestated, and failing which you shall be deemed to have thereby
waived such pre-emptive right and my client shall thereafter be absolutely free to
sell the subject property to interested buyers.10
To answer the foregoing letter and confirm their telephone conversation on the matter,
Riviera sent a letter dated November 22, 1988 to Atty. Juan, counsel for Reyes, expressing
Rivieras interest to purchase the subject property and that Riviera is already negotiating
with Reyes which will take a couple of days to formalize. 11 Riviera increased its offer to
Five Thousand Pesos (P5,000.00) per square meter but Reyes did not accede to said price
as it was still lower than his quoted price of Six Thousand Pesos (P6,000.00) per square
meter.12 Angeles asked Reyes to give him until the end of November 1988 for Rivieras
final decision. 1wphi1.nt
In a letter dated December 2, 1988, Angeles wrote Reyes confirming Rivieras intent to
purchase the subject property for the fixed and final13 price of Five Thousand Pesos
(P5,000.00) per square meter, complete payment within sixty (60) to ninety (90) days
100 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

which "offer is what we feel should be the market price of your property." Angeles asked
that the decision of Reyes and his written reply to the offer be given within fifteen (15)
days since there are also other properties being offered to them at the moment.14
In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5,
1988 informing Riviera that Rivieras offer is not acceptable to his client. He further
expressed, "let it be made clear that, much as it is the earnest desire of my client to
really give you the preference to purchase the subject property, you have unfortunately
failed to take advantage of such opportunity and thus lost your right of first refusal in
sale of said property."15
Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close family
friend and President of Cypress, his predicament about the nearing expiry date of the
redemption period of the foreclosed mortgaged property with Prudential Bank, the money
for which he could not raise on time thereby offering the subject property to him for Six
Thousand Pesos (P6,000.00) per square meter. Traballo expressed interest in buying the
said property, told Reyes that he will study the matter and suggested for them to meet
the next day.16
They met the next day, December 5, 1988, at which time Traballo bargained for Five
Thousand Three Hundred Pesos (P5,300.00) per square meter. After considering the
reasons cited by Traballo for his quoted price, Reyes accepted the same. However, since
Traballo did not have the amount with which to pay Reyes, he told the latter that he will
look for a partner for that purpose.17 Reyes told Traballo that he had already afforded
Riviera its right of first refusal but they cannot agree because Rivieras final offer was for
Five Thousand Pesos (P5,000.00) per square meter. 18
Sometime in January 1989, apprehensive of the impending expiration in March 1989 of
the redemption period of the foreclosed mortgaged property with Prudential Bank and the
deal between Reyes and Traballo was not yet formally concluded, Reyes decided to
approach anew Riviera. For this purpose, he requested his nephew, Atty. Estanislao
Alinea, to approach Angeles and find out if the latter was still interested in buying the
subject property and ask him to raise his offer for the purchase of the said property a
little higher. As instructed, Atty. Alinea met with Angeles and asked the latter to increase
his offer of Five Thousand Pesos (P5,000.00) per square meter but Angeles said that his
offer is Five Thousand Pesos (P5,000.00) per square meter. 19
Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through
Atty. Alinea, that his offer is Five Thousand Pesos (P5,000.00) per square meter payment
of which would be fifty percent (50%) down within thirty (30) days upon submission of
certain documents in three (3) days, the balance payable in five (5) years in equal
monthly installments at twelve percent (12%) interest in diminishing balance.20 With the
terms of this second offer, Angeles admittedly downgraded the previous offer of Riviera
on December 2, 1988.21
Atty. Alinea conveyed to Reyes Rivieras offer of Five Thousand Pesos (P5,000.00) per
square meter but Reyes did not agree. Consequently, Atty. Alinea contacted again
Angeles and asked him if he can increase his price. Angeles, however, said he cannot add
anymore.22 Reyes did not expressly offer his subject property to Riviera at the price of
Five Thousand Three Hundred Pesos (P5,300.00) per square meter.23
Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading
Corporation, were able to come up with the amount sufficient to cover the redemption
money, with which Reyes paid to the Prudential Bank to redeem the subject property. 24 On
May 1, 1989, a Deed of Absolute Sale covering the subject property was executed by
Reyes in favor of Cypress and Cornhill for the consideration of Five Million Three Hundred
Ninety Five Thousand Four Hundred Pesos (P5,395,400.00).25 On the same date, Cypress
and Cornhill mortgaged the subject property to Urban Development Bank for Three Million
Pesos (P3,000,000.00).26
Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject
property to it claiming that its right of first refusal under the lease contract was violated.
After several unsuccessful attempts,27 Riviera filed the suit to compel Reyes, Cypress,
Cornhill and Urban Development Bank to transfer the disputed title to the land in favor of
Riviera upon its payment of the price paid by Cypress and Cornhill.

101 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Following trial on the merits, the trial court dismissed the complaint of Riviera as well as
the counterclaims and cross-claims of the other parties.28 It ruled that the defendants
therein did not violate Rivieras right of first refusal, ratiocinating in this wise:
Resolving the first issue, this Court takes note that since the beginning of the
negotiation between the plaintiff and defendant Reyes for the purchase of the
property, in question, the plaintiff was firm and steadfast in its position, expressed
in writing by its President Vicente Angeles, that it was not willing to buy the said
property higher than P5,000.00, per square meter, which was far lower than the
asking price of defendant Reyes for P6,000.00, per square meter, undoubtedly,
because, in its perception, it would be difficult for other parties to buy the property,
at a higher price than what it was offering, since it is in occupation of the property,
as lessee, the term of which was to expire after about four (4) years more.
On the other hand, it was obvious, upon the basis of the last ditch effort of
defendant Reyes, thru his nephew, Atty. Alinea, to have the plaintiff buy the
property, in question, that he was willing to sell the said property at a price less
than P6,000.00 and a little higher than P5,000.00, per square meter, precisely,
because Atty. Alinea, in behalf of his uncle, defendant Reyes, sought plaintiffs
Angeles and asked him to raise his price a little higher, indicating thereby the
willingness of defendant Reyes to sell said property at less than his offer
of P6,000.00, per square meter.
This being the case, it can hardly be validly said by the plaintiff that he was
deprived of his right of first refusal to buy the subject property at a price
of P5,300.00, per square meter which is the amount defendants Cypress/Cornhill
bought the said property from defendant Reyes. For, it was again given such an
opportunity to exercise its right of first refusal by defendant Reyes had it only
signified its willingness to increase a little higher its purchase price
above P5,000.00, per square meter, when its President, Angeles, was asked by Atty.
Alinea to do so, instead of adamantly sticking to its offer of only P5,000.00 per
square meter, by reason of which, therefore, the plaintiff had lost, for the second
time, its right of first refusal, even if defendant Reyes did not expressly offer to sell
to it the subject land at P5,300.00, per square meter, considering that by the plea
of Atty. Alinea, in behalf of defendant Reyes, for it to increase its price a little, the
plaintiff is to be considered as having forfeited again its right of first refusal, it
having refused to budged from its regid (sic) offer to buy the subject property at no
more than P5,000.00, per square meter.
As such, this Court holds that it was no longer necessary for the defendant Reyes to
expressly and categorically offer to the plaintiff the subject property at P5,300.00,
per square meter, in order that he can comply with his obligation to give first
refusal to the plaintiff as stipulated in the Contract of Lease, the plaintiff having had
already lost its right of first refusal, at the first instance, by refusing to buy the said
property at P6,000.00, per square meter, which was the asking price of defendant
Reyes, since to do so would be a useless ceremony and would only be an exercise
in futility, considering the firm and unbending position of the plaintiff, which
defendant Reyes already knew, that the plaintiff, at any event, was not amenable to
increasing its price at over P5,000.00, per square meter.
Dissatisfied with the decision of the trial court, both parties appealed to the Court of
Appeals.29 However, the appellate court, through its Special Seventh Division, rendered a
Decision dated June 6, 1994 which affirmed the decision of the trial court in its
entirety.30 In sustaining the decision of the trial court, the Court of Appeals adopted the
above-quoted ratiocination of the trial court and further added:
To put things in its proper perspective in accordance with the peculiar attendant
circumstances herein, particular stress should be given to RIVIERAs
uncompromising counter offer of only P5,000.00 per square meter on all the
occasions when REYES offered the subject property to it. RIVIERA, in its letter to
REYES dated December 2, 1988 (Exhibit "D", p. 68, Rollo) justified its rigid offer by
saying that "the above offer is what we feel should be the market price of your
property." If that be the case, We are convinced, the same manner that REYES was,
that RIVIERA was unwilling to increase its counter offer at any present or future
time. RIVIERAs unilateral valuation of the subject property thus binds him, it cannot
now be heard to claim that it could have upped its offer had it been informed of
102 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

CYPRESS and CORNHILLS offer of P5,000.00 (sic) per square meter. Defendants
CYPRESS and CORNHILL were therefore right in saying that:
On the basic assumption that RIVIERA really meant what it said in its letter,
DR. REYES could not be faulted for believing that RIVIERA was definitely NOT
WILLING TO PAY MORE THAN P5,000.00 PER SQUARE METER ON HIS
PROPERTY. The fault lies with the deceptive and insincere words of RIVIERA.
Injustice (sic) and equity, RIVIERA must be deemed in estoppel in now
belatedly asserting that it would have been willing to pay a price higher
than P5,000.00 x x x." (Defendants-Appellees Cypress and Cornhills Brief, p.
8)
For this reason, no adverse inference can be drawn from REYES failure to disclose
to RIVIERA the intervening counter-offer of CYPRESS and CORNHILL.
It would have been far different had REYES non-disclosure of CYPRESS and
CORNHILLs counter-offer to RIVIERA resulted in the sale of the subject property at
equal or less than RIVIERAs offer; in which case, REYES would have been rightly
accused of cunningly circumventing RIVIERAs right of first refusal. But the
incontrovertible antecedents obtaining here clearly reveal REYES earnest efforts in
respecting RIVIERAs contractual right to initially purchase the subject property. Not
only once but twice did REYES approach RIVIERA, the last one being the most
telling indication of REYES sincerest intention in RIVIERA eventually purchasing the
subject property if only the latter would increase a little its offer of P5,000.00 per
square meter. And to this REYES was desperately willing to accede to despite the
financial quandary he was then in as the expiration of the redemption period drew
closer and closer, and despite the better offer of CYPRESS and CORNHILL. REYES
unquestionably had displayed good faith. Can the same be said of RIVIERA? We do
not think so. It appears that RIVIERA all along was trying to push REYES back
against the wall, for RIVIERA was well-aware of REYES precarious financial needs at
that time, and by clinging to its offer, REYES might eventually succumb to its offer
out of sheer desperation. RIVIERA was, to be frank, whimsically exercising its
contractual right to the prejudice of REYES who had commendably given RIVIERA
extra leeway in exercising it. And to this We say that no amount of jurisprudence
RIVIERA might avail of for the purpose of construing the right of first refusal,
however enlightening and persuasive they may be, will cover-up for its arrogant
exercise of its right as can be gleaned from the factual premises. Equity in this case
tilts in favor of defendants REYES, CYPRESS and CORNHILL that the consummated
sale between them concerning the subject property be given this Courts
imprimatur, for if RIVIERA lost its opportunity to acquire it, it has only itself to
blame. For after all, REYES fundamental and intrinsic right of ownership which
necessarily carries with it the exclusive right to dispose of it to whoever he pleases,
must ultimately prevail over RIVIERAs right of first refusal which it unscrupulously
tried to exercise.
From this decision, Riviera filed a motion for reconsideration, 31 but the appellate court
denied the same in a Resolution dated September 22, 1994.32
Hence, Riviera interposed the instant petition anchored on the following errors: 33
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN RULING THAT
PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS RIGHT OF FIRST REFUSAL.
II
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN NOT FINDING THAT IT
WAS THE PETITIONER, NOT RESPONDENT JUAN L. REYES, WHICH HAD BEEN
THOROUGHLY DECEIVED BY THE LATTER OUT OF ITS RIGHTS TO ITS CONTINUING
PREJUDICE.
III

103 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION

TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DENYING
RECONSIDERATION.
IV
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DECIDING PETITIONERS
APPEAL AT A TIME WHEN THE PRINCIPAL APPELLEE IS ALLEGEDLY DEAD AND NO
PROPER SUBSTITUTION OF THE ALLEGED DECEASED PARTY HAS BEEN MADE;
HENCE, THE DECISION OF THE COURT OF APPEALS AND ITS RESOLUTION DENYING
RECONSIDERATION, IS NULL AND VOID.
At the outset, we note that, while Riviera alleges that the Court of Appeals committed
grave abuse of discretion amounting to lack or excess of jurisdiction, the instant petition
is, as it should be, treated as a petition for review under Rule 45 and not as a special civil
action for certiorari under Rule 65 of the Revised Rules of Court, now the 1997 Rules of
Civil Procedure.
The distinctions between Rule 45 and 65 are far and wide, the most notable of which is
that errors of jurisdiction are best reviewed in a special civil action for certiorari under
Rule 65, while errors of judgment are correctible only by appeal in a petition for review
under Rule 45.34 The rationale for the distinction is simple. When a court exercises its
jurisdiction an error committed while so engaged does not deprive it of the jurisdiction
being exercised when the error is committed. If it did, every error committed by a court
would deprive it of its jurisdiction and every erroneous judgment would be a void
judgment. This cannot be allowed. The administration of justice would not countenance
such a rule. Thus, an error of judgment that the court may commit in the exercise of its
jurisdiction is not correctible through the original special civil action of certiorari. 35 Appeal
from a final disposition of the Court of Appeals, as in the case at bar, is by way of a
petition for review under Rule 45.36
In the petition at bar, Riviera posits the view that its right of first refusal was totally
disregarded or violated by Reyes by the latters sale of the subject property to Cypress
and Cornhill. It contends that the right of first refusal principally amounts to a right to
match in the sense that it needs another offer for the right to be exercised.
The concept and interpretation of the right of first refusal and the consequences of a
breach thereof evolved in Philippine juristic sphere only within the last decade. It all
started in 1992 with Guzman, Bocaling & Co. v. Bonnevie 37 where the Court held that
a lease with a proviso granting the lessee the right of first priority "all things and
conditions being equal" meant that there should be identity of the terms and conditions
to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the
right of first priority. A deed of sale executed in favor of a third party who cannot be
deemed a purchaser in good faith, and which is in violation of a right of first refusal
granted to the lessee is not voidable under the Statute of Frauds but rescissible under
Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,38 the
Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v.
Bonnevie and refused to rescind a contract of sale which violated the right of first
refusal. The Court held that the so-called "right of first refusal" cannot be deemed a
perfected contract of sale under Article 1458 of the New Civil Code and, as such, a breach
thereof decreed under a final judgment does not entitle the aggrieved party to a writ of
execution of the judgment but to an action for damages in a proper forum for the
purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc.,39 the Court en banc reverted back to the doctrine in Guzman Bocaling & Co. v.
Bonnevie stating that rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may
cause or to protect some incompatible and preferred right by the contract.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals,40 the
Court affirmed the nature of and the concomitant rights and obligations of parties under a
right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co. v.
Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held
104 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

that in order to have full compliance with the contractual right granting petitioner the first
option to purchase, the sale of the properties for the price for which they were finally sold
to a third person should have likewise been first offered to the former. Further, there
should be identity of terms and conditions to be offered to the buyer holding a right of
first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first
refusal must be the current offer to sell of the seller or offer to purchase of any
prospective buyer.
Thus, the prevailing doctrine is that a right of first refusal means identity of terms and
conditions to be offered to the lessee and all other prospective buyers and a contract of
sale entered into in violation of a right of first refusal of another person, while valid, is
rescissible.
However, we must remember that general propositions do not decide specific cases.
Rather, laws are interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis
of isolated clinical classroom principles.41 Analysis and construction should not be limited
to the words used in the contract, as they may not accurately reflect the parties true
intent.42 The court must read a contract as the average person would read it and should
not give it a strained or forced construction.43
In the case at bar, the Court finds relevant and significant the cardinal rule in the
interpretation of contracts that the intention of the parties shall be accorded primordial
consideration and in case of doubt, their contemporaneous and subsequent acts shall be
principally considered.44 Where the parties to a contract have given it a practical
construction by their conduct as by acts in partial performance, such construction may be
considered by the court in construing the contract, determining its meaning and
ascertaining the mutual intention of the parties at the time for contracting. The parties
practical construction of their contract has been characterized as a clue or index to, or as
evidence of, their intention or meaning and as an important, significant, convincing,
persuasive, or influential factor in determining the proper construction of the contract. 45
An examination of the attendant particulars of the case do not persuade us to uphold
Rivieras view. As clearly shown by the records and transcripts of the case, the actions of
the parties to the contract of lease, Reyes and Riviera, shaped their understanding and
interpretation of the lease provision "right of first refusal" to mean simply that should the
lessor Reyes decide to sell the leased property during the term of the lease, such sale
should first be offered to the lessee Riviera. And that is what exactly ensued between
Reyes and Riviera, a series of negotiations on the price per square meter of the subject
property with neither party, especially Riviera, unwilling to budge from his offer, as
evidenced by the exchange of letters between the two contenders.
It can clearly be discerned from Rivieras letters dated December 2, 1988 and February 4,
1989 that Riviera was so intractable in its position and took obvious advantage of the
knowledge of the time element in its negotiations with Reyes as the redemption period of
the subject foreclosed property drew near. Riviera strongly exhibited a "take-it or leave-it"
attitude in its negotiations with Reyes. It quoted its "fixed and final" price as Five
Thousand Pesos (P5,000.00) and not any peso more. It voiced out that it had other
properties to consider so Reyes should decide and make known its decision "within fifteen
days." Riviera, in its letter dated February 4, 1989, admittedly, even downgraded its offer
when Reyes offered anew the property to it, such that whatever amount Reyes initially
receives from Riviera would absolutely be insufficient to pay off the redemption price of
the subject property. Naturally, Reyes had to disagree with Rivieras highly
disadvantageous offer.
Nary a howl of protest or shout of defiance spewed forth from Rivieras lips, as it were,
but a seemingly whimper of acceptance when the counsel of Reyes strongly expressed in
a letter dated December 5, 1989 that Riviera had lost its right of first refusal. Riviera
cannot now be heard that had it been informed of the offer of Five Thousand Three
Hundred Pesos (P5,300.00) of Cypress and Cornhill it would have matched said price. Its
stubborn approach in its negotiations with Reyes showed crystal-clear that there was
never any need to disclose such information and doing so would be just a futile effort on
the part of Reyes. Reyes was under no obligation to disclose the same. Pursuant to Article
133946 of the New Civil Code, silence or concealment, by itself, does not constitute fraud,
unless there is a special duty to disclose certain facts, or unless according to good faith
and the usages of commerce the communication should be made.47 We apply the general
105 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

rule in the case at bar since Riviera failed to convincingly show that either of the
exceptions are relevant to the case at bar.
In sum, the Court finds that in the interpretation of the right of first refusal as understood
by the parties herein, the question as to what is to be included therein or what is meant
by the same, as in all other provisions of the contract, is for the parties and not for the
court to determine, and this question may not be resolved by what the parties might have
provided had they thought about it, which is evident from Riviera claims, or by what the
court might conclude regarding abstract fairness.48
The Court would be rewriting the contract of Reyes and Riviera under the guise of
construction were we to interpret the right of first refusal as Riviera propounds it, despite
a contrary construction as exhibited by its actions. A court, even the Supreme Court, has
no right to make new contracts for the parties or ignore those already made by them,
simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal
construction justifies the creation of a contract for the parties which they did not make
themselves or the imposition upon one party to a contract of an obligation not assumed.49
On the last error attributed to the Court of Appeals which is the effect on the jurisdiction
of the appellate court of the non-substitution of Reyes, who died during the pendency of
the appeal, the Court notes that when Riviera filed its petition with this Court and
assigned this error, it later filed on October 27, 1994 a Manifestation 50 with the Court of
Appeals stating that it has discovered that Reyes is already dead, in view of which the
appellate court issued a Resolution dated December 16, 1994 which noted the
manifestation of Riviera and directed the counsel of Reyes to submit a copy of the latters
death certificate and to file the proper motion for substitution of party. 51Complying
therewith, the necessary motion for substitution of deceased Reyes, who died on January
7, 1994, was filed by the heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B.
Reyes, Jr. and Fidel B. Reyes.52Acting on the motion for substitution, the Court of Appeals
granted the same.53
Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised Rules of
Court, upon which Riviera anchors its argument, has already been amended by the 1997
Rules of Civil Procedure.56 Even applying the old Rules, the failure of a counsel to comply
with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to inform the court
of the death of his client and no substitution of such is effected, will not invalidate the
proceedings and the judgment thereon if the action survives the death of such party, 57 as
this case does, since the death of Reyes did not extinguish his civil personality. The
appellate court was well within its jurisdiction to proceed as it did with the case since the
death of a party is not subject to its judicial notice. Needless to stress, the purpose
behind the rule on substitution of parties is the protection of the right of every party to
due process. This purpose has been adequately met in this case since both parties
argued their respective positions through their pleadings in the trial court and the
appellate court. Besides, the Court has already acquired jurisdiction over the heirs of
Reyes by voluntarily submitting themselves to our jurisdiction. 58
In view of all the foregoing, the Court is convinced that the appellate court committed no
reversible error in its challenged Decision.1wphi1.nt
WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of
Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement as
to costs.
SO ORDERED.
G.R. No. 146428

January 19, 2009

HEIRS OF THE DECEASED CARMEN CRUZ-ZAMORA, Petitioners,

vs.
MULTIWOOD INTERNATIONAL, INC., Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before us is a petition for review on certiorari of the Court of Appeals (CA)
Decision1 dated October 19, 2000 and Resolution2 dated December 18, 2000 in CA-G.R.
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CV No. 53451 which reversed and set aside the decision of the Regional Trial Court (RTC),
National Capital Judicial Region, Makati City, Branch 59, and denied petitioners motion
for reconsideration respectively.
The facts as culled from the records are as follows:
On November 18, 1993, the late Carmen Cruz-Zamora (Zamora) filed a Complaint against
respondent Multiwood International, Inc. (Multiwood). The complaint alleged that
sometime in 1987, Zamora signed a Marketing Agreement to act as an agent of
Multiwood. As agent, Zamora claimed that she obtained certain contracts on behalf of
Multiwood and in renumeration for her services, she was to be paid ten percent (10%)
commission for the said projects. Zamora claimed that Multiwood defaulted in the
payment of her commission for the contracts with Edsa Shangrila, Makati Shangrila and
Diamond Hotel. She was compelled to file an action for the collection of her commission
in the amount of Two Hundred Fifty Four Thousand Eighty-Nine Pesos and Fifty Two
Centavos (P254,089.52) when her repeated demands for payment remained unheeded.
In its Answer with Counterclaim, Multiwood asserted that Zamora was not entitled to
receive commissions for the Edsa Shangrila, Makati Shangrila and Diamond Hotel projects
on the ground that those projects were "construction contracts" while their Marketing
Agreement spoke only of the sale of Multiwood products. By way of counterclaim,
Multiwood claimed, among others, that Zamora had unliquidated advances in the amount
of Thirty Seven Thousand Three Hundred Ninety-Seven Pesos and Seventy One Centavos
(P37,397.71).3
During pre-trial, the parties entered into a stipulation of facts and limited the issues to the
following:
1. Whether or not the projects indicated in the agreement are contracts for services
(or construction contracts) and not contracts for the sale of products;
2. Whether or not the defendant is liable to pay the amount of P254,089.52 and
damages;
3. Whether or not the plaintiff may be held liable on the defendants counterclaim. 4
On April 15, 1996, the RTC rendered a decision in favor of Zamora. The trial court
interpreted the Marketing Agreement as to include construction contracts and allowed
Zamora to claim the ten percent (10%) commission granted in the said agreement. In
arriving at the decision, the trial court took into consideration the alleged intention of the
contracting parties purportedly evidenced by Multiwoods contemporaneous and
subsequent acts of making "partial payments" of the commission on the disputed projects
as evidenced by various vouchers (Exhibits K-2 to K-7) which, however, were not offered
in evidence by either party and marked for exhibit only during the testimony of defense
witness, Adrian Guerrero.5 The dispositive portion of the said decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
and against the defendant, as follows:
1. Ordering the defendant (respondent) to pay the plaintiff (petitioner) the following
amounts:
a. P165,941.78 plus legal interest thereon at the rate of twelve percent (12%)
per annum starting November 18, 1993, the date when the complaint was
filed until the amount is fully paid;
b. P40,000.00 representing moral damages;
c. P40,000.00 as and for reasonable attorneys fees.
2. Ordering the dismissal of defendants (respondents) counterclaim, for lack of
merit; and
3. With costs against the defendant (respondent).
SO ORDERED.6
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Multiwood appealed to the CA insisting that based on the Marketing Agreement, Zamoras
commissions were due only on contracts for the sale of its products, and not for
construction contracts. Multiwood argued that the trial court erred in its interpretation of
the Marketing Agreement and ultimately revised and amended its terms despite the
absence of any ambiguity as to the intent of the parties.
On October 19, 2000, the CA rendered its decision reversing and setting aside the
decision of the RTC. The CA ruled that Zamora could not validly claim commissions from
the Edsa Shangrila, Makati Shangrila and Diamond Hotel contracts on the basis of the
Marketing Agreement because these contracts were limited only to the solicitation of the
products of prospective foreign or local buyers of Multiwood, excluding other services
offered by the latter such as construction services. Thus, the CA decided in this wise:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of
Makati City, Branch 59 in Civil Case No. 93-4292 is hereby REVERSED AND SET ASIDE and
a new one entered DISMISSING the Complaint for lack of merit.
The plaintiff-appellee (petitioner) is also declared LIABLE to pay the unliquidated
advances she obtained from the defendant-appellant (respondent) in the amount of Thirty
Seven Thousand Three Hundred Ninety Seven Pesos and Seventy One Centavos
(P37,397.71) with legal interest at six percent (6%) per annum computed from August 4,
1994 until fully paid.
No pronouncement as to costs.
SO ORDERED.7
Zamoras subsequent motion for reconsideration having been likewise denied by the CA
in the Resolution dated December 18, 2000, she elevated the case to this Court through
the instant petition for review which raises the following arguments:
(1) The Hon. Court of Appeals erred in adjudging that private respondent is not
liable to compensate petitioner for her services in soliciting construction contracts
on the ground that petitioners counsel failed to offer in evidence Exhs. K to K-7.
(2) The Hon. Court of Appeals erred in not holding that under Exhs. B to H, with submarkings in relation to Exh. A, private respondent acknowledged or admitted its
liability for a rate of 10% commission to petitioner for the latters solicitation of
construction contracts.
(3) The Hon. Court of Appeals erred in not holding that, even if the solicitation of
construction contracts was not covered by the Marketing Agreement (Exh. A), a new
separate contract was deemed perfected between the parties as evidenced by
Exhs. B to H, with submarkings.
(4) The Hon. Court of Appeals erred in not holding that private respondent would be
unjustly enriched at the expense of petitioner if the latter is not compensated for
her valuable services.
(5) The Hon. Court of Appeals erred in not affirming in toto the trial courts Decision.
On October 3, 2002, Zamoras counsel filed a Motion to Substitute Deceased
Petitioner8 informing the Court that Zamora had passed away on September 30, 2002 and
asking that her heirs be substituted as petitioners pursuant to Section 16, Rule 3 of the
Rules of Court. Accordingly, in the Resolution 9 dated January 22, 2003, the Court granted
the motion.
Petitioners maintain that the interior construction projects solicited by Zamora, i.e., the
renovation/improvement of the coffee shop, health clubs, Chinese restaurant and
barbeque pavilions of the Edsa Shangrila; the renovation of the ballroom, meeting room,
lobby and elevator interior of the Makati Shangrila; and, the renovation of Presidential
Suite of the Diamond Hotel, fell within the scope of the Marketing Agreement. The
identification, "solicitation, finding or introduction for negotiation of buyers, dealers and
customers" for Multiwoods product as stated in the agreement is an encompassing term
as to include the solicitation of interior construction projects. Besides the construction
projects it afforded Multiwood the opportunity to sell and supply its products to the
project owner to implement the overall interior design. Petitioners advert to their
108 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

interpretation of the text of the Marketing Agreement, as well as Multwoods subsequent

alleged acquiescence in Zamoras solicitation of the disputed construction contracts and
supposed partial payment of her commission therefor as indicia of the parties intention
to include the said solicitation of construction contracts within the coverage of the
Marketing Agreement. These operative acts purportedly lead to the perfection of a new
contract between the parties, albeit not reduced in writing. Hence, Multiwood is estopped
from denying its obligation as the same would unjustly enrich the latter at Zamoras
expense.
We deny the petition.
At the outset, the Court notes that Zamoras cause of action is anchored solely on the
parties Marketing Agreement, the due execution and authenticity of which are
undisputed.
When the terms of the agreement are clear and explicit, such that they do not justify an
attempt to read into them any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract. It is only in instances
when the language of a contract is ambiguous or obscure that courts ought to apply
certain established rules of construction in order to ascertain the supposed intent of the
parties. However, these rules will not be used to make a new contract for the parties or to
rewrite the old one, even if the contract is inequitable or harsh. They are applied by the
court merely to resolve doubts and ambiguities within the framework of the agreement.10
Bearing in mind the aforementioned guidelines, we find that the CA committed no
reversible error when it ruled that the construction projects solicited by Zamora for
Multiwood were outside the coverage of the Marketing Agreement so as preclude the
former from claiming a ten percent (10%) commission. The plain import of the text of the
Marketing Agreement leaves no doubt as to the true intention of the parties in executing
the Marketing Agreement. The pertinent provisions of the said Marketing Agreement 11 are
as follows:
WHEREAS, the principal is engaged in the manufacture and export of furniture and such
other related products using various types of suitable raw materials;
WHEREAS, the principal needs the services of the agent in soliciting and finding buyers,
customers, or dealers, whether individuals or entities, for the products of the principal
and agent has represented that she has the capability and competence to provide the
said services;
NOW, THEREFORE, for and in consideration of the foregoing and of the covenants
hereinafter specified, the parties hereto have agreed as follows:
1. That principal hereby grants the agent the non-exclusive right to identify, solicit, find or
introduce for negotiation, prospective local and foreign buyers, dealers, or customers for
the products of the principal.
xxx xxx xxx
4. That for the services of the agent under this agreement, the principal agrees to pay her
Ten Percent (10%) of the face value of the invoice price, covering the letter of credit, or
such similar instrument representing the actual purchase price for the products sold or
shipped by the principal. x x x. (emphasis ours)
Both the trial court and the CA found that the Marketing Agreement quoted above does
not mention construction contracts among the contemplated services of Zamora that
would be compensable with a ten percent (10%) commission. The lower courts, however,
differed with respect to the evidentiary weight that should be accorded to Exhibits K to K7 which were never formally offered in evidence by any party.
After a consideration of the evidence, we agree with the CA that the trial court committed
an error in interpreting the Marketing Agreement to include construction contracts based
solely on Exhibits K-2 to K-7 which were allegedly contemporaneous acts of Multiwood of
paying in part Zamoras commissions on construction contracts. As borne by the records,
these exhibits were only marked as such during the testimony of the defense witness,
Adrian Guerrero, but not offered in evidence by either party.
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Section 34, Rule 132 of the Rules of Court states:

SEC. 34. Offer of evidence. The court shall consider no evidence which has not been
formally offered. The purpose for which the evidence is offered must be specified.
The trial courts reliance on Exhibits "K-2" to "K-7" is thus, misplaced. It has no evidentiary
value in this case because it was not offered in evidence before the trial court. The rule is
that the court shall not consider any evidence which has not been formally offered. The
purpose for which the evidence is offered must be specified. The offer of evidence is
necessary because it is the duty of the court to rest its findings of fact and its judgment
only and strictly upon the evidence offered by the parties. Unless and until admitted by
the court in evidence for the purpose or purposes for which such document is offered, the
same is merely a scrap of paper barren of probative weight. Mere identification of
documents and the markings thereof as exhibits do not confer any evidentiary weight on
documents unless formally offered. 12
Plainly, the trial court should not have read terms into the Marketing Agreement that
were not expressly in the agreement itself. The agreement is clear, plain and simple that
it leaves no room for interpretation. It explicitly provides that for the services of Zamora,
as agent under the agreement, Multiwood agreed to pay her in the amount equivalent to
ten percent (10%) of the face value of the invoice price, covering the letter of credit or
such other instrument representing the actual purchase price for the products sold or
shipped by Multiwood. In other words, Zamoras commission under the Marketing
Agreement was to be paid only for products sold or supplied by Multiwood and not for
services rendered by the latter. As admitted by Zamora herself during cross-examination,
the Edsa Shangrila, Makati Shangrila and Diamond Hotel projects were "interior
construction" projects13 and not simply contracts for sale or supply of Multiwood products.
As mandated by Article 1370 of the Civil Code, if the terms of the contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.
Moreover, Section 9, Rule 130 of the Revised Rules of Court is also in point:
SEC. 9. Evidence of written agreements. When the terms of an agreement have been
reduced in 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 "parol evidence rule" forbids any addition to or contradiction of the terms of a written
instrument by testimony or other evidence purporting to show that, at or before the
execution of the parties written agreement, other or different terms were agreed upon by
the parties, varying the purport of the written contract. When an agreement has been
reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged
practices which to all purposes would alter the terms of the written agreement. Whatever
is not found in the writing is understood to have been waived and abandoned.14 None of
the above-cited exceptions finds application to the instant case, more particularly, the
alleged failure of the contract to express the true intent and agreement of the parties nor
did Zamora raise any of the issues at the proceedings before the trial court.
With more reason, documentary evidence which was not formally offered cannot be used
to modify, explain or add to the terms of an agreement.

110 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

In any event, even assuming purely for the sake of argument that Exhibits K-2 to K-7 are
admissible evidence, they do not support Zamoras contention that she is entitled to a
ten percent (10%) commission even on construction contracts she has solicited pursuant
to the Marketing Agreement. A perusal of Exhibits K-2 to K-7 does not clearly show that
these commissions were being paid for construction contracts or services. Moreover,
most of the commissions purportedly paid to Zamora under Exhibits K-2 to K-7 were
computed at a much lower rate of three percent (3%) and not the ten percent (10%)
stipulated in the Marketing Agreement. We cannot simply accept, as the trial court did,
Zamoras assertion that the lower rate of three percent (3%) commission was a partial
payment of her commissions under the Marketing Agreement since there is nothing in
Exhibits K-2 to K-7 to indicate that the commissions mentioned therein were only partial
payments. The circumstances that Zamora did not include Exhibits K-2 to K-7 in her
Complaint and that she did not demand payment of the alleged balance of the
commissions therein from Multiwood further militate against her claim that these were
partial payments of her commission under the Marketing Agreement subject of the
present case.
An examination of even Exhibits B to H which were formally offered by Zamora do not
substantiate her assertion that Multiwood agreed to pay her a ten percent (10%)
commission on construction contracts whether under the Marketing Agreement or any
other contract. We cannot subscribe to petitioners view that mere silence or
acquiescence of Multiwood to Zamoras solicitation of construction contracts is
tantamount to agreement to payment of the ten percent (10%) commission under the
Marketing Agreement. To be sure, Multiwoods defense is precisely that the issuance of
the vouchers and checks (Exhibits B to H) attached to the complaint are not authorized
under the Marketing Agreement and that there is no agreement authorizing Zamora to
collect ten percent (10%) commissions on construction contracts. This Court notes that
even Exhibits B to H show a discrepancy in the alleged agreed rate of commission since
Exhibit H mentions a five percent (5%) commission and not a ten percent (10%)
commission.
It is a basic rule in civil cases that the party having the burden of proof must establish his
case by a preponderance of evidence, which simply means evidence which is of greater
weight, or more convincing than that which is offered in opposition to it.15 However,
although the evidence adduced by the plaintiff is stronger than that presented by the
defendant, a judgment cannot be entered in favor of the former, if his evidence is not
sufficient to sustain his cause of action. The plaintiff must rely on the strength of his own
evidence and not upon the weakness of the defendants.16 Whether or not Exhibits K to K7 are considered or admitted in evidence, the Court finds that Zamora failed to prove by
preponderant evidence her cause of action for collection of ten percent (10%)
commission on her solicitations of interior construction contracts whether under the
Marketing Agreement or any other agreement with the defendant.
All told, we find no reversible error committed by the CA in rendering the assailed
Decision dated October 19, 2000 and Resolution dated December 18, 2000.
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.
Costs against petitioners.
SO ORDERED.
G.R. No. 168970

January 15, 2010

CELESTINO BALUS, Petitioner,

vs.
SATURNINO BALUS and LEONARDA BALUS VDA. DE CALUNOD, Respondents.
DECISION
PERALTA, J.:
Assailed in the present petition for review on certiorari under Rule 45 of the Rules of Court
is the Decision1 of the Court of Appeals (CA) dated May 31, 2005 in CA-G.R. CV No. 58041
which set aside the February 7, 1997 Decision of the Regional Trial Court (RTC) of Lanao
del Norte, Branch 4 in Civil Case No. 3263.
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The facts of the case are as follows:

Herein petitioner and respondents are the children of the spouses Rufo and Sebastiana
Balus. Sebastiana died on September 6, 1978, while Rufo died on July 6, 1984.
On January 3, 1979, Rufo mortgaged a parcel of land, which he owns, as security for a
loan he obtained from the Rural Bank of Maigo, Lanao del Norte (Bank). The said property
was originally covered by Original Certificate of Title No. P-439(788) and more particularly
described as follows:
A parcel of land with all the improvements thereon, containing an area of 3.0740
hectares, more or less, situated in the Barrio of Lagundang, Bunawan, Iligan City, and
bounded as follows: Bounded on the NE., along line 1-2, by Lot 5122, Csd-292; along line
2-12, by Dodiongan River; along line 12-13 by Lot 4649, Csd-292; and along line 12-1, by
Lot 4661, Csd-292. x x x 2
Rufo failed to pay his loan. As a result, the mortgaged property was foreclosed and was
subsequently sold to the Bank as the sole bidder at a public auction held for that purpose.
On November 20, 1981, a Certificate of Sale3was executed by the sheriff in favor of the
Bank. The property was not redeemed within the period allowed by law. More than two
years after the auction, or on January 25, 1984, the sheriff executed a Definite Deed of
Sale4 in the Bank's favor. Thereafter, a new title was issued in the name of the Bank.
On October 10, 1989, herein petitioner and respondents executed an Extrajudicial
Settlement of Estate5adjudicating to each of them a specific one-third portion of the
subject property consisting of 10,246 square meters. The Extrajudicial Settlement also
contained provisions wherein the parties admitted knowledge of the fact that their father
mortgaged the subject property to the Bank and that they intended to redeem the same
at the soonest possible time.
Three years after the execution of the Extrajudicial Settlement, herein respondents
bought the subject property from the Bank. On October 12, 1992, a Deed of Sale of
Registered Land6 was executed by the Bank in favor of respondents. Subsequently,
Transfer Certificate of Title (TCT) No. T-39,484(a.f.) 7 was issued in the name of
respondents. Meanwhile, petitioner continued possession of the subject lot.
On June 27, 1995, respondents filed a Complaint8 for Recovery of Possession and
Damages against petitioner, contending that they had already informed petitioner of the
fact that they were the new owners of the disputed property, but the petitioner still
refused to surrender possession of the same to them. Respondents claimed that they had
exhausted all remedies for the amicable settlement of the case, but to no avail.
On February 7, 1997, the RTC rendered a Decision9 disposing as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiffs to execute a Deed of
Sale in favor of the defendant, the one-third share of the property in question, presently
possessed by him, and described in the deed of partition, as follows:
A one-third portion of Transfer Certificate of Title No. T-39,484 (a.f.), formerly Original
Certificate of Title No. P-788, now in the name of Saturnino Balus and Leonarda B. Vda. de
Calunod, situated at Lagundang, Bunawan, Iligan City, bounded on the North by Lot 5122;
East by shares of Saturnino Balus and Leonarda Balus-Calunod; South by Lot 4649,
Dodiongan River; West by Lot 4661, consisting of 10,246 square meters, including
improvements thereon.
and dismissing all other claims of the parties.
The amount of P6,733.33 consigned by the defendant with the Clerk of Court is hereby
ordered delivered to the plaintiffs, as purchase price of the one-third portion of the land in
question.
Plaintiffs are ordered to pay the costs.
SO ORDERED.10
The RTC held that the right of petitioner to purchase from the respondents his share in the
disputed property was recognized by the provisions of the Extrajudicial Settlement of
112 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Estate, which the parties had executed before the respondents bought the subject lot
from the Bank.
Aggrieved by the Decision of the RTC, herein respondents filed an appeal with the CA.
On May 31, 2005, the CA promulgated the presently assailed Decision, reversing and
setting aside the Decision of the RTC and ordering petitioner to immediately surrender
possession of the subject property to the respondents. The CA ruled that when petitioner
and respondents did not redeem the subject property within the redemption period and
allowed the consolidation of ownership and the issuance of a new title in the name of the
Bank, their co-ownership was extinguished.
Hence, the instant petition raising a sole issue, to wit:
WHETHER OR NOT CO-OWNERSHIP AMONG THE PETITIONER AND THE RESPONDENTS
OVER THE PROPERTY PERSISTED/CONTINUED TO EXIST (EVEN AFTER THE TRANSFER OF
TITLE TO THE BANK) BY VIRTUE OF THE PARTIES' AGREEMENT PRIOR TO THE REPURCHASE
THEREOF BY THE RESPONDENTS; THUS, WARRANTING THE PETITIONER'S ACT OF
ENFORCING THE AGREEMENT BY REIMBURSING THE RESPONDENTS OF HIS
(PETITIONER'S) JUST SHARE OF THE REPURCHASE PRICE.11
The main issue raised by petitioner is whether co-ownership by him and respondents over
the subject property persisted even after the lot was purchased by the Bank and title
thereto transferred to its name, and even after it was eventually bought back by the
respondents from the Bank.
Petitioner insists that despite respondents' full knowledge of the fact that the title over
the disputed property was already in the name of the Bank, they still proceeded to
execute the subject Extrajudicial Settlement, having in mind the intention of purchasing
back the property together with petitioner and of continuing their co-ownership thereof.
Petitioner posits that the subject Extrajudicial Settlement is, in and by itself, a contract
between him and respondents, because it contains a provision whereby the parties
agreed to continue their co-ownership of the subject property by "redeeming" or
"repurchasing" the same from the Bank. This agreement, petitioner contends, is the law
between the parties and, as such, binds the respondents. As a result, petitioner asserts
that respondents' act of buying the disputed property from the Bank without notifying him
inures to his benefit as to give him the right to claim his rightful portion of the property,
comprising 1/3 thereof, by reimbursing respondents the equivalent 1/3 of the sum they
paid to the Bank.
The Court is not persuaded.
Petitioner and respondents are arguing on the wrong premise that, at the time of the
execution of the Extrajudicial Settlement, the subject property formed part of the estate
of their deceased father to which they may lay claim as his heirs.
At the outset, it bears to emphasize that there is no dispute with respect to the fact that
the subject property was exclusively owned by petitioner and respondents' father, Rufo,
at the time that it was mortgaged in 1979. This was stipulated by the parties during the
hearing conducted by the trial court on October 28, 1996. 12 Evidence shows that a
Definite Deed of Sale13 was issued in favor of the Bank on January 25, 1984, after the
period of redemption expired. There is neither any dispute that a new title was issued in
the Bank's name before Rufo died on July 6, 1984. Hence, there is no question that the
Bank acquired exclusive ownership of the contested lot during the lifetime of Rufo.
The rights to a person's succession are transmitted from the moment of his death.14 In
addition, the inheritance of a person consists of the property and transmissible rights and
obligations existing at the time of his death, as well as those which have accrued thereto
since the opening of the succession.15 In the present case, since Rufo lost ownership of
the subject property during his lifetime, it only follows that at the time of his death, the
disputed parcel of land no longer formed part of his estate to which his heirs may lay
claim. Stated differently, petitioner and respondents never inherited the subject lot from
their father.
Petitioner and respondents, therefore, were wrong in assuming that they became coowners of the subject lot. Thus, any issue arising from the supposed right of petitioner as
113 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

co-owner of the contested parcel of land is negated by the fact that, in the eyes of the
law, the disputed lot did not pass into the hands of petitioner and respondents as
compulsory heirs of Rufo at any given point in time.
The foregoing notwithstanding, the Court finds a necessity for a complete determination
of the issues raised in the instant case to look into petitioner's argument that the
Extrajudicial Settlement is an independent contract which gives him the right to enforce
his right to claim a portion of the disputed lot bought by respondents.1avvphi1
It is true that under Article 1315 of the Civil Code of the Philippines, contracts are
perfected by mere consent; and from that moment, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
Article 1306 of the same Code also provides that the contracting parties may establish
such stipulations, clauses, terms and conditions as they may deem convenient, provided
these are not contrary to law, morals, good customs, public order or public policy.
In the present case, however, there is nothing in the subject Extrajudicial Settlement to
indicate any express stipulation for petitioner and respondents to continue with their
supposed co-ownership of the contested lot.
On the contrary, a plain reading of the provisions of the Extrajudicial Settlement would
not, in any way, support petitioner's contention that it was his and his sibling's intention
to buy the subject property from the Bank and continue what they believed to be coownership thereof. It is a cardinal rule in the interpretation of contracts that the intention
of the parties shall be accorded primordial consideration. 16 It is the duty of the courts to
place a practical and realistic construction upon it, giving due consideration to the
context in which it is negotiated and the purpose which it is intended to serve.17 Such
intention is determined from the express terms of their agreement, as well as their
contemporaneous and subsequent acts.18 Absurd and illogical interpretations should also
be avoided.19
For petitioner to claim that the Extrajudicial Settlement is an agreement between him and
his siblings to continue what they thought was their ownership of the subject property,
even after the same had been bought by the Bank, is stretching the interpretation of the
said Extrajudicial Settlement too far.
In the first place, as earlier discussed, there is no co-ownership to talk about and no
property to partition, as the disputed lot never formed part of the estate of their
deceased father.
Moreover, petitioner's asseveration of his and respondents' intention of continuing with
their supposed co-ownership is negated by no less than his assertions in the present
petition that on several occasions he had the chance to purchase the subject property
back, but he refused to do so. In fact, he claims that after the Bank acquired the disputed
lot, it offered to re-sell the same to him but he ignored such offer. How then can petitioner
now claim that it was also his intention to purchase the subject property from the Bank,
when he admitted that he refused the Bank's offer to re-sell the subject property to him?
In addition, it appears from the recitals in the Extrajudicial Settlement that, at the time of
the execution thereof, the parties were not yet aware that the subject property was
already exclusively owned by the Bank. Nonetheless, the lack of knowledge on the part of
petitioner and respondents that the mortgage was already foreclosed and title to the
property was already transferred to the Bank does not give them the right or the
authority to unilaterally declare themselves as co-owners of the disputed property;
otherwise, the disposition of the case would be made to depend on the belief and
conviction of the party-litigants and not on the evidence adduced and the law and
jurisprudence applicable thereto.
Furthermore, petitioner's contention that he and his siblings intended to continue their
supposed co-ownership of the subject property contradicts the provisions of the subject
Extrajudicial Settlement where they clearly manifested their intention of having the
subject property divided or partitioned by assigning to each of the petitioner and
respondents a specific 1/3 portion of the same. Partition calls for the segregation and
conveyance of a determinate portion of the property owned in common. It seeks a
severance of the individual interests of each co-owner, vesting in each of them a sole
114 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

estate in a specific property and giving each one a right to enjoy his estate without
supervision or interference from the other.20 In other words, the purpose of partition is to
put an end to co-ownership,21 an objective which negates petitioner's claims in the
present case.
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of
Appeals, dated May 31, 2005 in CA-G.R. CV No. 58041, is AFFIRMED.
SO ORDERED
G.R. No. 168692

December 13, 2010

FRANCISCO TAYCO, substituted by LUCRESIA TAYCO and NOEL TAYCO, Petitioners,

vs.
Heirs Of Concepcion Tayco-Flores, namely: LUCELI F. DIAZ, RONELE F. BESA,
MONELE FLORES, PERLA FLORES, RUPERTO FLORES, WENCESLAO FLORES,
PURISIMA FLORES, and FELIPE FLORES,Respondents.
DECISION
PERALTA, J.:
For this Court's consideration is a petition for review on certiorari1 under Rule 45 of the
Rules of Court seeking the reversal of the Court of Appeals' Decision 2 dated November 17,
2004 and the reinstatement of the Regional Trial Court's Decision3 dated October 2, 2001.
The records contain the following facts:
Upon the death of the spouses Fortunato Tayco and Diega Regalado, their children,
petitioner Francisco Tayco, Concepcion Tayco-Flores and Consolacion Tayco inherited the
following parcels of land:
1. A parcel of land (Lot 1902pt.), situated at Buswang New, Kalibo, Aklan with the
area of 9,938 square meters, bounded on the NE by Lots 1848 & 1905; on the SE by
Lots 1903 & 1904; on the NW by Lots 1895, 1887, 1890 and 1808, covered by OCT
No. (24360) RO-1569 under ARP/TD No. 01025 in the name of Diega Regalado with
assessed value of P15,210.00;
2. A parcel of land (Lot 1896), situated at Buswang New, Kalibo, Aklan, with the
area of 2,123 square meters, bounded on the NE by Lot 1898-C; on the SE by Lot
1897; on the SW by New Provincial Road; and on the NW by Lot 1893, covered by
OCT No. (24101) RO-1570, under ARP/TD No. 01087 & 01088 in the name of Diega
Regalado with assessed value of P6,910.00; and
3. A parcel of land (Lot 2960), situated at Andagao, Kalibo, Aklan, with the area of
4,012 square meters, bounded on the NE by Lot 2957-J; on the SE by Lot 2961-H;
on the SW by Lot 2660; and on the NW by Lot 2656, covered by OCT No. (23813)
RO-1563, under ARP/TD No. 01782 in the name of Diega Regalado with assessed
value of P4,820.00.4
Sometime in September of 1972, petitioner Francisco Tayco and his sister Consolacion
Tayco executed a document called Deed of Extrajudicial Settlement of the Estate of the
Deceased Diega Regalado with Confirmation of Sale of Shares,5 transferring their shares
on the abovementioned properties to their sister Concepcion Tayco-Flores. The said
document was notarized and, on March 16, 1991, Concepcion Tayco-Flores and
Consolacion Tayco executed the Confirmation of Quitclaim of Shares in Three (3) Parcels
of Land.6
Consolacion Tayco died on December 25, 1996 and Concepcion Tayco-Flores died on
January 14, 1997. Thereafter, petitioner Francisco Tayco filed a case for nullity of
documents and partition with damages with the RTC of Kalibo, Aklan claiming that the
Deed of Extrajudicial Settlement of the Estate of the Deceased Diega Regalado with
Confirmation of Sale of Shares and the Confirmation of Quitclaim of Shares in three (3)
Parcels of Land are null and void; thus, he is still entitled to his original shares in the
parcels of land. According to him, the Deed of Extrajudicial Settlement was executed at
that time, because Concepcion Tayco-Flores was in need of money and wanted the
properties to be mortgaged in a bank. He claimed that the mortgage did not push
115 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

through and that he requested his sister to cancel the said Deed, to which the latter
ensured that the same document had no effect. However, he further claimed that without
his knowledge and consent, her sisters Concepcion and Consolacion executed another
document entitled Confirmation of Quitclaim of Shares in three (3) Parcels of Land in
order to have the tax declarations and certificates of title covering those three parcels of
land transferred in the name of Concepcion. He also alleged that he came to know of the
said facts only when he had the property surveyed for the purpose of partition and some
of the heirs of Concepcion objected to the said survey.
The RTC ruled in favor of petitioner Francisco Tayco, the dispositive portion of the decision
reads:
WHEREFORE, the Court finds that the preponderance of evidence tilts in favor of the
plaintiff and judgment is hereby rendered:
a) Declaring the document entitled, Extrajudicial Settlement of the Estate of the
Deceased Diega Regalado with Confirmation of Sale of Shares (Annex A,
Complaint), and the document entitled Confirmation of Quitclaim of Shares in Three
(3) Parcels of Land (Annex B, Complaint), as null and void;
b) Declaring the three (3) parcels of land subject of the above documents to be coowned by the plaintiff ( share) and defendants ( share);
c) Ordering the parties to submit to the court a Project of Partition indicating the
specific portion allotted to them within 30 days from receipt of this decision; in case
of disagreement, the Court shall order the sale of all the three (3) parcels with the
proceeds to be divided equally between plaintiff on the one hand and the
defendants on the other;
d) Ordering the defendants to pay the plaintiff the sum of P10,000.00 representing
litigation expenses, andP5,000.00 as attorney's fees, plus cost.
e) The claim for moral and exemplary damages are hereby denied.
SO ORDERED.7
In ruling that the assailed documents were null and void, the RTC ratiocinated that the
extrajudicial settlement is a simulated document to make it appear that Concepcion
Tayco-Flores was the owner of the properties, so that it would be easy for her to use the
same as a collateral for a prospective loan and as evidence disclosed that the intended
loan with any financial institution did not materialize, hence, the document had no more
effect. Consequently, according to the trial court, since the first document was simulated
and had no force and effect, the second document had no more purpose and basis.
The respondent-heirs appealed the decision of the RTC to the Court of Appeals, and on
November 17, 2004, the latter reversed the former's ruling, disposing it in the following
manner:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us
REVERSING the assailed decision of the lower court and a new one entered declaring
defendants-appellants absolute owners of Lot Nos. 1902, 1896 and 2620. The complaint
of plaintiff-appellee is dismissed.
SO ORDERED.8
In reversing the trial court's findings, the CA reasoned out that the genuineness and due
execution of the Extrajudicial Settlement was not disputed and was duly signed by the
parties and notarized. It added that the recital of the provisions of the said document is
clear that it is an extrajudicial settlement of the estate of deceased Diega Regalado and
that petitioner and his sister Consolacion confirmed the sale of their shares to
Concepcion.
Petitioner filed a Motion for Reconsideration, 9 but was denied10 by the same court. Thus,
the present petition.
The petitioner raised this lone issue:
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CAN THE DEED OF EXTRAJUDICIAL SETTLEMENT OF THE ESTATE OF THE DECEASED DIEGA
REGALADO WITH CONFIRMATION OF SALE OF SHARES DIVEST CO-HEIR AND CO-OWNER
FRANCISCO TAYCO OF HIS SHARES IN THE THREE (3) PARCELS OF LAND IN QUESTION? 11
Under question is the validity of the document that contains the extrajudicial settlement
of the estate of the deceased, Diega Regalado. The trial court ruled that it is null and void
based on its assessment of the facts, while the CA adjudged it valid based on its
examination of the said document. Under Section 1, Rule 45, providing for appeals by
certiorari before the Supreme Court, it is clearly enunciated that only questions of law
may be set forth.12 Questions of fact may not be raised unless the case falls under any of
the following exceptions:13
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2)
when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of fact are conflicting; (6) when in making its findings the Court of
Appeals went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are contrary to those
of the trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioners main and reply briefs are not disputed by the respondent; and (10) when
the findings of fact are premised on the supposed absence of evidence and contradicted
by the evidence on record.
This case clearly falls under one of the exceptions and after a careful review of the facts
of the case, this Court finds the petition meritorious.
Section 1, Rule 74 of the Rules of Court provides:
If the decedent left no will and no debts and the heirs are all of age, or the minors are
represented by their judicial or legal representatives duly authorized for the purpose, the
parties may, without securing letters of administration, divide the estate among
themselves as they see fit by means of a public instrument filed in the office of the
register of deeds, and should they disagree, they may do so in an ordinary action for
partition. x x x.
The fact of the extrajudicial settlement or administration shall be published in a
newspaper of general circulation in the manner provided in the next succeeding
section; but no extrajudicial settlement shall be binding upon any person who has not
participated therein or had no notice thereof.
xxxx
Notarization of the deed of extrajudicial settlement has the effect of making it
a public document14 that can bind third parties. However, this formal requirement
appears to be superseded by the substantive provision of the Civil Code that states:
ART. 1082. Every act which is intended to put an end to indivision among co-heirs and
legatees or devisees is deemed to be a partition, although it should purport to be a sale,
an exchange, a compromise, or any other transaction.
By this provision, it appears that when a co-owner sells his inchoate right in the coownership, he expresses his intention to "put an end to indivision among (his) co-heirs."
Partition among co-owners may thus be evidenced by the overt act of a co-owner of
renouncing his right over the property regardless of the form it takes. x x x15
The trial court, after a keen determination of the facts involved in the case, clearly
articulated its findings as to the inconclusiveness of the required publication and the
notarization of the document purportedly containing the extrajudicial settlement in
question, thus:
At the outset, the document, Exhibit A, was executed at Lezo, Aklan which is about ten
kilometers from Kalibo where all the parties are residents. Defendant had to hire a tricycle
from Kalibo to bring the parties to Lezo. Assuming that a certain Engr. Reynaldo Lopez
was helping the defendants at that time in this transaction, he is also a resident of Kalibo,
Aklan which is the center of Aklan where almost all the lawyers have their offices. Engr.
Lopez has also his office here. Why would he still recommend the execution of this
117 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

document particularly in Lezo and before that particular alleged Notary Public? This
sounds incredible.
Defendants alleged that the document was published in a newspaper of general
circulation of Aklan but no affidavit of such publication was presented. Only an alleged
receipt from Engr. Lopez was presented (Exh. 2) but does not prove its purpose. 16
The above findings of fact of the trial court must be accorded respect. It is a hornbook
doctrine that the findings of fact of the trial court are entitled to great weight on appeal
and should not be disturbed except for strong and valid reasons, because the trial court is
in a better position to examine the demeanor of the witnesses while testifying. It is not a
function of this Court to analyze and weigh evidence by the parties all over again. 17
Anent the true intent of the signatories of the questioned document appearing to be an
extrajudicial settlement of an estate, the trial court found the following facts:
Plaintiff alleged that Exhibit A was executed just to accommodate his sister Concepcion
Tayco to be able to offer as collateral the property in order to raise money for the
marriage of her son Ruperto Flores. But the property was never encumbered because it
was then Martial Law (TSN, 10/14/98, pp. 3-4; 5/6/99, pp. 5-6). This testimony of the
plaintiff was never rebutted or denied by the defendant, Ruperto Flores, who himself
testified for the defendants. In fact, he even admitted that he got married after the
execution of Exhibit A (TSN, 2/16/01, pp. 15-16). This allegation by the plaintiff, therefore,
must stand.
Defendants argue that if their intention was to mortgage the property in raising money,
there was no need for the execution of Exhibit A but only a Special Power of Attorney
would suffice. This would be the quickest way if the bank would be amenable, but the
latter would be more protected if the title of the property are already transferred in the
name of the mortgagor. For them, it has only to rely on the certificate of tile if it decides
to deal with it.18
An extrajudicial settlement is a contract and it is a well-entrenched doctrine that the law
does not relieve a party from the effects of a contract, entered into with all the required
formalities and with full awareness of what he was doing, simply because the contract
turned out to be a foolish or unwise investment.19 However, in the construction or
interpretation of an instrument, the intention of the parties is primordial and is to be
pursued.20 If the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control. 21 If the
contract appears to be contrary to the evident intentions of the parties, the latter shall
prevail over the former.22 The denomination given by the parties in their contract is not
conclusive of the nature of the contents.23 In this particular case, the trial court, based on
its appreciation of the pieces of evidence presented, rightfully concluded that the intent
of the signatories was contrary to the questioned document's content and
denomination.1avvphi1
Furthermore, the trial court, before stating its final conclusion as to the nullity of the
document in question, correctly discussed the lack of consideration in so far as that part
of the document which embodies the confirmation of the sale of shares of siblings
Francisco and Consolacion to Concepcion. Thus:
The consideration of P50.00 for a 1/3 share of about 16,000 sq. meters real property in
Kalibo, Aklan even way back in 1972 is definitely way below the market value. Even if we
take into consideration the filial love between siblings (Jocson v. CA, 170 SCRA 233), still,
the difference between the market value then and the purchase price is very great. Even
for a market value of P1,000.00, a consideration of P50.00 only plus filial love would still
be greatly disproportionate. Certainly, the 1/3 share of plaintiff exceeds P1,000.00. The
filial love between siblings may affect the discrepancy only if the difference
between the market value over the selling price is slight. (ibid.). It would appear,
therefore, that Exhibit A is merely a simulated document to make it appear that
Concepcion Tayco-Flores is the owner of the properties so that it will be easy for her to
use the same as collateral for a prospective loan. Should the encumbrance not
materialize or if it did after the obligation thereunder has been paid, the document shall
become null and void and without effect. As the evidence disclosed that the intended
loan with any financial institution did not materialize, hence, immediately thereafter, the
document had no more effect.24
118 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

As to the other questioned document or the Confirmation of Quitclaim of Shares in Three

Parcels of Land, the nullity of the first document renders it void because its effectivity is
anchored on the validity of the first document. The Confirmation of Quitclaim of Shares in
Three Parcels of Land came into fruition merely to confirm the existence of the first
document. It was executed on March 16, 1991, when petitioner Francisco Tayco was still
alive. Nevertheless, the said document was signed only by Consolacion and Concepcion,
which prompted the trial court to make the following observations:
As to Exhibit B, it is surprising why only the two sisters participated in its execution while
the plaintiff who is still very much alive and also a resident of New Buswang, Kalibo, Aklan
was excluded. This document is a confirmation of the execution of Exhibit A where the
plaintiff is a party. The plaintiff would have also been made a party to this document so
that he could have confirmed the sale of his share had it been so. Could it be, therefore,
that defendants did not want the plaintiff to know this document so that they can obtain
the transfer of the titles and the tax declarations in their names without his knowledge?
Unfortunately, however, plaintiff accidentally discovered the transfer when he tried to
survey the property for ultimate partition.25
To reiterate, in the exercise of the Supreme Courts power of review, this Court is not a
trier of facts, and unless there are excepting circumstances, it does not routinely
undertake the re-examination of the evidence presented by the contending parties during
the trial of the case.26 The CA, therefore, erred in disregarding the factual findings of the
trial court without providing any substantial evidence to support its own findings.
WHEREFORE, the petition for review on certiorari is hereby GRANTED. Consequently,
the Court of Appeals' Decision dated November 17, 2004 is REVERSED and SET
ASIDE and the Decision of the Regional Trial Court of Kalibo, Aklan, Branch 9, dated
October 2, 2001, is UPHELD and REINSTATED.
SO ORDERED.
G.R. No. 169055

February 22, 2012

SPOUSES JOSE and MILAGROS VILLACERAN and FAR EAST BANK & TRUST
COMPANY, Petitioners,
vs.
JOSEPHINE DE GUZMAN, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari assailing the November 26, 2004
Decision1 and June 29, 2005 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
71831. The CA had affirmed with modification the Decision3 of the Regional Trial Court
(RTC), Branch 24, of Echague, Isabela, in Civil Case No. 24-0495 entitled "Josephine De
Guzman vs. Spouses Jose and Milagros Villaceran, et al."
The antecedent facts follow:
Josephine De Guzman filed a Complaint4 with the RTC of Echague, Isabela against the
spouses Jose and Milagros Villaceran and Far East Bank & Trust Company (FEBTC),
Santiago City Branch, for declaration of nullity of sale, reconveyance, redemption of
mortgage and damages with preliminary injunction. The complaint was later amended to
include annulment of foreclosure and Sheriffs Certificate of Sale.
In her Amended Complaint,5 De Guzman alleged that she is the registered owner of a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-236168, 6 located in
Echague, Isabela, having an area of 971 square meters and described as Lot 8412-B of
the Subdivision Plan Psd-93948. On April 17, 1995, she mortgaged the lot to the
Philippine National Bank (PNB) of Santiago City to secure a loan of P600,000. In order to
secure a bigger loan to finance a business venture, De Guzman asked Milagros Villaceran
to obtain an additional loan on her behalf. She executed a Special Power of Attorney in
favor of Milagros. Considering De Guzmans unsatisfactory loan record with the PNB,
Milagros suggested that the title of the property be transferred to her and Jose Villaceran
and they would obtain a bigger loan as they have a credit line of up to P5,000,000 with
the bank.
119 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

On June 19, 1996, De Guzman executed a simulated Deed of Absolute Sale7 in favor of
the spouses Villaceran. On the same day, they went to the PNB and paid the amount
of P721,891.67 using the money of the spouses Villaceran. The spouses Villaceran
registered the Deed of Sale and secured TCT No. T-257416 8 in their names. Thereafter,
they mortgaged the property with FEBTC Santiago City to secure a loan of P1,485,000.
However, the spouses Villaceran concealed the loan release from De Guzman. Later,
when De Guzman learned of the loan release, she asked for the loan proceeds less the
amount advanced by the spouses Villaceran to pay the PNB loan. However, the spouses
Villaceran refused to give the money stating that they are already the registered owners
of the property and that they would reconvey the property to De Guzman once she
returns theP721,891.67 they paid to PNB.9
De Guzman offered to pay P350,000 provided that the spouses Villaceran would execute
a deed of reconveyance of the property. In view of the simulated character of their
transaction, the spouses Villaceran executed a Deed of Absolute Sale10 dated September
6, 1996 in favor of De Guzman. They also promised to pay their mortgage debt with
FEBTC to avoid exposing the property to possible foreclosure and auction sale. However,
the spouses Villaceran failed to settle the loan and subsequently the property was
extrajudicially foreclosed. A Sheriffs Certificate of Sale was issued in favor of FEBTC for
the amount of P3,594,000. De Guzman asserted that the spouses Villaceran should be
compelled to redeem their mortgage so as not to prejudice her as the real owner of the
property.11
On the other hand, the spouses Villaceran and FEBTC, in their Amended Answer, 12 averred
that in 1996 De Guzman was introduced to Milagros by a certain Digna Maranan. Not long
afterwards, De Guzman requested Milagros to help her relative who had a loan obligation
with the PNB in the amount of P300,000. As a consideration for the accommodation, De
Guzman would convey her property located at Maligaya, Echague, Isabela which was then
being held in trust by her cousin, Raul Sison. Because of this agreement, Milagros paid De
Guzmans obligation with the PNB in the amount of P300,000.
When Milagros asked for the title of the lot, De Guzman explained that her cousin would
not part with the property unless he is reimbursed the amount of P200,000 representing
the amount he spent tilling the land. Milagros advanced the amount of P200,000 but De
Guzmans cousin still refused to reconvey the property. In order for De Guzman to settle
her obligation, she offered to sell her house and lot in Echague, Isabela. At first, Milagros
signified her non-interest in acquiring the same because she knew that it was mortgaged
with the PNB Santiago forP600,000. De Guzman proposed that they will just secure a
bigger loan from another bank using her house and lot as security. The additional amount
will be used in settling De Guzmans obligation with PNB. Later, De Guzman proposed
that she borrow an additional amount from Milagros which she will use to settle her loan
with PNB. To this request, Milagros acceded. Hence, they went to the PNB and paid in full
De Guzmans outstanding obligation with PNB which already reached P880,000.13
Since De Guzmans total obligation already reached P1,380,000, the spouses Villaceran
requested her to execute a deed of absolute sale over the subject property in their favor.
Thus, the Deed of Absolute Sale is supported by a valuable consideration, and the
spouses Villaceran became the lawful owners of the property as evidenced by TCT No.
257416 issued by the Office of the Register of Deeds of Isabela. Later, they mortgaged
the property to FEBTC for P1,485,000.
The spouses Villaceran denied having executed a deed of conveyance in favor of De
Guzman relative to the subject property and asserted that the signatures appearing on
the September 6, 1996 Deed of Sale, which purported to sell the subject property back to
De Guzman, are not genuine but mere forgeries.14
After due proceedings, the trial court rendered its decision on September 27, 2000.
The RTC ruled that the Deed of Sale dated June 19, 1996 executed by De Guzman in favor
of the spouses Villaceran covering the property located in Echague, Isabela was valid and
binding on the parties. The RTC ruled that the said contract was a relatively simulated
contract, simulated only as to the purchase price, but nonetheless binding upon the
parties insofar as their true agreement is concerned. The RTC ruled that De Guzman
executed the Deed of Absolute Sale dated June 19, 1996 so that the spouses Villaceran
may use the property located in Echague, Isabela as collateral for a loan in view of De
Guzmans need for additional capital to finance her business venture. The true
consideration for the sale, according to the RTC, was the P300,000 the spouses Villaceran
120 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

gave to De Guzman plus the P721,891.67 they paid to PNB in order that the title to the
subject property may be released and used to secure a bigger loan in another bank.
The RTC also found that although the spouses Villaceran had already mortgaged the
subject property with FEBTC and the title was already in the possession of FEBTC -- which
facts were known to De Guzman who even knew that the loan proceeds amounting
to P1,485,000 had been released -- the spouses Villaceran were nonetheless still able to
convince De Guzman that they could still reconvey the subject property to her if she pays
the amount they had paid to PNB. The RTC found that the Deed of Sale dated September
6, 1996 was actually signed by the spouses Villaceran although De Guzman was able to
pay only P350,000, which amount was stated in said deed of sale as the purchase price.
The RTC additionally said that the spouses Villaceran deceived De Guzman when the
spouses Villaceran mortgaged the subject property with the understanding that the
proceeds would go to De Guzman less the amounts the spouses had paid to PNB. Hence,
according to the RTC, the spouses Villaceran should return to De Guzman (1)
the P350,000 which she paid to them in consideration of the September 6, 1996 Deed of
Sale, which sale did not materialize because the title was in the possession of FEBTC; and
(2) the amount of P763,108.33 which is the net proceeds of the loan after deducting
the P721,891.67 that the spouses paid to PNB. Thus, the decretal portion of the RTC
decision reads:
WHEREFORE, judgment is hereby rendered as follows:
a) declaring the Deed of Sale, dated June 1996 (Exhibit "B") as valid and binding;
b) ordering defendants Villaceran to pay to plaintiff the amount of P763,108.33 and
P350,000.00 or the total amount of P1,113,108.33 plus the legal rate of interest
starting from the date of the filing of this case;
c) declaring the Extrajudicial Foreclosure and the Certificate of Sale as valid;
d) ordering defendants Villaceran to pay attorneys fees in the amount of
P20,000.00 and to pay the costs of suit.
SO ORDERED.15
Aggrieved, the spouses Villaceran appealed to the CA arguing that the trial court erred in
declaring the June 19, 1996 Deed of Sale as a simulated contract and ordering them to
pay De Guzman P1,113,108.33 plus legal rate of interest and attorneys fees.16
On November 26, 2004, the CA rendered its Decision, the dispositive portion of which
reads as follows:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby AFFIRMED with
MODIFICATION, to read as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Declaring the Deed of Sale dated June 16, 1996 (Exh. "B") and September 6,
1996, as not reflective of the true intention of the parties, as the same were merely
executed for the purpose of the loan accommodation in favor of the plaintiffappellee by the defendants-appellants;
2. Ordering defendants-appellants Villaceran to pay plaintiff-appellee the difference
between the FEBTCloan of P1,485,000.00 less P721,891.67 (used to redeem
the PNB loan), plus legal interest thereon starting from the date of the filing of this
case;
3. Declaring the extrajudicial foreclosure and certificate of sale in favor of FEBTC, as
valid; and
4. For the appellants to pay the costs of the suit.
SO ORDERED.17
The CA ruled that the RTC was correct in declaring that there was relative simulation of
contract because the deeds of sale did not reflect the true intention of the parties. It
121 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

found that the evidence established that the documents were executed for the purpose of
an agency to secure a higher loan whereby the spouses Villaceran only accommodated
De Guzman. However, the CA did not find any evidence to prove that De Guzman actually
parted away with the P350,000 as consideration of the reconveyance of the property.
Thus, it held the trial court erred in ordering the spouses Villaceran to return
the P350,000 to De Guzman.
Furthermore, the CA observed that the spouses Villaceran were the ones who redeemed
the property from the mortgage with PNB by paying P721,891.67 so that De Guzmans
title could be released. Once registered in their name, the spouses Villaceran mortgaged
the property with FEBTC for P1,485,000. With the loan proceeds ofP1,485,000, there was
no need for the spouses Villaceran to demand for the return of the P721,891.67 they paid
in releasing the PNB loan before the property is reconveyed to De Guzman. All they had
to do was to deduct the amount of P721,891.67 from the P1,485,000 FEBTC loan
proceeds. Hence, the CA ruled that only the balance of the P1,485,000 loan proceeds
from FEBTC minus the P721,891.67 used to redeem the PNB loan should be paid by the
spouses Villaceran to De Guzman. The CA also deleted the grant of attorneys fees for
lack of factual, legal or equitable justification.
On December 22, 2004, the spouses Villaceran filed a motion for reconsideration of the
foregoing decision. Said motion, however, was denied for lack of merit by the CA in its
Resolution dated June 29, 2005. Hence, this appeal.
In their petition for review on certiorari, the spouses Villaceran allege that:
1. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS
DISCRETION IN DECLARING THE DEED OF SALE DATED JUNE 19, 1996 AS
SIMULATED AND THAT THE SAME WAS MERELY EXECUTED FOR THE PURPOSE OF
THE LOAN ACCOMODATION OF PETITIONERS VILLACERAN IN FAVOR OF THE
RESPONDENT DE GUZMAN INSTEAD OF DECLARING SAID DEED AS A VALID DEED
OF ABSOLUTE SALE, THE CONTENTS OF WHICH ARE CLEARLY REFLECTIVE OF THEIR
TRUE INTENTION TO ENTER INTO A CONTRACT OF SALE AND NOT OTHERWISE, IN
DIRECT CONTRAVENTION OF THE RULES ON EVIDENCE AND OF THE ADMISSIONS OF
THE PARTIES AND THE HONORABLE COURTS RULINGS OR JURISPRUDENCE ON THE
MATTER; AND
2. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS
DISCRETION IN ORDERING PETITIONERS VILLACERAN TO PAY RESPONDENT DE
GUZMAN THE DIFFERENCE BETWEEN THE FAR EAST BANK AND TRUST COMPANY
(FEBTC) LOAN OF PHP1,485,000.00 LESS P721,891.67 (USED TO PAY THE PHILIPPINE
NATIONAL BANK [PNB] LOAN) PLUS LEGAL INTEREST THEREON AND TO PAY THE
COSTS OF SUIT.18
Essentially, the issue for our resolution is whether the CA erred in ruling that the Deed of
Sale dated June 19, 1996 is a simulated contract and not a true sale of the subject
property.
Petitioners contend that the previous loans they extended to De Guzman in the amounts
of P300,000, P600,000 and P200,000 should have been considered by the CA. When
added to the P721,891.67 used to settle the PNB loan, De Guzmans total loan obtained
from them would amount to P1,821,891.67. Thus, it would clearly show that the Deed of
Sale dated June 19, 1996, being supported by a valuable consideration, is not a simulated
contract.
We do not agree.
Article 134519 of the Civil Code provides that the simulation of a contract may either be
absolute or relative. In absolute simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it. The main characteristic of
an absolute simulation is that the apparent contract is not really desired or intended to
produce legal effect or in any way alter the juridical situation of the parties.20 As a result,
an absolutely simulated or fictitious contract is void, and the parties may recover from
each other what they may have given under the contract. However, if the parties state a
false cause in the contract to conceal their real agreement, the contract is only relatively
simulated and the parties are still bound by their real agreement. Hence, where the
essential requisites of a contract are present and the simulation refers only to the content
122 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

or terms of the contract, the agreement is absolutely binding and enforceable between
the parties and their successors in interest.21
The primary consideration in determining the true nature of a contract is the intention of
the parties. If the words of a contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and subsequent acts of the
parties.22 In the case at bar, there is a relative simulation of contract as the Deed of
Absolute Sale dated June 19, 1996 executed by De Guzman in favor of petitioners did not
reflect the true intention of the parties.
It is worthy to note that both the RTC and the CA found that the evidence established that
the aforesaid document of sale was executed only to enable petitioners to use the
property as collateral for a bigger loan, by way of accommodating De Guzman. Thus, the
parties have agreed to transfer title over the property in the name of petitioners who had
a good credit line with the bank. The CA found it inconceivable for De Guzman to sell the
property for P75,000 as stated in the June 19, 1996 Deed of Sale when petitioners were
able to mortgage the property with FEBTC for P1,485,000. Another indication of the lack
of intention to sell the property is when a few months later, on September 6, 1996, the
same property, this time already registered in the name of petitioners, was reconveyed to
De Guzman allegedly for P350,000.
As regards petitioners assertion that De Guzmans previous loans should have been
considered to prove that there was an actual sale, the Court finds the same to be without
merit. Petitioners failed to present any evidence to prove that they indeed extended loans
to De Guzman in the amounts of P300,000, P600,000 and P200,000. We note that
petitioners tried to explain that on account of their close friendship and trust, they did not
ask for any promissory note, receipts or documents to evidence the loan. But in view of
the substantial amounts of the loans, they should have been duly covered by receipts or
any document evidencing the transaction. Consequently, no error was committed by the
CA in holding that the June 19, 1996 Deed of Absolute Sale was a simulated contract.
The issue of the genuineness of a deed of sale is essentially a question of fact.1wphi1 It
is settled that this Court is not duty-bound to analyze and weigh again the evidence
considered in the proceedings below. This is especially true where the trial courts factual
findings are adopted and affirmed by the CA as in the present case. Factual findings of
the trial court, affirmed by the CA, are final and conclusive and may not be reviewed on
appeal.23
The Court has time and again ruled that conclusions and findings of fact of the trial court
are entitled to great weight and should not be disturbed on appeal, unless strong and
cogent reasons dictate otherwise. This is because the trial court is in a better position to
examine the real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case.24 In sum, the Court finds that there exists no reason to disturb the
findings of the CA.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated
November 26, 2004 and Resolution dated June 29, 2005 of the Court of Appeals in CAG.R. CV No. 71831 are AFFIRMED.
With costs against the petitioners.
SO ORDERED.
Global Resource for Outsourced Workers vs Sps. Velasco GR No 196883 August 22,
2012
G.R. No. 116216 June 20, 1997
NATALIA S. MENDOZA, petitioner,
vs.
COURT OF APPEALS, THOMAS B. ASUNCION and NENA T. ASUNCION, respondents.

PANGANIBAN, J.:
123 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

In this case, the Court reiterates the rule that the provisions of a contract must not be
viewed in isolation, but must be harmonized with each other so as to give effect and
meaning to the entire contract.
On appeal is the Decision 1 of Respondent Court of Appeals 2 in CA-G.R. CV No. 18016
promulgated on August 28, 1992 with the following dispositive portion: 3
WHEREFORE, the trial court's decision appealed from is REVERSED and SET
ASIDE. In lieu thereof, judgment is hereby rendered in favor of appellants
[herein private respondents] and against appellees [herein petitioner and her
(now deceased) husband], ordering appellees to pay appellants the amount
of P584,472.00 representing the unpaid obligation of appellees to appellants
under the promissory note, Exhibit "A", together with legal interest, which is
6% per annum computed from May 23, 1983 (date of filing the complaint)
until the full amount thereof is fully paid, plus ten (10) per cent thereof as
attorney's fees at (sic) the costs of suit.
For lack of merit, the subsequent motion for reconsideration was denied by Respondent
Court of Appeals in a Resolution promulgated on July 11,
1994. 4
The Facts
Respondent appellate court narrated the undisputed facts in this case as follows:

On August 4, 1978 appellees [herein petitioner and her husband] signed a

promissory note dated July 10, 1978, for US$35,000.00 in favor of appellants
[herein private respondents], in Los Angeles, California, U.S.A. The text of the
promissory note is as follows:
PROMISSORY NOTE
$35,000.00
10 July 1978
For value received, the undersigned SERGIO E. MENDOZA, and
NATALIA S. MENDOZA, husband and wife, promise to pay THOMAS
B. and NENA T. ASUNCION, husband and wife, the amount of
$456.00 each month starting on (sic) April, 1978 and 120
consecutive months, thereafter. On (sic) April 1988, the entire
balance of principal and accrued interest then remaining unpaid
shall be due and payable. Should default be made in the payment
of the interest and principal when due, the entire balance of
principal and interest then remaining unpaid shall become
immediately due at the option of the holder of this note.
Principal and interest payable in lawful money of the United
States of America. If action be instituted on this note, the
undersigned promise to pay such sum as the court may fix as
attorney's fees. This note is secured by properties in the
Philippines, the Restaurant at Roxas Blvd., Philippines, business
interests in the United States, life insurances (sic) and shall go to
THOMAS B. and NENA T. ASUNCION.
In Witness Whereof, we hereby sign this promissory note
this 4 day of August, 1978.
SERGI
O E.
MEND
OZA
NATAL
IA S.
MEND
OZA.
124 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

From April, 1978 to December, 1981, appellees made monthly payments on

the promissory note to appellants in the amount of US$500.00 a month or a
total of US$22,500.00. In addition, appellees made payments to appellants'
daughter Helen Asuncion in the amount of US$3,620.17. Also appellees made
payments, apparently also for the benefit of appellants,
in the total amount of US$1,560.00 to Regina Pangan and/or Teresita
Angeles. 6 The payments to Helen Asuncion in the amount of US$3,620.17
and to Regina Pangan and Teresita Angeles in the amount of US$1,560.00 or a
total amount of US$5,180.17 paid to both, were apparently made during the
year 1982. The amount of US$5,180.17 roughly equals a month payment of
US$500.00 from January to October, 1982, a period of ten (10) months. (See
appellants' Exhibit "C-1" and also appellees' Exhibit "2", both of which are
xerox copies of the resume of appellees' payments to appellants from April,
1978 to October, 1982.) In October, 1982, appellees stopped paying the
monthly installments under the promissory note. After October 19, 1982,
appellees made additional payments in 1982 as follows:
October 29, 1982 P500.00 (Exh. "3-a")
November 03, 1982 500.00 (Exh. "3-b")
November 04, 1982 500.00 (Exh. "3-c")
November 14, 1982 500.00 (Exh. "3-d")
November 23, 1982 500.00 (Exh. "e-e")

P2,500.00
=======
The prevailing rate of exchange of the Philippine Pesos to the U.S. Dollar
during the above dates of payment was about P10.00 Philippine Peso to U.S.
$1.00 United States Dollar. The above payments therefore totalled (sic) to
US$250.00.
Subsequently, appellees made three additional payments as follows:
Exh. "3-f" November 30, 1983 P2,000.00
Exh. "3-g" December 30, 1983 2,000.00
Exh. "3-h" January 08, 1984 2,000.00

P6,000.00
=======
The exchange rate during the above dates (November, 1983 to January,
1984) was P14.00 Philippine Pesos to US$1.00 United States Dollar. The total
payment of P6,000.00 was equivalent to about US$430.00.
Thereafter, appellees have not made any other payments to appellants.
After due trial, the trial court rendered its decision dated November 12, 1985,
dismissing the case for lack of cause of action, reasoning out, thus:
From the afore-quoted Promissory Note, it appears that the entire
balance of the principal and accrued interest remaining unpaid
shall become due and payable in April, 1988. It clearly states that
the payment of monthly installment of $456.00 shall commence
in April, 1978 and the succeeding months thereafter for 120
consecutive months, which positively shows that the entire
balance of the principal as well as the accrued interest shall be
due and payable in April, 1988.
WHEREFORE, in view of the foregoing, this case is hereby ordered
DISMISSED for lack of cause of action.
As earlier stated, the Court of Appeals reversed the RTC, holding that the acceleration
clause gave private respondents the right to collect the full amount of the promissory
note. Hence, this petition for review.
The Issues
125 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Petitioner cites the following alleged errors of the Court of Appeals:

I. Respondent Court of Appeals committed serious error when it found that

the obligation of petitioner and her husband under the promissory note
(Exhibit A) is due and demandable.
II. Respondent Court of Appeals committed serious error when it declared
petitioner and her husband liable to respondents for their unpaid obligation
under the promissory note (Exhibit A), with interest and attorney's fees.
III. Respondent Court of Appeals committed serious error when it reversed the
decision of the trial court.
On the other hand, private respondents simplify the issues into two:

1. It is claimed there was no prior extrajudicial demand for the amount of the
promissory note before the action for collection was filed. The issue is
whether, in the absence of the (sic) prior extrajudicial demand, private
respondents can enforce their right under the acceleration clause of the
promissory note for the collection of the entire unpaid balance of the note.
2. Whether respondent Court of Appeals was correct in finding that the
promissory note contained an acceleration clause which gave private
respondents the right to collect the entire balance of the promissory note
upon failure of petitioner to pay the installments on their due dates.
Private respondents also doubt "whether the petition can be given due course at all
considering that the decision sought to be reviewed is already final, (R)espondent Court
of Appeals having made an 'Entry of Judgment' in C.A. G.R. No. CV-18016." 9
In reversing the decision of the RTC, Respondent Court of Appeals ratiocinated:

10

. . . We disagree with the trial court's interpretation. Such interpretation

disregards or nullifies the clear language of the first and third sentences in
the aforequoted first paragraph of the promissory note. The first sentence of
the promissory note is a simple and clear promise of appellees to pay back a
loan of US$35,000.00 made by appellants to them by "paying the amount of
US$456.00 each month starting on (sic) April 1978 and 120 consecutive
months thereafter." The promise cannot possibly be read and interpreted in
any other way. Yet, the trial court did and said in effect that there was no
promise to pay back the loan in 120 consecutive monthly installments of
US$456.00 each installment. In fact the appellees were making monthly
payments of US$500.00 to appellants consisting of US$456.00 as monthly
installment under the promissory note, together with an additional amount of
US$44.00 a month which appellees denominate "advance interest." However,
it is an undisputed fact that the monthly payments by appellees under the
promissory note stopped as of October 19, 1982. Except for the payment of
about US$250.00 under defendants' Exhibit "3-a-3-e", there were no other
payments until the filing of this complaint on May 23, 1983.
The last part of paragraph 1 of the promissory note provides:
Should default be made in the payment of the interest and
principal when due, the entire balance of principal and interest
then remaining unpaid shall become immediately due at the
option of the holder of this note.
The above clause is known as an optional acceleration clause which gives the
holder of the note (creditor) the option to accelerate the maturity date of the
note in case of default of the maker (debtor).
For further clarification, it should be mentioned that the second sentence of
the promissory note means what it says, the principal and accrued interest
still unpaid in April 1988 shall then be due and payable. This sentence simply
recognizes the option or right given to the appellants to waive or defer
collection of the monthly payments when they become due. It did not confer
a right on the appellees to defer payment of their debt till the end of the ten126 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

year period. However, appellants or the promissee, could waive the benefit of
the periodic payments. Thus, as already mentioned, to interpret the second
sentence of the promissory note in isolation would render nugatory the clear
intent of the parties that the debt of the appellees should be repaid in 120
consecutive monthly installments of US$456.00 each installment. Such an
interpretation would also nullify the right or option of the appellants to call in
the entire unpaid balance of the loan, principal and interests, should
appellees fail to pay any installment when it falls due. Basic is the rule that
"In the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect
to all." (Sec. 9, Rule 180 [sic], Rules of Court).
This Court believes that the issues in this case can be condensed as follows:
1. Has the assailed Decision become final and executory?
2. May private respondents use the acceleration clause in the promissory note under the
facts of this case?
3. May the alleged lack of extra-judicial demand for the enforcement of such clause be
raised for the first time before this Court?
The Court's Ruling
The petition has no merit.
First Issue: Finality of the Court of Appeals Decision
Not disputed or denied by petitioner is the fact that there was no valid service upon
Respondent Court of Appeals of the motion for extension of time to file the present
petition. Although the motion for extension 11 carried a registry receipt 12 purportedly sent
to Respondent Court of Appeals, the affidavit of service 13 attached thereto did not state
whether the service was effected by personal delivery, ordinary or registered mail. That
an entry of judgment was effected by the Court of Appeals, on the other hand, indicates
that there was no valid service upon the public respondent of the motion for extension of
time to file a petition for review and that, consequently, the CA Decision has become
final. This is consistent with the presumption of regularity in the performance of duties by
public officers and offices. For this reason alone, the dismissal of this petition is already in
order. There are, however, two other even more cogent reasons showing the petition's
lack of merit.
Second Issue: Application of Acceleration Clause
Petitioner contends that Respondent Court of Appeals "completely disregarded the clear
significance and meaning" of the second sentence of the promissory note. 14 It was
allegedly the intention of the parties to give petitioner and her husband the option "to
pay the balance of the principal and the accrued interest in April 1988" in the event that
they would default in their obligation. 15 According to petitioner, the second sentence in
the promissory note was "stated in a separate and distinct sentence and was necessarily
intended to have a different meaning from its succeeding sentence, and should likewise
be given a different interpretation therefrom." Petitioner argues that Respondent Court of
Appeals did not "give any special meaning to the second sentence nor interpret it
differently." 16
For clarity, we set out the three contested statements in the promissory note, as follows:
1. For value received, the undersigned SERGIO E. MENDOZA and NATALIA S.
MENDOZA, husband and wife, promise to pay THOMAS B. and NENA T.
ASUNCION, husband and wife, the amount of $456.00 each month starting in
April 1978 and 120 consecutive months thereafter.
2. In April 1988, the entire balance of principal and accrued interest then
remaining unpaid shall be due and payable.
3. Should default be made in the payment of the interest and principal when
due, the entire balance of principal and interest then remaining unpaid shall
become immediately due at the option of the holder of this note.
127 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Petitioner argues that even if she defaulted in regularly paying the stipulated monthly
amount, she is given the option to pay the total unpaid installments in April 1988. She
insists that private respondents cannot avail of the third statement since no demand has
been made therefor. Hence, she concludes that only the second statement should cover
the factual situation of the parties.
The contentions of petitioner are unacceptable. Her argument that upon failing to pay
the agreed amounts on the stipulated dates, she can invoke the second statement and,
thus, justify the settlement of the unpaid principal and interest upon the maturity date in
April 1988 is unwarranted under the law and is an isolated, not to say twisted, view of
the promissory note.
Article 1374 of the Civil Code provides that "(t)he various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result from
all of them taken jointly." As ordinarily understood, the first statement stipulates the
month-to-month payment of the principal and the accrued interest. The second
statement provides for the discretionary exercise of leniency by private respondents.
However, a definite deadline is fixed April 1988 when all obligations then unpaid
shall become due and payable. The third statement is solely for the benefit of the private
respondents if ever they choose to accelerate the total amount of the obligations upon
default in the payment of any of the installments. In short, the creditors are given by the
promissory note two options in case of default by the debtor: one, to wait for April 1988
before collecting the unpaid installments; and two, to invoke the acceleration clause and
collect the entire balance immediately without waiting for April 1988. The option is
granted to the creditors (herein private respondents) and not to the debtor (herein
petitioner).
As correctly found by Respondent Court of Appeals, if petitioner were permitted to
enforce only the second statement of the promissory note, the two other provisions
dealing with the payment of monthly installment and optional acceleration clause would
be rendered nugatory. Petitioner's interpretation of the promissory note is one-sided and
beyond what was clearly stipulated in the note. The second sentence can be properly
understood only as granting the creditors herein private respondents a right to
waive or defer collection of the monthly payments when they become due; it cannot be
construed as conferring on the debtor the right to default on the monthly payments.
Furthermore, the Civil Code provides that subsequent or contemporaneous acts of the
contracting parties shall be considered in judging their intention. 17 It should be noted
that every month from April 1978 until October 19, 1982, petitioner faithfully paid the
amount of US$500.00. Such monthly payments show petitioner's concurrence with her
obligation stipulated in the first statement. She cannot later be permitted to renege on
such obligation and to elect a new term of payment. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person relying thereon. 18 A
party cannot be allowed to go back on his/her own acts and representations to the
prejudice of the other party who, in good faith, relied upon them. 19
Third Issue: Lack of Demand
Notwithstanding her insistence on the exclusive application of the second sentence,
petitioner concedes nonetheless that the third sentence of the promissory note gave
private respondents the option to "consider the entire balance of principal and interest
then remaining unpaid immediately due." However, petitioner contends that "such option
had not been exercised by respondents, and if they did, they failed to validly notify
petitioner of this fact to render said option effective." 20
Private respondents, on the other hand, counter that because they "filed a judicial action
for the collection of the amounts due under the promissory note," the question of whether
demand was made has already become moot. Furthermore, the "issue of lack of prior
extrajudicial demand is a question of fact being raised for the first time" in this appeal. 21
Petitioner's position is untenable. In the first place, petitioner and her (now deceased)
husband did not raise this issue before the two lower courts. 22 Settled is the rule that no
question will be entertained on appeal unless it has been raised in the court
below. 23 Points of law, theories, issues and arguments not adequately brought to the
attention of the lower court need not be, and ordinarily will not be, considered by a
reviewing court as they cannot be raised for the first time on appeal. Basic considerations
of due process impel this rule.
128 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Furthermore, whether there was indeed an extrajudicial demand cannot be determined in

this appeal. That issue, being factual, has no place in a petition for review under Rule 45
of the Rules of Court. The jurisdiction of this Court in cases brought to it from the Court in
Appeals is limited to a review and revision of errors of law allegedly committed by the
appellate court. While it is true that there are several exceptions to this
doctrine, 24 petitioner has not shown any justification for the invocation of any.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED in
toto. Costs against petitioner.
SO ORDERED.
G.R. No. 177240

September 8, 2010

PRUDENTIAL GUARANTEE AND ASSURANCE INC., Petitioner,

vs.
ANSCOR LAND, INC., Respondent.
DECISION
VILLARAMA, JR., J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assails the Decision1 dated April 28, 2006 of the Court of Appeals (CA) in CAG.R. SP No. 72854 which modified the Decision2 promulgated on September 2, 2002 by
the Construction Industry Arbitration Commission (CIAC) to the effect that herein
petitioner Prudential Guarantee and Assurance Inc. (PGAI) was declared solidarily liable
with its principal Kraft Realty and Development Corporation (KRDC) under the
performance bond.
The facts follow.
On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC entered into a Construction
Contract3 for the construction of an 8-unit townhouse (project) located in Capitol Hills,
Quezon City.
Under the contract, KRDC was to build and complete the project within 275 continuous
calendar days from the date of receipt of a notice to proceed for the consideration
of P18,800,000.00.
As part of its undertaking, KRDC submitted a surety bond amounting to P4,500,000.00 to
secure the reimbursement of the down payment paid by ALI in case of failure to finish the
project and a performance bond amounting to P4,700,000.00 to guarantee the supply of
labor, materials, tools, equipment, and necessary supervision to complete the project.
The said bonds were issued in favor of ALI by herein petitioner PGAI.
Under the Performance Bond,4 the parties agreed on a time-bar provision which states:
Furthermore, it is hereby agreed and understood that PRUDENTIAL GUARANTEE AND
ASSURANCE INC., shall not be liable for any claim not discovered and presented to the
company within ten days from the expiration of this bond or from the occurrence of the
default or failure of the principal, whichever is the earliest, and that the obligee hereby
waives his right to file any claim against the Surety after the termination of the period of
ten days above mentioned after which time this bond shall definitely terminate and be
deemed absolutely cancelled.
KRDC then received a notice to proceed on November 24, 1999. On October 16, 2000 or
325 days after KRDC received the notice to proceed, and 50 days beyond the contract
date of completion, ALI sent PGAI a letter5notifying the latter that the contract with KRDC
was terminated due to "very serious delays". The letter also informed PGAI that ALI "may
be making claims against the said bonds".
KRDC, through a letter on October 20, 2000, asked ALI to reconsider its decision to
terminate the contract and requested that it be allowed to continue with the project. On
October 27, 2000, ALI replied6 with regrets that it stands by its earlier decision to
terminate the construction contract.
129 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Through a letter7 dated November 29, 2001, or exactly one (1) year after the expiration
date in the performance bond, ALI reiterated its claim against the performance bond
issued by PGAI amounting to P3,852,800.84. PGAI however did not respond to the letter.
On February 7, 2002, ALI commenced arbitration proceedings against KRDC and PGAI in
the CIAC. PGAI answered with cross-claim contending that it was not a party to the
construction contract and that the claim of ALI against the bonds was filed beyond the
expiration period.
On September 2, 2002, the CIAC rendered judgment8 awarding a total of P7,552,632.74
to ALI and a total ofP1,292,487.81 to KRDC. CIAC also allowed the offsetting of the awards
to both parties which resulted to a net amount due to ALI of P6,260,144.93 to be paid by
KRDC. Meanwhile, the CIAC found PGAI liable for the reimbursement of the unliquidated
portion of the down payment as a solidary liability under the surety bond in the amount
of P1,771,264.06.9
In the same judgment, the CIAC absolved PGAI from a claim against the performance
bond. It reasoned that ALI belatedly filed its claim on the performance bond. The CIAC
accepted the view that the November 29, 2001 letter of ALI to PGAI was the first and only
claim on the performance bond, which was filed unquestionably beyond the allowed
period for filing claims under the contract.
The CIAC ruled that the October 16, 2000 letter of ALI to PGAI did not constitute a proper
"claim" under the performance bond. In so ruling, the CIAC relied on the tenor of the
letter which used the phrase "may be making claims against the said bonds". The CIAC
interpreted this phrase as tentative at best and far from a positive claim against PGAI.
According to the CIAC, the letter merely informed PGAI of the termination of the
construction contract between ALI and KRDC and in no sense did such letter present a
valid claim against the performance bond issued by PGAI.
ALI then filed a petition for review on October 3, 200210 with the CA questioning the
decision of the CIAC to release PGAI from its solidary liability on the performance bond.
The CA found the petition meritorious in its questioned Decision11 dated April 28, 2006, to
wit:
WHEREFORE, the petition is GRANTED. The decretal portion of the decision is MODIFIED to
the effect that PGAI is hereby pronounced solidarily liable with KRDC under the
performance bond.
SO ORDERED.12
Petitioner PGAI now comes to this Court to seek relief.
Petitioner argues that the CIAC had no jurisdiction over the dispute as regards the claim
of ALI against the performance bond because petitioner was not a party to the
construction contract. It maintains that Executive Order (EO) No. 100813 did not vest
jurisdiction on the CIAC to settle disputes between a party to a construction contract on
one hand and a non-party on the other.
The petitioner contends that CIACs jurisdiction was limited to the construction industry
and cannot extend to surety or guarantee contracts. By reason of the lack of jurisdiction
of the CIAC over the dispute, the September 2, 2002 judgment14 of the CIAC was void with
regard to the liability of PGAI.
As to the award made by the CIAC on ALIs claims, petitioner maintains that it cannot be
held liable under the performance bond because clearly, under the time-bar provision in
the said bond, the claim made by ALI in its letter to PGAI dated November 29, 2001 was
submitted one (1) year late. Petitioner points out that such letter was the first and only
definite claim that ALI made against the performance bond and unfortunately, it was filed
beyond the allowed period. Hence, the Decision of the CA declaring PGAI solidarily liable
with KRDC under the performance bond is erroneous and should be struck down.
On the other hand, respondent avers that the construction contract itself provided that
the performance and surety bond shall be deemed part of the construction contract, to
wit:
130 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Article 1
CONTRACT DOCUMENTS
1.1 The following shall form part of this Contract and together with this Contract, are
known as the "Contract Documents":
a. Bid Proposal
xxxx
d. Notice to proceed
xxxx
j. Appendices A & B (respectively, Surety Bond for Performance and, Supply of Materials
by the Developer)15
By reason of this express provision in the construction contract, respondent maintains
that petitioner PGAI became a party to such contract when it submitted its Surety and
Performance bonds. Consequently, petitioners argument that CIAC has not acquired
jurisdiction over PGAI because the latter was not a party to the construction contract, is
untenable.
As to the alleged lack of jurisdiction of CIAC over the dispute arising from the surety
contract, respondent cites EO No. 1008, which provides that any dispute connected with a
construction contract comes within the original and exclusive jurisdiction of the CIAC. The
surety bond being an integral part of the construction contract, it is necessarily
connected thereto which brings it under the jurisdiction of the CIAC.
On the issue of timeliness of the "claim", respondent insists that its letter dated October
16, 2000 was for all intents and purposes a notification of termination of the construction
contract and at the same time a notice to petitioner that respondent is in fact making a
claim on the performance bond. Contrary to PGAIs view that the November 29, 2001
letter was the first and only claim made, respondent asserts that the said letter was
merely a reiteration of its earlier October 16, 2000 claim.
In fine, there are two (2) main issues for this Court to resolve, to wit:
I.
Whether or not the CIAC had jurisdiction over the dispute.
II.
Whether or not the respondent made its claim on the performance bond within the period
allowed by the time-bar provision.
First Issue Jurisdiction of the CIAC
Section 4 of EO No. 1008 defines the jurisdiction of the CIAC:
Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction
in the Philippines, whether the dispute arises before or after the completion of the
contract, or after the abandonment or breach thereof. These disputes may involve
government or private contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for
materials and workmanship; violation of the terms of agreement; interpretation and/or
application of contractual time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee
relationships which shall continue to be covered by the Labor Code of the Philippines.
(Italics supplied.)
131 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

EO No. 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes
arising from or connected with construction contracts entered into by parties that have
agreed to submit their dispute to voluntary arbitration. Under the aforequoted provision,
it is apparent that a dispute must meet two (2) requirements in order to fall under the
jurisdiction of the CIAC: first, the dispute must be somehow connected to a construction
contract; and second, the parties must have agreed to submit the dispute to arbitration
proceedings.
As regards the first requirement, the Performance Bond issued by the petitioner was
meant to guarantee the supply of labor, materials, tools, equipment, and necessary
supervision to complete the project. A guarantee or a surety contract under Article
204716 of the Civil Code of the Philippines is an accessory contract because it is
dependent for its existence upon the principal obligation guaranteed by it.17
In fact, the primary and only reason behind the acquisition of the performance bond by
KRDC was to guarantee to ALI that the construction project would proceed in accordance
with the contract terms and conditions. In effect, the performance bond becomes liable
for the completion of the construction project in the event KRDC fails in its contractual
undertaking.
Because of the performance bond, the construction contract between ALI and KRDC is
guaranteed to be performed even if KRDC fails in its obligation. In practice, a
performance bond is usually a condition or a necessary component of construction
contracts. In the case at bar, the performance bond was so connected with the
construction contract that the former was agreed by the parties to be a condition for the
latter to push through and at the same time, the former is reliant on the latter for its
existence as an accessory contract.
Although not the construction contract itself, the performance bond is deemed as an
associate of the main construction contract that it cannot be separated or severed from
its principal. The Performance Bond is significantly and substantially connected to the
construction contract that there can be no doubt it is the CIAC, under Section 4 of EO No.
1008, which has jurisdiction over any dispute arising from or connected with it.
On the second requirement that the parties to a dispute must have previously agreed to
submit to arbitration, it is clear from Article 24 of the Construction Contract itself that the
parties have indeed agreed to submit their disputes to arbitration, to wit:
Article 24
DISPUTES AND ARBITRATION
All disputes, controversies, or differences between the parties arising out of or in
connection with this Contract, or arising out of or in connection with the execution of the
WORK shall be settled in accordance with the procedures laid down by the Construction
Industry Arbitration Commission. The cost of arbitration shall be borne jointly by both
CONTRACTOR and DEVELOPER on a fifty-fifty (50-50) basis.18
Petitioner however argues that such provision in the construction contract does not bind it
because it is not a party to such contract and in effect did not give its consent to submit
to arbitration in case of any dispute on the performance bond. Such argument is
untenable. The Performance Bond issued by petitioner states that PGAI agreed -To guarantee the supply of labor, materials, tools, equipment and necessary supervision
to complete the construction of Proposed Sigma Townhouses of the Obligee as per Notice
to Proceed dated November 23, 1999, copy of which is hereto attached and made an
integral part of this bond.19
When it executed the performance bond, PGAIs undertaking thereunder was that of a
surety to the obligation of KRDC, the principal under the construction contract. PGAI
should not be allowed now to insist that it had nothing to do with the construction
contract and should be viewed as a non-party. Since the liability of petitioner as surety is
solidary with that of KRDC, it was properly impleaded as it would be the party ultimately
answerable under the bond should KRDC be adjudged liable for breach of contract.
Furthermore, it is well settled that accessory contracts should not be read independently
of the main contract. They should be construed together in order to arrive at their true
meaning.20 In Velasquez v. Court of Appeals,21 the Court labeled such rule as the
"complementary contracts construed together" doctrine. It states:
132 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

That the "complementary contracts construed together" doctrine applies in this case finds
support in the principle that the surety contract is merely an accessory contract and must
be interpreted with its principal contract, which in this case was the loan agreement. This
doctrine closely adheres to the spirit of Art. 1374 of the Civil Code which states that
Art. 1374. The various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken jointly.
In the case at bar, the performance bond was silent with regard to arbitration. On the
other hand, the construction contract was clear as to arbitration in the event of disputes.
Applying the said doctrine, we rule that the silence of the accessory contract in this case
could only be construed as acquiescence to the main contract. The construction contract
breathes life into the performance bond. We are not ready to assume that the
performance bond contains reservations with regard to some of the terms and conditions
in the construction contract where in fact it is silent. On the other hand, it is more
reasonable to assume that the party who issued the performance bond carefully and
meticulously studied the construction contract that it guaranteed, and if it had
reservations, it would have and should have mentioned them in the surety contract.
Second Issue Petitioners Liability Under the Performance Bond
On the second issue, the crux of the controversy revolves upon a letter dated October 16,
2000 sent by ALI to PGAI. It reads:
xxxx
This pertains to the contract between Kraft Realty Development Corp. and Anscor Land,
Inc., which is covered by surety and performance bonds by your good company.
Please be advised that we are now terminating the contract of Kraft due to the breach by
Kraft of the terms and conditions of the construction contract. More specifically, the
project has accumulated very serious delays, in spite of the full cooperation that this
company has extended to Kraft.
Kindly refer to the attached letter of termination dated 16 October 2000.
Anscor Land [Inc.] may be making claims against the said bonds and in this regard, kindly
coordinate with the following for any matter with which we can assist you with.
Engr. Teodelito de Vera
Anscor Land, Inc.
Tel. 812-7941 to 48 Fax 813-5301
Thank you for your kind attention.22 (Italics supplied.)
The question really is whether or not the foregoing letter constituted a valid claim and
effectively complied with thetime-bar provision in the performance bond.
It is clear that ALI communicated two (2) important points to PGAI in the letter. First, that
ALI is terminating the construction contract with KRDC and second, that ALI may be
making a claim on the bonds issued by PGAI.
The time-bar provision in the Performance Bond provides that any claim against the bond
should be "discovered and presented to the company within ten days from the expiration
of this bond or from the occurrence of the default or failure of the principal, whichever is
the earliest". The purpose of this provision in the performance bond is to give the issuer,
in this case PGAI, notice of the claim at the earliest possible time and to afford the issuer
sufficient time to evaluate, and examine the validity of the claim while the evidence or
indicators of breach are fresh. In the construction industry, time is precious, delay costs
money and postponement in making a claim could cause additional expenses.
In line with the rationale behind the time-bar provision, we rule that the letter dated
October 16, 2000 was a sufficient claim. The tenor of the letter adequately put PGAI on
notice that ALI has terminated the contract because of serious delays tantamount to
breach by KRDC of its obligations. The letter timely informed PGAI that ALI was in fact
133 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

terminating the construction contract and thereby giving rise to the obligation of PGAI
under the performance bond. PGAI was informed within the time-bar provision and had all
the opportunity to conduct its evaluation and examination as to the validity of the
termination.
The CA thus correctly ruled that:
The fact of contract termination had been made known to PGAI as early as October 16,
2000. This termination consequently meant that the principal KRDC would no longer be
able to supply "labor, materials, tools, equipment and necessary supervision" to complete
the project. It was at this time, therefore, that PGAIs obligation guaranteeing the project
completion arose, although the amount of payment was still undetermined.
That ALI merely used the word "may" in expressing its intent to proceed against the bond
does not make its claim any less categorical as argued by PGAI. The point is the very
condition giving rise to the obligation to pay, i.e. KRDCs default and the resulting
contract termination, was clearly mentioned in the 16 October 2000 letter. The citation of
this fact is more than sufficient to place PGAI in notice that ALI shall be making claims on
the bonds.
xxxx
But the important consideration is that ALI, by its 16 October 2000 letter, was informing
PGAI of the contract termination, the very condition for its liabilities under the
performance bond to accrue. ALI had no other purpose in sending the letter than
to notify PGAI that it was intending to proceed against the performance bond.
PGAI makes much out of ALIs failure to identify the particular bond against which it would
be claiming. But the contract termination necessarily implies that there would be hiatus in
the supply of labor and materials.
Surely, no bond would answer for the non-implementation of contractual provisions other
than the performance bond. Further, the surety bond only guarantees reimbursement of
the portion of the downpayment and not the supply of labor, materials and
equipment.23 (Emphasis supplied, italics in the original.)
In interpreting the time-bar provision, the absence of any ambiguity in the words used
would lead to the conclusion that the generally accepted meaning of the words shall
control. In the time-bar provision, the word "claim" does not give rise to any ambiguity in
interpretation and does not call for a stretched understanding.
In Finasia Investments and Finance Corporation v. Court of Appeals,24 the Court had the
occasion to rule that:
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured, unsecured.
In conflicts of law, a receiver may be appointed in any state which has jurisdiction over
the defendant who owes a claim.25 (Italics supplied.)
In the case at bar, the claim of ALI against PGAI arose from the failure of KRDC to perform
its obligation under the construction contract. ALI therefore already had the "claim" or
"right to payment" against PGAI in the maximum amount of P4,700,000.00 from the
moment KRDC failed to comply with its obligation. According to the time-bar provision, in
order to enforce such claim or recover the said amount, ALI shall present its claim within
ten (10) days from the occurrence of the default or failure of KRDC.
The October 16, 2000 letter was the presentation of the claim. ALIs intent to recover its
claim was communicated clearly to PGAI. By informing PGAI of the termination of the
contract with KRDC, ALI in effect presented a situation where PGAI is put on notice that
ALI in fact has a right to payment by virtue of the performance bond and it intends to
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recover it. Undeniably, ALI has substantially complied with the time-bar provision of the
performance bond.
WHEREFORE, the petition is DENIED and the Decision dated April 28, 2006 of the Court of
Appeals in CA-G.R. SP No. 72854 is hereby AFFIRMED.
With costs against the petitioner.
SO ORDERED.
G.R. No. 119745 June 20, 1997
POWER COMMERCIAL AND INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, SPOUSES REYNALDO and ANGELITA R. QUIAMBAO and
PHILIPPINE NATIONAL BANK, respondents.

PANGANIBAN, J.:
Is the seller's failure to eject the lessees from a lot that is the subject of a contract of sale
with assumption of mortgage a ground (1) for rescission of such contract and (2) for a
return by the mortgagee of the amortization payments made by the buyer who assumed
such mortgage?
Petitioner posits an affirmative answer to such question in this petition for review
on certiorari of the March 27, 1995 Decision 1 of the Court of Appeals, Eighth Division, in
CA-G.R. CV Case No. 32298 upholding the validity of the contract of sale with assumption
of mortgage and absolving the mortgagee from the liability of returning the mortgage
payments already made. 2
The Facts
Petitioner Power Commercial & Industrial Development Corporation, an industrial
asbestos manufacturer, needed a bigger office space and warehouse for its products. For
this purpose, on January 31, 1979, it entered into a contract of sale with the spouses
Reynaldo and Angelita R. Quiambao, herein private respondents. The contract involved a
612-sq. m. parcel of land covered by Transfer Certificate of Title No. S-6686 located at the
corner of Bagtican and St. Paul Streets, San Antonio Village, Makati City. The parties
agreed that petitioner would pay private respondents P108,000.00 as down payment, and
the balance of P295,000.00 upon the execution of the deed of transfer of the title over
the property. Further, petitioner assumed, as part of the purchase price, the existing
mortgage on the land. In full satisfaction thereof, he paid P79,145.77 to Respondent
Philippine National Bank ("PNB" for brevity).
On June 1, 1979, respondent spouses mortgaged again said land to PNB to guarantee a
loan of P145,000.00, P80,000.00 of which was paid to respondent spouses. Petitioner
agreed to assume payment of the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale With Assumption of
Mortgage which contained the following terms and conditions: 3
That for and in consideration of the sum of Two Hundred Ninety-Five
Thousand Pesos (P295,000.00) Philippine Currency, to us in hand paid in cash,
and which we hereby acknowledge to be payment in full and received to our
entire satisfaction, by POWER COMMERCIAL AND INDUSTRIAL DEVELOPMENT
CORPORATION, a 100% Filipino Corporation, organized and existing under and
by virtue of Philippine Laws with offices located at 252-C Vito Cruz Extension,
we hereby by these presents SELL, TRANSFER and CONVEY by way of
absolute sale the above described property with all the improvements
existing thereon unto the said Power Commercial and Industrial Development
Corporation, its successors and assigns, free from all liens and encumbrances.
We hereby certify that the aforesaid property is not subject to nor covered by
the provisions of the Land Reform Code the same having no agricultural
lessee and/or tenant.
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We hereby also warrant that we are the lawful and absolute owners of the
above described property, free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and peaceful possession thereof
in favor of the said Power Commercial and Industrial Development
Corporation, its successors and assigns, against any claims whatsoever of any
and all third persons; subject, however, to the provisions hereunder provided
to wit:
That the above described property is mortgaged to the Philippine National
Bank, Cubao, Branch, Quezon City for the amount of one hundred forty-five
thousand pesos, Philippine, evidenced by document No. 163, found on page
No. 34 of Book No. XV, Series of 1979 of Notary Public Herita
L. Altamirano registered with the Register of Deeds of Pasig (Makati), Rizal . . .
;
That the said Power Commercial and Industrial Development Corporation
assumes to pay in full the entire amount of the said mortgage above
described plus interest and bank charges, to the said mortgagee bank, thus
holding the herein vendor free from all claims by the said bank;
That both parties herein agree to seek and secure the agreement and
approval of the said Philippine National Bank to the herein sale of this
property, hereby agreeing to abide by any and all requirements of the said
bank, agreeing that failure to do so shall give to the bank first lieu (sic) over
the herein described property.
On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-corporation,
submitted to PNB said deed with a formal application for assumption of mortgage. 4
On February 15, 1980, PNB informed respondent spouses that, for petitioner's failure to
submit the papers necessary for approval pursuant to the former's letter dated January
15, 1980, the application for assumption of mortgage was considered withdrawn; that the
outstanding balance of P145,000.00 was deemed fully due and demandable; and that
said loan was to be paid in full within fifteen (15) days from notice. 5
Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on December 23, 1980,
payments which were to be applied to the outstanding loan. On December 23, 1980, PNB
received a letter from petitioner which reads: 6
With regard to the presence of the people who are currently in physical
occupancy of the (l)ot . . . it is our desire as buyers and new owners of this lot
to make use of this lot for our own purpose, which is why it is our desire and
intention that all the people who are currently physically present and in
occupation of said lot should be removed immediately.
For this purpose we respectfully request that . . . our assumption of mortgage
be given favorable consideration, and that the mortgage and title be
transferred to our name so that we may undertake the necessary procedures
to make use of this lot ourselves.
It was our understanding that this lot was free and clear of problems of this
nature, and that the previous owner would be responsible for the removal of
the people who were there. Inasmuch as the previous owner has not been
able to keep his commitment, it will be necessary for us to take legal
possession of this lot inorder (sic) to take physical possession.
On February 19, 1982, PNB sent petitioner a letter as follows: 7
(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was
assumed by you on June 4, 1979 for P101,500.00. It was last renewed on
December 24, 1980 to mature on June 4, 1981.
A review of our records show that it has been past due from last maturity with
interest arrearages amounting to P25,826.08 as of February 19, 1982. The
last payment received by us was on December 24, 1980 for P20,283. 14. In
order to place your account in current form, we request you to remit
payments to cover interest, charges, and at least part of the principal.
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On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses for
rescission and damages before the Regional Trial Court of Pasig, Branch 159. Then, in its
reply to PNB's letter of February 19, 1982, petitioner demanded the return of the
payments it made on the ground that its assumption of mortgage was never approved.
On May 31, 1983, 8 while this case was pending, the mortgage was foreclosed. The
property was subsequently bought by PNB during the public auction. Thus, an amended
complaint was filed impleading PNB as party defendant.
On July 12, 1990, the trial court 9 ruled that the failure of respondent spouses to deliver
actual possession to petitioner entitled the latter to rescind the sale, and in view of such
failure and of the denial of the latter's assumption of mortgage, PNB was obliged to return
the payments made by the latter. The dispositive portion of said decision states: 10
IN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment in favor
of plaintiff and against defendants:
(1) Declaring the rescission of the Deed of Sale with Assumption of Mortgage
executed between plaintiff and defendants Spouses Quiambao, dated June
26, 1979;
(2) Ordering defendants Spouses Quiambao to return to plaintiff the amount
of P187,144.77 (P108,000.00 plus P79,145.77) with legal interest of 12% per
annum from date of filing of herein complaint, that is, March 17, 1982 until
the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the amount of P62,163.59
(P41,880.45 and P20,283.14) with 12% interest thereon from date of herein
judgment until the same is fully paid.
No award of other damages and attorney's fees, the same not being
warranted under the facts and circumstances of the case.
The counterclaim of both defendants spouses Quiambao and PNB are
dismissed for lack of merit.
No pronouncement as to costs.
SO ORDERED.
On appeal by respondent-spouses and PNB, Respondent Court of Appeals reversed the
trial court. In the assailed Decision, it held that the deed of sale between respondent
spouses and petitioner did not obligate the former to eject the lessees from the land in
question as a condition of the sale, nor was the occupation thereof by said lessees a
violation of the warranty against eviction. Hence, there was no substantial breach to
justify the rescission of said contract or the return of the payments made. The dispositive
portion of said Decision reads: 11
WHEREFORE, the Decision appealed from is hereby REVERSED and the
complaint filed by Power Commercial and Industrial Development Corporation
against the spouses Reynaldo and Angelita Quiambao and the Philippine
National Bank is DISMISSED. No costs.
Hence, the recourse to this Court.
Issues
Petitioner contends that: (1) there was a substantial breach of the contract between the
parties warranting rescission; and (2) there was a "mistake in payment" made by
petitioner, obligating PNB to return such payments. In its Memorandum, it specifically
assigns the following errors of law on the part of Respondent Court: 12
A. Respondent Court of Appeals gravely erred in failing to consider in its
decision that a breach of implied warranty under Article 1547 in relation to
Article 1545 of the Civil Code applies in the case-at-bar.

137 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

B. Respondent Court of Appeals gravely erred in failing to consider in its

decision that a mistake in payment giving rise to a situation where the
principle of solutio indebiti applies is obtaining in the case-at-bar.
The Court's Ruling
The petition is devoid of merit. It fails to appreciate the difference between a condition
and a warranty and the consequences of such distinction.
Conspicuous Absence of an Imposed Condition
The alleged "failure" of respondent spouses to eject the lessees from the lot in question
and to deliver actual and physical possession thereof cannot be considered a substantial
breach of a condition for two reasons: first, such "failure" was not stipulated as a
condition whether resolutory or suspensive in the contract; and second, its effects
and consequences were not specified either. 13
The provision adverted to by petitioner does not impose a condition or an obligation to
eject the lessees from the lot. The deed of sale provides in part: 14
We hereby also warrant that we are the lawful and absolute owners of the
above described property, free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and peaceful possession thereof
in favor of the said Power Commercial and Industrial Development
Corporation, its successors and assigns, against any claims whatsoever of any
and all third persons; subject, however, to the provisions hereunder provided
to wit:
By his own admission, Anthony Powers, General Manager of petitioner-corporation, did
not ask the corporation's lawyers to stipulate in the contract that Respondent Reynaldo
was guaranteeing the ejectment of the occupants, because there was already a proviso in
said deed of sale that the sellers were guaranteeing the peaceful possession by the buyer
of the land in question. 15 Any obscurity in a contract, if the above-quoted provision can
be so described, must be construed against the party who caused it. 16 Petitioner itself
caused the obscurity because it omitted this alleged condition when its lawyer drafted
said contract.
If the parties intended to impose on respondent spouses the obligation to eject the
tenants from the lot sold, it should have included in the contract a provision similar to
that referred to in Romero vs. Court of Appeals, 17 where the ejectment of the occupants
of the lot sold by private respondent was the operative act which set into motion the
period of petitioner's compliance with his own obligation, i.e., to pay the balance of the
purchase price. Failure to remove the squatters within the stipulated period gave the
other party the right to either refuse to proceed with the agreement or to waive that
condition of ejectment in consonance with Article 1545 of the Civil Code. In the case
cited, the contract specifically stipulated that the ejectment was a condition to be
fulfilled; otherwise, the obligation to pay the balance would not arise. This is not so in the
case at bar.
Absent a stipulation therefor, we cannot say that the parties intended to make its
nonfulfillment a ground for rescission. If they did intend this, their contract should have
expressly stipulated so. In Ang vs. C.A., 18 rescission was sought on the ground that the
petitioners had failed to fulfill their obligation "to remove and clear" the lot sold, the
performance of which would have given rise to the payment of the consideration by
private respondent. Rescission was not allowed, however, because the breach was not
substantial and fundamental to the fulfillment by the petitioners of the obligation to sell.
As stated, the provision adverted to in the contract pertains to the usual warranty against
eviction, and not to a condition that was not met.
The terms of the contract are so clear as to leave no room for any other interpretation.

19

Furthermore, petitioner was well aware of the presence of the tenants at the time it
entered into the sales transaction. As testified to by Reynaldo, 20 petitioner's counsel
during the sales negotiation even undertook the job of ejecting the squatters. In fact,
petitioner actually filed suit to eject the occupants. Finally, petitioner in its letter to PNB of
December 23, 1980 admitted that it was the "buyer(s) and new owner(s) of this lot."
138 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9

Effective Symbolic Delivery

The Court disagrees with petitioner's allegation that the respondent spouses failed to
deliver the lot sold. Petitioner asserts that the legal fiction of symbolic delivery yielded to
the truth that, at the execution of the deed of sale, transfer of possession of said lot was
impossible due to the presence of occupants on the lot sold. We find this misleading.
Although most authorities consider transfer of ownership as the primary purpose of sale,
delivery remains an indispensable requisite as our law does not admit the doctrine of
transfer of property by mere consent. 21 The Civil Code provides that delivery can either
be (1) actual (Article 1497) or (2) constructive (Articles 1498-1501). Symbolic delivery
(Article 1498), as a species of constructive delivery, effects the transfer of ownership
through the execution of a public document. Its efficacy can, however, be prevented if the
vendor does not possess control over the thing sold, 22 in which case this legal fiction
must yield to reality.
The key word is control, not possession, of the land as petitioner would like us to believe.
The Court has consistently held that: 23
. . . (I)n order that this symbolic delivery may produce the effect of tradition,
it is necessary that the vendor shall have had such control over the thing sold
that . . . its material delivery could have been made. It is not enough to confer
upon the purchaser the ownership and the right of possession. The thing sold
must be placed in his control. When there is no impediment whatever to
prevent the thing sold passing into the tenancy of the purchaser by the sole
will of the vendor, symbolic delivery through the execution of a public
instrument is sufficient. But if, notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment and material tenancy
of the thing and make use of it himself or through another in his name,
because such tenancy and enjoyment are opposed by the interposition of
another will, then fiction yields to reality the delivery has not been
effected.
Considering that the deed of sale between the parties did not stipulate or infer otherwise,
delivery was effected through the execution of said deed. The lot sold had been placed
under the control of petitioner; thus, the filing of the ejectment suit was subsequently
done. It signified that its new owner intended to obtain for itself and to terminate said
occupants' actual possession thereof. Prior physical delivery or possession is not legally
required and the execution of the deed of sale is deemed equivalent to delivery. 24 This
deed operates as a formal or symbolic delivery of the property sold and authorizes the
buyer to use the document as proof of ownership. Nothing more is required.
Requisites of Breach of Warranty Against Eviction
Obvious to us in the ambivalent stance of petitioner is its failure to establish any breach
of the warranty against eviction. Despite its protestation that its acquisition of the lot was
to enable it to set up a warehouse for its asbestos products and that failure to deliver
actual possession thereof defeated this purpose, still no breach of warranty against
eviction can be appreciated because the facts of the case do not show that the requisites
for such breach have been satisfied. A breach of this warranty requires the concurrence of
the following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the
instance of the vendee.25
In the absence of these requisites, a breach of the warranty against eviction under
Article 1547 cannot be declared.
Petitioner argues in its memorandum that it has not yet ejected the occupants of said lot,
and not that it has been evicted therefrom. As correctly pointed out by Respondent Court,
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the presence of lessees does not constitute an encumbrance of the land,

deprive petitioner of its control thereof.

26

nor does it

We note, however, that petitioner's deprivation of ownership and control finally occurred
when it failed and/or discontinued paying the amortizations on the mortgage, causing the
lot to be foreclosed and sold at public auction. But this deprivation is due to petitioner's
fault, and not to any act attributable to the vendor-spouses.
Because petitioner failed to impugn its integrity, the contract is presumed, under the law,
to be valid and subsisting.
Absence of Mistake In Payment
Contrary to the contention of petitioner that a return of the payments it made to PNB is
warranted under Article 2154 of the Code, solutio indebiti does not apply in this case. This
doctrine applies where: (1) a payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who received the payment,
and (2) the payment is made through mistake, and not through liberality or some other
cause. 27
In this case, petitioner was under obligation to pay the amortizations on the mortgage
under the contract of sale and the deed of real estate mortgage. Under the deed of sale
(Exh. "2"), 28 both parties agreed to abide by any and all the requirements of PNB in
connection with the real estate mortgage. Petitioner was aware that the deed of
mortgage (Exh. "C") made it solidarily and, therefore, primarily 29 liable for the mortgage
obligation: 30
(e) The Mortgagor shall neither lease the mortgaged property. . . nor sell or
dispose of the same in any manner, without the written consent of the
Mortgagee. However, if not withstanding this stipulation and during the
existence of this mortgage, the property herein mortgaged, or any portion
thereof, is . . . sold, it shall be the obligation of the Mortgagor to impose as a
condition of the sale, alienation or encumbrance that the vendee, or the party
in whose favor the alienation or encumbrance is to be made, should take the
property subject to the obligation of this mortgage in the same terms and
condition under which it is constituted, it being understood that the
Mortgagor is not in any manner relieved of his obligation to the Mortgagee
under this mortgage by such sale, alienation or encumbrance; on the contrary
both the vendor and the vendee, or the party in whose favor the alienation or
encumbrance is made shall be jointly and severally liable for said mortgage
obligations. . . .
Therefore, it cannot be said that it did not have a duty to pay to PNB the
amortization on the mortgage.
Also, petitioner insists that its payment of the amortization was a mistake because PNB
disapproved its assumption of mortgage after it failed to submit the necessary papers for
the approval of such assumption.
But even if petitioner was a third party in regard to the mortgage of the land purchased,
the payment of the loan by petitioner was a condition clearly imposed by the contract of
sale. This fact alone disproves petitioner's insistence that there was a "mistake" in
payment. On the contrary, such payments were necessary to protect its interest as a "the
buyer(s) and new owner(s) of the lot."
The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient
principle that no one shall enrich himself unjustly at the expense of another. 31 But as
shown earlier, the payment of the mortgage was an obligation petitioner assumed under
the contract of sale. There is no unjust enrichment where the transaction, as in this case,
is quid pro quo, value for value.
All told, respondent Court did not commit any reversible error which would warrant the
reversal of the assailed Decision.
WHEREFORE, the petition is hereby DENIED, and the assailed Decision is AFFIRMED.
SO ORDERED.
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141 | O B L I C O N - A r t . 1 3 4 7 - 1 3 7 9