2/25/2017 OBLIGATIONS AND

CONTRACTS
THIRD EXAM

JENNICA GYRL G. DELFIN

I - ESTRELLADO
 ARTCLES 1306AUTONOMY OF
CONTRACTS
G.R. No. 142830 March 24, 2006
WILLIAM GOLANGCO CONSTRUCTION
CORPORATION, Petitioner,
vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK*,
Respondent
DECISION
CORONA, J.:
The facts of this case are straightforward.1
William Golangco Construction Corporation (WGCC) and the
Philippine Commercial International Bank (PCIB) entered into a
contract for the construction of the extension of PCIB Tower II
(denominated as PCIB Tower II, Extension Project [project])2 on
October 20, 1989. The project included, among others, the
application of a granitite wash-out finish3 on the exterior walls of
the building.
PCIB, with the concurrence of its consultant TCGI Engineers
(TCGI), accepted the turnover of the completed work by WGCC
in a letter dated June 1, 1992. To answer for any defect arising
within a period of one year, WGCC submitted a guarantee bond
dated July 1, 1992 issued by Malayan Insurance Company, Inc.
in compliance with the construction contract.4
The controversy arose when portions of the granitite wash-out
finish of the exterior of the building began peeling off and falling
from the walls in 1993. WGCC made minor repairs after PCIB
requested it to rectify the construction defects. In 1994, PCIB
entered into another contract with Brains and Brawn Construction
and Development Corporation to re-do the entire granitite wash-
out finish after WGCC manifested that it was "not in a position to
do the new finishing work," though it was willing to share part of
the cost. PCIB incurred expenses amounting to P11,665,000 for
the repair work.
PCIB filed a request for arbitration with the Construction Industry
Arbitration Commission (CIAC) for the reimbursement of its
expenses for the repairs made by another contractor. It
complained of WGCCs alleged non-compliance with their
contractual terms on materials and workmanship. WGCC
interposed a counterclaim for P5,777,157.84 for material cost
adjustment.
The CIAC declared WGCC liable for the construction defects in
the project.5 WGCC filed a petition for review with the Court of
Appeals (CA) which dismissed it for lack of merit.6 Its motion
for reconsideration was similarly denied.7
In this petition for review on certiorari, WGCC raises this main
question of law: whether or not petitioner WGCC is liable for
defects in the granitite wash-out finish that occurred after the
lapse of the one-year defects liability period provided in Art. XI
of the construction contract.8
We rule in favor of WGCC.
The controversy pivots on a provision in the construction contract
referred to as the defects liability period:
ARTICLE XI GUARANTEE
Unless otherwise specified for specific works, and without
prejudice to the rights and causes of action of the OWNER under
Article 1723 of the Civil Code, the CONTRACTOR hereby
guarantees the work stipulated in this Contract, and shall
make good any defect in materials and workmanship which
[becomes] evident within one (1) year after the final
acceptance of the work. The CONTRACTOR shall leave the
1
work in perfect order upon completion and present the final
certificate to the ENGINEER promptly.
If in the opinion of the OWNER and ENGINEER, the
CONTRACTOR has failed to act promptly in rectifying any
defect in the work which appears within the period mentioned
above, the OWNER and the ENGINEER may, at their own
discretion, using the Guarantee Bond amount for corrections,
have the work done by another contractor at the expense of the
CONTRACTOR or his bondsmen.
However, nothing in this section shall in any way affect or
relieve the CONTRACTORS responsibility to the
OWNER. On the completion of the [w]orks, the
CONTRACTOR shall clear away and remove from the site all
constructional plant, surplus materials, rubbish and temporary
works of every kind, and leave the whole of the [s]ite and [w]orks
clean and in a workmanlike condition to the satisfaction of the
ENGINEER and OWNER.9 (emphasis ours)
Although both parties based their arguments on the same
stipulations, they reached conflicting conclusions. A careful
reading of the stipulations, however, leads us to the conclusion
that WGCCs arguments are more tenable.
Autonomy of contracts
The autonomous nature of contracts is enunciated in Article 1306
of the Civil Code.
Article 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
Obligations arising from contracts have the force of law between
the parties and should be complied with in good faith.10 In
characterizing the contract as having the force of law between the
parties, the law stresses the obligatory nature of a binding and
valid agreement.
The provision in the construction contract providing for a defects
liability period was not shown as contrary to law, morals, good
customs, pubic order or public policy. By the nature of the
obligation in such contract, the provision limiting liability for
defects and fixing specific guaranty periods was not only fair and
equitable; it was also necessary. Without such limitation, the
contractor would be expected to make a perpetual guarantee on
all materials and workmanship.
The adoption of a one-year guarantee, as done by WGCC and
PCIB, is established usage in the Philippines for private and
government construction contracts.11 The contract did not
specify a different period for defects in the granitite wash-out
finish; hence, any defect therein should have been brought to
WGCCs attention within the one-year defects liability period in
the contract.
We cannot countenance an interpretation that undermines a
contractual stipulation freely and validly agreed upon. The courts
will not relieve a party from the effects of an unwise or
unfavorable contract freely entered into.12
[T]he inclusion in a written contract for a piece of work [,] such
as the one in question, of a provision defining a warranty period
against defects, is not uncommon. This kind of a stipulation is of
particular importance to the contractor, for as a general rule, after
the lapse of the period agreed upon therein, he may no longer be
held accountable for whatever defects, deficiencies or
imperfections that may be discovered in the work executed by
him.13
Interpretation of contracts
To challenge the guarantee period provided in Article XI of the
contract, PCIB calls our attention to Article 62.2 which provides:
62.2 Unfulfilled Obligations
Notwithstanding the issue of the Defects Liability
Certificate[,] the Contractor and the Owner shall remain
liable for the fulfillment of any obligation[,] incurred under
the provisions of the Contract prior to the issue of the Defects
Liability Certificate[,] which remains unperformed at the
time such Defects Liability Certificate is issued[. And] for the
purpose of determining the nature and extent of any such
obligation, the Contract shall be deemed to remain in force
between the parties of the Contract. (emphasis ours)
The defects in the granitite wash-out finish were not the
"obligation" contemplated in Article 62.2. It was not an obligation
that remained unperformed or unfulfilled at the time the defects
liability certificate was issued. The alleged defects occurred more
than a year from the final acceptance by PCIB.
An examination of Article 1719 of the Civil Code is enlightening:
Art. 1719. Acceptance of the work by the employer relieves the
contractor of liability for any defect in the work, unless:
(1) The defect is hidden and the employer is not, by his special
knowledge, expected to recognize the same; or
(2) The employer expressly reserves his rights against the
contractor by reason of the defect.
The lower courts conjectured that the peeling off of the granitite
wash-out finish was probably due to "defective materials and
workmanship." This they characterized as hidden or latent
defects. We, however, do not agree with the conclusion that the
alleged defects were hidden.
First, PCIBs team of experts14 (who were specifically employed
to detect such defects early on) supervised WGCCs
workmanship. Second, WGCC regularly submitted progress
reports and photographs. Third, WGCC worked under fair and
transparent circumstances. PCIB had access to the site and it
exercised reasonable supervision over WGCCs work. Fourth,
PCIB issued several "punch lists" for WGCCs compliance before
the issuance of PCIBs final certificate of acceptance. Fifth, PCIB
supplied the materials for the granitite wash-out finish. And
finally, PCIBs team of experts gave their concurrence to the
turnover of the project.
The purpose of the defects liability period was precisely to give
PCIB additional, albeit limited, opportunity to oblige WGCC to
make good any defect, hidden or otherwise, discovered within
one year.
Contrary to the CAs conclusion, the first sentence of the third
paragraph of Article XI on guarantee previously quoted did not
operate as a blanket exception to the one-year guarantee period
under the first paragraph. Neither did it modify, extend, nullify or
supersede the categorical terms of the defects liability period.
Under the circumstances, there were no hidden defects for which
WGCC could be held liable. Neither was there any other defect
for which PCIB made any express reservation of its rights against
WGCC. Indeed, the contract should not be interpreted to favor the
one who caused the confusion, if any. The contract was prepared
by TCGI for PCIB.15
WHEREFORE, the petition is hereby GRANTED. The
decision of the Court of Appeals in CA-G.R. SP No. 41152
is ANNULED and SET ASIDE.
SO ORDERED.
G.R. No. 176425
HEIRS OF MANUEL UY EK LIONG, represented by
BELEN LIM VDA. DE UY, Petitioners,
vs.
MAURICIA MEER CASTILLO, HEIRS OF BUENAFLOR
C. UMALI, represented by NANCY UMALI, VICTORIA H.
2
CASTILLO, BERTILLA C. RADA, MARIETTA C.
CAVANEZ, LEOVINA C. JALBUENA and PHILIP M.
CASTILLO, Respondents.
DECISION
PEREZ, J.:
Assailed in this Petition for Review on Certiorari filed pursuant
to Rule 45 of the Rules of Court is the Decision1dated 23 January
2007 rendered by the Fifteenth Division of the Court of Appeals
in CA-G.R. CV No. 84687,2 the dispositive portion of which
states:
WHEREFORE, premises considered, the assailed January 27,
2005 Decision of the Regional Trial Court of Lucena City, Branch
59, in Civil Case No. 93-176, is hereby REVERSED and SET
ASIDE and a new one entered declaring the AGREEMENT and
the KASUNDUAN void ab initio for being contrary to law and
public policy, without prejudice to the attorneys filing a proper
action for collection of reasonable attorneys fees based on
quantum meruit and without prejudice also to administrative
charges being filed against counsel for counsels openly entering
into such an illegal AGREEMENT in violation of the Canons of
Professional Responsibility which action may be instituted with
the Supreme Court which has exclusive jurisdiction to impose
such penalties on members of the bar.
No pronouncement as to costs.
SO ORDERED.3 (Italics and Underscore Ours)
The Facts
Alongside her husband, Felipe Castillo, respondent Mauricia
Meer Castillo was the owner of four parcels of land with an
aggregate area of 53,307 square meters, situated in Silangan
Mayao, Lucena City and registered in their names under Transfer
Certificate of Title (TCT) Nos. T-42104, T-32227, T-31752 and
T-42103. With the death of Felipe, a deed of extrajudicial
partition over his estate was executed by his heirs, namely,
Mauricia, Buenaflor Umali and respondents Victoria Castillo,
Bertilla Rada, Marietta Cavanez, Leovina Jalbuena and Philip
Castillo. Utilized as security for the payment of a tractor
purchased by Mauricias nephew, Santiago Rivera, from
Bormaheco, Inc., it appears, however, that the subject properties
were subsequently sold at a public auction where Insurance
Corporation of the Philippines (ICP) tendered the highest bid.
Having consolidated its title, ICP likewise sold said parcels in
favor of Philippine Machinery Parts Manufacturing Co., Inc.
(PMPMCI) which, in turn, caused the same to be titled in its
name.4
On 29 September 1976, respondents and Buenaflor instituted
Civil Case No. 8085 before the then Court of First Instance (CFI)
of Quezon, for the purpose of seeking the annulment of the
transactions and/or proceedings involving the subject parcels, as
well as the TCTs procured by PMPMCI.5 Encountering financial
difficulties in the prosecution of Civil Case No. 8085, respondents
and Buenaflor entered into an Agreement dated 20 September
1978 whereby they procured the legal services of Atty. Edmundo
Zepeda and the assistance of Manuel Uy Ek Liong who, as
financier, agreed to underwrite the litigation expenses entailed by
the case. In exchange, it was stipulated in the notarized
Agreement that, in the event of a favorable decision in Civil Case
No. 8085, Atty. Zepeda and Manuel would be entitled to "a share
of forty (40%) percent of all the realties and/or monetary benefits,
gratuities or damages" which may be adjudicated in favor of
respondents.6
On the same date, respondents and Buenaflor entered into another
notarized agreement denominated as a Kasunduan whereby they
agreed to sell their remaining sixty (60%) percent share in the
subject parcels in favor of Manuel for the sum of P180,000.00.
The parties stipulated that Manuel would pay a downpayment in
the sum of P1,000.00 upon the execution of the Kasunduan and
that respondents and Buenaflor would retain and remain the
owners of a 1,750-square meter portion of said real properties. It
was likewise agreed that any party violating the Kasunduan
would pay the aggrieved party a penalty fixed in the sum
of P50,000.00, together with the attorneys fees and litigation
expenses incurred should a case be subsequently filed in court.
The parties likewise agreed to further enter into such other
stipulations as would be necessary to ensure that the sale would
push through and/or in the event of illegality or impossibility of
any part of the Kasunduan.7
With his death on 19 August 1989,8 Manuel was survived by
petitioners, Heirs of Manuel Uy Ek Liong, who were later
represented in the negotiations regarding the subject parcels and
in this suit by petitioner BelenLim Vda. de Uy. The record also
shows that the proceedings in Civil Case No. 8085 culminated in
this Courts rendition of a 13 September 1990 Decision in G.R.
No. 895619 in favor of respondents and Buenaflor.10 Subsequent
to the finality of the Courts Decision,11 it appears that the subject
parcels were subdivided in accordance with the Agreement, with
sixty (60%) percent thereof consisting of 31,983 square meters
equally apportioned among and registered in the names of
respondents and Buenaflor under TCT Nos. T-72027, T-72028,
T-72029, T-72030, T-72031, T-72032 and T-72033.12 Consisting
of 21,324 square meters, the remaining forty (40%) percent was,
in turn, registered in the names of petitioners and Atty. Zepeda
under TCT No. T-72026.13Supposedly acting on the advice of
Atty. Zepeda, respondents wrote petitioners a letter dated 22
March 1993, essentially informing petitioners that respondents
were willing to sell their sixty (60%) percent share in the subject
parcels for the consideration of P500.00 per square
meter.14 Insisting on the price agreed upon in the Kasunduan,
however, petitioners sent a letter dated 19 May 1993, requesting
respondents to execute within 15 days from notice the necessary
Deed of Absolute Sale over their 60% share as aforesaid,
excluding the 1,750-square meter portion specified in their
agreement with Manuel. Informed that petitioners were ready to
pay the remaining P179,000.00 balance of the agreed
price,15 respondents wrote a 28 May 1993 reply, reminding the
former of their purported refusal of earlier offers to sell the shares
of Leovina and of Buenaflor who had, in the meantime, died. 16In
a letter dated 1 June 1993, respondents also called petitioners
attention to the fact, among others, that their right to ask for an
additional consideration for the sale was recognized under the
Kasunduan.17
On 6 October 1993, petitioners commenced the instant suit with
the filing of their complaint for specific performance and
damages against the respondents and respondent Heirs of
Buenaflor, as then represented by Menardo Umali. Faulting
respondents with unjustified refusal to comply with their
obligation under the Kasunduan, petitioners prayed that the
former be ordered to execute the necessary Deed of Absolute Sale
over their shares in the subject parcels, with indemnities for moral
and exemplary damages, as well as attorneys fees, litigation
expenses and the costs of the suit.18 Served with summons,
respondents filed their Answer with Counterclaim and Motion to
File Third Party Complaint on 3 December 1993. Maintaining
that the Agreement and the Kasunduan were illegal for being
unconscionable and contrary to public policy, respondents
averred that Atty. Zepeda was an indispensable party to the case.
Together with the dismissal of the complaint and the annulment
of said contracts and TCT No. T-72026, respondents sought the
grant of their counterclaims for moral and exemplary damages, as
well as attorneys fees and litigation expenses.19
3
The issues thereby joined, the Regional Trial Court (RTC),
Branch 54, Lucena City, proveeded to conduct the mandatory
preliminary conference in the case.20 After initially granting
respondents motion to file a third party complaint against Atty.
Zepeda,21 the RTC, upon petitioners motion for
reconsideration,22 went on to issue the 18 July 1997 Order
disallowing the filing of said pleading on the ground that the
validity of the Agreement and the cause of action against Atty.
Zepeda, whose whereabouts were then unknown, would be better
threshed out in a separate action.23 The denial24 of their motion
for reconsideration of the foregoing order25 prompted
respondents to file a notice of appeal26 which was, however,
denied due course by the RTC on the ground that the orders
sought to be appealed were non-appealable.27 On 14 December
1997, Menardo died28 and was substituted by his daughter Nancy
as representative of respondent Heirs of Buenaflor.29
In the ensuing trial of the case on the merits, petitioners called to
the witness stand Samuel Lim Uy Ek Liong30whose testimony
was refuted by Philip31 and Leovina32 during the presentation of
the defense evidence. On 27 January 2005, the RTC rendered a
decision finding the Kasunduan valid and binding between
respondents and petitioners who had the right to demand its
fulfillment as Manuels successors-in-interest. Brushing aside
Philips testimony that respondents were forced to sign the
Kasunduan, the RTC ruled that said contract became effective
upon the finality of this Courts 13 September 1990 Decision in
G.R. No. 89561 which served as a suspensive condition therefor.
Having benefited from the legal services rendered by Atty.
Zepeda and the financial assistance extended by Manuel,
respondents were also declared estopped from questioning the
validity of the Agreement, Kasunduan and TCT No. T-72026.
With the Kasunduan upheld as the law between the contracting
parties and their privies,33 the RTC disposed of the case in the
following wise:
WHEREFORE, premises considered, the Court finds for the
petitioners and hereby:
1. Orders the respondents to execute and deliver a Deed of
Conveyance in favor of the petitioners covering the 60% of the
properties formerly covered by Transfer Certificates of Title Nos.
T-3175, 42104, T-42103, T-32227 and T-42104 which are now
covered by Transfer Certificates of Title Nos. T-72027, T-72028,
T-72029, T-72030, T-72031, T-72032, T-72033 and T-72026, all
of the Registry of Deeds of Lucena City, for and in consideration
of the amount of P180,000.00 in accordance with the provisions
of the KASUNDUAN, and
2. Orders the petitioners to pay and deliver to the respondents
upon the latters execution of the Deed of Conveyance mentioned
in the preceding paragraph, the amount of P179,000.00
representing the balance of the purchase price as provided in the
KASUNDUAN, and
3. Orders the respondents to pay the petitioners the following
amounts:
a). P50,000.00 as and for moral damages;
b). P50,000.00 as and for exemplary damages; and
c). P50,000.00 as and for attorneys fees.
and to pay the costs.
SO ORDERED.34
Dissatisfied with the RTCs decision, both petitioners35 and
respondents perfected their appeals36 which were docketed before
the CA as CA-G.R. CV No. 84687. While petitioners prayed for
the increase of the monetary awards adjudicated a quo, as well as
the further grant of liquidated damages in their
favor,37 respondents sought the complete reversal of the appealed
decision on the ground that the Agreement and the Kasunduan
were null and void.38 On 23 January 2007, the CA rendered the
herein assailed decision, setting aside the RTCs decision, upon
the following findings and conclusions, to wit: (a) the Agreement
and Kasunduan are byproducts of the partnership between Atty.
Zepeda and Manuel who, as a non-lawyer, was not authorized to
practice law; (b) the Agreement is void under Article 1491 (5) of
the Civil Code of the Philippines which prohibits lawyers from
acquiring properties which are the objects of the litigation in
which they have taken part; (c) jointly designed to completely
deprive respondents of the subject parcels, the Agreement and the
Kasunduan are invalid and unconscionable; and (d) without
prejudice to his liability for violation of the Canons of
Professional Responsibility, Atty. Zepeda can file an action to
collect attorneys fees based on quantum meruit.39
The Issue
Petitioners seek the reversal of the CAs decision on the following
issue:
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS, FIFTEENTH DIVISION, COMITTED A
REVERSIBLE ERROR WHEN IT REVERSED AND SET
ASIDE THE DECISION OF THE RTC BRANCH 59, LUCENA
CITY, IN CIVIL CASE NO. 93-176 DECLARING THE
AGREEMENT AND KASUNDUAN VOID AB INITIO FOR
BEING CONTRARY TO LAW AND PUBLIC POLICY FOR
BEING VIOLATIVE OF ART. 1491 OF THE NEW CIVIL
CODE AND THE CANONS OF PROFESSIONAL
RESPONSIBILITY.40
The Courts Ruling
We find the petition impressed with partial merit.
At the outset, it bears pointing out that the complaint for specific
performance filed before the RTC sought only the enforcement of
petitioners rights and respondents obligation under the
Kasunduan. Although the answer filed by respondents also
assailed the validity of the Agreement and TCT No. T-72026, the
record shows that the RTC, in its order dated 18 July 1997,
disallowed the filing of a third-party complaint against Atty.
Zepeda on the ground that the causes of action in respect to said
contract and title would be better threshed out in a separate action.
As Atty. Zepedas whereabouts were then unknown, the RTC also
ruled that, far from contributing to the expeditious settlement of
the case, the grant of respondents motion to file a third-party
complaint would only delay the proceedings in the case.41 With
the 1 October 1998 denial of their motion for reconsideration of
the foregoing order, respondents subsequently filed a notice of
appeal which was, however, denied due course on the ground that
the orders denying their motion to file a third-party complaint and
their motion for reconsideration were interlocutory and non-
appealable.42
Absent a showing that the RTCs ruling on the foregoing issues
was reversed and set aside, we find that the CA reversibly erred
in ruling on the validity of the Agreement which respondents
executed not only with petitioners predecessor-in-interest,
Manuel, but also with Atty. Zepeda. Since it is generally accepted
that no man shall be affected by any proceeding to which he is a
stranger,43 the rule is settled that a court must first acquire
jurisdiction over a party either through valid service of
summons or voluntary appearance for the latter to be bound by
a court decision.44 The fact that Atty. Zepeda was not properly
impleaded in the suit and given a chance to present his side of the
controversy before the RTC should have dissuaded the CA from
invalidating the Agreement and holding that attorneys fees
should, instead, be computed on a quantum meruit basis.
Admittedly, Article 1491 (5)45of the Civil Code prohibits lawyers
from acquiring by purchase or assignment the property or rights
involved which are the object of the litigation in which they
intervene by virtue of their profession. The CA lost sight of the
4
fact, however, that the prohibition applies only during the
pendency of the suit46 and generally does not cover contracts for
contingent fees where the transfer takes effect only after the
finality of a favorable judgment.47
Although executed on the same day, it cannot likewise be
gainsaid that the Agreement and the Kasunduan are independent
contracts, with parties, objects and causes different from that of
the other. Defined as a meeting of the minds between two persons
whereby one binds himself, with respect to the other to give
something or to render some service,48 a contract requires the
concurrence of the following requisites: (a) consent of the
contracting parties; (b) object certain which is the subject matter
of the contract; and, (c) cause of the obligation which is
established.49 Executed in exchange for the legal services of Atty.
Zepeda and the financial assistance to be extended by Manuel, the
Agreement concerned respondents transfer of 40% of the avails
of the suit, in the event of a favorable judgment in Civil Case No.
8085. While concededly subject to the same suspensive condition,
the Kasunduan was, in contrast, concluded by respondents with
Manuel alone, for the purpose of selling in favor of the latter 60%
of their share in the subject parcels for the agreed price
of P180,000.00. Given these clear distinctions, petitioners
correctly argue that the CA reversibly erred in not determining
the validity of the Kasunduan independent from that of the
Agreement.
Viewed in the light of the autonomous nature of contracts
enunciated under Article 130650 of the Civil Code, on the other
hand, we find that the Kasunduan was correctly found by the RTC
to be a valid and binding contract between the parties. Already
partially executed with respondents receipt of P1,000.00 from
Manuel upon the execution thereof, the Kasunduan simply
concerned the sale of the formers 60% share in the subject parcel,
less the 1,750-square meter portion to be retained, for the agreed
consideration of P180,000.00. As a notarized document that
carries the evidentiary weight conferred upon it with respect to its
due execution,51 the Kasunduan was shown to have been signed
by respondents with full knowledge of its contents, as may be
gleaned from the testimonies elicited from Philip52 and Leovina.53
Although Philip had repeatedly claimed that respondents had
been forced to sign the Agreement and the Kasunduan, his
testimony does not show such vitiation of consent as would
warrant the avoidance of the contract. He simply meant that
respondents felt constrained to accede to the stipulations insisted
upon by Atty. Zepeda and Manuel who were not otherwise
willing to push through with said contracts.54
At any rate, our perusal of the record shows that respondents
main objection to the enforcement of the Kasunduan was the
perceived inadequacy of the P180,000.00 which the parties had
fixed as consideration for 60% of the subject parcels. Rather than
claiming vitiation of their consent in the answer they filed a quo,
respondents, in fact, distinctly averred that the Kasunduan was
tantamount to unjust enrichment and "a clear source of
speculative profit" at their expense since their remaining share in
said properties had "a current market value of P9,594,900.00,
more or less."55 In their 22 March 1993 letter to petitioners,
respondents also cited prices then prevailing for the sale of
properties in the area and offered to sell their 60% share for the
price of P500.00 per square meter56 or a total of P15,991,500.00.
In response to petitioners insistence on the price originally
agreed upon by the parties,57 respondents even invoked the last
paragraph58 of the Kasunduan to the effect that the parties agreed
to enter into such other stipulations as would be necessary to
ensure the fruition of the sale.59
In the absence of any showing, however, that the parties were able
to agree on new stipulations that would modify their agreement,
we find that petitioners and respondents are bound by the original The RTC's award of attorney's fees in the sum of P50,000.00 is,
terms embodied in the Kasunduan. Obligations arising from however, proper.1wphi1 Aside from the fact that the penal
contracts, after all, have the force of law between the contracting clause included a liability for said award in the event of litigation
parties60who are expected to abide in good faith with their over a breach of the Kasunduan, petitioners were able to prove
contractual commitments, not weasel out of them.61 Moreover, that they incurred said sum in engaging the services of their
when the terms of the contract are clear and leave no doubt as to lawyer to pursue their rights and protect their interests.70
the intention of the contracting parties, the rule is settled that the WHEREFORE, premises considered, the Court of Appeals'
literal meaning of its stipulations should govern. In such cases, assailed 23 January 2007 Decision is REVERSED and SET
courts have no authority to alter a contract by construction or to ASIDE. In lieu thereof, the RTC's 27 January 2005 Decision is
make a new contract for the parties. Since their duty is confined REINSTATED subject to the following MODIFICATIONS: (a)
to the interpretation of the one which the parties have made for the exclusion of a 1,750-square meter portion from the 60% share
themselves without regard to its wisdom or folly, it has been ruled in the subject parcel respondents were ordered to convey in favor
that courts cannot supply material stipulations or read into the of petitioners; and (b) the deletion of the awards of moral and
contract words it does not contain.62 Indeed, courts will not exemplary damages. The rights of the parties under the
relieve a party from the adverse effects of an unwise or Agreement may be determined in a separate litigation.
unfavorable contract freely entered into.63 SO ORDERED.
Our perusal of the Kasunduan also shows that it contains a penal
clause64 which provides that a party who violates any of its
provisions shall be liable to pay the aggrieved party a penalty
fixed at P50,000.00, together with the attorneys fees and
litigation expenses incurred by the latter should judicial resolution
of the matter becomes necessary.65 An accessory undertaking to
assume greater liability on the part of the obligor in case of breach
of an obligation, the foregoing stipulation is a penal clause which
serves to strengthen the coercive force of the obligation and
provides for liquidated damages for such breach.66 "The obligor
would then be bound to pay the stipulated indemnity without the
necessity of proof of the existence and the measure of damages
caused by the breach."67 Articles 1226 and 1227 of the Civil Code
state:
Art. 1226. In obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests
in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay
the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
Art. 1227. The debtor cannot exempt himself from the
performance of the obligation by paying the penalty, save in the
case where this right has been expressly reserved for him. Neither
can the creditor demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this right has
been clearly granted to him. However, if after the creditor has
decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault,
the penalty may be enforced."
In the absence of a showing that they expressly reserved the right
to pay the penalty in lieu of the performance of their obligation
under the Kasunduan, respondents were correctly ordered by the
RTC to execute and deliver a deed of conveyance over their 60%
share in the subject parcels in favor of petitiOners. Considering
that the Kasunduan stipulated that respondents would retain a
portion of their share consisting of 1,750 square meters, said
disposition should, however, be modified to give full effect to the
intention of the contracting parties. Since the parties also fixed
liquidated damages in the sum of P50,000.00 in case of breach,
we find that said amount should suffice as petitioners' indemnity,
without further need of compensation for moral and exemplary
damages. In obligations with a penal clause, the penalty generally
substitutes the indemnity for damages and the payment of
interests in case of non-compliance.68 Usually incorporated to
create an effective deterrent against breach of the obligation by
making the consequences of such breach as onerous as it may be
possible, the rule is settled that a penal clause is not limited to
actual and compensatory damages69

5
 ARTICLES 1308 MUTUALITY OF
CONTRACTS
G.R. No. 109563 July 9, 1996
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS, MARIA AMOR BASCOS and
MARCIANO BASCOS, respondents.
MENDOZA, J.:p
This is a petition seeking review of the decision dated August 10,
1992, 1 of the Eighth Division of the Court of Appeals and its
resolution dated March 25, 1993, 2 both rendered in CA-G.R. CV
No. 27653, which affirmed the decision of the Regional Trial
Court (RTC) of San Jose City (Branch 38).
The facts are as follows:
On June 4, 1979, private respondent spouses Maria Amor and
Marciano Bascos obtained a loan from the Philippine National
Bank in the amount of P15,000.00 evidenced by a promissory
note and secured by a real estate mortgage.
The promissory note contained the following stipulation: 3
For value received, I/we, [private respondents] jointly and
severally promise to pay to the ORDER of the PHILIPPINE
NATIONAL BANK, at its office in San Jose City, Philippines,
the sum of FIFTEEN THOUSAND ONLY (P15,000.00),
Philippine Currency, together with interest thereon at the rate of
12% per annum until paid, which interest rate the Bank may at
any time without notice, raise within the limits allowed by law,
and I/we also agree to pay jointly and severally ____ % per
annum penalty charge, by way of liquidated damages should this
note be unpaid or is not renewed on due date.
Payment of this note shall be as follows:
* THREE HUNDRED SIXTY FIVE DAYS * AFTER DATE
On the reverse side of the note the following condition was
stamped: 4
All short-term loans to be granted starting January 1, 1978 shall
be made subject to the condition that any and/or all extensions
hereof that will leave any portion of the amount still unpaid after
730 days shall automatically convert the outstanding balance into
a medium or long-term obligation as the case may be and give the
Bank the right to charge the interest rates prescribed under it
policies from the date the account was originally granted.
To secure payment of the loan the parties executed a real estate
mortgage contract which provided: 5
(k) INCREASE OF INTEREST RATE:
The rate of interest charged on the obligation secured by this
mortgage as well as the interest on the amount which may have
been advanced by the MORTGAGEE, in accordance with the
provision hereof, shall be subject during the life of this contract
to such an increase within the rate allowed by law, as the Board
of Directors of the MORTGAGEE may prescribe for its debtors.
On December 12, 1980, PNB extended the period of payment of
the loan to June 5, 1981, thus converting the loan from a short-
term to a medium-term loan, i.e., a loan which matured over two
to five years. 6 PNB also increased the rate of interest per annum,
first to 14%, effective December 1, 1979; 7 then to 22% effective
February 21, 1983; 8 to 22.5% effective June 20, 1983; 9 to 23%
from November 2, 1983; 10 to 25% effective March 2,
1984; 11 and finally to 28% from April 10, 1984. 12
Because private respondents defaulted in paying their obligation,
the Provincial Sheriff of Nueva Ecija scheduled the extrajudicial
foreclosure of the mortgage on June 15, 1984 to pay private
6
respondents' indebtedness which, according to PNB, had
increased from P15,000.00 to P35,125.84, plus 28% annual
interest. 13
Private respondents brought suit against PNB, its Branch
Manager Jetro Godoy, and the Provincial Sheriff of Nueva Ecija
Numeriano Y. Galang (1) for a declaration of nullity of C.B.
Monetary Board Resolution No. 2126 dated November 29, 1979
(embodied in C.B. Circular No. 705 dated December 1, 1979),
which increased the ceiling on the interest rate of secured and
unsecured loans to 16% per annum and 14% per annum,
respectively, on the ground that it was contrary to the Usury Law,
good morals, public policy, customs and traditions, social justice,
due process and the equal protection clause of the Constitution;
and (2) for a declaration that the interest rate increases on their
loan were contrary to Art. 1959 of the Civil Code which provides
that interest due and unpaid shall not earn interest. Pending final
determination of the case, private respondents asked that the
auction sale be enjoined.
PNB filed an answer with compulsory counterclaim. It alleged
that private respondents had no cause of action because 1-a of
the Usury Law, as amended by P.D. No. 1684, did not limit the
number of times the interest could be increased and that private
respondents were estopped from questioning the increases
because they failed to object to the same. PNB asked that the
complaint be dismissed and that private respondents be ordered
to pay P35,125.84, plus interest from April 10, 1984, until the
obligation was fully paid, attorney's fees and moral damages in
such amount as may be determined by the court.
On June 13, 1984 private respondents deposited with the clerk of
court P8,000.00 14 and on January 15, 1985 P2,000.00, 15 in
partial payment of their loan.
On June 15, 1990, the RTC rendered a decision, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. There having [sic] no evidence against the defendants Jetro
Godoy, and the Provincial Sheriff of Nueva Ecija, Numeriano
Galang, the case against them is dismissed;
2. The increase in interest rates based on the escalation clauses in
the Promissory Note and the Real Estate Mortgage, par. K, being
contrary to Sec. 3, P.D. No. 116 are declared null and void, that
henceforth, the defendant PNB is hereby directed to desist from
enforcing the increased rate of interest more than TWELVE
(12%) per cent on plaintiffs' loan;
3. The compulsory counterclaim of the defendants is also
dismissed;
4. On the other hand, the plaintiffs can settle their unpaid
obligation with the defendant PNB at the interest rate of
TWELVE (12%) per cent per annum computed from the
inception of the loan until the same is fully paid; advances made
by the PNB for insurance premiums and penalties added; and the
P10,000.00 paid to and defendant bank to be credited as payment
by the plaintiffs;
5. Plaintiff's claim for damages is, likewise, dismissed; and
6. The parties shall each bear out [sic] the expenses incurred by
them.
SO ORDERED.
The RTC invalidated the stipulations in the promissory note and
the real estate mortgage, which authorized PNB to increase the
interest rate, on the ground that there was no corresponding
stipulation that the interest rate would be reduced in the event the
law reduced the applicable maximum rate as provided under P.D.
No. 1684; that P.D. No. 116, which sets a ceiling of 12% interest
on secured loans, is a "law," which should prevail over Circular
No. 705, used by PNB to increase the interest; that collection of
the increased interest sanctions unjust enrichment contrary to Art.
22 of the Civil Code; and that the promissory note and real estate
mortgage were contracts of adhesion which should be interpreted
in favor of private respondents.
PNB appealed. However, the Court of Appeals affirmed the trial
court's decision. The appellate court held that the escalation
clause in the promissory note could not be given effect because
of the absence of a provision for a de-escalation in the event a
reduction of interest was ordered by law. In addition it held that
pursuant to the escalation clause any increase in interest must be
within "the limits allowed by law" but C.B. circulars, on the basis
of which PNB increased the interest, could not be considered
"laws".
PNB moved for a reconsideration. As its motion was denied, it
filed this petition. PNB's argument is that the Court of Appeals
erred in applying 2 of P.D. No. 1684, which makes the validity
of an escalation clause turn on the presence of a de-escalation
clause, to the promissory note and real estate mortgage in this
case. PNB contends that the two had been executed on June 4,
1979, before the effectivity of P.D. No. 1684 on March 17, 1980.
To begin with, PNB's argument rests on a misapprehension of the
import of the appellate court's ruling. The Court of Appeals
nullified the interest rate increases not because the promissory
note did not comply with P.D. No. 1684 by providing for a de-
escalation, but because the absence of such provision made the
clause so one-sided as to make it unreasonable.
That ruling is correct. It is in line with our decision in Banco
Filipino Savings & Mortgage Bank v. Navarro 16 that although
P.D. No. 1684 is not to be retroactively applied to loans granted
before its effectivity, there must nevertheless be a de-escalation
clause to mitigate the one-sideness of the escalation clause.
Indeed because of concern for the unequal status of borrowers vis-
a-vis the banks, our cases after Banco Filipino have fashioned the
rule that any increase in the rate of interest made pursuant to an
escalation clause must be the result of agreement between the
parties.
Thus in Philippine National Bank v. Court of Appeals, 17 two
promissory notes authorized PNB to increase the stipulated
interest per annum "within the limits allowed by law at any time
depending on whatever policy [PNB] may adopt in the
future; Provided, that the interest rate on this note shall be
correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary
Board." The real estate mortgage likewise provided:
The rate of interest charged on the obligation secured by this
mortgage as well as the interest on the amount which may have
been advanced by the MORTGAGEE, in accordance with the
provisions hereof, shall be subject during the life of this contract
to such an increase within the rate allowed by law, as the Board
of Directors of the MORTGAGEE may prescribe for its debtors.
Pursuant to these clauses, PNB successively increased the interest
from 18% to 32%, then to 41% and then to 48%. This Court
declared the increases unilaterally imposed by PNB to be in
violation of the principle of mutuality as embodied in Art. 1308
of the Civil Code, which provides that "[t]he contract must bind
both contracting parties; its validity or compliance cannot be left
to the will of one of them." As the Court explained: 18
In order that obligations arising from contracts may have the force
of law between the parties, there must be mutuality between the
parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties, is void
(Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even
assuming that the P1.8 million loan agreement between the PNB
a license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have
7
been null and void for being violative of the principle of mutuality
essential in contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do
not bargain on equal footing, the weaker party's (the debtor)
participation being reduced to the alternative "to take it or leave
it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such
a contract is a veritable trap for the weaker party whom the courts
of justice must protect against abuse and imposition.
A similar ruling was made in Philippine National Bank v. Court
of Appeals. 19 The credit agreement in that case provided:
The BANK reserves the right to increase the interest rate within
the limits allowed by law at any time depending on whatever
policy it may adopt in the future: Provided, that the interest rate
on this accommodation shall be correspondingly decreased in the
event that the applicable maximum interest is reduced by law or
by the Monetary Boar. . . .
As in the first case, PNB successively increased the stipulated
interest so that what was originally 12% per annum became, after
only two years, 42%. In declaring the increases invalid, we
held: 20
We cannot countenance petitioner bank's posturing that the
escalation clause at bench gives it unbridled right
to unilaterally upwardly adjust the interest on private
respondents' loan. That would completely take away from private
respondents the right to assent to an important modification in
their agreement, and would negate the element of mutuality in
contracts.
Only recently we invalidated another round of interest increases
decreed by PNB pursuant to a similar agreement it had with other
borrowers: 21
[W]hile the Usury Law ceiling on interest rates was lifted by C.B.
Circular 905, nothing in the said circular could possibly be read
as granting respondent bank carte blanche authority to raise
interest rates to levels which would either enslave its borrowers
or lead to a hemorrhaging of their assets.
In this case no attempt was made by PNB to secure the conformity
of private respondents to the successive increases in the interest
rate. Private respondents' assent to the increase can not be implied
from their lack of response to the letters sent by PNB, informing
them of the increases. For as stated in one case, 22 no one
receiving a proposal to change a contract is obliged to answer the
proposal.
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
FIRST DIVISION
[G.R. No. 124290. January 16, 1998]
ALLIED BANKING CORPORATION, petitioner, vs.
COURT OF APPEALS, HON. JOSE C. DE GUZMAN,
OSCAR D. TANQUECO, LUCIA D. TANQUECO-
MATIAS, RUBEN D. TANQUECO and NESTOR D.
TANQUECO, respondents
DECISION
BELLOSILLO, J .:
There are two (2) main issues in this petition for
review: namely, (a) whether a stipulation in a contract of lease to
the effect that the contract "may be renewed for a like term at the
option of the lessee" is void for being potestative or violative of
the principle of mutuality of contracts under Art. 1308 of the Civil
Code and, corollarily, what is the meaning of the clause "may be
renewed for a like term at the option of the lessee;" and, (b)
whether a lessee has the legal personality to assail the validity of
a deed of donation executed by the lessor over the leased
premises.
Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco
owned a 512-square meter lot located at No. 2 Sarmiento Street
corner Quirino Highway, Novaliches, Quezon City, covered by
TCT No. 136779 in their name. On 30 June 1978 they leased the
property to petitioner Allied Banking Corporation (ALLIED) for
a monthly rental of P1,000.00 for the first three (3) years,
adjustable by 25% every three (3) years thereafter.[1] The lease
contract specifically states in its Provision No. 1 that "the term of
this lease shall be fourteen (14) years commencing from April 1,
1978 and may be renewed for a like term at the option of the
lessee."
Pursuant to their lease agreement, ALLIED introduced an
improvement on the property consisting of a concrete building
with a floor area of 340-square meters which it used as a branch
office. As stipulated, the ownership of the building would be
transferred to the lessors upon the expiration of the original term
of the lease.
Sometime in February 1988 the Tanqueco spouses executed a
deed of donation over the subject property in favor of their four
(4) children, namely, private respondents herein Oscar D.
Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco and
Nestor D. Tanqueco, who accepted the donation in the same
public instrument.
On 13 February 1991, a year before the expiration of the contract
of lease, the Tanquecos notified petitioner ALLIED that they
were no longer interested in renewing the
lease.[2] ALLIED replied that it was exercising its
option to renew their lease under the same terms with additional
proposals.[3] Respondent Ruben D. Tanqueco, acting in behalf of
all the donee-lessors, made a counter-proposal.[4] ALLIED
however rejected the counter-proposal and insisted on Provision
No. 1 of their lease contract.
When the lease contract expired in 1992 private respondents
demanded that ALLIED vacate the premises. But the latter
asserted its sole option to renew the lease and enclosed in its reply
letter a cashiers check in the amount of P68,400.00 representing
the advance rental payments for six (6) months taking into
account the escalation clause. Private respondents however
returned the check to ALLIED, prompting the latter to consign
the amount in court.
An action for ejectment was commenced before the Metropolitan
Trial Court of Quezon City. After trial, the MeTC-Br. 33 declared
Provision No. 1 of the lease contract void for being violative of
Art. 1308 of the Civil Code thus -
x x x but such provision [in the lease contract], to the mind of the
Court, does not add luster to defendants cause nor constitutes as
an unbridled or unlimited license or sanctuary of the defendant to
perpetuate its occupancy on the subject property. The basic
intention of the law in any contract is mutuality and equality. In
other words, the validity of a contract cannot be left at (sic) the
will of one of the contracting parties. Otherwise, it infringes
(upon) Article 1308 of the New Civil Code, which provides: The
contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them x x x x Using
the principle laid down in the case of Garcia v. Legarda as
cornerstone, it is evident that the renewal of the lease in this case
cannot be left at the sole option or will of the defendant
notwithstanding provision no. 1 of their expired contract. For
that would amount to a situation where the continuance
and effectivity of a
contract will depend only upon the sole will or power of the less
ee, which is repugnant to the very spirit envisioned under Article
1308 of the New Civil Code x x x x the theory adopted by this
8
Court in the case at bar finds ample affirmation from the principle
echoed by the Supreme Court in the case of Lao Lim v. CA, 191
SCRA 150, 154, 155.
On appeal to the Regional Trial Court, and later to the Court of
Appeals, the assailed decision was affirmed.[5]
On 20 February 1993, while the case was pending in the Court of
Appeals, ALLIED vacated the leased premises by reason of the
controversy.[6]
ALLIED insists before us that Provision No. 1 of the lease
contract was mutually agreed upon hence valid and binding on
both parties, and the exercise by petitioner of its option to renew
the contract was part of their agreement and in pursuance thereof.
We agree with petitioner. Article 1308 of the Civil Code
expresses what is known in law as the principle of mutuality of
contracts. It provides that "the contract must bind both the
contracting parties; its validity or compliance cannot be left to the
will of one of them." This binding effect of a contract on both
parties is based on the principle that the obligations arising from
contracts have the force of law between the contracting parties,
and there must be mutuality between them based essentially on
their equality under which it is repugnant to have one party bound
by the contract while leaving the other free therefrom. The
ultimate purpose is to render void a contract containing a
condition which makes its fulfillment dependent solely upon the
uncontrolled will of one of the contracting parties.
An express agreement which gives the lessee the sole option to
renew the lease is frequent and subject to statutory restrictions,
valid and binding on the parties. This option, which is provided
in the same lease agreement, is fundamentally part of the
consideration in the contract and is no different from any other
provision of the lease carrying an undertaking on the part of the
lessor to act conditioned on the performance by the lessee. It is a
purely executory contract and at most confers a right to obtain a
renewal if there is compliance with the conditions on which the
right is made to depend. The right of renewal constitutes a part of
the lessees interest in the land and forms a substantial and integral
part of the agreement.
The fact that such option is binding only on the lessor and can be
exercised only by the lessee does not render it void for lack of
mutuality. After all, the lessor is free to give or not to give the
option to the lessee. And while the lessee has a right to elect
whether to continue with the lease or not, once he exercises his
option to continue and the lessor accepts, both parties are
thereafter bound by the new lease agreement. Their rights and
obligations become mutually fixed, and the lessee is entitled to
retain possession of the property for the duration of the new lease,
and the lessor may hold him liable for the rent therefor. The lessee
cannot thereafter escape liability even if he
should subsequently decide to abandon the premises. Mutuality
obtains in such a contract and equality exists between the lessor
and the lessee since they remain with the same faculties in respect
to fulfillment.[7]
The case of Lao Lim v. Court of Appeals[8] relied upon by the trial
court is not applicable here. In that case, the stipulation in the
disputed compromise agreement was to the effect that the lessee
would be allowed to stay in the premises "as long as he needs it
and can pay the rents." In the present case, the questioned
provision states that the lease "may be renewed for a like term at
the option of the lessee." The lessor is bound by the option he has
conceded to the lessee. The lessee likewise becomes bound only
when he exercises his option and the lessor cannot thereafter be
excused from performing his part of the agreement.
Likewise, reliance by the trial court on the 1967 case of Garcia v.
Rita Legarda, Inc.,[9] is misplaced. In that case, what was
involved was a contract to sell involving residential lots, which
gave the vendor the right to declare the contract cancelled and of
no effect upon the failure of the vendee to fulfill any of
the conditions therein set forth. In the instant case, we are dealing
with a contract of lease which gives the lessee the right to renew
the same.
With respect to the meaning of the clause "may be renewed for a
like term at the option of the lessee," we sustain petitioner's
contention that its exercise of the option resulted in the automatic
extension of the contract of lease under the same terms and
conditions. The subject contract simply provides that "the term of
this lease shall be fourteen (14) years and may be renewed for a
like term at the option of the lessee." As we see it, the only term
on which there has been a clear agreement is the period of the new
contract, i.e., fourteen (14) years, which is evident from the clause
"may be renewed for a like term at the option of the lessee," the
phrase "for a like term" referring to the period. It is silent as to
what the specific terms and conditions of the renewed lease shall
be.Shall it be the same terms and conditions as in the original
contract, or shall it be under the terms and conditions as may be
mutually agreed upon by the parties after the expiration of the
existing lease?
In Ledesma v. Javellana[10] this Court was confronted with a
similar problem. In that case the lessee was given the sole option
to renew the lease, but the contract failed to specify the terms and
conditions that would govern the new contract. When the lease
expired, the lessee demanded an extension under the same terms
and conditions. The lessor expressed conformity to the renewal of
the contract but refused to accede to the claim of the lessee that
the renewal should be under the same terms and conditions as the
original contract. In sustaining the lessee, this Court made the
following pronouncement:
x x x in the case of Hicks v. Manila Hotel Company, a similar
issue was resolved by this Court. It was held that 'such a clause
relates to the very contract in which it is placed, and does not
permit the defendant upon the renewal of the contract in which
the clause is found, to insist upon different terms than those
embraced in the contract to be renewed;' and that 'a stipulation to
renew always relates to the contract in which it is found and the
rights granted thereunder, unless it expressly provides
for variations in the terms of the contract to be renewed.'
The same principle is upheld in American Law regarding the
renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at p.
45, we find the following citations: 'The rule is well-established
that a general covenant to renew or extend a lease which makes
no provision as to the terms of a renewal or extension implies
a renewal or extension upon the same terms as provided in the
original lease.'
In the lease contract under consideration, there is no
provision to indicate that the renewal will be subject to new terms
and conditions that the parties may yet agree upon. It is to renewal
provisions of lease contracts of the kind presently considered that
the principles stated above squarely apply. We do not agree with
the contention of the appellants that if it was intended by the
parties to renew the contract under the same terms and conditions
stipulated in the contract of lease, such should have expressly so
stated in the contractitself. The same argument could easily be
interposed by the appellee who could likewise contend that if
the intention was to renew the contract of lease under such new
terms and conditions that the parties may agree upon, the contract
should have so specified.Between the two assertions, there is
more logic in the latter.
The settled rule is that in case of uncertainty as to the meaning of
a provision granting extension to a contract of lease, the tenant is
the one favored and not the landlord. 'As a general rule, in
construing provisions relating to renewals or extensions, where
9
there is any uncertainty, the tenant is favored, and not the
landlord, because the latter, having the power of stipulating in
his own favor, has neglected to do so; and also upon the
principle that every man's grant is to be taken
most strongly against himself (50 Am Jur. 2d, Sec. 1162, p. 48;
see also 51 C.J.S. 599).'
Besides, if we were to adopt the contrary theory that the terms
and conditions to be embodied in the renewed contract were still
subject to mutual agreement by and between the parties, then the
option - which is an integral part of the consideration for the
contract - would be rendered worthless. For then, the lessor could
easily defeat the lessee's right of renewal by simply imposing
unreasonable and onerous conditions to prevent the parties from
reaching an agreement, as in the case at bar. As in a statute no
word, clause, sentence, provision or part of a contract shall be
considered surplusage or superfluous, meaningless, void,
insignificant or nugatory, if that can be reasonably avoided. To
this end, a construction which will render every word operative is
to be preferred over that which would make some words idle and
nugatory.[11]
Fortunately for respondent lessors, ALLIED vacated the premises
on 20 February 1993 indicating its abandonment of whatever
rights it had under the renewal clause. Consequently, what
remains to be done is for ALLIED to pay rentals for the continued
use of the premises until it vacated the same, computed from
the expiration of the original term of the contract on 31 March
1992 to the time it actually left the premises on 20 February 1993,
deducting therefrom the amount of P68,400.00 consigned in
court by ALLIED and any other amount which it may have
deposited or advanced in conection with the lease. Since the old
lease contract was deemed renewed under the same terms and
conditions upon the exercise by ALLIED of its option, the basis
of the computation of rentals should be the rental rate provided
for in the existing contract.
Finally, ALLIED cannot assail the validity of the deed of
donation, not being a party thereto. A person who is not
principally or subsidiarily bound has no legal capacity to
challenge the validity of the contract.[12] He must first have an
interest in it. "Interest" within the meaning of the term means
material interest, an interest to be affected by the deed, as
distinguished from a mere incidental interest. Hence, a
person who is not a party to a contract and for whose benefit it
was not expressly made cannot maintain an action on it, even if
the contract, if performed by the parties thereto would
incidentally affect him,[13] except when he is prejudiced in his
rights with respect to one of the contracting parties and can show
the detriment which could positively result to him from the
contract in which he had no intervention.[14] We find none in the
instant case.
WHEREFORE, the Decision of the Court of Appeals
is REVERSED and SET ASIDE. Considering that petitioner
ALLIED BANKING CORPORATION already vacated the
leased premises as of 20 February 1993, the renewed lease
contract is deemed terminated as of that date. However, petitioner
is required to pay rentals to respondent lessors at the rate provided
in their existing contract, subject to computation in view of the
consignment in court of P68,400.00 by petitioner, and of such
other amounts it may have deposited or advanced in connection
with the lease.
SO ORDERED.
G.R. No. 187678 April 10, 2013 prevailing rates to be used in computing interest due on their loan.
SPOUSES IGNACIO F. JUICO and ALICE P. As of the date of the public auction, petitioners outstanding
JUICO, Petitioners, balance was P19,201,776.6312 based on the following statement
vs. of account which she prepared:
CHINA BANKING CORPORATION, Respondent. STATEMENT OF ACCOUNT
DECISION As of FEBRUARY 23, 2001
VILLARAMA, JR., J.: IGNACIO F. JUICO
Before us is a petition for review on certiorari under Rule 45 of PN# 507-0010520 due on 04-07-2004
the 1997 Rules of Civil Procedure, as amended, assailing the 1wphi1
February 20, 2009 Decision1 and April 27, 2009 Resolution2 of
Principal balance of PN# 5070010520. . .
the Court of Appeals (CA) in CA G.R. CV No. 80338. The CA
........... 4,139,000.00
affirmed the April 14, 2003 Decision3 of the Regional Trial Court
(RTC) of Makati City, Branch 147. Interest on P4,139,000.00 fr. 04-Nov-99
The factual antecedents:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained 04-Nov-2000 366 days @ 15.00%. . . . . .
a loan from China Banking Corporation (respondent) as ........... 622,550.96
evidenced by two Promissory Notes both dated October 6, 1998
and numbered 507-001051-34and 507-001052-0,5 for the sums of Interest on P4,139,000.00 fr. 04-Nov-
!!6,216,000 and P4, 139,000, respectively. The loan was secured 2000
by a Real Estate Mortgage (REM) over petitioners property
located at 49 Greensville St., White Plains, Quezon City covered 04-Dec-2000 30 days @ 24.50%. . . . . . .
by Transfer Certificate of Title (TCT) No. RT-103568 (167394) ........... 83,346.99
PR-412086 of the Register of Deeds of Quezon City.
When petitioners failed to pay the monthly amortizations due, Interest on P4,139,000.00 fr. 04-Dec-
respondent demanded the full payment of the outstanding balance 2000
with accrued monthly interests. On September 5, 2000,
petitioners received respondents last demand letter7 dated 04-Jan-2001 31 days @ 21.50%. . . . . . . .
August 29, 2000. ........... 75,579.27
As of February 23, 2001, the amount due on the two promissory
notes totaled P19,201,776.63 representing the principal, interests, Interest on P4,139,000.00 fr. 04-Jan-
penalties and attorneys fees. On the same day, the mortgaged 2001
property was sold at public auction, with respondent as highest
04-Feb-2001 31 days @ 19.50%. . . . . . .
bidder for the amount of P10,300,000.
........... 68,548.64
On May 8, 2001, petitioners received8 a demand letter9 dated May
2, 2001 from respondent for the payment of P8,901,776.63, the Interest on P4,139,000.00 fr. 04-Feb-
amount of deficiency after applying the proceeds of the 2001
foreclosure sale to the mortgage debt. As its demand remained
unheeded, respondent filed a collection suit in the trial court. In 23-Feb-2001 19 days @ 18.00%. . . . . . .
its Complaint,10respondent prayed that judgment be rendered ........... 38,781.86
ordering the petitioners to pay jointly and severally:
(1) P8,901,776.63 representing the amount of deficiency, plus Penalty charge @ 1/10 of 1% of the total
interests at the legal rate, from February 23, 2001 until fully paid; amount due
(2) an additional amount equivalent to 1/10 of 1% per day of the (P4,139,000.00 from 11-04-99 to 02-23-
total amount, until fully paid, as penalty; (3) an amount equivalent 2001 @
to 10% of the foregoing amounts as attorneys fees; and (4) 1/10 of 1% per day). . . . . . . . . . . . . . . . . 1,974,303.00
expenses of litigation and costs of suit.
In their Answer,11 petitioners admitted the existence of the debt Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . .
but interposed, by way of special and affirmative defense, that the ...... 7,002,110.73
complaint states no cause of action considering that the principal
of the loan was already paid when the mortgaged property was PN# 507-0010513 due on 04-07-2004
extrajudicially foreclosed and sold for P10,300,000. Petitioners Principal balance of PN# 5070010513. . .
contended that should they be held liable for any deficiency, it ........... 6,216,000.00
should be only for P55,000 representing the difference between
the total outstanding obligation of P10,355,000 and the bid price Interest on P6,216,000.00 fr. 06-Oct-99
of P10,300,000. Petitioners also argued that even assuming there 04-Nov-2000 395 days @ 15.00%. . . . . .
is a cause of action, such deficiency cannot be enforced by ........... 1,009,035.62
respondent because it consists only of the penalty and/or
Interest on P6,216,000.00 fr. 04-Nov-
compounded interest on the accrued interest which is generally
2000
not favored under the Civil Code. By way of counterclaim,
04-Dec-2000 30 days @ 24.50%. . . . . . .
petitioners prayed that respondent be ordered to pay P100,000 in
........... 125,171.51
attorneys fees and costs of suit.
At the trial, respondent presented Ms. Annabelle Cokai Yu, its Interest on P6,216,000.00 fr. 04-Dec-
Senior Loans Assistant, as witness. She testified that she handled 2000 113,505.86
the account of petitioners and assisted them in processing their
loan application. She called them monthly to inform them of the

10
 On cross-examination, petitioner testified that he is a Doctor of
04-Jan-2001 31 days @ 21.50%. . . . . . . .
Medicine and also engaged in the business of distributing medical
...........
supplies. He admitted having read the promissory notes and that
Interest on P6,216,000.00 fr. 04-Jan- he is aware of his obligation under them before he signed the
2001 same.19
04-Feb-2001 31 days @ 19.50%. . . . . . . In its decision, the RTC ruled in favor of respondent. The fallo of
........... 102,947.18 the RTC decision reads:
WHEREFORE, premises considered, the Complaint is hereby
Interest on P6,216,000.00 fr. 04-Feb- sustained, and Judgment is rendered ordering herein defendants
2001 to pay jointly and severally to plaintiff, the following:
23-Feb-2001 19 days @ 18.00%. . . . . . . 1. P8,901,776.63 representing the amount of the deficiency
........... 58,243.07 owing to the plaintiff, plus interest thereon at the legal rate after
February 23, 2001;
Penalty charge @ 1/10 of 1% of the total 2. An amount equivalent to 10% of the total amount due as and
amount due for attorneys fees, there being stipulation therefor in the
(P6,216,000.00 from 10-06-99 to 02-23- promissory notes;
2001 @ 3. Costs of suit.
1/10 of 1% per day). . . . . . . . . . . . . . . . . 3,145,296.00 SO ORDERED.20
The trial court agreed with respondent that when the mortgaged
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,770,199.2 property was sold at public auction on February 23, 2001
..... 3 for P10,300,000 there remained a balance of P8,901,776.63 since
before foreclosure, the total amount due on the two promissory
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,772,309.9 notes aggregated to P19,201,776.63 inclusive of principal,
...... 6 interests, penalties and attorneys fees. It ruled that the amount
realized at the auction sale was applied to the interest,
Less: A/P applied to balance of principal (55,000.00) conformably with Article 1253 of the Civil Code which provides
that if the debt produces interest, payment of the principal shall
Less: Accounts payable L & D 17,456,160.5
not be deemed to have been made until the interests have been
(261,149.39) 7
covered. This being the case, petitioners principal obligation
Add: 10% Attorneys Fee 1,745,616.06 subsists but at a reduced amount of P8,901,776.63.
The trial court further held that Ignacios claim that he signed the
19,201,776.6 promissory notes in blank cannot negate or mitigate his liability
Total amount due 3 since he admitted reading the promissory notes before signing
them. It also ruled that considering the substantial amount
10,300,000.0 involved, it is unbelievable that petitioners threw all caution to the
Less: Bid Price 0 wind and simply signed the documents without reading and
understanding the contents thereof. It noted that the promissory
TOTAL DEFICIENCY AMOUNT AS notes, including the terms and conditions, are pro forma and what
OF appears to have been left in blank were the promissory note
13 number, date of the instrument, due date, amount of loan, and
FEB. 23, 2001 8,901,776.63
condition that interest will be at the prevailing rates. All of these
Petitioners thereafter received a demand letter14 dated May 2,
details, the trial court added, were within the knowledge of the
2001 from respondents counsel for the deficiency amount
petitioners.
of P8,901,776.63. Ms. Yu further testified that based on the
When the case was elevated to the CA, the latter affirmed the trial
Statement of Account15 dated March 15, 2002 which she
courts decision. The CA recognized respondents right to claim
prepared, the outstanding balance of petitioners
the deficiency from the debtor where the proceeds of the sale in
was P15,190,961.48.16
an extrajudicial foreclosure of mortgage are insufficient to cover
On cross-examination, Ms. Yu reiterated that the interest rate
the amount of the debt. Also, it found as valid the stipulation in
changes every month based on the prevailing market rate and she
the promissory notes that interest will be based on the prevailing
notified petitioners of the prevailing rate by calling them monthly
rate. It noted that the parties agreed on the interest rate which was
before their account becomes past due. When asked if there was
not unilaterally imposed by the bank but was the rate offered daily
any written authority from petitioners for respondent to increase
by all commercial banks as approved by the Monetary Board.
the interest rate unilaterally, she answered that petitioners signed
Having signed the promissory notes, the CA ruled that petitioners
a promissory note indicating that they agreed to pay interest at the
are bound by the stipulations contained therein.
prevailing rate.17
Petitioners are now before this Court raising the sole issue of
Petitioner Ignacio F. Juico testified that prior to the release of the
whether the interest rates imposed upon them by respondent are
loan, he was required to sign a blank promissory note and was
valid. Petitioners contend that the interest rates imposed by
informed that the interest rate on the loan will be based on
respondent are not valid as they were not by virtue of any law or
prevailing market rates. Every month, respondent informs him by
Bangko Sentral ng Pilipinas (BSP) regulation or any regulation
telephone of the prevailing interest rate. At first, he was able to
that was passed by an appropriate government entity. They insist
pay his monthly amortizations but when he started to incur delay
that the interest rates were unilaterally imposed by the bank and
in his payments due to the financial crisis, respondent pressured
thus violate the principle of mutuality of contracts. They argue
him to pay in full, including charges and interests for the delay.
that the escalation clause in the promissory notes does not give
His property was eventually foreclosed and was sold at public
respondent the unbridled authority to increase the interest rate
auction.18
unilaterally. Any change must be mutually agreed upon.

11
Respondent, for its part, points out that petitioners failed to show
that their case falls under any of the exceptions wherein findings
of fact of the CA may be reviewed by this Court. It contends that
an inquiry as to whether the interest rates imposed on the loans of
petitioners were supported by appropriate regulations from a
government agency or the Central Bank requires a reevaluation
of the evidence on records. Thus, the Court would in effect, be
confronted with a factual and not a legal issue.
The appeal is partly meritorious.
The principle of mutuality of contracts is expressed in Article
1308 of the Civil Code, which provides:
Article 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
Article 1956 of the Civil Code likewise ordains that "no interest
shall be due unless it has been expressly stipulated in writing."
The binding effect of any agreement between parties to a contract
is premised on two settled principles: (1) that any obligation
arising from contract has the force of law between the parties; and
(2) that there must be mutuality between the parties based on their
essential equality. Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the
validity or compliance of the contract which is left solely to the
will of one of the parties, is likewise, invalid.21
Escalation clauses refer to stipulations allowing an increase in the
interest rate agreed upon by the contracting parties. This Court
has long recognized that there is nothing inherently wrong with
escalation clauses which are valid stipulations in commercial
contracts to maintain fiscal stability and to retain the value of
money in long term contracts.22 Hence, such stipulations are not
void per se.23
Nevertheless, an escalation clause "which grants the creditor an
unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an
important modification in the agreement" is void. A stipulation of
such nature violates the principle of mutuality of
contracts.24 Thus, this Court has previously nullified the
unilateral determination and imposition by creditor banks of
increases in the rate of interest provided in loan contracts.25
In Banco Filipino Savings & Mortgage Bank v. Navarro,26 the
escalation clause stated: "I/We hereby authorize Banco Filipino
to correspondingly increase the interest rate stipulated in this
contract without advance notice to me/us in the event a law should
be enacted increasing the lawful rates of interest that may be
charged on this particular kind of loan." While escalation clauses
in general are considered valid, we ruled that Banco Filipino may
not increase the interest on respondent borrowers loan, pursuant
to Circular No. 494 issued by the Monetary Board on January 2,
1976, because said circular is not a law although it has the force
and effect of law and the escalation clause has no provision for
reduction of the stipulated interest "in the event that the applicable
maximum rate of interest is reduced by law or by the Monetary
Board" (de-escalation clause).
Subsequently, in Insular Bank of Asia and America v. Spouses
Salazar27 we reiterated that escalation clauses are valid
stipulations but their enforceability are subject to certain
conditions. The increase of interest rate from 19% to 21% per
annum made by petitioner bank was disallowed because it did not
comply with the guidelines adopted by the Monetary Board to
govern interest rate adjustments by banks and non-banks
performing quasi-banking functions.
In the 1991 case of Philippine National Bank v. Court of
Appeals,28 the promissory notes authorized PNB to increase the
stipulated interest per annum "within the limits allowed by law at
any time depending on whatever policy PNB may adopt in the
12
future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary
Board." This Court declared the increases (from 18% to 32%, then
to 41% and then to 48%) unilaterally imposed by PNB to be in
violation of the principle of mutuality essential in contracts.29
A similar ruling was made in a 1994 case30 also involving PNB
where the credit agreement provided that "PNB reserves the right
to increase the interest rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future:
Provided, that the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable
maximum interest is reduced by law or by the Monetary Board x
x x".
Again, in 1996, the Court invalidated escalation clauses
authorizing PNB to raise the stipulated interest rate at any time
without notice, within the limits allowed by law. The Court
observed that there was no attempt made by PNB to secure the
conformity of respondent borrower to the successive increases in
the interest rate. The borrowers assent to the increases cannot be
implied from their lack of response to the letters sent by PNB,
informing them of the increases.31
In the more recent case of Philippine Savings Bank v.
Castillo,32 we sustained the CA in declaring as unreasonable the
following escalation clause: "The rate of interest and/or bank
charges herein stipulated, during the terms of this promissory
note, its extensions, renewals or other modifications, may be
increased, decreased or otherwise changed from time to time
within the rate of interest and charges allowed under present or
future law(s) and/or government regulation(s) as the PSBank may
prescribe for its debtors." Clearly, the increase or decrease of
interest rates under such clause hinges solely on the discretion of
petitioner as it does not require the conformity of the maker before
a new interest rate could be enforced. We also said that
respondents assent to the modifications in the interest rates
cannot be implied from their lack of response to the memos sent
by petitioner, informing them of the amendments, nor from the
letters requesting for reduction of the rates. Thus:
the validity of the escalation clause did not give petitioner the
unbridled right to unilaterally adjust interest rates. The adjustment
should have still been subjected to the mutual agreement of the
contracting parties. In light of the absence of consent on the part
of respondents to the modifications in the interest rates, the
adjusted rates cannot bind them notwithstanding the inclusion of
a de-escalation clause in the loan agreement.33
It is now settled that an escalation clause is void where the
creditor unilaterally determines and imposes an increase in the
stipulated rate of interest without the express conformity of the
debtor. Such unbridled right given to creditors to adjust the
interest independently and upwardly would completely take away
from the debtors the right to assent to an important modification
in their agreement and would also negate the element of mutuality
in their contracts.34 While a ceiling on interest rates under the
Usury Law was already lifted under Central Bank Circular No.
905, nothing therein "grants lenders carte blanche authority to
raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets."35
The two promissory notes signed by petitioners provide:
I/We hereby authorize the CHINA BANKING CORPORATION
to increase or decrease as the case may be, the interest rate/service
charge presently stipulated in this note without any advance
notice to me/us in the event a law or Central Bank regulation is
passed or promulgated by the Central Bank of the Philippines or
appropriate government entities, increasing or decreasing such
interest rate or service charge.36
Such escalation clause is similar to that involved in the case of
Floirendo, Jr. v. Metropolitan Bank and Trust Company37 where
this Court ruled:
The provision in the promissory note authorizing respondent bank
to increase, decrease or otherwise change from time to time the
rate of interest and/or bank charges "without advance notice" to
petitioner, "in the event of change in the interest rate prescribed
by law or the Monetary Board of the Central Bank of the
Philippines," does not give respondent bank unrestrained freedom
to charge any rate other than that which was agreed upon. Here,
the monthly upward/downward adjustment of interest rate is left
to the will of respondent bank alone. It violates the essence of
mutuality of the contract.38
More recently in Solidbank Corporation v. Permanent Homes,
Incorporated,39 we upheld as valid an escalation clause which
required a written notice to and conformity by the borrower to the
increased interest rate. Thus:
The Usury Law had been rendered legally ineffective by
Resolution No. 224 dated 3 December 1982 of the Monetary
Board of the Central Bank, and later by Central Bank Circular No.
905 which took effect on 1 January 1983. These circulars
removed the ceiling on interest rates for secured and unsecured
loans regardless of maturity. The effect of these circulars is to
allow the parties to agree on any interest that may be charged on
a loan. The virtual repeal of the Usury Law is within the range of
judicial notice which courts are bound to take into account.
Although interest rates are no longer subject to a ceiling, the
lender still does not have an unbridled license to impose increased
interest rates. The lender and the borrower should agree on the
imposed rate, and such imposed rate should be in writing.
The three promissory notes between Solidbank and Permanent all
contain the following provisions:
"5. We/I irrevocably authorize Solidbank to increase or decrease
at any time the interest rate agreed in this Note or Loan on the
basis of, among others, prevailing rates in the local or
international capital markets. For this purpose, We/I authorize
Solidbank to debit any deposit or placement account with
Solidbank belonging to any one of us. The adjustment of the
interest rate shall be effective from the date indicated in the
written notice sent to us by the bank, or if no date is indicated,
from the time the notice was sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall
prepay all amounts due under this Note or Loan within thirty (30)
days from the receipt by anyone of us of the written notice.
Otherwise, We/I shall be deemed to have given our consent to the
interest rate adjustment."
The stipulations on interest rate repricing are valid because (1) the
parties mutually agreed on said stipulations; (2) repricing takes
effect only upon Solidbanks written notice to Permanent of the
new interest rate; and (3) Permanent has the option to prepay its
loan if Permanent and Solidbank do not agree on the new interest
rate. The phrases "irrevocably authorize," "at any time" and
"adjustment of the interest rate shall be effective from the date
indicated in the written notice sent to us by the bank, or if no date
is indicated, from the time the notice was sent," emphasize that
Permanent should receive a written notice from Solidbank as a
condition for the adjustment of the interest rates. (Emphasis
supplied.)
In this case, the trial and appellate courts, in upholding the validity
of the escalation clause, underscored the fact that there was
actually no fixed rate of interest stipulated in the promissory notes
as this was made dependent on prevailing rates in the market. The
subject promissory notes contained the following condition
written after the first paragraph:
13
With one year grace period on principal and thereafter payable in
54 equal monthly instalments to start on the second year. Interest
at the prevailing rates payable quarterly in arrears.40
In Polotan, Sr. v. CA (Eleventh Div.),41 petitioner cardholder
assailed the trial and appellate courts in ruling for the validity of
the escalation clause in the Cardholders Agreement. On
petitioners contention that the interest rate was unilaterally
imposed and based on the standards and rate formulated solely by
respondent credit card company, we held:
The contractual provision in question states that "if there occurs
any change in the prevailing market rates, the new interest rate
shall be the guiding rate in computing the interest due on the
outstanding obligation without need of serving notice to the
Cardholder other than the required posting on the monthly
statement served to the Cardholder." This could not be considered
an escalation clause for the reason that it neither states an increase
nor a decrease in interest rate. Said clause simply states that the
interest rate should be based on the prevailing market rate.
Interpreting it differently, while said clause does not expressly
stipulate a reduction in interest rate, it nevertheless provides a
leeway for the interest rate to be reduced in case the prevailing
market rates dictate its reduction.
Admittedly, the second paragraph of the questioned proviso
which provides that "the Cardholder hereby authorizes Security
Diners to correspondingly increase the rate of such interest in the
event of changes in prevailing market rates x x x" is an escalation
clause. However, it cannot be said to be dependent solely on the
will of private respondent as it is also dependent on the prevailing
market rates.
Escalation clauses are not basically wrong or legally
objectionable as long as they are not solely potestative but based
on reasonable and valid grounds. Obviously, the fluctuation in the
market rates is beyond the control of private
respondent.42 (Emphasis supplied.)
In interpreting a contract, its provisions should not be read in
isolation but in relation to each other and in their entirety so as to
render them effective, having in mind the intention of the parties
and the purpose to be achieved. 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.43
Here, the escalation clause in the promissory notes authorizing
the respondent to adjust the rate of interest on the basis of a law
or regulation issued by the Central Bank of the Philippines,
should be read together with the statement after the first paragraph
where no rate of interest was fixed as it would be based on
prevailing market rates. While the latter is not strictly an
escalation clause, its clear import was that interest rates would
vary as determined by prevailing market rates. Evidently, the
parties intended the interest on petitioners loan, including any
upward or downward adjustment, to be determined by the
prevailing market rates and not dictated by respondents policy.
It may also be mentioned that since the deregulation of bank rates
in 1983, the Central Bank has shifted to a market-oriented interest
rate policy.44
There is no indication that petitioners were coerced into agreeing
with the foregoing provisions of the promissory notes. In fact,
petitioner Ignacio, a physician engaged in the medical supply
business, admitted having understood his obligations before
signing them. At no time did petitioners protest the new rates
imposed on their loan even when their property was foreclosed by
respondent.
This notwithstanding, we hold that the escalation clause is still
void because it grants respondent the power to impose an
increased rate of inte_rest without a written notice to petitioners
and their written consent. Respondents monthly telephone calls
to petitioners advising them of the prevailing interest rates would
not suffice. A detailed billing statement based on the new
imposed interest with corresponding computation of the total debt
should have been provided by the respondent to enable petitioners
to make an informed decision. An appropriate form must also be
signed by the petitioners to indicate their conformity to the new
rates. Compliance with these requisites is essential to preserve the
mutuality of contracts. For indeed, one-sided impositions do not
have the force of law between the parties, because such
impositions are not based on the parties essential equality.45
Modifications in the rate of interest for loans pursuant to an
escalation clause must be the result of an agreement between the
parties. Unless such important change in the contract terms is
mutually agreed upon, it has no binding effect.46 In the absence
of consent on the part of the petitioners to the modifications in the
interest rates, the adjusted rates cannot bind them. Hence, we
consider as invalid the interest rates in excess of 15%, the rate
charged for the first year.
Based on the August 29, 2000 demand letter of China Bank,
petitioners total principal obligation under the two promissory
notes which they failed to settle is P10,355,000. However, due to
China Banks unilateral increases in the interest rates from 15%
to as high as 24.50% and penalty charge of 1/10 of 1% per day or
36.5% per annum for the period November 4, 1999 to February
23, 2001, petitioners balance ballooned to P19,201,776.63. Note
that the original amount of principal loan almost doubled in only
16 months. The Court also finds the penalty charges imposed
excessive and arbitrary, hence the same is hereby reduced to 1%
per month or 12% per annum.1wphi1
Petitioners Statement of Account, as of February 23, 2001, the
date of the foreclosure proceedings, should thus be modified as
follows:
Principal P10,355,000.00
Interest at 15% per annum
P10,355,000 x .15 x 477 days/365 days 2,029,863.70
Penalty at 12% per annum 1,623 ,890. 96
P10,355,000 x .12 x 477days/365 days
Sub-Total 14,008,754.66
Less: A/P applied to balance of principal (55,000.00)
Less: Accounts payable L & D (261,149.39)
13,692,605.27
Add: Attorney's Fees 1,369,260.53
Total Amount Due 15,061,865.79
Less: Bid Price 10,300,000.00
TOTAL DEFICIENCY AMOUNT 4,761,865.79
WHEREFORE, the petition for review on certiorari is PARTLY
GRANTED. The February 20, 2009 Decision and April 27,
2009 Resolution of the Court of Appeals in CA G.R. CV No.
80338 are hereby MODIFIED. Petitioners Spouses Ignacio F.
Juico and Alice P. Juico are hereby ORDERED to pay jointly and
severally respondent China Banking Corporation P4, 7 61 ,865.
79 representing the amount of deficiency inclusive of interest,
penalty charge and attorney's fees. Said amount shall bear interest
at 12% per annum, reckoned from the time of the filing of the
complaint until its full satisfaction.
No pronouncement as to costs.
14
SO ORDERED.
G.R. No. 174433 February 24, 2014
PNB V MANALO
Although banks are free to determine the rate of interest they
could impose on their borrowers, they can do so only reasonably,
not arbitrarily. They may not take advantage of the ordinary
borrowers' lack of familiarity with banking procedures and
jargon. Hence, any stipulation on interest unilaterally imposed
and increased by them shall be struck down as violative of the
principle of mutuality of contracts.
Antecedents
Respondent Spouses Enrique Manalo and Rosalinda Jacinto
(Spouses Manalo) applied for an All-Purpose Credit Facility in
the amount of P1,000,000.00 with Philippine National Bank
(PNB) to finance the construction of their house. After PNB
granted their application, they executed a Real Estate Mortgage
on November 3, 1993 in favor of PNB over their property covered
by Transfer Certificate of Title No. S- 23191 as security for the
loan.1 The credit facility was renewed and increased several times
over the years. On September 20, 1996, the credit facility was
again renewed for P7,000,000.00. As a consequence, the parties
executed a Supplement to and Amendment of Existing Real
Estate Mortgage whereby the property covered by TCT No.
171859 was added as security for the loan.
The additional security was registered in the names of
respondents Arnold, Arnel, Anthony, and Arma, all surnamed
Manalo, who were their children.2
It was agreed upon that the Spouses Manalo would make monthly
payments on the interest. However, PNB claimed that their last
recorded payment was made on December, 1997. Thus, PNB sent
a demand letter to them on their overdue account and required
them to settle the account. PNB sent another demand letter
because they failed to heed the first demand.3
After the Spouses Manalo still failed to settle their unpaid account
despite the two demand letters, PNB foreclose the mortgage.
During the foreclosure sale, PNB was the highest bidder
for P15,127,000.00 of the mortgaged properties of the Spouses
Manalo. The sheriff issued to PNB the Certificate of Sale dated
November 13, 2000.4 After more than a year after the Certificate
of Sale had been issued to PNB, the Spouses Manalo instituted
this action for the nullification of the foreclosure proceedings and
damages. They alleged that they had obtained a loan
for P1,000,000.00 from a certain Benito Tan upon arrangements
made by Antoninus Yuvienco, then the General Manager of
PNBs Bangkal Branch where they had transacted; that they had
been made to understand and had been assured that
the P1,000,000.00 would be used to update their account, and that
their loan would be restructured and converted into a long-term
loan;5 that they had been surprised to learn, therefore, that had
been declared in default of their obligations, and that the
mortgage on their property had been foreclosed and their property
had been sold; and that PNB did not comply with Section 3 of Act
No. 3135, as amended.6 PNB and Antoninus Yuvienco countered
that the P1,000,000.00 loan obtained by the Spouses Manalo from
Benito Tan had been credited to their account; that they did not
make any assurances on the restructuring and conversion of the
Spouses Manalos loan into a long-term one;7 that PNBs right to
foreclose the mortgage had been clear especially because the
Spouses Manalo had not assailed the validity of the loans and of
the mortgage; and that the Spouses Manalo did not allege having
fully paid their indebtedness.8
Ruling ofthe RTC
After trial, the RTC rendered its decision in favor of PNB, holding
thusly:
In resolving this present case, one of the most significant matters
the court has noted is that while during the pre-trial held on 8
September 2003, plaintiff-spouses Manalo with the assistance
counsel had agreed to stipulate that defendants had the right to
foreclose upon the subject properties and that the plaintiffs[]
main thrust was to prove that the foreclosure proceedings were
invalid, in the course of the presentation of their evidence, they
modified their position and claimed [that] the loan document
executed were contracts of adhesion which were null and void
because they were prepared entirely under the defendant banks
supervision. They also questioned the interest rates and penalty
charges imposed arguing that these were iniquitous,
unconscionable and therefore likewise void.
Not having raised the foregoing matters as issues during the pre-
trial, plaintiff-spouses are presumably estopped from allowing
these matters to serve as part of their evidence, more so because
at the pre-trial they expressly recognized the defendant banks
right to foreclose upon the subject property (See Order, pp. 193-
195).
However, considering that the defendant bank did not interpose
any objection to these matters being made part of plaintiffs
evidence so much so that their memorandum contained
discussions rebutting plaintiff spouses arguments on these issues,
the court must necessarily include these matters in the resolution
of the present case.9
The RTC held, however, that the Spouses Manalos "contract of
adhesion" argument was unfounded because they had still
accepted the terms and conditions of their credit agreement with
PNB and had exerted efforts to pay their obligation;10 that the
Spouses Manalo were now estopped from questioning the interest
rates unilaterally imposed by PNB because they had paid at those
rates for three years without protest;11 and that their allegation
about PNB violating the notice and publication requirements
during the foreclosure proceedings was untenable because
personal notice to the mortgagee was not required under Act No.
3135.12
The Spouses Manalo appealed to the CA by assigning a singular
error, as follows:
THE COURT A QUO SERIOUSLY ERRED IN DISMISSING
PLAINTIFF-APPELLANTS COMPLAINT FOR BEING (sic)
LACK OF MERIT NOTWITHSTANDING THE FACT THAT
IT WAS CLEARLY SHOWN THAT THE FORECLOSURE
PROCEEDINGS WAS INVALID AND ILLEGAL.13
The Spouses Manalo reiterated their arguments, insisting that: (1)
the credit agreements they entered into with PNB were contracts
of adhesion;14 (2) no interest was due from them because their
credit agreements with PNB did not specify the interest rate, and
PNB could not unilaterally increase the interest rate without first
informing them;15 and (3) PNB did not comply with the notice
and publication requirements under Section 3 of Act 3135.16 On
the other hand, PNB and Yuvienco did not file their briefs despite
notice.17
Ruling ofthe CA
In its decision promulgated on March 28, 2006,18 the CA affirmed
the decision of the RTC insofar as it upheld the validity of the
foreclosure proceedings initiated by PNB, but modified the
Spouses Manalos liability for interest. It directed the RTC to see
to the recomputation of their indebtedness, and ordered that
should the recomputed amount be less than the winning bid in the
foreclosure sale, the difference should be immediately returned to
the Spouses Manalo.
15
The CA found it necessary to pass upon the issues of PNBs
failure to specify the applicable interest and the lack of mutuality
in the execution of the credit agreements considering the earlier
cited observation made by the trial court in its decision. Applying
Article 1956 of the Civil Code, the CA held that PNBs failure to
indicate the rate of interest in the credit agreements would not
excuse the Spouses Manalo from their contractual obligation to
pay interest to PNB because of the express agreement to pay
interest in the credit agreements. Nevertheless, the CA ruled that
PNBs inadvertence to specify the interest rate should be
construed against it because the credit agreements were clearly
contracts of adhesion due to their having been prepared solely by
PNB. The CA further held that PNB could not unilaterally
increase the rate of interest considering that the credit agreements
specifically provided that prior notice was required before an
increase in interest rate could be effected. It found that PNB did
not adduce proof showing that the Spouses Manalo had been
notified before the increased interest rates were imposed; and that
PNBs unilateral imposition of the increased interest rate was null
and void for being violative of the principle of mutuality of
contracts enshrined in Article 1308 of the Civil Code. Reinforcing
its "contract of adhesion" conclusion, it added that the Spouses
Manalos being in dire need of money rendered them to be not on
an equal footing with PNB. Consequently, the CA, relying on
Eastern Shipping Lines, v. Court of Appeals,19 fixed the interest
rate to be paid by the Spouses Manalo at 12% per annum,
computed from their default. The CA deemed to be untenable the
Spouses Manalos allegation that PNB had failed to comply with
the requirements for notice and posting under Section 3 of Act
3135. The CA stated that Sheriff Norberto Magsajos testimony
was sufficient proof of his posting of the required Notice of
Sheriffs Sale in three public places; that the notarized Affidavit
of Publication presented by Sheriff Magsajo was prima facie
proof of the publication of the notice; and that the Affidavit of
Publication enjoyed the presumption of regularity, such that the
Spouses Manalos bare allegation of non-publication without
other proof did not overcome the presumption.
On August 29, 2006, the CA denied the Spouses Manalos Motion
for Reconsideration and PNBs Partial Motion for
Reconsideration.20
Issues
In its Memorandum,21 PNB raises the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS WAS
CORRECT IN NULLIFYING THE INTEREST RATES
IMPOSED ON RESPONDENT SPOUSES LOAN AND IN
FIXING THE SAME AT TWELVE PERCENT (12%) FROM
DEFAULT, DESPITE THE FACT THAT (i) THE SAME WAS
RAISED BY THE RESPONDENTS ONLY FOR THE FIRST
TIME ON APPEAL (ii) IT WAS NEVER PART OF THEIR
COMPLAINT (iii) WAS EXLUDED AS AN ISSUE DURING
PRE-TRIAL, AND WORSE, (iv) THERE WAS NO
FORMALLY OFFERED PERTAINING TO THE SAME
DURING TRIAL.
II
WHETHER OR NOT THE COURT OF APPEALS
CORRECTLY RULED THAT THERE WAS NO MUTUALITY
OF CONSENT IN THE IMPOSITION OF INTEREST RATES
ON THE RESPONDENT SPOUSES LOAN DESPITE THE
EXISTENCE OF FACTS AND CIRCUMSTANCES CLEARLY
SHOWING RESPONDENTS ASSENT TO THE RATES OF
INTEREST SO IMPOSED BY PNB ON THE LOAN.
Anent the first issue, PNB argues that by passing upon the issue
of the validity of the interest rates, and in nullifying the rates
imposed on the Spouses Manalo, the CA decided the case in a
manner not in accord with Section 15, Rule 44 of the Rules of
Court, which states that only questions of law or fact raised in the
trial court could be assigned as errors on appeal; that to allow the
Spouses Manalo to raise an issue for the first time on appeal
would "offend the basic rules of fair play, justice and due
process;"22 that the resolution of the CA was limited to the issues
agreed upon by the parties during pre-trial;23 that the CA erred in
passing upon the validity of the interest rates inasmuch as the
Spouses Manalo did not present evidence thereon; and that the
Judicial Affidavit of Enrique Manalo, on which the CA relied for
its finding, was not offered to prove the invalidity of the interest
rates and was, therefore, inadmissible for that purpose.24
As to the substantive issues, PNB claims that the Spouses
Manalos continuous payment of interest without protest
indicated their assent to the interest rates imposed, as well as to
the subsequent increases of the rates; and that the CA erred in
declaring that the interest rates and subsequent increases were
invalid for lack of mutuality between the contracting parties.
Ruling
The appeal lacks merit.
1.
Procedural Issue
Contrary to PNBs argument, the validity of the interest rates and
of the increases, and on the lack of mutuality between the parties
were not raised by the Spouses Manalos for the first time on
appeal. Rather, the issues were impliedly raised during the trial
itself, and PNBs lack of vigilance in voicing out a timely
objection made that possible.
It appears that Enrique Manalos Judicial Affidavit introduced the
issues of the validity of the interest rates and the increases, and
the lack of mutuality between the parties in the following manner,
to wit:
5. True to his words, defendant Yuvienco, after several days, sent
us a document through a personnel of defendant PNB, Bangkal,
Makati City Branch, who required me and my wife to affix our
signature on the said document;
6. When the document was handed over me, I was able to know
that it was a Promissory Note which was in ready made form and
prepared solely by the defendant PNB;
xxxx
21. As above-noted, the rates of interest imposed by the defendant
bank were never the subject of any stipulation between us
mortgagors and the defendant PNB as mortgagee;
22. The truth of the matter is that defendant bank imposed rate of
interest which ranges from 19% to as high as 28% and which
changes from time to time;
23. The irregularity, much less the invalidity of the imposition of
iniquitous rates of interest was aggravated by the fact that we were
not informed, notified, nor the same had our prior consent and
acquiescence therefor. x x x25
PNB cross-examined Enrique Manalo upon his Judicial Affidavit.
There is no showing that PNB raised any objection in the course
of the cross examination.26 Consequently, the RTC rightly passed
upon such issues in deciding the case, and its having done so was
in total accord with Section 5, Rule 10 of the Rules of Court,
which states:
Section 5. Amendment to conform to or authorize presentation of
evidence. When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated
in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them
to conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment; but
failure to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it
16
is not within the issues made by the pleadings, the court may
allow the pleadings to be amended and shall do so with liberality
if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant
a continuance to enable the amendment to be made.
In Bernardo Sr. v. Court of Appeals,27 we held that:
It is settled that even if the complaint be defective, but the parties
go to trial thereon, and the plaintiff, without objection, introduces
sufficient evidence to constitute the particular cause of action
which it intended to allege in the original complaint, and the
defendant voluntarily produces witnesses to meet the cause of
action thus established, an issue is joined as fully and as
effectively as if it had been previously joined by the most perfect
pleadings. Likewise, when issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings.
The RTC did not need to direct the amendment of the complaint
by the Spouses Manalo. Section 5, Rule 10 of the Rules of Court
specifically declares that the "failure to amend does not affect the
result of the trial of these issues." According to Talisay-Silay
Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay,
Inc.:28 The failure of a party to amend a pleading to conform to
the evidence adduced during trial does not preclude an
adjudication by the court on the basis of such evidence which may
embody new issues not raised in the pleadings, or serve as a basis
for a higher award of damages. Although the pleading may not
have been amended to conform to the evidence submitted during
trial, judgment may nonetheless be rendered, not simply on the
basis of the issues alleged but also on the basis of issues discussed
and the assertions of fact proved in the course of
trial.1wphi1 The court may treat the pleading as if it had been
amended to conform to the evidence, although it had not been
actually so amended. Former Chief Justice Moran put the matter
in this way:
When evidence is presented by one party, with the expressed or
implied consent of the adverse party, as to issues not alleged in
the pleadings, judgment may be rendered validly as regards those
issues, which shall be considered as if they have been raised in
the pleadings. There is implied, consent to the evidence thus
presented when the adverse party fails to object thereto."
(Emphasis supplied) Clearly, a court may rule and render
judgment on the basis of the evidence before it even though the
relevant pleading had not been previously amended, so long as no
surprise or prejudice is thereby caused to the adverse party. Put a
little differently, so long as the basic requirements of fair play had
been met, as where litigants were given full opportunity to
support their respective contentions and to object to or refute each
other's evidence, the court may validly treat the pleadings as if
they had been amended to conform to the evidence and proceed
to adjudicate on the basis of all the evidence before it.
There is also no merit in PNBs contention that the CA should not
have considered and ruled on the issue of the validity of the
interest rates because the Judicial Affidavit of Enrique Manalo
had not been offered to prove the same but only "for the purpose
of identifying his affidavit."29 As such, the affidavit was
inadmissible to prove the nullity of the interest rates.
We do not agree.
Section 5, Rule 10 of the Rules of Court is applicable in two
situations.1wphi1 The first is when evidence is introduced on an
issue not alleged in the pleadings and no objection is interposed
by the adverse party. The second is when evidence is offered on
an issue not alleged in the pleadings but an objection is raised
against the offer.30 This case comes under the first situation.
Enrique Manalos Judicial Affidavit would introduce the very
issues that PNB is now assailing. The question of whether the
evidence on such issues was admissible to prove the nullity of the
interest rates is an entirely different matter. The RTC accorded
credence to PNBs evidence showing that the Spouses Manalo
had been paying the interest imposed upon them without protest.
On the other hand, the CAs nullification of the interest rates was
based on the credit agreements that the Spouses Manalo and PNB
had themselves submitted.
Based on the foregoing, the validity of the interest rates and their
increases, and the lack of mutuality between the parties were
issues validly raised in the RTC, giving the Spouses Manalo every
right to raise them in their appeal to the CA. PNBs contention
was based on its wrong appreciation of what transpired during the
trial. It is also interesting to note that PNB did not itself assail the
RTCs ruling on the issues obviously because the RTC had
decided in its favor. In fact, PNB did not even submit its
appellees brief despite notice from the CA.
2.
Substantive Issue
The credit agreement executed succinctly stipulated that the loan
would be subjected to interest at a rate "determined by the Bank
to be its prime rate plus applicable spread, prevailing at the
current month."31 This stipulation was carried over to or adopted
by the subsequent renewals of the credit agreement. PNB thereby
arrogated unto itself the sole prerogative to determine and
increase the interest rates imposed on the Spouses Manalo. Such
a unilateral determination of the interest rates contravened the
principle of mutuality of contracts embodied in Article 1308 of
the Civil Code.32 The Court has declared that a contract where
there is no mutuality between the parties partakes of the nature of
a contract of adhesion,33 and any obscurity will be construed
against the party who prepared the contract, the latter being
presumed the stronger party to the agreement, and who caused the
obscurity.34 PNB should then suffer the consequences of its
failure to specifically indicate the rates of interest in the credit
agreement. We spoke clearly on this in Philippine Savings Bank
v. Castillo,35 to wit:
The unilateral determination and imposition of the increased rates
is violative of the principle of mutuality of contracts under Article
1308 of the Civil Code, which provides that [t]he contract must
bind both contracting parties; its validity or compliance cannot be
left to the will of one of them. A perusal of the Promissory Note
will readily show that the increase or decrease of interest rates
hinges solely on the discretion of petitioner. It does not require
the conformity of the maker before a new interest rate could be
enforced. Any contract which appears to be heavily weighed in
favor of one of the parties so as to lead to an unconscionable
result, thus partaking of the nature of a contract of adhesion, is
void. Any stipulation regarding the validity or compliance of the
contract left solely to the will of one of the parties is likewise
invalid. (Emphasis supplied) PNB could not also justify the
increases it had effected on the interest rates by citing the fact that
the Spouses Manalo had paid the interests without protest, and
had renewed the loan several times. We rule that the CA, citing
Philippine National Bank v. Court of Appeals,36 rightly
concluded that "a borrower is not estopped from assailing the
unilateral increase in the interest made by the lender since no one
who receives a proposal to change a contract, to which he is a
party, is obliged to answer the same and said partys silence
cannot be construed as an acceptance thereof."37 Lastly, the CA
observed, and properly so, that the credit agreements had
explicitly provided that prior notice would be necessary before
PNB could increase the interest rates. In failing to notify the
Spouses Manalo before imposing the increased rates of interest,
therefore, PNB violated the stipulations of the very contract that
it had prepared. Hence, the varying interest rates imposed by PNB
17
have to be vacated and declared null and void, and in their place
an interest rate of 12% per annum computed from their default is
fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals.38 The CAs directive to PNB (a) to recompute
the Spouses Manalos indebtedness under the oversight of the
RTC; and (b) to refund to them any excess of the winning bid
submitted during the foreclosure sale over their recomputed
indebtedness was warranted and equitable. Equally warranted and
equitable was to make the amount to be refunded, if any, bear
legal interest, to be reckoned from the promulgation of the CAs
decision on March 28, 2006.39 Indeed, the Court said in Eastern
Shipping Lines, Inc. v. Court of Appeals40 that interest should be
computed from the time of the judicial or extrajudicial demand.
However, this case presents a peculiar situation, the peculiarity
being that the Spouses Manalo did not demand interest either
judicially or extrajudicially. In the RTC, they specifically sought
as the main reliefs the nullification of the foreclosure proceedings
brought by PNB, accounting of the payments they had made to
PNB, and the conversion of their loan into a long term one.41 In
its judgment, the RTC even upheld the validity of the interest rates
imposed by PNB.42 In their appellants brief, the Spouses Manalo
again sought the nullification of the foreclosure proceedings as
the main relief.43 It is evident, therefore, that the Spouses Manalo
made no judicial or extrajudicial demand from which to reckon
the interest on any amount to be refunded to them. Such demand
could only be reckoned from the promulgation of the CAs
decision because it was there that the right to the refund was first
judicially recognized. Nevertheless, pursuant to Eastern Shipping
Lines, Inc. v. Court of Appeals,44 the amount to be refunded and
the interest thereon should earn interest to be computed from the
finality of the judgment until the full refund has been made.
Anent the correct rates of interest to be applied on the amount to
be refunded by PNB, the Court, in Nacar v. Gallery Frames45 and
S.C. Megaworld Construction v. Parada,46 already applied
Monetary Board Circular No. 799 by reducing the interest rates
allowed in judgments from 12% per annum to 6% per
annum.47 According to Nacar v. Gallery Frames, MB Circular
No. 799 is applied prospectively, and judgments that became final
and executory prior to its effectivity on July 1, 2013 are not to be
disturbed but continue to be implemented applying the old legal
rate of 12% per annum. Hence, the old legal rate of 12% per
annum applied to judgments becoming final and executory prior
to July 1, 2013, but the new rate of 6% per annum applies to
judgments becoming final and executory after said dater.
Conformably with Nacar v. Gallery Frames and S.C. Megaworld
Construction v. Parada, therefore, the proper interest rates to be
imposed in the present case are as follows:
1. Any amount to be refunded to the Spouses Manalo shall bear
interest of 12% per annum computed from March 28, 2006, the
date of the promulgation of the CA decision, until June 30, 2013;
and 6% per annum computed from July 1, 2013 until finality of
this decision; and
2. The amount to be refunded and its accrued interest shall earn
interest of 6% per annum until full refund.
WHEREFORE, the Court AFFIRMS the decision promulgated
by the Court of Appeals on March 28, 2006 in CA-G.R. CV No.
84396, subject to the MODIFICATION that any amount to be
refunded to the respondents shall bear interest of 12% per annum
computed from March 28, 2006 until June 30, 2013, and 6% per
annum computed from July 1, 2013 until finality hereof; that the
amount to be refunded and its accrued interest shall earn interest
at 6o/o per annum until full refund; and DIRECTS the petitioner
to pay the costs of suit.
SO ORDERED.
 ARTICLE 1311 RELATIVITY OF
CONTRACTS
SECOND DIVISION
[G.R. No. 122947. July 22, 1999]
TIMOTEO BALUYOT, JAIME BENITO, BENIGNO
EUGENIO, ROLANDO GONZALES, FORTUNATO
FULGENCIO and CRUZ-NA-LIGAS HOMESITE
ASSOCIATION, INC., petitioners, vs. THE HONORABLE
COURT OF APPEALS, THE QUEZON CITY
GOVERNMENT and UNIVERSITY OF THE
PHILIPPINES, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision of the Court of
Appeals, dated November 24, 1995, setting aside an order of the
Regional Trial Court of Quezon City, Branch 89, and dismissing
the complaint filed by petitioners against private respondents
University of the Philippines and the Quezon City government.
The facts are as follows:
Petitioners Timoteo Baluyot, Jaime Benito, Benigno Eugenio,
Rolando Gonzales, and Fortunato Fulgencio are residents of
Barangay Cruz-na-Ligas,[1] Diliman, Quezon City. The Cruz-na-
Ligas Homesite Association, Inc. is a non-stock corporation of
which petitioners and other residents of Barangay Cruz-na-Ligas
are members. On March 13, 1992, petitioners filed a complaint
for specific performance and damages against private respondent
University of the Philippines before the Regional Trial Court of
Quezon City, docketed as Civil Case No. Q-92-11663. The
complaint was later on amended to include private respondent
Quezon City government as defendant. As amended, the
complaint alleges:[2]
5. That plaintiffs and their ascendants have been in open,
peaceful, adverse and continuous possession in the concept of an
owner since memory can no longer recall of that parcel of riceland
known [as] Sitio Libis, Barrio Cruz-na-Ligas, Quezon City (now
Diliman, Quezon City), as delineated in the Plan herein attached
as Annex B while the members of the plaintiff Association and
their ascendants have possessed since time immemorial openly,
adversely, continuously and also in the concept of an owner, the
rest of the area embraced by and within the Barrio Cruz-na-Ligas,
Diliman, Quezon City as shown in that Plan herein attached as
Annex C all in all consisting of at least forty (42) hectares;
6. That since October 1972, the claims of the plaintiffs and/or
members of plaintiff Association have been the subject of quasi-
judicial proceedings and administrative investigations in the
different branches of the government penultimately resulting in
the issuance of that Indorsement dated May 7, 1975 by the Bureau
of Lands, a copy of which is made an integral part of Annex D,
and ultimately, in the issuance of the Indorsement of February 12,
1985, by the office of the President of the Republic of the
Philippines, a copy of which is herein attached as Annex E
confirming the rights of the bonafide residents of Barrio Cruz-na-
Ligas to the parcel of land they have been possessing or
occupying as originally found and recommended in that Brief
dated November 2, 1972 and Recommendation dated November
7, 1972, copies of which are made integral parts hereof as
Annexes F and G;
7. That defendant UP, pursuant to the said Indorsement (Annex
E) from the Office of the President of the Republic of the
Philippines, issued that Reply Indorsement dated September 19,
1984, a copy of which is herein attached as Annex H, pertinent
portion of which is quoted as follows:
18
2. In 1979, the U.P. Board of Regents approved the donation of
about 9.2 hectares of the site, directly to the residents of Brgy.
Krus Na Ligas. After several negotiations with the residents, the
area was increased to 15.8 hectares (158,379 square meters);
(underscoring supplied)
3. Notwithstanding the willingness of U.P. to proceed with the
donation, Execution of the legal instrument to formalize it failed
because of the unreasonable demand of the residents for an area
bigger than 15.8 hectares.
8. That upon advise of counsel and close study of the said offer of
defendant UP to donate 15.8379 hectares, plaintiff Association
proposed to accept and the defendant UP manifested in writing
[its] consent to the intended donation directly to the plaintiff
Association for the benefit of the bonafide residents of Barrio
Cruz-na-Ligas and plaintiffs Association have agreed to comply
with the terms and conditions of the donation;
9. That, however, defendant UP backed-out from the arrangement
to donate directly to the plaintiff Association for the benefit of the
qualified residents and high-handedly resumed to negotiate the
donation thru the defendant Quezon City Government under the
terms disadvantageous or contrary to the rights of the bonafide
residents of the Barrio as shown in the Draft of Deed of Donation
herein attached as Annex I;
10. That plaintiff Association forthwith amended [its] petition in
the pending case LRC No. 3151 before Branch 100 of the
Regional Trial Court of Quezon City by adding the additional
cause of action for specific performance aside from the exclusion
from the technical description of certificate of title of defendant
UP the area embraced in the Barrio Cruz-na-Ligas, consisting of
at least forty-two (42) hectares, more or less, and praying in the
said Amended Petition for a writ of preliminary injunction to
restrain defendant UP from donating the area to the defendant
Quezon City Government, a copy of the said Amended Petition is
herein attached as Annex J;
11. That, after due notice and hearing, the application for writ of
injunction as well as the opposition of defendant UP, the Order
dated January 24, 1986 granting the writ of preliminary injunction
was issued, a copy of which is herein attached as Annex K;
12. That in the hearing of the Motion for Reconsideration filed by
defendant UP, a copy of the said Motion for Reconsideration is
herein attached as Annex L, plaintiff Association finally agreed
to the lifting of the said Order (Annex K) granting the injunction
after defendant UP made an assurance in their said Motion for
Reconsideration that the donation to the defendant Quezon City
Government will be for the benefit of the residents of Cruz-Na-
Ligas as shown in the following:
6. The execution of the Deed of Donation in favor of the Quezon
City government will not work any injustice to the petitioners.
As well stated in Respondents Opposition to the Prayer for
Issuance of a Writ of Preliminary Injunction, it is to the best
interest of the Petitioners that such a deed be executed.
The plan to donate said property to the residents of Bgy. Krus-na-
Ligas, that is, through the Quezon City government, is to their
best interests. Left alone, the present land and physical
development of the area leaves much to be desired. Road and
drainage networks have to be constructed, water and electric
facilities installed, and garbage collection provided for. The
residents, even collectively, do not have the means and resources
to provide for themselves such basis facilities which are necessary
if only to upgrade their living condition.
Should the proposed donation push through, the residents would
be the first to benefit. thus, Branch 100 of this Honorable Court
issued that Order dated April 2, 1986, lifting the injunction, a
copy of which is hereby attached as Annex M;
13. That, however, defendant UP took exception to the aforesaid
Order lifting the Order of Injunction and insisted [on] the
dismissal of the case; thus, it was stated that:
2. Respondent has consistently taken the position that efforts to
expedite the formalization of a Deed of Donation for the benefit
of the residents of Barangay Kruz-na-Ligas should not only be
pre-conditioned on the lifting of the Writ of Preliminary
Injunction, but also the dismissal of the Petition;
in defendant UPs Motion for Reconsideration of the Order dated
April 2, 1986, a copy of the said Motion is herein attached as
Annex N;
14. That plaintiff Association in [its] Comment on the Motion for
Reconsideration of the Order dated April 2, 1986, filed on June 2,
1986, manifested [its] willingness to the dismissal of the case,
aside from [its] previous consent to the lifting of the preliminary
injunction; provided, that the area to be donated thru the
defendant Quezon City government be subdivided into lots to be
given to the qualified residents together with the certificate of
titles, without cost, a copy of the said Comment is hereby attached
as Annex O;
15. That, that was why, in the hearing re-scheduled on June 13,
1986 of defendant UPs Motion for Reconsideration of the Order
dated April 2, 1986 (Annex N), the Order dated June 13, 1986,
was issued, the full text of which is quoted as follows:
After hearing the manifestation of Atty. Angeles for the
petitioners and Atty. Raval for the respondent University of the
Philippines, since the petitioners counsel was the first to make a
manifestation that this case which is now filed before this court
should be dismissed first without prejudice but because of the
vehement objection of the University of the Philippines, thru
counsel, that a dismissal without prejudice creates a cloud on the
title of the University of the Philippines and even with or without
this case filed, the University of the Philippines has already
decided to have the property subject of litigation donated to the
residents of Cruz-na-Ligas with, of course, the conditions set
therein, let this case be DISMISSED without pronouncement as
to cost.
As to the charging lien filed by Petitioners thru counsel, it will be
a sole litigation between the petitioners and the oppositors both
represented by counsel, with the University of the Philippines
being neutral in this case.
and a copy of the said Order is herein attached as Annex P;
16. That, true to [its] commitment stated in the aforesaid Order of
June 13, 1986, defendant UP executed that Deed of Donation on
August 5, 1986, in favor of the defendant Quezon City
Government for the benefit of the qualified residents of Cruz-na-
Ligas; however, neither the plaintiffs herein nor plaintiff
Association officers had participated in any capacity in the act of
execution of the said deed of donation, a copy of the said executed
Deed of Donation is herein attached as Annex Q;
17. That under the said deed of donation, the 15.8379 hectares
were ceded, transferred and conveyed and the defendant Quezon
City Government accepted the Donation under the terms and
conditions, pertinent portions of which are quoted as follows:
This donation is subject to the following conditions:
xxx
2. The DONEE shall, within eighteen (18) months from the
signing hereof, undertake at its expense the following:
a. Cause the removal of structures built on the boundaries of the
donated lot;
b. Relocate inside the donated lot all families who are presently
outside of the donated lot;
c. Relocate all families who cannot be relocated within the
boundaries of the donated lot to a site outside of the University of
the Philippines campus in Diliman, Quezon City;
19
d. Construct a fence on the boundaries adjoining Kruz-na-Ligas
and the University.
In the construction of the fence, the DONEE shall establish a ten-
meter setback in the area adjacent to Pook Amorsolo and the
Peripheral Road (C.P. Garcia Street);
e. Construct a drainage canal within the area donated along the
boundary line between Kruz-na-Ligas and Pook Amorsolo.
In the construction of the fence and the drainage canal, the
DONEE shall conform to the plans and specifications prescribed
by the DONOR.
xxx
5. The DONEE shall, after the lapse of three (3) years, transfer to
the qualified residents by way of donation the individual lots
occupied by each of them, subject to whatever conditions the
DONEE may wish to impose on said donation;
6. Transfer of the use of any lot in the property donated during the
period of three (3) years referred to in Item 4 above, shall be
allowed only in these cases where transfer is to be effected to
immediate members of the family in the ascending and
descending line and said Transfer shall be made known to the
DONOR. Transfer shall be affected by the Donee;
7. The costs incidental to this Deed, including the registration of
the property donated shall be at the expense of the DONEE.
The Donee shall also be responsible for any other legitimate
obligation in favor of any third person arising out of, in
connection with, or by reason of, this donation.
18. That the defendant Quezon City Government immediately
prepared the groundworks in compliance with the afore-quoted
terms and conditions; however, defendant UP under the officer-
in-charge then and even under the incumbent President, Mr. Jose
Abueva, had failed to deliver the certificate of title covering the
property to be donated to enable the defendant Quezon City
Government to register the said Deed of Donation so that
corresponding certificate of title be issued under its name;
19. That defendant UP had continuously and unlawfully refused,
despite requests and several conferences made, to comply with
their reciprocal duty to deliver the certificate of title to enable the
Donee, the defendant Quezon City Government, to register the
ownership so that the defendant Quezon City Government can
legally and fully comply with their obligations under the said deed
of donation;
20. That upon expiration of the period of eighteen (18) [months],
for alleged non-compliance of the defendant Quezon City
Government with terms and conditions quoted in par. 16 hereof,
defendant UP thru its President, Mr. Jose Abueva, unilaterally,
capriciously, whimsically and unlawfully issued that
Administrative Order No. 21 declaring the deed of donation
revoked and the donated property be reverted to defendant UP;
21. That the said revocation and reversion without judicial
declaration is illegal and prejudicial to the rights of the plaintiffs
who are the bonafide residents or who represent the bonafide
residents of the Barrio Cruz-na-Ligas because: firstly, they were
not made bound to comply with the terms and conditions of the
said donation allegedly violated by the defendant Quezon City
Government; secondly, defendant UP, as averred in the preceding
paragraphs 9 and 11, was the one who insisted that the donation
be coursed through the defendant Quezon City Government; and
the said revocation or reversion are likewise pre-judicial to third
parties who acquired rights therefrom;
22. That, as it apparently turned out, the plaintiff Association,
who duly represented the qualified or bonafide resident of Barrio
Cruz-na-Ligas, was deceived into consenting to the lifting of the
injunction in said LRC Case No. Q-3151 and in agreeing to the
dismissal of the said LRC Case No. Q-3151 when defendant
unjustifiably revoked the donation which they undertook as a
condition to the dismissal of LRC Case No. 3151;
23. That by reason of the deception, the herein plaintiffs hereby
reiterate their claims and the claims of the bonafide residents and
resident/farmers of Barrio Cruz-na-Ligas [to] the ownership of
forty-two (42) hectares area they and their predecessors-in-
interest have occupied and possessed; parenthetically, the said 42
hectares portion are included in the tax declaration under the
name of defendant UP who is exempted from paying real estate
tax; hence, there is no assessment available;
24. That by reason of bad faith and deceit by defendant UP in the
execution and in compliance with [its] obligations under the said
Deed of Donation (Annex Q hereof) plaintiffs have suffered
moral damages in the amount of at least P300,000.00;
25. That because of wanton and fraudulent acts of defendant UP
in refusing to comply with what is incumbent upon [it] under the
Deed of Donation (Annex Q) and in whimsically and
oppressively declaring the revocation of the said deed of donation
and the reversion of the 15.8 hectares donated, [it] should be made
liable to pay exemplary damages in the sum of P50,000.00 to
serve as example in the interest of public good;
26. That because of said defendant UPs unlawful acts, plaintiffs
have been compelled to retain the services of their attorneys to
prosecute this case with whom they agreed to pay the sum of Fifty
Thousand Pesos (P50,000.00) as attorneys fees; and by way of:
APPLICATION FOR WRIT OF PRELIMINARY
INJUNCTION
(a) Plaintiffs hereby reallege and reproduce herein by reference
all the material and relevant allegations in the preceding
paragraphs;
(b) Having legally established and duly recognized rights on the
said parcel of lands as shown in the documents marked herein as
Annexes D; E; F; G; and M, plaintiffs have the rights to be
protected by an injunctive writ or at least a restraining order to
restrain and to order defendant UP from:
1) Ejecting the plaintiffs-farmers and from demolishing the
improvements in the parcel of riceland or farmlands situated at
Sitio Libis of Barrio Cruz-na-Ligas, embraced in the claims of the
plaintiffs as shown in these photographs herein attached as
Annexes R to R-3;
2) Executing another deed of donation with different terms and
conditions in favor of another and for the benefit of additional
occupants who are not bonafide residents of the Barrio or
Barangay Cruz-na-Ligas;
(c) Defendant UP has already started ejecting the plaintiffs and
demolishing their improvements on the said riceland and
farmlands in order to utilize the same for the residential house
project to the irreparable damages and injuries to the plaintiffs-
farmers, unless restrained or enjoined to desist, plaintiffs will
continue to suffer irreparable damages and injuries;
(d) Plaintiffs are ready and willing to file the injunctive bond in
such amount that may be reasonably fixed;
PRAYER
WHEREFORE, it is respectfully prayed to this Honorable Court
that before the conduct of the proper proceedings, a writ of
preliminary injunction or at least a temporary restraining order be
issued, ordering defendant UP to observe status quo; thereafter,
after due notice and hearing, a writ of preliminary injunction be
issued; (a) to restrain defendant UP or to their representative from
ejecting the plaintiffs from and demolishing their improvements
on the riceland or farmland situated at Sitio Libis; (b) to order
defendant UP to refrain from executing another deed of donation
in favor another person or entity and in favor of non-bonafide
residents of Barrio Cruz-na-Ligas different from the Deed of
20
Donation (Annex Q hereof), and after trial on the merits,
judgment be rendered:
1. Declaring the Deed of Donation (Annex Q) as valid and
subsisting and ordering the defendant UP to abide by the terms
and conditions thereof;
2. Adjudging the defendant University of the Philippines to
segregate the riceland or farmlands as additional area embraced
by the Barrio Cruz-na-Ligas, pursuant to the First Indorsement of
August 10, 1984 (Annex E) and pursuant to Findings, Reports and
Recommendation (Annex G) of the Bureau of Lands with an
estimated assessed value of P700,000.00;
3. Ordering defendant UP to pay for plaintiffs moral damages of
P300,000.00, exemplary damages of P50,000.00, and costs of
suit;
4. Enjoining defendant UP to pay professional fees of P50,000.00
of the undersigned attorneys for the plaintiffs; and
Plaintiffs further respectfully pray for other just and equitable
reliefs.
Earlier, on May 15, 1992, the trial court denied petitioners
application for preliminary injunction. Its order stated:[3]
ORDER
Acting on plaintiffs application for the issuance of a temporary
restraining order/preliminary injunction and the opposition
thereto of the defendant filed on April 3, 1992, as well as plaintiffs
reply therewith filed on April 23, 1992, considered in the light of
the affidavit executed on April 23, 1992 by Timoteo Baluyot, Sr.
and by Jaime Benito, Benigno Eugenio, Rolando Gonzales and
Fortunato Fulgencio executed on April 21, 1929, for the
plaintiffs; and, the affidavit of merit executed on April 28, 1992,
by Atty. Carmelita Yadao-Guno, for the defendant, it appearing
that the principal action in this case is one for the specific
performance, apparently, of the Deed of Donation executed on
August 8, 1986, by defendant University of the Philippines in
favor of the Quezon City Government, involving the land in
question, in virtue of which, it is clear that the plaintiffs are not
parties to the said deed of donation, by reason of which,
consequently, there has not been established by the plaintiffs a
clear legal right to the enforcement of the said deed of donation,
especially as the said deed was already validly revoked by the
University of the Philippines, thru its president, Jose Abueva, in
his Administrative Order No. 21, for which reason the same could
no longer be enforced, plaintiffs prayer for the issuance of a
temporary restraining order/writ of preliminary injunction, is
DENIED.
SO ORDERED.
Petitioners moved for a reconsideration of the above
order. Without resolving petitioners motion, the trial court
ordered petitioners to amend their complaint to implead
respondent Quezon City government as defendant.[4] Hence, the
amended complaint was filed on June 10, 1992, in which it is
alleged:
4. That the Quezon City Government . . . which should be joined
as party plaintiff is instead impleaded herein as party defendant,
because its consent can not be secured within a reasonable time;
On July 27, 1992, respondent city government filed its Answer to
the Amended Complaint with Cross-Claim.[5] However, on
November 29, 1993, it moved to withdraw its cross-claim against
UP[6] on the ground that, after conferring with university officials,
the city government had recognized the propriety, validity and
legality of the revocation of the Deed of Donation. [7]
The motion was granted by the trial court in its order, dated
December 22, 1994.[8] On the same day, a Joint Motion to
Dismiss was filed by UP and the Quezon City government on the
ground that the complaint fails to state a cause of
action.[9] Petitioners opposed the motion.
On April 26, 1995, the trial court denied respondents motion to
dismiss on the ground that a perusal of [petitioners] amended
complaint, specifically paragraph 5 thereof, . . . shows that it
necessarily alleges facts entitling [petitioners] to acquire
ownership over the land in question, by reason of laches, which
cannot be disposed of and resolved at this stage without a trial on
the merits.[10] The trial court, however, reiterated its ruling that
petitioners did not have a cause of action for specific performance
on the ground that the deed of donation had already been revoked
as stated in its order denying injunction.
On August 14, 1995, respondents filed a petition
for certiorari with the Court of Appeals, charging the trial court
with grave abuse of discretion in refusing to dismiss the complaint
filed by petitioners. Respondents contended that
1. Respondent Judge himself had declared that [petitioners]
clearly are not parties to the deed of donation sought to be
enforced thus they had not shown clear legal right to the
enforcement of said deed of donation which is their principal
cause of action; and
2. Under the factual circumstances obtaining, the respondent
judge gravely erred in denying the joint motion to dismiss and
declaring that [petitioners] are entitled to acquire ownership over
the land in question by reason of laches through a trial on the
merits; such constitutes a collateral attack on [respondent UPs]
title in the same suit for specific performance.
On November 24, 1995, the appellate court rendered a decision
setting aside the trial courts order of April 26, 1995 and ordering
the dismissal of Civil Case No. Q-92-11663. The appellate court
ruled that
1. Petitioners complaint did not allege any claim for the
annulment of UPs title over the portion of land concerned or the
reconveyance thereof to petitioners;
2. The alleged cause of action based on ownership of the land by
petitioners was tantamount to a collateral attack on the title of UP
which is not allowed under the law; and
3. There is no acquisition of ownership by laches.
Hence, this petition for review on certiorari based on the
following grounds:
I. THE RESPONDENT COURT OF APPEALS WAS IN
ERROR IN CONCLUDING THAT THE TRIAL COURT
ACTED WITH GRAVE ABUSE OF DISCRETION IN
DENYING THE JOINT MOTION TO DISMISS.
II. IN DISMISSING THE AMENDED COMPLAINT, THE
RESPONDENT APPELLATE COURT HAS ACTED IN
EXCESS [OF] JURISDICTION WHEN IT MADE [THE]
FINDING AND CONCLUSION THAT THE REVOCATION
OF THE DONATION IS VALID WHEN THAT IS THE
PRIMARY AND CONTROVERTED ISSUE INVOLVING
VARIED QUESTIONS OF FACTS.
Petitioners argue that, on its face, their amended complaint
alleges facts constituting a cause of action which must be fully
explored during trial. They cite paragraphs 18, 19, and 20 of their
complaint questioning the validity of the revocation of the
donation and seek the enforcement of the donation through
specific performance.[11]
On the other hand, respondents contend that by seeking specific
performance of the deed of donation as their primary cause of
action, petitioners cannot at the same time claim ownership over
the property subject of the donation by virtue of laches or
acquisitive prescription. Petitioners cannot base their case on
inconsistent causes of action. Moreover, as the trial court already
found the deed to have been validly revoked, the primary cause
of action was already thereby declared inexistent. Hence,
according to respondents, the Court of Appeals correctly
dismissed the complaint.[12]
21
First. The question is whether the complaint states a cause of
action. The trial court held that inasmuch as the donation made by
UP to the Quezon City government had already been revoked,
petitioners, for whose benefit the donation had been made, had no
cause of action for specific performance. Nevertheless, it denied
respondents joint motion to dismiss petitioners action on the
ground that respondent UP was barred from contesting petitioners
right to remain in possession on the ground of laches.
This is error. While prescription does not run against registered
lands, nonetheless a registered owners action to recover
possession of his land may be barred by laches. As held in Mejia
de Lucas v. Gamponia:[13]
[W]hile no legal defense to the action lies, an equitable one lies
in favor of the defendant and that is, the equitable defense of
laches. No hold that the defense of prescription or adverse
possession in derogation of the title of the registered owner
Domingo Mejia does not lie, but that of the equitable defense of
laches. Otherwise stated, we hold that while defendant may not
be considered as having acquired title by virtue of his and his
predecessors long continued possession for 37 years, the original
owners right to recover back the possession of the property and
the title thereto from the defendant has, by the long period of 37
years and by patentees inaction and neglect, been converted into
a stale demand.
Thus, laches is a defense against a registered owner suing to
recover possession of the land registered in its name. But UP is
not suing in this case. It is petitioners who are, and their suit is
mainly to seek enforcement of the deed of donation made by UP
in favor of the Quezon City government. The appellate court
therefore correctly overruled the trial court on this point. Indeed,
petitioners do not invoke laches. What they allege in their
complaint is that they have been occupying the land in question
from time immemorial, adversely, and continuously in the
concept of owner, but they are not invoking laches. If at all, they
are claiming ownership by prescription which, as already stated,
is untenable considering that the land in question is a registered
land. Nor can petitioners question the validity of UPs title to the
land. For as the Court of Appeals correctly held, this constitutes a
collateral attack on registered title which is not permitted.
On the other hand, we think that the Court of Appeals erred in
dismissing petitioners complaint for failure to state a cause of
action.
A cause of action exists if the following elements are present,
namely: (1) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an obligation on the
part of the defendant to respect or not to violate such right; and
(3) an act or omission on the part of such defendant in violation
of the right of the plaintiff or constituting a breach of the
obligations of the defendant to the plaintiff for which the latter
may maintain an action for recovery of damages.[14]
We find all the elements of a cause of action contained in the
amended complaint of petitioners. While, admittedly, petitioners
were not parties to the deed of donation, they anchor their right to
seek its enforcement upon their allegation that they are intended
beneficiaries of the donation to the Quezon City government. Art.
1311, second paragraph, of the Civil Code provides:
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a
favor upon a third person.
Under this provision of the Civil Code, the following requisites
must be present in order to have a stipulation pour autrui:[15]
(1) there must be a stipulation in favor of a third person;
(2) the stipulation must be a part, not the whole of the contract;
(3) the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental
benefit or interest;
(4) the third person must have communicated his acceptance to
the obligor before its revocation; and
(5) neither of the contracting parties bears the legal representation
or authorization of the third party.
The allegations in the following paragraphs of the amended
complaint are sufficient to bring petitioners action within the
purview of the second paragraph of Art. 1311 on stipulations pour
autrui:
1. Paragraph 17, that the deed of donation contains a stipulation
that the Quezon City government, as donee, is required to transfer
to qualified residents of Cruz-na-Ligas, by way of donations, the
lots occupied by them;
2. The same paragraph, that this stipulation is part of conditions
and obligations imposed by UP, as donor, upon the Quezon City
government, as donee;
3. Paragraphs 15 and 16, that the intent of the parties to the deed
of donation was to confer a favor upon petitioners by transferring
to the latter the lots occupied by them;
4. Paragraph 19, that conferences were held between the parties
to convince UP to surrender the certificates of title to the city
government, implying that the donation had been accepted by
petitioners by demanding fulfillment thereof[16] and that private
respondents were aware of such acceptance; and
5. All the allegations considered together from which it can be
fairly inferred that neither of private respondents acted in
representation of the other; each of the private respondents had its
own obligations, in view of conferring a favor upon petitioners.
The amended complaint further alleges that respondent UP has an
obligation to transfer the subject parcel of land to the city
government so that the latter can in turn comply with its
obligations to make improvements on the land and thereafter
transfer the same to petitioners but that, in breach of this
obligation, UP failed to deliver the title to the land to the city
government and then revoked the deed of donation after the latter
failed to fulfill its obligations within the time allowed in the
contract.
For the purpose of determining the sufficiency of petitioners
cause of action, these allegations of the amended complaint must
be deemed to be hypothetically true. So assuming the truth of the
allegations, we hold that petitioners have a cause of action against
UP. Thus, in Kauffman v. National Bank,[17] where the facts were
Stated in bare simplicity the admitted facts show that the
defendant bank for a valuable consideration paid by the
Philippine Fiber and Produce Company agreed on October 9,
1918, to cause a sum of money to be paid to the plaintiff in New
York City; and the question is whether the plaintiff can maintain
an action against the bank for the non performance of said
undertaking. In other words, is the lack of privity with the
contract on the part of the plaintiff fatal to the maintenance of an
action by him?[18]
it was held:
In the light of the conclusions thus stated, the right of the plaintiff
to maintain the present action is clear enough; for it is undeniable
that the banks promise to cause a definite sum of money to be paid
to the plaintiff in New York City is a stipulation in his favor
within the meaning of the paragraph above quoted; and the
circumstances under which that promise was given disclose an
evident intention on the part of the contracting parties that the
plaintiff should have that money upon demand in New York
City. The recognition of this unqualified right in the plaintiff to
receive the money implies in our opinion the right in him to
22
maintain an action to recover it; and indeed if the provision in
question were not applicable to the facts now before us, it would
be difficult to conceive of a case arising under it.
It will be noted that under the paragraph cited a third person
seeking to enforce compliance with a stipulation in his favor must
signify his acceptance before it has been revoked. In this case the
plaintiff clearly signified his acceptance to the bank by
demanding payment; and although the Philippine National Bank
had already directed its New York agency to withhold payment
when this demand was made, the rights of the plaintiff cannot be
considered to have been prejudiced by that fact. The word
revoked, as there used, must be understood to imply revocation
by the mutual consent of the contracting parties, or at least by
direction of the party purchasing the exchange.[19]
It is hardly necessary to state that our conclusion that petitioners
complaint states a cause of action against respondents is in no
wise a ruling on the merits. That is for the trial court to determine
in light of respondent UPs defense that the donation to the Quezon
City government, upon which petitioners rely, has been validly
revoked.
Respondents contend, however, that the trial court has already
found that the donation (on which petitioners base their action)
has already been revoked. This contention has no merit. The trial
courts ruling on this point was made in connection with
petitioners application for a writ of preliminary injunction to stop
respondent UP from ejecting petitioners. The trial court denied
injunction on the ground that the donation had already been
revoked and therefore petitioners had no clear legal right to be
protected. It is evident that the trial courts ruling on this question
was only tentative, without prejudice to the final resolution of the
question after the presentation by the parties of their evidence.[20]
Second. It is further contended that the amended complaint
alleges inconsistent causes of action for specific performance of
the deed of donation. Respondents make much of the fact that
while petitioners claim to be the beneficiaries-donees of 15.8
hectares subject of the deed,[21] they at the same time seek
recovery/delivery of title to the 42 hectares of land included in
UPs certificate of title.[22]
These are not inconsistent but, rather, alternative causes of action
which Rule 8, 2 of the Rules of Court allows:
Alternative causes of action or defenses.- A party may set forth
two or more statements of a claim or defense alternatively or
hypothetically, either in one cause of action or defense or in
separate causes of action or defenses. When two or more
statements are made in the alternative and one of them if made
independently would be sufficient, the pleading is not made
insufficient by the insufficiency of one or more of the alternative
statements.
Thus, the parties are allowed to plead as many separate claims as
they may have, regardless of consistency, provided that no rules
regarding venue and joinder of parties are violated.[23]
Moreover, the subjects of these claims are not exactly and entirely
the same parcel of land; petitioners causes of action consist of two
definite and distinct claims. The rule is that a trial court judge
cannot dismiss a complaint which contained two or more causes
of action where one of them clearly states a sufficient cause of
action against the defendant.[24]
WHEREFORE, the decision of the Court of Appeals is
REVERSED and the case is REMANDED to the Regional Trial
Court of Quezon City, Branch 89, for trial on the merits.
SO ORDERED.
G.R. No. 115117 June 8, 2000
INTEGRATED PACKAGING CORP., petitioner,
vs.
COURT OF APPEALS and FIL-ANCHOR PAPER CO.,
INC., respondents.
QUISUMBING, J.:
This is a petition to review the decision of the Court of Appeals
rendered on April 20, 1994 reversing the judgment of the
Regional Trial Court of Caloocan City in an action for recovery
of sum of money filed by private respondent against petitioner. In
said decision, the appellate court decreed:
WHEREFORE, in view of all the foregoing, the appealed
judgment is hereby REVERSED and SET ASIDE. Appellee
[petitioner herein] is hereby ordered to pay appellant [private
respondent herein] the sum of P763,101.70, with legal interest
thereon, from the date of the filing of the Complaint, until fully
paid.
SO ORDERED.1
The RTC judgment reversed by the Court of Appeals had
disposed of the complain as follows:
WHEREFORE, judgment is hereby rendered:
Ordering plaintiff [herein private respondent] to pay defendant
[herein petitioner] the sum of P27,222.60 as compensatory and
actual damages after deducting P763,101.70 (value of materials
received by defendant) from P790,324.30 representing
compensatory damages as defendant's unrealized profits;
Ordering plaintiff to pay defendant the sum of P100,000.00 as
moral damages;
Ordering plaintiff to pay the sum of P30,000.00 for attorney's
fees; and to pay the costs of suit.
SO ORDERED.2
The facts, as culled from the records, are as follows:
Petitioner and private respondent executed on May 5, 1978, an
order agreement whereby private respondent bound itself to
deliver to petitioner 3,450 reams of printing paper, coated, 2 sides
basis, 80 lbs., 38" x 23", short grain, worth P1,040,060.00 under
the following schedule: May and June 1978 450 reams at
P290.00/ream; August and September 1978 700 reams at
P290/ream; January 1979 575 reams at P307.20/ream; March
1979 575 reams at P307.20/ream; July 1979 575 reams at
307.20/ream; and October 1979 575 reams at P307.20/ream.
In accordance with the standard operating practice of the parties,
the materials were to be paid within a minimum of thirty days and
maximum of ninety days from delivery.
Later, on June 7, 1978, petitioner entered into a contract with
Philippine Appliance Corporation (Philacor) to print three
volumes of "Philacor Cultural Books" for delivery on the
following dates: Book VI, on or before November 1978; Book
VII, on or before November 1979 and; Book VIII, on or before
November 1980, with a minimum of 300,000 copies at a price of
P10.00 per copy or a total cost of P3,000,000.00.
As of July 30, 1979, private respondent had delivered to petitioner
1,097 reams of printing paper out of the total 3,450 reams stated
in the agreement. Petitioner alleged it wrote private respondent to
immediately deliver the balance because further delay would
greatly prejudice petitioner. From June 5, 1980 and until July 23,
1981, private respondent delivered again to petitioner various
quantities of printing paper amounting to P766,101.70. However,
petitioner encountered difficulties paying private respondent said
amount. Accordingly, private respondent made a formal demand
upon petitioner to settle the outstanding account. On July 23 and
31, 1981 and August 27, 1981, petitioner made partial payments
totalling P97,200.00 which was applied to its back accounts
covered by delivery invoices dated September 29-30, 1980 and
October 1-2, 1980.3
23
Meanwhile, petitioner entered into an additional printing contract
with Philacor. Unfortunately, petitioner failed to fully comply
with its contract with Philacor for the printing of books VIII, IX,
X and XI. Thus, Philacor demanded compensation from petitioner
for the delay and damage it suffered on account of petitioner's
failure.
On August 14, 1981, private respondent filed with the Regional
Trial Court of Caloocan City a collection suit against petitioner
for the sum of P766,101.70, representing the unpaid purchase
price of printing paper bought by petitioner on credit.
In its answer, petitioner denied the material allegations of the
complaint. By way of counterclaim, petitioner alleged that private
respondent was able to deliver only 1,097 reams of printing paper
which was short of 2,875 reams, in total disregard of their
agreement; that private respondent failed to deliver the balance of
the printing paper despite demand therefor, hence, petitioner
suffered actual damages and failed to realize expected profits; and
that petitioner's complaint was prematurely filed.
After filing its reply and answer to the counterclaim, private
respondent moved for admission of its supplemental complaint,
which was granted. In said supplemental complaint, private
respondent alleged that subsequent to the enumerated purchase
invoices in the original complaint, petitioner made additional
purchases of printing paper on credit amounting to P94,200.00.
Private respondent also averred that petitioner failed and refused
to pay its outstanding obligation although it made partial
payments in the amount of P97,200.00 which was applied to back
accounts, thus, reducing petitioner's indebtedness to P763,101.70.
On July 5, 1990, the trial court rendered judgment declaring that
petitioner should pay private respondent the sum of P763,101.70
representing the value of printing paper delivered by private
respondent from June 5, 1980 to July 23, 1981. However, the
lower court also found petitioner's counterclaim meritorious. It
ruled that were it not for the failure or delay of private respondent
to deliver printing paper, petitioner could have sold books to
Philacor and realized profit of P790,324.30 from the sale. It
further ruled that petitioner suffered a dislocation of business on
account of loss of contracts and goodwill as a result of private
respondent's violation of its obligation, for which the award of
moral damages was justified.
On appeal, the respondent Court of Appeals reversed and set aside
the judgment of the trial court. The appellate court ordered
petitioner to pay private respondent the sum of P763,101.70
representing the amount of unpaid printing paper delivered by
private respondent to petitioner, with legal interest thereon from
the date of the filing of the complaint until fully paid.4 However,
the appellate court deleted the award of P790,324.30 as
compensatory damages as well as the award of moral damages
and attorney's fees, for lack of factual and legal basis.
Expectedly, petitioner filed this instant petition contending that
the appellate court's judgment is based on erroneous conclusions
of facts and law. In this recourse, petitioner assigns the following
errors:
[I]
THE COURT OF APPEALS ERRED IN CONCLUDING THAT
PRIVATE RESPONDENT DID NOT VIOLATE THE ORDER
AGREEMENT.
[II]
THE COURT OF APPEALS ERRED IN CONCLUDING THAT
RESPONDENT IS NOT LIABLE FOR PETITIONER'S
BREACH OF CONTRACT WITH PHILACOR.
[III]
THE COURT OF APPEALS ERRED IN CONCLUDING THAT
PETITIONER IS NOT ENTITLED TO DAMAGES AGAINST
PRIVATE RESPONDENT. 5
In our view, the crucial issues for resolution in this case are as
follows:
(1) Whether or not private respondent violated the order
agreement, and;
(2) Whether or not private respondent is liable for petitioner's
breach of contract with Philacor.
Petitioner's contention lacks factual and legal basis, hence, bereft
of merit.
Petitioner contends, firstly, that private respondent violated the
order agreement when the latter failed to deliver the balance of
the printing paper on the dates agreed upon.
The transaction between the parties is a contract of sale whereby
private respondent (seller) obligates itself to deliver printing
paper to petitioner (buyer) which, in turn, binds itself to pay
therefor a sum of money or its equivalent (price).6 Both parties
concede that the order agreement gives rise to a reciprocal
obligations7 such that the obligation of one is dependent upon the
obligation of the other. Reciprocal obligations are to be performed
simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other.8 Thus, private
respondent undertakes to deliver printing paper of various
quantities subject to petitioner's corresponding obligation to pay,
on a maximum 90-day credit, for these materials. Note that in the
contract, petitioner is not even required to make any deposit,
down payment or advance payment, hence, the undertaking of
private respondent to deliver the materials is conditional upon
payment by petitioner within the prescribed period. Clearly,
petitioner did not fulfill its side of the contract as its last payment
in August 1981 could cover only materials covered by delivery
invoices dated September and October 1980.
There is no dispute that the agreement provides for the delivery
of printing paper on different dates and a separate price has been
agreed upon for each delivery. It is also admitted that it is the
standard practice of the parties that the materials be paid within a
minimum period of thirty (30) days and a maximum of ninety (90)
days from each delivery.9 Accordingly, the private respondent's
suspension of its deliveries to petitioner whenever the latter failed
to pay on time, as in this case, is legally justified under the second
paragraph of Article 1583 of the Civil Code which provides that:
When there is a contract of sale of goods to be delivered by stated
installments, which are to be separately paid for, and the seller
makes defective deliveries in respect of one or more installments,
or the buyer neglects or refuses without just cause to take delivery
of or pay for one or more installments, it depends in each case on
the terms of the contract and the circumstances of the case,
whether the breach of contract is so material as to justify the
injured party in refusing to proceed further and suing for
damages for breach of the entire contract, or whether the breach
is severable, giving rise to a claim for compensation but not to a
right to treat the whole contract as broken. (Emphasis supplied)
In this case, as found a quo petitioner's evidence failed to
establish that it had paid for the printing paper covered by the
delivery invoices on time. Consequently, private respondent has
the right to cease making further delivery, hence the private
respondent did not violate the order agreement. On the contrary,
it was petitioner which breached the agreement as it failed to pay
on time the materials delivered by private respondent.
Respondent appellate court correctly ruled that private respondent
did not violate the order agreement.
On the second assigned error, petitioner contends that private
respondent should be held liable for petitioner's breach of contract
with Philacor. This claim is manifestly devoid of merit.
As correctly held by the appellate court, private respondent
cannot be held liable under the contracts entered into by petitioner
with Philacor. Private respondent is not a party to said
24
agreements. It is also not a contract pour autrui. Aforesaid
contracts could not affect third persons like private respondent
because of the basic civil law principle of relativity of contracts
which provides that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third
person, 10 even if he is aware of such contract and has acted with
knowledge thereof. 11
Indeed, the order agreement entered into by petitioner and private
respondent has not been shown as having a direct bearing on the
contracts of petitioner with Philacor. As pointed out by private
respondent and not refuted by petitioner, the paper specified in
the order agreement between petitioner and private respondent are
markedly different from the paper involved in the contracts of
petitioner with Philacor. 12 Furthermore, the demand made by
Philacor upon petitioner for the latter to comply with its printing
contract is dated February 15, 1984, which is clearly made long
after private respondent had filed its complaint on August 14,
1981. This demand relates to contracts with Philacor dated April
12, 1983 and May 13, 1983, which were entered into by petitioner
after private respondent filed the instant case.lawphi1
To recapitulate, private respondent did not violate the order
agreement it had with petitioner. Likewise, private respondent
could not be held liable for petitioner's breach of contract with
Philacor. It follows that there is no basis to hold private
respondent liable for damages. Accordingly, the appellate court
did not err in deleting the damages awarded by the trial court to
petitioner.
The rule on compensatory damages is well established. True,
indemnification for damages comprehends not only the loss
suffered, that is to say actual damages (damnum emergens), but
also profits which the obligee failed to obtain, referred to as
compensatory damages (lucrum cessans). However, to justify a
grant of actual or compensatory damages, it is necessary to prove
with a reasonable degree of certainty, premised upon competent
proof and on the best evidence obtainable by the injured party, the
actual amount of loss. 13 In the case at bar, the trial court
erroneously concluded that petitioner could have sold books to
Philacor at the quoted selling price of P1,850,750.55 and by
deducting the production cost of P1,060,426.20, petitioner could
have earned profit of P790,324.30. Admittedly, the evidence
relied upon by the trial court in arriving at the amount are mere
estimates prepared by petitioner. 14 Said evidence is highly
speculative and manifestly hypothetical. It could not provide
sufficient legal and factual basis for the award of P790,324.30 as
compensatory damages representing petitioner's self-serving
claim of unrealized profit.
Further, the deletion of the award of moral damages is proper,
since private respondent could not be held liable for breach of
contract. Moral damages may be awarded when in a breach of
contract the defendant acted in bad faith, or was guilty of gross
negligence amounting to bad faith, or in wanton disregard of his
contractual obligation. 15 Finally, since the award of moral
damages is eliminated, so must the award for attorney's fees be
also deleted. 16
WHEREFORE, the instant petition is DENIED. The decision of
the Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
THIRD DIVISION
G.R. No. 172268 October 10, 2007
A & C MINIMART CORPORATION, petitioner,
vs.
PATRICIA S. VILLAREAL, TRICIA ANN VILLAREAL
and CLAIRE HOPE VILLAREAL, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, assailing the Decision1 dated 13 October 2004,
rendered by the Court of Appeals in CA-G.R. SP No. 81875,
modifying the Order2 dated 29 December 2003, of Branch 194 of
the Regional Trial Court (RTC) of Paraaque City. The appellate
court ordered petitioner A & C Minimart Corporation to pay
respondents Patricia Villareal, Tricia Ann Villareal and Claire
Hope Villareal, a monthly interest of 3% on the total amount of
rental and other charges not paid on time, in addition to the unpaid
rental and other charges which the trial court ordered petitioner to
pay.
The subject property is a one-storey commercial building
constructed on a parcel of land located at Aguirre St., BF Homes,
Paraaque, Metro Manila. Petitioner leased the six stalls/units of
the subject property from Joaquin Bonifacio, under a lease
agreement dated 3 August 1992, and which expired on 3 August
1997.3 A Lease Contract, dated 22 January 1998, was executed
between petitioner and Teresita Bonifacio renewing the earlier
contract for another five years.4
However, ownership of the subject property is under dispute.
Respondents and spouses Joaquin and Teresita Bonifacio
(spouses Bonifacio) claim ownership over the subject property.
The respondents claim ownership based on a sale of property on
execution pending appeal in a separate case. Civil Case No. 16194
is an independent action for damages filed by respondents against
spouses Eliseo and Erna Sevilla (spouses Sevilla), original
owners of the disputed property, arising from the murder of Jose
Villareal, the husband of respondent Patricia Villareal and father
of respondents Tricia Ann and Claire Hope Villareal. In its
Decision dated 2 April 1990, Branch 132 of the RTC of Makati
awarded damages to respondents in the amount
of P10,882,040.00.5 Thereafter, the Makati RTC, Branch 132,
issued a writ of execution pending appeal. Deputy Sheriff Eulalio
Juanson levied on two parcels of land registered under the name
of the Sevillas covered by Transfer Certificates of Title (TCT)
No. 41338 and No. 41339, issued by the Register of Deeds of
Paraaque City, and a one-storey commercial building built
thereon. On 17 September 1990, Deputy Sheriff Juanson sold the
subject property at a public auction to respondent Patricia
Villareal, the sole and highest bidder therein. The Certificate of
Sale, dated 17 September 1990, was registered and annotated in
TCT No. 41338 and No. 41339 as Entry 6621 on 18 September
1990.6 The spouses Sevilla filed an appeal questioning the
damages awarded and execution orders issued by the Makati
RTC, Branch 132 in Civil Case No. 16194, which is now pending
before the Supreme Court and docketed as G.R. No. 150824.
On the other hand, the spouses Bonifacio claim to have purchased
the property from the spouses Sevilla. Twice they challenged the
Villareals ownership of the property. The first was on 12
September 1990, when they filed Civil Case No. 90-2551 against
respondent Patricia Villareal before Branch 58, later unloaded to
Branch 63, of the Makati RTC, for declaration of nullity of levy
on real property, damages and injunction with prayer for issuance
of a temporary restraining order against the sheriff of the Makati
RTC, Branch 132. They allegedly bought the property from the
spouses Sevilla on 17 June 1986, but were unable to transfer the
titles to their names when they discovered that notice of levy on
25
execution was already annotated in the TCTs.7 On 8 November
1994, the Makati RTC, Branch 63, declared that the Deed of Sale
in favor of the Bonifacios was null and void and thus dismissed
the complaint filed by the spouses Bonifacio for lack of merit.
The spouses Bonifacio filed an appeal, docketed as C.A. G.R. CV
No. 48478, which was dismissed by the Court of Appeals. The
dismissal of the said case became final and executory on 27
December 1997.8
Despite the final and executory decision dismissing the claim of
the Bonifacios, the latter, for the second time filed on 25 January
1999, Civil Case No. 99-037 against respondent Patricia Villareal
for Declaration of Ownership, Annulment and Cancellation of
Attachment, Notice of Levy, and Execution Sale with Damages
at Branch 257 of the Paraaque RTC, which was dismissed in an
Order dated 8 November 1999.9 They filed an appeal of the
dismissal with the Court of Appeals, docketed as CA-G.R. SP No.
60176, which was likewise dismissed in a Decision, dated 22
October 2004.10 An appeal was filed before the Supreme Court,
docketed as G.R. No. 175857, but the same was denied in a
Resolution dated 14 March 2007.11
Meanwhile, upon learning that the spouses Bonifacios claim of
ownership over the subject property had been seriously
challenged and denied in the Decision dated 8 November 1994 of
the Makati RTC, Branch 63, in Civil Case No. 90-2551, petitioner
stopped paying its rentals on the subject property on 2 March
1999, in violation of the renewed Lease Contract dated 22 January
1998.12
On 19 July 1999, respondents filed a case for Unlawful Detainer
with Damages, against the petitioner before Branch 78 of the
Metropolitan Trial Court (MTC) of Paraaque City. Respondents
also filed a case against the spouses Bonifacio for the recovery of
the advanced rentals paid to the latter by the petitioner. The
spouses Bonifacio also filed a separate case against the petitioner
for Unlawful Detainer. The cases were consolidated and heard by
the Paraaque MTC, Branch 78, docketed as Civil Cases No.
11200, 11201, and 11262. The Paraaque MTC, Branch 78,
dismissed the cases on the ground that the issue of possession in
this case was intertwined with the issue of ownership, and that it
lacked the jurisdiction to determine the issue of ownership.13
Respondents appealed before Branch 194 of the Paraaque RTC,
the dismissal ordered by the Paraaque MTC, Branch 78, in Civil
Cases No. 11200, 11201, and 11262. The cases were docketed as
Civil Cases No. 02-0538 to 40. The Paraaque RTC, Branch 194,
affirmed the decision of the Paraaque MTC, Branch 78, as to its
lack of jurisdiction, and then treated the complaint as if it were
originally filed with the RTC, in accordance with Section 8, Rule
40 of the Rules of Court.14 Thereafter, in its Decision dated 25
June 2003, the Paraaque RTC, Branch 194, found that the
spouses Bonifacio did not acquire ownership over the subject
property. It further ruled that the petitioner had the obligation to
pay the rentals for use of the subject property and directed the
petitioner to deposit its rental payments to a Land Bank account
established by the Makati RTC, Branch 132, where the rentals
accruing on the subject property will be held in trust for the
rightful owners, whether it be the respondents or the spouses
Sevilla, pending the final determination of G.R. No. 150824. The
Decision of the Paraaque RTC, Branch 194, in Civil Case Nos.
02-0538 to 40 reads:
WHEREFORE foregoing considered, judgment is hereby
ordered:
1. Directing and ordering defendant Spouses Bonifacios (sic) to
deposit the amount of P315,000.00 paid by A & C Minimart to
Account No. 1831-0166-91, with the Land Bank of the
Philippines, J.P. Rizal Branch, Makati City.
2. Ordering defendant A & C Minimart to deposit with Account
No. 1831-0166-91, Land Bank of the Philippines, J.P. Rizal
Branch, Makati City, the monthly rentals due from the premises
form (sic) the last rental payment consigned with the Clerk of
Court, Metropolitan Trial Court, Paraaque City.
3. Ordering defendant A & C Minimart to furnish the Villareals
copies of the Lease Contract it entered into with the Bonifacios.
4. And for convenience, ordering the Clerk of Court, Metropolitan
Trial Court, Paraaque City to transfer and deposit the rental
payments made by A & C Minimart together with the accrued
interest to Account No. 1831-0166-91 with Land Bank of the
Philippines, J.P. Rizal Branch, Makati City.
No pronouncement as to costs, attorneys fees and damages.15
On 1 October 2003, upon petitioners Motion for Partial
Reconsideration, the Paraaque RTC, Branch 194, modified its
decision. It ruled that the rental should accrue in favor of the
respondents only after the turnover of the possession of the
subject property to them sometime on 2 March 1999. Moreover,
it found that petitioner did not act in bad faith when it refused to
pay rentals and, thus, should not be liable for damages.
Additionally, it also ordered the petitioner to pay 12% interest per
annum on the monthly rentals due from its receipt of the
respondents demand letter on 25 June 1999, until full payment;
to pay respondents attorneys fees in the amount of P100,000.00
and the costs of suit; and to vacate the subject property, to wit:
1. [O]rdering defendant A & C Minimart to deposit with account
no. 1831-0166-91 of the Land Bank of the Philippines, J.P. Rizal
Branch[,] Makati City, the monthly rentals due from March 2,
1999, in accordance with the Lease Contract until it delivers
possession thereof to the Villareals plus 12% interest per annum
from the date of receipt of the demand letter in 25 June 1999 until
full satisfaction less the rental payment consigned to the Clerk of
Court, Metropolitan Trial Court, Paraaque City.
2. [F]or convenience, ordering the Clerk of Court, Metropolitan
Trial Court, Paraaque City to transfer and deposit the rental
payments made by A & C Minimart together with the accrued
interest to Account No. 1831-0166-91 with the Land Bank of the
Philippines, J. P. Rizal Branch, Makati City.
3. [D]irecting and ordering defendant A & C Minimart to pay the
Plaintiff Attorneys fees in the amount of ONE HUNDRED
THOUSAND PESOS (P100,000.00) and the cost of suit.
4. [O]rdering defendant A & C Minimart Corp. to vacate the
portion of the building located at 340 Aguirre Avenue, BF
Homes, Paraaque City where it conducts its business of a
grocery store and other activities, and deliver the same peacefully
and in good condition to the Villareals.16
On 27 October 2003, upon motion of the respondents, the
Paraaque RTC, Branch 194, issued a Writ of Execution
requiring petitioner to deposit in Land Bank Account No. 1831-
0166-91 the amount of P3,186,154.68, plus 12% yearly interest,
computed from the date of petitioners receipt of the demand
letter on 25 June 1999.17
On 4 November 2003, respondents filed a Motion for
Recomputation of the amount of rentals as the writ of execution
allegedly did not conform to the Decision dated 1 October 2003.
Respondents claimed that the computation should include a
monthly interest of 3% on the total amount of rental and other
charges not paid on time, in accordance with paragraph 6(g) of
the Contract of Lease, dated 22 January 1998, between petitioner
and Teresita Bonifacio, to wit:
g) To pay the LESSOR three (3%) percent interest per month on
the total amount of rental and other charges not paid on time under
this contract with said amount accruing automatically upon
default without necessity of any demand.18
26
Respondents anchored their claim on the Amended Decision
dated 1 October 2003, and the Writ of Execution dated 27 October
2003, in Civil Cases No. 02-0538 to 40, which both used the
phrase "in accordance with the Lease Contract," when referring
to the monthly rentals due and were to be deposited in the bank
by the petitioner.
In an Order dated 29 December 2003, the Paraaque RTC, Branch
194, denied respondents claim for interest penalty at the rate of
3% per month on the total amount of rent in default.19
Respondents filed a Petition for Certiorari under Rule 65, before
the Court of Appeals, which ruled in favor of the respondents. In
the assailed Decision, the appellate court found that petitioner
consigned the rental payments after they fell due and, thus, it ruled
that the 3% interest stipulated in the Contract of Lease dated 22
January 1998 should be imposed. The dispositive part of the
assailed Decision,20 dated 13 October 2004, reads:
WHEREFORE, there being merit in the petition, it is GRANTED.
The assailed Order is MODIFIED in that respondent A and C
Minimart is additionally DIRECTED to pay a monthly interest of
3% on the total amount of rental and other charges not paid on
time pursuant to the contract of lease. This case is REMANDED
to the court of origin for proper computation and execution.
Petitioner filed a Motion for Reconsideration of the foregoing
Decision, which the Court of Appeals denied in a Resolution
dated 27 March 2006.
Hence, the present Petition, where petitioner raises the following
issues:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT
DISMISSING VILLAREALS PETITION FOR CERTIORARI
CONSIDERING THAT APPEAL IS THE PROPER AND
ADEQUATE REMEDY TO QUESTION THE DECISION OF
THE RTC (BRANCH 194) OF PARAAQUE CITY.
II
THE HONORABLE COURT OF APPEALS ERRED IN
SUSTAINING THE CLAIM OF THE VILLAREALS THAT
THEY ARE ENTITLED TO THE BENEFITS (RENTALS AND
INTERESTS) OF THE CONTRACT OF LEASE ENTERED
INTO BETEWEN "A & C MINIMART CORP." AND
TERESITA BONIFACIO.
III
THE HONRABLE COURT OF APPEALS ERRED IN NOT
DISMISSING THE PETITION FOR CERTIORARI (SPECIAL
CIVIL ACTION) FILED BY THE VILLAREALS
CONSIDERING THAT THE LATTER HAVE NO RIGHTS
AND INTEREST OVER THE CONTRACT OF LEASE
BETWEEN THE SPOUSES BONIFACIOS (sic) AND THE "A
& C MINIMART CORP."
IV
THE HONORABLE COURT OF APPEALS ERRED IN NOT
DISMISSING C.A.-G.R. SP NO. 81875 CONSIDERING THAT
THE VILLAREALS CLAIM OF OWNERSHIP OVER THE
PROPERTY IS STILL THE SUBJECT OF A PENDING CASE
WHICH PRO TANTO RENDERED THE EJECTMENT SUIT
FILED BY THE VILLAREALS AGAINST THE PETITIONER
OBVIOUSLY PREMATURE.
V
THE HONORABLE COURT OF APPEALS ERRED IN NOT
OVERRULLING THE RTC OF PARANAQUE (BR. 194)
WHICH REVERSED THE DECISION OF THE MTC OF
PARANAQUE CITY DISMISSING THE CONSOLIDATED
EJECTMENT CASES (02-0538; 02-0539; 02-540) FOR LACK
OF JURISDICTION CONSIDERING THAT THE
FUNDAMENTAL ISSUE INVOLVED IS OWNERSHIP OF
THE SUBJECT PREMISES WHICH ISSUE REQUIRES FULL-
BLOWN TRIAL IN A DIRECT ACTION BEFORE A COURT
OF GENERAL JURISDICTION FOR FULL
DETERMINATION.21
The petition is partly meritorious.
Petitioner avers that the respondents should have filed with the
Court of Appeals an ordinary appeal instead of a special civil
action for certiorari, when it questioned the computation made by
the Paraaque RTC, Branch 194, of the rentals due the owner of
the subject property.
Such contention runs counter to Section 1, Rule 41 of the Rules
of Court, which provides:
Section 1. Subject of appeal. An appeal may be taken from a
judgment or final order that completely disposes of the case, or of
a particular matter therein when declared by these Rules to be
appealable.
No appeal may be taken from:
xxxx
(f) an order of execution;
xxxx
In all the above instances where the judgment or final order is not
appealable, the aggrieved party may file an appropriate special
civil action under Rule 65.
It is explicit from the afore-quoted provision that no appeal may
be taken from an order of execution; instead, such order may be
challenged by the aggrieved party via a special civil action
for certiorari under Rule 65 of the Rules of Court. Respondents
filed the petition in CA-G.R. SP No. 81875, to question the Writ
of Execution dated 27 October 2003, issued by the Paraaque
RTC, Branch 194, which computed the rentals to be paid by the
petitioner to whoever is declared the owner of the subject
property, without including the 3% penalty interest stipulated in
the Lease Contract dated 22 January 2002. Contrary to the
position taken by the petitioner, respondents recourse to an
appeal would have been unavailing under Section 1, Rule 41, of
the Rules of Court. The filing of a special civil action
for certiorari under Rule 65 of the Rules of Court was the proper
remedy questioning an order of execution.
Petitioner argues that respondents are not entitled to the 3%
penalty stipulated under the Lease Contract dated 22 January
1998, which becomes payable to the lessor whenever the
petitioner incurs delay in the payment of its rentals. This
argument is well-taken.
It is a well-known rule that a contractual obligation or liability, or
an action ex-contractu, must be founded upon a contract, oral or
written, either express or implied. If there is no contract, there is
no corresponding liability and no cause of action may arise
therefrom.22 This is provided for in Article 1311 of the Civil
Code:
Article 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.
The Lease Contract dated 22 January 1998, was executed between
the spouses Bonifacio and petitioner. It is undisputed that none of
the respondents had taken part, directly or indirectly, in the
contract in question. Respondents also did not enter into contract
with either the lessee or the lessor, as to an assignment of any
right under the Lease Contract in question. The Lease Contract,
including the stipulation for the 3% penalty interest, was bilateral
between petitioner and Teresita Bonifacio. Respondents claim
ownership over the subject property, but not as a successor-in-
interest of the spouses Bonifacios. They purchased the property
in an execution sale from the spouses Sevilla. Thus, respondents
27
cannot succeed to any contractual rights which may accrue to the
spouses Bonifacio.
Contracts produce an effect as between the parties who execute
them. A contract cannot be binding upon and cannot be enforced
by one who is not party to it. Although the respondents were
adjudged to be entitled to rentals accruing from 2 March 1999,
until the time the petitioner vacated the premises, the obligation
to pay rent was not derived from the Lease Contract dated 22
January 1998, but from a quasi-contract. Article 2142 of the Civil
Code reads:
Art. 2142. Certain lawful, voluntary and unilateral acts give rise
to the juridical relation of quasi-contract to the end that no one
shall be unjustly enriched or benefited at the expense of another.
In the present case, the spouses Bonifacio, who were named as
the lessors in the Lease Contracts, dated 3 August 1992 and 22
January 1998, are already adjudged not to be the real owners of
the subject property. In Civil Case No. 90-2551, Branch 63 of the
Makati RTC declared that the Deed of Sale, executed on 17 June
1986, between the spouses Bonifacio and the spouses Sevilla was
a forgery and, hence, did not validly transfer ownership to the
spouses Bonifacio. At present, there is a pending appeal before
the Supreme Court docketed as G.R. No. 150824, which would
determine who between the respondents and the spouses Sevilla
are the rightful owners of the property.
Since the spouses Bonifacio are not the owners of the subject
property, they cannot unjustly benefit from it by collecting rent
which should accrue to the rightful owners of the same. Hence,
the Makati RTC, Branch 132, had set up a bank account where
the rent due on the subject property should be deposited and kept
in trust for the real owners thereto.
The last two issues raised by the petitioner on whether the
Paraaque RTC, Branch 194, should have dismissed the case for
being premature or for any other ground cannot be raised in this
petition. Such issues should be, and were, in fact, raised by
petitioner in CA- G.R. No. 86157, which was an appeal of the
Amended Decision dated 1 October 2003, rendered by the
Paraaque RTC, Branch 194, in Civil Cases No. 02-0538 to 40.
Pending the resolution of the said case by the Court of Appeals,
this Court refrains from ruling thereon. What is on appeal in the
present petition is the Decision rendered by the Court of Appeals
in CA-G.R. SP No. 81875, where the sole issue raised was the
correctness of the computation made during the execution of the
Amended Decision dated 1 October 2003 of the Paraaque RTC,
Branch 194.
IN VIEW OF THE FOREGOING, the instant Petition is
partially GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. SP No. 81875, promulgated on 13 October
2004, is REVERSED and SET ASIDE. The petitioner A & C
Minimart Corporation is not obligated to pay the penalty interest
of 3% per month on the total amount of rental and other charges
not paid on time pursuant to the Contract of Lease dated 22
January 1998. This Court AFFIRMS the computation of the rent
and interest due from petitioner A&C Minimart Corporation in
the Writ of Execution dated 27 October 2003, issued by Branch
194 of the Paraaque Regional Trial Court, in Civil Cases No. 02-
0538 to 40.
SO ORDERED.
G.R. No. 169846 March 28, 2008
SPS. NESTOR AND MA. NONA BORROMEO, Petitioners,
vs.
HONORABLE COURT OF APPEALS and EQUITABLE
SAVINGS BANK, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, assailing the Decision,1 dated 29 April 2005,
thereafter, upheld in a Resolution2 dated 16 September 2005, both
rendered by the Court of Appeals in CA-G.R. SP No. 85114. The
Court of Appeals, in its assailed Decision, reversed the Order
dated 3 March 2004 of Branch 215 of the Regional Trial Court
(RTC) of Quezon City in Civil Case No. Q-03-51184, and denied
the issuance of a Writ of Preliminary Injunction enjoining
respondent Equitable Savings Bank (ESB) from executing the
extra-judicial foreclosure of the mortgaged property owned by
petitioners, Spouses Nestor and Nona Borromeo.
Respondent is a domestic savings bank corporation with principal
office and place of business at EPCIB Tower 2, Makati Avenue,
Salcedo Village, Makati City.3 At the time the dispute began, it
was a subsidiary of Equitable PCI Bank (EPCIB), a domestic
universal banking corporation with principal office at Makati
Avenue, Salcedo Village, Makati City. After the merger of
EPCIB and Banco De Oro (BDO), they have adopted the
corporate name "Banco De Oro."4
Petitioners were client-depositors of EPCIB for more than 12
years. Petitioners alleged that sometime in mid-1999, the branch
manager of EPCIB, J.P. Rizal Branch, offered a loan to the
petitioners under its "Own-a-Home Loan Program." Petitioners
applied for a loan of P4,000,000.00 and were informed of the
approval of their loan application sometime in October 1999. It
was in the early part of 2000 that petitioners signed blank loan
documents consisting of the Loan Agreement, Promissory Notes,
a Real Estate Mortgage (REM) and Disclosure Statements.5
To secure the payment of the loan, petitioners executed an REM
over their land, registered under Transfer Certificate of Title
(TCT) No. N-203923, located at Loyola Grand Villas, Quezon
City, consisting of 303 square meters; and the proposed house that
was to be built thereon.6 Petitioners asserted that even if the loan
documents were signed in blank, it was understood that they
executed the REM in favor of EPCIB.7
From April 2001 to September 2002, respondent released a total
amount of P3,600,000.00 in four installments, while the balance
of P400,000.00 was not drawn by petitioners.8 On the other hand,
petitioners started to pay their monthly amortizations on 21 April
2001.9
Petitioners made repeated verbal requests to EPCIB to furnish
them their copies of the loan documents.10 On 6 August 2003,
they sent the president of EPCIB a letter11 which reiterated their
request for copies of the loan documents. In addition, petitioners
stated that the interest rate of 14% to 17% that was charged
against them was more than the interest rate of 11% or 11.5% that
the parties agreed upon. They further claimed that they purposely
did not draw the remaining balance of the loan in the amount
of P400,000.00 and stopped paying their loan amortizations to
protest EPCIBs continued failure to provide them copies of the
loan documents and its imposition of an interest rate higher than
that agreed upon. From the time petitioners began paying their
monthly amortizations on 21 April 2001 until the time they
stopped, petitioners made total payments of
approximately P500,000.00.12
In reply to the petitioners letter dated 6 August 2003, the Vice
President of EPCIB, Gary Vargas, sent to the petitioners a
letter13 dated 27 August 2003 explaining that as a matter of
practice, their clients were given original copies of the loan
documents only upon full release of the amount loaned. EPCIB
clarified that since petitioners loan had not been fully released,
the original documents were not yet sent to them. Petitioners were
also informed that the applicable interest rate was set at the time
28
the loan was released, not at the time the loan was approved, and
that the prevailing interest when the first four installments of the
loan were released ranged from 9.5% to 16%.
In the meantime, on 13 August 2003, respondent, through
counsel, also sent a letter14 to the petitioners demanding payment
for their obligation, which, as of 15 August 2003, amounted
to P4,097,261.04, inclusive of interest and other charges.
Respondent informed petitioners that failure to pay their
obligation would result in its pursuing legal action against
petitioners, including foreclosure proceedings on their REM.
In a letter dated 18 September 2003,15 respondent, through
counsel, reiterated to petitioners its demand for the full settlement
of their obligation on or before 30 September 2003.
Finally, on 3 October 2003, petitioners received copies of the loan
documents which they had earlier signed in blank.16 According to
petitioners, they were surprised to find out that the Loan
Agreement and REM designated respondent ESB as lender and
mortgagor, instead of EPCIB with whom they allegedly entered
into the agreement. However, in contrast to the Loan Agreement
and the REM, the four Promissory Notes designated EPCIB as the
lender. Petitioners also alleged that instead of the prevailing
interest rates of 8% to 10% annually, which the parties agreed
upon,17 the four Promissory Notes were set at the following
interest rates:18
DATE AMOUNT INTEREST
RATE
25 April 2001 P1,200,000.00 16%
18 January 2002 P 800,000.00 14.0%
29 June 2001 P 800,000.00 15%
19 September P 800,000.00 9.0%
2002
When the petitioners failed to pay for the loan in full by 30
September 2003, respondent sought to extra-judicially foreclose
the REM. Upon the respondents petition for foreclosure, the
Office of the Ex-Officio Sheriff of Quezon City issued a Notice
of Extrajudicial Sale dated 16 October 2003, wherein the
mortgage debt was set at P5,114,601.00.19 The Extrajudicial Sale
was set to take place on 26 November 2003. On 14 November
2003, petitioners received Notice of Extrajudicial Sale of their
property.20
On 20 November 2003, petitioners filed with the RTC a
Complaint for Injunction, Annulment of Mortgage with Damages
and with Prayer for Temporary Restraining Order and
Preliminary and Mandatory Injunction against EPCIB and
respondent, docketed as Civil Case No. Q-03-51184. In their
Complaint, petitioners alleged that the loan documents failed to
reflect the true agreement between the parties. Firstly, the
agreement was between the petitioners and EPCIB and,
consequently, respondent had no interest in the REM. Secondly,
the interest rates reflected in the Promissory Notes were not the
interest rates on which the parties had settled. They also averred
in their Complaint that EPCIB committed a breach of contract
when it failed to release the fifth and last installment of the loan
to petitioners. 21
Petitioners sought to prevent the Extrajudicial Sale from taking
place on 26 November 2003. Petitioners maintained that EPCIB
acted in bad faith when it foreclosed the subject property simply
because petitioners complained that the interest rates unilaterally
imposed by EPCIB were excessive. It further averred that their
deposit accounts with EPCIB were more than sufficient to pay for
the amortizations due on the housing loan.22
The scheduled date for the Extrajudicial Foreclosure, namely, 26
November 2003, fell on the holiday Eid-el-Fitr, and as a result, it
did not push through. In an Order dated 5 December 2003, the
RTC determined that there was no longer any need to issue a
temporary restraining order (TRO) and/or preliminary
injunction.23
On 14 December 2003, respondent re-filed its petition for
extrajudicial foreclosure of the REM. The Ex-Officio Sheriff of
Quezon City set the auction sale on 14 January 2004.
Petitioners reacted by filing with the RTC a Motion for
Reconsideration of its Order dated 5 December 2003, again
praying for the issuance of a TRO and/or preliminary injunction
to forestall the extrajudicial sale of their property scheduled for
14 January 2004.24
On 3 March 2004, the RTC granted petitioners motion for
reconsideration and ordered the issuance of a preliminary
injunction after declaring that the validity of the REM was yet to
be determined. It found that petitioners were bound to suffer
grave injustice if they were deprived of their property before the
RTC could rule on the validity of the REM constituted on the
same. On the other hand, it held that respondents interest was
amply protected, since petitioners mortgaged property was
valued at P12,000,000.00, which was more than sufficient to
answer for petitioners obligation pegged at P4,097,261.00, and
respondents REM over said property remained in effect.
Moreover, petitioners posted a bond in the amount
of P3,500,000.00 to cover their unpaid liabilities.25 In its Order
dated 3 March 2004, the RTC ordered that26:
With all the foregoing disquisitions and finding merit in
plaintiffs application, the same [is] hereby GRANTED. Let a
writ of preliminary injunction issue upon plaintiffs posting of a
bond in the amount of three million five hundred thousand
(P3,500,000.00) pesos.
Respondent filed a Motion for Reconsideration of the afore-
quoted Order, which was denied for lack of merit by the RTC in
an Order dated 29 April 2004.
Thereafter, respondent filed on 14 July 2004 a Special Civil
Action for Certiorari before the Court of Appeals, docketed as
CA-G.R. SP No. 85114.
During the proceedings before the Court of Appeals, petitioner
presented a letter dated 19 December 2002, with supporting
documents, written and compiled by EPCIB for Home Guaranty
Corporation, wherein EPCIB included petitioners loan among its
housing loans for which it sought insurance coverage.27
In reversing the RTC Order dated 3 March 2004, the Court of
Appeals decreed that pending the RTCs determination of the
validity of the REM, its validity should be presumed. It further
ruled that the intended foreclosure of the mortgage by respondent
was a proper exercise of its right after petitioners admittedly
stopped paying their loan amortizations. Moreover, it held that the
foreclosure of the REM would not result in any grave and
irreparable damage to the petitioners since petitioners, as
mortgagors, may redeem the subject property or avail themselves
of the remedy of claiming damages or nullifying the sale.28 The
dispositive portion of the Court of Appeals Decision, dated 29
April 2005, reads:29
WHEREFORE, in view of the foregoing, the assailed Orders
dated March 3, 2004 and April 29, 2004 issued by the Regional
Trial Court of Quezon City, Branch 215 in Civil Case No. Q-03-
51184 are hereby ANNULLED and SET ASIDE.
Petitioners filed a Motion for Reconsideration of the foregoing
Decision, which the Court of Appeals denied in a Resolution
dated 16 September 2005.30
Hence, the present Petition, in which the following issues are
raised31:
I contracting parties must have clearly and deliberately conferred a
WHETHER OR NOT THE PRIVATE RESPONDENT
SAVINGS BANK IS THE REAL PARTY-IN-INTEREST.
29
II
WHETHER OR NOT PETITIONERS ARE ENTITLED TO
THE RELIEF DEMANDED, THAT THE FORECLOSURE
AND PUBLIC AUCTION OF THE PROPERTY BELONGING
TO PETITIONERS DURING THE LITIGATION
PROCEEDINGS IN THE LOWER COURT WOULD
PROBABLY WORK INJUSTICE TO THEM SUCH THAT
THE JUDGMENT WHICH MAY BE ISSUED BY THE SAID
COURT WILL BE RENDERED INEFFECTUAL BY SUCH
FORECLOSURE AND PUBLIC AUCTION OF SAID
PROPERTY.
III
WHETHER OR NOT THE LOWER COURT WAS CORRECT
IN GRANTING THE WRIT OF PRELIMINARY
INJUNCTION, ALL REQUISITES BEING PRESENT
The petition is meritorious.
The only issue that needs to be determined in this case is whether
or not a writ of preliminary injunction should be issued to enjoin
the foreclosure and public auction of petitioners property during
the proceedings and pending determination of the main cause of
action for annulment of the REM on said property. By no means
is this a final determination of the merits of the main case still
before the RTC.32
Section 3, Rule 58 of the Rules of Court provides that:
SEC. 3. Grounds for issuance of preliminary injunctions.A
preliminary injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the
whole or part of such relief consists in restraining the commission
or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or non-performance of the
act or acts complained of during the litigation would probably
work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening,
or is attempting to do, or is procuring or suffering to be done,
some act or acts probably in violation of the rights of the applicant
respecting the subject of the action or proceeding, and tending to
render the judgment ineffectual.
As such, a writ of preliminary injunction may be issued only upon
clear showing of an actual existing right to be protected during
the pendency of the principal action. The twin requirements of a
valid injunction are the existence of a right and its actual or
threatened violations. Thus, to be entitled to an injunctive writ,
the right to be protected and the violation against that right must
be shown.33
In this case, petitioners rights to their property is restricted by the
REM they executed over it. Upon their default on the mortgage
debt, the right to foreclose the property would be vested upon the
creditor-mortgagee.34Nevertheless, the right of foreclosure
cannot be exercised against the petitioners by any person other
than the creditor-mortgagee or its assigns. According to the
pertinent provisions of the Civil Code:
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
favor upon a third person. (Emphasis ours.)1avvphi1
An extrajudicial foreclosure instituted by a third party to the Loan
Agreement and the REM would, therefore, be a violation of
petitioners rights over their property.
It is clear that under Article 1311 of the Civil Code, contracts take
effect only between the parties who execute them.35 Where there
is no privity of contract, there is likewise no obligation or liability
to speak about.36 The civil law principle of relativity of contracts
provides that contracts can only bind the parties who entered into
it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge
thereof.37Since a contract may be violated only by the parties
thereto as against each other, a party who has not taken part in it
cannot sue for performance, unless he shows that he has a real
interest affected thereby.38
In the instant case, petitioners assert that their creditor-mortgagee
is EPCIB and not respondent. While ESB claims that petitioners
have had transactions with it, particularly the five check payments
made in the name of ESB, it fails to categorically state that ESB
and not EPCIB is the real creditor-mortgagor in this loan and
mortgage transaction. This Court finds the position taken by the
petitioners to be more credible. The four Promissory Notes
designate EPCIB as the "lender."39 In a letter dated 19 December
2002, addressed to Home Guaranty Corporation, EPCIB Vice
President Gary Vargas even specified petitioners loan as one of
its housing loans for which it sought insurance
coverage.40 Records also show that petitioners repeatedly dealt
with EPCIB. When the petitioners complained of not receiving
the loan documents and the allegedly excessive interest charges,
they addressed their letter dated 3 August 2003 to the president of
EPCIB.41 The response, which explained the loan transactions in
detail in a letter dated 27 August 2003, was written by Gary
Vargas, EPCIB Vice President.42 Of almost three years
amortizations, the checks were issued by petitioners in the name
of EPCIB, except only for five checks which were issued in
respondents name.43
Respondent, although a wholly-owned subsidiary of EPCIB, has
an independent and separate juridical personality from its parent
company. The fact that a corporation owns all of the stocks of
another corporation, taken alone, is not sufficient to justify their
being treated as one entity. If used to perform legitimate
functions, a subsidiarys separate existence shall be respected,
and the liability of the parent corporation, as well as the
subsidiary, shall be confined to those arising from their respective
businesses. A corporation has a separate personality distinct from
its stockholders and other corporations to which it may be
conducted.44 Any claim or suit of the parent corporation cannot
be pursued by the subsidiary based solely on the reason that the
former owns the majority or even the entire stock of the latter.
From a perusal of the records, petitioners did not enter into a Loan
Agreement and REM with respondent. Respondent, therefore, has
no right to foreclose the subject property even after default, since
this right can only be claimed by the creditor-mortgagor, EPCIB;
and, consequently, the extrajudicial foreclosure of the REM by
respondent would be in violation of petitioners property rights.
This Court takes note of the fact that in several cases45 the Court
denied the application for a Writ of Preliminary Injunction that
would enjoin an extrajudicial foreclosure of a mortgage, and
declared that foreclosure is proper when the debtors are in default
of the payment of their obligation. Where the parties stipulated in
their credit agreements, mortgage contracts and promissory notes
that the mortgagee is authorized to foreclose the mortgaged
properties in case of default by the mortgagors, the mortgagee has
a clear right to foreclosure in case of default, making the issuance
of a Writ of Preliminary Injunction improper. However, the
30
doctrine in these cases is not applicable to the case at bar where
the identity of the creditor-mortgagor is highly disputable.
This Court emphasizes that the determination of who is the
creditor-mortgagee is only for purposes of determining the
propriety of issuing a writ of preliminary injunction, based on the
evidence presented before the hearing for the issuance of a
preliminary injunction. It will not bar the RTC from making its
own determination as to who is the true creditor-mortgagee after
trial and presentation of evidence on the main case. To establish
the essential requisites for a preliminary injunction, the evidence
submitted by the plaintiff need not be conclusive and complete.
The plaintiffs are only required to show that they have an
ostensible right to the final relief prayed for in their
complaint.46 In Urbanes, Jr. v. Court of Appeals, this Court
expounded that:
A writ of preliminary injunction is generally based solely
on initial and incomplete evidence. The evidence submitted
during the hearing on an application for a writ of preliminary
injunction is not conclusive or complete for only a sampling is
needed to give the trial court an idea of the justification for the
preliminary injunction pending the decision of the case on the
merits. As such, the findings of fact and opinion of a court when
issuing the writ of preliminary injunction are interlocutory in
nature and made even before the trial on the merits is commenced
or terminated. There are vital facts that have yet to be presented
during the trial which may not be obtained or presented during the
hearing on the application for the injunctive writ. The trial court
needs to conduct substantial proceedings in order to put the main
controversy to rest. It does not necessarily proceed that when a
writ of preliminary injunction is issued, a final injunction will
follow.47 (Emphasis provided.)
The extrajudicial foreclosure of the petitioners property pending
the final determination by the RTC of their complaint for
annulment of the REM and claim for damages would result in an
injustice to the petitioners. If the RTC would subsequently declare
that respondent was entitled to have petitioners property
foreclosed, it may still foreclose the subject property which is
valued at P12,000,000.00,48 to answer for the debt which is
estimated at P5,000,000.00, and further claim the P3,500,000.00
surety bond posted by petitioners with the RTC. On the other
hand, if the RTC later finds that respondent is not the creditor-
mortgagee and, therefore, the foreclosure of the property is
invalid, petitioners would be placed in an oppressively unjust
situation where they will be tied up in litigation for the recovery
of their property while their debt to the real creditor-mortgagee,
EPCIB, would remain unpaid and continue to accrue interest and
other charges.
The sole object of a preliminary injunction is to maintain the
status quo until the merits can be heard. A preliminary injunction
is an order granted at any stage of an action prior to judgment of
final order, requiring a party, court, agency, or person to refrain
from a particular act or acts. It is a preservative remedy to ensure
the protection of a partys substantive rights or interests pending
the final judgment on the principal action. A plea for an injunctive
writ lies upon the existence of a claimed emergency or
extraordinary situation which should be avoided for, otherwise,
the outcome of a litigation would be useless as far as the party
applying for the writ is concerned.49
IN VIEW OF THE FOREGOING, the instant Petition is
GRANTED. This Court REVERSES the assailed Decision dated
29 April 2005 of the Court of Appeals in CA-G.R. SP No. 85114,
and REINSTATES the Order dated 3 March 2004 of Branch 215
of the Regional Trial Court of Quezon City in Civil Case No. Q-
03-51184 ordering the issuance of a Writ of Preliminary
Injunction.
SO ORDERED.
G.R. No. 145736 March 4, 2009
ESTATE OF ORLANDO LLENADO and WENIFREDA T.
LLENADO, in her capacity as (a) Administratrix of the
Estate of Orlando A. Llenado and (b) Judicial Guardian of
the Minor children of Orlando A. Llenado, and (c) in her Own
behalf as the Surviving Spouse and Legal Heir of Orlando A.
Llenado, Petitioners,
vs.
EDUARDO LLENADO, JORGE LLENADO, FELIZA
GALLARDO VDA. DE LLENADO and REGISTER OF
DEEDS of Valenzuela City, Metro Manila, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the May 30, 2000
Decision1 of the Court of Appeals in CA-G.R. CV No. 58911
which reversed the May 5, 1997 Decision2 of the Regional Trial
Court of Valenzuela City, Branch 75 in Civil Case No. 4248-V-
93, and the October 6, 2000 Resolution3 which denied the motion
for reconsideration. The appellate court dismissed for lack of
merit the complaint for annulment of deed of conveyance, title
and damages filed by petitioner against herein respondents.
The subject of this controversy is a parcel of land denominated as
Lot 249-D-1 (subject lot) consisting of 1,554 square meters
located in Barrio Malinta, Valenzuela, Metro Manila and
registered in the names of Eduardo Llenado (Eduardo) and Jorge
Llenado (Jorge) under Transfer of Certificate of Title (TCT) No.
V-1689.4 The subject lot once formed part of Lot 249-D owned
by and registered in the name of their father, Cornelio Llenado
(Cornelio), under TCT No. T-16810.
On December 2, 1975, Cornelio leased Lot 249-D-1 to his
nephew, Romeo Llenado (Romeo), for a period of five years,
renewable for another five years at the option of Cornelio. On
March 31, 1978, Cornelio, Romeo and the latters cousin Orlando
Llenado (Orlando) executed an Agreement5 whereby Romeo
assigned all his rights to Orlando over the unexpired portion of
the aforesaid lease contract. The parties further agreed that
Orlando shall have the option to renew the lease contract for
another three years commencing from December 3, 1980, up to
December 2, 1983, renewable for another four years or up to
December 2, 1987, and that "during the period that [this
agreement] is enforced, the x x x property cannot be sold,
transferred, alienated or conveyed in whatever manner to any
third party."
Shortly thereafter or on June 24, 1978, Cornelio and Orlando
entered into a Supplementary Agreement6amending the March
31, 1978 Agreement. Under the Supplementary Agreement,
Orlando was given an additional option to renew the lease
contract for an aggregate period of 10 years at five-year intervals,
that is, from December 3, 1987 to December 2, 1992 and from
December 3, 1992 to December 2, 1997. The said provision was
inserted in order to comply with the requirements of Mobil
Philippines, Inc. for the operation of a gasoline station which was
subsequently built on the subject lot.
Upon the death of Orlando on November 7, 1983, his wife,
Wenifreda Llenado (Wenifreda), took over the operation of the
gasoline station. Meanwhile, on January 29, 1987, Cornelio sold
Lot 249-D to his children, namely, Eduardo, Jorge, Virginia and
Cornelio, Jr., through a deed of sale, denominated as "Kasulatan
sa Ganap Na Bilihan,"7 for the sum of P160,000.00. As stated
earlier, the subject lot, which forms part of Lot 249-D, was sold
to Eduardo and Jorge, and titled in their names under TCT No. V-
31
1689. Several months thereafter or on September 7, 1987,
Cornelio passed away.
Sometime in 1993, Eduardo informed Wenifreda of his desire to
take over the subject lot. However, the latter refused to vacate the
premises despite repeated demands. Thus, on September 24,
1993, Eduardo filed a complaint for unlawful detainer before the
Metropolitan Trial Court of Valenzuela, Metro Manila against
Wenifreda, which was docketed as Civil Civil Case No. 6074.
On July 22, 1996, the Metropolitan Trial Court rendered its
Decision in favor of Eduardo and ordered Wenifreda to: (1)
vacate the leased premises; (2) pay Eduardo reasonable
compensation for the use and occupation of the premises plus
attorneys fees, and (3) pay the costs of the suit.
Wenifreda appealed to the Regional Trial Court of Valenzuela,
Metro Manila, which reversed the decision of the court a quo.
Thus, Eduardo appealed to the Court of Appeals which rendered
a Decision8 on March 31, 1998 reversing the decision of the
Regional Trial Court and reinstating the decision of the
Metropolitan Trial Court. It also increased the amount of
reasonable compensation awarded to Eduardo for the use of the
leased premises. Wenifredas appeal to this Court, docketed as
G.R. No. 135001, was dismissed in a Resolution 9 dated
December 2, 1998. Accordingly, an Entry of Judgment10 was
made in due course on July 8, 1999.
Previously, after Eduardo instituted the aforesaid unlawful
detainer case on September 24, 1993, herein petitioner
Wenifreda, in her capacity as administratrix of the estate of
Orlando Llenado, judicial guardian of their minor children, and
surviving spouse and legal heir of Orlando, commenced the
subject Complaint,11 later amended, on November 10, 1993 for
annulment of deed of conveyance, title and damages against
herein respondents Eduardo, Jorge, Feliza Llenado (mother of the
Llenado brothers), and the Register of Deeds of Valenzuela,
Metro Manila. The case was docketed as Civil Case No. 4248-V-
93 and raffled to Branch 75 of the Regional Trial Court of
Valenzuela, Metro Manila.
Petitioner alleged that the transfer and conveyance of the subject
lot by Cornelio in favor of respondents Eduardo and Jorge, was
fraudulent and in bad faith considering that the March 31, 1978
Agreement provided that while the lease is in force, the subject
lot cannot be sold, transferred or conveyed to any third party; that
the period of the lease was until December 3, 1987 with the option
to renew granted to Orlando; that the subject lot was transferred
and conveyed to respondents Eduardo and Jorge on January 29,
1987 when the lease was in full force and effect making the sale
null and void; that Cornelio verbally promised Orlando that in
case he (Cornelio) decides to sell the subject lot, Orlando or his
heirs shall have first priority or option to buy the subject lot so as
not to prejudice Orlandos business and because Orlando is the
owner of the property adjacent to the subject lot; and that this
promise was wantonly disregarded when Cornelio sold the said
lot to respondents Jorge and Eduardo.
In their Answer,12 respondents Eduardo and Jorge claimed that
they bought the subject lot from their father, Cornelio, for value
and in good faith; that the lease agreement and its supplement
were not annotated at the back of the mother title of the subject
lot and do not bind them; that said agreements are personal only
to Cornelio and Orlando; that the lease expired upon the death of
Orlando on November 7, 1983; that they were not aware of any
verbal promise to sell the subject lot granted by Cornelio to
Orlando and, even if there was, said option to buy is
unenforceable under the statute of frauds.
After the parties presented their respective evidence, the Regional
Trial Court rendered judgment on May 5, 1997 in favor of
petitioner, viz:
WHEREFORE, PREMISES CONSIDERED, this Court finds the
[petitioners] civil action duly established by preponderance of
evidence, renders judgment (adjudicates) in favor of the
[petitioner], Estate of Orlando Llenado represented by Wenifreda
Llenado, and against [respondents] e.g. Jorge, Eduardo, Felisa
Gallardo, all surnamed Llenado, and the Register of Deeds of
Valenzuela, Metro Manila, as follows:
1) It hereby judicially declare as non-existence (sic) and null and
void, the following:
a) The Kasulatan Sa Ganap na Kasunduan or Deed of Sale;
b) TCT- Transfer Certificate of Title No. V-9440, in the name of
[respondent] Eduardo Llenado, TCT- Transfer Certificate of Title
No. V-1689, in the name of Jorge Llenado, and Eduardo Llenado,
and all deeds, documents or proceedings leading to the issuance
of said title, and all subsequent title issued therefrom and likewise
whatever deeds, documents or proceedings leading to the
issuance of said subsequent titles;
2) It hereby orders the reconveyance of the said properties
embraced in the said TCTs-Transfer Certificate of Title Nos. V-
9440 and V-1689 to the [petitioner] for the same consideration,
or purchase price, paid by [respondents] Eduardo Llenado and
Jorge Llenado for the same properties;
3) It hereby orders [respondent], Register of Deeds of Valenzuela,
Metro Manila, to cause the issuance of new transfer certificates
of title over the said property in the name of the [petitioner];
4) And, because this Court is not only a court of law, but of equity,
it hereby rendered the following damages to be paid by the
[respondents], as the [respondents] litigated under bonafide
assertions that they have meritorious defense, viz:
a) P400,000.00 as moral damages;
b) 10,000.00 as nominal damages;
c) 10,000.00 as temperate damages;
d) 10,000.00 as exemplary damages;
e) 10,000.00 attorneys fees on the basis of quantum merit; and
f) costs of suit.
SO ORDERED.13
The Regional Trial Court found that upon the death of Orlando
on November 7, 1983, his rights under the lease contract were
transmitted to his heirs; that since the lease was in full force and
effect at the time the subject lot was sold by Cornelio to his sons,
the sale violated the prohibitory clause in the said lease contract.
Further, Cornelios promise to sell the subject lot to Orlando may
be established by parole evidence since an option to buy is not
covered by the statute of frauds. Hence, the same is binding on
Cornelio and his heirs.
Respondents appealed before the Court of Appeals which
rendered the assailed May 30, 2000 Decision reversing the
judgment of the Regional Trial Court and dismissing the
Complaint. The appellate court held that the death of Orlando did
not extinguish the lease agreement and had the effect of
transmitting his lease rights to his heirs. However, the breach of
the non-alienation clause of the said agreement did not nullify the
sale between Cornelio and his sons because the heirs of Orlando
are mere lessees on the subject lot and can never claim a superior
right of ownership over said lot as against the registered owners
thereof. It further ruled that petitioner failed to establish by a
preponderance of evidence that Cornelio made a verbal promise
to Orlando granting the latter the right of first refusal if and when
the subject lot was sold.
Upon the denial of its motion for reconsideration, petitioner is
now before this Court on the following assignment of errors:
[T]he Court of Appeals erred:
1.- In finding and concluding that there is no legal basis to annul
the deed of conveyance involved in the case and in not applying
R.A. No. 3516, further amending R.A. No. 1162; and
32
2.- In not finding and holding as null and void the subject deed of
conveyance, the same having been executed in direct violation of
an expressed covenant in said deed and in total disregard of the
pre-emptive, or preferential rights of the herein petitioners to buy
the property subject of their lease contract under said R.A. No.
3516, further amending R.A. No. 1162.14
The petition lacks merit.
Petitioner contends that the heirs of Orlando are entitled to the
rights of a tenant under Republic Act (R.A.) No. 1162,15 as
amended by R.A. No. 3516.16 The right of first refusal or
preferential right to buy the leased premises is invoked pursuant
to Section 517 of said law and this Courts ruling in Mataas Na
Lupa Tenants Association, Inc. v. Dimayuga.18
This issue is being raised for the first time on appeal. True, in
Mataas Na Lupa Tenants Association, Inc., the Court explained
that Section 1 of R.A. No. 1162, as amended by R.A. No. 3516,
authorizes the expropriation of any piece of land in the City of
Manila, Quezon City and suburbs which have been and are
actually being leased to tenants for at least 10 years, provided said
lands have at least 40 families of tenants thereon.19 Prior to and
pending the expropriation, the tenant shall have a right of first
refusal or preferential right to buy the leased premises should the
landowner sell the same. However, compliance with the
conditions for the application of the aforesaid law as well as the
qualifications of the heirs of Orlando to be beneficiaries
thereunder were never raised before the trial court, or even the
Court of Appeals, because petitioner solely anchored its claim of
ownership over the subject lot on the alleged violation of the
prohibitory clause in the lease contract between Cornelio and
Orlando, and the alleged non-performance of the right of first
refusal given by Cornelio to Orlando. The rule is settled, impelled
by basic requirements of due process, that points of law, theories,
issues and arguments not adequately brought to the attention of
the lower court will not be ordinarily considered by a reviewing
court as they cannot be raised for the first time on appeal.20 As the
issue of the applicability of R.A. No. 1162, as amended, was
neither averred in the pleadings nor raised during the trial below,
the same cannot be raised for the first time on appeal.
At any rate, the allegations in the Complaint and the evidence
presented during the trial below do not establish that Orlando or
his heirs are covered by R.A. No. 1162, as amended. It was not
alleged nor shown that the subject lot is part of the landed estate
or haciendas in the City of Manila which were authorized to be
expropriated under said law; that the Solicitor General has
instituted the requisite expropriation proceedings pursuant to
Section 221thereof; that the subject lot has been actually leased for
a period of at least ten (10) years; and that the subject lot has at
least forty (40) families of tenants thereon. Instead, what was
merely established during the trial is that the subject lot was
leased by Cornelio to Orlando for the operation of a gasoline
station, thus, negating petitioners claim that the subject lot is
covered by the aforesaid law. In Mataas Na Lupa Tenants
Association, Inc., the Court further explained that R.A. No. 1162,
as amended, has been superseded by Presidential Decree (P.D.)
No. 151722entitled "Proclaiming Urban Land Reform in the
Philippines and Providing for the Implementing Machinery
Thereof."23 However, as held in Tagbilaran Integrated Settlers
Association Incorporated v. Court of Appeals,24 P.D. No. 1517 is
applicable only in specific areas declared, through presidential
proclamation,25 to be located within the so-called urban
zones.26 Further, only legitimate tenants who have resided on the
land for ten years or more who have built their homes on the land
and residents who have legally occupied the lands by contract,
continuously for the last ten years, are given the right of first
refusal to purchase the land within a reasonable
time.27 Consequently, those lease contracts entered into for
commercial use are not covered by said law.28 Thus, considering
that petitioner failed to prove that a proclamation has been issued
by the President declaring the subject lot as within the urban land
reform zone and considering further that the subject lot was leased
for the commercial purpose of operating a gasoline station, P.D.
No. 1517 cannot be applied to this case.
In fine, the only issue for our determination is whether the sale of
the subject lot by Cornelio to his sons, respondents Eduardo and
Jorge, is invalid for (1) violating the prohibitory clause in the
lease agreement between Cornelio, as lessor-owner, and Orlando,
as lessee; and (2) contravening the right of first refusal of Orlando
over the subject lot.
It is not disputed that the lease agreement contained an option to
renew and a prohibition on the sale of the subject lot in favor of
third persons while the lease is in force. Petitioner claims that
when Cornelio sold the subject lot to respondents Eduardo and
Jorge the lease was in full force and effect, thus, the sale violated
the prohibitory clause rendering it invalid. In resolving this issue,
it is necessary to determine whether the lease agreement was in
force at the time of the subject sale and, if it was in force, whether
the violation of the prohibitory clause invalidated the sale.
Under Article 1311 of the Civil Code, the heirs are bound by the
contracts entered into by their predecessors-in-interest except
when the rights and obligations therein are not transmissible by
their nature, by stipulation or by provision of law. A contract of
lease is, therefore, generally transmissible to the heirs of the lessor
or lessee. It involves a property right and, as such, the death of a
party does not excuse non-performance of the contract.29The
rights and obligations pass to the heirs of the deceased and the
heir of the deceased lessor is bound to respect the period of the
lease.30 The same principle applies to the option to renew the
lease. As a general rule, covenants to renew a lease are not
personal but will run with the land.31 Consequently, the
successors-in-interest of the lessee are entitled to the benefits,
while that of the lessor are burdened with the duties and
obligations, which said covenants conferred and imposed on the
original parties.
The foregoing principles apply with greater force in this case
because the parties expressly stipulated in the March 31, 1978
Agreement that Romeo, as lessee, shall transfer all his rights and
interests under the lease contract with option to renew "in favor
of the party of the Third Part (Orlando), the latters heirs,
successors and assigns"32indicating the clear intent to allow the
transmissibility of all the rights and interests of Orlando under the
lease contract unto his heirs, successors or assigns. Accordingly,
the rights and obligations under the lease contract with option to
renew were transmitted from Orlando to his heirs upon his death
on November 7, 1983.
It does not follow, however, that the lease subsisted at the time of
the sale of the subject lot on January 29, 1987. When Orlando
died on November 7, 1983, the lease contract was set to expire 26
days later or on December 3, 1983, unless renewed by Orlandos
heirs for another four years. While the option to renew is an
enforceable right, it must necessarily be first exercised to be given
effect.33 As the Court explained in Dioquino v. Intermediate
Appellate Court:34
A clause found in an agreement relative to the renewal of the lease
agreement at the option of the lessee gives the latter an
enforceable right to renew the contract in which the clause is
found for such time as provided for. The agreement is understood
as being in favor of the lessee, and the latter is authorized to renew
the contract and to continue to occupy the leased property after
notifying the lessor to that effect. A lessors covenant or
agreement to renew gives a privilege to the tenant, but is
33
nevertheless an executory contract, and until the tenant has
exercised the privilege by way of some affirmative act, he cannot
be held for the additional term. In the absence of a stipulation in
the lease requiring notice of the exercise of an option or an
election to renew to be given within a certain time before the
expiration of the lease, which of course, the lessee must comply
with, the general rule is that a lessee must exercise an option or
election to renew his lease and notify the lessor thereof before, or
at least at the time of the expiration of his original term, unless
there is a waiver or special circumstances warranting equitable
relief.1avvphi1.zw+
There is no dispute that in the instant case, the lessees (private
respondents) were granted the option to renew the lease for
another five (5) years after the termination of the original period
of fifteen years. Yet, there was never any positive act on the part
of private respondents before or after the termination of the
original period to show their exercise of such option. The silence
of the lessees after the termination of the original period cannot
be taken to mean that they opted to renew the contract by virtue
of the promise by the lessor, as stated in the original contract of
lease, to allow them to renew. Neither can the exercise of the
option to renew be inferred from their persistence to remain in the
premises despite petitioners demand for them to vacate. x x x.35
Similarly, the election of the option to renew the lease in this case
cannot be inferred from petitioner Wenifredas continued
possession of the subject lot and operation of the gasoline station
even after the death of Orlando on November 7, 1983 and the
expiration of the lease contract on December 3, 1983. In the
unlawful detainer case against petitioner Wenifreda and in the
subject complaint for annulment of conveyance, respondents
consistently maintained that after the death of Orlando, the lease
was terminated and that they permitted petitioner Wenifreda and
her children to remain in possession of the subject property out of
tolerance and respect for the close blood relationship between
Cornelio and Orlando. It was incumbent, therefore, upon
petitioner as the plaintiff with the burden of proof during the trial
below to establish by some positive act that Orlando or his heirs
exercised the option to renew the lease. After going over the
records of this case, we find no evidence, testimonial or
documentary, of such nature was presented before the trial court
to prove that Orlando or his heirs exercised the option to renew
prior to or at the time of the expiration of the lease on December
3, 1983. In particular, the testimony of petitioner Wenifreda is
wanting in detail as to the events surrounding the implementation
of the subject lease agreement after the death of Orlando and any
overt acts to establish the renewal of said lease.
Given the foregoing, it becomes unnecessary to resolve the issue
on whether the violation of the prohibitory clause invalidated the
sale and conferred ownership over the subject lot to Orlandos
heirs, who are mere lessees, considering that at the time of said
sale on January 29, 1987 the lease agreement had long been
terminated for failure of Orlando or his heirs to validly renew the
same. As a result, there was no obstacle to the sale of the subject
lot by Cornelio to respondents Eduardo and Jorge as the
prohibitory clause under the lease contract was no longer in force.
Petitioner also anchors its claim over the subject lot on the alleged
verbal promise of Cornelio to Orlando that should he (Cornelio)
sell the same, Orlando would be given the first opportunity to
purchase said property. According to petitioner, this amounted to
a right of first refusal in favor of Orlando which may be proved
by parole evidence because it is not one of the contracts covered
by the statute of frauds. Considering that Cornelio sold the subject
lot to respondents Eduardo and Jorge without first offering the
same to Orlandos heirs, petitioner argues that the sale is in
violation of the latters right of first refusal and is, thus,
rescissible.
The question as to whether a right of first refusal may be proved
by parole evidence has been answered in the affirmative by this
Court in Rosencor Development Corporation v. Inquing:36
We have previously held that not all agreements "affecting land"
must be put into writing to attain enforceability. Thus, we have
held that the setting up of boundaries, the oral partition of real
property, and an agreement creating a right of way are not covered
by the provisions of the statute of frauds. The reason simply is
that these agreements are not among those enumerated in Article
1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable
under the statute of frauds. Furthermore, the application of Article
1403, par. 2(e) of the New Civil Code presupposes the existence
of a perfected, albeit unwritten, contract of sale. A right of first
refusal, such as the one involved in the instant case, is not by any
means a perfected contract of sale of real property. At best, it is a
contractual grant, not of the sale of the real property involved, but
of the right of first refusal over the property sought to be sold.
It is thus evident that the statute of frauds does not contemplate
cases involving a right of first refusal. As such, a right of first
refusal need not be written to be enforceable and may be proven
by oral evidence.37
In the instant case, the Regional Trial Court ruled that the right of
first refusal was proved by oral evidence while the Court of
Appeals disagreed by ruling that petitioner merely relied on the
allegations in its Complaint to establish said right. We have
reviewed the records and find that no testimonial evidence was
presented to prove the existence of said right. The testimony of
petitioner Wenifreda made no mention of the alleged verbal
promise given by Cornelio to Orlando. The two remaining
witnesses for the plaintiff, Michael Goco and Renato Malindog,
were representatives from the Register of Deeds of Caloocan City
who naturally were not privy to this alleged promise. Neither was
it established that respondents Eduardo and Jorge were aware of
said promise prior to or at the time of the sale of the subject lot.
On the contrary, in their answer to the Complaint, respondents
denied the existence of said promise for lack of knowledge
thereof.38 Within these parameters, petitioners allegations in its
Complaint cannot substitute for competent proof on such a crucial
factual issue. Necessarily, petitioners claims based on this
alleged right of first refusal cannot be sustained for its existence
has not been duly established.
WHEREFORE, the petition is DENIED. The May 30, 2000
Decision of the Court of Appeals in CA-G.R. CV No. 58911
dismissing the complaint for annulment of deed of conveyance,
title and damages, and the October 6, 2000 Resolution denying
the motion for reconsideration, are AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 182128 February 19, 2014
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC.,
(now PRIME EAST PROPERTIES, INC.) and AFP-RSBS,
INC., Respondents.
DECISION
REYES, J.:
This is a Petition for Review1 under Rule 45 of the Rules of Court,
assailing the Decision2 dated August 13, 2007 and
Resolution3 dated March 13, 2008 rendered by the Court of
34
Appeals (CA) in CA-G.R. SP No. 86033, which affirmed the
Decision4 dated August 4, 2004 of the Office of the President
(OP) in O.P. Case No. 04-D-182 (HLURB Case No. REM-A-
030724-0186).
Facts of the Case
Some time in July 1994, respondent Teresita Tan Dee (Dee)
bought from respondent Prime East Properties Inc.5(PEPI) on an
installment basis a residential lot located in Binangonan, Rizal,
with an area of 204 square meters6and covered by Transfer
Certificate of Title (TCT) No. 619608. Subsequently, PEPI
assigned its rights over a 213,093-sq m property on August 1996
to respondent Armed Forces of the Philippines-Retirement and
Separation Benefits System, Inc. (AFP-RSBS), which included
the property purchased by Dee.
Thereafter, or on September 10, 1996, PEPI obtained
a P205,000,000.00 loan from petitioner Philippine National Bank
(petitioner), secured by a mortgage over several properties,
including Dees property. The mortgage was cleared by the
Housing and Land Use Regulatory Board (HLURB) on
September 18, 1996.7
After Dees full payment of the purchase price, a deed of sale was
executed by respondents PEPI and AFP-RSBS on July 1998 in
Dees favor. Consequently, Dee sought from the petitioner the
delivery of the owners duplicate title over the property, to no
avail. Thus, she filed with the HLURB a complaint for specific
performance to compel delivery of TCT No. 619608 by the
petitioner, PEPI and AFP-RSBS, among others. In its
Decision8 dated May 21, 2003, the HLURB ruled in favor of Dee
and disposed as follows:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Directing [the petitioner] to cancel/release the mortgage on Lot
12, Block 21-A, Village East Executive Homes covered by
Transfer Certificate of Title No. -619608-(TCT No. -619608-),
and accordingly, surrender/release the title thereof to [Dee];
2. Immediately upon receipt by [Dee] of the owners duplicate of
Transfer Certificate of Title No. -619608- (TCT No. -619608-),
respondents PEPI and AFP-RSBS are hereby ordered to deliver
the title of the subject lot in the name of [Dee] free from all liens
and encumbrances;
3. Directing respondents PEPI and AFP-RSBS to pay [the
petitioner] the redemption value of Lot 12, Block 21-A, Village
East Executive Homes covered by Transfer Certificate of Title
No. -619608- (TCT No. -619608-) as agreed upon by them in
their Real Estate Mortgage within six (6) months from the time
the owners duplicate of Transfer Certificate of Title No. -
619608- (TCT No. -619608-) is actually surrendered and released
by [the petitioner] to [Dee];
4. In the alternative, in case of legal and physical impossibility on
the part of [PEPI, AFP-RSBS, and the petitioner] to comply and
perform their respective obligation/s, as above-mentioned,
respondents PEPI and AFP-RSBS are hereby ordered to jointly
and severally pay to [Dee] the amount of FIVE HUNDRED
TWENTY THOUSAND PESOS ([P]520,000.00) plus twelve
percent (12%) interest to be computed from the filing of
complaint on April 24, 2002 until fully paid; and
5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly
and severally [Dee] the following sums:
a) The amount of TWENTY FIVE THOUSAND PESOS
([P]25,000.00) as attorneys fees;
b) The cost of litigation[;] and
c) An administrative fine of TEN THOUSAND PESOS
([P]10,000.00) payable to this Office fifteen (15) days upon
receipt of this decision, for violation of Section 18 in relation to
Section 38 of PD 957.
SO ORDERED.9
The HLURB decision was affirmed by its Board of
Commissioners per Decision dated March 15, 2004, with
modification as to the rate of interest.10
On appeal, the Board of Commissioners decision was affirmed
by the OP in its Decision dated August 4, 2004, with modification
as to the monetary award.11
Hence, the petitioner filed a petition for review with the CA,
which, in turn, issued the assailed Decision dated August 13,
2007, affirming the OP decision. The dispositive portion of the
decision reads:
WHEREFORE, in view of the foregoing, the petition is DENIED.
The Decision dated August 4, 2004 rendered by the Office of the
President in O. P. Case No. 04-D-182 (HLURB Case No. REM-
A-030724-0186) is hereby AFFIRMED.
SO ORDERED.12
Its motion for reconsideration having been denied by the CA in
the Resolution dated March 13, 2008, the petitioner filed the
present petition for review on the following grounds:
I. THE HONORABLE COURT OF APPEALS ERRED IN
ORDERING OUTRIGHT RELEASE OF TCT NO. 619608
DESPITE PNBS DULY REGISTERED AND HLURB[-]
APPROVED MORTGAGE ON TCT NO. 619608.
II. THE HONORABLE COURT OF APPEALS ERRED IN
ORDERING CANCELLATION OF MORTGAGE/RELEASE
OF TITLE IN FAVOR OF RESPONDENT DEE DESPITE THE
LACK OF PAYMENT OR SETTLEMENT BY THE
MORTGAGOR (API/PEPI and AFP-RSBS) OF ITS EXISTING
LOAN OBLIGATION TO PNB, OR THE PRIOR EXERCISE
OF RIGHT OF REDEMPTION BY THE MORTGAGOR AS
MANDATED BY SECTION 25 OF PD 957 OR DIRECT
PAYMENT MADE BY RESPONDENT DEE TO PNB
PURSUANT TO THE DEED OF UNDERTAKING WHICH
WOULD WARRANT RELEASE OF THE SAME.13
The petitioner claims that it has a valid mortgage over Dees
property, which was part of the property mortgaged by PEPI to it
to secure its loan obligation, and that Dee and PEPI are bound by
such mortgage. The petitioner also argues that it is not privy to
the transactions between the subdivision project buyers and PEPI,
and has no obligation to perform any of their respective
undertakings under their contract.14
The petitioner also maintains that Presidential Decree (P.D.) No.
95715 cannot nullify the subsisting agreement between it and
PEPI, and that the petitioners rights over the mortgaged
properties are protected by Act 313516. If at all, the petitioner can
be compelled to release or cancel the mortgage only after the
provisions of P.D. No. 957 on redemption of the mortgage by the
owner/developer (Section 25) are complied with. The petitioner
also objects to the denomination by the CA of the provisions in
the Affidavit of Undertaking as stipulations pour autrui,17 arguing
that the release of the title was conditioned on Dees direct
payment to it.18
Respondent AFP-RSBS, meanwhile, contends that it cannot be
compelled to pay or settle the obligation under the mortgage
contract between PEPI and the petitioner as it is merely an
investor in the subdivision project and is not privy to the
mortgage.19
Respondent PEPI, on the other hand, claims that the title over the
subject property is one of the properties due for release by the
petitioner as it has already been the subject of a Memorandum of
Agreement and dacion en pago entered into between them.20 The
agreement was reached after PEPI filed a petition for
rehabilitation, and contained the stipulation that the petitioner
agreed to release the mortgage lien on fully paid mortgaged
35
properties upon the issuance of the certificates of title over the
dacioned properties.21
For her part, respondent Dee adopts the arguments of the CA in
support of her prayer for the denial of the petition for review.22
Ruling of the Court
The petition must be DENIED.
The petitioner is correct in arguing that it is not obliged to perform
any of the undertaking of respondent PEPI and AFP-RSBS in its
transactions with Dee because it is not a privy thereto. The basic
principle of relativity of contracts is that contracts can only bind
the parties who entered into it,23 and cannot favor or prejudice a
third person, even if he is aware of such contract and has acted
with knowledge thereof.24 "Where there is no privity of contract,
there is likewise no obligation or liability to speak about."25
The petitioner, however, is not being tasked to undertake the
obligations of PEPI and AFP-RSBS.1avvphi1 In this case, there
are two phases involved in the transactions between respondents
PEPI and Dee the first phase is the contract to sell, which
eventually became the second phase, the absolute sale, after Dees
full payment of the purchase price. In a contract of sale, the
parties obligations are plain and simple. The law obliges the
vendor to transfer the ownership of and to deliver the thing that is
the object of sale.26 On the other hand, the principal obligation of
a vendee is to pay the full purchase price at the agreed
time.27 Based on the final contract of sale between them, the
obligation of PEPI, as owners and vendors of Lot 12, Block 21-
A, Village East Executive Homes, is to transfer the ownership of
and to deliver Lot 12, Block 21-A to Dee, who, in turn, shall pay,
and has in fact paid, the full purchase price of the property. There
is nothing in the decision of the HLURB, as affirmed by the OP
and the CA, which shows that the petitioner is being ordered to
assume the obligation of any of the respondents. There is also
nothing in the HLURB decision, which validates the petitioners
claim that the mortgage has been nullified. The order of
cancellation/release of the mortgage is simply a consequence of
Dees full payment of the purchase price, as mandated by Section
25 of P.D. No. 957, to wit:
Sec. 25. Issuance of Title. The owner or developer shall deliver
the title of the lot or unit to the buyer upon full payment of the lot
or unit. No fee, except those required for the registration of the
deed of sale in the Registry of Deeds, shall be collected for the
issuance of such title. In the event a mortgage over the lot or unit
is outstanding at the time of the issuance of the title to the buyer,
the owner or developer shall redeem the mortgage or the
corresponding portion thereof within six months from such
issuance in order that the title over any fully paid lot or unit may
be secured and delivered to the buyer in accordance herewith.
It must be stressed that the mortgage contract between PEPI and
the petitioner is merely an accessory contract to the principal
three-year loan takeout from the petitioner by PEPI for its
expansion project. It need not be belaboured that "[a] mortgage is
an accessory undertaking to secure the fulfillment of a principal
obligation,"28 and it does not affect the ownership of the property
as it is nothing more than a lien thereon serving as security for a
debt.29
Note that at the time PEPI mortgaged the property to the
petitioner, the prevailing contract between respondents PEPI and
Dee was still the Contract to Sell, as Dee was yet to fully pay the
purchase price of the property. On this point, PEPI was acting
fully well within its right when it mortgaged the property to the
petitioner, for in a contract to sell, ownership is retained by the
seller and is not to pass until full payment of the purchase
price.30 In other words, at the time of the mortgage, PEPI was still
the owner of the property. Thus, in China Banking Corporation v.
Spouses Lozada,31 the Court affirmed the right of the
owner/developer to mortgage the property subject of
development, to wit: "[P.D.] No. 957 cannot totally prevent the
owner or developer from mortgaging the subdivision lot or
condominium unit when the title thereto still resides in the owner
or developer awaiting the full payment of the purchase price by
the installment buyer."32 Moreover, the mortgage bore the
clearance of the HLURB, in compliance with Section 18 of P.D.
No. 957, which provides that "[n]o mortgage on any unit or lot
shall be made by the owner or developer without prior written
approval of the [HLURB]."
Nevertheless, despite the apparent validity of the mortgage
between the petitioner and PEPI, the former is still bound to
respect the transactions between respondents PEPI and Dee. The
petitioner was well aware that the properties mortgaged by PEPI
were also the subject of existing contracts to sell with other
buyers. While it may be that the petitioner is protected by Act No.
3135, as amended, it cannot claim any superior right as against
the installment buyers. This is because the contract between the
respondents is protected by P.D. No. 957, a social justice measure
enacted primarily to protect innocent lot buyers.33 Thus, in Luzon
Development Bank v. Enriquez,34 the Court reiterated the rule
that a bank dealing with a property that is already subject of a
contract to sell and is protected by the provisions of P.D. No. 957,
is bound by the contract to sell.35
However, the transferee BANK is bound by the Contract to Sell
and has to respect Enriquezs rights thereunder. This is because
the Contract to Sell, involving a subdivision lot, is covered and
protected by PD 957.
x x x.
xxxx
x x x Under these circumstances, the BANK knew or should have
known of the possibility and risk that the assigned properties were
already covered by existing contracts to sell in favor of
subdivision lot buyers. As observed by the Court in another case
involving a bank regarding a subdivision lot that was already
subject of a contract to sell with a third party:
"[The Bank] should have considered that it was dealing with a
property subject of a real estate development project. A
reasonable person, particularly a financial institution x x x, should
have been aware that, to finance the project, funds other than
those obtained from the loan could have been used to serve the
purpose, albeit partially. Hence, there was a need to verify
whether any part of the property was already intended to be the
subject of any other contract involving buyers or potential buyers.
In granting the loan, [the Bank] should not have been content
merely with a clean title, considering the presence of
circumstances indicating the need for a thorough investigation of
the existence of buyers x x x. Wanting in care and prudence, the
[Bank] cannot be deemed to be an innocent mortgagee. x x
x"36 (Citation omitted)
More so in this case where the contract to sell has already ripened
into a contract of absolute sale.1wphi1
Moreover, PEPI brought to the attention of the Court the
subsequent execution of a Memorandum of Agreement dated
November 22, 2006 by PEPI and the petitioner. Said agreement
was executed pursuant to an Order dated February 23, 2004 by
the Regional Trial Court (RTC) of Makati City, Branch 142, in
SP No. 02-1219, a petition for Rehabilitation under the Interim
Rules of Procedure on Corporate Rehabilitation filed by PEPI.
The RTC order approved PEPIs modified Rehabilitation Plan,
which included the settlement of the latters unpaid obligations to
its creditors by way of dacion of real properties. In said order, the
RTC also incorporated certain measures that were not included in
PEPIs plan, one of which is that "[t]itles to the lots which have
been fully paid shall be released to the purchasers within 90 days
36
after the dacion to the secured creditors has been
completed."37 Consequently, the agreement stipulated that as
partial settlement of PEPIs obligation with the petitioner, the
former absolutely and irrevocably conveys by way of "dacion en
pago" the properties listed therein,38 which included the lot
purchased by Dee. The petitioner also committed to
[R]elease its mortgage lien on fully paid Mortgaged Properties
upon issuance of the certificates of title over the Dacioned
Properties in the name of the [petitioner]. The request for release
of a Mortgaged Property shall be accompanied with: (i) proof of
full payment by the buyer, together with a certificate of full
payment issued by the Borrower x x x. The [petitioner] hereby
undertakes to cause the transfer of the certificates of title over the
Dacioned Properties and the release of the Mortgaged Properties
with reasonable dispatch.39
Dacion en pago or dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of the
obligation.40 It is a mode of extinguishing an existing
obligation41 and partakes the nature of sale as the creditor is really
buying the thing or property of the debtor, the payment for which
is to be charged against the debtors debt.42 Dation in payment
extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be
proved, unless the parties by agreement express or implied, or
by their silence consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished. 43
There is nothing on record showing that the Memorandum of
Agreement has been nullified or is the subject of pending
litigation; hence, it carries with it the presumption of
validity.44 Consequently, the execution of the dation in payment
effectively extinguished respondent PEPIs loan obligation to the
petitioner insofar as it covers the value of the property purchased
by Dee. This negates the petitioners claim that PEPI must first
redeem the property before it can cancel or release the mortgage.
As it now stands, the petitioner already stepped into the shoes of
PEPI and there is no more reason for the petitioner to refuse the
cancellation or release of the mortgage, for, as stated by the Court
in Luzon Development Bank, in accepting the assigned properties
as payment of the obligation, "[the bank] has assumed the risk
that some of the assigned properties are covered by contracts to
sell which must be honored under PD 957."45 Whatever claims
the petitioner has against PEPI and AFP-RSBS, monetary or
otherwise, should not prejudice the rights and interests of Dee
over the property, which she has already fully paid for.
As between these small lot buyers and the gigantic financial
institutions which the developers deal with, it is obvious that the
lawas an instrument of social justicemust favor the
weak.46 (Emphasis omitted)
Finally, the Court will not dwell on the arguments of AFP-RSBS
given the finding of the OP that "[b]y its non-payment of the
appeal fee, AFP-RSBS is deemed to have abandoned its appeal
and accepts the decision of the HLURB."47 As such, the HLURB
decision had long been final and executory as regards AFP-RSBS
and can no longer be altered or modified.48
WHEREFORE, the petition for review is DENIED for lack of
merit. Consequently, the Decision dated August 13, 2007 and
Resolution dated March 13, 2008 of the Court of Appeals in CA-
G.R. SP No. 86033 are AFFIRMED.
Petitioner Philippine National Bank and respondents Prime East
Properties Inc. and Armed Forces of the Philippines-Retirement
and Separation Benefits System, Inc. are hereby ENJOINED to
strictly comply with the Housing and Land Use Regulatory Board
Decision dated May 21, 2003, as modified by its Board of
Commissioners Decision dated March 15, 2004 and Office of the
President Decision dated August 4, 2004.
SO ORDERED.
THIRD DIVISION
G.R. No. 194548, February 10, 2016
JUANA VDA. DE ROJALES, SUBSTITUTED BY HER
HEIRS, REPRESENTED BY CELERINA ROJALES-
SEVILLA, Petitioner, v. MARCELINO DIME,
SUBSTITUTED BY HIS HEIRS, REPRESENTED BY
BONIFACIA MANIBAY, Respondent.
DECISION
PERALTA, J.:
Challenged and sought to be set aside in this petition for review
on certiorari dated December 9, 2010 of petitioner Juana Vda. de
Rojales, substituted by her heirs Celerina Rojales, Reynaldo
Rojales, Pogs Rojales, Olive Rojales and Josefina Rojales is the
Decision1 dated August 16, 2010 of the Court of Appeals (CA),
as reiterated in its Resolution2 dated November 15, 2010 in CA-
G.R. CV No. 92228, reversing and setting aside the
Decision3 dated May 7, 2008 of the Regional Trial Court (RTC)
of Nasugbu, Batangas, Branch 14, which dismissed the petition
for the consolidation of ownership and title over Lot 4-A covered
by Transfer Certificate of Title (TCT) No. T-55726 in the name
of the respondent Marcelino Dime.
The antecedents are as follows:
Petitioner Juana Vda. de Rojales owned a parcel of land (Lot 4-
A) located at Barrio Remanente, Municipality of Nasugbu,
Batangas consisting of 2,064 square meters covered by TCT No.
T-55726.4chanroblesvirtuallawlibrary
In a petition dated May 30, 2000 filed before the RTC of
Nasugbu, Batangas, Branch 14, respondent Marcelino Dime
alleged that on May 16, 1999, petitioner conveyed under a pacto
de retro contract Lot 4-A in favor of respondent for and in
consideration of the sum of P2,502,932.10.5 Petitioner reserved
the right to repurchase the property for the same price within a
period of nine (9) months from March 24, 1999 to December 24,
1999.6 Despite repeated verbal and formal demands to exercise
her right, petitioner refused to exercise her right to repurchase the
subject property.7chanroblesvirtuallawlibrary
In her answer, petitioner denied the execution of the pacto de
retro sale in favor of respondent and alleged that she had not sold
the subject property.8 She claimed that the document presented by
respondent was falsified since the fingerprint appearing therein
was not hers and the signature of the Notary Public Modesto S.
Alix was not his.9 She also averred that she filed falsification and
use of falsified documents charges against
respondent.10chanroblesvirtuallawlibrary
In her sworn statement attached to her Answer, petitioner alleged
that she mortgaged the subject property with the Batangas
Savings and Loan Bank for P100,000.00 when her daughter
Violeta Rojales Rufo needed the money for application of
overseas work; Antonio Barcelon redeemed the property and paid
P260,000.00 for the debt plus the unpaid interest with the bank;
when Barcelon entered the mayoralty race, he demanded payment
of the debt, then mortgaged the title of the subject property with
respondent; and the signatures appearing in the documents were
falsified.11chanroblesvirtuallawlibrary
37
During the pre-trial, the parties agreed that petitioner is the
registered owner of the subject property, and that she once
mortgaged the property with the Batangas Savings & Loan Bank
in order to secure a loan of P200,000.00 from the bank. 12 They
also submitted the following issues for resolution: whether
the pacto de retro sale was executed by petitioner; whether the
consideration of the sale has been paid to petitioner; and whether
the contract of sale con pacto de retro is
genuine.13chanroblesvirtuallawlibrary
Upon the joint motion of the parties, the RTC issued an Order
dated November 16, 2000 directing the questioned thumbmark be
referred to the fingerprint expert of the National Bureau of
Investigation (NBI) to determine whether the thumbmark
appearing in the pacto de retro contract and the specimen
thumbmark of the petitioner are the
same.14chanroblesvirtuallawlibrary
On April 16, 2001, the NBI submitted a copy of Dactyloscopic
Report FP Case No. 2000-349 by Fingerprint Examiner Eriberto
B. Gomez, Jr. to the court. It was concluded therein that the
questioned thumbmark appearing on the original-duplicate copy
of the notarized pacto de retro sale and the standard right
thumbmark, taken by Police Officer Marcelo Quintin Sosing,
were impressed by and belong to the same person, the
petitioner.15chanroblesvirtuallawlibrary
Respondent passed away on June 22, 2002 before the trial on the
merits of the case ensued. Being his compulsory heirs,
respondent's estranged wife Bonifacia Dime and their children
Cesario Antonio Dime and Marcelino Dime, Jr., substituted him
in the suit.16chanroblesvirtuallawlibrary
On July 11, 2006, the heirs of respondent filed a Manifestation
and Motion to Dismiss the Complaint on the ground that it was
Rufina Villamin, respondent's common law wife, who was the
source of the fund in purchasing Lot 4-A.17 They alleged that the
consolidation of ownership and title to respondent would be
prejudicial to Villamin and would unjustly enrich
them.18 Consequently, the RTC, through Judge Christino E. Judit,
in an Order dated July 12, 2006, dismissed the case with prejudice
on the ground that the case was not filed by an indispensable
party, Villamin.19chanroblesvirtuallawlibrary
However, on August 2, 2006, Atty. Pedro N. Belmi, the counsel
of respondent, filed a Motion for Reconsideration praying to set
aside the dismissal with prejudice on the ground that Villamin and
the daughters of petitioner, Manilyn Rojales Sevilla and Olivia
Rojales, tricked and manipulated the respondent's widow and her
children to affix their signatures on the motion to dismiss.20 Atty.
Belmi insisted that the RTC erred in giving credence to the
motion without his verification that the motion was indeed freely
and voluntarily executed by the
parties.21chanroblesvirtuallawlibrary
Feeling that the respondent's counsel already lost his trust and
confidence to his impartiality and lack of bias to resolve the case,
Judge Judit inhibited himself from the case on January 25, 2007
without waiting for the petitioner to file a motion for inhibition
against him.22 This Court designated Judge Wilfredo De Joya
Mayor to replace Judge Judit.23chanroblesvirtuallawlibrary
In an Order dated October 25, 2007, Judge Mayor set aside the
order of dismissal of the case and set the hearing for further
reception of evidence.24chanroblesvirtuallawlibrary
Thereafter, the RTC ruled in favor of the petitioner. The court a
quo ratiocinated that it is a clear mistake to rule on the merits of
the case knowing that such was not filed by the indispensable
party, hence, the judgment will be void.25 The RTC considered
the unverified motion for reconsideration filed by Atty. Belmi as
an unsigned pleading.26 It further held that the manifestation and
motion to dismiss deserved the presumption of validity since
there was no sufficient proof that the compulsory heirs who
substituted respondent were made to sign such motion without
knowing its content.27 The fallo of the decision
reads:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the above-captioned case is
hereby DISMISSED for utterly lack of merit.
SO ORDERED.28chanroblesvirtuallawlibrary
Aggrieved, respondent assailed the decision before the CA. In a
Decision dated August 16, 2010, the CA reversed and set aside
the decision of the RTC. The dispositive portion of the decision
reads:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the instant appeal is
GRANTED and the herein assailed Decision of the trial court
dated May 7, 2008 is hereby REVERSED and SET ASIDE.
Accordingly, judgment is hereby rendered ordering the
consolidation of ownership over the property (Lot 4-A) covered
by TCT No. T-55726 in the name of the vendee a retro Marcelino
Dime.
SO ORDERED.29chanroblesvirtuallawlibrary
The CA rejected the ruling of the court a quo that Villamin was
an indispensable party. It ruled that the person who provided the
funds for the purchase of the property is not considered as an
indispensable party in a case of consolidation of title filed by
respondent, the vendee, in whose favor the petitioner sold the
subject property under the contract of sale con pacto de
retro.30chanroblesvirtuallawlibrary
Upon the denial of her Motion for Reconsideration by the CA,
petitioner filed the instant petition raising the following
issues:ChanRoblesVirtualawlibrary
A. THE HONORABLE COURT OF APPEALS ERRED
IN GIVING DUE COURSE TO THIS APPEAL
DESPITE THE MANIFESTATION OF THE HEIRS
OF MARCELINO DIME TO DISMISS THE CASE.
B. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT DISREGARDED THE NECESSITY OF
VERIFICATION OF THE RESPONDENTS IN THE
MOTION FOR RECONSIDERATION FILED
BEFORE THE REGIONAL TRIAL COURT.
C. THE HONORABLE COURT OF APPEALS ERRED
IN ALLOWING THE CONSOLIDATION OF THE
TITLE DESPITE THE MANIFESTATION AND
ADMISSION OF THE RESPONDENTS THAT
CONTINUING SO WOULD CONSTITUTE UNJUST
ENRICHMENT.
D. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT RULED THAT THE PETITIONERS
FAILED TO OVERCOME THE PRESUMPTION OF
REGULARITY OF THE SUBJECT PACTO DE
RETRO SALE.
This Court finds the instant petition devoid of merit.
Bisecting the first and third issues, this Court notes that the
petitioner basically argues that the CA erred in ordering the
38
consolidation of ownership and title in the name of respondent
Dime since his heirs have filed a motion to dismiss which
admitted therein that a ruling of the trial court in respondent's
favor is tantamount to unjust enrichment considering that
Villamin provided the funds for the purchase of the subject
property.
Relying on the principle that the client has the exclusive control
of the cause of action on the claim or demand sued upon,
petitioner insists that the filing of the manifestation reflected the
intention of the heirs of respondent to enter into a settlement with
the petitioner.31chanroblesvirtuallawlibrary
Settled is the rule that a client has an undoubted right to settle her
litigation without the intervention of the attorney, for the former
is generally conceded to have exclusive control over the subject
matter of the litigation and may at anytime, if acting in good faith,
settle and adjust the cause of action out of court before judgment,
even without the attorney's
intervention.32chanroblesvirtuallawlibrary
While we agree with the petitioner that the heirs, as the client, has
the exclusive control over the subject matter of litigation and may
settle the case without the attorney's intervention, we deny the
rationale of the filing of the motion to dismiss by the heirs. It was
alleged that they would be unjustly enriched should the court
order the consolidation of the title of Lot 4-A in the name of
respondent since the source of the consideration was Villamin,
respondent's common-law wife.
As relevant to the case at bar, Articles 1311 and 1607 of the Civil
Code provide:ChanRoblesVirtualawlibrary
Article 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the
decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately
conferred a favor upon a third person. (Emphasis supplied).
x x x x
Article 1607. In case of real property, the consolidation of
ownership in the vendee by virtue of the failure of the vendor to
comply with the provisions of article 1616 shall not be recorded
in the Registry of Property without a judicial order, after the
vendor has been duly heard.
We have consistently held that the parties to a contract are the real
parties-in-interest in an action upon it.33 The basic principle of
relativity of contracts is that contracts can only bind the parties
who entered into it, and cannot favor or prejudice a third person,
even if he is aware of such contract and has acted with knowledge
thereof.34 Hence, one who is not a party to a contract, and for
whose benefit it was not expressly made, cannot maintain an
action on it.35 One cannot do so, even if the contract performed
by the contracting parties would incidentally inure to one's
benefit.36chanroblesvirtuallawlibrary
As evidenced by the contract of Pacto de Retro sale,37 petitioner,
the vendor, bound herself to sell the subject property to
respondent, the vendee, and reserved the right to repurchase the
same property for the same amount within a period of nine (9)
months from March 24, 1999 to December 24, 1999.38Therefore,
in an action for the consolidation of title and ownership in the
name of vendee in accordance with Article 161639 of the Civil
Code, the indispensable parties are the parties to the Pacto de
Retro Sale - the vendor, the vendee, and their assigns and heirs.
Villamin, as the alleged source of the consideration, is not privy
to the contract of sale between the petitioner and the respondent.
Therefore, she could not maintain an action for consolidation of
ownership and title of the subject property in her name since she
was not a party to the said contract.
Where there is no privity of contract, there is likewise no
obligation or liability to speak about.40 This Court, in defining the
word "privy" in the case of Republic vs. Grijaldo41 said that the
word privy denotes the idea of succession, thus, he who by
succession is placed in the position of one of those who contracted
the judicial relation and executed the private document and
appears to be substituting him in the personal rights and
obligation is a privy.42chanroblesvirtuallawlibrary
For not being an heir or an assignee of the respondent, Villamin
did not substitute respondent in the personal rights and obligation
in the pacto de retro sale by succession. Since she is not privy to
the contract, she cannot be considered as indispensable party in
the action for consolidation of title and ownership in favor of
respondent. A cursory reading of the contract reveals that the
parties did not clearly and deliberately confer a favor upon
Villamin, a third person.
Petitioner alleges that the consolidation of the title should not be
allowed since the heirs admitted that they would be unjustly
enriched, Villamin being the source of the fund used for the
purchase of the subject property.43chanroblesvirtuallawlibrary
Unjust enrichment exists when a person unjustly retains a benefit
at the loss of another, or when a person retains money or property
of another against the fundamental principles of justice, equity
and good conscience.44 The prevention of unjust enrichment is a
recognized public policy of the State, as embodied in Article 22
of the Civil Code which provides that "[e]very person who
through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to
him."45chanroblesvirtuallawlibrary
This Court notes that the RTC relied on the bare assertions of the
heirs in dismissing the case with prejudice. The records are bereft
of evidence to support the allegation that Villamin has indeed
provided the consideration. Not being a privy to the pacto de
retro sale, Villamin cannot be considered to have been prejudiced
with the consolidation of title in respondent's name.
Assuming arguendo that she was indeed the source of the
consideration, she has a separate cause of action against
respondent. The legal obligation of respondent to her is separate
and distinct from the contract of sale cow pacto de retro, thus, the
award of consolidation of title in her name would be untenable.
Anent the issue on verification, Section 4, Rule 7 of the Rules of
Court provides as follows:ChanRoblesVirtualawlibrary
Sec. 4. Verification. - Except when otherwise specifically
required by law or rule, pleadings need not be under oath, verified
39
or accompanied by affidavit.
A pleading is verified by an affidavit that the affiant has read the
pleading and that the allegations therein are true and correct of his
personal knowledge or based on authentic records.
We do not agree with petitioner's assertion that the motion for
reconsideration should not have been allowed since the
respondent failed to pose a reasonable explanation on the absence
of verification.
Time and again, we have said that non-compliance with
verification or a defect therein does not necessarily render the
pleading fatally defective.46 Verification, like in most cases
required by the rules of procedure, is a formal requirement, not
jurisdictional.47 It is mainly intended to secure an assurance that
matters which are alleged are done in good faith or are true and
correct and not of mere speculation.48Thus, when circumstances
so warrant, "the court may simply order the correction of
unverified pleadings or act on it and waive strict compliance with
the rules in order that the ends of justice may thereby be
served."49chanroblesvirtuallawlibrary
The RTC waived the strict compliance for verification when it
acted on the motion for reconsideration in the interest of justice
and equity and allowed the further reception of evidence.
Therefore, it is erroneous to dismiss the case based on the non-
compliance of verification. As discussed earlier, Villamin is not
privy to the pacto de retro sale between the petitioner and the
respondent. Hence, the case should not have been dismissed
because Villamin is not an indispensable party in an action for
consolidation of ownership and title emanating from the contract
of pacto de retro sale.
Petitioner's allegation that respondent should have executed
affidavits in denying what was written in the manifestation and
motion to dismiss based on Rule 8, Section 850 of the Rules of
Court is unfounded. Such rule is applicable in contesting an action
or defense based on a written instrument or document copied or
attached to the pleading. In the case at bar, it is the motion to
dismiss that is being contested and not a written instrument or
document which an action or defense is based on.
Petitioner avers that the CA erred in relying on the NBI
Fingerprint Examination. She alleges that the opinion of one
claiming to be an expert is not binding upon the court.
There is nothing on record that would compel this Court to
believe that said witness, Fingerprint Examiner Gomez, has
improper motive to falsely testify against the petitioner nor was
his testimony not very certain. His testimony is worthy of full
faith and credit in the absence of evidence of an improper motive.
His straightforward and consistent testimonies bear the earmarks
of credibility.
Gomez testified during direct and cross examination, the process
of examination of the fingerprints and his
conclusion:51chanroblesvirtuallawlibrary
ATTY: BELMI:
Q: Will you kindly tell the court what was the result of your examination?
A: After having thorough examination, comparison and analysis, the Q: Where did you base your conclusion that the thumbprint on the Pacto de
thumbmark appearing on the [Pacto] de Retro and the right thumbmark Retro Sale over and above the name Juana Vda. de Rojales is genuine
appearing on the original copy of PC/INP Fingerprint form taken by SPO3 thumbprint of the same person?
Marcelo Quintin Sosing were impressed by one and the same person.
A: Well, we only respon[d]ed to the request of the court to compare with the
thumbprint appearing on the Pacto de Retro Sale to that of the fingerprint
appearing on the thumbprint form.
xxxx

Q: You mean to say you were provided with the standard fingerprint of the
Q: How do you go about this comparison to determine whether that subject?
thumbmark were impressed by the same person?
A: Yes. sir.
A: We must locate the three elements of comparing, the number 1 is type of
fingerprint pattern.

xxxx

xxxx

COURT:

A: There are three elements, after knowing the fingerprint pattern and they
are of the same fingerprint the next step is to know the flow of the rages
of the fingerprint pattern or the shape.
Q: Now, with this photograph blown-up, you have here 13 points, will you
please explain to the court how these 13 points agree from that standard
to that questioned document?

xxxx A: I found 2x4 bifurcation, it means that single rage splitting into two
branches.

Q: Then what is next?

Q: You pointed out?
A: After number 2, the last is the most important one because you must locate
the number of ridges of characteristics and their relationship with each A: I found the bifurcation on the standard that corresponds exactly to the
other because it is the basis of identification of the fingerprint. bifurcation which I marked number 1 in both photograph[s].

Q: Meaning the description of the ridges? Q: From the center?

A: Yes, sir, the identification features appearing on the fingerprint. A: As to the number and location with respect to the core, I found that both
questioned and standard coincide.

Q: What did you see?

xxxx
A: I found that there were 13 identical points to warrant the positive
identification.

Q: Now, but the layer does not change in point 1, how many layer from the
core?
Q: [Those] 13 points [are] more than enough to determine whether those
thumbmark[s] [are] done by one and the same person? A: From the core, there are 4 intervening layers from number 1 to number 2
and it appears also the questioned 4 intervening layers between number 1
A: Yes, sir. and number 2, so, the intervening rages between ends of this
characteristics are all both in agreement.

xxxx
xxxx

ATTY. SALANGUIT:

40
 proceeding.57chanroblesvirtuallawlibrary

We rule that petitioner failed to present clear and convincing evidence to

Q: Can you say that based on the questioned thumbmark, you would be able overcome such presumption of regularity of a public document. Petitioner
to arrive an accurate evaluation between the questioned thumbmark and submitted the specimen signature of the notary public but the same was
standard thumbmark? never presented during the trial nor was authenticated. Records disclose
that after she admitted to being bound with conclusion of the NBI
A: Yes, [ma'am]. regarding the issue on the thumbmark, petitioner did not present any
evidence to rebut the due execution of the notarized contract of sale
con pacto de retro. Instead, she presented her testimony and the testimony
of her daughter Josefma Rojales to prove that she never intended to sell
her property.
Q: Even if the questioned thumbmark is a little bit blurred as to the standard
thumbmark?
The inconsistencies in petitioner's claims cast doubt to the credibility of
her testimonies. We note that petitioner admitted, as reflected in the pre-
A: [Even though] the questioned thumbmark is a little bit blurred but still the trial order,58 that she once mortgaged her property to the bank. However,
ridge characteristics is still discernible. she denied the same during the trial and further claimed that it was the
respondent who mortgaged the title with the
bank.59chanroblesvirtuallawlibrary

Q: You are telling us that among many people here in the world, nobody have To prove her lack of intention to sell the property, petitioner maintained
the same thumbmark as another person and that include the thumbmark of that the respondent borrowed the title from her. She herself took the
a twins? witness stand and testified during the direct and cross examination
that,60chanroblesvirtuallawlibrary
A: Yes, [ma'am].
COURT:

xxx
Q: Are you aware of any or were you shown a purported document
A meticulous perusal of the records reveals that during the trial, wherein it was alleged that you sold that property to the
petitioner's lawyer manifested that the petitioner, through her former plaintiff Marcelino Dime?
counsel, has bound herself with the result of the NBI Fingerprint
Examination.52 It was further admitted in the court that there is no more A: No, sir, I am already old and I don't know.
issue about the authenticity and genuineness of the
thumbmark.53 Petitioner's counsel
manifested:54chanroblesvirtuallawlibrary
ATTY. SALANGUIT: xxxx
Your honor, the nature of the testimony of the defendant is to prove the
fact that she never really sold the property a retro to anybody. That is the
property covered by Transfer Certificate of Title. That is at presently
subject of the complaint.
Q: You mean to say that you did not bother to go to Marcelino
COURT: Dime after a complaint was filed against you considering that
How about the documents which was turned out to be tampered? he was a neighbor of yours?

ATTY. SALANGUIT: A: He just borrowed the title, sir, and I don't know.
Your honor, I understand that based on the records of the case[,]
(petitioner's] counsel has already found himself to be bound by the result
of the NBI investigation. Actually, your honor, there is no more issue
about the authenticity and genuineness of the thumbmark of the Q: You mean to say that [you have] a title over that property and
defendant, so what we only prove today is that the defendant never really that property was borrowed by Marcelino Dime, [is that] what
intentionally sold the property to anybody. you mean?
ATTY. BELMI:
With that manifestation, we will allow the defendant, in the interest of A: Yes, sir.
justice.

xxx
The CA ruled that the presumption of regularity accorded to a public xxxx
document must stand in the presence of the evidence showing that the
thumbmark in the contract belongs to the petitioner, and due to her failure
to present clear and convincing evidence to overcome such legal
presumption.
ATTY. BELMI:
Settled is the rule that generally, a notarized document carries the
evidentiary weight conferred upon it with respect to its due execution, and
documents acknowledged before a notary public have in their favor the
presumption of regularity.55 In other words, absent any clear and Q: Mrs. Witness, when Dime took from you the title, you asked
convincing proof to the contrary, a notarized document enjoys the him why he was taking the title?
presumption of regularity and is conclusive as to the truthfulness of its
contents.56 Irregularities in the notarization of the document may be A: Yes, sir, he told me that he will just borrow the title.
established by oral evidence of persons present in said

41
 Petitioner failed to specifically allege in all her pleadings that she
xxxx
did not intend to sell her property to respondent, instead, she
maintained that there was no pacto de retro sale because her
thumbmark and the notary public's signature were falsified. She
should have raised the issue that respondent merely borrowed the
Q: This property covered by the title was mortgaged with the title from her and promised to pay her in her pleadings and not
Batangas Savings and Loan Bank? belatedly claimed the same after the NBI ruled that the
thumbmark in the contract was hers.
A: He (respondent) was the one who mortgaged the title but he did
not give the money to us, sir. In light of petitioner's inconsistent and bare allegations and the
conflicting testimony of her other witness, we rule that petitioner
failed to overcome the presumption of regularity of the notarized
contract of Pacto de Retro sale. Moreover, this Court is
Q: So, when he took the title from you, Dime told you that he will unconvinced that petitioner has successfully proven that her
mortgage the property with the bank? agreement with respondent was not a pacto de retro sale but a
contract of loan secured by a mortgage of the subject property.
A: Yes, sir, he will use the money.
WHEREFORE, the petition for review on certiorari dated
December 9, 2010 of petitioner Juana Vda. de Rojales, substituted
by her heirs Celerina Rojales, Reynaldo Rojales, Pogs Rojales,
Q: So, you mean to say that you were not the one who mortgaged Olive Rojales and Josefina Rojales is hereby DENIED. The
the property with the bank? Decision and Resolution, dated August 16, 2010 and November
15, 2010, respectively, of the Court of Appeals in CA-G.R. CV
A: He (respondent) was the one who mortgaged the property, sir. No. 92228 are hereby AFFIRMED.

SO ORDERED.cralawlawlibrary
xxxx

COURT:

Q: Are you aware that Marcelino Dime could not be able to

mortgage the property to the bank if you [do not] have any
document, a Special Power of Attorney authorizing Dime to
mortgage the property with the bank?

A: I did not give any authority, sir.

xxxx

Her daughter Josefina claimed otherwise. She averred that her

mother has previously mortgaged the property with the bank and
that it was Barcelon who redeemed the property from the
bank.61 She admitted that Barcelon borrowed the title from her
mother because there was already a buyer.62 She also alleged that
Barangay Captain Esguerra and his secretary Laila Samonte,
upon the instruction of Barcelon, took the title from them.63 Thus,
her testimony contradicts her mother's claim that respondent
borrowed the title from her.

We have consistently decreed that the nomenclature used by the

contracting parties to describe a contract does not determine its
nature.64 The decisive factor is their intention - as shown by their
conduct, words, actions and deeds - prior to, during, and after
executing the agreement.65 Thus, even if a contract is
denominated as apacto de retro, the owner of the property may
still disprove it by means of parole evidence,66 provided that the
nature of the agreement is placed in issue by the pleadings filed
with the trial court.67chanroblesvirtuallawlibrary

42
 ARTICLES 1315 1319 PERFECTION / STAGES /
CONSENSUAL / REAL AND ESSENTIAL
REQUISITES OF CONTRACTS
SECOND DIVISION
[G.R. No. 128066. June 19, 2000]
JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS
and FAR EAST MILLS SUPPLY
CORPORATION, respondents.
[G.R. No. 128069 June 19, 2000]
PURE FOODS CORPORATION, petitioner, vs. COURT OF
APPEALS and FAR EAST MILLS SUPPLY
CORPORATION, respondents.
DECISION
BELLOSILLO, J.:
This is rather a simple case for specific performance with
damages which could have been resolved through mediation and
conciliation during its infancy stage had the parties been earnest
in expediting the disposal of this case. They opted however to
resort to full court proceedings and denied themselves the benefits
of alternative dispute resolution, thus making the process more
arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis
which the country was then experiencing. To remedy and curtail
further losses due to the series of power failures, petitioner PURE
FOODS CORPORATION (hereafter PUREFOODS) decided to
install two (2) 1500 KW generators in its food processing plant in
San Roque, Marikina City.
Sometime in November 1992 a bidding for the supply and
installation of the generators was held. Several suppliers and
dealers were invited to attend a pre-bidding conference to discuss
the conditions, propose scheme and specifications that would best
suit the needs of PUREFOODS. Out of the eight (8) prospective
bidders who attended the pre-bidding conference, only three (3)
bidders, namely, respondent FAR EAST MILLS SUPPLY
CORPORATION (hereafter FEMSCO), MONARK and
ADVANCE POWER submitted bid proposals and gave bid bonds
equivalent to 5% of their respective bids, as required.
Thereafter, in a letter dated 12 December 1992 addressed to
FEMSCO President Alfonso Po, PUREFOODS confirmed the
award of the contract to FEMSCO -
Gentlemen:
This will confirm that Pure Foods Corporation has awarded to
your firm the project: Supply and Installation of two (2) units of
1500 KW/unit Generator Sets at the Processed Meats Plant, Bo.
San Roque, Marikina, based on your proposal number PC 28-92
dated November 20, 1992, subject to the following basic terms
and conditions:
1. Lump sum contract of P6,137,293.00 (VAT included), for the
supply of materials and labor for the local portion and the labor
for the imported materials, payable by progress billing twice a
month, with ten percent (10%) retention. The retained amount
shall be released thirty (30) days after acceptance of the
completed project and upon posting of Guarantee Bond in an
amount equivalent to twenty percent (20%) of the contract price.
The Guarantee Bond shall be valid for one (1) year from
completion and acceptance of project. The contract price includes
future increase/s in costs of materials and labor;
2. The project shall be undertaken pursuant to the attached
specifications. It is understood that any item required to complete
the project, and those not included in the list of items shall be
deemed included and covered and shall be performed;
3. All materials shall be brand new;
43
4. The project shall commence immediately and must be
completed within twenty (20) working days after the delivery of
Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1%
of the purchase price for every day of delay;
5. The Contractor shall put up Performance Bond equivalent to
thirty (30%) of the contract price, and shall procure All Risk
Insurance equivalent to the contract price upon commencement
of the project. The All Risk Insurance Policy shall be endorsed in
favor of and shall be delivered to Pure Foods Corporation;
6. Warranty of one (1) year against defective material and/or
workmanship.
Once finalized, we shall ask you to sign the formal contract
embodying the foregoing terms and conditions.
Immediately, FEMSCO submitted the required performance bond
in the amount of P1,841,187.90 and contractors all-risk insurance
policy in the amount of P6,137,293.00 which PUREFOODS
through its Vice President Benedicto G. Tope acknowledged in a
letter dated 18 December 1992. FEMSCO also made
arrangements with its principal and started the PUREFOODS
project by purchasing the necessary materials. PUREFOODS on
the other hand returned FEMSCOs Bidders Bond in the amount
of P1,000,000.00, as requested.
Later, however, in a letter dated 22 December 1992,
PUREFOODS through its Senior Vice President Teodoro L.
Dimayuga unilaterally canceled the award as "significant factors
were uncovered and brought to (their) attention which dictate
(the) cancellation and warrant a total review and re-bid of (the)
project." Consequently, FEMSCO protested the cancellation of
the award and sought a meeting with PUREFOODS. However,
on 26 March 1993, before the matter could be resolved,
PUREFOODS already awarded the project and entered into a
contract with JARDINE NELL, a division of Jardine Davies, Inc.
(hereafter JARDINE), which incidentally was not one of the
bidders.
FEMSCO thus wrote PUREFOODS to honor its contract with the
former, and to JARDINE to cease and desist from delivering and
installing the two (2) generators at PUREFOODS. Its demand
letters unheeded, FEMSCO sued both PUREFOODS and
JARDINE: PUREFOODS for reneging on its contract, and
JARDINE for its unwarranted interference and inducement. Trial
ensued. After FEMSCO presented its evidence, JARDINE filed
a Demurrer to Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br.
68,[1] granted JARDINEs Demurrer to Evidence. The trial court
concluded that "[w]hile it may seem to the plaintiff that by the
actions of the two defendants there is something underhanded
going on, this is all a matter of perception, and unsupported by
hard evidence, mere suspicions and suppositions would not stand
up very well in a court of law."[2] Meanwhile trial proceeded as
regards the case against PUREFOODS.
On 28 July 1994 the trial court rendered a decision ordering
PUREFOODS: (a) to indemnify FEMSCO the sum
of P2,300,000.00 representing the value of engineering services
it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its
peso equivalent, and P900,000.00 representing contractor's mark-
up on installation work, considering that it would be impossible
to compel PUREFOODS to honor, perform and fulfill its
contractual obligations in view of PUREFOOD's contract with
JARDINE and noting that construction had already started
thereon; (c) to pay attorneys fees in an amount equivalent to 20%
of the total amount due; and, (d) to pay the costs. The trial court
dismissed the counterclaim filed by PUREFOODS for lack of
factual and legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of
Appeals. FEMSCO appealed the 27 June 1994 Resolution of the
trial court which granted the Demurrer to Evidence filed by
JARDINE resulting in the dismissal of the complaint against it,
while PUREFOODS appealed the 28 July 1994 Decision of the
same court which ordered it to pay FEMSCO.
On 14 August 1996 the Court of Appeals affirmed in toto the 28
July 1994 Decision of the trial court.[3] It also reversed the 27 June
1994 Resolution of the lower court and ordered JARDINE to pay
FEMSCO damages for inducing PUREFOODS to violate the
latters contract with FEMSCO. As such, JARDINE was ordered
to pay FEMSCO P2,000,000.00 for moral damages. In addition,
PUREFOODS was also directed to pay FEMSCO P2,000,000.00
as moral damages and P1,000,000.00 as exemplary damages as
well as 20% of the total amount due as attorney's fees.
On 31 January 1997 the Court of Appeals denied for lack of merit
the separate motions for reconsideration filed by PUREFOODS
and JARDINE. Hence, these two (2) petitions for review filed by
PUREFOODS and JARDINE which were subsequently
consolidated.
PUREFOODS maintains that the conclusions of both the trial
court and the appellate court are premised on a misapprehension
of facts. It argues that its 12 December 1992 letter to FEMSCO
was not an acceptance of the latter's bid proposal and award of the
project but more of a qualified acceptance constituting a counter-
offer which required FEMSCO's express conforme. Since
PUREFOODS never received
FEMSCOs conforme, PUREFOODS was very well within reason
to revoke its qualified acceptance or counter-offer. Hence, no
contract was perfected between PUREFOODS and FEMSCO.
PUREFOODS also contends that it was never in bad faith when
it dealt with FEMSCO. Hence moral and exemplary damages
should not have been awarded.
Corollarily, JARDINE asserts that the records are bereft of any
showing that it had prior knowledge of the supposed contract
between PUREFOODS and FEMSCO, and that it induced
PUREFOODS to violate the latters alleged contract with
FEMSCO. Moreover, JARDINE reasons that FEMSCO, an
artificial person, is not entitled to moral damages. But
granting arguendo that the award of moral damages is
proper, P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues: first,
whether there existed a perfected contract between PUREFOODS
and FEMSCO; and second, granting there existed a perfected
contract, whether there is any showing that JARDINE induced or
connived with PUREFOODS to violate the latter's contract with
FEMSCO.
A contract is defined as "a juridical convention manifested in
legal form, by virtue of which one or more persons bind
themselves in favor of another or others, or reciprocally, to the
fulfillment of a prestation to give, to do, or not to do."[4] There can
be no contract unless the following requisites concur: (a) consent
of the contracting parties; (b) object certain which is the subject
matter of the contract; and, (c) cause of the obligation which is
established.[5] A contract binds both contracting parties and has
the force of law between them.
Contracts are perfected by mere consent, upon the acceptance by
the offeree of the offer made by the offeror. 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.[6] To produce a contract, the acceptance must not
qualify the terms of the offer. However, the acceptance may be
express or implied.[7] For a contract to arise, the acceptance must
be made known to the offeror. Accordingly, the acceptance can
be withdrawn or revoked before it is made known to the offeror.
44
In the instant case, there is no issue as regards the subject matter
of the contract and the cause of the obligation. The controversy
lies in the consent - whether there was an acceptance of the offer,
and if so, if it was communicated, thereby perfecting the contract.
To resolve the dispute, there is a need to determine what
constituted the offer and the acceptance. Since petitioner
PUREFOODS started the process of entering into the contract by
conducting a bidding, Art. 1326 of the Civil Code, which provides
that "[a]dvertisements for bidders are simply invitations to make
proposals," applies. Accordingly, the Terms and Conditions of the
Bidding disseminated by petitioner PUREFOODS constitutes the
"advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including
respondent FEMSCO, are the offers. And, the reply of petitioner
PUREFOODS, the acceptance or rejection of the respective
offers.
Quite obviously, the 12 December 1992 letter of petitioner
PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCOs offer as contemplated by law. The tenor of the
letter, i.e., "This will confirm that Pure Foods has awarded to your
firm (FEMSCO) the project," could not be more categorical.
While the same letter enumerated certain "basic terms and
conditions," these conditions were imposed on the performance
of the obligation rather than on the perfection of the contract.
Thus, the first "condition" was merely a reiteration of the contract
price and billing scheme based on the Terms and Conditions of
Bidding and the bid or previous offer of respondent FEMSCO.
The second and third "conditions" were nothing more than
general statements that all items and materials including those
excluded in the list but necessary to complete the project shall be
deemed included and should be brand new. The fourth
"condition" concerned the completion of the work to be done, i.e.,
within twenty (20) days from the delivery of the generator set, the
purchase of which was part of the contract. The fifth "condition"
had to do with the putting up of a performance bond and an all-
risk insurance, both of which should be given upon
commencement of the project. The sixth "condition" related to the
standard warranty of one (1) year. In fine, the enumerated "basic
terms and conditions" were prescriptions on how the obligation
was to be performed and implemented. They were far from being
conditions imposed on the perfection of the contract.
In Babasa v. Court of Appeals[8] we distinguished between a
condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While
failure to comply with the first condition results in the failure of
a contract, failure to comply with the second merely gives the
other party options and/or remedies to protect his interests.
We thus agree with the conclusion of respondent appellate court
which affirmed the trial court -
As can be inferred from the actual phrase used in the first portion
of the letter, the decision to award the contract has already been
made. The letter only serves as a confirmation of such decision.
Hence, to the Courts mind, there is already an acceptance made
of the offer received by Purefoods. Notwithstanding the terms and
conditions enumerated therein, the offer has been accepted and/or
amplified the details of the terms and conditions contained in the
Terms and Conditions of Bidding given out by Purefoods to
prospective bidders.[9]
But even granting arguendo that the 12 December 1992 letter of
petitioner PUREFOODS constituted a "conditional counter-
offer," respondent FEMCO's submission of the performance bond
and contractor's all-risk insurance was an implied acceptance, if
not a clear indication of its acquiescence to, the "conditional
counter-offer," which expressly stated that the performance bond
and the contractor's all-risk insurance should be given upon the
commencement of the contract. Corollarily, the acknowledgment
thereof by petitioner PUREFOODS, not to mention its return of
FEMSCO's bidder's bond, was a concrete manifestation of its
knowledge that respondent FEMSCO indeed consented to the
"conditional counter-offer." After all, as earlier adverted to, an
acceptance may either be express or implied,[10] and this can be
inferred from the contemporaneous and subsequent acts of the
contracting parties.
Accordingly, for all intents and purposes, the contract at that point
has been perfected, and respondent FEMSCO's conforme would
only be a mere surplusage. The discussion of the price of the
project two (2) months after the 12 December 1992 letter can be
deemed as nothing more than a pressure being exerted by
petitioner PUREFOODS on respondent FEMSCO to lower the
price even after the contract had been perfected. Indeed from the
facts, it can easily be surmised that petitioner PUREFOODS was
haggling for a lower price even after agreeing to the earlier
quotation, and was threatening to unilaterally cancel the contract,
which it eventually did. Petitioner PUREFOODS also makes an
issue out of the absence of a purchase order (PO). Suffice it to say
that purchase orders or POs do not make or break a contract. Thus,
even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling
the award to your company of the project," presupposes that the
contract has been perfected. For, there can be no cancellation if
the contract was not perfected in the first place.
Petitioner PUREFOODS also argues that it was never in bad faith.
On the contrary, it believed in good faith that no such contract
was perfected. We are not convinced. We subscribe to the factual
findings and conclusions of the trial court which were affirmed
by the appellate court -
Hence, by the unilateral cancellation of the contract, the
defendant (petitioner PURE FOODS) has acted with bad faith and
this was further aggravated by the subsequent inking of a contract
between defendant Purefoods and erstwhile co-defendant Jardine.
It is very evident that Purefoods thought that by the expedient
means of merely writing a letter would automatically cancel or
nullify the existing contract entered into by both parties after a
process of bidding. This, to the Courts mind, is a flagrant violation
of the express provisions of the law and is contrary to fair and just
dealings to which every man is due.[11]
This Court has awarded in the past moral damages to a
corporation whose reputation has been besmirched.[12] In the
instant case, respondent FEMSCO has sufficiently shown that its
reputation was tarnished after it immediately ordered equipment
from its suppliers on account of the urgency of the project, only
to be canceled later. We thus sustain respondent appellate court's
award of moral damages. We however reduce the award
from P2,000,000.00 to P1,000,000.00, as moral damages are
never intended to enrich the recipient. Likewise, the award of
exemplary damages by way of example for the public good is
excessive and should be reduced to P100,000.00.
Petitioner JARDINE maintains on the other hand that respondent
appellate court erred in ordering it to pay moral damages to
respondent FEMSCO as it supposedly induced PUREFOODS to
violate the contract with FEMSCO. We agree. While it may seem
that petitioners PUREFOODS and JARDINE connived to deceive
respondent FEMSCO, we find no specific evidence on record to
support such perception. Likewise, there is no showing
whatsoever that petitioner JARDINE induced petitioner
PUREFOODS. The similarity in the design submitted to
petitioner PUREFOODS by both petitioner JARDINE and
respondent FEMSCO, and the tender of a lower quotation by
petitioner JARDINE are insufficient to show that petitioner
45
JARDINE indeed induced petitioner PUREFOODS to violate its
contract with respondent FEMSCO.
WHEREFORE, judgment is hereby rendered as follows:
(a) The petition in G.R. No. 128066 is GRANTED. The assailed
Decision of the Court of Appeals reversing the 27 June 1994
resolution of the trial court and ordering petitioner JARDINE
DAVIES, INC., to pay private respondent FAR EAST MILLS
SUPPLY CORPORATION P2,000,000.00 as moral damages is
REVERSED and SET ASIDE for insufficiency of evidence; and
(b) The petition in G.R. No. 128069 is DENIED. The assailed
Decision of the Court of Appeals ordering petitioner PURE
FOODS CORPORATION to pay private respondent FAR EAST
MILLS SUPPLY CORPORATION the sum of P2,300,000.00
representing the value of engineering services it rendered,
US$14,000.00 or its peso equivalent, and P900,000.00
representing the contractor's mark-up on installation work, as well
as attorney's fees equivalent to twenty percent (20%) of the total
amount due, is AFFIRMED. In addtion, petitioner PURE FOODS
CORPORATION is ordered to pay private respondent FAR
EAST MILLS SUPPLY CORPORATION moral damages in the
amount of P1,000,000.00 and exemplary damages in the amount
of P1,000,000.00. Costs against petitioner.
SO ORDERED.
FIRST DIVISION
G.R. No. 123892 May 21, 2001
JASMIN SOLER, petitioner,
vs.
COURT OF APPEALS, COMMERCIAL BANK OF
MANILA, and NIDA LOPEZ, respondents.
PARDO, J.:
Appeal via certiorari from a decision of the Court of
Appeals,1 declaring that there was no perfected contract between
petitioner Jazmin Soler and The Commercial Bank of Manila
(COMBANK FOR BREVITY, formerly Boston Bank of the
Philippines) for the renovation of its Ermita Branch, thereby
denying her claim for payment of professional fees for services
rendered.
The antecedent facts are as follows:
Petitioner Jazmin Soler is a Fine Arts graduate of the University
of Sto. Tomas, Manila. She is a well known licensed professional
interior designer. In November 1986, her friend Rosario Pardo
asked her to talk to Nida Lopez, who was manager of the
COMBANK Ermita Branch for they were planning to renovate
the branch offices.2
Even prior to November 1986, petitioner and Nida Lopez knew
each other because of Rosario Pardo, the latter's sister. During
their meeting, petitioner was hesitant to accept the job because of
her many out of town commitments, and also considering that Ms.
Lopez was asking that the designs be submitted by December
1986, which was such a short notice. Ms. Lopez insisted,
however, because she really wanted petitioner to do the design for
renovation. Petitioner acceded to the request. Ms. Lopez assured
her that she would be compensated for her services. Petitioner
even told Ms. Lopez that her professional fee was ten thousand
pesos (P10,000.00), to which Ms. Lopez acceded.3
During the November 1986 meeting between petitioner and Ms.
Lopez, there were discussions as to what was to be renovated,
which included a provision for a conference room, a change in the
carpeting and wall paper, provisions for bookshelves, a clerical
area in the second floor, dressing up the kitchen, change of the
ceiling and renovation of the tellers booth. Ms. Lopez again
assured petitioner that the bank would pay her fees.4
After a few days, petitioner requested for the blueprint of the
building so that the proper design, plans and specifications could
be given to Ms. Lopez in time for the board meeting in December
1986. Petitioner then asked her draftsman Jackie Barcelon to go
to the jobsite to make the proper measurements using the blue
print. Petitioner also did her research on the designs and
individual drawings of what the bank wanted. Petitioner hired
Engineer Ortanez to make the electrical layout, architects Frison
Cruz and De Mesa to do the drafting. For the services rendered
by these individuals, petitioner paid the engineer P4,000.00,
architects Cruz and de Mesa P5,000.00 and architect Barcelon
P6,000.00. Petitioner also contacted the suppliers of the wallpaper
and the sash makers for their quotation. So come December 1986,
the lay out and the design were submitted to Ms. Lopez. She even
told petitioner that she liked the designs.5
Subsequently, petitioner repeatedly demanded payment for her
services but Ms. Lopez just ignored the demands. In February
1987, by chance petitioner and Ms. Lopez saw each other in a
concert at the Cultural Center of the Philippines. Petitioner
inquired about the payment for her services, Ms. Lopez curtly
replied that she was not entitled to it because her designs did not
conform to the bank's policy of having a standard design, and that
there was no agreement between her and the bank.6
To settle the controversy, petitioner referred the matter to her
lawyers, who wrote Ms. Lopez on May 20, 1987, demanding
payment for her professional fees in the amount of P10,000.00
which Ms. Lopez ignored. Hence, on June 18, 1987, the lawyers
wrote Ms. Lopez once again demanding the return of the blueprint
copies petitioner submitted which Ms. Lopez refused to return.7
On October 13, 1987, petitioner filed at the Regional Trial Court
of Pasig, Branch 153 a complaint against COMBANK and Ms.
Lopez for collection of professional fees and damages.8
In its answer, COMBANK stated that there was no contract
between COMBANK and petitioner;9 that Ms. Lopez merely
invited petitioner to participate in a bid for the renovation of the
COMBANK Ermita Branch; that any proposal was still subject to
the approval of the COMBANK's head office.10
After due trial, on November 19, 1990, the trial court rendered a
decision, the dispositive portion of which reads:
"WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiff and against defendants, ordering
defendants jointly and severally, to pay plaintiff the following, to
wit:
"1. P15,000.00 representing the actual and compensatory
damages or at least a reasonable compensation for the services
rendered based on a quantum meruit;
"2. P5,000.00 as attorney's fees, and P2,000.00 as litigation
expenses;
"3. P5,000.00 as exemplary damages; and
"4. The cost of suit.
"SO ORDERED."11
On November 29, 1990, COMBANK, and Ms. Nida Lopez, filed
their notice of appeal.12 On December 5, 1990, the trial court
ordered13 the records of the case elevated to the Court of
Appeals.14
In the appeal, COMBANK reiterated that there was no contract
between petitioner, Nida Lopez and the bank.15Whereas,
petitioner maintained that there was a perfected contract between
her and the bank which was facilitated through Nida Lopez.
According to petitioner there was an offer and an acceptance of
the service she rendered to the bank.16
On October 26, 1995, the Court of Appeals rendered its decision
the relevant portions of which state:
46
"After going over the record of this case, including the transcribed
notes taken during the course of the trial, We are convinced that
the question here is not really whether the alleged contract
purportedly entered into between the plaintiff and defendant
Lopez is enforceable, but whether a contract even exists between
the parties.
"Article 1318 of the Civil Code provides that 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.
xxx
"The defendant bank never gave its imprimatur or consent to the
contract considering that the bidding or the question of renovating
the ceiling of the branch office of defendant bank was deferred
because the commercial bank is for sale. It is under privatization.
xxx
"At any rate, we find that the appellee failed to prove the
allegations in her complaint. xxx
"WHEREFORE, premises considered, the appealed decision
(dated November 19, 1990) of the Regional Trial Court (Branch
153) in Pasig (now 55238, is hereby REVERSED. No
pronouncement as to costs.
"SO ORDERED."17
Hence, this petition.18
Petitioner forwards the argument that:
1. The Court of Appeals erred in ruling that there was no contract
between petitioner and respondents, in the absence of the element
of consent;
2. The Court of Appeals erred in ruling that respondents merely
invited petitioner to present her proposal;
3. The Court of Appeals erred in ruling that petitioner knew that
her proposal was still subject to bidding and approval of the board
of directors of the bank;
4. The Court of Appeals erred in reversing the decision of the trial
court.
We find the petition meritorious.
We see that the issues raised boil down to whether or not there
was a perfected contract between petitioner Jazmin Soler and
respondents COMBANK and Nida Lopez, and whether or not
Nida Lopez, the manager of the bank branch, had authority to bind
the bank in the transaction.
The discussions between petitioner and Ms. Lopez was to the
effect that she had authority to engage the services of petitioner.
During their meeting, she even gave petitioner specifications as
to what was to be renovated in the branch premises and when
petitioners requested for the blueprints of the building, Ms. Lopez
supplied the same.
Ms. Lopez was aware that petitioner hired the services of people
to help her come up with the designs for the December, 1986
board meeting of the bank. Ms. Lopez even insisted that the
designs be rushed in time for presentation to the bank. With all
these discussion and transactions, it was apparent to petitioner
that Ms. Lopez indeed had authority to engage the services of
petitioner.1wphi1.nt
The next issue is whether there was a perfected contract between
petitioner and the Bank.
"A contract is a meeting of the minds between two persons
whereby one binds himself to give something or to render some
service to bind himself to give something to render some service
to another for consideration. 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; and
3. Cause of the obligation which is established.19
"A contract undergoes three stages:
"(a) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement
of the parties;
"(b) perfection or birth of the contract, which is the moment when
the parties come to agree on the terms of the contract; and
"(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract."20
In the case at bar, there was a perfected oral contract. When Ms.
Lopez and petitioner met in November 1986, and discussed the
details of the work, the first stage of the contract commenced.
When they agreed to the payment of the ten thousand pesos
(P10,000.00) as professional fees of petitioner and that she should
give the designs before the December 1986 board meeting of the
bank, the second stage of the contract proceeded, and when finally
petitioner gave the designs to Ms. Lopez, the contract was
consummated.
Petitioner believed that once she submitted the designs she would
be paid her professional fees. Ms. Lopez assured petitioner that
she would be paid.
It is familiar doctrine that if a corporation knowingly permits one
of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public as possessing the
power to do those acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent's authority.21
Also, petitioner may be paid on the basis of quantum meruit. "It
is essential for the proper operation of the principle that there is
an acceptance of the benefits by one sought to be charged for the
services rendered under circumstances as reasonably to notify
him that the lawyer performing the task was expecting to be paid
compensation therefor. The doctrine of quantum meruit is a
device to prevent undue enrichment based on the equitable
postulate that it is unjust for a person to retain benefit without
paying for it."22
We note that the designs petitioner submitted to Ms. Lopez were
not returned. Ms. Lopez, an officer of the bank as branch manager
used such designs for presentation to the board of the bank. Thus,
the designs were in fact useful to Ms. Lopez for she did not appear
to the board without any designs at the time of the deadline set by
the board.
IN VIEW WHEREOF, the decision appealed from
is REVERSED and SET ASIDE.
The decision of the trial court23 is REVIVED,
REINSTATED and AFFIRMED.
No costs.
SO ORDERED.
THIRD DIVISION
G.R. No. 170115 February 19, 2008
PROVINCE OF CEBU, petitioner,
vs.
HEIRS OF RUFINA MORALES, NAMELY: FELOMINA
V. PANOPIO, NENITA VILLANUEVA, ERLINDA V.
ADRIANO and CATALINA V. QUESADA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision 1 of the
Court of Appeals dated March 29, 2005 in CA-G.R. CV No.
53632, which affirmed in toto the Decision2 of the Regional Trial
Court of Cebu City, Branch 6, in Civil Case No. CEB-11140 for
specific performance and reconveyance of property. Also assailed
is the Resolution3 dated August 31, 2005 denying the motion for
reconsideration.
47
On September 27, 1961, petitioner Province of Cebu leased 4 in
favor of Rufina Morales a 210-square meter lot which formed part
of Lot No. 646-A of the Banilad Estate. Subsequently or
sometime in 1964, petitioner donated several parcels of land to
the City of Cebu. Among those donated was Lot No. 646-A which
the City of Cebu divided into sub-lots. The area occupied by
Morales was thereafter denominated as Lot No. 646-A-3, for
which Transfer Certificate of Title (TCT) No. 308835 was issued
in favor of the City of Cebu.
On July 19, 1965, the city sold Lot No. 646-A-3 as well as the
other donated lots at public auction in order to raise money for
infrastructure projects. The highest bidder for Lot No. 646-A-3
was Hever Bascon but Morales was allowed to match the highest
bid since she had a preferential right to the lot as actual occupant
thereof.6 Morales thus paid the required deposit and partial
payment for the lot.7
In the meantime, petitioner filed an action for reversion of
donation against the City of Cebu docketed as Civil Case No. 238-
BC before Branch 7 of the then Court of First Instance of Cebu.
On May 7, 1974, petitioner and the City of Cebu entered into a
compromise agreement which the court approved on July 17,
1974.8 The agreement provided for the return of the donated lots
to petitioner except those that have already been utilized by the
City of Cebu. Pursuant thereto, Lot No. 646-A-3 was returned to
petitioner and registered in its name under TCT No. 104310.9
Morales died on February 20, 1969 during the pendency of Civil
Case No. 238-BC.10 Apart from the deposit and down payment,
she was not able to make any other payments on the balance of
the purchase price for the lot.
On March 11, 1983, one of the nieces of Morales, respondent
Catalina V. Quesada, wrote to then Cebu Governor Eduardo R.
Gullas asking for the formal conveyance of Lot No. 646-A-3 to
Morales surviving heirs, in accordance with the award earlier
made by the City of Cebu.11 This was followed by another letter
of the same tenor dated October 10, 1986 addressed to Governor
Osmundo G. Rama.12
The requests remained unheeded thus, Quesada, together with the
other nieces of Morales namely, respondents Nenita Villanueva
and Erlinda V. Adriano, as well as Morales sister, Felomina V.
Panopio, filed an action for specific performance and
reconveyance of property against petitioner, which was docketed
as Civil Case No. CEB-11140 before Branch 6 of the Regional
Trial Court of Cebu City.13 They also consigned with the court
the amount of P13,450.00 representing the balance of the
purchase price which petitioner allegedly refused to accept.14
Panopio died shortly after the complaint was filed.15
Respondents averred that the award at public auction of the lot to
Morales was a valid and binding contract entered into by the City
of Cebu and that the lot was inadvertently returned to petitioner
under the compromise judgment in Civil Case No. 238-BC. They
alleged that they could not pay the balance of the purchase price
during the pendency of said case due to confusion as to whom and
where payment should be made. They thus prayed that judgment
be rendered ordering petitioner to execute a final deed of absolute
sale in their favor, and that TCT No. 104310 in the name of
petitioner be cancelled.16
Petitioner filed its answer but failed to present evidence despite
several opportunities given thus, it was deemed to have waived
its right to present evidence.17
On March 6, 1996, the trial court rendered judgment, the
dispositive part of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and
against the defendant Province of Cebu, hereby directing the latter
to convey Lot 646-A-3 to the plaintiffs as heirs of Rufina Morales,
and in this connection, to execute the necessary deed in favor of
said plaintiffs.
No pronouncement as to costs.
SO ORDERED.18
In ruling for the respondents, the trial court held thus:
[T]he Court is convinced that there was already a consummated
sale between the City of Cebu and Rufina Morales. There was the
offer to sell in that public auction sale. It was accepted by Rufina
Morales with her bid and was granted the award for which she
paid the agreed downpayment. It cannot be gainsaid that at that
time the owner of the property was the City of Cebu. It has the
absolute right to dispose of it thru that public auction sale. The
donation by the defendant Province of Cebu to Cebu City was not
voided in that Civil Case No. 238-BC. The compromise
agreement between the parties therein on the basis of which
judgment was rendered did not provide nullification of the sales
or disposition made by the City of Cebu. Being virtually
successor-in-interest of City of Cebu, the defendant is bound by
the contract lawfully entered into by the former. Defendant did
not initiate any move to invalidate the sale for one reason or
another. Hence, it stands as a perfectly valid contract which
defendant must respect. Rufina Morales had a vested right over
the property. The plaintiffs being the heirs or successors-in-
interest of Rufina Morales, have the right to ask for the
conveyance of the property to them. While it may be true that the
title of the property still remained in the name of the City of Cebu
until full payment is made, and this could be the reason why the
lot in question was among those reverted to the Province, the
sellers obligation under the contract was, for all legal purposes,
transferred to, and assumed by, the defendant Province of Cebu.
It is then bound by such contract.19
Petitioner appealed to the Court of Appeals which affirmed the
decision of the trial court in toto. Upon denial of its motion for
reconsideration, petitioner filed the instant petition under Rule 45
of the Rules of Court, alleging that the appellate court erred in:
FINDING THAT RUFINA MORALES AND RESPONDENTS,
AS HER HEIRS, HAVE THE RIGHT TO EQUAL THE BID OF
THE HIGHEST BIDDER OF THE SUBJECT PROPERTY AS
LESSEES THEREOF;
FINDING THAT WITH THE DEPOSIT AND PARTIAL
PAYMENT MADE BY RUFINA MORALES, THE SALE WAS
IN EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND
THAT THE TRANSACTION WAS PERFECTED AND
CONSUMMATED;
FINDING THAT LACHES AND/OR PRESCRIPTION ARE
NOT APPLICABLE AGAINST RESPONDENTS;
FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE
NO. 238-BC, PLAINTIFFS WERE NOT ABLE TO PAY THE
AGREED INSTALLMENTS;
AFFIRMING THE DECISION OF THE TRIAL COURT IN
FAVOR OF THE RESPONDENTS AND AGAINST THE
PETITIONERS.20
The petition lacks merit.
The appellate court correctly ruled that petitioner, as successor-
in-interest of the City of Cebu, is bound to respect the contract of
sale entered into by the latter pertaining to Lot No. 646-A-3. The
City of Cebu was the owner of the lot when it awarded the same
to respondents predecessor-in-interest, Morales, who later
became its owner before the same was erroneously returned to
petitioner under the compromise judgment. The award is
tantamount to a perfected contract of sale between Morales and
the City of Cebu, while partial payment of the purchase price and
actual occupation of the property by Morales and respondents
effectively transferred ownership of the lot to the latter. This is
48
true notwithstanding the failure of Morales and respondents to
pay the balance of the purchase price.
Petitioner can no longer assail the award of the lot to Morales on
the ground that she had no right to match the highest bid during
the public auction. Whether Morales, as actual occupant and/or
lessee of the lot, was qualified and had the right to match the
highest bid is a foregone matter that could have been questioned
when the award was made. When the City of Cebu awarded the
lot to Morales, it is assumed that she met all qualifications to
match the highest bid. The subject lot was auctioned in 1965 or
more than four decades ago and was never questioned. Thus, it is
safe to assume, as the appellate court did, that all requirements for
a valid public auction sale were complied with.
A sale by public auction is perfected "when the auctioneer
announces its perfection by the fall of the hammer or in other
customary manner".21 It does not matter that Morales merely
matched the bid of the highest bidder at the said auction sale. The
contract of sale was nevertheless perfected as to Morales, since
she merely stepped into the shoes of the highest bidder.
Consequently, there was a meeting of minds between the City of
Cebu and Morales as to the lot sold and its price, such that each
party could reciprocally demand performance of the contract from
the other.22 A contract of sale is a consensual contract and is
perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. From
that moment, the parties may reciprocally demand performance
subject to the provisions of the law governing the form of
contracts. The elements of a valid contract of sale under Article
1458 of the Civil Code are: (1) consent or meeting of the minds;
(2) determinate subject matter; and (3) price certain in money or
its equivalent.23 All these elements were present in the transaction
between the City of Cebu and Morales.
There is no merit in petitioners assertion that there was no
perfected contract of sale because no "Contract of Purchase and
Sale" was ever executed by the parties. As previously stated, a
contract of sale is a consensual contract that is perfected upon a
meeting of minds as to the object of the contract and its price.
Subject to the provisions of the Statute of Frauds, a formal
document is not necessary for the sale transaction to acquire
binding effect.24 For as long as the essential elements of a contract
of sale are proved to exist in a given transaction, the contract is
deemed perfected regardless of the absence of a formal deed
evidencing the same.
Similarly, petitioner erroneously contends that the failure of
Morales to pay the balance of the purchase price is evidence that
there was really no contract of sale over the lot between Morales
and the City of Cebu. On the contrary, the fact that there was an
agreed price for the lot proves that a contract of sale was indeed
perfected between the parties. Failure to pay the balance of the
purchase price did not render the sale inexistent or invalid, but
merely gave rise to a right in favor of the vendor to either demand
specific performance or rescission of the contract of sale.25 It did
not abolish the contract of sale or result in its automatic
invalidation.
As correctly found by the appellate court, the contract of sale
between the City of Cebu and Morales was also partially
consummated. The latter had paid the deposit and downpayment
for the lot in accordance with the terms of the bid award. She first
occupied the property as a lessee in 1961, built a house thereon
and was continuously in possession of the lot as its owner until
her death in 1969. Respondents, on the other hand, who are all
surviving heirs of Morales, likewise occupied the property during
the latters lifetime and continue to reside on the property to this
day.26
The stages of a contract of sale are as follows: (1) negotiation,
covering the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is
perfected; (2) perfection, which takes place upon the concurrence
of the essential elements of the sale which are the meeting of the
minds of the parties as to the object of the contract and upon the
price; and (3) consummation, which begins when the parties
perform their respective undertakings under the contract of sale,
culminating in the extinguishment thereof.27 In this case,
respondents predecessor had undoubtedly commenced
performing her obligation by making a down payment on the
purchase price. Unfortunately, however, she was not able to
complete the payments due to legal complications between
petitioner and the city.
Thus, the City of Cebu could no longer dispose of the lot in
question when it was included as among those returned to
petitioner pursuant to the compromise agreement in Civil Case
No. 238-BC. The City of Cebu had sold the property to Morales
even though there remained a balance on the purchase price and
a formal contract of sale had yet to be executed. Incidentally, the
failure of respondents to pay the balance on the purchase price
and the non-execution of a formal agreement was sufficiently
explained by the fact that the trial court, in Civil Case No. 238-
BC, issued a writ of preliminary injunction enjoining the city
from further disposing the donated lots. According to
respondents, there was confusion as to the circumstances of
payment considering that both the city and petitioner had refused
to accept payment by virtue of the injunction.28 It appears that the
parties simply mistook Lot 646-A-3 as among those not yet sold
by the city.
The City of Cebu was no longer the owner of Lot 646-A-3 when
it ceded the same to petitioner under the compromise agreement
in Civil Case No. 238-BC. At that time, the city merely retained
rights as an unpaid seller but had effectively transferred
ownership of the lot to Morales. As successor-in-interest of the
city, petitioner could only acquire rights that its predecessor had
over the lot. These rights include the right to seek rescission or
fulfillment of the terms of the contract and the right to damages
in either case.29
In this regard, the records show that respondent Quesada wrote to
then Cebu Governor Eduardo R. Gullas on March 11, 1983,
asking for the formal conveyance of Lot 646-A-3 pursuant to the
award and sale earlier made by the City of Cebu. On October 10,
1986, she again wrote to Governor Osmundo G. Rama reiterating
her previous request. This means that petitioner had known, at
least as far back as 1983, that the city sold the lot to respondents
predecessor and that the latter had paid the deposit and the
required down payment. Despite this knowledge, however,
petitioner did not avail of any rightful recourse to resolve the
matter.
Article 1592 of the Civil Code pertinently provides:
Article 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has
been made upon him either judicially or by notarial act. After the
demand, the court may not grant him a new term. (Underscoring
supplied)
Thus, respondents could still tender payment of the full purchase
price as no demand for rescission had been made upon them,
either judicially or through notarial act. While it is true that it took
a long time for respondents to bring suit for specific performance
and consign the balance of the purchase price, it is equally true
that petitioner or its predecessor did not take any action to have
49
the contract of sale rescinded. Article 1592 allows the vendee to
pay as long as no demand for rescission has been made.30 The
consignation of the balance of the purchase price before the trial
court thus operated as full payment, which resulted in the
extinguishment of respondents obligation under the contract of
sale.
Finally, petitioner cannot raise the issue of prescription and laches
at this stage of the proceedings. Contrary to petitioners
assignment of errors, the appellate court made no findings on the
issue because petitioner never raised the matter of prescription
and laches either before the trial court or Court of Appeals. It is
basic that defenses and issues not raised below cannot be
considered on appeal.31 Thus, petitioner cannot plead the matter
for the first time before this Court.
WHEREFORE, in view of the foregoing, the petition is
hereby DENIED and the decision and resolution of the Court of
Appeals in CA-G.R. CV No. 53632 are AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. 154878 March 16, 2007
CAROLYN M. GARCIA, Petitioner,
vs.
RICA MARIE S. THIO, Respondent.
DECISION
CORONA, J.:
Assailed in this petition for review on certiorari1 are the June 19,
2002 decision2 and August 20, 2002 resolution3of the Court of
Appeals (CA) in CA-G.R. CV No. 56577 which set aside the
February 28, 1997 decision of the Regional Trial Court (RTC) of
Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio
received from petitioner Carolyn M. Garcia a crossed
check4 dated February 24, 1995 in the amount of US$100,000
payable to the order of a certain Marilou Santiago.5Thereafter,
petitioner received from respondent every month (specifically, on
March 24, April 26, June 26 and July 26, all in 1995) the amount
of US$3,0006 and P76,5007 on July 26,8 August 26, September
26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed
check9 dated June 29, 1995 in the amount of P500,000, also
payable to the order of Marilou Santiago.10 Consequently,
petitioner received from respondent the amount of P20,000 every
month on August 5, September 5, October 5 and November 5,
1995.11
According to petitioner, respondent failed to pay the principal
amounts of the loans (US$100,000 and P500,000) when they fell
due. Thus, on February 22, 1996, petitioner filed a complaint for
sum of money and damages in the RTC of Makati City, Branch
58 against respondent, seeking to collect the sums of
US$100,000, with interest thereon at 3% a month from October
26, 1995 and P500,000, with interest thereon at 4% a month from
November 5, 1995, plus attorneys fees and actual damages.12
Petitioner alleged that on February 24, 1995, respondent
borrowed from her the amount of US$100,000 with interest
thereon at the rate of 3% per month, which loan would mature on
October 26, 1995.13 The amount of this loan was covered by the
first check. On June 29, 1995, respondent again borrowed the
amount of P500,000 at an agreed monthly interest of 4%, the
maturity date of which was on November 5, 1995.14 The amount
of this loan was covered by the second check. For both loans, no
promissory note was executed since petitioner and respondent
were close friends at the time.15 Respondent paid the stipulated
monthly interest for both loans but on their maturity dates, she
failed to pay the principal amounts despite repeated
demands.161awphi1.nt
Respondent denied that she contracted the two loans with
petitioner and countered that it was Marilou Santiago to whom
petitioner lent the money. She claimed she was merely asked by
petitioner to give the crossed checks to Santiago.17 She issued the
checks for P76,000 and P20,000 not as payment of interest but to
accommodate petitioners request that respondent use her own
checks instead of Santiagos.18
In a decision dated February 28, 1997, the RTC ruled in favor of
petitioner.19 It found that respondent borrowed from petitioner the
amounts of US$100,000 with monthly interest of 3%
and P500,000 at a monthly interest of 4%:20
WHEREFORE, finding preponderance of evidence to sustain the
instant complaint, judgment is hereby rendered in favor of
[petitioner], sentencing [respondent] to pay the former the amount
of:
1. [US$100,000.00] or its peso equivalent with interest thereon at
3% per month from October 26, 1995 until fully paid;
2. P500,000.00 with interest thereon at 4% per month from
November 5, 1995 until fully paid.
3. P100,000.00 as and for attorneys fees; and
4. P50,000.00 as and for actual damages.
For lack of merit, [respondents] counterclaim is perforce
dismissed.
With costs against [respondent].
IT IS SO ORDERED.21
On appeal, the CA reversed the decision of the RTC and ruled
that there was no contract of loan between the parties:
A perusal of the record of the case shows that [petitioner] failed
to substantiate her claim that [respondent] indeed borrowed
money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is
evident is the fact that [respondent] received a MetroBank
[crossed] check dated February 24, 1995 in the sum of
US$100,000.00, payable to the order of Marilou Santiago and a
CityTrust [crossed] check dated June 29, 1995 in the amount
of P500,000.00, again payable to the order of Marilou Santiago,
both of which were issued by [petitioner]. The checks received
by [respondent], being crossed, may not be encashed but only
deposited in the bank by the payee thereof, that is, by Marilou
Santiago herself.
It must be noted that crossing a check has the following effects:
(a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only onceto one who has an
account with the bank; (c) and the act of crossing the check serves
as warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the
check pursuant to that purpose, otherwise, he is not a holder in
due course.
Consequently, the receipt of the [crossed] check by [respondent]
is not the issuance and delivery to the payee in contemplation of
law since the latter is not the person who could take the checks as
a holder, i.e., as a payee or indorsee thereof, with intent to transfer
title thereto. Neither could she be deemed as an agent of Marilou
Santiago with respect to the checks because she was merely
facilitating the transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that
there were really no contracts of loan that existed between the
parties. x x x (emphasis supplied)22
Hence this petition.23
As a rule, only questions of law may be raised in a petition for
review on certiorari under Rule 45 of the Rules of Court.
50
However, this case falls under one of the exceptions, i.e., when
the factual findings of the CA (which held that there
were no contracts of loan between petitioner and respondent) and
the RTC (which held that there were contracts of loan) are
contradictory.24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected
only upon the delivery of the object of the contract.25 This is
evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until
the delivery of the object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case
the money received by the debtor when the checks were
encashed) the debtor acquires ownership of such money or loan
proceeds and is bound to pay the creditor an equal amount. 26
It is undisputed that the checks were delivered to respondent.
However, these checks were crossed and payable not to the order
of respondent but to the order of a certain Marilou Santiago. Thus
the main question to be answered is: who borrowed money from
petitioner respondent or Santiago?
Petitioner insists that it was upon respondents instruction that
both checks were made payable to Santiago.27 She maintains that
it was also upon respondents instruction that both checks were
delivered to her (respondent) so that she could, in turn, deliver the
same to Santiago.28 Furthermore, she argues that once respondent
received the checks, the latter had possession and control of them
such that she had the choice to either forward them to Santiago
(who was already her debtor), to retain them or to return them to
petitioner.29
We agree with petitioner. Delivery is the act by which the res or
substance thereof is placed within the actual or constructive
possession or control of another.30 Although respondent did not
physically receive the proceeds of the checks, these instruments
were placed in her control and possession under an arrangement
whereby she actually re-lent the amounts to Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know
Santiago.31 It was highly improbable that petitioner would grant
two loans to a complete stranger without requiring as much as
promissory notes or any written acknowledgment of the debt
considering that the amounts involved were quite big.
Respondent, on the other hand, already had transactions with
Santiago at that time.32
Second, Leticia Ruiz, a friend of both petitioner and respondent
(and whose name appeared in both parties list of witnesses)
testified that respondents plan was for petitioner to lend her
money at a monthly interest rate of 3%, after which respondent
would lend the same amount to Santiago at a higher rate of 5%
and realize a profit of 2%.33 This explained why respondent
instructed petitioner to make the checks payable to Santiago.
Respondent has not shown any reason why Ruiz testimony
should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her
own checks in the amount of P76,000 each (peso equivalent of
US$3,000) for eight months to cover the monthly interest. For
the P500,000 loan, she also issued her own checks in the amount
of P20,000 each for four months.34 According to respondent, she
merely accommodated petitioners request for her to issue her
own checks to cover the interest payments since petitioner was
not personally acquainted with Santiago.35 She claimed, however,
that Santiago would replace the checks with cash.36 Her
explanation is simply incredible. It is difficult to believe that
respondent would put herself in a position where she would be
compelled to pay interest, from her own funds, for loans she
allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is
guided by the rule that for evidence to be believed, it must not
only proceed from the mouth of a credible witness, but must be
credible in itself such as the common experience of mankind can
approve as probable under the circumstances. We have no test of
the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant
to these belongs to the miraculous, and is outside of juridical
cognizance.37
Fourth, in the petition for insolvency sworn to and filed by
Santiago, it was respondent, not petitioner, who was listed as one
of her (Santiagos) creditors.38
Last, respondent inexplicably never presented Santiago as a
witness to corroborate her story.39 The presumption is that
"evidence willfully suppressed would be adverse if
produced."40 Respondent was not able to overturn this
presumption.
We hold that the CA committed reversible error when it ruled that
respondent did not borrow the amounts of US$100,000
and P500,000 from petitioner. We instead agree with the ruling of
the RTC making respondent liable for the principal amounts of
the loans.
We do not, however, agree that respondent is liable for the 3%
and 4% monthly interest for the US$100,000 and P500,000 loans
respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and
4% interest per month. Article 1956 of the Civil Code provides
that "[n]o interest shall be due unless it has been expressly
stipulated in writing."
Be that as it may, while there can be no stipulated interest, there
can be legal interest pursuant to Article 2209 of the Civil Code. It
is well-settled that:
When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.41
Hence, respondent is liable for the payment of legal
interest per annum to be computed from November 21, 1995, the
date when she received petitioners demand letter.42 From the
finality of the decision until it is fully paid, the amount due shall
earn interest at 12% per annum, the interim period being deemed
equivalent to a forbearance of credit.43
The award of actual damages in the amount of P50,000
and P100,000 attorneys fees is deleted since the RTC decision
did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June
19, 2002 decision and August 20, 2002 resolution of the Court of
Appeals in CA-G.R. CV No. 56577 are REVERSED and SET
ASIDE. The February 28, 1997 decision of the Regional Trial
Court in Civil Case No. 96-266 is AFFIRMED with
the MODIFICATION that respondent is directed to pay
petitioner the amounts of US$100,000 and P500,000 at
12% per annum interest from November 21, 1995 until the
finality of the decision. The total amount due as of the date of
finality will earn interest of 12% per annum until fully paid. The
award of actual damages and attorneys fees is deleted.
SO ORDERED.
51
G.R. No. 157374 August 27, 2009
HEIRS OF CAYETANO PANGAN and CONSUELO
PANGAN,* Petitioners,
vs.
SPOUSES ROGELIO PERRERAS and PRISCILLA
PERRERAS, Respondents.
DECISION
BRION, J.:
The heirs1 of spouses Cayetano and Consuelo Pangan
(petitioners-heirs) seek the reversal of the Court of Appeals (CA)
decision2 of June 26, 2002, as well its resolution of February 20,
2003, in CA-G.R. CV Case No. 56590 through the present
petition for review on certiorari.3 The CA decision affirmed the
Regional Trial Courts (RTC) ruling4 which granted the
complaint for specific performance filed by spouses Rogelio and
Priscilla Perreras (respondents) against the petitioners-heirs, and
dismissed the complaint for consignation instituted by Consuelo
Pangan (Consuelo) against the respondents.
THE FACTUAL ANTECEDENTS
The spouses Pangan were the owners of the lot and two-door
apartment (subject properties) located at 1142 Casaas St.,
Sampaloc, Manila.5 On June 2, 1989, Consuelo agreed to sell to
the respondents the subject properties for the price
of P540,000.00. On the same day, Consuelo received P20,000.00
from the respondents as earnest money, evidenced by a receipt
(June 2, 1989 receipt)6 that also included the terms of the parties
agreement.
Three days later, or on June 5, 1989, the parties agreed to increase
the purchase price from P540,000.00 to P580,000.00.
In compliance with the agreement, the respondents issued two Far
East Bank and Trust Company checks payable to Consuelo in the
amounts of P200,000.00 and P250,000.00 on June 15, 1989.
Consuelo, however, refused to accept the checks. She justified her
refusal by saying that her children (the petitioners-heirs) co-
owners of the subject properties did not want to sell the subject
properties. For the same reason, Consuelo offered to return
the P20,000.00 earnest money she received from the respondents,
but the latter rejected it. Thus, Consuelo filed a complaint for
consignation against the respondents on September 5, 1989,
docketed as Civil Case No. 89-50258, before the RTC of Manila,
Branch 28.
The respondents, who insisted on enforcing the agreement, in turn
instituted an action for specific performance against Consuelo
before the same court on September 26, 1989. This case was
docketed as Civil Case No. 89-50259. They sought to compel
Consuelo and the petitioners-heirs (who were subsequently
impleaded as co-defendants) to execute a Deed of Absolute Sale
over the subject properties.
In her Answer, Consuelo claimed that she was justified in backing
out from the agreement on the ground that the sale was subject to
the consent of the petitioners-heirs who became co-owners of the
property upon the death of her husband, Cayetano. Since the
petitioners-heirs disapproved of the sale, Consuelo claimed that
the contract became ineffective for lack of the requisite consent.
She nevertheless expressed her willingness to return
the P20,000.00 earnest money she received from the respondents.
The RTC ruled in the respondents favor; it upheld the existence
of a perfected contract of sale, at least insofar as the sale involved
Consuelos conjugal and hereditary shares in the subject
properties. The trial court found that Consuelos receipt of
the P20,000.00 earnest money was an "eloquent manifestation of
the perfection of the contract." Moreover, nothing in the June 2,
1989 receipt showed that the agreement was conditioned on the
consent of the petitioners-heirs. Even so, the RTC declared that
the sale is valid and can be enforced against Consuelo; as a co-
owner, she had full-ownership of the part pertaining to her share
which she can alienate, assign, or mortgage. The petitioners-heirs,
however, could not be compelled to transfer and deliver their
shares in the subject properties, as they were not parties to the
agreement between Consuelo and the respondents. Thus, the trial
court ordered Consuelo to convey one-half (representing
Consuelos conjugal share) plus one-sixth (representing
Consuelos hereditary share) of the subject properties, and to
pay P10,000.00 as attorneys fees to the respondents. Corollarily,
it dismissed Consuelos consignation complaint.
Consuelo and the petitioners-heirs appealed the RTC decision to
the CA claiming that the trial court erred in not finding that the
agreement was subject to a suspensive condition the consent of
the petitioners-heirs to the agreement. The CA, however, resolved
to dismiss the appeal and, therefore, affirmed the RTC decision.
As the RTC did, the CA found that the payment and receipt of
earnest money was the operative act that gave rise to a perfected
contract, and that there was nothing in the parties agreement that
would indicate that it was subject to a suspensive condition. It
declared:
Nowhere in the agreement of the parties, as contained in the June
2, 1989 receipt issued by [Consuelo] xxx, indicates that
[Consuelo] reserved titled on [sic] the property, nor does it
contain any provision subjecting the sale to a positive suspensive
condition.
Unconvinced by the correctness of both the RTC and the CA
rulings, the petitioners-heirs filed the present appeal by certiorari
alleging reversible errors committed by the appellate court.
THE PETITION
The petitioners-heirs primarily contest the finding that there was
a perfected contract executed by the parties. They allege that other
than the finding that Consuelo received P20,000.00 from the
respondents as earnest money, no other evidence supported the
conclusion that there was a perfected contract between the parties;
they insist that Consuelo specifically informed the respondents
that the sale still required the petitioners-heirs consent as co-
owners. The refusal of the petitioners-heirs to sell the subject
properties purportedly amounted to the absence of the requisite
element of consent.
Even assuming that the agreement amounted to a perfected
contract, the petitioners-heirs posed the question of the
agreements proper characterization whether it is a contract of
sale or a contract to sell. The petitioners-heirs posit that the
agreement involves a contract to sell, and the
respondents belated payment of part of the purchase price, i.e.,
one day after the June 14, 1989 due date, amounted to the non-
fulfillment of a positive suspensive condition that prevented the
contract from acquiring obligatory force. In support of this
contention, the petitioners-heirs cite the Courts ruling in the case
of Adelfa Rivera, et al. v. Fidela del Rosario, et al.: 7
In a contract of sale, the title to the property passes to the vendee
upon the delivery of the thing sold; while in a contract to sell,
ownership is, by agreement, reserved in the vendor and is not to
pass to the vendee until full payment of the purchase price. In a
contract to sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a breach,
casual or serious, but a situation that prevents the obligation
of the vendor to convey title from acquiring an obligatory
force.
[Rivera], however, failed to complete payment of the second
installment. The non-fulfillment of the condition rendered the
contract to sell ineffective and without force and effect.
[Emphasis in the original.]
52
From these contentions, we simplify the basic issues for
resolution to three questions:
1. Was there a perfected contract between the parties?
2. What is the nature of the contract between them? and
3. What is the effect of the respondents belated payment on their
contract?
THE COURTS RULING
There was a perfected contract between the parties since all the
essential requisites of a contract were present
Article 1318 of the Civil Code declares that no contract exists
unless the following requisites concur: (1) consent of the
contracting parties; (2) object certain which is the subject matter
of the contract; and (3) cause of the obligation established. Since
the object of the parties agreement involves properties co-owned
by Consuelo and her children, the petitioners-heirs insist that their
approval of the sale initiated by their mother, Consuelo, was
essential to its perfection. Accordingly, their refusal amounted to
the absence of the required element of consent.
That a thing is sold without the consent of all the co-owners does
not invalidate the sale or render it void. Article 493 of the Civil
Code8 recognizes the absolute right of a co-owner to freely
dispose of his pro indiviso share as well as the fruits and other
benefits arising from that share, independently of the other co-
owners. Thus, when Consuelo agreed to sell to the respondents
the subject properties, what she in fact sold was her undivided
interest that, as quantified by the RTC, consisted of one-half
interest, representing her conjugal share, and one-sixth interest,
representing her hereditary share.
The petitioners-heirs nevertheless argue that Consuelos consent
was predicated on their consent to the sale, and that their
disapproval resulted in the withdrawal of Consuelos consent.
Yet, we find nothing in the parties agreement or even conduct
save Consuelos self-serving testimony that would indicate or
from which we can infer that Consuelos consent depended on her
childrens approval of the sale. The explicit terms of the June 8,
1989 receipt9 provide no occasion for any reading that the
agreement is subject to the petitioners-heirs favorable consent to
the sale.
The presence of Consuelos consent and, corollarily, the existence
of a perfected contract between the parties are further evidenced
by the payment and receipt of P20,000.00, an earnest money by
the contracting parties common usage. The law on sales,
specifically Article 1482 of the Civil Code, provides
that whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and proof of the
perfection of the contract. Although the presumption is not
conclusive, as the parties may treat the earnest money differently,
there is nothing alleged in the present case that would give rise to
a contrary presumption. In cases where the Court reached a
conclusion contrary to the presumption declared in Article 1482,
we found that the money initially paid was given to guarantee
that the buyer would not back out from the sale, considering
that the parties to the sale have yet to arrive at a definite
agreement as to its terms that is, a situation where the contract
has not yet been perfected.10 These situations do not obtain in the
present case, as neither of the parties claimed that the P20,000.00
was given merely as guarantee by the respondents, as vendees,
that they would not back out from the sale. As we have pointed
out, the terms of the parties agreement are clear and explicit;
indeed, all the essential elements of a perfected contract are
present in this case. While the respondents required that the
occupants vacate the subject properties prior to the payment of
the second installment, the stipulation does not affect the
perfection of the contract, but only its execution.
In sum, the case contains no element, factual or legal, that negates
the existence of a perfected contract between the parties.
The characterization of the contract can be considered
irrelevant in this case in light of Article 1592 and the Maceda
Law, and the petitioners-heirs payment
The petitioners-heirs posit that the proper characterization of the
contract entered into by the parties is significant in order to
determine the effect of the respondents breach of the contract
(which purportedly consisted of a one-day delay in the payment
of part of the purchase price) and the remedies to which they, as
the non-defaulting party, are entitled.
The question of characterization of the contract involved here
would necessarily call for a thorough analysis of the parties
agreement as embodied in the June 2, 1989 receipt, their
contemporaneous acts, and the circumstances surrounding the
contracts perfection and execution. Unfortunately, the lower
courts factual findings provide insufficient detail for the purpose.
A stipulation reserving ownership in the vendor until full payment
of the price is, under case law, typical in a contract to sell. 11 In
this case, the vendor made no reservation on the ownership of the
subject properties. From this perspective, the parties agreement
may be considered a contract of sale. On the other hand,
jurisprudence has similarly established that the need to execute a
deed of absolute sale upon completion of payment of the price
generally indicates that it is a contract to sell, as it implies the
reservation of title in the vendor until the vendee has completed
the payment of the price. When the respondents instituted the
action for specific performance before the RTC, they prayed that
Consuelo be ordered to execute a Deed of Absolute Sale; this act
may be taken to conclude that the parties only entered into a
contract to sell.
Admittedly, the given facts, as found by the lower courts, and in
the absence of additional details, can be interpreted to support two
conflicting conclusions. The failure of the lower courts to pry into
these matters may understandably be explained by the issues
raised before them, which did not require the additional details.
Thus, they found the question of the contracts characterization
immaterial in their discussion of the facts and the law of the case.
Besides, the petitioners-heirs raised the question of the contracts
characterization and the effect of the breach for the first time
through the present Rule 45 petition.
Points of law, theories, issues and arguments not brought to the
attention of the lower court need not be, and ordinarily will not
be, considered by the reviewing court, as they cannot be raised
for the first time at the appellate review stage. Basic
considerations of fairness and due process require this rule.12
At any rate, we do not find the question of characterization
significant to fully pass upon the question of default due to the
respondents breach; ultimately, the breach was cured and the
contract revived by the respondents payment a day after the due
date.1avvphi1
In cases of breach due to nonpayment, the vendor may avail of
the remedy of rescission in a contract of sale. Nevertheless, the
defaulting vendee may defeat the vendors right to rescind the
contract of sale if he pays the amount due before he receives a
demand for rescission, either judicially or by a notarial act, from
the vendor. This right is provided under Article 1592 of the Civil
Code:
Article 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period,
as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the demand,
the court may not grant him a new term. [Emphasis supplied.]
53
Nonpayment of the purchase price in contracts to sell, however,
does not constitute a breach; rather, nonpayment is a condition
that prevents the obligation from acquiring obligatory force and
results in its cancellation. We stated in Ong v. CA13 that:
In a contract to sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a breach, casual
or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring obligatory force. The non-
fulfillment of the condition of full payment rendered the contract
to sell ineffective and without force and effect. [Emphasis
supplied.]
As in the rescission of a contract of sale for nonpayment of the
price, the defaulting vendee in a contract to sell may defeat the
vendors right to cancel by invoking the rights granted to him
under Republic Act No. 6552 or the Realty Installment Buyer
Protection Act (also known as the Maceda Law); this law
provides for a 60-day grace period within which the defaulting
vendee (who has paid less than two years of installments) may
still pay the installments due. Only after the lapse of the grace
period with continued nonpayment of the amounts due can the
actual cancellation of the contract take place. The pertinent
provisions of the Maceda Law provide:
xxxx
Section 2. It is hereby declared a public policy to protect buyers
of real estate on installment payments against onerous and
oppressive conditions.
Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including
residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act
Numbered Thirty-eight hundred forty-four as amended by
Republic Act Numbered Sixty-three hundred eighty-nine, where
the buyer has paid at least two years of installments, the buyer is
entitled to the following rights in case he defaults in the payment
of succeeding installments:
xxxx
Section 4. In case where less than two years of installments were
paid, the seller shall give the buyer a grace period of not less than
60 days from the date the installment became due. If the buyer
fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from
the receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by notarial act. [Emphasis
supplied.]
Significantly, the Court has consistently held that the Maceda
Law covers not only sales on installments of real estate, but also
financing of such acquisition; its Section 3 is comprehensive
enough to include both contracts of sale and contracts to sell,
provided that the terms on payment of the price require at least
two installments. The contract entered into by the parties herein
can very well fall under the Maceda Law.
Based on the above discussion, we conclude that the respondents
payment on June 15, 1989 of the installment due on June 14, 1989
effectively defeated the petitioners-heirs right to have the
contract rescinded or cancelled. Whether the parties agreement
is characterized as one of sale or to sell is not relevant in light of
the respondents payment within the grace period provided under
Article 1592 of the Civil Code and Section 4 of the Maceda Law.
The petitioners-heirs obligation to accept the payment of the
price and to convey Consuelos conjugal and hereditary shares in
the subject properties subsists.
WHEREFORE, we DENY the petitioners-heirs petition for
review on certiorari, and AFFIRM the decision of the Court of
Appeals dated June 24, 2002 and its resolution dated February 20,
2003 in CA-G.R. CV Case No. 56590. Costs against the
petitioners-heirs.
SO ORDERED.
FIRST DIVISION
G.R. No. 200901, December 07, 2015
SM INVESTMENTS
CORPORATION, Petitioner, v. ESTELA MARFORI
POSADAS, MARIA ELENA POSADAS AND AIDA
MACARAIG POSADAS. Respondents.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review1 filed by petitioner SM
Investments Corporation (SMIC) assailing the Decision2 dated 13
September 2011 of the Court of Appeals in CA-G.R. CV No.
91788, which decision, in turn, reversed and set aside the
Decision3 dated 18 December 2007 of the Regional Trial Court of
Makati City (Trial Court) in Civil Case No. 97-832.
The material facts of this case, as borne by the records, are as
follows:chanRoblesvirtualLawlibrary
Respondents Estela Marfori Posadas, Maria Elena Posadas and
Aida Macaraig Posadas are the owners of several parcels of land
with a total area of 27.6 hectares, more or less, and covered by
Transfer Certificates of Title Nos. S-37656, 158291 and 158292
of the Register of Deeds of Makati City (Subject Property).
On 08 August 1995, SMIC, through its President, Henry Sy, Jr.
(Mr. Sy), sent respondents a written offer for a joint venture for
the development of the Subject Property, which in part reads:
Madames:chanRoblesvirtualLawlibrary
The undersigned offers a JOINT VENTyRE with your realty of
more or less 27.6 hectares at the Posadas Subdivision, Sucat,
Muntinlupa City, under the following terms:
1. Development of the entire area into a first class
commercial/residential subdivision. Development of area
presently leased to Worldwide with an area of 2.6 hectares will
be after expiration of lease on year 2002.
2. To set values for the property, the set price of P4,000.00 per
square meter of areas fronting South Super Highway and
P1,500.00 per square meter for the rest of the area. After full
development, the set price is P20,000.00 per square meter of said
front areas and P10,000.00 for the rest of the areas; with no sale
of lots after development for less than the set values herein stated
above, except sale to our affiliate company.
3. The sharing of the Joint Venture Partners shall be 60/40 on your
favour. The undersigned reserves his right of first choice for a
contiguous consolidated area indicated in plan attached herewith,
for commercial/residential development. You are granted a
choice of your 60% share of developed areas thereafter. Areas
used for open spaces and streets required by law shall have no set
values.
4. Upon execution of Joint Venture Agreement, the undersigned
will pay you the amount of SEVENTY MILLION PESOS
(P70,000,000.00), Philippine currency, as goodwill money over
and above your 60% share in the Joint Venture and the agents for
this joint venture shall be given five percent (5%) of the goodwill
payment as their full commission.
54
5. In case you decide to avail of a third party to sell your lots from
your 60% share, I will be given the priority to exclusively sell the
same, subject to terms and conditions that may be agreed upon.
The foregoing offer supersedes and revokes my previous offers
and/or proposals. I hope you will favourably consider the
foregoing offer.4ChanRoblesVirtualawlibrary
On 18 August 1995, respondents sent SMIC a written counter-
proposal, which, in part, reads as follows:
Dear Mr. Sy Jr.:chanRoblesvirtualLawlibrary
Thank you for your interest in our property subject of your Joint
Venture proposal dated August 8, 1995.
The terms mentioned in your proposal, except the goodwill
money which we submit should be not less than EIGHTY
MILLION (P80,000,000.00) PESOS, are acceptable in principle,
subject however to our agreement on the specified terms and
conditions such as details of development, your plans and
specifications therein, period of completion, use of the area
allocated to you in the Joint Venture and other details.
If our counter-proposal of goodwill money of EIGHTY
MILLION (P80,000,000.00) PESOS is acceptable to you, upon
your presentation of the details as stated above, upon our
agreement on the same, we will be ready to sign a Joint Venture
Agreement with your goodself.5ChanRoblesVirtualawlibrary
On 24 August 1995, SMIC, through Mr. Sy, Jr., sent respondents
another letter containing its acceptance of the counter-offer of
respondents, which reads as follows:
Dear Mesdames:chanRoblesvirtualLawlibrary
This is to signify acceptance of your counter proposal of goodwill
money in the amount of EIGHTY MILLION PESOS
(P80,000,000.00), Philippine currency, as contained in your letter
of August 18, 1995, for the development of your property in
Sucat, Paranaque, subject to the condition that the said amount of
goodwill money will be paid and tendered to you upon your
signing of the Joint Venture
Agreement.6ChanRoblesVirtualawlibrary
On 02 December 1995, SMIC, in compliance with what it
considered as a perfected contract for the joint venture, sent
respondents four (4) drawings of the proposed mall and its
location within the Subject Property.
However, on 06 December 1995, after receiving the
aforementioned drawings, respondents sent SMIC a letter
informing it that they had received several other offers for the
Subject Property, and demanding that SMIC better the said offers,
before they submit their comments on the drawings. The said
letter reads:
Dear Mr. Sy Jr.:chanRoblesvirtualLawlibrary
By reason of your failure since August 24, 1995 to present to us
the "specified terms and conditions on the details of development"
of the 27.6 hectares subject of your offer, up to the present,
specifically "its plans and specifications, period of completion,
use of allocated area and other details" we have not been able to
finalize or even negotiate in the proposed Joint Venture
Agreement.
In the interim period of your silence (from August 24, 1995 to
December 1, 1995) which indicated lack interest on your part to
pursue your offer, various parties submitted offers on the 27.6
hectares, amongst which are:
a.) Offer of P120 Million goodwill on the 27.5 hectares plus 60% After conducting a full-blown hearing on the merits, the Trial
of the proceeds from [the] sale of the developed lots of the 27.5 Court, on 18 December 2007, promulgated its Decision, the
hectares, with the option to submit offers on the vertical dispositive portion of which reads:
development of the entire 27.6 hectares; WHEREFORE, premises considered, judgment is hereby
rendered: (a) declaring the existence, validity and enforceability
b.) Offer to purchase 7.2 hectares of the 27.6 hectares at the price of the contract between [SMIC and respondents] under the terms
of P10,000.00 per square meter on CASH BASIS, with the and conditions embodied in the letters dated 08, 18 & 24 August
undertaking to construct a giant commercial complex on the 1995 for the development of the subject property and ordering the
same; and said [respondents] to faithfully comply with the terms and
conditions thereof, particularly to work out with [SMIC], in good
c.) Offer to purchase 5.48 hectares of the 27.6 hectares at the price faith, the details, plans and specifications of developments of the
of P5,000.00 per square meter with P10 Million downpayment subject property, and upon agreement thereon, to execute the
with undertaking to construct a giant structure to cater on the formal Joint Venture Agreement; (b) ordering said [respondents]
"warehouse concept of marketing"; to pay [SMIC] the sum of P500,000.00 for attorney's fees and
all of which are now under negotiation. litigation expenses.9ChanRoblesVirtualawlibrary
Aggrieved by the above-mentioned decision, respondents
Last Saturday, December 2, 1995, your representative delivered appealed the same to the Court of Appeals.10
four (4) drawings of your proposed Mall (on the 2.3 hectares with
the balance devoted to parking) on your choice area (more or less On 13 September 2011, the Court of Appeals promulgated its
8 to 9 hectares) which did not include any plans and specifications Decision reversing and setting aside the Decision of the Trial
of development of the 27.6 hectares. Court, the dispositive portion of which reads:
WHEREFORE, premises considered, the instant appeal is
Considering the various offers presented to us while waiting for hereby GRANTED. The assailed Decision dated December 18,
your 'plans and specifications of development of the 27.6 2007 is hereby REVERSED and SET ASIDE. The complaint in
hectares' which you have not presented up to now, unless you Civil Case No. 97-382 for Specific Performance and Damages
submit a better offer, there is no need to comment on your with Prayer for Temporary Restraining Order and Writ of
drawings.7(Underlining supplied) Preliminary Injunction is DISMISSED for lack of
On 27 February 1996, SMIC sent respondents a letter, which merit.11ChanRoblesVirtualawlibrary
reads as follows: Thus, SMIC filed this Petition where it attributed grave and
Madames (sic):chanRoblesvirtualLawlibrary serious errors in judgment on the part of the Court of Appeals
when it made the following findings:
The undersigned reiterates our previous offer for a Joint Venture a. There was no perfected contract between SMIC and
with you on your 27.6 hectares property at Posadas Subdivision, respondents;
Sucat, Muntinlupa City, under the following revised b. The lack of agreement on details and plans of
terms:chanRoblesvirtualLawlibrary development prevented the perfection of the contract;
c. The parties are still in the negotiation stage;
As earlier conveyed to you, we will develop the subject property d. The Letter of 24 August 1995 embodied only a
into a first class mixed commercial/residential subdivision and we qualified acceptance on the part of SMIC; and
propose a 60/40 sharing in your favor. The undersigned reserves e. The Letter of 27 February 1996 constituted a new offer
his right of first choice for a contiguous consolidated area which on the part of SMIC.12
we will developed (sic) into mixed use development. In separate Comments,13 respondents refuted the aforestated
assignment of errors, and contended that the exchange of
Upon execution of the Joint Venture agreement, the undersigned correspondences between SMIC and respondents, in fact, shows
will pay you One Hundred Forty Million Pesos (P140,000.00) as that no joint venture agreement for the development of the Subject
goodwill money over and above your sixty (60%) percent share Property was perfected.
in the Joint Venture.
The records will show that, indeed, several correspondences were
In case you decide to avail of a third party to sell your lots from had between the parties and these constitute the crux of the
your sixty (60%) percent share, I will be given the priority to controversy in this case. It is, thus, incumbent upon Us to
exclusively sell same subject to the terms and condition that may determine whether a contract for a joint venture between the
be agreed upon. parties has, in fact, been perfected.

If the foregoing terms and conditions is (sic) acceptable to you Inasmuch as the principal issues of this case, raised in the
please signify your conformity on the space provided herein foregoing assignment of errors, are interrelated, we shall proceed
below.8ChanRoblesVirtualawlibrary to jointly resolve the same.
Thereafter, on 21 August 1996, SMIC, through counsel, sent
respondents a letter reminding them to respect the joint venture We find the Petition to be impressed with merit.
agreement for the development of the Subject Property.
It is basic in this jurisdiction that a contract is perfected by mere
It appearing that respondents were not willing to honor the joint consent of the parties. Thus, Article 1315 of the Civil Code
venture agreement, SMIC, on 21 April 1997, filed Civil Case No. provides:
97-832, a case for Specific Performance and Damages with Art. 1315. Contracts are perfected by mere consent and from that
Prayer for Temporary Restraining Order and Writ of Preliminary moment the parties are bound not only to the fulfilment of what
Injunction against respondents. has been expressly stipulated but also to all the consequences

55
which, according to their nature, may be in keeping with good
faith, usage and law.
In relation to the foregoing, Articles 1318 to 1320 of the Civil
Code states the necessary requisites of a contract, to wit:
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.
SECTION 1. CONSENT
Art. 1319. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-
offer,
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in
such a case, is presumed to have been entered in the place where
the offer was made.
Art. 1320. An acceptance may be express or implied.
Based on the above-mentioned provisions of law, we concur with
the findings of the Trial Court that the facts in this particular case
show that a contract for a joint venture between the parties has, in
fact, been perfected.
First, the Letter of 08 August 1995 embodies a complete offer on
the part of SMIC in that it contained an object certain, which is
the joint venture for the development of the Subject Property, and
a specific cause and/or consideration therefor, which are the
goodwill money in the amount of P70 Million, plus a 60/40
sharing, in favor of respondents of the said development.
Second, the Letter dated 18 August 1995 in return embodies a
complete counter-offer on the part of respondents in that they
conveyed their acceptance of the joint venture subject only to the
counter-proposal to increase the goodwill money from P70
Million to P80 Million.
Third, the Letter dated 24 August 1995 contains an unqualified,
acceptance on the part of SMIC of the above-mentioned counter-
proposal of respondents, again on the aspect of the goodwill
money alone.
At this point, following the above-quoted provisions of the Civil
Code, particularly Articles 1318 and 1319 thereof, we agree with
the finding of the Trial Court that a joint venture agreement
between the parties has been perfected, in that (i) there is consent,
or a meeting of the minds, (ii) there is an object certain, which is
the joint venture, and (iii) there is a cause and/or consideration,
which are the goodwill money and specific sharing scheme.
The controversy arose when respondents sent SMIC the Letter of
6 December 1995, wherein the former stated that they had
received more lucrative offers for the Subject Property, noted a
three (3)-month period of silence, on the part of SMIC and
concluded that the said silence was tantamount to a lack of interest
on the part of SMIC. Significantly, this particular letter of
respondents immediately followed the submission by SMIC of
certain drawings related to the development. Lastly, and more
importantly, respondents stated therein that unless SMIC submits
56
a better offer, there would simply be no need for respondents to
comment on the said drawings SMIC sent.
The 6 December 1995 Letter of respondents did not have any
effect on the perfected joint venture between the parties. At best,
the same letter may be considered as a mere proposal, on the part
of respondents, to amend the consideration of the joint venture.
This is confirmed by the premise laid by respondents therein,
particularly that they received better offers from third parties for
the purchase and/or development of the Subject Property, or
portions thereof. We are all but convinced that respondents were
well aware and were acting with the knowledge that the joint
venture agreement had indeed been perfected. This is precisely
the reason respondents were very careful with their language
when they insisted that unless SMIC would propose amending the
Joint Venture to include better terms, respondents would withhold
their comments on the drawings. It would be important to note
that respondents, in the said letter, did not, in any way or manner,
disavow the existence of the Joint Venture.
Further, respondents, in arguing that a perfected joint venture
agreement does not exist, rely on the statement they made in the
letter of 18 August 1995, which states "subject however to our
agreement on the specified terms and conditions such as details
of development, your plans and specifications therein, period of
completion, use of the area allocated to you in the Joint Venture
and other details" However, the same, as correctly pointed out by
the Trial Court, is not a condition precedent for the perfection of
the joint venture agreement.
In Swedish Match, AB v. Court of Appeals,14 we explained the
stages of a contract, thus:
In general, contracts undergo three distinct stages, to wit:
negotiation; perfection or birth; and consummation. Negotiation
begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement
of the parties. Perfection or birth of the contract takes place when
the parties agree upon the essential elements of the contract.
Consummation occurs when the parties fulfill or perform the
terms agreed upon in the contract, culminating in the
extinguishment thereof.15ChanRoblesVirtualawlibrary
In this case, the first and second stage of the contract had been
fulfilled. Negotiations took place when the parties made their
exchange of correspondences until the letter of 24 August 1995.
The perfection of the contract came thereafter, when SMIC,
through the letter of 24 August 1995, accepted the counter-offer
of respondents in their letter of 18 August 1995.
The same statement of respondents in said letter of 18 August
1995 already deals with the consummation stage of the contract,
wherein the parties fulfill or perform the terms agreed upon in the
contract. Verily, the details of the development of the Subject
Property, particularly the plans and specifications of the same
shall come only after the parties have already agreed to enter into
a joint venture agreement to develop the same. In other words, the
said plans and specifications are but the result of the perfected
contract; these were done in execution of the perfected contract.
We agree with the Trial Court that the development of a first class
commercial/residential subdivision in a 27.6 hectare property is a
complex project, which involves a careful and meticulous
preparation of the plans and specifications thereof. And, SMIC
for its part have already exerted efforts and incurred cost for the
preparation of the above-mentioned drawings, in the
implementation of the joint venture agreement.
The fact that the above-mentioned drawings came three and a half
(3 1/2) months after the joint venture agreement was perfected is
not a valid cause for respondents to unilaterally back out from the
same. We note that nowhere in the records does it appear that
SMIC was given a specific period within which to submit
drawings and/or plans. Neither do the records show that
respondents corresponded with SMIC to follow up on the same.
On the contrary, the records will show that respondents tried to
solicit more favourable terms from SMIC, after they received the
drawings.

Anent the increase in the goodwill money to the amount of P140

million, subject of the 27 February 1996 letter of SMIC, suffice it
to say that We concur with the finding of the Trial Court that the
same was merely to appease respondents, who were lured by
subsequent offers from other parties, and to dissuade respondents
from violating or unjustifiably withdrawing from their subsisting
contract with SMIC. This finding was supported by the testimony
of respondent Ma. Elena Posadas, who admitted that the "better
offer" they were asking SMIC to submit referred only to the
goodwill money.16 It is a hornbook doctrine that findings of fact
of trial courts 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

Indeed, the letter of SMIC of 27 February 1996 on the increased

goodwill money was a post perfection matter, and clearly, was for
the purpose of having the issue of breach of the perfected contract
settled without further ado.

In view of the foregoing, we affirm the finding of the Trial Court

that there is a perfected joint venture agreement between the
parties for the development of the Subject Property. Therefore,
the said perfected joint venture agreement still stands. In this
jurisdiction, obligations arising from contracts have the force of
law between the contracting parties and should be complied with
in good faith.18

WHEREFORE, premises considered, the instant petition is

hereby GRANTED. The assailed Decision dated 13 September
2011 is hereby REVERSED and SET ASIDE. The Decision
dated 18 December 2007 of the Regional Trial Court of Makati
City in Civil Case No. 97-832 is hereby REINSTATED.

SO ORDERED.chanroblesvirtuallawlibrary

57
 ARTICLE 1324 OPTION CONTRACT
SECOND DIVISION
[G.R. No. 135929. April 20, 2001]
LOURDES ONG LIMSON, petitioner, vs. COURT OF
APPEALS, SPOUSES LORENZO DE VERA and
ASUNCION SANTOS-DE VERA, TOMAS CUENCA, JR.,
and SUNVAR REALTY DEVELOPMENT
CORPORATION, respondents.
DECISION
BELLOSILLO, J.:
Filed under Rule 45 of the Rules of Court this Petition for Review
on Certiorari seeks to review, reverse and set aside
the Decision[1] of the Court of Appeals dated 18 May 1998
reversing that of the Regional Trial Court dated 30 June
1993. The petition likewise assails the Resolution[2] of the
appellate court of 19 October 1998 denying petitioners Motion for
Reconsideration.
Petitioner Lourdes Ong Limson, in her 14 May
1979 Complaint filed before the trial court,[3] alleged that in July
1978 respondent spouses Lorenzo de Vera and Asuncion Santos-
de Vera, through their agent Marcosa Sanchez, offered to sell to
petitioner a parcel of land consisting of 48,260 square meters,
more or less, situated in Barrio San Dionisio, Paraaque, Metro
Manila; that respondent spouses informed her that they were the
owners of the subject property; that on 31 July 1978 she agreed
to buy the property at the price of P34.00 per square meter and
gave the sum of P20,000.00 to respondent spouses as "earnest
money;" that respondent spouses signed a receipt therefor and
gave her a 10-day option period to purchase the property; that
respondent Lorenzo de Vera then informed her that the subject
property was mortgaged to Emilio Ramos and Isidro Ramos; that
respondent Lorenzo de Vera asked her to pay the balance of the
purchase price to enable him and his wife to settle their obligation
with the Ramoses.
Petitioner also averred that she agreed to meet respondent spouses
and the Ramoses on 5 August 1978 at the Office of the Registry
of Deeds of Makati, Metro Manila, to consummate the transaction
but due to the failure of respondent Asuncion Santos-de Vera and
the Ramoses to appear, no transaction was formalized. In a
second meeting scheduled on 11 August 1978 she claimed that
she was willing and ready to pay the balance of the purchase price
but the transaction again did not materialize as respondent
spouses failed to pay the back taxes of subject
property. Subsequently, on 23 August 1978 petitioner allegedly
gave respondent Lorenzo de Vera three (3) checks in the total
amount of P36,170.00 for the settlement of the back taxes of the
property and for the payment of the quitclaims of the three (3)
tenants of subject land. The amount was purportedly considered
part of the purchase price and respondent Lorenzo de Vera signed
the receipts therefor.
Petitioner alleged that on 5 September 1978 she was surprised to
learn from the agent of respondent spouses that the property was
the subject of a negotiation for the sale to respondent Sunvar
Realty Development Corporation (SUNVAR) represented by
respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner
discovered that although respondent spouses purchased the
property from the Ramoses on 20 March 1970 it was only on 15
September 1978 that TCT No. S-72946 covering the property was
issued to respondent spouses. As a consequence, she filed on the
same day an Affidavit of Adverse Claim with the Office of the
Registry of Deeds of Makati, Metro Manila, which was annotated
on TCT No. S-72946. She also claimed that on the same day she
58
informed respondent Cuenca of her "contract" to purchase the
property.
The Deed of Sale between respondent spouses and respondent
SUNVAR was executed on 15 September 1978 and TCT No. S-
72377 was issued in favor of the latter on 26 September 1978 with
the Adverse Claim of petitioner annotated thereon. Petitioner
claimed that when respondent spouses sold the property in dispute
to SUNVAR, her valid and legal right to purchase it was ignored
if not violated. Moreover, she maintained that SUNVAR was in
bad faith as it knew of her "contract" to purchase the subject
property from respondent spouses.
Finally, for the alleged unlawful and unjust acts of respondent
spouses, which caused her damage, prejudice and injury,
petitioner claimed that the Deed of Sale, should be annuled and
TCT No. S-72377 in the name of respondent SUNVAR canceled
and TCT No. S-72946 restored. She also insisted that a Deed of
Sale between her and respondent spouses be now executed upon
her payment of the balance of the purchase price agreed upon,
plus damages and attorneys fees.
In their Answer[4] respondent spouses maintained that petitioner
had no sufficient cause of action against them; that she was not
the real party in interest; that the option to buy the property had
long expired; that there was no perfected contract to sell between
them; and, that petitioner had no legal capacity to
sue. Additionally, respondent spouses claimed actual, moral and
exemplary damages, and attorneys fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in
their Answer,[5] alleged that petitioner was not the proper party in
interest and/or had no cause of action against them. But, even
assuming that petitioner was the proper party in interest, they
claimed that she could only be entitled to the return of any amount
received by respondent spouses. In the alternative, they argued
that petitioner had lost her option to buy the property for failure
to comply with the terms and conditions of the agreement as
embodied in the receipt issued therefor. Moreover, they
contended that at the time of the execution of the Deed of Sale and
the payment of consideration to respondent spouses, they "did not
know nor was informed" of petitioners interest or claim over the
subject property. They claimed furthermore that it was only after
the signing of the Deed of Sale and the payment of the
corresponding amounts to respondent spouses that they came to
know of the claim of petitioner as it was only then that they were
furnished copy of the title to the property where the Adverse
Claim of petitioner was annotated. Consequently, they also
instituted a Cross-Claim against respondent spouses for bad faith
in encouraging the negotiations between them without telling
them of the claim of petitioner. The same respondents maintained
that had they known of the claim of petitioner, they would not
have initiated negotiations with respondent spouses for the
purchase of the property. Thus, they prayed for reimbursement of
all amounts and monies received from them by respondent
spouses, attorneys fees and expenses for litigation in the event
that the trial court should annul the Deed of Sale and deprive them
of their ownership and possession of the subject land.
In their Answer to the Cross-Claim[6] of respondents SUNVAR
and Cuenca, respondent spouses insisted that they negotiated with
the former only after the expiration of the option period given to
petitioner and her failure to comply with her commitments
thereunder. Respondent spouses contended that they acted legally
and validly, in all honesty and good faith. According to them,
respondent SUNVAR made a verification of the title with the
Office of the Register of Deeds of Metro Manila District IV
before the execution of the Deed of Absolute Sale. Also, they
claimed that the Cross-Claim was barred by a written waiver
executed by respondent SUNVAR in their favor. Thus,
respondent spouses prayed for actual damages for the unjustified
filing of the Cross-Claim, moral damages for the mental anguish
and similar injuries they suffered by reason thereof, exemplary
damages "to prevent others from emulating the bad example" of
respondents SUNVAR and Cuenca, plus attorneys fees.
After a protracted trial and reconstitution of the court records due
to the fire that razed the Pasay City Hall on 18 January 1992, the
Regional Trial Court rendered its 30 June 1993 Decision[7] in
favor of petitioner. It ordered (a) the annulment and rescission of
the Deed of Absolute Sale executed on 15 September 1978 by
respondent spouses in favor of respondent SUNVAR; (b) the
cancellation and revocation of TCT No. S-75377 of the Registry
of Deeds, Makati, Metro Manila, issued in the name of respondent
Sunvar Realty Development Corporation, and the restoration or
reinstatement of TCT No. S-72946 of the same Registry issued in
the name of respondent spouses; (c) respondent spouses to
execute a deed of sale conveying ownership of the property
covered by TCT No. S-72946 in favor of petitioner upon her
payment of the balance of the purchase price agreed upon; and,
(d) respondent spouses to pay petitioner P50,000.00 as and for
attorneys fees, and to pay the costs.
On appeal, the Court of Appeals completely reversed the decision
of the trial court. It ordered (a) the Register of Deeds of Makati
City to lift the Adverse Claim and such other encumbrances
petitioner might have filed or caused to be annotated on TCT No.
S-75377; and, (b) petitioner to pay (1) respondent
SUNVAR P50,000.00 as nominal damages, P30,000.00 as
exemplary damages and P20,000 as attorneys fees; (2) respondent
spouses, P15,000.00 as nominal damages, P10,000.00 as
exemplary damages and P10,000.00 as attorneys fees; and, (3) the
costs.
Petitioner timely filed a Motion for Reconsideration which was
denied by the Court of Appeals on 19 October 1998. Hence, this
petition.
At issue for resolution by the Court is the nature of the contract
entered into between petitioner Lourdes Ong Limson on one
hand, and respondent spouses Lorenzo de Vera and Asuncion
Santos-de Vera on the other.
The main argument of petitioner is that there was a perfected
contract to sell between her and respondent spouses. On the other
hand, respondent spouses and respondents SUNVAR and Cuenca
argue that what was perfected between petitioner and respondent
spouses was a mere option.
A scrutiny of the facts as well as the evidence of the parties
overwhelmingly leads to the conclusion that the agreement
between the parties was a contract of option and not a contract to
sell.
An option, as used in the law of sales, is a continuing offer or
contract by which the owner stipulates with another that the latter
shall have the right to buy the property at a fixed price within a
time certain, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right
to sell or demand a sale. It is also sometimes called an
"unaccepted offer." An option is not of itself a purchase, but
merely secures the privilege to buy.[8] It is not a sale of property
but a sale of the right to purchase.[9] It is simply a contract by
which the owner of property agrees with another person that he
shall have the right to buy his property at a fixed price within a
certain time. He does not sell his land; he does not then agree to
sell it; but he does sell something, i.e., the right or privilege to buy
at the election or option of the other party.[10] Its distinguishing
characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the
offer. Until acceptance, it is not, properly speaking, a contract,
and does not vest, transfer, or agree to transfer, any title to, or any
59
interest or right in the subject matter, but is merely a contract by
which the owner of the property gives the optionee the right or
privilege of accepting the offer and buying the property on certain
terms.[11]
On the other hand, a contract, like a contract to sell, involves the
meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render
some service.[12] Contracts, in general, are perfected by mere
consent,[13]which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance
absolute.[14]
The Receipt[15] that contains the contract between petitioner and
respondent spouses provides
Received from Lourdes Limson the sum of Twenty Thousand
Pesos (P20,000.00) under Check No. 22391 dated July 31, 1978
as earnest money with option to purchase a parcel of land owned
by Lorenzo de Vera located at Barrio San Dionisio, Municipality
of Paraaque, Province of Rizal with an area of forty eight
thousand two hundred sixty square meters more or less at the
price of Thirty Four Pesos (P34.00)[16] cash subject to the
condition and stipulation that have been agreed upon by the buyer
and me which will form part of the receipt. Should the transaction
of the property not materialize not on the fault of the buyer, I
obligate myself to return the full amount of P20,000.00 earnest
money with option to buy or forfeit on the fault of the buyer. I
guarantee to notify the buyer Lourdes Limson or her
representative and get her conformity should I sell or encumber
this property to a third person. This option to buy is good within
ten (10) days until the absolute deed of sale is finally signed by
the parties or the failure of the buyer to comply with the terms of
the option to buy as herein attached.
In the interpretation of contracts, the ascertainment of the
intention of the contracting parties is to be discharged by looking
to the words they used to project that intention in their contract,
all the words, not just a particular word or two, and words in
context, not words standing alone.[17] The above Receipt readily
shows that respondent spouses and petitioner only entered into a
contract of option; a contract by which respondent spouses agreed
with petitioner that the latter shall have the right to buy the
formers property at a fixed price of P34.00 per square meter
within ten (10) days from 31 July 1978. Respondent spouses did
not sell their property; they did not also agree to sell it; but they
sold something, i.e., the privilege to buy at the election or option
of petitioner. The agreement imposed no binding obligation on
petitioner, aside from the consideration for the offer.
The consideration of P20,000.00 paid by petitioner to respondent
spouses was referred to as "earnest money." However, a careful
examination of the words used indicates that the money is not
earnest money but option money. "Earnest money" and "option
money" are not the same but distinguished thus: (a) earnest
money is part of the purchase price, while option money is the
money given as a distinct consideration for an option contract; (b)
earnest money is given only where there is already a sale, while
option money applies to a sale not yet perfected; and, (c) when
earnest money is given, the buyer is bound to pay the balance,
while when the would-be buyer gives option money, he is not
required to buy,[18] but may even forfeit it depending on the terms
of the option.
There is nothing in the Receipt which indicates that
the P20,000.00 was part of the purchase price. Moreover, it was
not shown that there was a perfected sale between the parties
where earnest money was given. Finally, when petitioner gave the
"earnest money," the Receipt did not reveal that she was bound to
pay the balance of the purchase price. In fact, she could even
forfeit the money given if the terms of the option were not
met. Thus, the P20,000.00 could only be money given as
consideration for the option contract.That the contract between
the parties is one of option is buttressed by the provision therein
that should the transaction of the property not materialize without
fault of petitioner as buyer, respondent Lorenzo de Vera obligates
himself to return the full amount of P20,000.00 "earnest money"
with option to buy or forfeit the same on the fault of petitioner. It
is further bolstered by the provision therein that guarantees
petitioner that she or her representative would be notified in case
the subject property was sold or encumbered to a third
person. Finally, the Receipt provided for a period within which
the option to buy was to be exercised, i.e., "within ten (10) days"
from 31 July 1978.
Doubtless, the agreement between respondent spouses and
petitioner was an "option contract" or what is sometimes called
an "unaccepted offer." During the option period the agreement
was not converted into a bilateral promise to sell and to buy where
both respondent spouses and petitioner were then reciprocally
bound to comply with their respective undertakings as petitioner
did not timely, affirmatively and clearly accept the offer of
respondent spouses.
The rule is that except where a formal acceptance is not required,
although the acceptance must be affirmatively and clearly made
and evidenced by some acts or conduct communicated to the
offeror, it may be made either in a formal or an informal manner,
and may be shown by acts, conduct or words by the accepting
party that clearly manifest a present intention or determination to
accept the offer to buy or sell. But there is nothing in the acts,
conduct or words of petitioner that clearly manifest a present
intention or determination to accept the offer to buy the property
of respondent spouses within the 10-day option period. The only
occasion within the option period when petitioner could have
demonstrated her acceptance was on 5 August 1978 when,
according to her, she agreed to meet respondent spouses and the
Ramoses at the Office of the Register of Deeds of
Makati. Petitioners agreement to meet with respondent spouses
presupposes an invitation from the latter, which only emphasizes
their persistence in offering the property to the former. But
whether that showed acceptance by petitioner of the offer is hazy
and dubious.
On or before 10 August 1978, the last day of the option period,
no affirmative or clear manifestation was made by petitioner to
accept the offer. Certainly, there was no concurrence of private
respondent spouses offer and petitioners acceptance thereof
within the option period. Consequently, there was no perfected
contract to sell between the parties.
On 11 August 1978 the option period expired and the exclusive
right of petitioner to buy the property of respondent spouses
ceased. The subsequent meetings and negotiations, specifically
on 11 and 23 August 1978, between the parties only showed the
desire of respondent spouses to sell their property to
petitioner. Also, on 14 September 1978 when respondent spouses
sent a telegram to petitioner demanding full payment of the
purchase price on even date simply demonstrated an inclination
to give her preference to buy subject property. Collectively, these
instances did not indicate that petitioner still had the exclusive
right to purchase subject property. Verily, the commencement of
negotiations between respondent spouses and respondent
SUNVAR clearly manifested that their offer to sell subject
property to petitioner was no longer exclusive to her.
We cannot subscribe to the argument of petitioner that respondent
spouses extended the option period when they extended the
authority of their agent until 31 August 1978. The extension of
the contract of agency could not operate to extend the option
60
period between the parties in the instant case. The extension must
not be implied but categorical and must show the clear intention
of the parties.
As to whether respondent spouses were at fault for the non-
consummation of their contract with petitioner, we agree with the
appellate court that they were not to be blamed. First, within the
option period, or on 4 August 1978, it was respondent spouses
and not petitioner who initiated the meeting at the Office of the
Register of Deeds of Makati. Second, that the Ramoses failed to
appear on 4 August 1978 was beyond the control of respondent
spouses. Third, the succeeding meetings that transpired to
consummate the contract were all beyond the option period and,
as declared by the Court of Appeals, the question of who was at
fault was already immaterial. Fourth, even assuming that the
meetings were within the option period, the presence of petitioner
was not enough as she was not even prepared to pay the purchase
price in cash as agreed upon. Finally, even without the presence
of the Ramoses, petitioner could have easily made the necessary
payment in cash as the price of the property was already set
at P34.00 per square meter and payment of the mortgage could
very well be left to respondent spouses.
Petitioner further claims that when respondent spouses sent her a
telegram demanding full payment of the purchase price on 14
September 1978 it was an acknowledgment of their contract to
sell, thus denying them the right to claim otherwise.
We do not agree. As explained above, there was no contract to
sell between petitioner and respondent spouses to speak
of. Verily, the telegram could not operate to estop them from
claiming that there was such contract between them and
petitioner. Neither could it mean that
respondent spouses extended the option period. The telegram
only showed that respondent spouses were willing to give
petitioner a chance to buy subject property even if it was no longer
exclusive.
The option period having expired and acceptance was not
effectively made by petitioner, the purchase of subject property
by respondent SUNVAR was perfectly valid and entered into in
good faith. Petitioner claims that in August 1978 Hermigildo
Sanchez, the son of respondent spouses agent, Marcosa Sanchez,
informed Marixi Prieto, a member of the Board of Directors of
respondent SUNVAR, that the property was already sold to
petitioner. Also, petitioner maintains that on 5 September 1978
respondent Cuenca met with her and offered to buy the property
from her at P45.00 per square meter. Petitioner contends that
these incidents, including the annotation of her Adverse Claim on
the title of subject property on 15 September 1978 show that
respondent SUNVAR was aware of the perfected sale between
her and respondent spouses, thus making respondent SUNVAR a
buyer in bad faith.
Petitioner is not correct. The dates mentioned, at least 5 and 15
September 1978, are immaterial as they were beyond the option
period given to petitioner. On the other hand, the referral
to sometime in August 1978 in the testimony of Hermigildo
Sanchez as emphasized by petitioner in her petition is very
vague. It could be within or beyond the option period. Clearly
then, even assuming that the meeting with Marixi Prieto actually
transpired, it could not necessarily mean that she knew of the
agreement between petitioner and respondent spouses for the
purchase of subject property as the meeting could have occurred
beyond the option period. In which case, no bad faith could be
attributed to respondent SUNVAR. If, on the other hand, the
meeting was within the option period, petitioner was remiss in her
duty to prove so. Necessarily, we are left with the conclusion that
respondent SUNVAR bought subject property from respondent
spouses in good faith, for value and without knowledge of any
flaw or defect in its title.
The appellate court awarded nominal and exemplary damages
plus attorneys fees to respondent spouses and respondent
SUNVAR. But nominal damages are adjudicated to vindicate or
recognize the right of the plaintiff that has been violated or
invaded by the defendant.[19] In the instant case, the Court
recognizes the rights of all the parties and finds no violation or
invasion of the rights of respondents by petitioner. Petitioner, in
filing her complaint, only seeks relief, in good faith, for what she
believes she was entitled to and should not be made to suffer
therefor. Neither should exemplary damages be awarded to
respondents as they are imposed only by way of example or
correction for the public good and only in addition to the moral,
temperate, liquidated or compensatory damages.[20] No such
kinds of damages were awarded by the Court of Appeals, only
nominal, which was not justified in this case. Finally, attorneys
fees could not also be recovered as the Court does not deem it just
and equitable under the circumstances.
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals ordering the Register of Deeds of Makati City
to lift the adverse claim and such other encumbrances petitioner
Lourdes Ong Limson may have filed or caused to be annotated on
TCT No. S-75377 is AFFIRMED, with the MODIFICATION
that the award of nominal and exemplary damages as well as
attorneys fees is DELETED. SO ORDERED.
G.R. No. 134971 March 25, 2004
HERMINIO TAYAG, petitioner,
vs.
AMANCIA LACSON, ROSENDO LACSON, ANTONIO
LACSON, JUAN LACSON, TEODISIA LACSON-
ESPINOSA and THE COURT OF APPEALS, respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the
Decision1 and the Resolution2 of respondent Court of Appeals in
CA-G.R. SP No. 44883.
The Case for the Petitioner
Respondents Angelica Tiotuyco Vda. de Lacson,3 and her
children Amancia, Antonio, Juan, and Teodosia, all surnamed
Lacson, were the registered owners of three parcels of land
located in Mabalacat, Pampanga, covered by Transfer Certificates
of Title (TCT) Nos. 35922-R, 35923-R, and 35925-R, registered
in the Register of Deeds of San Fernando, Pampanga. The
properties, which were tenanted agricultural lands,4 were
administered by Renato Espinosa for the owner.
On March 17, 1996, a group of original farmers/tillers, namely,
Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido
Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino,
Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben
Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de
Leon, Emiliano Ramos, and another group, namely, Felino G.
Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Ricardo
Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose
Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao,
Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando
Flores, and Aurelio Flores,5 individually executed in favor of the
petitioner separate Deeds of Assignment6 in which the assignees
assigned to the petitioner their respective rights as tenants/tillers
of the landholdings possessed and tilled by them for and in
consideration of P50.00 per square meter. The said amount was
made payable "when the legal impediments to the sale of the
property to the petitioner no longer existed." The petitioner was
also granted the exclusive right to buy the property if and when
61
the respondents, with the concurrence of the defendants-tenants,
agreed to sell the property. In the interim, the petitioner gave
varied sums of money to the tenants as partial payments, and the
latter issued receipts for the said amounts.
On July 24, 1996, the petitioner called a meeting of the
defendants-tenants to work out the implementation of the terms
of their separate agreements.7 However, on August 8, 1996, the
defendants-tenants, through Joven Mariano, wrote the petitioner
stating that they were not attending the meeting and instead gave
notice of their collective decision to sell all their rights and
interests, as tenants/lessees, over the landholding to the
respondents.8 Explaining their reasons for their collective
decision, they wrote as follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng
ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente,
pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng
demanda ninyo at pagbibigay ng problema sa amin na hindi
naman nagbenta ng lupa.
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming
karapatan o ang aming lupang sinasaka sa landowner o sa mga
pamilyang Lacson, dahil ayaw naming magkaroon ng problema.
Kaya kung ang sasabihin ninyong itoy katangahan, lalo sigurong
magiging katangahan kung ibebenta pa namin sa inyo ang aming
lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil
sinira ninyo ang aming pagtitiwala at katapatan.9
On August 19, 1996, the petitioner filed a complaint with the
Regional Trial Court of San Fernando, Pampanga, Branch 44,
against the defendants-tenants, as well as the respondents, for the
court to fix a period within which to pay the agreed purchase price
of P50.00 per square meter to the defendants, as provided for in
the Deeds of Assignment. The petitioner also prayed for a writ of
preliminary injunction against the defendants and the respondents
therein.10 The case was docketed as Civil Case No. 10910.
In his complaint, the petitioner alleged, inter alia, the following:
4. That defendants Julio Tiamson, Renato Gozun, Rosita
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma
Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr.,
Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga
Laxamana, Felicencia de Leon, Emiliano Ramos are original
farmers or direct tillers of landholdings over parcels of lands
covered by Transfer Certificate of Title Nos. 35922-R, 35923-R
and 35925-R which are registered in the names of defendants
LACSONS; while defendants Felino G. Tolentino, Rica Gozun,
Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman
Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson,
Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro
Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio
Flores are sub-tenants over the same parcel of land.
5. That on March 17, 1996 the defendants TIAMSON, et al.,
entered into Deeds of Assignment with the plaintiff by which the
defendants assigned all their rights and interests on their
landholdings to the plaintiff and that on the same date (March 17,
1996), the defendants received from the plaintiff partial payments
in the amounts corresponding to their names. Subsequent
payments were also received:
1st 2nd CHECK
TOTAL
PAYMENT PAYMENT NO.
1.Julio Tiamson - -
P 20,000 P 10,621.54 231281 P 30,621.54
----
2. Renato Gozun - - - P 10,000 96,000 106,000.00
- - -
[son of Felix Gozun
(deceased)]
3. Rosita Hernandez 30. Alex Quiambao 10,000 ------ ------ ------
P 5,000 14,374.24 231274 P 19,374.24
----
31. Isidro Tolentino 10,000 ------ ------ ------
4. Bienvenido P 10,000 14,465.90 231285 24,465.90
Tongol - - -
[Son of Abundio 32. Ceferino de Leon ------ 11,378.70 231270 ------
Tongol (deceased)]
33. Alberto
10,000 ------ ------ ------
5. Alfonso Flores - - Hernandez
P 30,000 26,648.40 231271 56,648.40
----
34. Orlando Florez 10,000 ------ ------ ------
6. Norma Quiambao
P 10,000 41,501.10 231279 51,501.10
----
35. Aurelio Flores 10,000 ------ ------ ------
7. Rosita Tolentino - 6. That on July 24, 1996, the plaintiff wrote the defendants
P 10,000 22,126.08 231284 32,126.08
----
TIAMSON, et al., inviting them for a meeting regarding the
8. Jose Sosa - - - - - - negotiations/implementations of the terms of their Deeds of
P 10,000 14,861.31 231291 24,861.31
--- Assignment;
7. That on August 8, 1996, the defendants TIAMSON, et al.,
9. Francisco
Tolentino, Sr.
P 10,000 24,237.62 231283 34,237.62 through Joven Mariano, replied that they are no longer willing to
pursue with the negotiations, and instead they gave notice to the
10. Emiliano
P 10,000 ------ ------ ------
plaintiff that they will sell all their rights and interests to the
Laxamana - - registered owners (defendants LACSONS).
11. Ruben Torres - -
A copy of the letter is hereto attached as Annex "A" etc.;
- - - - 8. That the defendants TIAMSON, et. al., have no right to deal
P 10,000 P 33,587.31 ------ P 43,587.31
[Son of Mariano with the defendants LACSON or with any third persons while
Torres (deceased)] their contracts with the plaintiff are subsisting; defendants
12. Meliton
LACSONS are inducing or have induced the defendants
P 10,000 12,944.77 231269 P 22,944.77 TIAMSON, et. al., to violate their contracts with the plaintiff;
Allanigue
9. That by reason of the malicious acts of all the defendants,
13. Dominga plaintiff suffered moral damages in the forms of mental anguish,
P 5,000 22,269.02 231275 27,269.02
Laxamana
mental torture and serious anxiety which in the sum of
14. Felicencia de P500,000.00 for which defendants should be held liable jointly
10,000 ------ ------ ------
Leon and severally.11
In support of his plea for injunctive relief, the petitioner, as
15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60 plaintiff, also alleged the following in his complaint:
11. That to maintain the status quo, the defendants TIAMSON, et
16. Felino G.
Tolentino
10,000 ------ ------ ------ al., should be restrained from rescinding their contracts with the
plaintiff, and the defendants LACSONS should also be restrained
17. Rica Gozun 5,000 ------ ------ ------ from accepting any offer of sale or alienation with the defendants
TIAMSON, et al., in whatever form, the latters rights and
18. Perla Gozun 10,000 ------ ------ ------ interests in the properties mentioned in paragraph 4 hereof;
further, the LACSONS should be restrained from
19. Benigno encumbering/alienating the subject properties covered by TCT
10,000 ------ ------ ------
Tolentino
No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds
20. Rodolfo of San Fernando, Pampanga;
10,000 ------ ------ ------
Quiambao 12. That the defendants TIAMSON, et al., threaten to rescind their
contracts with the plaintiff and are also bent on selling/alienating
21. Roman
Laxamana
10,000 ------ ------ ------ their rights and interests over the subject properties to their co-
defendants (LACSONS) or any other persons to the damage and
22. Eddie San Luis 10,000 ------ ------ ------ prejudice of the plaintiff who already invested much money,
efforts and time in the said transactions;
23. Ricardo 13. That the plaintiff is entitled to the reliefs being demanded in
10,000 ------ ------ ------
Hernandez
the complaint;
24. Nicenciana 14. That to prevent irreparable damages and prejudice to the
10,000 ------ ------ ------
Miranda plaintiff, as the latter has no speedy and adequate remedy under
the ordinary course of law, it is essential that a Writ of Preliminary
25. Jose Gozun 10,000 ------ ------ ------ Injunction be issued enjoining and restraining the defendants
TIAMSON, et al., from rescinding their contracts with the
26. Alfredo Sosa 5,000 ------ ------ ------
plaintiff and from selling/alienating their properties to the
LACSONS or other persons;
27. Jose Tiamson 10,000 ------ ------ ------
15. That the plaintiff is willing and able to put up a reasonable
28. Augusto bond to answer for the damages which the defendants would
5,000 ------ ------ ------
Tolentino suffer should the injunction prayed for and granted be found
without basis.12
29. Sixto Hernandez 10,000 ------ ------ ------ The petitioner prayed, that after the proceedings, judgment be
rendered as follows:

62
1. Pending the hearing, a Writ of Preliminary Injunction be issued
prohibiting, enjoining and restraining defendants Julio Tiamson,
Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso
Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco
Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton
Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano
Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San
Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun,
Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de
Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores
from rescinding their contracts with the plaintiff and from
alienating their rights and interest over the aforementioned
properties in favor of defendants LACSONS or any other third
persons; and prohibiting the defendants LACSONS from
encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-
R of the Registry of Deeds of San Fernando, Pampanga.
2. And pending the hearing of the Prayer for a Writ of Preliminary
Injunction, it is prayed that a restraining order be issued
restraining the aforementioned defendants (TIAMSON, et al.)
from rescinding their contracts with the plaintiff and from
alienating the subject properties to the defendants LACSONS or
any third persons; further, restraining and enjoining the
defendants LACSONS from encumbering/selling the properties
covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the
Registry of Deeds of San Fernando, Pampanga.
3. Fixing the period within which plaintiff shall pay the balance
of the purchase price to the defendants TIAMSON, et al., after the
lapse of legal impediment, if any.
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants to pay the plaintiff the sum of
P500,000.00 as moral damages;
6. Ordering the defendants to pay the plaintiff attorneys fees in
the sum of P100,000.00 plus litigation expenses of P50,000.00;
Plaintiff prays for such other relief as may be just and equitable
under the premises.13
In their answer to the complaint, the respondents as defendants
asserted that (a) the defendant Angelica Vda. de Lacson had died
on April 24, 1993; (b) twelve of the defendants were
tenants/lessees of respondents, but the tenancy status of the rest
of the defendants was uncertain; (c) they never induced the
defendants Tiamson to violate their contracts with the petitioner;
and, (d) being merely tenants-tillers, the defendants-tenants had
no right to enter into any transactions involving their properties
without their knowledge and consent. They also averred that the
transfers or assignments of leasehold rights made by the
defendants-tenants to the petitioner is contrary to Presidential
Decree (P.D.) No. 27 and Republic Act No. 6657, the
Comprehensive Agrarian Reform Program (CARP).14 The
respondents interposed counterclaims for damages against the
petitioner as plaintiff.
The defendants-tenants Tiamson, et al., alleged in their answer
with counterclaim for damages, that the money each of them
received from the petitioner were in the form of loans, and that
they were deceived into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby
repleaded and incorporated in so far as they are material and
relevant herein;
b) That the defendants Tiamson, et al., in so far as the Deeds of
Assignment are concern[ed] never knew that what they did sign
is a Deed of Assignment. What they knew was that they were
made to sign a document that will serve as a receipt for the loan
granted [to] them by the plaintiff;
c) That the Deeds of Assignment were signed through the
employment of fraud, deceit and false pretenses of plaintiff and
63
made the defendants believe that what they sign[ed] was a mere
receipt for amounts received by way of loans;
d) That the documents signed in blank were filled up and
completed after the defendants Tiamson, et al., signed the
documents and their completion and accomplishment was done
in the absence of said defendants and, worst of all, defendants
were not provided a copy thereof;
e) That as completed, the Deeds of Assignment reflected that the
defendants Tiamson, et al., did assign all their rights and interests
in the properties or landholdings they were tilling in favor of the
plaintiff. That if this is so, assuming arguendo that the documents
were voluntarily executed, the defendants Tiamson, et al., do not
have any right to transfer their interest in the landholdings they
are tilling as they have no right whatsoever in the landholdings,
the landholdings belong to their co-defendants, Lacson, et al., and
therefore, the contract is null and void;
f) That while it is admitted that the defendants Tiamson, et al.,
received sums of money from plaintiffs, the same were received
as approved loans granted by plaintiff to the defendants Tiamson,
et al., and not as part consideration of the alleged Deeds of
Assignment; and by way of:15
At the hearing of the petitioners plea for a writ of preliminary
injunction, the respondents counsel failed to appear. In support
of his plea for a writ of preliminary injunction, the petitioner
adduced in evidence the Deeds of Assignment,16 the
receipts17 issued by the defendants-tenants for the amounts they
received from him; and the letter18 the petitioner received from
the defendants-tenants. The petitioner then rested his case.
The respondents, thereafter, filed a Comment/Motion to
dismiss/deny the petitioners plea for injunctive relief on the
following grounds: (a) the Deeds of Assignment executed by the
defendants-tenants were contrary to public policy and P.D. No.
27 and Rep. Act No. 6657; (b) the petitioner failed to prove that
the respondents induced the defendants-tenants to renege on their
obligations under the "Deeds of Assignment;" (c) not being privy
to the said deeds, the respondents are not bound by the said deeds;
and, (d) the respondents had the absolute right to sell and dispose
of their property and to encumber the same and cannot be
enjoined from doing so by the trial court.
The petitioner opposed the motion, contending that it was
premature for the trial court to resolve his plea for injunctive
relief, before the respondents and the defendants-tenants adduced
evidence in opposition thereto, to afford the petitioner a chance to
adduce rebuttal evidence and prove his entitlement to a writ of
preliminary injunction. The respondents replied that it was the
burden of the petitioner to establish the requisites of a writ of
preliminary injunction without any evidence on their part, and
that they were not bound to adduce any evidence in opposition to
the petitioners plea for a writ of preliminary injunction.
On February 13, 1997, the court issued an Order19 denying the
motion of the respondents for being premature. It directed the
hearing to proceed for the respondents to adduce their evidence.
The court ruled that the petitioner, on the basis of the material
allegations of the complaint, was entitled to injunctive relief. It
also held that before the court could resolve the petitioners plea
for injunctive relief, there was need for a hearing to enable the
respondents and the defendants-tenants to adduce evidence to
controvert that of the petitioner. The respondents filed a motion
for reconsideration, which the court denied in its Order dated
April 16, 1997. The trial court ruled that on the face of the
averments of the complaint, the pleadings of the parties and the
evidence adduced by the petitioner, the latter was entitled to
injunctive relief unless the respondents and the defendants-
tenants adduced controverting evidence.
The respondents, the petitioners therein, filed a petition for
certiorari in the Court of Appeals for the nullification of the
February 13, 1997 and April 16, 1997 Orders of the trial court.
The case was docketed as CA-G.R. SP No. 44883. The petitioners
therein prayed in their petition that:
1. An order be issued declaring the orders of respondent court
dated February 13, 1997 and April 16, 1997 as null and void;
2. An order be issued directing the respondent court to issue an
order denying the application of respondent Herminio Tayag for
the issuance of a Writ of Preliminary Injunction and/or restraining
order.
3. In the meantime, a Writ of Preliminary Injunction be issued
against the respondent court, prohibiting it from issuing its own
writ of injunction against Petitioners, and thereafter making said
injunction to be issued by this Court permanent.
Such other orders as may be deemed just & equitable under the
premises also prayed for.20
The respondents asserted that the Deeds of Assignment executed
by the assignees in favor of the petitioner were contrary to
paragraph 13 of P.D. No. 27 and the second paragraph of Section
70 of Rep. Act No. 6657, and, as such, could not be enforced by
the petitioner for being null and void. The respondents also
claimed that the enforcement of the deeds of assignment was
subject to a supervening condition:
3. That this exclusive and absolute right given to the assignee
shall be exercised only when no legal impediments exist to the lot
to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE.21
The respondents argued that until such condition took place, the
petitioner would not acquire any right to enforce the deeds by
injunctive relief. Furthermore, the petitioners plea in his
complaint before the trial court, to fix a period within which to
pay the balance of the amounts due to the tenants under said deeds
after the "lapse" of any legal impediment, assumed that the deeds
were valid, when, in fact and in law, they were not. According to
the respondents, they were not parties to the deeds of assignment;
hence, they were not bound by the said deeds. The issuance of a
writ of preliminary injunction would restrict and impede the
exercise of their right to dispose of their property, as provided for
in Article 428 of the New Civil Code. They asserted that the
petitioner had no cause of action against them and the defendants-
tenants.
On April 17, 1998, the Court of Appeals rendered its decision
against the petitioner, annulling and setting aside the assailed
orders of the trial court; and permanently enjoining the said trial
court from proceeding with Civil Case No. 10901. The decretal
portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive
relief he demands in the lower court still he could avail of other
course of action in order to protect his interest such as the
institution of a simple civil case of collection of money against
TIAMSON, et al.
For all the foregoing considerations, the orders dated 13 February
1997 and 16 April 1997 are hereby NULLIFIED and ordered SET
ASIDE for having been issued with grave abuse of discretion
amounting to lack or excess of jurisdiction. Accordingly, public
respondent is permanently enjoined from proceeding with the
case designated as Civil Case No. 10901.22
The CA ruled that the respondents could not be enjoined from
alienating or even encumbering their property, especially so since
they were not privies to the deeds of assignment executed by the
defendants-tenants. The defendants-tenants were not yet owners
of the portions of the landholdings respectively tilled by them; as
such, they had nothing to assign to the petitioner. Finally, the CA
64
ruled that the deeds of assignment executed by the defendants-
tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the
petitioners motion for reconsideration.23
Hence, the petitioner filed his petition for review on certiorari
before this Court, contending as follows:
I
A MERE ALLEGATION IN THE ANSWER OF THE
TENANTS COULD NOT BE USED AS EVIDENCE OR BASIS
FOR ANY CONCLUSION, AS THIS ALLEGATION, IS STILL
THE SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24
II
THE COURT OF APPEALS CANNOT ENJOIN THE
HEARING OF A PETITION FOR PRELIMINARY
INJUNCTION AT A TIME WHEN THE LOWER COURT
(RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO
DETERMINE WHETHER OR NOT THE WRIT OF
PRELIMINARY INJUNCTION BEING PRAYED FOR BY
TAYAG SHOULD BE GRANTED OR NOT.25
III
THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN
EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE
TENANTS ARE NOT YET "AWARDEES OF THE LAND
REFORM.26
IV
THE COURT OF APPEALS CANNOT CAUSE THE
PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS
BELOW INCLUDING THE TRIAL ON THE MERITS OF THE
CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY
THE PROPRIETY OF MAINTAINING THE STATUS QUO.27
V
THE COURT OF APPEALS CANNOT INCLUDE IN ITS
DECISION THE CASE OF THE OTHER 35 TENANTS WHO
DO NOT QUESTION THE JURISDICTION OF THE LOWER
COURT (RTC) OVER THE CASE AND WHO ARE IN FACT
STILL PRESENTING THEIR EVIDENCE TO OPPOSE THE
INJUNCTION PRAYED FOR, AND TO PROVE AT THE
SAME TIME THE COUNTER-CLAIMS THEY FILED
AGAINST THE PETITIONER.28
VI
THE LOWER COURT (RTC) HAS JURISDICTION OVER
THE CASE FILED BY TAYAG FOR "FIXING OF PERIOD"
UNDER ART. 1197 OF THE NEW CIVIL CODE AND FOR
"DAMAGES" AGAINST THE LACSONS UNDER ART. 1314
OF THE SAME CODE. THIS CASE CANNOT BE
SUPPRESSED OR RENDERED NUGATORY
UNCEREMONIOUSLY.29
The petitioner faults the Court of Appeals for permanently
enjoining the trial court from proceeding with Civil Case No.
10910. He opines that the same was too drastic, tantamount to a
dismissal of the case. He argues that at that stage, it was premature
for the appellate court to determine the merits of the case since no
evidentiary hearing thereon was conducted by the trial court.
This, the Court of Appeals cannot do, since neither party moved
for the dismissal of Civil Case No. 10910. The petitioner points
out that the Court of Appeals, in making its findings, went beyond
the issue raised by the private respondents, namely, whether or
not the trial court committed a grave abuse of discretion
amounting to excess or lack of jurisdiction when it denied the
respondents motion for the denial/dismissal of the petitioners
plea for a writ of preliminary injunction. He, likewise, points out
that the appellate court erroneously presumed that the
leaseholders were not DAR awardees and that the deeds of
assignment were contrary to law. He contends that leasehold
tenants are not prohibited from conveying or waiving their
leasehold rights in his favor. He insists that there is nothing illegal
with his contracts with the leaseholders, since the same shall be
effected only when there are no more "legal impediments."
At bottom, the petitioner contends that, at that stage, it was
premature for the appellate court to determine the merits of his
case since no evidentiary hearing on the merits of his complaint
had yet been conducted by the trial court.
The Comment/Motion of the
Respondents to Dismiss/Deny
Petitioners Plea for a Writ
of Preliminary Injunction
Was Not Premature.
Contrary to the ruling of the trial court, the motion of the
respondents to dismiss/deny the petitioners plea for a writ of
preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case
on the incident, was proper and timely. It bears stressing that the
petitioner had the burden to prove his right to a writ of preliminary
injunction. He may rely solely on the material allegations of his
complaint or adduce evidence in support thereof. The petitioner
adduced his evidence to support his plea for a writ of preliminary
injunction against the respondents and the defendants-tenants and
rested his case on the said incident. The respondents then had
three options: (a) file a motion to deny/dismiss the motion on the
ground that the petitioner failed to discharge his burden to prove
the factual and legal basis for his plea for a writ of preliminary
injunction and, if the trial court denies his motion, for them to
adduce evidence in opposition to the petitioners plea; (b) forgo
their motion and adduce testimonial and/or documentary
evidence in opposition to the petitioners plea for a writ of
preliminary injunction; or, (c) waive their right to adduce
evidence and submit the incident for consideration on the basis of
the pleadings of the parties and the evidence of the petitioner. The
respondents opted not to adduce any evidence, and instead filed a
motion to deny or dismiss the petitioners plea for a writ of
preliminary injunction against them, on their claim that the
petitioner failed to prove his entitlement thereto. The trial court
cannot compel the respondents to adduce evidence in opposition
to the petitioners plea if the respondents opt to waive their right
to adduce such evidence. Thus, the trial court should have
resolved the respondents motion even without the latters
opposition and the presentation of evidence thereon.
The RTC Committed a Grave
Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders
In its February 13, 1997 Order, the trial court ruled that the
petitioner was entitled to a writ of preliminary injunction against
the respondents on the basis of the material averments of the
complaint. In its April 16, 1997 Order, the trial court denied the
respondents motion for reconsideration of the previous order, on
its finding that the petitioner was entitled to a writ of preliminary
injunction based on the material allegations of his complaint, the
evidence on record, the pleadings of the parties, as well as the
applicable laws:
For the record, the Court denied the LACSONS
COMMENT/MOTION on the basis of the facts culled from the
evidence presented, the pleadings and the law applicable
unswayed by the partisan or personal interests, public opinion or
fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics). 30
Section 3, Rule 58 of the Rules of Court, as amended, enumerates
the grounds for the issuance of a writ of preliminary injunction,
thus:
65
(a) That the applicant is entitled to the relief demanded, and the
whole or part of such relief consists in restraining the commission
or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or
perpetually;
(b) That the commission, continuance or non-performance of the
act or acts complained of during the litigation would probably
work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening,
or is attempting to do, or is procuring or suffering to be done,
some act or acts probably in violation of the rights of the applicant
respecting the subject of the action or proceeding, and tending to
render the judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to
preserve or maintain the status quo of things ante litem and is
generally availed of to prevent actual or threatened acts, until the
merits of the case can be heard. Injunction is accepted as the
strong arm of equity or a transcendent remedy.31 While generally
the grant of a writ of preliminary injunction rests on the sound
discretion of the trial court taking cognizance of the case, extreme
caution must be observed in the exercise of such
discretion.32 Indeed, in Olalia v. Hizon,33 we held:
It has been consistently held that there is no power the exercise of
which is more delicate, which requires greater caution,
deliberation and sound discretion, or more dangerous in a
doubtful case, than the issuance of an injunction. It is the strong
arm of equity that should never be extended unless to cases of
great injury, where courts of law cannot afford an adequate or
commensurate remedy in damages.
Every court should remember that an injunction is a limitation
upon the freedom of action of the defendant and should not be
granted lightly or precipitately. It should be granted only when
the court is fully satisfied that the law permits it and the
emergency demands it.34
The very foundation of the jurisdiction to issue writ of injunction
rests in the existence of a cause of action and in the probability of
irreparable injury, inadequacy of pecuniary compensation and the
prevention of the multiplicity of suits. Where facts are not shown
to bring the case within these conditions, the relief of injunction
should be refused.35
For the court to issue a writ of preliminary injunction, the
petitioner was burdened to establish the following: (1) a right in
esse or a clear and unmistakable right to be protected; (2) a
violation of that right; (3) that there is an urgent and permanent
act and urgent necessity for the writ to prevent serious
damage.36 Thus, in the absence of a clear legal right, the issuance
of the injunctive writ constitutes a grave abuse of discretion.
Where the complainants right is doubtful or disputed, injunction
is not proper. Injunction is a preservative remedy aimed at
protecting substantial rights and interests. It is not designed to
protect contingent or future rights. The possibility of irreparable
damage without proof of adequate existing rights is not a ground
for injunction.37
We have reviewed the pleadings of the parties and found that, as
contended by the respondents, the petitioner failed to establish the
essential requisites for the issuance of a writ of preliminary
injunction. Hence, the trial court committed a grave abuse of its
discretion amounting to excess or lack of jurisdiction in denying
the respondents comment/motion as well as their motion for
reconsideration.
First. The trial court cannot enjoin the respondents, at the instance
of the petitioner, from selling, disposing of and encumbering their
property. As the registered owners of the property, the
respondents have the right to enjoy and dispose of their property
without any other limitations than those established by law, in
accordance with Article 428 of the Civil Code. The right to
dispose of the property is the power of the owner to sell,
encumber, transfer, and even destroy the property. Ownership
also includes the right to recover the possession of the property
from any other person to whom the owner has not transmitted
such property, by the appropriate action for restitution, with the
fruits, and for indemnification for damages.38 The right of
ownership of the respondents is not, of course, absolute. It is
limited by those set forth by law, such as the agrarian reform laws.
Under Article 1306 of the New Civil Code, the respondents may
enter into contracts covering their property with another under
such terms and conditions as they may deem beneficial provided
they are not contrary to law, morals, good conduct, public order
or public policy.
The respondents cannot be enjoined from selling or encumbering
their property simply and merely because they had executed
Deeds of Assignment in favor of the petitioner, obliging
themselves to assign and transfer their rights or interests as
agricultural farmers/laborers/sub-tenants over the landholding,
and granting the petitioner the exclusive right to buy the property
subject to the occurrence of certain conditions. The respondents
were not parties to the said deeds. There is no evidence that the
respondents agreed, expressly or impliedly, to the said deeds or
to the terms and conditions set forth therein. Indeed, they assailed
the validity of the said deeds on their claim that the same were
contrary to the letter and spirit of P.D. No. 27 and Rep. Act No.
6657. The petitioner even admitted when he testified that he did
not know any of the respondents, and that he had not met any of
them before he filed his complaint in the RTC. He did not even
know that one of those whom he had impleaded as defendant,
Angelica Vda. de Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
Q: Do you know that two (2) of the defendants are residents of
the United States?
A: I do not know, sir.
Q: You do not know also that Angela Tiotuvie (sic) Vda. de
Lacson had already been dead?
A: I am aware of that, sir.39
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie
against petitioners. As owners of the lands being tilled by
TIAMSON, et al., petitioners, under the law, have the right to
enjoy and dispose of the same. Thus, they have the right to
possess the lands, as well as the right to encumber or alienate
them. This principle of law notwithstanding, private respondent
in the lower court sought to restrain the petitioners from
encumbering and/or alienating the properties covered by TCT No.
35922-R, 35923-R and TCT No. 35925-R of the Registry of
Deeds of San Fernando, Pampanga. This cannot be allowed to
prosper since it would constitute a limitation or restriction, not
otherwise established by law on their right of ownership, more so
considering that petitioners were not even privy to the alleged
transaction between private respondent and TIAMSON, et al.40
Second. A reading the averments of the complaint will show that
the petitioner clearly has no cause of action against the
respondents for the principal relief prayed for therein, for the trial
court to fix a period within which to pay to each of the defendants-
tenants the balance of the P50.00 per square meter, the
consideration under the Deeds of Assignment executed by the
defendants-tenants. The respondents are not parties or privies to
the deeds of assignment. The matter of the period for the
petitioner to pay the balance of the said amount to each of the
defendants-tenants is an issue between them, the parties to the
deed.
66
Third. On the face of the complaint, the action of the petitioner
against the respondents and the defendants-tenants has no legal
basis. Under the Deeds of Assignment, the obligation of the
petitioner to pay to each of the defendants-tenants the balance of
the purchase price was conditioned on the occurrence of the
following events: (a) the respondents agree to sell their property
to the petitioner; (b) the legal impediments to the sale of the
landholding to the petitioner no longer exist; and, (c) the
petitioner decides to buy the property. When he testified, the
petitioner admitted that the legal impediments referred to in the
deeds were (a) the respondents refusal to sell their property; and,
(b) the lack of approval of the Department of Agrarian Reform:
Q : There is no specific agreement prior to the execution of those
documents as when they will pay?
A : We agreed to that, that I will pay them when there are no legal
impediment, sir.
Q : Many of the documents are unlattered (sic) and you want to
convey to this Honorable Court that prior to the execution of these
documents you have those tentative agreement for instance that
the amount or the cost of the price is to be paid when there are no
legal impediment, you are using the word "legal impediment," do
you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
Q : Did you make how (sic) to the effect that the meaning of that
phrase that you used the unlettered defendants?
A : We have agreed to that, sir.
ATTY. OCAMPO:
May I ask, Your Honor, that the witness please answer my
question not to answer in the way he wanted it.
COURT:
Just answer the question, Mr. Tayag.
WITNESS:
Yes, Your Honor.
ATTY. OCAMPO:
Q : Did you explain to them?
A : Yes, sir.
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then
especially if the Lacsons will not agree to sell their shares to me
or to us it would be hard to (sic) me to pay them in full. And those
covered by DAR. I explain[ed] to them and it was clearly stated
in the title that there is [a] prohibited period of time before you
can sell the property. I explained every detail to them.41
It is only upon the occurrence of the foregoing conditions that the
petitioner would be obliged to pay to the defendants-tenants the
balance of the P50.00 per square meter under the deeds of
assignment. Thus:
2. That in case the ASSIGNOR and LANDOWNER will mutually
agree to sell the said lot to the ASSIGNEE, who is given an
exclusive and absolute right to buy the lot, the ASSIGNOR shall
receive the sum of FIFTY PESOS (P50.00) per square meter as
consideration of the total area actually tilled and possessed by the
ASSIGNOR, less whatever amount received by the ASSIGNOR
including commissions, taxes and all allowable deductions
relative to the sale of the subject properties.
3. That this exclusive and absolute right given to the ASSIGNEE
shall be exercised only when no legal impediments exist to the lot
to effect the smooth transfer of lawful ownership of the
lot/property in the name of the ASSIGNEE;
4. That the ASSIGNOR will remain in peaceful possession over
the said property and shall enjoy the fruits/earnings and/or harvest
of the said lot until such time that full payment of the agreed
purchase price had been made by the ASSIGNEE.42
There is no showing in the petitioners complaint that the
respondents had agreed to sell their property, and that the legal
impediments to the agreement no longer existed. The petitioner
and the defendants-tenants had yet to submit the Deeds of
Assignment to the Department of Agrarian Reform which, in turn,
had to act on and approve or disapprove the same. In fact, as
alleged by the petitioner in his complaint, he was yet to meet with
the defendants-tenants to discuss the implementation of the deeds
of assignment. Unless and until the Department of Agrarian
Reform approved the said deeds, if at all, the petitioner had no
right to enforce the same in a court of law by asking the trial court
to fix a period within which to pay the balance of the purchase
price and praying for injunctive relief.
We do not agree with the contention of the petitioner that the
deeds of assignment executed by the defendants-tenants are
perfected option contracts.43 An option is a contract by which the
owner of the property agrees with another person that he shall
have the right to buy his property at a fixed price within a certain
time. It is a condition offered or contract by which the owner
stipulates with another that the latter shall have the right to buy
the property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions, or which gives to
the owner of the property the right to sell or demand a sale. It
imposes no binding obligation on the person holding the option,
aside from the consideration for the offer. Until accepted, it is not,
properly speaking, treated as a contract.44 The second party gets
in praesenti, not lands, not an agreement that he shall have the
lands, but the right to call for and receive lands if he elects.45 An
option contract is a separate and distinct contract from which the
parties may enter into upon the conjunction of the option.46
In this case, the defendants-tenants-subtenants, under the deeds of
assignment, granted to the petitioner not only an option but the
exclusive right to buy the landholding. But the grantors were
merely the defendants-tenants, and not the respondents, the
registered owners of the property. Not being the registered owners
of the property, the defendants-tenants could not legally grant to
the petitioner the option, much less the "exclusive right" to buy
the property. As the Latin saying goes, "NEMO DAT QUOD
NON HABET."
Fourth. The petitioner impleaded the respondents as parties-
defendants solely on his allegation that the latter induced or are
inducing the defendants-tenants to violate the deeds of
assignment, contrary to the provisions of Article 1314 of the New
Civil Code which reads:
Art. 1314. Any third person who induces another to violate his
contract shall be liable for damages to the other contracting party.
In So Ping Bun v. Court of Appeals,47 we held that for the said
law to apply, the pleader is burdened to prove the following: (1)
the existence of a valid contract; (2) knowledge by the third
person of the existence of the contract; and (3) interference by the
third person in the contractual relation without legal justification.
Where there was no malice in the interference of a contract, and
the impulse behind ones conduct lies in a proper business interest
rather than in wrongful motives, a party cannot be a malicious
interferer. Where the alleged interferer is financially interested,
and such interest motivates his conduct, it cannot be said that he
is an officious or malicious intermeddler.48
In fine, one who is not a party to a contract and who interferes
thereon is not necessarily an officious or malicious intermeddler.
The only evidence adduced by the petitioner to prove his claim is
the letter from the defendants-tenants informing him that they had
decided to sell their rights and interests over the landholding to
the respondents, instead of honoring their obligation under the
deeds of assignment because, according to them, the petitioner
harassed those tenants who did not want to execute deeds of
assignment in his favor, and because the said defendants-tenants
did not want to have any problem with the respondents who could
67
cause their eviction for executing with the petitioner the deeds of
assignment as the said deeds are in violation of P.D. No. 27 and
Rep. Act No. 6657.49 The defendants-tenants did not allege
therein that the respondents induced them to breach their
contracts with the petitioner. The petitioner himself admitted
when he testified that his claim that the respondents induced the
defendants-assignees to violate contracts with him was based
merely on what "he heard," thus:
Q: Going to your last statement that the Lacsons induces (sic) the
defendants, did you see that the Lacsons were inducing the
defendants?
A: I heard and sometime in [the] first week of August, sir, they
went in the barrio (sic). As a matter of fact, that is the reason why
they sent me letter that they will sell it to the Lacsons.
Q: Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally,
the alleged negotiator and has the authority to sell the property.50
Even if the respondents received an offer from the defendants-
tenants to assign and transfer their rights and interests on the
landholding, the respondents cannot be enjoined from
entertaining the said offer, or even negotiating with the
defendants-tenants. The respondents could not even be expected
to warn the defendants-tenants for executing the said deeds in
violation of P.D. No. 27 and Rep. Act No. 6657. Under Section
22 of the latter law, beneficiaries under P.D. No. 27 who have
culpably sold, disposed of, or abandoned their land, are
disqualified from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his
purpose in having the defendants-tenants execute the Deeds of
Assignment in his favor was to acquire the landholding without
any tenants thereon, in the event that the respondents agreed to
sell the property to him. The petitioner knew that under Section
11 of Rep. Act No. 3844, if the respondents agreed to sell the
property, the defendants-tenants shall have preferential right to
buy the same under reasonable terms and conditions:
SECTION 11. Lessees Right of Pre-emption. In case the
agricultural lessor desires to sell the landholding, the agricultural
lessee shall have the preferential right to buy the same under
reasonable terms and conditions: Provided, That the entire
landholding offered for sale must be pre-empted by the Land
Authority if the landowner so desires, unless the majority of the
lessees object to such acquisition: Provided, further, That where
there are two or more agricultural lessees, each shall be entitled
to said preferential right only to the extent of the area actually
cultivated by him. 51
Under Section 12 of the law, if the property was sold to a third
person without the knowledge of the tenants thereon, the latter
shall have the right to redeem the same at a reasonable price and
consideration. By assigning their rights and interests on the
landholding under the deeds of assignment in favor of the
petitioner, the defendants-tenants thereby waived, in favor of the
petitioner, who is not a beneficiary under Section 22 of Rep. Act
No. 6657, their rights of preemption or redemption under Rep.
Act No. 3844. The defendants-tenants would then have to vacate
the property in favor of the petitioner upon full payment of the
purchase price. Instead of acquiring ownership of the portions of
the landholding respectively tilled by them, the defendants-
tenants would again become landless for a measly sum of P50.00
per square meter. The petitioners scheme is subversive, not only
of public policy, but also of the letter and spirit of the agrarian
laws. That the scheme of the petitioner had yet to take effect in
the future or ten years hence is not a justification. The respondents
may well argue that the agrarian laws had been violated by the
defendants-tenants and the petitioner by the mere execution of the
deeds of assignment. In fact, the petitioner has implemented the
deeds by paying the defendants-tenants amounts of money and
even sought their immediate implementation by setting a meeting
with the defendants-tenants. In fine, the petitioner would not wait
for ten years to evict the defendants-tenants. For him, time is of
the essence.
The Appellate Court Erred
In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.
We agree with the petitioners contention that the appellate court
erred when it permanently enjoined the RTC from continuing
with the proceedings in Civil Case No. 10910. The only issue
before the appellate court was whether or not the trial court
committed a grave abuse of discretion amounting to excess or
lack of jurisdiction in denying the respondents motion to deny or
dismiss the petitioners plea for a writ of preliminary injunction.
Not one of the parties prayed to permanently enjoin the trial court
from further proceeding with Civil Case No. 10910 or to dismiss
the complaint. It bears stressing that the petitioner may still
amend his complaint, and the respondents and the defendants-
tenants may file motions to dismiss the complaint. By
permanently enjoining the trial court from proceeding with Civil
Case No. 10910, the appellate court acted arbitrarily and
effectively dismissed the complaint motu proprio, including the
counterclaims of the respondents and that of the defendants-
tenants. The defendants-tenants were even deprived of their right
to prove their special and affirmative defenses.
IN LIGHT OF ALL THE FOREGOING, the petition is
PARTIALLY GRANTED. The Decision of the Court of Appeals
nullifying the February 13, 1996 and April 16, 1997 Orders of the
RTC is AFFIRMED. The writ of injunction issued by the Court
of Appeals permanently enjoining the RTC from further
proceeding with Civil Case No. 10910 is hereby LIFTED and
SET ASIDE. The Regional Trial Court of Mabalacat, Pampanga,
Branch 44, is ORDERED to continue with the proceedings in
Civil Case No. 10910 as provided for by the Rules of Court, as
amended.
SO ORDERED.
G.R. No. 167884 January 20, 2009
ENRICO S. EULOGIO, Petitioner,
vs.
SPOUSES CLEMENTE APELES1 and LUZ
APELES, Respondents.
DECISION
CHICO-NAZARIO, J.:
Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court
assailing the Decision2 dated 20 December 2004 of the Court of
Appeals in CA-G.R. CV No. 76933 which reversed the
Decision3 dated 8 October 2002 of the Regional Trial Court
(RTC) of Quezon City, Branch 215, in Civil Case No. Q-99-
36834. The RTC directed respondents, spouses Clemente and Luz
Apeles (spouses Apeles) to execute a Deed of Sale over a piece
of real property in favor of Enrico after the latters payment of
full consideration therefor.
The factual and procedural antecedents of the present case are as
follows:
The real property in question consists of a house and lot situated
at No. 87 Timog Avenue, Quezon City (subject property). The lot
has an area of 360.60 square meters, covered by Transfer
Certificate of Title No. 253990 issued by the Registry of Deeds
of Quezon City in the names of the spouses Apeles.4
68
In 1979, the spouses Apeles leased the subject property to Arturo
Eulogio (Arturo), Enricos father. Upon Arturos death, his son
Enrico succeeded as lessor of the subject property. Enrico used
the subject property as his residence and place of business. Enrico
was engaged in the business of buying and selling imported cars.5
On 6 January 1987, the spouses Apeles and Enrico allegedly
entered into a Contract of Lease6 with Option to Purchase
involving the subject property. According to the said lease
contract, Luz Apeles was authorized to enter into the same as the
attorney-in-fact of her husband, Clemente, pursuant to a Special
Power of Attorney executed by the latter in favor of the former on
24 January 1979. The contract purportedly afforded Enrico,
before the expiration of the three-year lease period, the option to
purchase the subject property for a price not exceeding P1.5
Million. The pertinent provisions of the Contract of Lease are
reproduced below:
3. That this Contract shall be effective commencing from January
26, 1987 and shall remain valid and binding for THREE (3)
YEARS from the said date. The LESSOR hereby gives the
LESSEE under this Contract of Lease the right and option to buy
the subject house and lot within the said 3-year lease period.
4. That the purchase price or total consideration of the house and
lot subject of this Contract of Lease shall, should the LESSEE
exercise his option to buy it on or before the expiration of the 3-
year lease period, be fixed or agreed upon by the LESSOR and
the LESSEE, Provided, that the said purchase price, as it is hereby
agreed, shall not be more than ONE MILLION FIVE HUNDRED
THOUSAND PESOS (P1,500,000.00) and, provided further, that
the monthly rentals paid by the LESSEE to the LESSOR during
the 3-year lease period shall form part of or be deducted from the
purchase price or total consideration as may hereafter be mutually
fixed or agreed upon by the LESSOR and the LESSEE.
5. That if the LESSEE shall give oral or written notice to the
LESSOR on or before the expiry date of the 3-year lease period
stipulated herein of his desire to exercise his option to buy or
purchase the house and lot herein leased, the LESSOR upon
receipt of the purchase price/total consideration as fixed or agreed
upon less the total amount of monthly rentals paid the LESSEE
during the 3-year lease period shall execute the appropriate Deed
to SELL, TRANSFER and CONVEY the house and lot subject of
this Contract in favor of the LESSEE, his heirs, successors and
assigns, together with all the fixtures and accessories therein, free
from all liens and encumbrances.
Before the expiration of the three-year lease period provided in
the lease contract, Enrico exercised his option to purchase the
subject property by communicating verbally and in writing to Luz
his willingness to pay the agreed purchase price, but the spouses
Apeles supposedly ignored Enricos manifestation. This
prompted Enrico to seek recourse from the barangay for the
enforcement of his right to purchase the subject property, but
despite several notices, the spouses Apeles failed to appear before
the barangay for settlement proceedings. Hence,
the barangay issued to Enrico a Certificate to File Action.7
In a letter dated 26 January 1997 to Enrico, the spouses Apeles
demanded that he pay his rental arrears from January 1991 to
December 1996 and he vacate the subject property since it would
be needed by the spouses Apeles themselves.
Without heeding the demand of the spouses Apeles, Enrico
instituted on 23 February 1999 a Complaint for Specific
Performance with Damages against the spouses Apeles before the
RTC, docketed as Civil Case No. Q-99-36834. Enricos cause of
action is founded on paragraph 5 of the Contract of Lease with
Option to Purchase vesting him with the right to acquire
ownership of the subject property after paying the agreed amount
of consideration.
Following the pre-trial conference, trial on the merits ensued
before the RTC.
Enrico himself testified as the sole witness for his side. He
narrated that he and Luz entered into the Contract of Lease with
Option to Purchase on 26 January 1987, with Luz signing the said
Contract at Enricos office in Timog Avenue, Quezon City. The
Contract was notarized on the same day as evidenced by the
Certification on the Notary Publics Report issued by the Clerk of
Court of the RTC of Manila.8
On the other hand, the spouses Apeles denied that Luz signed the
Contract of Lease with Option to Purchase, and posited that Luzs
signature thereon was a forgery. To buttress their contention, the
spouses Apeles offered as evidence Luzs Philippine Passport
which showed that on 26 January 1987, the date when Luz
allegedly signed the said Contract, she was in the United States of
America. The spouses Apeles likewise presented several official
documents bearing her genuine signatures to reveal their
remarkable discrepancy from the signature appearing in the
disputed lease contract. The spouses Apeles maintained that they
did not intend to sell the subject property.9
After the spouses Apeles established by documentary evidence
that Luz was not in the country at the time the Contract of Lease
with Option to Purchase was executed, Enrico, in rebuttal,
retracted his prior declaration that the said Contract was signed
by Luz on 26 January 1996. Instead, Enrico averred that Luz
signed the Contract after she arrived in the Philippines on 30 May
1987. Enrico further related that after Luz signed the lease
contract, she took it with her for notarization, and by the time the
document was returned to him, it was already notarized.10
On 8 October 2002, the RTC rendered a Decision in Civil Case
No. Q-99-36834 in favor of Enrico. Since none of the parties
presented a handwriting expert, the RTC relied on its own
examination of the specimen signatures submitted to resolve the
issue of forgery. The RTC found striking similarity between
Luzs genuine signatures in the documents presented by the
spouses Apeles themselves and her purportedly forged signature
in the Contract of Lease with Option to Purchase. Absent any
finding of forgery, the RTC bound the parties to the clear and
unequivocal stipulations they made in the lease contract.
Accordingly, the RTC ordered the spouses Apeles to execute a
Deed of Sale in favor of Enrico upon the latters payment of the
agreed amount of consideration. The fallo of the RTC Decision
reads:
WHEREFORE, this Court finds [Enricos] complaint to be
substantiated by preponderance of evidence and accordingly
orders
(1) [The spouses Apeles] to comply with the provisions of the
Contract of Lease with Option to Purchase; and upon payment of
total consideration as stipulated in the said CONTRACT for [the
spouses Apeles] to execute a Deed of Absolute Sale in favor of
[Enrico], over the parcel of land and the improvements existing
thereon located at No. 87 Timog Avenue, Quezon City.
(2) [The spouses Apeles] to pay [Enrico] moral and exemplary
damages in the respective amounts of P100,000.00
and P50,000.00.
(3) [The spouses Apeles] to pay attorneys fees of P50,000.00 and
costs of the suit.11
The spouses Apeles challenged the adverse RTC Decision before
the Court of Appeals and urged the appellate court to nullify the
assailed Contract of Lease with Option to Purchase since Luzs
signature thereon was clearly a forgery. The spouses Apeles
argued that it was physically impossible for Luz to sign the said
Contract on 26 January 1987 since she was not in the Philippines
on that date and returned five months thereafter. The spouses
Apeles called attention to Enricos inconsistent declarations as to
69
material details involving the execution of the lease contract,
thereby casting doubt on Enricos credibility, as well as on the
presumed regularity of the contract as a notarized document.
On 20 December 2004, the Court of Appeals rendered a Decision
in CA-G.R. CV No. 76933 granting the appeal of the spouses
Apeles and overturning the judgment of the RTC. In arriving at
its assailed decision, the appellate court noted that the Notary
Public did not observe utmost care in certifying the due execution
of the Contract of Lease with Option to Purchase. The Court of
Appeals chose not to accord the disputed Contract full faith and
credence. The Court of Appeals held, thus:
WHEREFORE, the foregoing premises considered, the appealed
decision dated October 8, 2002 of the Regional Trial Court of
Quezon City, Branch 215 in Civil Case No. Q-99-36834 for
specific performance with damages is hereby REVERSED and a
new is one entered dismissing [Enricos] complaint.12
Enricos Motion for Reconsideration was denied by the Court of
Appeals in a Resolution13 dated 25 April 2005.
Enrico is presently before this Court seeking the reversal of the
unfavorable judgment of the Court of Appeals, assigning the
following errors thereto:
I.
THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE
ERROR WHEN IT BRUSHED ASIDE THE RULING OF THE
COURT A QUO UPHOLDING THE VALIDITY OF THE
CONTRACT OF LEASE WITH OPTION TO PURCHASE
AND IN LIEU THEREOF RULED THAT THE SAID
CONTRACT OF LEASE WAS A FORGERY AND THUS,
NULL AND VOID.
II.
THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE
ERROR WHEN CONTRARY TO THE FINDINGS OF THE
COURT A QUO IT RULED THAT THE DEFENSE OF
FORGERY WAS SUBSTANTIALLY AND CONVINCINGLY
PROVEN BY COMPETENT EVIDENCE.
Simply, Enrico faults the Court of Appeals for disturbing the
factual findings of the RTC in disregard of the legal aphorism that
the factual findings of the trial court should be accorded great
weight and respect on appeal.
We do not agree.
Enricos insistence on the infallibility of the findings of the RTC
seriously impairs the discretion of the appellate tribunal to make
independent determination of the merits of the case appealed
before it. Certainly, the Court of Appeals cannot swallow hook,
line, and sinker the factual conclusions of the trial court without
crippling the very office of review. Although we have indeed held
that the factual findings of the trial courts are to be accorded great
weight and respect, they are not absolutely conclusive upon the
appellate court.14
The reliance of appellate tribunals on the factual findings of the
trial court is based on the postulate that the latter had firsthand
opportunity to hear the witnesses and to observe their conduct and
demeanor during the proceedings. However, when such findings
are not anchored on their credibility and their testimonies, but on
the assessment of documents that are available to appellate
magistrates and subject to their scrutiny, reliance on the trial court
finds no application.15
Moreover, appeal by writ of error to the Court of Appeals under
Rule 41 of the Revised Rules of Court, the parties may raise both
questions of fact and/or of law. In fact, it is imperative for the
Court of Appeals to review the findings of fact made by the trial
court. The Court of Appeals even has the power to try cases and
conduct hearings, receive evidence and perform any and all acts
necessary to resolve factual issues raised in cases falling within
its original and appellate jurisdiction.16
Enrico assiduously prays before this Court to sustain the validity
of the Contract of Lease with Option to Purchase. Enrico asserts
that the said Contract was voluntarily entered into and signed by
Luz who had it notarized herself. The spouses Apeles should be
obliged to respect the terms of the agreement, and not be allowed
to renege on their commitment thereunder and frustrate the
sanctity of contracts.
Again, we are not persuaded. We agree with the Court of Appeals
that in ruling out forgery, the RTC heavily relied on the testimony
proffered by Enrico during the trial, ignoring blatant
contradictions that destroy his credibility and the veracity of his
claims. On direct examination, Enrico testified that Luz signed
the Contract of Lease with Option to Purchase on 26 January 1987
in his presence,17 but he recanted his testimony on the matter after
the spouses Apeles established by clear and convincing evidence
that Luz was not in the Philippines on that date.18 In rebuttal,
Enrico made a complete turnabout and claimed that Luz signed
the Contract in question on 30 May 1987 after her arrival in the
country.19 The inconsistencies in Enricos version of events have
seriously impaired the probative value of his testimony and cast
serious doubt on his credibility. His contradictory statements on
important details simply eroded the integrity of his testimony.
While it is true that a notarized document carries the evidentiary
weight conferred upon it with respect to its due execution, and has
in its favor the presumption of regularity, this presumption,
however, is not absolute. It may be rebutted by clear and
convincing evidence to the contrary.20 Enrico himself admitted
that Luz took the document and had it notarized without his
presence. Such fact alone overcomes the presumption of
regularity since a notary public is enjoined not to notarize a
document unless the persons who signed the same are the very
same persons who executed and personally appeared before the
said notary public to attest to the contents and truth of what are
stated therein.
Although there is no direct evidence to prove forgery,
preponderance of evidence inarguably favors the spouses Apeles.
In civil cases, the party having the burden of proof must establish
his case by a preponderance of evidence. Preponderance of
evidence is the weight, credit, and value of the aggregate evidence
on either side and is usually considered to be synonymous with
the term "greater weight of the evidence" or "greater weight of the
credible evidence." Preponderance of evidence is a phrase which,
in the last analysis, means probability of the truth. It is evidence
which is more convincing to the court as worthier of belief than
that which is offered in opposition thereto.21 In the case at bar, the
spouses Apeles were able to overcome the burden of proof and
prove by preponderant evidence in disputing the authenticity and
due execution of the Contract of Lease with Option to Purchase.
In contrast, Enrico seemed to rely only on his own self-serving
declarations, without asserting any proof of corroborating
testimony or circumstantial evidence to buttress his claim.
Even assuming for the sake of argument that we agree with Enrico
that Luz voluntarily entered into the Contract of Lease with
Option to Purchase and personally affixed her signature to the
said document, the provision on the option to purchase the subject
property incorporated in said Contract still remains
unenforceable.
There is no dispute that what Enrico sought to enforce in Civil
Case No. Q-99-36834 was his purported right to acquire
ownership of the subject property in the exercise of his option to
purchase the same under the Contract of Lease with Option to
Purchase. He ultimately wants to compel the spouses Apeles to
already execute the Deed of Sale over the subject property in his
favor.
70
An option is a contract by which the owner of the property agrees
with another person that the latter shall have the right to buy the
formers property at a fixed price within a certain time. It is a
condition offered or contract by which the owner stipulates with
another that the latter shall have the right to buy the property at a
fixed price within a certain time, or under, or in compliance with
certain terms and conditions; or which gives to the owner of the
property the right to sell or demand a sale.22 An option is not of
itself a purchase, but merely secures the privilege to buy. It is not
a sale of property but a sale of the right to purchase. It is simply a
contract by which the owner of the property agrees with another
person that he shall have the right to buy his property at a fixed
price within a certain time. He does not sell his land; he does not
then agree to sell it; but he does sell something, i.e., the right or
privilege to buy at the election or option of the other party. Its
distinguishing characteristic is that it imposes no binding
obligation on the person holding the option, aside from the
consideration for the offer.23
It is also sometimes called an "unaccepted offer" and is
sanctioned by Article 1479 of the Civil Code:
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.
The second paragraph of Article 1479 provides for the definition
and consequent rights and obligations under an option contract.
For an option contract to be valid and enforceable against the
promissor, there must be a separate and distinct consideration that
supports it.24
In the landmark case of Southwestern Sugar and Molasses
Company v. Atlantic Gulf and Pacific Co.,25 we declared that for
an option contract to bind the promissor, it must be supported by
consideration:
There is no question that under Article 1479 of the new Civil
Code "an option to sell," or "a promise to buy or to sell," as used
in said article, to be valid must be "supported by a consideration
distinct from the price." This is clearly inferred from the context
of said article that a unilateral promise to buy or to sell, even if
accepted, is only binding if supported by a consideration. In
other words, "an accepted unilateral promise" can only have
a binding effect if supported by a consideration, which means
that the option can still be withdrawn, even if accepted, if the
same is not supported by any consideration. Here it is not
disputed that the option is without consideration. It can
therefore be withdrawn notwithstanding the acceptance
made of it by appellee. (Emphasis supplied.)
The doctrine requiring the payment of consideration in an option
contract enunciated in Southwestern Sugar is resonated in
subsequent cases and remains controlling to this day. Without
consideration that is separate and distinct from the purchase price,
an option contract cannot be enforced; that holds true even if the
unilateral promise is already accepted by the optionee.
The consideration is "the why of the contracts, the essential
reason which moves the contracting parties to enter into the
contract." This definition illustrates that the consideration
contemplated to support an option contract need not be monetary.
Actual cash need not be exchanged for the option. However, by
the very nature of an option contract, as defined in Article 1479,
the same is an onerous contract for which the consideration must
be something of value, although its kind may vary. 26
We have painstakingly examined the Contract of Lease with
Option to Purchase, as well as the pleadings submitted by the
parties, and their testimonies in open court, for any direct
evidence or evidence aliunde to prove the existence of
consideration for the option contract, but we have found none.
The only consideration agreed upon by the parties in the said
Contract is the supposed purchase price for the subject property
in the amount not exceeding P1.5 Million, which could not be
deemed to be the same consideration for the option contract since
the law and jurisprudence explicitly dictate that for the option
contract to be valid, it must be supported by a consideration
separate and distinct from the price.
In Bible Baptist Church v. Court of Appeals,27 we stressed that an
option contract needs to be supported by a separate consideration.
The consideration need not be monetary but could consist of other
things or undertakings. However, if the consideration is not
monetary, these must be things or undertakings of value, in view
of the onerous nature of the option contract. Furthermore, when a
consideration for an option contract is not monetary, said
consideration must be clearly specified as such in the option
contract or clause.
In the present case, it is indubitable that no consideration was
given by Enrico to the spouses Apeles for the option contract. The
absence of monetary or any material consideration keeps this
Court from enforcing the rights of the parties under said option
contract.
WHEREFORE, in view of the foregoing, the instant Petition is
DENIED. The Decision dated 20 December 2004 and Resolution
dated 25 April 2005 of the Court of Appeals in CA-G.R. CV No.
76933 are hereby AFFIRMED. No costs.
SO ORDERED.

71
 ARTICLES 1330 1332 DEFECTS OF WILLS
FIRST DIVISION
G.R. No. 154670 January 30, 2012
FONTANA RESORT AND COUNTRY CLUB, INC. AND
RN DEVELOPMENT CORP., Petitioners,
vs.
SPOUSES ROY S. TAN AND SUSAN C. TAN, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
For review under Rule 45 of the Rules of Court is the
Decision1 dated May 30, 2002 and Resolution2 dated August 12,
2002 of the Court Appeals in CA-G.R. SP No. 67816. The
appellate court affirmed with modification the Decision3 dated
July 6, 2001 of the Securities and Exchange Commission (SEC)
En Banc in SEC AC Case No. 788 which, in turn, affirmed the
Decision4 dated April 28, 2000 of Hearing Officer Marciano S.
Bacalla, Jr. (Bacalla) of the SEC Securities Investigation and
Clearing Department (SICD) in SEC Case No. 04-99-6264.
Sometime in March 1997, respondent spouses Roy S. Tan and
Susana C. Tan bought from petitioner RN Development
Corporation (RNDC) two class "D" shares of stock in petitioner
Fontana Resort and Country Club, Inc. (FRCCI),
worth P387,300.00, enticed by the promises of petitioners sales
agents that petitioner FRCCI would construct a park with first-
class leisure facilities in Clark Field, Pampanga, to be called
Fontana Leisure Park (FLP); that FLP would be fully developed
and operational by the first quarter of 1998; and that FRCCI class
"D" shareholders would be admitted to one membership in the
country club, which entitled them to use park facilities and stay at
a two-bedroom villa for "five (5) ordinary weekdays and two (2)
weekends every year for free."5
Two years later, in March 1999, respondents filed before the SEC
a Complaint6 for refund of the P387,300.00 they spent to
purchase FRCCI shares of stock from petitioners. Respondents
alleged that they had been deceived into buying FRCCI shares
because of petitioners fraudulent misrepresentations.
Construction of FLP turned out to be still unfinished and the
policies, rules, and regulations of the country club were obscure.
Respondents narrated that they were able to book and avail
themselves of free accommodations at an FLP villa on September
5, 1998, a Saturday. They requested that an FLP villa again be
reserved for their free use on October 17, 1998, another Saturday,
for the celebration of their daughters 18th birthday, but were
refused by petitioners. Petitioners clarified that respondents were
only entitled to free accommodations at FLP for "one week
annually consisting of five (5) ordinary days, one (1) Saturday
and one (1) Sunday[,]" and that respondents had already
exhausted their free Saturday pass for the year. According to
respondents, they were not informed of said rule regarding their
free accommodations at FLP, and had they known about it, they
would not have availed themselves of the free accommodations
on September 5, 1998. In January 1999, respondents attempted
once more to book and reserve an FLP villa for their free use on
April 1, 1999, a Thursday. Their reservation was confirmed by a
certain Murphy Magtoto. However, on March 3, 1999, another
country club employee named Shaye called respondents to say
that their reservation for April 1, 1999 was cancelled because the
FLP was already fully booked.
Petitioners filed their Answer7 in which they asserted that
respondents had been duly informed of the privileges given to
them as shareholders of FRCCI class "D" shares of stock since
these were all explicitly provided in the promotional materials for
the country club, the Articles of Incorporation, and the By-Laws
72
of FRCCI. Petitioners called attention to the following paragraph
in their ads:
GUEST ROOMS
As a member of the Fontana Resort and Country Club, you are
entitled to 7 days stay consisting of 5 weekdays, one Saturday and
one Sunday. A total of 544 elegantly furnished villas available in
two and three bedroom units.8
Petitioners also cited provisions of the FRCCI Articles of
Incorporation and the By-Laws on class "D" shares of stock, to
wit:
Class D shares may be sold to any person, irrespective of
nationality or Citizenship. Every registered owner of a class D
share may be admitted to one (1) Membership in the Club and
subject to the Clubs rules and regulations, shall be entitled to use
a Two (2) Bedroom Multiplex Model Unit in the residential villas
provided by the Club for one week annually consisting of five (5)
ordinary days, one (1) Saturday and one (1) Sunday. (Article
Seventh, Articles of Incorporation)
Class D shares which may be sold to any person, irrespective of
nationality or Citizenship. Every registered owner of a class D
share may be admitted to one (1) Membership in the Club and
subject to the Clubs rules and regulations, shall be entitled to use
a Two (2) Bedroom Multiplex Model Unit in the residential villas
provided by the Club for one week annually consisting of five (5)
ordinary days, one (1) Saturday and one (1) Sunday. [Section
2(a), Article II of the By-Laws.]9
Petitioners further denied that they unjustly cancelled
respondents reservation for an FLP villa on April 1, 1999,
explaining that:
6. There is also no truth to the claim of [herein respondents] that
they were given and had confirmed reservations for April 1, 1998.
There was no reservation to cancel since there was no confirmed
reservations to speak of for the reason that April 1, 1999, being
Holy Thursday, all reservations for the Holy Week were fully
booked as early as the start of the current year. The Holy Week
being a peak season for accommodations, all reservations had to
be made on a priority basis; and as admitted by [respondents],
they tried to make their reservation only on January 4, 1999, a
time when all reservations have been fully booked. The fact of
[respondents] non-reservation can be attested by the fact that no
confirmation number was issued in their favor.
If at all, [respondents] were "wait-listed" as of January 4, 1999,
meaning, they would be given preference in the reservation in the
event that any of the confirmed members/guests were to cancel.
The diligence on the part of the [herein petitioners] to inform
[respondents] of the status of their reservation can be manifested
by the act of the Clubs personnel when it advised [respondents]
on March 3, 1999 that there were still no available villas for their
use because of full bookings.10
Lastly, petitioners averred that when respondents were first
accommodated at FLP, only minor or finishing construction
works were left to be done and that facilities of the country club
were already operational.
SEC-SICD Hearing Officer Bacalla conducted preliminary
hearings and trial proper in the case. Respondents filed separate
sworn Question and Answer depositions.11 Esther U. Lacuna, a
witness for respondents, also filed a sworn Question and Answer
deposition.12 When petitioners twice defaulted, without any valid
excuse, to present evidence on the scheduled hearing dates,
Hearing Officer Bacalla deemed petitioners to have waived their
right to present evidence and considered the case submitted for
resolution.13
Based on the evidence presented by respondents, Hearing Officer
Bacalla made the following findings in his Decision dated April
28, 2000:
To prove the merits of their case, both [herein respondents]
testified. Ms. Esther U. Lacuna likewise testified in favor of
[respondents].
As established by the testimonies of [respondents] witnesses,
Ms. Esther U. Lacuna, a duly accredited sales agent of [herein
petitioners] who went to see [respondents] for the purpose of
inducing them to buy membership shares of Fontana Resort and
Country Club, Inc. with promises that the park will provide its
shareholders with first class leisure facilities, showing them
brochures (Exhibits "V", "V-1" and "V-2") of the future
development of the park.
Indeed [respondents] bought two (2) class "D" shares in Fontana
Resort and Country Club, Inc. paying P387,000.00 to
[petitioners] as evidenced by provisional and official receipts
(Exhibits "A" to "S"), and signing two (2) documents designated
as Agreement to Sell and Purchase Shares of Stock (Exhibits "T"
to "U-2").
It is undisputed that many of the facilities promised were not
completed within the specified date. Ms. Lacuna even testified
that less than 50% of what was promised were actually delivered.
What was really frustrating on the part of [respondents] was when
they made reservations for the use of the Clubs facilities on the
occasion of their daughters 18th birthday on October 17, 1998
where they were deprived of the clubs premises alleging that the
two (2) weekend stay which class "D" shareholders are entitled
should be on a Saturday and on a Sunday. Since [respondents]
have already availed of one (1) weekend stay which was a
Saturday, they could no longer have the second weekend stay also
on a Saturday.
Another occasion was when [respondents] were again denied the
use of the clubs facilities because they did not have a
confirmation number although their reservation was confirmed.
All these rules were never communicated to [respondents] when
they bought their membership shares.
It would seem that [petitioners], through their officers, would
make up rules as they go along. A clever ploy for [petitioners] to
hide the lack of club facilities to accommodate the needs of their
members.
[Petitioners] failure to finish the development works at the
Fontana Leisure Park within the period they promised and their
failure or refusal to accommodate [respondents] for a reservation
on October 17, 1998 and April 1, 1999, constitute gross
misrepresentation detrimental not only to the [respondents] but to
the general public as well.
All these empty promises of [petitioners] may well be part of a
scheme to attract, and induce [respondents] to buy shares because
surely if [petitioners] had told the truth about these matters,
[respondents] would never have bought shares in their project in
the first place.14
Consequently, Hearing Officer Bacalla adjudged:
WHEREFORE, premises considered, judgment is hereby
rendered directing [herein petitioners] to jointly and severally pay
[herein respondents]:
1) The amount of P387,000.00 plus interest at the rate of 21% per
annum computed from August 28, 1998 when demand was first
made, until such time as payment is actually made.15
Petitioners appealed the above-quoted ruling of Hearing Officer
Bacalla before the SEC en banc. In its Decision dated July 6,
2001, the SEC en banc held:
WHEREFORE, the instant appeal is hereby DENIED and the
Decision of Hearing Officer Marciano S. Bacalla, Jr. dated April
28, 2000 is hereby AFFIRMED.16
In an Order17 dated September 19, 2001, the SEC en banc denied
petitioners Motion for Reconsideration for being a prohibited
pleading under the SEC Rules of Procedure.
73
Petitioners filed before the Court of Appeals a Petition for Review
under Rule 43 of the Rules of Court. Petitioners contend that even
on the sole basis of respondents evidence, the appealed decisions
of Hearing Officer Bacalla and the SEC en banc are contrary to
law and jurisprudence.
The Court of Appeals rendered a Decision on March 30, 2002,
finding petitioners appeal to be partly meritorious.
The Court of Appeals brushed aside the finding of the SEC that
petitioners were guilty of fraudulent misrepresentation in
inducing respondents to buy FRCCI shares of stock. Instead, the
appellate court declared that:
What seems clear rather is that in "inducing" the respondents to
buy the Fontana shares, RN Development Corporation merely
repeated to the spouses the benefits promised to all holders of
Fontana Class "D" shares. These inducements were in fact
contained in Fontanas promotion brochures to prospective
subscribers which the spouses must obviously have read.18
Nonetheless, the Court of Appeals agreed with the SEC that the
sale of the two FRCCI class "D" shares of stock by petitioners to
respondents should be rescinded. Petitioners defaulted on their
promises to respondents that FLP would be fully developed and
operational by the first quarter of 1998 and that as shareholders
of said shares, respondents were entitled to the free use of first-
class leisure facilities at FLP and free accommodations at a two-
bedroom villa for "five (5) ordinary weekdays and two (2)
weekends every year."
The Court of Appeals modified the appealed SEC judgment by
ordering respondents to return their certificates of shares of stock
to petitioners upon the latters refund of the price of said shares
since "[t]he essence of the questioned [SEC] judgment was really
to declare as rescinded or annulled the sale or transfer of the
shares to the respondents."19 The appellate court additionally
clarified that the sale of the FRCCI shares of stock by petitioners
to respondents partakes the nature of a forbearance of money,
since the amount paid by respondents for the shares was used by
petitioners to defray the construction of FLP; hence, the interest
rate of 12% per annum should be imposed on said amount from
the date of extrajudicial demand until its return to respondents.
The dispositive portion of the Court of Appeals judgment reads:
WHEREFORE, premises considered, the appealed judgment is
MODIFIED: a) petitioner Fontana Resort and Country Club is
hereby ordered to refund and pay to the respondents Spouses Roy
S. Tan and Susana C. Tan the amount of P387,000.00, Philippine
Currency, representing the price of two of its Class "D" shares of
stock, plus simple interest at the rate of 12% per annum computed
from August 28, 1998 when demand was first made, until
payment is completed; b) the respondent spouses are ordered to
surrender to petitioner Fontana Resort and Country Club their two
(2) Class "D" shares issued by said petitioner upon receipt of the
full refund with interest as herein ordered.20
Petitioners filed a Motion for Reconsideration, but it was denied
by the Court of Appeals in its Resolution dated August 12, 2002.
Hence, the instant Petition for Review.
Petitioners, in their Memorandum,21 submit for our consideration
the following issues:
a. Was the essence of the judgment of the SEC which ordered
the return of the purchase price but not of the thing sold a
declaration of rescission or annulment of the contract of sale
between RNDC and respondents?
b. Was the order of the Court of Appeals to FRCCI which was
not the seller of the thing sold (the seller was RNDC) to return
the purchase price to the buyers (the respondents) in accordance
with law?
c. Was the imposition of 12% interest per annum from the date of
extra-judicial demand on an obligation which is not a loan or
forbearance of money in accordance with law?22
Petitioners averred that the ruling of the Court of Appeals that the
essence of the SEC judgment is the rescission or annulment of the
contract of sale of the FRCCI shares of stock between petitioners
and respondents is inconsistent with Articles 1385 and 1398 of
the Civil Code. The said SEC judgment did not contain an express
declaration that it involved the rescission or annulment of contract
or an explicit order for respondents to return the thing sold.
Petitioners also assert that respondents claim for refund based on
fraud or misrepresentation should have been directed only against
petitioner RNDC, the registered owner and seller of the FRCCI
class "D" shares of stock. Petitioner FRCCI was merely the issuer
of the shares sold to respondents. Petitioners lastly question the
order of the Court of Appeals for petitioners to pay 12% interest
per annum, the same being devoid of legal basis since their
obligation does not constitute a loan or forbearance of money.
In their Memorandum,23 respondents chiefly argue that
petitioners have posited mere questions of fact and none of law,
precluding this Court to take cognizance of the instant Petition
under Rule 45 of the Rules of Court. Even so, respondents
maintain that the Court of Appeals did not err in ordering them to
return the certificates of shares of stock to petitioners upon the
latters refund of the price thereof as the essence of respondents
claim for refund is to rescind the sale of said shares. Furthermore,
both petitioners should be held liable since they are the owners
and developers of FLP. Petitioner FRCCI is primarily liable for
respondents claim for refund, and petitioner RNDC, at most, is
only subsidiarily liable considering that petitioner RNDC is a
mere agent of petitioner FRCCI. Respondents finally insist that
the imposition of the interest rate at 12% per annum, computed
from the date of the extrajudicial demand, is correct since the
obligation of petitioners is in the nature of a forbearance of
money.
We find merit in the Petition.
We address the preliminary matter of the nature of respondents
Complaint against petitioners. Well-settled is the rule that the
allegations in the complaint determine the nature of the action
instituted.24
Respondents alleged in their Complaint that:
16. [Herein petitioners] failure to finish the development works
at the Fontana Leisure Park within the time frame that they
promised, and [petitioners] failure/refusal to accom[m]odate
[herein respondents] request for reservations on 17 October 1998
and 1 April 1999, constitute gross misrepresentation and a form
of deception, not only to the [respondents], but the general public
as well.
17. [Petitioners] deliberately and maliciously misrepresented
that development works will be completed when they knew fully
well that it was impossible to complete the development works by
the deadline. [Petitioners] also deliberately and maliciously
deceived [respondents] into believing that they have the privilege
to utilize Club facilities, only for [respondents] to be later on
denied such use of Club facilities. All these acts are part of
[petitioners] scheme to attract, induce and convince
[respondents] to buy shares, knowing that had they told the truth
about these matters, [respondents] would never have bought
shares in their project.
18. On 28 August 1998, [respondents] requested their lawyer to
write [petitioner] Fontana Resort and Country Club, Inc. a letter
demanding for the return of their payment. x x x.
19. [Petitioner] Fontana Resort and Country Club, Inc. responded
to this letter, with a letter of its own dated 10 September 1998,
denying [respondents] request for a refund. x x x.
74
20. [Respondents] replied to [petitioner] Fontana Resort and
Country Clubs letter with a letter dated 13 October 1998, x x x.
But despite receipt of this letter, [petitioners] failed/refused and
continue to fail /refuse to refund/return [respondents] payments.
xxxx
22. [Petitioners] acted in bad faith when it sold membership
shares to [respondents], promising development work will be
completed by the first quarter of 1998 when [petitioners] knew
fully well that they were in no position and had no intention to
complete development work within the time they promised.
[Petitioners] also were maliciously motivated when they
promised [respondents] use of Club facilities only to deny
[respondents] such use later on.
23. It is detrimental to the interest of [respondents] and quite
unfair that they will be made to suffer from the delay in the
completion of the development work, while [petitioners] are
already enjoying the purchase price paid by [respondents].
xxxx
26. Apart from the refund of the amount of P387,300.00,
[respondents] are also entitled to be paid reasonable interest from
their money. Afterall, [petitioners] have already benefitted from
this money, having been able to use it, if not for the Fontana
Leisure Park project, for their other projects as well. And had
[respondents] been able to deposit the money in the bank, or
invested it in some worthwhile undertaking, they would have
earned interest on the money at the rate of at least 21% per
annum.25
The aforequoted allegations in respondents Complaint
sufficiently state a cause of action for the annulment of a voidable
contract of sale based on fraud under Article 1390, in relation to
Article 1398, of the Civil Code, and/or rescission of a reciprocal
obligation under Article 1191, in relation to Article 1385, of the
same Code. Said provisions of the Civil Code are reproduced
below:
Article 1390. The following contracts are voidable or annullable,
even though there may have been no damage to the contracting
parties:
1. Those where one of the parties is incapable of giving consent
to a contract;
2. Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification.
Article 1398. An obligation having been annulled, the contracting
parties shall restore to each other the things which have been the
subject matter of the contract, with their fruits, and the price with
its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the
basis for damages.
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
Article 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out
only when he who demands rescission can return whatever he
may be obliged to return.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss.
It does not matter that respondents, in their Complaint, simply
prayed for refund of the purchase price they had paid for their
FRCCI shares,26 without specifically mentioning the annulment
or rescission of the sale of said shares. The Court of Appeals
treated respondents Complaint as one for annulment/rescission
of contract and, accordingly, it did not simply order petitioners to
refund to respondents the purchase price of the FRCCI shares, but
also directed respondents to comply with their correlative
obligation of surrendering their certificates of shares of stock to
petitioners.
Now the only issue left for us to determine whether or not
petitioners committed fraud or defaulted on their promises as
would justify the annulment or rescission of their contract of sale
with respondents requires us to reexamine evidence submitted
by the parties and review the factual findings by the SEC and the
Court of Appeals.
As a general rule, "the remedy of appeal by certiorari under Rule
45 of the Rules of Court contemplates only questions of law and
not issues of fact. This rule, however, is inapplicable in cases x x
x where the factual findings complained of are absolutely devoid
of support in the records or the assailed judgment of the appellate
court is based on a misapprehension of facts."27 Another well-
recognized exception to the general rule is when the factual
findings of the administrative agency and the Court of Appeals
are contradictory.28 The said exceptions are applicable to the case
at bar.
There are contradictory findings below as to the existence of
fraud: while Hearing Officer Bacalla and the SEC en banc found
that there is fraud on the part of petitioners in selling the FRCCI
shares to respondents, the Court of Appeals found none.
There is fraud when one party is induced by the other to enter into
a contract, through and solely because of the latters insidious
words or machinations. But not all forms of fraud can vitiate
consent. "Under Article 1330, fraud refers to dolo causante or
causal fraud, in which, prior to or simultaneous with the execution
of a contract, one party secures the consent of the other by using
deception, without which such consent would not have been
given."29 "Simply stated, the fraud must be the determining cause
of the contract, or must have caused the consent to be given."30
"[T]he general rule is that he who alleges fraud or mistake in a
transaction must substantiate his allegation as the presumption is
that a person takes ordinary care for his concerns and that private
dealings have been entered into fairly and regularly."31 One who
alleges defect or lack of valid consent to a contract by reason of
fraud or undue influence must establish by full, clear and
convincing evidence such specific acts that vitiated a partys
consent, otherwise, the latters presumed consent to the contract
prevails.32
In this case, respondents have miserably failed to prove how
petitioners employed fraud to induce respondents to buy FRCCI
shares. It can only be expected that petitioners presented the FLP
and the country club in the most positive light in order to attract
investor-members. There is no showing that in their sales talk to
respondents, petitioners actually used insidious words or
machinations, without which, respondents would not have bought
the FRCCI shares. Respondents appear to be literate and of
above-average means, who may not be so easily deceived into
parting with a substantial amount of money. What is apparent to
75
us is that respondents knowingly and willingly consented to
buying FRCCI shares, but were later on disappointed with the
actual FLP facilities and club membership benefits.
Similarly, we find no evidence on record that petitioners defaulted
on any of their obligations that would have called for the
rescission of the sale of the FRCCI shares to respondents.
"The right to rescind a contract arises once the other party defaults
in the performance of his obligation."33"Rescission of a contract
will not be permitted for a slight or casual breach, but only such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement."34 In the same case
as fraud, the burden of establishing the default of petitioners lies
upon respondents, but respondents once more failed to discharge
the same.
Respondents decry the alleged arbitrary and unreasonable denial
of their request for reservation at FLP and the obscure and ever-
changing rules of the country club as regards free
accommodations for FRCCI class "D" shareholders.
Yet, petitioners were able to satisfactorily explain, based on clear
policies, rules, and regulations governing FLP club memberships,
why they rejected respondents request for reservation on October
17, 1998. Respondents do not dispute that the Articles of
Incorporation and the By-Laws of FRCCI, as well as the
promotional materials distributed by petitioners to the public
(copies of which respondents admitted receiving), expressly
stated that the subscribers of FRCCI class "D" shares of stock are
entitled free accommodation at an FLP two-bedroom villa only
for "one week annually consisting of five (5) ordinary days, one
(1) Saturday and one (1) Sunday." Thus, respondents cannot
claim that they were totally ignorant of such rule or that
petitioners have been changing the rules as they go along.
Respondents had already availed themselves of free
accommodations at an FLP villa on September 5, 1998, a
Saturday, so that there was basis for petitioners to deny
respondents subsequent request for reservation of an FLP villa
for their free use on October 17, 1998, another Saturday.
Neither can we rescind the contract because construction of FLP
facilities were still unfinished by 1998. Indeed, respondents
allegation of unfinished FLP facilities was not disputed by
petitioners, but respondents themselves were not able to present
competent proof of the extent of such incompleteness. Without
any idea of how much of FLP and which particular FLP facilities
remain unfinished, there is no way for us to determine whether
petitioners were actually unable to deliver on their promise of a
first class leisure park and whether there is sufficient reason for
us to grant rescission or annulment of the sale of FRCCI shares.
Apparently, respondents were still able to enjoy their stay at FLP
despite the still ongoing construction works, enough for them to
wish to return and again reserve accommodations at the park.
Respondents additionally alleged the unreasonable cancellation
of their confirmed reservation for the free use of an FLP villa on
April 1, 1999. According to respondents, their reservation was
confirmed by a Mr. Murphy Magtoto, only to be cancelled later
on by a certain Shaye. Petitioners countered that April 1, 1999
was a Holy Thursday and FLP was already fully-booked.
Petitioners, however, do not deny that Murphy Magtoto and
Shaye are FLP employees who dealt with respondents. The
absence of any confirmation number issued to respondents does
not also discount the possibility that the latters reservation was
mistakenly confirmed by Murphy Magtoto despite FLP being
fully-booked. At most, we perceive a mix-up in the reservation
process of petitioners. This demonstrates a mere negligence on
the part of petitioners, but not willful intention to deprive
respondents of their membership benefits. It does not constitute
default that would call for rescission of the sale of FRCCI shares
by petitioners to respondents. For the negligence of petitioners as
regards respondents reservation for April 1, 1999, respondents
are at least entitled to nominal damages in accordance with
Articles 2221 and 2222 of the Civil Code.35
In Almeda v. Cario,36 we have expounded on the propriety of
granting nominal damages as follows:
[N]ominal damages may be awarded to a plaintiff whose right has
been violated or invaded by the defendant, for the purpose of
vindicating or recognizing that right, and not for indemnifying the
plaintiff for any loss suffered by him. Its award is thus not for the
purpose of indemnification for a loss but for the recognition and
vindication of a right. Indeed, nominal damages are damages in
name only and not in fact. When granted by the courts, they are
not treated as an equivalent of a wrong inflicted but simply a
recognition of the existence of a technical injury. A violation of
the plaintiff's right, even if only technical, is sufficient to support
an award of nominal damages. Conversely, so long as there is a
showing of a violation of the right of the plaintiff, an award of
nominal damages is proper.37
It is also settled that "the amount of such damages is addressed to
the sound discretion of the court, taking into account the relevant
circumstances."381wphi1
In this case, we deem that the respondents are entitled to an award
of P5,000.00 as nominal damages in recognition of their
confirmed reservation for the free use of an FLP villa on April 1,
1999 which was inexcusably cancelled by petitioner on March 3,
1999.
In sum, the respondents Complaint sufficiently alleged a cause
of action for the annulment or rescission of the contract of sale of
FRCCI class "D" shares by petitioners to respondents; however,
respondents were unable to establish by preponderance of
evidence that they are entitled to said annulment or rescission.
WHEREFORE, in view of the foregoing, the Petition is hereby
GRANTED. The Decision dated May 30, 2002 and Resolution
dated August 12, 2002 of the Court Appeals in CA-G.R. SP No.
67816 are REVERSED and SET ASIDE. Petitioners are
ORDERED to pay respondents the amount of P5,000.00 as
nominal damages for their negligence as regards respondents
cancelled reservation for April 1, 1999, but respondents
Complaint, in so far as the annulment or rescission of the contract
of sale of the FRCCI class "D" shares of stock is concerned, is
DISMISSED for lack of merit.
SO ORDERED.
SECOND DIVISION
[G.R. No. 146222. January 15, 2004]
ERLINDA DELA CRUZ, PRISCILLA DE MESA,
ZENAIDA LAMBERTO, FLORA DRISKELL and
ANGELITO DELA CRUZ, petitioners, vs. FORTUNATO
DELA CRUZ, DIVINA GUTIERREZ and CLARK
GUTIERREZ, respondents.
DECISION
QUISUMBING, J.:
This petition seeks to annul and set aside the decision [1] of the
Court of Appeals, promulgated on September 14, 2000, in CA-
G.R. CV No. 53679, affirming the decision[2] of the Regional
Trial Court (RTC) of Malolos, Bulacan, Branch 17, dated
December 14, 1995, in Civil Case No. 37-M-89. The trial court
dismissed the complaint in Civil Case No. 37-M-89 and held that
herein respondents Clark and Divina Gutierrez are the lawful
owners of the property in dispute. Petitioners also seek to annul
the appellate courts resolution,[3] dated November 28, 2000,
denying their motion for reconsideration.
76
As culled from the records, the following are the facts of the case:
Paciencia dela Cruz, the original plaintiff in Civil Case No. 37-
M-89, was the owner of a parcel of land with an area of two
(2) ares[4] and ninety (90) centares,[5] located at Lolomboy,
Bocaue, Bulacan. Said parcel was registered in her name under
Transfer Certificate of Title (TCT) No. T-14.585 (M). A flea
market (talipapa) with fifty or so vendors was located on the
property and Paciencia collected from them their daily stall
rentals. Paciencia had six (6) children, namely Priscilla, Erlinda,
Fortunato, Flora, Angelita and Zenaida, all surnamed dela Cruz.
On September 25, 1980, Paciencia allegedly executed a Deed of
Sale whereby for and in consideration of P21,000, she conveyed
said parcel in favor of her son, Fortunato dela Cruz.[6] On
November 26, 1980, the Register of Deeds of Bulacan issued TCT
No. T-34.723 (M) in Fortunatos name.[7] Fortunato declared the
property for taxation purposes and paid realty taxes due
thereon.[8] Sometime between August 1985 to September 1988,
Fortunato mortgaged the property three (3) times to one Erlinda
de Guzman for the sums of P25,000, P50,000
and P100,000.[9] Fortunato was unable to pay these loans.
On January 11, 1989, Fortunato executed a Kasulatan ng
Bilihang Patuluyan[10] in favor of Clark and Divina Gutierrez, the
children of Claudio and Adoracion Gutierrez, to whom he earlier
offered to sell the property. The Kasulatan alleged the purchase
price to be P58,000 only but the amount actually paid by the
Gutierrezes to Fortunato was P600,000 as evidenced by a receipt
showing the true consideration for the sale.[11] That same day, the
sale was registered, leading to the cancellation of TCT No. T-
34.723 (M) in the name of Fortunato. Seven days later, a new
certificate of title, TCT No. T-101011 (M) was issued in the name
of Clark and Divina Gutierrez. Thereafter, the Gutierrezes took
possession of the property, had the talipapa repaired, and
collected the daily stall rentals from the vendors.
On January 20, 1989, Paciencia instituted an action for
reconveyance of property with preliminary injunction against
Fortunato and the spouses Claudio and Adoracion Gutierrez,
before the RTC of Malolos, Bulacan, which docketed the
complaint as Civil Case No. 37-M-89.
On February 8, 1989, the Complaint was amended to implead
Clark and Divina Gutierrez, the children of spouses Claudio and
Adoracion Gutierrez, as defendants who had the subject property
titled in their names.
In her Complaint, Paciencia alleged that sometime in 1980, her
son Fortunato, took advantage of his close ties with her to induce
her to sign an instrument which appeared to be a Deed of
Sale. Paciencia alleged that Fortunato assured her that she would
remain the owner thereof while Fortunato would hold the
property in trust for her and upon her death, all her children would
share in the property. Fortunato allegedly did not pay her any
consideration for such sale. She also claimed that she continued
to collect the daily stall rentals from the talipapa tenants until
sometime in 1986 when she fell ill and had to be hospitalized. As
a result, Fortunato took over the collection of the rentals. After
Paciencia had recovered, she sought to resume collecting the daily
rentals but upon the plea of Fortunato who had no means of
income at that time, Paciencia allowed him to continue collecting
the stall rentals. Fortunato, however, was remiss in remitting the
daily collections to Paciencia.
Sometime in December 1988, Paciencia was shocked to learn that
Fortunato was offering the property for sale. She then demanded
that the property be reconveyed to her but Fortunato refused to do
so. Meanwhile upon learning that Fortunato was negotiating the
sale of the land with the Gutierrez spouses, Paciencia sent her
daughter, Erlinda dela Cruz, to warn them that Paciencia owned
the property, and not Fortunato. However, the Gutierrez couple
insisted on buying the property and registered the same in favor
of their children, Divina and Clark Gutierrez. Consequently, the
Gutierrezes took over the collection of stall rentals from the
tenants of the subject property.
In sum, Paciencia alleged that the sale of the property to the
Gutierrezes was null and void and fraudulently made as Fortunato
had neither right nor authority from her to sell or convey the
subject property, as he only held it in trust for her.
In his Answer, Fortunato averred that he lawfully acquired the
subject property from Paciencia, who absolutely conveyed the
same to him, delivered to him the owners duplicate of the title,
and upon her instructions, caused the registration of the property
in his name.
For their part, Clark and Divina Gutierrez alleged that: (1) the
subject property was titled in the name of Fortunato dela Cruz;
(2) Fortunato was also the one collecting the daily rentals from
the market vendors; (3) Fortunato feared he would lose the
property due to his inability to pay his mortgage indebtedness to
Erlinda de Guzman; and (4) he pleaded with them to help him, as
a result of which they turned to their parents who withdrew their
lifetime savings just to be able to buy the property. Clark and
Divina likewise alleged that Fortunato disclosed to them that
Paciencia herself did not like this instant suit as she had already
given to all her children her properties through similar transfers.
On December 14, 1995, the trial court decided Civil Case No. 37-
M-89 in this wise:
WHEREFORE, premises considered, judgment is hereby
rendered:
1) dismissing the case and declaring defendants Clark and Divina
Gutierrez as the lawful owners of the property now covered by
TCT No. T-101011(M);
2) ordering the plaintiff to pay defendant Fortunato dela Cruz
litigation expenses of P2,000.00 and to pay the costs of the suit;
3) dismissing the counterclaim of defendants Gutierrezes for
moral damages and attorneys fees.
SO ORDERED.[12]
Paciencia then moved for reconsideration, but the trial court
denied the motion. She then interposed an appeal with the Court
of Appeals, docketed as CA-G.R. CV No. 53679.
On January 22, 1997, Paciencia dela Cruz died and was
substituted by her children, namely: petitioners Erlinda dela Cruz,
Priscilla de Mesa y dela Cruz, Zenaida Lamberto y dela Cruz,
Flora Driskell y dela Cruz and Angelita dela Cruz.
On September 14, 2000, the Court of Appeals affirmed the trial
courts decision, thus:
WHEREFORE, premises considered, the appealed decision in
Civil Case No. 37-M-89 is hereby AFFIRMED. No costs.
SO ORDERED.[13]
Herein petitioners then moved for reconsideration, but it was
denied by the appellate court.
Hence, this instant petition grounded on the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN RULING THAT THE DECEASED
PACIENCIA DELA CRUZ VOLUNTARILY EXECUTED THE
DEED OF ABSOLUTE SALE IN FAVOR OF RESPONDENT
DELA CRUZ.
2. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN RULING THAT THE RESPONDENTS
GUTIERREZES ARE BUYERS IN GOOD FAITH.
3. WHETHER OR NOT THE EVIDENCE ON RECORD
SUPPORTS THE DECISION OF THE HONORABLE COURT
OF APPEALS SUBJECT MATTER OF THE INSTANT
PETITION FOR REVIEW.[14]
Simply put, we find that the core issue in this case is whether the
Deed of Absolute Sale executed by the mother, Paciencia dela
77
Cruz, in favor of her son respondent Fortunato dela Cruz is
simulated and must be declared void.
Petitioners contend that the Court of Appeals erred in holding that
Paciencia dela Cruz, now deceased, had voluntarily executed the
Deed of Absolute Sale in favor of her son, Fortunato. They fault
the court a quo for failing to appreciate the fact that the Deed was
entirely and completely written in English, a language neither
known nor understood by his mother, Paciencia. Hence, the
appellate court went against the dictates of Articles 1330 and
1332 of the Civil Code.[15]Petitioners stress that there is no
showing that the terms of the Deed had been fully explained to
Paciencia who allegedly executed the document.
Petitioners also contend that respondents Clark and Divina
Gutierrez are not buyers in good faith. A buyer in good faith is
one who buys a thing for value and is not aware of any defect in
the title of the seller. Their father, Claudio Gutierrez, was the
actual buyer of the subject property, and was aware of the defect
in the title of Fortunato. Hence, Claudio could not be a buyer in
good faith. Neither could his children respondents Clark and
Divina Gutierrez qualify and be deemed as buyers in good faith,
since the said property was actually bought by their father, who
then caused the registration of the property in their names.
Respondents, for their part, maintain that the Court of Appeals
did not err in affirming the trial courts ruling that Paciencia dela
Cruz voluntarily executed the Deed of Sale in Fortunatos favor.
They aver there was nothing amiss in said Deed. The Gutierrezes
were innocent purchasers in good faith entitled to the full
protection of the law. In order that the purchaser of land with a
Torrens title may be considered in good faith, according to
respondents, it is enough that he examined the latest certificate of
title, which was issued in the name of the immediate
transferor. This the Gutierrezes did. Moreover, they had reason to
believe that respondent Fortunato dela Cruzs title was free from
flaws and defects upon learning that the latter was the one
collecting the daily stall rentals from the tenants and the fact that
respondent Fortunato had mortgaged the said property three (3)
times and was then selling the property to pay off his loans.
We find for respondents. Petitioners arguments are less than
persuasive, to say the least. As a rule, when the terms of a contract
are clear and unambiguous as to the intention of the contracting
parties, the literal meaning of its stipulations shall control. It is
only when the words appear to contravene the evident intention
of the parties that the latter shall prevail over the former. The real
nature of a contract may be determined from the express terms of
the agreement and from the contemporaneous and subsequent acts
of the parties thereto.[16] When they have no intention to be bound
at all, the purported contract is absolutely simulated and
void. Hence, the parties may recover what they gave under the
simulated contract. If, on the other hand, the parties state a false
cause in the contract to conceal their real agreement, the contract
is relatively simulated and the parties real agreement may be held
binding between them.[17]
In the present case, it is not disputed that Paciencia dela Cruz
executed a Deed of Sale in favor of her son, respondent Fortunato
dela Cruz. However, petitioners insist that the said document does
not reflect the true intention and agreement of the
parties. According to petitioners, Fortunato was to merely hold
the property in trust for their mother and that ownership thereof
would remain with the mother. Petitioners, however, failed to
produce even one credible witness who could categorically testify
that such was the intent of Paciencia and Fortunato. There is
nothing on record to support sufficiently petitioners contention.
Instead, the evidence is unclear on whether Paciencia in her
lifetime, or later the petitioners themselves, actually asserted or
attempted to assert rights of ownership over the subject property
after the alleged sale thereof to Fortunato. The lot in dispute was
thrice mortgaged by Fortunato with nary a protest or complaint
from petitioners. When they learned that Fortunato mortgaged the
property to Erlinda de Guzman on three occasions: August 26,
1985, April 6, 1987 and September 7, 1988, they refused to
redeem the property. They reasoned that if they would redeem the
property and pay the debts of Fortunato, the property would
merely return to him.[18] Indeed, how could Fortunato have thrice
obtained a mortgage over the property, without having dominion
over it? Fortunato declared the property in his name for taxation
purposes and paid the realty taxes, without any protest from
Paciencia or petitioners. His actions are contrary to petitioners
allegation that the parties never intended to be bound by the
assailed contract. Tax receipts and declaration of ownership for
taxation purposes are strong evidence of ownership. It has been
ruled that although tax declarations or realty tax payments are not
conclusive evidence of ownership, nevertheless, they are
good indicia of possession in the concept of owner for no one in
his right mind will be paying taxes for a property that is not in his
actual or constructive possession.[19]
As the Court of Appeals well observed, for nine (9) years,
Paciencia allowed Fortunato to benefit from the property. It was
only when she learned of its impending sale to the Gutierrez
spouses, that she took action to forestall the transfer of the
property to a third person. She then caused the annotation of her
adverse claim on the certificate of title on the same day the deed
in favor of the Gutierrez children was registered. This was rather
belated, for the deed was already done.
Petitioners harp on the fact that the assailed Deed was in English
and that it was not explained to Paciencia. But we find that the
petitioners failed to prove their allegation that Pacencia could not
speak, read, or understand English.Moreover, Paciencias bare
testimony[20] on this point is uncorroborated. For Article 1332 to
apply, it must first be convincingly established that the illiterate
or disadvantaged party could not read or understand the language
in which the contract was written,[21] or that the contract was left
unexplained to said party. Petitioners failed to discharge this
burden.
The Deed of Absolute Sale dated September 25, 1980 was duly
acknowledged before a notary public. As a notarized document,
it has in its favor the presumption of regularity and it carries the
evidentiary weight conferred upon it with respect to its due
execution. It is admissible in evidence without further proof of its
authenticity and is entitled to full faith and credit upon its face.[22]
Coming now to whether the Gutierrezes were buyers in good
faith, we note that both the trial and appellate courts found that
when Fortunato executed the Kasulatan ng Bilihang
Patuluyan on January 11, 1989 in favor of respondents Clark and
Divina Gutierrez, the name of the registered owner appearing in
the certificate of title was that of Fortunato dela Cruz.
This Kasulatan was duly executed and acknowledged before a
notary public. At the time of its execution, there was no
annotation on Fortunatos certificate of title to indicate any
adverse claim of any third person. Only two cautionary entries
regarding Section 4,[23] Rule 74 of the Rules of Court appear
thereon. Nothing more substantial appears in the certificate of
title to indicate a scintilla of flaw or defect in Fortunatos title.
Hence, we cannot fairly rule that in relying upon said title, the
respondent Gutierrezes were in bad faith. A person dealing with
registered land may safely rely upon the correctness of the
certificate of title issued therefor and the law will in no way oblige
him to go behind the certificate to determine the condition of the
property. The law considers said person as an innocent purchaser
for value. An innocent purchaser for value is one who buys the
property of another, without notice that some other person has a
78
right or interest in such property and pays the full price for the
same, at the time of such purchase or before he has notice of the
claims or interest of some other person in the property.[24]
We note, furthermore, that the Gutierrezes did not simply rely
upon the face of Fortunatos Certificate of Title to the
property. They also employed the services of counsel Atty.
Crisanta Abarrientos, who verified the title with the Registry of
Deeds. Thus, they took all the necessary precautions to ascertain
the true ownership of the property, even engaging the services of
legal counsel for that specific purpose, and it was only after said
counsel assured them that everything was in order did they
finalize the arrangements to purchase the property. Hence, we
entertain no doubt that the respondent Gutierrezes were
purchasers for value and in good faith.[25]
WHEREFORE, the instant petition is DENIED for lack of
merit. The assailed decision dated September 14, 2000 of the
Court of Appeals in CA-G.R. CV No. 53679, which sustained the
decision of the Regional Trial Court of Malolos, Bulacan, Branch
17, dated December 14, 1995, in Civil Case No. 37-M-89, as well
as the appellate courts resolution of November 28, 2000,
is AFFIRMED. Costs against petitioners.
SO ORDERED.
FIRST DIVISION
G.R. No. 162593 September 26, 2006
REMEGIA Y. FELICIANO, Substituted by the Heirs of
REMEGIA Y. FELICIANO, as represented by NILO Y.
FELICIANO, petitioners,
vs.
SPOUSES AURELIO and LUZ ZALDIVAR, respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari filed by
the Heirs of Remegia Y. Feliciano (as represented by Nilo Y.
Feliciano) seeking the reversal of the Decision1 dated July 31,
2003 of the Court of Appeals (CA) in CA-G.R. CV No. 66511
which ordered the dismissal of the complaint filed by Remegia Y.
Feliciano2 for declaration of nullity of title and reconveyance of
property. The assailed decision of the appellate court reversed and
set aside that of the Regional Trial Court (RTC) of Cagayan de
Oro City, Branch 25 in Civil Case No. 92-423.
The factual and procedural antecedents of the present case are as
follows:
Remegia Y. Feliciano filed against the spouses Aurelio and Luz
Zaldivar a complaint for declaration of nullity of Transfer
Certificate of Title (TCT) No. T-17993 and reconveyance of the
property covered therein consisting of 243 square meters of lot
situated in Cagayan de Oro City. The said title is registered in the
name of Aurelio Zaldivar.
In her complaint, Remegia alleged that she was the registered
owner of a parcel of land situated in the District of Lapasan in
Cagayan de Oro City with an area of 444 square meters, covered
by TCT No. T-8502. Sometime in 1974, Aurelio, allegedly
through fraud, was able to obtain TCT No. T-17993 covering the
243-sq-m portion of Remegias lot as described in her TCT No.
T-8502.
According to Remegia, the 243-sq-m portion (subject lot) was
originally leased from her by Pio Dalman, Aurelios father-in-
law, for P5.00 a month, later increased to P100.00 a month in
1960. She further alleged that she was going to mortgage the
subject lot to Ignacio Gil for P100.00, which, however, did not
push through because Gil took back the money without returning
the receipt she had signed as evidence of the supposed mortgage
contract. Thereafter, in 1974, Aurelio filed with the then Court of
First Instance of Misamis Oriental a petition for partial
cancellation of TCT No. T-8502. It was allegedly made to appear
therein that Aurelio and his spouse Luz acquired the subject lot
from Dalman who, in turn, purchased it from Gil. The petition
was granted and TCT No. T-17993 was issued in Aurelios name.
Remegia denied that she sold the subject lot either to Gil or
Dalman. She likewise impugned as falsified the joint affidavit of
confirmation of sale that she and her uncle, Narciso Labuntog,
purportedly executed before a notary public, where Remegia
appears to have confirmed the sale of the subject property to Gil.
She alleged that she never parted with the certificate of title and
that it was never lost. As proof that the sale of the subject lot never
transpired, Remegia pointed out that the transaction was not
annotated on TCT No. T-8502.
In their answer, the spouses Zaldivar denied the material
allegations in the complaint and raised the affirmative defense
that Aurelio is the absolute owner and possessor of the subject lot
as evidenced by TCT No. 17993 and Tax Declaration No. 26864
covering the same. Aurelio claimed that he acquired the subject
lot by purchase from Dalman who, in turn, bought the same from
Gil on April 4, 1951. Gil allegedly purchased the subject lot from
Remegia and this sale was allegedly conformed and ratified by
the latter and her uncle, Narciso Labuntog, before a notary public
on December 3, 1965.
After Aurelio obtained a loan from the Government Service
Insurance System (GSIS), the spouses Zaldivar constructed their
house on the subject lot. They alleged that they and their
predecessors-in-interest had been occupying the said property
since 1947 openly, publicly, adversely and continuously or for
over 41 years already. Aurelio filed a petition for the issuance of
a new owners duplicate copy of TCT No. T-8502 because when
he asked Remegia about it, the latter claimed that it had been lost.
After due trial, the RTC rendered judgment in favor of Remegia.
It declared that TCT No. 17993 in the name of Aurelio was null
and void for having been obtained through misrepresentation,
fraud or evident bad faith by claiming in his affidavit that
Remegias title (TCT No. T-8502) had been lost, when in fact it
still existed.
The court a quo explained that "the court that orders a title
reconstituted when the original is still existing has not acquired
jurisdiction over the case. A judgment otherwise final may be
annulled not only on extrinsic fraud but also for lack of
jurisdiction."3 Aurelios use of a false affidavit of loss, according
to the court a quo, was similar to the use during trial of a forged
document or perjured testimony that prevented the adverse party,
Remegia, from presenting her case fully and fairly.
The RTC likewise noted that no public instrument was presented
in evidence conveyancing or transferring title to the subject lot
from Remegia to Dalman, the alleged predecessor-in-interest of
the spouses Zaldivar. The only evidence presented by the said
spouses was a joint affidavit of confirmation of sale purportedly
signed by Remegia and her uncle, the execution of which was
denied by the latters children. The certificate of title of the
spouses Zaldivar over the subject property was characterized as
irregular because it was issued in a calculated move to deprive
Remegia of dominical rights over her own property. Further, the
spouses Zaldivar could not set up the defense of indefeasibility of
Torrens title since this defense does not extend to a transferor who
takes the certificate of title with notice of a flaw therein.
Registration, thus, did not vest title in favor of the spouses; neither
could they rely on their adverse or continuous possession over the
subject lot for over 41 years, as this could not prevail over the title
of the registered owner pursuant to Sections 504 and 515 of Act
No. 496, otherwise known as The Land Registration Act.
The dispositive portion of the decision of the court a quo reads:
79
IN THE LIGHT OF THE FOREGOING, and by preponderance
of evidence, judgment is hereby rendered canceling TCT T-17993
and reconveyance of 243 square meters the title and possession of
the same, by vacating and turning over possession of the 243
square meters of the subject property to the plaintiff [referring to
Remegia] which is part of the land absolutely owned by the
plaintiff covered by [TCT] T-8502 and to solidarily pay the
plaintiff Fifty Thousand Pesos (P50,000.00) as moral damages;
Ten Thousand Pesos (P10,000.00) as exemplary damages; Fifty
Thousand Pesos (P50,000.00) as attorneys fees and Ten
Thousand Pesos (P10,000.00) expenses for litigation to the
plaintiff.
SO ORDERED.6
On appeal, the CA reversed the decision of the RTC and ruled in
favor of the spouses Zaldivar. In holding that Remegia sold to Gil
a 243 sq m portion of the lot covered by TCT No. T-8502, the
appellate court gave credence to Exhibit "5," the deed of sale
presented by the spouses Zaldivar to prove the transaction. The
CA likewise found that Gil thereafter sold the subject property to
Dalman who took actual possession thereof. By way of a
document denominated as joint affidavit of confirmation of sale
executed before notary public Francisco Velez on December 3,
1965, Remegia and her uncle, Narciso Labuntog, confirmed the
sale by Remegia of the subject lot to Gil and its subsequent
conveyance to Dalman. Per Exhibit "6," the CA likewise found
that Dalman had declared the subject lot for taxation purposes in
his name. In 1965, Dalman sold the same to the spouses Zaldivar
who, in turn, had it registered in their names for taxation purposes
beginning 1974. Also in the same year, Aurelio filed with the then
CFI of Misamis Oriental a petition for the issuance of a new
owners duplicate copy of TCT No. T-8502, alleging that the
owners duplicate copy was lost; the CFI granted the petition on
March 20, 1974. Shortly, Aurelio filed with the same CFI another
petition, this time for the partial cancellation of TCT No. T-8502
and for the issuance of a new certificate of title in Aurelios name
covering the subject lot. The CFI issued an order granting the
petition and, on the basis thereof, the Register of Deeds of
Cagayan de Oro City issued TCT No. T-17993 covering the
subject lot in Aurelios name.
Based on the foregoing factual findings, the appellate court
upheld the spouses Zaldivars ownership of the subject lot. The
CA stated that Remegias claim that she did not sell the same to
Gil was belied by Exhibit "5," a deed which showed that she
transferred ownership thereof in favor of Gil. The fact that the
said transaction was not annotated on Remegias title was not
given significance by the CA since the lack of annotation would
merely affect the rights of persons who are not parties to the said
contract. The CA also held that the joint affidavit of confirmation
of sale executed by Remegia and Narciso Labuntog before a
notary public was a valid instrument, and carried the evidentiary
weight conferred upon it with respect to its due
execution.7 Moreover, the CA found that the notary public (Atty.
Francisco Velez) who notarized the said document testified not
only to its due execution and authenticity but also to the
truthfulness of its contents. The contradiction between the
testimonies of the children of Narciso Labuntog and the notary
public (Atty. Velez), according to the CA, casts doubt on the
credibility of the former as it was ostensible that their version of
the story was concocted.8
The CA further accorded in favor of the judge who issued the
order for the issuance of the new owners duplicate copy of TCT
No. T-8502 the presumption of regularity in the performance of
his official duty. It noted that the same was issued by the CFI after
due notice and hearing.
Moreover, prescription and laches or estoppel had already set in
against Remegia. The appellate court pointed out that TCT No.
T-17993 in the name of Aurelio was issued on September 10,
1974, while Remegias complaint for annulment and
reconveyance of property was filed more than 17 years thereafter
or on August 10, 1992. Consequently, Remegias action was
barred by prescription because an action for reconveyance must
be filed within 10 years from the issuance of the title since such
issuance operates as a constructive notice.9 The CA also noted
that the spouses Zaldivar constructed their house on the subject
lot some time in 1974-1975, including a 12-foot firewall made of
hollow blocks, and Remegia took no action to prevent the said
construction.
The dispositive portion of the assailed CA decision reads:
WHEREFORE, foregoing premises considered, the December 3,
1999 Decision of the Regional Trial Court of Misamis Oriental,
Cagayan de Oro City, in Civil Case No. 92-423, is REVERSED
and SET ASIDE and a new one is entered DISMISSING the said
civil case.
SO ORDERED.10
When their motion for reconsideration was denied by the CA in
the assailed Resolution dated February 4, 2004, the heirs of
Remegia (the petitioners) sought recourse to the Court. In their
petition for review, they allege that the appellate court gravely
erred
A.
IN NOT DISMISSING THE APPEAL OF THE
RESPONDENTS (DEFENDANTS-APELLANTS) MOTU
PROPIO OR EXPUNGING THE BRIEF FOR DEFENDANTS-
APPELLANTS FROM RECORD FOR FAILURE TO FILE
THE REQUIRED BRIEF FOR THE DEFENDANTS-
APPELLANTS ON TIME BUT BEYOND THE LAST AND
FINAL EXTENDED PERIOD WITHIN WHICH TO FILE THE
SAID BRIEF IN VIOLATION TO Section 7 and section 12, rule
44 of the revised rules of court and in contradiction to the ruling
enunciated in catalina roxas, et al. vs. court of appeals, g.r. no. L-
76549, december 10, 1987.
B.
in denying the motion for reconsideration which was filed within
the fifteen-day reglementary period in violation to the rules of
court.
c.
in ruling that the court who ordered the issuance of new certificate
of title despite existence of owners duplicate copy that was never
lost has jurisdiction over the case.
d.
in concluding that petitioners (Plaintiff-appellee) claim of
ownership over the subject lot was barred by estoppel or laches.
e.
in concluding that the respondents (defendants-appellants) are the
absolute owners of the subject lot based on tct no. 17993 issued
to them.
f.
in obviating essential and relevant facts, had it been properly
appreciated, would maintain absolute ownership of petitioner
(plaintiff-appellee) over the subject lot as evidenced by existing
tct no. t-8502.11
The Court finds the petition meritorious.
It should be recalled that respondent Aurelio Zaldivar filed with
the then CFI of Misamis Oriental a petition for issuance of a new
owners duplicate copy of TCT No.T-8502, alleging that the
owners duplicate copy was lost. In the Order dated March 20,
1974, the said CFI granted the petition and consequently, a new
owners duplicate copy of TCT No. T-8502 was issued.
80
However, as the trial court correctly held, the CFI which granted
respondent Aurelios petition for the issuance of a new owners
duplicate copy of TCT No. T-8502 did not acquire jurisdiction to
issue such order. It has been consistently ruled that "when the
owners duplicate certificate of title has not been lost, but is in
fact in the possession of another person, then the reconstituted
certificate is void, because the court that rendered the decision
had no jurisdiction. Reconstitution can validly be made only in
case of loss of the original certificate."12 In such a case, the
decision authorizing the issuance of a new owners duplicate
certificate of title may be attacked any time.13
The new owners duplicate TCT No. T-8502 issued by the CFI
upon the petition filed by respondent Aurelio is thus void. As
Remegia averred during her testimony, the owners duplicate
copy of TCT No. T-8502 was never lost and was in her possession
from the time it was issued to her:
Q A while ago, you said that you were issued a title in 1968, can
you tell the Honorable Court who was in possession of the title?
A I am the one in possession and I am the one keeping the title.
Q Even up to the present?
A Yes, Sir.
Q Was there any instance that this title was borrowed from you?
A No, Sir.
Q Was there any instance that this title was lost from your
possession?
A No, Sir.
Q Was there any instance that this title was surrendered to the
Register of Deeds of the City of Cagayan de Oro?
A No, Sir. There never was an instance There never was an
instance that this title was surrendered to the Register of Deeds.
Q As there any instance that you petitioned to the Honorable
Court for the issuance of a new owners duplicate copy of this
title in lieu of the lost copy of said title?
A No, Sir. There was never an instance because this title was
never lost.14
Consequently, the court a quo correctly nullified TCT No. T-
17993 in Aurelios name, emanating as it did from the new
owners duplicate TCT No. T-8502, which Aurelio procured
through fraud. Respondent Aurelio cannot raise the defense of
indefeasibility of title because "the principle of indefeasibility of
a Torrens title does not apply where fraud attended the issuance
of the title. The Torrens title does not furnish a shield for
fraud."15 As such, a title issued based on void documents may be
annulled.16
The appellate courts reliance on the joint affidavit of
confirmation of sale purportedly executed by Remegia and her
uncle, Narciso Labuntog, is not proper. In the first place,
respondent Aurelio cannot rely on the joint affidavit of
confirmation of sale to prove that they had validly acquired the
subject lot because, by itself, an affidavit is not a mode of
acquiring ownership.17 Moreover, the affidavit is written entirely
in English in this wise:
JOINT AFFIDAVIT OF CONFIRMATION OF SALE18
We, NARCISO LABUNTOG and REMEGIA YAPE DE
FELICIANO, both of legal age, Filipino citizens and residents of
Lapasan, Cagayan de Oro City, Philippines, after being duly
sworn according to law, depose and say:
1. That the late FRANCISCO LABUNTOG is our common
ancestor, the undersigned NARCISO LABUNTOG being one of
his sons and the undersigned REMEGIA YAPE DE FELICIANO
being the daughter of the late Emiliana Labuntog, sister of
Narciso Labuntog;
2. That after his death, the late Francisco Labuntog left behind a
parcel of land known as Lot No. 2166 C-2 of the Cagayan
Cadastre situated at Lapasan, City of Cagayan de Oro, Philippines
which is being administered by the undersigned Narciso
Labuntog under Tax Decl. No. 27633;
3. That the entire Cadastral Lot No. 2166 C-2 has been subdivided
and apportioned among the heirs of the late Francisco Labuntog,
both of the undersigned affiants having participated and shared in
the said property, Remegia Yape de Feliciano having inherited
the share of her mother Emiliana Labuntog, sister of Narciso
Labuntog;
4. That on April 4, 1951, Remegia Yape de Feliciano sold a
portion of her share to one Ignacio Gil and which portion is more
particularly described and bounded as follows:
"On the North for 13 meters by Agustin Cabaraban;
On the South for 13 meters by Antonio Babanga;
On the East for 18 meters by Clotilde Yape; and
On the West for 18meters by Agustin Cabaraban;"
5. That sometime in the year 1960, the said Ignacio Gil conveyed
the same portion to Pio Dalman, who is of legal age, Filipino
citizen and likewise a resident of Lapasan, Cagayan de Oro City
and that since 1960 up to the present, the said Pio Dalman has
been in continuous, open, adverse and exclusive possession of the
property acquired by him in concept of owner;
6. That we hereby affirm, ratify and confirm the acquisition of the
above described portion acquired by Pio Dalman inasmuch as the
same is being used by him as his residence and family home and
we hereby request the Office of the City Assessor to segregate
this portion from our Tax Decl. No. 27633 and that a new tax
declaration be issued in the name of PIO DALMAN embracing
the area acquired and occupied by him.
IN WITNESS WHEREOF, we have hereunto affixed our
signatures on this 3rd day of December, 1965 at Cagayan de Oro
City, Philippines.
(SGD.) Narciso Labuntog (SGD.)Remegia Yape de Feliciano
NARCISO LABUNTOG REMEGIA YAPE DE FELICIANO
Affiant Affiant
SUBSCRIBED & SWORN to before me this 3rd day of
December, 1965 at Cagayan de Oro City, Philippines, affiants
exhibited their Residence Certificates as follows: NARCISO
LABUNTOG, A-1330509 dated Oct. 5, 1965 and REMEGIA
YAPE DE FELICIANO, A-1811104 dated Dec. 3, 1965 both
issued at Cagayan de Oro City.
(SGD.) ILLEGIBLE
FRANCISCO X. VELEZ
Notary Public
However, based on Remegias testimony, she could not read and
understand English:
COURT:
Can you read English?
A No, I cannot read and understand English.
ATTY. LEGASPI:
Q What is your highest educational attainment?
A Grade 3.
Q But you can read and understand Visayan?
A Yes, I can read Visayan, but I cannot understand well idiomatic
visayan terms (laglom nga visayan).19
On this point, Article 1332 of the Civil Code is relevant:
ART.1332. When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or
fraud is alleged, the person enforcing the contract must show that
the terms thereof have been fully explained to the former.
The principle that a party is presumed to know the import of a
document to which he affixes his signature is modified by the
foregoing article. Where a party is unable to read or when the
contract is in a language not understood by the party and mistake
or fraud is alleged, the obligation to show that the terms of the
contract had been fully explained to said party who is unable to
81
read or understand the language of the contract devolves on the
party seeking to enforce the contract to show that the other party
fully understood the contents of the document. If he fails to
discharge this burden, the presumption of mistake, if not, fraud,
stands unrebutted and controlling.20
Applying the foregoing principles, the presumption is that
Remegia, considering her limited educational attainment, did not
understand the full import of the joint affidavit of confirmation of
sale and, consequently, fraud or mistake attended its execution.
The burden is on respondents, the spouses Zaldivar, to rebut this
presumption. They tried to discharge this onus by presenting Atty.
Francisco Velez (later RTC Judge) who notarized the said
document. Atty. Velez testified that he "read and interpreted" the
document to the affiants and he asked them whether the contents
were correct before requiring them to affix their signatures
thereon.21 The bare statement of Atty. Velez that he "read and
interpreted" the document to the affiants and that he asked them
as to the correctness of its contents does not necessarily establish
that Remegia actually comprehended or understood the import of
the joint affidavit of confirmation of sale. Nowhere is it stated in
the affidavit itself that its contents were fully explained to
Remegia in the language that she understood before she signed
the same. Thus, to the mind of the Court, the presumption of fraud
or mistake attending the execution of the joint affidavit of
confirmation of sale was not sufficiently overcome.
Moreover, the purported joint affidavit of confirmation of sale
failed to state certain important information. For example, it did
not mention the consideration or price for the alleged sale by
Remegia of the subject lot to Ignacio Gil. Also, while it stated that
the subject lot was conveyed by Ignacio Gil to Pio Dalman, it did
not say whether the conveyance was by sale, donation or any
other mode of transfer. Finally, it did not also state how the
ownership of the subject lot was transferred from Pio Dalman to
respondent Aurelio or respondents.
Respondents claim that they had been occupying the subject lot
since 1947 openly, publicly, adversely and continuously or for
over 41 years is unavailing. In a long line of cases,22 the Court has
consistently ruled that lands covered by a title cannot be acquired
by prescription or adverse possession. A claim of acquisitive
prescription is baseless when the land involved is a registered land
following Article 112623 of the Civil Code in relation to Section
46 of Act No. 496 or the Land Registration Act (now Section
4724 of P.D. No 1529):
Appellants claim of acquisitive prescription is likewise baseless.
Under Article 1126 of the Civil Code, prescription of ownership
of lands registered under the Land Registration Act shall be
governed by special laws. Correlatively, Act No. 496 provides
that no title to registered land in derogation of that of the
registered owner shall be acquired by adverse possession.
Consequently, proof of possession by the defendants is both
immaterial and inconsequential.25
Neither can the respondents spouses Zaldivar rely on the principle
of indefeasibility of TCT No. 17793 which was issued on
September 10, 1974 in favor of respondent Aurelio. As it is, the
subject lot is covered by two different titles: TCT No. T-8502 in
Remegias name covering an area of 444 sq m including therein
the subject lot, and TCT No. 17793 in the name of respondent
Aurelio covering the subject lot. Aurelios title over the subject
lot has not become indefeasible, by virtue of the fact that TCT No.
T-8502 in the name of Remegia has remained valid. The
following disquisition is apropos:
The claim of indefeasibility of the petitioners title under the
Torrens land title system would be correct if previous valid title
to the same parcel of land did not exist. The respondent had a
valid title x x x It never parted with it; it never handed or delivered
to anyone its owners duplicate of the transfer certificate of title;
it could not be charged with negligence in the keeping of its
duplicate certificate of title or with any act which could have
brought about the issuance of another certificate upon which a
purchaser in good faith and for value could rely. If the petitioners
contention as to indefeasibility of his title should be upheld, then
registered owners without the least fault on their part could be
divested of their title and deprived of their property. Such
disastrous results which would shake and destroy the stability of
land titles had not been foreseen by those who had endowed with
indefeasibility land titles issued under the Torrens system.26
Remegias TCT No. T-8502, thus, prevails over respondent
Aurelios TCT No. 17793, especially considering that, as earlier
opined, the latter was correctly nullified by the RTC as it
emanated from the new owners duplicate TCT No. T-8502,
which in turn, respondent Aurelio was able to procure through
fraudulent means.
Contrary to the appellate courts holding, laches has not set in
against Remegia. She merely tolerated the occupation by the
respondents of the subject lot:
Q You also stated in the direct that the defendants in this case,
Mr. and Mrs. Zaldivar, were issued a title over a portion of this
land which you described a while ago?
A We knew about that only recently.
Q When was that when you knew that the defendants were issued
title over a portion of the land you described a while ago?
A In June, 1992.
Q In what way did you discover that a portion of the land was
titled in the name of the defendants?
A I discovered that my property was titled by Mr. and Mrs.
Zaldivar when I went to the Register of Deeds for the purpose of
partitioning my property among my children.
Q And you were surprised why it is titled in their names?
A Yes.
Q Is it not a fact that the defendants have constructed their house
on a portion of the land you described a while ago?
A Yes. I knew that the Zaldivars built a house on the property I
described a while ago, but I did not bother because I know that I
can get that property because I own that property.
Q And the defendants constructed that house in 1974-75, am I
correct?
A Yes.
Q And as a matter of fact, you have also a house very near to the
house that was constructed by the defendants in this case?
A Yes.
Q Can you tell us what is the distance between your house and
the house constructed by the defendants in 1974?
A They are very near because they constructed their house in my
lot.
Q How many meters, more or less?
A It is very near, very close.
Q When they constructed their house, meaning the defendants,
did you not stop the defendants from the construction?
A I did not bother in stopping the Zaldivars in constructing the
house because I am certain that I can get the land because I own
the land.
Q Aside from not protesting to the construction, did you not bring
this matter to the attention of the barangay captain or to the police
authorities?
A No, because I did not bring this matter to the barangay captain
nor to the police authorities. It is only now that we discovered that
it is already titled.
Q When you said now, it is in 1992?
A Yes.
82
Q Is it not a fact that after the house was finished the defendants
and their family resided in that house which they constructed?
A Yes, after the house was finished, they resided in that house.
Q As a matter of fact, from that time on up to the present, the
defendants are still residing in that house which they constructed
in 1974 or 1975, am I correct?
A Yes.
Q As a matter of fact also the defendants fenced the lot in which
their house was constructed with hollow blocks, am I correct?
A Yes, the house of the Zaldivars was fenced by them with hollow
blocks and I did not stop them to avoid trouble.
Q As a matter of fact, the boundary between your house and the
house of Zaldivar, there was constructed a firewall made of
hollow blocks about twelve feet in height, am I correct?
A Yes.
Q Such that you cannot see their house and also the Zaldivars
cannot see your house because of that high firewall, am I correct?
A We can still see each other because the firewall serves as the
wall of their house.
Q When did the Zaldivars construct that hollow blocks fence?
After the house was finished?
A I cannot remember.
Q But it could be long time ago?
ATTY. VEDAD:
Q That would be repetitious. She answered she could not
remember.
ATTY. LEGASPI:
Q It could be many years ago?
A I cannot remember when they constructed the fence.
Q Did you [file] any protest or complaint when the Zaldivars
constructed the hollow blocks fence?
A No.
Q Neither did you bring any action in court or with the barangay
captain or the police authorities when the Zaldivars constructed
that hollow blocks fence?
A No, I did not complain the fencing by the Zaldivars. Only now
that we know that we bring this matter to the barangay captain.
Q And in the [office of the] barangay captain, you were able to
meet the defendants, am I correct?
A No. When we went to the barangay captain, the Zaldivars did
not appear there; therefore, we hired a lawyer and filed this case.27
Case law teaches that if the claimants possession of the land is
merely tolerated by its lawful owner, the latters right to recover
possession is never barred by laches:
As registered owners of the lots in question, the private
respondents have a right to eject any person illegally occupying
their property. This right is imprescriptible. Even if it be supposed
that they were aware of the petitioners occupation of the
property, and regardless of the length of that possession, the
lawful owners have a right to demand the return of their property
at any time as long as the possession was unauthorized or merely
tolerated, if at all. This right is never barred by laches.28
Nonetheless, the Court is not unmindful of the fact that
respondents had built their house on the subject lot and, despite
knowledge thereof, Remegia did not lift a finger to prevent it.
Article 453 of the Civil Code is applicable to their case:
ART. 453. If there was bad faith, not only on the part of the person
who built, planted or sowed on the land of another, but also on
the part of the owner of such land, the rights of one and the other
shall be the same as though both had acted in good faith.
It is understood that there is bad faith on the part of the landowner
whenever the act was done with his knowledge and without
opposition on his part.
Under the circumstances, respondents and Remegia are in mutual
bad faith and, as such, would entitle the former to the application
of Article 448 of the Civil Code governing builders in good faith:
ART. 448. The owner of the land on which anything has been
built, sown or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in Articles 546 29 and
548,30 or to oblige the one who built or planted to pay the price of
the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such a
case, he shall pay reasonable rent, if the owner of the land does
not choose to appropriate the building or trees after the proper
indemnity. The parties shall agree upon the terms of the lease and
in case of disagreement, the court shall fix the terms thereof.
Following the above provision, the owner of the land on which
anything has been built, sown or planted in good faith shall have
the right to appropriate as his own the building, planting or
sowing, after payment to the builder, planter or sower of the
necessary and useful expenses, and in the proper case, expenses
for pure luxury or mere pleasure.31
The owner of the land may also oblige the builder, planter or
sower to purchase and pay the price of the land. If the owner
chooses to sell his land, the builder, planter or sower must
purchase the land, otherwise the owner may remove the
improvements thereon. The builder, planter, or sower, however,
is not obliged to purchase the land if its value is considerably
more than the building, planting or sowing. In such case, the
builder, planter or sower must pay rent to the owner of the land.
If the parties cannot come to terms over the conditions of the
lease, the court must fix the terms thereof. 32
The right to choose between appropriating the improvement or
selling the land on which the improvement of the builder, planter
or sower stands, is given to the owner of the land,33 Remegia, in
this case, who is now substituted by petitioners as her heirs.
Consequently, the petitioners are obliged to exercise either of the
following options: (1) to appropriate the improvements, including
the house, built by the respondents on the subject lot by paying
the indemnity required by law, or (2) sell the subject lot to the
respondents. Petitioners cannot refuse to exercise either option
and compel respondents to remove their house from the land.34 In
case petitioners choose to exercise the second option, respondents
are not obliged to purchase the subject lot if its value is
considerably more than the improvements thereon and in which
case, respondents must pay rent to petitioners. If they are unable
to agree on the terms of the lease, the court shall fix the terms
thereof.
In light of the foregoing disquisition, the Court finds it
unnecessary to resolve the procedural issues raised by petitioners.
WHEREFORE, the petition is GRANTED. The Decision dated
July 31, 2003 and Resolution dated February 4, 2004 of the Court
of Appeals in CA-G.R. CV No. 66511 are REVERSED and SET
ASIDE. The Decision dated December 3, 1999 of the Regional
Trial Court of Cagayan de Oro City, Branch 25 in Civil Case No.
92-423 is REINSTATED with the MODIFICATION that
petitioners are likewise ordered to exercise the option under
Article 448 of the Civil Code.
SO ORDERED.

83
 ARTICLES 1345 1346 SIMULATION OF
CONTRACTS
JOAQUIN VILLEGAS and EMMA M. VILLEGAS,
Petitioners,
- versus -
RURAL BANK OF TANJAY, INC.,
Respondent.
G.R. No. 161407
Present:
YNARES-SANTIAGO, J.,
Chairperson,
CARPIO,*
CORONA,**
NACHURA, and
LEONARDO-DE CASTRO,*** JJ.
This petition for review on certiorari under Rule 45 of the Rules
of Court assails the Court of Appeals (CA) Decision[1] in CA-
G.R. CV No. 40613 which affirmed with modification the
Regional Trial Court (RTC) Decision in Civil Case No. 9570.[2]
The facts, as summarized by the CA, follow.
Sometime in June, 1982, [petitioners], spouses Joaquin and
Emma Villegas, obtained an agricultural loan of P350,000.00
from [respondent] Rural Bank of Tanjay, Inc. The loan was
secured by a real estate mortgage on [petitioners] residential
house and 5,229 sq.m. lot situated in Barrio Bantayan,
Dumaguete City and covered by TCT No. 12389.
For failure of [petitioners] to pay the loan upon maturity, the
mortgage was extrajudicially foreclosed. At the foreclosure sale,
[respondent], being the highest bidder, purchased the foreclosed
properties for P367,596.16. Thereafter, the Sheriff executed in
favor of [respondent] a certificate of sale, which was subsequently
registered with the Registry of Deeds of Dumaguete City.
[Petitioners] failed to redeem the properties within the one-year
redemption period.
In May, 1987, [respondent] and [petitioner] Joaquin Villegas,
through his attorney-in-fact[,] Marilen Victoriano, entered into an
agreement denominated as Promise to Sell, whereby [respondent]
promised to sell to [petitioners] the foreclosed properties for a
total price of P713,312.72, payable within a period of five (5)
years. The agreement reads in part:
PROMISE TO SELL
xxxx
WITNESSETH:
xxxx
2) That for and in consideration of SEVEN HUNDRED
THIRTEEN THOUSAND AND THREE HUNDRED TWELVE
& 72/100 PESOS (P713,312.72), the VENDOR do hereby
84
promise to sell, transfer, and convey unto the VENDEE, their
heirs, successors and assigns, all its rights, interests and
participations over the above parcel of land with all the
improvements thereon and a residential house.
3) That upon signing of this Promise To Sell, the VENDEE shall
agree to make payment of P250,000.00 (Philippine Currency) and
the balance of P463,312.72 payable in equal yearly installments
plus interest based on the prevailing rate counting from the date
of signing this Promise to Sell for a period of five (5) years.
xxxx
5) Provided further, that in case of a delay in any yearly
installment for a period of ninety (90) days, this sale will become
null and void and no further effect or validity; and provided
further, that payments made shall be reimbursed (returned) to the
VENDEE less interest on the account plus additional 15%
liquidated damages and charges.
Upon the signing of the agreement, [petitioners] gave
[respondent] the sum of P250,000.00 as down payment.
[Petitioners], however, failed to pay the first yearly installment,
prompting [respondent] to consolidate its ownership over the
properties. Accordingly, TCT No. 12389 was cancelled and a new
one, TCT No. 19042, (Exh. 14) was issued in [respondents] name
on November 8, 1989. Thereafter, [respondent] took possession
of the properties. Hence, the action by [petitioners for declaration
of nullity of loan and mortgage contracts, recovery of possession
of real property, accounting and damages and, in the alternative,
repurchase of real estate] commenced on January 15, 1990.
In resisting the complaint, [respondent] averred that [petitioners]
have absolutely no cause of action against it, and that the
complaint was filed only to force it to allow [petitioners] to
reacquire the foreclosed properties under conditions unilaterally
favorable to them.
xxxx
After trial on the merits, the [RTC] rendered a Decision
dismissing the complaint, disposing as follows:
In the light of the foregoing, it is considered opinion of this Court,
that [petitioners] failed to prove by preponderance of evidence
their case and therefore the herein complaint is ordered dismissed.
[Petitioners] are ordered to pay [respondent] the sum of P3,000.00
as attorneys fees and to pay costs without pronouncement as to
counterclaim.
SO ORDERED.[3]
On appeal by both parties, the CA affirmed with modification the
RTCs ruling, thus:
WHEREFORE, the appealed Decision is hereby MODIFIED by
(a) ORDERING [respondent] to reimburse [petitioners] their
down payment of P250,000.00 and (b) DELETING the award of
attorneys fees to [respondent].
SO ORDERED.[4]
Hence, this appeal by certiorari raising the following issues:

(1) The Court of Appeals erred in not holding that the loan and
mortgage contracts are null and void ab initio for being against
public policy;
(2) The Court of Appeals erred in not holding that, by reason of
the fact that the loan and mortgage contracts are null and void ab
initio for being against public policy, the doctrine of estoppel does
not apply in this case;
(3) The Court of Appeals erred in not finding that the addendum
on the promissory notes containing an escalation clause is null
and void ab initio for not being signed by petitioner Emma M.
Villegas, wife of petitioner Joaquin Villegas, there being a
showing that the companion real estate mortgage involves
conjugal property. x x x.
(4) The Court of Appeals erred in not finding that the addendum
on the promissory notes containing an escalation clause is null
and void ab initio for being so worded that the implementation
thereof would deprive petitioners due process guaranteed by [the]
constitution, the petitioners not having been notified beforehand
of said implementation.[5]
Notwithstanding petitioners formulation of the issues, the core
issue for our resolution is whether petitioners may recover
possession of the mortgaged properties.
The petition deserves scant consideration and ought to have been
dismissed outright. Petitioners are precluded from seeking a
declaration of nullity of the loan and mortgage contracts; they are
likewise barred from recovering possession of the subject
property.
Petitioners insist on the nullity of the loan and mortgage contracts.
Unabashedly, petitioners admit that the loan (and mortgage)
contracts were made to appear as several sugar crop loans not
exceeding P50,000.00 each even if they were not just so the
respondent rural bank could grant and approve the same pursuant
to Republic Act (R.A.) No. 720, the Rural Banks Act. Petitioners
boldly enumerate the following circumstances that show that
these loans were obtained in clear contravention of R.A. No. 720:
(a) The petitioners never planted sugar cane on any parcel of
agricultural land;
(b) The mortgaged real estate is residential, with a house, located
in the heart of Dumaguete City, with an area of only one-half (1/2)
hectare;
(c) Petitioners never planted any sugar cane on this one-half (1/2)
hectare parcel of land;
(d) Petitioners were never required to execute any chattel
mortgage on standing crops;
(e) To make it appear that the petitioners were entitled to avail
themselves of loan benefits under Republic Act No. 720, Rural
Banks Act, respondent made them sign promissory notes for
P350,000.00 in split amounts not exceeding P50,000.00 each.[6]
85
In short, petitioners aver that the sugar crop loans were merely
simulated contracts and, therefore, without any force and effect.
Articles 1345 and 1346 of the Civil Code are the applicable laws,
and they unmistakably provide:
Art. 1345. Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void.
A relative simulation, when it does not prejudice a third person
and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their
real agreement.
Given the factual antecedents of this case, it is obvious that the
sugar crop loans were relatively simulated contracts and that both
parties intended to be bound thereby. There are two juridical acts
involved in relative simulation the ostensible act and the hidden
act.[7] The ostensible act is the contract that the parties pretend to
have executed while the hidden act is the true agreement between
the parties.[8] To determine the enforceability of the actual
agreement between the parties, we must discern whether the
concealed or hidden act is lawful and the essential requisites of a
valid contract are present.
In this case, the juridical act which binds the parties are the loan
and mortgage contracts, i.e., petitioners procurement of a loan
from respondent. Although these loan and mortgage contracts
were concealed and made to appear as sugar crop loans to make
them fall within the purview of the Rural Banks Act, all the
essential requisites of a contract[9] were present. However, the
purpose thereof is illicit, intended to circumvent the Rural Banks
Act requirement in the procurement of loans.[10] Consequently,
while the parties intended to be bound thereby, the agreement is
void and inexistent under Article 1409[11] of the Civil Code.
In arguing that the loan and mortgage contracts are null and void,
petitioners would impute all fault therefor to respondent. Yet,
petitioners averments evince an obvious knowledge and
voluntariness on their part to enter into the simulated contracts.
We find that fault for the nullity of the contract does not lie at
respondents feet alone, but at petitioners as well. Accordingly,
neither party can maintain an action against the other, as provided
in Article 1412 of the Civil Code:
Art. 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following rules
shall be observed:
(1) When the fault is on the part of both contracting parties,
neither may recover what he has given by virtue of the contract,
or demand the performance of the others undertaking;
(2) When only one of the contracting parties is at fault, he cannot
recover what he has given by reason of the contract, or ask for the
fulfillment of what has been promised him. The other, who is not
at fault, may demand the return of what he has given without any
obligation to comply with his promise.
Petitioners did not come to court with clean hands. They admit
that they never planted sugarcane on any property, much less on
the mortgaged property. Yet, they eagerly accepted the proceeds
of the simulated sugar crop loans. Petitioners readily participated
in the ploy to circumvent the Rural Banks Act and offered no
objection when their original loan of P350,000.00 was divided
into small separate loans not exceeding P50,000.00 each. Clearly,
both petitioners and respondent are in pari delicto, and neither
should be accorded affirmative relief as against the other.
In Tala Realty Services Corp. v. Banco Filipino Savings and
Mortgage Bank,[12] we held that when the parties are in pari
delicto, neither will obtain relief from the court, thus:
The Bank should not be allowed to dispute the sale of its lands to
Tala nor should Tala be allowed to further collect rent from the
Bank. The clean hands doctrine will not allow the creation or the
use of a juridical relation such as a trust to subvert, directly or
indirectly, the law. Neither the bank nor Tala came to court with
clean hands; neither will obtain relief from the court as one who
seeks equity and justice must come to court with clean hands. By
not allowing Tala to collect from the Bank rent for the period
during which the latter was arbitrarily closed, both Tala and the
Bank will be left where they are, each paying the price for its
deception.[13]
Petitioners stubbornly insist that respondent cannot invoke the
pari delicto doctrine, ostensibly because of our obiter in Enrique
T. Yuchengco, Inc., et al. v. Velayo.[14]
In Yuchengco, appellant sold 70% of the subscribed and
outstanding capital stock of a Philippine corporation, duly
licensed as a tourist operator, to appellees without the required
prior notice and approval of the Department of Tourism (DOT).
Consequently, the DOT cancelled the corporations Local Tour
Operators License. In turn, appellees asked for a rescission of the
sale and demanded the return of the purchase price.
We specifically ruled therein that the pari delicto doctrine is not
applicable, because:
The obligation to secure prior Department of Tourism approval
devolved upon the defendant (herein appellant) for it was he as
the owner vendor who had the duty to give clear title to the
properties he was conveying. It was he alone who was charged
with knowing about rules attendant to a sale of the assets or shares
of his tourist-oriented organization. He should have known that
under said rules and regulations, on pain of nullity, shares of stock
in his company could not be transferred without prior approval
from the Department of Tourism. The failure to secure this
approval is attributable to him alone.[15]
Thus, we declared that even assuming both parties were guilty of
the violation, it does not always follow that both parties, being in
pari delicto, should be left where they are. We recognized as an
exception a situation when courts must interfere and grant relief
to one of the parties because public policy requires their
intervention, even if it will result in a benefit derived by a plaintiff
who is in equal guilt with defendant.[16]
In stark contrast to Yuchengco, the factual milieu of the present
case does not compel us to grant relief to a party who is in pari
delicto. The public policy requiring rural banks to give preference
to bona fide small farmers in the grant of loans will not be served
if a party, such as petitioners, who had equal participation and
86
equal guilt in the circumvention of the Rural Banks Act, will be
allowed to recover the subject property.
The following circumstances reveal the utter poverty of
petitioners arguments and militate against their bid to recover the
subject property:
1. As previously adverted to, petitioners readily and voluntarily
accepted the proceeds of the loan, divided into small loans,
without question.
2. After failing to redeem the mortgaged subject property, thereby
allowing respondent to consolidate title thereto,[17] petitioners
then entered into a Promise to Sell and made a down payment of
P250,000.00.
3. Failing anew to comply with the terms of the Promise to Sell
and pay the first yearly installment, only then did petitioners
invoke the nullity of the loan and mortgage contracts.
In all, petitioners explicitly recognized respondents ownership
over the subject property and merely resorted to the void contract
argument after they had failed to reacquire the property and a new
title thereto in respondents name was issued.
We are not unmindful of the fact that the Promise to Sell
ultimately allows petitioners to recover the subject property
which they were estopped from recovering under the void loan
and mortgage contracts. However, the Promise to Sell, although
it involves the same parties and subject matter, is a separate and
independent contract from that of the void loan and mortgage
contracts.
To reiterate, under the void loan and mortgage contracts, the
parties, being in pari delicto, cannot recover what they each has
given by virtue of the contract.[18] Neither can the parties
demand performance of the contract. No remedy or affirmative
relief can be afforded the parties because of their presumptive
knowledge that the transaction was tainted with illegality.[19]
The courts will not aid either party to an illegal agreement and
will instead leave the parties where they find them.[20]
Consequently, the parties having no cause of action against the
other based on a void contract, and possession and ownership of
the subject property being ultimately vested in respondent, the
latter can enter into a separate and distinct contract for its
alienation. Petitioners recognized respondents ownership of the
subject property by entering into a Promise to Sell, which
expressly designates respondent as the vendor and petitioners as
the vendees. At this point, petitioners, originally co-owners and
mortgagors of the subject property, unequivocally acquiesced to
their new status as buyers thereof. In fact, the Promise to Sell
makes no reference whatsoever to petitioners previous ownership
of the subject property and to the void loan and mortgage
contracts.[21] On the whole, the Promise to Sell, an independent
contract, did not purport to ratify the void loan and mortgage
contracts.
By its very terms, the Promise to Sell simply intended to alienate
to petitioners the subject property according to the terms and
conditions contained therein. Article 1370 of the Civil Code
reads:
Art. 1370. 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.
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former.
Thus, the terms and conditions of the Promise to Sell are
controlling.
Paragraph 5 of the Promise to Sell provides:
5) Provided further, that in case of a delay in any yearly
installment for a period of ninety (90) days, this sale will become
null and void [without] further effect or validity; and provided
further, that payments made shall be reimbursed (returned to the
VENDEE less interest on the account plus additional 15%
liquidated damages and charges.[22]
As stipulated in the Promise to Sell, petitioners are entitled to
reimbursement of the P250,000.00 down payment. We agree with
the CAs holding on this score:
We note, however, that there is no basis for the imposition of
interest and additional 15% liquidated damages and charges on
the amount to be thus reimbursed. The Promise to Sell is separate
and distinct from the loan and mortgage contracts earlier executed
by the parties. Obviously, after the foreclosure, there is no more
loan or account to speak of to justify the said imposition.[23]
Finally, contrary to petitioners contention, the CA, in denying
petitioners appeal, did not commit an error; it did not ratify a void
contract because void contracts cannot be ratified. The CA simply
refused to grant the specific relief of recovering the subject
property prayed for by petitioners. Nonetheless, it ordered
respondent to reimburse petitioners for their down payment of
P250,000.00 and disallowed respondents claim for actual, moral
and exemplary damages and attorneys fees.
WHEREFORE, premises considered, the petition is hereby
DENIED. The Decision of the Court of Appeals in CA-G.R. CV
No. 40613 is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
SPOUSES JOSE and MILAGROS
VILLACERAN and FAR EAST
BANK & TRUST COMPANY,
Petitioners,
- versus -
G.R. No. 169055
Present:
CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
87
BERSAMIN,
VILLARAMA, JR., and
PERLAS-BERNABE,* JJ.
JOSEPHINE DE GUZMAN,
Respondent.
Promulgated:
February 22, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - -x
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari assailing the
November 26, 2004 Decision[1] and June 29, 2005 Resolution[2]
of the Court of Appeals (CA) in CA-G.R. CV No. 71831. The CA
had affirmed with modification the Decision[3] 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 Complaint[4] 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.
On June 19, 1996, De Guzman executed a simulated Deed of
Absolute Sale[7] 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 the P721,891.67 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 Sale[10] 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 for
P600,000. 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 gave to De Guzman plus the
P721,891.67 they paid to PNB in order that the title to the subject
88
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 plaintiff-appellee by the
defendants-appellants;
2. Ordering defendants-appellants Villaceran to pay plaintiff-
appellee the difference between the FEBTC loan 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 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 of P1,485,000, 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 1345[19] of the Civil Code provides that the simulation of
a contract may either be absolute or relative. In absolute
89
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 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. 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 CA-G.R. CV No. 71831
are AFFIRMED.
With costs against the petitioners.
SO ORDERED.
G.R. No. 188417 : September 24, 2012
MILAGROS DE BELEN VDA. DE CABALU, MELITON
CABALU, SPS. ANGELA CABALU and RODOLFO
TALAVERA, and PATRICIO ABUS, Petitioners, v. SPS.
RENATO DOLORES TABU and LAXAMANA, Municipal
Trial Court in Cities, Tarlac City, Branch II, Respondents.
DECISION
MENDOZA, J.:
This is a "Petition for Review on Certiorari (under Rule 45)" of
the Rules of Court assailing the June 16, 2009 Decision1rll
of the Court of Appeals (CA) in CA-GR. CV No. 81469 entitled
"Milagros De Belen Vda de Cabalu v. Renato Tabu."
The Facts
The property subject of the controversy is a 9,000 square meter
lot situated in Mariwalo, Tarlac, which was a portion of a property
registered in the name of the late Faustina Maslum (Faustina)
under Transfer Certificate of Title (TCT) No. 16776 with a total
area of 140,211 square meters.2rll
On December 8, 1941, Faustina died without any children. She
left a holographic will, dated July 27, 1939, assigning and
distributing her property to her nephews and nieces. The said
holographic will, however, was not probated. One of the heirs was
the father of Domingo Laxamana (Domingo), Benjamin
Laxamana, who died in 1960. On March 5, 1975, Domingo
allegedly executed a Deed of Sale of Undivided Parcel of Land
disposing of his 9,000 square meter share of the land to Laureano
Cabalu.3rll
On August 1, 1994, to give effect to the holographic will, the
forced and legitimate heirs of Faustina executed a Deed of Extra-
Judicial Succession with Partition. The said deed imparted 9,000
square meters of the land covered by TCT No. 16776 to Domingo.
Thereafter, on December 14, 1995, Domingo sold 4,500 square
meters of the 9,000 square meters to his nephew, Eleazar Tabamo.
The document was captioned Deed of Sale of a Portion of Land.
On May 7, 1996, the remaining 4,500 square meters of Domingos
share in the partition was registered under his name under TCT
No. 281353.4rll
On August 4, 1996, Domingo passed away.
On October 8, 1996, two months after his death, Domingo
purportedly executed a Deed of Absolute Sale of TCT No.
281353 in favor of respondent Renato Tabu (Tabu). The resultant
transfer of title was registered as TCT No. 286484. Subsequently,
Tabu and his wife, Dolores Laxamana (respondent spouses),
subdivided the said lot into two which resulted into TCT Nos.
291338 and 291339.5rll
90
On January 15, 1999, respondent Dolores Laxamana-Tabu,
together with Julieta Tubilan-Laxamana, Teresita Laxamana,
Erlita Laxamana, and Gretel Laxamana, the heirs of Domingo,
filed an unlawful detainer action, docketed as Civil Case No.
7106, against Meliton Cabalu, Patricio Abus, Roger Talavera,
Jesus Villar, Marcos Perez, Arthur Dizon, and all persons
claiming rights under them. The heirs claimed that the defendants
were merely allowed to occupy the subject lot by their late father,
Domingo, but, when asked to vacate the property, they refused to
do so. The case was ruled in favor of Domingos heirs and a writ
of execution was subsequently issued.6rll
On February 4, 2002, petitioners Milagros de Belen Vda. De
Cabalu, Meliton Cabalu, Spouses Angela Cabalu and Rodolfo
Talavera, and Patricio Abus (petitioners), filed a case for
Declaration of Nullity of Deed of Absolute Sale, Joint Affidavit
of Nullity of Transfer Certificate of Title Nos. 291338 and
291339, Quieting of Title, Reconveyance, Application for
Restraining Order, Injunction and Damages (Civil Case No.
9290) against respondent spouses before the Regional Trial
Court, Branch 63, Tarlac City (RTC).7rll
In their complaint, petitioners claimed that they were the lawful
owners of the subject property because it was sold to their father,
Laureano Cabalu, by Domingo, through a Deed of Absolute Sale,
dated March 5, 1975. Hence, being the rightful owners by way of
succession, they could not be ejected from the subject
property.8rll
In their Answer, respondent spouses countered that the deed of
sale from which the petitioners anchored their right over the 9,000
square meter property was null and void because in 1975,
Domingo was not yet the owner of the property, as the same was
still registered in the name of Faustina. Domingo became the
owner of the property only on August 1, 1994, by virtue of the
Deed of Extra-Judicial Succession with Partition executed by the
forced heirs of Faustina. In addition, they averred that Domingo
was of unsound mind having been confined in a mental institution
for a time.9rll
On September 30, 2003, the RTC dismissed the complaint as it
found the Deed of Absolute Sale, dated March 5, 1975, null and
void for lack of capacity to sell on the part of Domingo. Likewise,
the Deed of Absolute Sale, dated October 8, 1996, covering the
remaining 4,500 square meters of the subject property was
declared ineffective having been executed by Domingo two
months after his death on August 4, 1996. The fallo of the
Decision10rll reads:chanroblesvirtuallawlibrary
WHEREFORE, in view of the foregoing, the complaint is hereby
DISMISSED, and the decision is hereby rendered by way of:
1. declaring null and void the Deed of Absolute Sale dated March
5, 1975, executed by Domingo Laxamana in favor of Laureano
Cabalu;
2. declaring null and void the Deed of Absolute Sale dated
October 8, 1996, executed by Domingo Laxamana in favor of
Renato Tabu, and that TCT Nos. 293338 and 291339, both
registered in the name of Renato Tabu, married to Dolores
Laxamana be cancelled;
3. restoring to its former validity, TCT No. 16770 in the name of
Faustina Maslum subject to partition by her lawful heirs.
Costs de oficio.
SO ORDERED.11rll
Not in conformity, both parties appealed to the CA. Petitioners
contended that the RTC erred in declaring void the Deed of
Absolute Sale, dated March 5, 1975. They claimed that Domingo
owned the property, when it was sold to Laureano Cabalu,
because he inherited it from his father, Benjamin, who was one of
the heirs of Faustina. Being a co-owner of the property left by
Benjamin, Domingo could dispose of the portion he owned,
notwithstanding the will of Faustina not being probated.
Respondent spouses, on the other hand, asserted that the Deed of
Sale, dated March 5, 1975, was spurious and simulated as the
signature, PTR and the document number of the Notary Public
were different from the latters notarized documents. They added
that the deed was without consent, Domingo being of unsound
mind at the time of its execution. Further, they claimed that the
RTC erred in canceling TCT No. 266583 and insisted that the
same should be restored to its validity because Benjamin and
Domingo were declared heirs of Faustina.
On June 16, 2009, the CA rendered its decision and disposed as
follows:chanroblesvirtuallawlibrary
WHEREFORE, in the light of the foregoing, the instant appeal is
partially GRANTED in that the decision of the trial court is
AFFIRMED WITH MODIFICATION that sub-paragraphs 2 & 3
of the disposition, which reads:chanroblesvirtuallawlibrary
"2. declaring null and void the Deed of Absolute Sale dated
October 8, 1996, executed by Domingo Laxamana in favor of
Renato Tabu, and that TCT Nos. 291338 and 291339, both
registered in the name of Renato Tabu, married to Dolores
Laxamana be cancelled;
3. restoring to its former validity, TCT No. 16776 in the name of
Faustina Maslum subject to partition by her lawful heirs," are
DELETED.
IT IS SO ORDERED.12rll
In finding Domingo as one of the heirs of Faustina, the CA
explained as follows:chanroblesvirtuallawlibrary
It appears from the records that Domingo was a son of Benjamin
as apparent in his Marriage Contract and Benjamin was a nephew
of Faustina as stated in the holographic will and deed of
succession with partition. By representation, when Benjamin died
in 1960, Domingo took the place of his father in succession. In
the same vein, the holographic will of Faustina mentioned
Benjamin as one of her heirs to whom Faustina imparted 9,000
square meters of her property. Likewise, the signatories to the
Deed of Extra-judicial Succession with Partition, heirs of
Faustina, particularly declared Domingo as their co-heir in the
succession and partition thereto. Furthermore, the parties in this
case admitted that the relationship was not an issue.13rll
Although the CA found Domingo to be of sound mind at the time
of the sale on March 5, 1975, it sustained the RTCs declaration of
nullity of the sale on the ground that the deed of sale was
simulated.
91
The CA further held that the RTC erred in canceling TCT No.
266583 in the name of Domingo and in ordering the restoration
of TCT No. 16770, registered in the name of Faustina, to its
former validity, Domingo being an undisputed heir of Faustina.
Hence, petitioners interpose the present petition before this Court
anchored on the following:
GROUNDS
(A)
THE DEED OF SALE OF UNDIVIDED PARCEL OF LAND
EXECUTED ON MARCH 5, 1975 BY DOMINGO
LAXAMANA IN FAVOR OF LAUREANO CABALU IS
VALID BECAUSE IT SHOULD BE ACCORDED THE
PRESUMPTION OF REGULARITY AND DECLARED
VALID FOR ALL PURPOSES AND INTENTS.
(B)
THE SUBPARAGRAPH NO. 2 OF THE DECISION OF THE
REGIONAL TRIAL COURT SHOULD STAY BECAUSE THE
HONORABLE COURT OF APPEALS DID NOT DISCUSS
THE ISSUE AND DID NOT STATE THE LEGAL BASIS WHY
SAID PARAGRAPH SHOULD BE DELETED FROM THE
SEPTEMBER 30, 2003 DECISION OF THE REGIONAL
TRIAL COURT.14rll
The core issues to be resolved are 1) whether the Deed of Sale of
Undivided Parcel of Land covering the 9,000 square meter
property executed by Domingo in favor of Laureano Cabalu on
March 5, 1975, is valid; and 2) whether the Deed of Sale, dated
October 8, 1996, covering the 4,500 square meter portion of the
9,000 square meter property, executed by Domingo in favor of
Renato Tabu, is null and void.
Petitioners contend that the Deed of Absolute Sale executed by
Domingo in favor of Laureano Cabalu on March 5, 1975 should
have been declared valid because it enjoyed the presumption of
regularity. According to them, the subject deed, being a public
document, had in its favor the presumption of regularity, and to
contradict the same, there must be clear, convincing and more
than preponderant evidence, otherwise, the document should be
upheld. They insist that the sale transferred rights of ownership in
favor of the heirs of Laureano Cabalu.
They further argue that the CA, in modifying the decision of the
RTC, should not have deleted the portion declaring null and void
the Deed of Absolute Sale, dated October 8, 1996, executed by
Domingo in favor of Renato Tabu, because at the time of
execution of the said deed of sale, the seller, Domingo was
already dead. Being a void document, the titles originating from
the said instrument were also void and should be cancelled.
Respondent spouses, in their Comment15rll and
Memorandum,16rll counter that the issues raised are not
questions of law and call for another calibration of the whole
evidence already passed upon by the RTC and the CA. Yet, they
argue that petitioners reliance on the validity of the March 5, 1975
Deed of Sale of Undivided Parcel of Land, based on presumption
of regularity, was misplaced because both the RTC and the CA,
in the appreciation of evidence on record, had found said deed as
simulated.
It is well to note that both the RTC and the CA found that the
evidence established that the March 5, 1975 Deed of Sale of
Undivided Parcel of Land executed by Domingo in favor of
Laureano Cabalu was a fictitious and simulated document. As
expounded by the CA, viz:chanroblesvirtuallawlibrary
Nevertheless, since there are discrepancies in the signature of the
notary public, his PTR and the document number on the lower-
most portion of the document, as well as the said deed of sale
being found only after the plaintiffs-appellants were ejected by
the defendants-appellants; that they were allegedly not aware that
the said property was bought by their father, and that they never
questioned the other half of the property not occupied by them, it
is apparent that the sale dated March 5, 1975 had the earmarks of
a simulated deed written all over it. The lower court did not err in
pronouncing that it be declared null and void.17rll
Petitioners, in support of their claim of validity of the said
document of deed, again invoke the legal presumption of
regularity. To reiterate, the RTC and later the CA had ruled that
the sale, dated March 5, 1975, had the earmarks of a simulated
deed, hence, the presumption was already rebutted. Verily and as
aptly noted by the respondent spouses, such presumption of
regularity cannot prevail over the facts proven and already
established in the records of this case.
Even on the assumption that the March 5, 1975 deed was not
simulated, still the sale cannot be deemed valid because, at that
time, Domingo was not yet the owner of the property. There is no
dispute that the original and registered owner of the subject
property covered by TCT No. 16776, from which the subject
9,000 square meter lot came from, was Faustina, who during her
lifetime had executed a will, dated July 27, 1939. In the said will,
the name of Benjamin, father of Domingo, appeared as one of the
heirs. Thus, and as correctly found by the RTC, even if Benjamin
died sometime in 1960, Domingo in 1975 could not yet validly
dispose of the whole or even a portion thereof for the reason that
he was not the sole heir of Benjamin, as his mother only died
sometime in 1980.
Besides, under Article 1347 of the Civil Code, "No contract may
be entered into upon future inheritance except in cases expressly
authorized by law." Paragraph 2 of Article 1347, characterizes a
contract entered into upon future inheritance as void. The law
applies when the following requisites concur: (1) the succession
has not yet been opened; (2) the object of the contract forms part
of the inheritance; and (3) the promissor has, with respect to the
object, an expectancy of a right which is purely hereditary in
nature.18rll
In this case, at the time the deed was executed, Faustinas will was
not yet probated; the object of the contract, the 9,000 square meter
property, still formed part of the inheritance of his father from the
estate of Faustina; and Domingo had a mere inchoate hereditary
right therein.
Domingo became the owner of the said property only on August
1, 1994, the time of execution of the Deed of Extrajudicial
Succession with Partition by the heirs of Faustina, when the 9,000
square meter lot was adjudicated to him.
The CA, therefore, did not err in declaring the March 5, 1975
Deed of Sale null and void.
92
Domingos status as an heir of Faustina by right of representation
being undisputed, the RTC should have maintained the validity of
TCT No. 266583 covering the 9,000 square meter subject
property. As correctly concluded by the CA, this served as the
inheritance of Domingo from Faustina.
Regarding the deed of sale covering the remaining 4,500 square
meters of the subject property executed in favor of Renato Tabu,
it is evidently null and void. The document itself, the Deed of
Absolute Sale, dated October 8, 1996, readily shows that it was
executed on August 4, 1996 more than two months after the death
of Domingo. Contracting parties must be juristic entities at the
time of the consummation of the contract. Stated otherwise, to
form a valid and legal agreement it is necessary that there be a
party capable of contracting and a party capable of being
contracted with. Hence, if any one party to a supposed contract
was already dead at the time of its execution, such contract is
undoubtedly simulated and false and, therefore, null and void by
reason of its having been made after the death of the party who
appears as one of the contracting parties therein. The death of a
person terminates contractual capacity.19rll
The contract being null and void, the sale to Renato Tabu
produced no legal effects and transmitted no rights whatsoever.
Consequently, TCT No. 286484 issued to Tabu by virtue of the
October 8, 1996 Deed of Sale, as well as its derivative titles, TCT
Nos. 291338 and 291339, both registered in the name of Rena to
Tabu, married to Dolores Laxamana, are likewise void.
The CA erred in deleting that portion in the RTC decision
declaring the Deed of Absolute Sale, dated October 8, 1996, null
and void and canceling TCT Nos. 291338 and
291339.blrlllbrr
WHEREFORE, the petition is partially GRANTED. The decretal
portion of the June 16, 2009 Decision of the Court of Appeals is
hereby MODIFIED to read as follows:
1. The Deed of Absolute Sale, dated March 5, 1975, executed by
Domingo Laxamana in favor of Laureano Cabalu, is hereby
declared as null and void.
2. The Deed of Absolute Sale, dated October 8, 1996, executed
by Domingo Laxamana in favor of Renato Tabu, and TCT No.
286484 as well as the derivative titles TCT Nos. 291338 and
291339, both registered in the name of Renato Tabu, married to
Dolores Laxamana, are hereby declared null and void and
cancelled.
3. TCT No. 281353 in the name of Domingo Laxamana is hereby
ordered restored subject to the partition by his lawful heirs.
SO ORDERED.
G.R. No. 183774 : November 14, 2012
PHILIPPINE BANKING CORPORATION, Petitioner, v.
ARTURO DY, BERNARDO DY, JOSE DELGADO AND
CIPRIANA DELGADO, Respondents.
DECISION
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari assails the January 30,
2008 Decision1rll of the Court of Appeals (CA) in CA-G.R.
CV No. 51672, which set aside the October 5, 1994
Decision2rll of the Regional Trial Court of Cebu City,
Branch 22 (RTC) and directed the Register of Deeds of Cebu City
to cancel Transfer Certificate of Title (TCT) Nos. 517683rll
and 519014rll in the names of respondents Arturo Dy and
Bernardo Dy (Dys) and to issue the corresponding TCTs in the
name of respondent Cipriana Delgado (Cipriana).
The Factual Antecedents
Cipriana was the registered owner of a 58,129-square meter
(sq.m.) lot, denominated as Lot No. 6966, situated in Barrio
Tongkil, Minglanilla, Cebu, covered by TCT No. 18568. She and
her husband, respondent Jose Delgado (Jose), entered into an
agreement with a certain Cecilia Tan (buyer) for the sale of the
said property for a consideration of P10.00/sq.m. It was agreed
that the buyer shall make partial payments from time to time and
pay the balance when Cipriana and Jose (Sps. Delgado) are ready
to execute the deed of sale and transfer the title to her.
At the time of sale, the buyer was already occupying a portion of
the property where she operates a noodle (bihon) factory while
the rest was occupied by tenants which Sps. Delgado undertook
to clear prior to full payment. After paying the total sum of
P147,000.00 and being then ready to pay the balance, the buyer
demanded the execution of the deed, which was refused.
Eventually, the buyer learned of the sale of the property to the
Dys and its subsequent mortgage to petitioner Philippine Banking
Corporation (Philbank), prompting the filing of the
Complaint5rll for annulment of certificate of title, specific
performance and/or reconveyance with damages against Sps.
Delgado, the Dys and Philbank.
In their Answer, Sps. Delgado, while admitting receipt of the
partial payments made by the buyer, claimed that there was no
perfected sale because the latter was not willing to pay their
asking price of P17.00/sq.m. They also interposed a cross-claim
against the Dys averring that the deeds of absolute sale in their
favor dated June 28, 19826rll and June 30, 19827rll payment for the two lots mortgaged to it.
covering Lot No. 6966 and the adjoining Lot No. 4100-A (on
which Sps. Delgado's house stands), were fictitious and merely
intended to enable them (the Dys) to use the said properties as
collateral for their loan application with Philbank and thereafter,
pay the true consideration of P17.00/sq.m. for Lot No. 6966.
However, after receiving the loan proceeds, the Dys reneged on
their agreement, prompting Sps. Delgado to cause the annotation
of an adverse claim on the Dys' titles and to inform Philbank of
the simulation of the sale. Sps. Delgado, thus, prayed for the
dismissal of the complaint, with a counterclaim for damages and
a cross-claim against the Dys for the payment of the balance of
the purchase price plus damages.
For their part, the Dys denied knowledge of the alleged
transaction between cross-claimants Sps. Delgado and buyer.
They claimed to have validly acquired the subject property from
Sps. Delgado and paid the full consideration therefor as the latter
even withdrew their adverse claim and never demanded for the
payment of any unpaid balance.
On the other hand, Philbank filed its Answer8rll asserting
that it is an innocent mortgagee for value without notice of the
defect in the title of the Dys. It filed a cross-claim against Sps.
Delgado and the Dys for all the damages that may be adjudged
93
against it in the event they are declared seller and purchaser in
bad faith, respectively.
In answer to the cross-claim, Sps. Delgado insisted that Philbank
was not a mortgagee in good faith for having granted the loan and
accepted the mortgage despite knowledge of the simulation of the
sale to the Dys and for failure to verify the nature of the buyers
physical possession of a portion of Lot No. 6966. They thereby
prayed for the cancellation of the mortgage in Philbank's favor.
Subsequently, Sps. Delgado amended their cross-claim against
the Dys to include a prayer for the nullification of the deeds of
absolute sale in the latter's favor and the corresponding
certificates of title, and for the consequent reinstatement of
Ciprianas title.9rll
The complaints against the Dys and Philbank were subsequently
withdrawn. On the other hand, both the buyer and Sps. Delgado
never presented any evidence in support of their respective
claims. Hence, the RTC limited itself to the resolution of the
claims of Sps. Delgado, Philbank and the Dys against one
another.
The RTC Ruling
In the Decision10rll dated October 5, 1994, the RTC
dismissed the cross-claims of Sps. Delgado against the Dys and
Philbank. It noted that other than Sps. Delgado's bare allegation
of the Dys' supposed non-payment of the full consideration for
Lot Nos. 6966 and 4100-A, they failed to adduce competent
evidence to support their claim. On the other hand, the Dys
presented a cash voucher11rll dated April 6, 1983 duly
signed by Sps. Delgado acknowledging receipt of the total
consideration for the two lots.
The RTC also observed that Sps. Delgado notified Philbank of the
purported simulation of the sale to the Dys only after the
execution of the loan and mortgage documents and the release of
the loan proceeds to the latter, negating their claim of bad faith.
Moreover, they subsequently notified the bank of the Dys' full
The CA Ruling
However, on appeal, the CA set aside12rll the RTC's decision
and ordered the cancellation of the Dys' certificates of title and
the reinstatement of Cipriana's title. It ruled that there were no
perfected contracts of sale between Sps. Delgado and the Dys in
view of the latter's admission that the deeds of sale were
purposely executed to facilitate the latter's loan application with
Philbank and that the prices indicated therein were not the true
consideration. Being merely simulated, the contracts of sale were,
thus, null and void, rendering the subsequent mortgage of the lots
likewise void.
The CA also declared Philbank not to be a mortgagee in good
faith for its failure to ascertain how the Dys acquired the
properties and to exercise greater care when it conducted an
ocular inspection thereof. It thereby canceled the mortgage over
the two lots.
The Petition
In the present petition, Philbank insists that it is a mortgagee in
good faith. It further contends that Sps. Delgado are estopped
from denying the validity of the mortgage constituted over the
two lots since they participated in inducing Philbank to grant a
loan to the Dys.
On the other hand, Sps. Delgado maintain that Philbank was not
an innocent mortgagee for value for failure to exercise due
diligence in transacting with the Dys and may not invoke the
equitable doctrine of estoppel to conceal its own lack of diligence.
For his part, Arturo Dy filed a Petition-in-Intervention13rll
arguing that while the deeds of absolute sale over the two
properties were admittedly simulated, the simulation was only a
relative one involving a false statement of the price. Hence, the
parties are still bound by their true agreement. The same was
opposed/objected to by both Philbank14rll and Sps.
Delgado15rll as improper, considering that the CA judgment
had long become final and executory as to the Dys who neither
moved for reconsideration nor appealed the CA Decision.
The Ruling of the Court
The petition is meritorious.
At the outset, the Court takes note of the fact that the CA Decision
nullifying the questioned contracts of sale between Sps. Delgado
and the Dys had become final and executory. Accordingly, the
Petition-in-Intervention filed by Arturo Dy, which seeks to
maintain the subject contracts' validity, can no longer be
entertained. The cancellation of the Dys' certificates of title over
the disputed properties and the issuance of new TCTs in favor of
Cipriana must therefore be upheld.
However, Philbank's mortgage rights over the subject properties
shall be maintained. While it is settled that a simulated deed of
sale is null and void and therefore, does not convey any right that
could ripen into a valid title,16rll it has been equally ruled
that, for reasons of public policy,17rll the subsequent
nullification of title to a property is not a ground to annul the
contractual right which may have been derived by a purchaser,
mortgagee or other transferee who acted in good faith.18rll
The ascertainment of good faith or lack of it, and the
determination of whether due diligence and prudence were
exercised or not, are questions of fact19rll which are
generally improper in a petition for review on certiorari under
Rule 45 of the Rules of Court (Rules) where only questions of law
may be raised. A recognized exception to the rule is when there
are conflicting findings of fact by the CA and the RTC,20rll
as in this case.
Primarily, it bears noting that the doctrine of "mortgagee in good
faith" is based on the rule that all persons dealing with property
covered by a Torrens Certificate of Title are not required to go
beyond what appears on the face of the title. This is in deference
to the public interest in upholding the indefeasibility of a
certificate of title as evidence of lawful ownership of the land or
of any encumbrance thereon.21rll In the case of banks and
other financial institutions, however, greater care and due
diligence are required since they are imbued with public interest,
failing which renders the mortgagees in bad faith. Thus, before
approving a loan application, it is a standard operating practice
for these institutions to conduct an ocular inspection of the
property offered for mortgage and to verify the genuineness of the
title to determine the real owner(s) thereof.22rll The apparent
purpose of an ocular inspection is to protect the "true owner" of
94
the property as well as innocent third parties with a right, interest
or claim thereon from a usurper who may have acquired a
fraudulent certificate of title thereto.23rll
In this case, while Philbank failed to exercise greater care in
conducting the ocular inspection of the properties offered for
mortgage,24rll its omission did not prejudice any innocent
third parties. In particular, the buyer did not pursue her cause and
abandoned her claim on the property. On the other hand, Sps.
Delgado were parties to the simulated sale in favor of the Dys
which was intended to mislead Philbank into granting the loan
application. Thus, no amount of diligence in the conduct of the
ocular inspection could have led to the discovery of the
complicity between the ostensible mortgagors (the Dys) and the
true owners (Sps. Delgado). In fine, Philbank can hardly be
deemed negligent under the premises since the ultimate cause of
the mortgagors' (the Dys') defective title was the simulated sale to
which Sps. Delgado were privies.
Indeed, a finding of negligence must always be contextualized in
line with the attendant circumstances of a particular case. As aptly
held in Philippine National Bank v. Heirs of Estanislao
Militar,25rll "the diligence with which the law requires the
individual or a corporation at all times to govern a particular
conduct varies with the nature of the situation in which one is
placed, and the importance of the act which is to be
performed."26rll Thus, without diminishing the time-
honored principle that nothing short of extraordinary diligence is
required of banks whose business is impressed with public
interest, Philbank's inconsequential oversight should not and
cannot serve as a bastion for fraud and deceit.
To be sure, fraud comprises "anything calculated to deceive,
including all acts, omissions, and concealment involving a breach
of legal duty or equitable duty, trust, or confidence justly reposed,
resulting in damage to another, or by which an undue and
unconscientious advantage is taken of another."27rll In this
light, the Dys' and Sps. Delgado's deliberate simulation of the sale
intended to obtain loan proceeds from and to prejudice Philbank
clearly constitutes fraudulent conduct. As such, Sps. Delgado
cannot now be allowed to deny the validity of the mortgage
executed by the Dys in favor of Philbank as to hold otherwise
would effectively sanction their blatant bad faith to Philbank's
detriment.
Accordingly, in the interest of public policy, fair dealing, good
faith and justice, the Court accords Philbank the rights of a
mortgagee in good faith whose lien to the securities posted must
be respected and protected. In this regard, Philbank is entitled to
have its mortgage carried over or annotated on the titles of
Cipriana Delgado over the said properties.
WHERFORE, the assailed January 30, 2008 Decision of the
Court of Appeals in CA-G.R. CV No. 51672 is hereby
AFFIRMED with MODIFICATION upholding the mortgage
rights of petitioner Philippine Banking Corporation over the
subject properties.rllbrr
SO ORDERED.

G.R. No. 175483, October 14, 2015
VALENTINA S. CLEMENTE, Petitioner, v. THE COURT
OF APPEALS, ANNIE SHOTWELL JALANDOON, ET
AL., Respondents.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the
Revised Rules of Court filed by Valentina S. Clemente
("petitioner") from the Decision2 of August 23, 2005 and the
Resolution3 dated November 15, 2006 of the Court of Appeals
(CA) Eighth Division in CA-G.R. CV No. 70918.
Petitioner assails the Decision of the CA which ruled that two (2)
deeds of absolute sale executed between petitioner and Adela de
Guzman Shotwell ("Adela"), her grandmother, are void and
inexistent for being simulated and lacking consideration. The CA
affirmed the Decision of the Regional Trial Court (RTC) of
Quezon City, Branch 89, but deleted the holding of the latter that
an implied trust existed.
The Facts
Adela owned three (3) adjoining parcels of land in Scout Ojeda
Street, Diliman, Quezon City, subdivided as Lots 32, 34 and 35-
B (the "Properties"). Among the improvements on the Properties
was Adela's house (also referred to as the "big house"). During
her lifetime, Adela allowed her children, namely, Annie Shotwell
Jalandoon, Carlos G. Shotwell ("Carlos Sr."), Anselmo G.
Shotwell and Corazon S. Basset, and her grandchildren,4 the use
and possession of the Properties and its improvements.5
Sometime in 1985 and 1987, Adela simulated the transfer of Lots
32 and Lot 34 to her two grandsons from Carlos Sr., namely,
Carlos V. Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell.6
As a consequence, Transfer Certificate of Title (TCT) No.
338708/PR 9421 was issued over Lot 32 under the name of Carlos
Jr., while TCT No. 366256/PR 9422 was issued over Lot 34 under
the name of Dennis.7 On the other hand, Lot 35-B remained with
Adela and was covered by TCT No. 374531. It is undisputed that
the transfers were never intended to vest title to Carlos Jr. and
Dennis who both will return the lots to Adela when requested.8
On April 18, 1989, prior to Adela and petitioner's departure for
the United States, Adela requested Carlos Jr. and Dennis to
execute a deed of reconveyance9 over Lots 32 and 34. The deed
of reconveyance was executed on the same day and was registered
with the Registry of Deeds on April 24, 1989.10
On April 25, 1989, Adela executed a deed of absolute sale11 over
Lots 32 and 34, and their improvements, in favor of petitioner,
bearing on its face the price of P250,000.00. On the same day,
Adela also executed a special power of attorney12 (SPA) in favor
of petitioner. Petitioner's authority under the SPA included the
power to administer, take charge and manage, for Adela's benefit,
the Properties and all her other real and personal properties in the
Philippines.13 The deed of absolute sale and the SPA were
notarized on the same day by Atty. Dionilo D. Marfil in Quezon
City.14
95
On April 29, 1989, Adela and petitioner left for the United
States.15 When petitioner returned to the Philippines, she
registered the sale over Lots 32 and 34 with the Registry of Deeds
on September 25, 1989. TCT No. 19811 and TCT No. 19809 were
then issued in the name of petitioner over Lots 32 and 34,
respectively.16
On January 14, 1990, Adela died in the United States and was
succeeded by her four children.17
Soon thereafter, petitioner sought to eject Annie and Carlos Sr.,
who were then staying on the Properties. Only then did Annie and
Carlos Sr. learn of the transfer of titles to petitioner. Thus, on July
9, 1990, Annie, Carlos Sr. and Anselmo, represented by Annie,
("private respondents") filed a complaint for reconveyance of
property18 against petitioner before Branch 89 of the RTC of
Quezon City. It was docketed as Civil Case No. Q-90-6035 and
titled "Annie S. Jalandoon, et al. v. Valentino. Clemente"19
In the course of the trial, private respondents discovered that
Adela and petitioner executed another deed of absolute sale20
over Lot 35-B on April 25, 1989 (collectively with the deed of
absolute sale over Lots 32 and 34, "Deeds of Absolute Sale"),
bearing on its face the price of F60,000.00.21 This was notarized
on the same date by one Orancio Generoso in Manila, but it was
registered with the Registry of Deeds only on October 5, 1990.22
Thus, private respondents amended their complaint to include Lot
35-B.23
In their amended complaint, private respondents sought
nullification of the Deeds of Absolute Sale. They alleged that
Adela only wanted to help petitioner travel to the United States,
by making it appear that petitioner has ownership of the
Properties. They further alleged that similar to the previous
simulated transfers to Carlos Jr. and Dennis, petitioner also
undertook and warranted to execute a deed of reconveyance in
favor of the deceased over the Properties, if and when Adela
should demand the same. They finally alleged that no
consideration was given by petitioner to Adela in exchange for
the simulated conveyances.24
On October 3, 1997, Carlos Sr. died and was substituted only by
Dennis.25 In an order dated June 18, 1999, the case was dismissed
with respect to Annie after she manifested her intention to
withdraw as a party-plaintiff.26 Anselmo Shotwell also died
without any compulsory heir on September 7, 2000.
On February 26, 2001, the trial court promulgated a Decision27
in favor of private respondents. Its decretal portion
reads:cralawlawlibrary
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
Declaring null and void the Deeds of Absolute Sale both dated
April 25, 1989 between the late Adela De Guzman Shotwell and
the defendant;ChanRoblesVirtualawlibrary
Ordering the cancellation of Transfer Certificates of Title Nos.
19809, 19811 and 26558, all of the Registry of Deeds of Quezon
City and in the name of defendant Valentina Clemente; and
Ordering the defendant to execute a Deed of Reconveyance in
favor of the estate of the late Adela de Guzman Shotwell over the
three (3) subject lots, respectively covered by Transfer
Certificates of Title Nos. 19809, 19811 and 26558 of the Registry
of Deeds of Quezon City;
With costs against defendant.
SO ORDERED.28chanrobleslaw
On appeal, the CA affirmed with modification the Decision. The
CA ruled that the Deeds of Absolute Sale were simulated. It also
ruled that the conveyances of the Properties to petitioner were
made without consideration and with no intention to have legal
effect.29
The CA agreed with the trial court that the contemporaneous and
subsequent acts of petitioner and her grandmother are enough to
render the conveyances null and void on the ground of being
simulated.30 The CA found that Adela retained and continued to
exercise dominion over the Properties even after she executed the
conveyances to petitioner.31 By contrast, petitioner did not
exercise control over the properties because she continued to
honor the decisions of Adela. The CA also affirmed the court a
quo's finding that the conveyances were not supported by any
consideration.32
Petitioner filed a Motion for Reconsideration33 dated September
12, 2005 but this was denied by the CA in its Resolution34 dated
November 15, 2006.
Hence, this petition. The petition raises the principal issue of
whether or not the CA erred in affirming the decision of the trial
court, that the Deeds of Absolute Sale between petitioner and her
late grandmother over the Properties are simulated and without
consideration, and hence, void and inexistent.35
Ruling of the Court
We deny the petition.
In a Petition for Review on Certiorari
under Rule 45, only questions of law
may be entertained.
Whether or not the CA erred in affirming the decision of the RTC
that the Deeds of Absolute Sale between petitioner and her late
grandmother are simulated and without consideration, and hence,
void and inexistent, is a question of fact which is not within the
province of a petition for review on certiorari under Rule 45 of
the Revised Rules of Court.
Section 1, Rule 45 of the Revised Rules of Court states that the
petition filed shall raise only questions of law, which must be
distinctly set forth. We have explained the difference between a
question of fact and a question of law, to wit:cralawlawlibrary
A question of law arises when there is doubt as to what the law is
on a certain state of facts, while there is a question of fact when
the doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the same must not involve an
examination of the probative value of the evidence presented by
the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances.
Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact.36chanrobleslaw
96
Most of the issues raised by petitioner are questions of fact that
invite a review of the evidence presented by the parties below.
We have repeatedly ruled that the issue on the genuineness of a
deed of sale is essentially a question of fact.37 We are not a trier
of facts and do not normally undertake the re-examination of the
evidence presented by the contending parties during the trial of
the case.38 This is especially true where the trial court's factual
findings are adopted and affirmed by the CA as in the present
case.39 Factual findings of the trial court affirmed by the CA are
final and conclusive and may not be reviewed on appeal.40 While
it is true that there are recognized exceptions41 to the general rule
that only questions of law may be entertained in a Rule 45
petition, we find that there is none obtaining in this case.
Nevertheless, and to erase any doubt on the correctness of the
assailed ruling, we examined the records below and have arrived
at the same conclusion. Petitioner has not been able to show that
the lower courts committed error in appreciating the evidence of
record.
The Deeds of Absolute Sale between
petitioner and the late Adela Shotwell
are null and void for lack of consent
and consideration.
While the Deeds of Absolute Sale appear to be valid on their face,
the courts are not completely precluded to consider evidence
aliunde in determining the real intent of the parties. This is
especially true when the validity of the contracts was put in issue
by one of the parties in his pleadings.42 Here, private respondents
assail the validity of the Deeds of Absolute Sale by alleging that
they were simulated and lacked consideration.
A. Simulated contract
The Civil Code defines a contract as a meeting of minds between
two persons whereby one binds himself, with respect to the other,
to give something or to render some service.43 Article 1318
provides that there is no contract unless the following requisites
concur:cralawlawlibrary
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.chanrobleslaw
All these elements must be present to constitute a valid contract;
the absence of one renders the contract void. As one of the
essential elements, consent when wanting makes the contract
non-existent. Consent is manifested by the meeting of the offer
and the acceptance of the thing and the cause, which are to
constitute the contract.44 A contract of sale is perfected at the
moment there is a meeting of the minds upon the thing that is the
object of the contract, and upon the price.45
Here, there was no valid contract of sale between petitioner and
Adela because their consent was absent. The contract of sale was
a mere simulation.
Simulation takes place when the parties do not really want the
contract they have executed to produce the legal effects expressed
by its wordings.46 Article 1345 of the Civil Code provides that
the simulation of a contract may either be absolute or relative. The
former takes place when the parties do not intend to be bound at
all; the latter, when the parties conceal their true agreement. The
case of Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberate M.
Ureta47 is instructive on the matter of absolute simulation of
contracts, viz:cralawlawlibrary
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. 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...48 (Emphasis supplied)chanrobleslaw
In short, in absolute simulation there appears to be a valid contract
but there is actually none because the element of consent is
lacking.49 This is so because the parties do not actually intend to
be bound by the terms of the contract.
In determining the true nature of a contract, the primary test 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.50 This is especially true in a claim
of absolute simulation where a colorable contract is executed.
In ruling that the Deeds of Absolute Sale were absolutely
simulated, the lower courts considered the totality of the prior,
contemporaneous and subsequent acts of the parties. The
following circumstances led the RTC and the CA to conclude that
the Deeds of Absolute Sale are simulated, and that the transfers
were never intended to affect the juridical relation of the
parties:chanRoblesvirtualLawlibrary
a) There was no indication that Adela intended to alienate her
properties in favor of petitioner. In fact, the letter of Adela to
Dennis dated April 18, 198951 reveals that she has reserved the
ownership of the Properties in favor of Dennis.
b) Adela continued exercising acts of dominion and control over
the properties, even after the execution of the Deeds of Absolute
Sale, and though she lived abroad for a time. In Adela's letter
dated August 25, 198952 to a certain Candy, she advised the latter
to stay in the big house. Also, in petitioner's letter to her cousin
Dennis dated July 3, 1989,53 she admitted that Adela continued
to be in charge of the Properties; that she has no "say" when it
comes to the Properties; that she does not intend to claim
exclusive ownership of Lot 35-B; and that she is aware that the
ownership and control of the Properties are intended to be
consolidated in Dennis.
c) The SPA executed on the same day as the Deeds of Absolute
Sale appointing petitioner as administratrix of Adela's properties,
including the Properties, is repugnant to petitioner's claim that the
ownership of the same had been transferred to her.
d) The previous sales of the Properties to Dennis and Carlos, Jr.
were simulated. This history, coupled with Adela's treatment of
petitioner, and the surrounding circumstances of the sales,
strongly show that Adela only granted petitioner the same favor
she had granted to Dennis and Carlos Jr.
The April 18, 1989 letter to Dennis convincingly shows Adela's
intention to give him the Properties. Part of the letter reads:
"Dennis, the two lot [sic] 32-34 at your said lower house will be
at name yours [sic] plus the 35 part of Cora or Teens [sic] house
97
are all under your name"54 Petitioner claims this letter was not
properly identified and is thus, hearsay evidence. The records,
however, show that the letter was admitted by the trial court in its
Order dated February 24, 1993.55 While it is true that the letter is
dated prior (or six days before to be exact) to the execution of the
Deeds of Absolute Sale and is not conclusive that Adela did not
change her mind, we find that the language of the letter is more
consistent with the other pieces of evidence that show Adela
never intended to relinquish ownership of the Properties to
petitioner. In this regard, we see no compelling reason to depart
from the findings of the trial court as there appears no grave abuse
of discretion in its admission and consideration of the letter.
Petitioner's letter to her cousin Dennis dated July 3, 1989 also
sufficiently establishes that Adela retained control over the
Properties, even after the execution of the Deeds of Absolute Sale.
Petitioner herself admitted that she was only following the orders
of Adela, and that she has no claim over the Properties. We quote
in verbatim the relevant part of the letter:cralawlawlibrary
...Now, before I left going back here in Mla. Mommy Dela ask
me to read your letter about the big house and lot, and I explained
it to her. Now Mommy and Mommy Dela wants that the house is
for everyone who will need to stay, well that is what they say.
Alam mo naman, I have no "say" esp. when it comes with
properties & you know that. Now kung ano gusto nila that goes.
Now, to be honest Mommy was surprise [sic] bakit daw kailangan
mawalan ng karapatan sa bahay eh Nanay daw nila iyon at tayo
apo lang, Eh wala akong masasabi dyan, to be truthful to you, I
only get the orders... Tapos, sinisingil pa ako ng P1,000 --para sa
gate napinapagawa nya sa lot 35-B, eh hindi na lang ako kiimibo
pero nagdamdam ako, imagine minsan na lang sya nakagawa ng
bien sa akin at wala sa intention ko na suluhin ang 35-B, ganyan
pa sya... Now tungkol sa iyo, alam ko meron ka rin lupa tapos
yung bahay na malaki ikaw rin ang titira at magmamahala sa
lahat. Anyway, itong bahay ko sa iyo rin, alam mo naman na I'm
just making the kids grow a little older then we have to home in
the states...56 (Emphasis supplied)
chanrobleslaw
Moreover, Adela's letter to petitioner's cousin Candy dated
August 25, 1989 shows Adela's retention of dominion over the
Properties even after the sales. In the letter, Adela even requested
her granddaughter Candy to stay in the house rent and expense
free.57 Petitioner claims that Candy and the house referred to in
the letter were not identified. Records show, however, that
petitioner has testified she has a cousin named Candy Shotwell
who stayed at the "big house" since February 1989.58
Clearly, the submission of petitioner to the orders of Adela does
not only show that the latter retained dominion over the
Properties, but also that petitioner did not exercise acts of
ownership over it. If at all, her actions only affirm the conclusion
that she was merely an administratrix of the Properties by virtue
of the SPA.
On the SPA, petitioner claims the lower courts erred in holding
that it is inconsistent with her claim of ownership. Petitioner
claims that she has sufficiently explained that the SPA is not for
the administration of the Properties, but for the reconstitution of
their titles.
We agree with the lower courts that the execution of an SPA for
the administration of the Properties, on the same day the Deeds of
Absolute Sale were executed, is antithetical to the relinquishment
of ownership. The SPA shows that it is so worded as to leave no
doubt that Adela is appointing petitioner as the administratrix of
her properties in Scout Ojeda. Had the SPA been intended only to
facilitate the processing of the reconstitution of the titles, there
would have been no need to confer other powers of
administration, such as the collection of debts, filing of suit, etc.,
to petitioner.59 In any case, the explanation given by petitioner
that the SPA was executed so as only to facilitate the
reconstitution of the titles of the Properties is not inconsistent with
the idea of her being the administratrix of the Properties. On the
other hand, the idea of assigning her as administratrix is not only
inconsistent, but also repugnant, to the intention of selling and
relinquishing ownership of the Properties.
Petitioner next questions the lower courts' findings that the Deeds
of Absolute Sale are simulated because the previous transfers to
Adela's other grandchildren were also simulated. It may be true
that, taken by itself, the fact that Adela had previously feigned the
transfer of ownership of Lots 32 and 34 to her other grandchildren
would not automatically mean that the subject Deeds of Absolute
Sale are likewise void. The lower courts, however, did not rely
solely on this fact, but considered it with the rest of the evidence,
the totality of which reveals that Adela's intention was merely to
feign the transfer to petitioner.
The fact that unlike in the case of Dennis and Carlos, Jr., she was
not asked by Adela to execute a deed of reconveyance, is of no
moment. There was a considerable lapse of time from the moment
of the transfer to Dennis and Carlos, Jr. of Lots 32 and 34 in 1985
and in 1987, respectively, and until the execution of the deed of
reconveyance in 1989. Here, the alleged Deeds of Absolute Sale
were executed in April 1989. Adela died in January 1990 in the
United States. Given the short period of time between the alleged
execution of the Deeds of Absolute Sale and the sudden demise
of Adela, the fact that petitioner was not asked to execute a deed
of reconveyance is understandable. This is because there was no
chance at all to do so. Thus, the fact that she did not execute a
deed of reconveyance does not help her case.
We affirm the conclusion reached by the RTC and the CA that the
evidence presented below prove that Adela did not intend to
alienate the Properties in favor of petitioner, and that the transfers
were merely a sham to accommodate petitioner in her travel
abroad.
Petitioner claims that we should consider that there is only one
heir of the late Adela who is contesting the sale, and that out of
the many transactions involving the decedent's other properties,
the sale to petitioner is the only one being questioned. We are not
convinced that these are material to the resolution of the case. As
aptly passed upon by the CA in its assailed
Resolution:cralawlawlibrary
In a contest for the declaration of nullity of an instrument for
being simulated, the number of contestants is not determinative
of the propriety of the cause. Any person who is prejudiced by a
simulated contract may set up its inexistence. In this instant case,
it does not matter if the contest is made by one, some or all of the
heirs.
Neither would the existence of other contracts which remain
unquestioned deter an action for the nullity of an instrument. A
contract is rendered meaningful and forceful by the intention of
the parties relative thereto, and such intention can only be relevant
to that particular contract which is produced or, as in this case, to
98
that which is not produced. That the deed of sale in [petitioner's]
favor has been held to be simulated is not indicative of the
simulation of any other contract executed by the deceased Adela
de Guzman Shotwell during her lifetime.60chanrobleslaw
To this we add that other alleged transactions made by Adela
cannot be used as evidence to prove the validity of the
conveyances to petitioner. For one, we are not aware of any of
these transactions or whether there are indeed other transactions.
More importantly, the validity of these transactions does not
prove directly or indirectly the validity of the conveyances in
question.
B. No consideration for the sale
We also find no compelling reason to depart from the court a quo's
finding that Adela never received the consideration stipulated in
the simulated Deeds of Absolute Sale.
Although on their face, the Deeds of Absolute Sale appear to be
supported by valuable consideration, the RTC and the CA found
that there was no money involved in the sale. The consideration
in the Deeds of Absolute Sale was superimposed on the spaces
therein, bearing a font type different from that used in the rest of
the document.61 The lower courts also found that the duplicate
originals of the Deeds of Absolute Sale bear a different entry with
regard to the price.62
Article 1471 of the Civil Code provides that "if the price is
simulated, the sale is void." Where a deed of sale states that the
purchase price has been paid but in fact has never been paid, the
deed of sale is null and void for lack of consideration.63 Thus,
although the contracts state that the purchase price of
P250,000.00 and P60,000.00 were paid by petitioner to Adela for
the Properties, the evidence shows that the contrary is true,
because no money changed hands. Apart from her testimony,
petitioner did not present proof that she paid for the Properties.
There is no implied trust.
We also affirm the CA's deletion of the pronouncement of the trial
court as to the existence of an implied trust. The trial court found
that a resulting trust, a form of implied trust based on Article
145364 of the Civil Code, was created between Adela and
petitioner.
Resulting trusts65 arise from the nature or circumstances of the
consideration involved in a transaction whereby one person
becomes invested with legal title but is obligated in equity to hold
his title for the benefit of another.66 It is founded on the equitable
doctrine that valuable consideration and not legal title is
determinative of equitable title or interest and is always presumed
to have been contemplated by the parties.67 Since the intent is not
expressed in the instrument or deed of conveyance, it is to be
found in the nature of the parties' transaction.68 Resulting trusts
are thus describable as intention-enforcing trusts.69 An example
of a resulting trust is Article 1453 of the Civil Code.
We, however, agree with the CA that no implied trust can be
generated by the simulated transfers because being fictitious or
simulated, the transfers were null and void ab initio from the
very beginning and thus vested no rights whatsoever in favor
of petitioner. That which is inexistent cannot give life to anything
at all.70
Article 1453 contemplates that legal titles were validly vested in
petitioner. Considering, however, that the sales lack not only the
element of consent for being absolutely simulated, but also the
element of consideration, these transactions are void and
inexistent and produce no effect. Being null and void from the
beginning, no transfer of title, both legal and beneficial, was ever
effected to petitioner.
In any case, regardless of the presence of an implied trust, this
will not affect the disposition of the case. As void contracts do not
produce any effect, the result will be the same in that the
Properties will be reeonveyed to the estate of the late Adela de
Guzman Shotwell.
WHEREFORE, the petition is DENIED.,
SO ORDERED
G.R. No. 196083, November 11, 2015
MILAGROS C. REYES, Petitioner, v. FELIX P.
ASUNCION, Respondent.
DECISION
PERALTA, J.:
For this Court's consideration is the Petition for Review on
Certiorari1 under Rule 45 of the Rules of Court, dated April 25,
2011 of petitioner Milagros C. Reyes seeking the reversal of the
Decision2 of the Court of Appeals (CA) dated July 9, 2010 which
affirmed the Decision3 of the Regional Trial Court (RTC),
Branch 66, Capas, Tarlac, dated January 17, 2007 dismissing the
Complaint4 of petitioner against respondent Felix P. Asuncion for
the declaration of nullity of a contract or deed.
The facts follow.
Petitioner claimed that since the early 80s, she and her late
husband were the owners, with the right to occupy and possess a
parcel of land (subject land), which is also a sugarcane plantation,
with an area of more or less 3.5 hectares located at Patling, Capas,
Tarlac and forms part of a U.S. Military Reservation. Sometime
in 1986, petitioner hired respondent as a caretaker of the subject
land. In 1997, the Bases Conversion and Development Authority
(BCDA) launched a resettlement program for the victims of the
Mt. Pinatubo eruption and began to look for possible resettlement
sites in Tarlac and the subject lot was among those considered.
Thereafter, according to petitioner, in order to prevent the BCDA
from converting her property into a resettlement site, she and
respondent executed a contract, antedated on June 15, 1993,
transferring her rights over the subject land to the respondent. The
contract reads as follows:chanRoblesvirtualLawlibrary
PAGLILIPAT [NG] KARAPATAN SA LUPA
Para sa Kinauukulan[:]
Ako po [ay] si [G]inang Milagros C. Reyes, widow[,] [F]ilipino,
a sugar [p]lanter of Central Azucarera de Tarlac, San Miguel [,]
Tarlac [and] residing at San Rafael[,] Tarlac.
99
Akin[g] pinatutunayan sa kasulatan[g] ito na nabili ko ang
karapatan o [r]ights ni [GJinoong Reymundo Dailig, nakatira sa
Patling[,] Capas[,] Tarlac. Ang loti ay may sukat na tatlong
ektarya at kalahati [sic] (3 1/2 hec). [A]t itoy [sic] ay kusang loob
naming mag-asawa, si Jesus C. Reyes[,] na ipagkaloob ang
nasabing lupa kay [G]inoong Felix Asuncion [unreadable
portion]. Sa loob ng sampung taon naminfg] pagsasama[,] nakita
namin na naging matapat siya sa kanyang obligations bilang taga
pamahala [sic] ng aming tubuhan at sa mga [k]ontratista at higit
sa lahat ay marunong siya makisama sa aming kasama siya [ay]
mapagkakatiwalaan lalo na sa pera. Dahil sa [sic] naging matapat
siya sa amin bilang Palsunero, napagkasunduan namin na kami
ang bahala sa finances, sa kasunduan na kami ang
magpapakabyaw ng tubo sa pangalan ko, hanggang gusto ko. Sa
ilalim nito ay nakapinna ang aking pangalan.
Sgd. Sgd.
Felix P. Asuncion Milagros C.
Reyes
Tenant Planter
Sgd.
Witness
Barangay [C]aptain
Bon Vistair5
cralawlawlibrary
Petitioner claimed to have remained the absolute owner and
possessor of the subject land and presently occupies the same as
a sugarcane plantation and even mills the sugarcane harvested at
the Central Azucarera de Tarlac for her own benefit. She also
stated that the respondent continued working for her but the
latter's employment was severed when petitioner discovered that
respondent sold the former's pigs and cows.
On January 6, 2000, respondent filed a Complaint for Estafa
against petitioner before the Office of the Prosecutor in Tarlac
City, Tarlac alleging that petitioner failed and/or refused to give
respondent his share of the total harvests on the subject land for
the years 1993-1999, using their contract as basis. However, the
said complaint was dismissed for lack of probable cause.
Thereafter, petitioner filed a Complaint dated October 21, 2001
against respondent before the RTC of Capas, Tarlac for the
declaration of nullity of the subject contract.
The RTC, on January 17, 2007, rendered a Decision in favor of
the respondent. It ruled that there is no legal basis to nullify the
contract. The dispositive portion of the decision
states:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, finding no legal basis to
nullify the contract denominated as Paglilipat [nang] Karapatan
set Lipa, the complaint is dismissed and the Paglilipat [nang]
Karapatan set Lupa is declared legal and binding.
No pronouncement as to cost. SO ORDERED.6cralawlawlibrary
Undeterred, petitioner appealed the case to the CA, and on July 9,
2010, the latter dismissed the appeal,
thus:chanRoblesvirtualLawlibrary
FOR THESE REASONS, We DISMISS the appeal for lack of
merit, the assailed Decision dated January 17, 2007 of the
Regional Trial Court is AFFIRMED.

SO ORDERED.7
After the CA denied8 petitioner's motion for reconsideration, the
latter filed the present petition.
Petitioner assigned the following
errors:chanRoblesvirtualLawlibrary
I relatively simulated and the parties are still bound by their real
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN RULING THAT THE SUBJECT CONTRACT IS
VALID EVEN IF IT DOES NOT REFLECT THE TRUE
INTENT OF THE PARTIES.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN RULING THAT THE DONATION OF THE
SUBJECT LAND IS VALID EVEN IF NOT MADE AND
ACCEPTED IN A PUBLIC DOCUMENT.
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN RULING THAT THE PETITIONER MAY
TRANSFER THE SUBJECT LAND TO THE RESPONDENT
EVEN WITHOUT THE CONSENT OF THE HEIRS OF HER
LATE HUSBAND.9ChanRoblesVirtualawlibrary
cralawlawlibrary
Thereafter, respondent filed his Comment10 dated March 31,
2014 and petitioner filed her Reply11 dated June 7, 2014.
This Court finds no merit in the petition.
It is petitioner's contention that the subject contract is purely
simulated, since it purports a transfer of rights over the subject
land in favor of the respondent. However, when petitioner
executed the contract, it was never her intention to transfer her
rights over the subject land as the primordial consideration was to
prevent the BCDA from taking over the property. She also asserts
that she and the respondent agreed to make the said false
appearance in the contract. However, the RTC and the CA found
no other evidence to support the said allegations and the self-
serving averments of the petitioner. This Court is in agreement
with the RTC and the CA as to the insufficiency of evidence to
prove that there was indeed a simulation of contract.
The Civil Code provides:chanRoblesvirtualLawlibrary
Art. 1345. Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void.
A relative simulation, when it does not prejudice a third person
and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their
real agreement.cralawlawlibrary
Valerio v. Refresca12 is instructive on the matter of simulation of
contracts:chanRoblesvirtualLawlibrary
100
x x x 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. 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
agreement. Hence, where the essential requisites of a contract are
present and the simulation refers only to the content or terms of
the contract, the agreement is absolutely binding and enforceable
between the parties and their successors-in-
interest.cralawlawlibrary
Lacking, therefore, in an absolutely simulated contract is consent
which is essential to a valid and enforceable contract.13 Thus,
where a person, in order to place his property beyond the reach of
his creditors, simulates a transfer of it to another, he does not
really intend to divest himself of his title and control of the
property; hence, the deed of transfer is but a sham.14
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.15
The burden of proving the alleged simulation of a contract falls
on those who impugn its regularity and validity. A failure to
discharge this duty will result in the upholding of the contract.
The primary consideration in determining whether a contract is
simulated is the intention of the parties as manifested by the
express terms of the agreement itself, as well as the
contemporaneous and subsequent actions of the parties. The most
striking index of simulation is not the filial relationship between
the purported seller and buyer, but the complete absence of any
attempt in any manner on the part of the latter to assert rights of
dominion over the disputed property.16
The finding of the CA is correct when it ruled that petitioner failed
to present evidence to prove that respondent acted in bad faith or
fraud in procuring her signature or that he violated their real
intention, if any, in executing it,
thus:chanRoblesvirtualLawlibrary
So far, appellant's averments evince an obvious knowledge and
voluntariness on her part to enter into the alleged simulated
contract. Without the slightest doubt, appellant, as plaintiff in the
court below, utterly foiled to adduce any evidence of appellee's
bad faith or fraud in procuring her signature to the contract or that
he violated their real intention, if any, in executing it. It must be
stressed that the determination of whether one acted in bad faith
is evidentiary in nature. Indeed, the unbroken jurisprudence is that
"[b]ad faith [or fraud] under the law cannot be presumed; it must
be established by clear and convincing evidence. The allegation
of simulation of contract as well as lack of consent and/or vitiated
consent remains to be proven. As it stands, We perceive that the
contract by its very terms and conditions, on June 15, 1993,
appellant simply intended to transfer the subject land to appellee.
It is a cardinal rule that if the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties, the
literal meaning of its stipulation shall control.17cralawlawlibrary
Petitioner insists that the subject contract is in the nature of a
simple donation, and even assuming arguendo that the same was
meant to be a remuneratory donation, it is still invalid because the
donation was not notarized.
Donation is an act of liberality whereby a person gratuitously
disposes of a thing or a right in favor of another who accepts it.18
Once perfected, a donation is final; its revocation or rescission
cannot be effected, absent any legal ground therefor.19 A
donation may, in fact, comprehend the entire property of the
donor.20 At any rate, the law provides that donors should reserve,
in full ownership or in usufruct, sufficient means for their own
support and that of all their relatives who, at the time of the
acceptance of the donation, are by law entitled to be supported by
them.21
The subject contract in this case is seemingly a remuneratory
donation as all the elements for such are present. The CA
explained:chanRoblesvirtualLawlibrary
A painstaking review of the contract reveals that it is a
remuneratory donation. First, appellant expressed in the contract
that "sa loob ng sampling taon namin[g] pagsasama[,] nakita
namin na naging matapat siya sa kanyang obligations bilang taga
pamahala [sic] ng aming tubuhan at sa mga [k]ontratista at higit
sa lahat ay marunong siya makisama sa aming mga kasama at siya
[ay] mapagkakatiwalaan lalo na sa pera. Clearly, she gave the
subject land to appellee to remunerate his ten (10) years of faithful
service to her. More importantly, appellant stated that
"napagkasunduan namin na kami ang bahala sa finances, sa
kasunduan na kami ang magpapakabyaw ng tubo sa pangalan ko,
hanggang gusto ko. This is a profit sharing agreement where
appellant finances the planting, harvesting and milling of
sugarcane on the subject land donated to appellee under
appellant's name. Unmistakably, it is a charge or burden on the
donation.22cralawlawlibrary
However, as pointed out by the CA, the contract, as well as the
evidence presented during the trial, are silent as to the value of the
burden, hence, instead of the law on donations, the rules on
contract should govern the subject contract because the donation
is onerous as the burden is imposed upon the donee of a thing with
an undetermined value. Furthermore, the CA is also right in ruling
that it is not necessary that the contract be in a public instrument
if it involves immovable property, properly citing Pada-Kilario v.
Court of Appeals23 which states that the requirement of Article
1358 of the Civil Code that acts which have for their object the
creation, transmission, modification or extinguishment of real
rights over immovable property, must appear in a public
document, is only for convenience, non-compliance with which
does not affect the validity or enforceability of the acts of the
parties as among themselves.
Finally, petitioner argues that she has raised the issue of her co-
ownership of the subject land with her late husband at the very
outset of the case, thus, in view of that co-ownership, petitioner
cannot alienate the subject land without the consent of the heirs
of her late husband. However, as aptly observed by the CA, the
petitioner did not raise the issue of co-ownership during the trial,
thus, she cannot now assail the validity of the contract using such
ground for the first time on appeal. It is also worth noting that
petitioner has not, in her appeal to the CA, as well as in her
petition with this Court, mentioned the specific heirs affected or
prejudiced by the subject contract.
101
WHEREFORE, the Petition for Review on Certiorari under Rule
45 of the Rules of Court, dated April 25, 2011 of petitioner
Milagros C. Reyes is DENIED for lack merit, and the Decision of
the Court of Appeals, dated July 9, 2010, is AFFIRMED in toto.
SO ORDERED.
G.R. No. 209284, November 10, 2015
RENEE B. TANCHULING, AND THE HEIRS OF
VICENTE N. Y. TANCHULING, NAMELY REBECCA
TANCHULING-TAN, RITA TANCHULING-MAPA,
ROSEMARIE TANCHULING-SALINAS, AND VINCENT
RAYMOND B. TANCHULING, Petitioners, v. SOTERO C.
CANTELA, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is the Decision2
dated August 30, 2013 of the Court of Appeals (CA) in CA G.R.
CV No. 95196, which reversed the Decision3 dated March 23,
2010 of the Regional Trial Court of Legazpi City, Branch 5 (RTC)
in Civil Case No. 10659 declaring the Deed of Absolute Sale4
dated March 17, 2005 (subject deed) between Spouses Dr.
Vicente Y. Tanchuling5 (Vicente) and petitioner Renee B.
Tanchuling (Sps. Tanchuling) and respondent Sotero C. Cantela
(Cantela) null and void for being absolutely simulated.
The Facts
On March 17, 2005, Sps. Tanchuling and Cantela executed the
subject deed covering two (2) parcels of land, both with areas of
192 square meters each, denominated as Lots 5 and 6 of Block 1,
situated in Rawis, Legazpi City, covered by Transfer Certificate
of Title (TCT) No. 41486 and TCT No. 41487, respectively.6 On
the face of the subject deed, the sum of F400,000.00 appears as
the consideration for Cantela's purported purchase of the
properties.7 Sometime after the subject deed's execution, Vicente
delivered the owner's copies of the aforementioned TCTs to
Cantela, although it is undisputed that none of the parties are in
actual physical possession of the properties.8
When Sps. Tanchuling tried to recover the TCTs from Cantela,
the latter refused despite the former's earnest demands, prompting
them to file on August 6, 2007 a Complaint9 for Annulment of
Deed of Sale and Delivery of the [Owner's] Duplicate Copy of the
[TCTs] with Preliminary Prohibitory and Mandatory Injunction
before the RTC, docketed as Civil Case No. 10659. They alleged
that the subject deed was absolutely simulated, hence, null and
void, given that: (a) there was no actual consideration paid by
Cantela to them; (b) the subject deed was executed to merely
show to their neighbors that they are the true owners of the
properties, considering that there are portions thereof being
illegally sold by a certain John Mercado to unsuspecting and
ignorant buyers; and (c) Cantela simultaneously executed an
undated Deed of Absolute Sale10 (undated deed) reconveying the
properties in their favor.11
In his Answer with Compulsory Counterclaim12 dated February
10, 2008, Cantela insisted that the sale of the properties to him
was valid as he bought the same from Sps. Tanchuling for the
price of P400,000.00. He further averred that the undated deed
was surreptitiously inserted by Sps. Tanchuling in the copies of
the subject deed presented to him for signing. Finally, he
mentioned that when he attempted to secure a tax declaration over
the properties, he discovered that they were posted as a property
bond, and that he later went to the Bureau of Internal Revenue to
have the capital gains tax computed.13
The RTC Ruling
In a Decision14 dated March 23, 2010, the RTC granted the
complaint and consequently, nullified the subject deed for being
absolutely simulated. It found that the parties never intended to
be bound by the subject deed in view of the simultaneous
execution of the undated deed selling back the properties to Sps.
Tanchuling, both of which contain identical witnesses, signatures,
community tax certificate details, and letter-composition, adding
that Cantela himself admitted that the signatures appearing on the
face of the undated deed was his.15 It likewise observed that a
considerable length of time had elapsed before Cantela decided to
transfer the titles to his name, i.e., one (1) year, seven (7) months
and 13 days, from the execution of the subject deed. Furthermore,
it remarked that the parties knew that the sale could not be
factually consummated since Cantela was aware that Sps.
Tanchuling were not in actual physical possession of the
properties at the time the subject deed was executed.16
Dissatisfied, Cantela appealed17 to the CA.
The CA Ruling
In a Decision18 dated August 30, 2013, the CA reversed the RTC
ruling, finding that the contemporaneous and subsequent acts of
the parties, particularly Cantela, who tried to assert his dominion
over the properties, negate absolute simulation.19 It also found
consideration for the sale when Sps. Tanchuling acknowledged
receipt of the sum of P400,000.00 in the subject deed itself.
Finally, it observed that the subject deed should prevail over the
undated deed as the former was notarized while the latter was
not.20
Dissatisfied, Renee B. Tanchuling, and the heirs of Vicente,
namely: Rebecca Tanchuling-Tan, Rita Tanchuling-Mapa,
Rosemarie Tanchuling-Salinas, and Vincent Raymond B.
Tanchuling (petitioners), filed the instant petition.
The Issue Before the Court
The essential issue for the Court's resolution is whether or not the
subject deed is simulated, hence, null and void.
The Court's Ruling
The petition is meritorious.
At the outset, it is apt to point out that while the issue of
simulation involves questions of fact, which are generally beyond
the purview of a Rule 45 petition for review on certiorari, said
rule admits of certain exceptions, such as when the factual
findings of the trial court and the appellate court are at variance,21
as in this case.
"Simulation takes place when the parties do not really want the
contract they have executed to produce the legal effects expressed
by its wordings. Simulation or vices of declaration may be either
102
absolute or relative."22 Article 1345 of the Civil Code
distinguishes an absolute simulation from a relative one; while
Article 1346 discusses their effects, as
follows:chanRoblesvirtualLawlibrary
Art. 1345. Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be bound
at all; the latter when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void.
A relative simulation, when it does not prejudice a third person
and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their
agreement.
cralawlawlibrary
In Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M.
Ureta,23 the Court explained that "[i]n 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. 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."24
In this case, the Court agrees with the RTC that the subject deed
was absolutely simulated. The parties never intended to be bound
by any sale agreement. Instead, the subject deed was executed
merely as a front to show the public that Sps. Tanchuling were
the owners of the properties in order to deter the group of John
Mercado from illegally selling the same.25cralawred
In the case of Cruz v. Bancom Finance Corporation (Cruz),26
citing Ocejo, Perez & Co. v. Flares,27 it was ruled that "a contract
of purchase and sale is null and void and produces no effect
whatsoever where it appears that [the] same is without cause or
consideration which should have been the motive thereof, or the
purchase price which appears thereon as paid but which in fact
has never been paid by the purchaser to the vendor."28
Although the subject deed between Sps. Tanchuling and Cantela
stipulated29 a consideration of P400,000.00, there was actually
no exchange of money between them. This was revealed in the
testimony of Vicente:chanRoblesvirtualLawlibrary
ATTY. BAILEY (to the witness):chanRoblesvirtualLawlibrary
Q Now you mentioned a while ago that on this particular date
March 17, 2005, you and as well as (sic) your wife and defendant
executed this Deed of Sale and you said it was simulated. My
question to you is this, how were you able to say and tell us why
you considered the sale as simulated one?
xxxx
WITNESS
There was no cash consideration in that Deed of Sale and number
2 that same instance another Deed of Absolute Sale was executed
from Sotero Cantela back to Vicente Tanchuling and Renee
Tanchuling.
ATTY BAILEY (to the witness)

Q So in other words there is mentioned here a consideration of
the sale of his land in the amount of P400,000.00, you mean to
say that this P400,000.00 was not given to you?
xxxx
WITNESS
There was no consideration whatsoever, no cash
involved.30cralawlawlibrary
Vicente's testimony was even corroborated by the testimonies of
witnesses Ma. Belleza Navarro (Navarro) and Jesus Botero
(Botero), who were also present during the execution of the
subject deed and the undated deed:chanRoblesvirtualLawlibrary
Navarro's Testimony
Q Now, appearing in this Exhibit A is the amount of the
consideration of the sale Four Hundred Thousand [Pesos]
(P400,000.00)[/| tell us at the time you were there witnessing the
signing of this document and after the same was signed by the
parties did you ever notice or see whether there was a delivery of
the Four Hundred Thousand [Pesos] (P400,000.00)[?]
xxxx
WITNESS [Navarro]
A None, sir.
xxxx
Q And, you said before that nothing was given as a consideration
by the defendant Cantela to Dr. Tanchuling, is it correct?
A Yes, sir.
Q You said that because during the execution of these documents
nothing was given by Mr. Cantela to Dr. Tanchuling at the time
of the execution of these documents before signing of these
documents, is that correct?
A Yes sir, because at the time of the signing of these documents,
there was no payment made.
Botero's Testimony
COURT:chanRoblesvirtualLawlibrary
But the question by this Court is while he was there what he can
say to the testimony by this Cantela that he gave the amount of
Four Hundred Thousand Pesos to Dr. Tanchuling while he was
there. Let him answer.
xxxx
WITNESS [Botero]
It is all a lie not even one peso was given.32cralawlawlibrary
On the other hand, Cantela never submitted any evidence to
convincingly refute these assertions.
Also, Cantela's persisting failure to secure a title in his name
likewise indicates simulation. In Rufloe v. Burgos,32 the Court
held:chanRoblesvirtualLawlibrary
A true vendee would not brook any delay in registering the sale
in his favor. Not only because registration is the operative act that
effects property covered by the Torrens System, but also because
registration and issuance of new title to the transferee, enable this
103
transferee to assume domiciliary and possessory rights over the
property. These benefits of ownership shall be denied him if the
titles of the property shall remain in the name of the vendor.
Therefore, it is inconceivable as contrary to behavioral pattern of
a true buyer and the empirical knowledge of man to assume that
a buyer who invested on the property he bought would be
uninvolved and not endeavor to register the property he bought, x
x x.34 (Emphasis supplied)cralawlawlibrary
While Cantela attributes the delay in the registration of titles of
the properties under his name to the fact that Sps. Tanchuling had
posted the properties as a bond in another case,35 records do not
sufficiently indicate the subsequent steps taken by him to release
the properties from this impediment, which altogether negates the
interest exhibited by a conscientious buyer of real estate.
In fact, Cantela failed to take possession of the properties, which,
according to Cruz, is a clear indication of
simulation:chanRoblesvirtualLawlibrary
The failure of Sulit to take possession of the property purportedly
sold to her was a clear badge of simulation that rendered the
whole transaction void and without force and effect, pursuant to
Article 1409 of the Civil Code. The fact that she was able to
secure a Certificate of Title to the subject property in her name
did not vest her with ownership over it. A simulated deed of sale
has no legal effect; consequently any transfer certificate of title
(TCT) issued in consequence thereof should be cancelled. A
simulated contract is not a recognized mode of acquiring
ownership.36 (Emphasis supplied)cralawlawlibrary
And finally, the undated deed, which serves as a counter-
agreement to, and which was simultaneously executed with, the
subject deed, unmistakably evinces absolute simulation. While
Cantela posits that he was tricked into signing the undated deed
as it was supposedly surreptitiously inserted by Sps. Tanchuling
into the copies of the subject deed at the time of their signing,
nothing, aside from his self-serving assertions, support his
account. It is well-settled that fraud is never presumed but must
be proven by clear and convincing evidence by the same party
who alleges it.37 Besides, Navarro and Botero, who equally
witnessed the signing of the undated deed, never testified on any
irregularity. Notably, the fact that the undated deed was not
notarized is rendered irrelevant by Cantela's own admission of the
document's execution, which, unless proven to be fraudulent,
must be presumed to be fair and regular, as in all private
transactions.38
In view of the foregoing, the Court thus concludes that Sps.
Tanchuling never intended to transfer the properties to Cantela;
hence, the subject deed was absolutely simulated and in
consequence, null and void.
WHEREFORE, the petition is GRANTED. The Decision dated
August 30, 2013 of the Court of Appeals in CA G.R. CV No.
95196 is hereby REVERSED and SET ASIDE. The Decision
dated March 23, 2010 of the Regional Trial Court of Legazpi City,
Branch 5 in Civil Case No. 10659 is REINSTATED.
SO ORDERED.

1356-1358: FORMS OF CONTRACT
[G.R. No. 123547. May 21, 2001]
REV. FR. DANTE MARTINEZ, petitioner, vs.
HONORABLE COURT OF APPEALS, HONORABLE
JUDGE JOHNSON BALLUTAY, PRESIDING JUDGE,
BRANCH 25, REGIONAL TRIAL COURT OF
CABANATUAN CITY, HONORABLE JUDGE ADRIANO
TUAZON, JR., PRESIDING JUDGE, BRANCH 28,
REGIONAL TRIAL COURT OF CABANATUAN CITY,
SPOUSES REYNALDO VENERACION and SUSAN
VENERACION, SPOUSES MAXIMO HIPOLITO and
MANUELA DE LA PAZ and GODOFREDO DE LA PAZ,
respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision, dated
September 7, 1995, and resolution, dated January 31, 1996, of the
Court of Appeals, which affirmed the decisions of the Regional
Trial Court, Branches 25[1] and 28,[2] Cabanatuan City, finding
private respondents spouses Reynaldo and Susan Veneracion
owners of the land in dispute, subject to petitioners rights as a
builder in good faith.
The facts are as follows:
Sometime in February 1981, private respondents Godofredo De
la Paz and his sister Manuela De la Paz, married to Maximo
Hipolito, entered into an oral contract with petitioner Rev. Fr.
Dante Martinez, then Assistant parish priest of Cabanatuan City,
for the sale of Lot No. 1337-A-3 at the Villa Fe Subdivision in
Cabanatuan City for the sum of P15,000.00. The lot is located
along Maharlika Road near the Municipal Hall of Cabanatuan
City. At the time of the sale, the lot was still registered in the name
of Claudia De la Paz, mother of private respondents, although the
latter had already sold it to private respondent Manuela de la Paz
by virtue of a Deed of Absolute Sale dated May 26, 1976 (Exh.
N/Exh. 2-Veneracion).[3] Private respondent Manuela
subsequently registered the sale in her name on October 22, 1981
and was issued TCT No. T-40496 (Exh. 9).[4] When the land was
offered for sale to petitioner, private respondents De la Paz were
accompanied by their mother, since petitioner dealt with the De
la Pazes as a family and not individually. He was assured by them
that the lot belonged to Manuela De la Paz. It was agreed that
petitioner would give a downpayment of P3,000.00 to private
respondents De la Paz and that the balance would be payable by
installment. After giving the P3,000.00 downpayment, petitioner
started the construction of a house on the lot after securing a
building permit from the City Engineers Office on April 23, 1981,
with the written consent of the then registered owner, Claudia de
la Paz (Exh. B/Exh, 1).[5] Petitioner likewise began paying the
real estate taxes on said property (Exh. D, D-1, D-2).[6]
Construction on the house was completed on October 6, 1981
(Exh. V).[7] Since then, petitioner and his family have maintained
their residence there.[8]
On January 31, 1983, petitioner completed payment of the lot for
which private respondents De la Paz executed two documents.
The first document (Exh. A) read:
1-31-83
104
Ang halaga ng Lupa sa Villa Fe Subdivision na ipinagbili kay Fr.
Dante Martinez ay P15,000.00 na pinangangako namin na
ibibigay ang Deed of Sale sa ika-25 ng Febrero 1983.
[SGD.] METRING HIPOLITO
[SGD.] JOSE GODOFREDO DE LA PAZ[9]
The second writing (Exh. O) read:
Cabanatuan City
March 19, 1986
TO WHOM IT MAY CONCERN:
This is to certify that Freddie dela Paz has agreed to sign
tomorrow (March 20) the affidavit of sale of lot located at Villa
Fe Subdivision sold to Fr. Dante Martinez.
[Sgd.] Freddie dela Paz
FREDDIE DELA PAZ[10]
However, private respondents De la Paz never delivered the Deed
of Sale they promised to petitioner.
In the meantime, in a Deed of Absolute Sale with Right to
Repurchase dated October 28, 1981 (Exh. 10),[11] private
respondents De la Paz sold three lots with right to repurchase the
same within one year to private respondents spouses Reynaldo
and Susan Veneracion for the sum of P150,000.00. One of the lots
sold was the lot previously sold to petitioner.[12]
Reynaldo Veneracion had been a resident of Cabanatuan City
since birth. He used to pass along Maharlika Highway in going to
the Municipal Hall or in going to and from Manila. Two of the
lots subject of the sale were located along Maharlika Highway,
one of which was the lot sold earlier by the De la Pazes to
petitioner. The third lot (hereinafter referred to as the Melencio
lot) was occupied by private respondents De la Paz. Private
respondents Veneracion never took actual possession of any of
these lots during the period of redemption, but all titles to the lots
were given to him.[13]
Before the expiration of the one year period, private respondent
Godofredo De la Paz informed private respondent Reynaldo
Veneracion that he was selling the three lots to another person for
P200,000.00. Indeed, private respondent Veneracion received a
call from a Mr. Tecson verifying if he had the titles to the
properties, as private respondents De la Paz were offering to sell
the two lots along Maharlika Highway to him (Mr. Tecson) for
P180,000.00 The offer included the lot purchased by petitioner in
February, 1981. Private respondent Veneracion offered to
purchase the same two lots from the De la Pazes for the same
amount. The offer was accepted by private respondents De la Paz.
Accordingly, on June 2, 1983, a Deed of Absolute Sale was
executed over the two lots (Exh. I/Exh. 5-Veneracion).[14]
Sometime in January, 1984, private respondent Reynaldo
Veneracion asked a certain Renato Reyes, petitioners neighbor,
who the owner of the building erected on the subject lot was.
Reyes told him that it was Feliza Martinez, petitioners mother,
who was in possession of the property. Reynaldo Veneracion told
private respondent Godofredo about the matter and was assured
that Godofredo would talk to Feliza. Based on that assurance,
private respondents Veneracion registered the lots with the
Register of Deeds of Cabanatuan on March 5, 1984. The lot in
dispute was registered under TCT No. T-44612 (Exh. L/Exh. 4-
Veneracion).[15]
Petitioner discovered that the lot he was occupying with his
family had been sold to the spouses Veneracion after receiving a
letter (Exh. P/Exh. 6-Veneracion) from private respondent
Reynaldo Veneracion on March 19, 1986, claiming ownership of
the land and demanding that they vacate the property and remove
their improvements thereon.[16] Petitioner, in turn, demanded
through counsel the execution of the deed of sale from private
respondents De la Paz and informed Reynaldo Veneracion that he
was the owner of the property as he had previously purchased the
same from private respondents De la Paz.[17]
The matter was then referred to the Katarungang Pambarangay of
San Juan, Cabanatuan City for conciliation, but the parties failed
to reach an agreement (Exh. M/Exh. 13).[18] As a consequence,
on May 12, 1986, private respondent Reynaldo Veneracion
brought an action for ejectment in the Municipal Trial Court,
Branch III, Cabanatuan City against petitioner and his mother
(Exh. 14).[19]
On the other hand, on June 10, 1986, petitioner caused a notice of
lis pendens to be recorded on TCT No. T-44612 with the Register
of Deeds of Cabanatuan City (Exh. U).[20]
During the pre-trial conference, the parties agreed to have the case
decided under the Rules on Summary Procedure and defined the
issues as follows:
1. Whether or not defendant (now petitioner) may be judicially
ejected.
2. Whether or not the main issue in this case is ownership.
3. Whether or not damages may be awarded.[21]
On January 29, 1987, the trial court rendered its decision,
pertinent portions of which are quoted as follows:
With the foregoing findings of the Court, defendants [petitioner
Rev. Fr. Dante Martinez and his mother] are the rightful
possessors and in good faith and in concept of owner, thus cannot
be ejected from the land in question. Since the main issue is
ownership, the better remedy of the plaintiff [herein private
respondents Veneracion] is Accion Publiciana in the Regional
Trial Court, having jurisdiction to adjudicate on ownership.
Defendants counterclaim will not be acted upon it being more
than P20,000.00 is beyond this Courts power to adjudge.
WHEREFORE, judgment is hereby rendered, dismissing
plaintiffs complaint and ordering plaintiff to pay Attorneys fee of
P5,000.00 and cost of suit.
SO ORDERED.[22]
On March 3, 1987, private respondents Veneracion filed a notice
of appeal with the Regional Trial Court, but failed to pay the
docket fee. On June 6, 1989, or over two years after the filing of
the notice of appeal, petitioner filed a Motion for Execution of the
Judgment, alleging finality of judgment for failure of private
105
respondents Veneracion to perfect their appeal and failure to
prosecute the appeal for an unreasonable length of time.
Upon objection of private respondents Veneracion, the trial court
denied on June 28, 1989 the motion for execution and ordered the
records of the case to be forwarded to the appropriate Regional
Trial Court. On July 11, 1989, petitioner appealed from this order.
The appeal of private respondents Veneracion from the decision
of the MTC and the appeal of petitioner from the order denying
petitioners motion for execution were forwarded to the Regional
Trial Court, Branch 28, Cabanatuan City. The cases were
thereafter consolidated under Civil Case No. 670-AF.
On February 20, 1991, the Regional Trial Court rendered its
decision finding private respondents Veneracion as the true
owners of the lot in dispute by virtue of their prior registration
with the Register of Deeds, subject to petitioners rights as builder
in good faith, and ordering petitioner and his privies to vacate the
lot after receipt of the cost of the construction of the house, as
well as to pay the sum of P5,000.00 as attorneys fees and the costs
of the suit. It, however, failed to rule on petitioners appeal of the
Municipal Trial Courts order denying their Motion for Execution
of Judgment.
Meanwhile, on May 30, 1986, while the ejectment case was
pending before the Municipal Trial Court, petitioner Martinez
filed a complaint for annulment of sale with damages against the
Veneracions and De la Pazes with the Regional Trial Court,
Branch 25, Cabanatuan City. On March 5, 1990, the trial court
rendered its decision finding private respondents Veneracion
owners of the land in dispute, subject to the rights of petitioner as
a builder in good faith, and ordering private respondents De la
Paz to pay petitioner the sum of P50,000.00 as moral damages
and P10,000.00 as attorneys fees, and for private respondents to
pay the costs of the suit.
On March 20, 1991, petitioner then filed a petition for review with
the Court of Appeals of the RTCs decision in Civil Case No. 670-
AF (for ejectment). Likewise, on April 2, 1991, petitioner
appealed the trial courts decision in Civil Case No. 44-[AF]-8642-
R (for annulment of sale and damages) to the Court of Appeals.
The cases were designated as CA G.R. SP. No. 24477 and CA
G.R. CV No. 27791, respectively, and were subsequently
consolidated. The Court of Appeals affirmed the trial courts
decisions, without ruling on petitioners appeal from the
Municipal Trial Courts order denying his Motion for Execution
of Judgment. It declared the Veneracions to be owners of the lot
in dispute as they were the first registrants in good faith, in
accordance with Art. 1544 of the Civil Code. Petitioner Martinez
failed to overcome the presumption of good faith for the
following reasons:
1. when private respondent Veneracion discovered the
construction on the lot, he immediately informed private
respondent Godofredo about it and relied on the latters assurance
that he will take care of the matter.
2. the sale between petitioner Martinez and private respondents
De la Paz was not notarized, as required by Arts. 1357 and 1358
of the Civil Code, thus it cannot be said that the private
respondents Veneracion had knowledge of the first sale.[23]
Petitioners motion for reconsideration was likewise denied in a
resolution dated January 31, 1996.[24] Hence this petition for
review. Petitioner raises the following assignment of errors:

I THE PUBLIC RESPONDENTS HONORABLE COURT OF
APPEALS AND REGIONAL TRIAL COURT JUDGES
JOHNSON BALLUTAY AND ADRIANO TUAZON ERRED
IN HOLDING THAT PRIVATE RESPONDENTS REYNALDO
VENERACION AND WIFE ARE BUYERS AND
REGISTRANTS IN GOOD FAITH IN RESOLVING THE
ISSUE OF OWNERSHIP AND POSSESSION OF THE LAND
IN DISPUTE.
II THAT PUBLIC RESPONDENTS ERRED IN NOT
RESOLVING AND DECIDING THE APPLICABILITY OF
THE DECISION OF THIS HONORABLE COURT IN THE
CASES OF SALVORO VS. TANEGA, ET AL., G.R. NO. L
32988 AND IN ARCENAS VS. DEL ROSARIO, 67 PHIL 238,
BY TOTALLY IGNORING THE SAID DECISIONS OF THIS
HONORABLE COURT IN THE ASSAILED DECISIONS OF
THE PUBLIC RESPONDENTS.
III THAT THE HONORABLE COURT OF APPEALS ERRED
IN NOT GIVING DUE COURSE TO THE PETITION FOR
REVIEW IN CA G.R. SP. NO. 24477.
IV THAT THE HONORABLE COURT OF APPEALS IN
DENYING PETITIONERS PETITION FOR REVIEW
AFORECITED INEVITABLY SANCTIONED AND/OR
WOULD ALLOW A VIOLATION OF LAW AND
DEPARTURE FROM THE USUAL COURSE OF JUDICIAL
PROCEEDINGS BY PUBLIC RESPONDENT HONORABLE
JUDGE ADRIANO TUAZON WHEN THE LATTER
RENDERED A DECISION IN CIVIL CASE NO. 670-AF
[ANNEX D] REVERSING THE DECISION OF THE
MUNICIPAL TRIAL COURT JUDGE SENDON DELIZO IN
CIVIL CASE NO. 9523 [ANNEX C] AND IN NOT
RESOLVING IN THE SAME CASE THE APPEAL
INTERPOSED BY DEFENDANTS ON THE ORDER OF THE
SAME COURT DENYING THE MOTION FOR EXECUTION.
V THAT THE RESOLUTION [ANNEX B] (OF THE COURT
OF APPEALS) DENYING PETITIONERS MOTION FOR
RECONSIDERATION [ANNEX I] WITHOUT STATING
CLEARLY THE FACTS AND THE LAW ON WHICH SAID
RESOLUTION WAS BASED, (IS ERRONEOUS).
These assignment of errors raise the following issues:
1. Whether or not private respondents Veneracion are buyers in
good faith of the lot in dispute as to make them the absolute
owners thereof in accordance with Art. 1544 of the Civil Code on
double sale of immovable property.
2. Whether or not payment of the appellate docket fee within the
period to appeal is not necessary for the perfection of the appeal
after a notice of appeal has been filed within such period.
3. Whether or not the resolution of the Court of Appeals denying
petitioners motion for reconsideration is contrary to the
constitutional requirement that a denial of a motion for
reconsideration must state the legal reasons on which it is based.
First. It is apparent from the first and second assignment of errors
that petitioner is assailing the findings of fact and the appreciation
of the evidence made by the trial courts and later affirmed by the
respondent court. While, as a general rule, only questions of law
may be raised in a petition for review under Rule 45 of the Rules
106
of Court, review may nevertheless be granted under certain
exceptions, namely: (a) when the conclusion is a finding
grounded entirely on speculation, surmises, or conjectures; (b)
when the inference made is manifestly mistaken, absurd, or
impossible; (c) where there is a grave abuse of discretion; (d)
when the judgment is based on a misapprehension of facts; (e)
when the findings of fact are conflicting; (f) when the Court of
Appeals, in making its findings, went beyond the issue of the case
and the same is contrary to the admissions of both appellant and
appellee; (g) when the findings of the Court of Appeals are
contrary to those of the trial court; (h) when the findings of fact
are conclusions without citation of specific evidence on which
they are based; (i) when the facts set forth in the petition as well
as in the petitioners main and reply briefs are not disputed by the
respondents; (j) when the finding of fact of the Court of Appeals
is premised on the supposed absence of evidence but is
contradicted by the evidence on record; and (k) when the Court
of Appeals manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly considered, would
justify a different conclusion.[25]
In this case, the Court of Appeals based its ruling that private
respondents Veneracion are the owners of the disputed lot on their
reliance on private respondent Godofredo De la Pazs assurance
that he would take care of the matter concerning petitioners
occupancy of the disputed lot as constituting good faith. This
case, however, involves double sale and, on this matter, Art. 1544
of the Civil Code provides that where immovable property is the
subject of a double sale, ownership shall be transferred (1) to the
person acquiring it who in good faith first recorded it to the
Registry of Property; (2) in default thereof, to the person who in
good faith was first in possession; and (3) in default thereof, to
the person who presents the oldest title.[26] The requirement of
the law, where title to the property is recorded in the Register of
Deeds, is two-fold: acquisition in good faith and recording in
good faith. To be entitled to priority, the second purchaser must
not only prove prior recording of his title but that he acted in good
faith, i.e., without knowledge or notice of a prior sale to another.
The presence of good faith should be ascertained from the
circumstances surrounding the purchase of the land.[27]
1. With regard to the first sale to private respondents Veneracion,
private respondent Reynaldo Veneracion testified that on October
10, 1981, 18 days before the execution of the first Deed of Sale
with Right to Repurchase, he inspected the premises and found it
vacant.[28] However, this is belied by the testimony of Engr.
Felix D. Minor, then building inspector of the Department of
Public Works and Highways, that he conducted on October 6,
1981 an ocular inspection of the lot in dispute in the performance
of his duties as a building inspector to monitor the progress of the
construction of the building subject of the building permit issued
in favor of petitioner on April 23, 1981, and that he found it 100
% completed (Exh. V).[29] In the absence of contrary evidence,
he is to be presumed to have regularly performed his official
duty.[30] Thus, as early as October, 1981, private respondents
Veneracion already knew that there was construction being made
on the property they purchased.
2. The Court of Appeals failed to determine the nature of the first
contract of sale between the private respondents by considering
their contemporaneous and subsequent acts.[31] More
specifically, it overlooked the fact that the first contract of sale
between the private respondents shows that it is in fact an
equitable mortgage.
The requisites for considering a contract of sale with a right of
repurchase as an equitable mortgage are (1) that the parties
entered into a contract denominated as a contract of sale and (2)
that their intention was to secure an existing debt by way of
mortgage.[32] A contract of sale with right to repurchase gives
rise to the presumption that it is an equitable mortgage in any of
the following cases: (1) when the price of a sale with a right to
repurchase is unusually inadequate; (2) when the vendor remains
in possession as lessee or otherwise; (3) when, upon or after the
expiration of the right to repurchase, another instrument
extending the period of redemption or granting a new period is
executed; (4) when the purchaser retains for himself a part of the
purchase price; (5) when the vendor binds himself to pay the taxes
on the thing sold; (6) in any other case where it may be fairly
inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other
obligation.[33] In case of doubt, a contract purporting to be a sale
with right to repurchase shall be construed as an equitable
mortgage.[34]
In this case, the following circumstances indicate that the private
respondents intended the transaction to be an equitable mortgage
and not a contract of sale: (1) Private respondents Veneracion
never took actual possession of the three lots; (2) Private
respondents De la Paz remained in possession of the Melencio lot
which was co-owned by them and where they resided; (3) During
the period between the first sale and the second sale to private
respondents Veneracion, they never made any effort to take
possession of the properties; and (4) when the period of
redemption had expired and private respondents Veneracion were
informed by the De la Pazes that they are offering the lots for sale
to another person for P200,000.00, they never objected. To the
contrary, they offered to purchase the two lots for P180,000.00
when they found that a certain Mr. Tecson was prepared to
purchase it for the same amount. Thus, it is clear from these
circumstances that both private respondents never intended the
first sale to be a contract of sale, but merely that of mortgage to
secure a debt of P150,000.00.
With regard to the second sale, which is the true contract of sale
between the parties, it should be noted that this Court in several
cases,[35] has ruled that a purchaser who is aware of facts which
should put a reasonable man upon his guard cannot turn a blind
eye and later claim that he acted in good faith. Private respondent
Reynaldo himself admitted during the pre-trial conference in the
MTC in Civil Case No. 9523 (for ejectment) that petitioner was
already in possession of the property in dispute at the time the
second Deed of Sale was executed on June 1, 1983 and registered
on March 4, 1984. He, therefore, knew that there were already
occupants on the property as early as 1981. The fact that there are
persons, other than the vendors, in actual possession of the
disputed lot should have put private respondents on inquiry as to
the nature of petitioners right over the property. But he never
talked to petitioner to verify the nature of his right. He merely
relied on the assurance of private respondent Godofredo De la
Paz, who was not even the owner of the lot in question, that he
would take care of the matter. This does not meet the standard of
good faith.
3. The appellate courts reliance on Arts. 1357 and 1358 of the
Civil Code to determine private respondents Veneracions lack of
knowledge of petitioners ownership of the disputed lot is
erroneous.
107
Art. 1357[36] and Art. 1358,[37] in relation to Art. 1403(2)[38]
of the Civil Code, requires that the sale of real property must be
in writing for it to be enforceable. It need not be notarized. If the
sale has not been put in writing, either of the contracting parties
can compel the other to observe such requirement.[39] This is
what petitioner did when he repeatedly demanded that a Deed of
Absolute Sale be executed in his favor by private respondents De
la Paz. There is nothing in the above provisions which require that
a contract of sale of realty must be executed in a public document.
In any event, it has been shown that private respondents
Veneracion had knowledge of facts which would put them on
inquiry as to the nature of petitioners occupancy of the disputed
lot.
Second. Petitioner contends that the MTC in Civil Case No. 9523
(for ejectment) erred in denying petitioners Motion for Execution
of the Judgment, which the latter filed on June 6, 1989, two years
after private respondents Veneracion filed a notice of appeal with
the MTC on March 3, 1987 without paying the appellate docket
fee. He avers that the trial courts denial of his motion is contrary
to this Courts ruling in the cases of Republic v. Director of
Lands,[40] and Aranas v. Endona[41] in which it was held that
where the appellate docket fee is not paid in full within the
reglementary period, the decision of the MTC becomes final and
unappealable as the payment of docket fee is not only a mandatory
but also a jurisdictional requirement.
Petitioners contention has no merit. The case of Republic v.
Director of Lands deals with the requirement for appeals from the
Courts of First Instance, the Social Security Commission, and the
Court of Agrarian Relations to the Court of Appeals. The case of
Aranas v. Endona, on the other hand, was decided under the 1964
Rules of Court and prior to the enactment of the Judiciary
Reorganization Act of 1981 (B.P. Blg. 129) and the issuance of
its Interim Rules and Guidelines by this Court on January 11,
1983. Hence, these cases are not applicable to the matter at issue.
On the other hand, in Santos v. Court of Appeals,[42] it was held
that although an appeal fee is required to be paid in case of an
appeal taken from the municipal trial court to the regional trial
court, it is not a prerequisite for the perfection of an appeal under
20[43] and 23[44] of the Interim Rules and Guidelines issued by
this Court on January 11, 1983 implementing the Judiciary
Reorganization Act of 1981 (B.P. Blg. 129). Under these sections,
there are only two requirements for the perfection of an appeal, to
wit: (a) the filing of a notice of appeal within the reglementary
period; and (b) the expiration of the last day to appeal by any
party. Even in the procedure for appeal to the regional trial
courts,[45] nothing is mentioned about the payment of appellate
docket fees.
Indeed, this Court has ruled that, in appealed cases, the failure to
pay the appellate docket fee does not automatically result in the
dismissal of the appeal, the dismissal being discretionary on the
part of the appellate court.[46] Thus, private respondents
Veneracions failure to pay the appellate docket fee is not fatal to
their appeal.
Third. Petitioner contends that the resolution of the Court of
Appeals denying his motion for reconsideration was rendered in
violation of the Constitution because it does not state the legal
basis thereof.
This contention is likewise without merit.
Art. VIII, Sec. 14 of the Constitution provides that No petition for
review or motion for reconsideration of a decision of the court
shall be refused due course or denied without stating the basis
therefor. This requirement was fully complied with when the
Court of Appeals, in denying reconsideration of its decision,
stated in its resolution that it found no reason to change its ruling
because petitioner had not raised anything new.[47] Thus, its
resolution denying petitioners motion for reconsideration states:
For resolution is the Motion for Reconsideration of Our Decision
filed by the petitioners.
Evidently, the motion poses nothing new. The points and
arguments raised by the movants have been considered and
passed upon in the Decision sought to be reconsidered. Thus, We
find no reason to disturb the same.
WHEREFORE, the motion is hereby DENIED.
SO ORDERED.[48]
Attorneys fees should be awarded as petitioner was compelled to
litigate to protect his interest due to private respondents act or
omission.[49]
WHEREFORE, the decision of the Court of Appeals is
REVERSED and a new one is RENDERED:
(1) declaring as null and void the deed of sale executed by private
respondents Godofredo and Manuela De la Paz in favor of private
respondents spouses Reynaldo and Susan Veneracion;
(2) ordering private respondents Godofredo and Manuela De la
Paz to execute a deed of absolute sale in favor of petitioner Rev.
Fr. Dante Martinez;
(3) ordering private respondents Godofredo and Manuela De la
Paz to reimburse private respondents spouses Veneracion the
amount the latter may have paid to the former;
(4) ordering the Register of Deeds of Cabanatuan City to cancel
TCT No. T-44612 and issue a new one in the name of petitioner
Rev. Fr. Dante Martinez; and
(5) ordering private respondents to pay petitioner jointly and
severally the sum of P20,000.00 as attorneys fees and to pay the
costs of the suit.
SO ORDERED.
BIENVENIDO C. TEOCO and G.R. No. 162333
JUAN C. TEOCO, JR.,
Petitioners, Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
REYES, and
LEONARDO-DE CASTRO,* JJ.
METROPOLITAN BANK Promulgated:
AND TRUST COMPANY,
Respondent. December 23, 2008
108
x--------------------------------------------
------x
DECISION
REYES, R.T., J.:
REAL creditors are rarely unwilling to receive their debts from
any hand which will pay them.[1] Ang tunay na may pautang ay
bihirang tumanggi sa kabayaran mula kaninuman.
This is a petition for review on certiorari seeking the reversal of
the Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No.
58891 dated February 20, 2004 which annulled and set aside the
decision of the Regional Trial Court (RTC) of Catbalogan, Samar
on July 22, 1997 in Cadastral
Record No. 1378. The RTC originally dismissed the petition for
writ of possession filed by respondent Metropolitan Bank and
Trust Company (Metrobank) on the ground that intervenors and
present petitioners, the brothers Bienvenido Teoco and Juan
Teoco, Jr. (the brothers Teoco), have redeemed the subject
property. The CA reversed this dismissal and ordered the issuance
of a writ of possession in favor of respondent Metrobank.
Culled from the records, the facts are as follows:
Lydia T. Co, married to Ramon Co, was the registered owner of
two parcels of land situated in Poblacion, Municipality of
Catbalogan, Province of Samar under Transfer Certificate of Title
(TCT) Nos. T-6220 and T-6910.[3] Ramon Co mortgaged the
said parcels of land to Metrobank for a sum of P200,000.00.
On February 14, 1991, the properties were sold to Metrobank in
an extrajudicial foreclosure sale under Act No. 3135. One year
after the registration of the Certificates of Sale, the titles to the
properties were consolidated in the name of Metrobank for failure
of Ramon Co to redeem the same within the one year period
provided for by law. TCT Nos. T-6220 and T-6910 were
cancelled and TCT Nos. T-8482 and T-8493 were issued in the
name of Metrobank.
On November 29, 1993, Metrobank filed a petition for the
issuance of a writ of possession against Ramon Co and Lydia Co
(the spouses Co). However, since the spouses Co were no longer
residing in the Philippines at the time the petition was filed, the
trial court ordered Metrobank, on January 12, 1994 and again on
January 26, 1994 to effect summons by publication against the
spouses Co.
On May 17, 1994, the brothers Teoco filed an answer-in-
intervention alleging that they are the successors-in-interest of the
spouses Co, and that they had duly and validly redeemed the
subject properties within the reglementary period provided by
law. The brothers Teoco thus prayed for the dismissal of
Metrobanks petition for a writ of possession, and for the
nullification of the TCTs issued in the name of Metrobank. The
brothers Teoco further prayed for the issuance in their name of
new certificates of title.
Metrobank, in its reply, alleged that the amount deposited by the
brothers Teoco as redemption price was not sufficient, not being
in accordance with Section 78 of the General Banking Act.
Metrobank also said the assignment of the right of redemption by
the spouses Co in favor of the brothers Teoco was not properly
executed, as it lacks the necessary authentication from the
Philippine Embassy.
On February 24, 1995, the trial court was informed that the
brothers Teoco had deposited the amount of P356,297.57 to the
clerk of court of the RTC in Catbalogan, Samar. The trial court
ordered Metrobank to disclose whether it is allowing the brothers
Teoco to redeem the subject properties. Metrobank refused to
accept the amount deposited by the brothers Teoco, alleging that
they are obligated to pay the spouses Cos subsequent obligations
to Metrobank as well. The brothers Teoco claimed that they are
not bound to pay all the obligations of the spouses Co, but only
the value of the property sold during the public auction.
On February 26, 1997, the trial court reiterated its earlier order
directing Metrobank to effect summons by publication to the
spouses Co. Metrobank complied with said order by submitting
documents showing that it caused the publication of summons
against the spouses Co. The brothers Teoco challenged this
summons by publication, arguing that the newspaper where the
summons by publication was published, the Samar Reporter, was
not a newspaper of general circulation in the Philippines. The
brothers Teoco furthermore argued that Metrobank did not
present witnesses to identify the documents to prove summons by
publication.
RTC Disposition
On July 22, 1997, the RTC rendered its decision in favor of the
brothers Teoco, to wit:
WHEREFORE, judgment is hereby rendered dismissing the
petition for a writ of possession under Section 7 of Act 3135 it
appearing that intervenor Atty. Juan C. Teoco, Jr. and his brother
Atty. Bienvenido C. Teoco have legally and effectively redeemed
Lot 61 and 67 of Psd-66654, Catbalogan, Cadastre, from the
petitioner Metropolitan Bank and Trust Company.
Accordingly, Metrobank may now withdraw the aforesaid
redemption money of P356,297.57 deposited by Juan C. Teoco,
Jr., on February 10, 1992 with the clerk of court and it is ordered
that the Transfer Certificate of Title Nos. T-8492 and T-8493 of
Metropolitan Bank and Trust Company be and are cancelled and
in their place new transfer certificates of title be issued in favor of
Intervenors Attys. Bienvenido C. Teoco and Juan C. Teoco, Jr.,
of legal age, married, and residents of Calbiga, Samar,
Philippines, upon payment of the prescribed fees therefore. No
pronouncement as to costs.[4]
According to the RTC, the case filed by Metrobank should be
dismissed since intervenor Juan C. Teoco, Jr., by his tender of
P356,297.57 to Metrobank on February 10, 1992, within the
reglementary period of redemption of the foreclosed property,
had legally and effectively redeemed the subject properties from
Metrobank. This redemption amount is a fair and reasonable price
and is in keeping with the letter and spirit of Section 78 of the
General Banking Act because Metrobank purchased the
mortgaged properties from the sheriff of the same court for only
P316,916.29. In debunking the argument that the amount
tendered was insufficient, the RTC held:
It is contended for Metrobank that the redemption money
deposited by Juan C. Teoco, Jr., is insufficient and ineffective
109
because the spouses Ramon Co and Lydia T. Co owe it the total
amount of P6,856,125 excluding interest and other charges and
the mortgage contract executed by them in favor of Metrobank in
1985 and 1986 (Exh. A and B) are not only security for payment
of their obligation in the amount of P200,000 but also for those
obligations that may have been previously and later extended to
the Co couple including interest and other charges as appears in
the accounts, books and records of the bank.
Metrobank cites the case of Mojica v. Court of Appeals, 201
SCRA 517 (1991) where the Supreme Court held that mortgages
given to secure future advancements are valid and legal contracts;
that the amounts named as consideration in said contract do not
limit the amount for which the mortgage may stand as security;
that a mortgage given to secure the advancements is a continuing
security and is not discharged by repayment of the amount named
in the mortgage until the full amount of the advancements are
paid. In the opinion of this court, it is not fair and just to apply
this rule to the case at bar. There is no evidence offered by
Metrobank that these other obligations of Ramon Co and his wife
were not secured by real estate mortgages of other lands. If the
other indebtedness of the Co couple to Metrobank are secured by
a mortgage on their other lands or properties the obligation can be
enforced by foreclosure which the court assumes Metrobank has
already done. There is no proof that Metrobank asked for a
deficiency judgment for these unpaid loans.
The Supreme Court in the Mojica case was dealing with the rights
of the mortgagee under a mortgage from an owner of the land. It
determined the security covered by the mortgage the intention of
the parties and the equities of the case. What was held in that case
was hedged about so as to limit the decision to the particular facts.
It must be apparent that the Mojica ruling cannot be construed to
give countenance or approval to the theory that in all cases
without exception mortgages given to secure past and future
advancements are valid and legal contracts.
In construing a contract between the bank and a borrower such a
construction as would be more favorable to the borrower should
be adopted since the alleged past and future indebtedness of
Ramon Co to the bank was not described and specified therein
and that the addendum was made because the mortgage given
therefore were not sufficient or that these past and future
advancements were unsecured. That being the case the mortgage
contracts, Exh. A and B should be interpreted against Metrobank
which drew said contracts. A written contract should, in case of
doubt, be interpreted against the party who has drawn the contract
(6 R.C.L. 854; H.E. Heackock Co. vs. Macondray & Co., 42 Phil.
205). Here, the mortgage contracts are in printed form prepared
by Metrobank and therefore ambiguities therein should be
construed against the party causing it (Yatco vs. El Hogar
Filipino, 67 Phil. 610; Hodges vs. Tazaro, CA, 57 O.G. 6970).[5]
The RTC added that there is another reason for dismissing
Metrobanks petition: the RTC failed to acquire jurisdiction over
the spouses Co. The RTC noted that Metrobank published its
petition for writ of possession, but did not publish the writ of
summons issued by said court on February 16, 1994. According
to the RTC:
A petition for a writ of possession of foreclosed property is in
reality a possession suit. That Metrobank prayed for a writ of
possession in an independent special proceeding does not alter the
nature of the case as a possessory suit (Cabrera v. Sinoy, L.-
12648, 23 November 1959).
The defendant or owner of the property foreclosed by the
petitioner should be summoned to answer the petition.
Accordingly, the publication made by the petitioner is fatally
flawed and defective and on that basis alone this court acquired
no jurisdiction over the person of respondents Ramon Co and his
wife (Mapa vs. Court of Appeals, G.R. No. 79394, October 2,
1992; Lopez vs. Philippine National Bank, L-34223, December
10, 1982).[6]
Metrobank appealed to the CA. In its appeal, Metrobank claimed
that the RTC erred in finding that the publication made by it is
fatally flawed, and that the brothers Teoco had effectively
redeemed the properties in question.
CA Disposition
On February 20, 2004, the CA decided the appeal in favor of
Metrobank, with the following disposition:
WHEREFORE, the appeal is hereby GRANTED. The assailed
Decision dated July 22, 1997 rendered by the Regional Trial
Court of Catbalogan, Samar Branch 29 in Cadastral Record No.
1378 is hereby ANNULLED and SET ASIDE. Accordingly, let a
writ of possession in favor of petitioner-appellant
METROPOLITAN BANK AND TRUST COMPANY be issued
over the properties and improvements covered by Transfer
Certificates of Title Nos. T-8492 and T-8493 of the Registry of
Deeds of Western Samar.
SO ORDERED.[7]
As regards the question of jurisdiction, the CA ruled that since the
parcels of land in question were already registered in the name of
Metrobank at the time the petition was filed, and since the
certificates of title of the spouses Co were already cancelled, there
is no more need to issue summons to the spouses Co. The CA
noted that the best proof of ownership of the parcel of land is a
certificate of title.[8]
The CA also held that the issue of the validity of summons to the
spouses Co is unimportant considering that the properties in
question were mortgaged to Metrobank and were subsequently
sold to the same bank after the spouses Co failed to satisfy the
principal obligation. Hence, the applicable law is Act No.
3135,[9] as amended by Act No. 4118. Section 7 of said Act No.
3135 states that a petition for the issuance of a writ of possession
filed by the purchaser of a property in an extrajudicial foreclosure
sale may be done ex parte. It is the ministerial duty of the trial
court to grant such writ of possession. No discretion is left to the
trial court. Any question regarding the cancellation of the writ, or
with respect to the validity and regularity of the public sale should
be determined in a subsequent proceeding as outlined in Section
9 of Act No. 3135.[10]
Further, the CA held that the brothers Teoco were not able to
effectively redeem the subject properties, because the amount
tendered was insufficient, and the brothers Teoco have not
sufficiently shown that the spouses Cos right of redemption was
properly transferred to them.
Issues
In this Rule 45 petition, the brothers Teoco impute to the CA the
following errors:
110
I
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS ERROR OF JUDGMENT IN HOLDING THAT
PETITIONERS FAILED TO REDEEM THE SUBJECT
PROPERTIES WITHIN THE REGLEMENTARY PERIOD OF
ONE YEAR AND THAT THE REDEMPTION PRICE
TENDERED IS INSUFFICIENT.
II
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS ERROR OF JUDGMENT IN HOLDING
PETITIONERS TO PAY NOT ONLY THE P200,000
PRINCIPAL OBLIGATION BUT ALSO THAT PREVIOUSLY
EXTENDED, WHETHER DIRECT OR INDIRECT,
PRINCIPAL OR SECONDARY AS APPEARS IN THE
ACCOUNTS, BOOKS AND RECORDS.
III
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE PETITIONERS HAVE NOT
SUFFICIENTLY SHOW(N) THAT THE RIGHT OF
REDEMPTION WAS PROPERLY TRANSFERRED TO
THEM.
IV
THE HONORABLE COURT OF APPEALS ERRED IN
REVERSING THE DECISION OF THE REGIONAL TRIAL
COURT, BRANCH 29, AND GRANTING THE WRIT OF
POSSESSION TO THE RESPONDENT.[11] (Underscoring
supplied)
Our Ruling
Sufficiency of Amount Tendered
We find that neither petitioners, the brothers Teoco, nor
respondent, Metrobank, were able to present sufficient evidence
to prove whether the additional loans granted to the spouses Co
by Metrobank were covered by the mortgage agreement between
them. The brothers Teoco failed to present any evidence of the
supposed trust receipt agreement between Metrobank and the
spouses Co, or an evidence of the supposed payment by the
spouses Co of the other loans extended by Metrobank.
Metrobank, on the other hand, merely relied on the stipulation on
the mortgage deed that the mortgage was intended to secure the
payment of the same (P200,000.00 loan) and those that may
hereafter be obtained.[12] However, there was no mention
whatsoever of the mortgage agreement in the succeeding loans
entered into by the spouses Co.
While we agree with Metrobank that mortgages intended to
secure future advancements are valid and legal contracts,[13]
entering into such mortgage contracts does not necessarily put
within its coverage all loan agreements that may be subsequently
entered into by the parties. If Metrobank wishes to apply the
mortgage contract in order to satisfy loan obligations not stated
on the face of such contract, Metrobank should prove by a
preponderance of evidence that such subsequent obligations are
secured by said mortgage contract and not by any other form of
security.
In order to prevent any injustice to, or unjust enrichment of, any
of the parties, this Court holds that the fairest resolution is to allow
the brothers Teoco to redeem the foreclosed properties based on
the amount for which it was foreclosed (P255,441.14 plus
interest). This is subject, however, to the right of Metrobank to
foreclose the same property anew in order to satisfy the
succeeding loans entered into by the spouses Co, if they were,
indeed, covered by the mortgage contract. The right of Metrobank
to foreclose the mortgage would not be hampered by the transfer
of the properties to the brothers Teoco as a result of this decision,
since Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers
of the property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession
of the mortgagor, or it passes into the hands of a third person.
(Emphasis supplied)
Further, Article 2129 of the Civil Code provides:
Art. 2129. The creditor may claim from a third person in
possession of the mortgaged property, the payment of the part of
the credit secured by the property which said third person
possesses, in the terms and with the formalities which the law
establishes.
The mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be to the
fulfillment of the obligation for whose security it was constituted.
Otherwise stated, a mortgage creates a real right which is
enforceable against the whole world. Hence, even if the mortgage
property is sold or its possession transferred to another, the
property remains subject to the fulfillment of the obligation for
whose security it was constituted.[14]
Thus, the redemption by the brothers Teoco shall be without
prejudice to the subsequent foreclosure of same properties by
Metrobank in order to satisfy other obligations covered by the
Real Estate Mortgage.
Transfer of Right of Redemption
The CA held that the brothers Teoco have not sufficiently shown
that the spouses Cos right of redemption was properly transferred
to them. The assignment of the right of redemption only stated
that the spouses Co are transferring the right of redemption to
their parents, brothers, and sisters, but did not specifically include
the brothers Teoco, who are just brothers-in-law of Ramon Co.
Furthermore, the spouses Co no longer reside in the Philippines,
and the assignment of the right of redemption was not properly
executed and/or authenticated.
The alleged transfer of the right of redemption is couched in the
following language:
KNOW ALL MEN BY THESE PRESENTS:
111
That we, RAMON CO and LYDIA CO, of legal ages, for and in
consideration of preserving the continuous ownership and
possession of family owned properties, by these presents, hereby
cede, transfer and convey in favor of my parents, brothers and
sisters, the right to redeem the properties under TCT Nos. T-6910
and T-6220, located in Patag district, Catbalogan, Samar, sold by
public auction sale on February 14, 1991 to the Metropolitan
Bank and Trust Company.
Furthermore, we waived whatever rights we may have over the
properties in favor of the successor-in-interest including that of
transferring the title to whoever may redeem the aforesaid
properties.
IN WITNESS WHEREOF, we have hereunto affixed our
signatures this 10th day of January, 1992 at Vancouver,
Canada.[15]
The brothers Teoco may be brothers-in-law only of Ramon Co,
but they are also the brothers of Lydia Teoco Co, who is actually
the registered owner of the properties covered by TCT Nos. T-
6910 and T-6220. Clearly, the brothers Teoco are two of the
persons referred to in the above transfer of the right of redemption
executed by the spouses Co.
Anent the CA observation that the assignment of the right of
redemption was not properly executed and/or authenticated,
Lopez v. Court of Appeals[16] is instructive. In Lopez, this Court
ruled that a special power of attorney executed in a foreign
country is generally not admissible in evidence as a public
document in our courts. The Court there held:
Is the special power of attorney relied upon by Mrs. Ty a public
document? We find that it is. It has been notarized by a notary
public or by a competent public official with all the solemnities
required by law of a public document. When executed and
acknowledged in the Philippines, such a public document or a
certified true copy thereof is admissible in evidence. Its due
execution and authentication need not be proven unlike a private
writing.
Section 25, Rule 132 of the Rules of Court provides
Sec. 25. Proof of public or official record. An official record or
an entry therein, when admissible for any purpose, may be
evidenced by an official publication thereof or by a copy attested
by the officer having the legal custody of the record, or by his
deputy, and accompanied, if the record is not kept in the
Philippines, with a certificate that such officer has the custody. If
the office in which the record is kept is in a foreign country, the
certificate may be made by a secretary of embassy or legation
consul general, consul, vice consul, or consular agent or by any
officer in the foreign service of the Philippines stationed in the
foreign country in which the record is kept, and authenticated by
the seal of his office.
From the foregoing provision, when the special power of attorney
is executed and acknowledged before a notary public or other
competent official in a foreign country, it cannot be admitted in
evidence unless it is certified as such in accordance with the
foregoing provision of the rules by a secretary of embassy or
legation, consul general, consul, vice consul, or consular agent or
by any officer in the foreign service of the Philippines stationed
in the foreign country in which the record is kept of said public
document and authenticated by the seal of his office. A city judge-
notary who notarized the document, as in this case, cannot issue
such certification.[17]
Verily, the assignment of right of redemption is not admissible in
evidence as a public document in our courts. However, this does
not necessarily mean that such document has no probative value.
There are generally three reasons for the necessity of the
presentation of public documents. First, public documents are
prima facie evidence of the facts stated in them, as provided for
in Section 23, Rule 132 of the Rules of Court:
SEC. 23. Public documents as evidence. Documents consisting of
entries in public records made in the performance of a duty by a
public officer are prima facie evidence of the facts therein stated.
All other public documents are evidence, even against a third
person, of the fact which gave rise to their execution and of the
date of the latter. (Underscoring supplied)
Second, the presentation of a public document dispenses with the
need to prove a documents due execution and authenticity, which
is required under Section 20, Rule 132 of the Rules of Court for
the admissibility of private documents offered as authentic:
SEC. 20. Proof of private document. Before any private document
offered as authentic is received in evidence, its due execution and
authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
Any other private document need only be identified as that which
it is claimed to be. (Underscoring supplied)
In the presentation of public documents as evidence, on the other
hand, due execution and authenticity are already presumed:
SEC. 23. Public documents are evidence. Documents consisting
of entries in public records made in the performance of a duty by
a public officer are prima facie evidence of the facts therein
stated. All other public documents are evidence, even against a
third person, of the fact which gave rise to their execution and of
the date of the latter. (Underscoring supplied)
SEC. 30. Proof of notarial documents. Every instrument duly
acknowledged or proved and certified as provided by law, may be
presented in evidence without further proof, the certificate of
acknowledgment being prima facie evidence of the execution of
the instrument or document involved. (Underscoring supplied)
Third, the law may require that certain transactions appear in
public instruments, such as Articles 1358 and 1625 of the Civil
Code, which respectively provide:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest
therein governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights
or of those of the conjugal partnership of gains;
112
(3) The power to administer property, or any other power which
has for its object an act appearing or which should appear in a
public document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But
sales of goods, chattels or things in action are governed by
Articles 1403, No. 2, and 1405.
Art. 1625. An assignment of a credit, right or action shall produce
no effect as against third person, unless it appears in a public
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.
(Underscoring supplied)
Would the exercise by the brothers Teoco of the right to redeem
the properties in question be precluded by the fact that the
assignment of right of redemption was not contained in a public
document? We rule in the negative.
Metrobank never challenged either the content, the due execution,
or the genuineness of the assignment of the right of redemption.
Consequently, Metrobank is deemed to have admitted the same.
Having impliedly admitted the content of the assignment of the
right of redemption, there is no necessity for a prima facie
evidence of the facts there stated. In the same manner, since
Metrobank has impliedly admitted the due execution and
genuineness of the assignment of the right of redemption, a
private document evidencing the same is admissible in
evidence.[18]
True it is that the Civil Code requires certain transactions to
appear in public documents. However, the necessity of a public
document for contracts which transmit or extinguish real rights
over immovable property, as mandated by Article 1358 of the
Civil Code, is only for convenience; it is not essential for validity
or enforceability.[19] Thus, in Cenido v. Apacionado,[20] this
Court ruled that the only effect of noncompliance with the
provisions of Article 1358 of the Civil Code is that a party to such
a contract embodied in a private document may be compelled to
execute a public document:
Article 1358 does not require the accomplishment of the acts or
contracts in a public instrument in order to validate the act or
contract but only to insure its efficacy, so that after the existence
of said contract has been admitted, the party bound may be
compelled to execute the proper document. This is clear from
Article 1357, viz.:
Art. 1357. If the law requires a document or other special form,
as in the acts and contracts enumerated in the following article
(Article 1358), the contracting parties may compel each other to
observe that form, once the contract has been perfected. This right
may be exercised simultaneously with the action upon the
contract.[21]
On the other hand, Article 1625 of the Civil Code provides that
[a]n assignment of a credit, right or action shall produce no effect
as against third person, unless it appears in a public instrument,
or the instrument is recorded in the Registry of Property in case
the assignment involves real property.
In Co v. Philippine National Bank,[22] the Court interpreted the
phrase effect as against a third person to be damage or prejudice
to such third person, thus:
x x x In Lichauco vs. Olegario, et al., 43 Phil. 540, this Court held
that whether or not x x x an execution debtor was legally
authorized to sell his right of redemption, is a question already
decided by this Court in the affirmative in numerous decisions on
the precepts of Sections 463 and 464 and other sections related
thereto, of the Code of Civil Procedure. (The mentioned
provisions are carried over in Rule 39 of the Revised Rules of
Court.) That the transfers or conveyances in question were not
registered is of miniscule significance, there being no showing
that PNB was damaged or could be damaged by such omission.
When CITADEL made its tender on May 5, 1976, PNB did not
question the personality of CITADEL at all. It is now too late and
purely technical to raise such innocuous failure to comply with
Article 1625 of the Civil Code.[23]
In Ansaldo v. Court of Appeals,[24] the Court held:
In its Decision, the First Division of the Appellate Tribunal,
speaking through the Presiding Justice at the time, Hon. Magno
S. Gatmaitan, held as regards Arnaldos contentions, that
xxxx
2) there was no need that the assignment be in a public document
this being required only to produce x x x effect as against third
persons (Article 1625, Civil Code), i.e., to adversely affect 3rd
persons, i.e., a 3rd person with a right against original creditor,
for example, an original creditor of creditor, against whom surely
such an assignment by his debtor (creditor in the credit assigned)
would be prejudicial, because he, creditor of assigning creditor,
would thus be deprived of an attachable asset of his debtor x x x;
xxxx
Except for the question of the claimed lack of authority on the
part of TFCs president to execute the assignment of credit in favor
of PCIB improperly raised for the first time on appeal, as
observed by the Court of Appeals the issues raised by Ansaldo
were set up by him in, and after analysis and assessment rejected
by, both the Trial Court and the Appellate Tribunal. This court
sees no error whatever in the appreciation of the facts by either
Court or their application of the relevant law and jurisprudence to
those facts, inclusive of the question posed anew by Ansaldo
relative to the alleged absence of authority on the part of TFCs
president to assign the corporations credit to PCIB.[25]
In the case at bar, Metrobank would not be prejudiced by the
assignment by the spouses Co of their right of redemption in favor
of the brothers Teoco. As conceded by Metrobank, the assignees,
the brothers Teoco, would merely step into the shoes of the
assignors, the spouses Co. The brothers Teoco would have to
comply with all the requirements imposed by law on the spouses
Co. Metrobank would not lose any security for the satisfaction of
any loan obtained from it by the spouses Co. In fact, the
assignment would even prove to be beneficial to Metrobank, as it
can foreclose on the subject properties anew, provided it proves
that the subsequent loans entered into by the spouses Co are
covered by the mortgage contract.
113
WHEREFORE, the decision of the Court of Appeals is SET
ASIDE. The decision of the Regional Trial Court in Catbalogan,
Samar is REINSTATED with the following MODIFICATION:
the redemption by Bienvenido C. Teoco and Juan C. Teoco, Jr. of
the properties covered by TCT Nos. T-6910 and T-6220 shall be
without prejudice to the subsequent foreclosure of same
properties by Metropolitan Bank and Trust Company to satisfy
other loans covered by the Real Estate Mortgage.
SO ORDERED.
G.R. No. 214057, October 19, 2015
FLORENTINA BAUTISTA-SPILLE REPRESENTED BY HER
ATTORNEY-IN-FACT, MANUEL B. FLORES, JR., Petitioner,
v. NICORP MANAGEMENT AND DEVELOPMENT
CORPORATION, BENJAMIN G. BAUTISTA AND
INTERNATIONAL EXCHAN BANK, Respondents.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule
45 of the Rules of Court assailing the March 19, 2014 Decision1
and the August 18, 2014 Resolution2 of the Court of Appeals
(CA) in CA-G.R. CV No. 97682, which reversed and set Regional
Trial Court, Branch aside the May 24, 2010 Decision3 of the
Regional Trial Court, Branch 90, Dasmarias, Cavite (RTC), in
Civil Case No. 0321-04, declaring a contract to sell null and void.
The Facts:
Petitioner Florentina Bautista-Spille (petitioner) is the registered
owner of a parcel of land covered by Transfer Certificate of Title
(TCT) No. T-197, located in Imus City, Cavite, with an area of
more or less 33,052 square meters (subject property).
On June 20, 1996, petitioner and her spouse, Harold E. Spille,
executed a document denominated as General Power of
Attorney4 in favor of her brother, respondent Benjamin Bautista
(Benjamin), authorizing the latter to administer all her businesses
and properties in the Philippines. The said document was
notarized before the Consulate General of the Philippines, New
York, United States of America.
On August 13, 2004, Benjamin and NICORP Management and
Development Corporation (NICORP) entered into a contract to
sell5 which pertained to the parcel of land covered by TCT No.
T-197 for the agreed amount of P15,000,000.00. In the said
contract, NICORP agreed to give a down payment equivalent to
20% of the purchase price and pay the remaining balance in eight
(8) months. It was also agreed that upon receipt of the down
payment, the TCT of the subject property would be deposited
with the International Exchange Bank (IE Bank) and placed in
escrow. It would only be released upon full payment of the agreed
amount. Furthermore, Benjamin was required to submit a special
power of attorney (SPA) covering the sale transaction, otherwise,
the payment of the balance would be suspended and a penalty of
P150,000.00 every month would be imposed.
Pursuant thereto, an Escrow Agreement,6 dated October 13,
2004, was executed designating IE Bank as the Escrow Agent,
obliging the latter to hold and take custody of TCT No. T-197,
and to release the said title to NICORP upon full payment of the
subject property.
On October 14, 2004, NICORP issued a check in the amount of
P2,250,000.00, representing the down payment of the subject
property.7 Thereafter, the TCT was deposited with IE Bank and
placed in escrow.
When petitioner discovered the sale, her lawyer immediately sent
demand letters8 to NICORP and Benjamin, both dated October
27, 2004, and to IE pank, dated October 28, 2004, informing them
that she was opposing the sale of the subject property and that
Benjamin was not clothed with authority to enter into a contract
to sell and demanding the return of the owner's copy of the
certificate of title to her true and lawful attorney-in-fact, Manujel
B. Flores, Jr. (Flores). NICORP, Benjamin and IE Bank, however,
failed and refused to return the title of the subject property.
Consequently, petitioner filed a complaint9 before the RTC
against Benjamin, NICORP and IE Bank for declaration of nullity
of the contract to sell, pjunction, recovery of possession and
damages with prayer for the issuance of a temporary restraining
order and/or preliminary injunction because NICORP was
starting the development of the subject property into a residential
subdivision and was planning to sell the lots to prospective
buyers. Petitioner denied receiving the down payment for the
subject property.
The RTC granted the writ of preliminary injunction in its
Order,10 dated January 24, 2005, enjoining NICORP and all
persons acting on its behalf from making or introducing
improvements, subdividing and selling any subdivided lot of the
subject property.
In its Answer,11 NICORP asked for the dismissal of the case for
lack of a cause of action and averred that Benjamin was
empowered to enter into a contract to sell by virtue of the general
power of attorney; that the said authority was valid and subsisting
as there was no specific instrument that specifically revoked his
authority; that assuming Bautista exceeded his authority when he
executed the contract to sell, the agreement was still valid and
enforceable as the agency was already "coupled with interest"
because of the partial payment in the amount of P3,000,000.00;
and that the contract could not just be revoked without NICORP
being reimbursed of its down payment and the costs for the initial
development it had incurred in developing the subject property
into a residential subdivision.
For its part, IE Bank denied any liability and alleged that
petitioner had no cause of action against it. IE Bank asserted that,
at the time of its constitution as an escrow agent, Benjamin
possessed the necessary authority from petitioner; that because
the contract to sell remained valid, it was duty-bound to observe
its duties and obligations under the Escrow Agreement; and that
in the absence of any order from the court, it was proper for the
bank not to comply with petitioner's demand for the surrender of
the certificate of title.12
Benjamin, on the other hand, did not file any responsive pleading.
Hence, he was declared in default in the RTC Order,13 dated
August 25, 2005.
On May 24, 2010, the RTC rendered its judgment, declaring the
contract to sell null and void.14 It explained that the general
power of authority only pertained to acts of administration over
114
petitioner's businesses and properties in the Philippines and did
not include authority to sell the subject property. It pointed out
that NICORP was well aware of Benjamin's lack of authority to
sell the subject property as gleaned from the contract to sell which
required the latter to procure the SPA from petitioner and even
imposed a penalty of P150,000.00 per month if he would be
delayed in securing the SPA. The dispositive portion of the RTC
decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendants,
declaring the Contract to Sell, dated October 13, 2004 between
the defendant Bautista and NICORP to be null and void, and the
writ of preliminary injunction is now made permanent, and
further ordering the defendants NICORP and International
Exchange Bank as follows -
(a)
To return to the plaintiff the peaceful possession of the subject
property covered by Transfer Certificate of Title No. T-197 of the
Register of Deeds of the Province of Cavite;
(b)
To return to the plaintiff the Original Owner's Duplicate of Title
No. T-197 of the Register of Deeds of the Province of Cavite;
(c)
To pay to the plaintiff the amount of Php250,000.00 by way of
attorney's fees; and
(d)
The Costs of suit.
SO ORDERED.15
Aggrieved, NICORP appealed before the CA.
In the assailed decision, the CA reversed the RTC decision,
explaining that the general power of attorney executed by
petitioner in favor of Benjamin authorized the latter not only to
perform acts of administration over her properties but also to
perform acts of dominion which included, among others, the
power to dispose the subject property.
Petitioner filed a motion for reconsideration, but it was denied in
the assailed CA Resolution, dated August 18, 2014.
Hence, this petition anchored on the following
GROUNDS
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ERROR IN HOLDING THAT THE GENERAL
POWER OF ATTORNEY EXECUTED BY PETITIONER
AUTHORIZED BENJAMIN BAUTISTA TO ENTER INTO
THE CONTRACT TO SELL WITH RESPONDENT IN
CONTRAVENTION OF THE ESTABLISHED
PRONOUNCEMENT OF THE SUPREME COURT IN THE
CASE OF LILLIAN N. MERCADO ET AL. VS. ALLIED
BANKING CORPORATION (G.R. NO. 171460, 24 JULY 2007.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ERROR IN APPLYING THE CASE OF ESTATE OF
LINO OLAGUER VS. ONGJOCO (G.R. NO. 173312, 26
AUGUST 2008) TO THE INSTANT CASE CONSIDERING
THAT THE ESTABLISHED FACTS HEREIN ARE NOT IN
ALL FOURS WITH THE FACTS SURROUNDING THE
DECISION IN THE OLAGUER VS. ONGJOCO CASE.
THE HONORABLE COURT OF APPEALS ERRED IN
DISREGARDING (I) RESPONDENT'S JUDICIAL
ADMISSION AS TO BENJAMIN BAUTISTA'S LACK OF
AUTHORITY TO ENTER INTO A CONTRACT TO SELL
THE SUBJECT PROPERTY, AND (II) RESPONDENT'S
KNOWLEDGE OF THE INSUFFICIENCY OF THE
GENERAL POWER OF ATTORNEY, INDICATING BAD
FAITH OF THE RESPONDENT.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE TRIAL COURT ERRED IN
DECLARING THE CONTRACT TO SELL NULL AND
VOID.16
Petitioner argues that the general power of attorney did not clothe
Benjamin with the authority to enter into a contract to sell the
subject property. She contends that the general power of attorney
pertained to the power to buy, sell, negotiate and contract over the
business and personal property but did not specifically authorize
the sale of the subject property.
Petitioner asserts that the CA erred when it disregarded the
stipulation made by NICORP during the pre-trial proceedings as
stated in the pre-trial order that Benjamin "acted beyond the scope
of his authority when he failed to inform plaintiff personally as to
his dealing or negotiation with NICORP and when he signed the
Contract to Sell xxx."17 According to petitioner, such an
admission was an indication that NICORP did not consider the
general power of authority as an SPA which would have
authorized Benjamin to enter into the contract to sell.
NICORP counters that the general power of attorney sufficiently
conferred authority on Benjamin to enter into the contract to sell.
It asserts that the written authority, while denominated as a
general power of attorney, expressly authorized him to sell the
subject property. NICORP insists that it was a buyer in good faith
and was never negligent in ascertaining the extent of his authority
to sell the property. It explains that though the general power of
attorney sufficiently clothed Bautista with authority to sell the
subject property, it nonetheless required him to submit the SPA
in order to comply with the requirements of the Register of Deeds
and the Bureau of Internal Revenue.
The issue for resolution is whether or not Benjamin was
authorized to sell the subject property.
The Court's Ruling
The Court finds the petition meritorious.
In petitions for review on certiorari under Rule 45 of the Rules of
Civil Procedure, only questions of law may be raised by the
parties and passed upon by this Court. It is not a function of this
Court to analyze and weigh the evidence presented by the parties
all over again.18 This rule, however, has several well-recognized
exceptions, such as when the factual findings of the CA and the
trial court are conflicting or contradictory.19
The well-established rule is when a sale of a parcel of land or any
interest therein is through an agent, the authority of the latter shall
be in writing, otherwise the sale shall be void. Articles 1874 and
1878 of the Civil Code explicitly provide:
Art. 1874. When a sale of a piece of land or any interest therein
is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the
following cases:chanRoblesvirtualLawlibrary
115
(1) x xx
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration;
xxx. [Emphasis Supplied]
From the foregoing, it is clear that an SPA in the conveyance of
real rights over immovable property is necessary.20 In Cosmic
Lumber Corporation v. Court of Appeals,21 the Court enunciated,
When the sale of a piece of land or any interest thereon is through
an agent, the authority of the latter shall be in writing; otherwise,
the sale shall be void. Thus, the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing
and must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract
containing terms and conditions which are in the contract he did
execute. A special power of attorney is necessary to enter into any
contract by which the ownership of an immovable is transmitted
or acquired either gratuitously or for a valuable consideration.
The express mandate required by law to enable an appointee of
an agency (couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. For the principal to confer the
right upon an agent to sell real estate, a power of attorney must so
express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the language
so used conveys such power, no such construction shall be given
the document.22
[Emphases Supplied]
To reiterate, such authority must be conferred in writing and must
express the powers of the agent in clear and unmistakable
language in order for the principal to confer the right upon an
agent to sell the real property.23 It is a general rule that a power
of attorney must be strictly construed, and courts will not infer or
presume broad powers from deeds which do not sufficiently
include property or subject under which the agent is to deal.24
Thus, when the authority is couched in general terms, without
mentioning any specific power to sell or mortgage or to do other
specific acts of strict dominion, then only acts of administration
are deemed conferred.25cralawred
In the case at bench, the only evidence adduced by NICORP to
prove Benjamin's authority to sell petitioner's property was the
document denominated as General Power of Attorney, dated June
20, 1996. The pertinent portions of the said document reads:
KNOW ALL MEN BY THESE
PRESENTS:chanRoblesvirtualLawlibrary
THAT I/WE FLORENTINA B. SPILLE, of legal age,
single/married to HAROLD E. SPILLE and residents of x x x do
hereby appoint, name and constitute BENJAMIN G. BAUTISTA
resident(s) of x x x to be my/our true and lawful attorney(s), to
administer and conduct all my/our affairs and for that purpose in
my/our name(s) and on my/our behalf, to do and execute any or
all of the following acts, deeds and things to wit:
To exercise administration, general control and supervision over
my/our business and property in the Philippines, and to act as
my/our general representative(s) and agent(s) with full authority
to buy, sell, negotiate and contract for me/us and my/our
behalf;ChanRoblesVirtualawlibrary
To ask, demand, sue for, recover and receive all sums of money,
debts, dues, goods, wares, merchandise, chattels, effects and thing
of whatsoever nature or description, which now or hereafter shall
be or become due, owing, payable or belonging to me/us in or by
any right, title, ways or means howsoever, and upon receipt
thereof or any part thereof, to make, sign, execute and deliver
such receipts, releases or other
discharges;ChanRoblesVirtualawlibrary
the value of whatever improvements it introduced on the subject
property.31chanroblesvirtuallawlibrary
WHEREFORE, the petition is GRANTED. The March 19, 2014
Decision and the August 18, 2014 Resolution of the Court of
Appeals in CA-G.R. CV No. 97682 are REVERSED and SET
ASIDE. The May 24, 2010 Decision of the Regional Trial Court,
Branch 90, Dasmarias, Cavite, is REINSTATED.

xxx26 SO ORDERED.
Doubtless, there was no perfected contract to sell between
petitioner and NICORP. Nowhere in the General Power of
Attorney was Benjamin granted, expressly or impliedly, any BITTE V JONAS
power to sell the subject property or a portion thereof. The
authority expressed in the General Power of Attorney was
couched in very broad terms covering petitioner's businesses and
properties. Time and again, this Court has stressed that the power
of administration does not include acts of disposition, which are
acts of strict ownership. As such, an authority to dispose cannot
proceed from an authority to administer, and vice versa, for the
two powers may only be exercised by an agent by following the
provisions on agency of the Civil Code.27

In the same vein, NICORP cannot be considered a purchaser in

good faith. The well-settled rule is that a person dealing with an
assumed agent is bound to ascertain not only the fact of agency
but also the nature and extent of the agent's authority.28 The law
requires a higher degree of prudence from one who buys from a
person who is not the registered owner. He is expected to examine
all factual circumstances necessary for him to determine if there
are any flaws in the title of the transferor, or in his capacity to
transfer the land.29 In ascertaining good faith, or the lack of it,
which is a question of intention, courts are necessarily controlled
by the evidence as to the conduct and outward acts by which alone
the inward motive may, with safety, be determined. Good faith,
or want of it, is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only be
judged by actual or fancied token or signs.30

Here, the Court agrees with the RTC that NICORP was fully
aware that Benjamin was not properly authorized to enter into any
transaction regarding the sale of petitioner's property. In fact, in
the contract to sell, NICORP required Benjamin to secure the
SPA from petitioner within ninety (90) days from the execution
of the contract and even imposed a substantial amount of penalty
in the amount of P150,000.00 a month in case of non-compliance
plus suspension of payment of the balance of the contract price.

Petitioner's explanation that it obliged Benjamin to secure the

SPA in order to comply with the requirements of the Register of
Deeds and the Bureau of Internal Revenue is bereft of merit.
NICORP is a real estate company which is familiar with the
intricacies of the realty business. Moreover, there was no
evidence that petitioner ratified Benjamin's act of selling the
subject property. On the contrary, immediately after the execution
of the contract to sell, petitioner wrote NICORP, IE Bank and
Benjamin to inform them of her opposition to the sale of the
subject property and of his lack of authority to sell it and demand
the return of the certificate of title. Clearly, NICORP was
negligent in its dealings with Bautista.

In sum, the Court agrees with the findings and conclusion of the
RTC. The consent of petitioner in the contract to sell was not
obtained, hence, not enforceable. Furthermore, because NICORP
is considered a builder in bad faith, it has no right to be refunded

116
 1359-1369: Reformation of Instruments
[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.
DECISION
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] The rationale 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. Oldmiso
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 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. Ncm
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]
117
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: Scjuris
ORDER
Resolved here is the defendants MOTION TO DISMISS
PLAINTIFFS 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 right 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.[5]
On December 29, 1995, respondent corporation filed a motion for
reconsideration of the order dismissing the complaint. Juris
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.
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. Manikan
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: Suprema
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 x x x 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 plaintiffs 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 plaintiffs 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
118
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.
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 oclock 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.[6]
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. Scsdaad
The core issue that merits our consideration is whether the
complaint for reformation of instrument has prescribed. Sdaad
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 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. Sdaamiso
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,[14] under 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
119
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 lessees 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
corporations 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. Ncmmis
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. Scncm
SO ORDERED.
[G.R. No. 158901. March 9, 2004]
PROCESO QUIROS and LEONARDA VILLEGAS,
petitioners, vs. MARCELO ARJONA, TERESITA
BALARBAR, JOSEPHINE ARJONA, and CONCHITA
ARJONA, respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the decision of the Court of
Appeals in an action for the execution/enforcement of amicable
settlement between petitioners Proceso Quiros and Leonarda
Villegas and respondent Marcelo Arjona. Appellate court
reversed the decision of the Regional Trial Court of Dagupan
City-Branch 44 and reinstated the decision of the Municipal Trial
Court of San Fabian-San Jacinto, Pangasinan.
On December 19, 1996, petitioners Proceso Quiros and Leonarda
Villegas filed with the office of the barangay captain of Labney,
San Jacinto, Pangasinan, a complaint for recovery of ownership
and possession of a parcel of land located at Labney, San Jacinto,
Pangasinan. Petitioners sought to recover from their uncle
Marcelo Arjona, one of the respondents herein, their lawful share
of the inheritance from their late grandmother Rosa Arjona
Quiros alias Doza, the same to be segregated from the following
parcels of land:
a) A parcel of land (Lot 1, plan Psu-189983, L.R. Case No. D-
614, LRC Record No. N- 22630), situated in the Barrio of
Labney, Torud, Municipality of San Jacinto, Province of
Pangasinan x x x Containing an area of Forty Four Thousand Five
Hundred and Twenty (44,520) square meters, more or less,
covered by Tax Decl. No. 607;
b) A parcel of Unirrig. riceland situated at Brgy. Labney, San
Jacinto, San Jacinto, Pangasinan with an area of 6450 sq. meters,
more or less declared under Tax Decl. No. 2066 of the land
records of San Jacinto, Pangasinan assessed at P2390.00 x x x;
c) A parcel of Unirrig. riceland situated at Brgy. Labney, San
Jacinto, Pangasinan with an area of 6450 sq. meters, more or less,
declared under Tax Declaration No. 2047 of the land records of
San Jacinto, Pangasinan assessed at P1700.00 x x x
d) A parcel of Unirrig. riceland situated at Brgy. Labney, San
Jacinto, Pangasinan assessed at P5610.00 x x x;
e) A parcel of Cogon land situated at Brgy. Labney, San Jacinto,
Pangasinan, with an area of 14133 sq. meters, more or less
declared under Tax Declaration No. 14 of the land records of San
Jacinto, Pangasinan assessed at P2830.00 x x x.[1]
On January 5, 1997, an amicable settlement was reached between
the parties. By reason thereof, respondent Arjona executed a
document denominated as PAKNAAN (Agreement, in
Pangasinan dialect), which reads:
AGREEMENT
I, MARCELO ARJONA, of legal age, resident of Barangay
Sapang, Buho, Palayan City, Nueva Ecija, have a land consisting
of more or less one (1) hectare which I gave to Proceso Quiros
and Leonarda Villegas, this land was inherited by Doza that is
why I am giving the said land to them for it is in my name, I am
affixing my signature on this document for this is our agreement
besides there are witnesses on the 5th day (Sunday) of January
1997.
Signed in the presence of:
(Sgd) Avelino N. De la Masa, Jr.
(Sgd) Marcelo Arjona
Witnesses:
1) (Sgd.) Teresita Balarbar
2) (Sgd.) Josephine Arjona
3) (Sgd.) Conchita Arjona
On the same date, another PAKNAAN was executed by Jose
Banda, as follows:
AGREEMENT
I, JOSE BANDA, married to Cecilia L. Banda, of legal age, and
resident of Sitio Torrod, Barangay Labney, San Jacinto,
Pangasinan. There is a land in which they entrusted to me and the
same land is situated in Sitio Torrod, Brgy. Labney, San Jacinto,
Pangasinan, land of Arjona family.
120
I am cultivating/tilling this land but if ever Leonarda Villegas and
Proceso Quiros would like to get this land, I will voluntarily
surrender it to them.
In order to attest to the veracity and truthfulness of this agreement,
I affixed (sic) my signature voluntarily below this document this
5th day (Sunday) of January 1997.
(Sgd.) Jose Banda
Signed in the presence of:
(Sgd) Avelino N. de la Masa, Sr.
Barangay Captain
Brgy. Labney, San Jacinto
Pangasinan
Witnesses:
1) Irene Banda
(sgd.)
2) Jose (illegible) x x x
Petitioners filed a complaint with the Municipal Circuit Trial
Court with prayer for the issuance of a writ of execution of the
compromise agreement which was denied because the subject
property cannot be determined with certainty.
The Regional Trial Court reversed the decision of the municipal
court on appeal and ordered the issuance of the writ of execution.
Respondents appealed to the Court of Appeals, which reversed
the decision of the Regional Trial Court and reinstated the
decision of the Municipal Circuit Trial Court.[2]
Hence, this petition on the following errors:
I
THE PAKNAAN BEING A FINAL AND EXECUTORY
JUDGMENT UNDER THE LAW IS AN IMMUTABLE
JUDGMENT CAN NOT BE ALTERED, MODIFIED OR
CHANGED BY THE COURT INCLUDING THE HIGHEST
COURT; and
II
THE SECOND PAKNAAN ALLEGEDLY EXECUTED IN
CONJUNCTION WITH THE FIRST PAKNAAN WAS NEVER
ADDUCED AS EVIDENCE BY EITHER OF THE PARTIES,
SO IT IS ERROR OF JURISDICTION TO CONSIDER THE
SAME IN THE DECISION MAKING.
The pivotal issue is the validity and enforceability of the amicable
settlement between the parties and corollary to this, whether a
writ of execution may issue on the basis thereof.
In support of their stance, petitioners rely on Section 416 of the
Local Government Code which provides that an amicable
settlement shall have the force and effect of a final judgment upon
the expiration of 10 days from the date thereof, unless repudiated
or nullified by the proper court. They argue that since no such
repudiation or action to nullify has been initiated, the municipal
court has no discretion but to execute the agreement which has
become final and executory.
Petitioners likewise contend that despite the failure of the
Paknaan to describe with certainty the object of the contract, the
evidence will show that after the execution of the agreement,
respondent Marcelo Arjona accompanied them to the actual site
of the properties at Sitio Torod, Labney, San Jacinto, Pangasinan
and pointed to them the 1 hectare property referred to in the said
agreement.
In their Comment, respondents insist that respondent Arjona
could not have accompanied petitioners to the subject land at
Torrod, Labney because he was physically incapacitated and
there was no motorized vehicle to transport him to the said place.
The Civil Code contains salutary provisions that encourage and
favor compromises and do not even require judicial approval.
Thus, under Article 2029 of the Civil Code, the courts must
endeavor to persuade the litigants in a civil case to agree upon
some fair compromise. Pursuant to Article 2037 of the Civil
Code, a compromise has upon the parties the effect and authority
of res judicata, and this is true even if the compromise is not
judicially approved. Articles 2039 and 2031 thereof also provide
for the suspension of pending actions and mitigation of damages
to the losing party who has shown a sincere desire for a
compromise, in keeping with the Codes policy of encouraging
amicable settlements.[3]
Cognizant of the beneficial effects of amicable settlements, the
Katarungang Pambarangay Law (P.D. 1508) and later the Local
Government Code provide for a mechanism for conciliation
where party-litigants can enter into an agreement in the barangay
level to reduce the deterioration of the quality of justice due to
indiscriminate filing of court cases. Thus, under Section 416 of
the said Code, an amicable settlement shall have the force and
effect of a final judgment of the court upon the expiration of 10
days from the date thereof, unless repudiation of the settlement
has been made or a petition to nullify the award has been filed
before the proper court
Petitioners submit that since the amicable settlement had not been
repudiated or impugned before the court within the 10-day
prescriptive period in accordance with Section 416 of the Local
Government Code, the enforcement of the same must be done as
a matter of course and a writ of execution must accordingly be
issued by the court.
Generally, the rule is that where no repudiation was made during
the 10-day period, the amicable settlement attains the status of
finality and it becomes the ministerial duty of the court to
implement and enforce it. However, such rule is not inflexible for
it admits of certain exceptions. In Santos v. Judge Isidro,[4] the
Court observed that special and exceptional circumstances, the
imperatives of substantial justice, or facts that may have
transpired after the finality of judgment which would render its
execution unjust, may warrant the suspension of execution of a
decision that has become final and executory. In the case at bar,
the ends of justice would be frustrated if a writ of execution is
issued considering the uncertainty of the object of the agreement.
To do so would open the possibility of error and future litigations.
The Paknaan executed by respondent Marcelo Arjona purports to
convey a parcel of land consisting of more or less 1 hectare to
petitioners Quiros and Villegas. Another Paknaan, prepared on
121
the same date, and executed by one Jose Banda who signified his
intention to vacate the parcel of land he was tilling located at
Torrod, Brgy. Labney, San Jacinto, Pangasinan, for and in behalf
of the Arjona family. On ocular inspection however, the
municipal trial court found that the land referred to in the second
Paknaan was different from the land being occupied by
petitioners. Hence, no writ of execution could be issued for failure
to determine with certainty what parcel of land respondent
intended to convey.
In denying the issuance of the writ of execution, the appellate
court ruled that the contract is null and void for its failure to
describe with certainty the object thereof. While we agree that no
writ of execution may issue, we take exception to the appellate
courts reason for its denial.
Since an amicable settlement, which partakes of the nature of a
contract, is subject to the same legal provisions providing for the
validity, enforcement, rescission or annulment of ordinary
contracts, there is a need to ascertain whether the Paknaan in
question has sufficiently complied with the requisites of validity
in accordance with Article 1318 of the Civil Code.[5]
There is no question that there was meeting of the minds between
the contracting parties. In executing the Paknaan, the respondent
undertook to convey 1 hectare of land to petitioners who
accepted. It appears that while the Paknaan was prepared and
signed by respondent Arjona, petitioners acceded to the terms
thereof by not disputing its contents and are in fact now seeking
its enforcement. The object is a 1-hectare parcel of land
representing petitioners inheritance from their deceased
grandmother. The cause of the contract is the delivery of
petitioners share in the inheritance. The inability of the municipal
court to identify the exact location of the inherited property did
not negate the principal object of the contract. This is an error
occasioned by the failure of the parties to describe the subject
property, which is correctible by reformation and does not
indicate the absence of the principal object as to render the
contract void. It cannot be disputed that the object is determinable
as to its kind, i.e.1 hectare of land as inheritance, and can be
determined without need of a new contract or agreement.[6]
Clearly, the Paknaan has all the earmarks of a valid contract.
Although both parties agreed to transfer one-hectare real
property, they failed to include in the written document a
sufficient description of the property to convey. This error is not
one for nullification of the instrument but only for reformation.
Article 1359 of the Civil Code provides:
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.
Reformation is a remedy in equity whereby a written instrument
is made or construed so as to express or conform to the real
intention of the parties where some error or mistake has been
committed.[7] In granting reformation, the remedy in equity is not
making a new contract for the parties, but establishing and
perpetuating the real contract between the parties which, under
the technical rules of law, could not be enforced but for such
reformation.
In order that an action for reformation of instrument as provided
in Article 1359 of the Civil Code may prosper, the following
requisites must concur: (1) there must have been a meeting of the
minds of the parties to the contract; (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.[8]
When the terms of an agreement have been reduced to writing, it
is considered as containing all the terms agreed upon and there
can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and
agreement of the parties thereto, in which case, one of the parties
may bring an action for the reformation of the instrument to the
end that such true intention may be expressed.[9]
Both parties acknowledge that petitioners are entitled to their
inheritance, hence, the remedy of nullification, which invalidates
the Paknaan, would prejudice petitioners and deprive them of
their just share of the inheritance. Respondent can not, as an
afterthought, be allowed to renege on his legal obligation to
transfer the property to its rightful heirs. A refusal to reform the
Paknaan under such circumstances would have the effect of
penalizing one party for negligent conduct, and at the same time
permitting the other party to escape the consequences of his
negligence and profit thereby. No person shall be unjustly
enriched at the expense of another.
WHEREFORE, in view of the foregoing, the petition is DENIED.
The Decision dated March 21, 2003 of the Court of Appeals,
which reversed the decision of the Regional Trial Court and
reinstated the decision of the Municipal Trial Court, is
AFFIRMED. This is without prejudice to the filing by either party
of an action for reformation of the Paknaan executed on January
5, 1997.
SO ORDERED.
G.R. No. 174240 March 20, 2013
SPOUSES LEHNER and LUDY MARTIRES, Petitioners,
vs.
MENELIA CHUA, Respondent.
Before the Court is a petition for review on certiorari under Rule
45 of the Rules of Court seeking to reverse and set aside the
Amended Decision,1 as well as the Resolutions2 of the Court of
Appeals (CA), dated September 30, 2005, July 5, 2006 and
August 28, 2006, respectively, in CA-G.R. CV No. 76388. The
assailed Decision of the CA reversed and set aside its earlier
Decision, dated April 30, 2004, in favor of petitioners. The July
5, 2006 Resolution denied petitioners' Motion for
Reconsideration, while the August 28, 2006 Resolution denied
petitioners' Second Motion for Reconsideration.
The factual and procedural antecedents of the case are as follows:
Subject of the instant controversy are twenty-four memorial lots
located at the Holy Cross Memorial Park in Barangay Bagbag,
122
Novaliches, Quezon City. The property, more particularly
described as "Lot: 24 lots, Block 213, Section: Plaza of Heritage-
Reg.," is covered by Transfer Certificate of Title (TCT) No.
342914. Respondent, together with her mother, Florencia R.
Calagos, own the disputed property. Their co-ownership is
evidenced by a Deed of Sale and Certificate of Perpetual Care,
denominated as Contract No. 31760, which was executed on June
4, 1992.3
On December 18, 1995, respondent borrowed from petitioner
spouses the amount of P150,000.00. The loan was secured by a
real estate mortgage over the abovementioned property.
Respondent committed to pay a monthly interest of 8% and an
additional 10% monthly interest in case of default.4
Respondent failed to fully settle her obligation.
Subsequently, without foreclosure of the mortgage, ownership of
the subject lots were transferred in the name of petitioners via a
Deed of Transfer.5
On June 23, 1997, respondent filed with the Regional Trial Court
(RTC) of Quezon City a Complaint against petitioners, Manila
Memorial Park Inc., the company which owns the Holy Cross
Memorial Park, and the Register of Deeds of Quezon City,
praying for the annulment of the contract of mortgage between
her and petitioners on the ground that the interest rates imposed
are unjust and exorbitant. Respondent also sought accounting to
determine her liability under the law. She likewise prayed that the
Register of Deeds of Quezon City and Manila Memorial Park,
Inc. be directed to reconvey the disputed property to her.6
On November 20, 1998, respondent moved for the amendment of
her complaint to include the allegation that she later discovered
that ownership of the subject lots was transferred in the name of
petitioners by virtue of a forged Deed of Transfer and Affidavit
of Warranty. Respondent prayed that the Deed of Transfer and
Affidavit of Warranty be annulled.7 In their Manifestation dated
January 25, 1999, petitioners did not oppose respondent's
motion.8 Trial ensued.
After trial, the RTC of Quezon City rendered a Decision in favor
of petitioners, the dispositive portion of which reads, thus:
Wherefore, premises considered, judgment is hereby rendered
against Menelia R. Chua and in favor of the Sps. Lehner Martires
and Ludy Martires; and Manila Memorial Park Cemetery, Inc. as
follows:
1. The Complaint is denied and dismissed for lack of merit;
2. The counterclaims are granted as follows:
a. Menelia R. Chua is ordered to pay the Sps. Martires the amount
of P100,000.00 as moral damages; the amount of P50,000.00 as
exemplary damages; and the amount of P30,000.00 as reasonable
attorneys fees plus costs of suit.
b. Menelia R. Chua is ordered to pay Manila Memorial Park
Cemetery, Inc. the amount of P30,000.00 as reasonable attorney's
fees plus costs of suit.
SO ORDERED.9
On appeal, the CA affirmed, with modification, the judgment of
the RTC, disposing as follows:
WHEREFORE, premises considered, the instant appeal is hereby
DENIED for lack of merit, and the decision of the trial court dated
03 August 2002 is hereby AFFIRMED with MODIFICATION as
to the amount of moral and exemplary damages, and attorney's
fees. Plaintiff-appellant Menelia R. Chua is hereby ordered to pay
the defendant-appellees Spouses Martires the amount of
P30,000.00 as moral damages; P20,000.00 as exemplary
damages; and attorney's fees of P10,000.00 plus costs of suit.
Insofar as defendant-appellee Manila Memorial Park Cemetery,
Inc. is concerned, the attorney's fees awarded is reduced to
P10,000.00 plus costs of suit.
SO ORDERED.10
The CA ruled that respondent voluntarily entered into a contract
of loan and that the execution of the Deed of Transfer is sufficient
evidence of petitioners' acquisition of ownership of the subject
property.
Respondent filed a Motion for Reconsideration.11 Petitioners
opposed it.12
On September 30, 2005, the CA promulgated its assailed
Amended Decision with the following dispositive portion:
WHEREFORE, the Court grants the movant's Motion for
Reconsideration.
Accordingly, the decision of this Court dated April 30, 2004 in
CA-G.R. CV No. 76388, which had affirmed the judgment of the
Regional Trial Court of Quezon City, Branch 221, in Civil Case
No. Q-97-31408, is REVERSED and SET ASIDE, and it is
hereby declared that:
(1) The assailed decision dated August 3, 2002 of the Regional
Trial Court of Quezon City Branch 221 in Civil Case No. Q-97-
31408 is hereby Reversed with the following MODIFICATIONS,
to wit:
(1) The Deed of Transfer dated July 3, 1996, as well as the
Affidavit of Warranty, are hereby declared void ab initio;
(2) The loan of P150,000.00 is hereby subject to an interest of
12% per annum.
(3) The Manila Memorial Park Cemetery, Inc. and the Register of
Deeds of Quezon City [are] hereby directed to cancel the
registration or annotation of ownership of the spouses Martires on
Lot: 24 lots, Block 213, Section: Plaza Heritage Regular, Holy
Cross Memorial Park, being a portion of Transfer Certificate of
Title No. 342914 issued by the Register of Deeds of Quezon City,
and revert registration of ownership over the same in the name of
appellant Menelia R. Chua, and Florencia R. Calagos.
(4) The movant, Menelia R. Chua, is hereby ordered to pay the
spouses Martires the amount of P150,000.00 plus interest of 12%
per annum computed from December 18, 1995 up to the time of
full payment thereof and, after deducting payments made in the
total amount of P80,000.00, the same shall be paid within ninety
(90) days from the finality of this decision. In case of failure to
pay the aforesaid amount and the accrued interests from the
123
period hereinstated, the property shall be sold at public auction to
satisfy the mortgage debt and costs, and if there is an excess, the
same is to be given to the owner.
No costs.
SO ORDERED.13
The CA reconsidered its findings and concluded that the Deed of
Transfer which, on its face, transfers ownership of the subject
property to petitioners, is, in fact, an equitable mortgage. The CA
held that the true intention of respondent was merely to provide
security for her loan and not to transfer ownership of the property
to petitioners. The CA so ruled on the basis of its findings that:
(1) the consideration, amounting to P150,000.00, for the alleged
Deed of Transfer is unusually inadequate, considering that the
subject property consists of 24 memorial lots; (2) the Deed of
Transfer was executed by reason of the same loan extended by
petitioners to respondent; (3) the Deed of Transfer is incomplete
and defective; and (4) the lots subject of the Deed of Transfer are
one and the same property used to secure respondent's
P150,000.00 loan from petitioners.
Petitioners filed a Motion for Reconsideration,14 but the CA
denied it in its Resolution dated July 5, 2006.
On July 26, 2006, petitioners filed a Second Motion for
Reconsideration,15 but again, the CA denied it via its Resolution
dated August 28, 2006.
Hence, the present petition based on the following grounds:
A. THE COURT OF APPEALS PATENTLY ERRED IN NOT
UPHOLDING THE DEED OF TRANSFER EXECUTED BY
THE RESPONDENT IN FAVOR OF THE PETITIONERS BY
RULING THAT:
1. The Deed of Transfer executed by respondent in favor of
petitioners over the subject property was not entered in the
Notarial Book of Atty. Francisco Talampas and reported in the
Notarial Section of the Regional Trial Court of Makati City.
2. The Deed of Transfer was not duly notarized by Atty. Francisco
Talampas inasmuch as there was no convincing proof that
respondent appeared before Notary Public Atty. Talampas.
B. THE COURT OF APPEALS PATENTLY ERRED IN
RULING THAT THE DEED OF TRANSFER EXECUTED
BETWEEN THE RESPONDENT AND THE PETITIONERS
CONSTITUTED AN EQUITABLE MORTGAGE
CONSIDERING THAT:
1. Said issue was not raised in any pleading in the appellate and
trial courts.1wphi1
2. Respondent herself admitted that a separate mortgage was
executed to secure the loan.16
The petition lacks merit.
At the outset, the instant petition should be denied for being filed
out of time. Petitioners admit in the instant petition that: (1) on
July 18, 2006, they received a copy of the July 5, 2006 Resolution
of the CA which denied their Motion for Reconsideration of the
assailed Amended Decision; (2) on July 26, 2006, they filed a
Motion to Admit Second Motion for Reconsideration attaching
thereto the said Second Motion for Reconsideration; (3) on
September 5, 2006, they received a copy of the August 28, 2006
Resolution of the CA which denied their Motion to Admit as well
as their Second Motion for Reconsideration; and (4) they filed the
instant petition on October 20, 2006.
Section 2, Rule 45 of the Rules of Court provides that a petition
for review on certiorari under the said Rule "shall be filed within
fifteen (15) days from notice of the judgment or final order or
resolution appealed from or of the denial of the petitioner's motion
for new trial or reconsideration filed in due time after notice of
the judgment." Relative thereto, Section 2, Rule 52 of the same
Rules provides that "no second motion for reconsideration of a
judgment or final resolution by the same party shall be
entertained." Based on the abovementioned dates, the start f the
15-day period for the filing of this petition should have been
reckoned from July 18, 2006, the time of petitioners' receipt of
the CA Resolution denying their Motion for Reconsideration, and
not on September 5, 2006, the date when they received the CA
Resolution denying their Second Motion for Reconsideration.
Thus, petitioners should have filed the instant petition not later
than August 2, 2006. It is wrong for petitioners to reckon the 15-
day period for the filing of the instant petition from the date when
they received the copy of the CA Resolution denying their Second
Motion for Reconsideration. Since a second motion for
reconsideration is not allowed, then unavoidably, its filing did not
toll the running of the period to file an appeal by certiorari.17
Petitioners made a critical mistake in waiting for the CA to
resolve their second motion for reconsideration before pursuing
an appeal.
Perfection of an appeal within the reglementary period is not only
mandatory but also jurisdictional.18 For this reason, petitioners'
failure to file this petition within the 15-day period rendered the
assailed Amended CA Decision and Resolutions final and
executory, thus, depriving this Court of jurisdiction to entertain
an appeal therefrom.19On this ground alone, the instant petition
should be dismissed.
In any case, even granting, arguendo, that the present petition is
timely filed, the Court finds no cogent reason to depart from the
findings and conclusions of the CA in its disputed Amended
Decision.
Anent the first assigned error, petitioners are correct in pointing
out that notarized documents carry evidentiary weight conferred
upon them with respect to their due execution and enjoy the
presumption of regularity which may only be rebutted by
evidence so clear, strong and convincing as to exclude all
controversy as to falsity.20 However, the presumptions that attach
to notarized documents can be affirmed only so long as it is
beyond dispute that the notarization was regular.21 A defective
notarization will strip the document of its public character and
reduce it to a private instrument.22 Consequently, when there is
a defect in the notarization of a document, the clear and
convincing evidentiary standard normally attached to a duly-
notarized document is dispensed with, and the measure to test the
validity of such document is preponderance of evidence.23
In the present case, the CA has clearly pointed out the dubious
circumstances and irregularities attendant in the alleged
notarization of the subject Deed of Transfer, to wit: (1) the
Certification24 issued by the Clerk of Court of the Notarial
Section of the RTC of Makati City which supposedly attested that
a copy of the subject Deed of Transfer is on file with the said
court, was contradicted by the Certification25 issued by the
Administrative Officer of the Notarial Section of the same office
124
as well as by the testimony of the court employee who prepared
the Certification issued by the Clerk of Court, to the effect that
the subject Deed of Transfer cannot, in fact, be found in their files;
(2) respondent's categorical denial that she executed the subject
Deed of Transfer; and (3) the subject document did not state the
date of execution and lacks the marital consent of respondent's
husband.
Indeed, petitioners' heavy reliance on the Certification issued by
the notary public who supposedly notarized the said deed, as well
as the Certification issued by the Clerk of Court of the Notarial
Section of the RTC of Makati City, is misplaced for the following
reasons: first, the persons who issued these Certifications were
not presented as witnesses and, as such, they could not be cross-
examined with respect to the truthfulness of the contents of their
Certifications; second, as mentioned above, these Certifications
were contradicted by the Certification issued by the
Administrative Officer of the Notarial Section of the RTC of
Makati City as well as by the admission, on cross-examination, of
the clerk who prepared the Certification of the Clerk of Court, that
their office cannot, in fact, find a copy of the subject Deed of
Transfer in their files;26 and third, the further admission of the
said clerk that the Certification, which was issued by the clerk of
court and relied upon by petitioners, was not based on documents
existing in their files, but was simply based on the Certification
issued by the notary public who allegedly notarized the said Deed
of Transfer.27
Assuming further that the notarization of the disputed Deed of
Transfer was regular, the Court, nonetheless, is not persuaded by
petitioners' argument that such Deed is a sufficient evidence of
the validity of the agreement between petitioners and respondent.
While indeed a notarized document enjoys the presumption of
regularity, the fact that a deed is notarized is not a guarantee of
the validity of its contents.28 The presumption is not absolute and
may be rebutted by clear and convincing evidence to the
contrary.29 In the present case, the presumption cannot be made
to apply, because aside from the regularity of its notarization, the
validity of the contents and execution of the subject Deed of
Transfer was challenged in the proceedings below where its prima
facie validity was subsequently overthrown by the questionable
circumstances attendant in its supposed execution. These
circumstances include: (1) the alleged agreement between the
parties that the ownership of the subject property be simply
assigned to petitioners instead of foreclosure of the contract of
mortgage which was earlier entered into by them; (2) the Deed of
Transfer was executed by reason of the loan extended by
petitioners to respondent, the amount of the latter's outstanding
obligation being the same as the amount of the consideration for
the assignment of ownership over the subject property; (3) the
inadequacy of the consideration; and (4) the claim of respondent
that she had no intention of transferring ownership of the subject
property to petitioners.
Based on the foregoing, the Court finds no cogent reason to depart
from the findings of the CA that the agreement between
petitioners and respondent is, in fact, an equitable mortgage.
An equitable mortgage has been defined as one which, although
lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the
parties to charge real property as security for a debt, there being
no impossibility nor anything contrary to law in this intent.30
One of the circumstances provided for under Article 1602 of the
Civil Code, where a contract shall be presumed to be an equitable
mortgage, is "where it may be fairly inferred that the real intention
of the parties is that the transaction shall secure the payment of a
debt or the performance of any other obligation." In the instant
case, it has been established that the intent of both petitioners and
respondent is that the subject property shall serve as security for
the latter's obligation to the former. As correctly pointed out by
the CA, the circumstances surrounding the execution of the
disputed Deed of Transfer would show that the said document
was executed to circumvent the terms of the original agreement
and deprive respondent of her mortgaged property without the
requisite foreclosure.
With respect to the foregoing discussions, it bears to point out that
in Misena v. Rongavilla,31 a case which involves a factual
background similar to the present case, this Court arrived at the
same ruling. In the said case, the respondent mortgaged a parcel
of land to the petitioner as security for the loan which the former
obtained from the latter. Subsequently, ownership of the property
was conveyed to the petitioner via a Deed of Absolute Sale.
Applying Article 1602 of the Civil Code, this Court ruled in favor
of the respondent holding that the supposed sale of the property
was, in fact, an equitable mortgage as the real intention of the
respondent was to provide security for the loan and not to transfer
ownership over the property.
Since the original transaction between the parties was a mortgage,
the subsequent assignment of ownership of the subject lots to
petitioners without the benefit of foreclosure proceedings,
partakes of the nature of a pactum commissorium, as provided for
under Article 2088 of the Civil Code.
Pactum commissorium is a stipulation empowering the creditor
to appropriate the thing given as guaranty for the fulfillment of
the obligation in the event the obligor fails to live up to his
undertakings, without further formality, such as foreclosure
proceedings, and a public sale.32
In the instant case, evidence points to the fact that the sale of the
subject property, as proven by the disputed Deed of Transfer, was
simulated to cover up the automatic transfer of ownership in
petitioners' favor. While there was no stipulation in the mortgage
contract which provides for petitioners' automatic appropriation
of the subject mortgaged property in the event that respondent
fails to pay her obligation, the subsequent acts of the parties and
the circumstances surrounding such acts point to no other
conclusion than that petitioners were empowered to acquire
ownership of the disputed property without need of any
foreclosure.
Indeed, the Court agrees with the CA in not giving credence to
petitioners' contention in their Answer filed with the RTC that
respondent offered to transfer ownership of the subject property
in their name as payment for her outstanding obligation. As this
Court has held, all persons in need of money are liable to enter
into contractual relationships whatever the condition if only to
alleviate their financial burden albeit temporarily.33
Hence, courts are duty-bound to exercise caution in the
interpretation and resolution of contracts lest the lenders devour
the borrowers like vultures do with their prey.34 Aside from this
aforementioned reason, the Court cannot fathom why respondent
would agree to transfer ownership of the subject property, whose
value is much higher than her outstanding obligation to
petitioners. Considering that the disputed property was
mortgaged to secure the payment of her obligation, the most
logical and practical thing that she could have done, if she is
unable to pay her debt, is to wait for it to be foreclosed. She stands
to lose less of the value of the subject property if the same is
foreclosed, rather than if the title thereto is directly transferred to
petitioners. This is so because in foreclosure, unlike in the present
case where ownership of the property was assigned to petitioners,
respondent can still claim the balance from the proceeds of the
125
foreclosure sale, if there be any. In such a case, she could still
recover a portion of the value of the subject property rather than
losing it completely by assigning its ownership to petitioners.
As to the second assigned error, the Court is not persuaded by
petitioners' contention that the issue of whether or not the subject
Deed of Transfer is, in fact, an equitable mortgage was not raised
by the latter either in the RTC or the CA.
It is true that, as a rule, no issue may be raised on appeal unless it
has been brought before the lower tribunal for its consideration.35
Higher courts are precluded from entertaining matters neither
alleged in the pleadings nor raised during the proceedings below,
but ventilated for the first time only in a motion for
reconsideration or on appeal.36 However, as with most
procedural rules, this maxim is subject to exceptions.37 In this
regard, the Court's ruling in Mendoza v. Bautista38 is instructive,
to wit:
x x x Indeed, our rules recognize the broad discretionary power
of an appellate court to waive the lack of proper assignment of
errors and to consider errors not assigned. Section 8 of Rule 51 of
the Rules of Court provides:
SEC. 8 Questions that may be decided. - No error which does not
affect the jurisdiction over the subject matter or the validity of the
judgment appealed from or the proceedings therein will be
considered, unless stated in the assignment of errors, or closely
related to or dependent on an assigned error and properly argued
in the brief, save as the court may pass upon plain errors and
clerical errors.
Thus, an appellate court is clothed with ample authority to review
rulings even if they are not assigned as errors in the appeal in these
instances: (a) grounds not assigned as errors but affecting
jurisdiction over the subject matter; (b) matters not assigned as
errors on appeal but are evidently plain or clerical errors within
contemplation of law; (c) matters not assigned as errors on appeal
but consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the
interests of justice or to avoid dispensing piecemeal justice; (d)
matters not specifically assigned as errors on appeal but raised in
the trial court and are matters of record having some bearing on
the issue submitted which the parties failed to raise or which the
lower court ignored; (e) matters not assigned as errors on appeal
but closely related to an error assigned; and (f) matters not
assigned as errors on appeal but upon which the determination of
a question properly assigned, is dependent.39
In the present case, petitioners must be reminded that one of the
main issues raised by respondent in her appeal with the CA is the
validity and due execution of the Deed of Transfer which she
supposedly executed in petitioners' favor. The Court agrees with
respondent that, under the factual circumstances obtaining in the
instant case, the determination of the validity of the subject Deed
of Transfer would necessarily entail or involve an examination of
the true nature of the said agreement. In other words, the matter
of validity of the disputed Deed of Transfer and the question of
whether the agreement evidenced by such Deed was, in fact, an
equitable mortgage are issues which are closely related, which
can, thus, be resolved jointly by the CA.
WHEREFORE, the instant petition is DENIED. The assailed
Amended Decision and Resolutions of the Court of Appeals,
dated September 30, 2005, July 5, 2006 and August 28, 2006,
respectively, in CA-G.R. CV No. 76388, are AFFIRMED.
SO ORDERED.
 1370-1379: Interpretation of Contracts
G.R. No. 151217 September 8, 2006
SPOUSES CESAR R. ROMULO and NENITA S. ROMULO,
petitioners,
vs.
SPOUSES MOISES P. LAYUG, JR., and FELISARIN
LAYUG, respondents.
DECISION
TINGA, J.:
This is an appeal by certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, assailing the Court of Appeals Decision1 and
Resolution2 in CA-G.R. CV No. 63965. Said Decision reversed
and set aside the Decision3 of the Regional Trial Court (RTC),
Branch 258, Paraaque City, which nullified the Deed of
Absolute Sale and Contract of Lease executed between herein
petitioners and respondents.
The following factual antecedents are matters of record.
On April 11, 1996, petitioners Spouses Cesar and Nenita Romulo
filed a verified Complaint for Cancellation of Title, Annulment of
Deed of Absolute Sale and Contract of Lease with Damages
against respondents Spouses Moises and Felisarin Layug. The
complaint was docketed as Civil Case No. 96-0172 and raffled to
Branch 258 of the RTC of Paraaque.4
Petitioners averred in their complaint that sometime in 1986, they
obtained from respondents a loan in the amount of P50,000.00
with a monthly interest of 10%, which subsequently ballooned to
P580,292.00. To secure the payment of the loan, respondents
allegedly duped petitioners into signing a Contract of Lease and
a Deed of Absolute Sale covering petitioners house and lot
located at Phase II, BF Homes, Sucat, Paraaque and covered by
Transfer Certificate of Title (TCT) No. S-71528. The Deed of
Absolute Sale purportedly facilitated the cancellation of
petitioners title on the house and lot and the issuance of TCT No.
20489 in the name of respondents. Thus, petitioners prayed for
the nullification of the Deed of Absolute Sale, the contract of
lease and TCT No. 20489, and the award of moral and exemplary
damages.5
Respondents denied petitioners allegations. In their Answer,6
they vouched for the validity of the Deed of Absolute Sale,
particularly as having been voluntarily executed by the parties for
the purpose of extinguishing petitioners indebtedness to
respondents. As consideration of the sale, respondents allegedly
paid the amount of P200,000.00 in addition to the writing off of
petitioners obligation to them. That they allowed petitioners to
occupy the house and lot as lessees thereof was founded on the
trust they reposed on petitioners, claimed respondents.7
Prior to the filing of Civil Case No. 96-0172, respondent Moises
Layug, Jr. ("Moises") filed Civil Case No. 9422, an action for
ejectment, against petitioners to compel the latter to vacate the
house and lot allegedly sold by petitioners to Moises and
subsequently rented out by him to petitioners. Moises alleged that
petitioners violated the terms of the Contract of Lease when the
latter failed to pay any rental or exercise their option to repurchase
the house and lot and refused to vacate the property despite
126
demand. The Metropolitan Trial Court (MeTC), Branch 77,
Paraaque dismissed the complaint for lack of cause of action.8
The RTC, Branch 257, Paraaque, likewise dismissed Moises
appeal based on its finding that the parties did not intend to enter
into a lease agreement.9 The Court of Appeals denied Moises
petition for review on the ground of late filing.10 Upon elevation
to this Court, Moises petition for review on certiorari was denied
with finality by this Court.11
On June 21, 1999, the trial court rendered judgment in favor of
petitioners in Civil Case No. 96-0172. The dispositive portion of
the decision reads:
WHEREFORE, the plaintiffs having been able to prove their
claim by preponderance of evidence, judgment is hereby rendered
in their favor and against spouses Moises P. Layug and Felisarin
Layug whereby the Contract of Lease as well as the Deed of Sale
allegedly executed by the herein parties are hereby declared
NULL and VOID and of no force and effect and the Register of
Deeds of the City of Paraaque is hereby ordered to cancel
Transfer Certificate of Title No. 20489 registered in the names of
MOISES P. LAYUG married to FELISARIN LAYUG and to
issue a new one in the name of Spouses Cesar R. Romulo and
Nenita S. Romulo, upon the payment of the required fees by the
plaintiffs.
Likewise, defendants Spouses Moises P. Layug and Felisarin
Layug are hereby ordered to pay jointly and severally Spouses
Cesar R. Romulo and Nenita S. Romulo the following, to wit:
1. The amount of P100,000.00 as and by way of moral damages;
2. The amount of P80,000.00 as exemplary damages;
3. The amount of P50,000.00 as and by way of attorneys fees;
and
4. The costs of suit.
SO ORDERED.12
Respondents elevated the matter to the Court of Appeals,
questioning, among others, the trial courts finding that the
contract between petitioners and respondents was an equitable
mortgage.13 The Court of Appeals reversed and set aside the
RTC Decision, mainly on the ground that petitioners failed to
present sufficient evidence to prove their allegation that their
signatures to the Deed of Absolute Sale were obtained
fraudulently. Their motion for reconsideration rebuffed,14
petitioners filed the instant petition raising the lone issue of
whether or not the transaction between the parties constitutes an
equitable mortgage.
On this issue, the RTC and the Court of Appeals differ in opinion.
The trial court based its declaration that an equitable mortgage
was intended by the parties on the finding that petitioners
remained in possession of the house and lot even after the
property was supposedly sold to respondents. The trial court also
gave evidentiary weight to the decisions of the MeTC and RTC
dismissing the action for ejectment in Civil Case No. 9422, where
both courts found that petitioners neither vacated the property nor
paid any rental even after the execution of the Deed of Absolute
Sale. The Court of Appeals disagreed and declared that an
absolute sale was contemplated by the parties based on the
express stipulations in the Deed of Absolute Sale and on the acts
of ownership by respondents subsequent to its execution.
Whether or not the parties intended an equitable mortgage is a
factual issue. As a general rule, factual review is beyond the
province of this Court. One of the exceptions to the rule is
exemplified by the instant case where the factual findings of the
RTC and Court of Appeals are contradictory.
That petitioners obtained loans from respondents between 1985
and 1987, which remained unpaid up to the time of the execution
of the assailed Deed of Absolute Sale, is established.15 That
petitioners signed the assailed instrument is also not disputed.
Indeed, they admitted having signed said document qualifying,
however, that they were forced by respondents to execute the
same for the purpose of securing their indebtedness to
respondents.16 Respondents, on the other hand, insisted that the
parties executed the Deed of Absolute Sale as an honest-to-
goodness sales transaction.
Respondents, however, admitted further that in addition to the
amount of P200,000.00 stipulated in the Deed of Absolute Sale,
the parties agreed to write off petitioners loan as consideration of
the sale, although this clause was not expressed in the
instrument.17 From respondents admission, it can be gathered
that the assailed Deed of Absolute Sale does not reflect the true
arrangement of the parties. Now, is petitioners submission that
the parties actually agreed to subject the house and lot as security
for their unpaid obligation supported by the evidence? Did the
parties execute the assailed Deed of Absolute Sale with the
intention of subjecting petitioners house and lot covered by the
deed as a mere security for the payment of their debt?
The form of the instrument cannot prevail over the true intent of
the parties as established by the evidence. We have also decreed
that in determining the nature of a contract, courts are not bound
by the title or name given by the parties. The decisive factor in
evaluating such agreement is the intention of the parties, as shown
not necessarily by the terminology used in the contract but by
their conduct, words, actions and deeds prior to, during and
immediately after execution of the agreement.18 In order to
ascertain the intention of the parties, their contemporaneous and
subsequent acts should be considered. Once the intention of the
parties has been ascertained, that element is deemed as an integral
part of the contract as though it has been originally expressed in
unequivocal terms.19 As such, documentary and parol evidence
may be submitted and admitted to prove such intention. And, in
case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage.20
Between 1985 and 1987, petitioner Nenita Romulo ("Nenita")
obtained from respondent Felisarin Layug ("Felisarin") loans in
various amounts totaling around P500,000.00. Being close
friends at that time, Felisarin did not require any written
instrument to secure payment, other than the title to the house and
lot, which Nenita handed to Felisarin sometime in 1988.21 When
respondents demanded payment of the loan, petitioners defaulted.
Nevertheless, as admitted by Layug, despite her repeated
demands, she allowed petitioners some more time within which
to pay their debts.22 Felisarin claimed that eventually petitioners
offered their house and lot as payment for their debt because
petitioners no longer had any money.23 However, even after the
execution of the assailed Deed of Absolute Sale, respondents
continued to grant petitioners loan accommodations as evidenced
127
by the three promissory notes executed by petitioner Cesar
Romulo.24
Respondents continuing to lend money to petitioners does not
make sense if the intention of the parties was really to extinguish
petitioners outstanding obligation. The logical and inevitable
conclusion is that respondents deemed it wise to formalize a
security instrument on petitioners house and lot by executing the
Deed of Absolute Sale after realizing that petitioners could no
longer fully satisfy their obligation to respondents. At that time,
as petitioners were hard-pressed to come up with funds to pay
their loan, they were hardly in a position to bargain. The
preponderance of evidence shows that they signed knowing that
said documents did not express their real intention, and if they did
so notwithstanding this, it was due to the urgent necessity of
obtaining funds. "Necessitous men are not, truly speaking, free
men; but to answer a present emergency will submit to any terms
that the crafty may impose upon them."25 The circumstances
surrounding the execution of the Deed of Absolute Sale,
particularly the fact that respondents continued to extend some
loans to petitioners after its execution, precludes the Court from
declaring that the parties intended the transfer of the property
from one to the other by way of sale.
Consistent with the foregoing state of the evidence, Articles 1604
and 1602 of the Civil Code come into play. The articles provide
that when the parties to a contract of sale actually intended such
contract to secure the payment of an obligation, it shall be
presumed to be an equitable mortgage:
Art. 1602. The contract shall be presumed to be an equitable
mortgage in any of the following cases:
1) When the price of a sale with right to repurchase is unusually
inadequate;
2) When the vendor remains in possession as lessee or otherwise;
3) When upon or after the expiration of the right to repurchase,
another instrument extending the period of redemption or
granting a new period is executed;
4) When the vendor binds himself to pay the taxes on the thing
sold;
5) When the purchaser retains for himself a part of the purchase
price;
6) In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.
(Emphasis supplied.)
Art. 1604. The provisions of Article 1602 shall also apply to a
contract purporting to be an absolute sale.
For the presumption of equitable mortgage to arise, two requisites
must be satisfied, namely: that the parties entered into a contract
denominated as a contract of sale and that their intention was to
secure an existing debt by way of mortgage. Under Article 1604
of the Civil Code, a contract purporting to be an absolute sale shall
be presumed to be an equitable mortgage should any of the
conditions in Article 1602 be present.26 To stress, the existence
of any one of the conditions under Article 1602, not a
concurrence, or an overwhelming number of such circumstances,
suffices to give rise to the presumption that the contract is an
equitable mortgage.27 It must be emphasized too, however, that
there is no conclusive test to determine whether a deed absolute
on its face is really a simple loan accommodation secured by a
mortgage. In fact, it is often a question difficult to resolve and is
frequently made to depend on the surrounding circumstances of
each case. When in doubt, courts are generally inclined to
construe a transaction purporting to be a sale as an equitable
mortgage, which involves a lesser transmission of rights and
interests over the property in controversy.28
The Court has not hesitated to declare a purported contract of sale
as an equitable mortgage even when only one of the enumerated
circumstances under Article 1602 is proved.29 In the case at bar,
petitioners remained in possession of the house and lot even after
the execution of the Deed of Absolute Sale. Moreover, they
remained in possession of the property for more than the
reasonable time that would suggest that petitioners were mere
lessees thereof. For one, it took respondents more than five years
from the time of the execution of the Deed of Absolute Sale and
the Contract of Lease to file the action for ejectment. Within this
period, petitioners neither paid any rental nor exercised the option
to buy purportedly the leased property from respondents.
Incidentally, in the decisions of the MeTC and the RTC in the
separate action for ejectment, both lower courts observed that
when petitioners were made to sign a blank document, which
turned out to be a Contract of Lease of their house and lot, they
were of the belief that the blank document would serve only as
guaranty for the payment of their obligation to respondents.
The claim that petitioners possession of the house and lot was by
sheer tolerance of respondents is specious. Respondents could not
explain why they allowed petitioners more than five years to look
for another place to transfer. These circumstances only support
the conclusion that the parties never really intended to transfer
title to the property. Under paragraph 2 of Article 1602, where the
purported vendor remains in possession of the property subject of
the sale and it can be inferred that the true intention of the parties
was to secure an existing debt, the transaction shall be deemed an
equitable mortgage.
Under paragraph 1 of Article 1602, where the purchase price is
inadequate, a contract of sale is also presumed to be an equitable
mortgage. Based on respondents evidence, petitioners property
was valued at P700,000.00 but the assailed Deed of Absolute Sale
stated a consideration of only P200,000.00. Contrary to the
appellate courts declaration that the inadequacy of the purchase
price is not sufficient to set aside the sale, the Court finds the same
as clearly indicative of the parties intention to make the property
only a collateral security of petitioners debt. The Court is not
convinced that petitioners would allow the sale of their residential
property for even less than half of its market value.
The appellate court ruled that petitioners failed to rebut the
presumption of the genuineness and due execution of the
questioned Deed of Absolute Sale. Based on the examination of
the assailed instrument and the Contract of Lease and the
testimonies of the parties, the Court cannot sustain respondents
claim that petitioners offered to sell their house and lot in
satisfaction of their indebtedness. As observed by the trial court,
the Contract of Lease appears to have been signed sometime in
November 1988 or before the execution of the Deed of Sale.
Respondents were unable to explain why they had leased the
property to petitioners before its supposed purchase by
respondents. Furthermore, the records disclose that it was only
128
after the institution of the ejectment case did petitioners learn
about the cancellation of their title to the property although under
the assailed Deed of Absolute Sale, petitioners were obliged to
bear the expenses of its execution and registration. These
circumstances lend credence to petitioners claim of the
surreptitious manner by which respondents made them sign
certain documents without completely disclosing the real import
thereof.
The Supreme Court is clothed with ample authority to review
matters, even if they are not assigned as errors on appeal, if it
finds that their consideration is necessary in arriving at a just
decision of the case.30 Though petitioners did not raise in issue
the appellate courts reversal of the award of damages in their
favor, the Court has the discretion to pass upon this matter and
determine whether or not there is sufficient justification for the
award of damages.
The trial court described respondents acts as "malevolent,"
necessitating the award for moral and exemplary damages. An
award of moral damages would require certain conditions to be
met, to wit: (1) first, there must be an injury, whether physical,
mental or psychological, clearly sustained by the claimant; (2)
second, there must be a culpable act or omission factually
established; (3) third, the wrongful act or omission of the
defendant is the proximate cause of the injury sustained by the
claimant; and (4) fourth, the award of damages is predicated on
any of the cases stated in Article 2219.31
However, petitioners are not completely without fault. Had they
exercised ordinary diligence in their affairs, petitioners could
have avoided executing documents in blank. Respondents
wrongful act, although the proximate cause of the injury suffered
by petitioners, was mitigated by petitioners own contributory
negligence. Hence, the award of moral and exemplary damages
must be reduced to one-half of the amounts awarded by the trial
court.32
WHEREFORE, the petition is GRANTED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV 63965 are
REVERSED and SET ASIDE and the Decision of the Regional
Trial Court, Branch 258, Paraaque City in Civil Case No. 96-
0172 is REINSTATED with a MODIFICATION that the award
of moral and exemplary damages is REDUCED to P50,000.00
and P40,000.00, respectively. Costs against respondents.
SO ORDERED.
[G.R. NO. 141733 : February 8, 2007]
SECURITY BANK CORPORATION, Petitioner, v. HON.
COURT OF APPEALS, LIBERTY INSURANCE
CORPORATION and PHILIPPINE INDUSTRIAL
SECURITY AGENCY CORPORATION, Respondents.
DECISION
PUNO, C.J.:
Before us is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court to set aside the Decision dated August 31, 1999
and the Resolution dated January 31, 2000 of the Court of
Appeals in CA-G.R. CV No. 45259,1 which affirmed the Order
dated July 12, 1993 of the Regional Trial Court (RTC), dismissing
the complaint of petitioner Security Bank Corporation (SBC) pro
tanto as against respondent Philippine Industrial Security Agency
Corporation (PISA).2
On October 23, 1991, SBC and PISA entered into a "Contract of
Security Services" (CSS)3 wherein PISA undertook to secure,
guard, and protect the personnel and property of SBC through the
deployment of qualified and properly equipped guards in SBC's
premises and branches. Paragraph 9 of the CSS provides:
[PISA] shall be liable for any loss, damage or injury suffered by
[SBC], its officers, employees, clients, guests, visitors and other
persons allowed entry into [SBC's] premises where such loss,
damage or injury is due to the negligence or willful act of the
guards or representatives of [PISA]. If such loss, damage or injury
is caused by a party other than the guards or representatives of
[PISA], [PISA] shall be jointly and severally liable with said party
if [PISA] failed to exercise due [diligence] in preventing such
loss, damage or injury.4
Paragraph 12 of the CSS also provides:
12. [SBC] obliges itself to inform [PISA] in writing through [the]
Guard-in-Charge assigned to the former, the existence of any loss
or damage to [SBC's] properties within Forty-Eight (48) hours
after its discovery by [SBC]; otherwise, [SBC] shall be
considered to have waived its right to proceed against [PISA] by
reason of such loss or damage. Such written notice is not required
if [PISA] took part in the investigation of the loss or damage or in
case the loss or damage is caused by [PISA's] guard/s or
representative/s, in which case [SBC] may assert the claim for
reimbursement at any time. x x x 5 (Emphasis added)
On March 12, 1992, the Taytay Branch Office of SBC was robbed
PHP12,927,628.01. Among the suspects in the robbery were two
regular security guards of PISA.6
At the time, SBC Taytay Branch was covered by a "Money,
Securities and Payroll Robbery Policy" with Liberty Insurance
Corporation (LIC), wherein the latter endeavored to indemnify
the former against "loss of money, payroll and securities that may
result from robbery or any attempt thereof within the premises of
SBC's Taytay Branch Office, up to the maximum amount of
PHP9,900,000.00." 7 The insurance policy provided, however,
that LIC would not be liable if the loss was caused by any
dishonest, fraudulent or criminal act of SBC officers, employees
or by its authorized representative.8
On June 23, 1992, SBC and PISA entered into a Post-Robbery
Agreement (PRA) whereby PISA paid PHP3,027,728.01, which
was the difference between the total amount lost and the
maximum amount insured.9 PISA made the payment in the
interest of maintaining good relations, without necessarily
admitting its liability for the loss suffered by SBC by reason of
the Taytay robbery.10
Paragraph 5 of the PRA specifically states that PISA's payment
was subject to express terms and conditions, one of which was the
following:
(e) The parties hereto further agree that this agreement and/or
payment of the whole amount of P3,027,728.01, shall not affect
or prejudice, directly or indirectly, whatever cause of action SBC
may have against PISA and whatever claim or defense the latter
may have against SBC, if the maximum recoverable proceeds of
the insurance covering the loss suffered by SBC could not be
129
recovered from the insurer. Further, it is agreed that should
Security Guards Wilson Taca and Ernesto Mariano be absolved
from the charge of robbery in band and/or are found by the proper
court not to have been involved at all in the alleged conspiracy,
and that it is duly established through legal action before the
competent court that their failure to prevent the robbery was not
due to their, or their PISA co-guards' negligence and/or willful
act, whatever installments may have been paid by PISA under this
Agreement shall be reimbursed with legal interest to be computed
from the time of actual payment, the same to be amortized in
eighteen (18) equally monthly installments, with the interest
thereto being based on the diminishing balance.11 (Emphasis
added)
SBC filed a claim with LIC based on its existing insurance policy.
LIC denied the claim for indemnification on August 5, 1992, on
the ground that the loss suffered by SBC fell under the general
exceptions to the policy, in view of the alleged involvement of
PISA's two security guards.12
In its letter dated August 28, 1992, SBC informed PISA of the
denial of the former's insurance claim with LIC and thereafter
sought indemnification of the unrecovered amount of
PHP9,900,000.00.13 PISA denied the claim in a letter written by
its counsel, dated September 17, 1992, to wit: 14
We have advised our client that your letter of demand appears to
be premature, in light of the following circumstances:
(a) precisely under par. 5(e) of the [PRA], upon which your
demand letter is based, it is too early in the day to impute to our
client any responsibility for the loss suffered by the bank.
(b) The mere rejection by the insurer of the Bank's claim does not
really seal the fate of said claim, for the Bank can very ably show
that the insurer erred in rejecting the claim.
(c) In any case, the question of criminal involvement of PISA's
guards has not been resolved as yet by a competent court as called
for by par. 5(e) of the [PRA], let alone with any degree of
finality.15
On November 16, 1992, SBC filed a complaint for a sum of
money against LIC based on the "Money, Securities and Payroll
Robbery Policy," and against PISA as an alternative defendant
based on the CSS. SBC prayed that it be indemnified by either
one of the defendants for PHP9,900,000.00 plus 15% as attorney's
fees and cost of suit.16
Instead of filing an answer, PISA filed a motion to dismiss, on the
ground that the complaint failed to state a cause of action and/or
the supposed cause of action was premature.17 PISA, noting that
it was being sued by SBC under an alternative cause of action,
invoked paragraph 5(e) of the PRA and claimed that SBC's right
of action against PISA was subject to at least two suspensive
conditions. First, SBC could not recover the PHP9.9-million from
the insurer, defendant LIC; and second, the two security guards
facing criminal prosecution for robbery in band must first be
convicted and found to have been involved in the robbery or
otherwise found by a competent court to have been negligent.
According to PISA, SBC's complaint made no averment that (a)
there had been a final judgment rejecting SBC's claim against the
insurer; or (b) that the two PISA guards had been convicted of the
charge of robbery in band, or had been found by a competent court
to have been involved in the alleged conspiracy or to have been
negligent in connection with the robbery. Hence, PISA concluded
that SBC's complaint against it was premature and should be
dismissed.18
SBC opposed PISA's motion to dismiss, arguing that the latter's
interpretation of the PRA was erroneous.19 According to SBC,
the CSS was expressly made an integral part of the PRA, so their
provisions "should be used hand in hand" in determining the
respective rights and obligations of the parties. Thus, the PRA
"does not, to the exclusion of [the CSS], control or govern the
determination of the right - or accrual of the right" of SBC to sue
PISA.20 Invoking paragraph 12 of the CSS, SBC asserted that it
could pursue its claim for reimbursement against PISA at any
time, without regard to the fulfillment or non-fulfillment of the
supposed suspensive conditions.
SBC also denied that the PRA had suspensive conditions. It
claimed that the interim non-recovery of the insured amount may
only be an occasion for SBC to suspend the collection of PISA's
liability, but does not operate to prevent SBC from pursuing its
claim against PISA anytime. SBC pointed out that the insurance
contract was not intended for PISA's benefit, as the latter was not
privy to the contract and hence, could not avail itself of the
benefits thereby given to SBC. As for the second alleged
suspensive condition, SBC disagreed that the conviction or
acquittal of the guards (from the robbery charge) would preclude
SBC from recovering against PISA, as the former could still
prove the other security guards' negligence, for which PISA may
be made liable. SBC then stressed that the main issue in the
criminal case was the guilt of the accused guards, whereas the
issue in its civil complaint pertains to the negligence of the same,
or that of the other guards of PISA, and PISA's liability therefor.
SBC thus posits that it was not necessary for it to make averments
as to the fulfillment of these two alleged suspensive conditions.
The RTC granted PISA's motion, and dismissed the case pro tanto
as against PISA.21 The trial court sustained PISA's interpretation
of the PRA, i.e., that the latter's liability to SBC for the losses
incurred from the March 12, 1992 robbery was dependent upon
the occurrence of two events: (1) SBC's claim for indemnity
against LIC is resolved by final judgment against the bank; and
(2) the two security guards of PISA facing criminal charges for
robbery are found guilty, or declared to have been negligent in the
performance of their guard duties. Since SBC's complaint made
no averment as to the fulfillment of these suspensive conditions,
the RTC held that the suit by SBC against PISA was premature.22
The RTC likewise denied SBC's motion for reconsideration.23
On appeal, the Court of Appeals affirmed the dismissal.24
Although it ruled that SBC's right of action against PISA was not
subject to the condition that the two security guards of PISA
facing criminal charges for robbery should have been found
guilty, or declared to have been negligent in the performance of
their guard duties, the appellate court held that SBC's right of
action against PISA was subject to a condition precedent, i.e., that
there first be a final adjudication of SBC's case against LIC,
denying SBC's claim for indemnification. According to the Court
of Appeals, the PRA takes precedence over the CSS in respect of
PISA's liability for the robbery.
Unsatisfied, SBC comes now before this Court, on the grounds
that the Court of Appeals erred in declaring:
130
(1) A suspensive condition exists in paragraph 5 of the PRA
which bars SBC from impleading PISA as an alternative
defendant in civil case No. 92-337 until after the final
adjudication of the suit instituted by SBC against LIC for payment
of indemnity; andcralawlibrary
(2) The PRA takes precedence over the CSS.
We grant the petition.
At the outset, it should be noted that at the heart of this
controversy is the proper interpretation of paragraph 5(e) of the
PRA, which provides:
The parties hereto further agree that this agreement and/or
payment of the whole amount of P3,027,728.01, shall not affect
or prejudice, directly or indirectly, whatever cause of action SBC
may have against PISA and whatever claim or defense the latter
may have against SBC, if the maximum recoverable proceeds of
the insurance covering the loss suffered by SBC could not be
recovered from the insurer. x x x
Prior to the robbery, the right of SBC to claim indemnity from
PISA for the damage done by the willful or negligent acts of the
former's guards could be asserted at any time, under paragraphs 9
and 12 of the CSS. But after the robbery and the execution of the
PRA, the question now raised is whether SBC's right of action
against PISA accrues only upon the non-recovery of indemnity
from LIC; and if so, whether the non-recovery should be the result
of a final adjudication by a court.
It is the thrust of PISA's arguments that while the CSS governs
generally the question of PISA's liability to SBC (for the loss,
damage or injury that is due to the negligence or willful act of
PISA's guards or representatives), SBC's complaint deals with a
specific situation arising from a distinct, particular event of
robbery, for which PISA and SBC have executed a new special
"Agreement" (the PRA) to govern their rights and obligations.
Invoking the maxim generalia specialibus non derogant (general
provisions do not derogate special or specific ones), PISA asserts
that the PRA precisely governs the question of whether SBC's
right to sue PISA for an alleged liability arising from robbery has
accrued and become enforceable. Thus, it is alleged that SBC's
right to sue PISA is no longer unrestricted, as the clear import of
paragraph 5(e) of the PRA is that recovery of the insurance
proceeds would affect or prejudice SBC's claim against PISA.
PISA argues, therefore, that it is only upon the failure of SBC to
recover from the insurance proceeds, by final judgment, that the
latter would have recourse against PISA.
SBC, on the other hand, argues that the legal effect of a contract
(the PRA) is not to be determined alone by any particular
provision taken separately and independently from other
provisions thereof. The contract must be taken as a whole,
inclusive of all annexes that have been made an integral part. SBC
argues that there was no intention to make the PRA a separate and
independent agreement that would take precedence over other
agreements between the parties because of the following reasons:
(a) paragraph 1 of the PRA explicitly states that "the respective
rights and obligations of the parties x x x with respect to the
security services being performed by PISA is embodied in x x x
the 'Contract of Security Services;' "
(b) the contract of security services was explicitly attached and
made an integral part of the PRA; andcralawlibrary
(c) it is in paragraph 9 of the CSS that PISA's liability is
determined for the loss, damage or injury due to the negligence or
willful act of the guards or representative of PISA, or when such
loss, damage or injury is caused by another party if PISA failed
to exercise due diligence in preventing such loss, damage or
injury.
SBC, therefore, denies that paragraph 5(e) made the non-recovery
from LIC a condition precedent before SBC could file a case
against PISA.
SBC also asserts that even if it could be argued that the PRA
governs the liability of PISA as to the robbery, this liability would
only be for the amount of PHP3,027,728.01 which the latter has
paid, and not the PHP9,900,000.00, which is the balance of the
loss suffered by SBC from the robbery. This balance, SBC said it
could pursue against PISA at any time, pursuant to the CSS.
SBC also objects to the interpretation of paragraph 5(e) that there
must be a finality of denial by LIC before SBC can pursue its
claim against PISA. SBC argues that this paragraph only provides
the availability of recourse against PISA in the event of non-
recovery from LIC, and is not a suspensive condition.
Finally, SBC claims that nowhere in the PRA is the liability of
PISA made dependent on and subsidiary to LIC, and points out
that PISA and LIC have no privity of contract between them.
According to SBC, the sole reason for impleading PISA in the
civil suit was pursuant to Rule 3 of the Rules of Court on
alternative defendants. SBC thus stresses that inasmuch as the
liabilities of LIC and PISA are primary under their respective
contracts, and both have denied the claim of SBC, the latter has
properly impleaded LIC and PISA in order to be afforded
complete relief in one instance.
To start with, we agree with the Court of Appeals that SBC's right
of action against PISA was modified by the PRA, insofar as the
PISA's liability for the Taytay robbery is concerned, particularly
through paragraph 5(e). The Court of Appeals stated:25
While it cannot be gainsaid that the terms and conditions in the
Contract of Security Services (CSS) were incorporated to the
PRA (sic) as integral parts thereof, nevertheless, We conform to
the finding of the court of origin that the 2nd contract (PRA)
precisely and particularly dealt with the mode of resolving PISA's
liability resulting, if any, from [the] March 12, 1992 robbery.
(Order dated July 12, 1993, p.1; Records, p.113). It distinctively
provides a clear cut manner by which the right of action against
PISA may be exercised by [SBC] pertaining to a specific robbery
incident a matter visibly non-existent in the CSS. Indeed, this
special provision controls and prevails over the general terms and
conditions extant on the CSS. (Yatco v. El Hogar Filipino, 67
Phil. 610) When a general and a particular provision are
inconsistent, the latter is paramount to the former. Ergo, a
particular intent, as in this case reflected in letter e, paragraph 5
of the PRA will control a general intent embodied in paragraph 9
of the Contract of Security Services. (Section 12, Rule 130,
Revised Rules of Court) Thus, the PRA is paramount to and
prevails over the terms and stipulations in the first contract (CSS)
on matters relevant and material to PISA's liability relating to the
robbery.26
131
Indeed, the clear import of paragraph 5(e) of the PRA is that
recovery of the insurance proceeds would affect or prejudice
SBC's claim against PISA. If LIC had granted SBC's claim for
indemnity, then SBC could no longer claim the same amount
from PISA. As a corollary, it is only upon LIC's denial of SBC's
claim that SBC's right of action against PISA could accrue. To
rule otherwise would be to countenance SBC's double recovery
from its loss and lead to its unjust enrichment.
The more important question is whether the written letter of LIC,
rejecting SBC's claim for indemnity, satisfied this condition.
PISA claims that the condition "could not be recovered from the
insurer" requires a final judgment against SBC's claim for
indemnity against LIC, because only then would the non-recovery
be "a final, immutable fact." Since SBC has only just filed a case
against LIC, and recovery is still possible, the action against PISA
is allegedly premature as the fact of non-recovery is not yet in
esse.27 That SBC may be able to prove the negligence of the other
security guards of PISA in the event of the acquittal of the two
accused security guards is of no moment; PISA posits that the
condition requires that recovery from the insurer be impossible,
i.e., upon a final adjudication by a court, and not merely a denial
by LIC of the claim. Only in such event may suit be brought and
proof of the other guards' negligence adduced, otherwise,
paragraph 5(e) of the PRA would be rendered nugatory.28
We hold that reading the clause as requiring a final judgment is a
strained interpretation and contrary to settled rules of
interpretation of contracts. Paragraph 5(e) only requires that the
proceeds "could not be recovered from the insurer," and does not
state that it should be so declared by a court, or even with finality.
In determining the signification of terms, words are presumed to
have been used in their primary and general acceptance, and there
was no evidence presented to show that the words used signified
a judicial adjudication.29 Indeed, if the parties had intended the
non-recovery to be through a judicial and final adjudication, they
should have stated so. In its primary and general meaning,
paragraph 5(e) would cover LIC's extrajudicial denial of SBC's
claim.
In sustaining PISA, the Court of Appeals relied on the argument
that paragraph 5(e) of the PRA was intended to benefit PISA. The
appellate court held that the phrase "could not be recovered from
the insurer" gives rise to doubt as to the intention of the parties,
as it is capable of two interpretations: either (1) the insurer rejects
the written demand for indemnification by the insured; or (2) a
court adjudges that the insurer is not liable under the policy. The
Court of Appeals then interpreted the antecedent circumstances
prior to the institution of Civil Case No. 92-3337 as manifesting
SBC's agreement to suspend the filing of the suit against PISA
until after the case against LIC has been decisively terminated.30
We have gone over the records and are unable to agree with the
Court of Appeal's findings on this matter. Even if we are to agree
with the Court of Appeals that paragraph 5(e) is susceptible of
two interpretations, the stipulations in the PRA and the parties'
acts contemporaneous with and subsequent to the execution of the
PRA31 belie any intent of SBC to delay its suit against PISA until
a judicial declaration of non-recovery against LIC.
It should be noted that the PRA was entered into as a result of the
robbery, in which two of PISA's security guards were implicated.
The PRA expressly stated that the agreement was entered into
with respect to certain facts, among which were that (a) PISA was
providing security guards for SBC pursuant to the CSS, the said
contract being attached to the PRA and forming an integral part
thereof; 32 and (b) pursuant to paragraph nine (9) of the CSS,
PISA "shall be liable for any loss, damage or injury suffered by
[SBC], its officers, employees, clients, guests, visitors and other
persons allowed entry into [SBC's] premises where such loss,
damage or injury is due to the negligence or willful act of the
guards or representatives of [PISA]." Moreover, "if such loss,
damage or injury is caused by a party other than the guards or
representatives of [PISA], [PISA] shall be jointly and severally
liable with said party if [PISA] failed to exercise due diligence in
preventing such loss, damage or injury." 33
The express inclusion of these provisions'particularly those
relating to the liability of PISA for the willful or negligent acts of
its guards, or its failure to exercise diligence, and the right of SBC
to hold PISA liable' speaks of SBC's diligence in ensuring that
notwithstanding the PRA and the partial payment by PISA, SBC's
right of action against PISA for its liabilities under the CSS is
preserved. SBC may have agreed to delay the suit against PISA
until after the former's claim for indemnity against LIC has been
decided, but it is far-fetched to believe that SBC agreed to hold
such right of action in abeyance until after a legal claim against
LIC had been adjudicated. This conclusion is further bolstered by
the following material events:
1. The Taytay robbery was committed on March 12, 1992.
2. SBC made a written demand on April 10, 1992 against PISA
for the losses sustained by SBC from the robbery.
3. SBC and PISA executed the PRA on June 23,
1992.rbl r l l lbrr of the Rules of Court, petitioner Cerila J. Calanasan seeks the
4. LIC rejected SBC's claim for indemnity under the insurance on
August 5, 1992.
5. SBC protested the LIC rejection in a letter dated August 28,
1992.
6. On the same date, August 28, 1992, SBC informed PISA of the
denial by LIC of SBC's insurance claim, and demanded from
PISA indemnification based on paragraph 5(e) of the PRA.
7. On September 17, 1992, PISA denied the letter of demand of
SBC.
8. On November 16, 1992, SBC sued LIC and PISA.
From the above events, it seems clear that SBC's suit against LIC
was not a mere afterthought after LIC had rejected its claim.
Rather, SBC exercised its right of action against PISA pursuant
to paragraph 5(e) of the PRA. This interpretion is consistent with
settled canons of contract interpretation, has the import that would
make SBC's right of action effectual, and would yield the greatest
reciprocity of interests. Indeed, we agree with SBC that PISA's
interpretation of the clause would lead to an effective waiver of
SBC's right of action, because to await the judicial determination
of the LIC suit may lead to the prescription of SBC's right of
action against PISA.
If some stipulations of any contract should admit of several
meanings, it shall be understood as bearing that import which is
most adequate to render it effectual.34 The various stipulations of
a contract shall be interpreted together, attributing to the doubtful
132
ones that sense which may result from all of them taken jointly.35
When it is impossible to settle doubts by the rules established in
the preceding articles, and the doubts refer to incidental
circumstances of an onerous contract, the doubt shall be settled in
favor of the greatest reciprocity of interests.36
We therefore hold that SBC's suit against PISA was not
premature, and the dismissal of the action as against PISA was
improper.
IN VIEW WHEREOF, the petition is GRANTED. The assailed
Decision of the Court of Appeals in CA-G.R. CV No. 45259,
dated August 31, 1999, as well as its Resolution dated January 31,
2000, is REVERSED. Civil Case No. 92337 is REMANDED to
the RTC, NCJR, Makati City for further proceedings.
SO ORDERED.
G.R. No. 171937 November 25, 2013
CERILA J. CALANASAN, represented by TEODORA J.
CALANASAN as Attorney-in-Fact, Petitioner,
vs.
SPOUSES VIRGILIO DOLORITO and EVELYN C.
DOLORITO, Respondents.
DECISION
BRION, J.:
Through a petition for review on certiorari,1 filed under Rule 45
reversal of the decision2 dated September 29, 2005, and the
resolution3 dated March 8 2006 of the Court of Appeals CA) in
CA-G.R. CV No. 84031.
THE FACTS
The petitioner, Cerila J. Calanasan Cerila), took care of her
orphan niece, respondent Evelyn C. Dolorita, since the latter was
a child. In 1982, when Evelyn was already married to respondent
Virgilio Dolorita, the petitioner donated to Evelyn a parcel of land
which had earlier been mortgaged for Pl5,000.00. The donation
was conditional: Evelyn must redeem the land and the petitioner
was entitled to possess and enjoy the property as long as she lived.
Evelyn signified her acceptance of the donation and its terms in
the same deed. Soon thereafter, Evelyn redeemed the property,
had the title of the land transferred to her name, and granted the
petitioner usufructuary rights over the donated land.
On August 15, 2002, the petitioner, assisted by her sister Teodora
J. Calanasan, complained with the Regional Trial Court (RTC)
that Evelyn had committed acts of ingratitude against her. She
prayed that her donation in favor of her niece be revoked; in their
answer, the respondents denied the commission of any act of
ingratitude.
The petitioner died while the case was pending with the RTC. Her
sisters, Teodora and Dolores J. Calanasan, substituted for her.
After the petitioner had rested her case, the respondents filed a
demurrer to evidence. According to them, the petitioner failed to
prove that it was Evelyn who committed acts of ingratitude
against the petitioner; thus, Article 7654 of the New Civil Code
found no application in the case.
THE RTCS RULING
In its September 3, 2004 order,5 the RTC granted the demurrer to
evidence and dismissed the complaint. Article 765 of the New
Civil Code did not apply because the ungrateful acts were
committed against Teodora, the donors sister, and not against the
donor, the petitioner. Equally important, the perpetrator of the
ungrateful acts was not Evelyn, but her husband Virgilio.
THE CAS RULING
The petitioner challenged the RTCs ruling before the CA.
In its September 29, 2005 decision,6 the CA affirmed the RTC
ruling but on a different legal ground. The CA, after legal
analysis, found that the donation was inter vivos and onerous.
Therefore, the deed of donation must be treated as an ordinary
contract and Article 765 of the New Civil Code finds no
relevance.
On March 8, 2006, the CA rejected the petitioners motion for
reconsideration.
THE PARTIES ARGUMENTS
The petitioner filed the present petition for review on certiorari
with this Court to challenge the CA rulings. The petitioner insists
that Evelyn committed acts of ingratitude against her. She argues
that, if the donation was indeed onerous and was subject to the
rules of contracts, then greater reason exists to revoke it.
According to the petitioner, Evelyn violated all the terms of the
contract, especially the provision enjoining the latter from
acquiring ownership over the property during the lifetime of the
donor.
The respondents, for their part, point out that the petitioner raises
factual issues that a petition under Rule 45 of the Rules of Court
does not allow. Furthermore, the petitioner misleads the Court in
claiming that the deed of donation prohibited Evelyn from
acquiring ownership of the land. In fact, the deed of donation
confined the donation to only two conditions: 1) redemption of
the mortgage; and 2) the petitioners usufruct over the land as long
as she lived. The respondents complied with these conditions. The
respondents likewise remind the Court that issues not advanced
before the lower courts should not be entertained the objective
that Teodora is now trying to accomplish. Finally, the respondents
applaud the CA in finding that the donation, being inter vivos and
onerous, is irrevocable under Article 765 of the New Civil Code.
THE COURTS RULING
We resolve to deny the petition for lack of merit.
The petitioner may not raise factual issues; arguments not raised
before the lower courts may not be introduced on appeal.
Teodora insists that Evelyn perpetrated ungrateful acts against the
petitioner. Moreover, the donation never materialized because
Evelyn violated a suspensive condition of the donation when she
had the property title transferred to her name during the
petitioners lifetime.
133
As correctly raised by the respondents, these allegations are
factual issues which are not proper for the present action. The
Court is not a trier of facts.7 The Court cannot re-examine, review
or re-evaluate the evidence and the factual review made by the
lower courts.8 In the absence of compelling reasons, the Court
will not deviate from the rule that factual findings of the lower
tribunals are final and binding on this Court.
It has not escaped the Courts attention that this is the only time
the petitioner raised the arguments that donation never
materialized because the donee violated a condition of the
donation when she had the title of the property transferred to her
name. The petitioner never raised this issue before the lower
courts. It cant be emphasized enough that the Court will not
revisit the evidence presented below as well as any evidence
introduced for the first time on appeal.9 Aside from being a
factual issue that is not proper for the present action, the Court
dismisses this new argument for being procedurally infirm and
violative of due process. As we have held in the past: "points of
law, theories, issues and arguments not brought to the attention of
the trial court will not be and ought not to be considered by a
reviewing court, as these cannot be raised for the first time on
appeal. Basic consideration of due process impels this rule."10
Rules of contract govern the onerous portion of donation; rules of
donation only apply to the excess, if any.
We now come to the appreciation of the legal incidents of the
donation vis--vis the alleged ungrateful acts.
In Republic of the Phils. v. Silim,11 we classified donations
according to purpose. A pure/simple donation is the truest form
of donation as it is based on pure gratuity. The
remuneratory/compensatory type has for its purpose the
rewarding of the donee for past services, which services do not
amount to a demandable debt. A conditional/modal donation, on
the other hand, is a consideration for future services; it also occurs
where the donor imposes certain conditions, limitations or
charges upon the donee, whose value is inferior to the donation
given. Lastly, an onerous donation imposes upon the donee a
reciprocal obligation; this is made for a valuable consideration
whose cost is equal to or more than the thing donated.12
In De Luna v. Judge Abrigo,13 we recognized the distinct, albeit
old, characterization of onerous donations when we declared:
Under the old Civil Code, it is a settled rule that donations with
an onerous cause are governed not by the law on donations but by
the rules on contracts, as held in the cases of Carlos v. Ramil L-
6736, September 5, 1911, 20 Phil. 183, Manalo vs. de Mesa L-
9449, February 12, 1915, 29 Phil. 495."14 In the same case, we
emphasized the retention of the treatment of onerous types of
donation, thus: "The same rules apply under the New Civil Code
as provided in Article 733 thereof which provides:
Article 733. Donations with an onerous cause shall be governed
by the rules on contracts, and remuneratory donations by the
provisions of the present Title as regards that portion which
exceeds the value of the burden imposed."15
We agree with the CA that since the donation imposed on the
donee the burden of redeeming the property for P15,000.00, the
donation was onerous. As an endowment for a valuable
consideration, it partakes of the nature of an ordinary contract;
hence, the rules of contract will govern and Article 765 of the
New Civil Code finds no application with respect to the onerous
portion of the donation.
Insofar as the value of the land exceeds the redemption price paid
for by the donee, a donation exists, and the legal provisions on
donation apply. Nevertheless, despite the applicability of the
provisions on donation to the gratuitous portion, the petitioner
may not dissolve the donation. She has no factual and legal basis
for its revocation, as aptly established by the RTC. First, the
ungrateful acts were committed not by the donee; it was her
husband who committed them. Second, the ungrateful acts were
perpetrated not against the donor; it was the petitioner's sister who
received the alleged ill treatments. These twin considerations
place the case out of the purview of Article 765 of the New Civil
Code.
WHEREFORE, premises considered, the Court DENIES the
petition for review on certiorari. The decision dated September
29, 2005, and the resolution dated March 8, 2006, of the Court of
Appeals in CA-G.R. CV No. 84031 are hereby AFFIRMED.
Costs against Cerila J. Calanasan, represented by Teodora J.
Calanasan as Attorney-in-Fact.
SO ORDERED.
G.R. No. 195872 March 12, 2014
FORTUNE MEDICARE, INC., Petitioner,
vs.
DAVID ROBERT U. AMORIN, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of the
Rules of Court, which challenges the Decision2 dated September
27, 2010 and Resolution3 dated February 24, 2011 of the Court
of Appeals (CA) in CA-G.R. CV No. 87255.
The Facts
David Robert U. Amorin (Amorin) was a cardholder/member of
Fortune Medicare, Inc. (Fortune Care), a corporation engaged in
providing health maintenance services to its members. The terms
of Amorin's medical coverage were provided in a Corporate
Health Program Contract4 (Health Care Contract) which was
executed on January 6, 2000 by Fortune Care and the House of
Representatives, where Amorin was a permanent employee.
While on vacation in Honolulu, Hawaii, United States of America
(U.S.A.) in May 1999, Amorin underwent an emergency surgery,
specifically appendectomy, at the St. Francis Medical Center,
causing him to incur professional and hospitalization expenses of
US$7,242.35 and US$1,777.79, respectively. He attempted to
recover from Fortune Care the full amount thereof upon his return
to Manila, but the company merely approved a reimbursement of
P12,151.36, an amount that was based on the average cost of
appendectomy, net of medicare deduction, if the procedure were
performed in an accredited hospital in Metro Manila.5 Amorin
received under protest the approved amount, but asked for its
adjustment to cover the total amount of professional fees which
he had paid, and eighty percent (80%) of the approved standard
charges based on "American standard", considering that the
134
emergency procedure occurred in the U.S.A. To support his
claim, Amorin cited Section 3, Article V on Benefits and
Coverages of the Health Care Contract, to wit:
A. EMERGENCY CARE IN ACCREDITED HOSPITAL.
Whether as an in-patient or out-patient, the member shall be
entitled to full coverage under the benefits provisions of the
Contract at any FortuneCare accredited hospitals subject only to
the pertinent provision of Article VII (Exclusions/Limitations)
hereof. For emergency care attended by non affiliated physician
(MSU), the member shall be reimbursed 80% of the professional
fee which should have been paid, had the member been treated by
an affiliated physician. The availment of emergency care from an
unaffiliated physician shall not invalidate or diminish any claim
if it shall be shown to have been reasonably impossible to obtain
such emergency care from an affiliated physician.
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall
reimburse the total hospitalization cost including the professional
fee (based on the total approved charges) to a member who
receives emergency care in a non-accredited hospital. The above
coverage applies only to Emergency confinement within
Philippine Territory. However, if the emergency confinement
occurs in a foreign territory, Fortune Care will be obligated to
reimburse or pay eighty (80%) percent of the approved standard
charges which shall cover the hospitalization costs and
professional fees. x x x6
Still, Fortune Care denied Amorins request, prompting the latter
to file a complaint7 for breach of contract with damages with the
Regional Trial Court (RTC) of Makati City.
For its part, Fortune Care argued that the Health Care Contract
did not cover hospitalization costs and professional fees incurred
in foreign countries, as the contracts operation was confined to
Philippine territory.8 Further, it argued that its liability to Amorin
was extinguished upon the latters acceptance from the company
of the amount of P12,151.36.
The RTC Ruling
On May 8, 2006, the RTC of Makati, Branch 66 rendered its
Decision9 dismissing Amorins complaint. Citing Section 3,
Article V of the Health Care Contract, the RTC explained:
Taking the contract as a whole, the Court is convinced that the
parties intended to use the Philippine standard as basis. Section 3
of the Corporate Health Care Program Contract provides that:
xxxx
On the basis of the clause providing for reimbursement equivalent
to 80% of the professional fee which should have been paid, had
the member been treated by an affiliated physician, the Court
concludes that the basis for reimbursement shall be Philippine
rates. That provision, taken with Article V of the health program
contract, which identifies affiliated hospitals as only those
accredited clinics, hospitals and medical centers located
"nationwide" only point to the Philippine standard as basis for
reimbursement.
The clause providing for reimbursement in case of emergency
operation in a foreign territory equivalent to 80% of the approved
standard charges which shall cover hospitalization costs and
professional fees, can only be reasonably construed in connection
with the preceding clause on professional fees to give meaning to
a somewhat vague clause. A particular clause should not be
studied as a detached and isolated expression, but the whole and
every part of the contract must be considered in fixing the
meaning of its parts.10
In the absence of evidence to the contrary, the trial court
considered the amount of P12,151.36 already paid by Fortune
Care to Amorin as equivalent to 80% of the hospitalization and
professional fees payable to the latter had he been treated in an
affiliated hospital.11
Dissatisfied, Amorin appealed the RTC decision to the CA.
The CA Ruling
On September 27, 2010, the CA rendered its Decision12 granting
the appeal. Thus, the dispositive portion of its decision reads:
WHEREFORE, all the foregoing premises considered, the instant
appeal is hereby GRANTED. The May 8, 2006 assailed Decision
of the Regional Trial Court (RTC) of Makati City, Branch 66 is
hereby REVERSED and SET ASIDE, and a new one entered
ordering Fortune Medicare, Inc. to reimburse [Amorin] 80% of
the total amount of the actual hospitalization expenses of
$7,242.35 and professional fee of $1,777.79 paid by him to St.
Francis Medical Center pursuant to Section 3, Article V of the
Corporate Health Care Program Contract, or their peso equivalent
at the time the amounts became due, less the [P]12,151.36 already
paid by Fortunecare.
SO ORDERED.13
In so ruling, the appellate court pointed out that, first, health care
agreements such as the subject Health Care Contract, being like
insurance contracts, must be liberally construed in favor of the
subscriber. In case its provisions are doubtful or reasonably
susceptible of two interpretations, the construction conferring
coverage is to be adopted and exclusionary clauses of doubtful
import should be strictly construed against the provider.14
Second, the CA explained that there was nothing under Article V
of the Health Care Contract which provided that the Philippine
standard should be used even in the event of an emergency
confinement in a foreign territory.15
Fortune Cares motion for reconsideration was denied in a
Resolution16 dated February 24, 2011. Hence, the filing of the
present petition for review on certiorari.
The Present Petition
Fortune Care cites the following grounds to support its petition:
I. The CA gravely erred in concluding that the phrase "approved
standard charges" is subject to interpretation, and that it did not
automatically mean "Philippine Standard"; and
II. The CA gravely erred in denying Fortune Cares motion for
reconsideration, which in effect affirmed its decision that the
American Standard Cost shall be applied in the payment of
medical and hospitalization expenses and professional fees
incurred by the respondent.17
135
The Courts Ruling
The petition is bereft of merit.
The Court finds no cogent reason to disturb the CAs finding that
Fortune Cares liability to Amorin under the subject Health Care
Contract should be based on the expenses for hospital and
professional fees which he actually incurred, and should not be
limited by the amount that he would have incurred had his
emergency treatment been performed in an accredited hospital in
the Philippines.
We emphasize that for purposes of determining the liability of a
health care provider to its members, jurisprudence holds that a
health care agreement is in the nature of non-life insurance, which
is primarily a contract of indemnity. Once the member incurs
hospital, medical or any other expense arising from sickness,
injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.18
To aid in the interpretation of health care agreements, the Court
laid down the following guidelines in Philamcare Health Systems
v. CA19:
When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to preclude
the insurer from non-compliance with his obligation. Being a
contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract
the insurer. By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer
and liberally in favor of the insured, especially to avoid forfeiture.
This is equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts, such as
the one at bar, must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be
strictly construed against the provider.20 (Citations omitted and
emphasis ours)
Consistent with the foregoing, we reiterated in Blue Cross Health
Care, Inc. v. Spouses Olivares21:
In Philamcare Health Systems, Inc. v. CA, we ruled that a health
care agreement is in the nature of a non-life insurance. It is an
established rule in insurance contracts that when their terms
contain limitations on liability, they should be construed strictly
against the insurer. These are contracts of adhesion the terms of
which must be interpreted and enforced stringently against the
insurer which prepared the contract. This doctrine is equally
applicable to health care agreements.
xxxx
x x x [L]imitations of liability on the part of the insurer or health
care provider must be construed in such a way as to preclude it
from evading its obligations. Accordingly, they should be
scrutinized by the courts with "extreme jealousy" and "care" and
with a "jaundiced eye." x x x.22 (Citations omitted and emphasis
supplied)
In the instant case, the extent of Fortune Cares liability to Amorin
under the attendant circumstances was governed by Section 3(B),
Article V of the subject Health Care Contract, considering that the
appendectomy which the member had to undergo qualified as an
emergency care, but the treatment was performed at St. Francis
Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited
hospital. We restate the pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall
reimburse the total hospitalization cost including the professional
fee (based on the total approved charges) to a member who
receives emergency care in a non-accredited hospital. The above
coverage applies only to Emergency confinement within
Philippine Territory. However, if the emergency confinement
occurs in foreign territory, Fortune Care will be obligated to
reimburse or pay eighty (80%) percent of the approved standard
charges which shall cover the hospitalization costs and
professional fees. x x x23 (Emphasis supplied)
The point of dispute now concerns the proper interpretation of the
phrase "approved standard charges", which shall be the base for
the allowable 80% benefit. The trial court ruled that the phrase
should be interpreted in light of the provisions of Section 3(A),
i.e., to the extent that may be allowed for treatments performed
by accredited physicians in accredited hospitals. As the appellate
court however held, this must be interpreted in its literal sense,
guided by the rule that any ambiguity shall be strictly construed
against Fortune Care, and liberally in favor of Amorin.
The Court agrees with the CA. As may be gleaned from the Health
Care Contract, the parties thereto contemplated the possibility of
emergency care in a foreign country. As the contract recognized
Fortune Cares liability for emergency treatments even in foreign
territories, it expressly limited its liability only insofar as the
percentage of hospitalization and professional fees that must be
paid or reimbursed was concerned, pegged at a mere 80% of the
approved standard charges.
The word "standard" as used in the cited stipulation was vague
and ambiguous, as it could be susceptible of different meanings.
Plainly, the term "standard charges" could be read as referring to
the "hospitalization costs and professional fees" which were
specifically cited as compensable even when incurred in a foreign
country. Contrary to Fortune Cares argument, from nowhere in
the Health Care Contract could it be reasonably deduced that
these "standard charges" referred to the "Philippine standard", or
that cost which would have been incurred if the medical services
were performed in an accredited hospital situated in the
Philippines. The RTC ruling that the use of the "Philippine
standard" could be inferred from the provisions of Section 3(A),
which covered emergency care in an accredited hospital, was
misplaced. Evidently, the parties to the Health Care Contract
made a clear distinction between emergency care in an accredited
hospital, and that obtained from a non-accredited
hospital.1wphi1 The limitation on payment based on "Philippine
standard" for services of accredited physicians was expressly
made applicable only in the case of an emergency care in an
accredited hospital.
The proper interpretation of the phrase "standard charges" could
instead be correlated with and reasonably inferred from the other
provisions of Section 3(B), considering that Amorins case fell
under the second case, i.e., emergency care in a non-accredited
hospital. Rather than a determination of Philippine or American
standards, the first part of the provision speaks of the full
136
reimbursement of "the total hospitalization cost including the
professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited
hospital" within the Philippines. Thus, for emergency care in non-
accredited hospitals, this cited clause declared the standard in the
determination of the amount to be paid, without any reference to
and regardless of the amounts that would have been payable if the
treatment was done by an affiliated physician or in an affiliated
hospital. For treatments in foreign territories, the only
qualification was only as to the percentage, or 80% of that payable
for treatments performed in non-accredited hospital.
All told, in the absence of any qualifying word that clearly limited
Fortune Care's liability to costs that are applicable in the
Philippines, the amount payable by Fortune Care should not be
limited to the cost of treatment in the Philippines, as to do so
would result in the clear disadvantage of its member. If, as
Fortune Care argued, the premium and other charges in the Health
Care Contract were merely computed on assumption and risk
under Philippine cost and, that the American cost standard or any
foreign country's cost was never considered, such limitations
should have been distinctly specified and clearly reflected in the
extent of coverage which the company voluntarily assumed. This
was what Fortune Care found appropriate when in its new health
care agreement with the House of Representatives, particularly in
their 2006 agreement, the provision on emergency care in non-
accredited hospitals was modified to read as follows:
However, if the emergency confinement occurs in a foreign
territory, Fortunecare will be obligated to reimburse or pay one
hundred (100%) percent under approved Philippine Standard
covered charges for hospitalization costs and professional fees but
not to exceed maximum allowable coverage, payable in pesos at
prevailing currency exchange rate at the time of availment in said
territory where he/she is confined. x x x24
Settled is the rule that ambiguities in a contract are interpreted
against the party that caused the ambiguity. "Any ambiguity in a
contract whose terms are susceptible of different interpretations
must be read against the party who drafted it."25
WHEREFORE, the petition is DENIED. The Decision dated
September 27, 2010 and Resolution dated February 24, 2011 of
the Court of Appeals in CA-G.R. CV No. 87255 are AFFIRMED.
SO ORDERED.
G.R. No. 184076, October 21, 2015
ST. RAPHAEL MONTESSORI SCHOOL, INC.,
REPRESENTED BY TERESITA G. BADIOLA, Petitioner,
v. BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court seeking the reversal of the Decision1 dated April
25, 2008 and Resolution dated July 16, 2008,2 respectively, of the
Court of Appeals (CA) in CA-G.R. SP No. 101507.
The facts are as follows:
Spouses Rolando and Josefina Andaya (Sps. Andaya) are the
President and Vice-President, respectively, of St. Raphael
Montessori, Inc. (St. Raphael). From 1994 to 1998, the Spouses
Andaya obtained a loan for themselves and on behalf of St.
Raphael, from the Far East Bank and Trust company, now Bank
of Philippine Islands (BPI). As security for the loan, they
executed real estate mortgages3 over a parcel of land covered by
Transfer Certificate of Title (TCT) No. T-45006.4 They,
however, defaulted on their obligation and thus, BPI
extrajudicially foreclosed the mortgaged property.
A Certificate of Sale5 was then issued and annotated at the back
of TCT No. 45006. When the mortgagors failed to redeem the
subject property, BPI executed an Affidavit of Consolidation6
and TCT No. T-1757407 was issued in its name. On March 15,
2005, upon petition by BPI, the court a quo issued a Writ of
Possession8 ordering the sheriff to place the subject property and
all its improvements thereon, in possession of the same.
The Spouses Andaya asked for deferment of the implementation
of the writ of possession and executed for themselves and on
behalf of St. Raphael an Undertaking wherein they: (i)
acknowledged BPI's ownership of the property; (ii) promised to
vacate the premises and remove all movables from the same on
or before September 23, 2005; (iii) promised to voluntarily and
peacefully surrender the property in favor of the rightful owner
BPI without the necessity of any demand on or before September
23, 2005; and (iv) pledged not to take advantage of the
accommodation extended to them to secure any remedy from the
courts.9 BPI, thus, deferred the implementation of the writ to
September 23, 2005 and upon the lapse thereof even extended for
another 60 days or until November 23, 2005 the implementation
of the writ.
The Spouses Andaya, however, failed to vacate the subject
property. Despite BPI's reminder of their commitment to
surrender possession of the property without further need of
demand, the Spouses Andaya refused to turn over its possession.
They claimed that BPI no longer had a right to possess the
property because the writ of possession had already been
implemented. St. Raphael further filed a Motion to Quash Writ of
Possession alleging that it was not a party to the real estate
mortgages executed by Spouses Andaya. An Affidavit of Third-
Party Claim10 was also filed wherein Teresita Badiola, Attorney-
in-Fact of St. Raphael claimed that the latter's building, while
standing on the subject property, was not included in the real
estate mortgages. It. further claimed that the construction of the
building was made possible by virtue of a Lease to Own
Agreement that was executed prior to the execution of the real
estate mortgages.
On February 6, 2007, BPI sent a letter to the sheriff of the court a
quo requesting for the implementation of the writ of possession
that was earlier deferred. On April 11, 2007, the sheriff served a
Notice to Vacate on all occupants of the subject property. On
April 19, 2007, BPI was already able to post security guards in
the premises.
St. Raphael then filed a motion to cite in contempt the sheriff and
BPI on the ground that their actions would prejudice the pending
motion to quash. St. Raphael also claimed that the writ of
possession could no longer be enforced since it had already been
implemented in 2005, thus, it seek to be restored in possession of
the premises.
137
The court a quo issued an Order11 dated June 5, 2007 dismissing
the motion to cite in contempt for failing to comply with Section
4, Rule 71 of the Rules of Court. However, the court a quo also
ordered BPI to withdraw its security guards from the subject
property and instructed the sheriff to restore to St. Raphael the
physical possession thereof. The court a quo deemed it prudent to
maintain the status quo condition of the subject property prior to
the April 19, 2007 incident.
On June 8, 2007, the officers of St. Raphael, with the assistance
of the barangay captain and policemen, attempted to recover
possession of the subject property. However, they were driven
away by BPI's security guards upon failure to present a final order
from the court a quo. St. Raphael, therefore, filed an Urgent Ex-
Parte Motion for Immediate Implementation of the June 5, 2007
Order.
On June 12, 2007, BPI filed a Partial Motion for Reconsideration
arguing that the court a quo is confined to resolving the issue in
the Motion to Cite in Contempt, that is, whether or not the
implementation of the writ of possession constitutes a
contemptuous act. It argued that under the circumstances, the
court a quo is in no position to determine the issue of who should
be in possession of the subject property.
On June 13, 2007, the court a quo granted St. Raphael's Motion
for Immediate Implementation of the June 5, 2007 Order and
denied BPI's Partial Motion for Reconsideration. It ruled that a
temporary restraining order or writ of preliminary injunction was
not needed to prevent the sheriff and BPI from implementing the
writ of possession because the motion to quash the writ of
possession was still pending resolution. It also held that St.
Raphael was a third-party claimant and that BPI cannot be placed
in possession of the mortgaged property pending proceedings that
assail the issuance of the writ of possession.
On June 25, 2007, the court a quo appointed a special sheriff who
implemented the status quo order. Consequently, St. Raphael was
placed in possession of the subject property. Likewise, the court
a quo, in an Order12 dated July 30, 2007 granted St. Raphael's
Motion to Quash Writ of Possession. The dispositive portion
reads:chanRoblesvirtualLawlibrary
WHEREFORE, the Motion to Quash Writ of Possession filed by
St. Raphael Montessori School, Inc., Third-Party
Claimant/Oppositor dated June 6, 2006 is GRANTED.
2. The writ of possession dated March 15, 2005 implemented by
Sheriff Franconello S. Lintao on April 19, 2007 is null and
void;cralawlawlibrary
3. The order of this court dated December 27, 2004 is modified to
read as follows:chanRoblesvirtualLawlibrary
Let the writ of possession be issued directing, the Deputy Sheriff
of this Court to install the petitioner in actual possession of real
properties owned by Sps. Rolando and Josefina Andaya which
have been the subject of the mortgage, with the exception of the
building standing on Lot 1362-D owned by the third party
claimant St. Raphael Montessori.ChanRoblesVirtualawlibrary
SO ORDERED.13ChanRoblesVirtualawlibrary
Aggrieved, BPI filed a petition for certiorari before the Court of
Appeals alleging grave abuse of discretion amounting to lack or
excess of jurisdiction when it issued the assailed Order dated July
30, 2007.
On April 25, 2008, in its disputed decision, the Court of Appeals
reversed the court a quo. the dispositive portion of which
reads:chanRoblesvirtualLawlibrary
WHEREFORE, the Order dated July 30, 2007 is REVERSED.
The Motion to Quash Writ of Possession of St. Raphael
Montessori, Inc. is DENIED and the Writ of Possession dated
March 15, 2005 is declared valid and enforceable, thus entitling
the Bank of the Philippine Islands to possession of the subject
property, including the building occupied by St. Raphael
Montessori, Inc.
SO ORDERED.14ChanRoblesVirtualawlibrary
Thus, the instant petition for review on certiorari under Rule 45
of the Rules of Court raising the lone issue of: Whether a writ of
possession that was issued ex-parte as a result qftheforeelosure of
the mortgages executed by the Spouses Andaya on the subject
property can be enforced and utilized by BPI to oust St. Raphael
from the physical possession of its school buildings built on the
same subject property.
We rule in the affirmative.
Jurisprudence is replete with cases holding that the issuance of a
writ of possession to a purchaser in a public auction is a
ministerial function of the court, which cannot be enjoined or
restrained, even by the filing of a civil case for the declaration of
nullity of the foreclosure and consequent auction sale.15 Once
title to the property has been consolidated in the buyer's name
upon failure of the mortgagor to redeem the property within the
one-year redemption period, the writ of possession becomes a
matter of right belonging to the buyer. Consequently, the buyer
can demand possession of the property at anytime. Its right to
possession has then ripened into the right of a confirmed absolute
owner and the issuance of the writ becomes a ministerial function
that does not admit of the exercise of the court's discretion. The
court, acting on an application for its issuance, should issue the
writ as a matter of course and without any delay.16
The right to the issuance of a writ of possession is outlined in
Sections 6 and 7 of Act 3135, as amended by Act 4118, to
wit:chanRoblesvirtualLawlibrary
Sec. 6. In all cases in which an extrajudicial sale is made x x x,
the debtor, his successors-in-interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on
the property subsequent to the mortgage or deed of trust under
which the property is sold, may redeem the same at any time
within the term of one year from and after the date of the sale; and
such redemption shall be governed by the provisions of sections
four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure, in so far as these are
not inconsistent with the provisions of this Act.
Sec 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance of the province
or place where the property or any part thereof is situated, to give
him possession thereof during the redemption period, furnishing
bond in an amount equivalent to the use of the property for a
period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or
without complying with the requirements of this Act. Such
petition shall be made under oath and filed in form of an ex parte
motion x x x and the court shall, upon approval of the bond, order
that a writ of possession issue, addressed to the sheriff of the
province in which the property is situated, who shall execute said
order immediately.ChanRoblesVirtualawlibrary
138
Upon the lapse of the redemption period, a writ of possession may
be issued in favor of the purchaser in a foreclosure sale, also upon
a proper ex parte motion. No bond is necessary for its issuance;
the mortgagor is now considered to have lost any interest over the
foreclosed property. The purchaser then becomes the owner of the
foreclosed property, and he can demand possession at any time
following the consolidation of ownership of the property and the
issuance of the corresponding TCT in his/her name. It is at this
point that the right of possession of the purchaser can be
considered to have ripened into the absolute right of a confirmed
owner. The issuance of the writ, upon proper application, is a
ministerial function that effectively forbids the exercise by the
court of any discretion. This scenario is governed by Section 6 of
Act 3135, in relation to Section 35, Rule 39 of the Revised Rules
of Court.
In China Banking Corporation v. Spouses Lozada,17 we
reiterated:chanRoblesvirtualLawlibrary
It is thus settled that the buyer in a foreclosure sale becomes the
absolute owner of the property purchased if it is not redeemed
during the period of one year after the registration of the sale. As
such, he is entitled to the possession of the said property and can
demand it at any time following the consolidation of ownership
in his name and the issuance to him of a new transfer certificate
of title. The buyer can in fact demand possession of the land even
during the redemption period except that he has to post a bond in
accordance with Section 7 of Act No. 3135, as amended. No such
bond is required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute right
of the purchaser as confirmed owner. Upon proper application
and proof of title, the issuance of the writ of possession becomes
a ministerial duty of the court.18ChanRoblesVirtualawlibrary
Thus, as in the instant case, after the consolidation of ownership,
and the issuance of Transfer Certificate of Title No. T-175740 in
favor of purchaser, BPI, the latter's right to possession not only
finds support in Section 7 of Act 3135, but also on its right to
possession as an incident of ownership.19
If the court has the ministerial power to issue a writ of possession
even during the redemption period, then with more reason should
the court issue the writ of possession after the expiration of the
redemption period, as the purchaser has already acquired an
absolute right to possession on the basis of his ownership of the
property. The right to possess a property follows ownership.20
It should likewise be emphasized that the purchaser's right to
request for the issuance of the writ of possession of the land never
prescribes. The right to possess a property merely follows the
right of ownership, and it would be illogical to hold that a person
having ownership of a parcel of land is barred from seeking
possession thereof.21
As to petitioner's argument that they were not a party to the real
estate mortgage nor its claim that the mortgage does not include
the building allegedly owned by St. Raphael Montessori, the same
has no leg to stand on. When the principal property is mortgaged,
the mortgage shall include all natural or civil fruits and
improvements found thereon when the secured obligation
becomes due as provided in Article 212722 of the Civil Code.
Consequently, in case of non-payment of the secured debt,
foreclosure proceedings shall cover not only the hypothecated
property but all its accessions and accessories as well.23
Thus, improvements constructed by the mortgagor on the subject
lot covered by the real estate mortgage contract with the
mortgagee bank are included in the foreclosure proceedings
instituted by the latter.24 While this rule is not without
qualifications, the instant case does not fall under its exceptions.
For the exception to apply, the property need not only be
possessed by a third party, but also held by the third party
adversely to the judgment obligor. St. Raphael could not be
considered as an adverse claimant in the absence of proof
showing any adverse title or claim of ownership on the subject
lot.

Indeed, the claim of St. Raphael that it is the owner of the building
standing on the subject land cannot be given weight in the absence
of any evidence proving such ownership. It is also noteworthy to
mention that in St. Raphael's Articles of Incorporation with S.E.C.
Registration No. ANO92-03954, the Spouses Andaya appeared to
be the original incorporators and trustees of St. Raphael, the same
parties who mortgaged the subject lot to BPI. St. Raphael insists
that it is the owner of the building, however, neither the Spouses
Andaya and St. Raphael failed to convince that they are separate
entities and that the Spouses Andaya did not act in behalf of St.
Raphael.

Likewise, assuming that there was indeed a valid lease agreement,

the law requires that it must be noted as an encumbrance in T-
45006, which covers the property mortgaged by St. Raphael and
the Spouses Andaya to BPI. The failure to comply with this
requisite annotation of the lease resulted in BPI's lack of
knowledge as to the existence of the said lease
contract.25cralawred

Moreover, the appellate court's ratiocination on St. Raphael's

alleged lack of knowledge of the constituted real estate mortgage
is noteworthy, to wit:chanRoblesvirtualLawlibrary
The ruling of the court a quo that St. Raphael was a mere stranger
to the case between the Spouses Andaya and BPI and that it
entered into possession of the property before the suit began is not
supported by evidence on record. On the contrary, the record
before us reveals that St. Raphael is a party to the mortgage
agreement since the real estate mortgages show that it obtained
credit accommodations from BPI through the spouses Josefina
and Rolando Andaya who arc its president and vice-president,
respectively. The fact that a mortgage was executed in favor of
St. Raphael is likewise annotated at the back of TCT No. T-
45006. Moreover, the undertaking executed by the Spouses
Andaya reveals that they affixed their respective signatures
therein in their capacity as President and Vice-President of St.
Raphael. These clearly show that St. Raphael is privy to the
dealings between the Spouses Andaya and BPI and thus belie that
it is a mere stranger to the case.26ChanRoblesVirtualawlibrary
Finally, the real estate mortgage agreement entered into by BPI
and the Spouses Andaya is the law between them. Suffice it to say
that in all of the real mortgage agreements27 executed by BPI and
the Spouses Andaya in favor of St. Raphael, it was clearly and
commonly stipulated that the parties intend to include the
improvements or buildings erected or to be erected in the subject
lot, to wit:chanRoblesvirtualLawlibrary

139