1
and
G.R. No. 91901 June 3, 1991
SPOUSES LEONCIO G. CIFRA and AURORA R. JONGCO-CIFRA, petitioners,
vs.
COURT OF APPEALS and MANUEL G. YU CHUA, respondents.
Niceforo S. Agaton for petitioners.
Marcelino P. Arias for private respondent.
GANCAYCO, J.:
The interpretation of a contract to sell or a promise to sell real property is in issue in this
case.
On December 27, 1985, petitioners spouses, represented by their attorney-in-fact
Benedicto Catalan, entered into an agreement with private respondent denominated
"Earnest Money" which provides as follows:
EARNEST MONEY
Received from Dr. Manuel G. Yu Chua the cash sum of FIVE
THOUSAND PESOS (P5,000.00) Philippine currency as earnest
money for the house and lot owned by the spouses Leoncio G. Cifra,
Jr. and Aurora R. Jongco-Cifra. The property is located at 665 Boni
Avenue, Mandaluyong, Metro-Manila, Philippines and more particularly
described in the Transfer Certificate of Title (TCT) No. 490040 (6093).
The above property is presently mortgaged with the Social Security
System (SSS) with an outstanding balance of more or less FORTY
THOUSAND PESOS (P40,000.00) as of November, 1985. The agreed
purchase price being ONE MILLION and ONE HUNDRED
THOUSAND PESOS (1.1 M) shall be payable as follows: The sum
equivalent to the above purchase price minus the outstanding
mortgage balance with the SSS and the above earnest money shall be
paid by the buyer to the seller upon the removal of the present tenant
or occupant from the premises and upon the execution of the Deed of
Absolute Sale.
It is the understanding of the parties that the buyer shall assume the
mortgage or obligation of the seller with the SSS as of November
1985. The monthly amortization was last paid by the seller on
November 13, 1985 as evidenced by the Official Receipt (OR) No.
988474 K issued by Bank of the Philippine Islands (BPI), Ayala (Main).
Further, the seller promises to secure at the shortest possible time the
certification of balance or up to date statement of account from the
SSS and deliver the same to the buyer.
If and when the buyer purchases the property according to the terms
and conditions above specified, the herein earnest money shall form a
part of the purchase price otherwise the same shall be forfeited in favor
of the seller.
IN WITNESS, WHEREOF. the parties executed this instrument at the
Municipality of Mandaluyong, Metro-Manila, Philippines, this 27th day
of December 1985.
Earnest money received Earnest money paid
by the sellers: by the buyer:
LEONCIO G. CIFRA JR.
(s/t) MANUEL G. YU CHUA, M.D.
AURORA R. JONGCO-CIFRA
By:
(s/t) BENEDICTO F. CATALAN
Attorney-in-Fact
SIGNED IN THE PRESENCE OF: (s/t) LOURDES J. CATALAN
EARNEST MONEY
(on Page 2)
Addendum:
In the event that the buyer shall fail to purchase the property
after he is formally notified by the seller of the surrender of the
premises by the present tenant or occupant, in addition to the
forfeiture of the earnest money the buyer binds himself to pay
the seller the sum of TWENTY THOUSAND PESOS
(P20,000.00) Philippine currency plus the attorney's fees and
other costs for any court case that may arise.
On the other hand, if the seller shall not make good his
promise to sell the above property even after the present
tenant, William Lim Valencia, shall have surrendered the
premises the seller binds himself to return the earnest money
and in addition pay the buyer the sum of TWENTY
THOUSAND PESOS (P20,000.00) Philippine currency plus
the attorney's fees and other costs of any court case that may
arise.
(s/t) BENEDICTO F. CATALAN <(s/t) MANUEL G. YU CHUA, M.D.br
/>
(s/t) LOURDES J. CATALAN (s/t) Illegible1
On May 25, 1986, Catalan informed private respondent of the desire of
petitioners to rescind the contract by a letter which reads:
May 25, 1986
Dr. Manuel G. Yu Chua
649-D Boni Avenue
Mandaluyong, M.M.
Dear Dr. Yu Chua:
I regret to inform you that my sister-in law, Mrs. Aurora Cifra,
has asked me to request for a rescission of her offer to sell
their property at 665 Born Avenue. The negotiations for the
sale of the house and lot have taken such a long time without
your fault nor their fault and they have now missed the
opportunity for which they wanted to apply the proceeds of
the sale.
I intend to see you on May 31, 1986 to return the earnest
money that you gave us. I would like to personally apologize
for the way thing turned out.
Very truly yours,
(s/t) Benedicto F. Catalan2
Atty. Marcelino Arias replied in behalf of private respondent:

MR. BENEDICTO F. CATALAN
12 T. Evangelista, B.F. Homes
Parañaque, Metro Manila
Dear Mr. Catalan:
This is in behalf of my client, Dr. Manuel G. Yu Chua, of 649-D Boni Ave., Mandaluyong,
Metro Manila.
Your letter dated May 25, 1986 sent through registered mail to my client was received by
my client today, May 29, 1986 and immediately referred the same to my office for proper
legal comment.
My client shall pursue the agreement you have entered into and my client is willing to buy
the property right now at 1.1 Million Pesos minus of course the Five Thousand
(P5,000.00) Pesos earnest money and the outstanding SSS mortgage account over the
premises which my client had assumed to pay.
You have stated of course, that it is not the fault of my client nor the fault of your principal
and there being no fault of any of them, then there is no reason why the contract of
agreement to sell shall not be pushed through.
My client is even willing to pay the amount of 1.1 Million Pesos as per agreement even if
the present tenant in the premises is still occupying the said premises. Please take note
that the contract of lease executed by and between your principal and the present tenant
clearly provides that the tenant shall vacate the premises within ninety (90) days from
notice of the sale of the property in question to any other third person.
Off hand, my client shall certainly take this matter to court to enforce his right and should
this happen, then we shall be asking for proper damages.
Consequently, we reiterate that we are willing to buy the property now in the agreed
amount as previously agreed upon. [sic]
You are aware also that my client was deprived to buy a cheaper property of 614 sq.
m. located at the corner of Boni and Mayon Sts. also in Mandaluyong for Nine Hundred
Thousand (P900,000.00) Pesos only in order to buy your property at 1.1 Million Pesos.
Now, the property at the corner of Boni and Mayon Sts. is no longer for sale to the
damage and prejudice of my client.
Furthermore, my client had deposited the 1.1 Million Pesos in a bank earning only the
usual interest instead of a higher yielding business venture because he was anticipating
for the consummation of your agreement to sell the property to my client.
I hope we shall not meet in court to enforce my client's right over the premises to avoid
extra unnecessary expenses in court litigation.
Very truly yours,
(s/t) MARCELINO P. ARIAS
(Original reply received May 31, 1986 by (s/t) B.F. Catalan) 3
This was followed by another letter:
June 13, 1986
R. BENEDICTO F. CATALAN
12 T. Evangelists, B.F. Homes
Parañaque, Metro Manila
Dear Mr. Catalan:
This is a reiteration of our letter dated May 29, 1986 and received by you on May 31,
1986. Up to now, we have not received any response from you. We will give you ten (10)
days from receipt hereof within which to tell us in clear terms whether you will still
proceed with the sale of the property to my client, Dr. Manuel G. Yu Chua or not.
Your silence would be interpreted by us to mean that you want us to take this matter to
court to vindicate the rights of our client and should this happen, it will be an additional
unnecessary expenses on your part and on our part, but most of all, on your part as we
will file an action for damages aside from attorney's fees.
2
I hope we shall not go to court to avoid unnecessary expenses. We shall wait for your
answer.
(s/t) MARCELINO P. ARIAS4
Private respondent himself wrote a letter to Catalan dated June 18, 1986:
MR. & MRS. BENEDICTO CATALAN
12 Evangelista Street BF Homes,
Parañaque, Metro Manila
Dear Mr. & Mrs. Catalan:
At the outset, you knew I disliked attending court trials, that is why to avoid such
possibility with your tenant, I agreed to the stiff price of P1.1 Million for the property at
665 Boni Avenue, Mandaluyong in exchange for your assurance that you will take care of
ejecting your tenant. We signed our agreement to this effect last Dec. 27, 1985. You
gave your tenant a 90-day notice to vacate so that gave him up to the end of March 1986
to look for another residence. Then suddenly, at the end of the 90-day period, you told
me that the tenant had just offered you a better price for the property and you were
considering it. That was bad faith, loud and clear! The tenant had waived any right to the
property to all of us personally during the negotiations; and again, he confirmed this
when he accepted the 90 day notice to vacate. Without showing my indignation at this
trampling of my rights, I told you I was ready to buy the property even while the tenant
was still residing there. In other words, I was willing now to suffer the inconvenience and
added costs of trying to eject the tenant. You answered that you had to consult with your
principal first and this would take about two weeks. The 2 weeks extended to two (2)
months and last May 29, 1986 1 received your letter rescinding our contract. So any
undue delay has been on your part and deliberately at that. What you kept referring to as
lengthy negotiations were simply delaying tactics on your part.
As I write this letter, you may have received my lawyer's second letter. Now as then, let
me say again that I do not like going to court if I can help it. But I feel you have done me
a grave injustice and a court suit is the only civilized way to get a redress. My lawyer said
the law is on my side and the court can compel you to sell me the property, aside from
making you pay for the trial expenses, the damages and attorney's fees. At this late
stage, I am still hoping you would change your mind and decide to proceed with the sale
without court intervention. Atty. Mar Arias gave you 10 days to reply. You can reach him
at his address or at his radio program at DZME, 7:00 to 8:00 A.M., Monday to Friday.
Please reply favorably but do it soon.
Sincerely yours,
(s/t) Dr. MANUEL G. YU CHUN5
On June 20,1986, Atty. Narciso Tadeo, representative of petitioners replied thereto:
Dr. Manuel G. Yu Chua
649-D Boni Avenue,
Mandaluyong, Metro Manila
Dear Dr. Yu Chua:
Our clients, Mr. & Mrs. Leoncio Cifra, thru their attorney-in-fact, Mr.
Benedicto F. Catalan have endorsed to us the letter of your lawyer,
Atty. Marcelino P. Arias dated May 29, 1986 relative to the cancellation
of the sale agreement on their property situated at 665 Boni Avenue,
Mandaluyong, Metro Manila.
You will kindly note that you paid on December 27, 1985 an earnest
money of P5,000.00. Under your said agreement, the balance of the
agreed consideration of ONE MILLION ONE HUNDRED THOUSAND
PESOS (P1,100,000.00) shall be paid to the seller (our clients) upon
removal of the present tenant of occupant from the premises and upon
the execution of the Deed of Absolute Sale. As correctly pointed out by
your counsel, the contract of lease between our clients and the present

tenant provides, among others, that the tenant shall vacate the
premises within ninety (90) days from notice of the sale of the property
to any third party.
To date, the tenant of the premises is still occupying the premises in
question. The tenant's refusal to comply with his contractual obligation
to vacate the premises within the said period is certainly not the fault of
our clients nor yourself. However, the unexpected delay had caused
our clients' lost opportunity to apply the proceeds of the sale to a
business venture abroad. This matter was relayed to you by our
clients' attorney-in-fact in his letter dated May 25, 1986.
Under the foregoing circumstances, we believe that the rescission of
our client's offer to sell their said property is reasonable and justified.
Our clients' attorney-in-fact is ready to refund the P5,000.00 earnest
money.
Very truly yours,
(s/t) NARCISO A. TADEO6
On July 3, 1986 private respondent filed an action for specific performance of the above
agreement in the Regional Trial Court at Pasig, Rizal, wherein after the issues were
joined and the trial on the merits a decision was rendered on May 25, 1987, the
dispositive part of which reads:
IN VIEW OF THE FOREGOING, this Court renders judgment in favor of the
plaintiff and against the defendant ordering the said defendants:
a) To execute the corresponding deed of absolute sale in favor of plaintiff
Manuel Yu Chua, over a parcel of land, together with all the improvements
found and existing thereon, located at 665 Boni Avenue, Mandaluyong, Metro
Manila, covered by Transfer Certificate of Title (TCT) No. 490040 of the
Registry of Deeds of Pasig, Metro Manila, upon payment by the plaintiff of the
amount of ONE MILLION ONE HUNDRED THOUSAND PESOS
(P1,100,000.00), minus the earnest money of P5,000.00 and the outstanding
mortgage balance with the Social Security System;
b) Pay to the plaintiff the amount of P100,000.00 by way of moral damages;
c) Pay to the said plaintiff the amount of P50,000.00 as attorney's fees; and
d) Pay the costs of this suit.7
Acting on a motion for reconsideration filed by petitioners the trial court modified its
decision by absolving Catalan, the agent, from paying moral damages, attorney's fees
and costs of the suit.
Petitioners interposed an appeal to the Court of Appeals wherein in due course a
decision was rendered on December 20, 1989 which affirmed the appealed judgment
with the modification deleting the award of moral damages. A motion for reconsideration
filed by petitioners was denied on January 30, 1990.
Hence, this petition for review on certiorari which presents two legal issues:
1) The major legal issue can be framed as follows:
Q — DOES CHUA, THE RESPONDENT BUYER, HAVE THE RIGHT
TO DEMAND SPECIFIC PERFORMANCE FROM THE PETITIONERS
TO SELL THE HOUSE AND LOT TO HIM DESPITE THE FACT THAT
HE HAD AGREED TO A WAIVER OF SUCH A RIGHT WHEN HE
CONSENTED TO THE ADDENDUM STIPULATION RECOGNIZING
THE RIGHT ON THE PART OF THE PETITIONERS TO CANCEL OR
ABROGATE THE SALE FOR ANY REASON BY PAYING THE
LIQUIDATED DAMAGES AGES STIPULATED THEREIN?
2) The minor legal issue may be framed as follows:
Q — IS THE AWARD OF ATTORNEY'S FEES FOR P50,000.00
PROPER DESPITE THE FACT THAT THE OBLIGATION TO SELL IS
3
COUPLED WITH A PENAL CLAUSE IN CASE OF FAILURE TO
PERFORM, WHICH PENALTY IS CONSIDERED IN LAW A
SUBSTITUTE FOR THE INDEMNITY OF WHATEVER KIND OF
DAMAGES PURSUANT TO THE EXPRESS PROVISIONS OF
ARTICLE 1226 OF THE CIVIL CODE?8
The petition is impressed with merit.
The provisions of Articles 1370 to 1375 of the Civil Code on the interpretation of
contracts are squarely applicable to this case:
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.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Art. 1372. However generally the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are different
from those upon which the parties intended to agree.
Art. 1373. If some stipulation of any contract should admit of several meanings,
it shall be understood as bearing that import which is most adequate to render it
effectual.
Art. 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them
taken jointly.
Art. 1375. Words which may have different significations shall be understood in
that which is most in keeping with the nature and object of the contract.
A reading of the subject contract which the parties labeled as "Earnest money" shows
that it is an agreement to sell the real property described therein for the amount of P1.1
M with assumption of the P40,000.00 mortgage, by which P5,000.00 was paid upon
signing of the agreement by private respondent to petitioner as earnest money, which is
part of the consideration. The balance of the consideration shall be paid upon the
removal of the tenant or occupant from the premises and upon the execution of the deed
of absolute sale.
In the addendum to the agreement it is stipulated that in case the buyer fails to purchase
the property after the seller formally notified him of the surrender of the premises by the
tenant or occupant, in addition to the forfeiture of the earnest money, the buyer must pay
the seller P20,000.00 plus attorney's fees and other costs in case of litigation. On the
other hand, if the seller does not make good his promise to sell the property even after
the present tenant shall have surrendered the premises, the seller binds himself to return
the earnest money and in addition pay the buyer P20,000.00 plus the attorney's fees and
other costs in case of litigation.
This is the literal and clear agreement of the parties.1âwphi1 From their
contemporaneous and subsequent acts it also appears that the proceeds of the sale of
the property by petitioners were intended to apply to a proposed business venture of
petitioners abroad. As said proposed business did not prosper and the tenants/occupants
of the premises have not yet vacated the premises, petitioners decided to rescind the
contract of sale in accordance with the agreement.
Under the addendum to the same agreement, both parties are given the freedom to back
out of the transaction provided that, in tie case of the seller, he must return the earnest
money in addition to being liable to the buyer for P20,000.00, plus attorney's fees and
other costs in case of litigation; and in case of the buyer, the earnest money is forfeited,
and he is liable to pay the seller P20,000.00 in damages plus attorneys fees and other
costs in case of litigation to the seller. This right which is afforded to both parties may be

availed of by them, irrespective of whether or not the occupant of the premises had
vacated the same. This stipulation is the law between the parties.
Consequently, the action for specific performance must fail. For the rescission of the
contract, petitioners must return the P5,000.00 earnest money and pay P20,000.00 to the
private respondent. However, they are not liable for attorneys fees, for it was private
respondent who brought the case to court as a result of which petitioners unnecessarily
incurred expenses of litigation.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated
December 20, 1989 and its resolution dated January 30, 1990 are hereby REVERSED
and SET ASIDE. Another judgment is hereby rendered dismissing the complaint and
rescinding the subject contract to sell dated December 27, 1985 upon the petitioners
reimbursing to private respondent the P5,000.00 earnest money and paying them
P20,000.00 as damages according to the same agreement. No costs in this instance.
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.
[G.R. No. 137552. June 16, 2000]
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA,
DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners, vs. ALONZO
MACHUCA, respondent.
DECISION
GONZAGA_REYES, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of
Appeals[1] in CA G.R. CV No. 47457 entitled "ALONZO MACHUCA versus ROBERTO Z.
LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA MICHAEL Z.
LAFORTEZA, and DENNIS Z. LAFORTEZA".
The following facts as found by the Court of Appeals are undisputed:
"The property involved consists of a house and lot located at No. 7757
Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila,
covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the
Registered of Deeds of Paraaque (Exhibit "D", Plaintiff, record, pp.
331-332). The subject property is registered in the name of the late
Francisco Q. Laforteza, although it is conjugal in nature (Exhibit "8",
Defendants, record pp. 331-386).
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a
Special Power of Attorney in favor of defendants Roberto Z. Laforteza
and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact
authorizing them jointly to sell the subject property and sign any
document for the settlement of the estate of the late Francisco Q.
Laforteza (Exh. "A", Plaintiff, record, pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza executed a
Special Power of Attorney in favor of defendants Roberto Z. Laforteza
and Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh.
"B", record, pp. 326-328). Both agency instruments contained a
provision that in any document or paper to exercise authority granted,
the signature of both attorneys-in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a
Special Power of Attorney in favor of defendant Roberto Z. Laforteza
for the purpose of selling the subject property (Exh. "C", Plaintiff,
record, pp. 329-330). A year later, on October 30, 1989, Dennis Z.
Laforteza executed another Special Power of Attorney in favor of
defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming
both attorneys-in-fact for the purpose of selling the subject property
and signing any document for the settlement of the estate of the late
4
Francisco Q. Laforteza. The subsequent agency instrument (Exh. "2",
record, pp. 371-373) contained similar provisions that both attorneys-
in-fact should sign any document or paper executed in the exercise of
their authority.
In the exercise of the above authority, on January 20, 1989, the heirs
of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza
and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of
Agreement (Contract to Sell) with the plaintiff[2] over the subject
property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS
(P630,000.00) payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the
defendants if the sale is not effected due to the fault of the plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title in the
name of the late Francisco Q. Laforteza and upon execution of an
extra-judicial settlement of the decedents estate with sale in favor of
the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).
Significantly, the fourth paragraph of the Memorandum of Agreement
(Contract to Sell) dated January 20, 1989 (Exh. "E", supra.) contained
a provision as follows:
xxx. Upon issuance by the proper Court of the new title, the
BUYER-LESSEE shall be notified in writing and said BUYER-
LESSEE shall have thirty (30) days to produce the balance
of P600,000.00 which shall be paid to the SELLER-LESSORS
upon the execution of the Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of THIRTY
THOUSAND PESOS (P30,000.00), plus rentals for the subject
property (Exh. "F", Plaintiff, record, p. 339).
On September 18, 1998[3], defendant heirs, through their counsel
wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff
furnishing the latter a copy of the reconstituted title to the subject
property, advising him that he had thirty (3) days to produce the
balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the
Memorandum of Agreement which plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter
requesting for an extension of the THIRTY (30) DAYS deadline up to
November 15, 1989 within which to produce the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff,
record, pp. 341-342). Defendant Roberto Z. Laforteza, assisted by his
counsel Atty. Romeo L. Gutierrez, signed his conformity to the plaintiffs
letter request (Exh. "G-1 and "G-2", Plaintiff, record, p. 342). The
extension, however, does not appear to have been approved by
Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity
does not appear to have been secured.
On November 15, 1989, plaintiff informed the defendant heirs, through
defendant Roberto Z. Laforteza, that he already had the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00) covered by United
Coconut Planters Bank Managers Check No. 000814 dated November
15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344;
"M", records p. 350; and "N", record, p. 351). However, the defendants,
refused to accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-
1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p. 351).
Defendant Roberto Z. Laforteza had told him that the subject property

was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record,
p. 347).
On November 20, 1998[4], defendants informed the plaintiff that they
were canceling the Memorandum of Agreement (Contract to Sell) in
view of the plaintiffs failure to comply with his contractual obligations
(Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of the
balance of SIX HUNDRED THOUSAND PESOS (P600,000.00).
Defendants, however, insisted on the rescission of the Memorandum
of Agreement. Thereafter, plaintiff filed the instant action for specific
performance. The lower court rendered judgment on July 6, 1994 in
favor of the plaintiff, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff Alonzo Machuca and against the defendant heirs of
the late Francisco Q. Laforteza, ordering the said defendants.
(a) To accept the balance of P600,000.00 as full payment of the
consideration for the purchase of the house and lot located at No. 7757
Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila,
covered by Transfer Certificate of Title No. (220656) 8941 of the
Registry of Deeds of Rizal Paraaque, Branch;
(b) To execute a registrable deed of absolute sale over the subject
property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as
attorneys fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75)."[5]
Petitioners appealed to the Court of Appeals, which affirmed with modification the
decision of the lower court; the dispositive portion of the Decision reads:
"WHEREFORE, the questioned decision of the lower court is hereby
AFFIRMED with the MODIFICATION that defendant heirs Lea Zulueta-
Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza and Roberto Z.
Laforteza including Gonzalo Z. Laforteza, Jr. are hereby ordered to pay
jointly and severally the sum of FIFTY THOUSAND PESOS
(P50,000.00) as moral damages.
SO ORDERED."[6]
Motion for Reconsideration was denied but the Decision was modified so as to absolve
Gonzalo Z. Laforteza, Jr. from liability for the payment of moral damages. [7] Hence this
petition wherein the petitioners raise the following issues:
"I. WHETHER THE TRIAL AND APPELLATE COURTS
CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT
AS IMPOSING RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT
RESCISSION WILL NOT LIE IN THE INSTANT CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM
RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF
ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS
LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF
AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER
THE PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT
PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A
JUDICIAL CONSIGNATION OF THE PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS
MAKE THEM LIABLE FOR MORAL DAMAGES?"[8]
5
The petitioners contend that the Memorandum of Agreement is merely a lease
agreement with "option to purchase". As it was merely an option, it only gave the
respondent a right to purchase the subject property within a limited period without
imposing upon them any obligation to purchase it. Since the respondents tender of
payment was made after the lapse of the option agreement, his tender did not give rise to
the perfection of a contract of sale.
It is further maintained by the petitioners that the Court of Appeals erred in ruling that
rescission of the contract was already out of the question. Rescission implies that a
contract of sale was perfected unlike the Memorandum of Agreement in question which
as previously stated is allegedly only an option contract.
Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere
contract to sell, as indicated in its title. The obligation of the petitioners to sell the
property to the respondent was conditioned upon the issuance of a new certificate of title
and the execution of the extrajudicial partition with sale and payment of the P600,000.00.
This is why possession of the subject property was not delivered to the respondent as
the owner of the property but only as the lessee thereof. And the failure of the
respondent to pay the purchase price in full prevented the petitioners obligation to
convey title from acquiring obligatory force.
Petitioners also allege that assuming for the sake of argument that a contract of sale was
indeed perfected, the Court of Appeals still erred in holding that respondents failure to
pay the purchase price of P600,000.00 was only a "slight or casual breach".
The petitioners also claim that the Court of Appeals erred in ruling that they were not
ready to comply with their obligation to execute the extrajudicial settlement. The Power of
Attorney to execute a Deed of Sale made by Dennis Z. Laforteza was sufficient and
necessarily included the power to execute an extrajudicial settlement. At any rate, the
respondent is estopped from claiming that the petitioners were not ready to comply with
their obligation for he acknowledged the petitioners ability to do so when he requested for
an extension of time within which to pay the purchase price. Had he truly believed that
the petitioners were not ready, he would not have needed to ask for said extension.
Finally, the petitioners allege that the respondents uncorroborated testimony that third
persons offered a higher price for the property is hearsay and should not be given any
evidentiary weight. Thus, the order of the lower court awarding moral damages was
without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the transaction between the
petitioners and the respondent was one of sale and lease. The terms of the agreement
read:
"1. For and in consideration of the sum of PESOS: SIX HUNDRED
THIRTY THOUSAND (P630,000.00) payable in a manner herein below
indicated, SELLER-LESSOR hereby agree to sell unto BUYER-
LESSEE the property described in the first WHEREAS of this
Agreement within six (6) months from the execution date hereof, or
upon issuance by the Court of a new owners certificate of title and the
execution of extrajudicial partition with sale of the estate of Francisco
Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY
THOUSAND (P630,000.00) shall be paid in the following manner:
P30,000.00- as earnest money and as consideration for this
Agreement, which amount shall be forfeited in favor of
SELLER-LESSORS if the sale is not effected because of the
fault or option of BUYER-LESSEE;
P600,000.00- upon the issuance of the new certificate of title
in the name of the late Francisco Laforteza and upon the

execution of an Extrajudicial Settlement of his estate with sale
in favor of BUYER-LESSEE free from lien or any
encumbrances.
3. Parties reasonably estimate that the issuance of a new title in place
of the lost one, as well as the execution of extrajudicial settlement of
estate with sale to herein BUYER-LESSEE will be completed within six
(6) months from the execution of this Agreement. It is therefore agreed
that during the six months period, BUYER-LESSEE will be leasing the
subject property for six months period at the monthly rate of PESOS:
THREE THOUSAND FIVE HUNDRED (P3,500.00). Provided however,
that if the issuance of new title and the execution of Extrajudicial
Partition is completed prior to the expiration of the six months period,
BUYER-LESSEE shall only be liable for rentals for the corresponding
period commencing from his occupancy of the premises to the
execution and completion of the Extrajudicial Settlement of the estate,
provided further that if after the expiration of six (6) months, the lost
title is not yet replaced and the extra judicial partition is not executed,
BUYER-LESSEE shall no longer be required to pay rentals and shall
continue to occupy, and use the premises until subject condition is
complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the execution of
this Agreement and the payment by BUYER-LESSEE of the amount of
P30,000.00 as herein above provided, SELLER-LESSORS shall
immediately file the corresponding petition for the issuance of a new
title in lieu of the lost one in the proper Courts. Upon issuance by the
proper Courts of the new title, the BUYER-LESSEE shall have thirty
(30) days to produce the balance of P600,000.00 which shall be paid
to the SELLER-LESSORS upon the execution of the Extrajudicial
Settlement with sale."[9]
A contract of sale is a consensual contract and is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract and upon the
price.[10] From that moment the parties may reciprocally demand performance subject to
the provisions of the law governing the form of contracts. [11] 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.[12]
In the case at bench, there was a perfected agreement between the petitioners and the
respondent whereby the petitioners obligated themselves to transfer the ownership of
and deliver the house and lot located at 7757 Sherwood St., Marcelo Green Village,
Paraaque and the respondent to pay the price amounting to six hundred thousand pesos
(P600,000.00). All the elements of a contract of sale were thus present. However, the
balance of the purchase price was to be paid only upon the issuance of the new
certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon
the execution of an extrajudicial settlement of his estate. Prior to the issuance of the
"reconstituted" title, the respondent was already placed in possession of the house and
lot as lessee thereof for six months at a monthly rate of three thousand five hundred
pesos (P3,500.00). It was stipulated that should the issuance of the new title and the
execution of the extrajudicial settlement be completed prior to expiration of the six-month
period, the respondent would be liable only for the rentals pertaining to the period
commencing from the date of the execution of the agreement up to the execution of the
extrajudicial settlement. It was also expressly stipulated that if after the expiration of the
six month period, the lost title was not yet replaced and the extrajudicial partition was not
yet executed, the respondent would no longer be required to pay rentals and would
6
continue to occupy and use the premises until the subject condition was complied with by
the petitioners.
The six-month period during which the respondent would be in possession of the
property as lessee, was clearly not a period within which to exercise an option. An option
is a contract granting a privilege to buy or sell within an agreed time and at a determined
price. An option contract is a separate and distinct contract from that which the parties
may enter into upon the consummation of the option.[13] An option must be supported by
consideration.[14] An option contract is governed by the second paragraph of Article 1479
of the Civil Code[15], which reads:
"Article 1479. xxx
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price."
In the present case, the six-month period merely delayed the demandability of the
contract of sale and did not determine its perfection for after the expiration of the six-
month period, there was an absolute obligation on the part of the petitioners and the
respondent to comply with the terms of the sale. The parties made a "reasonable
estimate" that the reconstitution of the lost title of the house and lot would take
approximately six months and thus presumed that after six months, both parties would be
able to comply with what was reciprocally incumbent upon them. The fact that after the
expiration of the six-month period, the respondent would retain possession of the house
and lot without need of paying rentals for the use therefor, clearly indicated that the
parties contemplated that ownership over the property would already be transferred by
that time.
The issuance of the new certificate of title in the name of the late Francisco Laforteza
and the execution of an extrajudicial settlement of his estate was not a condition which
determined the perfection of the contract of sale. Petitioners contention that since the
condition was not met, they no longer had an obligation to proceed with the sale of the
house and lot is unconvincing. The petitioners fail to distinguish between a condition
imposed upon the perfection of the contract and a condition imposed on the performance
of an obligation. Failure to comply with the first condition results in the failure of a
contract, while the failure to comply with the second condition only gives the other party
the option either to refuse to proceed with the sale or to waive the condition. Thus, Art.
1545 of the Civil Code states:
"Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse
to proceed with the contract or he may waive performance of the
condition. If the other party has promised that the condition should
happen or be performed, such first mentioned party may also treat the
nonperformance of the condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer may treat
the fulfillment by the seller of his obligation to deliver the same as
described and as warranted expressly or by implication in the contract
of sale as a condition of the obligation of the buyer to perform his
promise to accept and pay for the thing."[16]
In the case at bar, there was already a perfected contract. The condition was imposed
only on the performance of the obligations contained therein. Considering however that
the title was eventually "reconstituted" and that the petitioners admit their ability to
execute the extrajudicial settlement of their fathers estate, the respondent had a right to
demand fulfillment of the petitioners obligation to deliver and transfer ownership of the
house and lot.
What further militates against petitioners argument that they did not enter into a contract
of sale is the fact that the respondent paid thirty thousand pesos (P30,000.00) as earnest

money. Earnest money is something of value to show that the buyer was really in
earnest, and given to the seller to bind the bargain.[17] Whenever earnest money is given
in a contract of sale, it is considered as part of the purchase price and proof of the
perfection of the contract.[18]
We do not subscribe to the petitioners view that the Memorandum Agreement was a
contract to sell. There is nothing contained in the Memorandum Agreement from which it
can reasonably be deduced that the parties intended to enter into a contract to sell, i.e.
one whereby the prospective seller would explicitly reserve the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to
transfer ownership of the property subject of the contract to sell until the full payment of
the price, such payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the
obligation from acquiring any obligatory force.[19] There is clearly no express reservation
of title made by the petitioners over the property, or any provision which would impose
non-payment of the price as a condition for the contracts entering into force. Although the
memorandum agreement was also denominated as a "Contract to Sell", we hold that the
parties contemplated a contract of sale. A deed of sale is absolute in nature although
denominated a conditional sale in the absence of a stipulation reserving title in the
petitioners until full payment of the purchase price.[20] In such cases, ownership of the
thing sold passes to the vendee upon actual or constructive delivery thereof. [21] The mere
fact that the obligation of the respondent to pay the balance of the purchase price was
made subject to the condition that the petitioners first deliver the reconstituted title of the
house and lot does not make the contract a contract to sell for such condition is not
inconsistent with a contract of sale.[22]
The next issue to be addressed is whether the failure of the respondent to pay the
balance of the purchase price within the period allowed is fatal to his right to enforce the
agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay the balance of the purchase price was a
breach of the contract and was a ground for rescission thereof. The extension of thirty
(30) days allegedly granted to the respondent by Roberto Z. Laforteza (assisted by his
counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to be
ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as
required by the Special Powers of Attorney.[23] However, the evidence reveals that after
the expiration of the six-month period provided for in the contract, the petitioners were
not ready to comply with what was incumbent upon them, i.e. the delivery of the
reconstituted title of the house and lot. It was only on September 18, 1989 or nearly eight
months after the execution of the Memorandum of Agreement when the petitioners
informed the respondent that they already had a copy of the reconstituted title and
demanded the payment of the balance of the purchase price. The respondent could not
therefore be considered in delay for in reciprocal obligations, neither party incurs in delay
if the other party does not comply or is not ready to comply in a proper manner with what
was incumbent upon him.[24]
Even assuming for the sake of argument that the petitioners were ready to comply with
their obligation, we find that rescission of the contract will still not prosper. The rescission
of a sale of an immovable property is specifically governed by Article 1592 of the New
Civil Code, which reads:
"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
7
by a notarial act. After the demand, the court may not grant him a new
term."[25]
It is not disputed that the petitioners did not make a judicial or notarial demand for
rescission. The November 20, 1989 letter of the petitioners informing the respondent of
the automatic rescission of the agreement did not amount to a demand for rescission, as
it was not notarized.[26] It was also made five days after the respondents attempt to make
the payment of the purchase price. This offer to pay prior to the demand for rescission is
sufficient to defeat the petitioners right under article 1592 of the Civil Code. [27] Besides,
the Memorandum Agreement between the parties did not contain a clause expressly
authorizing the automatic cancellation of the contract without court intervention in the
event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially
rescind a contract of sale where there is no express stipulation authorizing him to
extrajudicially rescind.[28] Neither was there a judicial demand for the rescission thereof.
Thus, when the respondent filed his complaint for specific performance, the agreement
was still in force inasmuch as the contract was not yet rescinded. At any rate, considering
that the six-month period was merely an approximation of the time it would take to
reconstitute the lost title and was not a condition imposed on the perfection of the
contract and considering further that the delay in payment was only thirty days which was
caused by the respondents justified but mistaken belief that an extension to pay was
granted to him, we agree with the Court of Appeals that the delay of one month in
payment was a mere casual breach that would not entitle the respondents to rescind the
contract. 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.[29]
Petitioners insistence that the respondent should have consignated the amount is not
determinative of whether respondents action for specific performance will lie. Petitioners
themselves point out that the effect of consignation is to extinguish the obligation. It
releases the debtor from responsibility therefor.[30] The failure of the respondent to
consignate the P600,000.00 is not tantamount to a breach of the contract for by the fact
of tendering payment, he was willing and able to comply with his obligation.
The Court of Appeals correctly found the petitioners guilty of bad faith and awarded
moral damages to the respondent. As found by the said Court, the petitioners refused to
comply with their obligation for the reason that they were offered a higher price therefor
and the respondent was even offered P100,000.00 by the petitioners lawyer, Attorney
Gutierrez, to relinquish his rights over the property. The award of moral damages is in
accordance with Article 1191[31] of the Civil Code pursuant to Article 2220 which provides
that moral damages may be awarded in case of a breach of contract where the
defendant acted in bad faith. The amount awarded depends on the discretion of the court
based on the circumstances of each case.[32]Under the circumstances, the award given
by the Court of Appeals amounting to P50,000.00 appears to us to be fair and
reasonable.
ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is
AFFIRMED and the instant petition is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Panganiban, and Purisima, JJ., concur.
Vitug, J., Abroad, On Official Business.
[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
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.
8
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-Claimwas
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 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.
9
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 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
10
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.
Mendoza, Quisumbing and Buena JJ., concur.
De Leon, Jr., J., on leave.
[G.R. No. 137290. July 31, 2000]
SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES ALFREDO
HUANG and GRACE HUANG, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision,[1] dated April 8, 1997, of the Court of Appeals
which reversed the decision of the Regional Trial Court, Branch 153, Pasig City
dismissing the complaint brought by respondents against petitioner for enforcement of a
contract of sale.
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in
the purchase and sale of real properties. Part of its inventory are two parcels of land
totalling 1, 738 square meters at the corner of Meralco Avenue and General Capinpin
Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-
82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash.
The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as
undisclosed principals. In a letter[2] dated March 24, 1994, Atty. Dauz signified her clients
interest in purchasing the properties for the amount for which they were offered by
petitioner, under the following terms: the sum of P500,000.00 would be given as earnest
money and the balance would be paid in eight equal monthly installments from May to
December, 1994. However, petitioner refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another letter[3] proposing the following terms for
the purchase of the properties, viz:
This is to express our interest to buy your-above-mentioned property
with an area of 1, 738 sq. meters. For this purpose, we are enclosing
herewith the sum of P1,000,000.00 representing earnest-deposit
money, subject to the following conditions.
1. We will be given the exclusive option to purchase the property within
the 30 days from date of your acceptance of this offer.
2. During said period, we will negotiate on the terms and conditions of
the purchase; SMPPI will secure the necessary Management and
Board approvals; and we initiate the documentation if there is mutual
agreement between us.
3. In the event that we do not come to an agreement on this
transaction, the said amount of P1,000,000.00 shall be refundable to
us in full upon demand. . . .
Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate
real estate, indicated his conformity to the offer by affixing his signature to the letter and
accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses,
Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April
8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject
properties on a 90-day term. Atty. Dauz countered with an offer of six months within
which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz
that petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to
propose a four-month period of amortization.
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to
June 13, 1994 within which to exercise her option to purchase the property, adding that
within that period, "[we] hope to finalize [our] agreement on the matter."[4] Her request
was granted.
On July 7, 1994, petitioner, through its president and chief executive officer, Federico
Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the
terms and conditions of the sale despite the extension granted by petitioner, the latter
was returning the amount of P1 million given as "earnest-deposit."[5]
On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the
execution within five days of a deed of sale covering the properties. Respondents
attempted to return the "earnest-deposit" but petitioner refused on the ground that
respondents option to purchase had already expired.
On August 16, 1994, respondent spouses filed a complaint for specific performance
against petitioner before the Regional Trial Court, Branch 133, Pasig City where it was
docketed as Civil Case No. 64660.
Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the
complaint alleging that (1) the alleged "exclusive option" of respondent spouses lacked a
consideration separate and distinct from the purchase price and was thus unenforceable
and (2) the complaint did not allege a cause of action because there was no "meeting of
11
the minds" between the parties and, therefore, no perfected contract of sale. The motion
was opposed by respondents.
On December 12, 1994, the trial court granted petitioners motion and dismissed the
action. Respondents filed a motion for reconsideration, but it was denied by the trial
court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a
decision[6] reversing the judgment of the trial court. The appellate court held that all the
requisites of a perfected contract of sale had been complied with as the offer made on
March 29, 1994, in connection with which the earnest money in the amount of P1 million
was tendered by respondents, had already been accepted by petitioner. The court cited
Art. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a
contract of sale, it shall be considered as part of the price and as proof of the perfection
of the contract." The fact the parties had not agreed on the mode of payment did not
affect the contract as such is not an essential element for its validity. In addition, the court
found that Sobrecarey had authority to act in behalf of petitioner for the sale of the
properties.[7]
Petitioner moved for reconsideration of the trial courts decision, but its motion was
denied. Hence, this petition.
Petitioner contends that the Court of Appeals erred in finding that there was a perfected
contract of sale between the parties because the March 29, 1994 letter of respondents,
which petitioner accepted, merely resulted in an option contract, albeit it was
unenforceable for lack of a distinct consideration. Petitioner argues that the absence of
agreement as to the mode of payment was fatal to the perfection of the contract of sale.
Petitioner also disputes the appellate courts ruling that Isidro A. Sobrecarey had authority
to sell the subject real properties.[8]
Respondents were required to comment within ten (10) days from notice. However,
despite 13 extensions totalling 142 days which the Court had given to them, respondents
failed to file their comment. They were thus considered to have waived the filing of a
comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court of Appeals relied on the
following findings: (1) earnest money was allegedly given by respondents and accepted
by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey;
and (2) the documentary evidence in the records show that there was a perfected
contract of sale.
With regard to the alleged payment and acceptance of earnest money, the Court holds
that respondents did not give the P1 million as "earnest money" as provided by Art. 1482
of the Civil Code. They presented the amount merely as a deposit of what would
eventually become the earnest money or downpayment should a contract of sale be
made by them. The amount was thus given not as a part of the purchase price and as
proof of the perfection of the contract of sale but only as a guarantee that respondents
would not back out of the sale. Respondents in fact described the amount as an
"earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:
. . . While the P5,000 might have indeed been paid to Carlos in
October, 1967, there is nothing to show that the same was in the
concept of the earnest money contemplated in Art. 1482 of the Civil
Code, invoked by petitioner, as signifying perfection of the
sale. Viewed in the backdrop of the factual milieu thereof extant in the
record, We are more inclined to believe that the said P5,000.00 were
paid in the concept of earnest money as the term was understood
under the Old Civil Code, that is, as a guarantee that the buyer would
not back out, considering that it is not clear that there was already a
definite agreement as to the price then and that petitioners were

decided to buy 6/7 only of the property should respondent Javellana
refuse to agree to part with her 1/7 share.[10]
In the present case, the P1 million "earnest-deposit" could not have been given as
earnest money as contemplated in Art. 1482 because, at the time when petitioner
accepted the terms of respondents offer of March 29, 1994, their contract had not yet
been perfected. This is evident from the following conditions attached by respondents to
their letter, to wit: (1) that they be given the exclusive option to purchase the property
within 30 days from acceptance of the offer; (2) that during the option period, the parties
would negotiate the terms and conditions of the purchase; and (3) petitioner would
secure the necessary approvals while respondents would handle the documentation.
The first condition for an option period of 30 days sufficiently shows that a sale was never
perfected. As petitioner correctly points out, acceptance of this condition did not give rise
to a perfected sale but merely to an option or an accepted unilateral promise on the part
of respondents to buy the subject properties within 30 days from the date of acceptance
of the offer. Such option giving respondents the exclusive right to buy the properties
within the period agreed upon is separate and distinct from the contract of sale which the
parties may enter.[11] All that respondents had was just the option to buy the properties
which privilege was not, however, exercised by them because there was a failure to
agree on the terms of payment. No contract of sale may thus be enforced by
respondents.
Furthermore, even the option secured by respondents from petitioner was fatally
defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to
buy or sell a determinate thing for a price certain is binding upon the promisor only if the
promise is supported by a distinct consideration. Consideration in an option contract may
be anything of value, unlike in sale where it must be the price certain in money or its
equivalent. There is no showing here of any consideration for the option. Lacking any
proof of such consideration, the option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second condition
that, during the option period, the parties would negotiate the terms and conditions of the
purchase. 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.[12] In the present case, the parties never got
past the negotiation stage. The alleged "indubitable evidence"[13] of a perfected sale cited
by the appellate court was nothing more than offers and counter-offers which did not
amount to any final arrangement containing the essential elements of a contract of sale.
While the parties already agreed on the real properties which were the objects of the sale
and on the purchase price, the fact remains that they failed to arrive at mutually
acceptable terms of payment, despite the 45-day extension given by petitioner.
The appellate court opined that the failure to agree on the terms of payment was no bar
to the perfection of the sale because Art. 1475 only requires agreement by the parties as
to the price of the object. This is error. In Navarro v. Sugar Producers Cooperative
Marketing Association, Inc.,[14] we laid down the rule that the manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can
exist. Although the Civil Code does not expressly state that the minds of the parties must
also meet on the terms or manner of payment of the price, the same is needed,
otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of
Appeals,[15] agreement on the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on the
price.[16] In Velasco v. Court of Appeals,[17] the parties to a proposed sale had already
12
agreed on the object of sale and on the purchase price. By the buyers own admission,
however, the parties still had to agree on how and when the downpayment and the
installments were to be paid. It was held:
. . . Such being the situation, it can not, therefore, be said that a
definite and firm sales agreement between the parties had been
perfected over the lot in question. Indeed, this Court has already ruled
before that a definite agreement on the manner of payment of the
purchase price is an essential element in the formation of a binding
and enforceable contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the sum of P10,000 as part of
the down-payment that they had to pay cannot be considered as
sufficient proof of the perfection of any purchase and sale agreement
between the parties herein under Art. 1482 of the new Civil Code, as
the petitioners themselves admit that some essential matter - the terms
of the payment - still had to be mutually covenanted.[18]
Thus, it is not the giving of earnest money, but the proof of the concurrence of all the
essential elements of the contract of sale which establishes the existence of a perfected
sale.
In the absence of a perfected contract of sale, it is immaterial whether Isidro A.
Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner. This
issue, therefore, needs no further discussion.
WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents
complaint is DISMISSED.
SO ORDERED.
Quisumbing, Buena, and De Leon, Jr., JJ., concur.
Bellosillo, (Chairman), J., on leave.
FIRST DIVISION
G.R. No. 78903 February 28, 1990
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE,
JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.
MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of Appeals rendered on
May 26, 1987, upholding the validity of the sale of a parcel of land by petitioner Segundo
Dalion (hereafter, "Dalion") in favor of private respondent Ruperto Sabesaje, Jr.
(hereafter, "Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod, Southern Leyte,
declared in the name of Segundo Dalion, under Tax Declaration No.
11148, with an area of 8947 hectares, assessed at P 180.00, and
bounded on the North, by Sergio Destriza and Titon Veloso, East, by
Feliciano Destriza, by Barbara Bonesa (sic); and West, by Catalino
Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1 issued on January 17, 1984, the
dispositive portion of which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby
renders judgment.
(a) Ordering the defendants to deliver to the plaintiff the parcel of land
subject of this case, declared in the name of Segundo Dalion

previously under Tax Declaration No. 11148 and lately under Tax
Declaration No. 2297 (1974) and to execute the corresponding formal
deed of conveyance in a public document in favor of the plaintiff of the
said property subject of this case, otherwise, should defendants for any
reason fail to do so, the deed shall be executed in their behalf by the
Provincial Sheriff or his Deputy;
(b) Ordering the defendants to pay plaintiff the amount of P2,000.00 as
attorney's fees and P 500.00 as litigation expenses, and to pay the
costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a
private document of absolute sale, dated July 1, 1965 (Exhibit "A"), allegedly executed by
Dalion, who, however denied the fact of sale, contending that the document sued upon is
fictitious, his signature thereon, a forgery, and that subject land is conjugal property,
which he and his wife acquired in 1960 from Saturnina Sabesaje as evidenced by the
"Escritura de Venta Absoluta" (Exhibit "B"). The spouses denied claims of Sabesaje that
after executing a deed of sale over the parcel of land, they had pleaded with Sabesaje,
their relative, to be allowed to administer the land because Dalion did not have any
means of livelihood. They admitted, however, administering since 1958, five (5) parcels
of land in Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of
Sabesaje, who died in 1956. They never received their agreed 10% and 15%
commission on the sales of copra and abaca, respectively. Sabesaje's suit, they
countered, was intended merely to harass, preempt and forestall Dalion's threat to sue
for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed, assigning errors some of
which, however, were disregarded by the appellate court, not having been raised in the
court below. While the Court of Appeals duly recognizes Our authority to review matters
even if not assigned as errors in the appeal, We are not inclined to do so since a review
of the case at bar reveals that the lower court has judicially decided the case on its
merits.
As to the controversy regarding the identity of the land, We have no reason to dispute the
Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the same
property deeded out in Exhibit "B". The boundaries delineating it from
adjacent lots are identical. Both documents detail out the following
boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract of sale of a
parcel of land and b) the necessity of a public document for transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of Rule
132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how proved.-
Before any private writing may be received in evidence, its due
execution and authenticity must be proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the handwriting of the maker; or
(c) By a subscribing witness
xxx xxx xxx
13
SEC. 23. Handwriting, how proved. — The handwriting of a person
may be proved by any witness who believes it to be the handwriting of
such person, and has seen the person write, or has seen writing
purporting to be his upon which the witness has acted or been
charged, and has thus acquired knowledge of the handwriting of such
person. Evidence respecting the handwriting may also be given by a
comparison, made by the witness or the court, with writings admitted or
treated as genuine by the party against whom the evidence is offered,
or proved to be genuine to the satisfaction of the judge. (Rule 132,
Revised Rules of Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed positively
testified on the authenticity thereof. They categorically stated that it
had been executed and signed by the signatories thereto. In fact, one
of such witnesses, Gerardo M. Ogsoc, declared on the witness stand
that he was the one who prepared said deed of sale and had copied
parts thereof from the "Escritura De Venta Absoluta" (Exhibit B) by
which one Saturnina Sabesaje sold the same parcel of land to
appellant Segundo Dalion. Ogsoc copied the bounderies thereof and
the name of appellant Segundo Dalion's wife, erroneously written as
"Esmenia" in Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41, Rollo)
xxx xxx xxx
Against defendant's mere denial that he signed the document, the
positive testimonies of the instrumental Witnesses Ogsoc and Espina,
aside from the testimony of the plaintiff, must prevail. Defendant has
affirmatively alleged forgery, but he never presented any witness or
evidence to prove his claim of forgery. Each party must prove his own
affirmative allegations (Section 1, Rule 131, Rules of Court).
Furthermore, it is presumed that a person is innocent of a crime or
wrong (Section 5 (a),Idem), and defense should have come forward
with clear and convincing evidence to show that plaintiff committed
forgery or caused said forgery to be committed, to overcome the
presumption of innocence. Mere denial of having signed, does not
suffice to show forgery.
In addition, a comparison of the questioned signatories or specimens
(Exhs. A-2 and A-3) with the admitted signatures or specimens (Exhs.
X and Y or 3-C) convinces the court that Exhs. A-2 or Z and A-3 were
written by defendant Segundo Dalion who admitted that Exhs. X and Y
or 3-C are his signatures. The questioned signatures and the
specimens are very similar to each other and appear to be written by
one person.
Further comparison of the questioned signatures and the specimens
with the signatures Segundo D. Dalion appeared at the back of the
summons (p. 9, Record); on the return card (p. 25, Ibid.); back of the
Court Orders dated December 17, 1973 and July 30, 1974 and for
October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on the open
court notice of April 13, 1983 (p. 235, Ibid.) readily reveal that the
questioned signatures are the signatures of defendant Segundo
Dalion.
It may be noted that two signatures of Segundo D. Dalion appear on
the face of the questioned document (Exh. A), one at the right corner
bottom of the document (Exh. A-2) and the other at the left hand
margin thereof (Exh. A-3). The second signature is already a

surplusage. A forger would not attempt to forge another signature, an
unnecessary one, for fear he may commit a revealing error or an
erroneous stroke. (Decision, p. 10) (pp. 42-43, Rollo)
We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we
reiterate that
Appellate courts have consistently subscribed to the principle that
conclusions and findings of fact by the trial courts are entitled to great
weight on appeal and should not be disturbed unless for strong and
cogent reasons, since it is undeniable that the trial court is in a more
advantageous position to examine real evidence, as well as to observe
the demeanor of the witnesses while testifying in the case (Chase v.
Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365;
Pring v. Court of Appeals, G.R. No. L-41605, August 19, 1985, 138
SCRA 185)
Assuming authenticity of his signature and the genuineness of the document, Dalion
nonetheless still impugns the validity of the sale on the ground that the same is
embodied in a private document, and did not thus convey title or right to the lot in
question since "acts and contracts which have for their object the creation, transmission,
modification or extinction of real rights over immovable property must appear in a public
instrument" (Art. 1358, par 1, NCC).
This argument is misplaced. The provision of Art. 1358 on the necessity of a public
document is only for convenience, not for validity or enforceability. It is not a requirement
for the validity of a contract of sale of a parcel of land that this be embodied in a public
instrument.
A contract of sale is a consensual contract, which means that the sale is perfected by
mere consent. No particular form is required for its validity. Upon perfection of the
contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the
vendee may compel transfer of ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold (Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of
land and to execute corresponding formal deed of conveyance in a public document.
Under Art. 1498, NCC, when the sale is made through a public instrument, the execution
thereof is equivalent to the delivery of the thing. Delivery may either be actual (real) or
constructive. Thus delivery of a parcel of land may be done by placing the vendee in
control and possession of the land (real) or by embodying the sale in a public instrument
(constructive).
As regards petitioners' contention that the proper action should have been one for
specific performance, We believe that the suit for recovery of ownership is proper. As
earlier stated, Art. 1475 of the Civil Code gives the parties to a perfected contract of sale
the right to reciprocally demand performance, and to observe a particular form, if
warranted, (Art. 1357). The trial court, aptly observed that Sabesaje's complaint
sufficiently alleged a cause of action to compel Dalion to execute a formal deed of sale,
and the suit for recovery of ownership, which is premised on the binding effect and
validity inter partes of the contract of sale, merely seeks consummation of said contract.
... . A sale of a real property may be in a private instrument but that
contract is valid and binding between the parties upon its perfection.
And a party may compel the other party to execute a public instrument
embodying their contract affecting real rights once the contract
appearing in a private instrument hag been perfected (See Art. 1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals
upholding the ruling of the trial court is hereby AFFIRMED. No costs.
SO ORDERED.
14
Narvasa, Cruz, Gancayco and Grino-Aquino, JJ., concur.
THIRD DIVISION
G.R. No. 136021 February 22, 2000
BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA, CORAZON SECUYA,
RUFINA SECUYA, BERNARDINO SECUYA, NATIVIDAD SECUYA, GLICERIA
SECUYA and PURITA SECUYA, petitioners,
vs.
GERARDA M. VDA. DE SELMA, respondent.
PANGANIBAN, J.:
In action for quieting of title, the plaintiff must show not only that there is a cloud or
contrary interest over the subject real property, but that the have a valid title to it. In the
present case, the action must fail, because petitioners failed to show the requisite title.
The Case
Before us is a Petition for Review seeking to set aside the July 30, 1998 Decision of the
Court of Appeals (CA) in CA-G.R. CV No. 38580,1 which affirmed the judgment2 of the
Regional Trial Court (RTC) of Cebu City. The CA ruled:
WHEREFORE, [there being] no error in the appealed decision, the same is
hereby AFFIRMED in toto.3
The decretal portion of the trial court Decision reads as follows:
WHEREFORE, in view of all the foregoing [evidence] and considerations, this
court hereby finds the preponderance of evidence to be in favor of the
defendant Gerarda Selma as judgment is rendered:
1. Dismissing this Complaint for Quieting of title, Cancellation of Certificate of
Title of Gerarda vda. de Selma and damages,
2. Ordering the plaintiffs to vacate the premises in question and turn over the
possession of the same to the defendant Gerarda Selma;
3. Requiring the plaintiffs to pay defendant the sum of P20,000 as moral
damages, according to Art. 2217, attorney's fees of P15,000.00, litigation
expenses of P5,000.00 pursuant to Art. 2208 No. 11 and to pay the costs of this
suit.1âwphi1.nêt
SO ORDERED.4
Likewise challenged is the October 14, 1998 CA Resolution which denied petitioners'
Motion for Reconsideration.5
The Facts
The present Petition is rooted in an action for quieting of title filed before the RTC by
Benigna, Miguel, Marcelino, Corazon, Rufina, Bernardino, Natividad, Gliceria and Purita
— all surnamed Secuya — against Gerarda M. vda. de Selma. Petitioners asserted
ownership over the disputed parcel of land, alleging the following facts:
xxx xxx xxx
8. The parcel of land subject of this case is a PORTION of Lot 5679 of the
Talisay-Minglanilla Friar Lands Estate, referred to and covered [o]n Page 279,
Friar Lands Sale Certificate Register of the Bureau of Lands (Exh. "K"). The
property was originally sold, and the covering patent issued, to Maxima
Caballero Vda. de Cariño (Exhs. "K-1"; "K-2). Lot 5679 has an area of 12,750
square meters, more or less;
9. During the lifetime of Maxima Caballero, vendee and patentee of Lot 5679,
she entered into that AGREEMENT OF PARTITION dated January 5, 1938 with
Paciencia Sabellona, whereby the former bound herself and parted [with] one-
third (1/3) portion of Lot 5679 in favor of the latter (Exh. "D"). Among others it
was stipulated in said agreement of partition that the said portion of one-third so
ceded will be located adjoining the municipal road (par. 5. Exh "D");
10. Paciencia Sabellona took possession and occupation of that one-third
portion of Lot 5679 adjudicated to her. Later, she sold the three thousand

square meter portion thereof to Dalmacio Secuya on October 20, 1953, for a
consideration of ONE THOUSAND EIGHT HUNDRED FIFTY PESOS
(P1,850.00), by means of a private document which was lost (p. 8, tsn., 8/8/89-
Calzada). Such sale was admitted and confirmed by Ramon Sabellona, only
heir of Paciencia Sabellona, per that instrument denominated CONFIRMATION
OF SALE OF UNDIVIDED SHARES, dated September 28, 1976(Exh. "B");
11. Ramon Sabellona was the only [or] sole voluntary heir of Paciencia
Sabellona, per that KATAPUSAN NGA KABUT-ON UG PANUGON NI
PACIENCIA SABELLONA (Last Will and Testament of Paciencia Sabellona),
dated July 9, 1954, executed and acknowledged before Notary Public Teodoro
P. Villarmina (Exh. "C"). Pursuant to such will, Ramon Sabellona inherited all
the properties left by Paciencia Sabellona;
12. After the purchase [by] Dalmacio Secuya, predecessor-in interest of
plaintiffs of the property in litigation on October 20, 1953, Dalmacio, together
with his brothers and sisters — he being single — took physical possession of
the land and cultivated the same. In 1967, Edilberto Superales married Rufina
Secuya, niece of Dalmacio Secuya. With the permission and tolerance of the
Secuyas, Edilberto Superales constructed his house on the lot in question in
January 1974 and lived thereon continuously up to the present (p. 8., tsn
7/25/88 — Daclan). Said house is inside Lot 5679-C-12-B, along lines 18-19-20
of said lot, per Certification dated August 10, 1985, by Geodetic Engineer
Celestino R. Orozco (Exh. "F");
13. Dalmacio Secuya died on November 20, 1961. Thus his heirs — brothers,
sisters, nephews and nieces — are the plaintiffs in Civil Case No. CEB-4247
and now the petitioners;
14. In 1972, defendant-respondent Gerarda Selma bought a 1,000 square-
meter portion of Lot 5679, evidenced by Exhibit "P". Then on February 19,
1975, she bought the bigger bulk of Lot 5679, consisting of 9,302 square
meters, evidenced by that deed of absolute sale, marked as Exhibit "5". The
land in question, a 3,000-square meter portion of Lot 5679, is embraced and
included within the boundary of the later acquisition by respondent Selma;
15. Defendant-respondent Gerarda Selma lodged a complaint, and had the
plaintiffs-petitioners summoned, before the Barangay Captain of the place, and
in the confrontation and conciliation proceedings at the Lupong Tagapayapa,
defendant-respondent Selma was asserting ownership over the land inherited
by plaintiffs-petitioners from Dalmacio Secuya of which they had long been in
possession . . . in concept of owner. Such claim of defendant-respondent Selma
is a cloud on the title of plaintiffs-petitioners, hence, their complaint (Annex
"C").6
Respondent Selma's version of the facts, on the other hand, was summarized by the
appellate court as follows:
She is the registered owner of Lot 5679-C-120 consisting of 9,302 square
meters as evidenced by TCT No. T-35678 (Exhibit "6", Record, p. 324), having
bought the same sometime in February 1975 from Cesaria Caballero as
evidenced by a notarized Deed of Sale (Exhibit "5", Record, p. 323) and ha[ve]
been in possession of the same since then. Cesaria Caballero was the widow of
Silvestre Aro, registered owner of the mother lot, Lot. No. 5679 with an area of
12,750 square meters of the Talisay-Minglanilla Friar Lands Estate, as shown
by Transfer Certificate of Title No. 4752 (Exhibit "10", Record, p. 340). Upon
Silvestre Aro's demise, his heirs executed an "Extrajudicial Partition and Deed
of Absolute Sale" (Exhibit "11", Record, p. 341) wherein one-half plus one-fifth
of Lot No. 5679 was adjudicated to the widow, Cesaria Caballero, from whom
defendant-appellee derives her title.7
15
The CA Ruling
In affirming the trial court's ruling, the appellate court debunked petitioners' claim of
ownership of the land and upheld Respondent Selma's title thereto. It held that
respondent's title can be traced to a valid TCT. On the other hand, it ruled that petitioners
anchor their claim on an "Agreement of Partition" which is void for being violative of the
Public Land Act. The CA noted that the said law prohibited the alienation or
encumbrance of land acquired under a free patent or homestead patent, for a period of
five years from the issuance of the said patent.
Hence, this Petition.8
The Issues
In their Memorandum, petitioners urge the Court to resolve the following questions:
1. Whether or not there was a valid transfer or conveyance of one-third (1/3)
portion of Lot 5679 by Maxima Caballero in favor of Paciencia Sabellona, by
virtue of [the] Agreement of Partition dated January 5, 1938[;] and
2. Whether or not the trial court, as well as the court, committed grave abuse of
discretion amounting to lack of jurisdiction in not making a finding that
respondent Gerarda M. vda. de Selma [was] a buyer in bad faith with respect to
the land, which is a portion of Lot 5679.9
For a clearer understanding of the above matters, we will divide the issues into
three: first, the implications of the Agreement of Partition; second, the validity of the Deed
of Confirmation of Sale executed in favor of the petitioners; and third, the validity of
private respondent's title.
The Court's Ruling
The Petition fails to show any reversible error in the assailed Decision.
Preliminary Matter:
The Action for Quieting of Title
In an action to quiet title, the plaintiffs or complainants must demonstrate a legal or an
equitable title to, or an interest in, the subject real property. 10 Likewise, they must show
that the deed, claim, encumbrance or proceeding that purportedly casts a cloud on their
title is in fact invalid or inoperative despite its prima facie appearance of validity or legal
efficacy.11 This point is clear from Article 476 of the Civil Code, which reads:
Whenever there is cloud on title to real property or any interest therein, by
reason of any instrument, record, claim, encumbrance or proceeding which is
apparently valid or effective but is in truth and in fact invalid, ineffective,
voidable or unenforceable, and may be prejudicial to said title, an action may be
brought to remove such cloud or to quiet title.
An action may also be brought to prevent a cloud from being cast upon title to
real property or any interest therein.
In the case at bar, petitioners allege that TCT No. 5679-C-120, issued in the name of
Private Respondent Selma, is a cloud on their title as owners and possessors of the
subject property, which is a 3,000 —square-meter portion of Lot No. 5679-C-120 covered
by the TCT. But the underlying question is, do petitioners have the requisite title that
would enable them to avail themselves of the remedy of quieting of title?
Petitioners anchor their claim of ownership on two documents: the Agreement of Partition
executed by Maxima Caballero and Paciencia Sabellona and the Deed of Confirmation of
Sale executed by Ramon Sabellona. We will now examine these two documents.
First Issue:
The Real Nature of the "Agreement of Partition"
The duly notarized Agreement of Partition dated January 5, 1938; is worded as follows:
AGREEMENT OF PARTITION
I, MAXIMA CABALLERO, Filipina, of legal age, married to Rafael Cariño, now
residing and with postal address in the Municipality of Dumaguete, Oriental
Negros, depose the following and say:

1. That I am the applicant of vacant lot No. 5679 of the Talisay-Minglanilla
Estate and the said application has already been indorsed by the District Land
Officer, Talisay, Cebu, for private sale in my favor;
2. That the said Lot 5679 was formerly registered in the name of Felix Abad y
Caballero and the sale certificate of which has already been cancelled by the
Hon. Secretary of Agriculture and Commerce;
3. That for and in representation of my brother, Luis Caballero, who is now the
actual occupant of said lot I deem it wise to have the said lot paid by me, as
Luis Caballero has no means o[r] any way to pay the government;
4. That as soon as the application is approved by the Director of Lands, Manila,
in my favor, I hereby bind myself to transfer the one-third (l/3) portion of the
above mentioned lot in favor of my aunt, Paciencia Sabellana y Caballero, of
legal age, single, residing and with postal address in Tungkop, Minglanilla,
Cebu. Said portion of one-third (1/3) will be subdivided after the approval of said
application and the same will be paid by her to the government [for] the
corresponding portion.
5. That the said portion of one-third (1/3) will be located adjoining the municipal
road;
6. I, Paciencia Sabellana y Caballero, hereby accept and take the portion herein
adjudicated to me by Mrs. Maxima Caballero of Lot No. 5679 Talisay-Minglanilla
Estate and will pay the corresponding portion to the government after the
subdivision of the same;
IN WITNESS WHEREOF, we have hereunto set our hands this 5th day of
January, 1988, at Talisay, Cebu."12
The Agreement: An Express Trust, Not a Partition
Notwithstanding its purported nomenclature, this Agreement is not one of partition,
because there was no property to partition and the parties were not co-owners. Rather, it
is in the nature of a trust agreement.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested
in another. It is a fiduciary relationship that obliges the trustee to deal with the property
for the benefit of the beneficiary.13 Trust relations between parties may either be express
or implied. An express trust is created by the intention of the trustor or of the parties. An
implied trust comes into being by operation of law.14
The present Agreement of Partition involves an express trust. Under Article 1444 of the
Civil Code, "[n]o particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended." That Maxima Caballero bound herself to give
one third of Lot No. 5629 to Paciencia Sabellona upon the approval of the former's
application is clear from the terms of the Agreement. Likewise, it is evident that Paciencia
acquiesced to the covenant and is thus bound to fulfill her obligation therein.
As a result of the Agreement, Maxima Caballero held the portion specified therein as
belonging to Paciencia Sabellona when the application was eventually approved and a
sale certificate was issued in her name.15 Thus, she should have transferred the same to
the latter, but she never did so during her lifetime. Instead, her heirs sold the entire Lot
No. 5679 to Silvestre Aro in 1955.
From 1954 when the sale certificate was issued until 1985 when petitioners filed their
Complaint, Paciencia and her successors-in-interest did not do anything to enforce their
proprietary rights over the disputed property or to consolidate their ownership over the
same. In fact, they did not even register the said Agreement with the Registry of Property
or pay the requisite land taxes. While petitioners had been doing nothing, the disputed
property, as part of Lot No. 5679, had been the subject of several sales
transactions16 and covered by several transfer certificates of title.
The Repudiation of the Express Trust
16
While no time limit is imposed for the enforcement of rights under express
trusts,17 prescription may, however, bar a beneficiary's action for recovery, if a
repudiation of the trust is proven by clear and convincing evidence and made known to
the beneficiary.18
There was a repudiation of the express trust when the heirs of Maxima Caballero failed
to deliver or transfer the property to Paciencia Sabellona, and instead sold the same to a
third person not privy to the Agreement. In the memorandum of incumbrances of TCT
No. 308719 issued in the name of Maxima, there was no notation of the Agreement
between her and Paciencia. Equally important, the Agreement was not registered; thus, it
could not bind third persons. Neither was there any allegation that Silvestre Aro, who
purchased the property from Maxima's heirs, knew of it. Consequently, the subsequent
sales transactions involving the land in dispute and the titles covering it must be upheld,
in the absence of proof that the said transactions were fraudulent and irregular.
Second Issue:
The Purported Sale to Dalmacio Secuya
Even granting that the express trust subsists, petitioners have not proven that they are
the rightful successors-in-interest of Paciencia Sabellona.
The Absence of the Purported Deed of Sale
Petitioners insist that Paciencia sold the disputed property to Dalmacio Secuya on
October 20, 1953, and that the sale was embodied in a private document. However, such
document, which would have been the best evidence of the transaction, was never
presented in court, allegedly because it had been lost. While a sale of a piece of land
appearing in a private deed is binding between the parties, it cannot be considered
binding on third persons, if it is not embodied in a public instrument and recorded in the
Registry of Property.20
Moreover, while petitioners could not present the purported deed evidencing the
transaction between Paciencia Sabellona and Dalmacio Secuya, petitioners' immediate
predecessor-in-interest, private respondent in contrast has the necessary documents to
support her claim to the disputed property.
The Questionable Value of the Deed
Executed by Ramon Sabellona
To prove the alleged sale of the disputed property to Dalmacio, petitioners instead
presented the testimony of Miguel Secuya, one of the petitioners; and a
Deed21 confirming the sale executed by Ramon Sabellona, Paciencia's alleged heir. The
testimony of Miguel was a bare assertion that the sale had indeed taken place and that
the document evidencing it had been destroyed. While the Deed executed by Ramon
ratified the transaction, its probative value is doubtful. His status as heir of Paciencia was
not affirmatively established. Moreover, he was not presented in court and was thus not
quizzed on his knowledge — or lack thereof — of the 1953 transaction.
Petitioners' Failure to Exercise Owners'
Rights to the Property
Petitioners insist that they had been occupying the disputed property for forty-seven
years before they filed their Complaint for quieting of title. However, there is no proof that
they had exercised their rights and duties as owners of the same. They argue that they
had been gathering the fruits of such property; yet, it would seem that they had been
remiss in their duty to pay the land taxes. If petitioners really believed that they owned
the property, they have should have been more vigilant in protecting their rights thereto.
As noted earlier, they did nothing to enforce whatever proprietary rights they had over the
disputed parcel of land.
Third Issue:
The Validity of Private Respondent's Title
Petitioners debunk Private Respondent Selma's title to the disputed property, alleging
that she was aware of their possession of the disputed properties. Thus, they insist that

she could not be regarded as a purchaser in good faith who is entitled to the protection of
the Torrens system.
Indeed, a party who has actual knowledge of facts and circumstances that would move a
reasonably cautious man to make an inquiry will not be protected by the Torrens system.
In Sandoval v. Court of Appeals,22 we held:
It is settled doctrine that one who deals with property registered under the
Torrens system need not go beyond the same, but only has to rely on the title.
He is charged with notice only of such burdens and claims as are annotated on
the title.
The aforesaid principle admits of an unchallenged exception: that a person
dealing with registered land has a right to rely on the Torrens certificate of title
and to dispense without the need of inquiring further except when the party has
actual knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry, or when the purchaser has knowledge of a
defect or the lack of title in his vendor or of sufficient facts to induce a
reasonably prudent man to inquire into the status of title of the property in
litigation. The presence of anything which excites or arouses suspicion should
then prompt the vendee to look beyond the certificate and investigate the title of
the vendor appearing on the face of the certificate. One who falls within the
exception can neither be denominated an innocent purchaser for value
purchaser in good faith; and hence does not merit the protection of the law.
Granting arguendo that private respondent knew that petitioners, through Superales and
his family, were actually occupying the disputed lot, we must stress that the vendor,
Cesaria Caballero, assured her that petitioners were just tenants on the said lot. Private
respondent cannot be faulted for believing this representation, considering that
petitioners' claim was not noted in the certificate of the title covering Lot No. 5679.
Moreover, the lot, including the disputed portion, had been the subject of several sales
transactions. The title thereto had been transferred several times, without any
protestation or complaint from the petitioners. In any case, private respondent's title is
amply supported by clear evidence, while petitioners' claim is barren of proof.
Clearly, petitioners do not have the requisite title to pursue an action for quieting of
title.1âwphi1.nêt
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.
Costs against petitioners.
SO ORDERED.
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
EN BANC
G.R. No. L-11311 May 28, 1958
MARTA C. ORTEGA, plaintiff-appellant,
vs.
DANIEL LEONARDO, defendant-appellee.
Jose Ma. Reyes for appellant.
Tomas A. Leonardo for appellee.
BENGZON, J.:
Well known is the general rule in the Statute of Frauds precluding enforcement of oral
contracts for the sale of land. Not so well known is exception concerning the partially
executed contracts1 — least our jurisprudence offers few, if any, apposite illustrations.
This appeal exemplifies such exception.
Alleging partial performance, plaintiff sought to compel defendant to comply with their
oral contract of sale of a parcel of land. Upon a motion to dismiss, the Manila court of first
instance ordered dismissal following the above general rule.
Hence this appeal. It should be sustained if the allegations of the complaint — which the
motion to dismiss admitted — set out an instance of partial performance.
17
Stripped of non-essentials, the complaint averred that long before and until her house
had been completely destroyed during the liberation of the City of Manila, plaintiff
occupied a parcel of land, designated as Lot 1, Block 3 etc. (hereinafter called Lot I)
located at San Andres Street, Malate, Manila; that after liberation she re-occupied it; that
when the administration and disposition of the said Lot I (together with other lots in the
Ana Sarmiento Estate) were assigned by the Government to the Rural Progress
Administration2 plaintiff asserted her right thereto (as occupant) for purposes of
purchase; that defendant also asserted a similar right, alleging occupancy of a portion of
the land subsequent to plaintiff's; that during the investigation of such conflicting
interests, defendant asked plaintiff to desist from pressing her claim and definitely
promised that if and when he succeeded in getting title to Lot I3 , he would sell to her a
portion thereof with an area of 55.60 square meters (particularly described) at the rate of
P25.00 per square meter, provided she paid for the surveying and subdivision of the Lot
and provided further that after he acquired title, she could continue holding the lot as
tenant by paying a monthly rental of P10.00 until said portion shall have been segregated
and the purchase price fully paid; that plaintiff accepted defendant's offer, and desisted
from further claiming Lot I; that defendant finally acquired title thereto; that relying upon
their agreement, plaintiff caused the survey and segregation of the portion which
defendant had promised to sell incurring expenses therefor, said portion being now
designated as Lot I-B in a duly prepared and approved subdivision plan; that in
remodelling her son's house constructed on a lot adjoining Lot I she extended it over said
Lot I-B; that after defendant had acquired Lot I plaintiff regularly paid him the monthly
rental of P10.00; that in July 1954, after the plans of subdivision and segregation of the
lot had been approved by the Bureau of Lands, plaintiff tendered to defendant the
purchase price which the latter refused to accept, without cause or reason.
The court below explained in its order of dismissal:
It is admitted by both parties that an oral agreement to sell a piece of land is not
enforceable. (Art. 1403, Civil Code, Section 21, Rule 123, Rules of Court.)
Plaintiff, however, argues that the contract in question, although verbal, was
partially performed because plaintiff desisted from claiming the portion of lot I in
question due to the promise of defendant to transfer said portion to her after the
issuance of title to defendant. The court thinks that even granting that plaintiff
really desisted to claim not on oral promise to sell made by defendant, the oral
promise to sell cannot be enforced. The desistance to claim is not a part of the
contract of sale of the land. Only in essential part of the executory contract will,
if it has already been performed, make the verbal contract enforceable, payment
of price being an essential part of the contract of sale.
If the above means that partial performance of a sale contract occurs only when part of
the purchase price is paid, it surely constitutes a defective statement of the law.
American Jurisprudence in its title "Statute of Frauds" lists other acts of partial
performance, such as possession, the making of improvements, rendition of services,
payment of taxes, relinquishment of rights, etc.
Thus, it is stated that "The continuance in possession may, in a proper case, be
sufficiently referable to the parol contract of sale to constitute a part performance thereof.
There may be additional acts or peculiar circumstances which sufficiently refer the
possession to the contract. . . . Continued possession under an oral contract of sale, by
one already in possession as a tenant, has been held a sufficient part performance,
where accompanied by other acts which characterize the continued possession and refer
it to the contract of purchase. Especially is this true where the circumstances of the case
include the making of substantial, permanent, and valuable improvements." (49
American Jurisprudence — 44)
It is also stated that "The making of valuable permanent improvements on the land by the
purchaser, in pursuance of the agreement and with the knowledge of the vendor, has

been said to be the strongest and the most unequivocal act of part performance by which
a verbal contract to sell land is taken out of the statute of frauds, and is ordinarily an
important element in such part performance. . . . Possession by the purchaser under a
parol contract for the purchase of real property, together with his making valuable and
permanent improvements on the property which are referable exclusively to the contract,
in reliance on the contract, in the honest belief that he has a right to make them, and with
the knowledge and consent or acquiescence of the vendor, is deemed a part
performance of the contract. The entry into possession and the making of the
improvements are held on amount to such an alteration in the purchaser's position as will
warrant the court's entering a degree of specific performance." (49 American
Jurisprudence p.755, 756.)
Again, it is stated that "A tender or offer of payment, declined by the vendor, has been
said to be equivalent to actual payment, for the purposes of determining whether or not
there has been a part performance of the contract. This is apparently true where the
tender is by a purchaser who has made improvements. But the doctrine now generally
accepted, that not even the payment of the purchase price, without something more, . . .
is a sufficient part performance. (49 American Jurisprudence p. 772.)
And the relinquishment of rights or the compromise thereof has likewise been held to
constitute part performance. (See same title secs. 473, 474, 475.)
In the light of the above four paragraphs, it would appear that the complaint in this case
described several circumstance indicating partial performance: relinquishment of
rights4 continued possession, building of improvements, tender of payment plus the
surveying of the lot at plaintiff's expense and the payment of rentals.
We shall not take, time to discuss whether one or the other or any two or three of them
constituted sufficient performance to take the matter away from the operation of the
Statute of Frauds. Enough to hold that the combination of all of them amounted to partial
performance; and we do so line with the accepted basis of the doctrine, that it would be a
fraud upon the plaintiff if the defendant were permitted to oppose performance of his part
after he has allowed or induced the former to perform in reliance upon the agreement.
(See 49 American Jurisprudence p. 725.)
The paragraph immediately preceding will serve as our comment on the appellee's
quotations from American Jurisprudence itself to the effect that "relinquishment" is not
part performance, and that neither "surveying the land" 5nor tender of payment is
sufficient. The precedents hereinabove transcribed oppose or explain away or qualify the
appellee's citations. And at the risk of being repetitious we say: granting that none of the
three circumstances indicated by him, (relinquishment, survey, tender)
would separately suffice, still the combination of the three with the others already
mentioned, amounts to more than enough.
Hence, as there was partial performance, the principle excluding parol contracts for the
sale of realty, does not apply.
The judgment will accordingly be reversed and the record remanded for further
proceedings. With costs against appellee.
Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., Endencia and Felix, JJ., concur.
EN BANC
G.R. No. L-23351 March 13, 1968
CIRILO PAREDES, plaintiff-appellant,
vs.
JOSE L. ESPINO, defendant-appellee.
Simeon Capule for plaintiff-appellant.
Iñigo R. Peña for defendant-appellee.
REYES, J.B.L., Actg. C.J.:
18
Appeal from an order of the Court of First Instance of Palawan in its Civil Case No.
453, granting a motion to dismiss the complaint.
Appellant Cirilo Parades had filed an action to compel defendant-appellee Jose L.
Espino to execute a deed of sale and to pay damages. The complaint alleged that the
defendant "had entered into the sale" to plaintiff of Lot No. 67 of the Puerto Princesa
Cadastre at P4.00 a square meter; that the deal had been "closed by letter and telegram"
but the actual execution of the deed of sale and payment of the price were deferred to
the arrival of defendant at Puerto Princesa; that defendant upon arrival had refused to
execute the deed of sale altho plaintiff was able and willing to pay the price, and
continued to refuse despite written demands of plaintiff; that as a result, plaintiff had lost
expected profits from a resale of the property, and caused plaintiff mental anguish and
suffering, for which reason the complaint prayed for specific performance and damages.
Defendant filed a motion to dismiss upon the ground that the complaint stated no
cause of action, and that the plaintiff's claim upon which the action was founded was
unenforceable under the Statute of Frauds.
Plaintiff opposed in writing the motion to dismiss and annexed to his opposition a
copy of a letter purportedly signed by defendant (Annex "A"), wherein it was stated
(Record on Appeal, pp. 19-20) —
106 GonzagaSt.
Tuguegarao,Cagayan
May18,1964
Mr.CiriloParedes
Pto.Princesa,Palawan
Dear Mr. Paredes:
So far I received two letters from you, one dated April 17 and the
other April 29, both 1964. In reply thereto, please be informed that after
consulting with my wife, we both decided to accept your last offer of
Four (P4.00) pesos per square meter of the lot which contains 1826
square meters and on cash basis.
In order that we can facilitate the transaction of the sale in
question, we (Mrs. Espino and I), are going there (Puerto Princess,
Pal.) to be there during the last week of the month, May. I will send you
a telegram, as per your request, when I will reach Manila before taking
the boat for Pto. Princess. As it is now, there is no schedule yet of the
boats plying between Manila and Pto. Princess for next week.
Plaintiff also appended as Annex "A-1", a telegram apparently from defendant
advising plaintiff of his arrival by boat about the last week of May 1964 (Annex "A-1"
Record on Appeal, p. 21), as well as a previous letter of defendant (Appendix B, Record
on Appeal, p. 35) referring to the lot as the one covered by Certificate of Title No. 62.
These allegations and documents notwithstanding, the Court below dismissed the
complaint on the ground that there being no written contract, under Article 1403 of the
Civil Code of the Philippines —
Although the contract is valid in itself, the same can not be enforced by
virtue of the Statute of Frauds. (Record on Appeal, p. 37).1äwphï1.ñët
Plaintiff duly appealed to this Court.
The sole issue here is whether enforcement of the contract pleaded in the
complaint is barred by the Statute of Frauds; and the Court a quo plainly erred in holding
that it was unenforceable.
The Statute of Frauds, embodied in Article 1403 of the Civil Code of the
Philippines, does not require that the contract itself be in writing. The plain text of Article
1403, paragraph (2) is clear that a written note or memorandum, embodying the

essentials of the contract and signed by the party charged, or his agent, suffices to make
the verbal agreement enforceable, taking it out of the operation of the statute.
Art. 1403. — The following contracts are unenforceable, unless they are
ratified:
(1) . . .
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or
a secondary evidence of its contents:
xxx xxx xxx
(e) An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein.1äwphï1.ñët
xxx xxx xxx
In the case at bar, the complaint in its paragraph 3 pleads that the deal had been
closed by letter and telegram" (Record on Appeal, p. 2), and the letter referred to was
evidently the one copy of which was appended as Exhibit A to plaintiff's opposition to the
motion dismiss. This letter, transcribed above in part, together with that one marked as
Appendix B, constitute an adequate memorandum of the transaction. They are signed by
the defendant-appellee; refer to the property sold as a lot in Puerto Princesa, Palawan,
covered, by TCT No. 62; give its area as 1826 square meters and the purchase price of
four (P4.00) pesos per square meter payable in cash. We have in them therefore, all the
essential terms of the contract, and they satisfy the requirements of the Statute of
Frauds. We have ruled in Berg vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a
sufficient memorandum may be contained in two or more documents.
Defendant-appellee argues that the authenticity of the letters has not been
established. That is not necessary for the purpose of showing prima facie that the
contract is enforceable. For as ruled by us in Shaffer vs. Palma, L-24115, March 1, 1968,
whether the agreement is in writing or not, is a question of evidence; and the authenticity
of the writing need not be established until the trial is held. The plaintiff having alleged
that the contract is backed by letter and telegram, and the same being a sufficient
memorandum, his cause of action is thereby established, especially since the defendant
has not denied the letters in question. At any rate, if the Court below entertained any
doubts about the existence of the written memorandum, it should have called for a
preliminary hearing on that point, and not dismissed the complaint.
WHEREFORE, the appealed order is hereby set aside, and the case remanded to
the Court of origin for trial and decision. Costs against defendant-appellee Jose L.
Espino. So ordered.
Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur.
SECOND DIVISION
G.R. No. 85240 July 12, 1991
HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA
CLAUDEL, LORETA HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL, PACITA
CLAUDEL, CARMELITA CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL,
LEONARDO CLAUDEL, ARSENIA VILLALON, PERPETUA CLAUDEL and FELISA
CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and
CELESTINA, all surnamed CLAUDEL, respondents.
19
Ricardo L. Moldez for petitioners.
Juan T. Aquino for private respondents
SARMIENTO, J.:
This petition for review on certiorari seeks the reversal of the decision rendered by the
Court of Appeals in CA-G.R. CV No. 044291 and the reinstatement of the decision of the
then Court of First Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-P,
entitled. "Heirs of Macario Claudel, et al. v. Heirs of Cecilio Claudel, et al.," which
dismissed the complaint of the private respondents against the petitioners for
cancellation of titles and reconveyance with damages. 2
As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from
the Bureau of Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the
poblacion of Muntinlupa, Rizal, with an area of 10,107 square meters; he secured
Transfer Certificate of Title (TCT) No. 7471 issued by the Registry of Deeds for the
Province of Rizal in 1923; he also declared the lot in his name, the latest Tax Declaration
being No. 5795. He dutifully paid the real estate taxes thereon until his death in
1937.3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein
petitioners, paid the taxes.
The same piece of land purchased by Cecilio would, however, become the subject of
protracted litigation thirty-nine years after his death.
Two branches of Cecilio's family contested the ownership over the land-on one hand the
children of Cecilio, namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto,
Mario, Leonardo, Nenita, Arsenia Villalon, and Felisa Claudel, and their children and
descendants, now the herein petitioners (hereinafter referred to as HEIRS OF CECILIO),
and on the other, the brother and sisters of Cecilio, namely, Macario, Esperidiona,
Raymunda, and Celestina and their children and descendants, now the herein private
respondents (hereinafter referred to as SIBLINGS OF CECILIO). In 1972, the HEIRS OF
CECILIO partitioned this lot among themselves and obtained the corresponding Transfer
Certificates of Title on their shares, as follows:
TCT No. 395391 1,997 sq. m. –– Jose Claudel
TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children
TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon
TCT No. 395394 1,997 sq. m. –– Felisa Claudel4
Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO,
filed Civil Case No. 5276-P as already adverted to at the outset, with the then Court of
First Instance of Rizal, a "Complaint for Cancellation of Titles and Reconveyance with
Damages," alleging that 46 years earlier, or sometime in 1930, their parents had
purchased from the late Cecilio Claudel several portions of Lot No. 1230 for the sum of
P30.00. They admitted that the transaction was verbal. However, as proof of the sale, the
SIBLINGS OF CECILIO presented a subdivision plan of the said land, dated March 25,
1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.
As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed
the complaint, disregarding the above sole evidence (subdivision plan) presented by the
SIBLINGS OF CECILIO, thus:
Examining the pleadings as well as the evidence presented in this case by the
parties, the Court can not but notice that the present complaint was filed in the
name of the Heirs of Macario, Espiridiona, Raymunda and Celestina, all
surnamed Claudel, without naming the different heirs particularly involved, and
who wish to recover the lots from the defendants. The Court tried to find this out
from the evidence presented by the plaintiffs but to no avail. On this point alone,
the Court would not be able to apportion the property to the real party in interest
if ever they are entitled to it as the persons indicated therein is in generic term

(Section 2, Rule 3). The Court has noticed also that with the exception of
plaintiff Lampitoc and (sic) the heirs of Raymunda Claudel are no longer
residing in the property as they have (sic) left the same in 1967. But most
important of all the plaintiffs failed to present any document evidencing the
alleged sale of the property to their predecessors in interest by the father of the
defendants. Considering that the subject matter of the supposed sale is a real
property the absence of any document evidencing the sale would preclude the
admission of oral testimony (Statute of Frauds). Moreover, considering also that
the alleged sale took place in 1930, the action filed by the plaintiffs herein for
the recovery of the same more than thirty years after the cause of action has
accrued has already prescribed.
WHEREFORE, the Court renders judgment dismissing the complaint, without
pronouncement as to costs.
SO ORDERED.5
On appeal, the following errors6 were assigned by the SIBLINGS OF CECILIO:
1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT
DESPITE CONCLUSIVE EVIDENCE SHOWING THE PORTION SOLD TO
EACH OF PLAINTIFFS' PREDECESSORS.
2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO
PROVE ANY DOCUMENT EVIDENCING THE ALLEGED SALE.
3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN,
EXHIBIT A, SHOWING THE PORTIONS SOLD TO EACH OF THE
PLAINTIFFS' PREDECESSORS-IN-INTEREST.
4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS
OWNERS OF THE PORTION COVERED BY THE PLAN, EXHIBIT A.
5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER
CERTIFICATES OF TITLE NOS. 395391, 395392, 395393 AND 395394 OF
THE REGISTER OF DEEDS OF RIZAL AS NULL AND VOID.
The Court of Appeals reversed the decision of the trial court on the following grounds:
1. The failure to bring and prosecute the action in the name of the real party in interest,
namely the parties themselves, was not a fatal omission since the court a quo could have
adjudicated the lots to the SIBLINGS OF CECILIO, the parents of the herein
respondents, leaving it to them to adjudicate the property among themselves.
2. The fact of residence in the disputed properties by the herein respondents had been
made possible by the toleration of the deceased Cecilio.
3. The Statute of Frauds applies only to executory contracts and not to consummated
sales as in the case at bar where oral evidence may be admitted as cited in Iñigo v.
Estate of Magtoto7 and Diana, et al. v. Macalibo.8
In addition,
. . . Given the nature of their relationship with one another it is not unusual that
no document to evidence the sale was executed, . . ., in their blind faith in
friends and relatives, in their lack of experience and foresight, and in their
ignorance, men, in spite of laws, will make and continue to make verbal
contracts. . . .9
4. The defense of prescription cannot be set up against the herein petitioners despite the
lapse of over forty years from the time of the alleged sale in 1930 up to the filing of the
"Complaint for Cancellation of Titles and Reconveyance . . ." in 1976.
According to the Court of Appeals, the action was not for the recovery of possession of
real property but for the cancellation of titles issued to the HEIRS OF CECILIO in 1973.
Since the SIBLINGS OF CECILIO commenced their complaint for cancellation of titles
and reconveyance with damages on December 7, 1976, only four years after the HEIRS
OF CECILIO partitioned this lot among themselves and obtained the corresponding
Transfer Certificates of Titles, then there is no prescription of action yet.
20
Thus the respondent court ordered the cancellation of the Transfer Certificates of Title
Nos. 395391, 395392, 395393, and 395394 of the Register of Deeds of Rizal issued in
the names of the HEIRS OF CECILIO and corollarily ordered the execution of the
following deeds of reconveyance:
To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10
The respondent court also enjoined that this disposition is without prejudice to the private
respondents, as heirs of their deceased parents, the SIBLINGS OF CECILIO, partitioning
among themselves in accordance with law the respective portions sold to and herein
adjudicated to their parents.
The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square
meters, respectively would go to Cecilio or his heirs, the herein petitioners. Beyond these
apportionments, the HEIRS OF CECILIO would not receive anything else.
The crux of the entire litigation is whether or not the Court of Appeals committed a
reversible error in disposing the question of the true ownership of the lots.
And the real issues are:
1. Whether or not a contract of sale of land may be proven orally:
2. Whether or not the prescriptive period for filing an action for cancellation of
titles and reconveyance with damages (the action filed by the SIBLINGS OF
CECILIO) should be counted from the alleged sale upon which they claim their
ownership (1930) or from the date of the issuance of the titles sought to be
cancelled in favor of the HEIRS OF CECILIO (1976).
The rule of thumb is that a sale of land, once consummated, is valid regardless of the
form it may have been entered into.11 For nowhere does law or jurisprudence prescribe
that the contract of sale be put in writing before such contract can validly cede or transmit
rights over a certain real property between the parties themselves.
However, in the event that a third party, as in this case, disputes the ownership of the
property, the person against whom that claim is brought can not present any proof of
such sale and hence has no means to enforce the contract. Thus the Statute of Frauds
was precisely devised to protect the parties in a contract of sale of real property so that
no such contract is enforceable unless certain requisites, for purposes of proof, are met.
The provisions of the Statute of Frauds pertinent to the present controversy, state:
Art. 1403 (Civil Code). The following contracts are unenforceable, unless they
are ratified:
xxx xxx xxx
2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases, an agreement hereafter made shall be
unenforceable by action unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or
a secondary evidence of its contents:
xxx xxx xxx
e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;
xxx xxx xxx
(Emphasis supplied.)
The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement
of obligations depending for their evidence upon the unassisted memory of witnesses by
requiring certain enumerated contracts and transactions to be evidenced in Writing. 12
The provisions of the Statute of Frauds originally appeared under the old Rules of
Evidence. However when the Civil Code was re-written in 1949 (to take effect in 1950),

the provisions of the Statute of Frauds were taken out of the Rules of Evidence in order
to be included under the title on Unenforceable Contracts in the Civil Code. The transfer
was not only a matter of style but to show that the Statute of Frauds is also a substantive
law.
Therefore, except under the conditions provided by the Statute of Frauds, the existence
of the contract of sale made by Cecilio with his siblings13 can not be proved.
On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a
complaint in court only in 1976 to enforce a light acquired allegedly as early as 1930, is
difficult to comprehend.
The Civil Code states:
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract . . . (Emphasis supplied).
If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the
oral purchase made by their parents in 1930, then the action filed in 1976 would have
clearly prescribed. More than six years had lapsed.
We do not agree with the parties SIBLINGS OF CECILIO when they reason that an
implied trust in favor of the SIBLINGS OF CECILIO was established in 1972, when the
HEIRS OF CECILIO executed a contract of partition over the said properties.
But as we had pointed out, the law recognizes the superiority of the torrens title.
Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more
weight as proof of ownership than the survey or subdivision plan of a parcel of land in the
name of SIBLINGS OF CECILIO.
The Court has invariably upheld the indefeasibility of the torrens title. No possession by
any person of any portion of the land could defeat the title of the registered owners
thereof.14
A torrens title, once registered, cannot be defeated, even by adverse, open and
notorious possession. A registered title under the torrens system cannot be
defeated by prescription.1âwphi1 The title, once registered, is notice to the
world. All persons must take notice. No one can plead ignorance of the
registration.15
xxx xxx xxx
Furthermore, a private individual may not bring an action for reversion or any
action which would have the effect of cancelling a free patent and the
corresponding certificate of title issued on the basis thereof, with the result that
the land covered thereby will again form part of the public domain, as only the
Solicitor General or the officer acting in his stead may do so. 16
It is true that in some instances, the Court did away with the irrevocability of the torrens
title, but the circumstances in the case at bar varied significantly from these cases.
In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded
when the transferee who took it had notice of the flaws in the transferor's title. No right
passed to a transferee from a vendor who did not have any in the first place. The
transferees bought the land registered under the torrens system from vendors who
procured title thereto by means of fraud. With this knowledge, they can not invoke the
indefeasibility of a certificate of title against the private respondent to the extent of her
interest. This is because the torrens system of land registration, though indefeasible,
should not be used as a means to perpetrate fraud against the rightful owner of real
property.
Mere registration of the sale is not good enough, good faith must concur with registration.
Otherwise registration becomes an exercise in futility.18
In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In this case, the
title was wrongfully registered in another person's name. An implied trust was therefore
created. This trustee was compelled by law to reconvey property fraudulently acquired
notwithstanding the irrevocability of the torrens title.20
21
In the present case, however, the facts belie the claim of ownership.
For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona
Raymunda, and Celestina were living on the contested premises, they regularly paid a
sum of money, designated as "taxes" at first, to the widow of Cecilio, and later, to his
heirs.21 Why their payments were never directly made to the Municipal Government of
Muntinlupa when they were intended as payments for "taxes" is difficult to square with
their claim of ownership. We are rather inclined to consider this fact as an admission of
non-ownership. And when we consider also that the petitioners HEIRS OF CECILIO had
individually paid to the municipal treasury the taxes corresponding to the particular
portions they were occupying,22 we can readily see the superiority of the petitioners'
position.
Renato Solema and Decimina Calvez, two of the respondents who derive their right from
the SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the
HEIRS OF CLAUDEL.23 The Calvezes should not be paying for a lot that they already
owned and if they did not acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of
the property, they had to ask first the permission of Jose Claudel again, one of the
HEIRS OF CECILIO.24 In fact the only reason why any of the heirs of SIBLINGS OF
CECILIO could stay on the lot was because they were allowed to do so by the HEIRS OF
CECILIO.25
In view of the foregoing, we find that the appellate court committed a reversible error in
denigrating the transfer certificates of title of the petitioners to the survey or subdivision
plan proffered by the private respondents. The Court generally recognizes the profundity
of conclusions and findings of facts reached by the trial court and hence sustains them
on appeal except for strong and cogent reasons inasmuch as the trial court is in a better
position to examine real evidence and observe the demeanor of witnesses in a case.
No clear specific contrary evidence was cited by the respondent appellate court to justify
the reversal of the lower court's findings. Thus, in this case, between the factual findings
of the trial court and the appellate court, those of the trial court must prevail over that of
the latter.26
WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the decision
rendered in CA-G.R. CV No. 04429, and we hereby REINSTATE the decision of the then
Court of First Instance of Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which
ruled for the dismissal of the Complaint for Cancellation of Titles and Reconveyance with
Damages filed by the Heirs of Macario, Esperidiona Raymunda, and Celestina, all
surnamed CLAUDEL. Costs against the private respondents.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.
SECOND DIVISION
[G.R. No. 138639. February 10, 2000]
CITY-LITE REALTY CORPORATION, petitioner, vs. COURT OF APPEALS and F.P.
HOLDINGS & REALTY CORP., METRO DRUG INC., MELDIN AL G. ROY,
VIEWMASTER CONSTRUCTION CORP., and the REGISTER OF DEEDS OF
QUEZON CITY, respondent. marie
DECISION
BELLOSILLO, J.:
This is a petition for review on certiorari filed by CITY-LITE REALTY CORPORATION
(CITY-LITE) seeking to annul the 20 October 1998 Decision of the Court of
Appeals[1] which reversed the Decision of the Regional Trial Court of Quezon City in its
Civil Case No. Q-92-11068 declaring that a contract of sale over the subject property was
perfected and that Metro Drug Inc. and Meldin Al G. Roy had the authority to sell the
property.[2]

Private respondent F. P. HOLDINGS AND REALTY CORPORATION (F.P. HOLDINGS),
formerly the Sparta Holdings Inc., was the registered owner of a parcel of land situated
along E. Rodriguez Avenue, Quezon City, also known as the "Violago Property" or the
"San Lorenzo Ruiz Commercial Center," with an area of 71,754 square meters, more or
less, and covered by Transfer Certificate of Title No. T-19599. The property was offered
for sale to the general public through the circulation of a sales brochure containing the
following information:
A parcel of land including buildings and other improvements thereon
located along E. Rodriguez Avenue, Quezon City, with a total lot area
of 71,754 square meters - 9,192 square meters in front, 23,332 square
meters in the middle, and 39,230 square meters at the back. But the
total area for sale excludes 5,000 square meters covering the existing
chapel and adjoining areas which will be donated to the Archdiocese of
Manila thus reducing the total saleable area to 66,754 square meters.
Asking price was P6,250.00/square meter with terms of payment
negotiable. Broker's commission was 2.0% of selling price, net of
withholding taxes and other charges. As advertised, contact person
was Meldin Al G. Roy, Metro Drug Inc., with address at 5/F Metro
House, 345 Sen. Gil Puyat Avenue, Makati City.
The front portion consisting of 9,192 square meters is the subject of this litigation.
On 22 August 1991 respondent Meldin Al G. Roy sent a sales brochure, together with the
location plan and copy of the Transfer Certificate of Title No. T-19599 of the Register of
Deeds of Quezon City, to Atty. Gelacio Mamaril, a practicing lawyer and a licensed real
estate broker. Atty. Mamaril in turn passed on these documents to Antonio Teng,
Executive Vice-President, and Atty. Victor P. Villanueva, Legal Counsel, of CITY-LITE.
In a letter dated 19 September 1991 sent to Metro Drug (ATTN: MELDIN AL ROY) after
an initial meeting with Meldin Al Roy that day, CITY-LITE conveyed its interest to
purchase a portion or one-half (1/2) of the front lot of the "Violago Property." Apparently,
Roy subsequently informed CITY-LITE's representative that it would take time to
subdivide the lot and respondent F. P. HOLDINGS was not receptive to the purchase of
only half of the front lot. After a few days, Atty. Mamaril wrote Metro Drug (ATTN:
MELDIN AL ROY) expressing CITY-LITE's desire to buy the entire front lot of the subject
property instead of only half thereof provided the asking price of P6,250.00/square meter
was reduced and that payment be in installment for a certain period. Roy made a counter
offer dated 25 September 1991 as follows:
Dear Atty. Mamaril,
This has reference to your letter dated September 24, 1991 in
connection with the interest of your clients, Mr. Antonio Teng/City-Lite
Realty Corporation and/or any of their subsidiaries to buy a portion of
the Violago Property fronting E. Rodriguez Sr. Avenue with an area of
9,192 square meters.
We are pleased to inform you that we are prepared to consider the
above offer subject to the following major terms and conditions: 1. The
price shall be P6,250.00/square meter or a total of P57,450,000.00; 2.
The above purchase price shall be paid to the owner as follows:
(a) P15.0 Million downpayment; (b) balance payable within six (6)
months from date of downpayment without interest. Should your client
find the above major terms and conditions acceptable, please advise
us in writing by tomorrow, September 26, 1991, so that we can start
formal discussions on the matter x x x xnovero
Very truly yours,
MELDIN AL G. ROY
22
On 26 September 1991 CITY-LITE's officers and Atty. Mamaril met with Roy at the
Manila Mandarin Hotel in Makati to consummate the transaction. After some discussions,
the parties finally reached an agreement and Roy agreed to sell the property to CITY-
LITE provided only that the latter submit its acceptance in writing to the terms and
conditions of the sale as contained in his letter of 25 September 1991. Later that
afternoon after meeting with Roy at the Manila Mandarin Hotel, Atty. Mamaril and
Antonio Teng of CITY-LITE conveyed their formal acceptance of the terms and
conditions set forth by Roy in separate letters both dated 26 September 1991.
However, for some reason or another and despite demand, respondent F. P. HOLDINGS
refused to execute the corresponding deed of sale in favor of CITY-LITE of the front lot of
the property. Upon its claim of protecting its interest as vendee of the property in suit,
CITY-LITE registered an adverse claim to the title of the property with the Register of
Deeds of Quezon City which was annotated in the Memorandum of Encumbrance of
Transfer Certificate of Title No. T-19599 under Entry No. PE-1001 dated 27 September
1991.
On 30 September 1991 CITY-LITE's counsel demanded in writing that Metro Drug
(ATTN: MELDIN AL G. ROY) comply with its commitment to CITY-LITE by executing the
proper deed of conveyance of the property under pain of court action. On 4 October 1991
F. P. HOLDINGS filed a petition for the cancellation of the adverse claim against CITY-
LITE with the Regional Trial Court of Quezon City, docketed as LRC Case No. 91-10257,
which was raffled to Br. 84.
On 8 October 1991 Edwin Fernandez, President of F. P. HOLDINGS, in a move to
amicably settle with CITY-LITE, met with the latter's officers during which he offered
properties located in Caloocan City and in Quezon Boulevard, Quezon City, as substitute
for the property, but CITY-LITE refused the offer because "it did not suit its business
needs." With the filing of the petition of F. P. HOLDINGS for the cancellation of the
adverse claim, CITY-LITE caused the annotation of the first notice of lis pendens which
was recorded in the title of the property under Entry No. 4605.
On 2 December 1991 the RTC-Br. 84 of Quezon City dismissed F. P. HOLDINGS'
petition declaring that CITY-LITE's adverse claim had factual basis and was not "sham
and frivolous." Meanwhile, F. P. HOLDINGS caused the resurvey and segregation of the
property and asked the Register of Deeds of Quezon City to issue separate titles which
the latter did on 17 January 1992 by issuing Transfer Certificate of Title No. T-
51671. nigel
Following the dismissal of F. P. HOLDINGS' petition for the cancellation of the adverse
claim, CITY-LITE instituted a complaint against F. P. HOLDINGS originally for specific
perfomance and damages and caused the annotation of the second notice of lis
pendens on the new certificate of title. After the annotation of the second lis pendens, the
property was transfered to defendant VIEWMASTER CONSTRUCTION CORP.
(VIEWMASTER) for which Transfer Certificate of Title No. T-52398 was issued. However
the notice of lis pendens was carried over and annotated on the new certificate of title.
In view of the conveyance during the pendency of the suit, the original complaint for
specific performance and damages was amended with leave of court to implead
VIEWMASTER as a necessary party and the Register of Deeds of Quezon City as
nominal defendant with the additional prayer for the cancellation of VIEWMASTER's
certificate of title. The case was thereafter raffled to Br. 85 of the Regional Trial Court of
Quezon City.
On 4 October 1995 the court a quo rendered its decision in favor of CITY-LITE ordering
F. P. HOLDINGS to execute a deed of sale of the property in favor of CITY-LITE for the
total consideration of P55,056,250.00 payable as follows: P15 Million as downpayment to
be payable immediately upon execution of the deed of sale and the balance within six (6)
months from downpayment, without interest. The court also directed the Register of
Deeds of Quezon City to cancel Transfer Certificate of Title No. T-52398 or any

subsequent title it had issued affecting the subject property, and to issue a new one in
the name of CITY-LITE upon the presentation of the deed of sale and other requirements
for the transfer. It likewise ordered the defendants, except VIEWMASTER and the
Register of Deeds of Quezon City, to pay CITY-LITE jointly and severally P800,000.00 by
way of nominal damages, P250,000.00 for attorney's fees, and to pay the costs.
On 30 October 1995 VIEWMASTER filed a motion for reconsideration of the decision of
the lower court questioning its ruling that a perfected contract of sale existed between
CITY-LITE and F. P. HOLDINGS as there was no definite agreement over the manner of
payment of the purchase price, citing in support thereof Toyota Shaw Inc. v. Court of
Appeals.[3] However the motion for reconsideration was denied.
In the challenged Decision of 20 October 1998 the Court of Appeals reversed and set
aside the judgment of the Regional Trial Court of Quezon City. On 10 May 1999 the
Court of Appeals denied CITY-LITE's motion to reconsider its decision.
Petitioner CITY-LITE is now before us assailing the Court of Appeals for declaring that no
contract of sale was perfected between it and respondent F. P. HOLDINGS because of
lack of a definite agreement on the manner of paying the purchase price and that
respondents Metro Drug and Meldin Al G. Roy were not authorized to sell the property to
CITY-LITE, and that the authority of Roy was only limited to that of a mere liaison or
contact person.
We cannot sustain petitioner. On the issue of whether a contract of sale was perfected
between petitioner CITY-LITE and respondent F. P. HOLDINGS acting through its agent
Meldin Al G. Roy of Metro Drug, Art. 1874 of the Civil Code provides: "When the 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." Petitioner anchors the authority of Metro
Drug and Meldin Al G. Roy on (a) the testimonies of petitioner's three (3) witnesses and
the admissions of Roy and the lawyer of Metro Drug; (b) the sales brochure specifying
Meldin Al G. Roy as a contact person; (c) the guard posted at the property saying that
Metro Drug was the authorized agent; and, (d) the common knowledge among brokers
that Metro Drug through Meldin Al G. Roy was the authorized agent of F. P. HOLDINGS
to sell the property. However, and more importantly, the Civil Code requires that an
authority to sell a piece of land shall be in writing. The absence of authority to sell can be
determined from the written memorandum issued by respondent F. P. HOLDINGS'
President requesting Metro Drug's assistance in finding buyers for the property. The
memorandum in part stated: "We will appreciate Metro Drug's assistance in referring to
us buyers for the property. Please proceed to hold preliminary negotiations with
interested buyers and endorse formal offers to us for our final evaluation and appraisal."
This obviously meant that Meldin Al G. Roy and/or Metro Drug was only to assist F. P.
HOLDINGS in looking for buyers and referring to them possible prospects whom they
were supposed to endorse to F. P. HOLDINGS. But the final evaluation, appraisal and
acceptance of the transaction could be made only by F. P. HOLDINGS. In other words,
Meldin Al G. Roy and/or Metro Drug was only a contact person with no authority to
conclude a sale of the property. In fact, a witness for petitioner even admitted that Roy
and/or Metro Drug was a mere broker,[4] and Roy's only job was to bring the parties
together for a possible transaction.[5] Consequently, we hold that for lack of a written
authority to sell the "Violago Property" on the part of Meldin Al G. Roy and/or Metro Drug,
the sale should be as it is declared null and void. Therefore the sale could not produce
any legal effect as to transfer the subject property from its lawful owner, F. P.
HOLDINGS, to any interested party including petitioner CITY-LITE.
WHEREFORE, the appealed Decision of the Court of Appeals being in accord with law
and the evidence is AFFIRMED. Costs against petitioner CITY-LITE REALTY
CORPORATION.marinella
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
23
FIRST DIVISION
G.R. No. L-36902 January 30, 1982
LUIS PICHEL, petitioner,
vs.
PRUDENCIO ALONZO, respondent.
GUERRERO, J.:
This is a petition to review on certiorari the decision of the Court of First Instance of
Basilan City dated January 5, 1973 in Civil Case No. 820 entitled "Prudencio Alonzo,
plaintiff, vs. Luis Pichel, defendant."
This case originated in the lower Court as an action for the annulment of a "Deed of
Sale" dated August 14, 1968 and executed by Prudencio Alonzo, as vendor, in favor of
Luis Pichel, as vendee, involving property awarded to the former by the Philippine
Government under Republic Act No. 477. Pertinent portions of the document sued upon
read as follows:
That the VENDOR for and in consideration of the sum of FOUR
THOUSAND TWO HUNDRED PESOS (P4,200.00), Philippine
Currency, in hand paid by the VENDEE to the entire satisfaction of the
VENDOR, the VENDOR hereby sells transfers, and conveys, by way
of absolute sale, all the coconut fruits of his coconut land, designated
as Lot No. 21 - Subdivision Plan No. Psd- 32465, situated at
Balactasan Plantation, Lamitan, Basilan City, Philippines;
That for the herein sale of the coconut fruits are for all the fruits on the
aforementioned parcel of land presently found therein as well as for
future fruits to be produced on the said parcel of land during the years
period; which shall commence to run as of SEPTEMBER 15,1968; up
to JANUARY 1, 1976 (sic);
That the delivery of the subject matter of the Deed of Sale shall be
from time to time and at the expense of the VENDEE who shall do the
harvesting and gathering of the fruits;
That the Vendor's right, title, interest and participation herein conveyed
is of his own exclusive and absolute property, free from any liens and
encumbrances and he warrants to the Vendee good title thereto and to
defend the same against any and all claims of all persons
whomsoever. 1
After the pre-trial conference, the Court a quo issued an Order dated November 9, 1972
which in part read thus:
The following facts are admitted by the parties:
Plaintiff Prudencio Alonzo was awarded by the Government that parcel
of land designated as Lot No. 21 of Subdivision Plan Psd 32465 of
Balactasan, Lamitan, Basilan City in accordance with Republic Act No.
477. The award was cancelled by the Board of Liquidators on January
27, 1965 on the ground that, previous thereto, plaintiff was proved to
have alienated the land to another, in violation of law. In 197 2,
plaintiff's rights to the land were reinstated.
On August 14, 1968, plaintiff and his wife sold to defendant an the
fruits of the coconut trees which may be harvested in the land in
question for the period, September 15, 1968 to January 1, 1976, in
consideration of P4,200.00. Even as of the date of sale, however, the
land was still under lease to one, Ramon Sua, and it was the
agreement that part of the consideration of the sale, in the sum of
P3,650.00, was to be paid by defendant directly to Ramon Sua so as

to release the land from the clutches of the latter. Pending said
payment plaintiff refused to snow the defendant to make any harvest.
In July 1972, defendant for the first time since the execution of the
deed of sale in his favor, caused the harvest of the fruit of the coconut
trees in the land.
xxx xxx xxx
Considering the foregoing, two issues appear posed by the complaint
and the answer which must needs be tested in the crucible of a trial on
the merits, and they are:
First.— Whether or nor defendant actually paid to plaintiff the full sum
of P4,200.00 upon execution of the deed of sale.
Second.— Is the deed of sale, Exhibit 'A', the prohibited encumbrance
contemplated in Section 8 of Republic Act No. 477? 2
Anent the first issue, counsel for plaintiff Alonzo subsequently 'stipulated and agreed that
his client ... admits fun payment thereof by defendant. 3 The remaining issue being one of
law, the Court below considered the case submitted for summary judgment on the basis
of the pleadings of the parties, and the admission of facts and documentary evidence
presented at the pre-trial conference.
The lower court rendered its decision now under review, holding that although the
agreement in question is denominated by the parties as a deed of sale of fruits of the
coconut trees found in the vendor's land, it actually is, for all legal intents and purposes,
a contract of lease of the land itself. According to the Court:
... the sale aforestated has given defendant complete control and
enjoyment of the improvements of the land. That the contract is
consensual; that its purpose is to allow the enjoyment or use of a thing;
that it is onerous because rent or price certain is stipulated; and that
the enjoyment or use of the thing certain is stipulated to be for a certain
and definite period of time, are characteristics which admit of no other
conclusion. ... The provisions of the contract itself and its
characteristics govern its nature. 4
The Court, therefore, concluded that the deed of sale in question is an encumbrance
prohibited by Republic Act No. 477 which provides thus:
Sec. 8. Except in favor of the Government or any of its branches, units,
or institutions, land acquired under the provisions of this Act or any
permanent improvements thereon shall not be thereon and for a term
of ten years from and after the date of issuance of the certificate of
title, nor shall they become liable to the satisfaction of any debt
contracted prior to the expiration of such period.
Any occupant or applicant of lands under this Act who transfers
whatever rights he has acquired on said lands and/or on the
improvements thereon before the date of the award or signature of the
contract of sale, shall not be entitled to apply for another piece of
agricultural land or urban, homesite or residential lot, as the case may
be, from the National Abaca and Other Fibers Corporation; and such
transfer shall be considered null and void. 5
The dispositive portion of the lower Court's decision states:
WHEREFORE, it is the judgment of this Court that the deed of sale,
Exhibit 'A', should be, as it is, hereby declared nun and void; that
plaintiff be, as he is, ordered to pay back to defendant the
consideration of the sale in the sum of P4,200.00 the same to bear
legal interest from the date of the filing of the complaint until paid; that
defendant shall pay to the plaintiff the sum of P500.00 as attorney's
fees.
24
Costs against the defendant. 6
Before going into the issues raised by the instant Petition, the matter of whether, under
the admitted facts of this case, the respondent had the right or authority to execute the
"Deed of Sale" in 1968, his award over Lot No. 21 having been cancelled previously by
the Board of Liquidators on January 27, 1965, must be clarified. The case in point is Ras
vs. Sua 7 wherein it was categorically stated by this Court that a cancellation of an award
granted pursuant to the provisions of Republic Act No. 477 does not automatically divest
the awardee of his rights to the land. Such cancellation does not result in the immediate
reversion of the property subject of the award, to the State. Speaking through Mr. Justice
J.B.L. Reyes, this Court ruled that "until and unless an appropriate proceeding for
reversion is instituted by the State, and its reacquisition of the ownership and possession
of the land decreed by a competent court, the grantee cannot be said to have been
divested of whatever right that he may have over the same property." 8
There is nothing in the record to show that at any time after the supposed cancellation of
herein respondent's award on January 27, 1965, reversion proceedings against Lot No.
21 were instituted by the State. Instead, the admitted fact is that the award was
reinstated in 1972. Applying the doctrine announced in the above-cited Ras case,
therefore, herein respondent is not deemed to have lost any of his rights as grantee of
Lot No. 21 under Republic Act No. 477 during the period material to the case at bar, i.e.,
from the cancellation of the award in 1965 to its reinstatement in 1972. Within said
period, respondent could exercise all the rights pertaining to a grantee with respect to Lot
No. 21.
This brings Us to the issues raised by the instant Petition. In his Brief, petitioner contends
that the lower Court erred:
1. In resorting to construction and interpretation of the deed of sale in
question where the terms thereof are clear and unambiguous and
leave no doubt as to the intention of the parties;
2. In declaring — granting without admitting that an interpretation is
necessary — the deed of sale in question to be a contract of lease
over the land itself where the respondent himself waived and
abandoned his claim that said deed did not express the true
agreement of the parties, and on the contrary, respondent admitted at
the pre-trial that his agreement with petitioner was one of sale of the
fruits of the coconut trees on the land;
3. In deciding a question which was not in issue when it declared the
deed of sale in question to be a contract of lease over Lot 21;
4. In declaring furthermore the deed of sale in question to be a contract
of lease over the land itself on the basis of facts which were not proved
in evidence;
5. In not holding that the deed of sale, Exhibit "A" and "2", expresses a
valid contract of sale;
6. In not deciding squarely and to the point the issue as to whether or
not the deed of sale in question is an encumbrance on the land and its
improvements prohibited by Section 8 of Republic Act 477; and
7. In awarding respondent attorney's fees even granting, without
admitting, that the deed of sale in question is violative of Section 8 of
Republic Act 477.
The first five assigned errors are interrelated, hence, We shall consider them together.
To begin with, We agree with petitioner that construction or interpretation of the
document in question is not called for. A perusal of the deed fails to disclose any
ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the
contracting parties. The terms of the agreement are clear and unequivocal, hence the

literal and plain meaning thereof should be observed. Such is the mandate of the Civil
Code of the Philippines which provides that:
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
stipulation shall control ... .
Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts
is the application of the contract according to its express terms, interpretation being
resorted to only when such literal application is impossible. 9
Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely what it
purports to be. It is a document evidencing the agreement of herein parties for the sale of
coconut fruits of Lot No. 21, and not for the lease of the land itself as found by the lower
Court. In clear and express terms, the document defines the object of the contract thus:
"the herein sale of the coconut fruits are for an the fruits on the aforementioned parcel of
land during the years ...(from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976."
Moreover, as petitioner correctly asserts, the document in question expresses a valid
contract of sale. It has the essential elements of a contract of sale as defined under
Article 1485 of the New Civil Code which provides thus:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
The subject matter of the contract of sale in question are the fruits of the coconut trees
on the land during the years from September 15, 1968 up to January 1, 1976, which
subject matter is a determinate thing. Under Article 1461 of the New Civil Code, things
having a potential existence may be the object of the contract of sale. And in Sibal vs.
Valdez, 50 Phil. 512, pending crops which have potential existence may be the subject
matter of the sale. Here, the Supreme Court, citing Mechem on Sales and American
cases said which have potential existence may be the subject matter of sale. Here, the
Supreme Court, citing Mechem on Sales and American cases said:
Mr. Mechem says that a valid sale may be made of a thing, which
though not yet actually in existence, is reasonably certain to come into
existence as the natural increment or usual incident of something
already in existence, and then belonging to the vendor, and the title will
vest in the buyer the moment the thing comes into existence.
(Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep. 63) Things of this nature are said to have a
potential existence. A man may sell property of which he is potentially
and not actually possess. He may make a valid sale of the wine that a
vineyard is expected to produce; or the grain a field may grow in a
given time; or the milk a cow may yield during the coming year; or the
wool that shall thereafter grow upon sheep; or what may be taken at
the next case of a fisherman's net; or fruits to grow; or young animals
not yet in existence; or the goodwill of a trade and the like. The thing
sold, however, must be specific and Identified. They must be also
owned at the time by the vendor. (Hull vs. Hull 48 Conn. 250 (40 Am.
Rep., 165) (pp. 522-523).
We do not agree with the trial court that the contract executed by and between the
parties is "actually a contract of lease of the land and the coconut trees there." (CFI
Decision, p. 62, Records). The Court's holding that the contract in question fits the
definition of a lease of things wherein one of the parties binds himself to give to another
the enjoyment or use of a thing for a price certain and for a period which may be definite
or indefinite (Art. 1643, Civil Code of the Philippines) is erroneous. The essential
25
difference between a contract of sale and a lease of things is that the delivery of the thing
sold transfers ownership, while in lease no such transfer of ownership results as the
rights of the lessee are limited to the use and enjoyment of the thing leased.
In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:
Since according to article 1543 of the same Code the contract of lease
is defined as the giving or the concession of the enjoyment or use of a
thing for a specified time and fixed price, and since such contract is a
form of enjoyment of the property, it is evident that it must be regarded
as one of the means of enjoyment referred to in said article 398,
inasmuch as the terms enjoyment, use, and benefit involve the same
and analogous meaning relative to the general utility of which a given
thing is capable. (104 Jurisprudencia Civil, 443)
In concluding that the possession and enjoyment of the coconut trees can therefore be
said to be the possession and enjoyment of the land itself because the defendant-lessee
in order to enjoy his right under the contract, he actually takes possession of the land, at
least during harvest time, gather all of the fruits of the coconut trees in the land, and gain
exclusive use thereof without the interference or intervention of the plaintiff-lessor such
that said plaintiff-lessor is excluded in fact from the land during the period aforesaid, the
trial court erred. The contract was clearly a "sale of the coconut fruits." The vendor sold,
transferred and conveyed "by way of absolute sale, all the coconut fruits of his land,"
thereby divesting himself of all ownership or dominion over the fruits during the seven-
year period. The possession and enjoyment of the coconut trees cannot be said to be the
possession and enjoyment of the land itself because these rights are distinct and
separate from each other, the first pertaining to the accessory or improvements (coconut
trees) while the second, to the principal (the land). A transfer of the accessory or
improvement is not a transfer of the principal. It is the other way around, the accessory
follows the principal. Hence, the sale of the nuts cannot be interpreted nor construed to
be a lease of the trees, much less extended further to include the lease of the land itself.
The real and pivotal issue of this case which is taken up in petitioner's sixth assignment
of error and as already stated above, refers to the validity of the "Deed of Sale", as such
contract of sale, vis-a-vis the provisions of Sec. 8, R.A. No. 477. The lower Court did not
rule on this question, having reached the conclusion that the contract at bar was one of
lease. It was from the context of a lease contract that the Court below determined the
applicability of Sec. 8, R.A. No. 477, to the instant case.
Resolving now this principal issue, We find after a close and careful examination of the
terms of the first paragraph of Section 8 hereinabove quoted, that the grantee of a parcel
of land under R.A. No. 477 is not prohibited from alienating or disposing of the natural
and/or industrial fruits of the land awarded to him. What the law expressly disallows is the
encumbrance or alienation of the land itself or any of the permanent improvements
thereon. Permanent improvements on a parcel of land are things incorporated or
attached to the property in a fixed manner, naturally or artificially. They include whatever
is built, planted or sown on the land which is characterized by fixity, immutability or
immovability. Houses, buildings, machinery, animal houses, trees and plants would fall
under the category of permanent improvements, the alienation or encumbrance of which
is prohibited by R.A. No. 477. While coconut trees are permanent improvements of a
land, their nuts are natural or industrial fruits which are meant to be gathered or severed
from the trees, to be used, enjoyed, sold or otherwise disposed of by the owner of the
land. Herein respondents, as the grantee of Lot No. 21 from the Government, had the
right and prerogative to sell the coconut fruits of the trees growing on the property.
By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla
organizations and other qualified persons were given the opportunity to acquire
government lands by purchase, taking into account their limited means. It was intended
for these persons to make good and productive use of the lands awarded to them, not

only to enable them to improve their standard of living, but likewise to help provide for the
annual payments to the Government of the purchase price of the lots awarded to them.
Section 8 was included, as stated by the Court a quo, to protect the grantees from
themselves and the incursions of opportunists who prey on their misery and poverty." It is
there to insure that the grantees themselves benefit from their respective lots, to the
exclusion of other persons.
The purpose of the law is not violated when a grantee sells the produce or fruits of his
land. On the contrary, the aim of the law is thereby achieved, for the grantee is
encouraged and induced to be more industrious and productive, thus making it possible
for him and his family to be economically self-sufficient and to lead a respectable life. At
the same time, the Government is assured of payment on the annual installments on the
land. We agree with herein petitioner that it could not have been the intention of the
legislature to prohibit the grantee from selling the natural and industrial fruits of his land,
for otherwise, it would lead to an absurd situation wherein the grantee would not be able
to receive and enjoy the fruits of the property in the real and complete sense.
Respondent through counsel, in his Answer to the Petition contends that even
granting arguendo that he executed a deed of sale of the coconut fruits, he has the
"privilege to change his mind and claim it as (an) implied lease," and he has the
"legitimate right" to file an action for annulment "which no law can stop." He claims it is
his "sole construction of the meaning of the transaction that should prevail and not
petitioner. (sic). 10 Respondent's counsel either misapplies the law or is trying too hard
and going too far to defend his client's hopeless cause. Suffice it to say that respondent-
grantee, after having received the consideration for the sale of his coconut fruits, cannot
be allowed to impugn the validity of the contracts he entered into, to the prejudice of
petitioner who contracted in good faith and for a consideration.
The issue raised by the seventh assignment of error as to the propriety of the award of
attorney's fees made by the lower Court need not be passed upon, such award having
been apparently based on the erroneous finding and conclusion that the contract at bar is
one of lease. We shall limit Ourselves to the question of whether or not in accordance
with Our ruling in this case, respondent is entitled to an award of attorney's fees. The
Civil Code provides that:
Art. 2208. In the absence of stipulation, attorney's fees and expenses
of litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's plainly valid, just and demandable
claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
(8) In actions for indemnity under workmen's compensation and
employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a
crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered.
26
In all cases, the attorney's fees and expenses of litigation must be
reasonable.
We find that none of the legal grounds enumerated above exists to justify or warrant the
grant of attorney's fees to herein respondent.
IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set aside and
another one is entered dismissing the Complaint. Without costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Fernandez, Melencio-Herrera and Plana, JJ., concur.
SECOND DIVISION
G.R. No. L-66696 July 14, 1986
FRANCISCA ARSENAL and REMEDIO ARSENAL, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT, HEIRS OF TORCUATO SURALTA, and
SPOUSES FILOMENO PALAOS and MAHINA LAGWAS, respondents.
Ruben Gamolo for respondent Filomeno Palaos.
GUTIERREZ, JR., J.:
The question to be resolved in this case is who among the two alleged purchasers of a
four-hectare portion of land granted in homestead has acquired a valid title thereto.
The facts as stated by the trial court are:
On January 7, 1954, the defendant Filomeno Palaos secured OCT No.
P-290 (Exh. A) from the Register of Deeds of Bukidnon for Lot 81, Pls-
112, consisting of 87,829 sq. m. more or less, situated at former barrio
of Kitaotao now a municipality of Bukidnon, by virtue of Homestead
Patent No. V-23602 granted to him.
On September 10, 1957, said Filomeno Palaos and his wife Mahina
Lagwas executed in favor of the plaintiff, Torcuato Suralta, sold four (4)
hectares of the land embraced in his Torrens Certificate for the sum of
P 890.00, Philippine Currency, by means of a deed of acknowledged
before a Notary (Exh. C). Plaintiff Suralta immediately took possession
of the four-hectare portion of Lot 81 above-mentioned cultivated and
worked the same openly, continuously and peacefully up to the present
time in concept of owner thereof. He built a house and introduced
permanent improvements thereon now valued at no less than
P20,000.00.
Sometime in 1964, the defendant-spouses Francisca Arsenal and
Remedio Arsenal became tenants of an adjoining land owned by
Eusebio Pabualan that is separated from the land in question only by a
public road. They also came to know the plaintiff as their neighbor who
became their compadre later, and saw him very often working and
cultivating the land in question. In the course of their relationship the
plaintiff came to know of their intention to buy the remaining land of
Filomeno Palaos (t.s.n., pp. 13-14, 45-47).
On March 14, 1967, said Filomeno Palaos and his wife executed a
notarial Deed of Sale (Exh. 1 for the defendant) in consideration of the
amount of P800.00, Philippine Currency, supposedly for the remaining
three (3) hectares of their land without knowing that the document
covered the entirety of Lot 81 including the four-hectare portion
previously deeded by them to the plaintiff. The deed of sale was
presented to the Office of the Commission on National Integration at
Malaybalay for approval because Palaos and his wife belong to the
cultural minorities and unlettered. The field representative and

inspector of that office subsequently approved the same (Exh. K and
Exh. 2) without inspecting the land to determine the actual occupants
thereon.
The defendants Arsenal took possession of the three-hectare portion
of Lot 81 after their purchase and have cultivated the same up to the
present time but they never disturbed the plaintiff's possession over
the four-hectare portion that he had purchased in 1957. On March 28,
1967, Francisca Arsenal caused the tax declaration of the entire lot to
be transferred in her name (Exh. 6). The plaintiff learned of the transfer
of the tax declaration to Francisca Arsenal and because of their good
relations at the time, he agreed with Arsenal to contribute in the
payment of the land taxes and paid yearly from 1968 to 1973 the
amount of P10.00 corresponding to his four-hectare portion to
Francisca Arsenal (Exhs. F, F-1, G, G-1, H, and H-1).
On July 11, 1973, the plaintiff presented his Sales Contract in the
Office of the Register of Deeds but it was refused registration for
having been executed within the prohibitive period of five years from
the issuance of the patent. In order to cure the defect, he caused
Filomeno Palaos to sign a new Sales Contract (Exh. D) in his favor
before Deputy Clerk of Court Florentina Villanueva covering the same
four-hectare portion of Lot 81. In August 1973, the plaintiff caused the
segregation of his portion from the rest of the land by Geodetic
Engineer Benito P. Balbuena, who conducted the subdivision survey
without protest from Francisca Arsenal who was notified thereof. The
subdivision plan (Exh. E) was approved by the Commissioner of Land
Registration on April 18, 1974.
In December 1973, however, the plaintiff saw for the first time the
Deed of Sale embracing the whole Lot 81 signed by Filomeno Palaos
in favor of Francisca Arsenal. Immediately he asked Palaos for
explanation but the latter told him that he sold only three hectares to
Arsenal. Plaintiff approached Francisca Arsenal for a satisfactory
arrangement but she insisted on abiding by her contract. Because of
their disagreement, Francisca Arsenal registered her Deed of Sale on
December 6, 1973 and obtained Transfer Certificate of Title No. T-
7879 (Exh. E) for the entire Lot 81 without the knowledge of the
plaintiff.
On January 7, 1974, the plaintiff sent a telegram (Exh. 1) to the
Secretary of Agriculture and Natural Resources requesting
suspensions of the approval of the sale executed by Filomeno Palaos
in favor of Francisca Arsenal, not knowing that the latter had already
secured a transfer certificate of title from the Register of Deeds.
In the middle part of said month of January 1974, plaintiff however
learned of the cancellation of the original certificate of title of Palaos
and the issuance of the Transfer Certificate to Arsenal so he sought
the help of the municipal authorities of Kitaotao to reach an amicable
settlement with Francisca Arsenal who, on the other hand, refused to
entertain all overture to that effect. ... .
On March 6, 1974, Torcuato Suralta filed a case against Filomeno Palaos, Mahina
Lagwas, Francisca Arsenal, Remedio Arsenal and the Register of Deeds of Bukidnon for
the annulment of Transfer Certificate of Title No. T-7879 issued to the Arsenals insofar
as it covers the four-hectare portion previously sold to him.
In answer to the complaint, the Arsenals denied previous knowledge of the sale to
Suralta of the land in question. As a special defense, they assailed the validity of the
27
purchase by Suralta in 1957, pointing to the prohibition contained in the Public Land Law
against its disposal within the period of five years from the issuance of the homestead
patent. They also questioned the legality of the sale made to Suralta in 1957 by Filomeno
Palaos and Mahina Lagwas for not having been approved by the Commission on
National Integration despite the fact that Palaos and his wife belong to the cultural
minorities, are illiterates, and do not understand the English language in which the deed
of sale in favor of Suralta was written.
In their answer, the spouses Filomeno Palaos and Mahina Lagwas sustained the sale
made by them to Suralta. They alleged that they verbally sold one hectare to one
Tiburcio Tadena and sold the remaining 3.7829 hectares to the Arsenals. They stated
that they informed the Arsenals about the previous sale of four hectares to Suralta. They
also claimed that the Arsenals took undue advantage of their ignorance and illiteracy and
caused them to sign the document of sale so as to include the entire 87,829 sq.
m.covered by their original title.
On May 4, 1976, the trial court rendered judgment in favor of Suralta. It imputed bad faith
to the Arsenals and declared them disqualified to avail of the protection afforded by the
provisions of the Civil Code to innocent purchasers although they registered their
purchase ahead of Suralta.
The court held that:
xxx xxx xxx
The defendants Arsenal could not also avail of the prohibition in the
Public Land Act against the disposal of any land granted to a citizen
under that law because the benefit of said prohibition does not inure to
any third party. Only the government could have filed the adequate
proceedings for confiscation of the land for violation of the condition of
the grant by Palaos. Moreover, a verbal sale of land is valid and
effective as between the parties to the agreement and Filomeno
Palaos had reaffirmed the sale he made in favor of the plaintiff in 1957
by executing another instrument in 1973 to cure whatever defects
which may have affected their formal contract.
Likewise, Francisca Arsenal cannot take advantage of the lack of
approval by the Commission on National Integration of the sale made
by Filomeno Palaos in favor of plaintiff Torcuato Suralta. Only the
latter, in whose favor the protection is afforded, could contest the
document on the ground, as Francisca Arsenal was not a party to said
contract and even if she is also a member of the cultural minority for
being only half a native of Bukidnon because she and her husband
who is from Cebu are both literates.
On appeal to the Intermediate Appellate Court, the aforestated decision was affirmed in
toto on October 24, 1983. The Court maintained that:
The disquisition of the lower court having been made mainly upon
assessment of the facts as borne by the testimonies of witnesses
presented as resolved in a long line of decisions, this Court is loath to
overturn findings of facts of the court a quo, which is more in a position
to determine their truth or falsity, having heard the witnesses testify ... .
On March 20, 1984, the spouses Arsenal went to this Court in a petition for review on
certiorari assigning the following alleged errors of the court below:
I
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT
DISMISSING THE APPEALED CASE FOR LACK OF CAUSE OF
ACTION.
II

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING
THE TRIAL COURT'S ARGUMENT TO THE EFFECT THAT THE
BENEFIT OF THE PROHIBITION IN THE PUBLIC LAND LAW
AGAINST THE DISPOSAL OF ANY LAND GRANTED TO A CITIZEN
UNDER THAT LAW DOES NOT INSURE TO ANY THIRD PARTY,
HENCE, PETITIONERS COULD NOT AVAIL OF THE SAID
PROHIBITION.
III
THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING
THE TRIAL COURT'S ARGUMENT THAT THE PETITIONERS
COULD NOT TAKE ADVANTAGE OF THE LACK OF APPROVAL BY
THE COMMISSION ON NATIONAL INTEGRATION OF THE SALE
MADE BY RESPONDENT TORCUATO SURALTA.
IV
THE INTERMEDIATE APPELLATE COURT ERRED IN GIVING TOO
MUCH WEIGHT TO THE ALLEGED BAD FAITH OF PETITIONERS.
V hundred twenty-three of this Act shall be unlawful and null and void
THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING
THE DECISION OF THE TRIAL COURT DECLARING RESPONDENT
TORCUATO SURALTA TO BE THE LEGITIMATE OWNER OF THE
DISPUTED LAND AND IN ORDERING THE REGISTER OF DEEDS
OF BUKIDNON TO CANCEL TCT NO. T-7879 AND ORDERING THE
ISSUANCE OF ANOTHER TITLE FOR THE PORTION DESIGNATED
AS LOT 8l-A OF THE SUBDIVISION PLAN LRC-PLD-198451.
VI
THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING
THE AWARD OF MORAL DAMAGES AND ATTORNEY's FEES TO
PRIVATE RESPONDENTS.
In resisting respondent Suralta's claim, the petitioners rely heavily on the nullity of the
contract of sale executed in 1957 between the respondents Palaos and Suralta. They
allege that because the previous sale was void from the beginning, it cannot be ratified
and "No amount of bad faith on the part of the petitioners could make it valid and
enforceable in the courts of law."
These arguments are impressed with merit.
The law on the matter which is the Public Land Act (Commonwealth Act No. 141, as
amended) provides:
Sec. 118. Except in favor, of the Government or any of its branches,
units or institutions, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation from the
date of the approval of the application and for a term of five years from
and after the date of issuance of the patent or grant nor shall they
become liable to the satisfaction of any debt contracted prior to the
expiration of said period, but the improvements or crops on the land
may be mortgaged or pledged to qualified persons, associations, or
corporations.
No alienation, transfer, or conveyance of any homestead after five
years and before twenty-five years after issuance of title shall be valid
without the approval of the Secretary of Agriculture and Natural
Resources, which approval shall not be denied except on constitutional
and legal ground (As amended by Com. Act No. 456, approved June 8,
1939).
xxx xxx xxx
28
Sec. 120. Conveyance and encumbrance made by persons belonging
to the so-called 'non-Christian Filipinos' or national cultural minorities,
when proper, shall be valid if the person making the conveyance or
encumbrance is able to read and can understand the language in
which the instrument or conveyance or encumbrance is written.
Conveyances and encumbrances made by illiterate non-Christians or
literate non-Christians where the instrument of conveyance is in a
language not understood by the said literate non-Christian shall not be
valid unless duly approved by the Chairman of the Commission on
National Integration. (As amended by Rep. Act No. 3872, approved
June 18, 1964).
xxx xxx xxx
Sec. 124. Any acquisition, conveyance, alienation, transfer, or other
contract made or executed in violation of any of the provisions of
sections one hundred and eighteen, one hundred and twenty, one
hundred and twenty-one, one hundred and twenty-two, and one
from its execution and shall produce the effect of annulling and
cancelling the grant, title, patent, or permit originally issued, recognized
or confirmed, actually or presumptively, and cause the reversion of the
property and its improvements to the State.
The above provisions of law are clear and explicit. A contract which purports of alienate,
transfer, convey or encumber any homestead within the prohibitory period of five years
from the date of the issuance of the patent is void from its execution. In a number of
cases, this Court has held that such provision is mandatory (De los Santos v. Roman
Catholic Church of Midsayap, 94 Phil. 405).
Under the provisions of the Civil Code, a void contract is inexistent from the beginning. It
cannot be ratified neither can the right to set up the defense of its illegality be waived.
(Art. 1409, Civil Code).
To further distinguish this contract from the other kinds of contract, a commentator has
stated that:
The right to set up the nullity of a void or non-existent contract is not
limited to the parties as in the case of annullable or voidable contracts;
it is extended to third persons who are directly affected by the contract.
(Tolentino, Civil Code of the Philippines, Vol. IV, p. 604, [1973]).
Any person may invoke the inexistence of the contract whenever
juridical effects founded thereon are asserted against him. (Id. p. 595).
Concededly, the contract of sale executed between the respondents Palaos and Suralta
in 1957 is void. It was entered into three (3) years and eight (8) months after the grant of
the homestead patent to the respondent Palaos in 1954.
Being void, the foregoing principles and rulings are applicable. Thus, it was erroneous for
the trial court to declare that the benefit of the prohibition in the Public Land Act "does not
inure to any third party." Such a sweeping declaration does not find support in the law or
in precedents. A third person who is directly affected by a void contract may set up its
nullity. In this case, it is precisely the petitioners' interest in the disputed land which is in
question.
As to whether or not the execution by the respondents Palaos and Suralta of another
instrument in 1973 cured the defects in their previous contract, we reiterate the rule that
an alienation or sale of a homestead executed within the five-year prohibitory period is
void and cannot be confirmed or ratified. This Court has on several occasions ruled on
the nature of a confirmatory sale and the public policy which proscribes it. In the case
of Menil v. Court of Appeals(84 SCRA 413), we stated that:

It cannot be claimed that there are two contracts: one which is
undisputably null and void, and another, having been executed after
the lapse of the 5-year prohibitory period, which is valid. The second
contract of sale executed on March 3, 1964 is admittedly a
confirmatory deed of sale. Even the petitioners concede this point.
(Record on Appeal, pp. 55-56). Inasmuch as the contract of sale
executed on May 7, 1960 is void for it is expressly prohibited or
declared void by law (CA 141, Section 118), it therefore cannot be
confirmed nor ratified. ... .
xxx xxx xxx
Further, noteworthy is the fact that the second contract of sale over the
said homestead in favor of the same vendee, petitioner Potenciano
Menil, is for the same price of P415.00. Clearly, the unvarying term of
the said contract is ample manifestation that the same is simulated and
that no object or consideration passed between the parties to the
contract. It is evident from the whole record of the case that the
homestead had long been in the possession of the vendees upon the
execution of the first contract of sale on May 7, 1960; likewise, the
amount of P415.00 had long been paid to Agueda Garan on that same
occasion. ...
In another case, Manzano v. Ocampo (1 SCRA 691, 697), where the sale was perfected
during the prohibitory period but the formal deed of conveyance was executed after such
period, this Court ruled that:
xxx xxx xxx
... This execution of the formal deed after the expiration of the
prohibitory period did not and could not legalize a contract that was
void from its inception. Nor was this formal deed of sale 'a totally
distinct transaction from the promissory note and the deed of
mortgage', as found by the Court of Appeals, for it was executed only
in compliance and fulfillment of the vendor's previous promise, under
the perfected sale of January 4, 1938, to execute in favor of his vendee
the formal act of conveyance after the lapse of the period of inhibition
of five years from the date of the homestead patent. What is more, the
execution of the formal deed of conveyance was postponed by the
parties precisely to circumvent the legal prohibition of their sale.
The law prohibiting any transfer or alienation of homestead land within
five years from the issuance of the patent does not distinguish between
executory and consummated sales; and it would hardly be in keeping
with the primordial aim of this prohibition to preserve and keep in the
family of the homesteader the piece of land that the State had
gratuitously given to them, (Pascua v. Talens, 45 O.G. No. 9 [Supp.]
413; De los Santos v. Roman Catholic Church of .Midsayap, G.R. No.
L-6088, Feb. 25, 1954.) to hold valid a homestead sale actually
perfected during the period of prohibition but with the execution of the
formal deed of conveyance and the delivery of possession of the land
sold to the buyer deferred until after the expiration of the prohibitory
period, purposely to circumvent the very law that prohibits and
declares invalid such transaction to protect the homesteader and his
family. To hold valid such arrangements would be to throw the door
wide open to all possible fraudulent subterfuges and schemes that
persons interested in land given to homesteaders may devise to
circumvent and defeat the legal provision prohibiting their alienation
within five years from the issuance of the homestead's patent.
29
The respondents Palaos and Suralta admitted that they executed the subsequent
contract of sole in 1973 in order to cure the defects of their previous contract. The terms
of the second contract corroborate this fact as it can easily be seen from its terms that no
new consideration passed between them. The second contract of sale being merely
confirmatory, it produces no effect and can not be binding.
Notwithstanding the above circumstances of the case, however, we still think that the
petitioners' claim to the land must fail.
The petitioner's view that the court erred in giving too much weight to their alleged bad
faith has no merit. The issue of bad faith constitutes the fundamental barrier to their claim
of ownership.
The finding of bad faith by the lower court is binding on us since it is not the function of
this Court to analyze and review evidence on this point all over again (Sweet Lines, Inc.
v. Court of Appeals, 121 SCRA 769) but only to determine its substantiality (Dela
Concepcion v. Mindanao Portland Cement Corporation, 127 SCRA 647).
In this case, there is substantial evidence to sustain the verdict of bad faith. We find
several significant findings of facts made by the courts below, which were not disputed by
the petitioners, crucial to its affirmance.
First of all, we agree with the lower court that it is unusual for the petitioners, who have,
been occupying the disputed land for four years with respondent Suralta to believe,
without first verifying the fact, that the latter was a mere mortgagee of the portion of the
land he occupies.
Second, it is unlikely that the entire 8.7879 hectares of land was sold to them for only
P800,00 in 1967 considering that in 1957, a four-hectare portion of the same was sold to
the respondent Suralta for P819.00. The increased value of real properties through the
years and the disparity of the land area show a price for the land too inadequate for a
sale allegedly done in good faith and for value.
Third, contrary to the usual conduct of good faith purchasers for value, the petitioners
actively encouraged the respondent Suralta to believe that they were co-owners of the
land. There was no dispute that the petitioners, without informing the respondent Suralta
of their title to the land, kept the latter in peaceful possession of the land he occupies and
received annual real estate tax contributions from him. It was only in 1973 when the
respondent Suralta discovered the petitioners' title to the land and insisted on a
settlement of the adverse claim that the petitioners registered their deed of sale and
secured a transfer certificate of title in their favor.
Clearly, the petitioners were in bad faith in including the entire area of the land in their
deed of sale. They cannot be entitled to the four-hectare portion of the land for lack of
consideration. To uphold their claim of ownership over that portion of land would be
contrary to the well-entrenched principle against unjust enrichment consecrated in our
Civil Code to the end that in cases not foreseen by the lawmaker, no one may unjustly
benefit himself to the prejudice of another (Report of the Code Commission, p. 41).
Who then is entitled to the portion of the land which is under litigation?
The peculiar circumstances of the case seem to make a categorical pronouncement on
the case difficult.
At first blush, the equities of the case seem to lean in favor of the respondent Suralta
who, since 1957, has been in possession of the land which was almost acquired in an
underhanded manner by the petitioners. We cannot, however, gloss over the fact that the
respondent Suralta was himself guilty of transgressing the law by entering, in 1957, into a
transaction clearly prohibited by law. It is a long standing principle that equity follows the
law. Courts exercising equity jurisdiction are bound by rules of law and have no arbitrary
discretion to disregard them. Equitable reasons will not control against any well-settled
rule of law or public policy (McCurdy v. County of Shiawassee, 118 N.W. 625). Thus,
equity cannot give validity to a void contract. If, on the basis of equity, we uphold the

respondent Suralta's claim over the land which is anchored on the contracts previously
executed we would in effect be giving life to a void contract.
There is another observation worthy of consideration. This Court has ruled in a number
of cases that the reversion of a public land grant to the government is effected only at the
instance of the Government itself (Gacayan v. Leano, 121 SCRA 260; Gonzalo Puyat &
Sons, Inc. v. De las Ama and Aliño, 74 Phil. 3). The reversion contemplated in the Public
Land Act is not automatic. The Government has to take action to cancel the patent and
the certificate of title in order that the land involved may be reverted to it (Villacorta v.
Ulanday, 73 Phil. 655). Considering that this is an ordinary civil action in which the
Government has not been included as a party and in view of the settled jurisprudence,
we rule against the automatic reversion of the land in question to the State.
Lastly, in cases where the homestead has been the subject of void conveyances, the law
still regards the original owner as the rightful owner subject to escheat proceedings by
the State. In the Menil and Monzano cases earlier cited, this Court awarded the land
back to the original owner notwithstanding the fact that he was equally guilty with the
vendee in circumventing the law. This is so because this Court has consistently held that
"the pari delicto doctrine may not be invoked in a case of this kind since it would run
counter to an avowed fundamental policy of the State, that the forfeiture of a homestead
is a matter between the State and the grantee or his heirs, and that until the State had
taken steps to annul the grant and asserts title to the homestead the purchaser is, as
against the vendor or his heirs, no more entitled to keep the land than any intruder."
(Acierto et al. v. De los Santos, et al. 95 Phil. 887; de los Santos v. Roman Catholic
Church of Midsayap, et al., supra) We should stress that the vendors of the homestead
are unlettered members of a tribe belonging to the cultural minorities.
We see, however, a distinguishing factor in this case that sets it apart from the above
cases. The original owners in this case, the respondent Palaos and his wife, have never
disaffirmed the contracts executed between them and the respondent Suralta. More than
that, they expressly sustained the title of the latter in court and failed to show any interest
in recovering the land. Nonetheless, we apply our earlier rulings because we believe that
as in pari delicto may not be invoked to defeat the policy of the State neither may the
doctrine of estoppel give a validating effect to a void contract. Indeed, it is generally
considered that as between parties to a contract, validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not
within the competence of any citizen to barter away what public policy by law seeks to
preserve (Gonzalo Puyat & Sons, Inc. v. De los Amas and Aliño, supra). Of course, this
pronouncement covers only the previous transactions between the respondents. We
cannot pass upon any new contract, between the same parties involving the same land if
this is their clear intention. Any new transaction, however, would be subject to whatever
steps the Government may take for the reversion of the property to it.
With the resolution of the principal issues and in view of our own conclusions of facts and
law, we hold untenable the lower court's award of moral damages, attorney's fees and
litigation expenses.
WHEREFORE, the decision of the Intermediate Appellate Court is REVERSED and SET
ASIDE. Judgment is hereby rendered:
(a) Declaring null and void the sale of the four-hectare portion of the homestead to
respondent Torcuato Suralta and his heirs;
(b) Declaring null and void the sale of the same portion of land to the petitioners
Francisca Arsenal and Remedio Arsenal:
(c) Ordering the Register of Deeds of Bukidnon to cancel Transfer Certificate of Title No.
T-7879 as to the disputed four-hectare portion and to reissue an Original Certificate of
Title for the portion designated as Lot 81-A of the Subdivision Plan LRC-PLD-198451
prepared by Geodetic Engineer Benito P. Balbuena and approved by the Commission on
Land Registration, in favor of the respondents Filomeno Palaos and Mahina Lagwas;
30
(d) Ordering the respondents Filomeno Palaos and Mahina Lagwas to reimburse the
heirs of the respondent Torcuato Suralta the sum of EIGHT HUNDRED NINETY PESOS
(P890.00), the price of the sale. The value of any improvements made on the land and
the interests on the purchase price are compensated by the fruits the respondent Suralta
and his heirs received from their long possession of the homestead.
This judgment is without prejudice to any appropriate action the Government may take
against the respondents Filomeno Palaos and Mahina Lagwas pursuant to Section 124
of Commonwealth Act No. 141, as amended.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.
FIRST DIVISION
G.R. No. L-31271 April 29, 1974
ROMEO MARTINEZ and LEONOR SUAREZ, spouses, petitioners-appellants,
vs.
HON. COURT OF APPEALS, SECRETARY and UNDERSECRETARY OF PUBLIC
WORKS & COMMUNICATIONS, respondents-appellees.
Flores Macapagal, Ocampo and Balbastro for petitioners-appellants.
Office of the Solicitor General Felix Q. Antonio, Acting Assistant Solicitor General
Dominador L. Quiroz and Solicitor Concepcion T. Agapinan for respondents-appellees.
ESGUERRA, J.:
Petition for review by certiorari of the judgment of the Court of Appeals dated November
17, 1969 in its CA-G.R. 27655-R which reverses the judgment of the Court of First
Instance of Pampanga in favor of petitioners-appellants against the Secretary and
Undersecretary of Public Works & Communications in the case instituted to annul the
order of November 25, 1958 of respondent Secretary of Public Works & Communications
directing the removal by the petitioners of the dikes they had constructed on Lot No.
15856 of the Register of Deeds of Pampanga, which order was issued pursuant to the
provisions of Republic Act No. 2056. The dispositive portion of the judgment of reversal
of the Court of Appeals reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment
appealed from is hereby reversed, and another entered: [1] upholding
the validity of the decision reached by the respondent officials in the
administrative case; [2] dissolving the injunction issued by the Court
below; and [3] cancelling the registration of Lot No. 2, the disputed
area, and ordering its reconveyance to the public domain. No costs in
this instance.
The background facts are stated by the Court of Appeals as follows:
The spouses Romeo Martinez and Leonor Suarez, now petitioners-
appellees, are the registered owners of two (2) parcels of land located
in Lubao, Pampanga, covered by transfer certificate of title No. 15856
of the Register of Deeds of the said province. Both parcels of land are
fishponds. The property involved in the instant case is the second
parcel mentioned in the above-named transfer certificate of title.
The disputed property was originally owned by one Paulino
Montemayor, who secured a "titulo real" over it way back in 1883. After
the death of Paulino Montemayor the said property passed to his
successors-in-interest, Maria Montemayor and Donata Montemayor,
who in turn, sold it, as well as the first parcel, to a certain Potenciano
Garcia.
Because Potenciano Garcia was prevented by the then municipal
president of Lubao, Pedro Beltran, from restoring the dikes constructed

on the contested property, the former, on June 22, 1914, filed Civil
Case No. 1407 with the Court of First Instance against the said Pedro
Beltran to restrain the latter in his official capacity from molesting him
in the possession of said second parcel, and on even date, applied for
a writ of preliminary injunction, which was issued against said
municipal president. The Court, by decision promulgated June 12,
1916, declared permanent the preliminary injunction, which, decision,
on appeal, was affirmed by the Supreme Court on August 21, 1918.
From June 22, 1914, the dikes around the property in question
remained closed until a portion thereof was again opened just before
the outbreak of the Pacific War.
On April 17, 1925. Potenciano Garcia applied for the registration of
both parcels of land in his name, and the Court of First Instance of
Pampanga, sitting as land registration court, granted the registration
over and against the opposition of the Attorney-General and the
Director of Forestry. Pursuant to the Court's decision, original
certificate of title No. 14318, covering said parcels 1 and 2 was issued
to the spouses Potenciano Garcia and Lorenza Sioson.
These parcels of land were subsequently bought by Emilio Cruz de
Dios in whose name transfer certificate of title No. 1421 was first
issued on November 9, 1925.
Thereafter, the ownership of these properties changed hands until
eventually they were acquired by the herein appellee spouses who
hold them by virtue of transfer certificate of title No. 15856.
To avoid any untoward incident, the disputants agreed to refer the
matter to the Committee on Rivers and Streams, by then composed of
the Honorable Pedro Tuason, at that time Secretary of Justice, as
chairman, and the Honorable Salvador Araneta and Vicente Orosa,
Secretary of Agriculture and National Resources and Secretary of
Public Works and Communications, respectively, as members. This
committee thereafter appointed a Sub-Committee to investigate the
case and to conduct an ocular inspection of the contested property,
and on March 11, 1954, said Sub-Committee submitted its report to the
Committee on Rivers and Streams to the effect that Parcel No. 2 of
transfer certificate of title No. 15856 was not a public river but a private
fishpond owned by the herein spouses.
On July 7, 1954, the Committee on Rivers and Streams rendered its
decision the dispositive part of which reads:
"In view of the foregoing considerations, the spouses
Romeo Martinez and Leonor Suarez should be
restored to the exclusive possession, use and
enjoyment of the creek in question which forms part
of their registered property and the decision of the
courts on the matter be given full force and effect."
The municipal officials of Lubao, led by Acting Mayor Mariano Zagad,
apparently refused to recognize the above decision, because on
September 1, 1954, the spouses Romeo Martinez and Leonor Suarez
instituted Civil Case No. 751 before the Court of First Instance of
Pampanga against said Mayor Zagad, praying that the latter be
enjoined from molesting them in their possession of their property and
in the construction of the dikes therein. The writ of preliminary
injunction applied for was issued against the respondent municipal
Mayor, who immediately elevated the injunction suit for review to the
31
Supreme Court, which dismissed Mayor Zagad's petition on
September 7, 1953. With this dismissal order herein appellee spouses
proceeded to construct the dikes in the disputed parcel of land.
Some four (4) years later, and while Civil Case No. 751 was still
pending the Honorable Florencio Moreno, then Secretary of Public
Works and Communications, ordered another investigation of the said
parcel of land, directing the appellees herein to remove the dikes they
had constructed, on the strength of the authority vested in him by
Republic Act No. 2056, approved on June 13, 1958, entitled "An Act
To Prohibit, Remove and/or Demolish the Construction of Dams.
Dikes, Or Any Other Walls In Public Navigable Waters, Or Waterways
and In Communal Fishing Grounds, To Regulate Works in Such
Waters or Waterways And In Communal Fishing Grounds, And To
Provide Penalties For Its Violation, And For Other Purposes. 1 The
said order which gave rise to the instant proceedings, embodied a
threat that the dikes would be demolished should the herein appellees
fail to comply therewith within thirty (30) days.
The spouses Martinez replied to the order by commencing on January
2, 1959 the present case, which was decided in their favor by the lower
Court in a decision dated August 10, 1959, the dispositive part of which
reads:
"WHEREFORE, in view of the foregoing
considerations, the Court hereby declares the
decision, Exhibit S, rendered by the Undersecretary
of Public Works and Communications null and void;
declares the preliminary injunction, hereto for issued,
permanent, and forever enjoining both respondents
from molesting the spouses Romeo Martinez and
Leonor Suarez in their possession, use and
enjoyment of their property described in Plan Psu-
9992 and referred to in their petition."
"Without pronouncement as to costs."
"SO ORDERED."
As against this judgment respondent officials of the Department of
Public Works and Communications took the instant appeal, contending
that the lower Court erred:
1. In holding that then Senator Rogelio de la Rosa, complainant in the
administrative case, is not an interested party and his letter-complaint
dated August 15, 1958 did not confer jurisdiction upon the respondent
Undersecretary of Public Works and Communications to investigate
the said administrative case;
2. In holding that the duty to investigate encroachments upon public
rivers conferred upon the respondent Secretary under Republic Act
No. 7056 cannot be lawfully delegated by him to his subordinates;
3. In holding that the investigation ordered by the respondent Secretary
in this case is illegal on the ground that the said respondent Secretary
has arrogated unto himself the power, which he does not possess, of
reversing, making nugatory, and setting aside the two lawful decisions
of the Court Exhibits K and I, and even annulling thereby, the one
rendered by the highest Tribunal of the land;
4. In not sustaining respondent's claim that petitioners have no cause
of action because the property in dispute is a public river and in holding
that the said claim has no basis in fact and in law;

5. In not passing upon and disposing of respondent's counterclaim;
6. In not sustaining respondent's claim that the petition should not have
been entertained on the ground that the petitioners have not exhausted
administrative remedies; and
7. In holding that the decision of the respondents is illegal on the
ground that it violates the principles that laws shall have no retroactive
effect unless the contrary is provided and in holding that the said
Republic Act No. 2056 is unconstitutional on the ground that
respondents' threat of prosecuting petitioners under Section 3 thereof
for acts done four years before its enactment renders the said law ex
post facto.
The Court of Appeals sustained the above-mentioned assignment of errors committed by
the Court of First Instance of Pampanga and, as previously stated, reversed the
judgment of the latter court. From this reversal this appeal by certiorari was taken, and
before this Court, petitioners-appellants assigned the following errors allegedly
committed by the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN DECLARING IN THE
INSTANT CASE THAT PARCEL NO. 2 OF TRANSFER
CERTIFICATE OF TITLE NO. 15856 IS A PUBLIC RIVER AND
ORDERING THE CANCELLATION OF ITS REGISTRATION
BECAUSE THIS CONSTITUTES A COLLATERAL ATTACK ON A
TORRENS TITLE IN VIOLATION OF THE LAW AND THE WELL-
SETTLED JURISPRUDENCE ON THE MATTER.
2. THE COURT OF APPEALS ERRED IN REOPENING AND RE-
LITIGATING THE ISSUE AS TO WHETHER OR NOT LOT NO. 2 OF
TRANSFER CERTIFICATE OF TITLE NO. 15856 REGISTER OF
DEEDS OF PAMPANGA, IS A PUBLIC RIVER NOTWITHSTANDING
THE FACT THAT THIS ISSUE HAS BEEN LONG RESOLVED AND
SETTLED BY THE LAND REGISTRATION COURT OF PAMPANGA
IN LAND REGISTRATION PROCEEDING NO. 692 AND IS NOW RES
JUDICATA.
3. THE COURT OF APPEALS ERRED IN ORDERING THE
CANCELLATION OF THE REGISTRATION OF LOT NO. 2 OF
TRANSFER CERTIFICATE OF TITLE NO. 15856
NOTWITHSTANDING THE FACT THAT THE TORRENS TITLE
COVERING IT HAS BEEN VESTED IN THE PETITIONERS WHO
ARE THE SEVENTH OF THE SUCCESSIVE INNOCENT
PURCHASERS THEREOF AND WHO IN PURCHASING THE SAME
RELIED ON THE PRINCIPLE THAT THE PERSONS DEALING WITH
REGISTERED LAND NEED NOT GO BEHIND THE REGISTER TO
DETERMINE THE CONDITION OF THE PROPERTY.
The 1st and 2nd assignment of errors, being closely related, will be taken up together.
The ruling of the Court of Appeals that Lot No. 2 covered by Transfer Certificate of Title
No. 15856 of the petition ners-appellants is a public stream and that said title should be
cancelled and the river covered reverted to public domain, is assailed by the petitioners-
appellants as being a collateral attack on the indefeasibility of the torrens title originally
issued in 1925 in favor of the petitioners-appellants' predecessor-in-interest, Potenciano
Garcia, which is violative of the rule of res judicata. It is argued that as the decree of
registration issued by the Land Registration Court was not re-opened through a petition
for review filed within one (1) year from the entry of the decree of title, the certificate of
title issued pursuant thereto in favor of the appellants for the land covered thereby is no
longer open to attack under Section 38 of the Land Registration Act (Act 496) and the
jurisprudence on the matter established by this Tribunal. Section 38 of the Land
32
Registration Act cited by appellants expressly makes a decree of registration, which
ordinarily makes the title absolute and indefeasible, subject to the exemption stated in
Section 39 of the said Act among which are: "liens, claims or rights arising or existing
under the laws or Constitution of the United States or of the Philippine Islands which the
statute of the Philippine Islands cannot require to appear of record in the registry."
At the time of the enactment of Section 496, one right recognized or existing under the
law is that provided for in Article 339 of the old Civil Code which reads as follows:
Property of public ownership is:
1. That destined to the public use, such as roads, canals, rivers,
torrents, ports, and bridges constructed by the State, and banks
shores, roadsteads, and that of a similar character. (Par. 1)
The above-mentioned properties are parts of the public domain intended for public use,
are outside the commerce of men and, therefore, not subject to private appropriation. ( 3
Manresa, 6th ed. 101-104.)
In Ledesma v. Municipality of Iloilo, 49 Phil. 769, this Court held:
A simple possession of a certificate of title under the Torrens system
does not necessarily make the possessor a true owner of all the
property described therein. If a person obtains title under the Torrens
system which includes by mistake or oversight, lands which cannot be
registered under the Torrens system, he does not by virtue of said
certificate alone become the owner of the land illegally included.
In Mercado v. Municipal President of Macabebe, 59 Phil. 592, it was also said:
It is useless for the appellant now to allege that she has obtained
certificate of title No. 329 in her favor because the said certificate does
not confer upon her any right to the creek in question, inasmuch as the
said creek, being of the public domain, is included among the various
exceptions enumerated in Section 39 of Act 496 to which the said
certificate is subject by express provision of the law.
The same ruling was laid down in Director of Lands v. Roman Catholic Bishop of
Zamboanga, 61 Phil. 644, as regards public plaza.
In Dizon, et al. v. Rodriguez, et al., G.R. No. L-20300-01 and G.R. No. L-20355-56, April
30, 1965, 20 SCRA 704, it was held that the incontestable and indefeasible character of
a Torrens certificate of title does not operate when the land covered thereby is not
capable of registration.
It is, therefore, clear that the authorities cited by the appellants as to the conclusiveness
and incontestability of a Torrens certificate of title do not apply here. The Land
Registration Court has no jurisdiction over non-registerable properties, such as public
navigable rivers which are parts of the public domain, and cannot validly adjudge the
registration of title in favor of a private applicant. Hence, the judgment of the Court of
First Instance of Pampanga as regards the Lot No. 2 of Certificate of Title No. 15856 in
the name of petitioners-appellants may be attacked at any time, either directly or
collaterally, by the State which is not bound by any prescriptive period provided for by the
Statute of Limitations (Article 1108, par. 4, new Civil Code). The right of reversion or
reconveyance to the State of the public properties fraudulently registered and which are
not capable of private appropriation or private acquisition does not prescribe. (Republic v.
Ramona Ruiz, et al., G.R. No. L-23712, April 29, 1968, 23 SCRA 348; Republic v.
Ramos, G.R. No.
L-15484, January 31, 1963, 7 SCRA 47.)
When it comes to registered properties, the jurisdiction of the Secretary of Public Works
& Communications under Republic Act 2056 to order the removal or obstruction to
navigation along a public and navigable creek or river included therein, has been
definitely settled and is no longer open to question (Lovina v. Moreno, G.R. No L-17821,

November 29, 1963, 9 SCRA 557; Taleon v. Secretary of Public Works &
Communications G.R. No. L-24281, May 16, 1961, 20 SCRA 69, 74).
The evidence submitted before the trial court which was passed upon by the respondent
Court of Appeals shows that Lot No. 2 (Plan Psu 992) of Transfer Certificate of Title No.
15856, is a river of the public domain. The technical description of both Lots Nos. 1 and 2
appearing in Original Certificate of Title No. 14318 of the Register of Deeds of
Pampanga, from which the present Transfer Certificate of Title No. 15856 was derived,
confirms the fact that Lot No. 2 embraced in said title is bounded practically on all sides
by rivers. As held by the Court of First Instance of Pampanga in Civil Case No. 1247 for
injunction filed by the petitioners' predecessors-in-interest against the Municipal Mayor of
Lubao and decided in 1916 (Exh. "L"), Lot No. 2 is a branch of the main river that has
been covered with water since time immemorial and, therefore, part of the public domain.
This finding having been affirmed by the Supreme Court, there is no longer any doubt
that Lot No. 2 of Transfer Certificate of Title No. 15856 of petitioners is a river which is
not capable of private appropriation or acquisition by prescription. (Palanca v. Com. of
the Philippines, 69 Phil. 449; Meneses v. Com. of the Philippines, 69 Phil. 647).
Consequently, appellants' title does not include said river.
II
As regards the 3rd assignment of error, there is no weight in the appellants' argument
that, being a purchaser for value and in good faith of Lot No. 2, the nullification of its
registration would be contrary to the law and to the applicable decisions of the Supreme
Court as it would destroy the stability of the title which is the core of the system of
registration. Appellants cannot be deemed purchasers for value and in good faith as in
the deed of absolute conveyance executed in their favor, the following appears:
6. Que la segunda parcela arriba descrita y mencionada esta
actualmente abierta, sin malecones y excluida de la primera parcela
en virtud de la Orden Administrative No. 103, tal como fue
enmendada, del pasado regimen o Gobierno.
7. Que los citados compradores Romeo Martinez y Leonor Suarez se
encargan de gestionar de las autoridades correspondientes para que
la citada segunda parcela pueda ser convertida de nuevo en
pesqueria, corriendo a cuenta y cargo de los mismos todos los gastos.
8. Que en el caso de que dichos compradores no pudiesen conseguir
sus propositos de convertir de nuevo en pesquera la citada segunda
parcela, los aqui vendedores no devolveran ninguna cantidad de
dinero a los referidos compradores; este es, no se disminuiriat el
precio de esta venta. (Exh. 13-a, p. 52, respondents record of exhibits)
These stipulations were accepted by the petitioners-appellants in the same conveyance
in the following terms:
Romeo Martinez y Leonor Suarez, mayores de edad, filipinos y
residentes en al Barrio de Julo Municipio de Malabon, Provincia de
Rizal, por la presente, declaran que estan enterados del contenido de
este documento y lo aceptan en los precisos terminos en que arriba
uedan consignados. (Exh. 13-a, ibid)
Before purchasing a parcel of land, it cannot be contended that the appellants who were
the vendees did not know exactly the condition of the land that they were buying and the
obstacles or restrictions thereon that may be put up by the government in connection
with their project of converting Lot No. 2 in question into a fishpond. Nevertheless, they
willfully and voluntarily assumed the risks attendant to the sale of said lot. One who buys
something with knowledge of defect or lack of title in his vendor cannot claim that he
acquired it in good faith (Leung Lee v. Strong Machinery Co., et al., 37 Phil. 664).
The ruling that a purchaser of a registered property cannot go beyond the record to make
inquiries as to the legality of the title of the registered owner, but may rely on the registry
33
to determine if there is no lien or encumbrances over the same, cannot be availed of as
against the law and the accepted principle that rivers are parts of the public domain for
public use and not capable of private appropriation or acquisition by prescription.
FOR ALL THE FOREGOING, the judgment of the Court of Appeals appealed from is in
accordance with law, and the same is hereby affirmed with costs against the petitioners-
appellants.
Makalintal, C.J., Castro, Teehankee and Muñoz Palma, JJ., concur.
Makasiar, J., is on leave.
EN BANC
G.R. No. L-24732 April 30, 1968
PIO SIAN MELLIZA, petitioner,
vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT
APPEALS, respondents.
Cornelio P. Ravena for petitioner.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Juliana Melliza during her lifetime owned, among other properties, three parcels of
residential land in Iloilo City registered in her name under Original Certificate of Title No.
3462. Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot
No. 1214 was 29,073 square meters.
On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square
meters of Lot 1214, to serve as site for the municipal hall. 1 The donation was however
revoked by the parties for the reason that the area donated was found inadequate to
meet the requirements of the development plan of the municipality, the so-called
"Arellano Plan". 2
Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A
and 1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-
B-2 and Lot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B-1 with 4,562
square meters, became known as Lot 1214-B; Lot 1214-B-2, with 6,653 square meters,
was designated as Lot 1214-C; and Lot 1214-B-13, with 4,135 square meters, became
Lot 1214-D.
On November 15, 1932 Juliana Melliza executed an instrument without any caption
containing the following:
Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS
VEINTIDOS PESOS (P6,422.00), moneda filipina que por la presente declaro
haber recibido a mi entera satisfaccion del Gobierno Municipal de Iloilo, cedo y
traspaso en venta real y difinitiva a dicho Gobierno Municipal de Iloilo los lotes y
porciones de los mismos que a continuacion se especifican a saber: el lote No.
5 en toda su extension; una porcion de 7669 metros cuadrados del lote No. 2,
cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del piano de
subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una
porcion de 10,788 metros cuadrados del lote No. 1214 — cuya porcion esta
designada como sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismo plano de
subdivision.
Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de
venta difinitiva, y que para la mejor identificacion de los lotes y porciones de los
mismos que son objeto de la presente, hago constar que dichos lotes y
porciones son los que necesita el Gobierno Municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government
Center de iloilo, segun el plano Arellano.
On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios
Sian Villanueva who thereafter obtained her own registered title thereto, under Transfer

Certificate of Title No. 18178. Remedios in turn on November 4, 1946 transferred her
rights to said portion of land to Pio Sian Melliza, who obtained Transfer Certificate of Title
No. 2492 thereover in his name. Annotated at the back of Pio Sian Melliza's title
certificate was the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now designated as
Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the
Municipality of Iloilo as per instrument dated November 15, 1932....
On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo,
donated the city hall site together with the building thereon, to the University of the
Philippines (Iloilo branch). The site donated consisted of Lots Nos. 1214-B, 1214-C and
1214-D, with a total area of 15,350 square meters, more or less.
Sometime in 1952, the University of the Philippines enclosed the site donated with a wire
fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the city
authorities for payment of the value of the lot (Lot 1214-B). No recovery was obtained,
because as alleged by plaintiff, the City did not have funds (p. 9, Appellant's Brief.)
The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No.
7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of
Iloilo against Iloilo City and the University of the Philippines for recovery of Lot 1214-B or
of its value.
The defendants answered, contending that Lot 1214-B was included in the public
instrument executed by Juliana Melliza in favor of Iloilo municipality in 1932. After
stipulation of facts and trial, the Court of First Instance rendered its decision on August
15, 1957, dismissing the complaint. Said court ruled that the instrument executed by
Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B. In
support of this conclusion, it referred to the portion of the instrument stating:
Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de
venta difinitiva, y que para la major identificacion de los lotes y porciones de los
mismos que son objeto de la presente, hago constar que dichos lotes y
porciones son los que necesita el Gobierno municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government
Center de Iloilo, segun el plano Arellano.
and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but
also such other portions of lots as were necessary for the municipal hall site, such as Lot
1214-B. And thus it held that Iloilo City had the right to donate Lot 1214-B to the U.P.
Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the
Court of Appeals affirmed the interpretation of the Court of First Instance, that the portion
of Lot 1214 sold by Juliana Melliza was not limited to the 10,788 square meters
specifically mentioned but included whatever was needed for the construction of
avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case for
reception of evidence to determine the area actually taken by Iloilo City for the
construction of avenues, parks and for city hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant
maintains that the public instrument is clear that only Lots Nos. 1214-C and 1214-D with
a total area of 10,788 square meters were the portions of Lot 1214 included in the sale;
that the purpose of the second paragraph, relied upon for a contrary interpretation, was
only to better identify the lots sold and none other; and that to follow the interpretation
accorded the deed of sale by the Court of Appeals and the Court of First Instance would
render the contract invalid because the law requires as an essential element of sale, a
"determinate" object (Art. 1445, now 1448, Civil Code).
Appellees, on the other hand, contend that the present appeal improperly raises only
questions of fact. And, further, they argue that the parties to the document in question
really intended to include Lot 1214-B therein, as shown by the silence of the vendor after
34
Iloilo City exercised ownership thereover; that not to include it would have been absurd,
because said lot is contiguous to the others admittedly included in the conveyance, lying
directly in front of the city hall, separating that building from Lots 1214-C and 1214-D,
which were included therein. And, finally, appellees argue that the sale's object was
determinate, because it could be ascertained, at the time of the execution of the contract,
what lots were needed by Iloilo municipality for avenues, parks and city hall site
"according to the Arellano Plan", since the Arellano plan was then already in existence.
The appeal before Us calls for the interpretation of the public instrument dated November
15, 1932. And interpretation of such contract involves a question of law, since the
contract is in the nature of law as between the parties and their successors-in-interest.
At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana
Melliza to Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not,
then the same was included, in the instrument subsequently executed by Juliana Melliza
of her remaining interest in Lot 1214 to Remedios Sian Villanueva, who in turn sold what
she thereunder had acquired, to Pio Sian Melliza. It should be stressed, also, that the
sale to Remedios Sian Villanueva — from which Pio Sian Melliza derived title — did not
specifically designate Lot 1214-B, but only such portions of Lot 1214 as were not
included in the previous sale to Iloilo municipality (Stipulation of Facts, par. 5, Record on
Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to
Iloilo municipality, then it was excluded from the sale to Remedios Sian Villanueva and,
later, to Pio Sian Melliza.
The point at issue here is then the true intention of the parties as to the object of the
public instrument Exhibit "D". Said issue revolves on the paragraph of the public
instrument aforequoted and its purpose, i.e., whether it was intended merely to further
describe the lots already specifically mentioned, or whether it was intended to cover
other lots not yet specifically mentioned.
First of all, there is no question that the paramount intention of the parties was to provide
Iloilo municipality with lots sufficient or adequate in area for the construction of the Iloilo
City hall site, with its avenues and parks. For this matter, a previous donation for this
purpose between the same parties was revoked by them, because of inadequacy of the
area of the lot donated.
Secondly, reading the public instrument in toto, with special reference to the paragraphs
describing the lots included in the sale, shows that said instrument describes four parcels
of land by their lot numbers and area; and then it goes on to further describe, not only
those lots already mentioned, but the lots object of the sale, by stating that said lots are
the ones needed for the construction of the city hall site, avenues and parks according to
the Arellano plan. If the parties intended merely to cover the specified lots — Lots 2, 5,
1214-C and 1214-D, there would scarcely have been any need for the next paragraph,
since these lots are already plainly and very clearly described by their respective lot
number and area. Said next paragraph does not really add to the clear description that
was already given to them in the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other
portions of land contiguous to the lots aforementioned that, by reference to the Arellano
plan, will be found needed for the purpose at hand, the construction of the city hall site.
Appellant however challenges this view on the ground that the description of said other
lots in the aforequoted second paragraph of the public instrument would thereby be
legally insufficient, because the object would allegedly not be determinate as required by
law.
Such contention fails on several counts. The requirement of the law that a sale must
have for its object a determinate thing, is fulfilled as long as, at the time the contract is
entered into, the object of the sale is capable of being made determinate without the
necessity of a new or further agreement between the parties (Art. 1273, old Civil Code;
Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement

that the lots object of the sale are the ones needed for city hall site, avenues and
parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the
execution of the contract, for rendering determinate said lots without the need of a new
and further agreement of the parties.
The Arellano plan was in existence as early as 1928. As stated, the previous donation of
land for city hall site on November 27, 1931 was revoked on March 6, 1932 for being
inadequate in area under said Arellano plan. Appellant claims that although said plan
existed, its metes and bounds were not fixed until 1935, and thus it could not be a basis
for determining the lots sold on November 15, 1932. Appellant however fails to consider
that the area needed under that plan for city hall site was then already known; that the
specific mention of some of the lots covered by the sale in effect fixed the corresponding
location of the city hall site under the plan; that, therefore, considering the said lots
specifically mentioned in the public instrument Exhibit "D", and the projected city hall site,
with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined which,
and how much of the portions of land contiguous to those specifically named, were
needed for the construction of the city hall site.
And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C
and 1214-D, admittedly covered by the public instrument. It is stipulated that, after
execution of the contract Exhibit "D", the Municipality of Iloilo possessed it together with
the other lots sold. It sits practically in the heart of the city hall site. Furthermore, Pio Sian
Melliza, from the stipulation of facts, was the notary public of the public instrument. As
such, he was aware of its terms. Said instrument was also registered with the Register of
Deeds and such registration was annotated at the back of the corresponding title
certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian
Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of
them; that knowing so, he should have examined the Arellano plan in relation to the
public instrument Exhibit "D"; that, furthermore, he should have taken notice of the
possession first by the Municipality of Iloilo, then by the City of Iloilo and later by the
University of the Philippines of Lot 1214-B as part of the city hall site conveyed under that
public instrument, and raised proper objections thereto if it was his position that the same
was not included in the same. The fact remains that, instead, for twenty long years, Pio
Sian Melliza and his predecessors-in-interest, did not object to said possession, nor
exercise any act of possession over Lot 1214-B. Applying, therefore, principles of civil
law, as well as laches, estoppel, and equity, said lot must necessarily be deemed
included in the conveyance in favor of Iloilo municipality, now Iloilo City.
WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the
Court of First Instance, and the complaint in this case is dismissed. No costs. So
ordered.
Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.
Concepcion , C.J., is on leave.
EN BANC
G.R. No. L-22487 May 21, 1969
ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their
respective husbands, HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO
LACANDALO, ISABEL ATILANO and GREGORIO ATILANO, plaintiffs-appellees,
vs.
LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants.
Climaco and Azcarraga for plaintiff-appellee.
T. de los Santos for defendants-appellants.
MAKALINTAL, J.:
In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535
of the then municipality of Zamboanga cadastre. The vendee thereafter obtained transfer
35
certificate of title No. 1134 in his name. In 1920 he had the land subdivided into five
parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively. On
May 18 of the same year, after the subdivision had been effected, Eulogio Atilano I, for
the sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his
brother Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129 in
his name. Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were likewise
sold to other persons, the original owner, Eulogio Atilano I, retaining for himself only the
remaining portion of the land, presumably covered by the title to lot No. 535-A. Upon his
death the title to this lot passed to Ladislao Atilano, defendant in this case, in whose
name the corresponding certificate (No. T-5056) was issued.
On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his
wife Luisa Bautista, he and his children obtained transfer certificate of title No. 4889 over
lot No. 535-E in their names as co-owners. Then, on July 16, 1959, desiring to put an
end to the co-ownership, they had the land resurveyed so that it could properly be
subdivided; and it was then discovered that the land they were actually occupying on the
strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as
referred to in the deed, while the land which remained in the possession of the vendor,
Eulogio Atilano I, and which passed to his successor, defendant Ladislao Atilano, was lot
No. 535-E and not lot No. 535-A.
On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased,
filed the present action in the Court of First Instance of Zamboanga, alleging, inter alia,
that they had offered to surrender to the defendants the possession of lot No. 535-A and
demanded in return the possession of lot No. 535-E, but that the defendants had refused
to accept the exchange. The plaintiffs' insistence is quite understandable, since lot No.
535-E has an area of 2,612 square meters, as compared to the 1,808 square-meter area
of lot No. 535-A.
In their answer to the complaint the defendants alleged that the reference to lot No. 535-
E in the deed of sale of May 18, 1920 was an involuntary error; that the intention of the
parties to that sale was to convey the lot correctly identified as lot No. 535-A; that since
1916, when he acquired the entirety of lot No. 535, and up to the time of his death,
Eulogio Atilano I had been possessing and had his house on the portion designated as
lot No. 535-E, after which he was succeeded in such possession by the defendants
herein; and that as a matter of fact Eulogio Atilano I even increased the area under his
possession when on June 11, 1920 he bought a portion of an adjoining lot, No. 536, from
its owner Fruto del Carpio. On the basis of the foregoing allegations the defendants
interposed a counterclaim, praying that the plaintiffs be ordered to execute in their favor
the corresponding deed of transfer with respect to lot No. 535-E.
The trial court rendered judgment for the plaintiffs on the sole ground that since the
property was registered under the Land Registration Act the defendants could not
acquire it through prescription. There can be, of course, no dispute as to the correctness
of this legal proposition; but the defendants, aside from alleging adverse possession in
their answer and counterclaim, also alleged error in the deed of sale of May 18, 1920,
thus: "Eulogio Atilano 1.o, por equivocacion o error involuntario, cedio y traspaso a su
hermano Eulogio Atilano 2.do el lote No. 535-E en vez del Lote No. 535-A."lawphi1.ñet
The logic and common sense of the situation lean heavily in favor of the defendants'
contention. When one sells or buys real property — a piece of land, for example — one
sells or buys the property as he sees it, in its actual setting and by its physical metes and
bounds, and not by the mere lot number assigned to it in the certificate of title. In the
particular case before us, the portion correctly referred to as lot No. 535-A was already in
the possession of the vendee, Eulogio Atilano II, who had constructed his residence
therein, even before the sale in his favor even before the subdivision of the entire lot No.
535 at the instance of its owner, Eulogio Atillano I. In like manner the latter had his house
on the portion correctly identified, after the subdivision, as lot No. 535-E, even adding to

the area thereof by purchasing a portion of an adjoining property belonging to a different
owner. The two brothers continued in possession of the respective portions the rest of
their lives, obviously ignorant of the initial mistake in the designation of the lot subject of
the 1920 until 1959, when the mistake was discovered for the first time.
The real issue here is not adverse possession, but the real intention of the parties to that
sale. From all the facts and circumstances we are convinced that the object thereof, as
intended and understood by the parties, was that specific portion where the vendee was
then already residing, where he reconstructed his house at the end of the war, and where
his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and
that its designation as lot No. 535-E in the deed of sale was simple mistake in the
drafting of the document.1âwphi1.ñet The mistake did not vitiate the consent of the
parties, or affect the validity and binding effect of the contract between them. The new
Civil Code provides a remedy for such a situation by means of reformation of the
instrument. This remedy is available when, there having been a meeting of the funds of
the parties to a contract, their true intention is not expressed in the instrument purporting
to embody the agreement by reason of mistake, fraud, inequitable conduct on accident
(Art. 1359, et seq.) In this case, the deed of sale executed in 1920 need no longer
reformed. The parties have retained possession of their respective properties
conformably to the real intention of the parties to that sale, and all they should do is to
execute mutual deeds of conveyance.
WHEREFORE, the judgment appealed from is reversed. The plaintiffs are ordered to
execute a deed of conveyance of lot No. 535-E in favor of the defendants, and the latter
in turn, are ordered to execute a similar document, covering lot No. 595-A, in favor of the
plaintiffs. Costs against the latter.
Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
Teehankee and Barredo, JJ., took no part.
Concepcion C.J., and Castro, J., are on leave.
EN BANC
G.R. No. L-9935 February 1, 1915
YU TEK and CO., plaintiff-appellant,
vs.
BASILIO GONZALES, defendant-appellant.
Beaumont, Tenney and Ferrier for plaintiff.
Buencamino and Lontok for defendant.
TRENT, J.:
The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which
follow:
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000
Philippine currency from Messrs. Yu Tek and Co., and that in consideration of
said sum be obligates himself to deliver to the said Yu Tek and Co., 600 piculs
of sugar of the first and second grade, according to the result of the polarization,
within the period of three months, beginning on the 1st day of January, 1912,
and ending on the 31st day of March of the same year, 1912.
2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said
Messrs. Yu Tek and Co., of this city the said 600 piculs of sugar at any place
within the said municipality of Santa Rosa which the said Messrs. Yu Tek and
Co., or a representative of the same may designate.
3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek
and Co. the 600 piculs of sugar within the period of three months, referred to in
the second paragraph of this document, this contract will be rescinded and the
said Mr. Basilio Gonzales will then be obligated to return to Messrs. Yu Tek and
Co. the P3,000 received and also the sum of P1,200 by way of indemnity for
loss and damages.
36
Plaintiff proved that no sugar had been delivered to it under this contract nor had it been
able to recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition,
for P1,200 under paragraph 4, supra. Judgment was rendered for P3,000 only, and from
this judgment both parties appealed.
The points raised by the defendant will be considered first. He alleges that the court
erred in refusing to permit parol evidence showing that the parties intended that the
sugar was to be secured from the crop which the defendant raised on his plantation, and
that he was unable to fulfill the contract by reason of the almost total failure of his crop.
This case appears to be one to which the rule which excludes parol evidence to add to or
vary the terms of a written contract is decidedly applicable. There is not the slightest
intimation in the contract that the sugar was to be raised by the defendant. Parties are
presumed to have reduced to writing all the essential conditions of their contract. While
parol evidence is admissible in a variety of ways to explain the meaning of written
contracts, it cannot serve the purpose of incorporating into the contract additional
contemporaneous conditions which are not mentioned at all in the writing, unless there
has been fraud or mistake. In an early case this court declined to allow parol evidence
showing that a party to a written contract was to become a partner in a firm instead of a
creditor of the firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern
Mining Co. (14 Phil. Rep., 509) a contract of employment provided that the plaintiff
should receive from the defendant a stipulated salary and expenses. The defendant
sought to interpose as a defense to recovery that the payment of the salary was
contingent upon the plaintiff's employment redounding to the benefit of the defendant
company. The contract contained no such condition and the court declined to receive
parol evidence thereof.
In the case at bar, it is sought to show that the sugar was to be obtained exclusively from
the crop raised by the defendant. There is no clause in the written contract which even
remotely suggests such a condition. The defendant undertook to deliver a specified
quantity of sugar within a specified time. The contract placed no restriction upon the
defendant in the matter of obtaining the sugar. He was equally at liberty to purchase it on
the market or raise it himself. It may be true that defendant owned a plantation and
expected to raise the sugar himself, but he did not limit his obligation to his own crop of
sugar. Our conclusion is that the condition which the defendant seeks to add to the
contract by parol evidence cannot be considered. The rights of the parties must be
determined by the writing itself.
The second contention of the defendant arises from the first. He assumes that the
contract was limited to the sugar he might raise upon his own plantation; that the contract
represented a perfected sale; and that by failure of his crop he was relieved from
complying with his undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182,
Civil Code.) This argument is faulty in assuming that there was a perfected sale. Article
1450 defines a perfected sale as follows:
The sale shall be perfected between vendor and vendee and shall be binding on
both of them, if they have agreed upon the thing which is the object of the
contract and upon the price, even when neither has been delivered.
Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has
been perfected, be governed by the provisions of articles 1096 and 1182."
This court has consistently held that there is a perfected sale with regard to the "thing"
whenever the article of sale has been physically segregated from all other articles Thus,
a particular tobacco factory with its contents was held sold under a contract which did not
provide for either delivery of the price or of the thing until a future time.
McCullough vs. Aenlle and Co. (3 Phil. Rep., 295). Quite similar was the recent case
of Barretto vs. Santa Marina (26 Phil. Rep., 200) where specified shares of stock in a
tobacco factory were held sold by a contract which deferred delivery of both the price and
the stock until the latter had been appraised by an inventory of the entire assets of the

company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house was held
perfected between the vendor and vendee, although the delivery of the price was
withheld until the necessary documents of ownership were prepared by the vendee.
In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of
hemp into the warehouse of the defendant. The defendant drew a bill of exchange in the
sum of P800, representing the price which had been agreed upon for the hemp thus
delivered. Prior to the presentation of the bill for payment, the hemp was destroyed.
Whereupon, the defendant suspended payment of the bill. It was held that the hemp
having been already delivered, the title had passed and the loss was the vendee's. It is
our purpose to distinguish the case at bar from all these cases.
In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of
sugar of the first and second classes. Was this an agreement upon the "thing" which was
the object of the contract within the meaning of article 1450, supra? Sugar is one of the
staple commodities of this country. For the purpose of sale its bulk is weighed, the
customary unit of weight being denominated a "picul." There was no delivery under the
contract. Now, if called upon to designate the article sold, it is clear that the defendant
could only say that it was "sugar." He could only use this generic name for the thing sold.
There was no "appropriation" of any particular lot of sugar. Neither party could point to
any specific quantity of sugar and say: "This is the article which was the subject of our
contract." How different is this from the contracts discussed in the cases referred to
above! In the McCullough case, for instance, the tobacco factory which the parties dealt
with was specifically pointed out and distinguished from all other tobacco factories. So, in
the Barretto case, the particular shares of stock which the parties desired to transfer
were capable of designation. In the Tan Leonco case, where a quantity of hemp was the
subject of the contract, it was shown that that quantity had been deposited in a specific
warehouse, and thus set apart and distinguished from all other hemp.
A number of cases have been decided in the State of Louisiana, where the civil law
prevails, which confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and
Co. (122 La., 145; 47 Sou., 444). In this case a contract was entered into by a traveling
salesman for a quantity of shoes, the sales having been made by sample. The court said
of this contract:
But it is wholly immaterial, for the purpose of the main question, whether
Mitchell was authorized to make a definite contract of sale or not, since the only
contract that he was in a position to make was an agreement to sell or an
executory contract of sale. He says that plaintiff sends out 375 samples of
shoes, and as he was offering to sell by sample shoes, part of which had not
been manufactured and the rest of which were incorporated in plaintiff's stock in
Lynchburg, Va., it was impossible that he and Seegars and Co. should at that
time have agreed upon the specific objects, the title to which was to pass, and
hence there could have been no sale. He and Seegars and Co. might have
agreed, and did (in effect ) agree, that the identification of the objects and their
appropriation to the contract necessary to make a sale should thereafter be
made by the plaintiff, acting for itself and for Seegars and Co., and the legend
printed in red ink on plaintiff's billheads ("Our responsibility ceases when we
take transportation Co's. receipt `In good order'" indicates plaintiff's idea of the
moment at which such identification and appropriation would become effective.
The question presented was carefully considered in the case of
State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was absolutely
necessary that it should be decided), and it was there held that in receiving an
order for a quantity of goods, of a kind and at a price agreed on, to be supplied
from a general stock, warehoused at another place, the agent receiving the
order merely enters into an executory contract for the sale of the goods, which
does not divest or transfer the title of any determinate object, and which
37
becomes effective for that purpose only when specific goods are thereafter
appropriated to the contract; and, in the absence of a more specific agreement
on the subject, that such appropriated takes place only when the goods as
ordered are delivered to the public carriers at the place from which they are to
be shipped, consigned to the person by whom the order is given, at which time
and place, therefore, the sale is perfected and the title passes.
This case and State vs. Shields, referred to in the above quotation are amply illustrative
of the position taken by the Louisiana court on the question before us. But we cannot
refrain from referring to the case of Larue and Prevost vs.Rugely, Blair and Co. (10 La.
Ann., 242) which is summarized by the court itself in the Shields case as follows:
. . . It appears that the defendants had made a contract for the sale, by weight,
of a lot of cotton, had received $3,000 on account of the price, and had given an
order for its delivery, which had been presented to the purchaser, and
recognized by the press in which the cotton was stored, but that the cotton had
been destroyed by fire before it was weighed. It was held that it was still at the
risk of the seller, and that the buyer was entitled to recover the $3,000 paid on
account of the price.
We conclude that the contract in the case at bar was merely an executory agreement; a
promise of sale and not a sale. At there was no perfected sale, it is clear that articles
1452, 1096, and 1182 are not applicable. The defendant having defaulted in his
engagement, the plaintiff is entitled to recover the P3,000 which it advanced to the
defendant, and this portion of the judgment appealed from must therefore be affirmed.
The plaintiff has appealed from the judgment of the trial court on the ground that it is
entitled to recover the additional sum of P1,200 under paragraph 4 of the contract. The
court below held that this paragraph was simply a limitation upon the amount of damages
which could be recovered and not liquidated damages as contemplated by the law. "It
also appears," said the lower court, "that in any event the defendant was prevented from
fulfilling the contract by the delivery of the sugar by condition over which he had no
control, but these conditions were not sufficient to absolve him from the obligation of
returning the money which he received."
The above quoted portion of the trial court's opinion appears to be based upon the
proposition that the sugar which was to be delivered by the defendant was that which he
expected to obtain from his own hacienda and, as the dry weather destroyed his growing
cane, he could not comply with his part of the contract. As we have indicated, this view is
erroneous, as, under the contract, the defendant was not limited to his growth crop in
order to make the delivery. He agreed to deliver the sugar and nothing is said in the
contract about where he was to get it.
We think is a clear case of liquidated damages. The contract plainly states that if the
defendant fails to deliver the 600 piculs of sugar within the time agreed on, the contract
will be rescinded and he will be obliged to return the P3,000 and pay the sum of P1,200
by way of indemnity for loss and damages. There cannot be the slightest doubt about the
meaning of this language or the intention of the parties. There is no room for either
interpretation or construction. Under the provisions of article 1255 of the Civil Code
contracting parties are free to execute the contracts that they may consider suitable,
provided they are not in contravention of law, morals, or public order. In our opinion there
is nothing in the contract under consideration which is opposed to any of these principles.
For the foregoing reasons the judgment appealed from is modified by allowing the
recovery of P1,200 under paragraph 4 of the contract. As thus modified, the judgment
appealed from is affirmed, without costs in this instance.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
Johnson, J., dissents
EN BANC

G.R. No. L-31586 February 28, 1972
ERNESTO, FORTUNATA, MONTANO, ZOSIMA, RAMON, GUADALUPE, LUIS,
JOSEFINA and ROSALIA all surnamed YTURRALDE petitioners-appellants,
vs.
THE HONORABLE COURT OF APPEALS, HONORABLE VICENTE G. ERICTA, in his
capacity as Judge of the Court of First Instance of Zamboanga del Sur, and
ISABELO REBOLLOS, respondents-appellees.
Jose A. Ambrosia and Patrio C. Aveñdano for petitioners-appellants.
Geronimo G. Pajarito for respondents-appellees.
MAKASIAR, J.:p
Petitioners-appellants in this appeal by certiorari seek the reversal of the decision of the
Court of Appeals dated December 24, 1969.
The Court of Appeals narrated the facts thus: .
It appears that the spouses Francisco Yturralde and Margarita de los
Reyes, owned a parcel of agricultural land located in Guilinan,
Tungawan, Zamboanga del Sur, containing an area of 14.1079
hectares, more or less, and registered in their names under Original
Certificate of Title No. 2356 of the Office of the Register of Deeds of
Zamboanga del Sur. Sometime in the year 1944, Francisco Yturralde
died intestate, survived by his wife, Margarita de los Reyes, and their
children who are the petitioners herein, Ernesto, Fortunata, Montano,
Zosimo, Ramon, Guadalupe, Luis, Josefina and Rosalia, all surnamed
Yturralde. In 1950, Margarita de los Reyes contracted a second
marriage with her brother-in-law and uncle of the petitioners herein,
Damaso Yturralde .
On May 30, 1952, Damaso Yturralde and Margarita de los Reyes
executed a deed of sale with right of repurchase in favor of the
respondent herein, Isabelo Rebollos, covering the above-mentioned
property in consideration of the sum of P1,715.00. The vendors a
retro failed to exercise the right to repurchase the property within the
three-year period agreed upon, which expired on May 30, 1955. In
1961, Margarita de los Reyes died.
On May 3, 1965, the respondent, Isabelo Rebollos, filed a petition for
consolidation of ownership with the Court of First Instance of
Zamboanga del Sur, docketed as Civil Case No. 436 therein, naming
as respondents in the case the petitioners herein and Damaso
Yturralde (Annex A, Petition). Summons was then issued, and received
on June 17, 1965 by the respondent therein, Damaso, Ernesto,
Fortunata, Montano, Guadalupe, Luis and Rosalia, all surnamed
Yturralde (Annexes C and F, Petition). However, summons could not
be served on three of the respondents therein, Josefina, Zosima and
Ramon Yturralde, as they were no longer residing at their last known
addresses (Annexes B, C and F, Petition). The Judge then presiding
the Court of First Instance of Zamboanga del Sur, Hon. Dimalanes
Buissan, in his order dated October 7, 1965, directed that summons be
served upon the said three respondents therein (Annex C, Petition).
The copies of the petition sent to said three respondents, but returned
without service, were then delivered by Rebollos to the Clerk of Court
of the Court of First Instance of Zamboanga del Sur to complete the
delivery thereof under Section 6 of Rule 13, Rules of Court (Annex D,
Petition). Thereafter, on motion filed by Rebollos to declare the
respondents in the case in default (Annex E, Petition), the Court issued
38
an order dated November 13, 1965, declaring all the respondents
therein in default, after which Rebollos presented his evidence
(Annexes F and G, Petition). On November 20, 1965, the Court
rendered a decision consolidating the ownership of the subject
property in favor of Rebollos, and ordering the Register of Deeds of
Zamboanga del Sur to cancel Original Certificate of Title No. 2356
covering said property and, in lieu thereof, to issue a transfer certificate
of title in the name of Rebollos (Annex H, Petition).
On June 3, 1966, Rebollos filed a motion to order the petitioner
Montano Yturralde herein to surrender and deliver to the Register of
Deeds the owner's duplicate of Original Certificate of Title No. 2356,
which motion was granted by the Court presided at the time by Judge
Antonio Montilla (Annexes I and H, Petition). Due to the failure of
petitioner Montano Yturralde to comply with the order (Annex J) and on
the motion filed by Rebollos, the Court, then presided by the
respondent Judge ordered the arrest of said Montano Yturralde, but
the order of arrest was subsequently lifted on motion filed by Montano
Yturralde (Annexes K, L, M, N, O and P, Petition).
On motion filed by Rebollos, dated January 6, 1969, the respondent
Judge ordered the execution of the judgment in Civil Case No. 436,
and on January 20, 1969, the corresponding writ of execution was
issued (Annexes Q, R and S, Petition). The petitioners herein then filed
a motion for reconsideration of the order granting execution and for the
quashing of the writ of execution, which was denied by the respondent
Judge in his order of March 21, 1969 (Annex T, U, V and W, Petition).
On petition filed by Rebollos, the respondent Judge, ordered the
demolition of all buildings not belonging to said Rebollos found on the
premises in question (Annexes X and Y, Petition).The petitioners then
filed a motion for reconsideration of the order of demolition, which was
denied by the respondent Judge, who, however, on motion of said
petitioners, directed the respondent Sheriff to defer the implementation
of the writ of execution and the order of demolition until after June 23,
1969 (Annexes Z and AA, Petition). Thereafter, the petitioners
instituted the present proceedings.
The petition was given due course by this Court, and on June 19,
1969, a writ of preliminary injunction was issued, restraining the
respondents from enforcing the decision and the orders complained of
in Civil Case No. 436, until further orders. In his answer to the petition
filed by the respondent, Isabelo Rebollos, he averred that on January
3, 1968, he sold the property in question to Pilar M. vda. de Reyes
under a deed of absolute sale and, accordingly, a Transfer Certificate
of Title was issued in favor of said vendee covering the subject
property by the Register of Deeds (Answers and Annexes 4 and 5
thereto).
The case before us is one for prohibition. (Section 2 of Rule 65, Rules
of Court). (Pp. 16-19, rec.).
The Court of Appeals held that the action for prohibition before it seeking to restrain the
enforcement of the decision in Civil Case No. 436 and the implementing orders issued
subsequent thereto by the respondent Judge of the Court of First Instance of Zamboanga
del Sur, will not prosper; because prohibition is a preventive remedy to restrain the
exercise of a power or the performance of an act and not a remedy against acts already
accomplished, which cannot be undone through a writ of prohibition, and in the instant
case, the judgment of the lower trial court consolidates the ownership of the entire

property involved in Civil Case No. 436 in favor of respondent Isabelo Rebollos, orders
the cancellation of the original certificate of title covering the same, and directs the
issuance of a new certificate of title in the name of respondent Rebollos.
By virtue of an absolute deed of sale executed on January 3, 1968 by respondent Isabelo
Rebollos, a new certificate of title was issued in the name of the vendee, Pilar M. Vda. de
Reyes (citing Annexes 4 and 5 of the Answer). The respondent Court of Appeals then
concluded that "As the thing sought to be restrained had already been done, and since a
certificate of title is conclusive evidence of the ownership of the land referred to therein
(Section 47, Act No. 496, as amended; Aldecoa & Co. vs. Warner, Barnes & Co., 30 Phil.
153; Yumul vs. Rivera, et a1., 64 Phil. 13), and the same cannot be collaterally attacked,
but can only be challenged in a direct proceeding (Menderson vs. Garrido, 90 Phil. 624),
prohibition in this case is not the proper remedy." .
Petitioners-appellants claim that the Court of Appeals erred (1) in sustaining the
actuation of the trial court in allowing service of summons upon appellants Josefina,
Zosima and Ramon Yturralde by registered mail pursuant to Section 6, Rule 13, of the
Rules of Court; (2) in sustaining the ruling of the trial court that it properly acquired
jurisdiction over the aforesaid three appellants by virtue of such mode of service of
summons; and (3) in not declaring as null and void the decision of the trial court along
with its implementing orders, at least insofar as the aforenamed three appellants are
concerned on the ground that they were not given their day in court.
The three assigned errors shall be discussed jointly.
I property sold, is not only to have all doubts over the true nature of the transaction
The respondent Court of Appeals erred in holding that the petition for prohibition before it
will not prosper as the act sought to be prevented had already been performed; because
the order for the issuance of the writ of execution, the corresponding writ of execution
and the order for demolition respectively dated January 6, 1969, January 20, 1969 and
May 15, 1969 in Special Civil Case No. 436 were not enforced by the respondent trial
judge, who in his order dated May 26, 1969 directed the provincial sheriff to defer the
implementation thereof (Annex "AA", p. 66, record of C.A. G.R. No. 43310; pp. 19-26,
rec.). The petitioners herein reiterated that they are still in possession of the property in
question, which possession was recognized and protected by the respondent Court of
Appeals itself when it issued the writ of preliminary injunction dated June 19, 1969
against private respondent Isabelo Rebollos pursuant to its resolution dated June 17,
1969 (pp. 67-74, rec. of C.A. G.R. No. 43310).
It should be noted that the petition for prohibition filed with the Court of Appeals prayed
for the issuance of the writ of preliminary injunction.
enjoining herein respondents from enforcing the Decision dated
November 20, 1965, the orders dated January 15, 1969, March 21,
1969, May 15, 1969 and May 26, 1969, Annexes "H", "R", "W", "Y",
and "AA" hereof, and after due hearing ..., the preliminary writ of
injunction be made permanent and so with the writ of prohibition.
Petitioners also pray for such other and further reliefs to which they
may be entitled under the law.
While it is true that the decision in Special Civil Case No. 436 was already rendered,
Original Certificate of Title No. 2356 was cancelled and a new transfer certificate of title
issued in the name of Pilar V. vda. de Reyes by virtue of the deed of absolute sale
executed on January 3, 1968 by private respondent Isabelo Rebollos in her favor; the
writ of execution and the order of demolition, as heretofore stated, were never enforced
by reason of which herein petitioners remain and are still in possession of the land.
Moreover, the general prayer for such other reliefs as herein petitioners may be entitled
to under the law, includes a prayer for the nullification of the decision of November 20,
1965 as well as the questioned orders above-mentioned.
II
39
Unlike the old Civil Code, Article 1607 of the new Civil Code of 1950 provides that
consolidation of ownership in the vendee a retro of real property by virtue of the failure of
the vendor a retro "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." In
the case of Teodoro vs. Arcenas,1 this Court, through Mr. Justice Jose B. L. Reyes, ruled
that under the aforesaid Article 1607 of the new Civil Code, such consolidation shall be
effected through an ordinary civil action, not by a mere motion, and that the vendor a
retro should be made a party defendant, who should be served with summons in
accordance with Rule 14 of the Revised Rules of Court; and that the failure on the part of
the court to cause the service of summons as prescribed in Rule 14, is sufficient cause
for attacking the validity of the judgment and subsequent orders on jurisdictional
grounds.2 The Court in said case stressed that the reason behind the requirement of a
judicial order for consolidation as directed by Article 1067 of the new Civil Code is
because "experience has demonstrated too often that many sales with right of re-
purchase have been devised to circumvent or ignore our usury laws and for this reason,
the law looks upon them with disfavor (Report of the Code Commission, pp. 63-64).
When, therefore, Article 1607 speaks of a judicial order after the vendor shall have been
duly heard, it contemplates none other than a regular court proceeding under the
governing Rules of Court, wherein the parties are given full opportunity to lay bare before
the court the real covenant. Furthermore, the obvious intent of our Civil Code, in requiring
a judicial confirmation of the consolidation in the vendee a retro of the ownership over the
speedily ascertained, and decided, but also to prevent the interposition of buyers in good
faith while such determination is being made. Under the former method of consolidation
by a mere extrajudicial affidavit of the buyer a retro, the latter could easily cut off any
claims of the seller by disposing of the property, after such consolidation, to strangers in
good faith and without notice. The chances of the seller a retro to recover his property
would thus be nullified, even if the transaction were really proved to be a mortgage and
not a sale." 3
The doctrine in the aforesaid case of Teodoro vs. Arcenas was reiterated by this
Supreme Tribunal through Mr. Justice Jose P. Bengzon in the case of Ongcoco, et al. vs.
Honorable Judge, et al. 4
The jurisdiction over the persons of herein petitioners Josefina, Zosima and Ramon all
surnamed Yturralde, was not properly acquired by the court because they were not
properly served with summons in the manner directed by Rule 14 of the Revised Rules of
Court. The said three petitioners cannot therefore be legally declared in default. Rule 13
of the Revised Rules of Court on service and filing of pleadings and other papers with the
court, does not apply to service of summons. Rule 14 of the Revised Rules of Court on
service of summons, which should govern, provides that "upon the filing of the complaint,
the Clerk of Court shall forthwith issue the corresponding summons to the defendants"
(Section 1, Rule 14), which summons shall be served by the sheriff or other proper court
officer or for special reason by any person specially authorized by the court issuing the
summons by personally handing a copy of the same to the defendants (Sections 5 & 7,
Rule 14). If the residence of the defendant is unknown or cannot be ascertained by
diligent inquiry or if the defendant is residing abroad, service may be made by publication
in a newspaper of general circulation in accordance with Sections 16 & 17, Rule 14. 5 The
sheriff or private respondent Isabelo Rebollos himself should have made a diligent
inquiry as to the whereabouts of the three petitioners aforementioned. The trial court
could have directed such an inquiry, which would have disclosed that petitioners
Josefina, Ramon and Zosima reside respectively at Sibugey in Zamboanga del Sur,
Roxas Street in Basilan City, and Washington, D.C., U.S.A. There is no showing that
such a diligent inquiry was made to justify a substituted service of summons by
publication. The return dated June 18, 1965, of the acting chief of police of Tungawan,

Zamboanga del Sur, to the clerk of court and ex-officio provincial sheriff "that Josefina,
Zosima and Ramon are no longer residing in this municipality" (Annex "B" to Petition of
Court of Appeals, p. 20, rec. of C.A. G.R. No. 43310), does not suffice to indicate that a
careful investigation of their whereabouts was made. And even if it did, substituted
service of summon by publication should have been required. Aside from the fact that the
said return of service is a nullity as it is not under oath, there is no showing even that the
acting chief of police was especially authorized by the court to serve the summons
(Sections5 & 20, Rule 14, Revised Rules of Court.)6
To emphasize, Section 3 of Rule 14 of the Revised Rules of Court commands the service
of summons together with a copy of the petition, on each of the defendants who must be
specifically named in the summons, upon the filing of such petition, like the petition in
Special Civil Case No. 436 filed by privaterespondent Isabelo Rebollos for consolidation
of ownership over the lot coveredby Original Certificate of Title No. 2356 in the name of
"Francisco Yturralde married to Margarita de los Reyes." .
III
The action for consolidation should be brought against all the indispensable parties,
without whom no final determination can be had of the action; and such indispensable
parties who are joined as party defendants must be properly summoned pursuant to Rule
14 of the Revised Rules of Court. If anyone of the party defendants, who are all
indispensable parties is not properly summoned, the court acquires no jurisdiction over
the entire case and its decision and orders therein are null and void. 7
The pacto de retro sale executed by Margarita de los Reyes "casada en segundas
nuptias con Damaso Yturralde," expressly stipulates that she only sold all her rights,
interests and participation in the lot covered by O.C.T. No. 2356 (Annex "I", p. 66, rec.).
Margarita therefore, could not, for she had no right to, sell the entire lot, which is
registered under O.C.T. No. 2356 "inthe name of Francisco Yturralde married to
Margarita de los Reyes." Said lot is acknowledge by herein petitioners as the conjugal
property of Francisco and Margarita (p. 2, rec. of C.A. G.R. No. 43310). What she validly
disposed of under the aforesaid pacto de retro sale of 1952 was only her conjugal share
in the lot plus her successional right as heir in the conjugal share of her deceased
husband Francisco.
Consequently, the vendee a retro, Isabelo Rebollos, cannot legally petition for the
consolidation of his ownership over the entire lot.
But in the petition he filed in Special Civil Case No. 436 on May 3, 1965 against herein
nine petitioners as children and heirs of the deceased spouses Francisco Yturralde (who
died in 1944) and Margarita de los Reyes (who died in 1961), and Damaso Yturralde,
stepfather of herein petitioners, Rebollos prayed for the consolidation of his ownership
over the entire lot covered by O.C.T. No. 2356, and not merely over the interest
conveyed to him by Margarita. As the petition of private respondent Rebollos sought to
divest all of them of their undivided interest in the entire agricultural land, which undivided
interest was never alienated by them to Rebollos, herein petitioners became
indispensable parties. Rebollos himself acknowledged that they are indispensable
parties, for he included them as party-defendants in his petition in order to acquire their
undivided interest in the lot. While summons were served properly on all the other
defendants in said Civil Case No. 436, herein petitioners Josefina, Zosima and Ramon
were not so served. Because of such failure to comply with Rule 14 of the Revised Rules
of Court on service of summons on indispensable parties, as heretofore stated, the
trialcourt did not validly acquire jurisdiction over the case; because no complete and final
determination of the action can be had without the aforesaid three petitioners Josefina,
Zosima and Ramon.
The petition for consolidation filed by herein private respondent Rebollos is similar in
effect to an action for partition by a co-owner, wherein each co-owner is an indispensable
party; for without him no valid judgment for partition may be rendered. 8
40
That the three children, herein petitioners Josefina, Zosima and Ramon, are essential
parties, without whom no valid judgment may be rendered, is further underscored by the
fact that the agricultural land in question was owned by them in common and pro indiviso
with their mother and their brothers and sisters and was not then as now physically
partitioned among them.
For attempting to acquire the entire parcel by foisting upon the court the
misrepresentation that the whole lot was sold to him, private respondent Isabelo Rebollos
must suffer the consequences of his deceit by the nullification of the entire decision in his
favor granting the consolidation of his title over the entire land in question. This Court
condemns such deception.
It should be noted that herein petitioners in 1967 also filed an action against only Isabelo
Rebollos for the recovery of ownership, annulment of judgment, redemption and
damages in the Court of First Instance of Zamboanga del Sur docketed as Civil Case No.
944 and entitled "Fortunata Yturralde, et al. vs. Rebollos" (pp. 76, 84-96, rec. of C.A.
G.R. No. 43310).
In their complaint in said Civil Case No. 944 dated May 23, 1967 (pp. 117-124, rec. of
C.A. G.R. No. 43310), herein petitioners allege inter alia that the respondent trial court (in
Special Civil Case No. 436) had no jurisdiction over their share in the aforementioned lot
through a "summary proceedings without notice to them" (pp. 88-89, rec. of C.A. G.R.
No. 43310).
Herein petitioners should amend their complaint in Civil Case No. 944 so as toinclude
Pilar V. vda. de Reyes party defendant therein in order that they can obtain a full and
complete valid judgment in the same action; because the vendee is an indispensable
party. 9
It is a curious fact that Rebollos filed his petition for consolidation of title only on May 3,
1965, almost ten years after the redemption period expiredon May 30, 1955, and about
four years after the death in 1961 of the vendor a retro.
lt is equally interesting to note that after herein petitioners filed in 1967 an action against
Rebollos for the recovery of ownership, annulment of judgment, redemption and
damages, Rebollos sold on January 3, 1968 the land in question to Pilar V. vda. de
Reyes, with the deed of sale duly notarized by Atty. Geronimo G. Pajarito, counsel for
Rebollos in Special Civil Case No. 436 (pp. 16-17, 22-25, 31, 42, 44-47, 51, 56, 59, 61-
62, 93, rec. of C.A. G.R. No. 43310).
But more intriguing is the fact that, after Rebollos sold on January 3, 1968 the land to
Pilar V. vda. de Reyes, Rebollos himself, not his vendee, filed:
(1) a motion dated January 6, 1969 for the issuance of a writ of
execution from the judgment in Special Civil Case No. 436, by reason
of which the corresponding writ of execution was issued on January
20, 1969; .
(2) an opposition to the motion of herein petitioners for the
reconsideration of the aforesaid order of January 20, 1969; and .
(3) a motion dated April 7, 1969 for execution and demolition of the
buildings of herein petitioners (pp, 61-62, rec. of CA-G.R. No. 43310).
WHEREFORE, judgment is hereby rendered reversing the decision of respondent Court
of Appeals dated December 24, 1969, and setting aside as null and void .
(1) the decision of the respondent trial judge dated November 20, 1965; .
(2) the order for the issuance of the writ of execution dated January 6, 1969; .
(3) the writ of execution dated January 20, 1969; and .
(4) the order of demolition dated May 15, 1969 in Special Civil Case No. 436; .
without prejudice to the final outcome of Civil Case No. 944.
With costs against private respondent Isabelo Rebollos.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee,
Barredo and Villamor, JJ., concur.

EN BANC
G.R. No. L-11827 July 31, 1961
FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO.,
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because the claims
involved aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or
in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan
Group, situated in the municipality of Jose Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted
and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact
to enter into a contract with any individual or juridical person for the exploration and
development of the mining claims aforementioned on a royalty basis of not less than
P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn
executed a general assignment (Record on Appeal, pp. 17-19) conveying the
development and exploitation of said mining claims into the Larap Iron Mines, a single
proprietorship owned solely by and belonging to him, on the same royalty basis provided
for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of
the mining claims in question, opening and paving roads within and outside their
boundaries, making other improvements and installing facilities therein for use in the
development of the mines, and in time extracted therefrom what he claim and estimated
to be approximately 24,000 metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided to revoke the authority granted by
him to Gaite to exploit and develop the mining claims in question, and Gaite assented
thereto subject to certain conditions. As a result, a document entitled "Revocation of
Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit
"A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10%
of the royalties that Fonacier would receive from the mining claims, all his rights and
interests on all the roads, improvements, and facilities in or outside said claims, the right
to use the business name "Larap Iron Mines" and its goodwill, and all the records and
documents relative to the mines. In the same document, Gaite transferred to Fonacier all
his rights and interests over the "24,000 tons of iron ore, more or less" that the former
had already extracted from the mineral claims, in consideration of the sum of
P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid
from and out of the first letter of credit covering the first shipment of iron ores
and of the first amount derived from the local sale of iron ore made by the Larap
Mines & Smelting Co. Inc., its assigns, administrators, or successors in
interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised to execute
in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite
a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap
Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas,
Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite
testified, however, that when this bond was presented to him by Fonacier together with
the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954,
41
he refused to sign said Exhibit "A" unless another bond under written by a bonding
company was put up by defendants to secure the payment of the P65,000.00 balance of
their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond,
also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first
bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety,
but it provided that the liability of the surety company would attach only when there had
been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not
less then P65,000.00, and that, furthermore, the liability of said surety company would
automatically expire on December 8, 1955. Both bonds were attached to the "Revocation
of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the
two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit
"A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and
conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and
explore the mining claims in question, together with the improvements therein and the
use of the name "Larap Iron Mines" and its good will, in consideration of certain royalties.
Fonacier likewise transferred, in the same document, the complete title to the
approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap &
Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far
Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron
ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00
balance of the price of said ore been paid to Gaite by Fonacier and his sureties payment
of said amount, on the theory that they had lost right to make use of the period given
them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And
when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the
present complaint against them in the Court of First Instance of Manila (Civil Case No.
29310) for the payment of the P65,000.00 balance of the price of the ore, consequential
damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that the obligation
sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be
payable out of the first letter of credit covering the first shipment of iron ore and/or the
first amount derived from the local sale of the iron ore by the Larap Mines & Smelting
Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had been
made, hence the condition had not yet been fulfilled; and that consequently, the
obligation was not yet due and demandable. Defendant Fonacier also contended that
only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was actually
delivered, and counterclaimed for more than P200,000.00 damages.
At the trial of the case, the parties agreed to limit the presentation of evidence to two
issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00
become due and demandable when the defendants failed to renew the surety bond
underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which
expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant
Fonacier were actually in existence in the mining claims when these parties executed the
"Revocation of Power of Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of the defendants to pay
plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore
was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by
defendants, such sale to be effected within one year or before December 8, 1955; that
the giving of security was a condition precedent to Gait's giving of credit to defendants;

and that as the latter failed to put up a good and sufficient security in lieu of the Far
Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation
became due and demandable under Article 1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff Gaite did have
approximately 24,000 tons of iron ore at the mining claims in question at the time of the
execution of the contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to
pay him, jointly and severally, P65,000.00 with interest at 6% per annum from December
9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to this
Court.
During the pendency of this appeal, several incidental motions were presented for
resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and
George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss
the appeal as having become academic and a motion for new trial and/or to take judicial
notice of certain documents, filed by appellee Gaite. The motion for contempt is
unmeritorious because the main allegation therein that the appellants Larap Mines &
Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is
"property in litigation", has not been substantiated; and even if true, does not make these
appellants guilty of contempt, because what is under litigation in this appeal is appellee
Gaite's right to the payment of the balance of the price of the ore, and not the iron ore
itself. As for the several motions presented by appellee Gaite, it is unnecessary to
resolve these motions in view of the results that we have reached in this case, which we
shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay
appellee Gaite the P65,000.00 (balance of the price of the iron ore in question) is one
with a period or term and not one with a suspensive condition, and that the term expired
on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5 tons in the
stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the contract Exhibit
"A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F.
Fonacier all his rights and interests over the 24,000 tons of iron ore, more or
less, above-referred to together with all his rights and interests to operate the
mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS
(P75,000.00) which the latter binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this
agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid
from and out of the first letter of credit covering the first shipment of iron ore
made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or
successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale of
the iron ore is not a condition precedent (or suspensive) to the payment of the balance of
P65,000.00, but was only a suspensive period or term. What characterizes a conditional
obligation is the fact that its efficacy or obligatory force (as distinguished from its
demandability) is subordinated to the happening of a future and uncertain event; so that if
the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. That the parties to the contract Exhibit "A" did
not intend any such state of things to prevail is supported by several circumstances:
1) The words of the contract express no contingency in the buyer's obligation to pay:
"The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first
42
letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty
that the payment will have to be made sooner or later; what is undetermined is merely
the exact date at which it will be made. By the very terms of the contract, therefore, the
existence of the obligation to pay is recognized; only its maturity or demandability is
deferred.
2) A contract of sale is normally commutative and onerous: not only does each one of the
parties assume a correlative obligation (the seller to deliver and transfer ownership of the
thing sold and the buyer to pay the price),but each party anticipates performance by the
other from the very start. While in a sale the obligation of one party can be lawfully
subordinated to an uncertain event, so that the other understands that he assumes the
risk of receiving nothing for what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of business to do so; hence, the
contingent character of the obligation must clearly appear. Nothing is found in the record
to evidence that Gaite desired or assumed to run the risk of losing his right over the ore
without getting paid for it, or that Fonacier understood that Gaite assumed any such risk.
This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the
P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and
the company's stockholders, but also on one by a surety company; and the fact that
appellants did put up such bonds indicates that they admitted the definite existence of
their obligation to pay the balance of P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment
of the ore as a condition precedent, would be tantamount to leaving the payment at the
discretion of the debtor, for the sale or shipment could not be made unless the appellants
took steps to sell the ore. Appellants would thus be able to postpone payment
indefinitely. The desireability of avoiding such a construction of the contract Exhibit "A"
needs no stressing.
4) Assuming that there could be doubt whether by the wording of the contract the parties
indented a suspensive condition or a suspensive period (dies ad quem) for the payment
of the P65,000.00, the rules of interpretation would incline the scales in favor of "the
greater reciprocity of interests", since sale is essentially onerous. The Civil Code of the
Philippines, Article 1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
and there can be no question that greater reciprocity obtains if the buyer' obligation is
deemed to be actually existing, with only its maturity (due date) postponed or deferred,
that if such obligation were viewed as non-existent or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore to Fonacier was a sale
on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk
of not being paid at all; and that the previous sale or shipment of the ore was not a
suspensive condition for the payment of the balance of the agreed price, but was
intended merely to fix the future date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier and his
sureties, still have the right to insist that Gaite should wait for the sale or shipment of the
ore before receiving payment; or, in other words, whether or not they are entitled to take
full advantage of the period granted them for making the payment.
We agree with the court below that the appellant have forfeited the right court below that
the appellants have forfeited the right to compel Gaite to wait for the sale of the ore
before receiving payment of the balance of P65,000.00, because of their failure to renew
the bond of the Far Eastern Surety Company or else replace it with an equivalent
guarantee. The expiration of the bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as creditor for the unpaid
P65,000.00, a security that Gaite considered essential and upon which he had insisted
when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case

squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the
Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or securities which
he has promised.
(3) When by his own acts he has impaired said guaranties or securities after
their establishment, and when through fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its expiration
plainly impaired the securities given to the creditor (appellee Gaite), unless immediately
renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance of the surety
company's bond with full knowledge that on its face it would automatically expire within
one year was a waiver of its renewal after the expiration date. No such waiver could have
been intended, for Gaite stood to lose and had nothing to gain barely; and if there was
any, it could be rationally explained only if the appellants had agreed to sell the ore and
pay Gaite before the surety company's bond expired on December 8, 1955. But in the
latter case the defendants-appellants' obligation to pay became absolute after one year
from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in
demanding payment and instituting this action one year from and after the contract
(Exhibit "A") was executed, either because the appellant debtors had impaired the
securities originally given and thereby forfeited any further time within which to pay; or
because the term of payment was originally of no more than one year, and the balance of
P65,000.00 became due and payable thereafter.
Coming now to the second issue in this appeal, which is whether there were really
24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and
whether, if there had been a short-delivery as claimed by appellants, they are entitled to
the payment of damages, we must, at the outset, stress two things: first, that this is a
case of a sale of a specific mass of fungible goods for a single price or a lump sum, the
quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being
a mere estimate by the parties of the total tonnage weight of the mass; and second, that
the evidence shows that neither of the parties had actually measured of weighed the
mass, so that they both tried to arrive at the total quantity by making an estimate of the
volume thereof in cubic meters and then multiplying it by the estimated weight per ton of
each cubic meter.
The sale between the parties is a sale of a specific mass or iron ore because no
provision was made in their contract for the measuring or weighing of the ore sold in
order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by
the parties based upon any such measurement.(see Art. 1480, second par., New Civil
Code). The subject matter of the sale is, therefore, a determinate object, the mass, and
not the actual number of units or tons contained therein, so that all that was required of
the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass,
notwithstanding that the quantity delivered is less than the amount estimated by them
(Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872,
applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite
did not deliver to appellants all the ore found in the stockpiles in the mining claims in
questions; Gaite had, therefore, complied with his promise to deliver, and appellants in
turn are bound to pay the lump price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a
definite mass, but approximately 24,000 tons of ore, so that any substantial difference in
43
this quantity delivered would entitle the buyers to recover damages for the short-delivery,
was there really a short-delivery in this case?
We think not. As already stated, neither of the parties had actually measured or weighed
the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate
their respective claims only upon an estimated number of cubic meters of ore multiplied
by the average tonnage factor per cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles
of ore that he sold to Fonacier, while appellants contend that by actual measurement,
their witness Cirpriano Manlañgit found the total volume of ore in the stockpiles to be only
6.609 cubic meters. As to the average weight in tons per cubic meter, the parties are
again in disagreement, with appellants claiming the correct tonnage factor to be 2.18
tons to a cubic meter, while appellee Gaite claims that the correct tonnage factor is about
3.7.
In the face of the conflict of evidence, we take as the most reliable estimate of the
tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the
Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to
the States and a mining engineering graduate of the Universities of Nevada and
California, with almost 22 years of experience in the Bureau of Mines. This witness
placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as
minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the
average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1")
by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining
claims involved at the request of appellant Krakower, precisely to make an official
estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made
by appellant's witness Cipriano Manlañgit is correct, if we multiply it by the average
tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not
very far from the estimate of 24,000 tons made by appellee Gaite, considering that actual
weighing of each unit of the mass was practically impossible, so that a reasonable
percentage of error should be allowed anyone making an estimate of the exact quantity
in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly
stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging &
Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle appellants to the
payment of damages, nor could Gaite have been guilty of any fraud in making any
misrepresentation to appellants as to the total quantity of ore in the stockpiles of the
mining claims in question, as charged by appellants, since Gaite's estimate appears to
be substantially correct.
WHEREFORE, finding no error in the decision appealed from, we hereby affirm the
same, with costs against appellants.
Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon and
Natividad, JJ., concur.
EN BANC
G.R. No. L-21921 October 4, 1924
ATKINS, KROLL & COMPANY, INC., plaintiff-appellant,
vs.
SANTIAGO DOMINGO, defendant-appellee.
W. A. Armstrong for appellant.
Pablo Lorenzo and Laurel, Alas & De la Rosa for appellee.
STREET, J.:

This action was instituted in the Court of First Instance of Zamboanga by Atkins, Kroll &
Company, Inc., against Santiago Domingo, for the purpose of enforcing recognition of its
alleged right of ownership over lot No. thirty-eight (38) of the cadastral plan of the
Zamboanga townsite, expediente No. 7880, and to recover possession of the same from
the defendant, and at the same time to secure a partition of lots Nos. 36 and 55 in the
same plan, according to the proportional interests pertaining to the plaintiff and defendant
as joint owners thereof. Upon hearing the cause the trial court entered a judgment
recognizing the rights of the plaintiff as tenant in common with the defendant in respect to
the land in all of said lots to the full extent claimed by the plaintiff and made an
appropriate order for a division thereof, but the court at the same time held that the
buildings on lots Nos. 36 and 38 are of the exclusive ownership of the defendant,
Santiago Domingo, and that before the plaintiff can obtain possession of said buildings
the defendant is entitled to be reimbursed for their value, which the court fixed at
P18,000, in accordance with article 361 of the Civil Code. At the same time the court
denied the right of the plaintiff to recover any part of the rents received by the defendant
for said houses, though it recognized the obligation of the defendant to reimburse the
plaintiff for the defendant's share of the taxes paid by the plaintiff on all of the properties.
From this judgment the plaintiff appealed, and under its assignment of error so much of
the decision is called in question as relates to the title to the buildings on lost Nos. 36 and
38 and to the right of the plaintiff to an accounting for rents which have been collected
exclusively by the defendant on all of the lots.
The appeal is concerned principally with the question of the title to the improvements on
lots Nos. 36 and 38, as distinguished from the title to the land, and the manner in which
this question arises can be most readily exhibited in brief history of the registered title.
On June 24, 1912, the Court of Land Registration, sitting in the Province of Zamboanga,
adjudicated the three lots already mentioned, Nos. 36, 38, and 55, to Buenaventura
Domingo. No mention was made in the decision of the improvements on said lots, but
when the corresponding decrees of registration were issued on October 4, thereafter, the
words "with all the improvements existing thereon" were inserted, as is the common
practice in cases where the improvements have not been expressly declared by the court
to belong to some other person than the owner of the land. The same phrase appeared
in the respective certificates of title covering the lots, with the result that according to the
Torrens certificates Buenaventura Domingo was the owner not only of each of said lots
but also of the improvements existing thereon.
Buenaventura Domingo died intestate on October 21, 1912, leaving a widow and a
number of children and grandchildren as heirs. One of his sons, namely, Santiago
Domingo, the defendant in this case, qualified on October 29, 1914, as administrator of
his estate. Another son, named Leon Domingo, died on August 21, 1913, and Santiago
Domingo likewise qualified as administrator of Leon's estate. In the course of the
administration of the estate of Buenaventura Domingo, the defendant, as his
administrator, submitted a project of partition to the court, in which lots Nos. 36, 38 and
55 are mentioned as properties pertaining to the decedent. In this project no mention was
made of improvements on any of said lots with the exception of a small house of strong
materials on lot No. 38, the title to which is not in question and may be dismissed from
consideration. On August 8, 1918, the court duly approved the project of partition. No
objection to this action appears to have been made by any person interested in the
estate.
The share of Santiago Domingo in his father's estate, so far as affects lots Nos. 36 and
55, has remained undisturbed and said interest is still vested in him. It is different with lot
No. 38, for on February 17, 1922, the said Santiago Domingo sold his entire interest in lot
No. 38, "with all the improvements existing thereon," by contract of sale with pacto de
retro to one Ong Kong. The interest thus sold was subject to repurchase within the period
of one year, but redemption was never effected; and on February 17, 1923, the property
44
was duly consolidated in Ong Kong. On February 19, 1923, Ong Kong sold his entire
interest in the lot and improvements thereon to the present plaintiff, Atkins, Kroll & Co.
The shares pertaining to the other heirs in lots Nos. 36, 38, and 55 suffered a number of
mutations as to ownership; but in the end, through various transactions, the authenticity,
legality, and good faith of which are not questioned either in the pleadings or in the proof,
all of said interests came to rest in the plaintiff, Atkins, Kroll & Co. Each step in all of
these mutations of title was accompanied by the corresponding proper changes in the
Torrens certificates of title Nos. 3433, 3843, 3435, showing the present ownership of the
lots and improvements. From these certificates it appears that the plaintiff, Atkins, Kroll &
Co. is the owner of three-fourths of lot No. 36, with the improvements thereon; of the
whole of lot No. 38, with the improvements thereon; and of three-fourths of lot No. 55,
excluding the improvements.
It appears that the defendant, Santiago Domingo, is now in possession of said property
and has at all times been in possession since the plaintiff acquired its interest therein,
and he has during the same period exclusively enjoyed the use of all the lots, with the
income derived from the buildings thereon. This circumstance, coupled with this refusal
to admit the plaintiff's claim as coowner, resulted, as already stated, in the institution of
the present action by the plaintiff, for the purpose of recovering possession of lot No. 38
and to secure a partition of lots Nos. 36 and 55, with an accounting for the plaintiff's
proper proportion of the profits. This brings us to consider the origin and nature of the
defendant's claim to the exclusive ownership of the buildings on lots Nos. 36 and
38. 1awph!l.net
In this connection it appears that the buildings referred to were erected in the latter
months of the year 1912 and first half of 1913, and the defendant asserts that they were
built by him with his own money and with the consent of his father. Upon this
circumstance in connection with article 361 and related provisions of the Civil Code, the
defendant bases his claim to the exclusive ownership of said buildings.
We note that this claim was first put forth by the defendant in what he called an
explanatory report submitted to the court in the administration of the estate of
Buenaventura Domingo on February 1, 1919. In that writing the defendant asked that the
buildings on lots Nos. 36 and 38 be segregated from the mass of the property left by his
father and that he himself be declared to be the exclusive owner of the buildings. This
move was opposed by Zoila Domingo, a daughter and sole heir of Leon Domingo. In the
end the court, upon July 19, 1922, entered a resolution ignoring the defendant's claim
and ordering that the project of partition be carried into effect. If it be true, as the
defendant claims, that the houses referred to were built with his money, it must strike one
as remarkably strange that he should have waited for nearly seven years, or until
February 1, 1919, before formulating his claim or taking any step whatever to protect his
title to said buildings.
But assuming, as we may, that the buildings in question were in fact constructed by the
defendant with his own money, and with the consent of his father as owner of the land, it
is clear that the defendant's right to the buildings in controversy has been lost, except in
so far as he is owner of an undivided one-fourth interest by inheritance; and the interests
of the two parties to this litigation in the properties in question must be taken to be
exactly as they are stated in the existing certificates of title. This results from the fact that
the plaintiff is a purchaser for value who has acquired the interests shown on the existing
Torrens certificates upon the faith of the registered title, and the defendant is in no
position to arrest the effect of these documents.
But is it insisted that the plaintiff has been affected with the notice of the defendant's right
by the filing of a lis pendens. This requires a few words of explanation. Going back to
August 18, 1920, we find that on said date the defendant filed with the register of deeds a
notice of lis pendens, setting forth his claim of ownership as to the improvements in
question, and referring to the controversy planted in his explanatory report in the

administration proceedings. Notice of said lis pendens was noted on the back of the
corresponding certificates of title. Upon the date stated the plaintiff had already acquired
a mortgage upon the interest of Zoila Domingo in the estate of her grandfather,
Buenaventura Domingo; and by the foreclosure of that mortgage all of her interest in lots
Nos. 36 and 38 became vested in the plaintiff as purchaser. The remaining interests
acquired by the plaintiff in the same properties appear to have been acquired by it after
the notice of lis pendens was filed.
As will be seen, the filing of the lis pendens was intended to affect third persons with
notice of the claim which the defendant had asserted in his explanatory report in the
proceedings over the state of Buenaventura Domingo. But it will be remembered that the
efforts of the defendant to get his claim recognized in those proceedings completely
failed of effect. For this reason the lis pendens must be considered to have lost its
efficacy. The effect of notice by lis pendens is, of course, to charge the stranger with
notice of the particular litigation referred to in the notice, and, if the notice is effective, the
stranger who acquires the property affected by the lis pendens takes subject to the
eventuality of the litigation. But when the adverse right fails in such litigation, the lis
pendens becomes innocuous.
It should be noted that the defendant, supposing his claim to have been made in good
faith, might have protected it, at any time before the property had passed into the hands
of a third person, by a proceeding under section 112 of Act No. 496. Said section
declares that any person may at any time apply by petition to the court, where "new
interests have arisen or been created which do not appear upon the certificate," and
procure such interests to be noted. Such a petition must be filed and entitled in the
original case in which the decree of registration was entered. (Sec. 112, par. 2, Act No.
496.)
In Blass vs. De la Cruz and Melendres (37 Phil., 1), this court held that the registration of
land in the name of a particular person vests in him not only the title to the land but also
the title to the improvements thereon, unless special reservation is noted with respect to
the improvements. In that case the improvements which became the subject of
controversy had been placed on the land before it was registered and the decree of
registration was res judicata as to the improvements. In the case before us the buildings
which are the subject of controversy were placed on the land after the decree of
registration. This circumstance made a proceeding under section 12 of Act No. 496 all
the more necessary in order to protect the new interest thus created. So far as registered
land is concerned, the right recognized in article 361 and related provisions of the Civil
Code is subject to the contingency that it shall be noted in the registered title before the
property passes into the hand of a purchaser for value.
The considerations so far adduced apply alike to the improvements on lots Nos. 36 and
38, but there is another circumstance which is fatal to the defendant's claim to any of the
improvements on lot No. 38. This is found in the fact that he sold his interest in said lot,
including the improvements, to Ong Kong, the plaintiff's predecessor in interest. It is
evident that the defendant is estopped by his own deed from claiming any interest in the
buildings on this lot, whatever might have been the law governing his claim to the
buildings on the other lot.
From what has been said it is evidence that the trial court was in error in declaring the
defendant to be the owner of the buildings on lots Nos. 36 and 38 and in failing to require
the defendant to account; and in order to clarify the situation we declare: (1) That the
ownership of the lots Nos. 36, 38, and 55, is as stated in the Torrens certificates of title
Nos. 3433, 3843, and 3435 (Exhibits A, B, and C of the plaintiff); (2) that the plaintiff is
entitled to possession of lot No. 38 and that partition must be made of lots Nos. 36 and
55 in the manner provided by law; (3) the plaintiff is further entitled to recover of the
defendant such portion of the defendant and which shall have been paid by the plaintiff;
45
(4) the plaintiff shall also recover of the defendant such portion of the rents of said
properties as correspond to the interests of the plaintiff since its acquisition of the same.
The judgment will be reversed and the cause remanded for further proceedings in
conformity with this opinion, without express pronouncement as to costs. So ordered.
Johnson, Malcolm, Avanceña, Villamor, Ostrand and Romualdez, JJ., concur.
FIRST DIVISION
G.R. No. L-45252 January 31, 1985
TIMOTEO LAROZA and CONCHITA URI, plaintiffs-appellants,
vs.
DONALDO GUIA, defendant-appellee.
RELOVA, J.:
Action to quiet title filed by appellants Timoteo Laroza and Conchita Uri in the then Court
of First Instance of Laguna and San Pablo City versus appellee Donaldo Guia over a
parcel of land described as follows:
Isang (1) lagay na lupang tirikan at niyugan na natatayo sa Nayon ng
San Francisco, Lunsod ng San Pablo; may luwang na 200 metrong
parisukat humigit kumulang ang tirikan at 2210 na metrong parisukat,
humigit kumulang ang niyugan. May tanim na 46 puno ng niyog at 29
puno ng lanzones na pawang nabunga. Ang kabalantay sa SE-
Remedios Bautista; sa SW Provincial Road; sa SW at SE-Maria Umali
at sa NW Buenaventura Guia Ito ay hinahalagahan ng Pamahalaan ng
P730.00 para sa taong kasalukuyan at ito ay mayroong Katibayan sa
pagmamay-ari Blg. 31068. Ang mga hangganan nito ay may
palatandaang buhay na madre-cacao. (pp. 4-5, Record on Appeal)
Appellants, in their complaint, alleged that they bought the above-described property in
good faith and for valuable considerations from Francisco Guia on June 30, 1973, after
they had seen the documents of ownership of said Francisco Guia which consisted of the
following:
(a) Deed of Extra-Judicial Partition executed before Notary Public
Alfonso Farcon of San Pablo City dated August 5, 1961. Copy of which
is hereto attached as Annex "B;"
(b) Deed of Absolute Sale executed by Manuel Guia in favor of
Francisco Guia, Buenaventura Guia and Felimon Guia, dated March 5,
1940 executed before Notary Public Enrique Estrellado of San Pablo
City, and duly registered with the Register of Deeds of Sta. Cruz,
Laguna on March 8, 1940, copy of which is hereto attached as Annex
"C;"
(c) Deed of Donation Inter Vivos executed by Cayetana Garcia dated
March 5, 1940 executed before Notary Public Enrique Estrellado of
San Pablo City, copy of which is hereto attached as Annex "D" (P. 6,
Record on Appeal);
that they were in continuous possession of the said property from the time they acquired
the same from Francisco Guia until appellee, "through the commissioners appointed by
this Honorable Court in Civil Case No. SP-488, namely: Aproniano Mls. Magsino, Clerk
of Court; Rogaciano Borja, Deputy Clerk of Court; Atty. Ricardo Fabros, then represented
by Mr. Armadilla; and, Engr. Danilo Dichoso, the surveyor, intruded upon the said
peaceful possession by attempting to survey the above-described property and to
partition the same by virtue of a decision of this Honorable Court dated December 29,
1966 in Civil Case No. SP-488; that the attempt of herein defendant to survey and
partition the above-described property beclouds the title of herein plaintiffs for which
reason, they were constrained to institute the present action with the assistance of

counsel at the agreed amount of P5,000.00 and were compelled to incur litigation
expenses of not less than P500.00." (p. 7, Record on Appeal)
Appellee, through counsel, filed a motion to dismiss the complaint alleging, among
others, "that the land subject matter of the complaint has already been the subject of a
final and executory judgment in Civil Case No. SP-488, hence, plaintiffs (appellants)
have no cause of action, or if there be any, the same is barred by a prior judgment." (p.
39, Record on Appeal)
Appellants opposed the motion to dismiss maintaining that the complaint states a
sufficient cause of action and prayed that the motion to dismiss be denied.
The lower court, on October 30, 1974, issued an order dismissing appellants' complaint
saying that:
The motion to dismiss is well taken. It is beyond debate or question
that the land over which plaintiffs seek herein to quiet title has already
been declared the property of defendant by the final and executory
judgment of this Court in SP-488, which was affirmed by the Court of
Appeals and a further attempt to challenge the adjudication by
certiorari was thrown out perfunctorily by the Supreme Court. There is
no room for doubt or for controversy that all the requisite elements of
res judicata or bar by prior judgment are present here. Plaintiffs are the
supposed purchasers of the property from Francisco Guia, defendant
in SP-488. Needless to say, a judgment against a party binds his
successors in interest. A sale or similar transmission of right does not
disturb the Identity of party for purposes of res judicata. In this regard,
for further enlightenment on the issues generated by this dismissal
motion, the Court hereby refers to its order of March 22, 1971 in SP-
488.
Contrary to plaintiffs contention, the ground of res judicata raised by
defendant is indubitable and patent from paragraphs 4 and 5 of the
complaint. (pp. 77-78, Record on Appeal)
Appellants went to the then Court of Appeals alleging that the lower court erred (1) in
holding that the instant case is already barred by a previous judgment; (2) in dismissing
the complaint without a hearing which although preliminary should be conducted as
ordinary hearings; and, (3) in holding that the ground of res judicata raised by appellee is
indubitable and patent from paragraphs 4 and 5 of the complaint. (pp. 1-2, Brief for the
Appellants)
The appellate court forwarded the records of the case to Us because "no factual issue is
involved" and "the issues raised in the instant case are purely legal questions which are
beyond the jurisdiction of the Court to determine." (p. 5, CA Resolution)
There is no merit in this appeal.
Records show that long before appellants had acquired subject property, a notice of lis
pendens (Civil Case No. SP 488) had already been registered with the Office of the
Register of Deeds of San Pablo City affecting the property. Lis pendens is a notice of
pending litigation; a warning to the whole world that one who buys the property so
annotated does so at his own risk (Rehabilitation Finance Corporation vs. Morales, 101
Phil. 175). Notwithstanding, appellants bought the land from Francisco Guia, defendant
in Civil Case No. SP 488. Having purchased the property with notice of lis pendens,
appellants took the risk of losing it in case the decision in the said civil case, as what
actually happened, is adverse to their predecessor-in-interest, Francisco Guia Time and
again, We have decreed that the filing of a notice of lis pendens charges all strangers
with a notice of the particular litigation referred to therein and, therefore, any right they
may thereafter acquired on the property is subject to the eventuality of the suit. The
doctrine of lis pendens is founded upon reason of public policy and necessity, the
purpose of which is to keep the subject matter of the litigation within the power of the
46
Court until the judgment or decree shall have been entered; otherwise, by successive
alienation's pending the litigation, its judgment or decree shall be rendered abortive and
impossible of execution. On this score alone, appellants case would necessarily fall.
In their first assigned error appellants argue that there is no res judicata because there is
no Identity of causes of action since the case at bar is an action to quiet title, whereas,
Civil Case No. SP-488 is one of filiation and partition. In National Bank vs. Barreto, 52
Phil. 818, We held that "a judgment for the plaintiff sweeps away every defense that
should have been raised against the action, and this for the purpose of every subsequent
suit, whether founded upon the same or a different cause." in Civil Case No. SP-488,
appellee Donaldo Guia maintained that he is a co-owner of that parcel of land, including
the land in question, which was later adjudicated to him as his share in the inheritance
from the late Cayetana Garcia; whereas, Francisco Guia, appellants' predecessor-in
interest, alleged that he is the sole owner of the property. Thus, both parties claim
ownership over the same property appellee Donaldo Guia, by virtue of a final judgment
rendered in Civil Case No. SP-488, and appellants Timoteo Laroza and Conchita Uri, by
virtue of the sale executed by Francisco Guia, who lost in said civil case. In both cases,
the question boils down to ownership of the land. Thus, there is Identity of causes of
action.
Anent the second assigned error, records reveal that a hearing on appellee's motion to
dismiss appellants' complaint was conducted on August 12, 1974. There is, therefore, no
basis for appellants to say that a hearing was never held in the case.
Finally, appellants claim that the lower court erred in declaring that res judicata is
indubitable and patent from the face of the complaint itself, without the appellee pleading
the same as an affirmative defense. From a cursory reading of the pleadings, extant in
the records of the case, We find that in his motion to dismiss, appellee had thoroughly
discussed the issue of res judicata and, coupled by the fact that it was the same court
which heard and decided Civil Case No. SP 488, the trial court can rightfully rule on said
issue.
ACCORDINGLY, for lack of merit, the appeal is hereby DISMISSED.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ.,
concur.
Alampay, J., took no part.
FIRST DIVISION
G.R. No. L-38498 August 10, 1989
ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS MAXIMINA
BAGNAS, SIXTO BAGNAS and AGATONA ENCARNACION, petitioners,
vs.
HON. COURT OF APPEALS, ROSA L. RETONIL TEOFILO ENCARNACION, and
JOSE B. NAMBAYAN respondents.
Beltran, Beltran & Beltran for petitioners.
Jose M. Legaspi for private respondents.
NARVASA, J.:
The facts underlying this appeal by certiorari are not in dispute. Hilario Mateum of Kawit,
Cavite, died on March 11, 1964, single, without ascendants or descendants, and
survived only by collateral relatives, of whom petitioners herein, his first cousins, were
the nearest. Mateum left no will, no debts, and an estate consisting of twenty-nine
parcels of land in Kawit and Imus, Cavite, ten of which are involved in this appeal. 1
On April 3, 1964, the private respondents, themselves collateral relatives of Mateum
though more remote in degree than the petitioners, 2 registered with the Registry of
Deeds for the Province of Cavite two deeds of sale purportedly executed by Mateum in
their (respondents') favor covering ten parcels of land. Both deeds were in Tagalog, save

for the English descriptions of the lands conveyed under one of them; and each recited
the reconsideration of the sale to be" ... halagang ISANG PISO (Pl.00), salaping Pilipino,
at mga naipaglingkod, ipinaglilingkod sa aking kapakanan ..." ("the sum of ONE PESO
Pl.00), Philippine Currency, and services rendered, being rendered and to be rendered
for my benefit"). One deed was dated February 6,1963 and covered five parcels of land,
and the other was dated March 4, 1963, covering five other parcels, both, therefore,
antedating Mateum's death by more than a year. 3 It is asserted by the petitioners, but
denied by the respondents, that said sales notwithstanding, Mateum continued in the
possession of the lands purportedly conveyed until his death, that he remained the
declared owner thereof and that the tax payments thereon continued to be paid in his
name. 4 Whatever the truth, however, is not crucial. What is not disputed is that on the
strength of the deeds of sale, the respondents were able to secure title in their favor over
three of the ten parcels of land conveyed thereby. 5
On May 22,1964 the petitioners commenced suit against the respondents in the Court of
First Instance of Cavite, seeking annulment of the deeds of sale as fictitious, fraudulent
or falsified, or, alternatively, as donations void for want of acceptance embodied in a
public instrument. Claiming ownership pro indiviso of the lands subject of the deeds by
virtue of being intestate heirs of Hilario Mateum, the petitioners prayed for recovery of
ownership and possession of said lands, accounting of the fruits thereof and damages.
Although the complaint originally sought recovery of all the twenty-nine parcels of land
left by Mateum, at the pre-trial the parties agreed that the controversy be limited to the
ten parcels subject of the questioned sales, and the Trial Court ordered the exclusion of
the nineteen other parcels from the action. 6 Of the ten parcels which remained in
litigation, nine were assessed for purposes of taxation at values aggregating P10,500 00.
The record does not disclose the assessed value of the tenth parcel, which has an area
of 1,443 square meters. 7
In answer to the complaint, the defendants (respondents here) denied the alleged
fictitious or fraudulent character of the sales in their favor, asserting that said sales were
made for good and valuable consideration; that while "... they may have the effect of
donations, yet the formalities and solemnities of donation are not required for their
validity and effectivity, ... that defendants were collateral relatives of Hilario Mateum and
had done many good things for him, nursing him in his last illness, which services
constituted the bulk of the consideration of the sales; and (by way of affirmative defense)
that the plaintiffs could not question or seek annulment of the sales because they were
mere collateral relatives of the deceased vendor and were not bound, principally or
subsidiarily, thereby. 8
After the plaintiffs had presented their evidence, the defendants filed a motion for
dismissal in effect, a demurrer to the evidence reasserting the defense set up in their
answer that the plaintiffs, as mere collateral relatives of Hilario Mateum, had no light to
impugn the latter's disposition of his properties by means of the questioned conveyances
and submitting, additionally, that no evidence of fraud maintaining said transfers had
been presented. 9
The Trial Court granted the motion to dismiss, holding (a) on the authority of Armentia vs.
Patriarca, 10 that the plaintiffs, as mere collateral relatives, not forced heirs, of Hilario
Mateum, could not legally question the disposition made by said deceased during his
lifetime, regardless of whether, as a matter of objective reality, said dispositions were
valid or not; and (b) that the plaintiffs evidence of alleged fraud was insufficient, the fact
that the deeds of sale each stated a consideration of only Pl.00 not being in itself
evidence of fraud or simulation. 11
On appeal by the plaintiffs to the Court of Appeals, that court affirmed, adverting with
approval to the Trial Court's reliance on the Armentia ruling which, it would appear, both
courts saw as denying, without exception, to collaterals, of a decedent, not forced heirs,
the right to impugn the latter's dispositions inter vivos of his property. The Appellate
47
Court also analyzed the testimony of the plaintiffs' witnesses, declared that it failed to
establish fraud of any kind or that Mateum had continued paying taxes on the lands in
question even after executing the deeds conveying them to the defendants, and closed
with the statement that "... since in duly notarized and registered deeds of sale
consideration is presumed, we do not and it necessary to rule on the alternative
allegations of the appellants that the said deed of sale were (sic) in reality donations. 12
One issue clearly predominates here. It is whether, in view of the fact that, for properties
assuredly worth in actual value many times over their total assessed valuation of more
than P10,000.00, the questioned deeds of sale each state a price of only one peso
(P1.00) plus unspecified past, present and future services to which no value is assigned,
said deeds were void or inexistent from the beginning ("nulo") or merely voidable, that is,
valid until annulled. If they were only voidable, then it is a correct proposition that since
the vendor Mateum had no forced heirs whose legitimes may have been impaired, and
the petitioners, his collateral relatives, not being bound either principally or subsidiarily to
the terms of said deeds, the latter had and have no actionable right to question those
transfers.
On the other hand, if said deeds were void ab initio because to all intents and purposes
without consideration, then a different legal situation arises, and quite another result
obtains, as pointed out by the eminent civil law authority, Mr. Justice J.B.L. Reyes who,
in his concurring opinion in Armentia, said:
I ... cannot bring myself to agree to the proposition that the heirs
intestate would have no legal standing to contest the conveyance
made by the deceased if the same were made without any
consideration, or for a false and fictitious consideration. For under the
Civil Code of the Philippines, Art. 1409, par. 3, contracts with a cause
that did not exist at the time of the transaction are inexistent and void
from the beginning. The same is true of contracts stating a false cause
(consideration) unless the persons interested in upholding the contract
should prove that there is another true and lawful consideration
therefor. (lbid., Art. 1353).
If therefore the contract has no causa or consideration, or the causa is
false and fictitious (and no true hidden causa is proved) the property
allegedly conveyed never really leaves the patrimony of the transferor,
and upon the latter's death without a testament, such property would
pass to the transferor's heirs intestate and be recoverable by them or
by the Administrator of the transferor's estate. In this particular regard,
I think Concepcion vs. Sta. Ana, 87 Phil. 787 and Sobs vs. Chua Pua
Hermanos, 50 Phil. 536, do not correctly state the present law, and
must be clarified.
To be sure the quoted passage does not reject and is not to be construed as rejecting
the Concepcion and Solisrulings 13 as outrightly erroneous, far from it. On the contrary,
those rulings undoubtedly read and applied correctly the law extant in their time: Art.
1276 of the Civil Code of 1889 under which the statement of a false cause in a contract
rendered it voidable only, not void ab initio. In observing that they "... do not correctly
state the present law and must be clarified," Justice Reyes clearly had in mind the fact
that the law as it is now (and already was in the time Armentia) no longer deems
contracts with a false cause, or which are absolutely simulated or fictitious, merely
voidable, but declares them void, i.e., inexistent ("nulo") unless it is shown that they are
supported by another true and lawful cause or consideration. 14 A logical consequence of
that change is the juridical status of contracts without, or with a false, cause is that
conveyances of property affected with such a vice cannot operate to divest and transfer
ownership, even if unimpugned. If afterwards the transferor dies the property descends
to his heirs, and without regard to the manner in which they are called to the succession,

said heirs may bring an action to recover the property from the purported transferee. As
pointed out, such an action is not founded on fraud, but on the premise that the property
never leaves the estate of the transferor and is transmitted upon his death to heirs, who
would labor under no incapacity to maintain the action from the mere fact that they may
be only collateral relatives and bound neither principally or subsidiarily under the deed or
contract of conveyance.
In Armentia the Court determined that the conveyance questioned was merely annullable
not void ab initio, and that the plaintiff s action was based on fraud vitiating said
conveyance. The Court said:
Hypothetically admitting the truth of these allegations (of plaintiffs
complaint), the conclusion is irresistible that the sale is merely
voidable. Because Marta Armentia executed the document, and this is
not controverted by plaintiff. Besides, the fact that the vendees were
minors, makes the contract, at worst, annullable by them, Then again,
inadequacy of consideration does not imply total want of consideration.
Without more, the parted acts of Marta Armentia after the sale did not
indicate that the said sale was void from the being.
The sum total of all these is that, in essence, plaintiffs case is
bottomed on fraud, which renders the contract voidable.
It therefore seems clear that insofar as it may be considered as setting or reaffirming
precedent, Armentia only ruled that transfers made by a decedent in his lifetime, which
are voidable for having been fraudulently made or obtained, cannot be posthumously
impugned by collateral relatives succeeding to his estate who are not principally or
subsidiarily bound by such transfers. For the reasons already stated, that ruling is not
extendible to transfers which, though made under closely similar circumstances, are
void ab initio for lack or falsity of consideration.
The petitioners here argue on a broad front that the very recitals of the questioned deeds
of sale reveal such want or spuriousness of consideration and therefore the void
character of said sales. They:
1. advert to a decision of the Court of Appeals in Montinola vs. Herbosa (59 O.G. No. 47,
pp, 8101, 8118) holding that a price of P l.00 for the sale of things worth at least
P20,000.00 is so insignificant as to amount to no price at all, and does not satisfy the law
which, while not requiring for the validity of a sale that the price be adequate, prescribes
that it must be real, not fictitious, stressing the obvious parallel between that case and
the present one in stated price and actual value of the property sold;
2. cite Manresa to the same effect: that true price, which is essential to the validity of a
sale, means existent, real and effective price, that which does not consist in an
insignificant amount as, say, P.20 for a house; that it is not the same as the concept of a
just price which entails weighing and measuring, for economic equivalence, the amount
of price against all the factors that determine the value of the thing sold; but that there is
no need of such a close examination when the immense disproportion between such
economic values is patent a case of insignificant or ridiculous price, the unbelievable
amount of which at once points out its inexistence; 15
3. assert that Art. 1458 of the Civil Code, in prescribing that a sale be for a ... price
certain in money or its equivalent ... requires that "equivalent" be something
representative of money, e.g., a check or draft, again citing Manresa 16 to the effect that
services are not the equivalent of money insofar as said requirement is concerned and
that a contract is not a true sale where the price consists of services or prestations;
4. once more citing Manresa 17 also point out that the "services" mentioned in the
questioned deeds of sale are not only vague and uncertain, but are unknown and not
susceptible of determination without the necessity of a new agreement between the
parties to said deeds.
48
Without necessarily according all these assertions its full concurrence, but upon the
consideration alone that the apparent gross, not to say enormous, disproportion between
the stipulated price (in each deed) of P l.00 plus unspecified and unquantified services
and the undisputably valuable real estate allegedly sold worth at least P10,500.00 going
only by assessments for tax purposes which, it is well-known, are notoriously low
indicators of actual value plainly and unquestionably demonstrates that they state a false
and fictitious consideration, and no other true and lawful cause having been shown, the
Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but
void ab initio.
Neither can the validity of said conveyances be defended on the theory that their
true causa is the liberality of the transferor and they may be considered in reality
donations 18 because the law 19 also prescribes that donations of immovable property, to
be valid, must be made and accepted in a public instrument, and it is not denied by the
respondents that there has been no such acceptance which they claim is not required. 20
The transfers in question being void, it follows as a necessary consequence and
conformably to the concurring opinion in Armentia, with which the Court fully agrees, that
the properties purportedly conveyed remained part of the estate of Hilario Mateum, said
transfers notwithstanding, recoverable by his intestate heirs, the petitioners herein,
whose status as such is not challenged.
The private respondents have only themselves to blame for the lack of proof that might
have saved the questioned transfers from the taint of invalidity as being fictitious and
without ilicit cause; proof, to be brief, of the character and value of the services, past,
present, and future, constituting according to the very terms of said transfers the principal
consideration therefor. The petitioners' complaint (par. 6) 21 averred that the transfers
were "... fraudulent, fictitious and/or falsified and (were) ... in reality donations of
immovables ...," an averment that the private respondents not only specifically denied,
alleging that the transfers had been made "... for good and valuable consideration ...," but
to which they also interposed the affirmative defenses that said transfers were "... valid,
binding and effective ...," and, in an obvious reference to the services mentioned in the
deeds, that they "... had done many good things to (the transferor) during his lifetime,
nursed him during his ripe years and took care of him during his previous and last illness
...," (pars. 4, 6, 16 and 17, their answer).lâwphî1.ñèt 22 The onus, therefore, of showing
the existence of valid and illicit consideration for the questioned conveyances rested on
the private respondents. But even on a contrary assumption, and positing that the
petitioners initially had the burden of showing that the transfers lacked such
consideration as they alleged in their complaint, that burden was shifted to the private
respondents when the petitioners presented the deeds which they claimed showed that
defect on their face and it became the duty of said respondents to offer evidence of
existent lawful consideration.
As the record clearly demonstrates, the respondents not only failed to offer any proof
whatsoever, opting to rely on a demurrer to the petitioner's evidence and upon the thesis,
which they have maintained all the way to this Court, that petitioners, being mere
collateral relatives of the deceased transferor, were without right to the conveyances in
question. In effect, they gambled their right to adduce evidence on a dismissal in the Trial
Court and lost, it being the rule that when a dismissal thus obtained is reversed on
appeal, the movant loses the right to present evidence in his behalf. 23
WHEREFORE, the appealed Decision of the Court of Appeals is reversed. The
questioned transfers are declared void and of no force or effect. Such certificates of title
as the private respondents may have obtained over the properties subject of said
transfers are hereby annulled, and said respondents are ordered to return to the
petitioners possession of an the properties involved in tills action, to account to the
petitioners for the fruits thereof during the period of their possession, and to pay the

costs. No damages, attorney's fees or litigation expenses are awarded, there being no
evidence thereof before the Court.
SO ORDERED.
Cruz, Gancayco, Griñ;o-Aquino and Medialdea, JJ., concur.
FIRST DIVISION
G.R. No. L-37831 November 23, 1981
RESTITUTA V. VDA. DE GORDON,1 petitioner,
vs.
THE COURT OF APPEALS 2 and ROSARIO DUAZO, respondents.
TEEHANKEE, J.:
The Court affirms the appealed decision finding the same to be in accordance with the
applicable law. The appellate court correctly upheld the tax sale of the real properties at
which respondent Rosario Duazo acquired the same and her ownership upon petitioner
Restituta V. Vda. de Gordon's failure to redeem the same, having found the sale to have
been conducted "under the direction and supervision of the City Treasurer of Quezon
City after the proper procedure and legal formalities had been duly accomplished."
The apppellate court's decision under review held as follows:
The opposition [to respondent Duazo's petition for consolidation of
ownership] has not controverted by specific denials the material
averments in the petition. Hence the material averments in the petition
are deemed admitted. (Section 1, Rule 9, Revised Rules of Court)
Moreover, the opposition has not raised the issue of irregularity in the
public sale of the two parcels of land in question. This defense is
deemed waived. (Section 2, Rule 9, Id.)
The uncontested averments in the petition and the annex attached to
said petition disclose that the two parcels of land in question were sold
at public auction at the City Hall, Quezon City on December 3, 1964
under the direction and supervision of the City Treasurer of Quezon
City after the proper procedures and legal formalities had been duly
accomplished; that the taxes against the two parcels of land in
question for the years 1953 to 1963, inclusive, remained unpaid; that
the City Treasurer of Quezon City, upon warrant of a certified copy of
the record of such delinquency, advertised for sale the two parcels of
land in question to satisfy the taxes, penalties and costs for a period of
thirty (30) days prior to the sale on December 3, 1964, by keeping a
notice of sale posted at the main entrance on the City Hall and in a
public and conspicuous place in the district where the same is located
and by publication of said notice once a week for three (3) weeks in the
"DAILY MIRROR", a newspaper of general circulation in Quezon City,
the advertisement stating the amount of taxes and penalties due, time
and place of sale, name of the taxpayer against whom the taxes are
levied, approximate area, lot and block number, location by district,
street and street number of the property; "hat at the public sale on
December 3, 1964, the two parcels of land in question were sold to
[Duazo] for the amount of P10,500.00 representing the tax, penalty
and costs; that the certificate of sale executed by the City treasurer
was duly registered on December 28, 1964 in the office of the Register
of Deeds of Quezon City; that upon the failure of the registered owner
to redeem the two parcels of land in question within the one year
period prescribed by law, the City Treasurer of Quezon City executed
on January 4, 1966 a final deed of sale of said lands and the
improvements thereon; and that said final deed of sale was also
49
registered in the Office of the Register of Deeds of Quezon City on
January 18, 1966.
The principal issues to be resolved in this appeal are (1) whether the
price is so grossly inadequate as to justify the setting aside of the
public sale and (2) whether the oppositor [Gordon] is entitled to
redeem the two parcels of land in question.
The combined assessed value of the two parcels of land is
P16,800.00. The price paid at the public sale is P10,500.00. The
residential house on the land is assessed at P45,580.00. But the
assessment was made in 1961. The present value of the residential
house must be much less now considering the depreciation for over
ten years.
While the price of P10,500.00 is less than the total assessed value of
the land and the improvement thereon, said price cannot be
considered so grossly inadequate as to be shocking to the conscience
of the court.
In Director of Lands vs. Abarca, 61 Phil. 70, cited by the lower court in
the order appealed from, the Supreme Court considered the price of
P877.25 as so inadequate to shock the conscience of the court
because the assessed value of the property in question was
P60,000.00. The assessed value of the land was more than sixty times
the price paid at the auction sale.
In the case at bar, the price of P10,500.00 is about one sixth of the
total assessed value of the two parcels of land in question and the
residential house thereon. The finding of the lower court that the house
and land in question have a fair market value of not less than
P200,000.00 has no factual basis. It cannot be said, therefore, that the
price of P10,500.00 is so inadequate as to be shocking to the
conscience of the court.
Mere inadequacy of the price alone is not sufficient ground to annul the
public sale. (Barrozo vs. Macaraeg, 83 Phil. 378).
Moreover, in Velasquez vs. Coronet, 5 SCRA 985, 988, the Supreme
Court has held:
It is true that respondent treasurer now claims that
the prices for which the lands were sold are
unconscionable considering the wide divergence
between their assessed values and the amounts for
which they had been actually sold. However, while in
ordinary sales for reasons of equity a transaction
may be invalidated on the ground of inadequacy of
price, or when such inadequacy shocks one's
conscience as to justify- the courts to interfere, such
does not follow when the law gives to the owner the
right to redeem, as when a sale is made at public
auction upon the theory that the lesser the price the
easier it is for the owner to effect the redemption.
And so it was aptly said:
When there is the right to redeem, inadequacy of
pace should not be material because the judgment
debtor may reacquire the property or also sell his
right to redeeem and thus recover the loss he claims
to have suffered by reason of the price obtained at
the auction sale. (emphasis supplied).

The contention that the oppositor can still redeem the two parcels of
land in question because the public sale has not been judicially
confirmed deserves scant consideration. The cases cited by the
oppositor and by the lower court all refer to foreclosure of mortgage
sales which are by express provision of law subject to judicial
confirmation. The public sale in the instant case is governed by Section
40 of Commonwealth Act No. 470 which gives the delinquent taxpayer
a period of one year from the date of the sale within which to
repurchase the property sold. In case the delinquent taxpayer does not
repurchase the property sold within the period of one year from the
date of the sale, it becomes a mandatory duty of the provincial
treasurer to issue in favor of the purchaser a final deed of sale.
(Velasquez vs. Coronel, supra) We find that the oppositor is not
entitled to repurchase the two parcels of land in question because she
failed to do so within one year from the date of the sale thereof.
WHEREFORE, the order appealed from is hereby reversed and the
ownership of [Duazo] over the two parcels of land in question and the
improvements thereon is declared consolidated. The Register of
Deeds of Quezon City is hereby ordered to cancel Transfer Certificates
of Title Nos. 12204 and 12205 and to issue the corresponding transfer
certificates of title to [Duazo] over the two parcels of land in question,
upon the payment of the prescribed fees. No pronouncement as to
costs. 3
The Court finds petitioner's assignment of errors to be without merit.
Petitioner's first assignment of error as to alleged lack of personal notice of the tax sale is
negated by her own averments in her own opposition filed in the court a quo that "(T)he
Oppositor in the above entitled petition is a woman 80 years of age. She was not aware
of the auction sale conducted by the City Treasurer of Quezon City on December 3, 1964
or if there was any notice sent to her, the same did not reach her or it must have escaped
her mind considering her age. ... 4
Petitioner's second assignment of error that the period for redemption should be the two-
year period provided in Republic Act No. 1275 likewise has no merit, since the specific
law governing tax sales of properties in Quezon City is the Quezon City Charter,
Commonwealth Act No. 502 which provides in section 31 thereof for a one-year
redemption period. The special law covering Quezon City necessarily prevails over the
general law. Furthermore, as respondent has pointed out, as of the time of filing in 1974
of respondent's brief, petitioner had not then for a period of 10 years (and 17 years as of
now) sought to exercise her alleged right of redemption or make an actual tender thereof,
as follows:
Morever, even if we do concede, merely for the sake of argument, that
the provisions of Rep. Act No. 1275 may be made applicable in this
case which is certainly not and Petitioner should have been granted
TWO (2) YEARS from date of the public sale, within which to exercise
her right of redemption, yet since the sale of the questioned land to
herein Respondent in that public auction in 1964, herein Petitioner
never had shown any good faith in exercising her right of redemption.
Since 1964 when the auction sale took place, up to the present, 1974,
or a period of TEN (10) YEARS have already elapsed and yet herein
Petitioner never made any tender of payments with either the Court of
First Instance of Quezon City or the Court of Appeals, or the Supreme
Court, at least to show her good faith.
Furthermore, if herein Petitioner really believes in good faith, that [she]
had still that right of redemption, then she should have paid the real
50
estate taxes, but as the records wig show, since 1964, Private
Respondent Duazo is the one paying the real estate taxes of the lands
in question 5
Petitioner's third and last assignment of error as to the alleged gross inadequacy of the
purchase price must likewise fail. As the Court has held in Velasquez vs.
Coronet 6 alleged gross inadequacy of price is not material "when the law gives the
owner the right to redeem as when a sale is made at public auction, upon the theory that
the lesser the price the easier it is for the owner to effect the redemption." As the Court
further stressed in the recent case of Tajonera vs. Court of Appeals, 7 the law governing
tax sales for delinquent taxes may be "harsh and drastic, but it is a necessary means of
insuring the prompt collection of taxes so essential to the life of the Government."
ACCORDINGLY, the appellate court's decision under review is hereby affirmed. Without
costs.
Makasiar, Guerrero, De Castro * and Melencio-Herrera, JJ., concur.
Fernandez, J., took no part.
FIRST DIVISION
G.R. No. L-67888 October 8, 1985
IMELDA ONG, ET AL., petitioners,
vs.
ALFREDO ONG, ET AL., respondents.
Faustino Y Bautista and Fernando M. Mangubat for private respondent.
RELOVA, J.:
This is a petition for review on certiorari of the decision, dated June 20, 1984, of the
Intermediate Appellate Court, in AC-G.R. No. CV-01748, affirming the judgment of the
Regional Trial Court of Makati, Metro Manila. Petitioner Imelda Ong assails the
interpretation given by respondent Appellate Court to the questioned Quitclaim Deed.
Records show that on February 25, 1976 Imelda Ong, for and in consideration of One
(P1.00) Peso and other valuable considerations, executed in favor of private respondent
Sandra Maruzzo, then a minor, a Quitclaim Deed whereby she transferred, released,
assigned and forever quit-claimed to Sandra Maruzzo, her heirs and assigns, all her
rights, title, interest and participation in the ONE-HALF (½) undivided portion of the
parcel of land, particularly described as follows:
A parcel of land (Lot 10-B of the subdivision plan (LRC) Psd 157841,
being a portion of Lot 10, Block 18, Psd-13288, LRC (GLRC) Record
No. 2029, situated in the Municipality of Makati, Province of Rizal,
Island of Luzon ... containing an area of ONE HUNDRED AND
TWENTY FIVE (125) SQUARE METERS, more or less.
On November 19, 1980, Imelda Ong revoked the aforesaid Deed of Quitclaim and,
thereafter, on January 20, 1982 donated the whole property described above to her son,
Rex Ong-Jimenez.
On June 20, 1983, Sandra Maruzzo, through her guardian (ad litem) Alfredo Ong, filed
with the Regional Trial Court of Makati, Metro Manila an action against petitioners, for the
recovery of ownership/possession and nullification of the Deed of Donation over the
portion belonging to her and for Accounting.
In their responsive pleading, petitioners claimed that the Quitclaim Deed is null and void
inasmuch as it is equivalent to a Deed of Donation, acceptance of which by the donee is
necessary to give it validity. Further, it is averred that the donee, Sandra Maruzzo, being
a minor, had no legal personality and therefore incapable of accepting the donation.
Upon admission of the documents involved, the parties filed their responsive memoranda
and submitted the case for decision.

On December 12, 1983, the trial court rendered judgment in favor of respondent Maruzzo
and held that the Quitclaim Deed is equivalent to a Deed of Sale and, hence, there was a
valid conveyance in favor of the latter.
Petitioners appealed to the respondent Intermediate Appellate Court. They reiterated
their argument below and, in addition, contended that the One (P1.00) Peso
consideration is not a consideration at all to sustain the ruling that the Deed of Quitclaim
is equivalent to a sale.
On June 20, 1984, respondent Intermediate Appellate Court promulgated its Decision
affirming the appealed judgment and held that the Quitclaim Deed is a conveyance of
property with a valid cause or consideration; that the consideration is the One (P1.00)
Peso which is clearly stated in the deed itself; that the apparent inadequacy is of no
moment since it is the usual practice in deeds of conveyance to place a nominal amount
although there is a more valuable consideration given.
Not satisfied with the decision of the respondent Intermediate Appellate Court, petitioners
came to Us questioning the interpretation given by the former to this particular document.
On March 15, 1985, respondent Sandra Maruzzo, through her guardian ad litem Alfredo
Ong, filed an Omnibus Motion informing this Court that she has reached the age of
majority as evidenced by her Birth Certificate and she prays that she be substituted as
private respondent in place of her guardian ad litem Alfredo Ong. On April 15, 1985, the
Court issued a resolution granting the same.
A careful perusal of the subject deed reveals that the conveyance of the one- half (½)
undivided portion of the above-described property was for and in consideration of the
One (P 1.00) Peso and the other valuable considerations (emphasis supplied) paid by
private respondent Sandra Maruzzo through her representative, Alfredo Ong, to
petitioner Imelda Ong. Stated differently, the cause or consideration is not the One
(P1.00) Peso alone but also the other valuable considerations. As aptly stated by the
Appellate Court-
... although the cause is not stated in the contract it is presumed that it
is existing unless the debtor proves the contrary (Article 1354 of the
Civil Code). One of the disputable presumptions is that there is a
sufficient cause of the contract (Section 5, (r), Rule 131, Rules of
Court). It is a legal presumption of sufficient cause or consideration
supporting a contract even if such cause is not stated therein (Article
1354, New Civil Code of the Philippines.) This presumption cannot be
overcome by a simple assertion of lack of consideration especially
when the contract itself states that consideration was given, and the
same has been reduced into a public instrument with all due formalities
and solemnities. To overcome the presumption of consideration the
alleged lack of consideration must be shown by preponderance of
evidence in a proper action. (Samanilla vs, Cajucom, et al., 107 Phil.
432).
The execution of a deed purporting to convey ownership of a realty is in itself prima facie
evidence of the existence of a valuable consideration, the party alleging lack of
consideration has the burden of proving such allegation. (Caballero, et al. vs. Caballero,
et al., (CA), 45 O.G. 2536).
Moreover, even granting that the Quitclaim deed in question is a donation, Article 741 of
the Civil Code provides that the requirement of the acceptance of the donation in favor of
minor by parents of legal representatives applies only to onerous and conditional
donations where the donation may have to assume certain charges or burdens (Article
726, Civil Code). The acceptance by a legal guardian of a simple or pure donation does
not seem to be necessary (Perez vs. Calingo, CA-40 O.G. 53). Thus, Supreme Court
ruled in Kapunan vs. Casilan and Court of Appeals, (109 Phil. 889) that the donation to
an incapacitated donee does not need the acceptance by the lawful representative if said
51
donation does not contain any condition. In simple and pure donation, the formal
acceptance is not important for the donor requires no right to be protected and the donee
neither undertakes to do anything nor assumes any obligation. The Quitclaim now in
question does not impose any condition.
The above pronouncement of respondent Appellate Court finds support in the ruling of
this Court in Morales Development Co., Inc. vs. CA, 27 SCRA 484, which states that "the
major premise thereof is based upon the fact that the consideration stated in the deeds of
sale in favor of Reyes and the Abellas is P1.00. It is not unusual, however, in deeds of
conveyance adhering to the Anglo-Saxon practice of stating that the consideration given
is the sum of P1.00, although the actual consideration may have been much more.
Moreover, assuming that said consideration of P1.00 is suspicious, this circumstance,
alone, does not necessarily justify the inference that Reyes and the Abellas were not
purchasers in good faith and for value. Neither does this inference warrant the conclusion
that the sales were null and void ab initio. Indeed, bad faith and inadequacy of the
monetary consideration do not render a conveyance inexistent, for the assignor's
liberality may be sufficient cause for a valid contract (Article 1350, Civil Code), whereas
fraud or bad faith may render either rescissible or voidable, although valid until annulled,
a contract concerning an object certain entered into with a cause and with the consent of
the contracting parties, as in the case at bar."
WHEREFORE. the appealed decision of the Intermediate Appellate Court should be, as
it is hereby AFFIRMED, with costs against herein petitioners.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.
Gutierrez, Jr., J., in the result.
SECOND DIVISION
G.R. No. L-55999 August 24, 1984
SPOUSES SALVACION SERRANO LADANGA and AGUSTIN S.
LADANGA, petitioners,
vs.
COURT OF APPEALS and BERNARDO S. ASENETA, as Guardian of the
Incompetent CLEMENCIA A. ASENETA, respondents.
Venusto P. France and Ambrosia Padilla, Mempia, Reyes & Equidez Law Office for
petitioners.
Agrava, Lucero & Gineta for private respondents.
AQUINO, J.:
The spouses Salvacion Serrano and Doctor Agustin S. Ladanga appealed from the
decision of the Court of Appeals (affirming the decision of the Manila Court of First
Instance), declaring void the sale to Salvacion by her aunt, Clemencia A. Aseneta, of the
166-square-meter lot with a house located at 1238 Sison Street, Paco, Manila for non-
payment of the price of P26,000. It ordered the register of deeds of Manila to issue a new
title to Clemencia.
The said spouses were further ordered to pay to Clemencia's estate P21,000 as moral
and exemplary damages and attorney's fees and to render to Bernardo an accounting of
the rentals of the property from April 6, 1974.
The Appellate Court and Judge Jose C. Colayco found that Clemencia, a spinster who
retired as division superintendent of public schools at 65 in 1961, had a nephew named
Bernardo S. Aseneta, the child of her sister Gloria, and a niece named Salvacion, the
daughter of her sister Flora. She legally adopted Bernardo in 1961 (Exh. B).
On a single date, April 6, 1974 (when Clemencia was about 78 years old), she
signed nine deeds of sale in favor of Salvacion for various real properties. One deed of
sale concerned the said Paco property (administered by the Ladanga spouses) which

purportedly was sold to Salvacion for P26,000 (Exh. C). The total price involved in the
nine deeds of sale and in the tenth sale executed on November 8, 1974 was P92,200.
On the witness stand, Clemencia denied having "received even one centavo" of the price
of P26,000 (15, 16, 32 tsn August 16, 1976), much less the P92,000. She considered the
allegation that she received the price as a he, exclaiming on the witness stand:
"Susmaryosep! P92,000!" (15, 28-30 tsn August 16, 1976). This testimony was
corroborated by Soledad L. Maninang, 69, a dentist with whom Clemencia had lived for
more than thirty years in Kamuning, Quezon City.
The notary testified that the deed of sale for the Paco property was signed in the office of
the Quezon City registry of deeds. He did not see Salvacion giving any money to
Clemencia.
In May, 1975, Bernardo as guardian of Clemencia, filed an action for reconveyance of
the Paco property, accounting of the rentals and damages. Clemencia was not mentally
incompetent but she was placed under guardianship because she was an easy prey for
exploitation and deceit.
Parenthetically, it should be stated that she died on May 21, 1977 at the age of 80. She
allegedly bequeathed her properties in a holographic will dated November 23, 1973 to
Doctor Maninang. In that will she disinherited Bernardo. The will was presented for
probate (Exh. 22-A and 22-C).
The testate case was consolidated with the intestate proceeding filed by Bernardo in the
sala of Judge Ricardo L. Pronove at Pasig, Rizal. He dismissed the testate case. He
appointed Bernardo as administrator in the intestate case (p. 23, Bernardo's brief).
As already stated, in the instant case, the trial court and the Appellate Court declared
void the sale of the Paco property. The Ladanga spouses contend that the Appellate
Court disregarded the rule on burden of proof. This contention is devoid of merit because
Clemencia herself testified that the price of P26,000 was not paid to her. The burden of
the evidence shifted to the Ladanga spouses. They were not able to prove the payment
of that amount. The sale was fictitious.
The Ladanga spouses argue that the Appellate Court erred in not considering that
inadequacy of price may indicate a donation or some other contract; in disregarding the
presumption that the sale was fair and regular and for a sufficient consideration; in
overlooking important facts and in not holding that Bernardo had no right to file a
complaint to annul the sale.
As a rule, only important legal issues, as contemplated in section 4, Rule 45 of the Rules
of Court, may be raised in a review of the Appellate Court's decision. This case does not
fall within any of the exceptions to that rule (2 Moran's Comments on the Rules of Court,
1979 Ed. p. 475; Ramos vs. Pepsi-Cola Bottling Co., 125 Phil. 701).
The questions ventilated by the Ladangas in their briefs and in their comment of April 3,
1984 may be reduced to the issue of the validity of the sale which the vendor Clemencia
herself assailed in her testimony on August 16 and December 3, 1976 when she was
eighty years old. Her testimony and that of the notary leave no doubt that the price of
P26,000 was never paid.
A contract of sale is void and produces no effect whatsoever where the price, which
appears therein as paid, has in fact never been paid by the purchaser to the vendor
(Meneses Vda. de Catindig vs. Heirs of Catalina Roque, L-25777, November 26, 1976,
74 SCRA 83, 88; Mapalo vs. Mapalo, 123 Phil. 979, 987; Syllabus, Ocejo, Perez & Co.
vs. Flores and Bas, 40 Phil. 921).
Such a sale is inexistent and cannot be considered consummated (Borromeo' vs.
Borromeo, 98 Phil. 432; Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs.
Garanciang, L-22351, May 21, 1969, 28 SCRA 229).
It was not shown that Clemencia intended to donate the Paco property to the Ladangas.
Her testimony and the notary's testimony destroyed any presumption that the sale was
fair and regular and for a true consideration.
52
Judge Colayco concluded that the Ladangas abused Clemencia's confidence and
defrauded her of properties with a market value of P393,559.25 when she was already
78 years old.
The contention that Bernardo had no right to institute the instant action because he was
not a compulsory heir of Clemencia cannot be sustained. Bernardo was Clemencia's
adopted son. Moreover, Clemencia, by testifying in this case, tacitly approved the action
brought in her behalf.
But the moral damages awarded by the trial court is not sanctioned by articles 2217 to
2220 of the Civil Code. Clemencia's own signature in the deed brought about the mess
within which she was entangled.
WHEREFORE, the judgment of the Appellate Court is affirmed with the modification that
the adjudication for moral and exemplary damages is discarded. No costs.
SO ORDERED.
Concepcion, Jr., Guerrero, Escolin and Cuevas, JJ., concur.
Makasiar, J., (Chairman) and Abad Santos, JJ., took no part.
[G.R. No. 126376. November 20, 2003]
SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN,
SPOUSES JUANITO EDRA and NORA JOAQUIN, SPOUSES RUFINO
VALDOZ and EMMA JOAQUIN, and NATIVIDAD JOAQUIN, petitioners,
vs. COURT OF APPEALS, SPOUSES LEONARDO JOAQUIN and
FELICIANA LANDRITO, SPOUSES FIDEL JOAQUIN and CONCHITA
BERNARDO, SPOUSES TOMAS JOAQUIN and SOLEDAD ALCORAN,
SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES, SPOUSES
ALEXANDER MENDOZA and CLARITA JOAQUIN, SPOUSES TELESFORO
CARREON and FELICITAS JOAQUIN, SPOUSES DANILO VALDOZ and FE
JOAQUIN, and SPOUSES GAVINO JOAQUIN and LEA ASIS, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] to annul the Decision[2] dated 26 June
1996 of the Court of Appeals in CA-G.R. CV No. 41996. The Court of Appeals affirmed
the Decision[3]dated 18 February 1993 rendered by Branch 65 of the Regional Trial Court
of Makati (trial court) in Civil Case No. 89-5174. The trial court dismissed the case after it
found that the parties executed the Deeds of Sale for valid consideration and that the
plaintiffs did not have a cause of action against the defendants.
The Facts
The Court of Appeals summarized the facts of the case as follows:
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs
Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio,
Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The married Joaquin children
are joined in this action by their respective spouses.
Sought to be declared null and void ab initio are certain deeds of sale of real property
executed by defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their
co-defendant children and the corresponding certificates of title issued in their names, to
wit:
1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-
256395 executed on 11 July 1978, in favor of defendant Felicitas Joaquin,
for a consideration of P6,000.00 (Exh. C), pursuant to which TCT No.
[36113/T-172] was issued in her name (Exh. C-1);
2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-
256394 executed on 7 June 1979, in favor of defendant Clarita Joaquin,
for a consideration of P1[2],000.00 (Exh. D), pursuant to which TCT No. S-
109772 was issued in her name (Exh. D-1);

3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-
256394 executed on 12 May 1988, in favor of defendant spouses Fidel
Joaquin and Conchita Bernardo, for a consideration of P54,[3]00.00 (Exh.
E), pursuant to which TCT No. 155329 was issued to them (Exh. E-1);
4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-
256394 executed on 12 May 1988, in favor of defendant spouses Artemio
Joaquin and Socorro Angeles, for a consideration of P[54,3]00.00 (Exh. F),
pursuant to which TCT No. 155330 was issued to them (Exh. F-1); and
5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan
(LRC) Psd-256395 executed on 9 September 1988, in favor of Tomas
Joaquin, for a consideration of P20,000.00 (Exh. G), pursuant to which
TCT No. 157203 was issued in her name (Exh. G-1).
[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC)
Psd-256395 executed on 7 October 1988, in favor of Gavino Joaquin, for a
consideration of P25,000.00 (Exh. K), pursuant to which TCT No. 157779
was issued in his name (Exh. K-1).]
In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title,
plaintiffs, in their complaint, aver:
- XX-
The deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are, are
NULL AND VOID AB INITIO because
a) Firstly, there was no actual valid consideration for the deeds of sale xxx
over the properties in litis;
b) Secondly, assuming that there was consideration in the sums reflected in
the questioned deeds, the properties are more than three-fold times
more valuable than the measly sums appearing therein;
c) Thirdly, the deeds of sale do not reflect and express the true intent of the
parties (vendors and vendees); and
d) Fourthly, the purported sale of the properties in litis was the result of a
deliberate conspiracy designed to unjustly deprive the rest of the
compulsory heirs (plaintiffs herein) of their legitime.
- XXI -
Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos.
36113/T-172, S-109772, 155329, 155330, 157203 [and 157779] issued by the Registrar
of Deeds over the properties in litis xxx are NULL AND VOID AB INITIO.
Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action
against them as well as the requisite standing and interest to assail their titles over the
properties in litis; (2) that the sales were with sufficient considerations and made by
defendants parents voluntarily, in good faith, and with full knowledge of the
consequences of their deeds of sale; and (3) that the certificates of title were issued with
sufficient factual and legal basis.[4] (Emphasis in the original)
The Ruling of the Trial Court
Before the trial, the trial court ordered the dismissal of the case against defendant
spouses Gavino Joaquin and Lea Asis.[5] Instead of filing an Answer with their co-
defendants, Gavino Joaquin and Lea Asis filed a Motion to Dismiss. [6] In granting the
dismissal to Gavino Joaquin and Lea Asis, the trial court noted that compulsory heirs
have the right to a legitime but such right is contingent since said right commences only
from the moment of death of the decedent pursuant to Article 777 of the Civil Code of the
Philippines.[7]
After trial, the trial court ruled in favor of the defendants and dismissed the
complaint. The trial court stated:
53
In the first place, the testimony of the defendants, particularly that of the xxx father will
show that the Deeds of Sale were all executed for valuable consideration. This assertion
must prevail over the negative allegation of plaintiffs.
And then there is the argument that plaintiffs do not have a valid cause of action against
defendants since there can be no legitime to speak of prior to the death of their
parents. The court finds this contention tenable. In determining the legitime, the value of
the property left at the death of the testator shall be considered (Art. 908 of the New Civil
Code). Hence, the legitime of a compulsory heir is computed as of the time of the death
of the decedent. Plaintiffs therefore cannot claim an impairment of their legitime while
their parents live.
All the foregoing considered, this case is DISMISSED.
In order to preserve whatever is left of the ties that should bind families together, the
counterclaim is likewise DISMISSED.
No costs.
SO ORDERED.[8]
The Ruling of the Court of Appeals
The Court of Appeals affirmed the decision of the trial court. The appellate court
ruled:
To the mind of the Court, appellants are skirting the real and decisive issue in this case,
which is, whether xxx they have a cause of action against appellees.
Upon this point, there is no question that plaintiffs-appellants, like their defendant
brothers and sisters, are compulsory heirs of defendant spouses, Leonardo Joaquin and
Feliciana Landrito, who are their parents. However, their right to the properties of their
defendant parents, as compulsory heirs, is merely inchoate and vests only upon the
latters death. While still alive, defendant parents are free to dispose of their properties,
provided that such dispositions are not made in fraud of creditors.
Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither do
they claim to be creditors of their defendant parents. Consequently, they cannot be
considered as real parties in interest to assail the validity of said deeds either for gross
inadequacy or lack of consideration or for failure to express the true intent of the
parties. In point is the ruling of the Supreme Court in Velarde, et al. vs. Paez, et al., 101
SCRA 376, thus:
The plaintiffs are not parties to the alleged deed of sale and are not principally or
subsidiarily bound thereby; hence, they have no legal capacity to challenge their validity.
Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by
the dispositions made by their defendant parents in favor of their defendant brothers and
sisters.But, as correctly held by the court a quo, the legitime of a compulsory heir is
computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an
impairment of their legitime while their parents live.
With this posture taken by the Court, consideration of the errors assigned by plaintiffs-
appellants is inconsequential.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against
plaintiffs-appellants.
SO ORDERED.[9]
Hence, the instant petition.
Issues
Petitioners assign the following as errors of the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
CONVEYANCE IN QUESTION HAD NO VALID CONSIDERATION.
2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN
ASSUMING THAT THERE WAS A CONSIDERATION, THE SAME IS
GROSSLY INADEQUATE.

3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS
OF SALE DO NOT EXPRESS THE TRUE INTENT OF THE PARTIES.
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED
AT UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE
SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF
THEIR INTEREST OVER THE SUBJECT PROPERTIES.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
PETITIONERS HAVE A GOOD, SUFFICIENT AND VALID CAUSE OF
ACTION AGAINST THE PRIVATE RESPONDENTS.[10]
The Ruling of the Court
We find the petition without merit.
We will discuss petitioners legal interest over the properties subject of the Deeds of
Sale before discussing the issues on the purported lack of consideration and gross
inadequacy of the prices of the Deeds of Sale.
Whether Petitioners have a legal interest
over the properties subject of the Deeds of Sale
Petitioners Complaint betrays their motive for filing this case. In their Complaint,
petitioners asserted that the purported sale of the properties in litis was the result of a
deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs
(plaintiffs herein) of their legitime. Petitioners strategy was to have the Deeds of Sale
declared void so that ownership of the lots would eventually revert to their respondent
parents. If their parents die still owning the lots, petitioners and their respondent siblings
will then co-own their parents estate by hereditary succession.[11]
It is evident from the records that petitioners are interested in the properties subject
of the Deeds of Sale, but they have failed to show any legal right to the properties. The
trial and appellate courts should have dismissed the action for this reason alone. An
action must be prosecuted in the name of the real party-in-interest.[12]
[T]he question as to real party-in-interest is whether he is the party who would be
benefitted or injured by the judgment, or the party entitled to the avails of the suit.
xxx
In actions for the annulment of contracts, such as this action, the real parties are those
who are parties to the agreement or are bound either principally or subsidiarily or are
prejudiced in their rights with respect to one of the contracting parties and can show the
detriment which would positively result to them from the contract even though they did
not intervene in it (Ibaez v. Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.
These are parties with a present substantial interest, as distinguished from a mere
expectancy or future, contingent, subordinate, or consequential interest. The phrase
present substantial interest more concretely is meant such interest of a party in the
subject matter of the action as will entitle him, under the substantive law, to recover if the
evidence is sufficient, or that he has the legal title to demand and the defendant will be
protected in a payment to or recovery by him.[13]
Petitioners do not have any legal interest over the properties subject of the Deeds
of Sale. As the appellate court stated, petitioners right to their parents properties is
merely inchoate and vests only upon their parents death. While still living, the parents of
petitioners are free to dispose of their properties. In their overzealousness to safeguard
their future legitime, petitioners forget that theoretically, the sale of the lots to their
siblings does not affect the value of their parents estate. While the sale of the lots
reduced the estate, cash of equivalent value replaced the lots taken from the estate.
Whether the Deeds of Sale are void
for lack of consideration
54
Petitioners assert that their respondent siblings did not actually pay the prices
stated in the Deeds of Sale to their respondent father. Thus, petitioners ask the court to
declare the Deeds of Sale void.
A contract of sale is not a real contract, but a consensual contract. As a consensual
contract, a contract of sale becomes a binding and valid contract upon the meeting of the
minds as to price. If there is a meeting of the minds of the parties as to the price, the
contract of sale is valid, despite the manner of payment, or even the breach of that
manner of payment. If the real price is not stated in the contract, then the contract of sale
is valid but subject to reformation. If there is no meeting of the minds of the parties as to
the price, because the price stipulated in the contract is simulated, then the contract is
void.[14] Article 1471 of the Civil Code states that if the price in a contract of sale is
simulated, the sale is void.
It is not the act of payment of price that determines the validity of a contract of
sale. Payment of the price has nothing to do with the perfection of the contract. Payment
of the price goes into the performance of the contract. Failure to pay the consideration is
different from lack of consideration. The former results in a right to demand the fulfillment
or cancellation of the obligation under an existing valid contract while the latter prevents
the existence of a valid contract.[15]
Petitioners failed to show that the prices in the Deeds of Sale were absolutely
simulated. To prove simulation, petitioners presented Emma Joaquin Valdozs testimony
stating that their father, respondent Leonardo Joaquin, told her that he would transfer a
lot to her through a deed of sale without need for her payment of the purchase
price.[16] The trial court did not find the allegation of absolute simulation of price
credible. Petitioners failure to prove absolute simulation of price is magnified by their lack
of knowledge of their respondent siblings financial capacity to buy the questioned
lots.[17] On the other hand, the Deeds of Sale which petitioners presented as evidence
plainly showed the cost of each lot sold. Not only did respondents minds meet as to the
purchase price, but the real price was also stated in the Deeds of Sale. As of the filing of
the complaint, respondent siblings have also fully paid the price to their respondent
father.[18]
Whether the Deeds of Sale are void
for gross inadequacy of price
Petitioners ask that assuming that there is consideration, the same is grossly
inadequate as to invalidate the Deeds of Sale.
Articles 1355 of the Civil Code states:
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue
influence. (Emphasis supplied)
Article 1470 of the Civil Code further provides:
Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as
may indicate a defect in the consent, or that the parties really intended a donation or
some other act or contract. (Emphasis supplied)
Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470
of the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there
is no requirement that the price be equal to the exact value of the subject matter of
sale. All the respondents believed that they received the commutative value of what they
gave. As we stated in Vales v. Villa:[19]
Courts cannot follow one every step of his life and extricate him from bad bargains,
protect him from unwise investments, relieve him from one-sided contracts, or annul the
effects of foolish acts. Courts cannot constitute themselves guardians of persons who are
not legally incompetent. Courts operate not because one person has been defeated or
overcome by another, but because he has been defeated or overcome illegally. Men may
do foolish things, make ridiculous contracts, use miserable judgment, and lose money by

them indeed, all they have in the world; but not for that alone can the law intervene and
restore. There must be, in addition, a violation of the law, the commission of what the law
knows as an actionablewrong, before the courts are authorized to lay hold of the situation
and remedy it. (Emphasis in the original)
Moreover, the factual findings of the appellate court are conclusive on the parties
and carry greater weight when they coincide with the factual findings of the trial
court. This Court will not weigh the evidence all over again unless there has been a
showing that the findings of the lower court are totally devoid of support or are clearly
erroneous so as to constitute serious abuse of discretion.[20] In the instant case, the trial
court found that the lots were sold for a valid consideration, and that the defendant
children actually paid the purchase price stipulated in their respective Deeds of
Sale. Actual payment of the purchase price by the buyer to the seller is a factual finding
that is now conclusive upon us.
WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna,
JJ., concur.
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 Decision1 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.
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.
55
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 seller’s 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
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 petitioner’s 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
56
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
latter’s 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
 57

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 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 petitioner’s 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.