SECOND DIVISION

G.R. No. 205206, March 16, 2016

BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE CORPORATION (PRESENTLY KNOWN AS
BPI/MS INSURANCE CORPORATION), Petitioners, v. YOLANDA LAINGO, Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 assailing the Decision dated 29 June 20122 and Resolution dated 11
December 20123 of the Court of Appeals in CA-G.R. CV No. 01575.

On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo), opened a "Platinum 2-in-1
Savings and Insurance" account with petitioner Bank of the Philippine Islands (BPI) in its Claveria, Davao City branch.
The Platinum 2-in-1 Savings and Insurance account is a savings account where depositors are automatically covered
by an insurance policy against disability or death issued by petitioner FGU Insurance Corporation (FGU Insurance),
now known as BPI/MS Insurance Corporation. BPI issued Passbook No. 50298 to Rheozel corresponding to Savings
Account No. 2233-0251-11. A Personal Accident Insurance Coverage Certificate No. 043549 was also issued by FGU
Insurance in the name of Rheozel with Laingo as his named beneficiary.

On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a Certificate of Death issued by the
Office of the Civil Registrar General of Tagum City, Davao del Norte. Since Rheozel came from a reputable and affluent
family, the Daily Mirror headlined the story in its newspaper on 26 September 2000.

On 27 September 2000, Laingo instructed the family's personal secretary, Alice Torbanos (Alice) to go to BPI,
Claveria, Davao City branch and inquire about the savings account of Rheozel. Laingo wanted to use the money in the
savings account for Rheozel's burial and funeral expenses.

Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding Laingo's request. Due to
Laingo's credit standing and relationship with BPI, BPI accommodated Laingo who was allowed to withdraw P995,000
from the account of Rheozel. A certain Ms. Laura Cabico, an employee of BPI, went to Rheozel's wake at the
Cosmopolitan Funeral Parlor to verify some information from Alice and brought with her a number of documents for
Laingo to sign for the withdrawal of the P995,000.

More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn Laingo-Concepcion, while arranging
Rheozel's personal things in his room at their residence in Ecoland, Davao City, found the Personal Accident Insurance
Coverage Certificate No. 043549 issued by FGU Insurance. Rhealyn immediately conveyed the information to Laingo.

Laingo sent two letters dated 11 September 2003 and 7 November 2003 to BPI and FGU Insurance requesting them
to process her claim as beneficiary of Rheozel's insurance policy. On 19 February 2004, FGU Insurance sent a reply-
letter to Laingo denying her claim. FGU Insurance stated that Laingo should have filed the claim within three calendar
months from the death of Rheozel as required under Paragraph 15 of the Personal Accident Certificate of Insurance
which states:
chanRoblesvirtualLawlibrary
15. Written notice of claim shall be given to and filed at FGU Insurance Corporation within three calendar months of
death or disability.
On 20 February 2004, Laingo filed a Complaint4 for Specific Performance with Damages and Attorney's Fees with the
Regional Trial Court of Davao City, Branch 16 (trial court) against BPI and FGU Insurance.

In a Decision5 dated 21 April 2008, the trial court decided the case in favor of respondents. The trial court ruled that
the prescriptive period of 90 days shall commence from the time of death of the insured and not from the knowledge
of the beneficiary. Since the insurance claim was filed more than 90 days from the death of the insured, the case
must be dismissed. The dispositive portion of the Decision states:
chanRoblesvirtualLawlibrary
PREMISES CONSIDERED, judgment is hereby rendered dismissing both the complaint and the counterclaims.

SO ORDERED.6ChanRoblesVirtualawlibrary
Laingo filed an appeal with the Court of Appeals.

The Ruling of the Court of Appeals

In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling of the trial court. The Court of Appeals
ruled that Laingo could not be expected to do an obligation which she did not know existed. The appellate court added
that Laingo was not a party to the insurance contract entered into between Rheozel and petitioners. Thus, she could
not be bound by the 90-day stipulation. The dispositive portion of the Decision states:
chanRoblesvirtualLawlibrary
WHEREFORE, the Appeal is hereby GRANTED. The Decision dated April 21, 2008 of the Regional Trial Court, Branch
16, Davao City, is hereby REVERSED and SET ASIDE.

Appellee Bank of the Philippine Islands and FGU Insurance Corporation are DIRECTED to PAY jointly and severally
appellant Yolanda Laingo Actual Damages in the amount of P44,438.75 and Attorney's Fees in the amount of
P200,000.00.

Appellee FGU Insurance Corporation is also DIRECTED to PAY appellant the insurance proceeds of the Personal
Accident Insurance Coverage of Rheozel Laingo with legal interest of six percent (6%) per annum reckoned from
February 20, 2004 until this Decision becomes final. Thereafter, an interest of twelve percent (12%) per annum shall
be imposed until fully paid.

SO ORDERED.7ChanRoblesVirtualawlibrary
Petitioners filed a Motion for Reconsideration which was denied by the appellate court in a Resolution dated 11
December 2012.

Hence, the instant petition.

The Issue

The main issue for our resolution is whether or not Laingo, as named beneficiary who had no knowledge of the
existence of the insurance contract, is bound by the three calendar month deadline for filing a written notice of claim
upon the death of the insured.

The Court's Ruling

The petition lacks merit.

Petitioners contend that the words or language used in the insurance contract, particularly under paragraph 15, is
clear and plain or readily understandable by any reader which leaves no room for construction. Petitioners also
maintain that ignorance about the insurance policy does not exempt respondent from abiding by the deadline and
petitioners cannot be faulted for respondent's failure to comply.

Respondent, on the other hand, insists that the insurance contract is ambiguous since there is no provision indicating
how the beneficiary is to be informed of the three calendar month claim period. Since petitioners did not notify her of
the insurance coverage of her son where she was named as beneficiary in case of his death, then her lack of
knowledge made it impossible for her to fulfill the condition set forth in the insurance contract.

In the present case, the source of controversy stems from the alleged non-compliance with the written notice of
insurance claim to FGU Insurance within three calendar months from the death of the insured as specified in the
insurance contract. Laingo contends that as the named beneficiary entitled to the benefits of the insurance claim she
had no knowledge that Rheozel was covered by an insurance policy against disability or death issued by FGU
Insurance that was attached to Rheozel's savings account with BPI. Laingo argues that she dealt with BPI after her
son's death, when she was allowed to withdraw funds from his savings account in the amount of P995,000. However,
BPI did not notify her of the attached insurance policy. Thus, Laingo attributes responsibility to BPI and FGU Insurance
for her failure to file the notice of insurance claim within three months from her son's death.

We agree.

BPI offered a deposit savings account with life and disability insurance coverage to its customers called the Platinum
2-in-1 Savings and Insurance account. This was a marketing strategy promoted by BPI in order to entice customers to
invest their money with the added benefit of an insurance policy. Rheozel was one of those who availed of this
account, which not only included banking convenience but also the promise of compensation for loss or injury, to
secure his family's future.

As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate, FGU Insurance, as its partner. Any
customer interested to open a deposit account under this 2-in-1 product, after submitting all the required documents
to BPI and obtaining BPI's approval, will automatically be given insurance coverage. Thus, BPI acted as agent of FGU
Insurance with respect to the insurance feature of its own marketed product.
Under the law, an agent is one who binds himself to render some service or to do something in representation of
another.8 In Doles v. Angeles,9 we held that the basis of an agency is representation. The question of whether an
agency has been created is ordinarily a question which may be established in the same way as any other fact, either
by direct or circumstantial evidence. The question is ultimately one of intention. Agency may even be implied from the
words and conduct of the parties and the circumstances of the particular case. For an agency to arise, it is not
necessary that the principal personally encounter the third person with whom the agent interacts. The law in fact
contemplates impersonal dealings where the principal need not personally know or meet the third person with whom
the agent transacts: precisely, the purpose of agency is to extend the personality of the principal through the facility
of the agent.

In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial product, offering the
insurance coverage for free for every deposit account opened, Rheozel directly communicated with BPI, the agent of
FGU Insurance. BPI not only facilitated the processing of the deposit account and the collection of necessary
documents but also the necessary endorsement for the prompt approval of the insurance coverage without any other
action on Rheozel's part. Rheozel did not interact with FGU Insurance directly and every transaction was coursed
through BPI.

In Eurotech Industrial Technologies, Inc. v. Cuizon,10 we held that when an agency relationship is established, the
agent acts for the principal insofar as the world is concerned. Consequently, the acts of the agent on behalf of the
principal within the scope of the delegated authority have the same legal effect and consequence as though the
principal had been the one so acting in the given situation.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1 account be reasonably carried
out with full disclosure to the parties concerned, particularly the beneficiaries. Thus, it was incumbent upon BPI to
give proper notice of the existence of the insurance coverage and the stipulation in the insurance contract for filing a
claim to Laingo, as Rheozel's beneficiary, upon the latter's death.

Articles 1884 and 1887 of the Civil Code state:

chanRoblesvirtualLawlibrary
Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable for the damages which, through
his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should delay entail any danger.

Art. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the principal.

In default, thereof, he shall do all that a good father of a family would do, as required by the nature of the business.
The provision is clear that an agent is bound to carry out the agency. The relationship existing between principal and
agent is a fiduciary one, demanding conditions of trust and confidence. It is the duty of the agent to act in good faith
for the advancement of the interests of the principal. In this case, BPI had the obligation to carry out the agency by
informing the beneficiary, who appeared before BPI to withdraw funds of the insured who was BPI's depositor, not
only of the existence of the insurance contract but also the accompanying terms and conditions of the insurance policy
in order for the beneficiary to be able to properly and timely claim the benefit.

Upon Rheozel's death, which was properly communicated to BPI by his mother Laingo, BPI, in turn, should have
fulfilled its duty, as agent of FGU Insurance, of advising Laingo that there was an added benefit of insurance coverage
in Rheozel's savings account. An insurance company has the duty to communicate with the beneficiary upon receipt of
notice of the death of the insured. This notification is how a good father of a family should have acted within the scope
of its business dealings with its clients. BPI is expected not only to provide utmost customer satisfaction in terms of its
own products and services but also to give assurance that its business concerns with its partner entities are
implemented accordingly.

There is a rationale in the contract of agency, which flows from the "doctrine of representation," that notice to the
agent is notice to the principal,11 Here, BPI had been informed of Rheozel's death by the latter's family. Since BPI is
the agent of FGU Insurance, then such notice of death to BPI is considered as notice to FGU Insurance as well. FGU
Insurance cannot now justify the denial of a beneficiary's insurance claim for being filed out of time when notice of
death had been communicated to its agent within a few days after the death of the depositor-insured. In short, there
was timely notice of Rheozel's death given to FGU Insurance within three months from Rheozel's death as required by
the insurance company.

The records show that BPI had ample opportunity to inform Laingo, whether verbally or in writing, regarding the
existence of the insurance policy attached to the deposit account. First, Rheozel's death was headlined in a daily major
newspaper a day after his death. Second, not only was Laingo, through her representative, able to inquire about
Rheozel's deposit account with BPI two days after his death but she was also allowed by BPI's Claveria, Davao City
branch to withdraw from the funds in order to help defray Rheozel's funeral and burial expenses. Lastly, an employee
of BPI visited Rheozel's wake and submitted documents for Laingo to sign in order to process the withdrawal request.
These circumstances show that despite being given many opportunities to communicate with Laingo regarding the
existence of the insurance contract, BPI neglected to carry out its duty.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the insurance policy, Laingo had
no means to ascertain that she was entitled to the insurance claim. It would be unfair for Laingo to shoulder the
burden of loss when BPI was remiss in its duty to properly notify her that she was a beneficiary.

Thus, as correctly decided by the appellate court, BPI and FGU Insurance shall bear the loss and must compensate
Laingo for the actual damages suffered by her family plus attorney's fees. Likewise, FGU Insurance has the obligation
to pay the insurance proceeds of Rheozel's personal accident insurance coverage to Laingo, as Rheozel's named
beneficiary.chanrobleslaw

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29 June 2012 and Resolution dated 11
December 2012 of the Court of Appeals in CA-G.R. CV No. 01575.

SO ORDERED.cralawlawlibrary

Del Castillo, and Mendoza, JJ., concur.

Brion, J., on leave.
Leonen, J., on official leave.chanroblesvirtua

llawlibrary
 FIRST DIVISION

G.R. No. 167082, August 03, 2016

TERESITA I. BUENAVENTURA, Petitioner, v. METROPOLITAN BANK AND TRUST COMPANY, Respondent.

DECISION

BERSAMIN, J.:

A duly executed contract is the law between the parties, and, as such, commands them to comply fully and not
selectively with its terms. A contract of adhesion, of itself, does not exempt the parties from compliance with what
was mutually agreed upon by them.

The Case

In this appeal, the petitioner seeks the reversal of the decision promulgated on April 23, 2004, 1 whereby the Court of
Appeals (CA) affirmed with modification the judgment2 rendered on July 11, 2002 by the Regional Trial Court (RTC),
Branch 61, in Makati City. Also being appealed is the resolution3 promulgated on February 9, 2005, whereby the CA
denied her motion for reconsideration.

Antecedents

The following factual and procedural antecedents are narrated by the CA in its assailed decision, to
wit:ChanRoblesVirtualawlibrary
On January 20, 1997 and April 17, 1997, Teresita Buenaventura (or "appellant") executed Promissory Note (or "PN")
Nos. 232663 and 232711, respectively, each in the amount of PI,500,000.00 and payable to Metropolitan Bank and
Trust Company (or "appellee"). PN No. 232663 was to mature on July 1, 1997, with interest and credit evaluation and
supervision fee (or "CESF") at the rate of 17.532% per annum, while PN No. 232711 was to mature on April 7, 1998,
with interest and CESF at the rate of 14.239% per annum. Both PNs provide for penalty of 18% per annum on the
unpaid principal from date of default until full payment of the obligation.

Despite demands, there remained unpaid on PN Nos. 232663 and 232711 the amounts of P2,061,208.08 and
PI,492,236.37, respectively, as of July 15, 1998, inclusive of interest and penalty. Consequently, appellee filed an
action against appellant for recovery of said amounts, interest, penalty and attorney's fees before the Regional Trial
Court of Makati City (Branch 61).

In answer, appellant averred that in 1997, she received from her nephew, Rene Imperial (Or "Imperial"), three
postdated checks drawn against appellee (Tabaco Branch), i.e., Check No. TA 1270484889PA dated January 5, 1998
in the amount of PI,200,000.00, Check No. 1270482455PA dated March 31, 1998 in the amount of PI,197,000.00 and
Check No. TA1270482451PA dated March 31, 1998 in the amount of P500,000.00 (or "subject checks"), as partial
payments for the purchase of her properties; that she rediscounted the subject checks with appellee (Timog Branch),
for which she was required to execute the PNs to secure payment thereof; and that she is a mere guarantor and
cannot be compelled to pay unless and until appellee shall have exhausted all the properties of Imperial. 4
On July 11, 2002, the RTC rendered its judgment,5 viz.:ChanRoblesVirtualawlibrary
WHEREFORE, in view of the foregoing, the Court finds in favor of plaintiff METROPOLITAN BANK AND TRUST COMPANY
and against defendant TERESITA BUENAVENTURA.

As a consequence of this judgment, defendant Buenaventura is directed to pay plaintiff bank the amount of
P3,553,444.45 plus all interest and penalties due as stipulated in Promissory Notes Nos. 232663 and 232711
beginning July 15, 1998 until the amount is fully paid and 10% of the total amount due as attorney's fees.

SO ORDERED.
Dissatisfied, the petitioner appealed, assigning the following as errors, namely:

chanRoblesvirtualLawlibrary
I
THE TRIAL COURT ERRED IN HOLDING THAT THE REDISCOUNTING TRANSACTION BETWEEN APPELLANT AND
METROBANK RESULTED TO A LOAN OBLIGATION SECURED BY THE SUBJECT CHECKS AND PROMISSORY NOTES.

A. Rediscounting transactions do not create loan obligations between the parties.

 B. By the rediscounting, Metrobank subrogated appellant as creditor of Rene Imperial, the issuer of the
checks.

C. Legal subrogation was presumed when Metrobank paid the obligation of Mr. Imperial with the latter's
knowledge and consent.

II

THE TRIAL COURT ERRED IN GRANTING METROBANK'S CLAIMS ON THE BASIS OF THE PROMISSORY NOTES.

A. The promissory notes are null and void for being simulated and fictitious.

B. Assuming that the promissory notes are valid, these only serve as guaranty to secure the payment of
the rediscounted checks.

III

THE TRIAL COURT ERRED IN NOT RULING THAT APPELLANT IS ENTITLED TO HER COUNTERCLAIMS FOR EXEMPLARY
DAMAGES, ATTTORNEY'S FEES, LITIGATION EXPENSES AND COSTS OF SUIT.6chanrobleslaw

On April 23, 2004, the CA promulgated the assailed decision affirming the decision of the RTC with modification, 7 as
follows:

chanRoblesvirtualLawlibraryWHEREFORE, the appealed decision is AFFIRMED with

MODIFICATION of the second paragraph of its dispositive portion, which should now
read:ChanRoblesVirtualawlibrary
"As a consequence of this judgment, defendant Buenaventura is directed to pay plaintiff bank the amount of
P3,553,444.45 plus interest and penalty therein at 14.239% per annum and 18% per annum, respectively, from July
15, 1998 until fully paid and 10% of said amount as attorney's fees."
SO ORDERED.8
On May 21, 2004, the petitioner moved for the reconsideration of the decision, but the CA denied her motion for that
purpose on February 9, 2005.9chanrobleslaw

Hence, this appeal by the petitioner.

Issues

The petitioner ascribes the following errors to the CA, to wit:

chanRoblesvirtualLawlibrary
I
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE UNDER THE PROMISSORY NOTES.

A. The promissory notes executed by petitioner are null and void for being simulated and fictitious.

B. Even assuming that the promissory notes are valid, these are intended as mere guaranty to secure
Rene Imperial's payment of the rediscounted checks. Hence, being a mere guarantor, the action
against petitioner under the said promissory notes is premature.

C. Metrobank is deemed to have subrogated petitioner as creditor of Mr. Imperial (the issuer of the
checks). Hence, Metrobank's recourse as creditor, is against Mr. Imperial.

II

THE COURT OF APPEALS ERRED IN NOT RULING THAT PETITIONER IS ENTITLED TO HER COUNTER-CLAIM FOR
EXEMPLARY DAMAGES, ATTORNEY'S FEES, LITIGATION EXPENSES AND COSTS OF SUIT.10
Ruling

The appeal lacks merit.

First of all, the petitioner claims that the promissory notes she executed were contracts of adhesion because her only
participation in their execution was affixing her signature,11 and that the terms of the promissory notes should
consequently be strictly construed against the respondent as the party responsible for their preparation.12 In contrast,
the respondent counters that the terms and conditions of the promissory notes were clear and unambiguous; hence,
there was no room or need for interpretation thereof.13chanrobleslaw

The respondent is correct.

The promissory notes were written as follows:ChanRoblesVirtualawlibrary

FOR VALUE RECEIVED, I/we jointly and severally promise to pay Metropolitan Bank and Trust Company, at its office x
x x the principal sum of PESOS xxx, Philippine currency, together with interest and credit evaluation and supervision
fee (CESF) thereon at the effective rate of xxx per centum xxx per annum, inclusive, from date hereof and until fully
paid.14
What the petitioner advocates is for the Court to now read into the promissory notes terms and conditions that would
contradict their clear and unambiguous terms in the guise of such promissory notes being contracts of adhesion. This
cannot be permitted, for, even assuming that the promissory notes were contracts of adhesion, such circumstance
alone did not necessarily entitle her to bar their literal enforcement against her if their terms were unequivocal. It is
preposterous on her part to disparage the promissory notes for being contracts of adhesion, for she thereby seems to
forget that the validity and enforceability of contracts of adhesion were the same as those of other valid contracts.
The Court has made this plain in Avon Cosmetics, Inc. v. Luna,15 stating:ChanRoblesVirtualawlibrary
A contract of adhesion is so-called because its terms are prepared by only one party while the other party merely
affixes his signature signifying his adhesion thereto. Such contract is just as binding as ordinary contracts.

It is true that we have, on occasion, struck down such contracts as void when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not invalid per se and
they are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely, if he
adheres, he gives his consent.

xxxx

Accordingly, a contract duly executed is the law between the parties, and they are obliged to comply fully and not
selectively with its terms. A contract of adhesion is no exception.
As a rule, indeed, the contract of adhesion is no different from any other contract. Its interpretation still aligns with
the literal meaning of its terms and conditions absent any ambiguity, or with the intention of the parties. 16 The terms
and conditions of the promissory notes involved herein, being clear and beyond doubt, should then be enforced
accordingly. In this regard, we approve of the observation by the CA, citing Cruz v. Court of Appeals, 17 that the
intention of the parties should be "deciphered not from the unilateral post facto assertions of one of the parties, but
from the language used in the contract."18 As fittingly declared in The Insular Life Assurance Company, Ltd. vs. Court
of Appeals and Sun Brothers & Company,19 "[w]hen the language of the contract is explicit leaving no doubt as to the
intention of the drafters thereof, the courts may not read into it any other intention that would contradict its plain
import." Accordingly, no court, even this Court, can "make new contracts for the parties or ignore those already made
by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the
creation of a contract for the parties which they did not make themselves or the imposition upon one party to a
contract of an obligation not assumed."20chanrobleslaw

Secondly, the petitioner submits that the promissory notes were null and void for being simulated and fictitious;
hence, the CA erred in enforcing them against her.

The submission contradicts the records and the law pertinent to simulated contracts.

Based on Article 134521 of the Civil Code, simulation of contracts is of two kinds, namely: (1) absolute; and (2)
relative. Simulation is absolute when there is color of contract but without any substance, the parties not intending to
be bound thereby.22 It is relative when the parties come to an agreement that they hide or conceal in the guise of
another contract.23chanrobleslaw

The effects of simulated contracts are dealt with in Article 1346 of the Civil Code, to wit:ChanRoblesVirtualawlibrary
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy
binds the parties to their real agreement.
The burden of showing that a contract is simulated rests on the party impugning the contract. This is because of the
presumed validity of the contract that has been duly executed.24 The proof required to overcome the presumption of
validity must be convincing and preponderant. Without such proof, therefore, the petitioner's allegation that she had
been made to believe that the promissory notes would be guaranties for the rediscounted checks, not evidence of her
primary and direct liability under loan agreements,25cralawred could not stand.

Moreover, the issue of simulation of contract was not brought up in the RTC. It was raised for the first time only in the
CA.26 Such belatedness forbids the consideration of simulation of contracts as an issue. Indeed, the appellate courts,
including this Court, should adhere to the rule that issues not raised below should not be raised for the first time on
appeal. Basic considerations of due process and fairness impel this adherence, for it would be violative of the right to
be heard as well as unfair to the parties and to the administration of justice if the points of law, theories, issues and
arguments not brought to the attention of the lower courts should be considered and passed upon by the reviewing
courts for the first time.

Thirdly, the petitioner insists that the promissory notes, even if valid, were meant as guaranties to secure payment of
the checks by the issuer, Rene Imperial; hence, her liability was that of a guarantor, and would take effect only upon
exhaustion of all properties and after resort to all legal remedies against Imperial.27chanrobleslaw

The insistence of the petitioner is bereft of merit.

The CA rejected this insistence, expounding as follows:ChanRoblesVirtualawlibrary

A guaranty is not presumed; it must be expressed (Art. 2055, New Civil Code). The PNs provide, in clear language,
that appellant is primarily liable thereunder. On the other hand, said PNs do not state that Imperial, who is not even
privy thereto, is the one primarily liable and that appellant is merely a guarantor. Parenthetically, the disclosure
statement (Exh. "D") executed by appellant states that PN No. 232711 is "secured by postdated checks". In other
words, it does not appear that the PNs were executed as guaranty for the payment of the subject checks.

Nevertheless, appellant insists that she did not obtain a short-term loan from appellee but rediscounted the subject
checks, with the PNs as guaranty. The contention is untenable.

In Great Asian Sales Center Corporation vs. Court of Appeals (381 SCRA 557), which was cited in support of
appellant's claim, the Supreme Court explained the meaning of "discounting line", thus:ChanRoblesVirtualawlibrary
"In the financing industry, the term 'discounting line' means a credit facility with a financing company or bank which
allows a business entity to sell, on a continuing basis, its accounts receivable at a discount. The term 'discount' means
the sale of a receivable at less than its face value. The purpose of a discounting line is to enable a business entity to
generate instant cash out of its receivables which are still to mature at future dates. The financing company or bank
which buys the receivables makes its profit out of the difference between the face value of the receivable and the
discounted price."
A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the
onerous nature of the conditions (Art. 2054, id). Curiously, the face amounts of the PNs (totaling P3,000,000.00) are
more than those of the subject checks (totaling P2,897,000.00). And unlike the subject checks, the PNs provide for
interest, CESF and penalty.

Moreover, the maturity date (July 1, 1997) of PN No. 232663 is ahead of the dates (January 5, 1998 and March 31,
1998) of the subject checks. In other words, appellant, as "guarantor", was supposed to make good her "guaranty",
i.e. PNs in question, even beforethe "principal" obligations, i.e. subject checks, became due. It is also noted that the
rediscounting of the subject checks (in January 1997) occurred months ahead of the execution of PN No. 232711 (on
April 17, 1997) even as the PNs were supposedly a precondition to said rediscounting.

xxxx

Stated differently, appellant is primarily liable under the subject checks. She is a principal debtor and not a guarantor.
Consequently, the benefit of excussion may not be interposed as a defense in an action to enforce appellant's
warranty as indorser of the subject checks.

Moreover, it is absurd that appellant (as maker of the PNs) may act as guarantor of her own obligations (as indorser
of the subject checks). Thus, Art. 2047 of the New Civil Code provides that "(b)y guaranty, a person called
the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should
fail to do so."28(Emphasis supplied)
The CA was correct. A contract of guaranty is one where a person, the guarantor, binds himself or herself to another,
the creditor, to fulfill the obligation of the principal debtor in case of failure of the latter to do so.29 It cannot be
presumed, but must be express and in writing to be enforceable,30 especially as it is considered a special promise to
answer for the debt, default or miscarriage of another.31 It being clear that the promissory notes were entirely silent
about the supposed guaranty in favor of Imperial, we must read the promissory notes literally due to the absence of
any ambiguities about their language and meaning. In other words, the petitioner could not validly insist on the
guaranty. In addition, the disclosure statements32 and the statements of loan release33 undeniably identified her, and
no other, as the borrower in the transactions. Under such established circumstances, she was directly and personally
liable for the obligations under the promissory notes.

Fourth, the petitioner argues that the respondent was immediately . subrogated as the creditor of the accounts by its
purchase of the checks from her through its rediscounting facility;34 and that legal subrogation should be presumed
because the petitioner, a third person not interested in the obligation, paid the debt with the express or tacit approval
of the debtor.35chanrobleslaw

The argument is barren of factual and legal support.

Legal subrogration finds no application because there is no evidence showing that Imperial, the issuer of the checks,
had consented to the subrogation, expressly or impliedly.36 This circumstance was pointed out by the RTC
itself.37 Also, as the CA emphatically observed,38 the argument was off-tangent because the suit was not for the
recovery of money by virtue of the checks of Imperial but for the enforcement of her obligation as the maker of the
promissory notes.

Fifth, the petitioner posits that she was made to believe by the manager of the respondent's Timog Avenue, Quezon
City Branch that the promissory notes would be mere guaranties for the rediscounted checks; 39 that despite the
finding of the RTC and the CA that she was a seasoned businesswoman presumed to have read and understood all the
documents given to her for signature, she remained a layman faced with and puzzled by complex banking terms; and
that her acceding to signing the promissory notes should not be taken against her as to conclude her. 40chanrobleslaw

The petitioner's position is unworthy of serious consideration.

After having determined that the terms and conditions of the promissory notes were clear and unambiguous, and thus
should be given their literal meaning and not be interpreted differently, we insist and hold that she should be bound
by such terms and conditions. Verily, the promissory notes as contracts should bind both contracting parties; hence,
the validity or compliance therewith should not be left to the will of the petitioner. 41 Otherwise, she would contravene
and violate the principles of mutuality and of the obligatory force of contracts. A respected commentator on civil law
has written in this respect:ChanRoblesVirtualawlibrary
The binding effect of the contract on both parties is based on the principles (1) that obligations arising from contracts
have the force of law between the contracting parties; and (2) that there must be mutuality between the parties
based on their essential equality, to which is repugnant to have one party bound by the contract leaving the other free
therefrom.

xxxx

Just as nobody can be forced to enter into a contract, in the same manner once a contract is entered into, no party
can renounce it unilaterally or without the consent of the other. It is a general principle of law that no one may be
permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the
prejudice of the other party.

If, after a perfect and binding contract has been executed between the parties, it occurs to one of them to allege
some defect therein as a reason for annulling it, the alleged defect must be conclusively proven, since the validity and
fulfillment of contracts cannot be left to the will of one of the contracting parties. The fact that a party may not have
fully understood the legal effect of the contract is no ground for setting it aside.42
And, lastly, there is need to revise the monetary awards by the CA. Although no issue is raised by the petitioner
concerning the monetary awards, the Court feels bound to make this revision as a matter of law in order to arrive at a
just resolution of the controversy.

Involved here are two loans of the petitioner from the respondent, specifically: (1) the principal amount of
PI,500,000.00 covered by Promissory Note No. 232663 to be paid on or before July 1, 1997 with interest and credit
evaluation and supervision fee (CESF) at the rate of 17.532% per annum and penalty charge of 18% per
annum based on the unpaid principal to be computed from the date of default until full payment of the obligation; and
(2) the principal amount of PI,500,000.00 covered by Promissory Note No. 232711 to be paid on or before April 7,
1998 with interest and CESF at the rate of 14.239% per annum and penalty charge of 18% per annum based on the
unpaid principal to be computed from the date of default until full payment of the obligation.

The RTC adjudged the petitioner liable to pay to the respondent the total of P3,553,444.45 representing her
outstanding obligation, including accrued interests and penalty charges under the promissory notes, plus attorney's
fees.43 On appeal, the CA ruled that she was liable to the respondent for the sum of P3,553,444.45 with interest and
penalties at 14.239% per annum and 18% per annum, respectively, from July 15, 1998 until fully
paid.44chanrobleslaw

The bases of the amounts being claimed from the petitioner were apparently the two statements of past due interest
and penalty charges as of July 15, 1998, one corresponding to Promissory Note No. 232711,45 and the other to
Promissory Note No. 232663,46 Respondent's witness Patrick N. Miranda, testifying on the obligation and the
computation thereof,47 attested as follows:ChanRoblesVirtualawlibrary

1. What is the amount of her loan obligation?

 -Under Promissory Note No. 232663, her loan obligation is Pl,492,236.37 inclusive of interest and penalty
charges as of July 15, 1998. Under Promissory Note No. 232711, her loan obligation is P2,061,208.08,
inclusive of interest and penalty charges as of July 15, 1998. Thus, the total is P3,553,444.45 as of July 15,
1998. Two (2) Statements of Account were prepared to show the computation and penalty charges.

2. Do you have these Statements of Account?

-Yes, sir. (Copies are hereto attached as Exhibits "H" and "I".) 48

Promissory Note No. 23271149

PRINCIPAL AMOUNT P1,500,000.00

PAST DUE INTEREST - 334 days @34.991%

fr. Aug. 15, 1997 to July 15, 1998 P486,958.08

PENALTY CHARGES - 99 days @18.0%

fr. April 07, 1998 to July 15, 1998 P74,250.00

TOTAL OUTSTANDING LOAN

AS OF JULY 15, 1998 P2,061,208.08

Promissory Note No. 23266350

PRINCIPAL AMOUNT P1,200,000.00

PAST DUE INTEREST - 191 days @27.901%

fr. [J]an. 05, 1998 to [J]uly 15, 1998 P177,636.37

PENALTY CHARGES - 191 days @18.0%

fr. [J]an. 05, 1998 to [J]uly 15, 1998 P114,600.00

TOTAL OUTSTANDING LOAN

AS OF JULY 15, 1998 P1,492,236.37

The total of P3,553,444.45 was the final sum of the computations contained in the statements of past due interest
and penalty charges as of July 15, 1998, and was inclusive of interest at the rate of 34.991% (on the principal of
P1,500,000.00) and 27.901% (on the principal of P1,200,00.00). Yet, such interest rates were different from the
interest rates stipulated in the promissory notes, namely: 14.239% for promissory Note No. 232711 and 17.532% for
Promissory Note No. 232663. As a result, the P3,553,444.45 claimed by the respondent as the petitioner's aggregate
oustanding loan obligatopn included interest of almost double the rates stipulated by the parties.

We hold that the respondent had no legal basis for imposing rates far higher than those agreed upon and stipulated in
the promissory notes. It did not suitably justify the imposition of the increased rates of 34.991% and 27.901%, as
borne out by the statements of past due interest and penalty charges as of July 15, 1998, although it certainly was its
burden to show the legal and factual support for the imposition. We need not remind that the burden of proof is the
duty of any party to present evidence to establish its claim or defense by the amount of evidence required by law,
which in civil cases is preponderance of evidence.51 Consequently, we have to strike down the imposition.

Parenthetically, we observe that the stipulation in the promissory notes on the automatic increase of the interest rate
to the prevailing rate52 did not justify the increase of the interest rates because the respondent did not adduce
evidence about the prevailing rates at the time material to this case.

On May 16, 2013, the Monetary Board of the Bangko Sentral ng Pilipinas, in the exercise of its statutory authority to
review and fix interest rates, issued Circular No. 799, Series of 2013 to lower to 6% per annum the rate of interest for
loan or forbearance of any money, goods or credits, and the rate allowed in judgment.53 The revised rate applies only
in the absence of stipulation in loan contracts. Hence, the contractual stipulations on the rates of interest contained in
the promissory notes remained applicable.

Considering that, as mentioned, the P3,553,444.45 was an aggregate inclusive of the interest {i.e., at the rates of
34.991% and 27.901% per annum); and that the penalty charges contravened the express provisions of the
promissory notes, the RTC and the CA both erred on a matter of law, and we should correct their error as a matter of
law in the interest of justice.

It is further held that the CA could not validly apply the lower interest rate of 14.239% per annum to the whole
amount of P3,553,444.45 in contravention of the stipulation of the parties. In Mallari v. Prudential Bank,54 the Court
declared that the interest rate of "3% per month and higher are excessive, unconscionable and exorbitant, hence, the
stipulation was void for being contrary to morals." Even so, the Court did not consider as unconscionable the interest
rate of 23% per annum agreed upon by the parties. Upholding the 23% per annum interest rate agreed upon, the
Court instead opined that "the borrowers cannot renege on their obligation to comply with what is incumbent upon
them under the contract of loan as the said contract is the law between the parties and they are bound by its
stipulations."55 Consequently, the respondent could not impose the flat interest rate of 14.239% per annum on the
petitioner's loan obligation. Verily, the obligatory force of the stipulations between the parties called for the imposition
of the interest rates stipulated in the promissory notes.

To accord with the prevailing jurisprudence, the Court pronounces that the respondent was entitled to recover the
principal amount of P1,500,000.00 subject to the stipulated interest of 14.239%per annumfrom date of default until
full payment;56 and the principal amount of P1,200,000.00 subject to the stipulated interest of 17.532%per
annum from date of default until full payment.57chanrobleslaw

The next matter to be considered and determined is the date of default.

According to Article 1169 of the Civil Code, there is delay or default from the time the obligee judicially or
extrajudically demands from the obligor the fulfillment of his or her obligation. The records reveal that the respondent
did not establish when the petitioner defaulted in her obligation to pay based on the two promissory notes. As such,
its claim for payment computed from July 15, 1998 until full payment of the obligation had no moorings other than
July 15, 1998 being the date reflected in the statements of past due interest and penalty charges as of July 15, 1998.
Nonetheless, its counsel, through the letter dated July 7, 1998,58 made a final demand in writing for the petitioner to
settle her total obligation within five days from receipt. As the registry return receipt indicated, 59 the final demand
letter was received for the petitioner by one Elisa dela Cruz on July 28, 1998. Hence, the petitioner had five days from
such receipt, or until August 2, 1998, within which to comply. The reckoning date of default is, therefore, August 3,
1998.

As to the penalty charge, the same was warranted for being expressly stipulated in the promissory notes, to
wit:ChanRoblesVirtualawlibrary
I/we further agree to pay the Bank, in addition to the agreed interest rate, a penalty charge of eighteen per
centum (18%) per annum based on any unpaid principal to be computed from date of default until full payment of the
obligation.60
Verily, a penal clause is an accessory undertaking attached to a principal obligation. It has for its purposes, firstly, to
provide for liquidated damages; and, secondly, to strengthen the coercive force of the obligation by the threat of
greater responsibility in the event of breach of obligation.61 Under Article 1226 of the Civil Code,62 a penal clause is a
substitute indemnity for damages and the payment of interests in case of noncompliance, unless there is a stipulation
to the contrary. In Tan v. Court of Appeals[63] the Court has elaborated on the nature of a penalty clause in the
following:ChanRoblesVirtualawlibrary
Penalty on delinquent loans may take different forms. In Government Service Insurance System v. Court of
Appeals, this Court has ruled that the New Civil Code permits an agreement upon a penalty apart from the monetary
interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as
such the two are different and distinct from each other and may be demanded separately. Quoting Equitable Banking
Corp. v. Liwanag, the GSIS case went on to state that such a stipulation about payment of an additional interest rate
partakes of the nature of a penalty clause which is sanctioned by law, more particularly under Article 2229 of the New
Civil Code which provides that:ChanRoblesVirtualawlibrary
If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and the
absence of stipulation, the legal interest, which is six per cent per annum.
The penalty charge of two percent (2%) per month in the case at bar began to accrue from the time of default by the
petitioner. There is no doubt that the petitioner is liable for both the stipulated monetary interest and the stipulated
penalty charge. The penalty charge is also called penalty or compensatory interest.
The Court has explained the rate of compensatory interest on monetary awards adjudged in decisions of the Court
in Planters Development Bank v. Lopez,64 citing Nacar v. Gallery Frames [65] to wit:ChanRoblesVirtualawlibrary
With respect to the computation of compensatory interest, Section 1 of Bangko Sentral ng Pilipinas (BSP) Circular No.
799, Series of 2013, which took effect on July 1, 2013, provides:ChanRoblesVirtualawlibrary
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
This provision amends Section 2 of Central Bank (CB) Circular No. 905-82, Series of 1982, which took effect on
January 1, 1983. Notably, we recently upheld the constitutionality of CB Circular No. 905-82 in Advocates for Truth in
Lending, Inc., et al. v. Bangko Sentral ng Pilipinas Monetary Board, etc. Section 2 of CB Circular No. 905-82
provides:ChanRoblesVirtualawlibrary
Section 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve percent
(12%) per annum.
Pursuant to these changes, this Court modified the guidelines in Eastern Shipping Lines, Inc. v. Court of Appeals in
the case of Dario Nacar v. Gallery Frames, et al.(Nacar). In Nacar, we established the following
guidelines:ChanRoblesVirtualawlibrary

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code, (emphasis and underscore supplied)

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code), but when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annumfrom such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein.
To accord with the foregoing rulings, the 17.532% and 14.239% annual interest rates shall also respectively earn a
penalty charge of 18% per annum reckoned on the unpaid principals computed from the date of default (August 3,
1998) until fully paid. This is in line with the express agreement between the parties to impose such penalty charge.

Article 2212 of the Civil Code requires that interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point. Accordingly, the interest due shall itself earn legal
interest of 6% per annum from the date of finality of the judgment until its full satisfaction, the interim period being
deemed to be an equivalent to a forbearance of credit.66chanrobleslaw

WHEREFORE, the Court AFFIRMS the decision promulgated on April 23, 2004 with the MODIFICATION that the
petitioner shall pay to the respondent: (1) the principal sum of PI,500,000.00 under Promissory Note No. 232711,
plus interest at the rate of 14.239% per annum commencing on August 3, 1998 until fully paid; (2) the principal sum
of PI,200,000.00 under Promissory Note No. 232663, plus interest at the rate of 17.532% per annum commencing on
August 3, 1998 until fully paid; (3) penalty interest on the unpaid principal amounts at the rate of 18% per
annum commencing on August 3, 1998 until fully paid; (4) legal interest of 6% per annum on the interests
commencing from the finality of this judgment until fully paid; (5) attorney's fees equivalent to 10% of the total
amount due to the respondent; and (6) costs of suit.

SO ORDERED.chanRoblesvirtualLawlibrary

Sereno, C.J., Leonardo-De Castro, Perlas-Bernabe, and Caguioa, JJ., concur.

 THIRD DIVISION

STRONGHOLD INSURANCE COMPANY, G.R. Nos. 158820-21

INCORPORATED,
Petitioner, Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - CARPIO,*
CORONA,**
NACHURA, and
PERALTA, JJ.

TOKYU CONSTRUCTION COMPANY, LTD., Promulgated:

Respondent.
June 5, 2009

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

DECISION

NACHURA, J.:

Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the Court of Appeals (CA)
Decision[1] dated January 21, 2003 and its Resolution[2] dated June 25, 2003.

The factual and procedural antecedents follow:

Respondent Tokyu Construction Company, Ltd., a member of a consortium of four (4) companies, was awarded by the
Manila International Airport Authority a contract for the construction of the Ninoy Aquino International Airport (NAIA)
Terminal 2 (also referred to as the project). On July 2, 1996, respondent entered into a Subcontract Agreement [3] with
G.A. Gabriel Enterprises, owned and managed by Remedios P. Gabriel (Gabriel), for the construction of the projects
Storm Drainage System (SDS) for P33,007,752.00 and Sewage Treatment Plant (STP) for P23,500,000.00, or a total
contract price of P56,507,752.00. The parties agreed that the construction of the SDS and STP would be completed
on August 10, 1997 and May 31, 1997, respectively.[4]

In accordance with the terms of the agreement, respondent paid Gabriel 15% of the contract price, as advance
payment, for which the latter obtained from petitioner Stronghold Insurance Company, Inc. Surety
Bonds[5] dated February 26, 1996[6] and April 15, 1996,[7] to guarantee its repayment to respondent. Gabriel also
obtained from petitioner Performance Bonds[8] to guarantee to respondent due and timely performance of the
work.[9] Both bonds were valid for a period of one year from date of issue.

In utter defiance of the parties agreements, Gabriel defaulted in the performance of her obligations. On February 10,
1997, in a letter[10] sent to Gabriel, respondent manifested its intention to terminate the subcontract
agreement. Respondent also demanded that petitioner comply with its undertaking under its bonds.

On February 26, 1997, both parties (respondent and Gabriel) agreed to revise the scope of work, reducing the
contract price for the SDS phase from P33,007,752.00 to P1,175,175.00[11] and the STP from P23,500,000.00
to P11,095,930.50,[12] fixing the completion time on May 31, 1997.

Gabriel thereafter obtained from Tico Insurance Company, Inc. (Tico) Surety [13] and Performance[14] Bonds to
guarantee the repayment of the advance payment given by respondent to Gabriel and the completion of the work for
the SDS, respectively.

Still, Gabriel failed to accomplish the works within the agreed completion period. Eventually, on April 26, 1997,
Gabriel abandoned the project. On August 8, 1997, respondent served a letter [15] upon Gabriel terminating their
agreement since the latter had only completed 63.48% of the SDS project, valued at P744,965.00; and 46.60% of the
STP, valued at P5,171,032.48. Respondent thereafter demanded from Gabriel the return of the balance of the
advance payment. Respondent, likewise, demanded the payment of the additional amount that it incurred in
completing the project.[16] Finally, respondent made formal demands against petitioner and Tico to make good their
obligations under their respective performance and surety bonds. However, all of them failed to heed respondents
demand. Hence, respondent filed a complaint[17] against petitioner, Tico, and Gabriel, before the Construction Industry
Arbitration Commission (CIAC).

In the complaint, respondent prayed that Gabriel, Tico, and petitioner be held jointly and severally liable for
the payment of the additional costs it incurred in completing the project covered by the subcontract agreement; for
liquidated damages; for the excess downpayment paid to Gabriel; for exemplary damages; and for attorneys fees.[18]

Gabriel denied liability and argued that the delay in the completion of the project was caused by
respondent. She also contended that the original subcontract agreement was novated by the revised scope of work
and completion schedule. To counter respondents monetary demands, she claimed that it was, in fact, respondent
who had an unpaid balance.

For its part, Tico averred that it actually treated respondents demand as a claim on the performance and
surety bonds it issued; but it could not make payment since the claim was still subject to determination, findings, and
recommendation of its assigned independent adjuster.[19]

On the other hand, petitioner interposed the following special and affirmative defenses: 1) the surety and
performance bonds had expired; 2) the premium on the bonds had not been paid by Gabriel; 3) the contract for which
the bonds were issued was set aside/novated; 4) the requisite notices were not made which thus barred respondents
claims against it; and 5) the damages claimed were not arbitrable.[20]

On February 5, 1999, the parties signed the Terms of Reference [21] (TOR) wherein their admission of facts,
their respective positions and claims, the issues to be determined, and the amount of arbitration fees were
summarized and set forth.

On August 24, 1999, the CIAC rendered a decision,[22] the dispositive portion of which reads:

WHEREFORE, award is hereby made as follows:

1. On Tokyus claims for cost overrun and cost of materials, equipment, manpower contributed
prior to alleged takeover, Gabriel is found liable to pay Tokyu the amount of P1,588,527.00.

2. On Tokyus claim of liquidated damages, Gabriel is found liable to pay Tokyu the amount
of P662,666.44.

3. On Tokyus claim against Tico, we find Tico to be jointly and severally liable with Gabriel on
its Performance Bond for the payment of the amounts stated in numbers [1] and [2] above but its
liability to Tokyu shall not exceed the amount of P238,401.39 on its performance bond. The claim
against Tico on its Surety Bond is hereby dismissed.

4. With regard to the claim for the return of the unrecouped down payment, we find that
Gabriel is liable to pay Tokyu the amount [of] P7,588,613.18.

5. With regard to Tokyus claim against Stronghold on its Surety Bonds, we find Stronghold
liable jointly and severally with Gabriel for the payment of the unrecouped down payment but only up
to the amount of P6,701,063.60. The claim against Stronghold on its Performance Bonds is hereby
dismissed.

6. The counterclaim of Gabriel against Tokyu is not contested. Tokyu is held liable to pay
Gabriel on her counterclaim of P1,007,515.78.

7. The net amount due Gabriel for its unpaid progress billing is P1,190,108.41. Tokyu is held
liable to pay this amount to Gabriel.

The amount adjudged in favor of Tokyu against Gabriel is P9,642,182.43 The amount
adjudged in favor of Gabriel against Tokyu is P2,197,624.19. Offsetting these two amounts, there is a
net award in favor of Tokyu of P7,642,182.43. Payment of this amount or any portion thereof shall
inure to the benefit of and reduce pro tanto the liability of the respondents sureties. (Art. 1217, Civil
Code)

All other claims or counterclaims not included in the foregoing disposition are hereby
denied. The costs of arbitration shall be shared by the parties pro rata on the basis of their claims and
counterclaims as reflected in the TOR.
 SO ORDERED.[23]

The CIAC refused to resolve the issue of novation since respondent had already terminated the agreement by
sending a letter to Gabriel. It further held that petitioners liabilities under the surety and performance bonds were not
affected by the revision of the scope of work, contract price, and completion time.

Petitioner and respondent separately appealed the CIAC decision to the CA via a petition for review under Rule
43 of the Rules of Court. The appeals were docketed as CA-G.R. SP Nos. 54920 (petitioner) and 55167 (respondent)
which were later consolidated. On January 21, 2003, the CA rendered a decision[24]modifying the awards made by the
Arbitral Tribunal, thus:

WHEREFORE, the appealed decision/award of the Arbitral Tribunal is hereby MODIFIED in that:

1. On TOKYUs claim for liquidated damages, GABRIEL is found liable to pay TOKYU the amount
of P1,699,843.95.

2. STRONGHOLD and TICO are ordered to pay TOKYU from their respective performance
bonds, jointly and severally with GABRIEL the cost of overrun and liquidated damages in the amount
of P1,588,570.00 and P1,699,843.95 or the total amount of P3,288,370.95 but TICOs liability for
liquidated damages shall be limited only to those accruing from the SDS phase of the Project and only
in the amount of P70,992.77.

3. STRONGHOLD is further ordered to pay TOKYU from its surety bonds, jointly and severally
with GABRIEL, the total unrecouped downpayments in the amount of P7,588,613.18.

4. The aggregate amount adjudged in favor of TOKYU against GABRIEL is P10,876,984.13

while the total amount adjudged in favor of Gabriel is P2,197,624.19.Offsetting these two (2) amounts
against each other, there is a net award in favor of TOKYU in the amount of P8,679,359.94. Payment
of this net amount or any portion thereof by GABRIEL shall in (sic) inure to the benefit and reduce pro
tanto the liability of the sureties STRONGHOLD and TICO.

In all other respects, the same appealed decision/award is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.[25]

Hence, the instant petition, anchored on the following grounds:

5.1. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITS BONDS
AFTER THE BONDS HAVE BEEN INVALIDATED, LAPSED AND EXPIRED.

5.2. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITS BONDS WHICH WERE
ISSUED WITHOUT THE EXISTENCE OF ANY PRINCIPAL CONTRACT.

5.3. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITS BONDS AND
CONFUSED THE LEGAL EFFECTS, IMPORT AND SIGNIFICANCE BETWEEN A GUARANTY (UNDER THE
CIVIL CODE) AND SURETY UNDER THE INSURANCE CODE.

5.4. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITS BONDS
WHERE THE PRINCIPAL CONTRACT UNDER WHICH THE BONDS WERE ISSUED HAD BEEN
NOVATED.[26]

Apart from the errors specifically assigned in its petition and memorandum, petitioner asks this Court to address the
issue of whether the CIAC had jurisdiction to take cognizance of insurance claims. Petitioner insists that respondents
claim against it is not related to the construction dispute, hence, it should have been lodged with the regular courts.

The argument is misplaced.

Section 4 of Executive Order (E.O.) No. 1008, or the Construction Industry Arbitration Law, provides:
 SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the contract, or after the abandonment or
breach thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials
and workmanship, violation of the terms of agreement, interpretation and/or application of contractual
time and delays, maintenance and defects, payment, default of employer or contractor, and changes
in contract cost.

Excluded from the coverage of the law are disputes arising from employer-employee relationships
which shall continue to be covered by the Labor Code of the Philippines.

Clearly, E.O. 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from or
connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary
arbitration.[27]

In this case, the CIAC validly acquired jurisdiction over the dispute. Petitioner submitted itself to the jurisdiction of the
Arbitral Tribunal when it signed the TOR.[28]The TOR states:

II. STIPULATION/ADMISSION OF FACTS

xxxx

11. The Construction Industry Arbitration Commission has jurisdiction over the instant case by virtue
of Section 12.10 (Arbitration Clause) of the Subcontract Agreement.[29]

After recognizing the CIACs jurisdiction, petitioner cannot be permitted to now question that same authority it earlier
accepted, only because it failed to obtain a favorable decision. This is especially true in the instant case since
petitioner is challenging the tribunals jurisdiction for the first time before this Court.

With the issue of jurisdiction resolved, we proceed to the merits of the case.

It is well to note that Gabriel did not appeal the CIAC decision and Ticos petition before this Court has been denied
with finality.[30] Hence, the CIAC and CA decisions have become final and executory as to Gabriel and Tico, and in that
respect, they shall not be disturbed by this Court.

Thus, the sole issue that confronts us is whether or not petitioner is liable under its bonds. To resolve the same, we
need to inquire into the following corollary issues:

1) whether the bonds (surety and performance) are null and void having been secured without
a valid and existing principal contract;

2) whether the bonds were invalidated by the modification of the subcontract agreement
without notice to the surety; and

3) whether the bonds for which petitioner was being made liable already expired.

Initially, petitioner argued that the surety and performance bonds (which were accessory contracts) were of no force
and effect since they were issued ahead of the execution of the principal contract. To support this contention, it now
adds that the bonds were actually secured through misrepresentation, as petitioner was made to believe that the
principal contract was already in existence when the bonds were issued, but it was, in fact, yet to be executed. [31]

We are not persuaded.

In the first place, as correctly observed by respondent, the claim of misrepresentation was never raised by petitioner
as a defense in its Answer. Settled is the rule that points of law, theories, issues, and arguments not adequately
brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing
court. They cannot be raised for the first time on appeal. To allow this would be offensive to the basic rules of fair
play, justice, and due process.[32]
 Besides, even if we look into the merit of such contention, the CA is correct in holding that there was no
evidentiary support of petitioners claim of misrepresentation. [33] This being a factual issue, we respect the finding
made in the assailed decision. We have repeatedly held that we are not a trier of facts. We generally rely upon, and
are bound by, the conclusions on factual matters made by the lower courts, which are better equipped and have
better opportunity to assess the evidence first-hand, including the testimony of the witnesses.[34]

Petitioner also contends that the principal contract (original subcontract agreement) was novated by the revised scope
of work and contract schedule, without notice to the surety, thereby rendering the bonds invalid and
ineffective. Finally, it avers that no liability could attach because the subject bonds expired and were replaced by the
Tico bonds.

Again, we do not agree.

Petitioners liability was not affected by the revision of the contract price, scope of work, and contract
schedule. Neither was it extinguished because of the issuance of new bonds procured from Tico.

As early as February 10, 1997, respondent already sent a letter [35] to Gabriel informing the latter of the delay incurred
in the performance of the work, and of the formers intention to terminate the subcontract agreement to prevent
further losses. Apparently, Gabriel had already been in default even prior to the aforesaid letter; and demands had
been previously made but to no avail. By reason of said default, Gabriels liability had arisen; as a consequence, so
also did the liability of petitioner as a surety arise.

A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the
obligee.[36] By its very nature, under the laws regulating suretyship, the liability of the surety is joint and several but
is limited to the amount of the bond, and its terms are determined strictly by the terms of the contract of suretyship
in relation to the principal contract between the obligor and the obligee.[37]

By the language of the bonds issued by petitioner, it guaranteed the full and faithful compliance by Gabriel of
its obligations in the construction of the SDS and STP specifically set forth in the subcontract agreement, and the
repayment of the 15% advance payment given by respondent. These guarantees made by petitioner gave respondent
the right to proceed against the former following Gabriels non-compliance with her obligation.
Confusion, however, transpired when Gabriel and respondent agreed, on February 26, 1997, to reduce the
scope of work and, consequently, the contract price.Petitioner viewed such revision as novation of the original
subcontract agreement; and since no notice was given to it as a surety, it resulted in the extinguishment of its
obligation.

We wish to stress herein the nature of suretyship, which actually involves two types of relationship --- the underlying
principal relationship between the creditor (respondent) and the debtor (Gabriel), and the accessory surety
relationship between the principal (Gabriel) and the surety (petitioner).The creditor accepts the suretys solidary
undertaking to pay if the debtor does not pay. Such acceptance, however, does not change in any material way the
creditors relationship with the principal debtor nor does it make the surety an active party to the principal creditor-
debtor relationship. In other words, the acceptance does not give the surety the right to intervene in the principal
contract. The suretys role arises only upon the debtors default, at which time, it can be directly held liable by the
creditor for payment as a solidary obligor.[38]

The surety is considered in law as possessed of the identity of the debtor in relation to whatever is adjudged
touching upon the obligation of the latter. Their liabilities are so interwoven as to be inseparable. Although the
contract of a surety is, in essence, secondary only to a valid principal obligation, the suretys liability to the creditor is
direct, primary, and absolute; he becomes liable for the debt and duty of another although he possesses no direct or
personal interest over the obligations nor does he receive any benefit therefrom. [39]

Indeed, a surety is released from its obligation when there is a material alteration of the principal contract in
connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or
which takes away some obligation already imposed, or one which changes the legal effect of the original contract and
not merely its form. However, a surety is not released by a change in the contract, which does not have the effect of
making its obligation more onerous.[40]

In the instant case, the revision of the subcontract agreement did not in any way make the obligations of both
the principal and the surety more onerous. To be sure, petitioner never assumed added obligations, nor were there
any additional obligations imposed, due to the modification of the terms of the contract. Failure to receive any notice
of such change did not, therefore, exonerate petitioner from its liabilities as surety.

Neither can petitioner be exonerated from liability simply because the bonds it issued were replaced by those
issued by Tico.
 The Court notes that petitioner issued four bonds, namely: 1) Performance Bond No. 43601 which guaranteed
the full and faithful compliance of Gabriels obligations for the construction of the SDS; 2) Performance Bond No.
13608 for the construction of the STP; 3) Surety Bond No. 065493 which guaranteed the repayment of the 15%
advance payment for the SDS project; and 4) Surety Bond No. 068189 for the STP project. Under the surety
agreements, the first and third bonds were to expire on February 25, 1997 or one year from date of issue of the
bonds, while the second and fourth bonds were to expire one year from April 15, 1996.

The impending expiration of the first and third bonds prompted respondent to require Gabriel to arrange for
their (the bonds) immediate revalidation. Thus, in a letter dated February 21, 1997, respondent asked that the
performance bond for the SDS phase be extended until May 31, 1998; and for the surety bond, until June 30,
1997.[41] Contrary to petitioners contention, this should not be construed as a recognition on the part of respondent
that the bonds were no longer valid by reason of the modification of the subcontract agreement. There was indeed a
need for the renewal of petitioners bonds because they were about to expire, pursuant to the terms of the surety
agreements. Since petitioner refused to revalidate the aforesaid bonds, Gabriel was constrained to secure the required
bonds from Tico which issued, on February 25, 1997, the new performance and surety bonds (for the SDS phase)
replacing those of petitioners. The performance bond was coterminous with the final acceptance of the project, while
the surety bond was to expire on February 26, 1998.

Notwithstanding the issuance of the new bonds, the fact remains that the event insured against, which is the
default in the performance of Gabriels obligations set forth in the subcontract agreement, already took place. By such
default, petitioners liability set in. Thus, petitioner remains solidarily liable with Gabriel, subject only to the limitations
on the amount of its liability as provided for in the Bonds themselves.

Considering that the performance bonds issued by petitioner were valid only for a period of one year, its
liabilities should further be limited to the period prior to the expiration date of said bonds. As to Performance Bond No.
43601 for the SDS project, the same was valid only for one year from February 26, 1996; while Performance Bond
No. 13608 was valid only for one year from April 15, 1996. Logically, petitioner can be held solidarily liable with
Gabriel only for the cost overrun and liquidated damages accruing during the above periods. The assailed CA decision
is, therefore, modified in this respect.

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals dated
January 21, 2003 and its Resolution dated June 25, 2003 are AFFIRMED with the MODIFICATION that petitioner
Stronghold Insurance, Company, Inc. is jointly and severally liable with Remedios P. Gabriel only for the cost overrun
and liquidated damages accruing during the effectivity of its bonds.

All other aspects of the assailed decision STAND.

SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
SECOND DIVISION

[G.R. No. 109410. August 28, 1996]

CLARA M. BALATBAT, petitioner, vs. COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA
REPUYAN, respondents.

DECISION

TORRES, JR., J.:

Petitioner Clara M. Balatbat instituted this petition for review pursuant to Rule 45 of the Revised Rules of Court
seeking to set aside the decision dated August 12, 1992 of the respondent Court of Appeals in CA-G.R. CV No. 29994
entitled Alejandro Balatbat and Clara Balatbat, plaintiffs-appellants, versus Jose Repuyan and Aurora Repuyan,
defendants-appellees, the dispositive portion of which reads:[1]

WHEREFORE, the judgment appealed from is affirmed with the modification that the awards of P10,000.00 for
attorneys fees and P5,000.00 as costs of litigation are deleted.

SO ORDERED.

The records show the following factual antecedents:

It appears that on June 15, 1977, Aurelio A. Roque filed a complaint for partition docketed as Civil Case No. 109032
against Corazon Roque, Alberto de los Santos, Feliciano Roque, Severa Roque and Osmundo Roque before the then
Court of First Instance of Manila, Branch IX.[2] Defendants therein were declared in default and plaintiff presented
evidence ex-parte. On March 29, 1979, the trial court rendered a decision in favor of plaintiff Aurelio A. Roque, the
pertinent portion of which reads:[3]

From the evidence, it has been clearly established that the lot in question covered by Transfer Certificate of Title No.
51330 was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union and the house constructed
thereon was likewise built during their marital union. Out of their union, plaintiff and Maria Mesina had four children,
who are the defendants in this case. When Maria Mesina died on August 28, 1966, the only conjugal properties left are
the house and lot above stated of which plaintiff herein, as the legal spouse, is entitled to one-half sharepro-
indiviso thereof. With respect to the one-half share pro-indiviso now forming the estate of Maria Mesina, plaintiff and
the four children, the defendants here, are each entitled to one-fifth (1/5) share pro-indiviso. The deceased wife left
no debt.

Wherefore, judgment is hereby rendered ordering the partition of the properties, subject matter of this case consisting
of the house and lot, in the following manner:

1. Of the house and lot forming the conjugal properties, plaintiff is entitled to one-half share pro-indiviso thereof while
the other half forms the estate of the deceased Maria Mesina;

2. Of the Estate of deceased Maria Mesina, the same is to be divided into five (5) shares and plaintiff and his four
children are entitled each to one-fifth share thereof pro-indiviso.

Plaintiff claim for moral, exemplary and actual damages and attorneys fees not having been established to the
satisfaction of the Court, the same is hereby denied.

Without pronouncement as to costs.

SO ORDERED.

On June 2, 1979, the decision became final and executory. The corresponding entry of judgment was made on March
29, 1979.[4]

On October 5, 1979, the Register of Deeds of Manila issued a Transfer Certificate of Title No. 135671 in the name of
the following persons in the following proportions:[5]

Aurelio A. Roque 6/10 share

Severina M. Roque 1/10 share

Osmundo M. Roque 1/10 share

Feliciano M. Roque 1/10 share

Corazon M. Roque 1/10 share

On April 1, 1980, Aurelio A. Roque sold his 6/10 share in T.C.T. No. 135671 to spouses Aurora Tuazon-Repuyan and
Jose Repuyan as evidenced by a Deed of Absolute Sale.[6]

On July 21, 1980, Aurora Tuazon Repuyan caused the annotation of her affidavit of adverse claim[7] on the Transfer
Certificate of Title No. 135671,[8] to wit:

Entry No. 5627/T-135671 - NOTICE OF ADVERSE CLAIM - Filed by Aurora Tuazon Repuyan, married, claiming among
others that she bought 6/10 portion of the property herein described from Aurelio Roque for the amount of
P50,000.00 with a down payment of P5,000.00 and the balance of P45,000.00 to be paid after the partition and
subdivision of the property herein described, other claims set forth in Doc. No. 954, page 18, Book 94 of
_____________________ 64 ________PEDRO DE CASTRO, Notary Public of Manila.

Date of instrument - July 21, 1980

Date of inscription- July 21, 1980 at 3:35 p.m.

TERESITA H. NOBLEJAS

Acting Register of Deeds

By:

RAMON D. MACARICAN

Acting Second Deputy

On August 20, 1980, Aurelio A. Roque filed a complaint for Rescission of Contract docketed as Civil Case No. 134131
against spouses Aurora Tuazon-Repuyan and Jose Repuyan before Branch IV of the then Court of First Instance of
Manila. The complaint is grounded on spouses Repuyans failure to pay the balance of P45,000.00 of the purchase
price.[9] On September 5, 1980, spouses Repuyan filed their answer with counterclaim.[10]

In the meantime, the trial court issued an order in Civil Case No. 109032 (Partition case) dated February 2, 1982, to
wit:[11]

In view of all the foregoing and finding that the amount of P100,000.00 as purchase price for the sale of the parcel of
land covered by TCT No. 51330 of the Registry of Deeds of Manila consisting of 84 square meters situated in Callejon
Sulu, District of Santa Cruz, Manila, to be reasonable and fair, and considering the opportunities given defendants to
sign the deed of absolute sale voluntarily, the Court has no alternative but to order, as it hereby orders, the Deputy
Clerk of this Court to sign the deed of absolute sale for and in behalf of defendants pursuant to Sec. 10, Rule 39 of the
Rules of Court, in order to effect the partition of the property involved in this case.

SO ORDERED.

A deed of absolute sale was executed on February 4, 1982 between Aurelio S. Roque, Corazon Roque, Feliciano
Roque, Severa Roque and Osmundo Roque and Clara Balatbat, married to Alejandro Balatbat. [12] On April 14, 1982,
Clara Balatbat filed a motion for the issuance of a writ of possession which was granted by the trial court on
September 14, 1982 subject, however, to valid rights and interest of third persons over the same portion thereof,
other than vendor or any other person or persons privy to or claiming any rights or interest under it. The
corresponding writ of possession was issued on September 20, 1982.[13]

On May 20, 1982, petitioner Clara Balatbat filed a motion to intervene in Civil Case No. 134131[14] which was granted
as per courts resolution of October 21, 1982.[15]However, Clara Balatbat failed to file her complaint in
intervention.[16] On April 15, 1986, the trial court rendered a decision dismissing the complaint, the pertinent portion
of which reads:[17]

The rescission of contracts are provided for in the laws and nowhere in the provision of the Civil Code under the title
Rescissible Contracts does the circumstances in the case at bar appear to have occurred, hence, the prayer for
rescission is outside the ambit for which rescissible [sic] could be granted.

The Intervenor - Plaintiff, Clara Balatbat, although allowed to intervene, did not file her complaint in intervention.

Consequently, the plaintiff having failed to prove with sufficient preponderance his action, the relief prayed for had to
be denied. The contract of sale denominated as Deed of Absolute Sale (Exh. 7 and sub-markings) being valid and
enforceable, the same pursuant to the provisions of Art. 1159 of the Civil Code which says:
Obligations arising from contracts have the force of law between the contracting parties and should be complied with
in good faith.

has the effect of being the law between the parties and should be complied with. The obligation of the plaintiff under
the contract being to have the land covered by TCT No. 135671 partitioned and subdivided, and title issued in the
name of the defendant buyer (see page 2 par. C of Exh. 7-A) plaintiff had to comply thereto to give effect to the
contract.

WHEREFORE, judgment is rendered against the plaintiff, Aurelio A. Roque, and the plaintiff in intervention, Clara
Balatbat, and in favor of the defendants, dismissing the complaint for lack of merit, and declaring the Deed of
Absolute Sale dated April 1, 1980 as valid and enforceable and the plaintiff is, as he is hereby ordered, to partition
and subdivide the land covered by T.C.T. No. 135671, and to aggregate therefrom a portion equivalent to 6/10
thereof, and cause the same to be titled in the name of the defendants, and after which, the defendants to pay the
plaintiff the sum of P45,000.00. Considering further that the defendants suffered damages since they were forced to
litigate unnecessarily, by way of their counterclaim, plaintiff is hereby ordered to pay defendants the sum of
P15,000.00 as moral damages, attorneys fees in the amount of P5,000.00.

Costs against plaintiff.

SO ORDERED.

On March 3, 1987, petitioner Balatbat filed a notice of lis pendens in Civil Case No. 109032 before the Register of
Deeds of Manila.[18]

On December 9, 1988, petitioner Clara Balatbat and her husband, Alejandro Balatbat filed the instant complaint for
delivery of the owner's duplicate copy of T.C.T. No. 135671 docketed as Civil Case No. 88-47176 before Branch 24 of
the Regional Trial Court of Manila against private respondents Jose Repuyan and Aurora Repuyan.[19]

On January 27, 1989, private respondents filed their answer with affirmative defenses and compulsory
counterclaim.[20]

On November 13, 1989, private respondents filed their memorandum [21] while petitioners filed their memorandum on
November 23, 1989.[22]

On August 2, 1990, the Regional Trial Court of Manila, Branch 24, rendered a decision dismissing the complaint, the
dispositive portion of which reads:[23]

Considering all the foregoing, this Court finds that the plaintiffs have not been able to establish their cause of action
against the defendants and have no right to the reliefs demanded in the complaint and the complaint of the plaintiff
against the defendants is hereby DISMISSED. On the counterclaim, the plaintiff are ordered to pay defendants the
amount of Ten Thousand Pesos by way of attorneys fees, Five Thousand Pesos as costs of litigation and further to pay
the costs of the suit.

SO ORDERED.

Dissatisfied, petitioner Balatbat filed on appeal before the respondent Court of Appeals which rendered the assailed
decision on August 12, 1992, to wit:[24]

WHEREFORE, the judgment appealed from is affirmed with the modification that the awards of P10,000.00 for
attorneys fees and P5,000.00 as costs of litigation are deleted.

SO ORDERED.

On March 22, 1993, the respondent Court of Appeals denied petitioners motion for reconsideration. [25]

Hence, this petition for review.

Petitioner raised the following issues for this Courts resolution:

WHETHER OR NOT THE ALLEGED SALE TO THE PRIVATE RESPONDENTS WAS MERELY EXECUTORY AND NOT A
CONSUMMATED TRANSACTION?

II

WHETHER OR NOT THERE WAS A DOUBLE SALE AS CONTEMPLATED UNDER ART. 1544 OF THE CIVIL CODE?
III

WHETHER OR NOT PETITIONER WAS A BUYER IN GOOD FAITH AND FOR VALUE?

IV

WHETHER OR NOT THE COURT OF APPEALS ERRED IN GIVING WEIGHT AND CONSIDERATION TO THE EVIDENCE OF
THE PRIVATE RESPONDENTS WHICH WERE NOT OFFERED?

Petitioner asseverates that the respondent Court of Appeals committed grave abuse of discretion tantamount to lack
or excess of jurisdiction in affirming the appealed judgment considering (1) that the alleged sale in favor of the
private respondents Repuyan was merely executory; (2) that there is no double sale; (3) that petitioner is a buyer in
good faith and for value; and (4) that private respondents did not offer their evidence during the trial.

Contrary to petitioners contention that the sale dated April 1, 1980 in favor of private respondents Repuyan was
merely executory for the reason that there was no delivery of the subject property and that consideration/price was
not fully paid, we find the sale as consummated, hence, valid and enforceable. In a decision dated April 15, 1986 of
the Regional Trial Court of Manila, Branch IV in Civil Case No. 134131, the Court dismissed vendors Aurelio Roque
complaint for rescission of the deed of sale and declared that the sale dated April 1, 1980, as valid and
enforceable. No appeal having been made, the decision became final and executory. It must be noted that herein
petitioner Balatbat filed a motion for intervention in that case but did not file her complaint in intervention. In that
case wherein Aurelio Roque sought to rescind the April 1, 1980 deed of sale in favor of the private respondents for
non-payment of the P45,000.00 balance, the trial court dismissed the complaint for rescision. Examining the terms
and conditions of the Deed of Sale dated April 1, 1980, the P45,000.00 balance is payable only after the property
covered by T.C.T. No. 135671 has been partitioned and subdivided, and title issued in the name of the BUYER hence,
vendor Roque cannot demand payment of the balance unless and until the property has been subdivided and titled in
the name of the private respondents.Devoid of any stipulation that ownership in the thing shall not pass to the
purchaser until he has fully paid the price,[26] ownership in the thing shall pass from the vendor to the vendee upon
actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid. The failure of
the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral
contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. [27] Non-payment only
creates a right to demand the fulfillment of the obligation or to rescind the contract.

With respect to the non-delivery of the possession of the subject property to the private respondent, suffice it to say
that ownership of the thing sold is acquired only from the time of delivery thereof, either actual or
constructive.[28] Article 1498 of the Civil Code provides that - when the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed
the contrary does not appear or cannot be inferred.[29] The execution of the public instrument, without actual delivery
of the thing, transfers the ownership from the vendor to the vendee, who may thereafter exercise the rights of an
owner over the same.[30] In the instant case, vendor Roque delivered the owners certificate of title to herein private
respondent. It is not necessary that vendee be physically present at every square inch of the land bought by him,
possession of the public instrument of the land is sufficient to accord him the rights of ownership. 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). The provision of Article 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.[31]

A contract of sale being consensual, it is perfected by the mere consent of the parties.[32] Delivery of the thing brought
or payment of the price is not necessary for the perfection of the contract; and failure of the vendee to pay the price
after the execution of the contract does not make the sale null and void for lack of consideration but results at most in
default on the part of the vendee, for which the vendor may exercise his legal remedies. [33]

Article 1544 of the New Civil Code provides:

If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it should be movable property.

Should it be movable property, the ownership shall belong to the person acquiring it who in good faith first recorded it
in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession
and in the absence thereof, to the person who present the oldest title, provided there is good faith.

Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be
transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default
thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents
the oldest title, provided there is good faith.[34]

In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share in TCT No. 135671 to private respondents
Repuyan on April 1, 1980. Subsequently, the same lot was sold again by vendor Aurelio Roque (6/10) and his children
(4/10), represented by the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on February 4,
1982.Undoubtedly, this is a case of double sale contemplated under Article 1544 of the New Civil Code.

This is an instance of a double sale of an immovable property hence, the ownership shall vests in the person acquiring
it who in good faith first recorded it in the Registry of Property. Evidently, private respondents Repuyans caused the
annotation of an adverse claim on the title of the subject property denominated as Entry No. 5627/T-135671 on July
21, 1980.[35] The annotation of the adverse claim on TCT No. 135671 in the Registry of Property is sufficient
compliance as mandated by law and serves notice to the whole world.

On the other hand, petitioner filed a notice of lis pendens only on February 2, 1982. Accordingly, private respondents
who first caused the annotation of the adverse claim in good faith shall have a better right over herein
petitioner. Moreover, the physical possession of herein petitioners by virtue of a writ of possession issued by the trial
court on September 20, 1982 is subject to the valid rights and interest of third persons over the same portion thereof,
other than vendor or any other person or persons privy to or claiming any rights to interest under it.[36] As between
two purchasers, the one who has registered the sale in his favor, has a preferred right over the other who has not
registered his title even if the latter is in actual possession of the immovable property. [37] Further, even in default of
the first registrant or first in possession, private respondents have presented the oldest title. [38] Thus, private
respondents who acquired the subject property in good faith and for valuable consideration established a superior
right as against the petitioner.

Evidently, petitioner cannot be considered as a buyer in good faith. In the complaint for rescission filed by vendor
Aurelio Roque on August 20, 1980, herein petitioner filed a motion for intervention on May 20, 1982 but did not file
her complaint in intervention, hence, the decision was rendered adversely against her. If petitioner did investigate
before buying the land on February 4, 1982, she should have known that there was a pending case and an annotation
of adverse claim was made in the title of the property before the Register of Deeds and she could have discovered
that the subject property was already sold to the private respondents. It is incumbent upon the vendee of the
property to ask for the delivery of the owners duplicate copy of the title from the vendor. A purchaser of a valued
piece of property cannot just close his eyes to facts which should put a reasonable man upon his guard and then claim
that he acted in good faith and under the belief that there were no defect in the title of the vendor. [39] One who
purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title
thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be
applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. Good faith, or the want of it is not a visible,
tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged of by
actual or fancied tokens or signs.[40]

In fine, petitioner had nobody to blame but herself in dealing with the disputed property for failure to inquire or
discover a flaw in the title to the property, thus, it is axiomatic that - culpa lata dolo aequiparatur - gross negligence is
equivalent to intentional wrong.

IN VIEW OF THE FOREGOING PREMISES, this petition for review is hereby DISMISSED for lack of merit. No
pronouncement as to costs.

IT IS SO ORDERED.

Regalado (Chairman), Romero, Puno, and Mendoza, JJ., concur.

 SECOND DIVISION

ALFREDO P. PACIS and CLEOPATRA D. PACIS, G.R. No. 169467

Petitioners,
Present:

CARPIO, J., Chairperson,

- versus - BRION,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.
JEROME JOVANNE MORALES,
Respondent.
Promulgated:
February 25, 2010

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

DECISION

CARPIO, J.:

The Case

This petition for review[1] assails the 11 May 2005 Decision[2] and the 19 August 2005 Resolution of the Court of
Appeals in CA-G.R. CV No. 60669.

The Facts

On 17 January 1995, petitioners Alfredo P. Pacis and Cleopatra D. Pacis (petitioners) filed with the trial court a civil
case for damages against respondent Jerome Jovanne Morales (respondent). Petitioners are the parents of Alfred
Dennis Pacis, Jr. (Alfred), a 17-year old student who died in a shooting incident inside the Top Gun Firearms and
Ammunitions Store (gun store) in Baguio City. Respondent is the owner of the gun store.

The facts as found by the trial court are as follows:

On January 19, 1991, Alfred Dennis Pacis, then 17 years old and a first year student at the Baguio Colleges
Foundation taking up BS Computer Science, died due to a gunshot wound in the head which he sustained while he
was at the Top Gun Firearm[s] and Ammunition[s] Store located at Upper Mabini Street, Baguio City. The gun store
was owned and operated by defendant Jerome Jovanne Morales.

With Alfred Pacis at the time of the shooting were Aristedes Matibag and Jason Herbolario. They were sales agents of
the defendant, and at that particular time, the caretakers of the gun store.

The bullet which killed Alfred Dennis Pacis was fired from a gun brought in by a customer of the gun store for repair.

The gun, an AMT Automag II Cal. 22 Rimfire Magnum with Serial No. SN-H34194 (Exhibit Q), was left by defendant
Morales in a drawer of a table located inside the gun store.

Defendant Morales was in Manila at the time. His employee Armando Jarnague, who was the regular caretaker of the
gun store was also not around. He left earlier and requested sales agents Matibag and Herbolario to look after the gun
store while he and defendant Morales were away. Jarnague entrusted to Matibag and Herbolario a bunch of keys used
in the gun store which included the key to the drawer where the fatal gun was kept.

It appears that Matibag and Herbolario later brought out the gun from the drawer and placed it on top of the table.
Attracted by the sight of the gun, the young Alfred Dennis Pacis got hold of the same. Matibag asked Alfred Dennis
Pacis to return the gun. The latter followed and handed the gun to Matibag. It went off, the bullet hitting the young
Alfred in the head.

A criminal case for homicide was filed against Matibag before branch VII of this Court. Matibag, however, was
acquitted of the charge against him because of the exempting circumstance of accident under Art. 12, par. 4 of the
Revised Penal Code.

By agreement of the parties, the evidence adduced in the criminal case for homicide against Matibag was reproduced
and adopted by them as part of their evidence in the instant case.[3]

On 8 April 1998, the trial court rendered its decision in favor of petitioners. The dispositive portion of the decision
reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs [Spouses Alfredo P. Pacis
and Cleopatra D. Pacis] and against the defendant [Jerome Jovanne Morales] ordering the defendant to pay plaintiffs

(1) P30,000.00 as indemnity for the death of Alfred Pacis;

(2) P29,437.65 as actual damages for the hospitalization and burial
expenses incurred by the plaintiffs;
(3) P100,000.00 as compensatory damages;
(4) P100,000.00 as moral damages;
(5) P50,000.00 as attorneys fees.

SO ORDERED.[4]

Respondent appealed to the Court of Appeals. In its Decision[5] dated 11 May 2005, the Court of Appeals reversed the
trial courts Decision and absolved respondent from civil liability under Article 2180 of the Civil Code. [6]

Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its Resolution dated 19 August
2005.

Hence, this petition.

The Trial Courts Ruling

The trial court held respondent civilly liable for the death of Alfred under Article 2180 in relation to Article 2176 of the
Civil Code.[7] The trial court held that the accidental shooting of Alfred which caused his death was partly due to the
negligence of respondents employee Aristedes Matibag (Matibag). Matibag and Jason Herbolario (Herbolario) were
employees of respondent even if they were only paid on a commission basis. Under the Civil Code, respondent is liable
for the damages caused by Matibag on the occasion of the performance of his duties, unless respondent proved that
he observed the diligence of a good father of a family to prevent the damage. The trial court held that
respondent failed to observe the required diligence when he left the key to the drawer containing the loaded defective
gun without instructing his employees to be careful in handling the loaded gun.

The Court of Appeals Ruling

The Court of Appeals held that respondent cannot be held civilly liable since there was no employer-employee
relationship between respondent and Matibag. The Court of Appeals found that Matibag was not under the control of
respondent with respect to the means and methods in the performance of his work. There can be no employer-
employee relationship where the element of control is absent. Thus, Article 2180 of the Civil Code does not apply in
this case and respondent cannot be held liable.

Furthermore, the Court of Appeals ruled that even if respondent is considered an employer of Matibag, still respondent
cannot be held liable since no negligence can be attributed to him. As explained by the Court of Appeals:

Granting arguendo that an employer-employee relationship existed between Aristedes Matibag and the defendant-
appellant, we find that no negligence can be attributed to him.

Negligence is best exemplified in the case of Picart vs. Smith (37 Phil. 809). The test of negligence is this:

x x x. Could a prudent man, in the position of the person to whom negligence is attributed, foresee harm to the
person injured as a reasonable consequence of the course about to be pursued? If so, the law imposes a duty on the
actor to refrain from that course or take precaution against its mischievous results, and the failure to do so constitutes
negligence. x x x.
Defendant-appellant maintains that he is not guilty of negligence and lack of due care as he did not fail to observe the
diligence of a good father of a family. He submits that he kept the firearm in one of his table drawers, which he locked
and such is already an indication that he took the necessary diligence and care that the said gun would not be
accessible to anyone. He puts [sic] that his store is engaged in selling firearms and ammunitions. Such items which
are per se dangerous are kept in a place which is properly secured in order that the persons coming into the gun store
would not be able to take hold of it unless it is done intentionally, such as when a customer is interested to purchase
any of the firearms, ammunitions and other related items, in which case, he may be allowed to handle the same.

We agree. Much as We sympathize with the family of the deceased, defendant-appellant is not to be blamed. He
exercised due diligence in keeping his loaded gun while he was on a business trip in Manila. He placed it inside the
drawer and locked it. It was taken away without his knowledge and authority. Whatever happened to the deceased
was purely accidental.[8]

The Issues

Petitioners raise the following issues:

I. THE APPELLATE COURT COMMITTED SERIOUS ERROR IN RENDERING THE DECISION AND RESOLUTION IN
QUESTION IN DISREGARD OF LAW AND JURISPRUDENCE BY REVERSING THE ORDER OF THE REGIONAL TRIAL
COURT (BRANCH 59) OF BAGUIO CITY NOTWITHSTANDING CLEAR, AUTHENTIC RECORDS AND TESTIMONIES
PRESENTED DURING THE TRIAL WHICH NEGATE AND CONTRADICT ITS FINDINGS.

II. THE APPELLATE COURT COMMITTED GRAVE, REVERSIBLE ERROR IN RENDERING THE DECISION AND
RESOLUTION IN QUESTION BY DEPARTING FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS
THEREBY IGNORING THE FACTUAL FINDINGS OF THE REGIONAL TRIAL COURT (BRANCH 59) OF BAGUIO CITY
SHOWING PETITIONERS CLEAR RIGHTS TO THE AWARD OF DAMAGES.[9]

The Ruling of the Court

We find the petition meritorious.

This case for damages arose out of the accidental shooting of petitioners son. Under Article 1161[10] of the Civil Code,
petitioners may enforce their claim for damages based on the civil liability arising from the crime under Article
100[11] of the Revised Penal Code or they may opt to file an independent civil action for damages under the Civil Code.
In this case, instead of enforcing their claim for damages in the homicide case filed against Matibag, petitioners opted
to file an independent civil action for damages against respondent whom they alleged was Matibags employer.
Petitioners based their claim for damages under Articles 2176 and 2180 of the Civil Code.

Unlike the subsidiary liability of the employer under Article 103 [12] of the Revised Penal Code,[13] the liability of the
employer, or any person for that matter, under Article 2176 of the Civil Code is primary and direct, based on a
persons own negligence. Article 2176 states:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is
called quasi-delict and is governed by the provisions of this Chapter.

This case involves the accidental discharge of a firearm inside a gun store. Under PNP Circular No. 9, entitled the
Policy on Firearms and Ammunition Dealership/Repair, a person who is in the business of purchasing and selling of
firearms and ammunition must maintain basic security and safety requirements of a gun dealer, otherwise his License
to Operate Dealership will be suspended or canceled.[14]

Indeed, a higher degree of care is required of someone who has in his possession or under his control an
instrumentality extremely dangerous in character, such as dangerous weapons or substances. Such person in
possession or control of dangerous instrumentalities has the duty to take exceptional precautions to prevent any
injury being done thereby.[15] Unlike the ordinary affairs of life or business which involve little or no risk, a business
dealing with dangerous weapons requires the exercise of a higher degree of care.

As a gun store owner, respondent is presumed to be knowledgeable about firearms safety and should have known
never to keep a loaded weapon in his store to avoid unreasonable risk of harm or injury to others. Respondent has the
duty to ensure that all the guns in his store are not loaded. Firearms should be stored unloaded and separate from
ammunition when the firearms are not needed for ready-access defensive use.[16] With more reason, guns accepted
by the store for repair should not be loaded precisely because they are defective and may cause an accidental
discharge such as what happened in this case. Respondent was clearly negligent when he accepted the gun for repair
and placed it inside the drawer without ensuring first that it was not loaded. In the first place, the defective gun
should have been stored in a vault. Before accepting the defective gun for repair, respondent should have made sure
that it was not loaded to prevent any untoward accident. Indeed, respondent should never accept a firearm from
another person, until the cylinder or action is open and he has personally checked that the weapon is completely
unloaded.[17] For failing to insure that the gun was not loaded, respondent himself was negligent. Furthermore, it was
not shown in this case whether respondent had a License to Repair which authorizes him to repair defective firearms
to restore its original composition or enhance or upgrade firearms.[18]

Clearly, respondent did not exercise the degree of care and diligence required of a good father of a family, much less
the degree of care required of someone dealing with dangerous weapons, as would exempt him from liability in this
case.

WHEREFORE, we GRANT the petition. We SET ASIDE the 11 May 2005 Decision and the 19 August 2005 Resolution
of the Court of Appeals in CA-G.R. CV No.60669. We REINSTATE the trial courts Decision dated 8 April 1998.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

D. BRION
ASSOCIATE JUSTICE

MARIANO C. DEL CASTILLO ROBERTO A. ABAD

ASSOCIATE JUSTICE ASSOCIATE JUSTICE

JOSE P. PEREZ
ASSOCIATE JUSTICE

ATTESTATION
I ATTEST THAT THE CONCLUSIONS IN THE ABOVE DECISION HAD BEEN REACHED IN CONSULTATION BEFORE THE
CASE WAS ASSIGNED TO THE WRITER OF THE OPINION OF THE COURTS DIVISION.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice
 FIRST DIVISION

ROLANDO T. CATUNGAL, JOSE T. G.R. No. 146839

CATUNGAL, JR., CAROLYN T. CATUNGAL
and ERLINDA CATUNGAL-WESSEL, Present:
Petitioners,
CORONA, C.J.,
Chairperson,
VELASCO, JR.,
- versus - LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

ANGEL S. RODRIGUEZ, Promulgated:

Respondent.
March 23, 2011

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

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court of Appeals in CA-
G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,[1] which affirmed the
Decision[2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case No.
2365-L, and (b) the January 30, 2001 Resolution,[3] denying herein petitioners motion for reconsideration of the
August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:

This controversy arose from a Complaint for Damages and Injunction with Preliminary Injunction/Restraining
Order[4] filed on December 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27,
Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the spouses Agapita and Jose Catungal (the spouses
Catungal), the parents of petitioners.

In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) with an
area of 65,246 square meters, covered by Original Certificate of Title (OCT) No. 105 [5] in her name situated in the
Barrio of Talamban, Cebu City. The said property was allegedly the exclusive paraphernal property of Agapita.

On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell [6] with respondent
Rodriguez. Subsequently, the Contract to Sell was purportedly upgraded into a Conditional Deed of Sale [7] dated July
26, 1990 between the same parties. Both the Contract to Sell and the Conditional Deed of Sale were annotated on the
title.

The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:

1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS (P25,000,000.00) payable as
follows:

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the signing of this agreement, receipt of
which sum is hereby acknowledged in full from the VENDEE.

b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P24,500,000.00) shall be payable in
five separate checks, made to the order of JOSE Ch. CATUNGAL, the first check shall be for FOUR MILLION FIVE
HUNDRED THOUSAND PESOS (P4,500,000.00) and the remaining balance to be paid in four checks in the amounts of
FIVE MILLION PESOS (P5,000,000.00) each after the VENDEE have (sic) successfully negotiated, secured and
provided a Road Right of Way consisting of 12 meters in width cutting across Lot 10884 up to the national road, either
by widening the existing Road Right of Way or by securing a new Road Right of Way of 12 meters in width. If however
said Road Right of Way could not be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess
and solve the problem by taking other options and should the situation ultimately prove futile, he shall take steps to
rescind or cancel the herein Conditional Deed of Sale.

c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to secure
and any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be
accorded with enough time necessary for the success of his endeavor, granting him a free hand in negotiating for the
passage.

BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL DEED OF SALE to VENDEE,
his heirs, successors and assigns, the real property described in the Original Certificate of Title No. 105 x x x.

xxxx

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the
herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his
rights over the property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (P500,000.00) representing the downpayment, interest free, payable but contingent upon the
event that the VENDOR shall have been able to sell the property to another party.[8]

In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys and plans and
through his efforts, the property was reclassified from agricultural land into residential land which he claimed
substantially increased the propertys value. He likewise alleged that he actively negotiated for the road right of way as
stipulated in the contract.[9]

Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance of P5,000,000.00 on
the purchase price for personal reasons. Rodriquez allegedly refused on the ground that the amount was substantial
and was not due under the terms of their agreement. Shortly after his refusal to pay the advance, he purportedly
learned that the Catungals were offering the property for sale to third parties.[10]

Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24, 1990[12] and October 29, 1990,[13] all
signed by Jose Catungal who was a lawyer, essentially demanding that the former make up his mind about buying the
land or exercising his option to buy because the spouses Catungal allegedly received other offers and they needed
money to pay for personal obligations and for investing in other properties/business ventures. Should Rodriguez fail to
exercise his option to buy the land, the Catungals warned that they would consider the contract cancelled and that
they were free to look for other buyers.

In a letter dated November 4, 1990,[14] Rodriguez registered his objections to what he termed the Catungals
unwarranted demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time to
negotiate a road right of way and granted him, the vendee, the exclusive right to rescind the contract.Still, on
November 15, 1990, Rodriguez purportedly received a letter dated November 9, 1990[15] from Atty. Catungal, stating
that the contract had been cancelled and terminated.

Contending that the Catungals unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary and
unwarranted, Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the spouses Catungal], their
employees, agents, representatives or other persons acting in their behalf from offering the property subject of this
case for sale to third persons; from entertaining offers or proposals by third persons to purchase the said property;
and, in general, from performing acts in furtherance or implementation of defendants rescission of their Conditional
Deed of Sale with plaintiff [Rodriguez].

2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as may be fixed by the court
enjoining defendants and other persons acting in their behalf from performing any of the acts mentioned in the next
preceding paragraph.
3. After trial, a Decision be rendered:

a) Making the injunction permanent;

b) Condemning defendants to pay to plaintiff, jointly and solidarily:

Actual damages in the amount of P400,000.00 for their unlawful rescission of the Agreement and their performance of
acts in violation or disregard of the said Agreement;
Moral damages in the amount of P200,000.00;

Exemplary damages in the amount of P200,000.00; Expenses of litigation and attorneys fees in the amount
of P100,000.00; and

Costs of suit.[16]

On December 12, 1990, the trial court issued a temporary restraining order and set the application for a writ of
preliminary injunction for hearing on December 21, 1990 with a directive to the spouses Catungal to show cause
within five days from notice why preliminary injunction should not be granted. The trial court likewise ordered that
summons be served on them.[17]

Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a writ of preliminary injunction and later
filed a motion to dismiss[19] on the ground of improper venue. According to the Catungals, the subject property was
located in Cebu City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu City. Rodriguez
opposed the motion to dismiss on the ground that his action was a personal action as its subject was breach of a
contract, the Conditional Deed of Sale, and not title to, or possession of real property. [20]

In an Order dated January 17, 1991,[21] the trial court denied the motion to dismiss and ruled that the complaint
involved a personal action, being merely for damages with a prayer for injunction.

Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary injunction upon
posting by Rodriguez of a bond in the amount of P100,000.00 to answer for damages that the defendants may sustain
by reason of the injunction.

On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim [22] alleging that they had the right to
rescind the contract in view of (1) Rodriguezs failure to negotiate the road right of way despite the lapse of several
months since the signing of the contract, and (2) his refusal to pay the additional amount of P5,000,000.00 asked by
the Catungals, which to them indicated his lack of funds to purchase the property. The Catungals likewise contended
that Rodriguez did not have an exclusive right to rescind the contract and that the contract, being reciprocal, meant
both parties had the right to rescind.[23] The spouses Catungal further claimed that it was Rodriguez who was in
breach of their agreement and guilty of bad faith which justified their rescission of the contract.[24] By way of
counterclaim, the spouses Catungal prayed for actual and consequential damages in the form of unearned interests
from the balance (of the purchase price in the amount) of P24,500,000.00, moral and exemplary damages in the
amount of P2,000,000.00, attorneys fees in the amount of P200,000.00 and costs of suits and litigation expenses in
the amount of P10,000.00.[25] The spouses Catungal prayed for the dismissal of the complaint and the grant of their
counterclaim.

The Catungals amended their Answer twice,[26] retaining their basic allegations but amplifying their charges of
contractual breach and bad faith on the part of Rodriguez and adding the argument that in view of Article 1191 of the
Civil Code, the power to rescind reciprocal obligations is granted by the law itself to both parties and does not need an
express stipulation to grant the same to the injured party. In the Second Amended Answer with Counterclaim, the
spouses Catungal added a prayer for the trial court to order the Register of Deeds to cancel the annotations of the two
contracts at the back of their OCT.[27]
On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding allegations to the effect that the Catungals
were guilty of several misrepresentations which purportedly induced Rodriguez to buy the property at the price
of P25,000,000.00. Among others, it was alleged that the spouses Catungal misrepresented that their Lot 10963
includes a flat portion of land which later turned out to be a separate lot (Lot 10986) owned by Teodora Tudtud who
sold the same to one Antonio Pablo. The Catungals also allegedly misrepresented that the road right of way will only
traverse two lots owned by Anatolia Tudtud and her daughter Sally who were their relatives and who had already
agreed to sell a portion of the said lots for the road right of way at a price of P550.00 per square meter. However,
because of the Catungals acts of offering the property to other buyers who offered to buy the road lots for P2,500.00
per square meter, the adjacent lot owners were no longer willing to sell the road lots to Rodriguez at P550.00 per
square meter but were asking for a price of P3,500.00 per square meter. In other words, instead of assisting
Rodriguez in his efforts to negotiate the road right of way, the spouses Catungal allegedly intentionally and maliciously
defeated Rodriguezs negotiations for a road right of way in order to justify rescission of the said contract and enable
them to offer the property to other buyers.

Despite requesting the trial court for an extension of time to file an amended Answer,[29] the Catungals did not file an
amended Answer and instead filed an Urgent Motion to Dismiss[30] again invoking the ground of improper venue. In
the meantime, for failure to file an amended Answer within the period allowed, the trial court set the case for pre-trial
on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals Urgent Motion to
Dismiss for violation of the rules and for being repetitious and having been previously denied.[31] However, Atty.
Catungal refused to enter into pre-trial which prompted the trial court to declare the defendants in default and to set
the presentation of the plaintiffs evidence on February 14, 1992.[32]

On December 23, 1991, the Catungals filed a motion for reconsideration [33] of the December 20, 1991 Order denying
their Urgent Motion to Dismiss but the trial court denied reconsideration in an Order dated February 3,
1992.[34] Undeterred, the Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default [35] but it was
likewise denied for being in violation of the rules and for being not meritorious. [36] On February 28, 1992, the
Catungals filed a Petition for Certiorari and Prohibition[37] with the Court of Appeals, questioning the denial of their
motion to dismiss and the order of default. This was docketed as CA-G.R. SP No. 27565.

Meanwhile, Rodriguez proceeded to present his evidence before the trial court.

In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under the contract it
was complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguezs obligation to pay the balance of
the purchase price arises only upon successful negotiation of the road right of way; (c) he proved his diligent efforts
to negotiate the road right of way; (d) the spouses Catungal were guilty of misrepresentation which defeated
Rodriguezs efforts to acquire the road right of way; and (e) the Catungals rescission of the contract had no basis and
was in bad faith. Thus, the trial court made the injunction permanent, ordered the Catungals to reduce the purchase
price by the amount of acquisition of Lot 10963 which they misrepresented was part of the property sold but was in
fact owned by a third party and ordered them to pay P100,000.00 as damages, P30,000.00 as attorneys fees and
costs.

The Catungals appealed the decision to the Court of Appeals, asserting the commission of the following errors by the
trial court in their appellants brief[38] dated February 9, 1994:
I

THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE GROUNDS OF IMPROPER VENUE AND
LACK OF JURISDICTION.

II

THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT A REAL ACTION.

III

GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE CASE IS A PERSONAL ACTION, THE
COURT A QUO ERRED IN DECLARING THE DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME
THE DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE COMPLAINT.

IV

THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN COURT
WHEN AT MOST THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO NOTICES OF ALL
FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF DEFAULT.

THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE OF
ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURTS TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY
OF THE WRIT.

VI

THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO FROM CONTINUING WITH THE
PROCEEDINGS IN THE CASE AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF COURTESY AND
FAIRNESS BEING MANDATED AS DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR
FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION FOR CERTIORARI QUESTIONING ITS
VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT NOTICES FOR THE FILING OF COMMENT THERETO HAD
ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF APPEALS, SECOND DIVISION, AND THE COURT A QUO
WAS FURNISHED WITH COPY OF SAID NOTICE.

VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF AND AGAINST THE DEFENDANTS ON
THE BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF TRUTH, TO BE STATED IN DETAIL
IN THE DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS REVERSIBLE. [39]

On August 31, 1995, after being granted several extensions, Rodriguez filed his appellees brief, [40] essentially arguing
the correctness of the trial courts Decision regarding the foregoing issues raised by the Catungals. Subsequently, the
Catungals filed a Reply Brief[41] dated October 16, 1995.

From the filing of the appellants brief in 1994 up to the filing of the Reply Brief, the spouses Catungal were
represented by appellant Jose Catungal himself.However, a new counsel for the Catungals, Atty. Jesus N. Borromeo
(Atty. Borromeo), entered his appearance before the Court of Appeals on September 2, 1997. [42]On the same date,
Atty. Borromeo filed a Motion for Leave of Court to File Citation of Authorities[43] and a Citation of Authorities.[44] This
would be followed by Atty. Borromeos filing of an Additional Citation of Authority and Second Additional Citation of
Authority both on November 17, 1997.[45]

During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus, her husband,
Jose, filed on February 17, 1999 a motion for Agapitas substitution by her surviving children. [46]

On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated cases CA-G.R. CV No. 40627 and CA-
G.R. SP No. 27565,[47] affirming the trial courts Decision.

In a Motion for Reconsideration dated August 21, 2000,[48] counsel for the Catungals, Atty. Borromeo, argued for the
first time that paragraphs 1(b) and 5[49]of the Conditional Deed of Sale, whether taken separately or jointly, violated
the principle of mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was void ab
initio. He adverted to the cases mentioned in his various citations of authorities to support his argument of nullity of
the contract and his position that this issue may be raised for the first time on appeal.

Meanwhile, a Second Motion for Substitution[50] was filed by Atty. Borromeo in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of the deceased Agapita and
Jose Catungal by their surviving heirs and denied the motion for reconsideration for lack of merit

Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001 the present petition for review, [51] which
essentially argued that the Court of Appeals erred in not finding that paragraphs 1(b) and/or 5 of the Conditional Deed
of Sale, violated the principle of mutuality of contracts under Article 1308 of the Civil Code.Thus, said contract was
supposedly void ab initio and the Catungals rescission thereof was superfluous.

In his Comment,[52] Rodriguez highlighted that (a) petitioners were raising new matters that cannot be passed upon
on appeal; (b) the validity of the Conditional Deed of Sale was already admitted and petitioners cannot be allowed to
change theories on appeal; (c) the questioned paragraphs of the Conditional Deed of Sale were valid; and (d)
petitioners were the ones who committed fraud and breach of contract and were not entitled to relief for not having
come to court with clean hands.

The Court gave due course to the Petition[53] and the parties filed their respective Memoranda.

The issues to be resolved in the case at bar can be summed into two questions:

I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the first time
on appeal?

II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of contracts
under Article 1308 of the Civil Code?

On petitioners change of theory

Petitioners claimed that the Court of Appeals should have reversed the trial courts Decision on the ground of the
alleged nullity of paragraphs 1(b) and 5 of the Conditional Deed of Sale notwithstanding that the same was not raised
as an error in their appellants brief. Citing Catholic Bishop of Balanga v. Court of Appeals,[54]petitioners argued in the
Petition that this case falls under the following exceptions:

(3) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice;
(4) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(5) Matters not assigned as errors on appeal but closely related to an error assigned; and

(6) Matters not assigned as errors but upon which the determination of a question properly assigned is dependent. [55]

We are not persuaded.

This is not an instance where a party merely failed to assign an issue as an error in the brief nor failed to argue a
material point on appeal that was raised in the trial court and supported by the record. Neither is this a case where a
party raised an error closely related to, nor dependent on the resolution of, an error properly assigned in his
brief. This is a situation where a party completely changes his theory of the case on appeal and abandons his previous
assignment of errors in his brief, which plainly should not be allowed as anathema to due process.

Petitioners should be reminded that the object of pleadings is to draw the lines of battle between the litigants and to
indicate fairly the nature of the claims or defenses of both parties.[56] In Philippine National Construction Corporation
v. Court of Appeals,[57] we held that [w]hen a party adopts a certain theory in the trial court, he will not be permitted
to change his theory on appeal, for to permit him to do so would not only be unfair to the other party but it would also
be offensive to the basic rules of fair play, justice and due process.[58]

We have also previously ruled that courts of justice have no jurisdiction or power to decide a question not in
issue. Thus, a judgment that goes beyond the issues and purports to adjudicate something on which the court did not
hear the parties, is not only irregular but also extrajudicial and invalid. The rule rests on the fundamental tenets of fair
play.[59]

During the proceedings before the trial court, the spouses Catungal never claimed that the provisions in the
Conditional Deed of Sale, stipulating that the payment of the balance of the purchase price was contingent upon the
successful negotiation of a road right of way (paragraph 1[b]) and granting Rodriguez the option to rescind
(paragraph 5), were void for allegedly making the fulfillment of the contract dependent solely on the will of Rodriguez.

On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the Answer (and its amended versions)
that the payment of the purchase price was subject to the will of Rodriguez but rather they claimed that paragraph
1(b) in relation to 1(c) only presupposed a reasonable time be given to Rodriguez to negotiate the road right of
way. However, it was petitioners theory that more than sufficient time had already been given Rodriguez to negotiate
the road right of way.Consequently, Rodriguezs refusal/failure to pay the balance of the purchase price, upon
demand, was allegedly indicative of lack of funds and a breach of the contract on the part of Rodriguez.

Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguezs option to rescind, it was petitioners theory in
the court a quo that notwithstanding such provision, they retained the right to rescind the contract for Rodriguezs
breach of the same under Article 1191 of the Civil Code.

Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed of Sale in view of the
questioned provisions was only in their Motion for Reconsideration of the Court of Appeals Decision, affirming the trial
courts judgment. The previous filing of various citations of authorities by Atty. Borromeo and the Court of Appeals
resolutions noting such citations were of no moment. The citations of authorities merely listed cases and their main
rulings without even any mention of their relevance to the present case or any prayer for the Court of Appeals to
consider them. In sum, the Court of Appeals did not err in disregarding the citations of authorities or in denying
petitioners motion for reconsideration of the assailed August 8, 2000 Decision in view of the proscription against
changing legal theories on appeal.

Ruling on the questioned provisions of the Conditional Deed of Sale

Even assuming for the sake of argument that this Court may overlook the procedural misstep of petitioners, we still
cannot uphold their belatedly proffered arguments.

At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale, whereby the spouses
Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain price but the
payment of the purchase price was additionally made contingent on the successful negotiation of a road right of
way. It is elementary that [i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening of the event which constitutes the condition. [60]
Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed nullity of the
aforementioned provisions. Article 1308 states that [t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

Article 1182 of the Civil Code, in turn, provides:

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity
with the provisions of this Code.

In the past, this Court has distinguished between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with the first condition results in the
failure of a contract, failure to comply with the second merely gives the other party the option to either refuse to
proceed with the sale or to waive the condition.[61] This principle is evident in Article 1545 of the Civil Code on sales,
which provides in part:

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 x x x.

Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the purchase price
when he has successfully negotiated and secured a road right of way, is not a condition on the perfection of the
contract nor on the validity of the entire contract or its compliance as contemplated in Article 1308. It is a condition
imposed only on respondents obligation to pay the remainder of the purchase price. In our view and applying Article
1182, such a condition is not purely potestative as petitioners contend. It is not dependent on the sole will of the
debtor but also on the will of third persons who own the adjacent land and from whom the road right of way shall be
negotiated. In a manner of speaking, such a condition is likewise dependent on chance as there is no guarantee that
respondent and the third party-landowners would come to an agreement regarding the road right of way. This type of
mixed condition is expressly allowed under Article 1182 of the Civil Code.

Analogous to the present case is Romero v. Court of Appeals,[62] wherein the Court interpreted the legal effect of a
condition in a deed of sale that the balance of the purchase price would be paid by the vendee when the vendor has
successfully ejected the informal settlers occupying the property. In Romero, we found that such a condition did not
affect the perfection of the contract but only imposed a condition on the fulfillment of the obligation to pay the balance
of the purchase price, to wit:

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good
faith, usage and law. Under the agreement, private respondent is obligated to evict the squatters on the
property. The ejectment of the squatters is a condition the operative act of which sets into motion the
period of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price.
Private respondent's failure to remove the squatters from the property" within the stipulated period gives
petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance
with Article 1545 of the Civil Code. This option clearly belongs to petitioner and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does not
constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil Code but a "mixed" condition "dependent not on the will of the
vendor alone but also of third persons like the squatters and government agencies and personnel
concerned." We must hasten to add, however, that where the so-called "potestative condition" is imposed not on the
birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation
itself.[63] (Emphases supplied.)

From the provisions of the Conditional Deed of Sale subject matter of this case, it was the vendee (Rodriguez) that
had the obligation to successfully negotiate and secure the road right of way. However, in the decision of the trial
court, which was affirmed by the Court of Appeals, it was found that respondent Rodriguez diligently exerted efforts to
secure the road right of way but the spouses Catungal, in bad faith, contributed to the collapse of the negotiations for
said road right of way.To quote from the trial courts decision:

It is therefore apparent that the vendees obligations (sic) to pay the balance of the purchase price arises only when
the road-right-of-way to the property shall have been successfully negotiated, secured and provided. In other words,
the obligation to pay the balance is conditioned upon the acquisition of the road-right-of-way, in accordance with
paragraph 2 of Article 1181 of the New Civil Code. Accordingly, an obligation dependent upon a suspensive condition
cannot be demanded until after the condition takes place because it is only after the fulfillment of the condition that
the obligation arises. (Javier v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez]
indeed was diligent in his efforts to negotiate for a road-right-of-way to the property. The written offers,
proposals and follow-up of his proposals show that plaintiff [Rodriguez] went all out in his efforts to immediately
acquire an access road to the property, even going to the extent of offering P3,000.00 per square meter for the road
lots (Exh. Q) from the original P550.00 per sq. meter. This Court also notes that defendant (sic) [the Catungals]
made misrepresentation in the negotiation they have entered into with plaintiff[Rodriguez]. (Exhs. F and G)
The misrepresentation of defendant (sic) [the Catungals] as to the third lot (Lot 10986) to be part and parcel of the
subject property [(]Lot 10963) contributed in defeating the plaintiffs [Rodriguezs] effort in acquiring the
road-right-of-way to the property. Defendants [the Catungals] cannot now invoke the non-fulfillment of
the condition in the contract as a ground for rescission when defendants [the Catungals] themselves are
guilty of preventing the fulfillment of such condition.

From the foregoing, this Court is of the considered view that rescission of the conditional deed of sale by the
defendants is without any legal or factual basis.[64] x x x. (Emphases supplied.)

In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.

Furthermore, it is evident from the language of paragraph 1(b) that the condition precedent (for respondents
obligation to pay the balance of the purchase price to arise) in itself partly involves an obligation to do, i.e., the
undertaking of respondent to negotiate and secure a road right of way at his own expense. [65] It does not escape our
notice as well, that far from disclaiming paragraph 1(b) as void, it was the Catungals contention before the trial court
that said provision should be read in relation to paragraph 1(c) which stated:

c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to secure
and any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be
accorded with enough time necessary for the success of his endeavor, granting him a free hand in negotiating
for the passage.[66] (Emphasis supplied.)

The Catungals interpretation of the foregoing stipulation was that Rodriguezs obligation to negotiate and secure a road
right of way was one with a period and that period, i.e., enough time to negotiate, had already lapsed by the time
they demanded the payment of P5,000,000.00 from respondent. Even assuming arguendo that the Catungals were
correct that the respondents obligation to negotiate a road right of way was one with an uncertain period, their
rescission of the Conditional Deed of Sale would still be unwarranted. Based on their own theory, the Catungals had a
remedy under Article 1197 of the Civil Code, which mandates:

Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a
period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.

What the Catungals should have done was to first file an action in court to fix the period within which Rodriguez
should accomplish the successful negotiation of the road right of way pursuant to the above quoted provision. Thus,
the Catungals demand for Rodriguez to make an additional payment of P5,000,000.00 was premature and Rodriguezs
failure to accede to such demand did not justify the rescission of the contract.

With respect to petitioners argument that paragraph 5 of the Conditional Deed of Sale likewise rendered the said
contract void, we find no merit to this theory.Paragraph 5 provides:

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the
herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his
rights over the property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (P500,000.00) representing the downpayment, interest free, payable but contingent upon the
event that the VENDOR shall have been able to sell the property to another party.[67]

Petitioners posited that the above stipulation was the deadliest provision in the Conditional Deed of Sale for violating
the principle of mutuality of contracts since it purportedly rendered the contract subject to the will of respondent.
We do not agree.

It is petitioners strategy to insist that the Court examine the first sentence of paragraph 5 alone and resist a
correlation of such sentence with other provisions of the contract. Petitioners view, however, ignores a basic rule in
the interpretation of contracts that the contract should be taken as a whole.

Article 1374 of the Civil Code provides that [t]he various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly. The same Code further
sets down the rule that [i]f 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.[68]

Similarly, under the Rules of Court it is prescribed that [i]n the construction of an instrument where there are several
provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all [69] and for the
proper construction of an instrument, the circumstances under which it was made, including the situation of the
subject thereof and of the parties to it, may be shown, so that the judge may be placed in the position of those whose
language he is to interpret.[70]

Bearing in mind the aforementioned interpretative rules, we find that the first sentence of paragraph 5 must be taken
in relation with the rest of paragraph 5 and with the other provisions of the Conditional Deed of Sale.

Reading paragraph 5 in its entirety will show that Rodriguezs option to rescind the contract is not absolute as it is
subject to the requirement that there should be written notice to the vendor and the vendor shall only return
Rodriguezs downpayment of P500,000.00, without interest, when the vendor shall have been able to sell the property
to another party. That what is stipulated to be returned is only the downpayment of P500,000.00 in the event that
Rodriguez exercises his option to rescind is significant. To recall, paragraph 1(b) of the contract clearly states that the
installments on the balance of the purchase price shall only be paid upon successful negotiation and procurement of a
road right of way. It is clear from such provision that the existence of a road right of way is a material consideration
for Rodriguez to purchase the property. Thus, prior to him being able to procure the road right of way, by express
stipulation in the contract, he is not bound to make additional payments to the Catungals. It was further stipulated in
paragraph 1(b) that: [i]f however said road right of way cannot be negotiated, the VENDEE shall give notice to the
VENDOR for them to reassess and solve the problem by taking other options and should the situation ultimately
prove futile, he [Rodriguez] shall take steps to rescind or [cancel] the herein Conditional Deed of
Sale. The intention of the parties for providing subsequently in paragraph 5 that Rodriguez has the option to rescind
the sale is undeniably only limited to the contingency that Rodriguez shall not be able to secure the road right of
way. Indeed, if the parties intended to give Rodriguez the absolute option to rescind the sale at any time, the contract
would have provided for the return of all payments made by Rodriguez and not only the downpayment. To our mind,
the reason only the downpayment was stipulated to be returned is that the vendees option to rescind can only be
exercised in the event that no road right of way is secured and, thus, the vendee has not made any additional
payments, other than his downpayment.

In sum, Rodriguezs option to rescind the contract is not purely potestative but rather also subject to the
same mixed condition as his obligation to pay the balance of the purchase price i.e., the negotiation of a road right
of way. In the event the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the
purchase price. In the event the condition is not fulfilled (or the negotiation fails), Rodriguez has the choice either (a)
to not proceed with the sale and demand return of his downpayment or (b) considering that the condition was
imposed for his benefit, to waive the condition and still pay the purchase price despite the lack of road access. This is
the most just interpretation of the parties contract that gives effect to all its provisions.

In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option to rescind, in the
manner provided for in the contract, is tantamount to a potestative condition, not being a condition affecting the
perfection of the contract, only the said condition would be considered void and the rest of the contract will remain
valid. In Romero, the Court observed that where the so-called potestative condition is imposed not on the birth of the
obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself. [71]

It cannot be gainsaid that contracts have the force of law between the contracting parties and should be complied
with in good faith.[72] We have also previously ruled that [b]eing the primary law between the parties, the contract
governs the adjudication of their rights and obligations. A court has no alternative but to enforce the contractual
stipulations in the manner they have been agreed upon and written.[73] We find no merit in petitioners contention that
their parents were merely duped into accepting the questioned provisions in the Conditional Deed of Sale. We note
that although the contract was between Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon to
signify his marital consent to the same. We concur with the trial courts finding that the spouses Catungals claim of
being misled into signing the contract was contrary to human experience and conventional wisdom since it was Jose
Catungal who was a practicing lawyer while Rodriquez was a non-lawyer.[74] It can be reasonably presumed that Atty.
Catungal and his wife reviewed the provisions of the contract, understood and accepted its provisions before they
affixed their signatures thereon.
After thorough review of the records of this case, we have come to the conclusion that petitioners failed to
demonstrate that the Court of Appeals committed any reversible error in deciding the present controversy. However,
having made the observation that it was desirable for the Catungals to file a separate action to fix the period for
respondent Rodriguezs obligation to negotiate a road right of way, the Court finds it necessary to fix said period in
these proceedings. It is but equitable for us to make a determination of the issue here to obviate further delay and in
line with the judicial policy of avoiding multiplicity of suits.

If still warranted, Rodriguez is given a period of thirty (30) days from the finality of this decision to negotiate a road
right of way. In the event no road right of way is secured by Rodriquez at the end of said period, the parties shall
reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this
purpose, they are given a period of thirty (30) days to agree on a course of action. Should the discussions of the
parties prove futile after the said thirty (30)-day period, immediately upon the expiration of said period for discussion,
Rodriguez may (a) exercise his option to rescind the contract, subject to the return of his downpayment, in
accordance with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road right of
way and pay the balance of the deducted purchase price as determined in the RTC Decision dated May 30, 1992.

WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30, 2001 of the Court of Appeals
in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the
following MODIFICATION:

If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from the finality of this Decision
to negotiate a road right of way. In the event no road right of way is secured by respondent at the end of said period,
the parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale
and, for this purpose, they are given a period of thirty (30) days to agree on a course of action. Should the
discussions of the parties prove futile after the said thirty (30)-day period, immediately upon the expiration of said
period for discussion, Rodriguez may (a) exercise his option to rescind the contract, subject to the return of his
downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b)
waive the road right of way and pay the balance of the deducted purchase price as determined in the RTC Decision
dated May 30, 1992.

No pronouncement as to costs.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR. MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice
 THIRD DIVISION[G.R. No. 145031. January 22, 2004]
SPS. RUFINO ANGEL and EMERITA ANGEL, petitioners, vs. SIMPLICIO ALEDO and FELIXBERTO
MODALES, respondents.

DECISION

CARPIO-MORALES, J.:

The facts material to the decision of the present petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. CV No. 44679 are as follows:

In November 1984, the spouses Rufino and Emerita Angel (spouses Angel or the Angels), herein petitioners,
engaged the services of respondent Felixberto Modales (Modales) to construct a two-storey residential building at
GSIS La Mesa Homesite in Novaliches, Quezon City.

In their November 22, 1984 contract denominated Construction Agreement, [1] since Modales was at the time an
engineer under the employ of the Department of Public Works and Highways, the parties made it appear that the
contractor was Modales father-in-law, his herein co-respondent Simplicio Aledo (Aledo). The said agreement was for
the construction of the building up to its rough finish stage.

After the completion of the building in its rough finish stage, [2] another Construction Agreement dated February
11, 1985[3] was forged by the spouses Angel and Aledo for effecting the finishing touches of the building.

Completion of the finishing touches was certified[4] to by Mrs. Angel on April 31, 1985.

On September 27, 1988, Aledo filed before the Quezon City Regional Trial Court (RTC) a Complaint [5] for
collection of sum of money against the spouses Angel, alleging that despite the completion of the construction of their
building and their acceptance thereof, they failed to pay, demands notwithstanding, the amount of P22,850.00
representing the balance of the consideration of the contract and P6,713.00 representing the cost of materials
supplied by him.

In their Answer,[6] the spouses Angel claimed that Aledo has no cause of action as he is only a dummy of his son-
in-law Modales who was the actual contractor with whom they contracted for the construction of their residential
building; and that, in any event, there were defects in the construction and some of the materials deposited by
Modales in the construction site were not used. By way of counterclaim, the Angels alleged that as a result of the filing
of the unfounded complaint, they were forced to retain the services of counsel with whom they agreed to pay
P10,000.00 as attorneys fees and they stood to incur P5,000.00 as litigation expenses.

In July 1989, the spouses Angel filed a Third Party Complaint [7] against Modales, alleging that he failed to comply
with his obligation under the Construction Agreements as, among other things, the building had a lot of defects, to
correct or remedy which would cost them the amount of Eighty Five Thousand (P85,000.00) Pesos, hence, Modales
should be held liable for moral damages and attorneys fees.

Modales in his Answer to the Third Party Complaint [8] alleged that the Angels have no cause of action against
him as he had nothing to do with the contracts; and that [he] (sic) never acted as a dummy and, in any event, the
Angels never complained of any defect in the construction, hence, they are in estoppel and are guilty of laches.

During the pre-trial of the case, only the defendant-third party plaintiff spouses Angel showed up. The plaintiff
Aledo did not show up, albeit their counsel had priorly filed a motion to withdraw as counsel in view of his
appointment as Special Prosecutor and to postpone the pre-trial to afford his client ample time to seek the services of
a new counsel, which motion was not, however, passed upon by the trial court, Branch 97 of the Quezon City RTC.
Neither did third party defendant Modales who, by his claim, was not duly notified thereof as, indeed, the Order of
January 31, 1991[9] shows that only the plaintiff Aledo and the defendants-third party plaintiffs spouses Angel and
their respective counsels were furnished copies thereof.

On motion of the Angels, the trial court declared the plaintiff Aledo non-suited and accordingly dismissed his
complaint by Order made in open court on March 1, 1991. [10] On a subsequent motion of the Angels, they prayed that
third party defendant Modales be declared as in default and that the dismissal Order of March 1, 1991 should apply
only to the original complaint.

The plaintiff Aledo later filed a Motion for Reconsideration of the March 1, 1991 Order of the trial court.

By Order of April 16, 1991, [11] the trial court clarified its Order of March 1, 1991, stating that the latter order
shall be for the dismissal of the original complaint but reserving to the defendant[s] [-] third party plaintiffs the right
to prove their counterclaim and third party complaint against the plaintiff and third party defendant, respectively.
(Emphasis and underscoring supplied)
 The defendants-third party plaintiffs spouses Angel were thus allowed to present before the branch clerk of court
evidence ex-parte consisting of the testimony of an engineer (whom the Angels claimed to have hired regarding the
alleged defects in the construction) and documentary evidence including the Construction Agreements.

The trial court, by Decision of March 30, 1993,[12] rendered judgment in favor of the defendants-third party
plaintiffs Angels, the dispositive portion of which judgment reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering plaintiff to pay defendants/third-party
plaintiffs P10,000.00 for attorneys fees and P5,000.00 for litigation expenses and cost of suit and third-party
defendant to pay third-party plaintiffs the sum of P85,000.00 as actual damages and P50,000.00 by way of moral
damages. (Emphasis and underscoring supplied)

Aledo and Modales appealed to the Court of Appeals. Aledos appeal was dismissed, however, for failure to file
Appellants Brief within the reglementary period. He filed a motion for reconsideration of the resolution of dismissal but
as it was belatedly filed, it was denied.

As for Modales, since he failed to file Appellants Brief, the Court of Appeals likewise dismissed his appeal by
Resolution of February 6, 1996. [13] He received on February 21, 1996 a copy of the said Resolution of the Court of
Appeals dismissing his appeal, and filed by mail on March 11, 1996[14] a Verified Motion for Reconsideration [thereof]
and To Admit [his] Appellants Brief which was granted.

By the now assailed Decision of September 7, 2000, [15] the Court of Appeals reversed and set aside the decision
of the trial court and entered a new one dismissing the Angels Counterclaim and Third-Party Complaint.

In dismissing the Counterclaim and Third-Party Complaint, the Court of Appeals held that the Construction
Agreements, which were entered into by the parties with the knowledge that [Modales] [wa]s prohibited from
contracting without the requisite permission from the proper government authorities, were contrary to law and public
policy, hence, following Article 1412 of the Civil Code which reads:

ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the others undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the
return of what he has given without any obligation to comply with his promise (Underscoring supplied),

they were in pari delicto and, therefore, they have no action against each other.

Thus spawned the present petition for review on certiorari filed by the spouses Angel (hereinafter referred to as
petitioners), assigning the following errors to the Court of Appeals:

A. THE COURT OF APPEALS HAD DEPARTED FROM THE ADOPTED COURSE OF JUDICIAL PROCEEDINGS BY
REVERSING THE DECISION OF THE TRIAL COURT WHICH HAD LONG BEEN FINAL AND EXECUTORY.

B. THE COURT OF APPEALS, IN ITS DECISION DATED SEPTEMBER 7, 2000, DECIDED A QUESTION OF
SUBSTANCE IN A MANNER THAT IS NOT IN ACCORD WITH THE LAW AND APPLICABLE JURISPRUDENCE,

and proffering the following as grounds for the allowance of the petition:

1. THE COURT OF APPEALS ERRED AND ACTED WITHOUT JURISDICTION WHEN IT REVERSED A DECISION
OF THE TRIAL COURT WHICH HAD LONG BEEN FINAL AND EXECUTORY.

2. THE COURT OF APPEALS ERRED IN HOLDING THAT THE PARTIES WERE IN PARI DELICTO, HENCE, THEY
SHALL HAVE NO ACTION AGAINST EACH OTHER AND SHOULD BE LEFT AS THEY ARE.

Petitioners argue that the Court of Appeals erred in taking jurisdiction over the case of the plaintiff Aledo, given
its dismissal of his appeal which had long become final and executory.

And they argue that the Court of Appeals had no jurisdiction over the appeal of the third party defendant Modales
because his Motion for Reconsideration of the Resolution of the Court of Appeals dismissing his appeal was filed
beyond the reglementary period.

On petitioners argument that it was error for the Court of Appeals to still consider the appeal of Aledo as it had
long dismissed it and had become final and executory: There was nothing for Aledo to appeal from, for the
counterclaim of petitioners, which was compulsory, hence, could not remain pending for independent adjudication by
the court,[16]was, along with Aledos complaint, dismissed on the counterclaimant-defendants motion on March 1,
1991. The trial courts Order of April 16, 1991 clarifying that only Alejos original complaint was dismissed and
accordingly giving due course to petitioners counterclaim was thus null and void. It being void ab initio, the Order of
April 16, 1991 had no legality from its inception, and the decision of the trial court against the plaintiff Aledo was itself
void as it emanated from a void order.[17]

With respect to petitioners argument that the Motion for Reconsideration of Modales from the Court of Appeals
Resolution of dismissal of his appeal was filed beyond the reglementary period. As reflected above, the motion
was mailed on March 7, 1996, [18] albeit received by the Court of Appeals on March 11, 1996. It bears stressing that
it is the date of mailing, not the date of receipt, of the mail matter, which shall be considered as the date of filing. [19]

In sum, since admittedly it was with respondent Modales that petitioners contracted to construct their residential
building but that his father-in-law co-respondent Aledo, his mere dummy, was named in the Construction
Agreements, the Court of Appeals did not err in holding that said agreements were contrary to law and public policy,
hence, petitioners and respondents Aledo and Modales were in pari delicto, and in accordingly pronouncing the
dismissal of petitioners Counterclaim and dismissing their Third-Party Complaint. Ex dolo malo non oritur actio. In pari
delicto potior est conditio defendentis.

WHEREFORE, the petition is, in light of the foregoing discussions, hereby DISMISSED.

SO ORDERED.

Vitug, (Chairman), Sandoval-Gutierrez, and Corona, JJ., concur.

[1] Records at 5-7. It was later Amended (Id. at 151-155) and Re-amended (Id. at 195-199).
[2] Id. at 9.
[3] Id. at 10-12.
[4] Id. at 15.
[5] Id. at 1-4.
[6] Id. at 65-70.
[7] Id. at 43-46.
[8] Id. at 87-89.
[9] Record at 227.
[10] Vide April 16, 1991 Order, Id. at 262.
[11] Ibid.
[12] Id. at 303-310.
[13] Court of Appeals Rollo at 27.
[14] Vide brown envelope stapled to p. 53 of Court of Appeals Rollo which bears the stamp mark showing that it was
sent by registered mail on March 11, 1996.
[15]
Rollo at 41-50.
[16] Sec. 2 of Rule 17, Revised Rules of Court which was in force at the time the March 1, 1991 Order was issued,
reads:

Dismissal by order of the court. - Except as provided in the preceding section, an action shall not be dismissed at the
plaintiffs instance save upon order of the court and upon such terms and conditions as the court deems
proper. If a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiffs
motion to dismiss, the action shall not be dismissed against the defendants objection unless the counterclaim
can remain pending for independent adjudication by the court. Unless otherwise specified in the order, a
dismissal under this paragraph shall be without prejudice. (Underscoring supplied)
[17] Vide Caseas v. Rosales, et al.,19 SCRA 463 (1967).
[18] Vide note 13.
[19] Sec. 1, Rule 13, Revised Rules of Court, now Sec. 3, Rule 13 of the 1997 Rules of Civil Procedure.
 FIRST DIVISION

ESTRELLA TIONGCO YARED (Deceased) G.R. No. 161360

substituted by CARMEN M. TIONGCO a.k.a.
CARMEN MATILDE B. TIONGCO, Present:
Petitioner,
CORONA, C.J.,
Chairperson,
- versus - LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

JOSE B. TIONGCO and ANTONIO G. Promulgated:

DORONILA, JR.,
Respondents. October 19, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:

Before us on appeal by way of a petition for review on certiorari under Rule 45 is the Court of Appeals (CA) August 28,
2003 Decision[1] which dismissed petitioner Estrella Tiongco Yareds appeal and affirmed the Decision[2] of the
Regional Trial Court (RTC), Branch 26, of Iloilo City, dismissing petitioners complaint for annulment of affidavit of
adjudication, deeds of sale and Transfer Certificates of Title (TCTs), reconveyance and damages. Also assailed is the
appellate courts November 27, 2003 Resolution[3] denying petitioners motion for reconsideration.
The factual antecedents, as culled from the records, follow:
Matilde, Jose, Vicente, and Felipe, all surnamed Tiongco, were born to Atanacio and Maria Luis Tiongco. Together they
were known as the Heirs of Maria Luis de Tiongco.
The present dispute involves three parcels of land namely, Lots 3244, 3246 and 1404, all located in Iloilo City. Lots
3244 and 1404 used to be covered by Original Certificates of Title (OCTs) Nos. 484 and 1482, respectively, in the
names of Matilde (wife of Vicente Rodriguez), Jose (married to Carmen Sonora), Vicente (married to Ursula Casador),
and Felipe (married to Sabina Montelibano), each in undivided share, while Lot 3246 used to be covered by OCT
No. 368 in the name of Heirs of Maria Luis de Tiongco.[4]
While all of the Heirs of Maria Luis de Tiongco have died, they were survived by their children and descendants.
Among the legitimate children of Jose were petitioner and Carmelo Tiongco, the father of respondent Jose B.
Tiongco.[5]

Sometime in 1965, petitioner built her house on Lot 1404[6] and sustained herself by collecting rentals from the
tenants of Lots 3244 and 3246. In 1968, petitioner, as one of the heirs of Jose, filed an adverse claim affecting all the
rights, interest and participation of her deceased father on the disputed lots, but the adverse claim was annotated
only on OCT No. 484 and OCT No. 1482, respectively covering Lots 3244 and 1404. [7]

In 1983, respondent Jose prohibited petitioner from collecting rentals from the tenants of Lots 3244 and 3246.
In December 1983, respondent Jose filed a suit for recovery of possession with preliminary injunction against several
tenants of Lots 3244 and 3246 wherein he obtained a judgment in his favor.[8]

Respondent Jose also filed a case for unlawful detainer with damages against petitioner as she was staying
on Lot 1404. While the RTC, Branch 33, of Iloilo City ruled in respondent Joses favor, the CA reversed the RTCs
decision and ruled in favor of petitioner.[9] As such, respondent Jose never took possession of the properties.
In 1988, when petitioner inquired at the Office of the Register of Deeds of Iloilo City, she discovered that respondent
Jose had already executed an Affidavit of Adjudication[10] dated April 17, 1974, declaring that he is the only surviving
heir of the registered owners and adjudicating unto himself Lots 3244, 3246 and 1404. Consequently, the OCTs of the
aforementioned lots were cancelled, and in place thereof, the Register of Deeds of Iloilo City issued TCT No. T-37195
for Lot 3244, TCT No. T-4665 for Lot 3246, and TCT No. T-37193 for Lot 1404, all in the name of respondent Jose.[11]

Based on the records with the Register of Deeds, it also appears that on May 10, 1974, the same day when the TCTs
covering Lots 3244 and 1404 were issued, respondent Jose sold the said lots to Catalino Torre. TCT Nos. T-37195 and
T-37193 were thus cancelled and TCT Nos. T-37196 and T-37194 were issued in the name of Catalino Torre.[12]
Similarly, the records of the Register of Deeds showed that Lot 3246 was likewise disposed of by respondent Jose. On
March 30, 1979, or barely two days after obtaining TCT No. T-4665, respondent Jose sold Lot 3246 to respondent
Antonio G. Doronila, Jr. who was issued TCT No. T-4666 which cancelled TCT No. T-4665. Catalino Torre also sold Lots
3244 and 1404 on the same date to Doronila who was issued the corresponding new TCTs. [13] However, just a few
days later, or on April 2, 1979, Doronila sold Lot 1404 back to respondent Jose. Lots 3244 and 3246 were also sold
back to respondent on January 17, 1980.[14]
On October 2, 1990, petitioner filed a complaint before the court a quo against her nephew respondent Jose and
respondent Antonio G. Doronila, Jr. Petitioner argued that respondent Jose knowingly and wilfully made untruthful
statements in the Affidavit of Adjudication because he knew that there were still other living heirs entitled to the said
properties.[15] Petitioner claimed that the affidavit was null and void ab initio and as such, it did not transmit or
convey any right of the original owners of the properties. Any transfer whatsoever is perforce likewise null and
void.[16] Moreover, the petitioner averred that since respondent Jose executed said documents through fraud, bad
faith, illegal manipulation and misrepresentation, Lots 3244 and 1404 should be reconveyed to its original registered
owners and Lot3246 to the heirs of Maria Luis de Tiongco subject to subsequent partition among the heirs. [17]

Petitioner also posited that granting for the sake of argument that the affidavit of adjudication was simply voidable,
respondent Jose became a trustee by constructive trust of the property for the benefit of the petitioner.[18]
Respondent Jose, for his part, argued that the petitioners father, Jose, was not an heir of Maria Luis de Tiongco but an
heir of Maria Cresencia de Loiz y Gonzalez vda. De Tiongco. Respondent Jose claimed that he was the only legitimate
son and that while it was true that he has two other siblings, he refused to acknowledge them because they are
illegitimate.[19] Respondent Jose denied that the series of sales of the properties was fraudulent. He claimed
that Lot 3244 was bought by the City of Iloilo from its own auction sale for tax delinquency and was merely resold to
him. Respondent Jose averred that he has been paying real property taxes on the said properties for more than ten
(10) years and that petitioner collected rentals from Lots 3244 and 3246 only because he allowed her. [20]
After trial, the Iloilo City RTC ruled in favor of respondent Jose. The court a quo ruled that prescription has set in since
the complaint was filed only on October 2, 1990 or some sixteen (16) years after respondent Jose caused to be
registered the affidavit of adjudication on May 10, 1974.[21]

Aggrieved, petitioner appealed to the CA[22] which, however, sustained the trial courts ruling. The CA agreed with the
trial court that an action for reconveyance can indeed be barred by prescription. According to the CA, when an action
for reconveyance is based on fraud, it must be filed within four years from discovery of the fraud, and such discovery
is deemed to have taken place from the issuance of the original certificate of title. On the other hand, an action for
reconveyance based on an implied or constructive trust prescribes in ten (10) years from the date of issuance of the
original certificate of title or transfer certificate of title. For the rule is that the registration of an instrument in the
Office of the Register of Deeds constitutes constructive notice to the whole world and therefore the discovery of fraud
is deemed to have taken place at the time of registration.[23]
Petitioner filed a motion for reconsideration of the above ruling, but the CA as aforesaid, denied petitioners
motion. Hence, the present petition for review on certiorari.

Petitioner raised the following arguments in the petition, to wit:

A. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT THAT THE AFFIDAVIT
OF ADJUDICATION EXECUTED BY RESPONDENT JOSE B. TIONGCO, WHO IS A LAWYER AND IS AWARE OF ITS
NULLITY, IS MERELY VOIDABLE; ON THE CONTRARY, SAID DOCUMENT IS A COMPLETE NULLITY BECAUSE
RESPONDENT JOSE B. TIONGCO HAS MALICIOUSLY AND IN BAD FAITH ADJUDICATED IN FAVOR OF HIMSELF THE
PROPERTIES IN QUESTION OVER WHICH HE, AS A LAWYER, KNOWS HE HAS NO RIGHTS WHATSOEVER AND HE ALSO
KNOWS HAS BEEN IN POSSESSION OF THE PETITIONER AND HER PREDECESSORS-IN-INTEREST UNTIL THE
PRESENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE DISMISSAL OF PETITIONERS

COMPLAINT BY THE LOWER COURT ON THE GROUND OF PRESCRIPTION BECAUSE THE RESPONDENT JOSE B.
TIONGCOS AFFIDAVIT OF ADJUDICATION, BEING A TOTAL NULLITY, THE ACTION TO DECLARE SUCH NULLITY AND
OF THOSE SUBSEQUENT TRANSACTIONS ARISING FROM SAID ADJUDICATION DOES NOT PRESCRIBE, ESPECIALLY
BECAUSE IN THIS CASE THE PETITIONER AND HER PREDECESSORS-IN-INTEREST HAVE ALWAYS BEEN IN
POSSESSION OF THE LOTS IN QUESTION AND RESPONDENT JOSE B. TIONGCO HAS NEVER BEEN IN POSSESSION
THEREOF.[24]

C. FURTHER, EVEN IF ARGUENDO, THE AFFIDAVIT OF ADJUDICATION IS VOIDABLE, THE HONORABLE

COURT OF APPEALS STILL ERRED IN AFFIRMING THE DISMISSAL OF THE COMPLAINT BY THE LOWER COURT ON THE
GROUND OF PRESCRIPTION BECAUSE THE RESPONDENT, JOSE B. TIONGCO, BEING A LAWYER AND BEING AWARE
OF PETITIONERS OWNERSHIP OF THE LOTS IN QUESTION, THE SAID AFFIDAVIT OF ADJUDICATION MAKES THE
RESPONDENT AN IMPLIED TRUSTEE THEREOF FOR THE PETITIONER AND THE ACTION FOR RECONVEYANCE BASED
ON TRUST DOES NOT PRESCRIBE SO LONG AS THE BENEFICIARY LIKE THE PETITIONER HAS BEEN IN ACTUAL
PHYSICAL POSSESSION OF THE PROPERTY SUBJECT THEREOF, AS HELD IN THE CASE OF VDA. DE CABRERA VS.
COURT OF APPEALS (267 SCRA 339).[25]
The only issue in this case is who has a better right over the properties.
The petition is meritorious.
The Court agrees with the CAs disquisition that an action for reconveyance can indeed be barred by prescription. In a
long line of cases decided by this Court, we ruled that an action for reconveyance based on implied or constructive
trust must perforce prescribe in ten (10) years from the issuance of the Torrens title over the property.[26]
However, there is an exception to this rule. In the case of Heirs of Pomposa Saludares v. Court of Appeals,[27] the
Court reiterating the ruling in Millena v. Court of Appeals,[28] held that there is but one instance when prescription
cannot be invoked in an action for reconveyance, that is, when the plaintiff is in possession of the land to be
reconveyed. In Heirs of Pomposa Saludares,[29] this Court explained that the Court in a series of cases,[30] has
permitted the filing of an action for reconveyance despite the lapse of more than ten (10) years from the issuance of
title to the land and declared that said action, when based on fraud, is imprescriptible as long as the land has not
passed to an innocent buyer for value. But in all those cases, the common factual backdrop was that the registered
owners were never in possession of the disputed property. The exception was based on the theory that registration
proceedings could not be used as a shield for fraud or for enriching a person at the expense of another.

In Alfredo v. Borras,[31] the Court ruled that prescription does not run against the plaintiff in actual possession of the
disputed land because such plaintiff has a right to wait until his possession is disturbed or his title is questioned before
initiating an action to vindicate his right. His undisturbed possession gives him the continuing right to seek the aid of a
court of equity to determine the nature of the adverse claim of a third party and its effect on his title. The Court held
that where the plaintiff in an action for reconveyance remains in possession of the subject land, the action for
reconveyance becomes in effect an action to quiet title to property, which is not subject to prescription.

The Court reiterated such rule in the case of Vda. de Cabrera v. Court of Appeals,[32] wherein we ruled that the
imprescriptibility of an action for reconveyance based on implied or constructive trust applies only when the plaintiff or
the person enforcing the trust is not in possession of the property. In effect, the action for reconveyance is an action
to quiet the property title, which does not prescribe.

Similarly, in the case of David v. Malay[33] the Court held that there was no doubt about the fact that an action for
reconveyance based on an implied trust ordinarily prescribes in ten (10) years. This rule assumes, however, that
there is an actual need to initiate that action, for when the right of the true and real owner is recognized, expressly or
implicitly such as when he remains undisturbed in his possession, the statute of limitation would yet be irrelevant. An
action for reconveyance, if nonetheless brought, would be in the nature of a suit for quieting of title, or its equivalent,
an action that is imprescriptible. In that case, the Court reiterated the ruling in Faja v. Court of Appeals[34] which we
quote:

x x x There is settled jurisprudence that one who is in actual possession of a piece of land claiming to be owner
thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the
reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of
equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which
right can be claimed only by one who is in possession. No better situation can be conceived at the moment for Us to
apply this rule on equity than that of herein petitioners whose mother, Felipa Faja, was in possession of the litigated
property for no less than 30 years and was suddenly confronted with a claim that the land she had been occupying
and cultivating all these years, was titled in the name of a third person. We hold that in such a situation the right to
quiet title to the property, to seek its reconveyance and annul any certificate of title covering it, accrued only from the
time the one in possession was made aware of a claim adverse to his own, and it is only then that the statutory period
of prescription commences to run against such possessor.

In this case, petitioners possession was disturbed in 1983 when respondent Jose filed a case for recovery of
possession.[35] The RTC of Iloilo City ruled in respondent Joses favor but the CA on November 28, 1991, during the
pendency of the present controversy with the court a quo, ruled in favor of petitioner.[36]Petitioner never lost
possession of the said properties, and as such, she is in a position to file the complaint with the court a quo to protect
her rights and clear whatever doubts has been cast on her title by the issuance of TCTs in respondent Joses name.

The Court further observes that the circuitous sale transactions of these properties from respondent Jose to Catalino
Torre, then to Antonio Doronila, Jr., and back again to respondent Jose were quite unusual. However, this successive
transfers of title from one hand to another could not cleanse the illegality of respondent Joses act of adjudicating to
himself all of the disputed properties so as to entitle him to the protection of the law as a buyer in good faith.
Respondent Jose himself admitted that there exists other heirs of the registered owners in the OCTs. Even the RTC
found that [t]hese allegations contained in the Affidavit of Adjudication executed by defendant Jose B. Tiongco are
false because defendant Jose B. Tiongco is not the only surviving heir of Jose Tiongco, Matilde Tiongco, Vicente
Tiongco and Felipe Tiongco as the latters have other children and grandchildren who are also their surviving heirs.[37]

In the case of Sandoval v. Court of Appeals,[38] the Court defined an innocent purchaser for value as one who buys
property of another, without notice that some other person has a right to, or interest in, such property and pays a full
and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some
other persons in the property. He is one who buys the property with the belief that the person from whom he receives
the thing was the owner and could convey title to the property. A purchaser can not close his eyes to facts which
should put a reasonable man on his guard and still claim that he acted in good faith.

And while it is settled that every person dealing with a property registered under the Torrens title need not inquire
further but only has to rely on the title, this rule has an exception. The exception is 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 some 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 the 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 said certificate. One who falls within the exception can neither be denominated an
innocent purchaser for value nor a purchaser in good faith and hence does not merit the protection of the law.[39]

In this case, when the subject properties were sold to Catalino Torre and subsequently to Doronila, respondent Jose
was not in possession of the said properties. Such fact should have put the vendees on guard and should have
inquired on the interest of the respondent Jose regarding the subject properties.[40] But regardless of such defect on
transfer to third persons, the properties again reverted back to respondent Jose. Respondent Jose cannot claim lack of
knowledge of the defects surrounding the cancellation of the OCTs over the properties and benefit from his fraudulent
actions. The subsequent sale of the properties to Catalino Torre and Doronila will not cure the nullity of the certificates
of title obtained by respondent Jose on the basis of the false and fraudulent Affidavit of Adjudication.

WHEREFORE, the petition for review on certiorari is GRANTED. The August 28, 2003 Decision and November 27,
2003 Resolution of the Court of Appeals in CA-G.R. CV No. 44794 are hereby REVERSED and SET ASIDE. The
Register of Deeds of Iloilo City is ordered to RESTORE Original Certificates of Title Nos. 484, 1482, and 368,
respectively covering Lots 3244, 1404 and 3246, under the name/s of the registered original owners thereof.
Furthermore, respondent Atty. Jose B. Tiongco is ORDERED to SHOW CAUSE, within ten (10) days from notice
hereof, why he should not be sanctioned as a member of the bar for executing the April 17, 1974 Affidavit of
Adjudication and registering the same with the Register of Deeds.
No pronouncement as to costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice

WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN
Associate Justice Associate Justice
MARIANO C. DEL CASTILLO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
G.R. No. 194846

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the December 4, 2009
Decision[1] of the Court of Appeals (CA), in CA G.R. CV No. 00351, which reversed and set aside the July 30, 2004
Decision[2] of the Regional Trial Court, Branch 8, 7th Judicial Region, Cebu City (RTC), in Civil Case No. CEB-16957, an
action for declaration of nullity of documents.

The Facts

Spouses Luis Rosaroso (Luis) and Honorata Duazo (Honorata) acquired several real properties in Daan Bantayan,
Cebu City, including the subject properties. The couple had nine (9) children namely: Hospicio, Arturo, Florita, Lucila,
Eduardo, Manuel, Cleofe, Antonio, and Angelica. On April 25, 1952, Honorata died. Later on, Luis married Lourdes
Pastor Rosaroso (Lourdes).

On January 16, 1995, a complaint for Declaration of Nullity of Documents with Damages was filed by Luis, as one of
the plaintiffs, against his daughter, Lucila R. Soria (Lucila); Lucila's daughter, Laila S. Solutan (Laila); and Meridian
Realty Corporation (Meridian). Due to Luis' untimely death, however, an amended complaint was filed on January 6,
1996, with the spouse of Laila, Ham Solutan (Ham); and Luis' second wife, Lourdes, included as defendants.[3]

In the Amended Complaint, it was alleged by petitioners Hospicio D. Rosaroso, Antonio D. Rosaroso (Antonio),
Angelica D. Rosaroso (Angelica), and Cleofe R. Labindao (petitioners) that on November 4, 1991, Luis, with the full
knowledge and consent of his second wife, Lourdes, executed the Deed of Absolute Sale [4] (First Sale) covering the
properties with Transfer Certificate of Title (TCT) No. 31852 (Lot No. 8); TCT. No. 11155 (Lot 19); TCT No. 10885 (Lot
No. 22); TCT No. 10886 (Lot No. 23); and Lot Nos. 5665 and 7967, all located at Daanbantayan, Cebu, in their
favor.[5]

They also alleged that, despite the fact that the said properties had already been sold to them, respondent Laila, in
conspiracy with her mother, Lucila, obtained the Special Power of Attorney (SPA),[6] dated April 3, 1993, from
Luis (First SPA); that Luis was then sick, infirm, blind, and of unsound mind; that Lucila and Laila accomplished this
by affixing Luis' thumb mark on the SPA which purportedly authorized Laila to sell and convey, among others, Lot
Nos. 8, 22 and 23, which had already been sold to them; and that on the strength of another SPA [7] by Luis, dated
July 21, 1993 (Second SPA), respondents Laila and Ham mortgaged Lot No. 19 to Vital Lending Investors, Inc. for and
in consideration of the amount of P150,000.00 with the concurrence of Lourdes.[8]

Petitioners further averred that a second sale took place on August 23, 1994, when the respondents made Luis sign
the Deed of Absolute Sale[9] conveying to Meridian three (3) parcels of residential land for P960,500.00 (Second
Sale); that Meridian was in bad faith when it did not make any inquiry as to who were the occupants and owners of
said lots; and that if Meridian had only investigated, it would have been informed as to the true status of the subject
properties and would have desisted in pursuing their acquisition.

Petitioners, thus, prayed that they be awarded moral damages, exemplary damages, attorney's fees, actual damages,
and litigation expenses and that the two SPAs and the deed of sale in favor of Meridian be declared null and void ab
initio.[10]

On their part, respondents Lucila and Laila contested the First Sale in favor of petitioners. They submitted that even
assuming that it was valid, petitioners were estopped from questioning the Second Sale in favor of Meridian because
they failed not only in effecting the necessary transfer of the title, but also in annotating their interests on the titles of
the questioned properties. With respect to the assailed SPAs and the deed of absolute sale executed by Luis, they
claimed that the documents were valid because he was conscious and of sound mind and body when he executed
them. In fact, it was Luis together with his wife who received the check payment issued by Meridian where a big part
of it was used to foot his hospital and medical expenses.[11]

Respondent Meridian, in its Answer with Compulsory Counterclaim, averred that Luis was fully aware of the
conveyances he made. In fact, Sophia Sanchez (Sanchez), Vice-President of the corporation, personally witnessed
Luis affix his thumb mark on the deed of sale in its favor. As to petitioners' contention that Meridian acted in bad faith
when it did not endeavor to make some inquiries as to the status of the properties in question, it countered that
before purchasing the properties, it checked the titles of the said lots with the Register of Deeds of Cebu and
discovered therein that the First Sale purportedly executed in favor of the plaintiffs was not registered with the said
Register of Deeds. Finally, it argued that the suit against it was filed in bad faith.[12]
On her part, Lourdes posited that her signature as well as that of Luis appearing on the deed of sale in favor of
petitioners, was obtained through fraud, deceit and trickery. She explained that they signed the prepared deed out of
pity because petitioners told them that it was necessary for a loan application. In fact, there was no consideration
involved in the First Sale. With respect to the Second Sale, she never encouraged the same and neither did she
participate in it. It was purely her husband's own volition that the Second Sale materialized. She, however, affirmed
that she received Meridian's payment on behalf of her husband who was then bedridden.[13]

RTC Ruling

After the case was submitted for decision, the RTC ruled in favor of petitioners. It held that when Luis executed the
second deed of sale in favor of Meridian, he was no longer the owner of Lot Nos. 19, 22 and 23 as he had already sold
them to his children by his first marriage. In fact, the subject properties had already been delivered to the vendees
who had been living there since birth and so had been in actual possession of the said properties. The trial court
stated that although the deed of sale was not registered, this fact was not prejudicial to their interest. It was of the
view that the actual registration of the deed of sale was not necessary to render a contract valid and effective because
where the vendor delivered the possession of the parcel of land to the vendee and no superior rights of third persons
had intervened, the efficacy of said deed was not destroyed. In other words, Luis lost his right to dispose of the said
properties to Meridian from the time he executed the first deed of sale in favor of petitioners. The same held true with
his alleged sale of Lot 8 to Lucila Soria.[14]Specifically, the dispositive portion of the RTC decision reads:

IN VIEW OF THE FOREGOING, the Court finds that a preponderance of evidence exists in favor of the plaintiffs and
against the defendants. Judgment is hereby rendered:

a. Declaring that the Special Power of Attorney, Exhibit "K," for the plaintiffs and Exhibit "3" for the defendants
null and void including all transactions subsequent thereto and all proceedings arising therefrom;

b. Declaring the Deed of Sale marked as Exhibit "E" valid and binding;

c. Declaring the Deed of Absolute Sale of Three (3) Parcels of Residential Land marked as Exhibit "F" null and
void from the beginning;

d. Declaring the Deed of Sale, Exhibit "16" (Solutan) or Exhibit "FF," null and void from the beginning;

e. Declaring the vendees named in the Deed of Sale marked as Exhibit "E" to be the lawful, exclusive and
absolute owners and possessors of Lots Nos. 8, 19, 22, and 23;

f. Ordering the defendants to pay jointly and severally each plaintiff P50,000.00 as moral damages; and

g. Ordering the defendants to pay plaintiffs P50,000.00 as attorney's fees; and P20,000.00 as litigation
expenses.

The crossclaim made by defendant Meridian Realty Corporation against defendants Soria and Solutan is ordered
dismissed for lack of sufficient evidentiary basis.

SO ORDERED."[15]

Ruling of the Court of Appeals

On appeal, the CA reversed and set aside the RTC decision. The CA ruled that the first deed of sale in favor of
petitioners was void because they failed to prove that they indeed tendered a consideration for the four (4) parcels of
land. It relied on the testimony of Lourdes that petitioners did not pay her husband. The price or consideration for the
sale was simulated to make it appear that payment had been tendered when in fact no payment was made at all. [16]

With respect to the validity of the Second Sale, the CA stated that it was valid because the documents were notarized
and, as such, they enjoyed the presumption of regularity. Although petitioners alleged that Luis was manipulated into
signing the SPAs, the CA opined that evidence was wanting in this regard. Dr. Arlene Letigio Pesquira, the attending
physician of Luis, testified that while the latter was physically infirmed, he was of sound mind when he executed the
first SPA.[17]

With regard to petitioners' assertion that the First SPA was revoked by Luis when he executed the affidavit, dated
November 24, 1994, the CA ruled that the Second Sale remained valid. The Second Sale was transacted on August
23, 1994, before the First SPA was revoked. In other words, when the Second Sale was consummated, the First SPA
was still valid and subsisting. Thus, "Meridian had all the reasons to rely on the said SPA during the time of its validity
until the time of its actual filing with the Register of Deeds considering that constructive notice of the revocation of the
SPA only came into effect upon the filing [of the] Adverse Claim and the aforementioned Letters addressed to the
Register of Deeds on 17 December 1994 and 25 November 1994, respectively, informing the Register of Deeds of the
revocation of the first SPA."[18] Moreover, the CA observed that the affidavit revoking the first SPA was also revoked
by Luis on December 12, 1994.[19]

Furthermore, although Luis revoked the First SPA, he did not revoke the Second SPA which authorized respondent
Laila to sell, convey and mortgage, among others, the property covered by TCT T-11155 (Lot No. 19). The CA opined
that had it been the intention of Luis to discredit the Second Sale, he should have revoked not only the First SPA but
also the Second SPA. The latter being valid, all transactions emanating from it, particularly the mortgage of Lot 19, its
subsequent redemption and its second sale, were valid.[20] Thus, the CA disposed in this wise:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated 30 July 2004 is hereby REVERSED AND SET
ASIDE, and in its stead a new decision is hereby rendered:

1. DECLARING the Special Power of Attorney, dated 21 July 1993, as valid;

2. DECLARING the Special Power of Attorney, dated 03 April 1993, as valid up to the time of its revocation on 24
November 1994;

3. DECLARING the Deed of Absolute [sale], dated 04 November 1991, as ineffective and without any force and
effect;

4. DECLARING the Deed of Absolute Sale of Three (3) Parcels of Residential Land, dated 23 August 1994, valid
and binding from the very beginning;

5. DECLARING the Deed of Absolute Sale, dated 27 September 1994, also valid and binding from the very
beginning;

6. ORDERING the substituted plaintiffs to pay jointly and severally the defendant-appellant Meridian Realty
Corporation the sum of Php100,000.00 as moral damages, Php100,000.00 as attorney's fee and
Php100,000.00 as litigation expenses; and

7. ORDERING the substituted plaintiffs to pay jointly and severally the defendant-appellants Leila Solutan et al.,
the sum of Php50,000.00 as moral damages.

SO ORDERED.[21]

Petitioners filed a motion for reconsideration, but it was denied in the CA Resolution, [22] dated November 18, 2010.
Consequently, they filed the present petition with the following

ASSIGNMENT OF ERRORS

I.
THE HONORABLE COURT OF APPEALS (19TH DIVISION) GRAVELY ERRED WHEN IT DECLARED AS VOID THE FIRST
SALE EXECUTED BY THE LATE LUIS ROSAROSO IN FAVOR OF HIS CHILDREN OF HIS FIRST MARRIAGE.

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT SUSTAINING AND AFFIRMING THE RULING OF THE
TRIAL COURT DECLARING THE MERIDIAN REALTY CORPORATION A BUYER IN BAD FAITH, DESPITE THE TRIAL
COURT'S FINDINGS THAT THE DEED OF SALE (First Sale), IS GENUINE AND HAD FULLY COMPLIED WITH ALL THE
LEGAL FORMALITIES.

III.

THE HONORABLE COURT OF APPEALS FURTHER ERRED IN NOT HOLDING THE SALE (DATED 27 SEPTEMBER 1994),
NULL AND VOID FROM THE VERY BEGINNING SINCE LUIS ROSAROSO ON NOVEMBER 4, 1991 WAS NO LONGER THE
OWNER OF LOTS 8, 19, 22 AND 23 AS HE HAD EARLIER DISPOSED SAID LOTS IN FAVOR OF THE CHILDREN OF HIS
(LUIS ROSAROSO) FIRST MARRIAGE.[23]
Petitioners argue that the second deed of sale was null and void because Luis could not have validly transferred the
ownership of the subject properties to Meridian, he being no longer the owner after selling them to his children. No
less than Atty. William Boco, the lawyer who notarized the first deed of sale, appeared and testified in court that the
said deed was the one he notarized and that Luis and his second wife, Lourdes, signed the same before him. He also
identified the signatures of the subscribing witnesses.[24] Thus, they invoke the finding of the RTC which wrote:

In the case of Heirs of Joaquin Teves, Ricardo Teves versus Court of Appeals, et al., G.R. No. 109963, October 13,
1999, the Supreme Court held that a public document executed [with] all the legal formalities is entitled to a
presumption of truth as to the recitals contained therein. In order to overthrow a certificate of a notary public to the
effect that a grantor executed a certain document and acknowledged the fact of its execution before him, mere
preponderance of evidence will not suffice. Rather, the evidence must (be) so clear, strong and convincing as to
exclude all reasonable dispute as to the falsity of the certificate. When the evidence is conflicting, the certificate will
be upheld x x x .

A notarial document is by law entitled to full faith and credit upon its face. (Ramirez vs. Ner, 21 SCRA 207). As such it
… must be sustained in full force and effect so long as he who impugns it shall not have presented strong, complete
and conclusive proof of its falsity or nullity on account of some flaw or defect provided against by law (Robinson vs.
Villafuerte, 18 Phil. 171, 189-190).[25]

Furthermore, petitioners aver that it was erroneous for the CA to say that the records of the case were bereft of
evidence that they paid the price of the lots sold to them. In fact, a perusal of the records would reveal that during
the cross-examination of Antonio Rosaroso, when asked if there was a monetary consideration, he testified that they
indeed paid their father and their payment helped him sustain his daily needs.[26]

Petitioners also assert that Meridian was a buyer in bad faith because when its representative visited the site, she did
not make the necessary inquiries. The fact that there were already houses on the said lots should have put Meridian
on its guard and, for said reason, should have made inquiries as to who owned those houses and what their rights
were over the same.[27]

Meridian's assertion that the Second Sale was registered in the Register of Deeds was a falsity. The subject titles,
namely: TCT No. 11155 for Lot 19, TCT No. 10885 for Lot 22, and TCT No. 10886 for Lot 23 were free from any
annotation of the alleged sale.[28]

After an assiduous assessment of the records, the Court finds for the petitioners.

The First Deed Of Sale Was Valid

The fact that the first deed of sale was executed, conveying the subject properties in favor of petitioners, was never
contested by the respondents. What they vehemently insist, though, is that the said sale was simulated because the
purported sale was made without a valid consideration. Under Section 3, Rule 131 of the Rules of Court, the following
are disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of business
has been followed; and (3) there was sufficient consideration for a contract.[29]These presumptions operate against an
adversary who has not introduced proof to rebut them. They create the necessity of presenting evidence to rebut
the prima facie case they created, and which, if no proof to the contrary is presented and offered, will prevail. The
burden of proof remains where it is but, by the presumption, the one who has that burden is relieved for the time
being from introducing evidence in support of the averment, because the presumption stands in the place of evidence
unless rebutted.[30]

In this case, the respondents failed to trounce the said presumption. Aside from their bare allegation that the sale was
made without a consideration, they failed to supply clear and convincing evidence to back up this claim. It is
elementary in procedural law that bare allegations, unsubstantiated by evidence, are not equivalent to proof under the
Rules of Court.[31]

The CA decision ran counter to this established rule regarding disputable presumption. It relied heavily on the account
of Lourdes who testified that the children of Luis approached him and convinced him to sign the deed of sale,
explaining that it was necessary for a loan application, but they did not pay the purchase price for the subject
properties.[32] This testimony, however, is self-serving and would not amount to a clear and convincing evidence
required by law to dispute the said presumption. As such, the presumption that there was sufficient consideration will
not be disturbed.

Granting that there was no delivery of the consideration, the seller would have no right to sell again what he no longer
owned. His remedy would be to rescind the sale for failure on the part of the buyer to perform his part of their
obligation pursuant to Article 1191 of the New Civil Code. In the case of Clara M. Balatbat v. Court Of Appeals and
Spouses Jose Repuyan and Aurora Repuyan,[33] it was written:

The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the
seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil
Code. Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the
contract. [Emphases supplied]

Meridian is Not a
Buyer in Good Faith

Respondents Meridian and Lucila argue that, granting that the First Sale was valid, the properties belong to them as
they acquired these in good faith and had them first recorded in the Registry of Property, as they were unaware of the
First Sale.[34]

Again, the Court is not persuaded.

The fact that Meridian had them first registered will not help its cause. In case of double sale, Article 1544 of the Civil
Code provides:

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded
it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession;
and, in the absence thereof; to the person who presents the oldest title, provided there is good faith.

Otherwise stated, ownership of an immovable property which is the subject of a double sale shall be transferred: (1)
to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the
person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest
title, provided there is good faith. The requirement of the law then is two-fold: acquisition in good faith and
registration in good faith. Good faith must concur with the registration. If it would be shown that a buyer was in bad
faith, the alleged registration they have made amounted to no registration at all.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of
a double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and first
records it in the Registry of Property, both made in good faith, shall be deemed the owner. Verily, the act of
registration must be coupled with good faiththat is, the registrant must have no knowledge of the defect
or lack of title of his vendor or must not have been aware of facts which should have put him upon such
inquiry and investigation as might be necessary to acquaint him with the defects in the title of his
vendor.)[35] [Emphases and underlining supplied]

When a piece of land is in the actual possession of persons other than the seller, the buyer must be wary and should
investigate the rights of those in possession. Without making such inquiry, one cannot claim that he is a buyer in good
faith. When a man proposes to buy or deal with realty, his duty is to read the public manuscript, that is, to look and
see who is there upon it and what his rights are. A want of caution and diligence, which an honest man of ordinary
prudence is accustomed to exercise in making purchases, is in contemplation of law, a want of good faith. The buyer
who has failed to know or discover that the land sold to him is in adverse possession of another is a buyer in bad
faith.[36] In the case of Spouses Sarmiento v. Court of Appeals,[37] it was written:

Verily, every person dealing with registered land may safely rely on the correctness of the certificate of title issued
therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property.
Thus, the general rule is that a purchaser may be considered a purchaser in good faith when he has examined the
latest certificate of title. An exception to this rule is when there exist important facts that would create suspicion in an
otherwise reasonable man to go beyond the present title and to investigate those that preceded it. Thus, it has been
said that a person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable
man is not an innocent purchaser for value. A purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of
the vendor. As we have held:
The failure of appellees to take the ordinary precautions which a prudent man would have taken under the
circumstances, specially in buying a piece of land in the actual, visible and public possession of another person, other
than the vendor, constitutes gross negligence amounting to bad faith.

In this connection, it has been held that where, as in this case, the land sold is in the possession of a person other
than the vendor, the purchaser is required to go beyond the certificate of title to ma[k]e inquiries concerning the
rights of the actual possessor. Failure to do so would make him a purchaser in bad faith. (Citations omitted).

One who purchases real property which is in the actual possession of another should, at least make some inquiry
concerning the right of those in possession. The actual possession by other than the vendor should, at least put the
purchaser upon inquiry. He can scarely, in the absence of such inquiry, be regarded as a bona fide purchaser as
against such possessors. (Emphases supplied)

Prescinding from the foregoing, the fact that private respondent RRC did not investigate the Sarmiento spouses' claim
over the subject land despite its knowledge that Pedro Ogsiner, as their overseer, was in actual possession thereof
means that it was not an innocent purchaser for value upon said land. Article 524 of the Civil Code directs that
possession may be exercised in one's name or in that of another. In herein case, Pedro Ogsiner had informed RRC
that he was occupying the subject land on behalf of the Sarmiento spouses. Being a corporation engaged in the
business of buying and selling real estate, it was gross negligence on its part to merely rely on Mr. Puzon's
assurance that the occupants of the property were mere squatters considering the invaluable information it acquired
from Pedro Ogsiner and considering further that it had the means and the opportunity to investigate for itself the
accuracy of such information. [Emphases supplied]

In another case, it was held that if a vendee in a double sale registers the sale after he has acquired knowledge of a
previous sale, the registration constitutes a registration in bad faith and does not confer upon him any right. If the
registration is done in bad faith, it is as if there is no registration at all, and the buyer who has first taken possession
of the property in good faith shall be preferred.[38] In the case at bench, the fact that the subject properties were
already in the possession of persons other than Luis was never disputed. Sanchez, representative and witness for
Meridian, even testified as follows:

x x x; that she together with the two agents, defendant Laila Solutan and Corazon Lua, the president of Meridian
Realty Corporation, went immediately to site of the lots; that the agents brought with them the three titles of the lots
and Laila Solutan brought with her a special power of attorney executed by Luis B. Rosaroso in her favor but she went
instead directly to Luis Rosaroso to be sure; that the lots were pointed to them and she saw that there were houses
on it but she did not have any interest of the houses because her interest was on the lots; that Luis Rosaroso said that
the houses belonged to him; that he owns the property and that he will sell the same because he is very sickly and
he wanted to buy medicnes; that she requested someone to check the records of the lots in the Register of Deeds;
that one of the titles was mortgaged and she told them to redeem the mortgage because the corporation will buy the
property; that the registered owner of the lots was Luis Rosaroso; that in more or less three months, the
encumbrance was cancelled and she told the prospective sellers to prepare the deed of sale; that there were no
encumbrances or liens in the title; that when the deed of absolute sale was prepared it was signed by the vendor Luis
Rosaroso in their house in Opra x x x.[39](Underscoring supplied)

From the above testimony, it is clear that Meridian, through its agent, knew that the subject properties were in
possession of persons other than the seller. Instead of investigating the rights and interests of the persons occupying
the said lots, however, it chose to just believe that Luis still owned them. Simply, Meridian Realty failed to exercise
the due diligence required by law of purchasers in acquiring a piece of land in the possession of person or persons
other than the seller. In this regard, great weight is accorded to the findings of fact of the RTC. Basic is the rule that
the trial court is in a better position to examine real evidence as well as to observe the demeanor of witnesses who
testify in the case.[40]

WHEREFORE, the petition is GRANTED. The December 4, 2009 Decision and the November 18, 2010 Resolution of
the Court of Appeals, in CA-G.R. CV No. 00351, are REVERSED and SET ASIDE. The July 30, 2004 Decision of the
Regional Trial Court, Branch 8, 7th Judicial Region, Cebu City, in Civil Case No. CEB-16957, is hereby REINSTATED.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Abad, and Leonen, JJ., concur.

June 28, 2013

 THIRD DIVISION
G.R. No. 174240 March 20, 2013
SPOUSES LEHNER and LUDY MARTIRES, Petitioners,
vs.
MENELIA CHUA, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set
aside the Amended Decision,1 as well as the Resolutions2 of the Court of Appeals (CA), dated September 30, 2005,
July 5, 2006 and August 28, 2006, respectively, in CA-G.R. CV No. 76388. The assailed Decision of the CA reversed
and set aside its earlier Decision, dated April 30, 2004, in favor of petitioners. The July 5, 2006 Resolution denied
petitioners' Motion for Reconsideration, while the August 28, 2006 Resolution denied petitioners' Second Motion for
Reconsideration.

The factual and procedural antecedents of the case are as follows:

Subject of the instant controversy are twenty-four memorial lots located at the Holy Cross Memorial Park in Barangay
Bagbag, Novaliches, Quezon City. The property, more particularly described as "Lot: 24 lots, Block 213, Section: Plaza
of Heritage-Reg.," is covered by Transfer Certificate of Title (TCT) No. 342914. Respondent, together with her mother,
Florencia R. Calagos, own the disputed property. Their co-ownership is evidenced by a Deed of Sale and Certificate of
Perpetual Care, denominated as Contract No. 31760, which was executed on June 4, 1992.3

On December 18, 1995, respondent borrowed from petitioner spouses the amount of ₱150,000.00. The loan was
secured by a real estate mortgage over the abovementioned property. Respondent committed to pay a monthly
interest of 8% and an additional 10% monthly interest in case of default.4
Respondent failed to fully settle her obligation.

Subsequently, without foreclosure of the mortgage, ownership of the subject lots were transferred in the name of
petitioners via a Deed of Transfer.5
On June 23, 1997, respondent filed with the Regional Trial Court (RTC) of Quezon City a Complaint against
petitioners, Manila Memorial Park Inc., the company which owns the Holy Cross Memorial Park, and the Register of

Deeds of Quezon City, praying for the annulment of the contract of mortgage between her and petitioners on the
ground that the interest rates imposed are unjust and exorbitant. Respondent also sought accounting to determine
her liability under the law. She likewise prayed that the Register of Deeds of Quezon City and Manila Memorial Park,
Inc. be directed to reconvey the disputed property to her.6
On November 20, 1998, respondent moved for the amendment of her complaint to include the allegation that she
later discovered that ownership of the subject lots was transferred in the name of petitioners by virtue of a forged

Deed of Transfer and Affidavit of Warranty. Respondent prayed that the Deed of Transfer and Affidavit of Warranty be
annulled.7 In their Manifestation dated January 25, 1999, petitioners did not oppose respondent's motion.8 Trial
ensued.
After trial, the RTC of Quezon City rendered a Decision in favor of petitioners, the dispositive portion of which reads,
thus:

Wherefore, premises considered, judgment is hereby rendered against Menelia R. Chua and in favor of the Sps.
Lehner Martires and Ludy Martires; and Manila Memorial Park Cemetery, Inc. as follows:
1. The Complaint is denied and dismissed for lack of merit;
2. The counterclaims are granted as follows:
a. Menelia R. Chua is ordered to pay the Sps. Martires the amount of ₱100,000.00 as moral damages; the amount of
₱50,000.00 as exemplary damages; and the amount of ₱30,000.00 as reasonable attorney’s fees plus costs of suit.
b. Menelia R. Chua is ordered to pay Manila Memorial Park Cemetery, Inc. the amount of ₱30,000.00 as reasonable
attorney's fees plus costs of suit.

SO ORDERED.9
On appeal, the CA affirmed, with modification, the judgment of the RTC, disposing as follows:

WHEREFORE, premises considered, the instant appeal is hereby DENIED for lack of merit, and the decision of the trial
court dated 03 August 2002 is hereby AFFIRMED with MODIFICATION as to the amount of moral and exemplary
damages, and attorney's fees. Plaintiff-appellant Menelia R. Chua is hereby ordered to pay the defendant-appellees
Spouses Martires the amount of ₱30,000.00 as moral damages; ₱20,000.00 as exemplary damages; and attorney's
fees of ₱10,000.00 plus costs of suit.
Insofar as defendant-appellee Manila Memorial Park Cemetery, Inc. is concerned, the attorney's fees awarded is
reduced to ₱10,000.00 plus costs of suit.
SO ORDERED.10
The CA ruled that respondent voluntarily entered into a contract of loan and that the execution of the Deed of Transfer
is sufficient evidence of petitioners' acquisition of ownership of the subject property.
Respondent filed a Motion for Reconsideration.11 Petitioners opposed it.12
On September 30, 2005, the CA promulgated its assailed Amended Decision with the following dispositive portion:
WHEREFORE, the Court grants the movant's Motion for Reconsideration.
Accordingly, the decision of this Court dated April 30, 2004 in CA-G.R. CV No. 76388, which had affirmed the
judgment of the Regional Trial Court of Quezon City, Branch 221, in Civil Case No. Q-97-31408, is REVERSED and SET

ASIDE, and it is hereby declared that:

(1) The assailed decision dated August 3, 2002 of the Regional Trial Court of Quezon City Branch 221 in Civil Case No.
Q-97-31408 is hereby Reversed with the following MODIFICATIONS, to wit:
(1) The Deed of Transfer dated July 3, 1996, as well as the Affidavit of Warranty, are hereby declared void ab initio;
(2) The loan of ₱150,000.00 is hereby subject to an interest of 12% per annum.
(3) The Manila Memorial Park Cemetery, Inc. and the Register of Deeds of Quezon City [are] hereby directed to cancel
the registration or annotation of ownership of the spouses Martires on Lot: 24 lots, Block 213, Section: Plaza Heritage
– Regular, Holy Cross Memorial Park, being a portion of Transfer Certificate of Title No. 342914 issued by the Register
of Deeds of Quezon City, and revert registration of ownership over the same in the name of appellant Menelia R.
Chua, and Florencia R. Calagos.
(4) The movant, Menelia R. Chua, is hereby ordered to pay the spouses Martires the amount of ₱150,000.00 plus
interest of 12% per annum computed from December 18, 1995 up to the time of full payment thereof and, after
deducting payments made in the total amount of ₱80,000.00, the same shall be paid within ninety (90) days from the
finality of this decision. In case of failure to pay the aforesaid amount and the accrued interests from the period
hereinstated, the property shall be sold at public auction to satisfy the mortgage debt and costs, and if there is an
excess, the same is to be given to the owner.
No costs.

SO ORDERED.13
The CA reconsidered its findings and concluded that the Deed of Transfer which, on its face, transfers ownership of
the subject property to petitioners, is, in fact, an equitable mortgage. The CA held that the true intention of
respondent was merely to provide security for her loan and not to transfer ownership of the property to petitioners.
The CA so ruled on the basis of its findings that: (1) the consideration, amounting to ₱150,000.00, for the alleged
Deed of Transfer is unusually inadequate, considering that the subject property consists of 24 memorial lots; (2) the
Deed of Transfer was executed by reason of the same loan extended by petitioners to respondent; (3) the Deed of
Transfer is incomplete and defective; and (4) the lots subject of the Deed of Transfer are one and the same property
used to secure respondent's ₱150,000.00 loan from petitioners.
Petitioners filed a Motion for Reconsideration,14 but the CA denied it in its Resolution dated July 5, 2006.
On July 26, 2006, petitioners filed a Second Motion for Reconsideration, 15 but again, the CA denied it via its Resolution
dated August 28, 2006.

Hence, the present petition based on the following grounds:

A. THE COURT OF APPEALS PATENTLY ERRED IN NOT UPHOLDING THE DEED OF TRANSFER EXECUTED BY THE
RESPONDENT IN FAVOR OF THE PETITIONERS BY RULING THAT:
1. The Deed of Transfer executed by respondent in favor of petitioners over the subject property was not entered in
the Notarial Book of Atty. Francisco Talampas and reported in the Notarial Section of the Regional Trial Court of
Makati City.
2. The Deed of Transfer was not duly notarized by Atty. Francisco Talampas inasmuch as there was no convincing
proof that respondent appeared before Notary Public Atty. Talampas.
B. THE COURT OF APPEALS PATENTLY ERRED IN RULING THAT THE DEED OF TRANSFER EXECUTED BETWEEN THE
RESPONDENT AND THE PETITIONERS CONSTITUTED AN EQUITABLE MORTGAGE CONSIDERING THAT:
1. Said issue was not raised in any pleading in the appellate and trial courts.1âwphi1
2. Respondent herself admitted that a separate mortgage was executed to secure the loan. 16
The petition lacks merit.

At the outset, the instant petition should be denied for being filed out of time. Petitioners admit in the instant petition
that: (1) on July 18, 2006, they received a copy of the July 5, 2006 Resolution of the CA which denied their Motion for
Reconsideration of the assailed Amended Decision; (2) on July 26, 2006, they filed a Motion to Admit Second Motion
for Reconsideration attaching thereto the said Second Motion for Reconsideration; (3) on September 5, 2006, they
received a copy of the August 28, 2006 Resolution of the CA which denied their Motion to Admit as well as their
Second Motion for Reconsideration; and (4) they filed the instant petition on October 20, 2006.
Section 2, Rule 45 of the Rules of Court provides that a petition for review on certiorari under the said Rule "shall be
filed within fifteen (15) days from notice of the judgment or final order or resolution appealed from or of the denial of
the petitioner's motion for new trial or reconsideration filed in due time after notice of the judgment." Relative thereto,
Section 2, Rule 52 of the same Rules provides that "no second motion for reconsideration of a judgment or final
resolution by the same party shall be entertained." Based on the abovementioned dates, the start f the 15-day period
for the filing of this petition should have been reckoned from July 18, 2006, the time of petitioners' receipt of the CA
Resolution denying their Motion for Reconsideration, and not on September 5, 2006, the date when they received the
CA Resolution denying their Second Motion for Reconsideration. Thus, petitioners should have filed the instant petition
not later than August 2, 2006. It is wrong for petitioners to reckon the 15-day period for the filing of the instant
petition from the date when they received the copy of the CA Resolution denying their Second Motion for
Reconsideration. Since a second motion for reconsideration is not allowed, then unavoidably, its filing did not toll the
running of the period to file an appeal by certiorari.17 Petitioners made a critical mistake in waiting for the CA to
resolve their second motion for reconsideration before pursuing an appeal.
Perfection of an appeal within the reglementary period is not only mandatory but also jurisdictional.18 For this reason,
petitioners' failure to file this petition within the 15-day period rendered the assailed Amended CA Decision and
Resolutions final and executory, thus, depriving this Court of jurisdiction to entertain an appeal therefrom. 19On this
ground alone, the instant petition should be dismissed.

In any case, even granting, arguendo, that the present petition is timely filed, the Court finds no cogent reason to
depart from the findings and conclusions of the CA in its disputed Amended Decision.
Anent the first assigned error, petitioners are correct in pointing out that notarized documents carry evidentiary
weight conferred upon them with respect to their due execution and enjoy the presumption of regularity which may
only be rebutted by evidence so clear, strong and convincing as to exclude all controversy as to falsity.20 However, the
presumptions that attach to notarized documents can be affirmed only so long as it is beyond dispute that the
notarization was regular.21 A defective notarization will strip the document of its public character and reduce it to a
private instrument.22 Consequently, when there is a defect in the notarization of a document, the clear and convincing
evidentiary standard normally attached to a duly-notarized document is dispensed with, and the measure to test the
validity of such document is preponderance of evidence.23

In the present case, the CA has clearly pointed out the dubious circumstances and irregularities attendant in the
alleged notarization of the subject Deed of Transfer, to wit: (1) the Certification24 issued by the Clerk of Court of the
Notarial Section of the RTC of Makati City which supposedly attested that a copy of the subject Deed of Transfer is on
file with the said court, was contradicted by the Certification25 issued by the Administrative Officer of the Notarial
Section of the same office as well as by the testimony of the court employee who prepared the Certification issued by
the Clerk of Court, to the effect that the subject Deed of Transfer cannot, in fact, be found in their files; (2)
respondent's categorical denial that she executed the subject Deed of Transfer; and (3) the subject document did not
state the date of execution and lacks the marital consent of respondent's husband.

Indeed, petitioners' heavy reliance on the Certification issued by the notary public who supposedly notarized the said
deed, as well as the Certification issued by the Clerk of Court of the Notarial Section of the RTC of Makati City, is
misplaced for the following reasons: first, the persons who issued these Certifications were not presented as witnesses
and, as such, they could not be cross-examined with respect to the truthfulness of the contents of their Certifications;
second, as mentioned above, these Certifications were contradicted by the Certification issued by the Administrative
Officer of the Notarial Section of the RTC of Makati City as well as by the admission, on cross-examination, of the clerk
who prepared the Certification of the Clerk of Court, that their office cannot, in fact, find a copy of the subject Deed of
Transfer in their files;26 and third, the further admission of the said clerk that the Certification, which was issued by
the clerk of court and relied upon by petitioners, was not based on documents existing in their files, but was simply
based on the Certification issued by the notary public who allegedly notarized the said Deed of Transfer.27
Assuming further that the notarization of the disputed Deed of Transfer was regular, the Court, nonetheless, is not
persuaded by petitioners' argument that such Deed is a sufficient evidence of the validity of the agreement between
petitioners and respondent.

While indeed a notarized document enjoys the presumption of regularity, the fact that a deed is notarized is not a
guarantee of the validity of its contents.28 The presumption is not absolute and may be rebutted by clear and
convincing evidence to the contrary.29 In the present case, the presumption cannot be made to apply, because aside
from the regularity of its notarization, the validity of the contents and execution of the subject Deed of Transfer was
challenged in the proceedings below where its prima facie validity was subsequently overthrown by the questionable
circumstances attendant in its supposed execution. These circumstances include: (1) the alleged agreement between
the parties that the ownership of the subject property be simply assigned to petitioners instead of foreclosure of the
contract of mortgage which was earlier entered into by them; (2) the Deed of Transfer was executed by reason of the
loan extended by petitioners to respondent, the amount of the latter's outstanding obligation being the same as the
amount of the consideration for the assignment of ownership over the subject property; (3) the inadequacy of the
consideration; and (4) the claim of respondent that she had no intention of transferring ownership of the subject
property to petitioners.

Based on the foregoing, the Court finds no cogent reason to depart from the findings of the CA that the agreement
between petitioners and respondent is, in fact, an equitable mortgage.
An equitable mortgage has been defined as one which, although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security
for a debt, there being no impossibility nor anything contrary to law in this intent. 30
One of the circumstances provided for under Article 1602 of the Civil Code, where a contract shall be presumed to be
an equitable mortgage, is "where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation." In the instant case, it has been
established that the intent of both petitioners and respondent is that the subject property shall serve as security for
the latter's obligation to the former. As correctly pointed out by the CA, the circumstances surrounding the execution
of the disputed Deed of Transfer would show that the said document was executed to circumvent the terms of the
original agreement and deprive respondent of her mortgaged property without the requisite foreclosure.

With respect to the foregoing discussions, it bears to point out that in Misena v. Rongavilla,31 a case which involves a
factual background similar to the present case, this Court arrived at the same ruling. In the said case, the respondent
mortgaged a parcel of land to the petitioner as security for the loan which the former obtained from the latter.
Subsequently, ownership of the property was conveyed to the petitioner via a Deed of Absolute Sale. Applying Article
1602 of the Civil Code, this Court ruled in favor of the respondent holding that the supposed sale of the property was,
in fact, an equitable mortgage as the real intention of the respondent was to provide security for the loan and not to
transfer ownership over the property.

Since the original transaction between the parties was a mortgage, the subsequent assignment of ownership of the
subject lots to petitioners without the benefit of foreclosure proceedings, partakes of the nature of a pactum
commissorium, as provided for under Article 2088 of the Civil Code.
Pactum commissorium is a stipulation empowering the creditor to appropriate the thing given as guaranty for the
fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further formality, such
as foreclosure proceedings, and a public sale.32
In the instant case, evidence points to the fact that the sale of the subject property, as proven by the disputed Deed
of Transfer, was simulated to cover up the automatic transfer of ownership in petitioners' favor. While there was no
stipulation in the mortgage contract which provides for petitioners' automatic appropriation of the subject mortgaged
property in the event that respondent fails to pay her obligation, the subsequent acts of the parties and the
circumstances surrounding such acts point to no other conclusion than that petitioners were empowered to acquire
ownership of the disputed property without need of any foreclosure.

Indeed, the Court agrees with the CA in not giving credence to petitioners' contention in their Answer filed with the
RTC that respondent offered to transfer ownership of the subject property in their name as payment for her
outstanding obligation. As this Court has held, all persons in need of money are liable to enter into contractual
relationships whatever the condition if only to alleviate their financial burden albeit temporarily.33
Hence, courts are duty-bound to exercise caution in the interpretation and resolution of contracts lest the lenders
devour the borrowers like vultures do with their prey.34 Aside from this aforementioned reason, the Court cannot
fathom why respondent would agree to transfer ownership of the subject property, whose value is much higher than
her outstanding obligation to petitioners. Considering that the disputed property was mortgaged to secure the
payment of her obligation, the most logical and practical thing that she could have done, if she is unable to pay her
debt, is to wait for it to be foreclosed. She stands to lose less of the value of the subject property if the same is
foreclosed, rather than if the title thereto is directly transferred to petitioners. This is so because in foreclosure, unlike
in the present case where ownership of the property was assigned to petitioners, respondent can still claim the
balance from the proceeds of the foreclosure sale, if there be any. In such a case, she could still recover a portion of
the value of the subject property rather than losing it completely by assigning its ownership to petitioners.
As to the second assigned error, the Court is not persuaded by petitioners' contention that the issue of whether or not
the subject Deed of Transfer is, in fact, an equitable mortgage was not raised by the latter either in the RTC or the
CA.

It is true that, as a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its
consideration.35 Higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised
during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on
appeal.36However, as with most procedural rules, this maxim is subject to exceptions.37 In this regard, the Court's
ruling in Mendoza v. Bautista38 is instructive, to wit:
x x x Indeed, our rules recognize the broad discretionary power of an appellate court to waive the lack of proper
assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the Rules of Court provides:

SEC. 8 Questions that may be decided. - No error which does not affect the jurisdiction over the subject matter or the
validity of the judgment appealed from or the proceedings therein will be considered, unless stated in the assignment
of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court
may pass upon plain errors and clerical errors.

Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the
appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b)
matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c)
matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d)
matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters
not assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on
appeal but upon which the determination of a question properly assigned, is dependent. 39

In the present case, petitioners must be reminded that one of the main issues raised by respondent in her appeal with
the CA is the validity and due execution of the Deed of Transfer which she supposedly executed in petitioners' favor.
The Court agrees with respondent that, under the factual circumstances obtaining in the instant case, the
determination of the validity of the subject Deed of Transfer would necessarily entail or involve an examination of the
true nature of the said agreement. In other words, the matter of validity of the disputed Deed of Transfer and the
question of whether the agreement evidenced by such Deed was, in fact, an equitable mortgage are issues which are
closely related, which can, thus, be resolved jointly by the CA.

WHEREFORE, the instant petition is DENIED. The assailed Amended Decision and Resolutions of the Court of Appeals,
dated September 30, 2005, July 5, 2006 and August 28, 2006, respectively, in CA-G.R. CV No. 76388, are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
ROBERTO A. ABAD
LUCAS P. BERSAMIN*
Associate Justice
Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice
 SECOND DIVISION

ARMANDO BARCELLANO, G.R. No. 165287

Petitioner, Present:

CARPIO, J.,
Chairperson,
BRION,
-versus- ABAD,*
PEREZ, and
SERENO, JJ.

Promulgated:
DOLORES BAAS, represented by her
son and Attorney-in-fact CRISPINO September 14, 2011
BERMILLO,
Respondent.

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

DECISION

PEREZ, J.:

Before the Court is an appeal by certiorari[1] from the Decision[2] of the Fifteenth Division of the Court of Appeals in
CA-G.R. CV No. 67702 dated 26 February 2004, granting the petition of Dolores Baas, herein respondent, to reverse
and set aside the Decision[3] of the lower court.
The dispositive portion of the assailed decision reads:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The decision of the court a quo is hereby
REVERSED AND SET ASIDE and in its stead another one is rendered GRANTING to petitioner-appellants the right to
redeem the subject property for the amount of Php 60,000.00 within thirty (30) days from the finality of this decision.

The facts as gathered by the court follow:

Respondent Baas is an heir of Bartolome Baas who owns in fee simple Lot 4485, PLS-722-D situated in Hindi,
Bacacay, Albay. Adjoining the said lot is the property of Vicente Medina (Medina), covered by Original Certificate of
Title No. VH-9094, with an area of 1,877 square meters. On 17 March 1997, Medina offered his lot for sale to the
adjoining owners of the property, the heirs of Bartolome Baas, including herein respondent Dolores Baas, Crispino
Bermillo (Bermillo) and Isabela Bermillo-Beruela (Beruela)[4] Crispino Bermillo, as the representative of his family,
agreed to the offer of Medina, the sale to take place after the harvest season.[5]
On 3 April 1997, Medina sold the property to herein petitioner Armando Barcellano for P60,000.00. The following day,
the heirs of Baas learned about the sale and went to the house of Medina to inquire about it. [6] Medina confirmed that
the lot was sold to Barcellano. The heirs conveyed their intention to redeem the property but Medina replied that there
was already a deed of sale executed between the parties.[7] Also, the Baas heirs failed to tender the P60,000.00
redemption amount to Medina.[8]

Aggrieved, the heirs went to the Office of the Barangay Council on 5 April 1997.[9] Medina sent only his tenant to
attend the proceeding. On 9 April 1997, the Baas heirs and Barcellano, with neither Medina nor his tenant in
attendance, went to the Office of the Barangay Council to settle the dispute. According to one of the Baas heirs,
Barcellano told them that he would be willing to sell the property but for a higher price of P90,000.00.[10] Because the
parties could not agree on the price and for failure to settle the dispute, the Lupon issued a Certification to File
Action.[11]
On 24 October 1997, Dolores Baas filed an action for Legal Redemption before the Regional Trial Court. However, on 5
February 1998, the petition was withdrawn on the ground that:

xxx considering the present worse economic situation in the country, petitioner opted that the amount they are
supposed to pay for the redemption be readily available for their immediate and emergency needs.

On 11 March 1998, Dolores Baas, as represented by Bermillo, filed another action[12] for Legal Redemption. It was
opposed by Barcellano insisting that he complied with the provisions of Art. 1623 of the New Civil Code but Baas failed
to exercise her right within the period provided by law.

Trial ensued. On 15 March 2000, the trial court dismissed the complaint of the Baas heirs for their failure to comply
with the condition precedent of making a formal offer to redeem and for failure to file an action in court together with
the consignation of the redemption price within the reglementary period of 30 days.[13]The dispositive portion reads:

WHEREFORE, premises considered, the complaint is hereby ordered DISMISSED.

On appeal, the Court of Appeals reversed and set aside the ruling of the lower court and granted the heirs the right to
redeem the subject property. The appellate court ruled that the filing of a complaint before the Katarungang
Pambarangay should be considered as a notice to Barcellano and Medina that the heirs were exercising their right of
redemption over the subject property; and as having set in motion the judicial process of legal
redemption.[14] Further, the appellate court ruled that a formal offer to redeem, coupled with a tender of payment of
the redemption price, and consignation are proper only if the redemptioner wishes to avail himself of his right of
redemption in the future. The tender of payment and consignation become inconsequential when the redemptioner
files a case to redeem the property within the 30-day period.[15]

Hence, this Petition for Review on Certiorari.

In this petition, Barcellano questions the ruling of the appellate court for being contrary to the admitted facts on
record and applicable jurisprudence.

The Courts Ruling

Barcellano maintains that the written notice required under Art. 1623 to be given to adjoining owner was no longer
necessary because there was already actual notice.Further, he asserts that the appellate court erred in ruling that the
tender of payment of the redemption price and consignation are not required in this case, effectively affirming that the
respondents had validly exercised their right of redemption. Lastly, he questions as erroneous the application of
Presidential Decree No. 1508, otherwise known as Establishing a System of Amicably Settling Disputes at the
Barangay Level, thereby ruling that the filing by the heirs of the complaint before the Barangay was an exercise of
right of redemption.

We need only to discuss the requirement of notice under Art. 1623 of the New Civil Code, which provides that:

The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing
by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all
possible redemptioners.

Nothing in the records and pleadings submitted by the parties shows that there was a written notice sent to the
respondents. Without a written notice, the period of thirty days within which the right of legal pre-emption may be
exercised, does not start.

The indispensability of a written notice had long been discussed in the early case of Conejero v. Court of
Appeals,[16] penned by Justice J.B.L. Reyes:
With regard to the written notice, we agree with petitioners that such notice is indispensable, and that, in view of the
terms in which Article of the Philippine Civil Code is couched, mere knowledge of the sale, acquired in some other
manner by the redemptioner, does not satisfy the statute. The written notice was obviously exacted by the Code to
remove all uncertainty as to the sale, its terms and its validity, and to quiet any doubts that the alienation is not
definitive. The statute not having provided for any alternative, the method of notification prescribed remains
exclusive.

This is the same ruling in Verdad v. Court of Appeals:[17]

The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual
knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all
uncertainties about the sale, its terms and conditions, as well as its efficacy and status.

Lately, in Gosiengfiao Guillen v. the Court of Appeals,[18] this Court again emphasized the mandatory character of a
written notice in legal redemption:

From these premises, we ruled that [P]etitioner-heirs have not lost their right to redeem, for in the absence of a
written notification of the sale by the vendors, the 30-day period has not even begun to run. These premises and
conclusion leave no doubt about the thrust of Mariano: The right of the petitioner-heirs to exercise their right of
legal redemption exists, and the running of the period for its exercise has not even been triggered
because they have not been notified in writing of the fact of sale. (Emphasis supplied)

The petitioner argues that the only purpose behind Art. 1623 of the New Civil Code is to ensure that the owner of the
adjoining land is actually notified of the intention of the owner to sell his property. To advance their argument, they
cited Destrito v. Court of Appeals as cited in Alonzo v. Intermediate Appellate Court,[19]where this Court pronounced
that written notice is no longer necessary in case of actual notice of the sale of property.

The Alonzo case does not apply to this case. There, we pronounced that the disregard of the mandatory written rule
was an exception due to the peculiar circumstance of the case. Thus:

In the face of the established facts, we cannot accept the private respondents' pretense that they were unaware of the
sales made by their brother and sister in 1963 and 1964. By requiring written proof of such notice, we would be
closing our eyes to the obvious truth in favor of their palpably false claim of ignorance, thus exalting the letter of the
law over its purpose. The purpose is clear enough: to make sure that the redemptioners are duly notified. We are
satisfied that in this case the other brothers and sisters were actually informed, although not in writing, of the sales
made in 1963 and 1964, and that such notice was sufficient.

Now, when did the 30-day period of redemption begin?

While we do not here declare that this period started from the dates of such sales in 1963 and 1964, we do say that
sometime between those years and 1976, when the first complaint for redemption was filed, the other co-heirs were
actually informed of the sale and that thereafter the 30-day period started running and ultimately expired. This could
have happened any time during the interval of thirteen years, when none of the co-heirs made a move to redeem the
properties sold. By 1977, in other words, when Tecla Padua filed her complaint, the right of redemption had already
been extinguished because the period for its exercise had already expired.

The following doctrine is also worth noting:

While the general rule is, that to charge a party with laches in the assertion of an alleged right it is essential that he
should have knowledge of the facts upon which he bases his claim, yet if the circumstances were such as should have
induced inquiry, and the means of ascertaining the truth were readily available upon inquiry, but the party neglects to
make it, he will be chargeable with laches, the same as if he had known the facts.
It was the perfectly natural thing for the co-heirs to wonder why the spouses Alonzo, who were not among them,
should enclose a portion of the inherited lot and build thereon a house of strong materials. This definitely was not the
act of a temporary possessor or a mere mortgagee. This certainly looked like an act of ownership. Yet, given this
unseemly situation, none of the co-heirs saw fit to object or at least inquire, to ascertain the facts, which were readily
available. It took all of thirteen years before one of them chose to claim the right of redemption, but then it was
already too late.[20]

xxxx

The co-heirs in this case were undeniably informed of the sales although no notice in writing was given them. And
there is no doubt either that the 30-day period began and ended during the 14 years between the sales in question
and the filing of the complaint for redemption in 1977, without the co-heirs exercising their right of redemption. These
are the justifications for this exception.

The Court clarified that:

We realize that in arriving at our conclusion today, we are deviating from the strict letter of the law,
which the respondent court understandably applied pursuant to existing jurisprudence. The said court
acted properly as it had no competence to reverse the doctrines laid down by this Court in the above-cited
cases. In fact, and this should be clearly stressed, we ourselves are not abandoning the De Conejero and
Buttle doctrines. What we are doing simply is adopting an exception to the general rule, in view of the
peculiar circumstances of this case.[21] (Emphasis supplied)
Without the peculiar circumstances in the present case, Alonzo cannot find application. The impossibility in Alonzo of
the parties not knowing about the sale of a portion of the property they were actually occupying is not presented in
this case. The strict letter of the law must apply. That a departure from the strict letter should only be for
extraordinary reasons is clear from the second sentence of Art. 1623 that The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all
possible redemptioners.
Justice Edgardo Paras, referring to the origins of the requirement, would explain in his commentaries on the New Civil
Code that despite actual knowledge, the person having the right to redeem is STILL entitled to the written
notice. Both the letter and the spirit of the New Civil Code argue against any attempt to widen the scope of the written
notice by including therein any other kind of notice such as an oral one, or by registration. If the intent of the law has
been to include verbal notice or any other means of information as sufficient to give the effect of this notice, there
would have been no necessity or reason to specify in the article that said notice be in writing, for under the old law, a
verbal notice or mere information was already deemed sufficient.[22]

Time and time again, it has been repeatedly declared by this Court that where the law speaks in clear and categorical
language, there is no room for interpretation.There is only room for application. [23] Where the language of a statute is
clear and unambiguous, the law is applied according to its express terms, and interpretation should be resorted to
only where a literal interpretation would be either impossible or absurd or would lead to an injustice. The law is clear
in this case, there must first be a written notice to the family of Baas.

Absolute Sentencia Expositore Non Indiget, when the language of the law is clear, no explanation of it is required.[24]

We find no need to rule on the other issues presented by the petitioner. The respondent Baas has a perfect right of
redemption and was never in danger of losing such right even if there was no redemption complaint filed with
the barangay, no tender of payment or no consignation.

WHEREFORE, the appeal is DENIED. The 26 February 2004 Decision of the Court of Appeals in CA-G.R. CV No.
67702, granting to petitioner-appellants the right to redeem the subject property for the amount of Php60,000.00
within thirty (30) days from the finality of this decision is hereby AFFIRMED. No cost.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION ROBERTO A. ABAD

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified
that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice
 FIRST DIVISION
[G.R. No. 142612. July 29, 2005]
OSCAR ANGELES and EMERITA ANGELES, petitioners, vs. THE HON. SECRETARY OF JUSTICE and FELINO
MERCADO, respondents.
DECISION
CARPIO, J.:
The Case

This is a petition for certiorari[1] to annul the letter-resolution[2] dated 1 February 2000 of the Secretary of Justice in
Resolution No. 155.[3] The Secretary of Justice affirmed the resolution[4] in I.S. No. 96-939 dated 28 February 1997
rendered by the Provincial Prosecution Office of the Department of Justice in Santa Cruz, Laguna (Provincial
Prosecution Office). The Provincial Prosecution Office resolved to dismiss the complaint for estafa filed by petitioners
Oscar and Emerita Angeles (Angeles spouses) against respondent Felino Mercado (Mercado).

Antecedent Facts

On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under Article 315 of the Revised
Penal Code against Mercado before the Provincial Prosecution Office. Mercado is the brother-in-law of the Angeles
spouses, being married to Emerita Angeles sister Laura.

In their affidavits, the Angeles spouses claimed that in November 1992, Mercado convinced them to enter into a
contract of antichresis,[5] colloquially known as sanglaang-perde, covering eight parcels of land (subject land) planted
with fruit-bearing lanzones trees located in Nagcarlan, Laguna and owned by Juana Suazo. The contract of antichresis
was to last for five years with P210,000 as consideration. As the Angeles spouses stay in Manila during weekdays and
go to Laguna only on weekends, the parties agreed that Mercado would administer the lands and complete the
necessary paperwork.[6]

After three years, the Angeles spouses asked for an accounting from Mercado. Mercado explained that the subject
land earned P46,210 in 1993, which he used to buy more lanzones trees. Mercado also reported that the trees bore no
fruit in 1994. Mercado gave no accounting for 1995. The Angeles spouses claim that only after this demand for an
accounting did they discover that Mercado had put the contract of sanglaang-perde over the subject land under
Mercado and his spouses names.[7] The relevant portions of the contract of sanglaang-perde, signed by Juana Suazo
alone, read:

xxx

Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO (P210,000), salaping gastahin, na aking
tinanggap sa mag[-]asawa nila G. AT GNG. FELINO MERCADO, mga nasa hustong gulang, Filipino, tumitira at may
pahatirang sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay aking ipinagbili, iniliwat at isinalin sa
naulit na halaga, sa nabanggit na mag[-] asawa nila G. AT GNG. FELINO MERCADO[,] sa kanila ay magmamana,
kahalili at ibang dapat pagliwatan ng kanilang karapatan, ang lahat na ibubunga ng lahat na puno ng lanzones, hindi
kasama ang ibang halaman na napapalooban nito, ng nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal, sa
takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993, at magtatapos sa taong 1997, kayat pagkatapos ng
lansonesan sa taong 1997, ang pamomosision at pakikinabang sa lahat na puno ng lanzones sa nabanggit na
WALONG (8) Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin, sa akin ay magmamana, kahalili at ibang
dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na ano pa mang halaga, sa mag[-] asawa nila G. AT
GNG. FELINO MERCADO.

Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na ako ay bibigyan nila ng LIMA (5) na
[sic] kaing na lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng aming kasunduang ito.

Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na silang mag[-]asawa nila G. AT
GNG. FELINO MERCADO ang magpapaalis ng dapo sa puno ng lansones taon-taon [sic] sa loob ng LIMA (5) [sic]
taonng [sic] aming kasunduang ito.[8]

In his counter-affidavit, Mercado denied the Angeles spouses allegations. Mercado claimed that there exists an
industrial partnership, colloquially known as sosyo industrial, between him and his spouse as industrial partners and
the Angeles spouses as the financiers. This industrial partnership had existed since 1991, before the contract of
antichresis over the subject land. As the years passed, Mercado used his and his spouses earnings as part of the
capital in the business transactions which he entered into in behalf of the Angeles spouses. It was their practice to
enter into business transactions with other people under the name of Mercado because the Angeles spouses did not
want to be identified as the financiers.

Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under his name for the
Angeles spouses. Mercado also attached the minutes of the barangay conciliation proceedings held on 7 September
1996. During the barangay conciliation proceedings, Oscar Angeles stated that there was a written sosyo
industrialagreement: capital would come from the Angeles spouses while the profit would be divided evenly between
Mercado and the Angeles spouses.[9]

The Ruling of the Provincial Prosecution Office

On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending the filing of criminal
information for estafa against Mercado. This resolution, however, was issued without Mercados counter-affidavit.

Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3 January 1997 resolution,
Mercado moved for its reconsideration. Hence, on 26 February 1997, the Provincial Prosecution Office issued an
amended resolution dismissing the Angeles spouses complaint for estafa against Mercado.

The Provincial Prosecution Office stated thus:

The subject of the complaint hinges on a partnership gone sour. The partnership was initially unsaddled [with]
problems. Management became the source of misunderstanding including the accounting of profits, which led to
further misunderstanding until it was revealed that the contract with the orchard owner was only with the name of the
respondent, without the names of the complainants.

The accusation of estafa here lacks enough credible evidentiary support to sustain a prima facie finding.

Premises considered, it is respectfully recommended that the complaint for estafa be dismissed.

RESPECTFULLY SUBMITTED.[10]

The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution Office denied in a resolution
dated 4 August 1997.

The Ruling of the Secretary of Justice

On appeal to the Secretary of Justice, the Angeles spouses emphasized that the document evidencing the contract
of sanglaang-perde with Juana Suazo was executed in the name of the Mercado spouses, instead of the Angeles
spouses. The Angeles spouses allege that this document alone proves Mercados misappropriation of their P210,000.

The Secretary of Justice found otherwise. Thus:

Reviewing the records of the case, we are of the opinion that the indictment of [Mercado] for the crime of estafa
cannot be sustained. [The Angeles spouses] failed to show sufficient proof that [Mercado] deliberately deceived them
in the sanglaang perde transaction. The document alone, which was in the name of [Mercado and his spouse], failed
to convince us that there was deceit or false representation on the part of [Mercado] that induced the [Angeles
spouses] to part with their money. [Mercado] satisfactorily explained that the [Angeles spouses] do not want to be
revealed as the financiers. Indeed, it is difficult to believe that the [Angeles spouses] would readily part with their
money without holding on to some document to evidence the receipt of money, or at least to inspect the document
involved in the said transaction. Under the circumstances, we are inclined to believe that [the Angeles spouses] knew
from the very start that the questioned document was not really in their names.

In addition, we are convinced that a partnership truly existed between the [Angeles spouses] and [Mercado]. The
formation of a partnership was clear from the fact that they contributed money to a common fund and divided the
profits among themselves. Records would show that [Mercado] was able to make deposits for the account of the
[Angeles spouses]. These deposits represented their share in the profits of their business venture. Although the
[Angeles spouses] deny the existence of a partnership, they, however, never disputed that the deposits made by
[Mercado] were indeed for their account.

The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado] during the hearing of their
barangay conciliation case reveals that the [Angeles spouses] acknowledged their joint business ventures with
[Mercado] although they assailed the manner by which [Mercado] conducted the business and handled and distributed
the funds. The veracity of this transcript was not raised in issued [sic] by [the Angeles spouses]. Although the legal
formalities for the formation of a partnership were not adhered to, the partnership relationship of the [Angeles
spouses] and [Mercado] is evident in this case. Consequently, there is no estafa where money is delivered by a
partner to his co-partner on the latters representation that the amount shall be applied to the business of their
partnership. In case of misapplication or conversion of the money received, the co-partners liability is civil in nature
(People v. Clarin, 7 Phil. 504)

WHEREFORE, the appeal is hereby DISMISSED.[11]

Hence, this petition.

Issues

The Angeles spouses ask us to consider the following issues:

1. Whether the Secretary of Justice committed grave abuse of discretion amounting to lack of jurisdiction in
dismissing the appeal of the Angeles spouses;

2. Whether a partnership existed between the Angeles spouses and Mercado even without any documentary proof to
sustain its existence;

3. Assuming that there was a partnership, whether there was misappropriation by Mercado of the proceeds of the
lanzones after the Angeles spouses demanded an accounting from him of the income at the office of the barangay
authorities on 7 September 1996, and Mercado failed to do so and also failed to deliver the proceeds to the Angeles
spouses;

4. Whether the Secretary of Justice should order the filing of the information for estafa against Mercado.[12]

The Ruling of the Court

The petition has no merit.

Whether the Secretary of Justice Committed

Grave Abuse of Discretion

An act of a court or tribunal may constitute grave abuse of discretion when the same is performed in a capricious or
whimsical exercise of judgment amounting to lack of jurisdiction. The abuse of discretion must be so patent and gross
as to amount to an evasion of positive duty, or to a virtual refusal to perform a duty enjoined by law, as where the
power is exercised in an arbitrary and despotic manner because of passion or personal hostility. [13]

The Angeles spouses fail to convince us that the Secretary of Justice committed grave abuse of discretion when he
dismissed their appeal. Moreover, the Angeles spouses committed an error in procedure when they failed to file a
motion for reconsideration of the Secretary of Justices resolution. A previous motion for reconsideration before the
filing of a petition for certiorari is necessary unless: (1) the issue raised is one purely of law; (2) public interest is
involved; (3) there is urgency; (4) a question of jurisdiction is squarely raised before and decided by the lower court;
and (5) the order is a patent nullity.[14] The Angeles spouses failed to show that their case falls under any of the
exceptions. In fact, this present petition for certiorari is dismissible for this reason alone.

Whether a Partnership Existed

Between Mercado and the Angeles Spouses

The Angeles spouses allege that they had no partnership with Mercado. The Angeles spouses rely on Articles 1771 to
1773 of the Civil Code, which state that:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and
the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached to the public instrument.

The Angeles spouses position that there is no partnership because of the lack of a public instrument indicating the
same and a lack of registration with the Securities and Exchange Commission (SEC) holds no water. First, the Angeles
spouses contributed money to the partnership and not immovable property. Second, mere failure to register the
contract of partnership with the SEC does not invalidate a contract that has the essential requisites of a partnership.
The purpose of registration of the contract of partnership is to give notice to third parties. Failure to register the
contract of partnership does not affect the liability of the partnership and of the partners to third persons. Neither
does such failure to register affect the partnerships juridical personality. A partnership may exist even if the
partners do not use the words partner or partnership.
Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a contract showing a sosyo
industrial or industrial partnership, contribution of money and industry to a common fund, and division of profits
between the Angeles spouses and Mercado.

Whether there was

Misappropriation by Mercado

The Secretary of Justice adequately explained the alleged misappropriation by Mercado: The document alone, which
was in the name of [Mercado and his spouse], failed to convince us that there was deceit or false representation on
the part of [Mercado] that induced the [Angeles spouses] to part with their money. [Mercado] satisfactorily explained
that the [Angeles spouses] do not want to be revealed as the financiers.[15]

Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil case for damages, injunction
and restraining order filed by the Angeles spouses against Mercado and Leo Cerayban, stated:

xxx [I]t was the practice to have all the contracts of antichresis of their partnership secured in [Mercados] name as
[the Angeles spouses] are apprehensive that, if they come out into the open as financiers of said contracts, they
might be kidnapped by the New Peoples Army or their business deals be questioned by the Bureau of Internal
Revenue or worse, their assets and unexplained income be sequestered, as xxx Oscar Angeles was then working with
the government.[16]

Furthermore, accounting of the proceeds is not a proper subject for the present case.

For these reasons, we hold that the Secretary of Justice did not abuse his discretion in dismissing the appeal of the
Angeles spouses.

WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition for certiorari is DISMISSED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

[1] Under Rule 65 of the Rules of Court.

[2] Penned by Secretary of Justice Serafin R. Cuevas.
[3] Series of 2000.
[4] Penned by 4th Assistant Provincial Prosecutor Carlos I. Acain, recommended for approval by 1 st Assistant Prosecutor

Felipe L. Arcigal, Jr., and approved by Provincial Prosecutor George C. Dee.

[5] Article 2132 of the Civil Code provides: By the contract of antichresis the creditor acquires the right to receive the

fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing, and
thereafter to the principal of his credit.
[6] Rollo, pp. 24, 26.
[7] Ibid., pp. 24, 26-27.
[8] Ibid., p. 75.
[9] Ibid., pp. 30-32.
[10] Ibid., p. 53.
[11] Ibid., pp. 21-22.
[12] See Rollo, p. 9.
[13]
Intestate Estate of Carmen de Luna v. IAC, G.R. No. 72424, 13 February 1989, 170 SCRA 246 citing Litton Mills,
Inc. v. Galleon Trader, Inc., No. L-40867, 26 July 1988, 163 SCRA 489.
[14] Justice Jose Y. Feria (Ret.) and Maria Concepcion S. Noche, 2 Civil Procedure Annotated, 473 (2001).
[15] Rollo, p. 21.
[16] Ibid., p. 125.