SECOND DIVISION

[G.R. No. 100319. August 8, 1996.]

THE UNION INSURANCE SOCIETY OF CANTON, Petitioner, v. THE COURT OF APPEALS

and FAR EAST CHEMCO LEASING AND FINANCING CORPORATION, Respondents.

SYLLABUS

1. CIVIL LAW; SPECIAL CONTRACTS SALES; OBLIGATION OF THE VENDEE; THE BUYER
OF A PROPERTY SUBJECT TO A LIEN SHOULD NOT BE MADE TO PAY THE SAME IN
THE ABSENCE OF SHOWING THAT THE JUDGMENT DEBTOR HAS NOT PAID OR HAS
NO OTHER PROPERTIES TO ANSWER FOR HIS LIABILITIES. — While Far East Chemco,
as a buyer of the vessels purchased the same at its own risk, the assumed risk
pertains only to the possibility of the sale being rescinded. It is error to make
private respondent pay petitioner the value of the three (3) vessels or to order
the return of the vessels to petitioner without the sale first being rescinded.
Private respondent should not be made to pay another’s indebtedness in the
absence of showing that PTI, the judgment debtor, has not paid petitioner or
that PTI has no other properties to answer for its liabilities to the petitioner. To
order private respondent to pay petitioner the value of the vessels is one without
legal basis and could result in unjust enrichment of petitioner.

2. ID.; CONTRACTS; RESCISSION; CANNOT BE INSTITUTED EXCEPT WHEN THE PARTY

SUFFERING DAMAGE HAS NO OTHER LEGAL MEANS TO OBTAIN REPARATION FOR
THE SAME. — "Has appellee shown in this case that it is entitled to rescind the said
fraudulent transaction? We find in the negative. The plaintiff asking for rescission
must prove that he has no other legal means to obtain reparation. The action for
rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same (Article
1383, Civil Code). Appellee has failed to adduce sufficient and convincing
evidence showing that it had pursued all available legal remedies against PTI’s
properties in order to satisfy its claims against the latter. Neither is it shown that
the vessels subject of the dispute were the only assets of PTI.

3. REMEDIAL LAW; CIVIL PROCEDURE; PARTIES TO CIVIL ACTIONS; INDISPENSABLE

PARTY; CANNOT BE BOUND BY AN ADVERSE DECISION IN A CASE WHERE IT WAS
NOT GIVEN A CHANCE TO DEFEND ITSELF. — The vessels are no longer owned by
private Respondent. When petitioner filed the complaint on February 21, 1984, it
was already aware that the vessels have been sold by private respondent to
Peninsula Tourist Shipping Corporation on May 27, 1980. Yet petitioner did not
implead Peninsula Tourist Shipping Corporation as a co-defendant of Far East
Chemco. Petitioner Union Insurance contends that technicalities have no place
in the administration of justice. But petitioner, who did not cause the attachment
of PTI’s properties to forestall its sale, cannot be given its justice at the expense of
Peninsula Tourist Shipping Corporation who cannot be bound by an adverse
decision in a case where it was not given a chance to defend itself.

4. ID.; ID.; PETITION FOR REVIEW ON CERTIORARI TO THE SUPREME COURT;

FACTUAL QUESTIONS ARE NOT SUPPOSED TO BE RE-TRIED. — An assiduous scrutiny
of the records reveals that some of the issues raised in the case at bar are
factual and as such are not germane in a petition for review on certiorari. In Go
v. Court of Appeals, we ruled, thus: "We have consistently stressed in a long line
of decisions that the resolution of factual questions is the primacy and often the
final task of the lower courts. This Court is not a trier of facts. The ascertainment of
what actually happened in a controverted situation is the function of the trial
court. And its findings thereof are received with much respect, if indeed not
considered conclusive, by the appellate court. "The reason for this policy is that
this court, is not supposed to re-try every case that comes before it on certiorari.
This would not only prolong the judicial process but also unduly imposed on this
court which is burdened enough as it is with its heavily clogged dockets."

DECISION

TORRES, JR., J.:

This petition for review on certiorari seeks to reverse and set aside the decision
dated March 12, 1991 of the Court of Appeals 1 in CA-G.R. CV No. 16981, which
reversed the decision dated January 2, 1985 of the Regional Trial Court of
Makati, Branch CXLIV in Civil Case No. 6487.

The undisputed facts as stated by the trial court and reproduced by the
respondent Court of Appeals in its decision are as follows:

"This is an action filed by the plaintiff The Union Insurance Society of Canton, Ltd.,
a foreign corporation duly authorized to do business in the Philippines, against
the defendant The Far East Chemco Leasing Corporation, a domestic
corporation organized in accordance with the laws of the Philippines. The
complaint prays that the defendant be ordered to return to the plaintiff certain
vessels or their value plus damages and attorney’s fees.

"The record discloses that upon being served summons on March 5, 1984, the
defendant, through counsel, filed a motion for extension of time to file its answer
which was granted by the Court giving the defendant an extension of 15 days
from March 20, 1984 within which to file its answer. However, despite the said
extension it prayed for and granted by the Court, the defendant failed to file an
answer thereby prompting the plaintiff to move that the defendant be declared
in default which the Court granted and at the same time authorizing the plaintiff
to present its evidence ex parte.

"Subsequently, the defendant filed a motion to set aside the order of default and
the plaintiff filed an opposition thereto. However, at the scheduled hearing of
the said motion on June 1, 1984, the defendant’s counsel instead manifested
that the defendant will submit a proposal for an amicable settlement of the case
with the plaintiff for which reason the hearing of the defendant’s motion was
reset to June 29, 1984, at 2:00 p.m., but when the motion was called for hearing
the defendant’s counsel failed to appear despite previous notice in open Court.
Having found the grounds of the said motion unmeritorious, the Court resolved to
deny the same.

"It appears that on March 11, 1976, the Union Insurance Society of Canton, Ltd.,
through its general agent, Ker & Co., as insurer of subrogee of Litton Mills, Inc.
(Consignee), filed a complaint for damages with the former Court of First
Instance of Manila docketed therein as Civil Case No. 101598 against the
Philippine Tugs, Inc., a corporation engaged in carrying goods on lighters from
vessels anchored in Manila Bay to any part of the Philippines. On July 19, 1977,
the said Court rendered judgment in favor of the plaintiff and against Philippine
Tugs, Inc. ordering the latter to reimburse to the plaintiff as subrogee the amount
of P1,849,044.23 with legal interest from the date of the filing of the complaint
until full payment thereof plus costs. For a better understanding of the facts of
that case and what gave rise to the said action and the award of damages to
the plaintiff, pertinent excerpts of the said Court’s decision (Exh. A) are quoted as
follows:chanrob1es virtual 1aw library

‘On September 5, 1975, the defendant entered into a contract with Litton Mills,
Inc. for the former to lighter the cargo of said Litton Mills Inc. consisting of 2,045
bales of compressed cotton from SS "Pres. Magsaysay," which was then moored
at the Manila South Harbor, and its destination was Magallanes Drive. In
accordance with this agreement, the defendant dispatched its barge, the Ben
Michael II to the Manila South Harbor and received from the SS "Pres.
Magsaysay" 2,045 bales of compressed cotton for delivery to Litton Mills, Inc. This
shipment of 2,045 bales of cotton was insured by Litton Mills, Inc. with the
plaintiffs. On October 14, 1975, Litton Mills Inc. sent four formal claims to plaintiff,
Ker & Co. Ltd. (Exhibits "E" to "E-3"), informing the latter that of the total cargo of
2,045 bales, only 2,036 bales were delivered and there was a shortage of nine
bales and that out of the 2,036 bales, 521 bales were totally damaged by
seawater and stains and therefore, no longer usable. That the total value of the
lost and damaged bales of cotton was P1,849,044.23. Similar demands were
made by Litton Mills Inc. to the defendant, Exhibits "F-3." When the defendant
refused to pay the alleged damaged, the plaintiffs paid to Litton Mills, Inc. the
total demand of P1,849,044.23 (Exhibits "H" to "H-3") and the defendant was
accordingly advised of this payment, Exhibit "I" to "I-3." On February 25, 1976, the
plaintiff, thru its counsel, wrote a letter to the defendant, (Exhibit "M") informing
the latter that they have paid Litton Mills, Inc. the amount of P1,849,044.23, at the
same time as the subrogee, seeking reimbursement of the amount for the reason
that the shortage and damage was defendant’s responsibility. On March 2,
1976, the defendant, thru its counsel (Exhibit "6"), answered, totally denying
responsibility of the ordinary claims for loss or damage to the cargo. In other
words, the plaintiff claims that the defendant actually received 2,045 bales of
cotton from the SS "Pres. Magsaysay," but it only delivered 2,036 bales to Litton
Mills, Inc., thus having a shortage of nine bales, and further, out of the 2,036
bales, 521 bales were in bad order condition because they were damaged by
seawater when they were in the possession of said defendant. That by virtue of
the contract, between Litton Mills, Inc. and the latter is liable as a common
carrier as provided for under Article 1735, 1736 and 1737 of the New Civil Code.’

"The dispositive portion of the decision of the CFI of Manila presided over by Hon.
Alfredo C. Florendo reads:chanrob1es virtual 1aw library

‘WHEREFORE, in view of the foregoing considerations, the Court hereby renders

judgment in favor of the plaintiff and against the defendant, and the latter is
hereby ordered to reimburse to the plaintiff, as subrogee, the amount of ONE
MILLION EIGHT HUNDRED FORTY NINE THOUSAND FORTY FOUR PESOS & 23/100
(P1,849,044.23), with legal interest from the date of full payment and to pay the
costs.’

"The Philippine Tugs, Inc. appealed the said decision to the then Court of
Appeals docketed therein as CA-G.R. No. 63144-R, but it was affirmed in toto by
the Court of Appeals in the latter’s decision promulgated on September 29, 1982
(Exh. B). . . ."cralaw virtua1aw library

"The evidence on record consisting of the articles of incorporation and other

documents from the Securities and Exchange Commission disclose that Angel T.
Rodriguez was the Vice-President and Treasurer and at the same time a director
of the Philippine Tugs, Inc. while Julian R. Cordero and Francisco Y. Wong were
also directors (Exh. C), and all the three of them were the controlling
stockholders of the said corporation it appearing that of the P60,000.00
subscribed capital stock (60,000 shares at the par value of P1.00 per share), they
owned P15,000.00, P12,000.00 and P13,000.00 worth of stock, respectively, or
40,000 of 60,000 shares or roughly 67% of the subscribed capital stock (Exhs. C, C-
1 to C-8).

"These three persons likewise appear to be the controlling stockholders of

another corporation, the Valenzuela Watercraft Corporation, it being also
disclosed by the documents on file with the SEC that Julian R. Cordero was its
president, Angel T. Rodriguez, its Vice-President, and Francisco Y. Wong, its
treasurer-secretary (Exh. D-2); and of the 2,000 subscribed capital stock worth
P200,000.00 (at the par value of P100.00 per share) Angel T. Rodriguez owned 500
shares worth P50,000.00; Julian R. Cordero, 400 shares worth P40,000.00; and
Francisco Y. Wong, 700 shares worth P70,000.00 — a total of 1,600 shares worth
P160,000.00 — or 80% of its subscribed capital stock (Exhs. D, D-1 to D-12).
"In the meantime, during the pendency of the said action in the CFI of Manila,
the Philippine Tugs, Inc., through the said Angel T. Rodriguez, Julian R. Cordero
and Francisco Y. Wong who as aforesaid altogether owned 67% of the
subscribed capital stock of the said corporation, transferred a number of its
vessels, including its tugboat ‘M/T Legionaire’, formerly known as ‘Sea Rover,’ its
tugboat ‘M/T Centurion,’ formerly known as ‘Good Hope,’ and the barge
‘Pencar 1311,’ formerly known as ‘Ben Michael,’ as shown by a Deed of Absolute
Sale dated September 30, 1976 (Exh. G), to the said Valenzuela Watercraft
Corporation 80% of the subscribed capital stock of which as aforesaid was also
owned by the aforenamed stockholders of the Philippine Tugs, Inc.

"Soon after the promulgation of the said judgment by the CFI of Manila on July
19, 1977, what the plaintiff through its counsel did was to cause the said
judgment to be annotated on the titles to the said tugboats and barge pursuant
to the letter of the plaintiff’s counsel addressed to the Administrator of the
Maritime Industry Authority dated August 2, 1977 and received by the said office
on August 4, 1977 (Exh. F). Likewise, the plaintiff’s adverse claim on the said
vessels was annotated in the Registration and Licensing Section of the Philippine
Coast Guard on October 17, 1977 (Exh. G). Despite the said notice of the
judgment and annotation, however, of the plaintiff’s adverse claim, the herein
defendant Far East Chemco Leasing Corporation still bought the aforesaid
vessels on September 7, 1978 from Valenzuela Watercraft Corporation (Exh. G,
Exhs. H and H-1), and subsequently sold the same vessels on May 27, 1980 to
Peninsula Tourist Shipping Corporation (Exh. E). Hence, this action brought by the
plaintiff against Far East Chemco Leasing Corporation.

"The documentary evidence presented by the plaintiff consists of certified copies

of the original with the exception of Exhs. F and G which were identified by Atty.
Alejandro B. Elmido, an associate in the law office of the plaintiff’s counsel, Atty.
Alfonso Felix, Jr.

"The plaintiff likewise presented Mr. Emilio Ramos, 60 years of age, and a marine
surveyor engineer. He has been one of the appraisers of the Hull Pool of the
Philippines, an association of insurance companies which have pooled their
resources in covering up hull and cargo insurance. He holds the position of vice
president and marine manager of the Manila Adjusters and Surveyors Company
which is considered the largest firm in its field of work in the Philippines. Mr. Ramos
has had thirty-seven years of practice and experience behind him during which
span of time, he has surveyed over five thousand (5,000) vessels. And based on
his extensive experience, he gave his expert opinion that ‘M/T Legionaire,’
formerly known as the ‘Sea Rover’ should now be worth P650,000.00, the ‘M/T
Centurion,’ formerly known as the ‘Good Hope’ should now be worth
P1,500,000.00, while the barge ‘Pencar’ formerly known as ‘Ben Michael’ should
now be worth P450,000.00 — or a total of P2,600.000.00 for the three vessels.
(t.s.n., April 26, 1984, p. 7)

"Lastly, the plaintiff’s counsel, Atty. Alfonso Felix, Jr., took the witness stand. He
declared that before filing this case, he tried repeatedly to communicate with
the defendant for the purpose of settling the same, but without any result. His
agreement with his client is that he will receive 20% of the value of the vessels by
way of attorney’s fees. (t.s.n., April 26, 1984, p. 8)" (Decision of the Regional Trial
Court, pp. 1-8; Original Record, pp. 198-206)

Evaluating the evidence before it, the trial court sustained the claim of Union
Insurance that the transfer made by Philippine Tugs, Inc. of the said tugboats
and barge to Valenzuela Watercraft Corporation was made fraudulently and,
thus, after disregarding the fiction of the corporate entities of the two
corporations, it declared said transfer as invalid. Likewise, the trial court ruled that
the subsequent sale of the tugboats and barge made by Valenzuela Watercraft
Corporation to Far East Chemco Leasing Corporation was fraudulent and that
the latter corporation was a party to the fraud. Considering that the said water
vessels were subsequently sold by Far East Chemco to Peninsula Tourist Shipping
Corporation which is not a party to the case and, therefore, cannot be returned
to the plaintiff, the trial court resolved that the value of said water vessels instead
which is now worth P2,600,000.00 be returned to the plaintiff. And lastly, the trial
court found that the Union Insurance is entitled to its claim for attorney’s fees
because of the unjustified refusal by Far East Chemco of the former’s demand
for payment. The trial court rendered judgment, as follows:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against

the defendant ordering the latter to pay the former:

"1) the sum of P2,600,000.00 representing the value of the three vessels in
question with legal interest from September 7, 1978 until the amount is fully paid;

"2) the sum equivalent to 20% of the total amount due as attorney’s fees, plus;

"3) the costs of the suit.

"SO ORDERED." (Decision, p. 16, Record, p. 214)

On appeal by Far East Chemco Leasing and Finance Corporation to the

respondent Court of Appeals, the latter reversed the trial court’s decision and
dismissed the complaint.

Hence, the instant petition.

Petitioner did not make any formal assignment of errors but in lieu thereof the
petitioner imputes to respondent court the error of:chanrob1es virtual 1aw library

1. sustaining respondent’s allegation that the trial court erred in declaring

respondent liable to petitioner for the value of the subject vessels despite the
fact that petitioner’s claim is based on a lien.

and
"2. sustaining Far East Chemco’s allegation that the trial court erred in awarding
attorney’s fees equivalent to 20% of the total amount due notwithstanding the
fact that the case below was based on an ex-parte proceedings."cralaw
virtua1aw library

Petitioner posits the following allegations: that it is a principle of law that when an
Affidavit of Adverse Claim is filed giving notice to the whole world that there is a
case in court involving certain property or properties, any person purchasing
such properties or acquiring an interest on the same does so at his own peril; that
in this particular case, there can be no question that Far East Chemco had
notice of the lien of the vessels; that the Court of Appeals in the decision under
review held that Far East Chemco had by intervening in all these transactions
made itself a party to the fraud committed by PTI on its creditor, the herein
petitioner; that "the proper remedy is not an action for rescission but merely a
return of the vessels or their value which is precisely what our original complaint
seeks for the transfer to Far East Chemco is not only voidable but is null and void;"
that Far East Chemco deprived them of property which they were entitled to
execute for the satisfaction of the final judgment in their favor; that since the
vessels cannot now be returned, because they are nowhere to be found and
due to the lapse of time, even if they were found, they would now be a mass of
junk, Far East Chemco is bound to pay them the value of the vessels, with
interest, attorney’s fees and costs.

Petitioner further avers that the reason given by the respondent Court for
dismissing the complaint despite its finding that Far East Chemco acted with
fraud has no value in law. According to petitioner, to reason that instead of filing
an Affidavit of Adverse Claim, they should have filed a petition for attachment or
Lis Pendens is purely and simply a groping about for technicalities and,
technicalities have no place in the administration of justice.

We find the petition without merit.

While Far East Chemco, as a buyer of the vessels purchased the same at its own
risk, the assumed risk pertains only to the possibility of the sale being rescinded. It
is error to make private respondent pay petitioner the value of the three (3)
vessels or to order the return of the vessels to petitioner without the sale first being
rescinded.

The vessels are no longer owned by private Respondent. When petitioner filed
the complaint on February 21, 1984, it was already aware that the vessels have
been sold by private respondent to Peninsula Tourist Shipping Corporation on
May 27, 1980. 2 Yet petitioner did not implead Peninsula Tourist Shipping
Corporation as a co-defendant of Far East Chemco.

Petitioner Union Insurance contends that technicalities have no place in the

administration of justice. But petitioner, who did not cause the attachment of
PTI’s properties to forestall its sale, cannot be given its justice at the expense of
others, namely: 1.) Peninsula Tourist Shipping Corporation who cannot be bound
by an adverse decision in a case where it was not given a chance to defend
itself 3 and 2.) private respondent who should not be made to pay another’s
indebtedness in the absence of showing that PTI, the judgment debtor, has not
paid petitioner or that PTI has no other properties to answer for its liabilities to the
petitioner. To order private respondent to pay petitioner the value of the vessels
is one without legal basis and could result in unjust enrichment of petitioner.

Furthermore, as aptly stated by the respondent court and we quote:

"Has appellee shown in this case that it is entitled to rescind the said fraudulent
transaction? We find in the negative. The plaintiff asking for rescission must prove
that he has no other legal means to obtain reparation. The action for rescission is
subsidiary; it cannot be instituted except when the party suffering damage has
no other legal means to obtain reparation for the same (Article 1383, Civil Code).
Appellee has failed to adduce sufficient and convincing evidence showing that
it had pursued all available legal remedies against PTI’s properties in order to
satisfy its claims against the latter. Neither is it shown that the vessels subject of
the dispute were the only assets of PTI.

"Hence, there being insufficient basis to allow appellee to rescind the sale of the
vessels subject of the dispute to appellant, the latter’s acquisition thereof albeit
rescissible should be upheld binding and valid until legally rescinded and
appellant have no obligation to appellee to return the said vessels or to pay the
value thereof. Therefore, We find the lower court’s order to appellant to pay for
the value of the said vessels to appellee erroneous and not in accordance with
law." 4

An assiduous scrutiny of the records reveals that some of the issues raised in the
case at bar are factual and as such are not germane in a petition for review
on certiorari. In Go v. Court of Appeals, we ruled, thus:

"We have consistently stressed in a long line of decisions that the resolution of
factual questions is the primacy and often the final task of the lower courts. This
Court is not a trier of facts. The ascertainment of what actually happened in a
controverted situation is the function of the trial court. And its findings thereon
are received with much respect, if indeed not considered conclusive, by the
appellate court.

"The reason for this policy is that this court is not supposed to re-try every case
that comes before it on certiorari. This would not only prolong the judicial process
but also unduly imposed on this court which is burdened enough as it is with its
heavily clogged dockets." 5

ACCORDINGLY, the decision appealed from dated March 12, 1991 is hereby
AFFIRMED and the instant petition DENIED for lack of merit.

SO ORDERED.
Regalado, Romero, Puno and Mendoza, JJ., concur.
SECOND DIVISION

G. R. No. 144934 - January 15, 2004

ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA, Petitioners, vs. FIDELA
DEL ROSARIO (deceased and substituted by her co-respondents), and her
children, OSCAR, ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA,
all surnamed DEL ROSARIO, respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review on certiorari of the Court of Appeals decision1,

dated November 29, 1999, in CA-G.R. CV No. 60552, which affirmed the
judgment2 of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 17, in
Civil Case No. 151-M-93. The RTC granted respondents complaint for nullity of
contract of sale and annulment of the transfer certificates of title issued in favor
of petitioners.

The facts, as found by the Court of Appeals, are as follows:

Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique Jr., Carlos,
Juanito and Eloisa, all surnamed Del Rosario, were the registered owners of Lot
No. 1083-C, a parcel of land situated at Lolomboy, Bulacan. This lot spanned an
area of 15,029 square meters and was covered by TCT No. T-50.668 (M)
registered in the Registry of Deeds of Bulacan.

On May 16, 1983, Oscar, Rosita, Violeta, Enrique Jr., Juanito, and Eloisa, executed
a Special Power of Attorney3 in favor of their mother and co-respondent, Fidela,
authorizing her to sell, lease, mortgage, transfer and convey their rights over Lot
No. 1083-C.4 Subsequently, Fidela borrowed P250,000 from Mariano Rivera in the
early part of 1987. To secure the loan, she and Mariano Rivera agreed to
execute a deed of real estate mortgage and an agreement to sell the land.
Consequently, on March 9, 1987, Mariano went to his lawyer, Atty. Efren
Barangan, to have three documents drafted: the Deed of Real Estate
Mortgage5, a Kasunduan(Agreement to Sell)6, and a Deed of Absolute Sale.7

The Kasunduan provided that the children of Mariano Rivera, herein petitioners
Adelfa, Cynthia and Jose, would purchase Lot No. 1083-C for a consideration
of P2,141,622.50. This purchase price was to be paid in three
installments: P250,000 upon the signing of the Kasunduan, P750,000 on August 31,
1987, and P1,141,622.50 on December 31, 1987.8 It also provided that the Deed
of Absolute Sale would be executed only after the second installment is paid
and a postdated check for the last installment is deposited with Fidela.9 As
previously stated, however, Mariano had already caused the drafting of the
Deed of Absolute Sale. But unlike the Kasunduan, the said deed stipulated a
purchase price of only P601,160, and covered a certain Lot No. 1083-A in
addition to Lot No. 1083-C.10 This deed, as well as the Kasunduan and the Deed
of Real Estate Mortgage11, was signed by Marianos children, petitioners Adelfa,
Cynthia and Jose, as buyers and mortgagees, on March 9, 1987.12

The following day, Mariano Rivera returned to the office of Atty. Barangan,
bringing with him the signed documents. He also brought with him Fidela and her
son Oscar del Rosario, so that the latter two may sign the mortgage and
the Kasunduan there.

Although Fidela intended to sign only the Kasunduan and the Real Estate
Mortgage, she inadvertently affixed her signature on all the three documents in
the office of Atty. Barangan on the said day, March 10, 1987. Mariano then gave
Fidela the amount of P250,000. On October 30, 1987, he also gave Fidela a
check for P200,000. In the ensuing months, also, Mariano gave Oscar del Rosario
several amounts totaling P67,800 upon the latters demand for the payment of
the balance despite Oscars lack of authority to receive payments under the
Kasunduan.13 While Mariano was making payments to Oscar, Fidela entrusted
the owners copy of TCT No. T-50.668 (M) to Mariano to guarantee compliance
with the Kasunduan.

When Mariano unreasonably refused to return the TCT,14 one of the respondents,
Carlos del Rosario, caused the annotation on TCT No. T-50.668 (M) of an Affidavit
of Loss of the owners duplicate copy of the title on September 7, 1992. This
annotation was offset, however, when Mariano registered the Deed of Absolute
Sale on October 13, 1992, and afterwards caused the annotation of an Affidavit
of Recovery of Title on October 14, 1992. Thus, TCT No. T-50.668 (M) was
cancelled, and in its place was issued TCT No. 158443 (M) in the name of
petitioners Adelfa, Cynthia and Jose Rivera.15

Meanwhile, the Riveras, representing themselves to be the new owners of Lot No.
1083-C, were also negotiating with the tenant, Feliciano Nieto, to rid the land of
the latters tenurial right. When Nieto refused to relinquish his tenurial right over
9,000 sq. m. of the land, the Riveras offered to give 4,500 sq. m. in exchange for
the surrender. Nieto could not resist and he accepted. Subdivision Plan No. Psd-
031404-052505 was then made on August 12, 1992. Later, it was inscribed on TCT
No. 158443 (M), and Lot No. 1083-C was divided into Lots 1083 C-1 and 1083 C-
2.16

To document their agreement with Feliciano Nieto, the Riveras executed

a Kasulatan sa Pagtatakwil ng Karapatan sa Pagmamay-ari ng Bahagi ng Isang
Lagay na Lupa (Written Abdication of Rights over a Portion of a Parcel of
Land)17 on November 16, 1992. Four days later, they registered the document
with the Registry of Deeds. Two titles were then issued: TCT No. T-161784 (M) in the
name of Nieto, for 4,500 sq. m. of land, and TCT No. T-161785 (M) in the name of
petitioners Adelfa, Cynthia and Jose Rivera, over the remaining 10,529 sq. m. of
land.18

On February 18, 1993, respondents filed a complaint19 in the Regional Trial Court
of Malolos, asking that the Kasunduan be rescinded for failure of the Riveras to
comply with its conditions, with damages. They also sought the annulment of the
Deed of Absolute Sale on the ground of fraud, the cancellation of TCT No. T-
161784 (M) and TCT No. T-161785 (M), and the reconveyance to them of the
entire property with TCT No. T-50.668 (M) restored.20

Respondents claimed that Fidela never intended to enter into a deed of sale at
the time of its execution and that she signed the said deed on the mistaken
belief that she was merely signing copies of the Kasunduan. According to
respondents, the position where Fidelas name was typed and where she was
supposed to sign her name in the Kasunduan was roughly in the same location
where it was typed in the Deed of Absolute Sale. They argued that given Fidelas
advanced age (she was then around 72 at the time)21 and the fact that the
documents were stacked one on top of the other at the time of signing, Fidela
could have easily and mistakenly presumed that she was merely signing
additional copies of the Kasunduan.22 They also alleged that petitioners
acquired possession of the TCT through fraud and machination.

In their defense, petitioners denied the allegations and averred that the Deed of
Absolute Sale was validly entered into by both parties. According to petitioners,
Fidela del Rosario mortgaged Lot No. 1083-C to their predecessor in interest,
Mariano Rivera, on March 9, 1987. But on the following day Fidela decided to sell
the lot to petitioners for P2,161,622.50. When Mariano agreed (on the condition
that Lot No. 1083-C will be delivered free from all liens and encumbrances),
the Kasunduan was consequently drawn up and signed. After that, however,
Fidela informed Mariano of the existence of Feliciano Nietos tenancy right over
the lot to the extent of 9,000 sq. m. When Mariano continued to want the land,
albeit on a much lower price of only P601,160, as he had still to deal with
Feliciano Nieto, the parties drafted the Deed of Absolute Sale on March 10, 1987,
to supersede the Kasunduan.

Petitioners likewise argued that respondents cause of action had been barred
by laches or estoppel since more than four years has lapsed from the time the
parties executed the Deed of Absolute Sale on March 10, 1987, to the time
respondents instituted their complaint on February 18, 1993.

Petitioners also filed a counterclaim asking for moral and exemplary damages
and the payment of attorneys fees and costs of suit.

After trial, the RTC ruled in favor of respondents:

WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:

1. Declaring the Deed of Absolute Sale dated March 10, 1987 as null and void;

2. Annulling TCT No. T-158443 (M) and TCT No. T-161785 (M) both in the names of
Adelfa, Cynthia and Jose, all surnamed Rivera;

3. Declaring the plaintiffs to be the legitimate owners of the land covered by TCT
No. T-161785 (M) and ordering defendant Adelfa, Cynthia, and Jose, all
surnamed Rivera, to reconvey the same to the plaintiffs;

4. Ordering the Register of Deeds of Bulacan to cancel TCT No. T-161785 (M) and
to issue in its place a new certificate of title in the name of the plaintiffs as their
names appear in TCT No. T-50.668;

5. Declaring TCT No. T-161784 (M) in the name of Feliciano Nieto as valid;

6. Ordering the defendant Riveras to pay the plaintiffs solidarily the following
amounts:

a) P191,246.98 as balance for the 4,500 square-meter portion given to defendant

Feliciano Nieto

b) P200,000.00 as moral damages

c) P50,000.00 as exemplary damages

d) P50,000.00 as attorneys fees

e) costs of the suit.

7. Dismissing the counterclaim of the defendant Riveras;

8. Dismissing the counterclaim and the crossclaim of defendant Feliciano Nieto.

SO ORDERED.23

The trial court ruled that Fidelas signature in the Deed of Absolute Sale was
genuine, but found that Fidela never intended to sign the said deed. Noting the
peculiar differences between the Kasunduan and the Deed of Absolute Sale,
the trial court concluded that the Riveras were guilty of fraud in securing the
execution of the deed and its registration in the Registry of Deeds.24 This
notwithstanding, the trial court sustained the validity of TCT No. T-161784 (M) in
the name of Feliciano Nieto since there was no fraud proven on Nietos part. The
trial court found him to have relied in good faith on the representations of
ownership of Mariano Rivera. Thus, Nietos rights, according to the trial court,
were akin to those of an innocent purchaser for value.25

On the foregoing, the trial court rescinded the Kasunduan but ruled that
the P450,000 paid by petitioners be retained by respondents as payment for the
4,500 sq. m. portion of Lot No. 1083-C that petitioners gave to Nieto.26 The trial
court likewise ordered petitioners to pay P191,246.98 as balance for the price of
the land given to Nieto, P200,000 as moral damages, P50,000 as exemplary
damages, P50,000 as attorneys fees, and the costs of suit.27

On appeal to the Court of Appeals, the trial courts judgment was modified as
follows:

WHEREFORE, the judgment appealed from is hereby AFFIRMED with the

MODIFICATION that the Deed of Absolute Sale dated March 10, 1987 is declared
null and void only insofar as Lot No. 1083-C is concerned, but valid insofar as it
conveyed Lot No. 1083-A, that TCT No. 158443 (M) is valid insofar as Lot No. 1083-
A is concerned and should not be annulled, and increasing the amount to be
paid by the defendants-appellants to the plaintiffs-appellees for the 4,500 square
meters of land given to Feliciano Nieto to P323,617.50.

Costs against the defendants-appellants.

SO ORDERED.28

Petitioners motion for reconsideration was denied. Hence, this petition.

While this petition was pending, respondent Fidela del Rosario died. She was
substituted by her children, herein respondents.

In this petition, petitioners rely on the following grounds:

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS, GRAVE AND

REVERSIBLE ERROR IN AWARDING LOT 1083-A IN FAVOR OF THE PETITIONERS AND
FELICIANO NIETO WHICH IS ADMITTEDLY A PART AND PORTION OF THE EXISTING
NORTH LUZON EXPRESSWAY AND AS SUCH ACTED WITHOUT OR IN EXCESS OF ITS
JURISDICTION, OR WITH GRAVE ABUSE OF JUDICIAL DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION.

II

RESPONDENTS FAILED TO PAY THE CORRECT DOCKET, FILING AND OTHER LAWFUL
FEES WITH THE OFFICE OF THE CLERK OF COURT OF THE COURT A QUO (RTC,
MALOLOS, BULACAN) AT THE TIME OF THE FILING OF THE ORIGINAL COMPLAINT IN
1993 PURSUANT TO THE SIOL29DOCTRINE.

III

[THE] TRIAL COURT AWARDED RELIEFS NOT SPECIFICALLY PRAYED FOR IN THE
AMENDED COMPLAINT WITHOUT REQUIRING THE PAYMENT OF THE CORRECT
DOCKET, FILING AND OTHER LAWFUL FEES.

IV
THE COURT A QUO HAS NO JURISDICTION OVER THE RESPONDENTS CAUSE OF
ACTION AND OVER THE RES CONSIDERING THAT FELICIANO NIETO IS AN
AGRICULTURAL TENANT OF THE RICELAND IN QUESTION.

RESPONDENTS[] MAIN CAUSE OF ACTION [IS] FOR RESCISSION OF CONTRACT

WHICH IS SUBSIDIARY IN NATURE[,] AND ANNULMENT OF SALE[,] BOTH OF WHICH
HAVE ALREADY PRESCRIBED UNDER ARTICLES 1389 AND 1391 OF THE CIVIL
CODE.30

Petitioners assignment of errors may be reduced into three issues: (1) Did the trial
court acquire jurisdiction over the case, despite an alleged deficiency in the
amount of filing fees paid by respondents and despite the fact that an
agricultural tenant is involved in the case? (2) Did the Court of Appeals correctly
rule that the Deed of Absolute Sale is valid insofar as Lot 1083-A is concerned?
(3) Is the respondents cause of action barred by prescription?

On the first issue, petitioners contend that jurisdiction was not validly acquired
because the filing fees respondents paid was only P1,554.45 when the relief
sought was reconveyance of land that was worth P2,141,622.50 under
the Kasunduan. They contend that respondents should have paid filing fees
amounting to P12,183.70. In support of their argument, petitioners invoke the
doctrine in Sun Insurance Office, Ltd., (SIOL) v. Asuncion31 and attach a
certification32 from the Clerk of Court of the RTC of Quezon City.

Respondents counter that it is beyond dispute that they paid the correct amount
of docket fees when they filed the complaint. If the assessment was inadequate,
they could not be faulted because the clerk of court made no notice of
demand or reassessment, respondents argue. Respondents also add that since
petitioners failed to contest the alleged underpayment of docket fees in the
lower court, they cannot raise the same on appeal.33

We rule in favor of respondents. Jurisdiction was validly acquired over the

complaint. In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,34 this Court ruled that
the filing of the complaint or appropriate initiatory pleading and the payment of
the prescribed docket fee vest a trial court with jurisdiction over the subject
matter or nature of the action. If the amount of docket fees paid is insufficient
considering the amount of the claim, the clerk of court of the lower court
involved or his duly authorized deputy has the responsibility of making a
deficiency assessment. The party filing the case will be required to pay the
deficiency, but jurisdiction is not automatically lost.

Here it is beyond dispute that respondents paid the full amount of docket fees as
assessed by the Clerk of Court of the Regional Trial Court of Malolos, Bulacan,
Branch 17, where they filed the complaint. If petitioners believed that the
assessment was incorrect, they should have questioned it before the trial court.
Instead, petitioners belatedly question the alleged underpayment of docket fees
through this petition, attempting to support their position with the opinion and
certification of the Clerk of Court of another judicial region. Needless to state,
such certification has no bearing on the instant case.

Petitioners also contend that the trial court does not have jurisdiction over the
case because it involves an agricultural tenant. They insist that by virtue of
Presidential Decree Nos. 316 and 1038,35 it is the Department of Agrarian Reform
Adjudication Board (DARAB) that has jurisdiction.36

Petitioners contention lacks merit. The DARAB has exclusive original jurisdiction
over cases involving the rights and obligations of persons engaged in the
management, cultivation and use of all agricultural lands covered by the
Comprehensive Agrarian Reform Law.37 However, the cause of action in this
case is primarily against the petitioners, as indispensable parties, for rescission of
the Kasunduan and nullification of the Deed of Sale and the TCTs issued because
of them. Feliciano Nieto was impleaded merely as a necessary party, stemming
from whatever rights he may have acquired by virtue of the agreement
between him and the Riveras and the corresponding TCT issued. Hence, it is the
regular judicial courts that have jurisdiction over the case.

On the second issue, contrary to the ruling of the Court of Appeals that the Deed
of Absolute Sale is void only insofar as it covers Lot No. 1083-C, we find that the
said deed is void in its entirety. Noteworthy is that during the oral arguments
before the Court of Appeals, both petitioners and respondents admitted that Lot
No. 1083-A had been expropriated by the government long before the Deed of
Absolute Sale was entered into.38 Whats more, this case involves only Lot No.
1083-C. It never involved Lot 1083-A. Thus, the Court of Appeals had no
jurisdiction to adjudicate on Lot 1083-A, as it was never touched upon in the
pleadings or made the subject of evidence at trial.39

As to the third issue, petitioners cite Articles 1383,40 138941 and 139142 of the New
Civil Code. They submit that the complaint for rescission of the Kasunduan should
have been dismissed, for respondents failure to prove that there was no other
legal means available to obtain reparation other than to file a case for rescission,
as required by Article 1383. Moreover, petitioners contend that even assuming
respondents had satisfied this requirement, prescription had already set in, the
complaint having been filed in 1992 or five years after the execution of the Deed
of Absolute Sale in March 10, 1987.

Respondents counter that Article 1383 of the New Civil Code applies only to
rescissible contracts enumerated under Article 1381 of the same Code, while the
cause of action in this case is for rescission of a reciprocal obligation, to which
Article 119143 of the Code applies. They assert that their cause of action had not
prescribed because the four-year prescriptive period is counted from the date of
discovery of the fraud, which, in this case, was only in 1992.
Rescission of reciprocal obligations under Article 1191 of the New Civil Code
should be distinguished from rescission of contracts under Article 1383 of the
same Code. Both presuppose contracts validly entered into as well as subsisting,
and both require mutual restitution when proper, nevertheless they are not
entirely identical.44

In countless times there has been confusion between rescission under Articles
1381 and 1191 of the Civil Code. Through this case we again emphasize that
rescission of reciprocal obligations under Article 1191 is different from rescissible
contracts under Chapter 6 of the law on contracts under the Civil Code.45 While
Article 1191 uses the term rescission, the original term used in Article 1124 of the
old Civil Code, from which Article 1191 was based, was resolution.46 Resolution is
a principal action that is based on breach of a party, while rescission under
Article 1383 is a subsidiary action limited to cases of rescission for lesion under
Article 1381 of the New Civil Code,47 which expressly enumerates the following
rescissible contracts:

ART. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which
are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of
competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

Obviously, the Kasunduan does not fall under any of those situations mentioned
in Article 1381. Consequently, Article 1383 is inapplicable. Hence, we rule in favor
of the respondents.

May the contract entered into between the parties, however, be rescinded
based on Article 1191?

A careful reading of the Kasunduan reveals that it is in the nature of a contract

to sell, as distinguished from a contract of sale. In a contract of sale, the title to
the property passes to the vendee upon the delivery of the thing sold; while in a
contract to sell, ownership is, by agreement, reserved in the vendor and is not to
pass to the vendee until full payment of the purchase price.48 In a contract to
sell, the payment of the purchase price is a positive suspensive condition,49 the
failure of which is not a breach, casual or serious, but a situation that prevents
the obligation of the vendor to convey title from acquiring an obligatory force.50

Respondents in this case bound themselves to deliver a deed of absolute sale

and clean title covering Lot No. 1083-C after petitioners have made the second
installment. This promise to sell was subject to the fulfillment of the suspensive
condition that petitioners pay P750,000 on August 31, 1987, and deposit a
postdated check for the third installment of P1,141,622.50.51 Petitioners, however,
failed to complete payment of the second installment. The non-fulfillment of the
condition rendered the contract to sell ineffective and without force and effect.
It must be stressed that the breach contemplated in Article 1191 of the New Civil
Code is the obligors failure to comply with an obligation already extant, not a
failure of a condition to render binding that obligation.52 Failure to pay, in this
instance, is not even a breach but an event that prevents the vendors obligation
to convey title from acquiring binding force.53 Hence, the agreement of the
parties in the instant case may be set aside, but not because of a breach on the
part of petitioners for failure to complete payment of the second installment.
Rather, their failure to do so prevented the obligation of respondents to convey
title from acquiring an obligatory force.54

Coming now to the matter of prescription. Contrary to petitioners assertion, we

find that prescription has not yet set in. Article 1391 states that the action for
annulment of void contracts shall be brought within four years. This period shall
begin from the time the fraud or mistake is discovered. Here, the fraud was
discovered in 1992 and the complaint filed in 1993. Thus, the case is well within
the prescriptive period.

On the matter of damages, the Court of Appeals awarded

respondents P323,617.50 as actual damages for the loss of the land that was
given to Nieto, P200,000 as moral damages, P50,000 as exemplary
damages, P50,000 as attorneys fees and the costs of suit. Modifications are in
order, however.

Moral damages may be recovered in cases where one willfully causes injury to
property, or in cases of breach of contract where the other party acts
fraudulently or in bad faith.55 Exemplary damages are imposed by way of
example or correction for the public good,56 when the party to a contract acts in
a wanton, fraudulent, oppressive or malevolent manner.57 Attorneys fees are
allowed when exemplary damages are awarded and when the party to a suit is
compelled to incur expenses to protect his interest.58

While it has been sufficiently proven that the respondents are entitled to
damages, the actual amounts awarded by the lower court must be reduced
because damages are not intended for a litigants enrichment, at the expense of
the petitioners.59 The purpose for the award of damages other than actual
damages would be served, in this case, by reducing the amounts awarded.
Respondents were amply compensated through the award of actual damages,
which should be sustained. The other damages awarded total P300,000, or
almost equivalent to the amount of actual damages. Practically this will double
the amount of actual damages awarded to respondents. To avoid breaching
the doctrine on enrichment, award for damages other than actual should be
reduced. Thus, the amount of moral damages should be set at only P30,000, and
the award of exemplary damages at only P20,000. The award of attorneys fees
should also be reduced to P20,000, which under the circumstances of this case
appears justified and reasonable.

WHEREFORE, the assailed decision of the Court of Appeals is MODIFIED. The Deed
of Absolute Sale in question is declared NULL and VOID in its entirety. Petitioners
are ORDERED to pay respondents P323,617.50 as actual damages, P30,000.00 as
moral damages, P20,000.00 as exemplary damages and P20,000.00 as attorneys
fees. No pronouncement as to costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

 EN BANC

[G.R. No. 7003. January 18, 1912. ]

MANUEL ORIA Y GONZALEZ, Plaintiff-Appellant, v. JOSE MCMICKING, as sheriff of

the city of Manila, GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANIEL
PEREZ, and LEOPOLDO CRIADO, Defendants-Appellees.

Chicote & Miranda, for Appellant.

Eduardo Gutierrez Repide for Appellees.

SYLLABUS

1. ACTION TO SET ASIDE SALE IN FRAUD OF CREDITORS; PROOF THAT THE VENDOR
HAS No PROPERTY TO PAY SUING CREDITOR. — While, in an action to set aside a
conveyance, on the ground that it is made in fraud of creditors, it is not
necessary to prove the issuance and return of an execution nulla bona,
nevertheless, it is necessary to show clearly that the alleged fraudulent vendor
has no property with which to pay the suing creditor.

2. ID.; SALE DECLARED FRAUDULENT ONLY SO FAR AS NECESSARY. — Where a

sale is declared fraudulent, at the suit of a particular creditor, courts will declare
such sale fraudulent only so far as necessary to pay the suing creditor; it will not
be disturbed any further than that.

3. ID.; TEST TO DETERMINE WHETHER SALE IS FRAUDULENT. — In an action to

determine whether or not a given sale is fraudulent, the test to determine its real
character is: Did it materially prejudice the rights of the suing creditor?

4. ID.; CIRCUMSTANCES INDICATING FRAUD. — In determining whether or not a

sale is fraudulent, the following circumstances, attending such sale, are
indications of fraud:chanrob1es virtual 1aw library

1. The fact that the consideration of the conveyance is fictitious or is

inadequate.

2. A transfer made by a debtor after suit has been begun and while it is
pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he
is insolvent or greatly embarrassed financially.

6. The fact that the transfer is made between father and son, when there are
present other of the above circumstances.

7. The failure of the vendee to take exclusive possession of all of the property.

5. ID.; PROCEDURE BY CREDITOR; ACTION BY ALLEGED OWNER. — Whether or

not a sale is fraudulent as to a suing creditor, can be tested and determined
without first resorting to a direct action to annul the sale. A creditor may attack
the sale by ignoring it and seizing under his execution. the property or any
necessary part thereof which is the subject matter of the sale. The character of
the sale will then be determined in the action brought by the alleged owner
against the execution creditor.

6. ID.; SALE DECLARED FRAUDULENT AS TO SUING CREDITOR. — The facts in the

case at bar examined and held sufficient to sustain a judgment declaring the
sale fraudulent as to the suing creditor.

DECISION

MORELAND, J. :

These are the facts:

In the month of August, 1909, Gutierrez Hermanos brought an action against

Oria Hermanos & Co. for the recovery of P147,204.28; that action is known as
No. 7289 in the Court of First Instance of Manila. In March, 1910, the same
plaintiff began another action against the same defendant for the recovery of
P12,318.57; this case was known as No. 7719 in said court. Subsequent to the
beginning of the above actions, and on or about the 30th day of April, 1910,
the members of the company of Oria Hermanos & Co., on account of the
expiration of the time stated in their agreement of copartnership, dissolved their
relations and entered into liquidation. On the 1st day of June, 1910, Tomas Oria
y Balbas, as managing partner in liquidation, acting for himself and on behalf of
his other coowners Casimiro Oria y Balbas and Adolfo Fuster Robles, entered
into a contract with the plaintiff in this case, Manuel Oria Gonzalez, which said
contract was for the purpose of selling and transferring to the plaintiff in this
action all of the property of which the said Oria Hermanos & Co. was owner.
Said instrument contained the following clauses:

"5. I, Tomas Oria y Balbas, do further state and declare that I have agreed with
the other party hereto, Don Manuel Oria y Gonzalez, to sell all the property I
have mentioned, which is specified more in detail in the general inventory of
Oria Hermanos & Co., for the price and under the conditions hereinafter
expressed; and in order to carry into effect such agreement made by me with
the said Don Manuel Oria y Gonzalez, in my own right and also in
representation of my partners, Don Casimiro Oria and Don Adolfo Fuster, I do
hereby stipulate and agree:

"6. As managing partner and liquidator of Oria Hermanos & Co., and further in
my own right and in the name and representation of Don Casimiro Oria y
Balbas and Don Adolfo Fuster y Robles, personally and as partners in Oria
Hermanos & Co., in consideration of the sum of two hundred seventy-four
thousand pesos (P274,000), which the said Don Manuel Oria y Gonzalez
undertakes and engages to pay to the firm of Oria Hermanos & Co. in
liquidation, or to us the parties hereto, myself and the persons I represent, as
partners in Oria Hermanos & Co., which sum shall be paid in installments, in the
manner and under the conditions hereinafter set forth. I hereby sell, cede and
transfer absolutely and forever to the said Don Manuel Oria y Gonzalez, his heirs
and assigns, all and every part of the property mentioned in the fourth section
hereof and more specifically described in the general inventory of Oria
Hermanos & Co.; under the following mutual conditions:

"(a) Don Manuel Oria y Gonzalez engages and undertakes to pay and to settle
the sum agreed upon for this sale, cession and transfer within a period of twelve
(12) years, further engaging and undertaking to pay each year a sum of not
less than ten thousand (10,000) pesos and at the end of said period to settle the
balance of said price.

"(b) After the first six (6) years of the period for the payment of the stipulated
price, that is, during the last six years of said period, Don Manuel Oria y
Gonzalez engages and undertakes to pay interest at 3 per cent a year on the
price stipulated or the part thereof unpaid at such time; provided, that this is a
mutual obligation and the interest payable annually.

"(c) Don Manuel Oria y Gonzalez further engages and undertakes to pay to
Don Tomas Oria, Don Casimiro Oria and Don Adolfo Fuster during the time that
they remain in the Philippines and do not reside abroad, the sum of one
hundred and fifty (150) pesos monthly; which obligation shall be understood to
be contracted individually with each of the said parties; and the amounts so
paid to each and all of them shall be charged to the account of Oria
Hermanos & Co., in liquidation, in discharge of the stipulated consideration and
the installments thereof and interest thereon when due.

"(d) Don Manuel Oria y Gonzalez engages and undertakes not to sell, alienate,
transfer or mortgage, either wholly or in part, the property hereby sold to him,
without the written authorization of Don Tomas Oria as liquidator of the firm of
Oria Hermanos & Co., so long as the consideration of this sale is not fully
satisfied, to guarantee which this restriction is imposed: provided, that this
restriction applies only to the vessels, real estate and branch stores in the towns
mentioned in the fourth section of this instrument, not to the rest of the
property.

"(e) Don Manuel Oria y Gonzalez engages and undertakes to cede gratuitously
in the dwelling-house in the town of Laoang, hereby sold, the use of the same
or the portion thereof that may be necessary for Don Tomas Oria to establish
therein the liquidation office of Oria Hermanos & Co.; provided, that this cession
is made for a period of only two (2) years.

"(f) Don Tomas Oria y Balbas and Don Adolfo Fuster engage and undertake to
place their personal services at the disposal of Don Manuel Oria y Gonzalez in
everything relating to his instruction in the management and conduct of the
property and business hereby sold; provided, that this obligation and promise
shall be binding upon Don Adolfo Fuster only for the time he may reside in the
Philippines and upon both parties only for a maximum period of 12 months.

"7. I, Manuel Oria y Gonzalez, being informed of the foregoing action and
contract executed by Don Tomas Oria y Balbas, do on my part stipulate and
agree: that I accept the sale, cession and transfer hereby made by him in my
favor and engage and undertake to pay to Oria Hermanos & Co., either in
liquidation, or if necessary to the partners of Oria Hermanos & Co., the price of
said sale, cession and transfer, that is, the sum of P274,000, within a period of 12
years, in the manner and under the conditions set forth by him in the preceding
section, and especially engage not to sell, alienate, transfer or mortgage the
property involved in this sale which is specified in paragraph (d) of the
preceding section, without the previous written authorization of the vendor,
Oria Hermanos & Co., such property being so exempted as a guaranty for the
payment of the purchase price of this sale."cralaw virtua1aw library

Among the goods transferred by this instrument was the steamship Serantes,
which is the subject of this litigation.
On the 17th day of September, 1910, case No. 7719, above referred to, was
resolved by the Court of First Instance in favor of Gutierrez Hermanos and
against Oria Hermanos & Co. for the sum demanded in the complaint. The
cause was appealed to the Supreme Court and, the judgment therein having
been affirmed, 1 execution was issued thereon and placed in the hands of the
sheriff of Manila. The sheriff immediately demanded that Tomas Oria y Balbas,
as liquidator of the firm of Oria Hermanos & Co. make payment of the said
judgment, to which he replied that there were no funds with which to pay the
same. Thereupon the sheriff levied upon the said steamer Serantes, took
possession of the same, and announced it for sale at public auction on the 21st
day of October, 1910. On the 18th day of October, 1910, three days before the
sale, the plaintiff in this action presented to the sheriff a written statement
claiming to be the owner of the said steamship, and to have the right of
possession of the same by reason of the sale to him by Oria Hermanos & Co. of
all of the property belonging to said company, including the said steamer
Serantes, as shown by the instrument above referred to and quoted. The sheriff
thereupon required Gutierrez Hermanos to present a bond for his protection,
which having been done, the sheriff proceeded to the sale of the said
steamship. At the sale Gutierrez Hermanos became the purchaser, said
company being the highest bidder, and the sum which it paid being the
highest sum bidden for the same.

On the 19th day of October, 1911, the plaintiff began the present action, which
has for its object, as shown by the prayer of the complaint: First, the issuance of
a preliminary injunction to prevent the sale of said steamship; and, second, the
declaration that the plaintiff is the owner of said steamship and is entitled to the
possession of the same, and that the defendant be required to restore the
same to the plaintiff and to pay P10,000 damages for its detention.

Upon the trial judgment was found in favor of the defendant and against the
plaintiff, and the complaint was dismissed upon the merits with costs. From that
judgment this appeal is taken.

The substantial question presented for our consideration is the validity of the
sale from Oria Hermanos & Co. to Manuel Oria y Gonzalez as against the
creditors of said company. It is the contention of Gutierrez Hermanos that said
sale is fraudulent as against the creditors of Oria Hermanos & Co., and that the
transfer thereby consummated of the steamship in question was void as to said
creditors and as to Gutierrez Hermanos in particular.

There is some contention on the part of the plaintiffs that aside from the
property included in the sale referred to, Oria Hermanos & Co. had sufficient
other property to pay the judgment of Gutierrez Hermanos. The trial court
found, however, against the plaintiff in this regard. A careful examination of the
record fails to disclose any sufficient reason for the reversal of this finding. While
the evidence is somewhat conflicting, we are of the opinion that there is
sufficient to sustain the findings made.

In determining whether or not the sale in question was fraudulent as against

creditors, these facts must be kept in mind:chanrob1es virtual 1aw library

1. At the time of said sale the value of the assets of Oria Hermanos & Co., as
stated by the partners themselves, was P274,000.

2. That at the time of said sale actions were pending against said company by
one single creditor for sums aggregating in amount nearly P160,000.

3. The vendee of said sale was a son of Tomas Oria y Balbas and a nephew of
the other two persons heretofore mentioned which said three brothers together
constituted all of the members of said company.

4. Nothing of value seems to have been delivered by the plaintiff in

consideration of said sale and no security whatever was given for the payments
therein provided for.

5. The plaintiff is a young man twenty-five years of age. There is no pretense

whatever that he owned any property or had any business at the time of the
sale. On the contrary it appears without contradiction that, when the sale took
place, he was merely a student without assets and without gainful occupation.

6. Plaintiff, at the time of the sale, was fully aware of the two suits that had
already been begun against the company whose assets he was purchasing
and well knew that if said suits should terminate in favor of the plaintiffs therein
the judgments in which they terminated would have to be paid out of the
property which he was then taking over or they would not be paid at all.

7. Under all the circumstances the sale in question was, so far as the creditors
were concerned, without consideration. To turn over a business worth P274,000
to an "impecunious and vocationless youth" who knew absolutely nothing
about the business he received, and whose adaptability to the management
of that business was entirely unknown, without a penny being paid down,
without any security whatever, is a proceeding so unusual, so devoid of care
and caution, and so wholly outside of the well-defined lines of ordinary business
transactions, as to startle any person interested in the concern.

8. It is certain that the members of the company of Oria Hermanos & Co. would
never have made a similar contract or executed a similar instrument with a
stranger.

9. The prohibition in the contract against the sale of certain portions of the
property by the plaintiff offers no protection whatever to the creditors. Such
prohibition is not security. The parties who made the original transfer can waive
and release it at pleasure. Such restriction is of no value to the creditors of the
company. They can not utilize it for the reduction of their claims or in any other
beneficial way.

In determining whether or not a certain conveyance is fraudulent the question

in every case is whether the conveyance was a bona fide transaction or a trick
and contrivance to defeat creditors, or whether it conserves to the debtor a
special right. It is not sufficient that it is founded on good consideration or is
made with bona fide intent: it must have both elements. If defective in either of
these particulars, although good between the parties, it is voidable as to
creditors. The rule is universal both at law and in equity that whatever fraud
creates justice will destroy. The test as to whether or not a conveyance is
fraudulent s, does it prejudice the rights of creditors?

In the consideration of whether or not certain transfers were fraudulent, courts

have laid down certain rules by which the fraudulent character of the
transaction may be determined. The following are some of the circumstances
attending sales which have been denominated by the courts badges of
fraud:chanrob1es virtual 1aw library

1. The fact that the consideration of the conveyance is fictitious or is

inadequate.

2. A transfer made by a debtor after suit has been begun and while it is
pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he
is insolvent or greatly embarrassed financially.

6. The fact that the transfer is made between father and son; when there are
present other of the above circumstances.

7. The failure of the vendee to take exclusive possession of all the property.

The case at bar presents every one of the badges of fraud above enumerated.
Tested by the inquiry, does the sale prejudice the rights of creditors, the result is
clear. The sale in the form in which it was made leaves the creditors substantially
without recourse. The property of the company is gone, its income is gone, the
business itself is likely to fail, the property is being dissipated, and is depreciating
in value. As a result, even if the claims of the creditors should live twelve years
and the creditors themselves wait that long, it is more than likely that nothing
would be found to satisfy their claims at the end of the long wait. (Regalado v.
Luchsinger & Co., 5 Phil. Rep., 625; art. 1297, Civil Code, par. 1; Manresa’s
Commentaries, vol. 8, pp. 713-719.)

Since the record shows that there was no property with which the judgment in
question could be paid, the defendants were obliged to resort to and levy
upon the steamer in suit. The court below was correct in finding the sale
fraudulent and void as to Gutierrez Hermanos in so far as was necessary to
permit the collection of its judgment. As a corollary, the court below found that
the evidence failed to show that the plaintiff was the owner or entitled to the
possession of the steamer in question at the time of the levy and sale
complained of, or that he was damaged thereby. Defendant had the right to
make the levy and test the validity of the sale in that way, without first resorting
to a direct action to annul the sale. The creditor may attack the sale by
ignoring it and seizing under his execution the property, or any necessary
portion thereof, which is the subject of the sale.

For these reasons the judgment is affirmed, without special finding as to costs.
So ordered.

Arellano, C.J., Torres, Mapa, Johnson, Carson, and Trent, JJ., concur.

Endnotes:
FIRST DIVISION

G.R. No. 129644 September 7, 2001

CHINA BANKING CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS, PAULINO ROXAS CHUA and KIANG MING CHU
CHUA, respondents.

RESOLUTION

YNARES-SANTIAGO, J.:

Private respondents Paulino Roxas Chua and Kiang Ming Chu Chua have filed
before this Court a Motion for Reconsideration of the Decision dated March 7,
2000, the dispositive portion of which reads:

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-
G.R. CV No. 46735 is REVERSED and SET ASIDE. The permanent injunction enjoining
petitioner, the Sheriff of Manila, the Register of Deeds of San Juan, their officers,
representatives, agents and persons acting on their behalf from causing the
transfer of possession, ownership and title of the property covered by TCT No.
410603 in favor of petitioner is LIFTED. The Assignment of Rights to Redeem dated
November 21, 1988 executed by Alfonso Roxas Chua in favor of Paulino Roxas
Chua is ordered RESCINDED. The levy on execution dated February 4, 1991 and
the Certificate of Sale dated April 30, 1992 in favor of petitioner
are DECLARED VALID against the one-half portion of the subject property.

SO ORDERED.

Briefly, the facts are restated as follows:

By virtue of the adverse decision of the Regional Trial Court of Manila, Branch 46,
in Civil Case No. 82-14134, entitled "Metropolitan Bank and Trust Company v.
Pacific Multi Commercial Corporation and Alfonso Roxas Chua,"the residential
land covered by Transfer Certificate of Title No. 410603 in the name of spouses
Alfonso Roxas Chua and Kiang Ming Chu Chua was levied on execution. Kiang
Ming Chu Chua filed an action questioning the levy on the ground that the land
was conjugal partnership property. This resulted in a compromise agreement to
the effect that the levy shall be valid only to the extent of the ½ share pertaining
to Alfonso Roxas Chua. Accordingly, an alias notice of levy was issued affecting
the said ½ undivided portion of the property. After the execution sale, a
certificate of sale was executed in favor of Metrobank, the judgment creditor,
and the same was annotated on TCT No. 410603 on December 22, 1987.

Meanwhile, China Banking Corporation filed a complaint for sum of money

against Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua,
docketed as Civil Case No. 85-31257 of the Regional Trial Court of Manila, Branch
29. On November 7, 1985, judgment was rendered ordering defendants to pay
Chinabank the aggregate amount of P2,500,000.00 plus interests, penalties and
attorney’s fees. Defendants appealed to the Court of Appeals but the same was
dismissed for failure to file appellants’ brief. Thus, notice of levy on execution was
issued on February 4, 1991 against the right and interest of Alfonso Roxas Chua in
TCT No. 410603. The same was later sold at public auction and a certificate of
sale was executed in favor of Chinabank, and inscribed on TCT 410603 on May 4,
1992.

Previously, however, on November 21, 1988, Alfonso Roxas Chua executed in

favor of his son, Paulino Roxas Chua, an "Assignment of Right to Redeem,"
pertaining to his right to redeem the ½ undivided portion of the land sold to
Metrobank. On January 11, 1989, Paulino redeemed the property from
Metrobank. On March 14, 1989, the Assignment of Right to Redeem and the
redemption by Paulino Roxas Chua of the property from Metrobank were
annotated on TCT No. 410603.

Private respondents Paulino Roxas Chua and Kiang Ming Chu Chua filed Civil
Case No. 63199 before the Regional Trial Court of Pasig, Branch 163, alleging that
Paulino has a prior and better right over Chinabank inasmuch as the assignment
to him of the right to redeem and his redemption of Alfonso’s share in the
property were inscribed on the title on an earlier date than the annotation of the
notice of levy and certificate of sale in favor of Chinabank. Both the trial court
and the Court of Appeals ruled in favor of private respondents and enjoined
Chinabank, the Sheriff of Manila and the Register of Deeds of San Juan from
causing the transfer of possession, ownership and certificate of title, or otherwise
disposing of the property covered by TCT No. 410603 in favor of Chinabank or
any other person.

On March 7, 2000, we rendered the now assailed Decision reversing the

judgment of the Court of Appeals and rescinding the Assignment of Right to
Redeem executed by Alfonso in favor of Paulino Roxas Chua, for having been
entered into in fraud of creditors.

In their Motion for Reconsideration, private respondents raise the following

grounds:

2.1. The Decision, with due respect, failed to consider vital facts showing that the
assignment was indubitably:
[a] for valuable consideration; and

[b] In good faith;

which if considered, would result in a complete reversal.

2.2. The dispositive portion of the decision rescinding the assignment of the right
to redeem and validating the levy on execution dated April 30, 1992 in favor of
petitioner, with due respect, cannot be enforced because:

[a] rescission is late; and

[b] levy on execution was on the wrong property.

2.3. The Petition was invalid and failed to vest the Honorable Court with the
jurisdiction to review the decision by the Court of Appeals.1

Petitioner filed its Comment,2 and private respondents filed their Reply with leave
of Court.3

Under their first ground, private respondents argue that there was sufficient
evidence to overthrow the presumption that the assignment of the right to
redeem was in fraud of creditors. After a re-examination of the evidence, we
agree with private respondents.

Indeed, Article 1387 of the Civil Code provides that alienations made by a
debtor by gratuitous title are presumed fraudulent when the donor did not
reserve sufficient property to pay his outstanding debts. Likewise, alienations by
onerous title are presumed fraudulent when made by persons against whom
some judgment has been rendered or some writ of attachment has been issued.
These, however, are mere presumptions which are in no way conclusive. The
presumption of fraud can be overthrown by evidence showing that the
conveyance was made in good faith and for a sufficient and valuable
consideration.4

In the case at bar, private respondents sufficiently established that the

conveyance was made in good faith and for valuable consideration. Paulino
maintains that he had no knowledge of his father Alfonso’s financial problem
with petitioner Chinabank until he was about to cause the cancellation of TCT
No. 410603.5 Furthermore, he paid the sum of P100,000.00 to Alfonso for the right
to redeem,6 and paid the redemption amount of P1,463,375.39 to Metrobank.7

Expectedly, petitioner refutes these, saying that the amounts paid by Paulino
were grossly disproportionate to the right to redeem the property, which is a
residential house and lot located in North Greenhills, San Juan, Metro Manila. But
as correctly pointed out by private respondents, the amount of P100,000.00 paid
by Paulino to Alfonso was not for the property itself, but merely for the right to
redeem the same. As a matter of fact, Paulino still had to pay Metrobank the
redemption price of P1,463,375.39. Whether or not the latter amount was
adequate is beyond the scope of this inquiry. Suffice it to state that Metrobank
accepted the same and reconveyed the property to Paulino. Moreover, only
Alfonso’s conjugal share in the property was affected, and the determination of
its value was still subject to liquidation of debts and charges against the conjugal
partnership.

It must be emphasized that the reconsideration of our earlier Decision on this

score does not depart from well-settled doctrines and jurisprudence. Rather, it
entailed merely a re-evaluation of the evidence on record.

Going now to the second ground, private respondent points out that the
dispositive portion of our Decision can not be executed without affecting the
rights of Metrobank inasmuch as Alfonso’s right of redemption, which he
assigned to Paulino, only had a lifetime of twelve months from the date of
registration of the certificate of sale in favor of Metrobank. The rescission of the
assignment of the right to redeem would have had the effect of allowing the
twelve-month period of redemption to lapse, and thus confer on Metrobank the
right to consolidate ownership over the property and to the execution of the
sheriff’s final deed of sale.

The certificate of sale in favor of Metrobank was registered on December 22,

1987. Under the 1964 Rules of Court which were in effect at that time, the
judgment debtor or redemptioner had the right to redeem the property from
Metrobank within twelve months8from the date of registration of the certificate of
sale.9 Chinabank was a redemptioner, being then a creditor with a lien by
judgment on the property sold, subsequent to the judgment under which the
property was sold.10

Upon the expiration of the twelve-month period of redemption and no such

redemption is made, the purchaser shall be entitled to the final deed of sale
over the property sold on execution.

Deed and possession to be given at expiration of redemption period. By whom

executed or given. --- If no redemption be made within twelve (12) months after
the sale, the purchaser, or his assignee, is entitled to a conveyance and
possession of the property; or, if so redeemed, whenever sixty (60) days have
elapsed and no other redemption has been made, and notice thereof given,
and the time for redemption has expired, the last redemptioner, or his assignee,
is entitled to the conveyance and possession; but in all cases the judgment
debtor shall have the entire period of twelve (12) months from the date of the
sale to redeem the property. The deed shall be executed by the officer making
the sale or by his successor in office, and in the latter case shall have the same
validity, as though the officer making the sale had continued in office and
executed it.

Upon the execution and delivery of said deed, the purchaser, or redemptioner,
or his assignee, shall be substituted to and acquire all the right, title, interest and
claim of the judgment debtor to the property as of the time of the levy, except
as against the judgment debtor in possession, in which case the substitution shall
be effective as of the date of the deed. The possession of the property shall be
given to the purchaser or last redemptioner by the same officer unless a third
party is actually holding the property adversely to the judgment debtor.11

Hence, at the time Chinabank levied on Alfonso Roxas Chua’s share in TCT No.
410603 on February 4, 1991, the said property was no longer his. The same had
already been acquired by Metrobank and, later, redeemed by Paulino Roxas
Chua. Even without the assignment of the right to redeem to Paulino, the subject
½ share in the property would pertain to Metrobank. Either way, Chinabank
would not stand to acquire the same. It is an established doctrine that a
judgment creditor only acquires at an execution sale the identical interest
possessed by the judgment debtor in the property which is the subject of the
sale. It follows that if, at the time of the execution sale, the judgment debtor had
no more right to or interest in the property because he had already sold it to
another, then the purchaser acquires nothing.12

Otherwise stated, the rescission of the assignment of the right to redeem would
have nullified Paulino’s redemption of the property. Thus, Metrobank’s inchoate
right to the property would have become complete as of December 1988, when
the twelve-month redemption period expired without the right of redemption
having been exercised.

As stated above, Chinabank was a redemptioner that could redeem the

property from Metrobank. It was a judgment creditor with a lien on the property
sold subsequent to the judgment under which the property was sold. Hence,
what Chinabank could have done was to redeem the property ahead of
Paulino. In the alternative, it could have moved for the rescission of the
assignment to Paulino of the right to redeem, but within the twelve-month period
of redemption. Beyond that, there would be no more right of redemption and,
thus, no more assignment to rescind.

Assuming that there was no valid assignment of the right to redeem, Paulino, as
the son and compulsory heir of Alfonso, could still redeem his father’s ½ share in
the property from Metrobank. Under Rule 39, Section 29 (a) of the 1964 Rules of
Court, the judgment debtor or his successor in interest may redeem real property
sold on execution. Paulino is included within the term "successor in interest."

The "successor-in-interest" contemplated by the above provisions includes a

person to whom the judgment debtor has transferred his right of redemption, or
one to whom he has conveyed his interests in the property for purposes of
redemption, or one who succeeds to his property by operation of law, or a
person with a joint interest in the property, or his spouse or heirs. A compulsory
heir to the judgment debtor qualifies as a successor-in-interest who can redeem
property sold on execution.13
In Director of Lands v. Lagniton,14 we held that "the right of a son, with respect to
the property of a father or mother, is an inchoate or contingent interest, because
upon the death of the father or the mother or both, he will have a right to inherit
said conjugal property. If any holder of an inchoate interest is a successor in
interest with right to redeem a property sold on execution, then the son is such a
successor in interest, as he has an inchoate right to the property of his father."

Thus, Paulino’s redemption on January 11, 1989 from Metrobank of the ½ share of
Alfonso Roxas Chua in the property covered by TCT No. 410603, with or without
the execution of the "Assignment of Right to Redeem", was valid. Necessarily,
therefore, the said property no longer belonged to Alfonso Roxas Chua on
February 4, 1991, when notice of levy was made against him pursuant to the
judgment in Civil Case No. 85-31257 in favor of Chinabank. Petitioner should
have levied on other properties of Alfonso Roxas Chua.

Finally, it is not disputed that the property covered by TCT No. 410603 is a family
home occupied by Kiang Ming Chu Chua and her children. The levy and
execution sale in favor of Metrobank affected the ½ undivided share thereof. In
the instant petition, Chinabank prays that the assignment to Paulino of Alfonso’s
right to redeem be declared null and void and that the levy in its favor on the ½
undivided portion of the property be declared valid. Ultimately, petitioner
Chinabank’s objective is to acquire ownership of the ½ undivided portion of the
property. However, the acquisition by Chinabank, or Metrobank for that matter,
of the said portion will create an absurd co-ownership between a bank, on the
one hand, and a family, on the other hand, of the latter’s family home.

The rigid and technical application of the Rules may be relaxed in order to avoid
an absurd result. After all, the Rules of Court mandates that a liberal construction
of the Rules be adopted in order to promote their object and to assist the parties
in obtaining just, speedy and inexpensive determination of every action and
proceeding. This rule of construction is especially useful in the present case
where adherence to the letter of the law would result in absurdity and manifest
injustice.15

Therefore, we affirm the decision of the Court of Appeals in CA-G.R. CV No.

46735, except the awards of moral and exemplary damages, which are deleted.
There is no proof of private respondents’ physical or mental suffering as a result of
petitioner’s acts. Likewise, petitioner does not appear to have acted in a
malevolent or oppressive manner towards private respondents. However,
petitioner should be liable for the attorney’s fees incurred by private
respondents, since its act of resisting private respondents’ causes of action
compelled private respondents to litigate.

WHEREFORE, in view of the foregoing, our Decision dated March 7, 2000 is

RECONSIDERED AND SET ASIDE. The decision of the Court of Appeals in CA-G.R.
CV No. 46735 is AFFIRMED with MODIFICATION. Petitioner is ordered to pay
private respondents the sum of P100,000.00 as attorney’s fees and to pay the
costs. Petitioner China Banking Corporation, the Sheriff of Manila, and the
Register of Deeds of San Juan, Metro Manila, their officers, representatives,
agents or persons acting on their behalf, are PERMANENTLY ENJOINED from
causing the transfer of possession, ownership and title, or from otherwise
disposing, of the property covered by Transfer Certificate of Title No. 410603 in
favor of petitioner China Banking Corporation or to any other person acting on
its behalf. The Register of Deeds of San Juan, Metro Manila is ordered to CANCEL
all annotations on TCT No. 410603 in favor of China Banking Corporation pursuant
to Civil Case No. 85-31257.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan, and Pardo, JJ., concur.

THIRD DIVISION

G.R. No. 138104 April 11, 2002

MR HOLDINGS, LTD., petitioner,

vs.
SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK
CORPORATION, AND MARCOPPER MINING CORPORATION, respondents.

SANDOVAL-GUTIERREZ, J.:

In the present Petition for Review on Certiorari, petitioner MR Holdings, Ltd. assails
the a) Decision1 dated January 8, 1999 of the Court of Appeals in CA-G.R. SP No.
49226 finding no grave abuse of discretion on the part of Judge Leonardo P.
Ansaldo of the Regional Trial Court (RTC), Branch 94, Boac, Marinduque, in
denying petitioner’s application for a writ of preliminary
injunction;2 and b) Resolution3 dated March 29, 1999 denying petitioner’s motion
for reconsideration.

The facts of the case are as follows:

Under a "Principal Loan Agreement"4 and "Complementary Loan

Agreement,"5 both dated November 4, 1992, Asian Development Bank (ADB), a
multilateral development finance institution, agreed to extend to Marcopper
Mining Corporation (Marcopper) a loan in the aggregate amount of
US$40,000,000.00 to finance the latter’s mining project at Sta. Cruz, Marinduque.
The principal loan of US$ 15,000,000.00 was sourced from ADB’s ordinary capital
resources, while the complementary loan of US$ 25,000,000.00 was funded by
the Bank of Nova Scotia, a participating finance institution.

On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation
which owns 40% of Marcopper, executed a "Support and Standby Credit
Agreement" whereby the latter agreed to provide Marcopper with cash flow
support for the payment of its obligations to ADB.

To secure the loan, Marcopper executed in favor of ADB a "Deed of Real Estate
and Chattel Mortgage"6 dated November 11, 1992, covering substantially all of
its (Marcopper’s) properties and assets in Marinduque. It was registered with the
Register of Deeds on November 12, 1992.
When Marcopper defaulted in the payment of its loan obligation, Placer Dome,
in fulfillment of its undertaking under the "Support and Standby Credit
Agreement," and presumably to preserve its international credit standing,
agreed to have its subsidiary corporation, petitioner MR Holding, Ltd., assumed
Marcopper’s obligation to ADB in the amount of US$ 18,453,450.02.
Consequently, in an "Assignment Agreement"7 dated March 20, 1997, ADB
assigned to petitioner all its rights, interests and obligations under the principal
and complementary loan agreements, ("Deed of Real Estate and Chattel
Mortgage," and "Support and Standby Credit Agreement"). On December 8,
1997, Marcopper likewise executed a "Deed of Assignment"8 in favor of
petitioner. Under its provisions, Marcopper assigns, transfers, cedes and conveys
to petitioner, its assigns and/or successors-in-interest all of its (Marcopper’s)
properties, mining equipment and facilities, to wit:

Land and Mining Rights

Building and Other Structures

Other Land Improvements

Machineries & Equipment, and Warehouse Inventory

Mine/Mobile Equipment

Transportation Equipment and Furniture & Fixtures

Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation (Solidbank)

obtained a Partial Judgment9against Marcopper from the RTC, Branch 26,
Manila, in Civil Case No. 96-80083 entitled "Solidbank Corporation vs. Marcopper
Mining Corporation, John E. Loney, Jose E. Reyes and Teodulo C. Gabor, Jr.," the
decretal portion of which reads:

"WHEREFORE, PREMISES CONSIDERED, partial judgment is hereby rendered

ordering defendant Marcopper Mining Corporation, as follows:

1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine Hundred Seventy
Thousand Pesos Seven Hundred Fifty Six and 89/100 only (PHP 52,970,756.89), plus
interest and charges until fully paid;

2. To pay an amount equivalent to Ten Percent (10%) of above-stated amount

as attorney’s fees; and

3. To pay the costs of suit.

"SO ORDERED."

Upon Solidbank’s motion, the RTC of Manila issued a writ of execution pending
appeal directing Carlos P. Bajar, respondent sheriff, to require Marcopper "to
pay the sums of money to satisfy the Partial Judgment."10 Thereafter, respondent
Bajar issued two notices of levy on Marcopper’s personal and real properties,
and over all its stocks of scrap iron and unserviceable mining
equipment.11 Together with sheriff Ferdinand M. Jandusay (also a respondent) of
the RTC, Branch 94, Boac, Marinduque, respondent Bajar issued two notices
setting the public auction sale of the levied properties on August 27, 1998 at the
Marcopper mine site.12

Having learned of the scheduled auction sale, petitioner served an "Affidavit of

Third-Party Claim"13 upon respondent sheriffs on August 26, 1998, asserting its
ownership over all Marcopper’s mining properties, equipment and facilities by
virtue of the "Deed of Assignment."

Upon the denial of its "Affidavit of Third–Party Claim" by the RTC of

Manila,14 petitioner commenced with the RTC of Boac, Marinduque, presided by
Judge Leonardo P. Ansaldo, a complaint for reivindication of properties, etc.,
with prayer for preliminary injunction and temporary restraining order against
respondents Solidbank, Marcopper, and sheriffs Bajar and Jandusay.15 The case
was docketed as Civil Case No. 98-13.

In an Order16 dated October 6, 1998, Judge Ansaldo denied petitioner’s

application for a writ of preliminary injunction on the ground that a) petitioner
has no legal capacity to sue, it being a foreign corporation doing business in the
Philippines without license; b) an injunction will amount "to staying the execution
of a final judgment by a court of co-equal and concurrent jurisdiction;"
and c) the validity of the "Assignment Agreement" and the "Deed of Assignment"
has been "put into serious question by the timing of their execution and
registration."

Unsatisfied, petitioner elevated the matter to the Court of Appeals on a Petition

for Certiorari, Prohibition and Mandamus, docketed therein as CA-G.R. SP No.
49226. On January 8, 1999, the Court of Appeals rendered a Decision holding
that Judge Ansaldo did not commit grave abuse of discretion in denying
petitioner’s prayer for a writ of preliminary injunction, ratiocinating as follows:

"Petitioner contends that it has the legal capacity to sue and seek redress from
Philippine courts as it is a non-resident foreign corporation not doing business in
the Philippines and suing on isolated transactions.

xxx xxx

"We agree with the finding of the respondent court that petitioner is not suing on
an isolated transaction as it claims to be, as it is very obvious from the deed of
assignment and its relationships with Marcopper and Placer Dome, Inc. that its
unmistakable intention is to continue the operations of Marcopper and shield its
properties/assets from the reach of legitimate creditors, even those holding valid
and executory court judgments against it. There is no other way for petitioner to
recover its huge financial investments which it poured into Marcopper’s
rehabilitation and the local situs where the Deeds of Assignment were executed,
without petitioner continuing to do business in the country.

xxx xxx

"While petitioner may just be an assignee to the Deeds of Assignment, it may still
fall within the meaning of "doing business" in light of the Supreme Court ruling in
the case of Far East International Import and Export Corporation vs. Nankai
Kogyo Co., 6 SCRA 725, that:

‘Where a single act or transaction however is not merely incidental or casual but
indicates the foreign corporation’s intention to do other business in the
Philippines, said single act or transaction constitutes doing or engaging in or
transacting business in the Philippines.’

"Furthermore, the court went further by declaring that even a single act may
constitute doing business if it is intended to be the beginning of a series of
transactions. (Far East International Import and Export Corporation vs. Nankai
Kogyo Co. supra).

"On the issue of whether petitioner is the bona fide owner of all the mining
facilities and equipment of Marcopper, petitioner relies heavily on the
Assignment Agreement allegedly executed on March 20, 1997 wherein all the
rights and interest of Asian Development Bank (ADB) in a purported Loan
Agreement were ceded and transferred in favor of the petitioner as assignee, in
addition to a subsequent Deed of Assignment dated December 28, 1997
conveying absolutely all the properties, mining equipment and facilities of
Marcopper in favor of petitioner.

"The Deeds of Assignment executed in favor of petitioner cannot be binding on

the judgment creditor, private respondent Solidbank, under the general legal
principle that contracts can only bind the parties who had entered into it, and it
cannot favor or prejudice a third person (Quano vs. Court of Appeals, 211 SCRA
40). Moreover, by express stipulation, the said deeds shall be governed,
interpreted and construed in accordance with laws of New York.1âwphi1.nêt

"The Deeds of Assignment executed by Marcopper, through its President, Atty.

Teodulo C. Gabor, Jr., were clearly made in bad faith and in fraud of creditors,
particularly private respondent Solidbank. The first Assignment Agreement
purportedly executed on March 20, 1997 was entered into after Solidbank had
filed on September 19, 1996 a case against Marcopper for collection of sum of
money before Branch 26 of the Regional Trial Court docketed as Civil Case No.
96-80083. The second Deed of Assignment purportedly executed on December
28, 1997 was entered into by President Gabor after Solidbank had filed its Motion
for Partial Summary Judgment, after the rendition by Branch 26 of the Regional
Trial Court of Manila of a Partial Summary Judgment and after the said trial court
had issued a writ of execution, and which judgment was later affirmed by the
Court of Appeals. While the assignments (which were not registered with the
Registry of Property as required by Article 1625 of the new Civil Code) may be
valid between the parties thereof, it produces no effect as against third parties.
The purported execution of the Deeds of Assignment in favor of petitioner was in
violation of Article 1387 of the New Civil Code x x x." (Emphasis Supplied)

Hence, the present Petition for Review on Certiorari by MR Holdings, Ltd. moored
on the following grounds:

"A. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN

COMPLETELY DISREGARDING AS A MATERIAL FACT OF THE CASE THE EXISTENCE OF
THE PRIOR, REGISTERED 1992 DEED OF REAL ESTATE AND CHATTEL MORTGAGE
CREATING A LIEN OVER THE LEVIED PROPERTIES, SUBJECT OF THE ASSIGNMENT
AGREEMENT DATED MARCH 20, 1997, THUS, MATERIALLY CONTRIBUTING TO THE
SAID COURT’S MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF
PETITIONER’S CASE.

B. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN MAKING

A FACTUAL FINDING THAT THE SAID ASSIGNMENT AGREEMENT IS NOT REGISTERED,
THE SAME BEING CONTRARY TO THE FACTS ON RECORD, THUS, MATERIALLY
CONTRIBUTING TO THE SAID COURT’S MISPERCEPTION AND MISAPPRECIATION OF
THE MERITS OF PETITIONER’S CASE.

C. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN MAKING

A FACTUAL FINDING ON THE EXISTENCE OF AN ATTACHMENT ON THE PROPERTIES
SUBJECT OF INSTANT CASE, THE SAME BEING CONTRARY TO THE FACTS ON
RECORD, THUS, MATERIALLY CONTRIBUTING TO THE SAID COURT’S MISPERCEPTION
AND MISAPPRECIATION OF THE MERITS OF PETITIONER’S CASE.

D. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN

HOLDING THAT THE SAID ASSIGNMENT AGREEMENT AND THE DEED OF ASSIGNMENT
ARE NOT BINDING ON RESPONDENT SOLIDBANK WHO IS NOT A PARTY THERETO,
THE SAME BEING CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR
REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF CREDITS.

E. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN FINDING

THAT THE AFOREMENTIONED ASSIGNMENT AGREEMENT AND DEED OF ASSIGNMENT
ARE SHAM, SIMULATED, OF DUBIOUS CHARACTER, AND WERE MADE IN BAD FAITH
AND IN FRAUD OF CREDITORS, PARTICULARLY RESPONDENT SOLIDBANK, THE SAME
BEING IN COMPLETE DISREGARD OF, VIZ: (1) THE LAW AND ESTABLISHED
JURISPRUDENCE ON PRIOR, REGISTERED MORTGAGE LIENS AND ON PREFERENCE
OF CREDITS, BY REASON OF WHICH THERE EXISTS NO CAUSAL CONNECTION
BETWEEN THE SAID CONTRACTS AND THE PROCEEDINGS IN CIVIL CASE NO. 96-
80083; (2) THAT THE ASIAN DEVELOPMENT BANK WILL NOT OR COULD NOT HAVE
AGREED TO A SHAM; SIMULATED, DUBIOUS AND FRAUDULENT TRANSACTION; AND
(3) THAT RESPONDENT SOLIDBANK’S BIGGEST STOCKHOLDER, THE BANK OF NOVA
SCOTIA, WAS A MAJOR BENEFICIARY OF THE ASSIGNMENT AGREEMENT IN
QUESTION.

F. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN

HOLDING THAT PETITIONER IS WITHOUT LEGAL CAPACITY TO SUE AND SEEK REDRESS
FROM PHILIPPINE COURTS, IT BEING THE CASE THAT SECTION 133 OF THE
CORPORATION CODE IS WITHOUT APPLICATION TO PETITIONER, AND IT BEING THE
CASE THAT THE SAID COURT MERELY RELIED ON SURMISES AND CONJECTURES IN
OPINING THAT PETITIONER INTENDS TO DO BUSINESS IN THE PHILIPPINES.

G. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN

HOLDING THAT RESPONDENT MARCOPPER, PLACER DOME, INC., AND PETITIONER
ARE ONE AND THE SAME ENTITY, THE SAME BEING WITHOUT FACTUAL OR LEGAL
BASIS.

H. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN

HOLDING PETITIONER GUILTY OF FORUM SHOPPING, IT BEING CLEAR THAT
NEITHER LITIS PENDENTIA NOR RES JUDICATA MAY BAR THE INSTANT
REIVINDICATORY ACTION, AND IT BEING CLEAR THAT AS THIRD-PARTY CLAIMANT,
THE LAW AFFORDS PETITIONER THE RIGHT TO FILE SUCH REIVINDICATORY ACTION.

I. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN

RENDERING A DECISION WHICH IN EFFECT SERVES AS JUDGMENT ON THE MERITS
OF THE CASE.

J. THE SHERIFF’S LEVY AND SALE, THE SHERIFF’S CERTIFICATE OF SALE DATED
OCTOBER 12, 1998, THE RTC-MANILA ORDER DATED FEBRUARY 12, 1999, AND THE
RTC-BOAC ORDER DATED NOVEMBER 25, 1998 ARE NULL AND VOID.

K. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN

AFFIRMING THE DENIAL BY THE RTC-BOAC OF PETITIONER’S APPLICATION FOR
PRELIMINARY INJUNCTION, THE SAME BEING IN TOTAL DISREGARD OF PETITIONER’S
RIGHT AS ASSIGNEE OF A PRIOR, REGISTERED MORTGAGE LIEN, AND IN DISREGARD
OF THE LAW AND JURISPRUDENCE ON PREFERENCE OF CREDIT."

In its petition, petitioner alleges that it is not "doing business" in the Philippines and
characterizes its participation in the assignment contracts (whereby Marcopper’s
assets where transferred to it) as mere isolated acts that cannot foreclose its right
to sue in local courts. Petitioner likewise maintains that the two assignment
contracts, although executed during the pendency of Civil Case No. 96-80083 in
the RTC of Manila, are not fraudulent conveyances as they were supported by
valuable considerations. Moreover, they were executed in connection with prior
transactions that took place as early as 1992 which involved ADB, a reputable
financial institution. Petitioner further claims that when it paid Marcopper’s
obligation to ADB, it stepped into the latter’s shoes and acquired its (ADB’S)
rights, titles, and interests under the "Deed of Real Estate and Chattel Mortgage."
Lastly, petitioner asserts its existence as a corporation, separate and distinct from
Placer Dome and Marcopper.

In its comment, Solidbank avers that: a) petitioner is "doing business" in the

Philippines and this is evidenced by the "huge investment" it poured into the
assignment contracts; b) granting that petitioner is not doing business in the
Philippines, the nature of its transaction reveals an "intention to do business" or "to
begin a series of transaction" in the country; c) petitioner, Marcopper and Placer
Dome are one and the same entity, petitioner being then a wholly-owned
subsidiary of Placer Dome, which, in turn, owns 40% of Marcopper; d) the timing
under which the assignments contracts were executed shows that petitioner’s
purpose was to defeat any judgment favorable to it (Solidbank);
and e) petitioner violated the rule on forum shopping since the object of Civil
Case No. 98-13 (at RTC, Boac, Marinduque) is similar to the other cases filed by
Marcopper in order to forestall the sale of the levied properties.

Marcopper, in a separate comment, states that it is merely a nominal party to

the present case and that its principal concerns are being ventilated in another
case.

The petition is impressed with merit.

Crucial to the outcome of this case is our resolution of the following

issues: 1) Does petitioner have the legal capacity to sue? 2) Was the Deed of
Assignment between Marcopper and petitioner executed in fraud of
creditors? 3) Are petitioner MR Holdings, Ltd., Placer Dome, and Marcopper one
and the same entity? and 4) Is petitioner guilty of forum shopping?

We shall resolve the issues in seriatim.

The Court of Appeals ruled that petitioner has no legal capacity to sue in the
Philippine courts because it is a foreign corporation doing business here without
license. A review of this ruling does not pose much complexity as the principles
governing a foreign corporation’s right to sue in local courts have long been
settled by our Corporation Law.17 These principles may be condensed in three
statements, to wit: a) if a foreign corporation does business in the
Philippines without a license, it cannot sue before the Philippine courts;18 b) if a
foreign corporation is not doing business in the Philippines, it needs no license to
sue before Philippine courts on an isolated transaction19or on a cause of action
entirely independent of any business transaction;20 and c) if a foreign
corporation does business in the Philippines with the required license, it can
sue before Philippine courts on any transaction. Apparently, it is not the absence
of the prescribed license but the "doing (of) business" in the Philippines without
such license which debars the foreign corporation from access to our courts.21
The task at hand requires us to weigh the facts vis-à-vis the established principles.
The question whether or not a foreign corporation is doing business is dependent
principally upon the facts and circumstances of each particular case,
considered in the light of the purposes and language of the pertinent statute or
statutes involved and of the general principles governing the jurisdictional
authority of the state over such corporations.22

Batas Pambansa Blg. 68, otherwise known as "The Corporation Code of the
Philippines," is silent as to what constitutes doing" or "transacting" business in the
Philippines. Fortunately, jurisprudence has supplied the deficiency and has held
that the term "implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object for which the corporation was
organized."23 In Mentholatum Co. Inc., vs. Mangaliman,24 this Court laid down the
test to determine whether a foreign company is "doing business," thus:

" x x x The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another. (Traction Cos. vs. Collectors of Int. Revenue [C.C.A., Ohio], 223 F.
984,987.) x x x."

The traditional case law definition has metamorphosed into a statutory definition,
having been adopted with some qualifications in various pieces of legislation in
our jurisdiction. For instance, Republic Act No. 7042, otherwise known as the
"Foreign Investment Act of 1991," defines "doing business" as follows:

"d) The phrase ‘doing business’ shall include soliciting orders, service contracts,
opening offices, whether called ‘liaison’ offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eight(y)
(180) days or more; participating in the management, supervision or control of
any domestic business, firm, entity, or corporation in the Philippines; and any
other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works;
or the exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the business
organization; Provided, however, That the phrase ‘doing business’ shall not be
deemed to include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the exercise of
rights as such investor, nor having a nominee director or officer to represent its
interests in such corporation, nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its
own account." (Emphasis supplied)25
Likewise, Section 1 of Republic Act No. 5455,26 provides that:

"SECTION. 1. Definition and scope of this Act. - (1) x x x the phrase ‘doing
business’ shall include soliciting orders, purchases, service contracts, opening
offices, whether called ‘liaison’ offices or branches; appointing representatives
or distributors who are domiciled in the Philippines or who in any calendar year
stay in the Philippines for a period or periods totaling one hundred eighty days or
more; participating in the management, supervision or control of any domestic
business firm, entity or corporation in the Philippines; and any other act or acts
that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization."

There are other statutes27 defining the term "doing business" in the same tenor as
those above-quoted, and as may be observed, one common denominator
among them all is the concept of "continuity."

In the case at bar, the Court of Appeals categorized as "doing business"

petitioner’s participation under the "Assignment Agreement" and the "Deed of
Assignment." This is simply untenable. The expression "doing business" should not
be given such a strict and literal construction as to make it apply to any
corporate dealing whatever.28 At this early stage and with petitioner’s acts or
transactions limited to the assignment contracts, it cannot be said that it had
performed acts intended to continue the business for which it was organized. It
may not be amiss to point out that the purpose or business for which petitioner
was organized is not discernible in the records. No effort was exerted by the
Court of Appeals to establish the nexus between petitioner’s business and the
acts supposed to constitute "doing business." Thus, whether the assignment
contracts were incidental to petitioner’s business or were continuation thereof is
beyond determination. We cannot apply the case cited by the Court of
Appeals, Far East Int’l Import and Export Corp. vs. Nankai Kogyo Co., Ltd.,29 which
held that a single act may still constitute "doing business" if "it is not merely
incidental or casual, but is of such character as distinctly to indicate a purpose
on the part of the foreign corporation to do other business in the state." In said
case, there was an express admission from an official of the foreign corporation
that he was sent to the Philippines to look into the operation of mines, thereby
revealing the foreign corporation’s desire to continue engaging in business here.
But in the case at bar, there is no evidence of similar desire or intent. Unarguably,
petitioner may, as the Court of Appeals suggested, decide to operate
Marcopper’s mining business, but, of course, at this stage, that is a mere
speculation. Or it may decide to sell the credit secured by the mining properties
to an offshore investor, in which case the acts will still be isolated transactions. To
see through the present facts an intention on the part of petitioner to start a series
of business transaction is to rest on assumptions or probabilities falling short of
actual proof. Courts should never base its judgments on a state of facts so
inadequately developed that it cannot be determined where inference ends and
conjecture begins.

Indeed, the Court of Appeals’ holding that petitioner was determined to be

"doing business" in the Philippines is based mainly on conjectures and
speculation. In concluding that the "unmistakable intention" of petitioner is to
continue Marcopper’s business, the Court of Appeals hangs on the wobbly
premise that "there is no other way for petitioner to recover its huge financial
investments which it poured into Marcopper’s rehabilitation without it (petitioner)
continuing Marcopper’s business in the country."30 This is a mere presumption.
Absent overt acts of petitioner from which we may directly infer its intention to
continue Marcopper’s business, we cannot give our concurrence. Significantly, a
view subscribed upon by many authorities is that the mere ownership by a
foreign corporation of a property in a certain state, unaccompanied by its
active use in furtherance of the business for which it was formed, is insufficient in
itself to constitute doing business.31 In Chittim vs. Belle Fourche Bentonite Products
Co.,32 it was held that even if a foreign corporation purchased and took
conveyances of a mining claim, did some assessment work thereon, and
endeavored to sell it, its acts will not constitute the doing of business so as to
subject the corporation to the statutory requirements for the transacting of
business. On the same vein, petitioner, a foreign corporation, which becomes
the assignee of mining properties, facilities and equipment cannot be
automatically considered as doing business, nor presumed to have the intention
of engaging in mining business.

One important point. Long before petitioner assumed Marcopper’s debt to ADB
and became their assignee under the two assignment contracts, there already
existed a "Support and Standby Credit Agreement" between ADB and Placer
Dome whereby the latter bound itself to provide cash flow support for
Marcopper’s payment of its obligations to ADB. Plainly, petitioner’s payment of
US$ 18,453,450.12 to ADB was more of a fulfillment of an obligation under the
"Support and Standby Credit Agreement" rather than an investment. That
petitioner had to step into the shoes of ADB as Marcopper’s creditor was just a
necessary legal consequence of the transactions that transpired. Also, we must
hasten to add that the "Support and Standby Credit Agreement" was
executed four (4) years prior to Marcopper’s insovency, hence, the alleged
"intention of petitioner to continue Marcopper’s business" could have no basis for
at that time, Marcopper’s fate cannot yet be determined.

In the final analysis, we are convinced that petitioner was engaged only in
isolated acts or transactions. Single or isolated acts, contracts, or transactions of
foreign corporations are not regarded as a doing or carrying on of business.
Typical examples of these are the making of a single contract, sale, sale with the
taking of a note and mortgage in the state to secure payment therefor,
purchase, or note, or the mere commission of a tort.33 In these instances, there
is no purpose to do any other business within the country.

II

Solidbank contends that from the chronology and timing of events, it is evident
that there existed a pre-set pattern of response on the part of Marcopper to
defeat whatever court ruling that may be rendered in favor of Solidbank.

We are not convinced.

While it may appear, at initial glance, that the assignment contracts are in the
nature of fraudulent conveyances, however, a closer look at the events that
transpired prior to the execution of those contracts gives rise to a different
conclusion. The obvious flaw in the Court of Appeals’ Decision lies in its
constricted view of the facts obtaining in the case. In its factual narration, the
Court of Appeals definitely left out some events. We shall see later the
significance of those events.

Article 1387 of the Civil Code of the Philippines provides:

"Art. 1387. All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors,
when the donor did not reserve sufficient property to pay all debts contracted
before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons
against whom some judgment has been rendered in any instance or some writ of
attachment has been issued. The decision or attachment need not refer to the
property alienated, and need not have been obtained by the party seeking
rescission.

In addition to these presumptions, the design to defraud creditors may be

proved in any other manner recognized by law and of evidence.

This article presumes the existence of fraud made by a debtor. Thus, in the
absence of satisfactory evidence to the contrary, an alienation of a property will
be held fraudulent if it is made after a judgment has been rendered against the
debtor making the alienation.34 This presumption of fraud is not conclusive and
may be rebutted by satisfactory and convincing evidence. All that is necessary
is to establish affirmatively that the conveyance is made in good faith and for a
sufficient and valuable consideration.35

The "Assignment Agreement" and the "Deed of Assignment" were executed for
valuable considerations. Patent from the "Assignment Agreement" is the fact that
petitioner assumed the payment of US$ 18,453,450.12 to ADB in satisfaction of
Marcopper’s remaining debt as of March 20, 1997.36 Solidbank cannot deny this
fact considering that a substantial portion of the said payment, in the sum of US$
13,886,791.06, was remitted in favor of the Bank of Nova Scotia, its major
stockholder.37

The facts of the case so far show that the assignment contracts were executed
in good faith. The execution of the "Assignment Agreement" on March 20, 1997
and the "Deed of Assignment" on December 8,1997 is not the alpha of this case.
While the execution of these assignment contracts almost coincided with the
rendition on May 7, 1997 of the Partial Judgment in Civil Case No. 96-80083 by
the Manila RTC, however, there was no intention on the part of petitioner to
defeat Solidbank’s claim. It bears reiterating that as early as November 4, 1992,
Placer Dome had already bound itself under a "Support and Standby Credit
Agreement" to provide Marcopper with cash flow support for the payment to
ADB of its obligations. When Marcopper ceased operations on account of
disastrous mine tailings spill into the Boac River and ADB pressed for payment of
the loan, Placer Dome agreed to have its subsidiary, herein petitioner, paid ADB
the amount of US $18,453,450.12. Thereupon, ADB and Marcopper executed,
respectively, in favor of petitioner an "Assignment Agreement" and a "Deed of
Assignment." Obviously, the assignment contracts were connected with
transactions that happened long before the rendition in 1997 of the Partial
Judgment in Civil Case No. 96-80083 by the Manila RTC. Those contracts cannot
be viewed in isolation. If we may add, it is highly inconceivable that ADB, a
reputable international financial organization, will connive with Marcopper to
feign or simulate a contract in 1992 just to defraud Solidbank for its claim four
years thereafter. And it is equally incredible for petitioner to be paying the huge
sum of US $ 18,453,450.12 to ADB only for the purpose of defrauding Solidbank of
the sum of ₱52,970,756.89.

It is said that the test as to whether or not a conveyance is fraudulent is -- does it

prejudice the rights of creditors?38We cannot see how Solidbank’s right was
prejudiced by the assignment contracts considering that substantially all of
Marcopper’s properties were already covered by the registered "Deed of Real
Estate and Chattel Mortgage" executed by Marcopper in favor of ADB as early
as November 11, 1992. As such, Solidbank cannot assert a better right than ADB,
the latter being a preferred creditor. It is basic that mortgaged properties answer
primarily for the mortgaged credit, not for the judgment credit of the
mortgagor’s unsecured creditor. Considering that petitioner assumed
Marcopper’s debt to ADB, it follows that Solidbank’s right as judgment creditor
over the subject properties must give way to that of the former.1âwphi1.nêt

III

The record is lacking in circumstances that would suggest that petitioner

corporation, Placer Dome and Marcopper are one and the same entity. While
admittedly, petitioner is a wholly-owned subsidiary of Placer Dome, which in turn,
which, in turn, was then a minority stockholder of Marcopper, however, the mere
fact that a corporation owns all of the stocks of another corporation, taken alone
is not sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiary’s separate existence shall be respected, and
the liability of the parent corporation as well as the subsidiary will be confined to
those arising in their respective business.39

The recent case of Philippine National Bank vs. Ritratto Group Inc.,40 outlines the
circumstances which are useful in the determination of whether a subsidiary is
but a mere instrumentality of the parent-corporation, to wit:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the
subsidiary.

(g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or
its business or financial responsibility is referred to as the parent corporation’s
own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary, but take their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

In this catena of circumstances, what is only extant in the records is the matter of
stock ownership. There are no other factors indicative that petitioner is a mere
instrumentality of Marcopper or Placer Dome. The mere fact that Placer Dome
agreed, under the terms of the "Support and Standby Credit Agreement" to
provide Marcopper with cash flow support in paying its obligations to ADB, does
not mean that its personality has merged with that of Marcopper. This singular
undertaking, performed by Placer Dome with its own stockholders in Canada
and elsewhere, is not a sufficient ground to merge its corporate personality with
Marcopper which has its own set of shareholders, dominated mostly by Filipino
citizens. The same view applies to petitioner’s payment of Marcopper’s
remaining debt to ADB.
With the foregoing considerations and the absence of fraud in the transaction of
the three foreign corporations, we find it improper to pierce the veil of corporate
fiction – that equitable doctrine developed to address situations where the
corporate personality of a corporation is abused or used for wrongful purposes.

IV

On the issue of forum shopping, there could have been a violation of the rules
thereon if petitioner and Marcopper were indeed one and the same entity. But
since petitioner has a separate personality, it has the right to pursue its third-party
claim by filing the independent reivindicatory action with the RTC of Boac,
Marinduque, pursuant to Rule 39, Section 16 of the 1997 Rules of Civil Procedures.
This remedy has been recognized in a long line of cases decided by this
Court.41 In Rodriguez vs. Court of Appeals,42 we held:

". . . It has long been settled in this jurisdiction that the claim of ownership of a
third party over properties levied for execution of a judgment presents no issue
for determination by the court issuing the writ of execution.

. . .Thus, when a property levied upon by the sheriff pursuant to a writ of

execution is claimed by third person in a sworn statement of ownership thereof,
as prescribed by the rules, an entirely different matter calling for a new
adjudication arises. And dealing as it does with the all important question of title,
it is reasonable to require the filing of proper pleadings and the holding of a trial
on the matter in view of the requirements of due process.

. . . In other words, construing Section 17 of Rule 39 of the Revised Rules of Court

(now Section 16 of the 1997 Rules of Civil Procedure), the rights of third-party
claimants over certain properties levied upon by the sheriff to satisfy the
judgment may not be taken up in the case where such claims are presented but
in a separate and independent action instituted by the claimants." (Emphasis
supplied)

This "reivindicatory action" has for its object the recovery of ownership or
possession of the property seized by the sheriff, despite the third party claim, as
well as damages resulting therefrom, and it may be brought against the sheriff
and such other parties as may be alleged to have connived with him in the
supposedly wrongful execution proceedings, such as the judgment creditor
himself. Such action is an entirely separate and distinct action from that in which
execution has been issued. Thus, there being no identity of parties and cause of
action between Civil Case No. 98-13 (RTC, Boac) and those cases filed by
Marcopper, including Civil Case No. 96-80083 (RTC, Manila) as to give rise to res
judicata or litis pendentia, Solidbank’s allegation of forum-shopping cannot
prosper.43
All considered, we find petitioner to be entitled to the issuance of a writ of
preliminary injunction. Section 3, Rule 58 of the 1997 Rules of Civil Procedure
provides:

"SEC. 3 Grounds for issuance of preliminary injunction. – A preliminary injunction

may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part
of such relief consists in restraining the commission or continuance of the act or
acts complained of, or in requiring the performance of an act or acts, either for
a limited period or perpetually;

(b) That the commission, continuance or non-performance of the acts or acts

complained of during the litigation would probably work injustice to the
applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting

to do, or is procuring or suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual."

Petitioner’s right to stop the further execution of the properties covered by the
assignment contracts is clear under the facts so far established. An execution
can be issued only against a party and not against one who did not have his
day in court.44 The duty of the sheriff is to levy the property of the judgment
debtor not that of a third person. For, as the saying goes, one man’s goods shall
not be sold for another man's debts.45 To allow the execution of petitioner’s
properties would surely work injustice to it and render the judgment on the
reivindicatory action, should it be favorable, ineffectual. In Arabay, Inc., vs.
Salvador,46 this Court held that an injunction is a proper remedy to prevent a
sheriff from selling the property of one person for the purpose of paying the debts
of another; and that while the general rule is that no court has authority to
interfere by injunction with the judgments or decrees of another court of equal or
concurrent or coordinate jurisdiction, however, it is not so when a third-party
claimant is involved. We quote the instructive words of Justice Querube C.
Makalintal in Abiera vs. Court of Appeals,47 thus:

"The rationale of the decision in the Herald Publishing Company case48 is

peculiarly applicable to the one before Us, and removes it from the general
doctrine enunciated in the decisions cited by the respondents and quoted
earlier herein.

1. Under Section 17 of Rule 39 a third person who claims property levied upon on
execution may vindicate such claim by action. Obviously a judgment rendered
in his favor, that is, declaring him to be the owner of the property, would not
constitute interference with the powers or processes of the court which rendered
the judgment to enforce which the execution was levied. If that be so – and it is
so because the property, being that of a stranger, is not subject to levy – then an
interlocutory order such as injunction, upon a claim and prima facie showing of
ownership by the claimant, cannot be considered as such interference either."

WHEREFORE, the petition is GRANTED. The assailed Decision dated January 8,

1999 and the Resolution dated March 29, 1999 of the Court of Appeals in CA
G.R. No. 49226 are set aside. Upon filing of a bond of ₱1,000,000.00, respondent
sheriffs are restrained from further implementing the writ of execution issued in
Civil Case No. 96-80083 by the RTC, Branch 26, Manila, until further orders from
this Court. The RTC, Branch 94, Boac, Marinduque, is directed to dispose of Civil
Case No. 98-13 with dispatch.

SO ORDERED.

Melo, Vitug, Panganiban, and Carpio, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-60174 February 16, 1983

EDUARDO FELIPE, HERMOGENA V. FELIPE AND VICENTE V. FELIPE, petitioners,

vs.
HEIRS OF MAXIMO ALDON, NAMELY: GIMENA ALMOSARA, SOFIA ALDON,
SALVADOR ALDON, AND THE HONORABLE COURT OF APPEALS, respondents.

Romulo D. San Juan for petitioner.

Gerundino Castillejo for private respondent.

ABAD SANTOS, J.:

Maximo Aldon married Gimena Almosara in 1936. The spouses bought several
pieces of land sometime between 1948 and 1950. In 1960-62, the lands were
divided into three lots, 1370, 1371 and 1415 of the San Jacinto Public Land
Subdivision, San Jacinto, Masbate.

In 1951, Gimena Almosara sold the lots to the spouses Eduardo Felipe and
Hermogena V. Felipe. The sale was made without the consent of her husband,
Maximo.

On April 26, 1976, the heirs of Maximo Aldon, namely his widow Gimena and their
children Sofia and Salvador Aldon, filed a complaint in the Court of First Instance
of Masbate against the Felipes. The complaint which was docketed as Civil Case
No. 2372 alleged that the plaintiffs were the owners of Lots 1370, 1371 and 1415;
that they had orally mortgaged the same to the defendants; and an offer to
redeem the mortgage had been refused so they filed the complaint in order to
recover the three parcels of land.

The defendants asserted that they had acquired the lots from the plaintiffs by
purchase and subsequent delivery to them. The trial court sustained the claim of
the defendants and rendered the following judgment:

a. declaring the defendants to be the lawful owners of the property subject of

the present litigation;

b. declaring the complaint in the present action to be without merit and is

therefore hereby ordered dismissed;

c. ordering the plaintiffs to pay to the defendants the amount of P2,000.00 as

reasonable attorney's fees and to pay the costs of the suit.
The plaintiffs appealed the decision to the Court of Appeals which rendered the
following judgment:

PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and SET
ASIDE, and a new one is hereby RENDERED, ordering the defendants-appellees
to surrender the lots in question as well as the plaintiffs'-appellants' muniments of
title thereof to said plaintiffs-appellants, to make an accounting of the produce
derived from the lands including expenses incurred since 1951, and to solidarity
turn over to the plaintiffs-appellants the NET monetary value of the profits, after
deducting the sum of P1,800.00. No attorney's fees nor moral damages are
awarded for lack of any legal justification therefor. No. costs.

The ratio of the judgment is stated in the following paragraphs of the decision
penned by Justice Edgardo L. Paras with the concurrence of Justices Venicio
Escolin and Mariano A. Zosa:

One of the principal issues in the case involves the nature of the aforementioned
conveyance or transaction, with appellants claiming the same to be
an oral contract of mortgage or antichresis, the redemption of which could be
done anytime upon repayment of the P1,800.00 involved (incidentally the only
thing written about the transaction is the aforementioned receipt re the P1,800).
Upon the other hand, appellees claim that the transaction was one of sale,
accordingly, redemption was improper. The appellees claim that plaintiffs never
conveyed the property because of a loan or mortgage or antichresis and that
what really transpired was the execution of a contract of sale thru a private
document designated as a 'Deed of Purchase and Sale' (Exhibit 1), the
execution having been made by Gimena Almosara in favor of appellee
Hermogena V. Felipe.

After a study of this case, we have come to the conclusion that the appellants
are entitled to recover the ownership of the lots in question. We so hold because
although Exh. 1 concerning the sale made in 1951 of the disputed lots is, in Our
opinion, not a forgery the fact is that the sale made by Gimena Almosara is
invalid, having been executed without the needed consent of her husband, the
lots being conjugal. Appellees' argument that this was an issue not raised in the
pleadings is baseless, considering the fact that the complaint alleges that the
parcels 'were purchased by plaintiff Gimena Almosara and her late husband
Maximo Aldon' (the lots having been purchased during the existence of the
marriage, the same are presumed conjugal) and inferentially, by force of law,
could not, be disposed of by a wife without her husband's consent.

The defendants are now the appellants in this petition for review. They invoke
several grounds in seeking the reversal of the decision of the Court of Appeals.
One of the grounds is factual in nature; petitioners claim that "respondent Court
of Appeals has found as a fact that the 'Deed of Purchase and Sale' executed
by respondent Gimena Almosara is not a forgery and therefore its authenticity
and due execution is already beyond question." We cannot consider this ground
because as a rule only questions of law are reviewed in proceedings under Rule
45 of the Rules of Court subject to well-defined exceptions not present in the
instant case.

The legal ground which deserves attention is the legal effect of a sale of lands
belonging to the conjugal partnership made by the wife without the consent of
the husband.

It is useful at this point to re-state some elementary rules: The husband is the
administrator of the conjugal partnership. (Art. 165, Civil Code.) Subject to
certain exceptions, the husband cannot alienate or encumber any real property
of the conjugal partnership without the wife's consent. (Art. 166, Idem.) And the
wife cannot bind the conjugal partnership without the husband's consent,
except in cases provided by law. (Art. 172, Idem.)

In the instant case, Gimena, the wife, sold lands belonging to the conjugal
partnership without the consent of the husband and the sale is not covered by
the phrase "except in cases provided by law." The Court of Appeals described
the sale as "invalid" - a term which is imprecise when used in relation to contracts
because the Civil Code uses specific names in designating defective contracts,
namely: rescissible (Arts. 1380 et seq.), voidable (Arts. 1390 et
seq.), unenforceable (Arts. 1403, et seq.), and void or inexistent (Arts. 1409 et
seq.)

The sale made by Gimena is certainly a defective contract but of what

category? The answer: it is a voidable contract.

According to Art. 1390 of the Civil Code, among the voidable contracts are
"[T]hose where one of the parties is incapable of giving consent to the contract."
(Par. 1.) In the instant case-Gimena had no capacity to give consent to the
contract of sale. The capacity to give consent belonged not even to the
husband alone but to both spouses.

The view that the contract made by Gimena is a voidable contract is supported
by the legal provision that contracts entered by the husband without the
consent of the wife when such consent is required, are annullable at her
instance during the marriage and within ten years from the transaction
questioned. (Art. 173, Civil Code.)

Gimena's contract is not rescissible for in such contract all the essential elements
are untainted but Gimena's consent was tainted. Neither can the contract be
classified as unenforceable because it does not fit any of those described in Art.
1403 of the Civil Code. And finally, the contract cannot be void or inexistent
because it is not one of those mentioned in Art. 1409 of the Civil Code. By
process of elimination, it must perforce be a voidable contract.
The voidable contract of Gimena was subject to annulment by her husband only
during the marriage because he was the victim who had an interest in the
contract. Gimena, who was the party responsible for the defect, could not ask
for its annulment. Their children could not likewise seek the annulment of the
contract while the marriage subsisted because they merely had an inchoate
right to the lands sold.

The termination of the marriage and the dissolution of the conjugal partnership
by the death of Maximo Aldon did not improve the situation of Gimena. What
she could not do during the marriage, she could not do thereafter.

The case of Sofia and Salvador Aldon is different. After the death of Maximo they
acquired the right to question the defective contract insofar as it deprived them
of their hereditary rights in their father's share in the lands. The father's share is
one-half (1/2) of the lands and their share is two-thirds (2/3) thereof, one-third
(1/3) pertaining to the widow.

The petitioners have been in possession of the lands since 1951. It was only in
1976 when the respondents filed action to recover the lands. In the meantime,
Maximo Aldon died.

Two questions come to mind, namely: (1) Have the petitioners acquired the
lands by acquisitive prescription? (2) Is the right of action of Sofia and Salvador
Aldon barred by the statute of limitations?

Anent the first question, We quote with approval the following statement of the
Court of Appeals:

We would like to state further that appellees [petitioners herein] could not have
acquired ownership of the lots by prescription in view of what we regard as
their bad faith. This bad faith is revealed by testimony to the effect that
defendant-appellee Vicente V. Felipe (son of appellees Eduardo Felipe and
Hermogena V. Felipe) attempted in December 1970 to have Gimena Almosara
sign a ready-made document purporting to self the disputed lots to the
appellees. This actuation clearly indicated that the appellees knew the lots did
not still belong to them, otherwise, why were they interested in a document of
sale in their favor? Again why did Vicente V. Felipe tell Gimena that the purpose
of the document was to obtain Gimena's consent to the construction of an
irrigation pump on the lots in question? The only possible reason for purporting to
obtain such consent is that the appellees knew the lots were not theirs. Why was
there an attempted improvement (the irrigation tank) only in 1970? Why was the
declaration of property made only in 1974? Why were no attempts made to
obtain the husband's signature, despite the fact that Gimena and Hermogena
were close relatives? An these indicate the bad faith of the appellees. Now then,
even if we were to consider appellees' possession in bad faith as a possession in
the concept of owners, this possession at the earliest started in 1951, hence the
period for extraordinary prescription (30 years) had not yet lapsed when the
present action was instituted on April 26, 1976.

As to the second question, the children's cause of action accrued from the
death of their father in 1959 and they had thirty (30) years to institute it (Art. 1141,
Civil Code.) They filed action in 1976 which is well within the period.

WHEREFORE, the decision of the Court of Appeals is hereby modified. Judgment

is entered awarding to Sofia and Salvador Aldon their shares of the lands as
stated in the body of this decision; and the petitioners as possessors in bad faith
shall make an accounting of the fruits corresponding to the share
aforementioned from 1959 and solidarity pay their value to Sofia and Salvador
Aldon; costs against the petitioners.

SO ORDERED.

Concepcion Jr., Guerrero and De Castro, JJ., concur.

Makasiar, (Chairman), J., In the result.

Escolin J., took no part.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The issue is whether the wife's sale in 1651 of an unregistered
sixteen-hectare conjugal land, without the consent of her husband (he died in
1959), can be annulled in 1976 by the wife and her two children.

As a rule, the husband cannot dispose of the conjugal realty without the wife's
consent (Art. 166, Civil Code). Thus, a sale by the husband of the conjugal realty
without the wife's consent was declared void (Tolentino vs. Cardenas, 123 Phil.
517; Villocino vs. Doyon, L-19797, December 17, 1966, 18 SCRA 1094 and L-28871,
April 25, 1975, 63 SCRA 460; Reyes vs. De Leon, L-22331, June 6,1967, 20 SCRA 369;
Bucoy vs. Paulino, L-25775, April 26, 1968, 23 SCRA 248; Tinitigan vs. Tinitigan, L-
45418, October 30,1980, 100 SCRA 619).

With more reason, the wife cannot make such a disposition without the
husband's consent since the husband is the administrator of the conjugal assets.

In the instant case, the Court of Appeals did not err in voiding the wife's sale of
the conjugal land without the husband's consent. As that sale is contrary to law,
the action to have it declared void or inexistent does not prescribe.
Moreover, there are indications that the contract between the parties was an
antichresis, a transaction which is very common in rural areas.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The issue is whether the wife's sale in 1651 of an unregistered
sixteen-hectare conjugal land, without the consent of her husband (he died in
1959), can be annulled in 1976 by the wife and her two children.

As a rule, the husband cannot dispose of the conjugal realty without the wife's
consent (Art. 166, Civil Code). Thus, a sale by the husband of the conjugal realty
without the wife's consent was declared void (Tolentino vs. Cardenas, 123 Phil.
517; Villocino vs. Doyon, L-19797, December 17, 1966, 18 SCRA 1094 and L-28871,
April 25, 1975, 63 SCRA 460; Reyes vs. De Leon, L-22331, June 6,1967, 20 SCRA 369;
Bucoy vs. Paulino, L-25775, April 26, 1968, 23 SCRA 248; Tinitigan vs. Tinitigan, L-
45418, October 30,1980, 100 SCRA 619).

With more reason, the wife cannot make such a disposition without the
husband's consent since the husband is the administrator of the conjugal assets.

In the instant case, the Court of Appeals did not err in voiding the wife's sale of
the conjugal land without the husband's consent. As that sale is contrary to law,
the action to have it declared void or inexistent does not prescribe.

Moreover, there are indications that the contract between the parties was an
antichresis, a transaction which is very common in rural areas.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-27343 February 28, 1979

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS,

BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-
appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL
SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and
her husband CECILIO SALDAJENO, defendants-appellants.

FERNANDEZ, J.:

This is an appeal to the Court of Appeals from the judgment of the Court of First
Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel G.
Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the

contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has not
created a chattel mortgage lien on the machineries and other chattels
mentioned therein, all of which are property of the defendant partnership
"Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant partnership,
have a preferred right over the assets of the said partnership and over the
proceeds of their sale at public auction, superior to the right of the defendant
Margarita G. Saldajeno, as creditor of the partners Leon Garibay and Timoteo
Tubungbanua; (3) that the defendant Isabela Sawmill' is indebted to the plaintiff
Oppen, Esteban, Inc. in the amount of P1,288.89, with legal interest thereon from
the filing of the complaint on June 5, 1959; (4) that the same defendant is
indebted to the plaintiff Manuel G. Singsong in the total amount of P5,723.50,
with interest thereon at the rate of 1 % per month from May 6, 1959, (the date of
the statements of account, Exhs. "L" and "M"), and 25% of the total indebtedness
at the time of payment, for attorneys' fees, both interest and attorneys fees
being stipulated in Exhs. "I" to "17", inclusive; (5) that the same defendant is
indebted to the plaintiff Agustin E. Tonsay in the amount of P933.73, with legal
interest thereon from the filing of the complaint on June 5, 1959; (6) that the
same defendant is indebted to the plaintiff Jose L. Espinos in the amount of
P1,579.44, with legal interest thereon from the filing of the complaint on June 5,
1959; (7) that the same defendant is indebted to the plaintiff Bacolod Southern
Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the filing
of the complaint on June 5, 1959; (8) that the same defendant is indebted to the
plaintiff Jose Belzunce in the amount of P2,052.10, with legal interest thereon from
the filing of the complaint on June 5. 1959; (9) that the defendant Margarita G.
Saldajeno, having purchased at public auction the assets of the defendant
partnership over which the plaintiffs have a preferred right, and having sold said
assets for P 45,000.00, is bound to pay to each of the plaintiffs the respective
amounts for which the defendant partnership is held indebted to, them, as
above indicated and she is hereby ordered to pay the said amounts, plus
attorneys fees equivalent to 25% of the judgment in favor of the plaintiff Manuel
G. Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20% of the respective
judgments in favor of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11),
of the Civil Code of the Philippines; (10) The defendants Leon Garibay and
Timoteo Tibungbanua are hereby ordered to pay to the plaintiffs the respective
amounts adjudged in their favor in the event that said plaintiffs cannot recover
them from the defendant Margarita G. Saldajeno and the surety on the bond
that she has filed for the lifting of the injunction ordered by this court upon the
commencement of this case.

The cross-claim cf the defendant Margarita G. Saldajeno against the defendants

Leon Garibay arid Timoteo Tubungbanua is hereby discussed Margarita G.
Saldajeno shall pay the costs.

SO ORDERED.1

In a resolution promulgated on February 3, 1967, the Court of Appeals certified

the records of this case to the Supreme Court "considering that the resolution of
this appeal involves purely questions or question of law over which this Court has
no jurisdiction ...2

On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L.

Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the
Court of first Instance of Negros Occidental, Branch I, against "Isabela Sawmill",
Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay,
Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidental a
complaint the prayer of which reads:

WHEREFORE, the plaintiffs respectfully pray:

(1) That a writ of preliminary injunction be issued restraining the defendant

Provincial Sheriff of Negros Occidental from proceeding with the sales at public
auction that he advertised in two notices issued by him on May 18, 1959 in
connection with Civil Case No. 5223 of this Honorable Court, until further orders of
this Court; and to make said injunction permanent after hearing on the merits:

(2) That after hearing, the defendant partnership be ordered; to pay to the
plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest thereon
and 25% attorney's fees, and costs; to pay to the plaintiff JoseBelzunce the sum
of P2,052.10, plus 6% annual interest thereon and 25% for attorney's fees, and
costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual
interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff
Bacolod Southern Lumber Yard the sum of P1,048.78, plus 6% annual interest
thereon and 25% attorney's fees, and costs; and to pay to the plaintiff Oppen,
Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and 25%
attorney's fees and costs:

(3) That the so-called Chattel Mortgage executed by the defendant Leon
Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G.
Saldajeno on May 26, 1958 be declared null and void being in fraud of creditors
of the defendant partnership and without valuable consideration insofar as the
said defendant is concerned:

(4) That the Honorable Court order the sale of public auction of the assets of the
defendnat partnership in case the latter fails to pay the judgment that the
plaintiffs may recover in the action, with instructions that the proceeds of the sale
b e applied in payment of said judgment before any part of saod proceeds is
paid to the defendant Margarita G. Saldajeno;

(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G.
Saldajeno be declared jointly liable to the plaintifs for whatever deficiency may
remain unpaid after the proceeds of the sale of the assets of the defendnt
partnership are supplied in payment of the judgment that said plaintiffs may
recover in this action;

(6) The plaintiffs further pray for all other remedies to which the Honorable Court
will find them entitled to, with costs to the defendants.

Bacolod City, June 4, 1959.3

The action was docketed as Civil Case No. 5343 of said court.

In their amended answer, the defendants Margarita G. Saldajeno and her

husband, Cecilio Saldajeno, alleged the following special and affirmative
defenses:

xxx xxx xxx

2. That the defendant Isabela Sawmill has been dissolved by virtue of an action
entitled "In the matter of: Dissolution of Isabela Sawmill as partnership,
etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al., Civil Case No. 4787,
Court of First Instance of Negros Occidental;

3. That as a result of the said dissolution and the decision of the Court of First
Instance of Negros Occidental in the aforesaid case, the other defendants
herein Messrs. Leon Garibay and Timoteo Tubungbanua became the successors-
in-interest to the said defunct partnership and have bound themselves to
answere for any and all obligations of the defunct partnership to its creditors and
third persons;

4. That to secure the performance of the obligations of the other defendants

Leon Garibay and Timoteo Tubungbanua to the answering defendant herein,
the former have constituted a chattel mortgage over the properties mentioned
in the annexes to that instrument entitled "Assignment of Rights with Chattel
Mortgage" entered into on May 26, 1968 and duly registered in the Register of
Deeds of Negros Occidental on the same date:

5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban,
Inc. are creditors of Messrs. Leon Garibay and Timoteo Tubungbanua and not of
the defunct Isabela Sawmill and as such they have no cause of action against
answering defendant herein and the defendant Isabela Sawmill;

6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc.
granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa to
the defendants Leon Garibay and Timoteo Tubungbanua with the knowledge
and notice that the Isabela Sawmill as a former partnership of defendants
Margarita G. Isabela Sawmill as a former partnership of defendants Margarita G.
Saldajeno, Leon Garibay and Timoteo Tubungbanua, has already been
dissolved;

7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs
Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the Bacolod
Southern Lumber Yard, it appearing that the amounts sought to be recovered by
them in this action is less than P2,000.00 each, exclusive of interests;

8. That in so far as the claims of these alleged creditors plaintiffs are concerned,
there is a misjoinder of parties because this is not a class suit, and therefore this
Honorable Court cannot take jurisdictionof the claims for payment;

9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond

the limit mentioned inthe statute of frauds, Art. 1403 of the Civil Code, and are
therefor unenforceable, even assuming that there were such credits and claims;

10. That this Honorable Court has no jurisdiction in this case for it is well settled in
law and in jurisprudence that a court of first instance has no power or jurisdiction
to annul judgments or decrees of a coordinate court because other function
devolves upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et al., G.R.
No. L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs.
Javellana, 49 O.G. No. 1, p.124), as it appears from the complaint in this case to
annul the decision of this same court, but of another branch (Branch II, Judge
Querubin presiding).4

Said defendants interposed a cross-claim against the defendsants Leon Garibay

and Timoteo Tubungbanua praying "that in the event that judgment be
rendered ordering defendant cross claimant to pay to the plaintiffs the amount
claimed in the latter's complaint, that the cross claimant whatever amount is
paid by the latter to the plaintiff in accordance to the said judgment. ...5

After trial, judgment was rendered in favor of the plaintiffs and against the
defendants.

The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno,

appealed to the Court of Appeals assigning the following errors:

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.

II

THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE
WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE
PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL
CAUSED THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID
PARTNERSHIP.

III

THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-

APPELLANT MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE
PARTNERSHIP "ISABELA SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON
GARIBAY, TIMOTEO TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO).

IV

THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION.

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED
MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND
WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST
INSTANCE OF NEGROS OCCIDENTAL) WAS NULL AND VOID.

VI

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY

DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN
CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT
PARTNERSHIP.

VII

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA

G. SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR
HAVING ACQUIRED THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE
CONDUCTED IN CONNECTION WITH CIVIL CASE NO. 5223.

VIII

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G.

SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND
TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER AS PARTNERS IN THE NEW
'ISABELA SAWMILL', AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH
SAID MARGARITA G. SALDAJENO WAS A PARTNER.

IX

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G.

SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES.

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-
APPELLEES.

XI

THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-

APPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON
GARIBAY AND TIMOTEO TUBUNGBANUA.6

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

At the commencement of the hearing of the case on the merits the plaintiffs and
the defendant Cecilio and Margarita g. Saldajeno submittee a Partial Stipulation
of Facts that was marked as Exh. "A". Said stipulation reads as folows:

1. That on January 30, 1951 the defendants Leon Garibay, Margarita G.

Saldejeno, and Timoteo Tubungbanua entered into a Contract of Partnership
under the firm name "Isabela Sawmill", a copy of which is hereto attached
Appendix "A".

2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck
and two Tractors to the partnership Isabela Sawmill for the sum of P20,500.00. In
order to pay the said purcahse price, the said partnership agreed to make
arrangements with the International Harvester Company at Bacolod City so that
the latter would sell farm machinery to Oppen, Esteban, Inc. with the
understanding that the price was to be paid by the partnership. A copy of the
corresponding contract of sle is attached hereto as Appendix "B".

3. That through the method of payment stipulated in the contract marked as

Appendix "B" herein, the International Harvester Company has been paid a total
of P19,211.11, leaving an unpaid balance of P1,288.89 as shown in the
statements hereto attached as Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio
Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill, Leon
Garibay, and Timoteo Tubungbanua, a copy of which Complaint is attached as
Appendix 'D'.

5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua

and Margarita G. Saldajeno entered into a "Memorandum Agreement", a copy
of which is hereto attached as Appendix 'E' in Civil Case 4797 of the Court of First
Instance of Negros Occidental.

6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua
and Margarita G. Saldajeno executed a document entitled "Assignment of
Rights with Chattel Mortgage", a copy of which documents and its Annexes "A"
to "A-5" forming a part of the record of the above mentioned Civil Case No.
4797, which deed was referred to in the Decision of the Court ofFirst Instance of
Negros Occidental in Civil Case No. 4797 dated May 29, 1958, a copy of which is
hereto attached as Appendix "F" and "F-1" respectively.

7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did
not divide the assets and properties of the "Isabela Sawmill" between them, but
they continued the business of said partnership under the same firm name
"Isabela Sawmill".

8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two
(2) notices that he would sell at public auction on June 5, 1959 at Isabela, Negros
Occidental certain trucks, tractors, machinery, officeequipment and other things
that were involved in Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See
Appendices "G" and "G-1".

9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed
a Certificate ofSale in favor of the defendant Margarita G. Saldajeno, as a result
of the sale conducted by him on October 14 and 15, 1959 for the enforcement
of the judgment rendered in Civil Case No. 5223 of the Court of First Instance of
Negros Occidental, a certified copy of which certificte of sale is hereto attached
as Appendix "H".

10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a
deed of sale in favor of the Pan Oriental Lumber Company transfering to the
latter for the sum of P45,000.00 the trucks, tractors, machinery, and other things
that she had purchashed at a public auction referred to in the foregoing
paragraph, a certified true copy of which Deed of Sale is hereto attached as
Appendix "I".

11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G.
Saldajeno reserve the right to present additional evidence at the hearing of this
case.
Forming parts of the above copied stipulation are documents that were marked
as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I".

The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented
additional evidence, mostly documentary, while the cross-defendants did not
present any evidence. The case hardly involves quetions of fact at all, but only
questions of law.

The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen,
Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of an obligation
of P20,500.00 contracted on February 3, 10956 is expressly admitted in paragraph
2 and 3 of the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1", and "C-2".

The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G"
that from October 6, 1958 to November 8, 1958 he advanced a total of P4,200.00
to the defendant 'Isabela Sawmill'. Agaist the said advances said defendant
delivered to Tonsay P3,266.27 worth of lumber, leavng an unpaid balance of
P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon
Garibay, as Manager of the defendant partnership.

The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J"
to "L" that from May 25, 1988 to January 13, 1959 he sold on credit to the
defendnat "Isabela Sawmill" rice and bran, on account of which business
transaction there remains an unpaid balance of P3,580.50. The same plaintiff also
proved that the partnership ownes him the sum of P143.00 for nipa shingles
bought from him on credit and unpaid for.

The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano
Palmares and his Exhs. "N" to "O-3" that he owns the "Guia Lumber Yard", that on
October 11, 1958 said lumber yard advanced the sum of P2,500.00 to the
defendant "Isabela Sawmill", that against the said cash advance, the defendant
partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an
outstanding balance of P1,579.44.

The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the
witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said
plaintiff advanced the sum of P1,500.00 to the defendsant 'Isabela Sawmill', that
against the said cash advance, the defendant partnership delivered to the said
plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of
lumber on January 27, 1959, leaving an outstanding balance of P1,048.78.

The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom
he called as his witness, and through the Exhs. "R" to "E" that from September 14,
1958 to November 27, 1958 he sold to the defedant "Isabela Sawmill" gasoline,
motor fuel, and lubricating oils, and that on account of said transactions, the
defendant partnersip ownes him an unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959
the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for P38,040.00
the assets of the defendsant "Isabela Sawmill" which the defendants Leon G.
Garibay and Timoteo Tubungbanua had mortgaged to her, and said purchase
price was applied to the judgment that she has obtained against he said
mortgagors in Civil Case No. 5223 of this Court.

Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the
defendant Margarita G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY
for P45,000.00 part of the said properties that she had bought at public aucton
one week before.

xxx xxx xxx7

It is contended by the appellants that the Court of First Instance of Negros

Occidental had no jurisdiction over Civil Case No. 5343 because the plaintiffs
Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod
Southern Lumber Yard sought to collect sums of moeny, the biggest amount of
which was less than P2,000.00 and, therefore, within the jurisdiction of the
municipal court.

This contention is devoid of merit because all the plaintiffs also asked for the
nullity of the assignment of right with chattel mortgage entered into by and
between Margarita G. Saldajeno and her former partners Leon Garibay and
Timoteo Tubungbanua. This cause of action is not capable of pecuniary
estimation and falls under the jurisdiction of the Court of First Instnace. Where the
basic issue is something more than the right to recover a sum of money and
where the money claim is purely incidental to or a consequence of the principal
relief sought, the action is as a case where the subject of the litigation is not
capable of pecuniary estimation and is cognizable exclusively by the Court of
First Instance.

The jurisdiction of all courts in the Philippines, in so far as the authority thereof
depends upon the nature of litigation, is defined in the amended Judiciary Act,
pursuant to which courts of first instance shall have exclusive original jurisdiction
over any case the subject matter of which is not capable of pecuniary
estimation. An action for the annulment of a judgment and an order of a court
of justice belongs to th category.8

In determining whether an action is one the subject matter of which is not

capable of pecuniary estimation this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought. If it is primarily
for the recovery of a sum of money, the cliam is considered capable of
pecuniary estimation, and whether jurisdiciton is in the municipal courts or in the
courts of first instance would depend on the amount of the claim. However,
where the basic issue is something other than the right to recover a sum of
money, where the money claim is purely incidental to, or a consequence of, the
principal relief sought, this Court has considered such actions as cases where the
subject ogf the litigation may not be estimated in terms of money, and are
cognizable exclusively by courts of first instance.

In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held:

Actions for specific performance of contracts have been expressly prounounced

to be exclusively cognizable by courts of first instance: De Jesus vs. Judge
Garcia, L-26816, February 28, 1967; Manufacturers' Distributors, Inc. vs. Yu Siu
Liong, L-21285, April 29, 1966. And no cogent reason appears, and none is here
advanced by the parties, why an actin for rescission (or resolution) should be
differently treated, a "rescission" being a counterpart, so to speak, of "specific
performance'. In both cases, the court would certainly have to undertake an
investigation into facts that would justify one act of the other. No award for
damages may be had in an action for resicssion without first conducting an
inquiry into matters which would justify the setting aside of a contract, in the
same manner that courts of first instance would have to make findings of fact
and law in actions not capable of pecuniary estimnation espressly held to be so
by this Court, arising from issues like those arised in Arroz v. Alojado, et al., L-
22153, March 31, 1967 (the legality or illegality of the conveyance sought for and
the determination of the validity of the money deposit made); De Ursua v.
Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707,
December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August
25, 1960 (the relations of the parties, the right to support created by the relation,
etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963
(the validity or nullity of documents upon which claims are predicated). Issues of
the same nature may be raised by a party against whom an action for rescission
has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a
prayer for damages in an action for rescission should be taken as the basis for
concluding such action for resiccison should be taken as the basis for
concluding such action as one cpable of pecuniary estimation - a prayer which
must be included in the main action if plaintiff is to be compensated for what he
may have suffered as a result of the breach committed by defendant, and not
later on precluded from recovering damages by the rule against splitting a
cause of action and discouraging multiplicitly of suits.

The foregoing doctrine was reiterated in The Good Development Corporation vs.
Tutaan, 10 where this Court held:

On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et
al., is in point. It was ruled therein that although the purposes of an action is to
recover an amount plus interest which comes within the original jurisidction of the
Justice of the Peace Court, yet when said action involves the foreclosure of a
chattel mortgage covering personal properties valued at more than P2,000,
(now P10,000.00) the action should be instituted before the Court of First
Instance.
In the instanct, case, the action is to recover the amount of P1,520.00 plus
interest and costs, and involves the foreclosure of a chattel mortgage of
personal properties valued at P15,340.00, so that it is clearly within the
competence of the respondent court to try and resolve.

In the light of the foregoing recent rulings, the Court of First Instance of Negros
Occidental did no err in exercising jurisidction over Civil Case No. 5343.

The appellants also contend that the chattel mortgage may no longer be
annulled because it had been judicially approved in Civil Case No. 4797 of the
Court of First Instance of Negros Occidental and said chattel mortgage had
been ordered foreclosed in Civil Case No. 5223 of the same court.

On the question of whether a court may nullify a final judgment of another court
of co-equal, concurrent and coordinate jusridiction, this Court originally ruled
that:

A court has no power to interfere with the judgments or decrees of a court of

concurrent or coordinate jurisdiction having equal power to grant the relief
sought by the injunction.

The various branches of the Court of First Instance of Manila are in a sense
coordinate courts and cannot be allowed to interfere with each others'
judgments or decrees. 11

The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:

The rule which prohibits a Judge from intertering with the actuations of the Judge
of another branch of the same court is not infringed when the Judge who
modifies or annuls the order isued by the other Judge acts in the same case and
belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule is
infringed when the Judge of a branch of the court issues a writ of preliminary
injunction in a case to enjoint the sheriff from carrying out an order by execution
issued in another case by the Judge of another branch of the same court.
(Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).

This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought
to be annulled was rendered by the Court of First Instance of Iloilo and the
action for annullment was filed with the Court of First Instance of Antique, both
courts belonging to the same Judicial District. This Court held that:

The power to open, modify or vacant a judgment is not only possessed by but
restricted to the court in which the judgment was rendered.

The reason of this Court was:

Pursuant to the policy of judicial stability, the judgment of a court of competent

jurisdiction may not be interfered with by any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a
branch of the court of First Instance belongs solely to the very same branch
which rendered the judgement. 14

Two years later, the same doctrine was laid down in the Sterling Investment
case.15

In December 1971, however, this court re-examined and reversed its earlier
doctrine on the matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking
through Mr. Justice Villamor declared:

... the underlying philosophy expressed in the Dumara-og case, the policy of
judicial stability, to the end that the judgment of a court of competent
jurisdiction may not be interfered with by any court of concurrent jurisdiction may
not be interfered with by any court of concurrent jurisdiciton, this Court feels that
this is as good an occasion as any to re-examine the doctrine laid down ...

In an action to annul the judgment of a court, the plaintiff's cause of action

springs from the alleged nullity of the judgment based on one ground or another,
particularly fraud, which fact affords the plaintiff a right to judicial interference in
his behalf. In such a suit the cause of action is entirely different from that in the
actgion which grave rise to the judgment sought to be annulled, for a direct
attack against a final and executory judgment is not a incidental to, but is the
main object of the proceeding. The cause of action in the two cases being
distinct and separate from each other, there is no plausible reason why the
venue of the action to annul the judgment should necessarily follow the venue
of the previous action ...

The present doctrine which postulate that one court or one branch of a court
may not annul the judgment of another court or branch, not only opens the door
to a violation of Section 2 of Rule 4, (of the Rules of Court) but also limit the
opportunity for the application of said rule.

Our conclusion must therefore be that a court of first instance or a branch

thereof has the authority and jurisdiction to take cognizance of, and to act in,
suit to annul final and executory judgment or order rendered by another court of
first instance or by another branch of the same court...

In February 1974 this Court reiterated the ruling in the Dulap case.17

In the light of the latest ruling of the Supreme Court, there is no doubt that one
branch of the Court of First Instance of Negros Occidental can take cognizance
of an action to nullify a final judgment of the other two branches of the same
court.

It is true that the dissolution of a partnership is caused by any partner ceasing to

be associated in the carrying on of the business. 18 However, on dissolution, the
partnershop is not terminated but continuous until the winding up to the
business. 19

The remaining partners did not terminate the business of the partnership "Isabela
Sawmill". Instead of winding up the business of the partnership, they continued
the business still in the name of said partnership. It is expressly stipulated in the
memorandum-agreement that the remaining partners had constituted
themselves as the partnership entity, the "Isabela Sawmill". 20

There was no liquidation of the assets of the partnership. The remaining partners,
Leon Garibay and Timoteo Tubungbanua, continued doing the business of the
partnership in the name of "Isabela Sawmill". They used the properties of said
partnership.

The properties mortgaged to Margarita G. Saldajeno by the remaining partners,

Leon Garibay and Timoteo Tubungbanua, belonged to the partnership "Isabela
Sawmill." The appellant, Margarita G. Saldajeno, was correctly held liable by the
trial court because she purchased at public auction the properties of the
partnership which were mortgaged to her.

It does not appear that the withdrawal of Margarita G. Saldajeno from the
partnership was published in the newspapers. The appellees and the public in
general had a right to expect that whatever, credit they extended to Leon
Garibay and Timoteo Tubungbanua doing the business in the name of the
partnership "Isabela Sawmill" could be enforced against the proeprties of said
partnership. The judicial foreclosure of the chattel mortgage executed in favor of
Margarita G. Saldajeno did not relieve her from liability to the creditors of the
partnership.

The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame

for not insisting on the liquidaiton of the assets of the partnership. She even
agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the
business of the partnership "Isabela Sawmill" by entering into the memorandum-
agreement with them.

Although it may be presumed that Margarita G. Saldajeno had action in good

faith, the appellees aslo acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person who
gave occasion for the damages to be caused must bear the consequences.
Had Margarita G. Saldajeno not entered into the memorandum-agreement
allowing Leon Garibay and Timoteo Tubungbanua to continue doing the
business of the aprtnership, the applees would not have been misled into
thinking that they were still dealing with the partnership "Isabela Sawmill". Under
the facts, it is of no moment that technically speaking the partnership "Isabela
Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno.
The partnership was not terminated and it continued doping business through
the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to
annul the chattel mortgage of the propertiesof the partnership executed by
Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno has
no merit.

As a rule, a contract cannot be assailed by one who is not a party thereto.

However, when a contract prejudices the rights of a third person, he may file an
action to annul the contract.

This Court has held that a person, who is not a party obliged principally or
subsidiarily under a contract, may exercised an action for nullity of the contract if
he is prejudiced in his rights with respect to one of the contracting parties, and
can show detriment which would positively result to him from the contract in
which he has no intervention. 21

The plaintiffs-appellees were prejudiced in their rights by the execution of the

chattel mortgage over the properties of the partnership "Isabela Sawmill" in
favopr of Margarita G. Saldajeno by the remaining partners, Leon Garibay and
Timoteo Tubungbanua. Hence, said appelees have a right to file the action to
nullify the chattel mortgage in question.

The portion of the decision appealed from ordering the appellants to pay
attorney's fees to the plaintiffs-appellees cannot be sustained. There is no
showing that the appellants displayed a wanton disregard of the rights of the
plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that
they are not liable to pay the claims.

The defendants-appellants have a right to be reimbursed whatever amounts

they shall pay the appellees by their co-defendants Leon Garibay and Timoteo
Tubungbanua. In the memorandum-agreement, Leon Garibay and Timoteo
Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of
"Isabela Sawmill" to third persons. 22

WHEREFORE, the decision appealed from is hereby affirmed with the elimination
of the portion ordering appellants to pay attorney's fees and with the
modification that the defendsants, Leon Garibay and Timoteo Tubungbanua,
should reimburse the defendants-appellants, Margarita G. Saldajeno and her
husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees,
without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio-Herrera,

JJ., concur.
FIRST DIVISION

[ G.R. No. 158314, June 03, 2004 ]

SAMAHAN NG MAGSASAKA SA SAN JOSEP, REPRESENTED BY DOMINADOR

MAGLALANG, PETITIONER, VS. MARIETTA VALISNO, ADELA, AQUILES, LEANDRO,
HONORIO, LUMEN, NICOLAS, ALL SURNAMED VALISNO; RANDY V. WAGNER,
MARIA MARTA B. VALISNO, NOELITO VALISNO, MARY ANN L. VALISNO, PHILIP V.
BRANZUELA AND BRENDON V. YUJUICO; MA. CRISTINA VALISNO, BENEDICTO V.
YUJUICO, GREGORIO V. YUJUICO AND LEONORA V. YUJUICO, RESPONDENTS.

DECISION

YNARES-SATIAGO, J.:

The sole issue in this petition for review on certiorari is whether or not the
grandchildren of the late Dr. Nicolas Valisno Sr. are entitled to retention rights as
landowners under Republic Act No. 6657, or the Comprehensive Agrarian
Reform Law (hereafter, “CARL”).

The original 57-hectare property, situated in La Fuente, Sta. Rosa, Nueva Ecija,
was formerly registered in the name of Dr. Nicolas Valisno, Sr. under Transfer
Certificate of Title No. NT-38406. Before the effectivity of Presidential Decree No.
27,[1] the land was the subject of a judicial ejectment suit, whereby in 1971, the
Valisnos’ tenants were ejected from the property.[2] Among these tenants was
Dominador Maglalang, who represents the SMSJ in the instant proceedings.

Meanwhile, on October 20 and 21, 1972, Dr. Valisno mortgaged 12 hectares of

his property to Renato and Angelito Banting.[3] Thereafter, the property was
subdivided into ten lots and on November 8, 1972, individual titles were issued in
the name of the eight children of Nicolas, Angelito Banting, and Renato
Banting.[4]

After the mortgage on the 12 hectare portion was foreclosed and the property
sold at public auction, four grandchildren of Dr. Nicolas Valisno, namely: Maria
Cristina F. Valisno, daughter of Romulo D. Valisno; and Leonora Valisno Yujuico,
Benedicto Valisno Yujuico and Gregorio Valisno Yujuico, children of Marietta
Valisno redeemed the same from the mortgagees.[5] At the time of the
redemption, Maria Cristina, Leonora and Gregorio were all minors; only
Benedicto was of legal age, being then 26 years old.[6] The redemption was
made on October 25, 1973, but the titles to the land were not transferred to the
redemptioners until November 26, 1998.[7]

Subsequently, the entire 57-hectare property became the subject of

expropriation proceedings before the Department of Agrarian Reform (“DAR”).
In 1994, Dominador Maglalang, in behalf of the SMSP, filed a petition for
coverage of the subject landholding under the CARL, which petition was
dismissed for want of jurisdiction.[8] On June 14, 1995, Rogelio Chaves, DAR
Provincial Agrarian Reform Officer (“PARO”), issued a Memorandum stating that
the property had been subdivided among the heirs of Dr. Nicolas Valisno Sr.
before the issuance of PD 27 into tracts of approximately six hectares
each.[9] Nevertheless, PARO Chaves added that the excess over the five-hectare
retention limit could still be covered under RA 6657.[10]

On appeal, the Office of the Regional Director issued an Order dated January 2,
1996, declaring the Valisno property exempt from the coverage of PD 27 and RA
6657.[11] This was reversed by then Secretary Garilao, who held that the property
is covered by the Comprehensive Agrarian Reform Program, subject to the
retention rights of the heirs of Nicolas, Sr. The Valisno heirs filed a motion for
reconsideration of the said order, but the same was denied.

On September 25, 1997, the Valisno heirs filed a Consolidated Application for
Retention and Award under RA 6657. Specifically, the petition was filed by (1)
Adela, Aquiles, Leandro, Honorio, Lumen, Nicolas and Marietta Valisno, seven
children of Nicolas Valisno, Sr., who applied for retention rights as landowners; (2)
Randy V. Wagner, Maria Marta B. Valisno, Noelito Valisno, Mary Ann L. Valisno,
Philip V. Branzuela and Brendon V. Yujuico, grandchildren of Nicolas Sr.
(hereafter collectively the “Grandchildren-Awardees”), who applied to be
considered qualified child-awardees; and (3) Ma. Cristina Valisno, Benedicto V.
Yujuico, Gregorio V. Yujuico and Leonora V. Yujuico, likewise grandchildren of
Nicolas Sr. (hereafter collectively the “Redemptioner-Grandchildren”), who
applied for retention rights as landowners over the 12-hectare portion of the
property alleged to have been mortgaged by Nicolas Sr. in 1972 to Angelito and
Renato Banting.

The SMSJ, through Dominador Maglalang, opposed the Consolidated

Application for Retention, specifically objecting to the award in favor of the
Grandchildren-Awardees because they are not actually tilling nor directly
managing the land in question as required by law.

On November 4, 1998, Regional Director Renato F. Herrera issued an Order which

pertinently reads:

WHEREFORE, premises considered, an ORDER is hereby issued as follows:

1. GRANTING the application for retention of the heirs of Dr. Nicolas Valisno,
Sr., namely: Marietta Valisno; Honorio Valisno; Leandro Valisno; Adela
Valisno; Nicolas Valisno, Jr.; Aquiles Valisno; and Lumen Valisno of not
more than five (5) hectares each or a total of 35 hectares covered by Title
Nos. 118446, 118443, 118442, 118440, 118445, 118441 and 118444,
respectively, all located at La Fuente, Sta. Rosa, Nueva Ecija;
 2. PLACING the excess of 19.0 hectares, more or less, under RA 6657 and
acquiring the same thru Compulsory Acquisition for distribution to qualified
farmer-beneficiaries taking into consideration the basic qualifications set
forth by law;

3. DENYING the request for the award to children of the applicants for utter
lack of merit; and

4. DIRECTING the applicants-heirs to cause the segregation and survey of

the retained area at their own expense and to submit within thirty (30)
days the final approved survey plan to this Office.

SO ORDERED.[12]

On appeal, the DAR Secretary affirmed the Order of the Regional Director with
the following relevant ratiocination:

In the second assignment of error, appellants faulted the Regional Director for
not giving due consideration to the two (2) mortgages constituted by the original
owner over a portion of his landholding in 1972 and redeemed by the latter’s
grandchildren in 1973, when the 12-hectare land subject of the mortgages were
ordered to be distributed to CARP beneficiaries.

xxxxxxxxx

The alleged redemption of the mortgaged property by the four (4)

grandchildren of Nicolas Valisno, Sr., namely Ma. Cristina, Leonora, Gregorio and
Benedicto, is not likewise worthy of any credence. The mortgaged property was
allegedly redeemed on October 25, 1973. From the evidence on record, three
(3) of the alleged redemptioners represented to be of legal age in the Discharge
of Mortgage were still minors, hence, without any legal capacity at the time the
redemption was made.[13]

On June 23, 2000, the motion for reconsideration filed by the heirs of Dr. Valisno
was denied.[14]

Respondent heirs filed a petition for review with the Court of Appeals, arguing
that the Secretary of Agrarian Reform erred (1) in disallowing the award of one
hectare to each of the seven Grandchildren-Awardees of Dr. Nicolas Valisno, as
qualified children-awardees under the CARL; and (2) in not recognizing the
redemption made by the four grandchildren of Dr. Nicolas Valisno over the 12-
hectare riceland mortgaged to Renato and Angelito Banting.[15]

On March 26, 2002, the Court of Appeals reversed the Orders of the DAR
Secretary, granted the award of one hectare each for the seven Grandchildren-
Awardees, and affirmed the retention rights of the Redemptioner-Grandchildren
over three hectares each, or a total of 12 hectares.[16]

Petitioners filed a partial motion for reconsideration, assailing the right of

retention of the four Redemptioner-Grandchildren over the 12-hectare property,
and praying that an amended decision be rendered placing the 12 hectares
under the coverage of the CARP.[17] This motion was denied on March 25,
2003. [18]

Hence, this appeal, on the sole assignment of error:

THE HONORABLE COURT OF APPEALS ERRED WHEN, IN EFFECT, IT RULED THAT THE
REDEMPTIONERS (GRANDCHILDREN OF THE DECEASED NICOLAS VALISNO, SR.)
WERE ENTITLED TO RETENTION RIGHTS AS LANDOWNERS UNDER THE AGRARIAN
REFORM LAW DESPITE THE FACT THAT THE REDEMPTION WAS DONE BY THEIR
PARENTS (CHILDREN OF THE DECEASED) ONLY IN THEIR NAME AND FOR THEIR
BENEFIT.[19]

The appeal lacks merit.

The Court of Appeals found the following facts relevant: First, that the mortgages
were constituted over a 12-hectare portion of Dr. Valisno’s estate in
1972. Second, that the titles to the property were transferred to the names of the
mortgagees in 1972, viz., TCT No. NT-118447, covering a 6-hectare property in La
Fuente, Sta. Rosa, Nueva Ecija, issued in the name of Angelito Banting; and TCT
No. NT-118448, likewise covering a 6-hectare property in La Fuente, Sta. Rosa,
Nueva Ecija, issued in the name of Renato Banting. Third, these properties were
redeemed by the Redemptioner-Grandchildren on October 25, 1973, at the time
of which redemption three of the four Redemptioner-Grandchildren were minors.

It is a well-settled rule that only questions of law may be reviewed by the

Supreme Court in an appeal by certiorari.[20] Findings of fact by the Court of
Appeals are final and conclusive and cannot be reviewed on appeal to the
Supreme Court.[21] The only time this Court will disregard the factual findings of
the Court of Appeals (which are ordinarily accorded great respect) is when
these are based on speculation, surmises or conjectures or when these are not
based on substantial evidence.[22]

In the case at bar, no reason exists for us to disregard the findings of fact of the
Court of Appeals. The factual findings are borne out by the record and are
supported by substantial evidence.

Given these settled facts, the resolution of the sole issue in this case hinges on (1)
the validity of the redemption in 1973, made when three of the Redemptioner-
Grandchildren were minors; and (2) if the redemption was valid, the
determination of the retention rights of the Redemptioner-Grandchildren, if any,
under RA 6557.

The relevant laws governing the minors’ redemption in 1973 are the general Civil
Code provisions on legal capacity to enter into contractual relations. Article 1327
of the Civil Code provides that minors are incapable of giving consent to a
contract. Article 1390 provides that a contract where one of the parties is
incapable of giving consent is voidableor annullable. Thus, the redemption
made by the minors in 1973 was merely voidable or annullable, and
was notvoid ab initio, as petitioners argue.

Any action for the annulment of the contracts thus entered into by the minors
would require that: (1) the plaintiff must have an interest in the contract; and (2)
the action must be brought by the victim and not the party responsible for the
defect.[23] Thus, Article 1397 of the Civil Code provides in part that “[t]he action
for the annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are capable cannot allege the
incapacity of those with whom they contracted.” The action to annul the minors’
redemption in 1973, therefore, was one that could only have been initiated by
the minors themselves, as the victims or the aggrieved parties in whom the law
itself vests the right to file suit. This action was never initiated by the minors. We
thus quote with approval the ratiocination of the Court of Appeals:

Respondents contend that the redemption made by the petitioners was

simulated, calculated to avoid the effects of agrarian reform considering that at
the time of redemption the latter were still minors and could not have resources,
in their own right, to pay the price thereof.

We are not persuaded. While it is true that a transaction entered into by a party
who is incapable of consent is voidable, however such transaction is valid until
annulled. The redemption made by the four petitioners has never been annulled,
thus, it is valid.[24]

The transfer of the titles to the two 6-hectare properties in 1972 removed the
parcels of land from the entire Valisno estate. The evidence clearly demonstrates
that Renato Banting and Angelito Banting became the registered owners of the
property in 1972. These two separate properties were then transferred to the
Redemptioner-Grandchildren in 1973. Regardless of the source of their funds,
and regardless of their minority, they became the legal owners of the property in
1973.

Moreover, although Maria Cristina, Leonora and Gregorio were all minors in 1973,
they were undoubtedly of legal age in 1994, when SMSP initiated the petition for
coverage of the subject landholding under the CARL, and of course were
likewise of legal age in 1997, when all the Valisno heirs filed their Consolidated
Application for Retention and Award under RA 6657.
As owners in their own right of the questioned properties, Redemptioner-
Grandchildren enjoyed the right of retention granted to all landowners. This right
of retention is a constitutionally guaranteed right, which is subject to qualification
by the legislature.[25] It serves to mitigate the effects of compulsory land
acquisition by balancing the rights of the landowner and the tenant and by
implementing the doctrine that social justice was not meant to perpetrate an
injustice against the landowner.[26] A retained area, as its name denotes, is land
which is not supposed to leave the landowner’s dominion, thus sparing the
government from the inconvenience of taking land only to return it to the
landowner afterwards, which would be a pointless process.

In the landmark case of Association of Small Landowners in the Philippines, Inc. v.

Secretary of Agrarian Reform,[27]we held that landowners who have not yet
exercised their retention rights under PD 27 are entitled to the new retention
rights under RA 6657.[28] The retention rights of landowners are provided in Sec. 6
of RA 6657, which reads in relevant part:

SECTION 6. Retention Limits. – Except as otherwise provided in this Act, no person

may own or retain, directly or indirectly, any public or private agricultural land,
the size of which shall vary according to factors governing a viable family-size,
such as commodity produced, terrain, infrastructure, and soil fertility as
determined by the Presidential Agrarian Reform Council (PARC) created
hereunder, but in no case shall retention by the landowner exceed five (5)
hectares. Three (3) hectares may be awarded to each child of the landowner,
subject to the following qualifications: (1) that he is at least fifteen (15) years of
age; and (2) that he is actually tilling the land or directly managing the
farm; Provided, That landowners whose land have been covered by Presidential
Decree No. 27 shall be allowed to keep the area originally retained by them
thereunder, Provided further, That original homestead grantees or direct
compulsory heirs who still own the original homestead at the time of the
approval of this Act shall retain the same areas as long as they continue to
cultivate said homestead.

The right to choose the area to be retained, which shall be compact or

contiguous, shall pertain to the landowner. Provided, however, That in case the
area selected for retention by the landowner is tenanted, the tenant shall have
the option to choose whether to remain therein or be a beneficiary in the same
or another agricultural land with similar or comparable features. In case the
tenant chooses to remain in the retained area, he shall be considered a
leaseholder and shall lose his right to be a beneficiary under this Act. In case the
tenant chooses to be a beneficiary in another agricultural land, he loses his right
as a lease-holder to the land retained by the landowner. The tenant must
exercise this option within a period of one (1) year from the time the landowner
manifests his choice of the area for retention.
This section defines the nature and incidents of a landowner’s right of retention.
For as long as the area to be retained is compact or contiguous and it does not
exceed the retention ceiling of five hectares, a landowner’s choice of the area
to be retained must prevail.

Each of the four Redemptioner-Grandchildren is thus entitled to retain a parcel

of land with a ceiling of five hectares, for a total of 20 hectares. The parcels of
land in question total only 12 hectares, or only three hectares each, which is well
within the statutory retention limits.

WHEREFORE, premises considered, the Decision of the Court of Appeals in CA-

G.R. SP No. 59752 dated March 26, 2002, and Resolution of the Court of Appeals
dated March 25, 2003, which upheld the retention rights of respondents Ma.
Cristina Valisno, Benedicto V. Yujuico, Gregorio V. Yujuico and Leonora V.
Yujuico, are AFFIRMED.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 74938-39 January 17, 1990

ANGELINA J. MALABANAN, petitioner,

vs.
GAW CHING and THE INTERMEDIATE APPELLATE COURT, respondents.

G.R. No. L-75524-25 January 17, 1990

LEONIDA CHY SENOLOS, LEONARD CHAN and LEONSO CHY CHAN, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and GAW CHING, respondents.

Puruganan, Chato, Chato, Chato & Tan and Romero, Lagman, Torres, Arrieta &
Evangelista for petitioners in 75524-25.

Quiason, Makalintal, Barot & Torres for petitioners in 74938-39.

Limqueco & Macaraeg Law Office and Herminio T. Sugay for respondent Gaw
Ching.

RESOLUTION

FELICIANO, J.:

The two (2) Petitions before us - G.R. Nos. 74938-39 and 75524-25 - assail the
decision of the then Intermediate Appellate Court in A.C.-G.R. CV Nos. 05136-
05137 dated 31 January 1986, which reversed the decision of the Regional Trial
Court in two (2) consolidated cases, namely: Civil Case No. R-81-416 and Civil
Case No. R-82-6789. Upon motion of petitioners, we ordered the consolidation of
the two (2) Petitions.

Respondent Gaw Ching instituted two (2) cases against petitioners Angelina
Malabanan, Leonida Senolos, et al. in connection with the sale of piece of land
located in Binondo, Manila. The first case, Civil Case No. R-81-416, sought to
annul such sale and to enjoin the demolition of a building standing on that piece
of land, and also prayed for the award of damages. The second case, Civil Case
No. G.R. 82-6798, demanded damages from petitioner Senolos for bringing about
the demolition of the building.

The following facts found by the trial court, and adopted and incorporated by the
appellate court, are undisputed:
Evidence for plaintiff showed that Gaw Ching has been leasing the house and lot
located [in] 697-699 Asuncion Street, Binondo, Manila from Mr. Jabit since 1951.
Plaintiff conducted his business (Victoria Blacksmith Shop) on the ground floor
and lived on the second floor. When Mr. Jabit died, his daughter, defendant
Malabanan continued to lease the premises to plaintiff but at an increased rental
of P1,000.00 per month. Before the increase, Gaw Ching paid P700.00 per month,
as evidenced by receipts of rentals. There was no written contract of lease
between plaintiff and Mr. Jabit as to its duration but the rentals were evidently,
paid monthly. On April 27, 1980, Angelina Malabanan told him that she was
selling the house and lot for P5,000.00 per square meter. Plaintiff told her
however, that the price is prohibitive. On May 13, 1980, defendant Malabanan
wrote plaintiff, reiterating that she was selling the house and lot at P5,000.00 per
square meter and that if he is not agreeable, she will sell it to another person.
After receiving the letter, plaintiff turned over the letter to his counsel, Atty.
Sugay. Gaw Ching claims that he is not in a position to buy the property at
P5,000.00 per square meter because it was expensive. Subsequently, Gaw Ching
tried to pay the rent for June, 1980, but Malabanan refused to accept it. Plaintiff's
counsel advised him to deposit the rentals in a bank which he did, after which,
his counsel wrote Malabanan informing her about the deposit (Exh. B). On
October 2, 1980, plaintiff received another letter from defendant Malabanan
which he gave to his counsel who told him that said defendant is offering the
house and lot at P5,000.00 per square meter and that if he is not agreeable, she
will sell the premises to another person at P4,000.00 per square meter. Plaintiff
testified that he was willing to buy the subject property at P4,000.00 but hastened
to add that it was still expensive and did not ask his counsel to write Malabanan
about it. So, also, it was the opinion of his counsel that it was not necessary to
reply because the context of the letter was invariably a threat. On November 3,
1980, plaintiff received another letter from Defendant Malabanan, informing him
that the premises in question had already been sold to defendant Leonida
Senolos. This time, Atty. Sugay sent a reply dated November 24, 1980, requesting
that the pertinent documents of the sale be sent to them but according to
plaintiff, they were not furnished a copy of said sale. Consequently, plaintiff
received a letter from Atty. Techico dated December 5, 1980 demanding that he
vacate the premises and to pay the arrearages in rentals from October to
December, as they were more importantly, going to repair and convert the
dwelling into a warehouse. Atty. Sugay sent a reply dated February 17, 1981 (Exh.
C) requesting Atty. Techico to furnish them with the Deed of Sale and TCT
because he doubted the veracity of the sale. It took a long time before Atty.
Sugay's letter was answered and he was never furnished a copy of the Deed of
Sale and Transfer Certificate of Title. After exerting all efforts, plaintiff finally was
able to procure a copy of the Deed of Sale and TCT No. 14789 (Exh- A) which
reflected that the date of entry of the Deed of Sale was December 9, 1980,
whereas the Deed of Sale was dated August 23, 1979 (Exh. I). Plaintiff then told
Atty. Sugay to file a civil case against defendants. On October 7, 1981, Atty.
Techico sent a reply to Atty. Sugay's letter of February 17, 1981 (Exh K). Plaintiff
presented the receipt of rentals he paid (Exhs. L to L-6). He deposited the monthly
rentals which Malabanan refused to accept, with the Pacific Banking
Corporation (Exh. M). At a later period, plaintiff had to move out of the premises
when it was demolished by the defendant. Gaw Ching however, admitted that
he was not yet a Filipino Citizen at the time the offer to sell was made, i.e., on
April 27, 1980, May 13, 1980 and October 2, 1980 and that he became a Filipino
citizen only on October 7, 1980, when he was issued a certificate of naturalization
(Exh. 1-Malabanan). He did not, however, inform Malabanan on the matter of his
newly acquired citizenship. Likewise, Gaw Ching admitted that he did not make
any counter-offer in writing so as to price the property.

As to plaintiffs claim for damages, he testified, that this was motivated by the
incident on November 16, 1981, while he was on the ground floor, when there
was a sudden brownout, and around 50 people came thereat, climbed the roof
with the use of a ladder, cut the electric wires and started banging the roof.
Plaintiff, his wife, and mother-in-law were in the house and about 7 laborers were
in the shop when the incident happened. Plaintiff then immediately called up
Atty. Sugay and told him that Leonida Senolos called some people to demolish
the house. Plaintiff further testified that ... he was not notified of the demolition. . . .
On that same day, Atty. Sugay arrived at about 10:00 a.m. and told plaintiff that
he was going to the City Hall. When Atty. Sugay came back, he was with Roldan
(Building Inspector), who ordered that the demolition be stopped, but Leonida
Senolos refused to heed the order. Atty. Sugay and Roldan went back to the City
Hall. . . . At about 3:00 p.m., Atty. Sugay came back with another person from the
City Hall who presented a letter to Leonida Senolos to which defendant affixed
her signature. The formal letter was dated November 6, 1981 addressed to
Leonida Senolos by Romulo del Rosario, City Engineer and Building Officer. Upon
receipt of the letter, the policeman remained but the demolition continued.
Plaintiff together with Atty. Sugay, and the City Hall official, went to the police
precinct where the City Hall Official talked with somebody in the precinct. It was
only when they returned to the premises at about 4:00 p.m. with a policeman
that the demolition was stopped. . . .

On cross examination, plaintiff admitted that he received a letter from the Office
of the City Engineer dated July 29, 1981 (Exh. 1-Senolos) condemning the
building. He also admitted that he was furnished a copy of the Demolition Order
(Exh. 2-Senolos) to which he affixed his signature.

After receiving Exhibits "I" and "2," Gaw Ching still refused to vacate the premises
because he was told that the building was still in good condition and he
continued paying the monthly rental.

On redirect, plaintiff declared that after receiving the notice of the City Engineer,
he filed a complaint with the Ministry of Public Works and Highways by reason of
which, the MPWH issued an order that the demolition to be stopped. (Exh. 3).
xxx xxx xxx

Another witness presented by plaintiff was Felix Tienzo, Actg. Chief of

Enforcement Division, (Ministry of Public Works and Highways). . .

Mr. Felix Tienzo believes that the City of Manila was correct in ordering the
demolition of the building but he intended to hold in abeyance the demolition of
the building only in obedience to the order of the MPWH. However, both Mr.
Tienzo and Mr. Roldan claim that they do not usually receive an order from the
MPWH stopping the demolitions.

xxx xxx xxx 1

On 10 August 1984, the trial court rendered a decision which upheld the validity
of the contract of sale between petitioner Malabanan and petitioner Senolos. The
trial court declared that petitioner Malabanan had not violated Sections 4 and 6
of Presidential Decree No. 1517 in relation to Presidential Proclamation No. 1893
and Letter of Instruction (LOI) No. 935 which provide for a preemptive right on the
part of a lessee over leased property. The trial court stressed that respondent
Gaw Ching had been given ample opportunity to exercise any right of first
refusal he might have had, but he had chosen not to do so.

Respondent Gaw Ching went on appeal to the then Intermediate Appellate

Court. By a vote of three (3) to two (2), the appellate court voted to reverse the
decision of the trial court and hence to nullify the contract of sale between
petitioners Malabanan and Senolos inter se. 2 The majority also held that the
transaction between petitioners was vitiated by fraud, deceit and bad faith
allegedly causing damage to respondent Gaw Ching. Petitioners were held
liable jointly and severally to respondent for moral, exemplary and actual
damages in the amount of P350,000.00 and for attorney's fees in the amount of
P20,000.00 -

for the indulgence in inequitous conduct to plaintiff-appellant's (respondent Gaw

Ching) prejudice and for the unwarranted demolition of the building by
defendants-appellees (petitioners herein) after the issuance of the cease-and-
desist order on October 30, 1981.

While holding that the land in question was located outside the Urban Land
Reform Zone declared by Proclamations Nos. 1767 and 1967, the majority ruled
that circumstances surrounding the sale of the land to petitioner Senolos had
rendered that sale null and void. The majority were here referring to the finding
that when petitioner Malabanan offered in October 1980 to sell the land involved
to respondent Gaw Ching at P5,000.00 per square meter, that land had already
been sold to petitioner Senolos as early as August 1979 for only P1,176.48 per
square meter. On the matter of the demolition of the building, the majority held
that the same was unwarranted and that even if petitioner Senolos had a
demolition order,
that order of demolition was valid only if there are no more tenants residing in the
building. If there are tenants and they refused to vacate, the order of demolition
is unavailing. It could not rise higher than the Civil Code and the Rules of Court. 3

In the instant Petitions for Certiorari, petitioners assail both the annulment of the
deed of sale and the grant of P350,000.00 worth of "moral, exemplary and actual
damages" to respondent Gaw Ching.

We believe that the Petitions must be granted.

The firmly settled rule is that strangers to a contract cannot sue either or both of
the contracting parties to annul and set aside that contract. Article 1397 of the
Civil Code embodies that rule in the following formulation:

Art. 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are
capable cannot allege the incapacity of those with whom they contracted; nor
can those who exerted intimidation, violence, or undue influence, or employed
fraud, or caused mistake base their action upon these flaws of the contract.
(Emphasis supplied)

Article 1397 itself follows from Article 1311 of the Civil Code which establishes the
fundamental rule that:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the decedent.

xxx xxx xxx

(Emphasis supplied)

As long ago as 1912, this Court in Ibanez v. Hongkong and Shanghai

Bank, 4 pointed out that it is the existence of an interest in a particular contract
that is the basis of one's right to sue for nullification of that contract and that
essential interest in a given contract is, in general, possessed only by one who is
a party to the contract. In Ibanez, Mr. Justice Torres wrote:

From these legal provisions it is deduced that it is the interest had in a given
contract, that is the determining reason of the right which lies in favor of the party
obligated principally or subsidiarily to enable him to bring an action for the nullity
of the contract in which he intervened, and, therefore, he who has no right in a
contract is not entitled to prosecute an action for nullity, for, according to the
precedents established by the courts, the person who is not a party to a contract
nor has any cause of action or representation from those who intervened therein,
is manifestly without right of action and personality such as to enable him to
assail the validity of the contract. (Decisions of the Supreme Court of Spain, of
April 18, 1901, and November 23, 1903, pronounced in cases requiring an
application of the preinserted article 1302 of the Civil Code. 5

Mr. Justice Torres went on to indicate a possible qualification to the above

general principle, that is, a situation where a non-party to a contract could be
allowed to bring an action for declaring that contract null:

He who is not the party obligated principally or subsidiarily in a contract

may perhaps be entitled to exercise an action for nullity, if he is prejudiced in his
rights with respect to one of the contracting parties; but, in order that such be
the case, it is indispensable to show the detriment which positively would result to
him from the contract in which he had no intervention

xxx xxx xxx

(Emphasis supplied)

There is an important and clear, albeit implicit, limitation upon the right of a
person who is in fact injured by the very operation of a contract between two (2)
third parties to sue to nullify that contract: that contract may be nullified only to
the extent that such nullification is absolutely necessary to protect the plaintiff's
lawful rights. It may be expected that in most instances, an injunction restraining
the carrying out of acts in fact injurious to the plaintiff's rights would be sufficient
and that there should be no need to set aside the contract itself which is a res
inter alios acta and which may have any number of other provisions,
implementation of which might have no impact at all upon the plaintiff's rights
and interests.

What is important for present purposes is that respondent Gaw Ching, admittedly
a stranger to the contract of sale of a piece of land between petitioners
Malabanan and Senolos inter se, does not fall within the possible exception
recognized in Ibanez v. Hongkong & Shanghai Bank. In the first place, Gaw
Ching had no legal right of preemption in respect of the house and lot here
involved. The majority opinion of the appellate court itself explicitly found that
the subject piece of land is located outside the Urban Land Reform Zones
declared pursuant to P.D. No. 1517. 7Even assuming for purposes of argument
merely, that the land here involved was in fact embraced in a declared Urban
Land Reform Zone (which it was not), Gaw Ching would still not have been
entitled to a right of preemption in respect of the land sold. In Santos v. Court of
Appeals, 8 this Court held that the preemptive or redemptive rights of a lessee
under P.D. No. 1517 exists only in respect of the urban land under lease on which
the tenant or lessee had built his home and in which he had resided for ten (10)
years or more and that, in consequence, where both land and building belong
to the lessor, that preemptive or redemptive right was simply not available under
the law.
Finally, we are unable to understand the respondent appellate court's view that
respondent Gaw Ching having been a long-time tenant of the property in
question, had acquired a preferred right to purchase that property. This holding
is simply bereft of any legal basis. We know of no law, outside the Urban Land
Reform Zone or P.D. No. 1517, that grants such a right to a lessee no matter how
long the period of the lease has been. If such right existed at all, it could only
have been created by contract; 9 respondent Gaw Ching does not, however,
pretend that there had been such a contractual stipulation between him and
petitioners.

In the second place, assuming once again, for present purposes only, that
respondent Gaw Ching did have a preemptive right to purchase the land from
petitioner Malabanan (which he did not), it must be stressed that petitioner
Malabanan did thrice offer the land to Gaw Ching but the latter had consistently
refused to buy. Since Gaw Ching did not in fact accept the offer to sell and did
not buy the land, he suffered no prejudice, and could not have suffered any
prejudice, by the sale of the same piece of land to petitioner Senolos. No fraud
was thus worked upon him notwithstanding his insinuation that the sale of the
land to petitioner Senolos had preceded the offer of the same piece of land to
himself.

In the third place, and contrary to the holding of the majority appellate court
opinion, the fact that Gaw Ching had been lessee of the house and lot was
simply not enough basis for a right to bring an action to set aside the contract of
sale between the petitioners inter se. A lessee, it is elementary, cannot attack the
title of his lessor over the subject matter of the lease. 10 Moreover, the lease
contract between petitioner Malabanan and respondent Gaw Ching must in
any case be held to have lapsed when the leased house was condemned and
the order of demolition issued.

II

We consider next petitioners' claim that the appellate court erred grievously in
imposing upon them an award of P350,000.00 for "moral, exemplary and actual
damages" not only because petitioners had "indulged in inequitous conduct to
[respondent Gaw Ching's] prejudice" but also "for the unwarranted demolition of
the building by [petitioners] after the issuance of the cease and desist order on
October 30, 1981."

Here again, we are compelled to hold that the appellate court lapsed into
reversible error. The relevant conclusions of fact which the trial court arrived at
are set out in its decision in the following manner:

On the legality of the demolition necessarily raising the question: (3) whether or
not plaintiff was notified within a reasonable period of time of the demolition,
and a fortiori whether this admittedly exercise of police power, the validity of
which was already being determined by the Court could be stopped by a
pretenatural [sic] administrative order from the office of the Assistant Secretary
for Operation of the MPWH brought about by an appeal by a person other than
the owner of the building, which office had not done anything to immediately
forestall the imminent injury to person and damage to property. (Please see P.D.
1096, Rule XII, Sec. 5 thereof).

In the first place, the claim of the plaintiff that the demolition of the house rented
by him came as a surprise, is fiercely contradicted by his own evidence. A copy
of the demolition order is attached to the complaint as Annex "L", now marked
as Exhibit "9" for the defendant Senolos, unmistakably show that plaintiff received
a copy of the order of demolition from the City Engineer's Office, approved by
the Mayor, on October 5, 1981.

Verily, the present action before the Court is procedurally and substantially
correct in abating a nuisance. This exercise of police power is not only being
cordoned sanitaired [sic] by the doctrinal pronouncements, the provisions of Art.
482 in relation to Art. 436 of the Civil Code, Sections 275 and 276 of the
compilation of ordinances of the City of Manila but also by Rule VII, par. 5 of the
implementing Rules and Regulations of the National Building Code of the
Philippines (P.D. 1096). Indeed, the latter law does not authorize any person other
than the owner, to appeal the order of the City Engineer to the Ministry of Public
Works and Highways. This is the position espoused by the City Legal Officer of
Manila in defense of the City Engineer and the Mayor, in opposition to the move
of the plaintiff to dismiss the order of demolition as improvidently issued.

The demolition was invariably a valid exercise of police power which may be
ordered done by the authorities or caused to be done at the expense of the
owner. The exigency is made more demanding especially, the demolition, when
it was ordered stopped thru an order inadvertently issued, as it was not as a
consequence of an appeal by the owner of the building, but by the lessee, was
during its last stages.

It therefore stands to reason that the order of demolition which is unquestionably

legal could not be stopped by an inoperative administrative order, assuming
that the appeal to the MPWH could validly be filed by the lessee, as it was filed
only during the finishing touches of a demolition. Decidedly, the move exude
physiological features of delay. This is compounded by the failure of the MPWH
to act assertively, which in a sense, could be interpreted as an admission that
the issuance of the order was inopportune.

On the claim for damages predicated on (4) whether or not there was an
indscriminate careless handling and pilferage of the properties of the plaintiff,
causing their loss or destruction:

It is readily explained that between October 5, 1981 to November 6,1981, plaintiff

could have avoided the misplaced fear, but assuming without having
necessarily to concede that he was not able to guard against an actual
demolition on November 6, 1981, rendering him so helpless, and prompting him
to just sit on the sidewalk and watch the demolition team wreck the building
indiscriminately, thereby causing destruction and loss of his personal properties,
such as: (a) office equipment; (b) assorted tools; (c) machines; (d) finished
products; and (e) steel box containing jewelries. The claim is almost too good to
be true, considering first, that these items were so huge that they could not be
spirited away without being noticed and, secondly; it has been established that
there was a policeman detailed to the demolition scene from the start of the
said demolition, to whom he could have easily reported the matter, caused the
apprehension of the culprits, and prevent the loss of his personal properties,
thirdly, he could have grabbed the steel box containing jewelries if this were the
last thing he would have done. Waiting idly by the sidewalk and watching your
properties pilfered by persons whom you could have successfully identified at
the time and referring the matter to the policeman on duty, which plaintiff did
not do, is certainly against the natural order of things and the legal presumption
that a person takes great care of his concern. Plaintiff strongly relies on the
alleged illegal and indiscriminate destruction of his properties as basis for his
claim for damages. Truth to tell, there was no suddenness or indiscriminate
destruction of plaintiffs property nor pilferage thereof, as alleged, in the
demolition of the house owned by the defendant. The order was lawful as it was
an abatement of a nuisance and the dismantling of the house owned by
defendant Senolos could only be conceived as having been carried out in a
manner consistent only with utmost care. Conversely, its indiscriminate
destruction is contrary to the interest of the defendant Senolos as it is a truism
that every bit of useful material should be preserved either for use of, or for profit
of the owner. It would be sheer folly to assume that the demolition team would
have taken a selective method of care for the still serviceable materials of the
house and a destructive stance for the properties of the occupants.
Understandably, the unorthodox position taken by plaintiff would not only lose his
residence but also his place of business.

By and large, the basis for the claim for damages do not physically nor
imaginatively exist, for it has defied reason and common sense.11

We note that the majority opinion chose to disregard the above conclusions of
fact of the trial court and instead quoted extensively from respondent Gaw
Ching's brief and, presumably relied upon such brief The majority opinion,
however, failed to indicate why it preferred Gaw Ching's version of the facts set
out in his brief over the trial court's findings. No indication was offered where the
trial court had fallen into error or what evidence had been misapprehended by
it. In this situation, the Court considers that it must go back to the trial court's
findings of fact in line with the time-honored rule that such findings are entitled to
great respect from appellate courts since the trial court judge had the
opportunity to examine the evidence directly and to listen to the witnesses and
observe their demeanor while testifying.
It appears therefore that firstly, the order of condemnation or demolition had
been issued by the proper authorities which order was valid and subsisting at the
time the demolition was actually carried out. Secondly, under Section 5.3 of Rule
VII entitled "Abandonment/Demolition of Buildings" of the Rules and Regulations
Implementing the National Building Code of the Philippines (P.D. No. 1096, as
amended dated 19 February 1977), an order for demolition may be appealed,
by the owner of the building or installation to be demolished, to the Secretary of
Public Works and Highways. In the case at bar, it was respondent Gaw Ching, a
lessee merely of the building condemned that sought to block the
implementation of the demolition order. It does not even appear from the
record whether or not Gaw Ching actually filed a formal appeal to the
Secretary, even though he was not entitled to do so. What does appear from the
record 12 is that Gaw Ching's counsel, Atty. Sugay, was able to obtain a letter
dated 6 November 1981 from the Office of the City Engineer and Building
Official, enclosing a xerox copy of a letter from the Assistant Secretary for
Operations, Ministry of Public Works and Highways, "directing this office to hold
the demolition in abeyance." This letter, which did not purport to set aside the
order of demolition, was served upon the demolition team on site while the
demolition was in progress. After some hesitation, the demolition was in fact
stopped. 13

It is worth noting that officials from the Office of the City Engineer, City of Manila,
testified that it was not "normal practice to receive an order from the Ministry of
Public Works and Highways stopping demolitions."

In the fourth place, respondent Gaw Ching, in the action that he had filed
before the Regional Trial Court of Manila to set aside the contract of sale
between petitioners Malabanan and Senolos, had sought preliminary injunction
precisely to restrain the implementation of the order for demolition. That
application for preliminary injunction was denied by the trial court and the order
for demolition was implemented only after such denial. Thus, there was no
subsisting court order restraining the demolition at the time such demolition was
carried out.

In the fifth place, Gaw Ching had ample notice of the demolition order and had
adequate time to remove his belongings from the premises if he was minded to
obey the order for demolition. He chose not to obey that order. If he did suffer
any losses-the trial court did not believe his claims that he did-he had only himself
to blame.

ACCORDINGLY, The Court Resolved to GRANT the Petition and to REVERSE and
SET ASIDE the Decision of the then Intermediate Appellate Court dated 31
January 1986 and its Resolution dated 5 June 1986, in AC-G.R. CV Nos. 05136-
05137. The Decision of the trial court dated 10 August 1984 in consolidated Civil
Cases Nos. R-81-416 and R-82-6798, is hereby REINSTATED. No pronouncement as
to costs.
Fernan C.J., Gutierrez, Jr. and Cortés, JJ., concur.

Bidin J., took no part.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18210 December 29, 1966

LAURENTIO ARMENTIA, plaintiff-appellant,

vs.
ERLINDA PATRIARCA, FLORENCIA SOMECIERA JULIANA ARMENTIA JOSE
SOMECIERA and SOFRONIO FLORES in his capacity as The Register of Deeds for
the Province of Iloilo, defendants-appellees.

Cesar T. Martin for plaintiff and appellant.

Benjamin M. Moreno for defendants and appellees.

SANCHEZ, J.:

Plaintiff Laurentio Armentia, and Juliana and Marta Armentia, were brother and
sisters of the full blood. Jose Someciera is the acknowledged natural son of their
deceased mother. Defendant Florencia Someciera is a daughter of Jose
Someciera. Defendant Erlinda Patriarea is a granddaughter of Juliana Armentia.
Marta Armentia was married to Gregorio Bueno who died sometime in 1942.

By notarial document, Annex A of the complaint, dated July 22, 1955, Marta
Armentia did two things: First, she adjudicated to herself a parcel of land (Lot
5482, Pototan cadastre, [Iloilo]) with the improvements thereon, covered by
Transfer Certificate of Title 21328. — and which she inherited from her deceased
husband — pursuant to Section 1, Rule 74 of the 1940 Rules of Court;1 and
second, for and in consideration of P-99.00, which she acknowledged to have
received from Erlinda Patriarca, 13 years of age, single, and Florencia
Someciera, 20 years of age, single, she sold to them the property just mentioned.
The foregoing document was, on July 22, 1955, recorded in the registry of deeds.
- Whereupon, Torrens title 21323 was cancelled by Transfer Certificate of Title
18797 in the names of Erlinda Patriarca and Florencia Someciera.

Marta Armentia died intestate and without forced heirs on May 28, 1960.

On September 17, 1960, Laurentio Armentia commenced suit2 against Erlinda

Patriarca and Florencia Someciera as principal defendants.3 The complaint, as
amended, and reamended, avers: That the sale made by Marta in favor of
Erlinda and Florencia "is null and void because it is simulated and fictitious and if
not null and void it is voidable because the said defendants were minors at the
time the contract was executed and could not then have given their consent to
the sale"; that "the said sale was fraudulently executed, and after the supposed
sale, Marta Armentia remained in possession of the house and lot, as owner
paying the taxes on the land until she died"; that "even assuming hypothetically
that there was consideration in the supposed sale, the consideration was grossly
inadequate"; that "plaintiff only came to know of the supposed sale in Annex A
one week before the suit was filed that "at the time of the alleged sale in Annex
A", the "house was already standing on the land", and that "after its execution
Marta Armentia repaired the house"; and that "the defendants Erlinda Patriarca,
Florencia Someciera, Juliana Armentia and Jose Someciera are personally
possessing the land and the house in question". The complaint further avers that
Marta Armentia also left a "Singer" sewing machine. Paragraph 8 thereof says
that said sewing machine is "now in the possession of Erlinda Patriarca and
Florencia Someciera". However, paragraph 20 of the very same complaint
speaks of said sewing machine as "now in the possession of the defendants
Erlinda Patriarca, Florencia Someciera, Jose Someciera and Juliana Armentia"4

The complaint winds up with the prayer that the deed of sale be "declared
inexistent or in the alternative annulled"; that plaintiff Laurentio Armentia and
defendant Juliana Armentia, as heir of Marta Armentia, be declared owners of
the land in dispute; that the Register of Deeds be directed to cancel Torrens title
18797 in the names of Erlinda Patriarca and Florencia Someciera, and, in lieu
thereof, to issue a new title in the names of Laurentio Armentia and Juliana
Armentia; that the house and lot and sewing machine be partitioned and
plaintiff's share be delivered to him; and that should partition not be feasible,
said properties be sold and plaintiff given his share.

The complaint was met by defendant's motion to dismiss upon two grounds: (1)
lack of cause of action and (2) prescription.

On November 21, 1960, over plaintiff's opposition, the lower court dismissed the
case for the reason that plaintiff's action to annul the sale had prescribed. A
move to reconsider was thwarted by the court in its order of December 17, 1960.

The case is now before us on plaintiff's appeal in forma pauperis.

1. Plaintiff's attack is primarily directed at the sale. Plaintiff charges that the
contract therefor was fraudulently executed, but in the same breadth
characterizes it, as simulated and fictitious. These statements and but
conclusions of law. Controlling, of course, is the statement of' ultimate facts.6

Let us then look at the factual recitals. Particularly striking is the fact that plaintiff
does not dispute the self-adjudication made by Marta Armentia in the deed.
Plaintiff does not impugn the genuineness of Marta's signature thereon. He solo
puts in issue that portion of the document where the sale appears to have been
made to Erlinda Patriarca and Florencia Someciera.

To drive home his averment of nullity, plaintiff summons to his aid the following
circumstances: At the time of the sale, the vendees were still minors and the
consideration was grossly inadequate; after the sale, Marta Armentia repaired
the house, continued possession of the premises, paid the taxes thereon until her
demise.

Hypothetically admitting the truth of these allegations, the conclusion is irresistible

that the sale is merely voidable. Because Marta Armentia executed the
document, and this is not controverted by plaintiff. Besides, — the fact that the
vendees were minors, makes the contract, at worst, annullable by them. Then
again, inadequacy of consideration does not imply total want of consideration.
Without more, the purported acts of Marta Armentia after the sale did not
indicate that said sale was void from the beginning.

The sum total of all of these is that, in essence, plaintiff's case is bottomed on
fraud, which renders the contract voidable.

2. May plaintiff annul the sale on the theory of fraud? Plaintiff was but a brother
of the deceased Marta Armentia. True, he is an intestate heir of Marta; but he is
not a forced heir. Upon the other hand, Marta was free to dispose of her
properties the way she liked it. She had neither ascendants nor descendants.

By Article 1397 of the Civil Code, "[t]he action for annulment of contracts may be
instituted by all who are thereby obliged principally or subsidiarily". This must be
construed in conjunction with Article 1311 of the same code providing that
"[c]on tracts take effect only between the parties, their assigns and heirs, except
in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law", and that "the
heir is not liable beyond the value of the property he received from the
decedent". Plaintiff is not a forced heir. He is not obliged principally or subsidiarily
under the contract. Marta Armentia did not transmit to him by devise or
otherwise any rights to the property, the subject thereof. On the contrary, Marta
voluntarily disposed of it. No creditors are defrauded; there are none. No
legitimes are impaired. Therefore, plaintiff has no cause of action to annul or to
rescind the sale.

In point is Concepcion vs. Sta. Ana, 87 Phil. 787. The facts there may well be
analogized with those of the present. In the Concepcion case, plaintiff Monico
Concepcion was the only surviving legitimate brother of Perpetua Concepcion,
who died without issue and without leaving any will. In her lifetime, or more
precisely, on June 29, 1945, said Perpetua Concepcion, "in connivance with the
defendant and with intent to defraud the plaintiff, sold and conveyed three
parcels of land for a false and fictitious consideration to the defendant, who
secured transfer certificate of title of said lands issued under her name and that
the defendant has been in possession of the properties sold since the death of
Perpetua Concepcion, thereby causing damages to the plaintiff in the amount
of not less than two hundred (P200) pesos".6 On motion to dismiss, the lower court
threw the complaint out of court upon the ground that "the plaintiff is not a party
to the deed of sale executed by Perpetua Concepcion in favor of the
defendant"; that even on the assumption "that the consideration of the contract
is fictitious, the plaintiff has no right of action against the defendant"; that under
Article 1302 of the old Civil Code, "the action to annul a contract may be
brought by any person principally bound thereby"; that "plaintiff is not bound by
the deed of sale executed by the d ceased in favor of the defendant"; and that
he has "no obligations under the deed."

The following reproduced in haec verba from the Concepcion opinion is

illuminating:

(2) As to the appellant's second and last contention, under the law action to
annul a contract entered into with all the requisites mentioned in article 12617
whenever they are tainted with the vice which invalidate them in accordance
with law, may be brought not only by any person principally bound or who
made them, but also by his heir to whom the right and obligation arising from the
contract are transmitted. Hence if no such rights, actions or obligations have
been transmitted to the heir, the latter can not bring an action to annul the
contract in representation of the contracting party who made it. In Wolfson vs.
Estate of Martinez, 20 Phil., 340, this Supreme Court quoted with approval the
judgment of the Supreme Court of Spain of April 18, 1901, in which it was held
that "he who is not a party to a contract, or an assignee thereunder, or does not
represent those who took part therein, has under Articles 1257 and 13028of the
Civil Code no legal capacity to challenge the validity of such contract". And
in Irlanda vs. Pitargue (22 Phil. 383) we held that "the testamentary or legal heir
continues in law as the juridical personality of his predecessor in interest, who
transmit to him from the moment of his death such of his rights, actions and
obligations as are not extinguished thereby".

The question to be resolved is, therefore, whether the deceased Perpetua

Concepcion has transmitted to the plaintiff any right arising from the contract
under consideration in order that he can bring an action to annul the sale
voluntarily made by her to the defendant with a false consideration.

We are of the opinion and so hold, that the late Perpetua Concepcion has not
transmitted to the plaintiff any right arising from the contract of conveyance or
sale of her lands to the defendant, and therefore the plaintiff cannot file an
action to annul such contract as representative of the deceased.

According to the complaint the deceased, in connivance with the defendant

and with intent to defraud the plaintiff, (that is, in order not to leave the
properties above mentioned upon her death to the plaintiff) sold and conveyed
them to the latter, for a false and fictitious consideration. It is, therefore obvious,
that the conveyance or sale of said properties to the defendant
was voluntarily made by the deceased to said defendant. As the deceased had
no forced heir, she was free to dispose of all her properties as absolute owner
thereof, without further limitation than those established by law, and the right to
dispose of a thing involves the light to give or convey it to another without any
consideration. The only limitation established by law on her right to convey said
properties to the defendant without any consideration is, that she could not
dispose of or transfer her property to another in fraud of her creditors. And this
court, in Solis vs. Chua Pua Hermanos (50 Phil. 636), through Mr. Justice Street,
held that a "voluntary conveyance, without any consideration whatever, is prima
facie good as between the parties, and such an instrument can not be declared
fraudulent as against creditors in the absence of proof, that there was at the
time of the execution of the conveyance a creditor who could be defrauded by
the conveyance, 27 C.J., 4770".

xxx xxx xxx

The reason why a forced heir has the right to institute an action of rescission is
that the right to the legitime is similar to a credit of a creditor. As the same
Spanish author Manresal correctly states in commenting on article 12919 of the
Civil Code: "The rights of a forced heir to the legitime are undoubtedly similar to
a credit of a creditor in so far as the rights to the legitime may be defeated by
fraudulent contracts" and are superior to the will of those bound to respect them.
In its judgment of October 28, 1897, the Supreme Court of Spain held that the
forced heirs instituted as such by their father to the latter's testament have the
undeniable right to institute an action to annul contracts entered into by the
father to their prejudice. As it is seen the action is called action of nullity, but is
rather an action of rescission taking into account the purpose for which it is
instituted and the confusion of ideas that has prevailed in this matter. The
doctrine we shall expound in commenting on articles 1302 and 1306 10 will
confirm what we have just stated'. (Manresa, Codigo Civil, 4th edition, Vol. 8, pp.
667 and 668.)11

Our opinion in Concepcion needs no further elaboration. It would suffice to say

that plaintiff here has no cause of action.

3. But even if a right of action be conceded, plaintiff's case fails just the same. An
action to annul a contract based on fraud must be filed within four (4) years from
the discovery thereof.12 In legal contemplation, discovery must be reckoned to
have taken place from the time the document was registered in the office of the
register of deeds. For, the familiar rule is that registration is notice to the whole
world, including plaintiff.13 As aforestated, the document in question was
recorded on July 22, 1955. Action was started only on September 17, 1960. The
four-year period has elapsed. And, plaintiff's cause of action, if any, is time-
barred.

4. All that remains is the small item of plaintiff's share in the "Singer" sewing
machine which was not the subject of the sale aforesaid. The Court may well
take judicial notice14 of the fact that such share does not exceed
P5,000.15Plaintiff's separate action — if any he had — to obtain said share, should
have been addressed to the Municipal Court.

Premised on the foregoing considerations, the appealed order of November 21,

1960 dismissing the second amended complaint is, as it should be, affirmed. No
cots So ordered.

Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, JP Zaldivar and Castro,

JJ., concur.

Separate Opinions

REYES, J.B.L., J., concurring:

I concur with the main decision, but can not bring myself to agree to the
proposition that the heirs intestate would have no legal standing to contest the
conveyance by the deceased if the same were made without any
consideration, or for a false and fictitious consideration. For under the Civil Code
of the Philippines, Article 1409, par. 3, contracts with a cause that did not exist at
the time of the transaction are inexistent and void from the beginning. The same
is true of contracts stating a false cause (consideration) unless the persons
interested in upholding the contract should prove that there is another true and
lawful consideration therefor (Ibid., Art. 1353).

If therefore the contract has no causa or considerations or the causa is false and
fictitious (and no true hidden causa is proved) the property allegedly conveys
never really leaves the patrimony of the transferor, and upon the latter's death
without a testament, such property would pass to the transferor's heirs intestate
and be recoverable by them or by the Administrator of the transferor's estate,
should there be any. The cause of action of the plaintiffs would not be then on
fraud of creditors at all, but upon the fact that the property in question is still part
of the transferor's estate. In this particular regard, I think Concepcion vs. Sta. Ana,
87 Phil. 787 and Solis vs. Chua Pua Hermanos, 50 Phil. 536, do not correctly state
the present law, and must be clarified.

It is unquestionable that the owner of property has the right to convey it to

another person, either for a consideration (onerous contract) or out of sheer
liberality (gratuitous transfer). But it must not be overlooked that while the law
does not limit the lawful consideration as the transferor deems adequate (and
he is the primary judge of its adequacy), gratuitous transfers are by no means
equally untrammeled The law, justifiably or not, looks with suspicion at gratuitous
conveyances (perhaps considering them contrary to man's innate egotism) and
subjects their validity to the observance of specific formalities designed to assure
that the nature of the conveyance is well understood, and that it is not done
impulsively, without due deliberation. It is well known that our law only recognizes
two forms of gratuitous conveyances: inter vivos by way of donation and mortis
causa by way of last will and testament. In either case, the validity of the transfer
of ownership is subordinated to the observance of the formalities prescribed by
law. Where Ian — or tenements are conveyed, a donation and its acceptance
must appear in a public document, with the acceptance duly notified to the
donor (Civ. Code, Art. 749); in case of movables, there must be at least a private
writing unless the donation is accompanied by simultaneous delivery of the
donated chattel (Art. 748). In last wills and testaments, the formalities ordained
by law must be necessarily observed (Arts. 804, et seq.) and ' in addition, the will
must be judicially allowed or probated (Art. 838, Civil Code).

It is a consequence of all the preceding considerations that a purported sale of

property would not vest ownership in the transferee if it is established that the
transfer was really gratuitous, and that the alleged price is non-existent. Such a
"sale" would then either be void for lack of an essential requisite, or else be a
'disguised donation, that would not be operative unless the formalities prescribed
for a valid donation are observed.1 If they are not, then no title passes to the
transferee, regardless of the voluntary accomplishment of the deed of
conveyance by the transferor, because the naked intent to convey, without the
required solemnities, does not suffice for gratuitous alienations, even as between
the parties inter se.

Of course, in the case at bar, it has not been satisfactorily established that the
price is non-existent, and for that reason the transaction, being onerous and not
gratuitous, must be upheld.
Republic of the Philippines
SUPREME COURT
Manila

G.R. No. L-33360 April 25, 1977

MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes), petitioner,

vs.
COURT OF APPEALS, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES
and MICHAEL TUMPAO, respondents,

Sinforoso Fingonil and Sinai C. Hamada for petitioner.

Ruben C. Ayson for private respondents.

CASTRO, C.J:

This is an appeal by certiorari from the decision of the Court of Appeals in CA-
G.R. 36078-R promulgated on December 23, 1970 reversing the judgment of the
Court of First Instance of Baguio City, Branch II, in Civil Case 804, and from the
appellate court's resolution dated March 7, 1971 denying herein petitioner's
motion for reconsideration.

Mateo Carantes was the original owner of Lot No. 44 situated at Loakan, Baguio
City, as evidenced by Original Certificate of Title No. 3 issued in his name on
September 22, 1910 by virtue of Free Patent No. 5 granted to him on the same
date. In 1913 Mateo died. He was survived by his widow Ogasia and six children,
namely, Bilad, Lauro, Crispino, Maximino, Apung and Sianang, all surnamed
Carantes.

In 1930 construction of the Loakan Airport was commenced by the Government.

Because a portion of Lot No. 44 was needed for the landing field, the
Government instituted proceedings (Civil Case 338) for its expropriation. For the
purpose, Lot No. 44 was subdivided into Lots Nos. 44-A, 44-B, 44-C, 44-D and 44-E.
The portion expropriated by the Government was Lot No. 44-A.

In 1933 Special Proceedings Nos. 409 to 413 were filed with the court for the
settlement of the estate of the late Mateo Carantes. One of his sons, herein
petitioner Maximino Carantes, was appointed and qualified as judicial
administrator of the estate. In his capacity as administrator, Maximino filed on
June 20, 1939 a project of partition wherein he listed as the heirs of Mateo
Carantes who were entitled to inherit the estate, himself and his brothers and
sisters, or the latter's surviving children Apparently because negotiations were, by
that time, under way for the purchase by the Government of Lots Nos. 44-B and
44-C for the purpose of widening the Loakan Airport, the only property listed by
Maximino in the project of partition was the remaining portion of Lot No. 44.
On October 23, 1939 a deed denominated "Assignment of Right to Inheritance"
was executed by four of Mateo Carantes children, namely, Bilad, Sianang, Lauro
and Crispino, and the heirs of Apung Carantes (also a son of Mateo who died in
1923), namely, Pitag, Bill, Alson, Eduardo and Juan, assigning to Maximino
Carantes their rights to inheritance in Lot No. 44. The stated monetary
consideration for the assignment was P1.00. However, the document contains a
recital to the effect that the said lots, "by agreement of all the direct heirs and
heirs by representation of the deceased Mateo Carantes as expressed and
conveyed verbally. by him during his lifetime, rightly and exclusively belong to
the particular heir, Maximino Carantes, now and in the past in the exclusive,
continuous, peaceful and notorious possession of the same for more than ten
years."

On the same date Maximino Carantes sold to the Government Lots Nos. 44-B
and 44-C and divided the proceeds of the sale among himself and the other
heirs of Mateo.

On February 6, 1940, upon joint petition of the heirs of Mateo Carantes, the Court
of First Instance of Baguio City issued an Order in another proceeding —
Administrative Case No. 368 — cancelling O.C.T. No. 3. Pursuant thereto the said
title was cancelled, and in its place Transfer Certificate of Title No. 2533 was
issued in the joint names of the five children of Mateo Carantes and the children
of Apung Carantes (representing their deceased father) as co-owners pro
indiviso, or one-sixth share for each child.

On March 16, 1940 Maximino Carantes registered the deed of "Assignment of

Right to Inheritance." Accordingly, T.C.T. No. 2533 in the names of the heirs was
cancelled, and in lieu thereof Transfer Certificate of Title No. 2540 was issued on
the same date in the name of Maximino Carantes. Also on the same date,
Maximino, acting as exclusive owner of the land covered by T.C.T. No. 2540,
executed a formal deed of sale in favor of the Government over Lots Nos. 44-B
and 44-C.

On February 21, 1947, as a result of the approval of the Subdivision Survey Plan
psd-16786, and pursuant to the deed of sale executed in 1940 by Maximino
Carantes in favor of the Government, T.C.T. No. 2540 in Maximino's name was
cancelled, and in lieu thereof Transfer Certificate of Title No. T98, covering Lots
Nos. 44-A, 44-B arid 44-C, was issued in the name of the Government, while
Transfer Certificate of Title No. T-99, covering the remaining Lots Nos. 44-D (100,
345 square meters) and 44-E (10,070 square meters) was issued in the name of
Maximino Carantes, who has up to the present remained the registered owner of
said lots.

On September 4, 1958 the present complaint was filed by three children of the
late Mateo Carantes, namely, Bilad, Lauro and Crispino, and by some of the
surviving heirs of Apung and of Sianang ('also children of Mateo Carantes).
Maximino Carantes was named principal defendant, and some of the heirs of
Apung and Sianang were impleaded as parties-defendants in view of their
alleged reluctance to join as parties-plaintiffs.

In their complaint the plaintiffs alleged inter alia that they and/or their
predecessors-in-interest executed the deed of "Assignment of Right to
Inheritance" on October 23, 1939, only because they were made to believe by
the defendant Maximino Carantes that the said instrument embodied the
understanding among the parties that it merely authorized the defendant
Maximino to convey portions of Lot No. 44 to the Government in their behalf to
minimize expenses and facilitate the transaction; and that it was only on
February 18, 1958, when the plaintiffs secured a copy of the deed, that they
came to know that the same purported to assign in favor of Maximino their rights
to inheritance from Mateo Carantes. The plaintiffs prayed that the deed of
"Assignment of Right to Inheritance" be declared null and void; that Lots Nos. 44-
D and 44-E covered by T.C.T. No. T99 be ordered partitioned into six (6) equal
shares and the defendant Maximino Carantes be accordingly ordered to
execute the necessary deeds of conveyance in favor of the other distributees
and that the said defendant be ordered to pay the plaintiffs the sum of P1,000 as
attorney's fees and the sum of P200 as costs of suit.

On September 10, 1958 the defendants filed a motion to dismiss on the grounds
(1) that the plaintiffs' cause of action is barred by the statute of limitations
because the deed of assignment was recorded in the Registry of Property at the
latest on February 21, 1947, hence, plaintiffs' cause of action accrued from the
said date, and since pursuant to article 1144 of the new Civil Code an action
based on a written contract must be brought within ten years from the time the
right of action accrues, plaintiffs' right to file the complaint had already
prescribed on September 4, 1958; and (2) that the complaint states no cause of
action because ownership over the property became vested in Maximino
Carantes by acquisitive prescription ten years from its registration in his name on
February, 21, 1947.

In an Order dated September 30, 1958, the trial court denied the motion to
dismiss on the grounds that there are allegations of co-ownership and trust in the
complaint, and, therefore, prescription did not lie, and that the complaint
alleges that the plaintiffs discovered the alleged fraud only in February, 1958.

In their answer filed on October 7, 1958, the defendants traversed the material
averments of the complaint and alleged inter alia that the property of the
deceased Mateo Carantes and his wife had been divided and distributed
among their six children; that the deed of "Assignment of Right to Inheritance"
was an acknowledgment of the fact of designation of the property therein
described as specifically pertaining or belonging by right of inheritance to the
defendant Maximino Carantes: that there was never any agreement between
the assignors and the assignee authorizing the latter to merely represent his co-
heirs in negotiations with the Government; and that the assignors knew fully well
that the deed of assignment contained what, on its face, it represented, By way
of special defenses, the defendants alleged that any supposed agreement
between the plaintiffs and/or their predecessors-in-interest and the defendant
Maximino Carantes, other than the deed of assignment, is barred by the statute
of frauds and is null and void because not in writing, much less, in a public
instrument; that the only agreement between the parties is what appears in the
deed of assignment; that the plaintiffs' right of action has already prescribed;
that the defendant Maximino Carantes acquired absolute ownership over the
property in question by acquisitive prescription and registration; and that any
obligation on the part of the defendants in relation to the property had been
discharged by novation, condonation and compensation. The defendants set
up the counterclaim that in the event the rights of the heirs are disturbed, the
produce from the lands inherited by the plaintiffs from Mateo Carantes as well as
the real estate taxes on the land paid by the defendant Maximino Carantes
should be collated; and that the filing of the complaint being malicious, the
defendants should be awarded the sum of P4,500 by way of nominal,
compensatory, moral and corrective damages, including attorney's fees and
expenses of litigation. The defendants prayed for the dismissal of the complaint
and payment of damages to them.

An answer to the counterclaim was filed by the plaintiffs on November 7, 1958

denying the material allegations of the counterclaim.

After trial, the court rendered its decision on January 28, 1965. It was the trial
court's opinion that since an action based on fraud prescribes in four years from
the discovery of the fraud, and in this case the fraud allegedly perpetrated by
the defendant Maximino Carantes must be deemed to have been discovered
on March 16, 1940 when the deed of assignment was registered, the plaintiffs'
right of action had already prescribed when they filed the action in 1958; and
even assuming that the land remained the common property of the plaintiffs
and the defendant Maximino Carantes notwithstanding the execution of the
deed of assignment, the co-ownership was completely repudiated by the said
defendant by performance of several acts, the first of which was his execution of
a deed of sale in favor of the Government on October 23, 1939, hence,
ownership had vested in the defendant Maximino Carantes by acquisitive
prescription. The court accordingly dismissed the complaint. It likewise dismissed
the counterclaim.

The plaintiffs moved for reconsideration. Their motion having been denied in an
Order dated March 8, 1965, they appealed to the Court of Appeals.

As adverted to above, the Court of Appeals reversed the judgment of the trial
court, hence the present recourse.

-I-
In her brief filed with this Court, the petitioner argues that the private
respondents' action is not actually one for annulment of the deed of "Assignment
of Right to Inheritance" but for the reformation thereof, hence, the said action
has prescribed long before the filing of the complaint.

The petitioner's theory that the private respondents' action is for reformation of
an instrument is a new one, adopted by the petitioner for the first time on appeal
to this Court. Her husband did not raise it as a defense in his answer filed with the
trial court, where, consequently, trial proceeded on the theory that the action
sought the declaration of nullity of the deed of assignment. When the case
reached the respondent court the petitioner likewise did not raise this issue,
although in truth, even had she done so, it would have been a belated and
futile exercise. She cannot be allowed to change her theory of the case at this
stage of the proceedings.

The settled rule is that defenses not pleaded in the answer may not be raised for
the first time on appeal. 1 A party cannot, on appeal, change fundamentally the
nature of the issue in the case. 2 When a party deliberately adopts a certain
theory and the case is decided upon that theory in the court below, he will not
be permitted to change the same on appeal, because to permit him to do so
would be unfair to the adverse party. 3

Consequently, we have to disregard the petitioner's theory that the action is for
reformation of an instrument, and must proceed on the basis of the issues
properly raised and ventilated before the trial court.

- II -

We do not agree with the respondent court's legal conclusion that the deed of
"Assignment of Right to Inheritance" is void ab initio and inexistent on the grounds
that real consent was wanting and the consideration of P1.00 is so shocking to
the conscience that there was in fact no consideration, hence, the action for
the declaration of the contract's inexistence does not prescribe pursuant to
article 1410 of the new Civil Code.

Article 1409 (2) of the new Civil Code relied upon by the respondent court
provides that contracts "which are absolutely simulated or fictitious" are inexistent
and void from the beginning. The basic characteristic of simulation is the fact
that the apparent contract is not really desired or intended to produce legal
effects or in any way alter the juridical situation of the parties. 4

The respondents' action may not be considered as one to declare the

inexistence of a contract for lack of consideration. It is total absence of cause or
consideration that renders a contract absolutely void and inexistent. 5 In the
case at bar consideration was not absent. The sum of P1.00 appears in the
document as one of the considerations for the assignment of inheritance. In
addition — and this of great legal import — the document recites that the
decedent Mateo Carantes had, during his lifetime, expressed to the signatories
to the contract that the property subject-matter thereof rightly and exclusively
belonged to the petitioner Maximino Carantes. This acknowledgment by the
signatories definitely constitutes valuable consideration for the contract.

- III -

The present action is one to annul the contract entitled "Assignment of Right to
Inheritance" on the ground of fraud.

Article 1390 of the new Civil code provides that a contract "where the consent is
vitiated by mistake, violence, intimidation, undue influence or fraud," is voidable
or annullable. Even article 1359, which deals on reformation of instruments,
provides in its paragraph 2 that "If mistake, fraud, inequitable conduct, or
accident has prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment of the contract,"
When the consent to a contract was fraudulently obtained, the contract is
avoidable. 6 Fraud or deceit does not render a contract void ab initio and can
only be a ground for rendering the contract voidable or annullable pursuant to
article 1390 of the new Civil Code by a proper action in court. 7

The present action being one to annul a contract on the ground of fraud, its
prescriptive period is four years from the time of the discovery of the fraud. 8

The next question that must be resolved is: from what time must fraud, assuming
that there was fraud, be deemed to have been discovered in the case at bar?
From February, 1958, when, according to the private respondents, and as found
by the respondent court, the private respondents actually discovered that they
were defrauded by the petitioner Maximino Carantes when rumors spread that
he was selling the property for half a million pesos? Or from March 16, 1940,
when, as admitted by the parties and found by both the trial court and the
respondent court, the deed of "Assignment of Right to Inheritance" was
registered by the petitioner in the Office of the Register of Deeds?

The weight of authorities is to the effect that the registration of an instrument in

the Office of the Register of Deeds constitutes constructive notice to the whole
world, and, therefore, discovery of the fraud is deemed to have taken place at
the time of the registration. 9 In this case the deed of assignment was registered
on March 16, 1940, and in fact on the same date T.C.T. No. 2533 in the names of
the heirs of Mateo Carantes was cancelled, and T.C.T. No. 2540 in the name of
the petitioner was issued in lieu thereof. The four-year period within which the
private respondents could have filed the present action consequently
commenced on March 16, 1940; and since they filed it only on September 4,
1958, it follows that the same is barred by the statute of limitations.

The respondent court refused to accord recognition to the rule of constructive

notice, because, according to it, there was a fiduciary relationship between the
parties. Upon this premise it concluded that the four-year prescriptive period
should be deemed to have commenced in February, 1958 when private
respondents had actual notice of the fraud. Without resolving the question of
whether or not constructive notice applies when a fiduciary relationship exists
between the parties — a point which is not in issue in this case — we hold that
the respondent court's conclusion, lacking the necessary premise upon which it
should be predicated, is erroneous.

Definitely, no express trust was created in favor of the private respondents. If trust
there was, it could only be — as held by respondent court — a constructive trust,
which is imposed by law. In constructive trusts there is neither promise nor
fiduciary relations; the so-called trustee does not recognize any trust and has no
intent to hold the property for the beneficiary. 10 In at least two cases, the rule of
constructive notice was applied by this Court although a constructive trust had
been created. Thus, in Lopez, et al. vs. Gonzaga, et al., 11 where the plaintiffs and
the defendants were co-heirs and the decedent owner of the lands had merely
allowed the principal defendant to use the products and rentals of the lands for
purposes of coconut oil experimentation, but said defendant later caused the
transfer of the certificates of title in his own name through the registration of
certain judicial orders, this Court held that the recording of the judicial orders
sufficed as notice to the other heirs, for the rule is that knowledge of what might
have been revealed by proper inquiry is imputable to the inquirer. In Gerona, et
al. vs. De Guzman, et a., supra, the petitioners and the private respondents were
co-heirs, and the petitioners' action for partition and reconveyance was based
upon a constructive trust resulting from fraud. This Court held that the discovery
of the fraud "is deemed to have taken place, in the case at bar, on June 25,
1948, when said instrument was filed with the Register of Deeds and new
certificates of title were issued in the name of respondents exclusively, for the
registration of the deed of extra-judicial settlement constituted constructive
notice to the whole world."

- IV -

The decision under review found that a constructive trust was created in favor of
the private respondents, and, holding that an action for reconveyance based
on constructive trust is imprescriptible, recognized the right of the private
respondents to file an action for reconveyance regardless of the lapse of time,
citing Gayandato vs. Treasurer of the Philippine Islands, et al. 12

We have examined Gayandato, and have failed to find support therein for the
holding of the respondent court. In any event, it is now settled that an action for
reconveyance based on implied or constructive trust is prescriptible it prescribes
in ten years. 13 In this case the ten-year prescriptive period began on March 16,
1940, when the petitioner registered the deed of "Assignment of Right to
Inheritance" and secured the cancellation of the certificate of title in the joint
names of the heirs of Mateo Carantes, and, in lieu thereof, the issuance of a new
title exclusively in his name. 14 Since the present action was commenced only on
September 4, 1958, it is clear that the same is barred by extinctive prescription.

-V-

It was also held by the respondent court that the petitioner was merely holding
the property in trust for the benefit of his co-heirs as administrator, hence, there
was a continuing and subsisting trust, and pursuant to section 38 of the Code of
Civil Procedure, the provisions of the said Code on prescription (Secs. 40-41) do
not apply. It is our view, however, that there was no continuing and subsisting
trust.

From March 16, 1940, when the petitioner registered the deed of assignment and
had the Certificate of title in the names of the heirs cancelled and a new
certificate of title issued in his own name, he began to hold the property in open
and clear repudiation of any trust. 15 It will be noted that on the same date, the
petitioner also executed a formal deed of sale over portions of Lot No. 44 in favor
of the Government. In 1948 he mortgaged Lot No. 44-D with the Philippine
National Bank as his exclusive property. The petitioner's exercise of such rights of
dominion is anathema to the concept of a continuing and subsisting trust. The
circumstances, found by the respondent court, that the name of Mateo
Carantes still appeared in the tax declaration as owner of the land and the
name of the petitioner as administrator, that the real estate taxes, were shared
by the other heirs with the petitioner, and that some of the heirs are living in
houses erected by them on the land, wane in legal significance in the face of
the petitioner's aforesaid uncontroverted acts of strict dominion. In connection
with the payment of real estate taxes, it is to be noted that the respondent court
also found that all the receipts were issued in the name of the petitioner. The
circumstances mentioned above do not make out a case of a continuing and
subsisting trust.

ACCORDINGLY, the judgment of the Court of Appeals appealed from is set

aside, and another entered dismissing the complaint in Civil Case No. 804 of the
Court of First Instance of Baguio. No costs.

Makasiar, Muñoz-Palma and Martin, JJ., concur.

Separate Opinions

TEEHANKEE, J, concurring:

I concur on the ground that respondents' action based on constructive trust

prescribed after ten years.

TEEHANKEE, J, concurring:

I concur on the ground that respondents' action based on constructive trust

prescribed after ten years.