[G.R. No. 149420. October 8, 2003.
SONNY LO, Petitioner, v. KJS ECO-FORMWORK SYSTEM PHIL., INC., Respondent.
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel
scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style San’s Enterprises,
is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipment from
respondent worth P540,425.80. He paid a down payment in the amount of P150,000.00. The balance
was made payable in ten monthly installments
Respondent delivered the scaffoldings to petitioner. Petitioner was able to pay the first two monthly
installments. His business, however, encountered financial difficulties and he was unable to settle his
obligation to respondent despite oral and written demands made against him.
On October 11, 1990, petitioner and respondent executed a Deed of Assignment, whereby petitioner
assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation.
Pertinent positions of the Deed provide:
WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at Green
meadow Avenue, Quezon City owned by Jomero Realty Corporation;
WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased on
account scaffolding equipment from the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of the
aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four Hundred
Sixty Two and 14/100 Pesos (P335,462.14);
NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand Four
Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents part of the
ASSIGNOR’s collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns, transfers and sets
over unto the ASSIGNEE all collectibles amounting to the said amount of P335,462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power and
authority to demand, collect, receive, compound, compromise and give acquittance for the same or
any part thereof, and in the name and stead of the said ASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and
assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and that
said ASSIGNOR has not done and will not cause anything to be done to diminish or discharge said debt,
or delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the same;
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs,
executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE,
its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as
shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said
ASSIGNOR has in accordance with the true intent and meaning of these presents. . . . (Italics supplied)
However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter
refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it.
On November 26, 1990, respondent sent a letter to petitioner demanding payment of his obligation,
but petitioner refused to pay claiming that his obligation had been extinguished when they executed
the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against
the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case
No. 91-074.
During the trial, petitioner argued that his obligation was extinguished with the execution of the Deed
of Assignment of credit. Respondent, for its part, presented the testimony of its employee, Almeda
Bañaga, who testified that Jomero Realty refused to honor the assignment of credit because it claimed
that petitioner had an outstanding indebtedness to it. On August 25, 1994, the trial court rendered a
decision 9 dismissing the complaint on the ground that the assignment of credit extinguished the
obligation. The decretal portion thereof provides: WHEREFORE, in view of the foregoing, the Court
hereby renders judgment in favor of the defendant and against the plaintiff, dismissing the complaint
and ordering the plaintiff to pay the defendant attorney’s fees in the amount of P25,000.00.
Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court
rendered a decision, the dispositive portion of which reads:
WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters
judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK
SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100
(P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing of the Complaint) until
fully paid and attorney’s fees equivalent to 10% of the amount due and costs of the suit.
SO ORDERED.
In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the
respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under the
Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void pursuant
to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment when
he failed to execute and do all acts and deeds as shall be necessary to effectually enable the respondent
to recover the collectibles.
Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of
Appeals.
In this petition for review, petitioner assigns the following errors:
I indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING THE DEED OF
ASSIGNMENT (EXH. "4") AS NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY
CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT (EXH. "4")
DID NOT EXTINGUISH PETITIONER’S OBLIGATION ON THE WRONG NOTION THAT PETITIONER FAILED
TO COMPLY WITH HIS WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT AND
IN ORDERING PAYMENT OF INTERESTS AND ATTORNEY’S FEES.
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor,
by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the
debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the
power to enforce it to the same extent as the assignor could enforce it against the debtor.
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing to
the creditor who accepts it as equivalent of payment of an outstanding debt. In order that there be a
valid dation in payment, the following are the requisites: (1) There must be the performance of the
prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or
a real right or a credit against the third person; (2) There must be some difference between the
prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement
between the creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due. The undertaking really partakes in one sense of
the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for
which is to be charged against the debtor’s debt. As such, the vendor in good faith shall be responsible,
for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor,
in specified circumstances.
Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property,
produced the effects of a dation in payment which may extinguish the obligation. However, as in any
other contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the first
paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence: and legality of the credit at the time of
the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it
has been so expressly stipulated or unless the insolvency was prior to the sale and of common
knowledge.
From the above provision, Petitioner, as vendor or assignor, is bound to warrant the existence and
legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer
obligation to petitioner has been extinguished by compensation. In other words, respondent alleged
the non-existence of the credit and asserted its claim to petitioner’s warranty under the assignment.
Therefore, it behooved on petitioner to make good its warranty and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs,
executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE,
its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as
shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said
ASSIGNOR has in accordance with the true intent and meaning of these presents. (Emphasis ours)
Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the
performance thereof in case the same is later found to be inexistent. He should be held liable to pay to
respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the sum
of P335,462.14 with legal interest thereon. However, we find that the award by the Court of Appeals
of attorney’s fees is without factual basis. No evidence or testimony was presented to substantiate this
claim. Attorney’s fees, being in the nature of actual damages, must be duly substantiated by competent
proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19, 2001 in CA-
G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14 with legal interest
of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with MODIFICATION. Upon finality
of this Decision, the rate of legal interest shall be 12% per annum, inasmuch as the obligation shall
thereafter become equivalent to a forbearance of credit. The award of attorney’s fees is DELETE for
lack of evidentiary basis.
SO ORDERED.
Davide, Jr., C.J., Vitug, Carpio and Azcuna, JJ., concur.
G.R. No. 192602, January 18, 2017
SPOUSES MAY S. VILLALUZ AND JOHNNY VILLALUZ, JR., Petitioners, v. LAND BANK OF THE
PHILIPPINES AND THE REGISTER OF DEEDS FOR DAVAO CITY, Respondents.
DECISION
The Civil Code sets the default rule that an agent may appoint a substitute if the principal has not
prohibited him from doing so. The issue in this petition for review on certiorari,1 which seeks to set
aside the Decision2 dated September 22, 2009 and Resolution3 dated May 26, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 01307, is whether the mortgage contract executed by the substitute is
valid and binding upon the principal.
I After the CA denied their motion for reconsideration, the Spouses Villaluz filed this petition for review.
Sometime in 1996, Paula Agbisit (Agbisit), mother of petitioner May S. Villaluz (May), requested the
latter to provide her with collateral for a loan. At the time, Agbisit was the chairperson of Milflores
Cooperative and she needed P600,000 to P650,000 for the expansion of her backyard cut flowers
business.4 May convinced her husband, Johnny Villaluz (collectively, the Spouses Villaluz), to allow
Agbisit to use their land, located in Calinan, Davao City and covered by Transfer Certificate of Title (TCT)
No. T-202276, as collateral.5 On March 25, 1996, the Spouses Villaluz executed a Special Power of
Attorney6 in favor of Agbisit authorizing her to, among others, "negotiate for the sale, mortgage, or
other forms of disposition a parcel of land covered by Transfer Certificate of Title No. T-202276" and
"sign in our behalf all documents relating to the sale, loan or mortgage, or other disposition of the
aforementioned property."7 The one-page power of attorney neither specified the conditions under
which the special powers may be exercised nor stated the amounts for which the subject land may be
sold or mortgaged.
On June 19, 1996, Agbisit executed her own Special Power of Attorney,8 appointing Milflores
Cooperative as attorney-in-fact in obtaining a loan from and executing a real mortgage in favor of Land
Bank of the Philippines (Land Bank). On June 21, 1996, Milflores Cooperative, in a representative
capacity, executed a Real Estate Mortgage9 in favor of Land Bank in consideration of the P3,000,000
loan to be extended by the latter. On June 24, 1996, Milflores Cooperative also executed a Deed of
Assignment of the Produce/Inventory10 as additional collateral for the loan. Land Bank partially
released one-third of the total loan amount, or P995,500, to Milflores Cooperative on June 25, 1996.
On the same day, Agbisit borrowed the amount of P604,750 from Milflores Cooperative. Land Bank
released the remaining loan amount of P2,000,500 to Milflores Cooperative on October 4, 1996.11
Unfortunately, Milflores Cooperative was unable to pay its obligations to Land Bank. Thus, Land Bank
filed a petition for extra-judicial foreclosure sale with the Office of the Clerk of Court of Davao City.
Sometime in August, 2003, the Spouses Villaluz learned that an auction sale covering their land had
been set tor October 2, 2003. Land Bank won the auction sale as the sole bidder.12
The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC) of Davao City seeking the
annulment of the foreclosure sale. The sole question presented before the RTC was whether Agbisit
could have validly delegated her authority as attorney-in-fact to Milflores Cooperative. Citing Article
1892 of the Civil Code, the RTC held that the delegation was valid since the Special Power of Attorney
executed by the Spouses Villaluz had no specific prohibition against Agbisit appointing a substitute.
Accordingly, the RTC dismissed the complaint.1
On appeal, the CA affirmed the RTC Decision. In its Decision14 dated September 22, 2009, the CA
similarly found Article 1892 to be squarely applicable. According to the CA, the rule is that an agent is
allowed to appoint a sub-agent in the absence of an express agreement to the contrary and that "a
scrutiny of the Special Power of Attorney dated March 25, 1996 executed by appellants in favor of
[Agbisit] contained no prohibition for the latter to appoint a sub-agent."15 Therefore, Agbisit was
allowed to appoint Milflores Cooperative as her sub-agent.
They argue that the Real Estate Mortgage was void because there was no loan yet when the mortgage
contract was executed and that the Special Power of Attorney was extinguished when Milflores
Cooperative assigned its produce and inventory to Land Bank as additional collateral.16 In response,
Land Bank maintains that the CA and RTC did not err in applying Article 1892, that the Real Estate
Mortgage can only be extinguished after the amount of the secured loan has been paid, and that the
additional collateral was executed because the deed of assignment was meant to cover any deficiency
in the Real Estate Mortgage.17
II
Articles 1892 and 1893 of the Civil Code provide the rules regarding the appointment of a substitute by
an agent:
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so;
but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;chanrobleslaw
(2) When he was given such power, but without designating the person, and the person appointed was
notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal shall be void.
Art. 1893. Tn the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may
furthermore bring an action against the substitute with respect to the obligations which the latter has
contracted under the substitution.
The law creates a presumption that an agent has the power to appoint a substitute. The consequence
of the presumption is that, upon valid appointment of a substitute by the agent, there ipso jure arises
an agency relationship between the principal and the substitute, i.e., the substitute becomes the agent
of the principal. As a result, the principal is bound by the acts of the substitute as if these acts had been
performed by the principal's appointed agent. Concomitantly, the substitute assumes an agent's
ob1igations to act within the scope of authority,18 to act in accordance with the principal's
instructions,19 and to carry out the agency,20 among others. In order to make the presumption
inoperative and relieve himself from its effects, it is incumbent upon the principal to prohibit the agent
from appointing a substitute.
Although the law presumes that the agent is authorized to appoint a substitute, it also imposes an
obligation upon the agent to exercise this power conscientiously. To protect the principal, Article 1892
allocates responsibility to the agent for the acts of the substitute when the agent was not expressly
authorized by the principal to appoint a substitute; and, if so authorized but a specific person is not
designated, the agent appoints a substitute who is notoriously incompetent or insolvent. In these
instances, the principal has a right of action against both the agent and the substitute if the latter
commits acts prejudicial to the principal.
The case of Escueta v. Lim21 illustrates the prevailing rule. In that case, the father, through a special
power of attorney, appointed his daughter as his attorney-in-fact for the purpose of selling real
properties. The daughter then appointed a substitute or sub-agent to sell the properties. After the
properties were sold, the father sought to nullify the sale effected by the sub--agent on the ground
that he did not authorize his daughter to appoint a sub--agent. We refused to nullify the sale because
it is clear from the special power of attorney executed by the father that the daughter is not prohibited
from appointing a substitute. Applying Article 1892, we held that the daughter "merely acted within
the limits of the authority given by her father, but she will have to be 'responsible for the acts of the
sub-agent,' among which is precisely the sale of the subject properties in favor of respondent."22
In the present case, the Special Power of Attorney executed by the Spouses Villaluz contains no
restrictive language indicative of an intention to prohibit Agbisit from appointing a substitute or sub-
agent. Thus, we agree with the findings of the CA and the RTC that Agbisit's appointment of Milflores
Cooperative was valid.
III
Perhaps recognizing the correctness of the CA and the RTC's legal position, the Spouses Villaluz float a
new theory in their petition before us. They now seek to invalidate the Real Estate Mortgage for want
of consideration. Citing Article 1409(3), which provides that obligations "whose cause or object did not
exist at the time of the transaction" are void ab initio, the Spouses Villaluz posit that the mortgage was
void because the loan was not yet existent when the mortgage was executed on June 21, 1996. Since
the loan was released only on June 25, 1996, the mortgage executed four days earlier was without
valuable consideration.
Article 1347 provides that "[a]ll things which are not outside the commerce of men, including future
things, may be the object of a contract." Under Articles 1461 and 1462, things having a potential
existence and "future goods," i.e., those that are yet to be manufactured, raised, or acquired, may be
the objects of contracts of sale. The narrow interpretation advocated by the Spouses Villaluz would
create a dissonance between Articles 1347, 1461, and 1462, on the one hand, and Article 1 409(3), on
the other. A literal interpretation of the phrase "did not exist at the time of the transaction" in Article
1409(3) would essentially defeat the clear intent and purpose of Articles 1347, 1461, and 1462 to allow
future things to be the objects of contracts. To resolve this apparent conflict, Justice J.B.L. Reyes
commented that the phrase "did not exist" should be interpreted as "could not come into existence"
because the object may legally be a future thing.23
We adopt this interpretation.
One of the basic rules in statutory interpretation is that all parts of a statute are to be harmonized and
reconciled so that effect may be given to each and every part thereof, and that conflicting intentions
in the same statute are never to be supposed or so regarded.24 Thus, in order to give effect to Articles
1347, 1461, and 1462, Article 1409(3) must be interpreted as referring to contracts whose cause or
object is impossible of existing at the time of the transaction.25red
The cause of the disputed Real Estate Mortgage is the loan to be obtained by Milflores Cooperative.
This is clear from the terms of the mortgage document, which expressly provides that it is being
executed in "consideration of certain loans, advances, credit lines, and other credit facilities or
accommodations obtained from [Land Bank by Milflores Cooperative] x x x in the principal amount of
[P3,000,000]."26 The consideration is certainly not an impossible one because Land Bank was capable
of granting the P3,000,000 loan, as it in fact released one-third of the loan a couple of days later.
Although the validity of the Real Estate Mortgage is dependent upon the validity of the loan,27 what is
essential is that the loan contract intended to be secured is actually perfected,28 not at the time of the
execution of the mortgage contract vis-a-vis the loan contract. In loan transactions, it is customary for
the lender to require the borrower to execute the security contracts prior to initial drawdown. This is
understandable since a prudent lender would not want to release its funds without the security
agreements in place. On the other hand, the borrower would not be prejudiced by mere execution of
the security contract, because unless the loan proceeds are delivered, the obligations under the
security contract will not arise.29 In other words, the security contract-in this case, the Real Estate
Mortgage-is conditioned upon the release of the loan amount. This suspensive condition was satisfied
when Land Bank released the first tranche of the P3,000,000 loan to Milflores Cooperative on June 25,
1996, which consequently gave rise to the Spouses Villaluz's obligations under the Real Estate
Mortgage.
IV
The Spouses Villaluz claim that the Special Power of Attorney they issued was mooted by the execution
of the Deed of Assignment of the Produce/Inventory by Milflores Cooperative in favor of Land Bank.
Their theory is that the additional security on the same loan extinguished the agency because the Deed
of Assignment "served as payment of the loan of the [Milflores] Cooperative."30
The assignment was for the express purpose of "securing the payment of the Line/Loan, interest and
charges thereon."31 Nowhere in the deed can it be reasonably deduced that the collaterals assigned
by Milflores Cooperative were intended to substitute the payment of sum of money under the loan. It
was an accessory obligation to secure the principal loan obligation.
The assignment, being intended to be a mere security rather than a satisfaction of indebtedness, is not
a dation in payment under Article 124532 and did not extinguish the loan obligation.33 "Dation in
payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed
upon by the parties or as may be proved, unless the parties by agreement-express or implied, or by
their silence-consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished."34 As stated in the second condition of the Deed of Assignment, the "Assignment shall
in no way release the ASSIGNOR from liability to pay the Line/Loan and other obligations, except only
up to the extent of any amount actually collected and paid to ASSIGNEE by virtue of or under this
Assignment."35 Clearly, the assignment was not intended to substitute the payment of sums of money.
It is the delivery of cash proceeds, not the execution of the Deed of Assignment, that is considered as
payment. Absent any proof of delivery of such proceeds to Land Bank, the Spouses Villaluz's claim of
payment is without basis.

Neither could the assignment have constituted payment by cession under Article 125536 for the plain
and simple reason that there was only one creditor, Land Bank. A1iicle 1255 contemplates the
existence of two or more creditors and involves the assignment of all the debtor's property.37

The Spouses Villaluz understandably feel shorthanded because their property was foreclosed by reason
of another person's inability to pay. However, they were not coerced to grant a special power of
attorney in favor of Agbisit. Nor were they prohibited from prescribing conditions on how such power
may be exercised. Absent such express limitations, the law recognizes Land Bank's right to rely on the
terms of the power of attorney as written.38 "Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided
contracts, or annul the effects of [unwise] acts."39 The remedy afforded by the Civil Code to the
Spouses Villaluz is to proceed against the agent and the substitute in accordance with Articles 1892 and
1893.

WHEREFORE, the petition is DENIED. The Decision dated September 22, 2009 and Resolution dated
May 26, 2010 of the Court of Appeals in CA-G.R. CV No. 01307 are AFFIRMED.

SO ORDERED.lawlibrary

Velasco, Jr., (Chairperson), Bersamin, Reyes, and Caguioa,*JJ., concur.

G.R. No. 168646 : January 12, 2011
LUZON DEVELOPMENT BANK, Petitioner, v. ANGELES CATHERINE ENRIQUEZ, Respondent.
G.R. No. 168666 : January 12, 2011
DELTA DEVELOPMENT and MANAGEMENT SERVICES, INC., Petitioner, v. ANGELES CATHERINE
ENRIQUEZ and LUZON DEVELOPMENT BANK, Respondents.
The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or The
Subdivision and Condominium Buyer's Protective Decree will not be defeated by someone who is not
an innocent purchaser for value. The lofty aspirations of PD 957 should be read in every provision of
the statute, in every contract that undermines its objects, in every transaction which threatens its
fruition. "For a statute derives its vitality from the purpose for which it is enacted and to construe it in
a manner that disregards or defeats such purpose is to nullify or destroy the law."
These cases involve the separate appeals of Luzon Development Bank (BANK) and Delta Development
and Management Services, Inc.3 (DELTA) from the November 30, 2004 Decision of the Court of Appeals
(CA), as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280. The dispositive portion of the
assailed Decision reads:
WHEREFORE, premises considered, the Decision dated June 17, 2003 and Resolution dated November
24, 2003 are AFFIRMED with [m]odification in so far as Delta Development and Management Services,
Inc. is liable and directed to pay petitioner Luzon Development Bank the value of the subject lot subject
matter of the Contract to Sell between Delta Development and Management Services, Inc. and the
private respondent [Catherine Angeles Enriquez].
SO ORDERED.
Factual Antecedents
The BANK is a domestic financial corporation that extends loans to subdivision developers/owners.
Petitioner DELTA is a domestic corporation engaged in the business of developing and selling real estate
properties, particularly Delta Homes I in Cavite. DELTA is owned by Ricardo De Leon (De Leon), who is
the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-6371837 of
the Registry of Deeds of the Province of Cavite, which corresponds to Lot 4 of Delta Homes I. Said Lot
4 is the subject matter of these cases.
On July 3, 1995, De Leon and his spouse obtained a P 4 million loan from the BANK for the express
purpose of developing Delta Homes I.8 To secure the loan, the spouses De Leon executed in favor of
the BANK a real estate mortgage (REM) on several of their properties, 9 including Lot 4. Subsequently,
this REM was amended10 by increasing the amount of the secured loan from P 4 million to P 8 million.
Both the REM and the amendment were annotated on TCT No. T-637183.11
DELTA then obtained a Certificate of Registration12 and a License to Sell13 from the Housing and Land
Use Regulatory Board (HLURB).
Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez
(Enriquez)14 over the house and lot in Lot 4 for the purchase price of P 614, 950.00. Enriquez made a
downpayment of P 114, 950.00. The Contract to Sell contained the following provisions:
That the vendee/s offered to buy and the Owner agreed to sell the above-described property subject
to the following terms and conditions to wit:
xxx
6. That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided, however,
that for failure to pay three (3) successive monthly installment payments, the Owner may consider this
Contract to Sell null and void ab initio without further proceedings or court action and all payments
shall be forfeited in favor of the Owner as liquidated damages and expenses for documentations. x x x
That upon full payment of the total consideration if payable in cash, the Owner shall execute a final
deed of sale in favor of the Vendee/s. However, if the term of the contract is for a certain period of
time, only upon full payment of the total consideration that a final deed of sale shall be executed by
the Owner in favor of the Vendee/s.
When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a
dation in payment or a dacion en pago. The Deed of Assignment in Payment of Debt was executed on
September 30, 1998 and stated that DELTA "assigns, transfers, and conveys and sets over [to] the
assignee that real estate with the building and improvements existing thereon x x x in payment of the
total obligation owing to [the Bank] x x x." Unknown to Enriquez, among the properties assigned to the
BANK was the house and lot of Lot 4, which is the subject of her Contract to Sell with DELTA. The records
do not bear out and the parties are silent on whether the BANK was able to transfer title to its name.
It appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.
On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the Region IV
Office of the HLURB19 alleging that DELTA violated the terms of its License to Sell by: (a) selling the
house and lots for a price exceeding that prescribed in Batas Pambansa (BP) Bilang 220;20 and (b)
failing to get a clearance for the mortgage from the HLURB. Enriquez sought a full refund of the P 301,
063.42 that she had already paid to DELTA, award of damages, and the imposition of administrative
fines on DELTA and the BANK.
In his June 1, 2000 Decision, HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the
purchase price, but ordered DELTA to accept payment of the balance of P 108, 013.36 from Enriquez,
and (upon such payment) to deliver to Enriquez the title to the house and lot free from liens and
encumbrances. The dispositive portion reads:
WHEREFORE, premises considered, a decision is hereby rendered as follows:
1. Ordering [DELTA] to accept complainant[']s payments in the amount of P 108, 013.36 representing
her balance based on the maximum selling price of P 375, 000.00;
2. Upon full payment, ordering Delta to deliver the title in favor of the complainant free from any liens
and encumbrances;
3. Ordering [DELTA] to pay complainant the amount of P 50, 000.00 as and by way of moral damages;
4. Ordering [DELTA] to pay complainant the amount of P 50, 000.00 as and by way of exemplary
damages;
5. Ordering [DELTA] to pay complainant P 10, 000.00 as costs of suit; and
6. Respondent DELTA to pay administrative fine of P 10, 000.00 for violation of Section 18 of P.D. 957
and another P 10, 000.00 for violation of Section 22 of P.D. 957.
SO ORDERED.
DELTA appealed the arbiter's Decision to the HLURB Board of Commissioners.26 DELTA questioned the
imposition of an administrative fine for its alleged violation of Section 18 of PD 957. It argued that
clearance was not required for mortgages that were constituted on a subdivision project prior to
registration. According to DELTA, it did not violate the terms of its license because it did not obtain a
new mortgage over the subdivision project. It likewise assailed the award of moral and exemplary
damages to Enriquez on the ground that the latter has no cause of action
Ruling of the Board of Commissioners (Board)
The Board held that all developers should obtain a clearance for mortgage from the HLURB, regardless
of the date when the mortgage was secured, because the law does not distinguish. Having violated this
legal requirement, DELTA was held liable to pay the administrative fine.
The Board upheld the validity of the contract to sell between DELTA and Enriquez despite the alleged
violation of the price ceilings in BP 220. The Board held that DELTA and Enriquez were presumed to
have had a meeting of the minds on the object of the sale and the purchase price. Absent any
circumstance vitiating Enriquez'consent, she was presumed to have willingly and voluntarily agreed to
the higher purchase price; hence, she was bound by the terms of the contract.
The Board, however, deleted the arbiter's award of damages to Enriquez on the ground that the latter
was not free from liability herself, given that she was remiss in her monthly amortizations to DELTA.
The dispositive portion of the Board's Decision reads:
Wherefore, in view of the foregoing, the Office below's decision dated June 01, 2000 is hereby modified
to read as follows:
1. Ordering [Enriquez] to pay [DELTA] the amount due from the time she suspended payment up to
filing of the complaint with 12% interest thereon per annum; thereafter the provisions of the Contract
to Sell shall apply until full payment is made;
2. Ordering [DELTA] to pay an [a]dministrative [f]ine of P 10, 000.00 for violation of its license to sell
and for violation of Section 18 of P.D. 957.
So ordered. Quezon City.
Enriquez moved for a reconsideration of the Board's Decision30 upholding the contractual purchase
price. She maintained that the price for Lot 4 should not exceed the price ceiling provided in BP 220
Finding Enriquez's arguments as having already been passed upon in the decision, the Board denied
reconsideration. The board, however, modified its decision, with respect to the period for the
imposition of interest payments. The Board's resolution32 reads:
WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive portion of the decision of
our decision [sic] is MODIFIED as follows:
1. Ordering complainant to pay respondent DELTA the amount due from the time she suspended (sic)
at 12% interest per annum, reckoned from finality of this decision[, ] thereafter the provisions of the
Contract to Sell shall apply until full payment is made.
In all other respects, the decision is AFFIRMED.
SO ORDERED.
Both Enriquez and the BANK appealed to the Office of the President (OP). The BANK disagreed with the
ruling upholding Enriquez's Contract to Sell; and insisted on its ownership over Lot 4. It argued that it
has become impossible for DELTA to comply with the terms of the contract to sell and to deliver Lot 4's
title to Enriquez given that DELTA had already relinquished all its rights to Lot 4 in favor of the BANK
via the dation in payment.
Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling price as prescribed in BP
220.
Ruling of the Office of the President
The OP adopted by reference the findings of fact and conclusions of law of the HLURB Decisions, which
it affirmed in toto.
Enriquez filed a motion for reconsideration, insisting that she was entitled to a reduction of the
purchase price, in order to conform to the provisions of BP 220.The motion was denied for lack of merit.
Only the BANK appealed the OP's Decision to the CA.40 The BANK reiterated that DELTA can no longer
deliver Lot 4 to Enriquez because DELTA had sold the same to the BANK by virtue of the dacion en
pago.41 As an alternative argument, in case the appellate court should find that DELTA retained
ownership over Lot 4 and could convey the same to Enriquez, the BANK prayed that its REM over Lot 4
be respected such that DELTA would have to redeem it first before it could convey the same to Enriquez
in accordance with Section 2542 of PD 957.
The BANK likewise sought an award of exemplary damages and attorney's fees in its favor because of
the baseless suit filed by Enriquez against it
Ruling of the Court of Appeal
The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the ground
that DELTA had earlierrelinquished its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.
Since the dacion en pago is invalid with respect to Lot 4, the appellate court held that DELTA remained
indebted to the BANK to the extent of Lot 4's value. Thus, the CA ordered DELTA to pay the
corresponding value of Lot 4 to the BANK.
The CA also rejected the BANK's argument that, before DELTA can deliver the title to Lot 4 to Enriquez,
DELTA should first redeem the mortgaged property from the BANK. The CA held that the BANK does
not have a first lien on Lot 4 because its real estate mortgage over the same had already been
extinguished by the dacion en pago. Without a mortgage, the BANK cannot require DELTA to redeem
Lot 4 prior to delivery of title to Enriquez.
The CA denied the BANK's prayer for the award of exemplary damages and attorney's fees for lack of
factual and legal basis.
Both DELTA50 and the BANK51 moved for a reconsideration of the CA's Decision, but both were denied.
Hence, these separate petitions of the BANK and DELTA.
Petitioner Delta's arguments
DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to Enriquez via
the Contract to Sell. DELTA points out that the Contract to Sell contained a condition that ownership
shall only be transferred to Enriquez upon the latter's full payment of the purchase price to DELTA.
Since Enriquez has yet to comply with this suspensive condition, ownership is retained by DELTA.54 As
the owner of Lot 4, DELTA had every right to enter into a dation in payment to extinguish its loan
obligation to the BANK. The BANK's acceptance of the assignment, without any reservation or
exception, resulted in the extinguishment of the entire loan obligation; hence, DELTA has no more
obligation to pay the value of Enriquez's house and lot to the BANK.55
DELTA prays for the reinstatement of the OP Decision
The BANK's arguments
Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a conveyance
of DELTA's ownership over Lot 4 to Enriquez. The Contract to Sell expressly provides that DELTA
retained ownership over Lot 4 until Enriquez paid the full purchase price. Since Enriquez has not yet
made such full payment, DELTA retained ownership over Lot 4 and could validly convey the same to
the BANK viadacion en pago.
Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to
Enriquez, the BANK contends that DELTA should pay the corresponding value of Lot 4 to the BANK. It
maintains that the loan obligation extinguished by the dacion en pago only extends to the value of the
properties delivered; if Lot 4 cannot be delivered to the BANK, then the loan obligation of DELTA
remains to the extent of Lot 4's value.58
The BANK prays to be declared the rightful owner of the subject house and lot and asks for an award
of exemplary damages and attorney's fees.
Enriquez's waiver
Enriquez did not file comments59 or memoranda in both cases; instead, she manifested that she will
just await the outcome of the case.
Issues
The following are the issues raised by the two petitions:
1. Whether the Contract to Sell conveys ownership;
2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no more
obligations to the BANK;
3. Whether the BANK is entitled to damages and attorney's fees for being compelled to litigate; and
4. What is the effect of Enriquez's failure to appeal the OP's Decision regarding her obligation to pay
the balance on the purchase price.
Our Ruling
Mortgage contract void
As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in
mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from
the HLURB. This point need not be belabored since the parties have chosen not to appeal the
administrative fine imposed on DELTA for violation of Section 18.
This violation of Section 18 renders the mortgage executed by DELTA void. We have held before that
"a mortgage contract executed in breach of Section 18 of [PD 957] is null and void."61 Considering that
"PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real
estate practices, " we have construed Section 18 thereof as "prohibitory and acts committed contrary
to it are void."
Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any right arising
therefrom. The BANK's loan of P 8 million to DELTA has effectively become unsecured due to the nullity
of the mortgage. The said loan, however, was eventually settled by the two contracting parties via a
dation in payment. In the appealed Decision, the CA invalidated this dation in payment on the ground
that DELTA, by previously entering into a Contract to Sell, had already conveyed its ownership over Lot
4 to Enriquez and could no longer convey the same to the BANK. This is error, prescinding from a wrong
understanding of the nature of a contract to sell.
Contract to sell does not transfer ownership
Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did
not transfer ownership over Lot 4 to Enriquez. A contract to sell is one where the prospective seller
reserves the transfer of title to the prospective buyer until the happening of an event, such as full
payment of the purchase price. What the seller obliges himself to do is to sell the subject property only
when the entire amount of the purchase price has already been delivered to him. "In other words, the
full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller
without further remedies by the prospective buyer."63 It does not, by itself, transfer ownership to the
buyer.
In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez
that would exempt it from the general definition of a contract to sell. The terms thereof provide for
the reservation of DELTA's ownership until full payment of the purchase price; such that DELTA even
reserved the right to unilaterally void the contract should Enriquez fail to pay three successive monthly
amortizations.
Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained
with DELTA. DELTA could then validly transfer such ownership (as it did) to another person (the BANK).
However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez's rights
thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected
by PD 957. One of the protections afforded by PD 957 to buyers such as Enriquez is the right to have
her contract to sell registered with the Register of Deeds in order to make it binding on third parties.
Thus, Section 17 of PD 957 provides:
Section 17. Registration. All contracts to sell, deeds of sale, and other similar instruments relative to
the sale or conveyance of the subdivision lots and condominium units, whether or not the purchase
price is paid in full, shall be registered by the seller in the Office of the Register of Deeds of the province
or city where the property is situated.
x x x x (Emphasis supplied.)
The purpose of registration is to protect the buyers from any future unscrupulous transactions
involving the object of the sale or contract to sell, whether the purchase price therefor has been fully
paid or not. Registration of the sale or contract to sell makes it binding on third parties; it serves as a
notice to the whole world that the property is subject to the prior right of the buyer of the property
(under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property
will be held bound by such prior right
While DELTA, in the instant case, failed to register Enriquez's Contract to Sell with the Register of Deeds,
this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquez's
Contract to Sell. Despite the non-registration, the BANK cannot be considered, under the
circumstances, an innocent purchaser for value of Lot 4 when it accepted the latter (together with
other assigned properties) as payment for DELTA's obligation. The BANK was well aware that the
assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957.
It knew that the loaned amounts were to be used for the development of DELTA's subdivision project,
for this was indicated in the corresponding promissory notes. The technical description of Lot 4
indicates its location, which can easily be determined as included within the subdivision development.
Under these circumstances, the BANK knew or should have known of the possibility and risk that the
assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers.
As observed by the Court in another case involving a bank regarding a subdivision lot that was already
subject of a contract to sell with a third party:
[The Bank] should have considered that it was dealing with a property subject of a real estate
development project. A reasonable person, particularly a financial institution x x x, should have been
aware that, to finance the project, funds other than those obtained from the loan could have been
used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the
property was already intended to be the subject of any other contract involving buyers or potential
buyers. In granting the loan, [the Bank] should not have been content merely with a clean title,
considering the presence of circumstances indicating the need for a thorough investigation of the
existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an
innocent mortgagee. x x x65
Further, as an entity engaged in the banking business, the BANK is required to observe more care and
prudence when dealing with registered properties. The Court cannot accept that the BANK was
unaware of the Contract to Sell existing in favor of Enriquez. InKeppel Bank Philippines, Inc. v. Adao, 66
we held that a bank dealing with a property that is already subject of a contract to sell and is protected
by the provisions of PD 957, is bound by the contract to sell (even if the contract to sell in that case was
not registered). In the Court's words:
It is true that persons dealing with registered property can rely solely on the certificate of title and need
not go beyond it. However, x x x, this rule does not apply to banks. Banks are required to exercise more
care and prudence than private individuals in dealing even with registered properties for their business
is affected with public interest. As master of its business, petitioner should have sent its representatives
to check the assigned properties before signing the compromise agreement and it would have
discovered that respondent was already occupying one of the condominium units and that a contract
to sell existed between [the vendee] and [the developer]. In our view, petitioner was not a purchaser
in good faith and we are constrained to rule that petitioner is bound by the contract to sell.67
Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the
payments already made by Enriquez for the purchase price of Lot 4. Thus, the BANK can only collect
the balance of the purchase price from Enriquez and has the obligation, upon full payment, to deliver
to Enriquez a clean title over the subject property.68
Dacion en pago extinguished the loan obligation
The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the obligation to
pay the BANK the corresponding value of Lot 4. According to the BANK, the dation in payment
extinguished the loan only to the extent of the value of the thing delivered. Since Lot 4 would have no
value to the BANK if it will be delivered to Enriquez, DELTA would remain indebted to that extent.
We are not persuaded. Like in all contracts, the intention of the parties to the dation in payment is
paramount and controlling. The contractual intention determines whether the property subject of the
dation will be considered as the full equivalent of the debt and will therefore serve as full satisfaction
for the debt. "The dation in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement,
express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case
the obligation is totally extinguished. "69
In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by
the parties that the assigned properties would serve as full payment for DELTA's entire obligation:
KNOW ALL MEN BY THESE PRESENTS:
This instrument, made and executed by and between:
xxx
THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the sum of ELEVEN
MILLION EIGHT HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED PESOS ( P 11, 878, 800.00),
Philippine Currency as of August 25, 1998. Therefore, by virtue of this instrument, ASSIGNOR hereby
ASSIGNS, TRANSFERS, and CONVEYS AND SETS OVER [TO] the ASSIGNEE that real estate with the
building and improvements existing thereon, more particularly described as follows:
xxx
of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x issued by the Registry
of Deeds of Trece Martires City.
THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF THE TOTAL OBLIGATION
owing to him by the ASSIGNOR as above-stated;70
Without any reservation or condition, the Dacion stated that the assigned properties served as full
payment of DELTA's "total obligation" to the BANK. The BANK accepted said properties as equivalent
of the loaned amount and as full satisfaction of DELTA's debt. The BANK cannot complain if, as it turned
out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted
earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It
was aware of the nature of DELTA's business, of the location of the assigned properties within DELTA's
subdivision development, and the possibility that some of the properties may be subjects of existing
contracts to sell which enjoy protection under PD 957. Banks dealing with subdivision properties are
expected to conduct a thorough due diligence review to discover the status of the properties they deal
with. It may thus be said that the BANK, in accepting the assigned properties as full payment of DELTA's
"total obligation, " has assumed the risk that some of the assigned properties (such as Lot 4) are
covered by contracts to sell which it is bound to honor under PD 957.
A dacion en pago is governed by the law of sales.71 Contracts of sale come with warranties, either
express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code).
In this case, however, the BANK does not even point to any breach of warranty by DELTA in connection
with the Dation in Payment. To be sure, the Dation in Payment has no express warranties relating to
existing contracts to sell over the assigned properties. As to theimplied warranty in case of eviction, it
is waivable72 and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed
its consequences.73 As we have noted earlier, the BANK, in accepting the assigned properties as full
payment of DELTA's "total obligation, " has assumed the risk that some of the assigned properties are
covered by contracts to sell which must be honored under PD 957.

Award of damages

There is nothing on record that warrants the award of exemplary damages74 as well as attorney's
fees75 in favor of the BANK.

Balance to be paid by Enriquez

As already mentioned, the Contract to Sell in favor of Enriquez must be respected by the BANK. Upon
Enriquez's full payment of the balance of the purchase price, the BANK is bound to deliver the title over
Lot 4 to her. As to the amount of the balance which Enriquez must pay, we adopt the OP's ruling
thereon which sustained the amount stipulated in the Contract to Sell. We will not review Enriquez's
initial claims about the supposed violation of the price ceiling in BP 220, since this issue was no longer
pursued by the parties, not even by Enriquez, who chose not to file the required pleadings76 before
the Court. The parties were informed in the Court's September 5, 2007 Resolution that issues that are
not included in their memoranda shall be deemed waived or abandoned. Since Enriquez did not file a
memorandum in either petition, she is deemed to have waived the said issue.

WHEREFORE , premises considered, the appealed November 30, 2004 Decision of the Court of Appeals,
as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280 are hereby AFFIRMED with the
MODIFICATIONS that Delta Development and Management Services, Inc. isNOT LIABLE TO PAY Luzon
Development Bank the value of the subject lot; and respondent Angeles Catherine Enriquez is ordered
to PAY the balance of the purchase price and the interests accruing thereon, as decreed by the Court
of Appeals, to the Luzon Development Bank, instead of Delta Development and Management Services,
Inc., within thirty (30) days from finality of this Decision. The Luzon Development Bank is ordered to
DELIVER a CLEAN TITLE to Angeles Catherine Enriquez upon the latter's full payment of the balance of
the purchase price and the accrued interests.

SO ORDERED .

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

CORONA, C.J., Chairperson, VELASCO, JR., LEONARDO-DE CASTRO, and PEREZ, JJ.
G.R. No. 168220. August 31, 2005
SPS. rudy Paragas and Corazon B. Paragas, Petitioners,
vs.
Hrs. of Dominador Balacano, namely: Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano,
represented by NANETTE BALACANO and ALFREDO BALACANO, Respondent.
This petition for review seeks to annul the Decision1 dated 15 February 2005 of the Court of Appeals
in CA-G.R. CV No. 64048, affirming with modification the 8 March 1999 Decision2 of the Regional Trial
Court (RTC), Branch 21, of Santiago City, Isabela, in Civil Case No. 21-2313. The petition likewise seeks
to annul the Resolution3 dated 17 May 2005 denying petitioners’ motion for reconsideration.
The factual antecedents were synthesized by the Court of Appeals in its decision.
Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot 1175-E and Lot 1175-
F of the Subd. Plan Psd-38042 [located at Baluarte, Santiago City, Isabela] covered by TCT No. T-103297
and TCT No. T-103298 of the Registry of Deeds of the Province of Isabela.
Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all surnamed
Balacano. Lorenza died on December 11, 1991. Gregorio, on the other hand, died on July 28, 1996.
Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong, Nueva
Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He was transferred in the afternoon of
July 19, 1996 to the Veterans Memorial Hospital in Quezon City where he was confined until his death.
Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot 1175-
E (specifically consisting of 15,925 square meters from its total area of 22,341 square meters) and the
whole Lot 1175-F to the Spouses Rudy ("Rudy") and Corazon Paragas (collectively, "the Spouses
Paragas") for the total consideration of ₱500,000.00. This sale appeared in a deed of absolute sale
notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on the same date – July 22,
1996 – and witnessed by Antonio Agcaoili ("Antonio") and Julia Garabiles ("Julia"). Gregorio’s
certificates of title over Lots 1175-E and 1175-F were consequently cancelled and new certificates of
title were issued in favor of the Spouses Paragas.
The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416 square
meters to Catalino for the total consideration of ₱60,000.00.
Domingo’s children (Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano;…) filed on October
22, 1996 a complaint for annulment of sale and partition against Catalino and the Spouses Paragas.
They essentially alleged – in asking for the nullification of the deed of sale – that: (1) their grandfather
Gregorio could not have appeared before the notary public on July 22, 1996 at Santiago City because
he was then confined at the Veterans Memorial Hospital in Quezon City; (2) at the time of the alleged
execution of the deed of sale, Gregorio was seriously ill, in fact dying at that time, which vitiated his
consent to the disposal of the property; and (3) Catalino manipulated the execution of the deed and
prevailed upon the dying Gregorio to sign his name on a paper the contents of which he never
understood because of his serious condition. Alternatively, they alleged that assuming Gregorio was of
sound and disposing mind, he could only transfer a half portion of Lots 1175-E and 1175-F as the other
half belongs to their grandmother Lorenza who predeceased Gregorio – they claimed that Lots 1175-E
and 1175-F form part of the conjugal partnership properties of Gregorio and Lorenza. Finally, they
alleged that the sale to the Spouses Paragas covers only a 5-hectare portion of Lots 1175-E and 1175-F
leaving a portion of 6,416 square meters that Catalino is threatening to dispose. They asked for the
nullification of the deed of sale executed by Gregorio and the partition of Lots 1175-E and 1175-F. They
likewise asked for damages.
Instead of filing their Answer, the defendants Catalino and the Spouses Paragas moved to dismiss the
complaint on the following grounds: (1) the plaintiffs have no legal capacity - the Domingo’s children
cannot file the case because Domingo is still alive, although he has been absent for a long time; (2) an
indispensable party is not impleaded – that Gregorio’s other son, Alfredo was not made a party to the
suit; and (3) the complaint states no cause of action – that Domingo’s children failed to allege a ground
for the annulment of the deed of sale; they did not cite any mistake, violence, intimidation, undue
influence or fraud, but merely alleged that Gregorio was seriously ill. Domingo’s children opposed this
motion.
The lower court denied the motion to dismiss, but directed the plaintiffs-appellees to amend the
complaint to include Alfredo as a party. Alfredo was subsequently declared as in default for his failure
to file his Answer to the Complaint.
The defendants-appellees filed their Answer with Counterclaim on May 7, 1997, denying the material
allegations of the complaint. Additionally, they claimed that: (1) the deed of sale was actually executed
by Gregorio on July 19 (or 18), 1996 and not July 22, 1996; (2) the Notary Public personally went to the
Hospital in Bayombong, Nueva Vizcaya on July 18, 1996 to notarize the deed of sale already subject of
a previously concluded covenant between Gregorio and the Spouses Paragas; (3) at the time Gregorio
signed the deed, he was strong and of sound and disposing mind; (4) Lots 1175-E and 1175-F were
Gregorio’s separate capital and the inscription of Lorenza’s name in the titles was just a description of
Gregorio’s marital status; (5) the entire area of Lots 1175-E and 1175-F were sold to the Spouses
Paragas. They interposed a counterclaim for damages.
At the trial, the parties proceeded to prove their respective contentions.
Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their complaint. On
Gregorio’s medical condition, she declared that: (1) Gregorio, who was then 81 years old, weak and
sick, was brought to the hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until
the afternoon on July 19, 1996; (2) thereafter, Gregorio, who by then was weak and could no longer
talk and whose condition had worsened, was transferred in the afternoon of July 19, 1996 to the
Veterans Memorial Hospital in Quezon City where Gregorio died. She claimed that Gregorio could not
have signed a deed of sale on July 19, 1996 because she stayed at the hospital the whole of that day
and saw no visitors. She likewise testified on their agreement for attorney’s fees with their counsel and
the litigation expenses they incurred.
Additionally, the plaintiffs-appellees presented in evidence Gregorio’s medical records and his death
certificate.
Defendants-appellees, on the other hand, presented as witnesses Notary Public de Guzman and
instrumental witness Antonio to prove Gregorio’s execution of the sale and the circumstances under
the deed was executed. They uniformly declared that: (1) on July 18, 1996, they went to the hospital
in Bayombong, Nueva Vizcaya – where Gregorio was confined – with Rudy; (2) Atty. De Guzman read
and explained the contents of the deed to Gregorio; (3) Gregorio signed the deed after receiving the
money from Rudy; (4) Julia and Antonio signed the deed as witnesses. Additionally, Atty. De Guzman
explained that the execution of the deed was merely a confirmation of a previous agreement between
the Spouses Paragas and Gregorio that was concluded at least a month prior to Gregorio’s death; that,
in fact, Gregorio had previously asked him to prepare a deed that Gregorio eventually signed on July
18, 1996. He also explained that the deed, which appeared to have been executed on July 22, 1996,
was actually executed on July 18, 1996; he notarized the deed and entered it in his register only on July
22, 1996. He claimed that he did not find it necessary to state the precise date and place of execution
(Bayombong, Nueva Vizcaya, instead of Santiago City) of the deed of sale because the deed is merely a
confirmation of a previously agreed contract between Gregorio and the Spouses Paragas. He likewise
stated that of the stated ₱500,000.00 consideration in the deed, Rudy paid Gregorio ₱450,000.00 in
the hospital because Rudy had previously paid Gregorio ₱50,000.00. For his part, Antonio added that
he was asked by Rudy to take pictures of Gregorio signing the deed. He also claimed that there was no
entry on the date when he signed; nor did he remember reading Santiago City as the place of execution
of the deed. He described Gregorio as still strong but sickly, who got up from the bed with Julia’s help.
Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-E was Gregorio’s
separate property. She claimed that Gregorio’s father (Leon) purchased a two-hectare lot from them
in 1972 while the other lot was purchased from her neighbor. She also declared that Gregorio inherited
these lands from his father Leon; she does not know, however, Gregorio’s brothers’ share in the
inheritance. Defendant-appellant Catalino also testified to corroborate the testimony of witness Luisa
Agsalda; he said that Gregorio told him that he (Gregorio) inherited Lots 1175-E and 1175-F from his
father Leon. He also stated that a portion of Lot 1175-E consisting of 6,416 square meters was sold to
him by the Spouses Paragas and that he will pay the Spouses Paragas ₱50,000.00, not as consideration
for the return of the land but for the transfer of the title to his name.
Additionally, the defendants-appellants presented in evidence the pictures taken by Antonio when
Gregorio allegedly signed the deed.4
The lower court, after trial, rendered the decision declaring null and void the deed of sale purportedly
executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon Paragas. In nullifying
the deed of sale executed by Gregorio, the lower court initially noted that at the time Gregorio
executed the deed, Gregorio was ill. The lower court’s reasoning in declaring the deed of sale null and
void and this reasoning’s premises may be summarized as follows: (1) the deed of sale was improperly
notarized; thus it cannot be considered a public document that is usually accorded the presumption of
regularity; (2) as a private document, the deed of sale’s due execution must be proved in accordance
with Section 20, Rule 132 of the Revised Rules on Evidence either: (a) by anyone who saw the document
executed or written; or (b) by evidence of the genuineness of the signature or handwriting of the
maker; and (3) it was incumbent upon the Spouses Paragas to prove the deed of sale’s due execution
but failed to do so – the lower court said that witness Antonio Agcaoili is not credible while Atty.
Alexander De Guzman is not reliable.5
The lower court found the explanations of Atty. De Guzman regarding the erroneous entries on the
actual place and date of execution of the deed of sale as justifications for a lie. The lower court said –
The Court cannot imagine an attorney to undertake to travel to another province to notarize a
document when he must certainly know, being a lawyer and by all means, not stupid, that he has no
authority to notarize a document in that province. The only logical thing that happened was that Rudy
Paragas brought the deed of sale to him on July 22, 1996 already signed and requested him to notarize
the same which he did, not knowing that at that time the vendor was already in a hospital and [sic]
Quezon City. Of course had he known, Atty. De Guzman would not have notarized the document. But
he trusted Rudy Paragas and moreover, Gregorio Balacano already informed him previously in June
that he will sell his lands to Paragas. In addition [sic, (,) was omitted] Rudy Paragas also told him that
Balacano received an advance of ₱50,000.00.
The intention to sell is not actual selling. From the first week of June when, according to Atty. De
Guzman, Gregorio Balacano informed him that he will sell his land to Rudy Paragas, enough time
elapsed to the time he was brought to the hospital on June 28, 1996. Had there been a meeting of the
minds between Gregorio Balacano and Rudy Paragas regarding the sale, surely Gregorio Balacano
would have immediately returned to the office of Atty. De Guzman to execute the deed of sale. He did
not until he was brought to the hospital and diagnosed to have liver cirrhosis. Because of the
seriousness of his illness, it is not expected that Gregorio Balacano would be negotiating a contract of
sale. Thus, Rudy Paragas negotiated with Catalino Balacano, the son of Gregorio Balacano with whom
the latter was staying.6
The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragas’s driver, a convincing
witness, concluding that he was telling a rehearsed story. The lower court said –
The only portion of his testimony that is true is that he signed the document. How could the Court
believe that he brought a camera with him just to take pictures of the signing? If the purpose was to
record the proceeding for posterity, why did he not take the picture of Atty. De Guzman when the latter
was reading and explaining the document to Gregorio Balacano? Why did he not take the picture of
both Gregorio Balacano and Atty. de Guzman while the old man was signing the document instead of
taking a picture of Gregorio Balacano alone holding a ball pen without even showing the document
being signed? Verily there is a picture of a document but only a hand with a ball pen is shown with it.
Why? Clearly the driver Antonio Agcaoili must have only been asked by Rudy Paragas to tell a concocted
story which he himself would not dare tell in Court under oath.7
The lower court likewise noted that petitioner Rudy Paragas did not testify about the signing of the
deed of sale. To the lower court, Rudy’s refusal or failure to testify raises a lot of questions, such as: (1)
was he (Rudy) afraid to divulge the circumstances of how he obtained the signature of Gregorio
Balacano, and (2) was he (Rudy) afraid to admit that he did not actually pay the ₱500,000.00 indicated
in the deed of sale as the price of the land?8
The lower court also ruled that Lots 1175-E and 1175-F were Gregorio’s and Lorenza’s conjugal
partnership properties. The lower court found that these lots were acquired during the marriage
because the certificates of title of these lots clearly stated that the lots are registered in the name
Gregorio, "married to Lorenza Sumigcay." Thus, the lower court concluded that the presumption of law
(under Article 160 of the Civil Code of the Philippines) that property acquired during the marriage is
presumed to belong to the conjugal partnership fully applies to Lots 1175-E and 1175-F.9
Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered a Decision10 in Civil
Case No. 21-2313, the dispositive portion of which reads as follows:
WHEREFORE in the light of the foregoing considerations judgment is hereby rendered:
1. DECLARING as NULL and VOID the deed of sale purportedly executed by Gregorio Balacano in favor
of the spouses Rudy Paragas and Corazon Paragas over lots 1175-E and 1175-F covered by TCT Nos. T-
103297 and T-103298, respectively;
2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041 issued in the name of the spouses
Rudy and Corazon Paragas by virtue of the deed of sale; and
Declaring the parcel of lands, lots 1175-E and 1175-F as part of the estate of the deceased spouses
Gregorio Balacano and Lorenza Balacano.11
In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed the Decision of the trial
court, with the modification that Lots 1175-E and 1175-F were adjudged as belonging to the estate of
Gregorio Balacano. The appellate court disposed as follows:
Wherefore, premises considered, the appeal is hereby dismissed. We AFFIRM the appealed Decision
for the reasons discussed above, with the MODIFICATION that Lots 1175-E and 1175-F belong to the
estate of Gregorio Balacano.
Let a copy of this Decision be furnished the Office of the Bar Confidant for whatever action her Office
may take against Atty. De Guzman.12 (Emphasis in the original.)
Herein petitioners’ motion for reconsideration was met with similar lack of success when it was denied
for lack of merit by the Court of Appeals in its Resolution13 dated 17 May 2005.
Hence, this appeal via a petition for review where petitioners assign the following errors to the Court
of Appeals, viz:
A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN
FINDING THAT THERE WAS NO PERFECTED AND PARTIALLY EXECUTED CONTRACT OF SALE OVER LOTS
1175-E AND 1175-F PRIOR TO THE SIGNING OF THE DEED OF SALE.
B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY FAILED TO
APPRECIATE THE SIGNIFICANCE OF THE JUDICIAL ADMISSION ON THE AUTHENTICITY AND DUE
EXECUTION OF THE DEED OF SALE MADE BY THE RESPONDENTS DURING THE PRE-TRIAL CONFERENCE.
C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, BASED ITS CONCLUSION
THAT GREGORIO’S CONSENT TO THE SALE OF THE LOTS WAS ABSENT MERELY ON SPECULATIONS AND
SURMISES.
D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN
NOT RULING ON THE ISSUE OF RESPONDENTS’ LACK OF LEGAL CAPACITY TO SUE FOR NOT BEING THE
PROPER PARTIES IN INTEREST.
E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN
DISMISSING ATTY. ALEXANDER DE GUZMAN AND ANTONIO AGCAOILI AS NOT CREDIBLE WITNESSES.14
At bottom is the issue of whether or not the Court of Appeals committed reversible error in upholding
the findings and conclusions of the trial court on the nullity of the Deed of Sale purportedly executed
between petitioners and the late Gregorio Balacano.
To start, we held in Blanco v. Quasha15 that this Court is not a trier of facts. As such, it is not its function
to examine and determine the weight of the evidence supporting the assailed decision. Factual findings
of the Court of Appeals, which are supported by substantial evidence, are binding, final and conclusive
upon the Supreme Court,16 and carry even more weight when the said court affirms the factual
findings of the trial court. Moreover, well- entrenched is the prevailing jurisprudence that only errors
of law and not of facts are reviewable by this Court in a petition for review on certiorari under Rule 45
of the Revised Rules of Court.
The foregoing tenets in the case at bar apply with greater force to the petition under consideration
because the factual findings by the Court of Appeals are in full agreement with that of the trial court.
Specifically, the Court of Appeals, in affirming the trial court, found that there was no prior and
perfected contract of sale that remained to be fully consummated. The appellate court explained -
In support of their position, the defendants-appellants argue that at least a month prior to Gregorio’s
signing of the deed, Gregorio and the Spouses Paragas already agreed on the sale of Lots 1175-E and
1175-F; and that, in fact, this agreement was partially executed by Rudy’s payment to Gregorio of
₱50,000.00 before Gregorio signed the deed at the hospital. In line with this position, defendants-
appellants posit that Gregorio’s consent to the sale should be determined, not at the time Gregorio
signed the deed of sale on July 18, 1996, but at the time when he agreed to sell the property in June
1996 or a month prior to the deed’s signing; and in June 1996, Gregorio was of sound and disposing
mind and his consent to the sale was in no wise vitiated at that time. The defendants-appellants further
argue that the execution or signing of the deed of sale, however, irregular it might have been, does not
affect the validity of the previously agreed sale of the lots, as the execution or signing of the deed is
merely a formalization of a previously agreed oral contract.
...
In the absence of any note, memorandum or any other written instrument evidencing the alleged
perfected contract of sale, we have to rely on oral testimonies, which in this case is that of Atty. de
Guzman whose testimony on the alleged oral agreement may be summarized as follows: (1) that
sometime in the first week of June 1996, Gregorio requested him (Atty. de Guzman) to prepare a deed
of sale of two lots; (2) Gregorio came to his firm’s office in the morning with a certain Doming Balacano,
then returned in the afternoon with Rudy; (3) he (Atty. de Guzman) asked Gregorio whether he really
intends to sell the lots; Gregorio confirmed his intention; (4) Gregorio and Rudy left the law office at
5:00 p.m., leaving the certificates of title; (5) he prepared the deed a day after Rudy and Gregorio came.
With regard to the alleged partial execution of this agreement, Atty. de Guzman said that he was told
by Rudy that there was already a partial payment of ₱50,000.00.
We do not consider Atty. de Guzman’s testimony sufficient evidence to establish the fact that there
was a prior agreement between Gregorio and the Spouses Paragas on the sale of Lots 1175-E and 1175-
F. This testimony does not conclusively establish the meeting of the minds between Gregorio and the
Spouses Paragas on the price or consideration for the sale of Lots 1175-E and 1175-F – Atty. de Guzman
merely declared that he was asked by Gregorio to prepare a deed; he did not clearly narrate the details
of this agreement. We cannot assume that Gregorio and the Spouses Paragas agreed to a ₱500,000.00
consideration based on Atty. de Guzman’s bare assertion that Gregorio asked him to prepare a deed,
as Atty. de Guzman was not personally aware of the agreed consideration in the sale of the lots, not
being privy to the parties’ agreement. To us, Rudy could have been a competent witness to testify on
the perfection of this prior contract; unfortunately, the defendants-appellants did not present Rudy as
their witness.
We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely on his testimony
because of his tendency to commit falsity. He admitted in open court that while Gregorio signed the
deed on July 18, 1996 at Bayombong, Nueva Vizcaya, he nevertheless did not reflect these matters
when he notarized the deed; instead he entered Santiago City and July 22, 1996, as place and date of
execution, respectively. To us, Atty. de Guzman’s propensity to distort facts in the performance of his
public functions as a notary public, in utter disregard of the significance of the act of notarization,
seriously affects his credibility as a witness in the present case. In fact, Atty. de Guzman’s act in
falsifying the entries in his acknowledgment of the deed of sale could be the subject of administrative
and disciplinary action, a matter that we however do not here decide.
Similarly, there is no conclusive proof of the partial execution of the contract because the only evidence
the plaintiffs-appellants presented to prove this claim was Atty. de Guzman’s testimony, which is
hearsay and thus, has no probative value. Atty. de Guzman merely stated that Rudy told him that Rudy
already gave ₱50,000.00 to Gregorio as partial payment of the purchase price; Atty. de Guzman did not
personally see the payment being made.17
But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F when he signed the
deed of sale? The trial court as well as the appellate court found in the negative. In the Court of Appeals’
rationale-
It is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill, as he in fact
died a week after the deed’s signing. Gregorio died of complications caused by cirrhosis of the liver.
Gregorio’s death was neither sudden nor immediate; he fought at least a month-long battle against the
disease until he succumbed to death on July 22, 1996. Given that Gregorio purportedly executed a deed
during the last stages of his battle against his disease, we seriously doubt whether Gregorio could have
read, or fully understood, the contents of the documents he signed or of the consequences of his act.
We note in this regard that Gregorio was brought to the Veteran’s Hospital at Quezon City because his
condition had worsened on or about the time the deed was allegedly signed. This transfer and fact of
death not long after speak volumes about Gregorio’s condition at that time. We likewise see no
conclusive evidence that the contents of the deed were sufficiently explained to Gregorio before he
affixed his signature. The evidence the defendants-appellants offered to prove Gregorio’s consent to
the sale consists of the testimonies of Atty. de Guzman and Antonio. As discussed above, we do not
find Atty. de Guzman a credible witness. Thus, we fully concur with the heretofore-quoted lower court’s
evaluation of the testimonies given by Atty. de Guzman and Antonio because this is an evaluation that
the lower court was in a better position to make.
Additionally, the irregular and invalid notarization of the deed is a falsity that raises doubts on the
regularity of the transaction itself. While the deed was indeed signed on July 18, 1996 at Bayombong,
Nueva Vizcaya, the deed states otherwise, as it shows that the deed was executed on July 22, 1996 at
Santiago City. Why such falsity was committed, and the circumstances under which this falsity was
committed, speaks volume about the regularity and the validity of the sale. We cannot but consider
the commission of this falsity, with the indispensable aid of Atty. de Guzman, an orchestrated attempt
to legitimize a transaction that Gregorio did not intend to be binding upon him nor on his bounty.
Article 24 of the Civil Code tells us that in all contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection.18
Based on the foregoing, the court of Appeals concluded that Gregorio’s consent to the sale of the lots
was absent, making the contract null and void. Consequently, the spouses Paragas could not have made
a subsequent transfer of the property to Catalino Balacano. Indeed, nemo dat quod non habet. Nobody
can dispose of that which does not belong to him.19
We likewise find to be in accord with the evidence on record the ruling of the Court of Appeals declaring
the properties in controversy as paraphernal properties of Gregorio in the absence of competent
evidence on the exact date of Gregorio’s acquisition of ownership of these lots.
On the credibility of witnesses, it is in rhyme with reason to believe the testimonies of the witnesses
for the complainants vis-à-vis those of the defendants. In the assessment of the credibility of witnesses,
we are guided by the following well-entrenched rules: (1) that evidence to be believed must not only
spring from the mouth of a credible witness but must itself be credible, and (2) findings of facts and
assessment of credibility of witness are matters best left to the trial court who had the front-line
opportunity to personally evaluate the witnesses’ demeanor, conduct, and behavior while testifying.20
In the case at bar, we agree in the trial court’s conclusion that petitioners’ star witness, Atty. De
Guzman is far from being a credible witness. Unlike this Court, the trial court had the unique
opportunity of observing the demeanor of said witness. Thus, we affirm the trial court and the Court
of Appeals’ uniform decision based on the whole evidence in record holding the Deed of Sale in SO ORDERED.
question to be null and void.

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

In Domingo v. Court of Appeals,21 the Court declared as null and void the deed of sale therein inasmuch
as the seller, at the time of the execution of the alleged contract, was already of advanced age and
senile. We held –

. . . She died an octogenarian on March 20, 1966, barely over a year when the deed was allegedly
executed on January 28, 1965, but before copies of the deed were entered in the registry allegedly on
May 16 and June 10, 1966. The general rule is that a person is not incompetent to contract merely
because of advanced years or by reason of physical infirmities. However, when such age or infirmities
have impaired the mental faculties so as to prevent the person from properly, intelligently, and firmly
protecting her property rights then she is undeniably incapacitated. The unrebutted testimony of
Zosima Domingo shows that at the time of the alleged execution of the deed, Paulina was already
incapacitated physically and mentally. She narrated that Paulina played with her waste and urinated in
bed. Given these circumstances, there is in our view sufficient reason to seriously doubt that she
consented to the sale of and the price for her parcels of land. Moreover, there is no receipt to show
that said price was paid to and received by her. Thus, we are in agreement with the trial court’s finding
and conclusion on the matter: . . .

In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed in the hospital.
Gregorio was an octogenarian at the time of the alleged execution of the contract and suffering from
liver cirrhosis at that – circumstances which raise grave doubts on his physical and mental capacity to
freely consent to the contract. Adding to the dubiety of the purported sale and further bolstering
respondents’ claim that their uncle Catalino, one of the children of the decedent, had a hand in the
execution of the deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E
consisting of 6,416 square meters to Catalino for ₱60,000.00.22 One need not stretch his imagination
to surmise that Catalino was in cahoots with petitioners in maneuvering the alleged sale.

On the whole, we find no reversible error on the part of the appellate court in CA-G.R. CV No. 64048
that would warrant the reversal thereof.

WHEREFORE, the present petition is hereby DENIED. Accordingly, the Decision23 and the Resolution,24
dated 15 February 2005 and 17 May 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 64048
are hereby AFFIRMED. No costs.

[G.R. No. L-28771. March 31, 1971.]
CORNELIA MATABUENA, Plaintiff-Appellant, v. PETRONILA CERVANTES, Defendant-Appellee.
Alegre, Roces, Salazar & Sañez, for Plaintiff-Appellant.
Fernando Gerona, Jr., for Defendant-Appellee.
SYLLABUS
1. CIVIL LAW; PROPERTY RELATIONS BETWEEN HUSBAND AND WIFE; DONATIONS BY REASON OF
MARRIAGE; PROHIBITION AGAINST DONATION BETWEEN SPOUSES DURING MARRIAGE; APPLICABLE
TO COMMON LAW RELATIONSHIP. — While Art. 133 of the Civil Code considers as void a "donation
between the spouses during the marriage", policy considerations of the most exigent character as well
as the dictates of morality require that the same prohibition should apply to a common-law
relationship. A 1954 Court of Appeals decision Buenaventura v. Bautista, (50 O.G. 3679) interpreting a
similar provision of the old Civil Code speaks unequivocally. If the policy of the law is, in the language
of the opinion of the then Justice J.B.L. Reyes of that Court, "to prohibit donations in favor of the other
consort and his descendants because of fear of undue and improper pressure and influence upon the
donor, a prejudice deeply rooted in our ancient law; ‘porque no se engañen despojandose el uno al
otro por amor que han de consuno,’ [according to] the Partidas (Part. IV, Tit. Xl, LAW IV), reiterating
the rationale ‘Ne mutuato amore invicem spoliarentur’ of the Pandects (Bk 24, Tit. I, De donat, inter
virum et uxorem); then there is every reason to apply the same prohibitive policy to persons living
together as husband and wife without benefit of nuptials. For it is not to be doubted that assent to
such irregular connection for thirty years bespeaks greater influence of one party over the other, so
that the danger that the law seeks to avoid is correspondingly increased. Moreover, as already pointed
out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), it would not be just that such donations should subsist
lest the condition of those who incurred guilt should turn out to be better. So long as marriage remains
the cornerstone of our family law, reason and morality alike demand that the disabilities attached to
marriage should likewise attach to concubinage.
2. ID.; SUCCESSION; INTESTATE SUCCESSION; SURVIVING SPOUSE; RULE WHERE A SISTER SURVIVES
WITH THE WIDOW. — The lack of validity of the donation made b~ the deceased to defendant Petronila
Cervantes does not necessarily result in plaintiff having exclusive right to the disputed property. Prior
to the death of Felix Matabuena, the relationship between him and the defendant was legitimated by
their marriage on March 28. 1962. She is therefore his widow. As provided in the Civil Code, she is
entitled to one-half of the inheritance and the plaintiff, as the surviving sister to the other half.
DECISION
A question of first impression is before this Court in this litigation. We are called upon to decide
whether the ban on a donation between the spouses during a marriage applies to a common-law
relationship. 1 The plaintiff, now appellant Cornelia Matabuena, a sister to the deceased Felix
Matabuena, maintains that a donation made while he was living maritally without benefit of marriage
to defendant, now appellee Petronila Cervantes, was void. Defendant would uphold its validity. The
lower court, after noting that it was made at a time before defendant was married to the donor,
sustained the latter’s stand. Hence this appeal. The question, as noted, is novel in character, this Court
not having had as yet the opportunity of ruling on it. A 1954 decision of the Court of Appeals,
Buenaventura v. Bautista, 2 by the then Justice J. B. L. Reyes, who was appointed to this Court later
that year, is indicative of the appropriate response that should be given. The conclusion reached
therein is that a donation between common-law spouses falls within the prohibition and is "null and
void as contrary to public policy." 3 Such a view merits fully the acceptance of this Court. The decision
must be reversed.
In the decision of November 23, 1965, the lower court, after stating that in plaintiff’s complaint alleging
absolute ownership of the parcel of land in question, she specifically raised the question that the
donation made by Felix Matabuena to defendant Petronila Cervantes was null and void under the
aforesaid article of the Civil Code and that defendant on the other hand did assert ownership precisely
because such a donation was made in 1956 and her marriage to the deceased did not take place until
1962, noted that when the case was called for trial on November 19, 1965, there was stipulation of
facts which it quoted. 4 Thus: "The plaintiff and the defendant assisted by their respective counsels,
jointly agree and stipulate: (1) That the deceased Felix Matabuena owned the property in question; (2)
That said Felix Matabuena executed a Deed of Donation inter vivos in favor of Defendant, Petronila
Cervantes over the parcel of land in question on February 20, 1956, which same donation was accepted
by defendant; (3) That the donation of the land to the defendant which took effect immediately was
made during the common law relationship as husband and wife between the defendant-done and the
now deceased donor and later said donor and done were married on March 28, 1962; (4) That the
deceased Felix Matabuena died intestate on September 13, 1962; (5) That the plaintiff claims the
property by reason of being the only sister and nearest collateral relative of the deceased by virtue of
an affidavit of self-adjudication executed by her in 1962 and had the land declared in her name and
paid the estate and inheritance taxes thereon’" 5
The judgment of the lower court on the above facts was adverse to plaintiff. It reasoned out thus: "A
donation under the terms of Article 133 of the Civil Code is void if made between the spouses during
the marriage. When the donation was made by Felix Matabuena in favor of the defendant on February
20, 1956, Petronila Cervantes and Felix Matabuena were not yet married. At that time they were not
spouses. They became spouses only when they married on March 28, 1962, six years after the deed of
donation had been executed." 6
We reach a different conclusion. While Art. 133 of the Civil Code considers as void a "donation between
the spouses during the marriage," policy considerations of the most exigent character as well as the
dictates of morality require that the same prohibition should apply to a common-law relationship. We
reverse.
WHEREFORE, the lower court decision of November 23, 1965 dismissing the complaint with costs is
reversed. The questioned donation is declared void, with the rights of plaintiff and defendant as pro
indiviso heirs to the property in question recognized. The case is remanded to the lower court for its
appropriate disposition in accordance with the above opinion. Without pronouncement as to costs.

1. As announced at the outset of this opinion, a 1954 Court of Appeals decision, Buenaventura v.
Bautista, 7 interpreting a similar provision of the old Civil Code 8 speaks unequivocally. If the policy of
the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that Court, "to prohibit Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Barredo, Villamor and Makasiar, JJ.,
donations in favor of the other consort and his descendants because of fear of undue and improper concur.
pressure and influence upon the donor, a prejudice deeply rooted in our ancient law; ‘porque no se
engañen despojandose el uno al otro por amor que han de consuno [according to] the Partidas (Part
IV, Tit. XI, LAW IV), reiterating the rationale ‘Ne mutuato amore invicem spoliarentur’ of the Pandects Teehankee, J, took no part.
(Bk. 24, Tit. 1, De donat, inter virum et uxorem); then there is every reason to apply the same
prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For it
is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence
of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased.
Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), ‘it would not be just that
such donations should subsist, lest the condition of those who incurred guilt should turn out to be
better.’ So long as marriage remains the cornerstone of our family law, reason and morality alike
demand that the disabilities attached to marriage should likewise attach to concubinage." 9

2. It is hardly necessary to add that even in the absence of the above pronouncement, any other
conclusion cannot stand the test of scrutiny. It would be to indict the framers of the Civil Code for a
failure to apply a laudable rule to a situation which in its essentials cannot be distinguished. Moreover,
if it is at all to be differentiated, the policy of the law which embodies a deeply-rooted notion of what
is just and what is right would be nullified if such irregular relationship instead of being visited with
disabilities would be attended with benefits. Certainly a legal norm should not be susceptible to such
a reproach. If there is ever any occasion where the principle of statutory construction that what is
within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic
purpose discernible in such codal provision would not be attained. Whatever omission may be
apparent in an interpretation purely literal of the language used must be remedied by an adherence to
its avowed objective. In the language of Justice Pablo: "El espiritu que informa la ley debe ser la luz que
ha de guiar a los tribunales en la aplicación de sus disposiciones.’’ 10

3. The lack of validity of the donation made by the deceased to defendant Petronila Cervantes does not
necessarily result in plaintiff having exclusive right to the disputed property. Prior to the death of Felix
Matabuena, the relationship between him and the defendant was legitimated by their marriage on
March 28, 1962. She is therefore his widow. As provided for in the Civil Code, she is entitled to one-
half of the inheritance and the plaintiff, as the surviving sister, to the other half. 11
G.R. No. L-35702 May 29, 1973
DOMINGO D. RUBIAS, plaintiff-appellant, vs. ISAIAS BATILLER, defendant-appellee.
Gregorio M. Rubias for plaintiff-appellant. Vicente R. Acsay for defendant-appellee.
TEEHANKEE, J.:
In this appeal certified by the Court of Appeals to this Court as involving purely legal questions, we
affirm the dismissal order rendered by the Iloilo court of first instance after pre-trial and submittal of
the pertinent documentary exhibits.
Such dismissal was proper, plaintiff having no cause of action, since it was duly established in the record
that the application for registration of the land in question filed by Francisco Militante, plaintiff's
vendor and predecessor interest, had been dismissed by decision of 1952 of the land registration court
as affirmed by final judgment in 1958 of the Court of Appeals and hence, there was no title or right to
the land that could be transmitted by the purported sale to plaintiff.
As late as 1964, the Iloilo court of first instance had in another case of ejectment likewise upheld by
final judgment defendant's "better right to possess the land in question . having been in the actual
possession thereof under a claim of title many years before Francisco Militante sold the land to the
plaintiff."
Furthermore, even assuming that Militante had anything to sell, the deed of sale executed in 1956 by
him in favor of plaintiff at a time when plaintiff was concededly his counsel of record in the land
registration case involving the very land in dispute (ultimately decided adversely against Militante by
the Court of Appeals' 1958 judgment affirming the lower court's dismissal of Militante's application for
registration) was properly declared inexistent and void by the lower court, as decreed by Article 1409
in relation to Article 1491 of the Civil Code.
The appellate court, in its resolution of certification of 25 July 1972, gave the following backgrounder
of the appeal at bar:
On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and
possession of certain portions of lot under Psu-99791 located in Barrio General Luna, Barotac Viejo,
Iloilo which he bought from his father-in-law, Francisco Militante in 1956 against its present occupant
defendant, Isaias Batiller, who illegally entered said portions of the lot on two occasions — in 1945 and
in 1959. Plaintiff prayed also for damages and attorneys fees. (pp. 1-7, Record on Appeal). In his answer
with counter-claim defendant claims the complaint of the plaintiff does not state a cause of action, the
truth of the matter being that he and his predecessors-in-interest have always been in actual, open and
continuous possession since time immemorial under claim of ownership of the portions of the lot in
question and for the alleged malicious institution of the complaint he claims he has suffered moral
damages in the amount of P 2,000.00, as well as the sum of P500.00 for attorney's fees. ...
On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial conference between the
parties and their counsel which order reads as follows..
'When this case was called for a pre-trial conference today, the plaintiff appeared assisted by himself
and Atty. Gregorio M. Rubias. The defendant also appeared, assisted by his counsel Atty. Vicente R.
Acsay.
A. During the pre-trial conference, the parties have agreed that the following facts are attendant in this
case and that they will no longer introduced any evidence, testimonial or documentary to prove them:
1. That Francisco Militante claimed ownership of a parcel of land located in the Barrio of General
Luna, municipality of Barotac Viejo province of Iloilo, which he caused to be surveyed on July 18-31,
1934, whereby he was issued a plan Psu-99791 (Exhibit "B"). (The land claimed contained an area of
171:3561 hectares.)
2. Before the war with Japan, Francisco Militante filed with the Court of First Instance of Iloilo an
application for the registration of the title of the land technically described in psu-99791 (Exh. "B")
opposed by the Director of Lands, the Director of Forestry and other oppositors. However, during the
war with Japan, the record of the case was lost before it was heard, so after the war Francisco Militante
petitioned this court to reconstitute the record of the case. The record was reconstituted on the Court
of the First Instance of Iloilo and docketed as Land Case No. R-695, GLRO Rec. No. 54852. The Court of
First Instance heard the land registration case on November 14, 1952, and after the trial this court
dismissed the application for registration. The appellant, Francisco Militante, appealed from the
decision of this Court to the Court of Appeals where the case was docketed as CA-GR No. 13497-R..
3. Pending the disposal of the appeal in CA-GR No. 13497-R and more particularly on June 18,
1956, Francisco Militante sold to the plaintiff, Domingo Rubias the land technically described in psu-
99791 (Exh. "A"). The sale was duly recorded in the Office of the Register of Deeds for the province of
Iloilo as Entry No. 13609 on July 11, 1960 (Exh. "A-1").
(NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to plaintiff-appellant, his son-in-
law, for the sum of P2,000.00 was "a parcel of untitled land having an area Of 144.9072 hectares ...
surveyed under Psu 99791 ... (and) subject to the exclusions made by me, under (case) CA-i3497, Land
Registration Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the province of Iloilo. These
exclusions referred to portions of the original area of over 171 hectares originally claimed by Militante
as applicant, but which he expressly recognized during the trial to pertain to some oppositors, such as
the Bureau of Public Works and Bureau of Forestry and several other individual occupants and
accordingly withdrew his application over the same. This is expressly made of record in Exh. A, which
is the Court of Appeals' decision of 22 September 1958 confirming the land registration court's
dismissal of Militante's application for registration.)
4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R promulgated its judgment
confirming the decision of this Court in Land Case No. R-695, GLRO Rec. No. 54852 which dismissed the
application for Registration filed by Francisco Militante (Exh. "I").
5. Domingo Rubias declared the land described in Exh. 'B' for taxation purposes under Tax Dec.
No. 8585 (Exh. "C") for 1957; Tax Dec. Nos. 9533 (Exh. "C-1") and 10019 (Exh. "C-3")for the year 1961;
Tax Dec. No. 9868 (Exh. "C-2") for the year 1964, paying the land taxes under Tax Dec. No. 8585 and
9533 (Exh. "D", "D-1", "G-6").
6. Francisco Militante immediate predecessor-in-interest of the plaintiff, has also declared the
land for taxation purposes under Tax Dec. No. 5172 in 1940 (Exh. "E") for 1945; under Tax Dec. No. T-
86 (Exh. "E-1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), and paid the land taxes for 1940 (Exhs. "G"
and "G-7"), for 1945 46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G-3"), for 1948 (Exh.
"G-4"), and for 1948 and 1949 (Exh. "G-5").
7. Tax Declaration No. 2434 in the name of Liberato Demontaño for the land described therein
(Exh. "F") was cancelled by Tax. Dec. No. 5172 of Francisco Militante (Exh. "E"). Liberato Demontaño
paid the land tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the years 1938 (50%) and 1959 (Exh.
"H").
8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-155241 under Tax Dec.
Not. 8583 for 1957 and a portion of Lot No. 2, Psu-155241, for 1945 under Tax Dec. No. 8584 (Exh. "2-
A" Tax No. 8583 (Exh. "2") was revised by Tax Dec. No. 9498 in the name of the defendant (Exh. "2-B")
and Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No. 9584 also in the name of the
defendant (Exh. "2-C"). The defendant paid the land taxes for Lot 2, Psu-155241, on Nov. 9, 1960 for
the years 1945 and 1946, for the year 1950, and for the year 1960 as shown by the certificate of the
treasurer (Exh. "3"). The defendant may present to the Court other land taxes receipts for the payment
of taxes for this lot.
9. The land claimed by the defendant as his own was surveyed on June 6 and 7,1956, and a plan
approved by Director of Land on November 15, 1956 was issued, identified as Psu 155241 (Exh. "5").
10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against Isaias Batiller in
the Justice of the Peace Court of Barotac Viejo Province of Iloilo (Exh. "4") to which the defendant Isaias
Batiller riled his answer on August 29, 1960 (Exh. "4-A"). The Municipal Court of Barotac Viejo after
trial, decided the case on May 10, 1961 in favor of the defendant and against the plaintiff (Exh. "4-B").
The plaintiff appealed from the decision of the Municipal Court of Barotac Viejo which was docketed
in this Court as Civil Case No. 5750 on June 3, 1961, to which the defendant, Isaias Batiller, on June 13,
1961 filed his answer (Exh. "4-C"). And this Court after the trial. decided the case on November 26,
1964, in favor of the defendant, Isaias Batiller and against the plaintiff (Exh. "4-D").
(NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26 November 1964
dismissing plaintiff's therein complaint for ejectment against defendant, the iloilo court expressly found
"that plaintiff's complaint is unjustified, intended to harass the defendant" and "that the defendant,
Isaias Batiller, has a better right to possess the land in question described in Psu 155241 (Exh. "3"),
Isaias Batiller having been in the actual physical possession thereof under a claim of title many years
before Francisco Militante sold the land to the plaintiff-hereby dismissing plaintiff's complaint and
ordering the plaintiff to pay the defendant attorney's fees ....")
B. During the trial of this case on the merit, the plaintiff will prove by competent evidence the
following:
1. That the land he purchased from Francisco Militante under Exh. "A" was formerly owned and
possessed by Liberato Demontaño but that on September 6, 1919 the land was sold at public auction
by virtue of a judgment in a Civil Case entitled "Edw J. Pflieder plaintiff vs. Liberato Demontaño
Francisco Balladeros and Gregorio Yulo, defendants", of which Yap Pongco was the purchaser (Exh. "1-
3"). The sale was registered in the Office of the Register of Deeds of Iloilo on August 4, 1920, under
Primary Entry No. 69 (Exh. "1"), and a definite Deed of Sale was executed by Constantino A. Canto,
provincial Sheriff of Iloilo, on Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been
registered in the Office of the Register of Deeds of Iloilo on February 10, 1934 (Exh. "1-1").
2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante as evidenced by a
notarial deed (Exh. "J") which was registered in the Registry of Deeds on May 13, 1940 (Exh. "J-1").
3. That plaintiff suffered damages alleged in his complaint.
C. Defendants, on the other hand will prove by competent evidence during the trial of this case
the following facts:
1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and possessed by Felipe
Batiller, grandfather of the defendant Basilio Batiller, on the death of the former in 1920, as his sole
heir. Isaias Batiller succeeded his father , Basilio Batiller, in the ownership and possession of the land
in the year 1930, and since then up to the present, the land remains in the possession of the defendant,
his possession being actual, open, public, peaceful and continuous in the concept of an owner, exclusive
of any other rights and adverse to all other claimants.
2. That the alleged predecessors in interest of the plaintiff have never been in the actual
possession of the land and that they never had any title thereto.
3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the defendant has been
approved.
4. The damages suffered by the defendant, as alleged in his counterclaim."'1
The appellate court further related the developments of the case, as follows:
On August 17, 1965, defendant's counsel manifested in open court that before any trial on the merit
of the case could proceed he would file a motion to dismiss plaintiff's complaint which he did, alleging
that plaintiff does not have cause of action against him because the property in dispute which he
(plaintiff) allegedly bought from his father-in-law, Francisco Militante was the subject matter of LRC
No. 695 filed in the CFI of Iloilo, which case was brought on appeal to this Court and docketed as CA-
G.R. No. 13497-R in which aforesaid case plaintiff was the counsel on record of his father-in-law,
Francisco Militante. Invoking Arts. 1409 and 1491 of the Civil Code which reads:
'Art. 1409. The following contracts are inexistent and void from the beginning:
xxx xxx xxx
(7) Those expressly prohibited by law.
'ART. 1491. The following persons cannot acquire any purchase, even at a public auction, either
in person of through the mediation of another: .
xxx xxx xxx
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights of in
litigation or levied upon an execution before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the act of acquiring an assignment and
shall apply to lawyers, with respect to the property and rights which may be the object of any litigation
in which they may take part by virtue of their profession.'
defendant claims that plaintiff could not have acquired any interest in the property in dispute as the
contract he (plaintiff) had with Francisco Militante was inexistent and void. (See pp. 22-31, Record on
Appeal). Plaintiff strongly opposed defendant's motion to dismiss claiming that defendant can not
invoke Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that 'The
defense of illegality of contracts is not available to third persons whose interests are not directly
affected' (See pp. 32-35 Record on Appeal).
On October 18, 1965, the lower court issued an order disclaiming plaintiffs complaint (pp. 42-49,
Record on Appeal.) In the aforesaid order of dismissal the lower court practically agreed with
defendant's contention that the contract (Exh. A) between plaintiff and Francism Militante was null
and void. In due season plaintiff filed a motion for reconsideration (pp. 50-56 Record on Appeal) which
was denied by the lower court on January 14, 1966 (p. 57, Record on Appeal).
Hence, this appeal by plaintiff from the orders of October 18, 1965 and January 14, 1966.
Plaintiff-appellant imputes to the lower court the following errors:
'1. The lower court erred in holding that the contract of sale between the plaintiff-appellant and
his father-in-law, Francisco Militante, Sr., now deceased, of the property covered by Plan Psu-99791,
(Exh. "A") was void, not voidable because it was made when plaintiff-appellant was the counsel of the
latter in the Land Registration case.
'2. The lower court erred in holding that the defendant-appellee is an interested person to
question the validity of the contract of sale between plaintiff-appellant and the deceased, Francisco
Militante, Sr.
'3. The lower court erred in entertaining the motion to dismiss of the defendant-appellee after
he had already filed his answer, and after the termination of the pre-trial, when the said motion to
dismiss raised a collateral question.
'4. The lower court erred in dismissing the complaint of the plaintiff-appellant.'
The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal posers —
(1) whether or not the contract of sale between appellant and his father-in-law, the late Francisco
Militante over the property subject of Plan Psu-99791 was void because it was made when plaintiff was
counsel of his father-in-law in a land registration case involving the property in dispute; and (2) whether
or not the lower court was correct in entertaining defendant-appellee's motion to dismiss after the
latter had already filed his answer and after he (defendant) and plaintiff-appellant had agreed on some
matters in a pre-trial conference. Hence, its elevation of the appeal to this Court as involving pure
questions of law.
It is at once evident from the foregoing narration that the pre-trial conference held by the trial court
at which the parties with their counsel agreed and stipulated on the material and relevant facts and
submitted their respective documentary exhibits as referred to in the pre-trial order, supra,2 practically
amounted to a fulldress trial which placed on record all the facts and exhibits necessary for adjudication
of the case.
The three points on which plaintiff reserved the presentation of evidence at the-trial dealing with the
source of the alleged right and title of Francisco Militante's predecessors, supra,3 actually are already
made of record in the stipulated facts and admitted exhibits. The chain of Militante's alleged title and
right to the land as supposedly traced back to Liberato Demontaño was actually asserted by Militante
(and his vendee, lawyer and son-in-law, herein plaintiff) in the land registration case and rejected by
the Iloilo land registration court which dismissed Militante's application for registration of the land.
Such dismissal, as already stated, was affirmed by the final judgment in 1958 of the Court of Appeals.4
The four points on which defendant on his part reserved the presentation of evidence at the trial
dealing with his and his ancestors' continuous, open, public and peaceful possession in the concept of
owner of the land and the Director of Lands' approval of his survey plan thereof, supra,5 are likewise
already duly established facts of record, in the land registration case as well as in the ejectment case
wherein the Iloilo court of first instance recognized the superiority of defendant's right to the land as
against plaintiff.
No error was therefore committed by the lower court in dismissing plaintiff's complaint upon
defendant's motion after the pre-trial.
1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause of
action and justified the outright dismissal of the complaint. Plaintiff's claim of ownership to the land in
question was predicated on the sale thereof for P2,000.00 made in 1956 by his father-in- law, Francisco
Militante, in his favor, at a time when Militante's application for registration thereof had already been
dismissed by the Iloilo land registration court and was pending appeal in the Court of Appeals.
With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's application for
registration, the lack of any rightful claim or title of Militante to the land was conclusively and decisively
judicially determined. Hence, there was no right or title to the land that could be transferred or sold by
Militante's purported sale in 1956 in favor of plaintiff.
Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of the land and
to be restored to possession thereof with damages was bereft of any factual or legal basis.
2. No error could be attributed either to the lower court's holding that the purchase by a lawyer
of the property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of
the Philippine Civil Code, reproduced supra;6 and that consequently, plaintiff's purchase of the
property in litigation from his client (assuming that his client could sell the same since as already shown
above, his client's claim to the property was defeated and rejected) was void and could produce no
legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts
"expressly prohibited or declared void by law' are "inexistent and that "(T)hese contracts cannot be
ratified. Neither can the right to set up the defense of illegality be waived."

The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that a sale of
property in litigation to the party litigant's lawyer "is not void but voidable at the election of the vendor"
was correctly held by the lower court to have been superseded by the later 1929 case of Director of
Lands vs. Abagat.8 In this later case of Abagat, the Court expressly cited two antecedent cases involving
the same transaction of purchase of property in litigation by the lawyer which was expressly declared
invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the
Philippines is the counterpart) upon challenge thereof not by the vendor-client but by the adverse
parties against whom the lawyer was to enforce his rights as vendee thus acquired.
These two antecedent cases thus cited in Abagat clearly superseded (without so expressly stating the
previous ruling in Wolfson:
The spouses, Juan Soriano and Vicente Macaraeg, were the owners of twelve parcels of land. Vicenta
Macaraeg died in November, 1909, leaving a large number of collateral heirs but no descendants.
Litigation between the surviving husband, Juan Soriano, and the heirs of Vicenta immediately arose,
and the herein appellant Sisenando Palarca acted as Soriano's lawyer. On May 2, 1918, Soriano
executed a deed for the aforesaid twelve parcels of land in favor of Sisenando Palarca and on the
following day, May 3, 1918, Palarca filed an application for the registration of the land in the deed.
After hearing, the Court of First Instance declared that the deed was invalid by virtue of the provisions
of article 1459 of the Civil Code, which prohibits lawyers and solicitors from purchasing property rights
involved in any litigation in which they take part by virtue of their profession. The application for
registration was consequently denied, and upon appeal by Palarca to the Supreme Court, the
judgement of the lower court was affirmed by a decision promulgated November 16,1925. (G.R. No.
24329, Palarca vs. Director of Lands, not reported.)
In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, and on August 21, 1923,
Eleuteria Macaraeg, as administratrix of the estate of Vicente Macaraeg, filed claims for the parcels in
question. Buenaventura Lavitoria administrator of the estate of Juan Soriano, did likewise and so did
Sisenando Palarca. In a decision dated June 21, 1927, the Court of First Instance, Judge Carballo
presiding, rendered judgment in favor of Palarea and ordered the registration of the land in his name.
Upon appeal to this court by the administration of the estates of Juan Soriano and Vicente Macaraeg,
the judgment of the court below was reversed and the land adjudicated to the two estates as conjugal
property of the deceased spouses. (G.R. No. 28226, Director of Lands vs. Abagat, promulgated May 21,
1928, not reported.)9
In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the lawyer's
purchase of the land in litigation from his client, ordered the issuance of a writ of possession for the
return of the land by the lawyer to the adverse parties without reimbursement of the price paid by him
and other expenses, and ruled that "the appellant Palarca is a lawyer and is presumed to know the law.
He must, therefore, from the beginning, have been well aware of the defect in his title and is,
consequently, a possessor in bad faith."
As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the Civil Code of
Spain then adopted here, until it was superseded on August 30, 1950 by the Civil Code of the Philippines
whose counterpart provision is Article 1491.
Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs
certain persons, by reason of the relation of trust or their peculiar control over the property, from
acquiring such property in their trust or control either directly or indirectly and "even at a public or
judicial auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and
employees; judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others
especially disqualified by law.
In Wolfson which involved the sale and assignment of a money judgment by the client to the lawyer,
Wolfson, whose right to so purchase the judgment was being challenged by the judgment debtor, the
Court, through Justice Moreland, then expressly reserved decision on "whether or not the judgment in
question actually falls within the prohibition of the article" and held only that the sale's "voidability can
not be asserted by one not a party to the transaction or his representative," citing from Manresa 10
that "(C)onsidering the question from the point of view of the civil law, the view taken by the code, we
must limit ourselves to classifying as void all acts done contrary to the express prohibition of the
statute. Now then: As the code does not recognize such nullity by the mere operation of law, the nullity
of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity
to do so and decreed by a competent
court." 11
The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the
Spanish Civil Code as merely voidable at the instance and option of the vendor and not void — "that
the Code does not recognize such nullity de pleno derecho" — is no longer true and applicable to our
own Philippine Civil Code which does recognize the absolute nullity of contracts "whose cause, object,
or purpose is contrary to law, morals, good customs, public order or public policy" or which are
"expressly prohibited or declared void by law" and declares such contracts "inexistent and void from
the beginning." 12
The Supreme Court of Spain and modern authors have likewise veered from Manresa's view of the
Spanish codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of Spain ruled that
the prohibition of Article 1459 of the Spanish Civil Code is based on public policy, that violation of the
prohibition contract cannot be validated by confirmation or ratification, holding that:
... la prohibicion que el articulo 1459 del C.C. establece respecto a los administradores y apoderados,
la cual tiene conforme a la doctrina de esta Sala, contendia entre otras, en S. de 27-5-1959, un
fundamento de orden moral lugar la violacion de esta a la nulidad de pleno derecho del acto o negocio
celebrado, ... y prohibicion legal, afectante orden publico, no cabe con efecto alguno la aludida
retification ... 13
The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article
1491 of our Civil Code) as a matter of public order and policy as applied by the Supreme Court of Spain
to administrators and agents in its above cited decision should certainly apply with greater reason to
judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal article.
Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his "Curso de Derecho
Civil, (Contratos Especiales)" (Madrid, 1968) p. 18, affirms that, with respect to Article 1459, Spanish
Civil Code:.
Que caracter tendra la compra que se realice por estas personas? Porsupuesto no cabe duda de que el
caso (art.) 1459, 40 y 50, la nulidad esabsoluta porque el motivo de la prohibicion es de orden publico.
14
Perez Gonzales in such view, stating that "Dado el caracter prohibitivo delprecepto, la consequencia
de la infraccion es la nulidad radical y ex lege." 15
Castan, quoting Manresa's own observation that.
"El fundamento do esta prohibicion es clarisimo. No sa trata con este precepto tan solo de guitar la
ocasion al fraude; persiguese, ademasel proposito de rodear a las personas que intervienen en la
administrcionde justicia de todos los retigios que necesitan pora ejercer su ministerio librandolos de
toda suspecha, que aunque fuere in fundada, redundura endescredito de la institucion." 16 arrives at
the contrary and now accepted view that "Puede considerace en nuestro derecho inexistente 'o
radicalmente nulo el contrato en los siguentes cases: a) ...; b) cuando el contrato se ha celebrado en
violacion de una prescripcion 'o prohibicion legal, fundada sobre motivos de orden publico (hipotesis
del art. 4 del codigo) ..." 17
It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration of public
policy render void and inexistent such expressly prohibited purchase (e.g. by public officers and
employees of government property intrusted to them and by justices, judges, fiscals and lawyers of
property and rights in litigation and submitted to or handled by them, under Article 1491, paragraphs
(4) and (5) of our Civil Code) has been adopted in a new article of our Civil Code, viz, Article 1409
declaring such prohibited contracts as "inexistent and void from the beginning." 18
Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by
ratification. The public interest and public policy remain paramount and do not permit of compromise
or ratification. In his aspect, the permanent disqualification of public and judicial officers and lawyers
grounded on public policy differs from the first three cases of guardians, agents and administrators
(Article 1491, Civil Code), as to whose transactions it had been opined that they may be "ratified" by
means of and in "the form of a new contact, in which cases its validity shall be determined only by the
circumstances at the time the execution of such new contract. The causes of nullity which have ceased
to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of
the first contract, may have already become lawful at the time of the ratification or second contract;
or the service which was impossible may have become possible; or the intention which could not be
ascertained may have been clarified by the parties. The ratification or second contract would then be
valid from its execution; however, it does not retroact to the date of the first contract." 19
As applied to the case at bar, the lower court therefore properly acted upon defendant-appellant's
motion to dismiss on the ground of nullity of plaintiff's alleged purchase of the land, since its juridical
effects and plaintiff's alleged cause of action founded thereon were being asserted against defendant-
appellant. The principles governing the nullity of such prohibited contracts and judicial declaration of
their nullity have been well restated by Tolentino in his treatise on our Civil Code, as follows:
Parties Affected. — Any person may invoke the in existence of the contract whenever juridical effects
founded thereon are asserted against him. Thus, if there has been a void transfer of property, the
transferor can recover it by the accion reinvindicatoria; and any prossessor may refuse to deliver it to
the transferee, who cannot enforce the contract. Creditors may attach property of the debtor which
has been alienated by the latter under a void contract; a mortgagee can allege the inexistence of a prior
encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by
the assignee.
Action On Contract. — Even when the contract is void or inexistent, an action is necessary to declare
its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence,
the intervention of the competent court is necessary to declare the absolute nullity of the contract and
to decree the restitution of what has been given under it. The judgment, however, will retroact to the
very day when the contract was entered into.

If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any
party should bring an action to enforce it, the other party can simply set up the nullity as a defense. 20

ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in all instances
against plaintiff-appellant. So ordered.

Makalintal, Zaldivar, Castro,. Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.
[G.R. No. L-8477. May 31, 1956.]
THE PHILIPPINE TRUST COMPANY, as Guardian of the Property of the minor, MARIANO L.
BERNARDO, Petitioner, vs. SOCORRO ROLDAN, FRANCISCO HERMOSO, FIDEL C. RAMOS and EMILIO
CRUZ, Respondents.
DECISION
BENGZON, J.:
As guardian of the property of the minor Mariano L. Bernardo, the Philippine Trust Company filed in
the Manila court of first instance a complaint to annul two contracts regarding 17 parcels of
land:chanroblesvirtuallawlibrary (a) sale thereof by Socorro Roldan, as guardian of said minor, to Fidel
C. Ramos; chan roblesvirtualawlibraryand (b) sale thereof by Fidel C. Ramos to Socorro Roldan
personally. The complaint likewise sought to annul a conveyance of four out of the said seventeen
parcels by Socorro Roldan to Emilio Cruz.
The action rests on the proposition that the first two sales were in reality a sale by the guardian to
herself — therefore, null and void under Article 1459 of the Civil Code. As to the third conveyance, it is
also ineffective, because Socorro Roldan had acquired no valid title to convey to Cruz.
The material facts of the case are not complicated. These 17 parcels located in Guiguinto, Bulacan,
were part of the properties inherited by Mariano L. Bernardo from his father, Marcelo Bernardo,
deceased. In view of his minority, guardianship proceedings were instituted, wherein Socorro Roldan
was appointed his guardian. She was the surviving spouse of Marcelo Bernardo, and the stepmother
of said Mariano L. Bernardo.
On July 27, 1947, Socorro Roldan filed in said guardianship proceedings (Special Proceeding 2485,
Manila), a motion asking for authority to sell as guardian the 17 parcels for the sum of P14,700 to Dr.
Fidel C. Ramos, the purpose of the sale being allegedly to invest the money in a residential house, which
the minor desired to have on Tindalo Street, Manila. The motion was granted.
On August 5, 1947 Socorro Roldan, as guardian, executed the proper deed of sale in favor of her
brother-in-law Dr. Fidel C. Ramos (Exhibit A-1), and on August 12, 1947 she asked for, and obtained,
judicial confirmation of the sale. On August 13, 1947, Dr. Fidel C. Ramos executed in favor of Socorro
Roldan, personally, a deed of conveyance covering the same seventeen parcels, for the sum of P15,000
(Exhibit A-2). And on October 21, 1947 Socorro Roldan sold four parcels out of the seventeen to Emilio
Cruz for P3,000, reserving to herself the right to repurchase (Exhibit A-3).
The Philippine Trust Company replaced Socorro Roldan as guardian, on August 10, 1948. And this
litigation, started two months later, seeks to undo what the previous guardian had done. The step-
mother in effect, sold to herself, the properties of her ward, contends the Plaintiff, and the sale should
be annulled because it violates Article 1459 of the Civil Code prohibiting the guardian from purchasing
“either in person or through the mediation of another” the property of her ward.
The court of first instance, following our decision in Rodriguez vs. Mactal, 60 Phil. 13 held the article
was not controlling, because there was no proof that Fidel C. Ramos was a mere intermediary or that
the latter had previously agreed with Socorro Roldan to buy the parcels for her benefit.
However, taking the former guardian at her word - she swore she had repurchased the lands from Dr.
Fidel C. Ramos to preserve it and to give her protege opportunity to redeem — the court rendered
judgment upholding the contracts but allowing the minor to repurchase all the parcels by paying
P15,000, within one year.
The Court of Appeals affirmed the judgment, adding that the minor knew the particulars of, and
approved the transaction, and that “only clear and positive evidence of fraud or bad faith, and not
mere insinuations and inferences will overcome the presumptions that a sale was concluded in all good
faith for value”.
At first glance the resolutions of both courts accomplished substantial
justice:chanroblesvirtuallawlibrary the minor recovers his properties. But if the conveyances are
annulled as prayed for, the minor will obtain a better deal:chanroblesvirtuallawlibrary he receives all
the fruits of the lands from the year 1947 (Article 1303 Civil Code) and will return P14,700, not P15,000.
To our minds the first two transactions herein described couldn’t be in a better juridical situation than
if this guardian had purchased the seventeen parcels on the day following the sale to Dr. Ramos. Now,
if she was willing to pay P15,000 why did she sell the parcels for less? In one day (or actually one week)
the price could not have risen so suddenly. Obviously when, seeking approval of the sale she
represented the price to be the best obtainable in the market, she was not entirely truthful. This is one
phase to consider.
Again, supposing she knew the parcels were actually worth P17,000; chan roblesvirtualawlibrarythen
she agreed to sell them to Dr. Ramos at P14,700; chan roblesvirtualawlibraryand knowing the realty’s
value she offered him the next day P15,000 or P15,500, and got it. Will there be any doubt that she
was recreant to her guardianship, and that her acquisition should be nullified? Even without proof that
she had connived with Dr. Ramos. Remembering the general doctrine that guardianship is a trust of
the highest order, and the trustee cannot be allowed to have any inducement to neglect his ward’s
interest and in line with the court’s suspicion whenever the guardian acquires the ward’s property 1
we have no hesitation to declare that in this case, in the eyes of the law, Socorro Roldan took by
purchase her ward’s parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies.
She acted it may be true without malice; chan roblesvirtualawlibrarythere may have been no previous
agreement between her and Dr. Ramos to the effect that the latter would buy the lands for her. But
the stubborn fact remains that she acquired her protege’s properties, through her brother-in-law. That
she planned to get them for herself at the time of selling them to Dr. Ramos, may be deduced from the
very short time between the two sales (one week). The temptation which naturally besets a guardian
so circumstanced, necessitates the annulment of the transaction, even if no actual collusion is proved
(so hard to prove) between such guardian and the intermediate purchaser. This would uphold a sound
principle of equity and justice. 2
We are aware of course that in Rodriguez vs. Mactal, 60 Phil. p. 13 wherein the guardian Mactal sold
in January 1926 the property of her ward to Silverio Chioco, and in March 1928 she bought it from
Chioco, this Court said:chanroblesvirtuallawlibrary
“In order to bring the sale in this case within the part of Article 1459, quoted above, it is essential that
the proof submitted establish some agreement between Silverio Chioco and Trinidad Mactal to the
effect that Chioco should buy the property for the benefit of Mactal. If there was no such agreement,
either express or implied, then the sale cannot be set aside cralaw . (Page 16; chan
roblesvirtualawlibraryItalics supplied.)”
However, the underlined portion was not intended to establish a general principle of law applicable to
all subsequent litigations. It merely meant that the subsequent purchase by Mactal could not be
annulled in that particular case because there was no proof of a previous agreement between Chioco
and her. The court then considered such proof necessary to establish that the two sales were actually
part of one scheme — guardian getting the ward’s property through another person — because two
years had elapsed between the sales. Such period of time was sufficient to dispel the natural suspicion
of the guardian’s motives or actions. In the case at bar, however, only one week had elapsed. And if we
were technical, we could say, only one day had elapsed from the judicial approval of the sale (August
12), to the purchase by the guardian (Aug. 13).
Attempting to prove that the transaction was beneficial to the minor, Appellee’s attorney alleges that
the money (P14,700) invested in the house on Tindalo Street produced for him rentals of P2,400 yearly;
chan roblesvirtualawlibrarywhereas the parcels of land yielded to his step-mother only an average of
P1,522 per year. 3 The argument would carry some weight if that house had been built out of the
purchase price of P14,700 only. 4 One thing is certain:chanroblesvirtuallawlibrary the calculation does
not include the price of the lot on which the house was erected. Estimating such lot at P14,700 only,
(ordinarily the city lot is more valuable than the building) the result is that the price paid for the
seventeen parcels gave the minor an income of only P1,200 a year, whereas the harvest from the
seventeen parcels netted his step-mother a yearly profit of P1,522.00. The minor was thus on the losing
end.
Hence, from both the legal and equitable standpoints these three sales should not be
sustained:chanroblesvirtuallawlibrary the first two for violation of article 1459 of the Civil Code; chan
roblesvirtualawlibraryand the third because Socorro Roldan could pass no title to Emilio Cruz. The
annulment carries with is (Article 1303 Civil Code) the obligation of Socorro Roldan to return the 17
parcels together with their fruits and the duty of the minor, through his guardian to repay P14,700 with
legal interest.
Judgment is therefore rendered:chanroblesvirtuallawlibrary
a. Annulling the three contracts of sale in question; chan roblesvirtualawlibraryb. declaring the minor
as the owner of the seventeen parcels of land, with the obligation to return to Socorro Roldan the price
of P14,700 with legal interest from August 12, 1947; chan roblesvirtualawlibraryc. Ordering Socorro
Roldan and Emilio Cruz to deliver said parcels of land to the minor; chan roblesvirtualawlibraryd.
Requiring Socorro Roldan to pay him beginning with 1947 the fruits, which her attorney admits,
amounted to P1,522 a year; chan roblesvirtualawlibrarye. Authorizing the minor to deliver directly to
Emilio Cruz, out of the price of P14,700 above mentioned, the sum of P3,000; chan
roblesvirtualawlibraryand f. charging Appellees with the costs. SO ORDERED.
Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Concepcion, Reyes, J.B.L., and Endencia,
JJ., concur.
G.R. No. L-68838 March 11, 1991

FLORENCIO FABILLO and JOSEFA TANA (substituted by their heirs Gregorio Fabillo, Roman Fabillo, Considering that Atty. Montilla lost this case and the present action is a revival of a lost case, I trust
Cristeta F. Maglinte and Antonio Fabillo), petitioners, that you will gladly give me 40% of the money value of the house and lot as a contigent (sic) fee in case
of a success. When I come back I shall prepare the contract of services for your signature.
vs.

THE HONORABLE INTERMEDIATE APPELLATE COURT (Third Civil Case Division) and ALFREDO
MURILLO (substituted by his heirs Fiamita M. Murillo, Flor M. Agcaoili and Charito M. Babol), Thank you.
respondents.

Francisco A. Tan for petitioners.

Cordially yours,
Von Kaiser P. Soro for private respondent.
(Sgd.) Alfredo M. Murillo

Aug. 9, 19643
FERNAN, C.J.:

Thirteen days later, Florencio and Murillo entered into the following contract:
In the instant petition for review on certiorari, petitioners seek the reversal of the appellate court's
decision interpreting in favor of lawyer Alfredo M. Murillo the contract of services entered into
between him and his clients, spouses Florencio Fabillo and Josefa Taña. CONTRACT OF SERVICES

In her last will and testament dated August 16, 1957, Justina Fabillo bequeathed to her brother,
Florencio, a house and lot in San Salvador Street, Palo, Leyte which was covered by tax declaration No.
19335, and to her husband, Gregorio D. Brioso, a piece of land in Pugahanay, Palo, Leyte.1 After
Justina's death, Florencio filed a petition for the probate of said will. On June 2, 1962, the probate court
approved the project of partition "with the reservation that the ownership of the land declared under
Tax Declaration No. 19335 and the house erected thereon be litigated and determined in a separate
proceedings."2
KNOW ALL MEN BY THESE PRESENTS:
That I, FLORENCIO FABILLO, married to JOSEFA TANA, of legal age, Filipino citizen and with residence
and postal address at Palo, Leyte, was the Petitioner in Special Proceedings No. 843, entitled "In the
Matter of the Testate Estate of the late Justina Fabillo, Florencio Fabillo, Petitioner" of the Court of
First Instance of Leyte;

Two years later, Florencio sought the assistance of lawyer Alfredo M. Murillo in recovering the San
Salvador property. Acquiescing to render his services, Murillo wrote Florencio the following That by reason of the Order of the Court of First Instance of Leyte dated June 2, 1962, my claim for the
handwritten letter: house and lot mentioned in paragraph one (1) of the last will and testament of the late Justina Fabillo,
was denied altho the will was probated and allowed by the Court;

Dear Mr. Fabillo:

That acting upon the counsel of Atty. Alfredo M. Murillo, I have cause(d) the preparation and filing of
another case, entitled "Florencio Fabillo vs. Gregorio D. Brioso," which was docketed as Civil Case No.
3532 of the Court of First Instance of Leyte;
I have instructed my stenographer to prepare the complaint and file the same on Wednesday if you
are ready with the filing fee and sheriffs fee of not less than P86.00 including transportation expenses.
That I have retained and engaged the services of Atty. ALFREDO M. MURILLO, married and of legal age,
with residence and postal address at Santa Fe, Leyte to be my lawyer not only in Social Proceedings No.
843 but also in Civil Case No. 3532 under the following terms and conditions;
That he will represent me and my heirs, in case of my demise in the two cases until their successful
conclusion or until the case is settled to my entire satisfaction;
That for and in consideration for his legal services, in the two cases, I hereby promise and bind myself
to pay Atty. ALFREDO M. MURILLO, in case of success in any or both cases the sum equivalent to FORTY
PER CENTUM (40%) of whatever benefit I may derive from such cases to be implemented as follows:
If the house and lot in question is finally awarded to me or a part of the same by virtue of an amicable
settlement, and the same is sold, Atty. Murillo, is hereby constituted as Atty. in-fact to sell and convey
the said house and lot and he shall be given as his compensation for his services as counsel and as
attorney-in-fact the sum equivalent to forty per centum of the purchase price of the house and lot;
If the same house and lot is just mortgage(d) to any person, Atty. Murillo shall be given the sum
equivalent to forty per centum (40%) of the proceeds of the mortgage;
If the house and lot is leased to any person, Atty. Murillo shall be entitled to receive an amount
equivalent to 40% (FORTY PER CENTUM) of the rentals of the house and lot, or a part thereof;
If the house and lot or a portion thereof is just occupied by the undersigned or his heirs, Atty. Murillo
shall have the option of either occupying or leasing to any interested party FORTY PER CENT of the
house and lot.
Atty. Alfredo M. Murillo shall also be given as part of his compensation for legal services in the two
cases FORTY PER CENTUM of whatever damages, which the undersigned can collect in either or both
cases, provided, that in case I am awarded attorney's fees, the full amount of attorney's fees shall be
given to the said Atty. ALFREDO M. MURILLO;
That in the event the house and lot is (sic) not sold and the same is maintained by the undersigned or
his heirs, the costs of repairs, maintenance, taxes and insurance premiums shall be for the account of
myself or my heirs and Attorney Murillo, in proportion to our rights and interest thereunder that is
forty per cent shall be for the account of Atty. Murillo and sixty per cent shall be for my account or my
heirs.
IN WITNESS HEREOF, I hereby set unto my signature below this 22nd day of August 1964 at Tacloban
City.
(Sgd.) FLORENCIO FABILLO
(Sgd.) JOSEFA T. FABILLO
WITH MY CONFORMITY:
(Sgd.) ALFREDO M. MURILLO
(Sgd.) ROMAN T. FABILLO
(Witness) (Sgd.) CRISTETA F. MAGLINTE
(Witness)4
Pursuant to said contract, Murillo filed for Florencio Fabillo Civil Case No. 3532 against Gregorio D.
Brioso to recover the San Salvador property. The case was terminated on October 29, 1964 when the
court, upon the parties' joint motion in the nature of a compromise agreement, declared Florencio
Fabillo as the lawful owner not only of the San Salvador property but also the Pugahanay parcel of land.
Consequently, Murillo proceeded to implement the contract of services between him and Florencio
Fabillo by taking possession and exercising rights of ownership over 40% of said properties. He installed
a tenant in the Pugahanay property.
Sometime in 1966, Florencio Fabillo claimed exclusive right over the two properties and refused to give
Murillo his share of their produce.5 Inasmuch as his demands for his share of the produce of the
Pugahanay property were unheeded, Murillo filed on March 23, 1970 in the then Court of First Instance
of Leyte a complaint captioned "ownership of a parcel of land, damages and appointment of a receiver"
against Florencio Fabillo, his wife Josefa Taña, and their children Ramon (sic) Fabillo and Cristeta F.
Maglinte.6
Murillo prayed that he be declared the lawful owner of forty per cent of the two properties; that
defendants be directed to pay him jointly and severally P900.00 per annum from 1966 until he would
be given his share of the produce of the land plus P5,000 as consequential damages and P1,000 as
attorney's fees, and that defendants be ordered to pay moral and exemplary damages in such amounts
as the court might deem just and reasonable.
In their answer, the defendants stated that the consent to the contract of services of the Fabillo spouses
was vitiated by old age and ailment; that Murillo misled them into believing that Special Proceedings
No. 843 on the probate of Justina's will was already terminated when actually it was still pending
resolution; and that the contingent fee of 40% of the value of the San Salvador property was excessive,
unfair and unconscionable considering the nature of the case, the length of time spent for it, the efforts
exerted by Murillo, and his professional standing.
They prayed that the contract of services be declared null and void; that Murillo's fee be fixed at 10%
of the assessed value of P7,780 of the San Salvador property; that Murillo be ordered to account for
the P1,000 rental of the San Salvador property which he withdrew from the court and for the produce
of the Pugahanay property from 1965 to 1966; that Murillo be ordered to vacate the portion of the San
Salvador property which he had occupied; that the Pugahanay property which was not the subject of
either Special Proceedings No. 843 or Civil Case No. 3532 be declared as the exclusive property of
Florencio Fabillo, and that Murillo be ordered to pay moral damages and the total amount of P1,000
representing expenses of litigation and attorney's fees.
In its decision of December 2, 1975,7 the lower court ruled that there was insufficient evidence to
prove that the Fabillo spouses' consent to the contract was vitiated. It noted that the contract was
witnessed by two of their children who appeared to be highly educated. The spouses themselves were
old but literate and physically fit.
In claiming jurisdiction over the case, the lower court ruled that the complaint being one "to recover
real property from the defendant spouses and their heirs or to enforce a lien thereon," the case could
be decided independent of the probate proceedings. Ruling that the contract of services did not violate
Article 1491 of the Civil Code as said contract stipulated a contingent fee, the court upheld Murillo's
claim for "contingent attorney's fees of 40% of the value of recoverable properties." However, the court
declared Murillo to be the lawful owner of 40% of both the San Salvador and Pugahanay properties
and the improvements thereon. It directed the defendants to pay jointly and severally to Murillo the
amount of P1,200 representing 40% of the net produce of the Pugahanay property from 1967 to 1973;
entitled Murillo to 40% of the 1974 and 1975 income of the Pugahanay property which was on deposit
with a bank, and ordered defendants to pay the costs of the suit.
Both parties filed motions for the reconsideration of said decision: Fabillo, insofar as the lower court
awarded 40% of the properties to Murillo and the latter insofar as it granted only P1,200 for the
produce of the properties from 1967 to 1973. On January 29, 1976, the lower court resolved the
motions and modified its decision thus:
ACCORDINGLY, the judgment heretofore rendered is modified to read as follows:
(a) Declaring the plaintiff as entitled to and the true and lawful owner of forty percent (40%) of
the parcels of land and improvements thereon covered by Tax Declaration Nos. 19335 and 6229
described in Paragraph 5 of the complaint;
(b) Directing all the defendants to pay jointly and severally to the plaintiff the sum of Two
Thousand Four Hundred Fifty Pesos (P2,450.00) representing 40% of the net produce of the Pugahanay
property from 1967 to 1973;
(c) Declaring the plaintiff entitled to 40% of the 1974 and 1975 income of said riceland now on
deposit with the Prudential Bank, Tacloban City, deposited by Mr. Pedro Elona, designated receiver of
the property;
(d) Ordering the defendants to pay the plaintiff the sum of Three Hundred Pesos (P 300.00) as
attorney's fees; and
(e) Ordering the defendants to pay the costs of this suit.
SO ORDERED.
In view of the death of both Florencio and Justina Fabillo during the pendency of the case in the lower
court, their children, who substituted them as parties to the case, appealed the decision of the lower
court to the then Intermediate Appellate Court. On March 27, 1984, said appellate court affirmed in
toto the decision of the lower court.8
The instant petition for review on certiorari which was interposed by the Fabillo children, was filed
shortly after Murillo himself died. His heirs likewise substituted him in this case. The Fabillos herein
question the appellate court's interpretation of the contract of services and contend that it is in
violation of Article 1491 of the Civil Code.
The contract of services did not violate said provision of law. Article 1491 of the Civil Code, specifically
paragraph 5 thereof, prohibits lawyers from acquiring by purchase even at a public or judicial auction,
properties and rights which are the objects of litigation in which they may take part by virtue of their
profession. The said prohibition, however, applies only if the sale or assignment of the property takes
place during the pendency of the litigation involving the client's property.9
Hence, a contract between a lawyer and his client stipulating a contingent fee is not covered by said
prohibition under Article 1491 (5) of the Civil Code because the payment of said fee is not made during
the pendency of the litigation but only after judgment has been rendered in the case handled by the
lawyer. In fact, under the 1988 Code of Professional Responsibility, a lawyer may have a lien over funds
and property of his client and may apply so much thereof as may be necessary to satisfy his lawful fees
and disbursements.10
As long as the lawyer does not exert undue influence on his client, that no fraud is committed or
imposition applied, or that the compensation is clearly not excessive as to amount to extortion, a
contract for contingent fee is valid and enforceable.11 Moreover, contingent fees were impliedly
sanctioned by No. 13 of the Canons of Professional Ethics which governed lawyer-client relationships
when the contract of services was entered into between the Fabillo spouses and Murillo.12
However, we disagree with the courts below that the contingent fee stipulated between the Fabillo
spouses and Murillo is forty percent of the properties subject of the litigation for which Murillo
appeared for the Fabillos. A careful scrutiny of the contract shows that the parties intended forty
percent of the value of the properties as Murillo's contingent fee. This is borne out by the stipulation
that "in case of success of any or both cases," Murillo shall be paid "the sum equivalent to forty per
centum of whatever benefit" Fabillo would derive from favorable judgments. The same stipulation was
earlier embodied by Murillo in his letter of August 9, 1964 aforequoted.
Worth noting are the provisions of the contract which clearly states that in case the properties are sold,
mortgaged, or leased, Murillo shall be entitled respectively to 40% of the "purchase price," "proceeds
of the mortgage," or "rentals." The contract is vague, however, with respect to a situation wherein the
properties are neither sold, mortgaged or leased because Murillo is allowed "to have the option of
occupying or leasing to any interested party forty per cent of the house and lot." Had the parties
intended that Murillo should become the lawful owner of 40% of the properties, it would have been
clearly and unequivocally stipulated in the contract considering that the Fabillos would part with actual
portions of their properties and cede the same to Murillo.
The ambiguity of said provision, however, should be resolved against Murillo as it was he himself who
drafted the contract.13 This is in consonance with the rule of interpretation that, in construing a
contract of professional services between a lawyer and his client, such construction as would be more
favorable to the client should be adopted even if it would work prejudice to the lawyer.14 Rightly so
because of the inequality in situation between an attorney who knows the technicalities of the law on
the one hand and a client who usually is ignorant of the vagaries of the law on the other hand.15
Considering the nature of the case, the value of the properties subject matter thereof, the length of
time and effort exerted on it by Murillo, we hold that Murillo is entitled to the amount of Three
Thousand Pesos (P3,000.00) as reasonable attorney's fees for services rendered in the case which
ended on a compromise agreement. In so ruling, we uphold "the time-honored legal maxim that a
lawyer shall at all times uphold the integrity and dignity of the legal profession so that his basic ideal
becomes one of rendering service and securing justice, not money-making. For the worst scenario that
can ever happen to a client is to lose the litigated property to his lawyer in whom all trust and
confidence were bestowed at the very inception of the legal controversy."16
WHEREFORE, the decision of the then Intermediate Appellate Court is hereby reversed and set aside
and a new one entered (a) ordering the petitioners to pay Atty. Alfredo M. Murillo or his heirs the
amount of P3,000.00 as his contingent fee with legal interest from October 29, 1964 when Civil Case
No. 3532 was terminated until the amount is fully paid less any and all amounts which Murillo might
have received out of the produce or rentals of the Pugahanay and San Salvador properties, and (b)
ordering the receiver of said properties to render a complete report and accounting of his receivership
to the court below within fifteen (15) days from the finality of this decision. Costs against the private
respondent.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.
G. R. No. 143513 - November 14, 2001
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner, v. COURT OF APPEALS and FIRESTONE
CERAMICS, INC., Respondents.
x---------------------------------------------------------x
G. R. No. 143590 - - November 14, 2001
NATIONAL DEVELOPMENT CORPORATION, Petitioner, v. FIRESTONE CERAMICS, INC., Respondents.
BELLOSILLO, J.:
A litigation is not simply a contest of litigants before the bar of public opinion; more than that, it is a
pursuit of justice through legal and equitable means. To prevent the search for justice from evolving
into a competition for public approval, society invests the judiciary with complete independence
thereby insulating it from demands expressed through any medium, the press not excluded. Thus, if
the court would merely reflect, and worse, succumb to the great pressures of the day, the end result,
it is feared, would be a travesty of justice.
In the early sixties, petitioner National Development Corporation (NDC), a government owned and
controlled corporation created under CA 182 as amended by CA 311 and PD No. 668, had in its disposal
a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly
known as the NDC compound and covered by Transfer Certificates of Title Nos. 92885, 110301 and
145470.
Sometime in May 1965 private respondent Firestone Ceramics Inc. (FIRESTONE) manifested its desire
to lease a portion of the property for its ceramic manufacturing business. On 24 August 1965 NDC and
FIRESTONE entered into a contract of lease denominated as Contract No. C-30-65 covering a portion of
the property measured at 2.90118 hectares for use as a manufacturing plant for a term of ten (10)
years, renewable for another ten (10) years under the same terms and conditions.1 In consequence of
the agreement, FIRESTONE constructed on the leased premises several warehouses and other
improvements needed for the fabrication of ceramic products.
Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE entered into a second contract
of lease with NDC over the latter's four (4)-unit pre-fabricated reparation steel warehouse stored in
Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila for eventual assembly within the
NDC compound. The second contract, denominated as Contract No. C-26-68, was for similar use as a
ceramic manufacturing plant and was agreed expressly to be "co-extensive with the lease of LESSEE
with LESSOR on the 2.60 hectare-lot."2
On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre-fabricated steel
warehouse which, as agreed upon by the parties, would expire on 2 December 1978.3 Prior to the
expiration of the aforementioned contract, FIRESTONE wrote NDC requesting for an extension of their
lease agreement. Consequently on 29 November 1978 the Board of Directors of NDC adopted
Resolution No. 11-78-117 extending the term of the lease, subject to several conditions among which
was that in the event NDC "with the approval of higher authorities, decide to dispose and sell these
properties including the lot, priority should be given to the LESSEE"4 (underscoring supplied). On 22
December 1978, in pursuance of the resolution, the parties entered into a new agreement for a ten-
year lease of the property, renewable for another ten (10) years, expressly granting FIRESTONE the first
option to purchase the leased premises in the event that it decided "to dispose and sell these properties
including the lot . . . . "5
The contracts of lease conspicuously contain an identically worded provision requiring FIRESTONE to
construct buildings and other improvements within the leased premises worth several hundred
thousands of pesos.6
The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE, cognizant of
the impending expiration of their lease agreement with NDC, informed the latter through several
letters and telephone calls that it was renewing its lease over the property. While its letter of 17 March
1988 was answered by Antonio A. Henson, General Manager of NDC, who promised immediate action
on the matter, the rest of its communications remained unacknowledged.7 FIRESTONE's predicament
worsened when rumors of NDC's supposed plans to dispose of the subject property in favor of
petitioner Polytechnic University of the Philippines (PUP) came to its knowledge. Forthwith, FIRESTONE
served notice on NDC conveying its desire to purchase the property in the exercise of its contractual
right of first refusal.
Apprehensive that its interest in the property would be disregarded, FIRESTONE instituted an action
for specific performance to compel NDC to sell the leased property in its favor. FIRESTONE averred that
it was pre-empting the impending sale of the NDC compound to petitioner PUP in violation of its
leasehold rights over the 2.60-hectare8 property and the warehouses thereon which would expire in
1999. FIRESTONE likewise prayed for the issuance of a writ of preliminary injunction to enjoin NDC from
disposing of the property pending the settlement of the controversy.9
In support of its complaint, FIRESTONE adduced in evidence a letter of Antonio A. Henson dated 15 July
1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to Executive Secretary Catalino
Macaraeg, reviewing a proposed memorandum order submitted to then President Corazon C. Aquino
transferring the whole NDC compound, including the leased property, in favor of petitioner PUP.
Attached to the letter was a draft of the proposed memorandum order as well as a summary of existing
leases on the subject property. The survey listed FIRESTONE as lessee of a portion of the property,
placed at 29,00010 square meters, whose contract with NDC was set to expire on 31 December 198911
renewable for another ten (10) years at the option of the lessee. The report expressly recognized
FIRESTONE's right of first refusal to purchase the leased property "should the lessor decide to sell the
same."12
Meanwhile, on 21 February 1989 PUP moved to intervene and asserted its interest in the subject
property, arguing that a "purchaser pendente lite of property which is subject of a litigation is entitled
to intervene in the proceedings."13 PUP referred to Memorandum Order No. 214 issued by then
President Aquino ordering the transfer of the whole NDC compound to the National Government,
which in turn would convey the aforementioned property in favor of PUP at acquisition cost. The
issuance was supposedly made in recognition of PUP's status as the "Poor Man's University" as well as
its serious need to extend its campus in order to accommodate the growing student population. The
order of conveyance of the 10.31-hectare property would automatically result in the cancellation of
NDC's total obligation in favor of the National Government in the amount of P57,193,201.64.
Convinced that PUP was a necessary party to the controversy that ought to be joined as party
defendant in order to avoid multiplicity of suits, the trial court granted PUP's motion to intervene.
FIRESTONE moved for reconsideration but was denied. On certiorari, the Court of Appeals affirmed the
order of the trial court. FIRESTONE came to us on review but in a Resolution dated 11 July 1990 we
upheld PUP's inclusion as party-defendant in the present controversy.
Following the denial of its petition, FIRESTONE amended its complaint to include PUP and Executive
Secretary Catalino Macaraeg, Jr., as party-defendants, and sought the annulment of Memorandum
Order No. 214. FIRESTONE alleged that although Memorandum Order No. 214 was issued "subject to
such liens/leases existing [on the subject property]," PUP disregarded and violated its existing lease by
increasing the rental rate at P200,000.00 a month while demanding that it vacated the premises
immediately.14 FIRESTONE prayed that in the event Memorandum Order No. 214 was not declared
unconstitutional, the property should be sold in its favor at the price for which it was sold to PUP -
P554.74 per square meter or for a total purchase price of P14,423,240.00.15
Petitioner PUP, in its answer to the amended complaint, argued in essence that the lease contract
covering the property had expired long before the institution of the complaint, and that further, the
right of first refusal invoked by FIRESTONE applied solely to the six-unit pre-fabricated warehouse and
not the lot upon which it stood.
After trial on the merits, judgment was rendered declaring the contracts of lease executed between
FIRESTONE and NDC covering the 2.60-hectare property and the warehouses constructed thereon valid
and existing until 2 June 1999. PUP was ordered and directed to sell to FIRESTONE the "2.6 hectare
leased premises or as may be determined by actual verification and survey of the actual size of the
leased properties where plaintiff's fire brick factory is located" at P1,500.00 per square meter
considering that, as admitted by FIRESTONE, such was the prevailing market price thereof.
The trial court ruled that the contracts of lease executed between FIRESTONE and NDC were
interrelated and inseparable because "each of them forms part of the integral system of plaintiff's brick
manufacturing plant x x x if one of the leased premises will be taken apart or otherwise detached from
the two others, the purpose of the lease as well as plaintiff's business operations would be rendered
useless and inoperative."16 It thus decreed that FIRESTONE could exercise its option to purchase the
property until 2 June 1999 inasmuch as the 22 December 1978 contract embodied a covenant to renew
the lease for another ten (10) years at the option of the lessee as well as an agreement giving the lessee
the right of first refusal.
The trial court also sustained the constitutionality of Memorandum Order No. 214 which was not per
se hostile to FIRESTONE's property rights, but deplored as prejudicial thereto the "very manner with
which defendants NDC and PUP interpreted and applied the same, ignoring in the process that plaintiff
has existing contracts of lease protectable by express provisions in the Memorandum No. 214 itself."17
It further explained that the questioned memorandum was issued "subject to such liens/leases existing
thereon"18 and petitioner PUP was under express instructions "to enter, occupy and take possession
of the transferred property subject to such leases or liens and encumbrances that may be existing
thereon"19 (italics supplied).
Petitioners PUP, NDC and the Executive Secretary separately filed their Notice of Appeal, but a few
days thereafter, or on 3 September 1996, perhaps realizing the groundlessness and the futility of it all,
the Executive Secretary withdrew his appeal.20
Subsequently, the Court of Appeals affirmed the decision of the trial court ordering the sale of the
property in favor of FIRESTONE but deleted the award of attorney's fees in the amount of Three
Hundred Thousand Pesos (P300,000.00). Accordingly, FIRESTONE was given a grace period of six (6)
months from finality of the court's judgment within which to purchase the property in questioned in
the exercise of its right of first refusal. The Court of Appeals observed that as there was a sale of the
subject property, NDC could not excuse itself from its obligation TO OFFER THE PROPERTY FOR SALE
FIRST TO FIRESTONE BEFORE IT COULD TO OTHER PARTIES. The Court of Appeals held: "NDC cannot
look to Memorandum Order No. 214 to excuse or shield it from its contractual obligations to
FIRESTONE. There is nothing therein that allows NDC to disavow or repudiate the solemn engagement
that it freely and voluntarily undertook, or agreed to undertake."21
PUP moved for reconsideration asserting that in ordering the sale of the property in favor of FIRESTONE
the courts a quo unfairly created a contract to sell between the parties. It argued that the "court cannot
substitute or decree its mind or consent for that of the parties in determining whether or not a contract
(has been) perfected between PUP and NDC."22 PUP further contended that since "a real property
located in Sta. Mesa can readily command a sum of P10,000.00 per square (meter)," the lower court
gravely erred in ordering the sale of the property at only P1,500.00 per square meter. PUP also
advanced the theory that the enactment of Memorandum Order No. 214 amounted to a withdrawal
of the option to purchase the property granted to FIRESTONE. NDC, for its part, vigorously contended
that the contracts of lease executed between the parties had expired without being renewed by
FIRESTONE; consequently, FIRESTONE was no longer entitled to any preferential right in the sale or
disposition of the leased property.
We do not see it the way PUP and NDC did. It is elementary that a party to a contract cannot unilaterally
withdraw a right of first refusal that stands upon valuable consideration. That principle was clearly
upheld by the Court of Appeals when it denied on 6 June 2000 the twin motions for reconsideration
filed by PUP and NDC on the ground that the appellants failed to advance new arguments substantial
enough to warrant a reversal of the Decision sought to be reconsidered.23 On 28 June 2000 PUP filed
an urgent motion for an additional period of fifteen (15) days from 29 June 2000 or until 14 July 2000
within which to file a Petition for Review on Certiorari of the Decision of the Court of Appeals.
On the last day of the extended period PUP filed its Petition for Review on Certiorari assailing the
Decision of the Court of Appeals of 6 December 1999 as well as the Resolution of 6 June 2000 denying
reconsideration thereof. PUP raised two issues: (a) whether the courts a quo erred when they
"conjectured" that the transfer of the leased property from NDC to PUP amounted to a sale; and, (b)
whether FIRESTONE can rightfully invoke its right of first refusal. Petitioner posited that if we were to
place our imprimatur on the decisions of the courts a quo, "public welfare or specifically the
constitutional priority accorded to education" would greatly be prejudiced.24
Paradoxically, our paramount interest in education does not license us, or any party for that matter, to
destroy the sanctity of binding obligations. Education may be prioritized for legislative or budgetary
purposes, but we doubt if such importance can be used to confiscate private property such as
FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for extension of fifteen (15) days within which to appeal
inasmuch as the aforesaid pleading lacked an affidavit of service of copies thereof on the Court of
Appeals and the adverse party, as well as written explanation for not filing and serving the pleading
personally.25
Accordingly, on 26 July 2000 we issued a Resolution dismissing PUP's Petition for Review for having
been filed out of time. PUP moved for reconsideration imploring a resolution or decision on the merits
of its petition. Strangely, about the same time, several articles came out in the newspapers assailing
the denial of the petition. The daily papers reported that we unreasonably dismissed PUP's petition on
technical grounds, affirming in the process the decision of the trial court to sell the disputed property
to the prejudice of the government in the amount of P1,000,000,000.00.26 Counsel for petitioner PUP,
alleged that the trial court and the Court of Appeals "have decided a question of substance in a way
definitely not in accord with law or jurisprudence."27
At the outset, let it be noted that the amount of P1,000,000,000.00 as reported in the papers was way
too exaggerated, if not fantastic. We stress that NDC itself sold the whole 10.31-hectare property to
PUP at only P57,193,201.64 which represents NDC's obligation to the national government that was,
in exchange, written off. The price offered per square meter of the property was pegged at P554.74.
FIRESTONE's leased premises would therefore be worth only P14,423,240.00. From any angle, this
amount is certainly far below the ballyhooed price of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for Reconsideration to give it a chance to ventilate its
right, if any it still had in the leased premises, thereby paving the way for a reinstatement of its Petition
for Review.28 In its appeal, PUP took to task the courts a quo for supposedly "substituting or decreeing
its mind or consent for that of the parties (referring to NDC and PUP) in determining whether or not a
contract of sale was perfected." PUP also argued that inasmuch as "it is the parties alone whose minds
must meet in reference to the subject matter and cause," it concluded that it was error for the lower
courts to have decreed the existence of a sale of the NDC compound thus allowing FIRESTONE to
exercise its right of first refusal.
On the other hand, NDC separately filed its own Petition for Review and advanced arguments which,
in fine, centered on whether or not the transaction between petitioners NDC and PUP amounted to a
sale considering that "ownership of the property remained with the government."29 Petitioner NDC
introduced the novel proposition that if the parties involved are both government entities the
transaction cannot be legally called a sale.
In due course both petitions were consolidated.30
We believe that the courts a quo did not hypothesize, much less conjure, the sale of the disputed
property by NDC in favor of petitioner PUP. Aside from the fact that the intention of NDC and PUP to
enter into a contract of sale was clearly expressed in the Memorandum Order No. 214,31 a close
perusal of the circumstances of this case strengthens the theory that the conveyance of the property
from NDC to PUP was one of absolute sale, for a valuable consideration, and not a mere paper transfer
as argued by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates himself
to transfer the ownership of and to deliver a determinate thing to the other or others who shall pay
therefore a sum certain in money or its equivalent.32 It is therefore a general requisite for the existence
of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there should be a
concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee
to receive and pay for the property so delivered and transferred. The Civil Code provision is, in effect,
a "catch-all" provision which effectively brings within its grasp a whole gamut of transfers whereby
ownership of a thing is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the
questioned transaction. Petitioners NDC and PUP have their respective charters and therefore each
possesses a separate and distinct individual personality.33 The inherent weakness of NDC's proposition
that there was no sale as it was only the government which was involved in the transaction thus reveals
itself. Tersely put, it is not necessary to write an extended dissertation on government owned and
controlled corporations and their legal personalities. Beyond cavil, a government owned and controlled
corporation has a personality of its own, distinct and separate from that of the government.34 The
intervention in the transaction of the Office of the President through the Executive Secretary did not
change the independent existence of these entities. The involvement of the Office of the President was
limited to brokering the consequent relationship between NDC and PUP. But the withdrawal of the
appeal by the Executive Secretary is considered significant as he knew, after a review of the records,
that the transaction was subject to existing liens and encumbrances, particularly the priority to
purchase the leased premises in favor of FIRESTONE.
True that there may be instances when a particular deed does not disclose the real intentions of the
parties, but their action may nevertheless indicate that a binding obligation has been undertaken. Since
the conduct of the parties to a contract may be sufficient to establish the existence of an agreement
and the terms thereof, it becomes necessary for the courts to examine the contemporaneous behavior
of the parties in establishing the existence of their contract.
The preponderance of evidence shows that NDC sold to PUP the whole NDC compound, including the
leased premises, without the knowledge much less consent of private respondent FIRESTONE which
had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale, without which there can be no sale, were attendant in
the "disposition" and "transfer" of the property from NDC to PUP - consent of the parties, determinate
subject matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum Order No. 214 which
explicitly states the acquiescence of the parties to the sale of the property -
WHEREAS, PUP has expressed its willingness to acquire said NDC properties and NDC has expressed its
willingness to sell the properties to PUP (underscoring supplied).35
Furthermore, the cancellation of NDC's liabilities in favor of the National Government in the amount of
P57,193,201.64 constituted the "consideration" for the sale. As correctly observed by the Court of
Appeals-
The defendants-appellants' interpretation that there was a mere transfer, and not a sale, apart from
being specious sophistry and a mere play of words, is too strained and hairsplitting. For it is axiomatic
that every sale imposes upon the vendor the obligation to transfer ownership as an essential element
of the contract. Transfer of title or an agreement to transfer title for a price paid, or promised to be
paid, is the very essence of sale (Kerr & Co. v. Lingad, 38 SCRA 524; Schmid & Oberly, Inc., v. RJL
Martinez Fishing Corp., 166 SCRA 493). At whatever legal angle we view it, therefore, the inescapable
fact remains that all the requisites of a valid sale were attendant in the transaction between co-
defendants-appellants NDC and PUP concerning the realities subject of the present suit.36
What is more, the conduct of petitioner PUP immediately after the transaction is in itself an admission
that there was a sale of the NDC compound in its favor. Thus, after the issuance of Memorandum Order
No. 214 petitioner PUP asserted its ownership over the property by posting notices within the
compound advising residents and occupants to vacate the premises.37 In its Motion for Intervention
petitioner PUP also admitted that its interest as a "purchaser pendente lite" would be better protected
if it was joined as party-defendant in the controversy thereby confessing that it indeed purchased the
property.
In light of the foregoing disquisition, we now proceed to determine whether FIRESTONE should be
allowed to exercise its right of first refusal over the property. Such right was expressly stated by NDC
and FIRESTONE in par. XV of their third contract denominated as A-10-78 executed on 22 December
1978 which, as found by the courts a quo, was interrelated to and inseparable from their first contract
denominated as C-30-65 executed on 24 August 1965 and their second contract denominated as C-26-
68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any
extension thereof, the LESSOR shall first give to the LESSEE, which shall have the right of first option to
purchase the leased premises subject to mutual agreement of both parties.38
In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease
and is inseparable from the whole contract. The consideration for the right is built into the reciprocal
obligations of the parties. Thus, it is not correct for petitioners to insist that there was no consideration
paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel
of the contract of lease making the consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor
is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer
to sell to the latter at a certain price and the lessee has failed to accept it.39 The lessee has a right that
the lessor's first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE
which, in view of the total amount of its investments in the property, wanted to be assured that it
would be given the first opportunity to buy the property at a price for which it would be offered.
Consistent with their agreement, it was then implicit for NDC to have first offered the leased premises
of 2.60 hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its
right of first priority could NDC lawfully sell the property to petitioner PUP.
It now becomes apropos to ask whether the courts a quo were correct in fixing the proper
consideration of the sale at P1,500.00 per square meter. In contracts of sale, the basis of the right of
first refusal must be the current offer of the seller to sell or the offer to purchase of the prospective
buyer. Only after the lessee-grantee fails to exercise its right under the same terms and within the
period contemplated can the owner validly offer to sell the property to a third person, again, under the
same terms as offered to the grantee.40 It appearing that the whole NDC compound was sold to PUP
for P554.74 per square meter, it would have been more proper for the courts below to have ordered
the sale of the property also at the same price. However, since FIRESTONE never raised this as an issue,
while on the other hand it admitted that the value of the property stood at P1,500.00 per square meter,
then we see no compelling reason to modify the holdings of the courts a quo that the leased premises
be sold at that price.
Our attention is invited by petitioners to Ang Yu Asuncion v. CA41 in concluding that if our holding in
Ang Yu would be applied to the facts of this case then FIRESTONE's "option, if still subsisting, is not
enforceable," the option being merely a preparatory contract which cannot be enforced.
The contention has no merit. At the heels of Ang Yu came Equatorial Realty Development, Inc., v.
Mayfair Theater, Inc.,42 where after much deliberation we declared, and so we hold, that a right of
first refusal is neither "amorphous nor merely preparatory" and can be enforced and executed
according to its terms. Thus, in Equatorial we ordered the rescission of the sale which was made in
violation of the lessee's right of first refusal and further ordered the sale of the leased property in favor
of Mayfair Theater, as grantee of the right. Emphatically, we held that "(a right of first priority) should
be enforced according to the law on contracts instead of the panoramic and indefinite rule on human
relations." We then concluded that the execution of the right of first refusal consists in directing the
grantor to comply with his obligation according to the terms at which he should have offered the
property in favor of the grantee and at that price when the offer should have been made.
One final word. Petitioner PUP should be cautioned against bidding for public sympathy by bewailing
the dismissal of its petition before the press. Such advocacy is not likely to elicit the compassion of this
Court or of any court for that matter. An entreaty for a favorable disposition of a case not made directly
through pleadings and oral arguments before the courts do not persuade us, for as judges, we are ruled
only by our forsworn duty to give justice where justice is due.
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first
contract of lease fixed the area of the leased premises at 2.90118 hectares while the second contract
placed it at 2.60 hectares, let a ground survey of the leased premises be immediately conducted by a
duly licensed, registered surveyor at the expense of private respondent FIRESTONE CERAMICS, INC.,
within two (2) months from finality of the judgment in this case. Thereafter, private respondent
FIRESTONE CERAMICS, INC., shall have six (6) months from receipt of the approved survey within which
to exercise its right to purchase the leased property at P1,500.00 per square meter, and petitioner
Polytechnic University of the Philippines is ordered to reconvey the property to FIRESTONE CERAMICS,
INC., in the exercise of its right of first refusal upon payment of the purchase price thereof.

SO ORDERED.

Mendoza, Buena, and De Leon, Jr., JJ., concur.

Quisumbing, J., no part due to prior close relations.

G.R. No. L-22487 May 21, 1969 On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased, filed the present
action in the Court of First Instance of Zamboanga, alleging, inter alia, that they had offered to
surrender to the defendants the possession of lot No. 535-A and demanded in return the possession
ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their respective husbands, of lot No. 535-E, but that the defendants had refused to accept the exchange. The plaintiffs' insistence
HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO LACANDALO, ISABEL ATILANO and GREGORIO is quite understandable, since lot No. 535-E has an area of 2,612 square meters, as compared to the
ATILANO, plaintiffs-appellees, 1,808 square-meter area of lot No. 535-A.

vs.

LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants. In their answer to the complaint the defendants alleged that the reference to lot No. 535-E in the deed
of sale of May 18, 1920 was an involuntary error; that the intention of the parties to that sale was to
convey the lot correctly identified as lot No. 535-A; that since 1916, when he acquired the entirety of
lot No. 535, and up to the time of his death, Eulogio Atilano I had been possessing and had his house
Climaco and Azcarraga for plaintiff-appellee. on the portion designated as lot No. 535-E, after which he was succeeded in such possession by the
T. de los Santos for defendants-appellants. defendants herein; and that as a matter of fact Eulogio Atilano I even increased the area under his
possession when on June 11, 1920 he bought a portion of an adjoining lot, No. 536, from its owner
Fruto del Carpio. On the basis of the foregoing allegations the defendants interposed a counterclaim,
praying that the plaintiffs be ordered to execute in their favor the corresponding deed of transfer with
MAKALINTAL, J.:
respect to lot No. 535-E.

In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535 of the then
The trial court rendered judgment for the plaintiffs on the sole ground that since the property was
municipality of Zamboanga cadastre. The vendee thereafter obtained transfer certificate of title No.
registered under the Land Registration Act the defendants could not acquire it through prescription.
1134 in his name. In 1920 he had the land subdivided into five parts, identified as lots Nos. 535-A, 535-
There can be, of course, no dispute as to the correctness of this legal proposition; but the defendants,
B, 535-C, 535-D and 535-E, respectively. On May 18 of the same year, after the subdivision had been
aside from alleging adverse possession in their answer and counterclaim, also alleged error in the deed
effected, Eulogio Atilano I, for the sum of P150.00, executed a deed of sale covering lot No. 535-E in
of sale of May 18, 1920, thus: "Eulogio Atilano 1.o, por equivocacion o error involuntario, cedio y
favor of his brother Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129 in
traspaso a su hermano Eulogio Atilano 2.do el lote No. 535-E en vez del Lote No. 535-A."lawphi1.ñet
his name. Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were likewise sold to other
persons, the original owner, Eulogio Atilano I, retaining for himself only the remaining portion of the
land, presumably covered by the title to lot No. 535-A. Upon his death the title to this lot passed to
Ladislao Atilano, defendant in this case, in whose name the corresponding certificate (No. T-5056) was The logic and common sense of the situation lean heavily in favor of the defendants' contention. When
issued. one sells or buys real property — a piece of land, for example — one sells or buys the property as he
sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number
assigned to it in the certificate of title. In the particular case before us, the portion correctly referred
to as lot No. 535-A was already in the possession of the vendee, Eulogio Atilano II, who had constructed
On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his wife Luisa
his residence therein, even before the sale in his favor even before the subdivision of the entire lot No.
Bautista, he and his children obtained transfer certificate of title No. 4889 over lot No. 535-E in their 535 at the instance of its owner, Eulogio Atillano I. In like manner the latter had his house on the portion
names as co-owners. Then, on July 16, 1959, desiring to put an end to the co-ownership, they had the
correctly identified, after the subdivision, as lot No. 535-E, even adding to the area thereof by
land resurveyed so that it could properly be subdivided; and it was then discovered that the land they
purchasing a portion of an adjoining property belonging to a different owner. The two brothers
were actually occupying on the strength of the deed of sale executed in 1920 was lot No. 535-A and
continued in possession of the respective portions the rest of their lives, obviously ignorant of the initial
not lot 535-E, as referred to in the deed, while the land which remained in the possession of the vendor,
mistake in the designation of the lot subject of the 1920 until 1959, when the mistake was discovered
Eulogio Atilano I, and which passed to his successor, defendant Ladislao Atilano, was lot No. 535-E and
for the first time.
not lot No. 535-A.
The real issue here is not adverse possession, but the real intention of the parties to that sale. From all
the facts and circumstances we are convinced that the object thereof, as intended and understood by
the parties, was that specific portion where the vendee was then already residing, where he
reconstructed his house at the end of the war, and where his heirs, the plaintiffs herein, continued to
reside thereafter: namely, lot No. 535-A; and that its designation as lot No. 535-E in the deed of sale
was simple mistake in the drafting of the document.1âwphi1.ñet The mistake did not vitiate the
consent of the parties, or affect the validity and binding effect of the contract between them. The new
Civil Code provides a remedy for such a situation by means of reformation of the instrument. This
remedy is available when, there having been a meeting of the funds of the parties to a contract, their
true intention is not expressed in the instrument purporting to embody the agreement by reason of
mistake, fraud, inequitable conduct on accident (Art. 1359, et seq.) In this case, the deed of sale
executed in 1920 need no longer reformed. The parties have retained possession of their respective
properties conformably to the real intention of the parties to that sale, and all they should do is to
execute mutual deeds of conveyance.

WHEREFORE, the judgment appealed from is reversed. The plaintiffs are ordered to execute a deed of
conveyance of lot No. 535-E in favor of the defendants, and the latter in turn, are ordered to execute
a similar document, covering lot No. 595-A, in favor of the plaintiffs. Costs against the latter.

Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.

Teehankee and Barredo, JJ., took no part.

Concepcion C.J., and Castro, J., are on leave.

G.R. No. L-9935 February 1, 1915
YU TEK and CO., plaintiff-appellant,
vs.
BASILIO GONZALES, defendant-appellant.
Beaumont, Tenney and Ferrier for plaintiff.
Buencamino and Lontok for defendant.
TRENT, J.:
The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which follow:
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000 Philippine currency
from Messrs. Yu Tek and Co., and that in consideration of said sum be obligates himself to deliver to
the said Yu Tek and Co., 600 piculs of sugar of the first and second grade, according to the result of the
polarization, within the period of three months, beginning on the 1st day of January, 1912, and ending
on the 31st day of March of the same year, 1912.
2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs. Yu Tek and Co., of
this city the said 600 piculs of sugar at any place within the said municipality of Santa Rosa which the
said Messrs. Yu Tek and Co., or a representative of the same may designate.
3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and Co. the 600 piculs
of sugar within the period of three months, referred to in the second paragraph of this document, this
contract will be rescinded and the said Mr. Basilio Gonzales will then be obligated to return to Messrs.
Yu Tek and Co. the P3,000 received and also the sum of P1,200 by way of indemnity for loss and
damages.
Plaintiff proved that no sugar had been delivered to it under this contract nor had it been able to
recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for P1,200 under
paragraph 4, supra. Judgment was rendered for P3,000 only, and from this judgment both parties
appealed.
The points raised by the defendant will be considered first. He alleges that the court erred in refusing
to permit parol evidence showing that the parties intended that the sugar was to be secured from the
crop which the defendant raised on his plantation, and that he was unable to fulfill the contract by
reason of the almost total failure of his crop. This case appears to be one to which the rule which
excludes parol evidence to add to or vary the terms of a written contract is decidedly applicable. There
is not the slightest intimation in the contract that the sugar was to be raised by the defendant. Parties
are presumed to have reduced to writing all the essential conditions of their contract. While parol
evidence is admissible in a variety of ways to explain the meaning of written contracts, it cannot serve
the purpose of incorporating into the contract additional contemporaneous conditions which are not
mentioned at all in the writing, unless there has been fraud or mistake. In an early case this court
declined to allow parol evidence showing that a party to a written contract was to become a partner in
a firm instead of a creditor of the firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern
Mining Co. (14 Phil. Rep., 509) a contract of employment provided that the plaintiff should receive from
the defendant a stipulated salary and expenses. The defendant sought to interpose as a defense to
recovery that the payment of the salary was contingent upon the plaintiff's employment redounding
to the benefit of the defendant company. The contract contained no such condition and the court
declined to receive parol evidence thereof.
In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the crop
raised by the defendant. There is no clause in the written contract which even remotely suggests such
a condition. The defendant undertook to deliver a specified quantity of sugar within a specified time.
The contract placed no restriction upon the defendant in the matter of obtaining the sugar. He was
equally at liberty to purchase it on the market or raise it himself. It may be true that defendant owned
a plantation and expected to raise the sugar himself, but he did not limit his obligation to his own crop
of sugar. Our conclusion is that the condition which the defendant seeks to add to the contract by parol
evidence cannot be considered. The rights of the parties must be determined by the writing itself.
The second contention of the defendant arises from the first. He assumes that the contract was limited
to the sugar he might raise upon his own plantation; that the contract represented a perfected sale;
and that by failure of his crop he was relieved from complying with his undertaking by loss of the thing
due. (Arts. 1452, 1096, and 1182, Civil Code.) This argument is faulty in assuming that there was a
perfected sale. Article 1450 defines a perfected sale as follows:
The sale shall be perfected between vendor and vendee and shall be binding on both of them, if they
have agreed upon the thing which is the object of the contract and upon the price, even when neither
has been delivered.
Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been
perfected, be governed by the provisions of articles 1096 and 1182."
This court has consistently held that there is a perfected sale with regard to the "thing" whenever the
article of sale has been physically segregated from all other articles Thus, a particular tobacco factory
with its contents was held sold under a contract which did not provide for either delivery of the price
or of the thing until a future time. McCullough vs. Aenlle and Co. (3 Phil. Rep., 295). Quite similar was
the recent case of Barretto vs. Santa Marina (26 Phil. Rep., 200) where specified shares of stock in a
tobacco factory were held sold by a contract which deferred delivery of both the price and the stock
until the latter had been appraised by an inventory of the entire assets of the company. In Borromeo
vs. Franco (5 Phil. Rep., 49) a sale of a specific house was held perfected between the vendor and
vendee, although the delivery of the price was withheld until the necessary documents of ownership
were prepared by the vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered
a quantity of hemp into the warehouse of the defendant. The defendant drew a bill of exchange in the
sum of P800, representing the price which had been agreed upon for the hemp thus delivered. Prior to
the presentation of the bill for payment, the hemp was destroyed. Whereupon, the defendant
suspended payment of the bill. It was held that the hemp having been already delivered, the title had
passed and the loss was the vendee's. It is our purpose to distinguish the case at bar from all these
cases.
In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar of the
first and second classes. Was this an agreement upon the "thing" which was the object of the contract
within the meaning of article 1450, supra? Sugar is one of the staple commodities of this country. For
the purpose of sale its bulk is weighed, the customary unit of weight being denominated a "picul."
There was no delivery under the contract. Now, if called upon to designate the article sold, it is clear
that the defendant could only say that it was "sugar." He could only use this generic name for the thing
sold. There was no "appropriation" of any particular lot of sugar. Neither party could point to any
specific quantity of sugar and say: "This is the article which was the subject of our contract." How
different is this from the contracts discussed in the cases referred to above! In the McCullough case,
for instance, the tobacco factory which the parties dealt with was specifically pointed out and
distinguished from all other tobacco factories. So, in the Barretto case, the particular shares of stock
which the parties desired to transfer were capable of designation. In the Tan Leonco case, where a
quantity of hemp was the subject of the contract, it was shown that that quantity had been deposited
in a specific warehouse, and thus set apart and distinguished from all other hemp.
A number of cases have been decided in the State of Louisiana, where the civil law prevails, which
confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La., 145; 47 Sou.,
444). In this case a contract was entered into by a traveling salesman for a quantity of shoes, the sales
having been made by sample. The court said of this contract:
But it is wholly immaterial, for the purpose of the main question, whether Mitchell was authorized to
make a definite contract of sale or not, since the only contract that he was in a position to make was
an agreement to sell or an executory contract of sale. He says that plaintiff sends out 375 samples of
shoes, and as he was offering to sell by sample shoes, part of which had not been manufactured and
the rest of which were incorporated in plaintiff's stock in Lynchburg, Va., it was impossible that he and
Seegars and Co. should at that time have agreed upon the specific objects, the title to which was to
pass, and hence there could have been no sale. He and Seegars and Co. might have agreed, and did (in
effect ) agree, that the identification of the objects and their appropriation to the contract necessary
to make a sale should thereafter be made by the plaintiff, acting for itself and for Seegars and Co., and
the legend printed in red ink on plaintiff's billheads ("Our responsibility ceases when we take
transportation Co's. receipt `In good order'" indicates plaintiff's idea of the moment at which such
identification and appropriation would become effective. The question presented was carefully
considered in the case of State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was absolutely
necessary that it should be decided), and it was there held that in receiving an order for a quantity of
goods, of a kind and at a price agreed on, to be supplied from a general stock, warehoused at another
place, the agent receiving the order merely enters into an executory contract for the sale of the goods,
which does not divest or transfer the title of any determinate object, and which becomes effective for
that purpose only when specific goods are thereafter appropriated to the contract; and, in the absence
of a more specific agreement on the subject, that such appropriated takes place only when the goods
as ordered are delivered to the public carriers at the place from which they are to be shipped, consigned
to the person by whom the order is given, at which time and place, therefore, the sale is perfected and
the title passes.
This case and State vs. Shields, referred to in the above quotation are amply illustrative of the position
taken by the Louisiana court on the question before us. But we cannot refrain from referring to the
case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242) which is summarized by the court
itself in the Shields case as follows:
. . . It appears that the defendants had made a contract for the sale, by weight, of a lot of cotton, had
received $3,000 on account of the price, and had given an order for its delivery, which had been
presented to the purchaser, and recognized by the press in which the cotton was stored, but that the
cotton had been destroyed by fire before it was weighed. It was held that it was still at the risk of the
seller, and that the buyer was entitled to recover the $3,000 paid on account of the price.
We conclude that the contract in the case at bar was merely an executory agreement; a promise of sale
and not a sale. At there was no perfected sale, it is clear that articles 1452, 1096, and 1182 are not
applicable. The defendant having defaulted in his engagement, the plaintiff is entitled to recover the
P3,000 which it advanced to the defendant, and this portion of the judgment appealed from must
therefore be affirmed.

The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to
recover the additional sum of P1,200 under paragraph 4 of the contract. The court below held that this
paragraph was simply a limitation upon the amount of damages which could be recovered and not
liquidated damages as contemplated by the law. "It also appears," said the lower court, "that in any
event the defendant was prevented from fulfilling the contract by the delivery of the sugar by condition
over which he had no control, but these conditions were not sufficient to absolve him from the
obligation of returning the money which he received."

The above quoted portion of the trial court's opinion appears to be based upon the proposition that
the sugar which was to be delivered by the defendant was that which he expected to obtain from his
own hacienda and, as the dry weather destroyed his growing cane, he could not comply with his part
of the contract. As we have indicated, this view is erroneous, as, under the contract, the defendant was
not limited to his growth crop in order to make the delivery. He agreed to deliver the sugar and nothing
is said in the contract about where he was to get it.

We think is a clear case of liquidated damages. The contract plainly states that if the defendant fails to
deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded and he will be
obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for loss and damages.
There cannot be the slightest doubt about the meaning of this language or the intention of the parties.
There is no room for either interpretation or construction. Under the provisions of article 1255 of the
Civil Code contracting parties are free to execute the contracts that they may consider suitable,
provided they are not in contravention of law, morals, or public order. In our opinion there is nothing
in the contract under consideration which is opposed to any of these principles.

For the foregoing reasons the judgment appealed from is modified by allowing the recovery of P1,200
under paragraph 4 of the contract. As thus modified, the judgment appealed from is affirmed, without
costs in this instance.

Arellano, C.J., Torres, Carson and Araullo, JJ., concur.

Johnson, J., dissents.

[G.R. No. 10907. January 29, 1916. ]
ONG JANG CHUAN, Plaintiff-Appellee, v. WISE & CO. (LTD.) , Defendant-Appellant.
A. J. Burke for Appellant.
Beaumont & Tenney for Appellee.
SYLLABUS
1. SALES; REQUISITES AND VALIDITY OF CONTRACT. — A contract of sale is no perfected where the
parties have agreed upon the price and the thing sold, unless the latter has been selected and is capable
of being physically designated and distinguished from all others of the same class.
DECISION
TRENT, J. :
An appeal from a judgment of the Court of First Instance of Manila condemning the defendant to pay
the plaintiff the sum of P1,237.50, together with interest and costs, as damages for a breach of
contract.
The contract which forms the basis of this action reads:
"Between Messrs. Wise & Co. (Ltd.) , Manila, and Mr. Ong Jang Chuan, Manila.
"We, Wise & Co. (Ltd.) , have sold to Mr. Ong Jang Chuan the following goods, on this 29th day of July,
1914:
"On thousand (1,000) sacks of flour, ’Mano’ brand, at the net price of P11.05 (eleven pesos and five
centavos) per barrel, the expenses of transportation from the Binondo Canal to be borne by the
purchaser, 500 sacks to be delivered in September and 500 in October, which we bind ourselves to
deliver . . . for which we shall receive a commission of . . . per cent of the total amount. Payment of the
goods mentioned shall be made within 30 days counted from the date of delivery, and interest at the
rate of . . . per annum on any unpaid amount that may still be due after the . . . days mentioned."
The pertinent facts, as found by the trial court, are these:
"It has been established by a preponderance of evidence that the reason for the nonfulfilment, on the
part of Wise & Co., of the contract made with the plaintiff, was that the ’Mano’ brand of flour which
the defendant bound itself to deliver during the months of September and October had to come from
Australia, and at the time the contract was executed Wise & Co. did not have a sufficient stock of the
said brand of flour; and that, as the government of Australia prohibited the exportation of flour,
because of the scarcity of grain in that country, due to the war that had been declared between Great
Britain, of which Australia is an integral part, and the German Empire, it was impossible for the
importers to supply Wise & Co. with a sufficient quantity of flour to enable the latter, in turn, to serve
its customers."
It is urged that the trial court erred (1) in holding that the contract above set forth was an agreement
to sell and not a perfected sale, (2) in not finding that the noncompliance of the contract was due to a
fortuitous event, and (3) in condemning the defendant to pay to the plaintiff the sum of P1,237.50.
In the argument, as appears in defendant’s printed brief filed in this court, the third alleged error is
made dependent upon the result of the first and second, or, in other words, it is not insisted that the
judgment is excessive or that the plaintiff has not established that he is entitled to P1,237.50, in case
he is entitled to any amount. Neither does counsel contend that the defendant is relieved from all
liability for the noncompliance with the contract on account of the order of the Australian government
prohibiting the exportation of flour if the sale is not a perfected one. As thus presented, our inquiry is
limited to the determination of the question whether or not the contract and the facts found show a
perfected sale.
In the case of Yu Tek & Co. v. Gonzalez (29 Phil. Rep., 384), we said:
"This court has consistently held that there is a perfected sale with regard to the ’thing’ whenever the
article of sale has been physically segregated from all other articles."
In the case under consideration, the undertaking of the defendant was to sell to the plaintiff 1,000
sacks of "Mano" flour at P11.05 per barrel, 500 sacks to be delivered in September and 500 in October.
There was no delivery at all under the contract. If called upon to designate the article sold, the
defendant could only say that it was "Mano" flour. There was no appropriation of any particular lot of
flour. The flour mentioned in the contract was not "physically segregated from all other articles." In
fact, the defendant did not have in its possession in Manila, at the time the contract was entered into,
the 1,000 sacks of flour which it agreed to deliver in September and October. It is therefore clear that
under the rule laid down in the case of Yu Tek & Co., supra, and the cases cited in that opinion, the sale
here i question was not a perfected one.
For the foregoing reasons, the judgment appealed from is affirmed, with costs against the Appellant.
So ordered.
Arellano, C.J., Torres, and Carson, JJ., concur.
Separate Opinions
MORELAND, J., concurring:
If the conclusions of law set out in the syllabus in this case are correct the judgment should be reversed
instead of affirmed. The action is for breach of contract of sale. The only defense offered is that the
breach has, in law, been excused. The court holds, if its syllabus may be taken as a guide, that there
never was a contract at all between the parties; which, if true, precludes a recovery by plaintiff. The
syllabus says:
"A contract of sale is not perfected where the parties have agreed upon the price and the thing sold,
unless the latter has been selected and is capable of being physically designated and distinguished from
all others of the same class."
Note that this says that the contract of sale is not perfected, etc. In the body of the decision the court
says: "It is therefore clear that under the rules laid down . . . the sale here in question was not a
perfected one." Note that this says that the "sale is not a perfected one." There is a very wide difference
between an unperfected (imperfect) contract and an unperfected sale. If a contract is not complete,
that is, perfected, it is no contract, and creates no obligations; while a "sale" will bind the parties to it
even though not "perfected." There is a manifest inconsistency, if not contradiction, between the
decision of the court and the syllabus. If the syllabus is correct then the decision is wrong; and if the
decision is correct the syllabus is wrong. If the contract was not perfected, completed, it was not
binding and no action would lie for its breach; whereas if, as the court holds, an action for breach lies,
then the contract was a complete and perfect contract.
The contract was a perfect contract. The essentials of a contract are found in article 1261 of the Civil
Code. It reads:
"There is no contract unless the following requisites exist: (1) The consent of the contracting parties.
(2) A definite object which may be the subject of the contract. (3) The consideration for the obligation
which may be established."
Article 1254 provides that:
"A contract exists from the moment one or more persons consent to bind himself or themselves, with
regard to another or others, to give something or to render some service;" while article 1258 declares
when contracts are perfected. It provides:
"Contracts are perfected by mere consent, and from that time they are binding, not only with regard
to the fulfillment of what has been expressly stipulated, but also with regard to all the consequences
which, according to their character, are in accordance with good faith, use, and law."
There is nowhere in the Civil Code a requirement that, in order that a contract, of whatever kind, shall
be perfect, that is, binding on the parties, the subject-matter thereof must be segregated or set apart
by itself, or be "capable of being physically designated and distinguished from all others of the same
class." There is no such requirement even with respect to a contract of sale. This contract is perfected
in the same manner as all other contracts by mere consent; and the essentials thereof are those of all
other contracts, consent, subject-matter, and consideration: a contract of sale is perfected and binding
"there having been an agreement as to the thing and price." Article 1451 provides this in express terms.
It says:
"A promise to sell or buy, there being an agreement as to the thing and price, gives a right to the
contracting parties to mutually demand the fulfillment of the contract."
Nothing is said about the necessity of the "thing" being "segregated" or "set apart by itself," or of being
"capable of being physically designated or distinguished from all others of the same class." It is not
even essential that the "thing" be in existence at the time the contract is made. Innumerable binding
contracts are made daily concerning matters not in existence.
From what has been said I am forced to conclude that the statement of the syllabus that "a contract of It then tells us, by article 1450, when the title passes, i. e., from what instant the purchaser takes the
sale is not perfected where the parties have agreed upon the price and the thing sold, unless the latter risk of the loss of the thing bought and is entitled to the profits produced by it. It states:
has been selected and is capable of being physically designated or distinguished from all others of the
same class," is not, as I understand it, a correct statement of what the court decided or of the law on
the subject. "The sale (not contract) shall be perfected between vendor and vendee and shall be binding on both
of them, if they have agreed upon the thing which is the object of the contract and upon the price,
even when neither has been delivered."
The decision, however, is correct in saying that a sale (not a contract of sale) is not perfected unless
the subject-matter thereof "has been physically segregated from all other articles." But the objection I
make is that, while the statement, as a statement, is correct, it has nothing to do with and bears no Article 1452 declares what law shall govern the rights which accrue by virtue of article 1450. It is as
relation to the case before the court or the question raised or to be decided therein. Otherwise, I am follows:
unable to follow the reasoning of the court in its decision. The action, as I have said, is for a breach of
contract of sale. The legality and validity of the contract are admitted, as is also the breach thereof.
The only question before the court, indeed, the only question raised by anybody, is whether the breach
has been excused. The only question discussed by the court, as I understand it, is one altogether "The injury to or the profit of the thing sold shall, after the contract has been perfected, be governed
different. If the contract of sale is valid, and no one questions that, and if there was a breach, and no by the provisions of articles 1096 and 1182."
one questions that (laying to one side the claim of defendant that plaintiff waived the breach), what is
there left for consideration more than the justifiability of the breach and, in case it was not justifiable,
the amount of damages? Nothing; and the parties have raised and discussed nothing else, as I Articles 1182 to 1186 declare the various conditions under which the vendor is excused from delivery.
understand the case. This, however, is precisely the question which the court has not touched. They provide:

What has the question whether the sale was perfected or not to do with this case? The parties are not "ART. 1182. An obligation, consisting in the delivery of a specified thing, shall be extinguished when
concerned with a perfected sale or any other kind of sale, but with a contract of sale only. Indeed, the said thing should be lost or destroyed without fault of the debtor and before he should be in default.
action is expressly brought for a breach of a contract of sale without regard to the ownership of the
property or the rights of the parties therein. Whether or not the sale was a "perfected" sale is of no
consequence in the resolution of this case. That question can be material only when it is to be "ART. 1183. Whenever the thing should be lost, when in the possession of the debtor, it shall be
determined who must suffer if the thing sold is lost, destroyed, or damaged, or who shall be entitled presumed that the loss occurred by his fault and not by a fortuitous event, unless there is proof to the
to the increase thereof or the profit produced by it before actual delivery. Except for this purpose the contrary and without prejudice to the provisions of article 1096.
question whether a sale is "perfected" or not is immaterial — indeed, it cannot arise in any way in any
case. To determine who shall run the risk of loss or have the opportunity to claim the profits produced
by the thing sold before actual delivery thereof has been made, the Civil Code contains various cogent
"ART. 1184. In obligations to do, the debtor shall also be released when the prestation appears to be
provisions. Article 1462 defines a delivery. It provides:
legally or physically impossible.

"A thing sold shall be considered as delivered when it is placed in the hands and possession of the
"ART. 1185. When the debt for a certain and specified thing arises from a crime or misdemeanor the
vendee. When the sale should be made by means of a public instrument, the execution thereof shall
debtor shall not be exempted from the payment of its value, whatever the cause of the loss may have
be equivalent to the delivery of the thing which is the object of the contract, if in said instrument the
been, unless, having offered the thing to the person who should have received it, the latter should have
contrary does not appear or may be clearly inferred."
refused to accept it without reason.
"ART. 1186. After the obligation is extinguished by the loss of the thing, all the actions which the debtor
may have against third persons, by reason thereof shall pertain to the creditor."
Article 1096 defines the rights of the parties to the sale under other conditions:
"Should the thing to be delivered be a specified one the creditor, independently of the right granted
him by article 1101, may compel the debtor to make the delivery. Should the thing be undetermined
or generic he may ask that the obligation be fulfilled at the expense of the debtor. Should the person
obligated be in default, or be bound to deliver the same thing to two or more different persons, he
shall be liable therefor with regard to unforeseen events until the delivery is made."
Article 1105 deals with the liability of the parties when there intervenes fortuitous and unavoidable
events and is as follows:
"No one shall be liable for events which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in the law or those in which the
obligation so declares."
As is seen from article 1450, the relative rights of the parties to a contract of sale in the thing sold date
from the moment when the sale is perfected. Prior to that moment the purchaser has no interest in
the thing sold. It is owned absolutely by the vendor. After that moment the purchaser has rights in it.
Articles 1096 and 1182 determine what they are. The only reason for the existence of article 1450 is to
fix in as definite a way as possible the time when the purchaser acquires rights, not in the contract of
sale (rights in that contract date from the instant it was perfected as provided in article 1451), but in
the thing sold. This being so it is clear that whether the sale is perfected or not has no significance,
consequence, or materiality unless the parties, or either of them, assert an interest in the property
itself. If the sale is perfected the purchaser may lay claim to the thing sold; if it is not perfected he
cannot. It is only in the determination of the rights of the parties in the thing sold that the question of
whether the sale is perfected becomes material. The articles quoted, and especially article 1450, have
nothing to do with the responsibility of the parties under the contract as defined by article 1445. Article
1450 simply paves the way for article 1452 which provides, as we have seen, that "the injury to or the
profit of the thing sold shall, after the contract has been perfected, be governed by the provision of
articles 1096 and 1182." Article 1450 simply states when the sale shall be deemed to be perfected, the
sole purpose of which is, as already set out, to determine definitely who shall sustain the loss which
the thing sold may suffer and who shall take the profits which it produces, before actual delivery. These
articles have nothing to do with the validity of the contract of sale or with the consequences flowing
from a breach thereof as that contract is defined by article 1445.
The action before us is one for simple breach of contract. There is no question here as to plaintiff’s or
defendant’s interest in the flour itself. The plaintiff claims no interest therein. The defendant claims
none. Both parties admit that defendant never obtained delivery of the flour; that its delivery was
prevented by the action of the Australian government as a war measure. Not being able to secure
delivery itself the defendant could not deliver it to plaintiff in pursuance of the contract. This being so
no question arose or could arise as to who must assume the responsibility for loss of or damage to the
flour or who take the increase of or the profits produced by it. Therefore, no question arose or could
arise as to whether the sale was perfected or not, as that question presents itself only when it must be
determined at whose risk the property is, or questions involving an interest in the property.
I repeat, the only question raised or argued is, Was the breach of the contract excused by the
intervention of the European war by reason of which the exportation of flour from Australia was
prohibited? Whether the sale was a perfected sale or not has nothing to do with that question;
inasmuch as, if the completion of the contract was prevented by a fortuitous event, if we may call the
prohibition of the Australian government a fortuitous event as defined by the Civil Code (art. 1105),
the vendor would be excused whether the sale was perfected or not. No one contends, least of all the
appellant, that the title to the flour passed under the contract and much less that there was a delivery.
Neither does appellant contend that the flour was at the vendee’s risk. Appellant in its answer and in
many places in its brief admits that title had not passed and that no delivery had been made; indeed,
its whole case is based on the proposition that it had broken its contract with plaintiff and that it was
liable in damage unless the breach was excused by the supervention of war or by agreement of the
parties. It is true that the appellant discussed in its brief the question whether the document on which
the action is brought is an executory contract of sale or a "perfected sale," but not, however, for the
purpose of claiming that the title to the flour passed to plaintiff and that it was, therefore, at his risk,
as appellant nowhere claims that but admits the contrary, but under the wholly mistaken belief that
the law relating to fortuitous events as found in the Civil Code applies only to a "perfected sale" ad
does not to an executory contract of sale. In other words, he argues for a "perfected sale" not to put
the flour at plaintiff’s risk, but to bring his admitted breach of the contract within the provisions of the
Civil Code relating to fortuitous events. Appellant sums up its whole contention in the last two
paragraphs of its brief preceding the prayer for relief, which prove conclusively that the only question
really raised or presented by appellant was as I have stated. They read: "Having arrived at the
conclusion that Exhibit A is a contract of sale it is unquestionable that it is subject to the law relating to
fortuitous events; in other words, that the contracting parties are not responsible for unforeseen
events, or those which, if foreseen, were unavoidable, except in those cases where the law provides
the contrary." "It having been proved, as we have said, that the failure to comply with the contract was
due to a fortuitous event, the defendant is relieved of all responsibility, and the court erred in giving
judgment against it . . . ." It is clear from these quotations that the appellant never intended to raise
the question exclusively considered by the court, the sole purpose in speaking of perfected sale being
to excuse the breach which, if excusable at all, would be as much so whether the sale was perfected or
not.
The remarks already made apply, generally speaking, with equal force to the case of Yu Tek & Co. v.
Gonzalez (29 Phil. Rep., 384), cited in the opinion of the court in this case. There defendant agreed to
sell and deliver to plaintiff a certain quantity of sugar which he did not have and which, so far as is
known, was not in existence at the time the contract was made. No question, therefore, of injury, loss,
or profit could arise. His defense was that he was prevented from delivering the sugar not because it
was lost or destroyed but because the weather never permitted him to produce it. Such a defense, if it
is a defense at all, falls under article 1105 and not under articles 1450, 1452, 1096, and 1182, cited by
the court in that case, or any of them. Neither in the case cited nor in the one at bar was there a claim
that the thing sold was lost or injured. The sole claim and defense was that the fulfillment of the
contract was rendered impossible by an act of God which prevented the thing sold from coming into
existence. In one case the weather prevented the growth of the sugar and in the other the war
prevented the delivery of the flour. In neither case was there a claim that the thing sold was specified
or set apart or even in existence; and the only question presented in that case as well as in this was
whether the defendants were relieved under article 1105 and not under 1450, 1452, 1182 and 1096.

The contract in the case at bar is one for the sale and delivery of a thing which in all probability did not
exist at the time the parties contracted. Certainly the parties did not know whether it existed or not. It
seems that the flour had to be manufactured in Australia before the delivery agreed upon could be
made. The whole trouble was caused by the failure of the manufacturers in Australia to deliver to the
defendant. To this kind of contract articles 1450, 1452, 1096, and 1182 do not apply; there can be no
perfected sale when the thing sold is not yet in existence and, consequently, there can be no question
over the loss or injury to the thing or the profits which it produces before delivery. The flour never had
an existence and the relations between the contracting parties never proceeded further than the mere
words which formed the contract. There was, therefore, never a moment when the question as to
whether it was a perfected contract could arise. The only articles applicable or claimed to be applicable
were 1445 and 1105, to which I see no reference in the decision.
G.R. No. L-24732 April 30, 1968
PIO SIAN MELLIZA, petitioner,
vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents.
Cornelio P. Ravena for petitioner.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in
Iloilo City registered in her name under Original Certificate of Title No. 3462. Said parcels of land were
known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters.
On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot 1214,
to serve as site for the municipal hall. 1 The donation was however revoked by the parties for the
reason that the area donated was found inadequate to meet the requirements of the development
plan of the municipality, the so-called "Arellano Plan". 2
Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B.
And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As
approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot 1214-
B; Lot 1214-B-2, with 6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13, with
4,135 square meters, became Lot 1214-D.
On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the
following:
Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS (P6,422.00),
moneda filipina que por la presente declaro haber recibido a mi entera satisfaccion del Gobierno
Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a dicho Gobierno Municipal de Iloilo los
lotes y porciones de los mismos que a continuacion se especifican a saber: el lote No. 5 en toda su
extension; una porcion de 7669 metros cuadrados del lote No. 2, cuya porcion esta designada como
sub-lotes Nos. 2-B y 2-C del piano de subdivision de dichos lotes preparado por la Certeza Surveying
Co., Inc., y una porcion de 10,788 metros cuadrados del lote No. 1214 — cuya porcion esta designada
como sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision.
Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta difinitiva, y que
para la mejor identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago
constar que dichos lotes y porciones son los que necesita el Gobierno Municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government Center de iloilo, segun el
plano Arellano.
On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva
who thereafter obtained her own registered title thereto, under Transfer Certificate of Title No. 18178.
Remedios in turn on November 4, 1946 transferred her rights to said portion of land to Pio Sian Melliza,
who obtained Transfer Certificate of Title No. 2492 thereover in his name. Annotated at the back of Pio
Sian Melliza's title certificate was the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-B-2 and
1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated November
15, 1932....
On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city
hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site
donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters,
more or less.
Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio
Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of
the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City did
not have funds (p. 9, Appellant's Brief.)
The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering
the three lots, Nos. 1214-B, 1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against
Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value.
The defendants answered, contending that Lot 1214-B was included in the public instrument executed
by Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial, the Court of
First Instance rendered its decision on August 15, 1957, dismissing the complaint. Said court ruled that
the instrument executed by Juliana Melliza in favor of Iloilo municipality included in the conveyance
Lot 1214-B. In support of this conclusion, it referred to the portion of the instrument stating:
Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta difinitiva, y que
para la major identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago
constar que dichos lotes y porciones son los que necesita el Gobierno municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government Center de Iloilo, segun el
plano Arellano.
and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such other
portions of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it held that
Iloilo City had the right to donate Lot 1214-B to the U.P.
Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of Appeals
affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214 sold by Juliana
Melliza was not limited to the 10,788 square meters specifically mentioned but included whatever was
needed for the construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand
of the case for reception of evidence to determine the area actually taken by Iloilo City for the
construction of avenues, parks and for city hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the
public instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square
meters were the portions of Lot 1214 included in the sale; that the purpose of the second paragraph,
relied upon for a contrary interpretation, was only to better identify the lots sold and none other; and
that to follow the interpretation accorded the deed of sale by the Court of Appeals and the Court of
First Instance would render the contract invalid because the law requires as an essential element of
sale, a "determinate" object (Art. 1445, now 1448, Civil Code).
Appellees, on the other hand, contend that the present appeal improperly raises only questions of fact.
And, further, they argue that the parties to the document in question really intended to include Lot
1214-B therein, as shown by the silence of the vendor after Iloilo City exercised ownership thereover;
that not to include it would have been absurd, because said lot is contiguous to the others admittedly
included in the conveyance, lying directly in front of the city hall, separating that building from Lots
1214-C and 1214-D, which were included therein. And, finally, appellees argue that the sale's object
was determinate, because it could be ascertained, at the time of the execution of the contract, what
lots were needed by Iloilo municipality for avenues, parks and city hall site "according to the Arellano
Plan", since the Arellano plan was then already in existence.
The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932.
And interpretation of such contract involves a question of law, since the contract is in the nature of law
as between the parties and their successors-in-interest.
At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to
Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was
included, in the instrument subsequently executed by Juliana Melliza of her remaining interest in Lot
1214 to Remedios Sian Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian
Melliza. It should be stressed, also, that the sale to Remedios Sian Villanueva — from which Pio Sian
Melliza derived title — did not specifically designate Lot 1214-B, but only such portions of Lot 1214 as
were not included in the previous sale to Iloilo municipality (Stipulation of Facts, par. 5, Record on
Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to Iloilo
municipality, then it was excluded from the sale to Remedios Sian Villanueva and, later, to Pio Sian
Melliza.
The point at issue here is then the true intention of the parties as to the object of the public instrument
Exhibit "D". Said issue revolves on the paragraph of the public instrument aforequoted and its purpose,
i.e., whether it was intended merely to further describe the lots already specifically mentioned, or
whether it was intended to cover other lots not yet specifically mentioned.
First of all, there is no question that the paramount intention of the parties was to provide Iloilo
municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with
its avenues and parks. For this matter, a previous donation for this purpose between the same parties
was revoked by them, because of inadequacy of the area of the lot donated.
Secondly, reading the public instrument in toto, with special reference to the paragraphs describing
the lots included in the sale, shows that said instrument describes four parcels of land by their lot
numbers and area; and then it goes on to further describe, not only those lots already mentioned, but
the lots object of the sale, by stating that said lots are the ones needed for the construction of the city
hall site, avenues and parks according to the Arellano plan. If the parties intended merely to cover the
specified lots — Lots 2, 5, 1214-C and 1214-D, there would scarcely have been any need for the next
paragraph, since these lots are already plainly and very clearly described by their respective lot number
and area. Said next paragraph does not really add to the clear description that was already given to
them in the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other portions of land
contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found needed
for the purpose at hand, the construction of the city hall site.
Appellant however challenges this view on the ground that the description of said other lots in the
aforequoted second paragraph of the public instrument would thereby be legally insufficient, because
the object would allegedly not be determinate as required by law.
"D", the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in the
heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the notary
public of the public instrument. As such, he was aware of its terms. Said instrument was also registered
with the Register of Deeds and such registration was annotated at the back of the corresponding title
certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian Melliza knew
of the aforesaid terms of the instrument or is chargeable with knowledge of them; that knowing so, he
should have examined the Arellano plan in relation to the public instrument Exhibit "D"; that,
furthermore, he should have taken notice of the possession first by the Municipality of Iloilo, then by
the City of Iloilo and later by the University of the Philippines of Lot 1214-B as part of the city hall site
conveyed under that public instrument, and raised proper objections thereto if it was his position that
the same was not included in the same. The fact remains that, instead, for twenty long years, Pio Sian
Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of
possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and
equity, said lot must necessarily be deemed included in the conveyance in favor of Iloilo municipality,
now Iloilo City.

WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First
Such contention fails on several counts. The requirement of the law that a sale must have for its object Instance, and the complaint in this case is dismissed. No costs. So ordered.
a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the
sale is capable of being made determinate without the necessity of a new or further agreement
between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of some
of the lots plus the statement that the lots object of the sale are the ones needed for city hall site, Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the Concepcion , C.J., is on leave.
execution of the contract, for rendering determinate said lots without the need of a new and further
agreement of the parties.

The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city
hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under said
Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not fixed
until 1935, and thus it could not be a basis for determining the lots sold on November 15, 1932.
Appellant however fails to consider that the area needed under that plan for city hall site was then
already known; that the specific mention of some of the lots covered by the sale in effect fixed the
corresponding location of the city hall site under the plan; that, therefore, considering the said lots
specifically mentioned in the public instrument Exhibit "D", and the projected city hall site, with its
area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of
the portions of land contiguous to those specifically named, were needed for the construction of the
city hall site.

And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D,
admittedly covered by the public instrument. It is stipulated that, after execution of the contract Exhibit
G.R. No. L-68741 January 28, 1988
NATIONAL GRAINS AUTHORITY, plaintiff-appellee,
vs.
INTERMEDIATE APPELLATE COURT, MELECIO MAGCAMIT, NENA COSICO and EMELITA MAGCAMIT,
defendants-appellants.
PARAS, J.:
This is a petition for review of the decision of the then Intermediate Appellate Court * (now Court of
Appeals) dated January 31, 1984, reversing the decision of the Court of First Instance of Laguna and
San Pablo City, 8th Judicial District, Branch III, and of the resolution dated August 28, 1984 denying the
motion for reconsideration filed thereof.
The undisputed facts of this case as found by the Trial Court and the Intermediate Appellate Court are
as follows:
On December 2,1971, the spouses Paulino Vivas and Engracia Lizards, as owners of a parcel of land
situated in Bo. San Francisco, Victoria, Laguna, comprising more or less 105,710 square meters, sold
for P30,000.00 said property in favor of spouses Melencio Magcamit and Nena Cosico, and Amelita
Magcamit (herein private respondents) as evidenced by "Kasulatan Ng Bilihang Mabiling Muli." This
sale with right to repurchase was recorded in the Office of the Register of Deeds of Laguna on
December 6,1971 under Act No. 3344. On January 31,1972 the sale was made absolute by the spouses
Vivas and Lizardo in favor of the private respondents for the sum of P90,000.00; P50,000.00 of which
was paid upon the execution of the instrument, entitled "Kasulatan Ng Bilihan Tuluyan," after being
credited with the P30,000.00 consideration of the "Kasulatan Ng Mabibiling Muli," and the balance of
P40,000.00 was to be paid the moment that the certificate of title is issued. From the execution of said
Kasulatan, private respondent have remained in peaceful, adverse and open possession of subject
property.
On February 26, 1975, an Original Certificate of Title No. T-1728 covering the property in question was
issued to and in the name of the spouses Vivas and Lizardo without the knowledge of the private
respondents and on April 30, 1975, said Spouses executed a Special Power of Attorney in favor of Irenea
Ramirez authorizing the latter to mortgage the property with the petitioner, National Grains Authority.
On May 2, 1974, the counsel for the petitioner wrote the Provincial Sheriff in Sta. Cruz, Laguna,
requesting for the extrajudicial foreclosure of the mortgage executed by Irenea Ramirez on May 18,
1975, covering, among others, the property involved in this case covered by OCT No. T-1728, for unpaid
indebtedness in the amount of P63,948.80 in favor of the petitioner.
On May 31, 1974, the Provincial Sheriff caused the issuance of the notice of sale of the property in
question, scheduling the public auction sale on June 28, 1974. The petitioner was the highest and
successful bidder so that a Certificate of Sale was issued in its favor on the same date by the Provincial
Sheriff.
On July 10, 1974, the petitioner in its capacity as attorney-in-fact of the mortgagor sold the subject real
property in favor of itself. By virtue of the deed of absolute sale, TCT No. T-75171 of the Register of
Deeds for the Province of Laguna was issued in the name of the petitioner on July 16, 1974. It was only
in July 1974, that private respondents learned that a title in the name of the Vivas spouses had been
issued covering the property in question and that the same property had been mortgaged in favor of
the petitioner. Private respondent Nena Magcamit offered to pay the petitioner NGA the amount of
P40,000.00 which is the balance of the amount due the Vivas spouses under the terms of the absolute
deed of sale but the petitioner refused to accept the payment. On July 31, 1974, counsel for private
respondents made a formal demand on the spouses Vivas and Lizardo to comply with their obligation
under the terms of the absolute deed of sale; and soon after reiterated to the NGA, the offer to pay
the balance of P40,000.00 due under the absolute deed of sale. On August 13, 1974 petitioner in its
reply informed counsel of private respondents that petitioner is now the owner of the property in
question and has no intention of disposing of the same.
The private respondents, who as previously stated, are in possession of subject property were asked
by petitioner to vacate it but the former refused. Petitioner filed a suit for ejectment against private
respondents in the Municipal Court of Victoria, Laguna, but the case was dismissed.
On June 4, 1975, private respondents filed a complaint before the then Court of First Instance of Laguna
and San Pablo City, Branch III, San Pablo City, against the petitioner and the spouses Vivas and Lizardo,
praying, among others, that they be declared the owners of the property in question and entitled to
continue in possession of the same, and if the petitioner is declared the owner of the said property,
then, to order it to reconvey or transfer the ownership to them under such terms and conditions as the
court may find just, fair and equitable under the premises. (Record on Appeal, pp. 2-11).

In its answer to the complaint, the petitioner (defendant therein) maintained that it was never a privy
to any transaction between the private respondents (plaintiffs therein) and the spouses Paulino Vivas
and Engracia Lizardo that it is a purchaser in good faith and for value of the property formerly covered
by OCT No. 1728; and that the title is now indefeasible, hence, private respondents' cause of action
has' already prescribed. (Record on Appeal, pp. 16-22).
After due hearing, the trial court ** rendered its decision on March 17, 1981, in favor of the petitioner,
the dispositive portion of said judgment reading as follows:
WHEREFORE, judgment is hereby rendered as follows:
(1) declaring defendant National Grains Authority the lawful owner of the property in question
by virtue of its indefeasible title to the same;
(2) ordering plaintiffs to turn over possession of the land to defendant National Grains Authority;
(3) ordering defendants-spouses Paulino Vivas and Engracia Lizardo to pay plaintiffs the sum of
P56,000.00 representing the amount paid pursuant to the Kasulatan Ng Bilihang Tuluyan marked
Exhibit "3", with legal interest thereon from January 31, 1972 until the amount is paid, to pay an
additional amount of P5,000.00 for and as attorney's fees, an additional amount of Pl0,000.00 as moral
damages, another amount of P5,000.00 by way of exemplary damages and to pay the costs of this suit.
(Rollo, P. 35).
The private respondents interposed an appeal from the decision of the trial court to the Intermediate
Appellate Court.
After proper proceedings, the appellate court rendered its decision on January 31, 1984, reversing and
setting aside the decision of the trial court as follows:
WHEREFORE, the decision of the lower court is hereby reversed and set aside and another one is
rendered ordering the National Grains Authority to execute a deed of reconveyance sufficient in law
for purposes of registration and cancellation of transfer Certificate of Title No. T-75171 and the
issuance of another title in the names of plaintiff-appellants, and ordering defendants-appellees
Paulino Vivas and Engracia Lizardo to pay the National Grains Authority the sum of P78,375.00 (Exh. 3)
within thirty (30) days from the receipts of the writ of execution. No damages and costs. (Rollo, p. 19).
The petitioner filed a motion for reconsideration of the said decision but the same was denied. (Rollo,
p. 26).
Hence, this petition.
In the resolution of May 20, 1985, the petition was given due course and the parties were required to
submit simultaneous memoranda (Rollo, p. 128). The memorandum for the petitioner was filed on July
3, 1985 (Rollo, p. 129) while the memorandum for the private respondents was filed on August 26,
1985 1 Rollo p. 192).
The main issue in this case is whether or not violation of the terms of the agreement between the
spouses Vivas and Lizardo, the sellers, and private respondents, the buyers, to deliver the certificate of
title to the latter, upon its issuance, constitutes a breach of trust sufficient to defeat the title and right
acquired by petitioner NGA, an innocent purchaser for value.
It is undisputed that: (1) there are two deeds of sale of the same land in favor of private respondents,
namely: (a) the conditional sale with right to repurchase or the 'Kasulatan Ng Bilihang Mabibiling Muli"
which was registered under Act 3344 and (b) the deed of absolute sale or "Kasulatan ng Bilihang
Tuluyan" which was not registered; (2) the condition that the Certificate of Title will be delivered to the
buyers upon its issuance and upon payment of the balance of P40,000.00 is contained in the deed of
absolute sale; and (3) the land in question at the time of the execution of both sales was not yet covered
by the Torrens System of registration.
It is axiomatic, that while the registration of the conditional sale with right of repurchase may be
binding on third persons, it is by provision of law "understood to be without prejudice to third party
who has better right" (Section 194 of the Administrative Code, as amended by Act No. 3344). In this
case, it will be noted that the third party NGA, is a registered owner under the Torrens System and has
obviously a better right than private respondents and that the deed of absolute sale with the
suspensive condition is not registered and is necessarily binding only on the spouses Vivas and Lizardo
and private respondents.
In their complaint at the Regional Trial Court, private respondents prayed among others, for two
alternative reliefs, such as: (a) to be declared the owners of the property in question or (b) to order the
declared owner to reconvey or transfer the ownership of the property in their favor.
Private respondents claim a better right to the property in question by virtue of the Conditional Sale,
later changed to a deed of Absolute Sale which although unregistered under the Torrens System
allegedly transferred to them the ownership and the possession of the property in question. In fact,
they argue that they have been and are still in possession of the same openly, continuously, publicly
under a claim of ownership adverse to all other claims since the purchase on December 2, 1971 (Rollo,
p. 165). It is stressed that not until the month of July, 1974 did the plaintiff learn that a title had been
issued covering the property in question (Rollo, p. 15).
Time and time again, this Court has ruled that the proceedings for the registration of title to land under
the Torrens System is an action in rem not in personam, hence, personal notice to all claimants of the
res is not necessary in order that the court may have jurisdiction to deal with and dispose of the res.
Neither may lack of such personal notice vitiate or invalidate the decree or title issued in a registration
proceeding, for the State, as sovereign over the land situated within it, may provide for the adjudication
of title in a proceeding in rem or one in the nature of or akin a to proceeding in rem which shall be
binding upon all persons, known or unknown (Moscoso vs. Court of appeals, 128 SCRA 719 [1984],
citing: City of Manila vs. Lack, et al., 19 Phil. 324, 337; Roxas vs. Enriquez, 29 Phil. 31; Director of Lands
vs. Roman Catholic Archbishop of Manila, 41 Phil. 120; Aguilar vs. Caogdan, 105 Phil. 661). It is thus
evident that respondents' right over the property was barred by res judicata when the decree of
registration was issued to spouses Vivas and Lizards. It does not matter that they may have had some
right even the right of ownership, BEFORE the grant of the Torrens Title.
Thus, under Section 44 of P.D. 1529, every registered owner receiving a certificate of title in pursuance
of a decree of registration, and every subsequent purchaser of registered land taking a certificate of
title for value and in good faith, shall hold the same free from all encumbrances except those noted on
the certificate and any of the encumbrances which may be subsisting, and enumerated in the law.
Under said provision, claims and liens of whatever character, except those mentioned by law as
existing, against the land prior to the issuance of certificate of title, are cut off by such certificate if not
noted thereon, and the certificate so issued binds the whole world, including the government (Aldecoa
and Co. vs. Warner Barns & Co., 30 Phil. 209 [1915]; Snyder vs. Fiscal of Cebu and Avila, 42 Phil. 766
[1922]). Under said ruling, if the purchaser is the only party who appears in the deeds and the
registration of titles in the property registry, no one except such purchaser may be deemed by law to
be the owner of the properties in question (Ibid). Moreover, no title to registered land in derogation
to that of the registered owner shall be acquired by prescription or adverse possession (Umbay vs.
Alecha, 135 SCRA 427 [1985]).
It does not appear that private respondents' claim falls under any of the exceptions provided for under
Section 44 of P.D. 1529 which can be enforced against petitioner herein.
Thus, it has been invariably restated by this Court, that "The real purpose of the Torrens System is to
quiet title to land and to stop forever any question as to its legality. "Once a title is registered, the
owner may rest secure, without the necessity of waiting in the portals of the court, or sitting on the
"mirador su casato," avoid the possibility of losing his land." "An indirect or collateral attack on a
Torrens Title is not allowed (Dominga vs. Santos, 55 Phil. 361; Singian vs. Manila Railroad, 62 Phil. 467)."
The only exception to this rule is where a person obtains a certificate of title to a land belonging to
another and he has full knowledge of the rights of the true owner. He is then considered as guilty of
fraud and he may be compelled to transfer the land to the defrauded owner so long as the property
has not passed to the hands of an innocent purchaser for value (Angeles vs. Sania, 66 Phil. 444 [1938],
emphasis supplied).
It will be noted that the spouses Vivas and Lizardo never committed any fraud in procuring the
registration of the property in question. On the contrary, their application for registration which
resulted in the issuance of OCT No. 1728 was with complete knowledge and implied authority of private
respondents who retained a portion of the consideration until the issuance to said spouses of a
certificate of title applied for under the Torrens Act and the corresponding delivery of said title to them.
The question therefore, is not about the validity of OCT No. 1728 but in the breach of contract between
private respondents and the Vivas spouses. Petitioner NGA was never a privy to this transaction.
Neither was it shown that it had any knowledge at the time of the execution of the mortgage, of the
existence of the suspensive condition in the deed of absolute sale much less of its violation. Nothing
appeared to excite suspicion. The Special Power of Attorney was regular on its face; the OCT was in the
name of the mortgagor and the NGA was the highest bidder in the public auction. Unquestionably,
therefore, the NGA is an innocent purchaser for value, first as an innocent mortgagee under Section 32
of P.D. 1529 and later as innocent purchaser for value in the public auction sale.
Private respondents claim that NGA did not even field any representative to the land which was not
even in the possession of the supposed mortgagors, nor present any witness to prove its allegations in
the ANSWER nor submit its DEED OF MORTGAGE to show its being a mortgages in good faith and for
value (Rollo, p. 110).
Such contention is, however, untenable. Well settled is the rule that all persons dealing with property
covered by a torrens certificate of title are not required to go beyond what appears on the face of the
title. When there is nothing on the certificate of title to indicate any cloud or vice in the ownership of
the property, or any encumbrance thereon, the purchaser is not required to explore further than what
the torrens title upon its face indicates in quest for any hidden defect or inchoate right that may
subsequently defeat his right thereto (Centeno vs. Court of Appeals, 139 SCRA 545 [1985]).

More specifically, the Court has ruled that a bank is not required before accepting a mortgage to make
an investigation of the title of the property being given as security (Phil. National Cooperative Bank vs.
Carandang Villalon, 139 SCRA 570 [1985]), and where innocent third persons like mortgagee relying on
the certificate of title acquire rights over the property, their rights cannot be disregarded (Duran vs.
IAC, 138 SCRA 489 [1985]).

Under the circumstances, the Regional Trial Court could not have erred in ruling that plaintiffs (private
respondents herein) complaint insofar as it prays that they be declared owners of the land in question
can not prosper in view of the doctrine of indefeasibility of title under the Torrens System, because it
is an established principle that a petition for review of the decree of registration will not prosper even
if filed within one year from the entry of the decree if the title has passed into the hands of an innocent
purchaser for value (Pres. Decree No. 1529, Sec. 32). The setting aside of the decree of registration
issued in land registration proceedings is operative only between the parties to the fraud and the
parties defrauded and their privies, but not against acquirers in good faith and for value and the
successors in interest of the latter; as to them the decree shall remain in full force and effect forever
(Domingo vs. The Mayon Realty Corp. et al., 102 Phil. 32 [19571). Assuming, therefore, that there was
fraud committed by the sellers against the buyers in the instant case, petitioner NGA who was not privy
therein cannot be made to suffer the consequences thereof As correctly declared by the trial court, the
National Grains Authority is the lawful owner of the property in question by virtue of its indefeasible
title.

As to private respondents' alternative prayer that the declared owner be ordered to reconvey or
transfer the ownership of the property in their favor, it is clear that there is absolutely no reason why
petitioner, an innocent purchaser for value, should reconvey the land to the private respondents.

PREMISES CONSIDERED, the decision of the Court of Appeals is REVERSED and SET ASIDE, and the
decision of the Court of First Instance of Laguna and San Pablo City, now Regional Trial Court, is
REINSTATED.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.


G.R. No. 105387 November 11, 1993
JOHANNES SCHUBACK & SONS PHILIPPINE TRADING CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, RAMON SAN JOSE, JR., doing business under the name and style
"PHILIPPINE SJ INDUSTRIAL TRADING," respondents.
Hernandez, Velicaria, Vibar & Santiago for petitioner.
Ernesto M. Tomaneng for private respondent.
ROMERO, J.:
In this petition for review on certiorari, petitioner questions the reversal by the Court of Appeals 1 of
the trial court's ruling that a contract of sale had been perfected between petitioner and private
respondent over bus spare parts.
The facts as quoted from the decision of the Court of Appeals are as follows:
Sometime in 1981, defendant 2 established contact with plaintiff 3 through the Philippine Consulate
General in Hamburg, West Germany, because he wanted to purchase MAN bus spare parts from
Germany. Plaintiff communicated with its trading partner. Johannes Schuback and Sohne
Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare parts defendant wanted to
order.
On October 16, 1981, defendant submitted to plaintiff a list of the parts (Exhibit B) he wanted to
purchase with specific part numbers and description. Plaintiff referred the list to Schuback Hamburg
for quotations. Upon receipt of the quotations, plaintiff sent to defendant a letter dated 25 November,
1981 (Exh. C) enclosing its offer on the items listed by defendant.
On December 4, 1981, defendant informed plaintiff that he preferred genuine to replacement parts,
and requested that he be given 15% on all items (Exh. D).
On December 17, 1981, plaintiff submitted its formal offer (Exh. E) containing the item number,
quantity, part number, description, unit price and total to defendant. On December, 24, 1981,
defendant informed plaintiff of his desire to avail of the prices of the parts at that time and enclosed
Purchase Order No. 0101 dated 14 December 1981 (Exh. F to F-4). Said Purchase Order contained the
item number, part number and description. Defendant promised to submit the quantity per unit he
wanted to order on December 28 or 29 (Exh. F).
On December 29, 1981, defendant personally submitted the quantities he wanted to Mr. Dieter
Reichert, General Manager of plaintiff, at the latter's residence (t.s.n., 13 December, 1984, p. 36). The
quantities were written in ink by defendant in the same Purchase Order previously submitted. At the
bottom of said Purchase Order, defendant wrote in ink above his signature: "NOTE: Above P.O. will
include a 3% discount. The above will serve as our initial P.O." (Exhs. G to G-3-a).
Plaintiff immediately ordered the items needed by defendant from Schuback Hamburg to enable
defendant to avail of the old prices. Schuback Hamburg in turn ordered (Order No. 12204) the items
from NDK, a supplier of MAN spare parts in West Germany. On January 4, 1982, Schuback Hamburg
sent plaintiff a proforma invoice (Exhs. N-1 to N-3) to be used by defendant in applying for a letter of
credit. Said invoice required that the letter of credit be opened in favor of Schuback Hamburg.
Defendant acknowledged receipt of the invoice (t.s.n., 19 December 1984, p. 40).
An order confirmation (Exhs. I, I-1) was later sent by Schuback Hamburg to plaintiff which was
forwarded to and received by defendant on February 3, 1981 (t.s.n., 13 Dec. 1984, p. 42).
On February 16, 1982, plaintiff reminded defendant to open the letter of credit to avoid delay in
shipment and payment of interest (Exh. J). Defendant replied, mentioning, among others, the difficulty
he was encountering in securing: the required dollar allocations and applying for the letter of credit,
procuring a loan and looking for a partner-financier, and of finding ways 'to proceed with our orders"
(Exh. K).
In the meantime, Schuback Hamburg received invoices from, NDK for partial deliveries on Order
No.12204 (Direct Interrogatories., 07 Oct, 1985, p. 3). Schuback Hamburg paid NDK. The latter
confirmed receipt of payments made on February 16, 1984 (Exh.C-Deposition).
On October 18, 1982, Plaintiff again reminded defendant of his order and advised that the case may be
endorsed to its lawyers (Exh. L). Defendant replied that he did not make any valid Purchase Order and
that there was no definite contract between him and plaintiff (Exh. M). Plaintiff sent a rejoinder
explaining that there is a valid Purchase Order and suggesting that defendant either proceed with the
order and open a letter of credit or cancel the order and pay the cancellation fee of 30% of F.O.B. value,
or plaintiff will endorse the case to its lawyers (Exh. N).
Schuback Hamburg issued a Statement of Account (Exh. P) to plaintiff enclosing therewith Debit Note
(Exh. O) charging plaintiff 30% cancellation fee, storage and interest charges in the total amount of DM
51,917.81. Said amount was deducted from plaintiff's account with Schuback Hamburg (Direct
Interrogatories, 07 October, 1985).
Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983 and June 9, 1983 were
to no avail (Exhs R and S).
Consequently, petitioner filed a complaint for recovery of actual or compensatory damages, unearned
profits, interest, attorney's fees and costs against private respondent.
In its decision dated June 13, 1988, the trial court4 ruled in favor of petitioner by ordering private
respondent to pay petitioner, among others, actual compensatory damages in the amount of DM
51,917.81, unearned profits in the amount of DM 14,061.07, or their peso equivalent.
Thereafter, private respondent elevated his case before the Court of Appeals. On February 18, 1992,
the appellate court reversed the decision of the trial court and dismissed the complaint of petitioner.
It ruled that there was no perfection of contract since there was no meeting of the minds as to the
price between the last week of December 1981 and the first week of January 1982.
The issue posed for resolution is whether or not a contract of sale has been perfected between the
parties.
We reverse the decision of the Court of Appeals and reinstate the decision of the trial court. It bears
emphasizing that a "contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. . . . " 5
Article 1319 of the Civil Code states: "Consent is manifested by the meeting of the offer and acceptance
upon the thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter offer." The facts presented to us
indicate that consent on both sides has been manifested.
The offer by petitioner was manifested on December 17, 1981 when petitioner submitted its proposal
containing the item number, quantity, part number, description, the unit price and total to private
respondent. On December 24, 1981, private respondent informed petitioner of his desire to avail of
the prices of the parts at that time and simultaneously enclosed its Purchase Order No. 0l01 dated
December 14, 1981. At this stage, a meeting of the minds between vendor and vendee has occurred,
the object of the contract: being the spare parts and the consideration, the price stated in petitioner's
offer dated December 17, 1981 and accepted by the respondent on December 24,1981.
Although said purchase order did not contain the quantity he wanted to order, private respondent
made good, his promise to communicate the same on December 29, 1981. At this juncture, it should
be pointed out that private respondent was already in the process of executing the agreement
previously reached between the parties.
Below Exh. G-3, marked as Exhibit G-3-A, there appears this statement made by private respondent:
"Note. above P.O. will include a 3% discount. The above will serve as our initial P.O." This notation on
the purchase order was another indication of acceptance on the part of the vendee, for by requesting
a 3% discount, he implicitly accepted the price as first offered by the vendor. The immediate acceptance
by the vendee of the offer was impelled by the fact that on January 1, 1982, prices would go up, as in
fact, the petitioner informed him that there would be a 7% increase, effective January 1982. On the
other hand, concurrence by the vendor with the said discount requested by the vendee was manifested
when petitioner immediately ordered the items needed by private respondent from Schuback
Hamburg which in turn ordered from NDK, a supplier of MAN spare parts in West Germany.
When petitioner forwarded its purchase order to NDK, the price was still pegged at the old one. Thus,
the pronouncement of the Court Appeals that there as no confirmed price on or about the last week
of December 1981 and/or the first week of January 1982 was erroneous.
While we agree with the trial court's conclusion that indeed a perfection of contract was reached
between the parties, we differ as to the exact date when it occurred, for perfection took place, not on
December 29, 1981. Although the quantity to be ordered was made determinate only on December
29, 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the
meeting of the minds as to the object and cause, which from the facts disclosed, show that as of
December 24, 1981, these essential elements had already occurred.

On the part of the buyer, the situation reveals that private respondent failed to open an irrevocable
letter of credit without recourse in favor of Johannes Schuback of Hamburg, Germany. This omission,
however. does not prevent the perfection of the contract between the parties, for the opening of the
letter of credit is not to be deemed a suspensive condition. The facts herein do not show that petitioner
reserved title to the goods until private respondent had opened a letter of credit. Petitioner, in the
course of its dealings with private respondent, did not incorporate any provision declaring their
contract of sale without effect until after the fulfillment of the act of opening a letter of credit.

The opening of a etter of credit in favor of a vendor is only a mode of payment. It is not among the
essential requirements of a contract of sale enumerated in Article 1305 and 1474 of the Civil Code, the
absence of any of which will prevent the perfection of the contract from taking place.

To adopt the Court of Appeals' ruling that the contract of sale was dependent on the opening of a letter
of credit would be untenable from a pragmatic point of view because private respondent would not be
able to avail of the old prices which were open to him only for a limited period of time. This explains
why private respondent immediately placed the order with petitioner which, in turn promptly
contacted its trading partner in Germany. As succinctly stated by petitioner, "it would have been
impossible for respondent to avail of the said old prices since the perfection of the contract would arise
much later, or after the end of the year 1981, or when he finally opens the letter of credit." 6

WHEREFORE, the petition is GRANTED and the decision of the trial court dated June 13, 1988 is
REINSTATED with modification.

SO ORDERED.

Feliciano, Bidin, Melo and Vitug, JJ., concur.