Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

L-59266 February 29, 1988 SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners, vs. HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

discovered the second sale made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28) After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion of which reads: WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and executory. The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block fence, so far constructed. It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another. The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision. With costs against the defendants. From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al." On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the land in question. The disposive portion of said decision of the Court of Appeals reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as pertains to plaintiff-appellant above

BIDIN, J.: This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack of merit. The undisputed facts as found by the Court of Appeals are as follows: The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965. On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act No. 3344. As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as plaintiff- appellant

indicated, the judgment appealed from is hereby AFFIRMED in all other respects. With costs against defendants-appellants. SO ORDERED. Judgment MODIFIED. A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit. Hence, this petition. In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In the resolution dated April 26,1982, respondents were required to comment thereon, which comment was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10, 1982 and to give due course to the instant petition. On September 6, 1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution of September 20, 1982. Petitioners raised the following assignment of errors: I THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL. II THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.

III THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS. IV PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS. V BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO. The foregoing assignment of errors may be synthesized into two main issues, to wit: I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell. II. Whether or not there was a valid rescission thereof. There is no merit in this petition. It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the basis of all subsequent pleadings filed, the petition was given due course. I. The contract in question (Exhibit C) is a Deed of Sale, with the following conditions: 1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil. Philippine Currency as advance payment; 2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan from the First Insular Bank of Cebu;

3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos (P4,000.00) on or before September 15,1965; 4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said property; 5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned property upon the payment of the balance of Four Thousand Pesos. (Original Record, pp. 10-11) In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two (2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership over the property was expressly reserved in the vendor, the Dignos spouses until the suspensive condition of full and punctual payment of the balance of the purchase price shall have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52). In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the absence of a formal deed of conveyance is a very strong indication that the parties did not intend "transfer of ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and conditions of the contract, more particularly paragraph four which reads, "that said spouses has agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned property upon the payment of the balance of four thousand pesos." Such contention is untenable. By and large, the issues in this case have already been settled by this Court in analogous cases. Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period. On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that "The ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a private instrument, it is beyond question that there was actual delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108). Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties and not a contract to sell. Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. II. Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was already rescinded. Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with the case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed that petitioners never notified private respondents Jabil by notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter had no money and further advised petitioners to sell the land in litigation to another party (Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing that Amistad was properly authorized by Jabil to make such extra-judicial rescission for the latter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he was already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is required that acts and contracts which

have for their object the extinguishment of real rights over immovable property must appear in a public document. Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the stipulated date of payment on September 15,1965 and was able to raise the necessary amount only by mid-October 1965. It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that private respondent has only a balance of P4,000.00 and was delayed in payment only for one month, equity and justice mandate as in the aforecited case that Jabil be given an additional period within which to complete payment of the purchase price. WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of Appeals is Affirmed in toto. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 156364 September 3, 2007

3) Pay complainant the sum of P100,000.00 by way of moral damages; 4) Pay complainant the sum of P150,000.00 as exemplary damages; 5) P50,000.00 as attorney's fees and for other litigation expenses; and 6) Cost of suit. SO ORDERED.
3

JACOBUS BERNHARD HULST, petitioner, vs. PR BUILDERS, INC., respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of 1 Court assailing the Decision dated October 30, 2002 of the Court of Appeals (CA) in CAG.R. SP No. 60981. The facts: Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel, Batangas. When respondent failed to comply with its verbal promise to complete the project by June 1995, the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint for rescission of contract with interest, damages and attorney's fees, docketed as HLRB Case No. IV6-071196-0618. On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a 2 Decision in favor of spouses Hulst, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant, rescinding the Contract to Sell and ordering respondent to: 1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price paid by the complainants to P.R. Builders, plus interest thereon at the rate of twelve percent (12%) per annum from the time complaint was filed; 2) Pay complainant the sum of P297,000.00 as actual damages;

Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to 4 petitioner. From then on, petitioner alone pursued the case. On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the ExOfficio Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to 5 execute its judgment. On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution. However, upon complaint of respondent with the CA on a Petition for Certiorari and Prohibition, the levy made by the Sheriff was set aside, requiring the Sheriff to levy first on 6 respondent's personal properties. Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the 7 writ as directed but the writ was returned unsatisfied. On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of 8 Execution. On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 9 10 Transfer Certificates of Title (TCT) in Barangay Niyugan, Laurel, Batangas. In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied 11 properties on April 28, 2000 at 10:00 a.m.. Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy since the aggregate appraised value of the levied properties at P6,500.00 per 12 sq m is P83,616,000.00, based on the Appraisal Report of Henry Hunter Bayne Co., Inc. 13 dated December 11, 1996, which is over and above the judgment award. At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to the conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ of Levy was pending resolution. Absent any restraining order from the HLURB, the Sheriff proceeded to sell the 15 parcels of land. Holly Properties Realty Corporation was the winning bidder for all 15 parcels of land for the total amount

ofP5,450,653.33. The sum of P5,313,040.00 was turned over to the petitioner in satisfaction 14 of the judgment award after deducting the legal fees. At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal 15 fees relative to the auction sale and to submit the Certificates of Sale for the signature of HLURB Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 16 2000 issued by the HLURB Arbiter to suspend the proceedings on the matter. Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued 17 an Order setting aside the sheriff's levy on respondent's real properties, reasoning as follows: While we are not making a ruling that the fair market value of the levied properties is PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as indicated in the Hunter Baynes Appraisal Report, we definitely cannot agree with the position of the Complainants and the Sheriff that the aggregate value of the 12,864.00-square meter levied properties is only around PhP6,000,000.00. The disparity between the two valuations are [sic] so egregious that the Sheriff should have looked into the matter first before proceeding with the execution sale of the said properties, especially when the auction sale proceedings was seasonably objected by Respondent's counsel, Atty. Noel Mingoa. However, instead of resolving first the objection timely posed by Atty. Mingoa, Sheriff Ozaete totally disregarded the objection raised and, posthaste, issued the corresponding Certificate of Sale even prior to the payment of the legal fees (pars. 7 & 8, Sheriff's Return). While we agree with the Complainants that what is material in an execution sale proceeding is the amount for which the properties were bidded and sold during the public auction and that, mere inadequacy of the price is not a sufficient ground to annul the sale, the court is justified to intervene where the inadequacy of the price shocks the conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The difference between PhP83,616,000.00 and Php6,000,000.00 is PhP77,616,000.00 and it definitely invites our attention to look into the proceedings had especially so when there was only one bidder, the HOLLY PROPERTIES REALTY CORPORATION represented by Ma, Chandra Cacho (par. 7, Sheriff's Return) and the auction sale proceedings was timely objected by Respondent's counsel (par. 6, Sheriff's Return) due to the pendency of the Urgent Motion to Quash the Writ of Levy which was filed prior to the execution sale. Besides, what is at issue is not the value of the subject properties as determined during the auction sale, but the determination of the value of the properties levied upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules of Civil Procedure x x x. xxxx

It is very clear from the foregoing that, even during levy, the Sheriff has to consider the fair market value of the properties levied upon to determine whether they are sufficient to satisfy the judgment, and any levy in excess of the judgment award is void (Buan v. Court of Appeals, 235 SCRA 424). xxxx
18

(Emphasis supplied).

The dispositive portion of the Order reads: WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby directed to levy instead Respondent's real properties that are reasonably sufficient to enforce its final and executory judgment, this time, taking into consideration not only the value of the properties as indicated in their respective tax declarations, but also all the other determinants at arriving at a fair market value, namely: the cost of acquisition, the current value of like properties, its actual or potential uses, and in the particular case of lands, their size, shape or location, and the tax declarations thereon. SO ORDERED.
19

A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the 1996 HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with the CA on September 27, 2000. On October 30, 2002, the CA rendered herein assailed Decision dismissing the petition. 21 The CA held that petitioner's insistence that Barrozo v. Macaraeg does not apply since said case stated that "when there is a right to redeem inadequacy of price should not be material" holds no water as what is obtaining in this case is not "mere inadequacy," but an 22 inadequacy that shocks the senses; that Buan v. Court of Appeals properly applies since the questioned levy covered 15 parcels of land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded the judgment debt of only around P6,000,000.00. Without filing a motion for reconsideration, ground that:
23 20

petitioner took the present recourse on the sole

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE LEVY MADE BY THE SHERIFF 24 ON THE SUBJECT PROPERTIES. Before resolving the question whether the CA erred in affirming the Order of the HLURB setting aside the levy made by the sheriff, it behooves this Court to address a matter of public and national importance which completely escaped the attention of the HLURB

Arbiter and the CA: petitioner and his wife are foreign nationals who are disqualified under the Constitution from owning real property in their names. Section 7 of Article XII of the 1987 Constitution provides: Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. (Emphasis supplied). The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of the public domain. Private land may be transferred or conveyed only to individuals or entities "qualified to acquire lands of the public domain." The 1987 Constitution reserved the right to participate in the disposition, exploitation, development and utilization of lands of 25 the public domain for Filipino citizens or corporations at least 60 percent of the capital of 26 which is owned by Filipinos. Aliens, whether individuals or corporations, have been disqualified from acquiring public lands; hence, they have also been disqualified from 27 acquiring private lands. Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and those expressly prohibited or declared void by law are inexistent and void from the beginning. Article 1410 of the same Code provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. A void contract is 28 equivalent to nothing; it produces no civil effect. It does not create, modify or extinguish a 29 juridical relation. Generally, parties to a void agreement cannot expect the aid of the law; the courts leave 30 them as they are, because they are deemed in pari delicto or "in equal fault." In pari delicto is "a universal doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one 31 against the other." This rule, however, is subject to exceptions that permit the return of that which may have been given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil 33 34 Code); (b) the debtor who pays usurious interest (Art. 1413, Civil Code); (c) the party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person and if public interest is subserved by allowing 35 recovery (Art. 1414, Civil Code); (d) the incapacitated party if the interest of justice so 36 demands (Art. 1415, Civil Code); (e) the party for whose protection the prohibition by law is intended if the agreement is not illegal per se but merely prohibited and if public policy 37 would be enhanced by permitting recovery (Art. 1416, Civil Code); and (f) the party for
32

whose benefit the law has been intended such as in price ceiling laws (Art. 1417, Civil 38 39 Code) and labor laws (Arts. 1418-1419, Civil Code). It is significant to note that the agreement executed by the parties in this case is a Contract to Sell and not a contract of sale. A distinction between the two is material in the determination of when ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the resolution of the question on whether the constitutional proscription has been breached. In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor has lost and cannot recover the ownership of the property until and unless the 40 contract of sale is itself resolved and set aside. On the other hand, a contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional 41 obligation had never existed. In other words, in a contract to sell, the prospective seller agrees to transfer ownership of the property to the buyer upon the happening of an event, which normally is the full payment of the purchase price. But even upon the fulfillment of the suspensive condition, ownership does not automatically transfer to the buyer. The prospective seller still has to convey title to the prospective buyer by executing a contract of 42 absolute sale. Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional proscription on aliens owning real property was evident by virtue of the execution of the Contract to Sell, such violation of the law did not materialize because petitioner caused the rescission of the contract before the execution of the final deed transferring ownership. Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover. Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire private land under the Philippine Constitution. But petitioner is entitled to the recovery only of the amount of P3,187,500.00, representing the purchase price paid to respondent. No damages may be recovered on the basis of a void contract; being 43 nonexistent, the agreement produces no juridical tie between the parties involved. Further, 44 petitioner is not entitled to actual as well as interests thereon, moral and exemplary damages and attorney's fees. The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has long been final and executory. Nothing is more settled in the law than that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it was made by the court that rendered it or by the highest court of 45 the land. The only recognized exceptions to the general rule are the correction of clerical

errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering 46 its execution unjust and inequitable. None of the exceptions is present in this case. The HLURB decision cannot be considered a void judgment, as it was rendered by a tribunal 47 with jurisdiction over the subject matter of the complaint. Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense of respondent. Petitioner received more than what he is entitled to recover under the circumstances. Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet lecupletari (no man ought to be made rich out of another's injury), states: Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed for the rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that spring from the fountain of good conscience; guides for human conduct that should run as golden threads through society to the end that law may approach 48 its supreme ideal which is the sway and dominance of justice. There is unjust enrichment when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good 49 conscience. A sense of justice and fairness demands that petitioner should not be allowed to benefit from his act of entering into a contract to sell that violates the constitutional proscription. This is not a case of equity overruling or supplanting a positive provision of law or judicial rule. Rather, equity is exercised in this case "as the complement of legal jurisdiction [that] seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are 50 incompetent to do so." The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a case because 51 of the inflexibility of its statutory or legal jurisdiction. The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds (bidded amount isP5,450,653.33) of the auction sale after deducting the legal fees 52 in the amount of P137,613.33. Petitioner is only entitled to P3,187,500.00, the amount of the purchase price of the real property paid by petitioner to respondent under the Contract to

Sell. Thus, the Court in the exercise of its equity jurisdiction may validly order petitioner to return the excess amount of P2,125,540.00. The Court shall now proceed to resolve the single issue raised in the present petition: whether the CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the subject properties. Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on the appraisal report was misplaced since the appraisal was based on the value of land in neighboring developed subdivisions and on the assumption that the residential unit appraised had already been built; that the Sheriff need not determine the fair market value of the subject properties before levying on the same since what is material is the amount for which the properties were bidded and sold during the public auction; that the pendency of any motion is not a valid ground for the Sheriff to suspend the execution proceedings and, by itself, does not have the effect of restraining the Sheriff from proceeding with the execution. Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and Director did not categorically state the exact value of the levied properties, said properties cannot just amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value indicated in the tax declaration is not the sole determinant of the value of the property. The petition is impressed with merit. If the judgment is for money, the sheriff or other authorized officer must execute the same pursuant to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz: Sec. 9. Execution of judgments for money, how enforced. (a) Immediate payment on demand. - The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. x x x (b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation in cash, certified bank check or other mode of payment acceptable to the judgment obligee, the officer shall levy upon the properties of the judgment obligor of every kind and nature whatsoever which may be disposed of for value and not otherwise exempt from execution, giving the latter the option to immediately choose which property or part thereof may be levied upon, sufficient to satisfy the judgment. If the judgment obligor does not exercise the option, the officer shall first levy on the personal properties, if any, and then on the real properties if the personal properties are insufficient to answer for the judgment.

The sheriff shall sell only a sufficient portion of the personal or real property of the judgment obligor which has been levied upon. When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful fees, he must sell only so much of the personal or real property as is sufficient to satisfy the judgment and lawful fees. Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in like manner 53 and with like effect as under a writ of attachment (Emphasis supplied). Thus, under Rule 39, in executing a money judgment against the property of the judgment debtor, the sheriff shall levy on all property belonging to the judgment debtor as is amply sufficient to satisfy the judgment and costs, and sell the same paying to the judgment creditor so much of the proceeds as will satisfy the amount of the judgment debt and costs. Any excess in the proceeds shall be delivered to the judgment debtor unless otherwise 54 directed by the judgment or order of the court. Clearly, there are two stages in the execution of money judgments. First, the levy and then the execution sale. Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or the whole of a judgment debtor's property for the purpose of satisfying the command 55 of the writ of execution. The object of a levy is to take property into the custody of the law, and thereby render it liable to the lien of the execution, and put it out of the power of the 56 judgment debtor to divert it to any other use or purpose. On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under 57 the authority of a writ of execution of the levied property of the debtor. In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting aside the levy conducted by the Sheriff for the reason that the auction sale conducted by the sheriff rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost jurisdiction to act on the motion to quash the levy by virtue of the consummation of the auction sale. Absent any order from the HLURB suspending the auction sale, the sheriff rightfully proceeded with the auction sale. The winning bidder had already paid the winning bid. The legal fees had already been remitted to the HLURB. The judgment award had already been turned over to the judgment creditor. What was left to be done was only the issuance of the corresponding certificates of sale to the winning bidder. 58 In fact, only the signature of the HLURB Director for that purpose was needed a purely ministerial act. A purely ministerial act or duty is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard for or the exercise of his own judgment upon the propriety or impropriety of the act

done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official 59 discretion nor judgment. In the present case, all the requirements of auction sale under the Rules have been fully complied with to warrant the issuance of the corresponding certificates of sale. And even if the Court should go into the merits of the assailed Order, the petition is meritorious on the following grounds: Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v. 60 61 Macaraeg and Buan v. Court of Appeals is misplaced. The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo involved a judgment debtor who wanted to repurchase properties sold at execution beyond the one-year redemption period. The statement of the Court in Barrozo, that "only where such inadequacy shocks the conscience the courts will intervene," is at best a mere obiter dictum. This declaration should be taken in the context of the other declarations of the Court in Barrozo, to wit: Another point raised by appellant is that the price paid at the auction sale was so inadequate as to shock the conscience of the court. Supposing that this issue is open even after the one-year period has expired and after the properties have passed into the hands of third persons who may have paid a price higher than the auction sale money, the first thing to consider is that the stipulation contains no statement of the reasonable value of the properties; and although defendant' answer avers that the assessed value wasP3,960 it also avers that their real market value was P2,000 only. Anyway, mere inadequacy of price which was the complaint' allegation is not sufficient ground to annul the sale. It is only where such inadequacy shocks the conscience that the courts will intervene. x x x Another consideration is that the assessed value being P3,960 and the purchase price being in effect P1,864 (P464 sale price plusP1,400 mortgage lien which had to be discharged) the conscience is not shocked upon examining the prices paid in the sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil., 445, sales which were left undisturbed by this Court. Furthermore, where there is the right to redeem as in this case inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale . x x x x (Emphasis supplied).
62

In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is 63 made at public auction, upon the theory that the lesser the price, the easier it is for the 64 owner to effect redemption. When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price 65 obtained at the execution sale. Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. More importantly, the subject matter in Barrozo is the auction sale, not the levy made by the Sheriff. The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and meaning of a decision, no specific portion thereof should be isolated and resorted to, 66 but the decision must be considered in its entirety. As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two parcels of land owned by the judgment debtor; and the sale at public auction of one was sufficient to fully satisfy the judgment, such that the levy and attempted execution of the second parcel of land was declared void for being in excess of and beyond the original judgment award granted in favor of the judgment creditor. In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to satisfy the judgment and the lawful fees." Each of the 15 levied properties was successively bidded upon and sold, one after the other until the judgment debt and the lawful fees were fully satisfied. Holly Properties Realty Corporation successively bidded upon and bought each of the levied properties for the total amount of P5,450,653.33 in full 67 satisfaction of the judgment award and legal fees. Secondly, the Rules of Court do not require that the value of the property levied be exactly the same as the judgment debt; it can be less or more than the amount of debt. This is the contingency addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the Sheriff does not determine the exact valuation of the levied property. Under Section 9, Rule 39, in conjunction with Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only two specific things to effect a levy upon a realty: (a) file with the register of deeds a copy of the order of execution, together with the description of the levied property and notice of execution; and (b) leave with the occupant of the property copy of the same order, 68 description and notice. Records do not show that respondent alleged non-compliance by the Sheriff of said requisites. Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction of the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion, and must exercise the care which a reasonably prudent person would exercise under like conditions and circumstances, endeavoring on the one hand to obtain

sufficient property to satisfy the purposes of the writ, and on the other hand not to make an 69 unreasonable and unnecessary levy. Because it is impossible to know the precise quantity of land or other property necessary to satisfy an execution, the Sheriff should be allowed a reasonable margin between the value of the property levied upon and the amount of the execution; the fact that the Sheriff levies upon a little more than is necessary to satisfy the 70 execution does not render his actions improper. Section 9, Rule 39, provides adequate safeguards against excessive levying. The Sheriff is mandated to sell so much only of such real property as is sufficient to satisfy the judgment and lawful fees. In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to the Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed by the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the delicate task of the enforcement and/or implementation of judgments, must, in the absence of a restraining order, act with considerable dispatch so as not to unduly delay the administration of justice; otherwise, the decisions, orders, or other 71 processes of the courts of justice and the like would be futile. It is not within the jurisdiction of the Sheriff to consider, much less resolve, respondent's objection to the continuation of the conduct of the auction sale. The Sheriff has no authority, on his own, to suspend the auction sale. His duty being ministerial, he has no discretion to postpone the conduct of the auction sale. Finally, one who attacks a levy on the ground of excessiveness carries the burden of 72 sustaining that contention. In the determination of whether a levy of execution is excessive, it is proper to take into consideration encumbrances upon the property, as well as the fact that a forced sale usually results in a sacrifice; that is, the price demanded for the property 73 upon a private sale is not the standard for determining the excessiveness of the levy. Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of the levied property. Respondent only submitted an Appraisal Report, based merely on surmises. The Report was based on the projected value of the townhouse project after it shall have been fully developed, that is, on the assumption that the residential units appraised had already been built. The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property subject of this appraisal has not been constructed. The 74 basis of the appraiser is on the existing model units." Since it is undisputed that the townhouse project did not push through, the projected value did not become a reality. Thus, the appraisal value cannot be equated with the fair market value. The Appraisal Report is not the best proof to accurately show the value of the levied properties as it is clearly selfserving. Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in HLRB Case No. IV6-071196-0618 which set aside the sheriff's levy on respondent's real properties, was clearly issued with grave abuse of discretion. The CA erred in affirming said Order. WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order

dated August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is declared NULL andVOID. HLURB Arbiter Aquino and Director Ceniza are directed to issue the corresponding certificates of sale in favor of the winning bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to respondent the amount of P2,125,540.00, without interest, in excess of the proceeds of the auction sale delivered to petitioner. After the finality of herein judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

G.R. No. L-116650 May 23, 1995 TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.: At the heart of the present controversy is the document marked Exhibit "A" for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows: 4 J u n e 1 9 8 9 AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. 1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June. 2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.
1

Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the

private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari. The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal 2 (VSP) No. 928, on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by 3 "B.A.," with the initial cash outlay of P100,000.00 broken down as follows: a) b) c) downpayment insurance BLT registration fee CHMO fee service fee accessories P 53,148.00 P 13,970.00 P 1,067.00 P 2,715.00 P 500.00 P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions: CONDITIONS OF SALES 1. This sale is subject to availability of unit. 2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of selling will apply. . . . Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP. On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas." Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused. After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank 4 check for the full amount of P100,000.00, the receipt of which was shown by a check 5 voucher of Toyota, which Sosa signed with the reservation, "without prejudice to our future claims for damages." Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal 6 action. The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three 7 8 days. Toyota's counsel answered through a letter dated 27 November 1989 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil 9 Code in the total amount of P1,230,000.00. He alleges, inter alia, that:

9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One 10 Million Pesos (P1,000,000.00). In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims. After trial on the issues agreed upon during the pre-trial session, the trial court rendered 12 on 18 February 1992 a decision in favor of Sosa. It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him. As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales 13 policy and guidelines because they are internal matters." Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these 14 acts." Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound 15 the defendants." The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought 16 to be compensated." Accordingly, it disposed as follows: WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant:
11

1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages; 2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages; 3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case; 4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and 5. ordering the defendant to pay the cost of suit. SO ORDERED. Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 17 1994, the Court of Appeals affirmed in toto the appealed decision. Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the nonapproval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages. We find merit in the petition. Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale. Article 1458 of the Civil Code defines a contract of sale as follows: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected: Art. 1475. The 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. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of 18 sale. This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell 19 personal property. Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz., AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an 20 agent in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is 21 put upon inquiry and must discover upon his peril the authority of the agent. At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the 22 terms agreed upon in the contract. The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP. Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office 23 machines and equipment, appliances and other movable property." Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated 24 in the place of the seller, as the creditor of the installment buyer. Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis. We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states: On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and

informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . 25 (Emphasis supplied). The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the 26 award of attorney's fees. No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an award. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED. No pronouncement as to costs. SO ORDERED.

SECOND DIVISION SPS. ALFREDO R. EDRADA and ROSELLA L. EDRADA, Petitioners, G.R. No. 154413 Present: PUNO, J., Chairman, AUSTRIA-MARTINEZ CALLEJO, SR., TINGA, and CHICO-NAZARIO, JJ.

Documents pertaining to the sale and agreement of payments between me and the owner of the vessel to follow. The agreed price for the vessel is Nine Hundred Thousand Only (P900,000.00). (SGD.) EDUARDO O. RAMOS (Seller) , (SGD.) ALFREDO R. EDRADA (Purchaser)

- versus -

SPS. EDUARDO RAMOS and CARMENCITA RAMOS, Respondents.

CONFORME: (SGD.) CARMENCITA RAMOS

CONFORME: (SGD.) [6] ROSIE ENDRADA

Promulgated:

August 31, 2005 x ---------------------------------------------------------------x

DECISION

Upon the signing of the document, petitioners delivered to respondents four (4) postdated Far East Bank and Trust Company (FEBTC) checks payable to cash drawn by petitioner Rosella Edrada, in various amounts totaling One Hundred Forty Thousand Pesos (P140,000.00). The first three (3) checks were honored upon presentment to the drawee bank while the fourth check for One Hundred Thousand Pesos (P100,000.00) was dishonored because of a stop payment order. On 3 June 1996, respondents filed an action against petitioners for specific performance with damages before the RTC, praying that petitioners be obliged to execute the necessary deed of sale of the two fishing vessels and to pay the balance of the [7] purchase price. In their Complaint, respondents alleged that petitioners contracted to buy the two fishing vessels for the agreed purchase price of Nine Hundred Thousand Pesos (P900,000.00), as evidenced by the above-quoted document, which according to them evinced a contract to

TINGA, J.:
[1]

In this Petition under Rule 45, petitioner Spouses Alfredo and Rosella Edrada (petitioners) seek the reversal of the Former Second Division of the Court of [2] [3] Appeals Decision and Resolution in CA-G.R. CV No. 66375, which affirmed [4] the Decision of Regional Trial Court (RTC) of Antipolo City, Branch 71, in Civil Case No. [5] 96-4057, and denied the Motion for Reconsideration therein. Respondent spouses Eduardo and Carmencita Ramos (respondents) are the owners of two (2) fishing vessels, the Lady Lalaine and the Lady Theresa. On 1 April 1996, respondents and petitioners executed an untitled handwritten document which lies at the center of the present controversy. Its full text is reproduced below: 1st April 1996 This is to acknowledge that Fishing Vessels Lady Lalaine and Lady Theresa owned by Eduardo O. Ramos are now in my possession and received in good running and serviceable order. As such, the vessels are now my responsibility.

buy. However, despite delivery of said vessels and repeated oral demands, petitioners failed to pay the balance, so respondents further averred. Belying the allegations of respondents, in their Answer with [8] Counterclaim, petitioners averred that the document sued upon merely embodies an agreement brought about by the loans they extended to respondents. According to petitioners, respondents allowed them to manage or administer the fishing vessels as a business on the understanding that should they find the business profitable, the vessels would be sold to them for Nine Hundred Thousand Pesos (P900,000.00). But petitioners decided to call it quits after spending a hefty sum for the repair and maintenance of the vessels which were already in dilapidated condition. After trial, the RTC rendered a Decision portion of which reads:
[9]

accordingly, should affirm the conclusion that the document in question was a perfected contract of sale. However, we find that both the RTC and the Court of Appeals gravely misapprehended the nature of the said document, and a reevaluation of the document is in [14] order. Even if such reevaluation would lead the court to examine issues not raised by the parties, it should be remembered that the Court has authority to review matters even if not assigned as errors in the appeal, if it is found that their consideration is necessary in arriving [15] at a just decision of the case. In doing so, we acknowledge that the contending parties offer vastly differing accounts as to the true nature of the agreement. Still, we need not look beyond the document dated 1 April 1996 and the stipulations therein in order to ascertain what obligations, if any, have been contracted by the party. The parol evidence rule forbids any addition to or contradiction of the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon by the parties, varying the purport of the written contract. Whatever is not found in the writing is understood to have been waived and [16] abandoned. We disagree with the RTC and the Court of Appeals that the document is a perfected contract of sale. A contract of sale is defined as an agreement whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its [17] equivalent. It must evince the consent on the part of the seller to transfer and deliver and [18] on the part of the buyer to pay. An examination of the document reveals that there is no perfected contract of sale. The agreement may confirm the receipt by respondents of the two vessels and their purchase price. However, there is no equivocal agreement to transfer ownership of the vessel, but a mere commitment that documents pertaining to the sale and agreement of payments[are] to follow. Evidently, the document or documents which would formalize the transfer of ownership and contain the terms of payment of the purchase price, or the period when such would become due and demandable, have yet to be executed. But no such document was executed and no such terms were stipulated upon. The fact that there is a stated total purchase price should not lead to the conclusion [19] that a contract of sale had been perfected. In numerous cases, the most recent of which [20] is Swedish Match, AB v. Court of Appeals, we held that before a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established, as such stands as essential to the validity of the sale. After all, such agreement on the terms of payment is integral to the element of a price certain, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Assuming arguendo that the document evinces a perfected contract of sale, the absence of definite terms of payment therein would preclude its enforcement by the respondents through the instant Complaint. A requisite for the judicial enforcement of an obligation is that the same is due and demandable. The absence of a stipulated period by which the purchase price should be paid indicates that at the time of the filing of the complaint, the obligation to pay was not yet due and demandable.

dated 22 February 1999, the dispositive

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants and the latter are ordered to pay to the former the amount of Eight Hundred Sixty Thousand Pesos (P860,000.00) with legal interests thereon from June 30, 1996 until fully paid; the amount of P20,000.00 as attorneys fees and the cost of suit. The counterclaim of the defendants for moral and exemplary damages and for attorneys fees is dismissed for lack of merit. SO ORDERED.
[10]

The RTC treated the action as one for collection of a sum of money and for damages and considered the document as a perfected contract of sale. On 19 April 1999, [11] petitioners filed a Motion for Reconsideration which the RTC denied in an Order dated 2 July 1999. Both parties appealed the RTC Decision. However, finding no reversible error in [12] the appealed decision, the Court of Appeals, in its Decision, affirmed the same and dismissed both appeals. Only petitioners elevated the controversy to this Court. Petitioners raised the nature of the subject document as the primary legal issue. They contend that there was no perfected contract of sale as distinguished from a contract to sell. They likewise posed as sub-issues the purpose for which the checks were issued, whether replacement of the crew was an act of ownership or administration, whether petitioners failed to protest the dilapidated condition of the vessels, and whether the instances when the vessels went out to sea proved that the vessels were not [13] seaworthy. It is also alleged in the petition that the true agreement as between the parties was that of a loan. Evidently, the petition hinges on the true nature of the document dated 1 April 1996. Normally, the Court is bound by the factual findings of the lower courts, and

Respondents, during trial, did claim the existence of a period. Respondent Carmencita Ramos, during cross-examination, claimed that the supposed balance shall be paid on 30 [21] June 1996. But how do respondents explain why the Complaint was filed on 3 June 1996? Assuming that the 30 June 1996 period was duly agreed upon by the parties, the filing of the Complaint was evidently premature, as no cause of action had accrued yet. There could not have been any breach of obligation because on the date the action was filed, the alleged maturity date for the payment of the balance had not yet arrived. In order that respondents could have a valid cause of action, it is essential that there must have been a stipulated period within which the payment would have become due and demandable. If the parties themselves could not come into agreement, the courts may [22] be asked to fix the period of the obligation, under Article 1197 of the Civil Code. The respondents did not avail of such relief prior to the filing of the instant Complaint; thus, the action should fail owing to its obvious prematurity. Returning to the true nature of the document, we neither could conclude that a contract to sell had been established. A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, [23] that is, full payment of the purchase price. A contract is perfected when there is concurrence of the wills of the contracting parties with respect to the object and the cause of the contract. In this case, the agreement merely acknowledges that a purchase price had been agreed on by the parties. There was no mutual promise to buy on the part of petitioners and to sell on the part of respondents. Again, the aforestated proviso in the agreement that documents pertaining to the sale and agreement of payments between the parties will follow clearly manifests lack of agreement between the parties as to the terms of the contract to sell, particularly the object and cause of the contract. The agreement in question does not create any obligatory force either for the transfer of title of the vessels, or the rendition of payments as part of the purchase price. At most, this agreement bares only their intention to enter into either a contract to sell or a contract of sale. Consequently, the courts below erred in ordering the enforcement of a contract of sale that had yet to come into existence. Instead, the instant Complaint should be dismissed. It prays for three reliefs arising from the enforcement of the document: execution by the petitioners of the necessary deed of sale over the vessels, the payment of the balance of the purchase price, and damages. The lower courts have already ruled that damages are unavailing. Our finding that there is no perfected contract of sale precludes the finding of any cause of action that would warrant the granting of the first two reliefs. No cause of action arises until there is a breach or violation thereof by either [24] party. Considering that the documents create no obligation to execute or even pursue a contract of sale, but only manifest an intention to eventually contract one, we find no rights breached or violated that would warrant any of the reliefs sought in the Complaint.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are REVERSED andSET ASIDE. The case before the Regional Trial Court is ordered DISMISSED. No pronouncement as to costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 171373 June 18, 2008

mortgage deed appears to have been notarized in 1995. The second real estate mortgage was likewise annotated on the TCT on 14 September 1995. Gagan and Guevarra failed to pay the second loan upon its maturity. Thus, petitioner instituted extrajudicial foreclosure proceedings on the subject property. At the auction sale conducted by Sheriff-in-charge Melvin T. Bagabaldo, petitioners bid of P645,000.00 was 3 declared the highest. The property was not redeemed within the one-year period, hence, ownership was consolidated in favor of petitioner. On 29 September 1997, TCT No. 197220 in the name of Gagan was cancelled and TCT No. 210363 was issued in the name of petitioner. Petitioner sent notices to the apartment tenants informing them about the transfer of the property to petitioner and allowing them the option either to vacate the apartment or to pay a monthly rental of P2,000.00. Thus, the apartment tenants did not remit the rentals to respondents anymore, prompting the latter to cause the annotation of an adverse claim on TCT No. 210363 on 15 December 1997. On 7 May 1998, respondents filed a complaint, praying among others for the nullification of the Deed of Absolute Sale, the two real estate mortgage contracts and the extrajudicial foreclosure proceedings; the cancellation of TCT Nos. 197220 and 210363; and the 4 restoration of TCT No. 153554 in the name of respondents. Named defendants were Gagan, Guevarra, herein petitioner, the Sheriff-in-charge of the RTC of Muntinlupa and the Office of the Register of Deeds for Makati. In the said complaint, respondents denied having executed the Deed of Absolute Sale and alleged that they had merely offered to sell to defendant Gagan the subject property for P900,000.00 on installment basis so that they could pay their loan obligation to Santos. They averred that after defendant Gagan had initially paid P200,000.00, they entrusted the owners copy of TCT No. 153554 to defendant Gagan who however undertoon to effect the cancellation of the mortgage in favor of Santos and to prepare the contract of sale on installment basis. Respondents further alleged that except for the additional amount of P185,000.00, defendant Gagan was unable to pay the balance of the purchase price. They also accused Gagan of having caused the fraudulent cancellation of TCT No. 153554 and the issuance of TCT No. 197220 in her name, and of eventually using TCT No. 197220 to secure the loans obtained from petitioner. Respondents also faulted petitioner for failing to make adequate inquiries on the true ownership of the property considering the suspicious circumstances surrounding Gagans and Guevarras request for loan immediately after the issuance of the new certificate of title. The summons on defendants Gagan and Guevarra were returned unserved as their whereabouts were unknown. Upon motion by respondents, the RTC directed the issuance 6 and service of alias summons by publication. Subsequently, defendants Gagan and Guevarra were declared in default for failure to file their responsive pleading to the 7 complaint that was published in a newspaper of general circulation.
5

LLOYDS ENTERPRISES and CREDIT CORPORATION, petitioner, vs. SPS. FERDINAND and PERSEVERANDA DOLLETON, respondents. DECISION TINGA, J.: This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, 1 2 assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 82017. The Court of Appeals decision affirmed with modification the decision of the Regional Trial Court (RTC) of Muntinlupa City, Branch 276 in Civil Case No. 98-086 which, among others, nullified the property sale between herein respondents and defendant Blesilda Gagan (Gagan) and the subsequent mortgage to petitioner and foreclosure of the subject property. Respondents, spouses Ferdinand and Perseveranda Dolleton, were the registered owners of a parcel of land situated in Barangay Putatan, Muntinlupa City and covered by Transfer Certificate of Title (TCT) No. 153554. Erected on the 166-sq m property is a four-door apartment building being leased by respondents to various tenants. On 9 August 1990, respondents mortgaged the property to a certain Joseph Patrick Santos (Santos) to secure a loan in the amount of P100,000.00. Upon payment of the loan on 15 August 1994, Santos executed a release and cancellation of the mortgage. The same was annotated on the TCT. On 15 September 1994, TCT No. 153554 in the name of respondents was cancelled and a new TCT No. 197220 was issued in the name of Gagan on the basis of a Deed of Absolute Sale dated 5 August 1994 whereby respondents purportedly sold to Gagan the subject property for the sum of P120,000.00. On 19 September 1994, petitioner Lloyds Enterprises and Credit Corporation lent to Gagan and her live-in partner, a certain Feliciano Fajardo Guevarra (Guevarra) the sum of P391,512.00. The loan was secured by a real estate mortgage on the subject property, which was duly annotated on TCT No. 197220 on 27 September 1994. After payment of the loan, petitioner executed a Cancellation of Mortgage, which was annotated on the same TCT on 14 September 1995. On even date, petitioner granted another loan to Gagan and Guevarra for a bigger sum of P542,928.00, as evidenced by a promissory note dated August 1995. A new real estate mortgage was constituted over the property. This undated

In its answer with counterclaim, petitioner raised the defense of lack of cause of action, asserting that it exercised due diligence in verifying the status of the subject property and that it would not have accepted the same as security for the loan if the title were not clean. It also claimed that respondents were guilty of estoppel by laches as they failed to take the necessary measures to protect their rights and interest. Petitioner also filed an amended answer with counterclaim, which included a cross-claim against defendants Gagan and Guevarra for the amount of the purchase price at the foreclosure sale and for the litigation expenses. Petitioners cross-claim pleaded that in the event that its certificate of title over the subject property be cancelled, defendants Gagan and Guevara should be held solidarily liable for P645,000.00, which is the amount petitioner paid at the foreclosure sale, plus additional expenses incurred in transferring the subject property and in defending its rights and interest as a consequence of the filing of the case. After trial, the RTC rendered judgment declaring the Deed of Absolute Sale dated 5 August 1994 as spurious. The dispositive portion of the 8 November 2003 RTC Decision reads: PREMISES CONSIDERED, this Court is not convinced that defendant Lloyd Enterprises and Credit Corporation is a mortgagee in good faith, the mortgage in their favor being illegal and fraudulently obtained with the use of a title issued thru misrepresentations and [a] forged document, did not confer ownership on the forger. The mortgage over this property, is not a valid encumbrance, which did not give a right to the said defendant, to foreclose and take ownership. The loan not obtained by the true owners of the property, equity and fairness demands that they should not suffer from that unfaithful conveyance, much more, forfeit ownership of their parcel of land and the improvements thereon. Defendants had the unconscionable and unscrupulous intentions to get the land with improvement, hence neglected to check its ownership, are not mortgagees in good faith. Defendants are therefore directed to reconvey the property to the true and genuine owners, the spouses Ferdinand and Perseveranda Dolleton, not being mortgagees in good faith, while the mortgage itself over a parcel not owned by the mortgagors, did not confer a valid mortgage. It cannot be a basis of a valid foreclosure. It is not even legally recorded, hence no date to reckon the maturity of their loan. Defendants are further directed to remit payment of rental of the property to the plaintiffs from December 1998 to the present on the rental sum equal to the totality of the monthly rental from the said date to the present, at the amount being paid and received by the Defendant from the tenants of the apartments, or in the total sum of P525,600.00. Plaintiffs are also entitled to moral damages in the amount of P300,000.00 with exemplary damages in the amount of P300,000.00. Since plaintiffs were forced to prosecute this claim, Plaintiffs incurred actual expenses of P50,000.00 which should be refunded to them by defendant.

Plaintiffs were also forced to litigate to defend and enforce their rights of ownership over this parcel of land subject of this litigation, attorneys fees of P100,000.00 is also adjudged against defendant, as well as the cost of this litigation. IT IS SO ORDERED.
9

On 20 December 2005, the Court of Appeals rendered the assailed decision, modifying the award of moral and exemplary damages from P300,000.00 for both respondents to P200,000.00 for each of the respondents. The appellate court rejected the RTCs factual finding that the two loans were granted simultaneously to defendants Gagan and Guevarra. Just the same, it upheld the finding that the Deed of Absolute Sale was a forgery and that petitioner was grossly negligent in accepting the mortgage as security for the loan. In a 10 Resolution dated 6 February 2006, the Court of Appeals denied petitioners Motion for 11 Reconsideration for lack of merit. Petitioner filed a Petition for Review on Certiorari, which the Court initially denied in a Resolution dated 5 June 2006 on the ground that the issues raised are factual and that the petition failed to sufficiently show that the appellate court committed any reversible error. Petitioner filed a motion for reconsideration, which was granted in a Resolution dated 28 August 2006. The said resolution also directed the reinstatement of the petition and the filing of a comment thereon. The instant petition raises the following arguments: I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT FAILED TO DECLARE PETITIONER AS MORTGAGEE IN GOOD FAITH AS THE LATTER TOOK THE NECESSARY STEPS WHICH AN ORDINARY AND PRUDENT MAN WOULD HAVE TAKEN BEFORE BUYING THE PROPERTY IN QUESTION; II.WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT RULED THAT THE PETITIONER IS LIABLE FOR DAMAGES WHEN THE RESPONDENT IS NOT ENTIRELY WITHOUT FAULT; III. WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT FAILED TO RULE ON THE LIABILITY OF THE GAGANS IN THIS CASE; IV. WHETHER OR NOT THE AMOUNT OF DAMAGES AWARDED BY THE HONORABLE COURT OF APPEALS IS CONSISTENT WITH THE EXISTING 13 JURISPRUDENCE AND NORMS OF MORALITY. First, petitioner insists that it is a mortgagee in good faith because it is not privy to the transaction between respondents and defendant Gagan or to the source of the invalid title.
12

Whether petitioner is a mortgagee-purchaser in good faith and for value is a factual issue. In a petition for review, only questions of law may be raised. Even though there are exceptions, 14 petitioner did not show that this case is one of them. Moreover, the RTC and the Court of Appeals concur that petitioner did not exercise due diligence in ascertaining the true ownership of the subject property, notwithstanding the existence of circumstances which should have impelled it to investigate further. Well-settled is the rule that factual findings of the RTC, when affirmed by the Court of Appeals, are accorded great weight and respect by this Court. We quote with approval the following observations of the Court of Appeals: In this case, appellant LECC merely submitted in evidence forms for credit investigation haphazardly accomplished by its supposed credit investigators who were not presented as witnesses in court. While their report on the credit check for the September 1994 and August 1995 loans indicated that they verified on the borrowers capacity to pay, there is no showing that they actually inspected the property offered as collateral. As correctly noted by the trial court, had this precautionary measure been taken, the lending companys representatives would have easily discovered that the four (4)-door apartment in the premises being mortgaged is rented by tenants and they could have been provided with information that plaintiffs-appellees are still the present lessors/owners thereof. xxx Hence, such gross negligence in failing to verify the actual condition of the property, particularly as to who is in actual possession and if the premises are leased to third persons, who is receiving the rental payments therefore, hardly 15 makes the appellant LECC a mortgagee in good faith. x x x Moreover, the circumstance that the certificate of title covering the property offered as security was newly issued should have put petitioner on guard and prompted it to conduct an investigation surrounding the transfer of the property to defendant Gagan. Had it inquired further, petitioner would have discovered that the property was sold for an unconscionably low consideration of only P120,000.00 when it could have fetched as high 16 asP900,000.00. A purchaser cannot close his eyes to facts which should put a reasonable man on his guard and claim that he acted in good faith under the belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect exists or the willful closing of his eyes to the possibility of the existence of a defect in his vendors title, will not make him an innocent purchaser for value if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which may reasonably be 17 required of a prudent man in a like situation. We cannot sustain petitioners claim that it should not be required to look beyond the certificate of title for flaws in the ownership of the property in view of the presumption that

a Torrens title is regularly issued and that the burden is on respondents to rebut the presumption of good faith. Petitioner is engaged in the business of extending credit to the public and is, thus, expected to exercise due diligence in dealing with properties offered as security. In Expresscredit 18 Financing Corporation v. Spouses Velasco, the Court held that entities engaged in the business of offering real estate loans must exercise a higher degree of caution in accepting properties as security, thus: x x x To fulfill the requirement of good faith, it is imperative for a mortgagee of the land, in the possession of persons not the mortgagor, to inquire and investigate into the rights or title of those in possession. It is true that a person dealing with the owner of registered land is not bound to go beyond the certificate of title. He may rely on the notices of the encumbrances on the property annotated on the certificate of title or absence of any annotation. However, we note that the Garcia spouses are unlike other mortgagors. They are in the business of constructing and selling townhouses and are past masters in real estate transactions. Further, petitioner is in the business of extending credit to the public, including real estate loans. In both these businesses, it devolves upon both, greater charge than ordinary buyers or encumbrancers for value, who are not in such venture. It is standard in their business, as a matter of due diligence required of banks and financing companies, to ascertain whether the property being offered as security for the debt has already been sold to another to prevent injury to prior innocent buyers. They also have the resources to ascertain any encumbrances over the 19 properties they are dealing with. In Agag v. Alpha Financing Corp., the Court explicitly declared that when the purchaser or mortgagee is a financing institution, the general rule that a purchaser or mortgagee of land is not required to look further than what appears on the face of the title does not apply. The Court explained, thus: So also, in Cruz v. Bancom Finance Corporation, a case for reconveyance of property against a purchaser in a foreclosure sale, it was stressed that the due diligence required of banks extended even to persons regularly engaged in the business of lending money secured by real estate mortgages. Their expertise or experience in dealing with encumbrances on lands, not to mention the public interest affecting their business, require them to exercise more care and prudence in dealing even with registered lands. Respondent, being a financial institution, cannot claim good faith considering that neither it nor the alleged mortgagee bank was in possession of the lots prior and after the foreclosure sale. Had respondent conducted an ocular inspection of the premises, this being the standard practice in the real estate industry, it would have discovered that the land is occupied by petitioner. The failure of respondent to take such precautionary steps is considered negligence on its part and would thereby 21 preclude the defense of good faith.
20

Petitioner also contends that respondents are not without fault in carelessly allowing defendant Gagan to obtain the certificate of title and cause the fraudulent transfer of the property. It asserts that when one of two innocent persons must suffer by the wrongful act of a third person, the loss falls on him who had put it into the power of that third person to perpetrate the wrong. In Adriano v. Pangilinan, petitioner therein also entrusted the certificate of title of his property to a third person who fraudulently caused the annotation of a real estate mortgage on the title in favor respondent. The Court held that respondent, who was engaged in the real estate business but failed to verify the essential facts, should bear the loss because his negligence was the primary, immediate and overriding reason that put him in his 23 predicament. Applying the principle in Adriano, petitioner must bear the loss of the property because of its failure to ascertain the true ownership of the subject property, notwithstanding the fact that it is engaged in the business of offering real estate loans to the public and is, therefore, required to exercise a higher degree of diligence in investigating the status and condition of the properties offered as securities. Petitioner, however, is not without relief even at this juncture. It correctly filed a cross-claim against defendants Gagan and Guevarra for the purchase price of the foreclosed property in the amount of P645,000.00 plus other expenses of transfer and litigation, the actual damages it incurred at the foreclosure sale, and all other expenses for which petitioner may be held liable. Although the RTC and the Court of Appeals failed to resolve the cross-claim, to avoid further delay, this Court can very well adjudicate upon the liabilities of defendants Gagan and Guevara to petitioner. Petitioner submitted in evidence a copy of the sheriffs certificate of sale, evincing that petitioner paid the amount of P645,000.00 at the foreclosure 24 sale of the subject property. However, as to other alleged actual expenses incurred by petitioner as a result of the filing of the case, no evidence was offered to prove the same. Defendants Gagan and Guevara should ultimately bear the damages incurred by petitioner at the foreclosure sale, considering that no evidence was presented to prove petitioners complicity in the forgery of the Deed of Absolute Sale and that the instant controversy arose because of the acts of defendants Gagan and Guevara. One last point. Petitioner asks the Court to reduce its liability for moral and exemplary 25 damages in accordance with Cavite Development Bank v. Lim where petitioner-bank was also found negligent in failing to ascertain the mortgagors title to the property offered as security. The Court however found excessive the RTCs award of moral and exemplary damages and accordingly reduced the amounts involved to P50,000.00 and P30,000.00, respectively. In the instant case, the Court of Appeals modified the award by ordering the payment of moral damages of P200,000.00 and exemplary damages of P200,000.00 both to each respondents, or a total ofP800,000.00. The Court finds the increase in the award of damages unjustified under the circumstances and, thus, reinstates the award of the RTC.
22

Except for the modified award of moral and exemplary damages due the respondents, the Court of Appeals decision affirmed, albeit impliedly, the RTC decision in all other respects including the award of actual litigation expenses and attorneys fees. WHEREFORE, the instant petition for review on certiorari is partially granted and the Decision of the Court of Appeals in CA-G.R. CV No. 82017 is AFFIRMED IN ALL RESPECTS with the following MODIFICATIONS: (1) the other monetary awards granted by the Regional Trial Court, Branch 276, Muntinlupa City are RESTORED and petitioner is accordingly ORDERED to pay respondents moral damages of P300,000.00, exemplary damages ofP300,000.00, actual litigation expenses of P50,000.00 and attorneys fees of P100,000.00; and (2) defendants Blesilda Gagan and Feliciano Fajardo Guevarra are ORDERED to pay jointly and severally petitioner Lloyds Enterprises and Credit Corporation on its cross-claim the amount of P645,000.00, plus legal interest of 6% per annum from the date of the RTC Decision. Costs against petitioner. SO ORDERED.

SECOND DIVISION

In the meantime, a survey was conducted for the co-owners of Lot No. 124 on July 9, 1962. The subdivision plan of the said lot was approved by the Director of Lands on August 2, 1962. The portion of the property deeded to Sumilhig was identified in the said plan as [6] Lot No. 124-B. Meanwhile, Mascuana died intestate on April 20, 1965 and was survived by his heirs, Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opea, Marilou Dy and Jose Ma. R. Mascuana. On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property on a portion of Lot No. 124-B with an area of 469 square meters and the improvements thereon, in favor of Corazon Layumas, the wife of Judge Rodolfo Layumas, for the price of P11,000.00. The spouses Layumas then had the property subdivided into two lots: Lot No. 124-B-2 with an area of 71 square meters under the name of Jesus Mascuana, and Lot No. 124-B-1, with [8] an area of 469 square meters under their names. The spouses Layumas took possession of the property and caused the cutting of tall grasses thereon. Upon the plea of a religious [9] organization, they allowed a chapel to be constructed on a portion of the property. In January 1985, the spouses Layumas allowed Aquilino Barte to stay on a portion of the [10] property to ward off squatters. Barte and his kin, Rostom Barte, then had their houses constructed on the property. On October 1, 1985, the spouses Layumas received a Letter from the counsel of Renee Tedrew, offering to buy their share of the property for US$1,000.00. For her part, Corazon Layumas wrote Pepito Mascuana, offering to pay the amount of P1,000.00, the balance of the purchase price of the property under the deed of absolute sale executed by [12] Mascuana and Sumilhig on August 12, 1961. However, the addressee refused to [13] receive the mail matter. Unknown to the spouses Layumas, TCT No. 8986 the name of Jesus Mascuana on March 17, 1986.
[14] [11] [7]

[G.R. No. 158646. June 23, 2005]

HEIRS

OF JESUS M. MASCUANA, represented by JOSE MA. R. MASCUANA, petitioners, vs. COURT OF APPEALS, AQUILINO BARTE, and SPOUSES RODOLFO and CORAZON LAYUMAS, respondents. DECISION

CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision of the Court of Appeals (CA) [2] in CA-G.R. CV No. 53117 affirming the Decision of the Regional Trial Court (RTC) of San Carlos City, Negros Occidental, which ordered the dismissal of the petitioners complaint for recovery of possession and damages.
[1]

The Antecedents

Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land identified as Lot No. 124 of the San Carlos City, Negros Occidental Cadastre, with an area of 1,729 square meters and covered by Transfer Certificate of Title (TCT) No. 1453-R (T[3] 29937)-38. Over time, Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares, or a total area of 741 square meters, to Jesus Mascuana. The latter then sold a portion of his 140-square-meter undivided share of the property to Diosdado Sumilhig. Mascuana later sold an additional 160-square-meter portion to Sumilhig on April 7, 1961. However, the parties agreed to revoke the said deed of sale and, in lieu thereof, executed a Deed of Absolute Sale on August 12, 1961. In the said deed, Mascuana, as vendor, sold an undivided 469-square-meter portion of the property for P4,690.00, with P3,690.00 as down payment, and under the following terms of payment: That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a [4] separate Certificate of Title in the name of the VENDEE shall have been prepared. On December 31, 1961, Mascuana and Jose G. Estabillo executed a Deed of [5] Exchange and Absolute Sale of Real Estate, in which Estabillo deeded to Mascuana a portion of his property abutting that of Sumilhig on the southeast.

was issued over Lot No. 124-B in

[15]

On November 17, 1986, the heirs of Mascuana filed a Complaint for recovery of possession of Lot No. 124-B and damages with a writ of preliminary injunction, alleging that they owned the subject lot by virtue of successional rights from their deceased father. They averred that Barte surreptitiously entered the premises, fenced the area and constructed a house thereon without their consent. Attached as annexes to the complaint were TCT No. [16] 8986 and a certification from the Office of the City Treasurer, Land Tax Division, vouching that the property in question was owned by the petitioners and that they had paid the taxes thereon until 1992. In his answer to the complaint, Barte admitted having occupied a portion of Lot No. 124-B, but claimed that he secured the permission of Rodolfo Layumas, the owner of the subject property. He added that he did not fence the property, and that the petitioners did not use the same as a passageway in going to Broce Street from their house. Barte raised the following special defenses: (a) the petitioners were estopped from asserting ownership over the lot in question because they did not object when he occupied the said portion of the lot; (b) neither did the petitioners protest when a church was built on the property, or when residential houses were constructed thereon; (c) the petitioners still asked Barte and the other occupants whether they had notified Rodolfo Layumas of the constructions on the property; and (d) the heirs of Mascuana, through the lawyer of Mrs. Renee M. Tedrew,

even wrote a letter to Rodolfo Layumas on October 1, 1985, expressing her willingness to buy the subject property for US$1,000.00. On April 8, 1991, the spouses Layumas filed a Motion for Leave to [18] Intervene, alleging therein that they had a legal interest in Lot No. 124-B-1 as its buyers from Sumilhig, who in turn purchased the same from Mascuana. In their answer in [19] intervention, the spouses Layumas alleged that they were the true owners of the subject property and that they had wanted to pay the taxes thereon, but the Land Tax clerk refused to receive their payments on account that the petitioners had already made such payment. The spouses Layumas further maintained that the petitioners had no cause of action against Barte, as they had authorized him to occupy a portion of Lot No. 124-B1. The spouses Layumas also averred that the petitioners were estopped from denying their right of ownership and possession of the subject lot, as one of them had even offered to repurchase a portion of Lot No. 124-B via letter. The said spouses interposed a counterclaim for damages, claiming ownership over the property, and prayed, thus: WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render judgment in favor of the Intervenors and the defendant Aquilino Barte, ordering: 1. That the complaint against Aquilino Barte be dismissed with costs against the plaintiff; 2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A. Layumas be declared as the legal and true owners of Lot 124-B; 3. That the plaintiffs should deliver immediately to the Intervenors, TCT No. 8986 which is in their possession; 4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00) PESOS attorneys fees plus THREE HUNDRED (P300.00) PESOS as appearance fee per hearing. Intervenors pray for such other relief and remedies as may be deemed by this Honorable Court as just and equitable in the premises. At the trial, intervenor Rodolfo Layumas testified that he and his wife bought the subject property in 1968, and that nobody objected to their possession of the land, including the petitioners. In 1970, a religious organization asked his permission to construct a chapel on the disputed lot; he allowed the construction since the same would be used for the fiesta. He further declared that part of the chapel still stood on the property. In 1985, a fire razed the towns public market, thereby dislocating numerous people. Barte was one of the fire victims, who also happened to be a good friend and political supporter of Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of the said lot, along with some other fire victims. Rodolfo clarified that the others were to stay there only on a temporary basis, [20] but admitted that Bartes children also stayed in the subject property.

[17]

Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the petitionersheirs, Pepito Mascuana, requesting that the title of the lot be transferred in Sumilhigs name so that they could likewise arrange for the conveyance of the title in their names. Pepito failed to claim the letter, and thereafter, filed a case of ejectment against Barte and Rodolfo Layumas brother-in-law, Pepito Antonio. The case, the witness added, was dismissed as against the two parties. Offered in evidence were the following: a Sworn Statement on the Current and Fair Market Value of the Real Property issued in 1973 as [21] required by Presidential Decree No. 76, and tax receipts. Rodolfo Layumas admitted on cross-examination that at the time they bought the property from Sumilhig, the title was still in the possession of the Wuthrich family. He added that he filed an adverse claim before the Register of Deeds of San Carlos City, Negros Occidental, on Lot No. 124-B in January 1986, or after the case had already been filed in court. Lastly, the witness deposed that he did not fence the property after buying the same, [22] but that his brother-in-law constructed a coco-lumber yard thereon upon his authority. On January 30, 1996, the trial court rendered judgment in favor of Barte and the spouses Layumas. The fallo of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of Intervenorscounterclaimants and defendant and against plaintiffs-counterclaim defendants ordering as follows: 1. The dismissal of the plaintiffs complaint with costs against them; 2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge Rodolfo S. Layumas and Corazon A. Layumas: (a) (b) P10,000.00 for attorneys fees; and P30,000.00 as moral damages;

3. The plaintiffs, as counterclaim defendants, to comply with the above-stated obligation of their late father, Mr. Jesus Mascuana, under the Deed of Absolute Sale, Exh. 3, pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuana, including the desegragation (sic) survey to desegregate the 469-square-meter portion of said Lot No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado Sumilhig, if the same has not yet been done despite what has been said herein earlier to said effect, and the execution of the Final Deed of Sale in their capacity as the heirs and successors-in-interest of the late Mr. Jesus Mascuana, thru Mr. Jose Mascuana, covering the 469-square-meter desegregated portion of said Lot No. 124-B, within sixty (60) days counted from the finality of this Decision, in favor of the Intervenors-spouses, after which the said Intervenors-spouses shall pay them, thru Mr. Jose Mascuana, the P1,000.00 balance due to them as successors-in-interest of the late Mr. Jesus Mascuana; 4. In case plaintiffs fail to comply with what are herein ordered for them to do, the Clerk of Court V of this Court to do all that they were to do as herein ordered in the text and dispositive portion hereof, at the expense of Intervenors

spouses to be later reimbursed by plaintiffs, including the desegragation (sic) survey of said 469-square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre, Negros Occidental, if the same has not yet been done and the execution of the Final Deed of Sale on behalf of all the plaintiffs as heirs and successors-in-interest of the late Mr. Jesus Mascuana covering the said desegregated portion of 469 square meters of the aforesaid lot, in favor of Intervenors spouses, to the end that separate title therefor may be issued in their names, after they shall have paid the P1,000.00 balance due plaintiffs under said Deed of Absolute Sale, Exh. 3. SO ORDERED.
[23]

We note that the original action of the petitioners against Aquilino Barte was one for recovery of possession of Lot No. 124-B. With the intervention of the respondents Rodolfo and Corazon Layumas who claimed ownership over the property, and the acquiescence of the parties, evidence was adduced to prove who, between the petitioners (as plaintiffs) and the respondents (as defendants-intervenors) were the lawful owners of the subject property and entitled to its possession. The petitioners resolutely contend that the Deed of Absolute Sale dated August 12, 1961 between their father and Sumilhig was a mere contract to sell because at the time of the said sale, the late Mascuana was not yet the registered owner of Lot No. 124 or any of its portions. They assert that Sumilhig could not have acquired any rights over the lot due to the fact that a person can only sell what he owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally. Finally, the petitioners insist that the document in controversy was subject to a suspensive condition, not a resolutory condition, which is a typical attribute of a contract of sale. The petition is denied for lack of merit. The issues raised by the petitioners in this case are factual, and under Rule 45 of the Rules of Court, only questions of law may be raised in this Court, the reason being that this Court is not a trier of facts. It is not to re-examine the evidence on record and to calibrate the same. Moreover, the findings and conclusions of the trial court as affirmed by the CA are conclusive on the Court, absent of any evidence that the trial court, as well as the CA ignored, misinterpreted and misconstrued facts and circumstances of substance which, if [26] considered, would alter or reverse the outcome of the case. We have reviewed the records and find no justification for a reversal or even a modification of the assailed decision of the CA. Even on the merits of the petition, the Court finds that the decision of the trial court as well as the ruling of the CA are based on the evidence on record and the applicable law. The petitioners reiterated their pose that the deed of absolute sale over the property executed by their father, Jesus Mascuana, as vendor, and Diosdado Sumilhig as vendee, was a contract to sell and not a contract of sale. They assert that on its face, the contract appears to be a contract to sell, because the payment of the P1,000.00 balance of the purchase price was subject to a suspensive condition: the survey of the property, the segregation of the portion thereof subject of the sale, and the completion of the documents necessary for the issuance of a Torrens title over the property to and in the name of Sumilhig who was the vendee. The petitioners assert that Sumilhig never paid the aforesaid amount to the vendor; hence, the obligation of the latter and his predecessors-in-interest (herein petitioners) to execute a final deed of sale never arose. As such, they aver, title to the property remained reserved in the vendor and his heirs even after his death. There was no need for the vendor to rescind the deed or collect the said amount of P1,000.00 under Article 1191 of the New Civil Code because such a remedy applies only to contracts of sale. The petitioners insist that Sumilhig never acquired title over the property; he could not have transferred any title to the respondents. Sumilhig could not have transferred that which he did not own. The petitioners contention has no factual and legal bases.

Forthwith, the petitioners appealed the case to the CA, raising the following issues of fact and law: a. Whether or not the contract of alienation of Lot No. 124-B in favor of Diosdado Sumilhig in 1961 was a contract to sell or a contract of sale; b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor [24] of intervenor Corazon Layumas in 1968. On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the contract between the petitioners father and Sumilhig was one of sale. Foremost, the CA explained, the contract was denominated as a Deed of Absolute Sale. The stipulations in the contract likewise revealed the clear intention on the part of the vendor (Mascuana) to alienate the property in favor of the vendee (Sumilhig). In three various documents, the late Mascuana even made declarations that Sumilhig was already the owner of the disputed land. The CA added that the admission may be given in evidence against Mascuana and his predecessors-in-interest under Section 26, Rule 130 of the Revised Rules on Evidence. As to the argument that the contract between Mascuana and Sumilhig was not effective because it was subject to a suspensive condition that did not occur, the CA ruled that the condition referred to by the petitioners refers only to the payment of the balance of the purchase price and not to the effectivity of the contract. As to the petitioners contention that even if the contract were one of sale, ownership cannot be transferred to Sumilhig because Mascuana was not yet the owner of the lot at the time of the alleged sale, the appellate court ruled that the registration of the land to be sold is not a prerequisite to a contract of sale.

The Present Petition

Aggrieved, the petitioners filed the instant petition for review on certiorari with this Court, where the following lone legal issue was raised: WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUANA IN FAVOR OF [25] DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?

The deed of absolute sale executed by Jesus Mascuana and Sumilhig, provides, thus: That the VENDOR is the true and absolute owner of a parcel of land known as Lot No. 124 of the Cadastral Survey of San Carlos, situated at Broce Street and is free from liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-1453) of Reg. of Deeds, Negros Occ. That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED NINETY PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in the manner hereinafter stated, the VENDOR does hereby sell, transfer, cede and convey, a portion of the above-described property containing an area of 469 square meters, the sketch of which can be found at the back of this document and having a frontage at Broce Street of around 14 meters, and from the Broce Street to the interior on its Southwest side with a length of 30.9 meters, with a length of 24.8 meters on its Northeast side where it turned to the right with a length of 2.8 meters and continuing to Northwest with a length of 6.72 meters, the backyard dimension is 17.5 meters to the Northwest, unto the VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of the down payment of THREE THOUSAND SIX HUNDRED NINETY PESOS (P3,690.00), which is hereby acknowledged by the VENDOR as received by him. That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared. The evidence on record shows that during the lifetime of vendor Jesus Mascuana, and even after his death, his heirs, the petitioners herein, unequivocably declared that Diosdado Sumilhig was the owner of the property subject of this case, and that the respondents acquired title over the property, having purchased the same via a deed of absolute sale from Diosdado Sumilhig. Thus, on December 31, 1961, Jesus Mascuana and Jose Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate, in which both parties declared that they were co-owners of portions of Lot No. 124 abutted by [27] the property owned by Diosdado Sumilhig. In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land Surveyor, following his survey of Lot No. 124 on July 9, 1962 for and in behalf of Jesus Mascuana, et al., it appears that Lot No. 124-B with an area of 540 square meters [28] belonged to Diosdado Sumilhig, which is abutted by Lot No. 124-C, owned by Jesus Mascuana. On October 1, 1985, long after the death of Jesus Mascuana, one of his heirs, petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas offering to buy the property occupied by his overseer Aquilino Barte for US$1,000.00: ATTY. RODOLFO S. LAYUMAS San Carlos City Negros Occidental

Dear Atty. Layumas: This has reference to the lot located at Broce Street, portions of which are presently occupied by Mr. Barte. Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would like to offer the amount of $1,000.00 to buy your share of the said lot. If you are amenable, kindly inform the undersigned for him to communicate [with] Mrs. Tedrew in California. Very truly yours, (Sgd.) SAMUEL SM [29] LEZAMA It was only after the respondents rejected the proposal of petitioner Renee Tedrew that the petitioners secured title over the property on March 17, 1986 in the name of Jesus Mascuana (already deceased at the time), canceling TCT No. 967 issued on July 6, 1962 under the name of Jesus Mascuana, who appears to be a co-owner of Lot No. 124 with an [30] undivided two-seventh (2/7) portion thereof. While it is true that Jesus Mascuana executed the deed of absolute sale over the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6, 1962 that TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless acquired ownership over the property. The deed of sale executed by Jesus Mascuana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale over the property. It is settled that a perfected contract of sale cannot be challenged on the ground of the non-transfer of ownership of the property sold at that time of the perfection of the contract, since it is consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer acquires ownership of the property sold. As provided in Article 1458 of the New Civil Code, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing which is the object of the contract, unless the contrary appears or can be inferred. The record of the sale with the Register of Deeds and the issuance of the certificate of title in the name of the buyer over the property merely bind third parties to the sale. As between the seller and the buyer, the transfer of ownership takes [31] effect upon the execution of a public instrument covering the real property. Long before the petitioners secured a Torrens title over the property, the respondents had been in actual possession of the property and had designated Barte as their overseer. Article 1458 of the New Civil Code provides: By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional. Thus, there are three essential elements of sale, to wit: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent.
[32]

ownership of the thing sold shall be transferred to the vendee upon the actual or [33] constructive delivery thereof. The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold shall have been surveyed in the name of the vendee and all papers pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the contract from being in full force and effect: The stipulation that the payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be [34] paid. But it does not affect in any manner the effectivity of the contract. In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation [35] from acquiring binding force. It bears stressing that in a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the [36] obligation created under the transaction. A seller cannot unilaterally and extrajudicially rescind a contract of sale unless there is an express stipulation authorizing it. In such case, [37] the vendor may file an action for specific performance or judicial rescission. Article 1169 of the New Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; from the moment one of the parties fulfills his obligation, delay by the other begins. In this case, the vendor (Jesus Mascuana) failed to comply with his obligation of segregating Lot No. 124-B and the issuance of a Torrens title over the property in favor of the vendee, or the latters successors-in-interest, the respondents herein. Worse, petitioner Jose Mascuana was able to secure title over the property under the name of his deceased father. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED.

In this case, there was a meeting of the minds between the vendor and the vendee, when the vendor undertook to deliver and transfer ownership over the property covered by the deed of absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title therefor issued in the name of the vendee, upon which the latter would be obliged to pay the balance ofP1,000.00. There was no stipulation in the deed that the title to the property remained with the vendor, or that the right to unilaterally resolve the contract upon the buyers failure to pay within a fixed period was given to such vendor. Patently, the contract executed by the parties is a deed of sale and not a contract to sell. As the Court ruled in a recent case: In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a Deed of Conditional Sale, a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g. by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code) Thus, in one case, when the sellers declared in a Receipt of Down Payment that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. In Peoples Industrial and Commercial Corporation v. Court of Appeals, it was stated: A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. Thus, Art. 1477 provides that the

Republic of the Philippines SUPREME COURT Manila EN BANC

in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos. This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides: ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

G.R. No. L-25494 June 14, 1972 NICOLAS SANCHEZ, plaintiff-appellee, vs. SEVERINA RIGOS, defendant-appellant. Santiago F. Bautista for plaintiff-appellee. Jesus G. Villamar for defendant-appellant. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof 1 and is quoted on the margin. Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his complaint, the provisions of 2 said instrument form part "and parcel" of said pleading. The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land. Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that: (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar. (2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said

CONCEPCION, C.J.:p Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it involves a question purely of law. The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and damages. After the filing of defendant's answer admitting some allegations of the complaint, denying other allegations thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute,

distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. (3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it had been held, 3 in Bauermann v. Casas, that: One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.) This view was reiterated in Evangelista v. De la Rosa and Mercy's Incorporated v. 5 Herminia Verde. Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific 6 Co., from which We quote: The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. The article provides: "ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price." On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides:
4

"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration as something paid or promised." There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if supported by a consideration which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee. It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price. We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress. However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian 8 Tek, decided later thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific 9 Co., saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and

sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said: Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that: "If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.) "It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts the offer and the acceptance could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.) In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of

drafting the Code, its author has maintained a consistent philosophy or position. Moreover, 10 the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., holding that Art. 1324 is modifiedby Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle. Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered to in theSouthwestern Sugar & Molasses Co. case should be deemed abandoned or modified. WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendantappellant Severina Rigos. It is so ordered.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

On January 20, 1977, Reynoso sent another letter to private respondents advising them that in view of their failure to exercise their right of first priority, she had already sold the property. Upon receipt of this letter, the private respondents wrote Reynoso informing her that neither of them had received her letter dated November 3, 1976; that they had advised her agent to inform them officially should she decide to sell the property so negotiations could be initiated; and that they were "constrained to refuse (her) request for the termination of the lease. On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co. The Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, the balance of P262,500.00 to be paid only when the premises were vacated. On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they vacate the premises within 15 days for their failure to pay the rentals for four months. When they refuse, Reynoso filed a complaint for ejectment against them which was docketed as Civil Case No. 043851-CV in the then City Court of Manila. On September 25, 1979, the parties submitted a Compromise Agreement, which provided inter alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease Contract, Voluntarily and Peacefully not later than October 31, 1979." This agreement was approved by the City Court and became the basis of its decision. However, as the private respondents failed to comply with the above-qouted stipulation, Reynoso filed a motion for execution of the judgment by compromise, which was granted on November 8, 1979. On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the decision of the City Court as well as the Compromise Agreement on the sole ground that Reynoso had not delivered to him the "records of payments and receipts of all rentals by or for the account of defendant ..." The motion was denied and the case was elevated to the then Court of First Instance. That Court remanded the case to the City Court of Manila for trial on the merits after both parties had agreed to set aside the Compromise Agreement. On April 29, 1980, while the ejectment case was pending in the City Court, the private respondents filed an action for annulment of the sale between Reynoso and herein petitioner Guzman, Bocaling & Co. and cancellation of the transfer certificate of title in the name of the latter. They also asked that Reynoso be required to sell the property to them under the same terms ands conditions agreed upon in the Contract of Sale in favor of the petitioner This complaint was docketed as Civil Case No. 131461 in the then Court of First Instance of Manila. On May 5, 1980, the City Court decided the ejectment case, disposing as follows:

G.R. No. 86150 March 2, 1992 GUZMAN, BOCALING & CO., petitioner, vs. RAOUL S. V. BONNEVIE, respondent. E. Voltaire Garcia for petitioner. Guinto Law Office for private respondent.

CRUZ, J.: The subject of the controversy is a parcel of land measuring six hundred (600) square meters, more or less, with two buildings constructed thereon, belonging to the Intestate Estate of Jose L. Reynoso. This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix, Africa Valdez de Reynoso, for a period of one year beginning August 8, 1976, at a monthly rental of P4,000.00. The Contract of lease contained the following stipulation: 20. In case the LESSOR desire or decides to sell the lease property, the LESSEES shall be given a first priority to purchase the same, all things and considerations being equal. On November 3, 1976 according to Reynoso, she notified the private respondents by registered mail that she was selling the leased premises for P600.000.00 less a mortgage loan of P100,000.00, and was giving them 30 days from receipt of the letter within which to exercise their right of first priority to purchase the subject property. She said that in the event that they did not exercise the said right, she would expect them to vacate the property not later then March, 1977.

WHEREFORE, judgment is hereby rendered ordering defendants and all persons holding under them to vacate the premises at No. 658 Gen. Malvar Street, Malate, Manila, subject of this action, and deliver possession thereof to the plaintiff, and to pay to the latter; (1) The sum of P4,000.00 a month from April 1, 1977 to August 8, 1977; (2) The sum of P7,000.00 a month, as reasonable compensation for the continued unlawful use and occupation of said premises, from August 9, 1977 and every month thereafter until defendants actually vacate and deliver possession thereof to the plaintiff; (3) The sum of P1,000.00 as and for attorney's fees; and (4) The costs of suit. The decision was appealed to the then Court of First Instance of Manila, docketed as Civil Case No. 132634 and consolidated with Civil Case No. 131461. In due time, Judge Tomas P. Maddela, Jr., decided the two cases as follows: WHEREFORE, premises considered, this Court in Civil Case No. 132634 hereby modifies the decision of the lower court as follows: 1 Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie and all persons holding under them to vacate the premises at No. 658 Gen. Malvar St., Malate, Manila subject of this action and deliver possessions thereof to the plaintiff; and 2 To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to September 21, 1980 (when possession of the premises was turned over to the Sheriff) after deducting whatever payments were made and accepted by Mrs. Africa Valdez Vda. de Reynoso during said period, without pronouncement as to costs. As to Civil Case No. 131461, the Court hereby renders judgment in favor of the plaintiff Raoul Bonnevie as against the defendants Africa Valdez Vda. de Reynoso and Guzman and Bocaling & Co. declaring the deed of sale with mortgage executed by defendant Africa Valdez Vda. de Reynoso in favor of defendant Guzman and Bocaling null and void; cancelling the Certificate of Title No. 125914 issued by the Register of Deeds of Manila in the name of Guzman and Bocaling & Co.,; the name of Guzman and Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de Reynoso to execute favor of the plaintiff Raoul Bonnevie a deed of sale with mortgage over the property leased by him in the amount of P400,000.00 under the same terms and conditions should there be any other occupants or tenants in the premises; ordering the defendants jointly and severally to pay the plaintiff Raoul Bonnevie the amount of P50,000.00 as temperate damages; to pay the plaintiff jointly and severally the of P2,000.00 per month from the time the property was sold to defendant Guzman and Bocaling by defendant Africa Valdez Vda de Reynoso on March 7, 1977, up to the execution of a deed of sale of the

property by defendant Africa Valdez Vda. de Reynoso in favor of plaintiff Bonnevie; to pay jointly and severally the plaintiff Bonnevie the amount of P20,000.00 as exemplary damages, for attorney's fees in the amount of P10,000.00, and to pay the cost of suit. Both Reynoso and the petitioner company filed with the Court of Appeals a petition for review of this decision. The appeal was eventually resolved against them in a decision promulgated on March 16, 1988, where the respondent court substantially affirmed the 1 conclusions of the lower court but reduced the award of damages. Its motion for reconsideration having been denied on December 14, 1986, the petitioner has come to this Court asserting inter alia that the respondent court erred in ruling that the grant of first priority to purchase the subject properties by the judicial administratrix needed no authority from the probate court; holding that the Contract of Sale was not voidable but rescissible; considering the petitioner as a buyer in bad faith ordering Reynoso to execute the deed of sale in favor of the Bonnevie; and not passing upon the counterclaim. Reynoso has not appealed. The Court has examined the petitioner's contentions and finds them to be untenable. Reynoso claimed to have sent the November 3, 1976 letter by registered mail, but the registry return card was not offered in evidence. What she presented instead was a copy of the said letter with a photocopy of only the face of a registry return card claimed to refer to the said letter. A copy of the other side of the card showing the signature of the person who received the letter and the data of the receipt was not submitted. There is thus no satisfactory proof that the letter was received by the Bonnevies. Even if the letter had indeed been sent to and received by the private respondent and they did not exercise their right of first priority, Reynoso would still be guilty of violating Paragraph 20 of the Contract of Lease which specifically stated that the private respondents could exercise the right of first priority, "all things and conditions being equal." The Court reads this mean that there should be identity of the terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first priority. The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less 2 only the mortgage lien of P100,000.00. On the other hand, the selling price offered to and accepted by the petitioner was only P400,000.00 and only P137,500.00 was paid in cash while the balance of P272,500.00 was to be paid "when the property (was) cleared of 3 tenants or occupants. The fact that the Bonnevies had financial problems at that time was no justification for denying them the first option to buy the subject property. Even if the Bonnevies could not buy it at the price qouted, Reynoso could not sell it to another for a lower price and under more favorable terms and conditions. Only if the Bonnevies failed to exercise their right of

first priority could Reynoso lawfully sell the subject property to others, and at that only under the same terms and conditions offered to the Bonnevies. The Court agrees with the respondent court that it was not necessary to secure the approval by the probate court of the Contract of Lease because it did not involve an alienation of real property of the estate nor did the term of the lease exceed one year so as top make it fall under Article 1878(8) of the Civil Code. Only if Paragraph 20 of the Contract of Lease was activated and the said property was intended to be sold would it be required of the administratrix to secure the approval of the probate court pursuant to Rule 89 of the Rules of Court. As a strict legal proposition, no judgment of the probate court was reviewed and eventually annuled collaterally by the respondent court as contended by the petitioner. The order authorizing the sale in its favor was duly issued by the probate court, which thereafter approved the Contract of Sale resulting in the eventual issuance if title in favor of the petitioner. That order was valid insofar as it recognized the existence of all the essential elements of a valid contract of sale, but without regard to the special provision in the Contract of Lease giving another party the right of first priority. Even if the order of the probate court was valid, the private respondents still had a right to rescind the Contract of Sale because of the failure of Reynoso to comply with her duty to give them the first opportunity to purchase the subject property. The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private respondents are strangers to the agreement and therefore have no personality to seek its annulment. The respondent court correctly held that the Contract of Sale was not voidable rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease. According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment 4 prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the 5 contract. Recission implies a contract which, even if initially valid, produces a lesion or 6 pecuniary damage to someone that justifies its invalidation for reasons of equity. It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful

possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith. Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed a purchaser in good faith for the record shows that its categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration. A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or 8 interest of some other person in the property. Good faith connotes an honest intention to 9 abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests. The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease, Assuming this to be true, we nevertherless agree with the observation of the respondent court that: If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame. Having known that the property it was buying was under lease, it behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract of Lease in which Par. 20 is contained. Finally, the petitioner also cannot invoke the Compromise Agreement which it says canceled the right of first priority granted to the Bonnevies by the Contract of Lease. This agreement was set side by the parties thereto, resulting in the restoration of the original rights of the private respondents under the Contract of Lease. The Joint Motion to Remand filed by Reynoso and the private respondents clearly declared inter alia: That without going into the merits of instant petition, the parties have agreed to SET ASIDE the compromise agreement, dated September 24, 1979 and remand Civil Case No. 043851 of the City Court of Manila to 10 Branch IX thereof for trial on the merits.

We find, in sum, that the respondent court did not commit the errors imputed to it by the petitioner. On the contrary, its decision is conformable to the established facts and the applicable law and jurisprudence and so must be sustained. WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged decision is AFFIRMED in toto. It is so ordered.

SECOND DIVISION

meter. Since Reyes was not amenable to the said price and insisted on Five Thousand Pesos (P5,000.00) per square meter, Angeles requested Reyes to allow him to consult the [8] other members of the Board of Directors of Riviera. Seven (7) months later, or sometime in October 1988, Angeles communicated with Reyes Rivieras offer to purchase the subject property for Four Thousand Pesos (P4,000.00) per square meter. However, Reyes did not accept the offer. This time he asked for Six Thousand Pesos (P6,000.00) per square meter since the value of the property in the area [9] had appreciated in view of the plans of Araneta to develop the vicinity. In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes, informed Riviera that Reyes was selling the subject property for Six Thousand Pesos (P6,000.00) per square meter, net of capital gains and transfer taxes, registration fees, notarial fees and all other attendant charges. He further stated therein that: In this connection, conformably to the provisions stipulated in Paragraph/Item No. 11 of your CONTRACT OF LEASE (Doc. No. 365, Page No. 63, Book No. X, Series of 1982, of the Notarial Registry of Notary Public Leovillo S. Agustin), notice is served upon your goodselves for you to exercise the right of first refusal in the sale of said property, for which purpose you are hereby given a period of ten (10) days from your receipt hereof within which to thus purchase the same under the terms and conditions aforestated, and failing which you shall be deemed to have thereby waived such pre-emptive right and my [10] client shall thereafter be absolutely free to sell the subject property to interested buyers. To answer the foregoing letter and confirm their telephone conversation on the matter, Riviera sent a letter dated November 22, 1988 to Atty. Juan, counsel for Reyes, expressing Rivieras interest to purchase the subject property and that Riviera is already negotiating [11] with Reyes which will take a couple of days to formalize. Riviera increased its offer to Five Thousand Pesos (P5,000.00) per square meter but Reyes did not accede to said price as it was still lower than his quoted price of Six Thousand Pesos (P6,000.00) per square [12] meter. Angeles asked Reyes to give him until the end of November 1988 for Rivieras final decision. In a letter dated December 2, 1988, Angeles wrote Reyes confirming Rivieras intent to [13] purchase the subject property for the fixed and final price of Five Thousand Pesos (P5,000.00) per square meter, complete payment within sixty (60) to ninety (90) days which offer is what we feel should be the market price of your property. Angeles asked that the decision of Reyes and his written reply to the offer be given within fifteen (15) days since [14] there are also other properties being offered to them at the moment. In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5, 1988 informing Riviera that Rivieras offer is not acceptable to his client. He further expressed, let it be made clear that, much as it is the earnest desire of my client to really give you the preference to purchase the subject property, you have unfortunately failed to take advantage of such opportunity and thus lost your right of first refusal in sale of said [15] property. Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close family friend and President of Cypress, his predicament about the nearing expiry date of the

[G.R. No. 117355. April 5, 2002]

RIVIERA FILIPINA, INC., petitioner, vs. COURT OF APPEALS, JUAN L. REYES, (now deceased), substituted by his heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes, PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT CORPORATION, CORNHILL TRADING CORPORATION AND URBAN DEVELOPMENT BANK, respondents. DECISION DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision of the Court of [2] [3] Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 affirming the Decision dated March 20, 1990 of the Regional Trial Court of Quezon City, Branch 89 dismissing Civil Case No. Q-89-3371. Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on [4] August 31, 1989 to compel the defendants therein Juan L. Reyes, now deceased, Philippine Cypress Construction & Development Corporation (Cypress), Cornhill Trading Corporation (Cornhill) and Urban Development Bank to transfer the title covering a 1,018 square meter parcel of land located along EDSA, Quezon City for alleged violation of Rivieras right of first refusal. It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity) executed a Contract of Lease with Riviera. The ten-year (10) renewable lease of Riviera, which started on August 1, 1982, involved a 1,018 square meter parcel of land located along Edsa, Quezon City, covered and described in Transfer Certificate of Title No. 186326 of the [5] Registry of Deeds of Quezon City in the name of Juan L. Reyes. The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in favor of Prudential Bank. Since the loan with Prudential Bank remained unpaid upon maturity, the mortgagee bank extrajudicially foreclosed the mortgage thereon. At the public auction sale, the mortgagee bank emerged as the highest bidder. The redemption period was set to expire on March 7, 1989. Realizing that he could not possibly raise in time the [6] money needed to redeem the subject property, Reyes decided to sell the same. Since paragraph 11 of the lease contract expressly provided that the LESSEE shall have the right of first refusal should the LESSOR decide to sell the property during the term [7] of the lease, Reyes offered to sell the subject property to Riviera, through its President Vicente C. Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However, Angeles bargained for Three Thousand Five Hundred Pesos (P3,500.00) per square
[1]

redemption period of the foreclosed mortgaged property with Prudential Bank, the money for which he could not raise on time thereby offering the subject property to him for Six Thousand Pesos (P6,000.00) per square meter. Traballo expressed interest in buying the said property, told Reyes that he will study the matter and suggested for them to meet the [16] next day. They met the next day, December 5, 1988, at which time Traballo bargained for Five Thousand Three Hundred Pesos (P5,300.00) per square meter. After considering the reasons cited by Traballo for his quoted price, Reyes accepted the same. However, since Traballo did not have the amount with which to pay Reyes, he told the latter that he will look [17] for a partner for that purpose. Reyes told Traballo that he had already afforded Riviera its right of first refusal but they cannot agree because Rivieras final offer was for Five [18] Thousand Pesos (P5,000.00) per square meter. Sometime in January 1989, apprehensive of the impending expiration in March 1989 of the redemption period of the foreclosed mortgaged property with Prudential Bank and the deal between Reyes and Traballo was not yet formally concluded, Reyes decided to approach anew Riviera. For this purpose, he requested his nephew, Atty. Estanislao Alinea, to approach Angeles and find out if the latter was still interested in buying the subject property and ask him to raise his offer for the purchase of the said property a little higher. As instructed, Atty. Alinea met with Angeles and asked the latter to increase his offer of Five Thousand Pesos (P5,000.00) per square meter but Angeles said that his offer [19] is Five Thousand Pesos (P5,000.00) per square meter. Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through Atty. Alinea, that his offer is Five Thousand Pesos (P5,000.00) per square meter payment of which would be fifty percent (50%) down within thirty (30) days upon submission of certain documents in three (3) days, the balance payable in five (5) years in equal monthly [20] installments at twelve percent (12%) interest in diminishing balance. With the terms of this second offer, Angeles admittedly downgraded the previous offer of Riviera on December 2, [21] 1988. Atty. Alinea conveyed to Reyes Rivieras offer of Five Thousand Pesos (P5,000.00) per square meter but Reyes did not agree. Consequently, Atty. Alinea contacted again Angeles and asked him if he can increase his price. Angeles, however, said he cannot add [22] anymore. Reyes did not expressly offer his subject property to Riviera at the price of Five [23] Thousand Three Hundred Pesos (P5,300.00) per square meter. Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading Corporation, were able to come up with the amount sufficient to cover the redemption [24] money, with which Reyes paid to the Prudential Bank to redeem the subject property. On May 1, 1989, a Deed of Absolute Sale covering the subject property was executed by Reyes in favor of Cypress and Cornhill for the consideration of Five Million Three Hundred Ninety [25] Five Thousand Four Hundred Pesos (P5,395,400.00). On the same date, Cypress and Cornhill mortgaged the subject property to Urban Development Bank for Three Million Pesos [26] (P3,000,000.00). Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject property to it claiming that its right of first refusal under the lease contract was violated. After [27] several unsuccessful attempts, Riviera filed the suit to compel Reyes, Cypress, Cornhill

and Urban Development Bank to transfer the disputed title to the land in favor of Riviera upon its payment of the price paid by Cypress and Cornhill. Following trial on the merits, the trial court dismissed the complaint of Riviera as well [28] as the counterclaims and cross-claims of the other parties. It ruled that the defendants therein did not violate Rivieras right of first refusal, ratiocinating in this wise: Resolving the first issue, this Court takes note that since the beginning of the negotiation between the plaintiff and defendant Reyes for the purchase of the property, in question, the plaintiff was firm and steadfast in its position, expressed in writing by its President Vicente Angeles, that it was not willing to buy the said property higher than P5,000.00, per square meter, which was far lower than the asking price of defendant Reyes for P6,000.00, per square meter, undoubtedly, because, in its perception, it would be difficult for other parties to buy the property, at a higher price than what it was offering, since it is in occupation of the property, as lessee, the term of which was to expire after about four (4) years more. On the other hand, it was obvious, upon the basis of the last ditch effort of defendant Reyes, thru his nephew, Atty. Alinea, to have the plaintiff buy the property, in question, that he was willing to sell the said property at a price less than P6,000.00 and a little higher than P5,000.00, per square meter, precisely, because Atty. Alinea, in behalf of his uncle, defendant Reyes, sought plaintiffs Angeles and asked him to raise his price a little higher, indicating thereby the willingness of defendant Reyes to sell said property at less than his offer of P6,000.00, per square meter. This being the case, it can hardly be validly said by the plaintiff that he was deprived of his right of first refusal to buy the subject property at a price of P5,300.00, per square meter which is the amount defendants Cypress/Cornhill bought the said property from defendant Reyes. For, it was again given such an opportunity to exercise its right of first refusal by defendant Reyes had it only signified its willingness to increase a little higher its purchase price above P5,000.00, per square meter, when its President, Angeles, was asked by Atty. Alinea to do so, instead of adamantly sticking to its offer of only P5,000.00 per square meter, by reason of which, therefore, the plaintiff had lost, for the second time, its right of first refusal, even if defendant Reyes did not expressly offer to sell to it the subject land at P5,300.00, per square meter, considering that by the plea of Atty. Alinea, in behalf of defendant Reyes, for it to increase its price a little, the plaintiff is to be considered as having forfeited again its right of first refusal, it having refused to budged from its regid (sic) offer to buy the subject property at no more than P5,000.00, per square meter. As such, this Court holds that it was no longer necessary for the defendant Reyes to expressly and categorically offer to the plaintiff the subject property at P5,300.00, per square meter, in order that he can comply with his obligation to give first refusal to the plaintiff as stipulated in the Contract of Lease, the plaintiff having had already lost its right of first refusal, at the first instance, by refusing to buy the said property at P6,000.00, per square meter, which was the asking price of defendant Reyes, since to do so would be a useless ceremony and would only be an exercise in futility, considering the firm and unbending position of the plaintiff, which defendant Reyes already knew, that the plaintiff, at any event, was not amenable to increasing its price at over P5,000.00, per square meter.

Dissatisfied with the decision of the trial court, both parties appealed to the Court of [29] Appeals. However, the appellate court, through its Special Seventh Division, rendered a [30] Decision dated June 6, 1994 which affirmed the decision of the trial court in its entirety. In sustaining the decision of the trial court, the Court of Appeals adopted the above-quoted ratiocination of the trial court and further added: To put things in its proper perspective in accordance with the peculiar attendant circumstances herein, particular stress should be given to RIVIERAs uncompromising counter offer of onlyP5,000.00 per square meter on all the occasions when REYES offered the subject property to it. RIVIERA, in its letter to REYES dated December 2, 1988 (Exhibit D, p. 68, Rollo) justified its rigid offer by saying that the above offer is what we feel should be the market price of your property. If that be the case, We are convinced, the same manner that REYES was, that RIVIERA was unwilling to increase its counter offer at any present or future time. RIVIERAs unilateral valuation of the subject property thus binds him, it cannot now be heard to claim that it could have upped its offer had it been informed of CYPRESS and CORNHILLS offer of P5,000.00 (sic) per square meter. Defendants CYPRESS and CORNHILL were therefore right in saying that: On the basic assumption that RIVIERA really meant what it said in its letter, DR. REYES could not be faulted for believing that RIVIERA was definitely NOT WILLING TO PAY MORE THAN P5,000.00 PER SQUARE METER ON HIS PROPERTY. The fault lies with the deceptive and insincere words of RIVIERA. Injustice (sic) and equity, RIVIERA must be deemed in estoppel in now belatedly asserting that it would have been willing to pay a price higher than P5,000.00 x x x. (Defendants-Appellees Cypress and Cornhills Brief, p. 8) For this reason, no adverse inference can be drawn from REYES failure to disclose to RIVIERA the intervening counter-offer of CYPRESS and CORNHILL. It would have been far different had REYES non-disclosure of CYPRESS and CORNHILLs counter-offer to RIVIERA resulted in the sale of the subject property at equal or less than RIVIERAs offer; in which case, REYES would have been rightly accused of cunningly circumventing RIVIERAs right of first refusal. But the incontrovertible antecedents obtaining here clearly reveal REYES earnest efforts in respecting RIVIERAs contractual right to initially purchase the subject property. Not only once but twice did REYES approach RIVIERA, the last one being the most telling indication of REYES sincerest intention in RIVIERA eventually purchasing the subject property if only the latter would increase a little its offer of P5,000.00 per square meter. And to this REYES was desperately willing to accede to despite the financial quandary he was then in as the expiration of the redemption period drew closer and closer, and despite the better offer of CYPRESS and CORNHILL. REYES unquestionably had displayed good faith. Can the same be said of RIVIERA? We do not think so. It appears that RIVIERA all along was trying to push REYES back against the wall, for RIVIERA was well-aware of REYES precarious financial needs at that time, and by clinging to its offer, REYES might eventually succumb to its offer out of sheer desperation. RIVIERA was, to be frank, whimsically exercising its contractual right to the prejudice of REYES who had commendably given RIVIERA extra leeway in exercising it. And to this We say that no amount of jurisprudence RIVIERA might avail of for the purpose of construing the right of first refusal, however enlightening and persuasive they

may be, will cover-up for its arrogant exercise of its right as can be gleaned from the factual premises. Equity in this case tilts in favor of defendants REYES, CYPRESS and CORNHILL that the consummated sale between them concerning the subject property be given this Courts imprimatur, for if RIVIERA lost its opportunity to acquire it, it has only itself to blame. For after all, REYES fundamental and intrinsic right of ownership which necessarily carries with it the exclusive right to dispose of it to whoever he pleases, must ultimately prevail over RIVIERAs right of first refusal which it unscrupulously tried to exercise. From this decision, Riviera filed a motion for reconsideration, [32] denied the same in a Resolution dated September 22, 1994.
[31]

but the appellate court

[33]

Hence, Riviera interposed the instant petition anchored on the following errors: I

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN RULING THAT PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS RIGHT OF FIRST REFUSAL. II THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN NOT FINDING THAT IT WAS THE PETITIONER, NOT RESPONDENT JUAN L. REYES, WHICH HAD BEEN THOROUGHLY DECEIVED BY THE LATTER OUT OF ITS RIGHTS TO ITS CONTINUING PREJUDICE. III THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DENYING RECONSIDERATION. IV THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DECIDING PETITIONERS APPEAL AT A TIME WHEN THE PRINCIPAL APPELLEE IS ALLEGEDLY DEAD AND NO PROPER SUBSTITUTION OF THE ALLEGED DECEASED PARTY HAS BEEN MADE; HENCE, THE DECISION OF THE COURT OF APPEALS AND ITS RESOLUTION DENYING RECONSIDERATION, IS NULL AND VOID. At the outset, we note that, while Riviera alleges that the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction, the instant petition is,

as it should be, treated as a petition for review under Rule 45 and not as a special civil action for certiorari under Rule 65 of the Revised Rules of Court, now the 1997 Rules of Civil Procedure. The distinctions between Rule 45 and 65 are far and wide, the most notable of which is that errors of jurisdiction are best reviewed in a special civil action for certiorari under Rule 65, while errors of judgment are correctible only by appeal in a petition for review under Rule [34] 45. The rationale for the distinction is simple. When a court exercises its jurisdiction an error committed while so engaged does not deprive it of the jurisdiction being exercised when the error is committed. If it did, every error committed by a court would deprive it of its jurisdiction and every erroneous judgment would be a void judgment. This cannot be allowed. The administration of justice would not countenance such a rule. Thus, an error of judgment that the court may commit in the exercise of its jurisdiction is not correctible [35] through the original special civil action of certiorari. Appeal from a final disposition of the [36] Court of Appeals, as in the case at bar, is by way of a petition for review under Rule 45. In the petition at bar, Riviera posits the view that its right of first refusal was totally disregarded or violated by Reyes by the latters sale of the subject property to Cypress and Cornhill. It contends that the right of first refusal principally amounts to a right to match in the sense that it needs another offer for the right to be exercised. The concept and interpretation of the right of first refusal and the consequences of a breach thereof evolved in Philippine juristic sphere only within the last decade. It all started [37] in 1992 withGuzman, Bocaling & Co. v. Bonnevie where the Court held that a lease with a proviso granting the lessee the right of first priority all things and conditions being equal meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code. Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals, the Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which violated the right of first refusal. The Court held that the so-called right of first refusal cannot be deemed a perfected contract of sale under Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a final judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages in a proper forum for the purpose. In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, [39] Inc., the Court en banc reverted back to the doctrine in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract. Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of [40] Appeals, the Court affirmed the nature of and the concomitant rights and obligations of parties under a right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair
[38]

Theater, Inc., held that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the price for which they were finally sold to a third person should have likewise been first offered to the former. Further, there should be identity of terms and conditions to be offered to the buyer holding a right of first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Thus, the prevailing doctrine is that a right of first refusal means identity of terms and conditions to be offered to the lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible. However, we must remember that general propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis [41] of isolated clinical classroom principles. Analysis and construction should not be limited to the words used in the contract, as they may not accurately reflect the parties true [42] intent. The court must read a contract as the average person would read it and should not [43] give it a strained or forced construction. In the case at bar, the Court finds relevant and significant the cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and in case of doubt, their contemporaneous and subsequent acts shall be [44] principally considered. Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance, such construction may be considered by the court in construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time for contracting. The parties practical construction of their contract has been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant, convincing, persuasive, or [45] influential factor in determining the proper construction of the contract. An examination of the attendant particulars of the case do not persuade us to uphold Rivieras view. As clearly shown by the records and transcripts of the case, the actions of the parties to the contract of lease, Reyes and Riviera, shaped their understanding and interpretation of the lease provision right of first refusal to mean simply that should the lessor Reyes decide to sell the leased property during the term of the lease, such sale should first be offered to the lessee Riviera. And that is what exactly ensued between Reyes and Riviera, a series of negotiations on the price per square meter of the subject property with neither party, especially Riviera, unwilling to budge from his offer, as evidenced by the exchange of letters between the two contenders. It can clearly be discerned from Rivieras letters dated December 2, 1988 and February 4, 1989 that Riviera was so intractable in its position and took obvious advantage of the knowledge of the time element in its negotiations with Reyes as the redemption period of the subject foreclosed property drew near. Riviera strongly exhibited a take-it or leave-it attitude in its negotiations with Reyes. It quoted its fixed and final price as Five Thousand Pesos (P5,000.00) and not any peso more. It voiced out that it had other properties to consider so Reyes should decide and make known its decision within fifteen days. Riviera, in its letter dated February 4, 1989, admittedly, even downgraded its offer when Reyes offered anew the property to it, such that whatever amount Reyes initially receives from

Riviera would absolutely be insufficient to pay off the redemption price of the subject property. Naturally, Reyes had to disagree with Rivieras highly disadvantageous offer. Nary a howl of protest or shout of defiance spewed forth from Rivieras lips, as it were, but a seemingly whimper of acceptance when the counsel of Reyes strongly expressed in a letter dated December 5, 1989 that Riviera had lost its right of first refusal. Riviera cannot now be heard that had it been informed of the offer of Five Thousand Three Hundred Pesos (P5,300.00) of Cypress and Cornhill it would have matched said price. Its stubborn approach in its negotiations with Reyes showed crystal-clear that there was never any need to disclose such information and doing so would be just a futile effort on the part of [46] Reyes. Reyes was under no obligation to disclose the same. Pursuant to Article 1339 of the New Civil Code, silence or concealment, by itself, does not constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages [47] of commerce the communication should be made. We apply the general rule in the case at bar since Riviera failed to convincingly show that either of the exceptions are relevant to the case at bar. In sum, the Court finds that in the interpretation of the right of first refusal as understood by the parties herein, the question as to what is to be included therein or what is meant by the same, as in all other provisions of the contract, is for the parties and not for the court to determine, and this question may not be resolved by what the parties might have provided had they thought about it, which is evident from Riviera claims, or by what the court [48] might conclude regarding abstract fairness. The Court would be rewriting the contract of Reyes and Riviera under the guise of construction were we to interpret the right of first refusal as Riviera propounds it, despite a contrary construction as exhibited by its actions. A court, even the Supreme Court, has no right to make new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the [49] imposition upon one party to a contract of an obligation not assumed. On the last error attributed to the Court of Appeals which is the effect on the jurisdiction of the appellate court of the non-substitution of Reyes, who died during the pendency of the appeal, the Court notes that when Riviera filed its petition with this Court and assigned this [50] error, it later filed on October 27, 1994 a Manifestation with the Court of Appeals stating that it has discovered that Reyes is already dead, in view of which the appellate court issued a Resolution dated December 16, 1994 which noted the manifestation of Riviera and directed the counsel of Reyes to submit a copy of the latters death certificate and to file the [51] proper motion for substitution of party. Complying therewith, the necessary motion for substitution of deceased Reyes, who died on January 7, 1994, was filed by the heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. [52] [53] Reyes. Acting on the motion for substitution, the Court of Appeals granted the same. Notwithstanding the foregoing, Section 16 and 17 of Rule 3 of the Revised Rules of Court, upon which Riviera anchors its argument, has already been amended by the 1997 [56] Rules of Civil Procedure. Even applying the old Rules, the failure of a counsel to comply with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to inform the court of the death of his client and no substitution of such is effected, will not invalidate the [57] proceedings and the judgment thereon if the action survives the death of such party, as
[54] [55]

this case does, since the death of Reyes did not extinguish his civil personality. The appellate court was well within its jurisdiction to proceed as it did with the case since the death of a party is not subject to its judicial notice. Needless to stress, the purpose behind the rule on substitution of parties is the protection of the right of every party to due process. This purpose has been adequately met in this case since both parties argued their respective positions through their pleadings in the trial court and the appellate court. Besides, the Court has already acquired jurisdiction over the heirs of Reyes by [58] voluntarily submitting themselves to our jurisdiction. In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its challenged Decision. WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement as to costs. SO ORDERED.

THIRD DIVISION

and postal address at 1918 Kamias Street, Damarias Village, Makati, Metro Manila, where they (sic) may be served with summons and other court processes. Xerox copy of the general power of attorney is hereto attached as Annex A. 2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) Paraaque, Metro Manila with transfer certificate of title nos. S-19637, S19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are hereto attached as Annexes B to I, respectively. 3. On November 28, 1977, a certain Frederick Chua leased the above-described property from defendant Catalina L. Santos, the said lease was registered in the Register of Deeds. Xerox copy of the lease is hereto attached as Annex J. 4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos, the said assignment was also registered. Xerox copy of the deed of assignment is hereto attached as Annex K. 5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Paraaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos, the same was duly registered, Xerox copy of the deed of assignment is hereto attached as Annex L. 6. Paragraph 9 of the assigned leased (sic) contract provides among others that: 9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease; 7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the contract of lease, for the first option or priority to buy was not offered by defendant Santos to the plaintiff. Xerox copy of the deed of sale is hereto attached as Annex M. 8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of the properties to defendant Raymundo, the said letter was personally handed by the attorney-in-fact of defendant Santos, Xerox copy of the letter is hereto attached as Annex N.

[G.R. No. 111538. February 26, 1997]

PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents. DECISION PANGANIBAN, J.: Do allegations in a complaint showing violation of a contractual right of first option or priority to buy the properties subject of the lease constitute a valid cause of action? Is the grantee of such right entitled to be offered the same terms and conditions as those given to a third party who eventually bought such properties? In short, is such right of first refusal enforceable by an action for specific performance? These questions are answered in the affirmative by this Court in resolving this petition [1] for review under Rule 45 of the Rules of Court challenging the Decision of the Court of [2] Appeals promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled Paraaque [3] Kings Enterprises, Inc. vs. Catalina L. Santos, et al., which affirmed the order of [4] September 2, 1991, of the Regional Trial Court of Makati, Branch 57, dismissing Civil Case No. 91-786 for lack of a valid cause of action.

Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a [5] complaint, which is reproduced in full below: Plaintiff, by counsel, respectfully states that: 1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, Paraaque, Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton, California, USA, represented in this action by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No, 12, San Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of attorney. Defendant David A. Raymundo, is of legal age, single, with residence

9. Upon learning of this fact plaintiffs representative wrote a letter to defendant Santos, requesting her to rectify the error and consequently realizing the error, she had it reconveyed to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of the letter and the deed of reconveyance are hereto attached as Annexes O and P. 10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but therefore (sic) the said period expired another letter came from the counsel of defendant Santos, containing the same tenor of (sic) the former letter. Xerox copies of the letters are hereto attached as Annexes Q and R. 11. On May 8, 1989, before the period given in the letter offering the properties for sale expired, plaintiffs counsel wrote counsel of defendant Santos offering to buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as Annex S. 12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto attached as Annex T. 13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to defendant Raymundo. 14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiffs offer to buy or two days after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex U. 15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact that plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the letter is hereto attached as Annex V. 16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is defendant Raymundo. Xerox copy of the letter is hereto attached as Annex W. 17. From the preceding facts it is clear that the sale was simulated and that there was a collusion between the defendants in the sales of the leased properties, on the ground that when plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have (sic) the property reconveyed it (sic) to her in a matter of twelve (12) days.

18. Defendants have the same counsel who represented both of them in their exchange of communication with plaintiffs counsel, a fact that led to the conclusion that a collusion exist (sic) between the defendants. 19. When the property was still registered in the name of defendant Santos, her collector of the rental of the leased properties was her brother-in-law David Santos and when it was transferred to defendant Raymundo the collector was still David Santos up to the month of June, 1990. Xerox copies of cash vouchers are hereto attached as Annexes X to HH, respectively. 20. The purpose of this unholy alliance between defendants Santos and Raymundo is to mislead the plaintiff and make it appear that the price of the leased property is much higher than its actual value of FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a higher price. 21. Plaintiff has made considerable investments in the said leased property by erecting a two (2) storey, six (6) doors commercial building amounting to THREE MILLION (P3,000,000.00) PESOS. This considerable improvement was made on the belief that eventually the said premises shall be sold to the plaintiff. 22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost of the building and as such defendants should be charged of the same amount for actual damages. 23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff in the process suffered mental anguish, sleepless nights, bismirched (sic) reputation which entitles plaintiff to moral damages in the amount of FIVE MILLION (P5,000,000.00) PESOS. 24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner and as a deterrent to the commission of similar acts, they should be made to answer for exemplary damages, the amount left to the discretion of the Court. 25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed, but defendants refused and failed to comply with plaintiffs just and valid and (sic) demands. Xerox copies of the demand letters are hereto attached as Annexes KK to LL, respectively. 26. Despite repeated demands, defendants failed and refused without justifiable cause to satisfy plaintiffs claim, and was constrained to engaged (sic) the services of undersigned counsel to institute this action at a contract fee of P200,000.00, as and for attorneys fees, exclusive of cost and expenses of litigation.

PRAYER WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff and against defendants and ordering that: a. The Deed of Sale between defendants dated May 15, 1989, be annulled and the leased properties be sold to the plaintiff in the amount of P5,000,000.00; b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages; c. Defendants pay the sum of P5,000,000.00 as moral damages; d. Defendants pay exemplary damages left to the discretion of the Court; e. Defendants pay the sum of not less than P200,000.00 as attorneys fees. Plaintiff further prays for other just and equitable reliefs plus cost of suit. Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of cause of action, estoppel and laches. On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action. It ratiocinated thus: Upon the very face of the plaintiffs Complaint itself, it therefore indubitably appears that the defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff for P15 M. The said offers, however, were plainly rejected by the plaintiff which scorned the said offer as RIDICULOUS. There was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant Santos. For in acquiring the said properties back to her name, and in so making the offers to sell both by herself (attorney-in-fact) and through her counsel, defendant Santos was indeed conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. x x x xxx xxx xxx

grounds of estoppel and laches inasmuch as this resolution is sufficient to dispose the [6] matter. Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further reasoned that: x x x Appellants protestations that the P15 million price quoted by appellee Santos was reduced to P9 million when she later resold the leased properties to Raymundo has no valid legal moorings because appellant, as a prospective buyer, cannot dictate its own price and forcibly ram it against appellee Santos, as owner, to buy off her leased properties considering the total absence of any stipulation or agreement as to the price or as to how [7] the price should be computed under paragraph 9 of the lease contract, x x x Petitioner moved for reconsideration but was denied in an order dated August 20, [8] 1993. Hence this petition. Subsequently, petitioner filed an Urgent Motion for the Issuance of Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David A. [9] Raymundo in Contempt of Court. The motion sought to enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed before the barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said ejectment complaint or of any similar action that may have been filed; and to require respondent Raymundo to explain why he should not be held in contempt of court for forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner arose from the expiration of the lease contract covering the property subject of this case. The ejectment suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof renders the said motion moot and academic.

Issue

The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging breach of the contractual right of first option or priority to buy states a valid cause of action. Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law, and (3) damages. Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not raising a question of law as the issue involved is purely factual -- whether respondent Santos complied with paragraph 9 of the lease agreement -and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12) copies of the petitioners brief. Both maintain that the complaint filed by petitioner before the Regional Trial Court of Makati stated no valid cause of action and that

This is indeed one instance where a Complaint, after barely commencing to create a cause of action, neutralized itself by its subsequent averments which erased or extinguished its earlier allegations of an impending wrong. Consequently, absent any actionable wrong in the very face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or devoid of any meaning or purpose. x x x The inescapable result of the foregoing considerations point to no other conclusion than that the Complaint actually does not contain any valid cause of action and should therefore be as it is hereby ordered DISMISSED. The Court finds no further need to consider the other

petitioner failed to substantiate its claim that the lower courts decided the same in a way not in accord with law and applicable decisions of the Supreme Court; or that the Court of Appeals has sanctioned departure by a trial court from the accepted and usual course of judicial proceedings so as to merit the exercise by this Court of the power of review under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that petitioners payment of rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment of the latters status as new owner-lessor of said property, by virtue of which petitioner is deemed to have waived or abandoned its first option to purchase. Private respondents likewise contend that the deed of assignment of the lease agreement did not include the assignment of the option to purchase. Respondent Raymundo further avers that he was not privy to the contract of lease, being neither the lessor nor lessee adverted to therein, hence he could not be held liable for violation thereof.

complaint to constitute a cause of action is whether, admitting the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of the petition or complaint. A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an [12] action for recovery of damages. In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in mind that the complaint does not have to establish or allege facts proving the existence of a cause of action at the outset; this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has [13] been defectively stated, or is ambiguous, indefinite or uncertain. Equally important, a defendant moving to dismiss a complaint on the ground of lack of [14] cause of action is regarded as having hypothetically admitted all the averments thereof. A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the first option or priority to purchase the leased properties in case Santos decided to sell. If Santos never decided to sell at all, there can never be a breach, much less an enforcement of such right. But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected because of the ridiculous price. But Santos again appeared to have violated the same provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial on the merits where each party can present [15] evidence to prove their respective allegations and defenses. The trial and appellate courts based their decision to sustain respondents motion to dismiss on the allegations of Paraaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had verily complied with her obligation to grant the right of first refusal to petitioner. We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the amount ofP9 million, the price for which they were finally sold to respondent Raymundo, should have likewise been first offered to petitioner. The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs.

The Courts Ruling

Preliminary Issue: Failure to File Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly petitioners failure to file twelve (12) copies of its brief. We have ruled that when non-compliance with the Rules was not intended for delay or did not result in prejudice to the adverse party, dismissal of appeal on mere technicalities in cases where appeal is a matter of right -[10] may be stayed, in the exercise of the courts equity jurisdiction. It does not appear that respondents were unduly prejudiced by petitioners nonfeasance. Neither has it been shown that such failure was intentional.

Main Issue: Validity of Cause of Action

We do not agree with respondents contention that the issue involved is purely factual. The principal legal question, as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid cause of action. Since such question assumes the facts alleged in the complaint as true, it follows that the determination thereof is one of law, and not of facts. There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or the falsehood of [11] alleged facts. At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such ground must appear on the face of the complaint; that to determine the sufficiency of a cause of action, only the facts alleged in the complaint and no others should be considered; and that the test of sufficiency of the facts alleged in a petition or

Bonnevie. In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a right of first priority to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was P600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the same terms and conditions previously offered to the Bonnevies. Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first priority, all things and conditions being equal. This Court interpreted this proviso to mean that there should be identity of terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that the same rule applies even without the same proviso if the right of first refusal (or the first option to buy) is not to be rendered illusory. From the foregoing, the basis of the right of the first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the ** grantee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, *** under the same terms as offered to the grantee . This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair [17] Theater, Inc. which was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty considering that Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period (underscoring supplied). In that case, two contracts of lease between Carmelo and Mayfair provided that if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same. Carmelo initially offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly * violating the right of first refusal of Mayfair, and Equatorial for purchasing the property despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.
*

[16]

No cause of action under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its right of first refusal. It claims to be covered under said law, being the rightful occupant of the land and its structures since it is the lawful lessee thereof by reason of contract. Under the lease contract, petitioner would have occupied the property for fourteen (14) years at the end of the contractual period. Without probing into whether petitioner is rightfully a beneficiary under said law, suffice [18] it to say that this Court has previously ruled that under Section 6 of P.D. 1517, the terms and conditions of the sale in the exercise of the lessees right of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land Management Committee. Hence, x x x certain prerequisites must be complied with by anyone who [19] wishes to avail himself of the benefits of the decree. There being no allegation in its complaint that the prerequisites were complied with, it is clear that the complaint did fail to state a cause of action on this ground.

Deed of Assignment included the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to petitioner did not include the option to purchase. The provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that: x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and participation over said premises afore-described, x x [20] x (underscoring supplied) And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that: x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and [21] participation over said leased premises, x x x (underscoring supplied) One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessees right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed of assignment need not be very specific as to which rights and obligations were passed on to the assignee. It is understood in the general provision aforequoted that all specific rights and obligations contained in the contract of lease are those referred to as being

assigned. Needless to state, respondent Santos gave her unqualified conformity to both assignments of rights.

Respondent Raymundo privy to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal. In order then to accord complete relief to petitioner, respondent Raymundo was a [22] necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy. Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first refusal and that the trial court should thus not have dismissed the complaint, we find no more need to pass upon the question of whether the complaint states a cause of action for damages or whether the complaint is barred by estoppel or laches. As these matters require presentation and/or determination of facts, they can be best resolved after trial on the merits. While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their day in court. While, in the resolution of a motion to dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such admission is merely hypothetical and only for the purpose of resolving the motion. In case of denial, the movant is not to be deprived of the right to submit its own case and to submit evidence to rebut the allegations in the complaint. Neither will the grant of the motion by a trial court and [23] the ultimate reversal thereof by an appellate court have the effect of stifling such right. So too, the trial court should be given the opportunity to evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand the instant case to the trial court to allow private respondents to have their day in court. WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are hereby REVERSED and SET ASIDE. The case isREMANDED to the Regional Trial Court of Makati for further proceedings. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 72306 October 6, 1988 DAVID P. FORNILDA, JUAN P. FORNILDA, EMILIA P. FORNILDA OLILI, LEOCADIA P. FORNILDA LABAYEN and ANGELA P. FORNILDA GUTIERREZ, petitioners, vs. THE BRANCH 164, REGIONAL TRIAL COURT IVTH JUDICIAL REGION, PASIG, JOAQUIN C. ANTONIO Deputy Sheriff, RTC, 4JR Tanay, Rizal and ATTY. SERGIO I. AMONOY respondents. Irene C. Ishiwata for petitioner A. Gutierrez. Sergio L Amonoy for and in his own behalf.

Eight (8) days thereafter, or on 20 January 1965, Alfonso 1. Fornilda and Asuncion M. Pasamba executed a Contract of Mortgage wherein they mortgaged the Controverted Parcels to Respondent Amonoy as security for the payment of his attorney's fees for services rendered in the aforementioned intestate proceedings, in the amount of P27,600.00 (Annex "A", Comment). Asuncion M. Pasamba died on 24 February 1969 while Alfonso 1. Fornilda passed away on 2 July 1969. Petitioners are some of the heirs of Alfonso I. Fornilda. Since the mortgage indebtedness was not paid, on 21 January 1970, Respondent Amonoy instituted foreclosure proceedings before the Court of First Instance of Rizal, at Pasig, Branch VIII entitled "Sergio I. Amonoy vs. Heirs of Asuncion M. Pasamba and Heirs of Alfonso 1. Fornilda" [Civil Case No. 12726] (Annex "B", Ibid.). Petitioners, as defendants therein, alleged that the amount agreed upon as attorney's fees was only Pll,695.92 and that the sum of P27,600.00 was unconscionable and unreasonable. Appearing as signatory counsel for Respondent Amonoy was Atty. Jose S. Balajadia. On 28 September 1972, the Trial Court rendered judgement in the Foreclosure Case ordering the Pasamba and Fornilda heirs to pay Respondent Amonoy, within ninety (90).days from receipt of the decision, the sums of P27,600.00 representing the attorney's fees secured by the mortgage; Pl l,880.00 as the value of the harvest from two (2) parcels of land; and 25% of the total of the two amounts, or P9,645.00, as attorney's fees, failing which the Controverted Parcels would be sold at public auction (Annex "C", Ibid.). On 6 February 1973, the Controverted Parcels were foreclosed and on 23 March 1973, an auction sale was held with Respondent Amonoy as the sole bidder for P23,760.00 (Annex "D", Ibid.). Said sale was confirmed by the Trial Court on 2 May 1973 (Annex "E", Ibid.). To satisfy the deficiency, another execution sale was conducted with Respondent Amonoy as the sole bidder for P12,137.50. On the basis of an Affidavit of Consolidation of Ownership by Respondent Amonoy, the corresponding tax declarations covering the Controverted Parcels were consolidated in his name. On 19 December 1973, or a year after the judgment in the Foreclosure Case, an action for Annulment of Judgment entitled "Maria Penano et al. vs. Sergio Amonoy, et al." (Civil Case No. 18731) was filed before the then Court of First Instance of Rizal, at Pasig the Annulment Case (Annex "F", Ibid.) Petitioners were also included as plaintiffs. Appearing for the plaintiffs in that case was Atty. Jose F. Tiburcio. Squarely put in issue were the propriety of the mortgage, the validity of the judgment in the Foreclosure Case, and the tenability of the acquisitions by Respondent Amonoy at the Sheriffs sale. Of particular relevance to the instant Petition is the contention that the mortgage and the Sheriffs sales were null and void as contrary to the positive statutory injunction in Article 1491 (5) of the Civil Code, which prohibits attorneys from purchasing, even at a public or judicial auction, properties and rights in litigation, and that the Trial Court, in the Foreclosure Case, had never acquired jurisdiction over the subject matter of the action, i.e., the Controverted Parcels.
1

MELENCIO-HERRERA, J.: The Petition entitled "Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos", translated as one for certiorari with Preliminary Injunction, was filed on 27 September 1985 by three (3) petitioners, namely David P. Fornilda, Emilia P. Fornilda-Olili and Angela P. Fornilda-Gutierrez. They seek the reversal of the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16 May 1986 (p. 241, Rollo), directing and authorizing respondent Sheriff to demolish the houses of petitioners Angela and Leocadia Fornilda (who is listed as a petitioner but who did not sign the Petition). Neither is Juan P. Fornilda a signatory. The facts disclose that the deceased, Julio M. Catolos formerly owned six (6) parcels of land located in Tanay, Rizal, which are the controverted properties in the present litigation. His estate was the subject of settlement in Special Proceedings No. 3103 of the then Court of First Instance of Rizal, at Pasig, Branch 1. Francesca Catolos Agnes Catolos Alfonso I. ForniIda and Asuncion M. Pasamba were some of the legal heirs and were represented in the case by Atty. Sergio Amonoy (hereinafter referred to as Respondent Amonoy). A Project of Partition was filed in the Intestate Court whereby the Controverted Parcels were adjudicated to Alfonso I. Fornilda and Asuncion M. Pasamba. On 12 January 1965, the Court approved the Project of Partition. It was not until 6 August 1969, however, that the estate was declared closed and terminated after estate and inheritance taxes had been paid, the claims against the estate settled and all properties adjudicated.

On 7 November 1977, the Trial Court dismissed the Annulment Case holding that the particular disqualification in Article 1491 of the Civil Code is not of general application nor of universal effect but must be reconciled with the rule that permits judgment creditors to be bidders at sheriffs sales, so that Respondent Amonoy was "clearly not prohibited from bidding his judgment and his acquisitions therefore are sanctioned by law" (Annex "G", Ibid.). On 22 July 1981, the Court of Appeals (in CA-G.R. No. 63214-R) (the Appealed 3 Case) affirmed the aforesaid judgment predicated on three principal grounds: (1) that no legal impediment exists to bar an heir from encumbering his share of the estate after a project of partition has been approved, that act being a valid exercise of his right of ownership; (2) res judicata, since petitioners never questioned the capacity of Respondent Amonoy to acquire the property in the Foreclosure Case; and (3) the complaint in the Annulment Case did not allege extrinsic fraud nor collusion in obtaining the judgment so that the action must fail. Upon remand of the Foreclusure Case to respondent Regional Trial Court, Branch 164, at Pasig, Respondent Sheriff, on 26 August 1985, notified petitioners to vacate the premises (p. 17, Rollo), subject of the Writ of Possession issued on 25 July 1985 (p. 18, Rollo). On 27 September 1985, petitioners came to this Court in a pleading entitled "Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos". On 11 November 1985, we dismissed the petition for non-payment of docket and other fees. However, upon payment thereof, the Order of dismissal was set aside and respondents were directed to submit their Comment. In his Comment, Respondent Amonoy denies that he had acquired the Controverted Parcels through immoral and illegal means contending that "the question of attorney's fees, the mortgage to secure the same, the sale of the mortgaged properties at public auction, which was confirmed by the Court, and ultimately, the ownership and possession over them, have all been judicially adjudicated (p. 146, Rollo) We gave due course to the petition and required the filing of the parties' respective memoranda. Meanwhile, on motion of Respondent Amonoy, dated 24 April 1986, respondent Trial Court, in the Foreclosure Case, issued Orders dated 25 April and 16 May 1986 authorizing the demolition of the houses and other structures of petitioners Leocadia and Angela Fornilda (p. 241, Rollo). On 1 June 1986 the house of Angela Fornilda was totally demolished while that of Leocadia was spared due to the latter's assurance that she would seek postponement. On 1 June 1986, in a pleading entitled "Mahigpit na Musiyung Para Papanagutin Kaugnay ng Paglalapastangan", followed by a Musiyung Makahingi ng Utos sa Pagpapapigil ng Pagpapagiba at Papanagutin sa Paglalapastangan' petitioners applied for a Restraining Order, which we granted on 2 June 1986, enjoining respondents and the Sheriff of Rizal from demolishing petitioners' houses (p. 221, Rollo). In a pleading entitled 'Mahigpit na Musiyung para Papanagutin Kaugnay ng Paglapastangan' and 'Masasamang Gawain (Mal-

Practices)' and 'Paninindigan (Memorandum)' both filed on 16 June 1988, petitioners likewise charged Respondent Amonoy with malpractice and prayed for his disbarment (pp. 224; 226, Rollo). In Respondent Amonoy's "Comment and Manifestations" filed on 30 June 1986, he indicated that the Restraining Order received by the Deputy Sheriff of Rizal only on 6 June 1986 had already become moot and academic as Angela Fornilda's house had been demolished on 2 June 1986 while Leocadia offered to buy the small area of the land where her house is built and he had relented. In the interim, Respondent Amonoy was appointed as Assistant Provincial Fiscal of Rizal, and subsequently as a Regional Trial Court Judge in Pasay City. The threshold issue is whether or not the mortgage constituted on the Controverted Parcels in favor of Respondent Amonoy comes within the scope of the prohibition in Article 1491 of the Civil Code. The pertinent portions of the said Articles read: Art. 1491. The following persons cannot acquire by purchase even at a public or judicial or auction, either in person or through the mediation of another: xxx xxx xxx (5) Justices, judges, prosecuting attorneys, ... the property and rights in litigation or levied upon on execution before the court within whose junction or territory they exercise their respective functions; this prohibition includes the act of acquitting by 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. (Emphasis supplied) Under the aforequoted provision, a lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession ( Padilla Vol. H Civil Law, 1974 Ed., p. 230 citing Hernandez vs. Villanueva, 40 Phil. 773 and Rubias vs. Batiller 51 SCRA 130). The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales (ibid., p. 221). The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved i.e., the relation of trust and confidence and the peculiar control exercised by these persons (Paras, Civil Code, Vol. V, 1973., p. 70).

In the instant case, it is undisputed that the Controverted Parcels were part of the estate of the late Julio M. Catolos subject of intestate estate proceedings, wherein Respondent Amonoy acted as counsel for some of the heirs from 1959 until 1968 by his own admission (Comment, p. 145, Rollo); that these properties were adjudicated to Alfonso Fornilda and Asuncion M. Pasamba in the Project of Partition approved by the Court on 12 January 1965; that on 20 January 1965, or only eight (8) days thereafter, and while he was still intervening in the case as counsel, these properties were mortgaged by petitioners' predecessor-ininterest to Respondent Amonoy to secure payment of the latter's attorney's fees in the amount of P27,600.00; that since the mortgage indebtedness was not paid, Respondent Amonoy instituted an action for judicial foreclosure of mortgage on 21 January 1970; that the mortgage was subsequently ordered foreclosed and auction sale followed where Respondent Amonoy was the sole bidder for P23,600.00; and that being short of the mortgage indebtedness, he applied for and further obtained a deficiency judgment. Telling, therefore, is the fact that the transaction involved falls squarely within the prohibition against any acquisition by a lawyer of properties belonging to parties they represent which are still in suit. For, while the Project of Partition was approved on 12 January 1965, it was not until 6 August 1969 that the estate was declared closed and terminated (Record on Appeal, Civil Case No. 3103, p. 44). At the time the mortgage was executed, therefore, the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected by the prohibition, when a lawyer occupies a vantage position to press upon or dictate terms to an harassed client. What is more, the mortgage was executed only eight (8) days after approval of the Project of Partition thereby evincing a clear intention on Respondent Amonoy's part to protect his own interests and ride roughshod over that of his clients. From the time of the execution of the mortgage in his favor, Respondent Amonoy had already asserted a title adverse to his clients' interests at a time when the relationship of lawyer and client had not yet been severed. The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate proceedings will not remove it from the scope of the prohibition. To rule otherwise would be to countenance indirectly what cannot be done directly. There is no gainsaying that petitioners' predecessor-in-interest, as an heir, could encumber the property adjudicated to him; that the Complaint in the Annulment Case did not contain any specific allegation of fraud or collusion in obtaining the judgment appealed from as opined by the Court of appeals in the Appealed Case; and that the auction sale of the properties to Respondent Amonoy was judicially confirmed and ownership and possession of the Controverted Parcels ultimately transferred to him. Nonetheless, considering that the mortgage contract, entered into in contravention of Article 1491 of the Civil Code, supra, is expressly prohibited by law, the same must be held inexistent and void ab initio (Director of Lands vs. Abagat, 53 Phil. 147). Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; xxx xxx xxx (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. (Civil Code) Being a void contract, the action or defense for the declaration of its inesistence is imprescriptible (Article 1410, Civil Code). The defect of a void or inexistence contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived (Article 1409, Civil Code). The Controverted Parcels could not have been the object of any mortgage contract in favor of Respondent Amonoy and consequently neither of a foreclosure sale. By analogy, the illegality must be held to extend to whatsover results directly from the illegal source (Article 1422, Civil Code). Such being the case, the Trial Court did not acquire any jurisdiction over the subject matter of the Foreclosure Case and the judgment rendered therein could not have attained any finality and could be attacked at any time. Neither could it have been a bar to the action brought by petitioners for its annulment by reason of res judicata. (Municipality of Antipolo vs. Zapanta, No. L-65334, December 26, 1984, 133 SCRA 820). Two of the requisites of the rule of prior judgment as a bar to a subsequent case, namely, (1) a final judgment and (2) that it must have been rendered by a Court having jurisdiction over the subject matter, are conspicuously absent. And since the nullity of the transaction herein involved proceeds from the illegality of the cause or object of the contract, and the act does not constitute a criminal offense, the return to petitioners of the Controverted Parcels is in order. Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: xxx xxx xxx (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. (Civil Code). WHEREFORE, certiorari is granted; the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16 May 1986, directing and authorizing respondent Sheriff to demolish the houses of petitioners

Angela and Leocadia Fornilda are hereby set aside, and the Temporary Restraining Order heretofore issued, is made permanent. The six (6) parcels of land herein controverted are hereby ordered returned to petitioners unless some of them have been conveyed to innocent third persons. With respect to petitioners' prayer for disbarment by reason of malpractice of Respondent Amonoy embodied in their pleading entitled 'Mahigpit na Musiyung para Papanagutin Kaugnay ng Paglalapastangan' and 'Masasamang Gawain (Mal-Pracrices) and "Paninindigan (Memorandum)" both filed on Sergio I. Amonoy is hereby required, within fifteen (15) days from notice hereof, to submit an Answer thereto. After receipt of the same, a new docket number will be assigned to the case. Costs against respondent, Sergio I. Amonoy. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-26096 February 27, 1979 THE DIRECTOR OF LANDS, petitioner, vs. SILVERETRA ABABA, ET AL., claimants, JUAN LARRAZABAL, MARTA C. DE LARRAZABAL, MAXIMO ABAROQUEZ and ANASTACIA CABIGAS, petitionersappellants, ALBERTO FERNANDEZ, adverse claimant-appellee. Juanito Ll. Abao for petitioners-appellants. Alberto R Fernandez in his own behalf.

That I, MAXIMO ABARQUEZ, Plaintiff in Case No. R-6573 of the Court of First Instance of Cebu, make known through this agreement that for the services rendered by Atty. Alberto B. Fernandez who is my lawyer in this case, if the appeal is won up to the Supreme Court, I Promise and will guarantee that I win give to said lawyer one-half (1/2) of what I may recover from the estate of my father in Lots No. 5600 and 5602 which are located at Bulacao Pardo, City of Cebu. That with respect to any money which may be adjudged to me from Agripina Abarquez, except 'Attorney's Fees', the same shall pertain to me and not to said lawyer. IN WITNESS WHEREOF, I have caused my right thumb. mark to be affixed hereto this 10th of June, 1961, at the City of Cebu.

MAKASIAR, J.: This is an appeal from the order of the Court of First Instance of Cebu dated March 19, 1966 denying the petition for the cancellation of an adverse claim registered by the adverse claimant on the transfer certificate of title of the petitioners. The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First Instance of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the annulment of a contract of sale with right of repurchase and for the recovery of the land which was the subject matter thereof. The Court of First Instance of Cebu rendered a decision on May 29, 1961 adverse to the petitioner and so he appealed to the Court of Appeals. Litigating as a pauper in the lower court and engaging the services of his lawyer on a contingent basis, petitioner, liable to compensate his lawyer whom he also retained for his appeal executed a document on June 10, 1961 in the Cebuano-Visayan dialect whereby he obliged himself to give to his lawyer one-half (1/2) of whatever he might recover from Lots 5600 and 5602 should the appeal prosper. The contents of the document as translated are as follows: AGREEMENT KNOW ALL MEN BY THESE PRESENTS:

(p. 5, Petitioner-Appellant's Brief, p. 26, rec.) The real Property sought to be recovered in Civil Case No. R6573 was actually the share of the petitioner in Lots 5600 and 5602, which were part of the estate of his deceased parents and which were partitioned the heirs which included petitioner Maximo Abarquez and his elder sister Agripina Abarquez, the defendant in said civil case.

This partition was made pursuant to a project of partition approved by the Court which provided am other that Lots Nos. 5600 and 5602 were to be divided into three equal Parts, one third of which shall be given to Maximo Abarquez. However, Agripina Abarquez the share of her brother stating that the latter executed an instrument of pacto de retroprior to the partition conveying to her any or all rights in the estate of their parents. Petitioner discovered later that the claim of his sister over his share was based on an instrument he was believe all along to be a mere acknowledgment of the receipt of P700.00 which his sister gave to him as a consideration for g care of their father during the latter's illness and never an instrument of pacto de retro. Hence, he instituted an action to annul the alleged instrument of pacto de retro. The Court of Appeals in a decision promulgated on August 27, 1963 reversed the decision of the lower court and annulled the dead of pacto de retro. Appellee Agripina Abarquez filed a motion for reconsideration but the same was denied in a resolution dated January 7, 1964 (p. 66, Record on Appeal; p. 13, Rec.) and the judgment became final and executory on January 22,1964. Subsequently, Transfer Certificate of Title No. 31841 was issued on May 19,1965 in the name of Maximo Abarquez, married to Anastacia Cabigas, over his adjudged share in Lots Nos. 5600 and 5602 containing an area of 4,085 square meters (p. 110, ROA; p. 13, rec.). These parcels of land later by the subject matter of the adverse claim filed by the claimant. The case having been resolved and title having been issued to petitioner, adverse claimant waited for petitioner to comply with ha obligation under the document executed by him on June 10, 1961 by delivering the one-half () portion of the said parcels of land. Petitioner refused to comply with his obligation and instead offered to sell the whole parcels of land covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. Upon being informed of the intention of the petitioner, adverse t claimant immediately took stops to protect his interest by filing with the trial court a motion to annotate Ins attorney's lien on TCT No. 31841 on June 10, 1965 and by notifying the prospective buyers of his claim over the one-half portion of the parcels of land. Realizing later that the motion to annotate attorney's lien was a wrong remedy, as it was not within the purview of Section 37, rule 138 of the Revised Rule of Court, but before the same was by the trial court, adverse t by an affidavit of adverse claim on July 19, 1965 with the Register of Deeds of Cebu (p. 14, ROA; p. 13, rec.). By virtue of the petition of mid affidavit the adverse claim for one-half () of the lots covered by the June 10, 1961 document was annotated on TCT No. 31841. Notwithstanding the annotation of the adverse claim, petitioner-spouse Maximo Abarquez and Anastacia Cabigas conveyed by deed of absolute sale on July 29, 1965 two-thirds (2/3) of the lands covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. When the new transfer certificate of title No. 32996 was issued, the annotation of adverse claim on TCT No. 31841 necessarily had to appear on the new transfer certificate of title. This adverse claim on TCT No. 32996 became the subject of

cancellation proceedings filed by herein petitioner-spouses on March 7, 1966 with the Court of First Instance of Cebu (p. 2 ROA; p. 13, rec.). The adverse claimant, Atty. Alberto B. Fernandez, filed his opposition to the petition for cancellation on March 18, 1966 (p. 20, ROA; p. 13 rec.). The trial court resolved the issue on March 19, 1966, when it declared that: ...the petition to cancel the adverse claim should be denied. The admission by the petitioners that the lawyers (Attys. Fernandez and Batiguin) are entitled to only one-third of the lot described in Transfer Certificate of Title No. 32966 is the best proof of the authority to maintain said adverse claim (p. 57, ROA; p. 13, rec.). Petitioner-spouses decided to appeal the order of dismissal to this Court and correspondingly filed the notice of appeal on April 1, 1966 with the trial court. On April 2, 1966, petitioner-spouses filed the appeal bond and subsequently filed the record on appeal on April 6, 1966. The records of the case were forwarded to this Court through the Land Registration Commission of Manila and were received by this Court on May 5, 1966. Counsel for the petitioner-spouses filed the printed record on appeal on July 12, 1966. Required to file the appellants' brief, counsel filed one on August 29, 1966 while that of the appellee was filed on October 1, 1966 after having been granted an extension to file his brief. The case was submitted for decision on December 1, 1966. Counsel for the petitioners filed a motion to expunge appellees' brief on December 8, 1966 for having been filed beyond the reglementary period, but the same was denied by this Court in a resolution dated February 13, 1967. The pivotal issue to be resolved in the instant case is the validity or nullity of the registration of the adverse claim of Atty. Fernandez, resolution of which in turn hinges on the question of whether or not the contract for a contingent fee, basis of the interest of Atty. Fernandez, is prohibited by the Article 1491 of the New Civil Code and Canon 13 of the Canons of Professional Ethics. Petitioners contend that a contract for a contingent fee violates Article 1491 because it involves an assignment of a property subject of litigation. That article provides: Article 1491. The following persons cannot acquire by purchase even at a public or judicial auction, either in person or through the petition of another. xxx xxx xxx (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior and other o and employees connected with the administration of justice,

the property and rights 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 by 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 (Emphasis supplied). This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer and his client, of property which is the subject of litigation. As WE have already stated. "The prohibition in said article a only to applies stated: " The prohibition in said article applies only to a sale or assignment to the lawyer by his client of the property which is the subject of litigation. In other words, for the prohibition to operate, the sale or t of the property must take place during the pendency of the litigation involving the property" (Rosario Vda. de Laig vs. Court of Appeals, et al., L-26882, November 21, 1978). Likewise, under American Law, the prohibition does not apply to "cases where after completion of litigation the lawyer accepts on account of his fee, an interest the assets realized by the litigation" (Drinker, Henry S., Legal Ethics, p. 100 [1953], citing App. A, 280; N.Y. Ciu 714). "There is a clear distraction between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed" (Drinker, supra, p. 100 citing A.B.A. Op. 279). A contract for a contingent fee is not covered by Article 1491 because the tranfer or assignment of the property in litigation takes effect only after the finality of a favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer or assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers. Therefore, the tranfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. Consequently, the contract for a contingent fee is not covered by Article 1491. While Spanish civilists differ in their views on the above issue whether or not a contingent fee contract (quota litis agreement) is covered by Article 1491 with Manresa advancing that it is covered, thus: Se ha discutido si en la incapacidad de Ion Procumdam y Abogados asta o el pecto de quota litis. Consiste este, como es sabido, en la estipulacion de que el Abogado o el Procurador ban de hacer suyos una parte alicuota de In cona que se li m la son es favorable. Con es te concepto a la vista, es para nosortros que el articulo que comentamos no menciona ese pacto; pero como la incapacidad de los Abogados y Procuradores se extinede al acto de adquirir por cesion; y la efectividad del pacto dequota litis implica necesariamente una cesion, estimamos que con solo el num.

5 del articulo 1459 podria con exito la nulidad de ese pacto tradicionalmente considerado como ilicito. xxx xxx xxx Debe tenerse tambien en cuenta, respecto del ultimo parrafo del articulo 1459, la sentencia del Tribunal Supreme de 25 Enero de 1902, que delcara que si bien el procurador no puede adquirir para si los bienes, en cuanto a los cuales tiene incapacidad, puede adquirirlos para otra persona en quien no concurra incapacidad alguna (Manresa, Comentarios al Codigo Civil Espaol, Tomo X, p. 110 [4a ed., 1931] emphasis supplied). Castan, maintaining that it is not covered, opines thus; C. Prohibiciones impuestas a las personas encargadas, mas o menos directamente, de la administracion de justicia.El mismo art. 1,459 del Codigo civil prohibe a los Magistrados, Jueces, individuos del Minesterio fiscal, Secretarios de Tribunales y Juzgados y Oficiales de Justicia adquirir por compra (aunque sea en subasta publica o judicial, por si ni por persona alguna intermedia). 'Los bienes y derechos que estuviesen en litigio ante el Tribunal en cuya jurisdicion on teritorio ejercieran sus respectivas funciones, extendiendo se esta prohibicion al acto de adquirir por cesion', y siendo tambien extensiva ' Alos Abogados y Procuradores respecto a los bienes y derecho que fueran objeto del un litigio en que intervengan pos su profession y oficio.' El fundamento de esta prohibicion es clarismo. No solo se tratadice Manresade quitar la ocasion al fraude; persiguese, ademas, el proposito de rodear a las personas que intervienen en la administracion de justicia de todos los prestigios que necesitan para ejercer su ministerio, librando los de toda sospecha, que, aunque fuere infundada, redundaria en descredito de la institucion. Por no dor lugar a recelos de ninguna clase, admite el Codigo (en el apartado penutimo del art. 1.459) algunos casos en que, por excepcion, no se aplica el pricipio prohibitivo de que venimos hablando. Tales son los de que se trate de acciones hereditarias entre coheredero, de cesion en pago de creditos, o de garantia de los bienes que posean los funcionarios de justicia. Algunos autores (Goyena, Manresa, Valverde) creen que en la prohibicion del art. 1.459 esta comprendido el pacto de quota litis (o sea el convenio por el cual se concede al Abogado o Procurador, para el caso de obtener sentencia favorable una parte alicuota de la

cosa o cantidad que se litiga), porque dicho pacto supone la venta o cesion de una parte de la cosa o drecho que es objecto del litigio. Pero Mucius Scaevola oberva, conrazon, que en el repetido pacto no hay propiamente caso de compraventa ni de cesion de derechos, y bastan para estimario nulo otros preceptos del Codigo como los relativos a la ilicitud de la causa (Castan, Derecho Civil Espol, Tomo 4, pp. 68-69, [9a ed., 1956], emphasis supplied). The Supreme Court of Spain, in its sentencia of 12 November 1917, has ruled that Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) does not apply to a contract for a contingent fee because it is not contrary to morals or to law, holding that: ... que no es susceptible de aplicarse el precepto contenido en el num. 5 del art. 1.459 a un contrato en el que se restrigen los honorarios de un Abogado a un tanto por ciento de lo que se obtuviera en el litigio, cosa no repudiada por la moral ni por la ley (Tolentino, Civil Code of the Philippines, p. 35, Vol. V [1959]; Castan, supra; Manresa, supra). In the Philippines, among the Filipino commentators, only Justice Capistrano ventured to state his view on the said issue, thus: The incapacity to purchase or acquire by assignment, which the law also extends to lawyers with t to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession, also covers contracts for professional services quota litis. Such contracts, however, have been declared valid by the Supreme Court" (Capistrano, Civil Code of the Philippines, p. 44, Vol. IV [1951]). Dr. Tolentino merely restated the views of Castan and Manresa as well as the state of jurisprudence in Spain, as follows: Attorneys-at-lawSome writers, like Goyena, Manresa and Valverde believe that this article covers quota litis agreements, under which a lawyer is to be given an aliquot part of the property or amount in litigation if he should win the case for his client. Scaevola and Castan, however, believe that such a contract does not involve a sale or assignment of right but it may be void under other articles of the Code, such as those referring to illicit cause- On the other hand the Spanish Supreme Court has held that this article is not applicable to a contract which limits the fees of a lawyer to a certain percentage of what may be recovered in litigation, as this is not contrary to moral or to law. (Tolentino, Civil Code of the Philippines, p. 35, Vol. V [1959]; Castan, supra, Emphasis supplied).

Petitioners her contend that a contract for a contingent fee violates the Canons of Professional Ethics. this is likewise without merit This posture of petitioners overlooked Canon 13 of the Canons which expressly contingent fees by way of exception to Canon 10 upon which petitioners relied. For while Canon 10 prohibits a lawyer from purchasing ...any interest in the subject matter of the litigation which he is conducting", Canon 13, on the other hand, allowed a reasonable contingent fee contract, thus: "A contract for a con. tangent fee where sanctioned by law, should be reasonable under all the circumstances of the ca including the risk and uncertainty of the compensation, but should always be subject to the supervision of a court, as to its reasonableness." As pointed out by an authority on Legal Ethics: Every lawyer is intensely interested in the successful outcome of his case, not only as affecting his reputation, but also his compensation. Canon 13 specifically permits the lawyer to contract for a con tangent fee which of itself, negatives the thought that the Canons preclude the lawyer's having a stake in his litigation. As pointed out by Professor Cheatham on page 170 n. of his Case Book, there is an inescapable conflict of interest between lawyer and client in the matter of fees. Nor despite some statements to the con in Committee opinions, is it believed that, particularly in view of Canon 13, Canon 10 precludes in every case an arrangement to make the lawyer's fee payable only out of the results of the litigation. The distinction is between buying an interest in the litigation as a speculation which Canon 10 condemns and agreeing, in a case which the lawyer undertakes primarily in his professional capacity, to accept his compensation contingent on the outcome (Drinker, Henry S Legal Ethics, p. 99, [1953], Emphasis supplied). These Canons of Professional Ethics have already received "judicial recognition by being cited and applied by the Supreme Court of the Philippines in its opinion" Malcolm, Legal and Judicial Ethics, p. 9 [1949]). And they have likewise been considered sources of Legal Ethics. More importantly, the American Bar Association, through Chairman Howe of the Ethics Committee, opined that "The Canons of Professional Ethics are legislative expressions of professional opinion ABA Op. 37 [1912])" [See footnote 25, Drinker, Legal Ethics, p. 27]. Therefore, the Canons have some binding effect Likewise, it must be noted that this Court has already recognized this type of a contract as early as the case ofUlanday vs. Manila Railroad Co. (45 PhiL 540 [1923]), where WE held that "contingent fees are not prohibited in the Philippines, and since impliedly sanctioned by law 'Should be under the supervision of the court in order that clients may be protected from unjust charges' (Canons of Profession 1 Ethics)". The same doctrine was subsequently reiterated in Grey vs. Insular Lumber Co. (97 PhiL 833 [1955]) and Recto vs. Harden (100 PhiL 427 [1956]). In the 1967 case of Albano vs. Ramos (20 SCRA 171 [19671), the attorney was allowed to recover in a separate action her attomey's fee of one-third (1/3) of the lands and damages recovered as stipulated in the contingent fee contract. And this Court in the recent case of Rosario Vda de Laig vs. Court of Appeals, et al. (supra), which involved a contingent fee of

one-half () of the property in question, held than ,contingent fees are recognized in this i jurisdiction (Canon 13 of the Canons of Professional Ethics adopted by the Philippine Bar association in 1917 [Appendix B, Revised Rules of Court)), which contingent fees may be a portion of the property in litigation." Contracts of this nature are permitted because they redound to the benefit of the poor client and the lawyer "especially in cases where the client has meritorious cause of action, but no means with which to pay for legal services unless he can, with the sanction of law, make a contract for a contingent fee to be paid out of the proceeds of the litigation" (Francisco, Legal Ethics, p. 294 [1949], citing Lipscomb vs. Adams 91 S.W. 1046, 1048 [1949]). Oftentimes, contingent fees are the only means by which the poor and helpless can redress for injuries sustained and have their rights vindicated. Thus: The reason for allowing compensation for professional services based on contingent fees is that if a person could not secure counsel by a promise of large fees in case of success, to be derived from the subject matter of the suit, it would often place the poor in such a condition as to amount to a practical denial of justice. It not infrequently happens that person are injured through the negligence or willful misconduct of others, but by reason of poverty are unable to employ counsel to assert their rights. In such event their only means of redress lies in gratuitous service, which is rarely given, or in their ability to find some one who will conduct the case for a contingent fee. That relations of this king are often abused by speculative attorneys or that suits of this character are turned into a sort of commercial traffic by the lawyer, does not destroy the beneficial result to one who is so poor to employ counsel (id, at p. 293, citing Warvelle, Legal Ethics, p. 92, Emphasis supplied). Justice George Malcolm, writing on contingent fees, also stated that: ... the system of contingent compensation has the merit of affording to certain classes of persons the opportunity to procure the prosecution of their claims which otherwise would be beyond their means. In many cases in the United States and the Philippines, the contingent fee is socially necessary (Malcolm, Legal and Judicial Ethics, p. 55 [1949], emphasis supplied). Stressing further the importance of contingent fees, Professor Max Radin of the University of California, said that: The contingent fee certainly increases the possibility that vexatious and unfounded suits will be brought. On the other hand, it makes possible the enforcement of legitimate claims which otherwise would be abandoned because of the poverty of the claimants. Of these two possibilities, the social advantage seems clearly on the side of the contingent fee. It may in fact be added by way of reply to the first objection that vexations and

unfounded suits have been brought by men who could and did pay substantial attorney's fees for that purpose (Radin, Contingent Fees in California, 28 Cal. L. Rev. 587, 589 [1940], emphasis supplied). Finally, a contingent fee contract is always subject to the supervision of the courts with respect to the stipulated amount and may be reduced or nullified. So that in the event that there is any undue influence or fraud in the execution of the contract or that the fee is excessive, the client is not without remedy because the court will amply protect him. As held in the case of Grey vs. Insular Lumber Co., supra, citing the case of Ulanday vs. Manila Railroad Co., supra: Where it is shown that the contract for a contingent fee was obtained by any undue influence of the attorney over the client, or by any fraud or imposition, or that the compensation is so clearly excessive as to amount to extortion, the court win in a proper case protect the aggrieved party. In the present case, there is no iota of proof to show that Atty. Fernandez had exerted any undue influence or had Perpetrated fraud on, or had in any manner taken advantage of his client, Maximo Abarquez. And, the compensation of one-half of the lots in question is not excessive nor unconscionable considering the contingent nature of the attorney's fees. With these considerations, WE find that the contract for a contingent fee in question is not violative of the Canons of Professional Ethics. Consequently, both under the provisions of Article 1491 and Canons 10 and 13 of the Canons of Profession Ethics, a contract for a contingent fee is valid In resolving now the issue of the validity or nullity for the registration of the adverse claim, Section 110 of the Land Registration Act (Act 496) should be considered. Under d section, an adverse claim may be registered only by.. Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the o registration ... if no other provision is made in this Act for registering the same ... The contract for a contingent fee, being valid, vested in Atty Fernandez an interest or right over the lots in question to the extent of one-half thereof. Said interest became vested in Atty. Fernandez after the case was won on appeal because only then did the assignment of the one-half () portion of the lots in question became effective and binding. So that when he filed his affidavit of adverse claim his interest was already an existing one. There was therefore a valid interest in the lots to be registered in favor of Atty. Fernandez adverse to Mo Abarquez. Moreover, the interest or claim of Atty. Fernandez in the lots in question arose long after the original petition which took place many years ago. And, there is no other provision of the Land Registration Act under which the interest or claim may be registered except as an adverse claim under Section 110 thereof. The interest or claim cannot be registered as an

attorney's charging lien. The lower court was correct in denying the motion to annotate the attomey's lien. A charging lien under Section 37, Rule 138 of the Revised Rules of Court is limited only to money judgments and not to judgments for the annulment of a contract or for delivery of real property as in the instant case. Said Section provides that: Section 37. An attorney shall have a lien upon the funds, documents and papers of his client which have lawfully come into his oppossession and may retain the same until his lawful fees and disbursements have been paid, and may apply such funds to the satisfaction thereof. He shall also have a lien to the same extent upon all judgments, for the payment of money, and executions issued in pursuance of such judgments, which he has secured in a litigation of his client ... (emphasis supplied). Therefore, as an interest in registered land, the only adequate remedy open to Atty. Fernandez is to register such interest as an adverse claim. Consequently, there being a substantial compliance with Section 110 of Act 496, the registration of the adverse claim is held to be valid. Being valid, its registration should not be cancelled because as WE have already stated, "it is only when such claim is found unmeritorious that the registration thereof may be cancelled" (Paz Ty Sin Tei vs. Jose Lee Dy Piao 103 Phil. 867 [1958]). The one-half () interest of Atty. Fernandez in the lots in question should therefore be respected. Indeed, he has a better right than petitioner-spouses, Juan Larrazabal and Marta C. de Larrazabal. They purchased their two-thirds (2/3) interest in the lots in question with the knowledge of the adverse claim of Atty. Fernandez. The adverse claim was annotated on the old transfer certificate of title and was later annotated on the new transfer certificate of title issued to them. As held by this Court: The annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than the registered owner thereof (Sanchez, Jr. vs. Court of Appeals, 69 SCRA 332 [1976]; Paz Ty Sin Tei vs. Jose Le Dy Piao supra). Having purchased the property with the knowledge of the adverse claim, they are therefore in bad faith. Consequently, they are estopped from questioning the validity of the adverse claim. WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE PETITION FOR THE CANCELLATION OF THE ADVERSE CLAIM SHOULD BE, AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONER-APPELLANTS JUAN LARRAZABAL AND MARTA C. DE LARRAZABAL. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-33048 April 16, 1982 EPIFANIA SARSOSA VDA. DE BARSOBIA and PACITA W. VALLAR, petitioners, vs. VICTORIANO T. CUENCO, respondent.

On September 19, 1962, respondent filed a Forcible Entry case against Epifania before the Municipal Court of Sagay, Camiguin. The case was dismissed for lack of jurisdiction since, as the laws then stood, the question of possession could not be properly determined without first settling that of ownership. On December 27, 1966, respondent instituted before the Court of First Instance of Misamis Oriental a Complaint for recovery of possession and ownership of the litigated land, against Epifania and Pacita Vallar (hereinafter referred to simply as petitioners). In their Answer below, petitioners insisted that they were the owners and possessors of the litigated land; that its sale to Ong King Po, a Chinese, was inexistent and/or void ab initio; and that the deed of sale between them was only an evidence of Epifania's indebtedness to Ong King Po. The trial Court rendered judgment: 1. Dismissing the complaint with costs against plaintiff (respondent herein). 2. Declaring the two Deeds of Sale, Exhibits A and B, respectively, inexistent and void from the beginning; and 3. Declaring defendant Pacita W. Vallar as the lawful owner and possessor of the portion of land she bought from Emeteria Barsobia (pp. 3 57, 67, Record.) On appeal, the Court of Appeals reversed the aforementioned Decision and decreed instead that respondent was the owner of the litigated property, thus: xxx xxx xxx

MELENCIO-HERRERA, J.: Sought to be reviewed herein is the judgment dated August 18, 1970, of the Court of 1 Appeals, rendered in CA-G.R. No. 41318-R, entitled "Victoriano T. Cuenco, Plaintiffappellant, vs. Epifania Sarsosa Vda. de Barsobia and Pacita W. Vallar, Defendantsappellees, " declaring Victoriano T. Cuenco (now the respondent) as the absolute owner of the coconut land in question. The lot in controversy is a one-half portion (on the northern side) of two adjoining parcels of coconut land located at Barrio Mancapagao, Sagay, Camiguin, Misamis Oriental (now 2 Camiguin province), with an area of 29,150 square meters, more or less. The entire land was owned previously by a certain Leocadia Balisado, who had sold it to the spouses Patricio Barsobia (now deceased) and Epifania Sarsosa, one of the petitioners herein. They are Filipino citizens. On September 5, 1936, Epifania Sarsosa then a widow, sold the land in controversy to a Chinese, Ong King Po, for the sum of P1,050.00 (Exhibit "B"). Ong King Po took actual possession and enjoyed the fruits thereof. On August 5, 1961, Ong King Po sold the litigated property to Victoriano T. Cuenco (respondent herein), a naturalized Filipino, for the sum of P5,000.00 (Exhibit "A"). Respondent immediately took actual possession and harvested the fruits therefrom. On March 6, 1962, Epifania "usurped" the controverted property, and on July 26, 1962, Epifania (through her only daughter and child, Emeteria Barsobia), sold a one-half (1/2) portion of the land in question to Pacita W. Vallar, the other petitioner herein (Exhibit "2"). Epifania claimed that it was not her intention to sell the land to Ong King Po and that she signed the document of sale merely to evidence her indebtedness to the latter in the amount of P1,050.00. Epifania has been in possession ever since except for the portion sold to the other petitioner Pacita.

In view of all the foregoing considerations, the judgment appealed from is hereby reversed. In lieu thereof, we render judgment: (a) Declaring the plaintiff-appellant Victoriano T. Cuenco the absolute owner of the land in question, with the right of possession thereof; (b) Ordering the defendants-appellees to restore the possession of said land to the plaintiff; (c) Dismissing the defendants' counterclaim; (d) Condemning the defendants to pay to the plaintiff the sum of P10,000.00 representing the latter's share from the sale of copra which he

failed to receive since March, 1962 when he was deprived of his possession over the land, and which defendants illegally appropriated it to their own use and benefit, plus legal interest from the filing of the complaint until fully paid; plus P2,000.00 representing expenses and attorney's fees; (e) Sentencing the defendants to pay the costs. SO ORDERED.
4

was a contract executed against the mandatory provision of the 1935 Constitution, which is an expression of public policy to conserve lands for the Filipinos. Said provision reads: Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations, or 7 associations, qualified to acquire or hold lands of the public domain. Had this been a suit between Epifania and Ong King Po, she could have been declared entitled to the litigated land on the basis, as claimed, of the ruling in Philippine Banking 8 Corporation vs. Lui She, reading: ... For another thing, and this is not only cogent but also important. Article 1416 of the Civil Code provides as an exception to the rule on pari delicto that when the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has sold or delivered. ... But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to be served in allowing petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by analogy the ruling of this Court in 9 Vasquez vs. Giap and Li Seng Giap & Sons: ... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to transmit, it is likewise inescapable that petitioner Epifania had slept on her rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she should be held barred from asserting her claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978]). Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35). (cited in Sotto vs. Teves, 86 SCRA 154 [1978]).

Following the denial of their Motion for Reconsideration, petitioners filed the instant Petition for Review on certiorari with this Court on January 21, 1971. Petitioners claim that the Court of Appeals erred: I. ... when it reversed the judgment of the trial court declaring petitioner Pacita W. Vallar as the lawful possessor and owner of the portion of land she purchased from Emeteria Barsobia, not a party to this case, there being no evidence against her. II ... when it included petitioner Pacita W. Vallar to pay P10,000.00, with legal interest from the filing of the complaint, representing respondent's share in the harvest and to pay the costs, there being no evidence against her. III. ... when it condemned petitioners to pay P2,000.00 representing expenses and attorney's fees, there being no factual, legal and equitable justification. IV. ... in not applying the rule on pari delicto to the facts of the case or the doctrine enunciated ... in the case of Philippine Banking Corporation vs. Lui She, L-17587, September 12, 1967, to ... Petitioner Epifania Sarsosa Vda. de Barsobia. V. ... in denying, for lack of sufficient merits, petitioners' motion for 5 rehearing or reconsideration of its decision. As the facts stand, a parcel of coconut land was sold by its Filipino owner, petitioner Epifania, to a Chinese, Ong King Po, and by the latter to a naturalized Filipino, respondent herein. In the meantime, the Filipino owner had unilaterally repudiated the sale she had made to the Chinese and had resold the property to another Filipino. The basic issue is: Who is the rightful owner of the property? There should be no question that the sale of the land in question in 1936 by Epifania to Ong 6 King Po was inexistent and void from the beginning (Art. 1409 [7], Civil Code) because it

Respondent, therefore, must be declared to be the rightful owner of the property. The award of actual damages in respondent's favor of P10,000.00, as well as of attorney's fees and expenses of litigation of P2,000.00, is justified. Respondent was deprived of the possession of his land and the enjoyment of its fruits from March, 1962. The Court of Appeals fixed respondent's share of the sale of copra at P10,000.00 for eight years at four (4) harvests a year. The accuracy of this finding has not been disputed. However, we find merit in the assigned error that petitioner, Pacita Vallar, should not be held also liable for actual damages to respondent. In the absence of contrary proof, she, too, must be considered as a vendee in good faith of petitioner Epifania. The award of attorney's fees and litigation expenses in the sum of P2,000.00 in respondent's favor is in order considering that both petitioners compelled respondent to 10 litigate for the protection of his interests. Moreover, the amount is reasonable. WHEREFORE, except for that portion holding petitioner, Pacita W. Vallar, also liable for damages of P10,000.00, the appealed judgment is hereby affirmed. Costs against petitioners. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-17043 January 31, 1961

Certificate of Title 3162, Exhibit "3", was issued to Luy Chay by virtue of deed of sale. On August 28, 1941, to secure a loan of P2,00 a deed of mortgage to the Zamboanga Mutual Building and Association was executed by Luy Chay, Exhibit "4". On January 31, 1947, the said Luy Chay executed a deed of sale, Exhibit "E", in favor of Lino Bangayan. By virtue of this Transfer Certificate of Title T-2567 was issued to Lino Bangayan on June 24, 1949, Exhibit "1": Lots 4465 and 4467 were originally registered in the of Luis Herrera, married to Go Bang, under Original Certificate of Title No. 0-14360, Exhibit "5". On December 1, 1931, Luis Herrera sold one-half () undivided share and to Herrera and Go Bang, the other half (), as shown by Exhibit "12" and Exhibit "12-A", the latter an annotation made the Register of Deeds of the City of Zamboanga, in which stated as follows: Cancelado el presente Certificado en virtud de una escritura de traspaso y en su lugar se ha expedido el Certificado de T No. 494-(T-13045) del Tomo 2 del Libro de Certificado de Transferencias.

NATIVIDAD HERRERA, assisted by her husband EMIGDIO SALAZAR, plaintiffsappellants, vs. LUY KIM GUAN and LINO BANGAYAN, defendants-appellees. T. de los Santos for plaintiffs-appellants. Rafael C. Climaco and Abelardo S. Fernandez for defendants-appellees. BARRERA, J.: This is an appeal from the decision of the Court of First Instance of Zamboanga City (a) dismissing plaintiff-appellant's complaint for the recovery of three (3) parcels of land and their produce in the sum of P320,000.00; and (b) instead, sentencing plaintiff to pay P2,000.00 for attorney's fees and P1,000.00 for expenses of litigation, to defendant Lino Bangayan, and P2,000.00 as attorney's fees and P500.00 as expenses of litigation, to the other defendant Luy Kim Guan. The pertinent facts as found by the trial court and upon which its decision was predicated are set forth in the following portion of the decision appealed from: The Plaintiff Natividad Herrera is the legitimate daughter of Luis Herrera, now deceased and who died in China sometime after he went to that country in the last part of 1931 or early part of 1932. The said Luis Herrera in his lifetime was the owner of three (3) parcels of land and their improvements, known as Lots 1740, 4465 and 4467 of Expediente No. 5, G.L.R.O. Record 477 and the area, nature, improvements and bound of each and every of these three (3) lots are sufficiently described in the complaint filed by the plaintiffs. Before leaving for China, however, Luis Herrera executed on December 1, 1931, a deed of General Power of Attorney, Exhibit 'B', which authorized and empowered the defendant Kim Guan, among others to administer and sell the properties of said Luis Herrera. Lot 1740 was originally covered by Original Certificate Title 8601 registered in the name of Luis Herrera, married to GO Bang. This lot was sold by the defendant Luy Kim in his capacity as attorney-in-fact of the deceased Luis Her to Luy Chay on September 11, 1939, as shown in Exhibit "2", corresponding deed of sale. Transfer

(Fdo) R. D. MACROHON Registrador de Titulos Ciudad de Zamboanga

On July 23, 1937, Luis Herrera thru his attorney-in-fact Luy Kim Guan, one of the defendants, sold to Nicomedes Salazar his one half () participation in these two (2) lots, as shown in Exhibit "C", the corresponding deed of sale for P3,000.00 Transfer Certificate of Title No. T-494-(T-13045) was is to Nicomedes Salazar and to the defendant Luy Kim Guan, Exhibit '7'. On August 4, 1937, the defendant Luy Kim Guan Nicomedes Salazar executed a deed of mortgage in favor of Bank of the Philippine Islands to secure a loan of P3,500.00, Exhibit '6'. On August 17, 1937, the defendant Luy Kim Guan and Nicomedes Salazar sold Lot 4465 to Carlos Eijansantos for the sum of P100.00 as shown in Exhibit "9", the corresponding deed of sale, and Transfer Certificate of Title No. T-2653 was issued on September 7, 1939 to Carlos Eijansantos, Exhibit "10". Nicomedes Salazar sold his one half () interest on Lot 4467 to the defendant Lino Bangayan for P3,000.00 on February 22, 1949, Exhibit 'B', and the corresponding Transfer Certificate of Title T2654 was issued to Lino Bangayan and to Luy Kim Guan, both are co-owners in equal shares, Exhibit "8". Opinion of the City Attorney, Exhibit "p", and an affidavit of Atty. Jose T. Atilano, Exhibit "O", state that Lino Bangayan is a Filipino citizen. As admitted by both parties (plaintiffs and defendants), Luis Herrera is now deceased, but as to the specific and precise date of his death the evidence of both parties failed to show. It is the contention of plaintiff-appellant that all the transactions mentioned in the preceding quoted portion of the decision were fraudulent and were executed after the death of Luis

Herrera and, consequently, when the power of attorney was no longer operative. It is also claimed that the defendants Lino Bangayan and Luy Kim Guan who now claim to be the owners of Lots Nos. 1740 and 4467 are Chinese by nationality and, therefore, are disqualified to acquire real properties. Plaintiff-appellant, in addition, questions the supposed deed of sale allegedly executed by Luis Herrera on December 1, 1931 in favor of defendant Luy Kim Guan, conveying one-half interest on the two lots, Nos. 4465 and 4467, asserting that what was actually executed on that date, jointly with the general power of attorney, was a lease contract over the same properties for a period of 20 years for which Luy Kim Guan paid the sum of P2,000.00. We find all the contentions of plaintiff-appellant untenable. Starting with her claim that the second deed executed on December 1, 1931 by Luis Herrera was a lease contract instead of a deed of sale as asserted by defendant Luy Kim Guan, we find that the only evidence in support of her contention is her own testimony and that of her husband to the effect that the deceased Luis Herrera showed the said document to them, and they remembered the same to be a lease contract on the three properties for a period of 20 years in consideration of P2,000.00. Their testimony was sought to be corroborated by the declaration of the clerk of Atty. Enrique A. Fernandez, who allegedly notarized the document. Outside of this oral testimony, given more than 23 years after the supposed instrument was read by them, no other evidence was adduced. On the other hand, defendant Luy Kim Gua produced in 1 evidence a certification signed by the Register of Deeds of Dipolog, Zamboanga (Exh. 11) to the effect that a deed of sale, dated December 1, 1931, was execute by Luis Herrera in favor of Luy Kim Guan and entered in the Primary Book No. 4 as duly registered on September 30, 1936 under Original Certificate of Title No. 14360. It is to be noted that the deed of sale was registered shortly after the issuance in the name of Luis Herrera of Origin Certificate of Title No. 14360 pursuant to Decree No. 59093, covering the two lots, Nos. 4465 and 4467 (Exh. 5) dated April 7, 1936. In virtue of said deed of sale of December 1, 1931, Original Certificate of Title No. 1436 was cancelled and Transfer Certificate of Title No. 1304 (Exh. 12) in the names of the conjugal partnership of the spouses Luis Herrera and Go Bang, one-half share, an Luy Kim Guan, single, one-half share, was issued on September 30, 1936. Later, or on July 23, 1937, Luy Kim Guan, in his capacity as attorneyin-fact of Luis Herrera, sold the half interest of the latter in the two parcels o land, in favor of Nicomedes Salazar, whereupon TCT No. 13045 was cancelled and TCT No. RT-657 (494T-13045 (Exh. 7) was issued in the names of Luy Kim Guan an Nicomedes Salazar in undivided equal shares. On August 4, 1937, both Luy Kim Guan and Nicomedes Salazar mortgaged the two parcels in favor of the Bank of the Philippine Islands for the sum of P3,500.00 (Exh. 6). On August 17, 1937, Nicomedes Salazar and Luy Kim Gua sold their respective shares in Lot No. 4465 to Carlo Eijansantos (Exh. 9), subject to the mortgage, resulting in the issuance of TCT No. 2653 (Exh. 10) covering the entire lot No. 4465 in the name of said Carlos Eijansantos. On February 23, 1949, Nicomedes Salazar sold his shall share in Lot No. 4467 to Lino Bangayan, as a consequence of which, TCT No. 2654 (Exh. B) was issued covering said Lot No. 4467 in the names of Luy Kim Guan and Lino Bangayan in undivided equal shares. With respect to Lot No. 1740, the same was sold by Luy Kim Guan, in his capacity as attorney-in-fact of Luis Herrera, on September 11, 1939 to Luy Chay (See Exh. 2) who, in August, 1941, mortgaged the same (Exh. 4) to the Zamboanga Mutual Loan and Building

Association (See TCT No. 3162 [Exh. 3] issued in the name of Luy Chay). Later on, Luy Chay sold the entire lot to defendant Lino Bangayan by virtue of the deed of sale dated January 31, 1947 (Exh. E), and as a consequence thereof, TCT No. 2567 was issued in the name of said vendee. (See Exh. 1). As a result of these various transactions, duly recorded in the corresponding office of the Register of Deeds, and covered by appropriate transfer certificates of title, the properties are now registered in the following manner: Lot No. 1740, in the name of Lino Bangayan; Lot No. 4465, in the name of Carlos Eijansantos; and Lot No. 4467, in the names of Lino Bangayan and Luy Kim Guan in undivided equal shares. In the face of these documentary evidence presented by the defendants, the trial court correctly upheld the contention of the defendants as against that of plaintiff-appellant who claims that the second deed executed by Luis Herrera in 1931 was a lease contract. It is pertinent to note what the lower court stated in this regard, that is, if the second deed executed by Luis Herrera was a lease contract covering, the 3 lots in question for a period of twenty (20) years, there would have been no purpose for him to constitute Luy Kim Guan as. his attorney-in-fact to administer and take charge of the same properties already covered by the lease contract. Coming now to the contention that these transactions are null and void and of no effect because they were executed by the attorney-in-fact after the death of his Principal, suffice it to say that as found by the lower court, the date of death of Luis Herrera has not been satisfactorily proven. The only evidence presented by the Plaintiff-appellant in this respect is a supposed letter received from a certain "Candi", dated at Amoy in November, 1936, purporting to give information that Luis Herrera (without mentioning his name) had died in August of that year. This piece of evidence was properly rejected by the lower court for lack of identification. the other hand, we have the testimony of the witness Chung Lian to the effect that when he was in Amoy the year 1940, Luis Herrera visited him and had a conversation with him, showing that the latter was still alive at the time. Since the documents had been executed the attorney-in-fact one in 1937 and the other in 1939, it is evident, if we are to believe this testimony, that the documents were executed during the lifetime of the principal. Be that as it may, even granting arguendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record, that the age Luy Kim Guan was aware of the death of his prince at the time he sold the property. The death of the principal does not render the act of an agent unenforceable, where the latter 2 had no knowledge of such extinguishment the agency. Appellants also raise the question of the legality of the titles acquired by Luy Chay and Lino Bangayan, on ground that they are disqualified to acquire real properties in the Philippines. This point is similarly without me because there is no evidence to support the claim. In fact, in the deed of sale as well as in TCT No. 3162 issued to Luy Chay, the latter was referred to as a citizen of the Philippines. Nevertheless, the lower court acknowledged the probability 3 that Luy Chay could have been actually a Chinese citizens. At any rate, the property was subsequently purchased by Lino Bangayan, as a result which TCT No. 3162 in the name of Luy Chay was cancelled and another certificate (TCT No. T-2567) was issued in favor of said vendee.

As to Bangayan's qualification, the lower court held that said defendant had sufficiently established his Philippine citizenship through Exhibit P, concurred in by the Secretary of Justice. We find no reason to disturb such ruling. With respect to Luy Kim Guan, while it is true that he is a Chinese citizen, nevertheless, inasmuch as he acquired his one-half share in Lot No. 4467 in 1931, long before the Constitution was adopted, his ownership can not be attacked on account of his citizenship. Appellants, in this appeal, contest the judgment of the court a quo awarding defendants Lino Bangayan and Luy Kim Guan attorney's fees in the sum of P2,000.00 each, and expenses of litigation in the amounts of P1,000.00 and P500.00, respectively. We agree with the appellant in this regard. This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded attorney's fees only in case plaintiff's action or defendant's stand is so untenable 4 as to amount to gross and evident bad faith. The same thing however, can not be said of the case at bar. As a matter of fact, the trial court itself declared that the complaint was filed in good faith. Attorney's fees, therefore, can not be awarded to defendants simply because the judgment was favorable to them and adverse to plaintiff, for it may amount to imposing a premium on the right to redress grievances in court. And so with expenses of litigation. A winning party may be entitled to expenses of litigation only where he, by reason of plaintiff's clearly unjustifiable claims or defendant's unreasonable refusal to his demands, was compelled to incur said expenditures. Evidently, the facts of this case do not warrant the granting of such litigation expenses to defendants. In the absence of proof that the action was intended for reasons other than honest, we may agree with the trial court that the same must have been instituted by plaintiffs in their belief that they have a valid cause against the defendants. WHEREFORE, and with the above modification, the decision appealed from is hereby affirmed in all other respects without prejudice to appellants' right to demand from the agent (Luy Kim Guan) an accounting of proceeds of the agency, if such right is still available. No costs. So ordered.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-36731 January 27, 1983 VICENTE GODINEZ, ET AL., plaintiffs-appellants, vs. FONG PAK LUEN ET AL., defendants, TRINIDAD S. NAVATA, defendant-appellee. Dominador Sobrevinas for plaintiffs-appellants. Muss S. Inquerto for defendant-appellee

GUTIERREZ, JR., J.: The plaintiffs filed this case to recover a parcel of land sold by their father, now deceased, to Fong Pak Luen, an alien, on the ground that the sale was null and void ab initio since it violates applicable provisions of the Constitution and the Civil Code. The order of the Court of First Instance of Sulu dismissing the complaint was appealed to the Court of Appeals but the latter court certified the appeal to us since only pure questions of law were raised by the appellants. The facts of the case were summarized by the Court of Appeals as follows: On September 30, 1966, the plaintiffs filed a complaint in the Court of First Instance of Sulu alleging among others that they are the heirs of Jose Godinez who was married to Martina Alvarez Godinez sometime in 1910; that during the marriage of their parents the said parents acquired a parcel of land lot No. 94 of Jolo townsite with an area of 3,665 square meters as evidenced by Original Certificate of Title No. 179 (D -155) in the name of Jose Godinez; that their mother died sometime in 1938 leaving the plaintiffs as their sole surviving heirs; that on November 27, 1941, without the knowledge of the plaintiffs, the said Jose Godinez, for valuable consideration, sold the aforesaid parcel of land to the defendant Fong Pak Luen, a Chinese citizen, which transaction is contrary to law and in violation of the Civil Code because the latter being an alien who is inhibited by law to purchase real property; that Transfer Certificate Title No. 884 was then issued by the Register of Deeds to the said defendant, which is null and void ab initio since the transaction constituted a non-

existent contract; that on January 11, 1963, said defendant Fong Pak Luen executed a power of attorney in favor of his co-defendant Kwan Pun Ming, also an alien, who conveyed and sold the above described parcel of land to co-defendant Trinidad S. Navata, who is aware of and with full knowledge that Fong Pak Luen is a Chinese citizen as well as Kwan Pun Ming, who under the law are prohibited and disqualified to acquire real property in this jurisdiction; that defendant Fong Pak Luen has not acquired any title or interest in said parcel of land as the purported contract of sale executed by Jose Godinez alone was contrary to law and considered non- existent, so much so that the alleged attorney-in-fact, defendant Kwan Pun Ming had not conveyed any title or interest over said property and defendant Navata had not acquired anything from said grantor and as a consequence Transfer Certificate of Title No. 1322, which was issued by the Register of Deeds in favor of the latter is null and void ab initio,- that since one-half of the said property is conjugal property inherited by the plaintiffs from their mother, Jose Godinez could -not have legally conveyed the entire property; that notwithstanding repeated demands on said defendant to surrender to plaintiffs the said property she refused and still refuses to do so to the great damage and prejudice of the plaintiffs; and that they were constrained to engage the services of counsel in the sum of P2,000.00.1wph1.t The plaintiffs thus pray that they be adjudged as the owners of the parcel of land in question and that Transfer Certificate of Title RT-90 (T-884) issued in the name of defendant Fong Pak Luen be declared null and void ab initio; and that the power of attorney issued in the name of Kwan Pun Ming, as well as Transfer Certificate of Title No. 'L322 issued in the name of defendant Navata be likewise declared null and void, with costs against defendants. On August 18, 1966, the defendant Register of Deeds filed an answer claiming that he was not yet the register of deeds then; that it was only the ministerial duty of his office to issue the title in favor of the defendant Navata once he was determined the registerability of the documents presented to his office. On October 20, 1966, the defendant Navata filed her answer with the affirmative defenses and counterclaim alleging among others that the complaint does not state a cause of action since it appears from the allegation that the property is registered in the name of Jose Godinez so that as his sole property he may dispose of the same; that the cause of action has been barred by the statute of limitations as the alleged document of sale executed by Jose Godinez on November 27, 1941, conveyed the property to defendant Fong Pak Luen as a result of which a title was issued to said defendant; that under Article 1144 (1) of the Civil Code, an action based upon a written contract must be brought within 10 years from the time the right of action accrues; that the right of action accrued on November 27, 1941 but the complaint was filed only on September 30, 1966, beyond the 10 year period provided for by law; that

the torrens title in the name of defendant Navata is indefeasible who acquired the property from defendant Fong Pak Luen who had been in possession of the property since 1941 and thereafter defendant Navata had possessed the same for the last 25 years including the possession of Fong Pak Luen; that the complaint is intended to harass the defendant as a civic leader and respectable member of the community as a result of which she suffered moral damages of P100,000.00, P2,500.00 for attorney's fees and P500.00 expenses of litigation, hence, said defendant prays that the complaint be dismissed and that her counterclaim be granted, with costs against the plaintiffs. On November 24, 1967, the plaintiffs filed an answer to the affirmative defenses and counter-claim. As the defendants Fong Pak Luen and Kwan Pun Ming are residing outside the Philippines, the trial court upon motion issued an order of April 17, 1967, for the service of summons on said defendants by publication. No answer has been filed by said defendants. On December 2, 196 7, the court issued an order as follows: Both parties having agreed to the suggestion of the Court that they submit their supplemental pleadings to support both motion and opposition and after submittal of the same the said motion to dismiss which is an affirmative defense alleged in the complaint is deemed submitted. Failure of both parties or either party to submit their supplemental pleadings on or about December 9, the Court will resolve the case. On November 29, 1968, the trial court issued an order missing the complaint without pronouncement as to costs. (Record on Appeal, pp. 3137). A motion for reconsideration of this order was filed by the plaintiffs on December 12, 196F, which was denied by the trial court in an order of July 11, 1969, (Rec. on Appeal, pp. 38, 43, 45, 47). The plaintiffs now interpose this appeal with the following assignments of errors: I. The trial court erred in dismissing plaintiffs-appellants' complaint on the ground of prescription of action, applying Art. 1144 (1) New Civil Code on the basis of defendant Trinidad S. Navata's affirmative defense of prescription in her answer treated as a motion to dismiss. II. The trial court erred in denying plaintiffs-appellants' motion for reconsideration of the order of dismissal. III. The trial court erred in not ordering this case to be tried on the merits."

The appellants contend that the lower court erred in dismissing the complaint on the ground that their cause of action has prescribed. While the issue raised appears to be only the applicability of the law governing prescription, the real question before us is whether or not the heirs of a person who sold a parcel of land to an alien in violation of a constitutional prohibition may recover the property if it had, in the meantime, been conveyed to a Filipino citizen qualified to own and possess it. The question is not a novel one. Judicial precedents indicate fairly clearly how the question should be resolved. There can be no dispute that the sale in 1941 by Jose Godinez of his residential lot acquired from the Bureau of Lands as part of the Jolo townsite to Fong Pak Luen, a Chinese citizen residing in Hongkong, was violative of Section 5, Article XIII of the 1935 Constitution which provided: Sec. 5. Save in cases of hereditary succession, no private agricultural land will be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines. The meaning of the above provision was fully discussed in Krivenko v. Register of Deeds of Manila (79 Phil. 461) which also detailed the evolution of the provision in the public land laws, Act No. 2874 and Commonwealth Act No. 141. The Krivenko ruling that "under the Constitution aliens may not acquire private or agricultural lands, including residential lands" is a declaration of an imperative constitutional policy. Consequently, prescription may never be invoked to defend that which the Constitution prohibits. However, we see no necessity from the facts of this case to pass upon the nature of the contract of sale executed by Jose Godinez and Fong Pak Luen whether void ab initio, illegal per se or merely proexhibited.** It is enough to stress that insofar as the vendee is concerned,prescription is unavailing. But neither can the vendor or his heirs rely on an argument based on imprescriptibility because the land sold in 1941 is now in the hands of a Filipino citizen against whom the constitutional prescription was never intended to apply. The lower court erred in treating the case as one involving simply the application of the statute of limitations. From the fact that prescription may not be used to defend a contract which the Constitution prohibits, it does not necessarily follow that the appellants may be allowed to recover the property sold to an alien. As earlier mentioned, Fong Pak Luen, the disqualified alien vendee later sold the same property to Trinidad S. Navata, a Filipino citizen qualified to acquire real property. In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447), where the alien vendee later sold the property to a Filipino corporation, this Court, in affirming a judgment dismissing the complaint to rescind the sale of real property to the defendant Li Seng Giap on January 22, 1940, on the ground that the vendee was an alien and under the Constitution incapable to own and hold title to lands, held:

In Caoile vs. Yu Chiao 49 Qff Gaz., 4321; Talento vs. Makiki 49 Off. Gaz., 4331; Bautista vs. Uy 49 Off. Gaz., 4336; Rellosa vs. Gaw Chee 49 Off. Gaz., 4345 and Mercado vs. Go Bio, 49 Off. Gaz., 5360, the majority of this Court has ruled that in sales of real estate to aliens incapable of holding title thereto by virtue of the provisions of the Constitution (Section 5, Article XIII Krivenko vs. Register of Deeds, 44 Off. Gaz., 471) both the vendor and the vendee are deemed to have committed the constitutional violation and being thus in pari delicto the courts will not afford protection to either party. (Article 1305, old Civil Code; Article 1411, new Civil Code) From this ruling three Justices dissented. (Mr. Justice Pablo, Mr. Justice Alex. Reyes and the writer. See Caoile vs. Yu Chiao Talento vs. Makiki Bautista us. Uy, Rellosa vs. Gaw Chee and Mercado vs. Go Bio). supra. The action is not of rescission because it is not postulated upon any of the grounds provided for in Article 1291 of the old Civil Code and because the action of rescission involves lesion or damage and seeks to repair it. It is an action for annulment under Chapter VI, Title II, Book 11, on nullity of contracts, based on a defect in the contract which invalidates it independently of such lesion or damages. (Manresa, Commentarios al Codigo Civil Espanol Vol. VIII, p. 698, 4th ed.) It is very likely that the majority of this Court proceeded upon that theory when it applied the in pari delicto rule referred to above. In the United States the rule is that in a sale of real estate to an alien disqualified to hold title thereto the vendor divests himself of the title to such real estate and has no recourse against the vendee despite the latter's disability on account of alienage to hold title to such real estate and the vendee may hold it against the whole world except as against the State. It is only the State that is entitled by proceedings in the nature of office found to have a forfeiture or escheat declared against the vendee who is incapable of holding title to the real estate sold and conveyed to him. Abrams vs. State, 88 Pac. 327; Craig vs. Leslie et al., 4 Law, Ed. 460; 3 Wheat, 563, 589590; Cross vs. Del Valle, 1 Wall, [U.S.] 513; 17 Law. Ed., 515; Governeur vs. Robertson, 11 Wheat, 332, 6 Law. Ed., 488.) However, if the State does not commence such proceedings and in the meantime the alien becomes naturalized citizen, the State is deemed to have waived its right to escheat the real property and the title of the alien thereto becomes lawful and valid as of the date of its conveyance or transfer to him. (Osterman vs. Baldwin, 6 Wall, 116, 18 Law. ed. 730; Manuel vs. Wulff, 152 U.S. 505, 38 Law. ed. 532; Pembroke vs. Houston, 79, SW 470; Fioerella vs. Jones, 259 SW 782. The rule in the United States that in a sale of real estate to an alien disqualified to hold title thereto, the vendor divests himself of the title to such real estate and is not permitted to sue for the annulment Of his Contract, is also the rule under the Civil Code. ... Article 1302 of the old Civil Code provides: ...

Persons sui juriscannot, however, avail themselves of the incapacity of those with whom they contracted; ... xxx xxx xxx . . . (I)f the ban on aliens from acquiring not only agricultural but, also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's land for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. The title to the parcel of land of the vendee, a naturalized Filipino citizen, being valid that of the domestic corporation to which the parcel of land has been transferred, must also be valid, 96.67 per cent of its capital stock being owned by Filipinos. Herrera v. Luy Kim Guan (SCRA 406) reiterated the above ruling by declaring that where land is sold to a Chinese citizen, who later sold it to a Filipino, the sale to the latter cannot be impugned. The appellants cannot find solace from Philippine Banking Corporation v. Lui She (21 SCRA 52) which relaxed the pari delicto doctrine to allow the heirs or successors-in-interest, in appropriate cases, to recover that which their predecessors sold to aliens. Only recently, in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547) we had occasion to pass upon a factual situation substantially similar to the one in the instant case. We ruled: But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to be served in allowing petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by analogy the ruling of this Court in Vasquez vs. Giap & Sons: (.96 Phil. 447 [1955]) ... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to transmit, it is likewise in escapable that petitioner Epifania had slept on her rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she should be held barred from asserting her claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978])

Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier; it is negligence or ommission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35).' (Cited in Sotto vs. Teves, 86 SCRA 154 [1978]). Respondent, therefore, must be declared to be the rightful owner of the property. In the light of the above considerations, we find the second and third assignments of errors without merit. Respondent Navata, the titled owner of the property is declared the rightful owner. WHEREFORE, the instant appeal is hereby denied. The orders dismissing the complaint and denying the motion for reconsideration are affirmed. SO ORDERED.