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SECOND DIVISION

have acquired ownership of the lots by prescription in view of what we regard as their bad
faith. This bad faith is revealed by testimony to the effect that defendant-appellee Vicente V.
[G.R. No. L-60174. February 16, 1983.]
Felipe (son of appellees Eduardo Felipe and Hermogena V. Felipe) attempted in December 1970
to have Gimena Almosara sign a ready-made document purporting to sell the disputed lots to
EDUARDO FELIPE, HERMOGENA V. FELIPE AND VICENTE V. FELIPE, Petitioners, v. the appellees. This actuation clearly indicated that the appellees knew the lots did not still
HEIRS OF MAXIMO ALDON, NAMELY: GIMENA ALMOSARA, SOFIA ALDON, SALVADOR belong to them, otherwise, why were they interested in a document of sale in their favor? Now
ALDON, AND THE HONORABLE COURT OF APPEALS, Respondents.
then, even if we were to consider appellees possession in bad faith as a possession in the
concept of owners, this possession at the earliest started in 1951, hence, the period for
Romulo D. San Juan for Petitioner.
extraordinary prescription (30 years) had not lapsed when the present action was instituted on
April 26, 1976.
Gerundino Castillejo for Private Respondent.
AQUINO, J., concurring:
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SYLLABUS

1. CIVIL LAW; PERSONS; PROPERTY RELATIONS BETWEEN HUSBAND AND WIFE; SALE OF
CONJUGAL REALTY BY THE HUSBAND WITHOUT WIFES CONSENT, VOID. As a rule, the
husband cannot dispose of the conjugal realty without the wifes consent (Art. 166, Civil Code).
Thus, a sale by the husband of the conjugal realty without the wifes consent was declared
void.
2. ID.; ID.; ID.; DISPOSITION OF CONJUGAL ASSETS BY WIFE WITHOUT HUSBANDS
CONSENT, VOID. With more reason, the wife cannot make such a disposition without the
husbands consent since the husband is the administrator of the conjugal assets. In the instant
case, the Court of Appeals did not err in voiding the wifes sale of the conjugal land without the
husbands consent.

1. CIVIL LAW; SALE; CONTRACT ENTERED INTO BY WIFE WITHOUT CONSENT OF HUSBAND,
VOIDABLE; CASE AT BAR. The husband is the administrator of the conjugal partnership.
Subject to certain exceptions, the husband can not alienate or encumber any real property of
the conjugal partnership without the wifes consent. And the wife can not bind the conjugal
partnership without the husbands consent, except in cases provided by law. In the instant
case, Gimena, the wife, sold lands belonging to the conjugal partnership without the consent of 3. ID.; PRESCRIPTION OF ACTION; ACTION TO DECLARE A VOID CONTRACT OF SALE DOES
NOT PRESCRIBE. As the sale is contrary to law, the action to have it declared void or
the husband and the sale is not covered by the phrase "except in cases provided by law."
inexistent does not prescribe.
Therefore, the sale made by Gimena is a defective contract falling within the category of a
voidable one, as contracts entered by the wife without the consent of the husband when such
consent is required, are annullable at his instance during the marriage and within 10 years
from the transaction questioned.

DECISION
2. ID.; ID.; ID.; RIGHT TO ANNUL; BY WHOM EXERCISED. The voidable contract of Gimena
was subject to annulment by her husband only during the marriage because he was the victim
who had an interest in the contract. Gimena, who was the party responsible for the defect,
could not ask for its annulment. Their children could not likewise seek the annulment of the
contract while the marriage subsisted because they merely had an inchoate right to the lands
sold. The termination of the marriage and the dissolution of the conjugal partnership by the
ABAD SANTOS, J.:
death of Maximo Aldon did not improve the situation of Gimena. What she could not do during
the marriage, she could not do thereafter. The case of Sofia and Salvador Aldon is different.
After the death of Maximo they acquired the right to question the defective contract insofar as
it deprived them of their hereditary rights in their fathers share in the lands. The fathers share
is one-half (1/2) of the lands and their share is two-thirds (2/3) thereof, one-third (1/3)
Maximo Aldon married Gimena Almosara in 1936. The spouses bought several pieces of land
pertaining to the widow.
sometime between 1948 and 1950. In 1960-62, the lands were divided into three lots, 1370,
1371 and 1415 of the San Jacinto Public Land Subdivision, San Jacinto, Masbate.
3. ID.; DESCRIPTION; ACQUISITIVE PRESCRIPTION; NOT AVAILABLE IN CASE OF POSSESSION
IN BAD FAITH; CASE AT BAR. We would like to state further that petitioners herein could not In 1951, Gimena Almosara sold the lots to the spouses Eduardo Felipe and Hermogena V.
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Felipe. The sale was made without the consent of her husband, Maximo.

recover the ownership of the lots in question. We so hold because although Exh. 1 concerning
the sale made in 1951 of the disputed lots is, in Our opinion, not a forgery the fact is that the
On April 26, 1976, the heirs of Maximo Aldon, namely his widow Gimena and their children
sale made by Gimena Almosara is invalid, having been executed without the needed consent of
Sofia and Salvador Aldon, filed a complaint in the Court of First Instance of Masbate against the her husband, the lots being conjugal. Appellees argument that this was an issue not raised in
Felipes. The complaint which was docketed as Civil Case No. 2372 alleged that the plaintiffs
the pleadings is baseless, considering the fact that the complaint alleges that the parcels were
were the owners of Lots 1370, 1371 and 1415; that they had orally mortgaged the same to the purchased by plaintiff Gimena Almosara and her late husband Maximo Aldon (the lots having
defendants; and an offer to redeem the mortgage had been refused so they filed the complaint been purchased during the existence of the marriage, the same are presumed conjugal) and
in order to recover the three parcels of land.
inferentially, by force of law, could not, be disposed of by a wife without her husbands
consent."
The defendants asserted that they had acquired the lots from the plaintiffs by purchase and
subsequent delivery to them. The trial court sustained the claim of the defendants and
The defendants are now the appellants in this petition for review. They invoke several grounds
rendered the following judgment:
in seeking the reversal of the decision of the Court of Appeals. One of the grounds is factual in
nature; petitioners claim that "respondent Court of Appeals has found as a fact that the Deed
"a. declaring the defendants to be the lawful owners of the property subject of the present
of Purchase and Sale executed by respondent Gimena Almosara is not a forgery and therefore
litigation;
its authenticity and due execution is already beyond question." We cannot consider this ground
because as a rule only questions of law are reviewed in proceedings under Rule 45 of the Rules
b. declaring the complaint in the present action to be without merit and is therefore hereby
of Court subject to well-defined exceptions not present in the instant case.
ordered dismissed;
The legal ground which deserves attention is the legal effect of a sale of lands belonging to the
c. ordering the plaintiffs to pay to the defendants the amount of P2,000.00 as reasonable
conjugal partnership made by the wife without the consent of the husband.
attorneys fees and to pay the costs of the suit."
It is useful at this point to re-state some elementary rules: The husband is the administrator of
The plaintiffs appealed the decision to the Court of Appeals which rendered the following
the conjugal partnership. (Art. 165, Civil Code.) Subject to certain exceptions, the husband
judgment:
cannot alienate or encumber any real property of the conjugal partnership without the wifes
consent. (Art. 166, Idem.) And the wife cannot bind the conjugal partnership without the
"PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and SET ASIDE,
husbands consent, except in cases provided by law. (Art. 172, Idem.).
and a new one is hereby RENDERED, ordering the defendants-appellees to surrender the lots in
question as well as the plaintiffs-appellants muniments of title thereof to said plaintiffsIn the instant case, Gimena, the wife, sold lands belonging to the conjugal partnership without
appellants, to make an accounting of the produce derived from the lands including expenses
the consent of the husband and the sale is not covered by the phrase "except in cases provided
incurred since 1951, and to solidarily turn over to the plaintiffs-appellants the NET monetary
by law." The Court of Appeals described the sale as "invalid" a term which is imprecise when
value of the profits, after deducting the sum of P1,800.00. No attorneys fees nor moral
used in relation to contracts because the Civil Code uses specific names in designating
damages are awarded for lack of any legal justification therefor. No costs."
defective contracts, namely: rescissible (Arts. 1380 et seq.), voidable (Arts. 1390 et seq.),
unenforceable (Arts. 1403, et seq.), and void or inexistent (Arts. 1409 et seq.).
The ratio of the judgment is stated in the following paragraphs of the decision penned by
Justice Edgardo L. Paras with the concurrence of Justices Venicio Escolin and Mariano A. Zosa: The sale made by Gimena is certainly a defective contract but of what category? The answer: it
is a voidable contract.
"One of the principal issues in the case involves the nature of the aforementioned conveyance
According to Art. 1390 of the Civil Code, among the voidable contracts are" [T]hose where one
or transaction, with appellants claiming the same to be an oral contract of mortgage or
antichresis, the redemption of which could be done anytime upon repayment of the P1,800.00 of the parties is incapable of giving consent to the contract." (Par 1.) In the instant case
involved (incidentally the only thing written about the transaction is the aforementioned receipt Gimena had no capacity to give consent to the contract of sale. The capacity to give consent
belonged not even to the husband alone but to both spouses.
re the P1,800). Upon the other hand, appellees claim that the transaction was one of sale,
accordingly, redemption was improper. The appellees claim that plaintiffs never conveyed the
property because of a loan or mortgage or antichresis and that what really transpired was the The view that the contract made by Gimena is a voidable contract is supported by the legal
execution of a contract of sale thru a private document designated as a Deed of Purchase and provision that contracts entered by the husband without the consent of the wife when such
consent is required, are annullable at her instance during the marriage and within ten years
Sale (Exhibit 1), the execution having been made by Gimena Almosara in favor of appellee
from the transaction questioned. (Art. 173, Civil Code.).
Hermogena V. Felipe.
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"After a study of this case, we have come to the conclusion that the appellants are entitled to

Gimenas contract is not rescissible for in such contract all the essential elements are untainted

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

As to the second question, the childrens cause of action accrued from the death of their father
in 1959 and they had thirty (30) years to institute it (Art. 1141, Civil Code.) They filed action in
1976 which is well within the period.
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WHEREFORE, the decision of the Court of Appeals is hereby modified. Judgment is entered
awarding to Sofia and Salvador Aldon their shares of the lands as stated in the body of this
decision; and the petitioners as possessors in bad faith shall make an accounting of the fruits
corresponding to the share aforementioned from 1959 and solidarily pay their value to Sofia
and Salvador Aldon; costs against the petitioners.

SO ORDERED.
The termination of the marriage and the dissolution of the conjugal partnership by the death of
Maximo Aldon did not improve the situation of Gimena. What she could not do during the
Concepcion, Jr., Guerrero and De Castro, JJ., concur.
marriage, she could not do thereafter.
Makasiar, (Chairman), J., In the result.
The case of Sofia and Salvador Aldon is different. After the death of Maximo they acquired the
right to question the defective contract insofar as it deprived them of their hereditary rights in Escolin J., took no part.
their fathers share in the lands. The fathers share is one-half (1/2) of the lands and their
share is two-thirds (2/3) thereof, one-third (1/3) pertaining to the widow.
Separate Opinions
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The petitioners have been in possession of the lands since 1951. It was only in 1976 when the
respondents filed action to recover the lands. In the meantime, Maximo Aldon died.
Two questions come to mind, namely: (1) Have the petitioners acquired the lands by
acquisitive prescription? (2) Is the right of action of Sofia and Salvador Aldon barred by the
statute of limitations?
Anent the first question, We quote with approval the following statement of the Court of
Appeals:

AQUINO, J., concurring:

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I concur in the result. The issue is whether the wifes sale in 1951 of an unregistered sixteenhectare conjugal land, without the consent of her husband (he died in 1959), can be annulled
in 1976 by the wife and her two children.

As a rule, the husband cannot dispose of the conjugal realty without the wifes consent (Art.
166, Civil Code). Thus, a sale by the husband of the conjugal realty without the wifes consent
"We would like to state further that appellees [petitioners herein] could not have acquired
was declared void (Tolentino v. Cardenas, 123 Phil. 517; Villocino v. Doyon, L-19797, December
ownership of the lots by prescription in view of what we regard as their bad faith. This bad faith 17, 1966, 18 SCRA 1094 and L-28871, April 25, 1975, 63 SCRA 460; Reyes v. De Leon, Lis revealed by testimony to the effect that defendant-appellee Vicente V. Felipe (son of
22331, June 6,1967, 20 SCRA 369; Bucoy v. Paulino, L-25775, April 26, 1968, 23 SCRA 248;
appellees Eduardo Felipe and Hermogena V. Felipe) attempted in December 1970 to have
Tinitigan v. Tinitigan, L-45418, October 30, 1980, 100 SCRA 619).
Gimena Almosara sign a ready-made document purporting to sell the disputed lots to the
appellees. This actuation clearly indicated that the appellees knew the lots did not still belong With more reason, the wife cannot make such a disposition without the husbands consent
to them, otherwise, why were they interested in a document of sale in their favor? Again why since the husband is the administrator of the conjugal assets.
did Vicente V. Felipe tell Gimena that the purpose of the document was to obtain Gimenas
consent to the construction of an irrigation pump on the lots in question? The only possible
In the instant case, the Court of Appeals did not err in voiding the wifes sale of the conjugal
reason for purporting to obtain such consent is that the appellees knew the lots were not
land without the husbands consent. As that sale is contrary to law, the action to have it
theirs. Why was there an attempted improvement (the irrigation tank) only in 1970? Why was declared void or inexistent does not prescribe.
the declaration of property made only in 1974? Why were no attempts made to obtain the
husbands signature, despite the fact that Gimena and Hermogena were close relatives? All
Moreover, there are indications that the contract between the parties was an antichresis, a
these indicate the bad faith of the appellees. Now then, even if we were to consider appellees transaction which is very common in rural areas.
possession in bad faith as a possession in the concept of owners, this possession at the earliest
FIRST DIVISION
started in 1951, hence the period for extraordinary prescription (30 years) had not yet lapsed
when the present action was instituted on April 26, 1976.
[G.R. No. L-27343. February 28, 1979.]
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claim is purely incidental to or a consequence of the principal relief sought, the action is as a
MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS,
case where the subject of the litigation is not capable of pecuniary estimation and is cognizable
BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., Plaintiffs-Appellees,
exclusively by the Court of First Instance.
v. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL
2. ID.; ID.; ACTION TO ANNUL JUDGMENT, NOT CAPABLE OF PECUNIARY ESTIMATION. The
SHERIFF OF NEGROS OCCIDENTAL,Defendants, MARGARITA G. SALDAJENO and her
jurisdiction of all courts in the Philippines insofar as the authority thereof depends upon the
husband CECILIO SALDAJENO, Defendants-Appellants.
nature of litigation, is defined in the amended Judiciary Act, pursuant to which courts of first
instance shall have exclusive original jurisdiction over any case the subject matter of which is
SYNOPSIS
not capable of pecuniary estimation. An action for the annulment of a judgment and an order of
a court of justice belongs to this category.
Defendants Saldajeno, Garibay and Tubungbanua entered into a contract of partnership. Later,
Saldajeno withdrew and brought an action to dissolve the partnership. The suit resulted in the 3. ID.; ID.; ID.; CRITERION. In determining whether an action is one the subject of which is
execution of "Assignment of Rights with Chattel mortgage" in favor of Saldajeno. Garibay and not capable of pecuniary estimation, the nature of the principal action or remedy sought is first
ascertained. If it is primarily for the recovery of a sum of money, the claim is considered
Tubungbanua, however, continued the business under the same firm name. Meanwhile,
capable of pecuniary estimation, and whether jurisdiction is in the municipal courts or in the
plaintiffs extended credits to the partnership. Later, the chattel mortgage was foreclosed and
courts of first instance would depend on the amount of the claim. However, where the basic
the mortgaged properties were sold at public auction to Saldajeno, who in turn sold the same
for P45,000. Plaintiffs sued defendants to recover the sums of money they advanced to the issue is something more than the right to recover a sum of money, or where the money claim is
purely incidental to, or a consequence of, the principal relief sought, such actions are
partnership and asked for the nullity of the chattel mortgage between Saldajeno and her
former partners. The trial court held that plaintiffs, the partnerships creditors, had a preferred considered as cases where the subject of the litigation may be estimated in terms of money,
and are cognizable exclusively by courts of first instance.
right over the proceeds of the sale. The Saldajeno appealed alleging that (1) the trial court had
no jurisdiction because plaintiffs sought to collect sums of money, the biggest amount of which
4. ID.; ID.; ONE BRANCH OF A COURT OF FIRST INSTANCE MAY TAKE COGNIZANCE OF
was less than P2,000; and (2) the chattel mortgage, having been judicially approved and
ACTION TO NULLIFY A FINAL JUDGMENT OF ANOTHER BRANCH. A court of first instance or a
foreclosed cannot be nullified by another court of co-equal, concurrent and coordinate
branch thereof has the authority and jurisdiction to take cognizance of and to act in a suit to
jurisdiction.
annul final and executory judgment or order rendered by another court of first instance or by
another branch of the same court.
The Supreme Court held that (1) although the individual claims of plaintiffs do not exceed
P2,000 the trial court had jurisdiction because plaintiffs also asked for nullity of the chattel
5. PARTNERSHIP; DISSOLUTION AND WINDING UP. It is true that the dissolution of a
mortgage, a cause of action which is not capable of pecuniary estimation; and (2) that one
partnership is caused by any partner ceasing to be associated in the carrying on of the
branch of the Court of First Instance can take cognizance of an action to nullify a final
business. However, on dissolution, the partnership is not terminated but continues until the
judgment of another branch of the same court, where the action springs from the alleged
winding up of the business.
nullity of the judgment based on fraud.
Decision appealed from is affirmed, and modified with the elimination of the portion ordering
appellants to pay attorneys fees.

SYLLABUS

Of the Ruling of the Court

6. ID.; WITHDRAWING PARTNER LIABLE TO CREDITORS OF PARTNERSHIP. Where the


remaining partners instead of winding up the business did not terminate but continued the
business in the name of the partnership, and used the properties of said partnership, the
withdrawing to whom the properties were mortgaged and sold at public auction is liable to the
creditors of the partnership.
7. ID.; LACK OF PUBLICATION OF WITHDRAWAL OF A PARTNER. Where it does not appear
that the withdrawal of a partner from the partnership was published in the newspapers, the
judicial foreclosure of the chattel mortgage executed in favor of the withdrawing partner did not
relieve said partner from liability to the creditors of the partnership. The creditors and the
public in general have a right to expect that whatever credit they extended to the partnership
could be enforced against the properties of said partnership.

1. COURTS; JURISDICTION; ACTION TO COLLECT A SUM OF MONEY AND TO NULLIFY A


CHATTEL MORTGAGE IS WITHIN THE JURISDICTION OF THE COURT OF FIRST INSTANCE. An
8. CONTRACTS; GOOD FAITH. Where one of two innocent persons must suffer, that person
action for the nullity of the assignment of right with chattel mortgage is not capable of
who gave occasion for the damages to be caused must bear the consequences.
pecuniary estimation and falls under the jurisdiction of the Court of First Instance. Where the
basic issue is something more than the right to recover a sum of money and where the money

9. ID.; CONTRACTS IN FRAUD OF CREDITORS. As a rule, a contract cannot be assailed by


one who is not a party thereto. However, when a contract prejudices the rights of a third
person, he may file an action to annul the contract. Thus, a person who is not a party obliged
principally or subsidiarily under a contract, may exercise an action for nullity of the contract if
he is prejudiced in his rights with respect to one of the contracting parties, and can show
detriment which would positively result to him from the contract in which he has no
intervention.

account, Exhs.L and M), and 25% of the total indebtedness at the time of payment, for
attorneys fees, both interest and attorneys fees being stipulated in Exhs.I to I-17, inclusive;
(5) that the same defendant is indebted to the plaintiff Agustin E. Tonsay in the amount of
P933.73, with legal interest thereon from the filing of the complaint on June 5, 1959; (6) that
the same defendant is indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with
legal interest thereon from the filing of the complaint on June 5, 1959; (7) that the same
defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the amount of
P1,048.78, with legal interest thereon from the filing of the complaint on June 5, 1959; (8) that
10. id.; id.; creditors of partnership may bring action to annul a chattel mortgage. Where the the same defendant is indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with
creditors of a partnership were prejudiced in their rights by the execution of the chattel
legal interest thereon from the filing of the complaint on June 5, 1959; (9) that the defendant
mortgage over the properties of the partnership in favor of a withdrawing partner by the
Margarita G. Saldajeno, having purchased of public auction the assets of the defendant
remaining partners, the creditors have a right to file the action to nullify the chattel mortgage partnership over which the plaintiffs have a preferred right, and having sold said assets for
in question.
P45,000.00, is bound to pay to each of the plaintiffs the respective amounts for which the
defendant partnership is held indebted to them, as above indicated, and she is hereby ordered
11. ATTORNEYS FEES; ABSENCE OF BAD FAITH. The claim for attorneys fees cannot be to pay the said amounts, plus attorneys fees equivalent 25% of the judgment in favor of the
sustained where there is no showing that the defendants displayed a wanton disregard of the plaintiff Manuel G. Singson, as stipulated in Exhs.I to I-17, inclusive, and 20% of the
rights of the plaintiffs, and defendants believed in good faith, albeit erroneously, that they were respective judgments in favor of the other plaintiffs, pursuant to Art. 2208, pars. (5) and (11),
not liable to pay the claims.
of the Civil Code of the Philippines; (10) The defendants Leon Garibay and Timoteo
Tubungbanua are hereby ordered to pay to the plaintiffs the respective amounts adjudged in
their favor in the event that said plaintiffs cannot recover them from the defendant Margarita
G. Saldajeno and the surety on the bond that she has filed for the lifting of the injunction
ordered by this court upon the commencement of this case.
DECISION
"The cross-claim of the defendant Margarita G. Saldajeno against the defendants Leon Garibay
and Timoteo Tubungbanua is hereby dismissed. Margarita G. Saldajeno shall pay the costs.
SO ORDERED." 1
FERNANDEZ, J.:
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of
this case to the Supreme Court "considering that the resolution of this appeal involves purely
questions or question of law over which this Court has no jurisdiction . . ." 2
This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of
Negros Occidental in Civil Case No. 5343, entitled "Manuel G. Singson, Et Al., v. Isabela
Sawmill, Et. Al.", the dispositive portion of which reads:
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On June 5, 1959, Manual G. Singson, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos,
Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of First Instance of
Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her
husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff of
Negros Occidental a complaint the prayer of which reads:

"IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held: (1) that the contract,
Appendix F, of the Partial Stipulation of Facts, Exh.A, has not created a chattel mortgage lien
"WHEREFORE, the plaintiffs respectfully pray:
on the machineries and other chattels mentioned therein, all of which are property of the
defendant partnership Isabela Sawmill, (2) that the plaintiffs, as creditors of the defendant
partnership, have a preferred right over the assets of the aid partnership and over the proceeds "(1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff
of their sale of public auction, superior to the right of the defendant Margarita G. Saldajeno, as of Negros Occidental from proceeding with the sales at public auction that he advertised in two
notices issued by him on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable
creditor of the partners Leon Garibay and Timoteo Tubungbanua; (3) that the defendant
Isabela Sawmill is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, Court, until further orders of this Court; and to make said injunction permanent after hearing
with legal interest thereon from the filing of the complaint on June 5, 1959; (4) that the same on the merits:
defendant is indebted to the plaintiff Manuel G. Singsong in the total amount of P3,723.50, with
interest thereon at the rate of 1% per month from May 6, 1959, (the date of the statements of "(2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G.
Singson the sum of P3,723.50 plus 1% monthly interest thereon on 25% attorneys fees, and
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costs; to pay to the plaintiff Jose Belzunce the sum of P2,052.10, plus 6% annual interest
thereon and 25% for attorneys fees, and costs; to pay to the plaintiff Agustin E. Tonsay the
sum of P933.73 plus 6% annual interest thereon and 25% attorneys fees, and costs; to pay to
the plaintiff Jose L. Espinos the sum of P1,579.44, plus 6% annual interest thereon and 25%
attorneys fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the sum of
P1,048.78, plus 6% annual interest thereon and 25% attorneys fees, and costs; and to pay to
the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and
25% attorneys fees and costs:

chattel mortgage over the properties mentioned in the annexes to that instrument entitled
Assignment of Rights with Chattel Mortgage entered into on May 26, 1968 and dully registered
in the Register of Deeds of Negros Occidental on the same date:

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

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

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"(4) That the Honorable Court order to sale of public auction of the assets of the defendant
partnership in case the latter fails to pay the judgment that the plaintiffs may recover in the
action, with instructions that the proceeds of the sale be applied in payment of said judgment
before any part of said proceeds is paid to the defendant Margarita G. Saldajeno;
"(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be
declared jointly liable to the plaintiffs for whatever deficiency may remain unpaid after the
proceeds of the sale of the assets of the defendant partnership are applied in payment of the
judgment that said plaintiffs may recover in this action;

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

"7. That this Honorable Court has no jurisdiction over the claims of the plaintiffs Oppen,
Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it
appearing that the amounts sought to be recovered by them in this action is less than
P2,000.00 each, exclusive of interests;
"8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a
misjoinder of parties because this is not a class suit, and therefore this Honorable Court cannot
take jurisdiction of the claims for payment;

"(6) The Isabela Sawmills further pray all other remedies to which the Honorable Court will find "9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit
them entitled to, with costs to the defendants.
mentioned in the statute of frauds. Art. 1403 of the Civil Code, and are therefor unenforceable,
even assuming that there were such credits and claims;
Bacolod City, June 4, 1959." 3
"10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in
The action was docketed as Civil Case No. 5343 of said court.
jurisprudence that a court of first instance has no power or jurisdiction to annul judgments or
decrees of a coordinate court because other function devolves upon the proper appellate court;
In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio
(Lacuna, Et. Al. v. Ofilada, Et Al., G. R. No. L-13548, September 30, 1959; Cabigao v. del
Saldajeno, alleged the following special and affirmative defenses:
Rosario, 44 Phil. 182; PNB v. Javellana, 49 O.G. No. 1, p. 124), as it appears from the
complaint in this case that a judgment is sought by the plaintiffs which will in effect try to annul
"x
x
x
the decision of this same court, but of another branch (Branch II, Judge Querubin presiding)."
4
"2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled In the
matter of: Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno Et. Al. v. Said defendants interposed a cross-claim against the defendants Leon Garibay and Timoteo
Isabela Sawmill, et al, Civil Case No. 4797, Court of First Instance of Negros Occidental;
Tubungbanua praying "that in the event that judgment be rendered ordering defendant cross
claimant to pay to the plaintiffs the amount claimed in the latters complaint, that the cross
"3. That as a result of the said dissolution and the decision of the Court of First Instance of
defendants be simultaneously ordered to pay back to the cross claimant whatever amount is
Negros Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and paid by the latter to plaintiff in accordance to the said judgment . . ." 5
Timoteo Tubungbanua became the successor-in-interest to the said defunct partnership and
have bound themselves to answer for any and all obligations of the defunct partnership to its
After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
creditors and third persons;
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the
"4. That the secure the performance of the obligations of the other defendants Leon Garibay
Court of Appeals assigning the following errors:
and Timoteo Tubungbanua to the answering defendant herein, the former have constituted a
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"I

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

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


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

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

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT LIABLE FOR THE
OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY THE
LATTER AS PARTNERS IN THE NEW ISABELA SAWMILL, AFTER THE DISSOLUTION OF THE OLD
PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS PARTNER.

"III
"IX
THE COURT A QUO ERRED IN NOT HOLDING THAT THE WITHDRAWAL OF DEFENDANTAPPELLANT MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE
PARTNERSHIP ISABELA SAWMILL (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY,
TIMOTEO TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO).

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


SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEYS FEES.
"X

"IV

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

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFSAPPELLEES.

"V

"XI

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATE MAY 26, 1958,
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-APPELLANT
WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS
MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS TUBUNGBANUA." 6
OCCIDENTAL) WAS NULL AND VOID.
The facts, as found by the trial court, are:
"VI
"At the commencement of the hearing of the case on the merits the plaintiffs and the
defendants Cecilio and Margarita G. Saldajeno submitted a Partial Stipulation of Facts that was
marked on Exh.A. Said stipulation reads as follows:
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTELS ACQUIRED BY DEFENDANTAPPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldajeno, and
CONSTITUTED ALL THE ASSETS OF THE DEFENDANT PARTNERSHIP.
Timoteo Tubungbanua entered into a Contract of Partnership under the firm name Isabela
Sawmill, a copy of which is hereto attached Appendix A.
"VII
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2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two
Tractors to the partnership Isabela Sawmill for the sum of P20,500.00. In order to pay the said
purchase price, the said partnership agreed to make arrangements with the International
Harvester Company at Bacolod City so that the latter would sell farm machinery to Oppen,
Esteban, Inc. with the understanding that the price was to be paid by the partnership. A copy
of the corresponding contract of sale is attached hereto as Appendix B.

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

3. That through the method of payment stipulated in the contract marked as Appendix B
"The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional
herein, the international Harvester Company has been paid a total of P19,211.11, leaving a
evidence, mostly documentary, while the cross-defendants did not present any evidence. The
unpaid balance of P1,288.89 as shown in the statements hereto attached as Appendices C, C- case hardly involves questions of fact at all, but only questions of law.
1, and C-2.
"The fact that the defendant Isabela Sawmill is indebted to the plaintiff Oppen, Esteban, Inc.
4. That on April 25, 1958 Civil Case No. 4707 was filed by the spouses Cecilio Saldajeno and
in the amount of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on
Margarita G. Saldajeno against the Isabela Sawmill, Leon Garibay and Timoteo Tubungbanua, a February 3, 1956 is expressly admitted in paragraphs 2 and 3 of the Stipulation, Exh.A and its
copy of which Complaint is attached as Appendix D.
Appendices B, C, C-1, and C-2.
5. That on April 27, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita
G. Saldajeno entered into a "Memorandum Agreement", a copy of which is hereto attached as
Appendix E in Civil Case 4797 of the Court of First Instance of Negros Occidental.

"The plaintiff Agustin E. Tonsay proved by his own testimony and his Exhs.B to G that from
October 6, 1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant
Isabela Sawmill. Against the said advances said defendant delivered to Tonsay P3,266.27
worth of lumber, leaving an unpaid balance of P933.73, which balance was confirmed on May
6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. 15, 1959 by the defendant Leon Garibay, as Manager of the defendant partnership.
Saldajeno executed a document entitled Assignment of Rights with Chattel Mortgage, a copy
of which documents and its Annexes A to A-5 forming a part of the record of the above
"The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs.J to L that
mentioned Civil Case No. 4797, which deed was referred to in the Decision of the Court of First from May 25, 1958 to January 13, 1959 he sold on credit to the defendant Isabela Sawmill
Instance of Negros Occidental in Civil Case No. 4797 dated May 29, 1958, a copy of which is
rice and bran, on account of which business transactions there remains an unpaid balance of
hereto attached as Appendix F and F-1 respectively.
P3,580.50. The same plaintiff also proved that the partnership owes him the sum of P143.00
for nipa shingles bought from him on credit and unpaid for.
7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the
assets and properties of the "Isabela Sawmill" between them but they continued the business "The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares
of said partnership under the same firm name "Isabela Sawmill."
and his Exhs.N to O-3 that he owns the Guia Lumber Yard, that on October 11, 1958 said
lumber yard advanced the sum of P2,500.00 to the defendant Isabela Sawmill, that against
8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices the said cash advance, the defendant partnership delivered to Guia Lumber Yard P920.56 worth
that he would sell at public auction on June 5, 1959 at Isabela, Negros Occidental certain
of lumber, leaving an outstanding balance of P1,579.44.
trucks, tractors, machinery, office equipment and other things that were involved in Civil Case
No. 5223 of the Court of First Instance of Negros Occidental, entitled "Margarita G. Saldajeno v. "The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness
Leon Garibay, Et. Al." See Appendices G and G-1.
Cayetano Palmares and its Exhs.P to Q-1 that on October 11, 1958 said plaintiff advanced the
sum of P1,500.00 to the defendant Isabela Sawmill, that against the said cash advance, the
9. That on October 15, 1959 the Provincial Sheriff of Negros Occidental executed a Certificate defendant partnership delivered to the said plaintiff on November 19, 1958 P377.72 worth of
of Sale in favor of the defendant Margarita G. Saldajeno, as a result of the sale conducted by
lumber, and P73.54 worth of lumber on January 27, 1959, leaving an outstanding balance of
him on October 14 and 15, 1959 for the enforcement of the judgment rendered in Civil Case
P1,048.78.
No. 5223 of the Court of First Instance of Negros Occidental, a certified copy of which
certificate of sale is hereto attached as Appendix H.
"The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as
his witness, and through the Exhs, R to E that from September 14, 1958 to November 27,
10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in 1958 he sold to the defendant Isabela Sawmill gasoline, motor fuel, and lubricating oils, and
favor of the Pan Oriental Lumber Company transferring to the latter for the sum of P45,000.00 that on account of said transactions, the defendant partnership owes him an unpaid balance of
the trucks, tractors, machinery, and other things that she had purchased at a public auction
P2,052.10.
referred to in the foregoing paragraph, a certified true copy of which Deed of Sale is hereto
attached as Appendix I.
Appendix H of the stipulation Exh.A shows on October 13 and 14, 1959 the Provincial Sheriff

sold to the defendant Margarita G. Saldajeno for P38,040.00 the assets of the defendant
Isabela Sawmill which the defendants Leon G. Garibay and Timoteo Tubungbanua had
mortgaged to her, and said purchase price and applied to the judgment that she has obtained
against the said mortgagors in Civil Case No. 5223 of this Court.

(or resolution) should be differently treated, a "rescission" being a counterpart, so to speak, of


"specific performance." In both cases, the court would certainly have to undertake an
investigation into facts that would justify one act of the other. No award for damages may be
had in an action for rescission without first conducting an inquiry into matters which would
justify the setting aside of a contract, in the same manner that courts of first instance would
Appendix I of the same stipulation Exh.A shows that on October 20, 1959 the defendant
have to make findings of fact and law in actions not capable of pecuniary estimation expressly
Margarita G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of
held to be so by this Court, arising from issues like those arised in Arroz v. Alojado at al, Lthe said properties that she had bought at public auction one week before.
22153, March 31, 1967 (the legality or illegality of the conveyance sought for and the
determination of the validity of the money deposit made); De Ursua v. Pelayo, L-13285, April
"x
x
x" 7
18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of
a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the
It is contended by the appellants that the Court of First Instance of Negros Occidental had no right to support created by the relation, etc., in actions for support); De Rivera, Et. Al. v. Halili,
jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R.
L-15159, September 30, 1963 (the validity or nullity of documents upon which claims are
Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of
predicated). Issues of the same nature may be raised by a party against whom an action for
money, the biggest amount of which was less than P2,000.00 and, therefore, within the
rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a
jurisdiction of the municipal court.
prayer for damages in an action for rescission should be taken as the basis for concluding such
action as one capable of pecuniary estimation - a prayer which must be included in the main
This contention is devoid of merit because all the plaintiffs also asked for the nullity of the
action if plaintiff is to be compensated for what he may have suffered as a result of the breach
assignment of right with chattel mortgage entered into by and between Margarita G. Saldajeno committed by defendant, and not later on precluded from recovering damages by the rule
and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of action is not
against splitting a cause of action and discouraging multiplicity of suits."
capable of pecuniary estimation and falls under the jurisdiction of the Court of First Instance.
Where the basis issue is something more than the right to recover a sum of money and where The foregoing doctrine was reiterated in The Good Development Corporation v. Tutaan, 10
the money claim is purely incidental to or a consequence of the principal relief sought, the
where this Court held:
action is as a case where the subject of the litigation is not capable of pecuniary estimation and
is cognizable exclusively of the Court of First Instance.
"On the issue of which court has jurisdiction, the case of Seno v. Pastolante, Et Al., is in point.
It was ruled therein that although the purpose of an action is to recover an amount plus
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon interest which comes within the original jurisdiction of the Justice of the Peace Court, yet when
the nature of litigation, is defined in the amended Judiciary Act, pursuant to which courts of
said action involves the foreclosure of a chattel mortgage covering personal properties valued
first instance shall have exclusive original jurisdiction over any case the subject matter of which at more than P2,000, (now P10,000.00) the action should be instituted before the Court of First
is not capable of pecuniary estimation. An action for the annulment of a judgment and an order Instance.
of a court of justice belongs to this category. 8
In the instant case, the action is to recover the amount of P1,520.00 plus interest and costs,
In determining whether an action is one the subject matter of which is not capable of pecuniary and involves the foreclosure of a chattel mortgage of personal properties valued at
estimation this Court has adopted the criterion of first ascertaining the nature of the principal P15,340.00,00 that it is clearly within the competence of the respondent court to try and
action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is
resolve."
considered capable of pecuniary estimation, and whether jurisdiction is in the municipal courts
or in the courts of first instance would depend on the amount of the claim. However, where the In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did
basic issue is something other than the right to recover a sum of money, where the money
not err in exercising jurisdiction over Civil Case No. 5343.
claim is purely incidental to, or a consequence of, the principal relief sought, this Court has
considered such actions as cases where the subject of the litigation may not be estimated in
The appellants also contend that the chattel mortgage may no longer be annulled because it
terms of money, and are cognizable exclusively by courts of first instance.
had been judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros
Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of the
In Andres Lapitan v. SCANDIA, Inc., Et Al., 9 this Court held:
same court.
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"Actions for specific performance of contracts have been expressly pronounced to be


On the question of whether a court may nullify a final judgment of another court of co-equal,
exclusively cognizable by courts of first instance: De Jesus v. Judge Garcia, L-26816, February concurrent and coordinate jurisdiction, this Court originally ruled that:
28, 1967; Manufacturers Distributors, Inc. v. Yu Siu Liong L-21286, April 29, 1966. And no
cogent reason appears, and none is here advanced by the parties, why an action for rescission "A court has no power to interfere with the judgments or decrees of a court of concurrent or
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coordinate jurisdiction having equal power to grant the relief sought by the injunction.
"The various branches of the Court of First Instance of Manila are in a sense coordinate courts
and cannot be allowed to interfere with each others judgments or decrees." 11
The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:

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"The rule which prohibits a Judge from interfering with the actuations of the Judge of another
branch of the same court is not infringed when the Judge who modifies or annuls the order
issued by the other Judge acts in the same case and belongs to the same court (Eleazar v.
Zandueta, 48 Phil. 198. But the rule is infringed when the Judge of a branch of the court issues
a writ of preliminary injunction in a case to enjoin the sheriff from carrying out an order by
execution issued in another case by the Judge of another branch of the same court." (Cabigao
and Izquierdo v. Del Rosario et al, 44 Phil. 182).

the main object of the proceeding. The cause of action in the two cases being distinct and
separate from each other, there is no plausible reason why the venue of the action to annul the
judgment should necessarily follow the venue of the previous action.
"The present doctrine which postulate that one court or one branch of a court may not annul
the judgment of another court or branch, not only opens the door to a violation of Section 2 of
Rule 4, (of the Rules of Court) but also limit the opportunity for the application of said rule.
"Our conclusion must therefore that a court of first instance or a branch thereof has the
authority and jurisdiction to take cognizance of, and to act in, suit to annul final and executory
judgment or order rendered by another court of first instance or by another branch of the same
court . . ."
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In February 1974 this Court reiterated the ruling in the Dulap case. 17

This ruling was maintained in 1964. In Mas v. Dumaraog, 13 the judgment sought to be
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the
annulled was rendered by the Court of First Instance of Iloilo was the action for annullment was Court of First Instance Negros Occidental can take cognizance of an action to nullify a final
filed with the Court of First Instance of Antique, both courts belonging to the same Judicial
judgment of the other two branches of the same court.
District. This Court held that:
It is true that the dissolution of a partnership is caused by any partner ceasing to be associated
"The power to open, modify or vacate a judgment is not only possessed by, but is restricted to in the carrying on of the business. 18 However, on dissolution, the partnership is not
the court in which the judgment was rendered."
terminated but continuous until the winding up of the business. 19
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The reason of this Court was:

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"Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction
may not be interfered with by any court of concurrent jurisdiction."
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Again, in 1967 this Court ruled that the jurisdiction to annul a judgment of a branch of the
Court of First Instance belongs solely to the very same branch which rendered the judgment.
14
Two years later, the same doctrine was laid down in the Sterling Investment case. 15
In December 1971, however, this court re-examined and reversed its earlier doctrine on the
matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor
declared:
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The remaining partners did not terminate the business of the partnership "Isabela Sawmill."
Instead of winding up the business of the partnership, they continued the business still in the
name of said partnership. It is expressly stipulated in the memorandum-agreement that the
remaining partners had constituted themselves as the partnership entity, the "Isabela Sawmill."
20
There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay
and Timoteo Tubungbanua, continued doing the business of the partnership in the name of
"Isabela Sawmill." They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay,
and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant,
Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at
public auction the properties of the partnership which were mortgaged to her.

". . . the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was
to the end that the judgment of a court of competent jurisdiction may not be interfered with by published in the newspapers. The appellees and the public in general had a right to expect that
any court of concurrent jurisdiction, this Court feels that this is as good an occasion as any to whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the business
re-examine the doctrine laid down.
in the name of the partnership "Isabela Sawmill" could be enforced against the properties of
said partnership. The judicial foreclosure of the chattel mortgage executed in favor of Margarita
"In an action to annul the judgment of a court, the plaintiffs cause of action springs from the G. Saldajeno did not relieve her from liability to the creditors of the partnership.
alleged nullity of the judgment based on one ground or another, particularly fraud, which fact
affords the plaintiff a right to judicial interference in his behalf. In such a suit the cause of
The appellant, Margarita G. Saldajeno, cannot complain. She is partly to blame for not insisting
action is entirely different from that in the action which gave rise to the judgment sought to be on the liquidation of the assets of the partnership. She even agreed to let Leon Garibay and
annulled, for a direct attack against a final and executory judgment is not a incidental to, but is Timoteo Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by

entering into the memorandum-agreement with them.


Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the
appellees also acted in good faith in extending credit to the partnership. Where one of two
innocent persons must suffer, that person who gave occasion for the damaged to be caused
must bear the consequences. Had Margarita G. Saldajeno not entered into the memorandumagreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of
the partnership, the appellees would not have been misled into thinking that they were still
dealing with the partnership "Isabela Sawmill." Under the facts, it is of no moment that
technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal
therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued
doing business through the two remaining partners.
The contention of the appellants that the appellees cannot bring an action to annul the chattel
mortgage of the properties of the partnership executed by Leon Garibay and Timoteo
Tubungbanua in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a
contract prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under a
contract, may exercise an action for nullity of the contract if he is prejudiced in his rights with
respect to the of the contracting parties, and can show detriment which would positively result
to him from the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage
over the properties of the partnership "Isabela Sawmill" in favor of Margarita G. Saldajeno by
the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appellees have a
right to file the action to nullify the chattel mortgage in question.
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The portion of the decision appealed from ordering the appellants to pay attorneys fees to the
plaintiffs-appellees cannot be sustained. There is no showing that the appellants displayed a
wanton disregard of the rights of the plaintiffs. Indeed, the appellant believed in good faith,
albeit erroneously, that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the
appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the
memorandum-agreement, Leon Garibay and Timoteo Tubungbanua undertook to release
Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion
ordering appellants to pay attorneys fees and with the modification that the defendants, Leon
Garibay and Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G.
Saldajeno and her husband Cecilio Saldajeno, whatever they shall pay to the plaintiffsappellees, without pronouncement as to costs.
SO ORDERED.

FIRST DIVISION
[G.R. NO. 158314 : June 3, 2004]

SAMAHAN NG MAGSASAKA SA SAN JOSEP, represented by dominador


maglalang, Petitioner, v.MARIETTA VALISNO, ADELA, AQUILES, LEANDRO, HONORIO,
LUMEN, NICOLAS, all surnamed VALISNO; RANDY V. WAGNER, MARIA MARTA B.
VALISNO, NOELITO VALISNO, MARY ANN L. VALISNO, PHILIP V. BRANZUELA and
BRENDON V. YUJUICO; MA. CRISTINA VALISNO, BENEDICTO V. YUJUICO, GREGORIO
V. YUJUICO and LEONORA V. YUJUICO, Respondents.

DECISION

then Secretary Garilao, who held that the property is covered by the Comprehensive Agrarian
Reform Program, subject to the retention rights of the heirs of Nicolas, Sr.The Valisno heirs filed
YNARES-SANTIAGO, J.:a motion for reconsideration of the said order, but the same was denied.

The sole issue in this Petition for Review on Certiorari is whether or not the grandchildren of the On September 25, 1997, the Valisno heirs filed a Consolidated Application for Retention and
late Dr. Nicolas Valisno Sr. are entitled to retention rights as landowners under Republic Act No. Award under RA 6657.Specifically, the petition was filed by (1) Adela, Aquiles, Leandro,
6657, or the Comprehensive Agrarian Reform Law (hereafter, CARL).
Honorio, Lumen, Nicolas and Marietta Valisno, seven children of Nicolas Valisno, Sr., who
applied for retention rights as landowners; (2) Randy V. Wagner, Maria Marta B. Valisno, Noelito
Valisno, Mary Ann L. Valisno, Philip V. Branzuela and Brendon V. Yujuico, grandchildren of
Nicolas Sr. (hereafter collectively the Grandchildren-Awardees), who applied to be considered
The original 57-hectare property, situated in La Fuente, Sta. Rosa, Nueva Ecija, was formerly
qualified child-awardees; and (3) Ma. Cristina Valisno, Benedicto V. Yujuico, Gregorio V. Yujuico
registered in the name of Dr. Nicolas Valisno, Sr. under Transfer Certificate of Title No. NTand Leonora V. Yujuico, likewise grandchildren of Nicolas Sr. (hereafter collectively the
38406.Before the effectivity of Presidential Decree No. 27, 1 the land was the subject of a
Redemptioner-Grandchildren), who applied for retention rights as landowners over the 12judicial ejectment suit, whereby in 1971, the Valisnos tenants were ejected from the
hectare portion of the property alleged to have been mortgaged by Nicolas Sr. in 1972 to
property.2 Among these tenants was Dominador Maglalang, who represents the SMSJ in the
Angelito and Renato Banting.
instant proceedings.

Meanwhile, on October 20 and 21, 1972, Dr. Valisno mortgaged 12 hectares of his property to
Renato and Angelito Banting.3 Thereafter, the property was subdivided into ten lots and on
November 8, 1972, individual titles were issued in the name of the eight children of Nicolas,
Angelito Banting, and Renato Banting.4

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

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On November 4, 1998, Regional Director Renato F. Herrera issued an Order which pertinently
reads:
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After the mortgage on the 12 hectare portion was foreclosed and the property sold at public
auction, four grandchildren of Dr. Nicolas Valisno, namely: Maria Cristina F. Valisno, daughter of
Romulo D. Valisno; and Leonora Valisno Yujuico, Benedicto Valisno Yujuico and Gregorio Valisno
Yujuico, children of Marietta Valisno redeemed the same from the mortgagees. 5 At the time of WHEREFORE, premises considered, an ORDER is hereby issued as follows:
the redemption, Maria Cristina, Leonora and Gregorio were all minors; only Benedicto was of
legal age, being then 26 years old.6 The redemption was made on October 25, 1973, but the
titles to the land were not transferred to the redemptioners until November 26, 1998. 7
1.GRANTING the application for retention of the heirs of Dr. Nicolas Valisno, Sr.,
namely:Marietta Valisno; Honorio Valisno; Leandro Valisno; Adela Valisno; Nicolas Valisno, Jr.;
Aquiles Valisno; and Lumen Valisno of not more than five (5) hectares each or a total of 35
Subsequently, the entire 57-hectare property became the subject of expropriation proceedings hectares covered by Title Nos. 118446, 118443, 118442, 118440, 118445, 118441 and
before the Department of Agrarian Reform (DAR) .In 1994, Dominador Maglalang, in behalf of 118444, respectively, all located at La Fuente, Sta. Rosa, Nueva Ecija;
the SMSP, filed a petition for coverage of the subject landholding under the CARL, which
petition was dismissed for want of jurisdiction. 8 On June 14, 1995, Rogelio Chaves, DAR
Provincial Agrarian Reform Officer (PARO), issued a Memorandum stating that the property had
2.PLACING the excess of 19.0 hectares, more or less, under RA 6657 and acquiring the same
been subdivided among the heirs of Dr. Nicolas Valisno Sr. before the issuance of PD 27 into
tracts of approximately six hectares each.9 Nevertheless, PARO Chaves added that the excess thru Compulsory Acquisition for distribution to qualified farmer-beneficiaries taking into
consideration the basic qualifications set forth by law;
over the five-hectare retention limit could still be covered under RA 6657. 10
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On appeal, the Office of the Regional Director issued an Order dated January 2, 1996, declaring
the Valisno property exempt from the coverage of PD 27 and RA 6657. 11 This was reversed by

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

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4.DIRECTING the applicants-heirs to cause the segregation and survey of the retained area at
their own expense and to submit within thirty (30) days the final approved survey plan to this
Office.

SO ORDERED.12

On March 26, 2002, the Court of Appeals reversed the Orders of the DAR Secretary, granted
the award of one hectare each for the seven Grandchildren-Awardees, and affirmed the
retention rights of the Redemptioner-Grandchildren over three hectares each, or a total of 12
hectares.16
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Petitioners filed a partial motion for reconsideration, assailing the right of retention of the four
Redemptioner-Grandchildren over the 12-hectare property, and praying that an amended
decision be rendered placing the 12 hectares under the coverage of the CARP.17 This motion
was denied on March 25, 2003.18

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On appeal, the DAR Secretary affirmed the Order of the Regional Director with the following
relevant ratiocination:
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Hence, this appeal, on the sole assignment of error:


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

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THE HONORABLE COURT OF APPEALS ERRED WHEN, IN EFFECT, IT RULED THAT THE
REDEMPTIONERS (GRANDCHILDREN OF THE DECEASED NICOLAS VALISNO, SR.) WERE
ENTITLED TO RETENTION RIGHTS AS LANDOWNERS UNDER THE AGRARIAN REFORM LAW
DESPITE THE FACT THAT THE REDEMPTION WAS DONE BY THEIR PARENTS (CHILDREN OF THE
DECEASED) ONLY IN THEIR NAME AND FOR THEIR BENEFIT.19
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xxx
The appeal lacks merit.
The alleged redemption of the mortgaged property by the four (4) grandchildren of Nicolas
The Court of Appeals found the following facts relevant:First, that the mortgages were
Valisno, Sr., namely Ma. Cristina, Leonora, Gregorio and Benedicto, is not likewise worthy of
constituted over a 12-hectare portion of Dr. Valisnos estate in 1972.Second, that the titles to
any credence.The mortgaged property was allegedly redeemed on October 25, 1973.From the the property were transferred to the names of the mortgagees in 1972, viz., TCT No. NTevidence on record, three (3) of the alleged redemptioners represented to be of legal age in the 118447, covering a 6-hectare property in La Fuente, Sta. Rosa, Nueva Ecija, issued in the
Discharge of Mortgage were still minors, hence, without any legal capacity at the time the
name of Angelito Banting; and TCT No. NT-118448, likewise covering a 6-hectare property in
redemption was made.13
La Fuente, Sta. Rosa, Nueva Ecija, issued in the name of Renato Banting.Third, these
properties were redeemed by the Redemptioner-Grandchildren on October 25, 1973, at the
time of which redemption three of the four Redemptioner-Grandchildren were minors.
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On June 23, 2000, the motion for reconsideration filed by the heirs of Dr. Valisno was
denied.14
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It is a well-settled rule that only questions of law may be reviewed by the Supreme Court in an
appeal by certiorari.20 Findings of fact by the Court of Appeals are final and conclusive and
cannot be reviewed on appeal to the Supreme Court. 21 The only time this Court will disregard
Respondent heirs filed a Petition for Review with the Court of Appeals, arguing that the
the factual findings of the Court of Appeals (which are ordinarily accorded great respect) is
Secretary of Agrarian Reform erred (1) in disallowing the award of one hectare to each of the when these are based on speculation, surmises or conjectures or when these are not based on
seven Grandchildren-Awardees of Dr. Nicolas Valisno, as qualified children-awardees under the substantial evidence.22
CARL; and (2) in not recognizing the redemption made by the four grandchildren of Dr. Nicolas
Valisno over the 12-hectare riceland mortgaged to Renato and Angelito Banting. 15
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In the case at bar, no reason exists for us to disregard the findings of fact of the Court of
Appeals. The factual findings are borne out by the record and are supported by substantial
evidence.

source of their funds, and regardless of their minority, they became the legal owners of the
property in 1973.

Moreover, although Maria Cristina, Leonora and Gregorio were all minors in 1973, they were
Given these settled facts, the resolution of the sole issue in this case hinges on (1) the validity undoubtedly of legal age in 1994, when SMSP initiated the petition for coverage of the subject
of the redemption in 1973, made when three of the Redemptioner-Grandchildren were minors; landholding under the CARL, and of course were likewise of legal age in 1997, when all the
and (2) if the redemption was valid, the determination of the retention rights of the
Valisno heirs filed their Consolidated Application for Retention and Award under RA 6657.
Redemptioner-Grandchildren, if any, under RA 6557.

The relevant laws governing the minors redemption in 1973 are the general Civil Code
provisions on legal capacity to enter into contractual relations. Article 1327 of the Civil Code
provides that minors are incapable of giving consent to a contract.Article 1390 provides that a
contract where one of the parties is incapable of giving consent is voidable or annullable.Thus,
the redemption made by the minors in 1973 was merely voidable or annullable, and
was not void ab initio, as petitioners argue.

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

As owners in their own right of the questioned properties, Redemptioner-Grandchildren enjoyed


the right of retention granted to all landowners.This right of retention is a constitutionally
guaranteed right, which is subject to qualification by the legislature. 25 It serves to mitigate the
effects of compulsory land acquisition by balancing the rights of the landowner and the tenant
and by implementing the doctrine that social justice was not meant to perpetrate an injustice
against the landowner.26 A retained area, as its name denotes, is land which is not supposed to
leave the landowners dominion, thus sparing the government from the inconvenience of taking
land only to return it to the landowner afterwards, which would be a pointless process.

In the landmark case of Association of Small Landowners in the Philippines, Inc. v. Secretary of
Agrarian Reform,27 we held that landowners who have not yet exercised their retention rights
under PD 27 are entitled to the new retention rights under RA 6657. 28 The retention rights of
landowners are provided in Sec. 6 of RA 6657, which reads in relevant part:
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SECTION 6.Retention Limits. Except as otherwise provided in this Act, no person may own or
retain, directly or indirectly, any public or private agricultural land, the size of which shall vary
according to factors governing a viable family-size, such as commodity produced, terrain,
infrastructure, and soil fertility as determined by the Presidential Agrarian Reform Council
(PARC) created hereunder, but in no case shall retention by the landowner exceed five (5)
Respondents contend that the redemption made by the petitioners was simulated, calculated to hectares.Three (3) hectares may be awarded to each child of the landowner, subject to the
avoid the effects of agrarian reform considering that at the time of redemption the latter were following qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is
still minors and could not have resources, in their own right, to pay the price thereof.
actually tilling the land or directly managing the farm; Provided, That landowners whose land
have been covered by Presidential Decree No. 27 shall be allowed to keep the area originally
We are not persuaded. While it is true that a transaction entered into by a party who is
retained by them thereunder, Provided further, That original homestead grantees or direct
incapable of consent is voidable, however such transaction is valid until annulled.The
compulsory heirs who still own the original homestead at the time of the approval of this Act
redemption made by the four petitioners has never been annulled, thus, it is valid. 24
shall retain the same areas as long as they continue to cultivate said homestead.
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The transfer of the titles to the two 6-hectare properties in 1972 removed the parcels of land
The right to choose the area to be retained, which shall be compact or contiguous, shall pertain
from the entire Valisno estate.The evidence clearly demonstrates that Renato Banting and
to the landowner.Provided, however, That in case the area selected for retention by the
Angelito Banting became the registered owners of the property in 1972.These two separate
landowner is tenanted, the tenant shall have the option to choose whether to remain therein or
properties were then transferred to the Redemptioner-Grandchildren in 1973.Regardless of the

be a beneficiary in the same or another agricultural land with similar or comparable features.In
case the tenant chooses to remain in the retained area, he shall be considered a leaseholder
and shall lose his right to be a beneficiary under this Act.In case the tenant chooses to be a
beneficiary in another agricultural land, he loses his right as a lease-holder to the land retained
by the landowner.The tenant must exercise this option within a period of one (1) year from the
time the landowner manifests his choice of the area for retention.

THIRD DIVISION
[G.R. Nos. 74938-39. January 17, 1990.]
ANGELINA J. MALABANAN, Petitioner, v. GAW CHING and THE INTERMEDIATE
APPELLATE COURT, Respondents.

This section defines the nature and incidents of a landowners right of retention.For as long as
the area to be retained is compact or contiguous and it does not exceed the retention ceiling of
five hectares, a landowners choice of the area to be retained must prevail.

Each of the four Redemptioner-Grandchildren is thus entitled to retain a parcel of land with a
ceiling of five hectares, for a total of 20 hectares.The parcels of land in question total only 12
hectares, or only three hectares each, which is well within the statutory retention limits.

[G.R. No. 75524-25. January 17, 1990.]


LEONIDA CHY SENOLOS, LEONARD CHAN and LEONSO CHY CHAN, Petitioners, v.
INTERMEDIATE APPELLATE COURT and GAW CHING, Respondents.
Puruganan, Chato, Chato, Chato & Tan and Romero, Lagman, Torres, Arrieta &
Evangelista for petitioners in 75524-25.
Quiason, Makalintal, Barot & Torres for petitioners in 74938-39.
Limqueco & Macaraeg Law Office and Herminio T. Sugay for respondent Gaw Ching.

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

SYLLABUS

SO ORDERED.
1. CIVIL LAW; CONTRACT; AS A GENERAL RULE, STRANGERS TO A CONTRACT CANNOT SUE;
EXCEPTION. The firmly settled rule is that strangers to a contract cannot sue either or both
of the contracting parties to annul and set aside that contract. Article 1397 of the Civil Code
embodies that rule in the following formulation: "Article 1397. The action for the annulment of
contracts may be instituted by all who are thereby obliged principally or subsidiarily. However,
persons who are capable cannot allege the incapacity of those with whom they contracted; nor
can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused
mistake base their action upon these flaws of the contract." (Emphasis supplied) Article 1397
itself follows from Article 1311 of the Civil Code which establishes the fundamental rule that:
"Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
2. CIVIL LAW; CONTRACT; EXISTENCE OF INTEREST THEREIN IS THE BASIS OF THE RIGHT TO
SUE FOR NULLIFICATION. As long ago as 1912, this Court in Ibaez v. Hongkong and
Shanghai Bank, pointed out that it is the existence of an interest in a particular contract that is
the basis of ones right to sue for nullification of that contract and that essential interest in a

given contract is, in general, possessed only by one who is a party to the contract. In Ibaez, set out in his brief over the trial courts findings. No indication was offered where the trial court
Mr. Justice Torres wrote: "From these legal provisions it is deduced that it is the interest had in had fallen into error or what evidence had been misapprehended by it. In this situation, the
a given contract, that is the determining reason of the right which lies in favor of the party
Court considers that it must go back to the trial courts findings of fact in line with the timeobligated principally or subsidiarily to enable him to bring an action for the nullity of the
honored rule that such findings are entitled to great respect from appellate courts since the
contract in which he intervened, and, therefore, he who has no right in a contract is not entitled trial court judge had the opportunity to examine the evidence directly and to listen to the
to prosecute an action for nullity, for, according to the precedents established by the courts, the witnesses and observe their demeanor while testifying. It appears therefore that firstly, the
person who is not a party to a contract, nor has any cause of action or representation from
order of condemnation or demolition had been issued by the proper authorities which order was
those who intervened therein, is manifestly without right of action and personality such as to
valid and subsisting at the time the demolition was actually carried out. Secondly, under
enable him to assail the validity of the contract. (Decisions of the Supreme Court of Spain, of
Section 5.3 of Rule VII entitled "Abandonment/Demolition of Buildings" of the Rules and
April 18, 1901, and November 23, 1903, pronounced in cases requiring an application of the
Regulations Implementing the National Building Code of the Philippines (P.D. No. 1096, as
preinserted article 1302 of the Civil Code." Mr. Justice Torres went on to indicate a possible
amended dated 19 February 1977), an order for demolition may be appealed, by the owner of
qualification to the above general principle, that is, a situation where a non-party to a contract the building or installation to be demolished, to the Secretary of Public Works and Highways. In
could be allowed to bring an action for declaring that contract null: "He who is not the party
the case at bar, it was respondent Gaw Ching, a lessee merely of the building condemned that
obligated principally or subsidiarily in a contract may perhaps be entitled to exercise an action sought to block the implementation of the demolition order. It does not even appear from the
for nullity, if he is prejudiced in his rights with respect to one of the contracting parties; but, in record whether or not Gaw Ching actually filed a formal appeal to the Secretary, even though
order that such be the case, it is indispensable to show the detriment which positively would
he was not entitled to do so. What does appear from the record is that Gaw Chings counsel,
result to him from the contract in which he had no intervention."
Atty. Sugay, was able to obtain a letter dated 6 November 1981 from the Office of the City
Engineer and Building Official, enclosing a xerox copy of a letter from the Assistant Secretary
3. ID.; ID.; LIMITATION OF RIGHT OF A PERSON INJURED BY THE VERY OPERATION OF A
for Operations, Ministry of Public Works and Highways, "directing this office to hold the
CONTRACT BETWEEN TWO THIRD PARTIES. There is an important and clear, albeit implicit, demolition in abeyance." This letter, which did not purport to set aside the order of demolition,
limitation upon the right of a person who is in fact injured by the very operation of a contract was served upon the demolition team on site while the demolition was in progress. After some
between two (2) third parties to sue to nullify that contract: that contract may be nullified only hesitation, the demolition was in fact stopped. Respondent Gaw Ching, in the action that he
to the extent that such nullification is absolutely necessary to protect the plaintiffs lawful
had filed before the Regional Trial Court of Manila to set aside the contract of sale between
rights. It may be expected that in most instances, an injunction restraining the carrying out of petitioners Malabanan and Senolos, had sought preliminary injunction precisely to restrain the
acts in fact injurious to the plaintiffs rights would be sufficient and that there should be no
implementation of the order for demolition. That application for preliminary injunction was
need to set aside the contract itself which is a res inter alios acta and which may have any
denied by the trial court and the order for demolition was implemented only after such denial.
number of other provisions, implementation of which might have no impact at all upon the
Thus, there was no subsisting court order restraining the demolition at the time such
plaintiffs rights and interests.
demolition was carried out. Gaw Ching had ample notice of the demolition order and had
adequate time to remove his belongings from the premises if he was minded to obey the order
4. ID.; PRE-EMPTIVE OR REDEMPTIVE RIGHT OF LESSEE UNDER PD No. 1517. In Santos v. for demolition. He chose not to obey that order. If he did suffer any losses the trial court did
Court of Appeals, [(128 SCRA 128 (1984]) this Court held that the preemptive or redemptive not believe his claims that he did he had only himself to blame.
rights of a lessee under P.D. No. 1517 exists only in respect of the urban land under lease on
which the tenant or lessee had built his home and in which he had resided for ten (10) years or
more and that, in consequence, where both land and building belong to the lessor, that
preemptive or redemptive right was simply not available under the law. Finally, we are unable
to understand the respondent appellate courts view that respondent Gaw Ching having been a
RESOLUTION
long-time tenant of the property in question, had acquired a preferred right to purchase that
property. This holding is simply bereft of any legal basis. We know of no law, outside the Urban
Land Reform Zone or P.D. No. 1517, that grants such a right to a lessee no matter how long the
period of the lease has been. If such right existed at all, it could only have been created by
contract; respondent Gaw Ching does not, however, pretend that there had been such a
FELICIANO, J.:
contractual stipulation between him and petitioners.
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5. REMEDIAL LAW; LEGALITY OF ORDER OF DEMOLITION; UPHELD; FINDINGS OF TRIAL


COURT ENTITLED TO GREAT RESPECT. We note that the appellate courts majority opinion
chose to disregard the above conclusions of fact of the trial court and instead quoted
extensively from respondent Gaw Chings brief and, presumably relied upon such brief. The
majority opinion, however, failed to indicate why it preferred Gaw Chings version of the facts

The two (2) Petitions before us G.R. Nos. 74938-39 and 75524-25 - assail the decision of the
then Intermediate Appellate Court in A.C.-G.R. CV Nos. 05136-05137 dated 31 January 1986,

which reversed the decision of the Regional Trial Court in two (2) consolidated cases, namely: of the Deed of Sale and TCT No. 14789 (Exh. A) which reflected that the date of entry of the
Civil Case No. R-81-416 and Civil Case No. R-82-6789. Upon motion of petitioners, we ordered Deed of Sale was December 9, 1980, whereas the Deed of Sale was dated August 23, 1979
the consolidation of the two (2) Petitions.
(Exh. I). Plaintiff then told Atty. Sugay to file a civil case against defendants. On October 7,
1981, Atty. Techico sent a reply to Atty. Sugays letter of February 17, 1981 (Exh K). Plaintiff
Respondent Gaw Ching instituted two (2) cases against petitioners Angelina Malabanan,
presented the receipt of rentals he paid (Exhs. L to L-6). He deposited the monthly rentals
Leonida Senolos, Et. Al. in connection with the sale of piece of land located in Binondo, Manila. which Malabanan refused to accept, with the Pacific Banking Corporation (Exh. M). At a later
The first case, Civil Case No. R-81-416, sought to annul such sale and to enjoin the demolition period, plaintiff had to move out of the premises when it was demolished by the defendant.
of a building standing on that piece of land, and also prayed for the award of damages. The
Gaw Ching, however, admitted that he was not yet a Filipino Citizen at the time the offer to sell
second case, Civil Case No. G.R. 82-6798, demanded damages from petitioner Senolos for
was made, i.e., on April 27, 1980, May 13, 1980 and October 2, 1980 and that he became a
bringing about the demolition of the building.
Filipino citizen only on October 7, 1980, when he was issued a certificate of naturalization (Exh.
1-Malabanan). He did not, however, inform Malabanan on the matter of his newly acquired
The following facts found by the trial court, and adopted and incorporated by the appellate
citizenship. Likewise, Gaw Ching admitted that he did not make any counter-offer in writing so
court, are undisputed:
as to price the property.
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jgc:chanrobles.com .ph

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"Evidence for plaintiff showed that Gaw Ching has been leasing the house and lot located [in] As to plaintiffs claim for damages, he testified, that this was motivated by the incident on
697-699 Asuncion Street, Binondo, Manila from Mr. Jabit since 1951. Plaintiff conducted his
November 16, 1981, while he was on the ground floor, when there was a sudden brownout, and
business (Victoria Blacksmith Shop) on the ground floor and lived on the second floor. When Mr. around 50 people came thereat, climbed the roof with the use of a ladder, cut the electric wires
Jabit died, his daughter, defendant Malabanan continued to lease the premises to plaintiff but and started banging the roof Plaintiff, his wife, and mother-in-law were in the house and about
at an increased rental of P1,000.00 per month. Before the increase, Gaw Ching paid P700.00
7 laborers were in the shop when the incident happened. Plaintiff then immediately called up
per month, as evidenced by receipts of rentals. There was no written contract of lease between Atty. Sugay and told him that Leonida Senolos called some people to demolish the house.
plaintiff and Mr. Jabit as to its duration but the rentals were evidently, paid monthly. On April
Plaintiff further testified that . . . he was not notified of the demolition. . . . . On that same day,
27, 1980, Angelina Malabanan told him that she was selling the house and lot for P5,000.00
Atty. Sugay arrived at about 10:00 a.m. and told plaintiff that he was going to the City Hall.
per square meter. Plaintiff told her however, that the price is prohibitive. On May 13, 1980,
When Atty. Sugay came back he was with Roldan (Building Inspector), who ordered that the
defendant Malabanan wrote plaintiff, reiterating that she was selling the house and lot at
demolition be stopped, but Leonida Senolos refused to heed the order. Atty. Sugay and Roldan
P5,000.00 per square meter and that if he is not agreeable, she will sell it to another person.
went back to the City Hall. . . . . At about 3:00 p.m., Atty. Sugay came back with another
After receiving the letter, plaintiff turned over the letter to his counsel, Atty. Sugay. Gaw Ching person from the City Hall who presented a letter to Leonida Senolos to which defendant affixed
claims that he is not in a position to buy the property at P5,000.00 per square meter because it her signature. The formal letter was dated November 6, 1981 addressed to Leonida Senolos by
was expensive. Subsequently, Gaw Ching tried to pay the rent for June, 1980, but Malabanan Romulo del Rosario, City Engineer and Building Officer. Upon receipt of the letter, the policeman
refused to accept it. Plaintiffs counsel advised him to deposit the rentals in a bank which he did, remained but the demolition continued. Plaintiff together with Atty. Sugay, and the City Hall
after which, his counsel wrote Malabanan informing her about the deposit (Exh. B). On October official, went to the police precinct where the City Hall Official talked with somebody in the
2, 1980, plaintiff received another letter from defendant Malabanan which he gave to his
precinct. It was only when they returned to the premises at about 4:00 p.m. with a policeman
counsel who told him that said defendant is offering the house and lot at P5,000.00 per square that the demolition was stopped. . . .
meter and that if he is not agreeable, she will sell the premises to another person at P4,000.00
per square meter. Plaintiff testified that he was willing to buy the subject property at P4,000.00 On cross examination, plaintiff admitted that he received a letter from the Office of the City
but hastened to add that it was still expensive and did not ask his counsel to write Malabanan Engineer dated July 29, 1981 (Exh. 1-Senolos) condemning the building. He also admitted that
about it. So, also, it was the opinion of his counsel that it was not necessary to reply because he was furnished a copy of the Demolition Order (Exh. 2-Senolos) to which he affixed his
the context of the letter was invariably a threat. On November 3, 1980, plaintiff received
signature.
another letter from Defendant Malabanan, informing him that the premises in question had
already been sold to defendant Leonida Senolos. This time Atty. Sugay sent a reply dated
After receiving Exhibits 1 and 2, Gaw Ching still refused to vacate the premises because he
November 24, 1980, requesting that the pertinent documents of the sale be sent to them, but was told that the building was still in good condition and he continued paying the monthly
according to plaintiff, they were not furnished a copy of said sale. Consequently, plaintiff
rental.
received a letter from Atty. Techico dated December 5, 1980 demanding that he vacate the
premises and to pay the arrearages in rentals from October to December, as they were more
On redirect, plaintiff declared that after receiving the notice of the City Engineer, he filed a
importantly, going to repair and convert the dwelling into a warehouse. Atty. Sugay sent a reply complaint with the Ministry of Public Works and Highways by reason of which, the MPWH issued
dated February 17, 1981 (Exh. C) requesting Atty. Techico to furnish them with the Deed of
an order that the demotion to be stopped. (Exh. 3).
Sale and TCT because he doubted the veracity of the sale. It took a long time before Atty.
Sugays letter was answered and he was never furnished a copy of the Deed of Sale and
x
x
x
Transfer Certificate of Title. After exerting all efforts, plaintiff finally was able to procure a copy

Another witness presented by plaintiff was Felix Tienzo, Actg. Chief of Enforcement Division,
(Ministry of Public Works and Highways) . . . .

We believe that the Petitions must be granted.


I

Mr. Felix Tienzo believes that the City of Manila was correct in ordering the demolition of the
building but he intended to hold in abeyance the demolition of the building only in obedience to
the order of the MPWH. However, both Mr. Tienzo and Mr. Roldan claim that they do not usually The firmly settled rule is that strangers to a contract cannot sue either or both of the
receive an order from the MPWH stopping the demolitions.
contracting parties to annul and set aside that contract. Article 1397 of the Civil Code embodies
that rule in the following formulation:
x
x
x" 1
"Article 1397. The action for the annulment of contracts may be instituted by all who are
On 10 August 1984, the trial court rendered a decision which upheld the validity of the contract thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the
of sale between petitioner Malabanan and petitioner Senolos. The trial court declared that
incapacity of those with whom they contracted; nor can those who exerted intimidation,
petitioner Malabanan had not violated Sections 4 and 6 of Presidential Decree No. 1517 in
violence, or undue influence, or employed fraud, or caused mistake base their action upon
relation to Presidential Proclamation No. 1893 and Letter of Instruction (LOI) No. 935 which
these flaws of the contract." (Emphasis supplied)
provide for a preemptive right on the part of a lessee over leased property. The trial court
stressed that respondent Gaw Ching had been given ample opportunity to exercise any right of Article 1397 itself follows from Article 1311 of the Civil Code which establishes the fundamental
first refusal he might have had, but he had chosen not to do so.
rule that:
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Respondent Gaw Ching went on appeal to the then Intermediate Appellate Court. By a vote of
three (3) to two (2), the appellate court voted to reverse the decision of the trial court and
hence to nullify the contract of sale between petitioners Malabanan and Senolos inter se. 2 The
majority also held that the transaction between petitioners was vitiated by fraud, deceit and
bad faith allegedly causing damage to respondent Gaw Ching. Petitioners were held liable
jointly and severally to respondent for moral, exemplary and actual damages in the amount of
P350,000.00 and for attorneys fees in the amount of P20,000.00 "for the indulgence in
inequitous conduct to plaintiff-appellants (respondent Gaw Ching) prejudice and for the
unwarranted demolition of the building by defendants-appellees (petitioners herein) after the
issuance of the cease-and-desist order on October 30, 1981."

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

While holding that the land in question was located outside the Urban Land Reform Zone
declared by Proclamations Nos. 1767 and 1967, the majority ruled that circumstances
surrounding the sale of the land to petitioner Senolos had rendered that sale null and void. The
majority were here referring to the finding that when petitioner Malabanan offered in October
1980 to sell the land involved to respondent Gaw Ching at P5,000.00 per square meter, that
land had already been sold to petitioner Senolos as early as August 1979 for only P1,176.48
per square meter. On the matter of the demolition of the building, the majority held that the
same was unwarranted and that even if petitioner Senolos had a demolition order,

As long ago as 1912, this Court in Ibaez v. Hongkong and Shanghai Bank, 4 pointed out that
it is the existence of an interest in a particular contract that is the basis of ones right to sue for
nullification of that contract and that essential interest in a given contract is, in general,
possessed only by one who is a party to the contract. In Ibaez, Mr. Justice Torres wrote:

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cralawnad

(Emphasis supplied)

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"From these legal provisions it is deduced that it is the interest had in a given contract, that is
the determining reason of the right which lies in favor of the party obligated principally or
subsidiarily to enable him to bring an action for the nullity of the contract in which he
intervened, and, therefore, he who has no right in a contract is not entitled to prosecute an
"that order of demolition was valid only if there are no more tenants residing in the building. If action for nullity, for, according to the precedents established by the courts, the person who is
there are tenants and they refused to vacate, the order of demolition is unavailing. It could not not a party to a contract, nor has any cause of action or representation from those who
use higher than the Civil Code and the Rules of Court." 3
intervened therein, is manifestly without right of action and personality such as to enable him
to assail the validity of the contract. (Decisions of the Supreme Court of Spain, of April 18,
In the instant Petitions for Certiorari, petitioners assail both the annulment of the deed of sale 1901, and November 23, 1903, pronounced in cases requiring an application of the preinserted
and the grant of P350,000.00 worth of "moral, exemplary and actual damages" to respondent article 1302 of the Civil Code." 5
Gaw Ching.
Mr. Justice Torres went on to indicate a possible qualification to the above general principle,

that is, a situation where a non-party to a contract could be allowed to bring an action for
declaring that contract null:
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"He who is not the party obligated principally or subsidiarily in a contract may perhaps be
entitled to exercise an action for nullity, if he is prejudiced in his rights with respect to one of
the contracting parties; but, in order that such be the case, it is indispensable to show the
detriment which positively would result to him from the contract in which he had no
intervention."
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x" 6

(Emphasis supplied)

but the latter had consistently refused to buy. Since Gaw Ching did not in fact accept the offer
to sell and did not buy the land, he suffered no prejudice, and could not have suffered any
prejudice, by the sale of the same piece of land to petitioner Senolos. No fraud was thus
worked upon him notwithstanding his insinuation that the sale of the land to petitioner Senolos
had preceded the offer of the same piece of land to himself.
In the third place, and contrary to the holding of the majority appellate court opinion, the fact
that Gaw Ching had been lessee of the house and lot was simply not enough basis for a right to
bring an action to set aside the contract of sale between the petitioners inter se. A lessee, it is
elementary, cannot attack the title of his lessor over the subject matter of the lease. 10
Moreover, the lease contract between petitioner Malabanan and respondent Gaw Ching must in
any case be held to have lapsed when the leased house was condemned and the order of
demolition issued.

There is an important and clear, albeit implicit, limitation upon the right of a person who is in
fact injured by the very operation of a contract between two (2) third parties to sue to nullify
II
that contract: that contract may be nullified only to the extent that such nullification is
absolutely necessary to protect the plaintiffs lawful rights. It may be expected that in most
instances, an injunction restraining the carrying out of acts in fact injurious to the plaintiffs
rights would be sufficient and that there should be no need to set aside the contract itself which We consider next petitioners claim that the appellate court erred grievously in imposing upon
is a res inter alios acta and which may have any number of other provisions, implementation of them an award of P350,000.00 for "moral, exemplary and actual damages" not only because
which might have no impact at all upon the plaintiffs rights and interests.
petitioners had "indulged in inequitous conduct to [respondent Gaw Chings] prejudice" but also
"for the unwarranted demolition of the building by [petitioners] after the issuance of the cease
What is important for present purposes is that respondent Gaw Ching, admittedly a stranger to and desist order on October 30, 1981."
the contract of sale of a piece of land between petitioners Malabanan and Senolos inter se,
does not fall within the possible exception recognized in Ibaez v. Hongkong & Shanghai Bank. Here again, we are compelled to hold that the appellate court lapsed into reversible error. The
In the first place, Gaw Ching had no legal right of preemption in respect of the house and lot
relevant conclusions of fact which the trial court arrived at are set out in its decision in the
here involved. The majority opinion of the appellate court itself explicitly found that the subject following manner:
piece of land is located outside the Urban Land Reform Zones declared pursuant to P.D. No.
1517. 7 Even assuming, for purposes of argument merely, that the land here involved was in
"On the legality of the demolition necessarily raising the question: (3) whether or not plaintiff
fact embraced in a declared Urban Land Reform Zone (which it was not), Gaw Ching would still was notified within a reasonable period of time of the demolition, and a fortiori whether this
not have been entitled to a right of preemption in respect of the land sold. In Santos v. Court of admittedly exercise of police power, the validity of which was already being determined by the
Appeals, 8 this Court held that the preemptive or redemptive rights of a lessee under P.D. No. Court could be stopped by a preternatural [sic] administrative order from the office of the
1517 exists only in respect of the urban land under lease on which the tenant or lessee had
Assistant Secretary for Operation of the MPWH, brought about by an appeal by a person other
built his home and in which he had resided for ten (10) years or more and that, in
than the owner of the building, which office had not done anything to immediately forestall the
consequence, where both land and building belong to the lessor, that preemptive or redemptive imminent injury to person and damage to property. (Please see P.D. 1096, Rule XII, Sec. 5
right was simply not available under the law.
thereof).
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Finally, we are unable to understand the respondent appellate courts view that respondent
Gaw Ching having been a long-time tenant of the property in question, had acquired a
preferred right to purchase that property. This holding is simply bereft of any legal basis. We
know of no law, outside the Urban Land Reform Zone or P.D. No. 1517, that grants such a right
to a lessee no matter how long the period of the lease has been. If such right existed at all, it
could only have been created by contract; 9 respondent Gaw Ching does not, however, pretend
that there had been such a contractual stipulation between him and petitioners.
In the second place, assuming once again, for present purposes only, that respondent Gaw
Ching did have a preemptive right to purchase the land from petitioner Malabanan (which he
did not), it must be stressed that petitioner Malabanan did thrice offer the land to Gaw Ching

In the first place, the claim of the plaintiff that the demolition of the house rented by him came
as a surprise, is fiercely contradicted by his own evidence. A copy of the demolition order is
attached to the complaint as Annex `L, now marked as Exhibit `9 for the defendant Senolos,
unmistakably show that plaintiff received a copy of the order of demolition from the City
Engineers Office, approved by the Mayor, on October 5, 1981.
Verily, the present action before the Court is procedurally and substantially correct in abating a
nuisance. This exercise of police power is not only being cordoned sanitaired [sic] by the
doctrinal pronouncements, the provisions of Art. 482 in relation to Art. 436 of the Civil Code,
Sections 275 and 276 of the compilation of ordinances of the City of Manila but also by Rule
VII, par. 5 of the implementing Rules and Regulations of the National Building Code of the

Philippines (P.D. 1096). Indeed, the latter law does not authorize any person other than the
owner, to appeal the order of the City Engineer to the Ministry of Public Works and Highways.
This is the position espoused by the City Legal Officer of Manila in defense of the City Engineer
and the Mayor, in opposition to the move of the plaintiff to dismiss the order of demolition as
improvidently issued.
The demolition was invariably a valid exercise of police power which may be ordered done by
the authorizes or caused to be done at the expense of the owner. The exigency is made more
demanding especially, the demolition, when it was ordered stopped thru an order inadvertently
issued, as it was not as a consequence of an appeal by the owner of the building, but by the
lessee, was during its last stages.
It therefore stands to reason that the order of demolition which is unquestionably legal could
not be stopped by an inoperative administrative order, assuming that the appeal to the MPWH
could validly be filed by the lessee, as it was filed only during the finishing touches of a
demolition. Decidedly, the move exude physiological features of delay. This is compounded by
the failure of the MPWH to act assertively, which in a sense, could be interpreted as an
admission that the issuance of the order was inopportune.

materials of the house and a destructive stance for the properties of the occupants.
Understandably, the unorthodox position taken by plaintiff would not only lose his residence but
also his place of business.
By and large, the basis for the claim for damages do not physically nor imaginatively exist, for
it has defied reason and common sense." 11
We note that the majority opinion chose to disregard the above conclusions of fact of the trial
court and instead quoted extensively from respondent Gaw Chings brief and, presumably relied
upon such brief. The majority opinion, however, failed to indicate why it preferred Gaw Chings
version of the facts set out in his brief over the trial courts findings. No indication was offered
where the trial court had fallen into error or what evidence had been misapprehended by it. In
this situation, the Court considers that it must go back to the trial courts findings of fact in line
with the time-honored rule that such findings are entitled to great respect from appellate courts
since the trial court judge had the opportunity to examine the evidence directly and to listen to
the witnesses and observe their demeanor while testifying.
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It appears therefore that firstly, the order of condemnation or demolition had been issued by
the proper authorities which order was valid and subsisting at the time the demolition was
On the claim for damages predicated on (4) whether or not there was an indiscriminate,
actually carried out. Secondly, under Section 5.3 of Rule VII entitled "Abandonment/Demolition
careless handling and pilferage of the properties of the plaintiff, causing their loss or
of Buildings" of the Rules and Regulations Implementing the National Building Code of the
destruction:
Philippines (P.D. No. 1096, as amended dated 19 February 1977), an order for demolition may
be appealed, by the owner of the building or installation to be demolished, to the Secretary of
It is readily explained that between October 5, 1981 to November 6, 1981, plaintiff could have Public Works and Highways. In the case at bar, it was respondent Gaw Ching, a lessee merely
avoided the misplaced fear, but assuming without having necessarily to concede that he was
of the building condemned that sought to block the implementation of the demolition order. It
not able to guard against an actual demolition on November 6, 1981, rendering him so
does not even appear from the record whether or not Gaw Ching actually filed a formal appeal
helpless, and prompting him to just sit on the sidewalk and watch the demolition team wreck to the Secretary, even though he was not entitled to do so. What does appear from the record
the building indiscriminately, thereby causing destruction and loss of his personal properties,
12 is that Gaw Chings counsel, Atty. Sugay, was able to obtain a letter dated 6 November 1981
such as: (a) office equipment; (b) assorted tools; (c) machines; (d) finished products; and (e) from the Office of the City Engineer and Building Official, enclosing a xerox copy of a letter
steel box containing jewelries. The claim is almost too good to be true, considering first, that
from the Assistant Secretary for Operations, Ministry of Public Works and Highways, "directing
these items were so huge that they could not be spirited away without being noticed and,
this office to hold the demolition in abeyance." This letter, which did not purport to set aside the
secondly; it has been established that there was a policeman detailed to the demolition scene order of demolition, was served upon the demolition team on site while the demolition was in
from the start of the said demolition, to whom he could have easily reported the matter, caused progress. After some hesitation, the demolition was in fact stopped. 13
the apprehension of the culprits, and prevent the loss of his personal properties, thirdly, he
could have grabbed the steel box containing jewelries if this were the last thing he would have It is worth noting that officials from the Office of the City Engineer, City of Manila, testified that
done. Waiting idly by the sidewalk and watching your properties pilfered by persons whom you it was not "normal practice to receive an order from the Ministry of Public Works and Highways
could have successfully identified at the time and referring the matter to the policeman on
stopping demolitions."
duty, which plaintiff did not do, is certainly against the natural order of things and the legal
presumption that a person takes great care of his concern. Plaintiff strongly relies on the
In the fourth place, respondent Gaw Ching, in the action that he had filed before the Regional
alleged illegal and indiscriminate destruction of his properties as basis for his claim for
Trial Court of Manila to set aside the contract of sale between petitioners Malabanan and
damages. Truth to tell, there was no suddenness or indiscriminate destruction of plaintiffs
Senolos, had sought preliminary injunction precisely to restrain the implementation of the order
property nor pilferage thereof, as alleged, in the demolition of the house owned by the
for demolition. That application for preliminary injunction was denied by the trial court and the
defendant. The order was lawful as it was an abatement of a nuisance and the dismantling of order for demolition was implemented only after such denial. Thus, there was no subsisting
the house owned by defendant Senolos could only be conceived as having been carried out in a court order restraining the demolition at the time such demolition was carried out.
manner consistent only with utmost care. Conversely, its indiscriminate destruction is contrary
to the interest of the defendant Senolos as it is a truism that every bit of useful material should In the fifth place, Gaw Ching had ample notice of the demolition order and had adequate time
be preserved either for use of, or for profit of the owner. It would be sheer folly to assume that to remove his belongings from the premises if he was minded to obey the order for demolition.
the demolition team would have taken a selective method of care for the still serviceable
He chose not to obey that order. If he did suffer any losses the trial court did not believe his
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claims that he did he had only himself to blame.

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

SYLLABUS

1. SALES; VALIDITY OF SALE EXECUTED BY A MINOR. Minority of the vendee at the time of
the sale does not make the contract void, but, at worst, merely annullable by him.
2. ID.; VALIDITY OF SALE NOT AFFECTED BY SUBSEQUENT ACTS OF VENDOR; CASE AT BAR.
The fact that the vendor, after the sale, not only repaired the property sold, but also
continued possession of the premises and paid taxes thereon until her demise, did not render
the sale void.
3. ID.; ANNULMENT OF SALE; LACK OF CAUSE OF ACTION BY PLAINTIFF WHO IS NOT
OBLIGED UNDER THE CONTRACT; CASE AT BAR. Plaintiff, who was a brother of the vendor,
is not a forced heir of the latter, and, therefore, is not obliged principally or subsidiarily under
the contract of sale. As the vendor did not transmit to him by devise or otherwise any rights to
the property subject of the sale, but, on the contrary, voluntarily disposed of it, without
impairing any legitime or defrauding any creditor, he has no cause of, action to annul or to
rescind the sale.
4. ID.; ID.; ID.; PERIOD FOR FILING AN ACTION BASED ON FRAUD; FROM WHAT TIME
DISCOVERY OF FRAUD IS RECKONED; CASE AT BAR. But even if a right of action be
conceded, plaintiffs cause of action is time barred for the same is premised on fraud, and the
action should have been filed within four years from the discovery of the fraud (Article 1146 [1]
and 1391, Civil Code). In legal contemplation, discovery must be reckoned to have taken place
from the time the document was registered in the office of the register of deeds, because
registration is notice to the whole world. In the case at bar, action was commenced beyond the
four-year period.
EN BANC
[G.R. No. L-18210. December 29, 1966.]

5. JURISDICTION; ACTION TO OBTAIN SHARE IN AN INHERITANCE; JUDICIAL NOTICE TAKEN


OF THE AMOUNT OF PLAINTIFFS SHARE IN A SEWING MACHINE; CASE AT BAR. Judicial
notice may be taken of the fact that plaintiffs share in a sewing machine, which was not the
subject of the disputed sale, does not exceed P5,000. His separate action if any he had to
obtain said share, should have been instituted in the Municipal Court.

LAURENTIO ARMENTIA, Plaintiff-Appellant, v. ERLINDA PATRIARCA, FLORENCIA


SOMECIERA, JULIANA ARMENTIA, JOSE SOMECIERA and SOFRONIO FLORES, in his REYES, J. B. L., J., concurring:
capacity as the Register of Deeds for the province of Iloilo, Defendants-Appellees.
1. INTESTATE ESTATE; RIGHT OF INTESTATE HEIRS; INTESTATE HEIRS CAN CONTEST
Cesar T. Martin, for Plaintiff-Appellant.
CONVEYANCES WITHOUT OR WITH A FICTITIOUS CONSIDERATION. Heirs intestate have
legal standing to contest the conveyance by the deceased if the same was made without any
Benjamin M. Moreno for Defendants-Appellees.
consideration or for a false or fictitious consideration because under the Civil Code of the
Philippines, contracts with a cause that did not exist at the time of the transaction are
inexistent and void from the beginning (Art. 1409, Par. 3). The same is true of contracts stating
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a false cause (consideration) unless the persons interested in upholding the contract should
prove that there is another true and lawful consideration thereof (Ibid., Art. 1353).
2. CONTRACTS; CONSIDERATION; CONVEYANCE WITHOUT OR WITH A FICTITIOUS
CONSIDERATION DOES NOT REMOVE THE PROPERTY FROM THE PATRIMONY OF THE
TRANSFEROR. If a contract has no cause of consideration or the cause is false and fictitious
(and no hidden cause is proved) the property allegedly conveyed never really leaves the
patrimony of the transferor, and upon the latters death without a testament the property would
pass to the transferors heirs intestate and be recoverable by them or by the Administrator of
the transferors estate.

intent to convey, without the required solemnities, does not suffice for gratuitous alienations,
even as between the parties inter se.

DECISION
SANCHEZ, J.:

3. ID.; ID.; ID.; HEIRS MAY RECOVER PROPERTY AS PART OF DECEASED ESTATE. The
plaintiffs may recover the property conveyed without consideration on the ground that the
property in question is still part of the transferors estate not on the fact that the gratuitous
conveyance was made in fraud of creditors.

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

4. ID.; ID.; ID.; EXTENT OF OWNERS RIGHT TO DISPOSE OF HIS PROPERTY; LAW PROTECTS
TRANSFERORS OF PROPERTY CONVEYED GRATUITOUSLY. The owner of property has the
right to convey it to another person, either for a consideration (onerous contract) or out of
sheer liberality (gratuitous transfer). Put it must not be overlooked that while the law does not
limit the owners right to convey away property in exchange of such lawful consideration as he
deems adequate, gratuitous transfers are by no means untrammeled. The law looks with
suspicion at gratuitous conveyances and subjects their validity to the observance of specific
formalities prescribed by law designed to assure that the nature of the conveyance is well
understood and that it is not done impulsively, without due deliberation.

By notarial document, Annex A of the complaint, dated July 22, 1955, Marta Armentia did two
things: First, she adjudicated to herself a parcel of land [Lot 6582, Pototan cadastre, (Iloilo)]
with the improvements thereon, covered by Transfer Certificate of Title 21323 and which she
inherited from her deceased husband pursuant to Section 1, Rule 74 of the 1940 Rules of
Court; 1 and second, for and in consideration of P99.00, which she acknowledged to have
received from Erlinda Patriarca, 13 years of age, single, and Florencia Someciera, 20 years of
age, single, she sold to them the property just mentioned. The foregoing document was, on
July 22, 1955, recorded in the registry of deeds. Whereupon, Torrens title 21323 was canceled
by Transfer Certificate of Title 18797 in the names of Erlinda Patriarca and Florencia Someciera.

5. ID.; ID.; ID.; ID.; FORMS OF GRATUITOUS TRANSFERS; REQUISITES FOR THEIR VALIDITY.
The law recognizes two forms of gratuitous conveyances: (1) inter vivos by way of donation;
and (2) mortis causa by way of last will and testament. In either case, the validity of the
transfer of ownership is subordinated to the observance of the formalities prescribed by law so
that, where lands or tenements are conveyed, a donation and its acceptance must appear in a
public document, with the acceptance duly notified to the donor (Art. 749, Civil Code) and in
case of movables, there must be at least a private writing, unless the donation is accompanied
by simultaneous delivery of the donated chattel (Art. 748, Civil Code).

Marta Armentia died intestate and without forced heirs on May 28, 1960. On September 17,
1960, Laurentio Armentia commenced suit 2 against Erlinda Patriarca and Florencia Someciera
as principal defendants. 3 The complaint, as amended, and reamended, avers: That the sale
made by Marta in favor of Erlinda and Florencia "is null and void because it is simulated and
fictitious and if not null and void it is voidable because the said defendants were minors at the
time the contract was executed and could not then have given their consent to the sale" ; that
"the said sale was fraudulently executed, and after the supposed sale, Marta Armentia
remained in possession of the house and lot, as owner paying the taxes on the land until she
died" ; that" even assuming hypothetically that there was consideration in the supposed sale,
6. ID.; ID.; WHERE CONVEYANCE IS BY WILLS, FORMALITIES REQUIRED BY LAW MUST BE
the consideration was grossly inadequate" ; that "plaintiff only came to know of the supposed
OBSERVED. Where the conveyance is by way of last will and testament, the formalities
sale in Annex A one week before the suit was filed" ; that "at the time of the alleged sale in
ordained by law must be necessarily observed (Art. 804 et seq.) and, in addition, the will must Annex A", the "house was already standing on the land", and that "after its execution Maria
be judicially allowed or probated (Art. 838 Civil Code).
Armentia repaired the house" ; and that "the defendants Erlinda Patriarca, Florencia Someciera,
Juliana Armentia and Jose Someciera are personally possessing the land and the house in
7. ID.; ID.; SALE WITHOUT OR WITH A FICTITIOUS CONSIDERATION NULL AND VOID; NO
question." The complaint further avers that Marta Armentia also left a "Singer" sewing
TITLE PASSES TO THE PURCHASER. A sale of property would not vest ownership in the
machine. Paragraph 8 thereof says that said sewing machine is "now in the possession of
transferee if it is established that the transfer was really gratuitous and the alleged price is
Erlinda Patriarca and Florencia Someciera." However, paragraph 20 of the very same complaint
non-existent. Such a "sale" would either be void for lack of an essential requisite, or a
speaks of said sewing machine as "now in the possession of the defendants Erlinda Patriarca,
disguised donation, that would not be operative unless the formalities prescribed for a valid
Florencia Someciera, Jose Someciera and Juliana Armentia." 4
donation are observed. If they are not, then no title passes to the transferee, regardless of the
voluntary accomplishment of the deed of conveyance by the transferor because the naked
The complaint winds up with the prayer that the deed of sale be "declared inexistent or in the
alternative annulled" ; that plaintiff Laurentio Armentia and defendant Juliana Armentia, as

heirs of Marta Armentia, be declared owners of the land in dispute; that the Register of Deeds all who are thereby obliged principally or subsidiarily." This must be construed in conjunction
be directed to cancel Torrens title 18797 in the names of Erlinda Patriarca and Florencia
with Article 1311 of the same code providing that" [c]ontracts take effect only between the
Someciera, and, in lieu thereof, to issue a new title in the names of Laurentio Armentia and
parties, their assigns and heirs except in case where the rights and obligations arising from the
Juliana Armentia; that the house and lot and sewing machine be partitioned and plaintiffs
contract are not transmissible by their nature, or by stipulation or by provision of law", and that
share be delivered to him; and that should partition not be feasible, said properties be sold and "the heir is not liable beyond the value of the property he received from the decedent." Plaintiff
plaintiff given his share.
is not a forced heir. He is not obliged principally or subsidiarily under the contract. Marta
Armentia did not transmit to him by devise or otherwise any rights to the property, the subject
The complaint was met by defendants motion to dismiss upon two grounds: (1) lack of cause thereof. On the contrary, Marta voluntarily disposed of it. No creditors are defrauded; there are
of action and (2) prescription.
none. No legitimes are impaired. Therefore, plaintiff has no cause of action to annul or to
rescind the sale.
On November 21, 1960, over plaintiffs opposition, the lower court dismissed the case for the
reason that plaintiffs action to annul the sale had prescribed. A move to reconsider was
In point is Concepcion v. Sta. Ana, 87 Phil. 787. The facts there may well be analogized with
thwarted by the court in its order of December 17, 1960.
those of the present. In the Concepcion case, plaintiff Monico Concepcion was the only
surviving legitimate brother of Perpetua Concepcion, who died without issue and without
The case is now before us on plaintiffs appeal in forma pauperis.
leaving any will. In her lifetime, or more precisely, on June 29, 1945, said Perpetua
Concepcion, "in connivance with the defendant and with intent to defraud the plaintiff, sold and
1. Plaintiffs attack is primarily directed at the sale. Plaintiff charges that the contract therefor conveyed three parcels of land for a false and fictitious consideration to the defendant, who
was fraudulently executed, but in the same breadth characterizes it as simulated and fictitious. secured transfer certificates of title of said lands issued under her name; and that the
These statements are but conclusions of law. Controlling, of course, is the statement of
defendant has been in possession of the properties sold since the death of Perpetua
ultimate facts. 5
Concepcion, thereby causing damages to the plaintiff in the amount of not less than two
hundred (P200) pesos." 6 On motion to dismiss, the lower court threw the complaint out of
Let us then look at the factual recitals. Particularly striking is the fact that plaintiff does not
court upon the ground that "the plaintiff is not a party to the deed of sale executed by Perpetua
dispute the self-adjudication made by Marta Armentia in the deed. Plaintiff does not impugn the Concepcion in favor of the defendant" ; that even on the assumption "that the consideration of
genuineness of Martas signature thereon. He solely puts in issue that portion of the document the contract is fictitious, the plaintiff has no right of action against the defendant" ; that under
where the sale appears to have been made to Erlinda Patriarca and Florencia Someciera.
Article 1302 of the old Civil Code, "the action to annul a contract may be brought by any person
principally or subsidiarily bound thereby:" that "plaintiff is not bound by the deed of sale
To drive home his averment of nullity, plaintiff summons to his aid the following circumstances: executed by the deceased in favor of the defendant" ; and that he has "no obligations under
At the time of the sale, the vendees were still minors and the consideration was grossly
the deed."
inadequate; after the sale, Marta Armentia repaired the house, continued possession of the
premises, paid the taxes thereon until her demise.
The following reproduced in haec verba from the Concepcion opinion is illuminating:
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Hypothetically admitting the truth of these allegations, the conclusion is irresistible that the
sale is merely voidable. Because Marta Armentia executed the document, and this is not
controverted by plaintiff. Besides, the fact that the vendees were minors, makes the contract,
at worst, annullable by them. Then again, inadequacy of consideration does not imply total
want of consideration. Without more, the purported acts of Marta Armentia after the sale do
not indicate that said sale was void from the beginning.
The sum total of all of these is that, in essence, plaintiffs case is bottomed on fraud, which
renders the contract voidable.
2. May plaintiff annul the sale on the theory of fraud?
Plaintiff was but a brother of the deceased Marta Armentia. True, he is an intestate heir of
Marta; but he is not a forced heir. Upon the other hand, Marta was free to dispose of her
properties the way she liked it. She had neither ascendants nor descendants.

"(2) As to the appellants second and last contention, under the law action to annul a contract
entered into with all the requisites mentioned in article 1261 7 whenever they are tainted with
the vice which invalidate them in accordance with law, may be brought not only by any person
principally bound or who made them, but also by his heir to whom the right and obligation
arising from the contract are transmitted. Hence if no such rights, actions or obligations have
been transmitted to the heir, the latter can not bring an action to annul the contract in
representation of the contracting party who made it. In Wolfson v. Estate of Martinez, 20 Phil.,
340, this Supreme Court quoted with approval the judgment of the Supreme Court of Spain of
April 18, 1901, in which it was held that he who is not a party to a contract, or an assignee
thereunder, or does not represent those who took part therein, has under articles 1257 and
1302 8 of the Civil Code no legal capacity to challenge the validity of such contract. And in
Irlanda v. Pitargue (22 Phil. 383) we held that the testamentary or legal heir continues in law
as the juridical personality of his predecessor in interest, who transmit to him from the moment
of his death such of his rights, actions and obligations as are not extinguished thereby.

The question to be resolved is, therefore, whether the deceased Perpetua Concepcion has
By Article 1397 of the Civil Code," [t]he action for annulment of contracts may be instituted by transmitted to the plaintiff any right arising from the contract under consideration in order that

he can bring an action to annul the sale voluntarily made by her to the defendant with a false
consideration.

document was registered in the office of the register of deeds. For, the familiar rule is that
registration is notice to the whole world, including plaintiff. 13 As aforestated, the document in
question was recorded on July 22, 1955. Action was started only on September 17, 1960. The
We are of the opinion and so hold, that the late Perpetua Concepcion has not transmitted to the four-year period has elapsed. And, plaintiffs cause of action, if any, is time-barred.
plaintiff any right arising from the contract of conveyance or sale of her lands to the defendant,
and therefore the plaintiff cannot file an action to annul such contract as representative of the 4. All that remains is the small item of plaintiffs share in the "Singer" sewing machine which
deceased.
was not the subject of the sale aforesaid. The Court may well take judicial notice 14 of the fact
that such share does not exceed P75,000. 15 Plaintiffs separate action if any he had to
According to the complaint the deceased, in connivance with the defendant and with intent to obtain said share, should have been addressed to the Municipal Court.
defraud the plaintiff, (that is, in order not to leave the properties above mentioned upon her
death to the plaintiff) sold and conveyed them to the latter, for a false and fictitious
Premised on the foregoing considerations, the appealed order of November 21, 1960 dismissing
consideration. It is, therefore obvious, that the conveyance or sale of said properties to the
the second amended complaint is, as it should be, affirmed. No costs. So ordered.
defendant was voluntarily made by the deceased to said defendant. As the deceased had no
forced heir, she was free to dispose of all her properties as absolute owner thereof, without
Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J. P., Zaldivar and Castro, JJ., concur.
further limitation than those established by law, and the right to dispose of a thing involves the
right to give or convey it to another without any consideration. The only limitation established
Separate Opinions
by law on her right to convey said properties to the defendant without any consideration is,
that she could not dispose of or transfer her property to another in fraud of her creditors. And
this court, in Solis v. Chua Pua Hermanos (50 Phil. 636), through Mr. Justice Street, held that a
voluntary conveyance, without any consideration whatever, is prima facie good as between the REYES, J.B.L., J., concurring:
parties, and such an instrument can not be declared fraudulent as against creditors in the
absence of proof, that there was at the time of the execution of the conveyance a creditor who I concur with the main decision, but can not bring myself to agree to the proposition that the
could be defrauded by the conveyance, 27 C. J., 470.
heirs intestate would have no legal standing to contest the conveyance by the deceased if the
same were made without any consideration, or for a false and fictitious consideration. For
under the Civil Code of the Philippines, Art. 1409, par. 3, contracts with a cause that did not
x
x
x
exist at the time of the transaction are inexistent and void from the beginning. The same is
true of contracts stating a false cause (consideration) unless the persons interested in
upholding the contract should prove that there is another true and lawful consideration therefor
"The reason why a forced heir has the right to institute an action of rescission is that the right (Ibid., Art. 1353).
to the legitime is similar to a credit of a creditor. As the same Spanish author [Manresa]
correctly states in commenting on article 1291 9 of the Civil Code.The rights of a forced heir to If therefore the contract has no causa or consideration, or the causa is false and fictitious (and
the legitime are undoubtedly similar to a credit of a creditor in so far as the rights to the
no true hidden causa is proved) the property allegedly conveyed never really leaves the
legitime may be defeated by fraudulent contracts, and are superior to the will of those bound to patrimony of the transferor, and upon the latters death without a testament, such property
respect them. In its judgment of October 28, 1897, the Supreme Court of Spain held that the would pass to the transferors heirs intestate and be recoverable by them or by the
forced heirs instituted as such by their father to the latters testament have the undeniable
Administrator of the transferors estate, should there be any. The cause of action of the
right to institute an action to annul contracts entered into by the father to their prejudice. As it plaintiffs would not be then on fraud of creditors at all, but upon the fact that the property in
is seen the action is called action of nullity, but it is rather an action of rescission taking into
question is still part of the transferors estate. In this particular regard, I think Concepcion v.
account the purpose for which it is instituted and the confusion of ideas that has prevailed in
Sta. Ana, 87 Phil. 787 and Solis v. Chua Pua Hermanos, 50 Phil. 536, do not correctly state the
this matter. The doctrine we shall expound in commenting on articles 1302 and 1306 10 will
present law, and must be clarified.
confirm what we have just stated. (Manresa Codigo Civil, 4th edition, Vol. 8, pp. 667 and
668.)" 11
It is unquestionable that the owner of property has the right to convey it to another person,
either for a consideration (onerous contract) or out of sheer liberality (gratuitous transfer). But
Our opinion in Concepcion need no further elaboration. It would suffice to say that plaintiff here it must not be overlooked that while the law does not limit the owners right to convey away
has no cause of action.
property in exchange of such lawful consideration as the transferor deems adequate (and he is
the primary judge of its adequacy), gratuitous transfers are by no means equally untrammeled.
3. But even if a right of action be conceded, plaintiffs case fails just the same. An action to
The law, justifiably or not, looks with suspicion at gratuitous conveyances (perhaps considering
annul a contract based on fraud must be filed within four years from the discovery thereof. 12 them contrary to mans innate egotism) and subjects their validity to the observance of specific
In legal contemplation, discovery must be reckoned to have taken place from the time the
formalities designed to assure that the nature of the conveyance is well understood, and that it
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is not done impulsively, without due deliberation. It is well known that our law only recognizes
two forms of gratuitous conveyances: inter vivos by way of donation and mortis causa by way
of last will and testament. In either case, the validity of the transfer of ownership is
DECISION
subordinated to the observance of the formalities prescribed by law. Where lands or tenements
TRACEY, J. :
are conveyed, a donation and its acceptance must appear in a public document, with the
acceptance duly notified to the donor (Civ. Code, Art. 749); in case of movables, there must be
at least a private writing unless the donation is accompanied by simultaneous delivery of the
donated chattel (Art. 748). In last wills and testaments, the formalities ordained by law must In this action the plaintiff, as assignee of the Pacific Export Lumber Company, sues for $3,486,
be necessarily observed (Arts. 804 et seq.) and, in addition, the will must be judicially allowed United States currency, the differences between the amount turned over to the company on
or probated (Art. 838, Civil Code).
account of a cargo of cedar piles consigned to the defendants as its agents and afterwards
bought by them, and the amount actually received by them on the subsequent sale thereof.
It is a consequence of all the preceding considerations that a purported sale of property would The defendant were allowed by the court below a counterclaim of $6,993.80, United States
not vest ownership in the transferee if it is established that the transfer was really gratuitous, currency, from which was deducted $2,063.16 for the plaintiffs claim, leaving a balance in favor
and that the alleged price is non-existent. Such a "sale" would then either be void for lack of an of the defendants of $4,930.64, for the equipment of which, to wit, 9,861.28 pesos, judgment
essential requisite, or else be a disguised donation, that would not be operative unless the
was entered. The defendants have not appealed. The plaintiff took several exceptions, but on
formalities prescribed for a valid donation are observed. 1 If they are not, then no title passes the argument its counsel stated that its contention was confined to the allowance by the trial
to the transferee, regardless of the voluntary accomplishment of the deed of conveyance by the court of the commissions of the defendant on selling the piling.
transferor, because the naked intent to convey, without the required solemnities, does not
suffice for gratuitous alienations, even as between the parties inter se.
In May 1902, the Pacific Export Lumber Company of Portland shipped upon the steamer Quito
five hundred and eighty-one (581) piles to the defendant, Henry W. Peabody & Company, at
Of course, in the case at bar, it has not been satisfactorily established that the price is nonManila, on the sale of which before storage the consignees were to receive a commission of one
existent, and for that reason the transaction, being onerous and not gratuitous, must be
half of whatever sum was obtained over $15 for each pile and 5 per cent of the price of the
upheld.
piles sold after storage. After the arrival of the steamer on August 2, Peabody and Company
wrote the agent of the Pacific Company at Shanghai that for lack of a demand the piles would
FIRST DIVISION
have to be sold at considerably less than $15 apiece; whereupon the companys agent directed
them to make the best possible offer for the piles, in response to which on August 5 they
[G.R. No. L-3246. February 9, 1907. ]
telegraphed him an offer of $12 apiece. It was accepted by him on August 6, in consequence of
which the defendant paid the Pacific Company $6,972.
CADWALLADER & COMPANY, Plaintiff-Appellant, v. SMITH, BELL & COMPANY and
HENRY W. PEABODY & COMPANY, Defendants-Appellees.
It afterwards appeared that on July 9 Peabody & Company had entered into negotiations with
the Insular Purchasing Agent for the sale for the piles at $20 a piece, resulting of August 4 in
the sale to the Government of two hundred and thirteen (213) piles at $19 each. More of them
were afterwards sold to the Government at the same figure and the remainder to other parties
at carrying prices, the whole realizing to the defendants $10,41.66, amounting to $3,445.66
SYLLABUS
above the amount paid by the defendant to the plaintiff therefor. Thus it is clear that at the
time when the agents were buying from their principal these piles at $12 apiece on the
1. SALE; MISREPRESENTATION BY CONSIGNEE. The consignee who by means of
strength of their representation that no better price was obtainable, they had already sold a
misrepresentation of the condition of the market induces his consignors to sell to him the
property consigned, at a price less than that for which he had already contracted to sell part of substantial part of them at $19. In these transactions the defendant, Smith, Bell & Company,
it, and who thereafter disposes of the whole at an advance, must answer for the difference. were associated with the defendants, Henry W. Peabody & Company, who conducted the
negotiations, and are consequently accountable with them.
2. ID.; FRAUD; ANNULMENT OF CONTRACT. Such conduct on the part of the agent
constitutes fraud, entitling the principal to annul the contract of sale.

It is plaint that in concealing from their principal the negotiations with the Government,
resulting in a sale of the piles at 19 a piece and in misrepresenting the condition of the market,
3. ID.; AGENCY; COMMISSIONS. Commissions should be allowed the agent on sales made the agents committed a breach of duty from which they should benefit. The contract of sale to
by him under his original authorization, but not on sales of property included in the annulled themselves thereby induced was founded on their fraud and was subject to annulment by the
aggrieved party. (Civil Code, articles 1265 and 1269.) Upon annulment the parties should be
contract.
restored to their original position by mutual restitution. (Article 1303 and 1306.) Therefore the
defendants are not entitled to retain their commission realized upon the piles included under

the contract so annulled. In respect of the 213 piles, which at the time of the making of this
contract on August 5 they had already sold under the original agency, their commission should The dispositive portion of the assailed Decision reads:
be allowed.
"WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the
The court below found the net amount due from the defendants to the plaintiff for the Quito
Decision dated November 14, 1990 dismissing the [C]omplaint is REINSTATED. The bonds
piles, after deducting the expense of landing the same and $543.10 commission, was
posted by plaintiffs-appellees and defendants-appellants are hereby RELEASED." 5
$1,760.88, on which it allowed interest at the rate of 6 per cent from March 1, 1903. This
amount should be increased by the addition thereto of the amount of the commission
The Facts
disallowed, to wit, $331.17 giving $2,092.05. Interest computed on this sum to the date of the
entry of judgment below amounts to $359.77, which added to the principal sum makes
$2,241.82, the amount of plaintiffs claim, which is to be deducted from defendants
counterclaim of $6,993.80, leaving a balance of $4,541.98, equivalent to 9,083.96 pesos, the The factual antecedents of the case, as found by the CA, are as follows:
amount for which judgment below should have been entered in favor of the defendants.
". . .. David Raymundo [herein private respondent] is the absolute and registered owner of a
Let the judgment of the Court of First Instance be modified accordingly, without costs to either parcel of land, together with the house and other improvements thereon, located at 1918
party.
Kamias St., Dasmarias Village, Makati and covered by TCT No. 142177. Defendant George
Raymundo [herein private respondent] is Davids father who negotiated with plaintiffs Avelina
After expiration of twenty days let judgment be entered in accordance herewith and ten days
and Mariano Velarde [herein petitioners] for the sale of said property, which was, however,
thereafter the record remanded to the court below for proper action. So ordered.
under lease (Exh.6, p. 232, Record of Civil Case No. 15952).
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[G.R. No. 108346. July 11, 2001.]

"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh.A; Exh.1, pp. 11-12,
Record) was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, Petitioners, v. COURT OF Velarde, as vendee, with the following terms and conditions:
APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, Respondents.
x
x
x
DECISION
That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS
(P800,000.00), Philippine currency, receipt of which in full is hereby acknowledged by the
VENDOR from the VENDEE, to his entire and complete satisfaction, by these presents the
VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily,
PANGANIBAN, J.:with full warranty of a legal and valid title as provided by law, unto the VENDEE, her heirs,
successors and assigns, the parcel of land mentioned and described above, together with the
house and other improvements thereon.
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A substantial breach of a reciprocal obligation, like failure to pay the price in the manner
prescribed by the contract, entitles the injured party to rescind the obligation. Rescission
abrogates the contract from its inception and requires a mutual restitution of benefits
received.
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The Case

Before us is a Petition for Review on Certiorari 1 questioning the Decision 2 of the Court of
Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution 3 dated
December 29, 1992 denying petitioners motion for reconsideration. 4

That the aforesaid parcel of land, together with the house and other improvements thereon,
were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro
Manila, to secure the payment of a loan of ONE MILLION EIGHT HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency, as evidenced by a Real Estate Mortgage signed and
executed by the VENDOR in favor of the said Bank of the Philippine Islands, on _________ and
which Real Estate Mortgage was ratified before Notary Public for Makati, _________, as Doc.
No. _____, Page No. ____, Book No. ____, Series of 1986 of his Notarial Register.
That as part of the consideration of this sale, the VENDEE hereby assumes to pay the
mortgage obligations on the property herein sold in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of the
Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully
comply with all the terms and conditions appearing in the Real Estate Mortgage signed and
executed by the VENDOR in favor of BPI, including interests and other charges for late payment

levied by the Bank, as if the same were originally signed and executed by the VENDEE.

declaration to that effect, and Mr. David A. Raymundo shall resume total and complete
ownership and possession of the property sold by way of Deed of Sale with Assumption of
Mortgage, and the same shall be deemed automatically cancelled and be of no further force or
effect, in the same manner as if (the) same had never been executed or entered into.

It is further agreed and understood by the parties herein that the capital gains tax and
documentary stamps on the sale shall be for the account of the VENDOR; whereas, the
registration fees and transfer tax thereon shall be for the account of the VENDEE. (Exh.A, pp.
11-12, Record).
3. That I am executing this Undertaking for purposes of binding myself, my heirs, successors
and assigns, to strictly and faithfully comply with the terms and conditions of the mortgage
"On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the
obligations with the Bank of the Philippine Islands, and the covenants, stipulations and
consent of her husband, Mariano, executed an Undertaking (Exh.C, pp. 13-14, Record). the
provisions of this Undertaking.
pertinent Portions of which read, as follows:
That, David A. Raymundo, the vendor of the property mentioned and identified above, [does]
x
x
x
hereby confirm and agree to the undertakings of the Vendee pertinent to the assumption of the
mortgage obligations by the Vendee with the Bank of the Philippine Islands. (Exh.C, pp. 13-14,
Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the Record).
sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, and assume
the mortgage obligations on the property with the Bank of the Philippine Islands in the amount "This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.
of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in
accordance with the terms and conditions of the Deed of Real Estate Mortgage dated
"It appears that the negotiated terms for the payment of the balance of P1.8 million was from
_________, signed and executed by Mr. David A. Raymundo with the said Bank, acknowledged the proceeds of a loan that plaintiffs were to secure from a bank with defendants help.
before Notary Public for Makati, ______, as Doc. No. ___, Page No. ____, Book No. _____,
Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI).
Series of 1986 of his Notarial Register.
The parties agreed to avail of this, subject to BPIs approval of an application for assumption of
mortgage by plaintiffs. Pending BPIs approval o[f] the application, plaintiffs were to continue
WHEREAS, while my application for the assumption of the mortgage obligations on the
paying the monthly interests of the loan secured by a real estate mortgage.
property is not yet approved by the mortgagee Bank, I have agreed to pay the mortgage
obligations on the property with the Bank in the name of Mr. David A. Raymundo, in accordance "Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by
with the terms and conditions of the said Deed of Real Estate Mortgage, including all interests the aforementioned mortgage for three (3) months as follows: September 19, 1986 at
and other charges for late payment.
P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at P23,925.00 (Exh.E,
H & J, pp. 15, 17 and 18, Record).
WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes
of attesting and confirming our private understanding concerning the said mortgage obligations "On December 15, 1986, plaintiffs were advised that the Application for Assumption of
to be assumed.
Mortgage with BPI was not approved (Exh.J, p. 133, Record). This prompted plaintiffs not to
make any further payment.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of
the mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS
"On January 5, 1987, Defendants, thru counsel, wrote plaintiffs informing the latter that their
(P1,800,000.00), Philippine currency, with the Bank of the Philippine islands, I, Mrs. Avelina D. non-payment to the mortgage bank constitute[d] non-performance of their obligation (Exh.3,
Velarde, with the consent of my husband, Mariano Z. Velarde, do hereby bind and obligate
p. 220, Record).
myself, my heirs, successors and assigns, to strictly and faithfully comply with the following
terms and conditions:
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
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1. That until such time as my assumption of the mortgage obligations on the property
purchased is approved by the mortgagee bank, the Bank of the Philippine Islands, I shall
continue to pay the said loan in accordance with the terms and conditions of the Deed of Real
Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor.

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This is to advise you, therefore, that our client is willing to pay the balance in cash not later
than January 21, 1987 provided: (a) you deliver actual possession of the property to her not
later than January 15, 1987 for her immediate occupancy; (b) you cause the release of title
and mortgage from the Bank of P.I. and make the title available and free from any liens and
encumbrances; and (c) you execute an absolute deed of sale in her favor free from any liens or
encumbrances not later than January 21, 1987. (Exhs.K, 4, p. 223, Record).

2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate
Mortgage, I hereby agree that my downpayment of P800,000.00, plus all payments made with
the Bank of the Philippine Islands on the mortgage loan, shall be forfeited in favor of Mr. David "On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of
A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial the intended sale of the subject property allegedly due to the latters failure to comply with the

terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking
(Exh.5, pp. 225-226, Record)." 6

This would mean that Velarde had to make payments to BPI under the [D]eed of [R]eal
[E]state [M]ortgage in the name of Raymundo. The application with BPI for the approval of the
assumption of mortgage would mean that, in case of approval, payment of the mortgage
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for obligation will now be in the name of Velarde. And in the event said application is disapproved,
specific performance, nullity of cancellation, writ of possession and damages. This was
Velarde had to pay in full. This is alleged and admitted in Paragraph 5 of the Complaint.
docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case
Mariano Velarde likewise admitted this fact during the hearing on September 15, 1997 (p. 47,
was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this t.s.n., September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This being the case,
Court), who dismissed the Complaint in a Decision dated November 14, 1990. 7 Thereafter,
the non-payment of the mortgage obligation would result in a violation of the contract. And,
petitioners filed a Motion for Reconsideration. 8
upon Velardes failure to pay the agreed price, the[n] Raymundo may choose either of two (2)
actions (1) demand fulfillment of the contract, or (2) demand its rescission (Article 1191,
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge
Civil Code).
Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15,
1991, 9 Judge Abad Santos granted petitioners Motion for Reconsideration and directed the
"The disapproval by BPI of the application for assumption of mortgage cannot be used as an
parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to excuse for Velardes non-payment of the balance of the purchase price. As borne out by the
private respondents who, in turn, were ordered to execute a deed of absolute sale and to
evidence, Velarde had to pay in full in case of BPIs disapproval of the application for
surrender possession of the disputed property to petitioners.
assumption of mortgage. What Velarde should have done was to pay the balance of P1.8
million. Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh.K, 4) which was
Private respondents appealed to the CA.
strongly given weight by the lower court in reversing the decision rendered by then Judge
Ynares-Santiago. In said letter, Velarde registered their willingness to pay the balance in cash
but enumerated 3 new conditions which, to the mind of this Court, would constitute a new
Ruling of the Court of Appeals
undertaking or new agreement which is subject to the consent or approval of Raymundo. These
3 conditions were not among those previously agreed upon by Velarde and Raymundo. These
are mere offers or, at most, an attempt to novate. But then again, there can be no novation
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiagos because there was no agreement of all the parties to the new contract (Garcia, Jr. v. Court of
earlier Decision dismissing petitioners Complaint. Upholding the validity of the rescission made Appeals, 191 SCRA 493).
by private respondents, the CA explained its ruling in this wise:
"It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale
with Assumption of Mortgage would be deemed automatically cancelled and of no further force
"In the Deed of Sale with Assumption of Mortgage, it was stipulated that as part of the
consideration of this sale, the VENDEE (Velarde) would assume to pay the mortgage obligation and effect, as if the same had never been executed or entered into. While it is true that even if
on the subject property in the amount of P1.8 million in favor of BPI in the name of the Vendor the contract expressly provided for automatic rescission upon failure to pay the price, the
vendee may still pay, he may do so only for as long as no demand for rescission of the contract
(Raymundo). Since the price to be paid by the Vendee Velarde includes the downpayment of
P800,000.00 and the balance of P1.8 million, and the balance of P1.8 million cannot be paid in has been made upon him either judicially or by a notarial act (Article 1592, Civil Code). In the
case at bar, Raymundo sent Velarde a notarial notice dated January 8, 1987 of
cash, Vendee Velarde, as part of the consideration of the sale, had to assume the mortgage
obligation on the subject property. In other words, the assumption of the mortgage obligation cancellation/rescission of the contract due to the latters failure to comply with their obligation.
The rescission was justified in view of Velardes failure to pay the price (balance) which is
is part of the obligation of Velarde, as vendee, under the contract. Velarde further agreed to
substantial and fundamental as to defeat the object of the parties in making the agreement. As
strictly and faithfully comply with all the terms and conditions appearing in the Real Estate
adverted to above, the agreement of the parties involved a reciprocal obligation wherein the
Mortgage signed and executed by the VENDOR in favor of BPI . . . as if the same were
obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment of
originally signed and executed by the Vendee. (p. 2, thereof, p. 12, Record). This was
which entitles the other party to rescind the contract (Songcuan v. IAC, 191 SCRA 28). Thus,
reiterated by Velarde in the document entitled Undertaking wherein the latter agreed to
the non-payment of the mortgage obligation by appellees Velarde would create a right to
continue paying said loan in accordance with the terms and conditions of the Deed of Real
demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing &
Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that in the event of
Distribution Corporation v. Santos, 184 SCRA 614). Upon appellees failure, therefore, to pay
violation by Velarde of any terms and conditions of said deed of real estate mortgage, the
downpayment of P800,000.00 plus all payments made with BPI or the mortgage loan would be the balance, the contract was properly rescinded (Ruiz v. IAC, 184 SCRA 720). Consequently,
forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be cancelled appellees Velarde having violated the contract, they have lost their right to its enforcement and
hence, cannot avail of the action for specific performance (Voysaw v. Interphil Promotions, Inc.,
automatically and of no force and effect (pars. 2 & 3, thereof, pp. 13-14, Record).
148 SCRA 635)." 10
"From these 2 documents, it is therefore clear that part of the consideration of the sale was the
assumption by Velarde of the mortgage obligation of Raymundo in the amount of P1.8 million. Hence, this appeal. 11
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The Issues

Petitioners, in their Memorandum, 12 interpose the following assignment of errors:

respondents mortgage, they should have paid the balance of the P1.8 million loan.

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"I

Instead of doing so, petitioners sent a letter to private respondents offering to make such
payment only upon the fulfillment of certain conditions not originally agreed upon in the
contract of sale. Such conditional offer to pay cannot take the place of actual payment as would
discharge the obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer to pay therefor a price certain in money or its equivalent. 13

The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted Private respondents had already performed their obligation through the execution of the Deed
in a breach of the contract.
of Sale, which effectively transferred ownership of the property to petitioner through
constructive delivery. Prior physical delivery or possession is not legally required, and the
execution of the Deed of Sale is deemed equivalent to delivery. 14
"II
Petitioners, on the other hand, did not perform their correlative obligation of paying the
contract price in the manner agreed upon. Worse, they wanted private respondents to perform
The Court of Appeals erred in holding that the rescission (resolution) of the contract by private obligations beyond those stipulated in the contract before fulfilling their own obligation to pay
respondents was justified.
the full purchase price.
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"III

Second Issue
Validity of the Rescission

The Court of Appeals erred in holding that petitioners January 7, 1987 letter gave three new
conditions constituting mere offers or an attempt to novate necessitating a new agreement
between the parties."
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The Courts Ruling

The Petition is partially meritorious.


First Issue:

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Breach of Contract

Petitioners likewise claim that the rescission of the contract by private respondents was not
justified, inasmuch as the former had signified their willingness to pay the balance of the
purchase price only a little over a month from the time they were notified of the disapproval of
their application for assumption of mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a rescission. They cite several cases 15 in which
this Court declared that rescission of a contract would not be permitted for a slight or casual
breach. Finally, they argue that they have substantially performed their obligation in good faith,
considering that they have already made the initial payment of P800,000 and three (3) monthly
mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much their nonpayment
of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents right to rescind the contract
finds basis in Article 1191 of the Civil Code, which explicitly provides as follows:
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Petitioners aver that their nonpayment of private respondents mortgage obligation did not
constitute a breach of contract, considering that their request to assume the obligation had
been disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations
ceased to be their obligation and, instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to
pay the balance of the purchase price. As admitted by both parties, their agreement mandated
that petitioners should pay the purchase price balance of P1.8 million to private respondents in
case the request to assume the mortgage would be disapproved. Thus, on December 15, 1986,
when petitioners received notice of the banks disapproval of their application to assume

"ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible."
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The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between them.

16 The breach contemplated in the said provision is the obligors failure to comply with an
existing obligation. 17 When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission. 18

mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00)
advanced by petitioners should be returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the former.
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Rescission creates the obligation to return the object of the contract. It can be carried out only
In the present case, private respondents validly exercised their right to rescind the contract,
when the one who demands rescission can return whatever he may be obliged to restore. 20 To
because of the failure of petitioners to comply with their obligation to pay the balance of the
rescind is to declare a contract void at its inception and to put an end to it as though it never
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of was. It is not merely to terminate it and release the parties from further obligations to each
sale, a violation that consequently gave rise to private respondents right to rescind the same in other, but to abrogate it. from the beginning and restore the parties to their relative positions
accordance with law.
as if no contract has been made. 21
True, petitioners expressed their willingness to pay the balance of the purchase price one
Third Issue
month after it became due; however, this was not equivalent to actual payment as would
constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was
Attempt to Novate
conditioned on the performance by private respondents of additional burdens that had not been
agreed upon in the original contract. Thus, it cannot be said that the breach committed by
In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third
petitioners was merely slight or casual as would preclude the exercise of the right to rescind.
issue raised by petitioners. Suffice it to say that the three conditions appearing on the January
7, 1987 letter of petitioners to private respondents were not part of the original contract. By
Misplaced is petitioners reliance on the cases 19 they cited, because the factual circumstances that time, it was already incumbent upon the former to pay the balance of the sale price. They
in those cases are not analogous to those in the present one. In Song Fo there was, on the part had no right to demand preconditions to the fulfillment of their obligation, which had become
of the buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover, the
due.
buyers offer to pay was unconditional and was accepted by the seller. In Zepeda, the breach
involved a mere one-week delay in paying the balance of P1,000, which was actually paid. In
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private
Tan, the alleged breach was private respondents delay of only a few days, which was for the
respondents are ordered to return to petitioners the amount of P874,150, which the latter paid
purpose of clearing the title to the property; there was no reference whatsoever to the
as a consequence of the rescinded contract, with legal interest thereon from January 8, 1987,
nonpayment of the contract price.
the date of rescission. No pronouncement as to costs.
In the instant case, the breach committed did not merely consist of a slight delay in payment SO ORDERED.
or an irregularity; such breach would not normally defeat the intention of the parties to the
contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also
imposed upon private respondents new obligations as preconditions to the performance of their
own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of sale. Hence, private respondents
were left with the legal option of seeking rescission to protect their own interest.

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Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners was the nonperformance of a
reciprocal obligation, not a violation of the terms and conditions of the mortgage contract.
Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract
does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this
controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code,
mutual restitution is required to bring back the parties to their original situation prior to the
inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding

3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; BREACH OF CONTRACT; INTEREST MAY BE


ALLOWED IN THE DISCRETION OF THE COURT. To the above quoted justification, we must
moreover add that the award of legal interest is based on equitable grounds duly sanctioned by
the Civil Code under Article 2210 which provides: "Interest may, in the discretion of the court,
be allowed upon damages awarded for breach of contract."
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4. ID.; ID.; ANNULMENT OF CONTRACT; INTEREST SHOULD COMMENCE FROM DATE OF


RENDITION OF JUDGMENT. We take exception, however, to the ruling of public respondent
as to the date when the legal interest should commence to run which we hold, in view of the
[G.R. No. 114051. August 14, 1995.]
consistent rulings of this Court, should start from the time of the rendition of the trial courts
decision on July 31, 1990 instead of April 15, 1982, the date when the deed of sale was
DAVID INES and HORTENCIA CASTRO-INES, Petitioners, v. COURT OF APPEALS and
executed.
DIONISIO GERONIMO, Respondents.
SECOND DIVISION

Bito, Lozada, Ortega & Castillo, for Petitioners.


Oscar L. Karaan for Private Respondent.

DECISION

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; ANNULMENT OF CONTRACT; RESTITUTION OF


PRICE WITH INTEREST, A NECESSARY CONSEQUENCE. We find the appeal unmeritorious.
The respondent court ruled for the return of the contract price of P150,000.00 with legal
interest over the subject property to private respondents with the following justification which
we quote with approval: ". . . Since the sale is annulled the parties are to be governed by
Article 1398 of the Civil Code whereunder they shall restore to each other the things which
have been the subject matter of the contract, with their fruits, and the price with interest; the
same precept is substantially embodied in Article 1385 in reference to rescission of contracts.
Indeed even the principle against unjust enrichment (Article 22, Civil Code) would eschew a
contrary conclusion."
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FRANCISCO, J.:

Petitioners spouses David Ines and Hortencia Castro-Ines filed an action before the Regional
Trial Court to annul a deed of sale over their conjugal residential house and lot in favor of
private respondents spouses Geronimo. The trial court declared the deed of sale void as to the
one-half conjugal share of David Ines in the subject property due to the forgery of his signature
and the other half belonging to his wife as equitable mortgage. Private respondents were
ordered to reconvey the one-half share of the wife upon the return of the sum of P150,000.00,
the consideration of the contract. Petitioners appealed to the Court of Appeals on the ground
that the husbands forged signature did not bind the conjugal partnership, hence the entire
contract is voidable as the consent of an indispensable party, the husband, was lacking. Private
respondents did not appeal. Public respondent Court of Appeals 1 sustained petitioners
contention, declared the deed of sale void in its entirety and ordered private respondents to
reconvey the entire subject property in favor of petitioners who were again ordered to return
the P150,000.00 consideration they received from the sale, but with legal interest from April
15, 1982 until fully paid. Petitioners motion for the partial reconsideration of the decision to
delete the imposition of legal interest on the amount of P150,000.00 was subsequently denied.
Hence this petition under Rule 45 of the Revised Rules of Court, assigning a lone assignment of
error, to wit:

2. REMEDIAL LAW; COURT OF APPEALS; MAY RESOLVE OR CONSIDER ERRORS NOT ASSIGNED
IN APPELLANTS BRIEF. In resolving the petitioners motion for reconsideration to delete the
award of interest, respondent court correctly explained that the imposition of legal interest on
the amount due was made not because the appellees sought affirmative relief but because the
award of legal interest on the amount due is a necessary consequence of the finding that the
Contract of Sale executed by appellant Hortencia Ines is void in its entirety, and in the exercise
of its appellate jurisdiction it may resolve or consider errors not assigned in the appellants brief
when it is necessary for a just, fair and equitable resolution of the case, or when an issue is
"THE COURT OF APPEALS ERRED IN AWARDING LEGAL INTEREST IN FAVOR OF DEFENDANTS
closely related to an error properly assigned in the appellants brief and upon which the
(NOW PRIVATE RESPONDENTS) WHO DID NOT APPEAL FROM THE TRIAL COURTS DECISION
resolution of an assigned error is dependent.
WHICH DID NOT AWARD ANY SUCH LEGAL INTEREST." 2
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In support thereto, petitioners argue that a party who has not himself appealed cannot obtain
from the appellate court any affirmative relief other than those granted in the decision of the
court below. Thus, they maintain that the award of legal interest, an affirmative relief granted
by the respondent court, is erroneous as private respondents never appealed from the trial
courts decision which did not award such interest.
We find the appeal unmeritorious. The respondent court ruled for the return of the contract
price of P150,000.00 with legal interest over the subject property to private respondents with
the following justification which we quote with approval:
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". . . Since the sale is annulled the parties are to be governed by Article 1398 of the Civil Code
whereunder they shall restore to each other the things which have been the subject matter of
the contract, with their fruits, and the price with interest; the same precept is substantially
embodied in Article 1385 in reference to rescission of contracts. Indeed even the principle
against unjust enrichment (Article 22, Civil Code) would eschew a contrary conclusion." 3
Furthermore, in resolving the petitioners motion for reconsideration to delete the award of
interest, respondent court correctly explained that the imposition of legal interest on the
amount due was made not because the appellees sought affirmative relief but because the
award of legal interest on the amount due is a necessary consequence of the finding that the
Contract of Sale executed by appellant Hortencia Ines is void in its entirety, and in the exercise
of its appellate jurisdiction it may resolve or consider errors not assigned in the appellants brief
when it is necessary for a just, fair and equitable resolution of the case, or when an issue is
closely related to an error properly assigned in the appellants brief and upon which the
resolution of an assigned error is dependent. 4
To the above quoted justification, we must moreover add that the award of legal interest is
based on equitable grounds duly sanctioned by the Civil Code under Article 2210 which
provides:
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"Interest may, in the discretion of the court, be allowed upon damages awarded for breach of
contract."
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Thus, in De Lima v. Laguna Tayabas Co. 5 and Cabral v. Court of Appeals, 6 We sustained the
Court of Appeals award of legal interest on the basis of said provision despite its absence in
the trial courts decisions and despite the lack of appeal of private respondents therein.
We take exception, however, to the ruling of public respondent as to the date when the legal
interest should commence to run which we hold, in view of the consistent rulings of this Court,
7 should start from the time of the rendition of the trial courts decision on July 31, 1990
instead of April 15, 1982, the date when the deed of sale was executed.
ACCORDINGLY, subject to the above modification that the legal interest should commence to
run from July 31, 1990 until fully paid, the decision appealed from should be, as it is hereby
AFFIRMED in all other respects.
SO ORDERED.

the bank in her name in the amount of P300,000, and to make monthly deposits of P50,000
each, to serve as payments of the equivalent loan of the ARC upon the execution of the
appropriate documents. She also proposed for the bank to assist her in requesting the ARC to
SECOND DIVISION
execute a deed of absolute sale over the portion of the second floor she had purchased and the
issuance of the title in her name upon the payment of the purchase price. 7 However, the bank
[G.R. NO. 142310 : September 20, 2004]
rejected her proposal.8 She then wrote the ARC on August 31, 1984 informing it of China
Banking Corporation's rejection of her offer to assume its equivalent loan from the bank and
reminded it that it had conformed to her proposal to assume the payment of its loan from the
ARRA REALTY CORPORATION and SPOUSES CARLOS ARGUELLES and REMEDIOS DELA bank up to the equivalent amount of the balance of the purchase price of the second floor of
RAMA ARGUELLES,Petitioners, v. GUARANTEE DEVELOPMENT CORPORATION AND
the building as agreed upon, and the consequent execution by the ARC of a deed of absolute
INSURANCE AGENCY and ENGR. ERLINDA EALOZA, Respondents.
sale over the property in her favor.9 Pealoza then sent a copy of a deed of absolute sale with
assumption of mortgage for the ARC's consideration, and informed the latter that, in the
meantime, she was withholding installment payments. 10 On October 3, 1984, Pealoza
transferred the school to another building she had purchased, but retained her office therein.
DECISION
She later discovered that her office had been padlocked. 11 She had the office reopened and
continued holding office thereat. To protect her rights as purchaser, she executed on November
26, 1984 an affidavit of adverse claim over the property which was annotated at the dorsal
portion of TCT No. 112269 on November 27, 1984.12 However, the adverse claim was cancelled
CALLEJO, SR., J.:on February 11, 1985.13

Arra Realty Corporation (ARC) was the owner of a parcel of land, located in Alvarado Street,
When the ARC failed to pay its loan to China Banking Corporation, the subject property was
Legaspi Village, Makati City, covered by Transfer Certificate of Title (TCT) No. 112269 issued by
foreclosed extrajudicially, and, thereafter, sold at public auction to China Banking Corporation
the Register of Deeds.1 Through its president, Architect Carlos D. Arguelles, the ARC decided to on August 13, 1986 for P13,953,171.07.14 On April 29, 1987, the ARC and the Guarantee
construct a five-story building on its property and engaged the services of Engineer Erlinda
Development Corporation and Insurance Agency (GDCIA) executed a deed of conditional sale
Pealoza as project and structural engineer. In the process, Pealoza and the ARC, through covering the building and the lot for P22,000,000, part of which was to be used to redeem the
Carlos Arguelles, agreed on November 18, 1982 that Pealoza would share the purchase price
property from China Banking Corporation.15 With the money advanced by the GDCIA, the
of one floor of the building, consisting of 552 square meters for the price
property was redeemed on May 4, 1987. 16 On May 14, 1987, the petitioner executed a deed of
of P3,105,838: P901,738, payable within sixty (60) days from November 20, 1982, and the
absolute sale over the lot and building in favor of the GDCIA for P22,000,000.17 The ARC
balance payable in twenty (20) equal quarterly installments of P110,205. The parties further
obliged itself under the deed to deliver possession of the property without any occupants
agreed that the payments of Pealoza would be credited to her account in partial payment of
therein. The Register of Deeds, thereafter, issued TCT No. 147846 in favor of the GDCIA over
2
her stock subscription in the ARC's capital stock. Sometime in May 1983, Pealoza took
the property without any liens or encumbrances on May 15, 1987. 18 Of the purchase price
possession of the one-half portion of the second floor, with an area of 552 square
of P22,000,000, the GDCIA retainedP1,000,000 to answer for any damages arising from any
meters3 where she put up her office and operated the St. Michael International Institute of
suits of the occupants of the building.
Technology. Unknown to her, ARC had executed a real estate mortgage over the lot and the
entire building in favor of the China Banking Corporation as security for a loan on May 12,
1983.4 The deed was annotated at the dorsal portion of TCT No. 112269 on June 3,
1983.5 From February 23, 1983 to May 31, 1984, Pealoza paid P1,175,124.59 for the portion On May 28, 1987, Pealoza filed a complaint against the ARC, the GDCIA, and the Spouses
of the second floor of the building she had purchased from the ARC. 6She learned that the
Arguelles, with the Regional Trial Court of Makati, Branch 61, for "specific performance or
property had been mortgaged to the China Banking Corporation sometime in July 1984.
damages" with a prayer for a writ of preliminary injunction.
Thereafter, she stopped paying the installments due on the purchase price of the property.

Pealoza wrote the China Banking Corporation on August 1, 1984 informing the bank that the
ARC had conveyed a portion of the second floor of the building to her, and that she had
paid P1,175,124.59 out of the total price ofP3,105,838. She offered to open an account with

Pealoza prayed for the following reliefs:

WHEREFORE, it is most respectfully prayed of this Honorable Court that '

(a) Ordering the defendants, jointly and severally (sic), to restitute to the plaintiff the sum
of P1,444,124.59 with interest thereon at bank borrowing rate from August 1984 until the
same is finally wholly returned;

1. - Before hearing, a temporary restraining order immediately issue;


(b) Ordering the defendants, jointly and severally, to pay the plaintiff the difference between
the selling price on the second floor of the 5-storey edifice after deducting P1,444,124.59
therefrom;

2. - After notice and hearing, and the filing of an injunction bond, a preliminary injunction be
issued forthwith enjoining and restraining the defendant Register of Deeds for Makati, Metro
Manila, from receiving and registering any document transferring, conveying, encumbering or,
otherwise, alienating the land and edifice covered by Transfer Certificate of Title No. 112269 of
said Registry of Deeds and from issuing a new title therefor;
(c) Directing defendant Guarantee Development Corporation & Insurance Agency to deposit
with the Honorable Court any amount still in its possession on the purchase price of the land
and the 5-storey edifice in question;
3. - After hearing and trial '

(d) Ordering the defendants, jointly and severally, to pay the plaintiff moral and exemplary
damages as may be proved during the trial and/or as this Honorable Court may deem just,
(a) Ordering defendants ARRA and Arguelles to execute a deed of sale in favor of plaintiff over adequate and equitable in the premises;
the second floor of that 5-storey edifice built on 119 Alvarado Street, Legaspi Village, Makati,
Metro Manila, simultaneously with the tender of the remaining balance on the purchase price
thereon;
(e) Ordering the defendants, jointly and severally, to pay the plaintiff an amount equivalent to
20% of whatever she may recover from the defendants in this suit as and for attorney's fees,
litigation expenses and costs.
(b) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff such
moral damages as may be proved during the trial;
PLAINTIFF further prays for such other reliefs and remedies as may be just and equitable in the
premises19
(c) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff
exemplary damages in such amount as may be deem (sic) just, sufficient and equitable as
exemplary (sic) damages;
On her first cause of action, Pealoza alleged, inter alia:
(d) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff an
amount equivalent to 20% of whatever she may recover herein as and for attorney's
fees; P500.00 per appearance of counsel in Court; and miscellaneous litigation expenses and
cost of suit;

2. - That on or about November 18, 1982, the plaintiff and defendant ARRA represented by its
President and General Manager, defendant Arguelles, entered into an agreement whereby for
and in consideration of the amount of P3,105,828.00 on a deferred payment plan payable in
five (5) years, defendants ARRA and Arguelles agreed to sell to the plaintiff one (1) whole floor
of a prospective 5-storey building which said defendants planned to build on a 992 square
meter lot located at 119 Alvarado Street, Legaspi Village, Makati, Metro Manila, covered by
4. - On the Alternative Cause of Action, in the event that specific performance cannot be
Transfer Certificate of Title No. 112269 of the Registry of Deeds for Makati, Metro Manila, copy
effected for any reason, to render judgment in favor of the plaintiff and against the defendants of which agreement is hereto attached as Annex "A" and made integral part hereof;
'
3. - That consonant with the aforementioned agreement between the plaintiff and defendants
ARRA and Arguelles, the former paid to said defendants the total amount of P1,377,124.59 as

evidenced by receipts and cash vouchers copies of which are hereto attached as Annexes "B,"
"B-1" to "B-10" and made integral parts hereof;

demand for the execution of a document of sale over the second floor of the 5-storey edifice,
and in order to protect her rights and interest in said transaction, the plaintiff caused to be
prepared and executed an affidavit of Adverse Claim and effected the annotation thereof on
Transfer Certificate of Title No. 112269 of the Registry of Deeds for Makati, M.M., copy of said
Adverse Claim is hereto attached as Annex "F" hereof.20

4. - That upon completion of the 5-storey edifice on May 31, 1984, the plaintiff made her
choice of the second floor thereof as the subject matter or object of the sale in her favor, and
with the express knowledge and consent of defendants ARRA and Arguelles, she immediately
took possession and occupied the same as contained in a certification to said effect of the
On her second cause of action, Pealoza alleged, as follows:
defendants, and where they further certified that the certificate of condominium corresponding
to the second floor "is presently under process," copy of said certification is hereto attached as 9. - That after her occupation and taking possession of the second floor of the said 5-storey
edifice, the plaintiff caused the installation of a water tank and water pumps thereto;
Annex "C" hereof;

5. - That sometime in August 1984, the plaintiff learned that the defendants ARRA and
Arguelles, conspiring with one another in a clear and unmistakeably (sic) scheme to defraud
the plaintiff of her investment on the second floor of the 5-storey edifice, mortgaged the land
and the building covered by Transfer Certificate of Title No. 112269 of the Registry of Deeds for
Makati, Metro Manila, with the China Banking Corporation in order to secure the payment of
their loan in the total sum ofP6,500,000.00 without the knowledge and/or consent of the
plaintiff;

10. - That the water tank installed on the second floor of the 5-storey edifice involved an outlay
ofP15,000.00 as evidenced by Cash Vouchers, copies of which are hereto attached as Annexes
"G" and "G-1," while the water pumps involved the disbursement of P52,000.00 from the funds
of the plaintiff as evidenced by Cash Vouchers, copies of which are hereto attached as Annexes
"H," "H-1" hereof;

11. - That when the defendants ARRA and Arguelles mortgaged with (sic) land and the 5-storey
edifice to the China Banking Corporation, the mortgage included the water tank and water
6. - That after verifying the fact of mortgage with the China Banking Corporation and realizing pumps servicing the second floor thereof installed by the plaintiff; Pealoza caused the
the risk of loss of her investment of P1,377,124.59 she had so far paid on the purchase price of annotation of the notice of lis pendens at the dorsal portion of TCT No. 112269.
the second floor of the 5-storey edifice, the plaintiff wrote the defendants ARRA and Arguelles
on August 31, 1984 proposing to defendants ARRA and Arguelles the execution of a deed of
sale with assumption of mortgage in her favor of the portion of the loan corresponding to the
second floor of the said edifice and informing them of her resolve to hold further payments on The GDCIA interposed the following affirmative and special defenses in its answer to the
complaint:
the purchase price of the second floor until her rights and interest over the same shall have
been adequately and properly secured, copy of said letter is hereto attached as Annex "D"
hereof;
26. Guarantee acquired clean title to the Property, as evidenced by the transfer certificate of
title attached as Annex 4 hereof.
7. - That in order to facilitate the transaction and expeditious execution of the sale over the
second floor in her favor, the plaintiff had a Deed of Sale with Assumption of Mortgage
prepared and forwarded the same to defendants ARRA and Arguelles for their consideration and
27. Guarantee was an innocent purchaser for value and in good faith of the Property who:
signature with an accompanying letter therefor dated September 25, 1984, copy of said draft of
a deed of sale with assumption of mortgage and the accompanying letter therefor are hereto
attached as Annexes "E" and"E-1," respectively;

8. - That by reason of the unjustified, unwarranted and malicious inaction and/or refusal and
failure of the defendants ARRA and Arguelles to comply with plaintiff's perfectly valid and legal

(i) verified that the title to the Property in the Registry of Deeds of Makati was absolutely free
and clear of any encumbrances, liens or claims other than the mortgage to China Banking
Corporation; and, (ii) even obtained explicit confirmation of that fact from Arra and Arguelles.

30. Consequently, Guarantee could rely, as it did, on the absence of any annotation of
(vi) Ordering defendants Arra and Arguelles to pay attorney's fees in such amount as may be
encumbrance on the title to the Property. By clear provision of law, the present action, which is proven in the course of trial;
a collateral attack on the title to the Property in question, cannot be allowed by the Court.

31. The complaint (para. 6) admits that plaintiff was unable to pay the purchase price for the
portion of the building which she allegedly bought under the letter agreement with Arra dated
November 18, 1982 (Annex "A," Complaint). Assuming plaintiff's agreement with Arra to be
valid and enforceable, her failure to discharge her part of the agreement bars her from now
attempting to compel performance from Arra and Arguelles.

32. Plaintiff's remedy, should her claim, indeed, be meritorious, is a personal action for
damages against Arra and Arguelles.22

The GDCIA prayed that, after due proceedings, judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed that, after due hearing, judgment be rendered:

(vii) Ordering defendants Arra and Arguelles to pay to Guarantee the amount ofP500,000.00 as
moral damages.

Other just and equitable reliefs are prayed for.23

The ARC and the Spouses Arguelles interposed the following special and affirmative defenses:

10. Plaintiff has no cause of action against answering defendants; her complaint is definitely a
nuisance suit;

11. When answering defendants decided to erect a 5-storey building on their lot in 1982,
plaintiff and answering defendants agree that plaintiff will share in the construction of any one
(1) floor thereof; hence, the agreement between them (Annex "A");

(i) Dismissing the complaint for lack of merit;


(ii) Ordering plaintiff to pay attorney's fees in such amount as may be proven in the course of
trial;

(iii) Ordering plaintiff to pay to Guarantee the amount of P500,000.00 as moral damages;

12. Plaintiff not only refused and failed to comply with her Agreement despite repeated
demands but also grossly violated said agreement as she paid only an initial amount
of P200,000.00 on February 7, 1982 in contrary to the specific, express decisive stipulation in
Annex "A" which was synchronized with the agreement of Answering Defendants with the
contractor of the building, Pyramid Construction & Engineering Corp., who was committed to
finish the building in a period of five (5) months;

or, in the alternative, should plaintiff's claim be adjudged meritorious,

(iv) Ordering defendants Arra and Arguelles, solidarily, to return the purchase price of the
Property with interest as stated in the Deed of Conditional Sale;

(v) Ordering defendants Arra and Arguelles, solidarily, to pay to Guarantee the amount
ofP1,000,000.00 as punitive and exemplary damages;

13. Having committed to construct the 5-storey edifice on their lot, answering defendants has
(sic) to raise the required initial amount to start the construction and for this reason, they were
constrained to borrow the rest of the amount necessary for the completion of the building and
they used their own land and the building itself as collateral to enable defendant Arguelles to
finish the building plus his own funding in the amount of P7,000,000.00;

14. Despite her non-compliance with her agreement, plaintiff, on her own and without the
consent of answering defendants, occupied the second floor of the building and converted the
same into a school the St. Michael International School and other business establishments

whereby she earned no less than P3,000,000.00 in a period of four (4) years of her occupancy WHEREFORE, premises above considered, judgment is hereby rendered as prayed for by
as a squatter thereof without paying the rentals to answering defendants;
plaintiff PEALOZA in the case for SUM OF MONEY as against defendants ARRA and SPOUSES
CARLOS D. ARGUELLES and REMEDIOS DELA RAMA-ARGUELLES, who are hereby ORDERED as
follows:
15. Due to plaintiff's persistent requests for the issuance in her favor of a certification of her
occupancy of the second floor to enable her to secure a loan in the amount of P3,105,838.00 to
complete payment of her obligation, defendant Carlos Arguelles, always a kind and
1. TO PAY plaintiff the amount of P1,444,124.59 with interest of 12 per centum per annum
understanding person, issued Annex "C" with the expectation that plaintiff could, indeed,
from August 1984 until fully paid;
comply with her agreement within a period of three (3) months as she promised;
2. TO PAY the amount of P150,000.00 for and as attorney's fees; and
16. Having failed to fulfill her promise and to comply with her obligation as mentioned in the
immediately preceding paragraph hereof, plaintiff voluntarily vacated the second floor of the
said building on (sic) May 1986;

cralawlibrary

3. TO PAY the Costs of the proceedings.

The case for SPECIFIC PERFORMANCE and prayer for PRELIMINARY INJUNCTION are
considered as DISMISSED on grounds that this case for this alternative relief was filed after the
17. As a consequence of plaintiff's violation of her written agreement, answering defendants
naturally defaulted in their mortgage obligation with China Banking Corporation and answering Transfer Certificate of Title of the property was already issued by defendant Register of Deeds
defendants' lot and building were, therefore, foreclosed by said bank and having no means of in the name of GUARANTEE.
redeeming the mortgaged properties within the redemption period, answering defendants were
compelled to negotiate for the sale of the foreclosed properties which sale was monitored to the
plaintiff together with her statement of account;
The case as against DEFENDANT Guarantee Development Corporation & Insurance Agency
(GUARANTEE) is hereby DISMISSED for insufficiency of evidence.
18. That the negotiation for the sale of the building took almost a year and during such period,
plaintiff was cooperative in showing the second floor which she was then occupying to
The counterclaims of DEFENDANTS are hereby DISMISSED for insufficiency of evidence.
prospective buyers;
SO ORDERED.25
19. Whatever right plaintiff may have acquired over the second floor of the subject 5-storey
building has been extinguished upon her failure to comply with her obligation, which was the
payment of the total amount of P3,105,838.00 within the specific period expressly provided as Pealoza, as well as the ARC and the Spouses Arguelles, appealed the decision to the Court of
Appeals (CA). The ARC and the Spouses Arguelles alleged that the Regional Trial Court (RTC)
the essence of the agreement.24
erred as follows:

The ARC and the Spouses Arguelles also interposed counterclaims against the GDCIA, while the
I IN NOT ANNULLING OR RESCINDING THE CONDITIONAL DEED OF SALE OF REALTY DATED
latter secured a writ of preliminary attachment against its co-defendants and garnished their
APRIL 29, 1987 AND DEED OF ABSOLUTE SALE DATED MAY 14, 1999;
funds. On April 17, 1995, the trial court rendered judgment in favor of Pealoza and the
GDCIA, and against the ARC and the Spouses Arguelles, thus:

II IN NOT ORDERING THE DEFENDANT GUARANTEE DEVELOPMENT AND INSURANCE AGENCY The Court of Appeals gravely erred in finding respondent Guarantee an innocent purchaser for
TO PAY DEFENDANTS-APPELLANTS FOR THE MALICIOUS AND UNFOUNDED FILING OF WRIT OF value and in good faith contrary to settled jurisprudence that a buyer of a parcel of land who
ATTACHMENT AND GARNISHMENT; AND
did not pay the purchase price in full and who could not have failed to know or discover that
the land sold to him was in the adverse possession of another is a buyer in bad faith.
III IN NOT DIRECTING PACES TO PAY ARRA REALTY AND SPOUSES ARGUELLES ARREARS IN
RENTALS PLUS INTERESTS AND DISMISSING THE ORIGINAL AND AMENDED COMPLAINTS. 26

The CA rendered judgment, on September 30, 1998, affirming with modification the appealed
decision. The fallo reads:

WHEREFORE, the appeals of both ARRA Realty Corporation and plaintiff Engineer Erlinda
Pealoza are hereby DISMISSED, and the Decision of the lower court is hereby AFFIRMED but
the award ofP150,000.00 as attorney's fees in favor of said plaintiff is deleted. The Register of
Deeds of Makati City is hereby ordered to cancel the Notice of Lis Pendens annotated on
Transfer Certificate of Title No. 147845 registered in the name of Guarantee Development
Corporation and Insurance Agency.27

II

The Court of Appeals gravely erred in finding that petitioner, who had established her legal right
for sum of money against respondents Arra and the Arguelles spouses, may be effectively
barred from pursuing her alternative remedy for recovery of title against respondent Guarantee
contrary to Section 2, Rule 8 of the Rules of Court.

III

The Court of Appeals gravely erred in not awarding damages and attorney's fees despite
violation of the rights of the petitioner on the wrongful or fraudulent action on the part of the
respondents.29

The ARC and the Spouses Arguelles filed a motion for reconsideration of the decision of the CA
on the following grounds:

1.) THIS HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT PEALOZA'S ACTION
WAS TANTAMOUNT TO FORFEITURE OR WAIVER OF HER RIGHTS.

2.) THIS HONORABLE COURT OF APPEALS ERRED IN NOT APPRECIATING THE EVIDENCE OF
CO-DEFENDANTS ARRA/ARGUELLES ESPECIALLY THE ARREARS IN RENTALS/OUT OF POCKET
ADVANCES WITH THE RESULTANT UNJUST ENRICHMENT ON THE PART OF PEALOZA. 28
However, the appellate court denied the said motion. Pealoza filed a Petition for Review
on Certiorari with this Court docketed as G.R. No. 136876, wherein she made the following
assignment of errors:

WHEREFORE, premises considered, it is respectfully prayed that the Decision of the Court of
Appeals in CA-G.R. CV No. 52911 dated September 30, 1998 as well as its Resolution dated
December 23, 1998 be reversed and set aside and that a Decision be rendered:

1. Declaring as null and void the title of Guarantee (TCT No. 147845) over the subject property
located at No. 119 Alvarado St., Legaspi Village, Makati, Metro Manila.

2. Ordering respondents to execute a Deed of Sale in favor of the petitioner covering the
subject second floor of the subject property simultaneously with the tender of the remaining
balance on the purchase price.

3. Ordering respondents, jointly and severally, to pay petitioner moral and exemplary damages
of One Million Pesos (P1,000,000.00).

4. Ordering respondents, jointly and severally, to pay petitioner attorney's fees of ten (10%)
percent of the amount involved.

On the alternative cause of action, in the event that specific performance cannot be affected, to
render judgment:

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT


HOLDING THAT GUARANTEE DEVELOPMENT CORPORATION IS NOT AN INNOCENT PURCHASER
FOR VALUE AND THAT AUTOMATIC RESCISSION IS PRESENT.32

III
1. Ordering respondents, jointly and severally, to pay petitioner the sum ofP1,944,124.59 with
interest of twelve (12%) percent from August 1984 until fully paid.
2. Ordering respondents, jointly and severally, to pay moral and exemplary damages of One
Million Pesos (P1,000,000.00).

3. Ordering respondents, jointly and severally, to pay attorney's fees of ten (10%) percent of
the amount involved.

Such other reliefs just and proper are, likewise, prayed for.30

On March 15, 1999, the Court resolved to deny due course to the petition for failure of the
petitioner therein to show any reversible error committed by the CA in its decision. Entry of
judgment was made of record on April 14, 1999. 31

For their part, the ARC and the Spouses Arguelles, now the petitioner, filed their Petition for
Review with this Court, contending that:

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT


HOLDING THAT NO PERFECTED CONTRACT EXISTS BETWEEN ARRA REALTY CORPORATION
AND ENGINEER ERLINDA PEALOZA.

II

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT


HOLDING THAT ENGINEER ERLINDA PEALOZA IS GUILTY OF FRAUD AND IS IN BAD FAITH.
HENCE, LIABLE FOR DAMAGES.

At the outset, it must be pointed out that the issues raised by the parties in their respective
pleadings in this Court have already been resolved in G.R. No. 136876, where we denied due
course to Pealoza's Petition for Review . Nonetheless, considering that the sole petitioner in
the said case was Pealoza, whereas the petitioners in the petition at bar are the ARC and the
Spouses Arguelles, we shall resolve the petition on its merits. Furthermore, since the issues
raised by the petitioners in their assignment of errors are interrelated, the Court shall delve
into and resolve the same simultaneously.

The petitioners posit that no contract of sale over the subject property was perfected between
the petitioner ARC, on the one hand, and respondent Pealoza, on the other, because the latter
failed to pay the balance of the total purchase price of a portion of the second floor of the
building as provided in their November 18, 1982 agreement. They aver that respondent
Pealoza bound and obliged herself to pay the down payment of P901,738 on or before January
1983, and the balance in twenty (20) equal quarterly payments of P110,205. However, the
petitioners aver, respondent Pealoza was able to complete the down payment only on March 4,
1983 and managed to pay only three quarterly installments, and part of the fourth quarterly
installment. They assert that, in violation of the November 18, 1982 agreement, respondent
Pealoza used the property as a school instead of an office, and later abandoned the same
without prior notice to the petitioner ARC. The petitioners assert that respondent Pealoza
failed to pay for the advances extended to her, amounting to P302,753.06 inclusive of interests,
as well as rentals for her occupancy of the property in the total amount of P2,177,935. The
petitioners contend that, even if the payments of respondent Pealoza amounting
to P1,735,500 would be deducted from the agreed purchase price, she would still end up owing
the petitioner ARC the net amount of P930,815.56, excluding interests. They aver that
respondent Pealoza should be ordered to pay damages under Article 19 of the New Civil Code
because she acted in bad faith, and pray that the payments she made to the petitioner ARC for
the purchase of the said portion of the building be forfeited in its favor.

The petitioners further contend that respondent GDCIA was a purchaser of the property in bad 1. Ordering petitioners and respondent Guarantee, jointly and severally, to pay petitioner the
faith because it purchased the lot and building despite its presumed knowledge of the claims of sum of P1,944,124.59 with interest of twelve (12%) percent from August 1984 until fully paid.
respondent Pealoza and the fact that the building was occupied by private individuals and/or
corporations. The petitioners aver that they even offered to return the P21,000,000 paid by the
respondent GDCIA for the property, less the retained P1,000,000, but that the latter rejected
the offer. Hence, the deed of absolute sale executed by the petitioner ARC and the respondent 2. Ordering petitioners and respondent Guarantee, jointly and severally, to pay moral and
exemplary damages of One Million Pesos (P1,000,000.00).
GDCIA over the property was automatically rescinded.

3. Ordering petitioners and respondent Guarantee, jointly and severally, to pay attorney's fees
In her comment on the petition, respondent Pealoza averred that her November 18, 1982
agreement with the petitioner ARC is a perfected contract of sale. She asserts that the CA erred of ten (10%) percent of the amount involved.
in holding that she was barred from recovering the property from the respondent GDCIA and in
not finding that the latter is not an innocent purchaser in good faith because, by its own
admission, it purchased the building although it was still occupied. In fact, she notes, the
33
respondent GDCIA retained P1,000,000 of the purchase price of the property to answer for any Such other reliefs just and proper are, likewise, prayed for.
claims for damages of the said occupants. She prayed, thus:
In its comment on the petition, the respondent GDCIA avers that the issues raised by the
WHEREFORE, premises considered, it is respectfully prayed that the petition be denied and that petitioners and respondent Pealoza in her Comment had already been resolved by this Court
in G.R. No. 136876, when the petition therein was denied due course.
the Decision of the Court of Appeals in CA-G.R. CV No. 52911 dated September 30, 1998 as
well as its Resolution dated February 21, 2000 be modified in that:
We rule against the petitioners.
1. Declaring as null and void the title of Guarantee (TCT No. 147845) over the subject property
located at No. 119 Alvarado St., Legaspi Village, Makati, Metro Manila.
Central to the issue is the November 18, 1982 letter-agreement of the parties, which reads:
2. Ordering petitioners and respondent Guarantee to execute a Deed of Sale in favor of the
petitioner covering the subject second floor of the subject property simultaneously with the
tender of the remaining balance on the purchase price.

Ms. Erlinda Pealoza


5th Flr. ODC Int l. Plaza Bldg.
Salcedo St., Legaspi Village
Makati, Metro Manila

3. Ordering petitioners and respondent Guarantee, jointly and severally, to pay Pealoza
moral and exemplary damages of One Million Pesos (P1,000,000.00).
Dear Linda:
4. Ordering petitioners and respondent Guarantee, jointly and severally, to pay Pealoza
attorney's fees of ten (10%) percent of the amount involved.
In the alternative, in the event that specific performance cannot be affected, to render
judgment:

I would like to review the arrangement arrived at our meeting yesterday afternoon. You shall
share one (1) floor of the proposed 5-storey office building to be constructed on a 992 sq. mt.
lot owned by ARRA Realty Corporation located at Alvarado St., Legaspi Village, Makati, Metro

Mla. The consideration for which you shall own one (1) floor is THREE MILLION ONE HUNDRED
FIVE THOUSAND EIGHT HUNDRED THIRTY-EIGHT PESOS (P3,105,838.00) on a deferred
payment plan. The initial payment of NINE HUNDRED ONE THOUSAND SEVEN HUNDRED
THIRTY-EIGHT PESOS (P901,738.00) shall be paid within sixty (60) days from November 20,
1982 and the balance payable in 20 equal quarterly payments of ONE HUNDRED TEN
THOUSAND TWO HUNDRED FIVE PESOS (P110,205.00). Every payment that you make, ARRA
shall credit your account by way of partial payment to your stock subscriptions of ARRA's
capital stock. As soon as our contractor, Pyramid Construction and Engineering Corporation,
complete its commitment with us, which is not more than five (5) months, you shall
immediately take possession of the floor of your choice. Further, as soon as practicable, the
Title corresponding to the floor that you own shall be transferred to your name.
However, should you pay in full at the end of the fourth quarter or at any time prior to the 5year arrangement, the price shall be adjusted accordingly.

I believe that this accurately summarizes our understanding. If you have any questions or if I
have not properly stated our agreement, please let me know, otherwise, you may signify your
conformity by signing the duplicate copy of this letter.

In May 1983, respondent Pealoza took possession of a portion of the second floor of the
building sold to her with an area of 552 square meters. She put up her office and operated the
St. Michael International Institute of Technology. Thenceforth, respondent Pealoza became the
owner of the property, conformably to Article 1477 of the New Civil Code which reads:

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof.

Very truly yours,

(Sgd.)
CARLOS D. ARGUELLES
President & General Manager

had agreed on the three elements of subject matter, price, and terms of payment. Hence, the
contract of sale was perfected, it being consensual in nature, perfected by mere consent,
which, in turn, was manifested the moment there was a meeting of the minds as to the offer
and the acceptance thereof.35 The perfection of the sale is not negated by the fact that the
property subject of the sale was not yet in existence. This is so because the ownership by the
seller of the thing sold at the time of the perfection of the contract of sale is not an element of
its perfection. A perfected contract of sale cannot be challenged on the ground of nonownership on the part of the seller at the time of its perfection. What the law requires is that
the seller has the right to transfer ownership at the time the thing is delivered. Perfection per
se does not transfer ownership which occurs upon the actual or constructive delivery of the
thing sold.36

CONFORME:

In a contract of sale, until and unless the contract is resolved or rescinded in accordance with
law, the vendor cannot recover the thing sold even if the vendee failed to pay in full the initial
payment for the property. The failure of the buyer to pay the purchase price within the
stipulated period does not by itself bar the transfer of ownership or possession of the property
sold, nor ipso facto rescind the contract. 37 Such failure will merely give the vendor the option to
rescind the contract of sale judicially or by notarial demand as provided for by Article 1592 of
the New Civil Code:

(Sgd.)
ERLINDA PEALOZA
Date: __________34

Art. 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a notarial
act. After the demand, the court may not grant him a new term.

As gleaned from the agreement, the petitioner ARC, as vendor, and respondent Pealoza, as
vendee, entered into a contract of sale over a portion of the second floor of the building yet to
be constructed for the price of P3,105,838 payable in installments, the first installment
of P901,738 to be paid within sixty (60) days from November 20, 1982 or on or before January Admittedly, respondent Pealoza failed to pay the downpayment on time. But then, the
petitioner ARC accepted, without any objections, the delayed payments of the respondent;
20, 1983, and the balance payable in twenty (20) equal quarterly payments of P110,205. As
hence, as provided in Article 1235 of the New Civil Code, the obligation of the respondent is
soon as the second floor was constructed within five (5) months, respondent Pealoza would
take possession of the property, and title thereto would be transferred to her name. The parties deemed complied with:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.

Q: How did you learn about it?

chanroblesvirtualawlibrary

A: Since I took possession of the 2nd floor and made payments thereon, I asked Architect
Arguelles every now and then about the execution of a Deed of Sale to the 2nd floor.

The respondent cannot be blamed for suspending further remittances of payment to the
Q: What was the reply of Arguelles?
petitioner ARC because when she pushed for the issuance of her title to the property after
taking possession thereof, the ARC failed to comply. She was aghast when she discovered that
in July 1984, even before she took possession of the property, the petitioner ARC had already A: He told me that he had to work out yet the titling of the 2nd floor as a condominium unit.
mortgaged the lot and the building to the China Banking Corporation; when she offered to pay
the balance of the purchase price of the property to enable her to secure her title thereon, the
petitioner ARC ignored her offer. Under Article 1590 of the New Civil Code, a vendee may
Q: Was Arguelles able to have the 2nd floor titled as a condominium unit?
suspend the payment of the price of the property sold:
chanroble svirtualawlibrary

chanroblesvirtualawlibrary

A: No, Sir.
Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory
Q: Why not?
action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor
has caused the disturbance or danger to cease, unless the latter gives security for the return of
A: Because he did not take any steps about it.
the price in a proper case, or it has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not
authorize the suspension of the payment of the price.
chanroble svirtualawlibrary

Q: When Arguelles did not take steps about it, what did you do?
Respondent Pealoza was impelled to cause the annotation of an adverse claim at the dorsal
portion of TCT No. 112269. Her testimony is quoted, thus:
Q: And did you finally acquire the certificate of title to the 2nd floor of the said building?

A: I inquired why Arguelles was not doing anything about the titling of the 2nd floor and the
sale thereof to me. That was how I discovered that Arguelles mortgaged the same to the China
Banking Corp.38

chanroble svirtualawlibrary

A: No, Sir.

Q: Why not?

Q: With those letters, what did you do?

chanroblesvirtualawlibrary

A: Because the said building was mortgaged by ARRA Realty and Architect Arguelles with China
Banking Corporation and subsequently sold to Guaranty (sic) Development Corporation.

chanroble svirtualawlibrary

A: On August 31, 1984, I wrote a letter to ARRA requesting them to execute a deed of sale
with the assumption of mortgage in my favor. I attached a copy of the deed of sale and
assumption of mortgage to the said letter, may I request this letter be marked as Exh. "U" and
the deed of sale attached to it with the assumption of mortgage as Exh. "U-1."

Q: Did ARRA reply to your letter?

chanroble svirtualawlibrary

Q: When, for the first time, did you learn about the mortgage of the building to China Banking
A: ARRA and Arguelles ignored the said letter.
Corp.?
chanroble svirtualawlibrary

A: It was sometime in July of 1984.

chanroblesvirtualawlibrary

Q: What did you do then?

Q: How about your Engineering Office?

chanroble svirtualawlibrary

chanroble svirtualawlibrary

A: On September 25, 1984, I wrote a letter to ARRA which I request to be marked as Exh. "V" A: My Engineering Office has also grown bigger, just right for that space at the 2nd floor, so it
reiterating the signing of the deed of sale and at the same time telling him that I was
remained there.
suspending my payments on the 2nd floor unless and until he signs that Deed of Sale. I offered
to pay the full amount so I can get the certificate of title, because I had more than sufficient
money to pay him at the time. Here are copies of my bank deposits from 1982 to 1986 which
Q: So the office of Pealoza Engineering retained the Alvarado office?
show my liquidity. I request that they be marked as Exh. "W" and "W-1" to "W-59" inclusive.
chanroble svirtualawlibrary

A: Yes, Sir.
Q: What did ARRA do with that letter?

chanroblesvirtualawlibrary

Q: After St. Michael left it, were you able to hold office there peacefully?

A: ARRA and Arguelles ignored the said letter.

chanroble svirtualawlibrary

A: No, Sir.
Q: What steps did you take?

chanroblesvirtualawlibrary

A: Upon [the] advise of my lawyer, I filed a Notice of Adverse Claim dated November 26, 1984, Q: Why not?
which I request to be marked as Exh. "X" which was inscribed the next day, November 7, 1984,
at the back of the Certificate of Title No. 112269, which I request to be marked as Exh. "Y" and A: One Monday, I went to our office at the 2nd floor at 119 Alvarado for work.
the inscription of the Notice of Adverse Claim to be bracketed and marked as Exh. "Y-1." 39
chanroble svirtualawlibrary

Q: Were you able to enter the office?


Contrary to the claim of the petitioners, respondent Pealoza did not waive her right to enforce
A: No, Sir.
the letter-agreement or abandon the property she had purchased from the petitioner ARC.
While she transferred the school to another location, the respondent maintained her office in
the subject property, only to discover that the petitioner had had her office padlocked.
Nevertheless, she had her office reopened and continued holding office thereat for a year or so,
Q: Why not?
thereafter:

chanroblesvirtualawlibrary

chanroble svirtualawlibrary

A: Because the padlock that I placed there had been changed.


Q: In the meantime, did you continue holding office and holding classes for St. Michael on the
2nd floor?
chanroble svirtualawlibrary

Q: How did you discover that?

chanroble svirtualawlibrary

A: Because when I was using my key to my padlock, it would not fit.

A: Sometime in April of 1986 when classes ended I transferred the St. Michael School to a
building which I purchased at Yakal St. also in Makati.
Q: What did you do?

chanroble svirtualawlibrary

A: I went to the office of Engr. Arguelles at ARRA Realty Corp. at the upper floor and asked
them why they changed the padlock. Nobody wanted to explain to me why the padlock was
changed but they gave me the key and I had it duplicated for my use, so I continued holding
A: Because after three years of operation the St. Michael School has grown too big for the 2nd
office there. I held office in the said premises continuously for about a year. Later on, it was
floor of that building at 119 Alvarado.
padlocked.40
Q: Why did you transfer the St. Michael School at that building in Yakal St.?

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Respondent Pealoza turned over the possession of the property to the petitioner ARC on
law and in utmost good faith. Hence, she is not liable for damages to the petitioners under
October 7, 1986 and, shortly thereafter, filed her complaint against the petitioner ARC. The
Article 19 of the New Civil Code.
bare fact that the respondent filed her complaint shortly after vacating the property is evidence
The law is that men, singly or in combination, may use any lawful means to accomplish a lawful
of her determination to pursue her claims against the petitioners.
purpose, although the means adopted may cause injury to another.42 When a person is doing a
lawful thing in a lawful way, his conduct is not actionable though it may result in damages to
another; for, though the damage caused is undoubted, no legal right of another is invaded;
In view of the failure of the petitioner ARC to transfer the title of the property to her name
hence, it is said to be damnum absque injuria.43
because of the mortgage thereof to China Banking Corporation and the subsequent sale thereof
to the GDCIA, respondent Pealoza is entitled to the refund of the amount she paid to the
petitioner ARC, conformably to Article 1398 of the New Civil Code, which reads:
The elements of abuse of rights are the following: (a) the existence of a legal right or duty, (b)
Art. 1398. An obligation having been annulled, the contracting parties shall restore to each
which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.
other the things which have been the subject matter of the contract, with their fruits, and the Malice or bad faith is at the core of said provision.44 Good faith is presumed and he who alleges
price with its interest, except in cases provided by law.
bad faith has the duty to prove the same.45 Good faith refers to the state of the mind which is
manifested by the acts of the individual concerned. It consists of the intention to abstain from
taking an unconscionable and unscrupulous advantage of another.46 Bad faith, on the other
hand, does not simply connote bad judgment to simple negligence. It imports a dishonest
In obligations to render service, the value thereof shall be the basis for damages.
purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty due
to some motive or interest or ill-will that partakes of the nature of fraud. 47 Malice connotes illwill or spite and speaks not in response to duty. It implies an intention to do ulterior and
unjustifiable harm. The petitioners failed to adduce evidence of bad faith or malice on the part
We reject the petitioners' claim that respondent Pealoza is liable for P2,177,935 by way of
of respondent Pealoza. This cannot be said of the petitioner ARC. It mortgaged the property to
advances and unpaid rentals. We note that in their answer to the amended complaint of
China Banking Corporation even after having sold the same to respondent Pealoza, and,
respondent Pealoza, the petitioners did not interpose any counterclaims for actual damages in thereafter, sold the same anew to GDCIA; respondent Pealoza was, thus, left holding the
the form of unpaid rentals. Neither did the petitioners assign as error in their brief in the CA the proverbial bag.
failure of the trial court to awardP302,753.06 to them for advances. It was only when they
moved for the reconsideration of the decision of the CA did they claim, for the first time on
appeal, their entitlement to P302,753.06 as refund for advances. The petitioner ARC is, thus,
barred from raising the said issue in this Court.41
On the last issue, the petitioners contend that the deed of conditional sale and deed of absolute
sale executed by them and the respondent GDCIA were automatically nullified because the
latter had actual or personal knowledge that the property sold had tenants. Furthermore, the
respondent GDCIA retained P1,000,000 on account of the claims of respondent Pealoza, Paces
Likewise barren of factual and legal basis is the petitioners' claim for damages against the
Industrial Development Corporation, and Emeterio Samson over the portions of the property.
respondent based on Article 19 of the New Civil Code, which reads:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.

The contention of the petitioners has no merit.

First. The petitioners did not file a counterclaim against the respondent GDCIA for the
rescission of the aforesaid decision.48 Moreover, the petitioners did not adduce evidence to
In this case, respondent Pealoza suspended the payment of the balance of the purchase price prove bad faith on the part of the respondent GDCIA. Additionally, the petitioners warranted in
of the property because she had the right to do so. While she failed to pay the purchase price the aforesaid deeds in favor of the said respondent, that:
on time, the petitioner ARC nevertheless accepted such delayed payments. The respondent
even proposed to assume the loan account of the petitioner ARC with the China Banking
Corporation in an amount equivalent to the balance of the purchase price of the subject
property, which the petitioner ARC rejected. In fine, respondent Pealoza acted in accord with

d) It is hereby agreed, convenanted and stipulated by and between the parties hereto that the
VENDOR will execute and deliver to the VENDEE a definite or absolute Deed of Sale upon the
full payment by the VENDEE of the unpaid balance of the purchase price hereinabove
stipulated.

1. The VENDOR undertakes and commits to deliver the Property, including all floors of the
building, as entirely vacant to the VENDEE not later than May 15, 1987. Physical possession,
however, of the first and second floors of the Building can be turned over to the VENDEE at any
time convenient to them.49

The VENDOR undertakes to perform, fulfill and comply with the representations, warranties and
undertaking stated in the Deed of Conditional Sale. Should the VENDOR fail to do so, this
agreement shall become null and void and the VENDEE shall be entitled to enforce its right
under Section 8 of the Deed of Conditional Sale. 50

Second. The respondent GDCIA relied on the representations of the petitioners. However, the
respondent received claims for ownership of portions of the property from tenants of the
building, including respondent Pealoza, which impelled it to retain P1,000,000 of the purchase
price to answer for said claims. There is, thus, no factual and legal basis for the plea of the
petitioners that the trial court and the CA erred in not rendering judgment in their favor
declaring the said deeds rescinded.

On the claim of respondent Pealoza against the petitioners and her co-respondent GDCIA, we
agree with the latter that the same is barred by the resolution of this Court in G.R. No. 136876,
denying due course to her Petition for Review of the decision of the CA on the ground that no
reversible error was committed by the said court, which resolution has become final and
executory.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision and
resolution of the Court of Appeals are AFFIRMED. Costs against the petitioners.

SO ORDERED.

The antecedents are:

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Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a five-door
apartment constructed thereon located at 385-F Matienza St., San Miguel, Manila. The lot is
registered in his name under TCT No. 109193 3 of the Registry of Deeds of Manila. The
apartment units are occupied by lessees.
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On December 29, 1985, respondent, assisted by his brother, petitioner Miguel Katipunan,
entered into a Deed of Absolute Sale 4 with brothers Edgardo Balguma and Leopoldo Balguma,
Jr. (co-petitioners), represented by their father Atty. Leopoldo Balguma, Sr., involving the
subject property for a consideration of P187,000.00. Consequently, respondents title to the
property was cancelled and in lieu thereof, TCT No. 168394 5 was registered and issued in the
names of the Balguma brothers. In January, 1986, Atty. Balguma, then still alive, started
collecting rentals from the lessees of the apartments.

THIRD DIVISION
[G.R. No. 132415. January 30, 2002.]
MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO
BALGUMA, JR.,Petitioners, v. BRAULIO KATIPUNAN, JR., Respondent.
DECISION

On March 10, 1987, respondent filed with the RTC of Manila, Branch 21, 6 a complaint for
annulment of the Deed of Absolute Sale, docketed as Civil Case No. 87-39891. 7 He averred
that his brother Miguel, Atty. Balguma and Inocencio Valdez (defendants therein, now
petitioners) convinced him to work abroad. They even brought him to the NBI and other
government offices for the purpose of securing clearances and other documents which later
turned out to be falsified. Through insidious words and machinations, they made him sign a
document purportedly a contract of employment, which document turned out to be a Deed of
Absolute Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-defendants),
were able to register the title to the property in their names. Respondent further alleged that
he did not receive the consideration stated in the contract. He was shocked when his sister
Agueda Katipunan Savellano told him that the Balguma brothers sent a letter to the lessees of
the apartment informing them that they are the new owners. Finally, he claimed that the
defendants, now petitioners, with evident bad faith, conspired with one another in taking
advantage of his ignorance, he being only a third grader.
In their answer, petitioners denied the allegations in the complaint, alleging that respondent
was aware of the contents of the Deed of Absolute Sale and that he received the consideration
involved; that he also knew that the Balguma brothers have been collecting the rentals since
December, 1985 but that he has not objected or confronted them; and that he filed the
complaint because his sister, Agueda Savellano, urged him to do so. 8

SANDOVAL-GUTIERREZ, J.:Twice respondent moved to dismiss his complaint (which were granted) on the grounds that he
was actually instigated by his sister to file the same; and that the parties have reached an
amicable settlement after Atty. Balguma, Sr. paid him P2,500.00 as full satisfaction of his claim.
In granting his motions for reconsideration, the trial court was convinced that respondent did
not sign the motions to dismiss voluntarily because of his poor comprehension, as shown by
Before us is a petition for review on certiorari 1 assailing the Decision 2 of the Court of Appeals the medical report of Dr. Annette Revilla, a Resident Psychiatrist at the Philippine General
Hospital. Besides, the trial court noted that respondent was not assisted by counsel in signing
dated July 31, 1997 in CA-G.R. CV No. 45928, "Braulio Katipunan, Jr. v. Miguel Katipunan,
the said motions, thus it is possible that he did not understand the consequences of his action.
Inocencio Valdez, Atty. Leopoldo Balguma, Sr., Edgardo Balguma and Leopoldo Balguma, Jr."
9
which set aside the Decision of the Regional Trial Court (RTC) of Manila, Branch 28, in Civil
Case No. 87-39891 for annulment of a Deed of Absolute Sale.

Eventually the trial court set the case for pre-trial. The court likewise granted respondents
motion to appoint Agueda Savellano as his guardian ad litem. 10

After hearing, the trial court dismissed the complaint, holding that respondent failed to prove
his causes of action since he admitted that: (1) he obtained loans from the Balgumas; (2) he
signed the Deed of Absolute Sale; and (3) he acknowledged selling the property and that he
stopped collecting the rentals.
Upon appeal by respondent, the Court of Appeals, on July 31, 1997, rendered the assailed
Decision, the dispositive portion of which reads:

It is a proven fact that Braulio reached only Grade III due to his very low IQ; that he is
illiterate; and that he can not read and is slow in comprehension. His mental age is only that of
a six-year old child. On the other hand, the documents presented by the appellees in their
favor, i.e., the deeds of mortgage and of sale, are all in English. There is no showing that the
contracts were read and/or explained to Braulio nor translated in a language he understood.
Article 1332 of the Civil Code provides:

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Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
"WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE, and a new
understood by him, and mistake or fraud is alleged, the person enforcing the contract must
one entered annulling the Deed of Sale. Consequently, TCT No. 168394 is hereby declared null show that the terms thereof have been fully explained to the former.
and void and of no force and effect. The Register of Deeds of Manila is directed to cancel the
same and restore TCT No. 109193 in the name of Braulio Katipunan.
Furthermore, if Braulio has a mental state of a six year old child, he can not be considered as
fully capacitated. He falls under the category of incompetent as defined in Section 2, Rule 92
"SO ORDERED."
of the Rules of Court, which reads:
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In reversing the RTC Decision, the Court of Appeals ruled:

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Sec. 2. Meaning of Word Incompetent Under this rule, the word incompetent includes
persons suffering the penalty of civil interdiction or who are hospitalized lepers, prodigals, deaf
"Upon close scrutiny of all the evidence on record, plaintiff-appellants contention finds support and dumb who are unable to read and write, those who are of unsound mind, even though they
in the certification dated August 4, 1987 issued by Dr. Ana Marie Revilla, a psychiatrist at the
have lucid intervals, and persons not being of unsound mind, but by reason of age, disease,
UP-PGH, who was presented as an expert witness. Her findings explained the reason why
weak mind, and other similar causes, can not, without outside aid, take care of themselves and
plaintiff-appellant showed a lot of inconsistencies when he was put on the stand. It supports
manage their property, becoming thereby an easy prey for deceit and exploitation.
the fact that plaintiff-appellant is slow in comprehension and has a very low IQ. Based on such
findings, the trial court was faulted for its wrong assessment of appellants mental condition. It We also note the admission of defendant-appellee Miguel Katipunan, that he and Braulio
arbitrarily disregarded the testimony of a skilled witness and made an unsupported finding
received the considerations of the sale, although he did not explain what portion went to each
contrary to her expert opinion.
other of them. Anyway, there is no reason why Miguel should receive part of the consideration,
since he is not a co-owner of the property. Everything should have gone to Braulio. Yet, Miguel
Admittedly, expert witnesses when presented to the court must be construed to have been
did not refute that he was giving him only small amounts (coins).
presented not to sway the court in favor of any of the parties, but to assist the court in the
determination of the issue before it (Espiritu v. Court of Appeals, 242 SCRA 362). Expert
As to the allegation of the scheme utilized in defrauding Braulio, neither Miguel nor Atty.
opinions are not ordinarily conclusive. They are generally regarded as purely advisory in
Balguma refuted the statement of Braulio that he was being enticed to go abroad which was
character; the court may place whatever weight they choose upon such testimony and may
the alleged reason for the purported sale. Nothing was explained about the alleged trip to NBI,
reject it if they find it inconsistent with the facts in the case or otherwise unreasonable (Basic the fake passport, etc., nor of Miguels own plans to go abroad. It is then most probable that it
Evidence by Ricardo J. Francisco, pp. 202).
was Miguel who wanted to go abroad and needed the money for it.
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The trial court whose decision is now under review refused to admit the experts testimony and
prefer to base its decision on its findings that contrary to the allegation of the appellant, he is
nonetheless capable of responding to the questions expounded to him while on the stand. In
short, the court was swayed by its own observation of appellants demeanor on the stand. Of
course, the rule is to accord much weight to the impressions of the trial judge, who had the
opportunity to observe the witnesses directly and to test their credibility by their demeanor on
the stand (People v. Errojo, 229 SCRA 49). Such impression however, is not per se the basis of
a conclusion, for it needs conformity with the findings of facts relevant to the case.

In view of the foregoing, it is apparent that the contract entered into by Braulio and Atty.
Balguma is voidable, pursuant to the provisions of Article 1390 of the Civil Code, to wit:

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Art. 1390. The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
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(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
We find it indispensable to give credit to the findings of Dr. Ana Marie Revilla, whose testimony fraud.
remains unshaken and unimpeached. The tests she made are revealing and unrebutted and has
a bearing on facts of the case.
These contracts are binding, unless they are annulled by a proper action in court, they are
susceptible of ratification." 11

Petitioners filed a motion for reconsideration but was denied. Hence, this petition.
Petitioners, in seeking the reversal of the Court of Appeals Decision, rely heavily on the rule
that findings of fact by the trial courts are entitled to full faith and credence by the Appellate
Court. Petitioners contend that the Court of Appeals erred when it overturned the factual
findings of the trial court which are amply supported by the evidence on record.
The petition is devoid of merit.

Q You said that you remember you have signed a document. Did you come to know what kind
of document was that which you signed at that time?
A I do not know.
Q Where did you sign that document?
A I signed that document in the house of Sencio.

Q Where is this house of Sencio?


While it may be true that findings of a trial court, given its peculiar vantage point to assess the
credibility of witnesses, are entitled to full faith and credit and may not be disturbed on appeal, A It is just behind our house at San Miguel.
this rule is not infallible, for it admits of certain exceptions. One of these exceptions is when
there is a showing that the trial court had overlooked, misunderstood or misapplied some fact Q Nobody informed you what document you were signing?
or circumstance of weight and substance, which, if considered, could materially affect the result
of the case. 12 Also, when the factual findings of the trial court contradict those of the
A Nobody informed me what document I was signing.
appellate court, this Court is constrained to make a factual review of the records and make its
own assessment of the case. 13 The instant case falls within the said exception.
Q Who asked you to sign that document?
A contract of sale is born from the moment there is a meeting of minds upon the thing which is A My brother Miguel and Sencio asked me to sign that document.
the object of the contract and upon the price. 14 This meeting of the minds speaks of the intent
of the parties in entering into the contract respecting the subject matter and the consideration Q You never bothered to ask your brother Miguel why you were signing that document?
thereof. 15 Thus, the elements of a contract of sale are consent, object, and price in money or
its equivalent. 16 Under Article 1330 of the Civil Code, consent may be vitiated by any of the
A According to them, if I will not sign, something will happen.
following: (a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud. 17
The presence of any of these vices renders the contract voidable.
Q Who particularly told you that if you will not sign that document something will happen?
Here, as borne by the facts on hand, respondent signed the deed without the remotest idea of A Atty. Balguma. (witness pointing to Atty. Balguma)
what it was, thus:
Q You want to tell the court that Atty. Balguma at that time you signed that document was
"ATTY. SARMIENTO:
present?
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Q After Miguel received that money which amount you do not remember how much, do you
remember having signed a document purported to be sale of property that which you owned?
A Yes, I signed something because they forced me to sign.
COURT (To the witness)
Q Do you know how to affix your signature?
A Yes, Your Honor.

A Yes, sir, he was there.


Q What if any did Atty. Balguma do when you were asked to sign that document?
A He was asking me also to sign.
COURT (To the witness)
Q Were you threatened with a gun or any instrument?
A No, Your Honor.

Q You sign your name here. (witness is given a piece of paper by the court wherein he was
made to sign his name)

Q How were you threatened?

ATTY. SARMIENTO:

A I was shoved aside by Sencio and Miguel and I was surprised why they made me sign.

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Q Did you fall down when you were shoved?

from?

A I was made to move to the side.

A I do not know how much, but the money came from Atty. Balguma.

Q And because of that you signed that document that you were being forced to sign?

Q You do not know how much amount was given by Atty. Balguma and for what consideration
was the money given you are not aware of that?

A Yes, sir.

A I am not aware because I was not there, I do not know anything.

Q What kind of paper did you sign?


A A coupon bond paper.

Q You want to tell the court that despite that it is you being the owner of this property it was
Miguel who negotiated the asking of money from Atty. Balguma?

Q Was there something written?

A Yes, it is like that.

A There was something written on it, but I do not know.

Q Were you consulted by your brother Miguel when he asked money from Atty. Balguma?

Q Was it typewritten?

A No, sir, in the beginning he kept it a secret then later on he told us.

A There was something typewritten when it was shown to me but I do not know what it was."
18

Q You want to tell this court that it was only when your brother Miguel gave (you) money that
he told you that "we have now the money from Atty. Balguma" ?

(Emphasis supplied)

A No, sir, I did not even know where that money came from. He was about to leave for abroad
when he told me that he received money from Atty. Balguma.

The circumstances surrounding the execution of the contract manifest a vitiated consent on the
part ofRespondent. Undue influence was exerted upon him by his brother Miguel and Inocencio
Valdez (petitioners) and Atty. Balguma. It was his brother Miguel who negotiated with Atty.
Balguma. However, they did not explain to him the nature and contents of the document.
Worse, they deprived him of a reasonable freedom of choice. It bears stressing that he reached
only grade three. Thus, it was impossible for him to understand the contents of the contract
written in English and embellished in legal jargon. Even the trial court, in reinstating the case
which it earlier dismissed, took cognizance of the medical finding of Dr. Revilla (presented by
respondents counsel as expert witness) who testified during the hearing of respondents
motion for reconsideration of the first order dismissing the complaint. According to her, based
on the tests she conducted, she found that respondent has a very low IQ and a mind of a sixyear old child. 19 In fact, the trial court had to clarify certain matters because Braulio was
either confused, forgetful or could not comprehend. 20 Thus, his lack of education, coupled
with his mental affliction, placed him not only at a hopelessly disadvantageous position vis-avis petitioners to enter into a contract, but virtually rendered him incapable of giving rational
consent. To be sure, his ignorance and weakness made him most vulnerable to the deceitful
cajoling and intimidation of petitioners. The trial court obviously erred when it disregarded Dr.
Revillas testimony without any reason at all. It must be emphasized that petitioners did not
rebut her testimony.

Q Did you receive any amount from Miguel every time he was given by Atty. Balguma? You
received also money from Miguel every time he was given by Atty. Balguma?
A Yes, he would give me small denominations, "barya" .
Q When you said "barya", would you be able to tell the court how much this barya you are
referring to is?
A May be twenty pesos, may be ten pesos, but they are all loose change.
Q Tell us how many times did Miguel receive money from Atty. Balguma as much as you can
recall?
A I do not know because every time my brother Miguel and Atty. Balguma would transact
business, I was not present.
x

Even the consideration, if any, was not shown to be actually paid to Respondent. Extant from
the records is the fact that Miguel profited from the entire transaction and gave only small
amounts of money to respondent, thus:

Q Before or after the signing of this piece of paper were you given any big amount of money by
your brother Miguel or Atty. Balguma or Sencio?

"Q Do you know how much money was given to Miguel and from whom did that money come

A After signing that document, Atty. Balguma gave me several loose change "barya", no paper

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bills. A just handful of coins." 21 (Emphasis supplied)

Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a party to a
contract who is placed at a disadvantage on account of his ignorance, mental weakness or
other handicap, like respondent herein. We give substance to this mandate.

We are convinced that respondent was telling the truth that he did not receive the purchase
price. His testimony on this point was not controverted by Miguel. Moreover, Atty. Balguma
admitted that it was Miguel who received the money from him. 22 What Miguel gave
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated July
respondent was merely loose change or "barya-barya," grossly disproportionate to the value of 3, 1997 in CA-G.R. CV No. 45928 is AFFIRMED with MODIFICATION in the sense that
his property. We agree with the conclusion of the Court of Appeals that "it is then most
petitioners Edgardo Balguma and Leopoldo Balguma, Jr., are ordered to turn over to respondent
probable that it was Miguel who wanted to go abroad and needed the money for it."
Braulio Katipunan, Jr. the rentals they received for the five-door apartment corresponding to
the period from January, 1986 up to the time the property shall have been returned to him,
In the case of Archipelago Management and Marketing Corp. v. Court of Appeals, 23 penned by with interest at the legal rate. Costs against petitioners.
Justice Artemio V. Panganiban, this Court sustained the decision of the Court of Appeals
annulling the deed of sale subject thereof. In that case, Rosalina (the owner) was convinced by SO ORDERED.
her second husband to sign several documents, purportedly an application for the
reconstitution of her burned certificate of title. However, said documents turned out to be a
Deed of Absolute Sale where it was stipulated that she sold her property for P1,200,000.00, a
consideration which she did not receive. The Court ruled that Rosalina, who was quite old at
that time she signed the deed, was tricked by her own husband, who employed fraud and
deceit, into believing that what she was signing was her application for reconstitution of title.
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A contract where one of the parties is incapable of giving consent or where consent is vitiated
by mistake, fraud, or intimidation is not void ab initio but only voidable and is binding upon the
parties unless annulled by proper court action. The effect of annulment is to restore the parties
to the status quo ante insofar as legally and equitably possible this much is dictated by
Article 1398 of the Civil Code. As an exception however to the principle of mutual restitution,
Article 1399 provides that when the defect of the contract consists in the incapacity of one of
the parties, the incapacitated person is not obliged to make any restitution, except when he
has been benefited by the things or price received by him. Thus, since the Deed of Absolute
Sale between respondent and the Balguma brothers is voidable and hereby annulled, then the
restitution of the property and its fruits to respondent is just and proper. Petitioners should turn
over to respondent all the amounts they received starting January, 1986 up to the time the
property shall have been returned to the latter. During the pre-trial and as shown by the PreTrial Order, the contending parties stipulated that the Balguma brothers received from the
lessees monthly rentals in the following amounts:
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PERIOD AMOUNT OF RENTALS


January, 1986 to
December, 1987 P481.00 per month
January, 1988 to
December, 1988 P2,100.00 per month
January, 1989 to
present P3,025.00 per month

The material facts as found by the trial court, whose findings are fully supported by the
evidence, are that at the age of about thirteen Santiago Pastrano Uy Toco, a Chinese, came
from China to reside in the Philippine Islands. He was then unmarried. On August 2, 1882, he
married Candida Vivares, a Filipina woman, at Mambajao, in the Province of Cagayan de
Misamis. Of this marriage there were born two daughters, Francisca and Concepcion. Francisca
is a defendant in this suit and is the wife of the codefendant, Benito Tan Unchuan. At the time
of this marriage, Santiago Pastrano possessed very little property a tienda worth about two
thousand pesos. The large estate left by him at his death was acquired by him during his
marriage with Candida Vivares.
In 1891, Santiago Pastrano, who had resided continuously in the Philippines since he came to
the Islands at the age of 13, returned to China where he remained for little less than a year.
While there he entered into illicit relations with a Chinese woman, Chan Quieg, also referred to
as Chan Ni Yu.

EN BANC
[G.R. No. 12605. September 7, 1918. ]

After staying a little less than a year in China, Santiago Pastrano returned to the Philippines
UY SOO LIM, Plaintiff-Appellant, v. BENITO TAN UNCHUAN, FRANCISCA PASTRANO where he remained till his death in Cebu, in March, 1901. He never saw Chan Quieg again, but
received letters from her informing him that she had borne him a son, Uy Soo Lim, the present
and BASILIO CEFRANO UY BUNDAN, Defendants-Appellees.
plaintiff. He died without ever having seen Uy Soo Lim, but under the belief that he was his
only son, and it was in this belief that he dictated the provisions of his will.
SYLLABUS
On March 6, 1901, Santiago Pastrano died in Cebu, leaving a large estate. The persons who
1. CONTRACTS; MINORS; RESCISSION; RESTITUTION. The right of a minor to rescind, upon survived him, and then or afterward laid claim to an interest in the estate, were his wife,
attaining his majority, a contract entered into during his minority is subject to the conditions Candida Vivares, his daughters, Francisca Pastrano and Concepcion Pastrano, Chan Quieg, and
(1) that the election to rescind must be made within a reasonable time after majority and (2) the plaintiff Uy Soo Lim.

that all of the consideration which was in the minors possession upon his reaching majority
must be returned. The disposal of any part of the consideration after the attainment of majority By the terms of his will, Santiago Pastrano attempted to dispose of the greater part of his
estate in favor of the appellant, Uy Soo Lim. The will was duly probated in the Court of First
imports an affirmance of the contract.
Instance of Cebu, and the defendant Benito Tan Unchuan, husband of the defendant Francisca
Pastrano, who was named in the will as executor, duly qualified as such on May 13, 1902.
Basilio Uy Bundan, one of the defendants herein and brother of Santiago Pastrano, was named
by the testator as guardian of Francisca Pastrano, Concepcion Pastrano, and Uy Soo Lim, who
were all three minors at the time of the death of the testator, and duly qualified as such before
DECISION
the court on August 6, 1902.
On October 21, 1904 the Court of First Instance of Cebu, in the matter of the testamentary
estate of Santiago Pastrano, deceased, issued an order requiring Benito Tan Unchuan, as
executor of the testamentary estate of Santiago Pastrano, to deliver to Basilio Uy Bundan,
FISHER, J. :
guardian of Francisca Pastrano, Concepcion Pastrano, and Uy Soo Lim, the property to which
they were entitled under the will of said Santiago Pastrano. This order was complied with and
the administration of the testamentary estate declared closed.
This is an appeal by plaintiff upon the law and the facts, from a Judgment of the Court of First
Instance of Cebu dismissing on the merits his action for the annulment of a contract by the
terms of which he sold to the defendant Francisca Pastrano all his interest in the estate of the
late Santiago Pastrano Uy Toco.

Basilio Uy Bundan having received, as guardian of the minors Francisca Pastrano, Concepcion
Pastrano, and Uy Soo Lim, the property devised to them under the will of said Santiago
Pastrano, continued to administer the said property as guardian without incident of note till
October, 1910. On October 18, 1910, the court, in the matter of the aforesaid guardianship,
issued an order on the guardian, Basilio Uy Bundan, in which it was noted that Francisca

Pastrano had reached majority, that Concepcion Pastrano would reach her majority in a few
frustrating these efforts that Uy Soo Lim left China and arrived in Manila on March 13, 1911,
months, and that Uy Soo Lim had married and the guardian was therefore ordered to present a about two months more or less before the first formal protest made in court attacking the
plan of distribution of the estate in accordance with the dispositions of the will of Santiago
rights conferred on Uy Soo Lim under the will.
Pastrano.
Before setting out for Manila Uy Soo Lim employed as his agent and adviser one Choa Tek Hee,
The guardian did not comply with this order at once, and, before the plan of the distribution
a resident merchant of Manila, then on a visit to China. Plaintiff came to Manila on March 13,
called for by this order could be presented, objections against carrying into effect the provisions 1911, and resided in the house of Choa Tek Hee till his departure in November, 1911. Choa Tek
of the will were presented to the court.
Hee was then in China, but came to Manila in time to aid plaintiff in the subsequent
negotiations of plaintiffs matters, though the exact date does not appear. On April 11, 1911,
On May 25, 1911, Candida Vivares presented, through her attorneys, a motion in the matter of plaintiff executed a power of attorney in favor of Choa Tek Hee to represent him in the pending
the testamentary estate of Santiago Pastrano in which she claimed the right as the widow of
negotiations. He also secured the services of two attorneys, Major Bishop to represent him in
the deceased to one-half of all the estate, and asked that the administration of said estate be Manila and Levering, of Cebu, to represent him in Cebu.
reopened and the rights of the persons readjudged and determined according to law. A motion
of similar purport was filed by her in the matter of the guardianship of Uy Soo Lim Et. Al.
About the end of October, 1911, or, perhaps the early part of November, an agreement was
reached between Choa Tek Hee and plaintiff, of the one part, and Tan Unchuan and Del Rosario,
On June 5, 1911, Francisca Pastrano and Concepcion Pastrano filed, through their attorneys, a an attorney of Cebu, representing the interest of Candida Vivares, Francisca and Concepcion
motion in the guardianship of Uy Soo Lim Et. Al., in which they opposed the distribution of the Pastrano, on the other, to submit the entire matter in dispute to the judgment of three
estate of Santiago Pastrano in accordance with the terms of his will, alleging that Uy Soo Lim
respectable Chinese merchants designated. The persons thus designated were not, strictly
was not entitled under the law to the amount of the estate assigned him in the will, for the
speaking, arbitrators, but rather friendly advisers, since there was no agreement that their
reason that the marriage alleged therein of Santiago Pastrano with Chan Quieg, was null and
findings should be binding on the parties. These advisers came to. the conclusion that the sum
void, and, furthermore, that Uy Soo Lim was not a son, legitimate or illegitimate, of said
of P82,500 should be accepted by plaintiff in full satisfaction and relinauishment of all his right,
Santiago Pastrano. They, therefore, asked for a suspension of the distribution and a reopening title, and interest in and to the estate of the deceased Santiago Pastrano, and this
of the matter of the testamentary estate of Santiago Pastrano and that the rights of all persons recommendation was accepted by Choa Tek Hee and plaintiff and by Tan Unchuan and Del
in interest be read-judged and determined according to law. Chan Quieg also appeared in the Rosario. In accordance with this agreement, plaintiff, on November 18, 1911, executed a deed
matter of the estate of Santiago Pastrano on October 7, 1911, and asked that she be declared by which he relinquished and sold to Francisca Pastrano all his right, title, and interest in the
entitled to one-half the estate on account of "having in the year 1892 in the city of Amoy,
estate of the deceased Santiago Pastrano in consideration of P82,500, of which sum 10,000
China, held carnal relations with the deceased Santiago Pastrano, having lived maritally with
was received in cash and the balance was represented by six promissory notes payable to Choa
him during his stay in said city that year, which union, under the laws and customs of China,
Tek Hee as attorney in fact for Uy Soo Lim, the first for P22,500 and the remaining five for
constitutes all the forms of valid marriage in said jurisdiction."
P10,000 each. This is the document known as plaintiffs Exhibit B, which plaintiff is seeking to
annul in the present action. Thereafter, on December 6, 1911, Candida Vivares and Concepcion
The effect of all these motions was to put in question the right of Uy Soo Lim to seven-ninths of Pastrano, then of age, executed separate deeds by which they relinquished and sold to
the property as left him by Santiago Pastrano in his will and even to put in question his right to Francisca Pastrano all their right, title, and interest in the estate left by Santiago Pastrano.
receive anything at all. If Uy Soo Lim was merely an illegitimate son of Santiago Pastrano not
legitimated and incapable of being legitimated or of being given the status of an acknowledged On November 29, 1911, Chan Quieg, then temporarily in the port of Cebu, executed a deed
natural son, and if Candida Vivares was the lawful wife of Santiago Pastrano and Francisca and whereby she sold and relinquished to Francisca Pastrano all her right, title, and interest in the
Concepcion are the lawful issue of that marriage, then the utmost that Uy Soo Lim could have estate of Santiago Pastrano. On December 4, 1911, Chan Quieg executed a public document in
taken under the will of Santiago Pastrano, according to the contention of Pastranos widow and which she gave her consent to the sale by Uy Soo Lim of his right and interest in said estate "in
daughters, would have been the third of Santiago Pastranos one-half interest in the community case the same should be necessary by virtue of any legal requirements of the laws of the
estate subject to the testators disposition, or one-sixth of the entire estate, instead of the
Philippine Islands."
seven-ninths bequeathed him by said will.
And finally, on December 4, 1911, Basilio Uy Bundan executed a public document in which he
Uy Soo Lim had married in China in 1910. He was aware of the fact that he was heir to a large declared that in spite of the statements in the will of Santiago Pastrano, said testator was the
fortune in the Philippine Islands under the terms of the will of Santiago Pastrano, having
owner of the entire business in Cebu known as Santiago Pastrano & Co., and that Calixto Uy
already drawn from the estate for his personal use P26,800. Before Candida Vivares, Francisca Conchio, the brother of testator and of said Basilio Uy Bundan, did not, as declared in said will,
Pastrano, Concepcion Pastrano, and his own supposed mother Chan Quieg had formally
own a three-quarter interest in said business, or any interest at all therein, for which reason
impeached before the court his right to seven-ninths of the property described in the will of
the said Basilio Uy Bundan renounced any interest in said business which he might appear to
Santiago Pastrano, he was fully aware of the preparations being made to reduce his interest to have as brother and heir of said Calixto Uy Conchio, who died without direct heirs in the
nothing or to a small fraction of that conferred by the will. It was for the express purpose of
ascending or descending line, said renunciation of right being made in favor of Francisca
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Pastrano.
All the documents above mentioned having been duly presented to the lower court by
Pantaleon del Rosario, acting as attorney of Francisca Pastrano, that court, on December 11,
1911, issued an order in the matter of the guardianship of Uy Soo Lim Et. Al., by which
Francisca Pastrano was declared the sole owner of all the property left by the deceased
Santiago Pastrano, and the guardian Basilio Uy Bundan was ordered to deliver the same to
Francisca Pastrano. On December 14, 1911, upon proof of compliance with said order, the
guardianship was closed and the guardians bond canceled.

Major Bishop to consult with in Manila, where the document itself was signed, and Mr. Levering
of Cebu, where most of the property was situated, where the other parties in interest lived and
where the litigation itself was pending. To claim that plaintiff did not know what he was signing
appears to the court to be an impeachment of the intelligence which a reading of the testimony
shows the plaintiff to have possessed at the time in question. To claim that the two attorneys
named allowed their client to sign the document without being satisfied that he understood its
import and thereafter consented to the final decree issued by the court in Cebu based on said
sale, constitutes in the opinion of the court an untenable impeachment of the conduct of two
lawyers well and favorably known to the Bench and Bar of these Islands as attorneys of ability
and integrity.

On August 24, 1914, the plaintiff and appellant, Uy Soo Lim, commenced the present action in
the Court of First Instance of Cebu, for the purpose of vacating the orders of the lower court of "In support of the claim that material facts were concealed and misrepresented by defendants,
December 11 and December 14, 1911, and to rescind and annul the contract by which he had special stress is laid on a memorandum furnished the arbitrators by Tan Unchuan. This
sold and transferred to Francisca Pastrano his interest in the estate of Santiago Pastrano.
memorandum was shown to plaintiffs agent Choa Tek Hee and was a general account of the
property left by Santiago Pastrano and a calculation of the possible interest of the plaintiff
The complaint alleges as one of the reasons for setting aside plaintiffs sale of his rights to
based thereof. In this memorandum, Santiago Pastranos estate was credited with a quarter
Francisca Pastrano that defendants Benito Tan Unchuan and Basilio Uy Bundan induced the
interest in the business known as Santiago Pastrano & Co., his deceased brother Calixto Uy
plaintiff to execute the deed of cession by conspiring together to exercise undue influence upon Conchio being credited with only the remaining three-fourths, while as a matter of fact it would
the plaintiff, by taking advantage of his youth, passions, and inexperience, by misrepresenting appear that Santiago Pastrano was the owner of the entire interest in said business and
material facts concerning the value of the property and interests in questions, and by
subsequently to the execution of the document in question by plaintiff the entire interest in the
concealing others. The court below held that appellant had not been induced by deceit, or
business passed by decree of this court to Francisca Pastrano who has purchased the interest of
undue influence to enter into the contract, but did so deliberately, with full knowledge of the
all the other heirs. But whatever may have been the effect of the presentation of this
facts, after mature deliberation and upon the advice of capable counsel. This ruling of the court memorandum, plaintiff is not shown to have relied thereon. It was for the purpose among
is assigned by appellant as error. Upon this branch of the case the trial judge said:
others of being informed as to the nature and value of his interests and as to the weight that
might be attached to the claims made by persons with adverse interest that plaintiff employed
"The plaintiff testified before the court and a careful reading of the verbal and documentary
a lawyer in Cebu where most of the property (and the business known as Santiago Pastrano &
evidence furnishes a fair idea of the general characteristics of the Plaintiff. That he is a
Co.) was located and the facts relating thereto accessible. Without better proof than has been
spendthrift and unable to make a wise use of money is quite evident. But it is equally evident presented the court will not presume that a document circulated among the arbitrators, though
that the plaintiff now is and at the time of executing the bill of sale was a youth of more than seen by plaintiff, influenced plaintiff in signing the deed of cession when he had employed
ordinary intelligence, with a keen appreciation and understanding of all the elements of
attorneys well able to revise and check up any statements, made in said memorandum.
strength and weakness in his case that could only have been bettered by a study of the law as
a profession. As a witness he displayed uncommon ability in avoiding a direct answer to
"Furthermore, the bill of sale itself specifically states that among the rights sold by plaintiff is
inconvenient questions and in professing lack of memory in other points. It is true that this
his interest in the business of Santiago Pastrano, whatever that might be, and expressly states
testimony was given some three years, more or less, after signing the document of cession, but that the will erroneously stated that testators interest was one quarter, whereas in reality
the court has no reason to believe that the plaintiffs evident intelligence, not to say cunning,
testator owned the entire business. The court finds under the evidence that plaintiff understood
was appreciably less then than now. The court upon a review of the evidence finds that plaintiff this part of the bill of sale along with its other provisions and that its import was explained to
when he signed the document was in possession of all the essential facts bearing upon his
him by his attorneys before he signed it.
interest in the estate and had an intelligent comprehension of the nature of the deed of
cession, its contents and its effect upon his interests.
"Without going further into all the evidence on this question, the court finds that not only has
plaintiff not sustained the burden of proving the fraud, imposition and deceit, which the law
"Some shadow of claim might be made on this issue if plaintiff, then a minor, had signed the
never presumes, but that plaintiff in fact signed the deed of cession in question without relying
document without careful and competent advisers to direct him. He had however three
upon the statements and representations of the defendants as the motive for signing the same;
advisers. One of them was Choa Tek Hee, characterized by Judge Del Rosario as a person of
that before signing the same he understood the nature of said document, its contents and its
unusual ability. Whatever discord may have arisen subsequently between plaintiff and Choa Tek effect upon his interest, and that in signing the same he was determined by the advice of his
Hee, there is no serious claim either in the complaint or based on the evidence that Choa Tek own agent Choa Tek Hee and upon the advice of his two lawyers, who explained to him fully
Hee was a party to the supposed conspiracy against plaintiff, and the Court does not doubt but and to his complete understanding the nature, contents and effect of said instrument."
what Choa Tek Hee exerted all his ability to procure for plaintiff the best possible terms. But
plaintiff from the very beginning until the end had the benefit of the advice of two lawyers,
Appellant vigorously assails these conclusions of the trial court, but the evidence is amply
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sufficient to support the findings, and we find nothing in the record to indicate that the trial
"reduced to a money basis," and that in consequence money and choses in action had come
court has failed to consider all the evidence adduced, or that the findings are contrary to the
into the hand of Choa Tek Hee amounting to P83,000 more or less. There is also an allegation
weight of the testimony. Whenever there is a conflict in the evidence and the conclusion to be that the power of attorney was executed while plaintiff was still a minor.
reached must rest largely upon the relative credibility of the witnesses, we rarely disturb the
findings of the trial court, and we can see no reason for doing so in this case. On the contrary, These allegations are important as showing that on March 31, 1913, plaintiff, while claiming his
we are convinced that the weight of the evidence strongly supports the findings, and that the interest in the estate of Santiago Pastrano was reasonably worth P200,000 knew such interest
court did not err in rejecting appellants contention that the contract is voidable upon the
had been sold for P83,000, more or less, and also knew he was a minor under Philippine laws
ground that his consent was obtained by fraud or undue influence. We are particularly
at the time of such sale.
impressed by the fact that it is expressly stated in the contract (Exhibit B) which plaintiff now
seeks to repudiate that notwithstanding the statement to the contrary in Pastranos will, the
By his answer Choa Tek Hee laid claim to a considerable portion of the P42,500 collected by
latter was in fact the sole owner of the business referred to in that document. Plaintiff therefore him, for "services rendered," etc., his statement showing a cash balance of only P2,867.94.
had full information regarding the assets which composed the Pastranos estate, and
This latter amount, upon petition of plaintiff, was ordered deposited with the clerk of the court.
surrounded as he was by skillful and competent advisers, we have no doubt that he was fully
aware of the value of those assets.
In the meantime Chas. E. Tenney had been appointed guardian ad litem of plaintiff, and on May
12, 1913, filed a motion on behalf of plaintiff reciting that promissory note No. 4 for P10,000
The trial court found that plaintiff was a minor at the time of the execution of the contract in
(being one of the notes executed on account of plaintiffs bill of sale) would fall due on May 18,
question, but that he not only failed to repudiate it promptly upon reaching his majority but
1913, and asking that Choa Tek Hee be directed to indorse it over to the clerk of the court for
tacitly ratified it by disposing of the greater part of the proceeds after he became of age and
collection. As the note was drawn in favor of Choa Tek Hee it took some time to adjust the
after he had full knowledge of the facts upon which he now seeks to disaffirm the agreement. matter of payment, it being finally paid by Tan Unchuan to the clerk of the court on October 24,
1913. The P10,000 due on note No. 5 was paid into court on December 18, 1913, and the final
By the terms of the contract by which appellant transferred to the appellee Francisca Pastrano P10,000, being note No. 6, was paid on May 23, 1914.
his interest in the Pastrano Estate he was paid P10,000 in cash, the balance of the P82,500
being represented by six promissory notes dated November 18, 1911, signed as maker by the In the meantime, on October 8, 1913, Uy Soo Lim reached his majority under Philippine laws,
defendant Tan Unchuan, the husband of the defendant Francisca Pastrano. The first note was
being then 21 years of age. On October 10, 1913, Chas. E. Tenney, his guardian ad litem, filed
for P22,500 payable twelve-days after date, and the other five for P10,000 each, payable in six, a motion with the court reciting the fact of Uy Soo Lims majority, stating that the services of a
twelve, eighteen, twenty-four and thirty months, respectively. These notes were made payable guardian ad litem were no longer necessary.
to Choa Tek Hee, or order, as attorney in fact for Uy Soo Lim.
The sum of P2,867.94 deposited by Choa Tek Hee was part of the proceeds accruing to plaintiff
Of these notes the first three, amounting to P42,500 were paid to Choa Tek Hee as they fell
under his bill of sale to Francisca Pastrano, as was also the P30,000 deposited by Tan Unchuan
due. It appears, however, that Choa Tek Hee failed to account to the satisfaction of Uy Soo Lim in payment of promissory notes Nos. 4, 5, and 6, which notes accrued subsequent to the filing
for the money so received, whereupon the latter returned to Manila on February 20, 1913, to of suit against Choa Tek Hee. The whole of this P30,000 was paid into court upon demand of
seek an adjustment of his affairs with his attorney in fact.
plaintiff, such payments being made after October 8, 1913, when plaintiff became of age.
Uy Soo Lim, upon his arrival in Manila, sent the following cable to Tan Unchuan at Cebu:

On March 30, 1914, Uy Soo Lim secured judgment against Choa Tek Hee in the sum of
P31,511.93, with interest, which amount was in addition to the P32,867.94 deposited with the
"I revoke power to Tek Hee. Dont pay him any more money please forward account payments court during the pendency of the proceedings. As heretofore noted, the final promissory note
to him Urgent, Address P. O. 1360.
for P10,000 was paid into court on May 23, 1914. On May 25, 1914 or within two days after the
final P10,000 due upon his bill of sale had been paid into court, Uy Soo Lim filed suit in the
(Sgd.) "UY SOO LIM."
Court of First Instance of Manila, to annul it on the ground of minority, fraud, conspiracy, and
deceit.
This cable, sent to forestall further payment to Choa Tek Hee, evidences a clear and convincing
knowledge by plaintiff both of the conditions of the bill of sale and his rights thereunder.
Before filing the suit to annul his contract plaintiff had already withdrawn from the P32,867.94
deposited with the court, the sum of P9,517.20, of which amount the sum of P7,550 was
Not being able amicably to adjust with Choa Tek Hee the matter of such moneys, Uy Soo Lim withdrawn after he reached his majority.
filed suit against him in the Court of First Instance, Manila, asking that the power of attorney
be canceled, and for an accounting. This complaint is dated March 31, 1913, and has attached In filing his suit to annul the contract no offer was made by appellant to return to Francisca
thereto a copy of the will of Santiago Pastrano. It recites that plaintiffs interest in the estate of Pastrano the consideration of such contract, or to hold, subject to her disposition, the balance
Santiago Pastrano was reasonably worth P200,000; that this interest had been liquidated and of P54,863.61 then on deposit with the court and represented by the Choa Tek Hee judgment.
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On the contrary, he proceeded with the utmost celerity to secure, spend and otherwise dispose It is important to note that this final P7,200 was disposed of by plaintiff on April 13, 1916, or
of the last cent of such consideration.
more than two and a half years after he reached his majority, and an equal time after he knew
all the facts now alleged by him to constitute fraud.
On August 24, 1914, or more than ten months after plaintiff reached his majority, the present
suit was filed in the Court of First Instance of Cebu, the action brought in Manila having been
Uy Soo Lim became of age under Philippine laws on October 8, 1913. On March 31, 1913
dismissed for lack of jurisdiction.
(some months prior to reaching majority) he filed suit against Choa Tek Hee for an accounting,
wherein reference is had to this bill of sale and to the fact of minority. The purpose of that
On March 29, 1915, this court affirmed on appeal the decision of the trial court awarding Uy
action was to reduce to possession the consideration accruing to him from his bill of sale.
Soo Lim P31,511.93, with interest, in his suit against Choa Tek Hee. 1 Appellant lost no time in
seeking to get possession of these additional funds. Execution was secured against Choa Tek
Knowing his legal rights, therefore, plaintiff should have been prompt to disaffirm his contract
Hee on April 27, 1915, and by June 5, 1915, the whole of this Judgment was collected and
upon reaching majority. This was not done. Instead, he deliberately permitted defendants to
converted to plaintiffs use except the sum of P7,200.
continue making payments thereunder, and then, on May 25, 1914, when the last cent upon
such contract was collected, sought to avail himself of this ground of rescission. This was
By the time the present action came to trial, therefore, the whole of this P64,377.81 the
almost eight months after he had attained his majority.
then available balance on hand derived from plaintiffs bill of sale had been collected and
converted by him save and except the sum of P7,200, still due upon the judgment against Choa The privilege granted minors of disaffirming their contracts upon reaching majority is subject to
Tek Hee. As soon as the trial of this case was closed appellant proceeded at once to realize this prompt election in the matter. The court, in Hastings v. Dollarhide (24 Cal., 195, 212), states
remaining remnant accruing from his bill of sale, by transferring his interest therein to one Wee the principle thus:
Thiam Tew, of Singapore.
"The exemption of infants from liability on their contracts proceeds solely upon the principle
As showing how and in what manner the P82,500 was realized by plaintiff, we quote as follows that such exemption is essential to their protection; and it is admitted that the law of infancy
from the findings of the trial court (B. E., pp. 109, 110):
should be so administered that result may, in all cases, be secured. But it has not unfrequently
happened that courts, in their anxiety to protect the rights of infants in the matter of contracts
"To recapitulate, plaintiff has secured and converted to his own use the entire amount of
made by them during nonage, have after they have become adults, treated them to same
P82,500 the consideration for which he executed the deed of cession he is now seeking to
extent as infants still, exempting them from the operation of rules of law, not only of general
annul.
obligation, but founded on essential justice. The strong tendency of the modern decisions,
however, is to limit the exemptions of infancy to the principle upon which the disability
"Of this amount of P82,500, plaintiff, speaking in rough figures, has received and converted to proceeds."
his own use:
To the same effect Goodnow v. Empire Lumber Company (31 Minn., 468; 47 Am. Rep., 798)
"About P20,000 before coming of age under the laws of the Philippine Islands.
where the court, in discussing the question, said:
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"About P62,500 since coming of age under the laws of the Philippine Islands.

"The rule holding certain contracts of an infant voidable (among them his conveyances of real
estate), and giving him the right to affirm or disaffirm after he arrives at majority, is for the
"Of the P62,500 received and spent by plaintiff since coming of age under our laws, plaintiff
protection of minors, and so that they shall not be prejudiced by acts done or obligations
has spent approximately about P7,500 before bringing suit to set aside his deed of cession, and incurred at a time when they are not capable of determining what is for their interest to do. For
about P55,000 since filing his first action in Manila to set aside the deed of cession.
this purpose of protection the law gives them an opportunity, after they have become capable
of judging for themselves, to determine whether such acts or obligations are beneficial or
"And of this sum of about P55,000, about P36,000 were received and spent by plaintiff after
prejudicial to them, and whether they will abide by or avoid them. If the right to affirm or
filing the present suit.
disaffirm extends beyond an adequate opportunity to so determine and to act of the result, it
ceases to be a measure of protection, and becomes, in the language of the court in Wallace v.
"And of the sum of P36,000 more or less which plaintiff has received and spent since filing the Lewis (4 Harr., 75, 80), a dangerous weapon of offense, instead of a defense. For we cannot
present suit, P7,200 was received and spent after the trial of the present case before this court assent to the reason given in Boody vs McKenney (23 Me., 517), (the only reason given by any
had been closed; that is, after all the evidence had been presented and the case submitted to of the cases for the rule that long acquiescense is no proof of ratification), that by his silent
the court for its final decision upon briefs to be filed. It was this disposal by plaintiff of the last acquiescence he occasions no injury to other persons, and secures no benefits or new rights to
remains of the consideration price which was presented to the court as additional evidence on himself. There is nothing to urge him as a duty to others to act speedily. The existence of such
the reopening of the trial."
an infirmity in ones title as the right of another at his pleasure to defeat it, is necessarily
prejudicial to it; and the longer it may continue, the more serious the injury. Such a right is a
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continual menace to the title. Holding such a menace over the title is of course an injury to the to do.
owner of it; one possessing such a right is bound in justice and fairness toward the owner of
the title to determine without unnecessary delay whether he will exercise it The right of a minor "ART. 1304 (Civil Code). When the nullity arises from the capacity of one of the contracting
to disaffirm on coming of age, like the right to disaffirm in any other case, should be exercised parties, the incapacitated person is not obliged to make restitution, except to the extent he has
with some regard to the rights of others with as much regard to those rights as is fairly
profited by the thing or by the sum he may have received.
consistent with due protection to the interests of the minor.
"ART. 1308 (Civil Code). While one of the contracting parties does not return that which he is
"In every other case of a right to disaffirm, the party holding it is required, out of regard to the obliged to deliver by virtue of the declaration of nullity, the other cannot be compelled to fulfill,
rights of those who may be affected by its exercise, to act upon it within a reasonable time.
on his part, what is incumbent on him"
There is no reason for allowing greater latitude where the right exists because of infancy at the
time of making the contract. A reasonable time after majority within which to act is all that is Not only should plaintiff have refunded all moneys m his possession upon filing his action to
essential to the infant s protection. That ten, fifteen, or twenty years or such other time as the rescind, but, by insisting upon receiving and spending such consideration after reaching
law may give for bringing an action, is necessary as a matter of protection to him is absurd.
majority, knowing the rights conferred upon him by law, he must be held to have forfeited any
The only effect of giving more than a reasonable time is to enable the mature man, not to
right to bring such action.
correct what he did amiss in his infancy, but to speculate on the events of the future a
consequence entirely foreign to the purposes of the rule, which is solely protection to the
Article 1314, Civil Code, provides as follows:
infant. Reason, justice to others, public policy (which is not subserved by cherishing defective
titles), and convenience, require the right of disaffirmance to be acted upon within a reasonable "The action for nullity of a contract shall also be extinguished when the thing which is the
time. What is a reasonable time will depend on the circumstances of each particular case, and object thereof should be lost by fraud or fault of the person having the right to bring the
may be either for the court or for the jury to decide. Where, as in this case, there is mere
action.
delay, with nothing to explain or excuse it, or show its necessity, it will be for the court.
"If the cause of the action should be the incapacity of any of the contracting partiest the loss of
The above decisions (which could be multiplied indefinitely) are based upon justice and sound the thing shall be no obstacle for the action to prevail, unless it has occurred by fraud or fault
sense, and have peculiar application to the case now before us. Here plaintiff not only showed a on the part of the plaintiff after having acquired capacity."
personal knowledge of his rights under this contract prior to and at the time of reaching
majority, but he was surrounded by able advisers, legal and otherwise, retained to protect his Plaintiff has disposed of the whole of the P85,000 which was paid him in consideration of the
interests. As a result of his failure to disaffirm promptly on reaching majority, he received a
execution of the contract he is now seeking to annul. The record establishes beyond
balance of P30,000 upon the contract, which amount certainly would not have been paid if it
peradventure of doubt that he is utterly without funds to reimburse this consideration. In the
had been known that he was about to attempt to repudiate his agreement. This amount was
Choa Tek Hee suit (Exhibit 10) there appears at folio 17 a motion by plaintiff, under oath,
not only collected by Uy Soo Lim after reaching majority, but was effectually disposed of as
wherein he recites as a ground for realizing certain of the moneys deposited under this contract
rapidly as possible.
that he (plaintiff) "has no funds with which to support himself except such as may be advanced
to him out of the moneys belonging to him which is now or may hereafter be in the hands of
The record shows that of the P2,867.94 deposited in court by Choa Tek Hee, and the P30,000 the clerk of this court." Being without other funds, there was the greater reason why this
paid into court by Tan Unchuan, only P1,967.20 was withdrawn by plaintiff before reaching
deposit, derived from the very contract sought to be repudiated, should have been held intact
majority. Seven thousand five hundred and fifty pesos was withdrawn after he became of age to reimburse his vendee.
and before filing suit to rescind. There was still uncollected the P31,511.93, with interest
represented by the Choa Tek Hee judgment. When plaintiff reached majority, therefore, there In note to Englebert v. Pritchett reported in 26 L. R. A., 177, the various cases relating to the
was P62,412.67 of the original consideration available for refund, and there still remained
necessity of returning the entire consideration in order to disaffirm infants contracts are
P5,000 when he filed his suit to rescind. This sum could have been returned to Francisca
correlated and discussed. We quote as follows:
Pastrano or held by the court for her account.
"The rule which comes the nearest to being general is that all consideration which remains in
Positive statutory law, no less than uniform court decisions, require, as a condition precedent to the infants possession upon his reaching majority or at the time of anattempted disaffirmance
rescission of a contract on account of minority, that the consideration received be refunded. We in case he is still under age must be returned, but that disaffirmance will not be defeated by
cite and quote as follows:
inability to return what he has parted with prior to such time.
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"ART. 1295 (Civil Code). Rescission obliges the return of the things which were the objects of
"He will not be permitted to regain what he parted with or refuse payment while still possessed
the contract, with their fruits and the sum with interest; therefore it can only be carried into
of what he received.
effect when the person who may have claimed it can return that which, on his part, he is bound

"There have been many distinctions attempted such as between executory and executed
The contract involved herein is an executed contract. When plaintiff reached majority there was
contracts, and between seeking relief at law and in equity, but with only a few exceptions the P62,412.67 in esse, and, when suit was filed, the sum of P56,000. The "offer to account" in
rule as stated above has governed the decisions regardless of the facts relied on as
paragraph 20 of the complaint, "if such accounting should be necessary," is not the tender, or
distinguishing facts. There is no substantial ground for a distinction as to the rule to be applied, offer to produce or Pay, which the law makes a condition precedent to demanding equitable
although there may be as to the manner of its application.
relief. Certainly it cannot be so construed in the present case, where it is conclusively shown
that plaintiff after reaching majority and after filing his action to annul, proceeded to collect
"The rule is that the consideration must be restored (Dickerson v. Gordon, 24 N. Y. S. R.,
and dispose of the proceeds of such contract, reciting, as a reason for such collection, that he
448.)"
had "no other funds." If plaintiff had succeeded in having the contract set aside it would have
left him in the same position as that in which he stood when it was executed that is to say,
Whatever difference may exist in the authorities as to the obligation of the infant to return the he would have been compelled to face the contention that he was lawfully entitled to little or
entire consideration received as a condition precedent to disaffirming the contract, they are
nothing. Had he made restitution of all the money which came into his hands after he attained
unanimous in holding that he must return such portion thereof as remains in his possession
his majority, a decision in favor of the claims of the widow and legitimate daughters of Santiago
when reaching majority.
Pastrano would not have been a wholly barren victory for them. By consuming the last centavo
of the proceeds of the contract plaintiff placed himself in a position where he was bound to
As heretofore noted, a very considerable portion of the moneys called for by the contract under enjoy the most advantageous position whatever might be the outcome of the litigation. To give
consideration was collected and used by plaintiff after May 25, 1914, when he definitely elected countenance to such conduct would be to encourage deliberate bad faith.
to disaffirm it by bringing suit to rescind.
On the assumption, therefore, that plaintiff might have had a right to rescind this contract on
A leading case on the general subject is that of Manning v. Johnson (26 Ala., 446), reported in the ground of minority, his action fails:
62 Am. Dec., 732 with an extensive footnote. Discussing the general subject the court there
lays down the following rule (p. 733):
(1) Because, with a full knowledge of his rights in the premises, he failed to disaffirm his
contract within a reasonable time after reaching majority; and
"When we come to reason upon the proposition, however, it is surrounded with difficulty; for if
the infant can raise money to the whole value of his estate by a voidable sale or mortgage, and (2) Because he not only failed to tender, or offer to produce and pay the consideration in esse
can only avoid the conveyance after refunding, he is furnished the means of indulging habits of when he reached majority, and when he filed his action, but proceeded, after such events, to
dissipation and prodigality, which in many instances would doubtless result in squandering the demand, collect and dispose of such consideration, when according to his own statement under
whole of the proceeds, while the purchaser or mortgagee would risk nothing, the land or estate oath he had no other funds with which to make reimbursement.
of the infant so sold or mortgaged furnishing adequate security. On the other hand to allow the
infant to retain the consideration and yet to repudiate or disaffirm the conveyance, would tempt It is argued on behalf of appellee that it having been shown that appellant is a Chinese subject
as well as enable him to practice frauds upon others. We think the safe rule should furnish a
or citizen, and that under the laws of China he was of age when he executed the contract here
check both upon the infant and the party contracting with him. That rule we take to be this: If in dispute his contractual capacity must be determined by his national law (estatuto personal).
the infant after he arrives at age is shown to be possessed of the consideration paid him,
The conclusion Pre have reached upon the assumption most favorable to appellant, that he was
whether it be property, money or choses in action, and either disposes of it so that he cannot a minor at the time of the execution of the contract makes it unnecessary for us to decide this
restore it, or retains it for an unreasonable length of time after attaining his majority, this
question or to consider the effect of the marriage of appellant before attaining the age of
amounts to an affirmance of the contract. So likewise if it be shown that he has the power to
twenty-one upon his contractual capacity.
restore the thing that he received, he cannot be allowed to rescind without first making
restitution."
For the reasons stated we are of the opinion that the judgment of the trial court is without
error, and it is, therefore, affirmed, with the costs of both instances. So ordered.
Certainly the rule as above stated is fair and equitable. Appellant argues that the notes of Tan
Unchuan were accepted in payment of the consideration, moving from Francisca Pastrano and
that therefore the fact that some of these notes were collected after he reached his majority is
THIRD DIVISION
of no importance. We cannot accept this view. Even had the whole of the payment been made
in cash at the time of the execution of the contract, if it had been shown that all or part of that
[G.R. No. 51058. January 27, 1992.]
money or its proceeds was still in the possession of appellant when he attained his majority, it
would have been incumbent upon him to make restitution, as far as was then possible, upon
ASIA PRODUCTION CO., INC., WANG TA PENG and WINSTON WANG, Petitioner, v.
coming of age. The important fact is not the time when he received the money, but the time
HON. ERNANI CRUZ PAO, as Judge of the Court of First Instance of Rizal (Quezon
when he disposed of it.
City, Branch XVIII), LOLITA LEE LE HUA and ALBERTO DY, Respondents.
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Ismael J. Andres for petitioner Asia Production Co., Inc.

to keep the benefits already derived by him from the transaction in litigation, and, at the same
time, evade the obligations, responsibilities or liabilities assumed or contracted by him
thereby."
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Burgos, Sarte, Rebueno & Sarte, for Petitioners.


Roman Careaga for Alberto Dy.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; STATUTE OF FRAUDS; PURPOSE. The


purpose of the statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged. It was not designed to further or perpetuate fraud. Accordingly, its application is
limited. It makes only ineffective actions for specific performance of the contracts covered by
it; it does not declare them absolutely void and of no effect.

3. ID.; ID.; ID.; NOT APPLICABLE TO ACTIONS WHICH ARE NEITHER FOR VIOLATION OF A
CONTRACT NOR FOR THE PERFORMANCE THEREOF; CASE AT BAR. It follows then that the
statute applies only to executory contracts and in actions for their specific performance. It does
not apply to actions which are neither for violation of a contract nor for the performance
thereof. There can be no dispute that the instant case is not for specific performance of the
agreement to sell the building and to assign the leasehold right. Petitioners merely seek to
recover their partial payment for the agreed purchase price of the building, which was to be
paid on installments, with the private respondents promising to execute the corresponding
deed of conveyance, together with the assignment of the leasehold rights, within two (2)
months from the payment of the agreed downpayment of P20,000.00. by their motion to
dismiss, private respondents theatrically or hypothetically admitted the truth of the allegations
of fact in the complaint. Among the allegations therein are: (1) that the P50,000.00 sought to
be recovered represents the downpayment of P20,000.00 and two (2) monthly installments of
the purchase price, and (2) that petitioners decided, in effect, to withdraw from the agreement
by ordering the stop payment of the remaining six (6) checks and to return the possession of
the building to private respondents because of the latters failure to comply with their
agreement. The action is definitely not one for specific performance, hence the Statute of
Frauds does not apply. And even if it were for specific performance, partial execution thereof by
petitioners effectively bars the private respondents from invoking it. Since it is for refund of
what petitioners had paid under the agreement, originally unenforceable under the statute,
because petitioners had withdrawn therefrom due to the "bad faith" of the private respondents,
the latter cannot be allowed to take shelter under the statute and keep the P50,000.00 for
themselves. If this were the case, the statute would only become a shield for fraud, allowing
private respondents not only to escape performance of their obligations, but also to keep what
they had received from petitioners, thereby unjustly enriching themselves.

2. ID.; ID.; ID.; APPLIES ONLY EXECUTORY CONTRACTS. As explicitly provided for in the
above-quoted paragraph (2), Article 1403 of the Civil Code, the contracts concerned are simply
"unenforceable" and the requirement that they or some note or memorandum thereof be
in writing refers only to the manner they are to be proved. It goes without saying then, as held
in the early case of Almirol, Et. Al. v. Monserrat,(48 Phil. 67) that the statute will apply only to
executory rather than executed contracts. Partial execution is even enough to bar the
application of the statute. In Carbonnel v. Poncio, Et. Al. (103 Phil. 655), this Court held: ". . ..
4. ID.; ID.; ID.; APPLICATION THEREOF BARRED BY PARTIAL PERFORMANCE OF THE
It is well-settled in this jurisdiction that the Statute of Frauds is applicable only to executory
CONTRACT; RULE. Even if the action were for specific performance, it was premature for the
contracts (Facturan v. Sabanal, 81 Phil. 512), not to contracts that are totally or partially
performed (Almirol, Et. Al. v. Monserrat, 48 Phil. 67, 70; Robles v. Lizarraga Hermanos, 50 Phil. respondent Judge to dismiss the complaint by reason of the Statute of Frauds despite the
explicit allegations of partial payment. As this Court stated in Carbonnel v. Poncio, Et. Al.(103
387; Diana v. Macalibo, 74 Phil. 70). `Subject to a rule to the contrary followed in a few
Phil. 655: "For obvious reasons, it is not enough for a party to allege partial performance in
jurisdictions, it is the accepted view that part performance of a parol contract for the sale of
real estate has the effect, subject to certain conditions concerning the nature and extent of the order to hold that there has been such performance and to render a decision declaring that the
acts constituting performance and the right to equitable relief generally, of taking such contract Statute of Frauds is inapplicable. But neither is such party required to establish such partial
performance by documentary proof before he could have the opportunity to introduce oral
from the operation of the statute of frauds, so that chancery may decree its specific
performance or grant other equitable relief. It is well settled in Great Britain and in this country, testimony on the transaction. Indeed, such oral testimony would usually be unnecessary if
with the exception of a few states, that a sufficient part performance by the purchaser under a there were documents proving partial performance. Thus, the rejection of any and all
parol contract for the sale of real estate removes the contract from the operation of the statute testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is
inapplicable to contracts which have been partly executed, and lead to the very evils that the
of frauds (49 Am. Jur. 722-723). In the words of former Chief Justice Moran: The reason is
statute seeks to prevent. . . . When the party concerned has pleaded partial performance, such
simple. In executory contracts there is a wide field for fraud because unless they may be in
writing there is no palpable evidence of the intention of the contracting parties. The statute has party is entitled to a reasonable chance to establish by parol evidence the truth of this
precisely been enacted to prevent fraud. (Comments on the Rules of Court, by Moran, Vol III allegation, as well as the contract itself.The recognition of the exceptional effect of part
performance in taking an oral contract out of the statute of frauds involves the principle that
[1957 ed.], p. 178). However, if a contract has been totally or partially performed, the
exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant oral evidence is admissible in such cases to prove both the contract and the part performance
of the contract (49 Am. Jur. 927)."
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10112257 20,000.00 October 30, 1976


5. ID.; ID.; ID.; DOES NOT COVER AN ACTION BY A WITHDRAWING PARTY TO RECOVER HIS
PARTIAL PAYMENT OF THE CONSIDERATION OF A CONTRACT. We rule that an action by a
withdrawing party to recover his partial payment of the consideration of a contract, which is
otherwise unenforceable under the Statute of Frauds, by reason of the failure of the other
contracting party to comply with his obligation, is not covered by the Statute of Frauds.

DECISION

10112258 20,000.00 November 30, 1976


10112259 20,000.00 December 30, 1976
10112260 20,000.00 January 31, 1977

Relying on the good faith of private respondents, petitioners constructed in May 1976 a
weaving factory on the leased lot. Unfortunately, private respondents, despite extensions
granted, failed to comply with their undertaking to execute the deed of sale and to assign the
contract despite the fact that they were able to encash the checks dated 30 June and 30 July
1976 in the total amount of P30,000.00. Worse, the lot owner made it plain to petitioners that
he was unwilling to give his consent to the assignment of the lease unless petitioners agreed to
certain onerous terms, such as an increase in rental, or the purchase of the land at a very
DAVIDE, JR., J.:unconscionable price.
Petitioners were thus compelled to request for a stop payment order of the six (6) remaining
checks. Succeeding negotiations to save the transaction proved futile by reason of the
continued failure of private respondents to execute the deed of sale of the building and the
deed of assignment of the contract of lease.

The simple issue in this case is whether or not an action for the refund of partial payments of
the purchase price of a building covered by an oral agreement to sell it with an oral promise to
So, on or about 29 December 1976, upon prior agreement with private respondents, petitioners
assign the contract of lease on the lot where the building is constructed is barred by the
removed all their property, machinery and equipment from the building, vacated the same and
Statute of Frauds.
returned its possession to private respondents. Petitioners demanded from the latter the return
of their partial payment for the purchase price of the building in the total sum of P50,000.00.
Sometime in March 1976, private respondents, who claimed to be the owners of a building
constructed on a lot leased from Lucio San Andres and located in Valenzuela, Bulacan, offered Private respondents refused to return it. Hence, Petitioners, filed against private respondents a
complaint 1 for its recovery and for actual, moral and exemplary damages and attorneys fees
to sell the building to the petitioners for P170,000.00. Petitioners agreed because of private
with the then Court of First Instance (now Regional Trial Court) of Quezon City, which was
respondents assurance that they will also assign to the petitioners the contract of lease over
the land. The above agreement and promise were not reduced to writing. Private respondents docketed as Civil Case No. Q-23593. The case was raffled to Branch XVIII of the court which
undertook to deliver to the petitioners the deed of conveyance over the building and the deed was then presided over by herein respondent Judge.
of assignment of the contract of lease within sixty (60) days from the date of payment of the
downpayment of P20,000.00. The balance was to be paid in monthly installments. On 20 March Private respondent Lolita Lee Le Hua did not file an Answer; hence, she was declared in default.
1976, petitioners paid the downpayment and issued eight (8) postdated checks drawn against
Upon the other hand, private respondent Alberto Dy filed a motion to dismiss the complaint on
the Equitable Banking Corporation for the payment of the eight (8) monthly installments, as
the Found that the claim on which the action is based an alleged purchase of a building
follows:
which is not evidenced by any writing cannot be proved by parol evidence since Article 1356
in relation to Article 1358 of the Civil Code requires that it should be in writing. 2 In their
Check No. Amount Due Date
opposition 3 to said motion, petitioners argue that their complaint is essentially for collection of
a sum of money; it does not seek to enforce the sale, but aims to compel private respondents
10112253 P10,000.00 June 30, 1976
to refund a sum of money which was paid to them as purchase price in a sale which did not
materialize by reason of their bad faith. Furthermore, the execution of the document was an
10112254 20,000.00 July 30, 1976
undertaking of the private respondents, which they refused to comply with. Hence, they cannot
now be heard to complain against something which they themselves brought about.
10112255 20,000.00 August 30, 1976
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10112256 20,000.00 September 30, 1976

In his Order 4 of 18 April 1979, respondent Judge granted the motion to dismiss on the ground
that the complaint is barred by the Statute of Frauds. He says:
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"It cannot be disputed that the contract in this case is condemned by the Statutes of Fraud
(sic), it involves not merely the sale of real property (the building), it also includes an alleged
lease agreement that must certainly be for more than one year (See Art. 1403, No. 2,
subparagraph e, New Civil Code).

The lower court erred in failing to appreciate the nature of petitioners cause of action.

III
Plaintiffs cannot avoid the Statutes of Fraud (sic) by saying that this is merely an action for the
collection of a sum of money. To be entitled to the sum of P50,000.00, it is necessary to show
that such contract was executed and the same was violated but plaintiffs are prevented from
proving this alleged agreement by parol evidence.
The lower court erred in not finding that this case is not covered by the Statute of Frauds.
Neither may plaintiffs claim that by the payment of the sum of P50,000.00 the contract was
removed from the Statutes of Fraud (sic). This is so because plaintiffs have not fully complied
with their obligation to pay P170,000.00. If there had been full payment of P170,000.00, the
situation would have been different.

IV

The lower court erred in not following the procedure prescribed by this Honorable Court in
Plaintiffs knew or should have known that their contract (as described by them in their
cases when partial performance is alleged.
complaint) was unenforceable; they had thereby voluntarily assumed the risks attendant to
such contract. Moreover, the primordial aim of the Statutes of Fraud (sic) is to prevent fraud
V
and perjury in the enforcement of obligations depending upon the unassisted memory of
witnesses (Shoemaker v. La Tondea, 68 Phil. 24). The Court would find it difficult to determine
whether the sum of P50,000.00 was paid because of the unenforceable contract or for some
other transactions."
The lower court erred in dismissing the case."
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Their motion for reconsideration 5 having been denied by respondent Judge in his Order 6 of 21 Private respondents did not file their Brief.
June 1979 for the reason that the oral contract in this case was not removed from the
operation of the Statute of Frauds because there was no full or complete performance by the
We find merit in the petition. Respondent Judge committed grave abuse of discretion in
petitioners of the contract as required in Paterno v. Jao Yan 7 and Babao v. Perez, 8 petitioners dismissing the complaint on the ground that the claim is barred by the Statute of Frauds.
filed this petition 9 on 16 July 1979, alleging therein as ground therefor grave abuse of
discretion on the part of respondent Judge in issuing the orders of 18 April 1979 and 21 June
Article 1403 of the Civil Code declares the following contracts, among others, as unenforceable,
1979.
unless they are ratified:
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After private respondent Alberto Dy filed his Comment 10 to the petition in compliance with the
resolution 11 of 23 July 1979 and petitioners filed their Reply 12 to said comment on 2 April
1980, this Court gave due course 13 to the petition. Private respondent Lolita Lee Le Hua was
considered to have waived her right to file her comment to the petition. 14
Petitioners were subsequently required to file their Brief, which they complied with on 9
October 1981; 15 they make the following assignment of errors:
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"I

"(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
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(a) An agreement that by its terms is not be performed within a year from the making thereof;
The lower court erred in holding that for a contract of purchase and sale to be removed from
the operation of the Statute of Frauds, there must be full and complete payment of the
purchase price.
II

(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not legs than five

hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and person on whose account the sale is made, it is a sufficient
memorandum;

bad faith, for it would enable the defendant to keep the benefits already derived by him from
the transaction in litigation, and, at the same time, evade the obligations, responsibilities or
liabilities assumed or contracted by him thereby."
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It follows then that the statute applies only to executory contracts and in actions for their
specific performance. It does not apply to actions which are neither for violation of a contract
nor for the performance thereof. 19

(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;

There can be no dispute that the instant case is not for specific performance of the agreement
to sell the building and to assign the leasehold right. Petitioners merely seek to recover their
(f) A representation to the credit of a third person."
partial payment for the agreed purchase price of the building, which was to be paid on
installments, with the private respondents promising to execute the corresponding deed of
conveyance, together with the assignment of the leasehold rights, within two (2) months from
x
x
x
the payment of the agreed downpayment of P20,000.00. By their motion to dismiss, private
respondents theoretically or hypothetically admitted the truth of the allegations of fact in the
complaint. 20 Among the allegations therein are: (1) that the P50,000.00 sought to be
recovered represents the downpayment of P20,000.00 and two (2) monthly installments of the
The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations
purchase price, and (2) that petitioners decided, in effect, to withdraw from the agreement by
depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be ordering the stop payment of the remaining six (6) checks and to return the possession of the
building to private respondents because of the latters failure to comply with their agreement.
charged. 16 It was not designed to further or perpetuate fraud. Accordingly, its application is
limited. It makes only ineffective actions for specific performance of the contracts covered by The action is definitely not one for specific performance, hence the Statute of Frauds does not
apply. And even if it were for specific performance, partial execution thereof by petitioners
it; it does not declare them absolutely void and of no effect. As explicitly provided for in the
above-quoted paragraph (2), Article 1403 of the Civil Code, the contracts concerned are simply effectively bars the private respondents from invoking it. Since it is for refund of what
"unenforceable" and the requirement that they or some note or memorandum thereof - be in petitioners had paid under the agreement, originally unenforceable under the statute, because
writing refers only to the manner they are to be proved. It goes without saying then, as held in petitioners had withdrawn therefrom due to the "bad faith" of the private respondents, the
latter cannot be allowed to take shelter under the statute and keep the P50,000.00 for
the early case of Almirol, Et. Al. v. Monserrat, 17 that the statute will apply only to executory
themselves. If this were the case, the statute would only become a shield for fraud, allowing
rather than executed contracts. Partial execution is even enough to bar the application of the
private respondents not only to escape performance of their obligations, but also to keep what
statute. In Carbonnel v. Poncio, Et Al., 18 this Court held:
they had received from petitioners, thereby unjustly enriching themselves.
". . . It is well-settled in this jurisdiction that the Statute of Frauds is applicable only to
Besides, even if the action were for specific performance, it was premature for the respondent
executory contracts (Facturan v. Sabanal, 81 Phil. 512), not to contracts that are totally or
Judge to dismiss the complaint by reason of the Statute of Frauds despite the explicit
partially performed (Almirol, Et. Al. v. Monserrat, 48 Phil. 67, 70; Robles v. Lizarraga
allegations of partial payment. As this Court stated in Carbonnel v. Poncio, Et. Al.: 21
Hermanos, 50 Phil. 387, Diana v. Macalibo, 74 Phil. 70).
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Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted view that
part performance of a parol contract for the sale of real estate has the effect, subject to certain
conditions concerning the nature and extent of the acts constituting performance and the right
to equitable relief generally, of taking such contract from the operation of the statute of frauds,
so that chancery may decree its specific performance or grant other equitable relief. It is well
settled in Great Britain and in this country, with the exception of a few states, that a sufficient
part performance by the purchaser under a parol contract for the sale of real estate removes
the contract from the operation of the statute of frauds (49 Am. Jur. 722-723).

"For obvious reasons, it is not enough for a party to allege partial performance in order to hold
that there has been such performance and to render a decision declaring that the Statute of
Frauds is inapplicable. But neither is such party required to establish such partial performance
by documentary proof before he could have the opportunity to introduce oral testimony on the
transaction. Indeed, such oral testimony would usually be unnecessary if there were documents
proving partial performance. Thus, the rejection of any and all testimonial evidence on partial
performance, would nullify the rule that the Statute of Frauds is inapplicable to contracts which
have been partly executed, and lead to the very evils that the statute seeks to prevent.

In the words of former Chief Justice Moran: The reason is simple. In executory contracts there
x
x
x
is a wide field for fraud because unless they be in writing there is no palpable evidence of the
intention of the contracting parties. The statute has precisely been enacted to prevent fraud.
(Comments on the Rules of Court, by Moran, Vol. III [1957 ed.], p. 178). However, if a contract
has been totally or partially performed, the exclusion of parol evidence would promote fraud or When the party concerned has pleaded partial performance, such party is entitled to a

reasonable chance to establish by parol evidence the truth of this allegation, as well as the
contract itself.The recognition of the exceptional effect of part performance in taking an oral
contract out of the statute of frauds involves the principle that oral evidence is admissible in
such cases to prove both the contract and the part performance of the contract (49 Am. Jur.
927)."
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We thus rule that an action by a withdrawing party to recover his partial payment of the
consideration of a contract, which is otherwise unenforceable under the Statute of Frauds, by
reason of the failure of the other contracting party to comply with his obligation, is not covered
by the Statute of Frauds.
WHEREFORE, the petition is hereby GRANTED. The challenged Orders of 18 April 1979 and 21
June 1979 in Civil Case No. Q-23593 of the court below are hereby ANNULLED and SET ASIDE,
and the complaint in said case is hereby ordered REINSTATED. The default order against
private respondent Lolita Lee Le Hua shall stand and private respondent Alberto Dy is ordered
to file his Answer to the complaint with the court below within ten (10) days from receipt of this
decision. This decision shall be immediately executory.
Costs against private respondents.
IT IS SO ORDERED.

SECOND DIVISION
[G.R. No. L-23213. October 28, 1977.]
WESTERN MINDANAO LUMBER CO., INC., Plaintiff-Appellant, v. NATIVIDAD M.
MEDALLE and ANTONIO MEDALLE, Defendants-Appellees.
Jalandoni & Jamir for Appellant.
Fernandez Law Office for Appellee.

DECISION

CONCEPCION, JR., J.:bond in the amount of P1,000.00, a writ of preliminary injunction was issued, restraining the
defendants from closing the road. 3

Appeal from the order of the Court of First Instance of Zamboanga City dismissing the
complaint upon the ground that the claim on which it is founded is unenforceable under the
Statute of Fraud and special law.
The complaint, filed on December 16, 1960, alleges that:

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Instead of a responsive pleading, the defendants filed a motion to dismiss the complaint on
January 4, 1961, upon the ground that the claim on which the action or suit is founded is
unenforceable under the provisions of the Statute of Frauds and special law, in that the first
page of the said road right-of-way agreement was not signed by both parties and there
instrumental witnesses; page two thereof is not dated, and the signature of the plaintiffs
corporate agent does not appear, and that said agreement is not acknowledged before a person
authorized to administer oaths. 4

The plaintiff opposed the motion, stating that the agreement between plaintiff and Luciano
"2. The Plaintiff is engaged in logging operations in Curuan, Zamboanga City and in
Hernandez is not one of those agreements specified in the Statute of frauds. 5 Nevertheless,
connection with the said logging operation it obtained on September 8, 1955 a right-of-way
through the said Lot 2136 of the Cadastral Survey of Zamboanga from Mr. Luciano Hernandez, the trial court granted the motion to dismiss on January 17, 1961 and dismissed the cases. 6
then the registered owner, a copy of the agreement being enclosed as Annex A;
The plaintiff filed a motion for reconsideration of the said order, insisting that the road right-ofway agreement is not covered by the Statute of frauds. 7 Then, on March 4, 1961, the plaintiff
"3. The former owners of the logging concession operated by the Plaintiff constructed and
maintained the said road through Lot 2136, but the Plaintiff improved the said road, paying to filed an Amended Complaint, accompanied by a motion for its admission. The plaintiff therein
prayed, among others, that the defendants be ordered to keep the road open and to respect
the registered owner for all the improvements damaged by the improvement of the road;
the right-of-way agreement, and "should it be ascertained that under the law the plaintiff is
bound to pay compensation for the right-of-way to the Defendants, it is prayed that the
"4. Long before the execution of the right-of-way agreement on September 8, 1955, since
reasonable amount of such compensation be fixed." 8
then and up to the present time the said road has been maintained and used not only by the
predecessor of the Plaintiff and the Plaintiff, but also by the public;
After heading the parties, the trial court issued an order on September 6, 1961, denying the
motion for reconsideration. 9
"5. The said Lot 2136 was purchased by the defendants in 1958 and the said road then
existed and was in public use and the defendants did not oppose but instead allowed the
Whereupon, the plaintiff perfected an appeal to the Court of Appeals. 10 The appellate court,
continued use and maintenance of the road by the Plaintiff and the public;
finding that only questions of law are raised, elevated the appeal to this Court. 11
"6. The said road is indispensable to the business operations of the Plaintiff, because it is the
The plaintiff-appellant made the following assignment of errors in its Brief:
only access from their concession to the highway;
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"7. That defendants have now sent to the Plaintiff a notice (Annex B) of their intention to
close the road; and

"1. The trial court erred in dismissing the complaint on the ground that the claim on which the
action or suit is founded is unenforceable under the provisions of the Statute of Frauds and
special law; and

"8. The Plaintiff has the right to the continued use of said road, the closing of which will
cause injustice and irreparable damages to the Plaintiff and the Plaintiff is willing to post a bond "2. The trial court erred in denying plaintiffs motion for reconsideration."
for the issuance of a writ of preliminary injunction to stop the defendants from closing the
The appeal is meritorious. The Statute of frauds refers to specific kinds of transactions and
road."
cannot apply to any that is not enumerated therein. 12 The transactions or agreements covered
by said statute are the following:
x
x
x
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"(a) An agreement that by its terms is not to be performed within a year from the making
thereof;
Wherefore, the plaintiff prayed that a writ of preliminary injunction be issued restraining the
"(b) A special promise to answer for the debt, default, or miscarriage of another;
defendants from closing the said road, and after hearing, make the injunction permanent. It
also prayed that the defendants be directed to recognize and respect the said road right-of-way
"(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
agreement. 1 Copies of the road right-of-way agreement and the letter of the defendants
advising the plaintiff of the closure of the road were attached thereto. 2 Upon the filing of a

"(d) An agreement for the sale of goods, chattels or things in action, at a price not less than
five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of purchasers and person on whose account the sale is made, it is sufficient
memorandum;
"(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
"(f) A representation as to the credit of a third person." 13
Obviously, an agreement creating an easement of right-of-way is not one of those contracts
covered by the statute of frauds since it is not a sale of real property or of an interest therein.
The trial court, therefore, erred in dismissing the case upon the defendants claim that the road
right-of-way agreement in question is unenforceable under the statute of frauds. Besides, the
complaint, as amended, may be viewed not only as a claim for the recognition of the existence
of an easement of right-of-way on defendants estate, but also a demand for the establishment
of an easement of right-of-way, if none exists, pursuant to Art. 649 of the Civil Code, in view of
the plaintiffs offer to pay reasonable compensation for the use of the land.
WHEREFORE, the judgment appealed from is hereby reversed and the orders of January 17,
1961 and September 6, 1961 set aside. Costs against the defendants-appellees.

THIRD DIVISION

cralawnad

SO ORDERED.

[G.R. No. 118509. December 1, 1995.]


LIMKETKAI SONS MILLING, INC., Petitioner, v. COURT OF APPEALS, BANK OF THE
PHILIPPINE ISLANDS and NATIONAL BOOK STORE, Respondents.

DECISION

MELO, J.:

The issue in the petition before us is whether or not there was a perfected contract between
petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI)
covering the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio
Bagong Ilog, Pasig City, Metro Manila.

Branch 151 of the Regional Trial Court of the National Capital Region stationed in Pasig ruled
that there was a perfected contract of sale petitioner and BPI. It stated that there was mutual
consent between the parties; the subject matter is definite; and the consideration was
determined. It concluded that all the elements of a consensual contract are attendant. It
ordered the cancellation of a sale effected by BPI to respondent National Book Store (NBS)
while the case was pending and the nullification of a title issued in favor of said respondent
NBS.

Two or three days later, petitioner learned that its offer to pay on terms had been frozen.
Alfonso Lim went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to
Albano. The payment was refused because Albano stated that the authority to sell that
particular piece of property in Pasig had been withdrawn from his unit. The same check was
tendered to BPI Vice-President Nelson Bona who also refused to receive payment.

An action for specific performance with damages was thereupon filed on August 25, 1988 by
Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was
petitioner against BPI. In the course of the trial, BPI informed the trial court that it had sold the
perfected because there was no concurrence of the three requisites enumerated in Article 1318 property under litigation to NBS on July 14, 1989. The complaint was thus amended to include
of the Civil Code. The decision of the trial court was reversed and the complaint dismissed.
NBS.
Hence, the instant petition.

On June 10, 1991, the trial court rendered judgment in the case as follows:

Shorn of the interpretations given to the acts of those who participated in the disputed sale,
the findings of facts of the trial court and the Court of Appeals narrate basically the same
events and occurrences. The records show that on May 14, 1976, Philippine Remnants Co., Inc.
constituted BPI as its trustee to manage, administer, and sell its real estate property. One such
piece of property placed under trust was the disputed lot, a 33,056-square meter lot at Barrio
Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of Title No. 493122.

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank of
the Philippine Islands and National Book Store, In.:

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1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of the
Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of
National Book Store, Inc., null and void;

On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by 2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate of
BPI to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by the
Title which may have been issued in favor of National Book Store, Inc. by virtue of the
owners of the Philippine Remnants.
aforementioned Deed of Sale dated July 14, 1989;
Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000,00 to
8, 1988, petitioners officials and Revilla were given permission by Rolando V. Aromin, BPI
execute a Deed of Sale in favor of plaintiff of the aforementioned property at the price of
Assistant Vice-President, to enter and view the property they were buying.
P1,000.00 per square meter; in default thereof, the Clerk of this Court is directed to execute
the said deed;
On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner.
On July 11, 1988, petitioners officials, Alfonso Lim and Albino Limketkai, went to BPI to
4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether
confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Viceexecuted by defendant BPI or the Clerk of Court and payment of the corresponding fees and
President Aromin. Petitioner asked that the price of P1,000.00 per square meter be reduced to charges, to cancel said T.C.T. No. 493122 and to issue, in lieu thereof, another transfer
P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed that the lot certificate of title in the name of plaintiff;
would be sold at P1,000.00 per square meter to be paid in cash. Since the authority to sell was
on a first come, first served and non-exclusive basis, it may be mentioned at this juncture that 5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the
there is no dispute over petitioners being the first comer and the buyer to be first served.
plaintiff the sums of P10,000,000.00 as actual and consequential damages and P150,000.00 as
attorneys fees and litigation expenses, both with interest at 12% per annum from date hereof;
Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis,
Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was no 6. On the cross-claim of defendant bank against National Book Store, ordering the latter to
harm in trying to ask for payment on terms because in previous transactions, the same had
indemnify the former of whatever amounts BPI shall have paid to the plaintiff by reason hereof;
been allowed. It was the understanding, however, that should the term payment be
and
disapproved, then the price shall be paid in cash.
7. Dismissing the counterclaims of the defendants against the plaintiff and National Book
It was Albano who dictated the terms under which the installment payment may be approved, Stores cross-claim against defendant bank.
and acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin
Albano embodying the payment initially of 10% and the remaining 90% within a period of 90 Costs against defendants.
days.

(pp. 44-45, Rollo.)

buyer as contended by respondents.

As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, Revilla testified that at the time he perfected the agreement to sell the litigated property, he
and Mabutas, JJ.,), on August 12, 1994, reversed the trial courts decision and dismissed
was acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to
petitioners complaint for specific performance and damages.
firm up the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI
could give the authority to sell to a licensed broker, we see no reason to doubt the authority to
The issues raised by the parties revolve around the following four questions:
sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage and
administer real estate property.
(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to
the subject matter of the contract and the cause of the obligation?
Respondent BPI alleges that sales of trust property need the approval of a Trust Committee
made up of top bank officials. It appears from the record that this trust committee meets
(2) Were the bank officials involved in the transaction authorized by BPI to enter into the
rather infrequently and it does not have to pass on regular transactions.
questioned contract?
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the
(3) Is there competent and admissible evidence to support the alleged meeting of the minds? BPI Real Property Management Unit. He had been in the Real Estate Division since 1985 and
was the head supervising officer of real estate matters. Aromin had been with the BPI Trust
(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good Department since 1968 and had been involved in the handling of properties of beneficial
faith?
owners since 1975 (tsn., December 3, 1990, p. 5).
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There is no dispute in regard to the following: (a) that BPI as trustee of the property of
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon,
Philippine Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 while purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin
per square meter; (1)) that Philippine Remnants confirmed the authority to sell of Revilla and was in charge of Torrens titles, lease contracts, problems of tenants, insurance policies,
the price at which he may sell the lot; (c) that petitioner and Revilla agreed on the former
installment receivables, management fees, quitclaims, and other matters involving real estate
buying the property; (d) that BPI Assistant Vice-President Rolando V. Aromin allowed the
transactions. His immediate superior, Vice-President Merlin Albano had been with the Real
broker and the buyer to inspect the property; and (e) that BPI was formally informed about the Estate Division for only one week but he was present and joined in the discussions with
broker having procured a buyer.
petitioner.
The controversy revolves around the interpretation or the significance of the happenings or
events at this point.
Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its
top officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and
Rolando V. Aromin at the BPI offices.

There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the
incident. Revilla brought the brothers directly to Aromin upon entering the BPI premises.
Aromin acted in a perfectly natural manner on the transaction before him with not the slightest
indication that he was acting ultra vires. This shows that BPI held Aromin out to the public as
the officer routinely handling real estate transactions and, as Trust Officer, entering into
contracts to sell trust properties.

Respondents, however, contend that what transpired on this date were part of continuing
Respondents state and the record shows that the authority to buy and sell this particular trust
negotiations to buy the land and not the perfection of the sale. The arguments of respondents property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not
center on two propositions (1) Vice-Presidents Aromin and Albano had no authority to bind have any authority to act as alleged, there was no need to withdraw authority which he never
BPI on this particular transaction and (2) the subsequent attempts of petitioner to pay under
possessed.
terms instead of full payment in cash constitutes a counter-offer which negates the existence of
a perfected contract.
Petitioner points to Areola v. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential
Bank v. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh v. Dakota
The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the Trust Co. (52 ND 752, 204 NW 818, 40 ALR 1021), to wit:
record.
Accordingly a banking corporation is liable to innocent third persons where the representation is
At the start of the transactions, broker Revilla by himself already had full authority to sell the made in the course of its business by an agent acting within the general scope of his authority
disputed lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on even though, in the particular case, the agent is secretly abusing his authority and attempting
an as is, where is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with to perpetrate a fraud upon his principal or some other person for his own ultimate benefit.
Revillas testimony that the authority given to him was to sell and not merely to look for a
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(at pp. 652-653.)


In the present case, the position and title of Aromin alone, not to mention the testimony and
documentary evidence about his work, leave no doubt that he had full authority to act for BPI
in the questioned transaction. There is no allegation of fraud, nor is there the least indication
that Aromin was acting for his own ultimate benefit. BPI later dismissed Aromin because it
appeared that a top official of the bank was personally interested in the sale of the Pasig
property and did not like Aromins testimony. Aromin was charged with poor performance but
his dismissal was only sometime after he testified in court. More than two long years after the
disputed transaction, he was still Assistant Vice-President of BPI.

The requirements in the payment of the purchase price on terms instead of cash were
suggested by BPI Vice-President Albano. Since the authority given to broker Revilla specified
cash payment, the possibility of paying on terms was referred to the Trust Committee but with
the mutual agreement that "if the proposed payment on terms will not be approved by our
Trust Committee, Limketkai should pay in cash . . . the amount was no longer subject to the
approval or disapproval of the Committee, it is only on the terms." (Ibid, p. 19) This is
incontrovertibly established in the following testimony of Aromin:
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A. After you were able to agree on the price of P1,000.00/sq. m., since the letter or authority
says the payment must be in cash basis, what transpired later on?

The records show that the letter of instruction dated June 14, 1988 from the owner of
Philippine Remnants Co. regarding the sale of the firms property was addressed to Aromin. The B. After we have agreed on the price, the Lim brothers inquired on how to go about submitting
P1,000.00 figure on the first page of broker Revillas authority to sell was changed to P1,100.00 the covering proposal if they will be allowed to pay on terms. They requested us to give them a
by Aromin. The price was later brought down again to P1,000.00, also by Aromin. The
guide on how to prepare the corresponding letter of proposal. I recall that, upon the request of
permission given to petitioner to view the lot was signed by Aromin and honored by the BPI
Mr. Albino Limketkai, we dictated a guide on how to word a written firm offer that was to be
guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had a buyer
submitted by Mr. Lim to the bank setting out the terms of payment but with the mutual
was addressed to Aromin. The conference on July 11, 1988 when the contract was perfected
agreement that if his proposed payment on terms will not be approved by our trust committee.
was with Aromin and Vice-President Albano. Albano and Aromin were the ones who assured
Limketkai should pay the price in cash.
petitioner Limketkais officers that term payment was possible. It was Aromin who called up
Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment on terms and it Q. And did buyer Limketkai agree to pay m cash in case the offer of terms will be cash
was to Aromin that Philippine Remnants gave the go signal to proceed with the cash sale.
(disapproved).
Everything in the record points to the full authority of Aromin to bind the bank, except for the
self-serving memoranda or letters later produced by BPI that Aromin was an inefficient and
A. Yes. sir.
undesirable officer and who, in fact, was dismissed after he testified in this case. But, of
course, Aromins alleged inefficiency is not proof that he was not fully clothed with authority to Q. At the start, did they show their willingness to pay cash?
bind BPI.
A. Yes sir.
Respondents second contention is that there was no perfected contract because petitioners
request to pay on terms constituted a counter-offer and that negotiations were still in progress Q. You said that the agreement on terms was to be submitted to the trust committee for
at that point.
approval, are you telling the Court that what was to be approved by the trust committee was
the provision on the payment on terms?
Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial.
Among his statements is one to the effect that
A. Yes. sir.
. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano counter- Q. So the amount was no longer subject to the approval or disapproval of the committee, it is
offered to sell the property at P1,100.00 per square meter but after the usual haggling, we
only on the terms?
finally agreed to sell the property at the price of P100.0 per square meter . . .
A. Yes sir.
(tsn, 12-3-90, p. 17; Emphasis supplied.)
(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)
Asked if there was a meeting of the minds between the buyer and the bank in respect to the
price of P1,000.00 per square meter, Aromin answered:
The record shows that if payment was in cash, either broker Revilla or Aromin had full
authority. But because petitioner took advantage of the suggestion of Vice-President Albano,
Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is
the matter was sent to higher officials. Immediately upon learning that payment on terms was
concerned, sir.
frozen and/or denied, Limketkai exercised his right within the period given to him and tendered
payment in full. The BPI rejected the payment.
(Ibid, p. 17.)
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In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion v. Court of Appeals
(238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem that the legal
principles found in said case strengthen and support petitioners submission that the contract
was perfected upon the meeting of the minds of the parties.

(238 SCRA 602; 611 [1994].)

In Villonco Realty Company v. Bormaheco (65 SCRA 352 [1975]), bearing factual antecedents
similar to this case, the Court, through Justice Aquino (later to be Chief Justice), quoting
The negotiation or preparation stage started with the authority given by Philippine Remnants to authorities, upheld he perfection of the contract of sale thusly:
BPI to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine
Remnants to broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the
"The contract of sale is perfected at the moment there is a meeting of minds upon the thing
inspection of the property and finally (d) the negotiations with Aromin and Albano at the BPI
which is the object of the contract and upon the price. From that moment, the parties may
offices.
reciprocally demand performance, subject to the provisions of the law governing the form of
contracts." (Art. 1475 Ibid).
The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to
sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the
x
x
x
disputed lot at P1,000.00 per square meter. Aside from this there was the earlier agreement
between petitioner and the authorized broker. There was a concurrence of offer and
acceptance, on the object, and on the cause thereof.
"Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
The phases that a contract goes through may be summarized as follows:
cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An
a. preparation, conception or generation, which is the period of negotiation and bargaining,
acceptance may be express or implied" (Art. 1320, Civil Code).
ending at the moment of agreement of the parties;
x
x
x
b. perfection or birth of the contract, which is the moment when the parties come to agree on
the terms of the contract; and
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c. consummation or death, which is the fulfillment or performance of the terms agreed upon in "It is true that an acceptance may contain a request for certain changes in the terms of the
the contract (Toyota Shaw Inc. v. Court of Appeals, G.R. No. 116650, May 23, 1995).
offer and yet be a binding acceptance.So long as it is clear that the meaning of the acceptance
is positively and unequivocally to accept the offer. whether such request is granted or not, a
But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:
contract is formed." (Stuart v. Franklin Life Ins. Co., 105 Fed. 2nd 965, citing Sec. 79,
Williston on Contracts).
A contract undergoes various stages that include its negotiation or preparation, its perfection
and, finally, its consummation. Negotiation covers the period from the time the prospective
x
x
x
contracting parties indicate interest in the contract to the time the contract is concluded
(perfected) The perfection of the contract takes place upon the concurrence of the essential
elements thereof. A contract which is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause . . . the vendors change in a phrase of the offer to purchase, which change does not essentially
thereof. A contract which requires, in addition to the above, the delivery of the object of the
change the terms of the offer, does not amount to a rejection of the offer and the tender or a
agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a
counter-offer." (Stuart v. Franklin Life Ins. Co., supra.)
solemn contract, compliance with certain formalities prescribed by law, such as in a donation of
real property, is essential in order to make the act valid, the prescribed form being thereby an (at pp. 362-363; 365-366.)
essential element thereof. The stage of consummation begins when the parties perform their
respective undertakings under the contract culminating in the extinguishment thereof.
In the case at bench, the allegation of NBS that there was no concurrence of the offer and
acceptance upon the cause of the contract is belied by the testimony of the very BPI official
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a
with whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact
binding juridical relation. In sales, particularly, to which the topic for discussion about the case that the deed of sale still had to be signed and notarized does not mean that no contract had
at bench belongs, the contract is perfected when a person, called the seller, obligates himself, already been perfected. A sale of land is valid regardless of the form it may have been entered
for a price certain, to deliver and to transfer ownership of a thing or right to another, called the into (Claudel v. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article
buyer, over which the latter agrees.
1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply
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therewith does not affect the validity and binding effect of the act between the parties (Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires We cite the findings of the trial court on this matter:
a document or other special form, as in the sale of real property, the contracting parties may
compel each other to observe that form, once the contract has been perfected. Their right may In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written
be exercised simultaneously with action upon the contract (Article 1359, Civil Code).
contract of the sale is not necessary so long as the agreement to sell real property is evidenced
by a written note or memorandum, embodying the essentials of the contract and signed by the
Regarding the admissibility and competence of the evidence adduced by petitioner, respondent party charged or his agent. Thus, it has been held:
Court of Appeals ruled that because the sale involved real property, the statute of frauds is
applicable.
"The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not
require that the contract itself be written. The plain test of Article 1403 paragraph (2) is clear
In any event, petitioner cites Abrenica v. Gonda (34 Phil. 739 [1916]) wherein it was held that that a written note or memorandum, embodying the essentials of the contract and signed by
contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks the party charges, or his agent suffices to make the verbal agreement enforceable, taking it out
questions on cross-examination. The succinct words of Justice Araullo still ring in judicial
of the operation of the statute. (Emphasis supplied)
cadence:
x
x
x
As no timely objection or protest was made to the admission of the testimony of the plaintiff
with respect to the contract; and as the motion to strike out said evidence came too late; and,
furthermore, as the defendants themselves, by the cross-questions put by their counsel to the
witnesses in respect to said contract, tacitly waived their right to have it stricken out, that
"In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by
evidence, therefore, cannot be considered either inadmissible or illegal, and court, far from
letter and telegram (Record on Appeal, p. 2), and the letter referred to was evidently the one
having erred in taking it into consideration and basing his judgment thereon, notwithstanding copy of which was appended as Exhibit A to plaintiffs opposition to the motion to dismiss. The
the fact that it was ordered to be stricken out during the trial, merely corrected the error he
letter, transcribed above in part, together with the one marked as Appendix B, constitute an
committed in ordering it to be so stricken out and complied with the rules of procedure
adequate memorandum of the transaction. They are signed by the defendant-appellant; refer
hereinbefore cited.
to the property sold as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62, give its area
as 1,825 square meters and the purchase price of four (P4.00) pesos per square meter payable
(at p. 748.)
in cash. We have in them, therefore, all the essential terms of the contract and they satisfy the
requirements of the Statute of Frauds.
In the instant case, counsel for respondents cross-examined petitioners witnesses at length on
the contract itself, the purchase price, the tender of cash payment, the authority of Aromin and ([Footnote 26, Paredes v. Espino, 22 SCRA 1000 [1968]).
Revilla, and other details of the litigated contract. Under the Abrenica rule (reiterated in a
number of cases, among them Talosig v. Vda. de Nieba, 43 SCRA 472 [1972]), even assuming While there is no written contract of sale of the Pasig property executed by BPI in favor of
that parol evidence was initially inadmissible, the same became competent and admissible
plaintiff, there are abundant notes and memoranda extant in the records of this case
because of the cross-examination, which elicited evidence proving the evidence of a perfected evidencing the elements of a perfected contract. There is Exhibit P, the letter of Kenneth
contract. The cross-examination on the contract is deemed a waiver of the defense of the
Richard Awad addressed to Roland Aromin, authorizing the sale of the subject property at the
Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition,
price of P1,000.00 per square meter giving 2% commission to the broker and instructing that
supra p. 563).
the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P),
an authority to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co.,
The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses
authorizing the latter to sell the property at the initial quoted price of P1,000.00 per square
were stricken out, the cross-examination could have no object whatsoever and if the questions meter which was altered on an unaccepted offer by Technoland. After the letter authority was
were put to the witnesses and answered by them, they could only be taken into account by
issued to Mr. Revilla, a letter authority was signed by Mr. Aromin allowing the buyer to enter
connecting them with the answers given by those witnesses on direct examination" (pp. 747- the premises of the property to inspect the same (Exh. C). On July 9, 1938, Pedro Revilla, Jr.,
748).
acting as agent of BPI, wrote a letter to BPI informing it that he had procured a buyer in the
name of Limketkai Sons Milling, Inc. with offices at Limketkai Bldg., Greenhills, San Juan, Metro
Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts Manila, represented by its Exec. Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the
pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing plaintiff, through Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming
the contract. The memorandum may be found in several writings, not necessarily in one
their transaction regarding the purchase of the subject property (Exh. E). On July 18, 1988, the
document. The memorandum or memoranda is/are written evidence that such a contract was plaintiff tendered upon the officials of the bank a check for P33,056,000.00 covered by Check
entered into.
No. CAS 10883, dated July 18, 1988. On July 1, 1988, Alfonso Zamora instructed Mr. Aromin in
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a letter to resubmit new offers only if there is no transaction closed with Assetrade Co. (Exh.
S). Combining all these notes and memoranda, the Court is convinced of the existence of
perfected contract of sale. Aptly, the Supreme Court, citing American cases with approval,
held:
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Ramos nor was he connected with him in any manner, but his calling card states that he was a
consultant to the chairman of the Pacific Rim Export and Holdings Corp. whose chairman is
Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to Mr.
Alfredo Ramos evidently was done by him to avoid possible implication that he committed some
underhanded maneuvers in manipulating to have the subject property sold to NBS, instead of
being sold to the plaintiff.

"No particular form of language or instrument is necessary to constitute a memorandum or


note in writing under the statute of frauds; any document or writing, formal or informal, written
either for the purpose of furnishing evidence of the contract or for another purpose, which
(pp. 454-455, Original RTC Record.)
satisfies all the requirements of the statute as to contents and signature, as discussed
respectively infra secs. 178-200, and infra sec. 201-205, is a sufficient memorandum or note. A On the matter of credibility of witnesses where the findings or conclusions of the Court of
memorandum may be written as well with lead pencil as with pen and ink. It may also be filled Appeals and the trial court are contrary to each other, the pronouncement of the Court in
in on a printed form. (37 C.J.S., 653-654).
Serrano v. Court of Appeals (196 SCRA 107 [1991]) bears stressing:
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"The note or memorandum required by the statute of frauds need not be contained in a single
document, nor, when contained in two or more papers, need each paper be sufficient as to
contents and signature to satisfy the statute. Two or more writings properly connected may be
considered together, matters missing or uncertain in one may be supplied or rendered certain
by another, and their sufficiency will depend on whether, taken together, they meet the
requirements of the statute as to contents and the requirements of the statutes as to
signature, as considered respectively infra secs. 179-200 and secs. 201-215."

It is a settled principle of civil procedure that the conclusions of the trial court regarding the
credibility of witnesses are entitled to great respect from the appellate courts because the trial
court had an opportunity to observe the demeanor of witnesses while giving testimony which
may indicate their candor or lack thereof. While the Supreme Court ordinarily does not rule on
the issue of credibility of witnesses, that being a question of fact not property raised in a
petition under Rule 45, the Court has undertaken to do so in exceptional situations where, for
instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions on
questions of fact and the credibility of witnesses.

(pp. 460-463, Original RTC Record)

(at p. 110.)
The credibility of witnesses is also decisive in this case. The trial court directly observed the
demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely on On the fourth question of whether or not NBS is an innocent purchaser for value, the record
the transcript of stenographic notes.
shows that it is not. It acted in bad faith.
In this regard, the court of origin had this to say:

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Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot.
It was the willingness and design of NBS to buy property already sold to another party which
led BPI to dishonor the contract with Limketkai.

Apart from weighing the merits of the evidence of the parties, the Court had occasion to
observe the demeanor of the witnesses they presented. This is one important factor that
inclined the Court to believe in the version given by the plaintiff because its witnesses,
Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent
including hostile witness Roland V. Aromin, an assistant vice-president of the bank, were
petitioner from paying the agreed price and getting possession of the property:
straight forward, candid and unhesitating in giving their respective testimonies. Upon the other
hand, the witnesses of BPI were evasive, less than candid and hesitant in giving their answers 1. The sale was supposed to be done through an authorized broker, but top officials of BPI
to cross examination questions. Moreover, the witnesses for BPI and NBS contradicted each
personally and directly took over this particular sale when a close friend became interested.
other. Fernando Sison III insisted that the authority to sell issued to Mr. Revilla was merely an
evidence by which a broker may convince a prospective buyer that he had authority to offer the 2. BPI Senior Vice President Edmundo Barcelon admitted that NBSs President, Alfredo Ramos,
property mentioned therein for sale and did not bind the bank. On the contrary, Alfonso
was his friend; that they had lunch meetings before this incident and discussed NB Ss
Zamora, a Senior Vice-President of the bank, admitted that the authority to sell issued to Mr.
purchase of the lot. Barcelons father was a business associate of Ramos.
Pedro Revilla, Jr. was valid, effective and binding upon the bank being signed by two class "A"
signatories and that the bank cannot back out from its commitment in the authority to sell to 3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would
Mr. Revilla.
drop the case and give up the lot. Feliciano went to petitioners office and haggled with Alfonso
Lim but failed to convince him inspite of various and increasing offers.
While Alfredo Ramos of NBS insisted that he did not know personally and was not acquainted
with Edmundo Barcelon, the latter categorically admitted that Alfredo Ramos was his friend and 4. In a place where big and permanent buildings abound, NBS had constructed only a
that they have even discussed in one of the luncheon meetings the matter of the sale of the
warehouse marked by easy portability. The warehouse is bolted to its foundations and can
Pasig property to NBS. George Feliciano emphatically said that he was not a consultant of Mr. easily be dismantled.
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It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly
negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting
that the vendor guarantee its title to the land and recognize the right of the vendee against the
vendor if the title to the land turns out to be defective as when the land belongs to another
person, the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS
may incur in the event the title turns out to be vested in another person are to be borne by
NBS alone. BPI is expressly freed under the contract from any recourse of NBS against it
should BPIs title be found defective.
NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It
simply cites the badges of fraud mentioned in Oria v. McMicking (21 Phil. 243 (1912]) and
argues that the enumeration there is exclusive. The decision in said case plainly states "the
following are some of the circumstances attending sales which have been denominated by
courts (as) badges of fraud." There are innumerable situations where fraud is manifested. One
enumeration in a 1912 decision cannot possibly cover all indications of fraud from that time up
to the present and into the future.
The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the
amended complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel
expenses of Cebu-based counsel. Petitioner also claimed, and the trial court awarded, damages
for the profits and opportunity losses caused to petitioners business in the amount of
P10,000,000.00.

FIRST DIVISION
[G.R. No. L-8334. December 28, 1957.]
BIENVENIDO BABAO, ETC., Plaintiff-Appellee, v. FLORENCIO PEREZ, ETC., ET
AL., Defendants-Appellants.

SYLLABUS

We rule that the profits and the use of the land which were denied to petitioner because of the
non-compliance or interference with a solemn obligation by respondents is somehow made up
by the appreciation in land values in the meantime.
1. STATUTES OF FRAUDS; CONTRACTS WHICH ARE NOT TO BE PERFORMED WITHIN ONE
YEAR; PARTIAL PERFORMANCE BY ONE PARTY, EFFECT OF. Contracts which by their terms
Prescinding from the above, we rule that there was a perfected contract between BPI and
are not to be performed within one year may be taken out of the Statute of Frauds through
petitioner Limketkai; that the BPI officials who transacted with petitioner had full authority to performance by one party thereto. In order, however through performance of the contract may
bind the bank; that the evidence supporting the sale is competent and admissible; and that the take the case out of the operation of the statute, it must appear clear that the full performance
sale of the lot to NBS during the trial of the case was characterized by bad faith.
has been made by one party within one year, as otherwise the statute would apply.
WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET
ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National
Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED except for the award of
Ten Million Pesos (P10,000,000.00) damages which is hereby DELETED.
SO ORDERED.

2. ID.; PAROL CONTRACT FOR THE SALE OF LAND; ENFORCEMENT OF CONTRACT ON THE
GROUND OF PART PERFORMANCE. Where the contract is vague and ambiguous, the doctrine
of part performance cannot be invoked to take the case out of the operation of the statute of
frauds, Obviously, there can be no part performance until there is a definite and complete
agreement between the parties. In order to warrant the specific enforcement of parol contract
for the sale of land, on the ground of part performance, all the essential terms of the contract
must be established by competent proof, and shown to be definite, certain, clear and
unambiguous. (Cuyugan, v. Santos, 34 Phil., 100, 101.)
3. CLAIM AGAINST ESTATES OF DECEASED PERSONS; PAROL EVIDENCE ON MATTERS
OCCURRING BEFORE DEATH, NOT ADMISSIBLE. In the action for the recovery of the parcel
of land in question belonging to the deceased C.P., the plaintiff allege fraud in the sale thereof
in that it was made in violation of the verbal agreement into between the deceased owner and
the deceased S.B., whereby the latter bound himself to improve the said forest land and

convert it into a veritable farm, and that in consideration of the said undertaking, the deceased his salary as administrator from 1924 to 1946 at the rate of P150 a month amounting to
owner bound herself to give and deliver to S.B. or his wife, 1/2 of the whole area of said land. P39,600, makes a total of P47,000; that in violation of the aforesaid verbal agreement,
Defendants objected to the admission of the testimony of the plaintiff, judicial administrator of Celestina Perez, acting through Leovigildo Perez, to whom she extended a power of attorney to
the estate of the late S.B., as to what occurred between C.B. and S.B. with regard to the
sell, sold few days before she died about 127 1/2 hectares of the land in question in
agreement, on the ground that said testimony was prohibited by section 26 (c) of Rule 123 of consequence of which Santiago Babao was deprived of the possession and administration
the Rules of Court. The trial court overruled the opposition saying that said did not apply where thereof from 1945; that said sales were fictitious and were made in clear violation of the oral
the complaint against the estate of a deceased person alleges fraud, citing the case of Ong
agreement made between Celestina Perez and Santiago Babao and as such the same are null
Chua v. Carr, 53 Phil. 980. Held: The court is in error because if in that case the witness was
and void; that Celestina Perez died on August 24, 1947 as a result of which intestate
allowed to testify it was because the existence of fraud was first established by sufficient and
proceedings were instituted for the settlement of her estate and one Florencio Perez was
competent evidence. Here, however, the alleged fraud is predicated upon the existence of the named as judicial administrator; that Santiago Babao died on January 6, 1948 and as a
agreement itself which violates the rule of petitio principii. Evidently, the fraud to exist must be consequence intestate proceedings were instituted for the settlement of his estate and
established by evidence aliunde and not by the same evidence which is sought to be prevented. Bienvenido Babao was appointed judicial administrator; and that in the event the estate of
Santiago Babao failed to recover the 1/2 portion of the land herein litigated, said estate would
suffer an irreparable damage of not less than P366,700 representing fruits which it has failed to
receive during the last 20 years. Wherefore, plaintiff prayed for the conveyance of 1/2 portion
DECISION
of the land in question and for annulment of the sales of the portion thereof for having been
made fictitiously, and in the alternative, for judgment in plaintiffs favor for the sum of P47,000
BAUTISTA ANGELO, J.:representing the amount of useful and necessary expenses incurred by Santiago Babao in
improving the land in line with the oral agreement.
Defendants denied plaintiffs claim that a verbal agreement was entered into between Celestina
Perez and Santiago Babao relative to the clearing, improving and administering the land
belonging to the former having an area of 156 hectares, as well as the other claim that
Santiago Babao had actually cleared and improved a great portion thereof at a cost of around
P7,400. They alleged that in 1924 and for many years prior thereto, the land in question had
already been cleared and cultivated for agricultural purposes with an exception of a portion of
50 hectares; that said land was cleared and cultivated due partly to the effort made by
Plaintiff is the judicial administrator of the estate of the late Santiago Babao while defendant
Celestinas husband, Esteban de Villa, her overseers and tenants, and partly to the "trusco"
Florencio Perez is the judicial administrator of the estate of the late Celestina Perez. The other system employed by them whereby persons were allowed to clear the land and plant thereon
defendants are purchasers and actual owners of portions of the land which is sought to be
and from the harvest were compensated according to a graduated scale of division varying
recovered in the present litigation.
from year to year; that the coconut trees, banana plants and bamboo trees now standing
thereon were planted not by Santiago Babao nor at his expense but by the tenants of the
The complaint alleges that Celestina Perez was in her lifetime the owner of the parcel of land in spouses Esteban de Villa and Celestina Perez who were duly compensated according to the
question which was not registered either under Act 496 or under the Spanish Mortgage Law;
"trusco" system; that although Santiago Babao and Maria Cleofe Perez were married in 1924,
that sometime in 1924 when the deceased Santiago Babao married Maria Cleofe Perez, niece of the former did not have anything to do with the land in question for Esteban de Villa was then
Celestina Perez, the latter and the former entered into a verbal agreement whereby Santiago still living and actively managed the same with the help of his overseer and tenants until he
Babao bound himself to improve the land by levelling and clearing all the forest trees standing died in 1930; that it was only in that year when Santiago Babao began administering the land
thereon and planting in lieu thereof coconuts, rice, corn and other crops such as bananas and in the capacity of a nephew of Celestina until 1935 when Celestina, disgusted with the conduct
bamboo trees, and to act at the same time as administrator thereof during the lifetime of
of Santiago, left the company of Santiago and his wife and went to live with her nephew
Celestina Perez, all expenses for labor and materials to be at his cost, in consideration of which Bernardo Perez until her death in 1947; that since then Celestina Perez prohibited Santiago
Celestina in turn bound herself to convey to Santiago Babao or his wife 1/2 of the land,
from interfering with the administration of the land and designated another person in his place,
together with all the improvements thereon upon her death; that pursuant to said verbal
and for the work he did from 1930 to 1935, he was more than compensated because the
agreement, Santiago Babao in 1924 left his job as administrator of the Llana Estate in San
proceeds of the harvests during said years were all given to him and his wife and Celestina was
Juan, Batangas for which he was receiving a salary of P150 a month, and started levelling and given only what was barely sufficient for her maintenance.
clearing the land having planted in an area of 50 hectares 5,000 coconuts trees, and rice and
corn in another area of 70 hectares, leaving out only about 50 hectares unimproved, all of
Defendants also alleged that the sales made by Celestina Perez through her attorney-in-fact
which having been administered by him from 1924 to 1946; that for clearing and improving the Leovigildo Perez of several portions of the land were not fictitious as alleged but were made
portions of land above-mentioned, he incurred expenses amounting to P7,400 which added to with full knowledge and authority of Celestina who executed in favor of Leovigildo Perez a
This is an action to recover one-half () of a parcel of land containing an area of 156 hectares
situated in San Juan, Batangas, plus the value of the produce gathered thereon from August,
1947 until actual recovery and in the alternative, to recover the sum of P47,000 representing
reimbursement of the amount of useful and necessary expenses incurred to clear and improve
the aforesaid land.

power of attorney under the authority of a notary public in the presence of Santiago Babao
himself who did not interpose any objection to the execution of said power of attorney and,
therefore, said sales are real, valid and genuine, having been executed in accordance with law.
Defendants prayed that the complaint be dismissed with costs, after awarding to them moral
damages in the amount that the court may deem proper to fix.

The important question then to be determined is whether or not the alleged verbal agreement
falls within the prohibition of the Statute of Frauds.
This statute, formerly incorporated as Section 21 of Rule 123 of our Rules of Court, is now
found in Article 1403 of the new Civil Code, which provides, in so far as pertinent to this case,
as follows:
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After hearing, the court rendered judgment the dispositive part of which reads:

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"WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants,
(1) Declaring the sales of Lupang Parang by and between the defendants, fraudulent and
fictitious, null and void;

"In the following cases an agreement hereafter made shall be unenforceable by action unless
the same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent, evidence therefore, of the agreement cannot be received without the
writing, or secondary evidence of its contents;

"(a) An agreement that by its terms is not to be performed within a year from the making
(2) Ordering defendant Florencio Perez as administrator of the testate estate of the deceased thereof.
Celestina Perez, to pay plaintiff the sum of P3,786.66 annually from August 25, 1947 until
delivery of the land to the latter, with interest thereon at the rate of 6 per cent per annum from
x
x
x
the date of the filing of the complaint;
(3) Divesting the title of defendants over 1/2 of Lupang Parang both in quantity and quality and
vesting title thereover in plaintiff pursuant to section 10 of Rule 39. To carry out this judgment, "(e) An agreement . . . for the sale of real property or of an interest therein."
the Clerk of Court is hereby appointed representative of this Court to designate a disinterested
surveyor for the necessary survey and division, the expenses therefor to be defrayed half and Appellants contend that the alleged verbal agreement falls under paragraphs (a) and (e)
half by plaintiff and Florencio Perez;
above-quoted because the same may be considered as an agreement which by its terms is not
to be performed within one year from the making thereof, or one which involves a sale of real
(4) Ordering defendants to surrender the possession of the half adjudicated and vested in favor property or of an interest therein. If this premise is correct, appellants contend, then the trial
of the plaintiff after the same has been designated under the preceeding paragraph; and
court erred in allowing the introduction of parole evidence to prove the alleged agreement over
the vigorous objection of counsel for Appellants.
(5) To pay the costs."
That the alleged verbal agreement is one which by its terms is not to be performed within one
Defendants in due time took the case on appeal to the Court of Appeals where the parties
year is very apparent from the allegations of the complaint. Thus, it is therein alleged that the
submitted their respective briefs within the reglementary period, and thereafter the court
agreement was allegedly made in 1924 and by its terms Santiago Babao bound himself (1) to
rendered judgment reversing in toto the decision appealed from and dismissing the case
improve all the 156 hectares of forest lands by levelling and clearing all the forest trees and
without pronouncement as to costs. But when its attention was called, thru a proper motion,
planting thereon coconuts, rice, corn and other crops such as bananas and bamboo trees, and
that that court acted without jurisdiction because the amount involved was more than P50,000, (2) to act at the same time as administrator of said land and improvements during the lifetime
the court in a resolution entered on August 14, 1954 set aside its decision and forwarded the
of Celestina Perez. And in consideration of such undertaking, Celestina Perez "bound herself to
case to us to have the case remanded to the Court of Appeals proved futile.
give and deliver, either to Santiago Babao or his wife Cleofe Perez, one-half (1/2) of the whole
area of said land as improved with all the improvements thereon upon her death." It is also
While this case was pending in the lower court, counsel for appellants filed a motion to dismiss alleged in the complaint that Celestina Perez died on August 24, 1947, or 23 years after the
on the ground, among others, that the alleged verbal agreement between Santiago Babao and making of the alleged agreement, while Santiago Babao died on January 6, 1948. From the
Celestina Perez was unenforceable under the Statute of Frauds. The trial court denied this
above terms, therefore, it is not difficult to see that the undertaking assumed by Santiago
motion on the ground that it appears from the complaint "that Santiago fully complied with his Babao which was to clear, level and plant to coconut trees and other plants 156 hectares of
part of the oral contract between the parties and that this is an action not only for specific
forest land could not be accomplished in one year. In fact, the alleged improvements were
performance but also for damages." Consequently, the court held that the Statute of Frauds
supposedly accomplished during the lifetime of Celestina, which lasted over a period of 23
cannot be invoked for the reason that "performance by one party of his part of the contract
years, and even then not all was cleared and planted but only a portion thereof. Another part of
takes the case out of the statute." And pursuant to such ruling, when the case was tried on the his undertaking is that he is to administer the land during the lifetime of Celestina, and as we
merits, the court overruled all objections of counsel for appellants to the introduction of oral
have already said, her death occurred 23 years after the agreement.
testimony to prove the alleged verbal agreement.
But the trial court expressed the view that the statute does not apply because it assumed that
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Santiago Babao fully complied with his part of the oral contract between the parties, and in its a suit for specific performance where both the equities and the statute support the defendants
opinion "performance by one party of his part of the contract takes the case out of the statute." case." (49 Am. Jur., p. 729.)
Even if this assumption were correct, still we find one flaw in its logic which fully nullifies it for
it fails to consider that in order that a partial performance of the contract may take the case
The alleged agreement is far from complying with the above requirement for, according to the
out of the operation of the statute, it must appear clear that the full performance has been
complaint, Santiago Babao bound himself to convert a big parcel of forest land of 156 hectares
made by one party within one year, as otherwise the statute would apply. Thus, the rule on this into a veritable farm planted to coconuts, rice, corn and other crops such as bananas and
point is well stated in Corpus Juris in the following wise: "Contracts which by their terms are
bamboo trees and to act as administrator of said farm during the lifetime of Celestina Perez,
not to be performed within one year, may be taken out of the statute through performance by while the latter in turn bound herself to give either to Santiago or his wife 1/2, of the land as
one party thereto. All that is required in such case is complete performance within the year by improved with all the improvements thereon upon her death. This agreement is indeed vague
one party, however many years may have to elapse before the agreement is performed by the and ambiguous for it does not specify how many hectares was to be planted to coconuts, how
other party. But nothing less than full performance by one party will suffice, and it has been
many to rice and corn, and what portion to bananas and bamboo trees. And as counsel for
held that, if anything remains to be done after the expiration of the year besides the mere
appellants puts it, "as the alleged contract stands, if Santiago Babao should plant one-half
payment of money, the statute will apply." 1 (Italics supplied). It is not therefore correct to
hectares to coconuts, one-half to rice, and another half hectare to corn, and the rest to
state that Santiago Babao has fully complied with his part within the year from the alleged
bananas and bamboo trees, he would be entitled to receive one-half of 156 hectares, or 78
contract in question.
hectares, of land for his services. That certainly would be unfair and unheard of; no sane
property owner would enter into such contract. It costs much more time, money, and labor to
"When, in an oral contract which, by its terms, is not to be performed within one year from the plant coconut trees than to plant bananas and bamboo trees; and it also costs less to convert
execution thereof, one of the contracting parties has complied within the year with the
forest land to rice and corn land than to convert it into a coconut plantation. On the part of
obligations imposed on him by said contract, the other party cannot avoid the fulfillment of
Celestina Perez, her promise is also incapable of execution. How could she give and deliver
those incumbent on him under the same contract by invoking the statute of frauds because the one-half of the land upon her death?"
latter aims to prevent and not to protect fraud." (Shoemaker v. La Tondea, Inc. 68 Phil., 24.)
The terms of the alleged contract would appear more vague if we consider the testimony of
"The broad view is that the statute of Frauds applies only to agreements not to be performed Carlos Orense who claimed to have been present at the time the alleged agreement was made
on either side within a year from the making thereof. Agreements to be fully performed on one between Celestina Perez and Santiago Babao for apparently the same does not run along the
side within the year are taken out of the operation of the statute." (National Bank v. Philippine same line as the one claimed by appellee. This is what Orense said: "You, Santiago, leave the
Vegetable Oil Co., 49 Phil., 857, 858.)
Llana estate and attend to this lupang parang. Have it cleared and planted to coconuts, for that
land will eventually fall in your hands" (as translated from Tagalog), which runs counter with
Assuming arguendo that the agreement in question falls also under paragraph (a) of Article
the claim of appellee. The agreement being vague and ambiguous, the doctrine of part
1403 of the new Civil Code, i. e., it is a contract or agreement for the sale of real property or of performance cannot therefore be invoked to take this case out of the operation of the statue.
an interest therein, it cannot also be contended that that provision does not apply to the
present case for the reason that there was part performance on the part of one of the parties. "Obviously, there can be no part performance until there is a definite and complete agreement
In this connection, it must be noted that this statute is one based on equity. It is based on
between the parties. In order to warrant the specific enforcement of a parol contract for the
equitable estoppel or estoppel by conduct. It operates only under certain specified conditions
sale of land, on the ground of part performance, all the essential terms of the contract must be
and when adequate relief at law is unavailable (49 Am. Jur., Statute of Frauds, Section 422, p. established by competent proof, and shown to be definite, certain, clear, and unambiguous.
727). And one of the requisites that need be present is that the agreement relied on must be
certain, definite, clear, unambiguous and unequivocal in its terms before the statute may
"And this clearness and definiteness must extend to both the terms and the subject-matter of
operate. Thus, the rule on this matter is as follows:
the contract.
jgc:chanroble s.com.ph

"The contract must be fully made and completed in every respect except for the writing
"The rule that a court will not specifically enforce a contract for the sale of land unless its terms
required by the statute, in order to be enforceable on the ground of part performance. The
have been definitely understood and agreed upon by the parties, and established by the
parol agreement relied on must be certain, definite, clear, unambiguous, and unequivocal in its evidence, is especially applicable to oral contracts sought to be enforce on the ground of part
terms, particularly where the agreement is between parent and child, and be clearly
performance. An oral contract, to be enforced on this ground, must at least have that degree of
established by the evidence. The requisite of clearness and definiteness extends to both the
certainty which is required of written contracts sought to be specifically enforced.
terms and the subject matter of the contract. Also, the oral contract must be fair, reasonable,
and just in its provisions for equity to enforce it on the ground of part performance. If it would "The parol contract must be sufficiently clear and definite to render the precise acts which are
be inequitable to enforce the oral agreement, or if its specific enforcement would be harsh or
to be performed thereunder clearly ascertainable. Its terms must be so clear and complete as
oppressive upon the defendant, equity will withhold its aid. Clearly, the doctrine of part
to allow no reasonable doubt respecting its enforcement according to the understanding of the
performance taking an oral contract out of the statute of frauds does not apply so as to support parties." (101 A. L. R., pp. 950-951)

"In this jurisdiction, as in the United States, the existence of an oral agreement or
understanding such as that alleged in the complaint in the case at bar cannot be maintained on
vague, uncertain, and indefinite testimony, against the reasonable presumption that prudent
men who enter into such contracts will execute them in writing, and comply with the formalities
prescribed by law for the creation of a valid mortgage. But where the evidence as to the
existence of such an understanding or agreement is clear, convincing, and satisfactory, the
same broad principles of equity operate in this jurisdiction as in the United States to compel the
parties to live up to the terms of their contract." (Cuyugan v. Santos, 34 Phil., 100, 101.)

PAUL REISS ET AL., Plaintiffs-Appellees, v. JOSE M. MEMIJE, Defendant-Appellant.


Jose Valera y Calderon, for Appellant.
Gibbs & Gale, for Appellees.
SYLLABUS

1. STATUTE OF FRAUDS; PROMISE TO PAY THE DEBT OF ANOTHER; CREDIT EXTENDED TO


There is another flaw that we find in the decision of the court a quo. During the trial of this
PROMISOR. While, under the provisions of section 335 of the Code of Civil Procedure, a
case, counsel for appellants objected the admission of the testimony of plaintiff Bernardo Babao
special promise to answer for the debt of another is not enforceable by action unless such
and that of his mother Cleofe Perez as to what occurred between Celestina Perez and Santiago promise or some note or memorandum thereof in writing and subscribed by the party charged
Babao with regard to the agreement on the ground that their testimony was prohibited by
or by his authorized agent, taking into consideration all the circumstances, as set forth in the
section 26 (c) of Rule 123 of the Rules of Court. This rule prohibits parties or assignors of
opinion: Held, That, in this case, the credit for the lumber sold and delivered to the defendants
parties to a case, or persons in whose behalf a case is prosecuted, against an executor or
contractor, was extended solely and exclusively to the defendant himself, under the verbal
administrator of a deceased person upon a claim or demand against the estate of such
agreement, and that, therefore, the case does not fall within the provisions of the statute
deceased person from testifying as to any matter of fact occurring before the death of such
requiring certain agreements to be made in writing.
deceased person. But the trial court overruled the opposition saying that said rule did not apply
where the complaint against the estate of a deceased person alleges fraud, citing the case of
Ong Chua v. Carr, 53 Phil., 980. Here again the court is in error because if in that case the
witness was allowed to testify it was because the existence of fraud was first established by
sufficient and competent evidence. Here, however, the alleged fraud is predicated upon the
DECISION
existence of the agreement itself which violates the rule of petitio principii. Evidently, the fraud
to exist must be established by evidence aliunde and not by the same evidence which is to
sought to be prevented. The infringement of the rule is evident.
". . . The reason for this rule is that if death has closed the lips of one party, the policy of the
CARSON, J. :
law is to close the lips of the other. Another reason is that the temptation to falsehood and
concealment in such cases is considered too great to allow the surviving party to testify in his
own behalf. Accordingly, the incompetency applies whether the deceased died before or after
the commencement of the action against him, if at the time the testimony was given he was
dead and cannot disprove it, since the reason for the prohibition, which is to discourage
Defendant appellant entered into a contract with one Buenaventura Kabalsa for the repair of a
perjury, exists in both instances." (Moran, Comments on the Rules of Court, Vol. 3, 1952 Ed., p. house in the city of Manila. The contractor undertook to furnish the necessary materials,
234.)
including a considerable amount of lumber, to be used in the repairs. The contractor being a
man of no commercial standing in the community was unable to secure credit therefor, and was
Having reached the conclusion that all the parol evidence of appellee was submitted in violation compelled to pay cash for all the purchases. Having no money and no credit he was unable to
of the Statute of Frauds, or of the rule which prohibits testimony against deceased persons, we continue the purchase of the necessary lumber, plaintiffs, with whom he was dealing, absolutely
find unnecessary to discuss the other issues raised in appellants brief.
refusing to allow any lumber to leave their yard without payment in advance. The work on the
house being delayed for the lack of the necessary materials, defendant accompanied the
Wherefore, the decision appealed from is reversed, and the case is dismissed, with costs
contractor to plaintiffs lumber yard, and after satisfying plaintiffs as to his own financial
against appellee.
responsibility, and that as a property owner and an attorney in active practice in the city of
Manila, he was good for the amount of lumber needed in the repair of his house, he entered
into an agreement with them whereby they were to deliver the necessary lumber to the
contractor for use in the repair of his house.
FIRST DIVISION
[G.R. No. 5447. March 1, 1910. ]

In pursuance of an in accordance with the directions of the defendant, plaintiffs delivered to

Kabalsa a considerable amount of lumber which was used in the repairs upon defendants
house, and judgment in this action was rendered in favor of the plaintiffs for the proven
amount of the unpaid balance of the purchase price of this lumber.
Appellant makes various assignments of error, and contends: First, that the trial court erred in
declining to allow an amendment to defendants answer for the purpose of formally denying
plaintiffs allegations as to defendants guaranty of payment of the purchase price of the
lumber; second, that the trial court erred in failing to set out in its decision the finding of facts
upon which the judgment rests; third, that the evidence of record does not sustain a finding
that the defendant did in fact assume responsibility for the payment of the purchase price of
the lumber delivered to his contractor; and fourth, that even if it be held that he did so, then
since the alleged promise, as set up by plaintiffs in their evidence, merely guaranteed payment
for the lumber and was not in writing, proof thereof was not admissible in evidence, and
defendant was not bound thereby, under the provisions, of section 335 of the Code of Civil
Procedure.

"2. A special promise to answer for the debt, default, or miscarriage of another;"
x

An immense amount of litigation has arisen in England and the United States over the
construction of similar provisions are found most, if not all, of the so-called statutes of fraud
which have been enacted in those jurisdictions, and many courts and text writers have
acknowledged their inability to find anything like uniform rules of construction in the conflicting
decisions which have been rendered, applying the statute to the infinite variety of facts which
have presented themselves; so that it has been said by some that the law upon the subject is a
state of hopeless confusion.

The alleged errors of procedure may be dismissed without much discussion. We think a reading The true test as to whether a promise is within the statute has been said o lie in the answer to
of the judgment itself clearly discloses that the trial judge did in fact make the necessary
the question whether the promise is an original or a collateral one. If the promise is an original
findings of fact, and that he expressly held that, admitting all the evidence offered by both
or an independent one; that is, if the promisor becomes thereby primarily liable for the
parties, the evidence of record establishes the existence of defendants promise to pay for the payment of the debt, the promise is not within the statute. But, on the other hand, if the
lumber, and discloses the existence of a balance due on account of the lumber delivered to
promise is collateral to the agreement of another and the promisor becomes thereby merely a
defendants contractor. Without considering whether, under the pleadings, the defendants
surety, the promise must be in writing. (Gull v. Lindsay, 4 Exch. 45; and other cases cited
evidence should have been stricken out of the record and his motion to amend his answer
under note 2, p. 906, Encyclopedia of Law, vol. 29.)
denied, as appears to have been the opinion of the trial court, we agree with the trial court that
even if the evidence be admitted and the complaint amended, the weight of all the evidence,
Just what is the character of a promise as original or collateral is a question of law and fact
including the evidence thus admitted, supports the plaintiffs allegations touching defendants which in each case be determined from the evidence as to the language used in making the
promise to pay for the lumber in question, and establishes his contention that this lumber was promise, and the circumstances under which the promise was made; and, since as a general
in fact delivered to the defendants contractor, and by him used in the construction of the house rule the parties making a promise of this nature rarely understand the legal and technical
under the directions of the defendant, and that the amount for which the judgment was given difference between the original and a collateral promise, the precise form of words used, even
in the court below was the amount of the unpaid purchased price of the lumber thus delivered. when established by undisputed testimony is not always conclusive. So that is said that "While,
If, therefore, it was error of the trial court to rule that defendants evidence should be stricken as a matter of law, a promise, absolute in form, to pay or to be responsible or to be the
from the record and that defendants answer should not be amended in accordance with a
paymaster, is an original promise, and while, on the other hand, if the promisor says, I will
motion for that purpose made three weeks after judgment was rendered, it was at most error see you paid, or I will pay if he does not, or uses equivalent words, the promise standing
without prejudice.
alone is collateral, yet under all the circumstances of the case, an absolute promise to pay, or a
promise to be responsible, may be found to be collateral, or promises deemed prima facie
The only question that remains is defendants contention that his alleged guaranty of payment collateral may be adjudged original." (Encyclopedia of Law, 2d ed., vol. 29, p. 907, and many
of the purchase price of the lumber finished at his request to his contractor Kabalsa not being cases there cited.)
in writing, it is enforceable in this action.
If goods are sold upon the sole credit and responsibility of the party who makes the promise,
Section 335 of Act No. 190 is as follows:
then, even though they be delivered to a third person, there is no liability of the third person to
which that of the party promising can be collateral, and consequently such a promise to pay
"In the following cases an agreement hereafter made shall be enforceable by action unless the does not require a memorandum in writing; and on the same principle it has been held that
same, or some note or memorandum thereof, be in writing, and subscribed by the party
when one advances money at the request of another (on his promise to repay it) to pay the
charged, or by his agent; evidence, therefore, of the agreement can not be received without
debt of the third party, as the payment creates no debt against such third party, not being
the writing, or secondary evidence of its contents:
made at all upon his credit, the liability of the party on whose request and promise it was made
is original and not collateral, and not within the Statute of Frauds. (Pearce v. Blagrave, 3 Com.
Law, 338; Proprs. of Upper Locks v. Abbott, 14 N. H., 157.) But it has been said that if a
x
x
x
person for whose benefit the promise is made was himself liable at all, the promise of the
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defendant must be in writing. (Matson v. Wharam, 2 T. R., 80) And the text writers point out
that if this rule be understood as confined to cases where a third party and the defendant are
liable in the same way, and to do the same thing, one as principal and the other as surety, it
may be accepted as the uniform doctrine of all the cases both in England and in the United
States. (Browne on the Statute of Frauds, par. 197, and cases there cited.) In such cases, the
defendant is said to come in aid to procure the credit given to the principal debtor, and the
question therefore, ultimately is "upon whose credit the goods were sold or the money
advanced, or whatever other thing done which the defendant by his promise procured to be
done;" and where the defendant stands in the relation to the third party, the defendants
promise is required to be in writing as collateral." (Browne on the Statute of Frauds, p. 227,
and notes 2 and 4.) But it must be clearly recognized that these principles are applicable only
where the parties are liable in the same way to do the same thing, one as principal and the
other as surety, and for if the credit is given to both jointly, since neither can be said to be
surety for the other to the creditor, their engagement need not be in writing.

admitted on the stand that his contractor and no commercial credit or standing in the
community, and it appears that plaintiffs, after investigation, absolutely refused to extend him
any credit whatever upon any conditions and that the defendant was well aware of that fact.
From the testimony of the contractor himself, it seems clear that when the agreement for the
delivery of lumber was made, the credit was extended not to the contractor but to the
defendant. It appears that both plaintiffs and defendant exercised special precautions to see
that all the lumber was delivered on defendants lot, and that before each bill of lumber was
delivered, defendant carefully examined the invoice, which by agreement was submitted to
him, and that no lumber was delivered without his approval. The precise language in which the
verbal agreement was made does not appear from the evidence, and while it is true that one of
the plaintiffs in his deposition, made in the United States, refers to the agreement as one
whereby defendant "guaranteed" payment for the lumber, we are satisfied from all the evidence
that the word was not used by this witness in this technical sense, and that he did not mean
thereby to say that defendant guaranteed payment by the contractor, but rather that after
satisfying plaintiff as to his own financial responsibility, he obligated himself to pay for the
As has been said before, it is has been frequently a matter of difficulty to determine to whom lumber delivered to his contractor for use in his house. The only evidence in the whole record in
the credit has actually been given, whether to the defendant alone, in which case the debt is
doubt, is the testimony of plaintiffs acting manager during plaintiffs absence in the United
his own and his promise is good without writing; or in part to the third party, in which case the States who stated that he sent a statement of account and a bill for the lumber to the
defendants promise being collateral to and in aid of the third partys liability, requires writing to contractor; but this fact, which under ordinary circumstances would be strong evidence that the
support it, or to both jointly, in which case as has been said in their engagement need not be in credit was originally extended to the contractor and merely guaranteed by the defendant, was
writing. This must be determined from the language and expressions used by the parties
satisfactorily and sufficiently explained by proof that the plaintiffs were compelled to leave for
promising, and from an examination of the circumstances showing the understanding parties. the United States quite unexpectedly, with no opportunity to go over the accounts with their
The unexplained fact that charges were made against a third party on the plaintiffs books, or acting manager, who was left in charge, so that the latter having no knowledge whatever as to
that the bill was presented to the original debtor in the first instance, unqualified by special
plaintiffs agreement with defendant, and learning that lumber had been delivered to the
circumstances, tends to prove that the credit was given in whole or in part to him, and that the contractor, supposed that it had been sold to him, and only discovered his mistake on later
defendants promise is a collateral one. (Larson v. Wyman, 14 Wend. (N. Y.) , 639) But it is
investigation and correspondence with his principals, after the contractor had notified him as to
evidently quite impossible to specify any fact or set of facts on which the question as to whom the true nature of the transaction.
the plaintiff gave credit is to be determined. In the language of Buchanan, C.J., in Elder v.
Warfield (7 Harris & J. (Md.) , 397), "the extent of the undertaking, the expression used, the
The judgment appealed from should be affirmed with the costs of this instance against
situation of the parties, and all circumstances of the case should be taken into consideration." the Appellant. So ordered.
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library

Application of these principles has been made where owners of building going up under
contract enter into agreements upon the faith of which subcontractors or others have continued
to supply labor or material after the principal contractor has become either actually or probably
unable to pay. In these cases, the question is whether the services for which the action is
brought against the owner of the building were performed solely upon the credit of his promise,
to be himself responsible and to pay for the materials and labor furnished, or whether the
subcontractors and laborers continued to furnish labor and materials to the principal contractor
relying upon his obligation guaranteed by the promise of the owner. (Gill v. Herrick, 111 Mass.,
501; Walker v. Hill, 119 Mass., 249; Clifford v. Luhring, 69 Ill., 401; Rawson v. Springsteen, 2
Thomp. & C. (N. Y.) , 416; Belknap v. Bender, 6 Thomp. & C. (N. Y.) , 611; Jefferson County v.
Slagle, 66 Pa. St., 202. See Eshleman v. Harnish, 76 Pa. St., 97; Haverly v. Mercur, 78 Pa. St.,
257; Weyand v. Critchfield, 3 Grant (Pa.) , 113; Lakeman v. Mountstephen, L. R. 7 H. L., 17.)
Taking into consideration all the circumstances of the case at bar, we are satisfied that the
credit for the lumber delivered by the plaintiffs to defendants contractor was extended solely
and exclusively to the defendant under the verbal agreement had with him, and therefore, that
the provisions of the statute did not require that it should be made in writing. Defendant

Gancayco Law Ogices for Petitioners.


Sergio R. Manzo for Private Respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SALES; THE PRICE MUST BE CERTAIN,
OTHERWISE THERE IS NO TRUE CONSENT BETWEEN THE PARTIES; CASE AT BENCH. The
price must be certain, it must be real, not fictitious. It is not necessary that the certainty of the
price be actual or determined at the time of executing the contract. The fact that the exact
amount to be paid therefor is not precisely fixed, is no bar to an action to recover such
compensation, provided the contract, by its terms, furnishes a basis or measure for
ascertaining the amount agreed upon. The price could be made certain by the application of
known factors; where, in a sale of coal, a basic price was fixed, but subject to modification "in
proportion to variations in calories and ash content, and not otherwise," the price was held
certain. A contract of sale is not void for uncertainty when the price, though not directly stated
in terms of pesos and centavos, can be made certain by reference to existing invoices identified
in the agreement In this respect, the contract of sale is perfected. The price must be certain,
otherwise there is no true consent between the parties. There can be no sale without a price. In
the instant case, however, what is dramatically clear from the evidence is that there was no
meeting of mind as to the price, expressly or impliedly, directly or indirectly. Sale is a
consensual contract. He who alleges it must show its existence by competent proof. Here, the
very essential element of price has not been proven.
2. ID.; ID.; DOUBLE SALE; NOT APPLICABLE IN THE CASE AT BENCH. The civil law rule on
double sale finds no application because there was no sale at all to begin with. What took place
was only a prolonged negotiation to buy and to sell, and at most, an offer and a counter-offer
but no definite agreement was reached by the parties. Hence, the rules on perfected contract of
sale, statute of frauds and double sale find no relevance nor application.

THIRD DIVISION
[G.R. No. 107624. January 28, 1997.]
GAMALIEL C. VILLANUEVA and IRENE C. VILLANUEVA, Petitioners, v. COURT OF
APPEALS, SPOUSES JOSE and LEONILA DELA CRUZ, and SPOUSES GUIDO and
FELICITAS PILE,Respondents.

3. ID.; ID.; UNENFORCEABLE CONTRACT; STATUTE OF FRAUDS; NO BASIS FOR THE


APPLICATION WHERE THERE IS NO PERFECTED CONTRACT. The statute of frauds applies
only to executory contracts and not to partially or completely executed ones. However, there is
no perfected contract in this case, therefore there is no basis for the application of the statute
of frauds. The application of such statute presupposes the existence of a perfected contract and
requires only that a note or memorandum be executed in order to compel judicial enforcement
thereof.
4. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE LOWER COURTS ARE ENTITLED TO
GREAT WEIGHT. The findings of fact of the lower courts are entitled to great weight and not
disturbed except for cogent reasons. Indeed, they should not be changed on appeal in the

absence of a clear showing that the trial court overlooked, disregarded, or misinterpreted some dated February 12, 1986 (Exhibit A) for her to inspect the subject property. Because said
facts of weight and significance, which if considered would have altered the result of the case. property was in arrears in the payment of the realty taxes, defendant Jose dela Cruz
approached plaintiff Irene Villanueva and asked for a certain amount to pay for the taxes so
that the property would be cleared of any incumbrance (sic). Plaintiff Irene Villanueva gave
P10,000.00 on two occasions P5,000.00 on July 15, 1986 (Exhibit F) and another P5,000.00
on October 17, 1986 (Exhibit D). It was agreed by them that said P10,000.00 would form part
of the sale price of P550,000.00. Sometime thereafter, defendant Jose dela Cruz went to
DECISION
plaintiff Irene Villanueva bringing with him Mr. Ben Sabio, a tenant of one of the units in the 3door apartment building located on the subject property, and requested her and her son to
allow said Ben Sabio to purchase one-half (1/2) of the property where the unit occupied by him
pertained to which the plaintiffs consented, so that they would just purchase the other half
PANGANIBAN, J.:portion and would be paying only P265,000.00, they having already given an amount of
10,000.00 used for paying the realty taxes in arrears. Accordingly the property was subdivided
and two (2) separate titles were secured by defendants Dela Cruz. Mr. Ben Sabio immediately
made payments by installments.
The main issue here is whether a contract of sale has been perfected under the attendant facts Sometime in March, 1987 or more specifically on March 6, 1987, defendants Dela Cruz
executed in favor of their co-defendants, the spouses Guido Pili (sic) and Felicitas Pili (sic), a
and circumstances.
Deed of Assignment of the other one-half portion of the parcel of land wherein plaintiff Gamaliel
The petition filed on December 18, 1992 assails the Decision 1 of respondent Court of Appeals Villanuevas apartment unit is situated, designated as Lot 3-A of the Subdivision Plan (LRC)
promulgated on October 23, 1992 in CA-G.R. CV No. 30741 rendered by the Eleventh Division Psd-337290, Block 24, Pcs-4865, with an area of 201.50 square meters, more or less, and
covered by Transfer Certificate of Title 332445, purportedly as full payment and satisfaction of
2 dismissing the appeal of petitioners and affirming the decision in Civil Case No. Q-50844
an indebtedness (sic) obtained from defendants Pili (sic) (Exhibit G; Exhibit 3). Consequently,
dated December 28, 1990 of the Regional Trial Court, Branch 83 of Quezon City, presided by
Transfer Certificate of Title No. 356040 was issued in the name of defendants Pili (sic) also on
Judge Estrella T. Estrada. The dispositive portion of the affirmed decision of the RTC reads: 3
March 6, 1987. Immediately thereafter, the plaintiffs came to know of such assignment and
transfer and issuance of a new certificate of title in favor of defendants Pili (sic) so that plaintiff
"WHEREFORE, judgment is hereby rendered dismissing plaintiffs instant action for specific
performance. However, defendant Jose de la Cruz is hereby ordered to refund or reimburse the Gamaliel Villanueva complained to the barangay captain of Bahay Turo, Quezon City, on the
ground that there was already an agreement between defendants Dela Cruz and themselves
amount of Ten Thousand Pesos (P10,000.00) to plaintiff Irene Villanueva.
that said portion of the parcel of land owned by defendants Dela Cruz would be sold to him. As
The parties other claims for damages and attorneys fees are also hereby dismissed for being there was no settlement arrived at, the plaintiffs elevated their complaint to this Court through
the instant action."
necessary consequences of litigation.
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No pronouncement as to costs."

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The Facts

The trial court rendered its decision in favor of private respondents. An appeal was duly
brought to public respondent which as earlier stated affirmed the said decision. Hence, this
petition for review on certiorariunder Rule 45 of the Rules of Court.
The Issues

The factual antecedents of this case as found by the trial court were reproduced in the assailed
Decision, 4 as follows: 5
". . . plaintiff (and now petitioner) Gamaliel Villanueva has been a tenant-occupant of a unit in
the 3-door apartment building erected on a parcel of land owned by defendants-spouses (now
private respondents) Jose Dela Cruz and Leonila dela Cruz, with an area of 403 square meters,
more or less, located at Short Horn, Project 8, Quezon City (Exhibit L), having succeeded in
the occupancy of said unit from the previous tenant Lolita Santos sometime in 1985. About
February of 1986, defendant Jose dela Cruz offered said parcel of land with the 3-door
apartment building for sale and plaintiffs, son and mother, showed interest in the property. As
an initial step, defendant Jose dela Cruz gave plaintiff Irene Villanueva a letter of authority

The following errors are alleged to have been committed by public respondent: 6
"I
The Court of Appeals erred in failing to find that there is a perfected contract of sale of subject
property between petitioners and respondents spouses Dela Cruz
II

portions thereof as it found that no perfected contract of sale was agreed upon. Thus, public
respondent explained: 10

The Court of Appeals erred in applying the Statute of Frauds in this case when it is a contract of
sale that was partly executed
"Appellants theory of earnest money cannot be sustained in view of the catena of circumstance
showing that the P10,000.00 given to appellees was not intended to form part of the purchase
price. As the great commentator Manresa observes that the delivery of part of the purchase
III
price should not be understood as constituting earnest money unless it be shown that such was
the intention of the parties (Manresa Commentaries on the Civil Code, 2d ed., Vol. 10, p. 85).
Moreover, as can be gleaned from the records there was no concrete agreement to the price
and manner of payment:
The Court of Appeals erred in not finding that this being a case of double sale of immovable
property, although respondents spouses Pili (sic) recorded the deed of assignment to them in
the Registry of Deeds they were not in good faith while (sic) petitioners as purchasers thereof Q Will you tell us why your transaction with plaintiffs (petitioners herein) did not materialize?
were in prior possession in good faith of the property
A Because I have been returning to Mrs. Villanueva and in fact we have executed a Deed of
Sale which was in fact not signed.
IV
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Q Why did you not sign the Deed of Sale you mentioned?
The Court of Appeals erred in failing to reverse and set aside the appealed judgment of the trial A The Villanuevas told me to prepare the documents involved in this transaction because
according to her (sic) she (sic) was only waiting for the money to come but because I was then
court and rendering a judgment for petitioners"
being pressed by Felicitas Pile for the payment of my loan. I was constrained to assign the
In the opinion of this Court, these four issues may be summed up in a single question: Under property to her.
the factual circumstances of this case, was there a perfected contract of sale?
Q What are your other reasons?
Petitioners contend that the adopted findings of facts of public respondent are contradicted by
its ruling that there is no agreement as to the price of the apartments. They argue that on the A Aside from that we were still huggling (sic) for the purchase price then and since I was being
pressed by my creditor, I was forced to make the assignment."
basis of the facts found by public respondent, "the conclusion is ineluctable that there was a
perfected contract of sale of the subject property." 7 According to petitioners, private
The most that public respondent can be faulted with is its failure to expressly state that
respondents had to secure their consent to enable "Sabio to buy the one-half portion of the
property where the unit Sabio was renting pertains so that petitioners will pay only the balance although its conclusion of law was correct, the trial court erred in its statement of the facts.
of P265,000.00 for the purchase of the other half after deducting the P10,000.00 petitioners
Was There a Perfected Contract of Sale?
advanced." 8 Public respondents conclusion that the P10,000.00 paid to petitioners was not
intended as part of the purchase price allegedly "collides" with its quoted findings, as follows:
Petitioners contend that private respondents counsel admitted that "P10,000 is partial or
9
advance payment of the property (TSN, June 14 [should be 15], 4 (sic) 1990, pages 6 to 7)."
Necessarily then, there must have been an agreement as to price. They cite Article 1482 of the
"It was agreed by them that said P10,000.00 would form part of the sale price of
P550,000.00. . . . defendant Jose de la Cruz . . . . requested her and her son to allow said Ben Civil Code which provides that "(w)henever earnest money is given in a contract of sale, it shall
Sabio to purchase one-half (1/2) of the property where the unit occupied by him pertained to be considered as part of the price and as proof of the perfection of the contract." 11
which plaintiffs consented, so they would purchase the other half portion and would be paying
Private respondents contradict this claim with the argument that "(w)hat was clearly agreed
only P265,000.00 they having already given an amount of P10,000.00 used for paying the
(upon) between petitioners and respondents Dela Cruz was that the P10,000.00 primarily
realty taxes in arrears. . . ."(Emphasis in the petition).
intended as payment for realty tax was going to form part of the consideration of the sale if
and when the transaction would finally be consummated." 12 Private respondents insist that
The Courts Ruling
there "was no clear agreement as to the true amount of consideration." 13
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The arguments of petitioners do not persuade us. While it is true that respondent Court
adopted the recitation of facts of the trial court, it nonetheless later corrected the relevant

Generally, the findings of fact of the lower courts are entitled to great weight and not disturbed
except for cogent reasons. 14 Indeed, they should not be changed on appeal in the absence of
a clear showing that the trial court overlooked, disregarded, or misinterpreted some facts of

weight and significance, which if considered would have altered the result of the case. 15 In
this case, and subject to the above clarification made by the appellate court, petitioners have
failed to convince us to alter such findings.

(ATTY. GUPIT:)

He answered there is a document between Villanueva and Dela Cruz.


In fact, a review of the evidence merely strengthens the conclusions of public respondent. We
scoured the transcripts but we found that respondent dela Cruz never testified that he (or his ATTY. (MANZO):
spouse Leonila) had agreed to a definite price for the subject property. In fact, his testimony
during the cross-examination firmly negated any price agreement with petitioners because he Let the witness be confronted by the document."
and his wife quoted the price of P575,000.00 and did not agree to reduce it to P550,000.00 as
claimed by petitioner: 16
We are not unmindful of petitioner Irene Villanuevas claim that the parties agreed on the sum
of P550,000.00, as follows: 17
"Q And despite the fact that the property was mortgaged with Development Bank of Rizal you
still contracted (sic) Sandiego (sic) for the purpose of selling the property?
"ATTY. GUPIT
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cralaw virtua1aw library

A Yes, sir.

What was the result of the negotiations?

Q And did Sandiego (sic) agree as agent in selling the property despite the fact that it was
mortgaged with the Development Bank of Rizal?

WITNESS (Irene Villanueva):

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We agreed that he would sell the land to us for the sum of, the amount of P550,000.00

A Yes, sir.
x

Q Can you recall the condition you offered to Sandiego (sic) to act as your agent in selling the
same?

A He will get certain commission for the same.

WITNESS

Q Will you state the price and conditions set forth in selling the property?

After the Deed of Sale relative to the purchase of the property was prepared, Mr. dela Cruz
(private respondent Jose) came to me and told me that he talked with one of the tenants and
he offered to buy the portion he was occupying if I will agree and I will cause the partition of
the property between us.

A P575 thousand, sir.


Q That is the same offer that was given to you by plaintiff Mrs. Villanueva?
A I can not recall, I think so.

ATTY. GUPIT

Q And you will agree with me that 1/2 of P575 thousand is how much (sic)?

Did you agree with the proposal of Mr. dela Cruz that the portion of the property will be sold to
one of the tenants?

ATTY. MANZO:

WITNESS

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There (is) nothing to agree with you counsel.

Yes(,) sir. I agreed because we are (sic) both tenants.

ATTY. GUPIT:

ATTY. GUPIT

And the offer to you, the agreed price between you and Mrs. Villanueva is P275 thousand as
stated in the agreement that was prepared?

How about the price? How much are (sic) you supposed to pay in order to complete your
payments?

ATTY. MANZO:

WITNESS

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Counsel is again assuming that there was an agreement made already.

We are (sic) supposed to divide the amount of P550,000.00."

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"mere executory contract and not a completed or executed contract." 31


To settle the above conflicting claims of the parties, petitioners could have presented the
contract of sale allegedly prepared by private respondent Jose dela Cruz. Unfortunately, the
Both contentions are inaccurate. True, the statute of frauds applies only to executory contracts
contract was not presented in evidence. However, petitioners aver that even if the unsigned
and not to partially or completely executed ones. 32 However, there is no perfected contract in
deed of sale was not produced, private respondent Jose dela Cruz "admitted preparing (said)
this case, therefore there is no basis for the application of the statute of frauds. The application
deed in accordance with their agreement." 18 This "judicial admission" is allegedly the "best
of such statute presupposes the existence of a perfected contract and requires only that a note
proof of its existence." 19 Further it was "impossible" for petitioners to produce the same "since or memorandum be executed in order to compel judicial enforcement thereof. Also, the civil law
it was and remained in the possession" of private respondent Jose dela Cruz. 20
rule on double sale finds no application because there was no sale at all to begin with.
We do not agree with petitioners. Assuming arguendo that such draft deed existed, it does not
necessarily follow that there was already a definite agreement as to the price. If there was,
why then did private respondent Jose de la Cruz not sign it? If indeed the draft deed of sale
was that important to petitioners cause, they should have shown some effort to procure it.
They could have secured it through a subpoena duces tecum or thru the use of one of the
modes of discovery. But petitioners made no such effort. And even if produced, it would not
have commanded any probative value as it was not signed.

At bottom, what took place was only a prolonged negotiation to buy and to sell, and at most,
an offer and a counter-offer but no definite agreement was reached by the parties. Hence, the
rules on perfected contract of sale, statute of frauds and double sale find no relevance nor
application. cd
WHEREFORE, the Petition is DENIED and the assailed Decision is AFFIRMED. Costs against
petitioners.

As has been said in an old case, the price of the leased land not having been fixed, the
SO ORDERED.
essential elements which give life to the contract were lacking. It follows that the lessee cannot
compel the lessor to sell the leased land to him. 21 The price must be certain, it must be real,
not fictitious. 22 It is not necessary that the certainty of the price be actual or determined at
the time of executing the contract. The fact that the exact amount to be paid therefor is not
precisely fixed, is no bar to an action to recover such compensation, provided the contract, by
its terms, furnishes a basis or measure for ascertaining the amount agreed upon. 23 The price
could be made certain by the application of known factors; where, in a sale of coal, a basic
price was fixed, but subject to modification "in proportion to variations in calories and ash
content, and not otherwise," the price was held certain. 24 A contract of sale is not void for
uncertainty when the price, though not directly stated in terms of pesos and centavos, can be
made certain by reference to existing invoices identified in the agreement. In this respect, the
contract of sale is perfected. 25 The price must be certain, otherwise there is no true consent
between the parties. 26 There can be no sale without a price. 27 In the instant case, however,
what is dramatically clear from the evidence is that there was no meeting of mind as to the
price, expressly or impliedly, directly or indirectly.
Sale is a consensual contract. He who alleges it must show its existence by competent proof.
Here, the very essential element of price has not been proven.
Lastly, petitioners claim that they are ready to pay private respondents 28 is immaterial and
irrelevant as the latter cannot be forced to accept such payment, there being no perfected
contract of sale in the first place.
Applicability of Statute of Frauds and the Law on Double Sale
Petitioners contend that the statute of frauds does not apply because such statute applies only
to executory contracts whereas in this case the contract of sale had already been partly
executed. 29 Further, petitioners, citing Article 1544 of the Civil Code asseverate that being in
possession of the property in good faith therefore they should be deemed the lawful owners
thereof. 30 On the other hand, private respondents counter that the contract in this case is a

1. MORTGAGES; RIGHT OF STOCKHOLDER TO HAVE MORTGAGE OF CORPORATION SET ASIDE.


One W as intervenor is permitted to ask that the mortgage contract executed by the
corporation V be declared null and void, since he was one of the largest individual stockholders
of the corporation, was until the inauguration of the receivership of the corporation exercising
control over and dictating its policy, was the one who asked for the appointment of a receiver,
was the one who was the leading figure in the formulation of a creditors agreement, and was
the one who pledged his own property to the extent of over P4,000,000 in an endeavor to
assist in the rehabilitation of the corporation V.
2. ID.; RECEIVERS; VALIDITY OF N BANK AND CORPORATION V MORTGAGE. A mortgage
was executed on February 20, 1922, before the termination of the receivership of corporation
V, by corporation V by its secretary-treasurer and by N Bank by its general manager, but was
not ratified before a notary public until March 8, 1922, and was not recorded in the registry of
property until March 21, 1922, after the termination of the receivership on February 28, 1922.
Held, on these and other facts which are set forth in the decision, that the N Bank Corporation
V mortgage has not been legally executed by the V corporation, and consequently cannot be
given effect.
3. ID.; ID.; ID. A mortgage executed by a corporation and a creditor while a receiver is in
charge of the corporation is a nullity.
4. ID.; ID.; ID. A mortgage executed by a corporation under receivership and a creditor
while the corporation was in the hands of a receiver, but not definitely perfected until after the
lifting of the receivership, pursuant to implied promises that the creditor would continue to
operate the corporation, at a time when the creditor was a dominating influence in the affairs of
the corporation and the hands of the other creditors were tied cannot be considered the free
act of the corporation.

EN BANC
[G.R. No. 25400. January 14, 1927.]
THE PHILIPPINE NATIONAL BANK, Plaintiff-Appellee, v. THE PHILIPPINE VEGETABLE
OIL CO., INC., Defendant-Appellee. PHIL. C. WHITAKER, Intervenor-Appellant.
Jose Abad Santos for Plaintiff-Appellee.
No appearance, for Defendant-Appellee.
Ross, Lawrence & Selph, Thomas Cary Welch and Paredes, Buencamino & Yulo
for Appellant.
SYLLABUS

5. PLEADING AND PRACTICE; STATUTE OF FRAUDS; SECTION 335 OF CODE OF CIVIL


PROCEDURE CONSTRUED. The broad view is that the Statute of Frauds applies only to
agreements not to be performed on either side within a year from the making thereof.
Agreements to be fully performed on one side within the year are taken out of the operation of
the statute.
6. ID.; ID.; ID. The Statute of Frauds was enacted for the purpose of preventing frauds. It
should not be made the instrument to further them.
7. CORPORATIONS; PHILIPPINE NATIONAL BANK; POWER OF BOARD OF DIRECTORS AND
GENERAL MANAGER OF PHILIPPINE NATIONAL BANK. In conformity with the Charter of the
Philippine National Bank, Act No. 2612, as amended, the general manager of the bank can only
enter into valid contracts on behalf of the bank with the advice and consent of its board of
directors.
8. ID.; ID.; ID.; DAMAGES. In the present instance, it is found that the board of directors of
the Philippine National Bank had not consented to an agreement for practically unlimited
backing of the V corporation and had not ratified any promise to that effect made by its general
manager.

9. ID.; ID.; ID.; ID. All the evidence, documentary and oral, pertinent to the issue
considered and found to disclose no binding promise, tacit or express, made by the N Bank to This was the precarious situation which in the latter part of 1920 and the early part o 1921
continue indefinitely the operation of the V corporation. Accordingly, intervenor W is not
confronted the Vegetable Oil Company, its General Manager Phil. C. Whitaker, the Philippine
entitled to recover damages from the N Bank.
National Bank, and the various creditors of the Vegetable Oil Company. Bankruptcy was
imminent. On January 1, 1921, Mr. Whitaker made his first offer to pledge certain private
Per JOHNSON, J., dissenting:
properties to secure the creditors of the Oil Company (Intervenors Exhibit 1). In February of
the same year, a creditors meeting was held. At the instance of Mr. Whitaker but inspired to
10. REAL PROPERTY; MORTGAGE; "CUSTODIA LEGIS." A mortgage executed in conformity such action by the bank, a receiver for the Vegetable Oil Company was appointed by the Court
with the provisions of articles 1867 and 1875 of the Civil Code upon property, after the
of First Instance of Manila on March 11, 1921. (Case No. 19644 Court of First Instance of
discharge of the receiver and the return of the property to the owner, cannot be held to be a Manila.)
mortgage on property in custodia legis.
During the period when a receiver was in control of the property of the Vegetable Oil Company,
11. ID.; ID. WHEN A PUBLIC DOCUMENT EVIDENCING AN INDEBTEDNESS BECOMES A
a number of events occurred. The first was the agreement perfected by the Vegetable Oil
MORTGAGE. A contract evidencing an indebtedness cannot be considered a mortgage until Company, Mr. Whitaker, and some of the creditors of the Oil Company on June 27, 1921
the same has been registered in accordance with the provisions of article 1876 of the Civil
whereby the creditors transferred to Mr. Whitaker a part of their claims against the Vegetable
Code.
Oil Company in consideration of the execution by Mr. Whitaker of a trust deed of his property.
The Philippine National Bank was not a direct party to the agreement although the officials of
the bank had full knowledge of its accomplishment and the general manager of the bank placed
his O. K. at the end of the final draft. (Intervenors Exhibit 10.) The next move of the bank was
to obtain a new mortgage from the Vegetable Oil Company on February 20, 1922. Shortly
thereafter, on February 28, 1922, the receivership for the Vegetable Oil Company was
DECISION
terminated. The bank suspended the operation of the Vegetable Oil Company in May, 1922, and
definitely closed the Oil Companys plant on August 14. 1922.
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Out of the foregoing facts which are not in dispute and others which are in dispute, arose the
MALCOLM, J.:action of the Philippine National Bank of May 7, 1924, to foreclose its mortgage on the property
of the Vegetable Oil Company. The Vegetable Oil Company on its part countered with certain
special defenses which need not be described and with the interposition of a counterclaim for
P6,000,000. Phil. C. Whitaker presented a complaint in intervention. The judgment rendered
was in favor of the plaintiff and against the defendant which was ordered to pay the sum of
This appeal involves the legal right of the Philippine National Bank to obtain a judgment against P15,787,454.54, representing the liquidation between the plaintiff and the defendant, with
legal interest beginning with May 8, 1923, together with P25,000 attorney s fees, and costs,
the Philippine Vegetable Oil Co., Inc., for P15,812,454, and to foreclose a mortgage on the
property of the Philippine Vegetable Oil Co., Inc., for P17,000,000, and the legal right of Phil. C. with the addition of the usual order to foreclose the mortgage. The counterclaim of the
defendant and the complaint in intervention were dismissed.
Whitaker as intervenor to obtain a judgment declaring the mortgage which the Philippine
National Bank seeks to foreclose to be without force and effect, requiring an accounting from
the Philippine National Bank of the sales of the property and assets of the Philippine Vegetable The trial judge in his decision announced and answered three questions, viz: (1) Whether the
execution of the mortgage, Exhibit A of the plaintiff, was the free act of the defendant; (2)
Oil Co., Inc., and ordering the Philippine Vegetable Oil Co., Inc., and the Philippine National
whether this mortgage was null and without force because at the time of its execution all the
Bank to pay him the sum of P4,424,418.37.
property of the defendant was under the control of a receiver appointed by the court and
In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter be called the Vegetable Oil neither the approval of the receiver nor of the court had been obtained; and (3) whether the
plaintiff had failed to comply with the contract, that it was alleged to have celebrated with the
Company, found itself in financial straits. It was in debt to the extent of approximately
P30,000,000. The Philippine National Bank was the largest creditor. The Vegetable Oil Company defendant and the intervenor, that it would furnish funds to the defendant so that it could
continue operating its factory. Much the same analysis of the issues is made by the intervenor
owed the bank P17,000,000. Over P13,000,000 were due the other creditors. The Philippine
as appellant. The first error, in relation with the sixth error of the assignment of errors,
National Bank was secured principally by a real and chattel mortgage for P3,500,000. On
concerns the holding that the mortgage, Exhibit A, has been legally and validly executed by the
January 10, 1921, the Vegetable Oil Company executed another chattel mortgage in favor of
the bank on its vessels Tankerville and H. S. Everett to guarantee the payment of sums not to Philippine Vegetable Oil Co., Inc. The second, third, fourth, and fifth errors, in relation with the
sixth error of the assignment of errors, concern the holding that the Philippine National Bank
exceed P4,000,000.
had not bound itself to finance the operation of the Philippine Vegetable Oil Co., Inc. In this

later connection, the main point at issue between the Philippine National Bank and Phil. C.
Whitaker as disclosed by the amended answer of the Philippine National Bank to the complaint
in intervention, and the opening sentence of the memorandum for intervenor-appellant filed in
this court, is whether the Philippine National Bank ever made any contract binding the bank to
provide the necessary operating capital to the Philippine Vegetable Oil Co., Inc., and whether
Mr. Whitaker has established his right to recover damages from the bank by reason of the
latters alleged refusal to finance the operation of the Philippine Vegetable Oil Co., Inc. It
results, therefore, in the appeal dividing into two main subjects, the first, the validity of the
Philippine National Bank-Philippine Vegetable Oil Co., Inc., mortgage of February 20, 1922, and
the second, the alleged agreement of the Philippine National Bank to finance the Philippine
Vegetable Oil Co., Inc. These two topics we propose to discuss separately and in order.
Parenthetically, it may be said that our mode of approach will be to sweep aside technicalities
and to resolve in a broad and liberal manner the various perplexing questions which are before
the court.
I. Validity of the Philippine National Bank Philippine Vegetable Oil Co., Inc., mortgage of
February 20,1922.

to these places after Mr. Wilson had on July 26, 1921, in a letter to Mr. Whitaker relative to the
reorganization of the Vegetable Oil Company, suggested the resignation of two members of the
Board of Directors so that the bank might "have rather a close working relationship with the
Philippine Vegetable Oil Co." (Intervenors Exhibit 4). The resolution of the Board of Directors of
September 2, 1921, naming Messrs. Wilson and Cuaderno "to represent the Philippine National
Bank in the Board of Directors of the Philippine Vegetable Oil Co. as members thereof" did so
with the understanding "that neither one of them has any interest other than that of the banks
in the Philippine Vegetable Oil Co., and that in accepting these directorships they are doing it
solely for the bank." According to the testimony of Major Randall, Mr. Wilson became President
of the Vegetable Oil Company on September 12, 1921.
It has been said that the mortgage was executed on February 20, 1922. That is undeniable.
The allegation of the plaintiffs complaint is "That the defendant, on the 20th day of February,
1922, duly executed to the plaintiff a mortgage." The mortgage in question recites: "THIS
MORTGAGE, executed at the City of Manila, Philippine Islands, this twentieth day of February,
nineteen hundred and twenty-two." However, the mortgage was not ratified before a notary
public until March 8, 1922, and was not recorded in the registry of property until March 21,
1922.

At the outset, the appellee challenges the right of Phil. C. Whitaker as intervenor to ask that
the mortgage contract executed by the Vegetable Oil Company be declared null and void.
To add one more date, it will be recalled that the receivership ended on February 28, 1922. In
Appellee is right as to the premises. The Vegetable Oil Company is the defendant. The
other words, as partially interpretative of the situation, the mortgage was executed by the
corporation has not appealed. At the same time, it is evident that Phil. C. Whitaker was one of Philippine National Bank, through its General Manager, and another corporation before the
the largest individual stockholders of the Vegetable Oil Company, and was until the
termination of the receivership of the said corporation, but was not acknowledged or recorded
inauguration of the receivership, exercising control over and dictating the policy of that
until after the termination of the receivership.
company. Out of twenty-eight thousand shares of the Vegetable Oil Company, Mr. Whitaker was
the owner of 5,893 fully paid shares of the par value of P100 each. He it was who asked for the In the complaint of Phil. C. Whitaker filed in the Court of First Instance of Manila in which it was
appointment of the receiver. He it was who was the leading figure in the negotiations between prayed that a receiver be appointed to take charge of the Philippine Vegetable Oil Co., Inc., it
the Vegetable Oil Company, the Philippine National Bank, and the other creditors. He it was
was alleged "that the largest individual creditor of said corporation is the Philippine National
who pledged his own property to the extent of over P4,000,000 in an endeavor to assist in the Bank, the indebtedness to which amounts to approximately P16,000,000, a portion of which
rehabilitation of the Vegetable Oil Company. He is injuriously affected by the mortgage. In
indebtedness is secured by mortgage on the major part of the assets of the corporation." The
truth, Mr. Whitaker is more vitally interested in the outcome of this case than is the Vegetable order of the court appointing a receiver contained a similar recital. The Philippine National Bank
Oil Company. Conceivably if the mortgage had been the free act of the Vegetable Oil Company, held the mortgage mentioned, and possibly two others not mentioned, when the receivership
it could not be heard to allege its own fraud, and only a creditor could take advantage of the
proceedings were initiated.
fraud to intervene to avoid the conveyance.
It must be evident to all that the Philippine National Bank could legally secure no new mortgage
We find no merit in appellees objection and pass on to consider the main question on its
by the accomplishment of documents between its officials and the officials of the Vegetable Oil
merits.
Company while the property of the latter company was in custodia legis. The Vegetable Oil
Company was then inhibited absolutely from giving a mortgage on its property. The receiver
The mortgage, Exhibit A, was executed on February 20, 1922, by "Philippine Vegetable Oil Co., was not a party to the mortgage. The court had not authorized the receiver to consent to the
Inc., By E. G. Abry, Secretary-Treasurer" "Philippine National Bank By E. W. Wilson, General
execution of a new mortgage. Whether the court could have done so is doubtful, but that it
Manager." E. G. Abry, according to his testimony, was employed as secretary-treasurer of the would have thus consented is hardly debatable, considering that it would desire to protect the
Vegetable Oil Company after a conference with Mr. Wilson and continued in this position during rights of all the creditors and not the rights of one particular creditor. The legal conclusion is
the period when the Vegetable Oil Company was under the control either of a receiver or of the axiomatic. (Code of Civil Procedure, secs. 173 et seq., Compaia General de Tabacos v. Gauzon
bank. The other signature to the instrument was that of E. W. Wilson, General Manager of the and Pomar [1911], 20 Phil., 261.)
Philippine National Bank.
To all this the appellee as well as the trial court have answered that while it is true that the
At this time, E. W. Wilson and Miguel Cuaderno, a Director of the Philippine National Bank, were document was executed on February 20, 1922, at a time when the properties of the mortgagor
serving as Directors of the Vegetable Oil Company. Messrs. Wilson and Cuaderno were elected were under receivership, the mortgage was not acknowledged before a notary public until

March 8, 1922, after the court had determined that the necessity for a receiver no longer
existed. But the additional fact remains that while the mortgage could not have been executed
without the dissolution of the receivership, such dissolution was apparently secured through
representations made to the court by counsel for the bank that the bank would continue to
finance the operations of the Vegetable Oil Company (See testimony of Judge Simplicio del
Rosario). Instead of so doing, the bank within less than two months after the mortgage was
recorded, withdrew its support from the Vegetable Oil Company, and in effect closed its
establishment. Also it must not be forgotten that the hands of other creditors were tied
pursuant to the creditors agreement of June 27, 1921.
To place emphasis on the outstanding facts, it must be repeated that the mortgage was
executed while a receiver was in charge of the Vegetable Oil Company. A mortgage
accomplished at such a time by the corporation under receivership and a creditor would be a
nullity. The mortgage was definitely perfected subsequent to the lifting of the receivership
pursuant to implied promises that the bank would continue to operate the Vegetable Oil
Company. It was then accomplished when the Philippine National Bank was a dominating
influence in the affairs of the Vegetable Oil Company. On the one hand was the Philippine
National Bank in person. On the other hand was the Philippine National Bank by proxy. Under
such circumstances, it would be unconscionable to allow the bank, after the hands of the other
creditors were tied, virtually to appropriate to itself all the property of the Vegetable Oil
Company.
Whether we consider the action taken as not expressing the free will of the Vegetable Oil
Company, or as disclosing undue influence on the part of the Philippine National Bank in
procuring the mortgage, or as constituting deceit under the civil law, or whether we go still
further and classify the facts as constructive fraud, the result is the same. The mortgage is
clearly voidable.

relates to the applicability or non-applicability of the Statute of Frauds is found in section 335 of
our Code of Civil Procedure. The question of fact goes on the assumption that the oral evidence
can be received without violating the Statute of Frauds and then, of course, comes down to the
weighing of the evidence.
The broad view is that the Statute of Frauds applies only to agreements not to be performed on
either side within a year from the making thereof. Agreements to be fully performed on one
side within the year are taken out of the operation of the statute. As intervenors theory
proceeds on the assumption that Mr. Whitaker has entirely performed his part of the
agreement, equity would argue that all evidence be admitted to prove the alleged agreement.
Surely since the Statute of Frauds was enacted for the purpose of preventing frauds, it should
not be made the instrument to further them.
As preliminary to a presentation of the evidence, it is well to have an understanding of the
applicable law. The Charter of the Philippine National Bank, Act No. 2612, section 20, as
amended by Act No. 2938, provides that "The General Manager of the Bank, shall, among
others, have the following powers and duties: . . . (b) To make with the advice and consent of
the board of directors all contracts on behalf of the said bank and to enter into all necessary
obligations by this Act required or permitted." Predicated in our general liberal point of view, we
feel free to take into consideration the applicable law although no special defense to this effect
was interposed by the Philippine National Bank to intervenors complaint.
Let us now look into the evidence in detail. We may properly begin with the applicable
resolutions of the Board of Directors of the Philippine National Bank.
In the minutes of the Board of Directors of the Philippine National Bank of October 4, 1921, is
found the following:
jgc:chanrobles.com .ph

The setting aside of the mortgage of February 20, 1922, will not necessarily result in the
"Philippine Vegetable Oil Co. On motion of Director Westerhouse, duly seconded, the
Philippine National Bank being left without security. It is our understanding that before the
following resolution was adopted by the Board: Be it resolved, that the General Manager be,
receivership was thought of, the bank was the holder of three mortgages on the property of the and he is, hereby authorized to finance the operation of the Philippine Vegetable Oil Co. under
Vegetable Oil Company, the first dated April 11, 1919, for an uncertain amount; the second,
the Receivership to the extent of P500,000 to be secured by copra and oil and to be further
dated November 18, 1920, for P3,500,000; and the third, dated January 10, 1921, for
secured by P500,000 pledged by Phil. C. Whitaker in his creditors agreement."
P4,000,000. These mortgages remain in effect and may be foreclosed.
Under date of October 28, 1921, is found the following:
Addressing ourselves directly to the first two questions discussed in the decision of the trial
court and to the first and sixth errors assigned by the intervenor as appellant, we rule that the "The following additional loans with which to buy more copra were approved by the Board, at
Philippine National Bank-Philippine Vegetable Co., Inc., mortgage of February 20, 1922, has not the recommendation of the Oil Factory Committee. Philippine Vegetable Oil Co. F. W. Carpenter,
been legally executed by the Philippine Vegetable Oil Co., Inc.
Receiver, P. V. O., P200,000."
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jgc:chanroble s.com.ph

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II. Alleged agreement of the Philippine National Bank to finance the Philippine Vegetable Oil
Co., Inc.
Before it need be decided if the intervenor has a right to recover damages from either the
plaintiff or the defendant because of the plaintiffs refusal to finance the operations of the
defendant, it must be determined if the Philippine National Bank ever entered into any valid
agreement by which it bound itself to provide the necessary operating capital of the Philippine
Vegetable Oil Co., Inc. The question presents both legal and factual aspects. The legal inquiry

Under date of December 5, 1921, is found the following:

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"After a long discussion and careful deliberation, and on motion of Director Westerhouse, duly
seconded by Director Seaver, the following was unanimously approved by the Board: To protect
the large investments of the Bank, it is the sense of the Board of Directors to continue
financing the operation under receivership of the Philippine Vegetable Oil Co., the Philippine
Manufacturing Co., the Cristobal Oil Co. and the Santa Ana Oil Mills, in as modest and
economical way as is consistent with prevailing conditions, the General Manager to report and

secure the approval of the Board for necessary credits from time to time, and that the Board
also recommends that the Oil Committee continue studying the advisability of financing the
operation of other oil mills indebted to the Bank."
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Other portions of the minutes of the Board of Directors disclose that the Board authorized
advances to the Vegetable Oil Company to the extent of more than P1,000,000.

judgment that it was good business for the Philippine National Bank to operate the plant as
long as it had the P500,000 guarantee. However, the bank put into the undertaking a great
deal more money than it originally intended. Then, too, the guarantee was not as good as we
thought, because the first lien on the property was not being paid off as rapidly as we thought
it would be." Here was merely an expression of gratification regarding the additional mortgage
and emphasis on the P500,000 guarantee. (Intervenors Exhibit 7.) We discover nothing further
of interest in the exhibits.

Logically, our review of the evidence should stop here. No contract entered into by the General
Manager of the Bank would be valid unless made with the advice and consent of its Board of
Directors. What the Board of Directors had decreed was that the Vegetable Oil Company be
financed under the receivership to the extent of P500,000, a sum which was later increased.
The Board not alone specified the amounts of the loans but cautiously added that the General
Manager "report and secure the approval of the Board for necessary credits from time to time."
There was no indication in any action taken by the Board of Directors that it had ever
consented to an agreement for practically unlimited backing of the Vegetable Oil Company, or
that it had ratified any such promise made by its General Manager.

The only oral testimony in point is that given by A. D. Gibbs and Phil. C. Whitaker. Mr. Gibbs,
testifying as to a meeting of the creditors of the Vegetable Oil Company, said: "Mr. Wilson
stated in substance that if the negotiations which were then pending between Mr. Whitaker and
the other creditors, whereby the other creditors were to refrain from throwing the P. V. O. Co.
into insolvency or from bringing action against it, could be carried out, that his bank would
finance the P. V. O. Co., and keep it in operation." Mr. Whitaker, testifying as to the same
meeting, said: "Mr. Wilson stated that he had looked into the affairs of the P. V. O. as far as the
short time he had had permitted, and that the P. V. O. had evidently made good money in the
past and if allowed to resume would make good again in the future, that the P. N. B., as the
Out of consideration for the parties, however, we will go further and will examine the remaining largest creditor, contemplated financing a resumption of the companys operations if the
evidence.
company could be kept out of insolvency." Giving to this testimony its broadest effect, we still
discover no definite agreement binding on the bank but only a general intimation proffered by
Passing in review intervenors exhibits, we first notice Mr. Whitakers letter to the Hongkong
the General Manager of the Bank in conference that his bank contemplated financing the
and Shanghai Banking Corporation of January 1, 1921. He there confirms his undertaking to
operations of the Vegetable Oil company.
assume an obligation to pledge and mortgage specified personal holdings. The offer is made
"contingent upon its acceptance by the other unsecured creditors . . . A further condition to the That is all the evidence, documentary and oral, at all pertinent to the issue. We are clear that
foregoing offer is that the banks parties to the proposed arrangement supply, subject to the
taking it entirely into consideration it discloses no binding promise, tacit or express, made by
approval of their representatives on the Board of Directors of the P. V. O. Co., funds sufficient to the Philippine National Bank to continue indefinitely its backing of the Vegetable Oil Company.
enable the P. V. O. Co., to continue its operations during the full term for which my personal
secured undertaking remains in effect." The condition named related to all the banks and not to Mr. Whitaker was in no way personally responsible for any part of the obligations of the
the Philippine National Bank. (Intervenors Exhibit 1.) The trust deed by Mr. Whitaker in favor of Vegetable Oil Company Nevertheless, he signed the creditors agreement. That was a
H. C. Sanford makes the purposes and uses among others "To secure the Philippine National
praiseworthy act. We sympathize with him in the situation in which he finds himself. The
Bank against such losses as it may sustain, not exceeding a total of P500,000, on such sums as various creditors have a large amount of his property. The Philippine National Bank has taken
it shall, from time to time and within three years from July 1, 1921, advance to the Philippine over the assets of the Vegetable Oil Company. The latter company has ceased operations. Mr.
Vegetable Oil Company to enable the latter to resume business and continue the manufacture Whitaker has not made himself the successor in interest of the Vegetable Oil Company and so
of vegetable oil." This recital is specific as to P600,000 and is general as to further advances,
cannot recover from it in these proceedings. But sympathy cannot be transmuted into legal
and is made in a document to which the Philippine National Bank was not a party. (Intervenors authoritativeness. If Mr. Whitaker has any other remedy, that is for him to determine. Here we
Exhibit 2.) The creditors agreement is of similar tenor. (Intervenors Exhibit 3.) One of the
cannot give him redress for he has not made out his case except insofar as he has been
paragraphs in the preamble of the power of attorney from the Roman Catholic Archbishop of
successful in overturning the last mortgage of the Philippine National Bank on the property of
Manila to Phil. C. Whitaker mentioned that Mr. Whitaker "has also arranged with the Philippine the Vegetable Oil Company.
National Bank for the funds necessary to enable said Oil Company to resume its business and
continue in the manufacture of vegetable oil." Although this proxy may have been procured at III. Result
the instance of the Philippine National Bank, yet obviously it did not bind the officials of the
bank. (Intervenors Exhibit 5.) The letter of Mr. Wilson as General Manager of the Philippine
We announce the following conclusions:
National Bank of June 8, 1921, addressed to Mr. Whitaker stated: "I see no good reason why
you should use your property to secure unsecured obligations, and not provide for the
(1) Plaintiff is entitled to a money judgment against the defendant for P14,183,679.37 with
operation of the plant." Merely a friendly warning. (Intervenors Exhibit 8.) Mr. Wilsons letter to legal interest thereon beginning with May 8, 1924. Exhibit C-1 shows that after May 6, 1924,
Mr. Whitaker of April 19, 1923, stated: "The agreement you refer to enabled the Bank to put its when Exhibit B-1 was formulated, two further payments were made on the promissory note for
securities in first-class shape. In order to do this, however, it was necessary for it to furnish
P16,869,975.59, which further reduced the principal from P15,760,312.85 as totalled in Exhibit
certain money for operating the plant, and an additional mortgage was executed. . . . It is my B-1 to P14,183,679.37 as evidenced by Exhibit C-1. As interest has already been charged up to
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May 7, 1924, legal interest should begin to run from that date instead of from May 8, 1923, as intervention of the two representatives of the plaintiff in the Board of Directors of the
fixed by the trial court.
defendant, does not alone constitute undue influence. These two representatives of the plaintiff
did not make the majority of the Board of Directors of the defendant and, on the other hand,
(2) The Philippine National Bank-Philippine Vegetable Oil Co., Inc., mortgage of February 20,
no act have been proved to have been executed by them in connection with the mortgage
1922, has not been legally executed by the Philippine Vegetable Oil Co., Inc., and consequently which might be considered as undue influence Neither has it been shown that anything was
cannot be given effect. But the prior mortgages held by the Philippine National Bank of April
done which might constitute a fraud on the part of the plaintiff in the execution of this
11, 1919, November 18, 1920, and January 10, 1921, remain in force and may be foreclosed. mortgage. Fraud is not presumed. The only thing which can be considered in connection with
this point is the supposed promise given to the defendant to finance its operations. But,
(3) The Philippine National Bank will obviously have a preferred claim when the three
according to the majority opinion, there is no indication of any act of the Board of Directors of
mortgages above mentioned shall be foreclosed. The remainder of the assets of the Philippine the plaintiff corporation which might imply consent to an agreement to give unlimited support
Vegetable Oil Co., Inc., if any, should then be applied to the payment pro rata of the unsecured to the defendant, nor ratification of any promise to this effect made by the general manager. In
claims, among them that of Mr. Whitaker and the unsecured part of the debt to the Philippine order to annul a contract for fraud it must have been committed by one of the contracting
National Bank. Intervenor Whitaker is entitled to an accounting of the proceeds of the
parties. (Art. 1269, Civil Code.) On the other hand, the general manager of the plaintiff as also
Vegetable Oil Companys properties caused to be sold by the Philippine National Bank and of
admitted in the majority decision, only intimated generally that the plaintiff corporation would
the business operations of the Vegetable Oil Company since March 11, 1921.
finance its operations. Moreover, it was proven that the plaintiff did in fact furnish the
defendant with capital in order that it might continue operating for some time, and continued to
(4) Intervenor Whitaker has failed to establish an agreement binding the Philippine National
furnish it with capital even after the execution of the mortgage, which, at any rate, is a
Bank to provide the necessary operating capital to the Vegetable Oil Company, and so is not
compliance with the supposed promise. It is evident that, if the plaintiff, either directly or
entitled to recover damages from the Philippine National Bank. Nor can intervenor Whitaker
through its general manager, did not make any promise to furnish capital to the defendant
recover P4,424,418.37 from the Vegetable Oil Company since he is not the legatee of the
without any limitation for its operation, and did in fact furnish it with capital so some extent, it
assets of that company. The trial judge accordingly committed no error in dismissing
cannot be said to have acted fraudulently. The plaintiff was not bound to take a chance when it
intervenors complaint.
was clearly seen that the defendant was running behind and, in defense of its interests and in
consideration of its resources, it had a right to stop when it deemed it unwise to continue any
(5) No pronouncement is made with reference to intervenor Whitakers possible rights in
longer. Furthermore, any unfulfilled promise made to the defendant by the general manager of
connection with the creditors agreement since that agreement is not here in question and the the plaintiff, without the authorization of the latter, does not constitute such fraud and cause for
parties thereto are not before the court.
the annulment of the contract. Upon this theory, at most, it might be an incidental fraud
committed by a third party, which is not sufficient cause for the annulment of a contract, but
The case will be remanded to the lower court for the entry of judgment and further proceedings only for an action for damages against the said third party. (Art. 1270, Civil Code.) At any rate,
as herein indicated. Judgment affirmed in part and reversed in part, without special finding as the appellant-intervenor cannot seek the annulment of this mortgage under the provisions of
to costs in either instance.
article 1302 of the Civil Code, according to which only those persons who are principally or
subsidiarily bound by the contract may bring the action. The appellant, not having been a party
Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
to this mortgage and not being a representative of any of those who have intervened therein, is
not, principally or subsidiarily, bound by virtue thereof, and, consequently, has no action and
cannot impugn its validity. (Decisions of Supreme Court of Spain of April 18, 1901 and
Separate Opinions
November 23, 1903.)
The appellants allegation that the mortgage affects him and the foreclosure thereof would
injure him, does not give him the right to bring an action for annulment, but, for rescission, if
any, which is not the one brought herein. Commenting on this aspect of the question, Manresa
in vol. 8, p. 780, 2d ed., says: "Third persons need not bring an action for annulment, as
In regard to the validity of the mortgage given by the defendant in favor of the plaintiff, I
provided for in this article (1302, Civil Code)." The contract really injures or it does not. If it
concur in the dissenting opinion of Mr. Justice Johnson.
does, whether or not the act or contract is valid or void, they may bring an action for
The insinuation made in the majority opinion of undue influence, deceit and fraud on the part of rescission. If it does not, whether or not it is valid or void, they cannot have any interest in the
matter.
the plaintiff as grounds for declaring this mortgage void, is absolutely unsupported by the
record. Supposing that undue influence which is a general and abstract conception, exists to
some extent, it does not constitute a cause for annulment of the contract so far as it affects the I concur with the majority in all other respects and vote for the affirmation of the appealed
consent, unless the same amounts to violence, or intimidation, or constitutes fraud or produces judgment in all its parts.
substantial error on the part of the other contracting party. (Art. 1265, Civil Code.) The mere
AVANCEA, C.J., with whom concurs VILLAMOR, J., concurring and dissenting in part:

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JOHNSON, J., dissenting:

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I cannot agree with all of the facts stated in the decision nor with the conclusions drawn
therefrom. I find it necessary therefore to dissent. My dissent is based upon the following
grounds:
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A. Legality of the mortgage


First. That the mortgage in question was executed by the Philippine Vegetable Oil Co., Inc., to
the Philippine National Bank and is a valid subsisting contract.

Fourth. Neither can I give my conformity to that part of the majority opinion which imputes to
the Philippine National Bank bad faith, undue influence, deceit and constructive fraud in
procuring the execution of said mortgage. The record clearly shows that the mortgage was
given to secure the payment of a preexisting indebtedness for a valuable consideration. In
addition to the fact that the Philippine Vegetable Oil Co. had recognized the validity of said
mortgage by making payments thereon, there is nothing in the record which shows, in the
slightest degree, that it had, prior to the commencement of the present action, even intimated
that the mortgage was illegal and void. It may be added that the failure of the Philippine
Vegetable Oil Co., Inc., to appeal is an additional proof of its belief that the defense of illegality
is not well founded.

Second. That the statement that the mortgage was executed upon property in custodia legis is In my opinion, the facts of record and the law applicable thereto fully support the conclusions
not supported by the facts of record.
of the lower court that the mortgage had been legally executed, was a valid subsisting contract
of mortgage, and in ordering the foreclosure of the same. That part of the judgment appealed
At the time said document became a mortgage, the property covered thereby was not in
from should therefore be affirmed.
custodia legis. It is true that at the time the document was signed on the 20th day of February,
1922, the property was then in the hands of a receiver. At that time, however, the said
B. The right of the intervenor, Phil. C. Whitaker
document was not a mortgage; it was nothing more nor less than an evidence of indebtedness.
It did not contain all the requisites of a mortgage. Two additional requisites, under the law,
There is still another conclusion of the majority opinion to which I cannot give my conformity,
were necessary: (a) It was not a public document at that time and (b) it had not been
and that is, the right of the intervenor to recover some damages for the breach of contract by
registered in the registry of property, which is a prerequisite to its becoming a mortgage (art. virtue of which the Philippine National Bank obligated itself to continue the operations of the
1875, Civil Code). The property included in said document passed out of the hands of the
Philippine Vegetable Oil Co., Inc. As I read the record, it fairly bristles with facts in support of
receiver on the 28th day of February, 1922, and back into the hands of its owner, the Philippine the contention, of Phil. C. Whitaker, that the Philippine National Bank did promise and did
Vegetable Oil Company, as its private property. The document became a public document by
obligate itself to furnish sufficient funds with which to continue the operation of the Philippine
acknowledgment before the notary public on the 18th day of March, 1922. Even that act was
Vegetable Oil Co., Inc., and that in lieu of said promises and obligations he did, out of his
not sufficient to make said document a mortgage. It even then was only an evidence of an
private funds, and property, obligate himself to pay a portion of said indebtedness against the
indebtedness existing between the parties thereto. One thing more, under the law, was
Philippine Vegetable Oil Co., which indebtedness he was theretofore under no obligation to pay.
necessary in order to give said document the dignity of a mortgage. Under the law, it had to be (See creditors agreement and mortgage in favor of creditors.) Except for the agreement of the
registered in order to become a mortgage. The document was registered on the 21st day of
Philippine National Bank to continue the operation of the Philippine Vegetable Oil Co., Inc., I
March, 1922, nearly a month after the property had ceased to be in custodia legis, and thus it find nothing in the record to support a consideration of said creditors agreement, by virtue of
became a mortgage. At the time said document became a mortgage the property was not in
which Phil. C. Whitaker promise to pay, out of his private property an indebtedness of about
custodia legis. Therefore the reason given in the majority opinion for pronouncing said
P4,000,000 of the Philippine Vegetable Oil Co., Inc. The Philippine National Bank admitted that
mortgage illegal and void fails, under the facts and the law. (Arts. 1857-1875, Civil Code.
its manager made such an agreement with Phil. C. Whitaker, but that the same was never
Olivares v. Hoskyn & Co., 2 Phil., 689; McMicking v. Kimura, 12 Phil., 98; Susara v. Martinez, 17 ratified by its Board of Directors.
Phil., 254; Lozano v. Tan Suico, 23 Phil., 16; Borcelis v. Golingco, 27 Phil., 560; Legarda and
Prieto v. Saleeby, 31 Phil., 590; Lim Julian v. Lutero, G.R. No. 25235.)
After a very careful reading and a re-reading of the entire record I am fully persuaded that at
the time Phil. C. Whitaker entered into the alleged contract with the Philippine National Bank,
From the foregoing facts and the law it becomes clear that, that part of the majority opinion
by virtue of which the latter was to furnish adequate funds for the continued operation of the
which declares the mortgage null and void because it covered property in custodia legis cannot Philippine Vegetable Oil factory, that all parties then concerned fully understood and believed
be supported.
that such a contract had been made and entered into with full and sufficient consideration.
Every document which was executed at that time and prior thereto gives-ample evidence that
Third. I cannot give my conformity to that part of the majority opinion which charges that said such a contract existed.
mortgage did not express the free will of the Philippine Vegetable Oil Co., Inc. The Philippine
Vegetable Oil Co. not only signed said mortgage voluntarily, before witnesses, but nearly three C. Proof that all parties concerned believed that the Philippine National Bank had agreed to
weeks later ratified its due execution before a notary public. And not only that, the Philippine
furnish sufficient funds for the continued operation of the Philippine Vegetable Oil Company,
Vegetable Oil Co., Inc., recognized the validity of said document, by later, making payments
Inc.
thereon.
First. Phil. C. Whitaker honestly believed that the Philippine National Bank had entered into a

valid contract with him, by virtue of which said bank was to furnish sufficient funds for the
continued operation of the Philippine Vegetable Oil factory. In fact, that was one of the
precedent conditions upon which he had obligated his private property of the extent of nearly
P4,000,000 for the payment of a portion of the debts of said Oil Company. That fact appears
not only from Exhibit 1 but from many other exhibits found in the record, besides the
declaration of Phil. C. Whitaker during the trial of the cause. There is nothing in the record
which intimates that his testimony should not be accepted. On the first day of January, 1921,
and nearly six months before the creditors agreement was consummated and during the
pendency of the creditors agreement in Exhibit 1 Mr. Whitaker said: "A further condition to the
foregoing offer (the creditors agreement) is that the banks parties to the proposed
arrangement, supply, subject to the approval of their representatives on the Board of Directors
of the Philippine Vegetable Oil Co., funds sufficient to enable the Philippine Vegetable Oil Co. to
continue its operations during the full terms for which my personal secured undertaking
remains in effect." His belief that such a contract had been entered into is also indicated in
Exhibit 6 in which he threatened the Philippine National Bank with an action "in case it should
cease to finance the Philippine Vegetable Oil Co. as contemplated."

with the Philippine National Bank for the funds necessary to enable said Oil Company to resume
its business and continue in the manufacture of vegetable oil." That statement of the
Archbishop was made during the pendency of the creditors agreement.

Second. The creditors also believed that such a contract existed between Phil. C. Whitaker and
the Philippine National Bank. Upon that question the creditors agreement (Exhibit 3) contains
the following significant statement: "the creation of a fund of P500,000 to be deposited as the
same accumulates in the Philippine National Bank, to be held by it for a period of three years
from July 1, 1921, for the purpose of indemnifying it (the Philippine National Bank) against loss
on such sums as it shall hereafter advance to the Philippine Vegetable Oil Co. to enable the
latter to resume business and continue the manufacture of vegetable oil, with the
understanding, however, that at the end of said three years so much of such funds, if any, as
shall not have been used for the purpose of such indemnity shall be delivered to the trustee for
distribution pro rata."

Eighth. An additional reason may be given why the creditors believed that the Philippine
National Bank had contracted to furnish adequate funds for the operation of the Philippine
Vegetable Oil factory. From Exhibit 3, the creditors agreement, it will be noted that the
creditors who united in that agreement had unsecured claims against the Philippine Vegetable
Oil Co. amounting to P13,110,568.78, and that by virtue of that agreement (Exhibit 3) they
accepted a mortgage from Mr. Whitaker for a portion of their claims to be paid within a period
of three years, amounting to P4,444,418.37.

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Sixth. Mr. E. W. Wilson, President of the Philippine National Bank, also believed that the
contract between Phil. C. Whitaker and the bank had been consummated. In Exhibit 7 Mr.
Wilson recognized the wisdom of such a contract "as long as it (the Philippine National Bank)
had the P500,000 guaranty."
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Seventh. Mr. William A. Randall, Comptroller and Executive Officer of the Philippine Vegetable
Oil Co., Inc., in a letter (Exhibit A) written nearly a year after the alleged agreement between
Phil. C. Whitaker and the Philippine National Bank, expressly recognized the existence of such a
contract with the statement that Phil. C. Whitaker had executed a mortgage in favor of the
creditors upon his private property and had thereby guaranteed to the said bank the sum of
P500,000 for the continued operation of the Philippine Vegetable Oil factory for a period of
three years.

It will also be noted that they agreed to accept the obligation of the Philippine Vegetable Oil Co.
for the balance of their respective claims, payable without interest fifteen years from July 1,
1921, with the understanding, however that the ad interim surplus earnings of said Vegetable
Third. The trustee in the mortgage executed and delivered in conformity with the creditors
Oil Co., over and above its liabilities and an amount necessary for a reasonable working capital
agreement (Exhibit 2) also believed that such a contract existed, or, otherwise, the following
for said company, shall be applied to the pro rata satisfaction of said obligations (par. 6 of
pertinent statement would have found no place therein: "To secure the Philippine National Bank Exhibit 3). From Exhibit 3, therefore, it clearly appears that the creditors fully understood that
against such losses as it may sustain, not exceeding a total of P500,000 on such sums as it
the Philippine Vegetable Oil factory was to be continued in its operation. Otherwise, the
shall, from time to time and within three years from July 1, 1921, advance to the Philippine
Philippine Vegetable Oil Co. then being insolvent, the creditors had no hope of recovering the
Vegetable Oil Company to enable the latter to resume business and continue the manufacture balance of their claims amounting to about P9,000,000.
of vegetable oil."
Ninth. The Supreme Court. At the time of the first consideration of this appeal the Supreme
Fourth. The Board of Directors of the Philippine National Bank also evidently believed and
Court was of the opinion, which fact does not appear in the majority opinion, that the evidence
understood that a contract existed between it and Phil. C. Whitaker, by virtue of which the
presented by Phil. C. Whitaker in support of his allegation that the Philippine National Bank had
former was to furnish to the latter sufficient funds for the continued operation of the Philippine entered into a contract with him to furnish money for the operation of the Philippine Vegetable
Vegetable Oil factory, or otherwise, said Board would not have authorized, by resolution, the
Oil factory, was admissible to show the existence of such a contract. A majority of the court,
President of the Bank to have commenced furnishing funds to the Philippine Vegetable Oil
however, was of the opinion that no liability resulted from the violation of the terms of such
Company for its continued operation. The fact that the bank later refused to comply with such contract. The court also at the time decided that the evidence which Phil. C. Whitaker
contract does not relieve it, if a contract had actually existed, from the present action for
presented in support of his claim was admissible under section 335 of Act No. 190.
damages.
Since that time I have again carefully examined the entire record and I am fully persuaded that
Fifth. The Archbishop of Manila, who was a large stockholder in the Philippine Vegetable Oil Co., justice and equity demand that Mr. Phil. C. Whitaker be given an opportunity to show that he is
Inc., also believed that Phil. C. Whitaker had such a contract with the Philippine National Bank. entitled to recover some damages for the following reasons, in addition to what has been
In Exhibit 5 the Archbishop says, among other things that Phil. C. Whitaker "has also arranged stated above: First, that the contract between Phil. C. Whitaker and the Philippine National
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Bank is an enforcible contract and one upon which he might have maintained a separate
be given an opportunity to prove whether or not he had suffered any loss or damage from the
independent action without reference to the present action to foreclose the mortgage; second, failure of the Philippine National Bank to furnish adequate funds for the continued operation of
that the only consideration for his promise to pay the claims of the other creditors of the
the Philippine Vegetable Oil factory. The judgment of the lower court should be modified as
Philippine Vegetable Oil Co., for the fulfillment of which he turned over to the trustee practically herein indicated.
all of his property amounting to several million pesos, was the promise of the Philippine
National Bank to furnish money for the continued operation of the Philippine Vegetable Oil
STREET, J., concurring and dissenting:
factory; third, that except for the promise of the Philippine National Bank to adequately finance
the continued operation of the Philippine Vegetable Oil factory, there was no consideration
I concur with the majority upon the proposition that the intervenor cannot recover damages
received by Mr. Whitaker for rendering himself personally liable for the personal debts of the Oil from the bank; but I agree with the Chief Justice in the view that the judgment of foreclosure
Company.
should be affirmed. The discussions contained in the dissenting opinions of the Chief Justice
and of Mr. Justice Johnson sufficiently cover the principal features of the case; but there is one
The record is brimming full with evidence that Mr. Whitaker only promised to pay, out of his
other point in the case upon which I wish to challenge the correctness of the position of the
private property, the debts of the Philippine Vegetable Oil Co. because of his contract with the majority. Upon inspection of the prevailing opinion it will be seen that the last mortgage
Philippine National Bank to finance the operation of said Oil Company, hoping thereby to pay
executed by the defendant Philippine Vegetable Oil Company, Inc., in favor of the Philippine
the debts of said Oil Company out of the receipts resulting from the operation of said Oil
National Bank, has been declared null and void by the court at the instance of the intervenor,
factory and thereby relieve his individual and private property from the obligation which he had Phil. C. Whitaker, who is a principal stockholder in the defendant company. It will be further
imposed upon it. Mr. Whitaker was under no obligation to place his individual and private
observed that the nullity of this contract was originally asserted in the answer of the
property in jeopardy for the payment of the debts of the Philippine Vegetable Oil Co., and no
corporation defendant, but this defense was disallowed by the trial court in giving judgment in
doubt would not have entered into his contract with the creditors except for the promise of the favor of the plaintiff for the foreclosure of the mortgage. From this judgment the Philippine
Philippine National Bank to adequately finance the continued operation of said Company for a Vegetable Oil Company did not appeal; and the adjudication of the validity of the mortgage
period of three years.
thereby became conclusive as against the company. There is nothing in the record to suggest
that the abandonment of this defense by the corporation itself and its failure to appeal from the
On October 4, 1921, a little over two months after the execution of the creditors mortgage, the judgment was due to anything else than a fair exercise of the judgment of its officers and of
Board of Directors of the Philippine National Bank adopted a resolution, authorizing the
the attorney who represented the corporation in the lower court.
President of said bank to finance the operation of the Philippine Vegetable Oil Co. to the extent
of P500,000, to be secured by copra and oil and to be further secured by P500,000 pledged by But this court concedes to Mr. Whitaker the right to rely upon the defense of the alleged nullity
Phil. C. Whitaker in his creditors agreement. In view of that resolution on the part of the Board of the mortgage; and, at his instance only, the court has now set the mortgage aside. This, in
of Directors of the Philippine National Bank, in my judgment, it is idle to contend that the
my opinion, is improper practice. It is true that corporation stockholders are entitled to defend
reference in said resolution "and to be further secured by P500,000 pledged by Phil. C.
legal proceedings in behalf of their corporation when its directors or managing agents are
Whitaker in his creditors agreement" was not a full and complete acceptance and ratification
willfully or fraudulently neglectful of its interests; and the proper practice in such case is for the
by the Board of Directors of the Philippine National Bank of the creditors agreement
stockholders to move the court for leave to intervene in the suit they wish to defend, and to
theretofore accepted by the President of the bank.
allege, and make a prima facie showing, that the authorized and managing agents of the
corporation are derelict in their duties and that the corporation has a meritorious defense to the
It seems clear to me, from all of the facts found in the record, that the only reason why the
action (7 R. C. L., p. 334). No such showing has been made in this case, and, on the contrary,
creditors granted to the Philippine National Bank, (now) a first lien, on the property which Mr. all the indications are that the course pursued by the officers of the corporation was adopted in
Whitaker mortgaged to the creditors, amounting to P500,000, was to cover possible losses on good faith. Under these circumstances there is no propriety in allowing the stockholder to
the part of the Philippine National Bank in its continued operation for a period of three years,
assert in this court a defense which has been abandoned by the corporation. In justification,
under the agreement which said bank had with Mr. Whitaker. The proof shows that the bank did apparently, of its departures at this point from the ordinary rule of procedure, the opinion of
furnish funds for the operation of the Oil factory and that during that period no losses occurred the court contains a statement to the effect that, in dealing with this ease, the mode of
to the bank. In fact, the record shows that the bank made a profit of something like P100,000 approach of the court has been to sweep aside technicalities and resolve in a broad and liberal
during that period. Both the creditors and the Philippine National Bank were interested at that manner the various perplexing questions which are before the court. I agree that rules of
time in having the Philippine Vegetable Oil factory continue its operations for the reason that
procedure should, as a general rule, be applied in furtherance of justice; but when the
they must have all recognized that the assets of said Oil Company were largely inadequate to accumulated experience of courts through a long period of time has determined that in an
cover their respective claims. It was only through the continued operation of said Oil Factory
action against a corporation the right of defense, save in exceptional cases, pertains to the
that the creditors and the Philippine National Bank could hope to have their claims paid in full. corporation concerned, arbitrary departures from that rule should not be allowed. To do so is to
admit the mere caprice of the court as an acceptable criterion for the making of judicial
My conclusions from all of the record are: First, that the decision of the lower court ordering
decisions.
the foreclosure of said mortgage should be affirmed; and, second, that Phil. C. Whitaker should
chanrob1es virtual 1aw library

DECISION

CONCEPCION, J.:

EN BANC
[G.R. No. L-11231. May 12, 1958.]
ROSARIO CARBONNEL, Plaintiff-Appellant, v. JOSE PONCIO, RAMON INFANTE, and
EMMA INFANTE, Defendants-Appellees.
Tolentino & Garcia & D. R. Cruz for Appellant.
Guillermo B. Guevarra, Ricardo P. Guevarra and Emmanuel S. Tipon for Appellees.

SYLLABUS

The issue in this case is whether the Statute of Frauds is applicable thereto.
Plaintiff Rosario Carbonnel alleges, in her second amended complaint, filed with the Court of
First Instance of Rizal, that, on January 27, 1955, she purchased from defendant Jos Poncio,
at P9.50 a square meter, a parcel of land of about 195 square meters, more or less, located in
San Juan del Monte, Rizal, known as Lot No. 13-B of subdivision plan Psd-19567, and more
particularly described in Transfer Certificate of Title No. 5040 (now No. 37842), excluding the
improvements thereon; that plaintiff paid P247.26 on account of the price and assumed
Poncios obligation with the Republic Savings Bank amounting to P1,177.48, with the
understanding that the balance would be payable upon execution of the corresponding deed of
conveyance; that one of the conditions of the sale was that Poncio would continue staying in
said land for one year, as stated in a document signed by him (and later marked as Exhibit A),
a translation of which was attached to the said complaint; that Poncio refuses to execute the
corresponding deed of sale, despite repeated demands; that plaintiff has thereby suffered
damages in the sum of P5,000, aside from attorneys fees amounting to P1,000; that Poncio
has conveyed the same property to defendants Ramn R. Infante and Emma L. Infante, who
knew of the first sale to plaintiff; and that the Infantes had thereby caused damages to plaintiff
in the sum of P5,000.

Plaintiff prayed, therefore, that she be declared owner of the land in question; that the sale to
1. STATUTE OF FRAUDS; WHEN APPLICABLE; PART PERFORMANCE; ORAL EVIDENCE
the Infantes be annulled; that Poncio be required to execute the corresponding deed of
ADMISSIBLE TO PROVE BOTH CONTRACT AND PART PERFORMANCE. The Statute of Frauds is conveyance in plaintiffs favor; that the Register of Deeds of Rizal be directed to issue the
applicable only to executory contracts, not to contracts that are totally or partially performed. corresponding title in plaintiffs name; and that defendants be sentenced to pay damages.
The reason is simple. In executory contracts there is a wide field for fraud because, unless they
be in writing there is no palpable evidence of the intention of the contracting parties. However, Defendants moved to dismiss said complaint upon the ground that plaintiffs claim is
if a contract has been totally or partially performed, the exclusion of parol evidence would
unenforceable under the Statute of Frauds, and that said pleading does not state facts
promote fraud or bad faith, for it would enable the defendant to keep the benefits already
sufficient to constitute a cause of action. The motion was denied, "without prejudice to
derived by him from the transaction in litigation, and, at the same time, evade the obligations, considering, when this case is decided on the merits, whether the same falls under the Statute
responsibilities or liabilities assumed or contracted by him thereby. So that when the party
of Frauds."
concerned has pleaded partial performance, such party is entitled to a reasonable chance to
establish by parol evidence the truth of this allegation, as well as the contract itself. "The
Thereafter, the Infantes filed an answer denying most of the allegations of said complaint and
recognition of the exceptional effect of part performance in taking an oral contract out of the
alleged, by way of special defense, that they purchased the land in question in good faith, for
statute of frauds involves the principle that oral evidence is admissible in such cases to prove value, and without knowledge of the alleged sale to plaintiff; and that plaintiffs claim is
both the contract and the part performance of the contract" (49 Am. Jur. 927).
unenforceable under the Statute of Frauds. They, likewise, set up oounterclaims for damages.
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In his answer, Poncio denied specifically some allegations of said complaint and alleged that he
had no knowledge sufficient to form a belief as to the truth of the other averments therein. By

way of special defenses, he alleged that he had consistently turned down several offers, made part performance of a parol contract for the sale of real estate has the effect, subject to certain
by plaintiff, to buy the land in question, at P15 a square meter, for he believes that it is worth conditions concerning the nature and extent of the acts constituting performance and the right
not less than P20 a square meter; that Mrs. Infante, likewise, tried to buy the land at P15 a
to equitable relief generally, of taking such contract from the operation of the statute of frauds,
square meter; that, on or about January 27, 1955, Poncio was advised by plaintiff that should so that chancery may decree its specific performance or grant other equitable relief. It is well
she decide to buy the property at P20 a square meter, she would allow him to remain in the
settled in Great Britain and in this country, with the exception of a few states, that a sufficient
property for one year; that plaintiff then induced Poncio to sign a document, copy of which is
part performance by the purchaser under a parol contract for the sale of real estate removes
probably the one appended to the second amended complaint; that Poncio signed it "relying
the contract from the operation of the statute of frauds." (49 Am. Jur. 722-723.)
upon the statement of the plaintiff that the document was a permit for him to remain in the
premises in the event that defendant decided to sell the property to the plaintiff at P20 a
In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there
square meter" ; that on January 30, 1955, Mrs. Infante improved her offer and he agreed to
is a wide field for fraud because unless they be in writing there is no palpable evidence of the
sell the land and its improvements to her for P3,535; that Poncio has not lost "his mind," to sell intention of the contracting parties. The statute has precisely been enacted to prevent fraud."
his property, worth at least P4,000, for the paltry sum of P1,177.48, the amount of his
(Comments on the Rules of Court, by Moran, Vol. III [1957 ed. ], p. 178.) However, if a
obligation to the Republic Savings Bank; and that plaintiffs action is barred by the Statute of
contract has been totally or partially performed, the exclusion of parol evidence would promote
Frauds. Poncio similarly set up a counterclaim for damages.
fraud or bad faith, for it would enable the defendant to keep the benefits already derived by
him from the transaction in litigation, and, at the same time, evade the obligations,
As, the case came up for trial, on February 23, 1956, plaintiff introduced the testimony of one responsibilities or liabilities assumed or contracted by him thereby.
Constancio Meonada, who said that he is janitor of the Sto. Domingo Church and a high school,
as well as auto-mechanic, graduate; that he has been and still is a paying boarder in plaintiffs For obvious reasons, it is not enough for a party to allege partial performance in order to hold
house; that Poncio is his townmate, both being from Mahatao, Batanes; that, after making a
that there has been such performance and to render a decision declaring that the Statute of
rough draft, based upon data furnished by plaintiff, he typed Exhibit A, which is in the Batanes Frauds is inapplicable. But neither is such party required to establish such partial performance
dialect; that, thereafter, Poncio came to plaintiffs house, where he was shown Exhibit A; that by documentary proof before he could have the opportunity to introduce oral testimony on the
after the witness had read its contents to Poncio and given him a copy thereof, Poncio signed
transaction. Indeed, such oral testimony would usually be unnecessary if there were documents
Exhibit A and so did the plaintiff; that Meonada likewise signed at the foot of Exhibit A, as
proving partial performance. Thus, the rejection of any and all testimonial evidence on partial
attesting witness; and that translated freely into English, Exhibit A, reads as follows:
performance, would nullify the rule that the Statute of Frauds is inapplicable to contracts which
have been partly executed, and lead to the very evils that the statute seeks to prevent.
"From this date, January 27, Jos Poncio may stay in this lot that I bought from him until one
year without payment. After that one year and he cannot find any place where to transfer his "The true basis of the doctrine of part performance according to the overwhelming weight of
house, he can also stay in this lot and he will pay according to agreement." (t.s.n., p. 4.)
authority, is that it would be a fraud upon the plaintiff if the defendant were permitted to
escape performance of his part of the oral agreement after he has permitted the plaintiff to
Then, taking the witness stand, plaintiff testified that she has known Poncio since childhood, he perform in reliance upon the agreement. The oral contract is enforced in harmony with the
being related to her mother; that Poncios lot adjoins her lot, in San Juan, Rizal; that one day principle that courts of equity will not allow the statute of frauds to be used as an instrument of
Poncio told her that he wanted to sell his property; that, after both had agreed on its price, he fraud. In other words, the doctrine of part performance was established for the same purpose
said that his lot is mortgaged to the Republic Savings Bank; and that, at noon time, on the
for which the statute of frauds itself was enacted, namely, for the prevention of fraud, and
same day, he came back stating that both would "go to the bank to pay the balance in arrears." arose from the necessity of preventing the statute from becoming an agent of fraud for it could
At this juncture, defense counsel moved to strike out the statement of the witness, invoking, in not have been the intention of the statute to enable any party to commit a fraud with
support of the motion, the Statute of Frauds. After an extended discussion, the parties agreed impunity." (49 Am. Jur., 725-726; Italics supplied.)
to submit memoranda and the hearing was suspended. Later on, the lower court issued an
order dismissing plaintiffs complaint, without costs, upon the ground that her cause of action is When the party concerned has pleaded partial performance, such party is entitled to a
unenforceable under the Statute of Frauds. The counterclaims were, also, dismissed. Hence,
reasonable chance to establish by parol evidence the truth of this allegation, as well as the
this appeal by plaintiff.
contract itself. "The recognition of the exceptional effect of part performance in taking an oral
contract out of the statute of frauds involves the principle that oral evidence is admissible in
We are of the opinion and so hold that the appeal is well taken. It is well settled in this
such cases to prove both the contract and the part performance of the contract" (49 Am. Jur.,
jurisdiction that the Statute of Frauds is applicable only to executory contracts (Facturan v.
927).
Sabanal, 81 Phil., 512), not to contracts that are totally or partially performed (Almirol, Et Al.,
v. Monserrat, 48 Phil., 67, 70; Robles v. Lizarraga Hermanos, 50 Phil., 387; Diana v. Macalibo, Upon submission of the case for decision on the merits, the Court should determine whether
74 Phil., 70).
said allegation is true, bearing in mind that parol evidence is easier to concoct and more likely
to be colored or inaccurate than documentary evidence. If the evidence of record fails to prove
"Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted view that
clearly that there has been partial performance, then the Court should apply the Statute of
jgc:chanroble s.com.ph

Frauds, if the cause of action involved falls within the purview thereof. If the Court is, however, Wherefore, the order appealed from is hereby set aside, and let this case be remanded to the
convinced that the obligation in question has been partly executed and that the allegation of
lower court for further proceedings not inconsistent with this decision, with the costs of this
partial performance was not resorted to as a devise to circumvent the Statute, then the same instance against defendants-appellees. It is so ordered.
should not be applied.
Apart from the foregoing, there are in the case at bar several circumstances indicating that
plaintiffs claim might not be entirely devoid of factual basis. Thus, for instance, Poncio
admitted in his answer that plaintiff had offered several times to purchase his land.
Again, there is Exhibit A, as document signed by the defendant. It is in the Batanes dialect,
which, according to plaintiffs uncontradicted evidence, is the one spoken by Poncio, he being a
native of said region. Exhibit A states that Poncio would stay in the land sold by him to plaintiff
for one year, from January 27, 1955, free of charge, and that, if he cannot find a place where
to transfer his house thereon, he may remain in said lot under such terms as may be agreed
upon. Incidentally, the allegation in Poncios answer to the effect that he signed Exhibit A under
the belief that it "was a permit for him to remain in the premises in the event" that "he decided
to sell the property" to the plaintiff at P20 a sq. m." is, on its face, somewhat difficult to
believe. Indeed, if he had not decided as yet to sell the land to plaintiff, who, had never
increased her offer of P15 a square meter, there was no reason for Poncio to get said permit
from her. Upon the other hand, if plaintiff intended to mislead Poncio, she would have caused
Exhibit A to be drafted, probably in English, instead of taking the trouble of seeing to it that it
was written precisely in his native dialect, the Batanes. Moreover, Poncios signature on Exhibit
A suggests that he is neither illiterate nor so ignorant as to sign a document without reading its
contents, apart from the fact that Meonada had read Exhibit A to him and given him a copy
thereof, before he signed thereon, according to Meonadas uncontradicted testimony.
Then, also, defendants say in their brief:

jgc:chanrobles.com .ph

"The only allegation in plaintiffs complaint that bears any relation to her claim that there has
been partial performance of the supposed contract of sale, is the notation of the sum of
P247.26 in the bank book of defendant Jos Poncio. The noting or jotting down of the sum of
P247.26 in the bank book of Jos Poncio does not prove the fact that said amount was the
purchase price of the property in question. For all we knew, the sum of P247.26 which plaintiff
claims to have paid to the Republic Savings Bank for the account of the defendant, assuming
that the money paid to the Republic Savings Bank came from the plaintiff, was the result of
some usurious loan or accommodation, rather than earnest money or part payment of the land.
Neither is a competent or satisfactory evidence to prove the conveyance of the land in question
the fact that the bank book account of Jos Poncio happens to be in the possession of the
plaintiff." (Defendants-Appellees brief, pp. 25-26.)
How shall we know why Poncios bank deposit book is in plaintiffs possession, or whether there
is any relation between the P247.26 entry therein and the partial payment of P247.26 allegedly
made by plaintiff to Poncio on account of the price of his land, if we do not allow the plaintiff to
explain it on the witness stand? Without expressing any opinion on the merits of plaintiffs
claim, it is clear, therefore, that she is entitled, legally as well as from the viewpoint of equity,
to an opportunity to introduce parol evidence in support of the allegations of her second
amended complaint.

available independently of the others although he cannot recover more than once. "In either
of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum
of his action. This was the original concept of the term forum-shopping.
3. ID.; ID.; ID.; AS AN UNETHICAL PRACTICE; WHEN PRESENT. What originally started both
in conflicts of laws and in our domestic law as a legitimate device for solving problems has been
abused and mis-used to assure scheming litigants of dubious reliefs. To avoid or minimize this
[G.R. No. 115849. January 24, 1996.]
unethical practice of subverting justice, the Supreme Court, as already mentioned,
promulgated Circular 28-91. And even before that, the Court had proscribed it in the Interim
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the
Rules and Guidelines issued on January ll, 1983 and had struck down in several cases the
Philippines) and MERCURIO RIVERA, Petitioners, v. COURT OF APPEALS, CARLOS
EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, Respondents. inveterate use of this insidious malpractice. Forum-shopping as "the filing of repetitious suits in
different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice) in
Ongkiko, Dizon, Ongkiko & Panga Law Office and Domingo and Dizon, for Petitioners. Minister of Natural Resources, Et Al., v. Heirs of Orval Hughes, Et Al., "as a reprehensible
manipulation of court processes and proceedings . . .." When does forum shopping take place?
"There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party
Castillo, Laman, Tan, Pantalleon & San Jose, for Carlos Ejercito.
seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in connection with litigations
commenced in the courts while an administrative proceeding is pending, as in this case, in
order to defeat administrative processes and in anticipation of an unfavorable administrative
ruling and a favorable court ruling. This is specially so, as in this case, where the court in which
SYLLABUS
the second suit was brought, has no jurisdiction."
THIRD DIVISION

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4. ID; ID.; ID.; AS A GROUND FOR SUMMARY DISMISSAL. The test for determining whether
a party violated the rule against forum shopping has been laid down in the 1986 case of Buan
v. Lopez, 145 SCRA 34 (October 13, 1986), also by Chief Justice Narvasa, and that is, forum
1. CIVIL LAW; PRIVATE INTERNATIONAL LAW; ORIGIN OF FORUM-SHOPPING. Forumshopping exists where the elements of litis pendentia are present or where a final judgment in
Shopping originated as a concept in private international law, where non-resident litigants are one case will amount to res judicata in the other. Consequently, where a litigant (or one
given the option to choose the forum or place wherein to bring their suit for various reasons or representing the same interest or person) sues the same party against whom another action or
excuses, including to secure procedural advantages, to annoy and harass the defendant, to
actions for the alleged violation of the same right and the enforcement of the same relief is/are
avoid overcrowded dockets, or to select a more friendly venue. To combat these less than
still pending, the defense of litis pendencia in one case is a bar to the others; and, a final
honorable excuses, the principle of forum non conveniens was developed whereby a court, in
judgment in one would constitute res judicata and this would cause the dismissal of the rest. In
conflict of law cases, may refuse impositions on its jurisdiction where it is not the most
either case, forum-shopping could be cited by the other party as a ground to ask for summary
"convenient" or available forum and the parties are not precluded from seeking remedies
dismissal of the two (or more) complaints or petitions, and for the imposition of the other
elsewhere. Hence, according to Words and Phrases, "a litigant is open to the charge of forum sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action
shopping whenever he chooses a forum with the slight connection to factual circumstances
against the erring lawyer. What is truly important to consider in determining whether forumsurrounding his suit, and litigants should be encouraged to attempt to settle their differences
shopping exists or not is the vexation caused the courts and parties-litigant by a party who
without imposing undue expense and vexatious situations on the courts."
asks different courts and/or administrative agencies to rule on the same or related causes
and/or to grant the same or substantially the same reliefs, in the process creating the
2. REMEDIAL LAW; CIVIL PROCEDURE; FORUM-SHOPPING; AS A CHOICE OF VENUE AND AS A possibility of conflicting decisions being rendered by the different fora upon the same issue.
CHOICE OF REMEDY; CONSTRUED. In the Philippines, forum shopping has acquired a
connotation encompassing not only a choice of venues, as it was originally understood in
5. D.; ID.; ID.; ID.; APPLICATION OF PRINCIPLE IN CASE AT BAR. Applying the foregoing
conflicts of law, but also to a choice of remedies. As to the first (choice of venues), the Rules of principles in the present case and comparing it with the Second Case, it is obvious that there
Court, for example, allow a plaintiff to commence personal actions "where the defendant or any exist identity of parties or interests represented, identity of rights or causes and identity of
of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs
reliefs sought. Very simply stated, the original complaint in the court a quo which gave rise to
resides, at the election of the plaintiff" (Rule 4, Sec. 2 [b]). As to remedies, aggrieved parties, the instant petition was filed by the buyer to enforce the alleged perfected sale of real estate.
for example, are given a choice of pursuing civil liabilities independently of the criminal, arising On the other hand, the complaint in the Second Case seeks to declare such purported sale
from the same set of facts. A passenger of a public utility vehicle involved in a vehicular
involving the same real property "as unenforceable as against the Bank," which is the petitioner
accident may sue on culpa contractual, culpa aquiliana or culpa criminal each remedy being herein. In other words, in the Second Case, the majority stockholders, in representation of the
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Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial
court. In brief, the objective or the relief being sought, though worded differently, is the same,
namely, to enable the petitioner Bank to escape from the obligation to sell the property
toRespondent. In this case, a decision recognizing the perfection and directing the enforcement
of the contract of sale will directly conflict with a possible decision in the Second Case barring
the parties from enforcing or implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other.

confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate
in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for
such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable to innocent third persons where the representation
is made in the course of its business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate
benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021). "Application of
6. COMMERCIAL LAW; CORPORATION CODE; DERIVATIVE SUIT, CONSTRUED. "An individual these principles is especially necessary because banks have a fiduciary relationship with the
stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he
public and their stability depends on the confidence of the people in their honesty and
holds stock in order to protect or vindicate corporate rights, whenever the officials of the
efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and
corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In supervision of its employees, resulting in prejudice to their depositors."
such actions, the suing stockholder is regarded as a nominal party, with the corporation as the
real party in interest (Gamboa v. Victoria no, 90 SCRA 40, 47 [ I 979]).
10. CIVIL LAW; CONTRACTS; WHEN DEFECTS THEREOF UNDER STATUTE OF FRAUD DEEMED
WAIVED. The statute of frauds will not apply by reason of the failure of petitioners to object
7. ID.; ID.; WHEN THE VEIL OF CORPORATE FICTION MAY BE LIFTED. Petitioner also tried to to oral testimony proving petitioner Banks counter-offer of P5.5 million. Hence, petitioners --by
seek refuge in the corporate fiction that the personality of the Bank is separate and distinct
such utter failure to objector deemed to have waived any defects of the contracts under the
from its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as statute of frauds, pursuant to Article 1405 of the Civil Code. As private respondent pointed out
a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing
in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is
obligation, the circumvention of statutes, the achievement or perfection of a monopoly or
aplenty -- and the silence of petitioners all throughout the presentation makes the evidence
generally the perpetration of knavery or crime, the veil with which the law covers and isolates binding on them.
the corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals." In addition to the many cases where
11. REMEDIAL LAW; PETITION FOR REVIEW; FINDINGS OF FACTS BY THE COURT OF APPEALS;
the corporate fiction has been disregarded, we now add the instant case, and declare herewith NOT REVIEWABLE BY THE SUPREME COURT; RULE AND EXCEPTION. Basic is the doctrine
that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of
against forum-shopping. Shareholders, whether suing as the majority in direct action or as the Appeals are not reviewable by the Supreme Court. However, there are settled exceptions where
minority in a derivative suit, cannot be allowed to trifle with court processes, particularly
the Supreme Court may disregard findings of fact by the Court of Appeals. Indeed, conclusions
where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or
of fact of a trial judges as affirmed by the Court of Appeals are conclusive upon this Court,
defending corporate causes and in using and applying remedies available to it. To rule
absent any serious abuse or evident lack of basis or capriciousness of any kind because the
otherwise would be to encourage corporate litigants to use their shareholders as fronts to
trial court is in better position to observe the demeanor of all the witnesses and their
circumvent the stringent rules against forum shopping.
courtroom manner as well as to examine the real evidence presented .
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8. CIVIL LAW; CONTRACT; REQUISITE. Article 1318 of the Civil Code enumerates the
12. POWERS OF THE CONSERVATOR. While admittedly, the Central Bank law gives vast and
requisites of a valid and perfected contract as follows:" (1) Consent of the contracting parties; far-reaching powers to the conservator of a bank, it must be pointed out that such powers
(2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which must be related to the" (preservation of) the assets of the bank (the reorganization of) the
is established."
management thereof and (the restoration of) its viability." Such powers, enormous and
extensive as they are, cannot extend to the post-facto repudiation of perfected transactions,
9. COMMERCIAL LAW; CORPORATION CODE; BANKS; DOCTRINE OF APPARENT AUTHORITY;
otherwise they would infringe against the non-impairment clause of the Constitution. If the
CONSTRUED. The authority of a corporate officer in dealing with third persons may be actual legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent
or apparent. The doctrine of "apparent authority," with special reference to banks, was laid out powers to the conservator under Section 28-A of said law? Obviously, therefore, Section 28-A
in Prudential Bank v. Court of Appeals, 223 SCRA 350 (June 14, 1993), where it was held that: merely gives the conservator power to revoke contracts that are, under existing law, deemed to
"Conformably, we have declared in countless decisions that the principal is liable for obligations be defective i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely
contracted by the agent. The agents apparent representation yields to the principals true
takes the place of a banks board of directors. What the said board cannot do such as
representation and the contract is considered as entered into between the principal and the
repudiating a contract validly entered into under the doctrine of implied authority the
third person (citing National Food Authority v. Intermediate Appellate Court, 184 SCRA 166). "A conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply
bank is liable for wrongful acts of its officers done in the interests of the bank or in the course repudiate valid obligations of the Bank. His authority would be only to bring court actions to
of dealing of the officers in their representative capacity but not for acts outside the scope of
assail such contractsas he has already done so in the instant case. A contrary understanding
their authority (9 C.J.S., P. 417). A bank holding out its officers and agents as worthy of
of the law would simply not be permitted by the Constitution. Neither by common sense. To
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rule otherwise would be to enable a failing bank to become solvent, at the expense of third
parties, by simply getting the conservator to unilaterally revoke all previous dealings which had "WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
one way or another come to be considered unfavorable to the Bank, yielding nothing to
against the defendants as follows:
perfected contractual rights nor vested interests of the third parties who had dealt with the
Bank.
"1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of
land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less,
covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937, inclusive,
of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers
Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;
DECISION
"2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and
receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the afore-mentioned six (6) parcels of land, and to immediately
deliver to the plaintiffs the owners copies of T.C.T. Nos. T-106932 to T-106937, inclusive, for
PANGANIBAN, J.:purposes of registration of the same deed and transfer of the six (6) titles in the names of the
plaintiffs;
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"3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio
Demetria the sums of P200,000.00 each in moral damages;
In the absence of a formal deed of sale, may commitments given by bank officers in an
exchange of letters and/or in a meeting with the buyers constitute a perfected and enforceable "4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as
contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent exemplary damages;
authority" apply in this case? If so, may the Central Bank-appointed conservator of Producers
"5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
Bank (now First Philippine International Bank) repudiate such "apparent authority" after said
contract has been deemed perfected? During the pendency of a suit for specific performance, P400,000.00 for and by way of attorneys fees;
does the filing of a "derivative suit" by the majority shareholders and directors of the distressed
bank to prevent the enforcement or implementation of the sale violate the ban against forum- "6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate
damages in the amount of P20,000.00;
shopping?
Simply stated, these are the major questions brought before this Court in the instant Petition
for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision
promulgated January 14, 1994 of the respondent Court of Appeals 1 in CA-G.R. CV No. 35756
and the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The
dispositive portion of the said Decision reads:
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"WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages
awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award
in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other
aspects, said decision is hereby AFFIRMED.
"All references to the original plaintiffs in the decision and its dispositive portion are deemed,
herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.
"Costs against appellant bank."

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"With costs against the defendants."

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After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder,
the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties
filed their respective memoranda and reply memoranda. The First Division transferred this case
to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the
aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing
of this Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines;
petitioner Bank, for brevity) is a banking institution organized and existing under the laws of
the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of
legal age and was, at all times material to this case, Head Manager of the Property
Management Department of the petitioner Bank.

The dispositive portion of the trial courts 2 decision dated July 10, 1991, on the other hand, is
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee
as follows:
of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.
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T-106935 96,768 sq.m.


Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be
set aside through this petition.
T-106936 187,114 sq.m.
T-106937 481,481 sq.m.

The Facts

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00 PESOS, in
cash.
The facts of this case are summarized in the respondent Courts Decision 3 , as follows:

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"(1) In the course of its banking operations, the defendant Producer Bank of the Philippines
acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa,
Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property
used to be owned by BYME Investment and Development Corporation which had them
mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and
Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that
purpose.

Kindly contact me at Telephone Number 921-1344.


"(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by
letter which is hereunder quoted (Exh. "C"):
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September 1, 1987
J-P M-P GUTIERREZ ENTERPRISES

"(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investments 142 Charisma St., Dona Andres II
legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting was held pursuant to plaintiffs Rosario, Pasig, Metro Manila
plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal purchase offer to the bank through a Attention: JOSE O. JANOLO
letter dated August 30, 1987 (Exh. "B"), as follows:
Dear Sir:
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August 30, 1987


The Producers Bank of the Philippines
Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentlemen:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna
(formerly owned by Byme Industrial Corp.). Please be informed however that the banks
counter-offer is at P5.5 million for more than 101 hectares on lot basis.
We shall be very glad to hear your position on the matter.
Best regards.
"(4) On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply, wrote
(Exh. "D"):
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I have the honor to submit my formal offer to purchase your properties covered by titles listed September 17, 1987
hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares. more or less.
Producers Bank
TCT No. AREA
T-106932 113,580 sq.m.
T-106933 70,899 sq.m.
T-106934 52,246 sq.m.

Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:

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bank with what plaintiff considered as a perfected contract of sale, which demands were in one
In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. form or another refused by the bank. As detailed by the trial court in its decision, on November
Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the said lot at 17, 1987, plaintiffs through a letter to defendant Rivera (Exh. "G") tendered payment of the
P4.250 million in CASH.
amount of P5.5 million "pursuant to (our) perfected sale agreement." Defendants refused to
receive both the payment and the letter. Instead, the parcels of land involved in the transaction
Hoping that this proposal meets your satisfaction.
were advertised by the bank for sale to any interested buyer (Exh. "H" and "H-1"). Plaintiffs
demanded the execution by the bank of the documents on what was considered as a "perfected
"(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took place
agreement." Thus:
was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior VicePresident of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Mr. Mercurio Rivera
Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the
Manager, Producers Bank
following letter (Exh. "E"):
The Producers Bank of the Philippines

Paseo de Roxas, Makati

Paseo de Roxas Makati

Metro Manila

Metro Manila

Dear Mr. Rivera:

Attention: Mr. Mercurio Rivera

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to
106937.

Re: 101 Hectares of Land in Sta. Rosa, Laguna


Gentlemen:

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Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are
accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by
Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND
(P5,500,000.00).
Thank you.

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From the documents at hand, it appears that your counter-offer dated September 1, 1987 of
this same lot in the amount of P5.5 million was accepted by our client thru a letter dated
September 30, 1987 and was received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected. We
were also informed that despite repeated follow-up to consummate the purchase, you now
refuse to honor your commitment. Instead, you have advertised for sale the same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to consummate
"(6) On October 12, 1987, the conservator of the bank (which has been placed under
and execute the necessary actions/documentation within three (3) days from your receipt
conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in the hereof. We are ready to remit the agreed amount of P5.5 million at your advice. otherwise, we
person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote
shall be constrained to file the necessary court action to protect the interest of our client.
plaintiff Demetria the following letter (Exh. "F"):
We trust that you will be guided accordingly.
Attention: Atty. Demetrio Demetria
"(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter
Dear Sir:
and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been
"referred . . . to the office of our Conservator for proper disposition." However, no response
Your proposal to buy the properties the bank foreclosed from Byme Investment Corp. located at came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second tender
Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for
of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant
submission to the newly designated Acting Conservator of the bank.
Encarnacion. Plaintiffs letter reads:
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For your information.

PRODUCERS BANK OF

"(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the THE PHILIPPINES

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in
place of Demetria and Janolo, in view of the assignment of the latters rights in the matter in
litigation to said private Respondent.

Paseo de Roxas,
Makati,. Metro Manila

On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co
and several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala
and Cruz, filed an action (hereafter, the "Second Case") purportedly a "derivative suit"
with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606,
against Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as
unenforceable and to stop Ejercito from enforcing or implementing the sale." 4 In his answer,
Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then
pending in the Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs
filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent
opposed this motion on the ground, among others, that plaintiffs act of forum shopping
justifies the dismissal of both cases, with prejudice." 5 Private respondent, in his memorandum,
averred that this motion is still pending in the Makati RTC.

Attn.: Atty. NIDA ENCARNACION


Central Bank Conservator
Gentlemen:

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We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No.
258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot
covered by TCT Nos. 106932, 106933, 106934, 106935 106936 and 106937 and registered
under Producers Bank.

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This is in connection with the perfected agreement consequent from your offer of P5.5 Million
as the purchase price of the said lots. Please inform us of the date of documentation of the sale In their Petition 6 and Memorandum, 7 petitioners summarized their position as follows:
immediately.
I.
Kindly acknowledge receipt of our payment.

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"(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, "The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito
plaintiff, through counsel, made a final demand for compliance by the bank with its obligations (in substitution of Demetria and Janolo) and the bank.
under the considered perfected contract of sale (Exhibit "N"). As recounted by the trial court
(Original Record, p. 656), in a reply letter dated May 12 1988 (Annex "4" of defendants answer
II.
to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the
authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his
counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified "The Court of Appeals erred in declaring the existence of an enforceable contract of sale
the refusal of the tenders of payment and the non-compliance with the obligations under what between the parties.
the plaintiffs considered to be a perfected contract of sale.
III.
"(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the
bank, its Manager Rivera and Acting Conservator Encarnacion. The basis of the suit was that
the transaction had with the bank resulted in a perfected contract of sale. The defendants took "The Court of Appeals erred in declaring that the conservator does not have the power to
the position that there was no such perfected sale because the defendant Rivera is not
overrule or revoke acts of previous management.
authorized to sell the property, and that there was no meeting of the minds as to the price."
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IV.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner
of 80% of the Banks outstanding shares of stock, he had a substantial interest in resisting the "The findings and conclusions of the Court of Appeals do not conform to the evidence on
complaint. on July 8, 1991, the trial court issued an order denying the motion to intervene on record."
the ground that it was filed after trial had already been concluded. It also denied a motion for
reconsideration filed thereafter. From the trial courts decision, the Bank, petitioner Rivera and On the other hand, petitioners prayed for dismissal of the instant suit on the ground 8 that:
conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the denial of his motion for
I.
intervention.
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"Petitioners have engaged in forum shopping.

the multiple petitions or complaints. To be sure, petitioners have included a


VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil
Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative
suit filed by stockholders of petitioner Bank against the conservator and other defendants but
which is the subject of a pending Motion to Dismiss Without Prejudice." 9

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II.

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are
"The factual findings and conclusions of the Court of Appeals are supported by the evidence on guilty of actual forum shopping because the instant petition pending before this Court involves
"identical parties or interests represented, rights asserted and reliefs sought (as that) currently
record and may no longer be questioned in this case.
pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the
issues in the two cases are so intertwined that a judgment or resolution in either case will
III.
constitute res judicata in the other." 10
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"The Court of Appeals correctly held that there was a perfected contract between Demetria and On the other hand, petitioners explain 11 that there is no forum-shopping because:
Janolo (substituted by respondent Ejercito) and the bank.
1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a
defendant, whereas in the "Second Case" (assuming the Bank is the real party in interest in a
IV.
derivative suit), it was the plaintiff;
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"The Court of Appeals has correctly held that the conservator, apart from being estopped from 2) "The derivative suit is not properly a suit for and in behalf of the corporation under the
circumstances" ;
repudiating the agency and the contract, has no authority to revoke the contract of sale."
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The Issues

3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and


attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is
one" and" (t)hat is a legal question for the courts to decide;
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From the foregoing positions of the parties, the issues in this case may be summed up as
follows:
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1) Was there forum-shopping on the part of petitioner Bank?


2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract?
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5) Did the respondent Court commit any reversible error in its findings of facts?

4) Petitioners did not hide the Second Case as they mentioned it in the said
VERIFICATION/CERTIFICATION.
We rule for Private Respondent.
To begin with, forum-shopping originated as a concept in private international law 12 , where
non-resident litigants are given the option to choose the forum or place wherein to bring their
suit for various reasons or excuses, including to secure procedural advantages, to annoy and
harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To
combat these less than honorable excuses, the principle of forum non conveniens was
developed whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction
where it is not the most "convenient" or available forum and the parties are not precluded from
seeking remedies elsewhere.

The First Issue: Was There Forum-Shopping?

In this light, Blacks Law Dictionary 13 says that forum shopping "occurs when a party attempts
to have his action tried in a particular court or jurisdiction where he feels he will receive the
In order to prevent the vexations of multiple petitions and actions, the Supreme Court
most favorable judgment or verdict." Hence, according to Words and Phrases 14 , "a litigant is
promulgated Revised Circular No. 28-91 requiring that a party "must certify under oath . . .
open to the charge of forum shopping whenever he chooses a forum with slight connection to
[that] (a) he has not (t)heretofore commenced any other action or proceeding involving the
same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) factual circumstances surrounding his suit, and litigants should be encouraged to attempt to
settle their differences without imposing undue expense and vexatious situations on the courts"
to the best of his knowledge, no such action or proceeding is pending" in said courts or
agencies. A violation of the said circular entails sanctions that include the summary dismissal of .
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In the Philippines, forum shopping has acquired a connotation encompassing not only a choice shopping exists where the elements of litis pendentia are present or where a final judgment in
of venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. one case will amount to res judicata in the other, as follows:
As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to
commence personal actions "where the defendant or any of the defendants resides or may be "There thus exists between the action before this Court and RTC Case No. 86-36563 identity of
found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule parties, or at least such parties as represent the same interests in both actions, as well as
4, Sec. 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing identity of rights asserted and relief prayed for, the relief being founded on the same facts, and
civil liabilities independently of the criminal, arising from the same set of facts. A passenger of the identity on the two preceding particulars is such that any judgment rendered in the other
a public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa
action, will, regardless of which party is successful, amount to res adjudicata in the action
aquiliana or culpa criminal each remedy being available independently of the others
under consideration: all the requisites, in fine, of auter action pendant."
although he cannot recover more than once.
x
x
x
"In either of these situations (choice of venue or choice of remedy), the litigant actually shops
for a forum of his action. This was the original concept of the term forum shopping.
"As already observed, there is between the action at bar and RTC Case No. 86-36563, an
"Eventually, however, instead of actually making a choice of the forum of their actions, litigants, identity as regards parties, or interests represented, rights asserted and relief sought, as well
through the encouragement of their lawyers, file their actions in all available courts, or invoke as basis thereof, to a degree sufficient to give rise to the ground for dismissal known as auter
all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting,
action pendant or lis pendens. That same identity puts into operation the sanction of twin
adjudications among different courts and consequent confusion enimical (sic) to an orderly
dismissals just mentioned. The application of this sanction will prevent any further delay in the
administration of justice. It had created extreme inconvenience to some of the parties to the
settlement of the controversy which might ensue from attempts to seek reconsideration of or to
action.
appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated on
July 15, 1986, which dismissed the petition upon grounds which appear persuasive."
"Thus, forum shopping had acquired a different concept - which is unethical professional legal
practice. And this necessitated or had given rise to the formulation of rules and canons
Consequently, where a litigant (or one representing the same interest or person) sues the same
discouraging or altogether prohibiting the practice." 15
party against whom another action or actions for the alleged violation of the same right and the
enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is
What therefore originally started both in conflicts of laws and in our domestic law as a
a bar to the others; and, a final judgment in one would constitute res judicata and thus would
legitimate device for solving problems has been abused and mis-used to assure scheming
cause the dismissal of the rest. In either case, forum shopping could be cited by the other party
litigants of dubious reliefs.
as a ground to ask for summary dismissal of the two 20 (or more) complaints or petitions, and
for the imposition of the other sanctions, which are direct contempt of court, criminal
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as
prosecution, and disciplinary action against the erring lawyer.
already mentioned, promulgated Circular 28-91. And even before that, the Court had
proscribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck
Applying the foregoing principles in the case before us and comparing it with the Second Case,
down in several cases 16 the inveterate use of this insidious malpractice. Forum shopping as
it is obvious that there exist identity of parties or interests represented, identity of rights or
"the filing of repetitious suits in different courts" has been condemned by Justice Andres R.
causes and identity of reliefs sought.
Narvasa (now Chief Justice) in Minister of Natural Resources, Et Al., v. Heirs of Orval Hughes, Et
Al., "as a reprehensible manipulation of court processes and proceedings . . ." 17 When does
Very simply stated, the original complaint in the court a quo which gave rise to the instant
forum shopping take place?
petition was filed by the buyer (herein private respondent and his predecessors-in-interest)
against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. on
"There is forum shopping whenever, as a result of an adverse opinion in one forum, a party
the other hand, the complaint 21 in the Second Case seeks to declare such purported sale
seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies involving the same real property "as unenforceable as against the Bank", which is the petitioner
not only with respect to suits filed in the courts but also in connection with litigations
herein. In other words, in the Second Case, the majority stockholders, in representation of the
commenced in the courts while an administrative proceeding is pending, as in this case, in
Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial
order to defeat administrative processes and in anticipation of an unfavorable administrative
court. In brief, the objective or the relief being sought, though worded differently, is the same,
ruling and a favorable court ruling. This is specially so, as in this case, where the court in which namely, to enable the petitioner Bank to escape from the obligation to sell the property
the second suit was brought, has no jurisdiction." 18
to Respondent. In Danville Maritime, Inc. v. Commission on Audit 22 , this Court ruled that the
filing by a party of two apparently different actions, but with the same objective, constituted
The test for determining whether a party violated the rule against forum shopping has been laid forum shopping:
down in the 1986 case of Buan v. Lopez 19 , also by Chief Justice Narvasa, and that is, forum
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"In the attempt to make the two actions appear to be different, petitioner impleaded different
respondents therein PNOC in the case before the lower court and the COA in the case before
this Court and sought what seems to be different reliefs. Petitioner asks this Court to set aside
the questioned letter-directive of the COA dated October 10, 1988 and to direct said body to
approve the Memorandum of Agreement entered into by and between the PNOC and petitioner,
while in the complaint before the lower court petitioner seeks to enjoin the PNOC from
conducting a rebidding and from selling to other parties the vessel "T/T Andres Bonifacio", and
for an extension of time for it to comply with the paragraph 1 of the memorandum of
agreement and damages. One can see that although the relief prayed for in the two (2) actions
are ostensibly different, the ultimate objective in both actions is the same, that is, the approval
of the sale of vessel in favor of Petitioner, and to overturn the letter-directive of the COA of
October 10, 1988 disapproving the sale." (Emphasis supplied)
In an earlier case 23 , but with the same logic and vigor, we held:

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"In other words, the filing by the petitioners of the instant special civil action for certiorari and
prohibition in this Court despite the pendency of their action in the Makati Regional Trial Court,
is a species of forum-shopping. Both actions unquestionably involve the same transactions, the
same essential facts and circumstances. The petitioners claim of absence of identity simply
because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain
acts which transpired after its commencement, is specious. In the RTC action, as in the action
before this Court, the validity of the contract to purchase and sell of September 1, 1986, i.e.,
whether or not it had been efficaciously rescinded, and the propriety of implementing the same
(by paying the pledgee banks the amount of their loans, obtaining the release of the pledged
shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such
implementation and/or the restoration of the status quo ante. When the acts sought to be
restrained took place anyway despite the issuance by the Trial Court of a temporary restraining
order, the RTC suit did not become functus oficio. It remained an effective vehicle for obtention
of relief; and petitioners remedy in the premises was plain and patent: the filing of an
amended and supplemental pleading in the RTC suit, so as to include the PCGG as defendant
and seek nullification of the acts sought to be enjoined but nonetheless done. The remedy was
certainly not the institution of another action in another forum based on essentially the same
facts. The adoption of this latter recourse renders the petitioners amenable to disciplinary
action and both their actions, in this Court as well as in the Court a quo, dismissible."

"An individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47
[1979]; Emphasis supplied).
In the face of the damaging admissions taken from the complaint in the Second
Case, Petitioners, quite strangely, sought to deny that the Second Case was a derivative suit,
reasoning that it was brought, not by the minority shareholders, but by Henry Co Et. Al., who
not only own, hold or control over 80% of the outstanding capital stock, but also constitute the
majority in the Board of Directors of petitioner Bank. That being so, then they really represent
the Bank. So, whether they sued "derivatively" or directly, there is undeniably an identity of
interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is
separate and distinct from its shareholders. But the rulings of this Court are consistent: "When
the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the achievement or perfection
of a monopoly or generally the perpetration of knavery or crime, the veil with which the law
covers and isolates the corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of individuals."25
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In addition to the many cases 26 where the corporate fiction has been disregarded, we now
add the instant case, and declare herewith that the corporate veil cannot be used to shield an
otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether
suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed
to trifle with court processes, particularly where, as in this case, the corporation itself has not
been remiss in vigorously prosecuting or defending corporate causes and in using and applying
remedies available to it. To rule otherwise would be to encourage corporate litigants to use
their shareholders as fronts to circumvent the stringent rules against forum shopping.
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Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming
arguendo that there is identity of parties, causes of action and reliefs sought, "because it (the
In the instant case before us, there is also identity of parties, or at least, of interests
Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second
represented. Although the plaintiffs in the Second Case (Henry L. Co. Et. Al.) are not name
Case)", citing as authority Victronics Computers, Inc. v. Regional Trial Court, Branch 63, Makati,
parties in the First Case, they represent the same interest and entity, namely, petitioner Bank, etc. Et. Al., 27 where the Court held:
because:
"The rule has not been extended to a defendant who, for reasons known only to him,
Firstly, they are not suing in their personal capacities, for they have no direct personal interest commences a new action against the plaintiff instead of filing a responsive pleading in the
in the matter in controversy. They are not principally or even subsidiarily liable; much less are other case setting forth therein, as causes of action, specific denials, special and affirmative
they direct parties in the assailed contract of sale; and
defenses or even counterclaims. Thus, Velhagens and Kings motion to dismiss Civil Case No.
91-2069 by no means negates the charge of forum-shopping as such did not exist in the first
Secondly, the allegations of the complaint in the Second Case show that the stockholders are
place." (Emphasis supplied)
bringing a "derivative suit." In the caption itself, petitioners claim to have brought suit "for and
in behalf of the Producers Bank of the Philippines" 24 . Indeed, this is the very essence of a
Petitioner pointed out that since it was merely the defendant in the original case, it could not
derivative suit:
have chosen the forum in said case.
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Respondent, on the other hand, replied that there is a difference in factual setting between
Victronics and the present suit. In the former, as underscored in the abovequoted Court ruling,
the defendants did not file any responsive pleading in the first case. In other words, they did
not make any denial or raise any defense or counter-claim therein. In the case before us
however, petitioners filed a responsive pleading to the complaint as a result of which, the
issues were joined.
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Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs
wanted to purchase the property and it was precisely for this purpose that they met with
defendant Rivera, Manager of the Property Management Department of the defendant bank, in
early August 1987. The procedure in the sale of acquired assets as well as the nature and
scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera
himself, which testimony was relied upon by both the bank and by Rivera in their appeal briefs.
Thus (TSN of July 30, 1990. pp. 19-20):
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Indeed, by praying for affirmative reliefs and interposing counter-claims in their responsive
pleadings, the petitioners became plaintiffs themselves in the original case, giving unto
themselves the very remedies they repeated in the Second Case.

A: The procedure runs this way: Acquired assets was turned over to me and then I published it
in the form of an inter-office memorandum distributed to all branches that these are acquired
assets for sale. I was instructed to advertise acquired assets for sale so on that basis, I have to
entertain offer; to accept offer, formal offer and upon having been offered, I present it to the
Ultimately, what is truly important to consider in determining whether forum-shopping exists or Committee. I provide the Committee with necessary information about the property such as
not is the vexation caused the courts and parties-litigant by a party who asks different courts original loan of the borrower, bid price during the foreclosure, total claim of the bank, the
and/or administrative agencies to rule on the same or related causes and/or to grant the same appraised value at the time the property is being offered for sale and then the information
or substantially the same reliefs, in the process creating the possibility of conflicting decisions which are relative to the evaluation of the bank to buy which the Committee considers and it is
being rendered by the different fora upon the same issue. In this case, this is exactly the
the Committee that evaluate as against the exposure of the bank and it is also the Committee
problem: a decision recognizing the perfection and directing the enforcement of the contract of that submit to the Conservator for final approval and once approved, we have to execute the
sale will directly conflict with a possible decision in the Second Case barring the parties from
deed of sale and it is the Conservator that sign the deed of sale, sir.
enforcing or implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other. 28
"The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the
property, dealt with and talked to the right person. Necessarily, the agenda was the price of the
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only
property, and plaintiffs were dealing with the bank official authorized to entertain offers, to
sanction possible now is the dismissal of both cases with prejudice, as the other sanctions
accept offers and to present the offer to the Committee before which the said official is
cannot be imposed because petitioners present counsel entered their appearance only during authorized to discuss information relative to price determination. Necessarily, too, it being
the proceedings in this Court, and the Petitions VERIFICATION/CERTIFICATION contained
inherent in his authority, Rivera is the officer from whom official information regarding the
sufficient allegations as to the pendency of the Second Case to show good faith in observing
price, as determined by the Committee and approved by the Conservator, can be had. And
Circular 28-91. The lawyers who filed the Second Case are not before us; thus the rudiments of Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony
due process prevent us from motu propio imposing disciplinary measures against them in this of plaintiff Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):
Decision. However, petitioners themselves (and particularly Henry Co, Et. Al.) as litigants are
admonished to strictly follow the rules against forum-shopping and not to trifle with court
Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him
proceedings and processes. They are warned that a repetition of the same will be dealt with
pointblank his authority to sell any property?
more severely.
A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it would
Having said that, let it be emphasized that this petition should be dismissed not merely
take because he was saying that the matter of pricing will be passed upon by the committee.
because of forum-shopping but also because of the substantive issues raised, as will be
And when I asked him how long it will take for the committee to decide and he said the
discussed shortly.
committee meets every week. If I am not mistaken Wednesday and in about two weeks (sic)
time, in effect what he was saying he was not the one who was to decide. But he would refer it
The Second Issue: Was The Contract Perfected?
to the committee and he would relay the decision of the committee to me.
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The respondent Court correctly treated the question of whether or not there was, on the basis Q: Please answer the question.
of the facts established, a perfected contract of sale as the ultimate issue. Holding that a valid
contract has been established, respondent Court stated:
A: He did not say that he had the authority(.) But he said he would refer the matter to the
committee and he would relay the decision to me and he did just like that.
"There is no dispute that the object of the transaction is that property owned by the defendant
bank as acquired assets consisting of six (6) parcels of land specifically identified under
"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was
Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the
the Head, with Jose Entereso as one of the members.
bank intended to sell the property. As testified to by the Banks Deputy Conservator, Jose
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"What transpired after the meeting of early August 1987 are consistent with the authority and less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is,
the duties of Rivera and the banks internal procedure in the matter of the sale of banks
however, a dispute on the first and third requisites.
assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20,
1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counterattention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an offer which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by
aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-buyers the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30
with their proposed buying price on one hand, and the bank Committee, the Conservator and They disputed the factual basis of the respondent Courts findings that there was an offer made
ultimately the bank itself with the set price on the other, and considering further the discussion by Janolo for P3.5 million, to which the Bank counter offered P5.5 million. We have perused the
of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be evidence but cannot find fault with the said Courts findings of fact. Verily, in a petition under
no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by Rule 45 such as this, errors of fact if there be any are, as a rule, not reviewable. The mere
letter that "the Banks counter-offer is at P5.5 Million for more than 101 hectares on lot basis," fact that respondent Court (and the trial court as well) chose to believe the evidence presented
such counter-offer price had been determined by the Past Due Committee and approved by the by respondent more than that presented by petitioners is not by itself a reversible error. In
Conservator after Rivera had duly presented plaintiffs offer for discussion by the Committee of fact, such findings merit serious consideration by this Court, particularly where, as in this case,
such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, said courts carefully and meticulously dismissed their findings. This is basic.
and market value. Tersely put, under the established facts, the price of P5.5 Million was, as
clearly worded in Riveras letter (Exh. "E"), the official and definitive price at which the bank
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us
was selling the property.
review the question of Riveras authority to act and petitioners allegations that the P5.5 million
counter-offer was extinguished by the P4.250 million revised offer of Janolo. Here, there are
"There were averments by defendants below, as well as before this Court, that the P5.5 Million questions of law which could be drawn from the factual findings of the respondent Court. They
price was not discussed by the Committee and that it was merely quoted to start negotiations also delve into the contractual elements of consent and cause.
regarding the price. As correctly characterized by the trial court, this is not credible. The
testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the The authority of a corporate officer in dealing with third persons may be actual or apparent.
gratuitous and self-serving character of these declarations, the banks submission on this point The doctrine of "apparent authority", with special reference to banks, was laid out in Prudential
does not inspire belief. Both Co and Entereso, as members of the Past Due Committee of the
Bank v. Court of Appeals 31 , where it was held that:
bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same
vein, both Co and Entereso openly admit that they seldom attend the meetings of the
"Conformably, we have declared in countless decisions that the principal is liable for obligations
Committee. It is important to note that negotiations on the price had started in early August
contracted by the agent. The agents apparent representation yields to the principals true
and the plaintiffs had already offered an amount as purchase price, having been made to
representation and the contract is considered as entered into between the principal and the
understand by Rivera, the official in charge of the negotiation, that the price will be submitted third person (citing National Food Authority v. Intermediate Appellate Court, 184 SCRA 166).
for approval by the bank and that the banks decision will be relayed to plaintiffs. From the
facts, the amount of P5.5 Million has a definite significance. It is the official bank price. At any "A bank is liable for wrongful acts of its officers done in the interest of the bank or in the course
rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and
of dealings of the officers in their representative capacity but not for acts outside the scope of
negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn their authority (9 C.J.S., p. 417). A bank holding to its officers and agents as worthy of
around and later say, as it now does, that what Rivera states as the banks action on the matter confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate
is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a
in the apparent scope of their employment; nor will it be permitted to shrink its responsibility
corporation knowingly permits one of its officers, or any other agent, to do acts within the
for such frauds, even though no benefit may accrue to the bank there form (10 Am Jr 2, p.
scope of an apparent authority, and thus holds him out to the public as possessing power to do 114) Accordingly, a banking corporation is liable to innocent third persons where the
those acts, the corporation will, as against any one who has in good faith dealt with the
representation is made in the course of its business by its agent acting within the general scope
corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 of his authority even though, in the particular case, the agent is secretly abusing his authority
SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court and attempting to perpetrate a fraud upon his principal or some other person, for his own
of Appeals, G.R. No. 103957, June 14, 1993)." 29
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).
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Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as
"Application of these principles is especially necessary because banks have a fiduciary
follows:" (1) Consent of the contracting parties; (2) Object certain which is the subject matter relationship with the public and their stability depends on the confidence of the people in their
of the contract; (3) Cause of the obligation which is established."
honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the
selection and supervision of its employees, resulting in prejudice to their depositors."
There is no dispute on requisite no. 2. The object of the questioned contract consists of the six
(6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent
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or implied authority to act for the Bank in the matter of selling its acquired assets. This
evidence includes the following:
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(a) The petition itself in par. II-1 (p. 3) states that Rivera was "at all times material to this
case, Manager of the Property Management Department of the Bank." By his own admission,
Rivera was already the person in charge of the Banks acquired assets (TSN, August 6, 1990,
pp. 8-9);

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law
firm" had once acted for the Bank in three criminal cases, they should be charged with actual
knowledge of Riveras limited authority. But the Court of Appeals in its Decision (p. 12) had
already made a factual finding that the buyers had no notice of Riveras actual authority prior
to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any
acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely
associated with a loose aggrupation of lawyers (not a professional partnership), one of whose
members (Atty. Susana Parker) acted in said criminal cases.

(b) As observed by respondent Court, the land was definitely being sold by the Bank. And
during the initial meeting between the buyers and Rivera, the latter suggested that the buyers Petitioners also alleged that Demetrias and Janolos P4.25 million counter-offer in the letter
offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);
dated September 17, 1987 extinguished the Banks offer of P5.5 million. 34 They disputed the
respondent Courts finding that "there was a meeting of minds when on 30 September 1987
(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million (TSN, 30 July Demetria and Janolo through Annex L (letter dated September 30, 1987) accepted Riveras
1990, p. 11);
counter offer of P5.5 million under Annex J (letter dated September 17, 1987)", citing the late
Justice Paras 35 , Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5
with Beaumont v. Prieto. 37
million (TSN, July 30, p. 11);
However, the above-cited authorities and precedents cannot apply in the instant case because,
(e) Rivera received the letter dated September 17, 1987 containing the buyers proposal to buy as found by the respondent Court which reviewed the testimonies on this point, what was
the property for P4.25 million (TSN, July 30, 1990, p. 12);
"accepted" by Janolo in his letter dated September 30, 1987 was the Banks offer of P5.5
million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of
their meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins
the Bank (TSN, January 16, 1990, p. 18);
with" (p)ursuant to our discussion last 28 September 1987 . . ."
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(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994,
during which the Banks offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp.
34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed Riveras
statement as to the finality of the Banks counter-offer of P5.5 million (TSN, January 16, 1990,
p. 21; TSN, April 26, 1990, p. 35);

Petitioners insist that the respondent Court should have believed the testimonies of Rivera and
Co that the September 28, 1987 meeting "was meant to have the offerors improve on their
position of P5.5 million." 38 However, both the trial court and the Court of Appeals found
petitioners testimonial evidence "not credible", and we find no basis for changing this finding of
fact.

(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the
officer acting for the Bank in relation to parties interested in buying assets owned/acquired by
the Bank. In fact, Rivera was the officer mentioned in the Banks advertisements offering for
sale the property in question (cf. Exhs. "S" and "S-1").

Indeed, we see no reason to disturb the lower courts (both the RTC and the CA) common
finding that private respondents evidence is more in keeping with truth and logic that during
the meeting on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price
has been passed upon by the Committee and could no longer be lowered (TSN of April 27,
1990, pp. 34-35)." 39 Hence, assuming arguendo that the counter-offer of P4.25 million
extinguished the offer of P5.5 million, Luis Cos reiteration of the said P5.5 million price during
the September 28, 1987 meeting revived the said offer. And by virtue of the September 30,
1987 letter accepting this revived offer, there was a meeting of the minds, as the acceptance in
said letter was absolute and unqualified.

In the very recent case of Limketkai Sons Milling, Inc. v. Court of Appeals, Et. Al. 32 , the
Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held
that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is
borne out by similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority through documents
and testimony which seek to establish Riveras actual authority. These pieces of evidence,
however, are inherently weak as they consist of Riveras self-serving testimony and various
inter-office memoranda that purport to show his limited actual authority, of which private
respondent cannot be charged with knowledge. In any event, since the issue is apparent
authority, the existence of which is borne out by the respondent Courts findings, the evidence
of actual authority is immaterial insofar as the liability of a corporation is concerned. 33

We note that the Banks repudiation, through Conservator Encarnacion, of Riveras authority
and action, particularly the latters counter-offer of P5.5 million, as being "unauthorized and
illegal" came only on May 12, 1988 or more than seven (7) months after Janolos acceptance.
Such delay, and the absence of any circumstance which might have justifiably prevented the
Bank from acting earlier, clearly characterizes the repudiation as nothing more than a lastminute attempt on the Banks part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied admission on

the part of the petitioners that the written offer made on September 1, 1987 was carried
through during the meeting of September 28, 1987. This is the conclusion consistent with
human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Banks offer of P5.5 million was
raised for the first time on appeal and should thus be disregarded.

from September 1, 1987 but from Janolos August 20, 1987 letter. We agree that, taken
together, these letters constitute sufficient memoranda since they include the names of the
parties, the terms and conditions of the contract, the price and a description of the property as
the object of the contract.

But let it be assumed arguendo that the counter-offer during the meeting on September 28,
1987 did constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still,
"This Court in several decisions has repeatedly adhered to the principle that points of law,
the statute of frauds will not apply by reason of the failure of petitioners to object to oral
theories, issues of fact and arguments not adequately brought to the attention of the trial court testimony proving petitioner Banks counter-offer of P5.5 million. Hence, petitioners by such
need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be
utter failure to object are deemed to have waived any defects of the contract under the
raised for the first time on appeal (Santos v. IAC, No. 74243, November 14, 1986, 145 SCRA
statute of frauds, pursuant to Article 1405 of the Civil Code:
592)." 40
"Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
". . . It is settled jurisprudence that an issue which was neither averred in the complaint nor
ratified by the failure to object to the presentation of oral evidence to prove the same, or by
raised during the trial in the court below cannot be raised for the first time on appeal as it
the acceptance of benefits under them."
would be offensive to the basic rules of fair play, justice and due process (Dihiansan v. CA, 153
SCRA 713 [1987]; Anchuelo v. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. As private respondent pointed out in his memorandum, oral testimony on the reaffirmation of
v. CA, 157 SCRA 425 [1988]; Ramos v. IAC, 175 SCRA 70 [1989]; Gevero v. IAC, G.R. 77029, the counter-offer of P5.5 million is a plenty and the silence of petitioners all throughout the
August 30, 1990)." 41
presentation makes the evidence binding on them thus:
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Since the issue was not raised in the pleadings as an affirmative defense, private respondent
A Yes, sir. I think it was September 28, 1987 and I was again present because Atty. Demetria
was not given an opportunity in the trial court to controvert the same through opposing
told me to accompany him and we were able to meet Luis Co at the Bank.
evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only
to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of
x
x
x
the evidence already in the record and as appreciated by the lower courts, the inevitable
conclusion is simply that there was a perfected contract of sale.
Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
The Third Issue: Is the Contract Enforceable?
A Atty. Demetria asked Mr. Luis to whether the price could be reduced, sir.
The petition alleged: 42
Q What price?
"Even Assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the
meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo accepted A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the
with their letter of 30 September 1987, the contract produced thereby would be unenforceable final price and that is the price they intends (sic) to have, sir.
by action there being no note, memorandum or writing subscribed by the Bank to evidence
such contract. (Please see article 1403[2], Civil Code.)"
Q What do you mean?
Upon the other hand, the respondent Court in its Decision (p. 14) stated:

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". . . Of course, the banks letter of September 1, 1987 on the official price and the plaintiffs
acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of
sale. They are, however, clear embodiments of the fact that a contract of sale was perfected
between the parties, such contract being binding in whatever form it may have been entered
into (case Citations omitted). Stated simply, the banks letter of September 1, 1987, taken
together with plaintiffs letter dated September 30, 1987, constitute in law a sufficient
memorandum of a perfected contract of sale."

A That is the amount they want, sir.


Q What is the reaction of the plaintiff Demetria to Luis Cos statement (sic) that the defendant
Riveras counter-offer of 5.5 million was the defendants bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?

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The respondent Court could have added that the written communications commenced not only

A He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

"Whenever, on the basis of a report submitted by the appropriate supervising or examining


department, the Monetary Board finds that a bank or a non-bank financial intermediary
Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?
performing quasi-banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and
A We went straight to the point because he being a busy person, I told him if the amount of
creditors, the Monetary Board may appoint a conservator to take charge of the assets,
P5.5 million could still be reduced and he said that was already passed upon by the committee. liabilities, and the management of that institution, collect all monies and debts due said
What the bank expects which was contrary to what Mr. Rivera stated. And he told me that is
institution and exercise all powers necessary to preserve the assets of the institution,
the final offer of the bank P5.5 million and we should indicate our position as soon as possible. reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the actions of the previous management and board of directors of the bank
Q What was your response to the answer of Mr. Luis Co?
or non-bank financial intermediary performing quasi-banking functions, any provision of law to
the contrary notwithstanding, and such other powers as the Monetary Board shall deem
A I said that we are going to give him our answer in a few days and he said that was it. Atty.
necessary."
Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.
In the first place, this issue of the Conservators alleged authority to revoke or repudiate the
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his office in perfected contract of sale was raised for the first time in this Petition as this was not litigated
Producers Bank Building during this meeting?
in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or
ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for the first
A Dr. Co himself, Dr. Rivera, Atty. Fajardo and I.
time on appeal as it would be offensive to the basic rules of fair play, justice and due process."
43
Q By Mr. Co you are referring to?
In the second place, there is absolutely no evidence that the Conservator, at the time the
A Mr. Luis Co.
contract was perfected, actually repudiated or overruled said contract of sale. The Banks acting
conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter
and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion,
offer by the bank?
who took over from Romey after the sale was perfected on September 30, 1987 (Annex V,
petition) which unilaterally repudiated not the contract but the authority of Rivera to make
A Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which offer we
a binding offer and which unarguably came months after the perfection of the contract. Said
accepted, the offer of the bank which is P5.5 million."
letter dated May 12, 1988 is reproduced hereunder:
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[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

"May 12, 1988

Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the
Committee and it is not within his power to reduce this amount. What can you say to that
statement that the amount of P5.5 million was reached by the Committee?

"Atty. Noe C. Zarate


Zarate Carandang Perlas & Ass.

A It was not discussed by the Committee but it was discussed initially by Luis Co and the group Suite 323 Rufino Building
of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting, sir."
Ayala Avenue, Makati, Metro-Manila
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
Dear Atty. Zarate:
The Fourth Issue: May the Conservator Revoke the Perfected and Enforceable Contract?
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria
It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank regarding the six (6) parcels of land located at Sta. Rosa, Laguna.
of the Philippines during the time that the negotiation and perfection of the contract of sale
took place. Petitioners energetically contended that the conservator has the power to revoke or We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor
overrule actions of the management or the board of directors of a bank, under Section 28-A of perfected a contract to sell and buy with any of them for the following reasons.
Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:
In the Inter-office Memorandum dated April 25, 1986 addressed to and approved by former
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Acting Conservator Mr. Andres I. Rustia. Producers Bank Senior Manager Perfecto M. Pascua
detailed the functions of Property Management Department (PMD) staff and officers (Annex A),
you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no
authority, power or right to make any alleged counter-offer. In short! your lawyer-clients did
not deal with the authorized officers of the bank.

solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke
all previous dealings which had one way or another come to be considered unfavorable to the
Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties
who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Fact?


Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Batas Pambansa
Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of
of Directors/Conservator may authorize the sale of any property of the corporation/bank.
fact by the Court of Appeals are not reviewable by the Supreme Court. In Andres v.
Manufacturers Hanover & Trust Corporation, 45 we held:
Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank
conservators (starting January, 1984) to sell the aforesaid property to any of your clients.
". . . . The rule regarding questions of fact being raised with this Court in a petition
Apparently, what took place were just preliminary discussions/consultations between him and for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante v. Tibe,
your clients, which everyone knows cannot bind the Banks Board or Conservator.
G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
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We are, therefore, constrained to refuse any tender of payment by your clients, as the same is The rule in this jurisdiction is that only questions of law may be raised in a petition
patently violative of corporate and banking laws. We believe that this is more than sufficient
for certiorari under Rule 45 of the Revised Rules of Court. The jurisdiction of the Supreme
legal justification for refusing said alleged tender.
Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the
errors of law imputed to it, its findings of the fact being conclusive [Chan v. Court of Appeals,
Rest assured that we have nothing personal against your clients. All our acts are official, legal G.R. No. L-27488, June 30, 1970 33 SCRA 737, reiterating a long line of decisions]. This Court
and in accordance with law. We also have no personal interest in any of the properties of the
has emphatically declared that it is not the function of the Supreme Court to analyze or weigh
Bank.
such evidence all over again, its jurisdiction being limited to reviewing errors of law that might
have been committed by the lower court (Tiongco v. De la Merced, G. R. No. L-24426, July 25,
Please be advised accordingly.
1974, 58 SCRA 89; Corona v. Court of Appeals, G. R. No. L-62482, April 28, 1983, 121 SCRA
865; Banigued v. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596).
Very truly yours,
Barring, therefore, a showing that take findings complained of are totally devoid of support in
(Sgd.) Leonida T. Encarnacion
the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion,
such findings must stand, for this Court is not expected or required to examine or contrast the
Acting Conservator"
oral and documentary evidence submitted by the parties [Santa Ana, Jr. v. Hernandez, G. R.
No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to
the conservator of a bank, it must be pointed out that such powers must be related to the"
Likewise, in Bernardo v. Court of Appeals, 46 we held:
(preservation of) the assets of the bank, (the reorganization of) the management thereof and
(the restoration of) its viability." Such powers, enormous and extensive as they are, cannot
"The resolution of this petition invites us to closely scrutinize the facts of the case, relating to
extend to the post-facto repudiation of perfected transactions, otherwise they would infringe
the sufficiency of evidence and the credibility of witnesses presented. This Court so held that it
against the non-impairment clause of the Constitution. 44 If the legislature itself cannot revoke is not the function of the Supreme Court to analyze or weigh such evidence all over again. The
an existing valid contract, how can it delegate such non-existent powers to the conservator
Supreme Courts jurisdiction is limited to reviewing errors of law that may have been
under Section 28-A of said law?
committed by the lower court. The Supreme Court is not a trier of facts. . . ."
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Obviously, therefore, Section 28-A merely gives the Conservator power to revoke contracts that As held in the recent case of Chua Tiong Tay v. Court of Appeals and Goldrock Construction and
are, under existing law, deemed to be defective i.e., void, voidable, unenforceable or
Development Corp.: 47
rescissible. Hence, the conservator merely takes the place of a banks board of directors. What
the said board cannot do such as repudiating a contract validly entered into under the
"The Court has consistently held that the factual findings of the trial court, as well as the Court
doctrine of implied authority the conservator cannot do either. Ineluctably, his power is not of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional
unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be circumstances where a reassessment of facts found by the lower courts is allowed are when the
only to bring court actions to assail such contracts as he has already done so in the instant conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the
case. A contrary understanding of the law would simply not be permitted by the Constitution. inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of
Neither by common sense. To rule otherwise would be to enable a failing bank to become
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of

facts; when the findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench, we find
none of the above grounds present to justify the re-evaluation of the findings of fact made by
the courts below."

their thesis. Under the rules on evidence, 51 such suppression gives rise to the presumption
that his testimony would have been adverse, if produced.

The second point was squarely raised in the Court of Appeals, but petitioners evidence was
deemed insufficient by both the trial court and the respondent Court, and instead, it was
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance respondents submissions that were believed and became bases of the conclusions arrived at.
Company Inc. v. Hon. Court of Appeals, Et. Al. 48 is equally applicable to the present case:
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the
"We see no valid reason to discard the factual conclusions of the appellate court. . . . (I)t is not lower courts are valid and correct. But the petitioners are now asking this Court to disturb
the function of this Court to assess and evaluate all over again the evidence, testimonial and
these findings to fit the conclusion they are espousing. This we cannot do.
documentary, adduced by the parties, particularly where, such as here, the findings of both the
trial court and the appellate court on the matter coincide." (Emphasis supplied)
To be sure, there are settled exceptions where the Supreme Court may disregard findings of
fact by the Court of Appeals. 52 We have studied both the records and the CA Decision and we
Petitioners, however, assailed the respondent Courts Decision as "fraught with findings and
find no such exceptions in this case. on the contrary, the findings of the said Court are
conclusions which were not only contrary to the evidence on record but have no bases at all," supported by a preponderance of competent and credible evidence. The inferences and
specifically the findings that (1) the "Banks counter-offer price of P5.5 million had been
conclusions are reasonably based on evidence duly identified in the Decision. Indeed, the
determined by the past due committee and approved by conservator Romey, after Rivera
appellate court patiently traversed and dissected the issues presented before it, lending
presented the same for discussion" and (2) "the meeting with Co was not to scale down the
credibility and dependability to its findings. The best that can be said in favor of petitioners on
price and start negotiations anew, but a meeting on the already determined price of P5.5
this point is that the factual findings of respondent Court did not correspond to petitioners
million." Hence, citing Philippine National Bank v. Court of Appeals 49 , petitioners are asking claims, but were closer to the evidence as presented in the trial court by private Respondent.
us to review and reverse such factual findings.
But this alone is no reason to reverse or ignore such factual findings, particularly where, as in
The first point was clearly passed upon by the Court of Appeals, 50 thus:
this case, the trial court and the appellate court were in common agreement thereon. Indeed,
conclusions of fact of a trial judge as affirmed by the Court of Appeals are conclusive upon
"There can be no other logical conclusion than that when, on September 1, 1987, Rivera
this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind,
informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101 because the trial court is in a better position to observe the demeanor of the witnesses and
hectares on lot basis, such counter-offer price had been determined by the Past Due
their courtroom manner as well as to examine the real evidence presented.
Committee and approved by the Conservator after Rivera had duly presented plaintiffs offer for
discussion by the Committee x x x. Tersely put, under the established fact, the price of P5.5
Epilogue
Million was, as clearly worded in Riveras letter (Exh.E), the official and definitive price at
which the bank was selling the property." (p. 11, CA Decision).
In summary, there are two procedural issues involved forum-shopping and the raising of
issues for the first time on appeal [viz., the extinguishment of the Banks offer of P5.5 million
x
x
x
and the conservators powers to repudiate contracts entered into by the Banks officers]
which per se could justify the dismissal of the present case. We did not limit ourselves thereto,
but delved as well into the substantive issues the perfection of the contract of sale and its
". . . The argument deserves scant consideration. As pointed out by plaintiff, during the
enforceability, which required the determination of questions of fact. While the Supreme Court
meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior viceis not a trier of facts and as a rule we are not required to look into the factual bases of
president of the bank, where the topic was the possible lowering of the price, the bank official respondent Courts decisions and resolutions, we did so just the same, if only to find out
refused it and confirmed that the P5.5. Million price had been passed upon by the Committee whether there is reason to disturb any of its factual findings, for we are only too aware of the
and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)" (p. 15, CA Decision).
depth, magnitude and vigor by which the parties, through their respective eloquent counsel,
argued their positions before this Court.
The respondent Court did not believe the evidence of the petitioners on this point,
characterizing it as "not credible" and "at best equivocal and considering the gratuitous and
We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally
self-serving character of these declarations, the banks submissions on this point do not inspire under a government-appointed conservator and "there is need to rehabilitate the Bank in order
belief."
to get it back on its feet . . . as many people depend on (it) for investments, deposits and well
as employment. As of June 1987, the Banks overdraft with the Central Bank had already
To become credible and unequivocal, petitioners should have presented then Conservator
reached P1.023 billion . . . and there were (other) offers to buy the subject properties for a
Rodolfo Romey to testify on their behalf, as he would have been in the best position to establish substantial amount of money." 53
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While we do not deny our sympathy for this distressed bank, at the same time, the Court
cannot emotionally close its eyes to overriding considerations of substantive and procedural
law, like respect for perfected contracts, non-impairment of obligations and sanctions against
forum-shopping, which must be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondents submission that, while the subject
properties may currently command a much higher-price, it is equally true that at the time of
the transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that
the Bank acquired these properties at a foreclosure sale for no more than P3.5 million. 54 That
the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it
to promote its own advantage, to enable it to escape its binding obligation and to reap the
benefits of the increase in land values. To rule in favor of the Bank simply because the property
in question has algebraically accelerated in price during the long period of litigation is to reward
lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp
its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court
hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is
REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or
similar acts will be dealt with more severely. Costs against petitioners.
SO ORDERED.

SECOND DIVISION
[G.R. No. L-45645. June 28, 1983.]
FRANCISCO A. TONGOY, for himself and as Judicial Administrator of the Estate of the
Late Luis D. Tongoy and Ma. Rosario Araneta Vda. de Tongoy, Petitioners, v. THE
HONORABLE COURT OF APPEALS, MERCEDES T. SONORA, JUAN T. SONORA, JESUS T.
SONORA, TRINIDAD T. SONORA, RICARDO P. TONGOY, CRESENCIANO P. TONGOY,
AMADO P. TONGOY, and NORBERTO P. TONGOY, Respondents.
Taada, Sanchez, Taada & Taada Law Office, for Petitioners.
Reyes & Pablo Law Office for Respondents.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE APPELLATE COURT, BINDING ON


APPEAL; CASE AT BAR, NOT AN EXCEPTION. The Court of Appeals found enough convincing
evidence not barred by the aforecited survivorship rule to time effect that the transfers made
by the co-owners in favor of Luis D. Tongoy were simulated. All these findings of fact, as
general rule, are conclusive upon US and beyond OUR power to review. It has been well-settled
that the jurisdiction of the Supreme Court in cases brought to IT from the Court of appeals is
limited to reviewing and revising errors of law imputed to it, its findings of fact being conclusive
a as matter of general principle (Chan v. C.A., 33 SCRA 737, 744; Alquiza v. Alquisa, 22 SCRA
494, 497). The proofs submitted by petitioners do not place the factual findings of the Court of
appeals under any of the recognized to the aforesaid general rule.

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; VOID CONTRACTS; EFFECTS. A void or in


existent contract is one which has no force and effect from the very beginning, as if it has
never been into. and which cannot be validated either by time or by ratification (p. 592, Civil
Code of the Philippines, Vol. IV, Tolentino, 1973 Ed.). A void contract procedures no effect what
so ever either against or in favor of anyone; it does not create, modify or extinguish the
juridicial relation to which refers.

prescribes in ten years (Boniga v. Soler, Et Al., 2 SCRA 755; J.M. Tauzan and Co., Inc. v.
Magdangal, 4 SCRA 88, special attention to footnotes).

9. ID.; ID.; ID.; CASE AT BAR. Considering that the implied trust resulted from the simulated
sales which were made for the purpose of enabling the transferee, Luis D. Tongoy, to save the
properties from foreclosure for the benefit of the co-workers it would not do to apply the theory
of constructive notice resulting from the registration in the trustees name. Hence, the ten-year
prescriptive period old not be counted from the date of registration in the name of the trustee,
3. ID.; ID.; ID.; SIMULATED CONTRACTS; CHARACTERISTICS THEREOF. Time characteristic as contemplated in the earlier case of Juan v. Zuiga (4 SCRA 1221). Rather, it should be
of simulation is the fact that the apparent contract is not really desired nor intended to produce counted from the date of recording of the release of mortgage in the Registry of Deeds, on
legal effects nor any way alter the juridical situation of the parties. Thus, where a person, in
which dates May 5, 1958 the cestui que trust were charged with the knowledge of the
order to place his Property beyond the reach of his creditors, simulates to transfer of it to
settlement of the mortgage obligation, the attainment of the purpose for which the trust was
another, he does not really intend to divest himself of his title and control of the property;
constituted.
hence, the does of transfer is but a sham. This characteristics of simulation was defined by this
Court in this case of Rodriguez v. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908.
10. REMEDIAL LAW; SPECIAL PROCEEDINGS; ADMINISTRATORS OF ESTATE OF DECEASED;
OBLIGATION TO RENDER ACCOUNTING OF FRUITS OF PROPERTIES SUBJECT OF
4. ID.; ID.; ID.; FUNDAMENTAL CHARACTERISTICS. The following are the most fundamental ADMINISTRATION; CASE AT BAR. Petitioner Francisco A. Tongoy as successor-in-interest
characteristics of avoid or inexistent contracts: 1) As a general rule, they produce no legal
and/or administration of the estate of the late Luis D. Tongoy, is under obligation to return the
effects whatsoever in accordance with the principle "quod nullum est nullum producit
shares of his co-heirs and co-owners in the subject properties and, until it is done, to render an
effectum." 2) They are not susceptible of ratification. 3) The right to set up the defense
accounting of the fruits thereof from the time that the obligation to make a return arose, which
inexistent or absolute -nullity cannot be waived or renounce. 4) The action or defense for the in the case should be May 5, 1958, the date of registration of the document of release of
declaration of their inexistence or absolute nullity is imprescriptible. 5) Time inexistence or
mortgage. Hence, We find no evidence of abuse of discretion on the part of respondent Court of
absolute nullity of a contract cannot be invoked by a person whose interest are not directly
Appeals when it ordered such accounting from May 5,1958, as well as the imposition of legal
affected (p.444, Comments and jurisprudence on obligation and contracts, Jurado, 1969
interest on the fruits and income corresponding to the shares that should have been returned
Ed., Emphasis supplied)
to the private respondents, from the date of actual demand which has been made on January
26, 1966 by the demand letter (Exh. TT) of respondent Jesus T. Sonora to deceased Luis D.
5. ID.; ID.; ID.; CANNOT BE CURED BY RATIFICATION. The nullity of these contracts is
Tongoy.
definite and cannot be cured by ratification. The nullity is permanent, even if the cause thereof
has created to exist, or even when the parties have complied with the contracts spontaneously 11. CIVIL LAW; DAMAGES; ATTORNEYS FEES; AWARD PROPER WHERE PARTY COMPELLED TO
LITIGATE. With respect to the award of attorneys fees in the sum of P20,000.00, the same
6. ID.; ID.; ID.; DEED OF TRANSFER EXECUTED TO RESTRUCTURE MORTGAGE TO PREVENT
appears to have been made, considering that private respondent were unnecessarily compelled
ITS FORECLOSURE, VOID CONTRACT. Evidently, therefore, the deeds of transfer executed in to litigate (Flordelis v. Mar, 114 SCRA 41; Sarsosa Vda. de Barsobin v. Cuenco, 113 SCRA 547;
favor of Luis Tongoy were from the very beginning. absolutely simulated or fictitious, since the Phil. Air Lines v. Phil. 1017).
same were made merely for the purpose of restructuring the mortgage over the subject
properties and thus preventing the foreclosure by the PNB.
12. ID.; PATERNITY AND FILIATION; CONTINUOUS POSSESSION OF STATUS ONLY A GROUND
TO COMPEL. Of course, the overwhelming evidence found by respondent Court of Appeals
7. ID.; ID.; ID.; SIMULATED TRANSFER CANNOT GIVE RISE TO IMPLIED TRUST. The is no
conclusively shows that respondent Amado, Ricardo, Cresenciano and Norberto have been in
implied trust that was generated by the simulated transfers; because being fictitious or
continuous possession of the status of natural, or even legitimated, children. Still, it recognizes
simulated, the transfers were null and void ab initio- from the very beginning-and thus vested the fact that such continuous possession of status is not, per se, a sufficient acknowledgment
no rights whatsoever in favor in Luis Tongoy or his heirs. That which is inexistent cannot give
but only a ground to compel recognition (Alabat v. Alabat, 21 SCRA 1479; Pua v. Chan, 21
life to anything.
SCRA 753; Larena v. Rubio, 43 Phil. 1017).
8. ID.; PRESCRIPTION; ACTION FOR RECONVEYANCE BASED ON IMPLIED TRUST PRESCRIBED
IN YEARS. But even assuming arguendo that such an implied trust exist between Luis
Tongoy as trustee and the private respondent as cestui que trust, still the rights of private
respondent to claim reconveyance is not barred by prescription or laches. Implied or
constructive trusts prescribe in ten years. The prescriptibility of an action for reconveyance
based on implied or constructive trust, is now a settled question in this jurisdiction. It

13. ID.; ID.; NATURAL CHILDREN; LIBERAL VIEW IN FAVOR THEREOF. It is time that WE,
too, take a liberal view in favor of natural children who, because they enjoy the blessings and
privileges of an acknowledged natural child and even of a legitimated child, found it rather
awkward, if not unnecessary, to institute an action for recognition against their natural parents
who, without their asking, have been showering them with the same love, care and material
support as are accorded to legitimate children. The right to participate in their fathers

inheritance should necessarily follow.


14. ID.; SUCCESSION; LAW APPLICABLE WHERE DECEDENT DIED BEFORE THE EFFECTIVITY
OF THE CIVIL CODE. The contention that the said respondent-Tongoys have prescribed, is
without merit. The death Francisco Tongoy having occurred on September 15,1926, the
provisions of the Spanish Civil Code is applicable to this case, following the doctrine laid down
in Villaluz v. Neme (7 SCRA 27).

"By the time this case was commenced. the late Francisco Tongoys aforesaid two children by
his first marriage, Patricio D. Tongoy and Luis D. Tongoy, have themselves died. It is claimed
that Patricio D. Tongoy left three acknowledged natural children named Fernando, Estrella and
Salvacion, all surnamed Tongoy. On the other hand, there is no question that Luis D. Tongoy
left behind a son, Francisco A. Tongoy, and a surviving spouse, Ma. Rosario Araneta Vda. de
Tongoy.

"The following antecedents are also undisputed, though by no means equally submitted as the
complete facts, nor seen in identical lights: On April 17, 1918, Hacienda Pulo was mortgaged
by its registered co owners to the Philippine National Bank (PNB), Bacolod Branch, as security
for a loan of P11,000.00 payable in ten (10) years at 8% interest per annum. The mortgagors
DECISION
however were unable to keep up with the yearly amortizations. as a result of which the PNB
instituted judicial foreclosure proceedings over Hacienda Pulo on June 18, 1931. To avoid
foreclosure, one of the co-owners and mortgagors, Jose Tongoy, proposed to the PNB an
amortization plan that would enable them to liquidate their account. But, on December 23,
MAKASIAR, J.:1932, the PNB Branch Manager in Bacolod advised Jose Tongoy by letter that the latters
proposal was rejected and that the foreclosure suit had to continue. As a matter of fact, the
suit was pursued to finality up to the Supreme Court which affirmed on July 31, 1935 the
decision of the CFI giving the PNB the right to foreclose the mortgage on Hacienda Pulo. In the
meantime, Patricio D. Tongoy and Luis Tongoy executed on April 29, 1933 a Declaration of
This is a petition for certiorari, to review the decision of respondent Court of Appeals in CA-G.R. Inheritance wherein they declared themselves as the only heirs of the late Francisco Tongoy
and thereby entitled to the latters share in Hacienda Pulo. On March 13, 1934, Ana Tongoy,
No. 45336-R, entitled "Mercedes T. Sonora, Et. Al. versus Francisco A. Tongoy, Et. Al.",
Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio Tongoy executed
promulgated on December 3, 1975.
an Escritura de Venta (Exh. 2 or Exh. W, which by its terms transferred for consideration their
rights and interests over Hacienda Pulo in favor of Luis D. Tongoy. Thereafter, on October 23,
The antecedent facts which are not controverted are quoted in the questioned decision, as
1935 and November 5, 1935, respectively, Jesus Sonora and Jose Tongoy followed suit by each
follows:
executing a similar Escritura de Venta (Exhs. 3 or DD and 5 or AA) pertaining to their
"The case is basically an action for reconveyance respecting two (2) parcels of land in Bacolod corresponding rights and interests over Hacienda Pulo in favor also of Luis D. Tongoy. In the
City. The first is Lot No. 1397 of the Cadastral Survey of Bacolod, otherwise known as Hacienda case of Jose Tongoy, the execution of the Escritura de Venta (Exh. 5 or AA) was preceded by
the execution on October 14, 1935 of an Assignment of Rights (Exh. 4 or Z) in favor of Luis D.
Pulo, containing an area of 727,650 square meters and originally registered under original
Certificate of Title No. 2947 in the names of Francisco Tongoy, Jose Tongoy, Ana Tongoy, Teresa Tongoy by the Pacific Commercial Company as judgment lien-holder (subordinate to the PNB
Tongoy and Jovita Tongoy in pro-indiviso equal shares. Said co-owners were all children of the mortgage) of Jose Tongoys share in Hacienda Polo. On the basis of the foregoing documents,
Hacienda Pulo was placed on November 8, 1935 in the name of Luis D. Tongoy, married to
late Juan Aniceto Tongoy. The second is Lot No. 1395 of the Cadastral Survey of Bacolod,
Maria Rosario Araneta, under Transfer Certificate of Title No. 20154 (Exh. 20). In the following
briefly referred to as Cuaycong property, containing an area of 163,754 square meters, and
year, the title of the adjacent Cuaycong property also came under the name of Luis D. Tongoy,
formerly covered by Original Certificate of Title No. 2674 in the name of Basilisa Cuaycong.
married to Maria Rosario Araneta, per Transfer Certificate of Title No. 21522, by virtue of an
"Of the original registered co-owners of Hacienda Pulo, three died without issue, namely: Jose Escritura de Venta (Exh. 6) executed in his favor by the owner Basilisa Cuaycong on June 22,
Tongoy, who died a widower on March 11, 1961; Ana Tongoy, who also died single on February 1936 purportedly for P4,000.00. On June 26, 1936, Luis D. Tongoy executed a real estate
mortgage over the Cuaycong property in favor of the PNB, Bacolod Branch, as security for loan
6, 1957, and Teresa Tongoy who also died single on November 3, 1949. The other two
registered co-owners, namely, Francisco Tongoy and Jovita Tongoy, were survived by children. of P4,500.00. Three days thereafter, on June 29, 1936, he also executed a real estate
mortgage over Hacienda Pulo in favor of the same bank to secure an indebtedness of
Francisco Tongoy, who died on September 15, 1926, had six children; Patricio D. Tongoy and
P21,000.00, payable for a period of fifteen (15) years at 8% per annum. After two decades, on
Luis D. Tongoy by the first marriage; Amado P. Tongoy, Ricardo P. Tongoy; Cresenciano P.
April 17, 1956, Luis D. Tongoy paid off all his obligations with the PNB, amounting to a balance
Tongoy and Norberto P. Tongoy by his second wife Antonina Pabello whom he subsequently
married sometime after the birth of their children. For her part, Jovita Tongoy (Jovita Tongoy de of P34,410.00, including the mortgage obligations on the Cuaycong property and Hacienda
Pulo. However, it was only on April 22, 1958 that a release of real estate mortgage was
Sonora), who died on May 14, 1915, had from children: Mercedes T. Sonora, Juan T. Sonora,
executed by the bank in favor of Luis D. Tongoy. On February 5, 1966, Luis D. Tongoy died at
Jesus T. Sonora and Trinidad T. Sonora.
the Lourdes Hospital in Manila, leaving as heirs his wife Maria Rosario Araneta and his son
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Francisco A. Tongoy. Just before his death, however, Luis D. Tongoy received a letter from Jesus
T. Sonora, dated January 26, 1966, demanding the return of the shares in the properties to the "For their part, defendants Norberto Tongoy and Amado Tongoy filed an answer under oath,
co-owners.
admitting every allegation of the complaint. On the other hand, defendant Fernando Tongoy
originally joined Francisco A. Tongoy in the latters answer, but after the case was submitted
"Not long after the death of Luis D. Tongoy, the case now before Us was instituted in the court and was pending decision, the former filed a verified answer also admitting every allegation of
below on complaint filed on June 2, 1966 by Mercedes T. Sonora, Juan T. Sonora **, Jesus T.
the complaint.
Sonora, Trinidad T. Sonora, Ricardo P. Tongoy and Cresenciano P. Tongoy. Named principally as
defendants were Francisco A. Tongoy, for himself and as judicial administrator of the estate of "Meanwhile, before the case went to trial, a motion to intervene as defendants was filed by and
the late Luis D. Tongoy, and Maria Rosario Araneta Vda. de Tongoy. Also impleaded as
was granted to Salvacion Tongoy and Estrella Tongoy, alleging they were sisters of the full
defendants, because of their unwillingness to join as plaintiffs were Amado P. Tongoy, Norberto blood of Fernando Tongoy. Said intervenors filed an answer similarly admitting every allegation
P. Tongoy ** and Fernando P. Tongoy. Alleging in sum that plaintiffs and/or their predecessors of the complaint.
transferred their interests on the two lots in question to Luis D. Tongoy by means of simulated
sales, pursuant to a trust arrangement whereby the latter would return such interests after the "After trial on the merits, the lower court rendered its decision on October 15, 1968 finding the
mortgage obligations thereon had been settled, the complaint prayed that judgment be
existence of an implied trust in favor of plaintiffs, but at the same time holding their action for
rendered in favor of the plaintiffs and against the defendants
reconveyance barred by prescription, except in the case of Amado P. Tongoy, Ricardo P. Tongoy,
Cresenciano P. Tongoy, and Norberto P. Tongoy, who were adjudged entitled to reconveyance of
(a) Declaring that the HACIENDA PULO, Lot 1397-B-3 now covered by T.C.T. No. 29152,
their corresponding shares in the property left by their father Francisco Tongoy having been
Bacolod City, and the former Cuaycong property, Lot 1395 now covered by T.C.T. No. T-824
excluded therefrom in the partition had during their minority, and not having otherwise signed
(RT-4049) (21522), Bacolod City, as trust estate belonging to the plaintiffs and the defendants any deed of transfer over such shares. The dispositive portion of the decision reads:
in the proportion set forth in Par. 26 of this complaint;
IN VIEW OF ALL THE FOREGOING considerations, judgment is hereby rendered dismissing the
(b) Ordering the Register of Deeds of Bacolod City to cancel T.C.T. No. 29152 and T.C.T. No. T- complaint, with respect to Mercedes, Juan, Jesus and Trinidad, all surnamed Sonora. The
824 (RT-4049) (21522), Bacolod City, and to issue new ones in the names of the plaintiffs and defendants Francisco Tongoy and Rosario Araneta Vda. de Tongoy are hereby ordered to
defendants in the proportions set forth in Par. 26 thereof, based on the original area of
reconvey the proportionate shares of Ricardo P., Cresenciano P., Amado P., and Norberto P., all
HACIENDA PULO;
surnamed Tongoy in Hda. Pulo and the Cuaycong property. Without damages and costs.
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(c) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy to
render an accounting to the plaintiffs of the income of the above two properties from the year
1958 to the present and to deliver to each plaintiff his corresponding share with legal interest
thereon from 1958 and until the same shall have been folly paid;

SO ORDERED.

(d) Ordering the defendants Francisco Tongoy and Ma. Rosario Araneta Vda. de Tongoy to pay
to the plaintiffs as and for attorneys fees an amount equivalent to twenty four per cent (24%)
of the rightful shares of the plaintiffs over the original HACIENDA PULO and the Cuaycong
property, including the income thereof from 1958 to the present; and

Considering the motion for clarification of decision dated November 7, 1968 and the opposition
thereto, and with the view to avoid further controversy with respect to the share of each heir,
the dispositive portion of the decision is hereby clarified in the sense that, the proportionate
legal share of Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy and the heirs of
Norberto P. Tongoy, in Hda. Pulo and Cuaycong property consist of 4/5 of the whole trust
estate, leaving 1/5 of the same to the heirs of Luis D. Tongoy.

(e) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy to pay the
costs of this suit.
Plaintiffs also pray for such other and further remedies just and equitable in the premises.
"Defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy filed separate answers,
denying in effect plaintiffs causes of action, and maintaining, among others, that the sale to
Luis D. Tongoy of the two lots in question was genuine and for a valuable consideration, and
that no trust agreement of whatever nature existed between him and the plaintiffs. As
affirmative defenses, defendants also raised laches, prescription, estoppel, and the statute of
frauds against plaintiffs. Answering defendants counter claimed for damages against plaintiffs
for allegedly bringing an unfounded and malicious complaint.

"Upon motion of plaintiffs, the foregoing dispositive portion of the decision was subsequently
clarified by the trial court through its order of January 9, 1969 in the following tenor:
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SO ORDERED." (pp. 157-166, Vol. 1, rec.).


Both parties appealed the decision of the lower court to respondent appellate court. Plaintiffsappellants Mercedes T. Sonora, Jesus T. Sonora, Trinidad T. Sonora and the heirs of Juan T.
Sonora questioned the lower courts decision dismissing their complaint on ground of
prescription, and assailed it insofar as it held that the agreement created among the TongoySonora family in 1931 was an implied, and not an express, trust; that their action had
prescribed; that the defendants-appellants were not ordered to render an accounting of the
fruits and income of the properties in trust; and that defendants were not ordered to pay the
attorneys fees of plaintiffs-appellants. For their part, defendants-appellants Francisco A.

Tongoy and Ma. Rosario Araneta Vda. de Tongoy not only refuted the errors assigned by
plaintiffs-appellants, but also assailed the findings that there was preponderance of evidence in
support of the existence of an implied trust; that Ricardo P. Tongoy, Amado P, Tongoy and
Norberto P. Tongoy are the legitimate half-brothers of the late Luis D. Tongoy; that their shares
in Hacienda Pulo and Cuaycong property should be reconveyed to them by defendantsappellants; and that an execution was ordered pending appeal.
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On December 3, 1975, respondent court rendered the questioned decision, the dispositive
portion of which is as follows:

IV. The Court of Appeals erred in finding that the respondents Tongoy are the legitimated
children of Francisco Tongoy.
V. Granting arguendo that respondents Tongoy are the legitimated children of Francisco Tongoy,
the Court of Appeals erred in not finding that their action against petitioners has prescribed.
VI. The Court of Appeals erred in ordering petitioners to pay attorneys fees of P20,000.00.

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VII. The Court of Appeals erred in declaring that execution pending appeal in favor of
"WHEREFORE, judgment is hereby rendered modifying the judgment and Orders appealed from respondents Tongoys was justified.
by ordering Maria Rosario Araneta Vda. de Tongoy and Francisco A. Tongoy
I
"1) To reconvey to Mercedes T. Sonora, Juan T. Sonora (as substituted and represented by his
heirs), Jesus T. Sonora and Trinidad T. Sonora each a 7/60th portion of both Hacienda Pulo and
the Cuaycong property, based on their original shares;
It appears to US that the first and second errors assigned by petitioners are questions of fact
"2) To reconvey to Ricardo P. Tongoy, Cresenciano P. Tongoy, Amado P. Tongoy and Norberto P. which are beyond OUR power to review.
Tongoy (as substituted and represented by his heirs each a 14/135th portion of both Hacienda
Pulo and the Cuaycong property, also based on their original shares; provided that the 12
Thus, as found by the respondent Court of Appeals:
hectares already reconveyed to them by virtue of the Order for execution pending appeal of the
judgment shall be duly deducted;
"x
x
x
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"3) To render an accounting to the parties named in pars. 1 and 2 above with respect to the
income of Hacienda Polo and the Cuaycong property from May 5, 1958 up to the time the
reconveyances as herein directed are made; and to deliver or pay to each of said parties their
proportionate shares of the income, if any, with legal interest thereon from the date of filing of
the complaint in this case, January 26, 1966, until the same is paid;

"We shall consider first the appeal interposed by plaintiffs-appellants. The basic issues
underlying the disputed errors raised suggest themselves as follows: 1) whether or not the
conveyance respecting the questioned lots made in favor of Luis D. Tongoy in 1934 and 1935
were conceived pursuant to a trust agreement among the parties; 2) if so, whether the trust
created was an express or implied trust; and 3) if the trust was not an express trust, whether
the action to enforce it has prescribed.

"4) To pay unto the parties mentioned in par. 1 above attorneys fees in the sum of P20,000.00;
and
"The first two issues indicated above will be considered together as a matter of logical
necessity, being so closely interlocked. To begin with, the trial court found and ruled that the
"5) To pay the costs.
transfers made in favor of Luis D. Tongoy were clothed with an implied trust, arriving at this
conclusion as follows:
"SO ORDERED" (pp. 207-208, Vol. I, rec.).
The Court finds that there is preponderance of evidence in support of the existence of
Petitioners Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy (defendantsconstructive, implied or tacit trust. The hacienda could have been leased to third persons and
appellants) have come before Us on petition for review on certiorari with the following
the rentals would have been sufficient to liquidate the outstanding obligation in favor of the
assignments of errors (pp. 23 24, Brief for Petitioners):
Philippine National Bank. But the co-owners agreed to give the administration of the property
to Atty. Luis D. Tongoy, so that the latter can continue giving support to the Tongoy-Sonora
I. The Court of Appeals erred in finding that there was a trust constituted on Hacienda Pulo.
family and at the same time, pay the amortization in favor of the Philippine National Bank, in
the same manner that Jose Tongoy did. And of course, if the administration is successful, Luis
II. The Court of Appeals erred in finding that the purchase price for the Cuaycong property was D. Tongoy would benefit with the profits of the hacienda. Simulated deeds of conveyance in
paid by Jose Tongoy and that said property was also covered by a trust in favor of respondents. favor of Luis D. Tongoy were executed to facilitate and expedite the transaction with the
Philippine National Bank. Luis D. Tongoy supported the Tongoy-Sonora family, defrayed the
III. Conceding, for the sake of argument, that respondents have adequately proven an implied expenses of Dr. Jesus Sonora and Atty. Ricardo P. Tongoy, in their studies. Luis Tongoy even
trust in their favor, the Court of Appeals erred in not finding that the rights of respondents have gave Sonoras their shares in the "beneficacion" although the "beneficacion" were included in
prescribed, or are barred by laches.
the deeds of sale. The amount of consideration of the one-fifth (1/5) share of Jose Tongoy is
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one hundred (P100.00) pesos only. Likewise the consideration of the sale of the interests of the
Pacific Commercial Company is only P100.00 despite the fact that Jose Tongoy paid in full his
indebtedness in favor of said company. The letter of Luis D. Tongoy dated November 5, 1935
(Exhibit BB-1) is very significant, the tenor of which is quoted hereunder:

of the agreement were prepared, one copy furnished Jose Tongoy and the other kept by Luis
Tongoy, instead of making five copies and furnished copy to each co-owner, or at least one copy
would have been kept by him? Why is it that when Atty. Arboleda invited Mrs. Maria Rosario
Araneta Vda. de Tongoy and her son to see him in his house, Atty. Arboleda did not reveal or
mention the fact of the existence of a written trust agreement signed by the late Luis D.
Dear Brother Jose:
Tongoy? The revelation of the existence of a written trust agreement would have been a vital
and controlling factor in the amicable settlement of the case, which Atty. Arboleda would have
Herewith is the deed which the bank sent for us to sign. The bank made me pay the Pacific the played an effective role as an unbiased mediator. Why did not Atty. Arboleda state the precise
sum of P100.00 so as not to sell anymore the land in public auction. This deed is for the
context of the written agreements; its form and the language it was written, knowing as he
purpose of dispensing with the transfer of title to the land in the name of the bank, this way we should, the rigid requirements of proving the contents of a lost document. It is strange that
will avoid many expenses.
when Mrs. Maria Rosario Araneta Vda. de Tongoy and her son were in the house of Atty.
Arboleda, in compliance with his invitation for the supposed friendly settlement of the case,
Yours,
Atty. Arboleda did not even submit proposals for equitable arbitration of the case. On the other
hand, according to Mrs. Tongoy, Mrs. Arboleda intimated her desire to have Atty. Arboleda be
Luis D. Tongoy
taken in. The Court refuses to believe that Judge Arboleda was aware of the alleged intimations
of Mrs. Arboleda, otherwise he would not have tolerated or permitted her to indulge in such an
Jose Tongoy signed the deed because he incurred the obligation with the Pacific and paid it. In embarrassing and uncalled for intrusion. The plaintiffs evidently took such ungainly insinuations
releasing the second mortgage, Luis Tongoy paid only P100.00 and the deed was in favor of
with levity so much so that they did not think it necessary to bring Mrs. Arboleda to Court to
Luis Tongoy. This was done in order "to avoid many expenses" of both Jose and Luis as
refute this fact.
obviously referred to in the word "WE."
"The parties, on either side of this appeal take issue with the conclusion that there was an
Those two transactions with nominal considerations are irrefutable and palpable evidence of
implied trust, one side maintaining that no trust existed at all, the other that the trust was an
the existence of constructive or implied trust.
express trust.
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Another significant factor in support of the existence of constructive trust is the fact that in
1933-34, when proposals for amicable settlement with the Philippine National Bank were being
formulated and considered, Luis D. Tongoy was yet a neophite (sic) in the practice of law, and
he was still a bachelor. It was proven that it was Jose Tongoy, the administrator of Hda. Pulo,
who provided for his expenses when he studied law, when he married Maria Araneta, the
latters property were leased and the rentals were not sufficient to cover all the considerations
stated in the deeds of sale executed by the co-owners of Hda. Pulo, no matter how inadequate
were the amounts so stated. These circumstances fortified the assertion of Judge Arboleda that
Luis D. Tongoy at that time was in no condition to pay the purchase price of the property sold.

"To begin with, We do not think the trial court erred in its ultimate conclusion that the transfers
of the two lots in question made in favor of the late Luis D. Tongoy by his co-owners in 1933
and 1934 created an implied trust in favor of the latter. While, on one hand, the evidence
presented by plaintiffs-appellants to prove an express trust agreement accompanying the
aforesaid transfers of the lots are incompetent, if not inadequate, the record bears sufficiently
clear and convincing evidence that the transfers were only simulated to enable Luis D. Tongoy
to save Hacienda Pulo from foreclosure for the benefit of the co-owners, including himself.
Referring in more detail to the evidence on the supposed express trust, it is true that plaintiffsappellants Jesus T. Sonora, Ricardo P. Tongoy, Mercedes T. Sonora and Trinidad T. Sonora have
testified with some vividness on the holding of a family conference in December 1931 among
But the Court considers the evidence of execution of express trust agreement insufficient.
the co-owners of Hacienda Pulo to decide on steps to be taken vis-a-vis the impending
Express trust agreement was never mentioned in the plaintiffs pleading nor its existence
foreclosure of the hacienda by the PNB upon the unpaid mortgage obligation thereon.
asserted during the pre-trial hearings. It was only during the trial on the merits when Atty.
Accordingly, the co-owners had agreed to entrust the administration and management of
Eduardo P. Arboleda went on to testify that he prepared the deed of trust agreement.
Hacienda Pulo to Luis D. Tongoy who had newly emerged as the lawyer in the family.
Thereafter, on the representation of Luis D. Tongoy that the bank wanted to deal with only one
Indeed the most formidable weapon the plaintiff could have used in destroying the
person it being inconvenient at time to transact with many persons, specially when some
"impregnable walls of the defense castle consisting of public documents" is testimony of Atty. had to be out of town the co-owners agreed to make simulated transfers of their
Eduardo P. Arboleda. He is most qualified and in a knowable position to testify as to the truth of participation in Hacienda Pulo to him. As the evidence stands, even if the same were
the existence of the trust agreement, because he was not only the partner of the late Luis D.
competent, it does not appear that there was an express agreement among the co-owners for
Tongoy in their practice of law especially during the time he prepared and/or notarized the
Luis D. Tongoy to hold Hacienda Pulo in trust, although from all the circumstances just
deeds of sale but he was also his colleague in the City Council. But however forceful would be indicated such a trust may be implied under the law Art. 1453, Civil Code; also see Cuaycong v.
the impact of his testimony, it did not go beyond the establishment of constructive or implied Cuaycong, L-21616, December 11, 1967, 21 SCRA 1192, 1197-1198). But, whatever may be
trust agreement. In the first place, if it is true that written trust agreement was prepared by
the nature of the trust suggested in the testimonies adverted to, the same are incompetent as
him and signed by Luis D. Tongoy for the security of the vendor, why is it that only two copies proof thereof amend the timely objections of defendants-appellees to the introduction of such

testimonial evidence on the basis of the survivorship rule. The witnesses being themselves
parties to the instant case, suing the representatives of the deceased Luis D. Tongoy upon a
demand against the latters estate, said witnesses are barred by the objections of defendantsappellees from testifying on matters of fact occurring before the death of the deceased (Sec.
20[a], Rule 130), more particularly where such occurrences consist of verbal agreements or
statements made by or in the presence of the deceased.

administrator, followed by Jose Tongoy, before Luis D. Tongoy himself took over the hacienda.

"Strongly supported the theory that the transfers were only simulated to enable Luis D. Tongoy
(to) have effective control and management of the hacienda for the benefit of all the co-owners
is preponderant evidence to the effect that he was in no financial condition at the time to
purchase the hacienda. Witness Eduardo Arboleda who was a law partner of Luis D. Tongoy
when the transfers were made, and who is not a party in this case, emphatically testified that
"Neither has the existence of the alleged contra-documento by which Luis D. Tongoy
Luis D. Tongoy could not have produced the money required for the purchase from his law
supposedly acknowledged the transfers to be simulated and bound himself to return the shares practice then. On the other hand, the suggestion that his wife Ma. Rosario Araneta had enough
of his co-owners after the mortgage on the Hacienda had been discharged - been satisfactorily income from her landed properties to sufficiently augment Luis D. Tongoys income from his
established to merit consideration as proof of the supposed express trust. We can hardly add to practice is belied by evidence that such properties were leased, and the rentals collected in
the sound observations of the trial court in rejecting the evidence to the effect as insufficient, advance, for eleven (11) crop years beginning 1931 (Exh. EEE), when they were not yet
except to note further that at least plaintiffs-appellants Mercedes T. Sonora and Trinidad T.
married.
Sonora have testified having been apprised of the document and its contents when Luis D.
Tongoy supposedly delivered one copy to Jose Tongoy. And yet as the trial court noted, no
"The financial incapacity of Luis D. Tongoy intertwines, and together gains strength, with proof
express trust agreement was ever mentioned in plaintiffs-appellants pleadings or at the prethat the co-owners as transferors in the several deeds of sale did not receive the considerations
trial.
stated therein. In addition to the testimony of the notary public, Eduardo P. Arboleda, that no
consideration as recited in the deeds of transfer were ever paid in his presence, all the
"Nevertheless, there is on record enough convincing evidence not barred by the survivorship
transferors who testified including Jesus T. Sonora, Mercedes T. Sonora and Trinidad T. Sonora
rule, that the transfers made by the co-owners in favor of Luis D. Tongoy were simulated and all denied having received the respective considerations allegedly given them. While said
that an implied or resulting trust thereby came into existence, binding the latter to make
transferors are parties in this case, it has been held that the survivorship rule has no
reconveyance of the co-owners shares after the mortgage indebtedness on Hacienda Pulo has application where the testimony offered is to the effect that a thing did not occur (Nantz v.
been discharged. Thus it appears beyond doubt that Hacienda Polo has been the source of
Agbulos, CA-G.R. No. 4098-R, January 13, 1951; Mendoza v. C. Vda. de Goitia, 54 Phil. 557,
livelihood to the co-owners and their dependents, when the subject transfers were made. It is cited by Mora, Comments on the Rules of Court, 1970 ed., Vol. 5, p. 174).
most unlikely that all of the several other co-owners should have come at the same time to one
mind about disposing of their participation to the hacienda, when the same counted so much in "Also of some significance is the fact that the deeds of transfer executed by Ana Tongoy, Teresa
their subsistence and self-esteem. Only extreme necessity would have forced the co-owners to Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora, and Patricio Tongoy (Exh. W) as well
act in unison towards earnestly parting with their shares, taking into account the meager
as that by Jesus Sonora (Exh. DD), did not even bother to clarify whether Luis D. Tongoy as
considerations mentioned in the deeds of transfer which at their most generous gave to each
transferee of his co-owners share was assuming the indebtedness owing to the PNB upon the
co-owner only P2,000.00 for a 1/5 part of the hacienda. As it appears to Us, the impending
mortgage on Hacienda Pulo. In an honest-to-goodness sale, it would have been most unlikely
foreclosure on the mortgage for P11,000.00 could not have created such necessity.
that the transferors would have paid no attention to this detail, least of all where, as in this
Independent of testimony to the effect, it is not hard to surmise that the hacienda could have case, the transfers ware apparently prompted by the inability of the co-owners to discharge the
been leased to others on terms that would leave satisfied the mortgage obligation. Moreover, as mortgage obligation and were being pressed for payment.
it turned out, the PNB was amenable. and did actually accede, to a restructuring of the
mortgage loan in favor of Luis D. Tongoy, thereby saving the hacienda from foreclosure. As a
"Furthermore, the tenor of the letter from Luis D. Tongoy to Jose Tongoy, dated November 5,
matter of fact, the co-owners must have been posted on the attitude of the bank regarding the 1935 (Exhibit Bb-1), as heretofore quote with portions of the decision on appeal, is very
overdue mortgage loan, and its willingness to renew or restructure the same upon certain
revealing of the fact that the steps taken to place Hacienda Pulo in the name of Luis D. Tongoy
conditions. Under such circumstances, it is more reasonable to conclude that there was no
were made for the benefit not only of himself but for the other co-owners as well. Thus, the
compelling reason for the other co owners to sell out their birthrights to Luis D. Tongoy, and
letter ends with the clause this way we will avoid many expenses.
that the purported transfers were, as claimed by them in reality simulated pursuant to the
suggestion that the bank wanted to deal with only one person. In fact, as recited in the
"Finally, it is not without significance that the co-owners and their dependents continued to
Escritura de Venta (Exh. AA) executed between Luis. D. Tongoy and Jose Tongoy, it appears
survive apparently from the sustenance from Hacienda Pulo for a long time following the
that the series of transfers made in favor of the former by the co-owners of Hacienda Polo
alleged transfers in favor of Luis D. Tongoy. In fact, it does not appear possible that Jesus T.
followed and was made pursuant to a prior arrangement made with the PNB by Luis D. Tongoy Sonora and Ricardo P. Tongoy could have finished medicine and law, respectively, without
to redeem the shares or participation of his co-owners. That this was readily assented to in the support from Luis D. Tongoy as administrator of the common property.
anxiety to save and preserve Hacienda Pulo for all its co-owners appears very likely anent
undisputed evidence that the said co-owners had been used to entrusting the management
"All the foregoing, considered together, constitute clear and convincing evidence that the
thereof to one among them, dating back to the time of Francisco Tongoy who once acted as
transfers made in favor of Luis D. Tongoy by his co-owners were only simulated, under

circumstances giving rise to an implied or resulting trust whereby Luis D. Tongoy is bound to
hold title in trust for the benefit of his co-owners (cf. de Buencamino, Et. Al. v. De Matias, Et
Al., L-19397, April 30, 1966, 16 SCRA 849)" [pp. 170-181, Vol. I, rec.].
The Court of Appeals found enough convincing evidence not barred by the aforecited
survivorship rule to the effect that the transfers made by the co-owners in favor of Luis D.
Tongoy were simulated.

31, 1967, 20 SCRA 908.

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A void or inexistent contract is one which has no force and effect from the very beginning, as if
it had never been entered into, and which cannot be validated either by time or by ratification
(p. 592, Civil Code of the Philippines, Vol. IV, Tolentino, 1973 Ed.).
A void contract produces no effect whatsoever either against or in favor of anyone; hence, it
does not create, modify or extinguish the juridical relation to which it refers (p. 594, Tolentino,
supra).

All these findings of fact, as a general rule, are conclusive upon US and beyond OUR power to
review. It has been well-settled that the jurisdiction of the Supreme Court in cases brought to
IT from the Court of Appeals is limited to reviewing and revising errors of law imputed to it, its The following are the most fundamental characteristics of void or inexistent contracts:
findings of fact being conclusive as a matter of general principle (Chan v. C.A., 33 SCRA 737,
744; Alquiza v. Alquiza, 22 SCRA 494, 497).
1) As a general rule, they produce no legal effects whatsoever in accordance with the principle
"quod nullum est nullum producit effectum."
The proofs submitted by petitioners do not place the factual findings of the Court of Appeals
under any of the recognized exceptions to the aforesaid general rule.
2) They are not susceptible of ratification.
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3) The right to set up the defense of inexistence or absolute nullity cannot be waived or
renounced.

4) The action or defense for the declaration of their inexistence or absolute nullity is
imprescriptible.
The initial crucial issue therefore is whether or not the rights of herein respondents over
subject properties, which were the subjects of simulated or fictitious transactions, have already
5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose
prescribed.
interests are not directly affected (p. 444, Comments and Jurisprudence on Obligations and
The negative answer to the aforesaid query is found in Articles 1409 and 1410 of the New Civil Contracts, Jurado, 1969 Ed.; Italics supplied).
Code. Said provision state thus:
The nullity of these contracts is definite and cannot he cured by ratification. The nullity is
permanent, even if the cause thereof has ceased to exist, or even when the parties have
"Art. 1409. The following contracts are inexistent and void from the beginning:
complied with the contract spontaneously (p. 595, Tolentino, supra).
"x
x
x
In Eugenio v. Perdido, Et Al., No. L-7083, May 19, 1955, 97 Phil. 41, this Court thus
reiterated:
"2) Those which are absolutely simulated or fictitious;.
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"x

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived" (Italics supplied).
"Art. 1410. The action or defense for the declaration of the inexistence of a contract does not
prescribe."
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The characteristic of simulation is the fact that the apparent contract is not really desired nor
intended to produce legal effects nor in any way alter the juridical situation of the parties.
Thus, where a person, in order to place his property beyond the reach of his creditors,
simulates a transfer of it to another, he does not really intend to divest himself of his title and
control of the property; hence, the deed of transfer is but a sham. This characteristic of
simulation was defined by this Court in the case of Rodriguez v. Rodriguez, No. L-23002, July

"Under the existing classification, such contract would be "inexisting and the action or defense
for declaration of such inexistence does not prescribe (Art. 1410 New Civil Code). While it is
true that this is a new provision of the New Civil Code, it is nevertheless a principle recognized
since Tipton v. Velasco, 6 Phil. 67 that mere lapse of time cannot give efficacy to contracts that
are null and void."
Consistently, this Court held that "where the sale of a homestead is null and void, the action to
recover the same does not prescribe because mere lapse of time cannot give efficacy to the
contracts that are null and void and inexistent" (Angeles, Et. Al. v. Court of Appeals, Et Al., No.
L-11024, January 31, 1958, 102 Phil. 1006).
In the much later case of Guiang v. Kintanar (Nos. L-49634-36, July 25, 1981, 106 SCRA 49),
this Court enunciated thus:
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"It is of no consequence, pursuant to the same article, that petitioners, the Guiang spouses.
possession of the cestui que trust and, therefore, it cannot be a good ground for title by
executed on August 21, 1975, apparently in ratification of the impugned agreement, the deeds prescription (Laguna v. Levantino, 71 Phil. 566; Cortez v. Oliva, 33 Phil. 480, cited on p. 261,
of sale covering the two lots already referred to and that petitioners actually received to part or Brief for Respondents, supra).
in whole the money consideration stipulated therein, for according to the same Article 1409,
contracts contemplated therein, as the one We are dealing with, cannot be ratified nor the
The rule now obtaining in this jurisdiction is aptly discussed in the case of Bueno v. Reyes (27
defense of its illegality be waived. Neither is it material, much less decisive, that petitioners
SCRA 1179, 1183), where the Court through then Mr. Justice Makalintal, held:
had not earlier judicially moved to have the same annulled or set aside. Under Article 1410 of
the Civil Code, (t)he action or defense for declaration of the inexistence of a contract does not "While there are some decisions which hold that an action upon a trust is unprescriptible,
prescribe."
without distinguishing between express and implied trusts, the better rule, as laid down by this
Court in other decisions, is that prescription does supervene where the trust is merely an
Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy were from the very implied one. The reason has been expressed by Mr. Justice J.B.L. Reyes in J.M. Tuazon and Co.,
beginning absolutely simulated or fictitious, since the same were made merely for the purpose Inc. v. Magdangal, 4 SCRA 84, 88, as follows:
of restructuring the mortgage over the subject properties and thus preventing the foreclosure
by the PNB.
Under Section 40 of the Old Code of Civil Procedure, all actions for recovery of real property
prescribe in ten years, excepting only actions based on continuing or subsisting trusts that
Considering the law and jurisprudence on simulated or fictitious contracts as aforestated, the
were considered by section 38 as unprescriptible. As held in the case of Diaz v. Gorricho, Lwithin action for reconveyance instituted by herein respondents which is anchored on the said 11229, March 29, 1958, however, the continuing or subsisting trusts contemplated in Sec. 38 of
simulated deeds of transfer cannot and should not be barred by prescription. No amount of
the Code of Civil Procedure referred only to express unrepudiated trusts, and did not include
time could accord validity or efficacy to such fictitious transactions, the defect of which is
constructive trusts (that are imposed by law) where no fiduciary relation exists and the trustee
permanent.
does not recognize the trust at all."
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There is no implied trust that was generated by the simulated transfers; because being
fictitious or simulated, the transfers were null and void ab initio from the very beginning
and thus vested no rights whatsoever in favor of Luis Tongoy or his heirs. That which is
inexistent cannot give life to anything at all.
II

This doctrine has been reiterated in the latter case of Escay v. C.A. (61 SCRA 370, 387), where
WE held that implied or constructive trusts prescribe in ten years. "The prescriptibility of an
action for reconveyance based on implied or constructive trust, is now a settled question in this
jurisdiction. It prescribes in ten years" (Boaga v. Soler, Et Al., 2 SCRA 755; J.M. Tuazon and
Co., Inc. v. Magdangal, 4 SCRA 88, special attention to footnotes).
Following such proposition that an action for reconveyance such as the instant case is subject
to prescription in ten years, both the trial court and respondent appellate court are correct in
applying the ten-year prescriptive period.

But even assuming arguendo that such an implied trust exists between Luis Tongoy as trustee
and the private respondents as cestui que trust, still the rights of private respondents to claim The question, however, is, from what time should such period be counted?
reconveyance is not barred by prescription or laches.
The facts of the case at bar reveal that the title to Hacienda Pulo was registered in the name of
Petitioners maintain that, even conceding that respondents have adequately proven an implied Luis D. Tongoy with the issuance of TCT No. 20154 on November 8, 1935; that the title to the
adjacent Cuaycong property was transferred to Luis D. Tongoy with the issuance of TCT No.
trust in their favor, their rights have already prescribed, since actions to enforce an implied
21522 on June 22, 1936. The properties were mortgaged in the year 1936 by said Luis D.
trust created under the old Civil Code prescribes in ten years.
Tongoy for P4,500.00 and P21,000.00; respectively, for a period of fifteen years; that the
"Under Act No. 190, whose statute of limitation would apply if there were an implied trust as in mortgage obligations to the PNB were fully paid on April 17, 1956; that the release of
this case, the longest period of extinctive prescription was only ten years" (Salao v. Salao, 20 mortgage was recorded in the Registry of Deeds on May 5, 1958; and that the case for
reconveyance was filed in the trial court on June 2, 1966.
SCRA 84; Diaz v. Gorricho and Aguado, 103 Phil. 261, 226).
On the other hand, private respondents contend that prescription cannot operate against the
cestui que trust in favor of the trustee, and that actions against a trustee to recover trust
property held by him are imprescriptible (Manalang v. Canlas, 50 OG 1980). They also cite
other pre-war cases to bolster this contention, among which are: Camacho v. Municipality of
Baliwag, 28 Phil. 46; Uy v. Cho Jan Ling, 19 Phil. 202 [pls- see pp. 258-259, Brief for
Respondents, p. 398, rec.]. They further allege that possession of a trustee is, in law,

Considering that the implied trust resulted from the simulated sales which were made for the
purpose of enabling the transferee, Luis D. Tongoy, to save the properties from foreclosure for
the benefit of the co-owners, it would not do to apply the theory of constructive notice resulting
from the registration in the trustees name. Hence, the ten-year prescriptive period should not
be counted from the date of registration in the name of the trustee, as contemplated in the
earlier case of Juan v. Zuiga (4 SCRA 1221). Rather, it should be counted from the date of

recording of the release of mortgage in the Registry of Deeds, on which date May 5, 1958
the cestui que trust were charged with the knowledge of the settlement of the mortgage
obligation, the attainment of the purpose for which the trust was constituted.
The remaining assignment of error dwells on the question of whether or not respondents
Amado, Ricardo, Cresenciano and Norberto, all surnamed Tongoy, may be considered
Indeed, as respondent Court of Appeals had correctly held:
legitimated by virtue of the marriage of their parents, Francisco Tongoy and Antonina Pabello,
subsequent to their births and shortly before Francisco died on September 15, 1926, Petitioners
". . . as already indicated, the ten-year prescriptive period for bringing the action to enforce the maintain that since the said respondents were never acknowledged by their father, they could
trust or for reconveyance of plaintiffs-appellants shares should be tolled from the registration not have been legitimated by the subsequent marriage of their parents, much less could they
of the release of the mortgage obligation, since only by that time could plaintiffs-appellants be inherit from the estate of their father, the predecessor-in-interest of Luis D. Tongoy, who is
charged with constructive knowledge of the liquidation of the mortgage obligations, when it
admittedly the half brother of the said respondents.
became incumbent upon them to expect and demand the return of their shares, there being no
proof that plaintiffs-appellants otherwise learned of the payment of the obligation earlier. More Both the trial court and the respondent appellate court have found overwhelming evidence to
precisely then the prescriptive period should be reckoned from May 5, 1958 when the release sustain the following conclusions: that Amado P. Tongoy. Ricardo P. Tongoy, Cresenciano P.
of the mortgage was recorded in the Registry of Deeds, which is to say that the present
Tongoy and Norberto P. Tongoy were born illegitimate to Antonina Pabello on August 19, 1910
complaint was still filed within the period on June 4, 1966" (p. 35 of questioned Decision, on p. (Exh. A), August 12, 1914 (Exh. B), December 1, 1915 (Exhs. C and C-1) and August 4, 1922
191, rec.).
(Exh. D), respectively; that Francisco Tongoy was their father; that said Francisco Tongoy had
before them two legitimate children by his first wife, namely, Luis D. Tongoy and Patricio D.
Consequently, petitioner Francisco A. Tongoy as successor-in-interest and/or administrator of
Tongoy; that Francisco Tongoy and Antonina Pabello were married sometime before his death
the estate of the late Luis D. Tongoy, is under obligation to return the shares of his co-heirs and on September 15, 1926 (Exh. H); that shortly thereafter, Luis D. Tongoy and Patricio D. Tongoy
co-owners in the subject properties and, until it is done, to render an accounting of the fruits
executed an Extra-Judicial Declaration of Heirs, leaving out their half-brothers Amado, Ricardo,
thereof from the time that the obligation to make a return arose, which in this case should be Cresenciano, and Norberto, who were then still minors; that respondents Amado, Ricardo,
May 5, 1958, the date of registration of the document of release of mortgage.
Cresenciano and Norberto were known and accepted by the whole clan as children of Francisco;
that they had lived in Hacienda Pulo with their parents, but when they went to school, they
Hence, WE find no evidence of abuse of discretion on the part of respondent Court of Appeals stayed in the old family home at Washington Street, Bacolod, together with their grandmother,
when it ordered such accounting from May 5, 1958, as well as the imposition of legal interest Agatona Tongoy, as well as with the Sonoras and with Luis and Patricio Tongoy; that everybody
on the fruits and income corresponding to the shares that should have been returned to the
in Bacolod knew them to be part of the Tongoy-Sonora clan; and that Luis D. Tongoy as
private respondents, from the date of actual demand which has been determined to have been administrator of Hacienda Pulo, also spent for the education of Ricardo Tongoy until he became
made on January 26, 1966 by the demand letter (Exh. TT) of respondent Jesus T. Sonora to
a lawyer; and that even petitioners admit the fact that they were half-brothers of the late Luis
deceased Luis D. Tongoy.
D. Tongoy.
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III

The bone of contention, however, hinges on the absence of an acknowledgment through any of
the modes recognized by the Old Civil Code (please see Articles 131 and 135 of the Old Civil
Code), such that legitimation could not have taken place in view of the provisions of Art. 121 of
the same Code which states that "children shall be considered legitimated by a subsequent
marriage only when they have been acknowledged by the parents before or after the
celebration thereof."

With respect to the award of attorneys fees in the sum of P20,000.00, the same appears to
have been properly made, considering that private respondents were unnecessarily compelled
to litigate (Flordelis v. Mar, 114 SCRA 41; Sarsosa Vda. de Barsobin v. Cuenco, 113 SCRA 547;
Phil. Air Lines v. C.A., 106 SCRA 393). As pointed out in the questioned decision of the Court of Of course, the overwhelming evidence found by respondent Court of Appeals conclusively
shows that respondents Amado, Ricardo, Cresenciano and Norberto have been in continuous
Appeals:
possession of the statue of natural, or even legitimated, children. Still, it recognizes the fact
that such continuous possession of status is not, per se, a sufficient acknowledgment but only a
"As for the claim for attorneys fees, the same appears to be well taken in the light of the
findings WE have made considering that prevailing plaintiffs-appellants were forced to litigate ground to compel recognition (Alabat v. Alabat, 21 SCRA 1479; Pua v. Chan, 21 SCRA 753;
Larena v. Rubio, 43 Phil. 1017).
to enforce their rights, and that equity under all the circumstances so dictate, said plaintiffsappellants should recover attorneys fees in a reasonable amount. We deem P20,000.00
Be that as it may, WE cannot but agree with the liberal view taken by respondent Court of
adequate for the purpose (p. 36 of Decision, p. 151, rec.).
Appeals when it said:
IV
". . . It does seem equally manifest, however, that defendants-appellants stand on a purely
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technical point in the light of the overwhelming evidence that appellees were natural children of and material support as are accorded to legitimate children. The right to participate in their
Francisco Tongoy and Antonina Pabello, and were treated as legitimate children not only by
fathers inheritance should necessarily follow.
their parents but also by the entire clan. Indeed, it does not make much sense that appellees
should be deprived of their hereditary rights as undoubted nature children of their father, when The contention that the rights of the said respondents-Tongoys have prescribed, is without
the only plausible reason that the latter could have had in mind when he married his second
merit. The death of Francisco Tongoy having occurred on September 15, 1926, the provisions
wife Antonina Pebello just over a month before his death was to give legitimate status to their of the Spanish Civil Code is applicable to this case, following the doctrine laid down in Villaluz v.
children. It is not in keeping with the more liberal attitude taken by the New Civil Code towards Neme (7 SCRA 27) where this Court, through Mr. Justice Paredes, held:
illegitimate children and the more compassionate trend of the New Society to insist on a very
literal application of the law in requiring the formalities of compulsory acknowledgment, when "Considering that Maria Rocabo died (on February 17, 1937) during the regime of the Spanish
the only result is to unjustly deprive children who are otherwise entitled to hereditary rights.
Civil Code. the distribution of her properties should be governed by said Code, wherein it is
From the very nature of things, it is hardly to be expected of appellees, having been reared as provided that between co-heirs, the act to demand the partition of the inheritance does not
legitimate children of their parents and treated as such by everybody, to bring an action to
prescribe (Art. 1965 [Old Civil Code]; Baysa, Et. Al. v. Baysa, 53 Off. Gaz. 7272). Verily, the 3
compel their parents to acknowledge them. In the hitherto cited case of Ramos v. Ramos,
living sisters were possessing the property as administratices of the other co-heirs, plaintiffssupra, the Supreme Court showed the way out of patent injustice and inequity that might result appellants herein, who have the right to vindicate their inheritance regardless of the lapse of
in some cases simply because of the implacable insistence on the technical amenities for
time (Sevilla v. De los Angeles, L-7745, 51 Off. Gaz. 5590, and cases cited therein)."
acknowledgment. Thus, it held
Even following the more recent doctrine enunciated in Gerona v. de Guzman (11 SCRA 153)
Unacknowledged natural children have no rights whatsoever (Buenaventura v. Urbano, 5 Phil. that "an action for reconveyance of real property based upon a constructive or implied trust,
1; Siguiong v. Siguiong, 8 Phil. 5, 11; Infante v. Figueras, 4 Phil. 738; Crisolo v. Macadaeg, 94 resulting from fraud, may be barred by the statute of limitations" (Candelaria v. Romero, LPhil. 862). The fact that the plaintiffs, as natural children of Martin Ramos, received shares in 12149, Sept. 30, 1960; Alzona v. Capunita, L-10220, Feb. 28, 1962)", and that "the action
his estate implied that they were acknowledged. Obviously, defendants Agustin Ramos and
therefor may be filed within four years from the discovery of the fraud . . .", said period may
Granada Ramos and the late Jose Ramos and members of his family had treated them as his
not be applied to this case in view of its peculiar circumstances. The registration of the
children. Presumably, that fact was well-known in the community. Under the circumstances,
properties in the name of Luis D. Tongoy on November 8, 1935 cannot be considered as
Agustin Ramos and Granada Ramos and the heirs of Jose Ramos, are estopped from attacking constructive notice to the whole world of the fraud.
plaintiffs status as acknowledged natural children (See Arts. 283 [4] and 2666 [3], New Civil
Code). [Ramos v. Ramos, supra].
It will be noted that the foreclosure on the original mortgage over Hacienda Pulo was instituted
by PNB as early as June 18, 1931, from which time the members of the Tongoy-Sonora clan
"With the same logic, estoppel should also operate in this case in favor of appellees,
had been in constant conference to save the property. At that time all the respondents-Tongoys
considering, as already explained in detail, that they have always been treated as
were still minors (except Amado, who was already 23 years old then), so that there could be
acknowledged and legitimated children of the second marriage of Francisco Tongoy, not only by truth to the allegation that their exclusion in the Declaration of Inheritance executed by Patricio
their presumed parents who raised them as their children, but also by the entire Tongoy-Sonora and Luis Tongoy on April 29, 1933 was made to facilitate matters - as part of the general plan
clan, including Luis D. Tongoy himself who had furnished sustenance to the clan in his capacity arrived at after the family conferences to transfer the administration of the property to the
as administrator of Hacienda Pulo and had in fact supported the law studies of appellee Ricardo latter. The events that followed were obviously in pursuance of such plan, thus:
P. Tongoy in Manila, the same way he did with Jesus T. Sonora in his medical studies. As
already pointed out, even defendants-appellants have not questioned the fact that appellees
March 13, 1934 An Escritura de Venta (Exh. 2 or W) was executed in favor of Luis D. Tongoy
are half-brothers of Luis D. Tongoy. As a matter of fact, that are really children of Francisco
by Ana Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio
Tongoy and Antonina Pabello, and only the technicality that their acknowledgment as natural
Tongoy, transferring their rights and interests over Hacienda Pulo to the former.
children has not been formalized in any of the modes prescribed by law appears to stand in the
way of granting them their hereditary rights. But estoppel, as already indicated, precludes
October 23, 1935 An Escritura de Venta (Exh. 3 or DD) was executed by Jesus Sonora,
defendants-appellants from attacking appellees status as acknowledged natural or legitimated likewise transferring his rights and interests over Hacienda Pulo to Luis D. Tongoy;
children of Francisco Tongoy. In addition to estoppel, this is decidedly one instance when
technicality should give way to conscience, equity and justice (cf. Vda. de Sta. Ana v. Rivera, L- "November 5, 1935 An Escritura de Venta (Exh. 5 or AA) was also executed by Jose Tongoy
22070, October 29, 1966, 18 SCRA 588)" [pp. 196-198, Vol. I, rec.].
in favor of Luis D. Tongoy for the same purpose; (Note: This was preceded by the execution on
October 14, 1935 of an Assignment of Rights [4 or Z] in favor of Luis D. Tongoy by the Pacific
It is time that WE, too, take a liberal view in favor of natural children who, because they enjoy Commercial Company as judgment lien-holder [subordinate of the PNB mortgage] of Jose
the blessings and privileges of an acknowledged natural child and even of a legitimated child, Tongoy on Hacienda Pulo.
found it rather awkward, if not unnecessary, to institute an action for recognition against their
natural parents, who, without their asking, have been showering them with the same love, care "November 5, 1935 Hacienda Pulo was placed in the name of Luis D. Tongoy married to Ma.
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Rosario Araneta with the issuance of TCT 20154 (Exh. 20);

1. CONTRACTS; STUDENTS AND EDUCATIONAL INSTITUTIONS; SCHOLARSHIPS; STIPULATION


WHEREBY STUDENT CANNOT TRANSFER TO ANOTHER SCHOOL WITHOUT REFUNDING
June 22, 1936 An Escritura de Venta was executed by Basilisa Cuaycong over the Cuaycong SCHOLARSHIP CASH NULL AND VOID. The stipulation in a contract, between a student and
property in favor of Luis D. Tongoy, thereby resulting in the issuance of TCT No. 21522 in the
the school, that the students scholarship is good only if he continues in the same school, and
name of Luis D. Tongoy married to Ma. Rosario Araneta;
that he waives his right to transfer to another school without refunding the equivalent of his
scholarship in cash, is contrary to public policy and, hence, null and void, because scholarships
June 26, 1936 Luis D. Tongoy executed a real estate mortgage over the Cuaycong property are awarded in recognition of merit and to help gifted students in whom society has an
in favor of the PNB to secure a loan of P4,500.00; and
established interest or a first lien, and not to keep outstanding students in school to bolster its
prestige and increase its business potential.
June 29, 1936 Luis D. Tongoy executed a real estate mortgage over Hacienda Pulo to secure
a loan of P21,000.00 payable for fifteen years.
When the mortgages were constituted. respondents Cresenciano Tongoy and Norberto Tongoy
were still minors, while respondent Amado Tongoy became of age on August 19, 1931, and
Ricardo Tongoy attained majority age on August 12, 1935. Still, considering that such transfer
of the properties in the name of Luis D. Tongoy was made in pursuance of the master plan to
save them from foreclosure, the said respondents were precluded from doing anything to
assert their rights. It was only upon failure of the herein petitioner, as administrator and/or
successor-in-interest of Luis D. Tongoy, to return the properties that the prescriptive period
should begin to run.

DECISION

CONCEPCION, J.:

As above demonstrated, the prescriptive period is ten years from the date of recording on May Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila,
5, 1958 of the release of mortgage in the Registry of Deeds.
absolving defendant Arellano University from plaintiffs complaint, with costs against the
plaintiff, and dismissing defendants counterclaim, for insufficiency of proof thereon.
WHEREFORE, THE JUDGMENT APPEALED FROM IS HEREBY AFFIRMED IN TOTO.
SO ORDERED.

In the language of the decision appealed from:

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"The essential facts of this case are short and undisputed. As established by the agreement of
facts Exhibit X and by the respective oral and documentary evidence introduced by the parties,
it appears conclusive that plaintiff, before the school year 1948-1949 took up preparatory law
course in the defendant University. After finishing his preparatory law course plaintiff enrolled in
the College of Law of the defendant from the school year 1948-1949. Plaintiff finished his law
studies in the defendant university up to and including the first semester of the fourth year.
During all the school years in which plaintiff was studying law in defendant law college,
Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law
EN BANC
and legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law
studies in the defendant university but failed to pay his tuition fees, because his uncle Dean
[G.R. No. L-15127. May 30, 1961.]
Francisco R. Capistrano having severed his connection with defendant and having accepted the
EMETERIO CUI, Plaintiff-Appellant, v. ARELLANO UNIVERSITY, Defendant-Appellee. deanship and chancellorship of the College of Law of Abad Santos University, plaintiff left the
defendants law college and enrolled for the last semester of his fourth year law in the college
of law of the Abad Santos University graduating from the college of law of the latter university.
Plaintiff, during all the time he was studying law in defendant university was awarded
scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him
SYLLABUS
after the ends of semesters and when his scholarship grants were awarded to him. The whole
amount of tuition fees paid by plaintiff to defendant and refunded to him by the latter from the
first semester up to and including the first semester of his last year in the college of law or the
fourth year, is in total P1,033.87. After graduating in law from Abad Santos University he

applied to take the bar examination. To secure permission to take the bar he needed the
transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue
to him the needed transcripts. The defendant refused until after he had paid back the
P1,033.87 which defendant refunded to him as above stated. As he could not take the bar
examination without those transcripts, plaintiff paid to defendant the said sum under protest.
This is the sum which plaintiff seeks to recover from defendant in this case.

examinations in 1953. Subsequently, he brought this action for the recovery of said amount,
aside from P2,000 as moral damages, P500 as exemplary damages, P2,000 as attorneys fees,
and P500 as expenses of litigation.

In its answer, defendant reiterated the stand it took vis-a-vis the Bureau of Private Schools,
namely, that the provisions of its contract with plaintiff are valid and binding, and that the
memorandum above-referred to is null and void. It, likewise, set up a counterclaim for
"Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to P10,000.00 as damages, and P3,000 as attorneys fees.
sign the following contract, covenant and agreement:
The issue in this case is whether the above quoted provision of the contract between plaintiff
In consideration of the scholarship granted to me by the University, I hereby waive my right to and the defendant whereby the former waived his right to transfer to another school without
transfer to another school without having refunded to the University (defendant) the equivalent refunding to the latter the equivalent of his scholarships in cash, is valid or not. The lower court
of my scholarship cash.
resolved this question in the affirmative, upon the ground that the aforementioned
memorandum of the Director of Private Schools is not a law; that the provisions thereof are
(Sgd.) Emeterio Cui."
advisory, not mandatory in nature; and that, although the contractual provision "may be
unethical, yet it was more unethical for plaintiff to quit studying with the defendant without
It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum
good reasons and simply because he wanted to follow the example of his uncle." Moreover,
No. 38, series of 1949, on the subject of "Scholarships", addressed to "All heads of private
defendant maintains in its brief that the aforementioned memorandum of the Director of
schools, colleges and universities", reading:
Private Schools is null and void because said officer had no authority to issue it, and because it
had been neither approved by the corresponding department head nor published in the official
"1. School catalogs and prospectuses submitted to this Bureau show that some schools offer
gazette.
full or partial scholarships to deserving students for excellence in scholarship or for
leadership in extracurricular activities. Such inducements to poor but gifted students should be We do not deem it necessary or advisable to consider, as the lower court did, the question
encouraged. But to stipulate the condition that such scholarships are good only if the students whether plaintiff had sufficient reasons or not to transfer from defendant University to the Abad
concerned continue in the same school nullifies the principle of merit in the award of these
Santos University. The nature of the issue before us, and its far reaching effects, transcend
scholarships.
personal equations and demand a determination of the case from a high impersonal plane.
Neither do we deem it essential to pass upon the validity of said Memorandum No. 38, for,
"2. When students are given full or partial scholarships, it is understood that such scholarships regardless of the same, we are of the opinion that the stipulation in question is contrary to
are merited and earned. The amount in tuition and other fees corresponding to these
public policy and hence, null and void. The aforesaid memorandum merely incorporates a
scholarships should not be subsequently charged to the recipient students when they decide to sound principle of public policy. As the Director of Private Schools correctly pointed out in his
quit school or to transfer to another institution. Scholarships should not be offered merely to
letter, Exhibit B, to the defendant,
attract and keep students in a school.
"There is one more point that merits refutation and that is whether or not the contract entered
"3. Several complaints have actually been received from students who have enjoyed
into between Cui and Arellano University on September 10, 1951 was void as against public
scholarships, full or partial, to the effect that they could not transfer to other schools since their policy. In the case of Zeigler v. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127,
credentials would not be released unless they would pay the fees corresponding to the period the court said: In determining a public policy of the state, courts are limited to a consideration
of the scholarships. Where the Bureau believes that the right of the student to transfer is being of the Constitution, the judicial decisions, the statutes, and the practice of government officers.
denied on this ground, it reserves the right to authorize such transfer."
It might take more than a government bureau or office to lay down or establish a public policy,
as alleged in your communication, but courts consider the practices of government officials as
that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of one of the four factors in determining a public policy of the state. It has been consistently held
Private Schools to pass upon the issue on his right to secure the transcript of his record in
in America that under the principles relating to the doctrine of public policy, as applied to the
defendant University, without being required to refund the sum of P1,033.87; that the Bureau law of contracts, courts of justice will not recognize or uphold a transaction which in its object,
of Private Schools upheld the position taken by the plaintiff and so advised the defendant; and operation, or tendency, is calculated to be prejudicial to the public welfare, to sound morality,
that, this notwithstanding, the latter refused to issue said transcript of record, unless said
or to civic honesty (Ritter v. Mutual Life Ins. Co., 169 U. S. 139; Heding v. Gallaghere, 64
refund were made, and even recommended to said Bureau that it issue a written order
L.R.A. 811; Veazy v. Allen, 173 N.Y. 359). If Arellano University understood clearly the real
directing the defendant to release said transcript of record, "so that the case may be presented essence of scholarships and the motives which prompted this office to issue Memorandum No.
to the court for judicial action." As above stated, plaintiff was, accordingly, constrained to pay, 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10,
and did pay under protest, said sum of P1,033.87, in order that he could take the bar
1951, which is a direct violation of our Memorandum and an open challenge to the authority of
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the Director of Private Schools because the contract was repugnant to sound morality and civic
honesty. And finally, in Gabriel v. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we
read: In order to declare a contract void as against public policy, a court must find that the
contract as to consideration or the thing to be done, contravenes some established interest of Before the Court are (1) a "Motion for Leave to Intervene with Motion for Leave to File the
society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the Attached Partial Motion for Reconsideration . . ." and (2) "Partial Motion for Reconsideration,"
security of individual rights. The policy enunciated in Memorandum No. 33, s. 1949 is sound
both filed on January 22, 1999, as well as movants Memorandum of Authorities filed on March
policy. Scholarships are awarded in recognition of merit not to keep outstanding students in
16, 1999.
school to bolster its prestige. In the understanding of that university scholarships award is a
business scheme designed to increase the business potential of an educational institution. Thus Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-Araneta allege
conceived it is not only inconsistent with sound policy but also good morals. But what is
that they are parties and signatories 1 to the General and Supplemental Agreements dated
morals? Manresa has this definition. It is good customs; those generally accepted principles of December 28, 1993, which this Court, in its Decision promulgated on December 9, 1998,
morality which have received some kind of social and practical confirmation. The practice of
declared "NULL AND VOID for being contrary to law and the Constitution." As such, they claim
awarding scholarships to attract students and keep them in school is not good customs nor has to "have a legal interest in the matter in litigation, or in the success of either of the parties or
it received some kind of social and practical confirmation except in some private institutions as an interest against both as to warrant their intervention." They add that their exclusion from
in Arellano University. The University of the Philippines which implements Section 5 of Article
the instant case resulted in a denial of their constitutional rights to due process and to equal
XIV of the Constitution with reference to the giving of free scholarships to gifted children, does protection of the laws. They also raise the "principle of hierarchical administration of justice" to
not require scholars to reimburse the corresponding value of the scholarships if they transfer to impugn the Courts cognizance of petitioners direct action before it.
other schools. So also with the leading colleges and universities of the United States after
which our educational practices or policies are patterned. In these institutions scholarships are The motions are not meritorious.
granted not to attract and to keep brilliant students in school for their propaganda value but to
reward merit or help gifted students in whom society has an established interest or a first lien." Intervention Not Allowed After Final Judgment
(Emphasis supplied.)
First, we cannot allow the Motion for Leave to Intervene at this late stage of the proceedings.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered Section 2, Rule 19 of the Rules of Court, provides that a motion to intervene should be filed
sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at "before rendition of judgment . . ." Our Decision was promulgated December 9, 1998, while
the legal rate from September 1, 1954, date of the institution of this case, as well as the costs, movants came to us only on January 22, 1999. Intervention can no longer be allowed in a case
and dismissing defendants counterclaim. It is so ordered.
already terminated by final judgment. 2
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Second, they do not even offer any valid plausible excuse for such late quest to assert their
alleged rights. Indeed, they may have no cogent reason at all. As Petitioner Chavez asserts, 3
the original petition, which was filed on October 3, 1997, was well-publicized. So were its
proceedings, particularly the oral arguments heard on March 16, 1998. Movants have long been
back in the mainstream of Philippine political and social life. Indeed, they could not (and in fact
did not) even feign unawareness of the petition prior to its disposition.

FIRST DIVISION
[G.R. No. 130716. May 19, 1999.]
FRANCISCO I. CHAVEZ, Petitioner, v. PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG) and MAGTANGGOL GUNIGUNDO, (in his capacity as chairman
of the PCGG),Respondents. GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A.
JOPSON, and TERESA A. JOPSON, petitioners-in-intervention.
RESOLUTION

Third, the assailed Decision has become final and executory; the original parties have not filed
any motion for reconsideration, and the period for doing so has long lapsed. Indeed, the
movants are now legally barred from seeking leave to participate in this proceeding.
Nevertheless, we shall tackle their substantive arguments, most of which have been taken up
in said Decision, so as to finally dispose any allegation, even in the remote future, of lack of
due process or violation of the right to equal protection.
No Denial of Due Process

Movants claim that their exclusion from the proceedings regarding the Agreements to which
they were parties and signatories was a denial of "their property right to contract without due
PANGANIBAN, J.:process of law."
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7
We rule that the movants are merely incidental, not indispensable, parties to the instant case.
Being contractors to the General and Supplemental Agreements involving their supposed
Petition Sought to Define Scope of Right to Information
properties, they claim that their interests are affected by the petition. However, as exhaustively
discussed in the assailed Decision, the Agreements undeniably contain terms and conditions
Movants insist that there was "nothing secret or furtive about the agreements as to warrant
that are clearly contrary to the Constitution and the laws and are not subject to compromise.
their compulsory disclosure by the Honorable Court . . ." They submit that when they filed their
Such terms and conditions cannot be granted by the PCGG to anyone, not just to movants.
Motion for Approval of Compromise Agreements before the Sandiganbayan, they practically
Being so, no argument of the contractors will make such illegal and unconstitutional stipulations "opened to public scrutiny the agreements and everything else related thereto."
pass the test of validity. 4 The void agreement will not be rendered operative by the parties
alleged performance (partial or full) of their respective prestations. A contract that violates the In our Decision, we have already discussed this point and, hence, shall no longer belabor it.
Constitution and the law is null and void ab initio and vests no rights and creates no
Suffice it to say that in our Decision, we ruled that the Chavez petition was not confined to the
obligations. It produces no legal effect at all. 5 In legal terms, the movants have really no
concluded terms contained in the Agreements, but likewise concerned other ongoing and future
interest to protect or right to assert in this proceeding. Contrary to their allegations, no
negotiations and agreement, perfected or not. It sought a precise interpretation of the scope of
infraction upon their rights has been committed.
the twin constitutional provisions on "public transactions." It was therefore not rendered moot
and academic simply by the public disclosure of the subject Agreements.
The original petition of Francisco I. Chavez sought to enforce a constitutional right against the
Presidential Commission on Good Government (PCGG) and to determine whether the latter has Alleged Partial Implementation of Agreements Immaterial
been acting within the bounds of its authority. In the process of adjudication, there is no need
to call on each and every party whom said agency has contracted with.
The movants also claim that PCGGs grant to their mother of access rights to one of their
sequestered properties may be equivalent to an implied ratification of the Agreements. As we
In any event, we are now ruling on the merits of the arguments raised by movants; hence,
have ruled, the subject Agreements are null and void for being contrary to the Constitution and
they can no longer complain of not having been heard in this proceeding.
the laws. Being null and void, they are not subject to ratification. 8 Neither will they acquire
validity through the passage of time. 9
Petition Treated as an Exception to the Principle of Hierarchical Administration of Justice
Petition Presented Actual Case and Judicial Question
Movants allege that despite petitioners own statement that he did not intend "to stop or delay .
. . the proceedings involving the subject agreements as an incident before the Sandiganbayan," We reiterate that mandamus, over which this Court has original jurisdiction, is a proper
this Court ruled upon the validity of the said Agreements. They submit that it thereby
recourse for a citizen to enforce a public right and to compel the performance of a public duty,
preempted the Sandiganbayan and rendered moot the three-year proceedings so far
most especially when mandated by the Constitution. As aptly pointed out by Mr. Justice Jose C.
undertaken by the latter court regarding the same. Movants pray that the proceedings before Vitug, 10 "procedural rules . . . [are] not cogent reasons to deny to the Court its taking
the anti-graft court be allowed to take their due course, consistent with the principle of the
cognizance of the case."
hierarchical administration of justice.
There is no political question involved here. The power and the authority of the PCGG to
This matter has been discussed and ruled upon in the assailed Decision. Movants have not
compromise is not the issue. In fact, we have not prohibited or restrained it from doing so. But
raised any new argument that has not been taken up. In any event, we wish to point out that when the compromise entered into palpably violates the Constitution and the laws, this Court is
the principle of the hierarchy of the courts generally applies to cases involving factual
duty-bound to strike it down as null and void. Clearly, by violating the Constitution and the
questions. The oft-repeated justification for invoking it is that such cases do not only impose
laws, the PCGG gravely abused its discretion. 11
upon the precious time of the Court but, more important, inevitably result in their delayed
adjudication. Often, such cases have to be remanded or referred to the lower court as the
In sum, we hold that the motions are procedurally flawed and that, at this late stage,
proper forum or as better equipped to resolve the issues, since the Supreme Court is not a trier intervention can no longer be allowed. Moreover, movants are not indispensable parties to this
of facts. 6 Inasmuch as the petition at bar involves only constitutional and legal questions
suit which principally assails the constitutionality and legality of PCGGs exercise of its
concerning public interest, the Court resolved to exercise primary jurisdiction on the matter.
discretion. In any event, the Court has ruled on the merits of movants claims. Hence, they can
no longer complain, however remotely, of deprivation of due process or of equal protection of
Moreover, in taking jurisdiction over the Chavez petition, the Court actually avoided
the law.
unnecessary delays and expenses in the resolution of the ill-gotten wealth cases, which have
been pending for about twelve years now. With this Decision, the Sandiganbayan may now
WHEREFORE, the motions are hereby DENIED for lack of merit. Let the Decision of this Court,
more speedily resolve the merits of Civil Case No. 141. Finally, it is an elementary rule that this dated December 9, 1998, be now entered.
Court may at its sound discretion suspend procedural rules in the interest of substantial justice.
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On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complainant 3 against her
husband Judie Corpuz and Petitioner-Spouses Antonio and Luzviminda Guiang. The said
Complaint sought the declaration of a certain deed of sale, which involved the conjugal
property of private respondent and her husband, null and void. The case was raffled to the
Regional Trial Court of Koronadal, South Cotabato, Branch 25. In due course, the trial court
rendered a Decision 4dated September 9, 1992, disposing as follow: 5

SO ORDERED.

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ACCORDINGLY, judgment is rendered for the plaintiff and against the defendants,
1. Declaring both the Deed of Transfer of Rights dated March 1, 1990 (Exh. "A") and the
"amicable settlement" dated March 16, 1990 (Exh. "B") as null void and of no effect;
2. Recognizing as lawful and valid the ownership and possession of plaintiff Gilda Corpuz over
the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409 which has been the subject
of the Deed of Transfer of Rights (Exh. "A");
3. Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda Guiang the amount of
NINE THOUSAND (P9,000.00) PESOS corresponding to the payment made by defendants
Guiangs to Manuel Callejo for the unpaid balance of the account of plaintiff in favor of Manuel
Callejo, and another sum of P379.62 representing one-half of the amount of realty taxes paid
by defendants Guiangs on Lot 9, Block 8, (LRC) Psd-165409, both with legal interests thereon
computed from the finality of the decision.
No pronouncement as to costs in view of the factual circumstances of the case.

G.R. No. 125172 June 26, 1998

Dissatisfied, petitioners-spouses filed an appeal with the Court of Appeals. Respondent Court,
in its challenged Decision, ruled as follow: 6
WHEREFORE, the appealed of the lower court in Civil Case No. 204 is hereby AFFIRMED by this
Court. No costs considering plaintiff-appellee's failure to file her brief despite notice.
Reconsideration was similarly denied by the same court in its assailed Resolution: 7

Spouses ANTONIO and LUZVIMINDA GUIANG, Petitioners, vs. COURT OF APPEALS and
GILDA COPUZ,Respondents.
Finding that the issues raised in defendants-appellants motion for reconsideration of Our
decision in this case of January 30, 1996, to be a mere rehash of the same issues which we
have already passed upon in the said decision, and there [being] no cogent reason to disturb
PANGANIBAN, J.: the same, this Court RESOLVED to DENY the instant motion for reconsideration for lack of
merit.
The sale of a conjugal property requires the consent of both the husband and the wife. The
absence of the consent of one renders the sale null and void, while the vitiation thereof makes
The Facts
it merely voidable. Only in the latter case can ratification cure the defect.
The facts of this case are simple. Over the objection of private respondent and while she was in
The Case
Manila seeking employment, her husband sold to the petitioners-spouses one half of their
conjugal peoperty, consisting of their residence and the lot on which it stood. The
circumstances of this sale are set forth in the Decision of Respondent Court, which quoted from
These were the principles that guided the Court in deciding this petition for review of the
Decision 1 dated January 30, 1996 and the Resolution 2 dated May 28, 1996, promulgated by
the Decision of the trial court as follows: 8
the Court of Appeals in CA-GR CV No. 41758, affirming the Decision of the lower court and
denying reconsideration, respectively.
1. Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married spouses. They were
married on December 24, 1968 in Bacolod City, before a judge. This is admitted by defendants-

spouses Antonio and Luzviminda Guiang in their answer, and also admitted by defendant Judie
Corpuz when he testified in court (tsn. p. 3, June 9, 1992), although the latter says that they
were married in 1967. The couple have three children, namely: Junie - 18 years old, Harriet 17 years of age, and Jodie or Joji, the youngest, who was 15 years of age in August, 1990
when her mother testified in court.

Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure whatever defect in
defendant Judie Corpuz's title over the lot transferred, defendant Luzviminda Guiang as vendee
executed another agreement over Lot 9, Block 8, (LRC) Psd-165408 (Exh. "3"), this time with
Manuela Jimenez Callejo, a widow of the original registered owner from whom the couple Judie
and Gilda Corpuz originally bought the lot (Exh. "2"), who signed as vendor for a consideration
of P9,000.00. Defendant Judie Corpuz signed as a witness to the sale (Exh. "3-A"). The new
sale (Exh. "3") describes the lot sold as Lot 8, Block 9, (LRC) Psd-165408 but it is obvious from
Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with plaintiff-wife Gilda
Corpuz as vendee, bought a 421 sq. meter lot located in Barangay Gen. Paulino Santos (Bo. 1), the mass of evidence that the correct lot is Lot 8, Block 9, (LRC) Psd-165409, the very lot
Koronadal, South Cotabato, and particularly known as Lot 9, Block 8, (LRC) Psd-165409 from earlier sold to the couple Gilda and Judie Corpuz.
Manuel Callejo who signed as vendor through a conditional deed of sale for a total
consideration of P14,735.00. The consideration was payable in installment, with right of
5. Sometimes on March 11, 1990, plaintiff returned home. She found her children staying with
cancellation in favor of vendor should vendee fail to pay three successive installments (Exh.
other households. Only Junie was staying in their house. Harriet and Joji were with Mr. Panes.
"2", tsn p. 6, February 14, 1990).
Gilda gathered her children together and stayed at their house. Her husband was nowhere to
be found. She was informed by her children that their father had a wife already.
2. Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half portion of their
Lot No. 9, Block 8, (LRC) Psd-165409 to the defendants-spouses Antonio and Luzviminda
6. For staying in their house sold by her husband, plaintiff was complained against by
Guiang. The latter have since then occupied the one-half portion [and] built their house
defendant Luzviminda Guiang and her husband Antonio Guiang before the Barangay authorities
thereon (tsn. p. 4, May 22, 1992). They are thus adjoining neighbors of the Corpuzes.
of Barangay General Paulino Santos (Bo. 1), Koronadal, South Cotabato, for trespassing (tsn. p.
34, Aug. 17, 1990). The case was docketed by the barangay authorities as Barangay Case No.
3. Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to look for work 38 for "trespassing". On March 16, 1990, the parties thereat signed a document known as
"amicable settlement". In full, the settlement provides for, to wit:
abroad, in [the] Middle East. Unfortunately, she became a victim of an unscrupulous illegal
recruiter. She was not able to go abroad. She stayed for sometime in Manila however, coming That respondent, Mrs. Gilda Corpuz and her three children, namely: Junie, Hariet and Judie to
back to Koronadal, South Cotabato, . . . on March 11, 1990. Plaintiff's departure for Manila to leave voluntarily the house of Mr. and Mrs. Antonio Guiang, where they are presently boarding
look for work in the Middle East was with the consent of her husband Judie Corpuz (tsn. p. 16, without any charge, on or before April 7, 1990.
Aug. 12, 1990; p. 10 Sept. 6, 1991).
FAIL NOT UNDER THE PENALTY OF THE LAW.
After his wife's departure for Manila, defendant Judie Corpuz seldom went home to the conjugal Believing that she had received the shorter end of the bargain, plaintiff to the Barangay Captain
dwelling. He stayed most of the time at his place of work at Samahang Nayon Building, a hotel, of Barangay Paulino Santos to question her signature on the amicable settlement. She was
restaurant, and a cooperative. Daughter Herriet Corpuz went to school at King's College, Bo. 1, referred however to the Office-In-Charge at the time, a certain Mr. de la Cruz. The latter in turn
Koronadal, South Cotabato, but she was at the same time working as household help of, and
told her that he could not do anything on the matter (tsn. p. 31, Aug. 17, 1990).
staying at, the house of Mr. Panes. Her brother Junie was not working. Her younger sister Jodie
(Jojie) was going to school. Her mother sometimes sent them money (tsn. p. 14, Sept. 6,
This particular point not rebutted. The Barangay Captain who testified did not deny that Mrs.
1991.)
Gilda Corpuz approached him for the annulment of the settlement. He merely said he forgot
whether Mrs. Corpuz had approached him (tsn. p. 13, Sept. 26, 1990). We thus conclude that
Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the
Mrs. Corpuz really approached the Barangay Captain for the annulment of the settlement.
remaining one-half portion including their house, of their homelot to defendants Guiangs. She Annulment not having been made, plaintiff stayed put in her house and lot.
wrote a letter to her mother informing her. She [Gilda Corpuz] replied that she was objecting to
the sale. Harriet, however, did not inform her father about this; but instead gave the letter to 7. Defendant-spouses Guiang followed thru the amicable settlement with a motion for the
Mrs. Luzviminda Guiang so that she [Guiang] would advise her father (tsn. pp. 16-17, Sept. 6, execution of the amicable settlement, filing the same with the Municipal Trial Court of
1991).
Koronadal, South Cotabato. The proceedings [are] still pending before the said court, with the
filing of the instant suit.
4. However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz pushed through
the sale of the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409. On March 1,
8. As a consequence of the sale, the spouses Guiang spent P600.00 for the preparation of the
1990, he sold to defendant Luzviminda Guiang thru a document known as "Deed of Transfer of Deed of Transfer of Rights, Exh. "A", P9,000.00 as the amount they paid to Mrs. Manuela
Rights" (Exh. "A") the remaining one-half portion of their lot and the house standing thereon
Callejo, having assumed the remaining obligation of the Corpuzes to Mrs. Callejo (Exh. "3");
for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June, 1990.
P100.00 for the preparation of Exhibit "3"; a total of P759.62 basic tax and special education
Transferor Judie Corpuz's children Junie and Harriet signed the document as witness.
fund on the lot; P127.50 as the total documentary stamp tax on the various documents;

P535.72 for the capital gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification respondent's consent merely rendered the Deed voidable under Article 1390 of the Civil Code,
fee of P5.00. These expenses particularly the taxes and other expenses towards the transfer of which provides:
the title to the spouses Guiangs were incurred for the whole Lot 9, Block 8, (LRC) Psd-165409.
Art. 1390. The following contracts are voidable or annullable, even though there may have
Ruling of Respondent Court
been no damage to the contracting parties:
Respondent Court found no reversible error in the trial court's ruling that any alienation or
xxx xxx xxx
encumbrance by the husband of the conjugal propety without the consent of his wife is null and
void as provided under Article 124 of the Family Code. It also rejected petitioners' contention
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
that the "amicable sttlement" ratified said sale, citing Article 1409 of the Code which expressly fraud.
bars ratification of the contracts specified therein, particularly those "prohibited or declared
void by law."
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.(n)
Hence, this petition. 9
The error in petitioners' contention is evident. Article 1390, par. 2, refers to contracts visited by
The Issues
vices of consent, i.e., contracts which were entered into by a person whose consent was
obtained and vitiated through mistake, violence, intimidation, undue influence or fraud. In this
In their Memorandum, petitioners assign to public respondent the following errors: 10
instance, private respondent's consent to the contract of sale of their conjugal property was
totally inexistent or absent. Gilda Corpuz, on direct examination, testified thus: 11
I
Q Now, on March 1, 1990, could you still recall where you were?
A I was still in Manila during that time.
Whether or not the assailed Deed of Transfer of Rights was validly executed.
xxx xxx xxx
II
ATTY. FUENTES:
Whether or not the Cour of Appeals erred in not declairing as voidable contract under Art. 1390
of the Civil Code the impugned Deed of Transfer of Rights which was validly ratified thru the
Q When did you come back to Koronadal, South Cotabato?
execution of the "amicable settlement" by the contending parties.
A That was on March 11, 1990, Ma'am.
III
Q Now, when you arrived at Koronadal, was there any problem which arose concerning the
Whether or not the Court of Appeals erred in not setting aside the findings of the Court a
ownership of your residential house at Callejo Subdivision?
quo which recognized as lawful and valid the ownership and possession of private respondent
over the remaining one half (1/2) portion of the properly.
A When I arrived here in Koronadal, there was a problem which arose regarding my residential
house and lot because it was sold by my husband without my knowledge.
In a nutshell, petitioners-spouses contend that (1) the contract of sale (Deed of Transfer of
Rights) was merely voidable, and (2) such contract was ratified by private respondent when
This being the case, said contract properly falls within the ambit of Article 124 of the Family
she entered into an amicable sttlement with them.
Code, which was correctly applied by the teo lower court:
This Court's Ruling
The petition is bereft of merit.

Art. 124. The administration and enjoyment of the conjugal partnerhip properly shall belong to
both spouses jointly. In case of disgreement, the husband's decision shall prevail, subject
recourse to the court by the wife for proper remedy, which must be availed of within five years
from the date of the contract implementing such decision.

First Issue: Void or Voidable Contract?


Petitioners insist that the questioned Deed of Transfer of Rights was validly executed by the
parties-litigants in good faith and for valuable consideration. The absence of private

In the event that one spouse is incapacitated or otherwise unable to participate in the
administration of the conjugal properties, the other spouse may assume sole powers of
administration. These powers do not include the powers of disposition or encumbrance which
must have the authority of the court or the written consent of the other spouse. In the absence

of such authority or consent, the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the consenting spouse and
the third person, and may be perfected as a binding contract upon the acceptance by the other
spouse or authorization by the court before the offer is withdrawn by either or both offerors.
(165a) (Emphasis supplied)
Comparing said law with its equivalent provision in the Civil Code, the trial court adroitly
explained the amendatory effect of the above provision in this wise: 12

The position is not well taken. The trial and the appellate courts have resolved this issue in
favor of the private respondent. The trial court correctly held: 15
By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed to Transfer of
Rights (Exh. "A") cannot be ratified, even by an "amicable settlement". The participation by
some barangay authorities in the "amicable settlement" cannot otherwise validate an invalid
act. Moreover, it cannot be denied that the "amicable settlement (Exh. "B") entered into by
plaintiff Gilda Corpuz and defendant spouses Guiang is a contract. It is a direct offshoot of the
Deed of Transfer of Rights (Exh. "A"). By express provision of law, such a contract is also void.
Thus, the legal provision, to wit:

The legal provision is clear. The disposition or encumbrance is void. It becomes still clearer if
we compare the same with the equivalent provision of the Civil Code of the Philippines. Under
Article 166 of the Civil Code, the husband cannot generally alienate or encumber any real
Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and
property of the conjugal partnershit without the wife's consent. The alienation or encumbrance inexistent. (Civil Code of the Philippines).
if so made however is not null and void. It is merely voidable. The offended wife may bring an
action to annul the said alienation or encumbrance. Thus the provision of Article 173 of the Civil In summation therefore, both the Deed of transfer of Rights (Exh. "A") and the "amicable
Code of the Philippines, to wit:
settlement" (Exh. "3") are null and void.
Art. 173. The wife may, during the marriage and within ten years from the transaction
questioned, ask the courts for the annulment of any contract of the husband entered into
without her consent, when such consent is required, or any act or contract of the husband
which tends to defraud her or impair her interest in the conjugal partnership property. Should
the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may
demand the value of property fraudulently alienated by the husband.(n)

Doctrinally and clearly, a void contract cannot be ratified.

16

Neither can the "amicable settlement" be considered a continuing offer that was accepted and
perfected by the parties, following the last sentence of Article 124. The order of the pertinent
events is clear: after the sale, petitioners filed a complaint for trespassing against private
respondent, after which the barangay authorities secured an "amicable settlement" and
petitioners filed before the MTC a motion for its execution. The settlement, however, does not
This particular provision giving the wife ten (10) years . . . during [the] marriage to annul the mention a continuing offer to sell the property or an acceptance of such a continuing offer. Its
alienation or encumbrance was not carried over to the Family Code. It is thus clear that any
tenor was to the effect that private respondent would vacate the property. By no stretch of the
alienation or encumbrance made after August 3, 1988 when the Family Code took effect by the imagination, can the Court interpret this document as the acceptance mentioned in Article 124.
husband of the conjugal partnership property without the consent of the wife is null and void.
WHEREFORE, the Court hereby DENIES the petition and AFFIRMS the challenged Decision and
Furthermore, it must be noted that the fraud and the intimidation referred to by petitioners
Resolution. Costs against petitioners.
were perpetrated in the execution of the document embodying the amicable settlement. Gilda
Corpuz alleged during trial that barangay authorities made her sign said document through
SO ORDERED.
misrepresentation and coercion. 13 In any event, its execution does not alter the void character
of the deed of sale between the husband and the petitioners-spouses, as will be discussed later.
The fact remains that such contract was entered into without the wife's consent.
In sum, the nullity of the contract of sale is premised on the absence of private respondent's
consent. To constitute a valid contract, the Civil Code requires the concurrence of the following
elements: (1) cause, (2) object, and (3) consent, 14 the last element being indubitably absent in
the case at bar.
Second Issue: Amicable Settlement
Insisting that the contract of sale was merely voidable, petitioners aver that it was duly ratified
by the contending parties through the "amicable settlement" they executed on March 16, 1990
in Barangay Case No. 38.

SYLLABUS
1. ANSWER; AMENDMENT AFTER THE CASE IS SET FOR HEARING BUT BEFORE TRIAL;
SECTIONS 2 AND 3, RULE 10, RULES OF COURT. After a case is set for hearing, substantial
amendments may be made in a pleading only upon leave of court. But such leave may be
refused if it appears that the motion was made with intent to delay the action or that the cause
of action or defense is substantially altered.
2. ID.; ID.; ID.; INCLUSION OF DEFENSE OF PRESCRIPTION NOT A SUBSTANTIAL
ALTERATION. The inclusion of the defense of prescription in an amended answer does not
constitute a substantial alteration within the meaning of the rule, if there are no allegations in
the amended answer which are wholly different from those stated in the original answer apart
from such inclusion, and the inclusion could not have placed the plaintiffs at a disadvantage.
SECOND DIVISION
[G.R. No. L-27841. October 20, 1978.]

3. ID.; ID.; DEFENDANT MAY SET FORTH AS MANY DEFENSES; SECTION 2, RULE 8, RULES OF
COURT. Section 2, Rule 8, Rules of Court, provides that a party may set forth in his pleading
two or more statements or a claim or defense alternatively or hypothetically either in one cause
of action or defense or in separate causes of action or defenses. And a defendant may set forth
by his answer as many defenses and counterclaim as he may whatever be their nature
regardless of consistency, provided, that each is consisted with itself.

MARIA ENCARNACION CASTILLO, ELISEA GALVAN, and PATROCINIO


GALVAN, Plaintiffs-Appellants, v. JOSEFA GALVAN, EMILIO SAMSON, and NATIVIDAD
GALVAN, Defendants-Appellees.
4. ACTION; DECLARATION OF NULLITY OF A CONTRACT; IMPRESCRIPTIBLE. Where an
action seeks to declare void and inexistent a deed of sale upon the grounds that there was
SYNOPSIS
fraud in securing the signatures of the vendors in the deed of sale, and that there was no
consideration given at the time of the transaction, the action is imprescriptible.
Six years after the registration of a Deed of Absolute Sale of certain parcels of land in favor of
defendants by plaintiffs predecessor in interest, plaintiffs filed an action for the annulment of AQUINO, J., concurring:
the deed on the grounds of fraud in securing the signatures of the vendors and want of
consideration. Before the trial, Defendants, with leave of court, amended their answer so as to 1. ACTIONS; PRESCRIPTION. An action to declare void or inexistent a fictitious deed of sale
include the defense of statute of limitations, and thereafter moved to dismiss the complaint. On on the ground that its consideration did not exist at the time of transaction is imprescriptible.
the assumption that plaintiffs cause of action was fraud, which prescribed in four years after (Arts. 1409 [3], and 1410, Civil Code)
the registration of the deed of sale with the Register of Deeds, the trial court dismissed the
case. Plaintiffs claim that defendants were estopped from pleading the statute of limitations by 2. ID.; VOID CONTRACTS; ACTION TO DECLARE NULLITY IS IMPRESCRIPTIBLE. A contract
their omission to plead the same in their original answer, and that the inclusion of such a of sale is void and produces no effect whatsoever where the price which appears thereon as
defense
substantially
altered
the
defense.paid, has in fact never been paid by the purchaser to the vendor, or where the signature of the
vendor has been secured fraudulently. Such a sale is nonexistent and cannot be considered
The Supreme Court held that defendants can amend their answer with leave of court after the consummated. In such a case the compulsory heirs of the alleged vendor, upon the latters
case has been set for hearing but before trial, and that the inclusion of the defense of death, have the imprescriptible right to sue to declare the sale void because they have been
prescription in the amended answer is not a substantial alteration within the meaning of the deprived of their legitimate in the estate of the deceased.
Rules since it may be soundly estimated as having been interposed to strengthen their previous
defense of estoppel and it can not have placed plaintiffs at a disadvantage. The High Tribunal,
however, found that plaintiffs cause of action is for a judicial declaration of nullity of a contract
DECISION
of
sale,
which
action
is
imprescriptible.
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Judgment reversed and the case remanded to the court of origin for further proceedings.

CONCEPCION, JR., J.:Three years thereafter, or on August 24, 1964, but before the case was tried, the defendants
filed an amended answer with the corresponding motion to admit it, which amended answer
contained an allegation that "the action of plaintiffs is barred by the statute of limitations." 3
Appeal from the order of the Court of First Instance of Pangasinan dismissing the complaint
filed in Civil Case No. D-1227 and the order denying the motion for the reconsideration of said The plaintiffs filed objections to the defendants motion to amend their answer. Plaintiffs
principal objection was their contention that the defendants had waived the right to plead the
order.
statute of limitations and were estopped from pleading it by reason of the fact that they had
tried to do so after the filing of their answer to the complaint. The plaintiffs further contend
The complaint, filed on August 1, 1961, is for the annulment of a document, denominated
that the inclusion of the defense of prescription substantially altered the defense. 4
"DEED OF ABSOLUTE SALE", executed on August 3, 1955, by and between Paulino Galvan,
professedly the predecessor-in-interest of herein plaintiffs, and defendants Josefa Galvan and
Over plaintiffs objections, the trial court permitted the defendants to amend their answer by
Natividad S. Galvan, and for damages and attorneys fees. The plaintiffs therein alleged that
adding the defense of statute of limitations. 5
Paulino Galvan, during his lifetime, was the registered owner of an undivided one-half (1/2)
interest over two parcels of land, known as Lot Nos. 4541 and 4542 of the Dagupan Cadastre
and covered by OCT Nos. 38131 and 39317, respectively, of the Register of Deeds of Dagupan Then two more years later or on August 27, 1966, the defendants filed a motion to dismiss the
complaint upon the ground that the action is barred by the statute of limitations for the reason
City. The other undivided half is owned by his two daughters by a first marriage, herein
that the present action for the annulment of the instrument of sale is based upon fraud which
defendants Josefa Galvan and Natividad Galvan. On these lots, which are contiguous, is built
should be brought within four (4) years from the time of the discovery of the same in
the family home. On February 10, 1961, Paulino Galvan died and the plaintiffs, out of
"delicadeza" waited for the defendants to initiate the move for the settlement of his estate. But, accordance with Article 1391 of the Civil Code; and fraud, as a ground for annulment, shall be
deemed to be discovered from the date of the registration of the alleged fraudulent documents;
after waiting for some time and finding that none was forthcoming, the plaintiffs became
and considering that the deed of sale in question was registered on August 4, 1955, while the
apprehensive, so that they began to go over the papers concerning the properties of the
decedent. In the office of the Register of Deeds of Dagupan City, they were surprised to find a action for its annulment was commenced only on August 1, 1961, or after the lapse of more
than four (4) years from its registration with the Register of Deeds, the action for annulment
deed of sale, signed by the late Paulino Galvan and the plaintiff, Maria Encarnacion Castillo,
had prescribed. 6
whereby they had purportedly sold for P500.00 the one-half undivided portion of Paulino
Galvan over said lots in favor of defendants. When apprised of the existence of a deed of sale,
The trial court sustained the defendants contention, and, consequently, dismissed the
plaintiff Maria Encarnacion Castillo remembered that way back in 1953, she and her husband
complaint without costs, on September 22, 1966. 7 A motion for the reconsideration of this
Paulino Galvan were made to sign a certain document by Josefa Galvan "upon the fraudulent
misrepresentation that the said document was only for the purpose of enabling them, the co- order having been denied on November 2, 1966, 8 the plaintiffs interposed the present
appeal.
owners of the parcels of land in question, to have their separate tax declarations for the
respective portions owned by them so that they can pay their respective real estate taxes
separately, the said spouses not knowing that the said document is a deed of sale for which no The appeal raises two issues for determination, the first of which is whether or not the trial
consideration was even paid." The plaintiffs further alleged that Paulino Galvan could not have court erred in admitting the amended answer which incorporated a defense of prescription not
heretofore pleaded in the original answer.
intended to sell his share and participation over the lots in question during his lifetime as he
had no other residential lot to live in and there is no necessity for him to sell the same as he
and his wife had sufficient income to sustain them. Besides, the undivided half share of Paulino The plaintiffs insist that the defendants, by their omission to plead the statute of limitations in
their original answer, waived and relinquished that plea for all time, and that it was therefore,
Galvan was worth around P22,500.00 so that he could not have sold it for only P500.00.
error for the trial court to permit the plea. On this contention, plaintiffs direct our attention to
Wherefore, they prayed that the deed of sale be declared null and void; that the plaintiffs be
Sec. 2, Rule 9, of the Rules of Court which reads as follows:
declared the owners of four-sixths (4/6) of the undivided half share pertaining to Paulino
Galvan; that the defendants be ordered to pay the amount of P1,500.00, as attorneys fees;
"Section 2. Defenses and objections not pleaded deemed waived. Defenses and objections
and to pay the costs of suit. 1
not pleaded either in a motion to dismiss or in the answer are deemed waived; except the
failure to state a cause of action which may be alleged in a later pleading, if one is permitted,
The defendants filed their answer with counterclaim on August 23, 1961 wherein they
or by motion for judgment on the pleadings, or at the trial on the merits; but in the last
interposed negative and affirmative defenses. As their affirmative defense, the defendants
instance, the motion shall be disposed of as provided in Section 5 of Rule 10 in the light of any
claim that "they are the absolute and exclusive owners of whose parcels of land described in
evidence which may have been received. Whenever it appears that the court has no jurisdiction
the complaint for having acquired the portions belonging to their late father Paulino Galvan
through legal and valid conveyance and this fact is known to the plaintiffs long before the filing over the subject matter, it shall dismiss the action."
of the complaint." 2
The plaintiffs have apparently ignored the rule that a party may amend his pleading once as a
matter of course at any time before a responsive pleading is served, or, if the pleading is one to
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which no responsive pleading is permitted and the action has not been placed upon the trial
calendar, he may so amend it at any time within ten (10) days after it is served. After the case
is set for hearing, substantial amendments may be made only upon leave of court. But such
leave may be refused if it appears to the court that the motion was made with intent to delay
the action or that the cause of action or defense is substantially altered. 9

contention of the defendants that plaintiffs action has prescribed as the same was not
presented within four years from the registration of the document.

"The court sustains defendants contention. The basis of the annulment is alleged fraud, and
the action for the annulment of the document should be brought within 4 years from the
discovery of fraud (Mauricio v. Villanueva, L-11072, September 24, 1959), and that such
Here, leave to file an amended answer was sought after the case had been set for trial but
discovery of fraud is deemed to have taken place when the instrument was filed and registered
before the trial thereof, 10 so that it is well within the ambit of the rule aforementioned.
with the Register of Deeds and new transfer certificate of title is issued in the name of the
Indeed, if the plaintiffs believed that the trial court gravely abused its discretion in allowing the vendee for the registration of the deed constitutes constructive notice to the whole world (Diaz
amendments to the answer, they should have filed the proper corrective action earlier.
v. Gorricho, L-11229, March 29, 1958; Ignacio Gerona, Et. Al. v. Carmen de Guzman, Et Al., L19060, May 29, 1964).
The inclusion of the defense of statute of limitations is also claimed to have substantially
altered the defense, in that in the original answer, the defendants invoked only "specific denial" "In view of the foregoing, the court resolves to dismiss, as it hereby dismisses, the complaint
as their defense, which means that they deny the truth of the allegations of fact constituting
without costs." 13
the fraud as alleged in the complaint, whereas the defense of statute of limitations impliedly
admits the truth of facts alleged in the complaint as constituting the fraud, and, therefore,
The allegations of the complaint show, however, that the plaintiffs action is to declare void and
inadmissible.
inexistent the deed of sale executed by Paulino Galvan and Encarnacion Castillo on August 3,
1955 in favor of Josefa and Natividad Galvan, upon the grounds that (a) there is fraud in
The alteration pointed to by the plaintiffs is but nominal, and can not be considered a
securing the signatures of the vendors in said deed of sale; and (b) there was no consideration
substantial alteration in the defense within the meaning of the rule. Comparing the original
given at the time of the transaction. In other words, the plaintiffs are seeking a judicial
answer with amendments made thereto, there are no allegations in the amended answer
declaration that the deed of sale in question is void ab initio, which action is imprescriptible. 14
wholly different from those which were stated in the original answer, except for the addition of The trial court erred, therefore, in dismissing the complaint for the reasons stated.
the allegation that "the action of the plaintiffs is barred by the statute of limitations." As in their
original answer, the defendants have maintained that "they are absolute and exclusive owners WHEREFORE, the judgment appealed from is reversed and the order of September 22, 1966,
of whole parcels of land described in the complaint for having acquired the portions belonging dismissing the complaint, is hereby set aside. Let this case be remanded to the court of origin
to their late father Paulino Galvan through legal and valid conveyance and this fact is known to for further proceedings. Without costs.
plaintiffs long before the filing of the complaint." Even the prayer is the same. It is a sound
estimate that the defense of prescription was interposed to strengthen their previous defense SO ORDERED.
of estoppel or laches. The plaintiffs could not have been placed at a disadvantage for as a
matter of fact, the plaintiffs had anticipated the defense of prescription in their complaint by
Fernando (Chairman), Antonio, Aquino, and Santos, JJ., concur.
pleading that they came to know of the existence of the deed of sale only after they went over
the papers concerning the land in the office of the register of Deeds of Dagupan City in 1961,
Separate Opinions
after the death of Paulino Galvan. 11
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At any rate, under Section 2, Rule 8 of the Rules of Court, a party is allowed to set forth in his
pleading two or more statements or a claim or defense alternatively or hypothetically either in BARREDO, J., concurring:
one cause of action or defense or in separate causes of action or defenses. And a defendant
may set forth by his answer as many defenses and counterclaim as he may whatever be their Because I am in favor of liberalizing the rule on waiver of defenses in order to promote
nature regardless of consistency, provided, that each is consisted with itself. 12
substantial justice: The main opinion as well as that of Justice Concepcion Jr., have that
tendency. See attached concurring opinion.
The other issue raised is whether or not the trial court improperly dismissed the complaint on
the ground of prescription. In its order dated September 22, 1966, dismissing the complaint,
AQUINO, J., concurring:
the trial court said:
I concur. The trial court committed a grievous error in dismissing the complaint on the ground
"The complaint, among others, prays for the annulment of document, which is a deed of sale
of prescription. It erroneously assumed that plaintiffs cause of action is for the annulment of a
dated August 3, 1955, purporting conveyance of the two parcels described in the complaint in deed of sale on the ground of fraud.
favor of defendants Josefa Galvan and Natividad Galvan and Emilio Samson. Said document
(Exh. 1 for defendants) was registered on August 4, 1955 (Exhs. 1-A and 1-B). It is the
In reality, plaintiffs action is to declare void or inexistent the fictitious deed of sale of August 3,
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1955 on the ground that its consideration did not exist at the time of the transaction. That
action is imprescriptible [Arts. 1409[3] and 1410, Civil Code).

The action to declare the sale void was filed on August 1, 1961 against Natividad Galvan and
Josefa Galvan. They pleaded as a defense that the sale was valid. Later, they amended their
Fraud was alleged in the complaint merely to show why the alleged vendor (the septuagenarian answer by pleading prescription. The trial court dismissed the complaint on that ground.
father of the vendees) signed the deed of sale.
The trial court overlooked the fact that the fraudulent manner by which the signatures of the
The plaintiffs categorically alleged in paragraph 9 of the complaint that no consideration was
Galvan spouses in the deed were obtained strengthens plaintiffs theory that the sale is void or
paid for the sale. They prayed that the sale "be declared null and void" (pp. 4-6, Record on
inexistent because it would appear that the said spouses did not consent at all to the sale.
Appeal). The thrust of the action is to secure a judicial declaration that the sale is void ab initio.
In the Mapalo case, supra, the spouses, Miguel Mapalo and Candida Quiba, illiterate farmers,
A contract of sale is void and produces no effect whatsoever where the price, which appears
decided to donate to Maximo Mapalo the brother of Miguel, the eastern half of their 1,635thereon as paid, has in fact never been paid by the purchaser to the vendor (Arts. 1352 and
square meter residential land located in Manaoag, Pangasinan.
1353, Civil Code; Ocejo, Perez and Co. v. Flores and Bas, 40 Phil. 921; Mapalo v. Mapalo, L21489, May 19, 1966, 17 SCRA 114, 122).
However, they were deceived into signing on October 15, 1936 a deed of absolute sale for the
entire land in favor of Miguel Mapalo. Their signatures were procured by fraud. They were made
Such a sale is nonexistent and cannot be considered consummated (Borromeo v. Borromeo, 98 to believe by Maximo and the notary public that the document was a deed of donation covering
Phil. 432; Cruzado v. Bustos and Escaler, 34 Phil. 17; Garanciang v. Garanciang, L-22361, May the eastern half of their land.
21, 1969, 28 SCRA 229).
Although the deed of sale stated a consideration of P500 (as in the instant case), the said
Plaintiffs cause of action is supported by the following ultimate facts alleged in their
spouses did not receive anything of value for the land. The spouses remained in possession of
complaint:
the western half of the land.
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Paulino Galvan married twice. By his first marriage, he begot two daughters, defendants Josefa On March 15, 1938 Maximo Mapalo registered the sale and obtained a Torres title for the entire
Galvan and Natividad Galvan. His second wife was Encarnacion Castillo with whom he begot
land. On October 20, 1951 Maximo sold the entire land to Evaristo, Petronila, Pacifico and
three children named Elisea, Patrocinio and Florangel.
Miguel, all surnamed Narciso. A transfer certificate of title was issued to the Narcisos for the
whole land. They took possession of the eastern half of the land.
Paulino Galvan was the owner of a one half proindiviso share in two parcels of land located at
Burgos Street, Dagupan City with a total area of 1,116 square meters. The other one-half share On February 7, 1952 the Narcisos sued the Mapalo spouses. They prayed that they be declared
is owned by Natividad Galvan and Josefa Galvan, his two daughters of the first marriage.
the owners of the entire land. They sought to recover possession of its western portion. The
Mapalo spouses filed a counterclaim, wherein they prayed that the western half of the land be
Existing on those two lots in the conjugal house of the spouses Paulino Galvan and Encarnacion conveyed to them. They alleged that their signatures to the deed of sale were obtained through
Castillo. The house is made of wood with galvanized iron roofing.
fraud. They sued the Narcisos in 1957. They asked that the 1936 and 1951 deeds of sale be
declared void as to the western portion.
On August 3, 1955, when Paulino Galvan, who did not have much education, was already
seventy-eight years old, his daughter, Josefa, asked him and his wife, Encarnacion, also old and The Court of Appeals held that the sale was merely voidable on the ground of fraud; that the
not highly educated, to sign a document which, according to Josefa, was necessary in order to action for annulment should have been brought within four years from the registration of the
have separate tax declarations for their respective one-half portions of the two lots.
sale, and that, as that period had already expired, the action had also prescribed.
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The Galvan spouses signed the document. Paulino Galvan died on February 10, 1961 at the age This Court, reversing the decision of the Court of Appeals, held that the 1936 sale was not
of eighty-four years. He was survived by his second wife and his five above-named children.
merely voidable but was void or inexistent and that the "inexistence of a contract is permanent
and incurable and cannot be the subject of prescription." The holding of the trial court that the
It was only after the death of Paulino Galvan that his widow and their three children discovered Mapalo spouses should be issued a Torrens title for the western half of the land was affirmed.
that the document, which Josefa had asked her father to sign, was a deed of sale, which is in
English, a language not known to the Galvan spouses.
The ruling in the Mapalo case is squarely applicable to this case.
Paulino Galvan could not have sold his one-half share in the two lots for a measly sum of P500, In the instant case, the plaintiffs, the widow and a child of the first marriage, as compulsory
the price stated in the deed of sale, because in 1961 the two lots were worth P45,000, at forty heirs of Paulino Galvan, the victim of the alleged fraud, have the right to sue to declare the sale
pesos a square meter. Paulino Galvans one-half share was worth at least P22,500.
void because they were deprived of their legitimate in the estate of Paulino Galvan (Art.

221[4], Civil Code; Reyes v. Court of Appeals, 95 Phil. 952; Armentia v. Patriarca, L-18210,
December 29, 1966, 18 SCRA 1253, 1258-1260).
THIRD DIVISION

"2. Dismissing the third party complaint against the third party defendants;

"3. Upholding the counterclaims of the third party defendants against the [petitioners.
Petitioners] are hereby required to pay [the] third party defendants the sum of P30,000.00 as
moral damages for the clearly unfounded suit;

[G.R. NO. 153201 : January 26, 2005]

JOSE MENCHAVEZ, JUAN MENCHAVEZ JR., SIMEON MENCHAVEZ, RODOLFO


MENCHAVEZ, CESAR MENCHAVEZ, REYNALDO, MENCHAVEZ, ALMA MENCHAVEZ, ELMA "4. Requiring the [petitioners] to reimburse the third party defendants the sum ofP10,000.00 in
MENCHAVEZ, CHARITO M. MAGA, FE M. POTOT, THELMA M. REROMA, MYRNA M.
the concept of attorney's fees and appearance fees of P300.00 per appearance;
YBAEZ, and SARAH M. VILLABER, Petitioners, v. FLORENTINO TEVES JR., Respondent.
"5. Requiring the [petitioners] to reimburse the third party defendants the sum ofP10,000.00
as exemplary damages pro bono publico and litigation expenses including costs, in the sum
of P5,000.00."4

DECISION

PANGANIBAN, J.:
The assailed Resolution denied petitioners' Motion for Reconsideration.
A void contract is deemed legally nonexistent. It produces no legal effect. As a general rule,
courts leave parties to such a contract as they are, because they are in pari delicto or equally
at fault. Neither party is entitled to legal protection.

The Case

The Facts

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February
28, 2001 Decision2 and the April 16, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV On February 28, 1986, a "Contract of Lease" was executed by Jose S. Menchavez, Juan S.
Menchavez Sr., Juan S. Menchavez Jr., Rodolfo Menchavez, Simeon Menchavez, Reynaldo
No. 51144. The challenged Decision disposed as follows:
Menchavez, Cesar Menchavez, Charito M. Maga, Fe M. Potot, Thelma R. Reroma, Myrna Ybaez,
Sonia S. Menchavez, Sarah Villaver, Alma S. Menchavez, and Elma S. Menchavez, as lessors;
and Florentino Teves Jr. as lessee.
"WHEREFORE, the assailed decision is hereby MODIFIED, as follows:
rbl r l l lbrr

"1. Ordering [petitioners] to jointly and severally pay the [respondent] the amount
ofP128,074.40 as actual damages, and P50,000.00 as liquidated damages;

The pertinent portions of the Contract are herein reproduced as follows:

"WHEREAS, the LESSORS are the absolute and lawful co-owners of that area covered by
FISHPOND APPLICATION No. VI-1076 of Juan Menchavez, Sr., filed on September 20, 1972, at

Fisheries Regional Office No. VII, Cebu City covering an area of 10.0 hectares more or less
located at Tabuelan, Cebu;

"7. Any violation of the terms and conditions herein provided, more particularly the warranties
above-mentioned, the parties of this Contract responsible thereof shall pay liquidated damages
in the amount of not less than P50,000.00 to the offended party of this Contract; in case the
LESSORS violated therefor, they bound themselves jointly and severally liable to the LESSEE;"

xxx
x x x x x x x x x.5
"NOW, THEREFORE, for and in consideration of the mutual covenant and stipulations hereinafter
set forth, the LESSORS and the LESSEE have agreed and hereby agree as follows:
On June 2, 1988, Cebu RTC Sheriffs Gumersindo Gimenez and Arturo Cabigon demolished the
fishpond dikes constructed by respondent and delivered possession of the subject property to
other parties.6 As a result, he filed a Complaint for damages with application for preliminary
"1. The TERM of this LEASE is FIVE (5) YEARS, from and after the execution of this Contract of attachment against petitioners. In his Complaint, he alleged that the lessors had violated their
Lease, renewable at the OPTION of the LESSORS;
Contract of Lease, specifically the peaceful and adequate enjoyment of the property for the
entire duration of the Contract. He claimed P157,184.40 as consequential damages for the
demolition of the fishpond dikes, P395,390.00 as unearned income, and an amount not less
than P100,000.00 for rentals paid.7
"2. The LESSEE agrees to pay the LESSORS at the residence of JUAN MENCHAVEZ SR., one of
the LESSORS herein, the sum of FORTY THOUSAND PESOS (P40,000.00) Philippine Currency,
annually x x x;
Respondent further asserted that the lessors had withheld from him the findings of the trial
court in Civil Case No. 510-T, entitled "Eufracia Colongan and Paulino Pamplona v. Juan
Menchavez Sr. and Sevillana S. Menchavez." In that case involving the same property, subject
"3. The LESSORS hereby warrant that the above-described parcel of land is fit and good for the of the lease, the Menchavez spouses were ordered to remove the dikes illegally constructed
intended use as FISHPOND;
and to pay damages and attorney's fees.8

"4. The LESSORS hereby warrant and assure to maintain the LESSEE in the peaceful and
adequate enjoyment of the lease for the entire duration of the contract;

"5. The LESSORS hereby further warrant that the LESSEE can and shall enjoy the intended use
of the leased premises as FISHPOND FOR THE ENTIRE DURATION OF THE CONTRACT;

Petitioners filed a Third Party Complaint against Benny and Elizabeth Allego, Albino Laput,
Adrinico Che and Charlemagne Arendain Jr., as agents of Eufracia Colongan and Paulino
Pamplona. The third-party defendants maintained that the Complaint filed against them was
unfounded. As agents of their elderly parents, they could not be sued in their personal capacity.
Thus, they asserted their own counterclaims. 9

After trial on the merits, the RTC ruled thus:


"6. The LESSORS hereby warrant that the above-premises is free from all liens and
encumbrances, and shall protect the LESSEE of his right of lease over the said premises from
any and all claims whatsoever;

"[The court must resolve the issues one by one.] As to the question of whether the contract of
lease between Teves and the [petitioners] is valid, we must look into the present law on the
matter of fishponds. And this is Pres. Decree No. 704 which provides in Sec. 24:

'Lease of fishponds-Public lands available for fishpond development including those earmarked
for family-size fishponds and not yet leased prior to November 9, 1972 shall be leased only to
qualified persons, associations, cooperatives or corporations, subject to the following
conditions.

'1. The lease shall be for a period of twenty five years (25), renewable for another twenty five
years;

'2. Fifty percent of the area leased shall be developed and be producing in commercial scale
within three years and the remaining portion shall be developed and be producing in
commercial scale within five years; both periods begin from the execution of the lease contract;

his family is a patent nullity. Being a patent nullity, [petitioners] could not give any rights to
Florentino Teves, Jr. under the principle: 'NEMO DAT QUOD NON HABET' - meaning ONE
CANNOT GIVE WHAT HE DOES NOT HAVE, considering that this property in litigation belongs to
the State and not to [petitioners]. Therefore, the first issue is resolved in the negative, as the
court declares the contract of lease as invalid and void ab-initio.

"On the issue of whether [respondent] and [petitioners] are guilty of mutual fraud, the court
rules that the [respondent] and [petitioners] are in pari-delicto. As a consequence of this, the
court must leave them where they are found. x x x.

xxx

'3. All areas not fully developed within five years from the date of the execution of the lease
"x x x. Why? Because the defendants ought to have known that they cannot lease what does
contract shall automatically revert to the public domain for disposition of the bureau; provided not belong to them for as a matter of fact, they themselves are still applying for a lease of the
that a lessee who failed to develop the area or any portion thereof shall not be permitted to
same property under litigation from the government.
reapply for said area or any portion thereof or any public land under this decree; and/or any
portion thereof or any public land under this decree;

'4. No portion of the leased area shall be subleased. '

The Constitution, (Sec. 2 & 3, Art. XII of the 1987 Constitution) states:

'Sec. 2 - All lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, forests, or timber, wild life, flora and fauna and
other natural resources are owned by the state.

'Sec. 3 - Lands of the public domain are classified into agricultural, forest or timber, mineral
lands and national parks. Agricultural lands of the public domain may be further classified by
law according to the uses to which they may be devoted. Alienable lands of the public domain
shall be limited to agricultural lands x x x.'

"On the other hand, Florentino Teves, being fully aware that [petitioners were] not yet the
owner[s], had assumed the risks and under the principle of VOLENTI NON FIT INJURIA NEQUES
DOLUS - He who voluntarily assumes a risk, does not suffer damage[s] thereby. As a
consequence, when Teves leased the fishpond area from [petitioners] - who were mere holders
or possessors thereof, he took the risk that it may turn out later that his application for lease
may not be approved.

"Unfortunately however, even granting that the lease of [petitioners] and [their] application in
1972 were to be approved, still [they] could not sublease the same. In view therefore of these,
the parties must be left in the same situation in which the court finds them, under the
principle IN PARI DELICTO NON ORITOR ACTIO, meaning[:] Where both are at fault, no one
can found a claim.

"On the third issue of whether the third party defendants are liable for demolishing the dikes
pursuant to a writ of execution issued by the lower court[, t]his must be resolved in the
negative, that the third party defendants are not liable.
rbl r l l lbrr

"As a consequence of these provisions, and the declared public policy of the State under the
First, because the third party defendants are mere agents of Eufracia Colongan and Eufenio
Regalian Doctrine, the lease contract between Florentino Teves, Jr. and Juan Menchavez Sr. and Pamplona, who are the ones who should be made liable if at all, and considering that the

demolition was pursuant to an order of the court to restore the prevailing party in that Civil
Case 510-T, entitled: Eufracia Colongan v. Menchavez.

The CA disagreed with the RTC's finding that petitioners and respondent were in pari delicto. It
contended that while there was negligence on the part of respondent for failing to verify the
ownership of the subject property, there was no evidence that he had knowledge of petitioners'
"After the court has ruled that the contract of lease is null and void ab-initio, there is no right of lack of ownership.11 It held as follows:
the [respondent] to protect and therefore[,] there is no basis for questioning the Sheriff's
authority to demolish the dikes in order to restore the prevailing party, under the
principle VIDETUR NEMO QUISQUAM ID CAPERE QUOD EI NECESSE EST ALII RESTITUERE - He
will not be considered as using force who exercise his rights and proceeds by the force of law. "x x x. Contrary to the findings of the lower court, it was not duly proven and established that
Teves had actual knowledge of the fact that [petitioners] merely usurped the property they
leased to him. What Teves admitted was that he did not ask for any additional document other
than those shown to him, one of which was the fishpond application. In fact, [Teves]
"WHEREFORE, in view of all foregoing [evidence] and considerations, this court hereby renders consistently claimed that he did not bother to ask the latter for their title to the property
judgment as follows:
because he relied on their representation that they are the lawful owners of the fishpond they
are holding for lease. (TSN, July 11, 1991, pp. 8-11)"12
rbl r l l lbrr

"1. Dismissing the x x x complaint by the [respondent] against the [petitioners];

"2. Dismissing the third party complaint against the third party defendants;

"3. Upholding the counterclaims of the third party defendants against the [petitioners. The
petitioners] are hereby required to pay third party defendants the sum of P30,000.00 as moral
damages for this clearly unfounded suit;

The CA ruled that respondent could recover actual damages in the amount of P128,074.40.
Citing Article 135613 of the Civil Code, it further awarded liquidated damages in the amount
of P50,000, notwithstanding the nullity of the Contract. 14

Hence, this Petition.15

The Issues
"4. Requiring the [petitioners] to reimburse the third party defendants the sum ofP10,000.00 in
the concept of attorney's fees and appearance fees of P300.00 per appearance;
Petitioners raise the following issues for our consideration:

"5. Requiring the [petitioners] to pay to the third party defendants the sum of P10,000.00 as
exemplary damages probono publico and litigation expenses including costs, in the sum
of P5,000.00."10 (Underscoring in the original)

"1. The Court of Appeals disregarded the evidence, the law and jurisprudence when it modified
the trial court's decision when it ruled in effect that the trial court erred in holding that the
respondent and petitioners are in pari delicto, and the courts must leave them where they are
found;

Respondent elevated the case to the Court of Appeals, where it was docketed as CA-GR CV No.
51144.
"2. The Court of Appeals disregarded the evidence, the law and jurisprudence in modifying the
decision of the trial court and ruled in effect that the Regional Trial Court erred in dismissing
the respondent's Complaint."16
Ruling of the Court of Appeals

The Court's Ruling

"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:

The Petition has merit.


"(1) When the fault is on the part of both contracting parties, neither may recover what he has
given by virtue of the contract, or demand the performance of the other's undertaking;
Main Issue:

Were the Parties in Pari Delicto?

"(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."

The Court shall discuss the two issues simultaneously.

In Pari Delicto Rule on Void Contracts

The parties do not dispute the finding of the trial and the appellate courts that the Contract of
Lease was void.17 Indeed, the RTC correctly held that it was the State, not petitioners, that
owned the fishpond. The 1987 Constitution specifically declares that all lands of the public
domain, waters, fisheries and other natural resources belong to the State. 18 Included here are
fishponds, which may not be alienated but only leased. 19 Possession thereof, no matter how
long, cannot ripen into ownership.20

Being merely applicants for the lease of the fishponds, petitioners had no transferable right
over them. And even if the State were to grant their application, the law expressly disallowed
sublease of the fishponds to respondent.21 Void are all contracts in which the cause, object or
purpose is contrary to law, public order or public policy.22

On this premise, respondent contends that he can recover from petitioners, because he is an
innocent party to the Contract of Lease.27 Petitioners allegedly induced him to enter into it
through serious misrepresentation.28

Finding of In Pari Delicto:

A Question of Fact

The issue of whether respondent was at fault or whether the parties were in pari delicto is a
question of fact not normally taken up in a Petition for Review on Certiorari under Rule 45 of
the Rules of Court.29The present case, however, falls under two recognized exceptions to this
rule.30 This Court is compelled to review the facts, since the CA's factual findings are (1)
contrary to those of the trial court;31 and (2) premised on an absence of evidence, a
presumption that is contradicted by the evidence on record. 32

A void contract is equivalent to nothing; it produces no civil effect. 23 It does not create, modify
or extinguish a juridical relation.24 Parties to a void agreement cannot expect the aid of the law; Unquestionably, petitioners leased out a property that did not belong to them, one that they
the courts leave them as they are, because they are deemed in pari delicto or "in equal
had no authority to sublease. The trial court correctly observed that petitioners still had a
fault."25 To this rule, however, there are exceptions that permit the return of that which may
pending lease application with the State at the time they entered into the Contract with
have been given under a void contract.26 One of the exceptions is found in Article 1412 of the respondent.33
Civil Code, which states:

Respondent, on the other hand, claims that petitioners misled him into executing the
Contract.34 He insists that he relied on their assertions regarding their ownership of the
property. His own evidence, however, rebuts his contention that he did not know that they
lacked ownership. At the very least, he had notice of their doubtful ownership of the fishpond.

The CA erred in awarding liquidated damages, notwithstanding its finding that the Contract of
Lease was void. Even if it was assumed that respondent was entitled to reimbursement as
provided under paragraph 1 of Article 1412 of the Civil Code, the award of liquidated damages
was contrary to established legal principles.

Respondent himself admitted that he was aware that the petitioners' lease application for the
fishpond had not yet been approved.35 Thus, he knowingly entered into the Contract with the
risk that the application might be disapproved. Noteworthy is the fact that the existence of a
fishpond lease application necessarily contradicts a claim of ownership. That respondent did not
Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of a
know of petitioners' lack of ownership is therefore incredible.
breach thereof.43 Liquidated damages are identical to penalty insofar as legal results are
concerned.44 Intended to ensure the performance of the principal obligation, such damages are
accessory and subsidiary obligations.45 In the present case, it was stipulated that the party
The evidence of respondent himself shows that he negotiated the lease of the fishpond with
responsible for the violation of the terms, conditions and warranties of the Contract would pay
both Juan Menchavez Sr. and Juan Menchavez Jr. in the office of his lawyer, Atty. Jorge
not less than P50,000 as liquidated damages. Since the principal obligation was void, there was
Esparagoza.36 His counsel's presence during the negotiations, prior to the parties' meeting of
no contract that could have been breached by petitioners; thus, the stipulation on liquidated
minds, further debunks his claim of lack of knowledge. Lawyers are expected to know that
damages was inexistent. The nullity of the principal obligation carried with it the nullity of the
fishponds belong to the State and are inalienable. It was reasonably expected of the counsel
accessory obligation of liquidated damages.46
herein to advise his client regarding the matter of ownership.
rbl r l l lbrr

Indeed, the evidence presented by respondent demonstrates the contradictory claims of


petitioners regarding their alleged ownership of the fishpond. On the one hand, they claimed
ownership and, on the other, they assured him that their fishpond lease application would be
approved.37 This circumstance should have been sufficient to place him on notice. It should
have compelled him to determine their right over the fishpond, including their right to lease it.

As explained earlier, the applicable law in the present factual milieu is Article 1412 of the Civil
Code. This law merely allows innocent parties to recover what they have given without any
obligation to comply with their prestation. No damages may be recovered on the basis of a void
contract; being nonexistent, the agreement produces no juridical tie between the parties
involved. Since there is no contract, the injured party may only recover through other sources
of obligations such as a law or a quasi-contract. 47 A party recovering through these other
sources of obligations may not claim liquidated damages, which is an obligation arising from a
contract.

The Contract itself stated that the area was still covered by a fishpond
application.38 Nonetheless, although petitioners declared in the Contract that they co-owned the
property, their erroneous declaration should not be used against them. A cursory examination WHEREFORE, the Petition is GRANTED and the assailed Decision and Resolution SET ASIDE.
of the Contract suggests that it was drafted to favor the lessee. It can readily be presumed that The Decision of the trial court is hereby REINSTATED.
it was he or his counsel who prepared it - - a matter supported by petitioners' evidence. 39 The
No pronouncement as to costs.
ambiguity should therefore be resolved against him, being the one who primarily caused it. 40

The CA erred in finding that petitioners had failed to prove actual knowledge of respondent of SO ORDERED.
the ownership status of the property that had been leased to him. On the contrary, as the party
alleging the fact, it was he who had the burden of proving - through a preponderance of
evidence41 - - that they misled him regarding the ownership of the fishpond. His evidence fails
to support this contention. Instead, it reveals his fault in entering into a void Contract. As both
parties are equally at fault, neither may recover against the other.42

Liquidated Damages Not Proper

THIRD DIVISION
[G.R. NO. 145031 : January 22, 2004]
SPS. RUFINO ANGEL and EMERITA ANGEL, Petitioners, v. SIMPLICIO ALEDO and
FELIXBERTO MODALES, Respondents.
DECISION
CARPIO-MORALES, J.:
The facts material to the decision of the present Petition for Review on Certiorari of the decision
of the Court of Appeals in CA-G.R. CV No. 44679 are as follows:
In November 1984, the spouses Rufino and Emerita Angel (spouses Angel or the Angels),
herein Petitioners, engaged the services of respondent Felixberto Modales (Modales) to
construct a two-storey residential building at GSIS La Mesa Homesite in Novaliches, Quezon
City.
In their November 22, 1984 contract denominated Construction Agreement, 1 since Modales was
at the time an engineer under the employ of the Department of Public Works and Highways,
the parties made it appear that the contractor was Modales father-in-law, his herein corespondent Simplicio Aledo (Aledo). The said agreement was for the construction of the
building up to its rough finish stage.
After the completion of the building in its rough finish stage, 2 another Construction Agreement
dated February 11, 19853 was forged by the spouses Angel and Aledo for effecting the finishing
touches of the building.

Completion of the finishing touches was certified4 to by Mrs. Angel on April 31, 1985.
On September 27, 1988, Aledo filed before the Quezon City Regional Trial Court (RTC) a
Complaint5 for collection of sum of money against the spouses Angel, alleging that despite the
completion of the construction of their building and their acceptance thereof, they failed to pay,
demands notwithstanding, the amount of P22,850.00 representing the balance of the
consideration of the contract and P6,713.00 representing the cost of materials supplied by him.

complaint against the plaintiff and third party defendant, respectively. (Emphasis and
underscoring supplied)
The defendants-third party plaintiffs spouses Angel were thus allowed to present before the
branch clerk of court evidence ex-parte consisting of the testimony of an engineer (whom the
Angels claimed to have hired regarding the alleged defects in the construction) and
documentary evidence including the Construction Agreements.
The trial court, by Decision of March 30, 1993, 12 rendered judgment in favor of the defendantsthird party plaintiffs Angels, the dispositive portion of which judgment reads:

In their Answer, the spouses Angel claimed that Aledo has no cause of action as he is only a
dummy of his son-in-law Modales who was the actual contractor with whom they contracted for
the construction of their residential building; and that, in any event, there were defects in the WHEREFORE, premises considered, judgment is hereby rendered ordering plaintiff to pay
construction and some of the materials deposited by Modales in the construction site were not defendants/third-party plaintiffs P10,000.00 for attorneys fees and P5,000.00 for litigation
used. By way of counterclaim, the Angels alleged that as a result of the filing of the unfounded expenses and cost of suit and third-party defendant to pay third-party plaintiffs the sum of
complaint, they were forced to retain the services of counsel with whom they agreed to pay
P85,000.00 as actual damages and P50,000.00 by way of moral damages. (Emphasis and
P10,000.00 as attorneys fees and they stood to incur P5,000.00 as litigation expenses.
underscoring supplied)
6

In July 1989, the spouses Angel filed a Third Party Complaint 7 against Modales, alleging that he Aledo and Modales appealed to the Court of Appeals. Aledos appeal was dismissed, however,
failed to comply with his obligation under the Construction Agreements as, among other things, for failure to file Appellants Brief within the reglementary period. He filed a motion for
the building had a lot of defects, to correct or remedy which would cost them the amount of
reconsideration of the resolution of dismissal but as it was belatedly filed, it was denied.
Eighty Five Thousand (P85,000.00) Pesos, hence, Modales should be held liable for moral
damages and attorneys fees.
As for Modales, since he failed to file Appellants Brief, the Court of Appeals likewise dismissed
his appeal by Resolution of February 6, 1996.13 He received on February 21, 1996 a copy of the
Modales in his Answer to the Third Party Complaint 8 alleged that the Angels have no cause of said Resolution of the Court of Appeals dismissing his appeal, and filedby mail on March 11,
action against him as he had nothing to do with the contracts; and that [he] (sic)never acted 199614 a Verified Motion for Reconsideration [thereof] and To Admit [his] Appellants Brief which
as a dummy and, in any event, the Angels never complained of any defect in the construction, was granted.
hence, they are in estoppel and are guilty of laches.
By the now assailed Decision of September 7, 2000, 15 the Court of Appeals reversed and set
During the pre-trial of the case, only the defendant-third party plaintiff spouses Angel showed aside the decision of the trial court and entered a new one dismissing the Angels Counterclaim
up. The plaintiff Aledo did not show up, albeit their counsel had priorly filed a motion to
and Third-Party Complaint.
withdraw as counsel in view of his appointment as Special Prosecutor and to postpone the pretrial to afford his client ample time to seek the services of a new counsel, which motion was
In dismissing the Counterclaim and Third-Party Complaint, the Court of Appeals held that the
not, however, passed upon by the trial court, Branch 97 of the Quezon City RTC. Neither did
Construction Agreements, which were entered into by the parties with the knowledge that
third party defendant Modales who, by his claim, was not duly notified thereof as, indeed, the [Modales] [wa]s prohibited from contracting without the requisite permission from the proper
Order of January 31, 19919 shows that only the plaintiff Aledo and the defendants-third party government authorities, were contrary to law and public policy, hence, following Article 1412 of
plaintiffs spouses Angel and their respective counsels were furnished copies thereof.
the Civil Code which reads:
On motion of the Angels, the trial court declared the plaintiff Aledo non-suited and accordingly ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
dismissed his complaint by Order made in open court on March 1, 1991. 10 On a subsequent
criminal offense, the following rules shall be observed;
motion of the Angels, they prayed that third party defendant Modales be declared as in default
and that the dismissal Order of March 1, 1991 should apply only to the original complaint.
(1) When the fault is on the part of both contracting parties, neither may recover what he has
given by virtue of the contract, or demand the performance of the others undertaking;
The plaintiff Aledo later filed a Motion for Reconsideration of the March 1, 1991 Order of the
trial court.
(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
By Order of April 16, 1991, 11 the trial court clarified its Order of March 1, 1991, stating that
is not at fault, may demand the return of what he has given without any obligation to comply
the latter order shall be for the dismissal of the original complaint but reserving to the
with his promise (Underscoring supplied), they were in pari delicto and, therefore, they have no
defendant[s] [-] third party plaintiffs the right to prove their counterclaim and third party
action against each other.

Thus spawned the present Petition for Review on Certiorari filed by the spouses Angel
(hereinafter referred to as petitioners), assigning the following errors to the Court of Appeals:
A.THE COURT OF APPEALS HAD DEPARTED FROM THE ADOPTED COURSE OF JUDICIAL
PROCEEDINGS BY REVERSING THE DECISION OF THE TRIAL COURT WHICH HAD LONG BEEN
FINAL AND EXECUTORY.
B.THE COURT OF APPEALS, IN ITS DECISION DATED SEPTEMBER 7, 2000, DECIDED A
QUESTION OF SUBSTANCE IN A MANNER THAT IS NOT IN ACCORD WITH THE LAW AND
APPLICABLE JURISPRUDENCE,

respondents Aledo and Modales were in pari delicto, and in accordingly pronouncing the
dismissal of petitioners Counterclaim and dismissing their Third-Party Complaint. Ex dolo malo
non oritur actio. In pari delicto potior est conditio defendentis.
WHEREFORE, the petition is, in light of the foregoing discussions, hereby DISMISSED.
SO ORDERED.

FIRST DIVISION

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

[G.R. No. L-11240. December 18, 1957.]


1.THE COURT OF APPEALS ERRED AND ACTED WITHOUT JURISDICTION WHEN IT REVERSED A
CONCHITA LIGUEZ, Petitioner, v. THE HONORABLE COURT OF APPEALS, MARIA NGO
DECISION OF THE TRIAL COURT WHICH HAD LONG BEEN FINAL AND EXECUTORY.
VDA. DE LOPEZ, ET AL., Respondents.
2.THE COURT OF APPEALS ERRED IN HOLDING THAT THE PARTIES WERE IN PARI DELICTO,
Ruiz, Ruiz & Ruiz for Appellant.
HENCE, THEY SHALL HAVE NO ACTION AGAINST EACH OTHER AND SHOULD BE LEFT AS THEY
ARE.
Laurel Law Offices for Appellees.
Petitioners argue that the Court of Appeals erred in taking jurisdiction over the case of the
plaintiff Aledo, given its dismissal of his appeal which had long become final and executory.
And they argue that the Court of Appeals had no jurisdiction over the appeal of the third party
defendant Modales because his Motion for Reconsideration of the Resolution of the Court of
Appeals dismissing his appeal was filed beyond the reglementary period.

SYLLABUS

On petitioners argument that it was error for the Court of Appeals to still consider the appeal of
Aledo as it had long dismissed it and had become final and executory: There was nothing for
Aledo to appeal from, for the counterclaim of Petitioners, which was compulsory, hence, could 1. DONATION; CAUSE OR CONSIDERATION; LIBERALITY OF DONOR WHEN DEEMED "CAUSA."
not remain pending for independent adjudication by the court, 16 was, along with Aledos
Under Article 1274, of the Civil Code of 1889, liberality of the donor is deemed causa only in
complaint, dismissed on the counterclaimant-defendants motion on March 1, 1991. The trial
those contracts that are of "pure" beneficience that is to say, contracts designed solely and
courts Order of April 16, 1991 clarifying that only Alejos original complaint was dismissed and exclusively to procure the welfare of the beneficiary, without any intent of producing any
accordingly giving due course to petitioners counterclaim was thus null and void. It being
satisfaction for the donor; contacts, in other words, in which the idea of self-interest is totally
void ab initio, the Order of April 16, 1991 had no legality from its inception, and the decision of absent on the part of the transferor. For this very reason, the same Article 1274 provides that
the trial court against the plaintiff Aledo was itself void as it emanated from a void order.
in remuneratory contracts, the consideration is the service or benefit for which the
remuneration is given; causa is not liberality in these cases because the contract or conveyance
With respect to petitioners argument that the Motion for Reconsideration of Modales from the is not made out of pure beneficience, but "solvendi animo."
Court of Appeals Resolution of dismissal of his appeal was filed beyond the reglementary
period. As reflected above, the motion was mailed on March 7, 1996, 18albeit received by the 2. ID.; ID.; MOTIVE REGARDED AS "CAUSA.." The motive of the parties may be regarded as
Court of Appeals on March 11, 1996. It bears stressing that it is the date of mailing, not the
causa when it predetermines the purpose of the contract.
date of receipt, of the mail matter, which shall be considered as the date of filing.
3. ID.; DONATION OF CONJUGAL PROPERTY BY THE HUSBAND, EFFECT OF. The right of the
In sum, since admittedly it was with respondent Modales that petitioners contracted to
husband to donate community property is strictly limited by law (Article 1409, 1413, 1415,
construct their residential building but that his father-in-law co-respondent Aledo, his mere
Civil Code of 1889; Baello v. Villanueva, 54 Phil. 213). However, the donation made in
dummy, was named in the Construction Agreements, the Court of Appeals did not err in holding contravention of the law is not void in its entirely, but only in so far as it prejudices the interest
that said agreements were contrary to law and public policy, hence, petitioners and
of the wife. The rule applies whether the donation is gratuitous or for a consideration.

4. ID.; ID.; LEGITIMATE OF FORCED HEIRS UNAFFECTED; LEGITIMATE, HOW COMPUTED.


The forced heirs are entitled to have the donation set aside in so far as inofficious; i.e., in
excess of the portion of free disposal (Civil Code of 1889, Arts. 636, 654), computed as
provided in Article 818 and 819, and bearing in mind that "collationable gifts" under Article 818
should include gifts made not only in favor of the forced heirs, but even those made in favor of
strangers. (Decision of the Supreme Court Spain, May 4, 1889 and June 16, 1902.)
5. "PARI DELICTO" PARTIES TO ILLEGAL CONTRACT BARRED FROM PLEADING ILLEGALITY OF
BARGAIN. The rule that the parties to an illegal contract, if equally guilty, will not be aided
by the law but will both be left where it finds them, has been interpreted by this Court as
barring the party from pleading the illegality of the bargain either as a cause of action or as a
defense.

"That the DONOR, Salvador P. Lopez, for and in consideration of his love and affection for the
said DONEE, Conchita Liguez, and also for the good and valuable services rendered to the
DONOR by the DONEE, does by these presents, voluntarily give, grant and donate to the said
donee, etc." (Paragraph 2, Exhibit "A")
the Court of Appeals found that when the donation was made, Lopez had been living with the
parents of appellant for barely a month; that the donation was made in view of the desire of
Salvador P. Lopez, a man of mature years to have sexual relations with appellant Conchita
Liguez; that Lopez had confessed to his love for appellant to the instrumental witnesses, with
the remark that her parents would not allow Lopez to live with her unless he first donated the
land in question; that after the donation, Conchita Liguez and Salvador P. Lopez lived together
in the house that was built upon the latters orders, until Lopez was killed on July 1st, 1943, by
some guerrillas who believed him to be pro-Japanese.

6. ACCESSION; RULES GOVERNING IMPROVEMENTS MADE IN GOOD FAITH. Improvements It was also ascertained by the Court of Appeals that the donated land originally belonged to the
made in good faith are governed by the rules of accession and possession in good faith.
conjugal partnership of Salvador P. Lopez and his wife, Maria Ngo; that the latter had met and
berated Conchita for living maritally with her husband, sometime during June of 1943; that the
widow and children of Lopez were in possession of the land and made improvements thereon;
that the land was assessed in the tax rolls first in the name of Lopez and later in that of his
widow; and that the need of donation was never recorded.
DECISION
Upon these facts, the Court of Appeals held that the deed of donation was inoperative, and null
and void (1) because the husband, Lopez, had no right to donate conjugal property to the
plaintiff appellant; and (2) because the donation was tainted with illegal causa or consideration,
REYES, J. B. L., J.:of which donor and donee were participants.

From a decision of the Court of Appeals, affirming that of the Court of First Instance of Davao
dismissing her complaint for recovery of land, Conchita Liguez has resorted to this Court,
praying that the aforesaid decision be reversed on points of law. We granted certiorari on
October 9, 1956.

Appellant vigorously contends that the Court of First Instance as well as the Court of Appeals
erred in holding the donation void for having an illicit causa or consideration. It is argued that
under Article 1274 of the Civil Code of 1889 (which was the governing law in 1943, when the
donation was executed), "in contracts of pure beneficence the consideration is the liberality of
the donor", and that liberality per se can never be illegal, since it is neither against law or
morals or public policy.

The flaw in this argument lies in ignoring that under Article 1274, liberality of the donor is
deemed causa only in those contracts that are of "pure" beneficence; that is to say, contracts
designed solely and exclusively to procure the welfare of the beneficiary, without any intent of
producing any satisfaction for the donor; contracts, in other words, in which the idea of selfinterest is totally absent on the part of the transferor. For this very reason, the same Article
1274 provides that in remuneratory contracts, the consideration is the service or benefit for
which the remuneration is given; causa is not liberality in these cases because the contract or
conveyance is not made out of pure beneficence, but "solvendi animo." In consonance with this
view, this Supreme Court in Philippine Long Distance Co. v. Jeturian* G. R. L-7756, July 30,
1955, like the Supreme Court of Spain in its decision of 16 Feb. 1899, has ruled that bonuses
The Court of Appeals found that the deed of donation was prepared by the Justice of the Peace granted to employees to excite their zeal and efficiency, with consequent benefit for the
employer, do not constitute donation having liberality for a consideration.
of Mati, Davao, before whom it was signed and ratified on the date aforesaid. At the time,
appellant Liguez was a minor, only 16 years of age. While the deed recites
Here the facts as found by the Court of Appeals (and which we can not vary) demonstrate that
in making the donation in question, the late Salvador P. Lopez was not moved exclusively by
The case began upon complaint filed by petitioner-appellant against the widow and heirs of the
late Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in Barrio BogacLinot, of the municipality of Mati, Province of Davao. Plaintiff averred to be its legal owner,
pursuant to a deed of donation of said land, executed in her favor by the late owner, Salvador
P. Lopez, on 18 May 1943. The defense interposed was that the donation was null and void for
having an illicit causa or consideration, which was plaintiffs entering into marital relations with
Salvador P. Lopez, a married man; and that the property had been adjudicated to the appellees
as heirs of Lopez by the Court of First Instance, since 1949.

the desire to benefit appellant Conchita Liguez, but also to secure her cohabiting with him, so that there is no finding made by the Court of Appeals that she was fully aware of the terms of
that he could gratify his sexual impulses. This is clear from the confession of Lopez to the
the bargain entered into by and between Lopez and her parents; that her acceptance in the
witnesses Rodriguez and Ragay, that he was in love with appellant, but her parents would not deed of donation (which was authorized by Article 626 of the old Civil Code) did not necessarily
agree unless he donated the land in question to her. Actually, therefore, the donation was but imply knowledge of conditions and terms not set forth therein; and that the substance of the
one part of an onerous transaction (at least with appellants parents) that must be viewed in its testimony of the instrumental witnesses is that it was the appellants parents who insisted on
totality. Thus considered, the conveyance was clearly predicated upon an illicit causa.
the donation before allowing her to live with Lopez. These facts are more suggestive of
seduction than of immoral bargaining on the part of appellant. It must not be forgotten that
Appellant seeks to differentiate between the alleged liberality of Lopez, as causa for the
illegality is not presumed, but must be duly and adequately proved.
donation in her favor, and his desire for cohabiting with appellant, as motives that impelled him
to make the donation, and quotes from Manresa and the jurisprudence of this Court on the
In the second place, the rule that parties to an illegal contract, if equally guilty, will not be
distinction that must be maintained between causa and motives (De Jesus v. Urrutia and Co., aided by the law but will both be left where it finds them, has been interpreted by this Court as
33 Phil. 171). It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642), while
barring the party from pleading the illegality of the bargain either as a cause of action or as a
maintaining the distinction and upholding the inoperativeness of the motives of the parties to defense. Memo auditor propriam turpitudinem allegans. Said this Court in Perez v. Herranz, 7
determine the validity of the contract, expressly excepts from the rule those contracts that are Phil. 695-696:
conditioned upon the attainment of the motives of either party.
"It is unnecessary to determine whether a vessel for which a certificate and license have been
". . . distincion importantisima, que impide anular el contrato por la sola influencia de los
fraudulently obtained incurs forfeiture under these or any other provisions of this act. It is
motivos a no ser que se hubiera subordinado al cumplimiento de estos como condiciones la
enough for this case that the statute prohibits such an arrangement as that between the
eficacia de aquel."
plaintiff and defendant so as to render illegal both the arrangement itself and all contracts
between the parties growing out of it.
The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and
December 4, 1946, holding that the motive may be regarded as causa when it predetermines It does not, however, follow that the plaintiff can succeed in this action. There are two answers
the purpose of the contract.
to his claim as urged in his brief. It is a familiar principle that the courts will not aid either party
to enforce an illegal contract, but will leave them both where it finds them; but where the
In the present case, it is scarsely disputable that Lopez would not have conveyed the property plaintiff can establish a cause of action without exposing its illegality, the vice does not affect
in question had he known that appellant would refuse to cohabit with him; so that the
his right to recover. The American authorities cited by the plaintiff fully sustain this doctrine.
cohabitation was an implied condition to the donation, and being unlawful, necessarily tainted The principle applies equally to a defense. The law in those Islands applicable to the case is
the donation itself.
found in article 1305 of the Civil Code, shutting out from relief either of the two guilty parties to
an illegal or vicious contract.
The Court of Appeals rejected the appellants claim on the basis of the well-known rule "in pari
delicto non oritur actio" as embodied in Article 1306 of the Code of 1889 (reproduced in Article In the case at bar the plaintiff could establish prima facie his sole ownership by the bill of sale
1412 of the new Civil Code):
from Smith, Bell & Co. and the official registration. The defendant, on his part, might overthrow
this title by proof through a certain subsequent agreement between him and the plaintiff, dated
"ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
March 16, 1902, that they had become owners in common of the vessel, the agreement not
criminal offense, the following rules shall be observed:
disclosing the illegal motive for placing the formal title in the plaintiff. Such an ownership is not
in itself prohibited, for the United States courts recognize the equitable ownership of a vessel
(1) When the fault is on the part of both contracting parties, neither may recover what he has as against the holder of a legal title, where the arrangement is not one in fraud of the law.
given by virtue of the contract, or demand the performance of the others undertaking;
(Weston v. Penniman, Federal Case 17455; Scudder v. Calais Steamboat Company, Federal
Case 12566.)
(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 fulfillment of what has been promised him. The other, who is On this proof, the defendant being a part owner of the vessel, would have defeated the action
not at fault, may demand the return of what he has given without any obligation to comply with for its exclusive possession by the plaintiff. The burden would then be cast upon the plaintiff to
his promise."
show the illegality of the arrangement, which under the cases cited he would not be allowed to
do."
In our opinion, the Court of Appeals erred in applying to the present case the pari delicto rule.
First, because it can not be said that both parties here had equal guilt when we consider that
The rule was reaffirmed in Lim v. Lim ChuKao, 51 Phil. 477.
as against the deceased Salvador P. Lopez, who was a man advanced in years and mature
experience, the appellant was a mere minor, 16 years of age, when the donation was made;
The situation confronting us is exactly analogous. The appellant seeks recovery of the disputed
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land on the strength of a donation regular on its face. To defeat its effect, the appellees must
plead and prove that the same is illegal. But such plea on the part of the Lopez heirs is not
receivable, since Lopez himself, if living, would be barred from setting up that plea; and his
heirs, as his privies and successors in interest, can have no better rights than Lopez himself.

de la donacion, pues solo eusuinteres se establece la prohibicion. La mujer o sus herederos,


para poder dejar sin efecto el acto, han de sufrir verdadero perjuicio, entendiendose que no le
hay hasta, tanto que, terminada por cualquier causa la sociedad de gananciales, y hecha
suliquidacion, no pueda imputarse lo donado al haber por cualquier concepto del marido, ni
obtener en suconsecuencia la mujer la dibida indemnizacion. La donacion reviste por tanto
Appellees, as successors of the late donor, being thus precluded from pleading the defense of legalmente, una eficacia condicional, y en armonia con este caracter, deben fijarse los efectos
immorality or illegal causa of the donation, the total or partial ineffectiveness of the same must de la misma con relacion a los adquirentes y a los terceros poseedores, teniendo, en sucaso, en
be decided by different legal principles. In this regard, the Court of Appeals correctly held that cuenta lo dispuesto en la ley Hipotecaria. Para prevenir todo perjuicio, puede la mujer, durante
Lopez could not donate the entirety of the property in litigation, to the prejudice of his wife
el matrimonio inmediatamente al acto, hacer constar ante los Tribunales suexistencia y solicitar
Maria Ngo, because said property was conjugal in character, and the right of the husband to
medidas de precaucion, como ya se ha dicho. Para evitarlo en lo sucesivo, y cuando las
donate community property is strictly limited by law (Civil Code of 1889, Arts. 1409, 1415,
circunstancias lo requieran, puede instar la declaracion de prodigalidad."
1413; Baello v. Villanueva, 54 Phil. 213).
To determine the prejudice to the widow, it must be shown that the value of her share in the
"ART. 1409. The conjugal partnership shall also be chargeable with anything which may have
property donated can not be paid out of the husbands share of the community profits. The
been given or promised by the husband alone to the children born of the marriage in order to requisite data, however, are not available to us and necessitate a remand of the records to the
obtain employment for them or give them a profession or by both spouses by common consent, court of origin that settled the estate of the late Salvador P. Lopez.
should they not have stipulated that such expenditures should be borne in whole or in part by
the separate property of one of them."
The situation of the children and forced heirs of Lopez approximates that of the widow. As
privies of their parent, they are barred from invoking the illegality of the donation. But their
"ART. 1415. The husband may dispose of the property of the conjugal partnership for the
right to a legitime out of his estate is not thereby affected, since the legitime is granted them
purposes mentioned in Article 1409."
by the law itself, over and above the wishes of the deceased. Hence, the forced heirs are
entitled to have the donation set aside in so far as inofficious: i.e., in excess of the portion of
"ART. 1413. In addition to his powers as manager the husband may for a valuable consideration free disposal (Civil Code of 1889, Articles 636, 654), computed as provided in Articles 818 and
alienate and encumber the property of the conjugal partnership without the consent of the
819, and bearing in mind that "collationable gifts" under Article 818 should include gifts made
wife."
not only in favor of the forced heirs, but even those made in favor of strangers, as decided by
the Supreme Court of Spain in its decisions of 4 May 1899 and 16 June 1902. So that in
The text of the articles makes it plain that the donation made by the husband in contravention computing the legitimes, the value of the property donated to herein appellant, Conchita
of law is not void in its entirety, but only in so far as it prejudices the interest of the wife. In
Liguez, should be considered part of the donors estate. Once again, only the court of origin has
this regard, as Manresa points out (Commentaries, 5th Ed., pp. 650-651, 652-653), the law
the requisite date to determine whether the donation is inofficious or not. With regard to the
makes no distinction between gratuitous transfers and conveyances for a consideration.
improvements in the land in question, the same should be governed by the rules of accession
and possession in good faith, it being undisputed that the widow and heirs of Lopez were
"Puede la mujer como proprietaria hacer anular las donaciones aun durante el matrimonio?
unaware of the donation in favor of the appellant when the improvements were made.
Esta es, en suma, la cuestion, reducida a determinar si la distinta naturaleza entre los actos a
titulo oneroso y los actos a titulo lucrativo, y sus especiales y diversas circunstancias, pueden The appellees, relying on Galion v. Garayes, 53 Phil. 43, contend that by her failure to appear
motivar una solucion diferente en cuanto a la epoca en que la mujer he de reclamar y obtener at the liquidation proceedings of the estate of Salvador P. Lopez in July 1943, the appellant has
la nulidad del acto; cuestion que no deja de ser interesantisima.
forfeited her right to uphold the donation if the prejudice to the widow Maria Ngo resulting from
the donation could be made good out of the husbands share in the conjugal profits. It is also
El Codigo, a pesar de la variacion que ha introducido en el proyecto de 1851, poniendo como
argued that appellant was guilty of laches in failing to enforce her rights as donee until 1951.
segundo parrafo del articulo 1.413, o como limitacion de las enajenaciones uobligaciones a
This line of argument overlooks the capital fact that in 1943, appellant was still a minor of
titulo oneroso, lo que era una limitacion general de todos los actos del marido, muestra, sin
sixteen; and she did not reach the age of majority until 1948. Hence, her action in 1951 was
embargo, que no ha variado de criterio, y que para el las donaciones deben en todo
only delayed three years. Nor could she be properly expected to intervene in the settlement of
equipararse a cualquier otro acto ilegal o fraudulento de caracter oneroso, al decir en el art.
the estate of Lopez: first, because she was a minor during the great part of the proceedings;
1.419: Tambien se traera a colacion en el inventario de la sociedad el importe de las
second, because she was not given notice thereof; and third, because the donation did not
donaciones y enajenaciones que deban considerarse ilegales o fraudulentas, con sujecion al art. make her a creditor of the estate. As we have ruled in Lopez v. Olbes, 15 Phil. 547-548:
1.413. (Debio tambien citarse el articulo 1.415, que es el que habla de donaciones.)"
"The prima facie donation inter vivos and its acceptance by the donees having been proved by
"En resumen: el marido solo puede donar los bienes gananciales dentro de los limites marcados means of a public instrument, and the donor having been duly notified of said acceptance, the
en el art. 1.415. Sin embargo, solo la mujer o sus herederos pueden reclamar contra la valides contract is perfect and obligatory and it is perfectly in order to demand its fulfillment, unless an
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exception is proved which is based on some legal reason opportunely alleged by the donor or
her heirs.
So long as the donation in question has not been judicially proved and declared to be null,
inefficacious, or irregular, the land donated is of the absolute ownership of the donees and
consequently, does not form a part of the property of the estate of the deceased Martina Lopez,
wherefore the action instituted demanding compliance with the contract, the delivery by the
deforciant of the land donated, or that it be prohibited to disturb the right of the donees,
should not be considered as incidental to the probate proceedings aforementioned."

[G.R. No. L-1411. September 29, 1953.]


DIONISIO RELLOSA, Petitioner, v. GAW CHEE HUN, Respondent.

SYLLABUS

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The case of Galion v. Gayares, supra, is not in point. First, because that case involved a
simulated transfer that can have no effect, while a donation with illegal causa may produce
effects under certain circumstances where the parties are not of equal guilt; and again,
because the transferee in the Galion case took the property subject to lis pendens notice, that
in this case does not exist.

1. CONSTITUTIONAL LAW; SALE OF LAND DURING JAPANESE MILITARY OCCUPATION, NULL


AND VOID; VENDOR CANNOT RECOVER PROPERTY, CONTRACT HAVING BEEN ENTITLED IN
"PARI DELICTO." he phrase "private agricultural land" employed in the Constitution of
September 4, 1943 of the then Republic of the Philippines includes residential lands (Krivenko
v. Register of Deeds, 42 Off. Gaz., 471). But the vendor in a sale of residential land executed in
February 1944 cannot have the sale declared null and void nor rescind the contract and recover
the property, because both vendor and vendee are in pari delicto (Cabauatan v. Uy Hoo, L2207, January 23, 1951; Bough and Bough v. Cantiveros and Hanopol, 40 Phil., 210, 216).

In view of the foregoing, the decisions appealed from are reversed and set aside, and the
appellant Conchita Liguez declared entitled to so much of the donated property as may be
found, upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the
conjugal partnership with Salvador P. Lopez or the legitimes of the forced heirs of the latter.
The records are ordered remanded to the court of origin for further proceedings in accordance 2. D.; ID.; ID.; EXCEPTIONS TO "PARI DELICTO" DOCTRINE, EXPLAINED. The doctrine of pari
with this opinion. Costs against appellees. So ordered.
delicto is subject to one important limitation, namely, "whenever public policy is considered as
advanced by allowing either party to sue for relief against the transaction" (3 Pomeroys Equity
Jurisprudence, 5th ed., p. 733). But not all contracts which are illegal for being opposed to
public policy come under this limitation. The cases in which this limitation may apply, only
"include the class of contracts which are intrinsically contrary to public policy, contracts in
which the illegality itself consists in their opposition to public policy, and any other species of
illegal contracts in which, from their particular circumstances, incidental and collateral motives
of public policy require relief." Examples of this class of contracts are usurious contracts,
marriage-brokerage contracts and gambling contracts. (Idem, pp. 735-737.) A sale of
residential land executed during the Japanese military occupation wherein both parties were in
pari delicto does not come under this exception because it is not intrinsically contrary to public
policy, nor one where the illegality itself consists in its opposition to public policy. It is illegal not
because it is against public policy but because it is against the Constitution.

DECISION

BAUTISTA ANGELO, J.:

EN BANC

This is a petition for review of a decision of the Court of Appeals holding that the sale in
question is valid and, even if it were invalid, plaintiff cannot maintain the action under the

principle of pari delicto.

lands, as the one involved herein, there can be no doubt because said phrase has already been
interpreted in the affirmative sense by this court in the recent case of Krivenko v. Register of
On February 2, 1944, Dionisio Rellosa sold to Gaw Chee Hun a parcel of land, together with the Deeds, 79 Phil. 461, wherein this court held that "under the Constitution aliens may not acquire
house erected thereon, situated in the City of Manila, Philippines, for the sum of P25,000. The private or public agricultural lands, including residential lands." This matter has been once
vendor remained in possession of the property under a contract of lease entered into on the
more submitted to the court for deliberation, but the ruling was reaffirmed. This ruling fully
same date between the same parties. Alleging that the sale was executed subject to the
disposes of the question touching on the validity of the sale of the property herein involved.
condition that the vendee, being a Chinese citizen, would obtain the approval of the Japanese
Military Administration in accordance with (seirei) No. 6 issued on April 2, 1943, by the
The sale in question having been entered into in violation of the Constitution, the next question
Japanese authorities, and said approval has not been obtained, and that, even if said
to be determined is, can petitioner have the sale declared null and void and recover the
requirement were met, the sale would at all events be void under article XIII, section 5, of our property considering the effect of the law governing rescission of contracts? Our answer must
Constitution, the vendor instituted the present action in the Court of First Instance of Manila
of necessity be in the negative following the doctrine laid down in the case of Trinidad Gonzaga
seeking the annulment of the sale as well as the lease covering the land and the house above de Cabauatan, Et. Al. v. Uy Hoo, Et Al., 88 Phil. 103, wherein we made the following
mentioned, and praying that, once the sale and the lease are declared null and void, the
pronouncement: "We can, therefore, say that even if the plaintiffs can still invoke the
vendee be ordered to return to vendor the duplicate of the title covering the property, and be Constitution, or the doctrine in the Krivenko Case, to set aside the sale in question, they are
restrained from in any way dispossessing the latter of said property.
now prevented from doing so if their purpose is to recover the lands that they have voluntarily
parted with, because of their guilty knowledge that what they were doing was in violation of the
Defendant answered the complaint setting up as special defense that the sale referred to in the Constitution. They cannot escape this conclusion because they are presumed to know the law.
complaint was absolute and unconditional and was in every respect valid and binding between As this court well said: A party to an illegal contract cannot come into a court of law and ask to
the parties, it being not contrary to law, morals and public order, and that plaintiff is guilty of
have his illegal objects carried out. The law will not aid either party to an illegal agreement; it
estoppel in that, by having executed a deed of lease over the property, he thereby recognized leaves the parties where it finds them. The rule is expressed in the maxims: Ex dolo malo non
the title of defendant to that property.
oritur actio, and In pari delicto potior est conditio defendentis. (Bough and Bough v.
Cantiveros and Hanopol, 40 Phil., 210, 216.)"
Issues having been joined, and the requisite evidence presented by both parties, the court
declared both the sale and the lease valid and binding and dismissed the complaint. The court The doctrine above adverted to is the one known as In Pari Delicto. This is well known not only
likewise ordered plaintiff to turn over the property to defendant and to pay a rental of P50 a
in this jurisdiction but also in the United States where common law prevails. In the latter
month from August 1, 1945 until the property has been actually delivered. As this decision was jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in
affirmed in toto by the Court of Appeals, plaintiff sued out the present petition for review.
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
One of the issues raised by petitioner refers to the validity of Seirei No. 6 issued on April 2,
damages for its violation. The rule has sometimes been laid down as though it were equally
1943 by the Japanese authorities which prohibits an alien from acquiring any private land not universal, that where the parties are in pari delicto, no affirmative relief of any kind will be
agricultural in nature during the occupation unless the necessary approval is obtained from the given to one against the other." (Pomeroys Equity Jurisprudence, Vol. 3, 5th ed., p. 728.)
Director General of the Japanese Military Administration. Petitioner contends that the sale in
question cannot have any validity under the above military directive in view of the failure of
It is true that this doctrine is subject to one important limitation, namely, "whenever public
respondent to obtain the requisite approval and it was error for the Court of Appeals to declare policy is considered as advanced by allowing either party to sue for relief against the
said directive without any binding effect because the occupation government could not have
transaction" (idem, p. 733). But not all contracts which are illegal because opposed to public
issued it under article 43 of the Hague Regulations which command that laws that are
policy come under this limitation. The cases in which this limitation may apply only "include the
municipal in character of an occupied territory should be respected and cannot be ignored
class of contracts which are intrinsically contrary to public policy, contracts in which the
unless prevented by military necessity.
illegality itself consists in their opposition to public policy, and any other species of illegal
contracts in which, from their particular circumstances, incidental and collateral motives of
We do not believe it necessary to consider now the question relative to the validity of Seirei No. public policy require relief." Examples of this class of contracts are usurious contracts,
6 of the Japanese Military Administration for the simple reason that in our opinion the law that marriage-brokerage contracts and gambling contracts. (Idem. pp. 735-737.)
should govern the particular transaction is not the above directive but the Constitution adopted
by the then Republic of the Philippines on September 4, 1943, it appearing that the aforesaid In our opinion, the contract in question does not come under this exception because it is not
transaction was executed on February 2, 1944. Said Constitution, in its article VIII, section 5, intrinsically contrary to public policy, nor one where the illegality itself consists in its opposition
provides that "no private agricultural land shall be transferred or assigned except to individuals, to public policy. It is illegal not because it is against public policy but because it is against the
corporations, or associations qualified to acquire or hold lands of the public domain in the
Constitution. Nor may it be contended that to apply the doctrine of pari delicto would be
Philippines", which provisions are similar to those contained in our present Constitution. As to tantamount to contravening the fundamental policy embodied in the constitutional prohibition
whether the phrase "private agricultural land" employed in said Constitution includes residential in that it would allow an alien to remain in the illegal possession of the land, because in this

case the remedy is lodged elsewhere. To adopt the contrary view would be merely to benefit
petitioner and not to enhance public interest.

With regard to an action for reversion, the following sections of Commonwealth Act No. 141 are
pertinent:
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The danger foreseen by counsel in the application of the doctrine above adverted to is more
"SEC. 122. No land originally acquired in any manner under the provisions of this Act, nor any
apparent than real. If we go deeper in the analysis of our situation we would not fail to see that permanent improvement on such land, shall be encumbered, alienated, or transferred, except
the best policy would be for Congress to approve a law laying down the policy and the
to persons, corporations, associations, or partnerships who may acquire lands of the public
procedure to be followed in connection with transactions affected by our doctrine in the
domain under this Act or to corporations organized in the Philippines authorized therefor by
Krivenko case. We hope that this should be done without much delay. And even if this
their charters."
legislation be not forthcoming in the near future, we do not believe that public interest would
suffer thereby if only our executive department would follow a more militant policy in the
"SEC. 123. No land originally acquired in any manner under the provisions of any previous Act,
conservation of our natural resources as or dained by our Constitution. And we say so because ordinance, royal decree, royal order, or any other provision of law formerly in force in the
there are at present two ways by which this situation may be remedied, to wit, (1) action for
Philippines with regard to public lands, terrenos baldios y realenqos, or lands of any other
reversion, and (2) escheat to the state. An action for reversion is slightly different from escheat denomination that were actually or presumptively of the public domain or by royal grant or in
proceeding, but in its effects they are the same. They only differ in procedure. Escheat
any other form, nor any permanent improvement on such land, shall be encumbered,
proceedings may be instituted as a consequence of a violation of article XIII, section 5 of our
alienated, or conveyed, except to persons, corporations or associations who may acquire land
Constitution, which prohibits transfers of private agricultural lands to aliens, whereas an action of the public domain under this Act or to corporate bodies organized in the Philippines whose
for reversion is expressly authorized by the Public Land Act (sections 122, 123, and 124 of
charters authorize them to do so: Provided, however, That this prohibition shall not be
Commonwealth Act No. 141).
applicable to the conveyance or acquisition by reason of hereditary succession duly
acknowledged and legalized by competent courts; Provided, further, That in the event of the
In the United States, as almost everywhere else, the doctrine which imputes to the sovereign ownership of the lands and improvements mentioned in this section and in the last preceding
or to the government the ownership of all lands and makes such sovereign or government the section being transferred by judicial decree to persons, corporations or associations not legally
original source of private titles, is well recognized (42 Am. Jur., 785). This doctrine, which was capacitated to acquire the same under the provisions of this Act, such persons, corporation, or
expressly affirmed in Lawrence v. Garduo, G. R. No. 16542, and which underlies all titles in
associations shall be obliged to alienate said lands or improvements to others so capacitated
the Philippines, (See Ventura, Land Registration and Mortgages, 2nd ed., pp. 2-3) has been
within the precise period of five years; otherwise, such property shall revert to the
enshrined in our Constitution (article XIII). The doctrine regarding the course of all titles being Government."
the same here as in the United States, it would seem that if escheat lies against aliens holding
lands in those states of the Union where common law prevails or where similar constitutional or "SEC. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or
statutory prohibitions exist, no cogent reason is perceived why similar proceedings may not be executed in violation of any of the provisions of sections one hundred and eighteen, one
instituted in this jurisdiction.
hundred and twenty, one hundred and twenty-one, one hundred and twenty-two, and one
hundred and twenty-three of this Act shall be unlawful and null and void from its execution and
"Escheat is an incident or attribute of sovereignty, and rests on the principle of the ultimate
shall produce the effect of annulling and cancelling the grant, title, patent, or permit originally
ownership by the state of all property within its jurisdiction. (30 C.J.S., 1164.)
issued, recognized or confirmed, actually or presumptively, and cause the reversion of the
property and its improvements to the State."
". . . America escheats belong universally to the state or some corporation thereof as the
ultimate proprietor of land within its Jurisdiction." (19 Am. Jur., 382.)
Note that the last quoted provision declared any prohibited conveyance not only unlawful but
null and void ab initio. More important yet, it expressly provides that such conveyances will
"An escheat is nothing more or less than the reversion of property to the state, which takes
produce "the effect of annulling and cancelling the grant, title, patent, or permit, originally
place when the title fails." (Delany v. State, 42 N. D., 630, 174 N.W., 290, quoted in footnote 6, issued, recognized of confirmed, actually or presumptively", and of causing "the reversion of
19 Am. Jur., 381.)
the property and its improvements to the State." The reversion would seem to be but a
consequence of the annulment and cancellation of the original grant or title, and this is so for in
"As applied to the right of the state to lands purchased by an alien, it would more properly be the event of such annulment or cancellation no one else could legitimately claim the property
termed a forfeiture at common law." (19 Am. Jur., 381.)
except its original owner or grantor the state.
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"In modern law escheat denotes a falling of the estate into the general property of the state
because the tenant is an alien or because he has died intestate without lawful heirs to take his
estate by succession, or because of some other disability to take or hold property imposed by
law." (19 Am. Jur.,

We repeat. There are two ways now open to our government whereby it could implement the
doctrine of this Court in the Krivenko case thereby putting in force and carrying to its logical
conclusion the mandate of our Constitution. By following either of these remedies, or by
approving an implementary law as above suggested, we can enforce the fundamental policy of
our Constitution regarding our natural resources without doing violence to the principle of pari

delicto. With these remedies open to us, we see no justifiable reason for pursuing the extreme Jose Vasquez firmaron un contrato de separacion conyugal. Basilia Hanopol, prima y protegida
unusual remedy now vehemently urged by the amici curiae.
de Matilde, y su esposo Gustavos Bough marearon a Matilde con la cantinela de "que Jos
Vasquez estaba en el pueblo y podria impugnar el contrato de separacion de bienes
In view of the foregoing, we hold that the sale in question is null and void, but plaintiff is
conyugales." Los esposos Bough la indujeron a que les vendiese simuladamente por P10,000
barred from taking the present action under the principle of pari delicto.
sus bienes inmuebles que valian mas de P30,000; ella firmo ante notario la escritura de venta
ficticia (Exhibit A). Para convencer a Matilde de que no tenian el proposito de engaarla y
The decision appealed from is hereby affirmed without pronouncement as to costs.
privarla de sus bienes, los esposos Bough suscribieron otro documento (Exhibit 1), en virtud
del cual donaban a ella todos los bienes que aparecian en el Exhibit A, "donacion que tendria
Labrador, J., concurs.
efecto en el caso de que tanto ellos como sus hijos fallecieran antes que Matilde Cantiveros."
Matilde, a pesar de la escritura de venta ficticia, continuo poseyendo sus bienes. Despus de
Paras, C.J., Tuason and Montemayor, JJ., concur in theresult.
algun tiempo, los esposos Bough presentaron demanda contra Matilde, pidiendo que se les
restituyera en la posesion de dichos bienes, fundandose la accion en la venta simulada. Porque
el Exhibit A es un documento ficticio y ha sido obtenido por medios fraudulentos, este Tribunal
Separate Opinions
confirmo el sobreseimiento de la demanda.
BENGZON, J., concurring:

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I wish to say that I regard the precedents of Bough v. Cantiveros and Perez v. Herranz
inapplicable because the parties therein were not equally at fault.
However I do not believe that the two ways suggested to solve the problem of alien-acquired
lands are exclusive. Perhaps the innocent spouse of the seller and his creditors are not barred
from raising the issue of invalidity.
PABLO, M., disidente:

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No estoy conforme eon la teoria de la mayoria de que el demandante no puede pedir la


declaracion de nulidad de la venta de un terreno a un extranjero.

En el asunto de Perez contra Herranz y otros (7 Jur. Fil., 715), el demandante pedia la posesion
del vapor "Alfred", fundada la accion en un documento en que la propiedad del buque se hizo
constar "a nombre tan solo del demandante, por razon de que el, como natural de Filipinas,
podia, segun nuestras leyes, aparecer como dueo, al paso que el demandante por ser espaol
no podia aparecer como tal" cuando en realidad el demandante solo era dueo de las 10/58
partes del buque y el demandado, de las 48/58 partes del mismo.
En los dos asuntos citados, los demandantes pedian el cumplimiento de unos contratos con
causa torpe, unos contratos falsos, simulados. que no existen ante los ojos de la ley. Por eso
este tribunal aplico en ambos el principio bien establecido de "Ex dolo malo non oritur actio," e
"In pari delicto potior est conditio dependentis." "La ley no amparara a ninguna de las partes en
un contrato ilicito; les deja en la situacion en que se han colocado." (Bough y otro contra
Cantiveros y otro, 40 Jur. Fil., 221), o en otras palabras, "los tribunales no ayudaran ni a una ni
a otra parte para hacer cumplir un contrato ilegal, sino que dejan a ambas alli donde las
encuentran." (Perez contra Herranz y otros, 7 Jur. Fil., 715.)

El articulo 1306, regla 1.a, del Codigo Civil Espaol, en que se funda la defensa del
demandado, dice asi: "Cuando la culpa est de parte de ambos contratantes, ninguno de ellos Pero en el caso presente, el demandante no pide el cumplimiento de la venta anticonstitucional,
todo lo contrario, pide que sea declarada nula y que se ordene la devolucion de la cosa que
podra repetir lo que hubiera dado a virtud del contrato."
cada parte habia recibido en virtud del contrato. En la venta no medio engao, causa torpe,
"Culpa es falta mas o menos grave, cometida a sabiendas y voluntariamente." (Diccionario de delito o falta.
la Real Academia Espaola).
Los tratadistas clasifican los contratos en nulos y anulables: los primeros son nulos per se,
nulos ab initio, no tienen existencia legal; los segundos son anulables por haber sido obtenidos
No existe ley que castiga la venta de un inmueble a un extranjero. Han cometido culpa el
comprador, el vendedor, o ambos a la vez? Creemos que no, porque la venta de un terreno es mediante violencia, engao, dolo, delito o falta, etc. Un contrato simulado, un contrato en que
no concurren los requisitos que expresa el articulo 1261, son considerados no existentes ante
la cosa mas ordinaria del mundo. No hubo cusa torpe en el contrato. No se probo que alguno
el Derecho. Los contratos celebrados en contravencion de una prohibicion legal se consideran
de ellos o ambos, sabiendo que estaba prohibida la venta, la realizaron. No habian cometido
tambien contratos inexistentes.
falta alguna. Ambas partes realizaron el convenio de venta con la mejor buena fe. Bueno es
hacer constar que no se ha probado que alguna de las partes o ambas hayan obrado de mala
fe, ni existe pruebas de que, sabiendo las partes que estaba prohibida la venta, la efectuaron Castan, hablando del origen de la distincion entre actos nulos y anulables, dice que "La
distincion entre dos grandes categorias de invalidez: la del acto nulo de pleno derecho o
sin embargo. La mala fe no se presume: debe probarse. A falta de prueba, la presuncion es
que las partes obraron de buena fe. No es aplicable al caso presente el articulo 1306 del Codigo inexistente, de una parte, y la del acto anulable o rescindible, de otra, procede ya del Derecho
romano. El acto inexistente no engendraba ningun efecto juridico; era nulo de pleno derecho ab
Civil. En el asunto de Bough contra Cantiveros (40 Jur. Fil., 221), estos son los hechos
initio. . . . Asi sucedia cuando el acto no reunia las condiciones necesarias para su formacion
probados: Matilde Cantiveros era la mas rica residente de Carigara, Leyte; ella y su esposo
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(por ejemplo, venta sin objeto) o cuando estaba prohibido por la ley (como la donacion entre
esposos.)" (2 Castan, 640.)
El derecho frances, segun el mismo autor, distingue dos categorias de actos nulos con nulidad
absoluta: (a) el acto inexistente (al que falta uno de los elementos esenciales para su
formacion) y (b) el acto nulo de pleno derecho (que viola una prescripcion legal). (2 Castan,
641).
Sanchez Roman dice que "La causa que no es licita es como si no existiera para el Derecho y
degenera, por tanto, en inexistente y no verdadera o falsa para el mismo, produciendo el
consiguiente resultado de viciar el consentimiento y anular el contrato." (4 Sanchez Roman,
207).
"El contrato Supuesto o falso, dice Manresa en cuanto lo es y se demuestra destruyendo
la apariencia del mismo, es el caso mas claro de inexistencia, a tal extremo, que en el se
identifican el sentido usual y el juridico de esa palabra." (8 Manresa, 699).
En sentencia de 26 de junio de 1903, el Tribunal Supremo de Espaa declaro:

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"Que el articulo 1806 del Codigo Civil es inaplicable cuando no se trata de un contrato real y
efectivo, aunque calebrado con causa torpe, sino simulado:
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"Que dada tal simulacion, es perfectamente indiferente que el temor que indujo a los
otorgantes a figurar el contrato fuese mas o menos fundado y mas o menos licito, puesto que
su nulidad e ineficacia no depende de vicio en el consentimiento sino de su real y efectiva
inexistencia." (95 Jurisprudencia Civil, 1028).

Espaa dijo en su sentencia de 11 de abril de 1894:

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"Que todo contrato otorgado contra precepto expreso de una ley prohibitiva, engendra la accion
necesaria para restablecer la virtualidad de la prohibicion, infringida accion que, teniendo este
origen y alcance, no puede menos de ser eficaz desde el momento mismo de la celebracion del
referido contrato." (75 Jurisprudencia Civil, 503).
El articulo 1334 del Codigo Civil espaol declara nulas las donaciones entre conyuges durante el
matrimonio. Geronima Uy Coque dono a su esposo Juan Navas L. Sioca todos sus bienes
consistentes en la mitad de los bienes gananciales. Fallecida ella, sus hijos reclamaron la
anulacion de la donacion, y este Tribunal, confirmando la decision del juzgado inferior, declaro
nulas las escrituras de donacion "A" a "F." (Uy Coque contra Navas L. Sioca, 45 Jur. Fil., 452).
En dicha donacion no medio fraude, engao o causa torpe, violencia, delito o falta. Marido y
mujer por simple ignorancia de la ley efectuaron la donacion con la mejor buena fe (del modo
como obraron el demandante y el demandado en la presente causa), creyendo que no estaba
prohibida la donacion entre ellos. Se declaro nula la donacion porque esta prohibida por la ley,
porque es contrato considerado inexistente ante el Derecho. Los herederos de la finada
consiguieron la declaracion judicial de invalidez de la donacion y recobraron los bienes donados
por su madre.
Que diremos de la venta de un inmueble a un extranjero, cosa que esta expresamente
prohibida por la Constitucion? Es sencillamente un contrato inexistente bajo la ley y la
Constitucion. No debe depender de la voluntad de las partes contratantes o de su abandono o
ignorancia o buena fe la existencia de ese contrato anticonstitucional. El interes publico debe
prevalecer sobre el acuerdo de las partes.

Es absurda la teoria de que el vendedor no puede pedir la rescision del contrato hecho en
contravencion de la Constitucion para "restablecer la virtualidad de la prohibicion"
constitucional o procurar que las cosas vuelvan a su estado normal anterior. Si los herederos de
"Que no es dable confundir un contrato simulado con un contrato nulo o rescindible, toda vez Uy Coque consiguieron la anulacion de las donaciones hechas por su madre porque la
que la simulacion significa indudablemente, por su propia naturaleza, la inexistencia del
donacion entre conyuges es nula por que el vendedor (demandante en la presente causa)
contrato, al contrario de lo que acontece respecto de los segundos, en los que, supuesta su
no puede pedir la rescision de la venta realizada contra la prohibicion constitucional? Por que
realidad y certeza, es obligado examinar las condiciones de su celebracion para resolver acerca es rescindible una donacion hecha en contravencion del Codigo Civil y no es rescindible la venta
de la precedencia da la nulidad o rescision, examen absolutamente improcedente por
hecha contra la expresa prohibicion de la Constitucion?
contradictorio cuando el contrato no ha existidc, ya que de la inexistencia no se pueden deducir
mas consecuencias juridicas que las que necesariamente se derivan de esta misma
La nulidad absoluta, segun Castan, "puede ser reclamada mediante accion o excepcion, por
inexistencia, o sean las precedentes cual si no se hubiese intentado siquiera la celebracion de toda persona que tenga interes en ella, porque no afecta la nulidad de los contratos al interes
tales supuestos contratos." (116 Jurisprudencia Civil, 501.)
publico, la accion no es en nuestro Derecho publica o cuasipublica, como lo es en otras
legislaciones." (El articulo 1047 del Codigo Civil argentino dispone que la nulidad absoluta
"Los contratos con causa u objeto ilicitos dice Manresa, se deben reputar ante el derecho
puede y debe ser declarada por el Juez, aun sin peticion de parte, cuando aparece manifiesta
inexistentes. Para afirmarlo asi, nos fundamos en que si otros defectos de menor gravedad
en el acto, y puede pedirse su declaracion por el Ministerio publico, en el interes de la moral o
juridica tal vez son irremediables, no ha de tener mayor eficacia lo ilicito que puede suponer la de la ley.) La inexistencia del contrato, segun Castan, "es perpetua e insubsanable, no
oposicion mas abierta al derecho, del que no puede exigir amparo lo ilicito. Ademas el interes pudiendo ser objeto de confirmacion ni prescripcion, excluyendo sin embargo los contratos que
publico que determina la nulidad, principalmente en estos casos, no ha de quedar a la
reunen los requisitos expresados en el articulo 1261." (2 Castan, 644).
voluntad, abandono o confirmacion de las partes que lo olvidaron infringiendo la ley." (8
Manresa, 4.a ed., 715.)
"Evidente es dice Valverde que nuestro codigo admite tal distincion de nulidad absoluta e
inexistencia y nulidad relativa o anulabilidad; mas para el legislador espaol, la nulidad solo
Y en tratando de contratos celebrados en contravencion de la ley, el Tribunal Supremo de
interesa a los contratantes, pues aun cuando existen contratos que afectan al orden publico y
y en 30 de noviembre de 1909 el mismo Tribunal dijo:

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social y en los cuales la nulidad deberia pedirse de oficio, para el codigo tal accion tiene que ser
ejercitada a instancia de parte." (3 Valverde, 299).
Declarar que el vendedor no puede recobrar, a cambio de lo que habia pagado, devolviendolo
previamente, es frustrar el espiritu que informa la Constitucion; es consentir que los
extranjeros continuen acaparando bienes inmuebles en dao y perjuicio del pueblo, en vez de
juzgar de acuerdo con el Codigo Civil, inspirandose en el elevado proposito de la Asemblea
Constituyente de "conservar y acrecentar el patrimonio de la nacion" y evitar que, por un error
judicial, los filipinos al cabo de una generacion - sean simples peones en su propia tierra.
Desatender la demanda del vendedor y dejar que el comprador continue gozando de la
propiedad comprada a pesar de la prohibicion, no es cumplir con la Constitucion: es violar su
espiritu y minar su principio fundamental de propia conservacion.

SYLLABUS

1. LEASE CONTRACT; RESOLUTORY CONDITION; OPTION, VALIDITY OF. Plaintiff-appellant


assails the validity of the lease agreement for want of mutuality. Paragraph 5 of the lease
contract states that the lessee may at any time withdraw from the agreement. It is claimed
that this stipulation offends article 1308 of the Civil Code. Held: Art. 1256 (now 1308) of the
Civil Code in our opinion creates no impediment to the insertion in a contract of a resolutory
El comprador no puede acogerse a las disposiciones del articulo 1306 del Codigo Civil espaol condition permitting the cancellation of the contract by one of the parties. Such a stipulation,
que es inaplicable, segun el Tribunal Supremo de Espaa, a contratos inexistentes. Con mayor as can be readily seen, does not make either the validity or the fulfillment of the contract upon
razon dicho articulo no puede oponerse con exito como defensa en una demanda en que se
the will of the party to whom is conceded the privilege of cancellation; for where the
pide la declaracion de nulidad de la venta de un inmueble por ser contraria a la Constitucion y contracting parties have agreed that such option shall exist, the exercise of the option is as
la devolucion de las cosas que las partes habian recibido.
much in the fulfillment of the contract as any other act which may have been the subject of
agreement. Indeed, the cancellation of a contract in accordance with conditions agreed upon
En mi opinion, la decision debe ser revocada, la venta debe ser declarada nula y las cosas
beforehand is fulfillment (Taylor v. Tang Pao, 43 Phil. 873).
recibidas por las partes sean restituidas. (Articulo 1303, Codigo Civil.)
In the case of Singson Encarnacion v. Baldomar, 77 Phil. 470, the lessees argued that they
could occupy the premises as long as they paid the rent. This is of course untenable, for as this
Court said, "If this defense were to be allowed, solong as defendants elected to continue the
I dissent. The majority opinion holds the sale in question void but denies relief on the ground lease by continuing the payment of the rentals, the owner would never be able to discontinue
that the parties were in pari delicto. The doctrine invoked by the majority has no application
it; conversely, although the owner should desire the lease to continue, the lessee could
where, as in the present case, the contract sought to be annulled is against public policy, the
effectively thwart his purpose if he should prefer to terminate the contract by the simple
same being forbidden by the Constitution. (Vol. 3, Pomeroys Equity Jurisprudence, 5th ed.,
expedient of stopping payment of the rentals." Here in contrast, the right of the lessee to
see. 941.) The present case is to be distinguished from that of Trinidad Gonzaga de Cabautan continue the lease or to terminate it is so circumscribed by the term of the contract that it
Et. Al. v. Uy Hoo Et. Al., 88 Phil. 103, where the sale took place when the Constitution was not cannot be said that the continuance of the lease depends upon his will. At any rate, even if no
in force.
term had been fixed in the agreement, this case would at most justify the fixing of a period but
not the annulment of the contract.
REYES, J., dissenting:

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EN BANC
[G.R. No. L-17587. September 12, 1967.]

2. PURCHASE AND SALE; CUSTODIA LEGIS; SALE, VALIDITY OF. That the land could not
ordinarily be levied upon while in custodia legis does not mean that one of the heirs may not
sell the right, interest or participation which he had or might have in the land under
administration. The ordinary execution of property in custodia legis is prohibited in order to
avoid interference with the possession by the court. But the sale made by an heir of his share
in an inheritance, subject to the result of the pending administration, in no wise stands in the
way of such administration." (Jakosalem v. Esfols, 73 Phil. 628).

PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y


CANON FAUSTINO, deceased, Plaintiff-Appellant, v. LUI SHE, in her own behalf and as
3. CONTRACTS; CONSIDERATION; EFFECT OF. The fact that no money was paid at the time
administratrix of the intestate of Wong Heng, deceased, Defendant-Appellant.
of the execution of the document does not rule out the possibility that the considerations were
paid some other time as the contracts in fact recite. What is more, the consideration need not
Nicanor S. Sison, for Plaintiff-Appellant.
pass from one party to the other at the time a contract is executed because the promise of one
is the consideration of the other.
Ozaeta, Gibbs & Ozaeta, for Defendants-Appellants.

4. ID.; ALIENS; CONSTITUTIONAL PROHIBITION, CIRCUMVENTION OF. Where a scheme to par. 3). According to the Rellosa opinion, both parties are equally guilty of evasion of the
circumvent the Constitutional prohibition against the transfer of lands to aliens is readily
Constitution, based on the broader principle that "both parties are presumed to know the law."
revealed as the purpose for the contracts then the illicit purpose becomes the illegal cause
This statement that the sales entered into prior to the Krivenko decision were at that time
rendering the contracts void. Thus, if an alien is given not only a lease of, but also an option to already vitiated by a guilty knowledge of the parties may be too extreme a view. It appears to
buy, a piece of land by virtue of which the Filipino owner cannot sell or otherwise dispose of his ignore a postulate of a constitutional system, wherein the words of the Constitution acquire
property, this to last for 50 years, then it becomes clear that the arrangement is a virtual
meaning through Supreme Court adjudication.
transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy
the land (jus possidendi jus utendi, just fruendi and jus abutendi) but also of the right to
3. ID.; ID.; ID.; ID.; ID.; RESTORATION BY ALIEN-VENDEE OF PROPERTY TO FILIPINOdispose of it (jus disponendi) rights the sum total of which make up ownership. If this can be VENDOR MAY BE ALLOWED UPON RESTITUTION OF PURCHASE PRICE. Alien-vendee is
done, then the Constitutional ban against alien landholding in the Philippines, as announced in incapacitated or disqualified to acquire and hold real estate. That incapacity and that
Krivenko v. Register of Deeds, is indeed in grave peril.
disqualification should date from the adoption of the Constitution on November 15, 1935. That
in capacity and that disqualification, however, was made known to Filipino-vendor and to alien5. ID.; ID.; ID.; ID.; REMEDY OF PARTIES. It does not follow that because the parties are in vendee only upon the promulgation of the Krivenko decision on November 15, 1947 Alienpari delicto they will be left where they are without relief. Article 1416 of the Civil Code
vendee therefore, cannot be allowed to continue owning and exercising acts of ownership over
provides as an exception to the rule in pari delicto that "when the agreement is not illegal per said property, when it is clearly included within the constitutional prohibition. Alien-vendee
se but is merely prohibited, and the prohibition by law is designed for the protection of the
should thus be made to restore the property with its fruits and rents to Filipino-vendor, its
plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered." previous owner, if it could be shown that in the utmost good faith, he transferred his title over
the same to alien-vendee, upon restitution of the purchase price of course.
6. CONSTITUTIONAL LAW; TRANSFER OR ASSIGNMENT OF PRIVATE AGRICULTURAL LAND;
REASON FOR PROVISION. The constitutional provision that save in cases of hereditary
4. ID.; ID.; ID.; ID.; ID.; ID.; REACQUISITION OF PROPERTY SOLD THE BETTER REMEDY IN
succession, no private agricultural land shall be transferred or assigned except individuals,
CONSONANCE WITH THE DICTATES OF JUSTICE AND EQUITY. The Constitution frowns upon
corporations, or associations qualified to acquire or hold lands of the public domain in the
the title remaining in the alien-vendees. Restoration of the property upon payment of price
Philippines (Art. XIII, Sec. 5) is an expression of public policy to conserve lands for the
received by Filipino vendor or its reasonable equivalent as fixed by the court is the answer. To
Filipinos.
give the constitutional provision full force and effect, in consonance with the dictates of equity
and justice, the restoration to Filipino-vendor upon the payment of a price fixed by the court is
FERNANDO, J., concurring:
the better remedy. He thought he could transfer the property to an alien and did so. After the
Krivenko case had made clear that he had no right to sell nor an alien-vendee to purchase the
1. CONSTITUTIONAL LAW; LANDS OF THE PUBLIC DOMAIN; PROHIBITION AGAINST ALIEN
property in question, the obvious solution would be for him to reacquire the same. That way
LANDHOLDING; RECOVERY OF PROPERTY IN SALES ENTERED INTO PRIOR TO THE KRIVENKO the Constitution would be given, as it ought to be given, respect and deference.
DECISION NOT AVAILABLE IN VIEW OF THE PARE DELICTO DOCTRINE. The doctrine as
announced in the case of Rellosa v. Gaw Chee Hun, 93 Phil. 827 is that while the sale by a
Filipino-vendor to an alien-vendee of a residential or a commercial lot is null and void as held in
the Krivenko case, still the Filipino-vendor has no right to recover under a civil law doctrine, the
parties being in pari delicto. The only remedy to prevent this continuing violation of the
DECISION
Constitution which the decision impliedly sanctions by allowing the alien vendees to retain the
lots in question is either escheat or reversion. Thus: "By following either of these remedies, or
by approving an implementary law as above suggested, we can enforce the fundamental policy
of our Constitution regarding our natural resources without doing violence to the principle of
pari delicto.
CASTRO, J.:
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2. ID.; ID: ID.; ID.; APPLICATION OF THE PARI DELICTO RULE IN PREVIOUS CASES TOO
EXTREME. Since the sales in question took place prior to the Krivenko decision, at a time
when the assumption could be honestly entertained that there was no constitutional prohibition
against the sale of commercial or residential lots by Filipino-vendor to alien-vendee, in the
Justina Santos y Canon Faustino and her sister Lorenza were the owners in common of a piece
absence of a definite decision by the Supreme Court, it would not be doing violence to reason of land in Manila. This parcel, with an area of 2,582.30 square meters, is located on Rizal
to free them from the imputation of evading the Constitution. For evidently evasion implies at Avenue and opens into Florentino Torres street at the back and Katubusan street on one side.
the very least knowledge of what is being evaded. The new Civil Code expressly provides:
In it are two residential houses with entrance on Florentino Torres street and the Hen Wah
"Mistakes upon a doubtful or difficult question of law may be the basis of good faith." (Art. 526,

Restaurant with entrance on Rizal Avenue. The sisters lived in one of the houses, while Wong
complaint alleged that the contracts were obtained by Wong "through fraud, misrepresentation,
Heng, a Chinese, lived with his family in the restaurant. Wong had been a long-time lessee of a inequitable conduct, undue influence and abuse of confidence and trust of and (by) taking
portion of the property, having a monthly rental of P2,620.
advantage of the helplessness of the plaintiff and were made to circumvent the constitutional
prohibition prohibiting aliens from acquiring lands in the Philippines and also of the Philippine
On September 22, 1957 Justina Santos became the owner of the entire property as her sister Naturalization Laws." The court was asked to direct the Register of Deeds of Manila to cancel
died with no other heir. Then already well advanced in years, being at the time 90 years old,
the registration of the contracts and to order Wong to pay Justina Santos the additional rent of
blind, crippled and an invalid, she was left with no other relative to live with. Her only
P3,120 a month from November 15, 1957 on the allegation that the reasonable rental of the
companions in the house were her 17 dogs and 8 maids. Her otherwise already existence was leased premises was P6,240 a month.
brightened now and then by the visits of Wongs four children who had become the joy of her
life. Wongs himself was the trusted man to whom she delivered various amounts for
In his answer, Wong admitted that he enjoyed her trust and confidence as proof of which he
safekeeping, including rentals from her property at the corner of Ongpin and Salazar streets
volunteered the information that, in addition to the sum of P3,000 which he said she had
and the rentals which Wong himself paid as lessee of a part of the Rizal Avenue property. Wong delivered to him for safekeeping, another sum of P22,000 had been deposited in a joint account
also look care of the payment, in her behalf, of taxes, lawyers fees, funeral expenses, masses, which he had with one of her maids. But he denied having taken advantage of her trust in
salaries of maids and security guard, and her household expenses.
order to secure the execution of the contracts in question. As counterclaim he sought the
recovery of P9,210.49 which he said she owed him for advances.
"In grateful acknowledgment of the personal services of the Lessee to her," Justina Santos
executed on November 15, 1957, a contract of lease (Plff Exh. 3) in favor of Wong, covering
Wongs admission of the receipt of P22,000 and P3,000 was the cue for the filing of an
the portion then already leased to him and another portion fronting Florentino Torres street.
amended complaint. Thus on June 9, 1960, aside from the nullity of the contracts, the
The lease was for 50 years, although the lessee was given the right to withdraw at any time
collection of various amounts allegedly delivered on different occasions was sought. These
from the agreement; the monthly rental was P3,120. The contract covered an area of 1,124
amounts and the dates of their delivery are P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1,
square meters. Ten days later (November 25), the contract was amended (Plff Exh. 4) so as to 1957); P10,000 (Dec. 6, 1957); P22,000 and P3,000 (as admitted in his answer). An
make it cover the entire property, including the portion on which the house of Justina Santos
accounting of the rentals from the Ongpin and Rizal Avenue properties was also demanded.
stood, at an additional monthly rental of P360. For his part Wong undertook to pay, out of the
rental due from him, an amount not exceeding P1,000 a month for the food of her dogs and
In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic
the salaries of her maids.
Relations Court, the Security Bank & Trust Co. was appointed guardian of the properties of
Justina Santos, while Ephraim G. Gochangco was appointed guardian of her person.
On December 21 she executed contract (Plff Exh. 7) giving Wong the option to buy the leased
premises for P120,000, payable within ten years at a monthly installment of P1,000. The
In his answer, Wong insisted that the various contracts were freely and voluntarily entered into
option, written in Tagalog, imposed on him the obligation to pay for the food of the dogs and
by the parties. He likewise disclaimed knowledge of the sum of P33,724.27, admitted receipt of
the salaries of the maids in her household, the charge not to exceed P1,800 a month. The
P7,344.42 and P10,000, but contended that these amounts had been spent in accordance with
option was conditioned on his obtaining Philippine citizenship, a petition for which was then
the instructions of Justina Santos; he expressed readiness to comply with any order that the
pending in the Court of First Instance of Rizal. It appears, however, that this application for
court might make with respect to the sum of P22,000 in the bank and P3,000 in his possession.
naturalization was withdrawn when it was discovered that he was not a resident of Rizal. On
October 28, 1958 she filed a petition to adopt him and his children on the erroneous belief that The case was heard, after which the lower court rendered judgment as follows:
adoption would confer on them Philippine citizenship. The error was discovered and the
proceedings were abandoned.
" [A]ll the documents mentioned in the first cause of action, with the exception of the first
which is the lease contract of 15 November 1957, are declared null and void; Wong Heng is
On November 18, 1958 she executed two other contracts, one (Plff Exh. 5) extending the term condemned to pay unto plaintiff thru guardian of her property the sum of P55,554.25 with legal
of the lease to 99 years, and another (Plff Exh. 6) fixing the term of the option at 50 years.
interest from the date of the filing of the amended complaint; he is also ordered to pay the sum
Both contracts are written in Tagalog.
of P3,120.00 for every month of his occupation as lessee under the document of lease herein
sustained, from 15 November 1959, and the moneys he had consigned since then shall be
In two wills executed on August 24 and 29, 1959 (Def. Exhs. 285 & 279), she bade her
imputed to that; costs against Wong Heng."
legatees to respect the contracts she had entered into with Wong, but in a codicil (Plff Exh. 17)
of a later date (November 4, 1959) she appears to have a change of heart. Claiming that the
From this judgment both parties appealed directly to this Court. After the case was submitted
various contracts were made by her because of machinations and inducements practised by
for decision, both parties died, Wong Heng on October 21, 1962 and Justina Santos on
him, she now directed her executor to secure the annulment of the contracts.
December 28, 1964. Wong was substituted by his wife, Lui She, the other defendant in this
case, While Justina Santos was substituted by the Philippine Banking Corporation.
On November 18 the present action was filed in the Court of First Instance of Manila. The
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Justina Santos maintained now reiterated by the Philippine Banking Corporation that the
lease contract (Plff Exh. 3) should have been annulled along with the four other contracts (Plff
Exhs. 4-7) because it lacks mutuality; because it included a portion which, at the time, was in
custodia legis, because the contract was obtained in violation of the fiduciary relations of the
parties; because her consent was obtained through undue influence, fraud and
misrepresentation; and because the lease contract, like the rest of the contracts, is absolutely
simulated.

owner thereof. As this Court explained in upholding the sale made by an heir of a property
under judicial administration:
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"That the land could not ordinarily be levied upon while in custodia legis does not mean that
one of the heirs may not sell the right, interest or participation which he has or might have in
the lands under administration. The ordinary execution of property in custodia legis is
prohibited in order to avoid interference with the possession by the court. But the sale made by
an heir of his share in an inheritance, subject to the result of the pending administration, in no
wise stands in the way of such administration." 6

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this
agreement." It is claimed that this stipulation offends article 1308 of the Civil Code which
provides that "the contract must bind both contracting parties; its validity or compliance cannot It is next contended that the lease contract was obtained by Wong in violation of his fiduciary
be left to the will of one of them."
relationship with Justina Santos, contrary to article 1646, in relation to article 1941 of the Civil
Code, which disqualifies "agents (from leasing) the property whose administration or sale may
We have had occasion to delineate the scope and application of article 1308 in the early case of have been entrusted to them." But Wong was never an agent of Justina Santos. The
Taylor v. Uy Tiong Piao. 1 We said in the case:
relationship of the parties, although admittedly close and confidential, did not amount to an
agency so as to bring the case within the prohibition of the law.
Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the
insertion in a contract for personal service of a resolutory condition permitting the cancellation Just the same, it is argued that Wong so completely dominated her life and affairs that the
of the contract by one of the parties. Such a stipulation, as can be readily seen, does not make contracts express not her will but only his. Counsel for Justina Santos cites the testimony of
either the validity or the fulfillment of the contract dependent upon the will of the party to
Atty. Tomas S. Yumol who said that he prepared the lease contract on the basis of the data
whom is conceded the privilege of cancellation; for where the contracting parties have agreed given to him by Wong and that she told him that "what ever Mr. Wong wants must be followed."
that such option shall exist, the exercise of the option is as much in the fulfillment of the
7
contract as any other act which may have been the subject of agreement, Indeed, the
cancellation of a contract in accordance with conditions agreed upon beforehand is fulfillment. The testimony of Atty. Yumol cannot be read out of context in order to warrant a finding that
2
Wong practically dictated the terms of the contract. What his witness said was:
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And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the
lessee at any time before he erected any building on the land, might rescind the lease, can
hardly be regarded as a violation of article 1256 [now art. 1308] of the Civil Code."

"Q Did you explain carefully to your client, Doa Justina the contents of this document before
she signed it?

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"A I explained to her each and every one of these conditions and I also told her these
The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want conditions were quite onerous for her, I dont really know if I have expressed my opinion, but I
of mutuality, because of a difference in factual setting. In that case, the lessees argued that
told her that we would rather not execute any contract anymore, but to hold it as it was before,
they could occupy the premises as long as they paid the rent. This is of course untenable, for on a verbal month to month contract of lease.
as this Court said "If this defense were to be allowed, so long as defendants elected to continue
the lease by continuing the payment of the rentals, the owner would never be able to
"Q But, she did not follow your advice, and she went with the contract just the same?
discontinue it; conversely, although the owner should desire the lease to continue the lessees
could effectively thwart his purpose if they should prefer to terminate the contract by the
"A She agreed first . . .
simple expedient of stopping payment of the rentals." Here, in contrast, the right of the lessee
to continue the lease or to terminate it is so circumscribed by the term of the contract that it
"Q Agreed what?
cannot be said that the continuance of the lease depends upon his will. At any rate, even if no
term had been fixed in the agreement, this case would at most justify the fixing of a period 5 "A Agreed with my objections that it is really onerous and I was really right, but after that, I
but not the annulment of the contract.
was called again by her and she told me to follow the wishes of Mr. Wong Heng.
Nor is there merit in the claim that as the portion of the property formerly owned by the sister
of Justina Santos was still in the process of settlement in the probate court at the time it was
leased, the lease is invalid as to such portion. Justina Santos became the owner of the entire
property upon the death of her sister Lorenza on September 22, 1957 by force of article 777 of
the Civil Code. Hence, when she leased the property on November 15, she did so already as

"Q So, as far as consent is concerned, you were satisfied that this document was perfectly
proper?
x

the lease contract (Plff Exh. 3).


As it was with the lease contract (Plff Exh. 3), so it was with the rest of the contracts (Plff Exhs.
4-7) the consent of Justina Santos was given freely and voluntarily. As Atty. Alonzo,
testifying for her, said:
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"A. Your Honor, if I have to express my personal opinion, I would say she is not, because, as I
said before, she told me "Whatever Mr. Wong wants must be followed." 8

" [I]n nearly all documents, it was either Mr. Wong Heng or Judge Torres and/or both. When we
had conferences they used to tell me what the documents should contain. But, as I said, I
would always ask the old woman about them and invariably the old woman used to tell me:
Thats okay. Its all right." 15

Wong might indeed have supplied the data which Yumol embodied in the lease contract, but to
But the lower court set aside all the contracts, with the exception of the lease contract of
say this is not to detract from the binding force of the contract. For the contract was fully
November 15, 1957, on the ground that they are contrary to the expressed wish of Justina
explained to Justina Santos by her own lawyer. One incident, related by the same witness,
Santos and that their considerations are fictitious. Wong stated in his deposition that he did not
makes clear that she voluntarily consented to the lease contract. This witness said that the
original term fixed for the lease was 99 years but that as he doubted the validity of a lease to pay P360 a month for the additional premises leased to him because she did not want him to,
an for that length of time, he tried to persuade her to enter instead into a lease on a month-to- but the trial court did not believe him. Neither did it believe his statement that he paid P1,000
as consideration for each of the contracts (namely, the option to buy the leased premises, the
month basis. She was, however, firm and unyielding. Instead of heeding the advice of the
extension of the lease to 99 years, and the fixing of the term of the option at 50 years), but
lawyer, she ordered him, "Just follow Mr. Wong Heng." 9 Recounting the incident Atty. Yumol
that the amount was returned to him by her for safekeeping. Instead, the court relied on the
declared on cross examination:
testimony of Atty. Alonzo in reaching the conclusion that the contracts are void for want of
consideration.
"Considering her age, ninety (90) years old at the time and her condition, she is a wealthy
woman, it is just natural when she said This is what I want and this will be done. In Particular
Atty. Alonzo declared that he saw no money paid at the execution of the documents, but his
reference to this contract of lease, when I said This is not proper, she said "You just go
negative testimony does not rule out the possibility that the consideration were paid at some
ahead, you prepare that, I am the owner, and if there is any illegality, I am the only one that
other time as the contracts in fact recite. What is more, the consideration need not pass from
can question the illegality." 10
one party to the other at the time a contract is executed because the promise of one is the
consideration for the other. 16
Atty. Yumol testified that she signed the lease contract in the presence of her close friend.
Hermenegilda Lao, and her maid, Natividad Luna, who was constantly by her side. 11 Any of
With respect to the lower courts finding that in all probability Justina Santos could not have
them could have testified on the undue influence that Wong supposedly wielded over Justina
Santos, but neither of them was presented as a witness. The truth is that even after giving his intended to part with her property while she was alive nor even to lease it in its entirety as her
house was built on it, suffice it to quote the testimony of her own witness and lawyer who
client time to think the matter over, the lawyer could not make her change her mind. This
persuaded the lower court to uphold the validity of the lease contract against the claim that it prepared the contracts (Plff Exhs. 4-7) in question, Atty. Alonzo:
was procured through undue influence.
"The ambition of the old woman before her death, according to her revelation to me, was to
Indeed, the charge of undue influence in this case rests on a mere inference 12 drawn from the see to it that these properties be enjoyed, even to own them, by Wong Heng because Doa
fact that Justina Santos could not read (as she was blind) and did not understand the English Justina told me that she did not have any relatives, near or far, and she considered Wong Heng
as a son and his children her grandchildren; especially her consolation in life was when she
language in which the contract is written, but that inference has been overcome by her own
would hear the children reciting prayers in Tagalog." 17
evidence.
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Nor is there merit in the claim that her consent to the lease contract, as well as to the rest of "She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped
the contracts in question, was given out of a mistaken sense of gratitude to Wong who, she was her much, and she told me to see to it that no one could disturb Wong Heng from those
made to believe, had saved her and her sister from a fire that destroyed their house during the properties. That is why we though of the ninety-nine (99) years lease; we thought of the
adoption, believing that thru adoption Wong Heng might acquire Filipino citizenship; being the
liberation of Manila. For while a witness claimed that the sisters were saved by other persons
(the brothers Edilberto and Mariano Sta. Ana) 13 it was Justina Santos herself who according to adopted child of Filipino citizen." 18
her own witness, Benjamin C. Alonzo, said "very emphatically" that she and her sister would
have perished in the fire had it been for Wong. 14 Hence the recital in the deed of conditional This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For the testimony just
quoted while dispelling doubt as to the intention of Justina Santos, at the same time gives the
option (Plff Exh. 7) that" [I]tong si Wong Heng ang siyang nagligtas sa aming dalawang
magkapatid sa halos ay tiyak na kamatayan," and the equally emphatic avowal of gratitude in clue to what we view as a scheme to circumvent the Constitutional prohibition against the

transfer of land of aliens. "The illicit purpose then becomes the illegal cause 19 rendering the
contracts void.

public agricultural lands, including residential lands and, accordingly, judgment is affirmed,
without costs."25

Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively,
they reveal an insidious pattern to subvert by indirection what the Constitution dir