OLIVAREZ REALTY CORPORATION and DR. PABLO R. OLIVAREZ, Petitioner, vs.

BENJAMIN CASTILLO, Respondent.

DECISION
LEONEN, J.:

Trial may be dispensed with and a summary judgment rendered if the case can be resolved
judiciously by plain resort to the pleadings, affidavits, depositions, and other papers filed by the
parties.
This is a petition for review on certiorari1 of the Court of Appeals' decision2 dated July 20, 2010
and resolution3 dated March 18, 2011 in CAG.R. CV No. 91244.
The facts as established from the pleadings of the parties are as follows:
Benjamin Castillo was the registered owner of a 346,918-squaremeter parcel of land located in
Laurel, Batangas, covered by Transfer Certificate of Title No. T-19972.4 The Philippine Tourism
Authority allegedly claimed ownership of the sameparcel of land based on Transfer Certificate
of Title No. T-18493.5 On April 5, 2000, Castillo and Olivarez Realty Corporation, represented by
Dr. Pablo R. Olivarez, entered into a contract of conditional sale6 over the property. Under the
deed of conditional sale, Castillo agreed to sell his property to Olivarez Realty Corporation for
₱19,080,490.00. Olivarez Realty Corporation agreed toa down payment of ₱5,000,000.00, to be
paid according to the following schedule:
DATE AMOUNT
April 8, 2000 500,000.00
May 8, 2000 500,000.00
May 16, 2000 500,000.00
June 8, 2000 1,000,000.00
July 8, 2000 500,000.00
August 8, 2000 500,000.00
September 8, 2000 500,000.00
October 8, 2000 500,000.00
November 8, 2000 500,000.00 7
As to the balance of ₱14,080,490.00, Olivarez Realty Corporation agreed to pay in 30 equal
monthly installments every eighth day of the month beginning in the month that the parties
would receive a decision voiding the Philippine Tourism Authority’s title to the property.8
Under the deed of conditional sale, Olivarez RealtyCorporation shall file the action against the
Philippine Tourism Authority "with the full assistance of [Castillo]."9 Paragraph C of the deed of
conditional sale provides:

C. [Olivarez Realty Corporation] assumes the responsibility of taking necessary legal action thru
Court to have the claim/title TCT T-18493 of Philippine Tourism Authority over the above-
described property be nullified and voided; with the full assistance of [Castillo][.]10
Should the action against the Philippine Tourism Authority be denied, Castillo agreed to
reimburse all the amounts paid by Olivarez Realty Corporation. Paragraph D of the deed of
conditional sale provides:

D. In the event that the Court denie[s] the petition against the Philippine Tourism Authority, all
sums received by [Castillo] shall be reimbursed to [Olivarez Realty Corporation] without
interest[.]11
As to the "legitimate tenants" occupying the property, Olivarez Realty Corporation undertook
to pay them "disturbance compensation," while Castillo undertook to clear the land of the
tenants within six months from the signing of the deed of conditional sale. Should Castillo fail to
clear the land within six months, Olivarez Realty Corporation may suspend its monthly down
payment until the tenants vacate the property. Paragraphs E and F of the deed of conditional
sale provide: E. That [Olivarez Realty Corporation] shall pay the disturbance compensation to
legitimate agricultural tenants and fishermen occupants which in no case shall exceed ONE
MILLION FIVE HUNDRED THOUSAND (₱1,500,000.00) PESOS. Said amountshall not form part of
the purchase price. In excess of this amount, all claims shall be for the account of [Castillo];

F. That [Castillo] shall clear the land of [the] legitimate tenants within a period of six (6) months
upon signing of this Contract, and in case [Castillo] fails, [Olivarez Realty Corporation] shall have
the right to suspend the monthly down payment until such time that the tenants [move] out of
the land[.]12
The parties agreed thatOlivarez Realty Corporation may immediately occupy the property upon
signing of the deed of conditional sale. Should the contract be cancelled, Olivarez
RealtyCorporation agreed to return the property’s possession to Castillo and forfeit all the
improvements it may have introduced on the property. Paragraph I of the deed of conditional
sale states:
I. Immediately upon signing thisContract, [Olivarez Realty Corporation] shall be entitled to
occupy, possess and develop the subject property. In case this Contract is canceled [sic], any
improvement introduced by [the corporation] on the property shall be forfeited in favor of
[Castillo][.]13
On September 2, 2004, Castillo filed a complaint14 against Olivarez Realty Corporation and Dr.
Olivarez with the Regional Trial Court of Tanauan City, Batangas.
Castillo alleged that Dr. Olivarez convinced him into selling his property to Olivarez Realty
Corporation on the representation that the corporation shall be responsible in clearing the
property of the tenants and in paying them disturbance compensation. He further alleged that
Dr. Olivarez solely prepared the deed of conditional sale and that he was made to sign the
contract with its terms "not adequately explained [to him] in Tagalog."15
After the parties had signed the deed of conditional sale, Olivarez Realty Corporation
immediately took possession of the property. However, the corporation only paid 2,500,000.00
ofthe purchase price. Contrary to the agreement, the corporation did not file any action against
the Philippine Tourism Authority to void the latter’s title to the property. The corporation
neither cleared the land of the tenants nor paid them disturbance compensation. Despite
demand, Olivarez Realty Corporation refused to fully pay the purchase price.16
Arguing that Olivarez Realty Corporation committed substantial breach of the contract of
conditional sale and that the deed of conditional sale was a contract of adhesion, Castillo
prayed for rescission of contract under Article 1191 of the Civil Code of the Philippines. He
further prayed that Olivarez Realty Corporation and Dr. Olivarez be made solidarily liable for
moral damages, exemplary damages, attorney’s fees, and costs of suit.17
In their answer,18 Olivarez Realty Corporation and Dr. Olivarez admitted that the corporation
only paid ₱2,500,000.00 ofthe purchase price. In their defense, defendants alleged that Castillo
failed to "fully assist"19 the corporation in filing an action against the Philippine Tourism
Authority. Neither did Castillo clear the property of the tenants within six months from the
signing of the deed of conditional sale. Thus, according to defendants, the corporation had "all
the legal right to withhold the subsequent payments to [fully pay] the purchase price."20
Olivarez Realty Corporation and Dr. Olivarez prayedthat Castillo’s complaint be dismissed. By
way of compulsory counterclaim, they prayed for ₱100,000.00 litigation expenses and
₱50,000.00 attorney’s fees.21
Castillo replied to the counterclaim,22 arguing that Olivarez Realty Corporation and Dr. Olivarez
had no right to litigation expenses and attorney’s fees. According to Castillo, the deed of
conditional sale clearly states that the corporation "assume[d] the responsibility of taking
necessary legal action"23 against the Philippine Tourism Authority, yet the corporation did not
file any case. Also, the corporation did not pay the tenants disturbance compensation. For the
corporation’s failure to fully pay the purchase price, Castillo claimed that hehad "all the right to
pray for the rescission of the [contract],"24 and he "should not be held liable . . . for any alleged
damages by way of litigation expenses and attorney’s fees."25
On January 10, 2005, Castillo filed a request for admission,26 requesting Dr. Olivarez to admit
under oath the genuineness of the deed of conditional sale and Transfer Certificate of Title No.
T-19972. He likewise requested Dr. Olivarez to admit the truth of the following factual
allegations:

1. That Dr. Olivarez is the president of Olivarez Realty Corporation;

2. That Dr. Olivarez offered to purchase the parcel of land from Castillo and that he undertook
to clear the property of the tenants and file the court action to void the Philippine Tourism
Authority’s title to the property;

3. That Dr. Olivarez caused the preparation of the deed of conditional sale;

4. That Dr. Olivarez signed the deed of conditional sale for and on behalf of Olivarez Realty
Corporation;

5. That Dr. Olivarez and the corporation did not file any action against the Philippine Tourism
Authority;

6. That Dr. Olivarez and the corporation did not pay the tenants disturbance compensation and
failed to clear the property of the tenants; and

7. That Dr. Olivarez and the corporation only paid ₱2,500,000.00 of the agreed purchase
price.27

On January 25, 2005, Dr. Olivarez and Olivarez Realty Corporation filed their objections to the
request for admission,28 stating that they "reiterate[d] the allegations [and denials] in their
[answer]."29
The trial court conducted pre-trial conference on December 17, 2005.
On March 8, 2006, Castillo filed a motion for summary judgment and/or judgment on the
pleadings.30 He argued that Olivarez Realty Corporation and Dr. Olivarez "substantially
admitted the material allegations of [his] complaint,"31 specifically:

1. That the corporation failed to fully pay the purchase price for his property;32

2. That the corporation failed to file an action to void the Philippine Tourism Authority’s title to
his property;33 and

3. That the corporation failed to clear the property of the tenants and pay them disturbance
compensation.34

Should judgment on the pleadings beimproper, Castillo argued that summary judgment may
still be rendered asthere is no genuine issue as to any material fact.35 He cited Philippine
National Bank v. Noah’s Ark Sugar Refinery36 as authority.
Castillo attached to his motion for summary judgment and/or judgment on the pleadings his
affidavit37 and the affidavit of a Marissa Magsino38 attesting to the truth of the material
allegations of his complaint.
Olivarez Realty Corporation and Dr. Olivarez opposed39 the motion for summary judgment
and/or judgment on the pleadings, arguing that the motion was "devoid of merit."40 They
reiterated their claim that the corporation withheld further payments of the purchase price
because "there ha[d] been no favorable decision voiding the title of the Philippine Tourism
Authority."41 They added that Castillo sold the property to another person and that the sale
was allegedly litigated in Quezon City.42
Considering that a title adverse to that of Castillo’s existed, Olivarez Realty Corporation and Dr.
Olivarez argued that the case should proceed to trial and Castillo be required to prove that his
title to the property is "not spurious or fake and that he had not sold his property to another
person."43
In reply to the opposition to the motion for summary judgment and/or judgment on the
pleadings,44 Castillo maintained that Olivarez Realty Corporation was responsible for the filing
of an action against the Philippine Tourism Authority. Thus, the corporation could not fault
Castillo for not suing the PhilippineTourism Authority.45 The corporation illegally withheld
payments of the purchase price.
As to the claim that the case should proceed to trial because a title adverse to his title existed,
Castillo argued that the Philippine Tourism Authority’s title covered another lot, not his
property.46
During the hearing on August 3, 2006, Olivarez Realty Corporation and Dr. Olivarez prayed that
they be given 30 days to file a supplemental memorandum on Castillo’s motion for summary
judgment and/or judgment on the pleadings.47
The trial court granted the motion. Itgave Castillo 20 days to reply to the memorandum and the
corporation and Dr. Olivarez 15 days to respond to Castillo’s reply.48
In their supplemental memorandum,49 Olivarez Realty Corporation and Dr. Olivarez argued
that there was "an obvious ambiguity"50 as to which should occur first — the payment of
disturbance compensation to the tenants or the clearing of the property of the tenants.51 This
ambiguity, according to defendants, is a genuine issue and "oughtto be threshed out in a full
blown trial."52
Olivarez Realty Corporation and Dr. Olivarez added that Castillo prayed for irreconcilable reliefs
of reformation of instrument and rescission of contract.53 Thus, Castillo’s complaint should be
dismissed.
Castillo replied54 to the memorandum, arguing that there was no genuine issue requiring trial
of the case. According to Castillo, "common sense dictates . . . that the legitimate tenants of the
[property] shall not vacate the premises without being paid any disturbance compensation . .
."55 Thus, the payment of disturbance compensation should occur first before clearing the
property of the tenants.
With respect to the other issuesraised in the supplemental memorandum, specifically, that
Castillo sold the property to another person, he argued that these issues should not be
entertained for not having been presented during pre-trial.56
In their comment on the reply memorandum,57 Olivarez Realty Corporation and Dr. Olivarez
reiterated their arguments that certain provisions of the deed of conditional sale were
ambiguous and that the complaint prayed for irreconcilable reliefs.58
As to the additional issues raised in the supplemental memorandum, defendants argued that
issues not raised and evidence not identified and premarked during pre-trial may still be raised
and presented during trial for good cause shown. Olivarez Realty Corporation and Dr. Olivarez
prayed that Castillo’s complaint be dismissed for lack of merit.59
Ruling of the trial court
The trial court found that Olivarez Realty Corporation and Dr. Olivarez’s answer "substantially
[admitted the material allegations of Castillo’s] complaint and [did] not . . . raise any genuine
issue [as to any material fact]."60
Defendants admitted that Castillo owned the parcel of land covered by Transfer Certificate of
Title No. T-19972. They likewise admitted the genuineness of the deed of conditional sale and
that the corporation only paid ₱2,500,000.00 of the agreed purchase price.61
According to the trial court, the corporation was responsible for suing the Philippine Tourism
Authority and for paying the tenants disturbance compensation. Since defendant corporation
neither filed any case nor paid the tenants disturbance compensation, the trial court ruled that
defendant corporation had no right to withhold payments from Castillo.62
As to the alleged ambiguity of paragraphs E and F of the deed of conditional sale, the trial court
ruled that Castillo and his witness, Marissa Magsino, "clearly established"63 in their affidavits
that the deed of conditional sale was a contract of adhesion. The true agreement between the
parties was that the corporation would both clear the land of the tenants and pay them
disturbance compensation.
With these findings, the trial court ruled that Olivarez Realty Corporation breached the contract
ofconditional sale.1âwphi1 In its decision64 dated April 23, 2007, the trial court ordered the
deed of conditional sale rescinded and the ₱2,500,000.00 forfeited in favor of Castillo "as
damages under Article 1191 of the Civil Code."65
The trial court declared Olivarez Realty Corporation and Dr. Olivarez solidarily liable to Castillo
for 500,000.00 as moral damages, ₱50,000.00 as exemplary damages, and ₱50,000.00 as costs
of suit.66

Ruling of the Court of Appeals

Olivarez Realty Corporation and Dr. Olivarez appealed to the Court of Appeals.67

In its decision68 dated July 20, 2010, the Court of Appeals affirmed in totothe trial court’s
decision. According to the appellate court, the trial court "did not err in its finding that there is
no genuine controversy as to the facts involved [in this case]."69 The trial court, therefore,
correctly rendered summary judgment.70
As to the trial court’s award of damages, the appellatecourt ruled that a court may award
damages through summary judgment "if the parties’ contract categorically [stipulates] the
respective obligations of the parties in case of default."71 As found by the trial court,paragraph
I of the deed of conditional sale categorically states that "in case [the deed of conditional sale]
is cancelled, any improvementintroduced by [Olivarez Realty Corporation] on the property shall
be forfeited infavor of [Castillo]."72 Considering that Olivarez Realty Corporation illegally
retained possession of the property, Castillo forewent rentto the property and "lost business
opportunities."73 The ₱2,500,000.00 down payment, according to the appellate court,
shouldbe forfeited in favor of Castillo. Moral and exemplary damages and costs ofsuit were
properly awarded.

On August 11, 2010, Olivarez RealtyCorporation and Dr. Olivarez filed their motion for
reconsideration,74 arguing that the trial court exceeded its authority in forfeiting the
₱2,500,000.00 down payment and awarding ₱500,000.00 in moral damages to Castillo. They
argued that Castillo only prayed for a total of ₱500,000.00 as actual and moral damages in his
complaint.75 Appellants prayed that the Court of Appeals "take a second hard look"76 at the
case and reconsider its decision.
In the resolution77 dated March 18, 2011, the Court of Appeals denied the motion for
reconsideration.
Proceedings before this court
Olivarez Realty Corporation and Dr. Olivarez filed their petition for review on certiorari78 with
this court. Petitionersargue that the trial court and the Court of Appeals erred in awarding
damages to Castillo. Under Section 3, Rule 35 of the 1997 Rules ofCivil Procedure, summary
judgment may be rendered except as to the amountof damages. Thus, the Court of Appeals
"violated the procedural steps in rendering summary judgment."79
Petitioners reiterate that there are genuine issues ofmaterial fact to be resolved in this case.
Thus, a full-blown trial is required, and the trial court prematurely decided the case through
summary judgment. They cite Torres v. Olivarez Realty Corporation and Dr. Pablo Olivarez,80 a
case decided by the Ninth Division of the Court of Appeals.
In Torres, Rosario Torres was the registeredowner of a parcel of land covered by Transfer
Certificate of Title No. T-19971. Under a deed of conditional sale, she sold her property to
OlivarezRealty Corporation for ₱17,345,900.00. When the corporation failed to fully pay the
purchase price, she sued for rescission of contractwith damages. In their answer, the
corporation and Dr. Olivarez argued thatthey discontinued payment because Rosario Torres
failed to clear the land of the tenants.
Similar to Castillo, Torres filed a motion for summary judgment, which the trial court granted.
On appeal, the Court of Appeals set aside the trial court’s summary judgment and remanded
the case to the trial court for further proceedings.81 The Court of Appeals ruled that the
material allegations of the complaint "were directly disputed by [the corporation and Dr.
Olivarez] in their answer"82 when they argued that they refused to pay because Torres failed to
clear the land of the tenants.
With the Court of Appeals’ decision in Torres,Olivarez Realty Corporation and Dr. Olivarez argue
that this case should likewise be remanded to the trial court for further proceedings under the
equipoise rule.
Petitioners maintain that Castillo availed himself of the irreconcilable reliefs of reformation of
instrument and rescission of contract.83 Thus, the trial court should have dismissed the case
outright.
Petitioners likewise argue that the trial court had no jurisdiction to decide the case as Castillo
failed topay the correct docket fees.84 Petitioners argue that Castillo should have paid docket
fees based on the property’s fair market value since Castillo’s complaint is a real action.85
In his comment,86 Castillo maintains that there are no genuine issues as to any material fact
inthis case. The trial court, therefore, correctly rendered summary judgment.
As to petitioners’ claim that the trial court had no jurisdiction to decide the case, Castillo argues
that he prayed for rescission of contract in his complaint. This action is incapable of pecuniary
estimation, and the Clerk of Court properly computed the docket fees based on this prayer.87
Olivarez Realty Corporation and Dr. Olivarez replied,88 reiterating their arguments in the
petition for review on certiorari.

The issues for our resolution are the following:

I. Whether the trial court erred in rendering summary judgment;

II. Whether proper docket fees were paid in this case.

The petition lacks merit.

I
The trial court correctly rendered
summary judgment, as there were no genuine issues of material fact in this case
Trial "is the judicial examination and determination of the issues between the parties to the
action."89 During trial, parties "present their respective evidence of their claims and
defenses."90 Parties to an action have the right "to a plenary trial of the case"91 to ensure that
they were given a right to fully present evidence on their respective claims.
There are instances, however, whentrial may be dispensed with. Under Rule 35 of the 1997
Rules of Civil Procedure, a trial court may dispense with trial and proceed to decide a case if
from the pleadings, affidavits, depositions, and other papers on file, there is no genuine issue as
to any material fact. In such a case, the judgment issued is called a summary judgment.
A motion for summary judgment is filed either by the claimant or the defending party.92 The
trial court then hears the motion for summary judgment. If indeed there are no genuine issues
of material fact, the trial court shall issue summary judgment. Section 3, Rule 35 of the 1997
Rules of Civil Procedure provides:
SEC. 3. Motion and proceedings thereon. – The motion shall be served at least ten (10) days
beforethe time specified for the hearing. The adverse party may serve opposing affidavits,
depositions, or admission at least three (3) days before the hearing. After the hearing, the
judgment sought shall be rendered forthwith ifthe pleadings, supporting affidavits, depositions,
and admissions on file, showthat, except as to the amount of damages, there is no genuine
issue as to any material fact and that the moving party is entitled to a judgment as a matter of
law.
An issue of material fact exists if the answer or responsive pleading filed specifically denies the
material allegations of fact set forth in the complaint or pleading. If the issue offact "requires
the presentation of evidence, it is a genuine issue of fact."93 However, if the issue "could be
resolved judiciously by plain resort"94 to the pleadings, affidavits, depositions, and other
paperson file, the issue of fact raised is sham, and the trial court may resolve the action through
summary judgment.
A summary judgment is usually distinguished from a judgment on the pleadings. Under Rule 34
of the 1997 Rules of Civil Procedure, trial may likewise be dispensed with and a case decided
through judgment on the pleadings if the answer filed fails to tender an issue or otherwise
admits the material allegations of the claimant’s pleading.95
Judgment on the pleadings is proper when the answer filed fails to tender any issue, or
otherwise admitsthe material allegations in the complaint.96 On the other hand, in a summary
judgment, the answer filed tenders issues as specific denials and affirmative defenses are
pleaded, but the issues raised are sham, fictitious, or otherwise not genuine.97
In this case, Olivarez Realty Corporation admitted that it did not fully pay the purchase price as
agreed upon inthe deed of conditional sale. As to why it withheld payments from Castillo, it set
up the following affirmative defenses: First, Castillo did not filea case to void the Philippine
Tourism Authority’s title to the property; second,Castillo did not clear the land of the tenants;
third, Castillo allegedly sold the property to a third person, and the subsequent sale is currently
being litigated beforea Quezon City court.
Considering that Olivarez RealtyCorporation and Dr. Olivarez’s answer tendered an issue,
Castillo properly availed himself of a motion for summary judgment.
However, the issues tendered by Olivarez Realty Corporation and Dr. Olivarez’s answer are not
genuine issues of material fact. These are issues that can be resolved judiciously by plain resort
to the pleadings, affidavits, depositions, and other papers on file; otherwise, these issues are
sham, fictitious, or patently unsubstantial.
Petitioner corporation refused to fully pay the purchase price because no court case was filed
to void the Philippine Tourism Authority’s title on the property. However, paragraph C of the
deed of conditional sale is clear that petitioner Olivarez Realty Corporation is responsible for
initiating court action against the Philippine Tourism Authority:

C. [Olivarez Realty Corporation] assumes the responsibility of taking necessary legal action thru
Court to have the claim/title TCT T-18493 of Philippine Tourism Authority over the above-
described property be nullified and voided; with the full assistance of [Castillo].98
Castillo’s alleged failureto "fully assist"99 the corporation in filing the case is not a defense. As
the trial court said, "how can [Castillo] assist [the corporation] when [the latter] did not file the
action [in the first place?]"100
Neither can Olivarez Realty Corporation argue that it refused to fully pay the purchase price due
to the Philippine Tourism Authority’s adverse claim on the property. The corporation knew of
this adverse claim when it entered into a contract of conditional sale. It even obligated itself
under paragraph C of the deed of conditional sale to sue the Philippine Tourism Authority. This
defense, therefore, is sham.
Contrary to petitioners’ claim, there is no "obvious ambiguity"101 as to which should occur first
— the payment of the disturbance compensation or the clearing of the land within six months
from the signing of the deed of conditional sale. The obligations must be performed
simultaneously. In this case, the parties should have coordinated to ensure that tenants on the
property were paid disturbance compensation and were made to vacate the property six
months after the signingof the deed of conditional sale.
On one hand, pure obligations, or obligations whose performance do not depend upon a future
or uncertainevent, or upon a past event unknown to the parties, are demandable at once.102
On the other hand, obligations with a resolutory period also take effect at once but terminate
upon arrival of the day certain.103
Olivarez Realty Corporation’s obligation to pay disturbance compensation is a pure obligation.
The performance of the obligation to pay disturbance compensation did not depend on any
condition. Moreover, the deed of conditional sale did not give the corporation a period to
perform the obligation. As such, the obligation to pay disturbance compensation was
demandable at once. Olivarez RealtyCorporation should have paid the tenants disturbance
compensation upon execution of the deed of conditional sale.
With respect to Castillo’s obligation to clear the land of the tenants within six months from the
signing of the contract, his obligation was an obligation with a resolutory period. The obligation
to clear the land of the tenants took effect at once, specifically, upon the parties’ signing of the
deed of conditional sale. Castillo had until October 2, 2000, six months from April 5, 2000 when
the parties signed the deed of conditional sale, to clear the land of the tenants.
Olivarez Realty Corporation, therefore, had no right to withhold payments of the purchase
price. As the trial court ruled, Olivarez Realty Corporation "can only claim non-compliance [of
the obligation to clear the land of the tenants in] October 2000."104 It said:
. . . it is clear that defendant [Olivarez Realty Corporation] should have paid the installments on
the ₱5 million downpayment up to October 8, 2000, or a total of ₱4,500,000.00. That is the
agreement because the only time that defendant [corporation] can claim non-compliance of
the condition is after October, 2000 and so it has the clear obligation topay up to the October
2000 the agreed installments. Since it paid only 2,500,000.00, then a violation of the contract
has already been committed. . . .105

The claim that Castillo sold the property to another is fictitious and was made in bad faith to
prevent the trial court from rendering summary judgment. Petitioners did not elaborate on this
defense and insisted on revealing the identity of the buyer only during trial.106 Even in their
petition for review on certiorari, petitioners never disclosed the name of this alleged buyer.
Thus, as the trial court ruled, this defense did not tender a genuine issue of fact, with the
defense "bereft of details."107
Castillo’s alleged prayer for the irreconcilable reliefs of rescission of contract and reformation of
instrument is not a ground to dismiss his complaint. A plaintiff may allege two or more claims in
the complaint alternatively or hypothetically, either in one cause of action or in separate causes
of action per Section 2, Rule 8 of the 1997 Rules of Civil Procedure.108 It is the filing of two
separatecases for each of the causes of action that is prohibited since the subsequently filed
case may be dismissed under Section 4, Rule 2 of the 1997 Rules of Civil Procedure109 on
splitting causes of action. As demonstrated, there are no genuineissues of material fact in this
case. These are issues that can be resolved judiciously by plain resort to the pleadings,
affidavits, depositions, and other papers on file. As the trial court found, Olivarez Realty
Corporation illegally withheld payments of the purchase price. The trial court did not err in
rendering summary judgment.
II
Castillo is entitled to cancel the contract of conditional sale

Since Olivarez Realty Corporation illegally withheld payments of the purchase price, Castillo is
entitled to cancel his contract with petitioner corporation. However, we properly characterize
the parties’ contract as a contract to sell, not a contract of conditional sale.
In both contracts to sell and contracts of conditional sale, title to the property remains with the
seller until the buyer fully pays the purchase price.110 Both contracts are subject to the positive
suspensive condition of the buyer’s full payment of the purchase price.111
In a contract of conditional sale, the buyer automatically acquires title to the property upon full
payment of the purchase price.112 This transfer of title is "by operation of law without any
further act having to be performed by the seller."113 In a contract to sell, transfer of title to the
prospective buyer is not automatic.114 "The prospective seller [must] convey title to the
property [through] a deed of conditional sale."115
The distinction is important to determine the applicable laws and remedies in case a party does
not fulfill his or her obligations under the contract. In contracts of conditional sale, our laws on
sales under the Civil Code of the Philippines apply. On the other hand, contracts to sell are not
governed by our law on sales116 but by the Civil Code provisions on conditional obligations.
Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal obligations does not
apply to contracts to sell.117 As this court explained in Ong v. Court of Appeals,118 failure to
fully pay the purchase price in contracts to sell is not the breach of contract under Article
1191.119 Failure to fully pay the purchase price is "merely an event which prevents the
[seller’s] obligation to convey title from acquiring binding force."120 This is because "there can
be no rescission of an obligation that is still nonexistent, the suspensive condition not having
[happened]."121
In this case, Castillo reserved his title to the property and undertook to execute a deed of
absolute sale upon Olivarez Realty Corporation’s full payment of the purchase price.122 Since
Castillo still has to execute a deed of absolute sale to Olivarez RealtyCorporation upon full
payment of the purchase price, the transfer of title is notautomatic. The contract in this case is
a contract to sell.
As this case involves a contract tosell, Article 1191 of the Civil Code of the Philippines does not
apply. The contract to sell is instead cancelled, and the parties shall stand as if the obligation to
sell never existed.123
Olivarez Realty Corporation shall return the possession of the property to Castillo. Any
improvement that Olivarez Realty Corporation may have introduced on the property shall be
forfeited in favor of Castillo per paragraph I of the deed of conditional sale:

I. Immediately upon signing thisContract, [Olivarez Realty Corporation] shall be entitled to

occupy, possess and develop the subject property. In case this Contract is cancelled, any
improvement introduced by [Olivarez Realty Corporation] on the property shall be forfeited in
favor of [Castillo.]124

As for prospective sellers, thiscourt generally orders the reimbursement of the installments
paidfor the property when setting aside contracts to sell.125 This is true especially ifthe
property’s possession has not been delivered to the prospective buyer prior to the transfer of
title.
In this case, however, Castillo delivered the possession of the property to Olivarez Realty
Corporation prior to the transfer of title. We cannot order the reimbursement of the
installments paid.
In Gomez v. Court of Appeals,126 the City of Manila and Luisa Gomez entered into a contract to
sell over a parcel of land. The city delivered the property’s possession to Gomez. She fully paid
the purchase price for the property but violated the terms of the contract to sell by renting out
the property to other persons. This court set aside the contract to sell for her violation of the
terms of the contract to sell. It ordered the installments paid forfeited in favor of the City of
Manila "as reasonable compensation for [Gomez’s] use of the [property]"127 for eight years.
In this case, Olivarez Realty Corporation failed to fully pay the purchase price for the property.
It only paid ₱2,500,000.00 out of the ₱19,080,490.00 agreed purchase price. Worse, petitioner
corporation has been in possession of Castillo’s property for 14 years since May 5, 2000 and has
not paid for its use of the property.
Similar to the ruling in Gomez, we order the ₱2,500,000.00 forfeited in favor of Castillo as
reasonable compensation for Olivarez Realty Corporation’s use of the property.

III
Olivarez Realty Corporation is liable for
moral and exemplary damages and attorney’s fees
We note that the trial court erred in rendering summary judgment on the amount of damages.
Under Section 3, Rule 35 of the 1997 Rules of Civil Procedure, summary judgment may be
rendered, except as to the amount of damages.
In this case, the trial court erred in forfeiting the ₱2,500,000.00 in favor of Castillo as damages
under Article 1191 of the Civil Code of the Philippines. As discussed, there is nobreach of
contract under Article 1191 in this case.
The trial court likewise erred inrendering summary judgment on the amount of moral and
exemplary damages and attorney’s fees.
Nonetheless, we hold that Castillois entitled to moral damages, exemplary damages, and
attorney’s fees.
Moral damages may be awarded in case the claimant experienced physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury.128
As for exemplary damages, they are awarded in addition to moral damages by way of example
or correction for the public good.129 Specifically in contracts, exemplary damages may be
awarded if the defendant acted in a wanton, fraudulent,reckless, oppressive, or malevolent
manner.130
Under the deed of conditional sale, Olivarez Realty Corporation may only suspend the monthly
down payment in case Castillo fails to clear the land of the tenants six months from the signing
of the instrument. Yet, even before the sixth month arrived, Olivarez Realty Corporation
withheld payments for Castillo’s property. It evenused as a defense the fact that no case was
filed against the PhilippineTourism Authority when, under the deed of conditional sale, Olivarez
Realty Corporation was clearly responsible for initiating action against the Philippine Tourism
Authority. These are oppressive and malevolent acts, and we find Castillo entitled to
₱500,000.00 moral damages and ₱50,000.00 exemplary damages:
Plaintiff Castillo is entitled to moral damages because of the evident bad faith exhibited by
defendants in dealing with him regarding the sale of his lot to defendant [Olivarez Realty
Corporation]. He suffered much prejudice due to the failure of defendants to pay him the
balance of purchase price which he expected touse for his needs which caused him wounded
feelings, sorrow, mental anxiety and sleepless nights for which defendants should pay
₱500,000.00 as moral damages more than six (6) years had elapsed and defendants illegally and
unfairly failed and refused to pay their legal obligations to plaintiff, unjustly taking advantage of
a poor uneducated man like plaintiff causing much sorrow and financial difficulties. Moral
damages in favor of plaintiff is clearly justified . . . [Castillo] is also entitled to ₱50,000.00 as
exemplary damages to serve as a deterrent to other parties to a contract to religiously comply
with their prestations under the contract.131
We likewise agree that Castillo is entitled to attorney’s fees in addition to the exemplary
damages.132 Considering that Olivarez Realty Corporation refused to satisfy Castillo’splainly
valid, just, and demandable claim,133 the award of ₱50,000.00 as attorney’s fees is in order.
However, we find that Dr. Pablo R.Olivarez is not solidarily liable with Olivarez Realty
Corporation for the amount of damages.
Under Article 1207 of the Civil Code of the Philippines, there is solidary liability only when the
obligation states it or when the law or the nature of the obligation requires solidarity.134 In
case of corporations, they are solely liable for their obligations.135 The directors or trustees
and officers are not liable with the corporation even if it is through their acts that the
corporation incurred the obligation. This is because a corporation is separate and distinct from
the persons comprising it.136
As an exception to the rule, directors or trustees and corporate officers may be solidarily liable
with the corporation for corporate obligations if they acted "in bad faith or with gross
negligence in directing the corporate affairs."137
In this case, we find that Castillo failed to prove with preponderant evidence that it was
through Dr. Olivarez’s bad faith or gross negligence that Olivarez Realty Corporation failed to
fully pay the purchase price for the property. Dr. Olivarez’s alleged act of making Castillo sign
the deed of conditional sale without explaining to the latter the deed’s terms in Tagalog is not
reason to hold Dr. Olivarez solidarily liable with the corporation. Castillo had a choice not to
sign the deed of conditional sale. He could have asked that the deed of conditional sale be
written in Tagalog. Thus, Olivarez Realty Corporation issolely liable for the moral and exemplary
damages and attorney’s fees to Castillo.

IV
The trial court acquired jurisdiction over
Castillo’s action as he paid the correct
docket fees

Olivarez Realty Corporation and Dr. Olivarez claimed that the trial court had no jurisdiction to
take cognizance of the case. In the reply/motion to dismiss the complaint138 they filed with the
Court of Appeals, petitioners argued that Castillo failed to pay the correct amount of docket
fees. Stating that this action is a real action, petitioners argued that the docket fee Castillo paid
should have been based on the fair market value of the property. In this case, Castillo only paid
4,297.00, which is insufficient "if the real nature of the action was admitted and the fair market
value of the property was disclosed and made the basis of the amount of docket fees to be paid
to the court."139 Thus, according to petitioners, the case should be dismissed for lack of
jurisdiction.
Castillo countered that his action for rescission is an action incapable of pecuniary estimation.
Thus, the Clerk of Court of the Regional Trial Court of Tanauan City did not err in assessing the
docket fees based on his prayer.
We rule for Castillo. In De Leon v. Court of Appeals,140 this court held that an action for
rescission of contract of sale of real property is an action incapable of pecuniary estimation. In
De Leon, the action involved a real property. Nevertheless, this court held that "it is the nature
of the action as one for rescission of contract which is controlling."141 Consequently, the
docket fees to be paid shall be for actions incapableof pecuniary estimation, regardless if the
claimant may eventually recover the real property. This court said:
. . . the Court in Bautista v.Lim, held that an action for rescission of contract is one which cannot
be estimated and therefore the docket fee for its filing should be the flat amount of ₱200.00 as
then fixed in the former Rule 141, §141, §5(10). Said this Court:
We hold that Judge Dalisay did not err in considering Civil Case No. V-144 as basically one for
rescission or annulment of contract which is not susceptible of pecuniary estimation (1 Moran's
Comments on the Rules of Court, 1970 Ed, p. 55; Lapitan vs. Scandia, Inc., L-24668, July 31,
1968, 24 SCRA 479, 781-483).
Consequently, the fee for docketing it is ₱200, an amount already paid by plaintiff, now
respondent Matilda Lim.1âwphi1 (She should pay also the two pesos legal research fund fee, if
she has not paid it, as required in Section 4 of Republic Act No. 3870, the charter of the U.P.
Law Center).
Thus, although eventually the result may be the recovery of land, it is the nature of the action
as one for rescission of contract which is controlling. The Court of Appeals correctly applied
these cases to the present one. As it said:
We would like to add the observations that since the action of petitioners [private respondents]
against private respondents [petitioners] is solely for annulment or rescission which is not
susceptible of pecuniary estimation, the action should not be confused and equated with the
"value of the property" subject of the transaction; that by the very nature of the case, the
allegations, and specific prayer in the complaint, sans any prayer for recovery of money and/or
value of the transaction, or for actual or compensatory damages, the assessment and collection
of the legal fees should not be intertwined with the merits of the case and/or what may be its
end result; and that to sustain private respondents' [petitioners'] position on what the
respondent court may decide after all, then the assessment should be deferred and finally
assessed only after the court had finally decided the case, which cannot be done because the
rules require that filing fees should be based on what is alleged and prayed for in the face of the
complaint and paid upon the filing of the complaint.142
Although we discussed that there isno rescission of contract to speak of in contracts of
conditional sale, we hold that an action to cancel a contract to sell, similar to an action for
rescission of contract of sale, is an action incapable of pecuniary estimation. Like any action
incapable of pecuniary estimation, an action to cancel a contract to sell "demands an inquiry
into other factors"143 aside from the amount of money to be awarded to the claimant.
Specifically in this case, the trial court principally determined whether Olivarez Realty
Corporation failed to pay installments of the property’s purchase price as the parties agreed
upon in the deed of conditional sale. The principal natureof Castillo’s action, therefore, is
incapable of pecuniary estimation.
All told, there is no issue that the parties in this case entered into a contract to sell a parcel of
land and that Olivarez Realty Corporation failed to fully pay the installments agreed
upon.Consequently, Castillo is entitled to cancel the contract to sell.
WHEREFORE, the petition for review on certiorari is DENIED. The Court of Appeals’ decision
dated July 20, 2010 and in CA-G.R. CV No. 91244 is AFFIRMEDwith MODIFICATION.
The deed of conditional sale dated April 5, 2000 is declared CANCELLED. Petitioner Olivarez
Realty Corporation shall RETURN to respondent Benjamin Castillo the possession of the
property covered by Transfer Certificate of Title No. T-19972 together with all the
improvements that petitioner corporation introduced on the property. The amount of
₱2,500,000.00 is FORFEITED in favor of respondent Benjamin Castillo as reasonable
compensation for the use of petitioner Olivarez Realty Corporation of the property.
Petitioner Olivarez Realty Corporation shall PAY respondent Benjamin Castillo ₱500,000.00 as
moral damages, ₱50,000.00 as exemplary damages, and ₱50,000.00 as attorney's fees with
interest at 6% per annum from the time this decision becomes final and executory until
petitioner

corporation fully pays the amount of damages.144

SO ORDERED
CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner, vs. COURT OF APPEALS, ANACLETO
NOOL and EMILIA NEBRE, respondents.

DECISION

PANGANIBAN, J.:

A contract of repurchase arising out of a contract of sale where the seller did not have any title
to the property sold is not valid. Since nothing was sold, then there is also nothing to
repurchase.

Statement of the Case

This postulate is explained by this Court as it resolves this petition for review on certiorari
assailing the January 20, 1993 Decision[1] of Respondent Court of Appeals[2] in CA-G.R. CV No.
36473, affirming the decision[3] of the trial court[4] which disposed as follows:[5]

WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of action, and
hereby:

1. Declaring the private writing, Exhibit C, to be an option to sell, not binding and considered
validly withdrawn by the defendants for want of consideration;

2. Ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest
thereon at the legal rate, from the time of filing of defendants counterclaim until the same is
fully paid;

3. Ordering the plaintiffs to deliver peaceful possession of the two hectares mentioned in
paragraph 7 of the complaint and in paragraph 31 of defendants answer (counterclaim);
4. Ordering the plaintiffs to pay reasonable rents on said two hectares at P5,000.00 per annum
or at P2,500.00 per cropping from the time of judicial demand mentioned in paragraph 2 of the
dispositive portion of this decision, until the said two hectares shall have been delivered to the
defendants; and

5. To pay the costs.

SO ORDERED.

The Antecedent Facts

The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as
follows:

Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare
. It was formerly owned by Victorino Nool and covered by Transfer Certificate of Title No. T-
74950. With an area of 3.0880 hectares, the other parcel was previously owned by Francisco
Nool under Transfer Certificate of Title No. T-100945. Both parcels are situated in San Manuel,
Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now the appellants, seek
recovery of the aforementioned parcels of land from the defendants, Anacleto Nool, a younger
brother of Conchita, and Emilia Nebre, now the appellees.

In their complaint, plaintiff-appellants alleged inter alia that they are the owners of subject
parcels of land, and they bought the same from Conchitas other brothers, Victorino Nool and
Francisco Nool; that as plaintiffs were in dire need of money, they obtained a loan from the
Iligan Branch of the Development Bank of the Philippines, in Ilagan, Isabela, secured by a real
estate mortgage on said parcels of land, which were still registered in the names of Victorino
Nool and Francisco Nool, at the time, and for the failure of plaintiffs to pay the said loan,
including interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that
within the period of redemption, plaintiffs contacted defendant Anacleto Nool for the latter to
redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of
the two (2) parcels of land in question were transferred to Anacleto Nool; that as part of their
arrangement or understanding, Anacleto Nool agreed to buy from the plaintiff Conchita Nool
the two (2) parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of
which price was paid to Conchita, and upon payment of the balance of P14,000.00, plaintiffs
were to regain possession of the two (2) hectares of land, which amounts defendants failed to
pay, and the same day the said arrangement[6] was made; another covenant[7] was entered
into by the parties, whereby defendants agreed to return to plaintiffs the lands in question, at
anytime the latter have the necessary amount; that plaintiffs asked the defendants to return
the same but despite the intervention of the Barangay Captain of their place, defendants
refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to
come to court for relief.

In their answer defendants-appellees theorized that they acquired the lands in question from
the Development Bank of the Philippines, through negotiated sale, and were misled by plaintiffs
when defendant Anacleto Nool signed the private writing agreeing to return subject lands when
plaintiffs have the money to redeem the same; defendant Anacleto having been made to
believe, then, that his sister, Conchita, still had the right to redeem the said properties.

The pivot of inquiry here, as aptly observed below, is the nature and significance of the private
document, marked Exhibit D for plaintiffs, which document has not been denied by the
defendants, as defendants even averred in their Answer that they gave an advance payment of
P30,000.00 therefor, and acknowledged that they had a balance of P14,000.00 to complete
their payment. On this crucial issue, the lower court adjudged the said private writing (Exhibit
D) as an option to sell not binding upon and considered the same validly withdrawn by
defendants for want of consideration; and decided the case in the manner abovementioned.

There is no quibble over the fact that the two (2) parcels of land in dispute were mortgaged to
the Development Bank of the Philippines, to secure a loan obtained by plaintiffs from DBP
(Ilagan Branch), Ilagan, Isabela. For the non-payment of said loan, the mortgage was foreclosed
and in the process, ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4
for defendants). After DBP became the absolute owner of the two parcels of land, defendants
negotiated with DBP and succeeded in buying the same. By virtue of such sale by DBP in favor
of defendants, the titles of DBP were cancelled and corresponding Transfer Certificates of Title
(Annexes C and D to the complaint) issued to the dependants.[8]

It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the one-
year redemption period was from March 16, 1982 up to March 15, 1983 and that the
Mortgagors right of redemption was not exercised within this period.[9] Hence, DBP became
the absolute owner of said parcels of land for which it was issued new certificates of title, both
entered on May 23, 1983 by the Registry of Deeds for the Province of Isabela.[10] About two
years thereafter, on April 1, 1985, DBP entered into a Deed of Conditional Sale[11] involving the
same parcels of land with Private Respondent Anacleto Nool as vendee. Subsequently, the
latter was issued new certificates of title on February 8, 1988.[12]

The Court of Appeals ruled:[13]

WHEREFORE, finding no reversible error infirming it, the appealed Judgment is hereby
AFFIRMED in toto. No pronouncement as to costs.

The Issues

Petitioners impute to Respondent Court the following alleged errors:

1. The Honorable Court of Appeals, Second Division has misapplied the legal import or meaning
of Exhibit C in a way contrary to law and existing jurisprudence in stating that it has no binding
effect between the parties and considered validly withdrawn by defendants-appellees for want
of consideration.

2. The Honorable Court of Appeals, Second Division has miserably failed to give legal
significance to the actual possession and cultivation and appropriating exclusively the palay
harvest of the two (2) hectares land pending the payment of the remaining balance of fourteen
thousand pesos (P14,000.00) by defendants-appellees as indicated in Exhibit C.

3. The Honorable Court of Appeals has seriously erred in affirming the decision of the lower
court by awarding the payment of rents per annum and the return of P30,000.00 and not
allowing the plaintiffs-appellants to re-acquire the four (4) hectares, more or less upon
payment of one hundred thousand pesos (P100,000.00) as shown in Exhibit D.[14]

The Courts Ruling

The petition is bereft of merit.

First Issue: Are Exhibits C and D Valid and Enforceable?

The petitioner-spouses plead for the enforcement of their agreement with private respondents
as contained in Exhibits C and D, and seek damages for the latters alleged breach thereof. In
Exhibit C, which was a private handwritten document labeled by the parties as Resibo ti
Katulagan or Receipt of Agreement, the petitioners appear to have sold to private respondents
the parcels of land in controversy covered by TCT No. T-74950 and TCT No. T-100945. On the
other hand, Exhibit D, which was also a private handwritten document in Ilocano and labeled as
Kasuratan, private respondents agreed that Conchita Nool can acquire back or repurchase later
on said land when she has the money.[15]

In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her
co-petitioner-husband) invokes Article 1370 of the Civil Code which mandates that (i)f the
terms of a contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulation shall control. Hence, petitioners contend that the Court of
Appeals erred in affirming the trial courts finding and conclusion that said Exhibits C and D were
not merely voidable but utterly void and inexistent.

We cannot sustain petitioners view. Article 1370 of the Civil Code is applicable only to valid and
enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the
principal contract of sale contained in Exhibit C and the auxilliary contract of repurchase in
Exhibit D are both void. This conclusion of the two lower courts appears to find support in
Dignos vs. Court of Appeals,[16] where the Court held:

Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they
were no longer owners of the same and the sale is null and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of land at the
time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity
of Exhibit C, it is itself void. A void contract cannot give rise to a valid one.[17] Verily, Article
1422 of the Civil Code provides that (a) contract which is the direct result of a previous illegal
contract, is also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a sale is null and void
where the sellers were no longer the owners of the property. Such a situation (where the
sellers were no longer owners) does not appear to be one of the void contracts enumerated in
Article 1409 of the Civil Code.[18] Moreover, the Civil Code[19] itself recognizes a sale where
the goods are to be acquired x x x by the seller after the perfection of the contract of sale,
clearly implying that a sale is possible even if the seller was not the owner at the time of sale,
provided he acquires title to the property later on.
In the present case however, it is likewise clear that the sellers can no longer deliver the object
of the sale to the buyers, as the buyers themselves have already acquired title and delivery
thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative[20] and may thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code:
Those which contemplate an impossible service. Article 1459 of the Civil Code provides that the
vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is
delivered. Here, delivery of ownership is no longer possible. It has become impossible.

Furthermore, Article 1505 of the Civil Code provides that where goods are sold by a person who
is not the owner thereof, and who does not sell them under authority or with consent of the
owner, the buyer acquires no better title to the goods than the seller had, unless the owner of
the goods is by his conduct precluded from denying the sellers authority to sell. Here, there is
no allegation at all that petitioners were authorized by DBP to sell the property to the private
respondents. Jurisprudence, on the other hand, teaches us that a person can sell only what he
owns or is authorized to sell; the buyer can as a consequence acquire no more than what the
seller can legally transfer.[21] No one can give what he does not have neno dat quod non
habet. On the other hand, Exhibit D presupposes that petitioners could repurchase the property
that they sold to private respondents. As petitioners sold nothing, it follows that they can also
repurchase nothing. Nothing sold, nothing to repurchase. In this light, the contract of
repurchase is also inoperative and by the same analogy, void.

Contract of Repurchase
Dependent on Validity of Sale

As borne out by the evidence on record, the private respondents bought the two parcels of land
directly from DBP on April 1, 1985 after discovering that petitioners did not own said property,
the subject of Exhibits C and D executed on November 30, 1984. Petitioners, however, claim
that they can exercise their alleged right to repurchase the property, after private respondents
had acquired the same from DBP.[22] We cannot accede to this, for it clearly contravenes the
intention of the parties and the nature of their agreement. Exhibit D reads:
WRITING

Nov. 30, 1984

That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of four hectares
(4 has.) in the value of One Hundred Thousand (100,000.00) Pesos. It is our agreement as
brother and sister that she can acquire back or repurchase later on said land when she has the
money. [Underscoring supplied]
As proof of this agreement we sign as brother and sister this written document this day of Nov.
30, 1984, at District 4, San Manuel, Isabela.

Sgd ANACLETO NOOL

Anacleto Nool
Sgd Emilio Paron

Witness
Sgd Conchita Nool
Conchita Nool[23]

One repurchases only what one has previously sold. In other words, the right to repurchase
presupposes a valid contract of sale between the same parties. Undisputedly, private
respondents acquired title to the property from DBP, and not from the petitioners.
Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not affected by
the nullity of the latter, still petitioners do not thereby acquire a right to repurchase the
property. In that scenario, Exhibit D ceases to be a right to repurchase ancillary and incidental
to the contract of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of
the Civil Code, however, provides that an accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon the promissor if the promise is supported
by a consideration distinct from the price. In the present case, the alleged written contract of
repurchase contained in Exhibit D is bereft of any consideration distinct from the price.
Accordingly, as an independent contract, it cannot bind private respondents. The ruling in
Diamante vs. CA[24] supports this. In that case, the Court through Mr. Justice Hilario G. Davide,
Jr. explained:

Article 1601 of the Civil Code provides:

Conventional redemption shall take place when the vendor reserves the right to repurchase the
thing sold, with the obligation to comply with the provisions of article 1616 and other
stipulations which may have been agreed upon.
In Villarica, et al. Vs. Court of Appeals, et al., decided on 29 November 1968, or barely seven (7)
days before the respondent Court promulgated its decisions in this case, this Court, interpreting
the above Article, held:
The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can
not longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the
option to buy in the instant case. x x x.

In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this Court had already
ruled that an agreement to repurchase becomes a promise to sell when made after the sale,
because when the sale is made without such an agreement, the purchaser acquires the thing
sold absolutely, and if he afterwards grants the vendor the right to repurchase, it is a new
contract entered into by the purchaser, as absolute owner already of the object. In that case
the vendor has nor reserved to himself the right to repurchase.
In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another occasion to apply the
foregoing principle.

Hence, the Option to Repurchase executed by private respondent in the present case, was
merely a promise to sell, which must be governed by Article 1479 of the Civil Code which reads
as follows:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the
price.
Right to Repurchase Based on
Homestead or Trust Non-Existent
Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land Act[25]
and (2) an implied trust relation as brother and sister.[26]

The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The
brothers, together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to
repurchase the two parcels of land under Sec. 119 of the Public Land Act which provides that
(e)very conveyance of land acquired under the free patent or homestead provisions, when
proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period
of five years from the date of conveyance. Assuming the applicability of this statutory provision
to the case at bar, it is indisputable that Private Respondent Anacleto Nool already repurchased
from DBP the contested properties. Hence, there was no more right of repurchase that his
sister Conchita or brothers Victorino and Francisco could exercise. The properties were already
owned by an heir of the homestead grantee and the rationale of the of the provision to keep
homestead lands within the family of the grantee was thus fulfilled.[27]
The claim of a trust relation is likewise without merit. The records show that private
respondents did not purchase the contested properties from DBP in trust for petitioners. The
former, as previously mentioned, in fact bought the land from DBP upon realization that the
latter could not validly sell the same. Obviously, petitioners bought it for themselves. There is
no evidence at all in the records that they bought the land in trust for private respondents. The
fact that Anacleto Nool was the younger brother of Conchita Nool and that they signed a
contract of repurchase, which as discussed earlier was void, does not prove the existence of an
implied trust in favor of petitioners.

Second Issue: No Estoppel in Impugning the

Validity of Void Contracts
Petitioners argue that when Anacleto Nool took the possession of the two hectares, more or
less, and let the other two hectares to be occupied and cultivated by plaintiffs-appellants,
Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon and his
actuation is within the ambit of estoppel x x x.[28] We disagree. The private respondents
cannot be estopped from raising the defense of nullity of contract, specially in this case where
they acted in good faith, believing that indeed petitioners could sell the two parcels of land in
question. Article 1410 of the Civil Code mandates that (t)he action or defense for the
declaration of the inexistence of a contract does not prescribe. It is well-settled doctrine that as
between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law
or it is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to
barter away what public policy by law seeks to preserve.[29] Thus, it is immaterial that private
respondents initially acted to implement the contract of sale, believing in good faith that the
same was valid. We stress that a contract void at inception cannot be validated by ratification
or prescription and certainly cannot be binding on or enforceable against private
respondents.[30]

Third Issue: Return of P30,000.00 with Interestand Payment of Rent

Petitioners further argue that it would be a miscarriage of justice to order them (1) to return
the sum of P30,000.00 to private respondents when allegedly it was Private Respondent
Anacleto Nool who owed the former a balance of P14,000.00 and (2) to order petitioners to pay
rent when they were allowed to cultivate the said two hectares.[31]
We are not persuaded. Based on the previous discussion, the balance of P14,000.00 under the
void contract of sale may not be enforced. Petitioners are the ones who have an obligation to
return what they unduly and improperly received by reason of the invalid contract of sale. Since
they cannot legally give title to what they sold, they cannot keep the money paid for the object
of the sale. It is basic that (e)very person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same.[32] Thus, if a void contract has already been
performed, the restoration of what has been given is in order.[33] Corollarily and as aptly
ordered by respondent appellate court, interest thereon will run only from the time of private
respondents demand for the return of this amount in their counterclaim.[34] In the same vein,
petitioners possession and cultivation of the two hectares are anchored on private respondents
tolerance. Clearly, the latters tolerance ceased upon their counterclaim and demand on the
former to vacate. Hence, their right to possess and cultivate the land ipso facto ceased.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals affirming
that of the trial court is hereby AFFIRMED.

SO ORDERED.
CLAUDIO DELOS REYES and LYDIA DELOS REYES, petitioners, vs. THE HON. COURT OF APPEALS
and DALUYONG GABRIEL, substituted by his heirs, namely: MARIA LUISA G. ESTEBAN, MARIA
RITA G. BARTOLOME & RENATO GABRIEL, respondents.

DECISION
GONZAGA-REYES, J.:

In this petition for review on certiorari, petitioners seek to set aside the Decision[1] of the Court
of Appeals[2] in CA-G.R. CV No. 36955 reversing the consolidated Decision[3] of the Regional
Trial Court, Branch I, Tagum, Davao del Norte in Civil Case Nos. 2326 and 2327.
This petition was originally filed with the Court on June 16, 1997. In a Resolution (of the Third
Division) dated October 13, 1997,[4] the petition was denied for failure to show that the
respondent Court of Appeals committed any reversible error. However, the motion for
reconsideration filed by petitioners on November 14, 1997 was granted by the Court in its
Resolution dated December 03, 1997[5] and the petition was reinstated.

The antecedents are:

1. Private respondent Daluyong Gabriel, (who died on September 14 1995 and was substituted
herein by his children RENATO GABRIEL, MARIA LUISA B. ESTEBAN and MARIA RITA G.
BARTOLOME) was the registered owner under Transfer Certificate of Title No. T-17932 of the
Registry of Deeds of Tagum, Davao del Norte of a 5,010 square meter parcel of land situated in
Barrio Magugpo, Tagum, Davao del Norte,[6] having acquired the same by hereditary
succession sometime in 1974 as one of the children and heirs of the late Maximo Gabriel.

2. Because Daluyong Gabriel together with his family was then residing in Mandaluyong, Metro
Manila, his sister Maria Rita Gabriel de Rey acted as administratrix of the said parcel of land and
took charge of collecting the rentals for those portions which have been leased to certain
tenants/lessees. One of these lessees is LYDIA DE LOS REYES who by virtue of a Contract of
Lease executed on June 21, 1985 by and between Maria Rita G. de Rey as lessor and Lydia de
los Reyes as lessee, leased a portion of One Hundred Seventy Six (176) square meters for a term
of one year beginning June 15, 1985 renewable upon agreement of the parties at the rental
rate of Two Hundred (P200.00) pesos, per month.[7]
3. Sometime in 1985 Daluyong Gabriel sent his son Renato Gabriel to Tagum reportedly with
instructions to take over from Maria Rita G. de Rey as administrator of the said parcel of land.
Upon agreement of the parties, the June 21, 1985 Contract of Lease covering the one hundred
seventy-six square meter portion of land was novated and replaced by a Contract of Lease
executed on September 26, 1985 by and between RENATO GABRIEL as Lessor and Lydia de los
Reyes as Lessee.[8] The term of the lease was changed to six (6) years from and after June 15,
1985 or up to June 15, 1991; receipt of the payment in advance of the total rental amount of
Fourteen Thousand Four Hundred (P14,400.00) Pesos was acknowledged by Lessor Renato
Gabriel.

4. Sometime in November 1987, during the effectivity of the lease contract, Lydia de los Reyes
verbally agreed to buy two hundred fifty (250) square meters (including the 176 square meters
leased by her), and thereafter an additional fifty (50) square meters or a total of three hundred
(300) square meters of Daluyong Gabriels registered property, at three hundred pesos
(P300.00) per square meter or for a total amount of P90,000.00. Receipt of the payment of the
purchase price made in several installments by Lydia de los Reyes was acknowledged by Renato
Gabriel as evidenced by official receipts issued and signed by him dated November 25, 1987,
November 26,1987, January 8, 1988, February 10, 1988, February 15, 1988 and February 29,
1988 all bearing the letter head Gabriel Building. No deed of sale was executed covering the
transaction. Purchaser Lydia de los Reyes however proceeded with the construction of a two-
storey commercial building on the said 300 square meter lot after obtaining a building permit
from the Engineers Office in Tagum.

5. Acting on the information given by his daughter Maria Luisa Gabriel Esteban upon the latters
return from a trip to Tagum that spouses Claudio and Lydia de los Reyes were constructing a
two-storey building on a portion of his land, Daluyong Gabriel, through his lawyer, sent a letter
on August 30, 1989 to the De los Reyes couple demanding that they cease and desist from
continuing with their construction and to immediately vacate the premises, asserting that the
construction was unauthorized and that their occupancy of the subject portion was not covered
by any lease agreement.

6. On September 20, 1989, spouses Claudio and Lydia de los Reyes through counsel sent their
letter reply explaining that the De los Reyeses are the innocent party who entered into the
lease agreement and subsequent sale of subject portion of land in good faith and upon the
assurance made by the former administratrix, Maria Rita G. Rey, her nephew Tony Rey, Mrs. Fe
S. Gabriel and Mr. Daluyong Gabriel himself that Renato Gabriel is the new administrator
authorized to enter into such agreements involving the subject property.
7. Dissatisfied with the explanation, Daluyong Gabriel commenced an action on November 14,
1989 against spouses Claudio and Lydia de los Reyes for the recovery of the subject portion of
land before the Regional Trial Court, Branch 1, Tagum, Davao del Norte docketed as Civil Case
No. 2326. In his complaint Daluyong maintained that his son Renato was never given the
authority to lease nor to sell any portion of his land as his instruction to him (Renato) was
merely to collect rentals.

8. Spouses Claudio and Lydia delos Reyes countered that the sale to them of the subject portion
of land by Renato Gabriel was with the consent and knowledge of Daluyong, his wife Fe and
their other children, and filed before the same trial court a complaint for specific performance,
docketed as Civil Case No. 2329 against Daluyong and his children, namely Renato Gabriel,
Maria Luisa Gabriel Esteban and Maria Rita Gabriel Bartolome praying that the defendants
therein be ordered to execute the necessary deed of conveyance and other pertinent
documents for the transfer of the 300 square meter portion they previously bought from
Renato.

9. Civil Case Nos. 2326 and 2327 were heard jointly and on September 10, 1991 the trial court
rendered a consolidated decision, the dispositive portion[9] of which reads:

WHEREFORE premises considered, Daluyong Gabriel, Renato Gabriel, Maria Luisa Esteban and
Maria Rita G. Bartolome are hereby ordered to execute a Deed of Conveyance and other
necessary documents in favor of Claudio delos Reyes and Lydia delos Reyes over an area of 300
square meters from TCT No. T-17932 comprising of 5,010 square meters located at Tagum,
Davao which portion is presently occupied by Delos Reyes couple.

SO ORDERED

10. On appeal by the Gabriels, the Court of Appeals reversed and set aside the decision of the
Regional Trial Court and rendered a new one ORDERING appellee spouses Claudio and Lydia
delos Reyes to immediately vacate the 300 square meter portion of that land covered by TCT
No. T-17932 which they presently occupy and to turn over possession thereof to the appellants.
x x x x[10]
Not satisfied with the decision of the Court of Appeals, petitioners came to this Court by way of
petition for review, alleging that:

a. The Court of Appeals gravely abused its discretion in overlooking facts extant in the record;

b. The Court of Appeals erred in not finding the document of sale and receipts (exhibits for the
herein Petitioners), as valid and enforceable;

c. The Court of Appeals erred in its apprehension and appreciation of the undisputed facts for
the Petitioners;

d. The Court of Appeals erred in making speculative conclusions on the facts of the case;

e. The Court of Appeals erred in reversing the Decision of the Regional Trial Court based on
credible, relevant and material evidence adduced by the Petitioners in the lower court.[11]

Petitioners aver that respondent Court of Appeals gravely abused its discretion when it totally
disregarded the oral and documentary evidence adduced by appellees, and in giving credence
to the oral testimonies of appellants, which are replete with inconsistencies and contradictions.
Petitioners cite specifically Exhibits 1 to 19 consisting of a contract of lease involving the subject
property and certain official receipts with the letterhead Gabriel Building showing payments
received (by Renato Gabriel) for the lease and/or sale of portions of subject real property of
Daluyong Gabriel e.g. sale by installment of portion (700 square meters) of land to spouses
Ruben Carriedo and Abdula Sanducan (Exhs. 13, 14, 15 & 16) and lease (Exhs. 3-3-BBBB, 5, 6 &
7) and sale (Exhs. 8, 9, 10, 11 & 12) of land made by Renato Gabriel to petitioners-spouses. In
other words, respondent Court of Appeals gravely abused its discretion in the misapprehension
and misappreciation of the facts of the case and in going beyond the issues involved contrary to
the admissions of both the appellants and appellees. And since the appellate courts findings of
facts contradict that of the trial court a thorough review thereof by the Supreme Court is
necessary.
In their Comment, private respondents restated their arguments to support the appellate
courts conclusion that the alleged sale made by Renato Gabriel to the petitioners in 1987
without authority from Daluyong Gabriel is not valid and therefore unenforceable.
Petitioners submitted their Reply to the Comment contending that the assailed decision of the
Court of Appeals is patently fallacious in that while petitioners payment to Renato Gabriel of
the amount of P90,000.00 as purchase price of the three hundred (300) square meter portion
of subject land was neither denied nor controverted, the appellate courts decision failed to
order private respondent Renato Gabriel to refund or reimburse petitioners the said amount
together with the value of the improvements and the two-storey commercial building which
petitioners constructed thereon in violation of Articles 2142, 2143 and 2154 of the Civil Code
and the time-honored principle of substantial justice and equity.
Petitioners allege further that even if Renato Gabriel was not (yet) the owner of the subject
portion of land when he sold the same to petitioners, after the death of his parents Daluyong
and Fe Gabriel, he, as heir, inherited and succeeded to the ownership of said portion of land by
operation of law thereby rendering valid and effective the sale he executed in favor of
petitioners. Petitioners also maintain that on the basis of the facts proven and admitted during
the trial, Daluyong Gabriel appears to have not only authorized his son Renato Gabriel to sell
the subject portion of land but also ratified the transaction by his contemporaneous conduct
and actuations shown during his lifetime.
In their respective memorandum submitted by petitioners and private respondents,
substantially the same arguments/contentions were raised. Petitioners maintain that the sale is
valid or validated pursuant to Articles 1433 and 1434 of the Civil Code and identified the legal
issues involved as follows:

1. Whether or not the sale by respondent Renato Gabriel of the land registered in the name of
his deceased father Daluyong Gabriel, during the lifetime of the latter, in favor of the herein
petitioners, by operation of law, automatically vests title on the latter under the principle of
estoppel as provided for in Arts. 1433 and 1434 of the New Civil Code;

2. Whether or not the sale by Renato Gabriel of the land registered in the name of his deceased
father during the lifetime of the latter, to the herein petitioners is null and void.[12]

On the other hand, private respondents contend that the petition has no legal or factual basis.
It is argued that petitioners changed their theory of the case in that while in the regional trial
court, petitioners claim that the subject property was sold to them by the late Daluyong Gabriel
through his son Renato Gabriel, in the instant petition, they claim that it was Renato Gabriel
who sold the property to them and that although at that time, Renato was not yet the owner of
the property, he is nonetheless obligated to honor the sale and to convey the property to the
petitioners because after the death of Daluyong Gabriel, Renato became the owner of the
subject property by way of hereditary succession. According to private respondents, litigants
are barred from changing their theory, more especially so in the appeal, and that the only issue
to be resolved in the instant petition is whether or not Renato Gabriel can be compelled to
convey the subject property to petitioners. Private respondents maintain that Renato Gabriel
cannot be compelled to convey subject property (to petitioners) because the land never passed
on to Renato either before or after the death of Daluyong Gabriel and that the whole property
is now owned by Ma. Rita G. Bartolome per Transfer Certificate of Title No. T-68674 entered in
the Registry of Deeds of Davao del Norte on January 10, 1991.[13] In short, Renato Gabriel
cannot convey that which does not belong to him.[14]
Essentially, the issue here is whether or not the verbal agreement which petitioners entered
into with private respondent Renato Gabriel in 1987 involving the sale of the three hundred
(300) square meter portion of land registered in the name of Renatos late father Daluyong
Gabriel is a valid and enforceable contract of sale of real property.
By law[15] a contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. It is a consensual contract which is
perfected by mere consent.[16] Once perfected, the contract is generally binding in whatever
form (i.e. written or oral) it may have been entered into[17] provided the three (3) essential
requisites for its validity prescribed under Article 1318 supra, are present. Foremost of these
requisites is the consent and the capacity to give consent of the parties to the contract. The
legal capacity of the parties is an essential element for the existence of the contract because it
is an indispensable condition for the existence of consent.[18] There is no effective consent in
law without the capacity to give such consent. In other words, legal consent presupposes
capacity.[19] Thus, there is said to be no consent, and consequently, no contract when the
agreement is entered into by one in behalf of another who has never given him authorization
therefor[20] unless he has by law a right to represent the latter.[21] It has also been held that if
the vendor is not the owner of the property at the time of the sale, the sale is null and void,[22]
because a person can sell only what he owns or is authorized to sell.[23] One exception is when
a contract entered into in behalf of another who has not authorized it, subsequently confirmed
or ratified the same in which case, the transaction becomes valid and binding against him and
he is estopped to question its legality.[24]
The trial court held that the oral contract of sale was valid and enforceable stating that while it
is true that at the time of the sale, Renato Gabriel was not the owner and that it was Daluyong
Gabriel who was the registered owner of the subject property, Daluyong Gabriel knew about
the transaction and tacitly authorized his son Renato Gabriel (whom he earlier designated as
administrator of his 5,010 square meter registered property) to enter into it. The receipt by
Renato Gabriel of the P90,000.00 paid by petitioner spouses as purchase price of subject
portion of land[25] and also of the amount of P14,400.00 paid by petitioners as advance rental
fee for the lease of one hundred seventy six (176) square meters thereof, in accordance with
the then still existing Contract of Lease (Exh. 10) entered into by Renato Gabriel as Lessor and
Lydia delos Reyes as lessee on September 26 1985 which was to expire only on June 15, 1991
was also known not only to Daluyong Gabriel but also to his late wife Fe Salazar Gabriel and his
two other children, Maria Luisa Gabriel Esteban and Maria Rita Gabriel Bartolome. And even
assuming that Daluyong Gabriel did not expressly authorize Renato Gabriel to enter into such
contract of sale with petitioners in 1988, he (Daluyong Gabriel) confirmed/ratified the same by
his contemporaneous conduct and actuations shown during his lifetime. More importantly, the
trial court noted that Daluyong never presented Renato during the entire proceedings, despite
evidence[26] which tends to show that Renato Gabriel was not missing nor were his
whereabouts unknown as Daluyong wanted to impress the trial court, but had all the while
been staying at the Daluyong Gabriel residence at 185 I. Lopez St., Mandaluyong City but was
deliberately prevented (by Daluyong) from testifying or shedding light on the transactions
involved in the two cases then at bar. Hence, the decision of the trial court ordered Daluyong
Gabriel, Renato Gabriel, Maria Luisa G. Esteban and Maria Rita G. Bartolome to execute a Deed
of Conveyance and other necessary documents in favor of petitioners covering subject area of
300 square meters to be taken from the 5,010 square meters covered by TCT No. T-17932
under the name of Daluyong Gabriel which portion is actually occupied by petitioners Delos
Reyes couple.
The Court of Appeals, on the other hand, ruled that the contract of sale cannot be upheld,
mainly because Renato Gabriel, as vendor, did not have the legal capacity to enter and to give
consent to the agreement, he, being neither the authorized agent (of Daluyong Gabriel) nor the
owner of the property subject of the sale. It was pointed out that three theories were advanced
by appellees to prove that the transaction they had with Renato concerning the sale of the
portion in question was regular, valid and enforceable. First theory is that Renato acted as the
duly authorized representative or agent of Daluyong. Second, that the portion in dispute was
already given to Renato as his share, hence, he validly sold the same to appellees. And third,
that the portion being litigated was part of Renatos inheritance from the estate of her deceased
mother which he validly disposed of to appellees. These reasons, according to the appellate
court, cannot go together, or even complement each other, to establish the regularity, validity
or enforceability of the sale made by Renato. It could not be possible for Renato to have acted
in three different capacities - as agent, owner, and heir - when he dealt with appellees, as the
legal consequences for each situation would be different. Thus, it was incumbent upon
appellees to explain what actually convinced them to buy the land from Renato, and because
they failed to do so, no proper basis can be found to uphold the alleged sale made by Renato as
it cannot be determined with certainty in what capacity Renato acted. And even assuming that
he (Renato) already succeeded to whatever hereditary right or participation he may have over
the estate of his father, he is still considered a co-owner with his two sisters of the subject
property and that prior to its partition, Renato cannot validly sell or alienate a specific or
determinate part of the property owned in common. Besides, the entire lot covered by TCT No.
T-17932 was subsequently donated by Daluyong Gabriel to his daughter Marie Rita G.
Bartolome on October 1, 1990 and is now covered by TCT No. T-68674 in her name.[27] Hence,
the appellate courts decision ordered appellees (petitioners) spouses Claudio and Lydia delos
Reyes to immediately vacate the 300 square meter portion of that land covered by TCT No. T-
17932 which they are occupying and to turn-over possession thereof to the appellants, private
respondents herein.
As a general rule, the findings of fact of the Court of Appeals are binding upon this Court.[28]
When such findings of fact are the same and confirmatory of those of the trial court, they are
final and conclusive and may not be reviewed on appeal,[29] In such cases, the authority of the
Supreme Court is confined to correcting errors of law, if any, that might have been committed
below.[30] In the instant case, it is noted that the trial court and the Court of Appeals are not at
variance in their factual findings that sometime in 1988, an oral contract of sale was entered
into by Renato Gabriel, (as vendor) with petitioners De los Reyes couple (as vendees) involving
a 300 square meter portion of a 5,010 square meter parcel of land located in Barrio Magugpo,
Tagum, Davao del Norte owned and registered under Transfer Certificate of Title No. T-17932 in
the name of Daluyong Gabriel, father of Renato. Thus, this Court is tasked to review and
determine whether or not respondent Court of Appeals committed an error of law[31] in its
legal conclusion that at the time the parties entered into said oral agreement of sale, Renato
Gabriel as the purported vendor, did not have the legal capacity to enter and/or to give consent
to the sale.
We agree with the conclusion of the Court of Appeals that Renato Gabriel was neither the
owner of the subject property nor a duly designated agent of the registered owner (Daluyong
Gabriel) authorized to sell subject property in his behalf, and there was also no sufficient
evidence adduced to show that Daluyong Gabriel subsequently ratified Renatos act. In this
connection it must be pointed out that pursuant to Article 1874 of the Civil Code, when the sale
of a piece of land or any interest therein is through an agent, the authority of the latter shall be
in writing; otherwise the sale shall be void. In other words, for want of capacity (to give
consent) on the part of Renato Gabriel, the oral contract of sale lacks one of the essential
requisites for its validity prescribed under Article 1318, supra and is therefore null and void ab
initio.
Petitioners contention that although at the time of the alleged sale, Renato Gabriel was not yet
the owner of the subject portion of land, after the death of Daluyong Gabriel, he (Renato)
became the owner and acquired title thereto by way of hereditary succession which title
passed by operation of law to petitioners pursuant to Article 1434 of the Civil Code[32] is not
tenable. Records show that on October 1, 1990 Daluyong Gabriel donated the entire lot
covered by TCT No. T-17932 to his daughter Maria Rita G. Bartolome and the property is now
covered by TCT No. T-68674 in her name. This means that when Daluyong Gabriel died on
September 14, 1995, he was no longer the owner of the subject property. Accordingly, Renato
Gabriel never acquired ownership or title over any portion of said property as one of the heirs
of Daluyong Gabriel.
However, respondent Court of Appeals failed to consider the undisputed fact pointed out by
the trial court that petitioners had already performed their obligation under subject oral
contract of sale, i.e. completing their payment of P90,000.00 representing the purchase price of
the 300 square meter portion of land. As was held in Nool vs. Court of Appeals[33] if a void
contract has been performed, the restoration of what has been given is in order. The
relationship between parties in any contract even if subsequently voided must always be
characterized and punctuated by good faith and fair dealing.[34] Hence, for the sake of justice
and equity, and in consonance with the salutary principle of non-enrichment at anothers
expense,[35] private respondent Renato Gabriel, should be ordered to refund to petitioners the
amount of P90,000.00 which they have paid to and receipt of which was duly acknowledged by
him. It is the policy of the Court to strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future litigation especially where the Court is in a
position to resolve the dispute based on the records before it and where the ends of justice
would not likely be subserved by the remand thereof, to the lower Court. The Supreme Court is
clothed with ample authority to review matters, even those not raised on appeal if it finds that
their consideration is necessary in arriving at a just disposition of the case.[36]
However, petitioners claim for the refund to them of P1,000,000.00 representing the alleged
value and cost of the two-storey commercial building they constructed on subject portion of
land cannot be favorably considered as no sufficient evidence was adduced to prove and
establish the same.

WHEREFORE, the decision of the Court of Appeals dated April 30, 1997 in CA-G.R. CV No. 36955
is hereby AFFIRMED in so far as it declared the oral contract of sale entered into by Renato
Gabriel of portion of the 5,010 square meter parcel of land registered in the name of Daluyong
Gabriel in favor of petitioners, null and void. Renato Gabriel is hereby ordered to refund to
petitioners the amount of P90,000.00 which was given in payment for subject land. No
pronouncement as to costs.

SO ORDERED.
JESPAJO REALTY CORPORATION, petitioner, vs. HON. COURT OF APPEALS, TAN TE GUTIERREZ
and CO TONG, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
review and set aside the decision of the Court of Appeals promulgated on January 26, 1994 in
CA-G.R. SP No. 27312[1] which reversed the decision of the Regional Trial Court in Civil Case No.
91-57757[2] and reinstated the Metropolitan Trial Court rulings in Civil Case No. 134022-CV,
entitled, Jespajo Realty Corp., Plaintiff, vs. Tan Te Gutierrez and Co Tong, Defendants.[3]

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

The subject of this controversy is an apartment building located at 619 Asuncion Street,
Binondo, Manila and owned by Jespajo Realty Corporation. On February 1, 1985, said
corporation, represented by its President, Jesus L. Uy, entered into separate contracts of lease
with Tan Te Gutierrez and Co Tong.xxx Pursuant to the contract, Tan Te occupied room No. 217
of the subject building at a monthly rent of P847.00 while Co Teng occupied the Penthouse at a
monthly rent of P910.00xxx The terms of the contract among others are the following:

PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and shall continue
for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals.
The LESSEE may, at his option, terminate this contract any time by giving sixty (60) days prior
written notice of termination to the LESSOR.

However, violation of any of the terms and conditions of this contract shall be a sufficient
ground for termination thereof by the LESSOR.

xxx xxx xxx

RENT INCREASE - For the duration of this contract, the LESSEE agrees to an automatic 20%
yearly increase in the monthly rentals.

Since the effectivity of the lease agreement on February 1985, the lessees religiously paid their
respective monthly rentals together with the 20% yearly increased (sic) in the monthly rentals
as stipulated in the contract. On January 2, 1990, the lessor corporation sent a written notice to
the lessees informing them of the formers intention to increase the monthly rentals on the
occupied premises to P3,500.00 monthly effective February 1, 1990. The lessees through its
counsel in a letter dated March 10, 1990 xxx manifested their opposition alleging that the same
is in contravention of the terms of the contract of lease as agreed upon. Due to the opposition
and the failure of the lessees to pay the increased monthly rentals in the amount of P3,500.00,
the lessor through its counsel in a letter dated April 10,1990 xxx demanded that the lessees
vacate the premises and pay the amount of P7,000.00 corresponding to the months of February
and March, 1990.

The lessees exerted effort to pay the rentals due for the months of February and March 1990 at
the monthly rate stipulated in the contract but was refused by the lessor so that on May 2,
1990, they instituted before the Metropolitan Trial Court of Manila, Branch 16 a case for
consignation xxx

In the said complaint, plaintiffs alleged that the amount of P2,107.60 and P2,264.40 are the
monthly rental obligations of Tan Te and Co Tong respectively. They sought to consign with the
court their monthly rental obligations at the rate above mentioned for the months of February
up to April 1990. Additionally, they prayed that the court issue an order directing the defendant
to honor the terms and conditions of the lease.

It is to be noted that on February 6, 1991, the trial judge in the consignation case issued an
order allowing the plaintiffs therein to deposit with the City Treasurer of Manila the amount of
P33,480.28 for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez representing their
respective rentals for thirteen (13) months from February, 1990 to January, 1991. This order
however is without prejudice to the final outcome of the case. Plaintiffs duly complied with the
order as evidenced by an official receipts (sic) xxx in the name of Tan Te Gutierrez and Co Tong,
respectively, issued by the City Treasurer on February 11, 1991.

On November 15, 1990, or more than six (6) months from the filing of the case for consignation,
the lessor instituted an ejectment suit against the lessees before the Metropolitan Trial Court of
Manila Branch 20 xxx. The court in its decision dated May 10, 1991 rendered a decision
dismissing the ejectment suit for lack of merit. xxx[4]

Portions of the MTC decision read:

Furthermore, it appears that the plaintiff realizing that it had virtually surrendered certain
aspects of its rights of ownership over the subject premises in stipulating that the lease shall
continue for an indefinite period provided the LESSEE is up-to-date in the payment of his
monthly rentals, has raised the monthly rental to P3,500.00 which is much higher than the
correct rental in accordance with their stipulated 20% automatic increase annually. This was
done by the plaintiff apparently in order to create an artificial cause of action, as when the
LESSEES would refuse, as in fact they refused, to pay the monthly rentals at the increase rate.
This pretext of the plaintiff cannot be countenanced by law.

Anent the final issue as to whether or not the defendants are already in arrears in the payment
of rentals on the premises, it is noteworthy that the instant case for Unlawful Detainer was filed
by the plaintiff-LESSOR herein only on November 15, 1990, while the LESSEES consignation case
against the LESSOR-plaintiff herein based on the latters refusal to accept the rentals have been
pending with Branch XVI of this Court since May 2, 1990. And, in accordance with the
consignation case, the LESSEES, upon proper motion approved by the Court, deposited the
amounts of P33,480.28 covered by O.R. No. B-578503 (for CO TONG) and P32,710.32 covered
by O.R. B-578502 (for TAN TE GUTIERREZ) both receipts dated February 11, 1991.

IN VIEW OF THE FOREGOING, and after careful scrutiny of the entire record including all
documentary evidence adduced by both parties, this Court is of the opinion and so holds that
the plaintiff (Jespajo Realty Corporation) has failed to establish its claims by preponderance of
evidence.

WHEREFORE, this case is hereby dismissed for utter lack of merit. The counterclaim is likewise
dismissed for lack of evidence to support the same. No pronouncement as to costs.

SO ORDERED.[5]
Jespajo Realty Corporation then appealed to the Regional Trial Court which ruled in its favor,
thus:

The Court is fully convinced that the sum demanded by appellant as increase in appellees
monthly rentals to the premises which they are renting from appellant is very reasonable
considering that the leased premises are located in the commercial and business section of
Manila in Binondo. It is also undisputed that appellant has a 24-hour security unit over the
property as well as parking spaces and provisions for electricity, water and telephone services.

In the light of the foregoing, the Court is constrained to reverse the appealed decision and
hereby orders another judgment to be entered in favor of appellant.

WHEREFORE, PREMISES CONSIDERED, judgment is rendered as follows:

1. Reversing the decision of the court a quo insofar as it dismissed appellants complaint;

2. Declaring the termination or revocation [of the] lease contracts Annexes A and A-1,
Complaint executed between appellant and appellees;

3. Ordering appellees, their heirs and all other persons acting for and in their behalf to vacate
and surrender immediately the lease premises to appellant;

4. Adjudging appellees to pay unto appellant their rental arrearages of P57,426.45 for appellee
(Tan Te Gutierrez) and P56,153.75 for appellee (Co Tong) as of April 30, 1991 and thereafter
each appellee is ordered to pay also appellant the sum of P3,500.00 every month starting May
1, 1991 until they shall have fully vacated and surrendered the leased premises;

5. Appellees are likewise adjudged to pay the sum of P10,000.00 as and for attorneys fees, and

6. The costs of suit.

SO ORDERED.[6]

However, said RTC decision was reversed by the Court of Appeals in the herein assailed
decision, portions of which read:

Be that as it may, We find that it was the private respondent who, in fact, violated the lease
agreement by charging petitioners a monthly rental of P3,500.00, well in excess of the rental
stipulated in the lease contract. We see in the refusal of private respondent to accept the rental
being offered by petitioners, a scheme to place petitioners in default of their rental payments.
However, said scheme was waylaid by petitioners consignation of the rentals due from them.

In view of the foregoing discussion, We find no more necessity in discussing the last two (2)
errors raised in the petition. We likewise find that the respondent court committed an error of
fact and law in reversing the decision of the Metropolitan Trial Court of Manila and in arriving
at the decision under review.

WHEREFORE, the decision under review is hereby REVERSED and SET ASIDE. The decision dated
May 10, 1991 of the Metropolitan Trial Court of Manila, Branch XX which dismissed Civil Case
No. 134022 CV for lack of merit is hereby REINSTATED. No pronouncement as to costs.

SO ORDERED.[7]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA,
respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV
No. 37392 affirming in toto that of the Regional Trial Court of Makati, Branch 139,[2] which
dismissed the complaint filed by petitioner Bank of the Philippine Islands against private
respondent Benjamin C. Napiza for sum of money. Sdaad

On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU)
Savings Account No. 028-187[3] which he maintained in petitioner banks Buendia Avenue
Extension Branch, Continental Bank Managers Check No. 00014757[4] dated August 17, 1984,
payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly
endorsed by private respondent on its dorsal side.[5] It appears that the check belonged to a
certain Henry Chan who went to the office of private respondent and requested him to deposit
the check in his dollar account by way of accommodation and for the purpose of clearing the
same. Private respondent acceded, and agreed to deliver to Chan a signed blank withdrawal
slip, with the understanding that as soon as the check is cleared, both of them would go to the
bank to withdraw the amount of the check upon private respondents presentation to the bank
of his passbook.

Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one
Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account
No. 028-187. Notably, the withdrawal slip shows that the amount was payable to Ramon A. de
Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant manager,
Teresita Lindo.[6]

On November 20, 1984, petitioner received communication from the Wells Fargo Bank
International of New York that the said check deposited by private respondent was a
counterfeit check[7] because it was "not of the type or style of checks issued by Continental
Bank International."[8] Consequently, Mr. Ariel Reyes, the manager of petitioners Buendia
Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is
private respondents son, to inform his father that the check bounced.[9] Reyes himself sent a
telegram to private respondent regarding the dishonor of the check. In turn, private
respondents son wrote to Reyes stating that the check had been assigned "for encashment" to
Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared upon
instruction of Chan. He also said that upon learning of the dishonor of the check, his father
immediately tried to contact Chan but the latter was out of town.[10]

Private respondents son undertook to return the amount of $2,500.00 to petitioner bank. On
December 18, 1984, Reyes reminded private respondent of his sons promise and warned that
should he fail to return that amount within seven (7) days, the matter would be referred to the
banks lawyers for appropriate action to protect the banks interest.[11] This was followed by a
letter of the banks lawyer dated April 8, 1985 demanding the return of the $2,500.00.[12]

In reply, private respondent wrote petitioners counsel on April 20, 1985[13] stating that he
deposited the check "for clearing purposes" only to accommodate Chan. He added:

"Further, please take notice that said check was deposited on September 3, 1984 and
withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed at the time of
withdrawal. Also, it may not be amiss to mention here that I merely signed an authority to
withdraw said deposit subject to its clearing, the reason why the transaction is not reflected in
the passbook of the account. Besides, I did not receive its proceeds as may be gleaned from the
withdrawal slip under the captioned signature of recipient.

If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic)
still exerting utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable
under the circumstances. Scsdaad

xxx......xxx......xxx."

On August 12, 1986, petitioner filed a complaint against private respondent, praying for the
return of the amount of $2,500.00 or the prevailing peso equivalent plus legal interest from
date of demand to date of full payment, a sum equivalent to 20% of the total amount due as
attorney's fees, and litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip
with the understanding that the amount deposited would be withdrawn only after the check in
question has been cleared. He likewise alleged that he instructed the party to whom he issued
the signed blank withdrawal slip to return it to him after the bank drafts clearance so that he
could lend that party his passbook for the purpose of withdrawing the amount of $2,500.00.
However, without his knowledge, said party was able to withdraw the amount of $2,541.67
from his dollar savings account through collusion with one of petitioners employees. Private
respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the
bank draft in question." Petitioner should have disallowed the withdrawal because his passbook
was not presented. He claimed that petitioner had no one to blame except itself "for being
grossly negligent;" in fact, it had allegedly admitted having paid the amount in the check "by
mistake" x x x "if not altogether due to collusion and/or bad faith on the part of (its)
employees." Charging petitioner with "apparent ignorance of routine bank procedures," by way
of counterclaim, private respondent prayed for moral damages of P100,000.00, exemplary
damages of P50,000.00 and attorneys fees of 30% of whatever amount that would be awarded
to him plus an honorarium of P500.00 per appearance in court.

Private respondent also filed a motion for admission of a third party complaint against Chan. He
alleged that "thru strategem and/or manipulation," Chan was able to withdraw the amount of
$2,500.00 even without private respondents passbook. Thus, private respondent prayed that
third party defendant Chan be made to refund to him the amount withdrawn and to pay
attorneys fees of P5,000.00 plus P300.00 honorarium per appearance.

Petitioner filed a comment on the motion for leave of court to admit the third party complaint,
wherein it asserted that per paragraph 2 of the Rules and Regulations governing BPI savings
accounts, private respondent alone was liable "for the value of the credit given on account of
the draft or check deposited." It contended that private respondent was estopped from
disclaiming liability because he himself authorized the withdrawal of the amount by signing the
withdrawal slip. Petitioner prayed for the denial of the said motion so as not to unduly delay
the disposition of the main case asserting that private respondents claim could be ventilated in
another case.

Private respondent replied that for the parties to obtain complete relief and to avoid
multiplicity of suits, the motion to admit third party complaint should be granted. Meanwhile,
the trial court issued orders on August 25, 1987 and October 28, 1987 directing private
respondent to actively participate in locating Chan. After private respondent failed to comply,
the trial court, on May 18, 1988, dismissed the third party complaint without prejudice.

On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held
that petitioner could not hold private respondent liable based on the checks face value alone.
To so hold him liable "would render inutile the requirement of clearance from the drawee bank
before the value of a particular foreign check or draft can be credited to the account of a
depositor making such deposit." The lower court further held that "it was incumbent upon the
petitioner to credit the value of the check in question to the account of the private respondent
only upon receipt of the notice of final payment and should not have authorized the withdrawal
from the latters account of the value or proceeds of the check." Having admitted that it
committed a "mistake" in not waiting for the clearance of the check before authorizing the
withdrawal of its value or proceeds, petitioner should suffer the resultant loss. Supremax

On appeal, the Court of Appeals affirmed the lower courts decision. The appellate court held
that petitioner committed "clear gross negligence" in allowing Ruben Gayon, Jr. to withdraw
the money without presenting private respondents passbook and, before the check was cleared
and in crediting the amount indicated therein in private respondents account. It stressed that
the mere deposit of a check in private respondents account did not mean that the check was
already private respondents property. The check still had to be cleared and its proceeds can
only be withdrawn upon presentation of a passbook in accordance with the banks rules and
regulations. Furthermore, petitioners contention that private respondent warranted the checks
genuineness by endorsing it is untenable for it would render useless the clearance requirement.
Likewise, the requirement of presentation of a passbook to ascertain the propriety of the
accounting reflected would be a meaningless exercise. After all, these requirements are
designed to protect the bank from deception or fraud.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,[14] where
this Court stated that a personal check is not legal tender or money, and held that the check
deposited in this case must be cleared before its value could be properly transferred to private
respondent's account.

Without filing a motion for the reconsideration of the Court of Appeals Decision, petitioner filed
this petition for review on certiorari, raising the following issues:
1.......WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A
GENERAL INDORSER.

2.......WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT

NAPIZA AND RUBEN GAYON.

3.......WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE

WITHDRAWAL.

Petitioner claims that private respondent, having affixed his signature at the dorsal side of the
check, should be liable for the amount stated therein in accordance with the following
provision of the Negotiable Instruments Law (Act No. 2031):

"SEC. 66. Liability of general indorser. Every indorser who indorses without qualification,
warrants to all subsequent holders in due course

(a)......The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
section; and

(b)......That the instrument is at the time of his indorsement, valid and subsisting.

And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as
the case may be, according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it."

Section 65, on the other hand, provides for the following warranties of a person negotiating an
instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in all
respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties had
capacity to contract.[15] In People v. Maniego,[16] this Court described the liabilities of an
indorser as follows: Juris
"Appellants contention that as mere indorser, she may not be liable on account of the dishonor
of the checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee
of a negotiable instrument has the right to enforce payment of the instrument for the full
amount thereof against all parties liable thereon. Among the parties liable thereon is an
indorser of the instrument, i.e., a person placing his signature upon an instrument otherwise
than as a maker, drawer or acceptor * * unless he clearly indicated by appropriate words his
intention to be bound in some other capacity. Such an indorser who indorses without
qualification, inter alia engages that on due presentment, * * (the instrument) shall be accepted
or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder,
or any subsequent indorser who may be compelled to pay it. Maniego may also be deemed an
accommodation party in the light of the facts, i.e., a person who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person. As such, she is under the law liable on the instrument
to a holder for value, notwithstanding such holder at the time of taking the instrument knew *
* (her) to be only an accommodation party, although she has the right, after paying the holder,
to obtain reimbursement from the party accommodated, since the relation between them is in
effect that of principal and surety, the accommodation party being the surety."

It is thus clear that ordinarily private respondent may be held liable as an indorser of the check
or even as an accommodation party.[17] However, to hold private respondent liable for the
amount of the check he deposited by the strict application of the law and without considering
the attending circumstances in the case would result in an injustice and in the erosion of the
public trust in the banking system. The interest of justice thus demands looking into the events
that led to the encashment of the check.

Petitioner asserts that by signing the withdrawal slip, private respondent "presented the
opportunity for the withdrawal of the amount in question." Petitioner relied "on the genuine
signature on the withdrawal slip, the personality of private respondents son and the lapse of
more than fifty (50) days from date of deposit of the Continental Bank draft, without the same
being returned yet."[18] We hold, however, that the propriety of the withdrawal should be
gauged by compliance with the rules thereon that both petitioner bank and its depositors are
duty-bound to observe.

In the passbook that petitioner issued to private respondent, the following rules on withdrawal
of deposits appear:
"4.......Withdrawals must be made by the depositor personally but in some exceptional
circumstances, the Bank may allow withdrawal by another upon the depositors written
authority duly authenticated; and neither a deposit nor a withdrawal will be permitted except
upon the presentation of the depositors savings passbook, in which the amount deposited
withdrawn shall be entered only by the Bank.

5.......Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account
at the request of the depositor in writing on the withdrawal slip or by authenticated cable. Such
request must indicate the name of the payee/s, amount and the place where the funds are to
be paid. Any stamp, transmission and other charges related to such withdrawals shall be for the
account of the depositor and shall be paid by him/her upon demand. Withdrawals may also be
made in the form of travellers checks and in pesos. Withdrawals in the form of notes/bills are
allowed subject however, to their (availability).

6.......Deposits shall not be subject to withdrawal by check, and may be withdrawn only in the
manner above provided, upon presentation of the depositors savings passbook and with the
withdrawal form supplied by the Bank at the counter."[19] Scjuris

Under these rules, to be able to withdraw from the savings account deposit under the
Philippine foreign currency deposit system, two requisites must be presented to petitioner
bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the
depositors passbook. Private respondent admits that he signed a blank withdrawal slip
ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the
payee, the amount to be withdrawn and the place where such withdrawal should be made.
That the withdrawal slip was in fact a blank one with only private respondents two signatures
affixed on the proper spaces is buttressed by petitioners allegation in the instant petition that
had private respondent indicated therein the person authorized to receive the money, then
Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner contends that "(i)n failing to
do so (i.e., naming his authorized agent), he practically authorized any possessor thereof to
write any amount and to collect the same."[20]

Such contention would have been valid if not for the fact that the withdrawal slip itself
indicates a special instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes
C. de Guzman." Such being the case, petitioners personnel should have been duly warned that
Gayon, who was also employed in petitioners Buendia Ave. Extension branch,[21] was not the
proper payee of the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman
should have issued another authority to Gayon for such withdrawal. Of course, at the dorsal
side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can
withdraw the amount indicated in the check. Private respondent does not deny having signed
such authority. However, considering petitioners clear admission that the withdrawal slip was a
blank one except for private respondents signature, the unavoidable conclusion is that the
typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by
Gayon or whoever was allowed by petitioner to withdraw the amount. Under these facts, there
could not have been a principal-agent relationship between private respondent and Gayon so
as to render the former liable for the amount withdrawn.

Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be
signed and presented with the corresponding foreign currency savings passbook by the
depositor in person. For withdrawals thru a representative, depositor should accomplish the
authority at the back." The requirement of presentation of the passbook when withdrawing an
amount cannot be given mere lip service even though the person making the withdrawal is
authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so that,
for the protection of the banks interest and as a reminder to the depositor, the withdrawal shall
be entered in the depositors passbook. The fact that private respondents passbook was not
presented during the withdrawal is evidenced by the entries therein showing that the last
transaction that he made with the bank was on September 3, 1984, the date he deposited the
controversial check in the amount of $2,500.00.[22]

In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the
passbook. Thus:

"2.......All deposits will be received as current funds and will be repaid in the same manner;
provided, however, that deposits of drafts, checks, money orders, etc. will be accepted as
subject to collection only and credited to the account only upon receipt of the notice of final
payment. Collection charges by the Banks foreign correspondent in effecting such collection
shall be for the account of the depositor. If the account has sufficient balance, the collection
shall be debited by the Bank against the account. If, for any reason, the proceeds of the
deposited checks, drafts, money orders, etc., cannot be collected or if the Bank is required to
return such proceeds, the provisional entry therefor made by the Bank in the savings passbook
and its records shall be deemed automatically cancelled regardless of the time that has elapsed,
and whether or not the defective items can be returned to the depositor; and the Bank is
hereby authorized to execute immediately the necessary corrections, amendments or changes
in its record, as well as on the savings passbook at the first opportunity to reflect such
cancellation." (Italics and underlining supplied.) Jurissc
As correctly held by the Court of Appeals, in depositing the check in his name, private
respondent did not become the outright owner of the amount stated therein. Under the above
rule, by depositing the check with petitioner, private respondent was, in a way, merely
designating petitioner as the collecting bank. This is in consonance with the rule that a
negotiable instrument, such as a check, whether a managers check or ordinary check, is not
legal tender.[23] As such, after receiving the deposit, under its own rules, petitioner shall credit
the amount in private respondents account or infuse value thereon only after the drawee bank
shall have paid the amount of the check or the check has been cleared for deposit. Again, this is
in accordance with ordinary banking practices and with this Courts pronouncement that "the
collecting bank or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has done its duty
to ascertain the genuineness of the endorsements."[24] The rule finds more meaning in this
case where the check involved is drawn on a foreign bank and therefore collection is more
difficult than when the drawee bank is a local one even though the check in question is a
managers check.[25] Misjuris

In Banco Atlantico v. Auditor General,[26] Banco Atlantico, a commercial bank in Madrid, Spain,
paid the amounts represented in three (3) checks to Virginia Boncan, the finance officer of the
Philippine Embassy in Madrid. The bank did so without previously clearing the checks with the
drawee bank, the Philippine National Bank in New York, on account of the "special treatment"
that Boncan received from the personnel of Banco Atlanticos foreign department. The Court
held that the encashment of the checks without prior clearance is "contrary to normal or
ordinary banking practice specially so where the drawee bank is a foreign bank and the
amounts involved were large." Accordingly, the Court approved the Auditor Generals denial of
Banco Atlanticos claim for payment of the value of the checks that was withdrawn by Boncan.

Said ruling brings to light the fact that the banking business is affected with public interest. By
the nature of its functions, a bank is under obligation to treat the accounts of its depositors
"with meticulous care, always having in mind the fiduciary nature of their relationship."[27] As
such, in dealing with its depositors, a bank should exercise its functions not only with the
diligence of a good father of a family but it should do so with the highest degree of care.[28]

In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit, failed
to exercise the diligence of a good father of a family. In total disregard of its own rules,
petitioners personnel negligently handled private respondents account to petitioners
detriment. As this Court once said on this matter:

"Negligence is the omission to do something which a reasonable man, guided by those

considerations which ordinarily regulate the conduct of human affairs, would do, or the doing
of something which a prudent and reasonable man would do. The seventy-eight (78)-year-old,
yet still relevant, case of Picart v. Smith, provides the test by which to determine the existence
of negligence in a particular case which may be stated as follows: Did the defendant in doing
the alleged negligent act use that reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then he is guilty of negligence. The law
here in effect adopts the standard supposed to be supplied by the imaginary conduct of the
discreet pater-familias of the Roman law. The existence of negligence in a given case is not
determined by reference to the personal judgment of the actor in the situation before him. The
law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that."[29]

Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over
and above the aggregate amount of private respondents dollar deposits that had yet to be
cleared. The banks ledger on private respondents account shows that before he deposited
$2,500.00, private respondent had a balance of only $750.00.[30] Upon private respondents
deposit of $2,500.00 on September 3, 1984, that amount was credited in his ledger as a deposit
resulting in the corresponding total balance of $3,250.00.[31] On September 10, 1984, the
amount of $600.00 and the additional charges of $10.00 were indicated therein as withdrawn
thereby leaving a balance of $2,640.00. On September 30, 1984, an interest of $11.59 was
reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was entered as
withdrawn with a balance of $109.92.[32] On November 19, 1984 the word "hold" was written
beside the balance of $109.92.[33] That must have been the time when Reyes, petitioners
branch manager, was informed unofficially of the fact that the check deposited was a
counterfeit, but petitioners Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York the following day,
November 20, 1984.[34] According to Reyes, Wells Fargo Bank International handled the
clearing of checks drawn against U.S. banks that were deposited with petitioner.[35] Jjlex

From these facts on record, it is at once apparent that petitioners personnel allowed the
withdrawal of an amount bigger than the original deposit of $750.00 and the value of the check
deposited in the amount of $2,500.00 although they had not yet received notice from the
clearing bank in the United States on whether or not the check was funded. Reyes contention
that after the lapse of the 35-day period the amount of a deposited check could be withdrawn
even in the absence of a clearance thereon, otherwise it could take a long time before a
depositor could make a withdrawal,[36] is untenable. Said practice amounts to a disregard of
the clearance requirement of the banking system.

While it is true that private respondents having signed a blank withdrawal slip set in motion the
events that resulted in the withdrawal and encashment of the counterfeit check, the negligence
of petitioners personnel was the proximate cause of the loss that petitioner sustained.
Proximate cause, which is determined by a mixed consideration of logic, common sense, policy
and precedent, is "that cause, which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which the result would not have
occurred."[37] The proximate cause of the withdrawal and eventual loss of the amount of
$2,500.00 on petitioners part was its personnels negligence in allowing such withdrawal in
disregard of its own rules and the clearing requirement in the banking system. In so doing,
petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign
check and hence, it should suffer the resulting damage.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 37392 is AFFIRMED.

SO ORDERED.
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAO, respondents.

DECISION

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the
Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 1994[1],
which affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay
City.[2]

The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a
complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered
into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the
questioned Real Estate Mortgage void, which Naguiat appealed to the Court of Appeals. After
the Court of Appeals upheld the RTC decision, Naguiat instituted the present petition.

The operative facts follow:

Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao
Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five
Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by the Corporate Resources
Financing Corporation. She also issued her own Filmanbank Check No. 065314, to the order of
Queao, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to constitute the loan granted by Naguiat to
Queao.[3]

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the
mortgaged properties.[4] On the same day, the mortgage deed was notarized, and Queao
issued to Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS
(P200,000.00), with interest at 12% per annum, payable on 11 September 1980.[5] Queao also
issued a Security Bank and Trust Company check, postdated 11 September 1980, for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of
Naguiat.

Upon presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds. On the following day, 12 September 1980, Queao requested Security
Bank to stop payment of her postdated check, but the bank rejected the request pursuant to its
policy not to honor such requests if the check is drawn against insufficient funds.[6]

On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of
the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.
At the meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding
that the checks were retained by Ruebenfeldt, who purportedly was Naguiats agent.[7]

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal
Province, who then scheduled the foreclosure sale on 14 August 1981. Three days before the
scheduled sale, Queao filed the case before the Pasay City RTC,[8] seeking the annulment of the
mortgage deed. The trial court eventually stopped the auction sale.[9]

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null
and void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the
mortgaged lots.[10] Naguiat appealed the decision before the Court of Appeals, making no less
than eleven assignments of error. The Court of Appeals promulgated the decision now assailed
before us that affirmed in toto the RTC decision. Hence, the present petition.

Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of
whether Queao had actually received the loan proceeds which were supposed to be covered by
the two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument
or public document, the mortgage deed enjoys the presumption that the recitals therein are
true. Naguiat also questions the admissibility of various representations and pronouncements
of Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of third
persons.[11]
The resolution of the issues presented before this Court by Naguiat involves the determination
of facts, a function which this Court does not exercise in an appeal by certiorari. Under Rule 45
which governs appeal by certiorari, only questions of law may be raised[12] as the Supreme
Court is not a trier of facts.[13] The resolution of factual issues is the function of lower courts,
whose findings on these matters are received with respect and are in fact generally binding on
the Supreme Court.[14] A question of law which the Court may pass upon must not involve an
examination of the probative value of the evidence presented by the litigants.[15] There is a
question of law in a given case when the doubt or difference arises as to what the law is on a
certain state of facts; there is a question of fact when the doubt or difference arises as to the
truth or the falsehood of alleged facts.[16]

Surely, there are established exceptions to the rule on the conclusiveness of the findings of
facts of the lower courts.[17] But Naguiats case does not fall under any of the exceptions. In any
event, both the decisions of the appellate and trial courts are supported by the evidence on
record and the applicable laws.

Against the common finding of the courts below, Naguiat vigorously insists that Queao received
the loan proceeds. Capitalizing on the status of the mortgage deed as a public document, she
cites the rule that a public document enjoys the presumption of validity and truthfulness of its
contents. The Court of Appeals, however, is correct in ruling that the presumption of
truthfulness of the recitals in a public document was defeated by the clear and convincing
evidence in this case that pointed to the absence of consideration.[18] This Court has held that
the presumption of truthfulness engendered by notarized documents is rebuttable, yielding as
it does to clear and convincing evidence to the contrary, as in this case.[19]

On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued
or endorsed were actually encashed or deposited. The mere issuance of the checks did not
result in the perfection of the contract of loan. For the Civil Code provides that the delivery of
bills of exchange and mercantile documents such as checks shall produce the effect of payment
only when they have been cashed.[20] It is only after the checks have produced the effect of
payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil Code
provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding

upon the parties, but the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract.
A loan contract is a real contract, not consensual, and, as such, is perfected only upon the
delivery of the object of the contract.[21] In this case, the objects of the contract are the loan
proceeds which Queao would enjoy only upon the encashment of the checks signed or indorsed
by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have certainly
presented the corresponding documentary evidence, such as the returned checks and the
pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were
not encashed or credited to Queaos account.

Naguiat questions the admissibility of the various written representations made by Ruebenfeldt
on the ground that they could not bind her following the res inter alia acta alteri nocere non
debet rule. The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an
authorized representative or agent of Naguiat the situation falls under a recognized exception
to the rule.[22] Still, Naguiat insists that Ruebenfeldt was not her agent.

Suffice to say, however, the existence of an agency relationship between Naguiat and
Ruebenfeldt is supported by ample evidence. As correctly pointed out by the Court of Appeals,
Ruebenfeldt was not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to
withhold from Queao the checks she issued or indorsed to Queao, pending delivery by the
latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the loan application of
Queaos friend, Marilou Farralese, and it was in connection with that transaction that Queao
came to know Naguiat.[23] It was also Ruebenfeldt who accompanied Queao in her meeting
with Naguiat and on that occasion, on her own and without Queao asking for it, Reubenfeldt
actually drew a check for the sum of P220,000.00 payable to Naguiat, to cover for Queaos
alleged liability to Naguiat under the loan agreement.[24]

The Court of Appeals recognized the existence of an agency by estoppel[25] citing Article 1873
of the Civil Code.[26] Apparently, it considered that at the very least, as a consequence of the
interaction between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was
the agent of Naguiat, but Naguiat did nothing to correct Queaos impression. In that situation,
the rule is clear. One who clothes another with apparent authority as his agent, and holds him
out to the public as such, cannot be permitted to deny the authority of such person to act as his
agent, to the prejudice of innocent third parties dealing with such person in good faith, and in
the honest belief that he is what he appears to be.[27] The Court of Appeals is correct in
invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is
irrelevant in the face of the fact that the checks issued or indorsed to Queao were never
encashed or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the courts a quo that the lender
did not remit and the borrower did not receive the proceeds of the loan. That being the case, it
follows that the mortgage which is supposed to secure the loan is null and void. The
consideration of the mortgage contract is the same as that of the principal contract from which
it receives life, and without which it cannot exist as an independent contract.[28] A mortgage
contract being a mere accessory contract, its validity would depend on the validity of the loan
secured by it.[29]

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against
petitioner.

SO ORDERED.
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.

DECISION

CARPIO, J.:

The Case

Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December 2000
Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the
11 November 1996 decision[3] of the Regional Trial Court of Quezon City, Branch 81,[4]
affirming the 15 December 1995 decision[5] of the Metropolitan Trial Court of Quezon City,
Branch 31.[6]

The Antecedents

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the
rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a
house made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to
7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed a
Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house
for free provided Guevarra would maintain the cleanliness and orderliness of the house.
Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon
City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot
where the house stands because the lot is within the 150 hectares set aside by Proclamation
No. 137 for socialized housing. Guevarra pointed out that from December 1985 to September
1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor
Pajuyo has valid title to the lot.

On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion
of the MTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
defendant, ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other person or persons claiming
any right under him;

B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable
compensation for the use of the premises starting from the last demand;

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and

D) pay the cost of suit.

SO ORDERED.[7]