SALES:

6. G.R. No. 82508 September 29, 1989

FILINVEST CREDIT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY BANG,*respondents.

Labaquis, Loyola, Angara and Associates for petitioner.

Alfredo 1. Raya for private respondents.

SARMIENTO, J.:

This is a petition for review on certiorari of the decision, 1 dated March 17, 1988, of the Court
of Appeals which affirmed with modification the decision 2 of the Regional Trial Court of
Quezon, Branch LIX, Lucena City. The controversy stemmed from the following facts: The
private respondents, the spouses Jose Sy Bang and Iluminada Tan, were engaged in the sale of
gravel produced from crushed rocks and used for construction purposes. In order to increase
their production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini
Motor Sales in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio
referred the private respondents to the Rizal Consolidated Corporation which then had for sale
one such machinery described as:

ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT (RECONDITIONED) [sic]

JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16

3 UNITS PRODUCT CONVEYOR

75 HP ELECTRIC MOTOR

8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD RUNNING CONDITION 3

Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine at
the Rizal Consolidated's plant site. Apparently satisfied with the machine, the private
respondents signified their intent to purchase the same. They were however confronted with a
problem-the rock crusher carried a cash price tag of P 550,000.00. Bent on acquiring the
machinery, the private respondents applied for financial assistance from the petitioner,
Filinvest Credit Corporation. The petitioner agreed to extend to the private respondents
financial aid on the following conditions: that the machinery be purchased in the petitioner's
name; that it be leased (with option to purchase upon the termination of the lease period) to
the private respondents; and that the private respondents execute a real estate mortgage in
favor of the petitioner as security for the amount advanced by the latter. Accordingly, on May
18,1981, a contract of lease of machinery (with option to purchase) was entered into by the
parties whereby the private respondents agreed to lease from the petitioner the rock crusher
for two years starting from July 5, 1 981 payable as follows:

P10,000.00 - first 3 months

23,000.00 - next 6 months

24,800.00 - next 15 months

The contract likewise stipulated that at the end of the two-year period, the machine would be
owned by the private respondents. Thus, the private respondents issued in favor of the
petitioner a check for P150,550.00, as initial rental (or guaranty deposit), and twenty-four (24)
postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their
compliance with the lease contract, the private respondents executed a real estate mortgage
over two parcels of land in favor of the petitioner. The rock crusher was delivered to the private
respondents on June 9, 1981. Three months from the date of delivery, or on September 7,
1981, however, the private respondents, claiming that they had only tested the machine that
month, sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per
hour capacity of the machine as stated in the lease contract, the machine could only process 5
tons of rocks and stones per hour. They then demanded that the petitioner make good the
stipulation in the lease contract. They followed that up with similar written complaints to the
petitioner, but the latter did not, however, act on them. Subsequently, the private respondents
stopped payment on the remaining checks they had issued to the petitioner. 5

As a consequence of the non-payment by the private respondents of the rentals on the rock
crusher as they fell due despite the repeated written demands, the petitioner extrajudicially
foreclosed the real estate mortgage. 6 On April 18, 1983, the private respondents received a
Sheriff s Notice of Auction Sale informing them that their mortgaged properties were going to
be sold at a public auction on May 25, 1983 at 10:00 o'clock in the morning at the Office of the
Provincial Sheriff in Lucena City to satisfy their indebtedness to the petitioner. 7 To thwart the
impending auction of their properties, the private respondents filed before the Regional Trial
Court of Quezon, on May 4, 1983, 8 a complaint against the petitioner, for the rescission of the
contract of lease, annullment of the real estate mortgage, and for injunction and damages, with
prayer for the issuance of a writ of preliminary injunction.9 On May 23, 1983, three days before
the scheduled auction sale, the trial court issued a temporary restraining order commanding
the Provincial Sheriff of Quezon, and the petitioner, to refrain and desist from proceeding with
the public auction. 10 Two years later, on September 4, 1985, the trial court rendered a
decision in favor of the private respondents, the dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

1. making the injunction permanent;

2. rescinding the contract of lease of the machinery and equipment and ordering the plaintiffs
to return to the defendant corporation the machinery subject of the lease contract, and the
defendant corporation to return to plaintiffs the sum of P470,950.00 it received from the latter
as guaranty deposit and rentals with legal interest thereon until the amount is fully restituted;

3. annulling the real estate mortgage constituted over the properties of the plaintiffs covered
by Transfer Certificate of Title Nos. T32480 and T-5779 of the Registry of Deeds of Lucena City;

4. ordering the defendant corporation to pay plaintiffs P30,000.00 as attorney's fees and the
costs of the suit.

SO ORDERED. 11

Dissatisfied with the trial court's decision, the petitioner elevated the case to the respondent
Court of Appeals.

On March 17, 1988, the appellate court, finding no error in the appealed judgment, affirmed
the same in toto. 12 Hence, this petition.

Before us, the petitioner reasserts that the private respondents' cause of action is not against it
(the petitioner), but against either the Rizal Consolidated Corporation, the original owner-seller
of the subject rock crusher, or Gemini Motors Sales which served as a conduit facilitator of the
purchase of the said machine. The petitioner argues that it is a financing institution engaged in
quasi-banking activities, primarily the lending of money to entrepreneurs such as the private
respondents and the general public, but certainly not the leasing or selling of heavy
machineries like the subject rock crusher. The petitioner denies being the seller of the rock
crusher and only admits having financed its acquisition by the private respondents. Further, the
petitioner absolves itself of any liability arising out of the lease contract it signed with the
private respondents due to the waiver of warranty made by the latter. The petitioner likewise
maintains that the private respondents being presumed to be knowledgeable about
machineries, should be held responsible for the detection of defects in the machine they had
acquired, and on account of that, they are estopped from claiming any breach of warranty.
Finally, the petitioner interposed the defense of prescription, invoking Article 1571 of the Civil
Code, which provides:

Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after
six months, from the delivery of the thing sold.

We find the petitioner's first contention untenable. While it is accepted that the petitioner is a
financing institution, it is not, however, immune from any recourse by the private respondents.
Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the
rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal
Consolidated Corporation in the name and with the funds of the petitioner proves beyond
doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership
which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment"
with the private respondents.

Be that as it may, the real intention of the parties should prevail. The nomenclature of the
agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract
is what the law defines it and the parties intend it to be, not what it is called by the parties. 13 It
is apparent here thatthe intent of the parties to the subject contract is for the so-called rentals
to be the installment payments. Upon the completion of the payments, then the rock crusher,
subject matter of the contract, would become the property of the private respondents. This
form of agreement has been criticized as a lease only in name. Thus in Vda. de Jose v. Barrueco
14 we stated:

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make
a bargain in that form, for one reason or another, have frequently resorted to the device of
making contracts in the form of leases either with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee.
It is obvious that such transactions are leases only in name. The so-called rent must necessarily
be regarded as payment of the price in installments since the due payment of the agreed
amount results, by the terms of bargain, in the transfer of title to the lessee. 15

The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code
which provides for the remedies of an unpaid seller of movables on installment basis.

Article 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.

Under the aforequoted provision, the seller of movables in installments, in case the buyer fails
to pay two or more installments may elect to pursue either of the following remedies: (1) exact
fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage
on the purchased property if one was constituted thereon. It is now settled that the said
remedies are alternative and not cumulative and therefore, the exercise of one bars the
exercise of the others.
Indubitably, the device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by
retaining ownership over the property in the guise of being the lessor, retains, likewise, the
right to repossess the same, without going through the process of foreclosure, in the event the
vendee-lessee defaults in the payment of the installments. There arises therefore no need to
constitute a chattel mortgage over the movable sold. More important, the vendor, after
repossessing the property and, in effect, canceling the contract of sale, gets to keep all the
installments-cum-rentals already paid. It is thus for these reasons that Article 1485 of the new
Civil Code provides that:

Article 1485. The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of possession or
enjoyment of the thing. (Emphasis ours.)

Unfortunately, even with the foregoing findings, we however fail to find any reason to hold the
petitioner liable for the rock crusher's failure to produce in accordance with its described
capacity. According to the petitioner, it was the private respondents who chose, inspected, and
tested the subject machinery. It was only after they had inspected and tested the machine, and
found it to their satisfaction, that the private respondents sought financial aid from the
petitioner. These allegations of the petitioner had never been rebutted by the private
respondents. In fact, they were even admitted by the private respondents in the contract they
signed. Thus:

LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE hereby confirms and

acknowledges that he has independently inspected and verified the leased property and has
selected and received the same from the Dealer of his own choosing in good order and
excellent running and operating condition and on the basis of such verification, etc. the LESSEE
has agreed to enter into this Contract." 16

Moreover, considering that between the parties, it is the private respondents, by reason of
their business, who are presumed to be more knowledgeable, if not experts, on the machinery
subject of the contract, they should not therefore be heard now to complain of any alleged
deficiency of the said machinery. It is their failure or neglect to exercise the caution and
prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of
the rock crusher that gave rise to their difficulty and to this conflict. A well- established principle
in law is that between two parties, he, who by his negligence caused the loss, shall bear the
same.

At any rate, even if the private respondents could not be adjudged as negligent, they still are
precluded from imputing any liability on the petitioner. One of the stipulations in the contract
they entered into with the petitioner is an express waiver of warranties in favor of the latter. By
so signing the agreement, the private respondents absolved the petitioner from any liability
arising from any defect or deficiency of the machinery they bought. The stipulation on the
machine's production capacity being "typewritten" and that of the waiver being "printed" does
not militate against the latter's effectivity. As such, whether "a capacity of 20 to 40 tons per
hour" is a condition or a description is of no moment. What stands is that the private
respondents had expressly exempted the petitioner from any warranty whatsoever. Their
Contract of Lease Of Machinery And Equipment states:

WARRANTY-LESSEE absolutely releases the lessor from any liability whatsoever as to any and all
matters in relation to warranty in accordance with the provisions hereinafter stipulated. 17

Taking into account that due to the nature of its business and its mode of providing financial
assistance to clients, the petitioner deals in goods over which it has no sufficient know-how or
expertise, and the selection of a particular item is left to the client concerned, the latter,
therefore, shoulders the responsibility of protecting himself against product defects. This is
where the waiver of warranties is of paramount importance. Common sense dictates that a
buyer inspects a product before purchasing it (under the principle of caveat emptor or "buyer
beware") and does not return it for defects discovered later on, particularly if the return of the
product is not covered by or stipulated in a contract or warranty. In the case at bar, to declare
the waiver as non-effective, as the lower courts did, would impair the obligation of contracts.
Certainly, the waiver in question could not be considered a mere surplusage in the contract
between the parties. Moreover, nowhere is it shown in the records of the case that the private
respondent has argued for its nullity or illegality. In any event, we find no ambiguity in the
language of the waiver or the release of warranty. There is therefore no room for any
interpretation as to its effect or applicability vis-a- vis the deficient output of the rock crusher.
Suffice it to say that the private respondents have validly excused the petitioner from any
warranty on the rock crusher. Hence, they should bear the loss for any defect found therein.

WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals dated March 17,
1988 is hereby REVERSED AND SET ASIDE, and another one rendered DISMISSING the
complaint. Costs against the private respondents.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras and Regalado, ii., concur,

Padilla, J.,took no part

7. G.R. No. L-59266 February 29, 1988

SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,

vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th
Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated
August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano
G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as
Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated
December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration,
for lack of merit.

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

The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral
survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold
the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of
P28,000.00, payable in two installments, with an assumption of indebtedness with the First
Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the
vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next
installment in the sum of P4,000.00 to be paid on or before September 15, 1965.

On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses,
Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of
P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos
spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register
of Deeds pursuant to the provisions of Act No. 3344.

As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase
price of the land, and as plaintiff- appellant discovered the second sale made by defendants-
appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-
28)

After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the
decretal portion of which reads:

WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by
defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United
States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre
T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano
G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the
defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon
Cadastre and when the decision of this case becomes final and executory.

The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita
L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding
to the expenses or costs of the hollow block fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de
Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum
of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another.

The writ of preliminary injunction issued on September 23, 1966, automatically becomes
permanent in virtue of this decision.

With costs against the defendants.

From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners
herein) appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No.
54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."

On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the
portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building
of a fence upon the land in question. The disposive portion of said decision of the Court of
Appeals reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment

as pertains to plaintiff-appellant above indicated, the judgment appealed from is hereby
AFFIRMED in all other respects.

With costs against defendants-appellants.

SO ORDERED.

Judgment MODIFIED.

A motion for reconsideration of said decision was filed by the defendants- appellants
(petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court
of Appeals denying the motion for lack of merit.

Hence, this petition.

In the resolution of February 10, 1982, the Second Division of this Court denied the petition for
lack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In
the resolution dated April 26,1982, respondents were required to comment thereon, which
comment was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in
compliance with the resolution of June 16,1 982. On August 9,1982, acting on the motion for
reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider its
resolution of February 10, 1982 and to give due course to the instant petition. On September 6,
1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution of
September 20, 1982.
Petitioners raised the following assignment of errors:

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY

INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE,
EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT
AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN
MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS
ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A
CONTRACT OF PROMISE TO SELL.

II

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR

IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS
CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT
BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.

III

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF

ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS
TO WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.

IV

PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE

HAVING COME TO COURT WITH UNCLEAN HANDS.

BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH

MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION,
MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT
AND THE LAW APPLICABLE THERETO.

The foregoing assignment of errors may be synthesized into two main issues, to wit:

I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell.

II. Whether or not there was a valid rescission thereof.

There is no merit in this petition.

It is significant to note that this petition was denied by the Second Division of this Court in its
Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and
on the basis of all subsequent pleadings filed, the petition was given due course.

I.

The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil.
Philippine Currency as advance payment;

2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00)
Loan from the First Insular Bank of Cebu;

3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos
(P4,000.00) on or before September 15,1965;

4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the
said property;

5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil
over the above-mentioned property upon the payment of the balance of Four Thousand Pesos.
(Original Record, pp. 10-11)

In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale
(Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two
(2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or
before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with
the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership
over the property was expressly reserved in the vendor, the Dignos spouses until the
suspensive condition of full and punctual payment of the balance of the purchase price shall
have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52).

In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that
there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or
transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a
private instrument and the absence of a formal deed of conveyance is a very strong indication
that the parties did not intend "transfer of ownership and title but only a transfer after full
payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and
conditions of the contract, more particularly paragraph four which reads, "that said spouses has
agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five
which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned
property upon the payment of the balance of four thousand pesos."
Such contention is untenable.

By and large, the issues in this case have already been settled by this Court in analogous cases.

Thus, it has been held that a deed of sale is absolute in nature although denominated as a
"Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation
to the effect that title to the property sold is reserved in the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132
SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such stipulation reserving the title
of the property on the vendors nor does it give them the right to unilaterally rescind the
contract upon non-payment of the balance thereof within a fixed period.

On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code,
are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and
(3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides
that "The ownership of the thing sold shall be transferred to the vendee upon actual or
constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et
al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the
ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.

While it may be conceded that there was no constructive delivery of the land sold in the case at
bar, as subject Deed of Sale is a private instrument, it is beyond question that there was actual
delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the
land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's
Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on
January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admitted
by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).

Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of
petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale was
intended by the parties and not a contract to sell.

Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they
were no longer owners of the same and the sale is null and void.

II.

Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was
already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with
the case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the
Civil Code. It is undisputed that petitioners never notified private respondents Jabil by notarial
act that they were rescinding the contract, and neither did they file a suit in court to rescind the
sale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be
an emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the
latter had no money and further advised petitioners to sell the land in litigation to another
party (Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing
that Amistad was properly authorized by Jabil to make such extra-judicial rescission for the
latter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he
was already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is
required that acts and contracts which have for their object the extinguishment of real rights
over immovable property must appear in a public document.

Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money
on the stipulated date of payment on September 15,1965 and was able to raise the necessary
amount only by mid-October 1965.

It has been ruled, however, that "where time is not of the essence of the agreement, a slight
delay on the part of one party in the performance of his obligation is not a sufficient ground for
the rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that private
respondent has only a balance of P4,000.00 and was delayed in payment only for one month,
equity and justice mandate as in the aforecited case that Jabil be given an additional period
within which to complete payment of the purchase price.

WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of
the Court of Appeals is Affirmed in toto.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

8. G.R. No. L-18377 December 29, 1962

ANASTACIO G. DUÑGO, petitioner,

vs.
ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of the Court of First Instance
of Rizal, respondents.

Gatchalian, Padilla & Sison for petitioner.

Santiago F. Alidio for respondents.

REGALA, J.:
On September 10, 1959, herein petitioner Anastacio Duñgo and one Rodrigo S. Gonzales
purchased 3 parcel of land from the respondents Adriano Lopena and Rosa Ramos for the total
price of P269,804.00. Of this amount P28.000.00 was given as down payment with the
agreement that the balance of P241,804.00 would be paid in 6 monthly installments.

To secure the payment of the balance Anastacio Duñgo and Rodrigo S. Gonzales, the vendees,
on September 11, 1958, executed over the same 3 parcels of land Deed of Real Estate Mortgage
in favor of the respondent Adriano Lopena and Rosa Ramos. This deed was duly registered with
the Office of the Register of Deeds Rizal, with the condition that failure of the vendees to pay
any of the installments on their maturity dates shall automatically cause the entire unpaid
balance to become due and demandable.

The vendees defaulted on the first installment. It resulted then that on November 7, 1959, the
vendors, herein respondents Adriano Lopena and Rosa Ramos, filed a complaint for the
foreclosure of the aforementioned real estate mortgage with the Court of First Instance of Rizal
the Hon. Judge Andres Reyes, presiding. This complaint was answered by the herein petitioner
and the other vendee, Rodrigo S. Gonzales, on December 7, 1959.

Meanwhile, there were 2 other civil cases filed in the same lower court against the same
defendants Anastacio Duñgo and Rodrigo S. Gonzales. The plaintiff in one was a certain Dionisio
Lopena, and in the other case, the complainants were Bernardo Lopena and Maria de la Cruz.

Both complaints involved the same cause of action as that of herein respondents Adriano
Lopena and Rosa Ramos. As a matter of fact all three cases arose out of one transaction. In view
of the identical nature of the above three cases, they were consolidated by the lower court into
just one proceeding.

It must be made clear, however, that this present decision refers solely to the interests and
claim of Adriano Lopena against Anastacio Duñgo alone.

Before the cases could be tried, a compromise agreement dated January 15, 1960 was
submitted to the lower court for approval. It was signed by herein respondents Adriano Lopena
and Rosa Ramos on one hand, and Rodrigo S. Gonzales, on the other. It was not signed by the
herein petitioner. However, Rodrigo S. Gonzales represented that his signature was for both
himself and the herein petitioner. Moreover, Anastacio Duñgo's counsel of record, Atty. Manuel
O. Chan, the same lawyer who signed and submitted for him the answer to the complaint, was
present at the preparation of the compromise agreement and this counsel affixed his signature
thereto.

The text of this agreement is hereunder quoted:

COMPROMISE AGREEMENT
COME NOW the parties in the above entitled cases and unto this Hon. Court respectfully set
forth:

That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay the mortgage
indebtedness in each of the said cases;

That, should the defendants fail to pay the said mortgage indebtedness, judgments of
foreclosure shall thereafter be entered against the said defendants;

That, the defendants hereby waive the period of redemption provided by law after entry of
judgments;

That, in the event of sale of the properties involved in these three cases, the defendants agree
that the said properties shall be sold at one time at public auction, that is, one piece of property
cannot be sold without the others.

This compromise agreement was approved by the lower court on the same day it was
submitted, January 15, 1960.

Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The signatories to it
were Anastacio Duñgo (herein petitioner) and Rodrigo S. Gonzales as debtors, Adriano Lopena
and Rosa Ramos (herein respondents) as creditors, and, one Emma R. Santos as pay or. The
stipulations of the Tri-Party Agreement were as follows: .

A TRI-PARTY AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This contract entered into by and between —

(1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal address
at ..........., Rizal Avenue, Manila, hereinafter referred to as the PAYOR,

(2) ANASTACIO C. DUÑGO Filipino, of legal age, single, with residence and postal address at
137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of legal age, married to
Magdalena Balatbat, with residence and postal address at 73 Maryland, Quezon City,
hereinafter referred to as the DEBTOR,

and

(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to Arellano
Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and ADRIANO LOPENA, married to
Rosa Ramos, all of whom are Filipinos, of legal ages, with residence and postal address at Sucat,
Muntinlupa, Rizal, hereinafter represented by their attorney of record, ANTONIO LOPENA,
hereinafter referred to as the CREDITOR,

W I T N E S S E T H:

WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the aggregate amount of
P503,000.00 for the collection of which, the latter as party plaintiffs have institute foreclosure
proceedings against the former as party defendant in Civil Cases Nos. 5872, 5873 and 5874 now
pending in the Court of First Instance, Pasig, Rizal;

WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of the Order
dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch VI, which order is
hereby made an integral part of this agreement as ANNEX "A";

WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby proposes to pay
the aforesaid indebtedness in the sum of P503,000.00 to the CREDITOR for and in behalf of the
DEBTOR under the following terms and condition petitions:

(a) To pay the said P503,000.00 in installments in the following schedule of amounts and
time: P50,000.00 on or before May 31, 1960 70,000.00 on or before June 30, 1960 70,000.00 on
or before July 31, 1960 313,000.00 on or before Aug. 31, 1960.

(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige themselves
not to oppose the motion that the CREDITOR may file during the first week of July 1960, or
subsequently thereafter, informing the Court of the exact money obligation of the DEBTOR
which shall be P503,000.00 minus whatever payments, if any, made before June 30, 1960 by
the PAYOR and praying for the issuance of an order to sell the property covered by the
mortgage.

(c) That the CREDITOR, once he has the order referred to, should not execute the same by
giving it to the sheriff if the PAYOR is regular and punctual in the payment of all of the
installments stated above. PROVIDED, however, if the PAYOR defaults or fails to pay anyone of
the installments in the manner stated above, the PAYOR and the DEBTOR hereby permit the
CREDITOR to execute the order of sale referred to above, and they (PAYOR and DEBTOR)
hereby waive any and all objection's or oppositions to the propriety of the public auction sale
and to the confirmation of the sale to be made by the court.

(d) That the CREDITOR, at his option, may execute the August installment stated in letter (a)
of this paragraph if the PAYOR has paid regularly the May, June, and July installments, and
provided further that one half (½) of the August installment in the amount of P156,500.00 is
paid on the said date of August 31, 1960.

NOW, THEREFORE, for and in consideration of the foregoing stipulations, the DEBTOR and
CREDITOR hereby accept, approve and ratify the above-mentioned propositions of the PAYOR
and all the parties herein bind and oblige themselves to comply to the covenants and
stipulations aforestated;

That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT may be
submitted to Court to form integral parts of the records of the Civil Cases mentioned above;

IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day of May, 1960
in the City of Manila, Philippines.

When Anastacio Duñgo (herein petitioner) and Rodrigo S. Gonzales failed to pay the balance of
their indebtedness on June 30, 1960, herein respondents Lopena and Ramos filed on July 5,
1960, a Motion for the Sale of Mortgaged Property. Although this last motion was filed ex
parte, Anastacio Duñgo and Rodrigo S. Gonzales were notified of it by the lower court. Neither
of them, however, despite the notice, filed any opposition thereto. As a result, the lower court
granted the above motion on July 19, 1960, and ordered the sale of the mortgaged property.

On August 25, 1960, the 3 parcels of land above-mentioned were sold by the Sheriff at a public
auction where at herein petitioners, together with the plaintiffs of the other two cases won as
the highest bidders. The said sheriff's sale was later confirmed by the lower court on August 30,
1960. In this connection, it should also made of record that before confirming the sale, the
lower court gave due notice of the motion for the confirmation to the herein petitioner who
filed no opposition therefore.

On August 31, 1960, Anastacio Duñgo filed a motion to set aside all the proceedings on the
ground that the compromise agreement dated January 15, 1960 was void ab initio with respect
to him because he did not sign the same. Consequently, he argued, all subsequent proceedings
under and by virtue of the compromise agreement, including the foreclosure sale of August 25,
1960, were void and null as regards him. This motion to set aside, however, was denied by the
lower court in its order of December 14, 1960.

Upon denial of the said motion to set aside, Anastacio Duñgo filed a Notice of Appeal from the
order of August 31, 1960 approving the foreclosure sale of August 25, 1960, as well as the order
of December 14, 1960, denying his motion to set aside. The approval of the record on appeal
however, was opposed by the herein respondent spouses who claimed that the judgment was
not appealable having been rendered by virtue of the compromise agreement. The opposition
was contained in a motion to dismiss the appeal. Anastacio Duñgo filed a reply to the above
motion. Soon thereafter, the lower court dismissed the appeal.

Two issues were raised to this Court for review, to wit:

(1) Was the compromise agreement of January 15, 1960, the Order of the same date
approving the same, and, all the proceedings subsequent thereto, valid or void insofar as the
petitioner herein is concerned?
(2) Did the lower court abuse its discretion when it dismissed the appeal of the herein
petitioner?

Petitioner Anastacio Duñgo insists that the Compromise Agreement was void ab initio and
could have no effect whatsoever against him because he did not sign the same. Furthermore, as
it was void, all the proceedings subsequent to its execution, including the Order approving it,
were similarly void and could not result to anything adverse to his interest.

The argument was not well taken. It is true that a compromise is, in itself, a contract. It is as
such that the Civil Code speaks of it.

ART. 2028. A compromise is a contract whereby the parties, by making reciprocal

concessions, avoid a litigation or put an end to one already commenced.

Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another to a
compromise agreement unless he, the third person, has obtained a special power of attorney
for that purpose from the party intended to be bound.

ART. 1878. Special powers of attorney are necessary in the following cases:

xxx xxx xxx

xxx xxx xxx

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from
a judgment, to waive objections to the venue of an action or to abandon a prescription already
acquired;

However, although the Civil Code expressly requires a special power of attorney in order that
one may compromise an interest of another, it is neither accurate nor correct to conclude that
its absence renders the compromise agreement void. In such a case, the compromise is merely
unenforceable. This results from its nature is a contract. It must be governed by the rules and
the law on contracts.

ART. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;

Logically, then, the next inquiry in this case should be whether the herein petitioner, Anastacio
Duñgo had or had not ratified the compromise agreement. If he had, then the compromise
agreement was legally enforced against him; otherwise, he should be sustained in his
contention that it never bound him, nor ever could it be made to bind him.
The ratification of the compromise agreement was conclusively established by the Tri-Party
Agreement of May 1960. It is to be noted that the compromise agreement was submitted to
and approved by the lower court January 15, 1960. Now, the Tri-Party Agreement referred itself
to that order when it stipulated thus:

WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect of the order
dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch which order is
hereby made an integral part of this agreement as Annex "A".lawphil.net

Having so consented to making that court order approving the compromise agreement an
integral part of the Tri-Party Agreement, how can the petitioner herein now repudiate the
compromise agreement and claim he has not authorized it?

When it appears that the client, on becoming aware the compromise and the judgment
thereon, fails to repudiate promptly the action of his attorney, he will not afterwards be heard
to contest its validity (Rivero vs. Rivero, 59 Phil. 15).

Besides, this Court has not overlooked the fact that which indeed Anastacio Duñgo was not a
signatory to the compromise agreement, the principal provision of the said instrument was for
his benefit. Originally, Anastacio Duñgo's obligation matured and became demandable on
October 10, 1959. However, the compromise agreement extended the date of maturity to June
30, 1960. More than anything, therefore, the compromise agreement operated to benefit the
herein petitioner because it afforded him more time and opportunity to fulfill his monetary
obligations under the contract. If only for this reason, this Court believes that the herein
petitioner should not be heard to repudiate the said agreement.

Lastly, the compromise agreement stated "that, should the defendants fail to pay the said
mortgage indebtedness, judgment of foreclosure shall thereafter be entered against the said
defendants:" Beyond doubt, this was ratified by the Tri-Party Agreement when it covenanted
that —

If the MAYOR defaults or fails to pay anyone of the installments in the manner stated above,
the MAYOR and the DEBTOR hereby permit the CREDITOR to execute the order of sale referred
to above (the Judgment of Foreclosure), and they (PAYOR and DEBTOR) hereby waive any and
all objections or oppositions to the propriety of the public auction sale and to the confirmation
of the sale to be made by the Court.

Petitioner Duñgo finally argued that even assuming that the compromise agreement was valid,
it nevertheless could not be enforced against him because it has been novated by the Tri-Party
Agreement which brought in a third party, namely, Emma R. Santos, who assumed the
mortgaged obligation of the herein petitioner.

This Court cannot accept the argument. Novation by presumption has never been favored. To
be sustained, it need be established that the old and new contracts are incompatible in all
points, or that the will to novate appears by express agreement of the parties or in acts of
similar import. (Martinez v. Cavives, 25 Phil. 581; Tiy Sinco vs. Havana, 45 Phil. 707; Asia
Banking Corp. vs. Lacson Co.. 48 Phil. 482; Pascual vs. Lacsamana, 53 O.G. 2467, April 1957).

An obligation to pay a sum of money is not novated, in a new instrument wherein the old is
ratified, by changing only the term of payment and adding other obligations not incompatible
with the old one (Inchausti vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan, 71 Phil. 145) or wherein
the old contract is merely supplemented by the new one Ramos vs. Gibbon, 67 Phil. 371).

Herein petitioner claims that when a third party Emma R. Santos, came in and assumed the
mortgaged obligation, novation resulted thereby inasmuch as a new debtor was substituted in
place of the original one. In this kind of novation, however, it is not enough that the juridical
relation of the parties to the original contract is extended to a third person; it is necessary that
the old debtor be released from the obligation, and the third person or new debtor take his
place in the new relation. Without such release, there is no novation; the third person who has
assumed the obligation of the debtor merely becomes a co-debtor or surety. If there is no
agreement as to solidarity, the first and the new debtors are considered obligation jointly. (IV
Tolentino, Civil Code, p. 360, citing Manresa. There was no such release of the original debtor in
the Tri-Party Agreement.

It is a very common thing in the business affairs for a stranger to a contract to assume its
obligations; an while this may have the effect of adding to the number of persons liable, it does
not necessarily imply the extinguishment of the liability of the first debtor (Rios v Jacinto, etc.,
49 Phil. 7; Garcia vs. Khu Yek Ching, 65 Phil. 466). The mere fact that the creditor receives a
guaranty or accepts payments from a third person who has agreed to assume the obligation,
when there is no agreement that the first debtor shall be released from responsibility, do not
constitute a novation, and the creditor can still enforce the obligation against the original
debtor (Straight vs. Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of
Mota vs. Serra, 47 Phil. 446).

In view of all the foregoing, We hold that the Tri-Party Agreement was an instrument intended
to render effective the compromise agreement. It merely complemented an ratified the same.
That a third person was involved in it is inconsequential. Nowhere in the new agreement may
the release of the herein petitioner be even inferred.

Having held that the compromise agreement was validity and enforceable against the herein
petitioner, it follows that the lower court committed no abuse of discretion when it dismissed
the appeal of the herein petitioner.

WHEREFORE, the petition for certiorari and mandamus filed by the herein petitioner is hereby
dismissed. The order of the lower court dismissing the appeal is her by affirmed, with costs.

Labrador, Concepcion, Reyes, J.B.L., Barrera and Makalintal, JJ., concur.

9. G.R. No. 118114 December 7, 1995

TEODORO ACAP, petitioner,

vs.
COURT OF APPEALS and EDY DE LOS REYES, respondents.

PADILLA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals, 2nd Division,
in CA-G.R. No. 36177, which affirmed the decision2 of the Regional Trial Court of Himamaylan,
Negros Occidental holding that private respondent Edy de los Reyes had acquired ownership of
Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document
entitled "Declaration of Heirship and Waiver of Rights", and ordering the dispossession of
petitioner as leasehold tenant of the land for failure to pay rentals.

The facts of the case are as follows:

The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced
by OCT No. R-12179. The lot has an area of 13,720 sq. meters. The title was issued and is
registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses
died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized
document entitled "Declaration of Heirship and Deed of Absolute Sale" in favor of Cosme Pido.

The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had
been the tenant of a portion of the said land, covering an area of nine thousand five hundred
(9,500) meters. When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap
continued to be the registered tenant thereof and religiously paid his leasehold rentals to Pido
and thereafter, upon Pido's death, to his widow Laurenciana.

The controversy began when Pido died intestate and on 27 November 1981, his surviving heirs
executed a notarized document denominated as "Declaration of Heirship and Waiver of Rights
of Lot No. 1130 Hinigaran Cadastre," wherein they declared; to quote its pertinent portions,
that:

. . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he died intestate and
without any known debts and obligations which the said parcel of land is (sic) held liable.

That Cosme Pido was survived by his/her legitimate heirs, namely: LAURENCIANA PIDO, wife,
ELY, ERVIN, ELMER, and ELECHOR all surnamed PIDO; children;

That invoking the provision of Section 1, Rule 74 of the Rules of Court, the above-mentioned
heirs do hereby declare unto [sic] ourselves the only heirs of the late Cosme Pido and that we
hereby adjudicate unto ourselves the above-mentioned parcel of land in equal shares.
Now, therefore, We LAURENCIANA3 , ELY, ELMER, ERVIN and ELECHOR all surnamed PIDO, do
hereby waive, quitclaim all our rights, interests and participation over the said parcel of land in
favor of EDY DE LOS REYES, of legal age, (f)ilipino, married to VIRGINIA DE LOS REYES, and
resident of Hinigaran, Negros Occidental, Philippines. . . .4 (Emphasis supplied)

The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes did not
sign said document.

It will be noted that at the time of Cosme Pido's death, title to the property continued to be
registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with
Waiver of Rights in his favor, private respondent Edy de los Reyes filed the same with the
Registry of Deeds as part of a notice of an adverse claim against the original certificate of title.

Thereafter, private respondent sought for petitioner (Acap) to personally inform him that he
(Edy) had become the new owner of the land and that the lease rentals thereon should be paid
to him. Private respondent further alleged that he and petitioner entered into an oral lease
agreement wherein petitioner agreed to pay ten (10) cavans of palay per annum as lease rental.
In 1982, petitioner allegedly complied with said obligation. In 1983, however, petitioner refused
to pay any further lease rentals on the land, prompting private respondent to seek the
assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The
MAR invited petitioner to a conference scheduled on 13 October 1983. Petitioner did not
attend the conference but sent his wife instead to the conference. During the meeting, an
officer of the Ministry informed Acap's wife about private respondent's ownership of the said
land but she stated that she and her husband (Teodoro) did not recognize private respondent's
claim of ownership over the land.

On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint for
recovery of possession and damages against petitioner, alleging in the main that as his
leasehold tenant, petitioner refused and failed to pay the agreed annual rental of ten (10)
cavans of palay despite repeated demands.

During the trial before the court a quo, petitioner reiterated his refusal to recognize private
respondent's ownership over the subject land. He averred that he continues to recognize
Cosme Pido as the owner of the said land, and having been a registered tenant therein since
1960, he never reneged on his rental obligations. When Pido died, he continued to pay rentals
to Pido's widow. When the latter left for abroad, she instructed him to stay in the landholding
and to pay the accumulated rentals upon her demand or return from abroad.

Petitioner further claimed before the trial court that he had no knowledge about any transfer
or sale of the lot to private respondent in 1981 and even the following year after Laurenciana's
departure for abroad. He denied having entered into a verbal lease tenancy contract with
private respondent and that assuming that the said lot was indeed sold to private respondent
without his knowledge, R.A. 3844, as amended, grants him the right to redeem the same at a
reasonable price. Petitioner also bewailed private respondent's ejectment action as a violation
of his right to security of tenure under P.D. 27.

On 20 August 1991, the lower court rendered a decision in favor of private respondent, the
dispositive part of which reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, Edy de
los Reyes, and against the defendant, Teodoro Acap, ordering the following, to wit:

1. Declaring forfeiture of defendant's preferred right to issuance of a Certificate of Land

Transfer under Presidential Decree No. 27 and his farmholdings;

2. Ordering the defendant Teodoro Acap to deliver possession of said farm to plaintiff,
and;

3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of P1,000.00 as
expenses of litigation and the amount of P10,000.00 as actual damages.5

In arriving at the above-mentioned judgment, the trial court stated that the evidence had
established that the subject land was "sold" by the heirs of Cosme Pido to private respondent.
This is clear from the following disquisitions contained in the trial court's six (6) page decision:

There is no doubt that defendant is a registered tenant of Cosme Pido. However, when the
latter died their tenancy relations changed since ownership of said land was passed on to his
heirs who, by executing a Deed of Sale, which defendant admitted in his affidavit, likewise
passed on their ownership of Lot 1130 to herein plaintiff (private respondent). As owner hereof,
plaintiff has the right to demand payment of rental and the tenant is obligated to pay rentals
due from the time demand is made. . . .6

xxx xxx xxx

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of itself extinguish
the relationship. There was only a change of the personality of the lessor in the person of
herein plaintiff Edy de los Reyes who being the purchaser or transferee, assumes the rights and
obligations of the former landowner to the tenant Teodoro Acap, herein defendant.7

Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower court when
it ruled that private respondent acquired ownership of Lot No. 1130 and that he, as tenant,
should pay rentals to private respondent and that failing to pay the same from 1983 to 1987,
his right to a certificate of land transfer under P.D. 27 was deemed forfeited.

The Court of Appeals brushed aside petitioner's argument that the Declaration of Heirship and
Waiver of Rights (Exhibit "D"), the document relied upon by private respondent to prove his
ownership to the lot, was excluded by the lower court in its order dated 27 August 1990. The
order indeed noted that the document was not identified by Cosme Pido's heirs and was not
registered with the Registry of Deeds of Negros Occidental. According to respondent court,
however, since the Declaration of Heirship and Waiver of Rights appears to have been duly
notarized, no further proof of its due execution was necessary. Like the trial court, respondent
court was also convinced that the said document stands as prima facie proof of appellee's
(private respondent's) ownership of the land in dispute.

With respect to its non-registration, respondent court noted that petitioner had actual
knowledge of the subject sale of the land in dispute to private respondent because as early as
1983, he (petitioner) already knew of private respondent's claim over the said land but which
he thereafter denied, and that in 1982, he (petitioner) actually paid rent to private respondent.
Otherwise stated, respondent court considered this fact of rental payment in 1982 as estoppel
on petitioner's part to thereafter refute private respondent's claim of ownership over the said
land. Under these circumstances, respondent court ruled that indeed there was deliberate
refusal by petitioner to pay rent for a continued period of five years that merited forfeiture of
his otherwise preferred right to the issuance of a certificate of land transfer.

In the present petition, petitioner impugns the decision of the Court of Appeals as not in accord
with the law and evidence when it rules that private respondent acquired ownership of Lot No.
1130 through the aforementioned Declaration of Heirship and Waiver of Rights.

Hence, the issues to be resolved presently are the following:

1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER OF RIGHTS IS

A RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT OVER THE LOT IN
QUESTION.

2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED OF SALE IN

FAVOR OF PRIVATE RESPONDENT OF THE LOT IN QUESTION.

Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990, explicitly
excluded the document marked as Exhibit "D" (Declaration of Heirship, etc.) as private
respondent's evidence because it was not registered with the Registry of Deeds and was not
identified by anyone of the heirs of Cosme Pido. The Court of Appeals, however, held the same
to be admissible, it being a notarized document, hence, a prima facie proof of private
respondents' ownership of the lot to which it refers.

Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of the
recognized modes of acquiring ownership under Article 712 of the Civil Code. Neither can the
same be considered a deed of sale so as to transfer ownership of the land to private
respondent because no consideration is stated in the contract (assuming it is a contract or deed
of sale).
Private respondent defends the decision of respondent Court of Appeals as in accord with the
evidence and the law. He posits that while it may indeed be true that the trial court excluded
his Exhibit "D" which is the Declaration of Heirship and Waiver of Rights as part of his evidence,
the trial court declared him nonetheless owner of the subject lot based on other evidence
adduced during the trial, namely, the notice of adverse claim (Exhibit "E") duly registered by
him with the Registry of Deeds, which contains the questioned Declaration of Heirship and
Waiver of Rights as an integral part thereof.

We find the petition impressed with merit.

In the first place, an asserted right or claim to ownership or a real right over a thing arising from
a juridical act, however justified, is not per se sufficient to give rise to ownership over the res.
That right or title must be completed by fulfilling certain conditions imposed by law. Hence,
ownership and real rights are acquired only pursuant to a legal mode or process. While title is
the juridical justification, mode is the actual process of acquisition or transfer of ownership over
a thing in question.8

Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified
into two (2) classes, namely, the original mode (i.e., through occupation, acquisitive
prescription, law or intellectual creation) and the derivative mode (i.e., through succession
mortis causa or tradition as a result of certain contracts, such as sale, barter, donation,
assignment or mutuum).

In the case at bench, the trial court was obviously confused as to the nature and effect of the
Declaration of Heirship and Waiver of Rights, equating the same with a contract (deed) of sale.
They are not the same.

In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other party to pay a price certain in money or its
equivalent.9

Upon the other hand, a declaration of heirship and waiver of rights operates as a public
instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and
divide the estate left by the decedent among themselves as they see fit. It is in effect an
extrajudicial settlement between the heirs under Rule 74 of the Rules of Court.10

Hence, there is a marked difference between a sale of hereditary rights and a waiver of
hereditary rights. The first presumes the existence of a contract or deed of sale between the
parties.11 The second is, technically speaking, a mode of extinction of ownership where there is
an abdication or intentional relinquishment of a known right with knowledge of its existence
and intention to relinquish it, in favor of other persons who are co-heirs in the succession.12
Private respondent, being then a stranger to the succession of Cosme Pido, cannot conclusively
claim ownership over the subject lot on the sole basis of the waiver document which neither
recites the elements of either a sale,13 or a donation,14 or any other derivative mode of
acquiring ownership.

Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a
"sale" transpired between Cosme Pido's heirs and private respondent and that petitioner
acquired actual knowledge of said sale when he was summoned by the Ministry of Agrarian
Reform to discuss private respondent's claim over the lot in question. This conclusion has no
basis both in fact and in law.

On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights" was
excluded by the trial court in its order dated 27 August 1990 because the document was neither
registered with the Registry of Deeds nor identified by the heirs of Cosme Pido. There is no
showing that private respondent had the same document attached to or made part of the
record. What the trial court admitted was Annex "E", a notice of adverse claim filed with the
Registry of Deeds which contained the Declaration of Heirship with Waiver of rights and was
annotated at the back of the Original Certificate of Title to the land in question.

A notice of adverse claim, by its nature, does not however prove private respondent's
ownership over the tenanted lot. "A notice of adverse claim is nothing but a notice of a claim
adverse to the registered owner, the validity of which is yet to be established in court at some
future date, and is no better than a notice of lis pendens which is a notice of a case already
pending in court."15

It is to be noted that while the existence of said adverse claim was duly proven, there is no
evidence whatsoever that a deed of sale was executed between Cosme Pido's heirs and private
respondent transferring the rights of Pido's heirs to the land in favor of private respondent.
Private respondent's right or interest therefore in the tenanted lot remains an adverse claim
which cannot by itself be sufficient to cancel the OCT to the land and title the same in private
respondent's name.

Consequently, while the transaction between Pido's heirs and private respondent may be
binding on both parties, the right of petitioner as a registered tenant to the land cannot be
perfunctorily forfeited on a mere allegation of private respondent's ownership without the
corresponding proof thereof.

Petitioner had been a registered tenant in the subject land since 1960 and religiously paid lease
rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his
family (after Pido's death), even if in 1982, private respondent allegedly informed petitioner
that he had become the new owner of the land.

Under the circumstances, petitioner may have, in good faith, assumed such statement of
private respondent to be true and may have in fact delivered 10 cavans of palay as annual
rental for 1982 to private respondent. But in 1983, it is clear that petitioner had misgivings over
private respondent's claim of ownership over the said land because in the October 1983 MAR
conference, his wife Laurenciana categorically denied all of private respondent's allegations. In
fact, petitioner even secured a certificate from the MAR dated 9 May 1988 to the effect that he
continued to be the registered tenant of Cosme Pido and not of private respondent. The reason
is that private respondent never registered the Declaration of Heirship with Waiver of Rights
with the Registry of Deeds or with the MAR. Instead, he (private respondent) sought to do
indirectly what could not be done directly, i.e., file a notice of adverse claim on the said lot to
establish ownership thereover.

It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by
petitioner to pay the lease rentals or amortizations to the landowner/agricultural lessor which,
in this case, private respondent failed to establish in his favor by clear and convincing
evidence.16

Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate of Land
Transfer under P.D. 27 and to the possession of his farmholdings should not be applied against
petitioners, since private respondent has not established a cause of action for recovery of
possession against petitioner.

WHEREFORE, premises considered, the Court hereby GRANTS the petition and the decision of
the Court of Appeals dated 1 May 1994 which affirmed the decision of the RTC of Himamaylan,
Negros Occidental dated 20 August 1991 is hereby SET ASIDE. The private respondent's
complaint for recovery of possession and damages against petitioner Acap is hereby DISMISSED
for failure to properly state a cause of action, without prejudice to private respondent taking
the proper legal steps to establish the legal mode by which he claims to have acquired
ownership of the land in question.

10. G.R. No. 204029 June 4, 2014

AVELINA ABARIENTOS REBUSQUILLO [substituted by her heirs, except Emelinda R. Gualvez] and
SALVADOR A. OROSCO, Petitioners,
vs.
SPS. DOMINGO and EMELINDA REBUSQUILLO GUALVEZ and the CITY ASSESSOR OF LEGAZPI
CITY, Respondents.

DECISION

VELASCO, JR., J.:

Before Us is a Petition for Review on Certiorari under Rule 45 assailing the Decision1 and
Resolution2 dated March 30, 2012 and September 25, 2012, respectively, of the Court of
Appeals (CA) in CA-G.R. CV No. 93035, which reversed and set aside the Decision dated January
20, 2009 of the Regional Trial Court (RTC), Branch 4 in Legazpi City, in Civil Case No. 10407.

The antecedent facts may be summarized as follows:

On October 26, 2004, petitioners Avelina Abarientos Rebusquillo (Avelina) and Salvador Orosco
(Salvador) filed a Complaint for annulment and revocation of an Affidavit of Self-Adjudication
dated December 4, 2001 and a Deed of Absolute Sale dated February 6, 2002 before the court a
quo. In it, petitioners alleged that Avelina was one of the children of Eulalio Abarientos (Eulalio)
and Victoria Villareal (Victoria). Eulalio died intestate on July 3, 1964, survived by his wife
Victoria, six legitimate children, and one illegitimate child, namely: (1) Avelina Abarientos-
Rebusquillo, petitioner in this case; (2) Fortunata Abarientos-Orosco, the mother of petitioner
Salvador; (3) Rosalino Abarientos; (4) Juan Abarientos; (5) Feliciano Abarientos; (6) Abraham
Abarientos; and (7) Carlos Abarientos. His wife Victoria eventually died intestate on June 30,
1983.

On his death, Eulalio left behind an untitled parcel of land in Legazpi City consisting of two
thousand eight hundred sixty-nine(2,869) square meters, more or less, which was covered by
Tax Declaration ARP No. (TD) 0141.

In 2001, Avelina was supposedly made to sign two (2) documents by her daughter Emelinda
Rebusquillo-Gualvez (Emelinda) and her son-in-law Domingo Gualvez (Domingo), respondents
in this case, on the pretext that the documents were needed to facilitate the titling of the lot. It
was only in 2003, so petitioners claim, that Avelina realized that what she signed was an
Affidavit of Self-Adjudication and a Deed of Absolute Sale in favor of respondents.

As respondents purportedly ignored her when she tried to talk to them, Avelina sought the
intervention of the RTC to declare null and void the two (2) documents in order to reinstate
TD0141 and so correct the injustice done to the other heirs of Eulalio.

In their answer, respondents admitted that the execution of the Affidavit of Self-Adjudication
and the Deed of Sale was intended to facilitate the titling of the subject property. Paragraph 9
of their Answer reads:

Sometime in the year 2001, [petitioner] Avelina together with the other heirs of Eulalio
Abarientos brought out the idea to [respondent] Emelinda Rebusquillo-Gualvez to have the
property described in paragraph 8 of the complaint registered under the Torrens System of
Registration. To facilitate the titling of the property, so that the same could be attractive to
prospective buyers, it was agreed that the property’s tax declaration could be transferred to
[respondents] Spouses [Emelinda] R. Gualvez and Domingo Gualvez who will spend all the cost
of titling subject to reimbursement by all other heirs in case the property is sold; That it was
agreed that all the heirs will be given their corresponding shares on the property; That pursuant
to said purpose Avelina Abarientos-Rebusquillo with the knowledge and consent of the other
heirs signed and executed an Affidavit of Self-Adjudication and a Deed of Absolute Sale in favor
of [respondents] Gualvez. In fact, [petitioner] Avelina Rebusquillo was given an advance sum of
FIFTY THOUSAND PESOS (₱50,000.00) by [respondent] spouses and all the delinquent taxes
paid by [respondents].3
After trial, the RTC rendered its Decision dated January 20, 2009 annulling the Affidavit of Self-
Adjudication and the Deed of Absolute Sale executed by Avelina on the grounds that (1) with
regard to the Affidavit of Self-Adjudication, she was not the sole heir of her parents and was not
therefore solely entitled to their estate; and (2) in the case of the Deed of Absolute Sale,
Avelina did not really intend to sell her share in the property as it was only executed to facilitate
the titling of such property. The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered, as follows:

1. The subject Affidavit of Self-Adjudication of the Estate of the Deceased Spouses Eulalio
Abarientos and Victoria Villareal, dated December 4, 2001 as well as the subject Deed of
Absolute Sale, notarized on February 6, 2002, covering the property described in par. 8 of the
Amended Complaint are hereby ordered ANNULLED;

2. That defendant City Assessor’s Officer of Legazpi City is hereby ordered to CANCEL the Tax
Declaration in the name of private [respondents] spouses Gualvez under ARP No. 4143 and to
REINSTATE the Tax Declaration under ARP No. 0141 in the name of Eulalio Abarientos;

3. By way of restitution, [petitioner] Avelina Abarientos Rebusquillo is hereby ordered to return

or refund to [respondents] spouses Domingo Gualvez and Emelinda Gualvez, the ₱50,000.00
given by the latter spouses to the former.4

Assailing the trial court’s decision, respondents interposed an appeal with the CA arguing that
the Deed of Sale cannot be annulled being a public document that has for its object the
creation and transmission of real rights over the immovable subject property. The fact that
Avelina’s testimony was not offered in evidence, so respondents argued, the signature on the
adverted deed remains as concrete proof of her agreement to its terms. Lastly, respondents
contended that the Complaint filed by petitioners Avelina and Salvador before the RTC is not
the proper remedy provided by law for those compulsory heirs unlawfully deprived of their
inheritance.

Pending the resolution of respondents’ appeal, Avelina died intestate on September 1, 2009
leaving behind several living heirs5 including respondent Emelinda.

In its Decision dated March 30, 2012, the appellate court granted the appeal and reversed and
set aside the Decision of the RTC. The CA held that the RTC erred in annulling the Affidavit of
Self-Adjudication simply on petitioners’ allegation of the existence of the heirs of Eulalio,
considering that issues on heirship must be made in administration or intestate proceedings,
not in an ordinary civil action. Further, the appellate court observed that the Deed of Absolute
Sale cannot be nullified as it is a notarized document that has in its favor the presumption of
regularity and is entitled to full faith and credit upon its face.
Aggrieved by the CA’s Decision, petitioner Avelina, as substituted by her heirs except
respondent Emelinda, and petitioner Salvador are now before this Court ascribing reversible
error on the part of the appellate court.

We find merit in the instant petition.

It has indeed been ruled that the declaration of heirship must be made in a special proceeding,
not in an independent civil action. However, this Court had likewise held that recourse to
administration proceedings to determine who heirs are is sanctioned only if there is a good and
compelling reason for such recourse.6 Hence, the Court had allowed exceptions to the rule
requiring administration proceedings as when the parties in the civil case already presented
their evidence regarding the issue of heirship, and the RTC had consequently rendered
judgment upon the issues it defined during the pre-trial.7 In Portugal v. Portugal-Beltran,8 this
Court held:

In the case at bar, respondent, believing rightly or wrongly that she was the sole heir to
Portugal’s estate, executed on February 15, 1988 the questioned Affidavit of Adjudication
under the second sentence of Rule 74, Section 1 of the Revised Rules of Court. Said rule is an
exception to the general rule that when a person dies leaving a property, it should be judicially
administered and the competent court should appoint a qualified administrator, in the order
established in Sec. 6, Rule 78 in case the deceased left no will, or in case he did, he failed to
name an executor therein.

Petitioners claim, however, to be the exclusive heirs of Portugal. A probate or intestate court,
no doubt, has jurisdiction to declare who are the heirs of a deceased.

It appearing, however, that in the present case the only property of the intestate estate of
Portugal is the Caloocan parcel of land to still subject it, under the circumstances of the case, to
a special proceeding which could be long, hence, not expeditious, just to establish the status of
petitioners as heirs is not only impractical; it is burdensome to the estate with the costs and
expenses of an administration proceeding. And it is superfluous in light of the fact that the
parties to the civil case - subject of the present case, could and had already in fact presented
evidence before the trial court which assumed jurisdiction over the case upon the issues it
defined during pre-trial.

In fine, under the circumstances of the present case, there being no compelling reason to still
subject Portugal’s estate to administration proceedings since a determination of petitioners’
status as heirs could be achieved in the civil case filed by petitioners, the trial court should
proceed to evaluate the evidence presented by the parties during the trial and render a
decision thereon upon the issues it defined during pre-trial x x x. (emphasis supplied)

Similar to Portugal, in the present case, there appears to be only one parcel of land being
claimed by the contending parties as the inheritance from Eulalio. It would be more practical, as
Portugal teaches, to dispense with a separate special proceeding for the determination of the
status of petitioner Avelina as sole heir of Eulalio, especially in light of the fact that respondents
spouses Gualvez admitted in court that they knew for a fact that petitioner Avelina was not the
sole heir of Eulalio and that petitioner Salvador was one of the other living heirs with rights over
the subject land. As confirmed by the RTC in its Decision, respondents have stipulated and have
thereby admitted the veracity of the following facts during the pre-trial:

IV – UNCONTROVERTED FACTS: (Based on the stipulation of facts in the Pre-Trial Order)

A. x x x

B. [Petitioners] and private [respondents] spouses Gualvez admitted the following facts:

1. Identity of the parties;

2. Capacity of the [petitioners] and private [respondents] to sue and be sued;

3. [Petitioner] Avelina Abarientos-Rebusquilllo is not the only surviving heir of deceased

spouses Eulalio and Victoria Abarientos;

4. Petitioner Salvador Orosco is a co-owner/possessor of a portion of the subject property;

5. Fortunata Abarientos-Orosco is the sister of Avelina Abarientos;

6. [Respondent] Emelinda Rebusquillo-Gualves is a daughter of [petitioner] Avelina A.

Rebusquillo;

7. [Petitioner] Avelina Rebusquillo was born on Nov. 10, 1923;

8. The existence of Affidavit of Self-Adjudication of Estate of the Deceased and Deed of

Absolute Sale executed by [petitioner] Avelina A. Rebusquillo on the subject property.9
(emphasis supplied)

In light of the admission of respondents spouses Gualvez, it is with more reason that a resort to
special proceeding will be but an unnecessary superfluity. Accordingly, the court a quo had
properly rendered judgment on the validity of the Affidavit of Self-Adjudication executed by
Avelina. As pointed out by the trial court, an Affidavit of Self-Adjudication is only proper when
the affiant is the sole heir of the decedent. The second sentence of Section 1, Rule 74 of the
Rules of Court is patently clear that self-adjudication is only warranted when there is only one
heir:

Section 1. Extrajudicial settlement by agreement between heirs. –– x x x If there is only one

heir, he may adjudicate to himself the entire estate by means of an affidavit filed in the office of
the register of deeds. x x x (emphasis supplied)
As admitted by respondents, Avelina was not the sole heir of Eulalio. In fact, as admitted by
respondents, petitioner Salvador is one of the co-heirs by right of representation of his mother.
Without a doubt, Avelina had perjured herself when she declared in the affidavit that she is
"the only daughter and sole heir of spouses EULALIO ABARIENTOS AND VICTORIA
VILLAREAL."10 The falsity of this claim renders her act of adjudicating to herself the inheritance
left by her father invalid. The RTC did not, therefore, err in granting Avelina’s prayer to declare
the affidavit null and void and so correct the wrong she has committed.

In like manner, the Deed of Absolute Sale executed by Avelina in favor of respondents was
correctly nullified and voided by the RTC. Avelina was not in the right position to sell and
transfer the absolute ownership of the subject property to respondents. As she was not the
sole heir of Eulalio and her Affidavit of Self-Adjudication is void, the subject property is still
subject to partition. Avelina, in fine, did not have the absolute ownership of the subject
property but only an aliquot portion. What she could have transferred to respondents was only
the ownership of such aliquot portion. It is apparent from the admissions of respondents and
the records of this case that Avelina had no intention to transfer the ownership, of whatever
extent, over the property to respondents. Hence, the Deed of Absolute Sale is nothing more
than a simulated contract.

The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when
the parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement. (emphasis supplied)

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it
does not prejudice a third person and is not intended for any purpose contrary to law, morals,
good customs, public order or public policy binds the parties to their real agreement.

In Heirs of Policronio Ureta Sr. v. Heirs of Liberato Ureta,11 this Court explained the concept of
the simulation of contracts:

In absolute simulation, there is a colorable contract but it has no substance as the parties have
no intention to be bound by it. The main characteristic of an absolute simulation is that the
apparent contract is not really desired or intended to produce legal effect or in any way alter
the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is
void, and the parties may recover from each other what they may have given under the
contract. However, if the parties state a false cause in the contract to conceal their real
agreement, the contract is relatively simulated and the parties are still bound by their real
agreement. Hence, where the essential requisites of a contract are present and the simulation
refers only to the content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest. (emphasis supplied)
In the present case, the true intention of the parties in the execution of the Deed of Absolute
Sale is immediately apparent from respondents’ very own Answer to petitioners’ Complaint. As
respondents themselves acknowledge, the purpose of the Deed of Absolute Sale was simply to
"facilitate the titling of the [subject] property," not to transfer the ownership of the lot to them.
Furthermore, respondents concede that petitioner Salvador remains in possession of the
property and that there is no indication that respondents ever took possession of the subject
property after its supposed purchase. Such failure to take exclusive possession of the subject
property or, in the alternative, to collect rentals from its possessor, is contrary to the principle
of ownership and is a clear badge of simulation that renders the whole transaction void.12

Contrary to the appellate court’s opinion, the fact that the questioned Deed of Absolute Sale
was reduced to writing and notarized does not accord it the quality of incontrovertibility
otherwise provided by the parole evidence rule. The form of a contract does not make an
otherwise simulated and invalid act valid. The rule on parole evidence is not, as it were,
ironclad. Sec. 9, Rule 130 of the Rules of Court provides the exceptions:

Section 9. Evidence of written agreements. – x x x

However, a party may present evidence to modify, explain or add to the terms of written
agreement if he puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties
thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.

The term "agreement" includes wills. (emphasis supplied)

The failure of the Deed of Absolute Sale to express the true intent and agreement of the
contracting parties was clearly put in issue in the present case. Again, respondents themselves
admit in their Answer that the Affidavit of Self-Adjudication and the Deed of Absolute Sale were
only executed to facilitate the titling of the property. The RTC is, therefore, justified to apply the
exceptions provided in the second paragraph of Sec. 9, Rule 130 to ascertain the true intent of
the parties, which shall prevail over the letter of the document. That said, considering that the
Deed of Absolute Sale has been shown to be void for being absolutely simulated, petitioners
are not precluded from presenting evidence to modify, explain or add to the terms of the
written agreement.13
WHEREFORE, the instant petition is GRANTED. The Decision dated March 30, 2012 and the
Resolution dated September 25, 2012 of the Court of Appeals in CA-G.R. CV No. 93035 are
hereby REVERSED and SET ASIDE. The Decision dated January 20, 2009 in Civil Case No. 10407
of the Regional Trial Court (RTC),Branch 4 in Legazpi City is REINSTATED.