FIRST DIVISION

[ G.R. No.97332, October 10, 1991 ]

SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR,
PETITIONERS, VS. THE HON. COURT OF APPEALS AND SPOUSES
MACARIA LABINGISA REYES AND ROBERTO REYES, RESPONDENTS.

DECISION

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-
G.R. CV. No. 24176 entitled, "Spouses Julio Villamor and Marina Villamor, Plaintiffs-
Appellees, versus Spouses Macaria Labing-isa Reyes and Roberto Reyes, Defendants-
Appellants," which reversed the decision of the Regional Trial Court (Branch 121) at
Caloocan City in Civil Case No. C-12942.

The facts of the case are as follows:

Macaria Labing-isa Reyes was the owner of a 600-square meter lot located at Baesa,
Caloocan City, as evidenced by Transfer Certificate of Title No. (18431) 18938, of the
Register of Deeds of Rizal.

In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio
and Marina Villamor for the total amount of P21,000.00.  Earlier, Macaria borrowed
P2,000.00 from the spouses which amount was deducted from the total purchase price of
the 300 square meter lot sold.  The portion sold to the Villamor spouses is now covered
by TCT No. 39935 while the remaining portion which is still in the name of Macaria
Labing-isa is covered by TCT No. 39934 (pars. 5 and 7, Complaint).  On November 11,
1971, Macaria executed a "Deed of Option" in favor of Villamor in which the remaining
300 square meter portion (TCT No. 39934) of the lot would be sold to Villamor under the
conditions stated therein.  The document reads:
"DEED OF OPTION

"This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of
November, 1971, by and between Macaria Labing-isa, of age, married to Roberto Reyes,
likewise of age, and both residing on Reparo St., Baesa, Caloocan City, on the one hand,
and on the other hand the spouses Julio Villamor and Marina V. Villamor, also of age and
residing at No. 552 Reparo St., corner Baesa Road, Baesa, Caloocan City,
 "W I T N E S S E T H

"That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an area of
600 square meters, more or less, more particularly described in TCT No. (18431) 18938
of the Office of the Register of Deeds for the province of Rizal, issued in my name, I
having inherited the same from my deceased parents, for which reason it is my
paraphernal property;

"That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to
the aforesaid spouses Julio Villamor and Marina V. Villamor at the price of P70.00 per
sq. meter, which was greatly higher than the actual reasonable prevailing value of lands
in that place at the time, which portion, after segregation, is now covered by TCT No.
39935 of the Register of Deeds for the City of Caloocan, issued on August 17, 1971 in
the name of the aforementioned spouses vendees;

"That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor,
agreed to buy the said one-half portion at the above-stated price of about P70.00 per
square meter, is because I, and my husband Roberto Reyes, have agreed to sell and
convey to them the remaining one-half portion still owned by me and now covered by
TCT No. 39935 of the Register of Deeds for the City of Caloocan, whenever the need of
such sale arises, either on our part or on the part of the spouses (Julio) Villamor and
Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever
improvement may be found thereon;

"That I am willing to have this contract to sell inscribed on my aforesaid title as an

encumbrance upon the property covered thereby, upon payment of the corresponding
fees; and

"That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above
provisions of this Deed of Option.

"IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila,
Philippines, by all the persons concerned, this 11th day of November, 1971.
"JULIO VILLAMOR "MACARIA LABINGISA
 
       With My
Conformity:
 
"MARINA VILLAMOR "ROBERTO REYES
   
"Signed in the Presence Of  
   
  "MARIANO Z. SUNIGA  
  
  "ROSALINDA S. EUGENIO  

"ACKNOWLEDGMENT

"REPUBLIC OF THE PHILIPPINES)

CITY OF MANILA                             ) S.S.

"At the City of Manila, on the 11th day of November, 1971, personally appeared before
me Roberto Reyes, Macaria Labingsa, Julio Villamor and Marina Ventura-Villamor,
known to me as the same persons who executed the foregoing Deed of Option, which
consists of two (2) pages including the page whereon this acknowledgment is written, and
signed at the left margin of the first page and at the bottom of the instrument by the
parties and their witnesses, and sealed with my notarial seal, and said parties
acknowledged to me that the same is their free act and deed. The Residence Certificates
of the parties were exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila
on Jan. 27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria
Labingisa, A-3339130 and B-1266104, both issued at Caloocan City on April 15, 1971,
their joint Tax Acct. Number being 3028-767-6; .Julio Villamor, A-804, issued at Manila
on Jan. 14, 1971, and B-138, issued at Manila on March 1, 1971; and Marina Ventura-
Villamor, A-803, issued at Manila on Jan. 14, 1971, their joint Tax Acct. Number being
608-202-6.

"ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971

"Doc. No.      1526;

Page No.       24;
Book No.       38;
Series of       1971." (pp. 25-29, Rollo)
According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to
repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and
reminded them instead that the Deed of Option in fact gave them the option to purchase
the remaining portion of the lot.

The Villamors, on the other hand, claimed that they had expressed their desire to
purchase the remaining 300 square meter portion of the lot but the Reyeses had been
ignoring them.  Thus, on July 13, 1987, after conciliation proceedings in the barangay
level failed, they filed a complaint for specific performance against the Reyeses.

On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor
spouses, the dispositive portion of which states:
"WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor
of the plaintiffs and against the defendants ordering the defendant MACARIA LABING-
ISA REYES and ROBERTO REYES, to sell unto the plaintiffs the land covered by
T.C.T. No. 39934 of the Register of Deeds of Caloocan City, to pay the plaintiffs the sum
of P3,000.00 as and for attorney's fees and to pay the cost of suit.

"The counterclaim is hereby DISMISSED, for LACK OF MERIT.

"SO ORDERED." (pp. 24-25, Rollo)

Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court
of Appeals on the following assignment of errors:
"1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11,
1971 BETWEEN THE PLAINTIFF-APPELLEES AND DEFENDANT-APPELLANTS
IS STILL VALID AND BINDING DESPITE THE LAPSE OF MORE THAN
THIRTEEN (13) YEARS FROM THE EXECUTION OF THE CONTRACT;

"2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE

WORDS AND STIPULATIONS WHICH SHOULD BE RESOLVED AGAINST THE
PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED AND PREPARED
THE SAME;

"3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION
AND PURPOSE OF THE PARTIES DESPITE ADVERSE, CONTEMPORANEOUS
AND SUBSEQUENT ACTS OF THE PLAINTIFF-APPELLEES;

"4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF

THEIR IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE DEED OF
OPTION;

"5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN

FAVOR OF THE DEFENDANT-APPELLANTS; and

"6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-

APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF ATTORNEY'S
FEES."  (pp. 31-32, Rollo)
On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of
the trial court and dismissing the complaint.  The reversal of the trial court's decision was
premised on the finding of respondent court that the Deed of Option is void for lack of
consideration.
The Villamor spouses brought the instant petition for review on certiorari on the
following grounds:
"I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE
PHRASE 'WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR (PRIVATE
RESPONDENT) PART OR ON THE PART OF THE SPOUSES JULIO D.
VILLAMOR AND MARINA V. VILLAMOR’ CONTAINED IN THE DEED OF
OPTION DENOTES A SUSPENSIVE CONDITION;

"II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED

PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN NOT
FINDING THAT THE SAID CONDITION HAD ALREADY BEEN FULFILLED;

"III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED

PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE IMPOSITION OF SAID CONDITION PREVENTED THE
PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS OFFER
AND ACCEPTANCE CONTAINED IN THE DEED OF OPTION;

"IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF

OPTION IS VOID FOR LACK OF CONSIDERATION;

"V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT

CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF OPTION
DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED THEREIN." (p.
12, Rollo)
The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby
the private respondents agreed to sell their lot to petitioners "whenever the need of such
sale arises, either on our part (private respondents) or on the part of Julio Villamor and
Marina Villamor (petitioners)."  The court a quo, ruled that the Deed of Option was a
valid written agreement between the parties and made the following conclusions:
"x x x                                                    x x x                                                    x x x

"It is interesting to state that the agreement between the parties are evidenced by a
writing, hence, the controverting oral testimonies of the herein defendants cannot be any
better than the documentary evidence, which, in this case, is the Deed of Option.  (Exh.
'A' and 'A-a')

"The law provides that when the terms of an agreement have been reduced to writing it is
to be considered as containing all such terms, and therefore, there can be, between the
parties and their successors in interest no evidence of the terms of the agreement, other
than the contents of the writing.  x x x (Section 7 Rule 130 Revised Rules of Court)
Likewise, it is a general and most inflexible rule that wherever written instruments are
appointed either by the requirements of law, or by the contract of the parties, to be the
repositories and memorials of truth, any other evidence is excluded from being used,
either as a substitute for such instruments, or to contradict or alter them.  This is a matter
both of principle and of policy: of principle because such instruments are in their nature
and origin entitled to a much higher degree of credit than parol evidence, of policy,
because it would be attended with great mischief if those instruments upon which man's
rights depended were liable to be impeached by loose collateral evidence.  Where the
terms of an agreement are reduced to writing the document itself being constituted by the
parties as the expositor of their intentions it is the only instrument of evidence in respect
of that agreement which the law will recognize so long as it exists for the purpose of
evidence."  (Starkie, EV. pp. 648, 655 cited in Kasheenath vs. Chundy, W. R. 68, cited in
Francisco's Rules of Court, Vol. VII Part 1 p. 153) (Italics supplied, pp. 126-127,
Records).
The respondent appellate court, however, ruled that the said deed of option is void for
lack of consideration. The appellate court made the following disquisitions:
"Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion
purchased by them although the prevailing price at that time was only P25.00 in
consideration of the option to buy the remainder of the land.  This does not seem to be the
case.  In the first place, the deed of sale was never produced by them to prove their
claim.  Defendant-appellants testified that no copy of the deed of sale had ever been
given to them by the plaintiff-appellees.  In the second place, if this was really the
condition of the prior sale, we see no reason why it should be reiterated in the Deed of
Option.  On the contrary, the alleged overprice paid by the plaintiff-appellees is given in
the Deed as reason for the desire of the Villamors to acquire the land rather than as a
consideration for the option given to them, although one might wonder why they took
nearly 13years to invoke their right if they really were in due need of the lot.

"At all events, the consideration needed to support a unilateral promise to sell is a distinct
one, not something that is as uncertain as P70.00 per square meter which is allegedly
'greatly higher than the actual prevailing value of lands.’  A sale must be for a price
certain (Art. 1458).  For how much the portion conveyed to the plaintiff-appellees was
sold so that the balance could be considered the consideration for the promise to sell has
not been shown, beyond a mere allegation that it was very much below P70.00 per square
meter.

"The fact that plaintiff-appellees might have paid P18.00 per square meter for another
land at the time of the sale to them of a portion of defendant-appellant's lot does not
necessarily prove that the prevailing market price at the time of the sale was P18.00 per
square meter.  (In fact they claim it was P25.00). It is improbable that plaintiff-appellees
should pay P52.00 per square meters for the privilege of buying when the value of the
land itself was allegedly P18.00 per square meter." (pp. 34-35, Rollo)
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the
contracts, the essential reason which moves the contracting parties to enter into the
contract."  The cause or the impelling reason on the part of private respondents in
executing the deed of option as appearing in the deed itself is the petitioners' having
agreed to buy the 300 square meter portion of private respondents' land at P70.00 per
square meter "which was greatly higher than the actual reasonable prevailing price."  This
cause or consideration is clear from the deed which stated:
"That the only reason why the spouses-vendees Julio Villamor and Marina V. Villamor
agreed to buy the said one-half portion at the above stated price of about P70.00 per
square meter, is because I, and my husband Roberto Reyes, have agreed to sell and
convey to them the remaining one-half portion still owned by me x x x."  (p. 26, Rollo)
The respondent appellate court failed to give due consideration to petitioners' evidence
which shows that in 1969 the Villamor spouses bought an adjacent lot from the brother of
Macaria Labing-isa for only P18.00 per square meter which the private respondents did
not rebut.  Thus, expressed in terms of money, the consideration for the deed of option is
the difference between the purchase price of the 300 square meter portion of the lot in
1971 (P70.00 per sq. m.) and the prevailing reasonable price of the same lot in 1971. 
Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option,
was ascertainable.  Petitioners’ allegedly paying P52.00 per square meter for the option
may, as opined by the appellate court, be improbable but improbabilities does not
invalidate a contract freely entered into by the parties.

The "deed of option" entered into by the parties in this case had unique features. 
Ordinarily, an optional contract is a privilege existing in one person, for which he had
paid a consideration and which gives him the right to buy, for example, certain
merchandise or certain specified property, from another person, if he chooses, at any time
within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982).  If
We look closely at the "deed of option" signed by the parties, We will notice that the first
part covered the statement on the sale of the 300 square meter portion of the lot to
Spouses Villamor at the price of P 70.00 per square meter "which was higher than the
actual reasonable prevailing value of the lands in that place at that time (of sale)." The
second part stated that the only reason why the Villamor spouses agreed to buy said lot at
a much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors
the other half-portion of 300 square meters of the land.  Had the deed stopped there, there
would be no dispute that the deed is really an ordinary deed of option granting the
Villamors the option to buy the remaining 300 square meter-half portion of the lot in
consideration for their having agreed to buy the other half of the land for a much higher
price.  But, the "deed of option" went on and stated that the sale of the other half would
be made "whenever the need of such sale arises, either on our (Reyeses) part or on the
part of the Spouses Julio Villamor and Marina V. Villamor.  It appears that while the
option to buy was granted to the Villamors, the Reyeses were likewise granted an option
to sell. In other words, it was not only the Villamors who were granted an option to buy
for which they paid a consideration.  The Reyeses as well were granted an option to sell
should the need for such sale on their part arise.
In the instant case, the option offered by private respondents had been accepted by the
petitioner, the promisee, in the same document.  The acceptance of an offer to sell for a
price certain created a bilateral contract to sell and buy and upon acceptance, the
offeree, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian
Tek, 102 Phil. 948).  Demandability may be exercised at any time after the execution of
the deed.  In Sanchez v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376, We held:
"In other words, since there may be no valid contract without a cause or consideration,
the promisor is not bound by his promise and may, accordingly withdraw it.  Pending
notice of its withdrawal, his accepted promise partakes, however, of the nature of an
offer to sell which if accepted, results in a perfected contract of sale."
A contract of sale is, under Article 1475 of the Civil Code," perfected at the moment
there is a meeting of minds upon the thing which is the object of the contract and upon
the price.  From that moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts." Since there was, between
the parties, a meeting of minds upon the object and the price, there was already a
perfected contract of sale.  What was, however, left to be done was for either party to
demand from the other their respective undertakings under the contract. It may be
demanded at any time either by the private respondents, who may compel the petitioners
to pay for the property or the petitioners, who may compel the private respondents to
deliver the property.

However, the Deed of Option did not provide for the period within which the parties may
demand the performance of their respective undertakings in the instrument.  The parties
could not have contemplated that the delivery of the property and the payment thereof
could be made indefinitely and render uncertain the status of the land.  The failure of
either parties to demand performance of the obligation of the other for an unreasonable
length of time renders the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon a written contract must be brought
within ten (10) years.  The Deed of Option was executed on November 11, 1971.  The
acceptance, as already mentioned, was also accepted in the same instrument.  The
complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years
from the time of the execution of the contract. Hence, the right of action had prescribed. 
There were allegations by the petitioners that they demanded from the private
respondents as early as 1984 the enforcement of their rights under the contract. Still, it
was beyond the ten (10) year period prescribed by the Civil Code. In the case of Santos v.
Ganayo, L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and
subscribing to the observations of the court a quo held, thus:
"x x x.  Assuming that Rosa Ganayo, the oppositor herein, had the right based on the
Agreement to Convey and Transfer as contained in Exhibits ‘1’ and ‘1-A’, her failure or
the abandonment of her right to file an action against Pulmano Molintas when he was still
a co-owner of the one-half (1/2) portion of the 10,000 square meters is now barred by
laches and/or prescribed by law because she failed to bring such action within ten (10)
years from the date of the written agreement in 1941, pursuant to Art. 1144 of the New
Civil Code, so that when she filed the adverse claim through her counsel in 1959 she had
absolutely no more right whatsoever on the same, having been barred by laches.
It is of judicial notice that the price of real estate in Metro Manila is continuously on the
rise.  To allow the petitioner to demand the delivery of the property subject of this case
thirteen (13) years or seventeen (17) years after the execution of the deed at the price of
only P70.00 per square meter is inequitous.  For reasons also of equity and in
consideration of the fact that the private respondents have no other decent place to live,
this Court, in the exercise of its equity jurisdiction is not inclined to grant petitioners'
prayer,

ACCORDINGLY, the petition is DENIED.  The decision of respondent appellate court

is AFFIRMED for reasons cited in this decision.  Judgment is rendered dismissing the
complaint in Civil Case No. C-12942 on the ground of prescription and laches.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 111238, January 25, 1995 ]
ADELFA PROPERTIES, INC., PETITIONER, VS. COURT OF APPEALS,
ROSARIO JIMENEZ-CASTAÑEDA AND SALUD JIMENEZ,
RESPONDENTS.

DECISION

REGALADO, J.:

The main issues presented for resolution in this petition for review on certiorari of the
judgment of respondent Court of Appeals, dated April 6, 1993, in CA-G.R. CV No.
34767 [1] are (1) whether or not the "Exclusive Option to Purchase" executed between
petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castañeda and
Salud Jimenez is an option contract; and (2) whether or not there was a valid suspension
of payment of the purchase price by said petitioner, and the legal effects thereof on the
contractual relations of the parties.

The records disclose the following antecedent facts which culminated in the present
appellate review, to wit:

1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the
registered co-owners of a parcel of land consisting of 17,710 square meters, covered by
Transfer Certificate of Title (TCT) No. 309773, [2] situated in Barrio Culasi, Las Piñas,
Metro Manila.

2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half
of said parcel of land, specifically the eastern portion thereof, to herein petitioner
pursuant to a “Kasulatan sa Bilihan ng Lupa.” [3] Subsequently, a "Confirmatory
Extrajudicial Partition Agreement" [4] was executed by the Jimenezes, wherein the eastern
portion of the subject lot, with an area of 8,855 square meters was adjudicated to Jose and
Dominador Jimenez, while the western portion was allocated to herein private
respondents.

3. Thereafter, herein petitioner expressed interest in buying the western portion of the
property from private respondents. Accordingly, on November 25, 1989, an "Exclusive
Option to Purchase" [5] was executed between petitioner and private respondents, under
the following terms and conditions:

"1. The selling price of said 8,655 square meters of the subject property is TWO
MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY
PESOS ONLY (P2,856,150.00);

"2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC, as an
option money shall be credited as partial payment upon the consummation of the sale and
the balance in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE
HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989;

"3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in
accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option
money to be forfeited in our favor and we will refund the remaining 50% of said option
money upon the sale of said property to a third party:

"4. All expenses including the corresponding capital gains tax, cost of documentary
stamps are for the account of the VENDORS, and expenses for the registration of the
deed of sale in the Registry of Deeds are for the account of ADELFA PROPERTIES,
INC."

Considering, however, that the owner's copy of the certificate of title issued to respondent
Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said
certificate of title was filed in court through Atty. Bayani L. Bernardo, who acted as
private respondents' counsel. Eventually, a new owner's copy of the certificate of title was
issued but it remained in the possession of Atty. Bernardo until he turned it over to
petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons [6] on November 29, 1989,
together with a copy of a complaint filed by the nephews and nieces of private
respondents against the latter, Jose and Dominador Jimenez, and herein petitioner in the
Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of
the deed of sale in favor of Household Corporation and recovery of ownership of the
property covered by TCT No. 309773. [7]

5. As a consequence, in a letter dated November 29, 1989, petitioner informed private

respondents that it would hold payment of the full purchase price and suggested that
private respondents settle the case with their nephews and nieces, adding that "x x x if
possible, although November 30, 1989 is a holiday, we will be waiting for you and said
plaintiffs at our office up to 7:00 p.m." [8] Another letter of the same tenor and of even
date was sent by petitioner to Jose and Dominador Jimenez. [9] Respondent Salud Jimenez
refused to heed the suggestion of petitioner and attributed the suspension of payment of
the purchase price to “lack of word of honor”.

6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option
contract with private respondents, and its contract of sale with Jose and Dominador
Jimenez, as Entry No. 1437-4 and Entry No. 1438-4, respectively.

7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty.
Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were
cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price
provided that P500,000.00 be deducted therefrom for the settlement of the civil case. This
was rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote
private respondents on the same matter but this time reducing the amount from
P500,000.00 to P300,000.00, and this was also rejected by the latter.

8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No.
89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT
No. 309773 the exclusive option to purchase as Entry No. 4442-4.

9. On the same day, February 28, 1990, private respondents executed a Deed of
Conditional Sale [10] in favor of Emylene Chua over the same parcel of land for
P3,029,250.00, of which P1,500,000.00 was paid to private respondents on said date,
with the balance to be paid upon the transfer of title to the specified one-half portion.

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that
in view of the dismissal of the case against them, petitioner was willing to pay the
purchase price, and he requested that the corresponding deed of absolute sale be
executed. [11] This was ignored by private respondents.

11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing
therein a check for P25,000.00 representing the refund of fifty percent of the option
money paid under the exclusive option to purchase. Private respondents then requested
petitioner to return the owner's duplicate copy of the certificate of title of respondent
Salud Jimenez. [12] Petitioner failed to surrender the certificate of title, hence private
respondents filed Civil Case No. 7532 in the Regional Trial Court of Pasay City, Branch
113, for annulment of contract with damages, praying, among others, that the exclusive
option to purchase be declared null and void; that defendant, herein petitioner, be ordered
to return the owner's duplicate certificate of title; and that the annotation of the option
contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of
the lot, filed a complaint in intervention.

12. The trial court rendered judgment [13] therein on September 5, 1991 holding that the
agreement entered into by the parties was merely an option contract, and declaring that
the suspension of payment by herein petitioner constituted a counter-offer which,
therefore, was tantamount to a rejection of the option. It likewise ruled that herein
petitioner could not validly suspend payment in favor of private respondents on the
ground that the vindicatory action filed by the latter's kin did not involve the western
portion of the land covered by the contract between petitioner and private respondents,
but the eastern portion thereof which was the subject of the sale between petitioner and
the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation
of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as
valid and binding, and ordered petitioner to pay damages and attorney's fees to private
respondents, with costs.

13.  On appeal, respondent Court of Appeals affirmed in toto the decision of the court a
quo and held that the failure of petitioner to pay the purchase price within the period
agreed upon was tantamount to an election by petitioner not to buy the property; that the
suspension of payment constituted an imposition of a condition which was actually a
counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil
Code on suspension of payments applies only to a contract of sale or a contract to sell,
but not to an option contract which it opined was the nature of the document subject of
the case at bar. Said appellate court similarly upheld the validity of the deed of
conditional sale executed by private respondents in favor of intervenor Emylene Chua.

In the present petition, the following assignment of errors are raised:

1. Respondent Court of Appeals acted with grave abuse of discretion in making its
finding that the agreement entered into by petitioner and private respondents was strictly
an option contract;

2. Granting arguendo that the agreement was an option contract, respondent Court of
Appeals acted with grave abuse of discretion in grievously failing to consider that while
the option period had not lapsed, private respondents could not unilaterally and
prematurely terminate the option period;

3. Respondent Court of Appeals acted with grave abuse of discretion in failing to

appreciate fully the attendant facts and circumstances when it made the conclusion of law
that Article 1590 does not apply; and

4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with
the sale in favor of appellee Ma. Emylene Chua and the award of damages and attorney's
fees which are not only excessive, but also without bases in fact and in law. [14]

An analysis of the facts obtaining in this case, as well as the evidence presented by the
parties, irresistibly leads to the conclusion that the agreement between the parties is a
contract to sell, and not an option contract or a contract of sale.

1. In view of the extended disquisition thereon by respondent court, it would be

worthwhile at this juncture to briefly discourse on the rationale behind our treatment of
the alleged option contract as a contract to sell, rather than a contract of sale. The
distinction between the two is important for in a contract of sale, the title passes to the
vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full payment of the price.
In a contract of sale, the vendor has lost and cannot recover ownership until and unless
the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the
vendor until the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach but an event that prevents the obligation of
the vendor to convey title from becoming effective. Thus, a deed of sale is considered
absolute in nature where there is neither a stipulation in the deed that title to the property
sold is reserved in the seller until the full payment of the price, nor one giving the vendor
the right to unilaterally resolve the contract the moment the buyer fails to pay within a
fixed period. [15]

There are two features which convince us that the parties never intended to transfer
ownership to petitioner except upon full payment of the purchase price. Firstly, the
exclusive option to purchase, although it provided for automatic rescission of the contract
and partial forfeiture of the amount already paid in case of default, does not mention that
petitioner is obliged to return possession or ownership of the property as a consequence
of non-payment. There is no stipulation anent reversion or reconveyance of the property
to herein private respondents in the event that petitioner does not comply with its
obligation. With the absence of such a stipulation, although there is a provision on the
remedies available to the parties in case of breach, it may legally be inferred that the
parties never intended to transfer ownership to the petitioner prior to completion of
payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to the purchaser
until he had fully paid the price. Article 1478 of the Civil Code does not require that such
a stipulation be expressly made. Consequently, an implied stipulation to that effect is
considered valid and, therefore, binding and enforceable between the parties. It should be
noted that under the law and jurisprudence, a contract which contains this kind of
stipulation is considered a contract to sell.

Moreover, that the parties really intended to execute a contract to sell, and not a contract
of sale, is bolstered by the fact that the deed of absolute sale would have been issued only
upon the payment of the balance of the purchase price, as may be gleaned from
petitioner's letter dated April 16, 1990 [16] wherein it informed private respondents that it
"is now ready and willing to pay you simultaneously with the execution of the
corresponding deed of absolute sale."

Secondly, it has not been shown that there was delivery of the property, actual or
constructive, made to herein petitioner. The exclusive option to purchase is not contained
in a public instrument the execution of which would have been considered equivalent to
delivery. [17] Neither did petitioner take actual, physical possession of the property at any
given time. It is true that after the reconstitution of private respondents' certificate of title,
it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who
thereafter delivered the same to herein petitioner. Normally, under the law, such
possession by the vendee is to be understood as a delivery. [18] However, private
respondents explained that there was really no intention on their part to deliver the title to
herein petitioner with the purpose of transferring ownership to it. They claim that Atty.
Bernardo had possession of the title only because he was their counsel in the petition for
reconstitution. We have no reason not to believe this explanation of private respondents,
aside from the fact that such contention was never refuted or contradicted by petitioner.

2. Irrefragably, the controverted document should legally be considered as a perfected

contract to sell. On this particular point, therefore, we reject the position and ratiocination
of respondent Court of Appeals which, while awarding the correct relief to private
respondents, categorized the instrument as "strictly an option contract."

The important task in contract interpretation is always the ascertainment of the intention
of the contracting parties and that task is, of course, to be discharged by looking to the
words they used to project that intention in their contract, all the words not just a
particular word or two, and words in context not words standing alone. [19] Moreover,
judging from the subsequent acts of the parties which will hereinafter be discussed, it is
undeniable that the intention of the parties was to enter into a contract to sell. [20] In
addition, the title of a contract does not necessarily determine its true nature. [21] Hence,
the fact that the document under discussion is entitled "Exclusive Option to Purchase" is
not controlling where the text thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by which the
owner stipulates with another that the latter shall have the right to buy the property at a
fixed price within a certain time, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right to sell or demand a sale.
It is also sometimes called an "unaccepted offer." An option is not of itself a purchase,
but merely secures the privilege to buy. [22] It is not a sale of property but a sale of the
right to purchase. [23] It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed price within a
certain time. He does not sell his land; he does not then agree to sell it; but he does sell
something, that is, the right or privilege to buy at the election or option of the other
party. [24] Its distinguishing characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the offer. Until acceptance, it
is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any
title to, or any interest or right in the subject matter, but is merely a contract by which the
owner of property gives the optionee the right or privilege of accepting the offer and
buying the property on certain terms. [25]

On the other hand, a contract, like a contract to sell, involves a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to
render some service. [26] Contracts, in general, are perfected by mere consent, [27] which is
manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance
absolute. [28]

The distinction between an "option" and a contract of sale is that an option is an

unaccepted offer. It states the terms and conditions on which the owner is willing to sell
his land, if the holder elects to accept them within the time limited. If the holder does so
elect, he must give notice to the other party, and the accepted offer thereupon becomes a
valid and binding contract. If an acceptance is not made within the time fixed, the owner
is no longer bound by his offer, and the option is at an end. A contract of sale, on the
other hand, fixes definitely the relative rights and obligations of both parties at the time of
its execution. The offer and the acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the agreement. [29]

A perusal of the contract in this case, as well as the oral and documentary evidence
presented by the parties, readily shows that there is indeed a concurrence of petitioner's
offer to buy and private respondents' acceptance thereof. The rule is that except where a
formal acceptance is so required, although the acceptance must be affirmatively and
clearly made and must be evidenced by some acts or conduct communicated to the
offeror, it may be made either in a formal or an informal manner, and may be shown by
acts, conduct, or words of the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance may be shown by the
acts, conduct, or words of a party recognizing the existence of the contract of sale. [30]

The records also show that private respondents accepted the offer of petitioner to buy
their property under the terms of their contract. At the time petitioner made its offer,
private respondents suggested that their transfer certificate of title be first reconstituted, to
which petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L.
Bernardo, who assisted private respondents in filing a petition for reconstitution. After
the title was reconstituted, the parties agreed that petitioner would pay either in cash or
manager's check the amount of P2,856,150.00 for the lot. Petitioner was supposed to pay
the same on November 25, 1989, but it later offered to make a down payment of
P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30,
1989. Private respondents agreed to the counter-offer made by petitioner. [31] As a result,
the so?called exclusive option to purchase was prepared by petitioner and was
subsequently signed by private respondents, thereby creating a perfected contract to sell
between them.

It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain,
while the acceptance thereof was absolute and without any condition or qualification. The
agreement as to the object, the price of the property, and the terms of payment was clear
and well-defined. No other significance could be given to such acts than that they were
meant to finalize and perfect the transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses including the corresponding
capital gains tax, cost of documentary stamps are for the account of the vendors, and
expenses for the registration of the deed of sale in the Registry of Deeds are for the
account of Adelfa Properties, Inc." Hence, there was nothing left to be done except the
performance of the respective obligations of the parties.

We do not subscribe to private respondents’ submission, which was upheld by both the
trial court and respondent Court of Appeals, that the offer of petitioner to deduct
P500,000.00, (later reduced to P300,000.00) from the purchase price for the settlement of
the civil case was tantamount to a counter-offer. It must be stressed that there already
existed a perfected contract between the parties at the time the alleged counter-offer was
made. Thus, any new offer by a party becomes binding only when it is accepted by the
other. In the case of private respondents, they actually refused to concur in said offer of
petitioner, by reason of which the original terms of the contract continued to be
enforceable.

At any rate, the same cannot be considered a counter-offer for the simple reason that
petitioner's sole purpose was to settle the civil case in order that it could already comply
with its obligation. In fact, it was even indicative of a desire by petitioner to immediately
comply therewith, except that it was being prevented from doing so because of the filing
of the civil case which, it believed in good faith, rendered compliance improbable at that
time. In addition, no inference can be drawn from that suggestion given by petitioner that
it was totally abandoning the original contract.

More importantly, it will be noted that the failure of petitioner to pay the balance of the
purchase price within the agreed period was attributed by private respondents to "lack of
word of honor" on the part of the former. The reason of "lack of word of honor" is to us a
clear indication that private respondents considered petitioner already bound by its
obligation to pay the balance of the consideration. In effect, private respondents were
demanding or exacting fulfillment of the obligation from herein petitioner. With the
arrival of the period agreed upon by the parties, petitioner was supposed to comply with
the obligation incumbent upon it to perform, not merely to exercise an option or a right to
buy the property.

The obligation of petitioner on November 30, 1993 consisted of an obligation to give

something, that is, the payment of the purchase price. The contract did not simply give
petitioner the discretion to pay for the property. [32] It will be noted that there is nothing in
the said contract to show that petitioner was merely given a certain period within which
to exercise its privilege to buy. The agreed period was intended to give time to herein
petitioner within which to fulfill and comply with its obligation, that is, to pay the
balance of the purchase price. No evidence was presented by private respondents to prove
otherwise.

The test in determining whether a contract is a "contract of sale or purchase" or a mere

"option" is whether or not the agreement could be specifically enforced. [33] There is no
doubt that the obligation of petitioner to pay the purchase price is specific, definite and
certain, and consequently binding and enforceable. Had private respondents chosen to
enforce the contract, they could have specifically compelled petitioner to pay the balance
of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral
stipulation, compliance with which could legally and definitely be demanded from
petitioner as a consequence.

This is not a case where no right is as yet created nor an obligation declared, as where
something further remains to be done before the buyer and seller obligate
themselves. [34] An agreement is only an "option" when no obligation rests on the party to
make any payment except such as may be agreed on between the parties as consideration
to support the option until he has made up his mind within the time specified. [35] An
option, and not a contract to purchase, is effected by an agreement to sell real estate for
payments to be made within a specified time and providing for forfeiture of money paid
upon failure to make payment, where the purchaser does not agree to purchase, to make
payment, or to bind himself in any way other than the forfeiture of the payments
made. [36] As hereinbefore discussed, this is not the situation obtaining in the case at bar.

While there is jurisprudence to the effect that a contract which provides that the initial
payment shall be totally forfeited in case of default in payment is to be considered as an
option contract, [37] still we are not inclined to conform with the findings of respondent
court and the court a quo that the contract executed between the parties is an option
contract, for the reason that the parties were already contemplating the payment of the
balance of the purchase price, and were not merely quoting an agreed value for the
property. The term "balance," connotes a remainder or something remaining from the
original total sum already agreed upon.

In other words, the alleged option money of P50,000.00 was actually earnest money
which was intended to form part of the purchase price. The amount of P50,000.00 was
not distinct from the cause or consideration for the sale of the property, but was itself a
part thereof. It is a statutory rule that whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and as proof of the perfection of the
contract. [38] It constitutes an advance payment and must, therefore, be deducted from the
total price. Also, earnest money is given by the buyer to the seller to bind the bargain.

There are clear distinctions between earnest money and option money, viz.: (a) earnest
money is part of the purchase price, while option money is the money given as a distinct
consideration for an option contract; (b) earnest money is given only where there is
already a sale, while option money applies to a sale not yet perfected; and (c) when
earnest money is given, the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy. [39]

The aforequoted characteristics of earnest money are apparent in the so-called option
contract under review, even though it was called “option money” by the parties. In
addition, private respondents failed to show that the payment of the balance of the
purchase price was only a condition precedent to the acceptance of the offer or to the
exercise of the right to buy. On the contrary, it has been sufficiently established that such
payment was but an element of the performance of petitioner's obligation under the
contract to sell. [40]

II

1. This brings us to the second issue as to whether or not there was valid suspension of
payment of the purchase price by petitioner and the legal consequences thereof. To justify
its failure to pay the purchase price within the agreed period, petitioner invokes Article
1590 of the Civil Code which provides:

"ART. 1590. Should the vendee be disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory
action or a foreclosure of mortgage, he may suspend the payment of the price until the
vendor has caused the disturbance or danger to cease, unless the latter gives security for
the return of the price in a proper case, or it has been stipulated that, notwithstanding any
such contingency, the vendee shall be bound to make the payment. A mere act of trespass
shall not authorize the suspension of the payment of the price."

Respondent court refused to apply the aforequoted provision of law on the erroneous
assumption that the true agreement between the parties was a contract of option. As we
have hereinbefore discussed, it was not an option contract but a perfected contract to sell.
Verily, therefore, Article 1590 would properly apply.

Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against
the parties herein involved only the eastern half of the land subject of the deed of sale
between petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect
on private respondents' title and ownership over the western half of the land which is
covered by the contract subject of the present case. We have gone over the complaint for
recovery of ownership filed in said case [41] and we are not persuaded by the factual
findings made by said courts. At a glance, it is easily discernible that, although the
complaint prayed for the annulment only of the contract of sale executed between
petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein
plaintiffs’ share in that parcel of land specifically covered by TCT No. 309773. In other
words, the plaintiffs therein were claiming to be co-owners of the entire parcel of land
described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly
interpreted by the lower courts, did their claim pertain exclusively to the eastern half
adjudicated to the Jimenez brothers.

Such being the case, petitioner was justified in suspending payment of the balance of the
purchase price by reason of the aforesaid vindicatory action filed against it. The
assurance made by private respondents that petitioner did not have to worry about the
case because it was pure and simple harassment [42] is not the kind of guaranty
contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to
make payment even with the existence of a vindicatory action if the vendee should give a
security for the return of the price.

2. Be that as it may, and the validity of the suspension of payment notwithstanding, we

find and hold that private respondents may no longer be compelled to sell and deliver the
subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the
consignation of the purchase price after the disturbance had ceased; and, secondarily, the
fact that the contract to sell had been validly rescinded by private respondents.

The records of this case reveal that as early as February 28, 1990 when petitioner caused
its exclusive option to be annotated anew on the certificate of title, it already knew of the
dismissal of Civil Case No. 89-5541. However, it was only on April 16, 1990 that
petitioner, through its counsel, wrote private respondents expressing its willingness to
pay the balance of the purchase price upon the execution of the corresponding deed of
absolute sale. At most, that was merely a notice to pay. There was no proper tender of
payment nor consignation in this case as required by law.

The mere sending of a letter by the vendee expressing the intention to pay, without the
accompanying payment, is not considered a valid tender of payment. [43] Besides, a mere
tender of payment is not sufficient to compel private respondents to deliver the property
and execute the deed of absolute sale. It is consignation which is essential in order to
extinguish petitioner's obligation to pay the balance of the purchase price. [44] The rule is
different in case of an option contract [45] or in legal redemption or in a sale with right to
repurchase, [46] wherein consignation is not necessary because these cases involve an
exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of
an obligation, hence tender of payment would be sufficient to preserve the right or
privilege. This is because the provisions on consignation are not applicable when there is
no obligation to pay. [47] A contract to sell, as in the case before us, involves the
performance of an obligation, not merely the exercise of a privilege or a right.
Consequently, performance or payment may be effected not by tender of payment alone
but by both tender and consignation.

Furthermore, petitioner no longer had the right to suspend payment after the disturbance
ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its
obligation to pay the balance again arose and resumed after it received notice of such
dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has
failed to do so up to the present time, or even to deposit the money with the trial court
when this case was originally filed therein.

By reason of petitioner's failure to comply with its obligation, private respondents elected
to resort to and did announce the rescission of the contract through its letter to petitioner
dated July 27, 1990. That written notice of rescission is deemed sufficient under the
circumstances. Article 1592 of the Civil Code which requires rescission either by judicial
action or notarial act is not applicable to a contract to sell. [48] Furthermore, judicial action
for rescission of a contract is not necessary where the contract provides for automatic
rescission in case of breach, [49] as in the contract involved in the present controversy.

We are not unaware of the ruling in University of the Philippines vs. De los Angeles,
etc. [50] that the right to rescind is not absolute, being ever subject to scrutiny and review
by the proper court. It is our considered view, however, that this rule applies to a situation
where the extrajudicial rescission is contested by the defaulting party. In other words,
resolution of reciprocal contracts may be made extrajudicially unless successfully
impugned in court. If the debtor impugns the declaration, it shall be subject to judicial
determination. [51] Otherwise, if said party does not oppose it, the extrajudicial rescission
shall have legal effect. [52]

In the case at bar, it has been shown that although petitioner was duly furnished and did
receive a written notice of rescission which specified the grounds therefor, it failed to
reply thereto or protest against it. Its silence thereon suggests an admission of the veracity
and validity of private respondents' claim. [53] Furthermore, the initiative of instituting suit
was transferred from the rescinder to the defaulter by virtue of the automatic rescission
clause in the contract. [54] But then, the records bear out the fact that aside from the
lackadaisical manner with which petitioner treated private respondents' letter of
cancellation, it utterly failed to seriously seek redress from the court for the enforcement
of its alleged rights under the contract. If private respondents had not taken the initiative
of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal
action to compel specific performance from the former. By such cavalier disregard, it has
been effectively estopped from seeking the affirmative relief it now desires but which it
had theretofore disdained.

WHEREFORE, on the foregoing modificatory premises, and considering that the same
result has been reached by respondent Court of Appeals with respect to the relief awarded
to private respondents by the court a quo which we find to be correct, its assailed
judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 137290, July 31, 2000 ]
SAN MIGUEL PROPERTIES PHILIPPINES, INC., PETITIONER, VS.
SPOUSES ALFREDO HUANG AND GRACE HUANG, RESPONDENTS.

DECISION

MENDOZA, J.:

This is a petition for review of the decision, [1] dated April 8, 1997, of the Court of
Appeals which reversed the decision of the Regional Trial Court, Branch 153, Pasig City
dismissing the complaint brought by respondents against petitioner for enforcement of
a contract of sale.

The facts are not in dispute.

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in

the purchase and sale of real properties. Part of its inventory are two parcels of land
totalling 1, 738 square meters at the corner of Meralco Avenue and General Capinpin
Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-82396
of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash.
The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as
undisclosed principals. In a letter[2] dated March 24, 1994, Atty. Dauz signified her
clients' interest in purchasing the properties for the amount for which they were offered
by petitioner, under the following terms: the sum of P500,000.00 would be given as
earnest money and the balance would be paid in eight equal monthly installments from
May to December, 1994. However, petitioner refused the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter[3] proposing the following terms for
the purchase of the properties, viz:
This is to express our interest to buy your-above-mentioned property with an
area of 1, 738 sq. meters. For this purpose, we are enclosing herewith the sum of
P1,000,000.00 representing earnest-deposit money, subject to the following conditions.

1. We will be given the exclusive option to purchase the property within the 30 days
from date of your acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of the
purchase; SMPPI will secure the necessary Management and Board approvals;
and we initiate the documentation if there is mutual agreement between us.

3. In the event that we do not come to an agreement on this transaction, the said
amount of P1,000,000.00 shall be refundable to us in full upon demand. . . .

Isidro A. Sobrecarey, petitioner's vice-president and operations manager for corporate

real estate, indicated his conformity to the offer by affixing his signature to the letter
and accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses,
Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April
8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject
properties on a 90-day term. Atty. Dauz countered with an offer of six months within
which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz
that petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to
propose a four-month period of amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to
June 13, 1994 within which to exercise her option to purchase the property, adding that
within that period, "[we] hope to finalize [our] agreement on the matter." [4] Her request
was granted.

On July 7, 1994, petitioner, through its president and chief executive officer, Federico
Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the
terms and conditions of the sale despite the extension granted by petitioner, the latter
was returning the amount of P1 million given as "earnest-deposit." [5]

On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the
execution within five days of a deed of sale covering the properties. Respondents
attempted to return the "earnest-deposit" but petitioner refused on the ground that
respondents' option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific performance
against petitioner before the Regional Trial Court, Branch 133, Pasig City where it was
docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to dismiss
the complaint alleging that (1) the alleged "exclusive option" of respondent spouses
lacked a consideration separate and distinct from the purchase price and was thus
unenforceable and (2) the complaint did not allege a cause of action because there was
no "meeting of the minds" between the parties and, therefore, no perfected contract of
sale. The motion was opposed by respondents.

On December 12, 1994, the trial court granted petitioner's motion and dismissed the
action. Respondents filed a motion for reconsideration, but it was denied by the trial
court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a
decision[6] reversing the judgment of the trial court. The appellate court held that all the
requisites of a perfected contract of sale had been complied with as the offer made on
March 29, 1994, in connection with which the earnest money in the amount of P1
million was tendered by respondents, had already been accepted by petitioner. The
court cited Art. 1482 of the Civil Code which provides that "[w]henever earnest money is
given in a contract of sale, it shall be considered as part of the price and as proof of the
perfection of the contract." The fact the parties had not agreed on the mode of payment
did not affect the contract as such is not an essential element for its validity. In addition,
the court found that Sobrecarey had authority to act in behalf of petitioner for the sale
of the properties.[7]

Petitioner moved for reconsideration of the trial court's decision, but its motion was
denied. Hence, this petition.

Petitioner contends that the Court of Appeals erred in finding that there was a perfected
contract of sale between the parties because the March 29, 1994 letter of respondents,
which petitioner accepted, merely resulted in an option contract, albeit it was
unenforceable for lack of a distinct consideration. Petitioner argues that the absence of
agreement as to the mode of payment was fatal to the perfection of the contract of
sale. Petitioner also disputes the appellate court's ruling that Isidro A. Sobrecarey had
authority to sell the subject real properties. [8]

Respondents were required to comment within ten (10) days from notice. However,
despite 13 extensions totalling 142 days which the Court had given to them,
respondents failed to file their comment. They were thus considered to have waived the
filing of a comment.

The petition is meritorious.

In holding that there is a perfected contract of sale, the Court of Appeals relied on the
following findings: (1) earnest money was allegedly given by respondents and accepted
by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey;
and (2) the documentary evidence in the records show that there was a perfected
contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds
that respondents did not give the P1 million as "earnest money" as provided by Art.
1482 of the Civil Code. They presented the amount merely as a deposit of what would
eventually become the earnest money or downpayment should a contract of sale be
made by them. The amount was thus given not as a part of the purchase price and as
proof of the perfection of the contract of sale but only as a guarantee that respondents
would not back out of the sale. Respondents in fact described the amount as an
"earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:
. . . While the P5,000 might have indeed been paid to Carlos in October, 1967,
there is nothing to show that the same was in the concept of the earnest money
contemplated in Art. 1482 of the Civil Code, invoked by petitioner, as signifying
perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the
record, We are more inclined to believe that the said P5,000.00 were paid in the
concept of earnest money as the term was understood under the Old Civil Code, that is,
as a guarantee that the buyer would not back out, considering that it is not clear that
there was already a definite agreement as to the price then and that petitioners were
decided to buy 6/7 only of the property should respondent Javellana refuse to agree to
part with her 1/7 share.[10]
In the present case, the P1 million "earnest-deposit" could not have been given
as earnest money as contemplated in Art. 1482 because, at the time when petitioner
accepted the terms of respondents' offer of March 29, 1994, their contract had not yet
been perfected. This is evident from the following conditions attached by respondents
to their letter, to wit: (1) that they be given the exclusive option to purchase the
property within 30 days from acceptance of the offer; (2) that during the option period,
the parties would negotiate the terms and conditions of the purchase; and (3) petitioner
would secure the necessary approvals while respondents would handle the
documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was
never perfected. As petitioner correctly points out, acceptance of this condition did not
give rise to a perfected sale but merely to an option or an accepted unilateral promise
on the part of respondents to buy the subject properties within 30 days from the date of
acceptance of the offer. Such option giving respondents the exclusive right to buy the
properties within the period agreed upon is separate and distinct from the contract of
sale which the parties may enter. [11] All that respondents had was just the option to buy
the properties which privilege was not, however, exercised by them because there was
a failure to agree on the terms of payment. No contract of sale may thus be enforced by
respondents.

Furthermore, even the option secured by respondents from petitioner was fatally
defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to
buy or sell a determinate thing for a price certain is binding upon the promisor only if
the promise is supported by a distinct consideration. Consideration in an option contract
may be anything of value, unlike in sale where it must be the price certain in money or
its equivalent. There is no showing here of any consideration for the option. Lacking any
proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition
that, during the option period, the parties would negotiate the terms and conditions of
the purchase. The stages of a contract of sale are as follows: (1) negotiation, covering
the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is perfected; (2) perfection, which takes place upon the
concurrence of the essential elements of the sale which are the meeting of the minds of
the parties as to the object of the contract and upon the price; and (3) consummation,
which begins when the parties perform their respective undertakings under the contract
of sale, culminating in the extinguishment thereof. [12] In the present case, the parties
never got past the negotiation stage. The alleged "indubitable evidence" [13] of a
perfected sale cited by the appellate court was nothing more than offers and counter-
offers which did not amount to any final arrangement containing the essential elements
of a contract of sale. While the parties already agreed on the real properties which were
the objects of the sale and on the purchase price, the fact remains that they failed to
arrive at mutually acceptable terms of payment, despite the 45-day extension given by
petitioner.

The appellate court opined that the failure to agree on the terms of payment was no bar
to the perfection of the sale because Art. 1475 only requires agreement by the parties
as to the price of the object. This is error. In Navarro v. Sugar Producers Cooperative
Marketing Association, Inc.,[14] we laid down the rule that the manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can
exist. Although the Civil Code does not expressly state that the minds of the parties
must also meet on the terms or manner of payment of the price, the same is needed,
otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals,[15] agreement
on the manner of payment goes into the price such that a disagreement on the manner
of payment is tantamount to a failure to agree on the price. [16] In Velasco v. Court of
Appeals,[17] the parties to a proposed sale had already agreed on the object of sale and
on the purchase price. By the buyer's own admission, however, the parties still had to
agree on how and when the downpayment and the installments were to be paid. It was
held:
. . . Such being the situation, it can not, therefore, be said that a definite and firm
sales agreement between the parties had been perfected over the lot in
question. Indeed, this Court has already ruled before that a definite agreement on the
manner of payment of the purchase price is an essential element in the formation of a
binding and enforceable contract of sale. The fact, therefore, that the petitioners
delivered to the respondent the sum of P10,000 as part of the down-payment that they
had to pay cannot be considered as sufficient proof of the perfection of any purchase
and sale agreement between the parties herein under Art. 1482 of the new Civil Code,
as the petitioners themselves admit that some essential matter - the terms of the
payment - still had to be mutually covenanted.[18]
Thus, it is not the giving of earnest money, but the proof of the concurrence of all
the essential elements of the contract of sale which establishes the existence of a
perfected sale.

In the absence of a perfected contract of sale, it is immaterial whether Isidro A.

Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner. This
issue, therefore, needs no further discussion.

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents'

complaint is DISMISSED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 135929, April 20, 2001 ]
 LOURDES ONG LIMSON, PETITIONER, VS. COURT OF APPEALS,
SPOUSES LORENZO DE VERA AND ASUNCION SANTOS-DE VERA,
TOMAS CUENCA, JR., AND SUNVAR REALTY DEVELOPMENT
CORPORATION, RESPONDENTS.

DECISION

BELLOSILLO, J.:

Filed under Rule 45 of the Rules of Court this Petition for Review on

Certiorari seeks to review, reverse and set aside the Decision[1] of the Court of Appeals
dated 18 May 1998 reversing that of the Regional Trial Court dated 30 June 1993. The
petition likewise assails the Resolution[2] of the appellate court of 19 October 1998
denying petitioner's  Motion for Reconsideration.

Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before the trial
court,[3] alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion
Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a
parcel of land consisting of  48,260 square meters, more or less, situated in Barrio San
Dionisio, Parañaque, Metro Manila; that respondent spouses informed her that they
were the owners of the subject property; that on 31 July 1978 she agreed to buy the
property at the price of P34.00 per square meter and gave the sum of P20,000.00 to
respondent spouses as "earnest money;" that respondent spouses signed a receipt
therefor and gave her a 10-day option period to purchase the property; that respondent
Lorenzo de Vera then informed her that the subject property was mortgaged to Emilio
Ramos and Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance
of the purchase price to enable him and his wife to settle their obligation with the
Ramoses.

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses
on 5 August 1978 at the Office of the Registry of Deeds of Makati, Metro Manila, to
consummate the transaction but due to the failure of respondent Asuncion Santos-de
Vera and the Ramoses to appear, no transaction was formalized.  In a second meeting
scheduled on 11 August 1978 she claimed that she was willing and ready to pay the
balance of the purchase price but the transaction again did not materialize as
respondent spouses failed to pay the back taxes of subject property. Subsequently, on
23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3) checks
in the total amount of P36,170.00 for the settlement of the back taxes of the property
and for the payment of the quitclaims of the three (3) tenants of subject land.  The
amount was purportedly considered part of the purchase price and respondent Lorenzo
de Vera signed the receipts therefor.

Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent
of respondent spouses that the property was the subject of a negotiation for the sale to
respondent Sunvar Realty Development Corporation (SUNVAR) represented by
respondent Tomas Cuenca, Jr.  On 15 September 1978 petitioner discovered that
although respondent spouses purchased the property from the Ramoses on 20 March
1970 it was only on 15 September 1978 that TCT No. S-72946 covering the property was
issued to respondent spouses.  As a consequence, she filed on the same day an Affidavit
of Adverse Claim with the Office of the Registry of Deeds of Makati, Metro Manila,
which was annotated on TCT No. S-72946.  She also claimed that on the same day she
informed respondent Cuenca of her "contract" to purchase the property.

The Deed of Sale between respondent spouses and respondent SUNVAR was executed

on 15 September 1978 and TCT No. S-72377 was issued in favor of the latter on 26
September 1978 with the Adverse Claim of petitioner annotated thereon.  Petitioner
claimed that when respondent spouses sold the property in dispute to SUNVAR, her
valid and legal right to purchase it was ignored if not violated. Moreover, she
maintained that SUNVAR was in bad faith as it knew of her "contract" to purchase the
subject property from respondent spouses.

Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused
her damage, prejudice and injury, petitioner claimed that the Deed of Sale, should be
annuled and TCT No. S-72377 in the name of respondent SUNVAR canceled and TCT No.
S-72946 restored.  She also insisted that a Deed of Sale between her and respondent
spouses be now executed upon her payment of the balance of the purchase price
agreed upon, plus damages and attorney's fees.

In their Answer[4] respondent spouses maintained that petitioner had no sufficient cause

of action against them; that she was not the real party in interest; that the option to buy
the property had long expired; that there was no perfected contract to sell between
them; and, that petitioner had no legal capacity to sue.  Additionally, respondent
spouses claimed actual, moral and exemplary damages, and attorney's fees against
petitioner.

On the other hand, respondents SUNVAR and Cuenca, in their Answer,[5] alleged that

petitioner was not the proper party in interest and/or had no cause of action against
them.  But, even assuming that petitioner was the proper party in interest, they claimed
that she could only be entitled to the return of any amount received by respondent
spouses.  In the alternative, they argued that petitioner had lost her option to buy the
property for failure to comply with the terms and conditions of the agreement as
embodied in the receipt issued therefor.  Moreover, they contended that at the time of
the execution of the Deed of Sale and the payment of consideration to respondent
spouses, they "did not know nor was informed" of petitioner's interest or claim over the
subject property.  They claimed furthermore that it was only after the signing of
the Deed of Sale and the payment of the corresponding amounts to respondent spouses
that they came to know of the claim of petitioner as it was only then that they were
furnished copy of the title to the property where the Adverse Claim of petitioner was
annotated.  Consequently, they also instituted a Cross-Claim against respondent
spouses for bad faith in encouraging the negotiations between them without telling
them of the claim of petitioner.  The same respondents maintained that had they known
of the claim of petitioner, they would not have initiated negotiations with respondent
spouses for the purchase of the property.  Thus, they prayed for reimbursement of all
amounts and monies received from them by respondent spouses, attorney's fees and
expenses for litigation in the event that the trial court should annul the Deed of Sale and
deprive them of their ownership and possession of the subject land.

In their Answer to the Cross-Claim[6] of respondents SUNVAR and Cuenca, respondent

spouses insisted that they negotiated with the former only after the expiration of the
option period given to petitioner and her failure to comply with her commitments
thereunder.  Respondent spouses contended that they acted legally and validly, in all
honesty and good faith.  According to them, respondent SUNVAR made a verification of
the title with the Office of the Register of Deeds of Metro Manila District IV before the
execution of the Deed of Absolute Sale.  Also, they claimed that the Cross-Claim was
barred by a written waiver executed by respondent SUNVAR in their favor.  Thus,
respondent spouses prayed for actual damages for the unjustified filing of the Cross-
Claim, moral damages for the mental anguish and similar injuries they suffered by
reason thereof, exemplary damages "to prevent others from emulating the bad
example" of respondents SUNVAR and Cuenca, plus attorney's fees.

After a protracted trial and reconstitution of the court records due to the fire that razed
the Pasay City Hall on 18 January 1992, the Regional Trial Court rendered its 30 June
1993 Decision[7] in favor of petitioner.  It ordered (a) the annulment and rescission of
the Deed of Absolute Sale executed on 15 September 1978 by respondent spouses in
favor of respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of
the Registry of Deeds, Makati, Metro Manila, issued in the name of respondent Sunvar
Realty Development Corporation, and the restoration or reinstatement of TCT No. S-
72946 of the same Registry issued in the name of respondent spouses; (c) respondent
spouses to execute a deed of sale conveying ownership of the property covered by TCT
No. S-72946 in favor of petitioner upon her payment of the balance of the purchase
price agreed upon; and, (d) respondent spouses to pay petitioner P50,000.00 as and for
attorney's fees, and to pay the costs.

On appeal, the Court of Appeals completely reversed the decision of the trial court.  It
ordered (a) the Register of Deeds of Makati City to lift the Adverse Claim and such other
encumbrances petitioner might have filed or caused to be annotated on TCT No. S-
75377; and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal
damages, P30,000.00 as exemplary damages and P20,000 as attorney's fees; (2)
respondent spouses, P15,000.00 as nominal damages, P10,000.00 as exemplary
damages and P10,000.00 as attorney's fees; and, (3) the costs.

Petitioner timely filed a Motion for Reconsideration which was denied by the Court of
Appeals on 19 October 1998.  Hence, this petition.

At issue for resolution by the Court is the nature of the contract entered into between
petitioner Lourdes Ong Limson on one hand, and respondent spouses Lorenzo de Vera
and Asuncion Santos-de Vera on the other.

The main argument of petitioner is that there was a perfected contract to sell between
her and respondent spouses.  On the other hand, respondent spouses and respondents
SUNVAR and Cuenca argue that what was perfected between petitioner and respondent
spouses was a mere option.

A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the
conclusion that the agreement between the parties was a contract of option and not a
contract to sell.

An option, as used in the law of sales, is a continuing offer or contract by which the
owner stipulates with another that the latter shall have the right to buy the property at
a fixed price within a time certain, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right to sell or demand a
sale.  It is also sometimes called an "unaccepted offer." An option is not of itself a
purchase, but merely secures the privilege to buy. [8] It is not a sale of property but a sale
of the right to purchase.[9] It is simply a contract by which the owner of property agrees
with another person that he shall have the right to buy his property at a fixed price
within a certain time.  He does not sell his land; he does not then agree to sell it; but he
does sell something, i.e., the right or privilege to buy at the election or option of the
other party.[10] Its distinguishing characteristic is that it imposes no binding obligation on
the person holding the option, aside from the consideration for the offer.  Until
acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree
to transfer, any title to, or any interest or right in the subject matter, but is merely a
contract by which the owner of the property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms.[11] On the other hand, a
contract, like a contract to sell, involves the meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render
some service.[12] Contracts, in general, are perfected by mere consent, [13] which is
manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract.  The offer must be certain and the
acceptance absolute.[14] The Receipt[15] that contains the contract between petitioner
and respondent spouses provides -

Received from Lourdes Limson the sum of Twenty Thousand Pesos (P20,000.00)
under Check No. 22391 dated July 31, 1978 as earnest money with option to purchase a
parcel of land owned by Lorenzo de Vera located at Barrio San Dionisio, Municipality of
Parañaque, Province of Rizal with an area of forty eight thousand two hundred sixty
square meters more or less at the price of Thirty Four Pesos (P34.00)[16] cash subject to
the condition and stipulation that have been agreed upon by the buyer and me which
will form part of the receipt.  Should the transaction of the property not materialize not
on the fault of the buyer, I obligate myself to return the full amount of  P20,000.00
earnest money with option to buy or forfeit on the fault of the buyer.  I guarantee to
notify the buyer Lourdes Limson or her representative and get her conformity should I
sell or encumber this property to a third person. This option to buy is good within ten
(10) days until the absolute deed of sale is finally signed by the parties or the failure of
the buyer to comply with the terms of the option to buy as herein attached.

In the interpretation of contracts, the ascertainment of the intention of the contracting

parties is to be discharged by looking to the words they used to project that intention in
their contract, all the words, not just a particular word or two, and words in context, not
words standing alone.[17] The above Receipt readily shows that respondent spouses and
petitioner only entered into a contract of option; a contract by which respondent
spouses agreed with petitioner that the latter shall have the right to buy the former's
property at a fixed price of P34.00 per square meter within ten (10) days from 31 July
1978.  Respondent spouses did not sell their property; they did not also agree to sell it;
but they sold something, i.e., the privilege to buy at the election or option of petitioner. 
The agreement imposed no binding obligation on petitioner, aside from the
consideration for the offer.

The consideration of P20,000.00 paid by petitioner to respondent spouses was referred

to as "earnest money." However, a careful examination of the words used indicates that
the money is not earnest money but option money.  "Earnest money" and "option
money" are not the same but distinguished thus:  (a) earnest money is part of the
purchase price, while option money is the money given as a distinct consideration for an
option contract; (b) earnest money is given only where there is already a sale, while
option money applies to a sale not yet perfected; and, (c) when earnest money is given,
the buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy,[18] but may even forfeit it depending on the terms of
the option.

There is nothing in the Receipt which indicates that the P20,000.00 was part of the
purchase price.  Moreover, it was not shown that there was a perfected sale between
the parties where earnest money was given.  Finally, when petitioner gave the "earnest
money," the Receipt did not reveal that she was bound to pay the balance of the
purchase price.  In fact, she could even forfeit the money given if the terms of the
option were not met.  Thus, the P20,000.00 could only be money given as consideration
for the option contract.  That the contract between the parties is one of option is
buttressed by the provision therein that should the transaction of the property not
materialize without fault of petitioner as buyer, respondent Lorenzo de Vera obligates
himself to return the full amount of P20,000.00 "earnest money" with option to buy or
forfeit the same on the fault of petitioner.  It is further bolstered by the provision
therein that guarantees petitioner that she or her representative would be notified in
case the subject property was sold or encumbered to a third person.  Finally,
the Receipt  provided for a period within which the option to buy was to be exercised,
i.e., "within ten (10) days" from 31 July 1978.

Doubtless, the agreement between respondent spouses and petitioner was an "option
contract" or what is sometimes called an "unaccepted offer." During the option period
the agreement was not converted into a bilateral promise to sell and to buy where both
respondent spouses and petitioner were then reciprocally bound to comply with their
respective undertakings as petitioner did not timely, affirmatively and clearly accept the
offer of respondent spouses.

The rule is that except where a formal acceptance is not required, although the
acceptance must be affirmatively and clearly made and evidenced by some acts or
conduct communicated to the offeror, it may be made either in a formal or an informal
manner, and may be shown by acts, conduct or words by the accepting party that
clearly manifest a present intention or determination to accept the offer to buy or sell. 
But there is nothing in the acts, conduct or words of petitioner that clearly manifest a
present intention or determination to accept the offer to buy the property of
respondent spouses within the 10-day option period. The only occasion within the
option period when petitioner could have demonstrated her acceptance was on 5
August 1978 when, according to her, she agreed to meet respondent spouses and the
Ramoses at the Office of the Register of Deeds of Makati.  Petitioner's agreement to
meet with respondent spouses presupposes an invitation from the latter, which only
emphasizes their persistence in offering the property to the former.  But whether that
showed acceptance by petitioner of the offer is hazy and dubious.

On or before 10 August 1978, the last day of the option period, no affirmative or clear
manifestation was made by petitioner to accept the offer. Certainly, there was no
concurrence of private respondent spouses' offer and petitioner's acceptance thereof
within the option period.  Consequently, there was no perfected contract to sell
between the parties.

On 11 August 1978 the option period expired and the exclusive right of petitioner to buy
the property of respondent spouses ceased.  The subsequent meetings and
negotiations, specifically on 11 and 23 August 1978, between the parties only showed
the desire of respondent spouses to sell their property to petitioner.  Also, on 14
September 1978 when respondent spouses sent a telegram to petitioner demanding full
payment of the purchase price on even date simply demonstrated an inclination to give
her preference to buy subject property.  Collectively, these instances did not indicate
that petitioner still had the exclusive right to purchase subject property.  Verily, the
commencement of negotiations between respondent spouses and respondent SUNVAR
clearly manifested that their offer to sell subject property to petitioner was no longer
exclusive to her.

We cannot subscribe to the argument of petitioner that respondent spouses extended

the option period when they extended the authority of their agent until 31 August
1978.  The extension of the contract of agency could not operate to extend the option
period between the parties in the instant case.  The extension must not be implied but
categorical and must show the clear intention of the parties.

As to whether respondent spouses were at fault for the non-consummation of their

contract with petitioner, we agree with the appellate court that they were not to be
blamed.  First, within the option period, or on 4 August 1978, it was respondent spouses
and not petitioner who initiated the meeting at the Office of the Register of Deeds of
Makati.  Second, that the Ramoses failed to appear on 4 August 1978 was beyond the
control of respondent spouses.  Third, the succeeding meetings that transpired to
consummate the contract were all beyond the option period and, as declared by the
Court of Appeals, the question of who was at fault was already immaterial.  Fourth, even
assuming that the meetings were within the option period, the presence of petitioner
was not enough as she was not even prepared to pay the purchase price in cash as
agreed upon.  Finally, even without the presence of the Ramoses, petitioner could have
easily made the necessary payment in cash as the price of the property was already set
at P34.00 per square meter and payment of the mortgage could very well be left to
respondent spouses.

Petitioner further claims that when respondent spouses sent her a telegram demanding
full payment of the purchase price on 14 September 1978 it was an acknowledgment of
their contract to sell, thus denying them the right to claim otherwise.

We do not agree.  As explained above, there was no contract to sell between petitioner
and respondent spouses to speak of.  Verily, the telegram could not operate to estop
them from claiming that there was such contract between them and petitioner.  Neither
could it mean  that respondent  spouses  extended  the option period.  The telegram
only showed that respondent spouses were willing to give petitioner a chance to buy
subject property even if it was no longer exclusive.

The option period having expired and acceptance was not effectively made by
petitioner, the purchase of subject property by respondent SUNVAR was perfectly valid
and entered into in good faith.  Petitioner claims that in August 1978 Hermigildo
Sanchez, the son of respondent spouses' agent, Marcosa Sanchez, informed Marixi
Prieto, a member of the Board of Directors of respondent SUNVAR, that the property
was already sold to petitioner.  Also, petitioner maintains that on 5 September 1978
respondent Cuenca met with her and offered to buy the property from her at P45.00
per square meter. Petitioner contends that these incidents, including the annotation of
her Adverse Claim on the title of subject property on 15 September 1978 show that
respondent SUNVAR was aware of the perfected sale between her and respondent
spouses, thus making respondent SUNVAR a buyer in bad faith.

Petitioner is not correct.  The dates mentioned, at least 5 and 15 September 1978, are
immaterial as they were beyond the option period given to petitioner.  On the other
hand, the referral to sometime in August 1978 in the testimony of Hermigildo Sanchez
as emphasized by petitioner in her petition is very vague.  It could be within or beyond
the option period.  Clearly then, even assuming that the meeting with Marixi Prieto
actually transpired, it could not necessarily mean that she knew of the agreement
between petitioner and respondent spouses for the purchase of subject property as the
meeting could have occurred beyond the option period. In which case, no bad faith
could be attributed to respondent SUNVAR.  If, on the other hand, the meeting was
within the option period, petitioner was remiss in her duty to prove so.  Necessarily, we
are left with the conclusion that respondent SUNVAR bought subject property from
respondent spouses in good faith, for value and without knowledge of any flaw or
defect in its title.

The appellate court awarded nominal and exemplary damages plus attorney's fees to
respondent spouses and respondent SUNVAR.  But nominal damages are adjudicated to
vindicate or recognize the right of the plaintiff that has been violated or invaded by the
defendant.[19] In the instant case, the Court recognizes the rights of all the parties and
finds no violation or invasion of the rights of respondents by petitioner. Petitioner, in
filing her complaint, only seeks relief, in good faith, for what she believes she was
entitled to and should not be made to suffer therefor.  Neither should exemplary
damages be awarded to respondents as they are imposed only by way of example or
correction for the public good and only in addition to the moral, temperate, liquidated
or compensatory damages.[20] No such kinds of damages were awarded by the Court of
Appeals, only nominal, which was not justified in this case.  Finally, attorney's fees could
not also be recovered as the Court does not deem it just and equitable under the
circumstances.

WHEREFORE, the petition is DENIED.  The Decision of the Court of Appeals ordering the
Register of Deeds of Makati City to lift the adverse claim and such other encumbrances
petitioner Lourdes Ong Limson may have filed or caused to be annotated on TCT No. S-
75377 is AFFIRMED, with the MODIFICATION that the award of nominal and exemplary
damages as well as attorney's fees is DELETED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 134971, March 25, 2004 ]
HERMINIO TAYAG, PETITIONER, VS. AMANCIA LACSON, ROSENDO
LACSON, ANTONIO LACSON, JUAN LACSON, TEODISIA LACSON-
ESPINOSA AND THE COURT OF APPEALS, RESPONDENTS.

DECISION
CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision[1] and the Resolution[2] of

respondent Court of Appeals in CA-G.R. SP No. 44883.

The Case for the Petitioner

Respondents Angelica Tiotuyco Vda. de Lacson,[3] and her children Amancia, Antonio,

Juan, and Teodosia, all surnamed Lacson, were the registered owners of three parcels of
land located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT)
Nos. 35922-R, 35923-R, and 35925-R, registered in the Register of Deeds of San
Fernando, Pampanga. The properties, which were tenanted agricultural lands, [4] were
administered by Renato Espinosa for the owner.

On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato
Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita
Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres,
Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and
another group, namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno
Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez,
Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto
Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez,
Orlando Flores, and Aurelio Flores,[5] individually executed in favor of the petitioner
separate Deeds of Assignment[6] in which the assignees assigned to the petitioner their
respective rights as tenants/tillers of the landholdings possessed and tilled by  them for
and in consideration of P50.00 per square meter.  The said amount was made payable
“when the legal impediments to the sale of the property to the petitioner no longer
existed.”  The petitioner was also granted the exclusive right to buy the property if and
when the respondents, with the concurrence of the defendants-tenants, agreed to sell the
property.  In the interim, the petitioner gave varied sums of money to the tenants as
partial payments, and the latter issued receipts for the said amounts.

On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out
the implementation of the terms of their separate agreements.[7] However, on August 8,
1996, the defendants-tenants, through Joven Mariano, wrote the petitioner stating that
they were not attending the meeting and instead gave notice of their collective decision to
sell all their rights and interests, as tenants/lessees, over the landholding to the
respondents.[8] Explaining their reasons for their collective decision, they wrote as
follows:
Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating
napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero sinira ninyo  ang
aming pagtitiwala sa pamamagitan  ng demanda ninyo at pagbibigay ng problema sa
amin na hindi naman nagbenta ng lupa.

Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang
aming lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming
magkaroon ng problema.

Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong magiging katangahan
kung ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya  pasensya na lang
Mister Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.[9]
On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San
Fernando, Pampanga, Branch 44, against the defendants-tenants, as well as the
respondents, for the court to fix a period within which to pay the agreed purchase price of
P50.00 per square meter to the defendants, as provided for in the Deeds of Assignment. 
The petitioner also prayed for a writ of preliminary injunction against the defendants and
the respondents therein.[10] The case was docketed as Civil Case No. 10910.

In his complaint, the petitioner alleged, inter alia, the following:

4. That defendants Julio Tiamson, Renato Gozun,  Rosita Hernandez,  Bienvenido

Tongol,  Alfonso Flores,  Norma Quiambao,  Rosita Tolentino, Jose Sosa,
Francisco Tolentino, Sr., Emiliano  Laxamana,  Ruben Torres,  Meliton
Allanigue,  Dominga Laxamana,  Felicencia  de Leon,  Emiliano  Ramos
are original farmers  or direct tillers of landholdings  over parcels  of lands 
covered  by Transfer  Certificate of Title Nos. 35922-R, 35923-R and 35925-
R which are registered in  the  names of  defendants LACSONS; while defendants
Felino G. Tolentino, Rica Gozun,  Perla Gozun,  Benigno Tolentino,  Rodolfo
Quiambao,  Roman Laxamana,  Eddie  San  Luis,  Alfredo Gozun,  Jose 
Tiamson,  Augusto  Tolentino, Sixto Hernandez,  Alex Quiambao, Isidro
Tolentino,  Ceferino de Leon, Alberto Hernandez, and Aurelio Flores are sub-
tenants over the same  parcel  of  land.

5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of
Assignment with the plaintiff by which the defendants assigned all their rights and
interests on their landholdings to the plaintiff and that on the same date (March 17,
1996), the defendants received from the plaintiff partial payments in the amounts
corresponding to their names.  Subsequent payments were also received:   

  1st PAYMENT 2nd PAYMENT CHECK NO. TOTAL

         
1.Julio Tiamson - - - - - - P 20,000 P  10,621.54 231281 P  30,621.54
2. Renato Gozun - - - - - -    P 10,000 96,000 106,000.00
[son of Felix Gozun
(deceased)]
3. Rosita Hernandez - - - - P  5,000 14,374.24 231274 P   19,374.24
4. Bienvenido Tongol - - - P 10,000 14,465.90 231285 24,465.90
Son of Abundio Tongol
(deceased)]
5. Alfonso Flores - - - - - - P 30,000 26,648.40 231271 56,648.40
6. Norma Quiambao - - - - P 10,000 41,501.10 231279 51,501.10
7. Rosita Tolentino - - - - - P 10,000 22,126.08 231284 32,126.08
8. Jose Sosa -- - - - - - - - P 10,000 14,861.31 231291 24,861.31
9. Francisco Tolentino, Sr. P 10,000 24,237.62 231283 34,237.62
10. Emiliano Laxamana - - P 10,000 ------ ------ ------
11. Ruben Torres - - - - - - P 10,000 P  33,587.31 ------ P  43,587.31
[Son of Mariano Torres
(deceased)]
12. Meliton Allanigue P 10,000 12,944.77 231269 P  22,944.77
13. Dominga Laxamana P  5,000 22,269.02 231275 27,269.02
14. Felicencia de Leon 10,000 ------ ------ ------
15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60
16. Felino G. Tolentino 10,000 ------ ------ ------
17. Rica Gozun 5,000 ------ ------ ------
18. Perla Gozun 10,000 ------ ------ ------
19. Benigno Tolentino 10,000 ------ ------ ------
20. Rodolfo Quiambao 10,000 ------ ------ ------
21. Roman Laxamana 10,000 ------ ------ ------
22. Eddie San Luis 10,000 ------ ------ ------
23. Ricardo Hernandez 10,000 ------ ------ ------
24. Nicenciana Miranda 10,000 ------ ------ ------
25. Jose Gozun   10,000 ------ ------ ------
26. Alfredo Sosa 5,000 ------ ------ ------
27. Jose Tiamson 10,000 ------ ------ ------
28. Augusto Tolentino 5,000 ------ ------ ------
29. Sixto Hernandez 10,000 ------ ------ ------
30. Alex Quiambao 10,000 ------ ------ ------
31. Isidro Tolentino 10,000 ------ ------ ------
32. Ceferino de Leon        ------ 11,378.70 231270 ------
33. Alberto Hernandez 10,000 ------ ------ ------
34. Orlando Florez 10,000 ------ ------ ------
35. Aurelio Flores 10,000 ------ ------ ------

6.
7. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al.,
inviting them for a meeting regarding the negotiations/implementations of the
terms of their Deeds of Assignment;

8. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano,
replied that they are no longer willing to pursue with the negotiations, and instead
they gave notice to the plaintiff that they will sell all their rights and interests to
the registered owners (defendants LACSONS).
 A copy of the letter is hereto attached as Annex “A” etc.;

9. That the defendants TIAMSON, et. al., have no right to deal with the defendants
LACSON or with any third persons while their contracts with the plaintiff are
subsisting; defendants LACSONS are inducing or have induced the defendants
TIAMSON, et. al., to violate their contracts with the plaintiff;

10. That by reason of the malicious acts of all the defendants, plaintiff suffered moral
damages in the forms of mental anguish, mental torture and serious anxiety which
in the sum of P500,000.00 for which defendants should be held liable jointly and
severally.[11] 

In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the
following in his complaint:

11. That to maintain the status quo, the defendants TIAMSON, et al., should be
restrained from rescinding their contracts with the plaintiff, and the defendants
LACSONS should also be restrained from accepting any offer of sale or alienation
with the defendants TIAMSON, et al., in whatever form, the latter’s rights and
interests in the properties mentioned in paragraph 4 hereof; further, the LACSONS
should be restrained from encumbering/alienating the subject properties covered
by TCT No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds of San
Fernando, Pampanga;

12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the
plaintiff and are also bent on selling/alienating their rights and interests over the
subject properties to their co-defendants (LACSONS) or any other persons to the
damage and prejudice of the plaintiff who already invested much money, efforts
and time in the said transactions;

13. That the plaintiff is entitled to the reliefs being demanded in the complaint;

14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has
no speedy and adequate remedy under the ordinary course of law, it is essential
that a Writ of Preliminary Injunction be issued enjoining and restraining the
defendants TIAMSON, et al., from rescinding their contracts with the plaintiff and
from selling/alienating their properties to the LACSONS or other persons;

15. That the plaintiff is willing and able to put up a reasonable bond to answer for the
damages which the defendants would suffer should the injunction prayed for and
granted be found without basis.[12]

The petitioner prayed, that after the proceedings, judgment be rendered as follows:
 1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting,
enjoining and restraining defendants Julio Tiamson, Renato Gozun, Rosita
Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita
Tolentino, Jose Sosa, Francisco Tolentino Sr., Emiliano Laxamana, Ruben Torres,
Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos,
Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo
Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana
Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino
de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores from rescinding
their contracts with the plaintiff and from alienating their rights and interest over
the aforementioned properties in favor of defendants LACSONS or any other third
persons; and prohibiting the defendants LACSONS from encumbering/alienating
TCT  Nos. 35922-R, 35923-R and 35925-R of the Registry of Deeds of San
Fernando, Pampanga.

2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is
prayed that a restraining order be issued restraining the aforementioned defendants
(TIAMSON, et al.) from rescinding their contracts with the plaintiff and from
alienating the subject properties to the defendants LACSONS or any third persons;
further, restraining and enjoining the defendants LACSONS from
encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R, and
35925-R of the Registry of Deeds of San Fernando, Pampanga.

3. Fixing the period within which plaintiff shall pay the balance of  the purchase
price to the defendants TIAMSON, et al., after the lapse of legal impediment, if
any.

4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral
damages;

6. Ordering the defendants to pay the plaintiff attorney’s fees in the sum of
P100,000.00 plus litigation expenses of P50,000.00;

Plaintiff prays for such other relief as may be just and equitable under the premises. [13]
In their answer to the complaint, the respondents as defendants asserted that (a) the
defendant Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve of the
defendants were tenants/lessees of respondents, but the tenancy status of the rest of the
defendants was uncertain; (c) they never induced the defendants Tiamson to violate their
contracts with the petitioner; and, (d) being merely tenants-tillers, the defendants-tenants
had no right to enter into any transactions involving their properties without their
knowledge and consent.  They also averred that the transfers or assignments of leasehold
rights made by the defendants-tenants to the petitioner is contrary to Presidential Decree
(P.D.) No. 27 and Republic Act No. 6657, the Comprehensive Agrarian Reform Program
(CARP).[14] The respondents interposed counterclaims for damages against the petitioner
as plaintiff.

The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for
damages, that the money each of them received from the petitioner were in the form of
loans, and that they were deceived into signing the deeds of assignment:
a) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in so
far as they are material and relevant herein;

b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed]
never knew that what they did sign is a Deed of Assignment.  What they knew was that they
were made to sign a document that will serve as a receipt for the loan granted [to] them by
the plaintiff;

c) That the Deeds of Assignment were signed through the employment of fraud, deceit and
false pretenses of plaintiff and made the defendants believe that what they sign[ed] was a
mere receipt for amounts received by way of loans;

d) That the documents signed in blank were filled up and completed after the defendants
Tiamson, et al., signed the documents and their completion and accomplishment was done
in the absence of said defendants and, worst of all, defendants were not provided a copy
thereof;

e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al.,
did assign all their rights and interests in the properties or landholdings they were tilling in
favor of the plaintiff.  That if this is so, assuming arguendo that the documents were
voluntarily executed, the defendants Tiamson, et al., do not have any right to transfer their
interest in the landholdings they are tilling as they have no right whatsoever in the
landholdings, the landholdings belong to their co-defendants, Lacson, et al., and therefore,
the contract is null and void;

f)  That while it is admitted that the defendants Tiamson, et al., received sums of money from
plaintiffs, the same were received as approved loans granted by plaintiff to the defendants
Tiamson, et al., and not as part consideration of the alleged Deeds of Assignment; and by
way of:…[15]
At the hearing of the petitioner’s plea for a writ of preliminary injunction, the
respondents’ counsel failed to appear.  In support of his plea for a writ of preliminary
injunction, the petitioner adduced in evidence the Deeds of Assignment, [16] the
receipts[17] issued by the defendants-tenants for the amounts they received from him; and
the letter[18] the petitioner received from the defendants-tenants.  The petitioner then
rested his case.

The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioner’s

plea for injunctive relief on the following grounds: (a) the Deeds of Assignment executed
by the defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act
No. 6657; (b) the petitioner failed to prove that the respondents induced the defendants-
tenants to renege on their obligations under the “Deeds of Assignment;”  (c) not being
privy to the said deeds, the respondents are not bound by the said deeds; and, (d) the
respondents had the absolute right to sell and dispose of their property and to encumber
the same and cannot be enjoined from doing so by the trial court.

The petitioner opposed the motion, contending that it was premature for the trial court to
resolve his plea for injunctive relief, before the respondents and the defendants-tenants
adduced evidence in opposition thereto, to afford the petitioner a chance to adduce
rebuttal evidence and prove his entitlement to a writ of preliminary injunction.  The
respondents replied that it was the burden of the petitioner to establish the requisites of a
writ of preliminary injunction without any evidence on their part, and that they were not
bound to adduce any evidence in opposition to the petitioner’s plea for a writ of
preliminary injunction.

On February 13, 1997, the court issued an Order[19] denying the motion of the respondents
for being premature.  It directed the hearing to proceed for the respondents to adduce
their evidence.  The court ruled that the petitioner, on the basis of the material allegations
of the complaint, was entitled to injunctive relief.  It also held that before the court could
resolve the petitioner’s plea for injunctive relief, there was need for a hearing to enable
the respondents and the defendants-tenants to adduce evidence to controvert that of the
petitioner.  The respondents filed a motion for reconsideration, which the court denied in
its Order dated April 16, 1997.  The trial court ruled that on the face of the averments of
the complaint, the pleadings of the parties and the evidence adduced by the petitioner, the
latter was entitled to injunctive relief unless the respondents and the defendants-tenants
adduced controverting evidence.

The respondents, the petitioners therein, filed a petition for certiorari in the Court of
Appeals for the nullification of the February 13, 1997 and April 16, 1997 Orders of the
trial court.  The case was docketed as CA-G.R. SP No. 44883.  The petitioners therein
prayed in their petition that:

1. An order be issued declaring the orders of respondent court dated February 13,
1997 and April 16, 1997 as null and void;

2. An order be issued directing the respondent court to issue an order denying the
application of respondent Herminio Tayag for the issuance of a Writ of
Preliminary Injunction and/or restraining order.

3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent

court, prohibiting it from issuing its own writ of injunction against Petitioners, and
thereafter making said injunction to be issued by this Court permanent.
Such other orders as may be deemed just & equitable under the premises also prayed for.
[20]

The respondents asserted that the Deeds of Assignment executed by the assignees in
favor of the petitioner were contrary to paragraph 13 of P.D. No. 27 and the second
paragraph of Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the
petitioner for being null and voId.  The respondents also claimed that the enforcement of
the deeds of assignment was subject to a supervening condition:

3. That this exclusive and absolute right given to the assignee shall be exercised only 
when no legal impediments exist to the lot to effect the smooth transfer of lawful
ownership of the lot/property in the name of the ASSIGNEE.[21]

The respondents argued that until such condition took place, the petitioner would not
acquire any right to enforce the deeds by injunctive relief.  Furthermore, the petitioner’s
plea in his complaint before the trial court, to fix a period within which to pay the balance
of the amounts due to the tenants under said deeds after the “lapse” of any legal
impediment, assumed that the deeds were valid, when, in fact and in law, they were not. 
According to the respondents, they were not parties to the deeds of assignment; hence,
they were not bound by the said deeds.  The issuance of a writ of preliminary injunction
would restrict and impede the exercise of their right to dispose of their property, as
provided for in Article 428 of the New Civil Code.  They asserted that the petitioner had
no cause of action against them and the defendants-tenants.

On April 17, 1998, the Court of Appeals rendered its decision against the petitioner,
annulling and setting aside the assailed orders of the trial court; and permanently
enjoining the said trial court from proceeding with Civil Case No. 10901.  The decretal
portion of the decision reads as follows:
However, even if private respondent is denied of the injunctive relief he demands in the
lower court still he could avail of other course of action in order to protect his interest
such as the institution of a simple civil case of collection of money against
TIAMSON, et al.

For all the foregoing considerations, the orders dated 13 February 1997 and 16 April
1997 are hereby NULLIFIED and ordered SET ASIDE for having been issued with grave
abuse of discretion amounting to lack or excess of jurisdiction.  Accordingly, public
respondent is permanently enjoined from proceeding with the case designated as Civil
Case No. 10901.[22]
The CA ruled that the respondents could not be enjoined from alienating or even
encumbering their property, especially so since they were not privies to the deeds of
assignment executed by the defendants-tenants.  The defendants-tenants were not yet
owners of the portions of the landholdings respectively tilled by them; as such, they had
nothing to assign to the petitioner.  Finally, the CA ruled that the deeds of assignment
executed by the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.
On August 4, 1998, the CA issued a Resolution denying the petitioner’s motion for
reconsideration.[23]

Hence, the petitioner filed his petition for review on certiorari before this Court,
contending as follows:
I

A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE

USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS
ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER COURT
(RTC).[24]

II

THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION

FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT
(RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER
OR NOT THE WRIT OF PRELIMINARY INJUNCTION BEING PRAYED FOR BY
TAYAG SHOULD BE GRANTED OR NOT.[25]

III

THE COURT OF APPEALS CANNOT USE “FACTS” NOT IN EVIDENCE, TO

SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET “AWARDEES
OF THE LAND REFORM.[26]

IV

THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF

THE ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS
OF THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE
PROPRIETY OF MAINTAINING THE STATUS QUO.[27]

THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF

THE OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF
THE LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL
PRESENTING THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR,
AND TO PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED
AGAINST THE PETITIONER.[28]
 VI

THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY
TAYAG FOR “FIXING OF PERIOD” UNDER ART. 1197 OF THE NEW CIVIL
CODE AND FOR “DAMAGES” AGAINST THE LACSONS UNDER ART. 1314 OF
THE SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED
NUGATORY UNCEREMONIOUSLY.[29]
The petitioner faults the Court of Appeals for permanently enjoining the trial court from
proceeding with Civil Case No. 10910.  He opines that the same was too drastic,
tantamount to a dismissal of the case.  He argues that at that stage, it was premature for
the appellate court to determine the merits of the case since no evidentiary hearing
thereon was conducted by the trial court.  This, the Court of Appeals cannot do, since
neither party moved for the dismissal of Civil Case No. 10910.  The petitioner points out
that the Court of Appeals, in making its findings, went beyond the issue raised by the
private respondents, namely, whether or not the trial court committed a grave abuse of
discretion amounting to excess or lack of jurisdiction when it denied the respondent’s
motion for the denial/dismissal of the petitioner’s plea for a writ of preliminary
injunction.  He, likewise, points out that the appellate court erroneously presumed that the
leaseholders were not DAR awardees and that the deeds of assignment were contrary to
law.  He contends that leasehold tenants are not prohibited from conveying or waiving
their leasehold rights in his favor.  He insists that there is nothing illegal with his
contracts with the leaseholders, since the same shall be effected only when there are no
more “legal impediments.”

At bottom, the petitioner contends that, at that stage, it was premature for the appellate
court to determine the merits of his case since no evidentiary hearing on the merits of his
complaint had yet been conducted by the trial court.

The Comment/Motion of the

Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.

Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the
petitioner’s plea for a writ of preliminary injunction after the petitioner had adduced his
evidence, testimonial and documentary, and had rested his case on the incident, was
proper and timely.  It bears stressing that the petitioner had the burden to prove his right
to a writ of preliminary injunction.  He may rely solely on the material allegations of his
complaint or adduce evidence in support thereof.  The petitioner adduced his evidence to
support his plea for a writ of preliminary injunction against the respondents and the
defendants-tenants and rested his case on the said incident. The respondents then had
three options: (a) file a motion to deny/dismiss the motion on the ground that the
petitioner failed to discharge his burden to prove the factual and legal basis for his plea
for a writ of preliminary injunction and, if the trial court denies his motion, for them to
adduce evidence in opposition to the petitioner’s plea; (b) forgo their motion and adduce
testimonial and/or documentary evidence in opposition to the petitioner’s plea for a writ
of preliminary injunction; or, (c) waive their right to adduce evidence and submit the
incident for consideration on the basis of the pleadings of the parties and the evidence of
the petitioner. The respondents opted not to adduce any evidence, and instead filed a
motion to deny or dismiss the petitioner’s plea for a writ of preliminary injunction against
them, on their claim that the petitioner failed to prove his entitlement thereto.  The trial
court cannot compel the respondents to adduce evidence in opposition to the petitioner’s
plea if the respondents opt to waive their right to adduce such evidence.  Thus, the trial
court should have resolved the respondents’ motion even without the latter’s opposition
and the presentation of evidence thereon.

The RTC Committed a Grave

Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders

In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a
writ of preliminary injunction against the respondents on the basis of the material
averments of the complaint.  In its April 16, 1997 Order, the trial court denied the
respondents’ motion for reconsideration of the previous order, on its finding that the
petitioner was entitled to a writ of preliminary injunction based on the material
allegations of his complaint, the evidence on record, the pleadings of the parties, as well
as the applicable laws:
…  For the record, the Court denied the LACSONS’ COMMENT/MOTION on the basis
of the facts culled from the evidence presented, the pleadings and the law applicable
unswayed by the partisan or personal interests, public opinion or fear of criticism (Canon
3, Rule 3.02, Code of Judicial Ethics).[30]
Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the
issuance of a writ of preliminary injunction, thus:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or in
requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.
A preliminary injunction is an extraordinary event calculated to preserve or maintain
the status quo of things ante litem and is generally availed of to prevent actual or
threatened acts, until the merits of the case can be heard.  Injunction is accepted as the
strong arm of equity or a transcendent remedy.[31]  While generally the grant of a writ of
preliminary injunction rests on the sound discretion of the trial court taking cognizance of
the case, extreme caution must be observed in the exercise of such discretion. [32]  Indeed,
in Olalia v. Hizon,[33] we held:
It has been consistently held that there is no power the exercise of which is more delicate,
which requires greater caution, deliberation and sound discretion, or more dangerous in a
doubtful case, than the issuance of an injunction.  It is the strong arm of equity that
should never be extended unless to cases of great injury, where courts of law cannot
afford an adequate or commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the freedom of action
of the defendant and should not be granted lightly or precipitately.  It should be granted
only when the court is fully satisfied that the law permits it and the emergency demands
it.[34]
The very foundation of the jurisdiction to issue writ of injunction rests in the existence of
a cause of action and in the probability of irreparable injury, inadequacy of pecuniary
compensation and the prevention of the multiplicity of suits.  Where facts are not shown
to bring the case within these conditions, the relief of injunction should be refused. [35]

For the court to issue a writ of preliminary injunction, the petitioner was burdened to
establish the following: (1) a right in esse or a clear and unmistakable right to be
protected; (2) a violation of that right; (3) that there is an urgent and permanent act and
urgent necessity for the writ to prevent serious damage.[36]  Thus, in the absence of a clear
legal right, the issuance of the injunctive writ constitutes a grave abuse of discretion. 
Where the complainant’s right is doubtful or disputed, injunction is not proper. 
Injunction is a preservative remedy aimed at protecting substantial rights and interests.  It
is not designed to protect contingent or future rights.  The possibility of irreparable
damage without proof of adequate existing rights is not a ground for injunction.[37]

We have reviewed the pleadings of the parties and found that, as contended by the
respondents, the petitioner failed to establish the essential requisites for the issuance of a
writ of preliminary injunction.  Hence, the trial court committed a grave abuse of its
discretion amounting to excess or lack of jurisdiction in denying the respondents’
comment/motion as well as their motion for reconsideration.

First.  The trial court cannot enjoin the respondents, at the instance of the petitioner, from
selling, disposing of and encumbering their property.  As the registered owners of the
property, the respondents have the right to enjoy and dispose of their property without
any other limitations than those established by law, in accordance with Article 428 of the
Civil Code.  The right to dispose of the property is the power of the owner to sell,
encumber, transfer, and even destroy the property.  Ownership also includes the right to
recover the possession of the property from any other person to whom the owner has not
transmitted such property, by the appropriate action for restitution, with the fruits, and for
indemnification for damages.[38]  The right of ownership of the respondents is not, of
course, absolute.  It is limited by those set forth by law, such as the agrarian reform laws. 
Under Article 1306 of the New Civil Code, the respondents may enter into contracts
covering their property with another under such terms and conditions as they may deem
beneficial provided they are not contrary to law, morals, good conduct, public order or
public policy.

The respondents cannot be enjoined from selling or encumbering their property simply
and merely because they had executed Deeds of Assignment in favor of the petitioner,
obliging themselves to assign and transfer their rights or interests as agricultural
farmers/laborers/sub-tenants over the landholding, and granting the petitioner the
exclusive right to buy the property subject to the occurrence of certain conditions.  The
respondents were not parties to the said deeds.  There is no evidence that the respondents
agreed, expressly or impliedly, to the said deeds or to the terms and conditions set forth
therein.  Indeed, they assailed the validity of the said deeds on their claim that the same
were contrary to the letter and spirit of P.D. No. 27 and Rep. Act No. 6657.  The
petitioner even admitted when he testified that he did not know any of the respondents,
and that he had not met any of them before he filed his complaint in the RTC.  He did not
even know that one of those whom he had impleaded as defendant, Angelica Vda. de
Lacson, was already dead.
Q: But you have not met any of these Lacsons?
A: Not yet, sir.
 
Q: Do you know that two (2) of the defendants are residents of the United States?
A: I do not know, sir.
 
Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead?
A: I am aware of that, sir.[39]
We are one with the Court of Appeals in its ruling that:
We cannot see our way clear on how or why injunction should lie against petitioners.  As
owners of the lands being tilled by TIAMSON, et al., petitioners, under the law, have the
right to enjoy and dispose of the same.  Thus, they have the right to possess the lands, as
well as the right to encumber or alienate them.  This principle of law notwithstanding,
private respondent in the lower court sought to restrain the petitioners from encumbering
and/or alienating the properties covered by TCT No. 35922-R, 35923-R and TCT No.
35925-R of the Registry of Deeds of San Fernando, Pampanga.  This cannot be allowed
to prosper since it would constitute a limitation or restriction, not otherwise established
by law on their right of ownership, more so considering that petitioners were not even
privy to the alleged transaction between private respondent and TIAMSON, et al.[40]
Second.  A reading the averments of the complaint will show that the petitioner clearly
has no cause of action against the respondents for the principal relief prayed for therein,
for the trial court to fix a period within which to pay to each of the defendants-tenants the
balance of the P50.00 per square meter, the consideration under the Deeds of Assignment
executed by the defendants-tenants.  The respondents are not parties or privies to the
deeds of assignment.  The matter of the period for the petitioner to pay the balance of the
said amount to each of the defendants-tenants is an issue between them, the parties to the
deed.

Third.  On the face of the complaint, the action of the petitioner against the respondents
and the defendants-tenants has no legal basis.  Under the Deeds of Assignment, the
obligation of the petitioner to pay to each of the defendants-tenants the balance of the
purchase price was conditioned on the occurrence of the following events: (a) the
respondents agree to sell their property to the petitioner; (b) the legal impediments to the
sale of the landholding to the petitioner no longer exist; and, (c) the petitioner decides to
buy the property.  When he testified, the petitioner admitted that the legal impediments
referred to in the deeds were (a) the respondents’ refusal to sell their property; and, (b)
the lack of approval of the Department of Agrarian Reform:
Q : There is no specific agreement prior to the execution of those documents as when they will
pay?
A :  We agreed to that, that I will pay them when there are no legal impediment, sir.
 
Q :  Many of the documents are unlattered (sic) and you want to convey to this Honorable Court
that prior to the execution of these documents you have those tentative agreement for
instance that the amount or the cost of the price is to be paid when there are no legal
impediment, you are using the word “legal impediment,” do you know the meaning of that?
A : When there are (sic) no more legal impediment exist, sir.
 
Q : Did you make how (sic) to the effect that the meaning of that phrase that you used the
unlettered defendants?
A : We have agreed to that, sir.
 
ATTY. OCAMPO:
  May I ask, Your Honor, that the witness please answer my question not to answer in the
way he wanted it.
 
COURT:
  Just answer the question, Mr. Tayag.
 
WITNESS:
  Yes, Your Honor.
 
ATTY. OCAMPO:
 
Q :  Did you explain to them?
A :  Yes, sir.
 
Q : What did you tell them?
A : I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not
agree to sell their shares to me or to us it would be hard to (sic) me to pay them in full.  And
those covered by DAR.  I explain[ed] to them and it was clearly stated in the title that there
is [a] prohibited period of time before you can sell the property.  I explained every detail to
them.[41]
It is only upon the occurrence of the foregoing conditions that the petitioner would be
obliged to pay to the defendants-tenants the balance of the P50.00 per square meter under
the deeds of assignment.  Thus:

2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the
said lot to the ASSIGNEE, who is given an exclusive and absolute right to buy the
lot, the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square
meter as consideration of the total area actually tilled and possessed by the
ASSIGNOR, less whatever amount received by the ASSIGNOR including
commissions, taxes and all allowable deductions relative to the sale of the subject
properties.

3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised
only when no legal impediments exist to the lot to effect the smooth transfer of
lawful ownership of the lot/property in the name of the ASSIGNEE;

4. That the ASSIGNOR will remain in peaceful possession over the said property
and shall enjoy the fruits/earnings and/or harvest of the said lot until such time that
full payment of the agreed purchase price had been made by the ASSIGNEE. [42]

There is no showing in the petitioner’s complaint that the respondents had agreed to sell
their property, and that the legal impediments to the agreement no longer existed.  The
petitioner and the defendants-tenants had yet to submit the Deeds of Assignment to the
Department of Agrarian Reform which, in turn, had to act on and approve or disapprove
the same.  In fact, as alleged by the petitioner in his complaint, he was yet to meet with
the defendants-tenants to discuss the implementation of the deeds of assignment.  Unless
and until the Department of Agrarian Reform approved the said deeds, if at all, the
petitioner had no right to enforce the same in a court of law by asking the trial court to fix
a period within which to pay the balance of the purchase price and praying for injunctive
relief.

We do not agree with the contention of the petitioner that the deeds of assignment
executed by the defendants-tenants are perfected option contracts.[43] An option is a
contract by which the owner of the property agrees with another person that he shall have
the right to buy his property at a fixed price within a certain time.  It is a condition
offered or contract by which the owner stipulates with another that the latter shall have
the right to buy the property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions, or which gives to the owner of the
property the right to sell or demand a sale.  It imposes no binding obligation on the
person holding the option, aside from the consideration for the offer.  Until accepted, it is
not, properly speaking, treated as a contract.[44] The second party gets in praesenti, not
lands, not an agreement that he shall have the lands, but the right to call for and receive
lands if he elects.[45] An option contract is a separate and distinct contract from which the
parties may enter into upon the conjunction of the option.[46]

In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to

the petitioner not only an option but the exclusive right to buy the landholding.  But the
grantors were merely the defendants-tenants, and not the respondents, the registered
owners of the property.  Not being the registered owners of the property, the defendants-
tenants could not legally grant to the petitioner the option, much less the “exclusive right”
to buy the property.  As the Latin saying goes, “NEMO DAT QUOD NON HABET.”

Fourth.  The petitioner impleaded the respondents as parties-defendants solely on his

allegation that the latter induced or are inducing the defendants-tenants to violate the
deeds of assignment, contrary to the provisions of Article 1314 of the New Civil Code
which reads:
Art. 1314.  Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party.
In So Ping Bun v. Court of Appeals,[47] we held that for the said law to apply, the pleader
is burdened to prove the following: (1) the existence of a valid contract; (2) knowledge
by the third person of the existence of the contract; and (3) interference by the third
person in the contractual relation without legal justification.

Where there was no malice in the interference of a contract, and the impulse behind one’s
conduct lies in a proper business interest rather than in wrongful motives, a party cannot
be a malicious interferer.  Where the alleged interferer is financially interested, and such
interest motivates his conduct, it cannot be said that he is an officious or malicious
intermeddler.[48]

In fine, one who is not a party to a contract and who interferes thereon is not necessarily
an officious or malicious intermeddler.  The only evidence adduced by the petitioner to
prove his claim is the letter from the defendants-tenants informing him that they had
decided to sell their rights and interests over the landholding to the respondents, instead
of honoring their obligation under the deeds of assignment because, according to them,
the petitioner harassed those tenants who did not want to execute deeds of assignment in
his favor, and because the said defendants-tenants did not want to have any problem with
the respondents who could cause their eviction for executing with the petitioner the deeds
of assignment as the said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.
[49]
 The defendants-tenants did not allege therein that the respondents induced them to
breach their contracts with the petitioner.  The petitioner himself admitted when he
testified that his claim that the respondents induced the defendants-assignees to violate
contracts with him was based merely on what “he heard,” thus:
Q:  Going to your last statement that the Lacsons induces (sic) the defendants, did you see that
the Lacsons were inducing the defendants?
A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a
matter of fact, that is the reason why they sent me letter that they will sell it to the Lacsons.
 
Q:  Incidentally, do you knew (sic) these Lacsons individually?
A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and
has the authority to sell the property.[50]
Even if the respondents received an offer from the defendants-tenants to assign and
transfer their rights and interests on the landholding, the respondents cannot be enjoined
from entertaining the said offer, or even negotiating with the defendants-tenants.  The
respondents could not even be expected to warn the defendants-tenants for executing the
said deeds in violation of P.D. No. 27 and Rep. Act No. 6657.  Under Section 22 of the
latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed of, or
abandoned their land, are disqualified from becoming beneficiaries.

From the pleadings of the petitioner, it is quite evident that his purpose in having the
defendants-tenants execute the Deeds of Assignment in his favor was to acquire the
landholding without any tenants thereon, in the event that the respondents agreed to sell
the property to him.  The petitioner knew that under Section 11 of Rep. Act No. 3844, if
the respondents agreed to sell the property, the defendants-tenants shall have preferential
right to buy the same under reasonable terms and conditions:
SECTION 11.  Lessee’s Right of Pre-emption. – In case the agricultural lessor desires to
sell the landholding, the agricultural lessee shall have the preferential right to buy the
same under reasonable terms and conditions: Provided, That the entire landholding
offered for sale must be pre-empted by the Land Authority if the landowner so desires,
unless the majority of the lessees object to such acquisition: Provided, further, That
where there are two or more agricultural lessees, each shall be entitled to said preferential
right only to the extent of the area actually cultivated by him. …[51]
Under Section 12 of the law, if the property was sold to a third person without the
knowledge of the tenants thereon, the latter shall have the right to redeem the same at a
reasonable price and consideration.  By assigning their rights and interests on the
landholding under the deeds of assignment in favor of the petitioner, the defendants-
tenants thereby waived, in favor of the petitioner, who is not a beneficiary under Section
22 of Rep. Act No. 6657, their rights of preemption or redemption under Rep. Act No.
3844.  The defendants-tenants would then have to vacate the property in favor of the
petitioner upon full payment of the purchase price.  Instead of acquiring ownership of the
portions of the landholding respectively tilled by them, the defendants-tenants would
again become landless for a measly sum of P50.00 per square meter.  The petitioner’s
scheme is subversive, not only of public policy, but also of the letter and spirit of the
agrarian laws.  That the scheme of the petitioner had yet to take effect in the future or ten
years hence is not a justification.  The respondents may well argue that the agrarian laws
had been violated by the defendants-tenants and the petitioner by the mere execution of
the deeds of assignment.  In fact, the petitioner has implemented the deeds by paying the
defendants-tenants amounts of money and even sought their immediate implementation
by setting a meeting with the defendants-tenants.  In fine, the petitioner would not wait
for ten years to evict the defendants-tenants.  For him, time is of the essence.

The Appellate Court Erred

In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case
No. 10910.

We agree with the petitioner’s contention that the appellate court erred when it
permanently enjoined the RTC from continuing with the proceedings in Civil Case No.
10910.  The only issue before the appellate court was whether or not the trial court
committed a grave abuse of discretion amounting to excess or lack of jurisdiction in
denying the respondents’ motion to deny or dismiss the petitioner’s plea for a writ of
preliminary injunction.  Not one of the parties prayed to permanently enjoin the trial
court from further proceeding with Civil Case No. 10910 or to dismiss the complaint.  It
bears stressing that the petitioner may still amend his complaint, and the respondents and
the defendants-tenants may file motions to dismiss the complaint.  By permanently
enjoining the trial court from proceeding with Civil Case No. 10910, the appellate court
acted arbitrarily and effectively dismissed the complaint motu proprio, including the
counterclaims of the respondents and that of the defendants-tenants.  The defendants-
tenants were even deprived of their right to prove their special and affirmative defenses.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. 

The Decision of the Court of Appeals nullifying the February 13, 1996 and April 16,
1997 Orders of the RTC is AFFIRMED.  The writ of injunction issued by the Court of
Appeals permanently enjoining the RTC from further proceeding with Civil Case No.
10910 is hereby LIFTED and SET ASIDE.  The Regional Trial Court of Mabalacat,
Pampanga, Branch 44, is ORDERED to continue with the proceedings in Civil Case No.
10910 as provided for by the Rules of Court, as amended.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 202050, July 25, 2016 ]
 PHILIPPINE NATIONAL OIL COMPANY AND PNOC DOCKYARD &
ENGINEERING CORPORATION, PETITIONERS, VS. KEPPEL
PHILIPPINES HOLDINGS, INC., RESPONDENT.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari filed under Rule 45 of the
Rules of Court, appealing the decision dated 19 December 2011 [1] and resolution dated
14 May 2012[2] of the Court of Appeals (CA) in CA-G.R. CV No. 86830. These assailed CA
rulings affirmed in toto the decision dated 12 January 2006 [3] of the Regional Trial Court
(RTQ of Batangas City, Branch 84, in Civil Case No. 7364.

THE FACTS

The 1976 Lease Agreement and Option to Purchase

Almost 40 years ago or on 6 August 1976, the respondent Keppel Philippines Holdings,
Inc.[4] (Keppel) entered into a lease agreement[5] (the agreement) with Luzon
Stevedoring Corporation (Lusteveco) covering 11 hectares of land located in Bauan,
Batangas. The lease was for a period of 25 years for a consideration of P2.1 million.[6] At
the option of Lusteveco, the rental fee could be totally or partially converted into equity
shares in Keppel.[7]

At the end of the 25-year Jease period, Keppel was given the "firm and absolute option
to purchase[8] the land for P4.09 million, provided that it had acquired the necessary
qualification to own land under Philippine laws at the time the option is exercised.
[9]
 Apparently, when the lease agreement was executed, less than 60% of Keppel's
shareholding was Filipino-owned, hence, it was not constitutionally qualified to acquire
private lands in the country.[10]

If, at the end of the 25-year lease period (or in 2001), Keppel remained unqualified to
own private lands, the agreement provided that the lease would be automatically
renewed for another 25 years.[11] Keppel was further allowed to exercise the option to
purchase the land up to the 30th year of the lease (or in 2006), also on the condition
that, by then, it would have acquired the requisite qualification to own land in the
Philippines.[12]

Together with Keppel's lease rights and option to purchase, Lusteveco warranted not to
sell the land or assign its rights to the land for the duration of the lease unless with the
prior written consent of Keppel.[13] Accordingly, when the petitioner Philippine National
Oil Corporation[14] (PNOC) acquired the land from Lusteveco and took over the rights and
obligations under the agreement, Keppel did not object to the assignment so long as the
agreement was annotated on PNOC's title.[15] With PNOC's consent and cooperation, the
agreement was recorded as Entry No. 65340 on PNOC's Transfer of Certificate of Title
No. T-50724.[16]

The Case and the Lower Court Rulings

On 8 December 2000, Keppel wrote PNOC informing the latter that at least 60% of its
shares were now owned by Filipinos[17] Consequently, Keppel expressed its readiness to
exercise its option to purchase the land. Keppel reiterated its demand to purchase the
land several times, but on every occasion, PNOC did not favourably respond.[18]

To compel PNOC to comply with the Agreement, Keppel instituted a complaint for
specific performance with the RTC on 26 September 2003 against PNOC.[19] PNOC
countered Keppel's claims by contending that the agreement was illegal for
circumventing the constitutional prohibition against aliens holding lands in the
Philippines.[20] It further asserted that the option contract was void, as it was
unsupported by a separate valuable consideration.[21] It also claimed that it was not privy
to the agreement.[22]

After due proceedings, the RTC rendered a decision[23] in favour of Keppel and ordered
PNOC to execute a deed of absolute sale upon payment by Keppel of the purchase
price of P4.09 million.[24]

PNOC elevated the case to the CA to appeal the RTC decision. [25] Affirming the RTC
decision in toto, the CA upheld Keppel's right to acquire the land.[26] It found that since
the option contract was embodied in the agreement - a reciprocal contract - the
consideration was the obligation that each of the contracting party assumed. [27] Since
Keppel was already a Filipino-owned corporation, it satisfied the condition that entitled
it to purchase the land.[28]

Failing to secure a reconsideration of the CA decision, [29] PNOC filed the present Rule 45
petition before this Court to assail the CA rulings.

THE PARTIES' ARGUMENTS and THE ISSUES

PNOC argues that the CA failed to resolve the constitutionality of the agreement. It
contends that the terms of the agreement amounted to a virtual sale of the land to
Keppel who, at the time of the agreement's enactment, was a foreign corporation and,
thus, violated the 1973 Constitution.

Specifically, PNOC refers to (a) the 25-year duration of the lease that was automatically
renewable for another 25 years[30]; (b) the option to purchase the land for a nominal
consideration of P100.00 if the option is exercised anytime between the 25th and the
30th year of the lease[31]; and (c) the prohibition imposed on Lusteveco to sell the land
or assign its rights therein during the lifetime of the lease. [32] Taken together, PNOC
submits that these provisions amounted to a virtual transfer of ownership of the land to
an alien which act the 1973 Constitution prohibited.

PNOC claims that the agreement is no different from the lease contract in Philippine
Banking Corporation v. Lui She,[33] which the Court struck down as unconstitutional.
In Lui She, the lease contract allowed the gradual divestment of ownership rights by the
Filipino owner-lessor in favour of the foreigner-lessee. [34] The arrangement in Lui She
was declared as a scheme designed to enable the parties to circumvent the
constitutional prohibition.[35] PNOC posits that a similar intent is apparent from the
terms of the agreement with Keppel and accordingly should also be nullified. [36]

PNOC additionally contends the illegality of the option contract for lack of a separate
consideration, as required by Article 1479 of the Civil Code. [37] It claims that the option
contract is distinct from the main contract of lease and must be supported by a
consideration other than the rental fees provided in the agreement. [38]

On the other hand, Keppel maintains the validity of both the agreement and the option
contract it contains. It opposes the claim that there was "virtual sale" of the land, noting
that the option is subject to the condition that Keppel becomes qualified to own private
lands in the Philippines.[39] This condition ripened in 2000, when at least 60% of Keppel's
equity became Filipino-owned.

Keppel contends that the agreement is not a scheme designed to circumvent the
constitutional prohibition. Lusteveco was not proscribed from alienating its ownership
rights over the land but was simply required to secure Keppel's prior written consent.
[40]
 Indeed, Lusteveco was able to transfer its interest to PNOC without any objection
from Keppel.[41]

Keppel also posits that the requirement of a separate consideration for an option to
purchase applies only when the option is granted in a separate contract. [42] In the
present case, the option is embodied in a reciprocal contract and, following the Court's
ruling in Vda. De Quirino v. Palarca,[43] the option is supported by the same
consideration supporting the main contract.

From the parties' arguments, the following ISSUES emerge:

First, the constitutionality of the Agreement, i.e., whether the terms of the Agreement
amounted to a virtual sale of the land to Keppel that was designed to circumvent the
constitutional prohibition on aliens owning lands in the Philippines.

Second, the validity of the option contract, i.e., whether the option to purchase the land
given to Keppel is supported by a separate valuable consideration.

If these issues are resolved in favour of Keppel, a third issue emerges - one that was not
considered by the lower courts, but is critical in terms of determining Keppel's right to
own and acquire full title to the land, i.e., whether Keppel's equity ownership meets the
60% Filipino-owned capital requirement of trie Constitution, in accordance with the
Court's ruling in Gamboa  v. Teves.[44]

THE COURT'S RULING

I. The constitutionality of the Agreement

The Court affirms the constitutionality of the Agreement.

Preserving the ownership of land, whether public or private, in Filipino hands is the
policy consistently adopted in all three of our constitutions. [45] Under the 1935,[46] 1973,
[47]
 and 1987[48] Constitutions, no private land shall be transferred, assigned, or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands of
the public domain. Consequently, only Filipino citizens, or corporations or associations
whose capital is 60% owned by Filipinos citizens, are constitutionally qualified to own
private lands.

Upholding this nationalization policy, the Court has voided not only outright
conveyances of land to foreigners,[49]: but also arrangements where the rights of
ownership were gradually transferred to foreigners.[50] In Lui Shui,[51] we considered a 99-
year lease agreement, which gave the foreigner-lessee the option to buy the land and
prohibited the Filipino owner-lessor from selling or otherwise disposing the land,
amounted to -
a virtual transfer of ownership whereby the owner divests himself in stages not
only of the right to enjoy the land (Jus possidendi, jus utendi, jus fruendi, and jus
abutendi) but also of the right to dispose of it (jus disponendi) — rights the sum total of
which make up ownership.[52] [emphasis supplied]
In the present case, PNOC submits that a similar scheme is apparent from the
agreement's terms, but a review of the overall circumstances leads us to reject PNOC's
claim.

The agreement was executed to enable Keppel to use the land for its shipbuilding and
ship repair business.[53] The industrial/commercial purpose behind the agreement
differentiates the present case from Lui She where the leased property was primarily
devoted to residential use.[54] Undoubtedly, the establishment and operation of a
shipyard business involve significant investments. Keppel's uncontested testimony
showed that it incurred P60 million costs solely for preliminary activities to make the
land suitable as a shipyard, and subsequently introduced improvements worth P177
million.[55] Taking these investments into account and the nature of the business that
Keppel conducts on the land, we find it reasonable that the agreement's terms provided
for an extended duration of the lease and a restriction on the rights of Lusteveco.

We observe that, unlike in  Lui She,[56] Lusteveco was not completely denied its
ownership rights during the course of the lease. It could dispose of the lands or assign
its rights thereto, provided it secured Keppel's prior written consent. [57] That Lusteveco
was able to convey the land in favour of PNOC during the pendency of the
lease[58] should negate a finding that the agreement's terms amounted to a virtual
transfer of ownership of the land to Keppel.

II. The validity of the option contract

An option contract must be supported by a separate consideration that is either clearly
I.A specified as such in the contract or duly proven by the offeree/promisee.
An option contract is defined in the second paragraph of Article 1479 of the Civil
Code:
Article 14791 x x x An accepted 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.
An option contract is a contract where one person (the offeror/promissor) grants
to another person (the offeree/promisee) the right or privilege to buy (or to sell) a
determinate thing at a fixed price, if he or she chooses to do so within an agreed period .
[59]

As a contract, it must necessarily have the essential elements of subject matter,

consent, and consideration. [60] Although an option contract is deemed a preparatory
contract to the principal contract of sale,[61] it is separate and distinct therefrom,[62] thus,
its essential elements should be distinguished from those of a sale. [63]

In an option contract, the subject matter is the right or privilege to buy (or to sell) a

determinate thing for a price certain, [64] while in a sales contract, the subject matter is
the determinate thing itself.[65] The consent in an option contract is the acceptance by
the offeree of the offerer's promise to sell (or to buy) the determinate thing, i.e., the
offeree agrees to hold the right or privilege to buy (or to sell) within a specified period.
This acceptance is different from the acceptance of the offer itself whereby the offeree
asserts his or her right or privilege to buy (or to sell), which constitutes as his or her
consent to the sales contract. The consideration in an option contract may be anything
of value, unlike in a sale where the purchase price must be in money or its equivalent.
[66]
 There is sufficient consideration for a promise if there is any benefit to the offeree or
any detriment to the offeror.[67]
In the present case, PNOC claims the option contract is void for want of consideration
distinct from the purchase price for the land. [68] The option is incorporated as paragraph
5 of the Agreement and reads as
5. If within the period of the first [25] years [Keppel] becomes qualified to own
land under the laws of the Philippines, it has the firm and absolute option to purchase
the above property for a total price of [P-4,090,000.00] at the end of the 25th year,
discounted at 16% annual for every year before the end of the 25th year, which amount
may be converted into equity of [Keppel] at book value prevailing at the time of sale, or
paid in cash at Lusteveco's option.

However, if after the first [25] years, [Keppel] is still not qualified to own land under the
laws of the Republic of the Philippines, [Keppel's] lease of the above stated property
shall be automatically renewed for another [25] years, under the same terms and
conditions save for the rental price which shall be for the sum of P4,090,000.00... and
which sum may be totally converted into equity of [Keppel] at book value prevailing at
the time of conversion, or paid in cash at Lusteveco's option.

If anytime within the second [25] years up to the [30th] year from the date of this
agreement, [Keppel] becomes qualified to own land under the laws of the Republic of
the Philippines, [Keppel] has the firm and absolute option to buy and Lusteveco hereby
undertakes to sell the above stated property for the nominal consideration of
[P100.00.00]...[69]
Keppel counters that a separate consideration is not necessary to support its
option to buy because the option is one of the stipulations of the lease contract. It
claims that a separate consideration is required only when an option to buy is embodied
in an independent contract.[70] It relies on Vda. de Quirino v. Palarca,[71] where the Court
declared that the option to buy the leased property is supported by the same
consideration as that of the lease itself: "in reciprocal contracts [such as lease], the
obligation or promise of each party is the consideration for that of the other. [72]

In considering Keppel's submission, we note that the Court's ruling in 1969 in Vda. de
Quirino v. Palarca has been taken out of context and erroneously applied in subsequent
cases. In 2004, through Bible Baptist Church v. CA[73] we revisited Vda. de Quirino v.
Palarca and observed that the option to buy given to the lessee Palarca by the lessor
Quirino was in fact supported by a separate consideration: Palarca paid a higher amount
of rent and, in the event that he does not exercise the option to buy the leased
property, gave Quirino the option to buy the improvements he introduced thereon.
These additional concessions were separate from the purchase price and deemed by the
Court as sufficient consideration to support the option contract.

Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that the mere
inclusion of an option contract in a reciprocal lease contract provides it with the
requisite separate consideration for its validity. The reciprocal contract should be
closely scrutinized and assessed whether it contains additional concessions that the
parties intended to constitute as a consideration for the option contract, separate
from that of the purchase price.

In the present case, paragraph 5 of the agreement provided that should Keppel exercise
its option to buy, Lusteveco could opt to convert the purchase price into equity in
Keppel. May Lusteveco's option to convert the price for shares be deemed as a sufficient
separate consideration for Keppel's option to buy?

As earlier mentioned, the consideration for an option contract does not need to be
monetary and may be anything of value. [74] However, when the consideration is not
monetary, the consideration must be clearly specified as such in the option contract or
clause.[75]

In Villamor v. CA,[76] the parties executed a deed expressly acknowledging that the

purchase price of P70.00 per square meter "was greatly higher than the actual
reasonable prevailing value of lands in that place at that time." [77] The difference
between the purchase price and the prevailing value constituted as the consideration
for the option contract. Although the actual amount of the consideration was not
stated, it was ascertainable from the contract whose terms evinced the parties' intent to
constitute this amount as consideration for the option contract. [78] Thus, the Court
upheld the validity of the option contract. [79] In the light of the offeree's acceptance of
the option, the Court further declared that a bilateral contract to sell and buy was
created and that the parties' respective obligations became reciprocally demandable. [80]

When the written agreement itself does not state the consideration for the option
contract, the offeree or promisee bears the burden of proving the existence of a
separate consideration for the option. [81] The offeree cannot rely on Article 1354 of the
Civil Code,[82] which presumes the existence of consideration, since Article 1479 of the
Civil Code is a specific provision on option contracts that explicitly requires the existence
of a consideration distinct from the purchase price.[83]

In the present case, none of the above rules were observed. We find nothing in
paragraph 5 of the Agreement indicating that the grant to Lusteveco of the option to
convert the purchase price for Keppel shares was intended by the parties as the
consideration for Keppel's option to buy the land; Keppel itself as the offeree presented
no evidence to support this finding. On the contrary, the option to convert the purchase
price for shares should be deemed part of the consideration for the contract of sale
itself, since the shares are merely an alternative to the actual cash price.

There are, however cases where, despite the absence of an express intent in the parties'
agreements, the Court considered the additional concessions stipulated in an
agreement to constitute a sufficient separate consideration for the option contract.

In Teodoro v. CA,[84] the sub-lessee (Teodoro) who was given the option to buy the land
assumed .the obligation to pay not only her rent as sub-lessee, but also the rent of the
sub-lessor (Ariola) to the primary lessor (Manila Railroad Company).[85] In other words,
Teodoro paid an amount over and above the amount due for her own occupation of the
property, and this amount was found by the Court as sufficient consideration for the
option contract.[86]

In Dijamco v. CA,[87] the spouses Dijamco failed to pay their loan with the bank, allowing
the latter to foreclose the mortgage. [88] Since the spouses Dijamco did not exercise their
right to redeem, the bank consolidated its ownership over the mortgaged property.
[89]
 The spouses Dijamco later proposed to purchase the same property by paying a
purchase price of P622,095.00 (equivalent to their principal loan) and a monthly amount
of P13,478.00 payable for 12 months (equivalent to the interest on their principal loan).
They further stated that should they fail to make a monthly payment, the proposal
should be automatically revoked and all payments be treated as rentals for their
continued use of the property.[90] The Court treated the spouses Dijamco's proposal to
purchase the property as an option contract, and the consideration for which was the
monthly interest payments.[91] Interestingly, this ruling was made despite the categorical
stipulation that the monthly interest payments should be treated as rent for the spouses
Dijamco's continued possession and use of the foreclosed property.

At the other end of the jurisprudential spectrum are cases where the Court refused to
consider the additional concessions stipulated in agreements as separate consideration
for the option contract.

In Bible Baptist Church v. CA,[92] the lessee (Bible Baptist Church) paid in advance
P84,000.00 to the lessor in order to free the property from an encumbrance. The lessee
claimed that the advance payment constituted as the separate consideration for its
option to buy the property.[93] The Court, however, disagreed noting that the P84,000.00
paid in advance was eventually offset against the rent due for the first year of the lease,
"such that for the entire year from 1985 to 1986 the [Bible Baptist Church] did not pay
monthly rent."[94] Hence, the Court refused to recognize the existence of a valid option
contract.[95]

What Teodoro, Dijamco,  and Bible Baptist Church show is that the determination of

whether the additional concessions in agreements are sufficient to support an option
contract, is fraught with danger; in ascertaining the parties' intent on this matter, a
court may read too much or too little from the facts before it.

For uniformity and consistency in contract interpretation, the better rule to follow is
that the consideration for the option contract should be clearly specified as such in the
option contract or clause. Otherwise, the offeree must bear the burden of proving that
a separate consideration for the option contract exists.

Given our finding that the Agreement did not categorically refer to any consideration to
support Keppel's option to buy and for Keppel's failure to present evidence in this
regard, we cannot uphold the existence of an option contract in this case.
An option, though unsupported by a separate consideration, remains an offer that, if
I. B. duly accepted, generates into a contract to sell where the parties' respective obligations
become reciprocally demandable
The absence of a consideration supporting the option contract, however, does
not invalidate an offer to buy (or to sell). An option unsupported by a separate
consideration stands as an unaccepted offer to buy (or to sell) which, when properly
accepted, ripens into a contract to sell. This is the rule established by the Court en
banc as early as 1958 in Atkins v. Cua Hian Tek,[96] and upheld in 1972 in Sanchez v.
Rigos.[97]

Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and 1479 of the
Civil Code, which are quoted below:
Article 1324. When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as something
paid or promised.

Article 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, [emphases supplied]
The Court en banc declared that there is no distinction between these two
provisions because the scenario contemplated in the second paragraph of

Article 1479 is the same as that in the last clause of Article 1324. [98] Instead of finding a
conflict, Sanchez v. Rigos harmonised the two provisions, consistent with the
established rules of statutory construction. [99]

Thus, when an offer is supported by a separate consideration, a valid

option contract exists, i.e., there is a contracted offer[100] which the offerer cannot
withdraw from without incurring liability in damages.

On the other hand, when the offer is not supported by a separate consideration, the
offer stands but, in the absence of a binding contract, the offeror may withdraw it any
time.[101] In either case, once the acceptance of the offer is duly
communicated before the withdrawal of the offer, a bilateral contract to buy and sell is
generated which, in accordance with the first paragraph of Article 1479 of the Civil
Code, becomes reciprocally demandable. [102]

Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v. AGPC,

[103]
 which declared that
 a unilateral promise to buy or to sell, even if accepted, is only binding if
supported by a consideration... In other words, an accepted unilateral promise can only
have a binding effect if supported by a consideration, which means that the option can
still be withdrawn, even if accepted, if the same is not supported by any
consideration.[104] [emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning that Article 1479 of
the Civil Code is distinct from Article 1324 of the Civil Code and is a provision that
specifically governs options to buy (or to sell). [105] As mentioned, Sanchez v. Rigos found
no conflict between these two provisions and accordingly abandoned the Southwestern
Sugar doctrine.

Unfortunately, without expressly overturning or abandoning the Sanchez ruling,

subsequent cases reverted back to the Southwestern Sugar doctrine.[106] In
2009,  Eulogio v Apeles[107] referred to Southwestern Sugar v. AGPC as the controlling
doctrine[108] and, due to the lack of a separate consideration, refused to recognize the
option to buy as an offer that would have resulted in a sale given its timely acceptance
by the offeree. In 2010, Tuazon v. Del Rosario-Suarez[109] referred to Sanchez v. Rigos but
erroneously cited as part of its ratio decidendi that portion of the Southwestern Sugar
doctrine that Sanchez had expressly abandoned. [110]

Given that! the issue raised in the present case involves the application of Article 1324
and 1479 of the Civil Code, it becomes imperative for the Court [en banc] to clarify and
declare here which between Sanchez and Southwestern Sugar is the controlling
doctrine.

The Constitution itself declares that "no doctrine or principle of law laid down by the
court in a decision rendered en banc or in division may be modified or reversed except
by the court sitting en banc.[111] Sanchez v. Rigos was an en banc decision which was
affirmed in 1994 in Asuncion v. CA,[112] also an en banc decision, while the decisions
citing the Southwestern Sugar doctrine are all division cases. [113] Based on the
constitutional rule (as well as the inherent logic in reconciling Civil Code provisions),
there should be no doubt that Sanchez v. Rigos remains as the controlling doctrine.

Accordingly, when an option to buy or to sell is not supported by a consideration

separate from the purchase price, the option constitutes as an offer to buy or to sell,
which may be withdrawn by the offeror at any time prior to the communication of the
offeree's acceptance. When the offer is duly accepted, a mutual promise to buy and to
sell under the first paragraph of Article 1479 of the Civil Code ensues and the parties'
respective obligations become reciprocally demandable.

Applied to the present case, we find that the offer to buy the land was timely accepted
by Keppel.

As early as 1994, Keppel expressed its desire to exercise its option to buy the land.
Instead of rejecting outright Keppel's acceptance, PNOC referred the matter to the
Office of the Government Corporate Counsel (OGCC). In its Opinion No. 160, series of
1994, the OGCC opined that Keppel "did not yet have the right to purchase the Bauan
lands."[114] On account of the OGCC opinion, the PNOC did not agree with Keppel's
attempt to buy the land; [115] nonetheless, the PNOC made no categorical withdrawal of
the offer to sell provided under the Agreement.

By 2000, Keppel had met the required Filipino equity proportion and duly
communicated its acceptance of the offer to buy to PNOC. [116] Keppel met with the
board of directors and officials of PNOC who interposed no objection to the sale. [117] It
was only when the amount of purchase price was raised that the conflict between the
parties arose,[118] with PNOC backtracking in its position and questioning the validity of
the option.[119]

Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan land
stood, not having been withdrawn by PNOC. The offer having been duly accepted, a
contract to sell the land ensued which Keppel can rightfully demand PNOC to comply
with.
Keppel's constitutional right to acquire full title to the land
II.
Filipinization is the spirit that pervades the constitutional provisions on national
patrimony and economy. The Constitution has reserved the ownership of public and
private lands,[120] the ownership and operation of public utilities, [121] and certain areas of
investment[122] to Filipino citizens, associations, and corporations. To qualify, sixty per
cent (60%) of the association or corporation's capital must be owned by Filipino citizens.
Although the 60% Filipino equity proportion has been adopted in our Constitution since
1935, it was only in 2011 that the Court interpreted what the term capital constituted.
In Gamboa v. Teves,[123] the Court declared that the "legal and beneficial ownership of
60 percent of the outstanding capital stock must rest in the hands of Filipino
nationals." [124] Clarifying the ruling, the Court decreed that the 60% Filipino ownership
requirement applies separately to each class of shares, whether with or without voting
rights,[125] thus:
Applying uniformly the 60-40 ownership requirement in favour of Filipino citizens
to each class of shares, regardless of differences in voting rights, privileges and
restrictions, guarantees effective Filipino control of public utilities, as mandated by the
Constitution.[126]
Although the ruling was made in the context of ownership and operation of
public utilities, the same should be applied to the ownership of public and private lands,
since the same proportion of Filipino ownership is required and the same nationalist
policy pervades.

The uncontested fact is that, as of November 2000, Keppel's capital is 60% Filipino-
owned.[127] However, there is nothing in the records showing the nature and
composition of Keppel's shareholdings, i.e., whether its shareholdings are divided into
different classes, and 60% of each share class is legally and beneficially owned by
Filipinos - understandably because when Keppel exercised its option to buy the land in
2000, the Gamboa ruling had not yet been promulgated. The Court cannot deny Keppel
its option to buy the land by retroactively applying the Gamboa ruling without violating
Keppel's vested right. Thus, Keppel's failure to prove the nature and composition of its
shareholdings in 2000 could not prevent it from validly exercising its option to buy the
land.

Nonetheless, the Court cannot completely disregard the effect of the Gamboa ruling;

the 60% Filipino equity proportion is a continuing requirement to hold land in the
Philippines. Even in Gamboa, the Court prospectively applied its ruling, thus enabling
the public utilities to meet the nationality requirement before the Securities and
Exchange Commission commences administrative investigation and cases, and imposes
sanctions for noncompliance on erring corporations. [128] In this case, Keppel must be
allowed to prove whether it meets the required Filipino equity ownership and
proportion in accordance with the Gamboa ruling before it can acquire full title to the
land.
In view of the foregoing, the Court AFFIRMS the decision dated 19 December 2011 and
the resolution dated 14 May 2012 of the CA in CA-G.R. CV No. 86830 insofar as these
rulings uphold the respondent Keppel Philippines Holdings, Inc.'s option to buy the land,
and REMANDS the case to the Regional Trial Court of Batangas City, Branch 84, for the
determination of whether the respondent Keppel Philippines Holdings, Inc. meets the
required Filipino equity ownership and proportion in accordance with the Court's ruling
in Gamboa v. Teves, to allow it to acquire full title to the land.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 154670, January 30, 2012 ]
FONTANA RESORT AND COUNTRY CLUB, INC. AND RN
DEVELOPMENT CORP., PETITIONERS, VS. SPOUSES ROY S. TAN AND
SUSAN C. TAN, RESPONDENTS.

DECISION

LEONARDO-DE CASTRO, J.:

For review under Rule 45 of the Rules of Court is the Decision[1] dated May 30, 2002 and
Resolution[2] dated August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816.  The
appellate court affirmed with modification the Decision[3] dated July 6, 2001 of the
Securities and Exchange Commission (SEC) En Banc in SEC AC Case No. 788 which, in
turn, affirmed the Decision[4] dated April 28, 2000 of Hearing Officer Marciano S.
Bacalla, Jr. (Bacalla) of the SEC Securities Investigation and Clearing Department
(SICD) in SEC Case No. 04-99-6264.

Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan bought
from petitioner RN Development Corporation (RNDC) two class “D” shares of stock in
petitioner Fontana Resort and Country Club, Inc. (FRCCI), worth P387,300.00, enticed
by the promises of petitioners’ sales agents that petitioner FRCCI would construct a park
with first-class leisure facilities in Clark Field, Pampanga, to be called Fontana Leisure
Park (FLP); that FLP would be fully developed and operational by the first quarter of
1998; and that FRCCI class “D” shareholders would be admitted to one membership in
the country club, which entitled them to use park facilities and stay at a two-bedroom
villa for “five (5) ordinary weekdays and two (2) weekends every year for free.” [5]

Two years later, in March 1999, respondents filed before the SEC a Complaint[6] for
refund of the P387,300.00 they spent to purchase FRCCI shares of stock from
petitioners.  Respondents alleged that they had been deceived into buying FRCCI shares
because of petitioners’ fraudulent misrepresentations.  Construction of FLP turned out to
be still unfinished and the policies, rules, and regulations of the country club were
obscure.

Respondents narrated that they were able to book and avail themselves of free
accommodations at an FLP villa on September 5, 1998, a Saturday.  They requested that
an FLP villa again be reserved for their free use on October 17, 1998, another Saturday,
for the celebration of their daughter’s 18th birthday, but were refused by petitioners. 
Petitioners clarified that respondents were only entitled to free accommodations at FLP
for “one week annually consisting of five (5) ordinary days, one (1) Saturday and one (1)
Sunday[,]” and that respondents had already exhausted their free Saturday pass for the
year.  According to respondents, they were not informed of said rule regarding their free
accommodations at FLP, and had they known about it, they would not have availed
themselves of the free accommodations on September 5, 1998.  In January 1999,
respondents attempted once more to book and reserve an FLP villa for their free use on
April 1, 1999, a Thursday.  Their reservation was confirmed by a certain Murphy
Magtoto.  However, on March 3, 1999, another country club employee named Shaye
called respondents to say that their reservation for April 1, 1999 was cancelled because
the FLP was already fully booked.

Petitioners filed their Answer[7] in which they asserted that respondents had been duly
informed of the privileges given to them as shareholders of FRCCI class “D” shares of
stock since these were all explicitly provided in the promotional materials for the country
club, the Articles of Incorporation, and the By-Laws of FRCCI.  Petitioners called
attention to the following paragraph in their ads:

GUEST ROOMS

As a member of the Fontana Resort and Country Club, you are entitled to 7 days stay
consisting of 5 weekdays, one Saturday and one Sunday.  A total of 544 elegantly
furnished villas available in two and three bedroom units.[8]

Petitioners also cited provisions of the FRCCI Articles of Incorporation and the By-Laws
on class “D” shares of stock, to wit:

Class D shares may be sold to any person, irrespective of nationality or Citizenship. 

Every registered owner of a class D share may be admitted to one (1) Membership in the
Club and subject to the Club’s rules and regulations, shall be entitled to use a Two (2)
Bedroom Multiplex Model Unit in the residential villas provided by the Club for one
week annually consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday.
(Article Seventh, Articles of Incorporation)

Class D shares – which may be sold to any person, irrespective of nationality or

Citizenship.  Every registered owner of a class D share may be admitted to one (1)
Membership in the Club and subject to the Club’s rules and regulations, shall be entitled
to use a Two (2) Bedroom Multiplex Model Unit in the residential villas provided by the
Club for one week annually consisting of five (5) ordinary days, one (1) Saturday and one
(1) Sunday. [Section 2(a), Article II of the By-Laws.][9]

Petitioners further denied that they unjustly cancelled respondents’ reservation for an
FLP villa on April 1, 1999, explaining that:

6. There is also no truth to the claim of [herein respondents] that they were given and had
confirmed reservations for April 1, 1998.  There was no reservation to cancel since there
was no confirmed reservations to speak of for the reason that April 1, 1999, being Holy
Thursday, all reservations for the Holy Week were fully booked as early as the start of
the current year.  The Holy Week being a peak season for accommodations, all
reservations had to be made on a priority basis; and as admitted by [respondents], they
tried to make their reservation only on January 4, 1999, a time when all reservations have
been fully booked.  The fact of [respondents’] non-reservation can be attested by the fact
that no confirmation number was issued in their favor.

If at all, [respondents] were “wait-listed” as of January 4, 1999, meaning, they would be

given preference in the reservation in the event that any of the confirmed members/guests
were to cancel.  The diligence on the part of the [herein petitioners] to inform
[respondents] of the status of their reservation can be manifested by the act of the Club’s
personnel when it advised [respondents] on March 3, 1999 that there were still no
available villas for their use because of full bookings.[10]

Lastly, petitioners averred that when respondents were first accommodated at FLP, only
minor or finishing construction works were left to be done and that facilities of the
country club were already operational.

SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and trial proper in
the case.  Respondents filed separate sworn Question and Answer depositions. [11]  Esther
U. Lacuna, a witness for respondents, also filed a sworn Question and Answer deposition.
[12]
  When petitioners twice defaulted, without any valid excuse, to present evidence on
the scheduled hearing dates, Hearing Officer Bacalla deemed petitioners to have waived
their right to present evidence and considered the case submitted for resolution. [13]
Based on the evidence presented by respondents, Hearing Officer Bacalla made the
following findings in his Decision dated April 28, 2000:

To prove the merits of their case, both [herein respondents] testified.  Ms. Esther U.
Lacuna likewise testified in favor of [respondents].

As established by the testimonies of [respondents’] witnesses, Ms. Esther U. Lacuna, a

duly accredited sales agent of [herein petitioners] who went to see [respondents] for the
purpose of inducing them to buy membership shares of Fontana Resort and Country
Club, Inc. with promises that the park will provide its shareholders with first class leisure
facilities, showing them brochures (Exhibits “V”, “V-1” and “V-2”) of the future
development of the park.

Indeed [respondents] bought two (2) class “D” shares in Fontana Resort and Country
Club, Inc. paying P387,000.00 to [petitioners] as evidenced by provisional and official
receipts (Exhibits “A” to “S”), and signing two (2) documents designated as Agreement
to Sell and Purchase Shares of Stock (Exhibits “T” to “U-2”).

It is undisputed that many of the facilities promised were not completed within the
specified date.  Ms. Lacuna even testified that less than 50% of what was promised were
actually delivered.

What was really frustrating on the part of [respondents] was when they made reservations
for the use of the Club’s facilities on the occasion of their daughter’s 18th birthday on
October 17, 1998 where they were deprived of the club’s premises alleging that the two
(2) weekend stay which class “D” shareholders are entitled should be on a Saturday and
on a Sunday.  Since [respondents] have already availed of one (1) weekend stay which
was a Saturday, they could no longer have the second weekend stay also on a Saturday.

Another occasion was when [respondents] were again denied the use of the club’s
facilities because they did not have a confirmation number although their reservation was
confirmed.

All these rules were never communicated to [respondents] when they bought their
membership shares.

It would seem that [petitioners], through their officers, would make up rules as they go
along.  A clever ploy for [petitioners] to hide the lack of club facilities to accommodate
the needs of their members.

[Petitioners’] failure to finish the development works at the Fontana Leisure Park within
the period they promised and their failure or refusal to accommodate [respondents] for a
reservation on October 17, 1998 and April 1, 1999, constitute gross misrepresentation
detrimental not only to the [respondents] but to the general public as well.

All these empty promises of [petitioners] may well be part of a scheme to attract, and
induce [respondents] to buy shares because surely if [petitioners] had told the truth about
these matters, [respondents] would never have bought shares in their project in the first
place.[14]

Consequently, Hearing Officer Bacalla adjudged:

WHEREFORE, premises considered, judgment is hereby rendered directing [herein

petitioners] to jointly and severally pay [herein respondents]:

1)  The amount of P387,000.00 plus interest at the rate of 21% per annum computed from
August 28, 1998 when demand was first made, until such time as payment is actually
made.[15]

Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla before the
SEC en banc.  In its Decision dated July 6, 2001, the SEC en banc held:

WHEREFORE, the instant appeal is hereby DENIED and the Decision of Hearing
Officer Marciano S. Bacalla, Jr. dated April 28, 2000 is hereby AFFIRMED. [16]

In an Order[17] dated September 19, 2001, the SEC en banc denied petitioners’ Motion for
Reconsideration for being a prohibited pleading under the SEC Rules of Procedure.

Petitioners filed before the Court of Appeals a Petition for Review under Rule 43 of the
Rules of Court.  Petitioners contend that even on the sole basis of respondents’ evidence,
the appealed decisions of Hearing Officer Bacalla and the SEC en banc are contrary to
law and jurisprudence.

The Court of Appeals rendered a Decision on March 30, 2002, finding petitioners’ appeal
to be partly meritorious.

The Court of Appeals brushed aside the finding of the SEC that petitioners were guilty of
fraudulent misrepresentation in inducing respondents to buy FRCCI shares of stock. 
Instead, the appellate court declared that:

What seems clear rather is that in “inducing” the respondents to buy the Fontana shares,
RN Development Corporation merely repeated to the spouses the benefits promised to all
holders of Fontana Class “D” shares.  These inducements were in fact contained in
Fontana’s promotion brochures to prospective subscribers which the spouses must
obviously have read.[18]
Nonetheless, the Court of Appeals agreed with the SEC that the sale of the two FRCCI
class “D” shares of stock by petitioners to respondents should be rescinded.  Petitioners
defaulted on their promises to respondents that FLP would be fully developed and
operational by the first quarter of 1998 and that as shareholders of said shares,
respondents were entitled to the free use of first-class leisure facilities at FLP and free
accommodations at a two-bedroom villa for “five (5) ordinary weekdays and two (2)
weekends every year.”

The Court of Appeals modified the appealed SEC judgment by ordering respondents to
return their certificates of shares of stock to petitioners upon the latter’s refund of the
price of said shares since “[t]he essence of the questioned [SEC] judgment was really to
declare as rescinded or annulled the sale or transfer of the shares to the respondents.” [19] 
The appellate court additionally clarified that the sale of the FRCCI shares of stock by
petitioners to respondents partakes the nature of a forbearance of money, since the
amount paid by respondents for the shares was used by petitioners to defray the
construction of FLP; hence, the interest rate of 12% per annum should be imposed on
said amount from the date of extrajudicial demand until its return to respondents.  The
dispositive portion of the Court of Appeals judgment reads:

WHEREFORE, premises considered, the appealed judgment is MODIFIED: a) petitioner

Fontana Resort and Country Club is hereby ordered to refund and pay to the respondents
Spouses Roy S. Tan and Susana C. Tan the amount of P387,000.00, Philippine Currency,
representing the price of two of its Class “D” shares of stock, plus simple interest at the
rate of 12% per annum computed from August 28, 1998 when demand was first made,
until payment is completed; b) the respondent spouses are ordered to surrender to
petitioner Fontana Resort and Country Club their two (2) Class “D” shares issued by said
petitioner upon receipt of the full refund with interest as herein ordered.[20]

Petitioners filed a Motion for Reconsideration, but it was denied by the Court of Appeals
in its Resolution dated August 12, 2002.

Hence, the instant Petition for Review.

Petitioners, in their Memorandum,[21] submit for our consideration the following issues:

a. Was the essence of the judgment of the SEC – which ordered the return of the purchase
price but not of the thing sold – a declaration of rescission or annulment of the contract of
sale between RNDC and respondents?

b.  Was the order of the Court of Appeals to FRCCI – which was not the seller of the
thing sold (the seller was RNDC) – to return the purchase price to the buyers (the
respondents) in accordance with law?
c. Was the imposition of 12% interest per annum from the date of extra-judicial demand
on an obligation which is not a loan or forbearance of money in accordance with law? [22]

Petitioners averred that the ruling of the Court of Appeals that the essence of the SEC
judgment is the rescission or annulment of the contract of sale of the FRCCI shares of
stock between petitioners and respondents is inconsistent with Articles 1385 and 1398 of
the Civil Code.  The said SEC judgment did not contain an express declaration that it
involved the rescission or annulment of contract or an explicit order for respondents to
return the thing sold.  Petitioners also assert that respondents’ claim for refund based on
fraud or misrepresentation should have been directed only against petitioner RNDC, the
registered owner and seller of the FRCCI class “D” shares of stock.  Petitioner FRCCI
was merely the issuer of the shares sold to respondents.  Petitioners lastly question the
order of the Court of Appeals for petitioners to pay 12% interest per annum, the same
being devoid of legal basis since their obligation does not constitute a loan or forbearance
of money.

In their Memorandum,[23] respondents chiefly argue that petitioners have posited mere

questions of fact and none of law, precluding this Court to take cognizance of the instant
Petition under Rule 45 of the Rules of Court.  Even so, respondents maintain that the
Court of Appeals did not err in ordering them to return the certificates of shares of stock
to petitioners upon the latter’s refund of the price thereof as the essence of respondents’
claim for refund is to rescind the sale of said shares.  Furthermore, both petitioners should
be held liable since they are the owners and developers of FLP.  Petitioner FRCCI is
primarily liable for respondents’ claim for refund, and petitioner RNDC, at most, is only
subsidiarily liable considering that petitioner RNDC is a mere agent of petitioner FRCCI. 
Respondents finally insist that the imposition of the interest rate at 12% per annum,
computed from the date of the extrajudicial demand, is correct since the obligation of
petitioners is in the nature of a forbearance of money.

We find merit in the Petition.

We address the preliminary matter of the nature of respondents’ Complaint against

petitioners.  Well-settled is the rule that the allegations in the complaint determine the
nature of the action instituted.[24]

Respondents alleged in their Complaint that:

16. [Herein petitioners’] failure to finish the development works at the Fontana Leisure
Park within the time frame that they promised, and [petitioners’] failure/refusal to
accom[m]odate [herein respondents’] request for reservations on 17 October 1998 and 1
April 1999, constitute gross misrepresentation and a form of deception, not only to the
[respondents], but the general public as well.
17. [Petitioners’] deliberately and maliciously misrepresented that development works
will be completed when they knew fully well that it was impossible to complete the
development works by the deadline.  [Petitioners] also deliberately and maliciously
deceived [respondents] into believing that they have the privilege to utilize Club
facilities, only for [respondents] to be later on denied such use of Club facilities.  All
these acts are part of [petitioners’] scheme to attract, induce and convince [respondents]
to buy shares, knowing that had they told the truth about these matters, [respondents]
would never have bought shares in their project.

18. On 28 August 1998, [respondents] requested their lawyer to write [petitioner] Fontana
Resort and Country Club, Inc. a letter demanding for the return of their payment.  x x x.

19. [Petitioner] Fontana Resort and Country Club, Inc. responded to this letter, with a
letter of its own dated 10 September 1998, denying [respondents’] request for a refund.  x
x x.

20. [Respondents] replied to [petitioner] Fontana Resort and Country Club’s letter with a
letter dated 13 October 1998, x x x.  But despite receipt of this letter, [petitioners]
failed/refused and continue to fail /refuse to refund/return [respondents’] payments.

xxxx

22. [Petitioners] acted in bad faith when it sold membership shares to [respondents],
promising development work will be completed by the first quarter of 1998 when
[petitioners] knew fully well that they were in no position and had no intention to
complete development work within the time they promised.  [Petitioners] also were
maliciously motivated when they promised [respondents] use of Club facilities only to
deny [respondents] such use later on.

23. It is detrimental to the interest of [respondents] and quite unfair that they will be
made to suffer from the delay in the completion of the development work, while
[petitioners] are already enjoying the purchase price paid by [respondents].

xxxx

26. Apart from the refund of the amount of P387,300.00, [respondents] are also entitled
to be paid reasonable interest from their money.  Afterall, [petitioners] have already
benefitted from this money, having been able to use it, if not for the Fontana Leisure Park
project, for their other projects as well.  And had [respondents] been able to deposit the
money in the bank, or invested it in some worthwhile undertaking, they would have
earned interest on the money at the rate of at least 21% per annum.[25]
The aforequoted allegations in respondents’ Complaint sufficiently state a cause of action
for the annulment of a voidable contract of sale based on fraud under Article 1390, in
relation to Article 1398, of the Civil Code, and/or rescission of a reciprocal obligation
under Article 1191, in relation to Article 1385, of the same Code.  Said provisions of the
Civil Code are reproduced below:

Article 1390.  The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:

1. Those where one of the parties is incapable of giving consent to a contract;

2. Those where the consent is vitiated by mistake, violence, intimidation, undue

influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court.  They
are susceptible of ratification.

Article 1398.  An obligation having been annulled, the contracting parties shall restore to
each other the things which have been the subject matter of the contract, with their fruits,
and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages.

Article 1191.  The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Article 1385.  Rescission creates the obligation to return the things which were the object
of the contract, together with their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission can return whatever he may be
obliged to return.
Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

It does not matter that respondents, in their Complaint, simply prayed for refund of the
purchase price they had paid for their FRCCI shares,[26] without specifically mentioning
the annulment or rescission of the sale of said shares.  The Court of Appeals treated
respondents’ Complaint as one for annulment/rescission of contract and, accordingly, it
did not simply order petitioners to refund to respondents the purchase price of the FRCCI
shares, but also directed respondents to comply with their correlative obligation of
surrendering their certificates of shares of stock to petitioners.

Now the only issue left for us to determine – whether or not petitioners committed fraud
or defaulted on their promises as would justify the annulment or rescission of their
contract of sale with respondents – requires us to reexamine evidence submitted by the
parties and review the factual findings by the SEC and the Court of Appeals.

As a general rule, “the remedy of appeal by certiorari under Rule 45 of the Rules of

Court contemplates only questions of law and not issues of fact.  This rule, however, is
inapplicable in cases x x x where the factual findings complained of are absolutely devoid
of support in the records or the assailed judgment of the appellate court is based on a
misapprehension of facts.”[27]  Another well-recognized exception to the general rule is
when the factual findings of the administrative agency and the Court of Appeals are
contradictory.[28]  The said exceptions are applicable to the case at bar.

There are contradictory findings below as to the existence of fraud: while Hearing Officer
Bacalla and the SEC en banc found that there is fraud on the part of petitioners in selling
the FRCCI shares to respondents, the Court of Appeals found none.

There is fraud when one party is induced by the other to enter into a contract, through and
solely because of the latter’s insidious words or machinations.  But not all forms of fraud
can vitiate consent.  “Under Article 1330, fraud refers to dolo causante or causal fraud, in
which, prior to or simultaneous with the execution of a contract, one party secures the
consent of the other by using deception, without which such consent would not have been
given.”[29]  “Simply stated, the fraud must be the determining cause of the contract, or
must have caused the consent to be given.”[30]

“[T]he general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary care for his
concerns and that private dealings have been entered into fairly and regularly.” [31]  One
who alleges defect or lack of valid consent to a contract by reason of fraud or undue
influence must establish by full, clear and convincing evidence such specific acts that
vitiated a party’s consent, otherwise, the latter’s presumed consent to the contract
prevails.[32]

In this case, respondents have miserably failed to prove how petitioners employed fraud
to induce respondents to buy FRCCI shares.  It can only be expected that petitioners
presented the FLP and the country club in the most positive light in order to attract
investor-members.  There is no showing that in their sales talk to respondents, petitioners
actually used insidious words or machinations, without which, respondents would not
have bought the FRCCI shares.  Respondents appear to be literate and of above-average
means, who may not be so easily deceived into parting with a substantial amount of
money.  What is apparent to us is that respondents knowingly and willingly consented to
buying FRCCI shares, but were later on disappointed with the actual FLP facilities and
club membership benefits.

Similarly, we find no evidence on record that petitioners defaulted on any of their

obligations that would have called for the rescission of the sale of the FRCCI shares to
respondents.

“The right to rescind a contract arises once the other party defaults in the performance of
his obligation.”[33]  “Rescission of a contract will not be permitted for a slight or casual
breach, but only such substantial and fundamental breach as would defeat the very object
of the parties in making the agreement.”[34]  In the same case as fraud, the burden of
establishing the default of petitioners lies upon respondents, but respondents once more
failed to discharge the same.

Respondents decry the alleged arbitrary and unreasonable denial of their request for
reservation at FLP and the obscure and ever-changing rules of the country club as regards
free accommodations for FRCCI class “D” shareholders.

Yet, petitioners were able to satisfactorily explain, based on clear policies, rules, and
regulations governing FLP club memberships, why they rejected respondents’ request for
reservation on October 17, 1998. Respondents do not dispute that the Articles of
Incorporation and the By-Laws of FRCCI, as well as the promotional materials
distributed by petitioners to the public (copies of which respondents admitted receiving),
expressly stated that the subscribers of FRCCI class “D” shares of stock are entitled free
accommodation at an FLP two-bedroom villa only for “one week annually consisting of
five (5) ordinary days, one (1) Saturday and one (1) Sunday.”  Thus, respondents
cannot claim that they were totally ignorant of such rule or that petitioners have been
changing the rules as they go along.  Respondents had already availed themselves of free
accommodations at an FLP villa on September 5, 1998, a Saturday, so that there was
basis for petitioners to deny respondents’ subsequent request for reservation of an FLP
villa for their free use on October 17, 1998, another Saturday.
Neither can we rescind the contract because construction of FLP facilities were still
unfinished by 1998.  Indeed, respondents’ allegation of unfinished FLP facilities was not
disputed by petitioners, but respondents themselves were not able to present competent
proof of the extent of such incompleteness.  Without any idea of how much of FLP and
which particular FLP facilities remain unfinished, there is no way for us to determine
whether petitioners were actually unable to deliver on their promise of a first class leisure
park and whether there is sufficient reason for us to grant rescission or annulment of the
sale of FRCCI shares.  Apparently, respondents were still able to enjoy their stay at FLP
despite the still ongoing construction works, enough for them to wish to return and again
reserve accommodations at the park.

Respondents additionally alleged the unreasonable cancellation of their confirmed

reservation for the free use of an FLP villa on April 1, 1999.  According to respondents,
their reservation was confirmed by a Mr. Murphy Magtoto, only to be cancelled later on
by a certain Shaye.  Petitioners countered that April 1, 1999 was a Holy Thursday and
FLP was already fully-booked.  Petitioners, however, do not deny that Murphy Magtoto
and Shaye are FLP employees who dealt with respondents.  The absence of any
confirmation number issued to respondents does not also discount the possibility that the
latter’s reservation was mistakenly confirmed by Murphy Magtoto despite FLP being
fully-booked.  At most, we perceive a mix-up in the reservation process of petitioners. 
This demonstrates a mere negligence on the part of petitioners, but not willful intention to
deprive respondents of their membership benefits.  It does not constitute default that
would call for rescission of the sale of FRCCI shares by petitioners to respondents.  For
the negligence of petitioners as regards respondents’ reservation for April 1, 1999,
respondents are at least entitled to nominal damages in accordance with Articles 2221
and 2222 of the Civil Code.[35]

In Almeda v. Cariño,[36] we have expounded on the propriety of granting nominal

damages as follows:

[N]ominal damages may be awarded to a plaintiff whose right has been violated or
invaded by the defendant, for the purpose of vindicating or recognizing that right, and not
for indemnifying the plaintiff for any loss suffered by him.  Its award is thus not for the
purpose of indemnification for a loss but for the recognition and vindication of a right. 
Indeed, nominal damages are damages in name only and not in fact. When granted by the
courts, they are not treated as an equivalent of a wrong inflicted but simply a recognition
of the existence of a technical injury.  A violation of the plaintiff's right, even if only
technical, is sufficient to support an award of nominal damages.  Conversely, so long as
there is a showing of a violation of the right of the plaintiff, an award of nominal
damages is proper.[37]

It is also settled that “the amount of such damages is addressed to the sound discretion of
the court, taking into account the relevant circumstances.”[38]
In this case, we deem that the respondents are entitled to an award of P5,000.00 as
nominal damages in recognition of their confirmed reservation for the free use of an FLP
villa on April 1, 1999 which was inexcusably cancelled by petitioner on March 3, 1999.

In sum, the respondents’ Complaint sufficiently alleged a cause of action for the
annulment or rescission of the contract of sale of FRCCI class “D” shares by petitioners
to respondents; however, respondents were unable to establish by preponderance of
evidence that they are entitled to said annulment or rescission.

WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED.  The

Decision dated May 30, 2002 and Resolution dated August 12, 2002 of the Court Appeals
in CA-G.R. SP No. 67816 are REVERSED and SET ASIDE.  Petitioners are
ORDERED to pay respondents the amount of P5,000.00 as nominal damages for their
negligence as regards respondents’ cancelled reservation for April 1, 1999, but
respondents’ Complaint, in so far as the annulment or rescission of the contract of sale of
the FRCCI class "D” shares of stock is concerned, is DISMISSED for lack of merit.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 146222, January 15, 2004 ]
ERLINDA DELA CRUZ, PRISCILLA DE MESA, ZENAIDA LAMBERTO,
FLORA DRISKELL AND ANGELITO DELA CRUZ, PETITIONERS, VS.
FORTUNATO DELA CRUZ, DIVINA GUTIERREZ AND CLARK
GUTIERREZ, RESPONDENTS.

DECISION

QUISUMBING, J.:

This petition seeks to annul and set aside the decision[1] of the Court of Appeals,
promulgated on September 14, 2000, in CA-G.R. CV No. 53679, affirming the
decision[2] of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 17, dated
December 14, 1995, in Civil Case No. 37-M-89. The trial court dismissed the complaint
in Civil Case No. 37-M-89 and held that herein respondents Clark and Divina Gutierrez
are the lawful owners of the property in dispute.  Petitioners also seek to annul the
appellate court’s resolution,[3] dated November 28, 2000, denying their motion for
reconsideration.
As culled from the records, the following are the facts of the case:

Paciencia dela Cruz, the original plaintiff in Civil Case No. 37-M-89, was the owner of a
parcel of land with an area of two (2) ares[4] and ninety (90) centares,[5] located at
Lolomboy, Bocaue, Bulacan. Said parcel was registered in her name under Transfer
Certificate of Title (TCT) No. T-14.585 (M).  A flea market (talipapa) with fifty or so
vendors was located on the property and Paciencia collected from them their daily stall
rentals. Paciencia had six (6) children, namely Priscilla, Erlinda, Fortunato, Flora,
Angelita and Zenaida, all surnamed dela Cruz.

On September 25, 1980, Paciencia allegedly executed a Deed of Sale whereby for and in
consideration of P21,000, she conveyed said parcel in favor of her son, Fortunato dela
Cruz.[6] On November 26, 1980, the Register of Deeds of Bulacan issued TCT No. T-
34.723 (M) in Fortunato’s name.[7] Fortunato declared the property for taxation purposes
and paid realty taxes due thereon.[8] Sometime between August 1985 to September 1988,
Fortunato mortgaged the property three (3) times to one Erlinda de Guzman for the sums
of P25,000, P50,000 and P100,000.[9] Fortunato was unable to pay these loans.

On January 11, 1989, Fortunato executed a “Kasulatan ng Bilihang Patuluyan”[10] in

favor of Clark and Divina Gutierrez, the children of Claudio and Adoracion Gutierrez, to
whom he earlier offered to sell the property.  The Kasulatan alleged the purchase price to
be P58,000 only but the amount actually paid by the Gutierrezes to Fortunato was
P600,000 as evidenced by a receipt showing the true consideration for the sale. [11] That
same day, the sale was registered, leading to the cancellation of TCT No. T-34.723 (M)
in the name of Fortunato. Seven days later, a new certificate of title, TCT No. T-101011
(M) was issued in the name of Clark and Divina Gutierrez.  Thereafter, the Gutierrezes
took possession of the property, had the talipapa repaired, and collected the daily stall
rentals from the vendors.

On January 20, 1989, Paciencia instituted an action for reconveyance of property with
preliminary injunction against Fortunato and the spouses Claudio and Adoracion
Gutierrez, before the RTC of Malolos, Bulacan, which docketed the complaint as Civil
Case No. 37-M-89. 

On February 8, 1989, the Complaint was amended to implead Clark and Divina
Gutierrez, the children of spouses Claudio and Adoracion Gutierrez, as defendants who
had the subject property titled in their names.

In her Complaint, Paciencia alleged that sometime in 1980, her son Fortunato, took
advantage of his close ties with her to induce her to sign an instrument which appeared to
be a Deed of Sale.  Paciencia alleged that Fortunato assured her that she would remain
the owner thereof while Fortunato would hold the property in trust for her and upon her
death, all her children would share in the property.  Fortunato allegedly did not pay her
any consideration for such sale. She also claimed that she continued to collect the daily
stall rentals from the talipapa tenants until sometime in 1986 when she fell ill and had to
be hospitalized. As a result, Fortunato took over the collection of the rentals.  After
Paciencia had recovered, she sought to resume collecting the daily rentals but upon the
plea of Fortunato who had no means of income at that time, Paciencia allowed him to
continue collecting the stall rentals. Fortunato, however, was remiss in remitting the daily
collections to Paciencia.

Sometime in December 1988, Paciencia was shocked to learn that Fortunato was offering
the property for sale. She then demanded that the property be reconveyed to her but
Fortunato refused to do so.  Meanwhile upon learning that Fortunato was negotiating the
sale of the land with the Gutierrez spouses, Paciencia sent her daughter, Erlinda dela
Cruz, to warn them that Paciencia owned the property, and not Fortunato.  However, the
Gutierrez couple insisted on buying the property and registered the same in favor of their
children, Divina and Clark Gutierrez.  Consequently, the Gutierrezes took over the
collection of stall rentals from the tenants of the subject property.

In sum, Paciencia alleged that the sale of the property to the Gutierrezes was null and
void and fraudulently made as Fortunato had neither right nor authority from her to sell
or convey the subject property, as he only held it in trust for her.

In his Answer, Fortunato averred that he lawfully acquired the subject property from
Paciencia, who absolutely conveyed the same to him, delivered to him the owner’s
duplicate of the title, and upon her instructions, caused the registration of the property in
his name.

For their part, Clark and Divina Gutierrez alleged that: (1) the subject property was titled
in the name of Fortunato dela Cruz; (2) Fortunato was also the one collecting the daily
rentals from the market vendors; (3) Fortunato feared he would lose the property due to
his inability to pay his mortgage indebtedness to Erlinda de Guzman; and (4) he pleaded
with them to help him, as a result of which they turned to their parents who withdrew
their lifetime savings just to be able to buy the property. Clark and Divina likewise
alleged that Fortunato disclosed to them that Paciencia herself did not like this instant suit
as she had already given to all her children her properties through similar transfers.

On December 14, 1995, the trial court decided Civil Case No. 37-M-89 in this wise:
WHEREFORE, premises considered, judgment is hereby rendered:

1) dismissing the case and declaring defendants Clark and Divina Gutierrez as the lawful
owners of the property now covered by TCT No. T-101011(M);

2) ordering the plaintiff to pay defendant Fortunato dela Cruz litigation expenses of
P2,000.00 and to pay the costs of the suit;

3) dismissing the counterclaim of defendants Gutierrezes for moral damages and

attorney’s fees.

SO ORDERED.[12]
Paciencia then moved for reconsideration, but the trial court denied the motion. She then
interposed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 53679.

On January 22, 1997, Paciencia dela Cruz died and was substituted by her children,
namely: petitioners Erlinda dela Cruz, Priscilla de Mesa y dela Cruz, Zenaida Lamberto y
dela Cruz, Flora Driskell y dela Cruz and Angelita dela Cruz.

On September 14, 2000, the Court of Appeals affirmed the trial court’s decision, thus:
WHEREFORE, premises considered, the appealed decision in Civil Case No. 37-M-89 is
hereby AFFIRMED.  No costs.

SO ORDERED.[13]
Herein petitioners then moved for reconsideration, but it was denied by the appellate
court.

Hence, this instant petition grounded on the following issues:

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN

RULING THAT THE DECEASED PACIENCIA DELA CRUZ VOLUNTARILY
EXECUTED THE DEED OF ABSOLUTE SALE IN FAVOR OF
RESPONDENT DELA CRUZ.

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN

RULING THAT THE RESPONDENTS GUTIERREZES ARE BUYERS IN
GOOD FAITH.

3. WHETHER OR NOT THE EVIDENCE ON RECORD SUPPORTS THE

DECISION OF THE HONORABLE COURT OF APPEALS SUBJECT
MATTER OF THE INSTANT PETITION FOR REVIEW.[14]

Simply put, we find that the core issue in this case is whether the Deed of Absolute Sale
executed by the mother, Paciencia dela Cruz, in favor of her son – respondent Fortunato
dela Cruz – is simulated and must be declared void.

Petitioners contend that the Court of Appeals erred in holding that Paciencia dela Cruz,
now deceased, had voluntarily executed the Deed of Absolute Sale in favor of her son,
Fortunato. They fault the court a quo for failing to appreciate the fact that the Deed was
entirely and completely written in English, a language neither known nor understood by
his mother, Paciencia. Hence, the appellate court went against the dictates of Articles
1330 and 1332 of the Civil Code.[15] Petitioners stress that there is no showing that the
terms of the Deed had been fully explained to Paciencia who allegedly executed the
document.

Petitioners also contend that respondents Clark and Divina Gutierrez are not buyers in
good faith.  A buyer in good faith is one who buys a thing for value and is not aware of
any defect in the title of the seller.  Their father, Claudio Gutierrez, was the actual buyer
of the subject property, and was aware of the defect in the title of Fortunato.  Hence,
Claudio could not be a buyer in good faith.  Neither could his children — respondents
Clark and Divina Gutierrez — qualify and be deemed as buyers in good faith, since the
said property was actually bought by their father, who then caused the registration of the
property in their names.

Respondents, for their part, maintain that the Court of Appeals did not err in affirming the
trial court’s ruling that Paciencia dela Cruz voluntarily executed the Deed of Sale in
Fortunato’s favor. They aver there was nothing amiss in said Deed. The Gutierrezes were
innocent purchasers in good faith entitled to the full protection of the law.  In order that
the purchaser of land with a Torrens title may be considered in good faith, according to
respondents, it is enough that he examined the latest certificate of title, which was issued
in the name of the immediate transferor.  This the Gutierrezes did. Moreover, they had
reason to believe that respondent Fortunato dela Cruz’s title was free from flaws and
defects upon learning that the latter was the one collecting the daily stall rentals from the
tenants and the fact that respondent Fortunato had mortgaged the said property three (3)
times and was then selling the property to pay off his loans.

We find for respondents.  Petitioners’ arguments are less than persuasive, to say the least.
As a rule, when the terms of a contract are clear and unambiguous as to the intention of
the contracting parties, the literal meaning of its stipulations shall control.  It is only when
the words appear to contravene the evident intention of the parties that the latter shall
prevail over the former.  The real nature of a contract may be determined from the
express terms of the agreement and from the contemporaneous and subsequent acts of the
parties thereto.[16] When they have no intention to be bound at all, the purported contract
is absolutely simulated and void.  Hence, the parties may recover what they gave under
the simulated contract.  If, on the other hand, the parties state a false cause in the contract
to conceal their real agreement, the contract is relatively simulated and the parties’ real
agreement may be held binding between them.[17]

In the present case, it is not disputed that Paciencia dela Cruz executed a Deed of Sale in
favor of her son, respondent Fortunato dela Cruz.  However, petitioners insist that the
said document does not reflect the true intention and agreement of the parties.  According
to petitioners, Fortunato was to merely hold the property in trust for their mother and that
ownership thereof would remain with the mother. Petitioners, however, failed to produce
even one credible witness who could categorically testify that such was the intent of
Paciencia and Fortunato. There is nothing on record to support sufficiently petitioners’
contention. Instead, the evidence is unclear on whether Paciencia in her lifetime, or later
the petitioners themselves, actually asserted or attempted to assert rights of ownership
over the subject property after the alleged sale thereof to Fortunato.  The lot in dispute
was thrice mortgaged by Fortunato with nary a protest or complaint from petitioners. 
When they learned that Fortunato mortgaged the property to Erlinda de Guzman on three
occasions: August 26, 1985, April 6, 1987 and September 7, 1988, they refused to
redeem the property.  They reasoned that if they would redeem the property and pay the
debts of Fortunato, the property would merely return to him.[18] Indeed, how could
Fortunato have thrice obtained a mortgage over the property, without having dominion
over it?  Fortunato declared the property in his name for taxation purposes and paid the
realty taxes, without any protest from Paciencia or petitioners.  His actions are contrary to
petitioners’ allegation that the parties never intended to be bound by the assailed
contract.  Tax receipts and declaration of ownership for taxation purposes are strong
evidence of ownership.  It has been ruled that although tax declarations or realty tax
payments are not conclusive evidence of ownership, nevertheless, they are
good indicia of possession in the concept of owner for no one in his right mind will be
paying taxes for a property that is not in his actual or constructive possession. [19]

As the Court of Appeals well observed, for nine (9) years, Paciencia allowed Fortunato to
benefit from the property. It was only when she learned of its impending sale to the
Gutierrez spouses, that she took action to forestall the transfer of the property to a third
person.  She then caused the annotation of her adverse claim on the certificate of title on
the same day the deed in favor of the Gutierrez children was registered.  This was rather
belated, for the deed was already done.

Petitioners harp on the fact that the assailed Deed was in English and that it was not
explained to Paciencia.  But we find that the petitioners failed to prove their allegation
that Pacencia could not speak, read, or understand English.  Moreover, Paciencia’s bare
testimony[20] on this point is uncorroborated.  For Article 1332 to apply, it must first be
convincingly established that the illiterate or disadvantaged party could not read or
understand the language in which the contract was written,[21] or that the contract was left
unexplained to said party.  Petitioners failed to discharge this burden.

The Deed of Absolute Sale dated September 25, 1980 was duly acknowledged before a
notary public.  As a notarized document, it has in its favor the presumption of regularity
and it carries the evidentiary weight conferred upon it with respect to its due execution. 
It is admissible in evidence without further proof of its authenticity and is entitled to full
faith and credit upon its face.[22]

Coming now to whether the Gutierrezes were buyers in good faith, we note that both the
trial and appellate courts found that when Fortunato executed the “Kasulatan ng Bilihang
Patuluyan” on January 11, 1989 in favor of respondents Clark and Divina Gutierrez, the
name of the registered owner appearing in the certificate of title was that of Fortunato
dela Cruz. This Kasulatan was duly executed and acknowledged before a notary public.
At the time of its execution, there was no annotation on Fortunato’s certificate of title to
indicate any adverse claim of any third person.  Only two cautionary entries regarding
Section 4,[23] Rule 74 of the Rules of Court appear thereon.  Nothing more substantial
appears in the certificate of title to indicate a scintilla of flaw or defect in Fortunato’s
title. Hence, we cannot fairly rule that in relying upon said title, the respondent
Gutierrezes were in bad faith.  A person dealing with registered land may safely rely
upon the correctness of the certificate of title issued therefor and the law will in no way
oblige him to go behind the certificate to determine the condition of the property.  The
law considers said person as an innocent purchaser for value. An innocent purchaser for
value is one who buys the property of another, without notice that some other person has
a right or interest in such property and pays the full price for the same, at the time of such
purchase or before he has notice of the claims or interest of some other person in the
property.[24]

We note, furthermore, that the Gutierrezes did not simply rely upon the face of
Fortunato’s Certificate of Title to the property.  They also employed the services of
counsel Atty. Crisanta Abarrientos, who verified the title with the Registry of Deeds. 
Thus, they took all the necessary precautions to ascertain the true ownership of the
property, even engaging the services of legal counsel for that specific purpose, and it was
only after said counsel assured them that everything was in order did they finalize the
arrangements to purchase the property.  Hence, we entertain no doubt that the respondent
Gutierrezes were purchasers for value and in good faith.[25]

WHEREFORE, the instant petition is DENIED for lack of merit.  The assailed decision
dated September 14, 2000 of the Court of Appeals in CA-G.R. CV No. 53679, which
sustained the decision of the Regional Trial Court of Malolos, Bulacan, Branch 17, dated
December 14, 1995, in Civil Case No. 37-M-89, as well as the appellate court’s
resolution of November 28, 2000, is AFFIRMED. Costs against petitioners.

SO ORDERED.

FIRST DIVISION
[ G.R. NO. 162593, September 26, 2006 ]
REMEGIA Y. FELICIANO, SUBSTITUTED BY THE HEIRS OF REMEGIA
Y. FELICIANO, AS REPRESENTED BY NILO Y. FELICIANO,
PETITIONERS, VS. SPOUSES AURELIO AND LUZ ZALDIVAR,
 RESPONDENTS.

DECISION

CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari filed by the Heirs of Remegia Y.
Feliciano (as represented by Nilo Y. Feliciano) seeking the reversal of the
Decision[1] dated July 31, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 66511
which ordered the dismissal of the complaint filed by Remegia Y. Feliciano[2] for
declaration of nullity of title and reconveyance of property. The assailed decision of the
appellate court reversed and set aside that of the Regional Trial Court (RTC) of Cagayan
de Oro City, Branch 25 in Civil Case No. 92-423.

The factual and procedural antecedents of the present case are as follows:

Remegia Y. Feliciano filed against the spouses Aurelio and Luz Zaldivar a complaint for
declaration of nullity of Transfer Certificate of Title (TCT) No. T-17993 and
reconveyance of the property covered therein consisting of 243 square meters of lot
situated in Cagayan de Oro City. The said title is registered in the name of Aurelio
Zaldivar.

In her complaint, Remegia alleged that she was the registered owner of a parcel of land
situated in the District of Lapasan in Cagayan de Oro City with an area of 444 square
meters, covered by TCT No. T-8502. Sometime in 1974, Aurelio, allegedly through
fraud, was able to obtain TCT No. T-17993 covering the 243-sq-m portion of Remegia's
lot as described in her TCT No. T-8502.

According to Remegia, the 243-sq-m portion (subject lot) was originally leased from her
by Pio Dalman, Aurelio's father-in-law, for P5.00 a month, later increased to P100.00 a
month in 1960. She further alleged that she was going to mortgage the subject lot to
Ignacio Gil for P100.00, which, however, did not push through because Gil took back the
money without returning the receipt she had signed as evidence of the supposed mortgage
contract. Thereafter, in 1974, Aurelio filed with the then Court of First Instance of
Misamis Oriental a petition for partial cancellation of TCT No. T-8502. It was allegedly
made to appear therein that Aurelio and his spouse Luz acquired the subject lot from
Dalman who, in turn, purchased it from Gil. The petition was granted and TCT No. T-
17993 was issued in Aurelio's name.

Remegia denied that she sold the subject lot either to Gil or Dalman. She likewise
impugned as falsified the joint affidavit of confirmation of sale that she and her uncle,
Narciso Labuntog, purportedly executed before a notary public, where Remegia appears
to have confirmed the sale of the subject property to Gil. She alleged that she never
parted with the certificate of title and that it was never lost. As proof that the sale of the
subject lot never transpired, Remegia pointed out that the transaction was not annotated
on TCT No. T-8502.

In their answer, the spouses Zaldivar denied the material allegations in the complaint and
raised the affirmative defense that Aurelio is the absolute owner and possessor of the
subject lot as evidenced by TCT No. 17993 and Tax Declaration No. 26864 covering the
same. Aurelio claimed that he acquired the subject lot by purchase from Dalman who, in
turn, bought the same from Gil on April 4, 1951. Gil allegedly purchased the subject lot
from Remegia and this sale was allegedly conformed and ratified by the latter and her
uncle, Narciso Labuntog, before a notary public on December 3, 1965.

After Aurelio obtained a loan from the Government Service Insurance System (GSIS),
the spouses Zaldivar constructed their house on the subject lot. They alleged that they and
their predecessors-in-interest had been occupying the said property since 1947 openly,
publicly, adversely and continuously or for over 41 years already. Aurelio filed a petition
for the issuance of a new owner's duplicate copy of TCT No. T-8502 because when he
asked Remegia about it, the latter claimed that it had been lost.

After due trial, the RTC rendered judgment in favor of Remegia. It declared that TCT No.
17993 in the name of Aurelio was null and void for having been obtained through
misrepresentation, fraud or evident bad faith by claiming in his affidavit that Remegia's
title (TCT No. T-8502) had been lost, when in fact it still existed.

The court a quo explained that "the court that orders a title reconstituted when the
original is still existing has not acquired jurisdiction over the case. A judgment otherwise
final may be annulled not only on extrinsic fraud but also for lack of
jurisdiction."[3] Aurelio's use of a false affidavit of loss, according to the court a quo, was
similar to the use during trial of a forged document or perjured testimony that prevented
the adverse party, Remegia, from presenting her case fully and fairly.

The RTC likewise noted that no public instrument was presented in evidence
conveyancing or transferring title to the subject lot from Remegia to Dalman, the alleged
predecessor-in-interest of the spouses Zaldivar. The only evidence presented by the said
spouses was a joint affidavit of confirmation of sale purportedly signed by Remegia and
her uncle, the execution of which was denied by the latter's children. The certificate of
title of the spouses Zaldivar over the subject property was characterized as irregular
because it was issued in a calculated move to deprive Remegia of dominical rights over
her own property. Further, the spouses Zaldivar could not set up the defense of
indefeasibility of Torrens title since this defense does not extend to a transferor who takes
the certificate of title with notice of a flaw therein. Registration, thus, did not vest title in
favor of the spouses; neither could they rely on their adverse or continuous possession
over the subject lot for over 41 years, as this could not prevail over the title of the
registered owner pursuant to Sections 50[4] and 51[5] of Act No. 496, otherwise known as
The Land Registration Act.
The dispositive portion of the decision of the court a quo reads:

IN THE LIGHT OF THE FOREGOING, and by preponderance of evidence, judgment is

hereby rendered canceling TCT T-17993 and reconveyance of 243 square meters the title
and possession of the same, by vacating and turning over possession of the 243 square
meters of the subject property to the plaintiff [referring to Remegia] which is part of the
land absolutely owned by the plaintiff covered by [TCT] T-8502 and to solidarily pay the
plaintiff Fifty Thousand Pesos (P50,000.00) as moral damages; Ten Thousand Pesos
(P10,000.00) as exemplary damages; Fifty Thousand Pesos (P50,000.00) as attorney's
fees and Ten Thousand Pesos (P10,000.00) expenses for litigation to the plaintiff.

SO ORDERED.[6]
On appeal, the CA reversed the decision of the RTC and ruled in favor of the spouses
Zaldivar. In holding that Remegia sold to Gil a 243 sq m portion of the lot covered by
TCT No. T-8502, the appellate court gave credence to Exhibit "5," the deed of sale
presented by the spouses Zaldivar to prove the transaction. The CA likewise found that
Gil thereafter sold the subject property to Dalman who took actual possession thereof. By
way of a document denominated as joint affidavit of confirmation of sale executed before
notary public Francisco Velez on December 3, 1965, Remegia and her uncle, Narciso
Labuntog, confirmed the sale by Remegia of the subject lot to Gil and its subsequent
conveyance to Dalman. Per Exhibit "6," the CA likewise found that Dalman had declared
the subject lot for taxation purposes in his name. In 1965, Dalman sold the same to the
spouses Zaldivar who, in turn, had it registered in their names for taxation purposes
beginning 1974. Also in the same year, Aurelio filed with the then CFI of Misamis
Oriental a petition for the issuance of a new owner's duplicate copy of TCT No. T-8502,
alleging that the owner's duplicate copy was lost; the CFI granted the petition on March
20, 1974. Shortly, Aurelio filed with the same CFI another petition, this time for the
partial cancellation of TCT No. T-8502 and for the issuance of a new certificate of title in
Aurelio's name covering the subject lot. The CFI issued an order granting the petition
and, on the basis thereof, the Register of Deeds of Cagayan de Oro City issued TCT No.
T-17993 covering the subject lot in Aurelio's name.

Based on the foregoing factual findings, the appellate court upheld the spouses Zaldivar's
ownership of the subject lot. The CA stated that Remegia's claim that she did not sell the
same to Gil was belied by Exhibit "5," a deed which showed that she transferred
ownership thereof in favor of Gil. The fact that the said transaction was not annotated on
Remegia's title was not given significance by the CA since the lack of annotation would
merely affect the rights of persons who are not parties to the said contract. The CA also
held that the joint affidavit of confirmation of sale executed by Remegia and Narciso
Labuntog before a notary public was a valid instrument, and carried the evidentiary
weight conferred upon it with respect to its due execution.[7] Moreover, the CA found that
the notary public (Atty. Francisco Velez) who notarized the said document testified not
only to its due execution and authenticity but also to the truthfulness of its contents. The
contradiction between the testimonies of the children of Narciso Labuntog and the notary
public (Atty. Velez), according to the CA, casts doubt on the credibility of the former as
it was ostensible that their version of the story was concocted. [8]

The CA further accorded in favor of the judge who issued the order for the issuance of
the new owner's duplicate copy of TCT No. T-8502 the presumption of regularity in the
performance of his official duty. It noted that the same was issued by the CFI after due
notice and hearing.

Moreover, prescription and laches or estoppel had already set in against Remegia. The
appellate court pointed out that TCT No. T-17993 in the name of Aurelio was issued on
September 10, 1974, while Remegia's complaint for annulment and reconveyance of
property was filed more than 17 years thereafter or on August 10, 1992. Consequently,
Remegia's action was barred by prescription because an action for reconveyance must be
filed within 10 years from the issuance of the title since such issuance operates as a
constructive notice.[9] The CA also noted that the spouses Zaldivar constructed their
house on the subject lot some time in 1974-1975, including a 12-foot firewall made of
hollow blocks, and Remegia took no action to prevent the said construction.
The dispositive portion of the assailed CA decision reads:

WHEREFORE, foregoing premises considered, the December 3, 1999 Decision of the

Regional Trial Court of Misamis Oriental, Cagayan de Oro City, in Civil Case No. 92-
423, is REVERSED and SET ASIDE and a new one is entered DISMISSING the said
civil case.

SO ORDERED.[10]
When their motion for reconsideration was denied by the CA in the assailed Resolution
dated February 4, 2004, the heirs of Remegia (the petitioners) sought recourse to the
Court. In their petition for review, they allege that the appellate court gravely erred -
A

IN NOT DISMISSING THE APPEAL OF THE RESPONDENTS (DEFENDANTS-

APELLANTS) MOTU PROPIO OR EXPUNGING THE BRIEF FOR DEFENDANTS-
APPELLANTS FROM RECORD FOR FAILURE TO FILE THE REQUIRED BRIEF
FOR THE DEFENDANTS-APPELLANTS ON TIME BUT BEYOND THE LAST AND
FINAL EXTENDED PERIOD WITHIN WHICH TO FILE THE SAID BRIEF IN
VIOLATION TO Section 7 and section 12, rule 44 of the revised rules of court and in
contradiction to the ruling enunciated in catalina roxas, et al. vs. court of appeals, g.r. no.
L-76549, december 10, 1987.
 B.

in denying the motion for reconsideration which was filed within the fifteen-day
reglementary period in violation to the rules of court.

C.

in ruling that the court who ordered the issuance of new certificate of title despite
existence of owner's duplicate copy that was never lost has jurisdiction over the case.

D.

in concluding that petitioner's (Plaintiff-appellee) claim of ownership over the subject lot
was barred by estoppel or laches.

E.

in concluding that the respondents (defendants-appellants) are the absolute owners of the
subject lot based on tct no. 17993 issued to them.

F.

in obviating essential and relevant facts, had it been properly appreciated, would maintain
absolute ownership of petitioner (plaintiff-appellee) over the subject lot as evidenced by
existing tct no. t-8502.[11]
The Court finds the petition meritorious.

It should be recalled that respondent Aurelio Zaldivar filed with the then CFI of Misamis
Oriental a petition for issuance of a new owner's duplicate copy of TCT No.T-8502,
alleging that the owner's duplicate copy was lost. In the Order dated March 20, 1974, the
said CFI granted the petition and consequently, a new owner's duplicate copy of TCT No.
T-8502 was issued.

However, as the trial court correctly held, the CFI which granted respondent Aurelio's
petition for the issuance of a new owner's duplicate copy of TCT No. T-8502 did not
acquire jurisdiction to issue such order. It has been consistently ruled that "when the
owner's duplicate certificate of title has not been lost, but is in fact in the possession of
another person, then the reconstituted certificate is void, because the court that rendered
the decision had no jurisdiction. Reconstitution can validly be made only in case of loss
of the original certificate."[12] In such a case, the decision authorizing the issuance of a
new owner's duplicate certificate of title may be attacked any time. [13]
The new owner's duplicate TCT No. T-8502 issued by the CFI upon the petition filed by
respondent Aurelio is thus void. As Remegia averred during her testimony, the owner's
duplicate copy of TCT No. T-8502 was never lost and was in her possession from the
time it was issued to her:
Q. A while ago, you said that you were issued a title in 1968, can you tell the Honorable
Court who was in possession of the title?
A. I am the one in possession and I am the one keeping the title.

Q. Even up to the present?

A. Yes, Sir.

Q . Was there any instance that this title was borrowed from you?
A. No, Sir.

Q. Was there any instance that this title was lost from your possession?
A. No, Sir.

Q. Was there any instance that this title was surrendered to the Register of Deeds of the
City of Cagayan de Oro?
A. No, Sir. There never was an instance ... There never was an instance that this title was
surrendered to the Register of Deeds.

Q. As there any instance that you petitioned to the Honorable Court for the issuance of a
new owner's duplicate copy of this title in lieu of the lost copy of said title?
A. No, Sir. There was never an instance because this title was never lost. [14]
Consequently, the court a quo correctly nullified TCT No. T-17993 in Aurelio's name,
emanating as it did from the new owner's duplicate TCT No. T-8502, which Aurelio
procured through fraud. Respondent Aurelio cannot raise the defense of indefeasibility of
title because "the principle of indefeasibility of a Torrens title does not apply where fraud
attended the issuance of the title. The Torrens title does not furnish a shield for
fraud."[15] As such, a title issued based on void documents may be annulled.[16]

The appellate court's reliance on the joint affidavit of confirmation of sale purportedly
executed by Remegia and her uncle, Narciso Labuntog, is not proper. In the first place,
respondent Aurelio cannot rely on the joint affidavit of confirmation of sale to prove that
they had validly acquired the subject lot because, by itself, an affidavit is not a mode of
acquiring ownership.[17] Moreover, the affidavit is written entirely in English in this wise:
JOINT AFFIDAVIT OF CONFIRMATION OF SALE[18]

We, NARCISO LABUNTOG and REMEGIA YAPE DE FELICIANO, both of legal age,
Filipino citizens and residents of Lapasan, Cagayan de Oro City, Philippines, after being
duly sworn according to law, depose and say:
 1. That the late FRANCISCO LABUNTOG is our common ancestor, the
undersigned NARCISO LABUNTOG being one of his sons and the undersigned
REMEGIA YAPE DE FELICIANO being the daughter of the late Emiliana
Labuntog, sister of Narciso Labuntog;

2. That after his death, the late Francisco Labuntog left behind a parcel of land
known as Lot No. 2166 C-2 of the Cagayan Cadastre situated at Lapasan, City of
Cagayan de Oro, Philippines which is being administered by the undersigned
Narciso Labuntog under Tax Decl. No. 27633;

3. That the entire Cadastral Lot No. 2166 C-2 has been subdivided and apportioned
among the heirs of the late Francisco Labuntog, both of the undersigned affiants
having participated and shared in the said property, Remegia Yape de Feliciano
having inherited the share of her mother Emiliana Labuntog, sister of Narciso
Labuntog;

4. That on April 4, 1951, Remegia Yape de Feliciano sold a portion of her share to
one Ignacio Gil and which portion is more particularly described and bounded as
follows:

"On the North for 13 ½ meters by Agustin Cabaraban;

On the South for 13 ½ meters by Antonio Babanga;
On the East for 18 meters by Clotilde Yape; and
On the West for 18meters by Agustin Cabaraban;"

5. That sometime in the year 1960, the said Ignacio Gil conveyed the same portion to
Pio Dalman, who is of legal age, Filipino citizen and likewise a resident of
Lapasan, Cagayan de Oro City and that since 1960 up to the present, the said Pio
Dalman has been in continuous, open, adverse and exclusive possession of the
property acquired by him in concept of owner;

6. That we hereby affirm, ratify and confirm the acquisition of the above described
portion acquired by Pio Dalman inasmuch as the same is being used by him as his
residence and family home and we hereby request the Office of the City Assessor
to segregate this portion from our Tax Decl. No. 27633 and that a new tax
declaration be issued in the name of PIO DALMAN embracing the area acquired
and occupied by him.

IN WITNESS WHEREOF, we have hereunto affixed our signatures on this 3rd day of
December, 1965 at Cagayan de Oro City, Philippines.
(SGD.) Narciso Labuntog (SGD.)Remegia Yape de Feliciano
NARCISO LABUNTOG REMEGIA YAPE DE FELICIANO
Affiant Affiant
SUBSCRIBED & SWORN to before me this 3rd day of December, 1965 at Cagayan de
Oro City, Philippines, affiants exhibited their Residence Certificates as follows:
NARCISO LABUNTOG, A-1330509 dated Oct. 5, 1965 and REMEGIA YAPE DE
FELICIANO, A-1811104 dated Dec. 3, 1965 both issued at Cagayan de Oro City.

(SGD.) ILLEGIBLE
FRANCISCO X. VELEZ
Notary Public

However, based on Remegia's testimony, she could not read and understand English:
COURT:
Can you read English?
A No, I cannot read and understand English.

ATTY. LEGASPI:
Q What is your highest educational attainment?
A Grade 3.

Q But you can read and understand Visayan?

A Yes, I can read Visayan, but I cannot understand well idiomatic visayan terms (laglom
nga visayan).[19]

On this point, Article 1332 of the Civil Code is relevant:

ART.1332. When one of the parties is unable to read, or if the contract is in a language
not understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former.
The principle that a party is presumed to know the import of a document to which he
affixes his signature is modified by the foregoing article. Where a party is unable to read
or when the contract is in a language not understood by the party and mistake or fraud is
alleged, the obligation to show that the terms of the contract had been fully explained to
said party who is unable to read or understand the language of the contract devolves on
the party seeking to enforce the contract to show that the other party fully understood the
contents of the document. If he fails to discharge this burden, the presumption of mistake,
if not, fraud, stands unrebutted and controlling.[20]

Applying the foregoing principles, the presumption is that Remegia, considering her
limited educational attainment, did not understand the full import of the joint affidavit of
confirmation of sale and, consequently, fraud or mistake attended its execution. The
burden is on respondents, the spouses Zaldivar, to rebut this presumption. They tried to
discharge this onus by presenting Atty. Francisco Velez (later RTC Judge) who notarized
the said document. Atty. Velez testified that he "read and interpreted" the document to
the affiants and he asked them whether the contents were correct before requiring them to
affix their signatures thereon.[21] The bare statement of Atty. Velez that he "read and
interpreted" the document to the affiants and that he asked them as to the correctness of
its contents does not necessarily establish that Remegia actually comprehended or
understood the import of the joint affidavit of confirmation of sale. Nowhere is it stated in
the affidavit itself that its contents were fully explained to Remegia in the language that
she understood before she signed the same. Thus, to the mind of the Court, the
presumption of fraud or mistake attending the execution of the joint affidavit of
confirmation of sale was not sufficiently overcome.

Moreover, the purported joint affidavit of confirmation of sale failed to state certain
important information. For example, it did not mention the consideration or price for the
alleged sale by Remegia of the subject lot to Ignacio Gil. Also, while it stated that the
subject lot was conveyed by Ignacio Gil to Pio Dalman, it did not say whether the
conveyance was by sale, donation or any other mode of transfer. Finally, it did not also
state how the ownership of the subject lot was transferred from Pio Dalman to respondent
Aurelio or respondents.

Respondents' claim that they had been occupying the subject lot since 1947 openly,
publicly, adversely and continuously or for over 41 years is unavailing. In a long line of
cases,[22] the Court has consistently ruled that lands covered by a title cannot be acquired
by prescription or adverse possession. A claim of acquisitive prescription is baseless
when the land involved is a registered land following Article 1126[23] of the Civil Code in
relation to Section 46 of Act No. 496 or the Land Registration Act (now Section 47[24] of
P.D. No 1529):
Appellants' claim of acquisitive prescription is likewise baseless. Under Article 1126 of
the Civil Code, prescription of ownership of lands registered under the Land Registration
Act shall be governed by special laws. Correlatively, Act No. 496 provides that no title to
registered land in derogation of that of the registered owner shall be acquired by adverse
possession. Consequently, proof of possession by the defendants is both immaterial and
inconsequential.[25]
Neither can the respondents spouses Zaldivar rely on the principle of indefeasibility of
TCT No. 17793 which was issued on September 10, 1974 in favor of respondent Aurelio.
As it is, the subject lot is covered by two different titles: TCT No. T-8502 in Remegia's
name covering an area of 444 sq m including therein the subject lot, and TCT No. 17793
in the name of respondent Aurelio covering the subject lot. Aurelio's title over the subject
lot has not become indefeasible, by virtue of the fact that TCT No. T-8502 in the name of
Remegia has remained valid. The following disquisition is apropos:
The claim of indefeasibility of the petitioner's title under the Torrens land title system
would be correct if previous valid title to the same parcel of land did not exist. The
respondent had a valid title x x x It never parted with it; it never handed or delivered to
anyone its owner's duplicate of the transfer certificate of title; it could not be charged
with negligence in the keeping of its duplicate certificate of title or with any act which
could have brought about the issuance of another certificate upon which a purchaser in
good faith and for value could rely. If the petitioner's contention as to indefeasibility of
his title should be upheld, then registered owners without the least fault on their part
could be divested of their title and deprived of their property. Such disastrous results
which would shake and destroy the stability of land titles had not been foreseen by those
who had endowed with indefeasibility land titles issued under the Torrens system. [26]
Remegia's TCT No. T-8502, thus, prevails over respondent Aurelio's TCT No. 17793,
especially considering that, as earlier opined, the latter was correctly nullified by the RTC
as it emanated from the new owner's duplicate TCT No. T-8502, which in turn,
respondent Aurelio was able to procure through fraudulent means.

Contrary to the appellate court's holding, laches has not set in against Remegia. She
merely tolerated the occupation by the respondents of the subject lot:
Q You also stated in the direct that the defendants in this case, Mr. and Mrs. Zaldivar,
were issued a title over a portion of this land which you described a while ago?
A We knew about that only recently.

Q When was that when you knew that the defendants were issued title over a portion of
the land you described a while ago?
A In June, 1992.

Q n what way did you discover that a portion of the land was titled in the name of the
defendants?
A I discovered that my property was titled by Mr. and Mrs. Zaldivar when I went to the
Register of Deeds for the purpose of partitioning my property among my children.

Q And you were surprised why it is titled in their names?

A Yes.

Q Is it not a fact that the defendants have constructed their house on a portion of the land
you described a while ago?
A Yes. I knew that the Zaldivars built a house on the property I described a while ago,
but I did not bother because I know that I can get that property because I own that
property.

Q And the defendants constructed that house in 1974-75, am I correct?

A Yes.

Q And as a matter of fact, you have also a house very near to the house that was
constructed by the defendants in this case?
A Yes.
Q Can you tell us what is the distance between your house and the house constructed by
the defendants in 1974?
A They are very near because they constructed their house in my lot.

Q How many meters, more or less?

A It is very near, very close.

Q When they constructed their house, meaning the defendants, did you not stop the
defendants from the construction?
A I did not bother in stopping the Zaldivars in constructing the house because I am
certain that I can get the land because I own the land.

Q Aside from not protesting to the construction, did you not bring this matter to the
attention of the barangay captain or to the police authorities?
A No, because I did not bring this matter to the barangay captain nor to the police
authorities. It is only now that we discovered that it is already titled.

Q When you said now, it is in 1992?

A Yes.

Q Is it not a fact that after the house was finished the defendants and their family resided
in that house which they constructed?
A Yes, after the house was finished, they resided in that house.

Q As a matter of fact, from that time on up to the present, the defendants are still residing
in that house which they constructed in 1974 or 1975, am I correct?
A Yes.

Q As a matter of fact also the defendants fenced the lot in which their house was
constructed with hollow blocks, am I correct?
A Yes, the house of the Zaldivars was fenced by them with hollow blocks and I did not
stop them to avoid trouble.

Q As a matter of fact, the boundary between your house and the house of Zaldivar, there
was constructed a firewall made of hollow blocks about twelve feet in height, am I
correct?
A Yes.

Q Such that you cannot see their house and also the Zaldivars cannot see your house
because of that high firewall, am I correct?
A We can still see each other because the firewall serves as the wall of their house.
Q When did the Zaldivars construct that hollow blocks fence? After the house was
finished?
A I cannot remember.

Q But it could be long time ago?

ATTY. VEDAD:
Q That would be repetitious. She answered she could not remember.

ATTY. LEGASPI:
Q It could be many years ago?

A I cannot remember when they constructed the fence.

Q Did you [file] any protest or complaint when the Zaldivars constructed the hollow
blocks fence?
A No.

Q Neither did you bring any action in court or with the barangay captain or the police
authorities when the Zaldivars constructed that hollow blocks fence?
A No, I did not complain the fencing by the Zaldivars. Only now that we know that we
bring this matter to the barangay captain.

Q And in the [office of the] barangay captain, you were able to meet the defendants, am I
correct?
A No. When we went to the barangay captain, the Zaldivars did not appear there;
therefore, we hired a lawyer and filed this case.[27]
Case law teaches that if the claimant's possession of the land is merely tolerated by its
lawful owner, the latter's right to recover possession is never barred by laches:
As registered owners of the lots in question, the private respondents have a right to eject
any person illegally occupying their property. This right is imprescriptible. Even if it be
supposed that they were aware of the petitioner's occupation of the property, and
regardless of the length of that possession, the lawful owners have a right to demand the
return of their property at any time as long as the possession was unauthorized or merely
tolerated, if at all. This right is never barred by laches.[28]
Nonetheless, the Court is not unmindful of the fact that respondents had built their house
on the subject lot and, despite knowledge thereof, Remegia did not lift a finger to prevent
it. Article 453 of the Civil Code is applicable to their case:
ART. 453. If there was bad faith, not only on the part of the person who built, planted or
sowed on the land of another, but also on the part of the owner of such land, the rights of
one and the other shall be the same as though both had acted in good faith.
It is understood that there is bad faith on the part of the landowner whenever the act was
done with his knowledge and without opposition on his part.
Under the circumstances, respondents and Remegia are in mutual bad faith and, as such,
would entitle the former to the application of Article 448 of the Civil Code governing
builders in good faith:
ART. 448. The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing or planting,
after payment of the indemnity provided for in Articles 546[29] and 548,[30] or to oblige the
one who built or planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such a case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building or
trees after the proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.
Following the above provision, the owner of the land on which anything has been built,
sown or planted in good faith shall have the right to appropriate as his own the building,
planting or sowing, after payment to the builder, planter or sower of the necessary and
useful expenses, and in the proper case, expenses for pure luxury or mere pleasure. [31]

The owner of the land may also oblige the builder, planter or sower to purchase and pay
the price of the land. If the owner chooses to sell his land, the builder, planter or sower
must purchase the land, otherwise the owner may remove the improvements thereon. The
builder, planter, or sower, however, is not obliged to purchase the land if its value is
considerably more than the building, planting or sowing. In such case, the builder, planter
or sower must pay rent to the owner of the land. If the parties cannot come to terms over
the conditions of the lease, the court must fix the terms thereof. [32]

The right to choose between appropriating the improvement or selling the land on which
the improvement of the builder, planter or sower stands, is given to the owner of the land,
[33]
 Remegia, in this case, who is now substituted by petitioners as her heirs.

Consequently, the petitioners are obliged to exercise either of the following options: (1)
to appropriate the improvements, including the house, built by the respondents on the
subject lot by paying the indemnity required by law, or (2) sell the subject lot to the
respondents. Petitioners cannot refuse to exercise either option and compel respondents to
remove their house from the land.[34] In case petitioners choose to exercise the second
option, respondents are not obliged to purchase the subject lot if its value is considerably
more than the improvements thereon and in which case, respondents must pay rent to
petitioners. If they are unable to agree on the terms of the lease, the court shall fix the
terms thereof.

In light of the foregoing disquisition, the Court finds it unnecessary to resolve the
procedural issues raised by petitioners.
WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2003 and
Resolution dated February 4, 2004 of the Court of Appeals in CA-G.R. CV No. 66511
are REVERSED and SET ASIDE. The Decision dated December 3, 1999 of the
Regional Trial Court of Cagayan de Oro City, Branch 25 in Civil Case No. 92-423
is REINSTATED with the MODIFICATION that petitioners are likewise ordered to
exercise the option under Article 448 of the Civil Code.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 161407, June 05, 2009 ]
JOAQUIN VILLEGAS AND EMMA M. VILLEGAS, PETITIONERS, VS.
RURAL BANK OF TANJAY, INC., RESPONDENT.

DECISION

NACHURA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court assails the
Court of Appeals (CA) Decision[1] in CA-G.R. CV No. 40613 which affirmed with
modification the Regional Trial Court (RTC) Decision in Civil Case No. 9570. [2]

The facts, as summarized by the CA, follow.

Sometime in June, 1982, [petitioners], spouses Joaquin and Emma Villegas, obtained an
agricultural loan of P350,000.00 from [respondent] Rural Bank of Tanjay, Inc. The loan
was secured by a real estate mortgage on [petitioners'] residential house and 5,229 - sq.m.
lot situated in Barrio Bantayan, Dumaguete City and covered by TCT No. 12389.

For failure of [petitioners] to pay the loan upon maturity, the mortgage was
extrajudicially foreclosed. At the foreclosure sale, [respondent], being the highest bidder,
purchased the foreclosed properties for P367,596.16. Thereafter, the Sheriff executed in
favor of [respondent] a certificate of sale, which was subsequently registered with the
Registry of Deeds of Dumaguete City.

[Petitioners] failed to redeem the properties within the one-year redemption period.

In May, 1987, [respondent] and [petitioner] Joaquin Villegas, through his attorney-in-
fact[,] Marilen Victoriano, entered into an agreement denominated as "Promise to Sell,"
whereby [respondent] promised to sell to [petitioners] the foreclosed properties for a total
price of P713,312.72, payable within a period of five (5) years. The agreement reads in
part:
PROMISE TO SELL

xxxx

WITNESSETH:

xxxx

2) That for and in consideration of SEVEN HUNDRED THIRTEEN THOUSAND AND

THREE HUNDRED TWELVE & 72/100 PESOS (P713,312.72), the VENDOR do
hereby promise to sell, transfer, and convey unto the VENDEE, their heirs, successors
and assigns, all its rights, interests and participations over the above parcel of land with
all the improvements thereon and a residential house.

3) That upon signing of this Promise To Sell, the VENDEE shall agree to make payment
of P250,000.00 (Philippine Currency) and the balance of P463,312.72 payable in equal
yearly installments plus interest based on the prevailing rate counting from the date of
signing this Promise to Sell for a period of five (5) years.

xxxx

5) Provided further, that in case of a delay in any yearly installment for a period of ninety
(90) days, this sale will become null and void and no further effect or validity; and
provided further, that payments made shall be reimbursed (returned) to the VENDEE less
interest on the account plus additional 15% liquidated damages and charges.
Upon the signing of the agreement, [petitioners] gave [respondent] the sum of
P250,000.00 as down payment. [Petitioners], however, failed to pay the first yearly
installment, prompting [respondent] to consolidate its ownership over the properties.
Accordingly, TCT No. 12389 was cancelled and a new one, TCT No. 19042, (Exh. 14)
was issued in [respondent's] name on November 8, 1989. Thereafter, [respondent] took
possession of the properties. Hence, the action by [petitioners for declaration of nullity of
loan and mortgage contracts, recovery of possession of real property, accounting and
damages and, in the alternative, repurchase of real estate] commenced on January 15,
1990.

In resisting the complaint, [respondent] averred that [petitioners] have absolutely no

cause of action against it, and that the complaint was filed only to force it to allow
[petitioners] to reacquire the foreclosed properties under conditions unilaterally favorable
to them.
xxxx
After trial on the merits, the [RTC] rendered a Decision dismissing the complaint,
disposing as follows:

"In the light of the foregoing, it is considered opinion of this Court, that [petitioners]
failed to prove by preponderance of evidence their case and therefore the herein
complaint is ordered dismissed. [Petitioners] are ordered to pay [respondent] the sum of
P3,000.00 as attorney's fees and to pay costs without pronouncement as to counterclaim.

SO ORDERED."[3]
On appeal by both parties, the CA affirmed with modification the RTC's ruling, thus:
WHEREFORE, the appealed Decision is hereby MODIFIED by
(a) ORDERING [respondent] to reimburse [petitioners] their down payment of
P250,000.00 and (b) DELETING the award of attorney's fees to [respondent].

SO ORDERED.[4]
Hence, this appeal by certiorari raising the following issues:
(1) The Court of Appeals erred in not holding that the loan and mortgage contracts are
null and void ab initio for being against public policy;

(2) The Court of Appeals erred in not holding that, by reason of the fact that the loan and
mortgage contracts are null and void ab initio for being against public policy, the doctrine
of estoppel does not apply in this case;

(3) The Court of Appeals erred in not finding that the addendum on the promissory notes
containing an escalation clause is null and void ab initio for not being signed by
petitioner Emma M. Villegas, wife of petitioner Joaquin Villegas, there being a showing
that the companion real estate mortgage involves conjugal property. x x x.

(4) The Court of Appeals erred in not finding that the addendum on the promissory notes
containing an escalation clause is null and void ab initio for being so worded that the
implementation thereof would deprive petitioners due process guaranteed by [the]
constitution, the petitioners not having been notified beforehand of said implementation.
[5]

Notwithstanding petitioners' formulation of the issues, the core issue for our resolution is
whether petitioners may recover possession of the mortgaged properties.

The petition deserves scant consideration and ought to have been dismissed outright.
Petitioners are precluded from seeking a declaration of nullity of the loan and mortgage
contracts; they are likewise barred from recovering possession of the subject property.

Petitioners insist on the nullity of the loan and mortgage contracts. Unabashedly,
petitioners admit that the loan (and mortgage) contracts were made to appear as several
sugar crop loans not exceeding P50,000.00 each - even if they were not - just so the
respondent rural bank could grant and approve the same pursuant to Republic Act (R.A.)
No. 720, the Rural Banks Act. Petitioners boldly enumerate the following circumstances
that show that these loans were obtained in clear contravention of R.A. No. 720:
(a) The petitioners never planted sugar cane on any parcel of agricultural land;
(b) The mortgaged real estate is residential, with a house, located in the heart of
Dumaguete City, with an area of only one-half (1/2) hectare;
(c) Petitioners never planted any sugar cane on this one-half (1/2) hectare parcel of land;
(d) Petitioners were never required to execute any chattel mortgage on standing crops;
(e) To make it appear that the petitioners were entitled to avail themselves of loan benefits
under Republic Act No. 720, Rural Banks Act, respondent made them sign promissory
notes for P350,000.00 in split amounts not exceeding P50,000.00 each.[6]
In short, petitioners aver that the sugar crop loans were merely simulated contracts and,
therefore, without any force and effect.

Articles 1345 and 1346 of the Civil Code are the applicable laws, and they unmistakably
provide:
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.

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.
Given the factual antecedents of this case, it is obvious that the sugar crop loans were
relatively simulated contracts and that both parties intended to be bound thereby. There
are two juridical acts involved in relative simulation-- the ostensible act and the hidden
act.[7] The ostensible act is the contract that the parties pretend to have executed while
the hidden act is the true agreement between the parties.[8] To determine the
enforceability of the actual agreement between the parties, we must discern whether the
concealed or hidden act is lawful and the essential requisites of a valid contract are
present.

In this case, the juridical act which binds the parties are the loan and mortgage
contracts, i.e., petitioners' procurement of a loan from respondent. Although these loan
and mortgage contracts were concealed and made to appear as sugar crop loans to make
them fall within the purview of the Rural Banks Act, all the essential requisites of a
contract[9] were present. However, the purpose thereof is illicit, intended to circumvent
the Rural Banks Act requirement in the procurement of loans.[10] Consequently, while the
parties intended to be bound thereby, the agreement is void and inexistent under Article
1409[11] of the Civil Code.
In arguing that the loan and mortgage contracts are null and void, petitioners would
impute all fault therefor to respondent. Yet, petitioners' averments evince an obvious
knowledge and voluntariness on their part to enter into the simulated contracts. We find
that fault for the nullity of the contract does not lie at respondent's feet alone, but at
petitioners' as well. Accordingly, neither party can maintain an action against the other, as
provided in Article 1412 of the Civil Code:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute
a criminal offense, the following rules shall be observed:

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

(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised him.
The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise.
Petitioners did not come to court with clean hands. They admit that they never planted
sugarcane on any property, much less on the mortgaged property. Yet, they eagerly
accepted the proceeds of the simulated sugar crop loans. Petitioners readily participated
in the ploy to circumvent the Rural Banks Act and offered no objection when their
original loan of P350,000.00 was divided into small separate loans not exceeding
P50,000.00 each. Clearly, both petitioners and respondent are in pari delicto, and neither
should be accorded affirmative relief as against the other.

In Tala Realty Services Corp. v. Banco Filipino Savings and Mortgage Bank,[12] we held
that when the parties are in pari delicto, neither will obtain relief from the court, thus:
The Bank should not be allowed to dispute the sale of its lands to Tala nor should Tala be
allowed to further collect rent from the Bank. The clean hands doctrine will not allow the
creation or the use of a juridical relation such as a trust to subvert, directly or indirectly,
the law. Neither the bank nor Tala came to court with clean hands; neither will obtain
relief from the court as one who seeks equity and justice must come to court with clean
hands. By not allowing Tala to collect from the Bank rent for the period during which the
latter was arbitrarily closed, both Tala and the Bank will be left where they are, each
paying the price for its deception.[13]
Petitioners stubbornly insist that respondent cannot invoke the pari delicto doctrine,
ostensibly because of our obiter in Enrique T. Yuchengco, Inc., et al. v. Velayo.[14]

In Yuchengco, appellant sold 70% of the subscribed and outstanding capital stock of a
Philippine corporation, duly licensed as a tourist operator, to appellees without the
required prior notice and approval of the Department of Tourism (DOT). Consequently,
the DOT cancelled the corporation's Local Tour Operator's License. In turn, appellees
asked for a rescission of the sale and demanded the return of the purchase price.
We specifically ruled therein that the pari delicto doctrine is not applicable, because:
The obligation to secure prior Department of Tourism approval devolved upon the
defendant (herein appellant) for it was he as the owner vendor who had the duty to give
clear title to the properties he was conveying. It was he alone who was charged with
knowing about rules attendant to a sale of the assets or shares of his tourist-oriented
organization. He should have known that under said rules and regulations, on pain of
nullity, shares of stock in his company could not be transferred without prior approval
from the Department of Tourism. The failure to secure this approval is attributable to him
alone.[15]
Thus, we declared that even assuming both parties were guilty of the violation, it does not
always follow that both parties, being in pari delicto, should be left where they are. We
recognized as an exception a situation when courts must interfere and grant relief to one
of the parties because public policy requires their intervention, even if it will result in a
benefit derived by a plaintiff who is in equal guilt with defendant.[16]

In stark contrast to Yuchengco, the factual milieu of the present case does not compel us
to grant relief to a party who is in pari delicto. The public policy requiring rural banks to
give preference to bona fide small farmers in the grant of loans will not be served if a
party, such as petitioners, who had equal participation and equal guilt in the
circumvention of the Rural Banks Act, will be allowed to recover the subject property.

The following circumstances reveal the utter poverty of petitioners' arguments and
militate against their bid to recover the subject property:

1. As previously adverted to, petitioners readily and voluntarily accepted the

proceeds of the loan, divided into small loans, without question.

2. After failing to redeem the mortgaged subject property, thereby allowing

respondent to consolidate title thereto,[17] petitioners then entered into a Promise to
Sell and made a down payment of P250,000.00.

3. Failing anew to comply with the terms of the Promise to Sell and pay the first
yearly installment, only then did petitioners invoke the nullity of the loan and
mortgage contracts.

In all, petitioners explicitly recognized respondent's ownership over the subject property
and merely resorted to the void contract argument after they had failed to reacquire the
property and a new title thereto in respondent's name was issued.

We are not unmindful of the fact that the Promise to Sell ultimately allows petitioners to
recover the subject property which they were estopped from recovering under the void
loan and mortgage contracts. However, the Promise to Sell, although it involves the same
parties and subject matter, is a separate and independent contract from that of the void
loan and mortgage contracts.

To reiterate, under the void loan and mortgage contracts, the parties, being in pari delicto,
cannot recover what they each has given by virtue of the contract.[18] Neither can the
parties demand performance of the contract. No remedy or affirmative relief can be
afforded the parties because of their presumptive knowledge that the transaction was
tainted with illegality.[19] The courts will not aid either party to an illegal agreement and
will instead leave the parties where they find them.[20]

Consequently, the parties having no cause of action against the other based on a void
contract, and possession and ownership of the subject property being ultimately vested in
respondent, the latter can enter into a separate and distinct contract for its alienation.
Petitioners recognized respondent's ownership of the subject property by entering into a
Promise to Sell, which expressly designates respondent as the vendor and petitioners as
the vendees. At this point, petitioners, originally co-owners and mortgagors of the subject
property, unequivocally acquiesced to their new status as buyers thereof. In fact, the
Promise to Sell makes no reference whatsoever to petitioners' previous ownership of the
subject property and to the void loan and mortgage contracts.[21] On the whole, the
Promise to Sell, an independent contract, did not purport to ratify the void loan and
mortgage contracts.

By its very terms, the Promise to Sell simply intended to alienate to petitioners the
subject property according to the terms and conditions contained therein. Article 1370 of
the Civil Code reads:
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.

Thus, the terms and conditions of the Promise to Sell are controlling.

Paragraph 5 of the Promise to Sell provides:

5) Provided further, that in case of a delay in any yearly installment for a period of ninety
(90) days, this sale will become null and void [without] further effect or validity; and
provided further, that payments made shall be reimbursed (returned to the VENDEE
less interest on the account plus additional 15% liquidated damages and charges.[22]
As stipulated in the Promise to Sell, petitioners are entitled to reimbursement of the
P250,000.00 down payment. We agree with the CA's holding on this score:
We note, however, that there is no basis for the imposition of interest and additional 15%
liquidated damages and charges on the amount to be thus reimbursed. The "Promise to
Sell" is separate and distinct from the loan and mortgage contracts earlier executed by the
parties. Obviously, after the foreclosure, there is no more loan or account to speak of to
justify the said imposition.[23]
Finally, contrary to petitioners' contention, the CA, in denying petitioners' appeal, did not
commit an error; it did not ratify a void contract because void contracts cannot be ratified.
The CA simply refused to grant the specific relief of recovering the subject property
prayed for by petitioners. Nonetheless, it ordered respondent to reimburse petitioners for
their down payment of P250,000.00 and disallowed respondent's claim for actual, moral
and exemplary damages and attorney's fees.

WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of

the Court of Appeals in CA-G.R. CV No. 40613 is hereby AFFIRMED. Costs against
petitioners.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 169055, February 22, 2012 ]
SPOUSES JOSE AND MILAGROS VILLACERAN AND FAR EAST BANK &
TRUST COMPANY, PETITIONERS, VS. JOSEPHINE DE GUZMAN,
RESPONDENT.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari assailing the November 26, 2004
Decision[1] and June 29, 2005 Resolution [2] of the Court of Appeals (CA) in CA-G.R. CV No.
71831. The CA had affirmed with modification the Decision [3] of the Regional Trial Court
(RTC), Branch 24, of Echague, Isabela, in Civil Case No. 24-0495 entitled “Josephine De
Guzman vs. Spouses Jose and Milagros Villaceran, et al.”

The antecedent facts follow:

Josephine De Guzman filed a Complaint [4] with the RTC of Echague, Isabela against the
spouses Jose and Milagros Villaceran and Far East Bank & Trust Company (FEBTC),
Santiago City Branch, for declaration of nullity of sale, reconveyance, redemption of
mortgage and damages with preliminary injunction. The complaint was later amended
to include annulment of foreclosure and Sheriff’s Certificate of Sale.

In her Amended Complaint,[5] De Guzman alleged that she is the registered owner of a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-236168, [6] located in
Echague, Isabela, having an area of 971 square meters and described as Lot 8412-B of
the Subdivision Plan Psd-93948. On April 17, 1995, she mortgaged the lot to the
Philippine National Bank (PNB) of Santiago City to secure a loan of P600,000. In order to
secure a bigger loan to finance a business venture, De Guzman asked Milagros Villaceran
to obtain an additional loan on her behalf.  She executed a Special Power of Attorney in
favor of Milagros. Considering De Guzman’s unsatisfactory loan record with the PNB,
Milagros suggested that the title of the property be transferred to her and Jose
Villaceran and they would obtain a bigger loan as they have a credit line of up to
P5,000,000 with the bank.

On June 19, 1996, De Guzman executed a simulated Deed of Absolute Sale [7] in favor of
the spouses Villaceran. On the same day, they went to the PNB and paid the amount of
P721,891.67 using the money of the spouses Villaceran. The spouses Villaceran
registered the Deed of Sale and secured TCT No. T-257416 [8] in their names. Thereafter,
they mortgaged the property with FEBTC Santiago City to secure a loan of P1,485,000.
However, the spouses Villaceran concealed the loan release from De Guzman. Later,
when De Guzman learned of the loan release, she asked for the loan proceeds less the
amount advanced by the spouses Villaceran to pay the PNB loan. However, the spouses
Villaceran refused to give the money stating that they are already the registered owners
of the property and that they would reconvey the property to De Guzman once she
returns the P721,891.67 they paid to PNB.[9]

De Guzman offered to pay P350,000 provided that the spouses Villaceran would execute
a deed of reconveyance of the property. In view of the simulated character of their
transaction, the spouses Villaceran executed a Deed of Absolute Sale [10] dated
September 6, 1996 in favor of De Guzman. They also promised to pay their mortgage
debt with FEBTC to avoid exposing the property to possible foreclosure and auction
sale.  However, the spouses Villaceran failed to settle the loan and subsequently the
property was extrajudicially foreclosed. A Sheriff’s Certificate of Sale was issued in favor
of FEBTC for the amount of P3,594,000. De Guzman asserted that the spouses Villaceran
should be compelled to redeem their mortgage so as not to prejudice her as the real
owner of the property.[11]

On the other hand, the spouses Villaceran and FEBTC, in their Amended Answer,
[12]
 averred that in 1996 De Guzman was introduced to Milagros by a certain Digna
Maranan. Not long afterwards, De Guzman requested Milagros to help her relative who
had a loan obligation with the PNB in the amount of P300,000. As a consideration for
the accommodation, De Guzman would convey her property located at Maligaya,
Echague, Isabela which was then being held in trust by her cousin, Raul Sison. Because
of this agreement, Milagros paid De Guzman’s obligation with the PNB in the amount of
P300,000.

When Milagros asked for the title of the lot, De Guzman explained that her cousin
would not part with the property unless he is reimbursed the amount of P200,000
representing the amount he spent tilling the land. Milagros advanced the amount of
P200,000 but De Guzman’s cousin still refused to reconvey the property. In order for De
Guzman to settle her obligation, she offered to sell her house and lot in Echague,
Isabela. At first, Milagros signified her non-interest in acquiring the same because she
knew that it was mortgaged with the PNB Santiago for P600,000. De Guzman proposed
that they will just secure a bigger loan from another bank using her house and lot as
security. The additional amount will be used in settling De Guzman’s obligation with
PNB. Later, De Guzman proposed that she borrow an additional amount from Milagros
which she will use to settle her loan with PNB. To this request, Milagros acceded. Hence,
they went to the PNB and paid in full De Guzman’s outstanding obligation with PNB
which already reached P880,000.[13]

Since De Guzman’s total obligation already reached P1,380,000, the spouses Villaceran
requested her to execute a deed of absolute sale over the subject property in their
favor. Thus, the Deed of Absolute Sale is supported by a valuable consideration, and the
spouses Villaceran became the lawful owners of the property as evidenced by TCT No.
257416 issued by the Office of the Register of Deeds of Isabela. Later, they mortgaged
the property to FEBTC for P1,485,000.

The spouses Villaceran denied having executed a deed of conveyance in favor of De

Guzman relative to the subject property and asserted that the signatures appearing on
the September 6, 1996 Deed of Sale, which purported to sell the subject property back
to De Guzman, are not genuine but mere forgeries. [14]

After due proceedings, the trial court rendered its decision on September 27, 2000.

The RTC ruled that the Deed of Sale dated June 19, 1996 executed by De Guzman in
favor of the spouses Villaceran covering the property located in Echague, Isabela was
valid and binding on the parties. The RTC ruled that the said contract was a relatively
simulated contract, simulated only as to the purchase price, but nonetheless binding
upon the parties insofar as their true agreement is concerned. The RTC ruled that De
Guzman executed the Deed of Absolute Sale dated June 19, 1996 so that the spouses
Villaceran may use the property located in Echague, Isabela as collateral for a loan in
view of De Guzman’s need for additional capital to finance her business venture. The
true consideration for the sale, according to the RTC, was the P300,000 the spouses
Villaceran gave to De Guzman plus the P721,891.67 they paid to PNB in order that the
title to the subject property may be released and used to secure a bigger loan in another
bank.

The RTC also found that although the spouses Villaceran had already mortgaged the
subject property with FEBTC and the title was already in the possession of FEBTC --
which facts were known to De Guzman who even knew that the loan proceeds
amounting to P1,485,000 had been released -- the spouses Villaceran were nonetheless
still able to convince De Guzman that they could still reconvey the subject property to
her if she pays the amount they had paid to PNB. The RTC found that the Deed of Sale
dated September 6, 1996 was actually signed by the spouses Villaceran although De
Guzman was able to pay only P350,000, which amount was stated in said deed of sale as
the purchase price. The RTC additionally said that the spouses Villaceran deceived De
Guzman when the spouses Villaceran mortgaged the subject property with the
understanding that the proceeds would go to De Guzman less the amounts the spouses
had paid to PNB. Hence, according to the RTC, the spouses Villaceran should return to
De Guzman (1) the P350,000 which she paid to them in consideration of the September
6, 1996 Deed of Sale, which sale did not materialize because the title was in the
possession of FEBTC; and (2) the amount of P763,108.33 which is the net proceeds of
the loan after deducting the P721,891.67 that the spouses paid to PNB. Thus, the
decretal portion of the RTC decision reads:

WHEREFORE, judgment is hereby rendered as follows:

a) declaring the Deed of Sale, dated June 1996 (Exhibit “B”) as valid and binding;

b)  ordering defendants Villaceran to pay to plaintiff the amount of P763,108.33 and
P350,000.00 or the total amount of P1,113,108.33 plus the legal rate of interest starting
from the date of the filing of this case;

c)  declaring the Extrajudicial Foreclosure and the Certificate of Sale as valid;

d) ordering defendants Villaceran to pay attorney’s fees in the amount of P20,000.00

and to pay the costs of suit.

SO ORDERED.[15]

Aggrieved, the spouses Villaceran appealed to the CA arguing that the trial court erred
in declaring the June 19, 1996 Deed of Sale as a simulated contract and ordering them
to pay De Guzman P1,113,108.33 plus legal rate of interest and attorney’s fees. [16]

On November 26, 2004, the CA rendered its Decision, the dispositive portion of which
reads as follows:

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is

hereby AFFIRMED with MODIFICATION, to read as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Declaring the Deed of Sale dated June 16, 1996 (Exh. “B”) and September 6, 1996, as
not reflective of the true intention of the parties, as the same were merely executed for
the purpose of the loan accommodation in favor of the plaintiff-appellee by the
defendants-appellants;

2. Ordering defendants-appellants Villaceran to pay plaintiff-appellee the difference

between the FEBTC loan of P1,485,000.00 less P721,891.67 (used to redeem
the PNB loan), plus legal interest thereon starting from the date of the filing of this case;

3. Declaring the extrajudicial foreclosure and certificate of sale in favor of FEBTC, as

valid; and

4. For the appellants to pay the costs of the suit.

SO ORDERED.[17]

The CA ruled that the RTC was correct in declaring that there was relative simulation of
contract because the deeds of sale did not reflect the true intention of the parties. It
found that the evidence established that the documents were executed for the purpose
of an agency to secure a higher loan whereby the spouses Villaceran only
accommodated De Guzman.  However, the CA did not find any evidence to prove that
De Guzman actually parted away with the P350,000 as consideration of the
reconveyance of the property. Thus, it held the trial court erred in ordering the spouses
Villaceran to return the P350,000 to De Guzman.

Furthermore, the CA observed that the spouses Villaceran were the ones who
redeemed the property from the mortgage with PNB by paying P721,891.67 so that De
Guzman’s title could be released. Once registered in their name, the spouses Villaceran
mortgaged the property with FEBTC for P1,485,000. With the loan proceeds of
P1,485,000, there was no need for the spouses Villaceran to demand for the return of
the P721,891.67 they paid in releasing the PNB loan before the property is reconveyed
to De Guzman. All they had to do was to deduct the amount of P721,891.67 from the
P1,485,000 FEBTC loan proceeds. Hence, the CA ruled that only the balance of the
P1,485,000 loan proceeds from FEBTC minus the P721,891.67 used to redeem the PNB
loan should be paid by the spouses Villaceran to De Guzman. The CA also deleted the
grant of attorney’s fees for lack of factual, legal or equitable justification.

On December 22, 2004, the spouses Villaceran filed a motion for reconsideration of the
foregoing decision. Said motion, however, was denied for lack of merit by the CA in its
Resolution dated June 29, 2005. Hence, this appeal.
In their petition for review on certiorari, the spouses Villaceran allege that:

1. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS

DISCRETION IN DECLARING THE DEED OF SALE DATED JUNE 19, 1996 AS SIMULATED
AND THAT THE SAME WAS MERELY EXECUTED FOR THE PURPOSE OF THE LOAN
ACCOMODATION OF PETITIONERS VILLACERAN IN FAVOR OF THE RESPONDENT DE
GUZMAN INSTEAD OF DECLARING SAID DEED AS A VALID DEED OF ABSOLUTE SALE, THE
CONTENTS OF WHICH ARE CLEARLY REFLECTIVE OF THEIR TRUE INTENTION TO ENTER
INTO A CONTRACT OF SALE AND NOT OTHERWISE, IN DIRECT CONTRAVENTION OF THE
RULES ON EVIDENCE AND OF THE ADMISSIONS OF THE PARTIES AND THE HONORABLE
COURT’S RULINGS OR JURISPRUDENCE ON THE MATTER; AND

2. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION
IN ORDERING PETITIONERS VILLACERAN TO PAY RESPONDENT DE GUZMAN THE
DIFFERENCE BETWEEN THE FAR EAST BANK AND TRUST COMPANY (FEBTC) LOAN OF
PHP1,485,000.00 LESS P721,891.67 (USED TO PAY THE PHILIPPINE NATIONAL BANK
[PNB] LOAN) PLUS LEGAL INTEREST THEREON AND TO PAY THE COSTS OF SUIT.[18]

Essentially, the issue for our resolution is whether the CA erred in ruling that the Deed
of Sale dated June 19, 1996 is a simulated contract and not a true sale of the subject
property.

Petitioners contend that the previous loans they extended to De Guzman in the
amounts of P300,000, P600,000 and P200,000 should have been considered by the CA.
When added to the P721,891.67 used to settle the PNB loan, De Guzman’s total loan
obtained from them would amount to P1,821,891.67. Thus, it would clearly show that
the Deed of Sale dated June 19, 1996, being supported by a valuable consideration, is
not a simulated contract.

We do not agree.

Article 1345[19] of the Civil Code provides that the simulation of a contract may either be
absolute or relative. 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. [20] 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 only
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. [21]

The primary consideration in determining the true nature of a contract is the intention
of the parties. If the words of a contract appear to contravene the evident intention of
the parties, the latter shall prevail. Such intention is determined not only from the
express terms of their agreement, but also from the contemporaneous and subsequent
acts of the parties.[22]  In the case at bar, there is a relative simulation of contract as the
Deed of Absolute Sale dated June 19, 1996 executed by De Guzman in favor of
petitioners did not reflect the true intention of the parties.

It is worthy to note that both the RTC and the CA found that the evidence established
that the aforesaid document of sale was executed only to enable petitioners to use the
property as collateral for a bigger loan, by way of accommodating De Guzman. Thus, the
parties have agreed to transfer title over the property in the name of petitioners who
had a good credit line with the bank. The CA found it inconceivable for De Guzman to
sell the property for P75,000 as stated in the June 19, 1996 Deed of Sale when
petitioners were able to mortgage the property with FEBTC for P1,485,000. Another
indication of the lack of intention to sell the property is when a few months later, on
September 6, 1996, the same property, this time already registered in the name of
petitioners, was reconveyed to De Guzman allegedly for P350,000.

As regards petitioners’ assertion that De Guzman’s previous loans should have been
considered to prove that there was an actual sale, the Court finds the same to be
without merit. Petitioners failed to present any evidence to prove that they indeed
extended loans to De Guzman in the amounts of P300,000, P600,000 and P200,000. We
note that petitioners tried to explain that on account of their close friendship and trust,
they did not ask for any promissory note, receipts or documents to evidence the loan.
But in view of the substantial amounts of the loans, they should have been duly covered
by receipts or any document evidencing the transaction. Consequently, no error was
committed by the CA in holding that the June 19, 1996 Deed of Absolute Sale was a
simulated contract.

The issue of the genuineness of a deed of sale is essentially a question of fact. It is

settled that this Court is not duty-bound to analyze and weigh again the evidence
considered in the proceedings below. This is especially true where the trial court’s
factual findings are adopted and affirmed by the CA as in the present case. Factual
findings of the trial court, affirmed by the CA, are final and conclusive and may not be
reviewed on appeal.[23]

The Court has time and again ruled that conclusions and findings of fact of the trial court
are entitled to great weight and should not be disturbed on appeal, unless strong and
cogent reasons dictate otherwise. This is because the trial court is in a better position to
examine the real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case.[24] In sum, the Court finds that there exists no reason to disturb the
findings of the CA.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated
November 26, 2004 and Resolution dated June 29, 2005 of the Court of Appeals in CA-
G.R. CV No. 71831 are AFFIRMED.

With costs against the petitioners.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 188417, September 24, 2012 ]
MILAGROS DE BELEN VDA. DE CABALU, MELITON CABALU, SPS.
ANGELA CABALU AND RODOLFO TALAVERA, AND PATRICIO ABUS,
PETITIONERS, VS. SPS. RENATO TABU AND DOLORES LAXAMANA,
MUNICIPAL TRIAL COURT IN CITIES, TARLAC CITY, BRANCH II,
RESPONDENTS.

DECISION
MENDOZA, J.:

This is a “Petition for Review on Certiorari (under Rule 45)” of the Rules of Court
assailing the June 16, 2009 Decision[1] of the Court of Appeals (CA) in CA-GR. CV No.
81469 entitled “Milagros De Belen Vda de Cabalu v. Renato Tabu.”

The Facts

The property subject of the controversy is a 9,000 square meter lot situated in Mariwalo,
Tarlac, which was a portion of a property registered in the name of the late Faustina
Maslum (Faustina) under Transfer Certificate of Title (TCT) No. 16776 with a total area
of 140,211 square meters.[2]

On December 8, 1941, Faustina died without any children.  She left a holographic will,
dated July 27, 1939, assigning and distributing her property to her nephews and nieces. 
The said holographic will, however, was not probated.  One of the heirs was the father of
Domingo Laxamana (Domingo), Benjamin Laxamana, who died in 1960.  On March 5,
1975, Domingo allegedly executed a Deed of Sale of Undivided Parcel of Land disposing
of his 9,000 square meter share of the land to Laureano Cabalu. [3]

On August 1, 1994, to give effect to the holographic will, the forced and legitimate heirs
of Faustina executed a Deed of Extra-Judicial Succession with Partition.  The said deed
imparted 9,000 square meters of the land covered by TCT No. 16776 to Domingo. 
Thereafter, on December 14, 1995, Domingo sold 4,500 square meters of the 9,000
square meters to his nephew, Eleazar Tabamo. The document was captioned Deed of Sale
of a Portion of Land.  On May 7, 1996, the remaining 4,500 square meters of Domingo’s
share in the partition was registered under his name under TCT No. 281353. [4]

On August 4, 1996, Domingo passed away.

On October 8, 1996, two months after his death, Domingo purportedly executed a Deed
of Absolute Sale of TCT No. 281353 in favor of respondent Renato Tabu (Tabu).  The
resultant transfer of title was registered as TCT No. 286484.  Subsequently, Tabu and his
wife, Dolores Laxamana (respondent spouses), subdivided the said lot into two which
resulted into TCT Nos. 291338 and 291339.[5]

On January 15, 1999, respondent Dolores Laxamana-Tabu, together with Julieta Tubilan-
Laxamana, Teresita Laxamana, Erlita Laxamana, and Gretel Laxamana, the heirs of
Domingo, filed an unlawful detainer action, docketed as Civil Case No. 7106, against
Meliton Cabalu, Patricio Abus, Roger Talavera, Jesus Villar, Marcos Perez, Arthur
Dizon, and all persons claiming rights under them.  The heirs claimed that the defendants
were merely allowed to occupy the subject lot by their late father, Domingo, but, when
asked to vacate the property, they refused to do so.  The case was ruled in favor of
Domingo’s heirs and a writ of execution was subsequently issued.[6]

On February 4, 2002, petitioners Milagros de Belen Vda. De Cabalu, Meliton Cabalu,

Spouses Angela Cabalu and Rodolfo Talavera, and Patricio Abus (petitioners), filed a
case for Declaration of Nullity of Deed of Absolute Sale, Joint Affidavit of Nullity of
Transfer Certificate of Title Nos. 291338 and 291339, Quieting of Title, Reconveyance,
Application for Restraining Order, Injunction and Damages (Civil Case No. 9290)
against respondent spouses before the Regional Trial Court, Branch 63, Tarlac City
(RTC).[7]

In their complaint, petitioners claimed that they were the lawful owners of the subject
property because it was sold to their father, Laureano Cabalu, by Domingo, through a
Deed of Absolute Sale, dated March 5, 1975.  Hence, being the rightful owners by way of
succession, they could not be ejected from the subject property.[8]

In their Answer, respondent spouses countered that the deed of sale from which the
petitioners anchored their right over the 9,000 square meter property was null and void
because in 1975, Domingo was not yet the owner of the property, as the same was still
registered in the name of Faustina.  Domingo became the owner of the property only on
August 1, 1994, by virtue of the Deed of Extra-Judicial Succession with Partition
executed by the forced heirs of Faustina.  In addition, they averred that Domingo was of
unsound mind having been confined in a mental institution for a time.[9]

On September 30, 2003, the RTC dismissed the complaint as it found the Deed of
Absolute Sale, dated March 5, 1975, null and void for lack of capacity to sell on the part
of Domingo. Likewise, the Deed of Absolute Sale, dated October 8, 1996, covering the
remaining 4,500 square meters of the subject property was declared ineffective having
been executed by Domingo two months after his death on August 4, 1996.  The fallo of
the Decision[10] reads:

WHEREFORE, in view of the foregoing, the complaint is hereby DISMISSED, and the

decision is hereby rendered by way of:

1. declaring null and void the Deed of Absolute Sale dated March 5, 1975, executed
by Domingo Laxamana in favor of Laureano Cabalu;

2. declaring null and void the Deed of Absolute Sale dated October 8, 1996, executed
by Domingo Laxamana in favor of Renato Tabu, and that TCT Nos. 293338 and
291339, both registered in the name of Renato Tabu, married to Dolores
Laxamana be cancelled;
 3. restoring to its former validity, TCT No. 16770 in the name of Faustina Maslum
subject to partition by her lawful heirs.

Costs de oficio.

SO ORDERED.[11]

Not in conformity, both parties appealed to the CA. Petitioners contended that the RTC
erred in declaring void the Deed of Absolute Sale, dated March 5, 1975. They claimed
that Domingo owned the property, when it was sold to Laureano Cabalu, because he
inherited it from his father, Benjamin, who was one of the heirs of Faustina.  Being a co-
owner of the property left by Benjamin, Domingo could dispose of the portion he owned,
notwithstanding the will of Faustina not being probated.

Respondent spouses, on the other hand, asserted that the Deed of Sale, dated March 5,
1975, was spurious and simulated as the signature, PTR and the document number of the
Notary Public were different from the latter’s notarized documents. They added that the
deed was without consent, Domingo being of unsound mind at the time of its execution. 
Further, they claimed that the RTC erred in canceling TCT No. 266583 and insisted that
the same should be restored to its validity because Benjamin and Domingo were declared
heirs of Faustina.

On June 16, 2009, the CA rendered its decision and disposed as follows:

WHEREFORE, in the light of the foregoing, the instant appeal is

partially GRANTED in that the decision of the trial court is AFFIRMED WITH
MODIFICATION that sub-paragraphs 2 & 3 of the disposition, which reads:

“2.  declaring null and void the Deed of Absolute Sale dated October 8, 1996, executed
by Domingo Laxamana in favor of Renato Tabu, and that TCT Nos. 291338 and 291339,
both registered in the name of Renato Tabu, married to Dolores Laxamana be cancelled;

3.  restoring to its former validity, TCT No. 16776 in the name of Faustina Maslum
subject to partition by her lawful heirs,”

are DELETED.

IT IS SO ORDERED.[12]

In finding Domingo as one of the heirs of Faustina, the CA explained as follows:

It appears from the records that Domingo was a son of Benjamin as apparent in his
Marriage Contract and Benjamin was a nephew of Faustina as stated in the holographic
will and deed of succession with partition.  By representation, when Benjamin died in
1960, Domingo took the place of his father in succession.  In the same vein, the
holographic will of Faustina mentioned Benjamin as one of her heirs to whom Faustina
imparted 9,000 square meters of her property.  Likewise, the signatories to the Deed of
Extra-judicial Succession with Partition, heirs of Faustina, particularly declared Domingo
as their co-heir in the succession and partition thereto.  Furthermore, the parties in this
case admitted that the relationship was not an issue.[13]

Although the CA found Domingo to be of sound mind at the time of the sale on March 5,
1975, it sustained the RTC’s declaration of nullity of the sale on the ground that the deed
of sale was simulated.

The CA further held that the RTC erred in canceling TCT No. 266583 in the name of
Domingo and in ordering the restoration of TCT No. 16770, registered in the name of
Faustina, to its former validity, Domingo being an undisputed heir of Faustina.

Hence, petitioners interpose the present petition before this Court anchored on the
following

GROUNDS

(A)

THE DEED OF SALE OF UNDIVIDED PARCEL OF LAND EXECUTED ON

MARCH 5, 1975 BY DOMINGO LAXAMANA IN FAVOR OF LAUREANO
CABALU IS VALID BECAUSE IT SHOULD BE ACCORDED THE
PRESUMPTION OF REGULARITY AND DECLARED VALID FOR ALL
PURPOSES AND INTENTS.

(B)

THE SUBPARAGRAPH NO. 2 OF THE DECISION OF THE REGIONAL TRIAL

COURT SHOULD STAY BECAUSE THE HONORABLE COURT OF APPEALS
DID NOT DISCUSS THE ISSUE AND DID NOT STATE THE LEGAL BASIS
WHY SAID PARAGRAPH SHOULD BE DELETED FROM THE SEPTEMBER
30, 2003 DECISION OF THE REGIONAL TRIAL COURT. [14]

The core issues to be resolved are 1] whether the Deed of Sale of Undivided Parcel of
Land covering the 9,000 square meter property executed by Domingo in favor of
Laureano Cabalu on March 5, 1975, is valid; and 2] whether the Deed of Sale, dated
October 8, 1996, covering the 4,500 square meter portion of the 9,000 square meter
property, executed by Domingo in favor of Renato Tabu, is null and void.
Petitioners contend that the Deed of Absolute Sale executed by Domingo in favor of
Laureano Cabalu on March 5, 1975 should have been declared valid because it enjoyed
the presumption of regularity.  According to them, the subject deed, being a public
document, had in its favor the presumption of regularity, and to contradict the same, there
must be clear, convincing and more than preponderant evidence, otherwise, the document
should be upheld.  They insist that the sale transferred rights of ownership in favor of the
heirs of Laureano Cabalu.

They further argue that the CA, in modifying the decision of the RTC, should not have
deleted the portion declaring null and void the Deed of Absolute Sale, dated October 8,
1996, executed by Domingo in favor of Renato Tabu, because at the time of execution of
the said deed of sale, the seller, Domingo was already dead. Being a void document, the
titles originating from the said instrument were also void and should be cancelled.

Respondent spouses, in their Comment[15] and Memorandum,[16] counter that the issues

raised are not questions of law and call for another calibration of the whole evidence
already passed upon by the RTC and the CA.  Yet, they argue that petitioners’ reliance on
the validity of the March 5, 1975 Deed of Sale of Undivided Parcel of Land, based on
presumption of regularity, was misplaced because both the RTC and the CA, in the
appreciation of evidence on record, had found said deed as simulated.

It is well to note that both the RTC and the CA found that the evidence established that
the March 5, 1975 Deed of Sale of Undivided Parcel of Land executed by Domingo in
favor of Laureano Cabalu was a fictitious and simulated document.  As expounded by the
CA, viz:

Nevertheless, since there are discrepancies in the signature of the notary public, his PTR
and the document number on the lower-most portion of the document, as well as the said
deed of sale being found only after the plaintiffs-appellants were ejected by the
defendants-appellants; that they were allegedly not aware that the said property was
bought by their father, and that they never questioned the other half of the property not
occupied by them, it is apparent that the sale dated March 5, 1975 had the earmarks of a
simulated deed written all over it.  The lower court did not err in pronouncing that it be
declared null and void.[17]

Petitioners, in support of their claim of validity of the said document of deed, again
invoke the legal presumption of regularity.  To reiterate, the RTC and later the CA had
ruled that the sale, dated March 5, 1975, had the earmarks of a simulated deed, hence, the
presumption was already rebutted.  Verily and as aptly noted by the respondent spouses,
such presumption of regularity cannot prevail over the facts proven and already
established in the records of this case.
Even on the assumption that the March 5, 1975 deed was not simulated, still the sale
cannot be deemed valid because, at that time, Domingo was not yet the owner of the
property.  There is no dispute that the original and registered owner of the subject
property covered by TCT No. 16776, from which the subject 9,000 square meter lot came
from, was Faustina, who during her lifetime had executed a will, dated July 27, 1939.  In
the said will, the name of Benjamin, father of Domingo, appeared as one of the heirs. 
Thus, and as correctly found by the RTC, even if Benjamin died sometime in 1960,
Domingo in 1975 could not yet validly dispose of the whole or even a portion thereof  for
the reason that he was not the sole heir of Benjamin, as his mother only died sometime in
1980.

Besides, under Article 1347 of the Civil Code, “No contract may be entered into upon
future inheritance except in cases expressly authorized by law.”  Paragraph 2 of Article
1347, characterizes a contract entered into upon future inheritance as void. The law
applies when the following requisites concur: (1) the succession has not yet been opened;
(2) the object of the contract forms part of the inheritance; and (3) the promissor has, with
respect to the object, an expectancy of a right which is purely hereditary in nature. [18]

In this case, at the time the deed was executed, Faustina’s will was not yet probated; the
object of the contract, the 9,000 square meter property, still formed part of the inheritance
of his father from the estate of Faustina; and Domingo had a mere inchoate hereditary
right therein.

Domingo became the owner of the said property only on August 1, 1994, the time of
execution of the Deed of Extrajudicial Succession with Partition by the heirs of Faustina,
when the 9,000 square meter lot was adjudicated to him.

The CA, therefore, did not err in declaring the March 5, 1975 Deed of Sale null and void.

Domingo’s status as an heir of Faustina by right of representation being undisputed, the

RTC should have maintained the validity of TCT No. 266583 covering the 9,000 square
meter subject property.  As correctly concluded by the CA, this served as the inheritance
of Domingo from Faustina.

Regarding the deed of sale covering the remaining 4,500 square meters of the subject
property executed in favor of Renato Tabu, it is evidently null and void.  The document
itself, the Deed of Absolute Sale, dated October 8, 1996, readily shows that it was
executed on August 4, 1996 more than two months after the death of Domingo. 
Contracting parties must be juristic entities at the time of the consummation of the
contract. Stated otherwise, to form a valid and legal agreement it is necessary that there
be a party capable of contracting and a party capable of being contracted with. Hence, if
any one party to a supposed contract was already dead at the time of its execution, such
contract is undoubtedly simulated and false and, therefore, null and void by reason of its
having been made after the death of the party who appears as one of the contracting
parties therein. The death of a person terminates contractual capacity. [19]

The contract being null and void, the sale to Renato Tabu produced no legal effects and
transmitted no rights whatsoever.  Consequently, TCT No. 286484 issued to Tabu by
virtue of the October 8, 1996 Deed of Sale, as well as its derivative titles, TCT Nos.
291338 and 291339, both registered in the name of Renato Tabu, married to Dolores
Laxamana, are likewise void.

The CA erred in deleting that portion in the RTC decision declaring the Deed of Absolute
Sale, dated October 8, 1996, null and void and canceling TCT Nos. 291338 and 291339.

WHEREFORE, the petition is partially GRANTED. The decretal portion of the June

16, 2009 Decision of the Court of Appeals is hereby MODIFIED to read as follows:

1.  The Deed of Absolute Sale, dated March 5, 1975, executed by Domingo Laxamana in
favor of Laureano Cabalu, is hereby declared as null and void.

2.  The Deed of Absolute Sale, dated October 8, 1996, executed by Domingo Laxamana
in favor of Renato Tabu, and TCT No. 286484 as well as the derivative titles TCT Nos.
291338 and 291339, both registered in the name of Renato Tabu, married to Dolores
Laxamana, are hereby declared null and void and cancelled.

3.  TCT No. 281353 in the name of Domingo Laxamana is hereby ordered restored
subject to the partition by his lawful heirs.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 173211, October 11, 2012 ]
HEIRS OF DR. MARIO S. INTAC AND ANGELINA MENDOZA-INTAC,
PETITIONERS, VS. COURT OF APPEALS AND SPOUSES MARCELO ROY,
JR. AND JOSEFINA MENDOZA-ROY AND SPOUSES DOMINADOR
LOZADA AND MARTINA MENDOZA-LOZADA, RESPONDENTS.

DECISION

MENDOZA, J.:
This is a Petition for Review on Certiorari under Rule 45 assailing the February 16, 2006
Decision[1] of the Court of Appeals (CA), in CA G.R. CV No. 75982, which modified the
April 30, 2002 Decision[2] of the Regional Trial Court, Branch 220, Quezon City (RTC), 
in Civil Case No. Q-94-19452, an action for cancellation of transfer certificate of title and
reconveyance of property.

The Facts

From the records, it appears that Ireneo Mendoza (Ireneo), married to Salvacion Fermin
(Salvacion), was the owner of the subject property, presently covered by TCT No.
242655 of the Registry of Deeds of Quezon City and situated at No. 36, Road 8, Bagong
Pag-asa, Quezon City, which he purchased in 1954. Ireneo had two children: respondents
Josefina and Martina (respondents), Salvacion being their stepmother. When he was still
alive, Ireneo, also took care of his niece, Angelina, since she was three years old until she
got married. The property was then covered by TCT No. 106530 of the Registry of Deeds
of Quezon City. On October 25, 1977, Ireneo, with the consent of Salvacion, executed a
deed of absolute sale of the property in favor of Angelina and her husband, Mario
(Spouses Intac). Despite the sale, Ireneo and his family, including the respondents,
continued staying in the premises and paying the realty taxes. After Ireneo died intestate
in 1982, his widow and the respondents remained in the premises.[3] After Salvacion died,
respondents still maintained their residence there.  Up to the present, they are in the
premises, paying the real estate taxes thereon, leasing out portions of the property, and
collecting the rentals.[4]

The Dispute

The controversy arose when respondents sought the cancellation of TCT No. 242655,
claiming that the sale was only simulated and, therefore, void. Spouses Intac resisted,
claiming that it was a valid sale for a consideration.

On February 22, 1994, respondents filed the Complaint for Cancellation of Transfer
Certificate of Title (TCT) No. 242655[5] against Spouses Intac before the RTC. The
complaint prayed not only for the cancellation of the title, but also for its reconveyance to
them.  Pending litigation, Mario died on May 20, 1995 and was substituted by his heirs,
his surviving spouse, Angelina, and their children, namely, Rafael, Kristina, Ma. Tricia
Margarita, Mario, and Pocholo, all surnamed Intac (petitioners).

Averments of the Parties

In their Complaint, respondents alleged, among others, that when Ireneo was still alive,
Spouses Intac borrowed the title of the property (TCT No. 106530) from him to be used
as collateral for a loan from a financing institution; that when Ireneo informed
respondents about the request of Spouses Intac, they objected because the title would be
placed in the names of said spouses and it would then appear that the couple owned the
property; that Ireneo, however, tried to appease them, telling them not to worry because
Angelina would not take advantage of the situation considering that he took care of her
for a very long time; that during his lifetime, he informed them that the subject property
would be equally divided among them after his death; and that respondents were the ones
paying the real estate taxes over said property.

It was further alleged that after the death of Ireneo in 1982, a conference among relatives
was held wherein both parties were present including the widow of Ireneo, Salvacion; his
nephew, Marietto Mendoza (Marietto); and his brother, Aurelio Mendoza (Aurelio). In
the said conference, it was said that Aurelio informed all of them that it was Ireneo’s
wish to have the property divided among his heirs; that Spouses Intac never raised any
objection; and that neither did they inform all those present on that occasion that the
property was already sold to them in 1977.[6]

Respondents further alleged that sometime in 1993, after the death of Salvacion, rumors
spread in the neighborhood that the subject property had been registered in the names of
Spouses Intac; that upon verification with the Office of the Register of Deeds of Quezon
City, respondents were surprised to find out that TCT No. 106530 had indeed been
cancelled by virtue of the deed of absolute sale executed by Ireneo in favor of Spouses
Intac, and as a result, TCT No. 242655 was issued in their names; that the cancellation of
TCT No. 106530 and the subsequent issuance of TCT No. 242655 were null and void and
had no legal effect whatsoever because the deed of absolute sale was a fictitious or
simulated document; that the Spouses Intac were guilty of fraud and bad faith when said
document was executed; that Spouses Intac never informed respondents that they were
already the registered owners of the subject property although they had never taken
possession thereof; and that the respondents had been in possession of the subject
property in the concept of an owner during Ireneo’s lifetime up to the present.

In their Answer,[7] Spouses Intac countered, among others, that the subject property had
been transferred to them based on a valid deed of absolute sale and for a valuable
consideration; that the action to annul the deed of absolute sale had already prescribed;
that the stay of respondents in the subject premises was only by tolerance during Ireneo’s
lifetime because they were not yet in need of it at that time; and that despite respondents’
knowledge about the sale that took place on October 25, 1977, respondents still filed an
action against them.

Ruling of the RTC

On April 30, 2002, the RTC rendered judgment in favor of respondents and against
Spouses Intac. The dispositive portion of its Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered:

(1) Declaring the Deed of Absolute Sale executed by Ireneo Mendoza in favor of Mario and
Angelina Intac dated October 25, 1977 as an equitable mortgage;
(2) Ordering the Register of Deeds of Quezon City to cancel Transfer Certificate Title No.
242655 and, in lieu thereof, issue a new Transfer Certificate of Title in the name of Ireneo
Mendoza; and
(3) Ordering defendants to pay plaintiffs the amount of Thirty Thousand Pesos (Php30,000.00)
as and for attorney’s fees.

The other claims for damages are hereby denied for lack of merit.

SO ORDERED.[8]

The RTC ruled, among others, that the sale between Ireneo and Salvacion, on one hand,
and Spouses Intac was null and void for being a simulated one considering that the said
parties had no intention of binding themselves at all. It explained that the questioned deed
did not reflect the true intention of the parties and construed the said document to be an
equitable mortgage on the following grounds: [1] the signed document did not express
the real intention of the contracting parties because Ireneo signed the said document only
because he was in urgent need of funds; [2] the amount of P60,000.00 in 1977 was too
inadequate for a purchase price of a 240-square meter lot located in Quezon City; [3]
Josefina and Martina continued to be in possession of the subject property from 1954 and
even after the alleged sale took place in 1977 until this case was filed in 1994; and [4] the
Spouses Intac started paying real estate taxes only in 1999. The RTC added that the
Spouses Intac were guilty of fraud because they effected the registration of the subject
property even though the execution of the deed was not really intended to transfer the
ownership of the subject property.

Ruling of the CA

On appeal, the CA modified the decision of the RTC. The CA ruled that the RTC erred in
first declaring the deed of absolute sale as null and void and then interpreting it to be an
equitable mortgage. The CA believed that Ireneo agreed to have the title transferred in the
name of the Spouses Intac to enable them to facilitate the processing of the mortgage and
to obtain a loan. This was the exact reason why the deed of absolute sale was executed.
Marietto testified that Ireneo never intended to sell the subject property to the Spouses
Intac and that the deed of sale was executed to enable them to borrow from a bank. This
fact was confirmed by Angelina herself when she testified that she and her husband
mortgaged the subject property sometime in July 1978 to finance the construction of a
small hospital in Sta. Cruz, Laguna.

The CA further observed that the conduct of Spouses Intac belied their claim of
ownership. When the deed of absolute sale was executed, Spouses Intac never asserted
their ownership over the subject property, either by collecting rents, by informing
respondents of their ownership or by demanding possession of the land from its
occupants. It was not disputed that it was respondents who were in possession of the
subject property, leasing the same and collecting rentals. Spouses Intac waited until
Ireneo and Salvacion passed away before they disclosed the transfer of the title to
respondents. Hence, the CA was of the view that the veracity of their claim of ownership
was suspicious.

Moreover, wrote the CA, although Spouses Intac claimed that the purchase of the subject
property was for a valuable consideration  (P60,000.00), they admitted that they did not
have any proof of payment.  Marietto, whose testimony was assessed by the RTC to be
credible, testified that there was no such payment because Ireneo never sold the subject
property as he had no intention of conveying its ownership and that his only purpose in
lending the title was to help Spouses Intac secure a loan. Thus, the CA concluded that the
deed of absolute sale was a simulated document and had no legal effect.

Finally, the CA stated that even assuming that there was consent, the sale was still null
and void because of lack of consideration. The decretal portion of the CA Decision reads:

WHEREFORE, in view of the foregoing premises, the decision of the Regional Trial
Court of Quezon City, Branch 220, is AFFIRMED with modifications, as follows:

1. The Deed of Absolute Sale dated October 25, 1977 executed  by Ireneo Mendoza
and Salvacion Fermen in favor of Spouses Mario and Angelina Intac is hereby
declared NULL AND VOID;

2. the Register of Deed[s] of Quezon City is ordered to cancel TCT No. 242655 and,
in lieu thereof, issue a new one and reinstate Ireneo Mendoza as the registered
owner;

3. The defendant appellants are hereby ordered to pay the plaintiff appellees the
amount of thirty thousand pesos (Php30,000.00) as and for attorney’s fees; and

4. The other claims for damages are denied for lack of merit.

SO ORDERED.[9]

Not in conformity, petitioners filed this petition for review anchored on the following

ASSIGNMENT OF ERRORS

THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT

AFFIRMED THE DECISION OF THE REGIONAL TRIAL COURT DATED
FEBRUARY 16, 2006 WHICH WAS CONTRARY TO THE APPLICABLE LAWS
AND EXISTING JURISPRUDENCE.

II

THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT

CLEARLY OVERLOOKED, MISUNDERSTOOD AND/OR MISAPPLIED THE
EVIDENCE PRESENTED IN THE COURT A QUO.[10]

Petitioners’ position

Petitioners primarily argue that the subject deed of sale was a valid and binding contract
between the parties. They claim that all the elements of a valid contract of sale were
present, to wit: [a] consent or meeting of the minds, that is, consent to transfer ownership
in exchange of price; [b] determinate subject matter; and [c] price certain in money or its
equivalent.

Petitioners claim that respondents have validly gave their consent to the questioned sale
of the subject property. In fact, it was Ireneo and Salvacion who approached them
regarding their intention to sell the subject property. Ireneo and Salvacion affixed their
signatures on the questioned deed and never brought any action to invalidate it during
their lifetime. They had all the right to sell the subject property without having to inform
their children of their intention to sell the same. Ordinary human experience dictates that
a party would not affix his or her signature on any written instrument which would result
in deprivation of one’s property right if there was really no intention to be bound by it. A
party would not keep silent for several years regarding the validity and due execution of a
document if there was an issue on the real intention of the vendors. The signatures of
Ireneo and Salvacion meant that they had knowingly and willfully entered into such
agreement and that they were prepared for the consequences of their act.

Respondents’ Position

Respondents are of the position that the RTC and the CA were correct in ruling that the
questioned deed of absolute sale was a simulated one considering that Ireneo and
Salvacion had no intention of selling the subject property. The true intention rather was
that Spouses Intac would just borrow the title of the subject property and offer it as a
collateral to secure a loan. No money actually changed hands.

According to respondents, there were several circumstances which put in doubt the
validity of the deed of absolute sale. First, the parties were not on equal footing because
Angelina was a doctor by profession while Ireneo and Salvacion were less educated
people who were just motivated by their trust, love and affection for her whom they
considered as their own child. Second, if there was really a valid sale, it was just and
proper for Spouses Intac to divulge the conveyance to respondents, being compulsory
heirs, but they did not. Third, Ireneo and Salvacion did nothing to protect their interest
because they banked on the representation of Spouses Intac that the title would only be
used to facilitate a loan with a bank. Fourth, Ireneo and Salvacion remained in possession
of the subject property without being disturbed by Spouses Intac.  Fifth, the price of the
sale was inadequate and inequitable for a prime property located in Pag-asa, Quezon
City. Sixth, Ireneo and Salvacion had no intention of selling the subject property because
they had heirs who would inherit the same. Seventh, the Spouses Intac abused the trust
and affection of Ireneo and Salvacion by arrogating unto themselves the ownership of the
subject property to the prejudice of his own children, Josefina and Martina.

Finally, petitioners could not present a witness to rebut Marietto’s testimony which was
straightforward and truthful.

The Court’s Ruling

Basically, the Court is being asked to resolve the issue of whether the Deed of Absolute
Sale,[11] dated October 25, 1977, executed by and between Ireneo Mendoza and Salvacion
Fermin, as vendors, and Mario Intac and Angelina Intac, as vendees, involving the
subject real property in Pagasa, Quezon City, was a simulated contract or a valid
agreement.

The Court finds no merit in the petition.

A contract, as defined in the Civil Code, is a meeting of minds, with respect to the other,
to give something or to render some service. Article 1318 provides:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Accordingly, for a contract to be valid, it must have three essential elements:

(1) consent of the contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation which is established.[12]

All these elements must be present to constitute a valid contract. Consent is essential to
the existence of a contract; and where it is wanting, the contract is non-existent. In a
contract of sale, its perfection is consummated at the moment there is a meeting of the
minds upon the thing that is the object of the contract and upon the price. Consent is
manifested by the meeting of the offer and the acceptance of the thing and the cause,
which are to constitute the contract.
In this case, the CA ruled that the deed of sale executed by Ireneo and Salvacion was
absolutely simulated for lack of consideration and cause and, therefore, void.  Articles
1345 and 1346 of the Civil Code provide:

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.

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.

If the parties state a false cause in the contract to conceal their real agreement, the
contract is only 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.[13]

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.”[14] “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.”[15]

In the case at bench, the Court is one with the courts below that no valid sale of the
subject property actually took place between the alleged vendors, Ireneo and Salvacion;
and the alleged vendees, Spouses Intac.  There was simply no consideration and no intent
to sell it.

Critical is the testimony of Marietto, a witness to the execution of the subject absolute
deed of sale. He testified that Ireneo personally told him that he was going to execute a
document of sale because Spouses Intac needed to borrow the title to the property and use
it as collateral for their loan application. Ireneo and Salvacion never intended to sell or
permanently transfer the full ownership of the subject property to Spouses Intac. Marietto
was characterized by the RTC as a credible witness.

Aside from their plain denial, petitioners failed to present any concrete evidence to
disprove Marietto’s testimony. They claimed that they actually paid P150,000.00 for the
subject property. They, however, failed to adduce proof, even by circumstantial evidence,
that they did, in fact, pay it.  Even for the consideration of P60,000.00 as stated in the
contract, petitioners could not show any tangible evidence of any payment therefor. Their
failure to prove their payment only strengthened Marietto’s story that there was no
payment made because Ireneo had no intention to sell the subject property.

Angelina’s story, except on the consideration, was consistent with that of Marietto. 
Angelina testified that she and her husband mortgaged the subject property sometime in
July 1978 to finance the construction of a small hospital in Sta. Cruz, Laguna. Angelina
claimed that Ireneo offered the property as he was in deep financial need.

Granting that Ireneo was in financial straits, it does not prove that he intended to sell the
property to Angelina. Petitioners could not adduce any proof that they lent money to
Ireneo or that he shared in the proceeds of the loan they had obtained. And, if their
intention was to build a hospital, could they still afford to lend money to Ireneo? And if
Ireneo needed money, why would he lend the title to Spouses Intac when he himself
could use it to borrow money for his needs?  If Spouses Intac took care of him when he
was terminally ill, it was not surprising for Angelina to reciprocate as he took care of her
since she was three (3) years old until she got married. Their caring acts for him, while
they are deemed services of value, cannot be considered as consideration for the subject
property for lack of quantification and the Filipino culture of taking care of their elders.

Thus, the Court agrees with the courts below that the questioned contract of sale was only
for the purpose of lending the title of the property to Spouses Intac to enable them to
secure a loan. Their arrangement was only temporary and could not give rise to a valid
sale. Where there is no consideration, the sale is null and void ab initio. In the case
of Lequin v. Vizconde,[16] the Court wrote:

There can be no doubt that the contract of sale or Kasulatan lacked the essential element
of consideration. It is a well-entrenched rule that where the deed of sale states that the
purchase price has been paid but in fact has never been paid, the deed of sale is null
and void ab initio for lack of consideration. Moreover, Art. 1471 of the Civil Code,
which provides that "if the price is simulated, the sale is void," also applies to the instant
case, since the price purportedly paid as indicated in the contract of sale was simulated
for no payment was actually made.

Consideration and consent are essential elements in a contract of sale. Where a party’s
consent to a contract of sale is vitiated or where there is lack of consideration due to a
simulated price, the contract is null and void ab initio. [Emphases supplied]

More importantly, Ireneo and his family continued to be in physical possession of the
subject property after the sale in 1977 and up to the present. They even went as far as
leasing the same and collecting rentals. If Spouses Intac really purchased the subject
property and claimed to be its true owners, why did they not assert their ownership
immediately after the alleged sale took place? Why did they have to assert their
ownership of it only after the death of Ireneo and Salvacion?  One of the most striking
badges of absolute simulation is the complete absence of any attempt on the part of a
vendee to assert his right of dominion over the property.[17]

On another aspect, Spouses Intac failed to show that they had been paying the real estate
taxes of the subject property. They admitted that they started paying the real estate taxes
on the property for the years 1996 and 1997 only in 1999. They could only show two (2)
tax receipts (Real Property Tax Receipt No. 361105, dated April 21, 1999, and Real
Property Tax Receipt No. 361101, dated April 21, 1999).[18] Noticeably, petitioners’ tax
payment was just an afterthought. The non-payment of taxes was also taken against the
alleged vendees in the case of Lucia Carlos Aliño v. Heirs of Angelica A. Lorenzo.
[19]
 Thus,

Furthermore, Lucia religiously paid the realty taxes on the subject lot from 1980 to
1987.While tax receipts and declarations of ownership for taxation purposes are not, in
themselves, incontrovertible evidence of ownership, they constitute at least proof that the
holder has a claim of title over the property, particularly when accompanied by proof of
actual possession. They are good indicia of the possession in the concept of owner, for no
one in his right mind would be paying taxes for a property that is not in his actual or at
least constructive possession. The voluntary declaration of a piece of property for
taxation purposes manifests not only one's sincere and honest desire to obtain title to the
property and announces his adverse claim against the State and all other interested
parties, but also the intention to contribute needed revenues to the Government. Such an
act strengthens one's bona fide claim of acquisition of ownership.

On the other hand, respondent heirs failed to present evidence that Angelica, during her
lifetime, paid the realty taxes on the subject lot. They presented only two tax receipts
showing that Servillano, Sr. belatedly paid taxes due on the subject lot for the years 1980-
1981 and part of year 1982 on September 8, 1989, or about a month after the institution
of the complaint on August 3, 1989, a clear indication that payment was made as an
afterthought to give the semblance of truth to their claim.

Thus, the subsequent acts of the parties belie the intent to be bound by the deed of sale.
[Emphases supplied]

The primary consideration in determining the true nature of a contract is the intention of
the parties. If the words of a contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and subsequent acts of the
parties.[20] As heretofore shown, the contemporaneous and subsequent acts of both parties
in this case, point to the fact that the intention of Ireneo was just to lend the title to the
Spouses Intac to enable them to borrow money and put up a hospital in Sta. Cruz,
Laguna. Clearly, the subject contract was absolutely simulated and, therefore, void.
In view of the foregoing, the Court finds it hard to believe the claim of the Spouses Intac
that the stay of Ireneo and his family in the subject premises was by their mere tolerance
as they were not yet in need of it.  As earlier pointed out, no convincing evidence, written
or testimonial, was ever presented by petitioners regarding this matter. It is also of no
moment that TCT No. 106530 covering the subject property was cancelled and a new
TCT (TCT No. 242655)[21] was issued in their names. The Spouses Intac never became
the owners of the property despite its registration in their names. After all, registration
does not vest title.

As a logical consequence, petitioners did not become the owners of the subject property
even after a TCT had been issued in their names. After all, registration does not vest title.
Certificates of title merely confirm or record title already existing and vested. They
cannot be used to protect a usurper from the true owner, nor can they be used as a shield
for the commission of fraud, or to permit one to enrich oneself at the expense of others.
Hence, reconveyance of the subject property is warranted. [22]

The Court does not find acceptable either the argument of the Spouses Intac that
respondents’ action for cancellation of TCT No. 242655 and the reconveyance of the
subject property is already barred by the Statute of Limitations. The reason is that the
respondents are still in actual possession of the subject property. It is a well-settled
doctrine that “if the person claiming to be the owner of the property is in actual
possession thereof, the right to seek reconveyance, which in effect seeks to quiet title to
the property, does not prescribe.”[23] In Lucia Carlos Aliño, it was also written:

The lower courts fault Lucia for allegedly not taking concrete steps to recover the subject
lot, demanding its return only after 10 years from the registration of the title. They,
however, failed to consider that Lucia was in actual possession of the property.

It is well-settled that an action for reconveyance prescribes in 10 years, the reckoning

point of which is the date of registration of the deed or the date of issuance of the
certificate of title over the property. In an action for reconveyance, the decree of
registration is highly regarded as incontrovertible. What is sought instead is the transfer
of the property or its title, which has been erroneously or wrongfully registered in another
person's name, to its rightful or legal owner or to one who has a better right.

However, in a number of cases in the past, the Court has consistently ruled that if the
person claiming to be the owner of the property is in actual possession thereof, the
right to seek reconveyance, which in effect seeks to quiet title to the property, does
not prescribe. The reason for this is that one who is in actual possession of a piece of
land claiming to be the owner thereof may wait until his possession is disturbed or
his title is attacked before taking steps to vindicate his right. The reason being, that
his undisturbed possession gives him the continuing right to seek the aid of a court
of equity to ascertain the nature of the adverse claim of a third party and its effect
on his title, which right can be claimed only by one who is in possession. Thus,
considering that Lucia continuously possessed the subject lot, her right to institute a
suit to clear the cloud over her title cannot be barred by the statute of limitations.
[24]
 [Emphases supplied]

WHEREFORE, the petition is DENIED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 183774, November 14, 2012 ]
PHILIPPINE BANKING CORPORATION, PETITIONER, VS. ARTURO DY,
BERNARDO DY, JOSE DELGADO AND CIPRIANA DELGADO,
RESPONDENTS.

DECISION

PERLAS-BERNABE, J.:

This Petition for Review on Certiorari assails the January 30, 2008 Decision[1] of
the Court of Appeals (CA) in CA-G.R. CV No. 51672, which set aside the October 5, 1994
Decision[2] of the Regional Trial Court of Cebu City, Branch 22 (RTC) and directed the
Register of Deeds of Cebu City to cancel Transfer Certificate of Title (TCT) Nos.
51768[3] and 51901[4] in the names of respondents Arturo Dy and Bernardo Dy (Dys) and
to issue the corresponding TCTs in the name of respondent Cipriana Delgado (Cipriana).

The Factual Antecedents

Cipriana was the registered owner of a 58,129-square meter (sq.m.) lot, denominated as
Lot No. 6966, situated in Barrio Tongkil, Minglanilla, Cebu, covered by TCT No. 18568. 
She and her husband, respondent Jose Delgado (Jose), entered into an agreement with
a certain Cecilia Tan (buyer) for the sale of the said property for a consideration of
P10.00/sq.m. It was agreed that the buyer shall make partial payments from time to
time and pay the balance when Cipriana and Jose (Sps. Delgado) are ready to execute
the deed of sale and transfer the title to her.

At the time of sale, the buyer was already occupying a portion of the property where
she operates a noodle (bihon) factory while the rest was occupied by tenants which Sps.
Delgado undertook to clear prior to full payment.  After paying the total sum of
P147,000.00 and being then ready to pay the balance, the buyer demanded the
execution of the deed, which was refused.  Eventually, the buyer learned of the sale of
the property to the Dys and its subsequent mortgage to petitioner Philippine Banking
Corporation (Philbank), prompting the filing of the Complaint[5] for annulment of
certificate of title, specific performance and/or reconveyance with damages against 
Sps. Delgado, the Dys and Philbank.

In their Answer, Sps. Delgado, while admitting receipt of the partial payments made by
the buyer, claimed that there was no perfected sale because the latter was not willing to
pay their asking price of P17.00/sq.m.  They also interposed a cross-claim against the
Dys averring that the deeds of absolute sale in their favor dated June 28, 1982 [6] and
June 30, 1982[7] covering Lot No. 6966 and the adjoining Lot No. 4100-A (on which Sps.
Delgado's house stands), were fictitious and merely intended to enable them (the Dys)
to use the said properties as collateral for their loan application with Philbank and
thereafter, pay the true consideration of P17.00/sq.m. for Lot No. 6966.  However, after
receiving the loan proceeds, the Dys reneged on their agreement, prompting Sps.
Delgado to cause the annotation of an adverse claim on the Dys' titles and to inform
Philbank of the simulation of the sale.  Sps. Delgado, thus, prayed for the dismissal of
the complaint, with a counterclaim for damages and a cross-claim against the Dys for
the payment of the balance of the purchase price plus damages.

For their part, the Dys denied knowledge of the alleged transaction between cross-
claimants Sps. Delgado and buyer.  They claimed to have validly acquired the subject
property from Sps. Delgado and paid the full consideration therefor as the latter even
withdrew their adverse claim and never demanded for the payment of any unpaid
balance.

On the other hand, Philbank filed its Answer[8] asserting that it is an innocent mortgagee
for value without notice of the defect in the title of the Dys.  It filed a cross-claim against
Sps. Delgado and the Dys for all the damages that may be adjudged against it in the
event they are declared seller and purchaser in bad faith, respectively.

In answer to the cross-claim, Sps. Delgado insisted that Philbank was not a mortgagee in
good faith for having granted the loan and accepted the mortgage despite knowledge of
the simulation of the sale to the Dys and for failure to verify the nature of the buyer’s
physical possession of a portion of Lot No. 6966.  They thereby prayed for the
cancellation of the mortgage in Philbank's favor.

Subsequently, Sps. Delgado amended their cross-claim against the Dys to include a
prayer for the nullification of the deeds of absolute sale in the latter's favor and the
corresponding certificates of title, and for the consequent reinstatement of Cipriana’s
title.[9]

The complaints against the Dys and Philbank were subsequently withdrawn.  On the
other hand, both the buyer and Sps. Delgado never presented any evidence in support
of their respective claims.  Hence, the RTC limited itself to the resolution of the claims of
Sps. Delgado, Philbank and the Dys against one another.

The RTC Ruling

In the Decision[10] dated October 5, 1994, the RTC dismissed the  cross-claims of Sps.
Delgado against the Dys and Philbank.  It noted that other than Sps. Delgado's bare
allegation of the Dys' supposed non-payment of the full consideration for Lot Nos. 6966
and 4100-A, they failed to adduce competent evidence to support their claim.  On the
other hand, the Dys presented a cash voucher[11] dated April 6, 1983 duly signed by Sps.
Delgado acknowledging receipt of the total consideration for the two lots.

The RTC also observed that Sps. Delgado notified Philbank of the purported simulation
of the sale to the Dys only after the execution of the loan and mortgage documents and
the release of the loan proceeds to the latter, negating their claim of bad faith.
Moreover, they subsequently notified the bank of the Dys' full payment for the two lots
mortgaged to it.

The CA Ruling
However, on appeal, the CA set aside[12] the RTC's decision and ordered the cancellation
of the Dys' certificates of title and the reinstatement of Cipriana's title.  It ruled that
there were no perfected contracts of sale between Sps. Delgado and the Dys in view of
the latter's admission that the deeds of sale were purposely executed to facilitate the
latter's loan application with Philbank and that the prices indicated therein were not the
true consideration.  Being merely simulated, the contracts of sale were, thus, null and
void, rendering the subsequent mortgage of the lots likewise void.

The CA also declared Philbank not to be a mortgagee in good faith for its failure to
ascertain how the Dys acquired the properties and to exercise greater care when it
conducted an ocular inspection thereof.  It thereby canceled the mortgage over the two
lots.

The Petition

In the present petition, Philbank insists that it is a mortgagee in good faith.  It further
contends that Sps. Delgado are estopped from denying the validity of the mortgage
constituted over the two lots since they participated in inducing Philbank to grant a loan
to the Dys.

On the other hand, Sps. Delgado maintain that Philbank was not an innocent mortgagee
for value for failure to exercise due diligence in transacting with the Dys and may not
invoke the equitable doctrine of estoppel to conceal its own lack of diligence.

For his part,  Arturo Dy filed a Petition-in-Intervention[13] arguing that while the deeds of
absolute sale over the two properties were admittedly simulated, the simulation was
only a relative one involving a false statement of the price.  Hence, the parties are still
bound by their true agreement.  The same was opposed/objected to by both
Philbank[14] and Sps. Delgado[15] as improper, considering that the CA judgment had long
become final and executory as to the Dys who neither moved for reconsideration nor
appealed the CA Decision.

The Ruling of the Court

The petition is meritorious.

At the outset, the Court takes note of the fact that the CA Decision nullifying the
questioned contracts of sale between Sps. Delgado and the Dys had become final and
executory. Accordingly, the Petition-in-Intervention filed by Arturo Dy, which seeks to
maintain the subject contracts' validity, can no longer be entertained.  The cancellation
of the Dys' certificates of title over the disputed properties and the issuance of new TCTs
in favor of Cipriana must therefore be upheld.

However, Philbank's mortgage rights over the subject properties shall be maintained. 
While it is settled that a simulated deed of sale is null and void and therefore, does not
convey any right that could ripen into a valid title,[16] it has been equally ruled that, for
reasons of public policy,[17] the subsequent nullification of title to a property is not a
ground to annul the contractual right which may have been derived by a purchaser,
mortgagee or other transferee who acted in good faith. [18]

The ascertainment of good faith or lack of it, and the determination of whether due
diligence and prudence were exercised or not, are questions of fact [19] which are
generally improper in a petition for review on certiorari under Rule 45 of the Rules of
Court (Rules) where only questions of law may be raised.  A recognized exception to the
rule is when there are conflicting findings of fact by the CA and the RTC, [20] as in this
case.

Primarily, it bears noting that the doctrine of “mortgagee in good faith” is based on the
rule that all persons dealing with property covered by a  Torrens Certificate of Title  are
not required to go beyond what appears on the face of the title.  This is in deference to
the public interest in upholding the indefeasibility of a certificate of title as evidence of
lawful ownership of the land or of any encumbrance thereon. [21]  In the case of banks
and other financial institutions, however, greater care and due diligence are required
since they are imbued with public interest, failing which renders the mortgagees in bad
faith.  Thus, before approving a loan application, it is a standard operating practice for
these institutions to conduct an ocular inspection of the property offered for mortgage
and to verify the genuineness of the title to determine the real owner(s) thereof. [22]  The
apparent purpose of an ocular inspection is to protect the “true owner” of the property
as well as innocent third parties with a right, interest or claim thereon from a usurper
who may have acquired a fraudulent certificate of title thereto.[23]
In this case, while Philbank failed to exercise greater care in conducting the ocular
inspection of the properties offered for mortgage,[24] its omission did not prejudice any
innocent third parties.  In particular, the buyer did not pursue her cause and abandoned
her claim on the property.  On the other hand, Sps. Delgado were parties to the
simulated sale in favor of the Dys which was intended to mislead Philbank into granting
the loan application.  Thus, no amount of diligence in the conduct of the ocular
inspection could have led to the discovery of the complicity between the ostensible
mortgagors (the Dys) and the true owners (Sps. Delgado). In fine, Philbank can hardly be
deemed negligent under the premises since the ultimate cause of the mortgagors' (the
Dys') defective title was the simulated sale to which  Sps. Delgado were privies.

Indeed, a finding of negligence must always be contextualized in line with the attendant
circumstances of a particular case.  As aptly held in Philippine National Bank v. Heirs of
Estanislao Militar,[25] “the diligence with which the law requires the individual or a
corporation at all times to govern a particular conduct varies with the nature of the
situation in which one is placed, and the importance of the act which is to be
performed.”[26]  Thus, without diminishing the time-honored principle that nothing short
of extraordinary diligence is required of banks whose business is impressed with public
interest, Philbank's inconsequential oversight should not and cannot serve as a bastion
for fraud and deceit.

To be sure, fraud comprises “anything calculated to deceive, including all acts,

omissions, and concealment involving a breach of legal duty or equitable duty, trust, or
confidence justly reposed, resulting in damage to another, or by which an undue and
unconscientious advantage is taken of another.”[27]  In this light, the Dys' and Sps.
Delgado's deliberate simulation of the sale intended to obtain loan proceeds from and
to prejudice Philbank clearly constitutes fraudulent conduct.  As such, Sps. Delgado
cannot now be allowed to deny the validity of the mortgage executed by the Dys in
favor of Philbank as to hold otherwise would effectively sanction their blatant bad faith
to Philbank's detriment.

Accordingly, in the interest of public policy, fair dealing, good faith and justice, the Court
accords Philbank the rights of a mortgagee in good faith whose lien to the securities
posted must be respected and protected.  In this regard, Philbank is entitled to have its
mortgage carried over or annotated on the titles of Cipriana Delgado over the said
properties.

WHEREFORE, the assailed January 30, 2008 Decision of the Court of Appeals in CA-G.R.
CV No. 51672 is hereby AFFIRMED with MODIFICATION upholding the mortgage rights
of petitioner Philippine Banking Corporation over the subject properties.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 175483, October 14, 2015 ]
VALENTINA S. CLEMENTE, PETITIONER, VS. THE COURT OF
APPEALS, ANNIE SHOTWELL JALANDOON, ET AL., RESPONDENTS.

DECISION

JARDELEZA, J.:

This is a Petition for Review on Certiorari[1] under Rule 45 of the Revised Rules of Court
filed by Valentina S. Clemente ("petitioner") from the Decision[2] of August 23, 2005 and
the Resolution[3] dated November 15, 2006 of the Court of Appeals (CA) Eighth Division
in CA-G.R. CV No. 70918.

Petitioner assails the Decision of the CA which ruled that two (2) deeds of absolute sale
executed between petitioner and Adela de Guzman Shotwell ("Adela"), her grandmother,
are void and inexistent for being simulated and lacking consideration. The CA affirmed
the Decision of the Regional Trial Court (RTC) of Quezon City, Branch 89, but deleted
the holding of the latter that an implied trust existed.

The Facts

Adela owned three (3) adjoining parcels of land in Scout Ojeda Street, Diliman, Quezon
City, subdivided as Lots 32, 34 and 35-B (the "Properties"). Among the improvements on
the Properties was Adela's house (also referred to as the "big house"). During her
lifetime, Adela allowed her children, namely, Annie Shotwell Jalandoon, Carlos G.
Shotwell ("Carlos Sr."), Anselmo G. Shotwell and Corazon S. Basset, and her
grandchildren,[4] the use and possession of the Properties and its improvements.[5]

Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot 34 to her
two grandsons from Carlos Sr., namely, Carlos V. Shotwell, Jr. ("Carlos Jr.") and Dennis
V. Shotwell.[6] As a consequence, Transfer Certificate of Title (TCT) No. 338708/PR
9421 was issued over Lot 32 under the name of Carlos Jr., while TCT No. 366256/PR
9422 was issued over Lot 34 under the name of Dennis.[7] On the other hand, Lot 35-B
remained with Adela and was covered by TCT No. 374531. It is undisputed that the
transfers were never intended to vest title to Carlos Jr. and Dennis who both will return
the lots to Adela when requested.[8]

On April 18, 1989, prior to Adela and petitioner's departure for the United States, Adela
requested Carlos Jr. and Dennis to execute a deed of reconveyance [9] over Lots 32 and 34.
The deed of reconveyance was executed on the same day and was registered with the
Registry of Deeds on April 24, 1989.[10]

On April 25, 1989, Adela executed a deed of absolute sale[11] over Lots 32 and 34, and
their improvements, in favor of petitioner, bearing on its face the price of P250,000.00.
On the same day, Adela also executed a special power of attorney [12] (SPA) in favor of
petitioner. Petitioner's authority under the SPA included the power to administer, take
charge and manage, for Adela's benefit, the Properties and all her other real and personal
properties in the Philippines.[13] The deed of absolute sale and the SPA were notarized on
the same day by Atty. Dionilo D. Marfil in Quezon City.[14]

On April 29, 1989, Adela and petitioner left for the United States.[15] When petitioner
returned to the Philippines, she registered the sale over Lots 32 and 34 with the Registry
of Deeds on September 25, 1989. TCT No. 19811 and TCT No. 19809 were then issued
in the name of petitioner over Lots 32 and 34, respectively.[16]

On January 14, 1990, Adela died in the United States and was succeeded by her four
children.[17]

Soon thereafter, petitioner sought to eject Annie and Carlos Sr., who were then staying on
the Properties. Only then did Annie and Carlos Sr. learn of the transfer of titles to
petitioner. Thus, on July 9, 1990, Annie, Carlos Sr. and Anselmo, represented by Annie,
("private respondents") filed a complaint for reconveyance of property[18] against
petitioner before Branch 89 of the RTC of Quezon City. It was docketed as Civil Case
No. Q-90-6035 and titled "Annie S. Jalandoon, et al. v. Valentino. Clemente"[19]

In the course of the trial, private respondents discovered that Adela and petitioner
executed another deed of absolute sale[20] over Lot 35-B on April 25, 1989 (collectively
with the deed of absolute sale over Lots 32 and 34, "Deeds of Absolute Sale"), bearing on
its face the price of F60,000.00.[21] This was notarized on the same date by one Orancio
Generoso in Manila, but it was registered with the Registry of Deeds only on October 5,
1990.[22] Thus, private respondents amended their complaint to include Lot 35-B.[23]

In their amended complaint, private respondents sought nullification of the Deeds of

Absolute Sale. They alleged that Adela only wanted to help petitioner travel to the United
States, by making it appear that petitioner has ownership of the Properties. They further
alleged that similar to the previous simulated transfers to Carlos Jr. and Dennis, petitioner
also undertook and warranted to execute a deed of reconveyance in favor of the deceased
over the Properties, if and when Adela should demand the same. They finally alleged that
no consideration was given by petitioner to Adela in exchange for the simulated
conveyances.[24]

On October 3, 1997, Carlos Sr. died and was substituted only by Dennis. [25] In an order
dated June 18, 1999, the case was dismissed with respect to Annie after she manifested
her intention to withdraw as a party-plaintiff.[26] Anselmo Shotwell also died without any
compulsory heir on September 7, 2000.

On February 26, 2001, the trial court promulgated a Decision[27] in favor of private
respondents. Its decretal portion reads:

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

1. Declaring null and void the Deeds of Absolute Sale both dated April 25, 1989
between the late Adela De Guzman Shotwell and the defendant;

2. Ordering the cancellation of Transfer Certificates of Title Nos. 19809, 19811 and
26558, all of the Registry of Deeds of Quezon City and in the name of defendant
Valentina Clemente; and

3. Ordering the defendant to execute a Deed of Reconveyance in favor of the estate

of the late Adela de Guzman Shotwell over the three (3) subject lots, respectively
covered by Transfer Certificates of Title Nos. 19809, 19811 and 26558 of the
Registry of Deeds of Quezon City;

With costs against defendant.

SO ORDERED.[28]

On appeal, the CA affirmed with modification the Decision. The CA ruled that the Deeds
of Absolute Sale were simulated. It also ruled that the conveyances of the Properties to
petitioner were made without consideration and with no intention to have legal effect. [29]
The CA agreed with the trial court that the contemporaneous and subsequent acts of
petitioner and her grandmother are enough to render the conveyances null and void on the
ground of being simulated.[30] The CA found that Adela retained and continued to
exercise dominion over the Properties even after she executed the conveyances to
petitioner.[31] By contrast, petitioner did not exercise control over the properties because
she continued to honor the decisions of Adela. The CA also affirmed the court a
quo's finding that the conveyances were not supported by any consideration.[32]

Petitioner filed a Motion for Reconsideration[33] dated September 12, 2005 but this was
denied by the CA in its Resolution[34] dated November 15, 2006.

Hence, this petition. The petition raises the principal issue of whether or not the CA erred
in affirming the decision of the trial court, that the Deeds of Absolute Sale between
petitioner and her late grandmother over the Properties are simulated and without
consideration, and hence, void and inexistent.[35]

Ruling of the Court

We deny the petition.

In a Petition for Review on Certiorari

under Rule 45, only questions of law
may be entertained.

Whether or not the CA erred in affirming the decision of the RTC that the Deeds of
Absolute Sale between petitioner and her late grandmother are simulated and without
consideration, and hence, void and inexistent, is a question of fact which is not within the
province of a petition for review on certiorari under Rule 45 of the Revised Rules of
Court.

Section 1, Rule 45 of the Revised Rules of Court states that the petition filed shall raise
only questions of law, which must be distinctly set forth. We have explained the
difference between a question of fact and a question of law, to wit:

A question of law arises when there is doubt as to what the law is on a certain state of
facts, while there is a question of fact when the doubt arises as to the truth or falsity of the
alleged facts. For a question to be one of law, the same must not involve an examination
of the probative value of the evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence presented,
the question posed is one of fact.[36]
Most of the issues raised by petitioner are questions of fact that invite a review of the
evidence presented by the parties below. We have repeatedly ruled that the issue on the
genuineness of a deed of sale is essentially a question of fact. [37] We are not a trier of facts
and do not normally undertake the re-examination of the evidence presented by the
contending parties during the trial of the case.[38] This is especially true where the trial
court's factual findings are adopted and affirmed by the CA as in the present case.
[39]
 Factual findings of the trial court affirmed by the CA are final and conclusive and may
not be reviewed on appeal.[40] While it is true that there are recognized exceptions[41] to
the general rule that only questions of law may be entertained in a Rule 45 petition, we
find that there is none obtaining in this case.

Nevertheless, and to erase any doubt on the correctness of the assailed ruling, we
examined the records below and have arrived at the same conclusion. Petitioner has not
been able to show that the lower courts committed error in appreciating the evidence of
record.

The Deeds of Absolute Sale between

petitioner and the late Adela Shotwell
are null and void for lack of consent
and consideration.

While the Deeds of Absolute Sale appear to be valid on their face, the courts are not
completely precluded to consider evidence aliunde in determining the real intent of the
parties. This is especially true when the validity of the contracts was put in issue by one
of the parties in his pleadings.[42] Here, private respondents assail the validity of the Deeds
of Absolute Sale by alleging that they were simulated and lacked consideration.

A. Simulated contract

The Civil Code defines a contract as a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service.
[43]
 Article 1318 provides that there is no contract unless the following requisites concur:

(1)  Consent of the contracting parties;

(2)  Object certain which is the subject matter of the contract; and
(3)  Cause of the obligation which is established.

All these elements must be present to constitute a valid contract; the absence of one
renders the contract void. As one of the essential elements, consent when wanting makes
the contract non-existent. Consent is manifested by the meeting of the offer and the
acceptance of the thing and the cause, which are to constitute the contract. [44] A contract
of sale is perfected at the moment there is a meeting of the minds upon the thing that is
the object of the contract, and upon the price.[45]

Here, there was no valid contract of sale between petitioner and Adela because their
consent was absent. The contract of sale was a mere simulation.

Simulation takes place when the parties do not really want the contract they have
executed to produce the legal effects expressed by its wordings.[46] Article 1345 of the
Civil Code provides that the simulation of a contract may either 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. The case of Heirs of Policronio M. Ureta, Sr. v.
Heirs of Liberate M. Ureta[47] is instructive on the matter of absolute simulation of
contracts, viz:

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...[48] (Emphasis supplied)

In short, in absolute simulation there appears to be a valid contract but there is actually
none because the element of consent is lacking.[49] This is so because the parties do not
actually intend to be bound by the terms of the contract.

In determining the true nature of a contract, the primary test is the intention of the parties.
If the words of a contract appear to contravene the evident intention of the parties, the
latter shall prevail. Such intention is determined not only from the express terms of their
agreement, but also from the contemporaneous and subsequent acts of the parties. [50] This
is especially true in a claim of absolute simulation where a colorable contract is executed.

In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts
considered the totality of the prior, contemporaneous and subsequent acts of the parties.
The following circumstances led the RTC and the CA to conclude that the Deeds of
Absolute Sale are simulated, and that the transfers were never intended to affect the
juridical relation of the parties:

a)  There was no indication that Adela intended to alienate her properties in favor of
petitioner. In fact, the letter of Adela to Dennis dated April 18, 1989[51] reveals that she
has reserved the ownership of the Properties in favor of Dennis.

b) Adela continued exercising acts of dominion and control over the properties, even after
the execution of the Deeds of Absolute Sale, and though she lived abroad for a time. In
Adela's letter dated August 25, 1989[52] to a certain Candy, she advised the latter to stay in
the big house. Also, in petitioner's letter to her cousin Dennis dated July 3, 1989, [53] she
admitted that Adela continued to be in charge of the Properties; that she has no "say"
when it comes to the Properties; that she does not intend to claim exclusive ownership of
Lot 35-B; and that she is aware that the ownership and control of the Properties are
intended to be consolidated in Dennis.

c) The SPA executed on the same day as the Deeds of Absolute Sale appointing
petitioner as administratrix of Adela's properties, including the Properties, is repugnant to
petitioner's claim that the ownership of the same had been transferred to her.

d) The previous sales of the Properties to Dennis and Carlos, Jr. were simulated. This
history, coupled with Adela's treatment of petitioner, and the surrounding circumstances
of the sales, strongly show that Adela only granted petitioner the same favor she had
granted to Dennis and Carlos Jr.

The April 18, 1989 letter to Dennis convincingly shows Adela's intention to give him the
Properties. Part of the letter reads: "Dennis, the two lot [sic] 32-34 at your said lower
house will be at name yours [sic] plus the 35 part of Cora or Teens [sic] house are all
under your name"[54] Petitioner claims this letter was not properly identified and is thus,
hearsay evidence. The records, however, show that the letter was admitted by the trial
court in its Order dated February 24, 1993.[55] While it is true that the letter is dated prior
(or six days before to be exact) to the execution of the Deeds of Absolute Sale and is not
conclusive that Adela did not change her mind, we find that the language of the letter is
more consistent with the other pieces of evidence that show Adela never intended to
relinquish ownership of the Properties to petitioner. In this regard, we see no compelling
reason to depart from the findings of the trial court as there appears no grave abuse of
discretion in its admission and consideration of the letter.

Petitioner's letter to her cousin Dennis dated July 3, 1989 also sufficiently establishes that
Adela retained control over the Properties, even after the execution of the Deeds of
Absolute Sale. Petitioner herself admitted that she was only following the orders of
Adela, and that she has no claim over the Properties. We quote in verbatim the relevant
part of the letter:

...Now, before I left going back here in Mla. Mommy Dela ask me to read your letter
about the big house and lot, and I explained it to her. Now Mommy and Mommy Dela
wants that the house is for everyone who will need to stay, well that is what they
say. Alam mo naman, I have no "say" esp. when it comes with properties & you
know that. Now kung ano gusto nila that goes. Now, to be honest Mommy was
surprise [sic] bakit daw kailangan mawalan ng karapatan sa bahay eh Nanay daw nila
iyon at tayo apo lang, Eh wala akong masasabi dyan, to be truthful to you, I only get
the orders... Tapos, sinisingil pa ako ng P1,000 --para sa gate napinapagawa nya sa lot
35-B, eh hindi na lang ako kiimibo pero nagdamdam ako, imagine minsan na lang sya
nakagawa ng bien sa akin at wala sa intention ko na suluhin ang 35-B, ganyan pa
sya... Now tungkol sa iyo, alam ko meron ka rin lupa tapos yung bahay na malaki ikaw
rin ang titira at magmamahala sa lahat. Anyway, itong bahay ko sa iyo rin, alam mo
naman na I'm just making the kids grow a little older then we have to home in the
states...[56] (Emphasis supplied)

Moreover, Adela's letter to petitioner's cousin Candy dated August 25, 1989 shows
Adela's retention of dominion over the Properties even after the sales. In the letter, Adela
even requested her granddaughter Candy to stay in the house rent and expense free.
[57]
 Petitioner claims that Candy and the house referred to in the letter were not identified.
Records show, however, that petitioner has testified she has a cousin named Candy
Shotwell who stayed at the "big house" since February 1989.[58]

Clearly, the submission of petitioner to the orders of Adela does not only show that the
latter retained dominion over the Properties, but also that petitioner did not exercise acts
of ownership over it. If at all, her actions only affirm the conclusion that she was merely
an administratrix of the Properties by virtue of the SPA.

On the SPA, petitioner claims the lower courts erred in holding that it is inconsistent with
her claim of ownership. Petitioner claims that she has sufficiently explained that the SPA
is not for the administration of the Properties, but for the reconstitution of their titles.

We agree with the lower courts that the execution of an SPA for the administration of the
Properties, on the same day the Deeds of Absolute Sale were executed, is antithetical to
the relinquishment of ownership. The SPA shows that it is so worded as to leave no doubt
that Adela is appointing petitioner as the administratrix of her properties in Scout Ojeda.
Had the SPA been intended only to facilitate the processing of the reconstitution of the
titles, there would have been no need to confer other powers of administration, such as
the collection of debts, filing of suit, etc., to petitioner.[59] In any case, the explanation
given by petitioner that the SPA was executed so as only to facilitate the reconstitution of
the titles of the Properties is not inconsistent with the idea of her being the administratrix
of the Properties. On the other hand, the idea of assigning her as administratrix is not only
inconsistent, but also repugnant, to the intention of selling and relinquishing ownership of
the Properties.

Petitioner next questions the lower courts' findings that the Deeds of Absolute Sale are
simulated because the previous transfers to Adela's other grandchildren were also
simulated. It may be true that, taken by itself, the fact that Adela had previously feigned
the transfer of ownership of Lots 32 and 34 to her other grandchildren would not
automatically mean that the subject Deeds of Absolute Sale are likewise void. The lower
courts, however, did not rely solely on this fact, but considered it with the rest of the
evidence, the totality of which reveals that Adela's intention was merely to feign the
transfer to petitioner.
The fact that unlike in the case of Dennis and Carlos, Jr., she was not asked by Adela to
execute a deed of reconveyance, is of no moment. There was a considerable lapse of time
from the moment of the transfer to Dennis and Carlos, Jr. of Lots 32 and 34 in 1985 and
in 1987, respectively, and until the execution of the deed of reconveyance in 1989. Here,
the alleged Deeds of Absolute Sale were executed in April 1989. Adela died in January
1990 in the United States. Given the short period of time between the alleged execution
of the Deeds of Absolute Sale and the sudden demise of Adela, the fact that petitioner
was not asked to execute a deed of reconveyance is understandable. This is because there
was no chance at all to do so. Thus, the fact that she did not execute a deed of
reconveyance does not help her case.

We affirm the conclusion reached by the RTC and the CA that the evidence presented
below prove that Adela did not intend to alienate the Properties in favor of petitioner, and
that the transfers were merely a sham to accommodate petitioner in her travel abroad.

Petitioner claims that we should consider that there is only one heir of the late Adela who
is contesting the sale, and that out of the many transactions involving the decedent's other
properties, the sale to petitioner is the only one being questioned. We are not convinced
that these are material to the resolution of the case. As aptly passed upon by the CA in its
assailed Resolution:

In a contest for the declaration of nullity of an instrument for being simulated, the number
of contestants is not determinative of the propriety of the cause. Any person who is
prejudiced by a simulated contract may set up its inexistence. In this instant case, it
does not matter if the contest is made by one, some or all of the heirs.

Neither would the existence of other contracts which remain unquestioned deter an action
for the nullity of an instrument. A contract is rendered meaningful and forceful by the
intention of the parties relative thereto, and such intention can only be relevant to that
particular contract which is produced or, as in this case, to that which is not produced.
That the deed of sale in [petitioner's] favor has been held to be simulated is not indicative
of the simulation of any other contract executed by the deceased Adela de Guzman
Shotwell during her lifetime.[60]

To this we add that other alleged transactions made by Adela cannot be used as evidence
to prove the validity of the conveyances to petitioner. For one, we are not aware of any of
these transactions or whether there are indeed other transactions. More importantly, the
validity of these transactions does not prove directly or indirectly the validity of the
conveyances in question.

B. No consideration for the sale

We also find no compelling reason to depart from the court a quo's finding that Adela
never received the consideration stipulated in the simulated Deeds of Absolute Sale.

Although on their face, the Deeds of Absolute Sale appear to be supported by valuable
consideration, the RTC and the CA found that there was no money involved in the sale.
The consideration in the Deeds of Absolute Sale was superimposed on the spaces therein,
bearing a font type different from that used in the rest of the document.[61] The lower
courts also found that the duplicate originals of the Deeds of Absolute Sale bear a
different entry with regard to the price.[62]

Article 1471 of the Civil Code provides that "if the price is simulated, the sale is void."
Where a deed of sale states that the purchase price has been paid but in fact has never
been paid, the deed of sale is null and void for lack of consideration.[63] Thus, although
the contracts state that the purchase price of P250,000.00 and P60,000.00 were paid by
petitioner to Adela for the Properties, the evidence shows that the contrary is true,
because no money changed hands. Apart from her testimony, petitioner did not present
proof that she paid for the Properties.

There is no implied trust.

We also affirm the CA's deletion of the pronouncement of the trial court as to the
existence of an implied trust. The trial court found that a resulting trust, a form of implied
trust based on Article 1453[64] of the Civil Code, was created between Adela and
petitioner.

Resulting trusts[65] arise from the nature or circumstances of the consideration involved in

a transaction whereby one person becomes invested with legal title but is obligated in
equity to hold his title for the benefit of another.[66] It is founded on the equitable doctrine
that valuable consideration and not legal title is determinative of equitable title or interest
and is always presumed to have been contemplated by the parties.[67] Since the intent is
not expressed in the instrument or deed of conveyance, it is to be found in the nature of
the parties' transaction.[68] Resulting trusts are thus describable as intention-enforcing
trusts.[69] An example of a resulting trust is Article 1453 of the Civil Code.

We, however, agree with the CA that no implied trust can be generated by the simulated
transfers because being fictitious or simulated, the transfers were null and void ab
initio — from the very beginning — and thus vested no rights whatsoever in favor of
petitioner. That which is inexistent cannot give life to anything at all.[70]

Article 1453 contemplates that legal titles were validly vested in petitioner. Considering,
however, that the sales lack not only the element of consent for being absolutely
simulated, but also the element of consideration, these transactions are void and
inexistent and produce no effect. Being null and void from the beginning, no transfer of
title, both legal and beneficial, was ever effected to petitioner.

In any case, regardless of the presence of an implied trust, this will not affect the
disposition of the case. As void contracts do not produce any effect, the result will be the
same in that the Properties will be reeonveyed to the estate of the late Adela de Guzman
Shotwell.

WHEREFORE, the petition is DENIED.,

SO ORDERED.

THIRD DIVISION
[ G.R. No. 196083, November 11, 2015 ]
MILAGROS C. REYES, PETITIONER, VS. FELIX P. ASUNCION,
RESPONDENT.

DECISION

PERALTA, J.:

For this Court's consideration is the Petition for Review on Certiorari[1] under Rule
45 of the Rules of Court, dated April 25, 2011 of petitioner Milagros C. Reyes seeking the
reversal of the Decision[2] of the Court of Appeals (CA) dated July 9, 2010 which affirmed
the Decision[3] of the Regional Trial Court (RTC), Branch 66, Capas, Tarlac, dated January
17, 2007 dismissing the Complaint [4] of petitioner against respondent Felix P. Asuncion
for the declaration of nullity of a contract or deed.

The facts follow.

Petitioner claimed that since the early 80s, she and her late husband were the owners,
with the right to occupy and possess a parcel of land (subject land), which is also a
sugarcane plantation, with an area of more or less 3.5 hectares located at Patling,
Capas, Tarlac and forms part of a U.S. Military Reservation. Sometime in 1986, petitioner
hired respondent as a caretaker of the subject land. In 1997, the Bases Conversion and
Development Authority (BCDA) launched a resettlement program for the victims of the
Mt. Pinatubo eruption and began to look for possible resettlement sites in Tarlac and
the subject lot was among those considered.

Thereafter, according to petitioner, in order to prevent the BCDA from converting her
property into a resettlement site, she and respondent executed a contract, antedated
on June 15, 1993, transferring her rights over the subject land to the respondent. The
contract reads as follows:

PAGLILIPAT [NG] KARAPATAN SA LUPA

Para sa Kinauukulan[:]

Ako po [ay] si [G]inang Milagros C. Reyes, widow[,] [F]ilipino, a sugar [p]lanter of Central
Azucarera de Tarlac, San Miguel [,] Tarlac [and] residing at San Rafael[,] Tarlac.

Akin[g] pinatutunayan sa kasulatan[g] ito na nabili ko ang karapatan o [r]ights ni

[GJinoong Reymundo Dailig, nakatira sa Patling[,] Capas[,] Tarlac. Ang loti ay may sukat
na tatlong ektarya at kalahati [sic] (3 1/2 hec). [A]t itoy [sic] ay kusang loob naming mag-
asawa, si Jesus C. Reyes[,] na ipagkaloob ang nasabing lupa kay [G]inoong Felix Asuncion
[unreadable portion]. Sa loob ng sampung taon naminfg] pagsasama[,] nakita namin na
naging matapat siya sa kanyang obligations bilang taga pamahala [sic] ng aming tubuhan
at sa mga [k]ontratista at higit sa lahat ay marunong siya makisama sa aming kasama
siya [ay] mapagkakatiwalaan lalo na sa pera. Dahil sa [sic] naging matapat siya sa amin
bilang Palsunero, napagkasunduan namin na kami ang bahala sa finances, sa kasunduan
na kami ang magpapakabyaw ng tubo sa pangalan ko, hanggang gusto ko. Sa ilalim nito
ay nakapinna ang aking pangalan.

      Sgd.                                                                                  Sgd.

Felix P. Asuncion                                                     Milagros C. Reyes
      Tenant                                                                               Planter

Sgd.
Witness
Barangay [C]aptain
Bon Vistair[5]
Petitioner claimed to have remained the absolute owner and possessor of the subject
land and presently occupies the same as a sugarcane plantation and even mills the
sugarcane harvested at the Central Azucarera de Tarlac for her own benefit. She also
stated that the respondent continued working for her but the latter's employment was
severed when petitioner discovered that respondent sold the former's pigs and cows.

On January 6, 2000, respondent filed a Complaint for Estafa against petitioner before
the Office of the Prosecutor in Tarlac City, Tarlac alleging that petitioner failed and/or
refused to give respondent his share of the total harvests on the subject land for the
years 1993-1999, using their contract as basis. However, the said complaint was
dismissed for lack of probable cause.

Thereafter, petitioner filed a Complaint dated October 21, 2001 against respondent
before the RTC of Capas, Tarlac for the declaration of nullity of the subject contract.

The RTC, on January 17, 2007, rendered a Decision in favor of the respondent. It ruled
that there is no legal basis to nullify the contract. The dispositive portion of the decision
states:

WHEREFORE, premises considered, finding no legal basis to nullify the contract

denominated as Paglilipat [nang] Karapatan set Lipa, the complaint is dismissed and
the Paglilipat [nang] Karapatan set Lupa is declared legal and binding.

No pronouncement as to cost. SO ORDERED.[6]

Undeterred, petitioner appealed the case to the CA, and on July 9, 2010, the latter
dismissed the appeal, thus:

FOR THESE REASONS, We DISMISS the appeal for lack of merit, the assailed Decision
dated January 17, 2007 of the Regional Trial Court is AFFIRMED.

SO ORDERED.[7]

After the CA denied[8] petitioner's motion for reconsideration, the latter filed the present
petition.
Petitioner assigned the following errors:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE SUBJECT
CONTRACT IS VALID EVEN IF IT DOES NOT REFLECT THE TRUE INTENT OF THE PARTIES.

II.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE

DONATION OF THE SUBJECT LAND IS VALID EVEN IF NOT MADE AND ACCEPTED IN A
PUBLIC DOCUMENT.

III.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE

PETITIONER MAY TRANSFER THE SUBJECT LAND TO THE RESPONDENT EVEN WITHOUT
THE CONSENT OF THE HEIRS OF HER LATE HUSBAND.[9]

Thereafter, respondent filed his Comment [10] dated March 31, 2014 and petitioner filed
her Reply[11] dated June 7, 2014.

This Court finds no merit in the petition.

It is petitioner's contention that the subject contract is purely simulated, since it

purports a transfer of rights over the subject land in favor of the respondent. However,
when petitioner executed the contract, it was never her intention to transfer her rights
over the subject land as the primordial consideration was to prevent the BCDA from
taking over the property. She also asserts that she and the respondent agreed to make
the said false appearance in the contract. However, the RTC and the CA found no other
evidence to support the said allegations and the self-serving averments of the
petitioner. This Court is in agreement with the RTC and the CA as to the insufficiency of
evidence to prove that there was indeed a simulation of 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.

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.

Valerio v. Refresca[12] is instructive on the matter of simulation of contracts:

x x x 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.

Lacking, therefore, in an absolutely simulated contract is consent which is essential to a

valid and enforceable contract.[13] Thus, where a person, in order to place his property
beyond the reach of his creditors, simulates a transfer of it to another, he does not
really intend to divest himself of his title and control of the property; hence, the deed of
transfer is but a sham. [14]

The primary consideration in determining the true nature of a contract is the intention
of the parties. If the words of a contract appear to contravene the evident intention of
the parties, the latter shall prevail. Such intention is determined not only from the
express terms of their agreement, but also from the contemporaneous and subsequent
acts of the parties.[15]

The burden of proving the alleged simulation of a contract falls on those who impugn its
regularity and validity. A failure to discharge this duty will result in the upholding of the
contract. The primary consideration in determining whether a contract is simulated is
the intention of the parties as manifested by the express terms of the agreement itself,
as well as the contemporaneous and subsequent actions of the parties. The most
striking index of simulation is not the filial relationship between the purported seller and
buyer, but the complete absence of any attempt in any manner on the part of the latter
to assert rights of dominion over the disputed property.[16]

The finding of the CA is correct when it ruled that petitioner failed to present evidence
to prove that respondent acted in bad faith or fraud in procuring her signature or that
he violated their real intention, if any, in executing it, thus:

So far, appellant's averments evince an obvious knowledge and voluntariness on

her part to enter into the alleged simulated contract. Without the slightest doubt,
appellant, as plaintiff in the court below, utterly foiled to adduce any evidence of
appellee's bad faith or fraud in procuring her signature to the contract or that he
violated their real intention, if any, in executing it. It must be stressed that the
determination of whether one acted in bad faith is evidentiary in nature. Indeed, the
unbroken jurisprudence is that "[b]ad faith [or fraud] under the law cannot be
presumed; it must be established by clear and convincing evidence. The allegation of
simulation of contract as well as lack of consent and/or vitiated consent remains to be
proven. As it stands, We perceive that the contract by its very terms and conditions, on
June 15, 1993, appellant simply intended to transfer the subject land to appellee. It is a
cardinal rule that if the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of its stipulation shall control.[17]

Petitioner insists that the subject contract is in the nature of a simple donation, and
even assuming arguendo that the same was meant to be a remuneratory donation, it is
still invalid because the donation was not notarized.

Donation is an act of liberality whereby a person gratuitously disposes of a thing or a

right in favor of another who accepts it. [18] Once perfected, a donation is final; its
revocation or rescission cannot be effected, absent any legal ground therefor. [19] A
donation may, in fact, comprehend the entire property of the donor. [20] At any rate, the
law provides that donors should reserve, in full ownership or in usufruct, sufficient
means for their own support and that of all their relatives who, at the time of the
acceptance of the donation, are by law entitled to be supported by them. [21]

The subject contract in this case is seemingly a remuneratory donation as all the
elements for such are present. The CA explained:

A painstaking review of the contract reveals that it is a remuneratory donation.

First, appellant expressed in the contract that "sa loob ng sampling taon namin[g]
pagsasama[,] nakita namin na naging matapat siya sa kanyang obligations bilang taga
pamahala [sic] ng aming tubuhan at sa mga [k]ontratista at higit sa lahat ay marunong
siya makisama sa aming mga kasama at siya [ay] mapagkakatiwalaan lalo na sa pera.
Clearly, she gave the subject land to appellee to remunerate his ten (10) years of faithful
service to her. More importantly, appellant stated that "napagkasunduan namin na kami
ang bahala sa finances, sa kasunduan na kami ang magpapakabyaw ng tubo sa pangalan
ko, hanggang gusto ko. This is a profit sharing agreement where appellant finances the
planting, harvesting and milling of sugarcane on the subject land donated to appellee
under appellant's name. Unmistakably, it is a charge or burden on the donation. [22]

However, as pointed out by the CA, the contract, as well as the evidence presented
during the trial, are silent as to the value of the burden, hence, instead of the law on
donations, the rules on contract should govern the subject contract because the
donation is onerous as the burden is imposed upon the donee of a thing with an
undetermined value. Furthermore, the CA is also right in ruling that it is not necessary
that the contract be in a public instrument if it involves immovable property, properly
citing Pada-Kilario v. Court of Appeals [23] which states that the requirement of Article
1358 of the Civil Code that acts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property, must appear in
a public document, is only for convenience, non-compliance with which does not affect
the validity or enforceability of the acts of the parties as among themselves.

Finally, petitioner argues that she has raised the issue of her co-ownership of the subject
land with her late husband at the very outset of the case, thus, in view of that co-
ownership, petitioner cannot alienate the subject land without the consent of the heirs
of her late husband. However, as aptly observed by the CA, the petitioner did not raise
the issue of co-ownership during the trial, thus, she cannot now assail the validity of the
contract using such ground for the first time on appeal. It is also worth noting that
petitioner has not, in her appeal to the CA, as well as in her petition with this Court,
mentioned the specific heirs affected or prejudiced by the subject contract.

WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
dated April 25, 2011 of petitioner Milagros C. Reyes is DENIED for lack merit, and the
Decision of the Court of Appeals, dated July 9, 2010, is AFFIRMED in toto.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 209284, November 10, 2015 ]
RENEE B. TANCHULING, AND THE HEIRS OF VICENTE N. Y.
TANCHULING, NAMELY REBECCA TANCHULING-TAN, RITA
TANCHULING-MAPA, ROSEMARIE TANCHULING-SALINAS, AND
VINCENT RAYMOND B. TANCHULING, PETITIONERS, VS. SOTERO C.
CANTELA, RESPONDENT.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari[1] is the Decision[2] dated August

30, 2013 of the Court of Appeals (CA) in CA G.R. CV No. 95196, which reversed the
Decision[3] dated March 23, 2010 of the Regional Trial Court of Legazpi City, Branch 5
(RTC) in Civil Case No. 10659 declaring the Deed of Absolute Sale [4] dated March 17,
2005 (subject deed) between Spouses Dr. Vicente Y. Tanchuling [5] (Vicente) and
petitioner Renee B. Tanchuling (Sps. Tanchuling) and respondent Sotero C. Cantela
(Cantela) null and void for being absolutely simulated.

The Facts

On March 17, 2005, Sps. Tanchuling and Cantela executed the subject deed covering
two (2) parcels of land, both with areas of 192 square meters each, denominated as Lots
5 and 6 of Block 1, situated in Rawis, Legazpi City, covered by Transfer Certificate of Title
(TCT) No. 41486 and TCT No. 41487, respectively.[6] On the face of the subject deed, the
sum of F400,000.00 appears as the consideration for Cantela's purported purchase of
the properties.[7] Sometime after the subject deed's execution, Vicente delivered the
owner's copies of the aforementioned TCTs to Cantela, although it is undisputed that
none of the parties are in actual physical possession of the properties. [8]

When Sps. Tanchuling tried to recover the TCTs from Cantela, the latter refused despite
the former's earnest demands, prompting them to file on August 6, 2007 a
Complaint[9] for Annulment of Deed of Sale and Delivery of the [Owner's] Duplicate Copy
of the [TCTs] with Preliminary Prohibitory and Mandatory Injunction before the RTC,
docketed as Civil Case No. 10659. They alleged that the subject deed was absolutely
simulated, hence, null and void, given that: (a) there was no actual consideration paid
by Cantela to them; (b) the subject deed was executed to merely show to their
neighbors that they are the true owners of the properties, considering that there are
portions thereof being illegally sold by a certain John Mercado to unsuspecting and
ignorant buyers; and (c) Cantela simultaneously executed an undated Deed of Absolute
Sale[10] (undated deed) reconveying the properties in their favor.[11]

In his Answer with Compulsory Counterclaim[12] dated February 10, 2008, Cantela

insisted that the sale of the properties to him was valid as he bought the same from Sps.
Tanchuling for the price of P400,000.00. He further averred that the undated deed was
surreptitiously inserted by Sps. Tanchuling in the copies of the subject deed presented
to him for signing. Finally, he mentioned that when he attempted to secure a tax
declaration over the properties, he discovered that they were posted as a property
bond, and that he later went to the Bureau of Internal Revenue to have the capital gains
tax computed.[13]

The RTC Ruling

In a Decision[14] dated March 23, 2010, the RTC granted the complaint and consequently,
nullified the subject deed for being absolutely simulated. It found that the parties never
intended to be bound by the subject deed in view of the simultaneous execution of the
undated deed selling back the properties to Sps. Tanchuling, both of which contain
identical witnesses, signatures, community tax certificate details, and letter-
composition, adding that Cantela himself admitted that the signatures appearing on the
face of the undated deed was his.[15] It likewise observed that a considerable length of
time had elapsed before Cantela decided to transfer the titles to his name, i.e., one (1)
year, seven (7) months and 13 days, from the execution of the subject deed.
Furthermore, it remarked that the parties knew that the sale could not be factually
consummated since Cantela was aware that Sps. Tanchuling were not in actual physical
possession of the properties at the time the subject deed was executed. [16]

Dissatisfied, Cantela appealed[17] to the CA.

The CA Ruling

In a Decision[18] dated August 30, 2013, the CA reversed the RTC ruling, finding that the
contemporaneous and subsequent acts of the parties, particularly Cantela, who tried to
assert his dominion over the properties, negate absolute simulation. [19] It also found
consideration for the sale when Sps. Tanchuling acknowledged receipt of the sum of
P400,000.00 in the subject deed itself. Finally, it observed that the subject deed should
prevail over the undated deed as the former was notarized while the latter was not. [20]

Dissatisfied, Renee B. Tanchuling, and the heirs of Vicente, namely: Rebecca Tanchuling-
Tan, Rita Tanchuling-Mapa, Rosemarie Tanchuling-Salinas, and Vincent Raymond B.
Tanchuling (petitioners), filed the instant petition.

The Issue Before the Court

The essential issue for the Court's resolution is whether or not the subject deed is
simulated, hence, null and void.

The Court's Ruling

The petition is meritorious.

At the outset, it is apt to point out that while the issue of simulation involves questions
of fact, which are generally beyond the purview of a Rule 45 petition for review
on certiorari, said rule admits of certain exceptions, such as when the factual findings of
the trial court and the appellate court are at variance, [21] as in this case.

"Simulation takes place when the parties do not really want the contract they have
executed to produce the legal effects expressed by its wordings. Simulation or vices of
declaration may be either absolute or relative."[22] Article 1345 of the Civil Code
distinguishes an absolute simulation from a relative one; while Article 1346 discusses
their effects, as follows:

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.

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
agreement.

In Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta,[23] the Court explained

that "[i]n 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." [24]

In this case, the Court agrees with the RTC that the subject deed was absolutely
simulated. The parties never intended to be bound by any sale agreement. Instead, the
subject deed was executed merely as a front to show the public that Sps. Tanchuling
were the owners of the properties in order to deter the group of John Mercado from
illegally selling the same.[25]

In the case of Cruz v. Bancom Finance Corporation (Cruz),[26] citing Ocejo, Perez & Co. v.
Flares,[27] it was ruled that "a contract of purchase and sale is null and void and produces
no effect whatsoever where it appears that [the] same is without cause or
consideration which should have been the motive thereof, or the purchase price which
appears thereon as paid but which in fact has never been paid by the purchaser to the
vendor."[28]

Although the subject deed between Sps. Tanchuling and Cantela stipulated [29] a
consideration of P400,000.00, there was actually no exchange of money between them.
This was revealed in the testimony of Vicente:

ATTY. BAILEY (to the witness):

Q Now you mentioned a while ago that on this particular date March 17, 2005, you and
as well as (sic) your wife and defendant executed this Deed of Sale and you said it was
simulated. My question to you is this, how were you able to say and tell us why you
considered the sale as simulated one?

x x x x

WITNESS

There was no cash consideration in that Deed of Sale and number 2 that same instance
another Deed of Absolute Sale was executed from Sotero Cantela back to Vicente
Tanchuling and Renee Tanchuling.

ATTY BAILEY (to the witness)

Q So in other words there is mentioned here a consideration of the sale of his land in
the amount of P400,000.00, you mean to say that this P400,000.00 was not given to
you?

x x x x

WITNESS

There was no consideration whatsoever, no cash involved.[30]

Vicente's testimony was even corroborated by the testimonies of witnesses Ma. Belleza
Navarro (Navarro) and Jesus Botero (Botero), who were also present during the
execution of the subject deed and the undated deed:

Navarro's Testimony
Q Now, appearing in this Exhibit A is the amount of the consideration of the sale Four
Hundred Thousand [Pesos] (P400,000.00)[,] tell us at the time you were there
witnessing the signing of this document and after the same was signed by the parties
did you ever notice or see whether there was a delivery of the Four Hundred Thousand
[Pesos] (P400,000.00)[?]

xxxx

WITNESS [Navarro]

A   None, sir.

xxxx

Q   And, you said before that nothing was given as a consideration by the defendant
Cantela to Dr. Tanchuling, is it correct?

A   Yes, sir.

Q You said that because during the execution of these documents nothing was given by
Mr. Cantela to Dr. Tanchuling at the time of the execution of these documents before
signing of these documents, is that correct?

A Yes sir, because at the time of the signing of these documents, there was no payment
made.[31]

Botero's Testimony

COURT:

But the question by this Court is while he was there what he can say to the testimony by
this Cantela that he gave the amount of Four Hundred Thousand Pesos to Dr. Tanchuling
while he was there. Let him answer.
xxxx

WITNESS [Botero]

It is all a lie not even one peso was given.[32]

On the other hand, Cantela  never submitted any evidence to convincingly refute these
assertions.

Also, Cantela's persisting failure to secure a title in his name likewise indicates
simulation. In Rufloe v. Burgos,[33] the Court held:

A true vendee would not brook any delay in registering the sale in his favor. Not
only because registration is the operative act that effects property covered by the
Torrens System, but also because registration and issuance of new title to the
transferee, enable this transferee to assume domiciliary and possessory rights over the
property. These benefits of ownership shall be denied him if the titles of the property
shall remain in the name of the vendor. Therefore, it is inconceivable as contrary to
behavioral pattern of a true buyer and the empirical knowledge of man to assume that
a buyer who invested on the property he bought would be uninvolved and not
endeavor to register the property he bought, x x x.[34] (Emphasis supplied)

While Cantela attributes the delay in the registration of titles of the properties under his
name to the fact that Sps. Tanchuling had posted the properties as a bond in another
case,[35] records do not sufficiently indicate the subsequent steps taken by him to release
the properties from this impediment, which altogether negates the interest exhibited by
a conscientious buyer of real estate.

In fact, Cantela failed to take possession of the properties, which, according to Cruz, is a
clear indication of simulation:

The failure of Sulit to take possession of the property purportedly sold to her
was a clear badge of simulation that rendered the whole transaction void and without
force and effect, pursuant to Article 1409 of the Civil Code. The fact that she was able to
secure a Certificate of Title to the subject property in her name did not vest her with
ownership over it. A simulated deed of sale has no legal effect; consequently any
transfer certificate of title (TCT) issued in consequence thereof should be cancelled. A
simulated contract is not a recognized mode of acquiring ownership. [36] (Emphasis
supplied)

And finally, the undated deed, which serves as a counter-agreement to, and which was
simultaneously executed with, the subject deed, unmistakably evinces absolute
simulation. While Cantela posits that he was tricked into signing the undated deed as it
was supposedly surreptitiously inserted by Sps. Tanchuling into the copies of the subject
deed at the time of their signing, nothing, aside from his self-serving assertions, support
his account. It is well-settled that fraud is never presumed but must be proven by clear
and convincing evidence by the same party who alleges it. [37] Besides, Navarro and
Botero, who equally witnessed the signing of the undated deed, never testified on any
irregularity. Notably, the fact that the undated deed was not notarized is rendered
irrelevant by Cantela's own admission of the document's execution, which, unless
proven to be fraudulent, must be presumed to be fair and regular, as in all private
transactions.[38]

In view of the foregoing, the Court thus concludes that Sps. Tanchuling never intended
to transfer the properties to Cantela; hence, the subject deed was absolutely simulated
and in consequence, null and void.

WHEREFORE, the petition is GRANTED. The Decision dated August 30, 2013 of the Court
of Appeals in CA G.R. CV No. 95196 is hereby REVERSED and SET ASIDE. The Decision
dated March 23, 2010 of the Regional Trial Court of Legazpi City, Branch 5 in Civil Case
No. 10659 is REINSTATED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 196470, April 20, 2016 ]
ROSARIO VICTORIA AND ELMA PIDLAOAN, PETITIONERS, VS.
NORMITA JACOB PIDLAOAN, HERMINIGILDA PIDLAOAN AND
EUFEMIA PIDLAOAN, RESPONDENTS.
 DECISION

BRION, J.:

We resolve the petition for review on certiorari filed by petitioners to challenge

the March 26, 2010 decision[1] and March 15, 2011 resolution of the Court of Appeals
(CA) in CA-G.R. CV No. 89235. The Regional Trial Court's (RTC) ruled that Elma Pidlaoan
(Elma) donated only half of the property to Normita Jacob Pidlaoan (Normita). The CA
reversed the RTC's decision and ruled that Elma donated her entire property to Normita.
The Court is called upon to ascertain the true nature of the agreement between Elma
and Normita.

THE ANTECEDENTS

The petitioners Rosario Victoria (Rosario) and Elma lived together since 1978 until
Rosario left for Saudi Arabia.

In 1984, Elma bought a parcel of land with an area of 201 square meters in Lucena City
and was issued Transfer Certificate of Title (TCT) No. T-50282.[2] When Rosario came
home, she caused the construction of a house on the lot but she left again after the
house was built.[3]

Elma allegedly mortgaged the house and lot to a certain Thi Hong Villanueva in 1989.
[4]
 When the properties were about to be foreclosed, Elma allegedly asked for help from
her sister-in-law, Eufemia Pidlaoan (Eufemia), to redeem the property.[5] On her part,
Eufemia called her daughter abroad, Normita, to lend money to Elma. Normita agreed
to provide the funds.[6]

Elma allegedly sought to sell the land.[7] When she failed to find a buyer, she offered to
sell it to Eufemia or her daughter.[8]

On March 21, 1993, Elma executed a deed of sale entitled "Panananto ng

Pagkatanggap ng Kahustuhang Bayad" transferring the ownership of the lot to Normita.
[9]
 The last provision in the deed of sale provides that Elma shall eject the person who
erected the house and deliver the lot to Normita.[10] The document was signed by Elma,
Normita, and two witnesses but it was not notarized.

When Elma and Normita were about to have the document notarized, the notary public
advised them to donate the lot instead to avoid capital gains tax. [11] On the next day,
Elma executed a deed of donation in Normita's favor and had it notarized. TCT No. T-
50282 was cancelled and TCT No. T-70990 was issued in Normita's name. [12] Since then,
Normita had been paying the real property taxes over the lot but Elma continued to
occupy the house.

Rosario found out about the donation when she returned to the country a year or two
after the transaction.[13]

In 1997, the petitioners filed a complaint for reformation of contract, cancellation of

TCT No. T-70990, and damages with prayer for preliminary injunction against Eufemia,
Normita, and Herminigilda Pidlaoan (respondents).

The petitioners argued that: first, they co-owned the lot because both of them
contributed the money used to purchase it; second, Elma and Normita entered into an
equitable mortgage because they intended to constitute a mortgage over the lot to
secure Elma's loan but they executed a deed of sale instead; and third, the deed of
donation was simulated because Elma executed it upon the notary public's advice to
avoid capital gains tax.[14]

In their answer, the respondents admitted that the deed of donation was simulated and
that the original transaction was a sale.[15] They argued, however, that there was no
agreement to constitute a real estate mortgage on the lot. [16]

The RTC ruled that Rosario and Elma co-owned the lot and the house. [17] Thus, Elma
could only donate her one-half share in the lot.[18]

Hence, the respondents appealed to the CA.

THE CA RULING

The CA reversed the RTC's decision and dismissed the petitioners' complaint.

The CA held that Elma and Normita initially entered into two agreements: a loan and a
sale. They entered into a loan agreement when Elma had to pay Thi Hong Villanueva to
redeem the property. Thereafter, Elma sold the property to Normita. They subsequently
superseded the contract of sale with the assailed deed of donation.

The CA also held that the deed of donation was not simulated. It was voluntarily
executed by Elma out of gratitude to Normita who rescued her by preventing the
foreclosure of the lot. Moreover, the deed of donation, being a public document, enjoys
the presumption of regularity. Considering that no conclusive proof was presented to
rebut this presumption, the deed of donation is presumed valid.

The CA denied the petitioners' motion for reconsideration; hence, this petition.

THE PETITIONERS' ARGUMENTS

In their petition, the petitioners argue that: (1) Rosario is a co-owner because she
caused the construction of the house, which has a higher market value than the lot; (2)
the deed of donation is simulated; (3) the transaction was a mere equitable mortgage;
and (4) the CA unduly disturbed the RTC's factual findings. The petitioners emphasize
that the respondents have consistently admitted in their answer that the deed of
donation was simulated; therefore, the CA should not have reversed the RTC's decision
on that point.

In their three-page comment, the respondents insist that the CA correctly dismissed the
complaint. They stressed that the petitioners were the ones who argued that the deed
of donation was simulated but the CA ruled otherwise. Furthermore, the petition
involves questions of facts and law outside the province of the Supreme Court. Hence,
the petition must be dismissed.

THE COURT'S RULING

We PARTIALLY GRANT the petition.

The issues before the Court are: (1) whether Rosario is a co-owner; (2) whether the
deed of donation was simulated; and (3) whether the transaction between Elma and
Normita was a sale, a donation, or an equitable mortgage. Considering that these issues
are inter-related, we shall jointly discuss and resolve them.

At the outset, we note that the issues raised by the petitioners in the present case
require a review of the factual circumstances. As a rule, only questions of law may be
raised in a petition for review on certiorari under Rule 45 of the Rules of Court.

The Court distinguished between a question of law and a question of fact in a number of
cases. A question of law arises when there is doubt on what the law is on a certain set of
fact, while a question of fact exists when there is doubt as to the truth or falsity of the
alleged facts.[19] For a question to be one of law, it must not involve an examination of
the probative value of the evidence presented by the litigants. [20] If the issue invites a
review of the evidence on record, the question posed is one of fact. [21]

The factual findings of the CA are conclusive and binding and are not reviewable by the
Court, unless the case falls under any of the recognized exceptions. [22] One of these
exceptions is when the findings of the RTC and the CA are contradictory, as in the
present case.

By granting the appeal and dismissing the petitioners' complaint, the CA effectively
ruled that the transfer of ownership involved the entire lot rather than only half of it as
the RTC held. The lower courts' differing findings provide us sufficient reason to proceed
with the review of the evidence on record. [23]

First, we rule that Elma transferred ownership of the entire lot to Normita.

One who deals with property registered under the Torrens system has a right to rely on
what appears on the face of the certificate of title and need not inquire further as to the
property's ownership.[24] A buyer is charged with notice only of the claims annotated on
the title.[25] The Torrens system was adopted to best guarantee the integrity of land titles
and to protect their indefeasibility once the claim of ownership is established and
recognized.[26]

In the present case, the records of the case show that Elma alone purchased the lot in
1984 from its previous owners.[27] Accordingly, TCT No. T-50282 was issued solely in her
name. Thus, Normita bought the lot relying on the face of the TCT that Elma and no
other person owned it.

We acknowledge that registration under the Torrens system does not create or vest
title. A certificate of title merely serves as an evidence of ownership in the property.
Therefore, the issuance of a certificate of title does not preclude the possibility that
persons not named in the certificate may be co-owners of the real property, or that the
registered owner is only holding the property in trust for another person. [28]

In the present case, however, the petitioners failed to present proof of Rosario's
contributions in purchasing the lot from its previous owners. The execution of the
transfer documents solely in Elma's name alone militate against their claim of co-
ownership. Thus, we find no merit in the petitioners' claim of co-ownership over the lot.

At this point, we address the petitioners' claim that Rosario co-owned the lot with Elma
because the value of the house constructed by Rosario on it is higher than the lot's
value. We find this argument to be erroneous.

We hold that mere construction of a house on another's land does not create a co-
ownership. Article 484 of the Civil Code provides that co-ownership exists when the
ownership of an undivided thing or right belongs to different persons. Verily, a house
and a lot are separately identifiable properties and can pertain to different owners, as in
this case: the house belongs to Rosario and the lot to Elma.

Article 448 of the Civil Code provides that if a person builds on another's land in good
faith, the land owner may either: (a) appropriate the works as his own after paying
indemnity; or (b) oblige the builder to pay the price of the land. The law does not force
the parties into a co-ownership.[29] A builder is in good faith if he builds on a land
believing himself to be its owner and is unaware of the defect in his title or mode of
acquisition.[30]

As applied in the present case, Rosario's construction of a house on the lot did not
create a co-ownership, regardless of the value of the house. Rosario, however, is not
without recourse in retrieving the house or its value. The remedies available to her are
set forth in Article 448 of the Civil Code.
Second, on the nature of the transaction between Elma and Normita, we find that the
deed of donation was simulated and the parties' real intent was to enter into a sale.

The petitioners argue that the deed of donation was simulated and that the parties
entered into an equitable mortgage.[31] On the other hand, the respondents deny the
claim of equitable mortgage[32] and argue that they validly acquired the
property via sale.[33] The RTC ruled that there was donation but only as to half of the
property. The CA agreed with the respondents that the deed of donation was not
simulated, relying on the presumption of regularity of public documents.

We first dwell on the genuineness of the deed of donation. There are two types of
simulated documents - absolute and relative. A document is absolutely simulated when
the parties have no intent to bind themselves at all, while it is relatively simulated when
the parties concealed their true agreement.[34] The true nature of a contract is
determined by the parties' intention, which can be ascertained from their
contemporaneous and subsequent acts.[35]

In the present case, Elma and Normita's contemporaneous and subsequent acts show
that they were about to have the contract of sale notarized but the notary public ill-
advised them to execute a deed of donation instead. Following this advice, they
returned the next day to have a deed of donation notarized. Clearly, Elma and Normita
intended to enter into a sale that would transfer the ownership of the subject matter of
their contract but disguised it as a donation. Thus, the deed of donation subsequently
executed by them was only relatively simulated.

The CA upheld the deed of donation's validity based on the principle that a notarized
document enjoys the presumption of regularity. This presumption, however, is
overthrown in this case by the respondents' own admission in their answer that the
deed of donation was simulated.

Judicial admissions made by a party in the course of the proceedings are conclusive and
do not require proof.[36] Notably, the respondents explicitly recognized in their answer
that the deed of donation was simulated upon the notary public's advice and that both
parties intended a sale.[37]
In paragraphs 5 and 6 of the answer,[38] the respondents stated thus:
5. That defendants admit the allegations in paragraph 9 which readily
acknowledges that there was indeed an agreement to sell the property of plaintiff, Elma
Pidlaoan to defendant, Normita Pidlaoan (Normita, for brevity) for which a Deed of
Absolute Sale was drafted and executed;

6. That defendants admit the simulation of the Deed of Donation in paragraph 10 of

the Complaint, but deny the remainder, the truth being that Elma Pidlaoan herself
offered her property for sale in payment of her loans from Normita. (Emphasis supplied)
Having admitted the simulation, the respondents can no longer deny it at this
stage. The CA erred in disregarding this admission and upholding the validity of the deed
of donation.

Considering that the deed of donation was relatively simulated, the parties are bound to
their real agreement.[39] The records show that the parties intended to transfer the
ownership of the property to Normita by absolute sale. This intention is reflected in the
unnotarized document entitled "Panananto ng Pagkatanggap ng Kahustuhang
Bayad."[40]

We have discussed that the transaction was definitely not one of donation. Next, we
determine whether the parties' real transaction was a sale or an equitable mortgage.

The petitioners insist that the deed of sale is an equitable mortgage because: (i) the
consideration for the sale was grossly inadequate; (ii) they remained in possession of
the property; (iii) they continuously paid the water and electric bills; (iv) the
respondents allowed Victoria to repay the "loan" within three months; [41] (v) the
respondents admitted that the deed of donation was simulated; and (vi) the petitioners
paid the taxes even after the sale.

Notably, neither the CA nor the RTC found merit in the petitioners' claim of equitable
mortgage. We find no reason to disagree with these conclusions.

An equitable mortgage is one which, although lacking in some formality or other

requisites demanded by statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, and contains nothing impossible or contrary
to law.[42] Articles 1602 and 1604 of the Civil Code provide that a contract of absolute
sale shall be presumed an equitable mortgage if any of the circumstances listed in
Article 1602 is attendant.

Two requisites must concur for Articles 1602 and 1604 of the Civil Code to apply: one,
the parties entered into a contract denominated as a contract of sale; and two, their
intention was to secure an existing debt by way of mortgage. [43]

In the present case, the unnotarized contract of sale between Elma and Normita is
denominated as "Panananto ng Pagkatanggap ng Kahustuhang Bayad."[44] Its contents
show an unconditional sale of property between Elma and Normita. The document
shows no intention to secure a debt or to grant a right to repurchase. Thus, there is no
evidence that the parties agreed to mortgage the property as contemplated in Article
1602 of the Civil Code. Clearly, the contract is not one of equitable mortgage.

Even assuming that Article 1602 of the Civil Code applies in this case, none of the
circumstances are present to give rise to the presumption of equitable mortgage. One,
the petitioners failed to substantiate their claim that the sale price was unusually
inadequate.[45] In fact, the sale price of P30,000.00 is not unusually inadequate
compared with the lot's market value of P32,160 as stated in the 1994 tax
declaration. Two, the petitioners continued occupation on the property was coupled
with the respondents' continuous demand for them to vacate it. Third, no other
document was executed for the petitioners to repurchase the lot after the sale contract
was executed. Finally, the respondents paid the real property taxes on the lot. [46] These
circumstances contradict the petitioners' claim of equitable mortgage.

A review of the sale contract or the "Panananto ng Pagkatanggap ng Kahustuhang

Bayad" shows that the parties intended no equitable mortgage. The contract even
contains Elma's undertaking to remove Rosario's house on the property. [47] This
undertaking supports the conclusion that the parties executed the contract with the end
view of transferring full ownership over the lot to Normita.

In sum, we rule that based on the records of the case, Elma and Normita entered in a
sale contract, not a donation. Elma sold the entire property to Normita. Accordingly, TCT
No. T-70990 was validly issued in Normita's name.

WHEREFORE, we hereby PARTIALLY GRANT the petition. The March 26, 2010 decision

and March 15, 2011 resolution of the Court of Appeals in CA-G.R. CV No. 89235 are
hereby AFFIRMED with the MODIFICATION that the parties entered into a contract of
sale, not a donation, and that petitioner Elma Pidlaoan sold the whole disputed property
to respondent Normita Jacob Pidlaoan. Costs against the petitioners.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 199431, August 31, 2016 ]
STA. FE REALTY, INC. AND VICTORIA SANDEJAS FABREGAS,
PETITIONERS, VS. JESUS M. SISON, RESPONDENT.

DECISION

REYES, J.:

Before the Court is a Petition for Review on Certiorari[1] seeking to annul and set aside
the Decision[2] dated July 18, 2011 and the Resolution[3] dated November 23, 2011 of the
Court of Appeals (CA) in CA-G.R. CV No. 90855, which affirmed with modification the
Decision[4] dated August 8, 2006 of the Regional Trial Court (RTC) of Calamba City,
Laguna, Branch 92, in Civil Case No. 2342-96-C.

The Facts and the Case

This case stemmed from a Complaint[5] for reconveyance of property filed by Jesus M.

Sison (Sison) against Sta. Fe Realty, Inc. (SFRI), Victoria Sandejas Fabregas (Fabregas)
(collectively, the petitioners), Jose Orosa (Orosa) and Morninglow Realty, Inc. (MRI)
(collectively, the defendants).

The subject of this petition is a parcel of land with an area of 15,598 square meters,
designated as Lot 1-B-1 in the subdivision plan Psd-04-038233, located in Barrio Bagong
Kalsada, Calamba City, Laguna. The said tract of land is a portion of the land covered by
Transfer Certificate of Title (TCT) No. 61132, having a total area of 60,987 sq m
originally owned by SFRI.[6]
The records showed that SFRI agreed to sell to Sison the south eastern portion of the land
covered by TCT No. 61132. On October 19, 1989, SFRI executed a Deed of Sale over the
subject property to Fabregas for the amount of P10,918.00. Fabregas, then, executed
another deed of sale in favor of Sison for the same amount. This sale was authorized by
SFRI in a Board Resolution dated April 30, 1989, and was then adopted by its Board of
Directors together with the corresponding Secretary's Certificate dated October 11, 1989.
[7]

Immediately thereafter, Sison caused the segregation of the corresponding 15,598 sq m

from the whole 60,987-sq-m land and was designated as Lot 1-B-1 in the subdivision
plan Psd-04-038233. He took possession of the subject property and introduced
improvements thereon, such as fencing the property, putting a no trespassing sign, barbed
wires and hedges of big tress. He also constructed a fishpond and a resort on the subject
property.[8]

However, Sison was not able to register the sale and secure a title in his name over the
subject property because the petitioners refused to pay realty taxes and capital gains tax,
as well as to tum over the owner's copy of TCT No. 61132 and the subdivision plan. To
protect his interest over the subject property, Sison was constrained to pay the said taxes
from 1979 to 1990. Nevertheless, the defendants still refused to surrender the mother title
and all other pertinent documents necessary to transfer the title of the subject property in
Sison's name.[9]

Meanwhile, on December 2, 1991, SFRI caused the subdivision of the entire property
covered by TCT No. 61132 into four lots, designated as: Lot 1-B-1, Lot 1-B-2, Lot 1-B-3
and Lot 1-B-4 under subdivision plan Psd-04-05414. After that, Lot 1-B-3 was further
subdivided into four lots designated as Lot 1-B-3-A, Lot 1-B-3-B, Lot 1-B-3-C, and Lot
1-B-3-D, under subdivision plan Psd-0434-05-056810. As a result of the subdivision of
Lot 1-B into new lots, TCT No. 61132 was cancelled and TCT No. T-255466 covering
Lot 1-:-B-3-C was issued in the name of SFRI with an area of 16,000 sq m and With an
annotation of the right of first refusal in favor of MRI.[10]

Subsequently, SFRI sold Lot 1-B-3-C to Orosa as evidenced by the Deed of Sale dated
March 1, 1994. Orosa was able to transfer the property in his name; thus, TCT No. T-
255466 was cancelled, and TCT No. T-297261 was issued in his name. [11]

Sison claimed that Lot 1-B-3-C is practically one and the same with Lot 1-B-1 which was
previously sold by SFRI to Fabregas, and which the latter sold to him except for the
excess of 402 sq m. Accordingly, when Sison learned about the subsequent sale of the
subject property that he bought, he tried to settle the matter amicably but the parties did
not reach an agreement. Hence, he instituted an action for reconveyance of property
against the defendants.[12]
For their part, the petitioners denied that they agreed to sell the 15,598 sq m of TCT No.
61132 to Sison. They claimed that Sison was aware of the subdivision caused by SFRI
and that Lot 1-B-3-C which is one of the several lots from the subdivision is not the same
with Lot 1-B-1 which Sison is claiming.[13] They averred that Sison persuaded Fabregas
to sell to him a portion of Lot 1-B in exchange of P700,000.00 and Sison will be the one
to shoulder the expenses for the capital gains tax. They contended that they merely
accommodated Sison's request to sign another set of deeds of sale over the subject
property with a reduced price of P10,918.00 so that the capital gains tax would be
reduced.[14] They also asserted that Sison did not pay the consideration agreed upon for
the sale of the subject property; thus, Fabregas rescinded the sale by sending a notice to
Sison who did not contest the rescission of the sale.[15]

For his part, Orosa claimed that he is a buyer in good faith as there is nothing annotated
in TCT No. T-255466 which would warn or alert him of any lien or encumbrance or
adverse claim on the property except for the right of first refusal granted to MRI. He
claimed that the lot he bought from SFRI was different from that which Sison was
claiming.[16]

On August 8, 2006, the RTC rendered its Decision[17] in favor of Sison, thus:
WHEREFORE, judgment is hereby rendered in favor of [Sison], as follows:

1. Declaring [Sison] the absolute owner of the lot described hereunder, free from all
liens and encumbrances, to wit:

xxxx

2. Ordering [Orosa] to reconvey the above-described lot to [Sison];

3. Ordering the Register of Deeds of Laguna, Calamba Branch to perform the

following: (a) to cancel TCT No. T-297261 issued in the name of [Orosa] and all
titles subsequent thereto, and (b) to cause the issuance of the corresponding [TCT]
in the name of [Sison] covering the above-described property upon his submission
of a duly approved subdivision plan and technical description, free from Entry No.
357529 annotated on TCT No. 297261 and all other liens and encumbrances;

4. Ordering [the petitioners] to pay [Sison], jointly and severally, the following
amounts:

    a. P10,946.91 as actual damages;

    b. P200,000.00 as moral damages;

     c. P50,000.00 as exemplary damages;

    d. P200,000.00 as attorney's fees; and

    e. costs of suit.

SO ORDERED.[18]
On appeal, the CA affirmed the findings of the RTC but reduced the award of moral
damages and attorney's fees to P50,000.00 and P100,000.00, respectively.[19]

The petitioners filed a motion for reconsideration but it was denied.[20] Hence, this
petition.

The Issue Presented

WHETHER THE CA ERRED IN AFFIRMING THE DECISION OF THE RTC
RECONVEYING THE SUBJECT PROPERTY TO SISON.
Ruling of the Court

The petition lacks merit.

The Court has time and again ruled that factual findings of the CA are conclusive on the
parties and carry even more weight when the said court affirms the factual findings of the
trial court.[21] But even if the Court were to re-evaluate the evidence presented in this
case, there is still no reason to depart from the lower courts' ruling that the reconveyance
is proper.

Essentially, the issues raised center on the core question of whether Sison is entitled to
reconveyance of the subject property. In resolving this issue, the pertinent point of
inquiry is whether the deed of absolute sale by and between SFRI and Fabregas, as well
as the deed of absolute sale between Fabregas and Sison are valid and enforceable.

Sison anchors his cause of action upon the two deeds of sale and his possession and
occupation of the subject property.[22] The petitioners, however, counter that: (1) the
deeds of sale were simulated; (2) Fabregas had unilaterally rescinded the sale; and (3) the
subject property is now registered in the hands of an innocent purchaser for value.

The petitioners mainly argues that the deeds of sale were simulated because of its alleged
failure to reflect the true purchase price of the sale which is P700,000.00 plus the
assignment by Sison and his wife of certain properties located in Lingayen and Urdaneta,
Pangasinan in favor of the petitioners. According to the petitioners, these deeds were
executed at the request of Sison in order to reduce the amount to be paid as capital gains
tax. They contend that there is an apparent gross disproportion between the stipulated
price and the value of the subject property which demonstrates that the deeds stated a
false consideration.

The Court, however, concurs with the disquisition of the lower courts that the evidence
on record established that the deeds of sale were executed freely and voluntarily. The
RTC noted that the petitioners admitted their intention to sell the subject property to
Sison, and they voluntarily executed the said deeds of sale which were duly
acknowledged before a notary public. These admissions that the deeds of sale were
signed and executed by them in due course bar them from questioning or denying their
acts.

In this case, all the elements for a contract to be valid are present. A perfected contract of
absolute sale exists between SFRI and Fabregas and then Fabregas and Sison. There was
meeting of the minds between the parties when they agreed on the sale of a determinate
subject matter, which is the south eastern portion of Lot 1-B with an area of 15,598 sq m,
and the price is certain, without any condition or reservation of title on the part of the
petitioners.

To bolster their claim that the deeds of sale were void, the petitioners argue that there is
gross disproportion between the price and the value of the subject property. The Court,
however, ruled that gross inadequacy of price by itself will not result in a void contract.
Gross inadequacy of price does not even affect the validity of a contract of sale, unless it
signifies a defect in the consent or that the parties actually intended a donation or some
other contract. Inadequacy of cause will not invalidate a contract unless there has been
fraud, mistake or undue influence.[23]

The Court observed that the petitiOners are assailing the deeds of sale for being
absolutely simulated and for inadequacy of the price. However, these two grounds are
incompatible. If there exists an actual consideration for transfer evidenced by the alleged
act of sale, no matter how inadequate it be, the transaction could not be a simulated sale.
[24]

Nonetheless, the fact remains that the petitioners have failed to prove that the assailed
deeds of sale were simulated. The legal presumption is in favor of the validity of
contracts and the party who impugns its regularity has the burden of proving its
simulation.[25] Since the petitioners failed to discharge the burden of proving their
allegation that the deeds of sale were simulated, the presumption of regularity and
validity of the contract stands.

Considering that the Court finds the deed of sale between Fabregas and Sison to be valid
and not fictitious or simulated, the next question to be resolved is whether the unilateral
rescission made by Fabregas was valid and binding on Sison.

To begin with, this stance on the alleged unilateral rescission of the sale presupposes an
implied admission of the validity of the deed of sale which the petitioners were claiming
to be simulated. The remedy of rescission is based on the fulfilment of the obligation by
the party and it is not on the alleged lack of consideration of the contract.

Here, it appears that Fabregas failed to judicially rescind the contract. The Court had
already ruled that in the absence of a stipulation, a party cannot unilaterally and
extrajudicially rescind a contract. A judicial or notarial act is necessary before a valid
rescission can take place.[26]

The party entitled to rescind should apply to the court for a decree of rescission. The right
cannot be exercised solely on a party's own judgment that the other committed a breach
of the obligation. The operative act which produces thy resolution of the contract is the
decree of the court and not the mere act of the vendor.[27] "In other words, the party who
deems the contract violated may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law."[28]

While the petitioners claim that Sison did not pay the pnce for the subject property, the
notice of rescission that Fabregas allegedly sent to Sison declaring her intention to
rescind the sale did not operate to validly rescind the contract because there is absolutely
no stipulation giving Fabregas the right to unilaterally rescind the contract in case of non-
payment. Consequently, the unilateral rescission she made is of no effect.

After finding that there was no valid rescission that took place, hence, the deeds of sale
are valid and binding, the next issue to be discussed is whether Sison is entitled to
reconveyance of the subject property which is now registered in the name of Orosa.
Consequently, the bone of contention is whether Orosa is a buyer in good faith and for
value.

The determination of whether Orosa is a buyer in good faith is a factual issue, which
generally is outside the province of this Court to determine in a petition for review.
Although this rule admits of exceptions, none of these applies to this case. There is no
conflict between the factual findings and legal conclusions of the RTC and the CA, both
of which found Orosa to be a buyer in bad faith. Moreso, Orosa's assertion that he was an
innocent purchaser for value was not proven by clear and convincing evidence since his
right to adduce evidence was validly waived by the trial court when his counsel failed to
appear at the scheduled date of hearing despite being duly notified thereof. [29]

It was clearly established that the property sold to Orosa was practically the same to the
one sold to Sison. In the pre-trial order issued by the trial court, the following judicial
admission was made: that Lot 1-B-1 is within the property sold by SFRI to Orosa.[30] Such
admission by the petitioners on the identity of the property covered by the deeds of sale
executed in favor of Sison is admissible in evidence against Orosa. Furthermore, the
written report and sketch plan of Geodetic Engineer Noel V. Sogueco established the fact
that the property sold to Sison was well within the area described in TCT No. 297261
issued to Orosa. In short, the said documentary evidence proved that the lot sold to Sison
as Lot 1-B-1 coincided with Lot 1-B-3-C described in TCT No. T-297261.[31]

The petitioners now contend that Orosa is a purchaser in good faith and for value. They
argue that SFRI's title was free from any liens or encumbrances that could have triggered
Orosa's suspicion. Orosa further argued that he acquired the subject property in good faith
and had it first recorded in the Registry of Property, since he was unaware of the first
sale.

In line with this, the Court had already ruled that, as in this case, the failure of buyer to
take the ordinary precautions which a prudent man would have taken under the circu
stances, especially in buying a piece of land in the actual, visible and public possession of
another person, other than the vendor, constitutes gross negligence amounting to bad
faith.[32]
When a piece of land is in the actual possession of persons other than the seller, the buyer
must be wary and should investigate the rights of those in possession. Without making
such inquiry, one cannot claim that he is a buyer in good faith. When a man proposes to
buy or deal with realty, his duty is to read the public manuscript, that is, to look and see
who is there upon it and what his rights are. A want of caution and diligence, which an
honest man of ordinary prudence is accustomed to exercise in making purchases, is in
contemplation of law, a want of good faith. The buyer who has failed to know or discover
that the land sold to him is in adverse possession of another is a buyer in bad faith. x x x.
[33]
 (Citation omitted and italics in the original)
Applying this parameter, the Court is convinced that Orosa cannot be considered a buyer
and registrant in good faith and for value. It is apparent from the records of this case that
after Sison bought the subject property, he immediately took possession of it, and
introduced improvements thereon, such as fencing the property, putting a no trespassing
sign, barbed wires and hedges of big trees. Sison also constructed a fishpond and a resort
on the subject property.[34]

Evidently, the presence of these structures should have alerted Orosa to the possible flaw
in the title of SFRI. Hence, Orosa should have been aware of Sison's prior physical
possession and claim of ownership over the subject property. If Orosa had visited the
property, he would already know that someone else besides his seller has possession over
the same.

The fact that Orosa had the subject property first registered will not help his cause. Orosa
cannot rely on his TCT No. T-255466 as an incontrovertible evidence of his ownership
over the subject property. The fact that Orosa was able to secure a title in his name does
not operate to vest ownership upon him of the subject property. "Registration of a piece
of land under the Torrens System does not create or vest title, because it is not a mode of
acquiring ownership. A certificate of title is merely an evidence of ownership or title over
the particular property described therein. It cannot be used to protect a usurper from the
true owner; nor can it be used as a shield for the commission of fraud; neither does it
permit one to enrich himself at the expense of others. Its issuance in favor of a particular
person does not foreclose the possibility that the real property may be co-owned with
persons not named in the certificate, or that it may be held in trust for another person by
the registered owner."[35]

It is clear from the admissions of the parties that Sison had been in actual possession and
occupation of the subject property at the time that it was sold by SFRI to Orosa. Thus,
Orosa did not acquire any right from SFRI over the subject property since the latter was
no longer the owner of the same at the time the sale was made to him. The ownership
over the subject property had already been vested to Sison prior to such sale. Hence,
reconveyance of the subject property to Sison is warranted.

Lastly, the Court sustains the award of damages to Sison as it is beyond cavil that Sison
was forced to institute the instant case to protect his interest. The surrounding
circumstances of this case and the evident bad faith on the part of Sison justify the grant
of compensatory, moral and exemplary damages and attorney's fees to Sison.

WHEREFORE, the petition is DENIED. The Decision dated July 18, 2011 and the
Resolution dated November 23, 2011 of the Court of Appeals in CA-G.R. CV No. 90855
are AFFIRMED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 171937, November 25, 2013 ]
CERILA J. CALANASAN, REPRESENTED BY TEODORA J. CALANASAN
AS ATTORNEY-IN-FACT, PETITIONER, VS. SPOUSES VIRGILIO
DOLORITO AND EVELYN C. DOLORITO, RESPONDENTS.

DECISION

BRION, J.:
 Through a petition for review on certiorari,[1] filed under Rule 45 of the Rules of
Court, petitioner Cerila J. Calanasan seeks the reversal of the decision [2] dated
September 29, 2005, and the resolution[3] dated March 8, 2006 of the Court of
Appeals (CA) in CA-G.R. CV No. 84031.

THE FACTS

The petitioner, Cerila J. Calanasan (Cerila), took care of her orphan niece, respondent
Evelyn C. Dolorito, since the latter was a child.  In 1982, when Evelyn was already
married to respondent Virgilio Dolorito, the petitioner donated to Evelyn a parcel of
land which had earlier been mortgaged for P15,000.00. The donation was conditional: 
Evelyn must redeem the land and the petitioner was entitled to possess and enjoy the
property as long as she lived.  Evelyn signified her acceptance of the donation and its
terms in the same deed.  Soon thereafter, Evelyn redeemed the property, had the title
of the land transferred to her name, and granted the petitioner usufructuary rights over
the donated land.

On August 15, 2002, the petitioner, assisted by her sister Teodora J. Calanasan,
complained with the Regional Trial Court (RTC) that Evelyn had committed acts of
ingratitude against her.  She prayed that her donation in favor of her niece be revoked;
in their answer, the respondents denied the commission of any act of ingratitude.

The petitioner died while the case was pending with the RTC.  Her sisters, Teodora and
Dolores J. Calanasan, substituted for her.

After the petitioner had rested her case, the respondents filed a demurrer to evidence. 
According to them, the petitioner failed to prove that it was Evelyn who committed acts
of ingratitude against the petitioner; thus, Article 765[4] of the New Civil Code found no
application in the case.

THE RTC’S RULING

In its September 3, 2004  order,[5]  the RTC  granted  the demurrer to evidence  and
dismissed the complaint. Article 765 of the New Civil Code did not apply because the
ungrateful acts were committed against Teodora, the donor’s sister, and not against the
donor, the petitioner.  Equally important, the perpetrator of the ungrateful acts was not
Evelyn, but her husband Virgilio.

THE CA’S RULING

The petitioner challenged the RTC’s ruling before the CA.

In its September 29, 2005 decision,[6] the CA affirmed the RTC ruling but on a different
legal ground.  The CA, after legal analysis, found that the donation was inter vivos and
onerous.  Therefore, the deed of donation must be treated as an ordinary contract and
Article 765 of the New Civil Code finds no relevance.

On March 8, 2006, the CA rejected the petitioner’s motion for reconsideration.

THE PARTIES’ ARGUMENTS

The petitioner filed the present petition for review on certiorari with this Court to
challenge the CA rulings.  The petitioner insists that Evelyn committed acts of
ingratitude against her.  She argues that, if the donation was indeed onerous and was
subject to the rules of contracts, then greater reason exists to revoke it. According to
the petitioner, Evelyn violated all the terms of the contract, especially the provision
enjoining the latter from acquiring ownership over the property during the lifetime of
the donor.

The respondents, for their part, point out that the petitioner raises factual issues that a
petition under Rule 45 of the Rules of Court does not allow.  Furthermore, the petitioner
misleads the Court in claiming that the deed of donation prohibited Evelyn from
acquiring ownership of the land.  In fact, the deed of donation confined the donation to
only two conditions: 1) redemption of the mortgage; and 2) the petitioner’s usufruct
over the land as long as she lived.  The respondents complied with these conditions. The
respondents likewise remind the Court that issues not advanced before the lower courts
should not be entertained – the objective that Teodora is now trying to accomplish. 
Finally, the respondents applaud the CA in finding that the donation, being inter
vivos and onerous, is irrevocable under Article 765 of the New Civil Code.

THE COURT’S RULING

We resolve to deny the petition for lack of merit.

The petitioner may not raise factual issues;

arguments not raised before the lower courts
may not be introduced on appeal.

Teodora insists that Evelyn perpetrated ungrateful acts against the petitioner.
Moreover, the donation never materialized because Evelyn violated a suspensive
condition of the donation when she had the property title transferred to her name
during the petitioner’s lifetime.

As correctly raised by the respondents, these allegations are factual issues which are not
proper for the present action.  The Court is not a trier of facts.[7]  The Court cannot re-
examine, review or re-evaluate the evidence and the factual review made by the lower
courts.[8] In the absence of compelling reasons, the Court will not deviate from the rule
that factual findings of the lower tribunals are final and binding on this Court.

It has not escaped the Court’s attention that this is the only time the petitioner raised
the arguments that donation never materialized because the donee violated a condition
of the donation when she had the title of the property transferred to her name. The
petitioner never raised this issue before the lower courts. It can’t be emphasized
enough that the Court will not revisit the evidence presented below as well as any
evidence introduced for the first time on appeal. [9]  Aside from being a factual issue that
is not proper for the present action, the Court dismisses this new argument for being
procedurally infirm and violative of due process.  As we have held in the past: “points of
law, theories, issues and arguments not brought to the attention of the trial court will
not be and ought not to be considered by a reviewing court, as these cannot be raised
for the first time on appeal.   Basic consideration of due process impels this rule.”[10]

Rules of contract govern the

onerous portion of donation; rules of
donation only apply to the excess, if any.

We now come to the appreciation of the legal incidents of the donation vis-à-vis the

alleged ungrateful acts.

In  Republic of the Phils. v. Silim,[11] we classified donations according to purpose.  A

pure/simple donation is the truest form of donation as it is based on pure gratuity.  The
remuneratory/compensatory type has for its purpose the rewarding of the donee for
past services, which services do not amount to a demandable debt. A conditional/modal
donation, on the other hand, is a consideration for future services; it also occurs where
the donor imposes certain conditions, limitations or charges upon the donee, whose
value is inferior to the donation given. Lastly, an onerous donation imposes upon the
donee a reciprocal obligation; this is made for a valuable consideration whose cost is
equal to or more than the thing donated.[12]

In De Luna v. Judge Abrigo,[13] we recognized the distinct, albeit old, characterization of
onerous donations when we declared: “Under the old Civil Code, it is a settled rule that
donations with an onerous cause are governed not by the law on donations but by the
rules on contracts, as held in the cases of Carlos v. Ramil, L-6736, September 5, 1911, 20
Phil. 183, Manalo vs. de Mesa, L-9449, February 12, 1915, 29 Phil. 495.”[14]  In the same
case, we emphasized the retention of the treatment of onerous types of donation, thus:
“The same rules apply under the New Civil Code as provided in Article 733 thereof which
provides:

Article 733. Donations with an onerous cause shall be governed by the rules on
contracts, and remuneratory donations by the provisions of the present Title as regards
that portion which exceeds the value of the burden imposed.” [15]

We agree with the CA that since the donation imposed on the donee  the burden of
redeeming the property for P15,000.00, the donation was onerous. As an endowment
for a valuable consideration, it partakes of the nature of an ordinary contract; hence,
the rules of contract will govern and Article 765 of the New Civil Code finds no
application with respect to the onerous portion of the donation.

Insofar as the value of the land exceeds the redemption price paid for by the donee, a
donation exists, and the legal provisions on donation apply.  Nevertheless, despite the
applicability of the provisions on donation to the gratuitous portion, the petitioner may
not dissolve the donation.  She has no factual and legal basis for its revocation, as aptly
established by the RTC. First, the ungrateful acts were committed not by the donee; it
was her husband who committed them. Second, the ungrateful acts were perpetrated
not against the donor; it was the petitioner’s sister who received the alleged ill
treatments.  These twin considerations place the case out of the purview of Article 765
of the New Civil Code.

WHEREFORE, premises considered, the Court DENIES the petition for review

on certiorari. The decision dated September 29, 2005, and the resolution dated March
8, 2006, of the Court of Appeals in CA-G.R. CV No. 84031 are hereby AFFIRMED. Costs
against Cerila J. Calanasan, represented by Teodora J. Calanasan as Attorney-in-Fact.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 120465, September 09, 1999 ]
WILLIAM UY AND RODEL ROXAS, PETITIONERS, VS. COURT OF
APPEALS, HON. ROBERT BALAO AND NATIONAL HOUSING
AUTHORITY, RESPONDENTS.

DECISION

KAPUNAN, J.:

Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels
of land by the owners thereof. By virtue of such authority, petitioners offered to sell the
lands, located in Tuba, Tadiangan, Benguet to respondent National Housing Authority
(NHA) to be utilized and developed as a housing project.

On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the
acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867
million, pursuant to which the parties executed a series of Deeds of Absolute Sale
covering the subject lands. Of the eight parcels of land, however, only five were paid for
by the NHA because of the report [1] it received from the Land Geosciences Bureau of the
Department of Environment and Natural Resources (DENR) that the remaining area is
located at an active landslide area and therefore, not suitable for development into a
housing project.

On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the
three parcels of land. The NHA, through Resolution No. 2394, subsequently offered the
amount of P1.225 million to the landowners as daños perjuicios.

On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City a
Complaint for Damages against NHA and its General Manager Robert Balao.

After trial, the RTC rendered a decision declaring the cancellation of the contract to be
justified. The trial court nevertheless awarded damages to plaintiffs in the sum of P1.255
million, the same amount initially offered by NHA to petitioners as damages.

Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court
and entered a new one dismissing the complaint. It held that since there was “sufficient
justifiable basis” in cancelling the sale, “it saw no reason” for the award of damages. The
Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore,
not the real parties-in-interest in the action before the trial court.
xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to be “sellers’
agents” for several owners of the 8 lots subject matter of the case. Obviously, William
Uy and Rodel Roxas in filing this case acted as attorneys-in-fact of the lot owners who
are the real parties in interest but who were omitted to be pleaded as party-plaintiffs in
the case. This omission is fatal. Where the action is brought by an attorney-in-fact of a
land owner in his name, (as in our present action) and not in the name of his principal,
the action was properly dismissed (Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de
Leon, 105 Phil. 1175) because the rule is that every action must be prosecuted in the
name of the real parties-in-interest (Section 2, Rule 3, Rules of Court).

When plaintiffs Uy and Roxas sought payment of damages in their favor in view of the
partial rescission of Resolution No. 1632 and the Deed of Absolute Sale covering TCT
Nos. 10998, 10999 and 11292 (Prayer complaint, page 5, RTC records), it becomes
obviously indispensable that the lot owners be included, mentioned and named as
party-plaintiffs, being the real party-in-interest. Uy and Roxas, as attorneys-in-fact or
apoderados, cannot by themselves lawfully commence this action, more so, when the
supposed special power of attorney, in their favor, was never presented as an evidence
in this case. Besides, even if herein plaintiffs Uy and Roxas were authorized by the lot
owners to commence this action, the same must still be filed in the name of the pricipal,
(Filipino Industrial Corporation vs. San Diego, 23 SCRA 706 [1968]). As such indispensable
party, their joinder in the action is mandatory and the complaint may be dismissed if not
so impleaded (NDC vs. CA, 211 SCRA 422 [1992]).[2]
Their motion for reconsideration having been denied, petitioners seek relief from
this Court contending that:
I.   COMPLAINT FINDING THE RESPONDENT CA ERRED IN DECLARING THAT
RESPONDENT NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALE INVOLVING THE
LAST THREE (3) PARCELS COVERED BY NHA RESOLUTION NO. 1632.

II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS TO RESCIND
THE SUBJECT SALE, THE RESPONDENT CA NONETHELESS ERRED IN DENYING HEREIN
PETITIONERS’ CLAIM TO DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF
THE CIVIL CODE.

III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT FINDING THAT
THE PETITIONERS FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE SELLING
LOT-OWNERS.[3]
We first resolve the issue raised in the third assignment of error.

Petitioners claim that they lodged the complaint not in behalf of their principles but in
their own name as agents directly damaged by the termination of the contract. The
damages prayed for were intended not for the benefit of their principals but to
indemnify petitioners for the losses they themselves allegedly incurred as a result of
such termination. These damages consist mainly of “unearned income” and advances.
[4]
 Petitioners, thus, attempt to distinguish the case at bar from those involving agents or
apoderados instituting actions in their own name but in behalf of their principals.
[5]
 Petitioners in this case purportedly brought the action for damages in their own name
and in their own behalf.

We find this contention unmeritorious.

Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted
and defended in the name of the real party-in-interest. The real party-in-interest is the
party who stands to be benefited or injured by the judgment or the party entitled to the
avails of the suit. “Interest,” within the meaning of the rule, means material interest, an
interest in the issue and to be affected by the decree, as distinguished from mere
interest in the question involved, or a mere incidental interest. [6] Cases construing the
real party-in-interest provision can be more easily understood if it is borne in mind that
the true meaning of real party-in-interest may be summarized as follows: An action shall
be prosecuted in the name of the party who, by the substantive law, has the right
sought to be enforced.[7]

Do petitioners, under substantive law, possess the right they seek to enforce? We rule in
the negative.

The applicable substantive law in this case is Article 1311 of the Civil Code, which states:
Contracts take effect only between the parties, their assigns, and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation, or by provision of law. x x x.

If a contract should contain some stipulation in favor of a third person, he may demand
its fulfillment provided he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person. (Underscoring supplied.)
Petitioners are not parties to the contract of sale between their principals and
NHA. They are mere agents of the owners of the land subject of the sale. As agents, they
only render some service or do something in representation or on behalf of their
principals.[8] The rendering of such service did not make them parties to the contracts of
sale executed in behalf of the latter. Since a contract may be violated only by the parties
thereto as against each other, the real parties-in-interest, either as plaintiff or
defendant, in an action upon that contract must, generally, either be parties to said
contract.[9]

Neither has there been any allegation, much less proof, that petitioners are the heirs of
their principals.
Are petitioners assignees to the rights under the contracts of sale?
In McMicking vs. Banco Español-Filipino,[10] we held that the rule requiring every action
to be prosecuted in the name of the real party-in-interest
x x x recognizes the assignments of rights of action and also recognizes that when
one has a right of action assigned to him he is then the real party in interest and may
maintain an action upon such claim or right. The purpose of [this rule] is to require the
plaintiff to be the real party in interest, or, in other words, he must be the person to
whom the proceeds of the action shall belong, and to prevent actions by persons who
have no interest in the result of the same. xxx
Thus, an agent, in his own behalf, may bring an action founded on a contract
made for his principal, as an assignee of such contract. We find the following declaration
in Section 372 (1) of the Restatement of the Law on Agency (Second): [11]
Section 372. Agent as Owner of Contract Right

(1) Unless otherwise agreed, an agent who has or who acquires an interest in a contract
which he makes on behalf of his principal can, although not a promisee, maintain such
action thereon as might a transferee having a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf of another may
become an assignee of the contract and bring suit against the other party to it, as any
other transferee. The customs of business or the course of conduct between the
principal and the agent may indicate that an agent who ordinarily has merely a security
interest is a transferee of the principals rights under the contract and as such is
permitted to bring suit. If the agent has settled with his principal with the understanding
that he is to collect the claim against the obligor by way of reimbursing himself for his
advances and commissions, the agent is in the position of an assignee who is the
beneficial owner of the chose in action. He has an irrevocable power to sue in his
principal’s name. x x x. And, under the statutes which permit the real party in interest to
sue, he can maintain an action in his own name. This power to sue is not affected by a
settlement between the principal and the obligor if the latter has notice of the agent’s
interest. x x x. Even though the agent has not settled with his principal, he may, by
agreement with the principal, have a right to receive payment and out of the proceeds
to reimburse himself for advances and commissions before turning the balance over to
the principal. In such a case, although there is no formal assignment, the agent is in the
position of a transferee of the whole claim for security; he has an irrevocable power to
sue in his principal’s name and, under statutes which permit the real party in interest to
sue, he can maintain an action in his own name.
Petitioners, however, have not shown that they are assignees of their principals
to the subject contracts. While they alleged that they made advances and that they
suffered loss of commissions, they have not established any agreement granting them
“the right to receive payment and out of the proceeds to reimburse [themselves] for
advances and commissions before turning the balance over to the principal[s].”

Finally, it does not appear that petitioners are beneficiaries of a stipulation pour

autrui under the second paragraph of Article 1311 of the Civil Code. Indeed, there is no
stipulation in any of the Deeds of Absolute Sale “clearly and deliberately” conferring a
favor to any third person.

That petitioners did not obtain their commissions or recoup their advances because of
the non-performance of the contract did not entitle them to file the action below
against respondent NHA. Section 372 (2) of the Restatement of the Law on Agency
(Second) states:
(2) An agent does not have such an interest in a contract as to entitle him to
maintain an action at law upon it in his own name merely because he is entilted to a
portion of the proceeds as compensation for making it or because he is liable for its
breach.
The following Comment on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will gain or suffer
loss by the performance or nonperformance of the contract by the principal or by the
other party thereto does not entitle him to maintain an action on his own behalf against
the other party for its breach. An agent entitled to receive a commission from his
principal upon the performance of a contract which he has made on his principal’s
account does not, from this fact alone, have any claim against the other party for breach
of the contract, either in an action on the contract or otherwise. An agent who is not a
promisee cannot maintain an action at law against a purchaser merely because he is
entitled to have his compensation or advances paid out of the purchase price before
payment to the principal. x x x.
 Thus, in Hopkins vs. Ives,[12] the Supreme Court of Arkansas, citing Section 372 (2)
above, denied the claim of a real estate broker to recover his alleged commission
against the purchaser in an agreement to purchase property.
In Goduco vs. Court of Appeals,[13] this Court held that:

x x x granting that appellant had the authority to sell the property, the same did not
make the buyer liable for the commission she claimed. At most, the owner of the
property and the one who promised to give her a commission should be the one liable
to pay the same and to whom the claim should have been directed. xxx
As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under substantive law,
possess the right they seek to enforce. Therefore, they are not the real parties-in-
interest in this case.

Petitioners not being the real parties-in-interest, any decision rendered herein would be
pointless since the same would not bind the real  parties-in-interest.[14]

Nevertheless, to forestall further litigation on the substantive aspects of this case, we

shall proceed to rule on the merits.[15]

Petitioners submit that respondent NHA had no legal basis to “rescind” the sale of the
subject three parcels of land. The existence of such legal basis, notwithstanding,
petitioners argue that they are still entitled to an award of damages.

Petitioners confuse the cancellation of the contract by the NHA as a rescission of the
contract under Article 1191 of the Civil Code. The right of rescission or, more accurately,
resolution, of a party to an obligation under Article 1191 is predicated on a breach of
faith by the other party that violates the reciprocity between them. [16] The power to
rescind, therefore, is given to the injured party.[17] Article 1191 states:
The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
 In this case, the NHA did not rescind the contract. Indeed, it did not have the
right to do so for the other parties to the contract, the vendors, did not commit any
breach, much less a substantial breach, [18] of their obligation. Their obligation was
merely to deliver the parcels of land to the NHA, an obligation that they fulfilled. The
NHA did not suffer any injury by the performance thereof.

The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization that the
lands, which were the object of the sale, were not suitable for housing.

Cause is the essential reason which moves the contracting parties to enter into it. [19] In
other words, the cause is the immediate, direct and proximate reason which justifies the
creation of an obligation through the will of the contracting parties. [20] Cause, which is
the essential reason for the contract, should be distinguished from motive, which is the
particular reason of a contracting party which does not affect the other party. [21]

For example, in a contract of sale of a piece of land, such as in this case, the cause of the
vendor (petitioner’s principals) in entering into the contract is to obtain the price. For
the vendee, NHA, it is the acquisition of the land. [22] The motive of the NHA, on the other
hand, is to use said lands for housing. This is apparent from the portion of the Deeds of
Absolute Sale[23] stating:
WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the
VENDEE is mandated to focus and concentrate its efforts and resources in providing
housing assistance to the lowest thirty percent (30%) of urban income earners, thru
slum upgrading and development of sites and services projects;

WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of
Instruction No. 630, prescribed slum improvement and upgrading, as well as the
development of sites and services as the principal housing strategy for dealing with
slum, squatter and other blighted communities;

xxx

WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated purposes
offers to buy and the VENDORS, in a gesture of their willing to cooperate with the above
policy and commitments, agree to sell the aforesaid property together with all the
existing improvements there or belonging to the VENDORS;

NOW, THEREFORE, for and in consideration of the foregoing premises and the terms
and conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer, cede and
convey unto the VENDEE, its assigns, or successors-in-interest, a parcel of land located
at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY SIX THOUSAND EIGHT
HUNDRED NINETEEN (56,819) SQUARE METERS, more or less x x x.
Ordinarily, a party’s motives for entering into the contract do not affect the
contract. However, when the motive predetermines the cause, the motive may be
regarded as the cause. In Liguez vs. Court of Appeals,[24] this Court, speaking through
Justice J.B.L. Reyes, held:
xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642) while
maintaining the distinction and upholding the inoperativeness of the motives of the
parties to determine the validity of the contract, expressly excepts from the rule those
contracts that are conditioned upon the attainment of the motives of either party.

The same view is held by the Supreme Court of Spain, in its decisions of February 4,
1941, and December 4, 1946, holding that the motive may be regarded as causa when it
predetermines the purpose of the contract.
In this case, it is clear, and petitioners do not dispute, that NHA would not have
entered into the contract were the lands not suitable for housing. In other words, the
quality of the land was an implied condition for the NHA to enter into the contract. On
the part of the NHA, therefore, the motive was the cause for its being a party to the
sale.

Were the lands indeed unsuitable for the housing as NHA claimed?

We deem the findings contained in the report of the Land Geosciences Bureau dated 15
July 1991 sufficient basis for the cancellation of the sale, thus:
In Tadiangan, Tuba, the housing site is situated in an area of moderate
topography. There [are] more areas of less sloping ground apparently habitable. The site
is underlain by x x x thick slide deposits (4-45m) consisting of huge conglomerate
boulders (see Photo No. 2) mix[ed] with silty clay materials. These clay particles when
saturated have some swelling characteristics which is dangerous for any civil structures
especially mass housing development.[25]
 Petitioners content that the report was merely “preliminary,” and not conclusive,
as indicated in its title:

MEMORANDUM

TO   EDWIN G. DOMINGO
:
  Chief, Lands Geology Division
   
FR   ARISTOTLE A. RILLON
OM:
  Geologist II
   
SU   Preliminary Assessment of Tadiangan Housing Project in Tuba, Benguet [26]
BJECT:

Thus, page 2 of the report states in part:

x x x

Actually there is a need to conduct further geottechnical [sic] studies in the NHA
property. Standard Penetration Test (SPT) must be carried out to give an estimate of the
degree of compaction (the relative density) of the slide deposit and also the bearing
capacity of the soil materials. Another thing to consider is the vulnerability of the area
to landslides and other mass movements due to thick soil cover. Preventive physical
mitigation methods such as surface and subsurface drainage and regrading of the slope
must be done in the area.[27]
We read the quoted portion, however, to mean only that further tests are
required to determine the “degree of compaction,” “the bearing capacity of the soil
materials,” and “vulnerability of the area to landslides,” since the tests already
conducted were inadequate to ascertain such geological attributes. It is only in this
sense that the assessment was “preliminary.”

Accordingly, we hold that the NHA was justified in cancelling the contract. The
realization of the mistake as regards the quality of the land resulted in the negation of
the motive/cause thus rendering the contract inexistent. [28] Article 1318 of the Civil Code
states that:
 Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Underscoring supplied.)
Therefore, assuming that petitioners are parties, assignees or beneficiaries to the
contract of sale, they would not be entitled to any award of damages.

WHEREFORE, the instant petition is hereby DENIED.

SO ORDERED.

[ G.R. No. L-11240, February 13, 1958 ]

CONCHITA LIGUEZ, PETITIONER VS. THE HON. COURT OF APPEALS,
MARIA NGO VDA. DE LOPEZ, ET. AL., RESPONDENTS.

RESOLUTION ON THE APPELLEE'S

MOTION TO RECONSIDER

REYES, J.B.L., J.:

Against the decision of this Court holding the appellees, in their quality of successors of
the late Salvador F. Lopez, Barred from questioning as immoral the donation aade by said
deceased in favor of appellant Conchita Liguez, said appellees have interposed a notion
for reconsideration praying us to declare:

1. That the donation in question, being with an illicit cause, is null and void and
inexistent, and produced no effects whatsoever.

2. That the pari delicto rule should apply.

3. That what may preclude the deceased donor from setting up the illegality cannot
preclude his heirs.

4. That the appellant is in estoppel. 

Concerning the first proposition, this Court has declared the donation to be tainted by
immoral (i.e. illegal) causa, which necessarily involves the consequence that it is void
and of no effect. Nevertheless, the court was also bound to apply Articles 1305 and 1306
of the Civil Code of 1889 (being the law in the case)

and under said articles, nullity of contracts due to illegal consideration or subject matter,
when executed (and not merely executory) ,does produce the effect of barring any action
by a guilty party to recover what it has already given under the contract.

"Art.1305. When the nullity arises from the illegality of the consideration or of the
subject-matter of the contract, if the fact constitutes a crime or misdemeanor common to
both contracting parties, neither shall be entitled to maintain an aetion against the other,
and criminal proceedings shall be instituted against them; and, furthermore, the things or
money which may have been the subject-matter of the contract shall be disposed of in
accordance with the rules prescribed by the Penal Code concerning the effects of a crime
or misdemeanor and the instruments used in its commission.

This provision shall be applicable to cases in which one only of the contracting parties
has been guilty of a crime or misdemeanor, but the innocent party may recover anything
he may have given and shall not be bound to fulfill any promise he may have made."

"Art. 1306. If the act which constitutes the illicit consideration is neither a crime nor a
misdemeanor, the following rules shall be observed:

1. When both parties are guilty, neither of them can recover what he may have given
by virtue of the contract, or enforce the performance of the undertaking of the
other party;

2. When only one of the contracting parties is guilty he cannot recover anything
which he may have given by virtue of the contract, nor enforce the performance of
any undertaking in his favor. The other party, if he has had nothing to do with the
illicit consideration, may recover anything which he may have given without being
obliged to perform any undertaking he may have assumed."

These articles make it plain that in so far as the guilty is concerned, his act of conveying
property pursuant to tan illicit contract operates to divest him of the ownership of the
conveyed property, and to bar him from recovering it from his transferee, just as if the
transfer were through a bargain legal in its inception. Repugnant as immoral bargains are,
the law deems it more repugnant that a party should invoke his own guilt as a reason for
relief from a situation he deliberately entered: "Nemo auditur propriam turpitudinem
allegans". The foregoing serves to explain why the tainted conveyance, to the extent that
it has been carried out, becomes conclusive as between the guilty parties, even if without
effect against strangers without notice; and why a guilty party may nct ask the courts for
a restoration to the status quo ante.[1]

The argument that appellant's suit to recover the property amounts to an enforcement of
the illegal contract itself fails to take into account the detail that the donation by Lopez to
appellant was a full and complete act of conveyance. Donation, it must be remembered, is
one of the modes of acquiring ownership; and the retention of the donated land by the
donor or his privies can not deprive the donation of its transferring effect, either because
donation does net need te be completed by tradition (since Art. 609 prescribes that
"ownership and rights therein are acquired and transmitted by donation, succession-and in
consequence of certain contracts by tradition, "thereby implying that donation is not one
of the contracts requiring tradition), or else because the execution of the notarial deed is
equivalent to the physical tradition of the property, as expressly provided by par. 2 of
Article 1462 of the Code of 1889. True it is that the decisions of this Court (Addison vs.
Felix, 39 Phil. 404, etc.) declare that such tradition "per chartam" is ineffective where the
thing conveyed was at the time in the physical possession of third perons; but the
possession of the donor or of his family can in wise be considered possession by
strangers to the conveyance.

The donation being regular on its face, the refusal of appellees to surrender the donated
property is in itself an attack in the validity of the gift made by their predecessor Salvador
F. Lopez. Note well that appellant Liguez does not seek specific performanee of the
donation: the latter has been already completely executed, and no further action is
required. The basis of appellant's complaint is not an executory contract to convey, but
the ownership resulting from the completed conveyance; and that ownership carries with
it the right tc possession (jus possidendi) that the appellees seek to withhold. To retain
possesion of the thing donated, appellees must defeat the donation; to defeat the donation
they invoke its illegality, and this Court has ruled that they can not do so, because their
predecessor was barred by law from so doing.

The debarring of appellees, qua successors and privies of the deceased donor, Salvador F.
Lopez, is not predicated (as appellees erroneously believe) on the technical rules of
estoppel, but on one more basic and fundamental: that the heir or successor, his quality as
such, can not have a better right than the predecessor whom he replaces. The justice of
this principle has been recognized by both the civil and the common law. "Nemo plus
juris ad alium transferee potest quam ipse habet"; one can not transfer to another more
rights than he has himself, as noted by Lord Coke in his Commentaries on Littleton
(309b) virtually reiterating the of the Digest (50,17,54) and the Partidas (Part. VII, Tit.
34, rule 12) and pithily condensed in the vulgar "Nemo dat quod non habet". With
particular reference to a deceased's contracts, Digest restates (50, 17, 143, De regulis
juris) the consequent principle due to Ulpians "Quod ipsis qui contraxerunt. obstat,
successoribus eorum obstabit": what bars those who contracted will likewise bar their
successors. These maxims are net only grounded on common sense, but result from the
very nature of succession as a mere derivative mode of acquiring rights. In consequence,
this Court held that the appellees may attack the donation only if they can base its
invalidity upon reasons independent of their quality as heirs or successors of the donor;
and this is likewise true of the widow. Such recourse was reserved in our main decision.

The contention that the pari delicto rule should have been applied to this case deliberately
ignores the important fact emphasized in our main decision, to wit: that the appellant
Liguez was a minor of sixteen at the time the contract was made, while Lopez was of
mature years and experience. No authority has been called to our attention holding that
the guilt of a minor should be judged with severity equal to the guilt of an adult. It is well
known that minors occupy a privileged position in law; and the law's tender care for them
is emphasized by Art. 1415 of the new Civil Code. At any rate, the point is unimportant,
because the donation having been fully executed, even if the parties were held to be
in pari delicto the action of the donor or his privies ta recover the conveyed property and
return to the status quo would remain barred by Arts. 1305 and 1306.

The ruling in the cases of Velasquez vs. Biala, 18 Phil. 231; Perizuelo vs. Benedicto, 9
Phil. 621; Pamittan vs. Lasam, 60 Phil. 908; and Camagay vs. Lagera, 7 Phil. 397,
holding a donation of real estate to be invalid if made in private writing, has no
application to the case at bar, wherein the essential formalities prescribed by statute were
duly observed. A donation being a formal or solemn act, it does not exist in law if the
formalities prescribed are not accomplished; and being thus inexistent, it is open to attack
even by the parties thereto. But the donation in the present case is not inexistent but
illegal, and specific articles of the Civil Code command that neither party thereto may be
heard to invoke its unlawful character as a ground for relief. It is not possible to ignore
this difference between true inexistence and illegality under the Civil Code of 1889.

Appellees also rely on the provisions of Art. 4 of the Civil Code to the effect that-

"Acts performed contrary to the provisions of law are void, except in the cases where the
law itself provides for their validity."

to support the thesis that donations of conjugal property by the husband without his wife's
consent being forbidden by Art. 1413, the donation in favor of appellee should net be
given effect. This argument is, however, untenable because of the terms of Art. 1419:

"Art. 1419. The inventory shall include, for the purpose of collating them, a statement of
any sums which, having been paid by the conjugal partnership, are to be deducted from
the wife's dowry or from the capital of the husband, in accordance with Articles 1366,
1377, and 1427.

The value of any gifts or alienations which, in accordance with Article 1413, are to be
deemed illegal or fraudulent, shall also be collated."
The second paragraph of said article shows that the lawmaker does not view the
donations made by the husband without the consent cf the wife as void, but merely
fraudulent, subject to collation upon liquidation of the conjugal partnership and deduction
of its value from the donor's share in the conjugal profits. This conclusion is supported
not only by the commentators but also by the total absence in the Code of 1889 of any
provision authorizing the wife to recover the property donated during the existence of the
conjugal partnership, in contrast to Art. 173 of the new Civil Code. The donation now in
question, therefore, falls within the exception of Art. 4 rather than its general rule.

Finally, the rule of estoppel by laches can not apply to prevent enforcement of the
principle that a party to an illegal contract can not recover what he has given pursuant
thereto, for the latter is a rule of superior public policy.

WHEREFORE, the motion to reconsider is denied.

[ G.R. No. 14997, February 16, 1920 ]

TEODORO VELEZ ET AL., PLAINTIFFS AND APPELLANTS, VS.
SALOMON RAMAS ET AL., DEFENDANTS AND APPELLEES.

DECISION

STREET, J.:

This action was instituted in the Court of First Instance of the Province of Cebu by
the plaintiff, Teodoro Velez, and his wife, Hermenegilda Chiong Veloso, to recover of the
defendants, Salomon Ramas and Roberto Quirante, a sum of money evidenced by a
written obligation signed by said defendants under date of July 30, 1917, wherein they
acknowledged themselves to be jointly and severally bound for the payment to the
plaintiff of the Sum of P2,303.60. It is admitted that the defendant Ramas had paid P300
upon said obligation prior to the institution of the suit, leaving a balance due of
P2,003.60. Salomon Ramas answered the complaint, admitting in effect the facts alleged
therein, and stating as his sole ground of defense that the alleged contract was illegal on
its face. This defendant further interposed a counterclaim, seeking to recover the P300
which he had already paid. The defendant Roberto Quirante did not appear, and no
defense was made for him. When the case was submitted for decision the trial court
sustained the defense, absolved both the defendants from the complaint and gave
judgment upon the counterclaim in favor of Salomon Ramas jointly and severally against
the plaintiffs for the sum of P300, with interest at the legal rate from the date the
answer was filed. From this judgment the plaintiffs appealed.

It appears in evidence that the defendant Roberto Quirante is the father of Restituta
Quirante, who in turn is the wife of the defendant Salomon Ramas. Prior to July 30,
1917, the plaintiffs, Teodoro Velez and wife, were the owners of a pawnshop and had
employed Restituta Quirante in some capacity or other therein. While thus employed,
Restituta Quirante abstracted various sums of money belonging to the plaintiffs,
amounting altogether to P2,363.60, under conditions which Supposedly constituted the
offense of estafa. When this fact was discovered by the plaintiffs they threatened to
prosecute her, and in order to prevent this eventuality the contract in question was
executed by the defendants.

The preliminary recitals and the principal obligatory clause of this contract are
expressed in the following terms:
"Whereas, it was discovered that Restituta Quirante, being an employee of
Teodoro Velez and Hermenegilda Ch. Veloso, has illegally abstracted various sums of
money entrusted to her for safe-keeping, amounting altogether to P2,303.60 (two
thousand three hundred and three pesos and sixty centavos).

"Whereas, in order to prevent said woman from being brought before the courts for the
unlawful act She has executed, the persons subscribing this document have guaranteed
to the said Teodoro Velez and Hermenegilda Ch. Veloso the payment of the aforesaid
sum plus an interest of 12 per cent per annum until fully paid.

"Whereas, by virtue of the foregoing obligation, said Velez and Hermenegilda Ch. Veloso
agree to suspend the action they intend to bring against Restituta Quirante.

"Therefore, we, Salomon Ramas and Roberto Quirante, the first a resident of the city of
Cebu and the second of the municipality of Dumanjug of the same province, jointly and
severally bind ourselves to pay Teodoro Velez and Hermenegilda Ch. Veloso the
aforementioned sum of two thousand three hundred three pesos and sixty centavos
(P2,303.60) with interest."
We are of the opinion that the trial court was correct in the conclusion that an
action cannot be maintained upon this contract. The preliminary recitals clearly disclose
the fact that the purpose of the contracting parties was to prevent a prosecution for
crime; and the injured parties, on their part, agree to suspend the criminal proceedings
which they had intended to promote. As regards the defendant Roberto Quirante there
was absolutely no other motive for making the contract than a desire to prevent the
prosecution of his daughter; and the only consideration in the legal sense for his
promise to pay was the engagement of the plaintiffs whereby they bound themselves to
suspend criminal proceedings. As regards the defendant Salomon Ramafe, it might be
supposed that the act of his wife, Restituta Quirante, in embezzling the money of her
employers created a civil debt which was binding on him as a member of the community
partnership and that he at any rate would be liable for that money without reference to
the contract. But that liability cannot be enforced in an action to which the wife is not a
party. It results that, even as against Ramas, this case must be decided on the question
of the legality, or illegality, of the contract sued on.

In our opinion the consideration for this agreement is clearly illicit, which fact is
apparent on the face of the contract; and the case is accordingly governed by article
1275 of the Civil Code.

There has been no period since contract law reached the stage of consciousness, when
the maxim ex turpi causa non oritur actio was not recognized. A contract based upon an
unlawful consideration or designed to promote an unlawful object is and always has
been void ab initio by the common law, by the civil law, moral law, and all laws
whatsoever (Collins vs. Bantern, 2 Wils. C. Pl., 341.) It is immaterial whether the illegal
character of the contract is revealed in the matter of the consideration, in the promise
as expressed in the agreement, or in the purpose which the agreement, though legal in
expression, is intended to accomplish. If the illegality lurks in any element, or even
subsists exclusively in the purpose of the parties, it is fatal to the validity of the contract.
(Manresa, Codigo Civil, 2d ed.f vol. 8, p. 686.)

By the universal consensus of judicial opinion in all ages it has been considered contrary
to public policy to allow parties to make agreements designed to prevent or stifle
prosecutions for crime. It is self-evident that the law cannot sanction an engagement
which is subversive of the law itself or which tends to weaken the foundations of human
society. The machinery for the administration of justice cannot be used to promote an
unlawful purpose.
The case of Arroyo vs. Berwin (36 Phil. Rep., 386), would seem to be conclusive, as it is
based upon the doctrine above announced, and we see no just basis for discriminating
between the facts there involved and those here presented.

It seems to us that an arguable question might have been raised as to the propriety of
allowing Salomon Ramas to recover the P300 which he had in fact paid upon the
contract in question; but the point has not been made the subject of any assignment of
error in this Court and must be passed without discussion.

The action of the trial court in absolving the defendant Roberto Quirante, although he
had made no defense, was correct and is worthy of some comment as embodying a
point of practice which should be called to the attention of courts and practitioners. The
rule is this: Where a complaint states a common cause of action against several
defendants and some appear to defend the case on the merits while others make
default, the defense interposed by those who appear to litigate the case inures to the
benefit of those who fail to appear; and if the court finds that a good defense has been
made, all of the defendants must be absolved. The proper mode of proceeding where a
complaint states a common cause of action against several defendants, and one of them
makes default, is simply to enter a formal default order against him, and proceed with
the cause upon the answers of the others. The defaulting defendant merely loses his
standing in court, he not being entitled to the service of notices in the cause, nor to
appear in the suit in any way. He cannot adduce evidence; nor can he be heard at the
final hearing. If the case is finally decided in the plaintiff's favor, a final decree is then
entered against all the defendants; but if the suit should be decided against the plaintiff,
the action will be dismissed as to all the defendants alike. (Frow vs. De la Vega, 15 Wall.,
552; 21 L. ed., 60.)

For the reasons stated the judgment must be affirmed; and it is so ordered, with costs
against the appellants.

[ G.R. No. L-16114, March 24, 1961 ]

MIGUEL MACTAL, PLAINTIFF AND APPELLANT, VS. FILOMENO
MELEGRITO, DEFENDANT AND APPELLEE.
 DECISION

CONCEPCION, J.:

This is an action to recover the sum of P1,777.00, plus P1,000.00 as moral

damages and P500.00 as attorney's fees. Defendant, Filomeno Melegrito, filed an
answer admitting some allegations of the complaint and denying other allegations
thereof, and setting up some special defenses and a counterclaim. In due course, the
Court of First Instance of Nueva Ecija rendered a decision dismissing the case with costs
against plaintiff, Miguel Mactal, upon the ground that the consideration of the
promissory note upon which the complaint is based was the dismissal of a criminal case
for estafa against the defendant and, hence, illicit, immoral and contrary to public
policy, as well as void ab initio. The case is before us on appeal taken by the plaintiff,
who maintains that the lower court erred in holding that this action is based, upon the
aforementioned promissory note, and that the consideration thereof was the dismissal
of the estafa case against the appellee.

It appears, and the lower court held, that, on or about February 5, 1953, Mactal delivered
P1,770.00 to Melegrito, to be used by him in the purchase of palay for Mactal, with a ten
(10%) per cent commission in his (Melegrito's) favor, or returned to Mactal, within ten
(10) days, should he (Melegrito) fail to buy palay. This obligation was set forth in a
receipt signed by Melegrito, who neither bought palay nor returned said amount. Hence,
Mactal accused him or estafa in the Justice of the Peace Court of Guimba, Nueva Ecija.
When the case was about to be heard, on October 19, 1953, Florencio Paraso, then chief
of police of Guimba, acting upon Melegrito's request, prevailed upon Mactal to move for
the dismissal of the case and be contented with a promise on the part of Melegrito to pay,
not later than January, 1954, said P1,777.00, plus the sum of P7,000, balance of his
account with Mactal in connection with another transaction. Accordingly, Melegrito
signed a document Exhibit A (also Exhibit 1), prepared by Paraso in the Tagalog dialect,
which translated into English, reads:

"I, Filomeno Melegrito, married, of age, at present residing at barrio Cabaruan, Guimba,
Nueva Ecija, this 15th day of October 1953, hereby certify to the following:

"That I am indebted to Mr. Miguel Mactal in the sum of P1,777.00 Philippine Currency,
which I promise to pay him within the month of January, 1954,
 "In witness whereof, I have hereunto affixed my name and surname in the
presence of two (2) witnesses, this 19th day of October, 1953, in Guimba, Nueva Ecija.
(Sgd.) Filomeno
 
Melegrito"

Forthwith, the receipt above mentioned was destroyed and the criminal case was, on the
same day, dismissed on motion of Mactal. Despite, however, repeated demands by the
latter, Melegrito subsequently failed to pay the aforementioned sum of P1,777.00. Hence,
this action, which was begun on January 26, 1955.

The lower court specifically found that Melegrito had on February 5, 1953, received from
Mactal P1,777.00 to be used in the purchase of palay for the latter, with the obligation to
return, said amount, within ten (10) days, if not spent for said purpose. In fact, Melegrito
admitted, on the witness stand, that he is indebted to the plaintiff in the aggregate sum of
P1,777.00, although he claims that his liability therefor was merely that of a guarantor,
not principal debtor. So when the chief of police succeeded in persuading Mactal to
withdraw the criminal case for estafa, Melegrito was only too willing to sign Exhibit A,
in which he promised to pay the aforementioned amount in January, 1954. The
consideration for this promise was, therefore, the aforesaid pre-existing debt of
Melegrito, not the dismissal of the estafa case, which merely furnished the occasion for
the execution of Exhibit A (see Garrido vs. Cardenas, L-10631 [promulgated April 25,
1958]; Hibberd vs. Rhode and McMillan, 32 Phil., 476; Goodrum vs. Merchants &
Planters Bank, 102 Ark. 326).

Wherefore, the decision appealed from is hereby reversed and. another one shall be
entered sentencing defendant Filomeno Melegrito to pay the plaintiff Miguel Mactal the
sum of P1,777.00, with interest thereon at the legal rate, from January 26, 1955, as well
as the costs of the proceedings. It is so ordered.

SECOND DIVISION
[ G.R. No. 220517, June 20, 2018 ]
LOLITA ESPIRITU SANTO MENDOZA AND SPS. ALEXANDER AND
ELIZABETH GUTIERREZ, PETITIONERS, VS. SPS. RAMON, SR. AND
NATIVIDAD PALUGOD, RESPONDENTS.

DECISION

CAGUIOA, J:
Before the Court is a petition for review on certiorari (Petition) under Rule 45 of the
Rules of Court assailing the Decision[1] dated April 29, 2015 (Decision) of the Court of
Appeals[2] (CA) in CA-G.R. CV No. 102904, denying the appeal of petitioners for lack of
merit, and the CA[3] Resolution[4] dated September 10, 2015, denying petitioners' motion
for reconsideration. The CA Decision affirmed the Decision [5] dated March 14, 2013 in
favor of respondents and Order[6] dated May 8, 2014, denying petitioners' motion for
reconsideration, of the Regional Trial Court of Bacoor, Cavite, Branch 19 (RTC) in Civil
Case No. BCV 2004-217.

The Facts and Antecedent Proceedings

The CA Decision's brief narration of facts and proceedings before the RTC follows:
[Petitioner] Lolita Espiritu Santo Mendoza (Lolita, for brevity) and Jasminia Palugod
(Jasminia, for brevity) were close friends. Lolita was a businesswoman engaged in selling
commodities and houses and lots, while Jasminia was then working as a Supervisor in the
Philippine Long Distance Telephone Company (PLDT). In 1991, Lolita and Jasminia
bought the subject lot [with an area of 120 sq. m.[7]] on installment for one (1) year until
they decided to pay the balance in full. [The lot is located in Sagana Remville[8] Homes,
Habay, Bacoor, Cavite.[9] In 1995, Jasminia became afflicted with breast cancer.
Sometime in 1996, Lolita and Jasminia constructed a residential house on the subject lot.
Although Lolita has no receipts, she shared in the cost of the construction of the house
from her income in the catering business and selling of various products. [Jasminia, based
on a certification[10], was separated from employment on December 30, 1998, and on
January 18, 1999, she received her retirement pay[11] in the amount of P1,383,773.59.[12]]
On May 11, 2004, Jasminia executed a Deed of [Absolute] Sale in favor of Lolita, who
eventually mortgaged [on November 19, 2004[13]] the subject property to [petitioner]
Elizabeth Gutierrez as a security for a loan in the amount of Php800,000.00.

On the other hand, [respondents spouses Ramon, Sr. and Natividad Palugod] alleged that
their daughter, the late Jasminia, acquired the property located in Sagana Homes, Habay,
Bacoor[,] Cavite. Prior to and after the said acquisition of the subject property, Jasminia
was living with [petitioner] Lolita, a lesbian. Jasminia was an employee of PLDT who
rose to the rank of Traffic Supervisor before her separation from service. [Petitioner]
Lolita has no work or means of livelihood of her own and was fully dependent on
Jasminia. Unfortunately, Jasminia was afflicted with Stage IV breast cancer with multiple
bone metastasis. When she was nearing her death, she told her mother, [respondent]
Natividad Palugod, that her house and lot shall go to her brother Ramonito Palugod, but
[petitioner] shall be allowed to stay therein. [Jasminia died on September 26, 2004 at the
Philippine General Hospital.[14]] Meanwhile, Lolita, taking advantage of her relationship
with Jasminia, caused the latter to sign a Deed of Absolute Sale in her favor. Thereafter,
Lolita, aided by her brother Wilfredo Mendoza as witness, entered it for registration with
the Office of the Registry of Deeds. Thus, TCT (Torrens [sic] Certificate of Title) No. T-
308560 in the name of Jasminia was cancelled and TCT No. T-1077041 was issued in the
name of Lolita.

[Respondents], upon learning from the Office of the Registry of Deeds that Jasminia's
certificate of title has been cancelled, executed an Affidavit of Adverse Claim of their
right and interest over the property as the only compulsory and legitimate heirs of
Jasminia. However, [petitioner] Lolita, knowing fully well of the impending suit, made it
appear that she mortgaged the property to [petitioners] Spouses Gutierrez as a security for
a loan amounting to Php800,000.00.

Thus, [respondents] filed a complaint for Declaration of Nullity of the Deed of Absolute

Sale and the Deed of Real Estate Mortgage with the RTC of Bacoor[,] Cavite.

On March 14, 2013, the RTC of Bacoor, Cavite, Branch 19, rendered the
assailed Decision in favor of [respondents]. The RTC declared that there can be no
contract unless the following concur: (a) consent; (2) object certain; and (3) cause of the
obligation. [Respondents] were able to prove by preponderance of evidence that the Deed
of Sale involved no actual monetary consideration. [Petitioner] Lolita, in her testimony,
admitted that the sale was without monetary consideration. The RTC ruled that the Deed
of Sale is void for being simulated, hence, the Deed of Real Estate Mortgage executed
therein by [petitioner] Lolita in favor of [petitioners] Spouses Gutierrez is likewise void,
since, in a real estate mortgage, it is essential that the mortgagor be the absolute owner of
the property to be mortgaged.

[The dispositive portion of the RTC Decision states:

WHEREFORE, premises considered, the judgment is hereby rendered in favor of the
[respondents] Sps. Ramon, Sr. and Natividad Palugod and against the [petitioners] Lolita
Espiritu Santo Mendoza and Sps. Alexander and Elizabeth Gutierrez as follows:

1. That the Deed of Absolute Sale dated May 11, 2004 purportedly executed by x x x
Jasminia Palugod in favor of [petitioner] Lolita Espiritu Santo Mendoza as null
and void;

2. That the Deed of Real Estate Mortgage dated November 19, 2004 executed by
[petitioner] Lolita Espiritu Santo Mendoza in favor of [petitioners] Spouses
Alexander and Elizabeth Gutierrez as null and void;

3. To cancel the Transfer Certificate of Title No. T-1077041 in the name of

[petitioner] Lolita Espiritu Santo Mendoza and to reinstate Transfer Certificate of
Title No. 308560 in the name of Jasminia P. Palugod;

4. Declaring [respondents] as the lawful owner[s] of the subject property by

succession as the only and compulsory heirs of the late Jasminia P. Palugod; and
 5. Ordering [petitioners], jointly and severally, to pay [respondents] the amount of
Php200,000.00 in attorney's fees.

SO ORDERED.[15]]
[Petitioners] filed [a] motion for reconsideration, but the RTC, in the
assailed Order dated May 8, 2014, denied the same for lack of merit.

Aggrieved, [petitioners] interposed [an] appeal [before the CA].[16]

The CA Ruling

The CA denied petitioners' appeal for lack of merit. The CA ruled that respondents, being
the only surviving heirs of Jasminia[17] Paloma Palugod (Jasminia), have the legal
personality to question the validity of the deed of sale between Jasminia and petitioner
Lolita Espiritu Santo Mendoza (petitioner Lolita).[18] The CA found no cogent reason to
deviate from the finding of the RTC that the deed of sale is null and void for being
absolutely simulated since it did not involve any actual monetary consideration.[19] The
CA likewise agreed with the RTC's finding that the real estate mortgage between
petitioner Lolita and petitioners spouses Alexander and Elizabeth Gutierrez is null and
void because the mortgagor was not the absolute owner of the mortgaged property. [20] The
dispositive portion of the CA Decision reads as follows:
WHEREFORE, the appeal is DENIED for lack of merit. The assailed March 14,
2013 Decision and May 8, 2014 Order of the RTC of Bacoor, Cavite, Branch 19, in Civil
Case No. BCV 2004-217, are AFFIRMED.

SO ORDERED.[21]
Petitioners filed a motion for reconsideration, which was denied by the CA in its
Resolution[22] dated September 10, 2015.

Hence, the present Petition. The Court in its Resolution[23] dated January 13, 2016 denied
the Petition for failure to sufficiently show any reversible error in the challenged CA
Decision and Resolution as to warrant the exercise of the Court's appellate jurisdiction.
Petitioners filed a Motion for Reconsideration[24] dated March 28, 2016. Respondents
opposed the Motion for Reconsideration and filed an Opposition/Comment[25] dated April
20, 2016. In its Resolution[26] dated October 3, 2016, the Court granted petitioners'
Motion for Reconsideration, reinstated the Petition and required respondents to comment
on the Petition. Respondents filed their Comment[27] dated February 4, 2017. Petitioners
filed a Reply[28] dated July 10, 2017.

Issues

The Petition raises the following issues:

 1. Whether the CA erred in not upholding as applicable to the case the legal principle
that a written contract is for a valuable consideration despite the utter failure to
prove beyond a selective appreciation of the transcript of stenographic notes that
there was indeed no consideration;

2. Whether the CA erred in not upholding as applicable to this case the legal
principle that inadequacy of monetary consideration does not render a conveyance
null and void; and

3. Whether the CA erred when it affirmed the finding of the RTC that petitioners-
mortgagees are jointly liable with petitioner-mortgagor despite the lack of
evidence against their innocence contrary to the legal principle that innocent
parties must not be held liable for damages.[29]

The Court's Ruling

The Petition is meritorious.

While petitioners couch the issues based on erroneous application of certain legal
principles - presumption and adequacy of consideration of contracts, they inherently
involve a determination of the correctness of the finding by both the CA and the RTC that
respondents have established by preponderance of evidence the lack of consideration of
the disputed deed of sale. Necessarily, questions of fact must be hurdled in the resolution
of the issues raised by petitioners.

As a rule, the factual findings of the CA affirming those of the RTC are final and
conclusive, and they cannot be reviewed by the Court which has jurisdiction to rule only
on questions of law in Rule 45 petitions to review.[30]

The Court in Pascual v. Burgos[31] reiterated that:

A question of fact requires this [C]ourt to review the truthfulness or falsity of the
allegations of the parties.[32] This review includes assessment of the "probative value of
the evidence presented."[33] There is also a question of fact when the issue presented
before this [C]ourt is the correctness of the lower courts' appreciation of the evidence
presented by the parties.[34]
There are, however, recognized exceptions where the Court may review questions of fact.
These are: (1) when the factual conclusion is a finding grounded entirely on speculations,
surmises and conjectures; (2) when the inference is manifestly mistaken, absurd or
impossible; (3) when there is abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA
went beyond the issues of the case in making its findings, which are further contrary to
the admissions of both the appellant and the appellee; (7) when the CA's findings are
contrary to those of the trial court; (8) when the conclusions do not cite the specific
evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioner's main and reply briefs are not disputed by the respondents; (10) when the
CA's findings of fact, supposedly premised on the absence of evidence, are contradicted
by the evidence on record;[35] or (11) when the CA manifestly overlooked certain relevant
facts not disputed by the parties, which, if properly considered, would justify a different
conclusion.[36]

As will be demonstrated below, the Court's review of the factual findings of the courts
below is justified by the fourth, tenth and eleventh exceptions the assailed judgments of
the CA and the RTC are based on a misapprehension of facts; the findings of fact of the
CA and the RTC, supposedly premised on the absence of evidence, are contradicted by
the evidence on record; and the CA as well as the RTC manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.

At the heart of the present controversy between respondents spouses Ramon, Sr.
(respondent Ramon) and Natividad Palugod (respondent Natividad), the parents of the
late Jasminia and her "close friend"[37] petitioner Lolita is the (unilateral) Deed of
Absolute Sale[38] (DAS) notarized on May 11, 2004 executed by Jasminia in favor of
petitioner Lolita, the validity of which is the central issue in this case. The DAS partly
states:
I, JASMINIA PALOMA PALUGOD x x x hereinafter referred to as the VENDOR,
FOR AND IN CONSIDERATION of the sum of FOUR HUNDRED THOUSAND
PESOS (P400,000.00) Philippine Currency, receipt of which is hereby acknowledged
and confessed, have SOLD, TRANSFERRED, and CONVEYED, absolutely and
perpetually to LOLITA ESPIRITU SANTO MENDOZA x x x hereinafter referred to
as the VENDEE, her heirs, successors, and assigns, my ONE HUNDRED TWENTY
(120) SQUARE METERS lot located at Habay, Bacoor, Cavite, including all
improvements found therein x x x.[39]
Both the RTC and the CA declared the DAS void on the ground that it was fictitious or
simulated on account of lack of consideration. According to the RTC, petitioner Lolita
"admitted that she has no receipts showing the staggered payment of P400,000.00 or any
agreement made between her and Jasminia as to the consideration of the subject
property."[40] On the other hand, the CA stated that:
Although, on its face, the Deed of Sale appears to be supported by valuable consideration,
since it states that Lolita paid the purchase price of Php400,000.00 for the subject
property. However, based on the testimony of [petitioner] Lolita, it has been proven that
she gave no consideration therefor. Having proven that the price, as reflected in the Deed
of Sale is simulated, it is beyond doubt that the sale is null and void. Article 1471 of the
New Civil Code provides that "If the price is simulated, the sale is void, x x x." Thus,
[respondents] are the lawful owners of the subject property by intestate succession as the
only and compulsory heirs of the late Jasminia.[41]
Both the RTC and the CA relied on the following testimony of petitioner Lolita:
ATTY. ARANDIA: Also, in the presence of Atty. Bongon [the notary public], did you
pay Jasminia the consideration on the Deed of Absolute Sale?

WITNESS: No, sir.

ATTY. ARANDIA: There was none?

WITNESS: Yes, sir.[42]

To the lower courts, the above-quoted testimony of petitioner Lolita, plus the absence of
receipts, is the unrebutted proof of the DAS' lack of consideration.

In their motion for reconsideration before the CA and in their Petition, petitioners argue,
however, that petitioner Lolita's principal proof that she did purchase the subject property
is the DAS itself while the evidence against her by respondents are all verbal averments,
which are mere conjectures and even hearsay.[43]

While petitioner Lolita concedes that she did not pay the consideration for the purchase
of the subject property before Notary Public Atty. Jesus Bongon[44], she asserts that the
payment was made prior to the notarization of the DAS as shown in her testimony taken
on February 23, 2010.[45] She likewise argued this point before the CA in petitioners'
motion for reconsideration.[46]

The lower courts, as will be explained below, failed to properly consider the foregoing
argument and evidence that petitioner Lolita raised and adduced. The outcome of the case
would have been different had the lower courts given them the due consideration they
deserved.

As correctly pointed out by petitioner Lolita, the DAS is itself the proof that the sale of
the property is supported by sufficient consideration. This is anchored on the disputable
presumption of consideration inherent in every contract. Thus, Article 1354 of the Civil
Code provides: "Although the cause is not stated in the contract, it is presumed that it
exists and is lawful, unless the debtor proves the contrary."

This disputable presumption is reiterated in the Rules of Court (Rules). Section 3, Rule
131 of the Rules provides:
SEC. 3. Disputable presumptions. - The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:

xxxx

(r) That there was a sufficient consideration for a contract[.]

In Mangahas v. Brobio,[47] the Court explained how the presumption of sufficient
consideration can be overcome, to wit:
A contract is presumed to be supported by cause or consideration.[48] The presumption
that a contract has sufficient consideration cannot be overthrown by a mere assertion that
it has no consideration. To overcome the presumption, the alleged lack of consideration
must be shown by preponderance of evidence.[49] The burden to prove lack of
consideration rests upon whoever alleges it, which, in the present case, is respondent. [50]
Guided by the above provisions of the Civil Code and the Rules as well as jurisprudence,
petitioners stand to benefit from the disputable presumption of consideration with the
presentation of the DAS. Indeed, they can rely on the DAS as proof that it has
consideration - "FOR AND IN CONSIDERATION of the sum of FOUR HUNDRED
THOUSAND PESOS (P400,000.00) Philippine Currency, receipt of which is hereby
acknowledged and confessed."[51]

With the presumption in favor of petitioner Lolita who is the vendee, it became
incumbent upon respondents to present preponderant evidence to prove lack of
consideration. Respondents' mere assertion that the DAS has no consideration is
inadequate.

Regarding the determination of preponderance of evidence, Section 1, Rule 133 of the

Rules provides:
SECTION 1. Preponderance of evidence, how determined. - In civil cases, the party
having the burden of proof must establish his case by a preponderance of evidence. In
determining where the preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and circumstances of the case, the
witnesses' manner of testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of
interest, and also their personal credibility so far as the same may legitimately appear
upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
The basic rule in civil cases is:
x x x that "the party having the burden of proof must establish his case by a
preponderance of evidence."[52] By "preponderance of evidence is meant simply evidence
which is of greater weight, or more convincing than that which is offered in opposition to
it."[53] x x x

xxxx

"Where the evidence on an issue of fact is in equipoise or there is doubt on which side the
evidence preponderates[,] the party having the burden of proof fails upon that
issue."[54] Therefore, as "neither party was able to make out a case, neither side could
establish its cause of action and prevail with the evidence it had. They are thus no better
off than before they proceeded to litigate, and, as a consequence thereof, the courts can
only leave them as they are. In such cases, courts have no choice but to dismiss the
complaints/petitions."[55]
While the RTC ruled that "[respondents] established by a preponderance of evidence that
the Deed of Sale dated May 11, 2004 involved no actual monetary consideration,
executed by Jasminia in favor of [petitioner] Lolita,"[56] it relied not on the testimony of
the lone witness for respondents, respondent Natividad, but on the testimony of petitioner
Lolita admitting that "in the presence of the Notary Public, Atty. Bongon, the sale was in
fact without consideration"[57] and "she has no receipts showing the staggered payment of
P400,000.00 or any agreement made between her and Jasminia as to the consideration of
the subject property."[58] Thus, the RTC Decision made no mention of the pertinent
testimony of respondent Natividad wherein she controverted the presumption of
consideration.

The CA echoed the finding of the RTC and stated: "A perusal of the records of the case
reveals that [respondents] were able to establish by a preponderance of evidence that
the Deed of Sale is absolutely simulated, since, it did not involved (sic) any actual
monetary consideration."[59] The CA then quoted the testimony of petitioner Lolita where
she admitted that the consideration of the DAS was not paid in the presence of Atty.
Bongon. The CA, like the RTC, did not advert to the testimonial evidence adduced by
respondents through respondent Natividad.

Since preponderance of evidence is the required quantum of proof in this case, the
evidence of respondents, who are the plaintiffs before the RTC, must be weighed against
the petitioners' evidence, and a determination of which one has superior weight must be
made.

As mentioned earlier, respondents relied solely on the testimony of respondent Natividad.

A careful reading of the testimony of respondent Natividad, the mother of Jasminia,
reveals that respondents' evidence on the lack of consideration of the DAS can be inferred
from the following:
[Atty. Edgardo Arandia, respondents' counsel, to witness respondent Natividad]
ATTY. ARANDIA
Q Why did you say that they were living as if they were husband and wife?
WITNESS
A They were living in that house and Lolita Mendoza is a lesbian "tomboy", sir.
ATTY. ARANDIA
Q And who was spending for their everyday living?
WITNESS
A Jasminia, sir.
ATTY. ARANDIA
Q Why? Was (sic) Lolita has no income of her own?
WITNESS
A No, sir. She has none.
ATTY. ARANDIA
Q What was the occupation or job of Jasminia at that time?
WITNESS
A My daughter is a Supervisor at the PLDT, sir.
ATTY. ARANDIA
Q You are telling us that Lolita was purely dependent from Jasminia?
WITNESS
A Yes, sir.
xxxx
ATTY. ARANDIA
Q What did you talk about?
WITNESS
A She [Jasminia] told me that the house and lot is for Ramonito and she requested not to evict
Lolita from the house and I said "yes" we will not asked (sic) Lolita to leave the house, sir.
[60]

Respondent Natividad further testified as follows:

ATTY. ARANDIA:
Mrs. Palugod, what can you say on this Deed of Absolute Sale marked as Exhibit "F"?
WITNESS:
That's not true because in fact my daughter when she's still alive had been telling me that the
said house and lot will be given to her brother Ronnie and we will not ask Lolita Mendoza
to vacate or to leave the place, sir.
xxxx
ATTY. ARANDIA:
Mrs. Palugod, what else did you discover with the Office of the Register of Deeds for the
Province of Cavite in connection with this property of Jasmina in addition to its transfer
from the name of your daughter to the name of Lolita?
WITNESS:
We also discovered that the Deed of Sale is not true and that is a fake "gawa-gawa lang po",
sir.[61]
In fine, respondent Natividad simply reiterated the allegations in the "Sinumpaang
Salaysay ng Paghahabol (Affidavit of Adverse Claim)" dated November 24, 2004 that
she and her husband, respondent Ramon, executed, to wit:
Nalagay sa pangalan ni Lolita Espiritu Santo Mendoza ang titulong lupa't-bahay sang-
ayon sa isang Deed of Absolute Sale na lumalabas ay binili niya iyon sa aming
namayapang anak na si Jasminia sa halagang P400,000.00 piso daw;

Wala pong katotohanan ang nasabing bilihan sapagkat iyon ay isang hindi tatoo at isang
simulated or fictitious na bilihan lamang dahil imposibleng bayaran [ni] Lolita ang anak
[namin] dahil sila ay nagsasama bilang mag-asawa (tomboy po si Lolita) at si Lolita ay
walang hanapbuhay at umaasa lamang sa aming anak nasi Jasminia. Ang katotohanan pa
nga, ay na[n]g magkasakit ang aming anak, lahat ng ginagastos sa pagpapagamot sa
kanya ay galing sa kanyang mga kapatid na ibinibigay [namin] kay Lolita. Bukod pa
doon, bago siya namatay ay ibinilin niya sa amin n[a] huwag paaalisin si Lolita sa bahay
kung iyon ay manahin [namin] at hindi kailanman iyon ay ipinagbili sa kanya;
Kung kaya[']t bilang tanging tagapagmana at sa ilalim ng batas ay kami na ang may-ari
ng nasabing lupa[']t bahay, ay aming isinasagawa ang sinumpaang salaysay na ito upang
patunayang lahat ang nakasaad sa itaas x x x.[62]
On the other hand, petitioner Lolita disputed the assertion that she has no income and
means of livelihood, and presented documents in support thereof, to wit:
[Atty. Lawrence[63] Rubio, petitioners' counsel, to petitioner Lolita]
ATTY. RUBIO:
Miss witness, can you tell us your occupation?
WITNESS:
I am a businesswoman, sir.
ATTY. RUBIO:
Can you tell us what kind of business are you engaged into?
WITNESS:
I am engaged in selling food, catering services. I am also engaged in selling house and lot,
sir.
ATTY. RUBIO:
Your (sic) are telling us that you are engaged into selling as agent. Do you have any proof to
show that you are engaged in such business?
WITNESS:
Yes sir, I have.
ATTY. RUBIO:
What are those documents, madame witness?
WITNESS:
I have documents coming from the offices wherein I was able to sell house and lot and also
documents coming from other offices wherein I transacted business catering with them, sir.
ATTY. RUBIO:
Madame witness, I am showing to you Exhibit "3["][64] and "3-A",[65] is this the one that I am
(sic) referring to?
WITNESS:
Yes sir.
xxxx
ATTY. RUBIO:
When we say occupation, we are talking of income. Can you tell us if you receive any
income from this occupation?
WITNESS:
Yes sir.
ATTY. RUBIO:
Can you show us any proof that you had received any income from this business or
occupation that you mentioned?
WITNESS:
I have a statement of account, I invested the money with the bank. I also bought a house and
lot and I invested money with MMG, sir.
ATTY. RUBIO:
I am showing to you a document previously marked as Exhibit "4"[66]. Can you tell us if you
are referring to this document that you mentioned?
WITNESS:
 Yes sir.
ATTY. RUBIO:
How about Exhibits "5"[67] & "6"[68]?
WITNESS:
Yes sir.
xxxx
COURT:
By the way, what are those properties owned by the defendants?
ATTY. RUBIO:
Your honor, these are savings accounts from banks.
COURT:
How many savings accounts does she have?
ATTY. RUBIO:
She has one from China Bank and the Memorandum of Agreement which the witness
identified were investments from holdings company which she has invested, your honor.
COURT:
How much was her investments in those companies and what are those companies? She
mentioned that she invested with the MMG, is it not? So, how much was she invested (sic)
with MMG?
WITNESS:
Four Hundred Thousand Pesos (PhP400,000.00) and another Two Hundred Thousand pesos
(PhP200,00.00) (sic), your honor.
COURT:
What else? Aside from MMG, do you invest your money to other investing company?
WITNESS:
At China Bank, your honor.
COURT:
Was it investment or deposit?
WITNESS:
Deposit, your honor.[69]
The foregoing testimony of petitioner Lolita and the documentary evidence in support
thereof show that she had income and the means to pay the consideration stated in the
DAS. These documentary evidence - (1) Certification from E.B. Loredo Realty
Corporation dated January 6, 2005 that petitioner Lolita had been a sales agent of the said
realty corporation from January 2001 up to December 2002 (Exh. "3"); (2) Certification
from Cesar C. Cruz & Partners Law Offices dated December 22, 2004 that petitioner
Lolita was supplying food consisting of lunch and snacks to the employees of the said
law office from 1982 to 1988 (Exh. "3-A"); (3) Certification from Chinabank, SM City
Bacoor Branch dated December 16, 2004 that since 1998 petitioner Lolita maintained
accounts with the said bank under TD#168020017540, TD#168020018239,
SA#2680029315 and SA#2680873817 (Exh. "4"); (4) Notarized Memorandum of
Agreement between MMG International Holdings Co., Ltd. (MMG) and Jasminia
Palugod &/or Lolita Mendoza (Capitalist) dated June 26, 2002 wherein the Capitalist
turned over P800,000.00 for MMG to use as capital for six months at 2.5% monthly
compensation, expiring on December 26, 2002 (Exh. "5"); and (6) Notarized
Memorandum of Agreement between MMG and Lolita Mendoza (Capitalist) dated June
26, 2002 wherein the Capitalist turned over P200,000.00 for MMG to use as capital for
six months at 2.5% monthly compensation, expiring on December 26, 2002 (Exh. "6") -
were all unrebutted by respondents. For their part, both the CA and the RTC totally
ignored them.

As to the consideration of the DAS, both the RTC and the CA concluded that since Lolita
admitted in her testimony, as quoted earlier, that she did not pay the consideration of the
DAS before the notary public, the DAS lacks consideration. However, petitioner Lolita
offered the following explanation:
RE-DIRECT-EXAMINATION:
[Atty. Rubio to petitioner Lolita]
ATTY. RUBIO:
During the hearing last June 30, 2009 you were asked by the counsel or (sic) the plaintiff
"Did you pay Jasminia for the consideration of the Deed of Absolute Sale? You answered,
No, sir." As appearing on the Transcript of Stenographic Notes of the same date. My
question madame witness is, can you clarify why you were not able to pay the
consideration?
xxxx
ATTY. RUBIO:
My question madame witness is, since you were not able to pay her at that time, when did
you pay her?
xxxx
WITNESS:
I paid in 2002, sir.
xxxx
ATTY. RUBIO:
Madame witness, you answered 2002, can you tell us when the Deed of Absolute Sale was
executed?
WITNESS:
May 11, 2004, sir.
ATTY. RUBIO:
You paid Jasminia the consideration of the property before the execution of the Deed of
Absolute Sale?
WITNESS:
Yes sir.
ATTY. RUBIO:
Can you tell us the circumstances how you paid Jasminia the consideration of the property
subject of this case?
xxxx
ATTY. RUBIO:
Can you tell us the manner of payment, madame witness?
xxxx
WITNESS:
Whenever Jasminia needs money since she's having her treatment so I gave her the amount
of TWENTY THOUSAND PESOS (Php20,000.00) sometimes FORTY THOUSAND
 PESOS (Php40,000.00) until it reached the amount of TWO HUNDRED THOUSAND
PESOS (Php200,000.00), sir.
xxxx
ATTY. RUBIO:
You only paid Php200,000.00 that time[.]
WITNESS:
Because that's the only money left with me and the other Php200,000.00 was borrowed by
Jasminia from my sister in Australia, sir.
xxxx
COURT:
What transpired during the meeting between your sister and Jasminia when you said you
were present?
WITNESS:
That my sister will lend money to Jasminia, you honor.
COURT:
Do you know how much money is she going to lend to Jasminia?
WITNESS:
Two Hundred Thousand Pesos (Php200,000.00), your honor.
xxxx
ATTY. RUBIO:
After agreeing to let Jasminia borrow money from your sister, what happened next?
WITNESS:
She was given first Fifty thousand Pesos (Php50,000.00), sir.
COURT:
When was that?
WITNESS:
That was also in the year 2002, you honor.
COURT:
Was it during the meeting wherein Jasminia and your sister talked about this loan?
WITNESS:
Yes your honor.
COURT:
So, immediately your sister lend her Php50,000.00?
WITNESS:
Yes your honor.
ATTY. RUBIO:
What about the balance of Php150,000.00?
WITNESS:
When she returned to Australia she's sending money to my mother including the money that
Jasmin[ia] is (sic) asking, sir.
xxxx
COURT:
By the way, when your sister gave Jasminia the amount of Php50,000.00, was there any
receipt prepared to show that your sister indeed lend (sic) money in the amount of
Php50,000.00?
WITNESS:
 There's none, your honor.
COURT:
How about the other money that your sister sent to your mother in order to give to Jasminia,
were there any receipts?
WITNESS:
None also you honor.
xxxx
RE-CROSS EXAMINATION:
[Atty. Arandia to petitioner Lolita]
ATTY. ARANDIA:
Miss. (sic) Mendoza, you mentioned that you paid Jasminia Palugod Php200,000.00 in
partial payment of the property the subject matter in this case and according to you the
payment was on a staggered basis way back in 2002. Now, my question is, do you have
receipts showing that you paid Jasminia Php200,000.00 on staggered basis?
WITNESS:
None, sir.[70]
From the foregoing, it is evident to the Court that petitioner Lolita's proof of payment of
the DAS' consideration was her sworn testimony. Testimony, given under oath, and
subjected to cross-examination is proof.[71] Unfortunately, both the CA and the RTC
brushed this aside only because the RTC zeroed in on the lack of receipts.

Since the evidence of the parties are mainly testimonial, it behooved the RTC, as well as
the CA, to weigh the version of respondents against that of petitioners. The Court is
called upon to do the same in order to determine which evidence preponderates.

Before the narrations of respondent Natividad and petitioner Lolita are pitted against each
other to determine which one preponderates over the other, the Court notes the glaring
inconsistencies in respondent Natividad's testimony:

1. According to respondent Natividad, Jasminia used her retirement pay to buy the lot and
constructed the house in Sagana Remville, Habay, Bacoor, Cavite, to wit:
[Atty. Arandia to respondent Natividad]
ATTY. ARANDIA
Q Was Jasminia able to retire from PLDT before her death?
WITNESS
A Yes, sir.
xxxx
ATTY. ARANDIA
xxxx
Q Do you know if Jasminia able (sic) to get her retirement benefit from PLDT?
xxxx
WITNESS
A Yes, sir. She was able to receive it.
ATTY. ARANDIA
Q Do you know what Jasminia did on her retirement benefit?
WITNESS
A Yes, sir.
ATTY. ARANDIA
Q What?
WITNESS
A She bought a lot and constructed a house, sir.
ATTY. ARANDIA
Q And that property or lot you are saying now is the same property located in Sagana
Remville, Habay, Bacoor, Cavite?
WITNESS
A Yes, sir.[72]
Respondent Natividad's account could not have happened because Jasminia received her
retirement pay equivalent to P1,383,773.59 on January 18, 1999 based on the Receipt,
Release and Quitclaim (Exh. "8"[73]) that Jasminia executed on even date, which was
after the purchase of the subject lot and the construction of the subject house.

Indeed, petitioner Lolita disputed respondent Natividad's version, to wit:

[Atty. Rubio to petitioner Lolita]
ATTY. RUBIO:
x x x Madame witness, during the hearing dated November 27, 2007, when the plaintiff
testified you were present in Court?
WITNESS:
Yes sir.
ATTY. RUBIO:
So, when the witness was asked: "Do you know what Jasminia did on her retirement
benefit?["] And the witness answered: "Yes, sir.". "What?["], asked by counsel and the
witness answered: "She bought a lot and constructed a house, sir." Can you tell us, what
can you say about this testimony?
WITNESS:
That's not true, sir.
ATTY. RUBIO:
Why?
WITNESS:
Because we bought that lot in 1991 and the house was constructed in February of 1996, sir.
[74]

2. According to respondent Natividad, Jasminia's retirement pay was used by Jasminia

and petitioner Lolita for their trips to Hong Kong, Norway and Australia, to wit:
[Atty. Arandia to respondent Natividad]
ATTY. ARANDIA
Q Do you know if Jasminia and Lolita went abroad from that retirement benefit?
xxxx
WITNESS
A They went to Hong Kong, Australia and Norway, sir.
COURT
Q Why do you know that they went to those places?
WITNESS
A Because we were living in the same house and I was with them when they went to Hong
Kong, Your Honor.
COURT
Q So, do you mean to say that you were living with Lolita and Jasminia in their house at
Sagana Remville, Habay, Bacoor, Cavite?
WITNESS
A Not me, only the two of them, Your Honor.[75]
On the other hand, petitioner Lolita's version is as follows:
ATTY. ARANDIA:
And from this separation benefit which Jasminia received from PLDT you even went wither
(sic) in Europe, in Hong Kong and in Australia?
WITNESS:
That's not true, sir. At the time we went to Europe and Hong Kong, Jasminia had not yet
separated from PLDT and in fact we went together with her mother at the time we went in
those places, sir.
COURT:
Do you still recall what year was that when you, Jasminia and together with her mother
went to Europe?
WITNESS:
In Europe, that was May, 1997, you honor.
COURT:
How about in Hong Kong?
WITNESS:
In Hong Kong, that was September, 1995, your honor.
COURT:
How about in Australia?
WITNESS:
In Australia, that was in March, 1999, your honor.
COURT:
So, that was after her separation?
WITNESS:
Yes your honor.
ATTY. ARANDIA:
With all these tours and trips with these countries which you mentioned, it was Jasminia
who spent for the travel?
WITNESS:
In Hong Kong, it was her mother who paid. In Norway, the three (3) tickets were sent by
her brother because we had an invitation to go to Norway so that we will (sic) be able to get
a Visa.
COURT:
In other words, the expenses came from the brother of Jasminia?
WITNESS:
Yes you honor, but I paid my ticket when we reached Norway.
ATTY. ARANDIA:
And what is the name of the brother of Jasminia in Norway?
WITNESS:
 Ramonito Palugod, sir.
ATTY. ARANDIA:
And according to you, you reimbursed the ticket given to you upon arrival in Norway?
WITNESS:
Yes sir, I paid it in dollar.
ATTY. ARANDIA:
To whom did you pay?
WITNESS:
To Ramonito, sir.
ATTY. ARANDIA:
How much did you pay Ramonito?
WITNESS:
One Thousand Dollars ($1,000.00), sir.
ATTY. ARANDIA:
Do you have receipt that you have actually reimbursed Ramonito for that ticket?
WITNESS:
None, sir.[76]
3. According to respondent Natividad, her daughter Jasminia could not possibly travel
from Bacoor to Pasay City where the DAS was notarized because she had a brace and her
bone is "napupulbos na."[77] Her testimony in this aspect is reproduced below:
ATTY. ARANDIA:
On the second page of this Exhibit "F" is the acknowledgment portion wherein it is stated
here that it was allegedly acknowledged before the Notary Public in Pasay City and this
Deed of Absolute Sale appears to have been executed on May 11, 2004. My question is,
during the time, May 11, 2004 can Jasmina travel from Bacoor to Pasay City to
acknowledge this Deed of Sale before a Notary Public?
xxxx
WITNESS:
On the said date and time my daughter cannot possibly travel from Bacoor in going to Pasay
City because during that time she already had a bone cancer and she had a brace and her
bone is "napupulbos na", sir.[78]
To dispute respondent Natividad's account, petitioner Lolita presented Dr. Teresa Sy
Ortin (Dr. Ortin), a Radiation Oncologist at Makati Medical Center, who issued a
Medical Certificate[79] dated December 20, 2004. Dr. Ortin's testimony follows:
[Atty. Lawrence Rubio to Dr. Ortin]      
ATTY. RUBIO:       
Madam witness, can you recall your employment in the year May 11, 2004? Where were
you employed at that time?       
WITNESS:   
I'm a Radiation Oncologist at Makati Medical Center. I'm a cancer specialist, sir.  
x x x x       
ATTY. RUBIO:   
x x x Can you remember a patient by the name of Jasminia Palugod?       
WITNESS:   
Yes, sir. I have her records with me.       
ATTY. RUBIO:   
Can you tell us what is the nature of her illness?      
WITNESS:   
She had breast cancer. I treated her for several times and the last treatment was on April
16, 2004 for which she received treatment for the period April 16 to May 13, 2004, sir.   
ATTY. RUBIO:   
I have here a Medical Certificate dated December 20, 2004. I am showing to you this
document. Can you tell us what is the relation of this document to the one you have
mentioned?       
WITNESS:   
Actually, I have a copy of that on my record and this certifies that she came to us for
treatment, in my clinic.       
x x x x      
ATTY. RUBIO:   
x x x During that time, madam witness, April 16, 2004 to May 13, 2004, how often does
(sic) your patient Jasminia Palugod came (sic) to Makati Medical Center?       
WITNESS:   
She was treated daily, because our schedule of radiation therapy is everyday, from 8:00 to
5:00. So, it's a total of eighteen (18) treatments. So, that is over four (4) weeks.       
ATTY. RUBIO:   
During that time, do you know who was with her?       
WITNESS:  
I remember as her companion... I don't know her name but I recognize her face.    
ATTY. RUBIO:   
For the record, your Honor, may I state that the witness is pointing to the defendant Lolita
Mendoza as the companion of patient Jasminia Palugod at the time the patient is being
assisted at the Makati Medical Center.       
COURT:   
Noted.[80]
On cross-examination, Dr. Ortin further testified:
[Atty. Arandia to Dr. Ortin]
ATTY. ARANDIA:
How long is the radiation treatment being conducted for each exposure?
WITNESS:
About fifteen (15) minutes, sir.
ATTY. ARANDIA:
After exposing the patient on radiation therapy, what is the effect thereof on her physical
condition?
WITNESS:
Radiation therapy is a local treatment, so the side effect should end on where the radiation is
directed. For example, there were exposure on the arms, other parts of the body would not
have any significant side effect.
ATTY. ARANDIA:
In the case of Ms. Palugod, who was according to you, afflicted with cancer which has
 metastasized. So what part of her body was subjected to radiation exposure therapy?
WITNESS:
According to the records, it was in the thoraxic spine.
ATTY. ARANDIA:
What would be the effect of that radiation on the patient after exposure?
WITNESS:
The side effect is very minimal. You may feel a little weak but as you can see most of our
patients are treated in my clinic as out patient. They don't need to be confined. Most of our
patients can walk around and able to do their other duties after treatment.
ATTY. ARANDIA:
Will they feel weakness after the therapy?
WITNESS:
Yes, but not very significant for us to require them to stay in the hospital.
ATTY. ARANDIA:
In the case of Ms. Palugod considering that her cancer has already metastasized. I will
assume that during those times, Ms. Palugod was weak already?
xxxx
WITNESS:
I remember she was coming on a wheelchair and her main problem at that time, the reason
for the radiation, is that because she was in pain.
ATTY. ARANDIA:
On wheelchair. Meaning to say that she was weak to walk by herself?
WITNESS:
Yes, sir.
ATTY. ARANDIA:
And that her weakness will be aggravated after weeks of radiation therapy?
WITNESS:
Not significantly.
ATTY. ARANDIA:
What do you mean, "not significantly["]?
WITNESS:
It's not going to be extremely weak that you need to confine her because of the problem?
COURT:
What would be the end result of that radiation treatment to a person afflicted by cancer?
Would she be cured or would she be strong after each treatment?
WITNESS:
The main problem why she was referred to us was because she was in extreme pain, and
radiation is supposed to regress the pain and makes her to feel better.
COURT:
During this treatment, and you said that it was on a daily basis, after being treated for at
least fifteen (15) minutes of radiation, what should be the effect to Ms. Palugod?
WITNESS:
After few days of treatment, we expect her to be relieved....
COURT:
From the pain that she is suffering.
WITNESS:
 Yes. Her treatment started on April 16 and on April 30, she claimed that she felt some relief
from her back pain.
xxxx
ATTY. ARANDIA:
x x x Ordinarily, if the patient like Ms. Palugod, who has been suffering from cancer which
has metastasized and who was undergoing radiation therapy, would it be natural for that
patient like Ms. Palugod to go to a notary public to acknowledge a document?
xxxx
WITNESS:
I don't think there's problem with that. For patients who are terminally ill, we advise them to
take care of things, important decisions that they have to decide on. So, I don't think that
should be a problem for patients who are suffering from illness with that concern.
ATTY. ARANDIA:
For all the treatments that you had been undertaken to Ms. Palugod, was she always
accompanied by somebody?
WITNESS:
Yes, as far as I can remember.
ATTY. ARANDIA:
So in other words, she cannot come to your office without being assisted by another person?
WITNESS:
Probably, not.
ATTY. ARANDIA:
What do you mean, "probably, not"?
WITNESS:
Because she has a very advance disease, I don't think, anybody would want her to go for
treatment by herself, especially because of her disease, it affected her bone, and she was in
pain, probably, she would not be able to travel by herself.
ATTY. ARANDIA:
What about the mental capacity of the witness, in your assessment, how was Ms. Palugod
during that time? Was her mental capacity affected by her illness?
xxxx
WITNESS:
In my clinical assessment, there is no reason to prove that her mental capacity has been
affected. If we notice something, the usual is we talk to the patient and we would request
additional test, and there is no such evaluation in our record, so I would think that at that
time, in our clinical judgment, her disease does not affect her mental capacity or function.[81]
Based on Dr. Ortin's clear, categorical and compelling testimony, Jasminia was not
physically incapable of traveling from Bacoor, Cavite to Makati Medical Center and to
Pasay City for the acknowledgment of the DAS before the Notary Public and she was not
mentally incapacitated to know the import thereof.

Given the significant inconsistencies in the testimony of respondent Natividad, the

credibility of her testimony is, to the Court, doubtful. To be sure, a witness' credibility is
determined by the probability or improbability of his testimony. As well, the witness'
means and opportunity of knowing the facts that he is testifying to are relevant. The
improbability of respondent Natividad's assertions is demonstrated by the evidence, both
documentary and testimonial, that petitioner Lolita adduced to rebut the same. Put
simply, respondent Natividad's observations are those of an outsider because she was not
living with her daughter during the period at issue and cannot be relied upon.

The RTC and the CA also did not even mention the glaring inconsistencies noted above,
which if properly considered, would have seriously affected the outcome of the case.

In addition, the lower courts misapprehended the admission by petitioner Lolita that she

did not pay the consideration before the Notary Public. They excised from their
judgments petitioner Lolita's sworn testimony as to how the consideration was paid by
her. The portion of petitioner Lolita's testimony that the lower courts quoted in their
respective Decisions does not even indubitably show that no consideration had been paid.
What petitioner Lolita admitted was that the consideration was not paid "before the
Notary Public," and, as correctly pointed out by her, there is no legal requirement that the
consideration of a sale be paid in the very presence of the Notary Public before whom the
deed of sale is acknowledged.

Given the foregoing, contrary to the findings of the CA and the RTC, which evidently
arose from their misapprehension and non-consideration of relevant facts,
respondents have not discharged their burden of proof to rebut either the presumption of
sufficient consideration of the DAS or the evidence of petitioner Lolita. In fine,
respondents failed to establish their cause of action by preponderance of evidence.

All told, petitioners' evidence has superior weight. While petitioner Lolita could not
present receipts to show her payments to the late Jasminia, her sworn testimony which in
certain portions were corroborated by pertinent documents, remains more credible than
that of respondent Natividad. Indeed, the lack of receipts may be explained by the "close
friendship" between petitioner Lolita and Jasminia. The non-admission by petitioner
Lolita of the "husband and wife" relationship that she shared with Jasminia and her being
a "lesbian or tomboy," as respondent Natividad claimed, is of no moment. Whatever
transpired between her and Jasminia is a private matter, which the Court would not even
speculate on. As to the gender identity and sexual preference of petitioner Lolita, that is
likewise a private matter.

Even from a pure evaluation of only the parties' testimonial evidence, wherein doubts on
the truthfulness of their respective narrations of the relevant facts are perceived and there
may be difficulty in determining who between respondent Natividad and petitioner Lolita
is the more credible witness and in which side the testimonial evidence preponderates, the
evidence of the parties should, at the very least, be held to be in equipoise. That being the
situation, respondents, who have the burden of proof in the present case, fail upon their
cause of action. Following Rivera v. CA[82] quoted above, as neither party was able to
make out a case, neither side having established his/her cause of action, the Court can
only leave them where they are and it has no choice but to dismiss the complaint, as the
lower courts should have done.

Consequently, the DAS executed by Jasminia in favor of petitioner Lolita over the
subject property is valid, the presumption that it has sufficient consideration not having
been rebutted. The same holds true regarding the Real Estate Mortgage between
petitioner Lolita and petitioners spouses Alexander and Elizabeth Gutierrez.

WHEREFORE, the Petition is hereby GRANTED. The Decision of the Court of

Appeals dated April 29, 2015 and its Resolution dated September 10, 2015 in CA-G.R.
CV No. 102904 as well as the Decision dated March 14, 2013 and Order dated May 8,
2014 of the Regional Trial Court of Bacoor, Cavite, Branch 19 in Civil Case No. BCV
2004-217 are REVERSED AND SET ASIDE. The complaint filed in Civil Case No.
BCV 2004-217 is DISMISSED for lack of cause of action.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 123547, May 21, 2001 ]
REV. FR. DANTE MARTINEZ, PETITIONER, VS. HONORABLE COURT
OF APPEALS, HONORABLE JUDGE JOHNSON BALLUTAY, PRESIDING
JUDGE, BRANCH 25, REGIONAL TRIAL COURT OF CABANATUAN
CITY, HONORABLE JUDGE ADRIANO TUAZON, JR., PRESIDING JUDGE,
BRANCH 28, REGIONAL TRIAL COURT OF CABANATUAN CITY,
SPOUSES REYNALDO VENERACION AND SUSAN VENERACION,
SPOUSES MAXIMO HIPOLITO AND MANUELA DE LA PAZ AND
GODOFREDO DE LA PAZ, RESPONDENTS.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated September 7, 1995, and
resolution, dated January 31, 1996, of the Court of Appeals, which affirmed the decisions
of the Regional Trial Court, Branches 25[1] and 28,[2] Cabanatuan City, finding private
respondents spouses Reynaldo and Susan Veneracion owners of the land in dispute,
subject to petitioner's rights as a builder in good faith.

The facts are as follows:

Sometime in February 1981, private respondents Godofredo De la Paz and his sister
Manuela De la Paz, married to Maximo Hipolito, entered into an oral contract with
petitioner Rev. Fr. Dante Martinez, then Assistant parish priest of Cabanatuan City, for
the sale of Lot No. 1337-A-3 at the Villa Fe Subdivision in Cabanatuan City for the sum
of P15,000.00.  The lot is located along Maharlika Road near the Municipal Hall of
Cabanatuan City.  At the time of the sale, the lot was still registered in the name of
Claudia De la Paz, mother of private respondents, although the latter had already sold it
to private respondent Manuela de la Paz by virtue of a Deed of Absolute Sale dated May
26, 1976 (Exh. N/Exh. 2-Veneracion).[3] Private respondent Manuela subsequently
registered the sale in her name on October 22, 1981 and was issued TCT No. T-40496
(Exh. 9).[4] When the land was offered for sale to petitioner, private respondents De la Paz
were accompanied by their mother, since petitioner dealt with the De la Pazes as a family
and not individually.  He was assured by them that the lot belonged to Manuela De la
Paz. It was agreed that petitioner would give a downpayment of P3,000.00 to private
respondents De la Paz and that the balance would be payable by installment. After giving
the P3,000.00 downpayment, petitioner started the construction of a house on the lot after
securing a building permit from the City Engineer's Office on April 23, 1981, with the
written consent of the then registered owner, Claudia de la Paz (Exh. B/Exh, 1).
[5]
 Petitioner likewise began paying the real estate taxes on said property (Exh. D, D-1, D-
2).[6] Construction on the house was completed on October 6, 1981 (Exh. V).[7] Since
then, petitioner and his family have maintained their residence there.[8]

On January 31, 1983, petitioner completed payment of the lot for which private
respondents De la Paz executed two documents. The first document (Exh. A) read:

1-31-83

Ang halaga ng Lupa sa Villa Fe Subdivision na ipinagbili kay Fr. Dante Martinez ay
P15,000.00 na pinangangako namin na ibibigay ang Deed of Sale sa ika-25 ng Febrero
1983.

[SGD.] METRING HIPOLITO

[SGD.] JOSE GODOFREDO DE LA PAZ[9]

The second writing (Exh. O) read:

Cabanatuan City
March 19, 1986

TO WHOM IT MAY CONCERN:

This is to certify that Freddie dela Paz has agreed to sign tomorrow (March 20) the
affidavit of sale of lot located at Villa Fe Subdivision sold to Fr. Dante Martinez.
[Sgd.] Freddie dela Paz
FREDDIE DELA PAZ[10]

However, private respondents De la Paz never delivered the Deed of Sale they promised
to petitioner.

In the meantime, in a Deed of Absolute Sale with Right to Repurchase dated October 28,
1981 (Exh. 10),[11] private respondents De la Paz sold three lots with right to repurchase
the same within one year to private respondents spouses Reynaldo and Susan Veneracion
for the sum of P150,000.00.  One of the lots sold was the lot previously sold to petitioner.
[12]

Reynaldo Veneracion had been a resident of Cabanatuan City since birth.  He used to
pass along Maharlika Highway in going to the Municipal Hall or in going to and from
Manila. Two of the lots subject of the sale were located along Maharlika Highway, one of
which was the lot sold earlier by the De la Pazes to petitioner. The third lot (hereinafter
referred to as the Melencio lot) was occupied by private respondents De la Paz. Private
respondents Veneracion never took actual possession of any of these lots during the
period of redemption, but all titles to the lots were given to him.[13]

Before the expiration of the one year period, private respondent Godofredo De la Paz
informed private respondent Reynaldo Veneracion that he was selling the three lots to
another person for P200,000.00.  Indeed, private respondent Veneracion received a call
from a Mr. Tecson verifying if he had the titles to the properties, as private respondents
De la Paz were offering to sell the two lots along Maharlika Highway to him (Mr.
Tecson) for P180,000.00  The offer included the lot purchased by petitioner in February,
1981.  Private respondent Veneracion offered to purchase the same two lots from the De
la Pazes for the same amount.  The offer was accepted by private respondents De la Paz.
Accordingly, on June 2, 1983, a Deed of Absolute Sale was executed over the two lots
(Exh. I/Exh. 5-Veneracion).[14] Sometime in January, 1984, private respondent Reynaldo
Veneracion asked a certain Renato Reyes, petitioner's neighbor, who the owner of the
building erected on the subject lot was.  Reyes told him that it was Feliza Martinez,
petitioner's mother, who was in possession of the property.  Reynaldo Veneracion told
private respondent Godofredo about the matter and was assured that Godofredo would
talk to Feliza.  Based on that assurance, private respondents Veneracion registered the
lots with the Register of Deeds of Cabanatuan on March 5, 1984. The lot in dispute was
registered under TCT No. T-44612 (Exh. L/Exh. 4-Veneracion).[15]

Petitioner discovered that the lot he was occupying with his family had been sold to the
spouses Veneracion after receiving a letter (Exh. P/Exh. 6-Veneracion) from private
respondent Reynaldo Veneracion on March 19, 1986, claiming ownership of the land and
demanding that they vacate the property and remove their improvements thereon.
[16]
 Petitioner, in turn, demanded through counsel the execution of the deed of sale from
private respondents De la Paz and informed Reynaldo Veneracion that he was the owner
of the property as he had previously purchased the same from private respondents De la
Paz.[17]

The matter was then referred to the Katarungang Pambarangay of San Juan, Cabanatuan
City for conciliation, but the parties failed to reach an agreement (Exh. M/Exh. 13).[18] As
a consequence, on May 12, 1986, private respondent Reynaldo Veneracion brought an
action for ejectment in the Municipal Trial Court, Branch III, Cabanatuan City against
petitioner and his mother (Exh. 14).[19]

On the other hand, on June 10, 1986, petitioner caused a notice of lis pendens to be
recorded on TCT No. T-44612 with the Register of Deeds of Cabanatuan City (Exh. U).
[20]

During the pre-trial conference, the parties agreed to have the case decided under the
Rules on Summary Procedure and defined the issues as follows:

1. Whether or not defendant (now petitioner) may be judicially ejected.

2. Whether or not the main issue in this case is ownership.
3. Whether or not damages may be awarded.[21]

On January 29, 1987, the trial court rendered its decision, pertinent portions of which are
quoted as follows:

With the foregoing findings of the Court, defendants [petitioner Rev. Fr. Dante Martinez
and his mother] are the rightful possessors and in good faith and in concept of owner,
thus cannot be ejected from the land in question.  Since the main issue is ownership, the
better remedy of the plaintiff [herein private respondents Veneracion] is Accion
Publiciana in the Regional Trial Court, having jurisdiction to adjudicate on ownership.

Defendants' counterclaim will not be acted upon it being more than P20,000.00 is beyond
this Court's power to adjudge.

WHEREFORE, judgment is hereby rendered, dismissing plaintiff's complaint and

ordering plaintiff to pay Attorney's fee of P5,000.00 and cost of suit.

SO ORDERED.[22]

On March 3, 1987, private respondents Veneracion filed a notice of appeal with the
Regional Trial Court, but failed to pay the docket fee.  On June 6, 1989, or over two years
after the filing of the notice of appeal, petitioner filed a Motion for Execution of the
Judgment, alleging finality of judgment for failure of private respondents Veneracion to
perfect their appeal and failure to prosecute the appeal for an unreasonable length of time.
Upon objection of private respondents Veneracion, the trial court denied on June 28,
1989 the motion for execution and ordered the records of the case to be forwarded to the
appropriate Regional Trial Court.  On July 11, 1989, petitioner appealed from this order.
The appeal of private respondents Veneracion from the decision of the MTC and the
appeal of petitioner from the order denying petitioner's motion for execution were
forwarded to the Regional Trial Court, Branch 28, Cabanatuan City.  The cases were
thereafter consolidated under Civil Case No. 670-AF.

On February 20, 1991, the Regional Trial Court rendered its decision finding private
respondents Veneracion as the true owners of the lot in dispute by virtue of their prior
registration with the Register of Deeds, subject to petitioner's rights as builder in good
faith, and ordering petitioner and his privies to vacate the lot after receipt of the cost of
the construction of the house, as well as to pay the sum of P5,000.00 as attorney's fees
and the costs of the suit.  It, however, failed to rule on petitioner's appeal of the Municipal
Trial Court's order denying their Motion for Execution of Judgment.

Meanwhile, on May 30, 1986, while the ejectment case was pending before the
Municipal Trial Court, petitioner Martinez filed a complaint for annulment of sale with
damages against the Veneracions and De la Pazes with the Regional Trial Court, Branch
25, Cabanatuan City. On March 5, 1990, the trial court rendered its decision finding
private respondents Veneracion owners of the land in dispute, subject to the rights of
petitioner as a builder in good faith, and ordering private respondents De la Paz to pay
petitioner the sum of P50,000.00 as moral damages and P10,000.00 as attorney's fees, and
for private respondents to pay the costs of the suit.

On March 20, 1991, petitioner then filed a petition for review with the Court of Appeals
of the RTC's decision in Civil Case No. 670-AF (for ejectment).  Likewise, on April 2,
1991, petitioner appealed the trial court's decision in Civil Case No. 44-[AF]-8642-R (for
annulment of sale and damages) to the Court of Appeals.  The cases were designated as
CA G.R. SP. No. 24477 and CA G.R. CV No. 27791, respectively, and were
subsequently consolidated.  The Court of Appeals affirmed the trial courts' decisions,
without ruling on petitioner's appeal from the Municipal Trial Court's order denying his
Motion for Execution of Judgment.  It declared the Veneracions to be owners of the lot in
dispute as they were the first registrants in good faith, in accordance with Art. 1544 of the
Civil Code.  Petitioner Martinez failed to overcome the presumption of good faith for the
following reasons:

1. when private respondent Veneracion discovered the construction on the lot, he

immediately informed private respondent Godofredo about it and relied on the
latter's assurance that he will take care of the matter.
 2. the sale between petitioner Martinez and private respondents De la Paz was not
notarized, as required by Arts. 1357 and 1358 of the Civil Code, thus it cannot be
said that the private respondents Veneracion had knowledge of the first sale. [23]

Petitioner's motion for reconsideration was likewise denied in a resolution dated January
31, 1996.[24] Hence this petition for review.  Petitioner raises the following assignment of
errors:

I. THE PUBLIC RESPONDENTS HONORABLE COURT OF APPEALS AND

REGIONAL TRIAL COURT JUDGES JOHNSON BALLUTAY AND
ADRIANO TUAZON ERRED IN HOLDING THAT PRIVATE
RESPONDENTS REYNALDO VENERACION AND WIFE ARE BUYERS
AND REGISTRANTS IN GOOD FAITH IN RESOLVING THE ISSUE OF
OWNERSHIP AND POSSESSION OF THE LAND IN DISPUTE.

II. THAT PUBLIC RESPONDENTS ERRED IN NOT RESOLVING AND

DECIDING THE APPLICABILITY OF THE DECISION OF THIS
HONORABLE COURT IN THE CASES OF SALVORO VS. TANEGA, ET AL.,
G.R. NO. L 32988 AND IN ARCENAS VS. DEL ROSARIO, 67 PHIL 238, BY
TOTALLY IGNORING THE SAID DECISIONS OF THIS HONORABLE
COURT IN THE ASSAILED DECISIONS OF THE PUBLIC RESPONDENTS.

III. THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT GIVING

DUE COURSE TO THE PETITION FOR REVIEW IN CA G.R. SP. NO. 24477.

IV. THAT THE HONORABLE COURT OF APPEALS IN DENYING

PETITIONER'S PETITION FOR REVIEW AFORECITED INEVITABLY
SANCTIONED AND/OR WOULD ALLOW A VIOLATION OF LAW AND
DEPARTURE FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS
BY PUBLIC RESPONDENT HONORABLE JUDGE ADRIANO TUAZON
WHEN THE LATTER RENDERED A DECISION IN CIVIL CASE NO. 670-AF
[ANNEX "D"] REVERSING THE DECISION OF THE MUNICIPAL TRIAL
COURT  JUDGE SENDON DELIZO IN CIVIL CASE NO. 9523 [ANNEX "C"]
AND IN NOT RESOLVING  IN THE SAME CASE THE APPEAL
INTERPOSED BY DEFENDANTS ON THE ORDER OF THE SAME COURT
DENYING THE MOTION FOR EXECUTION.

V. THAT THE RESOLUTION [ANNEX "B"] (OF THE COURT OF APPEALS)

DENYING PETITIONER'S MOTION FOR RECONSIDERATION [ANNEX "I"]
WITHOUT STATING CLEARLY THE FACTS AND THE LAW ON WHICH
SAID RESOLUTION WAS BASED, (IS ERRONEOUS).

These assignment of errors raise the following issues:

1. Whether or not private respondents Veneracion are buyers in good faith of the lot in
dispute as to make them the absolute owners thereof in accordance with Art. 1544 of the
Civil Code on double sale of immovable property.

2. Whether or not payment of the appellate docket fee within the period to appeal is not
necessary for the perfection of the appeal after a notice of appeal has been filed within
such period.

3. Whether or not the resolution of the Court of Appeals denying petitioner's motion for
reconsideration is contrary to the constitutional requirement that a denial of a motion for
reconsideration must state the legal reasons on which it is based.

First. It is apparent from the first and second assignment of errors that petitioner is
assailing the findings of fact and the appreciation of the evidence made by the trial courts
and later affirmed by the respondent court.  While, as a general rule, only questions of
law may be raised in a petition for review under Rule 45 of the Rules of Court, review
may nevertheless be granted under certain exceptions, namely: (a) when the conclusion is
a finding grounded entirely on speculation, surmises, or conjectures; (b) when the
inference made is manifestly mistaken, absurd, or impossible; (c) where there is a grave
abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e)
when the findings of fact are conflicting; (f) when the Court of Appeals, in making its
findings, went beyond the issue of the case and the same is contrary to the admissions of
both appellant and appellee; (g)  when the findings of the Court of Appeals are contrary
to those of the trial court; (h) when the findings of fact are conclusions without citation of
specific evidence on which they are based; (i) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not disputed by the respondents; (j)
when the finding of fact of the Court of Appeals is premised on the supposed absence of
evidence but is contradicted by the evidence on record; and (k) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion.[25]

In this case, the Court of Appeals based its ruling that private respondents Veneracion are
the owners of the disputed lot on their reliance on private respondent Godofredo De la
Paz's assurance that he would take care of the matter concerning petitioner's occupancy of
the disputed lot as constituting good faith.  This case, however, involves double sale and,
on this matter, Art. 1544 of the Civil Code provides that where immovable property is the
subject of a double sale, ownership shall be transferred (1) to the person acquiring it who
in good faith first recorded it to the Registry of Property; (2) in default thereof, to the
person who in good faith was first in possession; and (3) in default thereof, to the person
who presents the oldest title.[26] The requirement of the law, where title to the property is
recorded in the Register of Deeds, is two-fold: acquisition in good faith and recording in
good faith. To be entitled to priority, the second purchaser must not only prove prior
recording of his title but that he acted in good faith, i.e., without knowledge or notice of a
prior sale to another.  The presence of good faith should be ascertained from the
circumstances surrounding the purchase of the land.[27]

1. With regard to the first sale to private respondents Veneracion, private respondent
Reynaldo Veneracion testified that on October 10, 1981, 18 days before the execution of
the first Deed of Sale with Right to Repurchase, he inspected the premises and found it
vacant.[28] However, this is belied by the testimony of Engr. Felix D. Minor, then building
inspector of the Department of Public Works and Highways, that he conducted on
October 6, 1981 an ocular inspection of the lot in dispute in the performance of his duties
as a building inspector to monitor the progress of the construction of the building subject
of the building permit issued in favor of petitioner on April 23, 1981, and that he found it
100 % completed (Exh. V).[29] In the absence of contrary evidence, he is to be presumed
to have regularly performed his official duty.[30] Thus, as early as October, 1981, private
respondents Veneracion already knew that there was construction being made on the
property they purchased.

2. The Court of Appeals failed to determine the nature of the first contract of sale
between the private respondents by considering their contemporaneous and subsequent
acts.[31] More specifically, it overlooked the fact that the first contract of sale between the
private respondents shows that it is in fact an equitable mortgage.

The requisites for considering a contract of sale with a right of repurchase as an equitable
mortgage are (1) that the parties entered into a contract denominated as a contract of sale
and (2) that their intention was to secure an existing debt by way of mortgage. [32] A
contract of sale with right to repurchase gives rise to the presumption that it is an
equitable mortgage in any of the following cases: (1) when the price of a sale with a right
to repurchase is unusually inadequate; (2) when the vendor remains in possession as
lessee or otherwise; (3) when, upon or after the expiration of the right to repurchase,
another instrument extending the period of redemption or granting a new period is
executed; (4) when the purchaser retains for himself a part of the purchase price; (5)
when the vendor binds himself to pay the taxes on the thing sold; (6) in any other case
where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation. [33] In case
of doubt, a contract purporting to be a sale with right to repurchase shall be construed as
an equitable mortgage.[34]

In this case, the following circumstances indicate that the private respondents intended
the transaction to be an equitable mortgage and not a contract of sale: (1) Private
respondents Veneracion never took actual possession of the three lots; (2) Private
respondents De la Paz remained in possession of the Melencio lot which was co-owned
by them and where they resided; (3) During the period between the first sale and the
second sale to private respondents Veneracion, they never made any effort to take
possession of the properties; and (4) when the period of redemption had expired and
private respondents Veneracion were informed by the De la Pazes that they are offering
the lots for sale to another person for P200,000.00, they never objected.  To the contrary,
they offered to purchase the two lots for P180,000.00 when they found that a certain Mr.
Tecson was prepared to purchase it for the same amount.  Thus, it is clear from these
circumstances that both private respondents never intended the first sale to be a contract
of sale, but merely that of mortgage to secure a debt of P150,000.00.

With regard to the second sale, which is the true contract of sale between the parties, it
should be noted that this Court in several cases,[35] has ruled that a purchaser who is aware
of facts which should put a reasonable man upon his guard cannot turn a blind eye and
later claim that he acted in good faith. Private respondent Reynaldo himself admitted
during the pre-trial conference in the MTC in Civil Case No. 9523 (for ejectment) that
petitioner was already in possession of the property in dispute at the time the second
Deed of Sale was executed on June 1, 1983 and registered on March 4, 1984.  He,
therefore, knew that there were already occupants on the property as early as 1981.  The
fact that there are persons, other than the vendors, in actual possession of the disputed lot
should have put private respondents on inquiry as to the nature of petitioner's right over
the property.  But he never talked to petitioner to verify the nature of his right. He merely
relied on the assurance of private respondent Godofredo De la Paz, who was not even the
owner of the lot in question, that he would take care of the matter.  This does not meet the
standard of good faith.

3. The appellate court's reliance on Arts. 1357 and 1358 of the Civil Code to determine
private respondents Veneracion's lack of knowledge of petitioner's ownership of the
disputed lot is erroneous.

Art. 1357[36] and Art. 1358,[37] in relation to Art. 1403(2)[38] of the Civil Code, requires that
the sale of real property must be in writing for it to be enforceable.  It need not be
notarized.  If the sale has not been put in writing, either of the contracting parties can
compel the other to observe such requirement.[39] This is what petitioner did when he
repeatedly demanded that a Deed of Absolute Sale be executed in his favor by private
respondents De la Paz.  There is nothing in the above provisions which require that a
contract of sale of realty must be executed in a public document. In any event, it has been
shown that private respondents Veneracion had knowledge of facts which would put
them on inquiry as to the nature of petitioner's occupancy of the disputed lot.

Second. Petitioner contends that the MTC in Civil Case No. 9523 (for ejectment) erred in
denying petitioner's Motion for Execution of the Judgment, which the latter filed on June
6, 1989,  two years after private respondents Veneracion filed a notice of appeal with the
MTC on March 3, 1987 without paying the appellate docket fee.  He avers that the trial
court's denial of his motion is contrary to this Court's ruling in the cases of Republic v.
Director of Lands,[40] and Aranas v. Endona[41] in which it was held that where the
appellate docket fee is not paid in full within the reglementary period, the decision of the
MTC becomes final and unappealable as the payment of docket fee is not only a
mandatory but also a jurisdictional requirement.

Petitioner's contention has no merit. The case of Republic v. Director of Lands deals with

the requirement for appeals from the Courts of First Instance, the Social Security
Commission, and the Court of Agrarian Relations to the Court of Appeals.  The case
of Aranas v. Endona, on the other hand, was decided under the 1964 Rules of Court and
prior to the enactment of the Judiciary Reorganization Act of 1981 (B.P. Blg. 129) and
the issuance of its Interim Rules and Guidelines by this Court on January 11, 1983. 
Hence, these cases are not applicable to the matter at issue.

On the other hand, in Santos v. Court of Appeals,[42] it was held that although an appeal
fee is required to be paid in case of an appeal taken from the municipal trial court to the
regional trial court, it is not a prerequisite for the perfection of an appeal under §20[43] and
§23[44] of the Interim Rules and Guidelines issued by this Court on January 11, 1983
implementing the Judiciary Reorganization Act of 1981 (B.P. Blg. 129).  Under these
sections, there are only two requirements for the perfection of an appeal, to wit: (a) the
filing of a notice of appeal within the reglementary period; and (b) the expiration of the
last day to appeal by any party.  Even in the procedure for appeal to the regional trial
courts,[45] nothing is mentioned about the payment of appellate docket fees.

Indeed, this Court has ruled that, in appealed cases, the failure to pay the appellate docket
fee does not automatically result in the dismissal of the appeal, the dismissal being
discretionary on the part of the appellate court.[46] Thus, private respondents Veneracions'
failure to pay the appellate docket fee is not fatal to their appeal.

Third. Petitioner contends that the resolution of the Court of Appeals denying his motion
for reconsideration was rendered in violation of the Constitution because it does not state
the legal basis thereof.

This contention is likewise without merit.

Art. VIII, Sec. 14 of the Constitution provides that "No petition for review or motion for
reconsideration of a decision of the court shall be refused due course or denied without
stating the basis therefor." This requirement was fully complied with when the Court of
Appeals, in denying reconsideration of its decision, stated in its resolution that it found no
reason to change its ruling because petitioner had not raised anything new.[47] Thus, its
resolution denying petitioner's motion for reconsideration states:

For resolution is the Motion for Reconsideration of Our Decision filed by the petitioners.

Evidently, the motion poses nothing new.  The points and arguments raised by the
movants have been considered and passed upon in the Decision sought to be
reconsidered.  Thus, We find no reason to disturb the same.

WHEREFORE, the motion is hereby DENIED.

SO ORDERED.[48]

Attorney's fees should be awarded as petitioner was compelled to litigate to protect his
interest due to private respondents' act or omission.[49]

WHEREFORE, the decision of the Court of Appeals is REVERSED and a new one is
RENDERED:

(1)  declaring as null and void the deed of sale executed by private respondents
Godofredo and Manuela De la Paz in favor of private respondents spouses Reynaldo and
Susan Veneracion;

(2)  ordering private respondents Godofredo and Manuela De la Paz to execute a deed of
absolute sale in favor of petitioner Rev. Fr. Dante Martinez;

(3)  ordering private respondents Godofredo and Manuela De la Paz to reimburse private
respondents spouses Veneracion the amount the latter may have paid to the former;

(4)  ordering the Register of Deeds of Cabanatuan City to cancel TCT No. T-44612 and
issue a new one in the name of petitioner Rev. Fr. Dante Martinez; and

(5)  ordering private respondents to pay petitioner jointly and severally the sum of
P20,000.00 as attorney's fees and to pay the costs of the suit.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 162333, December 22, 2008 ]
BIENVENIDO C. TEOCO AND JUAN C. TEOCO, JR., PETITIONERS, VS.
METROPOLITAN BANK AND TRUST COMPANY, RESPONDENT.

DECISION

REYES, R.T., J.:

 REAL creditors are rarely unwilling to receive their debts from any hand which
will pay them.[1] Ang tunay na may pautang ay bihirang tumanggi sa kabayaran mula
kaninuman.

This is a petition for review on certiorari seeking the reversal of the Decision [2] of the
Court of Appeals (CA) in CA-G.R. CV No. 58891 dated February 20, 2004 which annulled
and set aside the decision of the Regional Trial Court (RTC) of Catbalogan, Samar on July
22, 1997 in Cadastral
Record No. 1378. The RTC originally dismissed the petition for writ of possession filed by
respondent Metropolitan Bank and Trust Company (Metrobank) on the ground that
intervenors and present petitioners, the brothers Bienvenido Teoco and Juan Teoco, Jr.
(the brothers Teoco), have redeemed the subject property. The CA reversed this
dismissal and ordered the issuance of a writ of possession in favor of respondent
Metrobank.

Culled from the records, the facts are as follows:

Lydia T. Co, married to Ramon Co, was the registered owner of two parcels of land
situated in Poblacion, Municipality of Catbalogan, Province of Samar under Transfer
Certificate of Title (TCT) Nos. T-6220 and T-6910. [3] Ramon Co mortgaged the said
parcels of land to Metrobank for a sum of P200,000.00.

On February 14, 1991, the properties were sold to Metrobank in an extrajudicial

foreclosure sale under Act No. 3135. One year after the registration of the Certificates of
Sale, the titles to the properties were consolidated in the name of Metrobank for failure
of Ramon Co to redeem the same within the one year period provided for by law. TCT
Nos. T-6220 and T-6910 were cancelled and TCT Nos. T-8482 and T-8493 were issued in
the name of Metrobank.

On November 29, 1993, Metrobank filed a petition for the issuance of a writ of
possession against Ramon Co and Lydia Co (the spouses Co). However, since the spouses
Co were no longer residing in the Philippines at the time the petition was filed, the trial
court ordered Metrobank, on January 12, 1994 and again on January 26, 1994 to effect
summons by publication against the spouses Co.
On May 17, 1994, the brothers Teoco filed an answer-in-intervention alleging that they
are the successors-in-interest of the spouses Co, and that they had duly and validly
redeemed the subject properties within the reglementary period provided by law. The
brothers Teoco thus prayed for the dismissal of Metrobank's petition for a writ of
possession, and for the nullification of the TCTs issued in the name of Metrobank. The
brothers Teoco further prayed for the issuance in their name of new certificates of title.

Metrobank, in its reply, alleged that the amount deposited by the brothers Teoco as
redemption price was not sufficient, not being in accordance with Section 78 of the
General Banking Act. Metrobank also said the assignment of the right of redemption by
the spouses Co in favor of the brothers Teoco was not properly executed, as it lacks the
necessary authentication from the Philippine Embassy.

On February 24, 1995, the trial court was informed that the brothers Teoco had
deposited the amount of P356,297.57 to the clerk of court of the RTC in Catbalogan,
Samar. The trial court ordered Metrobank to disclose whether it is allowing the brothers
Teoco to redeem the subject properties. Metrobank refused to accept the amount
deposited by the brothers Teoco, alleging that they are obligated to pay the spouses
Co's subsequent obligations to Metrobank as well. The brothers Teoco claimed that they
are not bound to pay all the obligations of the spouses Co, but only the value of the
property sold during the public auction.

On February 26, 1997, the trial court reiterated its earlier order directing Metrobank to
effect summons by publication to the spouses Co. Metrobank complied with said order
by submitting documents showing that it caused the publication of summons against the
spouses Co. The brothers Teoco challenged this summons by publication, arguing that
the newspaper where the summons by publication was published, the Samar Reporter,
was not a newspaper of general circulation in the Philippines. The brothers Teoco
furthermore argued that Metrobank did not present witnesses to identify the
documents to prove summons by publication.

RTC Disposition

On July 22, 1997, the RTC rendered its decision in favor of the brothers Teoco, to
wit:
 WHEREFORE, judgment is hereby rendered dismissing the petition for a writ of
possession under Section 7 of Act 3135 it appearing that intervenor Atty. Juan C. Teoco,
Jr. and his brother Atty. Bienvenido C. Teoco have legally and effectively redeemed Lot
61 and 67 of Psd-66654, Catbalogan, Cadastre, from the petitioner Metropolitan Bank
and Trust Company.

Accordingly, Metrobank may now withdraw the aforesaid redemption money of

P356,297.57 deposited by Juan C. Teoco, Jr., on February 10, 1992 with the clerk of
court and it is ordered that the Transfer Certificate of Title Nos. T-8492 and T-8493 of
Metropolitan Bank and Trust Company be and are cancelled and in their place new
transfer certificates of title be issued in favor of Intervenors Attys. Bienvenido C. Teoco
and Juan C. Teoco, Jr., of legal age, married, and residents of Calbiga, Samar, Philippines,
upon payment of the prescribed fees therefore. No pronouncement as to costs. [4]
According to the RTC, the case filed by Metrobank should be dismissed since
intervenor Juan C. Teoco, Jr., by his tender of P356,297.57 to Metrobank on February
10, 1992, within the reglementary period of redemption of the foreclosed property, had
legally and effectively redeemed the subject properties from Metrobank. This
redemption amount is a fair and reasonable price and is in keeping with the letter and
spirit of Section 78 of the General Banking Act because Metrobank purchased the
mortgaged properties from the sheriff of the same court for only P316,916.29. In
debunking the argument that the amount tendered was insufficient, the RTC held:
It is contended for Metrobank that the redemption money deposited by Juan C.
Teoco, Jr., is insufficient and ineffective because the spouses Ramon Co and Lydia T. Co
owe it the total amount of P6,856,125 excluding interest and other charges and the
mortgage contract executed by them in favor of Metrobank in 1985 and 1986 (Exh. A
and B) are not only security for payment of their obligation in the amount of P200,000
but also for those obligations that may have been previously and later extended to the
Co couple including interest and other charges as appears in the accounts, books and
records of the bank.

Metrobank cites the case of Mojica v. Court of Appeals, 201 SCRA 517 (1991) where the
Supreme Court held that mortgages given to secure future advancements are valid and
legal contracts; that the amounts named as consideration in said contract do not limit
the amount for which the mortgage may stand as security; that a mortgage given to
secure the advancements is a continuing security and is not discharged by repayment of
the amount named in the mortgage until the full amount of the advancements are paid.
In the opinion of this court, it is not fair and just to apply this rule to the case at bar.
There is no evidence offered by Metrobank that these other obligations of Ramon Co
and his wife were not secured by real estate mortgages of other lands. If the other
indebtedness of the Co couple to Metrobank are secured by a mortgage on their other
lands or properties the obligation can be enforced by foreclosure which the court
assumes Metrobank has already done. There is no proof that Metrobank asked for a
deficiency judgment for these unpaid loans.

The Supreme Court in the Mojica case was dealing with the rights of the mortgagee
under a mortgage from an owner of the land. It determined the security covered by the
mortgage the intention of the parties and the equities of the case. What was held in that
case was hedged about so as to limit the decision to the particular facts. It must be
apparent that the Mojica ruling cannot be construed to give countenance or approval to
the theory that in all cases without exception mortgages given to secure past and future
advancements are valid and legal contracts.

In construing a contract between the bank and a borrower such a construction as would
be more favorable to the borrower should be adopted since the alleged past and future
indebtedness of Ramon Co to the bank was not described and specified therein and that
the addendum was made because the mortgage given therefore were not sufficient or
that these past and future advancements were unsecured. That being the case the
mortgage contracts, Exh. A and B should be interpreted against Metrobank which drew
said contracts. A written contract should, in case of doubt, be interpreted against the
party who has drawn the contract (6 R.C.L. 854; H.E. Heackock Co. vs. Macondray & Co.,
42 Phil. 205). Here, the mortgage contracts are in printed form prepared by Metrobank
and therefore ambiguities therein should be construed against the party causing it
(Yatco vs. El Hogar Filipino, 67 Phil. 610; Hodges vs. Tazaro, CA, 57 O.G. 6970).[5]
The RTC added that there is another reason for dismissing Metrobank's petition:
the RTC failed to acquire jurisdiction over the spouses Co. The RTC noted that
Metrobank published its petition for writ of possession, but did not publish the writ of
summons issued by said court on February 16, 1994. According to the RTC:
A petition for a writ of possession of foreclosed property is in reality a possession
suit. That Metrobank prayed for a writ of possession in an independent special
proceeding does not alter the nature of the case as a possessory suit (Cabrera v.
Sinoy, L.-12648, 23 November 1959).

The defendant or owner of the property foreclosed by the petitioner should be

summoned to answer the petition. Accordingly, the publication made by the petitioner
is fatally flawed and defective and on that basis alone this court acquired no jurisdiction
over the person of respondents Ramon Co and his wife (Mapa vs. Court of Appeals, G.R.
No. 79394, October 2, 1992; Lopez vs. Philippine National Bank, L-34223, December 10,
1982).[6]
Metrobank appealed to the CA. In its appeal, Metrobank claimed that the RTC
erred in finding that the publication made by it is fatally flawed, and that the brothers
Teoco had effectively redeemed the properties in question.

CA Disposition

On February 20, 2004, the CA decided the appeal in favor of Metrobank, with the
following disposition:
WHEREFORE, the appeal is hereby GRANTED. The assailed Decision dated July 22,
1997 rendered by the Regional Trial Court of Catbalogan, Samar Branch 29 in Cadastral
Record No. 1378 is hereby ANNULLED and SET ASIDE. Accordingly, let a writ of
possession in favor of petitioner-appellant METROPOLITAN BANK AND TRUST COMPANY
be issued over the properties and improvements covered by Transfer Certificates of Title
Nos. T-8492 and T-8493 of the Registry of Deeds of Western Samar.

SO ORDERED.[7]
As regards the question of jurisdiction, the CA ruled that since the parcels of land
in question were already registered in the name of Metrobank at the time the petition
was filed, and since the certificates of title of the spouses Co were already cancelled,
there is no more need to issue summons to the spouses Co. The CA noted that the best
proof of ownership of the parcel of land is a certificate of title. [8]

The CA also held that the issue of the validity of summons to the spouses Co is
unimportant considering that the properties in question were mortgaged to Metrobank
and were subsequently sold to the same bank after the spouses Co failed to satisfy the
principal obligation. Hence, the applicable law is Act No. 3135, [9] as amended by Act No.
4118. Section 7 of said Act No. 3135 states that a petition for the issuance of a writ of
possession filed by the purchaser of a property in an extrajudicial foreclosure sale may
be done ex parte. It is the ministerial duty of the trial court to grant such writ of
possession. No discretion is left to the trial court. Any question regarding the
cancellation of the writ, or with respect to the validity and regularity of the public sale
should be determined in a subsequent proceeding as outlined in Section 9 of Act No.
3135.[10]

Further, the CA held that the brothers Teoco were not able to effectively redeem the
subject properties, because the amount tendered was insufficient, and the brothers
Teoco have not sufficiently shown that the spouses Co's right of redemption was
properly transferred to them.

Issues

In this Rule 45 petition, the brothers Teoco impute to the CA the following errors:
I

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF JUDGMENT IN

HOLDING THAT PETITIONERS FAILED TO REDEEM THE SUBJECT PROPERTIES WITHIN THE
REGLEMENTARY PERIOD OF ONE YEAR AND THAT THE REDEMPTION PRICE TENDERED IS
INSUFFICIENT.

II

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF JUDGMENT IN

HOLDING PETITIONERS TO PAY NOT ONLY THE P200,000 PRINCIPAL OBLIGATION BUT
ALSO THAT PREVIOUSLY EXTENDED, WHETHER DIRECT OR INDIRECT, PRINCIPAL OR
SECONDARY AS APPEARS IN THE ACCOUNTS, BOOKS AND RECORDS.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONERS HAVE
NOT SUFFICIENTLY SHOW(N) THAT THE RIGHT OF REDEMPTION WAS PROPERLY
TRANSFERRED TO THEM.

IV
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE
REGIONAL TRIAL COURT, BRANCH 29, AND GRANTING THE WRIT OF POSSESSION TO
THE RESPONDENT.[11] (Underscoring supplied)
Our Ruling

Sufficiency of Amount Tendered

We find that neither petitioners, the brothers Teoco, nor respondent, Metrobank, were
able to present sufficient evidence to prove whether the additional loans granted to the
spouses Co by Metrobank were covered by the mortgage agreement between them.
The brothers Teoco failed to present any evidence of the supposed trust receipt
agreement between Metrobank and the spouses Co, or an evidence of the supposed
payment by the spouses Co of the other loans extended by Metrobank. Metrobank, on
the other hand, merely relied on the stipulation on the mortgage deed that the
mortgage was intended to secure "the payment of the same (P200,000.00 loan)
and those that may hereafter be obtained."[12] However, there was no mention
whatsoever of the mortgage agreement in the succeeding loans entered into by the
spouses Co.

While we agree with Metrobank that mortgages intended to secure future

advancements are valid and legal contracts,[13] entering into such mortgage contracts
does not necessarily put within its coverage all loan agreements that may be
subsequently entered into by the parties. If Metrobank wishes to apply the mortgage
contract in order to satisfy loan obligations not stated on the face of such contract,
Metrobank should prove by a preponderance of evidence that such subsequent
obligations are secured by said mortgage contract and not by any other form of security.

In order to prevent any injustice to, or unjust enrichment of, any of the parties, this
Court holds that the fairest resolution is to allow the brothers Teoco to redeem the
foreclosed properties based on the amount for which it was foreclosed (P255,441.14
plus interest). This is subject, however, to the right of Metrobank to foreclose the same
property anew in order to satisfy the succeeding loans entered into by the spouses Co, if
they were, indeed, covered by the mortgage contract. The right of Metrobank to
foreclose the mortgage would not be hampered by the transfer of the properties to the
brothers Teoco as a result of this decision, since Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person. (Emphasis supplied)
Further, Article 2129 of the Civil Code provides:
Art. 2129. The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by the property
which said third person possesses, in the terms and with the formalities which the law
establishes.
The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be to the fulfillment of the obligation for whose
security it was constituted. Otherwise stated, a mortgage creates a real right which is
enforceable against the whole world. Hence, even if the mortgage property is sold or its
possession transferred to another, the property remains subject to the fulfillment of the
obligation for whose security it was constituted. [14]

Thus, the redemption by the brothers Teoco shall be without prejudice to the
subsequent foreclosure of same properties by Metrobank in order to satisfy other
obligations covered by the Real Estate Mortgage.

Transfer of Right of Redemption

The CA held that the brothers Teoco have not sufficiently shown that the spouses Co's
right of redemption was properly transferred to them. The assignment of the right of
redemption only stated that the spouses Co are transferring the right of redemption to
their parents, brothers, and sisters, but did not specifically include the brothers Teoco,
who are just brothers-in-law of Ramon Co. Furthermore, the spouses Co no longer
reside in the Philippines, and the assignment of the right of redemption was not
properly executed and/or authenticated.
The alleged transfer of the right of redemption is couched in the following language:

KNOW ALL MEN BY THESE PRESENTS:

That we, RAMON CO and LYDIA CO, of legal ages, for and in consideration of
preserving the continuous ownership and possession of family owned properties, by
these presents, hereby cede, transfer and convey in favor of my parents, brothers and
sisters, the right to redeem the properties under TCT Nos. T-6910 and T-6220, located in
Patag district, Catbalogan, Samar, sold by public auction sale on February 14, 1991 to
the Metropolitan Bank and Trust Company.

Furthermore, we waived whatever rights we may have over the properties in favor of
the successor-in-interest including that of transferring the title to whoever may redeem
the aforesaid properties.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this 10 th day of January,
1992 at Vancouver, Canada.[15]
The brothers Teoco may be brothers-in-law only of Ramon Co, but they are also
the brothers of Lydia Teoco Co, who is actually the registered owner of the properties
covered by TCT Nos. T-6910 and T-6220. Clearly, the brothers Teoco are two of the
persons referred to in the above transfer of the right of redemption executed by the
spouses Co.

Anent the CA observation that the assignment of the right of redemption was not
properly executed and/or authenticated, Lopez v. Court of Appeals [16] is instructive.
In Lopez, this Court ruled that a special power of attorney executed in a foreign country
is generally not admissible in evidence as a public document in our courts. The Court
there held:
Is the special power of attorney relied upon by Mrs. Ty a public document? We
find that it is. It has been notarized by a notary public or by a competent public official
with all the solemnities required by law of a public document. When executed and
acknowledged in the Philippines, such a public document or a certified true copy thereof
is admissible in evidence. Its due execution and authentication need not be proven
unlike a private writing.

Section 25, Rule 132 of the Rules of Court provides -

 Sec. 25. Proof of public or official record. - An official record or an entry therein,
when admissible for any purpose, may be evidenced by an official publication thereof or
by a copy attested by the officer having the legal custody of the record, or by his deputy,
and accompanied, if the record is not kept in the Philippines, with a certificate that such
officer has the custody. If the office in which the record is kept is in a foreign country,
the certificate may be made by a secretary of embassy or legation consul general,
consul, vice consul, or consular agent or by any officer in the foreign service of the
Philippines stationed in the foreign country in which the record is kept, and
authenticated by the seal of his office.
From the foregoing provision, when the special power of attorney is executed
and acknowledged before a notary public or other competent official in a foreign
country, it cannot be admitted in evidence unless it is certified as such in accordance
with the foregoing provision of the rules by a secretary of embassy or legation, consul
general, consul, vice consul, or consular agent or by any officer in the foreign service of
the Philippines stationed in the foreign country in which the record is kept of said public
document and authenticated by the seal of his office. A city judge-notary who notarized
the document, as in this case, cannot issue such certification. [17]
Verily, the assignment of right of redemption is not admissible in evidence as a
public document in our courts. However, this does not necessarily mean that such
document has no probative value.

There are generally three reasons for the necessity of the presentation of public
documents. First, public documents are prima facie evidence of the facts stated in them,
as provided for in Section 23, Rule 132 of the Rules of Court:
SEC. 23. Public documents as evidence. - Documents consisting of entries in public
records made in the performance of a duty by a public officer are  prima facie evidence
of the facts therein stated. All other public documents are evidence, even against a third
person, of the fact which gave rise to their execution and of the date of the latter.
(Underscoring supplied)
Second, the presentation of a public document dispenses with the need to prove
a document's due execution and authenticity, which is required under Section 20, Rule
132 of the Rules of Court for the admissibility of private documents offered as authentic:
SEC. 20. Proof of private document. - Before any private document offered as
authentic is received in evidence, its due execution and authenticity must be proved
either:
 (a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to
be. (Underscoring supplied)
In the presentation of public documents as evidence, on the other hand, due
execution and authenticity are already presumed:
SEC. 23. Public documents are evidence. - Documents consisting of entries in
public records made in the performance of a duty by a public officer are prima
facie evidence of the facts therein stated. All other public documents are evidence, even
against a third person, of the fact which gave rise to their execution  and of the date of
the latter. (Underscoring supplied)

SEC. 30. Proof of notarial documents. - Every instrument duly acknowledged or proved

and certified as provided by law, may be presented in evidence without further proof,
the certificate of acknowledgment being prima facie evidence of the execution of the
instrument or document involved. (Underscoring supplied)
Third, the law may require that certain transactions appear in public instruments,
such as Articles 1358 and 1625 of the Civil Code, which respectively provide:
Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein governed by Articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the

conjugal partnership of gains;

(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third
person;

(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must appear
in writing, even a private one. But sales of goods, chattels or things in action are
governed by Articles 1403, No. 2, and 1405.

Art. 1625. An assignment of a credit, right or action shall produce no effect as against
third person, unless it appears in a public instrument, or the instrument is recorded in
the Registry of Property in case the assignment involves real property. (Underscoring
supplied)
Would the exercise by the brothers Teoco of the right to redeem the properties
in question be precluded by the fact that the assignment of right of redemption was not
contained in a public document? We rule in the negative.

Metrobank never challenged either the content, the due execution, or the genuineness
of the assignment of the right of redemption. Consequently, Metrobank is deemed to
have admitted the same. Having impliedly admitted the content of the assignment of
the right of redemption, there is no necessity for a prima facie evidence of the facts
there stated. In the same manner, since Metrobank has impliedly admitted the due
execution and genuineness of the assignment of the right of redemption, a private
document evidencing the same is admissible in evidence. [18]

True it is that the Civil Code requires certain transactions to appear in public documents.
However, the necessity of a public document for contracts which transmit or extinguish
real rights over immovable property, as mandated by Article 1358 of the Civil Code, is
only for convenience; it is not essential for validity or enforceability. [19] Thus, in Cenido v.
Apacionado,[20] this Court ruled that the only effect of noncompliance with the
provisions of Article 1358 of the Civil Code is that a party to such a contract embodied in
a private document may be compelled to execute a public document:
Article 1358 does not require the accomplishment of the acts or contracts in a
public instrument in order to validate the act or contract but only to insure its efficacy,
so that after the existence of said contract has been admitted, the party bound may be
compelled to execute the proper document. This is clear from Article 1357, viz.:
"Art. 1357. If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article (Article 1358), the contracting parties
may compel each other to observe that form, once the contract has been perfected.
This right may be exercised simultaneously with the action upon the contract."[21]
 On the other hand, Article 1625 of the Civil Code provides that "[a]n assignment
of a credit, right or action shall produce no effect as against third person, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property
in case the assignment involves real property."

In Co v. Philippine National Bank,[22] the Court interpreted the phrase "effect as against a
third person" to be damage or prejudice to such third person, thus:
x x x In Lichauco vs. Olegario, et al., 43 Phil. 540, this Court held that "whether or
not x x x an execution debtor was legally authorized to sell his right of redemption, is a
question already decided by this Court in the affirmative in numerous decisions on the
precepts of Sections 463 and 464 and other sections related thereto, of the Code of Civil
Procedure." (The mentioned provisions are carried over in Rule 39 of the Revised Rules
of Court.) That the transfers or conveyances in question were not registered is of
miniscule significance, there being no showing that PNB was damaged or could be
damaged by such omission. When CITADEL made its tender on May 5, 1976, PNB did not
question the personality of CITADEL at all. It is now too late and purely technical to raise
such innocuous failure to comply with Article 1625 of the Civil Code. [23]
In Ansaldo v. Court of Appeals,[24] the Court held:
In its Decision, the First Division of the Appellate Tribunal, speaking through the
Presiding Justice at the time, Hon. Magno S. Gatmaitan, held as regards Arnaldo's
contentions, that -

xxxx
2) there was no need that the assignment be in a public document this being
required only "to produce x x x effect as against third persons" (Article 1625, Civil Code),
i.e., "to adversely affect 3rd persons," i.e., "a 3rd person with a right against original
creditor, for example, an original creditor of creditor, - against whom surely such an
assignment by his debtor (creditor in the credit assigned) would be prejudicial, because
he, creditor of assigning creditor, would thus be deprived of an attachable asset of his
debtor x x x;
xxxx

Except for the question of the claimed lack of authority on the part of TFC's president to
execute the assignment of credit in favor of PCIB improperly raised for the first time on
appeal, as observed by the Court of Appeals - the issues raised by Ansaldo were set up
by him in, and after analysis and assessment rejected by, both the Trial Court and the
Appellate Tribunal. This court sees no error whatever in the appreciation of the facts by
either Court or their application of the relevant law and jurisprudence to those facts,
inclusive of the question posed anew by Ansaldo relative to the alleged absence of
authority on the part of TFC's president to assign the corporation's credit to PCIB. [25]
In the case at bar, Metrobank would not be prejudiced by the assignment by the
spouses Co of their right of redemption in favor of the brothers Teoco. As conceded by
Metrobank, the assignees, the brothers Teoco, would merely step into the shoes of the
assignors, the spouses Co. The brothers Teoco would have to comply with all the
requirements imposed by law on the spouses Co. Metrobank would not lose any
security for the satisfaction of any loan obtained from it by the spouses Co. In fact, the
assignment would even prove to be beneficial to Metrobank, as it can foreclose on the
subject properties anew, provided it proves that the subsequent loans entered into by
the spouses Co are covered by the mortgage contract.

WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The decision of the
Regional Trial Court in Catbalogan, Samar is REINSTATED with the
following MODIFICATION: the redemption by Bienvenido C. Teoco and Juan C. Teoco, Jr.
of the properties covered by TCT Nos. T-6910 and T-6220 shall be without prejudice to
the subsequent foreclosure of same properties by Metropolitan Bank and Trust
Company to satisfy other loans covered by the Real Estate Mortgage.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 214057, October 19, 2015 ]
FLORENTINA BAUTISTA-SPILLE REPRESENTED BY HER ATTORNEY-
IN-FACT, MANUEL B. FLORES, JR., PETITIONER VS. NICORP
MANAGEMENT AND DEVELOPMENT CORPORATION, BENJAMIN G.
BAUTISTA AND INTERNATIONAL EXCHAN BANK, RESPONDENTS.

DECISION

MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the March 19, 2014 Decision[1] and the August 18, 2014 Resolution[2] of
the Court of Appeals (CA) in CA-G.R. CV No. 97682, which reversed and set Regional
Trial Court, Branch aside the May 24, 2010 Decision[3] of the Regional Trial Court,
Branch 90, Dasmariñas, Cavite (RTC), in Civil Case No. 0321-04, declaring a contract to
sell null and void.

The Facts:

Petitioner Florentina Bautista-Spille (petitioner) is the registered owner of a parcel of

land covered by Transfer Certificate of Title (TCT) No. T-197, located in Imus City,
Cavite, with an area of more or less 33,052 square meters (subject property).

On June 20, 1996, petitioner and her spouse, Harold E. Spille, executed a document
denominated as General Power of Attorney[4] in favor of her brother, respondent
Benjamin Bautista (Benjamin), authorizing the latter to administer all her businesses and
properties in the Philippines. The said document was notarized before the Consulate
General of the Philippines, New York, United States of America.

On August 13, 2004, Benjamin and NICORP Management and Development Corporation
(NICORP) entered into a contract to sell[5] which pertained to the parcel of land covered
by TCT No. T-197 for the agreed amount of P15,000,000.00. In the said contract,
NICORP agreed to give a down payment equivalent to 20% of the purchase price and pay
the remaining balance in eight (8) months. It was also agreed that upon receipt of the
down payment, the TCT of the subject property would be deposited with the International
Exchange Bank (IE Bank) and placed in escrow. It would only be released upon full
payment of the agreed amount. Furthermore, Benjamin was required to submit a special
power of attorney (SPA) covering the sale transaction, otherwise, the payment of the
balance would be suspended and a penalty of P150,000.00 every month would be
imposed.

Pursuant thereto, an Escrow Agreement,[6] dated October 13, 2004, was executed

designating IE Bank as the Escrow Agent, obliging the latter to hold and take custody of
TCT No. T-197, and to release the said title to NICORP upon full payment of the subject
property.

On October 14, 2004, NICORP issued a check in the amount of P2,250,000.00,

representing the down payment of the subject property.[7] Thereafter, the TCT was
deposited with IE Bank and placed in escrow.

When petitioner discovered the sale, her lawyer immediately sent demand letters [8] to
NICORP and Benjamin, both dated October 27, 2004, and to IE pank, dated October 28,
2004, informing them that she was opposing the sale of the subject property and that
Benjamin was not clothed with authority to enter into a contract to sell and demanding
the return of the owner's copy of the certificate of title to her true and lawful attorney-in-
fact, Manujel B. Flores, Jr. (Flores). NICORP, Benjamin and IE Bank, however, failed
and refused to return the title of the subject property.

Consequently, petitioner filed a complaint[9] before the RTC against Benjamin, NICORP

and IE Bank for declaration of nullity of the contract to sell, pjunction, recovery of
possession and damages with prayer for the issuance of a temporary restraining order
and/or preliminary injunction because NICORP was starting the development of the
subject property into a residential subdivision and was planning to sell the lots to
prospective buyers. Petitioner denied receiving the down payment for the subject
property.

The RTC granted the writ of preliminary injunction in its Order,[10] dated January 24,
2005, enjoining NICORP and all persons acting on its behalf from making or introducing
improvements, subdividing and selling any subdivided lot of the subject property.

In its Answer,[11] NICORP asked for the dismissal of the case for lack of a cause of action
and averred that Benjamin was empowered to enter into a contract to sell by virtue of the
general power of attorney; that the said authority was valid and subsisting as there was no
specific instrument that specifically revoked his authority; that assuming Bautista
exceeded his authority when he executed the contract to sell, the agreement was still valid
and enforceable as the agency was already "coupled with interest" because of the partial
payment in the amount of P3,000,000.00; and that the contract could not just be revoked
without NICORP being reimbursed of its down payment and the costs for the initial
development it had incurred in developing the subject property into a residential
subdivision.

For its part, IE Bank denied any liability and alleged that petitioner had no cause of
action against it. IE Bank asserted that, at the time of its constitution as an escrow agent,
Benjamin possessed the necessary authority from petitioner; that because the contract to
sell remained valid, it was duty-bound to observe its duties and obligations under the
Escrow Agreement; and that in the absence of any order from the court, it was proper for
the bank not to comply with petitioner's demand for the surrender of the certificate of
title.[12]

Benjamin, on the other hand, did not file any responsive pleading. Hence, he was
declared in default in the RTC Order,[13] dated August 25, 2005.

On May 24, 2010, the RTC rendered its judgment, declaring the contract to sell null and
void.[14] It explained that the general power of authority only pertained to acts of
administration over petitioner's businesses and properties in the Philippines and did not
include authority to sell the subject property. It pointed out that NICORP was well aware
of Benjamin's lack of authority to sell the subject property as gleaned from the contract to
sell which required the latter to procure the SPA from petitioner and even imposed a
penalty of P150,000.00 per month if he would be delayed in securing the SPA. The
dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendants, declaring the Contract to Sell, dated October 13,
2004 between the defendant Bautista and NICORP to be null and void, and the writ of
preliminary injunction is now made permanent, and further ordering the defendants
NICORP and International Exchange Bank as follows -

(a) To return to the plaintiff the peaceful possession of the subject property covered by Transfer
Certificate of Title No. T-197 of the Register of Deeds of the Province of Cavite;
(b) To return to the plaintiff the Original Owner's Duplicate of Title No. T-197 of the Register
of Deeds of the Province of Cavite;
(c) To pay to the plaintiff the amount of Php250,000.00 by way of attorney's fees; and
(d) The Costs of suit.

SO ORDERED.[15]
Aggrieved, NICORP appealed before the CA.

In the assailed decision, the CA reversed the RTC decision, explaining that the general
power of attorney executed by petitioner in favor of Benjamin authorized the latter not
only to perform acts of administration over her properties but also to perform acts of
dominion which included, among others, the power to dispose the subject property.

Petitioner filed a motion for reconsideration, but it was denied in the assailed CA
Resolution, dated August 18, 2014.

Hence, this petition anchored on the following

GROUNDS

A. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE

ERROR IN HOLDING THAT THE GENERAL POWER OF ATTORNEY
EXECUTED BY PETITIONER AUTHORIZED BENJAMIN BAUTISTA
TO ENTER INTO THE CONTRACT TO SELL WITH RESPONDENT IN
CONTRAVENTION OF THE ESTABLISHED PRONOUNCEMENT OF
THE SUPREME COURT IN THE CASE OF LILLIAN N. MERCADO ET
AL. VS. ALLIED BANKING CORPORATION (G.R. NO. 171460, 24 JULY
2007.

B. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE

ERROR IN APPLYING THE CASE OF ESTATE OF LINO OLAGUER VS.
ONGJOCO (G.R. NO. 173312, 26 AUGUST 2008) TO THE INSTANT CASE
CONSIDERING THAT THE ESTABLISHED FACTS HEREIN ARE NOT
 IN ALL FOURS WITH THE FACTS SURROUNDING THE DECISION IN
THE OLAGUER VS. ONGJOCO CASE.

C. THE HONORABLE COURT OF APPEALS ERRED IN DISREGARDING

(I) RESPONDENT'S JUDICIAL ADMISSION AS TO BENJAMIN
BAUTISTA'S LACK OF AUTHORITY TO ENTER INTO A CONTRACT
TO SELL THE SUBJECT PROPERTY, AND (II) RESPONDENT'S
KNOWLEDGE OF THE INSUFFICIENCY OF THE GENERAL POWER
OF ATTORNEY, INDICATING BAD FAITH OF THE RESPONDENT.

D. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

THE TRIAL COURT ERRED IN DECLARING THE CONTRACT TO
SELL NULL AND VOID.[16]

Petitioner argues that the general power of attorney did not clothe Benjamin with the
authority to enter into a contract to sell the subject property. She contends that the general
power of attorney pertained to the power to buy, sell, negotiate and contract over the
business and personal property but did not specifically authorize the sale of the subject
property.

Petitioner asserts that the CA erred when it disregarded the stipulation made by NICORP
during the pre-trial proceedings as stated in the pre-trial order that Benjamin "acted
beyond the scope of his authority when he failed to inform plaintiff personally as to his
dealing or negotiation with NICORP and when he signed the Contract to Sell
xxx."[17] According to petitioner, such an admission was an indication that NICORP did
not consider the general power of authority as an SPA which would have authorized
Benjamin to enter into the contract to sell.

NICORP counters that the general power of attorney sufficiently conferred authority on
Benjamin to enter into the contract to sell. It asserts that the written authority, while
denominated as a general power of attorney, expressly authorized him to sell the subject
property. NICORP insists that it was a buyer in good faith and was never negligent in
ascertaining the extent of his authority to sell the property. It explains that though the
general power of attorney sufficiently clothed Bautista with authority to sell the subject
property, it nonetheless required him to submit the SPA in order to comply with the
requirements of the Register of Deeds and the Bureau of Internal Revenue.

The issue for resolution is whether or not Benjamin was authorized to sell the subject
property.

The Court's Ruling

The Court finds the petition meritorious.

In petitions for review on certiorari under Rule 45 of the Rules of Civil Procedure, only
questions of law may be raised by the parties and passed upon by this Court. It is not a
function of this Court to analyze and weigh the evidence presented by the parties all over
again.[18] This rule, however, has several well-recognized exceptions, such as when the
factual findings of the CA and the trial court are conflicting or contradictory.[19]

The well-established rule is when a sale of a parcel 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. Articles 1874 and 1878 of the Civil Code explicitly provide:
Art. 1874. When a 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.

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

(1) x xx

(5) To enter into any contract by which the ownership of an immovable is

transmitted or acquired either gratuitously or for a valuable consideration;

xxx. [Emphasis Supplied]

From the foregoing, it is clear that an SPA in the conveyance of real rights over
immovable property is necessary.[20] In Cosmic Lumber Corporation v. Court of Appeals,
[21]
 the Court enunciated,
When the sale of a piece of land or any interest thereon is through an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void. Thus, the authority of an
agent to execute a contract for the sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general business of the principal or
to execute a binding contract containing terms and conditions which are in the contract he
did execute. A special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired either gratuitously
or for a valuable consideration. The express mandate required by law to enable an
appointee of an agency (couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For
the principal to confer the right upon an agent to sell real estate, a power of attorney must
so express the powers of the agent in clear and unmistakable language. When there is
any reasonable doubt that the language so used conveys such power, no such
construction shall be given the document.[22]

[Emphases Supplied]
To reiterate, such authority must be conferred in writing and must express the powers of
the agent in clear and unmistakable language in order for the principal to confer the right
upon an agent to sell the real property.[23] It is a general rule that a power of attorney must
be strictly construed, and courts will not infer or presume broad powers from deeds
which do not sufficiently include property or subject under which the agent is to deal.
[24]
 Thus, when the authority is couched in general terms, without mentioning any specific
power to sell or mortgage or to do other specific acts of strict dominion, then only acts of
administration are deemed conferred.[25]

In the case at bench, the only evidence adduced by NICORP to prove Benjamin's
authority to sell petitioner's property was the document denominated as General Power of
Attorney, dated June 20, 1996. The pertinent portions of the said document reads:
KNOW ALL MEN BY THESE PRESENTS:

THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married to HAROLD E.

SPILLE and residents of x x x do hereby appoint, name and constitute BENJAMIN G.
BAUTISTA resident(s) of x x x to be my/our true and lawful attorney(s), to administer
and conduct all my/our affairs and for that purpose in my/our name(s) and on my/our
behalf, to do and execute any or all of the following acts, deeds and things to wit:

1. To exercise administration, general control and supervision over my/our business

and property in the Philippines, and to act as my/our general representative(s) and
agent(s) with full authority to buy, sell, negotiate and contract for me/us and
my/our behalf;

2. To ask, demand, sue for, recover and receive all sums of money, debts, dues,
goods, wares, merchandise, chattels, effects and thing of whatsoever nature or
description, which now or hereafter shall be or become due, owing, payable or
belonging to me/us in or by any right, title, ways or means howsoever, and upon
receipt thereof or any part thereof, to make, sign, execute and deliver such
receipts, releases or other discharges;

xxx[26]

Doubtless, there was no perfected contract to sell between petitioner and NICORP.
Nowhere in the General Power of Attorney was Benjamin granted, expressly or
impliedly, any power to sell the subject property or a portion thereof. The authority
expressed in the General Power of Attorney was couched in very broad terms covering
petitioner's businesses and properties. Time and again, this Court has stressed that the
power of administration does not include acts of disposition, which are acts of strict
ownership. As such, an authority to dispose cannot proceed from an authority to
administer, and vice versa, for the two powers may only be exercised by an agent by
following the provisions on agency of the Civil Code.[27]

In the same vein, NICORP cannot be considered a purchaser in good faith. The well-
settled rule is that a person dealing with an assumed agent is bound to ascertain not only
the fact of agency but also the nature and extent of the agent's authority. [28] The law
requires a higher degree of prudence from one who buys from a person who is not the
registered owner. He is expected to examine all factual circumstances necessary for him
to determine if there are any flaws in the title of the transferor, or in his capacity to
transfer the land.[29] In ascertaining good faith, or the lack of it, which is a question of
intention, courts are necessarily controlled by the evidence as to the conduct and outward
acts by which alone the inward motive may, with safety, be determined. Good faith, or
want of it, is not a visible, tangible fact that can be seen or touched, but rather a state or
condition of mind which can only be judged by actual or fancied token or signs.[30]

Here, the Court agrees with the RTC that NICORP was fully aware that Benjamin was
not properly authorized to enter into any transaction regarding the sale of petitioner's
property. In fact, in the contract to sell, NICORP required Benjamin to secure the SPA
from petitioner within ninety (90) days from the execution of the contract and even
imposed a substantial amount of penalty in the amount of P150,000.00 a month in case of
non-compliance plus suspension of payment of the balance of the contract price.

Petitioner's explanation that it obliged Benjamin to secure the SPA in order to comply
with the requirements of the Register of Deeds and the Bureau of Internal Revenue is
bereft of merit. NICORP is a real estate company which is familiar with the intricacies of
the realty business. Moreover, there was no evidence that petitioner ratified Benjamin's
act of selling the subject property. On the contrary, immediately after the execution of the
contract to sell, petitioner wrote NICORP, IE Bank and Benjamin to inform them of her
opposition to the sale of the subject property and of his lack of authority to sell it and
demand the return of the certificate of title. Clearly, NICORP was negligent in its
dealings with Bautista.

In sum, the Court agrees with the findings and conclusion of the RTC. The consent of
petitioner in the contract to sell was not obtained, hence, not enforceable. Furthermore,
because NICORP is considered a builder in bad faith, it has no right to be refunded the
value of whatever improvements it introduced on the subject property.[31]

WHEREFORE, the petition is GRANTED. The March 19, 2014 Decision and the
August 18, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 97682
are REVERSED and SET ASIDE. The May 24, 2010 Decision of the Regional Trial
Court, Branch 90, Dasmariñas, Cavite, is REINSTATED.

SECOND DIVISION
 [ G.R. No. 212256, December 09, 2015 ]
FARIDA YAP BITTE AND THE HEIRS OF BENJAMIN D. BITTE,
NAMELY: JACOB YAP BITTE, SHAIRA DAYANARA YAP BITTE, FATIMA
YAP BITTE AND ALLAN ROBERT YAP BITTE, PETITIONERS, VS.
SPOUSES FRED AND ROSA ELSA SERRANO JONAS, RESPONDENTS.

DECISION

MENDOZA, J.:

In this petition for review on certiorari[1] under Rule 45 of the Rules of Court, the
petitioners, Farida Yap Bitte and Heirs of Benjamin Bitte (the petitioners), seek the
review of the September 26, 2013 Decision[2] and February 26, 2014 Resolution[3] of the
Court of Appeals (CA) in CA-G.R. CV No. 01596-MIN, which reversed the January 18,
2007 Joint Decision[4] of the Regional Trial Court, Branch 13, Davao (RTC-Branch 13),
arrived at in favor of respondents, Spouses Fred and Rosa Elsa Serrano Jonas (Spouses
Jonas).

Factual Antecedents

This controversy stemmed from two civil cases filed by the parties against each other
relative to a purported contract of sale involving a piece of property situated at 820 corner
Jacinto Street and Quezon Boulevard, Davao City (subject property). It was initially
covered by TCT No. T-112717 in the name of Rosa Elsa Serrano Jonas (Rosa Elsa) and
presently by TCT No. T-315273 under the name of Ganzon Yap, married to Haima Yap
(Spouses Yap).

On July 19, 1985, before Rosa Elsa went to Australia, she had executed a Special Power
of Attorney (SPA) authorizing her mother, Andrea C. Serrano (Andrea), to sell the
property.

Sometime in May 1996, Cipriano Serrano (Cipriano), son of Andrea and brother of Rosa
Elsa, offered the property for sale to Spouses Benjamin and Farida Yap Bitte (Spouses
Bitte) showing them the authority of Andrea. On September 3, 1996, Cipriano received
from Spouses Bitte the amount of P200,000.00 as advance payment for the property.
Later on, on September 10, 1996, he received the additional amount of P400,000.00.

Spouses Bitte sought a meeting for final negotiation with Rosa Elsa, the registered owner
of the subject property. At that time, Rosa Elsa was in Australia and had no funds to
spare for her travel to the Philippines. To enable her to come to the country, Spouses
Bitte paid for her round trip ticket.
On October 10, 1996, shortly after her arrival here in the Philippines, Rosa Elsa revoked
the SPA, through an instrument of even date, and handed a copy thereof to Andrea.

The next day, on October 11, 1996, the parties met at Farida Bitte's office, but no final
agreement was reached. The next day, Rosa Elsa withdrew from the transaction.

On October 17, 1996, Spouses Bitte filed before the RTC a Complaint for Specific
Performance with Damages seeking to compel Rosa Elsa, Andrea and Cipriano to
transfer to their names the title over the subject property. The case was docketed as Civil
Case No. 24,771-96 and raffled to RTC-Branch 13.

While the case was pending, Andrea sold the subject property to Spouses Bitte, through a
deed of absolute sale, dated February 25, 1997, and notarized by one Atty. Bernardino
Bolcan, Jr.

Immediately thereafter, Rosa Elsa asked Andrea about the sale. Her questions about the
sale, however, were ignored and her pleas for the cancellation of the sale and restoration
of the property to her possession were disregarded.

Undisputed by the parties is the fact that Rosa Elsa earlier mortgaged the subject property
to Mindanao Development Bank. Upon failure to pay the loan on maturity, the mortgage
was foreclosed and sold at a public auction on December 14, 1998 as evidenced by the
annotation on the title, Entry No. 1173153.[5]

Armed with the deed of absolute sale executed by Andrea, Spouses Bitte were able to
redeem the property on September 14, 1998 from the highest bidder, Thelma Jean
Salvana, for P1.6 Million Pesos.

Thereafter, Spouses Bitte sold the property to Ganzon Yap (Ganzon), married to Haima
Yap.[6]

Civi Case No. 24,771-96

(Spouses Bitte v. Rosa Elsa Serrano Jonas, Andrea C. Serrano and Cipriano Serrano,
Jr.)

As earlier recited, on October 17, 1996, Spouses Bitte filed before the RTC Civil Case
No. 24,771-96, a Complaint for Specific Performance with Damages seeking to compel
Rosa Elsa, Andrea and Cipriano to transfer the title of the subject property to their names.

In their Complaint, Spouses Bitte alleged that sometime in May 1996, the property was
offered to them for sale by Cipriano, who showed them the SPA in favor of Andrea; that
on September 3, 1996 and September 10, 1996, Cipriano received from them the
respective amounts of P200,000.00 and then P400,000.00 as advance payments for the
property; that they sought a meeting for final negotiation with Rosa Elsa, then the
registered owner of the subject property; that at that time, Rosa Elsa was in Australia and
had no funds to spare in order to return to the Philippines; that to enable her to come to
the country, they paid for her round trip ticket; that on October 11, 1996, they and Rosa
Elsa met at Farida Bitte's office; that an agreement of sale of the subject property for the
total purchase price of P6.2 Million Pesos was reached; that P5 Million thereof would be
paid on October 18, 1996 and the balance, thirty (30) days thereafter; that on the
following day, Rosa Elsa withdrew from the transaction; and that on the same date, they
demanded, through a letter, the execution of the necessary documents to effect the
transfer of the property to their names, but to no avail.

On October 18, 1996, RTC-Branch 13 granted the prayer for the issuance of a Temporary
Restraining Order (TRO) preventing Rosa Elsa and her agents from disposing the subject
property. Subsequently, on November 8, 1996, a Writ of Preliminary Injunction (WPI)
was issued in favor of Spouses Bitte.

In response, Rosa Elsa countered that despite her appointment of her mother, Andrea, as
her attorney-in-fact/agent, she later gave her instructions not to sell the property; that her
revocation barred the consummation of the contract to sell; that it was her belief that her
return to the Philippines was in connection with the sale of another property situated in
Cawag, San Isidro, Davao Oriental; that it was a surprise to her when she learned that
Cipriano was still negotiating for the sale of the subject property; that for said reason, she
asked for a meeting with Spouses Bitte to discuss the issue; that in the meeting, upon
learning of the source of her air fare, she offered to refund it and to return the unused
ticket for her return trip, but Spouses Bitte refused her offer; that no authority was given
to Cipriano to receive any advance payment for the property; and that Andrea's authority
was revoked through a Deed of Revocation of the Special Power of Attorney (SPA),
dated October 10, 1996.

During the pre-trial conference held on July 30, 1999, Spouses Bitte failed to appear.
Consequently, RTC-Branch 13 dismissed their complaint and set the reception of Rosa
Elsa's counterclaim for hearing.

Later on, Benjamin Bitte manifested the withdrawal of their counsel. RTC-Branch 13
then cancelled the reception of Rosa Elsa's evidence without reconsidering the dismissal
of the complaint.

Civil Case No. 27,667-99

(Spouses Fred Jonas and Rosa Elsa Serrano Jonas v. Sps. Benjamin Bitte and Farida
Yap Bitte, Andrea C. Serrano, Reg. of Deeds and the Clerk of Court, RTC, Davao City)

On November 16, 1999, Spouses Jonas filed before the RTC Civil Case No. 27,667-99, a
complaint for Annulment of Deed of Absolute Sale, Cancellation of TCT and Recovery
of Possession, Injunction, and Damages against Spouses Bitte.

In the Complaint, Spouses Jonas alleged that Rosa Elsa acquired the property before
marriage; that on July 19, 1985, when she decided to leave for Australia to reside there,
she executed an SPA of even date, granting her mother, Andrea, the authority to sell the
subject property; that while in Australia, she decided that she would no longer sell the
property; that she instructed her mother to stop offering the property to prospective
buyers; that upon arrival here in the Philippines in 1996, she revoked the SPA, through an
instrument, dated October 10, 1996, and handed a copy thereof to Andrea; that later, she
received information that the property was subsequently sold to Spouses Bitte, through a
Deed of Absolute Sale, dated February 25, 1997, signed by her mother, Andrea; and that
she then pleaded for the return of the property, but Andrea repeatedly ignored her.

Spouses Jonas eventually sought judicial recourse through the filing of a complaint for
the Annulment of the Deed of Absolute Sale and Reconveyance of the Property which
was raffled to RTC-Branch 9.

On November 17, 1999, Branch 9 issued a 20-day TRO restraining Spouses Bitte from
selling or disposing the subject property. On December 6, 1999, after hearing, it issued a
WPI for the same purpose.

On July 11, 2000, Rosa Elsa moved for the admission of an Amended Complaint in order
to implead Spouses Yap because the title over the subject property had been subsequently
registered in their names.

Consolidation of the Two Cases

As earlier recited, RTC-Branch 13 dismissed the complaint of Spouses Bitte and set the
reception of Rosa Elsa's counterclaim for hearing.

Later on, RTC-Branch 13 cancelled the reception of Rosa Elsa's evidence without
reconsidering the dismissal of the complaint.

Nonetheless, on May 26, 2000, RTC-Branch 13 reconsidered its earlier ruling after
seeing the need to consolidate Civil Case No. 27,667-99 with Civil Case No. 24,771-
99 pending before the RTC, Branch 9, Davao (RTC-Branch 99). In the October 4, 2001
Order, the cases were ordered consolidated and were thereafter scheduled to be jointly
heard before Branch 13.

On April 17, 2002, Spouses Bitte were again declared in default by RTC- Branch 13 for
their failure to attend the pre-trial.
On January 4, 2003, the counsel of Spouses Bitte withdrew and a new one entered his
appearance and then filed a verified motion for reconsideration.

On August 21, 2003, Spouses Bitte once again failed to appear in the pre-trial and were,
thus, declared non-suited. Rosa Elsa then presented her evidence ex parte.

Joint Decision of the RTC-Branch 13

On January 18, 2007, RTC-Branch 13 rendered a Joint Decision,[7] confirming the

dismissal of Civil Case No. 24,771-96 and directing Spouses Bitte to pay Rosa Elsa the
amount of PI,546,752.80, representing the balance of the sale of the subject. The
dispositive portion of the Joint Decision reads:
WHEREFORE, judgment is hereby rendered in these cases as follows:

a. Reiterating the dismissal of Civil Case No. 24,771-96;

b. Directing spouses Benjamin and Farida Bitte to pay Rosa Elsa Serrano Jonas the
amount of P1,546,752.80 (one million five hundred forty-thousand seven hundred
fifty two and 80/100 pesos) representing the balance of the sale of the property
subject of this case to them;

c. Directing spouses Benjamin and Farida Bitte to pay interest on the balance at the
rate of 12% per annum from the date of this decision until fully paid.

SO ORDERED.[8]
Ruling of the CA

Aggrieved, Spouses Jonas appealed to the CA. On September 26, 2013, the
CA reversed the RTC-Branch 13 Joint Decision. In so ruling, the CA focused on the
validity and enforceability of the deed of absolute sale executed by Andrea in the name of
Rosa Elsa. The CA explained:

1. Andrea's execution on behalf of Rosa Elsa of the deed of absolute sale in favor of
Spouses Bitte was void and unenforceable as the authority to represent Rosa Elsa had
already been revoked as early as October 10, 1996. Without the authority to effect the
conveyance, the contract was without effect to Rosa Elsa, who was a stranger to the
conveyance in favor of Spouses Bitte. Rosa Elsa did not consent to the transaction either.

2. Considering that no valid conveyance was effected, Spouses Bitte had no right to
redeem the foreclosed property because they were not among those persons who could
redeem a property under Sec. 6 of Act. No. 3135 and Section 27 of Rule 39 of the Rules
of Court. They could not be considered successors-in-interest or transferees because no
right was conveyed by Rosa Elsa on account of the revocation of the authority given to
Andrea.

3. Ganzon, the one who subsequently purchased the property from Spouses Bitte, was not
an innocent purchaser of the property as the conveyance was attended with circumstances
which should have alerted him of the fallibility of the title over the property. Ganzon
transacted with Spouses Bitte, who were then not yet the registered owners of the
property. He should have made inquiries first as to how Spouses Bitte acquired the rights
over the property.

Thus, the CA disposed as follows:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED and the
Joint Decision, dated 18 January 2007 of the RTC, Eleventh Judicial Region, Branch 13,
Davao City, insofar as it pertains to Civil Case No. 27,667-99 is
hereby REVERSED and SET ASIDE. Accordingly,

a) The Deed of Absolute Sale dated 25 February 1997 is hereby declared NULL and VOID.

b) Transfer Certificate of Title (TCT) No. T-315273 in the name of Ganzon Yap, married to
Haima Yap, is declared NULL and VOID, and the Registry of Deeds of Davao City is
hereby DIRECTED to cancel TCT No. T-315273, and to issue a new title reinstating TCT
No. T-112717 in the name of Rosa Elsa S. Serrano; and
c) Ganzon and Haima Yap and/or whoever is in possession of the subject property, or their
agents and those acting for in their behalf are hereby DIRECTED to VACATE the subject
property and surrender the possession of the same to plaintiff-appellant Rosa Elsa Serrano-
Jonas.

SO ORDERED.[9]
Aggrieved, Spouses Bitte moved for reconsideration, but their motion was denied by the
CA on February 26, 2014.[10]

Hence, this petition by the petitioners, Farida Yap Bitte and the Heirs of Benjamin Bitte.
[11]

ISSUES

WHETHER OR NOT THE COURT OF APPEALS-MINDANAO STATION

DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS WHEN IT ALLOWED THE APPELLANTS BRIEF FILED BY
RESPONDENTS IN VIOLATION OF SECTION 7, RULE 44 OF THE RULES OF
COURT.

II

WHETHER OR NOT THE RULING OF THE COURT OF APPEALS FINDING

THE REVOCATION OF THE SPA, DESPITE LACK OF BASIS,
ENFORCEABLE AGAINST THIRD PERSONS IS IN ACCORD WITH LAW.

III

WHETHER OR NOT THE RULING OF THE COURT OF APPEALS FINDING

THE DEED OF SALE INVALID IS SUPPORTED BY STRONG AND
CONCLUSIVE EVIDENCE AS REQUIRED BY LAW.

IV

WHETHER OR NOT THE RULING OF THE COURT OF APPEALS

DISREGARDING THE LEGAL EFFECTS OF THE FORECLOSURE SALE IS A
DEPARTURE FROM THE ESTABLISHED JURIDICIAL PRONOUNCEMENTS.

VI

WHETHER OR NOT THE RULING OF THE COURT OF APPEALS NOT

FINDING GANZON YAP AS INNOCENT PURCHASER FOR VALUE IS
CONSISTENT WITH THE PRINCIPLE OF INDEFEASIBLITY OF TITLE. [12]
In advocacy of their positions, the petitioners submit the following arguments:

1. The deed of absolute sale executed by Andrea was valid and legal because the
SPA was not validly revoked as the revocation was not registered in the Office of
the Register of Deeds of Davao City. Thus, Andrea's authority to transact with
them on behalf of Rosa Elsa subsisted.

2. The CA decision, declaring the deed of absolute sale null and void, directing the
cancellation of TCT No. T-315273, and reinstating TCT No. T-112717, without
attacking the auction sale and redemption made by Spouses Bitte was a highly
questionable act.

3. Considering that the deed of absolute sale was valid, they could redeem the
property pursuant to Act. No. 3135, as amended, and Sec. 27 of Rule 39 of the
Rules of Court.

4. No evidence was presented showing that Ganzon indeed bought the property in
bad faith considering that the TCT No. T-112717 did not bear any annotation that
should have alarmed him before buying the property. Ganzon could not have been
expected to go beyond the title and look for vices or defects that could have
rendered him not a purchaser in good faith and for value.

In their Comment,[13] Spouses Jonas called the attention of the Court to the fact that
Spouses Bitte had been declared in default by the RTC. Spouses Jonas contended that,
being in default, Spouses already lost the legal personality to resort to this petition. They
also averred that the questions presented in this petition are one of facts and not of law.
Not being a trier of facts, this Court must deny the petition.

On the merits, they argued that the SPA was not enforceable; that the deed of absolute
sale executed by Andrea was a nullity because it was made with knowledge on the part of
Spouses Bitte of the revocation of Andrea's authority; and that Spouses Yap could not be
considered purchasers in good faith as they failed to verify the authority of the vendors,
Spouses Bitte, considering that the certificate of title was still under Rosa Elsa's name.

In their Reply,[14] Spouses Bitte reiterated their positions as set out in their petition.

Ruling of the Court

The Court denies the petition.

Procedural Issues

Before tackling the substantive issues, a few procedural matters must first be threshed
out.

The first is on the issue of the personality of the petitioners to file this petition. Spouses
Jonas claim that the door to any reliefs for Spouses Bitte, be it through a motion for
reconsideration or this subject petition, was closed by the finality and immutability of the
RTC declaration of their default. In other words, it is their stand that the petitioners do
not have the right to obtain recourse from this Court.

Spouses Jonas are mistaken.

The rule is that "right to appeal from the judgment by default is not lost and can be done
on grounds that the amount of the judgment is excessive or is different in kind from that
prayed for, or that the plaintiff failed to prove the material allegations of his complaint, or
that the decision is contrary to law."[15] If a party who has been declared in default has in
his arsenal the remedy of appeal from the judgment of default on the basis of the decision
having been issued against the evidence or the law, that person cannot be denied the
remedy and opportunity to assail the judgment in the appellate court. Despite being
burdened by the circumstances of default, the petitioners may still use all other remedies
available to question not only the judgment of default but also the judgment on appeal
before this Court. Those remedies necessarily include an appeal by certiorari under Rule
45 of the Rules of Court.

The second is on the propriety of the questions raised in the petition. Spouses Jonas
claims that that the issues raised here, being factual, are inappropriate for being beyond
the inquiry of this Court; that the factual findings of the CA could no longer be modified
or even reviewed citing the long standing rule that they are final and conclusive.
Although the rule admits of exceptions, they insist that none of them obtains in this case.

Indeed, the questions forwarded by Spouses Bitte are without doubt factual issues. This
Court, being not a trier of facts, has no recourse but to give credence to the findings of the
CA. Although it is true that there are exceptions as enumerated in Development Bank of
the Philippines v. Traders Royal Bank,[16] none of these were invoked or cited in the
petition.

On that score alone, this petition should be denied outright.

Substantive Issues

The Genuineness and Due Execution of the Deed of Sale in favor of Spouses Bitte were
not proven

The Court agrees with the CA that the genuineness and due execution of the deed of sale
in favor Spouses Bitte were not established. Indeed, a notarized document has in its favor
the presumption of regularity. Nonetheless, it can be impugned by strong, complete and
conclusive proof of its falsity or nullity on account of some flaws or defects on the
document.[17]

In the case at bench, it is on record that the National Archives, Records Management and
Archives Office, Regional Archives Division, Davao City, certified that it had no copy on
file of the Deed of Absolute Sale, dated February 25, 1997, sworn before Atty.
Bernardino N. Bolcan, Jr., denominated as Doc. No. 988, Page No. 198, Book No. 30,
Series of 1997. Their record shows that, instead, the document executed on said date with
exactly the same notarial entries pertained to a Deed of Assignment of Foreign Letter of
Credit in favor of Allied Banking Corporation.[18] Such irrefutable fact rendered doubtful
that the subject deed of absolute sale was notarized.

Article 1358 of the New Civil Code requires that the form of a contract transmitting or
extinguishing real rights over immovable property should be in a public document.
Pertinently, Section 19, Rule 132 of the Rules of Court reads:
Section 19 Classes of documents. - For the purposes of their presentation in evidence,
documents are either public or private.

Public documents are:

(a) The written official acts, or records of the official acts of the sovereign authority, official
bodies and tribunals, and public officers, whether of the Philippines, or of a foreign country;
(b) Documents acknowledged before a notary public except last wills and testaments; and
(c) Public records, kept in the Philippines, of private documents required by law to be entered
 therein.
All other writings are private.
Not having been properly and validly notarized, the deed of sale cannot be considered a
public document. It is an accepted rule, however, that the failure to observe the proper
form does not render the transaction invalid. It has been settled that a sale of real
property, though not consigned in a public instrument or formal writing is, nevertheless,
valid and binding among the parties, for the time-honored rule is that even a verbal
contract of sale or real estate produces legal effects between the parties. [19]

Not being considered a public document, the deed is subject to the requirement of proof
under Section 20, Rule 132, which reads:
Section 20. Proof of private document. - Before any private document offered as
authentic is received in evidence its due execution and authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.
Accordingly, the party invoking the validity of the deed of absolute sale had the burden
of proving its authenticity and due execution. Unfortunately, Spouses Bitte were declared
as in default and, for said reason, they failed to discharge such burden in the court below.
Thus, the Court agrees with the CA that the RTC erred in applying the presumption of
regularity that attaches only to duly notarized documents as distinguished from private
documents.

Without the presumption of regularity accorded to the deed coupled with the default of
the party relying much on the same, the purported sale cannot be considered. It is as if
there was no deed of sale between Spouses Bitte and Spouses Jonas.

The genuineness and due execution of the deed of sale in favor of Spouses Bitte not
having been established, the said deed can be considered non-existent.

Spouses Bitte, however, are questioning the "non-existent" deed of sale.

Granting that its genuineness and due of execution were proven, the deed of sale is still
unenforceable; Doctrine of Apparent Authority

Granting arguendo that the deed of sale may still be considered, the transaction is,
nevertheless, unenforceable.

In this regard, petitioners posit that the deed must be recognized and enforced for the
reason that, despite the revocation of the authority of Andrea prior to the execution of the
deed, they should not be bound by that revocation for lack of notice. Consequently, they
contend that as far as they are concerned, the contract of sale should be given effect for
having been executed by someone appearing to them as authorized to sell.

They further argue that the failure of Rosa Elsa to register, file and enter the deed of
revocation in the Registry of Deeds did not bind Spouses Bitte under Section 52 of the
Property Registration Decree. Said section provides that "[e]very conveyance, mortgage,
lease, lien, attachment, order, judgment, instrument or entry affecting registered land
shall, if registered, filed or entered in the Office of the Register of Deeds for the province
or city where the land to which it relates lies, be constructive notice to all persons from
the time of such registering, filing or entering." It is their position that without the
registration of the revocation, they cannot be bound by it and the Court must respect the
sale executed by her agent, Andrea.

The Court is not persuaded.

Basic is the rule that the revocation of an agency becomes operative, as to the agent, from
the time it is made known to him. Third parties dealing bona fide with one who has been
accredited to them as an agent, however, are not affected by the revocation of the agency,
unless notified of such revocation.[20] This refers to the doctrine of apparent authority.
Under the said doctrine, acts and contracts of the agent within the apparent scope of the
authority conferred on him, although no actual authority to do such acts or has been
beforehand withdrawn, revoked or terminated, bind the principal.[21] Thus, as to a third
person, "apparent authority, when present, trumps restrictions that the principal has
privately imposed on the agent. The relevant appearance is that the principal has
conferred authority on an agent. An actor may continue to possess apparent authority
although the principal has terminated the actor's actual authority or the agency
relationship between them. This is so because a third party may reasonably believe that
the actor continues to act as an agent and within the scope of actual authority on the basis
of manifestations previously made by the principal. Such a manifestation, once made,
remains operative until the third party has notice of circumstances that make it
unreasonable to believe that the actor continues to have actual authority."[22] Hence,
apparent authority may survive the termination of actual authority or of an agency
relationship.[23]

To persons who relied in good faith on the appearance of authority, no prejudice must be
had by virtue of such reliance on what appeared to them as perfectly in accordance with
the observable authority of an agent. It must not be disturbed unless it can be shown that
they had been notified or became aware of the termination of the agency. Stated
differently, a third party cannot be bound by a revocation unless he had notice or
knowledge of such revocation.

The notice or knowledge may be actual or implied. In either case, there is no apparent
authority to speak of and all contracts entered into by the former agent with a third person
cannot bind the principal. The reason behind this is that a third person cannot feign
ignorance of facts which should have put him on guard and which he had a means of
knowing. "Apparent authority ends when it is no longer reasonable for the third party
with whom an agent deals to believe that the agent continues to act with actual
authority."[24] In Cervantes v. Court of Appeals[25] the Court wrote that "when the third
person, knows that the agent was acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent."

Generally, implied notice, also known as constructive notice, is attributed to third persons
through the registration of the termination in the Registry of Deeds.

Under Article 1924 of the New Civil Code, "an agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly with third persons." Logic
dictates that when a principal disregards or bypasses the agent and directly deals with
such person in an incompatible or exclusionary manner, said third person is deemed to
have knowledge of the revocation of the agency. They are expected to know
circumstances that should have put them on guard as to the continuing authority of that
agent. The mere fact of the principal dealing directly with the third person, after the latter
had dealt with an agent, should be enough to excite the third person's inquiring mind on
the continuation of his authority.

In the case at bench, records show that Spouses Bitte initially transacted with Andrea as
Rosa Elsa's agent on the basis of the SPA, dated July 19, 1985. Thereafter, however, Rosa
Elsa returned to the Philippines and directly negotiated with them on October 11, 1996.
Rosa Elsa's act of taking over in the actual negotiation for the sale of the property only
shows that Andrea's authority to act has been revoked pursuant to Article 1924. At that
point, Spouses Bitte had information sufficient enough to make them believe that Andrea
was no longer an agent or should have compelled them to make further inquiries. No
attempt was shown that Spouses Bitte took the necessary steps to inquire if Andrea was
still authorized to act at that time. Despite their direct negotiation with Rosa Elsa, they
still entered into a contract with Andrea on February 25, 1997.
Persons dealing with an agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of the agents
authority, and in case either is controverted, the burden of proof is upon them to establish
it.[26]
Legal Consequence

"It is a basic axiom in civil law embodied in our Civil Code that no one may contract in
the name of another without being authorized by the latter, or unless he has by law a right
to represent him. A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other contracting party."[27] Considering
that the sale was executed by an agent whose authority, be it actual or apparent, had been
revoked, the transaction is unenforceable pursuant to Article 1317 and 1403(1) of the
Civil Code which read:
Article 1317. No one may contract in the name of another without being authorized by
the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party. (1259a)

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

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

xxx. [Emphases Supplied]

Considering that the deed of absolute sale was executed at a time when Spouses Bitte
were deemed notified of the termination of the agency, the sale must be treated as having
been entered into by Andrea in her personal capacity. One can sell only what one owns or
is authorized to sell, and the buyer can acquire no more right than what the seller can
transfer legally.[28] Accordingly, Spouses Bitte acquired no better title than what Andrea
had over the property, which was nil.

In sum, the deed of absolute sale executed by Andrea in favor of Spouses Bitte is
unenforceable against Rosa Elsa because of their notice of the revocation of the agency.

Spouses Bitte did not possess the required personality to redeem the subject property

Obviously, Spouses Bitte acquired no interest in the subject property because the deed
that they were anchoring their claims on did not bind Rosa Elsa. Hence, they did not have
the personality to redeem the foreclosed property as provided under Act No. 3135, as
amended by Act No. 4118, and of Section 27, Rule 39 of the Rules of Court.
Act No. 3135, as amended, provides:

SEC. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under which the property is
sold, may redeem the same at any time within the term of one year from and after the
date of the sale; and such redemption shall be governed by the provisions of sections four
hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this Act.
 [Emphases Supplied]
Section 27 of Rule 39 of the Rules of Court enumerates the persons who may exercise the
right of redemption of a foreclosed property:
Section 27. Who may redeem real property so sold. — Real property sold as provided in
the last preceding section, or any part thereof sold separately, may be redeemed in the
manner hereinafter provided, by the following persons:

(a) The judgment obligor; or his successor in interest in the whole or any part of the property;
and
(c) A creditor having a lien by virtue of an attachment, judgment or mortgage on the property
sold, or on some part thereof, subsequent to the lien under which the property was sold.
Such redeeming creditor is termed a redemptioner.
In Castro v. IAC,[29] as correctly cited by the CA, "only such persons as are authorized to
do so by statute can redeem from an execution sale." Spouses Bitte were not so
authorized considering that they were not among those enumerated in Act No. 3135 and
Section 27 of Rule 39.

Spouses Yap were also not Purchasers in Good Faith and For Value

After the purported "transfer" to Spouses Yap, the subject property was registered and a
new title was issued in their names. Despite being impleaded in the case, however, they
were silent and did not even join Spouses Bitte in the subject petition. It is Spouses
Bitte who have been taking the cudgels for them.

On the issue, Spouses Bitte contend that Spouses Yap were purchasers in good faith and
for value, and, for that reason, should have been recognized to have good title over the
subject property.

Settled is the rule that the burden of proving the status of a purchaser in good faith and
for value lies upon one who asserts that status.[30] This onus probandi cannot be
discharged by mere invocation of the ordinary presumption of good faith.[31] Considering
that the title was still registered in the name of Rosa Elsa when Spouses Yap bought it
from Spouses Bitte, the burden was on them to prove that they were purchasers in good
faith. In this regard, they failed. Not an iota of evidence was adduced by them to prove
their ignorance of the true situation.

Through Spouses Bitte, Spouses Yap are invoking good faith for want of notice on their
part that Andrea's authority had already been revoked. They point out that Ganzon, being
a layman, could not have been expected to know the intricacies of the law for which
reason that he could not attribute any fault in the deed of sale executed by a person with a
SPA.

The Court is not persuaded.

Spouses Yap were not purchasers in good faith and for value. Significantly, Ganzon
transacted with someone who was not even the registered owner of the property. At the
time of the transfer, the property was still registered in the name of Rosa Elsa.

The rule is that a person who buys from one who is not the registered owner is expected
to examine not only the certificate of title but all factual circumstances necessary for
[one] to determine if there are any flaws in the title of the transferor, or in [the] capacity
to transfer the land. A higher degree of prudence is thus expected from that person even if
the land object of the transaction is registered.[32]

Here, no evidence was presented to show that Spouses Yap exerted that required
diligence in determining the factual circumstances relating to the title and authority of
Spouses Bitte as sellers of the property. The records are bereft of any proof that Spouses
Yap showed eagerness to air their side despite being impleaded.

Hence, the protection the law accords to purchasers in good faith and for value cannot be
extended to them. They have failed to show the required diligence needed in protecting
their rights as buyers of property despite knowledge of facts that should have led them to
inquire and investigate the possible defects in the title of the seller. Thus, in the same way
that Spouses Bitte cannot claim valid title over the property, Spouses Yap cannot also do
the same.
A purchaser cannot close his eyes to facts which should put a reasonable man upon his
guard, and then claim that he acted in good faith under the belief that there was no defect
in the title of the vendor.[33]
In sum, the transfer to Spouses Yap was null and void as Spouses Bitte had nothing to
sell or transfer to them.

WHEREFORE, the petition is DENIED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 225808, September 11, 2017 ]
SPOUSES EDGARDO M. AGUINALDO AND NELIA T. TORRES-
AGUINALDO, PETITIONERS, VS. ARTEMIO T. TORRES,
JR.,** RESPONDENT.

DECISION
PERLAS-BERNABE, J.:

Before the Court is a petition for review on certiorari[1] assailing the

Decision[2] dated May 20, 2015 and the Resolution[3] dated July 14, 2016 of the Court of
Appeals (CA) in CA-G.R. CV No. 96014, which (a) affirmed the Decision[4] dated January
21, 2010 of the Regional Trial Court of Trece Martires City, Branch 23 (RTC), dismissing
the complaint for annulment of sale, cancellation of title, and damages filed by
petitioners Spouses Edgardo M. Aguinaldo and Nelia T. Torres-Aguinaldo (Nelia;
collectively, petitioners) against respondent Artemio T. Torres, Jr. (respondent); and (b)
ordered petitioners to execute a registrable deed of conveyance in favor of respondent
within thirty (30) days from the finality of the CA Decision, in accordance with Articles
1357 and 1358 (1) of the Civil Code.[5]

The Facts

On March 3, 2003, petitioners filed a complaint[6] for annulment of sale, cancellation of

title, and damages against respondent before the RTC. They claimed that they are the
registered owners of three (3) lots covered by Transfer Certificates of Title (TCT) Nos. T-
93596, T-87764, and T-87765 situated in Tanza, Cavite (subject properties). [7] Sometime
in December 2000, they discovered that the titles to the subject properties were
transferred to respondent who, in bad faith, and through fraud, deceit, and stealth,
caused the execution of a Deed of Absolute Sale[8] dated July 21, 1979 (1979 deed of
sale), purportedly selling the subject properties to him, for which he was issued TCT
Nos. T-305318, T-305319, and T-305320[9] (subject certificates of title).

Respondent filed his Answer with Counterclaim, [10] denying participation in the

execution of the 1979 deed of sale, and averring that the subject properties were validly
sold by petitioners to him through a Deed of Absolute Sale [11] dated March 10, 1991
(1991 deed of sale).[12] He claimed that petitioners caused the registration of the 1979
deed of sale with the Register of Deeds of Trece Martires City, and the transfer of title in
his name, hence, they are estopped from impugning the validity of his title. Moreover,
the action has prescribed, having been filed beyond four (4) years from discovery of the
averred fraud, reckoned from the registration of the said deed on March 26, 1991. [13] He
further alleged that petitioners only filed the instant baseless suit to harass him in view
of their acrimonious relationship, and thus, interposed a counterclaim for moral
damages and attorney's fees.[14]

The RTC Proceedings

On respondent's motion,[15] a copy of the 1991 deed of sale was transmitted to the
National Bureau of Investigation (NBI) Questioned Documents Department for
examination and determination of its genuineness.[16] The NBI thereafter submitted
reports concluding that petitioners' questioned signatures thereon and their sample
signatures were written by the same persons.[17]

Thus, in a Decision[18] dated January 21, 2010, the RTC dismissed the complaint, holding
that petitioners failed to establish their claim by preponderance of evidence. [19] It found
that petitioners validly sold the subject properties to respondent, [20] considering too
Nelia's admission of the sale in her letter[21] dated November 12, 1998 (November 12,
1998 letter) to respondent.[22]

Aggrieved, petitioners appealed[23] before the CA.[24]

The CA Ruling

In a Decision[25] dated May 20, 2015, the CA denied the appeal and upheld the RTC's
findings and conclusions.[26] While it ruled that the 1979 deed of sale was spurious after
conducting its own examination of petitioners' signatures thereon and on other
pertinent documents, and thus, did not transfer title over the subject properties to
respondent, it declared that there was, nonetheless, a valid sale to the latter,
[27]
 considering that: (a) petitioners failed to rebut the authenticity and due execution of
the 1991 deed of sale on account of their genuine signatures thereon as established by
the NBI reports,[28] and the CA's own independent examination of their signatures on
various documents submitted before the court;[29] (b) Nelia admitted the existence of
the sale of the subject properties in her November 12, 1998 letter to respondent; [30] and
(c) respondent's religious payment of real property taxes on the subject properties from
1993 to 2003 supports his claim of ownership, for no one in his right mind would be
paying taxes for a property if he does not claim possession in the concept of an owner.
[31]
However, the CA observed that despite its authenticity and due execution, the 1991
deed of sale was improperly notarized, given that it was signed by respondent and
witness Lalaine Bucapal (Bucapal) in Makati City, and by petitioners in the United States
of America (USA), but notarized in Tanza, Cavite;[32] as such, the same could not be
properly registered by the Register of Deeds.[33] Accordingly, the CA found it equitable to
compel petitioners to execute a registrable deed of conveyance in favor of respondent
within thirty (30) days from finality of the Decision, in accordance with Articles 1357 and
1358 (1) of the Civil Code.[34]

Petitioners filed a motion for reconsideration,[35] which the CA denied in a

Resolution[36] dated July 14, 2016; hence, this petition.

The Issue Before the Court

The essential issue for the Court's resolution is whether or not the CA committed
reversible error in ruling that there was a valid conveyance of the subject properties to
respondent and directing petitioners to execute a registrable deed of conveyance in his
favor within thirty (30) days from the finality of the decision.

The Court's Ruling

In the present case, the complaint was filed assailing the validity of the 1979 deed of
sale, the execution of which was denied by both parties. However, while the CA found
that petitioners' signatures on the said deed were manifestly different from their
signatures on other pertinent documents before it, and thus, declared the said deed as
spurious and did not validly transfer title to the subject properties, it failed to nullify the
subject certificates of title issued pursuant to the said deed. Settled is the rule that a
forged deed of sale is null and void and conveys no title. [37] Notably, the complaint
prayed for the nullification of the said certificates of title based on the spurious 1979
deed of sale.[38] Hence, finding the foregoing in order, the CA's ruling must be modified
accordingly.

Nonetheless, save for the above modification, the Court agrees with the CA's conclusion
that a valid conveyance of the subject properties to respondent was established.

While respondent denied participation in the execution of the 1979 deed of sale, he
claimed that the subject properties were validly sold by petitioners to him through the
1991 deed of sale.[39] On the other hand, petitioners denied the existence and due
execution of the said deed, claiming that they could not have signed the same as they
were in the USA when it was supposedly executed. [40]

Thus, central to the resolution of the instant controversy is the determination of the
authenticity of the 1991 deed of sale which, however, is a question of fact rather than of
law.[41] It bears to stress that it is not the function of the Court to re-examine, winnow,
and weigh anew the respective sets of evidence of the parties, [42] absent a showing that
they fall under certain recognized exceptions,[43] none of which are present here.

At the outset, it should be pointed out that the 1991 deed of sale was improperly
notarized, having been signed by respondent and witness Bucapal in Makati City and by
petitioners in the USA, but notarized in Tanza, Cavite,[44] which is in violation of the
notarial officer's duty to demand that the party acknowledging a document must appear
before him,[45] sign the document in his presence,[46] and affirm the contents and truth of
what are stated therein.[47] As aptly observed by the CA, the evidence on record amply
shows that Nelia could not have been in the Philippines at the time the said deed was
signed.[48]

The improper notarization of the 1991 deed of sale stripped it of its public character and
reduced it to a private instrument.[49] Hence, it is to be examined under the parameters
of Section 20, Rule 132 of the Rules of Court (Rules) which pertinently provides that
"[b]efore any private document offered as authentic is received in evidence, its due
execution and authenticity must be proved either: (a) [b]y anyone who saw the
document executed or written; or (b) [b]y evidence of the genuineness of the signature
or handwriting of the maker."[50] Emphases supplied.

In relation thereto, Section 22, Rule 132 of the same Rules provides the manner by
which the genuineness of handwriting may be proved, i.e.: (a) by any witness who
believes it to be the handwriting of such person because he has seen the person write;
or he has seen writing purporting to be his upon which the witness has acted or been
charged; (b) by a comparison, made by the witness or the court, with writings admitted
or treated as genuine by the party against whom the evidence is offered, or proved to
be genuine to the satisfaction of the judge.
In this case, the CA made an independent examination of petitioners' signatures on the
1991 deed of sale (questioned signatures), and concluded that they are the same
signatures found on other pertinent documents (standard/sample signatures), [51] which
is the same conclusion arrived at by the NBI.[52] The due execution and authenticity of
the said deed having been ostensibly established by the finding that the signatures of
petitioners thereon were genuine, the burden was shifted upon the latter to prove by
contrary evidence that the subject properties were not so transferred [53] - especially in
light of Nelia's admission of the sale[54] in her November 12, 1998 letter to respondent,
as well as respondent's payment of the real property taxes for the same [55] - which
petitioners, however, failed to discharge convincingly.

The Court has held in a number of cases that forgery cannot be presumed and must be
proved by clear, positive, and convincing evidence, and the burden of proof lies on the
party alleging forgery to establish his case by a preponderance of evidence, or evidence
which is of greater weight or more convincing than that which is offered in opposition to
it.[56] In this case, the claimed forgery was ruled out by a comparison of petitioners'
questioned signatures with their standard/sample signatures, but other than their own
declaration that their signatures on the 1991 deed of sale were forged, petitioners failed
to present any evidence to corroborate their claim.

Although the improper notarization of the 1991 deed of sale did not affect the validity
of the sale of the subject properties to respondent, the same, however, rendered the
said deed unregistrable, since notarization is essential to the registrability of deeds and
conveyances.[57] Bearing in mind that the legal requirement that the sale of real property
must appear in a public instrument is merely a coercive means granted to the
contracting parties to enable them to reciprocally compel the observance of the
prescribed form,[58] and considering that the existence of the sale of the subject
properties in respondent's favor had been duly established, the Court upholds the CA's
directive for petitioners to execute a registrable deed of conveyance in respondent's
favor within thirty (30) days from finality of the decision, in accordance with the
prescribed form under Articles 1357[59] and 1358[60] (1) of the Civil Code. Notably, if
petitioners fail to comply with this directive within the said period, respondent has the
option to file the proper motion before the court a quo to issue an order divesting
petitioners' title to the subject properties under the parameters of Section 10 (a), [61] Rule
39 of the Rules of Court.

To be sure, the directive to execute a registrable deed of conveyance in respondent's

favor - albeit not specifically prayed for in respondent's Answer with Counterclaim - is
but a necessary consequence of the judgment upholding the validity of the sale to him,
and an essential measure to put in proper place the title to and ownership of the subject
properties and to preclude further contentions thereon. As aptly explained by the CA,
"[t]o leave the [1991 deed of sale] as a private one would not necessarily serve the
intent of the country's land registration laws[, and] resorting to another action merely to
compel the [petitioners] to execute a registrable deed of sale would unnecessarily
prolong the resolution of this case, especially when the end goal would be the
same."[62] In this relation, case law states that a judgment should be complete by itself;
hence, the courts are to dispose finally of the litigation so as to preclude further
litigation between the parties on the same subject matter, thereby avoiding a
multiplicity of suits between the parties and their privies and successors-in-interests. [63]

As a final note, it must be clarified that while the Court has declared TCT Nos. T-305318,
T-305319, and T-305320 null and void, the duty to process the cancellation of the said
titles devolves upon respondent's heirs. Likewise, it is the latter's duty to register the
new deed of sale as herein compelled so as to secure the issuance of new certificates of
title over the subject properties in their names.

WHEREFORE, the petition is DENIED. The Decision dated May 20, 2015 and the
Resolution dated July 14, 2016 of the Court of Appeals in CA-G.R. CV No. 96014
are AFFIRMED with the MODIFICATION

declaring the Deed of Absolute Sale dated July 21, 1979, as well as Transfer Certificates
of Title Nos. T-305318, T-305319, and T-305320 in the name of respondent Artemio
Torres, Jr. NULL and VOID. Petitioners are DIRECTED to execute a registrable deed of
conveyance in respondent's favor within thirty (30) days from finality of this Decision, in
accordance with the prescribed form under Articles 1357 and 1358 (1) of the Civil Code.
In case of non-compliance with this directive within the said period, respondent has the
option to file the proper motion before the court a quo to issue an order divesting
petitioners' title to the subject properties under the parameters of Section 10 (a), Rule
39 of the Rules of Court.
SO ORDERED.

SECOND DIVISION
[ G.R. No. 212375, January 25, 2017 ]
KABISIG REAL WEALTH DEV., INC. AND FERNANDO C. TIO,
PETITIONERS, VS. YOUNG BUILDERS CORPORATION, RESPONDENT.

DECISION

PERALTA, J.:

This is a Petition for Review which petitioners Kabisig Real Wealth Dev., Inc. and
Fernando C. Tio filed assailing the Court of Appeals (CA) Decision [1] dated June 28, 2013
and Resolution[2] dated March 28, 2014 in CA-G.R. CV No. 02945, affirming the Decision
of the Regional Trial Court (RTC)  of Cebu City, Branch 12, dated July 31, 2008 in Civil
Case No. CEB-27950.

The following are the pertinent antecedents of the case, as shown by the records:

Sometime in April 2001, Kabisig Real Wealth Dev., Inc. (Kabisig), through Ferdinand

Tio (Tio), contracted the services of Young Builders Corporation (Young Builders) to
supply labor, tools, equipment, and materials for the renovation of its building in Cebu
City. Young Builders then finished the work in September 2001 and billed Kabisig for
P4,123,320.95. However, despite numerous demands, Kabisig failed to pay. It
contended that no written contract was ever entered into between the parties and it
was never informed of the estimated cost of the renovation. Thus, Young Builders filed
an action for Collection of Sum of Money against Kabisig.

On July 31, 2008, the RTC of Cebu City rendered a Decision finding for Young Builders,
thus:

WHEREFORE, judgment is hereby rendered ordering the defendants to pay

plaintiff P4,123,320.95 representing the value of services rendered and materials used
in the renovation of the building of defendant Kabisig Real Wealth Dev., Inc. into a
restaurant of defendant Ferdinand Tio, by way of actual damages, plus 12% per
annum  from September 11, 2001 until it is fully paid. Costs against defendants.

SO ORDERED.[3]

Therefore, Kabisig elevated the case to the CA. On June 28, 2013, the appellate court
affirmed the RTC Decision, with modification, viz.:

WHEREFORE, foregoing premises considered, the Decision dated July 31, 2008

rendered by the Regional Trial Court of Cebu City, Branch 12 in Civil Case No. CEB-27950
is hereby AFFIRMED with MODIFICATION, deleting the award for actual damages. As
modified, the defendants Kabisig Real Wealth Dev., Inc. and Ferdinand Tio are ordered
to jointly pay the plaintiff Young Builders Corporation Two Million Four Hundred
Thousand (P2,400,000.00) Pesos as TEMPERATE DAMAGES for the value of services,
rendered and materials used in the renovation of defendants-appellants building. In
addition, the total amount adjudged shall earn interest at the rate of 12% per
annum  from September 11, 2001, until it is fully paid. Costs against defendants.

SO ORDERED.[4]

Subsequently, Young Builders and Kabisig moved for reconsideration, but both were
denied by the CA.[5]

Hence, Kabisig filed the instant petition.

The sole issue is whether or not Kabisig is liable to Young Builders for the damages
claimed:

Under the Civil Code, a contract is a meeting of minds, with respect to the other, to give
something or to render some service. Article 1318 reads:

Art. 1318. There is no contract unless the following requisites concur:

 (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.

Accordingly, for a contract to be valid, it must have the following essential elements: (1)
consent of the contracting parties; (2) object certain, which is the subject matter of the
contract; and (3) cause of the obligation which is established. Consent must exist,
otherwise, the contract is non-existent. Consent is manifested by the meeting of the
offer and the acceptance of the thing and the cause, which are to constitute the
contract. By law, a contract of sale, is perfected at the moment there is a meeting of the
minds upon the thing that is the object of the contract and upon the price. Indeed, it is a
consensual contract which is perfected by mere consent. [6]

Through the testimonies of both Young Builders' and Kabisig's witnesses, Tio
commissioned the company of his friend, Nelson Yu, to supply labor, tools, equipment,
and materials for the renovation of Kabisig's building into a restaurant. While Tio argues
that the renovation was actually for the benefit of his partners, Fernando Congmon,
Gold En Burst Foods Co., and Sunburst Fried Chicken, Inc., and therefore, they should be
the ones who must shoulder the cost of the renovation, said persons were never
impleaded in the instant case. Moreover, all the documents pertaining to the project,
such as official receipts of payment for the building permit application, are under the
names of Kabisig and Tio.

Further, Kabisig's claim as to the absence of a written contract between it and Young
Builders simply does not hold water. It is settled that once perfected, a contract is
generally binding in whatever form, whether written or oral, it may have been entered
into, provided the aforementioned essential requisites for its validity are present.
[7]
 Article 1356 of the Civil Code provides:

Art. 1356. Contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.

xxxx
There is nothing in the law that requires a written contract for the agreement in
question to be valid and enforceable. Also, the Court notes that neither Kabisig nor Tio
had objected to the renovation work, until it was already time to settle the bill.

Likewise, the appellate court aptly reduced the amount of damages awarded by the
RTC. Under Article 2199 of the Civil Code, actual or compensatory damages are those
awarded in satisfaction of, or in recompense for, loss or injury sustained. They proceed
from a sense of natural justice and are designed to repair the wrong that has been done,
to compensate for the injury inflicted. They either refer to the loss of what a person
already possesses (daño emergente),  or the failure to receive as a benefit that which
would have pertained to him (lucro cesante),[8] as in this case.

For an injured party to recover actual damages, however, he is required to prove the
actual amount of loss with reasonable degree of certainty premised upon competent
proof and on the best evidence available. The burden of proof is on the party who
would be defeated if no evidence would be presented on either side. He must establish
his case by a preponderance of evidence, which means that the evidence adduced by
one side is superior to that of the other. In other words, damages cannot be presumed
and courts, in making an award, must point out specific facts that could afford a basis
for measuring compensatory damages. A court cannot merely rely on speculations,
conjectures, or guesswork as to the fact and amount of damages as well as hearsay or
uncorroborated testimony whose truth is suspect. A party is entitled to adequate
compensation only for such pecuniary loss actually suffered and duly proved. Indeed, to
recover actual damages, the amount of loss must not only be capable of proof but must
actually be proven with a reasonable degree of certainty, premised upon competent
proof or best evidence obtainable of its actual amount. [9] Here, the evidence reveals that
Young Builders failed to submit any competent proof of the specific amount of actual
damages being claimed. The documents submitted by Young Builders either do not bear
the name of Kabisig or Tio, their conformity, or signature, or do not indicate in any way
that the amount reflected on its face actually refers to the renovation project.

Notwithstanding the absence of sufficient proof, Young Builders still deserves to be

recompensed for actually completing the work. In the absence of competent proof on
the amount of actual damages, the courts allow the party to receive temperate
damages. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary
loss has been suffered but its amount cannot, from the nature of the case, be proved
with certainty.[10]

To determine the compensation due and to avoid unjust enrichment from resulting out
of a fulfilled contract, the principle of quantum meruit may be used. Under this
principle, a contractor is allowed to recover the reasonable value of the services
rendered despite the lack of a written contract. The measure of recovery under the
principle should relate to the reasonable value of the services performed. The principle
prevents undue enrichment based on the equitable postulate that it is unjust for a
person to retain any benefit without paying for it. Being predicated on equity, said
principle should only be applied if no express contract was entered into, and no specific
statutory provision was applicable. [11]

The principle of quantum meruit justifies the payment of the reasonable value of the
services rendered and should apply in the absence of an express agreement on the fees.
It is notable that the issue revolves around the parties' inability to agree on the fees that
Young Builders should receive. Considering the absence of an agreement, and in view of
the completion of the renovation, the Court has to apply the principle of quantum
meruit  in determining how much is due to Young Builders. Under the established
circumstances, the total amount of P2,400,000.00 which the CA awarded is deemed to
be a reasonable compensation under the principle of quantum meruit since the
renovation of Kabisig's building had already been completed in 2001. [12]

Finally, the rate of interest should be modified. When the obligation is breached, and it
consists in the payment of a sum of money, as in this case, the interest due should be
that which may have been stipulated in writing. In the absence of stipulation, the rate of
interest shall be 12%, later reduced to 6%, [13] per annum to be computed from
default, i.e., from judicial or extrajudicial demand, subject to the provisions of Article
1169[14] of the Civil Code. Here, the records would show that Young Builders made the
demand on September 11, 2001. Also, the rate of legal interest for a judgment awarding
a sum of money shall be 6% per annum  from the time such judgment becomes final and
executory until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. [15]
WHEREFORE, PREMISES CONSIDERED, the Court DISMISSES the petition for lack of
merit and AFFIRMS the Decision of the Court of Appeals dated June 28, 2013, and its
Resolution dated March 28, 2014, in CA-G.R. CV No. 02945, with MODIFICATION as to
the interest which must be twelve percent (12%) per annum of the amount awarded
from the time of demand on September 11, 2001 to June 30, 2013, and six percent
(6%) per annum  from July 1, 2013 until its full satisfaction.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 200383, March 19, 2018 ]
NORMA M. DIAMPOC, PETITIONER, VS. JESSIE BUENAVENTURA AND
THE REGISTRY OF DEEDS FOR THE CITY OF TAGUIG, RESPONDENTS.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari  [1] seeks to set aside the February 21, 2011
Decision[2] and May 6, 2011 Resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No.
92453 which denied herein petitioner's appeal and affirmed the December 20, 2007
Decision[4] of the Regional Trial Court of Pasig City, Branch 268 (RTC) in Civil Case No.
70076.

Factual Antecedents

In July, 2004, petitioner Norma M. Diampoc and her husband Wilbur L. Diampoc (the
Diampocs) filed a Complaint[5] for annulment of deed of sale and recovery of duplicate
original copy of title, with damages, against respondent Jessie Buenaventura
(Buenaventura) and the Registry of Deeds for the Province of Rizal. The case was
docketed before the RTC as Civil Case No. 70076.

The Diampocs alleged in their Complaint that they owned a 174-square meter parcel of
land (subject property) in Signal Village, Taguig City covered by Transfer Certificate of
Title No. 25044 (TCT 25044); that Buenaventura became their friend; that Buenaventura
asked to borrow the owner's copy of TCT 25044 to be used as security for a P1 million
loan she wished to secure; that they acceded, on the condition that Buenaventura
should not sell the subject property; that Buenaventura promised to give them
P300,000.00 out of the P1 million loan proceeds; that on July 2, 2000, Buenaventura
caused them to sign a folded document without giving them the opportunity to read its
contents; that Buenaventura failed to give them a copy of the document which they
signed; that they discovered later on that Buenaventura became the owner of a one-
half portion (87 square meters) of the subject property by virtue of a supposed deed of
sale in her favor; that they immediately proceeded to the notary public who notarized
the said purported deed of sale, and discovered that the said 87-square meter portion
was purportedly sold to Buenaventura for P200,000.00; that barangay conciliation
proceedings were commenced, but proved futile; that the purported deed of sale is
spurious; and that the deed was secured through fraud and deceit, and thus null and
void. The Diampocs thus prayed that the purported deed of sale be annulled find the
annotation thereof on TCT 25044 be canceled; that the owner's duplicate copy of TCT
25044 be returned to them; and that attorney's fees and costs of suit be awarded to
them.

In her Answer, Buenaventura claimed that the Diampocs have no cause of action; that
the case is a rehash of an estafa case they previously filed against her but which was
dismissed; and that the case is dismissible for lack of merit and due to procedural
lapses.[6]

Ruling of the Regional Trial Court

After trial, the RTC rendered its December 20, 2007 Decision, pronouncing as follows:

Counsel for the plaintiffs presented two witnesses, namely: Norma Diampoc and
Wilbur Diampoc. Stripped off of its non-essentials, their testimonies are, summarized as
follows:

1. MRS. NORMA DIAMPOC - The witness is one of the plaintiffs. She testifies that they
are the owners of the property x x x covered by Transfer Certificate of Title No. 25044 x
x x; that sometime in May 2000, defendant borrowed the original owner's duplicate
copy of said title from the plaintiffs to be used as collateral of her loan from a bank as
she needed additional capital for her store x x x; that they have agreed that after getting
the proceeds of the loan of Php1,000,000.00, defendant will give Php300,000.00 to
plaintiff to be used for the repair of plaintiffs' second floor x x x; it was further agreed by
the parties that defendant will pay the entire amount of the loan and the
Php300,000.00 shall represent payment for the use of plaintiffs' title x x x; that in the
morning of July 3, 2000, while plaintiff Norma Diampoc was in the store of a certain
Marissa Ibes, defendant Jessie Buenaventura arrived and force her to sign a document
without giving her a chance to read the same x x x; that in the morning of November 19,
2002, Eng[r]. Perciliano Aguinaldo went to the plaintiffs' house and conducted a survey
of the subject property; that plaintiffs asked said engineer why he was conducting a
survey and the engineer replied that it was the instruction of defendant Buenaventura
as the said property has already been sold x x x; that Engineer Aguinaldo showed
plaintiff a document denominated as "Deed of Sale" x x x; that when plaintiffs signed the
Deed of Sale, the word "Vendor" was not yet written x x x; that plaintiffs did not appear
before the notary public who notarized the document and never received the amount of
Php200,000.00 as stated in the document x x x; that when they confronted the lawyer
who notarized the document, plaintiffs were advised to file a complaint before the
Office of the Barangay x x x; that the Lupong Tagapamayapa of the said Barangay issued
a certificate to file action as the parties failed to settle the case amicably x x x; that
plaintiffs sent a letter of protest to Eng[r]. Aguinaldo x x x; that in connection with the
filing of the instant complaint, the witness executed a sworn statement x x x.

2. MR. WILBUR DIAMPOC – x x x He was presented to corroborate the testimony of his

wife-co-plaintiff Mrs. Norma Diampoc.

On May 19, 2005, defendant through counsel filed a Motion for Reconsideration praying
that he be allowed to participate in the trial. The Court in its Order dated August 22,
2005 gave defendant last opportunity to present evidence in her behalf and allowed her
to cross-examine the plaintiffs' witnesses.

On cross-examination, the witnesses confirmed that they signed the subject deed of sale
but did not read the contents of the document they signed; that they never appeared
before the Notary Public to acknowledge the Deed of Sale; that they did not file a case
against the Notary Public; that they did not receive any consideration for the alleged
sale; that they filed a complaint against defendant only after they discovered that what
they have signed was a Deed of Sale; that they did not read the document before they
affixed their signatures because they busted the defendant x x x.

Counsel for the defendant on the other hand presented the defendant herself as his
lone witness. Jessie Buenaventura testified that spouses Diampoc sold to her a portion
of their land consisting of 87 square meters as evidenced by a Deed of Sale marked in
evidence x x x; that the said deed of sale was signed and acknowledged before a Notary
Public, Atty. Pastor Mendoza on July 6, 2000 x x x; that spouses Diampoc filed a case
against her for Estafa, Grave Threat, Coercion and Falsification before the Prosecutor's
Office of Rizal x x x; that said cases were dismissed x x x; that because of the filing of the
instant case, defendant spent litigation expenses x x x. On cross-examination, defendant
further testified that [she] personally gave the amount of Php200,000.00 to plaintiff
Norma Diampoc before they went to the Notary Public x x x.

After evaluating the evidence on hand, the Court finds that plaintiffs fall short of the
required evidence to substantiate their allegations that subject Deed of Sale x x x is
illegal and spurious. 'Deed of Sale being a public document, it is  prima facie  evidence of
the facts stated therein' (Domingo versus Domingo, 455 SCRA 555). Under the rule, the
terms of a contract are rendered conclusive upon the parties and evidence aliunde is
not admissible to vary or contradict a complete and enforceable agreement embodied
in a document. (Rosario Textile Mills Corp. versus Home Bankers Savings, 462 SCRA 88).

The pertinent provision of the New Civil Code reads:

'Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.'

WHEREFORE, foregoing premises considered, the above-captioned case is hereby

DISMISSED for insufficiency of evidence. No pronouncement as to costs.

SO ORDERED.[7]

Ruling of the Court of Appeals

Respondents filed an appeal before the CA, which denied the same, ruling as follows:

In beseeching the annulment of the notarized deed of sale, appellants impress

upon Us that they were deceived by Jessie (now 'appellee') into believing that they were
signing papers for the intended bank loan. They failed to read the contents of the
document for it 'was folded',  and Jessie was in a hurry.

These specious arguments are devoid of judicial mooring.

As aptly declared by the court a quo, notarized documents, like the deed in question,
enjoy the presumption of regularity which can be overturned only by clear, convincing
and more than merely preponderant evidence. Miserably, appellants failed to discharge
this burden.

Appellants are not illiterate, but educated persons who understood the meaning of the
word 'vendor' printed [vividly] under their names. They could easily read such word
before they could affix their signatures. We are simply appalled by appellant Wilbur's
pathetic explanation that it was 'dark' at the time he signed the deed so that he failed to
read the word 'vendor'.

Yet, even if they avouch to be illiterate, which they most certainly are not being high
school graduates themselves, the enunciations in Bernardo v. Court of Appeals come to
mind –

'[G]ranting, without conceding, that private respondent and his wife were both
illiterate, this still does not save the day for them. As stressed in Tan Tua Sia v. Yu Biao
Sontua, 56 Phil. 711, cited in Mata v. Court of Appeals - ....The rule that one who signs a
contract is presumed to know its contents have been applied even to contracts of
illiterate persons on the ground that if such persons are unable to read, they are
negligent if they fail to have the contract read to them. If a person cannot read the
instrument, it is as much his duty to procure some reliable persons to read and explain it
to him, before he signs it, x x x and his failure to obtain a reading and explanation of it is
such gross negligence as will estop him from avoiding it on the ground that he was
ignorant of its contents.' x x x
Verily, the fact that appellants used only one community tax certificate cannot
emasculate the evidentiary weight of the notarized deed. The notary public may have
been lax in his duty of requiring two community tax certificates front the appellants, but
this will not adversely affect the validity of the notarized deed.

Invariably, appellants cannot now be allowed to disavow the contractual effects of the
notarized deed. It is true that parol evidence may be admitted to challenge the contents
of such agreement 'where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties, or the validity of the agreement is
put in issue by the pleadings.' However, such evidence must be clear and convincing and
of such sufficient credibility as to overturn the written agreement. The flimsy
protestations of the parties are not substantiated by compelling evidence which would
warrant a reversal of the impugned judgment.

As borne out by the notarized deed, a perfected contract of sale was forged between
the parties. Appellants received in full the payment of P200,000.00, having sold to
appellee a portion of their lot. If the terms of the deed were not in consonance with
their expectations, they should have objected to it and insisted on the provisions they
wanted. Courts are not authorized to extricate parties from the necessary consequences
of their acts, and the fact that the contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their obligations.

With this discourse, appellants' recourse falls through. The claim for payment of
damages necessarily fails.

WHEREFORE, the Appeal  is hereby DENIED. The Decision dated 20 December

2007 of the Regional Trial Court, Pasig City, Branch 268, in Civil Case No. 70076,
is AFFIRMED.

SO ORDERED.[8] (Emphasis in the original)

Petitioner filed a Motion for Reconsideration, [9] which was denied via the May 6, 2011
Resolution. Hence, the instant Petition.
In a January 25, 2016 Resolution,[10] this Court resolved to dispense with the filing of
respondent Buenaventura's comment, and petitioner manifested [11] her willingness to
submit the case for resolution on the basis of the pleadings on record.

Issues

Petitioner claims that –

A. THE COURT OF APPEALS ERRED IN APPLYING THE PRIMA FACIE PRESUMPTION

OF REGULARITY OF NOTARIZED DOCUMENTS AND UPHOLDING THE VALIDITY OF THE
NOTARIZED DEED OF SALE NOTWITHSTANDING THE UNDISPUTED FACT THAT THERE
WERE IRREGULARITIES IN THE EXECUTION AND NOTARIZATION OF THE DEED OF SALE.

B. THE COURT OF APPEALS ERRED IN RULING THAT THERE WAS A VALID CONTRACT OF
SALE.[12]

Petitioner's Arguments

Seeking reversal of the assailed CA dispositions, nullification of the subject deed of sale,
cancellation of Entry No. 5381 on the back of TCT 25044, the return of the owner's
duplicate copy of TCT 25044, and payment of attorney's fees and costs of suit, petitioner
argues that while a notarized document enjoys the presumption of regularity, this does
not apply to the subject deed of sale as it was not signed before the notary public, and
was notarized in the absence of petitioner and her husband; that Buenaventura failed to
present as her witness the notary public who notarized the deed of sale; that
Buenaventura herself failed to show that she was present at the notarization; that there
was only one Community Tax Certificate used for both petitioner and her husband; that
with the irregularities pointed out, the prima facie presumption of regularity no longer
applies to the subject deed of sale; that she and her husband never intended to sell the
subject property; that while she and her husband were not illiterate, still what matters is
that Buenaventura deceived them into signing the subject document without reading it
through assurances that what they were signing was an authorization for the purpose of
obtaining a bank loan; that she and her husband had no reason to distrust
Buenaventura as the purported loan was previously agreed upon; that Buenaventura
failed to prove that she paid the purported consideration of P200,000,00 for the
supposed sale, as she did not present any receipt therefor; and that in view of these
facts, the deed of sale should be annulled and voided.

Our Ruling

The Court denies the Petition.

Petitioners arguments center on the claim that the deed of sale suffers from defects
relative to its notarization, which thus render the deed ineffective, if not null and void.
Petitioner claims that the deed was not signed by the parties before the notary public;
that it was notarized in her and her husband's absence; that there was only one
Community Tax Certificate used for both petitioner and her husband; and that
Buenaventura failed to present the notary public as her witness.

It must be remembered, however, that "the absence of notarization of the deed of sale
would not invalidate the transaction evidenced therein"; it merely "reduces the
evidentiary value of a document to that of a private document, which requires proof of
its due execution and authenticity to be admissible as evidence," [13] "A defective
notarization will strip the document of its public character and reduce it to a private
instrument. Consequently, when there is a defect in the notarization of a document, the
clear and convincing evidentiary standard normally attached to a duly-notarized
document is dispensed with, and the measure to test the validity of such document is
preponderance of evidence."[14]

x x x Article 1358 of the Civil Code requires that the form of a contract that
transmits or extinguishes real rights over immovable property should be in a public
document, yet the failure to observe the proper form does not render the transaction
invalid. The necessity of a public document for said contracts is only for convenience; it
is not essential for validity or enforceability. Even a sale of real property, though not
contained in a public instrument or formal writing, is nevertheless valid and binding, for
even a verbal contract of sale or real estate produces legal effects between the parties.
Consequently, when there is a defect in the notarization of a document, the clear and
convincing evidentiary standard originally attached to a duly-notarized document is
dispensed with, and the measure to test the validity of such document is preponderance
of evidence.[15]

x x x Nevertheless, the defective notarization of the deed does not affect the validity of
the sale of the house. Although Article 1358 of the Civil Code states that the sale of real
property must appear in a public instrument, the formalities required by this article is
not essential for the validity of the contract but is simply for its greater efficacy or
convenience, or to bind third persons, and is merely a coercive means granted to the
contracting parties to enable them to reciprocally compel the observance of the
prescribed form. Consequently, the private conveyance of the house is valid between
the parties.[16]

Thus, following the above pronouncements, the remaining judicial task, therefore, is to
determine if the deed of sale executed by and between the parties should be upheld.
The RTC and the CA are unanimous in declaring that the deed should be sustained on
account of petitioner's failure to discredit it with her evidence. The CA further found
that petitioner and her husband received in full the consideration of P200,000.00 for the
sale. As far as the lower courts are concerned, the three requirements of cause, object,
and consideration concurred. This Court is left with no option but to respect the lower
courts' findings, for its jurisdiction in a petition for review on certiorari is limited to
reviewing only errors of law since it is not a trier of facts. This is especially so in view of
the identical conclusions arrived at by them.

Indeed, petitioner and her husband conceded that there was such a deed of sale, but
only that they were induced to sign it without being given the opportunity to read its
contents - believing that the document they were signing was a mere authorization to
obtain a bank loan. According to petitioner, the document was "folded" when she
affixed her signature thereon; on the other hand, her husband added that at the time he
signed the same, it was "dark". These circumstances, however, did not prevent them
from discovering the true nature of the document; being high school graduates and thus
literate, they were not completely precluded from reading the contents thereof, as they
should have done if they were prudent enough, Petitioner's excuses are therefore flimsy
and specious.
Petitioner and her husband's admission that they failed to exercise prudence can only
be fatal to their cause. They are not unlettered people possessed with a modicum of
intelligence; they are educated property owners capable of securing themselves and
their property from unwarranted intrusion when required. They knew the wherewithal
of property ownership. Their failure to thus observe the care and circumspect expected
of them precludes the courts from lending a helping hand, and so they must bear the
consequences flowing from their own negligence.

The rule that one who signs a contract is presumed to know its contents has been
applied even to contracts of illiterate persons on the ground that if such persons are
unable to read, they are negligent if they fail to have the contract read to them. If a
person cannot read the instrument, it is as much his duty to procure some reliable
persons to read and explain it to him, before he signs it, as it would be to read it before
he signed it if he were able to do so and his failure to obtain a reading and explanation
of it is such gross negligence as will estop him from avoiding it on the ground that he
was ignorant of its contents.[17]

It is also a well-settled principle that "the law will not relieve parties from the effects of
an unwise, foolish or disastrous agreement they entered into with all the required
formalities and with full awareness of what they were doing. Courts have no power to
relieve them from obligations they voluntarily assumed, simply because their contracts
turn out to be disastrous deals or unwise investments. Neither the law nor the courts
will extricate them from an unwise or undesirable contract which they entered into with
all the required formalities and with full knowledge of its consequences." [18]

WHEREFORE, the Petition is DENIED. The February 21, 2011 Decision and May 6, 2011
Resolution of the Court of Appeals in CA-G.R. CV No. 92453 are AFFIRMED in toto.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 211232, April 11, 2018 ]
COCA-COLA BOTTLERS PHILS., INC., PETITIONER, V. SPOUSES EFREN
AND LOLITA SORIANO, RESPONDENTS.

DECISION

TIJAM, J.:

This petition for review on certiorari[1] under Rule 45 of the Rules of Court seeks
to reverse and set aside the Decision [2] dated June 18, 2013 and Resolution [3] dated
February 4, 2014 of the Court of Appeals (CA) in CA G.R. CV No. 97687, affirming the
Decision[4] dated February 9, 2011 of the Regional Trial Court (RTC), Branch 01,
Tuguegarao, Cagayan, in Case No. 6821.

The Antecedents

The CA summarized the antecedents as follows:

Plaintiffs-appellees spouses Efren and Lolita Soriano are engaged in the business of
selling defendant-appellant Coca-Cola products in Tuguegarao City, Cagayan. Sometime
in 1999, defendant-appellant thru Cipriano informed plaintiffs-appellees that the former
required security for the continuation of their business. Plaintiffs-appellees were
convinced to hand over two (2) certificates of titles over their property and were made to
sign a document. Defendant Cipriano assured plaintiffs-appellees that it will be a mere
formality and will never be notarized.

Subsequently, plaintiffs-appellees informed defendant-appellant Coca-Cola of their

intention to stop selling Coca-Cola products due to their advanced age. Thus, plaintiffs-
appellees verbally demanded from defendant-appellant the return of their certificates of
titles. However, the titles were not given back to them.

When plaintiffs-appellees were contemplating on filing a petition for the issuance of new
titles, they discovered for the first time that their land was mortgaged in favor of
defendant-appellant Coca-Cola. Worse, the mortgage land was already foreclosed.
Hence, plaintiffs-appellees filed a complaint for annulment of sheriffs foreclosure sale.
They alleged that they never signed a mortgaged document and that they were never
notified of the foreclosure sale. In addition, plaintiffs-appellees aver that they never had
monetary obligations or debts with defendant-appellant. They always paid their product
deliveries in cash.

Furthermore, plaintiffs-appellees claimed that they merely signed a document in

Tuguegarao. They never signed any document in Ilagan, lsabela nor did they appear
before a certain Atty. Reymundo Ilagan on 06 January 2000 for the notarization of the
said mortgage document.

On their part, defendant-appellant alleged that plaintiffs-appellees are indebted to them.

Plaintiffs-appellees' admission that they signed the real estate mortgage document in
Tuguegarao, Cagayan indicates that the mortgage agreement was duly executed. The
failure of the parties to appear before the notary public for the execution ofthe document
does not render the same null and void or unenforceable.[5]

Ruling of the RTC

On February 9, 2011, the RTC rendered its decision nullifying the real estate mortgage
and the foreclosure proceedings. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the court hereby renders judgment in favor of the
plaintiffs and against the defendants as follows:

1. Declaring the real estate mortgage (Exhibit "A") to be null and void:

2. Declaring the Sheriff’s Certificate of Sale (Exhibit "B") to be null and void;

3. Declaring the claim of the defendants that the land of the plaintiffs had been mortgaged
to defendant corporation to be unlawful;

4. Declaring the cloud over the title and interest of the plaintiffs be removed;

5. Ordering the defendants to surrender and deliver TCT No. T-86200 and TCT No. T-
84673 to the plaintiffs; and

6. Ordering the defendants in solidum to pay to plaintiffs the sum of P50,000.00 as moral
damages and P20,000.00 as attorney's fees.

No pronouncement as to cost.

SO DECIDED.

Aggrieved, petitioner appealed to the CA.

Ruling of the CA

On June 18, 2013, the CA rendered the assailed decision affirming the RTC decision in
toto. The CA ruled that the Real Estate Mortgage deed (REM deed) failed to comply
substantially with the required form. Thus, it made the following findings:
A careful perusal of the mortgage deed has revealed that although the spouses signed the
real estate mortgage deed, they never acknowledged the same before the Clerk of Court
during the notarization. Likewise, only one witness has signed the document, instead of
the required presence of two (2) witnesses as provided by law.

In the acknowledgment portion, only defendant Cipriano and defendant-appellant Coca

Cola has appeared and acknowledged the real estate mortgage deed before the Clerk of
Court. Nowhere did the plaintiffs-appellees acknowledge before the Clerk of Court the
said deed as their free and voluntary act. Contrary to defendant-appellant's contention,
this acknowledgment is not a mere superfluity because it is expressly required by law.
Even granting arguendo that the document should be considered properly notarized, the
aforementioned real estate mortgage deed still fell short of the legal requirements under
Section 112 of P.D. 1529.

Therefore, for failure to comply substantially with the required form, We find that
plaintiffs-appellees' land cannot be bound by the real estate mortgage. We uphold the
court a quo in finding both the real estate mortgage constituted over plaintiffs-appellees'
property and the subsequent extrajudicial foreclosure invalid.[6]

Hence, the instant petition before Us. In its Petition and Reply, [7] petitioner argues that the
defect in the notarization of the REM deed does not in any way affect its validity. Section
112 of Presidential Decree No. 1529 (P.D. 1529) only provides for the formal
requirements for registrability and not validity. Assuming that the mortgage contract
cannot be registrable due to lack of certain requirements, its only effect is that it does not
bind third parties but the mortgage remains valid as between the parties. [8] Finally,
petitioner alleges that there was no forgery considering that respondents admitted the due
execution of the REM deed in their complaint. On the other hand, respondents, in their
Comment[9], reiterated the findings of the courts a quo and asseverated that petitioner
failed to show any reversible error in the CA decision.

The Issue

Ultimately, the question posed before Us is the validity of a REM, the deed of which was:
(1) admittedly signed by the mortgagors, albeit in a place other than that stated in the
document, on the belief that the same would not be notarized; and (2) notarized without
authority and compliance with the prescribed form under Section 112 of P.D. 1529.
Corollary to the validity of the said mortgage is the validity of the foreclosure sale
pursuant to it.

Our Ruling

The petition is impressed with merit.

At the outset, We stress that the registration of a REM deed is not essential to its validity.
The law is clear on the requisites for the validity of a mortgage, to wit:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.

In relation thereto, Article 2125 provides:

Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in

order that a mortgage may be validly constituted, that the document in which it appears
be recorded in the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties. (Emphasis supplied)

Thus, as between the parties to a mortgage, the non-registration of a REM deed is

immaterial to its validity. In the case of Paradigm Development Corporation of the
Philippines, v. Bank of the Philippine Islands,[10] the mortgagee allegedly represented that
it will not register one of the REMs signed by the mortgagor. In upholding the validity of
the questioned REM between the said parties, the Court ruled that "with or without the
registration of the REMs, as between the parties thereto, the same is valid and [the
mortgagor] is bound thereby." The Court, thus, cited its ruling in the case of Mobil Oil
Philippines, Inc., v. Ruth R. Diocares, et al.[11] a portion of which reads:

Xxx. The codal provision is clear and explicit. Even if the instrument were not recorded,
"the mortgage is nevertheless binding between the parties." The law cannot be any
clearer. Effect must be given to it as written. The mortgage subsists; the parties are
bound. As between them, the mere fact that there is as yet no compliance with the
requirement that it be recorded cannot be a bar to foreclosure.

xxxx

Moreover to rule as the lower court did would be to show less than fealty to the purpose
that animated the legislators in giving expression to their will that the failure of the
instrument to be recorded does not result in the mortgage being any the less "binding
between the parties." In the language of the Report of the Code Commission: "In Article
[2125] an additional provision is made that if the instrument of mortgage is not recorded,
the mortgage, is nevertheless binding between the parties." We are not free to adopt then
an interpretation, even assuming that the codal provision lacks the forthrightness and
clarity that this particular norm does and therefore requires construction, that would
frustrate or nullify such legislative objective.[12] (Citation omitted; emphasis ours)

Based on the foregoing, the CA, in the case at bar, clearly erred in ruling that the parties
in the instant case cannot be bound by the REM deed. In arriving at such ruling, the CA
relied on the following pronouncements of this Court in the case of Spouses Adelina S.
Cuyco and Feliciano U Cuyco, v. Spouses Renaoa Cuyco and Filipina Cuyco: [13]

In order to constitute a legal mortgage, it must be executed in a public document,

besides being recorded. A provision in a private document, although denominating the
agreement as one of mortgage, cannot be considered as it is not susceptible of inscription
in the property registry. A mortgage in legal form is not constituted by a private
document, even if such mortgage be accompanied with delivery of possession of the
mortgage property. Besides, by express provisions of Section 127 of Act No. 496, a
mortgage affecting land, whether registered under said Act or not registered at all,
is not deemed to be sufficient in law nor may it be effective to encumber or bind the
land unless made substantially in the form therein prescribed. It is required, among
other things, that the document be signed by the mortgagor executing the same, in the
presence of two witnesses, and acknowledged as his free act and deed before a notary
public. A mortgage constituted by means of a private document obviously does not
comply with such legal requirements.[14] (Citations omitted; emphasis ours)

The aforecited pronouncements by this Court, however, relate to the issue on whether the
subject realty of the REM was bound by the additional loans executed between the
parties. The validity of the said REM was not put into question in the said case. Thus, in
the present case, the CA erred in relying on the said pronouncements.

To reiterate, the law is clear and explicit as to the validity of an unregistered REM
between the parties. Indeed, if an unregistered REM is binding between the parties
thereto, all the more is a registered REM, such as the REM deed in this case.

Here, although the REM deed was registered and annotated on the back of the title, the
petitioner failed to comply with the provisions under Section 112 of P.D. 1529, viz:

xxxx

Deeds, conveyances, encumbrances, discharges, powers of attorney and other voluntary

instruments, whether affecting registered or unregistered land, executed in accordance
with law in the form of public instruments shall be registerable: Provided, that, every
such instrument shall be signed by the person or persons executing the same in the
presence of at least two witnesses who shall likewise sign thereon, and
shall acknowledged to be the free act and deed of the person or persons executing
the same before a notary public or other public officer authorized by law to take
acknowledgment. Where the instrument so acknowledged consists of two or more pages
including the page whereon acknowledgment is written, each page of the copy which is
to be registered in the office of the Register of Deeds, or if registration is not
contemplated, each page of the copy to be kept by the notary public, except the page
where the signatures already appear at the foot of the instrument, shall be signed on the
left margin thereof by the person or persons executing the instrument and their witnesses,
and all the pages sealed with the notarial seal, and this fact as well as the number of pages
shall be stated in the acknowledgment. Where the instrument acknowledged relates to a
sale, transfer, mortgage or encumbrance of two or more parcels of land, the number
thereof shall likewise be set forth in said acknowledgment. (Emphasis ours)

Respondents thus argue that the REM agreement is not a public document because it was
notarized by a Clerk of Court of the RTC of Ilagan who is not allowed by law to notarize
private documents not related to their functions as clerk of court.

We find merit in the said argument.

Jurisprudence is replete with cases declaring that the notarization of documents that have
no relation to the performance of official functions of the clerk of courts is now
considered to be beyond the scope of their authority as notaries public ex officio.[15]

Nonetheless, the defective notarization of the REM agreement merely strips it of its

public character and reduces it to a private document.[16] Although Article 1358 of the
New Civil Code requires that the form of a contract transmitting or extinguishing real
rights over immovable property should be in a public document, the failure to observe
such required form does not render the transaction invalid. [17] The necessity of a public
document for the said contracts is only for convenience; it is not essential for its validity
or enforceability. Consequently, when there is a defect in the notarization of a document,
the clear and convincing evidentiary standard originally attached to a duly-notarized
document is dispensed with, and the measure to test the validity of such document is
preponderance of evidence.[18]

Thus, in order to determine the validity of the REM in this case, the REM agreement
shall be subject to the requirement of proof under Section 20, Rule 132, viz:

Section 20. Proof of private document. - Before any private document offered as

authentic is received in evidence its due execution and authenticity must be proved either:

a) By anyone who saw the document executed or written; or

b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.
(Emphasis supplied)

Moreover, the party invoking the validity of the private document has the burden of
proving its due execution and authenticity.[19] Here, the respondents claim that their
signature was a forgery because they signed the REM deed in Tuguegarao and not in
Isabela, as stated therein. Further, they alleged that they were assured by petitioner that
the same will not be notarized and is a mere formality.

Although the burden was on the petitioner to prove the REM deed's due execution and
authenticity, respondents' allegations and admissions should be weighed against their
favor.

In the case of Gloria and Teresita Tan Ocampo v. Land Bank of the Philippines
Urdaneta, Pangasinan Branch and Ex Officio Provincial Sheriff of Pangasinan,[20] the
mortgagors sought the nullity of the REM on the ground of forgery. The Court ruled that
forgery is present when any writing is counterfeited by the signing of another's name with
intent to defraud. However, the Court affirmed the CA in finding no reason to discuss
forgery in light of the admission by the mortgagor that she had affixed her signature to
the subject Deed of REM.[21]

Likewise, in this case, it is undisputed that the respondents signed the REM deed. They
merely invoke the nullity of the same on the grounds that it was not signed in the place
stated therein and that they were made to believe that it will not be notarized. Thus, in
their Amended Complaint[22], respondents alleged:

That defendants through the machinations and manipulations of defendant Reynaldo C.

Cipriano as the General Manager, convinced the plaintiffs to give them titles of whatever
lands as guaranty for the subsequent deliveries of coca-cola products and there is nothing
to worry because the titles shall be returned any time after their accounts are fully settled;
as the plaintiffs were in good faith, handed the titles of their lands described in paragraph
4, of this complaint to defendant Reynaldo C. Cipriano (why) who assured plaintiffs that
is only a formality, and there is nothing to worry; plaintiffs signed the said document in
Tuguegarao City and not in Hagan, lsabela and defendant Reynaldo C. Cipriano
assured the plaintiffs that the document will not be notarized. (Emphasis ours)

Clearly, the respondents did not specifically deny the due execution and genuineness of
the REM deed. The early case of Lamberto Songco, v. George C. Sellner [23] is instructive
on how to deny the genuineness and due execution of an actionable document, to wit:
X x x. This means that the defendant must declare under oath that he did not sign the
document or that it is otherwise false or fabricated. Neither does the statement of the
answer to the effect that the instrument was procured by fraudulent representation raise
any issue as to its genuineness or due execution. On the contrary such a plea is an
admission both of the genuineness and due execution thereof, since it seeks to avoid
the instrument upon a ground not affecting either. x x x (Emphasis ours)

In light of the foregoing, We find merit in petitioner's argument that the due execution
and genuineness of the REM deed was impliedly admitted by the respondents when they
admitted signing the same. A perusal of all the pleadings filed by the respondents reveal
that their arguments are anchored on the supposed fraud employed by the petitioner that
led to their acts of surrendering the titles and signing the REM deed. Thus, respondents
essentially seeks the annulment of the REM on the ground of fraud.

Under Article 1344 of the Civil Code, fraud, as a ground for annulment of a contract,
should be serious and should not have been employed by both contracting parties. Article
1338 of the same Code further provides that there is fraud when, through insidious words
or machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. In PDCP[24], this Court
refused to annul the REMs on the ground of fraud consisting of the mortgagee's
assurances that the REMs already signed by the mortgagor would not be registered, thus:

In the present case, even if FEBTC represented that it will not register one of the REMs,
PDCP cannot disown the REMs it executed after FEBTC reneged on its alleged promise.
As earlier stated, with or without the registration of the REMs, as between the parties
thereto, the same is valid and PDCP is already bound thereby. The signature of PDCP's
President coupled with its act of surrendering the titles to the four properties to
FEBTC is proof that no fraud existed in the execution of the contract. Arguably at
most, FEBTC's act of registering the mortgage only amounted to dolo
incidente which is not the kind of fraud that avoids a contract. (Emphasis supplied)

The foregoing factual circumstances in PDCP are attendant in the present case. The
respondents herein also signed the REM deed and surrendered the titles of the properties
to the petitioner. Thus, We find that a claim of fraud in favor of the respondents does not
persuade.

Moreover, in the case of Ocampo,[25] the mortgagor maintained that when she signed the
questioned REM deed in blank form, she was led to believe by the mortgagee that such
would only be used to process her loan application. The Court, likewise, was not
persuaded by such claim of fraud, thus:

Unfortunately, Ocampo was unable to establish clearly and precisely how the Land Bank
committed the alleged fraud. She failed to convince Us that she was deceived, through
misrepresentations and/or insidious actions, into signing a blank form for use as security
to her previous loan. Quite the contrary, circumstances indicate the weakness of her
submissions. The Court of Appeals aptly held that:

Granting, for the sake of argument, that appellant bank did not apprise the appellees of
the real nature of the real estate mortgage, such stratagem, deceit or misrepresentations
employed by defendant bank are facts constitutive of fraud which is defined in Article
1338 of the Civil Code as that insidious words or machinations of one of the contracting
parties, by which the other is induced to enter into a contract which without them, he
would not have agreed to. When fraud is employed to obtain the consent of the other
party to enter into a contract, the resulting contract is merely a voidable contract, that is a
valid and subsisting contract until annulled or set aside by a competent court. x x x

With the foregoing, We find that the preponderance of evidence tilts in favor of the
petitioner. The due execution and genuineness of the REM deed was proven by the
admission of the respondents that they signed the same. This is bolstered by the fact that
the titles were surrendered to the petitioner. Other than bare allegations, respondents'
claim of fraud is not supported by preponderance of evidence. Further, the courts a quo,
in declaring the REM deed null and void, erred in ruling that registration and compliance
with the prescribed form are essential in the validity of a REM. In fine, We rule that the
REM between the parties herein is valid.

As to the issue on the validity of the foreclosure proceedings, We find no cogent reason
to nullify the same. Basic is the rule that unless the parties stipulate, personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not necessary because Section 3 of
Act No. 3135 only requires the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation. [26] Moreover, the same
was not put into issue in this case. The foreclosure proceedings were nullified by the
courts a quo merely as a consequence of the nullification of the REM deed.
Consequently, We find that the foreclosure proceedings are likewise valid.

WHEREFORE, premises considered, the petition is GRANTED. The Decisions of the

Regional Trial Court dated February 9, 2011 and the Court of Appeals dated June 18,
2013 are REVERSED and SET ASIDE. The complaint filed by the respondents Spouses
Efren and Lolita Soriano is hereby DISMISSED for lack of merit.

SO ORDERED.