Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 122544 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and JOSEPH
ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners,
vs.
COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

G.R. No. 124741 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH
ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON, JR., petitioners,
vs.
COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES,
INC., respondents.

MARTINEZ, J.:

Two consolidated petitions were filed before us seeking to set aside and annul the decisions and
resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed
with procedural intricacies which finally found its way to this Court.

G.R. No. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of
Lease with Option to Buy with petitioners 1 (lessors) involving a 1,755.80 square meter parcel of land
situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease
was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this period, private
respondent was granted an option to purchase for the amount of P3,000.00 per square meter.
Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00.

For failure of private respondent to pay the increased rental of P8,000.00 per month effective June
1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before
the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982,
the City Court rendered judgment 2 ordering private respondent to vacate the leased premises and to
pay the sum of P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable
compensation for the use and occupation of the premises during the period of illegal detainer from June
1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12% interest per
annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum of
P8,000.00 a month starting December 1982, until private respondent fully vacates the premises, and to
pay P20,000.00 as and by way of attorney's fees.

Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the
enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court.

On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of Appeals) rendered a
decision 4 stating that:

. . ., the alleged question of whether petitioner was granted an extension of the option
to buy the property; whether such option, if any, extended the lease or whether
petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of
private respondents in consideration of the option and, whether petitioner thereafter
offered to pay the balance of the supposed purchase price, are all merely incidental and
do not remove the unlawful detainer case from the jurisdiction or respondent court. In
consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above
matters may be raised and decided in the unlawful detainer suit as, to rule otherwise,
would be a violation of the principle prohibiting multiplicity of suits. (Original Records,
pp. 38-39).

The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution
dated June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in
a resolution dated September 9, 1985. 5

On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil
Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for
the issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It
sought to compel the execution of a deed of sale pursuant to the option to purchase and the receipt of
the partial payment, and to fix the period to pay the balance. In an Order dated October 25, 1985, the
trial court denied the issuance of a writ of preliminary injunction on the ground that the decision of the
then City Court for the ejectment of the private respondent, having been affirmed by the then
Intermediate Appellate Court and the Supreme Court, has become final and executory.

Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102
(Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment
with injunction and damages. In its decision 6 dated May 12, 1986, the trial court dismissed the
complaint for annulment on the ground of res judicata, and the writ of preliminary injunction previously
issued was dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a
consequence of private respondent's motion for reconsideration, the preliminary injunction was
reinstated, thereby restraining the execution of the City Court's judgment on the ejectment case.

The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989,
a decision 7 was rendered dismissing private respondent's complaint in Civil Case No. Q-45541 (specific
performance case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the
ejectment case). The motion for reconsideration of said decision was likewise denied.
On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the jurisdiction of the City
Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of sale
between the parties on the leased premises and that pursuant to the option to buy agreement, private
respondent had acquired the rights of a vendee in a contract of sale. It opined that the payment by
private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased property, which
petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the
operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny
receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went
further by stating that in fact, what was entered into was a "conditional contract of sale" wherein
ownership over the leased property shall not pass to the private respondent until it has fully paid the
purchase price. Since private respondent did not consign to the court the balance of the purchase price
and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in
monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads:

WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The appealed
decision in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The
defendants-appellees are ordered to execute the deed of absolute sale of the property
in question, free from any lien or encumbrance whatsoever, in favor of the plaintiff-
appellant, and to deliver to the latter the said deed of sale, as well as the owner's
duplicate of the certificate of title to said property upon payment of the balance of the
purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay
P1,700.00 per month from June 1976, plus 6% interest per annum, until payment of the
balance of the purchase price, as previously agreed upon by the parties.

SO ORDERED.

Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent Court of
Appeals, 10 petitioners elevated the case via petition for certiorari questioning the authority of Alice A.
Dizon as agent of petitioners in receiving private respondent's partial payment amounting to
P300,000.00 pursuant to the Contract of Lease with Option to Buy. Petitioner also assail the propriety of
private respondent's exercise of the option when it tendered the said amount on June 20, 1975 which
purportedly resulted in a perfected contract of sale.

G.R. No. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-
29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch
38, for execution of the judgment 11 dated November 22, 1982 which was granted in a resolution dated
June 29, 1992. Private respondent filed a motion to reconsider said resolution which was denied.

Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction
and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated
September 16, 1992 on the ground that the same was a refiled case previously dismissed for lack of
merit. On November 26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case
No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered
the issuance of a third alias writ of execution. In denying private respondent's motion for
reconsideration, it ordered the immediate implementation of the third writ of execution without delay.

On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City,
Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP.
PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the
order for its execution.

On January 11, 1994, RTC of Quezon City, Branch 104 issued an

order12 granting the issuance of a writ of preliminary injunction upon private respondent's' posting of an
injunction bond of P50,000.00.

Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed
a petition 13 for certiorari and prohibition with a prayer for a temporary restraining order and/or
preliminary injunction with the Court of Appeals. In its decision, 14 the Court of Appeals dismissed the
petition and ruled that:

The avowed purpose of this petition is to enjoin the public respondent from restraining
the ejectment of the private respondent. To grant the petition would be to allow the
ejectment of the private respondent. We cannot do that now in view of the decision of
this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private
respondent has been demonstrated to be without basis in the said civil case. The
petitioners have been shown, after all, to have no right to eject private respondents.

WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.

SO ORDERED. 15

Petitioners' motion for reconsideration was denied in a resolution 16 by the Court of Appeals stating that:

This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-
appellant (private respondent herein) acquired the rights of a vendee in a contract of
sale, in effect, recognizing the right of the private respondent to possess the subject
premises. Considering said decision, we should not allow ejectment; to do so would
disturb the status quo of the parties since the petitioners are not in possession of the
subject property. It would be unfair and unjust to deprive the private respondent of its
possession of the subject property after its rights have been established in a subsequent
ruling.

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED. 17

Hence, this instant petition.

We find both petitions impressed with merit.

First. Petitioners have established a right to evict private respondent from the subject premises for non-
payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1)
year (May 16, 1974 to May 15, 1975) during which the private respondent was given an option to
purchase said property at P3,000.00 square meter. After the expiration thereof, the lease was for
P3,000.00 per month.

Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and
private respondent. However, since the rent was paid on a monthly basis, the period of lease is
considered to be from month to month in accordance with Article 1687 of the New Civil Code. 18 Where
the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring
at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code. 19 In
such case, a demand to vacate is not even necessary for judicial action after the expiration of every
month. 20

When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the
petitioners had a cause of action to institute an ejectment suit against the former with the then City
Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The
filing by private respondent of a suit with the Regional Trial Court for specific performance to enforce
the option to purchase did not divest the then City Court of its jurisdiction to take cognizance over the
ejectment case. Of note is the fact that the decision of the City Court was affirmed by both the
Intermediate Appellate Court and this Court.

Second. Having failed to exercise the option within the stipulated one-year period, private respondent
cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to
exercise the option still subsists at the time private respondent tendered the amount on June 20, 1975,
the suit for specific performance to enforce the option to purchase was filed only on October 7, 1985 or
more than ten (10) years after accrual of the cause of action as provided under Article 1144 of the New
Civil Code.21

In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease
expired without the private respondent, as lessee, purchasing the property but remained in possession
thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other
terms of the original contract of lease which are revived in the implied new lease under Article 1670 of
the New Civil Code 22 are only those terms which are germane to the lessee's right of continued
enjoyment of the property leased. 23 Therefore, an implied new lease does not ipso facto carry with it
any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises.
The provision entitling the lessee the option to purchase the leased premises is not deemed
incorporated in the impliedly renewed contract because it is alien to the possession of the lessee.
Private respondent's right to exercise the option to purchase expired with the termination of the original
contract of lease for one year. The rationale of this Court is that:

This is a reasonable construction of the provision, which is based on the presumption

that when the lessor allows the lessee to continue enjoying possession of the property
for fifteen days after the expiration of the contract he is willing that such enjoyment
shall be for the entire period corresponding to the rent which is customarily paid — in
 this case up to the end of the month because the rent was paid monthly. Necessarily, if
the presumed will of the parties refers to the enjoyment of possession the presumption
covers the other terms of the contract related to such possession, such as the amount of
rental, the date when it must be paid, the care of the property, the responsibility for
repairs, etc. But no such presumption may be indulged in with respect to special
agreements which by nature are foreign to the right of occupancy or enjoyment
inherent in a contract of lease. 24

Third. There was no perfected contract of sale between petitioners and private respondent. Private
respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of
petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof.
Private respondent further contended that petitioners' filing of the ejectment case against it based on
the contract of lease with option to buy holds petitioners in estoppel to question the authority of
petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase
price constituted a valid exercise of the option to buy.

Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts." Thus, the elements of a contract of sale are consent, object, and price
in money or its equivalent. It bears stressing that the absence of any of these essential elements negates
the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must
show its existence by competent proof. 25

In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru
Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a
perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid
consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by
Alice A. Dizon, as petitioners' alleged agent, and private respondent. The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must discover upon his peril
the authority of the agent. 26 As provided in Article 1868 of the New Civil Code, 27 there was no showing
that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with
regard to her transaction with private respondent. The most prudent thing private respondent should
have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard,
private respondent cannot seek relief on the basis of a supposed agency.

In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent:

Every person dealing with an agent is put upon inquiry and must discover upon his peril
the authority of the agent. If he does not make such inquiry, he is chargeable with
knowledge of the agent's authority, and his ignorance of that authority will not be any
excuse. Persons dealing with an assumed agency, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also the nature and extent of the authority,
and in case either is controverted, the burden of proof is upon them to establish it.
For the long years that private respondent was able to thwart the execution of the ejectment suit
rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to
ensure that this case would really attain finality.

WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994
and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated
December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of
Appeals are hereby REVERSED and SET ASIDE.

Let the records of this case be remanded to the trial court for immediate execution of the judgment
dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial
Court) of Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then
Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this
Court.

However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which
they received through Alice A. Dizon on June 20, 1975.1âwphi1.nêt

SO ORDERED.
 FIRST DIVISION

G.R. No. 166862             December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner,

REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R.
No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil
Case No. 58551, and its Resolution 3 denying the motion for reconsideration filed by petitioner Manila
Metal Container Corporation (MMCC).

The Antecedents

Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City),
Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry
of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National
Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted
petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973, petitioner
executed an Amendment4 of Real Estate Mortgage over its property. On March 31, 1981, petitioner
secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments
of P32,650.00, plus interests and other charges. 5

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate
mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's
outstanding obligation to respondent PNB as of June 30, 1982, 6 plus interests and attorney's fees.

After due notice and publication, the property was sold at public auction on September 28, 1982 where
respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its
favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal
portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on
February 17, 1984.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an
extension of time to redeem/repurchase the property. 8 In its reply dated August 30, 1983, respondent
PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate
action and recommendation.9

In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from
February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its
request to repurchase the property on installment. 11 Meanwhile, some PNB Pasay City Branch personnel
informed petitioner that as a matter of policy, the bank does not accept "partial redemption." 12

Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1,
1984, and issued a new title in favor of respondent PNB. 13 Petitioner's offers had not yet been acted
upon by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account,
and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price
of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration
expenses, miscellaneous expenses and publication cost. 14 When apprised of the statement of account,
petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No.
978191 was issued to it.15

In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be
allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB
management informed petitioner that it was rejecting the offer and the recommendation of the SAMD.
It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value.
Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise,
its P725,000.00 deposit would be returned and the property would be sold to other interested buyers. 16

Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated
December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated
December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property
for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner
desire to withdraw its offer to purchase the property. 17 On February 25, 1985, petitioner, through
counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it
had already agreed to the SAMD's offer to purchase the property for P1,574,560.47, and that was why it
had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should
PNB insist on the position.18

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted
petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already
deposited with it.19 On page two of the letter was a space above the typewritten name of petitioner's
President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to
the letter but merely indicated therein that he had received it. 20 Petitioner did not respond, so PNB
requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase.

Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent
PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment
had been accepted, respondent PNB was proscribed from increasing the purchase price of the
property.21 Petitioner averred that it had a net balance payable in the amount of P643,452.34.
Respondent PNB, however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter
dated August 1, 1989.22

On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage
and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its
cause of action for specific performance, it alleged the following:

34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the
substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as
approved by its SMAD and considering the reliance made by Manila Metal and the long time
that has elapsed, the approval of the higher management of the Bank to confirm the agreement
of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which
has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition
which is entirely dependent upon its own will after accepting and benefiting from the
substantial payment made by Manila Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00
from Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding
a higher amount based on unilateral computation of interest rate without the consent of Manila
Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the following
arguments:

36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank,
plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to
incur litigation expenses of at least P30,000.00, which the defendant PNB should be condemned
to pay the plaintiff Manila Metal.

37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila
Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at
least P50,000.00.
 38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible,
exemplary damages should be awarded in favor of the plaintiff by way of example or correction
for the public good of at least P30,000.00.23

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

a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal
force and effect.

b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property
and setting it for auction sale null and void.

c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB
(TCT NO. 43792) covering the property described in paragraph 4 of the Complaint, to reinstate
TCT No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in
question at the back of the TCT No. 37025 described in paragraph 4 of this Complaint.

d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT
No. 37025 described in paragraph 4 of this Complaint to the plaintiff Manila Metal.

e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and
exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted
by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and
attorney's fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved
during the trial, and costs of suit.

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the
premises.24

In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had
acquired ownership over the property after the period to redeem had elapsed. It claimed that no
contract of sale was perfected between it and petitioner after the period to redeem the property had
expired.

During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of
facts.25 The parties agreed to limit the issues to the following:

1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer
to purchase the property is still valid and legally enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it failed to
conform with the conditions set forth by the defendant in its letter dated June 4, 1985.

3. Whether or not there is a perfected contract of sale between the parties. 26

While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate
the property within 15 days from notice,27 but petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was
however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing
market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not
sell the property for less than its market value. 29 On June 21, 1993, petitioner offered to purchase the
property for P4,250,000.00 in cash.30 The offer was again rejected by respondent PNB on September 13,
1993.31

On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent
PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had
made.32 The trial court ruled that there was no perfected contract of sale between the parties; hence,
petitioner had no cause of action for specific performance against respondent. The trial court declared
that respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected
the terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered
to repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below
the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00
remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or
earnest money.

On appeal to the CA, petitioner made the following allegations:

THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE
1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT
PROPERTY IS NOT VALID AND ENFORCEABLE.

II

THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE
BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.

III

THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO
PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET
FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.

IV

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-
APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO
COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION
OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.
 VI

THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT
THE AMENDED REPURCHASE OFFER.

VII

THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-

APPELLANT.

VIII

THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND
EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES. 33

Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it
waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No.
37025 in favor of Bayani Gabriel, one of its Directors. 34 Thereafter, Bayani Gabriel executed a Deed of
Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino,
who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a
resolution granting the motion,35 and likewise granted the motion of Reynaldo Tolentino substituting
petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor. 36

The CA rendered judgment on May 11, 2000 affirming the decision of the RTC. 37 It declared that
petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since
petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly
therefore, there was no meeting of the minds between the parties as to the price or consideration of the
sale.

The CA ratiocinated that petitioner's original offer to purchase the subject property had not been
accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically
on the selling price; petitioner did not agree to the counter-offer; and the negotiations did not prosper.
Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the
June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as
such, there was no contract to rescind.

According to the appellate court, the claim for damages and the counterclaim were correctly dismissed
by the court a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30,
1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked
petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower
selling price and that the balance of the repurchase be reduced, however, respondent rejected the
proposal in a letter dated August 1, 1989.

Petitioner filed a motion for reconsideration, which the CA likewise denied.

Thus, petitioner filed the instant petition for review on certiorari, alleging that:
 I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO
PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT.

II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT
OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.

III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE
OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN
PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE
CONTRACT OF SALE BETWEEN THE PARTIES.

IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE
PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED
JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID
AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-
APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT
PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF
SALE.38

The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected
contract for petitioner to repurchase the property from respondent.

Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the
property for P1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then
deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which
respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an
acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985,
the PNB Board of Directors had approved petitioner's offer to purchase the property. It claims that this
was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no
longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the
offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the
original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and
deliver the property to petitioner, conformably with Article 1159 of the New Civil Code.

Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted
respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer
validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains
that, although the P725,000.00 was considered as "deposit for the repurchase of the property" in the
receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of
the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco39 and Topacio v.
Court of Appeals.40

Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its
failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was
to protest respondent's breach of its obligation to petitioner. It did not amount to a rejection of
respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay
the balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of
the offered price or to cause the rescission of the contract.

Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the
case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers
to repurchase the property. Such offer to compromise should not be taken against it, in accordance with
Section 27, Rule 130 of the Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the "negotiation stage" as they
could not agree on the amount of the repurchase price of the property. All that transpired was an
exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the
amount and manner of payment of the price are essential elements in the formation of a binding and
enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of
"suspensive condition" signifies a future and uncertain event upon the fulfillment of which the
obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the
effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first
place, there is no basis for the application of the principles governing "suspensive conditions."

According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be
classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner.
Moreover, the amount stated therein could not likewise be considered as the counter-offer since as
admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of
Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale
contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the
amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the
property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase
price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the
amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally
claimed that respondent is already bound by any contract of sale with petitioner.

According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that
its authority is limited to administering, managing and preserving the properties and other special assets
of PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the
assets, since the power to do so must emanate from its Board of Directors. The SAMD was not
authorized by respondent's Board to enter into contracts of sale with third persons involving corporate
assets. There is absolutely nothing on record that respondent authorized the SAMD, or made it appear
to petitioner that it represented itself as having such authority.

Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been
approved by the Board subject to the condition, among others, "that the selling price shall be the total
bank's claim as of documentation date x x x payable in cash (P725,000.00 already deposited)

within 60 days from notice of approval." A new Statement of Account was attached therein indicating
the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore,
while respondent's Board of Directors accepted petitioner's offer to repurchase the property, the
acceptance was qualified, in that it required a higher sale price and subject to specified terms and
conditions enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating
petitioner's acceptance in return.

The Ruling of the Court

The ruling of the appellate court that there was no perfected contract of sale between the parties on
June 4, 1985 is correct.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service. 41 Under Article 1318 of the New Civil Code, 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.

Contracts are perfected by mere consent which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. 42 Once perfected, they
bind other contracting parties and the obligations arising therefrom have the form of law between the
parties and should be complied with in good faith. The parties are bound not only to the fulfillment of
what has been expressly stipulated but also to the consequences which, according to their nature, may
be in keeping with good faith, usage and law. 43

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and
deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent.44 The absence of any of the essential elements will negate the existence of a perfected
contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45

A definite agreement as to the price is an essential element of a binding agreement to sell

personal or real property because it seriously affects the rights and obligations of the parties.
Price is an essential element in the formation of a binding and enforceable contract of sale. The
fixing of the price can never be left to the decision of one of the contracting parties. But a price
fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale. 46

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there
is merely an offer by one party without acceptance of the other, there is no contract. 47 When the
contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties.48

In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that 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.

A negotiation is formally initiated by an offer, which, however, must be certain. 50 At any time prior to the
perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may
be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into
a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa
Properties, Inc. v. Court of Appeals,51 the Court ruled that:

x x x 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 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.52

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of
the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to
end the negotiation between the parties on a different basis. 53 Consequently, when something is desired
which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent
because any modification or variation from the terms of the offer annuls the offer. 54 The acceptance
must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since
it lacked the resources, it requested for more time to redeem/repurchase the property under such
terms and conditions agreed upon by the parties. 55 The request, which was made through a letter dated
August 25, 1983, was referred to the respondent's main branch for appropriate action. 56 Before
respondent could act on the request, petitioner again wrote respondent as follows:

1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY
THOUSAND PESOS (P150,000.00);

2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED
FIFTY THOUSAND PESOS (P450,000.00); and

3. The remaining balance together with the interest and other expenses that will be incurred will
be paid within the last six months of the one year grave period requested for. 57

When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to
respondent's President reiterating its offer to purchase the property. 59 There was no response to
petitioner's letters dated February 10 and 15, 1984.

The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25,
1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to
purchase the property. The statement is but a computation of the amount which petitioner was obliged
to pay in case respondent would later agree to sell the property, including interests, advances on
insurance premium, advances on realty taxes, publication cost, registration expenses and miscellaneous
expenses.

There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept
petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's
offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan
Freight Services, Inc.:60

Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or
acts of a corporation must be made either by the board of directors or by a corporate agent duly
authorized by the board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the
course of, or connected with the performance of authorized duties of such director, are held not
binding on the corporation.

Thus, a corporation can only execute its powers and transact its business through its Board of Directors
and through its officers and agents when authorized by a board resolution or its by-laws. 61

It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to
repurchase the property even beyond the one-year period; it recommended that petitioner be allowed
to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the
recommendation that the property be sold to petitioner. But instead of the P1,574,560.47
recommended by the SAMD and to which petitioner had previously conformed, respondent set the
purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified,
hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a
perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have
the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent.

We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was
"earnest money" which could be considered as proof of the perfection of a contract of sale under Article
1482 of the New Civil Code. The provision reads:

ART. 1482. 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.

This contention is likewise negated by the stipulation of facts which the parties entered into in the trial
court:

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an
updated Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be
P1,574,560.47 and recommended this amount as the repurchase price of the subject property.
 9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The
deposit of P725,000 was accepted by PNB on the condition that the purchase price is still
subject to the approval of the PNB Board.62

Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property,
in the event that respondent would approve the recommendation of SAMD for respondent to accept
petitioner's offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted
the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of
all the essential elements of a contract of sale, the giving of earnest money cannot establish the
existence of a perfected contract of sale. 63

It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the
offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of
respondent's qualified acceptance, or an amended counter-offer, because while the respondent
lowered the purchase price, it still declared that its acceptance was subject to the following terms and
conditions:

1. That the selling price shall be the total Bank's claim as of documentation date (pls. see
attached statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited)
within sixty (60) days from notice of approval;

2. The Bank sells only whatever rights, interests and participation it may have in the property
and you are charged with full knowledge of the nature and extent of said rights, interests and
participation and waive your right to warranty against eviction.

3. All taxes and other government imposts due or to become due on the property, as well as
expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in
connection with the execution and registration of all covering documents shall be borne by you;

4. That you shall undertake at your own expense and account the ejectment of the occupants of
the property subject of the sale, if there are any;

5. That upon your failure to pay the balance of the purchase price within sixty (60) days from
receipt of advice accepting your offer, your deposit shall be forfeited and the Bank is
thenceforth authorized to sell the property to other interested parties.

6. That the sale shall be subject to such other terms and conditions that the Legal Department
may impose to protect the interest of the Bank. 64

It appears that although respondent requested petitioner to conform to its amended counter-offer,
petitioner refused and instead requested respondent to reconsider its amended counter-offer.
Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00 deposit.

In sum, then, there was no perfected contract of sale between petitioner and respondent over the
subject property.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183905               April 16, 2009

GOVERNMENT SERVICE, INSURANCE SYSTEM, Petitioner,

vs.
THE HON. COURT OF APPEALS, (8TH DIVISION), ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B.
ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAÑEZ, and FRANCIS GILES
PUNO, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 184275               April 16, 2009

SECURITIES AND EXCHANGE COMMISSION, COMMISSIONER JESUS ENRIQUE G. MARTINEZ IN HIS

CAPACITY AS OFFICER-IN-CHARGE OF THE SECURITIES AND EXCHANGE COMMISSION and HUBERT G.
GUEVARA IN HIS CAPACITY AS DIRECTOR OF THE COMPLIANCE AND ENFORCEMENT DEPT. OF
SECURITIES Petitioners,
vs.
ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S.
MONSOD, ELPIDIO L. IBAÑEZ, and FRANCIS GILES Respondents.

DECISION

TINGA, J.:

These are the undisputed facts.

The annual stockholders’ meeting (annual meeting) of the Manila Electric Company (Meralco) was
scheduled on 27 May 2008.1 In connection with the annual meeting, proxies 2 were required to be
submitted on or before 17 May 2008, and the proxy validation was slated for five days later, or 22 May. 3

In view of the resignation of Camilo Quiason,4 the position of corporate secretary of Meralco became
vacant.5 On 15 May 2008, the board of directors of Meralco designated Jose Vitug 6 to act as corporate
secretary for the annual meeting.7 However, when the proxy validation began on 22 May, the
proceedings were presided over by respondent Anthony Rosete (Rosete), assistant corporate secretary
and in-house chief legal counsel of Meralco. 8 Private respondents nonetheless argue that Rosete was
the acting corporate secretary of Meralco. 9 Petitioner Government Service Insurance System (GSIS), a
major shareholder in Meralco, was distressed over the proxy validation proceedings, and the resulting
certification of proxies in favor of the Meralco management. 10

On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City, docketed as R-
PSY-08-05777-C4 seeking the declaration of certain proxies as invalid. 11 Three days

later, on 26 May, GSIS filed a Notice with the RTC manifesting the dismissal of the complaint. 12 On the
same day, GSIS filed an Urgent Petition13 with the Securities and Exchange Commission (SEC) seeking to
restrain Rosete from "recognizing, counting and tabulating, directly or indirectly, notionally or actually or
in whatever way, form, manner or means, or otherwise honoring the shares covered by" the proxies in
favor of respondents Manuel Lopez,14 Felipe Alfonso,15 Jesus Francisco,16 Oscar Lopez, Christian
Monsod,17 Elpidio Ibañez,18 Francisco Giles-Puno19 "or any officer representing MERALCO Management,"
and to annul and declare invalid said proxies. 20 GSIS also prayed for the issuance of a Cease and Desist
Order (CDO) to restrain the use of said proxies during the annual meeting scheduled for the following
day.21 A CDO22 to that effect signed by SEC Commissioner Jesus Martinez was issued on 26 May 2008, the
same day the complaint was filed. During the annual meeting held on the following day, Rosete
announced that the meeting would push through, expressing the opinion that the CDO is null and void. 23

On 28 May 2008, the SEC issued a Show Cause Order (SCO) 24 against private respondents, ordering them
to appear before the Commission on 30 May 2008 and explain why they should not be cited in
contempt. On 29 May 2008, respondents filed a petition for certiorari with prohibition 25 with the Court
of Appeals, praying that the CDO and the SCO be annulled. The petition was docketed as CA-G.R. SP No.
103692.

Many developments involving the Court of Appeals’ handling of CA-G.R. SP No. 103692 and the conduct
of several of its individual justices are recounted in our Resolution dated 9 September 2008 in A.M. No.
08-8-11-CA (Re: Letter Of Presiding Justice Conrado M. Vasquez, Jr. On CA-G.R. SP No. 103692). 26 On 23
July 2008, the Court of Appeals Eighth Division promulgated a decision in the case with the following
dispositive portion:

WHEREFORE, premises considered, the May 26, 2008 complaint filed by GSIS in the SEC is hereby
DISMISSED due to SEC’s lack of jurisdiction, due to forum shopping by respondent GSIS, and due to
splitting of causes of action by respondent GSIS. Consequently, the SEC’s undated cease and desist order
and the SEC’s May 28, 2008 show cause order are hereby DECLARED VOID AB INITIO and without legal
effect and their implementation are hereby permanently restrained.

The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being considered, out of
equitable considerations, as an election contest in the RTC, because the prescriptive period of 15 days
from the May 27, 2008 Meralco election to file an election contest in the RTC had already run its course,
pursuant to Sec. 3, Rule 6 of the interim Rules of Procedure Governing Intra-Corporate Controversies
under R.A. No. 8799, due to deliberate act of GSIS in filing a complaint in the SEC instead of the RTC.

Let seventeen (17) copies of this decision be officially TRANSMITTED to the Office of the Chief Justice
and three (3) copies to the Office of the Court Administrator:

(1) for sanction by the Supreme Court against the "GSIS LAW OFFICE" for unauthorized practice
of law,
 (2) for sanction and discipline by the Supreme Court of GSIS lawyers led by Atty. Estrella
Elamparo-Tayag, Atty. Marcial C. Pimentel, Atty. Enrique L. Tandan III, and other GSIS lawyers for
violation of Sec. 27 of Rule 138 of the Revised Rules of Court, pursuant to Santayana v. Alampay,
A.C. No. 5878, March 21, 2005 454 SCRA 1, and pursuant to Land Bank of the Philippines v.
Raymunda Martinez, G.R. No. 169008, August 14, 2007:

(a) for violating express provisions of law and defying public policy in deliberately
displacing the Office of the Government Corporate Counsel (OGCC) from its duty as the
exclusive lawyer of GSIS, a government owned and controlled corporation (GOCC), by
admittedly filing and defending cases as well as appearing as counsel for GSIS, without
authority to do so, the authority belonging exclusively to the OGCC;

(b) for violating the lawyer’s oath for failing in their duty to act as faithful officers of the
court by engaging in forum shopping;

(c) for violating express provisions of law most especially those on jurisdiction which are
mandatory; and

(d) for violating Sec. 3, Rule 2 of the 1997 Rules of Civil Procedure by deliberately
splitting causes of action in order to file multiple complaints: (i) in the RTC of Pasay City
and (ii) in the SEC, in order to ensure a favorable order. 27

The promulgation of the said decision provoked a searing controversy, as detailed in our Resolution in
A.M. No. 08-8-11-CA. Nonetheless, the appellate court’s decision spawned three different actions
docketed with their own case numbers before this Court. One of them, G.R. No. 183933, was initiated by
a Motion for Extension of Time to File Petition for Review filed by the Office of the Solicitor General
(OSG) in behalf of the SEC, Commissioner Martinez in his capacity as officer-in-charge of the SEC, and
Hubert Guevarra in his capacity as Director of the Compliance and Enforcement Department of the
SEC.28 However, the OSG did not follow through with the filing of the petition for review adverted to;
thus, on 19 January 2009, the Court resolved to declare G.R. No. 183933 closed and terminated. 29

The two remaining cases before us are docketed as G.R. No. 183905 and 184275. G.R. No. 183905
pertains to a petition for certiorari and prohibition filed by GSIS, against the Court of Appeals, and
respondents Rosete, Lopez, Alfonso, Francisco, Monsod, Ibañez and Puno, all of whom serve in different
corporate capacities with Meralco or First Philippines Holdings Corporation, a major stockholder of
Meralco and an affiliate of the Lopez Group of Companies. This petition seeks of the Court to declare the
23 July 2008 decision of the Court of Appeals null and void, affirm the SEC’s jurisdiction over the petition
filed before it by GSIS, and pronounce that the CDO and the SCO orders are valid. This petition was filed
in behalf of GSIS by the "GSIS Law Office;" it was signed by the Chief Legal Counsel and Assistant Legal
Counsel of GSIS, and three self-identified "Attorney[s]," presumably holding lawyer positions in GSIS. 30

The OSG also filed the other petition, docketed as G.R. No. 184275. It identifies as its petitioners the SEC,
Commissioner Martinez in his capacity as OIC of the SEC, and Hubert Guevarra in his capacity as Director
of the Compliance and Enforcement Department of the SEC – the same petitioners in the aborted
petition for review initially docketed as G.R. No. 183933. Unlike what was adverted to in the motion for
extension filed by the same petitioners in G.R. No. 183933, the petition in G.R. No. 184275 is one for
certiorari under Rule 65 as indicated on page 3 thereof, 31 and not a petition for review. Interestingly,
save for the first page which leaves the docket number blank, all 86 pages of this petition for certiorari
carry a header wrongly identifying the pleading as the non-existent petition for review under G.R. No.
183933. This petition seeks the "reversal" of the assailed decision of the Court of Appeals, the
recognition of the jurisdiction of the SEC over the petition of GSIS, and the affirmation of the CDO and
SCO.

II.

Private respondents seek the expunction of the petition filed by the SEC in G.R. No. 184275. We agree
that the petitioners therein, namely: the SEC, Commissioner Marquez and Guevarra, are not real parties-
in-interest to the dispute and thus bereft of capacity to file the petition. By way of simple illustration, to
argue otherwise is to say that the trial court judge, the National Labor Relations Commission, or any
quasi-judicial agency has the right to seek the review of an appellate court decision reversing any of
their rulings. That prospect, as any serious student of remedial law knows, is zero.

The Court, through the Resolution of the Third Division dated 2 September 2008, had resolved to treat
the petition in G.R. No. 184275 as a petition for review on certiorari, but withheld giving due course to
it.32 Under Section 1 of Rule 45, which governs appeals by certiorari, the right to file the appeal is
restricted to "a party," meaning that only the real parties-in-interest who litigated the petition for
certiorari before the Court of Appeals are entitled to appeal the same under Rule 45. The SEC and its
two officers may have been designated as respondents in the petition for certiorari filed with the Court
of Appeals, but under Section 5 of Rule 65 they are not entitled to be classified as real parties-in-
interest. Under the provision, the judge, court, quasi-judicial agency, tribunal, corporation, board, officer
or person to whom grave abuse of discretion is imputed (the SEC and its two officers in this case) are
denominated only as public respondents. The provision further states that "public respondents shall not
appear in or file an answer or comment to the petition or any pleading therein." 33 Justice Regalado
explains:

[R]ule 65 involves an original special civil action specifically directed against the person, court, agency or
party a quo which had committed not only a mistake of judgment but an error of jurisdiction, hence
should be made public respondents in that action brought to nullify their invalid acts. It shall, however
be the duty of the party litigant, whether in an appeal under Rule 45 or in a special civil action in Rule 65,
to defend in his behalf and the party whose adjudication is assailed, as he is the one interested in
sustaining the correctness of the disposition or the validity of the proceedings.

xxx The party interested in sustaining the proceedings in the lower court must be joined as a co-
respondent and he has the duty to defend in his own behalf and in behalf of the court which rendered
the questioned order. While there is nothing in the Rules that prohibit the presiding judge of the court
involved from filing his own answer and defending his questioned order, the Supreme Court has
reminded judges of the lower courts to refrain from doing so unless ordered by the Supreme
Court.34 The judicial norm or mode of conduct to be observed in trial and appellate courts is now
prescribed in the second paragraph of this section.

xxx

A person not a party to the proceedings in the trial court or in the Court of Appeals cannot maintain
an action for certiorari in the Supreme Court to have the judgment reviewed. 35
Rule 65 does recognize that the SEC and its officers should have been designated as public respondents
in the petition for certiorari filed with the Court of Appeals. Yet their involvement in the instant petition
is not as original party-litigants, but as the quasi-judicial agency and officers exercising the adjudicative
functions over the dispute between the two contending factions within Meralco. From the onset,
neither the SEC nor Martinez or Guevarra has been considered as a real party-in-interest. Section 2, Rule
3 of the 1997 Rules of Civil Procedure provides that every action must be prosecuted or defended in the
name of the real party in interest, that is "the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit." It would be facetious to assume that
the SEC had any real interest or stake in the intra-corporate dispute within Meralco.

We find our ruling in Hon. Santiago v. Court of Appeals 36 quite apposite to the question at hand.
Petitioner therein, a trial court judge, had presided over an expropriation case. The litigants had arrived
at an amicable settlement, but the judge refused to approve the same, even declaring it invalid. The
matter was elevated to the Court of Appeals, which promptly reversed the trial court and approved the
amicable settlement. The judge took the extraordinary step of filing in his own behalf a petition for
review on certiorari with this Court, assailing the decision of the Court of Appeals which had reversed
him. In disallowing the judge’s petition, the Court explained:

While the issue in the Court of Appeals and that raised by petitioner now is whether the latter abused
his discretion in nullifying the deeds of sale and in proceeding with the expropriation proceeding, that
question is eclipsed by the concern of whether Judge Pedro T. Santiago may file this petition at all.

And the answer must be in the negative, Section 1 of Rule 45 allows a party to appeal by certiorari from
a judgment of the Court of Appeals by filing with this Court a petition for review on certiorari. But
petitioner judge was not a party either in the expropriation proceeding or in the certiorari proceeding in
the Court of Appeals. His being named as respondent in the Court of Appeals was merely to comply with
the rule that in original petitions for certiorari, the court or the judge, in his capacity as such, should be
named as party respondent because the question in such a proceeding is the jurisdiction of the court
itself (See Mayol v. Blanco, 61 Phil. 547 [19351, cited in Comments on the Rules of Court, Moran, Vol. II,
1979 ed., p. 471). "In special proceedings, the judge whose order is under attack is merely a nominal
party; wherefore, a judge in his official capacity, should not be made to appear as a party seeking
reversal of a decision that is unfavorable to the action taken by him. A decent regard for the judicial
hierarchy bars a judge from suing against the adverse opinion of a higher court,. . . ." (Alcasid v. Samson,
102 Phil. 785, 740 [1957])

ACCORDINGLY, this petition is DENIED for lack of legal capacity to sue by the petitioner. 37

Justice Isagani Cruz added, in a Concurring Opinion in Santiago: "The judge is not an active combatant in
such proceeding and must leave it to the parties themselves to argue their respective positions and for
the appellate court to rule on the matter without his participation." 38

Note that in Santiago, the Court recognized the good faith of the judge, who perceived the amicable
settlement "as a manifestly iniquitous and illegal contract." 39 The SEC could have similarly felt in good
faith that the assailed Court of Appeals decision had unduly impaired its prerogatives or caused some
degree of hurt to it. Yet assuming that there are rights or prerogatives peculiar to the SEC itself that the
appellate court had countermanded, these can be vindicated in the petition for certiorari filed by GSIS,
whose legal capacity to challenge the Court of Appeals decision is without question. There simply is no
plausible reason for this Court to deviate from a time-honored rule that preserves the purity of our
judicial and quasi-judicial offices to accommodate the SEC’s distrust and resentment of the appellate
court’s decision. The expunction of the petition in G.R. No. 184275 is accordingly in order.

At this point, only one petition remains—the petition for certiorari filed by GSIS in G.R. No. 183905.
Casting off the uncritical and unimportant aspects, the two main issues for adjudication are as follows:
(1) whether the SEC has jurisdiction over the petition filed by GSIS against private respondents; and (2)
whether the CDO and SCO issued by the SEC are valid.

II.

It is our resolute inclination that this case, which raises interesting questions of law, be decided solely on
the merits, without regard to the personalities involved or the well-reported drama preceding the
petition. To that end, the Court has taken note of reports in the media that GSIS and the Lopez group
have taken positive steps to divest or significantly reduce their respective interests in Meralco. 40 These
are developments that certainly ease the tension surrounding this case, not to mention reason enough
for the two groups to make an internal reassessment of their respective positions and interests in
relation to this case. Still, the key legal questions raised in the petition do not depend at all on the
identity of any of the parties, and would obtain the same denouement even if this case was lodged by
unknowns as petitioners against similarly obscure respondents.

With the objective to resolve the key questions of law raised in the petition, some of the issues raised
diminish as peripheral. For example, petitioners raise arguments tied to the behavior of individual
justices of the Court of Appeals, particularly former Justice Vicente Roxas, in relation to this case as it
was pending before the appellate court. The Court takes cognizance of our Resolution in A.M. No. 08-8-
11-CA dated 9 September 2008, which duly recited the various anomalous or unbecoming acts in
relation to this case performed by two of the justices who decided the case in behalf of the Court of
Appeals—former Justice Roxas (the ponente) and Justice Bienvenido L. Reyes (the Chairman of the 8th
Division) – as well as three other members of the Court of Appeals. At the same time, the consensus of
the Court as it deliberated on A.M. No. 08-8-11-CA was to reserve comment or conclusion on the
assailed decision of the Court of Appeals, in recognition of the reality that however stigmatized the
actions and motivations of Justice Roxas are, the decision is still the product of the Court of Appeals as a
collegial judicial body, and not of one or some rogue justices. The penalties levied by the Court on these
appellate court justices, in our estimation, redress the unwholesome acts which they had committed. At
the same time, given the jurisprudential importance of the questions of law raised in the petition, any
result reached without squarely addressing such questions would be unsatisfactory, perhaps derelict
even.

III.

We now examine whether the SEC has jurisdiction over the petition filed by GSIS. To recall, SEC has
sought to enjoin the use and annul the validation, of the proxies issued in favor of several of the private
respondents, particularly in connection with the annual meeting.

A.
Jurisdiction is conferred by no other source but law. Both sides have relied upon provisions of Rep. Act
No. 8799, otherwise known as the Securities Regulation Code (SRC), its implementing rules (Amended
Implementing Rules or AIRR-SRC), and other related rules to support their competing contentions that
either the SEC or the trial courts has exclusive original jurisdiction over the dispute.

GSIS primarily anchors its argument on two correlated provisions of the SRC. These are Section 53.1 and
Section 20.1, which we cite:

SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its
discretion, make such investigations as it deems necessary to determine whether any person has
violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or
any rule of an Exchange, registered securities association, clearing agency, other self-regulatory
organization, and may require or permit any person to file with it a statement in writing, under oath or
otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter
to be investigated. The Commission may publish information concerning any such violations, and to
investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in the
enforcement of the provisions of this Code, in the prescribing of rules and regulations thereunder, or
in securing information to serve as a basis for recommending further legislation concerning the
matters to which this Code relates: xxx (emphasis supplied)

SEC. 20. Proxy Solicitations. – 20.1. Proxies must be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by the Commission;

The argument, stripped of extravagance, is that since proxy solicitations following Section 20.1 have to
be made in accordance with rules and regulations issued by the SEC, it is the SEC under Section 53.1 that
has the jurisdiction to investigate alleged violations of the rules on proxy solicitations. The GSIS petition
invoked AIRR-AIRR-SRC Rule 20, otherwise known as "The Proxy Rule," which enumerates the
requirements as to form of proxy and delivery of information to security holders. According to GSIS, the
information statement Meralco had filed with the SEC in connection with the annual meeting did not
contain any proxy form as required under AIRR-SRC Rule 20.

On the other hand, private respondents argue before us that under Section 5.2 of the SRC, the SEC’s
jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A was transferred to
the courts of general jurisdiction or the appropriate regional trial court. The two particular classes of
cases in the enumeration under Section 5 of Presidential Decree No. 902-A which private respondents
especially refer to are as follows:

xxx

(2) Controversies arising out of intra-corporate, partnership, or association relations, between and
among stockholders, members, or associates; or association of which they are stockholders, members,
or associates, respectively;

3) Controversies in the election or appointment of directors, trustees, officers or managers of

corporations, partnerships, or associations;

xxx
In addition, private respondents cite the Interim Rules on Intra-Corporate Controversies (Interim Rules)
promulgated by this Court in 2001, most pertinently, Section 2 of Rule 6 (on Election Contests), which
defines "election contests" as follows:

SEC. 2. Definition. – An election contest refers to any controversy or dispute involving title or claim to
any elective office in a stock or nonstock corporation, the validation of proxies, the manner and validity
of elections and the qualifications of candidates, including the proclamation of winners, to the office of
director, trustee or other officer directly elected by the stockholders in a close corporation or by
members of a nonstock corporation where the articles of incorporation or bylaws so provide. (emphasis
supplied)

The correct answer is not clear-cut, but there is one. In private respondents’ favor, the provisions of law
they cite pertain directly and exclusively to the statutory jurisdiction of trial courts acquired by virtue of
the transfer of jurisdiction following the passage of the SRC. In contrast, the SRC provisions relied upon
by GSIS do not immediately or directly establish that body’s jurisdiction over the petition, since it
necessitates the linkage of Section 20 to Section 53.1 of the SRC before the point can bear on us.

On the other hand, the distinction between "proxy solicitation" and "proxy validation" cannot be
dismissed offhand. The right of a stockholder to vote by proxy is generally established by the

Corporation Code,41 but it is the SRC which specifically regulates the form and use of proxies, more
particularly the procedure of proxy solicitation, primarily through Section 20. 42 AIRR-SRC Rule 20 defines
the terms solicit and solicitation:

The terms solicit and solicitation include:

A. any request for a proxy whether or not accompanied by or included in a form of proxy

B. any request to execute or not to execute, or to revoke, a proxy; or

C. the furnishing of a form of proxy or other communication to security holders under

circumstance reasonably calculated to result in the procurement, withholding or revocation of a
proxy.

It is plain that proxy solicitation is a procedure that antecedes proxy validation. The former involves the
securing and submission of proxies, while the latter concerns the validation of such secured and
submitted proxies. GSIS raises the sensible point that there was no election yet at the time it filed its
petition with the SEC, hence no proper election contest or controversy yet over which the regular courts
may have jurisdiction. And the point ties its cause of action to alleged irregularities in the proxy
solicitation procedure, a process that precedes either the validation of proxies or the annual meeting
itself.

Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations issued
by the SEC, such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the discretion "to make
such investigations as it deems necessary to determine whether any person has violated" any rule issued
by it, such as AIRR-SRC Rule 4. The investigatory power of the SEC established by Section 53.1 is central
to its regulatory authority, most crucial to the public interest especially as it may pertain to corporations
with publicly traded shares. For that reason, we are not keen on pursuing private respondents’
insistence that the GSIS complaint be viewed as rooted in an intra-corporate controversy solely within
the jurisdiction of the trial courts to decide. It is possible that an intra-corporate controversy may
animate a disgruntled shareholder to complain to the SEC a corporation’s violations of SEC rules and
regulations, but that motive alone should not be sufficient to deprive the SEC of its investigatory and
regulatory powers, especially so since such powers are exercisable on a motu proprio basis.

At the same time, Meralco raises the substantial point that nothing in the SRC empowers the SEC to
annul or invalidate improper proxies issued in contravention of Section 20. It cites that the penalties
defined by the SEC itself for violation of Section 20 or AIRR-SRC Rule 20 are limited to a
reprimand/warning for the first offense, and pecuniary fines for succeeding offenses. 43 Indeed, if the SEC
does not have the power to invalidate proxies solicited in violation of its promulgated rules, serious
questions may be raised whether it has the power to adjudicate claims of violation in the first place,
since the relief it may extend does not directly redress the cause of action of the complainant seeking
the exclusion of the proxies.

There is an interesting point, which neither party raises, and it concerns Section 6(g) of Presidential
Decree No. 902-A, which states:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:

xxx

(g) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent
stockholders or members;

xxx

As promulgated then, the provision would confer on the SEC the power to adjudicate controversies
relating not only to proxy solicitation, but also to proxy validation. Should the proposition hold true up
to the present, the position of GSIS would have merit, especially since Section 6 of Presidential Decree
No. 902-A was not expressly repealed or abrogated by the SRC. 44

Yet a closer reading of the provision indicates that such power of the SEC then was incidental or ancillary
to the "exercise of such jurisdiction." Note that Section 6 is immediately preceded by Section 5, which
originally conferred on the SEC "original and exclusive jurisdiction to hear and decide cases" involving
"controversies in the election or appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations." The cases referred to in Section 5 were transferred from the
jurisdiction of the SEC to the regular courts with the passage of the SRC, specifically Section 5.2. Thus,
the SEC’s power to pass upon the validity of proxies in relation to election controversies has effectively
been withdrawn, tied as it is to its abrogated jurisdictional powers.

Based on the foregoing, it is evident that the linchpin in deciding the question is whether or not the
cause of action of GSIS before the SEC is intimately tied to an election controversy, as defined under
Section 5(c) of Presidential Decree No. 902-A. To answer that, we need to properly ascertain the scope
of the power of trial courts to resolve controversies in corporate elections.
 B.

Shares of stock in corporations may be divided into voting shares and non-voting shares, which are
generally issued as "preferred" or "redeemable" shares. 45 Voting rights are exercised during regular or
special meetings of stockholders; regular meetings to be held annually on a fixed date, while special
meetings may be held at any time necessary or as provided in the by-laws, upon due notice. 46 The
Corporation Code provides for a whole range of matters which can be voted upon by stockholders,
including a limited set on which even non-voting stockholders are entitled to vote on. 47 On any of these
matters which may be voted upon by stockholders, the proxy device is generally available. 48

Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular
trial courts with respect to election-related controversies is specifically confined to "controversies in the
election or appointment of directors, trustees, officers or managers of corporations, partnerships, or
associations." Evidently, the jurisdiction of the regular courts over so-called election contests or
controversies under Section 5(c) does not extend to every potential subject that may be voted on by
shareholders, but only to the election of directors or trustees, in which stockholders are authorized to
participate under Section 24 of the Corporation Code. 49

This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to
regulate proxy solicitation, and the statutory jurisdiction of regular courts over election contests or
controversies. The power of the SEC to investigate violations of its rules on proxy solicitation is
unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under
Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the
election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the
SEC rules on proxy solicitation, should be properly seen as an election controversy within the original
and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c)
of Presidential Decree No. 902-A.

The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the
election of corporate directors must be seen as intended to confine to one body the adjudication of all
related claims and controversy arising from the election of such directors. For that reason, the
aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term "election contest" as
encompassing all plausible incidents arising from the election of corporate directors, including: (1) any
controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation,
(2) the validation of proxies, (3) the manner and validity of elections and (4) the qualifications of
candidates, including the proclamation of winners. If all matters anteceding the holding of such election
which affect its manner and conduct, such as the proxy solicitation process, are deemed within the
original and exclusive jurisdiction of the SEC, then the prospect of overlapping and competing
jurisdictions between that body and the regular courts becomes frighteningly real. From the language of
Section 5(c) of Presidential Decree No. 902-A, it is indubitable that controversies as to the qualification
of voting shares, or the validity of votes cast in favor of a candidate for election to the board of directors
are properly cognizable and adjudicable by the regular courts exercising original and exclusive
jurisdiction over election cases. Questions relating to the proper solicitation of proxies used in such
election are indisputably related to such issues, yet if the position of GSIS were to be upheld, they would
be resolved by the SEC and not the regular courts, even if they fall within "controversies in the election"
of directors.
The Court recognizes that GSIS’s position flirts with the abhorrent evil of split jurisdiction, 50 allowing as it
does both the SEC and the regular courts to assert jurisdiction over the same controversies surrounding
an election contest. Should the argument of GSIS be sustained, we would be perpetually confronted
with the spectacle of election controversies being heard and adjudicated by both the SEC and the
regular courts, made possible through a mere allegation that the anteceding proxy solicitation process
was errant, but the competing cases filed with one objective in mind – to affect the outcome of the
election of the board of directors. There is no definitive statutory provision that expressly mandates so
untidy a framework, and we are disinclined to construe the SRC in such a manner as to pave the way for
the splitting of jurisdiction.

Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or investigatory
power of the SEC, Section 5 of Pres. Decree No. 902-A sets forth a definitive rule on jurisdiction,
expressly granting as it does "original and exclusive jurisdiction" first to the SEC, and now to the regular
courts. The fact that the jurisdiction of the regular courts under Section 5(c) is confined to the voting on
election of officers, and not on all matters which may be voted upon by stockholders, elucidates that the
power of the SEC to regulate proxies remains extant and could very well be exercised when stockholders
vote on matters other than the election of directors.

That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed.
The controversy was engendered by the looming annual meeting, during which the stockholders of
Meralco were to elect the directors of the corporation. GSIS very well knew of that fact. On 17 March
2008, the Meralco board of directors adopted a board resolution stating:

RESOLVED that the board of directors of the Manila Electric Company (MERALCO) delegate, as it hereby
delegates to the Nomination & Governance Committee the authority to approve and adopt appropriate
rules on: (1) nomination of candidates for election to the board of directors; (2) appreciation of ballots
during the election of members of the board of directors; and (3) validation of proxies for regular or
special meetings of the stockholders.51

In addition, the Information Statement/Proxy form filed by First Philippine Holdings Corporation with
the SEC pursuant to Section 20 of the SRC, states:

REASON FOR SOLICITATION OF VOTES

The Solicitor is soliciting proxies from stockholders of the Company for the purpose of electing the
directors named under the subject headed ‘Directors’ in this Statement as well as to vote the matters
in the agenda of the meeting as provided for in the Information Statement of the Company. All of the
nominees are current directors of the Company. 52

Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the solicitation
or validation of proxies bore no relation at all to the scheduled election of the board of directors of
Meralco during the annual meeting. GSIS very well knew that the controversy falls within the
contemplation of an election controversy properly within the jurisdiction of the regular courts.
Otherwise, it would have never filed its original petition with the RTC of Pasay. GSIS may have
withdrawn its petition with the RTC on a new assessment made in good faith that the controversy falls
within the jurisdiction of the SEC, yet the reality is that the reassessment is precisely wrong as a matter
of law.
 IV.

The lack of jurisdiction of the SEC over the subject matter of GSIS’s petition necessarily invalidates the
CDO and SDO issued by that body. However, especially with respect to the CDO, there is need for this
Court to squarely rule on the question pertaining to its validity, if only for jurisprudential value and for
the guidance of the SEC.

To recount the facts surrounding the issuance of the CDO, GSIS filed its petition with the SEC on 26 May
2008. The CDO, six (6) pages in all with three (3) pages devoted to the tenability of granting the
injunctive relief, was issued on the very same day, 26 May 2008, without notice or hearing. The CDO
bore the signature of Commissioner Jesus Martinez, identified therein as "Officer-in-Charge," and
nobody else’s.

The provisions of the SRC relevant to the issuance of a CDO are as follows:

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and
shall have the powers and functions provided by this Code, Presidential Decree No. 902-A,
the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:

xxx

(i) Issue cease and desist orders to prevent fraud or injury to the investing public;

xxx

[SEC.] 53.3. Whenever it shall appear to the Commission that any person has engaged or is about to
engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or
order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other
self-regulatory organization, it may issue an order to such person to desist from committing such act or
practice: Provided, however, That the Commission shall not charge any person with violation of the rules
of an Exchange or other self regulatory organization unless it appears to the Commission that such
Exchange or other self-regulatory organization is unable or unwilling to take action against such person.
After finding that such person has engaged in any such act or practice and that there is a reasonable
likelihood of continuing, further or future violations by such person, the Commission may issue ex-parte
a cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling
compliance with such provision. The Commission may transmit such evidence as may be available
concerning any violation of any provision of this Code, or any rule, regulation or order thereunder, to
the Department of Justice, which may institute the appropriate criminal proceedings under this Code.

SEC. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification, motu
proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without
the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a
fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing
public.
64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been
initiated or that a complaint has been filed, including the contents of the complaint, shall be
confidential. Upon issuance of a cease and desist order, the Commission shall make public such order
and a copy thereof shall be immediately furnished to each person subject to the order.

64.3. Any person against whom a cease and desist order was issued may, within five (5) days from
receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the
Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not
later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the
request within the time herein prescribed, the cease and desist order shall automatically be lifted.

There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5(i),
is predicated on a necessity "to prevent fraud or injury to the investing public". No other requisite or
detail is tied to this CDO authorized under Section 5(i).

The second basis, found in Section 53.3, involves a determination by the SEC that "any person has
engaged or is about to engage in any act or practice constituting a violation of any provision of this
Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities
association, clearing agency or other self-regulatory organization." The provision additionally requires a
finding that "there is a reasonable likelihood of continuing [or engaging in] further or future violations by
such person." The maximum duration of the CDO issued under Section 53.3 is ten (10) days.

The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act
or practice, which unless restrained, "will operate as a fraud on investors or is otherwise likely to cause
grave or irreparable injury or prejudice to the investing public". Section 64.1 plainly provides three
segregate instances upon which the SEC may issue the CDO under this provision: (1) after proper
investigation or verification, (2) motu proprio, or (3) upon verified complaint by any aggrieved party.
While no lifetime is expressly specified for the CDO under Section 64, the respondent to the CDO may
file a formal request for the lifting thereof, which the SEC must hear within fifteen (15) days from filing
and decide within ten (10) days from the hearing.

It appears that the CDO under Section 5(i) is similar to the CDO under Section 64.1. Both require a
common finding of a need to prevent fraud or injury to the investing public. At the same time, no
mention is made whether the CDO defined under Section 5(i) may be issued ex-parte, while the CDO
under Section 64.1 requires "grave and irreparable" injury, language absent in Section 5(i).
Notwithstanding the similarities between Section 5(i) and Section 64.1, it remains clear that the CDO
issued under Section 53.3 is a distinct creation from that under Section 64.

The Court of Appeals cited the CDO as having been issued in violation of the constitutional provision on
due process, which requires both prior notice and prior hearing. 53 Yet interestingly, the CDO as
contemplated in Section 53.3 or in Section 64, may be issued "ex-parte" (under Section 53.3) or "without
necessity of hearing" (under Section 64.1). Nothing in these provisions impose a requisite hearing before
the CDO may be issued thereunder. Nonetheless, there are identifiable requisite actions on the part of
the SEC that must be undertaken before the CDO may be issued either under Section 53.3 or Section 64.
In the case of Section 53.3, the SEC must make two findings: (1) that such person has engaged in any
such act or practice, and (2) that there is a reasonable likelihood of continuing, (or engaging in) further
or future violations by such person. In the case of Section 64, the SEC must adjudge that the act, unless
restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury
or prejudice to the investing public."

Noticeably, the CDO is not precisely clear whether it was issued on the basis of Section 5.1, Section 53.3
or Section 64 of the SRC. The CDO actually refers and cites all three provisions, yet it is apparent that a
singular CDO could not be founded on Section 5.1, Section 53.3 and Section 64 collectively. At the very
least, the CDO under Section 53.3 and under Section 64 have their respective requisites and terms.

GSIS was similarly cagey in its petition before the SEC, it demurring to state whether it was seeking the
CDO under Section 5.1, Section 53.3, or Section 64. Considering that injunctive relief generally avails
upon the showing of a clear legal right to such relief, the inability or unwillingness to lay bare the precise
statutory basis for the prayer for injunction is an obvious impediment to a successful

application. Nonetheless, the error of the SEC in granting the CDO without stating which kind of CDO it
was issuing is more unpardonable, as it is an act that contravenes due process of law.

We have particularly required, in administrative proceedings, that the body or tribunal "in all
controversial questions, render its decision in such a manner that the parties to the proceeding can
know the various issues involved, and the reason for the decision rendered." 54 This requirement is vital,
as its fulfillment would afford the adverse party the opportunity to interpose a reasoned and intelligent
appeal that is responsive to the grounds cited against it. The CDO extended by the SEC fails to provide
the needed reasonable clarity of the rationale behind its issuance.

The subject CDO first refers to Section 64, citing its provisions, then stating: "[p]rescinding from the
aforequoted, there can be no doubt whatsoever that the Commission is in fact mandated to take up, if
expeditiously, any verified complaint praying for the provisional remedy of a cease and desist
order."55 The CDO then discusses the nature of the right of GSIS to obtain the CDO, as well as "the
urgent and paramount necessity to prevent serious damage because the stockholders’ meeting is
scheduled on May 28, 2008 x x x" Had the CDO stopped there, the unequivocal impression would have
been that the order is based on Section 64.

But the CDO goes on to cite Section 5.1, quoting paragraphs (i) and (n) in full, ratiocinating that under
these provisions, the SEC had "the power to issue cease and desist orders to prevent fraud or injury to
the public and such other measures necessary to carry out the Commission’s role as
regulator."56 Immediately thence, the CDO cites Section 53.3 as providing "that whenever it shall appear
to the Commission that nay person has engaged or is about to engage in any act or practice constituting
a violation of any provision, any rule, regulation or order thereunder, the Commission may issue ex-
parte a cease and desist order for a maximum period of ten (10) days, enjoining the violation and
compelling compliance therewith." 57

The citation in the CDO of Section 5.1, Section 53.3 and Section 64 together may leave the impression
that it is grounded on all three provisions, and that may very well have been the intention of the SEC.
Assuming that is so, it is legally impermissible for the SEC to have utilized both Section 53.3 and Section
64 as basis for the CDO at the same time. The CDO under Section 53.3 is premised on distinctly different
requisites than the CDO under Section 64. Even more crucially, the lifetime of the CDO under Section
53.3 is confined to a definite span of ten (10) days, which is not the case with the CDO under Section 64.
This CDO under Section 64 may be the object of a formal request for lifting within five (5) days from its
issuance, a remedy not expressly afforded to the CDO under Section 53.3.

Any respondent to a CDO which cites both Section 53.3 and Section 64 would not have an intelligent or
adequate basis to respond to the same. Such respondent would not know whether the CDO would have
a determinate lifespan of ten (10) days, as in Section 53.3, or would necessitate a formal request for
lifting within five (5) days, as required under Section 64.1. This lack of clarity is to the obvious prejudice
of the respondent, and is in clear defiance of the constitutional right to due process of law. Indeed, the
veritable mélange that the assailed CDO is, with its jumbled mixture of premises and conclusions, the
antithesis of due process.

Had the CDO issued by the SEC expressed the length of its term, perhaps greater clarity would have
been offered on what Section of the SRC it is based. However, the CDO is precisely silent as to its
lifetime, thereby precluding much needed clarification. In view of the statutory differences among the
three CDOs under the SRC, it is essential that the SEC, in issuing such injunctive relief, identify the exact
provision of the SRC on which the CDO is founded. Only by doing so could the adversely affected party
be able to properly evaluate whatever his responses under the law.

To make matters worse for the SEC, the fact that the CDO was signed, much less apparently deliberated
upon, by only by one commissioner likewise renders the order fatally infirm.

The SEC is a collegial body composed of a Chairperson and four (4) Commissioners. 58 In order to
constitute a quorum to conduct business, the presence of at least three (3) Commissioners is
required.59 In the leading case of GMCR v. Bell, 60 we definitively explained the nature of a collegial body,
and how the act of one member of such body, even if the head, could not be considered as that of the
entire body itself. Thus:

We hereby declare that the NTC is a collegial body requiring a majority vote out of the three members of
the commission in order to validly decide a case or any incident therein. Corollarily, the vote alone of the
chairman of the commission, as in this case, the vote of Commissioner Kintanar, absent the required
concurring vote coming from the rest of the membership of the commission to at least arrive at a
majority decision, is not sufficient to legally render an NTC order, resolution or decision.

Simply put, Commissioner Kintanar is not the National Telecommunications Commission. He alone does
not speak for and in behalf of the NTC. The NTC acts through a three-man body, and the three members
of the commission each has one vote to cast in every deliberation concerning a case or any incident
therein that is subject to the jurisdiction of the NTC. When we consider the historical milieu in which the
NTC evolved into the quasi-judicial agency it is now under Executive Order No. 146 which organized the
NTC as a three-man commission and expose the illegality of all memorandum circulars negating the
collegial nature of the NTC under Executive Order No. 146, we are left with only one logical conclusion:
the NTC is a collegial body and was a collegial body even during the time when it was acting as a one-
man regime.61

We can adopt a virtually word-for-word observation with respect to former Commissioner Martinez and
the SEC. Simply put, Commissioner Martinez is not the SEC. He alone does not speak for and in behalf of
the SEC. The SEC acts through a five-person body, and the five members of the commission each has one
vote to cast in every deliberation concerning a case or any incident therein that is subject to the
jurisdiction of the SEC.

GSIS attempts to defend former Commissioner Martinez’s action, but its argument is without merit. It
cites SEC Order No. 169, Series of 2008, whereby Martinez was designated as "Officer-in-Charge of the
Commission for the duration of the official travel of the Chairperson to Paris, France, to attend the 33rd
Annual Conference of the [IOSCO] from May 26-30, 2008." 62 As officer-in-charge (OIC), Martinez was
"authorized to sign all documents and papers and perform all other acts and deeds as may be necessary
in the day-to-day operation of the Commission".1avvphi1

It is clear that Martinez was designated as OIC because of the official travel of only one member,
Chairperson Fe Barin. Martinez was not commissioned to act as the SEC itself. At most, he was to act in
place of Chairperson Barin in the exercise of her duties as Chairperson of the SEC. Under Section 4.3 of
the SRC, the Chairperson is the chief executive officer of the SEC, and thus empowered to "execute and
administer the policies, decisions, orders and resolutions approved by the Commission," as well as to
"have the

general executive direction and supervision of the work and operation of the Commission." 63 It is in
relation to the exercise of these duties of the Chairperson, and not to the functions of the Commission,
that Martinez was "authorized to sign all documents and papers and perform all other acts and deeds as
may be necessary in the day-to-day operation of the Commission."

GSIS likewise cites, as authority for Martinez’s unilateral issuance of the CDO, Section 4.6 of the SRC,
which states that the SEC "may, for purposes of efficiency, delegate any of its functions to any
department or office of the Commission, an individual Commissioner or staff member of the
Commission except its review or appellate authority and its power to adopt, alter and supplement any
rule or regulation." Reliance on this provision is inappropriate. First, there is no convincing
demonstration that the SEC had delegated to Martinez the authority to issue the CDO. The SEC Order
designating Martinez as OIC only authorized him to exercise the functions of the absent Chairperson,
and not of the Commission. If the Order is read as enabling Martinez to issue the CDO in behalf of the
Commission, it would be akin to conceding that the SEC Chairperson, acting alone, can issue the CDO in
behalf of the SEC itself. That again contravenes our holding in GMCR v. Bell.

In addition, it is clear under Section 4.6 that the ability to delegate functions to a single commissioner
does not extend to the exercise of the review or appellate authority of the SEC. The issuance of the CDO
is an act of the SEC itself done in the exercise of its original jurisdiction to review actual cases or
controversies. If it has not been clear to the SEC before, it should be clear now that its power to issue a
CDO can not, under the SRC, be delegated to an individual commissioner.

V.

In the end, even assuming that the events narrated in our Resolution in A.M. No. 08-8-11-CA constitute
sufficient basis to nullify the assailed decision of the Court of Appeals, still it remains clear that the
reliefs GSIS seeks of this Court have no basis in law. Notwithstanding the black mark that stains the
appellate court’s decision, the first paragraph of its fallo, to the extent that it dismissed the complaint of
GSIS with the SEC for lack of jurisdiction and consequently nullified the CDO and SDO, defies unbiased
scrutiny and deserves affirmation.
 A.

In its dispositive portion, the Court of Appeals likewise pronounced that the complaint filed by GSIS with
the SEC should be barred from being considered "as an election contest in the RTC", given that the
fifteen (15) day prescriptive period to file an election contest with the RTC, under Section 3, Rule 6 of the
Interim Rules, had already run its course. 64 Yet no such relief was requested by private respondents in
their petition for certiorari filed with the Court of Appeals 65 . Without disputing the legal predicates
surrounding this pronouncement, we note that its tenor, if not the text, unduly suggests an
unwholesome pre-emptive strike. Given our observations in A.M. No. 08-8-11-CA of the "undue
interest" exhibited by the author of the appellate court decision, such declaration is best deleted.
Nonetheless, we do trust that any court or tribunal that may be confronted with that premise adverted
to by the Court of Appeals would know how to properly treat the same.

B.

Finally, we turn to the sanction on the lawyers of GSIS imposed by the Court of Appeals.

Nonetheless, we find that as a matter of law the sanctions are unwarranted. The charter of GSIS 66 is
unique among government owned or controlled corporations with original charter in that it allocates a
role for its internal legal counsel that is in conjunction with or complementary to the Office of the
Government Corporate Counsel (OGCC), which is the statutory legal counsel for GOCCs. Section 47 of
GSIS charter reads:

SEC. 47. Legal Counsel.—The Government Corporate Counsel shall be the legal adviser and consultant of
GSIS, but GSIS may assign to the Office of the Government Corporate Counsel (OGCC) cases for legal
action or trial, issues for legal opinions, preparation and review of contracts/agreements and others, as
GSIS may decide or determine from time to time: Provided, however, That the present legal services
group in GSIS shall serve as its in-house legal counsel.

The GSIS may, subject to approval by the proper court, deputize any personnel of the legal service group
to act as special sheriff in the enforcement of writs and processes issued by the court, quasi-judicial
agencies or administrative bodies in cases involving GSIS. 67

The designation of the OGCC as the legal counsel for GOCCs is set forth by statute, initially by Rep. Act
No. 3838, then reiterated by the Administrative Code of 1987. 68 Given that the designation is statutory
in nature, there is no impediment for Congress to impose a different role for the OGCC with respect to
particular GOCCs it may charter. Congress appears to have done so with respect to GSIS, designating the
OGCC as a "legal adviser and consultant," rather than as counsel to GSIS. Further, the law clearly vests
unto GSIS the discretion, rather than the duty, to assign cases to the OGCC for legal action, while
designating the present legal services group of GSIS as "in-house legal counsel." This situates GSIS
differently from the Land Bank of the Philippines, whose own in-house lawyers have persistently argued
before this Court to no avail on their alleged right

to file petitions before us instead of the OGCC. 69 Nothing in the Land Bank charter 70 vested it with the
discretion to choose when to assign

cases to the OGCC, notwithstanding the establishment of its own Legal Department. 71
Congress is not bound to retain the OGCC as the primary or exclusive legal counsel of GSIS even if it
performs such a role for other GOCCs. To bind Congress to perform in that manner would be akin to
elevating the OGCC’s statutory role to irrepealable status, and it is basic that Congress is barred from
passing irrepealable laws.72

C.

We close by acknowledging that the surrounding circumstances behind these petitions are unfortunate,
given the events as narrated in A.M. No. 08-8-11-CA. While due punishment has been meted on the
errant magistrates, the corporate world may very well be reminded that the members of the judiciary
are not to be viewed or treated as

mere pawns or puppets in the internecine fights businessmen and their associates wage against other
businessmen in the quest for corporate dominance. In the end, the petitions did afford this Court to
clarify consequential points of law, points rooted in principles which will endure long after the names of
the participants in these cases have been forgotten.

WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of capacity of the petitioner to bring
forth the suit.

The petition in G.R. No. 183905 is DISMISSED for lack of merit except that the second and third
paragraphs of the fallo of the assailed decision dated 23 July 2008 of the Court of Appeals, including
subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the second paragraph, are hereby DELETED.

No pronouncements as to costs.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 117108. November 5, 1997.]

DANIEL C. VILLANUEVA, Petitioner, v. COURT OF APPEALS, LAND REGISTRATION AUTHORITY and OO

KIAN TIOK, Respondents.

DECISION

PANGANIBAN, J.:

May the Register of Deeds refuse to register an application for a notice of lis pendens on the ground that
the applicant does not have any title or right of possession over the subject properties?cralawnad

The Case

Petitioner seeks reversal of the Decision 1 of Respondent Court of Appeals 2 promulgated on August 31,
1994 in CA-G.R. SP No. 34449, which answered the foregoing question in the
affirmative:jgc:chanrobles.com.ph

"In view of the foregoing, the Lis Pendens in question is not registrable since it seeks to affect property
not belonging to the defendant [petitioner herein], and the action of the Register of Deeds in denying
the registration of the same is hereby sustained." 3

The lis pendens sought to be registered is Civil Case No. 92-2358 pending before Branch 74 of the
Regional Trial Court of Antipolo, Rizal. 4

The Facts

The assailed Decision fairly narrates the facts as follows: 5

"Records show that TCT Nos. 262631; 273873 and 2777938 [sic] were issued in the name of Valiant
Realty and Development Corporation and Filipinas Textile Mills, Inc. and the same were mortgaged in
favor of Equitable Banking Corp. Upon failure of the mortgagors to comply with the terms and
conditions of the mortgage, the bank foreclosed the mortgaged properties [and] sold the same to the
Equitable Banking Corp. as the highest bidder at public auction sale. After the expiration of the
redemption period, mortgagors did not exercise the right of redemption and as a consequence thereof,
the mortgagee sold all its rights, interests and participation of said properties to the herein oppositor,
Oo Kian Tiok.chanroblesvirtual|awlibrary

Immediately after acquiring the rights, titles and interests of the bank in said properties, Oo Kian Tiok
took possession up to the present time, except for a brief period of time when his possession was
interrupted by the herein petitioner [who] together with armed goons, [and] without [any] court order
swooped down on the properties and disarmed the security guards assigned therein and forcibly
removed the 30 workers therefrom, which prompted Oo Kian Tiok to file Civil Case No. 92-2358 against
Filipinas Textile Mills, Inc., [and] Daniel Villanueva, Et. Al. for Recovery of Possession and Damages with
Prayers for Writ of Preliminary Mandatory Injunction and/or Temporary Order.

As a consequence, the herein petitioner, being one of the defendants of the above-mentioned case,
filed a formal request with the Office of the Register of Deeds to annotate a corresponding Notice of Lis
Pendens of Civil Case No. 92-2358 in the respective Memorandum of Encumbrances of TCT Nos. 262631;
273873 and 277938 but the same was denied registration based on the following grounds, to
wit:chanrob1es virtual 1aw library

‘. . . that Mr. Villanueva is merely asserting possession of the property not on the title or right over the
property. While it appears that Mr. Villanueva is an officer of the owner-corporation, Filipinas Textile
Mills, Inc., the latter is no longer the owner thereof but plaintiff Oo Tian [sic] Tiok. Moreover, no Board
Resolution has been submitted indicating that said Villanueva has been duly authorized by the former
owner to file the notice of lis pendens’.

Hence, the petitioner elevated the matter on consulta [to Respondent Land Registration Authority]
pursuant to Section 117 of P.D. 1529 on the grounds that the herein petitioner, together with his sister
Terry Villanueva-Yap, Eden Villanueva, Susan Villanueva and his brother Frank Villanueva are the lawful
owners of the 63% of the beneficial shares of Filipinas Textile Mills, Inc. and are not merely asserting
possession but also ownership over the subject properties contrary to the conclusion submitted by the
Register of Deeds. (Resolution, pp. 1-2)"

The consulta was decided against petitioner by Respondent Land Registration Authority and later, on
appeal, by Respondent Court. Hence, this petition for review under Rule 45 of the Rules of Court. 6

The Issues

Petitioner assigns the following errors to Respondent Court: 7

"A. Not appreciating petitioner’s compliance with all the requirements set forth under the Land
Registration Act and the Rules of Court;

B. Not finding that the petitioner duly raised the affirmative defense of ownership over the properties
subject of Civil Case No. 92-2358;

C. Not finding that the Respondent Land Registration Authority erred in assuming jurisdiction to
determine the issue of ownership over the properties subject of civil case no. 92-2358;

D. In affirming the resolution of the Respondent Land Registration Authority in Consulta No.
2131."cralaw virtua1aw library

The Solicitor General, as counsel for Respondent Land Registration Authority, summarizes the issue: 8

"Whether or not the notice of lis pendens requested by petitioner to be annotated in the respective
memorandum of encumbrances at the back of TCT Nos. 262631, 273873 and 277938 is
registrable."cralaw virtua1aw library

Stated simply, the issue is whether petitioner’s application for registration of the notice of lis pendens
should be rejected on the ground that it affects a property which does not belong to him personally, but
is merely claimed by a corporation, the majority (63%) of which is owned by him and his brothers and
sisters.

Respondent Court’s Ruling

In dismissing petitioner’s appeal, Respondent Court ruled: 9

"Even if the petitioner were able to comply with all the requirements (referring to the formalities) for
the annotation of a notice of lis pendens, it does not necessarily follow that he would ipso facto be
entitled to such annotation. There is need for him to show that he owns the subject property or that he
has right or interest vis-a-vis its possession. The mere possession of a property does not give rise to the
right to annotate. Without such title or interest, whence would his right to annotate come from?

The petitioner contends that the determination of registrability of a notice of lis pendens is ministerial as
far as the Register of Deeds is concerned. On the basis of the evidence on record, this is exactly what the
Register of Deeds of Rizal did — he refused to annotate because it clearly appears from the documents
submitted (specifically, T.C.T. Nos. 262631, 273873 and 277938) that the subject parcels of land are
registered not in the name of Villanueva but in the name of Valiant Realty and Development
Corporation and co-defendant Filipinas Textile Mills, Inc. The Register of Deeds did not attempt to go
beyond what clearly appears in the aforementioned Transfer Certificates of Title. He did not attempt, as
the petitioner would imply, to inquire into and try to resolve conflicting allegations of the claimants of
the aforesaid property.

The Land Registration Authority in its assailed resolution had aptly pointed out that petitioner Villanueva
had not produced a board resolution of Filipinas Textile Mills, Inc. authorizing him to take possession of
the litigated property. Hence, although it may be conceded that Villanueva is in possession thereof, it
would appear that his possession is illegal which would not result in vesting in him any right or interest
over the above-cited property. As far as the said property is concerned, Villanueva is a third person, a
stranger. There could be no dispute as to the fact that Filipinas Textile Mills, Inc. (in the name of which
the contested parcels of land are registered) and Villanueva are, before the law, two separate and
distinct persons. Indubitably Villanueva is not Filipinas Textiles Mills, Inc."cralaw virtua1aw library

The Court’s Ruling

The petition is meritorious.

Sole Issue: Registration of Lis Pendens

Who May Register Notice of Lis Pendens?

Petitioner contends that a notice of lis pendens may be filed in relation to actions "affecting the title to
or possession of real property." In the instant petition, defendants in Civil Case No. 92-2358, among
whom is petitioner, "repeatedly and emphatically" allege that it is Filipinas Textile Mills, Inc. (FTMI), of
which petitioner is a stockholder, which owns the properties in question. Thus, an affirmative relief of
ownership is prayed for in the answer which sanctions registration of the notice of lis pendens. 10

Private Respondent Oo Kian Tiok counters 11 that the errors and arguments raised in the petition at bar
are "mere repetitions of those already discussed in [the] petition for review" submitted before
Respondent Court, "which the latter had already considered, weighed and resolved adversely to the
herein petitioner." 12

The Solicitor General, on the other hand, asserts: 13

"Based on the incontrovertible facts, the notice of lis pendens requested by petitioner to be annotated
on the back of the aforesaid certificates of title is not registrable, because the registration will affect the
property obviously not belonging to petitioner, who is one of the defendants in Civil Case No. 92-2358
filed before the Regional Trial Court of Antipolo, Branch 74. It has been consistently held by public
respondent LRA, as in Consulta No. 430, Pedro del Rosario, petitioner versus the Register of Deeds of
Quezon City, respondent, and in Consulta No. 146, the Register of Deeds of Sorsogon, Petitioner, that a
notice of lis pendens is not registrable if it seeks to affect property not belonging to the
defendant." chanroblesvirtualawlibrary

The notice of lis pendens is an announcement to the whole world that a particular real property is in
litigation, and serves as a warning that one who acquires an interest over said property does so at his
own risk, or that he gambles on the result of the litigation over said property. 14 The registration of a
notice of lis pendens is governed by Section 24, Rule 14 of the Rules of Court: 15

"Sec. 24. Notice of lis pendens. — In an action affecting the title or the right of possession of real
property, the plaintiff, at the time of filing the complaint, and the defendant, at the time of filing his
answer, when affirmative relief is claimed in such answer, or at any time afterwards, may record in the
office of the registrar of deeds of province in which the property is situated a notice of the pendency of
the action, containing the names of the parties and the object of the action or defense, and a
description of the property in that province affected thereby. From the time only of filing such notice for
record shall a purchaser, or incumbrancer of the property affected thereby, be deemed to have
constructive notice of the pendency of the action, and only of its pendency against parties designated by
their real names.

The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after
proper showing that the notice is for the purpose of molesting the adverse party, or that it is not
necessary to protect the rights of the party who caused it to be recorded."cralaw virtua1aw library

In Magdalena Homeowners Association, Inc. v. Court of Appeals, 16 this Court enumerated the cases
where a notice of lis pendens is proper:jgc:chanrobles.com.ph

"According to Section 24, Rule 14 of the Rules of Court and Section 76 of Presidential Decree No. 1529, a
notice of lis pendens is proper in the following cases, viz.:chanrob1es virtual 1aw library

a) An action to recover possession of real estate;

b) An action to quiet title thereto;

c) An action to remove clouds thereon;

d) An action for partition; and

e) Any other proceedings of any kind in Court directly affecting the title to the land or the use or
occupation thereof or the buildings thereon.

The notice of lis pendens — i.e., that real property is involved in an action — is ordinarily recorded
without the intervention of the court where the action is pending. The notice is but an incident in an
action, an extrajudicial one, to be sure. It does not affect the merits thereof. It is intended merely to
constructively advise, or warn, all people who deal with the property that they so deal with it at their
own risk, and whatever rights they may acquire in the property in any voluntary action transaction are
subject to the results of the action, and may well be inferior and subordinate to those which may finally
be determined and laid down therein. The cancellation of such a precautionary notice is therefore also a
mere incident in the action, and may be ordered by the Court having jurisdiction of it at any given time.
And its continuance or removal — like the continuance or removal of a preliminary attachment or
injunction — is not contingent on the existence of a final judgment in the action, and ordinarily has no
effect on the merits thereof." chanrobles virtual lawlibrary

To annotate a notice of lis pendens, the following elements must be present: (a) the property must be of
such character as to be subject to the rule; (b) the court must have jurisdiction both over the person and
the res; and (c) the property or res involved must be sufficiently described in the pleadings. 17

Only the first requisite is at issue in this case; the second and the third requisites are not. In explaining
the first requirement, former Senator Vicente J. Francisco wrote: 18

". . . to all suits or actions which directly affect real property and not only those which involve the
question of title, but also those which are brought to establish an equitable estate, interest, or right, in
specific real property or to enforce any lien, charge, or encumbrance against it, there being in some
cases a lis pendens, although at the commencement of the suit there is no present vested interest,
claim, or lien in or on the property which it seeks to charge. It has also been held to apply in the case of
a proceeding to declare an absolute deed a mortgage, or to redeem from a foreclosure sale, or to
establish a trust, or to suits for the settlement and adjustment of partnership interests. [ fn: 54 C.J.S.,
577-578]

It is not sufficient that the title or right of possession may be incidentally affected. Thus a proceeding to
forfeit the charter of a corporation does not deprive it of the power to dispose of its property, nor does
it place such property within the rule of lis pendens, so that purchasers thereof may lose the property or
right to the possession through the appointment of a receiver. [ fn: Havemeyer v. Superior Court, 84 Cal.
327, 18 Am. St. Rep. 192, 24 Pac. 121, 10 L.R.A. 627 . . .]

In order that the doctrine of lis pendens may apply, so that purchaser of property may be bound by the
judgment or decree rendered, it is essential that there be in existence a pending action, suit or
proceeding, and there can be no lis pendens because of the fact that an action or suit is contemplated.
[ fn: 54 C.J.S., 583]"

Civil Case No. 92-2358, which petitioner sought to annotate, is an action for "recovery of possession and
damages with prayer for writ of preliminary mandatory injunction and/or temporary restraining order."
That civil case is an accion publiciana or a plenary action in an ordinary civil proceeding to determine the
better and legal right to possess (independently of title). 19 What private respondent sought to recover
was not just possession de facto but possession de jure. 20 On the other hand, the defendants in Civil
Case No. 92-2358 alleged in their answer that there was fraud committed among Bernardino Villanueva,
Equitable Banking Corporation and Respondent Oo Kian Tiok, such that the real estate mortgage was
invalid. Hence, the subsequent auction of the mortgaged property transferred "no right, title and
interest whatsoever" to Equitable Bank as the highest bidder and thence to private respondent as buyer.
In effect, the defendants in the civil case directly opposed the recovery of possession prayed for by the
plaintiff and in fact challenged the very validity of the title of private Respondent. Both contentions of
the parties thus directly put the properties under the coverage of the rule, thereby sufficiently satisfying
the first requisite and placing the case squarely within the parameters set by Magdalena. 21

In our jurisdiction, the following may file a notice of lis pendens: 22

"(a) The plaintiff — at the time of filing the complaint.chanrobles.com:cralaw:red

(b) The defendant —

1) at the time of filing his answer (when affirmative relief is claimed in such answer)

2) or at any time afterwards (See Sec. 24, Rule 14)"

Petitioner is one of the defendants in Civil Case No. 92-2358. 23 Now, is it necessary for him to prove to
the Register of Deeds that the properties to which he seeks annotation of the notice of lis pendens
belong to him as required by Respondent Court? We do not believe so. The law does not require such
proof from the defendant. We cannot find any valid reason why we should add to the requirements set
in the Rules. The settled doctrine in statutory construction is that legal intent is determined principally
from the language of the statute. Where the language of a statute is clear and unambiguous, the law is
applied according to its express terms, and interpretation would be resorted to only where a literal
interpretation would be either impossible or absurd or would lead to an injustice. 24

We stress that although it is not necessary for the applicant to prove his ownership or interest over the
property sought to be affected by lis pendens, the applicant must, in the complaint or answer filed in the
subject litigation, assert a claim of possession or title over the subject property in order to give due
course to his application. As settled, lis pendens may be annotated only where there is an action or
proceeding in court which affects the title to, or possession of real property.25cralaw:red

Be it remembered that a notation of lis pendens does not create a nonexistent right or lien. It serves
merely as a warning to a person who purchases or contracts on the subject property that he does so at
his peril and subject to the result of the pending litigation. 26 The registration of the notice of lis
pendens is done without leave of court. The Rule merely requires an affirmative relief to be claimed in
the answer to enable a defendant to apply for the annotation of the notice. 27 There is no requirement
that the applying defendant must prove his right or interest over the property sought to be annotated.
In deciding the issue of whether the application by petitioner is registerable, Respondent Court
concluded: "it would appear that his possession is illegal which would not result in vesting in him any
right or interest over the above-cited properties." 28 This conclusion of Respondent Court was
premature, as it preempted the trial on the merits of the main case sought to be registered.

On the other hand, an affirmative relief or defense is an allegation of a new matter which, while
admitting, expressly or impliedly, the material allegations of the complaint would nevertheless prevent
or bar recovery by the plaintiff. Affirmative defenses include fraud, statute of limitations, release,
payment, illegality, statute of frauds, estoppel, former recovery, discharge in bankruptcy, and other
matters alleged by way of confession and avoidance. 29 An affirmative defense may be an allegation of
new matters — that is, facts different from those averred by the plaintiff which, if true, destroys or
negates the plaintiff’s right of action. An affirmative defense admits the facts alleged by the plaintiff, or
at least those not necessarily denied by the interposition of the affirmative defense itself. Even though
an affirmative defense contains allegations inconsistent with those of the complaint, the latter must, in
the absence of denials, nevertheless be taken as admitted in the defense. 30 In the case at bar, the
defendants in Civil Case No. 92-2358 insist that fraud attended the agreement among Bernardino
Villanueva, Equitable Banking Corporation and Respondent Oo Kian Tiok. Such fraud, if proven true, will
defeat or bar the claim of said respondent and benefit the defendants.

Petitioner in this case was impleaded by private respondent as one of the defendants in the trial court;
thus, he falls under the definition of the Rules as a party claiming affirmative relief. His status as a mere
stockholder can no longer be questioned in this case, much less his capacity to sue on the mere pretext
that he was not authorized by the corporation to litigate on its behalf. We emphasize that the issue at
bar is the right to annotate the pendency of Civil Case No. 92-2358, not the legal standing of petitioner
to represent the corporation in the said case.

Wary that the properties which were mortgaged and auctioned would be dissipated and/or passed to
innocent purchasers for value, petitioner initiated the move to annotate the lis pendens to protect the
corporation’s right. He correctly acted, considering that there was, as alleged by private respondent, an
intra-corporate controversy which effectively barred a common action by the management of the
corporation. 31

In any event, a reading of the allegations in the answer will readily show that defendants (herein
petitioner included) were not merely asserting a right of possession over the disputed properties.
Rather, they were insisting on their ownership over the said real estate, claiming that plaintiff (herein
private respondent) was "not entitled at all to their possession, because he did not have any right, title
or interest whatsoever over them." 32 The following allegations in the answer illustrate the claim of
petitioner for affirmative relief: 33

"Answering Defendants, for the reasons and facts stated herein and in their Affirmative Allegations and
Affirmative Defenses, specifically deny the following allegations in the original Complaint dated 08 May
1992:chanrob1es virtual 1aw library

x       x       x
3.3.1. The compound located on Amang E. Rodriguez Avenue, Barangay San Roque, Cainta, Rizal is
owned by plaintiff, the truth being that such compound is owned by defendant FTMI being covered by
the titles of the Subject Properties which are registered in the name of defendant FTMI;

x       x       x

3.3.4. The compound located on Amang E. Rodriguez Avenue, Barangay San Roque, Cainta, Rizal was
being unlawfully occupied by defendants Daniel Villanueva, Terry Villanueva-Yu, Susan Villanueva, Eden
Villanueva, Frankie Villanueva, Artemio Tuquero, Mel P. Dimat and Bienvenido Bulaong, the truth being
that the occupation of the compound by said defendants was lawful because they are duly elected and
authorized directors, officers and/or representatives of defendant FTMI which is the registered owner
thereof;

3.4 Paragraph 5, insofar as it is alleged that:chanrob1es virtual 1aw library

3.4.1. Plaintiff is the lawful owner of three (3) parcels of land together with the properties and
improvements that may be found therein, situated in Barangay San Roque, Cainta, Rizal, the truth being
that plaintiff has no right, title and interest whatsoever in the said properties; and

3.4.2. The Certification dated 06 April 1992 of Mr. Vicente A. Garcia, Register of Deeds of Pasig, attached
as Annex ‘B’ to the Complaint proves that plaintiff Oo Kian Tiok purchased the rights and interests over
the titles of defendant FTMI from EBC, the truth being that such a Certification merely shows that
defendant Bernardino Villanueva connived and colluded with EBC and plaintiff whereby the Subject
Properties were illegally mortgaged, and then sold at public auction auction [sic] in favor of EBC, and
thereafter allegedly purchased by Oo Kian Tiok through a Redemption Contract;

3.5 Paragraph 6, in so far as it is made to appear that defendant FTMI is the former-owner of the three
(3) lots covered by T.C.T. Nos. 262631, 273873, and 277938 of the Registry of Deeds for the Province of
Rizal, the truth being that defendant FTMI remains as the registered owner of the aforementioned three
(3) lots;

3.6 Paragraph 7, insofar as it is alleged, that:chanrob1es virtual 1aw library

3.6.1. Defendant FTMI obtained a loan of Twenty Five Million Pesos (P25,000,000.00) from EBC, the
truth being that the loan purportedly obtained by defendant Bernardino Villanueva ostensibly on behalf
of defendant FTMI was not duly authorized by defendant FTMI’s board of directors, and thus not binding
upon defendant FTMI;

3.6.2. Defendant FTMI mortgaged the Subject Properties, with all the buildings, improvements,
machineries and equipment thereon, to EBC on 14 July 1982, the truth being that the alleged mortgage
was never authorized by defendant FTMI’s board of directors and therefore, not binding upon
defendant FTMI;

x       x       x
3.8 Paragraph 10, insofar as it is stated that defendant FTMI had one (1) year from 01 August 1988, or
until 01 August 1989, to redeem the Subject Properties, the truth being that since the Subject Properties
were never validly mortgaged nor foreclosed, there was, in reality, no period within which to redeem
the Subject Properties.chanrobles virtual lawlibrary

x       x       x

3.12. Paragraph 15, insofar as it is made to appear that:chanrob1es virtual 1aw library

3.12.1. The action taken on 04 April 1992 is merely an offshoot of an intra-corporate controversy
between the owners and stockholders of defendant FTMI, the truth being that the action taken on 04
April 1992 was a valid exercise by defendant FTMI and/or its authorized representatives of its power of
administration over its own properties;

3.12.2. Plaintiff is an innocent bystander and is allegedly being helplessly dragged into the controversy,
the truth being that plaintiff is conniving and colluding with defendant Bernardino Villanueva in order to
wrest ownership and possession of the Subject Properties from its registered owner, defendant FTMI, in
order to favor defendant Bernardino Villanueva;"

To require that an applicant must prove his ownership or his interest over the property sought to be
affected with the notice of lis pendens will unduly restrict the scope of the rule. In such case, a party
questioning the ownership of the registered owner will litigate his or her case without an assurance that
the property will be protected from unwanted alienation during the pendency of the action, thereby
defeating the very purpose and rationale of the registration.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. The
Land Registration Authority is hereby ORDERED to annotate the application for a notice of lis pendens in
TCT Nos. 262631, 273873 and 277938. No costs.chanrobles lawlibrary : rednad

SO ORDERED.
 SECOND DIVISION

G.R. No. 133749            August 23, 2001

HERNANDO R. PEÑALOSA alias "HENRY PEÑALOSA," petitioner,

vs.
SEVERINO C. SANTOS (deceased), Substituted by his heirs: OLIVER SANTOS and ADYLL M. SANTOS, and
ADELA DURAN MENDEZ SANTOS, respondents.

QUISUMBING, J.:

Petitioner appeals by certiorari from the decision of the Court of Appeals, which affirmed the judgment
of the Regional Trial Court of Quezon City, Branch 78, in Civil Case No. Q-92-13531, declaring the deed of
absolute sale entered into between petitioner and respondents as void and inexistent and ordering
petitioner to vacate the subject property and to pay reasonable compensation for its use.

The facts, as revealed by the records, are as follows:

Respondents Severino C. Santos (deceased) and Adela Mendez Santos are registered owners of a
residential house and lot located at No. 113 Scout Rallos Street, Quezon City under TCT No. PT-23458
(54434).1 In 1988, Severino and Adela decided to sell their property and for this purpose, negotiated
with petitioner Hernando (or Henry) Peñalosa. The property was then occupied by a lessee, Eleuterio
Perez, who was given preference to buy it under the same terms offered by the buyer. 2 Perez proposed
less favorable terms3 and expectedly, Severino rejected his offer.

On August 1, 1988, petitioner Henry Peñalosa and respondent Severino Santos attempted to enter into
an agreement whereby the latter, for a consideration of P1,800.000.00, would sell to the former the
property subject of the instant case. The deed of absolute sale 4 (first deed) evidencing this transaction
was signed by Henry but not by Severino, because according to the latter, Henry "took time to decide"
on the matter.5

On August 15, 1988, Henry signed a document 6 stating that the first deed was executed between him
and Severino, for the sole purpose of helping the latter eject Perez, the occupant of the property. Henry
acknowledged in said document that although Severino had agreed to sell the property to him, he had
not paid the consideration stated in the first deed.
Thereafter, Henry and Severino executed another deed of absolute sale 7 (second deed) for a higher
consideration of P2,000,000.00. Although the second deed was originally dated "August 1988",
superimposed upon the same was the date "September 12, 1988". This second deed was signed by both
parties and duly notarized. It states that Severino sells and transfers the house and lot to Henry, who
had paid the full price of P2,000,000.00 therefor.

Severino explained that his initial asking price for the property was only P1,800,000.00 as shown in the
first deed. But he later asked for a higher price because Henry could not give the money as soon as
expected. However, Severino claimed that he made it clear to Henry that he agreed to sell the property
under the second deed for P2,000,000.00, provided that payment be immediately effected. Severino
said that he wanted to use the money to invest in another property located in Alabang and told Henry
that if payment was made at a later date, the price would be the current market value at the time of
payment.

Henry then gave Severino P300,000.00 as "earnest money", purportedly with the understanding that the
former was to pay the balance within 60 days. Otherwise, said amount would be forfeited in favor of
Severino.8 The latter also maintained that he signed the second deed only for the purpose of facilitating
Henry's acquisition of a bank loan to finance payment of the balance of the purchase price 9 and added
that execution of the second deed was necessary to enable Henry to file a court action for ejectment of
the tenant.10

After execution of the second deed, Henry filed a loan application with the Philippine American Life
Insurance Company (Philam Life) for the amount of P2,500,000.00. 11 According to Henry, he had agreed
with Severino during the signing of the second deed, that the balance of P1,700,000.00 would be paid by
means of a loan, with the property itself given as collateral. 12

Meanwhile, on the strength of the first deed and as new "owner" of the property, Henry wrote a
letter13 dated August 8, 1988 to the lessee, Eleuterio Perez, demanding that the latter vacate the
premises within 10 days. Failing in this effort, Henry brought a complaint for ejectment 14 against Perez
before the Office of the Barangay Captain.

On September 1, 1988, a Certification To File Action 15 was issued by the barangay lupon. This led to the
subsequent filing of Civil Case No. 88 0439 for unlawful detainer, before the Metropolitan Trial Court of
Quezon City, Branch 43, entitled "Henry Peñalosa, Plaintiff vs. Eleuterio Perez, Defendant". Claiming that
he still had a subsisting contract of lease over the property, Perez countersued and brought Civil Case
No. Q-88-1062 before the Regional Trial Court of Quezon City, Branch 96, entitled "Eleuterio Perez,
Plaintiffs vs. Severino Santos, et. al, Defendants". In this latter case, Perez assailed the validity of the sale
transaction between Henry and Severino and impleaded the former as co-defendant of Severino.

While the aforesaid court cases were pending resolution, Philam Life informed Severino through a
letter,16 that Henry's loan application had been approved by the company on January 18, 1989. Philam
Life stated in the letter that of the total purchase price of P2,500,000.00, the amount of P1,700,000.00
would be paid directly to Severino by Philam Life, while P800,000.00 would be paid by Henry.

The release of the loan proceeds was made subject to the submission of certain documents in Severino's
possession, one of which is the owner's duplicate of the Transfer Certificate of Title (TCT) pertaining to
the property. However, when Henry and Severino met with officials of Philam Life to finalize the
loan/mortgage contract, Severino refused to surrender the owner's duplicate title and insisted on being
paid immediately in cash.17 As a consequence, the loan/mortgage contract with Philam Life did not
materialize.

Subsequently, on April 28, 1989, judgment 18 was rendered by the MTC-QC, Branch 43, in Civil Case No.
0439, ordering the tenant Perez to vacate and surrender possession of the property to Henry. In said
judgment, Henry was explicitly recognized as the new owner of the property by virtue of the contract of
sale dated September 12, 1988, after full payment of the purchase price of P2,000,000.00, receipt of
which was duly acknowledged by Severino.

Upon finality of said judgment, Henry and his family moved into the disputed house and lot on August
1989, after making repairs and improvements. 19 Henry spent a total of P700,000.00 for the renovation,
as evidenced by receipts.20

On July 27, 1992, Severino sent a letter21 to Henry, through counsel, demanding that Henry vacate the
house and lot, on the ground that Henry did not conclusively offer nor tender a price certain for the
purchase of the property. The letter also stated that Henry's alleged offer and promise to buy the
property has since been rejected by Severino.

When Henry refused to vacate the property, Severino brought this action for quieting of title, recovery
of possession and damages before the Regional Trial Court of Quezon City, Branch 78, on September 28,
1992. Severino alleged in his complaint22 that there was a cloud over the title to the property, brought
about by the existence of the second deed of sale.

Essentially, Severino averred that the second deed was void and inexistent because: a) there was no
cause or consideration therefor, since he did not receive the P2,000,000.00 stated in the deed; b) his
wife, Adela, in whose name the property was titled, did not consent to the sale nor sign the deed; c) the
deed was not registered with the Register of Deeds; d) he did not acknowledge the deed personally
before the notary public; e) his residence certificate, as appearing in the deed, was falsified; and f) the
deed is fictitious and simulated because it was executed only for the purpose of placing Henry in
possession of the property because he tendered "earnest money". Severino also claimed that there was
no meeting of minds with respect to the cause or consideration, since Henry's varied offers of
P1,800,000.00, P2,000,000.00, and P2,500,000.00, were all rejected by him.

For his part, Henry asserted that he was already the owner of the property being claimed by Severino,
by virtue of a final agreement reached with the latter. Contrary to Severino's claim, the price of the
property was pegged at P2,000,000.00, as agreed upon by the parties under the second deed. Prior to
the filing of the action, his possession of the property remained undisturbed for three (3) years.
Nevertheless, he admitted that since the signing of the second deed, he has not paid Severino the
balance of the purchase price. He, however, faulted the latter for the non-payment, since according to
him, Severino refused to deliver the owner's duplicate title to the financing company.

On Aug. 20, 1993, the trial court rendered judgment in favor of Severino and disposed:

WHEREFORE, judgment is rendered as follows:

 1) DECLARING the "Deed of Absolute Sale" which was signed by the plaintiff Severino C. Santos
as vendor and the defendant as vendee and which was entered in the notarial register of notary
public Dionilo Marfil of Quezon City as Doc. No. 474, Page No. 95, Book No. 173, Series of 1988,
as inexistent and void from the beginning; and consequently, plaintiff's title to the property
under T.C.T. No. PT-23458 (54434) issued by the Register of Deeds of Quezon City is quieted,
sustained and maintained;

2) ORDERING the defendant to pay plaintiffs the amount of P15, 000.00 a month as reasonable
compensation for the use of the House and Lot located at No. 113 Scout Rallos St., Quezon City,
beginning on the month of August, 1993, until the premises is fully vacated, (the compensation
for the use thereof from the time the defendant had occupied the premises up to July, 1993, is
recompensed for the repairs made by him); and

3) ORDERING the plaintiffs to reimburse the defendant the amount of P300,000.00 after
defendant had vacated the premises in question, and the reasonable compensation for the use
thereof had been paid.

All other claims and counterclaims are DENIED for lack of legal and factual bases. No
pronouncement as to costs.

SO ORDERED.23

Both Henry and Severino appealed the above decision to the Court of Appeals. Before the appellate
court could decide the same, Severino passed away and was substituted by his wife and children as
respondents. Henry filed a motion for leave to be allowed to deposit P1,700,000.00 in escrow with the
Landbank of the Philippines to answer for the money portion of the decision. 24 This motion was granted.

On December 29, 1997, the appellate court affirmed 25 the judgment of the trial court and thereafter,
denied Henry's motion for reconsideration.26 Thus, Henry brought this petition, citing the following as
alleged errors:

I.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE BETWEEN SEVERINO C. SANTOS AND PETITIONER HENRY R. PEÑALOSA.

II.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONSIDERING NON-PAYMENT OF THE FULL
PURCHASE PRICE AS CAUSE FOR DECLARING A PERFECTED CONTRACT OF SALE AS NULL AND VOID.

III.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN REFUSING TO RECOGNIZE THAT

OWNERSHIP OF THE SUBJECT PROPERTY HAD BEEN EFFECTIVELY VESTED UPON PETITIONER HENRY R.
PEÑALOSA WHEN ACTUAL POSSESSION THEREOF HAD LAWFULLY TRANSFERRED TO PETITIONER HENRY
R. PEÑALOSA BY VIRTUE OF THE COURT JUDGMENT IN THE EJECTMENT SUIT AGAINST THE FORMER
LESSEE.27

The pivotal issue presented before us is whether or not the second deed is valid and constitutes
evidence of the final agreement between the parties regarding the sale transaction entered into by
them.

Petitioner maintains that the existence of a perfected contract of sale in this case is beyond doubt, since
there clearly was a meeting of minds between the parties as to the object and consideration of the
contract. According to petitioner, the agreement of the parties is evidenced by provisions contained in
the second deed, which cannot possibly be simulated or fictitious. Subsequent and contemporaneous
acts indubitably point to the fact that the parties truly intended to be bound by the second deed.
Accordingly, the P2,000,000.00 stated therein was the actual price agreed upon by the parties as
consideration for the sale.

On the other hand, in their memorandum, respondents insist that the second deed is a complete nullity
because, as found by both the appellate and trial court: a) the consideration stated in the deed was not
paid; b) Severino's passport showed that he was in the U.S. when said deed was notarized; c) Severino
did not surrender a copy of the title at the time of the alleged sale; d) petitioner did not pay real estate
taxes on the property; e) it was executed only for the purpose of helping Severino eject the tenant; f)
Severino's wife, Adela, did not sign the deed; and g) the various documentary exhibits proved that there
was no price certain accepted or paid.

Respondents additionally argue that petitioner merely seeks a review of the aforesaid factual findings of
the lower court and that consequently, we should deny the petition on the ground that it raises only
factual questions.

Considering the pivotal issue presented after close scrutiny of the assigned errors as well as the
arguments of the parties, we are unable to agree with respondents and we must give due course to the
petition.

First of all, the petition filed before this Court explicitly questions "the legal significance and
consequences of the established facts"28 and not the findings of fact themselves. As pointed out by
petitioner, he submits to the factual findings of the lower court, but maintains that its legal conclusions
are irreconcilable and inconsistent therewith. He also states that the grounds relied upon in this petition
do not call for the weighing of conflicting evidence submitted by the parties. Rather, he merely asks the
Court to give due significance to certain undisputed and admitted facts spread throughout the record,
which, if properly appreciated, would justify a different conclusion.

At any rate, in Baricuatro, Jr. vs. Court of Appeals, 325 SCRA 137, 145 (2000), we reiterated the doctrine
that findings of fact of the Court of Appeals are binding and conclusive upon this Court, subject to
certain exceptions, one of which is when the judgment is based on a misapprehension of facts. In this
case, after carefully poring over the records, we are convinced that the lower courts misappreciated the
evidence presented by the parties and that, indeed, a reversal of the assailed judgment is in order.

It should have been readily apparent to the trial court that the circumstances it cited in its decision are
not proper grounds for holding that the second deed is simulated. Simulation is a declaration of a
fictitious will, deliberately made by agreement of the parties, in order to produce, for purposes of
deception, the appearance of a juridical act which does not exist or is different from that which was
really executed. Its requisites are: a) an outward declaration of will different from the will of the parties;
b) the false appearance must have been intended by mutual agreement; and c) the purpose is to
deceive third persons.29 None of these requisites is present in this case.

The basic characteristic of an absolutely simulated or fictitious contract is that the apparent contract is
not really desired or intended to produce legal effects or alter the juridical situation of the parties in any
way.30 However, in this case, the parties already undertook certain acts which were directed towards
fulfillment of their respective covenants under the second deed, indicating that they intended to give
effect to their agreement.

In particular, as early as August 8, 1988, after execution of the first deed, Severino authorized petitioner
to bring an action for ejectment against the overstaying tenant and allowed petitioner to pursue the
ejectment case to its final conclusion, presumably to secure possession of the property in petitioner's
favor. Petitioner also applied for a loan, which was approved by Philam Life, to complete payment of the
stipulated price. After making extensive repairs with the knowledge of Severino, petitioner moved into
the premises and actually occupied the same for three years before this action was brought. Moreover,
simultaneous with the execution of the second deed, petitioner gave Severino P300,000.00 in earnest
money, which under Article 148231 of the New Civil Code, is part of the purchase price and proof of
perfection of the contract.

What may have led the lower courts into incorrectly believing that the second deed was simulated is
Exhibit D — a document in which petitioner declared that the deed was executed only for the purpose
of helping Severino eject the tenant. However, a perusal of this document reveals that it made reference
to the first deed and not the second deed, which was executed only after Exhibit D. So that while the
first deed was qualified by stipulations contained in Exhibit D, the same cannot be said of the second
deed which was signed by both parties.

Further, the fact that Severino executed the two deeds in question, primarily so that petitioner could
eject the tenant and enter into a loan/mortgage contract with Philam Life, is to our mind, a strong
indication that he intended to transfer ownership of the property to petitioner. For why else would he
authorize the latter to sue the tenant for ejectment under a claim of ownership, if he truly did not
intend to sell the property to petitioner in the first place? Needless to state, it does not make sense for
Severino to allow petitioner to pursue the ejectment case, in petitioner's own name, with petitioner
arguing that he had bought the property from Severino and thus entitled to possession thereof, if
petitioner did not have any right to the property.

Also worth noting is the fact that in the case filed by Severino's tenant against Severino and petitioner in
1989, assailing the validity of the sale made to petitioner, Severino explicitly asserted in his sworn
answer to the complaint that the sale was a legitimate transaction. He further alleged that the
ejectment case filed by petitioner against the tenant was a legitimate action by an owner against one
who refuses to turn over possession of his property. 32

Our attention is also drawn to the fact that the genuineness and due execution of the second deed was
not denied by Severino. Except to allege that he was not physically present when the second deed was
notarized before the notary public, Severino did not assail the truth of its contents nor deny that he ever
signed the same. As a matter of fact, he even admitted that he affixed his signature on the second deed
to help petitioner acquire a loan. This can only signify that he consented to the manner proposed by
petitioner for payment of the balance and that he accepted the stipulated price of P2,000,000.00 as
consideration for the sale.

Since the genuineness and due execution of the second deed was not seriously put in issue, it should be
upheld as the best evidence of the intent and true agreement of the parties. Oral testimony, depending
as it does exclusively on human memory, is not as reliable as written or documentary evidence. 33

It should be emphasized that the non-appearance of the parties before the notary public who notarized
the deed does not necessarily nullify nor render the parties' transaction void ab initio. We have held
previously that the provision of Article 1358 34 of the New Civil Code on the necessity of a public
document is only for convenience, not for validity or enforceability. Failure to follow the proper form
does not invalidate a contract. Where a contract is not in the form prescribed by law, the parties can
merely compel each other to observe that form, once the contract has been perfected. 35 This is
consistent with the basic principle that contracts are obligatory in whatever form they may have been
entered into, provided all essential requisites are present. 36

The elements of a valid contract of sale under Art. 1458 of the Civil Code are: (1) consent or meeting of
the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. 37 In the
instant case, the second deed reflects the presence of all these elements and as such, there is already a
perfected contract of sale.

Respondent's contention that the second deed was correctly nullified by the lower court because
Severino's wife, Adela, in whose name the property was titled, did not sign the same, is unavailing. The
records are replete with admissions made by Adela that she had agreed with her husband to sell the
property38 which is conjugal in nature39 and that she was aware of this particular transaction with
petitioner. She also said that it was Severino who actually administered their properties with her
consent, because she did not consider this as her responsibility. 40

We also observe that Severino's testimony in court contained (1) admissions that he indeed agreed to
sell the property and (2) references to petitioner's failure to pay the purchase price. 41 He did not
mention that he did not intend at all to sell the property to petitioner and instead, stressed the fact that
the purchase price had not yet been paid. Why would Severino stress non-payment if there was no sale
at all?

However, it is well-settled that non-payment of the purchase price is not among the instances where the
law declares a contract to be null and void. It should be pointed out that the second deed specifically
provides:

That for and in consideration of' the sum of TWO MILLION PESOS (P2,000,000.00), Philippine
Currency paid in full by HENRY R. PEÑALOSA, receipt of which is hereby acknowledged by me to
my full satisfaction, I hereby by these presents, sells (sic), cede, convey and otherwise dispose of
the above described parcel of land, unto HENRY R. PEÑALOSA, his heirs, successors and assigns,
free from all liens and encumbrances.

xxx           xxx           xxx

 (SGD.)

SEVERINO C. SANTOS
            VENDOR

xxx           xxx           xxx42

As can be seen from above, the contract in this case is absolute in nature and is devoid of
any proviso that title to the property is reserved in the seller until full payment of the purchase price.
Neither does the second deed give Severino a unilateral right to resolve the contract the moment the
buyer fails to pay within a fixed period. 43 At most, the non-payment of the contract price merely results
in a breach of contract for non-performance and warrants an action for rescission or specific
performance under Article 1191 of the Civil Code. 44

Be that as it may, we agree with petitioner that although the law allows rescission as a remedy for
breach of contract, the same may not be availed of by respondents in this case. To begin with, it was
Severino who prevented full payment of the stipulated price when he refused to deliver the owner's
original duplicate title to Philam Life. His refusal to cooperate was unjustified, because as Severino
himself admitted, he signed the deed precisely to enable petitioner to acquire the loan. He also knew
that the property was to be given as security therefor. Thus, it cannot be said that petitioner breached
his obligation towards Severino since the former has always been willing to and could comply with what
was incumbent upon him.

In sum, the only conclusion which can be deduced from the aforesaid circumstances is that ownership of
the property has been transferred to petitioner. Article 1477 of the Civil Code states that ownership of
the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. It is
undisputed that the property was placed in the control and possession of petitioner 45 when he came into
material possession thereof after judgment in the ejectment case. Not only was the contract of sale
perfected, but also actual delivery of the property effectively consummated the sale.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated December 29, 1997
and its resolution dated April 15, 1998 in CA-G.R. CV No. 45206 which had affirmed the judgment of the
Regional Trial Court of Quezon City, Branch 78, are REVERSED and SET ASIDE. A new judgment is hereby
rendered UPHOLDING the validity of Exhibit B, the Deed of Absolute Sale dated September 12, 1988,
entered into between the parties. The Landbank of the Philippines is further ordered to RELEASE to
respondents the amount of P1,700,000.00 held in escrow, representing the balance of the purchase
price agreed upon by the parties under the deed of absolute sale. Finally, the respondents are ordered
to DELIVER to petitioner the owner's duplicate copy of TCT No. PT-23458 after said release, with the
corresponding payment of taxes due. Costs against respondents.

SO ORDERED.
www.chanrobles.com

FIRST DIVISION

[G.R. No. 105647. * July 31, 2001

HEIRS OF ERNESTO BIONA, NAMELY: EDITHA B. BLANCAFLOR, MARIANITA D. DE JESUS, VILMA B.

BLANCAFLOR, ELSIE B. RAMOS and PERLITA B. CARMEN, petitioners, vs. THE COURT OF APPEALS and
LEOPOLDO HILAJOS, Respondents.

DECISION

KAPUNAN, J.:

Before us is a petition for review on certiorari under Rule 45 of the Decision of the Court of Appeals
dated March 31, 1992, reversing the decision of the Regional Trial Court, 11 th Judicial region, Branch
26, Surallah, South Cotabato and the Resolution dated May 26, 1992, denying the subsequent motion
for reconsideration.

Quoting from the decision of the Court of Appeals, the antecedent facts are as follows:

On October 23, 1953, the late Ernesto Biona, married to plaintiff-appellee Soledad Biona, was awarded
Homestead Patent No. V-840 over the property subject of this suit, a parcel of agricultural land
denominated as lot 177 of PLS-285-D, located in Bo. 3, Banga, Cotabato, containing an area of ten (10)
hectares, forty-three (43) acres and sixty-eight (68) centares, Original Certificate of Title No. (V-2323) P-
3831 was issued in his name by the Register of Deeds of Cotabato (Exh. C). On June 3, 1954, Ernesto and
Soledad Biona obtained a loan from the then Rehabilitation Finance Corporation (now the Development
Bank of the Philippines) and put up as collateral the subject property (Exh. 4). On June 12, 1956, Ernesto
Biona died (Exh. B) leaving as his heirs herein plaintiffs-appellees, namely, his wife, Soledad Estrobillo
Vda. De Biona, and five daughters, Editha B. Blancaflor, Marianita B. de Jesus, Vilma B. Blancaflor, Elsie
B. Ramos and Perlita B. Carmen.
On March 1, 1960, plaintiff-appellee Soledad Biona obtained a loan from defendant-appellant in the
amount of P1,000 and as security therefore, the subject property was mortgaged. It was further agreed
upon by the contracting parties that for a period of two years until the debt is paid, defendant-appellant
shall occupy the land in dispute and enjoy the usufruct thereof.

The two-year period elapsed but Soledad Biona was not able to pay her indebtedness. Defendant-
appellant continued occupying and cultivating the subject property without protest from plaintiffs-
appellees.

On July 3, 1962, defendant-appellant paid the sum of P1,400.00 to the Development Bank of the
Philippines to cancel the mortgage previously constituted by the Biona spouses on June 3, 1953 (Exhs. 4
and 6).

Thereafter, and for a period of not less than twenty-five years, defendant-appellant continued his
peaceful and public occupation of the property, declaring it in his name for taxation purposes (Exhs. 10
and 11), paying real estate property taxes thereon (Exhs. 12, 13, 13-a to 13-e, F, G, H and I), and causing
the same to be tenanted (Exhs. 7, 8, 9).

On June 19, 1985, plaintiffs-appellees, filed a complaint for recovery of ownership, possession,
accounting and damages, with a prayer for a writ of preliminary mandatory injunction and/ or
restraining order against defendant-appellant alleging, among others, that the latter had unlawfully
been depriving them of the use, possession and enjoyment of the subject property; that the entire
parcel of land, which was devoted and highly suited to palay and corn, was yielding three harvests
annually, with an average of one hundred twenty (120) sacks of corn and eighty cavans of rice per
hectare; that plaintiffs-appellees were deprived of its total produce amounting to P150,000.00.
Plaintiffs-appellees prayed for the award of moral damages in the sum of P50,000.00, exemplary
damages in the amount of P20,000,00 and litigation expenses in the amount of P2,000.00.

On September 19, 1986, defendant-appellant filed his answer with counterclaim traversing the material
allegations in the complaint and alleging, by way of affirmative and special defenses, that: on September
11, 1961, Soledad Biona, after obtaining the loan of P1,000.00 from defendant-appellant, approached
and begged the latter to buy the whole of Lot No. 177 since it was then at the brink of foreclosure by the
Development Bank of the Philippines and she had no money to redeem the same nor the resources to
support herself and her five small children; that defendant-appellant agreed to buy the property for the
amount of P4,300.00, which consideration was to include the redemption price to be paid to the
Development Bank of the Philippines; that the purchase price paid by defendant far exceeded the then
current market value of the property and defendant had to sell his own eight-hectare parcel of land in
Surallah to help Soledad Biona; that to evidence the transaction, a deed of sale was handwritten by
Soledad Biona and signed by her and the defendant; that at the time of the sale, half of the portion of
the property was already submerged in water and from the years 1969 to 1984, two and one-half
hectares thereof were eroded by the Allah River; that by virtue of his continuous and peaceful
occupation of the property from the time of its sale and for more than twenty- five years thereafter,
defendant possesses a better right thereto subject only to the rights of the tenants whom he had
allowed to cultivate the land under the Land Reform Program of the government; that the complaint
states no cause of action; that plaintiffs alleged right, if any, is barred by the statutes of fraud. As
counterclaim, defendant-appellant prayed that plaintiffs-appellees be ordered to execute a formal deed
of sale over the subject property and to pay him actual, moral and exemplary damages as the trial court
may deem proper. He likewise prayed for the award of attorney's fees in the sum of P10,000.00.

During the hearing of the case, plaintiffs-appellees presented in evidence the testimonies of Editha
Biona Blancaflor and Vilma Biona Blancaflor, and documentary exhibits A to G and their submarkings.

Defendant-appellant, for his part, presented the testimonies of himself and Mamerto Famular, including
documentary exhibits 1 to 13, F, G, H, I, and their submarkings. 1cräläwvirtualibräry

On January 31, 1990, the RTC rendered a decision with the following dispositive portion:

I (SIC) VIEW OF THE FOREGOING, decision is hereby rendered:

1. ordering the defendant to vacate possession of the lot in question to the extent of six-tenths (6/10) of
the total area thereof and to deliver the same to the plaintiff Soledad Estrobillo Biona upon the latter's
payment of the sum of P1,000.00 TO THE FORMER IN REDEMPTION OF ITS MORTGAGE CONSTITUTED
UNDER exh. "1" of defendant;

2. ordering the defendant to vacate the possession of the remaining four-tenths (4/10) of the area of the
lot in question, representing the shares of the children of the late Ernesto Biona and deliver the same to
said plaintiffs; the defendant shall render an accounting of the net produce of the area ordered returned
to the co-plaintiffs of Soledad Biona commencing from the date of the filing of the complaint until
possession thereto has been delivered to said co-plaintiffs and to deliver or pay 25% of said net produce
to said co-plaintiffs;

3. ordering the defendant to pay the costs of this suit.

The defendant's counter-claim are dismissed for lack of merit.

SO ORDERED. 2cräläwvirtualibräry

Dissatisfied, herein private respondent appealed to the Court of Appeals which reversed the trial court's
ruling. The dispositive portion reads as follows:

WHEREFORE, premises considered, the judgment appealed from is set aside and a new one entered
dismissing the complaint, and the plaintiffs-appellees are ordered to execute a registrable deed of
conveyance of the subject property in favor of the defendant-appellant within ten (10) days from the
finality of this decision. With costs against plaintiffs-appellees.3cräläwvirtualibräry

Hence, the instant petition where the following assignment of errors were made:

I.- RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE SIGNATURE OF SOLEDAD
ESTROBILLO IN THE DEED OF SALE (EXHIBIT "2"), A PRIVATE DOCUMENT, IS GENUINE.

II - RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF SALE (EXHIBIT 2) IS VALID
AND COULD LEGALLY CONVEY TO PRIVATE RESPONDENT OWNERSHIP AND TITLE OVER THE SUBJECT
PROPERTY.

III - RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT HEREIN PETITIONERS HAD LOST THEIR
RIGHT TO RECOVER THE SUBJECT PROPERTY BY VIRTUE OF THE EQUITABLE PRINCIPLE OF LACHES.
IV- RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT'S RIGHT OF
ACTION UNDER THE DEED OF SALE (EXHIBIT "2") HAD PRESCRIBED.4cräläwvirtualibräry

As correctly pointed out by the Court of Appeals, the pivotal issue in the instant case is whether or not
the deed of sale is valid and if it effectively conveyed to the private respondents the subject property.

In ruling in favor of the petitioners, the trial court refused to give weight to the evidence of private
respondent which consisted of (1) the handwritten and unnotarized deed of sale executed by Soledad
Biona in favor of the private respondent; and (2) the corresponding acknowledgment receipt of the
amount of P3,500.00 as partial payment for the land in dispute. To the mind of the trial court, the
signature of Soledad Biona on the deed of sale was not genuine. There was no direct evidence to prove
that Soledad Biona herself signed the document. Moreover, the deed of sale was not notarized and
therefore, did not convey any rights to the vendee. The trial court also ruled that petitioners' rights over
the land have not allegedly prescribed.

On the other hand, the respondent Court of Appeals accepted as genuine the deed of sale (Exh. 2) which
"sets forth in unmistakable terms that Soledad Biona agreed for the consideration of P4,500.00, to
transfer to defendant-appellant Lot 177. The fact that payment was made is evidenced by the
acknowledgment receipt for P3,500.00 (Exh. 3) signed by Soledad Biona, and private respondent
previous delivery of P1,000.00 to her pursuant to the Mutual Agreement (Exh. 1).

The contract of sale between the contracting parties was consummated by the delivery of the subject
land to private respondent who since then had occupied and cultivated the same continuously and
peacefully until the institution of this suit." 5cräläwvirtualibräry

Given the contrary findings of the trial court and the respondent court, there is a need to re-examine
the evidence altogether. After a careful study, we are inclined to agree with the findings and conclusions
of the respondent court as they are more in accord with the law and evidence on record.

As to the authenticity of the deed of sale, we subscribe to the Court of Appeals' appreciation of evidence
that private respondent has substantially proven that Soledad Biona indeed signed the deed of sale of
the subject property in his favor. His categorical statement in the trial court that he himself saw Soledad
Estrobillo affix her signature on the deed of sale lends credence. This was corroborated by another
witness, Mamerto Famular. Although the petitioners consider such testimony as self-serving and biased,
6 it can not, however, be denied that private respondent has shown by competent proof that a contract
of sale where all the essential elements are present for its validity was executed between the parties. 7
The burden is on the petitioners to prove the contrary which they have dismally failed to do. As aptly
stated by the Court of Appeals:

Having established the due execution of the subject deed of sale and the receipt evidencing payment of
the consideration, the burden now shifted to plaintiffs-appellees to prove by contrary evidence that the
property was not so transferred. They were not able to do this since the very person who could deny the
due execution of the document, Soledad Biona, did not testify. She similarly failed to take the witness
stand in order to deny her signatures on Exhs. 2 and 3. Admitting as true that she was under medication
in Manila while the hearing of the case was underway, it was easy enough to get her deposition. Her
non-presentation gives rise to the presumption that if her testimony was taken, the same would be
adverse to the claim by plaintiffs-appellees.

It must also be noted that under Sec. 22 Rule 132 of our procedural law, evidence respecting
handwriting may also be given 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. Our own close
scrutiny of the signature of Soledad Biona appearing on Exh. 1, the document admitted by the
contending parties, reveals that it is the same as the signatures appearing on Exhs. 2 and 3, the
documents in dispute. Admittedly, as was pointed out by the trial court, the "S" in Exhs. 2 and 3 were
written in printed type while that in Exh. 1 is in handwriting type. But a careful look at the text of Exh. 2
would reveal that Soledad Biona alternately wrote the letter "S" in longhand and printed form. Thus, the
words "Sum" and "Sept.," found in the penultimate and last paragraphs of the document, respectively,
were both written in longhand, while her name appearing on first part of the document, as well as the
erased word "Sept." in the last paragraph thereof were written in printed form. Moreover, all doubts
about the genuineness of Soledad Biona's signatures on Exhs. 2 and 3 are removed upon their
comparison to her signature appearing on the special power of attorney (Exh. A) presented in evidence
by plaintiffs-appellees during trial. In said document, Soledad Biona signed her name using the same fact
that Soledad Estrobillo Biona wrote her entire name on Exh. 2 while she merely affixed her maiden
name on the other two documents may have been due to the lesser options left to her when the
lawyers who drafted the two documents (Exhs. 2 and 3) already had typewritten the names "SOLEDAD
ESTROBILLO" thereon whereas in Exh. 2, it was Soledad Biona herself who printed and signed her own
name. Thus, in the special power of attorney (Exh. A), Soledad Biona signed her name in the same
manner it was typewritten on the document. 8cräläwvirtualibräry
We agree with the private respondent that all the requisites for a valid contract of sale are present in
the instant case. For a valuable consideration of P4,500.00, Soledad Biona agreed to sell and actually
conveyed the subject property to private respondent. The fact that the deed of sale was not notarized
does not render the agreement null and void and without any effect. The provision of Article 1358 of the
Civil Code 9 on the necessity of a public document is only for convenience, and not for validity or
enforceability. 10 The observance of which is only necessary to insure its efficacy, so that after the
existence of said contract had been admitted, the party bound may be compelled to execute the proper
document. 11 Undeniably, a contract has been entered into by Soledad Biona and the private
respondent. Regardless of its form, it was valid, binding and enforceable between the parties. We quote
with favor the respondent court's ratiocination on the matter:

xxx The trial court cannot dictate the manner in which the parties may execute their agreement, unless
the law otherwise provides for a prescribed form, which is not so in this case. The deed of sale so
executed, although a private document, is effective as between the parties themselves and also as the
third persons having no better title, and should be admitted in evidence for the purpose of showing the
rights and relations of the contracting parties (Carbonell v. Court of Appeals, 69 SCRA 99; Elumbaring v.
Elumbaring, 12 Phil. 384). Under Art. 1356 of the Civil Code, contracts shall be obligatory in whatever
form they may have been entered into provided all the essential requisites for their necessary elements
for a valid contract of sale were met when Soledad Biona agreed to sell and actually conveyed Lot 177 to
defendant-appellant who paid the amount of P4,500.00 therefore. The deed of sale (Exh. 2) is not made
ineffective merely because it is not notarized or does not appear in a public document. The contract is
binding upon the contracting parties, defendant-appellant and Soledad Biona, including her successors-
in-interest. Pursuant to Art. 1357, plaintiffs-appellees may be compelled by defendant-appellant to
execute a public document to embody their valid and enforceable contract and for the purpose of
registering the property in the latter's name (Clarin v. Rulona, 127 SCRA 512; Heirs of Amparo v. Santos,
108 SCRA 43; Araneta v. Montelibano, 14 Phil. 117).12cräläwvirtualibräry

Finally, we find no merit in petitioners' contention that their right over the land has not prescribed. The
principle of laches was properly applied against petitioner. Laches has been defined as the failure or
neglect, for an unreasonable and unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier, it is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it has either abandoned it or
declined to assert it. 13 In the instant case, the Court of Appeals point to the circumstances that warrant
the principle to come into play:

Laches had been defined to be such neglect or omission to assert a right taken in conjunction with the
lapse of time and other circumstances causing prejudice to an adverse party, as will bar him in equity
(Heirs of Batiog Lacamen v. Heirs of Laruan, 65 SCRA 605, 609-610). In the instant suit, Soledad Biona, at
the time of the execution of the deed of sale (Exh. 2) on September 11, 1961, could only alienate that
portion of Lot 177 belonging to her, which is seven-twelfths of the entire property. She had no power or
authority to dispose of the shares of her co-owners, the five daughters of the deceased Ernesto Biona,
who were entitled to an indivisible five-twelfths portion of the whole property. It is not disputed,
however, that as early as 1960, when Soledad Biona borrowed money from defendant-appellant (Exh.
L), the latter entered, possessed and started occupying the same in the concept of an owner. He caused
its cultivation through various tenants under Certificates of Land Transfer (Exhs. 7-9), declared the
property in his name, religiously paid taxes thereon, reaped benefits therefrom, and executed other acts
of dominion without any protest or interference from plaintiffs-appellees for more than twenty-five
years. Even when the five daughters of the deceased Ernesto Biona were way past the age of majority,
when they could have already asserted their right to their share, no sale in defendant-appellant's favor
was ever brought or any other action was taken by them to recover their share. Instead, they allowed
defendant-appellant to peacefully occupy the property without protest. Although it is true that no title
to registered land in derogation of that of the registered owner shall be acquired by prescription or
adverse possession as the right to recover possession of registered land is imprescriptible, jurisprudence
has laid down the rule that a person and his heirs may lose their right to recover back the possession of
such property and title thereto by reason of laches. (Victoriano v. Court of Appeals, 194 SCRA 19; Lola v.
CA, 145 SCRA 439, 449). Indeed, it has been ruled in the case of Miguel v. Catalino, 26 SCRA 234, 239,
that:

'Courts can not look with favor at parties who, by their silence, delay and inaction, knowingly induce
another to spend time, effort and expense in cultivating the land, paying taxes and making
improvements thereof for 30 long years, only to spring from ambush and claim title when the
possessor's efforts and the rise of land values offer an opportunity to make easy profit at his expense.'

Thus, notwithstanding the invalidity of the sale with respect to the share of plaintiffs-appellees, the
daughters of the late Ernesto Biona, they [allowed] the vendee, defendant-appellant herein, to enter,
occupy and possess the property in the concept of an owner without demurrer and molestation for a
long period of time, never claiming the land as their own until 1985 when the property has greatly
appreciated in value. Vigilantibus non dormientibus sequitas subvenit.14cräläwvirtualibräry

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
 FIRST DIVISION

G.R. No. 119281               November 22, 2000

VETERANS FEDERATION OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS, PHILIPPINE NATIONAL RAILWAYS (PNR for short, formerly: MANILA RAILROAD
COMPANY OF THE PHILIPPINES), LOURDES CHAVEZ, GODOFREDO CHAVEZ, VICENTE ALVERO, ROSITA
VILLAMIN, JUANITO ALCANTARA, FLORENTINO GALANG, RUEL GALANG, LEOCADIO GUSTI, TIBURCIO
DE LOS REYES, and FELIXBERTO COSICO, respondents.

DECISION

YNARES-SANTIAGO, J.:

The object of the instant controversy is a parcel of land situated near the public market of San Pablo
City, with an approximate area of 1,092 square meters. On the 6th of September 1963, the then owner,
Manila Railroad Company of the Philippine Islands (now known as the Philippine National Railways or
PNR) sold the subject property to the Veterans Federation of the Philippines (VFP for brevity) for the
amount of One Thousand Ninety Two (P1,092.00) Pesos. The Absolute Deed of Sale executed by the
parties described the subject property as follows:

"A parcel of land (Lot No. 1 of the consolidation and subdivision plan Pcs-___________, being a portion
of Lots No. 17, 16 and 21, all of plan Psu-49241, and portion of Lot. No. 12 of plan II-8964), situated in
San Pablo City. Bounded on the NE., by Road to RR Station; on the SE., SW., and NW., by Lot No. 2 of the
consolidation and subdivision plan Pcs-__________; and on the NW., by Road to RR Station. Beginning at
a point marked "1" on plan, being S. 39 deg. 41’W., 351.79 meters from B.L.L.M. No. 2, San Pablo City;

thence N. 64 deg. 40’ E., 13.50 m. to point "2";

thence S. 79 deg. 16’ E., 8.57 m. to point "3";

thence S. 79 deg. 20’ E., 3.89 m. to point "4";

thence S. 64 deg. 07’ E., 3.00 m. to point "5’;

thence S. 26 deg. 54’ W., 51.00 m. to point "6";

 thence N. 63 deg. 36’ W., 23.23 m. to point "7";

thence N. 26 deg. 54’ E., 37.00 m. to the point of

beginning; containing an area of ONE THOUSAND AND NINETY TWO (1,092) Square Meters, more or
less."1

The said document was registered on June 18, 1964 at the Office of the Register of Deeds of San Pablo
City. Consequently, T.C.T. No. T-4414 was issued in favor of the VFP. 2 However, the technical description
that was inscribed in the certificate of title was different from what was stated in the deed of sale.
Instead, the Register of Deeds copied the technical description appearing in an accompanying document
submitted by the PNR. Thus, the parcel of land was described in the certificate of title, as follows:

"A parcel of land (Lot 1 of the consolidation-subdivision plan (LRC) Pcs-2995, being a portion of Lots 16
and 17 of plan Psu-49241, L.R.C. Record No. 301 65), situated in the City of San Pablo, Island of Luzon,
Bounded on the NE., SE., and SW., points 6 to 7 and 7 to 1 by Lot 12 of plan II-8964 (property of the
Manila Railroad Company). Beginning at a point marked "1" on plan, being S. 67 deg. 05’ W., 447.85 m.
from B.L.L.M. No. 1, City of San Pablo, thence S. 79 deg. 20’ E., 3.89 m. to point 2; thence S. 64 deg. 07’
E., 3.00 m. to point 3; thence S. 63 deg. 06’ E., 17.11 m. to point-4; thence S. 26 deg. 54’W., 45.00 m. to
point 5; thence N. 67 deg. 25’ W., 23.91 m. to point 6; thence N. 26 deg. 54’ E., 2.10 m. to point 7;
thence N. 26 deg. 54’ E., 43.56 m. to the point of beginning; containing an area of ONE THOUSAND AND
NINETY TWO (1,092) Square Meters. All points referred to are indicated on the plan and are marked on
the ground as follows: points 1 to 6 inclusive, by P.L.S./M.R. Conc. Mons. 15 x 60 cms.; and point 7 by old
P.L.S./B.L.; bearings true; declination 1 deg. 10’ E.; date of the original survey, October 7-14, 1924; and
that of the consolidation-subdivision survey, October 11, 1963. 3

Meanwhile, the VFP proceeded to clear and fence the property, following the boundaries as stated in
the certificate of title, not realizing that the technical descriptions appearing in the deed of sale and the
certificate of title did not match on almost all points. Some eighteen (18) years thereafter, the VFP
decided to erect a building on the subject property to serve as its headquarters. This plan did not
materialize when upon inspection of the subject property, it was discovered that the fence had long
been dismantled and that there were now several permanent structures standing thereon. The VFP then
learned that the residents had been leasing portions of the subject property from the PNR unbeknownst
to VFP.

When the residents refused to heed the VFP’s demand to vacate the premises, the matter was brought
before the Barangay authorities, but no settlement was reached thereat. Hence, the VFP was
constrained to file a complaint for accion publiciana before the Regional Trial Court of San Pablo City,
Branch 32, which was docketed as Civil Case No. SP-2585. Named defendants were the PNR (MRCPI at
the time) and the following lessees: Lourdes Chavez, Godofredo Chavez, Vicente Alvaro, Rosita Villamin,
Juanito Alcantara, Florentino Galang, Ruel Galang, Leocadio Gusti, Tiburcio delos Reyes, and Felixberto
Cosico. Part of the evidence presented during the trial was a comparative sketch plan delineating the
boundaries as described in the deed of sale and in the title, as well as the particular portions occupied by
the individual defendants.4

On January 26, 1989, the trial court rendered judgment, disposing as follows:
"WHEREFORE, premises considered, judgment is hereby rendered declaring the Deed of Sale (Exhibit
"A") valid and enforceable and ordering:

1. The Office of the San Pablo Register of Deed to cancel TCT No. T-4414 (Exhibit B) and to issue
in its stead a new certificate of title in the name of plaintiff as buyer and owner thereof
reflecting therein the true and correct technical description to be provided by PNR appearing in
Exhibit A;

2. The cancellation of all the lease contracts and/or other agreements the PNR has entered into
with the actual occupants of the premises sold as described in the technical description
appearing in Exhibit A;

3. PNR to remove at its expense all existing structures of its lessees/occupants and to deliver
and surrender to plaintiff the physical possession of the premises sold per Exhibit A; otherwise,
to pay plaintiff rental at the rate of P20.00 per square meter per month from March 25, 1986,
date of filing of the Supplemental Complaint, until plaintiff has acquired complete and peaceful
possession thereof, and;

4. PNR to pay cost of suit.

"The other claim for damages of plaintiff and the counterclaims of all the defendants are, as it is hereby,
dismissed for lack of merit."5

Both parties filed separate motions for reconsideration which the trial court resolved by ordering, to wit:

"Anent the Motion for Reconsideration dated February 9, 1989 filed by defendant PNR, the Court finds
no cogent reason to disturb its assailed decision. Hence, the said motion is denied for lack of merit.

"With respect to the Motion for Reconsideration filed by plaintiff, the Court partially grants the same if
only to clarify the spirit and intention of the dispositive portion of the decision in question.

"Paragraph No. 3 of the dispositive portion should therefore be amplified as follows:

3. PNR to remove at its expense all existing structures of its lessees/occupants and to deliver and
surrender to plaintiff the physical possession of the premises sold per Exhibit A; PNR to pay plaintiff
rental at the rate of P20.00 per square meter per month from March 25, 1986, date of filing of the
Supplemental Complaint and for PNR as well as the other defendants to immediately surrender
complete and peaceful possession of the subject lot to plaintiff" (Annex B, hereof). 6

Dissatisfied with the trial court’s disposition, both parties filed separate appeals before the Court of
Appeals. The appellate court dwelt at length on the facts and evidence adduced by the trial court in
resolving the issues raised by the opposing parties. On July 29, 1994, the Court of Appeals rendered the
impugned Decision, the dispositive portion of which reads:

"WHEREFORE, the dispositive portion of the appealed decision is hereby MODIFIED by deleting
paragraphs 1, 2, and 3 thereof and instead to read as follows:
 (1) The complaint with respect to defendants-appellants Lourdes Chavez, Godofredo Chavez,
Vicente Alvero, Rosito Villamin, Juanito Alcantara, Florentino Galang, Tiborcio delos Reyes, and
Felixberto Cosico is DISMISSED.

(2) Defendant-Appellant PNR is ordered to convey the parcel of land with an area of 1,092
square meters described in the absolute Deed of Sale dated September 6, 1963 (Exhibit A) to
plaintiff-appellant.

(3) Defendant-appellants Ruel Galang and Leocadio Gusti and members of their families,
relatives and other persons claiming rights under them to vacate the premises and to surrender
possession thereof to plaintiff-appellant.

In all other respects, the decision is AFFIRMED." 7

Consequently, both parties again filed separate motions for reconsideration, which the appellate court
denied.8

VFP filed the instant petition for review, raising the following issues:

First. The trial and the appellate courts erred in ordering the Register of Deeds of San Pablo City to
cancel appellant VFP’s TCT No. T-4414 and then to issue a new certificate of title in the name of
appellant which would reflect therein the technical description appearing in the absolute Deed of Sale;
and

Second. The Court of Appeals erred in deleting the award of rentals and damages that the trial court had
awarded in favor of appellant VFP.

There is no question that the technical descriptions appearing in the deed of sale and the certificate of
title vary on almost all points. There is, however, a long rectangular portion wherein the two
overlap.9 For this reason, the property described in TCT No. T-4414 was not in its entirety the parcel sold
to VFP, at least not the major portion thereof. The Court of Appeals had earlier ruled that:

"Transfer Certificate of Title No. T-4414, Exhibit "B" is however void. It was issued supposedly as a result
of the sale of the property described in the Absolute Deed of Sale, or Exhibit "A". However, the property
described in Exhibit "B" is not the same property as that intended by the parties to be the object of their
sales agreement under Exhibit "A". As correctly found by the trial court, the technical description of the
lot which is the subject matter of the Absolute Deed of Sale, Exhibit "A", is not identical to the technical
description of the lot described in TCT No. T-4414, Exhibit "B". Stated bluntly, the technical description
in the certificate of title (Exh. B) is erroneous. The court therefore correctly ordered the cancellation of
TCT No. T-4414 and the issuance of a new certificate of title in the name of plaintiff-appellant and
reflecting therein the true technical description as appearing in Exhibit A or the Absolute Deed of Sale
dated 16 September 1963."10

We find no compelling reason to rule otherwise. It is well-established that errors in the certificate of title
that relate to the technical description and location cannot just be disregarded as mere clerical
aberrations that are harmless in character, 11 but must be treated seriously so as not to jeopardize the
integrity and efficacy of the Torrens System of registration of real rights to property. Thus, when the
technical description appearing in the title is clearly erroneous, the courts have no other recourse but to
order its cancellation and cause the issuance of a new one that would conform to the mutual agreement
of the buyer and seller as laid down in the deed of sale.

Petitioner VFP argues that the deed of sale notwithstanding, it is the legitimate owner of the property
described in TCT No. T-4414.

The argument is not meritorious. The simple possession of a certificate of title is not necessarily
conclusive of the holder’s true ownership of all the property described therein for said holder does not
by virtue of said certificate of title alone become the owner of what has been either illegally or
erroneously included.12 It has been held by this Court that if a person or entity obtains a title which
includes by mistake or oversight land which cannot be registered under the Torrens System or over
which the buyer has no legal right, said buyer does not, by virtue of said certificate alone, become the
owner of the land illegally or erroneously included. 13 In fact, when an area is erroneously included in a
relocation survey and in the title subsequently issued, the said erroneous inclusion is null and void and
of no effect.14 And on the rare occasion where there is such an error, the courts may decree that the
certificate of title be cancelled and a correct one issued to the buyer. 15

It is of no moment that it was respondent PNR which prepared the document containing the erroneous
technical description copied by the Register of Deeds in the certificate of title issued to petitioner
VFP.16 There is no showing that such error was intentional, much less malicious. In fact, both VFP and
PNR, for quite a number of years, did not realize that there was a glaring disparity in the technical
descriptions appearing in the deed of sale and the certificate of title. Both parties were remiss in
ensuring that all the documents and entries in the certificate of title were in order. That being so,
petitioner VFP cannot lay all the blame on respondent PNR, for had the former exercised due diligence,
the mistake could have been discovered and corrected in time.

Petitioner VFP further argues that respondent PNR is now barred from claiming ownership of the
disputed property because for twenty-seven (27) years, VFP has exercised acts of exclusive ownership
and possession over said property even paying real estate taxes therefor. However, petitioner VFP
contradicted itself by its own admission that way back in 1982, it discovered that there were private
individuals occupying portions of the said property, erecting permanent structures thereon and
conducting their businesses by virtue of lease agreements between them and respondent PNR. If VFP
was indeed in possession of the subject property, there would have been no opportunity for these
private individuals and PNR to usurp the use of said property.

Petitioner VFP maintains that the deed of sale was valid and enforceable and that it was perfected at the
very moment that the parties agreed upon the thing which was the object of the sale and upon the
price.17 The parties herein had agreed on the parcel of land that petitioner would purchase from
respondent PNR, and the same was described in the absolute deed of sale. Both parties then are bound
by the stipulations in their contract. The binding effect of the deed of sale on the parties is based on the
principle that the obligations arising therefrom have the force of law between them. 18 The terms of the
deed of sale were clear that the object thereof was the property described therein; thus, petitioner VFP
cannot now conveniently set aside the technical description in this agreement and insist that it is the
legal owner of the property erroneously described in the certificate of title. Petitioner can only claim
right of ownership over the parcel of land that was the object of the deed of sale and nothing else.
Hence, the trial court did not err in ordering the cancellation of TCT No. T-4414 and in directing the
Register of Deeds of San Pablo City to issue a new one, with the correct technical description as
embodied in the absolute deed of sale. Accordingly, respondents Lourdes Chavez, Godofredo Chavez,
Vicente Alvero, Rosita Villamin, Juanito Alcantara, Florentino Galang, Tiburcio delos Reyes, and
Felixberto Cosico are not occupants of VFP’s property. Hence, the suit against them was correctly
dismissed by the Court of Appeals.

It was discovered during the trial that several individuals had occupied certain portions of the property
described and subject of the deed of sale without the consent or knowledge of petitioner. Clearly, these
individuals have been enjoying the use of VFP’s property and it is but fair that they must pay rentals to
VFP for such use. The trial court had earlier ruled that a rental fee of P20.00 per square meter was fair
and equitable considering the location of the property.

We likewise agree with the following findings of the Court of Appeals:

With respect to the second issue, We hold that plaintiff-appellant has a cause of action against the
present occupants of its property, conveyed, and described in the Deed of Absolute Sale (Exh. "A").
Perusal of Plan No. 1 (Exh. "L-1", Folder of Exhibits, p. 34) prepared by the court-appointed geodetic
engineer would indicate that the following individuals and establishments are the actual occupants of
the aforesaid property: Yolanda Guerrero, Ruel Galang, Lucio Jimenez, Leocadio Gusti, Rustico Delos
Reyes, Bella Angulo, a certain Mang Erning, Roño Engineering (Machine Shop), Ireneo Aspiras, Barangay
Health Center, Celso Cuyagi, Zosimo Hernandez, and Puring Fruits Dealer. Two alleys also traverse the
property. These individuals and business establishments have been in the property of plaintiff-appellant
without the latter’s consent or authority. Plaintiff-appellant, therefore, has a cause of action against
them. But except for Ruel Galang and Leocadio Gusti, the rest are not party-defendants in this action.
Another suit must be initiated by plaintiff-appellant if it desires to recover possession from
them.19 (Underscoring ours).

However, there is no showing of how long Ruel Galang and Leocadio Gusti, or any of the above-named
individuals, have been occupying the subject premises. There is also no evidence of the specific land
area occupied by each individual. Thus, there is no basis for the computation of the rentals that
petitioner VFP may collect from them. Consequently, this Court is not in a position to award rentals in
this case. Instead, VFP may collect these back rentals from the above-named persons in a separate
action.

There is a need to modify the ruling of the Court of Appeals. The paragraph directing the Register of
Deeds of San Pablo City to cancel TCT No. T-4414 and to issue a new one in the name of VFP with the
correct technical description as appearing in the absolute deed of sale should not have been deleted.
The Court of Appeals likewise erred in ordering PNR to convey the parcel of land described in the
absolute deed of sale. We reiterate that, in a litigation such as the one at bar, the court may decree
that the certificate of title be cancelled and a correct one issued in favor of the buyer, without having to
require the seller to execute in favor of the buyer an instrument to effect the sale and transfer of the
property.20

The absolute deed of sale between VFP and PNR remains valid and enforceable.1âwphi1 As correctly
found by the Court of Appeals:
Ownership over the property specifically described in that contract (Exhibit "A") was conveyed to
plaintiff-appellant by defendant-appellant PNR by mutual consent after the former had paid the
consideration. The allegation by defendant-appellant PNR that the contract of sale is void because of
plaintiff-appellant’s failure to construct its headquarters and a bank in the property, a condition of the
sale, is without merit. A perusal of the contract, Exhibit "A", would reveal it does not contain any
stipulation regarding the alleged condition. Nor is there any evidence adduced to support said
allegation. Allegation is not synonymous to proof. A party has the burden of proof to establish its
defense by convincing evidence. In short, the sale was not a conditional sale. 21

Respondent PNR cannot shirk from its obligation to convey title and surrender possession of the
property which VFP bought on the lame excuse that it is now too late in the day for VFP to seek such
redress. There is no question that had it not been for PNR’s gross mistake in supplying the wrong
technical description to the Register of Deeds, there would have been no erroneous inscription. Justice
dictates that the courts must right this wrong without further delay. It is but fair that petitioner VFP
finally obtain the correct and legal title to the property it bought thirty-seven (37) years ago.

WHEREFORE, in view of all the foregoing, the Decision rendered by the Court of Appeals in CA-G.R. CV
No. 21229 is hereby MODIFIED to read as follows:

1. The Register of Deeds of San Pablo City is ordered to cancel TCT No. T-4414 [Exh. "B"] and to
issue in its stead a new certificate of title in the name of the Veterans Federation of the
Philippines, reflecting therein the true and correct technical description appearing in the
absolute deed of sale [Exh. "A"];

2. The complaint with respect to respondents Lourdes Chavez, Godofredo Chavez, Vicente
Alvero, Rosita Villamin, Juanito Alcantara, Florentino Galang, Tiburcio delos Reyes and Felixberto
Cosico is DISMISSED.

3. Respondent Philippine National Railways is directed to immediately surrender possession of

the 1,092 square meter property described in the absolute Deed of Sale [Exh. "A"] to petitioner
Veterans Federation of the Philippines;

4. Respondents Ruel Galang and Leocadio Gusti and members of their families, relatives, and
other persons claiming rights under them to vacate the premises and to surrender possession
thereof to petitioner Veterans Federation of the Philippines;

5. Respondent Philippine National Railway to pay the costs of litigation.

In all other respects, the decision is AFFIRMED.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 111743. October 8, 1999.]

VISITACION GABELO, ERLINDA ABELLA, PETRA PEREZ, ERLINDA TRAQUENA, BEN CARDINAL, EDUARDO
TRAQUENA, LEOPOLDO TRAQUENA, MARIFE TUBALAS, ULYSIS MATEO, JOCELYN FERNANDEZ,
ALFONSO PLACIDO, LEONARDO TRAQUENA, SUSAN RENDON AND MATEO TRINIDAD, Petitioners, v.
COURT OF APPEALS, URSULA MAGLENTE, CONSOLACION BERJA, MERCEDITA FERRER, THELMA
ABELLA, ANTONIO NGO, and PHILIPPINE REALTY CORPORATION, Respondents.

DECISION

PURISIMA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, of the decision of
the Court of Appeals, dated April 29, 1993, in CA-G.R. CV No. 33178, affirming the decision of the
Regional Trial Court of Manila, Branch 38, in Civil Case No. 89-48057, entitled "Philippine Realty
Corporation v. Ursula Maglente, Et. Al.", declaring the defendants (herein respondents) as the rightful
party to purchase the land under controversy, and ordering the plaintiff, Philippine Realty Corporation
(PRC, for brevity), to execute the corresponding Contract of Sale/Contract to Sell in favor of the
defendants aforenamed.

The antecedent facts culminating in the filing of the present petition are as follows:chanrob1es virtual
1aw library

On January 15, 1986, Philippine Realty Corporation, owner of a parcel of land at 400 Solana Street,
Intramuros, Manila, with an area of 675.80 square meters, and covered by Transfer Certificate of Title
No. 43989, entered into a Contract of Lease thereover with the herein private respondent, Ursula
Maglente. The lease was for a period of three (3) years at a monthly rental of P3,000.00 during the first
year, P3,189.78 per month in the second year and P3,374.00 monthly for the third year. The lease
contract stipulated:jgc:chanrobles.com.ph

"12. That the LESSOR shall have the right to sell any part of the entire leased land for any amount or
consideration it deems convenient, subject to the condition, however, that the LESSEE shall be notified
about it sixty (60) days in advance; that the LESSEE shall be given the first priority to buy it; and in the
event that the LESSEE cannot afford to buy, the final buyer shall respect this lease for the duration of the
same, except in cases of expropriation."cralaw virtua1aw library

It also prohibited the lessee to "cede, transfer, mortgage, sublease or in any manner encumber the
whole or part of the leased land and its improvements or its rights as LESSEE of the leased land, without
the previous consent in writing of the LESSOR contained in a public instrument."cralaw virtua1aw library

However, after the execution of the lease agreement, respondent Maglente started leasing portions of
the leased area to the herein petitioners, Visitacion Gabelo, Erlinda Abella, Petra Perez, Erlinda
Traquena, Ben Cardinal, Eduardo Traquena, Leopoldo Traquena, Marife Tubalas, Ulysis Mateo, Jocelyn
Fernandez, Alfonso Placido, Leonardo Traquena, Susan Rendon and Mateo Trinidad, who erected their
respective houses thereon.

On March 9, 1987, when the lease contract was about to expire, the Philippine Realty Corporation,
through its Junior Trust and Property Officers, Mr. Leandro Buguis and Mr. Florentino B. Rosario, sent a
written offer to sell subject properties to respondent Ursula Maglente. The said letter
stated:jgc:chanrobles.com.ph

"We wish to inform you that the Archdiocese of Manila has now decided to open for sale the properties
it own (sic) in the District of Intramuros, Manila. However, before we accept offers from other parties
we are of course giving the first priority to our tenants or lessees of Intramuros lots."cralaw virtua1aw
library

Responding to such written offer, Maglente wrote a letter, dated February 2, 1988, to the Roman
Catholic Archbishop of Manila manifesting an intention to exercise her right of first priority to purchase
the property as stipulated in the lease contract.

On February 15, 1988, a Memorandum on the offer of Maglente to purchase the property was prepared
and presented to Msgr. Domingo Cirilos, president of Philippine Realty Corporation, at the offered price
of P1,800.00 per square meter or for a total amount of P1,216,440.00, with a down payment of
P100,000.00; the balance of the purchase price payable within ten (10) years with interest at the rate of
eighteen (18%) percent per annum. Msgr. Cirilos found the offer acceptable and approved the same.

On May 11, 1988, Maglente gave a partial down payment of P25,000.00 and additional P25,000.00 on
May 20, 1988. In a letter, dated January 28, 1989, Maglente informed the said corporation that there
were other persons who were her co-buyers, actually occupying the premises, namely: Consolacion
Berja, Mercedita Ferrer, Thelma Abella and Antonio Ngo within their respective areas of 100, 50, 60 and
400 square meters.

On January 30, 1989 Maglente paid her back rentals of P60,642.16 and P50,000.00 more, to complete
her down payment of P100,000.00.

On February 1989, Philippine Realty Corporation (PRC) received copy of a letter sent by the herein
petitioners to the Archbishop of Manila, Jaime Cardinal Sin, expressing their desire to purchase the
portions of subject property on which they have been staying for a long time. And so, PRC met with the
petitioners who apprised the corporation of their being actual occupants of the leased premises and of
the impending demolition of their houses which Maglente threatened to cause. Petitioners then asked
PRC to prevent the demolition of their houses which might result in trouble and violence.

On February 23, 1989, in order to resolve which group has the right to purchase subject property as
between the petitioners/sublessees of Maglente, and respondent Maglente, and her co-buyers, PRC
brought a Complaint in Interpleader against the herein petitioners and private respondents, docketed as
Civil Case No. 89-48057 before Branch 38 of the Regional Trial Court of Manila.
On March 11, 1991, after trial on the merits, the lower court of origin rendered judgment in favor of
respondent Maglente and her group, disposing thus:jgc:chanrobles.com.ph

"WHEREFORE, premises considered, judgment is hereby rendered as follows:chanrob1es virtual 1aw

library

1. Declaring the defendants Ursula Maglente, Consolacion Berja, Mercedita Ferrer, Thelma Abella and
Antonio Ngo as the rightful party to purchase the land in controversy; and

2. Ordering plaintiff Philippine Realty Corporation to execute the corresponding contract of

sale/contract to sell in favor of the defendants aforementioned in accordance with this Decision within
thirty (30) days from notice thereof."cralaw virtua1aw library

Dissatisfied with the aforesaid decision below, the Gabelo group (petitioners here) appealed to the
Court of Appeals, which affirmed the disposition of the trial court appealed from.

Undaunted, petitioners found their way to this Court via the present petition, assigning as sole error the
ruling of the Court of Appeals upholding the right of the private respondents, Consolacion Berja and
Antonio Ngo, to purchase subject property.

Petitioners theorize that they are tenants of Ursula Maglente on the land in dispute, which they are
occupying, and as such actual occupants they have the preferential right to purchase the portions of
land respectively occupied by them; that the private respondents, Thelma Abella and Antonio Ngo, have
never been occupants of the contested lot, and that, as defined in the Pre-trial Order 1 issued below,
the issue for resolution should have been limited to whether or not Berja and Ngo actually occupied the
premises in question because occupation thereon is the basis of the right to purchase subject area.

Petitioners’ contention is untenable. There is no legal basis for the assertion by petitioners that as actual
occupants of the said property, they have the right of first priority to purchase the same.

As regards the freedom of contract, it signifies or implies the right to choose with whom to contract. PRC
is thus free to offer its subject property for sale to any interested person. It is not duty bound to sell the
same to the petitioners simply because the latter were in actual occupation of the property absent any
prior agreement vesting in them as occupants the right of first priority to buy, as in the case of
respondent Maglente. As a matter of fact, because it (PRC) contracted only with respondent Maglente, it
could even evict the petitioners from the premises occupied by them considering that the sublease
contract between petitioners and Maglente was inked without the prior consent in writing of PRC, as
required under the lease contract. Thus, although the other private respondents were not parties to the
lease contract between PRC and Maglente, the former could freely enter into a contract with them.

So also, the contract of sale having been perfected, the parties thereto are already bound thereby and
petitioners can no longer assert their right to buy. It is well-settled that a contract of sale is perfected
the moment there is a meeting of the minds of the contracting parties upon the thing which is the object
of the contract and upon the price. 2 From the time a party accepts the other party’s offer to sell within
the stipulated period without qualification, a contract of sale is deemed perfected. 3

In the case under consideration, the contract of sale was already perfected - PRC offered the subject lot
for sale to respondent Maglente and her group through its Junior Trust and Property Officers.
Respondent Maglente and her group accepted such offer through a letter addressed to the Roman
Catholic Archbishop of Manila, dated February 2, 1988, manifesting their intention to purchase the
property as provided for under the lease contract. Thus, there was already an offer and acceptance
giving rise to a valid contract. As a matter of fact, respondents have already completed payment of their
down payment of P100,000.00. Therefore, as borne by evidence on record, the requisites under Article
1318 of the Civil Code 4 for a perfected contract have been met.

Anent petitioners’ submission that the sale has not been perfected because the parties have not affixed
their signatures thereto, suffice it to state that under the law, the meeting of the minds between the
parties gives rise to a binding contract although they have not affixed their signatures to its written
form. 5

WHEREFORE, the petition is hereby DENIED for lack of merit and the decision of the Court of Appeals in
CA-G.R. CV No. 33178 AFFIRMED. No pronouncement as to costs.chanroblesvirtuallawlibrary

SO ORDERED.
 SECOND DIVISION

G.R. No. 163562             July 21, 2006

PILIPINAS SHELL PETROLEUM CORPORATION, petitioner,

vs.
CARLOS ANG GOBONSENG, JR., respondent.

DECISION

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Pilipinas Shell Petroleum
Corporation (Pilipinas Shell, hereafter) seeks the reversal and setting aside of the Decision 1 dated
October 10, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 63777, as reiterated in its Resolution2 of
April 13, 2004, reversing an earlier decision of the Regional Trial Court (RTC) of Negros Oriental,
Dumaguete City, Branch 40, in a suit for collection of rentals with damages thereat commenced by the
herein respondent Carlos Ang Gobonseng against, among others, the herein petitioner. The rentals
sought to be collected pertain to a gasoline station at Lot No. 853-A, located at corner Real – Urdaneta
streets, Dumaguete City.

The factual backdrop:

Sometime on January 5, 1982, one Julio Tan Pastor, original owner of Lot No. 853-A, sold it to the
respondent for P1.3 million, albeit in the covering Deed of Absolute Sale executed by the parties, the
amount indicated was only P13,000.00, evidently to avoid payment of the correct legal fees in the
registration and transfer of title to the vendee. On the same date, however, the parties, in order to
reflect their real intentions, executed a Memorandum of Agreement thereunder spelling out the true
terms and conditions of their transaction, to wit:

"1. Purchase price is P1,300,000.00 (P1.3 million);

2. P500,000.00 shall be paid upon the execution of the Deed of Sale. Out of this amount part
shall be paid to whatever mortgage obligation there is with the Philippines National Bank and/or
any other bank involving lot no. 853-A; and its improvements;
 3. Balance of P800,000.00 will be paid in five (5) years at a yearly payment of P160,000.00 the
first payment to be paid one year from date hereof and succeeding four installments every year
thereafter;

4. All obligations or liabilities on or involving lot no. 853-A or its improvements such as electric
bills, water bills, telephone bills, etc., shall be for the account of the VENDOR which if not paid
will be automatically deductible from the first payment of the remaining balance;

5. Real property taxes full for 1981 over lot no. 853-A and its improvements, capital gains tax,
documentary stamp tax, sales tax shall be shouldered by the VENDOR; Registration expenses
shall be shouldered by the VENDEE;

6. Upon the execution of the Deed of Sale, ownership and possession shall automatically pass to
the VENDEE; The VENDOR agrees to pay a penalty of P500.00 for every day of delay in vacating
the property;"

Respondent, armed with the inaccurate Deed of Absolute Sale earlier executed by Julio Tan Pastor, and
notwithstanding the Memorandum of Agreement aforementioned, succeeded in registering the
conveying instrument with the Registry of Deeds and was then issued Transfer Certificate of Title (TCT)
No. 13607 over Lot No. 853-A in his own name.

In the meantime, vendor Tan Pastor presented for encashment the postdated checks issued to him by
respondent as payment for the subject lot. Unfortunately, the drawee bank dishonored those checks for
a variety of reasons, namely, drawn against insufficient funds, stop payment order or closed account.
This prompted vendor Tan Pastor to file against respondent a criminal action for violation of Batas
Pambansa (BP) 22, otherwise known as the Bouncing Checks Law, docketed as Criminal Case No. 7071,
entitled People of the Philippines v. Carlos Ang Gobonseng, Jr., of the xxx.

It appears that prior to the sale of Lot No. 853-A to respondent, Tan Pastor had been operating thereon
a gasoline station, first with Flying A, subsequently with Getty Oil, and later with Basic Land Oil and
Energy Corporation (BLECOR).

In 1982, Pilipinas Shell acquired BLECOR, including all the latter's assets, liabilities and contracts.
Thereafter, Tan Pastor remained as the distributor of Pilipinas Shell products and continued to operate
the gas station on Lot No. 853-A until 1991.

Sometime in 1991, respondent sent demand letters to Pilipinas Shell for payment by the latter of rentals
for its occupancy and use of his property. Responding to said letters, Pilipinas Shell disowned liability for
the rentals, explaining that the gas station on Lot No. 853-A was a dealer-owned filling station, hence
the demands for rental payment must be directed to Tan Pastor. In any event, Pilipinas Shell, hoping for
an amicable settlement of the controversy between respondent and Tan Pastor relative to Lot No. 853-
A, facilitated a meeting between the two.

True enough, on January 30, 1992, thru the efforts of Pilipinas Shell, Tan Pastor and respondent
executed an Agreement3 embodying the following terms and conditions:

"The parties herein have agreed, as follows:

 1. For humanitarian, peace, and other considerations, Carlos A. Gobonseng, Jr., the OWNER,
hereby allows Julio Tan Pastor the use of Lot No. 853-A at Corner Real-Urdaneta Streets,
Dumaguete City, covered by TCT No. 13607, as a gas/ fuel/ gasoline/ oil/ filling, selling and
servicing, station, and for such other use appropriate, or related, to the same, without any
rental for a period of THREE (3) YEARS from January 1st 1992, or up to December 31st
1994, NON-EXTENDIBLE;

2. Consistent with the foregoing, Julio Tan Pastor is authorized to enter into any business
contract with a third person for the use of said property for a period of THREE (3) YEARS from
JANUARY 1st 1992 or up to DECEMBER 31st 1994, the DEADLINE;

3. No construction, renovation or repair, shall be done by Julio Tan Pastor, without the PRIOR
written consent of the owner, Carlos A. Gobonseng, Jr.;

4. All improvements, including old and new constructions, repairs, replacements, and other
removable items, shall automatically belong in ownership to the owner, Carlos A. Gobonseng,
Jr., upon and at the time of completion of construction of work, installation or repair or
replacement, excluding those owned or constructed by Shell Petroleum Corp., or Francisco
"Baludoy" Salva, which shall automatically belong to Carlos Ang Gobonseng, Jr. upon the
expiration of the lease contract which the latter executed in favor of Francisco C. Salva;

5. Subject to the terms and conditions stipulated in the contract of lease between Carlos Ang
Gobonseng, Jr. and Francisco C. Salva, Julio Tan Pastor and children or heirs, or Lessee, or third
person, obligate and undertake to VACATE Lot No. 853-A NOT later than December 31, 1994. On
December 31, 1994, PEACEFUL POSSESSION of the property and premises shall be TURNED
OVER to the owner, Carlos A. Gobonseng, Jr., otherwise, a penalty of P5,000.00 for every day of
delay in vacating the premises is imposed;

6. All the parties herein have no more further claimes against each other, and waived,
abandoned, relinquished, any such claim or claims;

Thereafter, Tan Pastor executed and filed in Criminal Case No. 7071 an Affidavit of Desistance
thereunder making known his lack of interest in further pursuing the case, which was eventually
dismissed.

The controversy could have ended there were it not for the fact that on November 13, 1992, in the RTC
of Negros Oriental, respondent filed a civil suit for collection of rentals and damages against Tan Pastor
and Pilipinas Shell. In his complaint, docketed as Civil Case No. 10389, respondent, as plaintiff, alleged
ownership of Lot No. 853-A on the basis of TCT No. 13607. He further averred that since 1982, he had
been paying the realty taxes due thereon and that Tan Pastor and Pilipinas Shell continued occupying
said lot and using the same as a gasoline and service station without paying rentals therefor. He thus
prayed that judgment be rendered ordering Tan Pastor and petitioner to pay him rentals and damages
for their use and occupation of his lot from 1982 to 1991.

In its Answer, Pilipinas Shell countered that plaintiff's claim for unpaid rentals had no basis because the
gasoline station on his property is a dealer-owned filling station, as evidenced by a certification4 issued
by the president of the Shell Dealers Association of the Philippines. Pilipinas Shell likewise emphasized
that Lot No. 853-A was initially the subject of controversy between respondent and Tan Pastor until
1992 when, thru its efforts, the warring parties executed an Agreement whereunder both (Tan Pastor
and respondent) made it expressly clear that they "have no more further claims against each other, and
waived, abandoned, relinquished, any such claim or claims." On this premise, Pilipinas Shell argued that
respondent's demand for rentals is devoid of any legal or factual basis.

In the meantime, Tan Pastor died, leaving his heirs who were accordingly substituted as Pilipinas Shell's
co-defendant in the case.

On March 15, 1999, the trial court came out with its decision 5 rendering judgment for Pilipinas Shell and
its co-defendants, to wit:

WHEREFORE, premises considered, plaintiff's complaint for collection of rental and damages
against Pilipinas Shell and the heirs of Julio Tan Pastor is hereby dismissed for lack of cause of
action against them.

Further, plaintiff (Gobonseng) is hereby ordered to pay defendant Pilipinas Shell the amount of
P150,000.00 for the other defendants, the heirs of Julio Tan Pastor.

The cross-claim filed by defendant Pilipinas Shell Petroleum Corporation against its co-
defendants, the heirs of Julio Tan Pastor is hereby denied for lack of legal basis.

SO ORDERED.

Therefrom, respondent went to the CA.

As stated at the threshold hereof, the CA, in its Decision 6 of October 10, 2003, reversed that of the trial
court, thus:

"WHEREFORE, in view of the foregoing considerations, the decision appealed from is hereby
REVERSED and SET ASIDE and a new one is entered, ordering appellee Pilipinas Shell Petroleum
Corporation to pay unto appellant: P8,000 per month as reasonable compensation for the use
and occupation of Lot No. 853-A as a Shell refilling station starting from 1982 until 1991 plus
interest at 12% per annum until fully paid and attorney's fees of 20% of the total amount due
the appellant, without prejudice to its cross-claim against its co-defendants, which is hereby
reinstated and prompt resolution of which by the court a quo is hereby directed.

SO ORDERED."

With its motion for reconsideration having been denied by the CA in its equally challenged
Resolution7 of April 13, 2004, Pilipinas Shell is now with this Court raising the following issues:

1) Whether or not the decision of the Honorable Court of Appeals in upholding the ownership
by Respondent of Lot 853-A is in accordance with the provision of Article 1496 of the Civil Code
of the Philippines considering that there was no delivery yet to the Respondent of the property
which was the subject of a contract of sale between him and Julio Tan Pastor;
 2) Whether or not the decision of the Honorable Court of Appeals making the Petitioner liable
for the payment of rentals for the use of Lot 853-A by Julio Tan Pastor as an operator of a
dealer-owned filling station is consistent with Article 1157 of the Civil Code of the Philippines
which provides for the legal sources of obligation;

3) Whether or not the decision of the Honorable Court of Appeals in reversing the findings of
facts of the trial court on the ground that the judge who penned the decision is not the one who
heard the testimonies of all the witnesses, is in accordance with the general rule that the trial
court's decision is to be given credence and accorded due preference by the appellate court.

Then, as now, respondent insists that he had sufficiently established his ownership of Lot No. 853-A thru
the Deed of Absolute Sale, the Memorandum of Agreement between him and Tan Pastor, TCT No.
13607 and his faithful and religious payments of the real estate taxes due on the property. To him, the
existence of a gasoline station in his property since 1982 entitles him to the payment of rentals by
Pilipinas Shell.

Pilipinas Shell, on the other hand, contends that respondent is without cause of action against it. It
asserts non-liability for rentals because the gasoline station on Lot 853-A was operated by Tan Pastor as
a dealer-owned station. Expounding on this concept, Pilipinas Shell explained that in a dealer-owned
filling station, the owner of the lot is at the same time the operator of the station, with Pilipinas Shell
merely providing the dealer-owner with certain equipment and facilities for the operation of his gas
station. Pilipinas Shell further alleged that it was made aware of the change in the ownership of Lot No.
853-A only in the latter part of 1991 when it received a letter from respondent demanding payment of
rentals therefor.

Apparently, Tan Pastor did not see the need to inform Pilipinas Shell of the change in ownership of the
subject lot primarily because according to him, ownership of the lot remained with him until full
payment of the agreed price shall have been effected. As it appears, Pilipinas Shell totally believed Tan
Pastor's representation since there was indeed a pending criminal case for violation of BP 22 against
respondent, coupled by the fact that Tan Pastor continued to be in possession and use of Lot No. 853-A
as a filling and service station for Pilipinas Shell's petroleum products until 1992.

We grant the petition.

Anent the issue of ownership of Lot No. 853-A, we hold that this particular question has already been
rendered moot by subsequent events and acts of respondent and Tan Pastor. Significantly, respondent
and Tan Pastor both admit and agree that said lot was the subject of the Deed of Absolute Sale between
them. Despite contrasting allegations on the payment of the contract price, both agreed on the object
and consideration of the sale.

It must be stressed that a contract of sale is not a real, but a consensual contract. In Buenaventura v.
Court of Appeals,8 this Court made it clear that a contract of sale, being consensual in nature, becomes
valid and binding upon the meeting of the minds of the parties as to the object and the price. If there is
a meeting of the minds, the contract is valid despite the manner of payment, or even if the manner of
payment was breached.
In fine, it is not the act of payment of the contract price that determines the validity of a contract of sale.
The manner of payment and the payment itself of the agreed price have nothing to do with the
perfection of the contract. Payment of the price goes into the performance of the contract. Failure of a
party to effect payment of the contract price results in a right to demand the fulfillment or cancellation
of the obligation under an existing valid contract. 9

Here, the controversy between Tan Pastor and respondent with respect to the manner of payment or
the breach thereof does not vitiate the validity and binding effect of their contract of sale. In this light,
respondent cannot thus be faulted for registering the document of sale and successfully securing TCT
No. 13607 covering Lot No. 853-A in his name.

However, coming to the more basic issue herein of whether or not respondent is entitled to the
payment of rentals by Pilipinas Shell for the use and occupancy of Lot No. 853-A, the Court finds and so
holds that respondent's claim has no basis in fact and in law.

To the mind of the Court, respondent's entitlement to rentals turns on the nature of the gasoline station
being operated by Tan Pastor on the subject lot. To resolve this, we must necessarily venture into
determining whether the gasoline station thereat was dealer-owned or company-owned. Undoubtedly,
this exercise involves an examination of facts which is normally beyond the ambit of this Court. For,
well-settled is the rule that this Court, not being a trier of facts, does not normally embark in the
evaluation of evidence adduced during trial. The rule, however, admits of exceptions. So it is that
in Sampayan v. Court of Appeals,10 the Court held:

"[i]t is a settled rule that in the exercise of the Supreme Court's power of review, the Court is not
a trier of facts and does not normally undertake the re-examination of the evidence presented
by the contending parties' during the trial of the case considering that the findings of facts of the
CA are conclusive and binding on the Court. However, the Court had recognized several
exceptions to this rule, to wit: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its
findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to
the admissions of both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of 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 respondent; (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence on record; and (11) when
the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion."

To the Court, exceptions (5), (7) and (11), above, find application in the instant case. And after a careful
evaluation of the evidence, the Court finds for the petitioner.

To begin with, the trial court's conclusion that Tan Pastor operated the gasoline station in his capacity
as dealer-owner is well-supported by the evidence on record. Pilipinas Shell has shown clear and
convincing proof that the outlet at Lot No. 853-A was dealer-owned gas station as per the Certification
of the president of the Shell Dealers Association of the Philippines. It may be that such a certification,
coming as it does from the president of petitioner's dealers association, does not warrant the probative
value it otherwise deserves. It bears emphasis, however, that respondent himself does not dispute the
fact that he never demanded rental payments from Tan Pastor from 1982 to 1991. It was only after the
criminal case for bouncing checks was dismissed that he claimed entitlement to rentals. Prior thereto,
he never demanded for any rental payment, much less instituted any action to enforce the same.

Besides, and as correctly observed by the trial court, there was an admission by the respondent himself
that, since 1982 up to 1991, he had been in the possession of Lot No. 853-A and nobody else. Coming as
it does from the respondent no less, that statement commands great weight and respect. The lower
court succinctly summarizes:

"There was no legal basis for plaintiff Carlos Gobonseng, Jr. to demand payment from Pilipinas Shell as
he himself admitted that he was in possession of the property from 1982 to 1991. As his testimony is
against his interest, it became more believable the lack of legal anchorage to base his demand for rental
payment from 1982 to 1992. No less than the Court who asked him the questions and hereunder is his
answer:

"Court:

Q -- Who was in possession of the property since 1982 up to 1991?

A -- I am the actual possessor from 1982 to 1991.

Q -- Is it not a fact that it was Julio Tan Pastor's who was in possession of that property since
1982 and up to 1991?

A -- No, it is not, Your Honor.

xxxxxx

Q -- You mean to tell the Court that prior to 1992 Julio Tan Pastor was not in possession of the
property in question?

A -- Not in possession, Your Honor. As an operator, Your Honor, selling the shell products, Your
Honor.

Q -- Who was in possession of that property?

A -- Me, myself, Your Honor." (TSN, p. 5, 5-29-96)

What is more, respondent and Tan Pastor had already executed an Agreement 11 whereunder they
declared that they had "no more further claims against each other, and waived, abandoned,
relinquished, any such claim or claims." If anything else, such declaration evidenced respondent's stance
in not collecting rentals for the use of the subject property as he even in fact allowed Tan Pastor the
"use of Lot No. 853-A at Corner Real-Urdaneta Streets, Dumaguete City, covered by TCT No. 13607, as a
gas/ fuel/ gasoline/ oil/ filling, selling and servicing, station, and for such other use appropriate, or
related, to the same, without any rental for a period of THREE (3) YEARS from January 1st 1992, or up
to December 31st 1994, NON-EXTENDIBLE." (Emphasis supplied.)

Thus, respondent is now estopped from demanding payment of rentals from Tan Pastor or Pilipinas
Shell. In Bank of the Philippine Islands v. Casa Montessori International,12 we ruled:

"Estoppel precludes individuals from denying or asserting, by their own deed or representation,
anything contrary to that established as the truth, in legal contemplation. Our rules on evidence
even make a juris et de jure presumption that whenever one has, by one's own act or omission,
intentionally and deliberately led another to believe a particular thing to be true and to act upon
that belief, one cannot – in any litigation arising from such act or omission – be permitted to
falsify that supposed truth."

Lastly, respondent insists that Pilipinas Shell had recognized his ownership of Lot No. 853-A and his right
to collect rentals when the latter, through a letter, 13 sought his permission to refurbish the gasoline
station located thereat.

We are not persuaded.

A careful scrutiny of the letter referred to would reveal that it was made and sent to respondent on
February 7, 1992, a few days after Tan Pastor and respondent had made amends and executed an
Agreement to waive any and all further claims against each other. Clearly, Pilipinas Shell was made
aware of this development and the change in the ownership of Lot No. 853-A. To reiterate, Pilipinas
Shell was even instrumental in this amicable settlement of the controversy between respondent and Tan
Pastor. Hence, it is but proper for Pilipinas Shell to address respondent in seeking permission to make
any improvements on the lot.

We note that in the decision under review, the CA made a finding that there is not enough evidence for
it to competently pass upon and make a ruling on the nature of the gasoline station situated on Lot No.
853-A. We rule and so hold that such a finding all the more strengthens the trial court's decision as more
in accord with the evidence adduced in the course of the proceedings thereat. As it is, the trial court's
decision reflects and shows its distinct advantage of having heard the witnesses themselves, observed
their deportment and their manner of testifying and behavior during trial.

Finally, respondent submits that the CA correctly set aside the trial court's decision on the ground that
the judge who heard most of the witnesses was other than the judge who ultimately penned the
decision in the case. On this score, respondent argues that the findings of fact of the trial court cannot
be given credence and accorded due deference.

The Court does not agree. The circumstance that the judge who wrote the decision had not heard the
testimonies of the witnesses does not automatically taint his decision. Here, the decision of the trial
court made reference to several transcripts of stenographic notes taken in the course of trial. Likewise,
several exhibits were referred to and used as evidence to substantiate the trial court's conclusions. The
validity of a decision is not necessarily impaired by the fact that its ponente only took over from a
colleague who had earlier presided at the trial. This circumstance alone cannot be the basis for the
reversal of the trial court's decision unless there is a clear showing of grave abuse of discretion in the
appreciation or a misapprehension of the facts, 14 of which we find none.
WHEREFORE, the instant petition is GRANTED and the assailed Decision and Resolution of the CA
are REVERSED and SET ASIDE. The decision dated March 15, 1999 of the RTC in Civil Case No. 10389
is REINSTATED.

No pronouncement as to costs.

SO ORDERED.
PHILIPPINE SUPREME COURT DECISIONS

SECOND DIVISION

[G.R. NO. 171399 : May 8, 2009]

VICENTA CANTEMPRATE, ZENAIDA DELFIN, ELVIRA MILLAN, FEVITO G. OBIDOS, MACARIO YAP, CARMEN
YAP, LILIA CAMACHO, LILIA MEJIA, EMILIA DIMAS, ESTRELLA EUGENIO, MILAGROS L. CRUZ, LEONARDO
ECAT, NORA MASANGKAY, JESUS AYSON, NILO SAMIA and CARMENCITA LORNA RAMIREZ, Petitioners, v.
CRS REALTY DEVELOPMENT CORPORATION, CRISANTA SALVADOR, CESAR CASAL, BENNIE CUASON and
CALEB ANG, Respondents.

DECISION

TINGA, J.:

This is a Petition for Review on Certiorari 1 under Rule 45 of the 1997 Rules of Civil Procedure assailing
the decision2 and resolution3 of the Court of Appeals in CA-G.R. SP No. 81859. The Court of Appeals
decision affirmed the decision4 of the Office of the President, which adopted the decision5 of the
Housing Land Use and Regulatory Board (HLURB) dismissing petitioners' complaint for lack of
jurisdiction, while the resolution denied petitioners' motion for reconsideration.

The following factual antecedents are matters of record.

Herein petitioners Vicenta Cantemprate, Zenaida Delfin, Elvira Millan, Fevito G. Obidos, Macario Yap,
Carmen Yap, Lilia Camacho, Lilia Mejia, Emilia Dimas, Estrella Eugenio, Milagros L. Cruz, Leonardo Ecat,
Nora Masangkay, Jesus Ayson, Nilo Samia, Carmencita Morales and Lorna Ramirez were among those
who filed before the HLURB a complaint6 for the delivery of certificates of title against respondents CRS
Realty Development Corporation (CRS Realty), Crisanta Salvador and Cesar Casal.7

The complaint alleged that respondent Casal was the owner of a parcel of land situated in General
Mariano Alvarez, Cavite known as the CRS Farm Estate while respondent Salvador was the president of
respondent CRS Realty, the developer of CRS Farm Estate. Petitioners averred that they had bought on
an installment basis subdivision lots from respondent CRS Realty and had paid in full the agreed
purchase prices; but notwithstanding the full payment and despite demands, respondents failed and
refused to deliver the corresponding certificates of title to petitioners. The complaint prayed that
respondents be ordered to deliver the certificates of title corresponding to the lots petitioners had
purchased and paid in full and to pay petitioners damages.8

An amended complaint9 was subsequently filed impleading other respondents, among them, the Heirs
of Vitaliano and Enrique Laudiza, who were the predecessors-in-interest of respondent Casal, herein
respondents Bennie Cuason and Caleb Ang, to whom respondent Casal purportedly transferred the
subdivision lots and one Leticia Ligon. The amended complaint alleged that by virtue of the deed of
absolute sale executed between respondent Casal and respondents Ang and Cuason, Transfer Certificate
of Title (TCT) No. 669732 covering the subdivided property was issued in the names of respondents Ang
and Cuason as registered owners thereof.10

The amended complaint prayed for additional reliefs, namely: (1) that petitioners be declared the lawful
owners of the subdivision lots; (2) that the deed of absolute sale executed between respondent Casal
and respondents Cuason and Ang and TCT No. 669732 be nullified; and (3) that respondents Cuason and
Ang be ordered to reconvey the subdivision lots to petitioners.11

In his answer,12 respondent Casal averred that despite his willingness to deliver them, petitioners
refused to accept the certificates of title with notice of lis pendens covering the subdivision lots. The
notice of lis pendens pertained to Civil Case No. BCV-90-14, entitled "Heirs of Vitaliano and Enrique
Laudiza, represented by their Attorney-In-Fact Rosa Medina, Plaintiffs, v. Cesar E. Casal, CRS Realty and
Development Corporation and the Register of Deeds of Cavite, Defendants," which was pending before
the Regional Trial Court (RTC), Branch 19, Bacoor, Cavite. Leticia Ligon was said to have intervened in the
said civil case.13

By way of special and affirmative defenses, respondent Casal further averred that the obligation to
deliver the certificate of titles without encumbrance fell on respondent CRS Realty on the following
grounds: (1) as stipulated in the subdivision development agreement between respondents Casal and
CRS Realty executed on 06 September 1988, the certificates of title of the subdivision lots would be
transferred to the developer or buyers thereof only upon full payment of the purchase price of each lot;
(2) the contracts to sell were executed between petitioners and respondent CRS Realty; and (3) the
monthly amortizations were paid to respondent CRS Realty and not to respondent Casal.14

Respondent Casal also alleged that he subsequently entered into a purchase agreement over the unsold
portions of the subdivision with respondents Ang, Cuason and one Florinda Estrada who assumed the
obligation to reimburse the amortizations already paid by petitioners.15

In her answer, respondent Salvador alleged that the failure by respondent Casal to comply with his
obligation under the first agreement to deliver to CRS or the buyers the certificates of title was caused
by the annotation of the notice of lis pendens on the certificate of title covering the subdivision
property. Respondent Salvador further averred that the prior agreements dated 6 September 1988 and
08 August 1989 between respondents Casal and CRS Realty were superseded by an agreement dated 30
August 1996 between respondents Casal and Salvador. In the subsequent agreement, respondent Casal
purportedly assumed full responsibility for the claims of the subdivision lot buyers while respondent
Salvador sold her share in CRS Realty and relinquished her participation in the business.

Respondents Ang and Cuason claimed in their answer with counterclaim16 that respondent Casal
remained the registered owner of the subdivided lots when they were transferred to them and that the
failure by petitioners to annotate their claims on the title indicated that they were unfounded.
Respondent CRS Realty and the Heirs of Laudiza were declared in default for failure to file their
respective answers.17

On 18 December 1998, HLURB Arbiter Ma. Perpetua Y. Aquino rendered a decision18 primarily ruling
that the regular courts and not the HLURB had jurisdiction over petitioners' complaint, thus, the
complaint for quieting of title could not be given due course. The Heirs of Laudiza and Ligon were
dropped as parties on the ground of lack of cause of action. However, she found respondents CRS
Realty, Casal and Salvador liable on their obligation to deliver the certificates of title of the subdivision
lots to petitioners who had paid in full the purchase price of the properties. She also found as fraudulent
and consequently nullified the subsequent transfer of a portion of the subdivision to respondents Ang
and Cuason.

The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, judgement [sic] is hereby rendered as follows:

1) For respondents CRS Realty and Development Corp., Crisanta Salvador, and Cesar Casal to, jointly and
severally:

a) cause the delivery or to deliver the individual titles, within thirty (30) days from the finality of the
decision, to the following complainants who have fully paid the purchase price of their lots, and to
whom Deeds of Sale were issued, to wit:

1. Vicenta Cantemprate = Lots 1 to 8 Block 2

Lots 5 & 6 Block 13

2. Leonardo/Felicidad Ecat = Lots 21, 23 & 25 Block 11

3. Jesus Ayson = Lot 2 Block 9

4. Lilia Camacho = Lot 4 Block 11

5. Zenaida Delfin = Lot 2 Block 3

6. Natividad Garcia = Lot 8 Block 11

7. Nora Masangkay = Lot 7 Block 13

8. Elvira Millan = Lot 10 Block 13

9. Fevito Obidos = Lot 1 Block 3

10. Josefina Quinia = Lot 1 & 2 Block 12

11. Nilo Samia = Lot 1 Block 9

12. Rosel Vedar = Lot 10 Block 4

13. Macario/Carmen Yap = Lot 14 Block 4

14. Estrella/Danilo Eugerio = Lot 10 Block 5

15. Nerissa Cabanag = Lot 5 Block 4

16. Milagros Cruz = Lots 11 & 13 to 16 Block 3

17. Erlinda Delleva = Lot 6 Block 4

18. Lilia Mejia = Lot 2 & 3 Block 4

19. Carmen Yap/H. Capulso = Lot 13 Block 11

20. Mercedes Montano = Lot 4 Block 4

21. Teresita Manuel = Lot 11 Block 5

22. Amalia Sambile = Lot 3 Block 3

23. Carmencita Lorna Ramirez = Lot 13 Block 13

24. Emilia Dimas = Lot 16 Block 13

25. Rosita Torres = Lot 2 Block 13

26. Alladin Abubakar = Lot 9 Block 6

27. Manuel Andaya = Lot 5 & 6 Block 11

28. Remigio Araya = Lot 11 Block 4

29. J. Ayson/R. Elquiero = Lot 5 Block 3

30. L. Bernal/D. Morada = Lot 19 Block 11

31. Rosa Nely Buna = Lot 9 Block 5

32. Nestor Calderon = Lot 6 Block 3

33. Ernesto Capulso = Lot 15 Block 11

34. Jorge Chiuco = Lots 12, 13 & 15 to 17 Block 4

35. Carolina Cruz = Lot 4 Block 14

36. Erna Daniel = Lot 6 Block 5

37. Zenaida De Guzman = Lots 19, 20 & 21 Block 10

38. Joselito De Lara = Lot 1 Block 11

39. J. De Lara/N. Gusi = Lot 11, Block 11

40. Virginia De La Paz = Lot 22, Block 11

41. Anastacia De Leon = Lot 10, Block 11

42. Salvador De Leon = Lot 7 & 8 Block 4

43. Josefina De Vera = Lot 20 Block 11

44. Julieta Danzon = Lot 4 Block 13

45. Constancia Diestro = Lot 17 Block 13

46. Corazon Ducusin = Lots 14, 16 & 18 Block 11

47. Juanita Flores = Lots 2 & 4 Block 5

48. Remedios Galman = Lot 12 Block 11

49. Mila Galamay = Lot 12 Block 5

50. Grace Baptist Church = Lot 24 Block 11

51. Rizalina Guerrero = Lot 26 Block 10

52. Nema Ida = Lot 9 Block 4

53. Milagros Jamir = Lot 8 Block 13

54. Violeta Josef = Lots 3 & 5 Block 5

55. Marivic Ladines = Lot 3 Block 13

56. Eulogio Legacion = Lots 8 & 9 Block 3

57. Emerita Mauri = Lot 12 Block 3

58. Mina Mary & Co. = Lot 1 Block 4

59. Babyrose Navarro = Lot 22 Block 10

60. Lauretto Nazarro = Lots 14 to 18 Block 10

61. Amelia Nomura = Lots 4 & 5 Block 9

62. Virgilio Ocampo = Lot 5 Block 12

63. Norma Paguagan = Lot 8 Block 12

64. Nicostrato Pelayo = Lots 7 & 9 Block 11

65. Gloria Racho = Lot 1 Block 5

66. Pepito Ramos = Lot 9 Block 13

67. Pedro Rebustillo = Lot 8 Block 5

68. S. Recato/A. Rebullar = Lot 11 Block 13

69. Laura Regidor = Lot 4 Block 3

70. Zenaida Santos = Lot 7 Block 5

71. R. Sarmiento/H. Eugenio = Lot 1 Block 13

72. Lourdes Teran = Lot 17 Block 6

73. R. Valdez/F. Corre = Lot 3 Block 9

74. Teodoro Velasco = Lot 17 Block 11

75. Edgardo Villanueva = Lots 1 to 5 Block 1

76. Gregorio Yao = Lots 2 & 3 Block 11

77. Willie Atienza = Lot 3 Block 12

78. Z. Zacarias/A. Guevarra = Lot 6 Block 12

That as concern[ed] complainant LEONARDO/FELICIDAD ECAT, whose total lost area is deficient by 278
square meters from the 2,587 square meters provided for in the Contract to Sell and that covered by the
Deed of Sale which is 2,309 square meters, for respondents to deliver the deficiency by the execution of
the Deed of Sale on the said portion and the delivery of the titles on their three (3) lots.

b) submit to the Register of Deeds of Trece Martires City, Cavite a certified true copy of the approved
subdivision plan of CRS Farm Estate, as well as photocopies of the technical description of complainants'
individual lots, blue prints and tracing cloth: In the event that said respondents cannot surrender said
documents, complainants are hereby ordered to secure said documents and be the ones to submit them
to the Register of Deeds;

c) to refund to complainants the expenses they ve incurred in registering their individual Deeds of Sale
with the Register of Deeds of Trece Martires City, Cavite;
d) pay each of the complainants the sum of P10,000.00[,] as actual damages; the sum of P15,000.00[,] as
moral damages; and the sum of P20,000.00[,] as exemplary damages;

e) pay complainants the sum of P30,000.00 as and by way of attorney's fees;

f) pay to the Board the sum of P20,000.00 as administrative fine for violation of section 25 of P.D. No.
957 in relation to sections 38 and 39 of the same decree.

2.) The sale of the subject property in whole to respondents Caleb Ang and Bennie Cuason is hereby
declared annulled and of no effect especially that which pertains to the portion of the subdivision which
have already been previously sold by the respondent CRS Realty to herein complainants, prior to the
sale made by respondent Cesar Casal to Caleb Ang and Bennie Cuason. As a consequence thereof,
respondents Ang and Cuason are hereby ordered to surrender to the Register of Deeds of Trece
Martires City, Cavite, the owner's duplicate copy of TCT No. 669732 in order for the said Register of
Deeds to issue the corresponding certificates of title to all complainants named herein;

3.) The Register of Deeds of Trece Martires City, Cavite is hereby ordered to cancel TCT No. 669732 and
reinstate TCT No. T-2500 in the name of Cesar Casal, from which the individual titles of herein
complainants would be issued, with all the annotations of encumbrances inscribed at the back of TCT
No. 669732 carried over to the said reinstated title.

All other claims and counterclaims are hereby dismissed.

SO ORDERED.19

From the decision of the HLURB Arbiter, respondents Casal, Cuason and Ang, as well as Leticia Ligon,
filed separate petitions for review before the Board of Commissioners (Board).

On 22 November 1999, the Board rendered a decision,20 affirming the HLURB Arbiter's ruling that the
HLURB had no jurisdiction over an action for the quieting of title, the nullification of a certificate of title
or the reconveyance of a property. Notably, the Board referred to an earlier case, HLURB Case No. REM-
A-0546, involving respondent Casal and the Heirs of Laudiza, where the Board deferred the issuance of a
license to sell in favor of CRS Farm Estate until the issue of ownership thereof would be resolved in Civil
Case No. BCV-90-14 pending before the RTC of Bacoor, Cavite.

Furthermore, the Board ruled that to allow petitioners to proceed with the purchases of the subdivision
lots would be preempting the proceedings before the RTC of Bacoor, Cavite and compounding the
prejudice caused to petitioners. Thus, the Board dismissed the complaint for quieting of title but
ordered the refund of the amounts paid by petitioners and other buyers to CRS Realty, to wit:

WHEREFORE, premises considered, judgment is hereby rendered, MODIFYING the Decision dated
December 18, 1998 by the Office below, to wit:

1. The complaint for quieting of title against Cesar Casal, Bennie Cuason, Caleb Ang, Heirs of Vitaliano
and Enrique Laudiza, and Leticia Ligon is DISMISSED for lack of jurisdiction.

2. Ordering CRS Realty and/or any of the Officers to refund to complainants for all payments made plus
12% from the time the contract to sell is executed until fully paid.

3. All other claims and counterclaims are hereby DISMISSED.

4. Directing CRS to pay P10,000.00 as administrative fine for each and every sale without license.

Let case be referred to the Legal Services Group (LSG) for possible criminal prosecution against the
Officers of CRS Realty and Casal.

SO ORDERED.21
Ligon, respondent Casal and herein petitioners filed separate motions for reconsideration. On 28
November 2000, the Board issued a resolution,22 modifying its Decision dated 22 November 2009 by
imposing the payment of damages in favor of petitioners, thus:

WHEREFORE, based on the foregoing:

1. The decision of this Board dated November 22, 1999 is hereby MODIFIED to read as follows:

WHEREFORE, premises considered, judgment is hereby rendered, MODIFYING the Decision dated
December 18, 1998 by the Office below, thus:

1. The complaint for quieting of title against Cesar Casal, Bennie Cuason, Caleb Ang, Heirs of Vitaliano
and Enrique Laudiza and Leticia Ligon is DISMISSED for lack of jurisdiction;

2. CRS Realty and/or any of the officers jointly and severally is/are ordered to refund to complainants, at
the complainant's option, all payments made for the purchase of the lots plus 12% interest from the
time the contract to sell is executed until fully paid and cost of improvement, if any;

3. CRS Realty and/or any of its officers jointly and severally is/are ordered [to] pay each of the
complainants the sum of P30,000.00 as and by way [of] moral damages, P30,000.00 as and by way of
exemplary damages, and P20,000.00 as attorney's fees;

4. CRS Realty and/or any of its officers is/are hereby ordered to pay this Board P10,000.00 as
administrative fine for each and every sale executed without license

5. All other claims and counterclaims are hereby DISMISSED.

Let the case be referred to the Legal Services Group (LSG) for possible criminal prosecution against the
officers of CRS Realty and Casal.
2. Complainants' Motion for Reconsideration, save in so far as we have above given due course, is
hereby DISMISSED.

3. Likewise respondents' Motion for Reconsideration are hereby DISMISSED for lack of merit.

4. Respondent Bennie Cuason's Motion to Cancel Lis Pendens is hereby DENIED, the same being
premature.

Let the records be elevated to the Office of the President in view of the appeal earlier filed by
complainants.

SO ORDERED.23

Upon appeal, the Office of the President (OP) on 03 December 2003 affirmed in toto both the decision
and resolution of the Board.24 Aggrieved, petitioners elevated the matter to the Court of Appeals via a
Rule 43 Petition for Review .

Before the Court of Appeals, petitioners argued that the OP erred in rendering a decision which adopted
by mere reference the decision of the HLURB and that the HLURB erred in ruling that it had no
jurisdiction over petitioners' complaint, in not nullifying the deed of absolute sale executed between
respondent Casal and respondents Cuason and Ang and in ordering the refund of the amounts paid by
petitioners for the subdivision lots.25

On 21 June 2005, the Court of Appeals rendered the assailed decision,26 affirming the OP Decision
dated 03 December 2003. On 03 February 2006, the appellate court denied petitioners' motion for
reconsideration for lack of merit.27

Hence, the instant petition, essentially praying for judgment ordering the cancellation of the deed of
absolute sale entered between respondent Casal, on the one hand, and respondents Ang and Cuason,
on the other, the delivery of the certificates of title of the subdivision lots, and the payment of damages
to petitioners.

Petitioners have raised the following issues: (1) whether or not the absence of a license to sell has
rendered the sales void; (2) whether or not the subsequent sale to respondent Cuason and Ang
constitutes double sale; (3) whether or not the HLURB has jurisdiction over petitioners' complaint; and
(4) whether a minute decision conforms to the requirement of Section 14, Article VIII of the
Constitution.28

We shall resolve the issues in seriatim.

Petitioners assail the Court of Appeals' ruling that the lack of the requisite license to sell on the part of
respondent CRS Realty rendered the sales void; hence, neither party could compel performance of each
other's contractual obligations.

The only requisite for a contract of sale or contract to sell to exist in law is the meeting of minds upon
the thing which is the object of the contract and the price, including the manner the price is to be paid
by the vendee. Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or
conditional, one of the contracting parties obliges himself to transfer the ownership of and deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.29

In the instant case, the failure by respondent CRS Realty to obtain a license to sell the subdivision lots
does not render the sales void on that ground alone especially that the parties have impliedly admitted
that there was already a meeting of the minds as to the subject of the sale and price of the contract. The
absence of the license to sell only subjects respondent CRS Realty and its officers civilly and criminally
liable for the said violation under Presidential Decree (P.D.) No. 95730 and related rules and regulations.
The absence of the license to sell does not affect the validity of the already perfected contract of sale
between petitioners and respondent CRS Realty.

In Co Chien v. Sta. Lucia Realty and Development, Inc.,31 the Court ruled that the requisite registration
and license to sell under P.D. No. 957 do not affect the validity of the contract between a subdivision
seller and buyer. The Court explained, thus:
A review of the relevant provisions of P.D. [No.] 957 reveals that while the law penalizes the selling
subdivision lots and condominium units without prior issuance of a Certificate of Registration and
License to sell by the HLURB, it does not provide that the absence thereof will automatically render a
contract, otherwise validly entered, void. Xxx

As found by the Court of Appeals, in the case at bar, the requirements of Sections 4 and 5 of P.D. [No.]
957 do not go into the validity of the contract, such that the absence thereof would automatically
render the contract null and void. It is rather more of an administrative convenience in order to allow a
more effective regulation of the industry. x x x32

The second and third issues are interrelated as they pertain to whether the HLURB has jurisdiction over
petitioners' complaint for the delivery of certificates of titles and for quieting of title.

Petitioners are partly correct in asserting that under Section 1 of P.D. No. 1344,33 an action for specific
performance to compel respondents to comply with their obligations under the various contracts for the
purchase of lots located in the subdivision owned, developed and/or sold by respondents CRS Realty,
Casal and Salvador is within the province of the HLURB.

The HLURB has exclusive jurisdiction over the complaint for specific performance to compel respondents
CRS Realty, Casal and Salvador as subdivision owners and developers to deliver to petitioners the
certificates of title after full payment of the subdivision lots. On this score, the Court affirms the findings
of HLURB Arbiter Aquino with respect to the obligation of respondents Casal, Salvador and CRS Realty to
deliver the certificates of title of the subdivision to petitioners pursuant to their respective contracts to
sell.

Indeed, under Section 25 of P.D. No. 957, among the obligations of a subdivision owner or developer is
the delivery of the subdivision lot to the buyer by causing the transfer of the corresponding certificate of
title over the subject lot.34 The provision states:

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer
upon full payment of the lot or unit. No fee, except those required for the registration of the deed of
sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage
over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or
developer shall redeem the mortgage or the corresponding portion thereof within six months from such
issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer
in accordance herewith.

In the instant case, the contract to sell itself expressly obliges the vendor to cause the issuance of the
corresponding certificate of title upon full payment of the purchase price, to wit:

3. Title to said parcel of land shall remain in the name of the VENDOR until complete payment of the
agreed price by the VENDEE and all obligations herein stipulated, at which time the VENDOR agrees to
cause the issuance of a certificate of title in the Land Registration Act and the restrictions as may be
provided in this Contract.35

From the foregoing it is clear that upon full payment, the seller is duty-bound to deliver the title of the
unit to the buyer. Thus, for instance, even with a valid mortgage over the lot, the seller is still bound to
redeem said mortgage without any cost to the buyer apart from the balance of the purchase price and
registration fees.36

There is no question that respondents Casal, Salvador and CRS Realty breached their obligations to
petitioners under the contracts to sell. It is settled that a breach of contract is a cause of action either for
specific performance or rescission of contracts.37 Respondents Casal, Salvador and CRS Realty have the
obligation to deliver the corresponding clean certificates of title of the subdivision lots, the purchase
price of which have been paid in full by petitioners. That the subject subdivision property is involved in a
pending litigation between respondent Casal and persons not parties to the instant case must not
prejudice petitioners.

Respondents' obligation to deliver the corresponding certificates of title is simultaneous and reciprocal.
Upon the full payment of the purchase price of the subdivision lots, respondents' obligation to deliver
the certificates of title becomes extant. Respondents must cause the delivery of the certificates of title
to petitioners free of any encumbrance. But since the lots are involved in litigation and there is a notice
of lis pendens at the back of the titles involved, respondents have to be given a reasonable period of
time to work on the adverse claims and deliver clean titles to petitioners. The Court believes that six (6)
months is a reasonable period for the purpose.
Should respondents fail to deliver such clean titles at the end of the period, they ought to pay
petitioners actual or compensatory damages. Article 1191 of the Civil Code sanctions the right to rescind
the obligation in the event that specific performance becomes impossible, to wit:

Art. 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.38

Rescission creates the obligation to return the object of the contract. It can be carried out only when the
one who demands rescission can return whatever he may be obliged to restore. Rescission abrogates
the contract from its inception and requires a mutual restitution of the benefits received.39 Thus,
respondents Casal, Salvador and CRS Realty must return the benefits received from the contract to sell if
they cannot comply with their obligation to deliver the corresponding certificates of title to petitioners.

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 and not to
impose a penalty.40 Also, under Article 2200, indemnification for damages shall comprehend not only
the value of the loss suffered, but also that of the profits which the obligee failed to obtain. Thus, there
are two kinds of actual or compensatory damages: one is the loss of what a person already possesses,
and the other is the failure to receive as a benefit that which would have pertained to him.41

In the event that respondents Casal, Salvador and CRS Realty cannot deliver clean certificates of title to
petitioners, the latter must be reimbursed not only of the purchase price of the subdivision lots sold to
them but also of the incremental value arising from the appreciation of the lots. Thus, petitioners are
entitled to actual damages equivalent to the current market value of the subdivision lots.

In Solid Homes, Inc. v. Spouses Tan,42 the Court ordered instead the payment of the current market
value of the subdivision lot after it was established that the subdivision owner could no longer comply
with its obligation to develop the subdivision property in accordance with the approved plans and
advertisements.

On this score, in its Decision dated 28 November 2000 which was affirmed by the OP and the Court of
Appeals, the Board found respondent CRS Realty and its officers solidarily liable to refund the
complainants or herein petitioners the installments paid by them including interest, to pay them moral
and exemplary damages and attorney's fees and to pay the corresponding fine to the Board. The
decision, however, failed to name the responsible officers of respondent CRS Realty who should be
solidarily liable petitioners.

The 18 December 1998 Decision of the HLURB Arbiter is quite instructive on this matter, thus:

Obviously, respondents CRS Realty Development Corporation, Crisanta R. Salvador and Cesar E. Casal,
avoided responsibility and liability for their failure to comply with their contractual and statutory
obligation to deliver the titles to the individual lots of complainants, by "passing the buck" to each other.
The Board[,] however, is not oblivious to the various schemes willfully employed by developers and
owners of subdivision projects to subtly subvert the law, and evade their obligations to lot buyers, as it
finds the justifications advanced by respondents CRS Realty Development Corp., Crisanta R. Salvador,
and Cesar E. Casal grossly untenable. The failure in the implementation of the agreement dated 06
September 1998 entered into by respondent CRS, Salvador and Casal involving the subject property
should not operate and work to prejudice complainants, who are lot buyers in good faith and who have
complied with their obligations by paying in full the price of their respective lots in accordance with the
terms and conditions of their contract to sell. Respondent Casal is not without recourse against
respondents CRS Realty or Salvador for the violation of their agreement and as such, the same reason
could not be made and utilized as a convenient excuse to evade their obligation and responsibility to
deliver titles to complainants.

Under the so called "doctrine of estoppel," where one of two innocent persons, as respondents CRS
Development Corp./Crisanta R. Salvador and Cesar E. Casal claimed themselves to be, must suffer, he
whose acts occasioned the loss must bear it. In the herein case, it is respondents' CRS Realty
Development Corp./Crisanta Salvador and Cesar E. Casal who must bear the loss. x x x43

In denying any liability, respondent Salvador argues that even before the filing of the case before the
HLURB, the agreements between her and respondent Casal involving the development and sale of the
subdivision lots were superseded by an agreement dated 30 August 1996, whereby respondent Casal
purportedly assumed full responsibility over the claims of the subdivision lot buyers while respondent
Salvador sold her share in CRS Realty and relinquished her participation in the business.

The subsequent agreement which purportedly rescinded the subdivision development agreement
between respondents Casal and Salvador could not affect third persons like herein petitioners because
of the basic civil law principle of relativity of contracts which provides that contracts can only bind the
parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such
contract and has acted with knowledge thereof.44 The fact remains that the contracts to sell involving
the subdivision lots were entered into by and between petitioners, as vendees, and respondent
Salvador, on behalf of respondent CRS Realty as vendor. As one of the responsible officers of respondent
CRS Realty, respondent Salvador is also liable to petitioners for the failure of CRS Realty to perform its
obligations under the said contracts and P.D. No. 957, notwithstanding that respondent Salvador had
subsequently divested herself of her interest in the CRS Realty.

One of the purposes of P.D. No. 957 is to discourage and prevent unscrupulous owners, developers,
agents and sellers from reneging on their obligations and representations to the detriment of innocent
purchasers.45 The Court cannot countenance a patent violation on the part of the said respondents that
will cause great prejudice to petitioners. The Court must be vigilant and should punish, to the fullest
extent of the law, those who prey upon the desperate with empty promises of better lives, only to feed
on their aspirations.46

As regards petitioners' prayer to declare them the absolute owners of the subdivision lots, the HLURB
correctly ruled that it had no

jurisdiction over the same. Petitioners' amended complaint47 included a cause of action for
reconveyance of the subdivision lots to petitioners and/or the quieting of petitioners' title thereto and
impleaded a different set of defendants, namely, the Heirs of Laudiza and respondents Ang and Cuason,
who allegedly bought the subdivision lots previously sold to petitioners.
In Spouses Suntay v. Gocolay,48 the Court held that the HLURB has no jurisdiction over the issue of
ownership, possession or interest in the condominium unit subject of the dispute therein because under
Section 19 of Batas Pambansa (B.P.) Blg. 129,49 the Regional Trial Courts shall exercise exclusive original
jurisdiction in all civil actions which involve the title to, or possession of, real property, or any interest
therein.

In view of the aforequoted delineation of jurisdiction between the HLURB and the RTCs, the HLURB has
no jurisdiction to declare petitioners as absolute owners of the subdivision lots as against the Heirs of
Laudiza who filed an action for reconveyance against respondent Casal, which is still pending before the
RTC.

However, nothing prevents the HLURB from adjudicating on the issue of whether the alleged
subsequent sale of the subdivision lots to respondents Ang and Cuason constituted a double sale
because the issue is intimately related to petitioners' complaint to compel respondents CRS Realty, Casal
and Salvador to perform their obligation under the contracts to sell. Considering that the alleged
subsequent sale to respondents Ang and Cuason apparently would constitute a breach of respondents'
obligation to issue the certificate of title to petitioners, if not an unsound business practice punishable
under Section 1 of P.D. No. 1344,50 the HLURB cannot shirk from its mandate to enforce the laws for
the protection of subdivision buyers.

In Union Bank of the Philippines v. Housing and Land Use Regulatory Board,51 the Court upheld HLURB's
jurisdiction over a condominium unit buyer's complaint to annul the certificate of title over the unit
issued to the highest bidder in the foreclosure of the mortgage constituted on the unit by the
condominium developer without the consent of the buyer.

The remand of the instant case to the HLURB is in order so that the HLURB may determine if the alleged
subsequent sale to respondents Ang and Cuason of those lots initially sold to petitioners constituted a
double sale and was tainted with fraud as opposed to the respondents' claim that only the unsold
portions of the subdivision property were sold to them.

One final note. Contrary to petitioners' contention, the decision of the OP does not violate the mandate
of Section 14, Article VIII of the Constitution, which provides that "No decision shall be rendered by any
court without expressing therein clearly and distinctly the facts and the law on which it is
based."ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

The OP decision ruled that "the findings of fact and conclusions of law of the office a quo are amply
supported by substantial evidence" and that it is "bound by said findings of facts and conclusions of law
and hereby adopt(s) the assailed resolution by reference."

The Court finds these legal bases in conformity with the requirements of the Constitution. The Court has
sanctioned the use of memorandum decisions, a species of succinctly written decisions by appellate
courts in accordance with the provisions of Section 40, B.P. Blg. 129 on the grounds of expediency,
practicality, convenience and docket status of our courts. The Court has declared that memorandum
decisions comply with the constitutional mandate.52

As already discussed, the Court affirms the ruling of the HLURB Arbiter insofar as it ordered respondents
Casal, Salvador and CRS Realty, jointly and severally, to cause the delivery of clean certificates of title to
petitioners at no cost to the latter. Said respondents have six months from the finality of this decision to
comply with this directive, failing which they shall pay petitioners actual damages equivalent to the
current market value of the subdivision lots sold to them, as determined by the HLURB.

However, the Court finds in order and accordingly affirms the Board's award of moral and exemplary
damages and attorney's fees in favor of each petitioner, as well as the imposition of administrative fine,
against respondents Casal, Salvador and CRS Realty.

WHEREFORE, the instant Petition for Review on Certiorari is PARTLY GRANTED. The decision and
resolution of the Court of Appeals in CA-G.R. SP No. 81859, which upheld the decisions of the Office of
the President and the Housing and Land Use Regulatory Board, are AFFIRMED in all respects except for
the following MODIFICATIONS, to wit:

(1) Respondents CRS Realty, Cesar E. Casal and Crisanta R. Salvador are ORDERED to secure and deliver
to each of petitioners the corresponding certificates of titles, free of any encumbrance, in this names for
the lots they respectively purchased and fully paid for, within six (6) months from the finality of this
Decision and, in case of default, jointly and severally to pay petitioners the prevailing or current fair
market value of the lots as determined by the Housing and Land Use Regulatory Board; andcralawlibrary
(2) Without prejudice to the implementation of the other reliefs granted in this Decision, including the
reliefs awarded by the HLURB which are affirmed in this Decision, this case is REMANDED to the HLURB
for the purpose of determining (a) the prevailing or current fair market value of the lots and (b) the
validity of the subsequent sale of the lots to respondents Bennie Cuason and Caleb Ang by ascertaining
whether or not the sale was attended with fraud and executed in bad faith. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT

SECOND DIVISION

G.R. NO. 145470 December 9, 2005

SPS. LUIS V. CRUZ and AIDA CRUZ, Petitioners,

vs.
SPS. ALEJANDRO FERNANDO, SR., and RITA FERNANDO, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

For resolution is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the
Decision1 dated October 3, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61247, dismissing
petitioners’ appeal and affirming the decision of the Regional Trial Court (RTC) of Malolos, Bulacan,
Branch 79, in Civil Case No. 877-M-94.

The antecedent facts are as follows:

Luis V. Cruz and Aida Cruz (petitioners) are occupants of the front portion of a 710-square meter
property located in Sto. Cristo, Baliuag, Bulacan. On October 21, 1994, spouses Alejandro Fernando, Sr.
and Rita Fernando (respondents) filed before the RTC a complaint for accion publiciana against
petitioners, demanding the latter to vacate the premises and to pay the amount of ₱500.00 a month as
reasonable rental for the use thereof. Respondents alleged in their complaint that: (1) they are owners
of the property, having bought the same from the spouses Clodualdo and Teresita Glorioso (Gloriosos)
per Deed of Sale dated March 9, 1987; (2) prior to their acquisition of the property, the Gloriosos
offered to sell to petitioners the rear portion of the property but the transaction did not materialize due
to petitioners’ failure to exercise their option; (3) the offer to sell is embodied in a Kasunduan dated
August 6, 1983 executed before the Barangay Captain; (4) due to petitioners’ failure to buy the allotted
portion, respondents bought the whole property from the Gloriosos; and (5) despite repeated demands,
petitioners refused to vacate the property. 2

Petitioners filed a Motion to Dismiss but the RTC dismissed it for lack of merit in its Order dated March
6, 1995.3 Petitioners then filed their Answer setting forth the affirmative defenses that: (1)
the Kasunduan is a perfected contract of sale; (2) the agreement has already been "partially
consummated" as they already relocated their house from the rear portion of the lot to the front
portion that was sold to them; (3) Mrs. Glorioso prevented the complete consummation of the sale
when she refused to have the exact boundaries of the lot bought by petitioners surveyed, and the
existing survey was made without their knowledge and participation; and (4) respondents are buyers in
bad faith having bought that portion of the lot occupied by them (petitioners) with full knowledge of the
prior sale to them by the Gloriosos. 4
After due proceedings, the RTC rendered a Decision on April 3, 1998 in favor of respondents. The
decretal portion of the decision provides:

PREMISES CONSIDERED, the herein plaintiffs was able to prove by preponderance of evidence the case
of accion publiciana, against the defendants and judgment is hereby rendered as follows:

1. Ordering defendants and all persons claiming under them to vacate placefully (sic) the premises in
question and to remove their house therefore (sic);

2. Ordering defendants to pay plaintiff the sum of ₱500.00 as reasonable rental per month beginning
October 21, 1994 when the case was filed before this Court and every month thereafter until they
vacate the subject premises and to pay the costs of suit.

The counter claim is hereby DISMISSED for lack of merit.

SO ORDERED.5

Petitioners appealed the RTC decision but it was affirmed by the CA per its Decision dated October 3,
2000.

Hence, the present petition raising the following issues:

1. Whether the Honorable Court of Appeals committed an error of law in holding that the Agreement
(Kasunduan) between the parties was a "mere offer to sell," and not a perfected "Contract of Purchase
and Sale"?

2. Whether the Honorable Court of Appeals committed an error of law in not holding that where the
parties clearly gave the petitioners a period of time within which to pay the price, but did not fix said
period, the remedy of the vendors is to ask the Court to fix the period for the payment of the price, and
not an "accion publiciana"?

3. Whether the Honorable Court of Appeals committed an error of law in not ordering respondents to at
least deliver the "back portion" of the lot in question upon payment of the agreed price thereof by
petitioners, assuming that the Regional Trial Court was correct in finding that the subject matter of the
sale was said "back portion", and not the "front" portion of the property?

4. Whether the Honorable Court of Appeals committed an error of law in affirming the decision of the
trial court ordering the petitioners, who are possessors in good faith, to pay rentals for the portion of
the lot possessed by them?6

The RTC dwelt on the issue of which portion was being sold by the Gloriosos to petitioners, finding that
it was the rear portion and not the front portion that was being sold; while the CA construed
the Kasunduan as a mere contract to sell and due to petitioners’ failure to pay the purchase price, the
Gloriosos were not obliged to deliver to them (petitioners) the portion being sold.

Petitioners, however, insist that the agreement was a perfected contract of sale, and their failure to pay
the purchase price is immaterial. They also contend that respondents have no cause of action against
them, as the obligation set in the Kasunduan did not set a period, consequently, there is no breach of
any obligation by petitioners.

The resolution of the issues in this case principally is dependent on the interpretation of
the Kasunduan dated August 6, 1983 executed by petitioners and the Gloriosos.
The Kasunduan provided the following pertinent stipulations:

a. Na pumayag ang mga maysumbong (referring to the Gloriosos) na pagbilhan ang mga ipinagsumbong
(referring to petitioners) na bahagi ng lupa at ang ipagbibili ay may sukat na 213 metrong parisukat
humigit kumulang sa halagang ₱40.00 bawat metrong parisukat;

b. Na sa titulong papapanaugin ang magiging kabuuang sukat na mauukol sa mga ipinagsusumbong ay

223 metrong parisukat at ang 10 metro nito ay bilang kaloob ng mga maysumbong sa mga
Ipinagsusumbong na bahagi ng right of way;

c. Na ang right of way ay may luwang na 1.75 meters magmula sa daang Lopez Jaena patungo sa likuran
ng lote na pagtatayuan ng bahay ng mga Ipinagsusumbong na kanyang bibilhin;

d. Na ang gugol sa pagpapasukat at pagpapanaog ng titulo ay paghahatian ng magkabilang panig na ang

panig ay magbibigay ng halagang hindi kukulanging sa halagang tig-AAPAT NA DAANG PISO (₱400.00);

e. Na ang ipinagsusumbong ay tiyakang ililipat ang bahay sa bahaging kanilang nabili o mabibili sa buwan
ng Enero 31, 1984;7 (Emphasis supplied)

Under Article 1458 of the Civil Code, a contract of sale is a contract by which one of the contracting
parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent. Article 1475 of the Code further provides that the
contract of sale is perfected at the moment there is meeting of the 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.

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold, as
distinguished from a contract to sell where ownership is, by agreement, reserved in the vendor and is
not to pass to the vendee until full payment of the purchase price. 8 Otherwise stated, in a contract of
sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of
the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which
is not a breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.

The Kasunduan provides for the following terms and conditions: (a) that the Gloriosos agreed to sell to
petitioners a portion of the property with an area of 213 meters at the price of ₱40.00 per square
meter; (b) that in the title that will be caused to be issued, the aggregate area is 223 square meters with
10 meters thereof serving as right of way; (c) that the right of way shall have a width of 1.75 meters
from Lopez Jaena road going towards the back of the lot where petitioners will build their house on the
portion of the lot that they will buy; (d) that the expenses for the survey and for the issuance of the title
will be divided between the parties with each party giving an amount of no less than ₱400.00; and (e)
that petitioners will definitely relocate their house to the portion they bought or will buy by January 31,
1984.

The foregoing terms and conditions show that it is a contract to sell and not a contract of sale. For one,
the conspicuous absence of a definite manner of payment of the purchase price in the agreement
confirms the conclusion that it is a contract to sell. This is because the manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can exist.9 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. 10 As held in Toyota
Shaw, Inc. vs. Court of Appeals,11 a definite agreement on the manner of payment of the price is an
essential element in the formation of a binding and enforceable contract of sale.

The Kasunduan does not establish any definite agreement between the parties concerning the terms of
payment. What it merely provides is the purchase price for the 213-square meter property at ₱40.00 per
square meter.

For another, the telltale provision in the Kasunduan that: "Na pumayag ang mga maysumbong
na pagbilhan ang mga ipinagsumbong na bahagi ng lupa at ang ipagbibili ay may sukat na 213 metrong
parisukat humigit kumulang sa halagang ₱40.00 bawat metrong parisukat," simply means that the
Gloriosos only agreed to sell a portion of the property and that the portion to be sold measures 213
square meters.

Another significant provision is that which reads: "Na ang ipinagsusumbong ay tiyakang ililipat ang
bahay sa bahaging kanilang nabili o mabibili sa buwan ng Enero 31, 1984." The foregoing indicates that
a contract of sale is yet to be consummated and ownership of the property remained in the Gloriosos.
Otherwise, why would the alternative term "mabibili" be used if indeed the property had already been
sold to petitioners.

In addition, the absence of any formal deed of conveyance is a strong indication that the parties did not
intend immediate transfer of ownership. 12

Normally, in a contract to sell, the payment of the purchase price is the positive suspensive condition
upon which the transfer of ownership depends. 13 The parties, however, are not prohibited from
stipulating other lawful conditions that must be fulfilled in order for the contract to be converted from a
contract to sell or at the most an executory sale into an executed one. 14

In the present case, aside from the payment of the purchase price, there existed another suspensive
condition, i.e.: that petitioners will relocate their house to the portion they bought or will buy by January
31, 1984.

Petitioners failed to abide by the express condition that they should relocate to the rear portion of the
property being bought by January 31, 1984. Indeed, the Kasunduan discloses that it is the rear portion
that was being sold by the Gloriosos, and not the front portion as petitioners stubbornly claim. This is
evident from the provisions establishing a right of way from Lopez Jaena road going towards the back of
the lot, and requiring them to relocate their house to the portion being sold by January 31, 1984.
Petitioners are presently occupying the front portion of the property. Why the need for a right of way
and for petitioners to relocate if the front portion on which their house stands is the portion being sold?
This condition is a suspensive condition noncompliance of which prevented the Gloriosos from
proceeding with the sale and ultimately transferring title to petitioners; and the Kasunduan from having
obligatory force.15 It is established by evidence that the petitioners did not transfer their house located
in the front portion of the subject property to the rear portion which, under the Kasunduan, they
intended to buy. Thus, no obligation arose on the part of the Gloriosos to consider the subject property
as having been sold to petitioners because the latter’s non-fulfillment of the suspensive condition
rendered the contract to sell ineffective and unperfected.

Petitioners admit that they have not paid a single centavo to the Gloriosos. However, petitioners argue
that their nonpayment of the purchase price was due to the fact that there is yet to be a survey made of
the property. But evidence shows, and petitioners do not dispute, that as early as August 12, 1983, or six
days after the execution of the Kasunduan, a survey has already been made and the property was
subdivided into Lot Nos. 565-B-1 (front portion) and 565-B-2 (rear portion), with Lot No. 565-B-2
measuring 223 square meters as the portion to be bought by petitioners.

Petitioners question the survey made, asserting that it is a "table survey" made without their knowledge
and participation. It should be pointed out that the Kasunduan merely provides that the expenses for
the survey will be divided between them and that each party should give an amount of no less than
₱400.00. Nowhere is it stated that the survey is a condition precedent for the payment of the purchase
price.

Petitioners further claim that respondents have no cause of action against them because their obligation
to pay the purchase price did not yet arise, as the agreement did not provide for a period within which
to pay the purchase price. They argue that respondents should have filed an action for specific
performance or judicial rescission before they can avail of accion publiciana.

Notably, petitioners never raised these arguments during the proceedings before the RTC. Suffice it to
say that issues raised for the first time on appeal and not raised timely in the proceedings in the lower
court are barred by estoppel.16 Matters, theories or arguments not brought out in the original
proceedings cannot be considered on review or appeal where they are raised for the first time. To
consider the alleged facts and arguments raised belatedly would amount to trampling on the basic
principles of fair play, justice and due process. 17

Moreover, it would be inutile for respondents to first petition the court to fix a period for the
performance of the contract. In the first place, respondents are not parties to the Kasunduan between
petitioners and the Gloriosos, and they have no standing whatsoever to seek such recourse. In the
second place, such recourse properly pertains to petitioners. It was they who should have sought the
court’s intercession. If petitioners believed that they have an actionable contract for the sale of the
property, prudence and common sense dictate that they should have sought its enforcement forthwith.
Instead, petitioners whiled away their time.

Furthermore, there is no need for a judicial rescission of the Kasunduan for the simple reason that the
obligation of the Gloriosos to transfer the property to petitioners has not yet arisen. There can be no
rescission of an obligation that is nonexistent, considering that the suspensive conditions therefor have
not yet happened.18
Hence, petitioners have no superior right of ownership or possession to speak of. Their occupation of
the property was merely through the tolerance of the owners. Evidence on record shows that
petitioners and their predecessors were able to live and build their house on the property through the
permission and kindness of the previous owner, Pedro Hipolito, who was their relative, 19 and
subsequently, Teresita Glorioso, who is also their relative. They have no title or, at the very least, a
contract of lease over the property. Based as it was on mere tolerance, petitioners’ possession could
neither ripen into ownership nor operate to bar any action by respondents to recover absolute
possession thereof.20

There is also no merit to petitioners’ contention that respondents are buyers in bad faith. As explained
in Coronel vs. Court of Appeals:

In a contract to sell, there being no previous sale of the property, a third person buying such property
despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double sale in such case. Title to the property will transfer to
the buyer after registration because there is no defect in the owner-seller’s title per se, but the latter, of
course, may be sued for damages by the intending buyer. 21 (Emphasis supplied)

A person who occupies the land of another at the latter's forbearance or permission without any
contract between them is necessarily bound by an implied promise that he will vacate upon demand. 22

Considering that petitioners’ continued possession of the property has already been rendered unlawful,
they are bound to pay reasonable rental for the use and occupation thereof, which in this case was
appropriately pegged by the RTC at ₱500.00 per month beginning October 21, 1994 when respondents
filed the case against them until they vacate the premises.

Finally, petitioners seek compensation for the value of the improvements introduced on the property.
Again, this is the first time that they are raising this point. As such, petitioners are now barred from
seeking such relief.23

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated October 3, 2000 in CA-
G.R. CV No. 61247 is AFFIRMED.

SO ORDERED.
 SECOND DIVISION

G.R. No. 134712             August 13, 2004

MARIA CABOTAJE, AGUSTIN CABOTAJE, AMELIA TOMAS and DANIEL PUGAYAN, petitioners,

vs.
SPOUSES SOTERO PUDUNAN and MARIA RIVERA, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
42432 which reversed the Decision 2 of the Regional Trial Court of Bayombong, Nueva Vizcaya, Branch 30,
in Civil Case No. 207 for recovery of ownership and possession, and damages.

The Antecedents

Bonifacia Lang-ew was the owner of two parcels of land, Lot 1 of Plan Psu-776-44 with an area of 9,951
square meters; and Lot 2 of Plan Psu-776-44 with an area of 6,382 square meters. The lots were located
in Lamut, Indiana, Bambang, Nueva Vizcaya, and were covered by Transfer Certificate of Title (TCT) No.
T-1657.3 Lang-ew died intestate on November 23, 1965 and was survived by her grandchildren Maria
Cabotaje, Agustin Cabotaje, Amelia Tomas, the children of her daughter Josefina Bintican who died on
November 21, 1952; and, her grandson Daniel Pugayan, the son of her daughter Emerenciana Bintican
who also predeceased her.

Maria Cabotaje, Daniel Pugayan and their close relatives Remicio Marques and Amelia Tomas, were in
dire need of money. On January 4, 1966, they borrowed P1,000 from the Spouses Sotero Pudunan and
Maria Rivera. They signed a private document prepared by Juan Anungos, which stated inter alia that
the payment of the said amount was secured by a mortgage over Lot 1 covered by TCT No. T-1657, and
that the property was redeemable within one year, extendible for another year, until the full amount of
the loan was paid.4 The owner’s duplicate copy of TCT No. T-1657 was then delivered to the mortgagees
by the mortgagors. The Spouses Pudunan took possession of the property, although under the
document, the mortgagors had the right to remain in possession thereof.

On the same date, January 4, 1966, Maria Cabotaje, Agustin Cabotaje, Daniel Pugayan, Amelia Tomas
and her husband Pedro Tomas affixed their signatures over a deed entitled "Confirmatory Deed of Sale,"
in which they undertook to sell Lot 2 covered by TCT No. T-1657 to the Spouses Pudunan for the price
of P2,000.00. Also in the document was a statement that part of the money was remitted to Bonifacia
Lang-ew and was spent by her during her illness, and to her heirs which was used for burial expenses.
The document was notarized by Judge Tomas P. Maddela, the Municipal Judge and Ex-Officio Notary
Public of Bayombong, Nueva Vizcaya, and registered in his notarial register as Document No. 461, Page
96, Book V, Series of 1966.5 The property sold under the said deed is described as follows:

A parcel of land Lot No. 2, Plan Psu. 77644, situated in the Barrio of Lamut, Municipality of
Bambang, Province of Nueva Vizcaya; bounded on the S. by prop. of Arcadio Biag; on the W. by
Aritao-Bambang Prov. Road; on the N by prop. of Crisanto Caro; on the SE. by the Acdao Brook;
and on the NW. by prop. of Francisco Concepcion. Containing an area of 6,382 sq. meters, more
or less. Covered by Transfer Certificate of Title No. T-1657 of the land records of Nueva Vizcaya. 6

Judge Tomas Maddela retained two copies of the deed for his notarial file. However, the deed was not
filed with the Registry of Deeds of Nueva Vizcaya. Subsequently, it was made to appear in the original
copy of the said deed that both Lots 1 and 2, consisting of 6,382 square meters and 9,951 square
meters, respectively, were sold to the Spouses Pudunan. The alterations are underscored, thus:

Two parcels of land Lot No. 1 and 2, Plan Psu. 77644, situated in the Barrio of Lamut,
Municipality of Bambang, Province of Nueva Vizcaya; bounded on the S. by prop. of Arcadio
Biag; on the W. by Aritao-Bambang Prov. Road; on the N by prop. of Crisanto Caro; on the SE. by
the Acdao Brook; and on the NW. by prop. of Francisco Concepcion. Containing an area
of 15,333 sq. meters, more or less. Covered by Transfer Certificate of Title No. T-1657 of the
land records of Nueva Vizcaya.7

Such altered original copy was filed on July 18, 1966 with the Office of the Register of Deeds of Nueva
Vizcaya. On the same day, TCT No. T-20808 was issued by the Register of Deeds in favor of the Spouses
Pudunan.

After nineteen years or so, or on February 26, 1985, petitioners Maria Cabotaje, Agustin Cabotaje,
Amelia Tomas and Daniel Pugayan filed a complaint with the RTC of Bayombong, Nueva Vizcaya against
the respondents, the Spouses Pudunan, for recovery of ownership and possession of Lots 1 and 2
covered by TCT No. T-1657. The petitioners alleged inter alia that in a private document they signed on
January 4, 1966, it appears that they mortgaged Lot 1 to secure the payment of a P1,000-loan from the
respondents. They averred, however, that they only received P660.00 and that the respondents
thereafter took possession of the property. Being impoverished, they tolerated the respondents’
possession of the property. The petitioners further narrated that they offered to pay their loan in 1972,
but that the respondents refused to accept such payment as they (the respondents) were the rightful
owners of the property. The petitioners further averred that after eighteen years, or in 1984, they
sought the assistance of counsel on what course of action to take, and it was only then that they
discovered that by virtue of a deed of sale issued in favor of the respondents, TCT No. T-20808 covering
Lots 1 and 2 had been issued in the names of the latter. The petitioners alleged, however, that no copy
of the said deed could be found in the Register of Deeds, and that they never executed any deed of sale
covering the said lots, much less any deed settling the estate of the deceased Bonifacia Lang-ew.

The petitioners prayed that, after due proceedings, judgment be rendered in their favor, thus:

WHEREFORE, it is respectfully prayed of the Honorable Court that, after notice and hearing,
judgment be rendered in favor of the plaintiffs and against the defendants as follows, thus:

a) Declaring as null and void Transfer Certificate of Title No. T-20808 and the deed of
sale which caused the issuance thereof;

b) Declaring plaintiffs as the lawful owners of the above-described landholding, and

directing the Register of Deeds to issue another title in the names of said plaintiffs;

c) Ordering defendants to pay actual damages to the plaintiffs equivalent to the

monetary value of 2,440 cavanes (sic) of palay at 46 kilos per cavan;

d) Granting the claim for damages: moral damages of P10,000.00 each for all the
plaintiffs or a total of P40,000.00 and exemplary damages of P10,000.00; and

e) Reimbursing attorney’s fees of P7,000.00.

PLAINTIFFS further pray for such other reliefs consistent with law and equity and available in the
premises.8

In their answer to the complaint, the respondents interposed the defense of prescription of action, to
wit:

That similarly the plaintiffs’ alleged cause of action to annul and cancel Transfer Certificate of
Title No. T-20808 covering the parcels of land in question which had long legally belong to the
defendants and which certificate of title lawfully, validly and regularly issued to the herein
defendants on July 18, 1966 by the Register of Deeds of Nueva Vizcaya, in the absence of any
plaintiffs’ allegation of fraud, mistake, intimidation, violence or undue influence as alleged
reasons for its nullification and cancellation, the same is very true likewise to said plaintiffs’
seeking the nullification of the sale in favor of defendants, has also long prescribed and barred
by the statute of limitations;9

In the course of the presentation of the petitioners’ evidence, Cornelio Tubal from the Office of the
Register of Deeds of Nueva Vizcaya testified on July 15, 1986 that TCT No. T-20808 was issued on the
basis of a "Confirmatory Deed of Sale"10 covering Lots 1 and 211 which deed, on its face, contained
intercalations and alterations. Subsequently, the petitioners, with prior leave of court, filed an amended
complaint in which they alleged inter alia that they never received any amount by virtue of the altered
"Confirmatory Deed of Sale;" that they turned over the owner’s duplicate copy of TCT No. T-1657 to the
respondents as a sign of good faith on account of their P1,000-loan of which only P673.60 was received
by them; that they discovered the existence of the altered "Confirmatory Deed of Sale" covering Lots 1
and 2 only on July 15, 1986;12 and, that they never executed any deed of sale covering Lot 1, 13 nor
received the amount of P2,000.00 as stated on the said deed of sale. The petitioners concluded that as
such, the altered deed was null and void.

The petitioners prayed that they be granted the following reliefs:

WHEREFORE, it is respectfully prayed of the Honorable Court that, after notice and hearing,
judgment be rendered in favor of the plaintiffs and against the defendants as follows, thus:

a) Declaring as null and void partially both Transfer Certificate of Title No. T-20808 as far
as Lot No. 1 covering an area of 9,951 square meters and the deed of sale which caused
the issuance thereof;

b) Declaring plaintiffs as the lawful owners of the above-described landholding, directing

the Register of Deeds to issue a title in the names of said plaintiffs covering said parcel
of land and ordering the defendants to deliver the physical possession thereof to the
plaintiffs;

c) Ordering defendants to pay actual damages to the plaintiffs equivalent to the

monetary value of 2,870 cavans of palay at 46 kilos per cavan;

d) Granting the claim for damages: moral damages of P10,000.00 each for all the
plaintiffs or a total of P40,000.00 and exemplary damages of P10,000.00; and

e) Reimbursing attorney’s fees of P7,000.00.

PLAINTIFFS further pray for such other reliefs consistent with law and equity and available in the
premises.14

The respondents filed a motion to dismiss the amended complaint on the grounds of acquisitive
prescription under Article 1117, in relation to Article 1134 of the New Civil Code, and prescription of
action. The trial court granted the motion but reinstated the case on the petitioners’ motion for
reconsideration. At the trial, petitioner Maria Cabotaje testified that of the P1,000-loan, they received
only P468.00, of which the amount of P326.60 was used for "title expenses;" P6.00 was received by
"Belong," while the balance of P199.60 was divided among the petitioners.15 The petitioners also
presented Tubal who appeared for the Office of the Register of Deeds and testified that TCT No. T-1657
was cancelled on the basis of the altered copy of the Confirmatory Deed of Sale.

Respondent Maria Rivera testified that after the death of Lang-ew in 1965, the petitioners offered to sell
Lot 1 for P2,500.00 to them and that the latter agreed. The amount of P1,000.00 was then given to the
petitioners, while the remaining P1,500.00 was spent for the burial of Lang-ew. The respondents’
remittances were further evidenced by receipts. 16 Respondent Rivera narrated that the parties to the
sale arrived in the Office of Judge Maddela and requested the latter to revise the original copy of the
Confirmatory Deed of Sale so as to include Lot 1 thereon. Since Judge Maddela was in a hurry, he
instructed his Clerk of Court Mariano Gonzales to include Lot 1 in the deed, and the latter did as he was
told. The petitioners and respondents then proceeded to the Office of the Register of Deeds where the
said deed was filed. According to respondent Rivera, she was not aware if Judge Maddela’s notarial
copies of the deed were altered as to include Lot 1 therein, since the judge was in such a hurry. 17

The petitioners presented Maria Cabotaje on rebuttal, who testified that the petitioners never sold Lot 1
to the respondents and that they learned of the insertions and intercalations in the original copy of the
Confirmatory Deed of Sale only when Tubal testified. 18

After trial, the court rendered judgment in favor of the petitioners, the decretal portion of which reads:

WHEREFORE, by preponderance of evidence, justice and equity demand that Judgment be

hereby rendered in favor of the plaintiffs and against the defendants:

1. Declaring null and void ab initio TCT No. T-20808 as far as Lot No. 1 is concerned with
an area of 9,951 sq. meters, and the Confirmatory Deed of Sale (Exh. "C") which caused
the issuance of said title;

2. Declaring plaintiffs as the lawful owners of said Lot No. 1 and directing the Register of
Deeds to issue corresponding Title to plaintiffs and Ordering the defendants to deliver
the physical possession thereof to the plaintiffs;

3. Ordering defendants to deliver to the plaintiffs 2,870 cavans of palay at 46 kilos per
cavan or pay its monetary equivalent computed at the then prevailing rate or cost as
actual damages;

4. Ordering defendants to pay plaintiffs as damages:

a) moral Damages – P2,000.00 for each plaintiff or a total of P8,000.00;

b) exemplary Damages – P2,000.00;

c) attorney’s Fees – P5,000.00; and,

d) The costs of suit.

SO ORDERED.19

The trial court ruled that the petitioners merely mortgaged Lot 1 to the respondents and that the
conveyance thereof to the latter after the death of Lang-ew was null and void because it was not made
in the settlement of the estate of the deceased. According to the trial court, the action to declare the
non-existence of the said deed is imprescriptible. It also ruled that the action for the cancellation of the
conveyance on the ground of fraud commenced to run only when Cornelio Tubal testified, and not on
July 18, 1966 upon the filing of the original copy of the deed in the Office of the Register of Deeds and
the cancellation of TCT No. T-1657 in favor of TCT No. T-20808 over Lots 1 and 2 which was issued under
the names of the respondents. The trial court also ruled that the respondents had not acquired
ownership of Lot 1 by acquisitive prescription because the possession of the said lot by the respondents
was merely upon the tolerance of the petitioners.
On appeal to the Court of Appeals, the petitioners did not bother to file their brief. The CA, thereafter,
rendered judgment reversing the decision of the trial court, holding that the original copy of the
Confirmatory Deed of Sale was voidable under Article 1391 of the New Civil Code and not void ab initio;
hence, the action to annul the said deed prescribed four years from the time of the petitioners’ actual or
presumptive knowledge thereof. The appellate court held that the cause of action of the petitioners to
nullify the deed accrued on July 18, 1966 when the Confirmatory Deed of Sale was filed with the Office
of the Register of Deeds, as the petitioners henceforth had presumptive knowledge of the existence of
the altered Confirmatory Deed of Sale.20 Hence, the petitioners should have filed their complaint within
four years from July 18, 1966 or, on or before July 19, 1970. Since the appellees filed their complaint
only on February 26, 1995, their action had long prescribed and should have been dismissed by the trial
court. The appellate court further ruled that there is no law requiring the heirs to execute the
conveyance in the settlement of the estate of the deceased. On motion for reconsideration by the
petitioners, they alleged that the respondents altered the original copy of the Confirmatory Deed of Sale
after the said deed was executed by the parties; as such, the deed was null and void, not merely
voidable. However, the CA denied the said motion.

In their petition at bar, the petitioners raise the following issues for resolution:

WHETHER OR NOT IN RESOLVING THE APPEAL BEFORE IT, THE HONORABLE COURT OF APPEALS,
SECOND DIVISION, HAS DONE SO IN ACCORD WITH LAW AND WITH THE APPLICABLE DECISIONS
OF THE HONORABLE HIGHEST TRIBUNAL.

SPECIFICALLY: HAS PRESCRIPTION SET IN THE INSTANT CIVIL CASE AS TO DENY THE PETITIONERS
OF THEIR RIGHT TO PURSUE THEIR CAUSE/COMPLAINT TO RECOVER THEIR OWNERSHIP AND
POSSESSION OF THE SUBJECT PROPERTY?21

The core issue for resolution is whether the original copy of the Confirmatory Deed of Sale wherein it
appears that the petitioners also sold Lot 1 of their property to the respondents is null and void.

The petitioners assert that they did not sell Lot 1 to the respondents, much less receive from them
the P2,000.00 purchase price which appears in the original copy of the Confirmatory Deed of Sale.
Absent their consent to the sale and the price or consideration for their property, such deed is null and
void; hence, they contend that their action is imprescriptible as provided for in Article 1410 of the New
Civil Code. The petitioners further contend that Article 1391 of the New Civil Code applies only in a case
where fraud is committed prior to or simultaneous with the execution of a deed. 22 The petitioners argue
that the deed is null and void since the respondents altered the original copy of the deed after the
execution and notarization thereof.

For their part, the respondents contend that the original copy of the Confirmatory Deed of Sale is valid.
They aver that the alterations and intercalations contained in the original copy of the deed were
reflective of the fact that Lot 1 was sold by the petitioners after the execution of the said deed, and that
such alterations were known and agreed to by the petitioners before the same was filed with the
Register of Deeds. They aver that the petitioners even turned over to them not only the owner’s
duplicate copy of TCT No. T-1657 so that title over the two lots could be issued in their names, but also
the possession of the property after Lang-ew’s death on November 23, 1965. They also insist that they
have been in possession of the property since then. The respondents further contend that even if the
altered original copy of the Confirmatory Deed of Sale is fraudulent, the same is merely voidable; hence,
the action to nullify the same is prescriptible. The respondents aver that since the petitioners filed their
complaint only on February 26, 1985, their action had long prescribed, considering that their cause of
action accrued on July 18, 1966.

We rule for the petitioners.

The general rule is that in a petition for review on certiorari, only questions of law may be raised.
However, the rule is not without exceptions, which the Court enumerated in Fuentes v. Court of
Appeals23 as follows: (a) when the factual findings of the trial court and the Court of Appeals are
contradictory; (b) when the inference made by the Court of Appeals is manifestly mistaken or absurd; (c)
when the judgment of the Court of Appeals is premised on its misapprehension of the facts; and, (d)
when the Court of Appeals failed to resolve relevant facts which, if properly considered, would justify a
modification or reversal of the decision of the appellate court. 24 The present case falls within the
foregoing exceptions.

Rule 132, Section 31 of the Revised Rules of Evidence, provides:

Alterations in document, how to explain. – The party producing a document as genuine which
has been altered and appears to have been altered after its execution, in a part material to the
question in dispute, must account for the alteration. He may show that the alteration was made
by another, without his concurrence, or was made with the consent of the parties affected by it,
or was otherwise properly or innocently made, or that the alteration did not change the
meaning or language of the instrument. If he fails to do that, the document shall not be
admissible in evidence.

There is no doubt that the alterations in the assailed deed of sale are substantial and material. We have
reviewed the evidence on record and we are convinced that the respondents, either by themselves or at
their behest and without the knowledge of the petitioners, caused the alterations in the assailed copy of
the Confirmatory Deed of Sale by making it appear therein that the petitioners sold Lot 1 as well as Lot 2
with a total area of 15,333 square meters for only P2,000.00.

First. Respondent Maria Rivera admitted in court that the alteration occurred after the execution of the
Confirmatory Deed of Sale.25

Second. The petitioners did not authenticate the alterations in the assailed deed by affixing their initials
or signatures thereon.

Third. Neither did Ex-Officio Notary Public, Judge Tomas Maddela authenticate the said alterations when
he notarized the Confirmatory Deed of Sale. 26

Fourth. Under the Confirmatory Deed of Sale, the petitioners sold Lot 2 for P2,000.00. In the assailed
deed, the petitioners purportedly also sold Lot 1 to the respondents, but the purchase price thereof
remained unchanged. Thus, under the assailed deed, the respondents paid P2,000.00 for the two lots.
The respondents failed to give a satisfactory explanation why the price of the property remained
at P2,000.00 Evidently, there was no price or consideration for the sale of Lot 1, as it is incredible that
the petitioners would sell the property to the respondents without any price or consideration therefor.
Fifth. The respondents claim that they told Judge Maddela that they were also buying Lot 1 from the
petitioners, but since the judge was in a hurry to leave, he merely instructed his clerk of court to make
the necessary alterations in his copies of the deed of sale. The respondents also claim that the parties to
the deed left without seeing to it that the clerk of court had made the alterations in the copies of Judge
Maddela:

Q And when the plaintiffs, according to you, went to you for the needed amount, you allegedly
went to Judge Maddela?

A Yes, Sir.

Q And you brought with you Exh. "E", which is the Confirmatory Deed of Sale, which Exh. "E"
appears not to contain any intercalation or insertion, isn’t it?

A Yes, Sir.

Q And when you went to Judge Maddela, according to you, you told him that you were also
buying Lot 1, did I hear you right?

A Yes, Sir.

Q And what did he tell you?

A He asked, "What about this Lot 1?"

Q And what did you tell him?

A We told him that the plaintiffs were willing to give us the parcel of land, Lot 1.

Q And the plaintiffs were with you, is that what you mean when you went to Judge Maddela?

A Yes, Sir.

Q And when you said or when you told (sic) to Judge Maddela that the plaintiffs wanted to give
you Lot 1, what did he do?

A As Judge Maddela was rushing up then, he just ordered his clerk to make the necessary
insertion. I do not know with regards the file copy of Judge Maddela, but our copy contains the
insertion.

Q You said that Judge Maddela was rushing then and he just told his clerk to make the insertion,
my question is, did you see the clerk bring out the file copy of Judge Maddela so that the
insertion would be made on that file copy?

A I do not know how to answer that but what the clerk said since they are not strangers to each
other, meaning to say, the plaintiffs.
 Q By the way, what office or place did you go and see Judge Maddela at that time?

A It is his office at Bayombong?

Q Do you know that he was a Judge at that time of the Municipal Court of Bayombong?

A Yes, Sir.

Q Do you still remember that clerk who allegedly was told to make [the] insertion by Judge
Maddela?

A I cannot remember anymore because that happened long time ago.

Q At the time that the plaintiffs presented their witnesses, one witness was presented, which is
the Clerk of the Municipal Trial Court of Bayombong by the name of Saturnino Galapon. My
question, did you see that clerk who was subpoenaed to appear here and testified before about
this Exh. "E"?

A Yes, Sir.

Q And can you tell the Honorable Court if that clerk who have testified here before for the
plaintiffs if he was the clerk whom you were referring to as the one who was directed by Judge
Maddela to make [the] insertion in Exh. "E"?

A He was the one.27

The claim of the respondents is incredible because Saturnino Galapon, the Clerk of Court of the
Municipal Trial Court of Bayombong, who testified for the petitioners, declared that he was appointed to
the position during the incumbency of Judge Florante Tupasi:

ATTY. BAGASAO: ON CROSS-

Q Mr. Witness, when you begin (sic) your duty as Clerk of Court, who is the Judge then?

A Judge FLORANTE TUPASI, Sir.

Q Meaning to say, Mr. Witness, Judge MADDELA was then out?

A He transferred, Sir.

Q So, you were not the Clerk of Court of MTC, Bayombong, Nueva Vizcaya, during the time of
Judge Maddela?

A Yes, Sir.

Q And, of course, you are not aware of any side agreement?

 A In 1965, I had nothing to know of, Sir. 28

The Clerk of Court during the incumbency of Judge Tomas Maddela was Mariano Gonzales, who was
already deceased at the time Galapon testified:

ATTY. CORPUZ: ON RE-DIRECT

Q Who is (sic) the Clerk of Court from whom you took over the position of Clerk of Court?

A The deceased MARIANO GONZALES, Sir.

Q When you took over these 2 documents and the Notarial Register Book No. V of Judge
Maddela, were they all intact in the office?

A This is a part of the big file including the Notarial Register, Sir. 29

Furthermore, Judge Maddela knew or should have known the legal implications of the alterations on the
original copy of the Confirmatory Deed of Sale without making the appropriate alterations in his own
copies of the deed, and could not have agreed to merely ordering the clerk of court to make the
alterations himself. Aside from the fact that the copies of the deed 30 retained by Judge Maddela do not
contain any alterations, the respondents failed to present Judge Tomas Maddela to corroborate the
testimony of respondent Maria Rivera.

While it is true that a notarized deed of sale is a public document and has in its favor the presumption of
regularity and that to contradict the same, there must be evidence that is clear and convincing; the
evidence on record in this case is, however, so clear and convincing in support of the finding that the
assailed copy of the Confirmatory Deed of Sale has been altered and is, in fact, null and void.

All told then, we find and so hold that the petitioners did not consent to the sale of Lot 1 to the
respondents. One of the essential requirements of a valid contract, including a contract of sale, is the
consent of the owner of the property. 31 Absent such consent, the contract is null and void ab initio.32 A
void contract is absolutely wanting in civil effects; it is equivalent to nothing. 33 It produces no effects
whatsoever either against or in favor of anyone; hence, it does not create, modify, or extinguish the
judicial relation to which it refers.34 In fine, the petitioners, not the respondents, are the rightful owners
of Lot 1.

Under Article 1410 of the New Civil Code, the action for the declaration of the non-existence of a
contract does not prescribe. Thus, the action of the petitioners for the declaration of the non-existence
of the assailed deed is imprescriptible.

IN LIGHT OF THE FOREGOING, the petition is GRANTED. The decision of the Court of Appeals is
REVERSED and SET ASIDE. The decision of the Regional Trial Court in Civil Case No. 207 is REINSTATED.
No costs.

SO ORDERED.
PHILIPPINE SUPREME COURT DECISIONS

FIRST DIVISION

G.R. No. 177783 : January 23, 2013

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D. IGNACIO-MANALO AND

FAUSTINO D. IGNACIO, Petitioners, v. HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES
PHILLIP AND THELMA RODRIGUEZ, CATHERINE, REYNOLD & JEANETTE, all surnamed ZUNIGA,
Respondent.

DECISION

VILLARAMA, JR., J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 assailing the Decision1 dated July
18, 2006 and Resolution2 dated May 2, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 73551. The
CA reversed the Decision3 dated June 15, 1999 of the Regional Trial Court (RTC) of Pasig City, Branch
151 in Civil Case No. 58980.

The factual antecedents:cralawlibrary

In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of land to Home Savings Bank and
Trust Company, the predecessor of respondent Home Bankers Savings and Trust Company, as security
for the P500,000.00 loan extended to him by said bank. These properties which are located in Cabuyao,
Laguna are covered by Transfer Certificate of Title Nos. (T-40380) T-8595 and (T-45804) T-8350
containing an area of 83,303 square meters and 120,110 square meters, respectively.4?r?l1

When petitioner defaulted in the payment of his loan obligation, respondent bank proceeded to
foreclose the real estate mortgage. At the foreclosure sale held on January 26, 1983, respondent bank
was the highest bidder for the sum of P764,984.67. On February 8, 1983, the Certificate of Sale issued to
respondent bank was registered with the Registry of Deeds of Calamba, Laguna. With the failure of
petitioner to redeem the foreclosed properties within one year from such registration, title to the
properties were consolidated in favor of respondent bank. Consequently, TCT Nos. T-8595 and T-8350
were cancelled and TCT Nos. 111058 and 111059 were issued in the name of respondent bank.5?r?l1

Despite the lapse of the redemption period and consolidation of title in respondent bank, petitioner
offered to repurchase the properties. While the respondent bank considered petitioner's offer to
repurchase, there was no repurchase contract executed. The present controversy was fuelled by
petitioner's stance that a verbal repurchase/compromise agreement was actually reached and
implemented by the parties.

In the meantime, respondent bank made the following dispositions of the foreclosed properties already
titled in its name:cralawlibrary

TCT No. 111059 (Subdivided into six lots with individual titles - TCT Nos. 117771, 117772, 117773,
117774, 117775 and 117776)

A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and Bella Salvador under Deed of Absolute
Sale dated May 23, 1984 for the price of P150,000.00

B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions

1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and Natividad Pagtakhan, Dr. Edilberto Torres
and Dra. Rebecca Amores under Deed of Absolute Sale dated April 17, 1985 for the price of P150,000.00

2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided into 3 portions -
Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes under Deed of Absolute Sale dated
March 23, 1987 for the price of P150,000.00

Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under Deed of Absolute Sale dated March 23,
1987 for the price of P150,000.00

Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -

C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under Deed of Absolute Sale dated June 4,
1984 for the price of P150,000.00 ???ñr?bl?š ??r†??l l?? l?br?rÿ

The expenses for the subdivision of lots covered by TCT No. 111059 and TCT No. 117772 were
shouldered by petitioner who likewise negotiated the above-mentioned sale transactions. The
properties covered by TCT Nos. T-117774 to 117776 are still registered in the name of respondent
bank.6?r?l1

In a letter addressed to respondent bank dated July 25, 1989, petitioner expressed his willingness to pay
the amount of P600,000.00 in full, as balance of the repurchase price, and requested respondent bank
to release to him the remaining parcels of land covered by TCT Nos. 111058 and T-154658 ("subject
properties").7 Respondent bank however, turned down his request. This prompted petitioner to cause
the annotation of an adverse claim on the said titles on September 18, 1989.8?r?l1

Prior to the annotation of the adverse claim, on August 24, 1989, the property covered by TCT No.
154658 was sold by respondent bank to respondent spouses Phillip and Thelma Rodriguez, without
informing the petitioner. On October 6, 1989, again without petitioner's knowledge, respondent bank
sold the property covered by TCT No T-111058 to respondents Phillip and Thelma Rodriguez, Catherine
M. Zuñiga, Reynold M. Zuñiga and Jeannette M. Zuñiga.9?r?l1

On December 27, 1989, petitioner filed an action for specific performance and damages in the RTC
against the respondent bank. As principal relief, petitioner sought in his original complaint the
reconveyance of the subject properties after his payment of P600,000.00.10 Respondent bank filed its
Answer denying the allegations of petitioner and asserting that it was merely exercising its right as
owner of the subject properties when the same were sold to third parties.
For failure of respondent bank to appear during the pre-trial conference, it was declared as in default
and petitioner was allowed to present his evidence ex parte on the same date (September 3, 1990).
Petitioner simultaneously filed an "Ex-Parte Consignation" tendering the amount of P235,000.00 as
balance of the repurchase price.11 On September 7, 1990, the trial court rendered judgment in favor of
petitioner. Said decision, as well as the order of default, were subsequently set aside by the trial court
upon the filing of a motion for reconsideration by the respondent bank.12?r?l1

In its Order dated November 19, 1990, the trial court granted the motion for intervention filed by
respondents Phillip and Thelma Rodriguez, Catherine Zuñiga, Reynold Zuñiga and Jeannette Zuñiga. Said
intervenors asserted their status as innocent purchasers for value who had no notice or knowledge of
the claim or interest of petitioner when they bought the properties already registered in the name of
respondent bank. Aside from a counterclaim for damages against the petitioner, intervenors also prayed
that in the event respondent bank is ordered to reconvey the properties, respondent bank should be
adjudged liable to the intervenors and return all amounts paid to it.13?r?l1

On July 8, 1991, petitioner amended his complaint to include as alternative relief under the prayer for
reconveyance the payment by respondent bank of the prevailing market value of the subject properties
"less whatever remaining obligation due the bank by reason of the mortgage under the terms of the
compromise agreement.14?r?l1

On June 15, 1999, the trial court rendered its Decision, the dispositive portion of which
reads:cralawlibrary

WHEREFORE, findings [sic] the facts aver[r]ed in the complaint supported by preponderance of
evidences adduced, judgment is hereby rendered in favor of the plaintiff and against the defendant and
intervenors by:cralawlibrary

1. Declaring the two Deeds of Sale executed by the defendant in favor of the intervenors as null and void
and the Register of Deeds in Calamba, Laguna is ordered to cancel and/or annul the two Transfer
Certificate of Titles No. T-154658 and TCT No. T-111058 issued to the intervenors.
2. Ordering the defendant to refund the amount of P1,004,250.00 to the intervenors as the
consideration of the sale of the two properties.

3. Ordering the defendant to execute the appropriate Deed of Reconveyance of the two (2) properties in
favor of the plaintiff after the plaintiff pays in full the amount of P600,000.00 as balance of the
repurchase price.

4. Ordering the defendant bank to pay plaintiff the sum of P50,000.00 as attorney's fees.

5. Dismissing the counterclaim of the defendant and intervenors against the plaintiff. ???ñr?bl?š ??r†??l
l?? l?br?rÿ

Costs against the defendant.

SO ORDERED.15?r?l1

The trial court found that respondent bank deliberately disregarded petitioner's substantial payments
on the total repurchase consideration. Reference was made to the letter dated March 22, 1984 (Exhibit
"I")16 as the authority for petitioner in making the installment payments directly to the Universal
Properties, Inc. (UPI), respondent bank's collecting agent. Said court concluded that the compromise
agreement amounts to a valid contract of sale between petitioner, as Buyer, and respondent bank, as
Seller. Hence, in entertaining other buyers for the same properties already sold to petitioner with
intention to increase its revenues, respondent bank acted in bad faith and is thus liable for damages to
the petitioner. Intervenors were likewise found liable for damages as they failed to exercise due
diligence before buying the subject properties.

Respondent bank appealed to the CA which reversed the trial court's ruling, as follows:cralawlibrary

WHEREFORE, the foregoing premises considered, the instant appeal is hereby GRANTED. Accordingly,
the assailed decision is hereby REVERSED and SET ASIDE.
SO ORDERED.17?r?l1

The CA held that by modifying the terms of the offer contained in the March 22, 1984 letter of
respondent bank, petitioner effectively rejected the original offer with his counter-offer. There was also
no written conformity by respondent bank's officers to the amended conditions for repurchase which
were unilaterally inserted by petitioner. Consequently, no contract of repurchase was perfected and
respondent bank acted well within its rights when it sold the subject properties to herein respondents-
intervenors.

As to the receipts presented by petitioner allegedly proving the installment payments he had
completed, the CA said that these were not payments of the repurchase price but were actually
remittances of the payments made by petitioner's buyers for the purchase of the foreclosed properties
already titled in the name of respondent bank. It was noted that two of these receipts (Exhibits "K" and
"K-1")18 were issued to Fermin Salvador and Rizalina Pedrosa, the vendees of two subdivided lots under
separate Deeds of Absolute Sale executed in their favor by the respondent bank. In view of the
attendant circumstances, the CA concluded that petitioner acted merely as a broker or middleman in the
sales transactions involving the foreclosed properties. Lastly, the respondents-intervenors were found to
be purchasers who bought the properties in good faith without notice of petitioner's interest or claim.
Nonetheless, since there was no repurchase contract perfected, the sale of the subject properties to
respondents-intervenors remains valid and binding, and the issue of whether the latter were innocent
purchasers for value would be of no consequence.

Petitioner's motion for reconsideration was likewise denied by the appellate court.

Hence, this petition alleging that:cralawlibrary

A.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT THERE WAS A PERFECTED CONTRACT TO REPURCHASE BETWEEN
PETITIONER AND RESPONDENT-BANK.

B.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT PETITIONER DID NOT ACT AS BROKER IN THE SALE OF THE
FORECLOSED PROPERTIES AND THUS FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
ISSUED IN THE NAME OF THE PETITIONER THAT ARE DULY NOTED FOR HIS ACCOUNT.

C.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENT-BANK DID NOT HAVE THE RIGHT TO DISPOSE THE
SUBJECT PROPERTIES.

D.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENTS-INTERVENORS ARE NOT INNOCENT PURCHASERS
FOR VALUE IN GOOD FAITH.19?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ

It is to be noted that the above issues raised by petitioner alleged grave abuse of discretion committed
by the CA, which is proper in a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure,
as amended, but not in the present petition for review on certiorari under Rule 45.

The core issue for resolution is whether a contract for the repurchase of the foreclosed properties was
perfected between petitioner and respondent bank.

The Court sustains the decision of the CA.

Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.20 The requisite
acceptance of the offer is expressed in Article 1319 of the Civil Code which states:cralawlibrary
ART. 1319. Consent 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. A
qualified acceptance constitutes a counter-offer.

In Palattao v. Court of Appeals,21 this Court held that if the acceptance of the offer was not absolute,
such acceptance is insufficient to generate consent that would perfect a contract. Thus:cralawlibrary

Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of the
minds. Once there is concurrence between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer must be certain. To convert the
offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A
qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection
of the original offer. Consequently, when something is desired which is not exactly what is proposed in
the offer, such acceptance is not sufficient to generate consent because any modification or variation
from the terms of the offer annuls the offer.22?r?l1

The acceptance must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds.23 Where a party sets a different purchase price than the amount of the offer,
such acceptance was qualified which can be at most considered as a counter-offer; a perfected contract
would have arisen only if the other party had accepted this counter-offer.24 In Villanueva v. Philippine
National Bank25 this Court further elucidated on the meaning of unqualified acceptance, as
follows:cralawlibrary

While it is impossible to expect the acceptance to echo every nuance of the offer, it is imperative that it
assents to those points in the offer which, under the operative facts of each contract, are not only
material but motivating as well. Anything short of that level of mutuality produces not a contract but a
mere counter-offer awaiting acceptance. More particularly on the matter of the consideration of the
contract, the offer and its acceptance must be unanimous both on the rate of the payment and on its
term. An acceptance of an offer which agrees to the rate but varies the term is ineffective.26 (Emphasis
supplied)
Petitioner submitted as evidence of a perfected contract of repurchase the March 22, 1984 letter
(Exhibit "I")27 from Rita B. Manuel, then President of UPI, a corporation formed by respondent bank to
dispose of its acquired assets, with notations handwritten by petitioner himself. Said letter
reads:cralawlibrary

March 22, 1984

Honorable Judge Fausto Ignacio

412 Bagumbayan Street, Pateros

Metro Manila

Dear Judge Ignacio:cralawlibrary

Your proposal to repurchase your foreclosed properties located at Cabuyao, Laguna consisting of a total
area of 203,413 square meters has been favorably considered subject to the following terms and
conditions:cralawlibrary

1) Total Selling Price shall be P950,000.00

2) Downpayment of P150,00000 with the balance

Payable in Three (3) equal installments

as follows:cralawlibrary

1st Installment - P 266,667 - on or before May 31, '84

2nd Installment - P 266,667 - on or before Sept. 31, '84

3rd Installment - P 266,666 - on or before Jan. 30, '85

TOTAL - P 800,000.00 ???ñr?bl?š ??r†??l l?? l?br?rÿ

3) All expenses pertinent to the subdivision of the parcel of land consisting of 120,110 square meters
shall be for your account. ???ñr?bl?š ??r†??l l?? l?br?rÿ

Thank you,

Very truly yours,

RITA B. MANUEL

President ???ñr?bl?š ??r†??l l?? l?br?rÿ

According to petitioner, he wrote the notations in the presence of a certain Mr. Lazaro, the
representative of Mrs. Manuel (President), and a certain Mr. Fajardo, which notations supposedly
represent their "compromise agreement."28 These notations indicate that the repurchase price would
be P900,000.00 which shall be paid as follows: P150,000 - end of May '84; P150,000 - end of June '84;
Balance - "Depending on financial position". Petitioner further alleged the following conditions of the
verbal agreement: (1) respondent bank shall release the equivalent land area for payments made by
petitioner who shall shoulder the expenses for subdivision of the land; (2) in case any portion of the
subdivided land is sold by petitioner, a separate document of sale would be executed directly to the
buyer; (3) the remaining portion of the properties shall not be subject of respondent bank's transaction
without the consent and authority of petitioner; (4) the petitioner shall continue in possession of the
properties and whatever portion still remaining, and attending to the needs of its tenants; and (5)
payments shall be made directly to UPI.29?r?l1

The foregoing clearly shows that petitioner's acceptance of the respondent bank's terms and conditions
for the repurchase of the foreclosed properties was not absolute. Petitioner set a different repurchase
price and also modified the terms of payment, which even contained a unilateral condition for payment
of the balance (P600,000), that is, depending on petitioner's "financial position." The CA thus considered
the qualified acceptance by petitioner as a counter-proposal which must be accepted by respondent
bank. However, there was no evidence of any document or writing showing the conformity of
respondent bank's officers to this counter-proposal.

Petitioner contends that the receipts issued by UPI on his installment payments are concrete proof --
despite denials to the contrary by respondent bank -- that there was an implied acceptance of his
counter-proposal and that he did not merely act as a broker for the sale of the subdivided portions of
the foreclosed properties to third parties. Since all these receipts, except for two receipts issued in the
name of Fermin Salvador and Rizalina Pedrosa, were issued in the name of petitioner instead of the
buyers themselves, petitioner emphasizes that the payments were made for his account. Moreover,
petitioner asserts that the execution of the separate deeds of sale directly to the buyers was in
pursuance of the perfected repurchase agreement with respondent bank, such an arrangement being
"an accepted practice to save on taxes and shortcut paper works."???ñr?bl?š ??r†??l l?? l?br?rÿ

The Court is unconvinced.

In Adelfa Properties, Inc. v. CA,30 the Court ruled that:cralawlibrary

x x x 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.31?r?l1

Even assuming that the bank officer or employee whom petitioner claimed he had talked to regarding
the March 22, 1984 letter had acceded to his own modified terms for the repurchase, their supposed
verbal exchange did not bind respondent bank in view of its corporate nature. There was no evidence
that said Mr. Lazaro or Mr. Fajardo was authorized by respondent bank's Board of Directors to accept
petitioner's counter-proposal to repurchase the foreclosed properties at the price and terms other than
those communicated in the March 22, 1984 letter. As this Court ruled in AF Realty & Development, Inc.
v. Dieselman Freight Services, Co.32?r?l1
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a natural person may authorize another to do certain
acts in his behalf, so may the board of directors of a corporation validly

delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a
corporation must be made either by the board of directors or by a corporate agent duly authorized by
the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding on the corporation.33?r?l1

Thus, a corporation can only execute its powers and transact its business through its Board of Directors
and through its officers and agents when authorized by a board resolution or its by-laws.34?r?l1

In the absence of conformity or acceptance by properly authorized bank officers of petitioner's counter-
proposal, no perfected repurchase contract was born out of the talks or negotiations between petitioner
and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no legal right to compel respondent bank to
accept the P600,000 being tendered by him as payment for the supposed balance of repurchase price.

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there
is merely an offer by one party without acceptance of the other, there is no contract.35 When the
contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties.36?r?l1

In sum, we find the ruling of the CA more in accord with the established facts and applicable law and
jurisprudence. Petitioner's claim of utmost accommodation by respondent bank of his own terms for the
repurchase of his foreclosed properties are simply contrary to normal business practice. As aptly
observed by the appellate court:cralawlibrary

The submission of the plaintiff-appellee is unimpressive.

First, if the counter-proposal was mutually agreed upon by both the plaintiff-appellee and defendant-
appellant, how come not a single signature of the representative of the defendant-appellant was affixed
thereto. Second, it is inconceivable that an agreement of such great importance, involving two
personalities who are both aware and familiar of the practical and legal necessity of reducing
agreements into writing, the plaintiff-appellee, being a lawyer and the defendant-appellant, a banking
institution, not to formalize their repurchase agreement. Third, it is quite absurd and unusual that the
defendant-appellant could have acceded to the condition that the balance of the payment of the
repurchase price would depend upon the financial position of the plaintiff-appellee. Such open[-]ended
and indefinite period for payment is hardly acceptable to a banking institution like the defendant-
appellant whose core existence fundamentally depends upon its financial arrangements and
transactions which, most, if not all the times are intended to bear favorable outcome to its business.
Last, had there been a repurchase agreement, then, there should have been titles or deeds of
conveyance issued in favor of the plaintiff-appellee. But as it turned out, the plaintiff-appellee never had
any land deeded or titled in his name as a result of the alleged repurchase agreement. All these,
reinforce the conclusion that the counter-proposal was unilaterally made and inserted by the plaintiff-
appellee in Exhibit "I" and could not have been accepted by the defendant-appellant, and that a
different agreement other than a repurchase agreement was perfected between them.37?r?l1

Petitioner Fausto C. Ignacio passed away on November 11, 2008 and was substituted by his heirs,
namely: Marfel D. Ignacio-Manalo, Milfa D. Ignacio-Manalo and Faustino D. Ignacio.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July 18, 2006 and
Resolution dated May 2, 2007 of the Court of Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.

With costs against the petitioners.

SO ORDERED.
 FIRST DIVISION

G.R. No. 156437             March 1, 2004

NATIONAL HOUSING AUTHORITY, petitioner,

vs.
GRACE BAPTIST CHURCH and the COURT OF APPEALS, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking to reverse the Decision of the
Court of Appeals dated February 26, 2001, 1 and its Resolution dated November 8, 2002, 2 which modified
the decision of the Regional Trial Court of Quezon City, Branch 90, dated February 25, 1997. 3

On June 13, 1986, respondent Grace Baptist Church (hereinafter, the Church) wrote a letter to petitioner
National Housing Authority (NHA), manifesting its interest in acquiring Lots 4 and 17 of the General
Mariano Alvarez Resettlement Project in Cavite. 4 In its letter-reply dated July 9, 1986, petitioner
informed respondent:

In reference to your request letter dated 13 June 1986, regarding your application for Lots 4 and
17, Block C-3-CL, we are glad to inform you that your request was granted and you may now
visit our Project Office at General Mariano Alvarez for processing of your application to purchase
said lots.

We hereby advise you also that prior to approval of such application and in accordance with our existing
policies and guidelines, your other accounts with us shall be maintained in good standing. 5

Respondent entered into possession of the lots and introduced improvements thereon. 6

On February 22, 1991, the NHA’s Board of Directors passed Resolution No. 2126, approving the sale of
the subject lots to respondent Church at the price of P700.00 per square meter, or a total price of
P430,500.00.7 The Church was duly informed of this Resolution through a letter sent by the NHA. 8

On April 8, 1991, the Church tendered to the NHA a manager’s check in the amount of P55,350.00,
purportedly in full payment of the subject properties. 9 The Church insisted that this was the price
quoted to them by the NHA Field Office, as shown by an unsigned piece of paper with a handwritten
computation scribbled thereon.10 Petitioner NHA returned the check, stating that the amount was
insufficient considering that the price of the properties have changed. The Church made several
demands on the NHA to accept their tender of payment, but the latter refused. Thus, the Church
instituted a complaint for specific performance and damages against the NHA with the Regional Trial
Court of Quezon City,11 where it was docketed as Civil Case No. Q-91-9148.

On February 25, 1997, the trial court rendered its decision, the dispositive portion of which reads:

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

1. Ordering the defendant to reimburse to the plaintiff the amount of P4,290.00

representing the overpayment made for Lots 1, 2, 3, 18, 19 and 20;

2. Declaring that there was no perfected contract of sale with respect to Lots 4 and 17
and ordering the plaintiff to return possession of the property to the defendant and to
pay the latter reasonable rental for the use of the property at P200.00 per month
computed from the time it took possession thereof until finally vacated. Costs against
defendant.

SO ORDERED.12

On appeal, the Court of Appeals, affirmed the trial court’s finding that there was indeed no contract of
sale between the parties. However, petitioner was ordered to execute the sale of the lots to Grace
Baptist Church at the price of P700.00 per square meter, with 6% interest per annum from March 1991.
The dispositive portion of the Court of Appeals’ decision, dated February 26, 2001, reads:

WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION that
defendant-appellee NHA is hereby ordered to sell to plaintiff-appellant Grace Baptist Church
Lots 4 and 17 at the price of P700.00 per square meter, or a total cost P430,000.00 with 6%
interest per annum from March, 1991 until full payment in cash.

SO ORDERED.13

The appellate court ruled that the NHA’s Resolution No. 2126, which earlier approved the sale of the
subject lots to Grace Baptist Church at the price of P700.00 per square meter, has not been revoked at
any time and was therefore still in effect. As a result, the NHA was estopped from fixing a different price
for the subject properties. Considering further that the Church had been occupying the subject lots and
even introduced improvements thereon, the Court of Appeals ruled that, in the interest of equity, it
should be allowed to purchase the subject properties. 14

Petitioner NHA filed a Motion for Reconsideration which was denied in a Resolution dated November 8,
2002. Hence, the instant petition for review on the sole issue of: Can the NHA be compelled to sell the
subject lots to Grace Baptist Church in the absence of any perfected contract of sale between the
parties?
Petitioner submits that the Court cannot compel it to sell the subject property to Grace Baptist Church
without violating its freedom to contract. 15 Moreover, it contends that equity should be applied only in
the absence of any law governing the relationship between the parties, and that the law on sales and
the law on contracts in general apply to the present case. 16

We find merit in petitioner’s submission.

Petitioner NHA is not estopped from selling the subject lots at a price equal to their fair market value,
even if it failed to expressly revoke Resolution No. 2126. It is, after all, hornbook law that the principle of
estoppel does not operate against the Government for the act of its agents, 17 or, as in this case, their
inaction.

On the application of equity, it appears that the crux of the controversy involves the characterization of
equity in the context of contract law. Preliminarily, we reiterate that this Court, while aware of its equity
jurisdiction, is first and foremost, a court of law. While equity might tilt on the side of one party, the
same cannot be enforced so as to overrule positive provisions of law in favor of the other. 18 Thus, before
we can pass upon the propriety of an application of equitable principles in the case at bar, we must first
determine whether or not positive provisions of law govern.

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations
arising therefrom have the force of law between the parties and should be complied with in good
faith.19 However, it must be understood that contracts are not the only source of law that govern the
rights and obligations between the parties. More specifically, no contractual stipulation may contradict
law, morals, good customs, public order or public policy. 20 Verily, the mere inexistence of a contract,
which would ordinarily serve as the law between the parties, does not automatically authorize disposing
of a controversy based on equitable principles alone. Notwithstanding the absence of a perfected
contract between the parties, their relationship may be governed by other existing laws which provide
for their reciprocal rights and obligations.

It must be remembered that contracts in which the Government is a party are subject to the same rules
of contract law which govern the validity and sufficiency of contract between individuals. All the
essential elements and characteristics of a contract in general must be present in order to create a
binding and enforceable Government contract. 21

It appearing that there is no dispute that this case involves an unperfected contract, the Civil Law
principles governing contracts should apply. In Vda. de Urbano v. Government Service Insurance
System,22 it was ruled that a qualified acceptance constitutes a counter-offer as expressly stated by
Article 1319 of the Civil Code. In said case, petitioners offered to redeem mortgaged property and
requested for an extension of the period of redemption. However, the offer was not accepted by the
GSIS. Instead, it made a counter-offer, which petitioners did not accept. Petitioners again offer to pay
the redemption price on staggered basis. In deciding said case, it was held that when there is absolutely
no acceptance of an offer or if the offer is expressly rejected, there is no meeting of the minds. Since
petitioners’ offer was denied twice by GSIS, it was held that there was clearly no meeting of the minds
and, thus, no perfected contract. All that is established was a counter-offer. 23

In the case at bar, the offer of the NHA to sell the subject property, as embodied in Resolution No. 2126,
was similarly not accepted by the respondent. 24 Thus, the alleged contract involved in this case should
be more accurately denominated as inexistent. There being no concurrence of the offer and acceptance,
it did not pass the stage of generation to the point of perfection. 25 As such, it is without force and effect
from the very beginning or from its incipiency, as if it had never been entered into, and hence, cannot
be validated either by lapse of time or ratification. 26 Equity can not give validity to a void contract, 27 and
this rule should apply with equal force to inexistent contracts.

We note from the records, however, that the Church, despite knowledge that its intended contract of
sale with the NHA had not been perfected, proceeded to introduce improvements on the disputed land.
On the other hand, the NHA knowingly granted the Church temporary use of the subject properties and
did not prevent the Church from making improvements thereon. Thus, the Church and the NHA, who
both acted in bad faith, shall be treated as if they were both in good faith. 28 In this connection, Article
448 of the Civil Code provides:

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 and 548, 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 and if its value is considerably more than that of the building
or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms
of the lease and in case of disagreement, the court shall fix the terms thereof.

Pursuant to our ruling in Depra v. Dumlao, 29 there is a need to remand this case to the trial court, which
shall conduct the appropriate proceedings to assess the respective values of the improvements and of
the land, as well as the amounts of reasonable rentals and indemnity, fix the terms of the lease if the
parties so agree, and to determine other matters necessary for the proper application of Article 448, in
relation to Articles 546 and 548, of the Civil Code.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Court of Appeals’ Decision dated
February 26, 2001 and Resolution dated November 8, 2002 are REVERSED and SET ASIDE. The Decision
of the Regional Trial Court of Quezon City-Branch 90, dated February 25, 1997, is REINSTATED. This case
is REMANDED to the Regional Trial Court of Quezon City, Branch 90, for further proceedings consistent
with Articles 448 and 546 of the Civil Code.

No costs.

SO ORDERED
 FIRST DIVISION

G.R. No. 126083             July 12, 2006

ANTONIO R. CORTES (in his capacity as Administrator of the estate of Claro S. Cortes), petitioner,
vs.
HON. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT CORPORATION, respondents.

DECISION

YNARES-SANTIAGO, J.:

The instant petition for review seeks the reversal of the June 13, 1996 Decision 1 of the Court of Appeals
in CA-G.R. CV No. 47856, setting aside the June 24, 1993 Decision 2 of the Regional Trial Court of Makati,
Branch 138, which rescinded the contract of sale entered into by petitioner Antonio Cortes (Cortes) and
private respondent Villa Esperanza Development Corporation (Corporation).

The antecedents show that for the purchase price of P3,700,000.00, the Corporation as buyer, and
Cortes as seller, entered into a contract of sale over the lots covered by Transfer Certificate of Title (TCT)
No. 31113-A, TCT No. 31913-A and TCT No. 32013-A, located at Baclaran, Parañaque, Metro Manila. On
various dates in 1983, the Corporation advanced to Cortes the total sum of P1,213,000.00. Sometime in
September 1983, the parties executed a deed of absolute sale containing the following terms: 3

1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO
MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine Currency, less all
advances paid by the Vendee to the Vendor in connection with the sale;

2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00] PESOS, Phil.
Currency shall be payable within ONE (1) YEAR from date of execution of this instrument,
payment of which shall be secured by an irrevocable standby letter of credit to be issued by any
reputable local banking institution acceptable to the Vendor.

xxxx

4. All expense for the registration of this document with the Register of Deeds concerned,
including the transfer tax, shall be divided equally between the Vendor and the Vendee.
 Payment of the capital gains shall be exclusively for the account of the Vendor; 5% commission
of Marcosa Sanchez to be deducted upon signing of sale. 4

Said Deed was retained by Cortes for notarization.

On January 14, 1985, the Corporation filed the instant case 5 for specific performance seeking to compel
Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the
Corporation, despite its readiness and ability to pay the purchase price, Cortes refused delivery of the
sought documents. It thus prayed for the award of damages, attorney's fees and litigation expenses
arising from Cortes' refusal to deliver the same documents.

In his Answer with counterclaim,6 Cortes claimed that the owner's duplicate copy of the three TCTs were
surrendered to the Corporation and it is the latter which refused to pay in full the agreed down
payment. He added that portion of the subject property is occupied by his lessee who agreed to vacate
the premises upon payment of disturbance fee. However, due to the Corporation's failure to pay in full
the sum of P2,200,000.00, he in turn failed to fully pay the disturbance fee of the lessee who now
refused to pay monthly rentals. He thus prayed that the Corporation be ordered to pay the outstanding
balance plus interest and in the alternative, to cancel the sale and forfeit the P1,213,000.00 partial down
payment, with damages in either case.

On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to return to
the Corporation the amount of P1,213,000.00, plus interest. It ruled that pursuant to the contract of the
parties, the Corporation should have fully paid the amount of P2,200,000.00 upon the execution of the
contract. It stressed that such is the law between the parties because the Corporation failed to present
evidence that there was another agreement that modified the terms of payment as stated in the
contract. And, having failed to pay in full the amount of P2,200,000.00 despite Cortes' delivery of the
Deed of Absolute Sale and the TCTs, rescission of the contract is proper.

In its motion for reconsideration, the Corporation contended that the trial court failed to consider their
agreement that it would pay the balance of the down payment when Cortes delivers the TCTs. The
motion was, however, denied by the trial court holding that the rescission should stand because the
Corporation did not act on the offer of Cortes' counsel to deliver the TCTs upon payment of the balance
of the down payment. Thus:

The Court finds no merit in the [Corporation's] Motion for Reconsideration. As stated in the
decision sought to be reconsidered, [Cortes'] counsel at the pre-trial of this case, proposed that
if [the Corporation] completes the down payment agreed upon and make arrangement for the
payment of the balances of the purchase price, [Cortes] would sign the Deed of Sale and turn
over the certificate of title to the [Corporation]. [The Corporation] did nothing to comply with its
undertaking under the agreement between the parties.

WHEREFORE, in view of the foregoing considerations, the Motion for Reconsideration is hereby
DENIED.

SO ORDERED.7
On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a
Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together
with the TCTs, simultaneous with the Corporation's payment of the balance of the purchase price of
P2,487,000.00. It found that the parties agreed that the Corporation will fully pay the balance of the
down payment upon Cortes' delivery of the three TCTs to the Corporation. The records show that no
such delivery was made, hence, the Corporation was not remiss in the performance of its obligation and
therefore justified in not paying the balance. The decretal portion thereof, provides:

WHEREFORE, premises considered, [the Corporation's] appeal is GRANTED. The decision

appealed from is hereby REVERSED and SET ASIDE and a new judgment rendered ordering
[Cortes] to execute a deed of absolute sale conveying to [the Corporation] the parcels of land
subject of and described in the deed of absolute sale, Exhibit D. Simultaneously with the
execution of the deed of absolute sale and the delivery of the corresponding owner's duplicate
copies of TCT Nos. 31113-A, 31931-A and 32013-A of the Registry of Deeds for the Province of
Rizal, Metro Manila, District IV, [the Corporation] shall pay [Cortes] the balance of the purchase
price of P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale, Exhibit D,
under terms and conditions, "All expenses for the registration of this document (the deed of
sale) with the Register of Deeds concerned, including the transfer tax, shall be divided equally
between [Cortes and the Corporation]. Payment of the capital gains shall be exclusively for the
account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of
sale." There is no pronouncement as to costs.

SO ORDERED.8

Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be
reinstated.

There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties.
Reciprocal obligations are those which arise from the same cause, and which each party is a debtor and
a creditor of the other, such that the obligation of one is dependent upon the obligation of the other.
They are to be performed simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other. 9

Article 1191 of the Civil Code, states:

ART. 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.

xxxx

As to when said failure or delay in performance arise, Article 1169 of the same Code provides that –

ART. 1169

xxxx
 In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins. (Emphasis supplied)

The issue therefore is whether there is delay in the performance of the parties' obligation that would
justify the rescission of the contract of sale. To resolve this issue, we must first determine the true
agreement of the parties.

The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties, as
shown not necessarily by the terminology used in the contract but by their conduct, words, actions and
deeds prior to, during and immediately after executing the agreement. As such, therefore, documentary
and parol evidence may be submitted and admitted to prove such intention. 10

In the case at bar, the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full
the P2,200,000.00 down payment upon execution of the contract. However, as correctly noted by the
Court of Appeals, the transcript of stenographic notes reveal Cortes' admission that he agreed that the
Corporation's full payment of the sum of P2,200,000.00 would depend upon his delivery of the TCTs of
the three lots. In fact, his main defense in the Answer is that, he performed what is incumbent upon him
by delivering to the Corporation the TCTs and the carbon duplicate of the Deed of Absolute Sale, but the
latter refused to pay in full the down payment. 11 Pertinent portion of the transcript, reads:

[Q] Now, why did you deliver these three titles to the plaintiff despite the fact that it has not
been paid in full the agreed down payment?

A Well, the broker told me that the down payment will be given if I surrender the titles.

Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2,200,000.00
provided you surrender or entrust to the plaintiff the titles?

A Yes, sir.12

What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the
lots will be transferred in the name of the Corporation upon full payment of the P2,200,000.00 down
payment. Thus –

ATTY. ANTARAN

Q Of course, you have it transferred in the name of the plaintiff, the title?

A Upon full payment.

xxxx

ATTY. SARTE

Q When you said upon full payment, are you referring to the agreed down payment of
P2,200,000.00?
 A Yes, sir.13

By agreeing to transfer title upon full payment of P2,200,000.00, Cortes' impliedly agreed to deliver the
TCTs to the Corporation in order to effect said transfer. Hence, the phrase "execution of this
instrument" 14 as appearing in the Deed of Absolute Sale, and which event would give rise to the
Corporation's obligation to pay in full the amount of P2,200,000.00, can not be construed as referring
solely to the signing of the deed. The meaning of "execution" in the instant case is not limited to the
signing of a contract but includes as well the performance or implementation or accomplishment of the
parties' agreement.15 With the transfer of titles as the corresponding reciprocal obligation of payment,
Cortes' obligation is not only to affix his signature in the Deed, but to set into motion the process that
would facilitate the transfer of title of the lots, i.e., to have the Deed notarized and to surrender the
original copy thereof to the Corporation together with the TCTs.

Having established the true agreement of the parties, the Court must now determine whether Cortes
delivered the TCTs and the original Deed to the Corporation. The Court of Appeals found that Cortes
never surrendered said documents to the Corporation. Cortes testified that he delivered the same to
Manny Sanchez, the son of the broker, and that Manny told him that her mother, Marcosa Sanchez,
delivered the same to the Corporation.

Q Do you have any proof to show that you have indeed surrendered these titles to the plaintiff?

A Yes, sir.

Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt with that
receipt that you have mentioned?

A That is the receipt of the real estate broker when she received the titles.

Q On top of the printed name is Manny Sanchez, there is a signature, do you know who is that
Manny Sanchez?

A That is the son of the broker.

xxxx

Q May we know the full name of the real estate broker?

A Marcosa Sanchez

xxxx

Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the plaintiff?

A That is what [s]he told me. She gave them to the plaintiff.

x x x x.16
 ATTY. ANTARAN

Q Are you really sure that the title is in the hands of the plaintiff?

xxxx

Q It is in the hands of the broker but there is no showing that it is in the hands of the plaintiff?

A Yes, sir.

COURT

Q How do you know that it was delivered to the plaintiff by the son of the broker?

A The broker told me that she delivered the title to the plaintiff.

ATTY. ANTARAN

Q Did she not show you any receipt that she delivered to [Mr.] Dragon 17 the title without any
receipt?

A I have not seen any receipt.

Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or not. It is
only upon the allegation of the broker?

A Yes, sir.18

However, Marcosa Sanchez's unrebutted testimony is that, she did not receive the TCTs. She also denied
knowledge of delivery thereof to her son, Manny, thus:

Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that he
allegedly gave you the title to the property in question, is it true?

A I did not receive the title.

Q He likewise said that the title was delivered to your son, do you know about that?

A I do not know anything about that. 19

What further strengthened the findings of the Court of Appeals that Cortes did not surrender the
subject documents was the offer of Cortes' counsel at the pre-trial to deliver the TCTs and the Deed of
Absolute Sale if the Corporation will pay the balance of the down payment. Indeed, if the said
documents were already in the hands of the Corporation, there was no need for Cortes' counsel to make
such offer.
Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same
together with the TCTs, the trial court erred in concluding that he performed his part in the contract of
sale and that it is the Corporation alone that was remiss in the performance of its obligation. Actually,
both parties were in delay. Considering that their obligation was reciprocal, performance thereof must
be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave rise to
a compensation morae or default on the part of both parties because neither has completed their part in
their reciprocal obligation.20 Cortes is yet to deliver the original copy of the notarized Deed and the TCTs,
while the Corporation is yet to pay in full the agreed down payment of P2,200,000.00. This mutual delay
of the parties cancels out the effects of default, 21 such that it is as if no one is guilty of delay. 22

We find no merit in Cortes' contention that the failure of the Corporation to act on the proposed
settlement at the pre-trial must be construed against the latter. Cortes argued that with his counsel's
offer to surrender the original Deed and the TCTs, the Corporation should have consigned the balance of
the down payment. This argument would have been correct if Cortes actually surrendered the Deed and
the TCTs to the Corporation. With such delivery, the Corporation would have been placed in default if it
chose not to pay in full the required down payment. Under Article 1169 of the Civil Code, from the
moment one of the parties fulfills his obligation, delay by the other begins. Since Cortes did not perform
his part, the provision of the contract requiring the Corporation to pay in full the down payment never
acquired obligatory force. Moreover, the Corporation could not be faulted for not automatically heeding
to the offer of Cortes. For one, its complaint has a prayer for damages which it may not want to waive by
agreeing to the offer of Cortes' counsel. For another, the previous representation of Cortes that the TCTs
were already delivered to the Corporation when no such delivery was in fact made, is enough reason for
the Corporation to be more cautious in dealing with him.

The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in
the contract of sale, i.e., for Cortes to, among others, deliver the necessary documents to the
Corporation and for the latter to pay in full, not only the down payment, but the entire purchase price.
And since the Corporation did not question the Court of Appeal's decision and even prayed for its
affirmance, its payment should rightfully consist not only of the amount of P987,000.00, representing
the balance of the P2,200,000.00 down payment, but the total amount of P2,487,000.00, the remaining
balance in the P3,700,000.00 purchase price.

WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals in CA-G.R.
CV No. 47856, is AFFIRMED.

SO ORDERED.
PHILIPPINE SUPREME COURT DECISIONS

THIRD DIVISION

[G.R. NO. 169790 : April 30, 2008]

CONGREGATION OF THE RELIGIOUS OF THE VIRGIN MARY and/or THE SUPERIOR GENERAL OF THE
RELIGIOUS OF THE VIRGIN MARY, represented by The REVEREND MOTHER MA. CLARITA BALLEQUE,
Petitioner, v. EMILIO Q. OROLA, JOSEPHINE FATIMA LASERNA OROLA, MYRNA ANGELINE LASERNA
OROLA, MANUEL LASERNA OROLA, MARJORIE MELBA LASERNA OROLA & ANTONIO LASERNA OROLA,
Respondents.

DECISION

NACHURA, J.:

Challenged in this Petition for Review on Certiorari is the Court of Appeals (CA) Decision1 in CA-G.R. CV.
No. 71406 which modified the Regional Trial Court (RTC) Decision2 in Civil Case No. V-7382 ordering the
rescission of the contract of sale between the parties in an action for Specific Performance or Rescission
with Damages filed by respondents Emilio, Josephine Fatima Laserna, Myrna Angeline Laserna, Manuel
Laserna, Marjorie Melba Laserna, & Antonio Laserna, all surnamed Orola, (respondents) against
petitioner Congregation of the Religious of the Virgin Mary (RVM).3

The undisputed facts, as found by the CA and adopted by RVM in its petition, follow.

Sometime in April 1999, [petitioner] Religious of the Virgin Mary (RVM for brevity), acting through its
local unit and specifically through Sr. Fe Enhenco, local Superior of the St. Mary's Academy of Capiz and
[respondents] met to discuss the sale of the latter's property adjacent to St. Mary's Academy. Said
property is denominated as Lot 159-B-2 and was still registered in the name of [respondents']
predecessor-in-interest, Manuel Laserna.
In May of 1999, [respondent] Josephine Orola went to Manila to see the Mother Superior General of the
RVM, in the person of Very Reverend Mother Ma. Clarita Balleque [VRM Balleque] regarding the sale of
the property subject of this instant case.

A contract to sell dated June 2, 1999 made out in the names of herein [petitioner] and [respondents] as
parties to the agreement was presented in evidence pegging the total consideration of the property at
P5,555,000.00 with 10% of the total consideration payable upon the execution of the contract, and
which was already signed by all the [respondents] and Sr. Ma. Fe Enhenco, R.V.M. [Sr. Enhenco] as
witness.

On June 7, 1999, [respondents] Josephine Orola and Antonio Orola acknowledged receipt of RCBC Check
No. 0005188 dated June 7, 1999 bearing the amount of P555,500.00 as 10% down payment for Lot 159-
B-2 from the RVM Congregation (St. Mary's Academy of Cadiz [SMAC]) with the "conforme" signed by
Sister Fe Enginco (sic), Mother Superior, SMAC.

[Respondents] executed an extrajudicial settlement of the estate of Trinidad Andrada Laserna dated
June 21, 1999 adjudicating unto themselves, in pro indiviso shares, Lot 159-B-2, and which paved the
transfer of said lot into their names under Transfer Certificate of Title No. T-39194 with an entry date of
August 13, 1999.4

Thereafter, respondents, armed with an undated Deed of Absolute Sale which they had signed,
forthwith scheduled a meeting with VRM Balleque at the RVM Headquarters in Quezon City to finalize
the sale, specifically, to obtain payment of the remaining balance of the purchase price in the amount of
P4,999,500.00. However, VRM Balleque did not meet with respondents. Succeeding attempts by
respondents to schedule an appointment with VRM Balleque in order to conclude the sale were likewise
rebuffed.

In an exchange of correspondence between the parties' respective counsels, RVM denied respondents'
demand for payment because: (1) the purported Contract to Sell was merely signed by Sr. Enhenco as
witness, and not by VRM Balleque, head of the corporation sole; and (2) as discussed by counsels in
their phone conversations, RVM will only be in a financial position to pay the balance of the purchase
price in two years time. Thus, respondents filed with the RTC a complaint with alternative causes of
action of specific performance or rescission.
After trial, the RTC ruled that there was indeed a perfected contract of sale between the parties, and
granted respondents' prayer for rescission thereof. It disposed of the case, to wit:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondents] and
against the [petitioner].

1. Dismissing the counterclaim;

2. Ordering the rescission of the Contract to Sell, Exh. "E".

3. Ordering the forfeiture of the downpayment of P555,500 in favor of the [respondents];

4. Ordering [petitioner] corporation sole, the Superior General of the Religious of the Virgin Mary, to pay
[respondents]:

A. P50,000.00 as exemplary damages;

b. P50,000.00 as attorney's fees.

5. Costs against the [petitioner].

Dissatisfied, both parties filed their respective Notices of Appeal. The CA dismissed the respondents'
appeal because of their failure to file an Appeal Brief. However, RVM's appeal, where respondents
accordingly filed an Appellee's Brief, continued. Subsequently, the CA rendered judgment setting aside
the RTC Decision, to wit:
WHEREFORE, with all the foregoing, the decision of the Regional Trial Court, Branch 15, Roxas City dated
March 1, 2001 in [C]ivil [C]ase [N]o. V-7382 for Specific Performance or Rescission with Damages is
hereby SET ASIDE and a new one entered GRANTING [respondents'] action for specific performance.
[Petitioner RVM] [is] hereby ordered to pay [respondents] immediately the balance of the total
consideration for the subject property in the amount of P4,999,500.00 with interest of 6% per annum
computed from June 7, 2000 or one year from the downpayment of the 10% of the total consideration
until such time when the whole obligation has been fully satisfied. In the same way, [respondents]
herein are ordered to immediately deliver the title of the property and to execute the necessary
documents required for the sale as soon as all requirements aforecited have been complied by [RVM].
Parties are further ordered to abide by their reciprocal obligations in good faith.

All other claims and counterclaims are hereby dismissed for lack of factual and legal basis.

No pronouncement as to cost.

In modifying the RTC Decision, the CA, albeit sustaining the trial court's finding on the existence of a
perfected contract of sale between the parties, noted that the records and evidence adduced did not
preponderate for either party on the manner of effecting payment for the subject property. In short, the
CA was unable to determine from the records if the balance of the purchase price was due in two (2)
years, as claimed by RVM, or, upon transfer of title to the property in the names of respondents, as they
averred. Thus, the CA applied Articles 13835 and 13846 of the Civil Code which pronounce rescission as
a subsidiary remedy covering only the damages caused.

The appellate court then resolved the matter in favor of the greatest reciprocity of interest pursuant to
Article 13787 of the Civil Code. It found that the 2-year period to purchase the property, which RVM
insisted on, had been mooted considering the time elapsed from the commencement of this case. Thus,
the CA ordered payment of the balance of the purchase price with 6% interest per annum computed
from June 7, 2000 until complete satisfaction thereof.

Hence, this recourse.

RVM postulates that the order to pay interest is inconsistent with the professed adherence by the CA to
the greatest reciprocity of interest between the parties. Since mutual restitution cannot be had when
the CA set aside the rescission of the contract of sale and granted the prayer for specific performance,
RVM argues that the respondents should pay rentals for the years they continued to occupy, possess,
and failed to turn over to RVM the subject property.

Effectively, the only issue for our resolution is whether RVM is liable for interest on the balance of the
purchase price.

At the outset, we must distinguish between an action for rescission as mapped out in Article 1191 of the
Civil Code and that provided by Article 1381 of the same Code. The articles read:

Art. 1191. The power to rescind obligations is impled 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.

Art. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion
by more than one fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion state in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without
the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

Article 1191, as presently worded, speaks of the remedy of rescission in reciprocal obligations within the
context of Article 1124 of the Old Civil Code which uses the term "resolution." The remedy of resolution
applies only to reciprocal obligations8 such that a party's breach thereof partakes of a tacit resolutory
condition which entitles the injured party to rescission. The present article, as in the Old Civil Code,
contemplates alternative remedies for the injured party who is granted the option to pursue, as
principal actions, either a rescission or specific performance of the obligation, with payment of damages
in each case. On the other hand, rescission under Article 1381 of the Civil Code, taken from Article 1291
of the Old Civil Code, is a subsidiary action, and is not based on a party's breach of obligation.

The esteemed Mr. Justice J.B.L. Reyes, ingeniously cuts through the distinction in his concurring opinion
in Universal Food Corporation v. CA:9

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the
argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco,
should be denied because under Article 1383 of the Civil Code of the Philippines[,] rescission can not be
demanded except when the party suffering damage has no other legal means to obtain reparation, is
predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of
the Civil Code and a rescission by reason of lesión or economic prejudice, under Article 1381, et seq.
The rescission on account of breach of stipulations is not predicated on injury to economic interests of
the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the
parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that
the action for rescission thereunder is subordinated to anything other than the culpable breach of his
obligations by the defendant. This rescission is a principal action retaliatory in character, it being unjust
that a party be held bound to fulfill his promises when the other violates his. As expressed in the old
Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the
breach is purely secondary.

On the contrary, in the rescission by reason of lesión or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d' etre as well as the measure of
the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these
two articles is limited to the cases of rescission for lesión enumerated in Article 1381 of the Civil Code
of the Philippines, and does not apply to cases under Article 1191.

It is probable that the petitioner's confusion arose from the defective technique of the new Code that
terms both instances as "rescission" without distinctions between them; unlike the previous Spanish
Civil Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by reason
of lesión or damage. But the terminological vagueness does not justify confusing one case with the
other, considering the patent difference in causes and results of either action.

In the case at bench, although the CA upheld the RTC's finding of a perfected contract of sale between
the parties, the former disagreed with the latter that fraud and bad faith were attendant in the sale
transaction. The appellate court, after failing to ascertain the parties' actual intention on the terms of
payment for the sale, proceeded to apply Articles 1383 and 1384 of the Civil Code declaring rescission as
a subsidiary remedy that may be availed of only when the injured party has no other legal means to
obtain reparation for the damage caused. In addition, considering the absence of fraud and bad faith,
the CA felt compelled to arrive at a resolution most equitable for the parties. The CA's most equitable
resolution granted respondents' prayer for specific performance of the sale and ordered RVM to pay the
remaining balance of the purchase price, plus interest. It set aside and deleted the RTC's order forfeiting
the downpayment of P555,500.00 in favor of, and payment of exemplary damages, attorney's fees and
costs of suit to, respondents.

Nonetheless, RVM is displeased. It strenuously objects to the CA's imposition of interest. RVM latches on
to the CA's characterization of its resolution as most equitable which, allegedly, is not embodied in the
dispositive portion of the decision ordering the payment of interest. RVM is of the view that since the CA
decreed specific performance of the contract without a finding of bad faith by either party, and
respondents retained possession of the subject property for the duration of the litigation, the imposition
of interest is not keeping with equity without simultaneously requiring respondents to pay rentals for
their continued and uninterrupted stay thereon. In all, RVM phrases the issue in metaphysical terms,
i.e., the most equitable solution.
We completely disagree. The law, as applied to this factual milieu, leaves no room for equivocation.
Thus, we are not wont to apply equity in this instance.

As uniformly found by the lower courts, we likewise find that there was a perfected contract of sale
between the parties. A contract of sale carries the correlative duty of the seller to deliver the property
and the obligation of the buyer to pay the agreed price.10 As there was already a binding contract of
sale between the parties, RVM had the corresponding obligation to pay the remaining balance of the
purchase price upon the issuance of the title in the name of respondents. The supposed 2-year period
within which to pay the balance did not affect the nature of the agreement as a perfected contract of
sale.11 In fact, we note that this 2-year period is neither reflected in any of the drafts to the contract,12
nor in the acknowledgment receipt of the downpayment executed by respondents Josephine and
Antonio with the conformity of Sr. Enhenco.13 In any event, we agree with the CA's observation that the
2-year period to effect payment has been mooted by the lapse of time.

However, the CA mistakenly applied Articles 1383 and 1384 of the Civil Code to this case because
respondents' cause of action against RVM is predicated on Article 1191 of the same code for breach of
the reciprocal obligation. It is evident from the allegations in respondents' Complaint14 that the instant
case does not fall within the enumerated instances in Article 1381 of the Civil Code. Certainly, the
Complaint did not pray for rescission of the contract based on economic prejudice.

Moreover, contrary to the CA's finding that the evidence did not preponderate for either party, the
records reveal, as embodied in the trial court's exhaustive disquisition, that RVM committed a breach of
the obligation when it suddenly refused to execute and sign the agreement and pay the balance of the
purchase price.15 Thus, when RVM refused to pay the balance and thereby breached the contract,
respondents rightfully availed of the alternative remedies provided in Article 1191. Accordingly,
respondents are entitled to damages regardless of whichever relief, rescission or specific performance,
would be granted by the lower courts.16

Yet, RVM stubbornly argues that given the CA's factual finding on the absence of fraud or bad faith by
either party, its order to pay interest is inequitable.

The argument is untenable. The absence of fraud and bad faith by RVM notwithstanding, it is liable to
respondents for interest. In ruling out fraud and bad faith, the CA correspondingly ordered the
fulfillment of the obligation and deleted the RTC's order of forfeiture of the downpayment along with
payment of exemplary damages, attorney's fees and costs of suit. But RVM's contention disregards the
common finding by the lower courts of a perfected contract of sale. As previously adverted to, RVM
breached this contract of sale by refusing to pay the balance of the purchase price despite the transfer
to respondents' names of the title to the property. The 2-year period RVM relies on had long passed and
expired, yet, it still failed to pay. It did not even attempt to pay respondents the balance of the purchase
price after the case was filed, to amicably end this litigation. In fine, despite a clear cut equitable
decision by the CA, RVM refused to lay the matter to rest by complying with its obligation and paying the
balance of the agreed price for the property.

Lastly, to obviate confusion, the clear language of Article 1191 mandates that damages shall be awarded
in either case of fulfillment or rescission of the obligation.17 In this regard, Article 2210 of the Civil Code
is explicit that "interest may, in the discretion of the court, be allowed upon damages awarded for
breach of contract." The ineluctable conclusion is that the CA correctly imposed interest on the
remaining balance of the purchase price to cover the damages caused the respondents by RVM's
breach.

WHEREFORE, premises considered, the petition is DENIED. The order granting specific performance and
payment of the balance of the purchase price plus six percent (6%) interest per annum from June 7,
2000 until complete satisfaction is hereby AFFIRMED. Costs against petitioner.

SO ORDERED.