SECOND DIVISION

[G.R. No. 147321. January 21, 2004]

SPOUSES CRISPIN AUSTRIA and LEONISA HILARIO, petitioners, vs. SPOUSES DANILO GONZALES, JR., and VERONICA
GONZALES, respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the Court of Appeals decision1 dated February 23, 1999, in CA-G.R. CV No. 49581, which
reversed the decision2 of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 12, in Civil Case No. 552-M-91. The
RTC ruled that the disputed contract purporting to be a deed of sale was an equitable mortgage, and granted petitioners
the right to redeem the subject property. Also assailed is the appellate court's Resolution3 dated February 28, 2001,
denying petitioners' motion for reconsideration.
The facts as culled from the records are as follows:
On September 4, 1991, petitioners Crispin Austria and Leonisa Hilario filed a civil action for Declaration of Nullity of
Document and Reconveyance before the RTC of Malolos, Bulacan, against herein respondents Danilo Gonzales, Jr., and
Veronica Gonzales. In their Complaint, docketed as Civil Case No. 552-M-91, petitioners alleged that they are the owners
and possessors of three (3) parcels of land, with areas of 1,000, 1,000 and 1,363 square meters, more or less, and
covered by the following Transfer Certificates of Title (TCT) Nos. T-210989, T-210990 and T-82297, respectively, all in the
name of petitioner Leonisa Hilario.
Said parcels became the subject of two (2) Deeds of Absolute Sale, one dated July 21, 1979, priced at P50,000 and the
other dated October 23, 1981 priced at P240,000. Both deeds were executed by petitioner Leonisa Hilario in favor of
respondents. But petitioners claimed that the transactions entered between petitioners and respondents were not
actually sales, but merely loans in the amount of P260,000. According to petitioners, they used this amount to redeem
some mortgaged properties from the Rural Bank of Pandi, Bulacan. To secure the loan, however, respondents required
petitioners to furnish them with ten (10) TCTs. Three of these certificates covered the petitioners' properties subject of
the present case, while .the other seven belonged to their relatives. Petitioners admitted that their debts to respondent
spouses remained unpaid due to business reverses.
According to petitioners, respondents thereafter registered the disputed properties in their own names through the use
of fraud, misrepresentation and falsification, using the fictitious contracts of sale. Petitioners alleged that they came to
know of said acts of respondents only when they were served with a notice dated May 22, 1991, from respondents'
counsel to vacate said lots. Thus, petitioners sought the reconveyance of the three parcels from respondents, with moral
damages and attorney's fees.
For their part, respondents insisted in their Answer that on October 1981, petitioner Leonisa Hilario sold to them the
three lots in question. Respondent Veronica Gonzales agreed to buy the same out of pity for petitioners, whose several
properties had earlier been foreclosed by the bank. The transaction was embodied in a Deed of Absolute Sale and
notarized before Notary Public Protacio Cortez, Jr. The original amount in the Deed of Absolute Sale was P240,000.
However, before the properties were registered, petitioner Leonisa Hilario in a letter dated July 20, 1983, requested for
the execution of another Deed of Absolute Sale indicating a price of P50,000, purportedly to lessen the taxes and fees
that they will be paying as the vendors. The letter, which was in the vernacular is reproduced in full below, thus:
Ika-ng Hulyo, 1983
Gng. Veronica R. Gonzalez
Baliwag, Bulacan
Mahal na Gng. Gonzales;
Nangyari kami ay lumiham sa inyo tungkol sa Kasulatan ng Bilihan na aming isinagawa sa inyong pangalan na tumutukoy
sa lupang nasasa (sic) Bunsuran Pandi, Bulacan at nasa ilalim ng TCT Nos. T-82297, T-210989, T-210990 ng Register of
Deeds of Bulacan na lalong magpapakikilala bilang Doc. No. 284; page no. 57; Book No. V; Series of 1981 ni Notary Public
P. Cortez, Jr. ng Bulakan na ang gastos sa kaukulang capital gains tax, registration fees at ibang gastos pa na may
kinalaman sa pagpapalipat sa pangalan ninyo ay kami ang mananagot na magbabayad.
Dahilan po dito ay nais po sana naming hilingin sa inyo na sana ay makapagsagawa kami ng isa pang kasulatan ng bilihan
na tumutukoy din sa mga binanggit na lupa at babaan ang halaga nito at ang petsa nito ay maging bata or maaga para
kami ay huwag namang masyadong magastusan at kami ay nananagot sa pagsasagawa ng bilihang ito.
Salamat po at umaasa kami sa inyong pagdinig sa aming kahilingang ito.
Sumasainyo,
Sgd.
Gng. Leonisa H. Austria4

According to respondents, a new Deed of Absolute Sale indicating a selling price of P50,000 for the 3 lots was executed
and notarized before Notary Public Jose Ramos. Shortly afterwards, according to respondents, the titles of said lots were
transferred to them.
After respondents wrote petitioners on June 20, 1983, asking them to vacate the disputed properties, petitioners sent
respondents on July 28, 1983, an UNDERTAKING5 promising to vacate and surrender possession of the properties on or
about December 15, 1983, without further extension. But then petitioners failed to vacate as promised on said date.
Their failure to vacate and turn over the purchased lots prompted respondents to send a final demand letter asking
petitioners to vacate the premises but petitioners still refused. As a result, said respondents were forced to file an
ejectment suit docketed as Civil Case No. 2473 before the Municipal Trial Court of Pandi, Bulacan,6 against petitioners.
That suit was decided by the municipal court in respondents' favor. Hence the petitioners elevated their case to the
Regional Trial Court of Malolos.
On August 11, 1995, after trial on the merits, the RTC of Malolos decided Civil Case No. 552-M-91 against respondents
and in favor of herein petitioners. It decreed as follows:
WHEREFORE, conformably with all the foregoing, judgment is hereby rendered declaring the subject deeds of absolute
sale (Exhs. "1" and "3") a loan transaction between the parties herein and, therefore, an equitable mortgage. Plaintiffs
are declared entitled to redeem their mortgaged properties which shall be effected upon the payment of their mortgage
debt to defendants in the total amount of P260,000.00 with legal rate of interest from October 23, 1981, the date of
delivery of said loan amount to plaintiffs, until it is fully paid.
Further, defendants are hereby ordered to pay P20,000.00 for attorney's fee (sic) of plaintiffs and the costs of suit.
SO ORDERED.7
In finding for petitioners, the trial court described petitioners as the classic example of persons who are willing to enter
into any kind of arrangement with another due to a desperate need of money. The trial court noted that petitioners had
to sign all those documents, including the undertaking dated July 28, 1983, simply because their hands were forced by
the need to avail of their last remaining chance to redeem their mortgaged properties from the foreclosing bank.
Citing Uy v. Court of Appeals,8 the RTC opined that "necessitous men are not, truly speaking, free men; but to answer a
present emergency, will submit to any terms that the crafty may impose upon them."
Applying Article 16049 of the Civil Code in relation to Article 1602,10 the RTC observed that: (a) petitioners as the
vendor remained in physical possession of the lots even after the execution of the deed of sale; (b) petitioners paid the
realty taxes for the years 1982 and 1983; and (c) the purchase price of P50,000.00 was unusually inadequate by any
standard for realties totaling more than 3,000 square meters in area, with house built thereon and other improvements.
Respondents seasonably appealed the decision in Civil Case No. 552-M-91 to the Court of Appeals. It reversed the trial
court's decision, to wit:
WHEREFORE, the decision dated August 11, 1995 of the Regional Trial Court of Malolos, Bulacan (Branch 12) is hereby
SET ASIDE, and a new one rendered DISMISSING the complaint.
Costs against the plaintiffs-appellees.
SO ORDERED.11
Further, in holding that the contract between the parties was an absolute sale, rather than equitable mortgage, the
Court of Appeals made the following observations in its decision on the ejectment suit: (1) petitioner Crispin Austria
could not present the document to prove that their transaction with respondents was a loan; (2) Austria could not even
testify as to the terms of such loan, i.e., he did not even know when the loan fell due; (3) petitioners had not paid any
single centavo for such loan over a period of 13 years; (4) when confronted with the deed of sale during the trial, Austria
could only claim that he could not remember if the signatures appearing thereon were his or his wife's; (5) petitioners
did execute the Undertaking promising to vacate the disputed premises on or before December 14, 1983; and (6)
petitioners did not deny writing the letter dated July 20, 1983 wherein they asked respondents to execute a second
antedated deed of sale with a reduced selling price indicated therein.12
Hence, the instant petition.
Before this Court, petitioners aver that the Court of Appeals erred in:
I
HOLDING THAT THE CONTRACT BETWEEN PETITIONERS AND RESPONDENTS OVER THE TEN (10) TRANSFER
CERTIFICATE(S) OF TITLE, AND ALL IMPROVEMENTS EERECTED THEREON (sic) SUBJECT THREE (3) PARCELS OF LAND
COVERED BY THREE (3) TRANSFER CERTIFICATE(S) OF TITLES INCLUDED WERE SALE AND NOT A MORTGAGE LOAN (sic).
II
DISREGARDING THE FACTS AND EVIDENCES PRESENTED WHICH CLEARLY SUPPORT THE REGIONAL TRIAL COURT'S
FINDINGS IN FAVOR OF THE PETITIONERS.

a. FROM HER OWN LIPS, RESPONDENT VERONICA GONZALES ADMITTED HAVING ACQUIRED THE FIVE (5) PROPERTIES
OF PABLO HILARIO, JR., ONE (1) PROPERTY OF PABLO HILARIO, SR., AND ONE (1) PROPERTY OF MANSUETO DIE LA CRUZ;
b. UNDER THE FACTUAL CIRCUMSTANCES OBTAINING IN THE INSTANT CASE AND EXISTING JURISPRUDENCE, THE
CONTRACT BETWEEN PETITIONERS AND RESPONDENTS WAS, AT THE VERY LEAST, AN EQUITABLE MORTGAGE.
The pertinent issue for our resolution is whether the transaction in this case involves an absolute sale or equitable
mortgage of real property.
Petitioners contend that the Court of Appeals erred in failing to consider the following circumstances: (a) they remained
in possession of the premises until 1992; (b) the price of P50,000 is grossly inadequate; (c) they are paying the real
estate taxes and that they were left with no choice but to yield to respondents' fraudulent scheme because they were in
dire need of money.13 They claim that all the foregoing are earmarks of an equitable mortgage. They add, quoting an
adage in Filipino, "Ang taong nagigipit, kahit sa patalim ay kumakapit".14
For their part, respondents argue that the instant petition raises factual issues not proper in a petition for review on
certiorari. On the merits, they aver that petitioners' mere denial is not sufficient to overcome the existence of the deed
of sale, which was notarized by the notary public, who testified thereon in court as a witness. Moreover, they contend
that petitioners are landowners used to transacting business involving real properties, including the prior loan
arrangements with respondents. Thus, according to respondents, the petitioners cannot claim ignorance of the required
documentation for realty transactions.
At this juncture, we must stress that while, as general rule, only questions of law may be raised in a petition for review
under Rule 45 of the Rules of Court, nonetheless factual issues may be entertained by this Court in exceptional cases.
These include instances where the findings of fact are conflicting or when the findings of the Court of Appeals are
contrary to those of the trial court,15 as in the present case. The different findings of the trial court and the Court of
Appeals as to the nature of the transaction entered into between petitioners and respondents in this case compel us to
make our own.
Decisive for the proper determination of the true nature of the transaction between the parties is the intent of the
parties. There is no conclusive test to determine whether a deed absolute on its face is really a simple loan
accommodation secured by a mortgage.16 To determine whether a deed absolute in form is a mortgage in reality, the
court is not limited to the written memorials of the transaction. This is so because the decisive factor in evaluating such
agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by all the
surrounding circumstances, such as the relative situations of the parties at that time; the attitudes, acts, conduct, and
declarations of the parties; the negotiations between them leading to the deed; and generally, all pertinent facts having
a tendency to fix and determine the real nature of their design and understanding. As such, documentary and parol
evidence may be submitted and admitted to prove the intention of the parties.17
At first blush, petitioners appear persuasive in invoking the presumption created by Articles 1602 and 1604 of the Civil
Code as to an equitable mortgage. Petitioners point out that the requirements of an equitable mortgage have been
satisfied by the following circumstances, to wit: (1) inadequacy of the selling price; (2) possession in the premises, and
(3) payment of realty taxes. However, such presumption of equitable mortgage is not conclusive. It may be rebutted by
competent and satisfactory proof to the contrary. In the instant case, petitioners' claim that the selling price of the lots
in question was inadequate needs closer scrutiny. Petitioners' allegation that the insufficiency of the selling price creates
the presumption that the transaction is an equitable mortgage is unsupported by the evidence on record. Petitioners
failed to present any proof whatsoever that the fair market values of the real property in the area at the time of the
transaction were much higher than the selling price of the parcels in question. Mere allegation that the price paid by
respondents was inadequate, without more, does not make a case favorable to petitioners. Moreover, there is candid
testimony by respondents that the actual price paid was P240,000. This testimony was buttressed by a letter dated July
20, 1983, written by petitioner Leonisa H. Antonio that a price be put in the deed lower than what was actually paid, so
as to lower the seller's taxes, fees, and other expenses.
As to the allegation that petitioners were in possession of the properties even after the sale, it is obviated by the fact
that they executed an undertaking promising to vacate the premises. But they repeatedly delayed honoring it. The
records also show that they did not object when improvements were made on the premises by respondents. As aptly
stated by the Court of Appeals:
Plaintiffs responded to a demand to vacate made on them by the defendant by executing an "Undertaking" dated July
28, 1983 promising to vacate the premises on or before December 14, 1983. (Exh. "7"). Such undertaking was consistent
with the fact that a sale was indeed made in October 1981. Plaintiffs, however, failed to make good their promise and so
an ejectment suit was filed against them which eventually led to their ejectment from the subject properties. After their
ejectment, a certain Mr. Rivera occupied the lots. The latter introduced permanent improvements thereon and had in
fact converted the pigpens, which used to belong to plaintiff Austria, into a fishpond. When all these improvements

were being undertaken, plaintiffs were aware thereof but did not object to any of the work done on the subject
premises, (tsn, pp. 8-11, August 9, 1993). Such inaction is contrary to their claim of ownership over the subject
properties, considering that the owner of a thing has the right to exclude any person from the enjoyment and disposal
thereof and may, for this purpose, use such force as may be reasonably necessary to repel or prevent an actual or
threatened unlawful physical invasion or usurpation of his property. (Article 429, Civil Code).18
Petitioners insist that they entered into a contract only to obtain a loan with respondents and nothing more. Petitioners
failed, however, to present a copy of said contract in the proceedings before the RTC, nor could they testify as to its
details. Petitioners surely cannot now pretend to be ignorant of the real nature of their transaction with respondents.
For this was not the first time they dealt with each other. Petitioner Crispin Austria even admitted in his testimony that
he knew the meaning of the phrase "hereby sell, transfer and convey" and "deed of sale".19 But he was less than candid
in his testimony under oath. While he could identify his own signature in the Complaint, he was struck with selective
amnesia when shown the same signature in the Deed of Sale.20 Moreover, he failed to rebut the testimony of the
Notary Public who testified in court that the petitioners as vendors of the properties personally appeared and
acknowledged the sale documents before him.
Lastly petitioners' contentions must fail in the face of Leonisa's letter of July 20, 1983 to respondent Veronica Gonzales,
requesting respondents to execute another antedated deed of sale, providing for a decreased selling price, so as to
reduce petitioners' taxes, e.g. capital gains tax. The existence and genuineness of the letter was never rebutted by
petitioners. Note that in said letter Leonisa used the term "Kasulatan ng Bilihan" (Deed of Sale). Note likewise that she
made mention about capital gains tax and registration fees, which can only find relevance and necessity in a contract of
sale and not in a contract of mortgage. Apparently, petitioners were aware all along that what they had entered into
with respondents is a contract of sale. Petitioners cannot feign ignorance and illiteracy as to its contents. Said letter is
written not in English but in Filipino in which petitioners are conversant. Thus, we are constrained to find that indeed
the true intent of the parties involves a contract of sale. It is not merely a loan, much less an equitable mortgage, that
they had in mind. The decision reached by the appellate court favoring the respondents over the petitioners, by
reversing the trial courts judgment and dismissing the complaint, deserves our concurrence.
WHEREFORE, the petition is DENIED, and the decision of the Court of Appeals dated February 23, 1999, in CA-G.R. CV
No. 49581 as well as its resolution dated February 28, 2001, is AFFIRMED. Costs against petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.

FIRST DIVISION
[G.R. No. 146608. October 23, 2003]
SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, petitioners, vs. BUKAL ENTERPRISES AND DEVELOPMENT
CORPORATION, respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari of the Decision [1] dated 3 January 2001 of the Court of Appeals in CA-G.R. CV
No. 60747. The Court of Appeals reversed the Decision [2] of the Regional Trial Court, Branch 223, Quezon City (trial
court), which held that there was no perfected contract of sale since there was no consent on the part of the seller.
The Facts
Petitioner Spouses Constante and Azucena Firme (Spouses Firme) are the registered owners of a parcel of land [3]
(Property) located on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro (De Castro), the vice president of
Bukal Enterprises and Development Corporation (Bukal Enterprises) authorized his friend, Teodoro Aviles (Aviles), a
broker, to negotiate with the Spouses Firme for the purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a complaint for specific performance and damages with the trial court,
alleging that the Spouses Firme reneged on their agreement to sell the Property. The complaint asked the trial court to
order the Spouses Firme to execute the deed of sale and to deliver the title to the Property to Bukal Enterprises upon
payment of the agreed purchase price.
During trial, Bukal Enterprises presented five witnesses, namely, Aviles, De Castro, Antonio Moreno, Jocelyn Napa and
Antonio Ancheta.
Aviles testified that De Castro authorized him to negotiate on behalf of Bukal Enterprises for the purchase of the
Property. According to Aviles, he met with the Spouses Firme on 23 January 1995 and he presented them with a draft
deed of sale [4] (First Draft) dated February 1995. The First Draft of the deed of sale provides:
DEED OF ABSOLUTE SALE
KNOW ALL MEN BY THESE PRESENTS:
This DEED OF ABSOLUTE SALE made and executed by and between the Spouses CONSTANTE FIRME and AZUCENA E.
FIRME, both of legal age, Filipino citizens and with postal address at No. 1450 Union, Paco, City of Manila, hereinafter
called the VENDOR, and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized and registered in accordance with
Philippine Laws, with business address at Dahlia Avenue, Fairview Park, Quezon City, herein represented by its
PRESIDENT, MRS. ZENAIDA A. DE CASTRO, hereinafter called the VENDEE.
WITNESSETH:
That the VENDOR is the absolute and registered owner of a certain parcel of land located at Fairview Park, Quezon City,
and more particularly described as follows:
A parcel of land (Lot 4, Block 33 of the consolidation-subdivision plan (LRC) Pcs-8124, Sheet No. I, being a portion of the
consolidation of Lots 41-B-2-A and 41-B-2-C, Psd-1136 and Lot (LRC) Pcs-2665, (LRC) GLRO) Record. No. 1037), situated
in Quezon City, Island of Luzon. Bounded on the NE., points 2 to 5 by Road Lot 24, of the consolidation-subdivision plan.
Beginning at a point marked 1 on plan, being S. 67 deg. 23W., 9288.80 m. from BLLM I, Mp of Montalban, Rizal;
thence N. 85 deg. 35E., 17.39 m. to point 2; thence S. 54 deg. 22E., 4.00 m. to point 3; thence S. 14 deg. 21E., 17.87 m.
to point 4; thence 3 deg. 56E., 17.92 m. to point 5; thence N. 85 deg. 12 W., 23.38 m. to point 6; thence N. 4 deg. 55
W., 34.35 m. to the point of beginning; containing an area of EIGHT HUNDRED AND SIX (806) SQUARE METERS, more or
less.
VENDORS title thereto being evidenced by Transfer Certificate of Title No. 264243 issued by the Register of Deeds of
Quezon City;
That the VENDOR, for and in consideration of the sum of THREE MILLION TWO HUNDRED TWENTY FOUR THOUSAND
PESOS (P3,224,000.00) Philippine Currency, to them in hand paid and receipt whereof is hereby acknowledged, do
hereby SELL, TRANSFER and CONVEY unto the said VENDEE, its assigns, transferees and successors in interest the above
described property, free from all liens and encumbrances whatsoever;
It is hereby mutually agreed that the VENDEE shall bear all the expenses for the capital gains tax, documentary stamps,
documentation, notarization, removal and relocation of the squatters, registration, transfer tax and other fees as may be
required by law;
That the VENDOR shall pay the real estate tax for the current year and back real estate taxes, charges and penalties if
there are any.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of February, 1995, at Quezon City,
Philippines.
CONSTANTE FIRME
BUKAL ENTERPRISES AND
DEVELOPMENT CORP.
BY:
AZUCENA E. FIRME
ZENAIDA A. DE CASTRO
VENDOR
President
xxx
The Spouses Firme rejected this First Draft because of several objectionable conditions, including the payment of capital
gains and other government taxes by the seller and the relocation of the squatters at the sellers expense. During their
second meeting, Aviles presented to the Spouses Firme another draft deed of sale [5] (Second Draft) dated March
1995. The Spouses Firme allegedly accepted the Second Draft in view of the deletion of the objectionable conditions
contained in the First Draft. According to Aviles, the Spouses Firme were willing to sell the Property at P4,000 per
square meter. They then agreed that payment would be made at the Far East Bank and Trust Company (FEBTC), Padre
Faura Branch, Manila. However, the scheduled payment had to be postponed due to problems in the transfer of funds.
The Spouses Firme later informed Aviles that they were no longer interested in selling the Property. [6]
De Castro testified that he authorized Aviles to negotiate for Bukal Enterprises the purchase of the Property owned by
the Spouses Firme. The Property was located beside the Dahlia Commercial Complex owned by Bukal Enterprises. Aviles
informed him that the Spouses Firme agreed to sell the Property at P4,000 per square meter, payable in cash for a lump
sum of P3,224,000. Furthermore, Bukal Enterprises agreed to pay the taxes due and to undertake the relocation of the
squatters on the Property. For this purpose, Bukal Enterprises applied for a loan of P4,500,000 which FEBTC granted.
Bukal Enterprises then relocated the four families squatting on the Property at a cost of P60,000 per family. After the
squatters vacated the Property, Bukal Enterprises fenced the area, covered it with filling materials, and constructed
posts and riprap. Bukal Enterprises spent approximately P300,000 for these improvements. In a letter [7] dated 7 March
1995, Bukal Enterprises offered to pay the purchase price of P3,224,000 to the Spouses Firme upon execution of the
transfer documents and delivery of the owners duplicate copy of TCT No. 264243. The Spouses Firme did not accept this
offer but instead sent Bukal Enterprises a letter demanding that its workers vacate the Property. Bukal Enterprises then
filed a complaint for specific performance and damages. [8]
Antonio Moreno, one of the alleged squatters on the Property, testified that he constructed his house on the Property
sometime in 1982. On 26 February 1995, he was summoned together with the other squatters to a meeting with Aviles
regarding their relocation. They agreed to relocate provided they would be given financial assistance of P60,000 per
family. Thus, on 6 March 1995, the squatter families were each paid P60,000 in the presence of De Castro and Aviles.
Thereafter, they voluntarily demolished their houses and vacated the Property. [9]
Jocelyn Mapa, the manager of FEBTC, Padre Faura Branch, testified that Bukal Enterprises has been their client since
1994. According to her, Bukal Enterprises applied for a loan of P4,500,000 on the third week of February 1995 allegedly
to buy a lot in Fairview. FEBTC approved the loan on the last week of February and released the proceeds on the first
week of March. [10]
Antonio Ancheta (Ancheta), barangay captain of Barangay Fairview, testified that he was present when one of the
officers of Bukal Enterprises, a certain Renato, paid each of the four squatter families around P60,000 to P100,000.
Ancheta informed Dr. Constante Firme that he told the squatters to leave considering that they already received
payment for their relocation. According to Ancheta, Dr. Constante Firme must have misunderstood him and thought
that the squatters left through Anchetas own efforts. [11]
On the other hand, Dr. Constante Firme (Dr. Firme) was the sole witness for the defendant spouses.
Dr. Firme testified that on 30 January 1995, he and his wife met with Aviles at the Aristocrat Restaurant in Quezon City.
Aviles arranged the meeting with the Spouses Firme involving their Property in Fairview. Aviles offered to buy the
Property at P2,500 per square meter. The Spouses Firme did not accept the offer because they were reserving the
Property for their children. On 6 February 1995, the Spouses Firme met again with Aviles upon the latters insistence.
Aviles showed the Spouses Firme a copy of a draft deed of sale [12] (Third Draft) which Aviles prepared. The Third
Draft of the deed of sale provides:
CONRACT OF SALE
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, executed this ___ day of February, 1995, by and between the Spouses CONSTANTE FIRME and
AZUCENA E. FIRME, both of legal age, Filipino citizen and with postal address at __________, Quezon City, hereinafter
referred to as the VENDORS, and BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized

and registered in accordance with Philippine Laws, with postal address at Fairview Park, Quezon City, herein
represented by its President and Chief Executive Officer, hereinafter referred to as the VENDEE.
WITNESSETH:
That for and in consideration of the sum of THREE MILLION TWO HUNDRED TWENTY FOUR THOUSAND PESOS
(P3,224,000.00), Philippine Currency, payable in the form hereinafter expressed, agreed to sell to the VENDEE and the
VENDEE has agreed to buy from the VENDORS, a parcel of land situated at Dahlia Avenue corner Rolex Street, Fairview
Park, Quezon City, containing an area of 806 Square Meters more or less, of which the VENDORS are the absolute
registered owners in accordance with the Land Registration Act, as evidenced by Transfer Certificate of Title No. 264243
issued by the Register of Deeds of Quezon City, more particularly described and bounded as follows:
(DESCRIPTION AND BOUNDARIES OF PROPERTY)
THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS FOLLOWS:
1.
The VENDEE agrees to pay the VENDORS upon execution of this Contract the sum of ONE MILLION PESOS
(P1,000,000.00), Philippine Currency, as downpayment and agrees to pay the balance of TWO MILLION TWO
HUNDRED TWENTY FOUR THOUSAND PESOS (P2,224,000.00) at the post office address of the VENDORS in Quezon City,
or such other place or Office as the VENDORS may designate within a period of sixty (60) days counted from the date of
this Contract;
2.
The VENDORS have hereunto authorized the VENDEE to mortgage the property and submit this Contract,
together with a certified true copy of the TCT, Tax Declaration, Tax Clearance and Vicinity/Lot Plan, with their Lending
Bank. The proceeds of the VENDEES Loan shall directly be paid and remitted by the Bank to the VENDORS;
3.
The said parcel of land shall remain in the name of the VENDORS until the Lending Bank of the VENDEE shall
have issued a Letter Guaranty Payment in favor of the VENDORS, at which time the VENDORS agree to execute a Deed of
Absolute Sale in favor of the VENDEE and cause the issuance of the Certificate of Title in the name of the latter. The
Capital Gains Tax and Documentary Stamps shall be charged from the VENDORS in accordance with law;
4.
The payment of the balance of P2,224,000.00 by the VENDEE to the VENDORS shall be within a period of sixty
(60) days effective from the date of this Contract. After the lapse of 60 days and the loan has not yet been released due
to fortuitous events the VENDEE shall pay an interest of the balance a monthly interest based on existing bank rate
until said fortuitous event is no longer present;
5.
The VENDEE shall remove and relocate the Squatters, however, such actual, reasonable and necessary expenses
shall be charged to the VENDORS upon presentation of receipts and documents to support the act;
6.
The VENDEE shall be allowed for all legal purposes to take possession of the parcel of land after the execution
of this Contract and payment of the downpayment;
7.
The VENDEE shall shoulder all expenses like the documentation, registration, transfer tax and relocation of the
property.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of February, 1995, at Quezon City,
Philippines.
CONSTANTE E. FIRME
BUKAL ENTERPRISES DEV. CORP.
VENDOR
VENDEE
AZUCENA E. FIRME
BY:
VENDOR
________________________
President & Chief Executive Officer
xxx
The Spouses Firme did not accept the Third Draft because they found its provisions one-sided. The Spouses Firme
particularly opposed the provision on the delivery of the Propertys title to Bukal Enterprises for the latter to obtain a
loan from the bank and use the proceeds to pay for the Property. The Spouses Firme repeatedly told Aviles that the
Property was not for sale when Aviles called on 2 and 4 March 1995 regarding the Property. On 6 March 1995, the
Spouses Firme visited their Property and discovered that there was a hollow block fence on one side, concrete posts on
another side and bunkers occupied by workers of a certain Florante de Castro. On 11 March 1995, Spouses Firme visited
the Property again with a surveyor. Dr. Firme talked with Ancheta who told him that the squatters had voluntarily
demolished their shanties. The Spouses Firme sent a letter [13] dated 20 March 1995 to Bukal Enterprises demanding
removal of the bunkers and vacation by the occupants of the Property. On 22 March 1995, the Spouses Firme received
a letter [14] dated 7 March 1995 from Bukal Enterprises demanding that they sell the Property. [15]
On 7 August 1998, the trial court rendered judgment against Bukal Enterprises as follows:
WHEREFORE, in the light of the foregoing premises, the above-entitled case [is] hereby DISMISSED and plaintiff BUKAL
ENTERPRISES DEVELOPMENT CORPORATION is hereby ordered to pay the defendants Spouses Constante and Azucena
Firme:

1.
the sum of Three Hundred Thirty Five Thousand Nine Hundred Sixty Four and 90/100 (P335,964.90) as and by
way of actual and compensatory damages;
2.
the sum of Five Hundred Thousand Pesos (P500,000.00) as and by way of moral damages;
3.
the sum of One Hundred Thousand Pesos (P100,000.00) as and by way of attorneys fees; and
4.
the costs of the suit.
SO ORDERED. [16]
Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside the decision of the trial court. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the Decision, dated August 7, 1998, is hereby REVERSED and SET ASIDE. The
complaint is granted and the appellees are directed to henceforth execute the Deed of Absolute Sale transferring the
ownership of the subject property to the appellant immediately upon receipt of the purchase price of P3,224,000.00 and
to perform all such acts necessary and proper to effect the transfer of the property covered by TCT No. 264243 to
appellant. Appellant is directed to deliver the payment of the purchase price of the property within sixty days from the
finality of this judgment. Costs against appellees.
SO ORDERED. [17]
Hence, the instant petition.
The Ruling of the Trial Court
The trial court held there was no perfected contract of sale. Bukal Enterprises failed to establish that the Spouses Firme
gave their consent to the sale of the Property. The parties did not go beyond the negotiation stage and there was no
evidence of meeting of the minds between the parties. Furthermore, Aviles had no valid authority to bind Bukal
Enterprises in the sale transaction. Under Sections 23 and 36 (No. 7) of the Corporation Code, the corporate power to
purchase a specific property is exercised by the Board of Directors of the corporation. Without an authorization from
the Board of Directors, Aviles could not validly finalize the purchase of the Property on behalf of Bukal Enterprises. There
is no basis to apply the Statute of Frauds since there was no perfected contract of sale.
The Ruling of the Court of Appeals
The Court of Appeals held that the lack of a board resolution authorizing Aviles to act on behalf of Bukal Enterprises in
the purchase of the Property was cured by ratification. Bukal Enterprises ratified the purchase when it filed the
complaint for the enforcement of the sale.
The Court of Appeals also held there was a perfected contract of sale. The appellate court ruled that the Spouses Firme
revealed their intent to sell the Property when they met with Aviles twice. The Spouses Firme rejected the First Draft
because they considered the terms unacceptable. When Aviles presented the Second Draft without the objectionable
provisions, the Spouses Firme no longer had any cause for refusing to sell the Property. On the other hand, the acts of
Bukal Enterprises in fencing the Property, constructing posts, relocating the squatters and obtaining a loan to purchase
the Property are circumstances supporting their claim that there was a perfected contract of sale.
The Spouses Firme allowed Bukal Enterprises to exercise acts of ownership over the Property when the latter introduced
improvements on the Property and evicted the squatters. These acts constitute partial performance of the contract of
sale that takes the oral contract out of the scope of the Statute of Frauds.
The Issues
The Spouses Firme raise the following issues:
1.
WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT THERE WAS A PERFECTED CONTRACT OF SALE
BETWEEN PETITIONERS AND RESPONDENT DESPITE THE ADDUCED EVIDENCE PATENTLY TO THE CONTRARY;
2.
WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ALLEGED CONTRACT OF SALE IS
ENFORCEABLE DESPITE THE FACT THAT THE SAME IS COVERED BY THE STATUTE OF FRAUDS;
3.
WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THE FACT THAT IT WAS NOT LEGALLY AND
FACTUALLY POSSIBLE FOR RESPONDENT TO PERFECT A CONTRACT OF SALE; AND
4.
THE COURT OF APPEALS ERRED IN RULING THAT THE AWARD BY THE TRIAL COURT OF MORAL AND
COMPENSATORY DAMAGES TO PETITIONERS IS IMPROPER. [18]
The Ruling of the Court
The petition is meritorious.
The fundamental question for resolution is whether there was a perfected contract of sale between the Spouses Firme
and Bukal Enterprises. This requires a review of the factual and legal issues of this case. As a rule, only questions of law
are appealable to this Court under Rule 45 [19] of the Rules of Civil Procedure. The findings of fact by the Court of
Appeals are generally conclusive and binding on the parties and are not reviewable by this Court. [20] However, when
the factual findings of the Court of Appeals are contrary to those of the trial court or when the inference made is
manifestly mistaken, this Court has the authority to review the findings of fact. [21] Likewise, this Court may review

findings of fact when the judgment of the Court of Appeals is premised on a misapprehension of facts. [22] This is the
situation in this case.
Whether there was a perfected contract of sale
We agree with the finding of the trial court that there was no perfected contract of sale. Clearly, the Court of Appeals
misapprehended the facts of the case in ruling otherwise.
First, the records indubitably show that there was no consent on the part of the Spouses Firme. Aviles did not present
any draft deed of sale during his first meeting with the Spouses Firme on 30 January 1995. [23] Dr. Firme was consistent
in his testimony that he and his wife rejected the provisions of the Third Draft presented by Aviles during their second
meeting on 6 February 1995. The Spouses Firme found the terms and conditions unacceptable and told Aviles that they
would not sell the property. [24] Aviles showed them only one draft deed of sale (Third Draft) during their second and
last meeting on 6 February 1995. [25] When shown a copy of the First Draft, Dr. Firme testified that it was not the deed
of sale shown to them by Aviles during their second meeting [26] and that the Third Draft was completely different from
the First Draft. [27]
On the other hand, Aviles gave conflicting testimony as to what transpired during the two meetings with the Spouses
Firme. In his direct examination, Aviles testified that during his first meeting with the Spouses Firme on 23 January
1995, he showed them the First Draft which the Spouses Firme rejected. [28] On their second meeting, Aviles showed
the Spouses Firme the Second Draft, which the Spouses Firme allegedly approved because the objectionable conditions
contained in the First Draft were already deleted. However, a perusal of the First Draft and the Second Draft would
show that both deeds of sale contain exactly the same provisions. The only difference is that the date of the First Draft is
February 1995 while that of the Second Draft is March 1995.
When Aviles testified again as rebuttal witness, his testimony became more confusing. Aviles testified that during his
first meeting with the Spouses Firme on 30 January 1995, he showed them the Third Draft, which was not acceptable to
the latter. [29] However, upon further questioning by his counsel, Aviles concurred with Dr. Firmes testimony that he
presented the Third Draft (Exh. 5; Exh. L) to the Spouses Firme only during their second meeting. He also stated that
he prepared and presented to the Spouses Firme the First Draft (Exh. C) and the Second Draft (Exh. C-1) during their
first or second meeting. He testified:
ATTY. MARQUEDA:
Q:
On page 11 of the tsn dated August 5, 1997 a question was posed How did you find this draft the Contract of
Sale which was presented to you by Mr. Aviles on the second meeting? The answer is On the first meeting(sic), we
find it totally unacceptable, sir. [30] What can you say on this? Before that, Mr. Witness, what is this Contract of Sale
that you presented to Mr. Aviles on the second meeting? Is this different from the Contract of Sale that was marked as
Exhibit 5-L?
Q:
May I see the document Exhibit 5 L? [31]
INTERPRETER:
Witness going over the record.
ATTY. MARQUEDA:
Q:
Is that the same document that was presented by you to Mr. Firme on the second meeting or there is a
different contract?
A:
This is the same document draft of the document that I submitted to them during our second meeting. That
was February. This was the draft.
Q:
What about Exhibit C and C-1 [which] were identified by you. When was this presented to Dr. Firme?
A:
This is the same.
Q:
Exhibit C and C-1?
A:
Yes because I prepared two documents during our meeting. One already with notarial, the one without notarial
page and the other one with notarial page already, so I prepared two documents but with the same contents both were
dated February of 1995. [32]
Q:
So, you are referring now to Exhibit C and C-1 for the plaintiff?
A:
C-1 is already in the final form because we agreed already as to the date of the payment, so I prepared already
another document which is dated March 1995. [33] (Emphasis supplied)
In his cross-examination, Aviles again changed his testimony. According to him, he presented the Third Draft to the
Spouses Firme during their first meeting. [34] However, when he went over the records, he again changed his answer
and stated that he presented the Third Draft during their second meeting. [35]
In his re-direct examination, Aviles gave another version of what he presented to the Spouses Firme during the two
meetings. According to him, he presented the Third Draft during the first meeting. On their second meeting, he
presented the First and the Second Drafts to the Spouses Firme. [36]

Furthermore, Aviles admitted that the first proposal of Bukal Enterprises was at P2,500 per square meter for the
Property. [37] But the First, Second and Third Drafts of the deed of sale prepared by Aviles all indicated a purchase price
of P4,000 per square meter or a lump sum of P3,224,000 (P4,000 per sq.m. x 806 sq.m. = P3,224,000) for the Property.
Hence, Aviles could not have presented any of these draft deeds of sale to the Spouses Firme during their first meeting.
Considering the glaring inconsistencies in Aviles testimony, it was proper for the trial court to give more credence to the
testimony of Dr. Firme.
Even after the two meetings with Aviles, the Spouses Firme were firm in their decision not to sell the Property. Aviles
called the Spouses Firme twice after their last meeting. The Spouses Firme informed Aviles that they were not selling
the Property. [38] Aviles himself admitted this during his testimony, thus:
Q.
Now, the next question which states: But did you not have any occasion to talk to him after that second
meeting? and the answer of Dr. Firme is He called up a month after, thats March 2, 1995. What can you say on this?
A.
I called him to inform him that the loan was already transferred from Makati to Padre Faura Branch of the Far
East Bank, so I scheduled already the payment of their property.
Q.
When?
A.
On March 4, 1995.
Q.
And then the next question which also states: What did you talked (sic) about over the telephone? The answer
of Dr. Firme was When I found out that he was calling, I told him that the property is not for sale. What can you say
on this?
A.
He mentioned that they are no longer interested to sell their property, perhaps they would like a higher price of
the property. They did not mention to me. I do not know what was their reason.
Q.
The next question So, what happened next? The answer is He called up two days later, March 4 and my wife
answered the telephone and told him that the property is not for sale, sir. What can you say on this?
A.
That is true. That is what Mrs. Firme told me during our conversation on the telephone that they are no longer
interested to sell the property for obvious reason.
Q.
When was that?
A.
March 4, 1995, your honor. [39] (Emphasis supplied)
Significantly, De Castro also admitted that he was aware of the Spouses Firmes refusal to sell the Property. [40]
The confusing testimony of Aviles taken together with De Castros admission that he was aware of the Spouses Firmes
refusal to sell the Property reinforces Dr. Firmes testimony that he and his wife never consented to sell the Property.
Consent is one of the essential elements of a valid contract. The Civil Code provides:
Art. 1318. There is no contract unless the following requisites concur:
1.
Consent of the contracting parties;
2.
Object certain which is the subject matter of the contract;
3.
Cause of the obligation which is established.
The absence of any of these essential elements will negate the existence of a perfected contract of sale. [41] Thus,
where there is want of consent, the contract is non-existent. [42] As held in Salonga, et al. v. Farrales, et al.: [43]
It is elementary that consent is an essential element for the existence of a contract, and where it is wanting, the contract
is non-existent. The essence of consent is the conformity of the parties on the terms of the contract, the acceptance by
one of the offer made by the other. The contract to sell is a bilateral contract. Where there is merely an offer by one
party, without the acceptance of the other, there is no consent. (Emphasis supplied)
In this case, the Spouses Firme flatly rejected the offer of Aviles to buy the Property on behalf of Bukal Enterprises.
There was therefore no concurrence of the offer and the acceptance on the subject matter, consideration and terms of
payment as would result in a perfected contract of sale. [44] Under Article 1475 of the Civil Code, the contract of sale is
perfected at the moment there is a meeting of minds on the thing which is the object of the contract and on the price.
Another piece of evidence which supports the contention of the Spouses Firme that they did not consent to the contract
of sale is the fact they never signed any deed of sale. If the Spouses Firme were already agreeable to the offer of Bukal
Enterprises as embodied in the Second Draft, then the Spouses Firme could have simply affixed their signatures on the
deed of sale, but they did not.
Even the existence of a signed document purporting to be a contract of sale does not preclude a finding that the
contract is invalid when the evidence shows that there was no meeting of the minds between the seller and buyer. [45]
In this case, what were offered in evidence were mere unsigned deeds of sale which have no probative value. [46] Bukal
Enterprises failed to show the existence of a perfected contract of sale by competent proof.
Second, there was no approval from the Board of Directors of Bukal Enterprises as would finalize any transaction with
the Spouses Firme. Aviles did not have the proper authority to negotiate for Bukal Enterprises. Aviles testified that his
friend, De Castro, had asked him to negotiate with the Spouses Firme to buy the Property. [47] De Castro, as Bukal

Enterprises vice president, testified that he authorized Aviles to buy the Property. [48] However, there is no Board
Resolution authorizing Aviles to negotiate and purchase the Property on behalf of Bukal Enterprises. [49]
It is the board of directors or trustees which exercises almost all the corporate powers in a corporation. Thus, the
Corporation Code provides:
SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from among the holders of stock, or where there
is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified. x x x
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and capacity:
xxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and
personal property, including securities and bonds of other corporations, as the transaction of a lawful business of the
corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the
Constitution.
xxx
Under these provisions, the power to purchase real property is vested in the board of directors or trustees. While a
corporation may appoint agents to negotiate for the purchase of real property needed by the corporation, the final say
will have to be with the board, whose approval will finalize the transaction. [50] A corporation can only exercise 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. [51] As held in AF Realty & Development, Inc. v. Dieselman Freight Services, Co.: [52]
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. (Emphasis supplied)
In this case, Aviles, who negotiated the purchase of the Property, is neither an officer of Bukal Enterprises nor a member
of the Board of Directors of Bukal Enterprises. There is no Board Resolution authorizing Aviles to negotiate and purchase
the Property for Bukal Enterprises. There is also no evidence to prove that Bukal Enterprises approved whatever
transaction Aviles made with the Spouses Firme. In fact, the president of Bukal Enterprises did not sign any of the
deeds of sale presented to the Spouses Firme. Even De Castro admitted that he had never met the Spouses Firme. [53]
Considering all these circumstances, it is highly improbable for Aviles to finalize any contract of sale with the Spouses
Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises with the trial court, Aviles signed [54] the
verification and certification of non-forum shopping. [55] The verification and certification of non-forum shopping was
not accompanied by proof that Bukal Enterprises authorized Aviles to file the complaint on behalf of Bukal Enterprises.
The power of a corporation to sue and be sued is exercised by the board of directors. The physical acts of the
corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by
corporate by-laws or by a specific act of the board of directors. [56]
The purpose of verification is to secure an assurance that the allegations in the pleading are true and correct and that it
is filed in good faith. [57] True, this requirement is procedural and not jurisdictional. However, the trial court should
have ordered the correction of the complaint since Aviles was neither an officer of Bukal Enterprises nor authorized by
its Board of Directors to act on behalf of Bukal Enterprises.
Whether the Statute of Frauds is applicable
The Court of Appeals held that partial performance of the contract of sale takes the oral contract out of the scope of the
Statute of Frauds. This conclusion arose from the appellate courts erroneous finding that there was a perfected contract
of sale. The records show that there was no perfected contract of sale. There is therefore no basis for the application of
the Statute of Frauds. The application of the Statute of Frauds presupposes the existence of a perfected contract. [58]
Article 1403 of the Civil Code provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1)
Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;

(2)
Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof,
be in writing and subscribed by the party charged or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
xxx
(e)
An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest
therein;
xxx
Whether Bukal Enterprises is a builder in good faith
Bukal Enterprises is not a builder in good faith. The Spouses Firme did not accept Aviles offer to purchase the Property.
Aviles testified that when he called the Spouses Firme on 2 March 1995, Dr. Firme informed him that they were no
longer interested in selling the Property. On 4 March 1995, Aviles called again and this time Mrs. Firme told him that
they were not selling the Property. Aviles informed De Castro of the refusal of the Spouses Firme to sell the Property.
However, Bukal Enterprises still proceeded in relocating the squatters and constructing improvements on the Property.
De Castro testified:
ATTY. EJERCITO:
Q:
The truth of the matter, Mr. Witness, is that the post was constructed sometime late 1994. Is that not correct?
A:
No, sir. It is not true.
Q:
When was it constructed?
A:
That March.
Q:
When in March?
A:
1995.
Q:
When in March 1995?
A:
From the period of March 2, 1995 or two (2) weeks after the removal of the squatters.
Q:
When were the squatters removed?
WITNESS:
A:
March 6 and 7 because there were four (4) squatters.
ATTY. EJERCITO:
Q:
When did you find out that the Spouses Firme did not want to sell the same?
A:
First week of March 1995.
Q:
In your Complaint you said you find out on March 3, 1995. Is that not correct?
A:
I cannot exactly remember, sir.
ATTY. MARQUEDA:
In the Complaint it does not state March 3. Maybe counsel was thinking of this Paragraph 6 which states, When
the property was rid of the squatters on March 2, 1995 for the documentation and payment of the sale, xxx.
ATTY. EJERCITO:
Q:
So, you found out on March 2, 1995 that the defendants were no longer interested in selling to you the
property. Is that correct?
A:
Yes, sir, because Mr. Aviles relayed it to me.
Q:
Mr. Aviles relayed to you that the Spouses Firme were no longer interested in selling to you the property in
March 2, 1995. Is that correct?
A:
Yes, sir. Mr. Aviles told me.
Q:
In so many words, Mr. Witness, you learned that the Spouses Firme were no longer interested in selling the
property before you spent allegedly all the sum of money for the relocation of squatters for all this construction that you
are telling this Court now?
WITNESS:
A:
The refusal to sell is not yet formal and the lawyer sent a letter tendering full payment of the purchase price.
ATTY. EJERCITO:
Q:
You mean to say that you did not believe Mr. Aviles when he told you that the Spouses Firme were no longer
selling the property?
A:
No, sir.
Q:
Was there anything formal when you say the Spouses Firme agreed to sell the property?
A:
None, sir.
Q:
And yet that time you believe Mr. Aviles when he verbally told you that the Sps. Firme agreed to sell the
property? At what point of the transaction with the Spouses Firme were you advised by your lawyer?

WITNESS:
A:
At the time when they refused to sell the lot.
ATTY. EJERCITO:
Q:
Was that before the squatters were relocated allegedly by Bukal Enterprises?
A:
Yes, sir.
Q:
In fact, it was the lawyer who advised you to relocate the squatters. Is it not true?
A:
No, sir. [59] (Emphasis supplied)
Bukal Enterprises is obviously a builder in bad faith. No deed of sale has been executed in this case. Despite the refusal
of the Spouses Firme to sell the Property, Bukal Enterprises still proceeded to introduce improvements on the Property.
Bukal Enterprises introduced improvements on the Property without the knowledge and consent of the Spouses Firme.
When the Spouses Firme learned about the unauthorized constructions made by Bukal Enterprises on the Property, they
advised the latter to desist from further acts of trespass on their Property. [60]
The Civil Code provides:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without
right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at
the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the
land, and the owner the proper rent.
Under these provisions the Spouses Firme have the following options: (1) to appropriate what Bukal Enterprises has built
without any obligation to pay indemnity; (2) to ask Bukal Enterprises to remove what it has built; or (3) to compel Bukal
Enterprises to pay the value of the land. [61] Since the Spouses Firme are undoubtedly not selling the Property to Bukal
Enterprises, they may exercise any of the first two options. They may appropriate what has been built without paying
indemnity or they may ask Bukal Enterprises to remove what it has built at Bukal Enterprises own expense.
Bukal Enterprises is not entitled to reimbursement for the expenses incurred in relocating the squatters. Bukal
Enterprises spent for the relocation of the squatters even after learning that the Spouses Firme were no longer
interested in selling the Property. De Castro testified that even though the Spouses Firme did not require them to
remove the squatters, they chose to spend for the relocation of the squatters since they were interested in purchasing
the Property. [62]
Whether the Spouses Firme are entitled to
compensatory and moral damages
The Court agrees with the Court of Appeals to delete the award for compensatory and moral damages. In awarding
actual damages, the trial court took into account the traveling expenses incurred by the Spouses Firme who are already
residing in the United States. However, the trial court failed to consider the testimony of Dr. Firme that they normally
travel to the Philippines more than once a year to visit their children. [63] Thus, the expenses for the roundtrip tickets
dated 1996-1997 could not be attributed solely for the attendance of hearings in the case.
Nevertheless, an award of nominal damages of P30,000 is warranted since Bukal Enterprises violated the property rights
of the Spouses Firme. [64] The Civil Code provides:
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any source enumerated in article
1157, or in every case where any property right has been invaded.
The award of damages is also in accordance with Article 451 of the Civil Code which states that the landowner is entitled
to damages from the builder in bad faith. [65]
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RENDER a new one:
1.
Declaring that there was no perfected contract of sale;
2.
Ordering Bukal Enterprises to pay the Spouses Firme P30,000 as nominal damages.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Azcuna, JJ., concur.
Ynares-Santiago, J., on official leave.

SECOND DIVISION
[G.R. No. 135721. May 27, 2004]
CHUA TEE DEE, doing business under the name and style of PIONEER ENTERPRISES, petitioner, vs. COURT OF APPEALS
and J.C. AGRICOM DEVELOPMENT CORPORATION, INC., respondents.
DECISION
CALLEJO, SR., J.:
Before us is a special civil action for certiorari under Rule 65 of the Revised Rules of Court assailing the Decision [1] of
the Court of Appeals in CA-G.R. CV No. 50306 which affirmed with modification, the Order [2] of the Regional Trial Court
of Davao City, Branch 9, ordering the petitioner Chua Tee Dee to pay the private respondent back rentals plus interest
and attorneys fees.
The antecedent facts are as follows:
J.C. Agricom Development Corporation, Inc. (Agricom, for brevity), a corporation duly organized and existing under and
by virtue of the laws of the Republic of the Philippines, is the owner of a rubber plantation located at Bayabas, Toril,
Davao City, with an area of 132.4012 hectares, more or less. Agricom planned to lease the plantation.
Chua Tee Dee, married to Amado Dee, is a businesswoman doing business under the name and style of Pioneer
Enterprises (Pioneer, for brevity).
Manuel G. Alba, the president of Agricom, had a business meeting in Davao City with Amado Dee where they discussed
the possibility of leasing the rubber plantation to Chua Tee Dee/Pioneer. [3] Thereafter, a draft contract of lease was
made and delivered to Alba on May 22, 1985. [4]
The final contract of lease [5] was signed and acknowledged before a notary public on July 22, 1985. The Agricom,
represented by Alba, was referred to as the FIRST PARTY under the contract, while Chua Tee Dee doing business under
the style of Pioneer was the SECOND PARTY. Lillian Carriedo, a stockholder of Agricom, also signed the contract. The
pertinent portions of the lease contract were as follows:
1. TERM: The lease shall be for a period of fifteen (15) years counted from the date of execution of this contract and
may be renewed for another period of five (5) years upon such terms as may be agreed upon by the parties.
2. That the plantation, together with all the inventoried machineries, equipment and improvements found therein shall
upon the execution of this contract be turned over to the SECOND PARTY free from any and all liens and/or
encumbrances, provided, however, that the SECOND PARTY shall upon expiration and/or termination of the contract
return all the inventoried machineries, equipment and improvements to the FIRST PARTY.
3. RENTAL: The SECOND PARTY shall pay the FIRST PARTY within the first ten (10) days of the current month the
following rentals, to wit:
P45,000.00 per month for the first three (3) years of the lease
P60,000.00 per month for the second three (3) years of the lease
P75,000.00 per month for the third four (4) years of the lease
P90,000.00 per month for the last five (5) years of the lease
4. NON-PAYMENT OF RENTALS: Delay in the payment of the monthly rental by the SECOND PARTY shall entitle the FIRST
PARTY to charge to the former interest of two (2) percent per month as penalty. Non-payment of rentals for three (3)
months shall automatically bring about the termination of the lease. In such an event, the FIRST PARTY shall be entitled
to recover from the SECOND PARTY back rentals.
5. DEPOSIT: In addition to the monthly rental stipulated in paragraph 3 of this contract, the SECOND PARTY upon signing
of this contract shall deposit to the FIRST PARTY an amount equivalent to ONE HUNDRED THIRTY-FIVE THOUSAND PESOS
(P135,000.00) Philippine Currency and on the first day of September of the same year another amount equivalent to
ONE HUNDRED THIRTY-FIVE THOUSAND PESOS (P135,000.00) Philippine Currency, both interest-free which the latter
shall apply against rentals for the last year of the lease.
6. FARM PERSONNEL: Upon the effectivity of this Contract, the SECOND PARTY has the option to select and screen those
farm personnel that the SECOND PARTY shall retain; those not selected shall then be terminated by the FIRST PARTY,
whose separation from the FIRST PARTYs employment shall be the concern of the FIRST PARTY.

10. RIGHT TO ENTER PREMISES: The FIRST PARTY or its duly-authorized representative shall have the right to enter the
leased premises at any reasonable time during business days, with due notice to the SECOND PARTY, to verify
compliance with the terms and conditions of this contract. In addition, the FIRST PARTY may use the REST HOUSE
located in the leased premises with at least two (2) days advanced notice to the SECOND PARTY.
11. LESSEES OPTION TO BUY: The FIRST PARTY shall maintain the SECOND PARTY in the quiet peaceful possession and
enjoyment of the leased premises during the effectivity of the lease.

If at any time during the lease or renewal thereof, the first party shall opt to sell, assign, transfer or convey the leased
premises for a valuable consideration, the SECOND PARTY shall be given written notice thereof, and the latter shall have
first option to buy the leased premises upon such terms and conditions as may be mutually agreed by the parties. In the
event [that] this FIRST PARTY receives an offer to buy from a THIRD PARTY, the SECOND PARTY shall be advised thereof
in writing and shall have the option to match said offer within a period of thirty (30) days from receipt of said advice.
If the SECOND PARTY or his nominees fail to exercise the option granted under this aforementioned paragraph, and
there is a sale, assignment, transfer or conveyance of the leased premises to a third party, it shall be a condition thereof
that this contract of lease shall be respected and shall continue under the terms and conditions herein stipulated.
13. (sic) VENUE: UPON the expiration of this lease contract or its earlier termination for violation of its terms and
conditions, the SECOND PARTY binds himself to peacefully turn over the possession of and surrender the leased
premises to the FIRST PARTY is compelled, to resort to the courts to protect its rights under this contract, the parties
agree that venue thereof shall be in the courts at Davao City. In such an event, the SECOND PARTY shall be answerable
for all damages that the FIRST PARTY may suffer or be entitled to plus attorneys fees equivalent to twenty-five (25%)
percent thereof and costs of suit.
On May 27, 1985, Alba met with the employees of the rubber plantation [6] and updated them on the impending
termination of their employment due to the companys contract of lease with Chua Tee Dee. The employees were told
that they would be given separation pay.
On June 3, 1985, Amado Dee delivered the amount of two hundred seventy thousand pesos (P270,000.00) to the
Spouses Manuel and Suzanne Alba in compliance with paragraph 5 of the lease contract. The corresponding receipt was
issued. [7]
In the meantime, Azarinas P. Liguiz of Agricom sent letters to the said employees, confirming the termination of their
employment and informing them that their separation pay shall be computed at one-half (1/2) months salary for every
year of service rendered, and that a fraction of at least six (6) months service shall be considered as one year.
Thereafter, the corresponding vouchers were prepared. [8]
Sometime thereafter, the severed employees filed a complaint for illegal dismissal and unfair labor practice against
Agricom, Amado Dee and Pioneer, docketed as NLRC Case No. 1815-LR-XI-85. The labor arbiter rendered his decision on
August 22, 1986, holding that the termination of the complainants employment was illegal. The respondents were
ordered to pay its employees separation pay and backwages, but the complaint for unfair labor practice was dismissed
for lack of merit. [9] The dispositive portion of the decision reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
(1) Declaring the termination of complainants as illegal, thereby ordering respondents J.C. Agricom Development
Company and/or Pioneer Enterprises and Amado Dee to pay all complainants herein, jointly and severally, the following,
to wit:
(a) Separation pay at one (1) month salary per year of service, from date of hiring to date this Decision becomes final
and executory;
(b) Backwages from date employment stopped up to the date this Decision becomes final and executory.
(2) Dismissing the charge of unfair labor practice for lack of merit.
SO ORDERED. [10]
The respondents appealed the decision. Amado Dee and Pioneer posted a supersedeas bond of P21,415.58, as well as
P142,770.54 covered by Check No. 610489625, [11] and P142,770.54 covered by Check No. 610489624 [12] to stave off
execution pending appeal.
Because Pioneer was dragged into labor disputes not of its own making, it wrote Agricom, through its counsel, on
October 20, 1987 suggesting a conference to settle the labor case, otherwise, it would consider the contract of lease as
rescinded. [13]
Aside from the labor case, Pioneer, through Amado Dee, complained of being pestered by some individuals who claimed
portions of the plantation as their own property. Some of them went to its office and even presented tax declarations
to prove their claims. [14] Pioneer claimed that the foregoing circumstances prevented it from operating fully the agreed
area stated in the lease contract. It also complained that the death of Pioneers foreman sometime in 1990 even
exacerbated the unresolved labor problem.
On May 24, 1990, the counsel of the Carriedo heirs, the stockholders-owners of Agricom, sent a telegraphic note to
Amado Dee demanding payment of long overdue rentals. [15] On June 21, 1990, Pioneer sent a letter to Agricom
complaining of facts and events which disrupted its operations in the plantation. In a Letter dated August 2, 1990,
Agricom informed Pioneer that, after due investigation, it concluded that the latters complaints were unfounded. It
also demanded the payment of back rentals for June, July and August 1990. [16]

As Pioneer was unable to pay its monthly rentals, Agricom filed, on September 4, 1990, a civil complaint for sum of
money, damages and attorneys fees against Chua Tee Dee before the Regional Trial Court of Davao City, Branch 9. The
case was docketed as Civil Case No. 20,312-90. The plaintiff Agricom alleged, inter alia, in the said complaint, thus:
2.02 That defendant regularly paid the monthly rentals for the years 1985 to 1989. The payment of the monthly
rentals for the first six (6) months of 1990 in the amount of Sixty Thousand (P60,000.00), however, was occasioned by
delay and those for July and August 1990, unpaid;
2.03 That as of August 1990, defendant has an outstanding arrearage of One Hundred Twenty Thousand
(P120,000.00) Pesos in favor of plaintiff, exclusive of penalty thereon at the rate of two (2%) percent per month;
2.04 That several demands, both verbally and in writing, had been made by plaintiff upon defendants to make her
payment of the monthly rentals current, but said demands, notwithstanding, defendant failed and refused and still
continues to fail and refuse to do so;
2.05 That by reason of defendants unjustified and wanton refusal to pay plaintiff its plainly, valid, and demandable
claims, the latter has been compelled to engage the services of counsel to enforce and protect its interest at an agreed
fee of twenty-five (25%) percent of the amount due and collectible, as provided for in said Contract of Lease (Annex A)
and has, otherwise, been placed into unnecessary expenses of litigation in an amount which could not be less than Ten
Thousand (P10,000.00) Pesos; [17]
It prayed that after due proceedings, judgment be rendered in its favor, as follows:
WHEREFORE, it is most respectfully prayed of this Honorable Court that judgment be rendered in favor of plaintiff and
against the defendant ordering the latter
a.)
to pay plaintiff the sum of P120,000.00 as of August 1990, with penalty thereon at the rate of two (2%) percent
per month, plus the sum of P60,000.00 a month thereafter;
b.)
to pay plaintiff the sum equivalent to twenty-five (25%) of the amount due and collectible, as and for attorneys
fees;
c.)
to reimburse the litigation expenses of plaintiff in the amount of not less than P10,000.00 or such amount which
will be proven during the trial;
d.)
to pay the cost of suit;
PLAINTIFF further prays for such other reliefs and remedies, just and equitable under the premises. [18]
On October 16, 1990, the defendant filed her Answer with Damages where she asserted that the plaintiff had no cause
of action against her. She claimed that it was the plaintiff which failed to comply with the terms and conditions of the
contract of lease when it failed to settle the labor dispute with its former employees, thus, dragging the defendant as
respondent in NLRC Case No. 1815-LR-XI-85; and that the plaintiff failed to maintain her in the quiet and peaceful
possession and enjoyment of the leased premises during the effectivity of the lease contract, in violation of paragraphs 6
and 11 thereof.
The defendant also claimed that she had paid premiums for the appeal bond in the labor case, and that she deposited
with the NLRC the total amount of P306,956.66 to avert execution pending appeal, which was supposed to be the sole
responsibility of the plaintiff.
By way of counterclaim, the defendant asserted that she was exposed to public contempt and ridicule which besmirched
her reputation; and that she suffered mental anguish and sleepless nights because of the violation of the contract of
lease. She prayed, thus:
WHEREFORE, defendant respectfully prays this Honorable Court, that after considering all the foregoing facts and
circumstances, judgment be rendered in favor of defendant and against plaintiff:
1.
Ordering the termination or rescission of the Contract of Lease;
2.
Dismiss the complaint;
3.
Ordering the plaintiff to pay defendant:
a) P316,956.66 as actual damages
b) P500,000.00 as moral damages
c) P200,000.00 as exemplary damages
d) P100,000.00 as attorneys fees
DEFENDANT FURTHER prays for such other relief and remedies available and legally tenable under the premises. [19]
On November 8, 1990, the plaintiff filed its Motion to Strike Out Portion of the Pleading, [20] particularly paragraph 8
thereof and to dismiss the counterclaim of the defendant with regard to the labor case on the ground that the NLRC had
already rendered a decision ordering the dismissal of the complaint of its former employees. The plaintiff appended a
copy of the decision of the NLRC to its motion. [21]
On November 9, 1990, defendant Chua Tee Dee filed her Motion to Declare Plaintiff in Default [22] for failure to answer
her counterclaim.

During the pre-trial, the parties admitted the following:

1.
Legal Capacities of the respective party (sic);
2.
The Contract of Lease entered into on July 22, 1985 between parties herein over the 132.4102 hectares of
rubber plantation located in Bayabas, Toril, Davao City;
3.
The Labor Case entitled NLRC Case No. 1815-LR-XI-85, BONIFACIO LANSANG, et al. vs. JC AGRICOM DEV. CORP.
and/or PIONEER ENT. and AMADO DEE; [23]
In the meantime, on June 4, 1991, the defendant extended a personal loan of P30,000 to Lillian Carriedo as evidenced by
a voucher [24] and a personal receipt [25] signed by Ma. Cecilia and Elaine, both surnamed Carriedo. [26]
On October 21, 1992, the court rendered judgment dismissing the complaint and declaring the lease contract
terminated for failure of the plaintiff to implement the terms thereof. The court ruled as follows:
The evidence on record proves that plaintiff failed to effectively complement, implement and enforce the foregoing
provision. The inevitable consequence was the impleading and involvement of defendant in a vexatious labor problem
instituted by plaintiffs original farm workers. This violation of paragraph 6 caused the problems that in great measure
prejudiced the efficient operations intended by defendant, because of the peace and order situation caused by the
malcontents, among others, resulted in the death of defendants foreman Elicano Apolonio.
11. Leases option to buy, the First Party shall maintain the Second Party in the quiet possession and employment (sic)
of the leased premises during the effectivity of the lease.
The evidence establishes that defendants possession was anything but peaceful and enjoyable. Within a comparatively
short span of time from entry and occupation, defendant suffered from vexatious labor problems caused by plaintiffs
original farm workers who instituted a labor case impleading the defendant. Many of them remained in the area and
made trouble to the workers hired by defendant, so terrorizing the latter that they were afraid to go to work for fear of
bodily harm. Defendants foreman Elicano Apolonio, who reported early for work was shot to death in the premises
(Exhibits 11, 12). [27]
The decretal portion of the decision reads:
WHEREFORE, premises considered, judgment is rendered dismissing the complaint and declares the lease contract
between the parties terminated and of no force and effect.
Cost against the plaintiff.
SO ORDERED. [28]
The plaintiff received its copy of the above decision on March 11, 1993 and filed its motion for reconsideration praying
that the defendant be ordered to pay for the unpaid rentals in accordance with the contract of lease until it had actually
vacated and surrendered the leased premises. [29]
The defendant filed her manifestation and compliance, declaring that when she learned about the RTC decision that the
lease contract between the parties no longer had force and effect, she pulled out her enterprise and stopped operations
in the leased premises. [30] She also filed her opposition to the motion for reconsideration. [31]
On March 8, 1995, the court issued an Order granting the plaintiffs motion and modifying its decision. It ordered the
defendant to pay rentals to the plaintiff since the defendant had occupied, used and continually operated the rubber
plantation during the time the case was pending; equity demanded that compensation for the use thereof was just and
proper. [32] The decretal portion reads:
WHEREFORE, premises considered, the Motion for Reconsideration is GRANTED and the Decision dated October 21,
1992 is hereby recalled and modified as follows:
1. Judgment is rendered in favor of the plaintiff, J.C. AGRICOM DEVELOPMENT CORPORATION, INC. and against the
defendant, CHUA TEE DEE.
2. Defendant is ordered to pay the plaintiff:
a. P45,000.00 per month for the first three (3) years, less the deposit made in the amount of P270,000.00 or the amount
of P1,350,000.00;
b. P60,000.00 per month for the second three (3) years of the lease or the equivalent amount of P2,160,000.00;
c. P75,000.00 per month for the succeeding years up to the time this case was decided on October 21, 1992, or the
amount of P1,125,000.00;
d. To pay the interest of 2% of the arrears as penalty for the delay in the payment of the rentals, or in the amount of
P92,700.00; and,
e. Attorneys fees equivalent to 10% of the total amount due to plaintiff or in the amount of P463,500.00.
Accordingly, the contract of lease entered into by the parties on July 22, 1985 is declared terminated and of no force and
effect.
SO ORDERED. [33]

The defendant appealed the March 8, 1995 Order to the Court of Appeals. [34] The appeal was docketed as CA-G.R. CV
No. 50306. It ascribed the following errors to the trial court:
I
THE LOWER COURT ERRED WHEN IT REVERSED ITS DECISION DATED OCTOBER 21, 1992 IN AN ORDER DATED MARCH 8,
1995, THE SAID REVERSAL NOT BEING IN ACCORDANCE WITH LAW.
II
THE LOWER COURT ERRED IN ITS ORDER DATED MARCH 8, 1995, THE SAME NOT BEING SUPPORTED BY THE EVIDENCE
PRESENTED DURING TRIAL. [35]
The appellant therein alleged that the motion for reconsideration of the appellee of the decision of the trial court was
actually a motion for new trial; [36] that while she admitted being in possession of the leased premises, there was no
evidence that she had profited from operating the rubber plantation. [37] She also posited that, under Article 1658 of
the New Civil Code, she had the right to suspend payment of the rentals since the lessor failed to maintain her in the
peaceful and adequate enjoyment of the leased property. She noted that the lower court even found in its October 21,
1992 decision that her possession of the property was anything but peaceful and enjoyable. [38] The appellant asserted
that the order of the trial court ordering her to pay the plaintiff-appellee was not supported by evidence presented
during trial. [39]
The appellate court in its Decision dated May 6, 1998 affirmed the assailed order of the lower court, but modified it by
reducing the award of attorneys fees:
WHEREFORE, subject to the modification concerning the award of attorneys fees, which is hereby reduced to
P50,000.00, the Order appealed from is AFFIRMED in all other respects. Without pronouncement as to costs. [40]
The appellant filed her motion for reconsideration on June 2, 1998 but the same was denied by the CA in its October 2,
1998 Resolution. [41]
Chua Tee Dee, now the petitioner, filed her supplemental petition and/or amended petition for certiorari with this Court
under Rule 65 of the Rules of Court and assigned the following as errors committed by the CA:
I.
THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION IN SWIFTLY CONCLUDING THAT THE CONTRACT OF LEASE IS
VALID, BINDING AND EFFECTIVE BETWEEN THE CONTRACTING PARTIES. FOR IN DOING SO, THE COURT OF APPEALS
DISREGARDED THE INVALIDITY OF THE CONTRACT OF LEASE WHICH PRIVATE RESPONDENT LEASED, (A PLANTATION
THAT IT DID NOT OWN), AND AGAIN, CLEARLY DID NOT INSTALL PETITIONER IN PEACEFUL ENJOYMENT OF THE
LEASED PREMISES, AND WHICH PETITIONER WAS NOT ABLE TO POSSESS AND ENJOY, IN CLEAR, DELIBERATE AND VERY
IRRESPONSIBLE VIOLATION OF THE CONTRACT OF LEASE. THIS JUSTIFIES LESSEES SUSPENSION OF RENTALS.
II.
IN DENYING PETITIONERS MOTION FOR RECONSIDERATION (ANNEX O), PUBLIC RESPONDENT COURT OF
APPEALS, WITH DUE RESPECT, COMMITTED REVERSIBLE ERROR IN ORDERING PETITIONER TO PAY RENTALS WHICH HAD
ALREADY BEEN PAID. [42]
The petitioner asserts that the suspension of the payment of rentals is justified by the fact that the private respondent
Agricom breached its lease contract with her, relying on the provision of Art. 1658 of the Civil Code which provides:
Art. 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to
maintain the lessee in peaceful and adequate enjoyment of the property leased.
The petitioner claims that the private respondent failed to maintain her in a quiet and peaceful enjoyment of the leased
premises. [43] She asserts that while she occupied the property, she was pestered and harassed by squatters and several
claimants of the leased premises. [44] As such, the private respondent violated paragraphs 6 and 11 of the lease
contract. The petitioner also alleges that her business was dragged to a labor case which caused her to shell out the
amounts of P306,956.99 and P10,000 as bond premiums and attorneys fees, respectively. While machine copies of the
checks were presented during trial, the court ordered the presentation of the original checks, which, however, have
been lost and cannot be found. [45] According to the petitioner, the various claimants of the premises fenced their
claimed areas, thus, reducing the area of the leased premises and the production of rubber latex, the produce of the
rubber plantation. [46] The petitioner also alleges that she made verbal demands to the private respondent to observe
and enforce the contract, but such demands fell on deaf ears. [47]
The petitioner further asserts that the private respondent included in their contract of lease areas in the rubber
plantation that belonged to other persons. [48] She further alleges that the private respondent misrepresented itself as
the owner of a rubber plantation covering an area of 132.4102 hectares when, in fact, only an area of 36 hectares was
free from any claimants. [49] Thus, the petitioner argues, the diminution of the area resulted in loss of profits in the
operation of the plantation.
The petitioner also claims that since the private respondent failed to maintain her, as lessee, in the quiet and peaceful
possession of the leased premises, she is entitled to moral damages. [50] The petitioner further claims that she agreed

to remain in the leased premises upon the request of Mrs. Carriedo, a stockholder of Agricom. The petitioner avers that
she did the private respondent a favor because due to her presence in the premises, the same was protected from
outside forces. [51] Thus, she should not be ordered to pay any back rentals.
Anent the second assigned error, the petitioner asserts that she had religiously paid rentals up to June 30, 1990, and
that she suspended the payment thereof due to the private respondents breach of the lease contract. She avers that
the lower court erred when it ordered her to pay rentals starting from 1985, when the contract commenced. She posits
that her liability for back rentals, if any, should cover only the period of July 1990 to October 21, 1992, when the
decision of the RTC was promulgated, computed as follows:
Second 3 years at P60,000.00 monthly rental
Payment stopped on July 1990:
July 31, 1990
P60,000.00
August 31
60,000.00
September 30
60,000.00
October 31
60,000.00
November 30
60,000.00
December 31
60,000.00
January 31, 1991
60,000.00
February 28
60,000.00
March 31
60,000.00
April 30
60,000.00
May 31
60,000.00
June 30, 1991
60,000.00
Total
P720,000.00
Succeeding 3 years at P75,000.00 per month
Rental up to the time this case was decided
On October 21, 1992:
July 31, 1991
P75,000.00
August 31
75,000.00
September 30
75,000.00
October 31
75,000.00
November 30
75,000.00
December 31
75,000.00
January 31, 1992
75,000.00
February 28
75,000.00
March 31
75,000.00
April 30
75,000.00
May 31
75,000.00
June 30, 1992
75,000.00
Total
P900,000.00
July 31, 1992
75,000.00
August 31
75,000.00
September 30
75,000.00
October 21, 1992
52,500.00
Total
P280,500.00
Grand Total
P1,900,500.00 [52]
For its part, the private respondent contends that the petition should be dismissed for having been filed under Rule 65,
an inappropriate remedy or wrong mode of appeal in the present case. And even if the Court considers the same as
filed under Rule 45, the same is still unavailing as only questions of law can be raised therein, while the present petition
raises questions of fact. [53]
The private respondent maintains that the appellate court did not commit any grave abuse of its discretion when it
decided the case and affirmed with modification the assailed RTC Order. It contends that the sweeping statements of
the petitioner, that the Court of Appeals committed grave abuse of its discretion, are baseless and unfounded. It asserts
that the petition is without merit.
The petition is partly meritorious.

Preliminarily, we note that the remedy resorted to by the petitioner is a petition for certiorari under Rule 65 of the Rules
of Court, a remedy resorted to where the issues raised involve lack of jurisdiction or grave abuse of discretion. For the
writ of certiorari under Rule 65 to issue, the petitioner must show not only that the lower court acted with grave abuse
of discretion, but also that there is no appeal, or any other plain, speedy, and adequate remedy in the ordinary course
of law. [54] The assailed CA decision was a disposition on the merits; hence, the proper remedy of the petitioner was a
petition for review on certiorari under Rule 45 of the Rules of Court. For this procedural lapse, the instant petition
should be dismissed outright. [55]
Nonetheless, as the petition was filed within the reglementary period under Rule 45, and in the interest of justice, this
Court shall treat the action as a petition for review on certiorari under Rule 45.
We now delve into the merits of the case.
The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. [56] It is consensual, bilateral,
onerous and commutative, the owner temporarily grants the use of his or her property to another who undertakes to
pay rent therefor. [57] In the case at bar, petitioner Chua Tee Dee is the lessee of the private respondent Agricom. As
lessor, the Agricom had the duty to maintain the petitioner in the peaceful and adequate enjoyment of the leased
premises. Such duty was made as part of the contract of lease entered into by the parties. Even if it had not been so,
the lessor is still duty-bound under Art. 1654 of the Civil Code, thus:
Art. 1654. The lessor is obliged:
(1)
To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended;
(2)
To make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it
has been devoted, unless there is a stipulation to the contrary:
(3)
To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the
contract.
The duty to maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract
mentioned in no. 3 of the article is merely a warranty that the lessee shall not be disturbed in his legal, and not physical,
possession. Thus, in the case of Goldstein v. Roces, [58] the Court ruled in favor of the lessor and denied the lessee's
claim for damages which resulted from the opening of holes in the roof, as the lessor had allowed another lessee to
construct another floor to the leased building. The Court had the occasion to state:
Article 1554 provides that the lessor is obliged to maintain the lessee in the peaceful enjoyment of the lease during all
the time covered by the contract.
Nobody has in any manner disputed, objected to, or placed any difficulties in the way of plaintiff's peaceful enjoyment,
or his quiet and peaceable possession of the floor he occupies. The lessors, therefore, have not failed to maintain him in
the peaceful enjoyment of the floor leased to him and he continues to enjoy this status without the slightest opposition
on the part of any one. That there was a disturbance of the peace or order in which he maintained his things in the
leased story does not mean he lost the peaceful enjoyment of the thing rented. The peace would likewise have been
disturbed or lost had some tenant of the Hotel de Francia, living above the floor leased by plaintiff, continually poured
water on the latter's bar and sprinkled his bar-tender and his customers and tarnished his furniture; or had some gay
patrons of the hotel gone down into his saloon and broken his crockery or glassware, or stunned him with deafening
noises. Numerous examples could be given to show how the lessee might fail peacefully to enjoy the floor leased to him,
in all of which cases he would, of course, have a right of action for the recovery of damages from those who disturbed
his peace, but he would have no action against the lessor to compel the latter to maintain him in his peaceful enjoyment
of the thing rented. The lessor can do nothing, nor is it incumbent upon him to do anything, in the examples or cases
mentioned, to restore his lessee's peace. [59]
In the case at bar, the petitioner claims that several people presented tax declarations to her and claimed some portions
of the leased premises. However, no case was filed by any of the said claimants against her or her lessor during the time
she occupied the premises. Even her branch manager testified that no such action to quiet title had been filed by the
alleged claimants:
Q
Now, one other question which is not related to the xerox document now, will you kindly inform this
Honorable Court whether you received a formal letter from the person you said was claiming ownership?
A
No, they went to the office.
Q
They did not make a formal claim against you?
A
They made (sic) formal claim because they went to the office taking with them the documents, the title and the
tax declaration and they came to me. That is a formal address.
Q
And that is what they did, they just came to your office and presented certain documents, is that correct?
A
They presented documents and they have done also something in the field, they fenced the area.
Q
Now, did they file a case against you?

A
Against me?
Q
Against Pioneer?
A
A case, no.
Q
And then as a matter of fact there is no judgment for ejectment or anything against Pioneer between that
claimant and Pioneer?
ATTY. SABILLO:
It is already answered, Your Honor, there is no case.
ATTY. MOJICA:
So, there is no judgment.
ATTY. SABILLO:
There is no case.
ATTY. MOJICA:
If counsel and I stipulate that there is no judgment ?
ATTY. SABILLO:
Of course, there is no case.
COURT:
All right, no case, no judgment. [60]
Patently, then, the petitioner had not been disturbed in her legal possession of the property in derogation of Article
1654 of the New Civil Code. When the petitioners representative saw that a portion of the leased premises was being
fenced by the claimants, she had all the right to sue the intruders who had disturbed her physical possession [61] as
provided for in Article 1664 of the New Civil Code. [62] However, the petitioner did not file any suit against any of the
claimants. Thus, it cannot be said that the private respondent violated paragraph 11 of the contract of lease.
We agree with the trial court and the CA that the petitioner failed to prove that she suffered any loss from the labor
case that was filed against her enterprise and her husband. The trial court declared that the petitioner did not actually
established (sic) the alleged losses especially in the labor case with the NLRC where the complaints of the laborers
appear to have been dismissed [63] The CA, likewise, noted thus:
[T]rue, the labor case was instituted during the effectivity of the lease contract until the case was finally resolved on
August 22, 1986. Surprisingly, however, during the interregnum, appellant regularly paid the monthly rentals for the
years 1985 to 1989. It was after the labor case has been resolved that appellant started to fail to pay her rentals,
strongly indicating that the labor case has not dampened her peaceful and adequate possession of the leased premises.
[64]

[T]hat the NLRC case did not deter the continuance of the possession and occupation of the leased premises. It also
proved the continuous production of latex in the plantation. Now, if in the production of latex, the corporation rather
than made profit, instead incurred losses, such losses has to be borne by the corporation. [65]
In sum, then, the petitioner failed to prove that the private respondent breached any of the provisions of the contract of
lease. Thus, the petitioner had no valid reason to suspend the payment of rentals under Art. 1658.
In the complaint filed by the private respondent against the petitioner, it alleged that the petitioner failed and/or
refused to pay the rent starting in July 1990. Also, the private respondents president, Manuel G. Alba, testified that
Agricom had suffered from the petitioners non-payment of rentals since July 1990. [66] At that time, the parties were
already on their second three-year period of the lease contract.
We agree with the contention of the petitioner that her obligation to pay back rentals should cover only the period of
July 1990 until the time that she vacated the leased premises. The CA, thus, erred when it affirmed the order of the trial
court ordering the petitioner to pay back rentals, including the first three (3) years of the lease, as that period had
already been paid by the petitioner. The petitioner should also be credited for the amount of P270,000.00 she paid to
the private respondent under paragraph 5 of the contract of lease.
The personal loan [67] extended by the petitioner to Lillian Carriedo should not be charged against the private
respondent. While it is true that the petitioner and Carriedo had agreed that the personal loan of the latter shall be
chargeable against Agricoms account, the private respondent is not privy to the agreement; nor did it agree to pay
the said loan. It must be stressed that the private respondent has a personality separate and distinct from its
stockholders.
IN LIGHT OF ALL THE FOREGOING, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 50306 and the RTC
Order dated March 8, 1995 are AFFIRMED WITH MODIFICATION. The petitioner is hereby ordered to pay to the private
respondent monthly rentals in the amount of P60,000 starting July 1990 up to June 30, 1991; and in the amount of

P75,000.00 per month from July 1991 until the petitioner actually left the leased premises. The petitioner is also
ordered to pay interest of two percent (2%) of the arrears, as penalty for the delay in the payment of rentals.
No costs.
SO ORDERED.
Quisumbing, (Acting Chairman), Austria-Martinez, and Tinga, JJ., concur.
Puno, (Chairman), J., on official leave.

FIRST DIVISION
[G.R. No. 156522. May 28, 2004]
ERLINDA SAN PEDRO, petitioner, vs. RUBEN LEE and LILIAN SISON, respondents.
DECISION
YNARES-SANTIAGO, J.:
In this petition for review, we are tasked with determining whether a document denominated as a Kasulatan ng Ganap
na Bilihan ng Lupa is a deed of absolute sale as it appears to be on the surface or merely an equitable mortgage.
Petitioner Erlinda San Pedro initiated this suit against the spouses Ruben [1] Lee and Lilian Sison on November 23, 1994,
praying for: (1) a declaration that the document entitled Kasulatan ng Ganap na Bilihan ng Lupa is an equitable
mortgage and not a sale; (2) the reconveyance of the property subject of the Kasulatan ng Ganap na Bilihan ng Lupa;
and (3) damages.
The Kasulatan ng Ganap na Bilihan ng Lupa, which the parties executed on May 23, 1985 provides as follows:
NA AKONG SI, ERLINDA SAN PEDRO, may sapat na gulang, Pilipino, balo at naninirahan sa 374 Herbosa Street, Tondo,
Manila, sa bisa ng kasulatang ito ay nagpapatunay
Na ako ang tunay at ganap na may-ari at namumusesyon sa isang (1) lagay ng lupa na nakatala sa aking pangalan sa
ilalim ng Transfer Certificate of Title No. T-290387 ng Patalaan ng Kasulatan ng Lalawigang Bulakan, na lalong makikilala
sa mga sumusunod na palatandaan:
[Technical description follows.]
Na dahil at alang-alang sa halagang ISANG DAAN AT LIMAMPUNG LIBONG PISO (P150,000.00), Salaping Pilipino, na
ngayong araw na ito ay ibinayad sa akin at tinanggap ko naman ng buong kasiyahang-loob bilang husto at ganap na
kabayaran ni RUBIN T. LEE, may sapat na gulang, Pilipino, kasal kay Lilian Sison at naninirahan sa 230 MacArthur
Highway, Karuhatan, Valenzuela, Metro Manila, aking IPINAGBIBILI, ISINASALIN at INILILIPAT ng ganap at patuluyan at
walang anumang pasusubali o pananagutan, ang lahat at boo [sic] kong karapatan at pagmamay-ari at pamumusesyon
sa nabanggit na lagay ng lupa at mga kaunlaran o mejoras na dito ay makikita o nakatirik o matatagpuan sa nasabing
RUBIN T. LEE at sa kanyang mga tagapamana o kahalili. [2]
The document bears two signatures above the typewritten words ERLINDA SAN PEDRO, Nagbibili. It contains the
signatures of two witnesses, one of whom was Philip dela Torre, and was notarized by a certain Venustiano S. Roxas. [3]
San Pedros version of events paints a portrait of an unscrupulous couple, usuriously taking advantage of her financial
straits to enrich themselves. Petitioner claims that she desperately needed money to support her childrens college
education, [4] and approached one Philip dela Torre, who introduced her to respondent Ruben Lee. [5] From Lee and
his wife Lilian Sison, San Pedro was able to secure a loan in the amount of P105,000.00, with interest of P45,000.00, or a
total indebtedness of P150,000.00. [6] As security for this loan, she agreed to mortgage a 17,235-square meter parcel of
agricultural land located at San Juan, Balagtas, Bulacan, covered by Transfer Certificate of Title (TCT) No. T-290387. [7]
This transaction took place in the office of Atty. Venustiano Roxas, where she met Lee for the first time. [8]
San Pedro claims that Atty. Roxas and Lee coerced her to sign the Kasulatan ng Ganap na Bilihan ng Lupa and that the
document was executed merely as written evidence of the loan and mortgage. She alleges that Atty. Venustiano Roxas
and Ruben Lee told her that the document was just a formality, [9] with the assurance from Atty. Roxas and Lee that
respondents would never enforce the contract against her. [10] She readily agreed because she believed in good faith
that the spouses were tunay na tao. [11] She further claims that she continued in possession of the parcel of land
through her tenant, Federico Santos, and continued to receive her landowners share of the harvest from 1985 until
1995. [12]
In 1986, [13] petitioner attempted to pay the real property tax on the subject agricultural land. [14] To her surprise, she
learned that the property had already been transferred to the names of respondents. [15] She also learned that TCT No.
T-290387 had been cancelled and TCT No. RT-41717 (T-305595) had been issued in the name of Ruben Lee. [16]
After saving enough money to pay her indebtedness, San Pedro attempted to redeem her mortgage. She approached
Ruben Lees brother, Carlito, offering to pay her debt, but she was continually rebuffed. [17] Nine years after the
contract was executed, she initiated this suit to recover title to the subject property.
Respondents, on the other hand, present an entirely different version of events. They claim that the sale of the property
in question was brokered by their mutual acquaintance and broker, Philip dela Torre. [18] Spouses Lee and Sison are
engaged in the real estate business, and believed that San Pedros agricultural property would be a good investment. It
was disclosed to them that the property had no existing right of way, that it was not tenanted, [19] and that it was lowlying real estate which was prone to flooding during the rainy season. [20] They thus negotiated for the purchase of the
property, which had an initial asking price of P200,000.00, [21] and offered to pay P150,000.00 therefor. San Pedro
accepted their offer and agreed to sell the land. [22]

Respondents requested that petitioner execute an affidavit of non-tenancy [23] and a written power of attorney
authorizing respondents to pay the capital gains taxes and expenses on the registration of the property in their name.
[24]
During the trial, petitioner presented four witnesses. The first, Federico Santos, a 61-year-old farmer, testified that he
was San Pedros tenant and had been tilling her land since 1975, [25] which his parents had been tilling before him. [26]
He further claimed that this tenancy relation was uninterrupted until the time of his testimony in 1995, and that he paid
San Pedro her owners share of the harvest every year. [27] Introduced in evidence were a tenancy agreement between
Santos and San Pedros mother, [28] and trust receipts dated from 1981 to 1991, all showing payment to San Pedro of
18 cavans of palay. [29]
Petitioners second witness, Adela Ortega, claimed to be an experienced broker, engaged in the real estate business
since after the Second World War. [30] She testified that the parcel of land which was the subject of the contract in
question was grossly undervalued, since she sold similarly located parcels of land in 1985 for around P60.00 per square
meter. [31] She also claimed that, in 1995, she sold a piece of agricultural land adjacent to the subject property for
P350.00 per square meter. [32]
Juanito Angeles, the third witness for the petitioner, was a Supervising Revenue Examiner in Revenue District 25. [33] He
produced Department Order No. 83-94, effective September 25, 1994, which contains zonal valuations of several
municipalities in Bulacan. [34] Based on these zonal valuations, he testified that the price of agricultural lots located in
Barangay San Juan, Balagtas, Bulacan ranges from P60.00 per square meter (for lots along the barangay road) [35] to
P20.00 per square meter (for interior lots). [36] He also stated that prior to the effectivity of Department Order No. 8394, the capital gains tax was determined from the consideration or the zonal valuation, whichever was higher. [37]
For their part, respondents presented Carlito Lee, Jose Samaniego, Atty. Amando Tetangco, Philip dela Torre, and Atty.
Venustiano Roxas, in addition to respondent Ruben Lee.
Carlito Lee, Rubens brother, testified that Philip dela Torre introduced him and Ruben to Erlinda San Pedro, who wanted
to sell her property. [38] The sale price was originally P200,000.00, which was reduced to P150,000.00 because the
agricultural lot in question had no existing right of way and was frequently flooded during the rainy season. [39] Carlito
also testified that although the contract of sale was entered into between San Pedro and Ruben Lee, the money for the
purchase of the property came from Cenica Hardware, a corporation of which he is a part owner. [40]
Carlito alleged that he and Ruben met with San Pedro on several occasions, in order to negotiate the purchase price and
terms of payment. [41] On their second meeting, they requested San Pedro to execute an affidavit of non-tenancy to
prove that the property was not occupied. [42] On their third meeting, San Pedro produced the requested affidavit,
which was notarized by a certain Atty. Amando Tetangco. [43] They set another meeting, for May 23, 1985, at which San
Pedro arrived at the Cenica Hardware store with the affidavit of non-tenancy and the original title of the property. [44]
That same day, Carlito and his brother withdrew the amount of P150,000.00 from Solid Bank, and paid San Pedro, for
which she signed a receipt. [45] They then proceeded to the office of Atty. Venustiano Roxas for the execution of the
contract of sale. [46]
Jose Samaniego, the Municipal Assessor of Balagtas, Bulacan, produced, inter alia, the Declaration of Real Property No.
10786 [47] and Declaration of Real Property No. 01846, [48] both in the name of Ruben Lee. Declaration of Real
Property No. 10786, for the year 1987, covers the property identified by TCT No. T-305595, and proclaims the market
value of this property to be P34,470.00. Declaration of Real Property No. 01846, for the year 1994, is for the property
covered by TCT No. T-305595, and identifies the market value of the property to be P137,880.00.
Samaniego explained that the amount appearing on the declaration of real property stands for the value of a certain
parcel of land per square meter if the land is residential, commercial or industrial, and per hectare if it is agricultural. The
unit value is based on the schedule of market value prepared during the revision, which is approved by the Provincial
Assessor and submitted to the Sangguniang Panlalawigan for approval. Thus, the bases for determining unit value are
the deed of sale, the payment value and the production cost of the land. [49]
The next witness, Atty. Amando Tetangco, testified that he notarized an affidavit of non-tenancy executed by Erlinda San
Pedro sometime in May 1985. [50] He identified his signature on the said affidavit, which he drafted. [51] He also
identified the signature of San Pedro, alleging that she caused the preparation of the affidavit, [52] although he
admitted that he had never met San Pedro prior to May 17, 1985, the date of execution of the affidavit. [53]
Philip dela Torre, a real estate broker, testified as to the negotiations between San Pedro and Lee regarding the
purchase price of the property. [54] The sum of P150,000.00 was finally agreed upon, [55] with the capital gains tax to
be paid by Lee. [56] The agreement between the parties was reduced in writing as the Kasulatan ng Ganap na Bilihan ng
Lupa. [57] For his participation in the transaction, dela Torre received a commission of 3%, or P4,500.00. [58] Dela Torre
was one of the witnesses to this contract, and identified his signature thereon. [59] He also identified (1) the signature of

San Pedro, who signed the document in his presence, [60] and (2) the document embodying the agreement that Ruben
Lee would pay the capital gains tax on the transaction. [61]
Finally, Atty. Venustiano Roxas testified for the respondents. He recalls having prepared and notarized the Kasulatan
ng Ganap na Bilihan ng Lupa, and identified his signature thereon. [62]
On June 22, 1998, the trial court rendered a decision in favor of petitioner, declaring the contract between petitioner
and respondents as one of mortgage and not of sale, and ordering the reconveyance of the property and the payment of
damages.
On appeal, the Court of Appeals reversed the trial court, and rendered a decision in favor of respondents, the dispositive
portion of which reads:
WHEREFORE, premises considered, the assailed Decision dated 22 June 1998 of the Regional Trial Court of Malolos,
Bulacan, Branch 17 is hereby REVERSED and SET ASIDE, and a new one is hereby entered dismissing the Complaint for
lack of merit. No pronouncement as to costs.
SO ORDERED.
Hence, this appeal, which raises the sole issue of whether the contract in question is an equitable mortgage or a deed of
absolute sale.
The document appears on its face to be a contract of sale, and contains the following clause:
Na dahil at alang-alang sa halagang ISANG DAAN AT LIMAMPUNG LIBONG PISO (P150,000.00), Salaping Pilipino, na
ngayong araw na ito ay ibinayad sa akin at tinanggap ko naman ng buong kasiyahang-loob bilang husto at ganap na
kabayaran ni RUBIN T. LEE, may sapat na gulang, Pilipino, kasal kay Lilian Sison at naninirahan sa 230 MacArthur
Highway, Karuhatan, Valenzuela, Metro Manila, aking IPINAGBIBILI, ISINASALIN at INILILIPAT ng ganap at patuluyan at
walang anumang pasusubali o pananagutan, ang lahat at boo [sic] kong karapatan at pagmamay-ari at pamumusesyon
sa nabanggit na lagay ng lupa at mga kaunlaran o mejoras na dito ay makikita o nakatirik o matatagpuan sa nasabing
RUBIN T. LEE at sa kanyang mga tagapamana o kahalili. [63]
Its nomenclature notwithstanding, we are called upon to decide whether the contract is really one of equitable
mortgage, in accordance with the statutory presumptions set forth in Article 1602 of the Civil Code, which are applicable
to documents purporting to be contracts of absolute sale. [64]
Article 1602 provides:
Art. 1602.
The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1)
When the price of a sale with right to repurchase is unusually inadequate;
(2)
When the vendor remains in possession as lessee or otherwise;
(3)
When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4)
When the purchaser retains for himself a part of the purchase price;
(5)
When the vendor binds himself to pay the taxes on the thing sold;
(6)
In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall
be considered as interest which shall be subject to the usury laws.
It is well-settled that the presence of even one of the foregoing circumstances is sufficient to declare a contract as an
equitable mortgage, [65] in consonance with the rule that the law favors the least transmission of property rights. [66]
For the presumption of an equitable mortgage to arise under Article 1602, two requisites must concur: (1) that the
parties entered into a contract denominated as a sale; and (2) that their intention was to secure an existing debt by way
of a mortgage. [67]
After a careful review of the records of the case, we find no cogent reason to disturb the ruling of the Court of Appeals.
Actori incumbit onus probandi. [68] Upon the plaintiff in a civil case, the burden of proof never parts. [69] Plaintiff must
therefore establish her case by a preponderance of evidence. [70] She has the burden of presenting evidence required
to obtain a favorable judgment, [71] and she, having the burden of proof, will be defeated if no evidence were given on
either side. [72]
In this case, it was incumbent upon San Pedro to adduce sufficient evidence to support her claim of an equitable
mortgage. Petitioner relies on paragraphs 1, 2, 5 and 6 of Article 1602. [73] Upon an examination of the evidence, we
find insufficient basis to conclude the existence of any of the grounds she relied upon.
Anent alleged inadequacy of the purchase price, petitioner presented two witnesses who testified as to the market
values of real estate in the subject locale. Neither of these witnesses, however, was able to conclusively demonstrate
that the purchase price of the property was grossly inadequate.

The testimony of the purported broker, Adela Ortega, was not given any credence by the Court of Appeals. We quote
with approval the ruling of the Court of Appeals on this point:
Plaintiff-appellees witness Adela Ortega failed to substantiate her allegation that the prevailing price of the subject
property at the time of the sale (1985) was P60.00 per square meter. Although Adela Ortega claimed that she was able
to sell lots adjacent to the subject property at the said prevailing price, she failed to present proof of such claim despite
her reservation to do so. Moreover, Adela Ortegas competency and credibility as an experienced real estate broker is
also suspect or questionable. She admitted that she was not aware or familiar with the factors or bases that affect the
increase in the value of realty, or how does it influence the zonal valuation made by the local government, which should
be very basic to a real estate broker.
The second witness, BIR Revenue Supervisor Juanito Angeles, testified as to the market value of properties in the subject
locale as of the effectivity of Department Order No. 83-94, on September 25, 1994. However, it must be noted that
Angeles did not testify as to the market value of the locale as of May 23, 1985, the date of the contract in question.
Neither did petitioner present any other evidence of the real estate market values as of that date.
Absent any evidence of the market value of the locale as of the date of the contract, it cannot be concluded that the
price at which the property was sold, or about P8.70 per square meter, was grossly inadequate. Mere inadequacy of
price would not be sufficient. The price must be grossly inadequate, [74] or purely shocking to the conscience. [75]
Since the property in question could have been worth as little as P20.00 per square meter in 1994, the price of P8.70 per
square meter nine years earlier, in 1985, does not seem to be grossly inadequate. Indeed, respondents Declaration of
Real Property No. 10786, for the year 1987, shows the market value of the property to be only P34,470.00 for that year.
As regards the alleged continuous possession of the property in question, San Pedro presented Federico Santos, who
testified that he is a farmer by occupation, currently tilling a farmholding of less than two hectares located at San Juan,
Balagtas, Bulacan, [76] owned by Erlinda San Pedro, to whom he has been paying lease rentals of 18 cavans a year. [77]
The testimony of the witness was offered to prove that he was the agricultural leasehold tenant of the petitioner on the
parcel of land which was described in the complaint. [78]
However, while the witness may have established that he was, indeed, the agricultural tenant of the petitioner, the
identity of the parcel of land which he tills and the parcel of land described in the complaint was not established. The
Kasunduan sa Buwisan [79] entered into between Federico J. Santos and Lourdes Manalo Vda. De San Pedro dated
May 14, 1975 reiterates the tenancy relation between witness Santos and the San Pedro family. The parcel of land
described therein has an area of 1.5 hectares, [80] while the property subject of the contract in question has an area of
17,235 square meters, or 1.72 hectares. There is therefore no clear indicator that the parcel of land being tilled by
Santos is, indeed, the parcel of land subject of the contract between San Pedro and Lee. Although a landowner-tenant
relation has been established between San Pedro and Santos, we cannot conclude therefrom that San Pedro was in
possession of the property subject of the Kasulatan ng Ganap na Bilihan ng Lupa through her tenant Federico Santos.
Petitioner argues that the direct connection between the parcel of land tilled by Santos and the land in question needs
no proof, in view of the purported admission by respondents in the course of the proceedings. [81] Specifically,
petitioner points to (1) an alleged admission made by respondents counsel during the cross-examination of witness
Federico Santos on July 3, 1995, [82] and (2) a statement made in respondents Comment/Opposition to Plaintiffs
Formal Offer of Evidence, to the effect that petitioners exercise of rights of ownership over the parcel of land in
question amounts to a usurpation of respondents rights as owner of the property. [83] Petitioner relies on Rule 129,
Section 4 of the Revised Rules of Court, which provides in part that [a]n admission, verbal or written, made by a party in
the course of the proceedings in the same case, does not require proof.
An examination of the records of the case, however, will readily disclose that no such admission was made either by
respondents or by respondents counsel. The question propounded by respondents counsel on July 3, 1995, is as
follows:
Q
Mr. Witness, are you aware of the fact that since 1985 the land you have been cultivating has been transferred
in the name of Sps. Ruben Lee and Lilian Sison?
A
No, maam. [84]
In the assessment of this Court, said question contains absolutely no admission that the parcel of land tilled by Santos is
in fact the parcel of land subject of the contract in question.
We likewise find no admission made in respondents Comment/Opposition to Plaintiffs Formal Offer of Evidence. The
alleged admission was made in the comment/objection to petitioners Exhibits F to F-14, the Receipts of Payments of
Rentals by Federico Santos to Erlinda San Pedro, and reads:
These receipts do not prove rights of ownership. The same even show acts of USURPATION of the Rights of Ownership
of the defendants by the plaintiff and her alleged tenant since Title to the property in question is now in the name of
Defendant spouses as Evidenced by TCT No. T-305595. (Ehx. B of the Plaintiff) [85]

On the contrary, what the foregoing portion of the Comment/Objection reveals is that: if Santos was indeed tilling the
parcel of land covered by TCT No. T-305595 as a tenant of San Pedro, San Pedro would be guilty of usurpation.
Rule 129, Section 4 of the Revised Rules of Court provides that a judicial admission may be contradicted by showing that
it was made through palpable mistake, or that no such admission was made. Petitioners theory as regards the
purported judicial admission is readily contradicted by a perusal of the records, which show that in fact no such
admission was made by respondents. We thus find no adequate proof for petitioners contention that she was
exercising possessory rights over the parcel of land covered by TCT No. T-305595.
As a third ground for the establishment of the purported equitable mortgage, petitioner argues that paragraph 5 of
Article 1602 is present. [86] Again, petitioner presented no proof that she, as vendor of property, bound herself to pay
taxes on the thing sold.
Finally, petitioner relies on Article 1602, paragraph 6, which applies to any other case where it may be fairly inferred
that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any
other obligation.
In contrast, respondents witnesses all testified as to the existence of a contract of sale between her and respondent
Ruben Lee. Pertinently, Philip dela Torre, who brokered the sale, and Atty. Venustiano Roxas, who prepared the
contract in question, were both unequivocal as to the nature of the contract. These two witnesses, whose impartiality
was not impugned, both affirmed the sale of the subject property.
Respondents presented documentary evidence which shows that the contract was indeed a sale: (1) a receipt for
P150,000.00 dated May 23, 1985, issued by Erlinda San Pedro, attesting full receipt of the amount in question; [87] (2)
an authority to pay capital gains tax, executed by Erlinda San Pedro in favor of Ruben Lee; [88] and (3) an affidavit of
non-tenancy executed by Erlinda San Pedro. [89]
The Kasulatan ng Ganap na Bilihan ng Lupa unequivocally states the absolute sale of the property covered by Transfer
Certificate of Title No. T-290387. Being a notarized document, it carries the evidentiary weight conferred upon duly
executed instruments provided by law, [90] and is entitled to full faith and credit upon its face.
WHEREFORE, premises considered, the decision of the Court of Appeals dated November 20, 2002, which dismissed the
complaint filed by petitioner for lack of merit, is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Panganiban, Carpio, and Azcuna, JJ., concur.
Davide, Jr., C.J., (Chairman), on official leave.

FIRST DIVISION
[G.R. No. 155856. May 28, 2004]
LEONORA CEBALLOS, petitioner, vs. Intestate Estate of the Late EMIGDIO MERCADO and the Heirs of EMIGDIO
MERCADO, respondents.
DECISION
PANGANIBAN, J.:
Well-settled is the rule that expert opinion is never conclusive. Courts may exercise discretion in accepting or overruling
the opinions of handwriting experts. Clear and convincing evidence is required to overturn the presumption of validity
of a notarized deed of absolute sale. Absent such species of evidence, the presumption stands.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to set aside the June 20, 2002 Decision
[2] and the October 11, 2002 Resolution [3] of the Court of Appeals (CA) in CA-GR CV No. 53463. The dispositive part of
the assailed Decision reads as follows:
WHEREFORE, premises considered, the present appeal is hereby DISMISSED and the decision appealed from in Civil
Case No. CEB-12690 is hereby AFFIRMED with MODIFICATION in that the award of moral damages is hereby REDUCED to
P50,000.00.
With double costs against the plaintiff-appellant. [4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The facts of the case are summarized by the CA in this wise:
[Petitioner] Leonora Emparado Ceballos is the registered owner of a certain parcel of land (Lot No. 3353, Pls-657-D)
situated in Bato, Badian, Cebu, consisting of 53,301 square meters and covered by Transfer Certificate of Title No. T-948
of the Register of Deeds for the Province of Cebu. Sometime in October 1980, [petitioner] was introduced to Emigdio
Mercado for the purpose of obtaining a loan as the latter was also known to be in the business of lending money.
[Petitioner] was able to borrow the amount of P12,000.00 payable in two (2) months and to secure said loan, she
executed in favor of Emigdio Mercado a Deed of Real Estate Mortgage over the subject property. The said mortgage
deed was not registered by the mortgagee. [Petitioner] was not able to pay her mortgage indebtedness to Emigdio
Mercado within the stipulated period. On February 13, 1982, a Deed of Absolute Sale was executed whereby the
mortgaged property was sold to Emigdio Mercado for the price of P16,500.00. Said instrument contained the signatures
of [petitioner] and her husband Narciso Ceballos and notarized by Atty. Elias V. Ortiz. It appears that sometime in 1990,
[petitioner] offered to buy back the property from Emigdio Mercado for the price of P30,000.00 but the latters wife
refused since the same was already transferred in their names under TCT No. TF-3252 issued on June 1, 1987. Emigdio
Mercado died on January 12, 1991 and a petition for the issuance of letters of administration over his intestate estate
was filed by her daughter Thelma M. Aranas before the RTC-Cebu City, Branch 11 (Spec. Proc. No. 3094-CEB).
On August 18, 1990, [petitioner] instituted the present suit against the Intestate Estate of the Late Emigdio Mercado,
Teresita Mercado as the Administrator, and/or the Heirs of the Late Emigdio Mercado. The Complaint alleged the
following:
[Petitioner] is the owner as her paraphernal property of a parcel of land located at Barangay Bato, Municipality of
Badian, Province of Cebu and covered by TCT No. T-948, the same being her hereditary share from the property of her
late father Rufo Emparado. Sometime in the early part of December 1980, to accommodate a friend who was
hospitalized, [petitioner] went to the late Emigdio Mercado, who was known, besides his other businesses, to be also in
the business of lending money, although at exorbitant rate of interest. A Real Estate Mortgage was drawn on December
31, 1980 for P12,000.00 although only P8,000.00 was actually delivered, the difference represents the interest for the
use of money, for a period of two (2) months. Since the accommodated party could not yet produce the redemption
money, [petitioner] periodically went to the mortgagee to beg him not to foreclose the mortgage. On February 13,
1982, [petitioner] was made to execute a Deed of Sale with Pacto de Retro for an increased consideration, from
P12,000.00 to P16,500.00 for a period of one (1) year from date of execution thereof, which contract was in fact an
equitable mortgage. [Petitioner] religiously paid interest on the loan even beyond the term of the mortgage, on the
repeated request by [petitioner] to the deceased mortgagee not to foreclose the mortgage. [Petitioner] learned to
engage in the buy and sell of just any commodity, more especially real estate, and her income improved. In November
1990, she went to the deceased mortgagee to redeem the property to which the latter agreed but the wife, Teresita
Virtucio-Mercado vehemently objected saying that it could no longer be done because the title had been transferred in
their names. [Petitioner] waited for a propitious time to again propose to redeem the property since it was a matter of
convincing by the deceased mortgagee for his wife to agree to the redemption, when she learned of his death on
January 12, 1991. [Petitioner] then started her epic to recover the property; she engaged in gathering documentation

when to her great worry and apprehension she discovered that the title to the property had indeed been transferred in
the name of the deceased Emigdio S. Mercado under TCT No. TF-3252. Such transfer of title was based on a document,
Deed of Absolute Sale, purportedly executed by [petitioner] and her husband on February 13, 1982, the same date
when deceased Emigdio Mercado and [petitioner] executed the Deed of Sale With Pacto de Retro and for the same
consideration of P16,500.00, the latter document turned out not to have been submitted by the deceased for
notarization. Said Deed of Absolute Sale is an absolute fabrication with the signatures therein appearing to have been
of the [petitioners] and husbands, were absolute forgeries. [Petitioner] submitted said deed of sale to disinterested
third parties to confirm its being spurious; she sought the assistance of the Philippine National Police (PNP) which found
(PNP Report No. 097-91) that said document of sale is a forgery; and hence, it is patent that the transfer of title on the
property was done through fraud. [Petitioner] is willing and ready to redeem the property and there is no other way for
her to recover her property but through the courts. [Petitioner] thus prayed for a judgment (1) declaring the Deed of
Absolute Sale void from the beginning; (2) to allow [petitioner] to redeem her property; (3) ordering defendant, after
redemption, to reconvey the property to [petitioner]; (4) ordering defendant to reimburse [petitioner] attorneys fees of
P50,000.00 and litigation expenses of P10,000.00, and to pay moral damages in the sum of P100,000.00.
In their Answer with Counterclaim, [respondents] Heirs of the Late Emigdio Mercado asserted that what was written on
the deed of real estate mortgage was the truth and that the deed of sale with pacto de retro was not pushed through
because [petitioner] decided to sell the property to the late Emigdio Mercado absolutely for the price of P16,500.00.
[Petitioner] already knew that she had sold the property to Mr. Mercado and she was even the one who delivered to
him the Deed of Absolute Sale already signed by her and her husband, and already notarized by the notary public; and
since that time [respondents] have been in possession of said property and were the ones paying the realty taxes
thereon. The signatures appearing on the deed of sale are genuine, and the property can no longer be redeemed as it
had already been sold in an absolute manner to Mr. Mercado. [Respondents] thus prayed that the complaint be
dismissed and on the counterclaim, that [petitioner] be ordered to pay [respondents] the amounts of P30,000.00 as
attorneys fees, P20,000.00 as litigation expenses, P1,000,000.00 as moral damages and P200,000.00 as exemplary
damages.
xxx
xxx
xxx
To prove her allegations in the complaint, [petitioner] presented documentary evidence and her own testimony and
those of her witnesses Romeo Varona (document examiner of the PNP Crime Laboratory, Camp Sotero Cabahug) and
Jovencio Virtucio. [Respondents], on the other hand, presented the testimonies of Atty. Elias Ortiz (who notarized the
Deed of Absolute Sale), Teresita Virtucio Mercado and SPO2 Wilfredo Espina (member of the PNP assigned at the
Crimes Record Section). In rebuttal, [petitioner] returned to the witness stand and also presented the testimony of Pio
Delicano (alleged overseer of the subject land since 1990). [Respondents] sur-rebuttal evidence consisted of a copy of
tax declaration in the names of [petitioner] and Francisca Emparado and copy of the complaint in Civil Case No. CEB13680 pending before RTC-Cebu City, Branch 22 between [petitioner] and her own brothers and sisters over the same
property subject of the present litigation. On October 19, 1995, the trial court rendered judgment in favor of the
[respondents] and against the [petitioner] as earlier cited. [5]
Ruling of the Court of Appeals
The Court of Appeals held that petitioner had failed to prove by the requisite evidence her allegation of forgery in the
subject Deed of Absolute Sale. It further ruled thus:
[T]he trial court had observed the correct process of identification first, by not completely relying on the findings or
statements by the handwriting expert presented by appellant as to the existence of forgery in the questioned document,
and more important, in considering both similarities and dissimilarities between the questioned signatures and the
standard signatures as to extract by such comparison between the two (2) sets of signatures the habitual and
characteristic resemblance which naturally appears in the genuine writing. x x x The apparent dissimilarities are
overshadowed by the striking similarities and therefore, fail to overcome the presumption of validity in favor of the duly
notarized Deed of Absolute Sale. [6]
Moreover, the CA found no reason to consider as an equitable mortgage the transaction between petitioner and the
deceased Emigdio Mercado, since none of the circumstances enumerated in Article 1602 of the Civil Code was present.
The CA also affirmed a reduced award of moral damages because of bad faith on the part of petitioner when she
imputed to the deceased acts of forgery and fraud. This imputation tended to blacken his memory, and caused his
surviving heirs emotional and psychological suffering.
Hence, this Petition. [7]
The Issues
Petitioner raises the following issues for our consideration:

I.
The findings of the appellate court as regards the questioned signature cannot be upheld as it is in disregard of
fundamental precepts on handwriting analysis. Moreover, the said findings failed to take into account circumstances
admitted by respondents and which ineluctably show a transaction of mortgage, not of sale.
II. Even granting that the subject deed is valid, it is incumbent upon the lower courts to declare the contract as one of
equitable mortgage, not of sale.
III. The award of moral damages, attorneys fees and costs of suit finds no support in fact, in law, and in prevailing
jurisprudence. [8]
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Handwriting Analysis
Petitioner assails the CAs findings of fact. She insists that the signatures on the subject Deed of Absolute Sale were
forged.
Her contention has no merit. Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is
limited to reviewing or reversing errors of law allegedly committed by the appellate court. Factual findings of the trial
court, especially when affirmed by the Court of Appeals, are conclusive on the parties. Since such findings are generally
not reviewable by this Court, [9] it is not duty-bound to analyze and weigh all over again the evidence already
considered in the proceedings below. [10]
In the present case, we find no reason to deviate from this rule. The courts a quo had sufficient factual basis in holding
that the questioned signatures were not forgeries. Although there were dissimilarities between the questioned and the
standard signatures, the CA also found between them striking similarities as to indicate the habitual and characteristic
writing of the appellant. The apparent dissimilarities are overshadowed by the striking similarities and, therefore, fail to
overcome the presumption of validity in favor of the duly notarized Deed of Absolute Sale.
Petitioner fails to convince us that the CA committed reversible error in affirming the trial court and in giving no weight
to expert opinion. Justice Francisco, a recognized authority in Remedial Law, explains:
Expert opinions are not ordinarily conclusive in the sense that they must be accepted as true on the subject of their
testimony, but are generally regarded as purely advisory in character; the courts may place whatever weight they
choose upon such testimony and may reject it, if they find it is inconsistent with the facts in the case or otherwise
unreasonable. [11]
Such opinion was not arbitrarily disregarded by the courts below. The RTC, as affirmed by the CA, overruled the
conclusion of the expert witness, because he only relied on the dissimilarities in the signatures, but ignored their striking
similarities or characteristics. The trial court meticulously explained:
The aforementioned similarities between the questioned signatures and the standard signatures, are more prominent
or pronounced in comparison with the standard signatures appearing in the said deed of real estate mortgage which
was omitted by Mr. Varona in the list of documents submitted by [petitioner] to him which contained her standard
signatures. It has been written by an authority in handwriting that, to wit:
The principles underlying handwriting identification are based on the comparison of certain distinctive characteristics
imprinted in the individual writing. These characteristics are injected into the writing involuntarily as a habit which are
unconscious and inconspicuous to the eye of the writer and cannot be completely suppressed or concealed whether
they appear in signature or general writing and constitute the identifying evidence that forms the basis of expert
opinion. (Baker, Law of Disputed and Forged Documents, p. 22.)
The test of the comparison for identification actually is the accurate judging of the individuals writing habit which
means the comparative weighing of the characteristics, and, like any other evidence, the deduction must be determined
by the number and value of the peculiarities. (Baker, ibid., p. 24.)
The specimens of the standard signatures of [petitioner] found in Exhibit N were written and given by her in 1991 per
investigation report submitted by Mr. Romeo Varona when the questioned document was dated February 13, 1982, or
after a lapse of almost nine (9) years. A closer look over said specimens of [petitioners] standard signatures disclose
x x x much different strokes, a rather smooth, accomplished, disguised and much improved handwriting, possibly due to
the fact that [petitioner] in the latter years became proficient in her handwriting compared to her signatures several
years back as shown in her standard signatures found in the deed of real estate mortgage where marked similarities in
the questioned signatures and the standard signatures are present in both.
Yet despite the lapse of time, the instinctive habit of [petitioners] own handwriting characteristics set forth in her
standard signatures find their similar impressions in her questioned signatures as distinctly observed by this Court.
It is for this reason that this Court holds as it hereby holds that the finding of the handwriting expert, Mr. Romeo
Varona, that the signature of [petitioner] as appearing in the questioned document is forged and cannot be binding or

conclusive to this Court in view of the aforementioned observation of this Court as to the existence of similar imprinted
characteristic habit of the writer seen both present in the questioned signatures and the standard signatures. x x x
The RTC made an impressively thorough study and arrived at a well-reasoned resolution of the issue of forgery. We
have no reason to overrule the CAs affirmation of that resolution.
As a public document, the subject Deed of Absolute Sale has in its favor the presumption of regularity. To contradict it,
one must present evidence that is clear and convincing; otherwise, the document should be upheld. [12]
Second Issue:
Equitable Mortgage
Petitioner also contends that the Contract should be declared as an equitable mortgage, because (1) the original
transaction was a loan; and, (2) for a titled property with an area of more than fifty-three thousand square meters in a
tourist area, the contract price of P16,500 was ridiculously low.
The instances when a contract -- regardless of its nomenclature -- may be presumed to be an equitable mortgage are
enumerated in the Civil Code as follows:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1)
When the price of a sale with right to repurchase is unusually inadequate:
(2)
When the vendor remains in possession as lessee or otherwise;
(3)
When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4)
When the purchaser retains for himself a part of the purchase price;
(5)
When the vendor binds himself to pay the taxes on the thing sold;
(6)
In any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to the usury laws.
Art. 1604.
The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.
In this case, both the trial and the appellate courts found none of the above-enumerated circumstances. We find no
cogent reason to reverse their factual finding.
Concededly, the original transaction was a loan. Petitioner failed to pay the loan; consequently, the parties entered into
another agreement -- the assailed, duly notarized Deed of Absolute Sale, which superseded the loan document.
Petitioner had the burden of proving that she did not intend to sell the property; that Emigdio Mercado did not intend
to buy it; and that the new agreement did not embody the true intention of the parties. [13] We find no basis for
disturbing the CAs finding that she had failed to discharge this burden.
Harping on the alleged unconscionably low selling price of the subject land, petitioner points out that it is located in a
tourist area and golf haven in Cebu. Notably, she has failed to prove that on February 13, 1982, the date of the sale, the
area was already the tourist spot and golf haven that she describes it to be. In 1990, the property might have been
worth ten million pesos, [14] as she claimed; however, at the time of the sale, the area was still undeveloped. [15]
Hence, her contention that the selling price was unconscionably low lacks sufficient substantiation.
Petitioner also argues that Mercados delay in registering the Deed of Absolute Sale and transferring the land title shows
that the real agreement was an equitable mortgage.
An equitable mortgage is one that -- although lacking in some formality, form or words, or other requisites demanded by
a statute -- nevertheless reveals the intention of the parties to charge a real property as security for a debt and contains
nothing impossible or contrary to law. [16] Delay in transferring title is not one of the instances enumerated by law -instances in which an equitable mortgage can be presumed. Moreover, throughout the testimony of petitioner before
the trial court, she never claimed that after the Deed of Absolute Sale had been executed in February 13, 1982, the land
continued to be intended merely to secure payment of the P12,000 loan taken on December 31, 1980. [17]
This Court has held that a document acknowledged before a notary public enjoys the presumption of regularity. It is a
prima facie evidence of the facts therein stated. To overcome this presumption, there must be presented evidence
which is clear and convincing. Absent such evidence, the presumption must be upheld. [18]
In this case, petitioner failed to present clear and convincing evidence to overcome the presumption of validity of the
notarized Deed conveying the land to private respondents. Her testimony denying the validity of the sale, having been
made by a party who has an interest in the outcome of the case, is not as reliable as written or documentary evidence.
Moreover, self-serving statements are inadequate to establish ones claims. Proof must be presented to support the
same. [19]
Third Issue:
Moral Damages

We now discuss the propriety of the award of moral damages. A resort to judicial processes is not, per se, evidence of ill
will upon which a claim for damages may be based. [20]
In China Banking Corporation v. Court of Appeals, [21] we held:
x x x Malicious prosecution, both in criminal and civil cases, requires the presence of two elements, to wit: a) malice;
and b) absence of probable cause. Moreover, there must be proof that the prosecution was prompted by a sinister
design to vex and humiliate a person, and that it was initiated deliberately knowing that the charge was false and
baseless (Manila Gas Corporation v. Court of Appeals, 100 SCRA 602 [1980]). Hence, mere filing of a suit does not
render a person liable for malicious prosecution should he be unsuccessful, for the law could not have meant to impose
a penalty on the right to litigate (Ponce v. Legaspi, 208 SCRA 377 [1992]; Saba v. Court of Appeals, 189 SCRA 50 [1990];
Rubio v. Court of Appeals, 141 SCRA 488 [1986]. Settled in our jurisprudence is the rule that moral damages cannot be
recovered from a person who has filed a complaint against another in good faith, or without malice or bad faith
(Philippine National Bank v. Court of Appeals, 159 SCRA 433 [1988]; R & B Surety and Insurance v. Intermediate
Appellate Court, 129 SCRA 736 [1984]). If damage results from the filing of the complaint, it is damnum absque injuria
(Ilocos Norte Electrical Company v. Court of Appeals, 179 SCRA 5 [1989]). [22]
Respondents have failed to show that petitioner was motivated by bad faith or malice when she instituted the action for
declaration of nullity of the Deed of Absolute Sale. Moreover, although she claims that her signature on the Deed was a
forgery, contrary to the findings of the court a quo, she does not impute authorship of the alleged forgery to the
deceased Emigdio Mercado. Hence, the courts a quo erred in awarding moral damages.
For the same reasons, the award for attorneys fees and expenses of litigation cannot be sustained.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision is AFFIRMED, with the MODIFICATION that the
awards for moral damages, attorneys fees and expenses of litigation are deleted. No pronouncement as to costs.
SO ORDERED.
Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
Davide, Jr., C.J., (Chairman), on official leave.

SECOND DIVISION
[G.R. No. 143388. October 6, 2003]
ROLANDO AND ROSITA BOTH SURNAMED CRUZ, petitioners, vs. THE HONORABLE COURT OF APPEALS, THE
HONORABLE ALFREDO R. ENRIQUEZ, PRESIDING JUDGE, METROPOLITAN TRIAL COURT, BRANCH 79, LAS PIAS CITY,
AND MIGUEL AND CECILIA BOTH SURNAMED CAPISTRANO, respondents.
DECISION
BELLOSILLO, J.:
The Decision of the Court of Appeals of 24 April 2000 [1] reversing and setting aside the Decision of RTC-Br. 135, Makati
City, [2] and dismissing the Complaints filed by petitioners herein is assailed in this Petition for Review.
Petitioners Rolando and Rosita Cruz, spouses, were the owners and operators of a dry goods stall in Divisoria. They
contracted a series of loans in varied amounts from private respondents, spouses Miguel and Cecilia Capistrano, who
were in the business of lending money on a five-six basis. Respondent Cecilia Capistrano was then operating her
lending business on a portion of petitioners stall. The Capistranos and the Cruzes were close friends. [3]
On 31 May 1985 petitioners obtained the first of these loans in the total amount of P135,000.00 evidenced by two (2)
separate receipts. [4] As conditions for the loan, private respondents required petitioner Rosita Cruz to open a checking
account with PhilBanking, Las Pias Extension Office, and thereafter asked her to sign a blank check with the promise
that the check would only be for safekeeping and would not be deposited with the bank. [5] To secure the loan, private
respondents obliged petitioners to surrender their Transfer Certificate of Title No. S-98034 covering a 240-square meter
lot together with the house standing thereon located in San Antonio Valley XVII, Las Pias, Metro Manila. Petitioner
Rosita Cruz promptly complied with all the conditions imposed by private respondents.
Subsequently, petitioners secured three (3) more loans from the Capistranos on various dates in the amounts of
P40,000.00, [6] P15,000.00 [7] and P5,000.00. [8]
Sometime in 1988, after all the sidewalk stalls in Divisoria were demolished, respondent Capistranos were no longer able
to collect from the vendors who owed them. Petitioners later discovered that private respondents had mortgaged their
property in Las Pias, Metro Manila, to San Miguel Corporation (SMC) to secure payment of a credit line. Verification
from the Office of the Register of Deeds of Las Pias showed that petitioners TCT No. S-98034 was already cancelled
and TCT No. (98729) T-2156-A was issued in the name of private respondents Miguel and Cecilia Capistrano [9] by using
a Deed of Absolute Sale purportedly executed in their favor by petitioners. [10]
The parties respective versions as to how the disputed Deed of Absolute Sale came about differed radically. Petitioners
denied executing the Deed of Absolute Sale, tenaciously asserting that at the time they were negotiating with private
respondents concerning the loans, the latter required them to sign on several blank sheets of paper with the
understanding that private respondents would superimpose a mortgage deed thereon, [11] but it turned out that
private respondents, instead of a deed of mortgage, typed on those blank papers the deed of sale in question.
Private respondents, on the other hand, claimed that in November 1985 petitioners intimated to them that they would
not be able to pay the P195,000.00 debt upon its maturity in December 1985 and, by way of offsetting the indebtedness,
they delivered to respondents a duly accomplished and notarized Deed of Absolute Sale.
On 21 December 1988 petitioners filed a complaint against private respondents and SMC with the Regional Trial Court of
Makati City, [12] seeking the annulment of the Deed of Absolute Sale (Exh. L), Transfer Certificate of Title No. 98729
(Exh. K) issued in the name of private respondents, and the deeds of mortgage executed by the Capistranos in favor of
SMC (Exh. K-2). [13] Petitioners likewise filed a criminal complaint for Estafa Through Falsification of Public
Documents against private respondents before the Office of the Provincial Fiscal of Rizal. [14]
Respondent Capistranos countered with separate criminal complaints for Violation of C.A. No. 142 (Illegal Use of
Aliases), Violation of BP 22, and Estafa, as well as an action for Ejectment [15] against petitioners after private
respondents demand to vacate the subject property went unheeded.
The criminal complaint for Estafa Through Falsification of Public Documents filed by petitioners against private
respondents was later dismissed by the Office of the Provincial Fiscal of Rizal for lack of merit. As for private
respondents criminal complains against petitioners for Violation of C.A. No. 142, Violation of BP 22, and Estafa, the trial
court eventually exonerated petitioners on reasonable doubt.
Ultimately, what remained were Civil Case No. 88-2747 for annulment of TCT No. 98729, the deeds of sale and
mortgage, pending before RTC-Br. 135, Makati City; [16] and Civil Case No. 89-5682, an appeal from the ejectment case
[17] pending before RTC-Br. 275, Las Pias, Metro Manila. On 21 February 1992 Presiding Judge Florentino M. Alumbres
of RTC-Br. 275, Las Pias, Metro Manila, ordered the consolidation of Civil Case No. 89-5682 with Civil Case No. 88-2747.
[18]
On 21 March 1994, after hearing, the trial court rendered a decision in favor of petitioners and against respondent
Capistranos, decreeing that: (a) The Deed of Absolute Sale dated November 5, 1985 (Exh. 7) conveying the subject

property, together with the improvements thereon, covered by TCT No. S-98034 (Exh. C) to defendant Capistranos
was null and void ab initio; (b) The Transfer Certificate of Title No. (98729) T-2156-A (Exh. K) issued by the Registry of
Deeds of Las Pias was ipso facto cancelled; (c) The Deeds of Mortgage executed by defendant Capistranos over the
subject property covered by TCT No. (98729T-2156-A) to secure a credit line from SMC was null and void ab initio; (d)
The Registrar of Deeds of Las Pias issue a new title over the subject property in favor of plaintiffs devoid of any
annotation of defendant Capistranos mortgage to SMC; (e) The questioned Order of 30 October 1989 issued by public
respondent Alfredo R. Enriquez, Presiding Judge of the MTC-Br. 79, Las Pias, Metro Manila, be set aside, and that Civil
Case No. 3016 pending before him dismissed for lack of cause of action; and, (f) The defendant Capistranos should pay
plaintiffs the sum of P20,000.00 as litigation expenses by way of compensatory damages, P20,000.00 as attorneys fees,
and pay the costs in these cases.
On 24 May 1995 private respondents challenged the trial courts decision before the Court of Appeals. [19] On 24 April
2000 the appellate court rendered its assailed Decision reversing the court a quo and dismissing the complaint filed by
petitioners. The appellate court found that petitioners failed to substantiate their allegation of fraud that would warrant
the annulment of the Deed of Absolute Sale in questions; that except for the allegation that the signatures of the
vendors in the deed were not directly aligned to their typewritten names, no other badges of fraud were presented by
the appellees (petitioners) to prove that said notarized deed of sale was not duly executed; and, that petitioners had
not presented a single receipt to prove that their indebtedness to private respondents had already been extinguished by
payment.
Their motion for reconsideration having been denied, petitioners now come to us for relief contending mainly that the
Court of Appeals erred in upholding the validity of the Deed of Absolute Sale and failing to recognize that the actual
transactions between the parties were in fact loans. More specifically, petitioners argue that: (a) it is the practice in
five-six lending operations that receipts are not issued for payment and borrowers are not to demand receipts.
Petitioners also claim that borrowers would not be extended succeeding loans unless they shall have fully settled the
previous ones a uniform practice in the five-six lending trade; (b) the awkward positions of petitioners signatures on
the Deed of Absolute Sale, viewed vis--vis their typewritten names on the instrument, show very conspicuously that
those signatures were affixed in blank; (c) the gross inadequacy of the purchase price appearing on the purported deed
of sale, i.e., P66,000.00, showed that the purported deed of sale did not reflect the true intention of the parties. Even
granting without conceding that the loans were unpaid, the proper document should have been a deed of mortgage, not
sale; and, (d) it is inconceivable that petitioners would trade off their house and lot valued at P750,000.00 at the time
just to pay an alleged loan of P195,000.00.
Private respondents, on the other hand, posit in their Comment that (a) petitioners had not presented a single proof of
payment of their indebtedness to private respondents in the amount of P195,000.00; (b) except for petitioners
allegation that their signatures in the deed of sale were not directly aligned to their typewritten names, no other badges
of fraud were alleged and proved by them to dispute the due execution of the deed of sale; (c) the intention of the
contracting parties should prevail in determining the true nature of the contract denominated Deed of Absolute Sale,
and the true intention of the parties is that of sale and not merely mortgage; and, (d) petitioners voluntarily delivered to
private respondents the disputed deed of sale conveying to the latter the subject house and lot in full settlement of their
indebtedness.
At the heart of the controversy, reduced to its simplest, are: first, whether the Deed of Absolute Sale is, in reality, one of
equitable mortgage; and, second whether petitioners loans to private respondents have already been paid.
The Court of Appeals concluded that the contract subject of the instant case was, in fact, one of sale and not merely of
mortgage, thus
In the absence of clear and convincing evidence of such alleged payment, We are not ready to conclude that the
appellees in signing the Deed of Sale executed on November 4, 1985 merely intended a mortgage and not a deed of
conveyance as the terms of the contract clearly and unmistakably indicate. The finding of non-payment of the
indebtedness of appellees to appellants tends to support the claim of the appellants that the deed of sale in their favor
was executed by the appellees to offset their outstanding obligation to the appellants. With no evidence showing a
contrary intention, the clear and plain terms of the Deed of Sale executed between the parties must be construed as an
absolute conveyance made by the debtors, herein appellees, in full settlement of their outstanding obligation with their
creditors, herein appellants. [20]
We hold otherwise. Beneath the veneer of an absolute deed of sale is an entirely different agreement. Indeed, the
records are replete with telltale traces of a concealed mortgage. The applicable law may be found in the New Civil Code
thus
Art. 1602. The contract shall be presumed to be an equitable mortgage in any of the following cases:
(1)
When the price of the sale with right to repurchase is unusually inadequate;

(2)
When the vendor remains in possession as lessee or otherwise;
(3)
When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4)
When the purchaser retains for himself a part of the purchase price;
(5)
When the vendor binds himself to pay the taxes on the thing sold;
(6)
In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.
In any of the foregoing case, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall
be considered as interest which shall be subject to the usury laws (underscoring supplied).
Equally important is Art. 1604 of the same Code
Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale (underscoring
supplied).
Vendors covered by Art. 1602 usually find themselves in an unequal position when bargaining with the vendees, and will
readily sign onerous contracts to get the money they need. Necessitous men are not really free men in the sense that to
answer a pressing emergency they will submit to any terms that the crafty may impose on them. [21] This is precisely
the evil that Art. 1602 seeks to guard against. The evident intent of the provision is to give the supposed vendor
maximum safeguards for the protection of his legal rights under the true agreement of the parties.
Article 1602, par. (1), accords significance to the gross inadequacy of the price of a purported sale to such an extent as to
create the presumption that the transaction is an equitable mortgage.
In the instant case, petitioners acquired the 240-square meter house and lot subject of the deed of sale for P78,000.00
in 1975. [22] The house was remodeled and converted into a two-storey residence in 1982 at the cost of P280,000.00.
[23] From these figures, petitioners spent a total of P358,000.00 in acquiring the property and introducing
improvements thereon. Yet, the property was purportedly sold to private respondents in 1985 for a measly P66,000.00,
or barely 19% of its total acquisition and improvement cost three (3) years before, in 1982. [24] Certainly, no seller in
his right senses would agree to part with his valuable property for such an unusually inadequate consideration.
We take judicial notice of the fact that the value of real properties does not remain stagnant, but is on a constant
upswing. Given the incessant currency devaluation and spiraling costs of commodities, it would certainly be unrealistic
that the market value of petitioners property in 1985 would depreciate greatly three (3) years later.
The rule is well-settled that a contract appearing on its face to be a definite sale, like the contract in question, may be
interpreted as an equitable mortgage if any of the circumstances in Art. 1602 of the New Civil Code, such as the gross
inadequacy of the price, is present.
The other factor to consider is the continuous and unmolested physical possession of the contested property by
petitioners for almost three (3) years, from the time of the alleged sale of the property in 1985 to the filing by
petitioners of the case for annulment of the deed of sale in 1988. Although symbolically, the Deed of Absolute Sale
transferred possession of the property to respondent Capistranos, it was petitioners, the supposed vendors, who
remained in physical possession of the property. In fact, it does not even appear from the records that the Capistranos
ever declared the property in their names for taxation purposes or paid taxes thereon since the execution of the
document. Neither is there any showing that private respondents or any person acting in their behalf ever demanded of
petitioners to vacate the premises after the execution of the deed of sale in their favor.
Verily, had the intention of the parties been a contract of sale and not merely a contract of mortgage, private
respondents could have asserted their right to possess the property, and would not have allowed petitioners to freely
stay thereon for such a long period of almost three (3) years. Private respondents decision to eject petitioners from the
property came only after the institution of this case by petitioners; obviously an afterthought, and designed merely to
harass petitioners.
Apart from the foregoing, a crucial circumstance reinforces our conclusion that the contested contract is not really a sale
but an equitable mortgage: respondent Cecilia Capistranos admission during the trial that the title to the property was
delivered to her by petitioners only to secure payment of the loans, thus
Atty. Mendez:
On this pagpapatunay dated May 31, 1985 it is stated that plaintiffs shall pay you the amount of P120,000.00 on or
before December 1985, did they offer you anything to secure the payment of this P120,000.00?
A They offered to us their transfer certificate of title of their house and lot located at Las Pias as security, sir. x x x x
Atty. Mendez:
You stated that this Exh. 2 referring to Transfer Certificate of Title No. S-98043 covers the house and lot of the
plaintiffs spouses Rolando and Rosita Cruz, is this the same house and lot subject matter of this case?
A Yes, sir.

Q You said that this certificate of title marked as Exh. 2 for the defendants Capistrano was offered to you as security
for the payment of this P120,000.00, when did the plaintiffs give you this certificate of title?
A On the same day that we gave them the amount of P120,000.00, sir (underscoring supplied). [25]
This admission of respondent Cecilia Capistrano all but demolishes whatever vestige of doubt is left as to the true nature
of the contract in question. The evident intention of the parties, vis--vis petitioners property, was not to transmit
ownership but merely to guarantee payment of the debt. In Lao v. Court of Appeals, [26] we held
x x x x In determining the nature of a contract, the Court looks at the intent of the parties and not at the nomenclature
used to describe it. Pivotal to deciding this issue is the true aim and purpose of the contracting parties as shown by the
terminology used in the covenant, as well as by their conduct, words, actions and deeds prior to, during and
immediately after executing the agreement. In this regard, parole evidence becomes admissible to prove the true
intent and agreement of the parties which the Court will enforce even if the title to the property in question has already
been registered and a new transfer certificate of title issued in the name of the transferee.
Indeed, all these circumstances, taken together, are familiar badges of an equitable mortgage. Private respondents
could not in a pactum commissorium fashion appropriate the disputed property for themselves as they appeared to
have done; otherwise, their act will not be countenanced by this Court being contrary to good morals and public policy
hence void. If they wish to secure a perfect title over the mortgaged property, they should do so in accordance with law,
i.e., by foreclosing the mortgage and buying the property in the auction sale.
In the meantime, title to the subject property, which had supposedly been transferred to respondent Capistranos,
actually remained with petitioners as owners-mortgagors, conformably with the well-established doctrine that the
mortgagee does not automatically become the owner of the mortgaged property as the ownership thereof remains with
the mortgagor. [27]
Moreover, we have ruled that in case of doubt in the circumstances surrounding the execution of a contract, as in this
case, the least transmission of rights and interests shall prevail if the contract is gratuitous and, if onerous, the doubt
shall be settled in favor of the greatest reciprocity of interests. In Labasan v. Lacuesta, [28] citing the 1909 case of Olino
v. Medina, [29] we similarly held
Thus, in the early case of Olino v. Medina, 1909, Olino filed a complaint against Medina to recover a parcel of Riceland
which he alleged to have mortgaged for P175.00 and which Medina refused to return on the ground that the latter
allegedly bought the property. In deciding the conflict of allegations between the parties, this Court, through Justice
Florentino Flores, considered the transaction over the property as a loan, reasoning that such contract involves a
smaller transmission of rights and interests, and the debtor does not surrender all rights to his property but simply
confers upon the creditor the right to collect what is owing from the value of the ting given as security, there existing
between the parties a greater reciprocity of rights and obligations.
Ordinarily, findings of the Court of Appeals are entitled to great weight and respect, at times even finality, and shall not
be disturbed on appeal. Nevertheless, when, as in this case, (a) the findings of fact of the Court of Appeals are at
variance with those of the trial court; (b) the inference made or the conclusion drawn on the basis of certain state of
facts is manifestly mistaken; or, (c) the Court of Appeals manifestly overlooked or disregarded matters of substance
which, if considered, would very likely change the outcome of the case, this Court is not precluded from exercising its
power of review. [30]
Anent the second issue, we are not inclined to completely sustain petitioners claim that their loan obligations to private
respondents had been fully extinguished by payment, in the absence of adequate evidence to justify that conclusion.
While we believe that petitioners exerted efforts to settle their indebtedness as they fell due, it is plain to us that they
have not fully paid the subject loans.
Private respondents insisted that not a single centavo of petitioners debt had been discharged by payment. Astute in
the lending business and wise in the ways of men, it is not unreasonable to assume that private respondents kept track
of all their monetary receivables, and the moment these became due their natural impulse would have been to
immediately demand payment from their debtors. Curiously, we cannot discern from the records that private
respondents ever demanded payment from petitioners. We are baffled by their silence and passivity despite the
maturity of the questioned loans. Could it be that the Capistranos wanted the mortgaged property so badly that they
simply allowed the loans to mature and thereafter instantly appropriated the property for themselves? Or, more
plausibly, could it be that petitioners on the other hand somehow took pains to pay the loans little by little just to keep
their end of the bargain, hence, giving no cause for private respondents to make demands?
The truth appears to us to be somewhere in the middle. Veritas in medio stat. Petitioners only made payments of what
were due but did not fully settle the debt. Private respondents have a valid and subsisting credit, not in the entire
amount of the loans but only to the extent as will be discussed shortly hereafter.

Let it be made clear that our judgment herein declaring the contract to be an equitable mortgage should not be
construed as a bar to the collection of the unpaid loans. Private respondents have the perfect right to foreclose the
mortgage and sell the property subject thereof to satisfy the mortgage debt. This brings us to the question of how much
petitioners are actually liable to private respondents.
The purchase price of P66,000.00 could not have just come out of nowhere and found its way into the deed of sale by
chance or accident. Surely, the amount was placed in the Deed of Absolute Sale for a purpose, and could not have been
merely dictated by the whim and caprice of the contracting parties. If, as asserted by private respondents, the
contested house and lot subject of the deed of sale were given in payment of the loans, then why were they purportedly
sold for only P66,000.00 and not for P195,000.00 or so, the total amount alleged to have been unpaid? We cannot
conceive of any other credible explanation under the circumstances than that the alleged purchase price of P66,000.00
in the deed of sale actually pertained to the unpaid balance of the loans, for which private respondents appropriated
petitioners property in full satisfaction thereof.
WHEREFORE, the Decision of the Court of Appeals of 24 April 2000 is MODIFIED. The Registrar of Deeds of the City of
Las Pias is DIRECTED to cancel TCT No. (98729) T-2156-A issued in the name of private respondent spouses Miguel and
Cecilia Capistrano and to issue a new title in the name of petitioner spouses Rolando and Rosita Cruz, subject to the
equitable mortgage rights of private respondent spouses Miguel and Cecilia Capistrano.
Petitioner Rolando and Rosita Cruz are ORDERED to pay private respondent spouses Miguel and Cecilia Capistrano the
unpaid balance of the loans in the total amount of P66,000.00 with legal interest within ten (10) months [31] from the
finality of this Decision; otherwise, the mortgaged property shall be sold at public auction to cover payment of the
mortgage debt and the costs of suit.
SO ORDERED.
Quisumbing, Austria-Martinez, and Tinga, JJ., concur.
Callejo, Sr., J., no part. Signatory in assailed Decision.

FIRST DIVISION
[G.R. No. 154017. December 8, 2003]
DESAMPARADOS M. SOLIVA, Substituted by Sole Heir PERLITA SOLIVA GALDO, petitioner, vs. The INTESTATE ESTATE
of MARCELO M. VILLALBA and VALENTA BALICUA VILLALBA, respondents.
DECISION
PANGANIBAN, J.:
There is a valid sale even though the purchase price is not paid in full. The unpaid sellers remedy is an action to collect
the balance or to rescind the contract within the time allowed by law. In this case, laches barring the claim of petitioner
to recover the property has already set in. However, in the interest of substantial justice, and pursuant to the equitable
principle proscribing unjust enrichment, she is entitled to receive the unpaid balance of the purchase price plus legal
interest thereon.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to nullify the November 9, 2001
Decision [2] and the May 23, 2002 [3] Resolution of the Court of Appeals (CA) in CA-GR CV No. 42024. The assailed
Decision disposed as follows:
WHEREFORE, the Decision appealed from is AFFIRMED. [4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The facts are narrated by the CA, as follows:
On May 5, 1982, [Petitioner] Desamparados M. Soliva filed a complaint for recovery of ownership, possession and
damages against [Respondent] Valenta Balicua Villalba x x x alleging that she is the owner of a parcel of agricultural land
situated at Hinaplanan, Claveria, Misamis Oriental, containing an area of 16,542 square meters and covered by Original
Certificate of Title No. 8581; that on January 4, 1966, the late Capt. Marcelo Villalba asked her permission to occupy her
house on said land, promised to buy the house and lot upon receipt of his money from Manila and gave her P600.00 for
the occupation of the house; that Capt. Villalba died in 1978 without having paid the consideration for the house and
lot; and that after [the] death of Capt. Villalba, his widow, [Respondent Valenta], refused to vacate the house and lot
despite demands, destroyed the house thereon and constructed a new one.
For failure to file an answer, [Respondent Valenta] was declared in default and [petitioner] was allowed to present her
evidence ex-parte.
On March 26, 1984, the court a quo rendered judgment restoring to [petitioner] her right of ownership and possession
of the property and ordering [Respondent Valenta] to pay [her] P25,000.00 as actual damages and P5,000.00 as
attorneys fees. Said decision became final and [petitioner] was placed in possession of the subject property.
A petition for relief from judgment was filed by [Respondent Valenta] on June 5, 1984 alleging that her failure to file an
answer to the complaint was caused by her confusion as to whether the property formed part of the estate of her late
husband, Marcelo Villalba; that she referred the matter to Atty. Eleno Kabanlit, the administrator of the estate, but the
latter informed her that the property was not included in the inventory of the estate; and that she has a meritorious
defense as her late husband had already paid the amount of P2,250.00 out of the purchase price of P3,500.00 for the
house and lot.
The petition for relief was denied by the court a quo in an Order dated September 3, 1984 on the grounds that the
failure of [Respondent Valenta] to file an answer was not due to excusable negligence and that she does not seem to
have a valid and meritorious defense.
[Respondent Valenta] appealed to [the CA], which rendered a Decision on February 21, 1990 finding that the failure of
[Respondent Valenta] to file an answer to the complaint was due to excusable negligence; that she has a meritorious
defense, and that the complaint should have been filed not against her but against the administrator of the estate of
deceased Marcelo Villalba. The dispositive portion of said Decision reads:
WHEREFORE, the order appealed from is hereby REVERSED; the judgment by default in Civil Case No. 8515, subject
matter of the petition for relief, is SET ASIDE; the trial court is ORDERED to continue with the proceedings in said case;
and [Petitioner] Desamparados M. Soliva x x x is ORDERED to amend [her] complaint by substituting the administrator of
the intestate testate (sic) of the late Marcelo M. Villalba for Valenta Baricua-Villalba [respondent] as defendant in said
amended complaint. No pronouncement as to costs.
SO ORDERED.
Consequently, an amended complaint was filed in Civil Case No. 8515 by substituting the Intestate Estate of Marcelo M.
Villalba, represented by its Administrator, Atty. Eleno M. Kabanlit, for [Respondent Valenta], as defendant therein.
Answering the complaint, the Administrator alleged that the house and lot were sold to the late Marcelo Villalba by
Magdaleno Soliva, the late husband of [petitioner], on December 18, 1965 for P3,500.00 on installment basis and that

Marcelo Villalba had paid the total amount of P2,250.00; that no demands were made on [Respondent Valenta] to
vacate the property prior to the filing of the original complaint in 1982; and that [Respondent Valenta] has been in
continuous, public and uninterrupted possession of the property for seventeen (17) years, i.e., from 1965 to 1982, so
that [petitioners] claim of ownership has already prescribed.
An answer-in-intervention was filed by [Respondent Valenta] alleging that the original transaction between her late
husband and the late husband of [petitioner] covered seventy [two] (72) hectares of land, twenty-nine (29) heads of
cattle and the subject house and lot; that [petitioner] and her husband delivered to them only twenty-seven (27)
hectares and twelve (12) heads of cattle and they had to pay separately for the house and lot; and that she renovated
the house and lot at a cost of not less than P30,000.00 and planted numerous fruit trees and permanent crops, all
valued at not less than P50,000.00.
On March 11, 1993, the court a quo rendered a Decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered dismissing the complaint and the counterclaims without special
pronouncement as to costs, and ordering the reconveyance of subject lot to [respondent] and intervenor. [5]
Ruling of the Court of Appeals
Affirming the RTC, the CA held that laches had already set in. The inaction of petitioner for almost 16 years had barred
her action to recover the disputed property from the Villalbas. The appellate court found that 1) until the death of
Marcelo Villalba in 1978, his payment of the full purchase price of the disputed house and lot was never demanded; 2)
no evidence was presented to show when petitioner had made a verbal demand on Valenta Villalba to vacate the
premises; and 3) the complaint for recovery of ownership and possession was filed only on May 5, 1982 -- 16 years after
the formers cause of action had accrued.
Hence, this Petition. [6]
Issues
Petitioner submits the following issues for our consideration:
1.
Whether or not Capt. Marcelo M. Villalba who died in 1978 after declaring that he would not pay anymore the
full consideration of the price of the house and lot and after exhausting extrajudicial remedies would bar Desamparados
M. Soliva or her successor-in-interest from asserting her claim over her titled property.
2.
Whether or not the Decision of the Court of Appeals affirming the Decision of the Regional Trial Court ordering
the reconveyance of the subject lot to defendant and intervenor although Capt. Marcelo Villalba nor his wife Valenta
Balicua Villalba had not yet paid the full consideration of the price of the house and lot would unjustly enrich spouses
Marcelo and Valenta Villalba at the expense of Desamparados M. Soliva. [7]
Simply put, the issues boil down to the following: (1) whether petitioner is barred from recovering the disputed
property; and (2) whether the conveyance ordered by the court a quo would unjustly enrich respondents at her
expense.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Petitioners Claim Already Barred
Petitioner contests the appellate courts finding that she slept on her rights for 16 years and thereby allowed
prescription and laches to set in and bar her claim. She avers that she undertook extrajudicial measures to collect the
unpaid balance of the purchase price from the Villalbas. She also emphasizes that as a result of her original action, the
trial court restored her to the possession of the disputed house and lot on March 26, 1984.
It is readily apparent that petitioner is raising issues of fact that have amply been ruled upon by the appellate court. The
CAs findings of fact are generally binding upon this Court and will not be disturbed on appeal -- especially when, as in
this case, they are the same as those of the trial court. [8] Petitioner has failed to show sufficient reason for us to depart
from this rule. Accordingly, we shall review only questions of law that have been distinctly set forth. [9]
No Invalidation of Sale Due
to Nonpayment of Full Price
Petitioner argues that the transaction between the parties was a contract to sell rather than a contract of sale. This
argument was properly brushed aside by the appellate court, which held that she was bound by her admission in her
Complaint [10] and during the hearings [11] that she had sold the property to the Villalbas.
Petitioner further contends that the oral contract of sale between the parties was invalid, because the late Captain
Marcelo Villalba and his wife had failed to comply with their obligation to pay in full the purchase price of the house and
lot. She is mistaken.
Under Article 1318 of the Civil Code, the following are the essential requisites of a valid contract: 1) the consent of the
contracting parties, 2) the object certain which is the subject matter of the contract, and 3) the cause of the obligation

which is established. When all the essential requisites are present, a contract is obligatory in whatever form it may have
been entered into, save in cases where the law requires that it be in a specific form to be valid and enforceable. [12]
With respect to real property, Article 1358(1) of the Civil Code specifically requires that a contract of sale thereof be in a
public document. However, an otherwise unenforceable oral contract of sale of realty under Article 1403(2) of the Civil
Code may be ratified by the failure to object to the presentation of oral evidence to prove it or by the acceptance of
benefits granted by it. [13]
All the essential elements of a valid contract are present in this case. No issue was raised by petitioner on this point.
Moreover, while the contract between the parties might have been unenforceable under Article 1403(2) of the Civil
Code, the admission [14] by petitioner that she had accepted payments under the oral contract of sale took the case out
of the scope of the Statute of Frauds. [15] The ratification of the contract rendered it valid and enforceable.
Furthermore, contrary to petitioners submission, the nonpayment of the full consideration did not invalidate the
contract of sale. Under settled doctrine, nonpayment is a resolutory condition that extinguishes the transaction existing
for a time and discharges the obligations created thereunder. [16] The remedy of the unpaid seller is to sue for
collection [17] or, in case of a substantial breach, to rescind the contract. [18] These alternative remedies of specific
performance and rescission are provided under Article 1191 of the Civil Code as follows:
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 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.
x x x
xxx
x x x.
The rescission of a sale of immovables, on the other hand, is governed by Article 1592 of the Civil Code as follows:
Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or
extrajudicially or by a notarial act. After the demand, the court may not grant him a new term.
Upon the facts found by the trial and the appellate courts, petitioner did not exercise her right either to seek specific
performance or to rescind the verbal contract of sale until May 1982, when she filed her complaint for recovery of
ownership and possession of the property. This factual finding brings to the fore the question of whether by 1982, she
was already barred from recovering the property due to laches and prescription.
Action Barred by Laches
In general, laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which -- by the
exercise of due diligence -- could or should have been done earlier. [19] It is the negligence or omission to assert a right
within a reasonable period, warranting the presumption that the party entitled to assert it has either abandoned or
declined to assert it. [20]
Under this time-honored doctrine, relief has been denied to litigants who, by sleeping on their rights for an
unreasonable length of time -- either by negligence, folly or inattention -- have allowed their claims to become stale.
[21] Vigilantibus, sed non dormientibus, jura subveniunt. The laws aid the vigilant, not those who slumber on their
rights. [22]
The following are the essential elements of laches:
(1)
Conduct on the part of the defendant that gave rise to the situation complained of; or the conduct of another
which the defendant claims gave rise to the same;
(2)
Delay by the complainant in asserting his right after he has had knowledge of the defendants conduct and after
he has had an opportunity to sue;
(3)
Lack of knowledge by or notice to the defendant that the complainant will assert the right on which he bases his
suit; and
(4)
Injury or prejudice to the defendant in the event relief is accorded to the complainant. [23]
Petitioner complied with her obligation to deliver the property in 1966. [24] However, respondents husband failed to
comply with his reciprocal obligation to pay, when the money he had been expecting from Manila never materialized.
[25] He also failed to make further installments after May 13, 1966. [26] As early as 1966, therefore, petitioner already
had the right to compel payment or to ask for rescission, pursuant to Article 1169 of the Civil Code, which reads:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
xxx
xxx
xxx

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. (Italics supplied)
Nonetheless, petitioner failed to sue for collection or rescission. Due to insufficiency of evidence, the lower courts
brushed aside her assertions that she had availed herself of extrajudicial remedies to collect the balance or to serve an
extrajudicial demand on Villalba, prior to her legal action in 1982. Meanwhile, respondent had spent a considerable sum
in renovating the house and introducing improvements on the premises. [27]
In view thereof, the appellate court aptly ruled that petitioners claim was already barred by laches. It has been
consistently held that laches does not concern itself with the character of the defendants title, but only with the issue of
whether or not the plaintiff -- by reason of long inaction or inexcusable neglect -- should be barred entirely from
asserting the claim, because to allow such action would be inequitable and unjust to the defendant. [28]
Likewise, it must be stressed that unlike prescription, laches is not concerned merely with the fact of delay, but even
more with the effect of unreasonable delay. [29] In Vda. de Cabrera v. CA, [30] we explained:
In our jurisdiction, it is an enshrined rule that even a registered owner of property may be barred from recovering
possession of property by virtue of laches. Under the Land Registration Act (now the Property Registration Decree), no
title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse
possession. The same is not true with regard to laches. As we have stated earlier in Mejia de Lucas vs. Gamponia, while
the defendant may not be considered as having acquired title by virtue of his and his predecessors long continued
possession (37 years) the original owners right to recover x x x the possession of the property and the title thereto from
the defendant has, by the latters long period of possession and by patentees inaction and neglect, been converted into
a stale demand. [31]
The contention of petitioner that her right to recover is imprescriptible because the property was registered under the
Torrens system [32] also fails to convince us. It was the finding of the trial court that the property was not yet covered
by a free patent on January 4, 1966, when Captain Villalba acquired possession thereof. Indeed, the evidence shows
that as of that date, the documents relating to the property were still in the name of Pilar Castrence, from whom
petitioner purchased the property on April 27, 1966; [33] that she applied for a free patent therefor between January 4
and April 27, 1966; [34] and that the original certificate of title over the lot was issued to her under Free Patent No. (x-1)
3732 only on August 16, 1974. [35]
It is apparent, then, that petitioner sold the house and lot to respondent on January 4, 1966, before she had even
acquired the title to convey it. Moreover, she applied for a free patent after she lost, by operation of law, [36] the title
she had belatedly acquired from Castrence. These circumstances raise serious questions over the formers good faith in
delaying the assertion of her rights to the property. They bar her from seeking relief under the principle that one who
comes to court must come with clean hands. [37]
Action Barred by Prescription
Moreover, we find that the RTC and the CA correctly appreciated the operation of ordinary acquisitive prescription in
respondents favor. To acquire ownership and other real rights over immovables under Article 1134 of the Civil Code,
possession must be for 10 years. It must also be in good faith and with just title. [38]
Good faith consists of the reasonable belief that the person from whom the possessor received the thing was its owner,
but could not transmit the ownership thereof. [39] On the other hand, there is just title when the adverse claimant came
into possession of the property through one of the modes recognized by law for the acquisition of ownership or other
real rights, but the grantor was not the owner or could not transmit any right. [40]
The RTC and the CA held that the Villalbas had continuously possessed the property from January 4, 1966 until May 5,
1982 [41] or for a total of 16 years. Capt. Villalba came into possession through a sale by petitioner, whom he believed
was the owner, though -- at the time of the sale -- she was not. Clearly, all the elements of ordinary acquisitive
prescription were present.
Petitioner is thus precluded from invoking the 30-year prescriptive period for commencing real action over immovables.
Prescription of the action is without prejudice to acquisitive prescription, according to Article 1141 of the Civil Code,
which we quote:
Art. 1141. Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for the acquisition of ownership and other real rights by
prescription. (Italics supplied)
Second Issue:
Unjust Enrichment
While petitioner is now barred from recovering the subject property, all is not lost for her. By Respondent Villalbas own
admission, [42] a balance of P1,250 of the total purchase price remains unpaid. Reason and fairness suggest that

petitioner be allowed to collect this sum. It is a basic rule in law that no one shall unjustly enrich oneself at the expense
of another. Niguno non deue enriquecerse tortizamente condao de otro. For indeed, to allow respondent to keep the
property without paying fully for it amounts to unjust enrichment on her part.
Since the obligation consists of the payment of a sum of money, and Respondent Villalba has incurred delay in satisfying
that obligation, legal interest at six percent (6%) per annum [43] is hereby imposed on the balance of P1,250, to be
computed starting May 5, 1982 -- when the claim was made judicially -- until the finality of this Courts judgment.
Following our ruling in Eastern Shipping Lines, Inc. v. CA, [44] the sum so awarded shall likewise bear interest at the rate
of 12 percent per annum from the time this judgment becomes final and executory until its satisfaction.
WHEREFORE, the Petition is partly GRANTED. The Decision of the Court of Appeals is AFFIRMED, with the MODIFICATION
that respondent is ordered to pay the balance of the purchase price of P1,250 plus 6 percent interest per annum, from
May 5, 1982 until the finality of this judgment. Thereafter, interest of 12 percent per year shall then be imposed on
that amount upon the finality of this Decision until the payment thereof. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

FIRST DIVISION
[G.R. No. 137909. December 11, 2003]
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses BERNARDINO NAGUIAT and MARIA PAULINA GERONANAGUIAT, respondents.
DECISION
PANGANIBAN, J.:
The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant the seller the right to
rescind the agreement. Unless otherwise stipulated by the parties, rescission is allowed only when the breach of the
contract is substantial and fundamental to the fulfillment of the obligation.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to nullify the October 31, 1997
Decision [2] and the February 23, 1999 Resolution [3] of the Court of Appeals (CA) in CA-GR CV No. 51067. The assailed
Decision disposed as follows:
WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby AFFIRMED. [4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The facts of the case are summarized by the CA as follows:
Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at Malhacan,
Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino Naguiat] over a portion of
the aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in a document
entitled Kasulatan sa Pagbibilihan which reads as follows:
NAGSASALAYSAY:
Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa Nayon ng Malhacan, Bayan
ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at mga kahangga nito gaya ng sumusunod:
xxx
xxx
xxx
Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang Pilipino, ang NAGBIBILI ay
nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na DALAWANG DAAN (200) METROS PARISUKAT, sa
lupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng sumusunod:
xxx
xxx
xxx
Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG LIBONG PISO (P2,000.00)
Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino, ay babayaran ng BUM[I]BILI
sa loob ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan ang kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI ay magbabayad ng
pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa itoy mabayaran tuluyan ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon ika 5 ng Abril, 1979, sa Bayan ng
Meycauayan. Lalawigan ng Bulacan, Pilipinas.
(signed)
(signed)
BERNARDINO NAGUIAT EULALIO MISTICA
Bumibili
Nagbibili
Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of P2,000.00. He made another
partial payment of P1,000.00 on 7 February 1980. He failed to make any payments thereafter. Eulalio Mistica died
sometime in October 1986.
On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and refusal of
[respondents] to pay the balance of the purchase price constitutes a violation of the contract which entitles her to
rescind the same; that [respondents] have been in possession of the subject portion and they should be ordered to
vacate and surrender possession of the same to [petitioner] ; that the reasonable amount of rental for the subject land
is P200.00 a month; that on account of the unjustified actuations of [respondents], [petitioner] has been constrained to
litigate where she incurred expenses for attorneys fees and litigation expenses in the sum of P20,000.00.
In their answer and amended answer, [respondents] contended that the contract cannot be rescinded on the ground
that it clearly stipulates that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be paid.
[Respondent Bernardino Naguiat] likewise alleged that sometime in October 1986, during the wake of the late Eulalio
Mistica, he offered to pay the remaining balance to [petitioner] but the latter refused and hence, there is no breach or
violation committed by them and no damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns

pursuant to the said document; that he is presently the owner in fee simple of the subject lot having acquired the same
by virtue of a Free Patent Title duly awarded to him by the Bureau of Lands; and that his title and ownership had already
become indefeasible and incontrovertible. As counterclaim, [respondents] pray for moral damages in the amount of
P50,000.00; exemplary damages in the amount of P30,000.00; attorneys fees in the amount of P10,000.00 and other
litigation expenses.
On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court on 29 July 1992. The
motion for reconsideration was likewise denied per its Order of 17 March 1993.
After the presentation of evidence, the court on 27 January 1995 rendered the now assailed judgment, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1.
Dismissing the complaint and ordering the [petitioner] to pay the [respondents] attorneys fee in the amount of
P10,000.00 and costs of the suit;
2.
Ordering the [respondents]:
a.
To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase price in the amount of
P17,000.00, with interest thereon at the rate of 12% per annum computed from April 5, 1989 until full payment is made,
subject to the application of the consigned amount to such payment;
b.
To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58 square meters from the land
covered by OCT No. 4917 (M), the corresponding price therefor based on the prevailing market price thereof. [5]
(Citations omitted)
CAs Decision
Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It explained that the
conclusion of the ten-year period was not a resolutory term, because the Contract had stipulated that payment -- with
interest of 12 percent -- could still be made if respondents failed to pay within the period. According to the appellate
court, petitioner did not disprove the allegation of respondents that they had tendered payment of the balance of the
purchase price during her husbands funeral, which was well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already transferred the land title to their
names. The proper recourse, the CA held, was to order them to pay the balance of the purchase price, with 12 percent
interest.
As to the matter of the extra 58 square meters, the CA held that its reconveyance was no longer feasible, because it had
been included in the title issued to them. The appellate court ruled that the only remedy available was to order them to
pay petitioner the fair market value of the usurped portion.
Hence, this Petition. [6]
Issues
In her Memorandum, [7] petitioner raises the following issues:
1.
Whether or not the Honorable Court of Appeals erred in the application of Art. 1191 of the New Civil Code, as it
ruled that there is no breach of obligation inspite of the lapse of the stipulated period and the failure of the private
respondents to pay.
2.
Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the contract is no longer
feasible considering that a certificate of title had been issued in favor of the private respondents.
3.
Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq. m. portion in question is
covered by a certificate of title in the names of private respondents reconveyance is no longer feasible and proper. [8]
The Courts Ruling
The Petition is without merit.
First Issue:
Rescission in Article 1191
Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code, because respondents
committed a substantial breach when they did not pay the balance of the purchase price within the ten-year period.
She further avers that the proviso on the payment of interest did not extend the period to pay. To interpret it in that
way would make the obligation purely potestative and, thus, void under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a
Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title
to the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the
right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. [9]
In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. [10] Under Article 1191
of the Civil Code, the right to rescind an obligation is predicated on the violation of the reciprocity between parties,

brought about by a breach of faith by one of them. [11] Rescission, however, is allowed only where the breach is
substantial and fundamental to the fulfillment of the obligation. [12]
In the present case, the failure of respondents to pay the balance of the purchase price within ten years from the
execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was stipulated that payment could be
made even after ten years from the execution of the Contract, provided the vendee paid 12 percent interest. The
stipulations of the contract constitute the law between the parties; thus, courts have no alternative but to enforce them
as agreed upon and written. [13]
Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband never made any
demand for the balance of the purchase price. Petitioner even refused the payment tendered by respondents during
her husbands funeral, thus showing that she was not exactly blameless for the lapse of the ten-year period. Had she
accepted the tender, payment would have been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties intended otherwise, she has to show competent proof
to support her contention. Instead, she argues that the period cannot be extended beyond ten years, because to do so
would convert the buyers obligation to a purely potestative obligation that would annul the contract under Article 1182
of the Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative, suspensive, conditional obligations that
depend on the whims of the debtor, because such obligations are usually not meant to be fulfilled. [14] Indeed, to allow
the fulfillment of conditions to depend exclusively on the debtors will would be to sanction illusory obligations. [15] The
Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that payment of the purchase price is
dependent upon whether respondents want to pay it or not. Second, the fact that they already made partial payment
thereof only shows that the parties intended to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-settled is the rule that findings of fact by the CA are
generally binding upon this Court and will not be disturbed on appeal, especially when they are the same as those of the
trial court. [16] Petitioner has not given us sufficient reasons to depart from this rule.
Second Issue:
Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be unjust to respondents, because a certificate of title had already
been issued in their names. Petitioner nonetheless argues that the Court is still empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of respondents does not determine whether petitioner is
entitled to rescission. It is a fundamental principle in land registration that such title serves merely as an evidence of an
indefeasible and incontrovertible title to the property in favor of the person whose name appears therein. [17]
While a review of the decree of registration is no longer possible after the expiration of the one-year period from entry,
an equitable remedy is still available to those wrongfully deprived of their property. [18] A certificate of title cannot be
subject to collateral attack and can only be altered, modified or canceled in direct proceedings in accordance with law.
[19] Hence, the CA correctly held that the propriety of the issuance of title in the name of respondents was an issue that
was not determinable in these proceedings.
Third Issue:
Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to pay her the value of the lot, because the CA erred in
ruling that the reconveyance of the extra 58-square meter lot, which had been included in the certificate of title issued
to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a mode of acquiring ownership over immovable
property, because it does not create or vest title, but merely confirms one already created or vested. [20] Registration
does not give holders any better title than what they actually have. [21] Land erroneously included in the certificate of
title of another must be reconveyed in favor of its true and actual owner. [22]
Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall not be subject to collateral
attack, alteration, modification, or cancellation except in a direct proceeding. [23] The cancellation or removal of the
extra portion from the title of respondents is not permissible in an action for rescission of the contract of sale between
them and petitioners late husband, because such action is tantamount to allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title and for reversion was already filed by the State
in favor of petitioner and the heirs of her husband. [24] Hence, there is no need in this case to pass upon the right of
respondents to the registration of the subject land under their names. For the same reason, there is no necessity to
order them to pay petitioner the fair market value of the extra 58-square meter lot importunately included in the title.
WHEREFORE, the assailed Decision and Resolution are AFFIRMED with the MODIFICATION that the payment for the
extra 58-square meter lot included in respondents title is DELETED.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

SECOND DIVISION
[G.R. No. 127206. September 12, 2003]
PERLA PALMA GIL, VICENTE HIZON, JR., and ANGEL PALMA GIL, petitioners, vs. HON. COURT OF APPEALS, HEIRS OF
EMILIO MATULAC, CONSTANCIO MAGLANA, AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO CITY,
respondents.
DECISION
CALLEJO, SR., J.:
For review on appeal by certiorari are the Decision [1] of the Court of Appeals in CA-G.R. CV. No. 43188 promulgated on
March 19, 1996, and its Resolution [2] dated October 17, 1996, denying the petitioners Motion for Reconsideration of
the said decision.
The appealed decision affirmed in toto the judgment of the Regional Trial Court, Davao City, Branch 16, in Civil Case No.
15,356 which dismissed the complaint of the herein petitioners.
The Antecedents
Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel Villarica, were the co-owners of a parcel of
commercial land with an area of 829 square meters, identified as Lot No. 59-C, covered by Transfer Certificate of Title
(TCT) No. 432 located in Davao City. The spouses Angel and Nieves Villarica had constructed a two-storey commercial
building on the property. On October 13, 1953, Concepcion filed a complaint against her sister Nieves with the then
Court of First Instance of Davao City, docketed as Civil Case No. 1160 for specific performance, to compel the defendant
to cede and deliver to her an undivided portion of the said property with an area of 256.2 square meters. After due
proceedings, the court rendered judgment on April 7, 1954 in favor of Concepcion, ordering the defendant to deliver to
the plaintiff an undivided portion of the said property with an area of 256.2 square meters:
A la vista de los datos expuestos, el Juzgado dicta sentencia condenando a la demanda, Nieves Palma Gil de Villarica,
cumpla con los terminos del documento (Exh. A) ordenando a aquella que otogue los documentos necesarios
traspasando a favor de la demandante (CONCEPCION PALMA GIL), 256 metros cuadrados con 20 centimetros del Lote
No. 56-C descrito mas particularmente en el Certificado de Titulo No. 432. [3]
Nieves appealed to the Court of Appeals which affirmed the assailed decision. In due course, the decision became final
and executory. On motion of the plaintiff (Concepcion), the court issued a writ of execution. Nieves, however, refused
to execute the requisite deed in favor of her sister. On April 27, 1956, the court issued an order authorizing ex-officio
Sheriff Eriberto Unson to execute the requisite deed of transfer to the plaintiff over an undivided portion of the
property with a total area of 256.2 square meters. Instead of doing so, the sheriff had the property subdivided into four
lots namely, Lot 59-C-1, with an area of 218 square meters; Lot 59-C-2, with an area of 38 square meters; Lot 59-C-3,
with an area of 14 square meters; and Lot 59-C-4, with an area of 560 square meters, all covered by a subdivision plan.
The sheriff thereafter executed a Deed of Transfer to Concepcion over Lot 59-C-1 and Lot 59-C-2 with a total area of
256.2 square meters.
On October 24, 1956, Concepcion executed a deed of absolute sale over Lot 59-C-1 in favor of Iluminada Pacetes. In the
said deed, the area of Lot 59-C-1 appeared as 256 square meters although under the subdivision plan, the area of the
property was only 218 square meters. The vendee obliged herself to pay the said amount, to wit:
1. The purchase price of P21,600.00 shall be paid as follows: P7,500.00 to be paid upon the signing of this instrument;
and the balance of P14,100.00 to be paid upon the delivery of the corresponding Certificate of Title in the name of the
VENDEE. [4]
Under the deed of absolute sale, the parties further agreed as follows:
2. That the VENDOR shall, within the period of ONE HUNDRED TWENTY (120) DAYS, from the signing of this
agreement, undertake and work for the issuance of the corresponding Certificate of Title of the said Lot No. 59-C-1 in
her favor with the proper government office or offices, to the end that the same can be duly transferred in the name of
the herein VENDEE, by virtue thereof.
3. That pending the full and complete payment of the purchase price to the VENDOR, the VENDEE shall collect and
receive any and all rentals and such other income from the land above-described for her own account and benefit, this
right of the VENDEE to begin from December 1, 1956. [5]
In the meantime, Nieves filed a motion in Civil Case No. 1160 to compel the sheriff to report on his compliance with the
courts Order dated April 27, 1956. The motion was denied. A motion for reconsideration of the denial met the same
fate. Nieves appealed to the Court of Appeals, which appeal was docketed as CA-G.R. No. 22438-R.
In a parallel development, Concepcion filed a complaint for unlawful detainer against the spouses Angel and Nieves
Villarica with the Municipal Trial Court docketed as Civil Case No. 2246. On October 4, 1956, the court rendered
judgment in favor of the plaintiff and against the defendants, the decretal portion of which reads as follows:

From the foregoing, it is indeed evident and clear that the herein defendants have been unlawfully withholding
possession of the land from the plaintiff, and hereby finds in favor of the plaintiff, and against the defendants, ordering
the latter to vacate the premises described in the complaint, removing whatever improvements they have constructed
thereon. The defendants are further judged to pay the plaintiff the amount of ONE HUNDRED FIFTY PESOS (P150.00) a
month from the time of the filing of this complaint until the lot is finally vacated in concept of rentals, deprived of the
plaintiff due to the unlawful possession of the defendants, and to pay the costs of this suit. [6]
The decision became final and executory but the plaintiff did not file any motion for a writ of execution.
The spouses Angel and Nieves Villarica filed a complaint on October 24, 1956 against the sheriff and Concepcion with
the Court of First Instance of Davao City, docketed as Civil Case No. 2151 for the nullification of the deed of transfer
executed by the sheriff. [7]
On December 21, 1956, Iluminada Pacetes filed a motion to intervene in Civil Case No. 2151, as vendee of the property
subject of the case, which was granted by the court. She then filed a motion to dismiss the complaint. The court
granted the motion. Nieves appealed to the Court of Appeals which appeal was docketed as CA-G.R. No. 22008-R.
Nieves appeals in Civil Cases Nos. 1160 and 2151 were certified by the CA to this Court, docketed as G.R. No. L-15799
and G.R. No. L-15801.
On the basis of the deed of transfer executed by Sheriff Iriberto A. Unson, the Register of Deeds issued TCT No. 7450
over Lot 59-C-1 and 59-C-2 on July 17, 1957 in the name of Concepcion, with a total area of 256.2 square meters.
However, the latter failed to transfer title to the property to and under the name of Iluminada Pacetes. Consequently,
the latter did not remit the balance of the purchase price of the property to Concepcion.
In the interim, the spouses Angel and Nieves Villarica executed a real estate mortgage over Lot 59-C-4 in favor of
Prudential Bank as security for a loan. On August 4, 1959, Concepcion died intestate and was survived by Nieves
Villarica and her nephews and nieces. Iluminada filed a motion in Civil Case No. 1160 for her substitution as partyplaintiff in lieu of the deceased Concepcion. On August 2, 1961, the court issued an order granting the motion.
On August 31, 1961, this Court rendered judgment in G.R. Nos. L-15799 and L-15801 setting aside the deed of transfer
executed by the sheriff in favor of Concepcion Palma Gil, and remanding the records to the trial court for further
proceedings. [8] In compliance with the Decision of this Court in G.R. No. L-15801, the trial court conducted further
proceedings in Civil Case No. 1160 and discovered that the defendant had mortgaged Lot 59-C-4 to the Prudential Bank.
Consequently, the court issued an order on February 17, 1964, declaring that the defendant had waived the benefits of
the Decision of the Court on August 31, 1961 in G.R. No. L-15801; thus, the conveyance of the property made by
Concepcion in favor of Iluminada on October 24, 1956 must stand. Nieves filed a motion for the reconsideration of the
said order but the court denied the same in an Order dated February 29, 1964. Nieves appealed the order to the CA
which dismissed the appeal for her failure to file a record on appeal. Nieves filed a petition for review with this Court
docketed as G.R. No. L-28363.
More than five years having elapsed without the decision in Civil Case No. 2246 being enforced, Iluminada filed a
complaint docketed as Civil Case No. 4413 in the Court of First Instance of Davao City, for the revival and execution of
the decision of the Municipal Trial Court in Civil Case No. 2246 (the unlawful detainer case). The plaintiff therein averred
that, as Concepcions successor-in-interest, she acquired the right of action to enforce the decision in Civil Case No.
2246. The defendants, on the other hand, averred that Iluminada had not yet paid the balance of the purchase price of
Lot 59-C-1; hence, she had not acquired title over the lot and the right to evict the defendant. The deed of absolute sale
executed by Concepcion in favor of the plaintiff was an executory, not an executed deed. On January 26, 1965, the
court rendered judgment in favor of the defendants and dismissed the complaint. The decretal portion reads:
IN VIEW OF THE FOREGOING, the Court believes that the plaintiff herein has not been properly and legally subrogated to
the rights and action of deceased Concepcion Palma Gil and, hence, for these reasons the Court dismisses this case
without pronouncement as to costs.
The counterclaim is also hereby ordered dismissed. [9]
On March 16, 1966, Iluminada Pacetes and Agapito Pacetes executed a deed of absolute sale over Lot 59-C-1 and Lot 59C-2 in favor of Constancio B. Maglana for P110,000.00, covered by TCT No. 7450. [10] The spouses-vendors undertook to
secure title over the lots under the name of the vendee within ninety days.
On May 15, 1974, this Court denied the petition for certiorari filed by Nieves in G.R. No. L-28363. [11] The Court, in part,
ruled:
But while the issue at bar exclusively involves the timeliness of the appeal of the petitioners to the Court of Appeals, this
Court has nonetheless examined and analyzed the substantive aspects of this case and is satisfied that the ORDERS of
the trial court complained of are morally just.
Accordingly, the instant appeal is dismissed and the resolution of the Court of Appeals dated July 31, 1967 and its
resolution dated October 18, 1967 are affirmed. [12]

The decision of the Court became final and executory.

On May 5, 1975, the spouses Agapito and Iluminada Pacetes filed a complaint against Nieves in the Court of First
Instance of Davao City, docketed as Civil Case No. 8836 for the recovery of possession of Lot 59-C-1 and Lot 59-C-2. The
Pacetes spouses claimed that Lot 59-C-2 was included in TCT No. 7450 under the name of Concepcion. The spouses
prayed that judgment be rendered in their favor after due proceedings thus:
PRAYER
PREMISES CONSIDERED, it is most respectfully prayed that:
1.
During the pendency of this case, Defendant be ordered:
a.
To refrain from collecting rentals from the tenants or occupants of the building erected in said Lot 59-C-1; in that
the tenants be directed to pay their rental to the plaintiff;
b.
To demolish her aforesaid building of strong materials and vacate the premises of Lot 59-C-1 and Lot 59-C-2.
2.
After hearing, Defendant be ordered to:
a.
Pay the Plaintiffs the amount consisting of compensation for the use of the land they have been depribed (sic) of
to receive and enjoy since October 24, 1956 due to the unwarranted and illegal occupation of the said lots by defendant;
b.
Pay Plaintiffs moral and exemplary damages in such amount as the Honorable Court may fix considering the
facts and the law;
c.
Pay Plaintiffs such expenses of litigation as may be proven during the trial, and
d.
Pay Plaintiffs expenses for services of counsel they had to incurr (sic) in this complaint.
3.
OTHER RELIEFS consonant with justice and equity are prayed for. [13]
On May 10, 1977, Nieves Villarica executed a lease agreement with Virginia Jorge and Anita Vergara over Lots 59-C-1
and 59-C-2. The lessees took actual possession of the leased property.
In their Answer to the complaint in Civil Case No. 8836, the defendants averred, by way of defense, that the complaint
was barred by the decision of the CFI in Civil Case No. 4413, which ruled that the Deed of Absolute Sale executed by
Concepcion in favor of Iluminada was merely an executory, but not an executed contract. After the plaintiffs had rested
their case, the defendants filed a motion to dismiss (demurrer to evidence). On October 29, 1975, the court issued an
order dismissing the complaint on the ground that the action was barred by the decision of the court in Civil Case No.
4413. [14] Thus, Virginia Jorge and Anita Vergara continued to be in physical possession of the property.
In the meantime, on August 8, 1977, Iluminada consigned with the court in Civil Case No. 1160 the amount of
P11,983.00 only as payment of the purchase price of the property. Iluminada was issued receipts for the amount. [15] As
successor-in-interest of Concepcion, she likewise filed a motion for execution in Civil Case No. 1160 for the eviction of
the defendant Nieves Villarica and all those acting for and in her behalf. The court issued an order on August 19, 1977
granting the motion. The defendants filed a motion for reconsideration of the order claiming that Iluminada was not a
party to the case which the court denied on September 2, 1977. The defendant filed another motion for reconsideration
which was likewise denied on September 16, 1977. The defendant filed a petition for certiorari with the Court of
Appeals docketed as CA-G.R. No. 62957-R, which petition was dismissed on August 26, 1980. The CA ruled that
Iluminada Pacetes was the real party-in-interest as the vendee of the property. The defendant filed a petition with this
Court docketed as G.R. No. L-56399.
In the meantime, Iluminada filed a petition with the RTC docketed as Miscellaneous Case No. 4715 for the issuance of an
owners duplicate of TCT No. 7450. On March 22, 1978, the court granted the petition and ordered the Register of Deeds
to issue an owners duplicate of the said title under the name of Concepcion Gil. Iluminada presented the said order and
the deed of absolute sale executed by Concepcion in her favor. On May 9, 1978, the Register of Deeds issued TCT No.
61514 over Lot 59-C-1, with an area of 218 square meters, in the name of Iluminada Pacetes. [16]
On April 21, 1980, TCT No. 73412 was issued by the Register of Deeds of Davao City in favor of Constancio Maglana over
Lot 59-C-1 only. [17] The next day, Constancio Maglana executed a deed of sale not only over Lot 59-C-1 but also Lot 59C-2, in favor of Emilio Matulac for the purchase price of P150,000.00. [18] On the basis of the said deed, the Register of
Deeds issued TCT No. 80631 to and under the name of Emilio Matulac over the two lots.
In the meantime, Angel Villarica had died on April 20, 1974. On July 7, 1981, his heirs, including his widow Nieves,
executed an Extra-Judicial Settlement of Estate of Deceased in which the latter waived, ceded and transferred to her
children Teresita Magpantay, Antero P.G. Villarica, Zenaida V. Alovera, Emperatriz V. Garcia, Napoleon P.G. Villarica and
Rupendo P.G. Villarica her rights and interests over the property covered by TCT No. 7450. [19]
On January 13, 1982, this Court affirmed the resolution of the Court of Appeals, in CA-G.R. No. 62975-R and dismissed
the petition for certiorari in G.R. No. L-56399, thus, paving the way for the execution of the decision of the trial court in
Civil Case No. 1160, per its Order dated August 19, 1977. Emilio Matulac filed a motion for the issuance of a writ of
execution. The Court granted the motion on February 18, 1982. Nieves filed a motion for the reconsideration of the
order which the court denied in its Order dated March 17, 1982. Virginia Jorge and Anita Vergara, the lessees, filed a

motion for reconsideration but the court denied the motion. Nonetheless, the lessees were allowed to stay in the
property until April 9, 1982. However, the lessees refused to vacate the property after said date.
On April 10, 1982, Emilio Matulac filed a motion in Civil Case No. 1160 for the issuance of a writ of execution and an
order of demolition. On April 20, 1982, the trial court issued an order granting the motion for a writ of execution on
April 30, 1982. The court also issued a special order for the demolition of the buildings on the property. The buildings on
the property, including the properties owned by Virginia Jorge and Anita Vergara, were demolished on June 14, 1982.
Emilio Matulac thereafter commenced the construction of a building thereon. The defendant Nieves Villarica, in the
meantime, filed a motion in Civil Case No. 1160 to annul the proceedings, including the writ of execution issued by the
court, and the issuance of a restraining order.
For their part, Virginia Jorge and Anita Vergara filed a petition for certiorari with this Court docketed as G.R. No. L-60690
for the nullification of the aforesaid orders and the writ of demolition issued by the trial court in Civil Case No. 1160.
Three of the surviving heirs of Concepcion Gil, namely, Perla Palma Gil, Vicente Hizon, Jr. and Angel Palma Gil, through
their first cousin, Atty. Vicente Villarica, one of Nieves Villaricas children, filed on June 17, 1982, a complaint against
Emilio Matulac, Constancio Maglana, Agapito Pacetes, and the Register of Deeds, with the Court of First Instance,
docketed as Civil Case No. 15,356 for the cancellation of the deed of sale executed by Concepcion in favor of Iliminada
Pacetes; the deed of sale executed by the latter in favor of Constancio Maglana; the deed of sale executed by the latter
in favor of Emilio Matulac, as well as TCT Nos. 61514, 73412 and 80631 under the respective names of the vendees.
The plaintiffs alleged, inter alia, that the deed of absolute sale executed by Concepcion in favor of Iluminada over Lots
59-C-1 and 59-C-2 was a contract to sell, an executory contract, as declared by the Court of First Instance in Civil Cases
Nos. 4413 and 8836, and not an executed contract; the defendant spouses Agapito and Iluminada Pacetes failed to pay
the balance of the purchase price of the property during the lifetime of Concepcion; hence, what was embodied in the
said deed was not fulfilled by the vendee. Consequently, the sale is null and void.
The plaintiffs prayed for the issuance of a temporary restraining order and a writ of preliminary injunction to enjoin the
defendant Emilio Matulac from continuing with the construction of a building on the property. The plaintiffs likewise
prayed that after due proceedings, judgment be rendered in their favor and against the defendants, thus:
WHEREFORE, in view of the aforecited reasons it is most respectfully prayed that:
1)
An order be rendered immediately enjoining defendant Matulac from doing further work in the construction of
the building and enjoining him from entering the premises and the land subject of this complaint and after trial making
the injunction above-mentioned permanent, ordering the removal of any structure and other construction within the
plaintiffs above-described property and thereafter, upon said defendants failure to do so authorizing plaintiffs to order
said removal at defendants expense.
2)
Judgment be rendered ordering:
a. Defendant Register of Deeds to cancel TCT No. T-61514, T-73412 and T-80631 and issued (sic) a new Transfer
Certificate of Title in the name of the above-mentioned heirs of the late Concepcion Palma Gil nullifying the deeds of
sale, Annexes B, C, and D hereof;
b. Defendants Pacetes, Maglana and Matulac jointly and solidarily liable to plaintiffs for moral and exemplary damages
as may be granted by this Honorable Court and the amount of P25,000.00 as attorneys fees; and
c. Litigation expenses and other reliefs as may be justified under this case. [20]
In his answer to the complaint, defendant Emilio Matulac interposed the following special and affirmative defenses: (a)
he is the lawful owner of the property; (b) the action is barred by the Decision of this Court in G.R. No. L-56399; (c) the
plaintiffs are estopped from assailing the sale to him of the property; and (d) he is a purchaser in good faith.
On November 29, 1982, the court issued an order in Civil Case No. 1160, denying the motion for the nullification of the
proceedings and for a writ of preliminary injunction. Nieves filed a motion for reconsideration of the order. On February
18, 1983, the court issued an order denying the motion. Nieves filed a petition with the Court of Appeals for the
nullification of the same.
In the meantime, Emilio Matulac died intestate and was substituted by his heirs Sonia Matulac, Josephine Matulac and
Gregorio Matulac. [21] A petition was filed with the RTC of Davao City for the settlement of his estate docketed as SPNo. 2747. The Court appointed Sonia Matulac as administratrix of the estate.
The CA rendered a decision granting the petition and ordering the trial court to conduct further proceedings to
implement the August 19, 1977 Order. Sonia Matulac filed a petition for review on certiorari with this Court docketed as
G.R. No. 85538 for the nullification of the decision of the CA.
On November 24, 1989, this Court rendered a Decision dismissing the petition in G.R. No. L-60690. This Court said:
When We dismissed on September 16, 1974, the petition for certiorari filed by defendants questioning the orders, dated
December 7, 1961 and December 17, 1964, in effect We had confirmed the sale by plaintiff in Civil case No. 1160,

Concepcion Palma Gil, of Lot 59-C-1 and 59-C-2 to Illuminada Pacetes and affirmed the ruling of the trial court that
defendants had waived the benefit of Our Resolution rendered on August 31, 1961. [22]
Meanwhile, one of the plaintiffs, Perla Palma Gil in Civil Case No. 15,356, was appointed by the court as administratrix of
the estate of Concepcion on December 29, 1989, [23] and filed in the said case a motion to intervene as plaintiff in her
capacity as administratrix in behalf of all the heirs of Concepcion. [24] The heirs of Emilio Matulac opposed the motion
considering that they, and not the estate of Concepcion, owned the subject property; thus the claim of the plaintiff
should be filed in SP-No. 2747. On April 7, 1990, the said motion was denied by the trial court. [25] The said court
declared:
Being already a plaintiff together with the other plaintiffs in thise (sic) case, said intervention by plaintiff Perla Palma Gil
is not absolutely necessary and imperative. It would only delay the early disposition of the case if allowed.
On January 8, 1990, this Court dismissed the petition in G.R. No. 85538. The petitioners filed a motion for
reconsideration and on July 2, 1992, this Court granted the motion and reversed the decision of the CA. This Court ruled
in the said case as follows:
When Concepcion Palma Gil, plaintiff in Civil Case No. 1160 sold the land in question to Iluminada Pacetes on October
24, 1956, the latter became the new owner of the property. By virtue of the order of substitution issued by the court,
said new owner (Pacetes) became a formal party---the party plaintiff. As the new party plaintiff, Pacetes had the right to
move for the issuance of a writ of execution, which was correctly granted by the trial court in the questioned Order
dated August 19, 1977.
The subsequent transfers of the property from Pacetes to Maglana, and then from Maglana to herein movant Matulac,
was acquired pendente lite. The latter (Matulac) as the latest owner of the property, was, as aptly put by the trial court,
subrogated to all the rights and obligations of Pacetes. He is thus the party who now has a substantial interest in the
property. Matulac is a real party-in- interest subrogated to all the rights of Iluminada Pacetes, including the right to the
issuance of a writ of execution in his name. Hence, the questioned orders of the lower court dated November 29, 1982
and February 18, 1983 as well as the Writ of Possession issued pursuant to the aforementioned orders are valid. They
do not in any way run counter to the order of the lower court dated August 19, 1977, which granted the motion for
execution filed by Pacetes, who, as earlier pointed out, was succeeded in all his rights and interests, by herein petitioner,
Matulac.
Although the dispositive portion of the judgment rendered in Civil Case No. 1160 did not award the parties their
respective shares in the property, the power of the court to issue the order of execution cannot be limited to what is
stated in the dispositive portion of the judgment. As held in Paylago vs. Nicolas (189 SCRA 728 [1990]), the body of the
decision must be consulted in case of ambiguity in the dispositive portion. Hence, in Jorge vs. Consolacion (supra), we
ruled that the execution of the judgment cannot be limited to its dispositive portion, considering the continued failure of
the defendant Nieves Palma Gil-Villarica, to comply with what was required of her in the judgment. Respondents
deprived petitioner Concepcion Palma Gil and her successors-in-interest of their legal right to possess the land. [26]
(Underscoring supplied)
On June 11, 1993, the trial court rendered judgment in Civil Case No. 15,356 in favor of the defendants. The trial court
ruled that this Court had affirmed, in G.R. No. 85538 and G.R. No. L-60690, the sales of the property from Concepcion
Palma Gil to Iluminada Pacetes, then to Constancio Maglana and to Emilio Matulac; hence, the trial court was barred by
the rulings of this Court. The plaintiffs appealed to the CA with the following assignment of errors:
I.
The trial court erred in not holding that Iluminada Pacetes had no right to sell or transfer the two (2) parcels of
land to Constancio Maglana;
II.
That the trial court erred in not declaring the sale of the properties in question from Iluminada Pacetes to
Constancio Maglana, thence, from Constancio Maglana to Emilio Matulac NULL and VOID;
III.
That the trial court erred in dismissing the complaint;
IV.
That the trial court erred in not ordering the cancellation of transfer Certificate of Title No. T-80631 in the name
of Emilio Matulac and the issuance of a new title in the name of Concepcion Palma Gil;
V.
That the trial court erred in not holding the appellees liable for damages to the appellants. [27]
In the meantime, on June 29, 1994, the estate of Emilio Matulac executed a deed of sale of real estate in which the
estate sold Lots 59-C-1 and 59-C-2 and the building thereon to the Prudential Education Plan, Inc. for P7,000,000.00. [28]
On March 19, 1996, the CA rendered a decision affirming the decision assailed therein and dismissing the appeal. The CA
ruled that the deed of absolute sale executed by Concepcion in favor of Iluminada Pacetes was a deed of absolute sale
over Lots 59-C-1 and 59-C-2, under which the ownership over the property subject thereof was transferred to the
vendee. Moreover, the validity of the sales of the subject lots by Concepcion to Iluminada, by the latter to Constancio
Maglana, and by the latter to Emilio Matulac, had been confirmed by this Court in G.R. No. L-60690 and G.R. No. 85538.
Although Iluminada paid the balance of the purchase price of the property only on August 8, 1977, the payment was still

timely, in light of Article 1592 of the New Civil Code. Besides, the property had already been sold to the respondents
Constancio Maglana and Emilio Matulac.
The appellants, now petitioners in this case, assert that private respondents Agapito and Iluminada Pacetes failed to pay
the balance of the purchase price in the amount of P14,100.00. They did consign and deposit the amount of P11,983.00,
but only on August 8, 1977, twenty one years from the execution of the Deed of Absolute Sale in favor of the said
spouses, without the latter instituting an action for the cancellation of their obligation. According to the petitioners, the
consignation made by Iluminada Pacetes of the amount did not produce any legal effect. Furthermore, private
respondents Constancio Maglana and Emilio Matulac were not purchasers in good faith because at the time they
purchased the respective properties, the two-storey building constructed by the spouses Angel and Nieves Villarica on
the said property was still existing. Hence, the decision of the CA should be reversed and set aside.
In their Comment on the petition, private respondents Constancio Maglana and Agapito Pacetes averred that the action
of the petitioners in the court a quo was barred by the Decision of this Court in G.R. No. L-60690 on November 24, 1989.
THE RULING OF THE COURT
The petition is denied due course.
We note that the petitioners failed to implead all the compulsory heirs of the deceased Concepcion Gil in their
complaint. When she died intestate, Concepcion Gil, a spinster, was survived by her sister Nieves, and her nephews and
nieces, three of whom are the petitioners herein.
Upon Concepcions demise, all her rights and interests over her properties, and the rights and obligations under the
Deed of Absolute Sale executed in favor of Iluminada Pacetes, were transmitted to her sister, and her nephews and
nieces [29] by way of succession, a mode of acquiring the property, rights and obligation of the decedent to the extent
of the value of the inheritance of the heirs. The heirs stepped into the shoes of the decedent upon the latters death.
[30]
In their complaint, the petitioners alleged that:
7. That upon the death of the late Concepcion Palma Gil, her heirs namely: A. Children of the deceased Pilar Palma Gil
Rodriguez; B. Children of the deceased Asuncion Palma Gil Hizon one of whom is plaintiff Vicente Hizon, Jr.; C. Nieves
Palma Gil Villarica; D. David Palma Gil one of whom is plaintiff Angel Palma Gil; E. Perla Palma Gil; and F. Children of the
deceased Jose Palma Gil, ipso facto became co-owners of the said subject property by operation of law; [31]
When she testified, petitioner Palma Gil stated that:
ATTY. GALLARDO:
With the Courts permission.
Q
You said that you are one of the 3 plaintiffs in this case?
A
Yes, sir.
Q
Now, aside from these 3 plaintiffs who are supposed to be the heirs of the late Concepcion Palma Gil, there are
also other heirs who were not included as plaintiffs in this case?
A
Yes, because that time when they demolished the building and I accompanied Atty. Villarica at the site where
they had the demolition, we found out that during the confrontation that we have to hurry and file the case right away.
So we were not able to contact all the heirs and I have contacted . . .since 3 of us were there during the demolition, so
we decided that I will be one, and Angel Palma Gil was also there and also Vicente Hizon Jr. whom I contacted at the Apo
View Hotel and I contacted also Julian Rodriguez, another cousin thru telephone and he told us to go ahead and file the
case. We cannot get all the heirs. We cannot gather all of them and we will have a hard time asking them to sign, so we
just filed the case.
Q
You are telling the court that the other heirs were not included because they were not available to sign the
complaint?
A
They were not there during the demolition.
Q
When was the case filed?
A
June 14, the demolition was on June 14, 1982.
ATTY. QUITAIN:
The best evidence would be the complaint, Your Honor.
ATTY. GALLARDO:
Q
It appears in the complaint that it was filed sometime on June 16, 1982?
A
We had it on June 14 the demolition, and we filed it right away because we were in a hurry.
Q
Since June 16, 1982 up to the present the other heirs did not do anything to be included in the complaint?
ATTY. QUITAIN:
The best evidence would be the motion for intervention and it would seem that compaero is contending that
there is a need to include all heirs. Under the civil law on property even one co-owner may file a case. [32]

Although the petitioners sought leave from the trial court to amend their complaint to implead the intestate estate of
the deceased Concepcion Gil through her administratrix Perla Palma Gil, as party plaintiff, the trial court denied the
petitioners plea. The petitioners manifested to the trial court that they would assign the denial of their plea as one of
the assigned errors in case of appeal to the CA. They failed to do so. The petitioners were duty bound to implead all
their cousins as parties-plaintiffs; otherwise, the trial court could not validly grant relief as to the present parties and as
to those who were not impleaded. [33]
Being indispensable parties, the absence of the surviving sister, nephews and nieces of the decedent in the complaint as
parties-plaintiffs, and in this case, as parties-petitioners, renders all subsequent actions of the trial court null and void
for want of authority to act, not only as to the absent parties, but even as to those present. Hence, the petition at bar
should be dismissed. [34]
Even if we were to brush aside this procedural lapse and delve into the merits of the case, a denial in due course is
inevitable.
Article 1191 [35] in tandem with Article 1592 [36] of the New Civil Code are central to the issues at bar. Under the last
paragraph of Article 1169 of the New Civil Code, 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 in the other begins. Thus, reciprocal obligations are to be performed
simultaneously so that the performance of one is conditioned upon the simultaneous fulfillment of the other. [37] The
right of rescission of a party to an obligation under Article 1191 of the New Civil Code is predicated on a breach of faith
by the other party that violates the reciprocity between them. [38]
That the deed of absolute sale executed by Concepcion Gil in favor of Iluminada Pacetes is an executory contract and
not an executed contract is a settled matter. In a perfected contract of sale of realty, the right to rescind the said
contract depends upon the fulfillment or non-fulfillment of the prescribed condition. We ruled that the condition
pertains in reality to the compliance by one party of an undertaking the fulfillment of which would give rise to the
demandability of the reciprocal obligation pertaining to the other party. [39] The reciprocal obligation envisaged would
normally be, in the case of the vendee, the payment by the vendee of the agreed purchase price and in the case of the
vendor, the fulfillment of certain express warranties. [40]
In another case, we ruled that the non-payment of the purchase price of property constitutes a very good reason to
rescind a sale for it violates the very essence of the contract of sale. In Central Bank of the Philippines v. Bichara, [41] we
held that the non-payment of the purchase price of property is a resolutory condition for which the remedy is either
rescission or specific performance under Article 1191 of the New Civil Code. This is true for reciprocal obligations where
the obligation is a resolutory condition of the other. [42] The vendee is entitled to retain the purchase price or a part of
the purchase price of realty if the vendor fails to perform any essential obligation of the contract. Such right is premised
on the general principles of reciprocal obligations. [43]
In this case, Concepcion Gil sold Lot 59-C-1 to Iluminada Pacetes for P21,600.00 payable as follows:
1. The purchase price of P21,600.00 shall be paid as follows: P7,500.00, to be paid upon the signing of this instrument;
and the balance of P14,100.00, to be paid upon the delivery of the corresponding Certificate of Title in the name of the
VENDEE.
Concepcion Gil obliged herself to transfer title over the property to and under the name of the vendee within 120 days
from the execution of the deed.
2. That the VENDOR shall, within the period of ONE HUNDRED TWENTY (120) DAYS, from the signing of this agreement,
undertake and work for the issuance of the corresponding Certificate of Title of the said Lot No. 59-C-1 in her favor with
the proper government office or offices, to the end that the same can be duly transferred in the name of the herein
VENDEE, by virtue thereof.
3. That pending the full and complete payment of the purchase price to the VENDOR, the VENDEE shall collect and
receive any and all rentals and such other income from the land above-described for her own account and benefit, this
right of the VENDEE to begin from December 1, 1956.
That it is further stipulated that this contract shall be binding upon the heirs, executors and administrators of the
respective parties hereof.
And I, CONCEPCION PALMA GIL, with all the personal circumstances above-stated, hereby confirm all the terms and
conditions stipulated in this instrument. [44]
The vendee paid the downpayment of P7,500.00. By the terms of the contract, the obligation of the vendee to pay the
balance of the purchase price ensued only upon the issuance of the certificate of title by the Register of Deeds over the
property sold to and under the name of the vendee, and the delivery thereof by the vendor Concepcion Gil to the latter.
Concepcion failed to secure a certificate of title over the property. When she died intestate on August 4, 1959, her

obligation to deliver the said title to the vendee devolved upon her heirs, including the petitioners. The said heirs,
including the petitioners failed to do so, despite the lapse of eighteen years since Concepcions death.
Iluminada was not yet obliged on August 8, 1977 to pay the balance of the purchase price of the property, but as a sign
of good faith, she nevertheless consigned the amount of P11,983.00, part of the balance of the purchase price of
P14,000.00, with the court in Civil Case No. 1160. The court accepted the consignation and she was issued receipts
therefor. Still, the heirs of Concepcion Gil, including the petitioners, failed to deliver the said title to the vendee.
Iluminada was compelled to file, at her expense, a petition with the RTC docketed as Miscellaneous Case No. 4715 for
the issuance of an owners duplicate of TCT No. 7450 covering the property sold which was granted by the court on
March 22, 1978. It was only on May 9, 1978 that Iluminada managed to secure TCT No. 61514 over the property under
her name. Upon the failure of the heirs to comply with the decedents prestation, Iluminada Pacetes was impelled to
resort to legal means to protect her rights and interests.
The petitioners, as successors-in-interest of the vendor, are not the injured parties entitled to a rescission of the deed of
absolute sale. It was Concepcions heirs, including the petitioners, who were obliged to deliver to the vendee a
certificate of title over the property under the latters name, free from all liens and encumbrances within 120 days from
the execution of the deed of absolute sale on October 24, 1956, but had failed to comply with the obligation.
The consignation by the vendee of the purchase price of the property is sufficient to defeat the right of the petitioners
to demand for a rescission of the said deed of absolute sale. [45]
It bears stressing that when the vendee consigned part of the purchase price with the Court and secured title over the
property in her name, the heirs of Concepcion, including the petitioners, had not yet sent any notarial demand for the
rescission of the deed of absolute sale to the vendee, or filed any action for the rescission of the said deed with the
appropriate court.
Although the vendee consigned with the Court only the amount of P11,983.00, P2,017.00 short of the purchase price of
P14,000.00, it cannot be claimed that Concepcion was an unpaid seller because under the deed of sale, she was still
obligated to transfer the property in the name of the vendee, which she failed to do so. According to Article 1167 of the
New Civil Code:
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be
decreed that what has been poorly done be undone. (1098)
The vendee (Iluminada) had to obtain the owners duplicate of TCT No. 7450 and thereafter secure its transfer in her
name. Pursuant to Article 1167, the expenses incurred by the vendee should be charged against the amount of
P2,617.00 due to the heirs of Concepcion Gil as the vendors successors-in-interest.
In sum, the decision of the CA affirming the decision of the RTC dismissing the complaint of the petitioners is affirmed.
IN LIGHT OF ALL THE FOREGOING, the petition for review is DENIED for lack of merit.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, and Tinga, JJ., concur.
Austria-Martinez, J., no part, concurred in CA decision.

THIRD DIVISION
[G.R. No. 151212. September 10, 2003]
TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its President, VERONICA G. LORENZANA, petitioner,
vs. MARINA CRUZ, respondent.
DECISION
PANGANIBAN, J.:
In an ejectment suit, the question of ownership may be provisionally ruled upon for the sole purpose of determining
who is entitled to possession de facto. In the present case, both parties base their alleged right to possess on their right
to own. Hence, the Court of Appeals did not err in passing upon the question of ownership to be able to decide who
was entitled to physical possession of the disputed land.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to nullify the August 31, 2001 Decision
[2] and December 19, 2001 Resolution [3] of the Court of Appeals (CA) in CA- GR SP No. 64861. The dispositive portion
of the assailed Decision is as follows:
WHEREFORE, premises considered, the petition is hereby DISMISSED and the Decision dated May 4, 2001 is hereby
AFFIRMED. [4]
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
A complaint for ejectment was filed by [Petitioner Ten Forty Realty and Development Corporation] against x x x
[Respondent Marina Cruz] before the Municipal Trial Court in Cities (MTCC) of Olongapo City, docketed as Civil Case
4269, which alleged that: petitioner is the true and absolute owner of a parcel of lot and residential house situated in
#71 18th Street, E.B.B. Olongapo City, particularly described as:
A parcel of residential house and lot situated in the above-mentioned address containing an area of 324 square meters
more or less bounded on the Northeast by 041 (Lot 255, Ts-308); on the Southeast by 044 (Lot 255, Ts-308); on the
Southwest by 043 (Lot 226-A & 18th street) and on the Northwest by 045 (Lot 227, Ts-308) and declared for taxation
purposes in the name of [petitioner] under T.D. No. 002-4595-R and 002-4596.
having acquired the same on December 5, 1996 from Barbara Galino by virtue of a Deed of Absolute Sale; the sale was
acknowledged by said Barbara Galino through a 'Katunayan'; payment of the capital gains tax for the transfer of the
property was evidenced by a Certification Authorizing Registration issued by the Bureau of Internal Revenue; petitioner
came to know that Barbara Galino sold the same property on April 24, 1998 to Cruz, who immediately occupied the
property and which occupation was merely tolerated by petitioner; on October 16, 1998, a complaint for ejectment was
filed with the Barangay East Bajac-Bajac, Olongapo City but for failure to arrive at an amicable settlement, a Certificate
to File Action was issued; on April 12, 1999 a demand letter was sent to [respondent] to vacate and pay reasonable
amount for the use and occupation of the same, but was ignored by the latter; and due to the refusal of [respondent] to
vacate the premises, petitioner was constrained to secure the services of a counsel for an agreed fee of P5,000.00 as
attorneys fee and P500.00 as appearance fee and incurred an expense of P5,000.00 for litigation.
In respondents Answer with Counterclaim, it was alleged that: petitioner is not qualified to own the residential lot in
dispute, being a public land; according to Barbara Galino, she did not sell her house and lot to petitioner but merely
obtained a loan from Veronica Lorenzana; the payment of the capital gains tax does not necessarily show that the Deed
of Absolute Sale was at that time already in existence; the court has no jurisdiction over the subject matter because the
complaint was filed beyond the one (1) year period after the alleged unlawful deprivation of possession; there is no
allegation that petitioner had been in prior possession of the premises and the same was lost thru force, stealth or
violence; evidence will show that it was Barbara Galino who was in possession at the time of the sale and vacated the
property in favor of respondent; never was there an occasion when petitioner occupied a portion of the premises,
before respondent occupied the lot in April 1998, she caused the cancellation of the tax declaration in the name of
Barbara Galino and a new one issued in respondents name; petitioner obtained its tax declaration over the same
property on November 3, 1998, seven (7) months [after] the respondent [obtained hers]; at the time the house and lot
[were] bought by respondent, the house was not habitable, the power and water connections were disconnected; being
a public land, respondent filed a miscellaneous sales application with the Community Environment and Natural
Resources Office in Olongapo City; and the action for ejectment cannot succeed where it appears that respondent had
been in possession of the property prior to the petitioner. [5]
In a Decision [6] dated October 30, 2000, the Municipal Trial Court in Cities (MTCC) ordered respondent to vacate the
property and surrender to petitioner possession thereof. It also directed her to pay, as damages for its continued

unlawful use, P500 a month from April 24, 1999 until the property was vacated, P5,000 as attorneys fees, and the costs
of the suit.
On appeal, the Regional Trial Court [7] (RTC) of Olongapo City (Branch 72) reversed the MTCC. The RTC ruled as follows:
1) respondents entry into the property was not by mere tolerance of petitioner, but by virtue of a Waiver and Transfer
of Possessory Rights and Deed of Sale in her favor; 2) the execution of the Deed of Sale without actual transfer of the
physical possession did not have the effect of making petitioner the owner of the property, because there was no
delivery of the object of the sale as provided for in Article 1428 of the Civil Code; and 3) being a corporation, petitioner
was disqualified from acquiring the property, which was public land.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner had failed to make a case for unlawful detainer, because no contract -express or implied -- had been entered into by the parties with regard to possession of the property. It ruled that the
action should have been for forcible entry, in which prior physical possession was indispensable -- a circumstance
petitioner had not shown either.
The appellate court also held that petitioner had challenged the RTCs ruling on the question of ownership for the
purpose of compensating for the latters failure to counter such ruling. The RTC had held that, as a corporation,
petitioner had no right to acquire the property which was alienable public land.
Hence, this Petition. [8]
Issues
Petitioner submits the following issues for our consideration:
1.
The Honorable Court of Appeals had clearly erred in not holding that [r]espondents occupation or possession of
the property in question was merely through the tolerance or permission of the herein [p]etitioner;
[2.] The Honorable Court of Appeals had likewise erred in holding that the ejectment case should have been a
forcible entry case where prior physical possession is indispensable; and
[3.] The Honorable Court of Appeals had also erred when it ruled that the herein [r]espondents possession or
occupation of the said property is in the nature of an exercise of ownership which should put the herein [p]etitioner on
guard. [9]
The Courts Ruling
The Petition has no merit.
First Issue:
Alleged Occupation by Tolerance
Petitioner faults the CA for not holding that the former merely tolerated respondents occupation of the subject
property. By raising this issue, petitioner is in effect asking this Court to reassess factual findings. As a general rule, this
kind of reassessment cannot be done through a petition for review on certiorari under Rule 45 of the Rules of Court,
because this Court is not a trier of facts; it reviews only questions of law. [10] Petitioner has not given us ample reasons
to depart from the general rule.
On the basis of the facts found by the CA and the RTC, we find that petitioner failed to substantiate its case for unlawful
detainer. Admittedly, no express contract existed between the parties. Not shown either was the corporations alleged
tolerance of respondents possession.
While possession by tolerance may initially be lawful, it ceases to be so upon the owners demand that the possessor by
tolerance vacate the property. [11] To justify an action for unlawful detainer, the permission or tolerance must have
been present at the beginning of the possession. [12] Otherwise, if the possession was unlawful from the start, an action
for unlawful detainer would be an improper remedy. Sarona v. Villegas [13] elucidates thus:
A close assessment of the law and the concept of the word tolerance confirms our view heretofore expressed that
such tolerance must be present right from the start of possession sought to be recovered, to categorize a cause of action
as one of unlawful detainer not of forcible entry. Indeed, to hold otherwise would espouse a dangerous doctrine. And
for two reasons. First. Forcible entry into the land is an open challenge to the right of the possessor. Violation of that
right authorizes the speedy redress in the inferior court provided for in the rules. If one year from the forcible entry
is allowed to lapse before suit is filed, then the remedy ceases to be speedy; and the possessor is deemed to have
waived his right to seek relief in the inferior court. Second, if a forcible entry action in the inferior court is allowed after
the lapse of a number of years, then the result may well be that no action for forcible entry can really prescribe. No
matter how long such defendant is in physical possession, plaintiff will merely make a demand, bring suit in the inferior
court upon a plea of tolerance to prevent prescription to set in and summarily throw him out of the land. Such a
conclusion is unreasonable. Especially if we bear in mind the postulates that proceedings of forcible entry and unlawful
detainer are summary in nature, and that the one year time bar to suit is but in pursuance of the summary nature of the
action. [14]

In this case, the Complaint and the other pleadings do not recite any averment of fact that would substantiate the claim
of petitioner that it permitted or tolerated the occupation of the property by Respondent Cruz. The Complaint contains
only bare allegations that 1) respondent immediately occupied the subject property after its sale to her, an action
merely tolerated by petitioner; [15] and 2) her allegedly illegal occupation of the premises was by mere tolerance. [16]
These allegations contradict, rather than support, petitioners theory that its cause of action is for unlawful detainer.
First, these arguments advance the view that respondents occupation of the property was unlawful at its inception.
Second, they counter the essential requirement in unlawful detainer cases that petitioners supposed act of sufferance
or tolerance must be present right from the start of a possession that is later sought to be recovered. [17]
As the bare allegation of petitioners tolerance of respondents occupation of the premises has not been proven, the
possession should be deemed illegal from the beginning. Thus, the CA correctly ruled that the ejectment case should
have been for forcible entry -- an action that had already prescribed, however, when the Complaint was filed on May 12,
1999. The prescriptive period of one year for forcible entry cases is reckoned from the date of respondents actual entry
into the land, which in this case was on April 24, 1998.
Second Issue:
Nature of the Case
Much of the difficulty in the present controversy stems from the legal characterization of the ejectment Complaint filed
by petitioner. Specifically, was it for unlawful detainer or for forcible entry?
The answer is given in Section 1 of Rule 70 of the Rules of Court, which we reproduce as follows:
SECTION 1. Who may institute proceedings, and when. - Subject to the provisions of the next succeeding section, a
person deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a lessor,
vendor, vendee, or other person against whom the possession of any land or building is unlawfully withheld after the
expiration or termination of the right to hold possession, by virtue of any contract, express or implied, or the legal
representatives or assigns of any such lessor, vendor, vendee, or other person, may, at any time within one (1) year after
such unlawful deprivation or withholding of possession, bring an action in the proper Municipal Trial Court against the
person or persons unlawfully withholding or depriving of possession, or any person or persons claiming under them, for
the restitution of such possession, together with damages and costs.
While both causes of action deal only with the sole issue of physical or de facto possession, [18] the two cases are really
separate and distinct, as explained below:
x x x. In forcible entry, one is deprived of physical possession of land or building by means of force, intimidation, threat,
strategy, or stealth. In unlawful detainer, one unlawfully withholds possession thereof after the expiration or
termination of his right to hold possession under any contract, express or implied. In forcible entry, the possession is
illegal from the beginning and the basic inquiry centers on who has the prior possession de facto. In unlawful detainer,
the possession was originally lawful but became unlawful by the expiration or termination of the right to possess, hence
the issue of rightful possession is decisive for, in such action, the defendant is in actual possession and the plaintiffs
cause of action is the termination of the defendants right to continue in possession.
What determines the cause of action is the nature of defendants entry into the land. If the entry is illegal, then the
action which may be filed against the intruder within one year therefrom is forcible entry. If, on the other hand, the
entry is legal but the possession thereafter became illegal, the case is one of unlawful detainer which must be filed
within one year from the date of the last demand. [19]
It is axiomatic that what determines the nature of an action as well as which court has jurisdiction over it are the
allegations in the complaint [20] and the character of the relief sought. [21]
In its Complaint, petitioner alleged that, having acquired the subject property from Barbara Galino on December 5,
1996, [22] it was the true and absolute owner [23] thereof; that Galino had sold the property to Respondent Cruz on
April 24, 1998; [24] that after the sale, the latter immediately occupied the property, an action that was merely
tolerated by petitioner; [25] and that, in a letter given to respondent on April 12, 1999, [26] petitioner had demanded
that the former vacate the property, but that she refused to do so. [27] Petitioner thereupon prayed for judgment
ordering her to vacate the property and to pay reasonable rentals for the use of the premises, attorneys fees and the
costs of the suit. [28]
The above allegations appeared to show the elements of unlawful detainer. They also conferred initiatory jurisdiction
on the MTCC, because the case was filed a month after the last demand to vacate -- hence, within the one-year
prescriptive period.
However, what was actually proven by petitioner was that possession by respondent had been illegal from the
beginning. While the Complaint was crafted to be an unlawful detainer suit, petitioners real cause of action was for
forcible entry, which had already prescribed. Consequently, the MTCC had no more jurisdiction over the action.

The appellate court, therefore, did not err when it ruled that petitioners Complaint for unlawful detainer was a mere
subterfuge or a disguised substitute action for forcible entry, which had already prescribed. To repeat, to maintain a
viable action for forcible entry, plaintiff must have been in prior physical possession of the property; this is an essential
element of the suit. [29]
Third Issue:
Alleged Acts of Ownership
Petitioner next questions the CAs pronouncement that respondents occupation of the property was an exercise of a
right flowing from a claim of ownership. It submits that the appellate court should not have passed upon the issue of
ownership, because the only question for resolution in an ejectment suit is that of possession de facto.
Clearly, each of the parties claimed the right to possess the disputed property because of alleged ownership of it.
Hence, no error could have been imputed to the appellate court when it passed upon the issue of ownership only for the
purpose of resolving the issue of possession de facto. [30] The CAs holding is moreover in accord with jurisprudence and
the law.
Execution of a Deed of Sale
Not Sufficient as Delivery
In a contract of sale, the buyer acquires the thing sold only upon its delivery in any of the ways specified in Articles
1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the
vendee. [31] With respect to incorporeal property, Article 1498 lays down the general rule: the execution of a public
instrument shall be equivalent to the delivery of the thing that is the object of the contract if, from the deed, the
contrary does not appear or cannot be clearly inferred.
However, ownership is transferred not by contract but by tradition or delivery. [32] Nowhere in the Civil Code is it
provided that the execution of a Deed of Sale is a conclusive presumption of delivery of possession of a piece of real
estate. [33]
This Court has held that the execution of a public instrument gives rise only to a prima facie presumption of delivery.
Such presumption is destroyed when the delivery is not effected because of a legal impediment. [34] Pasagui v.
Villablanca [35] had earlier ruled that such constructive or symbolic delivery, being merely presumptive, was deemed
negated by the failure of the vendee to take actual possession of the land sold.
It is undisputed that petitioner did not occupy the property from the time it was allegedly sold to it on December 5, 1996
or at any time thereafter. Nonetheless, it maintains that Galinos continued stay in the premises from the time of the
sale up to the time respondents occupation of the same on April 24, 1998, was possession held on its behalf and had
the effect of delivery under the law. [36]
Both the RTC and the CA disagreed. According to the RTC, petitioner did not gain control and possession of the
property, because Galino had continued to exercise ownership rights over the realty. That is, she had remained in
possession, continued to declare it as her property for tax purposes and sold it to respondent in 1998.
For its part, the CA found it highly unbelievable that petitioner -- which claims to be the owner of the disputed property - would tolerate possession of the property by respondent from April 24, 1998 up to October 16, 1998. How could it
have been so tolerant despite its knowledge that the property had been sold to her, and that it was by virtue of that sale
that she had undertaken major repairs and improvements on it?
Petitioner should have likewise been put on guard by respondents declaration of the property for tax purposes on April
23, 1998, [37] as annotated in the tax certificate filed seven months later. [38] Verily, the tax declaration represented an
adverse claim over the unregistered property and was inimical to the right of petitioner.
Indeed, the above circumstances derogated its claim of control and possession of the property.
Order of Preference in Double
Sale of Immovable Property
The ownership of immovable property sold to two different buyers at different times is governed by Article 1544 of the
Civil Code, which reads as follows:
Article 1544. x x x
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded
it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and,
in the absence thereof, to the person who presents the oldest title, provided there is good faith.
Galino allegedly sold the property in question to petitioner on December 5, 1996 and, subsequently, to respondent on
April 24, 1998. Petitioner thus argues that being the first buyer, it has a better right to own the realty. However, it has
not been able to establish that its Deed of Sale was recorded in the Registry of Deeds of Olongapo City. [39] Its claim of

an unattested and unverified notation on its Deed of Absolute Sale [40] is not equivalent to registration. It admits that,
indeed, the sale has not been recorded in the Registry of Deeds. [41]
In the absence of the required inscription, the law gives preferential right to the buyer who in good faith is first in
possession. In determining the question of who is first in possession, certain basic parameters have been established by
jurisprudence.
First, the possession mentioned in Article 1544 includes not only material but also symbolic possession. [42] Second,
possessors in good faith are those who are not aware of any flaw in their title or mode of acquisition. [43] Third, buyers
of real property that is in the possession of persons other than the seller must be wary -- they must investigate the rights
of the possessors. [44] Fourth, good faith is always presumed; upon those who allege bad faith on the part of the
possessors rests the burden of proof. [45]
Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it did not acquire possession
either materially or symbolically. As between the two buyers, therefore, respondent was first in actual possession of the
property.
Petitioner has not proven that respondent was aware that her mode of acquiring the property was defective at the time
she acquired it from Galino. At the time, the property -- which was public land -- had not been registered in the name of
Galino; thus, respondent relied on the tax declarations thereon. As shown, the formers name appeared on the tax
declarations for the property until its sale to the latter in 1998. Galino was in fact occupying the realty when respondent
took over possession. Thus, there was no circumstance that could have placed the latter upon inquiry or required her to
further investigate petitioners right of ownership.
Disqualification from Ownership
of Alienable Public Land
Private corporations are disqualified from acquiring lands of the public domain, as provided under Section 3 of Article XII
of the Constitution, which we quote:
Sec. 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks.
Agricultural lands of the public domain may be further classified by law according to the uses to which they may be
devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations
may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years,
and not to exceed one thousand hectares in area. Citizens of the Philippines may not lease not more than five hundred
hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant. x x x. (Italics supplied)
While corporations cannot acquire land of the public domain, they can however acquire private land. [46] Hence, the
next issue that needs to be resolved is the determination of whether the disputed property is private land or of the
public domain.
According to the certification by the City Planning and Development Office of Olongapo City, the contested property in
this case is alienable and disposable public land. [47] It was for this reason that respondent filed a miscellaneous sales
application to acquire it. [48]
On the other hand, petitioner has not presented proof that, at the time it purchased the property from Galino, the
property had ceased to be of the public domain and was already private land. The established rule is that alienable and
disposable land of the public domain held and occupied by a possessor -- personally or through predecessors-in-interest,
openly, continuously, and exclusively for 30 years -- is ipso jure converted to private property by the mere lapse of time.
[49]
In view of the foregoing, we affirm the appellate courts ruling that respondent is entitled to possession de facto. This
determination, however, is only provisional in nature. [50] Well-settled is the rule that an award of possession de facto
over a piece of property does not constitute res judicata as to the issue of its ownership. [51]
WHEREFORE, this Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.
Puno, (Chairman), on official leave.

FIRST DIVISION
[G.R. No. 149420. October 8, 2003]
SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent.
DECISION
YNARES-SANTIAGO, J.:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings, while
petitioner Sonny L. Lo, doing business under the name and style Sans Enterprises, is a building contractor. On February
22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80. [1] He paid a downpayment
in the amount of P150,000.00. The balance was made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner. [2] Petitioner was able to pay the first two monthly installments.
His business, however, encountered financial difficulties and he was unable to settle his obligation to respondent
despite oral and written demands made against him. [3]
On October 11, 1990, petitioner and respondent executed a Deed of Assignment, [4] whereby petitioner assigned to
respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of the
Deed provide:
WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at Greenmeadow Avenue,
Quezon City owned by Jomero Realty Corporation;
WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased on account scaffolding
equipments from the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of the aforementioned
scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos
(P335,462.14);
NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand Four Hundred Sixty Two
and 14/100 Pesos (P335,462.14), Philippine Currency which represents part of the ASSIGNORs collectible from Jomero
Realty Corp., said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles amounting to the
said amount of P335, 462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power and authority to demand,
collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in the name and
stead of the said ASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and assigns that said debt
is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and that said ASSIGNOR has not done and will
not cause anything to be done to diminish or discharge said debt, or delay or to prevent the ASSIGNEE, its successors or
assigns, from collecting the same;
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors,
administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at
his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually
enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and
meaning of these presents. xxx [5] (Italics supplied)
However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter refused to honor
the Deed of Assignment because it claimed that petitioner was also indebted to it. [6] On November 26, 1990,
respondent sent a letter [7] to petitioner demanding payment of his obligation, but petitioner refused to pay claiming
that his obligation had been extinguished when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against the petitioner
before the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074. [8]
During the trial, petitioner argued that his obligation was extinguished with the execution of the Deed of Assignment of
credit. Respondent, for its part, presented the testimony of its employee, Almeda Baaga, who testified that Jomero
Realty refused to honor the assignment of credit because it claimed that petitioner had an outstanding indebtedness to
it.
On August 25, 1994, the trial court rendered a decision [9] dismissing the complaint on the ground that the assignment
of credit extinguished the obligation. The decretal portion thereof provides:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the defendant and against the
plaintiff, dismissing the complaint and ordering the plaintiff to pay the defendant attorneys fees in the amount of
P25,000.00.
Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court rendered a decision,
[10] the dispositive portion of which reads:

WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters judgment ordering
defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three
Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum
from January 10, 1991 (filing of the Complaint) until fully paid and attorneys fees equivalent to 10% of the amount due
and costs of the suit.
SO ORDERED. [11]
In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the respondent, the Court of
Appeals held that (1) petitioner failed to comply with his warranty under the Deed; (2) the object of the Deed did not
exist at the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3) petitioner
violated the terms of the Deed of Assignment when he failed to execute and do all acts and deeds as shall be necessary
to effectually enable the respondent to recover the collectibles. [12]
Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of Appeals. [13]
In this petition for review, petitioner assigns the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING THE DEED OF ASSIGNMENT (EXH.
4) AS NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT (EXH. 4) DID NOT
EXTINGUISH PETITIONERS OBLIGATION ON THE WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS
WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT AND IN ORDERING
PAYMENT OF INTERESTS AND ATTORNEYS FEES. [14]
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal
cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit
and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor. [15]
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who
accepts it as equivalent of payment of an outstanding debt. [16] In order that there be a valid dation in payment, the
following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must
be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be
an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due. [17] The undertaking really partakes in one sense of the nature of
sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against
the debtors debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at
the time of the sale but not for the solvency of the debtor, in specified circumstances. [18]
Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property, [19] produced
the effects of a dation in payment which may extinguish the obligation. [20] However, as in any other contract of sale,
the vendor or assignor is bound by certain warranties. More specifically, the first paragraph of Article 1628 of the Civil
Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it
should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or
unless the insolvency was prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit
at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the latter
also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by
compensation. [21] In other words, respondent alleged the non-existence of the credit and asserted its claim to
petitioners warranty under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid
the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors,
administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at
his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually

enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and
meaning of these presents. [22] (underscoring ours)
Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the performance
thereof in case the same is later found to be inexistent. He should be held liable to pay to respondent the amount of his
indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the sum of P335,462.14
with legal interest thereon. However, we find that the award by the Court of Appeals of attorneys fees is without
factual basis. No evidence or testimony was presented to substantiate this claim. Attorneys fees, being in the nature of
actual damages, must be duly substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19, 2001 in CA-G.R. CV No.
47713, ordering petitioner to pay respondent the sum of P335,462.14 with legal interest of 6% per annum from January
10, 1991 until fully paid is AFFIRMED with MODIFICATION. Upon finality of this Decision, the rate of legal interest shall
be 12% per annum, inasmuch as the obligation shall thereafter become equivalent to a forbearance of credit. [23] The
award of attorneys fees is DELETED for lack of evidentiary basis.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio and Azcuna, JJ., concur.