SECOND DIVISION

ROCKLAND CONSTRUCTION COMPANY, INC.,

Petitioner,

G.R. No. 164587

Present:

- versus -

QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

MID-PASIG LAND DEVELOPMENT CORPORATION,

Respondent.

Promulgated:

February 4, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
This petition for review seeks the reversal of the Decision [1] and Resolution[2] dated February 27, 2004 and July
21, 2004, respectively, of the Court of Appeals in CA-G.R. CV No. 76370. The appellate court had reversed and set
aside the Decision[3] dated September 2, 2002 of the Regional Trial Court (RTC), Branch 67 of Pasig City, in Civil
Case No. 68350; dismissed petitioners complaint; and held that there was no perfected contract of lease between
the parties.
The antecedents facts, culled from the records, are as follows:
Rockland Construction Company, Inc. (Rockland), in a letter [4] dated March 1, 2000, offered to lease from
Mid-Pasig Land Development Corporation (Mid-Pasig) the latters 3.1-hectare property in Pasig City. This property is
covered by Transfer Certificate of Title Nos. 469702 and 337158 under the control of the Presidential Commission on
Good Government (PCGG). Upon instruction of Mid-Pasig to address the offer to the PCGG, Rockland wrote the
PCGG on April 15, 2000. The letter,[5] addressed to PCGG Chairman Magdangal Elma, included Rocklands
proposed terms and conditions for the lease. This letter was also received by Mid-Pasig on April 18, 2000, but MidPasig made no response.
Again, in another letter[6] dated June 8, 2000 addressed to the Chairman of Mid-Pasig, Mr. Ronaldo
Salonga, Rockland sent a Metropolitan Bank and Trust Company Check No. 2930050168 [7] for P1 million as a sign of
its good faith and readiness to enter into the lease agreement under the certain terms and conditions stipulated in the
letter. Mid-Pasig received this letter on July 28, 2000.
In a subsequent follow-up letter[8] dated February 2, 2001, Rockland then said that it presumed that MidPasig had accepted its offer because the P1 million check it issued had been credited to Mid-Pasigs account
on December 5, 2000.[9]

Mid-Pasig, however, denied it accepted Rocklands offer and claimed that no check was attached to the said
letter. It also vehemently denied receiving the P1 million check, much less depositing it in its account.
In its letter[10] dated February 6, 2001, Mid-Pasig replied to Rockland that it was only upon receipt of the
latters February 2 letter that the former came to know where the check came from and what it was for. Nevertheless,
it categorically informed Rockland that it could not entertain the latters lease application. Mid-Pasig reiterated its
refusal ofRocklands offer in a letter[11] dated February 13, 2001.
Rockland then filed an action for specific performance docketed as Civil Case No. 68350 in the RTC, Branch
67 of Pasig City. Rockland sought to compel Mid-Pasig to execute in Rocklands favor, a contract of lease over a 3.1hectare portion[12] of Mid-Pasigs property in Pasig City.
On September 2, 2002, the trial court rendered a decision, the dispositive portion of which reads in part:
WHEREFORE, judgment is rendered, as follows:
1.

Declaring that the plaintiff and the defendant have duly agreed upon a valid and
enforceable lease agreement of subject portions of [defendants] properties designated in
Exh. A as areas A, B and C, comprising an area of 5,000 square meters, 11,000 square
meters and 15,000 square meters, or a total of 31,000 square meters;

2.

Holding that the principal terms and conditions of the aforesaid lease agreement are as
stated in plaintiffs June 8, 2000 letter (Exh. D), to wit:
xxxx

3. Ordering the defendant to execute a written lease contract in favor of the plaintiff
containing the principal terms and conditions mentioned in the next-preceding paragraph,
within sixty (60) days from finality of this judgment, and likewise ordering the plaintiff to
pay rent to the defendant as specified in said terms and conditions;
4. Ordering the defendant to keep and maintain the plaintiff in the peaceful possession and
enjoyment of the leased premises during the term of said contract;
5. Ordering the defendant to pay plaintiff [attorneys] fees in the sum of One Million Pesos
(P1,000,000.00), plus P2,000.00 for every appearance made by counsel in court;
6. The temporary restraining order dated April 2, 2001 is hereby made PERMANENT;
7.

Dismissing defendants counterclaim.

With costs against the defendant.
SO ORDERED.[13]

On appeal, the Court of Appeals reversed and set aside the trial courts decision on the following grounds: (1) there
was no meeting of the minds as to the offer and acceptance between the parties; (2) there was no implied acceptance of

the P1 million check as Mid-Pasig was not aware of its source at the time Mid-Pasig discovered the existence of the P1
million in its account; and (3) Rocklands subsequent acts and/or omissions contradicted its claim that there was already a
contract of lease, as it neither took possession of the property, nor did it pay for the corresponding monthly
rentals. Accordingly,

the

Court

of

Appeals

dismissed Rocklands

complaint,

as

well

as

Mid-Pasigs

counterclaim. Rockland sought reconsideration, but it was denied.

Petitioner Rockland now comes before us raising a complex issue:
. . . WHETHER OR NOT RESPONDENTS ACT OF DEPOSITING INTO ITS CORPORATE BANK
ACCOUNT PETITIONERS P1 MILLION CHECK AND COLLECTING THE PROCEEDS
THEREOF: (A) PRODUCES THE LEGAL EFFECT OF AN ACCEPTANCE OF PETITIONERS
OFFER AND CONSIDERED AS CONSENT TO THE PAYMENT FOR WHICH IT WAS INTENDED;
AND/OR [(B)] CONSTITUTES IN LEGAL CONTEMPLATION ESTOPPEL IN PAIS, SUFFICIENT
TO APPRECIATE RESPONDENTS CONSENT TO THE LEASE.[14]

Simply stated, the issue may be rephrased into two questions: Was there a perfected contract of
lease? Had estoppel in pais set in?
Rockland contends that the contract of lease had been perfected and that Mid-Pasig is in estoppel in
pais because it impliedly accepted its offer when the P1 million check was credited to Mid-Pasigs account.
Mid-Pasig counters that it never accepted Rocklands offer. It avers it immediately rejected Rocklands offer
upon learning of the mysterious deposit of the P1 million check in its account.
Since the re-stated issues are intertwined, we shall discuss them jointly.
A contract has three distinct stages: preparation, perfection, and consummation. Preparation or negotiation
begins when the prospective contracting parties manifest their interest in the contract and ends at the moment of
their agreement. Perfection or birth of the contract occurs when they agree upon the essential
elements thereof. Consummation, the last stage, occurs when the parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof.[15]
Negotiation is formally initiated by an offer. Accordingly, an offer that is not accepted, either expressly or
impliedly,[16] precludes the existence of consent, which is one of the essential elements [17] of a contract. Consent,
under Article 1319 of the Civil Code, is manifested by the meeting of the offer and acceptance upon the thing which
are to constitute a contract. To produce a contract, the offer must be certain and the acceptance absolute.[18]

A close review of the events in this case, in the light of the parties evidence, shows that there was no
perfected contract of lease between the parties. Mid-Pasig was not aware that Rockland deposited the P1 million
check in its account. It only learned of Rocklands check when it received Rocklands February 2, 2001 letter. MidPasig, upon investigation, also learned that the check was deposited at the Philippine National Bank (PNB) San Juan
Branch, instead of PNB Ortigas Branch where Mid-Pasig maintains its account. Immediately, Mid-Pasig
wrote Rockland on February 6, 2001 rejecting the offer, and proposed that Rockland apply the P1 million to its other
existing lease instead. These circumstances clearly show that there was no concurrence of Rocklands offer and MidPasigs acceptance.
Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the grounds of public policy,
fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied thereon.[19] Since estoppel
is based on equity and justice, it is essential that before a person can be barred from asserting a fact contrary to his
act or conduct, it must be shown that such act or conduct has been intended and would unjustly cause harm to those
who are misled if the principle were not applied against him.[20]
From the start, Mid-Pasig never falsely represented its intention that could lead Rockland to believe that
Mid-Pasig had accepted Rocklands offer. Mid-Pasig consistently rejected Rocklands offer. Further, Rockland never
secured the approval of Mid-Pasigs Board of Directors and the PCGG to lease the subject property to Rockland. As
noted by the Court of Appeals, if indeed Rockland believed that Mid-Pasig impliedly accepted the offer, then it should
have taken possession of the property and paid the monthly rentals. But it did not. For estoppel to apply, the action
giving rise thereto must be unequivocal and intentional because, if misapplied, estoppel may become a tool of
injustice.[21]
WHEREFORE, the instant petition is DENIED. The Decision and Resolution dated February 27,
2004 and July 21, 2004, respectively, of the Court of Appeals in CA-G.R. CV No. 76370 are AFFIRMED. Costs
against the petitioner.
SO ORDERED.

G.R. No. 166862

December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner,

REYNALDO C. TOLENTINO, intervenor,
vs.

PHILIPPINE NATIONAL BANK, respondent,

DMCI-PROJECT DEVELOPERS, INC., intervenor.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. No. 46153
which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its
Resolution3 denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila.
The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To
secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a
real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation
of P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment4 of Real Estate Mortgage over its
property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in
quarterly installments of P32,650.00, plus interests and other charges.5
On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and
sought to have the property sold at public auction for P911,532.21, petitioner's outstanding obligation to respondent
PNB as of June 30, 1982,6 plus interests and attorney's fees.
After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent
PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its favor was registered
with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17,
1983. Thus, the period to redeem the property was to expire on February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time
to redeem/repurchase the property.8 In its reply dated August 30, 1983, respondent PNB informed petitioner that the
request had been referred to its Pasay City Branch for appropriate action and recommendation.9
In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984
within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the
property on installment.11 Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of
policy, the bank does not accept "partial redemption."12
Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and
issued a new title in favor of respondent PNB.13 Petitioner's offers had not yet been acted upon by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of
June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50,
interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses
and publication cost.14 When apprised of the statement of account, petitioner remitted P725,000.00 to respondent
PNB as "deposit to repurchase," and Official Receipt No. 978191 was issued to it.15
In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to
repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed
petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner
purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until
December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property
would be sold to other interested buyers.16
Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December 12,
1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it
reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that it
would return the deposit should petitioner desire to withdraw its offer to purchase the property.17 On February 25,
1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner
declared that it had already agreed to the SAMD's offer to purchase the property forP1,574,560.47, and that was why
it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on
the position.18
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer
to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.19 On page
two of the letter was a space above the typewritten name of petitioner's President, Pablo Gabriel, where he was to
affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had
received it.20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an
amended offer to repurchase.
Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had
agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted,
respondent PNB was proscribed from increasing the purchase price of the property.21 Petitioner averred that it had a
net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer to pay the
balance of P643,452.34 in a letter dated August 1, 1989.22
On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage
Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its cause of action for specific
performance, it alleged the following:
34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial
amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD
and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of the
higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition
which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank
cannot take advantage of a condition which is entirely dependent upon its own will after accepting and
benefiting from the substantial payment made by Manila Metal.
35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila
Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based
on unilateral computation of interest rate without the consent of Manila Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the following arguments:
36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is
constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation
expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff Manila
Metal.
37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal
suffered besmirched reputation for which defendant PNB is liable for moral damages of at leastP50,000.00.
38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary
damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at
least P30,000.00.23
Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and
effect.
b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and setting
it for auction sale null and void.
c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO.
43792) covering the property described in paragraph 4 of the Complaint, to reinstate TCT No. 37025 in the
name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT
No.37025 described in paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025described
in paragraph 4 of this Complaint to the plaintiff Manila Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary
damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and
fixed by this Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00 and
litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit.
Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24
In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired
ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected
between it and petitioner after the period to redeem the property had expired.
During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25 The parties
agreed to limit the issues to the following:
1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase
the property is still valid and legally enforceable.
2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the
conditions set forth by the defendant in its letter dated June 4, 1985.

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

While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property
within 15 days from notice,27 but petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was however
rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the
property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than its
market value.29 On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.30The offer
was again rejected by respondent PNB on September 13, 1993.31
On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNB's
counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.32 The trial court
ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for
specific performance against respondent. The trial court declared that respondent had rejected petitioner's offer to
repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of
the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount
of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further declared that
the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment
or earnest money.
On appeal to the CA, petitioner made the following allegations:
I
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE
1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT
PROPERTY IS NOT VALID AND ENFORCEABLE.
II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE
BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO
PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET
FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.
IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANTAPPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO
COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.
V

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID
RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT
THE AMENDED REPURCHASE OFFER.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-APPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND
EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33
Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it waived,
assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of
Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the
ownership and management of the property in favor of Reynaldo Tolentino, who later moved for leave to intervene as
plaintiff-appellant. On July 14, 1993, the CA issued a resolution granting the motion,35 and likewise granted the
motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as
intervenor.36
The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that petitioner obviously
never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting
that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds
between the parties as to the price or consideration of the sale.
The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by
respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price;
petitioner did not agree to the counter-offer; and the negotiations did not prosper. Moreover, petitioner did not pay the
balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB.
Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind.
According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a
quo for no evidence was presented to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the
failed negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to
repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be
reduced, however, respondent rejected the proposal in a letter dated August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
Thus, petitioner filed the instant petition for review on certiorari, alleging that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO
PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT.

II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT
OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE
OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN
PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE
CONTRACT OF SALE BETWEEN THE PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE
PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB
DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO
VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF
PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE
SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED
CONTRACT OF SALE.38
The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for
petitioner to repurchase the property from respondent.
Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property
forP1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00
with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers
that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as
gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's offer to
purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the
contract. Respondent could no longer unilaterally withdraw its offer to sell the property forP1,574,560.47, since the
acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of
the original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the
property to petitioner, conformably with Article 1159 of the New Civil Code.
Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondent's
offer to sell the property for P1,574,560.00. Consequently, respondent could no longer validly make a counter-offer
of P1,931,789.88 for the purchase of the property. It likewise maintains that, although theP725,000.00 was
considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD, the amount constitutes
earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court
in Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40
Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay
the balance of the price as fixed by respondent within the 60-day period from notice was to protest respondent's
breach of its obligation to petitioner. It did not amount to a rejection of respondent's offer to sell the property since
respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event, respondent
had the option either to accept the balance of the offered price or to cause the rescission of the contract.
Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the
RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the
property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the
Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the "negotiation stage" as they could not
agree on the amount of the repurchase price of the property. All that transpired was an exchange of proposals and
counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the
price are essential elements in the formation of a binding and enforceable contract of sale. There was no such
agreement in this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain event upon
the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding
agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first
place, there is no basis for the application of the principles governing "suspensive conditions."
According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a
counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated therein
could not likewise be considered as the counter-offer since as admitted by petitioner, it was only recommendation
which was subject to approval of the PNB Board of Directors.
Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As
gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the amount is merely an
acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit ofP725,000.00
was accepted by respondent on the condition that the purchase price would still be approved by its Board of
Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute.
Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with
petitioner.
According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is
limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD does
not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so must
emanate from its Board of Directors. The SAMD was not authorized by respondent's Board to enter into contracts of
sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized
the SAMD, or made it appear to petitioner that it represented itself as having such authority.
Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the
Board subject to the condition, among others, "that the selling price shall be the total bank's claim as of
documentation date x x x payable in cash (P725,000.00 already deposited)
within 60 days from notice of approval." A new Statement of Account was attached therein indicating the total bank's
claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's Board of
Directors accepted petitioner's offer to repurchase the property, the acceptance was qualified, in that it required a
higher sale price and subject to specified terms and conditions enumerated therein. This qualified acceptance was in
effect a counter-offer, necessitating petitioner's acceptance in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is
correct.
A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service.41 Under Article 1318 of the New Civil Code, there is no contract unless the
following requisites concur:
(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.42 Once perfected, they bind other contracting parties and
the obligations arising therefrom have the form of law between the parties and should be complied with in good faith.
The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences
which, according to their nature, may be in keeping with good faith, usage and law.43
By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.44 The absence of any of the
essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the
Philippines v. Manalo:45
A definite agreement as to the price is an essential element of a binding agreement to sell personal or real
property because it seriously affects the rights and obligations of the parties. Price is an essential element in
the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the
decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by
the other, gives rise to a perfected sale.46
A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an
offer by one party without acceptance of the other, there is no contract.47 When the contract of sale is not perfected, it
cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.48
In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of sale are as
follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential
elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the
price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract
of sale, culminating in the extinguishment thereof.
A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior to the perfection of
the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the
withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without
variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,51the Court ruled that:
x x x The rule is that except where a formal acceptance is so required, although the acceptance must be
affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror,
it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or
words of a party recognizing the existence of the contract of sale.52
A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original
offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation
between the parties on a different basis.53 Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation
from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects with that of the offer so
as to produce consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the
resources, it requested for more time to redeem/repurchase the property under such terms and conditions agreed
upon by the parties.55 The request, which was made through a letter dated August 25, 1983, was referred to the
respondent's main branch for appropriate action.56 Before respondent could act on the request, petitioner again wrote
respondent as follows:
1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND
PESOS (P150,000.00);
2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00); and
3. The remaining balance together with the interest and other expenses that will be incurred will be paid
within the last six months of the one year grave period requested for.57
When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to respondent's
President reiterating its offer to purchase the property.59 There was no response to petitioner's letters dated February
10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984
was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property.
The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later
agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication
cost, registration expenses and miscellaneous expenses.
There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer
and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not bind respondent.
As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:60
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board
of directors or by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with the performance of authorized duties of such
director, are held not binding on the corporation.
Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through
its officers and agents when authorized by a board resolution or its by-laws.61
It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase
the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property and
pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property be sold
to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had previously
conformed, respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer
was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a
perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counteroffer reconsidered. This request for reconsideration would later be rejected by respondent.

We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was "earnest money"
which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code.
The provision reads:
ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract.
This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court:
8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated
Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47 and
recommended this amount as the repurchase price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit
of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the
approval of the PNB Board.62
Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event
that respondent would approve the recommendation of SAMD for respondent to accept petitioner's offer to purchase
the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no perfected
contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the
giving of earnest money cannot establish the existence of a perfected contract of sale.63
It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to
purchase the property for P1,931,389.53. However, this amounted to an amendment of respondent's qualified
acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still declared
that its acceptance was subject to the following terms and conditions:
1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached
statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60) days
from notice of approval;
2. The Bank sells only whatever rights, interests and participation it may have in the property and you are
charged with full knowledge of the nature and extent of said rights, interests and participation and waive
your right to warranty against eviction.
3. All taxes and other government imposts due or to become due on the property, as well as expenses
including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the
execution and registration of all covering documents shall be borne by you;
4. That you shall undertake at your own expense and account the ejectment of the occupants of the
property subject of the sale, if there are any;
5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of
advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell the
property to other interested parties.
6. That the sale shall be subject to such other terms and conditions that the Legal Department may impose
to protect the interest of the Bank.64

It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused
and instead requested respondent to reconsider its amended counter-offer. Petitioner's request was ultimately
rejected and respondent offered to refund its P725,000.00 deposit.
In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.
SO ORDERED.
Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-Nazario, JJ., concur.
Panganiban, C.J., retired as of December 7, 2006.

RIDO

MONTECILLO, petitioner, vs. IGNACIA REYNES and

ABUCAY, respondents.

SPOUSES

REDEMPTOR and

ELISA

DECISION
CARPIO, J.:

The Case
On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered a Decision [1] declaring the deed
of sale of a parcel of land in favor of petitioner null and void ab initio. The Court of Appeals,[2] in its July 16, 1998
Decision[3] as well as its February 11, 1999 Order [4] denying petitioners Motion for Reconsideration, affirmed the trial
courts decision in toto. Before this Court now is a Petition for Review on Certiorari[5] assailing the Court of Appeals
decision and order.

The Facts
Respondents Ignacia Reynes (Reynes for brevity) and Spouses Abucay (Abucay Spouses for brevity) filed
on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo
(Montecillo for brevity). Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by
Transfer Certificate of Title No. 74196 and containing an area of 448 square meters (Mabolo Lot for brevity). In
1981, Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the
lot they bought.
Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor of
Montecillo (Montecillos Deed of Sale for brevity). Reynes, being illiterate,[6]signed by affixing her thumb-mark[7] on
the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing
of the Deed of Sale. Montecillos Deed of Sale states as follows:

That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal address at Mabolo, Cebu City,
Philippines, for and in consideration of FORTY SEVEN THOUSAND (P47,000.00) PESOS, Philippine Currency,
to me in hand paid by RIDO MONTECILLO, of legal age, Filipino, married, with residence and postal address at
Mabolo, Cebu City, Philippines, the receipt hereof is hereby acknowledged, have sold, transferred, and conveyed,
unto RIDO MONTECILLO, his heirs, executors, administrators, and assigns, forever, a parcel of land together with
the improvements thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and encumbrances, and
more particularly described as follows:
A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a portion of Lot 203-B-2, described
on plan (LRC) Psd-76821, L.R.C. (GLRO) Record No. 5988), situated in the Barrio of Mabolo, City of
Cebu. Bounded on the SE., along line 1-2 by Lot 206; on the SW., along line 2-3, by Lot 202, both of Banilad Estate;
on the NW., along line 4-5, by Lot 203-B-2-A of the subdivision of Four Hundred Forty Eight (448) square meters,
more or less.
of which I am the absolute owner in accordance with the provisions of the Land Registration Act, my title being
evidenced by Transfer Certificate of Title No. 74196 of the Registry of Deeds of the City of Cebu, Philippines. That
This Land Is Not Tenanted and Does Not Fall Under the Purview of P.D. 27.[8] (Emphasis supplied)
Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-month period,
prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the
Deed of Sale,[9] Reynes executed a document unilaterally revoking the sale and gave a copy of the document to
Montecillo.
Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire
Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185-square meter portion of the lot. This
Deed of Sale states:
I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City, do hereby confirm the sale
of a portion of Lot No. 74196 to an extent of 185 square meters to Spouses Redemptor Abucay and Elisa Abucay
covered by Deed per Doc. No. 47, Page No. 9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of
which spouses is now in occupation;
That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS, Philippine Currency, received
in full and receipt whereof is herein acknowledged from SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do
hereby in these presents, SELL, TRANSFER and CONVEY absolutely unto said Spouses Redemptor Abucay and
Elisa Abucay, their heirs, assigns and successors-in-interest the whole parcel of land together with improvements
thereon and more particularly described as follows:
TCT No. 74196
A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a portion of Lot 203-B-2, described
on plan (LRC) Psd 76821, LRC (GLRO) Record No. 5988) situated in Mabolo, Cebu City, along Arcilla Street,
containing an area of total FOUR HUNDRED FORTY EIGHT (448) Square meters.
of which I am the absolute owner thereof free from all liens and encumbrances and warrant the same against claim
of third persons and other deeds affecting said parcel of land other than that to the said spouses and inconsistent
hereto is declared without any effect.
In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City, Philippines. [10]

Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of
Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot.
Reynes and the Abucay Spouses argued that for lack of consideration there (was) no meeting of the
minds[11] between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Montecillos
Deed of Sale, and order the cancellation of Certificate of Title No. 90805 in the name of Montecillo.
In his Answer, Montecillo, a bank executive with a B.S. Commerce degree, [12] claimed he was a buyer in good
faith and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however, admitted
he still owed Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel
mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property
tax as well as the capital gains tax on the sale of the Mabolo Lot.
In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge
the chattel mortgage, especially after Reynes revoked Montecillos Deed of Sale and gave the mortgagee a copy of
the document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the
chattel mortgage through machination. They further asserted that Montecillo took advantage of the real property
taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name.
During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid
to Cebu Ice and Cold Storage Corporation (Cebu Ice Storage for brevity) for the mortgage debt of Bienvenido Jayag
(Jayag for brevity). Montecillo argued that the release of the mortgage was necessary since the mortgage
constituted a lien on the Mabolo Lot.
Reynes, however, stated that she had nothing to do with Jayags mortgage debt except that the house
mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to
release the mortgage on Jayags house is a matter between Montecillo and Jayag. The mortgage on the house,
being a chattel mortgage, could not be interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further
claimed that the mortgage debt had long prescribed since the P47,000.00 mortgage debt was due for payment on
January 30, 1967.
The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo null and void.
The trial court ordered the cancellation of Montecillos Transfer Certificate of Title No. 90805 and the issuance of a
new certificate of title in favor of the Abucay Spouses. The trial court found that Montecillos Deed of Sale had no
cause or consideration because Montecillo never paid Reynes the P47,000.00 purchase price, contrary to what is
stated in the Deed of Sale that Reynes received the purchase price. The trial court ruled that Montecillos Deed of
Sale produced no effect whatsoever for want of consideration. The dispositive portion of the trial courts decision
reads as follows:
WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered declaring the deed of sale in
favor of defendant null and void and of no force and effect thereby ordering the cancellation of Transfer Certificate of
Title No. 90805 of the Register of Deeds of Cebu City and to declare plaintiff Spouses Redemptor and Elisa Abucay
as rightful vendees and Transfer Certificate of Title to the property subject matter of the suit issued in their names.
The defendants are further directed to pay moral damages in the sum of P20,000.00 and attorneys fees in the sum
of P2,000.00 plus cost of the suit.
xxx
Not satisfied with the trial courts Decision, Montecillo appealed the same to the Court of Appeals.

Ruling of the Court of Appeals

The appellate court affirmed the Decision of the trial court in toto and dismissed the appeal[13] on the ground that
Montecillos Deed of Sale is void for lack of consideration. The appellate court also denied Montecillos Motion for
Reconsideration[14] on the ground that it raised no new arguments.
Still dissatisfied, Montecillo filed the present petition for review on certiorari.

The Issues
Montecillo raises the following issues:
1. Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00
in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer
Certificate of Title?
2. If there was none, is the Deed of Sale void from the beginning or simply rescissible?[15]

The Ruling of the Court

The petition is devoid of merit.

First issue: manner of payment of the P47,000.00 purchase price.

Montecillos Deed of Sale does not state that the P47,000.00 purchase price should be paid by Montecillo to
Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court showing that Reynes had agreed,
verbally or in writing, that the P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence
showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective
must be made to Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows:
Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
Thus, Montecillos payment to Cebu Ice Storage is not the payment that would extinguish [16] Montecillos obligation to
Reynes under the Deed of Sale.
It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire amount would
only go to Cebu Ice Storage, leaving not a single centavo to her for giving up ownership of a valuable property. This
incredible allegation of Montecillo becomes even more absurd when one considers that Reynes did not benefit,
directly or indirectly, from the payment of the P47,000.00 to Cebu Ice Storage.
The trial court found that Reynes had nothing to do with Jayags mortgage debt with Cebu Ice Storage. The
trial court made the following findings of fact:
x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage
Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house
constructed on the land subject matter of the complaint. The payment by the defendant to release the residential
house from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to
appear as an encumbrance upon the land.[17]

Thus, Montecillos payment to Jayags creditor could not possibly redound to the benefit [18] of Reynes. We find
no reason to disturb the factual findings of the trial court. In petitions for review on certiorari as a mode of appeal
under Rule 45, as in the instant case, a petitioner can raise only questions of law.[19] This Court is not the proper
venue to consider a factual issue as it is not a trier of facts.

Second issue: whether the Deed of Sale is void ab initio or only rescissible.
Under Article 1318 of the Civil Code, [T]here 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. Article 1352 of the Civil Code also provides that [C]ontracts without cause x x x produce no
effect whatsoever.
Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo points out that he
agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price of P47,000.00. Thus, the three requisites
for a valid contract concur: consent, object certain and consideration. Montecillo asserts there is no lack of
consideration that would prevent the existence of a valid contract. Rather, there is only non-payment of the
consideration within the period agreed upon for payment.
Montecillo argues there is only a breach of his obligation to pay the full purchase price on time. Such breach
merely gives Reynes a right to ask for specific performance, or for annulment of the obligation to sell the Mabolo
Lot. Montecillo maintains that in reciprocal obligations, the injured party can choose between fulfillment and
rescission,[20] or more properly cancellation, of the obligation under Article 1191[21] of the Civil Code. This Article also
provides that the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of the
period. Montecillo claims that because Reynes failed to make a demand for payment, and instead unilaterally
revoked Montecillos Deed of Sale, the court has a just cause to fix the period for payment of the balance of the
purchase price.
These arguments are not persuasive.
Montecillos Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00 purchase price on
March 1, 1984, the date of signing of the Deed of Sale. This is clear from the following provision of the Deed of Sale:
That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY SEVEN THOUSAND (P47,000.00)
PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO xxx, receipt of which is hereby
acknowledged, have sold, transferred, and conveyed, unto RIDO MONTECILLO, x x x a parcel of land x x x.
On its face, Montecillos Deed of Absolute Sale [22] appears supported by a valuable consideration. However,
based on the evidence presented by both Reynes and Montecillo, the trial court found that Montecillo never paid to
Reynes, and Reynes never received from Montecillo, the P47,000.00 purchase price. There was indisputably a total
absence of consideration contrary to what is stated in Montecillos Deed of Sale. As pointed out by the trial court
From the allegations in the pleadings of both parties and the oral and documentary evidence adduced during the
trial, the court is convinced that the Deed of Sale (Exhibits 1 and 1-A) executed by plaintiff Ignacia Reynes
acknowledged before Notary Public Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia Reynes through
the representation of Baudillo Baladjay had executed a Deed of Sale in favor of defendant on the promise that the
consideration should be paid within one (1) month from the execution of the Deed of Sale. However, after the lapse of
said period, defendant failed to pay even a single centavo of the consideration. The answer of the defendant did not
allege clearly why no consideration was paid by him except for the allegation that he had a balance of
only P10,000.00. It turned out during the pre-trial that what the defendant considered as the consideration was the
amount which he paid for the obligation of Bienvenido Jayag with the Cebu Ice and Cold Storage Corporation over

which plaintiff Ignacia Reynes did not have a part except that the subject of the mortgage was constructed on the
parcel of land in question. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu
Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged
their residential house constructed on the land subject matter of the complaint. The payment by the defendant to
release the residential house from the mortgage is a matter between him and Jayag and cannot by implication or
deception be made to appear as an encumbrance upon the land. [23]
Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms such findings.
We do not disturb such findings unless the evidence on record clearly does not support such findings or such
findings are based on a patent misunderstanding of facts, [25] which is not the case here. Thus, we find no reason to
deviate from the findings of both the trial and appellate courts that no valid consideration supported Montecillos Deed
of Sale.
[24]

This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only amount to a
breach of obligation with rescission as the proper remedy. What we have here is a purported contract that lacks a
cause - one of the three essential requisites of a valid contract. Failure to pay the consideration is different from lack
of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an
existing valid contract[26] while the latter prevents the existence of a valid contract
Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed
of sale is null and void ab initio for lack of consideration. This has been the well-settled rule as early as Ocejo Perez
& Co. v. Flores,[27] a 1920 case. As subsequently explained in Mapalo v. Mapalo[28]
In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable
herein. In that case we ruled that a contract of purchase and sale is null and void and produces no effect whatsoever
where the same is without cause or consideration in that the purchase price which appears thereon as paid has in
fact never been paid by the purchaser to the vendor.
The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,[29] to wit
The Appellate Courts finding that the price was not paid or that the statement in the supposed contracts of sale
(Exh. 6 to 26) as to the payment of the price was simulated fortifies the view that the alleged sales were void. If the
price is simulated, the sale is void . . . (Art. 1471, Civil Code)
A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in
fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs.
Mapalo, L-21489, May 19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a sale is non-existent (Borromeo vs.
Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17;
Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229).
Applying this well-entrenched doctrine to the instant case, we rule that Montecillos Deed of Sale is null and void ab
initio for lack of consideration.
Montecillo asserts that the only issue in controversy is the mode and/or manner of payment and/or whether or
not payment has been made.[30] Montecillo implies that the mode or manner of payment is separate from the
consideration and does not affect the validity of the contract. In the recent case of San Miguel Properties
Philippines, Inc. v. Huang,[31] we ruled that
In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181 [1961]), we laid down the rule
that the manner of payment of the purchase price is an essential element before a valid and binding contract
of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on

the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw,
Inc. v. Court of Appeals (244 SCRA 320 [1995]), agreement on the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on the price. (Emphasis supplied)
One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the
contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of
the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus
preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct
from lack of consideration where the contract states that the price has been paid when in fact it has never been
paid.
Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after the
signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to
pay the P47,000.00 purchase price to Cebu Ice Storage to settle Jayags mortgage debt. Montecillo also
acknowledged a balance of P10,000.00 in favor of Reynes although this amount is not stated in Montecillos Deed of
Sale. Thus, there was no consent, or meeting of the minds, between Reynes and Montecillo on the manner of
payment. This prevented the existence of a valid contract because of lack of consent.
In summary, Montecillos Deed of Sale is null and void ab initio not only for lack of consideration, but also for
lack of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid
contract transferring ownership of the Mabolo Lot from Reynes to Montecillo.
WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the Court of Appeals in
CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur.

G.R. No. 123892. May 21, 2001]

JASMIN SOLER, petitioner, vs. COURT OF APPEALS, COMMERCIAL BANK OF MANILA, and NIDA
LOPEZ, respondents.
DECISION
PARDO, J.:
Appeal via certiorari from a decision of the Court of Appeals,[1] declaring that there was no perfected contract
between petitioner Jazmin Soler and The Commercial Bank of Manila (COMBANK FOR BREVITY, formerly Boston
Bank of the Philippines) for the renovation of its Ermita Branch, thereby denying her claim for payment of
professional fees for services rendered.
The antecedent facts are as follows:

Petitioner Jazmin Soler is a Fine Arts graduate of the University of Sto. Tomas, Manila. She is a well known
licensed professional interior designer. In November 1986, her friend Rosario Pardo asked her to talk to Nida Lopez,
who was manager of the COMBANK Ermita Branch for they were planning to renovate the branch offices.[2]
Even prior to November 1986, petitioner and Nida Lopez knew each other because of Rosario Pardo, the
latters sister. During their meeting, petitioner was hesitant to accept the job because of her many out of town
commitments, and also considering that Ms. Lopez was asking that the designs be submitted by December 1986,
which was such a short notice. Ms. Lopez insisted, however, because she really wanted petitioner to do the design
for renovation. Petitioner acceded to the request. Ms. Lopez assured her that she would be compensated for her
services. Petitioner even told Ms. Lopez that her professional fee was ten thousand pesos (P10,000.00), to which
Ms. Lopez acceded.[3]
During the November 1986 meeting between petitioner and Ms. Lopez, there were discussions as to what was
to be renovated, which included a provision for a conference room, a change in the carpeting and wall paper,
provisions for bookshelves, a clerical area in the second floor, dressing up the kitchen, change of the ceiling and
renovation of the tellers booth. Ms. Lopez again assured petitioner that the bank would pay her fees.[4]
After a few days, petitioner requested for the blueprint of the building so that the proper design, plans and
specifications could be given to Ms. Lopez in time for the board meeting in December 1986. Petitioner then asked her
draftsman Jackie Barcelon to go to the jobsite to make the proper measurements using the blue print. Petitioner also
did her research on the designs and individual drawings of what the bank wanted. Petitioner hired Engineer Ortanez
to make the electrical layout, architects Frison Cruz and De Mesa to do the drafting. For the services rendered by
these individuals, petitioner paid the engineer P4,000.00, architects Cruz and de Mesa P5,000.00 and architect
Barcelon P6,000.00. Petitioner also contacted the suppliers of the wallpaper and the sash makers for their quotation.
So come December 1986, the lay out and the design were submitted to Ms. Lopez. She even told petitioner that she
liked the designs.[5]
Subsequently, petitioner repeatedly demanded payment for her services but Ms. Lopez just ignored the
demands. In February 1987, by chance petitioner and Ms. Lopez saw each other in a concert at the Cultural Center
of the Philippines. Petitioner inquired about the payment for her services, Ms. Lopez curtly replied that she was not
entitled to it because her designs did not conform to the banks policy of having a standard design, and that there
was no agreement between her and the bank.[6]
To settle the controversy, petitioner referred the matter to her lawyers, who wrote Ms. Lopez on May 20, 1987,
demanding payment for her professional fees in the amount of P10,000.00 which Ms. Lopez ignored. Hence, on
June 18, 1987, the lawyers wrote Ms. Lopez once again demanding the return of the blueprint copies petitioner
submitted which Ms. Lopez refused to return.[7]
On October 13, 1987, petitioner filed at the Regional Trial Court of Pasig, Branch 153 a complaint against
COMBANK and Ms. Lopez for collection of professional fees and damages.[8]
In its answer, COMBANK stated that there was no contract between COMBANK and petitioner; [9] that Ms. Lopez
merely invited petitioner to participate in a bid for the renovation of the COMBANK Ermita Branch; that any proposal
was still subject to the approval of the COMBANKs head office.[10]
After due trial, on November 19, 1990, the trial court rendered a decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against defendants,
ordering defendants jointly and severally, to pay plaintiff the following, to wit:
1. P15,000.00 representing the actual and compensatory damages or at least a reasonable compensation for the
services rendered based on a quantum meruit;
2. P5,000.00 as attorneys fees, and P2,000.00 as litigation expenses;

3. P5,000.00 as exemplary damages; and

4. The cost of suit.
SO ORDERED.[11]
On November 29, 1990, COMBANK, and Ms. Nida Lopez, filed their notice of appeal.[12] On December 5, 1990,
the trial court ordered[13] the records of the case elevated to the Court of Appeals.[14]
In the appeal, COMBANK reiterated that there was no contract between petitioner, Nida Lopez and the bank.
Whereas, petitioner maintained that there was a perfected contract between her and the bank which was
facilitated through Nida Lopez. According to petitioner there was an offer and an acceptance of the service she
rendered to the bank.[16]
[15]

On October 26, 1995, the Court of Appeals rendered its decision the relevant portions of which state:
After going over the record of this case, including the transcribed notes taken during the course of the trial, We are
convinced that the question here is not really whether the alleged contract purportedly entered into between the
plaintiff and defendant Lopez is enforceable, but whether a contract even exists between the parties.
Article 1318 of the Civil Code provides that there is no contract unless the following requisites concur:
(1) consent of the contracting parties;
(2) object certain which is the subject matter of the contract;
(3) cause of the obligation which is established.
xxx
The defendant bank never gave its imprimatur or consent to the contract considering that the bidding or the question
of renovating the ceiling of the branch office of defendant bank was deferred because the commercial bank is for
sale. It is under privatization. xxx
At any rate, we find that the appellee failed to prove the allegations in her complaint. xxx
WHEREFORE, premises considered, the appealed decision (dated November 19, 1990) of the Regional Trial Court
(Branch 153) in Pasig (now 55238, is hereby REVERSED. No pronouncement as to costs.
SO ORDERED.[17]
Hence, this petition.[18]
Petitioner forwards the argument that:
1. The Court of Appeals erred in ruling that there was no contract between petitioner and respondents, in the
absence of the element of consent;
2. The Court of Appeals erred in ruling that respondents merely invited petitioner to present her proposal;

3. The Court of Appeals erred in ruling that petitioner knew that her proposal was still subject to bidding and
approval of the board of directors of the bank;
4. The Court of Appeals erred in reversing the decision of the trial court.
We find the petition meritorious.
We see that the issues raised boil down to whether or not there was a perfected contract between petitioner
Jazmin Soler and respondents COMBANK and Nida Lopez, and whether or not Nida Lopez, the manager of the bank
branch, had authority to bind the bank in the transaction.
The discussions between petitioner and Ms. Lopez was to the effect that she had authority to engage the
services of petitioner. During their meeting, she even gave petitioner specifications as to what was to be renovated in
the branch premises and when petitioners requested for the blueprints of the building, Ms. Lopez supplied the same.
Ms. Lopez was aware that petitioner hired the services of people to help her come up with the designs for the
December, 1986 board meeting of the bank. Ms. Lopez even insisted that the designs be rushed in time for
presentation to the bank. With all these discussion and transactions, it was apparent to petitioner that Ms. Lopez
indeed had authority to engage the services of petitioner.
The next issue is whether there was a perfected contract between petitioner and the Bank.
A contract is a meeting of the minds between two persons whereby one binds himself to give something or to
render some service to bind himself to give something to render some service to another for consideration. There is
no contract unless the following requisites concur: 1. Consent of the contracting parties; 2. Object certain which is
the subject matter of the contract; and 3. Cause of the obligation which is established.[19]
A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms
of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract.[20]
In the case at bar, there was a perfected oral contract. When Ms. Lopez and petitioner met in November 1986,
and discussed the details of the work, the first stage of the contract commenced. When they agreed to the payment
of the ten thousand pesos (P10,000.00) as professional fees of petitioner and that she should give the designs before
the December 1986 board meeting of the bank, the second stage of the contract proceeded, and when finally
petitioner gave the designs to Ms. Lopez, the contract was consummated.
Petitioner believed that once she submitted the designs she would be paid her professional fees. Ms. Lopez
assured petitioner that she would be paid.
It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within
the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus,
the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from
denying the agents authority.[21]
Also, petitioner may be paid on the basis of quantum meruit. It is essential for the proper operation of the
principle that there is an acceptance of the benefits by one sought to be charged for the services rendered under
circumstances as reasonably to notify him that the lawyer performing the task was expecting to be paid

compensation therefor. The doctrine of quantum meruit is a device to prevent undue enrichment based on the
equitable postulate that it is unjust for a person to retain benefit without paying for it.[22]
We note that the designs petitioner submitted to Ms. Lopez were not returned. Ms. Lopez, an officer of the
bank as branch manager used such designs for presentation to the board of the bank. Thus, the designs were in fact
useful to Ms. Lopez for she did not appear to the board without any designs at the time of the deadline set by the
board.
IN VIEW WHEREOF, the decision appealed from is REVERSED and SET ASIDE.
The decision of the trial court[23] is REVIVED, REINSTATED and AFFIRMED.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

[G.R. No. 131726. May 7, 2002]

YOLANDA PALATTAO, petitioner, vs. THE COURT OF APPEALS, HON. ANTONIO J. FINEZA, as Presiding
Judge of the Regional Trial Court of Caloocan City, Branch 131 and MARCELO CO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking to set aside the August 29, 1997
decision[1] and the November 28, 1997 resolution[2] of the Court of Appeals[3] in CA-G.R. SP No. 40031, affirming the
decision[4] of the Regional Trial Court of Caloocan City, Branch 131, in Civil Case No. C-17033 which reversed the
Decision[5] of the Metropolitan Trial Court of Caloocan, Branch 53, in an ejectment suit docketed as Civil Case No.
21755.
The antecedent facts are as follows: Petitioner Yolanda Palattao entered into a lease contract whereby she
leased to private respondent a house and a 490-square-meter lot located in 101 Caimito Road, Caloocan City,
covered by Transfer Certificate of Title No. 247536 and registered in the name of petitioner. The duration of the lease
contract was for three years, commencing from January 1, 1991, to December 31, 1993, renewable at the option of
the parties. The agreed monthly rental was P7,500.00 for the first year; P8,000.00 for the second year; and
P8,500.00 for the third year. The contract gave respondent lessee the first option to purchase the leased property.[6]
During the last year of the contract, the parties began negotiations for the sale of the leased premises to private
respondent. In a letter dated April 2, 1993, petitioner offered to sell to private respondent 413.28 square meters of
the leased lot at P7,800.00 per square meter, or for the total amount of P3,223,548.00. [7] Private respondent replied
on April 15, 1993 wherein he informed petitioner that he shall definitely exercise [his] option [to buy] the leased
property.[8] Private respondent, however, manifested his desire to buy the whole 490-square-meter leased premises
and inquired from petitioner the reason why only 413.28 square meters of the leased lot were being offered for
sale. In a letter dated November 6, 1993, petitioner made a final offer to sell the lot at P7,500.00 per square meter
with a downpayment of 50% upon the signing of the contract of conditional sale, the balance payable in one year with

a monthly lease/interest payment of P14,000.00 which must be paid on or before the fifth day of every month that the
balance is still outstanding.[9] On November 7, 1993, private respondent accepted petitioners offer and reiterated his
request for clarification as to the size of the lot for sale.[10] Petitioner acknowledged private respondents acceptance
of the offer in his letter dated November 10, 1993.
Petitioner gave private respondent on or before November 24, 1993, within which to pay the 50% downpayment
in cash or managers check. Petitioner stressed that failure to pay the downpayment on the stipulated period will
enable petitioner to freely sell her property to others. Petitioner likewise notified private respondent that she is no
longer renewing the lease agreement upon its expiration on December 31, 1993.[11]
Private respondent did not accept the terms proposed by petitioner. Neither was there any documents of sale
nor payment by private respondent of the required downpayment. Private respondent wrote a letter to petitioner on
November 29, 1993 manifesting his intention to exercise his option to renew their lease contract for another three
years, starting January 1, 1994 to December 31, 1996. [12] This was rejected by petitioner, reiterating that she was no
longer renewing the lease. Petitioner demanded that private respondent vacate the premises, but the latter refused.
Hence, private respondent filed with the Regional Trial Court of Caloocan, Branch 127, a case for specific
performance, docketed as Civil Case No. 16287,[13] seeking to compel petitioner to sell to him the leased
property. Private respondent further prayed for the issuance of a writ of preliminary injunction to prevent petitioner
from filing an ejectment case upon the expiration of the lease contract on December 31, 1993.
During the proceedings in the specific performance case, the parties agreed to maintain the status quo. After
they failed to reach an amicable settlement, petitioner filed the instant ejectment case before the Metropolitan Trial
Court of Caloocan City, Branch 53.[14] In his answer,[15] private respondent alleged that he refused to vacate the
leased premises because there was a perfected contract of sale of the leased property between him and
petitioner. Private respondent argued that he did not abandon his option to buy the leased property and that his
proposal to renew the lease was but an alternative proposal to the sale. He further contended that the filing of the
ejectment case violated their agreement to maintain the status quo.
On July 28, 1995, the Metropolitan Trial Court rendered a decision in favor of petitioner. The dispositive portion
thereof states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the
defendant and all persons claiming right under him to pay the plaintiff as follows:
1. P12,000.00 per month representing reasonable monthly rental from January 1, 1994 and months
thereafter until defendants shall vacate the subject premises;
2.

P10,000.00 representing attorneys fee;

3.

To pay the cost of suit.

SO ORDERED.[16]
On appeal, the Regional Trial Court reversed the assailed decision, disposing as follows:
WHEREFORE, in view of all the foregoing, the assailed decision of the Metropolitan Trial Court, Branch 53, this City,
rendered on July 28, 1995, is hereby REVERSED and SET ASIDE, with costs de officio.
SO ORDERED.[17]

Aggrieved, petitioner filed a petition for review with the Court of Appeals, which dismissed the
petition. Likewise, the motion for reconsideration was denied on August 29, 1997. Hence, the instant petition
anchored upon the following grounds:
I
THE COURT OF APPEALS AND RTC, CALOOCAN CITY, BRANCH 131, ERRED IN DECLARING THAT
PETITIONER IS GUILTY OF ESTOPPEL IN FILING AN EJECTMENT CASE AGAINST RESPONDENT CO.
II
THE COURT OF APPEALS AND RTC, CALOOCAN CITY, BRANCH 131, ERRED IN FINDING THAT AN
INJUNCTIVE SUIT WILL BAR THE FILING OF EJECTMENT CASE AGAINST RESPONDENT CO.
III
THE RTC, CALOOCAN CITY, BRANCH 131, ERRED IN DECLARING THAT THERE WAS A PERFECTED
CONTRACT OF SALE BETWEEN THE PARTIES OVER THE LEASED PROPERTY.[18]
The petition is impressed with merit.
The Court of Appeals ruled that petitioner was estopped from filing the instant ejectment suit against private
respondent by the alleged status quo agreement reached in the specific performance case filed by private
respondent against petitioner. A reading, however, of the transcript of stenographic notes taken during the January
21, 1994 hearing discloses that the agreement to maintain the status quo pertained only to the duration of the
negotiation for an amicable settlement and was not intended to be operative until the final disposition of the specific
performance case. Thus:
xxx

xxx

xxx

Court
Before we go into the prayer for preliminary injunction and of the merit of the case I want to see if I can
make the parties settle their differences.
Atty. Siapan
We will in the meantime maintain the status quo on the matter pending further negotiation.
Court
As a matter of injunction, are you willing to maintain a status quo muna [?]
Atty. Mendez
Yes, your Honor.
Court
How about Atty. Uy are you willing?
Atty. Uy
Yes, your Honor.
Court

I will not issue any injunction but there will be a status quo and we will concentrate our efforts on letting the
parties to (sic) negotiate and enter into an agreement.[19]
xxx

xxx

xxx

I will give you the same facts of the case. I want to settle this and not go into trial because in due time I will
not finish the case, my stay here is only Acting Presiding Judge and there are other judges nominated for
this sala and once the judge will be (sic) appointed then I go, let us get advantage of settling the matter. I
will have your gentlemans agreement that there will be no adversarial attitude among you will (sic) never
arrive at any agreement.
Atty. Siapan
In the meantime, we will move for a resetting of this case your Honor.
Court
Anyway, this is a gentlemans agreement that there will be no new movement but the status quo will be
maintained.
Atty. Siapan, Atty. Mendez & Atty. Uy.
Yes, your Honor. (simultaneously (sic) in saying)[20]
The foregoing agreement to maintain the status quo pending negotiations was noted by the trial court in its
January 21, 1994 Order postponing the hearing to enable the parties to arrive at an amicable settlement, to wit:
Upon agreement of the parties herein for postponement of todays schedule as there might be some possibility of
settling the claims herein, let the hearing today be cancelled.
In the meantime this case is set for hearing on February 28, 1994 at 8:30 a.m., should the parties not arrive at any
amicable settlement.[21]
It is beyond cavil therefore that the preservation of the status quo agreed upon by the parties applied only
during the period of negotiations for an amicable settlement and cannot be construed to be effective for the duration
of the pendency of the specific performance case. It is a settled rule that injunction suits and specific performance
cases, inter alia, will not preclude the filing of, or abate, an ejectment case. Unlawful detainer and forcible entry suits
under Rule 70 are designed to summarily restore physical possession of a piece of land or building to one who has
been illegally or forcibly deprived thereof, without prejudice to the settlement of the parties' opposing claims of
juridical possession in appropriate proceedings. It has been held that these actions are intended to avoid disruption
of public order by those who would take the law in their hands purportedly to enforce their claimed right of
possession. In these cases, the issue is pure physical or de facto possession, and pronouncements made on
questions of ownership are provisional in nature.[22]
In Wilmon Auto Supply Corporation, et al., v. Court of Appeals, et al.,[23] the issue of whether or not an ejectment
case based on expiration of lease contract should be abated by an action to enforce the right of preemption or prior
purchase of the leased premises was resolved in the negative. The Court outlined the following precedents:
1. Injunction suits instituted in the RTC by defendants in ejectment actions in the municipal trial courts or
other courts of the first level (Nacorda v. Yatco, 17 SCRA 920 [1966]) do not abate the latter; and
neither do proceedings on consignation of rentals (Lim Si v. Lim, 98 Phil. 868 [1956], citing Pue, et al.
v. Gonzales, 87 Phil. 81 [1950]).
2. An "accion publiciana" does not suspend an ejectment suit against the plaintiff in the former (Ramirez v.
Bleza, 106 SCRA 187 [1981]).

3. A "writ of possession case" where ownership is concededly the principal issue before the Regional Trial
Court does not preclude nor bar the execution of the judgment in an unlawful detainer suit where the
only issue involved is the material possession or possession de facto of the premises (Heirs of F.
Guballa, Sr. v. C.A., et al.; etc., 168 SCRA 518 [1988]).
4. An action for quieting of title to property is not a bar to an ejectment suit involving the same property
(Quimpo v. de la Victoria, 46 SCRA 139 [1972]).
5. Suits for specific performance with damages do not affect ejectment actions (e.g., to compel renewal of
a lease contract) (Desamito v. Cuyegkeng, 18 SCRA 1184 [1966]; Rosales v. CFI, 154 SCRA 153
[1987]; Commander Realty, Inc. v. C.A., 161 SCRA 264 [1988]).
6. An action for reformation of instrument (e.g., from deed of absolute sale to one of sale with pacto de
retro) does not suspend an ejectment suit between the same parties (Judith v. Abragan, 66 SCRA 600
[1975]).
7. An action for reconveyance of property or "accion reivindicatoria" also has no effect on ejectment suits
regarding the same property (Del Rosario v. Jimenez, 8 SCRA 549 [1963]; Salinas v. Navarro, 126
SCRA 167; De la Cruz v. C.A., 133 SCRA 520 [1984]); Drilon v. Gaurana, 149 SCRA 352 [1987]; Ching
v. Malaya, 153 SCRA 412 [1987]; Philippine Feeds Milling Co., Inc. v. C.A., 174 SCRA 108; Dante v.
Sison, 174 SCRA 517 [1989]; Guzman v. C.A. [annulment of sale and reconveyance], 177 SCRA 604
[1989]; Demamay v. C.A., 186 SCRA 608 [1990]; Leopoldo Sy v. C.A., et al., [annulment of sale and
reconveyance], G.R. No. 95818, Aug. 2, 1991).
8. Neither do suits for annulment of sale, or title, or document affecting property operate to abate
ejectment actions respecting the same property (Salinas v. Navarro [annulment of deed of sale with
assumption of mortgage and/or to declare the same an equitable mortgage], 126 SCRA 167 [1983];
Ang Ping v. RTC [annulment of sale and title], 154 SCRA 153 [1987]; Caparros v. C.A. [annulment of
title], 170 SCRA 758 [1989]; Dante v. Sison [annulment of sale with damages], 174 SCRA 517; Galgala
v. Benguet Consolidated, Inc. [annulment of document], 177 SCRA 288 [1989]).
The underlying reasons for the above ruling were that the actions in the Regional Trial Court did not involve physical
or de facto possession, and, on not a few occasions, that the case in the Regional Trial Court was merely a ploy to
delay disposition of the ejectment proceeding, or that the issues presented in the former could quite as easily be set
up as defenses in the ejectment action and there resolved.
Only in rare instances is suspension allowed to await the outcome of the pending civil action. In Wilmon, the
Court recognized that Vda. De Legaspi v. Avendao[24] was an exception to the general rule against suspension of an
ejectment proceeding.[25] Thus:
x x x [A]s regards the seemingly contrary ruling in Vda. de Legaspi v. Avendano, 89 SCRA 135 (1977), this Court
observed in Salinas v. Navarro, 126 SCRA 167, 172-173 (1983), that the exception to the rule in this case of Vda. de
Legaspi is based on strong reasons of equity not found in the present petition. The right of the petitioner is not so
seriously placed in issue in the annulment case as to warrant a deviation, on equitable grounds, from the imperative
nature of the rule. In the Vda. de Legaspi case, execution of the decision in the ejectment case would also have
meant demolition of the premises, a factor not present in this petition.
In the case at bar, the continued occupation by private respondent of the leased premises is conditioned upon
his right to acquire ownership over said property. The factual milieu obtaining here, however, hardly falls within the
aforecited exception as the resolution of the ejectment suit will not result in the demolition of the leased premises, as
in the case of Vda. De Legaspi v. Avendao. Verily, private respondent failed to show strong reasons of equity to
sustain the suspension or dismissal of the ejectment case. Argumentum a simili valet in lege. Precedents are

helpful in deciding cases when they are on all fours or at least substantially identical with previous litigations.[26] Faced
with the same scenario on which the general rule is founded, and finding no reason to deviate therefrom, the Court
adheres to the settled jurisprudence that suits involving ownership may not be successfully pleaded in abatement of
an action for ejectment.
Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of the
minds. Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and
terms of payment, a contract is produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional,
and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is
not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any
modification or variation from the terms of the offer annuls the offer.[27]
In the case at bar, while it is true that private respondent informed petitioner that he is accepting the latters offer
to sell the leased property, it appears that they did not reach an agreement as to the extent of the lot subject of the
proposed sale. This is evident from the April 15, 1993 reply-letter of private respondent to petitioner, to wit:
I would like to inform you that I shall definitely exercise my option as embodied in Provision F (First Option) of our
Contract of Lease dated December 21, 1990. As per agreement, my first option covers the 490 square meters site
which I am currently leasing from you at 101 Caimito Road, Caloocan City. Specifically, your Transfer Certificate of
Title #247536 delineates the property sizes as 492 square meters.
Your offer, however, states only 413.28 square meters are for sale to me. I trust that this is merely an oversight on
your part. Notwithstanding the rumors to the effect that part of the property have already been sold to other parties, I
would like to believe that you still retain absolute ownership over the entire property covered by my Contract of
Lease. Kindly enlighten me on this matter so that we can proceed with the negotiations for the sale of your property
to me.[28]
Likewise, in his November 7, 1993 reply-letter, private respondent stated that:
While it is true that you first offered your property for sale to me last April 14, 1993, it is also equally true that you only
correspond with me on this matter again on October 27, 1993. I answered your April 14 offer with a registered mail
on April 15, 1993. In it, I stated that I am definitely exercising my first option to purchase your property in accordance
with Provisions F of our Contract of Lease dated December 21, 1990. Likewise, I requested you to explain the
discrepancy between the size of the property being offered for sale (413.28 square meters) as against the size stated
in my option which is 492 square meters. However, I did not get any reply from you on this matter. Hence the
negotiations got stalled. If anybody should be blamed for the prolonged negotiation, then surely it is not all mine
alone.[29]
The foregoing letters reveal that private respondent did not give his consent to buy only 413.28 square meters
of the leased lot, as he desired to purchase the whole 490 square-meter-leased premises which, however, was not
what was exactly proposed in petitioners offer. Clearly, therefore, private respondents acceptance of petitioners
offer was not absolute, and will consequently not generate consent that would perfect a contract.
Even assuming that the parties reached an agreement as to the size of the lot subject of the sale, the records
show that there was subsequently a mutual withdrawal from the contract. [30] This is so because in the November 10,
1993 letter of petitioner, she gave private respondent until November 24, 1993 to pay 50% of the purchase price, with
the caveat that failure to do so would authorize her to sell to others the leased premises. The period within which to
pay the downpayment is a new term or a counter-offer in the contract which needs acceptance by private
respondent. The latter, however, failed to pay said downpayment, or to at least manifest his conformity to the period

given by petitioner. Neither did private respondent ask for an extension nor insist on the sale of the subject lot. What
appears in the record is private respondents November 29, 1993 letter informing petitioner that he shall exercise or
avail of the option to renew their lease contract for another three years, starting January 1, 1994 to December 31,
1996. Evidently, there was a subsequent mutual backing out from the contract of sale. Hence, private respondent
cannot compel petitioner to sell the leased property to him.
Considering that the lease contract was not renewed after its expiration on December 31, 1991, private
respondent has no more right to continue occupying the leased premises. Consequently, his ejectment therefrom
must be sustained.
As to the monthly rental to be paid by private respondent from the expiration of their contract of lease until the
premises is vacated, we find that the P12,000.00 awarded by the Metropolitan Trial Court must be reduced to
P8,500.00, it being the highest amount of monthly rental stated in the lease contract.
WHEREFORE, the petition is GRANTED. The August 29, 1997 decision and the November 28, 1997 resolution
of the Court of Appeals in CA-G.R. SP No. 40031 are SET ASIDE. The Decision of the Metropolitan Trial Court of
Caloocan, Branch 53, in Civil Case No. 21755 is REINSTATED subject to the modification that the monthly rental to
be paid by private respondent from the date of the termination of the lease contract until the leased premises is
vacated is reduced to P8,500.00.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Austria-Martinez, JJ., concur.

[G.R. No. 128690. January 21, 1999]

ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF APPEALS, REPUBLIC

BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN) seeks
to reverse and set aside the decision[1] of 31 October 1996 and the resolution[2] of 10 March 1997 of the Court of
Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision [3] of 28 April 1993 of the
Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-12309. The latter denied the motion to
reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave ABS-CBN an
exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of
said agreement stating that-

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such
terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABSCBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of
three (3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said
agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however through Mrs. Concio, can tick off only
ten (10) titles (from the list) we can purchase (Exh. 3 Viva) and therefore did not accept said list (TSN, June 8,
1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film Maging
Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending
the purchase of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will
understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are not
for primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures in our
very first contract because of the cheap production value of these movies as well as the lack of big action stars. As a
film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in out nonprimetime slots. We have to cover the amount that was paid for these movies because as you very well know that
non-primetime advertising rates are very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to
have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies
produced last year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.

(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of 52
original movie titles (i.e., not yet aired on television) including the 14 titles subject of the present case, as well as 104
re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles,
proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. 4 to 4-C Viva; 9
Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the Tamarind
Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What transpired in that lunch meeting is
the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN
was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put
this agreement as to the price and number of films in a napkin and signed it and gave it to Mr. Del Rosario (Exh. D;
TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand. Del Rosario denied having made any agreement with
Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted
that what he and Lopez discussed at the lunch meeting was Vivas film package offer of 104 films (52 originals and
52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the
form of a proposal contract Annex C of the complaint (Exh. 1 Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the
terms and conditions of Vivas offer to sell the 104 films, after the rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms. Concio, (Exh.
5 Viva), which reads: Heres the draft of the contract. I hope you find everything in order, to which was attached
a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal covering 53 films, 52 of
which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a consideration
of P35 million. Exhibit C provides that ABS-CBN is granted film rights to 53 films and contains a right of first refusal
to 1992 Viva Films. The said counter proposal was however rejected by Vivas Board of Directors [in the] evening of
the same day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos
(Exh. 9 Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del
Rosario and Vivas President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April
24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. 7-A - RBS; Exh. 4
RBS) including the fourteen (14) films subject of the present case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of
preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting
Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del Rosario. The complaint was
docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private respondents from proceeding
with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the
film Maging Sino Ka Man, which was scheduled to be shown on private respondent RBS channel 7 at seven oclock
in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order [7] directing the issuance of a writ of
preliminary injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the reduction of the
bond,[8] while private respondents moved for reconsideration of the order and offered to put up a counterbond.[9]

In the meantime, private respondents filed separate answer with counterclaim. [10] RBS also set up a cross-claim
against VIVA.
On 3 August 1992, the RTC issued an order [11] dissolving the writ of preliminary injunction upon the posting by
RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such
dissolution. However, it reduced petitioners injunction bond to P15 million as a condition precedent for the
reinstatement of the writ of preliminary injunction should private respondents be unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the possibility of
an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up
a P30 million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond, which
the RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October 1992
Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition[17] challenging the RTCs Order of 3 August and 15 October 1992 and praying for the issuance of a writ of
preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No.
29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order [18] to enjoin the airing,
broadcasting, and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing the petition in CA-G.R. SP
No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19
January 1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter, on 28
April 1993, it rendered a decision[20] in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of defendants
and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants
RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various
newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable
attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged
agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said
agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABSCBNs demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the
1990 Film Exhibition Agreement had previously been exercised per Ms. Concios letter to Del Rosario ticking off ten
titles acceptable to them, which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied [21] ABS-CBNs petition for review in G.R. No. 108363, as no reversible error
was committed by the Court of Appeals in its challenged decision and the case had become moot and academic in
view of the dismissal of the main action by the court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a
perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject
films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and
additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABSCBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario,
its agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBNs evidence that
Lopez III actually wrote down such an agreement on a napkin, as the same was never produced in court. It likewise
rejected ABS-CBNs insistence on its right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into
between Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such
terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABSCBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to such terms as
may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15)
days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film right to the
twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10)
films, and the draft contract Exhibit C accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the
next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p. 11,
Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of
ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABSCBN exercised its right of refusal by rejecting the offer of VIVA. As aptly observed by the trial court, with the said
letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen
(15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of
Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already
expired.[22]

Accordingly, respondent court sustained the award factual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss
which RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages,
the Court of Appeals found reasonable basis therefor, holding that RBSs reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by the non-showing of the film Maging Sino Ka Man. Respondent
court also held that exemplary damages were correctly imposed by way of example or correction for the public good
in view of the filing of the complaint despite petitioners knowledge that the contract with VIVA had not been
perfected. It also upheld the award of attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No.
Q-92-12309, RBS was unnecessarily forced to litigate. The appellate court, however, reduced the awards of moral
damages to P 2 million, exemplary damages to P2 million, and attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it was RBS
and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the
Court of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND
PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONFERANCE OF EVIDENCE
ADDUCED BY PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT
RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990
Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to
Lopezs testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions
of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper
napkin. It also asserts that the contract has already been effective, as the elements thereof, namely, consent, object,
and consideration were established. It then concludes that the Court of Appeals pronouncements were not
supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court
of Appeals,[23] which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of Appeals,
[25]
and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium
on the counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had
ventilated their respective positions during the hearings for the purpose. The filing of the counterbond was an option
available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS
had another available option, i.e., move for the dissolution of the injunction; or if it was determined to put up a
counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party
suffering loss injury is also required to exercise the diligence of a good father of a family to minimize the damages
resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly established
that this was a loss attributable to the non-showing of Maging Sino Ka Man; on the contrary, it was brought out

during trial that with or without the case or injunction, RBS would have spent such an amount to generate interest in
the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and exemplary
damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction
between them. The claims for such damages did not arise from any contractual dealings or from specific acts
committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by
virtue only of the filing of the complaint. An award of moral and exemplary damages is not warranted where the
record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. [27] In any case, free resort
to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue for that
which he honestly believes to be his right without fear of standing trial for damages where by lack of
sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would lose
ground.[28] One who, makes use of his own legal right does no injury. [29] If damage results from filing of the complaint,
it is damnum absque injuria.[30] Besides, moral damages are generally not awarded in favor of a juridical person,
unless it enjoys a good reputation that was debased by the offending party resulting in social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or equitable
justification. In sustaining the trial courts award, the Court of Appeals acted in clear disregard of the doctrine laid
down in Buan v. Camaganacan[32] that the text of the decision should state the reason why attorneys fees are being
awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved
as having been committed by, ABS-CBN. It has been held that where no sufficient showing of bad faith would be
reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause,
attorneys fees shall not be recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent
meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that ABSCBNs claim of a right of first refusal was correctly rejected by the trial court. RBS insists the premium it had paid for
the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbond
due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid
claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium
paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as
the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or
was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film
Maging Sino Ka Man because the print advertisements were out to announce the showing on a particular day and
hour on Channel 7, i.e., in its entirety at one time, not as series to be shown on a periodic basis. Hence, the print
advertisements were good and relevant for the particular date of showing, and since the film could not be shown on
that particular date and hour because of the injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions
purely for the purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABSCBN must be held liable for such damages. Citing Tolentino,[34] damages may be awarded in cases of abuse of rights
even if the done is not illicit, and there is abuse of rights where a plaintiff institutes an action purely for the purpose of
harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondent RBS
cited People v. Manero,[35] where it was stated that such entity may recover moral and exemplary damages if it has a
good reputation that is debased resulting in social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When RBS was not
able to fulfill its commitment to the viewing public to show the film Maging Sino Ka Man on the scheduled dates and
times (and on two occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When

the showing was cancelled, irate viewers called up RBS offices and subjected RBS to verbal abuse (Announce
kayo ng announce, hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not
something RBS brought upon itself. It was exactly what ABS-CBN had planted to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the
award.
The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting company is
[sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an
exaggeration to state, and it is a matter of judicial notice that almost every other person in the country watches
television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the
showing of the film, Maging Sino Ka Man on May 28 and November 3, 1992 but did not see it owing to the
cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS
had a commitment in consideration of the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury are far greater
in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this case)
away from the competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of
Appeals do not support ABS-CBNs claim that there was a perfected contract. Such factual findings can no longer be
disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On
the issue of damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABSCBN, and (2) whether RBS is entitled to damages and attorneys fees. It may be noted that that award of attorneys
fees of P212,000 in favor of VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons
whereby one binds himself to give something or render some service to another [37] for a consideration. There is no
contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the
subject of the contract; and (3) cause of the obligation, which is established.[38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms
of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a
contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance
of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counteroffer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation
from the terms of the offer annuls the offer.[40]

When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the
package of films, said package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a draft contract proposing
exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counteroffer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no
acceptance of VIVAs offer, for it was met by a counter-offer which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41] and Villonco Realty Company v.
Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance as long as it is clear that the meaning of the
acceptance is positively and unequivocally to accept the offer, whether such request is granted or not. This ruling
was, however, reversed in the resolution of 29 March 1996,[43] which ruled that the acceptance of an offer must be
unqualified and absolute, i.e., it must be identical in all respects with that of the offer so as to produce consent or
meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not
material but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin
Life Insurance Co.[44] that a vendors change in a phrase of the offer to purchase, which change does not essentially
change the terms of the offer, does not amount to a rejection of the offer and the tender of a counteroffer.[45] However, when any of the elements of the contract is modified upon acceptance, such alteration amounts to
a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent period of
bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract. VIVA through its
Board of Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the
counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific
authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the power
to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers. The delegation, except for the executive
committee, must be for specific purposes.[47] Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts would apply. [48] For such officers to be
deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to
do so. that Del Rosario did not have the authority to accept ABS-CBNs counter-offer was best evidenced by his
submission of the draft contract to VIVAs Board of Directors for the latters approval. In any event, there was
between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBNs claim that a contract was perfected at that lunch meeting on
April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of
films, which he wrote on a napkin. However, Exhibit C contains numerous provisions which were not discussed at
the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically written on a
napkin. There was even doubt as to whether it was a paper napkin or cloth napkin. In short what were written in
Exhibit C were not discussed, and therefore could not have been agreed upon, by the parties. How then could this
court compel the parties to sign Exhibit C when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The
complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53 films as its subject matter. Which is
which? If Exhibit C reflected the true intent of the parties, then ABS-CBNs claim for 14 films in its complaint is false
or if what it alleged in the complaint is true, then Exhibit C did not reflect what was agreed upon by the parties. This

underscores the fact that there was no meeting of the minds as to the subject matter of the contract, so as to
preclude perfection thereof. For settled is the rule that there can be no contract where there is no object certain
which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we
agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We
had already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00 equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies
because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies and
the sharing between the cash portion and the concerned spot portion in the total amount of P35 million
pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario with a
handwritten note, describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said
draft has a well defined meaning.

Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms
and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva. Exhibit C could not
therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions
embodied in Exhibit C were prepared by ABS-CBNs lawyers and there was no discussion on said terms and
conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no evidence
whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The
fact that Viva refused to sign Exhibit C reveals only two [sic] well that it did not agree on its terms and conditions,
and this court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only
provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you have
the meeting of the minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board
of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?

A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)

Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to
a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr.
Del Rosario is the Executive Producer of defendant Viva which is a corporation. (par. 2, complaint). As a mere
agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Directors. (Vicente vs.Geraldez, 52
SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del
Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has no legal
basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to
have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is
as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23,
Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario
arrived at could not ripen into a valid binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA
763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit C and insisted that the film
package for 104 films be maintained (Exh. 7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the
1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said
previous contract is untenable. As observed by the trial court, ABS-CBNs right of first refusal had already been
exercised when Ms. Concio wrote to Viva ticking off ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely
different package. Ms. Concio herself admitted on cross-examination to having used or exercised the right of
first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (Tsn, June
8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of first refusal may have been already
exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and
understand [sic] that ABS-CBN has lost its right of first refusal when his list of 36 titles were rejected (Tsn, June
9, 1992, pp. 10-11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2,
Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by
law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him
as he has duly proved.[51] The indemnification shall comprehend not only the value of the loss suffered, but also that
of the profits that the obligee failed to obtain.[52] In contracts and quasi-contracts the damages which may be awarded
are dependent on whether the obligor acted with good faith or otherwise. In case of good faith, the damages
recoverable are those which are the natural and probable consequences of the breach of the obligation and which
the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the
obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation. [53] In crimes and quasi-delicts, the defendants shall be

liable for all damages which are the natural and probable consequences of the act or omission complained of,
whether or not such damages have been foreseen or could have reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or
permanent personal injury, or for injury to the plaintiffs business standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose
from the fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of cause of action. Thus
paragraph 12 of RBSs Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically
alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a
result thereof, RBS suffered actual damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual
damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as
follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall indemnify the
latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the
defendant may suffer by reason of the writ are recoverable from the injunctive bond. [57] In this case, ABS-CBN had
not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of
Appeals to challenge the order on the matter. Clearly then, it was not necessary for RBS to file a
counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of sufficient
legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its
determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the
injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up
a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be recovered
as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no
premium should be placed on the right to litigate.[59] They are not to be awarded every time a party wins a suit. The
power of the court t award attorneys fees under Article 2208 demands factual, legal, and equitable justification.
[60]
Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still
attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in a partys
persistence in a case other than an erroneous conviction of the righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof
defines what are included in moral damages, while Article 2219 enumerates the cases where they may be
recovered. Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant
acted fraudulently or in bad faith. RBSs claim for moral damages could possibly fall only under item (10) of Article
2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered
and not to impose a penalty on the wrongdoer.[62] The award is not meant to enrich the complainant at the expense of
the defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate
the moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to the suffering inflicted.[63] Trial courts must then guard against
the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice, or corruption or the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person
and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore,
experience physical suffering and mental anguish, which can be experienced only by one having a nervous system.
[65]
The statement in People v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation may recover moral
damages if it has a good reputation that is debased, resulting in social humiliation is an obiter dictum. On this score
alone the award for damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil Code. These are
imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or
compensatory damages.[68] They are recoverable in criminal cases as part of the civil liability when the crime was
committed with one or more aggravating circumstances;[69] in quasi-delicts, if the defendant acted with gross
negligence;[70] and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or
quasi-delict. Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of
the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2)
which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the
general sanction for all provisions of law which do not especially provide for their own sanction; while Article 21 deals
with acts contra bonus mores, and has the following elements: (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it is done with intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious
and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. [73]Such must be substantiated
by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the
merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft
contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject
the actor to damages, for the law could not have meant impose a penalty on the right to litigate. If damages result
from a persons exercise of a right, it is damnum absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R.
CV No. 44125 is hereby REVERSED except as to unappealed award of attorneys fees in favor of VIVA Productions,
Inc.
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez, and Pardo, JJ., concur.

[G.R. No. 135929. April 20, 2001]

LOURDES ONG LIMSON, petitioner, vs. COURT OF APPEALS, SPOUSES LORENZO DE VERA and
ASUNCION SANTOS-DE VERA, TOMAS CUENCA, JR., and SUNVAR REALTY DEVELOPMENT
CORPORATION, respondents.
DECISION
BELLOSILLO, J.:
Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to review, reverse and set
aside the Decision[1] of the Court of Appeals dated 18 May 1998 reversing that of the Regional Trial Court dated 30
June 1993. The petition likewise assails the Resolution[2] of the appellate court of 19 October 1998 denying
petitioners Motion for Reconsideration.
Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before the trial court,[3] alleged that in July
1978 respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez,
offered to sell to petitioner a parcel of land consisting of 48,260 square meters, more or less, situated in Barrio San
Dionisio, Paraaque, Metro Manila; that respondent spouses informed her that they were the owners of the subject
property; that on 31 July 1978 she agreed to buy the property at the price of P34.00 per square meter and gave the
sum of P20,000.00 to respondent spouses as "earnest money;" that respondent spouses signed a receipt therefor
and gave her a 10-day option period to purchase the property; that respondent Lorenzo de Vera then informed her
that the subject property was mortgaged to Emilio Ramos and Isidro Ramos; that respondent Lorenzo de Vera asked
her to pay the balance of the purchase price to enable him and his wife to settle their obligation with the Ramoses.
Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August 1978 at the
Office of the Registry of Deeds of Makati, Metro Manila, to consummate the transaction but due to the failure of
respondent Asuncion Santos-de Vera and the Ramoses to appear, no transaction was formalized. In a second
meeting scheduled on 11 August 1978 she claimed that she was willing and ready to pay the balance of the purchase
price but the transaction again did not materialize as respondent spouses failed to pay the back taxes of subject
property. Subsequently, on 23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3) checks in
the total amount of P36,170.00 for the settlement of the back taxes of the property and for the payment of the
quitclaims of the three (3) tenants of subject land. The amount was purportedly considered part of the purchase price
and respondent Lorenzo de Vera signed the receipts therefor.
Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of respondent spouses
that the property was the subject of a negotiation for the sale to respondent Sunvar Realty Development Corporation
(SUNVAR) represented by respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that
although respondent spouses purchased the property from the Ramoses on 20 March 1970 it was only on 15
September 1978 that TCT No. S-72946 covering the property was issued to respondent spouses. As a
consequence, she filed on the same day an Affidavit of Adverse Claim with the Office of the Registry of Deeds of
Makati, Metro Manila, which was annotated on TCT No. S-72946. She also claimed that on the same day she
informed respondent Cuenca of her "contract" to purchase the property.
The Deed of Sale between respondent spouses and respondent SUNVAR was executed on 15 September
1978 and TCT No. S-72377 was issued in favor of the latter on 26 September 1978 with theAdverse Claim of
petitioner annotated thereon. Petitioner claimed that when respondent spouses sold the property in dispute to

SUNVAR, her valid and legal right to purchase it was ignored if not violated. Moreover, she maintained that SUNVAR
was in bad faith as it knew of her "contract" to purchase the subject property from respondent spouses.
Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her damage, prejudice
and injury, petitioner claimed that the Deed of Sale, should be annuled and TCT No. S-72377 in the name of
respondent SUNVAR canceled and TCT No. S-72946 restored. She also insisted that a Deed of Sale between her
and respondent spouses be now executed upon her payment of the balance of the purchase price agreed upon, plus
damages and attorneys fees.
In their Answer[4] respondent spouses maintained that petitioner had no sufficient cause of action against them;
that she was not the real party in interest; that the option to buy the property had long expired; that there was no
perfected contract to sell between them; and, that petitioner had no legal capacity to sue. Additionally, respondent
spouses claimed actual, moral and exemplary damages, and attorneys fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in their Answer,[5] alleged that petitioner was not the
proper party in interest and/or had no cause of action against them. But, even assuming that petitioner was the
proper party in interest, they claimed that she could only be entitled to the return of any amount received by
respondent spouses. In the alternative, they argued that petitioner had lost her option to buy the property for failure
to comply with the terms and conditions of the agreement as embodied in the receipt issued therefor. Moreover, they
contended that at the time of the execution of theDeed of Sale and the payment of consideration to respondent
spouses, they "did not know nor was informed" of petitioners interest or claim over the subject property. They
claimed furthermore that it was only after the signing of the Deed of Sale and the payment of the corresponding
amounts to respondent spouses that they came to know of the claim of petitioner as it was only then that they were
furnished copy of the title to the property where the Adverse Claim of petitioner was annotated. Consequently, they
also instituted a Cross-Claim against respondent spouses for bad faith in encouraging the negotiations between them
without telling them of the claim of petitioner. The same respondents maintained that had they known of the claim of
petitioner, they would not have initiated negotiations with respondent spouses for the purchase of the property. Thus,
they prayed for reimbursement of all amounts and monies received from them by respondent spouses, attorneys
fees and expenses for litigation in the event that the trial court should annul the Deed of Sale and deprive them of
their ownership and possession of the subject land.
In their Answer to the Cross-Claim[6] of respondents SUNVAR and Cuenca, respondent spouses insisted that
they negotiated with the former only after the expiration of the option period given to petitioner and her failure to
comply with her commitments thereunder. Respondent spouses contended that they acted legally and validly, in all
honesty and good faith. According to them, respondent SUNVAR made a verification of the title with the Office of the
Register of Deeds of Metro Manila District IV before the execution of the Deed of Absolute Sale. Also, they claimed
that the Cross-Claim was barred by a written waiver executed by respondent SUNVAR in their favor. Thus,
respondent spouses prayed for actual damages for the unjustified filing of the Cross-Claim, moral damages for the
mental anguish and similar injuries they suffered by reason thereof, exemplary damages "to prevent others from
emulating the bad example" of respondents SUNVAR and Cuenca, plus attorneys fees.
After a protracted trial and reconstitution of the court records due to the fire that razed the Pasay City Hall on 18
January 1992, the Regional Trial Court rendered its 30 June 1993 Decision[7] in favor of petitioner. It ordered (a) the
annulment and rescission of the Deed of Absolute Sale executed on 15 September 1978 by respondent spouses in
favor of respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of the Registry of Deeds,
Makati, Metro Manila, issued in the name of respondent Sunvar Realty Development Corporation, and the restoration
or reinstatement of TCT No. S-72946 of the same Registry issued in the name of respondent spouses; (c)
respondent spouses to execute a deed of sale conveying ownership of the property covered by TCT No. S-72946 in
favor of petitioner upon her payment of the balance of the purchase price agreed upon; and, (d) respondent spouses
to pay petitioner P50,000.00 as and for attorneys fees, and to pay the costs.
On appeal, the Court of Appeals completely reversed the decision of the trial court. It ordered (a) the Register
of Deeds of Makati City to lift the Adverse Claim and such other encumbrances petitioner might have filed or caused

to be annotated on TCT No. S-75377; and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal
damages, P30,000.00 as exemplary damages and P20,000 as attorneys fees; (2) respondent spouses, P15,000.00
as nominal damages, P10,000.00 as exemplary damages and P10,000.00 as attorneys fees; and, (3) the costs.
Petitioner timely filed a Motion for Reconsideration which was denied by the Court of Appeals on 19 October
1998. Hence, this petition.
At issue for resolution by the Court is the nature of the contract entered into between petitioner Lourdes Ong
Limson on one hand, and respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.
The main argument of petitioner is that there was a perfected contract to sell between her and respondent
spouses. On the other hand, respondent spouses and respondents SUNVAR and Cuenca argue that what was
perfected between petitioner and respondent spouses was a mere option.
A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the
agreement between the parties was a contract of option and not a contract to sell.
An option, as used in the law of sales, is a continuing offer or contract by which the owner stipulates with
another that the latter shall have the right to buy the property at a fixed price within a time certain, or under, or in
compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand
a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the
privilege to buy.[8] It is not a sale of property but a sale of the right to purchase. [9] It is simply a contract by which the
owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a
certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or
privilege to buy at the election or option of the other party. [10] Its distinguishing characteristic is that it imposes no
binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is
not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right
in the subject matter, but is merely a contract by which the owner of the property gives the optionee the right or
privilege of accepting the offer and buying the property on certain terms.[11]
On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some service. [12] Contracts, in
general, are perfected by mere consent,[13] which is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
[14]

The Receipt[15] that contains the contract between petitioner and respondent spouses provides
Received from Lourdes Limson the sum of Twenty Thousand Pesos (P20,000.00) under Check No. 22391 dated July
31, 1978 as earnest money with option to purchase a parcel of land owned by Lorenzo de Vera located at Barrio San
Dionisio, Municipality of Paraaque, Province of Rizal with an area of forty eight thousand two hundred sixty square
meters more or less at the price of Thirty Four Pesos (P34.00)[16] cash subject to the condition and stipulation that
have been agreed upon by the buyer and me which will form part of the receipt. Should the transaction of the
property not materialize not on the fault of the buyer, I obligate myself to return the full amount of P20,000.00 earnest
money with option to buy or forfeit on the fault of the buyer. I guarantee to notify the buyer Lourdes Limson or her
representative and get her conformity should I sell or encumber this property to a third person. This option to buy is
good within ten (10) days until the absolute deed of sale is finally signed by the parties or the failure of the buyer to
comply with the terms of the option to buy as herein attached.
In the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged
by looking to the words they used to project that intention in their contract, all the words, not just a particular word or
two, and words in context, not words standing alone.[17] The above Receipt readily shows that respondent spouses
and petitioner only entered into a contract of option; a contract by which respondent spouses agreed with petitioner
that the latter shall have the right to buy the formers property at a fixed price of P34.00 per square meter within ten

(10) days from 31 July 1978. Respondent spouses did not sell their property; they did not also agree to sell it; but
they sold something, i.e., the privilege to buy at the election or option of petitioner. The agreement imposed no
binding obligation on petitioner, aside from the consideration for the offer.
The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money."
However, a careful examination of the words used indicates that the money is not earnest money but option
money. "Earnest money" and "option money" are not the same but distinguished thus: (a) earnest money is part of
the purchase price, while option money is the money given as a distinct consideration for an option contract; (b)
earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected;
and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives
option money, he is not required to buy,[18] but may even forfeit it depending on the terms of the option.
There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price. Moreover, it
was not shown that there was a perfected sale between the parties where earnest money was given. Finally, when
petitioner gave the "earnest money," the Receipt did not reveal that she was bound to pay the balance of the
purchase price. In fact, she could even forfeit the money given if the terms of the option were not met. Thus,
the P20,000.00 could only be money given as consideration for the option contract. That the contract between the
parties is one of option is buttressed by the provision therein that should the transaction of the property not
materialize without fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to return the full amount
of P20,000.00 "earnest money" with option to buy or forfeit the same on the fault of petitioner. It is further bolstered
by the provision therein that guarantees petitioner that she or her representative would be notified in case the subject
property was sold or encumbered to a third person. Finally, the Receipt provided for a period within which the option
to buy was to be exercised, i.e., "within ten (10) days" from 31 July 1978.
Doubtless, the agreement between respondent spouses and petitioner was an "option contract" or what is
sometimes called an "unaccepted offer." During the option period the agreement was not converted into a bilateral
promise to sell and to buy where both respondent spouses and petitioner were then reciprocally bound to comply
with their respective undertakings as petitioner did not timely, affirmatively and clearly accept the offer of respondent
spouses.
The rule is that except where a formal acceptance is not required, although the acceptance must be
affirmatively and clearly made and evidenced by some acts or conduct communicated to the offeror, it may be made
either in a formal or an informal manner, and may be shown by acts, conduct or words by the accepting party that
clearly manifest a present intention or determination to accept the offer to buy or sell. But there is nothing in the acts,
conduct or words of petitioner that clearly manifest a present intention or determination to accept the offer to buy the
property of respondent spouses within the 10-day option period. The only occasion within the option period when
petitioner could have demonstrated her acceptance was on 5 August 1978 when, according to her, she agreed to
meet respondent spouses and the Ramoses at the Office of the Register of Deeds of Makati. Petitioners agreement
to meet with respondent spouses presupposes an invitation from the latter, which only emphasizes their persistence
in offering the property to the former. But whether that showed acceptance by petitioner of the offer is hazy and
dubious.
On or before 10 August 1978, the last day of the option period, no affirmative or clear manifestation was made
by petitioner to accept the offer. Certainly, there was no concurrence of private respondent spouses offer and
petitioners acceptance thereof within the option period. Consequently, there was no perfected contract to sell
between the parties.
On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the property of
respondent spouses ceased. The subsequent meetings and negotiations, specifically on 11 and 23 August 1978,
between the parties only showed the desire of respondent spouses to sell their property to petitioner. Also, on 14
September 1978 when respondent spouses sent a telegram to petitioner demanding full payment of the purchase
price on even date simply demonstrated an inclination to give her preference to buy subject property. Collectively,
these instances did not indicate that petitioner still had the exclusive right to purchase subject property. Verily, the

commencement of negotiations between respondent spouses and respondent SUNVAR clearly manifested that their
offer to sell subject property to petitioner was no longer exclusive to her.
We cannot subscribe to the argument of petitioner that respondent spouses extended the option period when
they extended the authority of their agent until 31 August 1978. The extension of the contract of agency could not
operate to extend the option period between the parties in the instant case. The extension must not be implied but
categorical and must show the clear intention of the parties.
As to whether respondent spouses were at fault for the non-consummation of their contract with petitioner, we
agree with the appellate court that they were not to be blamed. First, within the option period, or on 4 August 1978, it
was respondent spouses and not petitioner who initiated the meeting at the Office of the Register of Deeds of
Makati. Second, that the Ramoses failed to appear on 4 August 1978 was beyond the control of respondent
spouses. Third, the succeeding meetings that transpired to consummate the contract were all beyond the option
period and, as declared by the Court of Appeals, the question of who was at fault was already immaterial. Fourth,
even assuming that the meetings were within the option period, the presence of petitioner was not enough as she
was not even prepared to pay the purchase price in cash as agreed upon. Finally, even without the presence of the
Ramoses, petitioner could have easily made the necessary payment in cash as the price of the property was already
set atP34.00 per square meter and payment of the mortgage could very well be left to respondent spouses.
Petitioner further claims that when respondent spouses sent her a telegram demanding full payment of the
purchase price on 14 September 1978 it was an acknowledgment of their contract to sell, thus denying them the right
to claim otherwise.
We do not agree. As explained above, there was no contract to sell between petitioner and respondent
spouses to speak of. Verily, the telegram could not operate to estop them from claiming that there was such contract
between them and petitioner. Neither could it mean that respondent spouses extended the option period. The
telegram only showed that respondent spouses were willing to give petitioner a chance to buy subject property even
if it was no longer exclusive.
The option period having expired and acceptance was not effectively made by petitioner, the purchase of
subject property by respondent SUNVAR was perfectly valid and entered into in good faith. Petitioner claims that in
August 1978 Hermigildo Sanchez, the son of respondent spouses agent, Marcosa Sanchez, informed Marixi Prieto,
a member of the Board of Directors of respondent SUNVAR, that the property was already sold to petitioner. Also,
petitioner maintains that on 5 September 1978 respondent Cuenca met with her and offered to buy the property from
her at P45.00 per square meter. Petitioner contends that these incidents, including the annotation of her Adverse
Claim on the title of subject property on 15 September 1978 show that respondent SUNVAR was aware of the
perfected sale between her and respondent spouses, thus making respondent SUNVAR a buyer in bad faith.
Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are immaterial as they were
beyond the option period given to petitioner. On the other hand, the referral to sometime in August 1978 in the
testimony of Hermigildo Sanchez as emphasized by petitioner in her petition is very vague. It could be within or
beyond the option period. Clearly then, even assuming that the meeting with Marixi Prieto actually transpired, it
could not necessarily mean that she knew of the agreement between petitioner and respondent spouses for the
purchase of subject property as the meeting could have occurred beyond the option period. In which case, no bad
faith could be attributed to respondent SUNVAR. If, on the other hand, the meeting was within the option period,
petitioner was remiss in her duty to prove so. Necessarily, we are left with the conclusion that respondent SUNVAR
bought subject property from respondent spouses in good faith, for value and without knowledge of any flaw or defect
in its title.
The appellate court awarded nominal and exemplary damages plus attorneys fees to respondent spouses and
respondent SUNVAR. But nominal damages are adjudicated to vindicate or recognize the right of the plaintiff that
has been violated or invaded by the defendant.[19] In the instant case, the Court recognizes the rights of all the parties
and finds no violation or invasion of the rights of respondents by petitioner. Petitioner, in filing her complaint, only
seeks relief, in good faith, for what she believes she was entitled to and should not be made to suffer

therefor. Neither should exemplary damages be awarded to respondents as they are imposed only by way of
example or correction for the public good and only in addition to the moral, temperate, liquidated or compensatory
damages.[20] No such kinds of damages were awarded by the Court of Appeals, only nominal, which was not justified
in this case. Finally, attorneys fees could not also be recovered as the Court does not deem it just and equitable
under the circumstances.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals ordering the Register of Deeds of
Makati City to lift the adverse claim and such other encumbrances petitioner Lourdes Ong Limson may have filed or
caused to be annotated on TCT No. S-75377 is AFFIRMED, with the MODIFICATION that the award of nominal and
exemplary damages as well as attorneys fees is DELETED.
SO ORDERED.
Mendoza, Quisumbing and Buena JJ., concur.
De Leon, Jr., J., on leave.

G.R. No. L-18403

September 30, 1961

IN RE ADMINISTRATION OF THE ESTATE OF PASCUAL VILLANUEVA. MAURICIA G. DE

VILLANUEVA,petitioner,
vs.
PHILIPPINE NATIONAL BANK, defendant-appellant.
Ramon B. de los Reyes for defendant-appellant.
Marcos M. Calo for petitioners.

PAREDES, J.:
A case certified by the Court of Appeals on the ground that the issues involved are purely of law.
For the administration of the estate of her deceased husband, Pascual Villanueva, the widow Mauricia G. Villanueva,
on December 19, 1949, petitioned the Court of First Instance of Agusan, for letters of Administration (Sp. Proc. No.
67). The petition was set for hearing and Notice thereof was published on February 25, March 4, and 11, 1950, in the
Manila Daily Bulletin. At the hearing, other heirs while agreeing to the placing of estate under administration, opposed
the appointment the widow. The name of Atty. Teodulo R. Ricaforte, suggested and all the parties agreed. After the
taking the required oath, Atty. Ricaforte entered upon the performance of his duties. Under date of November 9, 1950
the Clerk of the Agusan CFI, issued the following Notice to Creditors:
Letters of administration having been issued in the above entitled case in favor of Teodulo R. Ricaforte for
the settle of the intestate of Pascual Villanueva, deceased;
Notice is hereby given to all persons having claims for money against the decedent, the said Pascual
Villanueva, arising from contract, express or implied, whether the same be due, not due or contingent, for
funeral expenses and expenses of last sickness of the deceased, and Judgment for money against him,
requiring them to file their claims with the clerk of court within six but not beyond twelve months after date of

the first publication of this notice, serving copies of such claims upon administrator, the said Teodulo R.
Ricaforte.
The above notice contained the usual order for publication thereof (once a week for three consecutive weeks) which
was effected, thru the Morning Times of City, a newspaper of general circulation, on Nov. 16, 23 and 30, 1950, which
expired on November 16, 1951.
On July 20, 1953, the defendant-appellant Philippine National Bank filed in the administration proceedings, Creditor's
Claim of the following tenor
The Philippine National Bank, Creditor of Pascual Villanueva, deceased, respectfully presents its claim
against the estate of the said deceased for Approval as follows:
Original amount thru Agusan Agency on Dec. 20, 1939 ........................................................ P600.00
To int. at 10%: on P600.00 fr. 12-20-39 to 6-5-53 ...................................................................... 747.45
Total due as of June 5, 1953 (Daily int. of P0.1644 after June 5, 1953) .......................... P1,347.45
That the said obligation has been due demandable since Dec. 20, 1940; that the same is true and just claim
and that it is still unpaid without any set-off.
On October 12, 1954, the Philippine National Bank filed a Motion for Admission of claim, stating
1. That the Philippine National Bank filed its claim dated July 20, 1953;
2. That the last action taken on the claim was an ordered this Honorable Court issued on March 20, 1954,
transferring the hearing of the claim until the next calendar of the court, without objection of the
administrator;
3. That the administrator has not answered the claim nor denied the same.1awphl.nt
WHEREFORE, it is respectfully prayed that an order be issued admitting and approving the claim and
ordering the administrator to pay the Bank the amount of the claim.
The administrator, on November 5, 1954, opposed the alleging that he had no knowledge or information sufficient to
form a belief as to the truth of the allegations therein. As special defenses, he interposed
That the same indebtedness, if it existed, has already been paid;
That the caused action for the recovery of the aforesaid amount of P1,847.45 is barred by the statute of
limitations, for more than ten (10) Years have elapsed since the cause of action accrued up to present time;
That the said claim is barred forever on the ground that notice to creditors having been published in the
MORNING TIMES of Cebu City, a newspaper of general circulation in on November 16, 23 and 30, 1950, ...
the Philippine National Bank failed to file its claim within the time limited in the notice, ....

The appellant PNB, on November 14, 1958, more than four (4) Years after the opposition of the claim presented by
the administrator, filed a pleading captioned "Petition for an Extension of time within which to File the Claim of
Philippine National Bank", alleging, among others, that Sec. 2, Rule 87 of the Rules, allows the filing of claims even if
the period stated in the notice to creditors elapsed, upon cause shown and on such terms as equitable; that its failure
to present the claiming with the period stated in the notice, was its lack of knowledge of administration proceedings,
for while said maintains a branch office in Agusan, the employees did not come to know of the proceedings, the
notice has been published in the Morning Times, a newspaper very limited circulation.
On January 16, 1959, the CFI issued the following Order
It appearing that the claim of the Philippine National Bank against the estate of the deceased Pascual
Villanueva already barred by the statute of limitations because the claim was due and demandable since
December 20, 1940, but filed on July 20, 1953, after the expiration of ten years, considering that said filing
was furthermore not present court within the period fixed by Sec. 2, Rule 87 of the Rules of Court, and no
reason having been shown to justify the tension of time for its filing, the Court resolves to deny it as it hereby
denies the petition for an extension of time for filing of the claim by the Philippine National Bank. The failure
of the Bank to present on time the claim was due its own fault and can hardly be considered excusable
negligence.
Appellant Bank moved to reconsider the above Order, arguing that the statute of limitations had been suspended by
the Moratorium Law, and that the courts can extend the period limited in the notice, under special circumstances, and
on grounds of equity (Velasquez v. Teod 46 Phil. 757). The PNB listed five incidents, which considered special
circumstances to warrant the of the extension to present the claim, among which the lack of knowledge of the
pendency of the administration proceedings; the legitimacy of the loan secured the deceased; that when it filed the
claim, it did know that the period stated in the notice had already expired.
In disposing the motion for reconsideration, the lower court, on March 3,1959, said
The Court believes that the filing of money claim on July 20, 1953 in the Office of the Clerk of Court did not
suspend running of the period of prescription because said claim was filed out of time and therefore invalid
for all legal purposes. A careful revision of the record shows that the Philippine National Bank, contrary to
the pretension of its counsel, had knowledge of the present administration proceedings long before July 20,
1953, because the second payment of the claim due to the deceased Pascual Villanueva from the Philippine
War Damage Commission in the amount of P6,441.30, was deposited in the Agusan Agency of the Bank in
June, 1951. And in the inventory filed by the new administrator Francisco S. Conde, on February 27, 1957,
the following item appears:
Money belonging to the said deceased which came into the hands of the administrator on
December 1, 1951, appearing in the Bank A-1114, Agusan Agency deposited by the late
administrator Teodulo R. Ricaforte. P6,897.52.
WHEREFORE, the motion for reconsideration is denied for lack of merits.
The order of January 16, 1959 was the subject of the appeal to the Court of Appeals which, as stated at the threshold
of this opinion, certified the same to this Court.

The important issue presented is whether or not the in question is already barred. Admittedly, the claim was filed
outside of the period provided for in the Order of the lower court, within which to present claims against the estate.
The period fixed in the notice lapsed on November 16, 1951 and the claim was filed on July 20, 1953 or about 1 year
and 8 months late. This notwithstanding, appellant contends that it did not know of such administration proceedings,
not even its employees in the Branch Office in Butuan City, Agusan. It is to be noted that the petition for Letters of
Administration and the Notice to Creditors were duly published in the Manila Daily Bulletin and in the Morning Times,
respectively, which was a full compliance with the requirements of the Rules. Moreover, the supposed lack of
knowledge of the proceedings on the part of appellant and its employees had been belied by uncontested and
eloquent evidence, consisting of a deposit of an amount of money by the administrator Of the estate in said Bank
(Agusan Agency). The deposit was made on December 1, 1951, inspite of which the appellant Bank only filed its
claim on July 20, 1953. It is quite true that the Courts can extend the period within Which to present claims against
the estate, even after the period limited has elapsed; but such extension should be granted under special
circumstances. The lower did not find any justifiable reason to give the extension and for one thing, there was no
period to extend, the same had elapsed.
Having reached the above conclusions, We deem it necessary to determine the question as to whether or not the
Moratorium Law had suspended the prescriptive period for filing of the claim under consideration.
WHEREFORE, the order subject of the appeal is hereby affirmed, with costs against appellant Philippine National
Bank, in both instances.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Dizon, Regala and Makalintal, JJ., concur.
Concepcion, Reyes, J.B.L., and Barrera, took no part.
FIRST DIVISION
CORAZON CATALAN,
LIBRADA CATALAN-LIM,
EULOGIO CATALAN,
MILA CATALAN-MILAN,
ZENAIDA CATALAN,
ALEX CATALAN, DAISY
CATALAN, FLORIDA
CATALAN and GEMMA
CATALAN, Heirs of the late
FELICIANO CATALAN,
Petitioners,

G.R. No. 159567

Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

- versus Promulgated:
JOSE BASA, MANUEL BASA,
LAURETA BASA, DELIA BASA,
JESUS BASA and ROSALINDA
BASA, Heirs of the late MERCEDES
CATALAN,
Respondents.

July 31, 2007

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

DECISION

PUNO, C.J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the Court of Appeals
decision in CA-G.R. CV No. 66073, which affirmed the judgment of the Regional Trial Court, Branch 69, Lingayen,
Pangasinan, in Civil Case No. 17666, dismissing the Complaint for Declaration of Nullity of Documents, Recovery of
Possession and Ownership, and damages.
The facts, which are undisputed by the parties, follow:
On October 20, 1948, FELICIANO CATALAN (Feliciano) was discharged from active military service. The
Board of Medical Officers of the Department of Veteran Affairs found that he was unfit to render military service due
to his schizophrenic reaction, catatonic type, which incapacitates him because of flattening of mood and affect,
preoccupation with worries, withdrawal, and sparce (sic) and pointless speech.[1]
On September 28, 1949, Feliciano married Corazon Cerezo.[2]
On June 16, 1951, a document was executed, titled Absolute Deed of Donation, [3] wherein Feliciano
allegedly donated to his sister MERCEDES CATALAN(Mercedes) one-half of the real property described, viz:
A parcel of land located at Barangay Basing, Binmaley, Pangasinan. Bounded on the
North by heirs of Felipe Basa; on the South by Barrio Road; On the East by heirs of Segundo
Catalan; and on the West by Roman Basa. Containing an area of Eight Hundred One (801) square
meters, more or less.

The donation was registered with the Register of Deeds. The Bureau of Internal Revenue then cancelled
Tax Declaration No. 2876, and, in lieu thereof, issued Tax Declaration No. 18080[4] to Mercedes for the 400.50 square
meters donated to her. The remaining half of the property remained in Felicianos name under Tax Declaration No.
18081.[5]
On December 11, 1953, Peoples Bank and Trust Company filed Special Proceedings No. 4563[6] before the
Court of First Instance of Pangasinan to declare Feliciano incompetent. On December 22, 1953, the trial court

issued its Order for Adjudication of Incompetency for Appointing Guardian for the Estate and Fixing Allowance [7] of
Feliciano. The following day, the trial court appointed Peoples Bank and Trust Company as Felicianos guardian.
[8]

Peoples Bank and Trust Company has been subsequently renamed, and is presently known as the Bank of the

Philippine Islands (BPI).

On November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1 and 3 of their property, registered
under Original Certificate of Title (OCT) No. 18920, to their son Eulogio Catalan.[9]
On March 26, 1979, Mercedes sold the property in issue in favor of her children Delia and Jesus Basa.
[10]

The Deed of Absolute Sale was registered with the Register of Deeds of Pangasinan on February 20, 1992, and

Tax Declaration No. 12911 was issued in the name of respondents.[11]

On June 24, 1983, Feliciano and Corazon Cerezo donated Lot 2 of the aforementioned property registered
under OCT No. 18920 to their children Alex Catalan, Librada Catalan and Zenaida Catalan. On February 14, 1983,
Feliciano and Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the same OCT No. 18920 to Eulogio and Florida
Catalan.[12]
On April 1, 1997, BPI, acting as Felicianos guardian, filed a case for Declaration of Nullity of Documents,
Recovery of Possession and Ownership,[13] as well as damages against the herein respondents. BPI alleged that the
Deed of Absolute Donation to Mercedes was void ab initio, as Feliciano never donated the property to Mercedes. In
addition, BPI averred that even if Feliciano had truly intended to give the property to her, the donation would still be
void, as he was not of sound mind and was therefore incapable of giving valid consent. Thus, it claimed that if the
Deed of Absolute Donation was void ab initio, the subsequent Deed of Absolute Sale to Delia and Jesus Basa should
likewise be nullified, for Mercedes Catalan had no right to sell the property to anyone. BPI raised doubts about the
authenticity of the deed of sale, saying that its registration long after the death of Mercedes Catalan indicated
fraud. Thus, BPI sought remuneration for incurred damages and litigation expenses.
On August 14, 1997, Feliciano passed away. The original complaint was amended to substitute his heirs in
lieu of BPI as complainants in Civil Case No. 17666.
On December 7, 1999, the trial court found that the evidence presented by the complainants was insufficient
to overcome the presumption that Feliciano was sane and competent at the time he executed the deed of donation in
favor of Mercedes Catalan. Thus, the court declared, the presumption of sanity or competency not having been duly
impugned, the presumption of due execution of the donation in question must be upheld. [14] It rendered
judgment, viz:

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:

1.

Dismissing plaintiffs complaint;

2.

Declaring the defendants Jesus Basa and Delia Basa the lawful owners of the land
in question which is now declared in their names under Tax Declaration No. 12911
(Exhibit 4);

3.

Ordering the plaintiff to pay the defendants Attorneys fees of P10,000.00, and to
pay the Costs.(sic)

SO ORDERED.[15]

Petitioners challenged the trial courts decision before the Court of Appeals via a Notice of Appeal pursuant
to Rule 41 of the Revised Rules of Court.[16] The appellate court affirmed the decision of the trial court and held, viz:
In sum, the Regional Trial Court did not commit a reversible error in disposing that
plaintiff-appellants failed to prove the insanity or mental incapacity of late (sic) Feliciano Catalan at
the precise moment when the property in dispute was donated.
Thus, all the elements for validity of contracts having been present in the 1951 donation
coupled with compliance with certain solemnities required by the Civil Code in donation inter
vivos of real property under Article 749, which provides:
xxx
Mercedes Catalan acquired valid title of ownership over the property in dispute. By virtue
of her ownership, the property is completely subjected to her will in everything not prohibited by law
of the concurrence with the rights of others (Art. 428, NCC).
The validity of the subsequent sale dated 26 March 1979 (Exhibit 3, appellees Folder of
Exhibits) of the property by Mercedes Catalan to defendant-appellees Jesus Basa and Delia Basa
must be upheld. Nothing of the infirmities which allegedly flawed its authenticity is evident much
less apparent in the deed itself or from the evidence adduced. As correctly stated by the RTC, the
fact that the Deed of Absolute Sale was registered only in 1992, after the death of Mercedes
Catalan does not make the sale void ab initio. Moreover, as a notarized document, the deed of
absolute sale carries the evidentiary weight conferred upon such public document with respect to
its due execution (Garrido vs. CA 236 SCRA 450). In a similar vein, jurisprudence has it that
documents acknowledged before a notary public have in their favor the presumption of regularity,
and to contradict the same, there must be evidence that is clear, convincing and more than
preponderant (Salame vs. CA, 239 SCRA 256).
WHEREFORE, foregoing premises considered, the Decision dated December 7, 1999 of
the Regional Trial Court, Branch 69, is hereby affirmed.
SO ORDERED.[17]

Thus, petitioners filed the present appeal and raised the following issues:

1.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS HAS DECIDED CAG.R. CV NO. 66073 IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE COURT IN HOLDING THAT THE
REGIONAL TRIAL COURT DID NOT COMMIT A REVERSIBLE ERROR IN DISPOSING
THAT PLAINTIFF-APPELLANTS (PETITIONERS) FAILED TO PROVE THE INSANITY
OR MENTAL INCAPACITY OF THE LATE FELICIANO CATALAN AT THE PRECISE
MOMENT WHEN THE PROPERTY IN DISPUTE WAS DONATED;

2.

WHETHER OR NOT THE CERTIFICATE OF DISABILITY FOR DISCHARGE

(EXHIBIT S) AND THE REPORT OF A BOARD OF OFFICERS CONVENED UNDER
THE PROVISIONS OF ARMY REGULATIONS (EXHIBITS S-1 AND S-2) ARE
ADMISSIBLE IN EVIDENCE;

3.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS HAS DECIDED CAG.R. CV NO. 66073 IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE COURT IN UPHOLDING THE
SUBSEQUENT SALE OF THE PROPERTY IN DISPUTE BY THE DONEE MERCEDES
CATALAN TO HER CHILDREN RESPONDENTS JESUS AND DELIA BASA; AND-

4.

WHETHER OR NOT CIVIL CASE NO. 17666 IS BARRED BY PRESCRIPTION AND

LACHES.[18]

Petitioners aver that the presumption of Felicianos competence to donate property to Mercedes had been
rebutted because they presented more than the requisite preponderance of evidence. First, they presented the
Certificate of Disability for the Discharge of Feliciano Catalan issued on October 20, 1948 by the Board of Medical
Officers of the Department of Veteran Affairs. Second, they proved that on December 22, 1953, Feliciano was
judged an incompetent by the Court of First Instance of Pangasinan, and put under the guardianship of BPI. Based
on these two pieces of evidence, petitioners conclude that Feliciano had been suffering from a mental condition since
1948 which incapacitated him from entering into any contract thereafter, until his death on August 14,
1997. Petitioners contend that Felicianos marriage to Corazon Cerezo on September 28, 1948 does not prove that
he was not insane at the time he made the questioned donation. They further argue that the donations Feliciano
executed in favor of his successors (Decision, CA-G.R. CV No. 66073) also cannot prove his competency because
these donations were approved and confirmed in the guardianship proceedings.[19] In addition, petitioners claim that
the Deed of Absolute Sale executed on March 26, 1979 by Mercedes Catalan and her children Jesus and Delia Basa
is simulated and fictitious. This is allegedly borne out by the fact that the document was registered only on February
20, 1992, more that 10 years after Mercedes Catalan had already died. Since Delia Basa and Jesus Basa both knew
that Feliciano was incompetent to enter into any contract, they cannot claim to be innocent purchasers of the property
in question.[20] Lastly, petitioners assert that their case is not barred by prescription or laches under Article 1391 of
the New Civil Code because they had filed their case on April 1, 1997, even before the four year period after
Felicianos death on August 14, 1997 had begun.[21]

The petition is bereft of merit, and we affirm the findings of the Court of Appeals and the trial court.
A donation is an act of liberality whereby a person disposes gratuitously a thing or right in favor of another,
who accepts it.[22] Like any other contract, an agreement of the parties is essential. Consent in contracts presupposes
the following requisites: (1) it should be intelligent or with an exact notion of the matter to which it refers; (2) it should
be free; and (3) it should be spontaneous.[23] The parties' intention must be clear and the attendance of a vice of
consent, like any contract, renders the donation voidable.[24]
In order for donation of property to be valid, what is crucial is the donors capacity to give consent at the time
of the donation. Certainly, there lies no doubt in the fact that insanity impinges on consent freely given. [25] However,
the burden of proving such incapacity rests upon the person who alleges it; if no sufficient proof to this effect is
presented, capacity will be presumed.[26]
A thorough perusal of the records of the case at bar indubitably shows that the evidence presented by the
petitioners was insufficient to overcome the presumption that Feliciano was competent when he donated the property
in question to Mercedes. Petitioners make much ado of the fact that, as early as 1948, Feliciano had been found to
be suffering from schizophrenia by the Board of Medical Officers of the Department of Veteran Affairs. By itself,
however, the allegation cannot prove the incompetence of Feliciano.
A study of the nature of schizophrenia will show that Feliciano could still be presumed capable of attending
to his property rights. Schizophrenia was brought to the attention of the public when, in the late 1800s, Emil
Kraepelin, a German psychiatrist, combined hebrephrenia and catatonia with certain paranoid states and called
the condition dementia praecox. Eugene Bleuler, a Swiss psychiatrist, modified Kraepelins conception in the early
1900s to include cases with a better outlook and in 1911 renamed the condition schizophrenia. According to
medical references, in persons with schizophrenia, there is a gradual onset of symptoms, with symptoms becoming
increasingly bizarre as the disease progresses. The condition improves (remission or residual stage) and worsens
(relapses) in cycles. Sometimes, sufferers may appear relatively normal, while other patients in remission may
appear strange because they speak in a monotone, have odd speech habits, appear to have no emotional feelings
and are prone to have ideas of reference. The latter refers to the idea that random social behaviors are directed
against the sufferers.[27] It has been proven that the administration of the correct medicine helps the
patient. Antipsychotic

medications

help

bring

biochemical

imbalances

closer

to

normal

in

schizophrenic. Medications reduce delusions, hallucinations and incoherent thoughts and reduce or eliminate
chances of relapse.[28] Schizophrenia can result in a dementing illness similar in many aspects to Alzheimers
disease. However, the illness will wax and wane over many years, with only very slow deterioration of intellect.[29]

From these scientific studies it can be deduced that a person suffering from schizophrenia does not
necessarily lose his competence to intelligently dispose his property. By merely alleging the existence of
schizophrenia, petitioners failed to show substantial proof that at the date of the donation, June 16, 1951, Feliciano
Catalan had lost total control of his mental faculties. Thus, the lower courts correctly held that Feliciano was of sound
mind at that time and that this condition continued to exist until proof to the contrary was adduced. [30] Sufficient proof
of his infirmity to give consent to contracts was only established when the Court of First Instance of Pangasinan
declared him an incompetent onDecember 22, 1953.[31]
It is interesting to note that the petitioners questioned Felicianos capacity at the time he donated the
property, yet did not see fit to question his mental competence when he entered into a contract of marriage with
Corazon Cerezo or when he executed deeds of donation of his other properties in their favor. The presumption that
Feliciano remained competent to execute contracts, despite his illness, is bolstered by the existence of these other
contracts. Competency and freedom from undue influence, shown to have existed in the other acts done or contracts
executed, are presumed to continue until the contrary is shown.[32]

Needless to state, since the donation was valid, Mercedes had the right to sell the property to whomever
she chose.[33] Not a shred of evidence has been presented to prove the claim that Mercedes sale of the property to
her children was tainted with fraud or falsehood. It is of little bearing that the Deed of Sale was registered only after
the death of Mercedes. What is material is that the sale of the property to Delia and Jesus Basa was legal and
binding at the time of its execution. Thus, the property in question belongs to Delia and Jesus Basa.
Finally, we note that the petitioners raised the issue of prescription and laches for the first time on appeal
before this Court. It is sufficient for this Court to note that even if the present appeal had prospered, the Deed of
Donation was still a voidable, not a void, contract. As such, it remained binding as it was not annulled in a proper
action in court within four years.[34]
IN VIEW WHEREOF, there being no merit in the arguments of the petitioners, the petition is DENIED. The
decision of the Court of Appeals in CA-G.R. CV No. 66073 is affirmed in toto.
SO ORDERED.

[G.R. No. 127540. October 17, 2001]

EUGENIO DOMINGO, CRISPIN MANGABAT and SAMUEL CAPALUNGAN, petitioners, vs. HON. COURT OF
APPEALS, FELIPE C. RIGONAN and CONCEPCION R. RIGONAN, respondents.
EUGENIO DOMINGO, CRISPIN MANGABAT and SAMUEL CAPALUNGAN, petitioners, vs. HON. COURT OF
APPEALS, THE DIRECTOR OF LANDS, and FELIPE C. RIGONAN and CONCEPCION R.
RIGONAN, respondents.
DECISION
QUISUMBING, J.:
This petition[1] seeks to annul the decision of the Court of Appeals dated August 29, 1996, which set aside the
decision of the Regional Trial Court of Batac, Ilocos Norte, Branch 17, in Civil Case No. 582-17
for reinvindicacion consolidated with Cadastral Case No. 1.[2] The petition likewise seeks to annul the resolution dated
December 11, 1996, denying petitioners motion for reconsideration.
The facts of this case, culled from the records, are as follows:
Paulina Rigonan owned three (3) parcels of land, located at Batac and Espiritu, Ilocos Norte, including the
house and warehouse on one parcel. She allegedly sold them to private respondents, the spouses Felipe and

Concepcion Rigonan, who claim to be her relatives. In 1966, herein petitioners Eugenio Domingo, Crispin Mangabat
and Samuel Capalungan, who claim to be her closest surviving relatives, allegedly took possession of the properties
by means of stealth, force and intimidation, and refused to vacate the same. Consequently, on February 2, 1976,
herein respondent Felipe Rigonan filed a complaint for reinvindicacion against petitioners in the Regional Trial Court
of Batac, Ilocos Norte. On July 3, 1977, he amended the complaint and included his wife as co-plaintiff. They
alleged that they were the owners of the three parcels of land through the deed of sale executed by Paulina Rigonan
on January 28, 1965; that since then, they had been in continuous possession of the subject properties and had
introduced permanent improvements thereon; and that defendants (now petitioners) entered the properties illegally,
and they refused to leave them when asked to do so.
Herein petitioners, as defendants below, contested plaintiffs claims. According to defendants, the alleged deed
of absolute sale was void for being spurious as well as lacking consideration. They said that Paulina Rigonan did not
sell her properties to anyone. As her nearest surviving kin within the fifth degree of consanguinity, they inherited the
three lots and the permanent improvements thereon when Paulina died in 1966. They said they had been in
possession of the contested properties for more than 10 years. Defendants asked for damages against plaintiffs.
During trial, Juan Franco, Notary Public Evaristo P. Tagatag[3] and plaintiff Felipe Rigonan testified for plaintiffs
(private respondents now).
Franco testified that he was a witness to the execution of the questioned deed of absolute sale. However, when
cross-examined and shown the deed he stated that the deed was not the document he signed as a witness, but
rather it was the will and testament made by Paulina Rigonan.
Atty. Tagatag testified that he personally prepared the deed, he saw Paulina Rigonan affix her thumbprint on it
and he signed it both as witness and notary public. He further testified that he also notarized Paulinas last will and
testament dated February 19, 1965. The will mentioned the same lots sold to private respondents. When asked why
the subject lots were still included in the last will and testament, he could not explain. Atty. Tagatag also mentioned
that he registered the original deed of absolute sale with the Register of Deeds.
Plaintiff Felipe Rigonan claimed that he was Paulinas close relative. Their fathers were first cousins. However,
he could not recall the name of Paulinas grandfather. His claim was disputed by defendants, who lived with Paulina
as their close kin. He admitted the discrepancies between the Register of Deeds copy of the deed and the copy in
his possession. But he attributed them to the representative from the Office of the Register of Deeds who went to
plaintiffs house after that Office received a subpoena duces tecum. According to him, the representative showed
him blanks in the deed and then the representative filled in the blanks by copying from his (plaintiffs) copy.
Counsel for defendants (petitioners herein) presented as witnesses Jose Flores, the owner of the adjacent lot;
Ruben Blanco, then acting Registrar of Deeds in Ilocos Norte; and Zosima Domingo, wife of defendant Eugenio
Domingo.
Jose Flores testified that he knew defendants, herein petitioners, who had lived on the land with Paulina
Rigonan since he could remember and continued to live there even after Paulinas death. He said he did not receive
any notice nor any offer to sell the lots from Paulina, contrary to what was indicated in the deed of sale that the
vendor had notified all the adjacent owners of the sale. He averred he had no knowledge of any sale between
Paulina and private respondents.
Ruben Blanco, the acting Registrar of Deeds, testified that only the carbon copy, also called a duplicate original,
of the deed of sale was filed in his office, but he could not explain why this was so.
Zosima Domingo testified that her husband, Eugenio Domingo, was Paulinas nephew. Paulina was a first
cousin of Eugenios father. She also said that they lived with Paulina and her husband, Jose Guerson, since
1956. They took care of her, spent for her daily needs and medical expenses, especially when she was hospitalized
prior to her death. She stated that Paulina was never badly in need of money during her lifetime.
On March 23, 1994, the trial court rendered judgment in favor of defendants (now the petitioners). It disposed:

WHEREFORE, premises considered, judgment is hereby rendered in favor of defendants and against the plaintiffs,
and as prayed for, the Amended Complaint is hereby DISMISSED.
Defendants are hereby declared, by virtue of intestate succession, the lawful owners and possessors of the house
including the bodega and the three (3) parcels of land in suit and a Decree of Registration adjudicating the ownership
of the said properties to defendants is hereby issued.
The alleged deed of sale (Exhs. A, A-1, 1 and 1-a) is hereby declared null and void and fake and the prayer for
the issuance of a writ of preliminary injunction is hereby denied.
Plaintiffs are hereby ordered to pay defendants:
a) P20,000.00 as moral damages;
b) P10,000.00 as exemplary damages;
c) P10,000.00 attorneys fees and other litigation expenses.
No pronouncement as to costs.[4]
Private respondents herein appealed to the Court of Appeals.
On August 29, 1996, the CA reversed the trial courts decision, thus:
WHEREFORE, the decision dated March 23, 1994 is hereby SET ASIDE. The plaintiffs-appellants Felipe Rigonan
and Concepcion Rigonan are declared the owners of the properties under litigation and the defendants-appellees are
hereby ordered to VACATE the subject properties and SURRENDER the possession thereof to the heirs of the
plaintiffs-appellants.
Costs against the defendants-appellees.[5]
Hence, this petition assigning the following as errors:
I
THE RESPONDENT COURT OF APPEALS HAS DECIDED QUESTIONS OF LEGAL SUBSTANCE
AND SIGNIFICANCE NOT IN ACCORDANCE WITH THE EVIDENCE, LAW AND WITH THE
APPLICABLE DECISIONS OF THIS HONORABLE COURT.
II
THAT THE FINDINGS OF RESPONDENT COURT OF APPEALS ARE CONTRARY TO THOSE OF
THE TRIAL COURT AND CLEARLY VIOLATES THE RULE THAT THE FACTUAL FINDINGS OF
TRIAL COURTS ARE ENTITLED TO GREAT WEIGHT AND RESPECT ON APPEAL, ESPECIALLY
WHEN SAID FINDINGS ARE ESTABLISHED BY UNREBUTTED TESTIMONIAL AND
DOCUMENTARY EVIDENCE.
III
THAT THE FINDINGS AND CONCLUSIONS OF RESPONDENT COURT OF APPEALS ARE
GROUNDED ENTIRELY ON SPECULATIONS, SURMISES, CONJECTURES, OR ON INFERENCES
MANIFESTLY MISTAKEN.

IV
THAT THE RESPONDENT COURT OF APPEALS MANIFESTLY OVERLOOKED CERTAIN
RELEVANT FACTS NOT DISPUTED BY THE PARTIES AND WHICH, IF PROPERLY CONSIDERED,
WOULD JUSTIFY A DIFFERENT CONCLUSION.
V
THAT THE FINDINGS OF FACT OF RESPONDENT COURT OF APPEALS ARE PREMISED ON
SUPPOSED ABSENCE OF EVIDENCE BUT IS CONTRADICTED BY THE EVIDENCE ON RECORD
THUS CONSTITUTES GRAVE ABUSE OF DISCRETION.[6]
The basic issue for our consideration is, did private respondents sufficiently establish the existence and due
execution of the Deed of Absolute and Irrevocable Sale of Real Property? Marked as Exhibits A, A-1, 1 and 1a, this deed purportedly involved nine (9) parcels of land, inclusive of the three (3) parcels in dispute, sold at the
price of P850 by Paulina Rigonan to private respondents on January 28, 1965, at Batac, Ilocos Norte. [7] The trial court
found the deed fake, being a carbon copy with no typewritten original presented; and the court concluded that the
documents execution was tainted with alterations, defects, tamperings, and irregularities which render it null and
void ab initio.[8]
Petitioners argue that the Court of Appeals erred in not applying the doctrine that factual findings of trial courts
are entitled to great weight and respect on appeal, especially when said findings are established by unrebutted
testimonial and documentary evidence. They add that the Court of Appeals, in reaching a different conclusion, had
decided the case contrary to the evidence presented and the law applicable to the case. Petitioners maintain that the
due execution of the deed of sale was not sufficiently established by private respondents, who as plaintiffs had the
burden of proving it. First, the testimonies of the two alleged instrumental witnesses of the sale, namely, Juan Franco
and Efren Sibucao, were dispensed with and discarded when Franco retracted his oral and written testimony that he
was a witness to the execution of the subject deed. As a consequence, the appellate court merely relied on Atty.
Tagatags (the notary public) testimony, which was incredible because aside from taking the double role of a witness
and notary public, he was a paid witness. Further his testimony, that the subject deed was executed in the house of
Paulina Rigonan, was rebutted by Zosima Domingo, Paulinas housekeeper, who said that she did not see Atty.
Tagatag, Juan Franco and Efren Sibucao in Paulinas house on the alleged date of the deeds execution.
Secondly, petitioners said that private respondents failed to account for the typewritten original of the deed of
sale and that the carbon copy filed with the Register of Deeds was only a duplicate which contained insertions and
erasures. Further, the carbon copy was without an affidavit of explanation, in violation of the Administrative Code as
amended, which requires that if the original deed of sale is not presented or available upon registration of the deed,
the carbon copy or so-called duplicate original must be accompanied by an affidavit of explanation, otherwise,
registration must be denied.[9]
Thirdly, petitioners aver that the consideration of only P850 for the parcels of land sold, together with a house
and a warehouse, was another indication that the sale was fictitious because no person who was financially stable
would sell said property at such a grossly inadequate consideration.
Lastly, petitioners assert that there was abundant evidence that at the time of the execution of the deed of sale,
Paulina Rigonan was already senile. She could not have consented to the sale by merely imprinting her thumbmark
on the deed.
In their comment, private respondents counter that at the outset the petition must be dismissed for it lacks a
certification against forum-shopping. Nonetheless, even disregarding this requirement, the petition must still be
denied in due course for it does not present any substantial legal issue, but factual or evidentiary ones which were
already firmly resolved by the Court of Appeals based on records and the evidence presented by the parties. Private
respondents claim that the factual determination by the trial court lacks credibility for it was made by the trial judge
who presided only in one hearing of the case. The trial judge could not validly say that the deed of absolute sale was

fake because no signature was forged, according to private respondents; and indeed a thumbmark, said to be the
sellers own, appears thereon.
In their reply, petitioners said that the copy of the petition filed with this Court was accompanied with a
certification against forum shopping. If private respondents copy did not contain same certification, this was only due
to inadvertence. Petitioners ask for the Courts indulgence for anyway there was substantial compliance with
Revised Circular No. 28-91.
On the contention that here only factual issues had been raised, hence not the proper subject for review by this
Court, petitioners reply that this general rule admits of exceptions, as when the factual findings of the Court of
Appeals and the trial court are contradictory; when the findings are grounded entirely on speculations, surmises or
conjectures; and when the Court of Appeals overlooked certain relevant facts not disputed by the parties which if
properly considered would justify a different conclusion. All these, according to petitioners, are present in this case.
Before proceeding to the main issue, we shall first settle procedural issues raised by private respondents.
While the trial judge deciding the case presided over the hearings of the case only once, this circumstance
could not have an adverse effect on his decision. The continuity of a court and the efficacy of its proceedings are not
affected by the death, resignation or cessation from the service of the presiding judge. A judge may validly render a
decision although he has only partly heard the testimony of the witnesses. [10] After all, he could utilize and rely on the
records of the case, including the transcripts of testimonies heard by the former presiding judge.
On the matter of the certification against forum-shopping, petitioners aver that they attached one in the copy
intended for this Court. This is substantial compliance. A deviation from a rigid enforcement of the rules may be
allowed to attain their prime objective for, after all, the dispensation of justice is the core reason for the courts
existence.[11]
While the issues raised in this petition might appear to be mainly factual, this petition is properly given due
course because of the contradictory findings of the trial court and the Court of Appeals. Further, the latter court
apparently overlooked certain relevant facts which justify a different conclusion.[12] Moreover, a compelling sense to
make sure that justice is done, and done rightly in the light of the issues raised herein, constrains us from relying on
technicalities alone to resolve this petition.
Now, on the main issue. Did private respondents establish the existence and due execution of the deed of
sale? Our finding is in the negative. First, note that private respondents as plaintiffs below presented only a carbon
copy of this deed. When the Register of Deeds was subpoenaed to produce the deed, no original typewritten deed
but only a carbon copy was presented to the trial court. Although the Court of Appeals calls it a duplicate original,
the deed contained filled in blanks and alterations. None of the witnesses directly testified to prove positively and
convincingly Paulinas execution of the original deed of sale. The carbon copy did not bear her signature, but only
her alleged thumbprint. Juan Franco testified during the direct examination that he was an instrumental witness to
the deed. However, when cross-examined and shown a copy of the subject deed, he retracted and said that said
deed of sale was not the document he signed as witness.[13] He declared categorically he knew nothing about it.[14]
We note that another witness, Efren Sibucao, whose testimony should have corroborated Atty. Tagatags, was
not presented and his affidavit was withdrawn from the court, [15] leaving only Atty. Tagatags testimony, which aside
from being uncorroborated, was self-serving.
Secondly, we agree with the trial court that irregularities abound regarding the execution and registration of the
alleged deed of sale. On record, Atty. Tagatag testified that he himself registered the original deed with the Register
of Deeds.[16] Yet, the original was nowhere to be found and none could be presented at the trial. Also, the carbon
copy on file, which is allegedly a duplicate original, shows intercalations and discrepancies when compared to
purported copies in existence. The intercalations were allegedly due to blanks left unfilled by Atty. Tagatag at the
time of the deeds registration. The blanks were allegedly filled in much later by a representative of the Register of
Deeds. In addition, the alleged other copies of the document bore different dates of entry: May 16, 1966, 10:20 A.M.
[17]
and June 10, 1966, 3:16 P.M.,[18] and different entry numbers: 66246, 74389[19] and 64369.[20] The deed was

apparently registered long after its alleged date of execution and after Paulinas death on March 20, 1966.
[21]
Admittedly, the alleged vendor Paulina Rigonan was not given a copy.[22]
Furthermore, it appears that the alleged vendor was never asked to vacate the premises she had purportedly
sold. Felipe testified that he had agreed to let Paulina stay in the house until her death. [23] InAlcos v. IAC, 162 SCRA
823 (1988), the buyers immediate possession and occupation of the property was deemed corroborative of the
truthfulness and authenticity of the deed of sale. The alleged vendors continued possession of the property in this
case throws an inverse implication, a serious doubt on the due execution of the deed of sale. Noteworthy, the same
parcels of land involved in the alleged sale were still included in the will subsequently executed by Paulina and
notarized by the same notary public, Atty. Tagatag.[24] These circumstances, taken together, militate against
unguarded acceptance of the due execution and genuineness of the alleged deed of sale.
Thirdly, we have to take into account the element of consideration for the sale. The price allegedly paid by
private respondents for nine (9) parcels, including the three parcels in dispute, a house and a warehouse, raises
further questions. Consideration is the why of a contract, the essential reason which moves the contracting parties to
enter into the contract.[25] On record, there is unrebutted testimony that Paulina as landowner was financially well
off. She loaned money to several people.[26] We see no apparent and compelling reason for her to sell the subject
parcels of land with a house and warehouse at a meager price of P850 only.
In Rongavilla vs. CA, 294 SCRA 289 (1998), private respondents were in their advanced years, and were not in
dire need of money, except for a small amount of P2,000 which they said were loaned by petitioners for the repair of
their houses roof. We ruled against petitioners, and declared that there was no valid sale because of lack of
consideration.
In the present case, at the time of the execution of the alleged contract, Paulina Rigonan was already of
advanced age and senile. She died an octogenarian on March 20, 1966, barely over a year when the deed was
allegedly executed on January 28, 1965, but before copies of the deed were entered in the registry allegedly on May
16 and June 10, 1966. The general rule is that a person is not incompetent to contract merely because of advanced
years or by reason of physical infirmities.[27] However, when such age or infirmities have impaired the mental faculties
so as to prevent the person from properly, intelligently, and firmly protecting her property rights then she is undeniably
incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of the alleged execution of the
deed, Paulina was already incapacitated physically and mentally. She narrated that Paulina played with her waste
and urinated in bed. Given these circumstances, there is in our view sufficient reason to seriously doubt that she
consented to the sale of and the price for her parcels of land. Moreover, there is no receipt to show that said price
was paid to and received by her. Thus, we are in agreement with the trial courts finding and conclusion on the
matter:
The whole evidence on record does not show clearly that the fictitious P850.00 consideration was ever delivered to
the vendor. Undisputably, the P850.00 consideration for the nine (9) parcels of land including the house and bodega
is grossly and shockingly inadequate, and the sale is null and void ab initio.[28]
WHEREFORE, the petition is GRANTED. The decision and resolution of the Court of Appeals dated August 29,
1996 and December 11, 1996, respectively, are REVERSED and SET ASIDE. The decision of the Regional Trial
Court of Batac, Ilocos Norte, Branch 17, dated March 23, 1994, is REINSTATED.
Costs against private respondents.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

[G.R. No. 143370. February 6, 2002]

MARIO J. MENDEZONA and TERESITA M. MENDEZONA, LUIS J. MENDEZONA and MARICAR L.

MENDEZONA and TERESITA ADAD VDA. DE MENDEZONA, petitioners, vs. JULIO H. OZAMIZ,
ROBERTO J. MONTALVAN, JOSE MA. OZAMIZ, CARMEN H. OZAMIZ, PAZ O. MONTALVAN, MA.
TERESA O.F. ZARRAGA, CARLOS O. FORTICH, JOSE LUIS O. ROS, PAULITA O. RODRIGUEZ, and
LOURDES O. LON, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] and the Resolution[2] of the Court of Appeals
dated July 27, 1998 and May 19, 2000, respectively, in CA-G.R. CV No. 39752 which reversed and set aside the
Decision[3] dated September 23, 1992 rendered in favor of the petitioners by the Regional Trial Court (RTC)
of Cebu City, Branch 6 in Civil Case No. CEB-10766.
Civil Case No. CEB-10766 is a suit for quieting of title. It was instituted on September 25, 1991 by petitioner
spouses Mario J. Mendezona and Teresita M. Mendezona as initial plaintiffs,[4] and in the amended complaint filed
on October
7,
1991,
herein
co-petitioner
spouses
Luis
J. Mendezona and Maricar L. Mendezona and Teresita Adad Vda. de Mendezonajoined as co-plaintiffs.[5]
In their complaint, the petitioners, as plaintiffs therein, alleged that petitioner spouses Mario
J. Mendezona and Teresita M. Mendezona, petitioner spouses Luis J. Mendezona andMaricar L. Mendezona, and
petitioner Teresita Adad Vda. de Mendezona own a parcel of land each in the Banilad Estate, Lahug, Cebu City with
almost similar areas of 3,462 square meters, 3,466 square meters and 3,468 square meters, covered and described
in Transfer Certificate of Title (TCT) Nos. 116834, 116835, and 116836 respectively, of the Registry of Deeds
of Cebu City.[6]
The petitioners ultimately traced their titles of ownership over their respective properties from a notarized Deed
of Absolute Sale[7] dated April 28, 1989 executed in their favor by Carmen Ozamiz for and in consideration of the sum
of One Million Forty Thousand Pesos (P1,040,000.00).
The petitioners initiated the suit to remove a cloud on their said respective titles caused by the inscription
thereon of a notice of lis pendens, which came about as a result of an incident in Special Proceeding No. 1250 of the
RTC of Oroquieta City. Special Proceeding No. 1250 is a proceeding for guardianship over the person and properties
of Carmen Ozamiz initiated by the respondents Julio H. Ozamiz, Jose Ma. Ozamiz, Carmen H. Ozamiz,[8] Paz
O. Montalvan, Ma. Teresa O.F. Zarraga, Carlos O. Fortich, Jose Luis O. Ros, Paulita O. Rodriguez andLourdes O.
Lon.[9]
It appears that on January 15, 1991, the respondents instituted the petition for guardianship with the Regional
Trial Court of Oroquieta City, alleging therein that Carmen Ozamiz, then 86 years old, after an illness in July 1987,
had become disoriented and could not recognize most of her friends; that she could no longer take care of herself nor
manage her properties by reason of her failing health, weak mind and absent-mindedness. Mario Mendezona and
Luis Mendezona, herein petitioners who are nephews of Carmen Ozamiz, and Pilar Mendezona, a sister of
Carmen Ozamiz, filed an opposition to the guardianship petition.
In the course of the guardianship proceeding, the petitioners and the oppositors thereto agreed that
Carmen Ozamiz needed a guardian over her person and her properties, and thus respondent Paz O. Montalvan was
designated as guardian over the person of Carmen Ozamiz while petitioner Mario J. Mendezona, respondents
Roberto J. Montalvan and Julio H. Ozamizwere designated as joint guardians over the properties of the said ward.

As guardians, respondents Roberto J. Montalvan and Julio H. Ozamiz filed on August 6, 1991 with the
guardianship court their inventories and Accounts,[10] listing therein CarmenOzamizs properties, cash, shares of
stock, vehicles and fixed assets, including a 10,396 square meter property known as the Lahug property.
Said Lahug property is the same property covered by the Deed of Absolute Sale dated April 28, 1989 executed by
Carmen Ozamiz in favor of the petitioners. Respondents Roberto J. Montalvan and Julio H. Ozamiz caused the
inscription on the titles of petitioners a notice of lis pendens,[11] regarding Special Proceeding No. 1250, thus giving
rise to the suit for quieting of title, Civil Case No. CEB-10766, filed by herein petitioners.
In their Answer[12] in Civil Case No. CEB-10766 the respondents opposed the petitioners claim of ownership of
the Lahug property and alleged that the titles issued in the petitioners names are defective and illegal, and the
ownership of the said property was acquired in bad faith and without value inasmuch as the consideration for the sale
is grossly inadequate and unconscionable. Respondents further alleged that at the time of the sale on April 28,
1989 Carmen Ozamiz was already ailing and not in full possession of her mental faculties; and that her properties
having been placed in administration, she was in effect incapacitated to contract with petitioners.
The issues for resolution were delimited in the pre-trial to: (a) the propriety of recourse to quieting of title; (b) the
validity or nullity of the Deed of Absolute Sale dated April 28, 1989 executed by Carmen Ozamiz in favor of herein
petitioners; (c) whether the titles over the subject parcel of land in plaintiffs names be maintained or should they be
cancelled and the subject parcels of land reconveyed; and (d) damages and attorneys fees.[13]
Trial on the merits ensued with the parties presenting evidence to prove their respective allegations. Petitioners
Mario Mendezona, Teresita Adad Vda. de Mendezona and LuisMendezona, as plaintiffs therein, testified on the
circumstances surrounding the sale. Carmencita Cedeno and Martin Yungco, instrumental witnesses to the Deed of
Absolute Sale datedApril 28, 1989, and, Atty. Asuncion Bernades, the notary public who notarized the said document,
testified that on the day of execution of the said contract that Carmen Ozamiz was of sound mind and that she
voluntarily and knowingly executed the said deed of sale.
For the defendants, the testimonies of respondent Paz O. Montalvan, a sister of
Carmen Ozamiz; Concepcion Agac-ac, an assistant of Carmen Ozamiz; respondent Julio Ozamiz; Carolina Lagura,
a househelper of Carmen Ozamiz; Joselito Gunio, an appraiser of land; Nelfa Perdido, a part-time bookkeeper of
Carmen Ozamiz, and the deposition of Dr. Faith Go, physician of Carmen Ozamiz, were offered in evidence.
The petitioners presented as rebuttal witnesses petitioners Mario Mendezona and Luis Mendezona, to rebut the
testimony of respondent Julio H. Ozamiz; and, Dr. William Buot, a doctor of neurology to rebut aspects of the
deposition of Dr. Faith Go on the mental capacity of Carmen Ozamiz at the time of the sale.
During the trial, the trial court found that the following facts have been duly established:[14]
(1) On April 28, 1989, Carmen Ozamiz sold to her nephews, Mario, Antonio and Luis, all surnamed Mendezona,
three (3) parcels of residential land in Cebu City, per a Deed of Absolute Sale (Exh. D) for a consideration of
P1,040,000.00, in which deed the usufructuary rights were reserved during her lifetime.
(2) The three parcels of land were subsequently transferred to the names of the three vendees per TCTs Nos.
108729, 108730 and 108731 (Exhs. J, K & L, respectively). A partition agreement was entered into by the three
vendees (Exh. 3) and the parcels of land are now titled in the names of the plaintiffs.
Mario Mendezona TCT No. 116834 (Exh. A);
Luis Mendezona TCT No. 116835 (Exh. B);
Antonio Mendezona TCT No. 116836 (Exh. C);

(3) The reservation of the usufructuary rights to the vendor Carmen Ozamiz during her lifetime was confirmed by
the plaintiffs-spouses Mario Mendezona and Teresita Moraza and plaintiffs spouses
LuisMendezona and Maricar Longa in a sworn statement (Exh. I) executed on October 15, 1990, which was duly
annotated on the titles of the property;
(4) The capital gains tax was paid (Exh. H) on May 5, 1989 and a certificate (Exh. H-1) was issued by the Bureau
of Internal Revenue authorizing the Register of Deeds to transfer the property to the vendees;
(5) A petition for guardianship over the person and properties of Carmen Ozamiz (Exh. E) was filed by all the
defendants, (except the defendant Roberto Montalvan) on January 15, 1991 with the Regional Trial Court
of Oroquieta City, denominated as Spec. Proc. No. 1250 and subsequently, an Inventories and Accounts (Exh. F)
was filed by court-appointed guardians Roberto Montalvan and Julio Ozamiz, in which the property was listed (Exh.
F-1) and a Notice of Lis Pendens was filed with the Register of Deeds of Cebu City on August 13, 1991 by said joint
guardians. Plaintiff Mario Mendezona, as another joint guardian over Carmen Ozamiz, filed his opposition (Exh. R) to
the Inventories and Accounts, with the Oroquieta Court as to the inclusion of the property (Exh.R-1).
(6) Prior to his death, the deceased husband of plaintiff Teresita Adad Mendezona was granted a General Power
of Attorney (Exh. 1) by Carmen Ozamiz on March 23, 1988 and after his demise, CarmenOzamiz granted
Mario Mendezona a General Power of Attorney (Exh. 2.) on August 11, 1990. Both powers of attorney relate to the
administration of the property, subject of this action, in Cebu City.
On September 23, 1992 the trial court rendered its decision in favor of the petitioners, the dispositive portion of
which reads, to wit:
Wherefore, premises considered, the Court is of the opinion and so declares that:
1.
The property described in the complaint was sold, with reservation of usufructuary rights by Carmen Ozamiz to
the plaintiffs under a valid contract, voluntarily and deliberately entered into while she was of sound mind, for
sufficient and good consideration, and without fraud, force, undue influence or intimidation having been exercised
upon her, and consequently, the Court orders the defendants herein to acknowledge and recognize the plaintiffs title
to the aforecited property and to refrain from further clouding the same;
2.
That the one-third (1/3) share erroneously titled to Antonio Mendezona should be titled in the name
of Teresita Adad vda. de Mendezona as her paraphernal property and the Register of Deeds of CebuCity is hereby
ordered to do so;
3.
The Notice of Lis Pendens affecting the property should be eliminated from the record and the Register of
Deeds of Cebu City is ordered to expunge the same.
No pronouncement as to costs.
SO ORDERED.
On appeal to the Court of Appeals, the appellate court reversed the factual findings of the trial court and ruled
that the Deed of Absolute Sale dated April 28, 1989 was a simulated contract since the petitioners failed to prove that
the consideration was actually paid, and, furthermore, that at the time of the execution of the contract the mental
faculties of CarmenOzamiz were already seriously impaired. Thus, the appellate court declared that the Deed of
Absolute Sale of April 28, 1989 is null and void. It ordered the cancellation of the certificates of title issued in the
petitioners names and directed the issuance of new certificates of title in favor of Carmen Ozamiz or her estate.

Petitioners filed a motion for reconsideration of the decision of the appellate court. Subsequent thereto, the
petitioners filed a motion for a new trial and/or for reception of evidence. They contended, among other things, that
the appellate court totally ignored the testimony of Judge Teodorico Durias regarding the mental condition of
Carmen Ozamiz a month before the execution of the Deed of Absolute Sale in question. The said testimony was
taken in the Special Proceeding No. 1250 in the Regional Trial Court of Oroquieta City. However, Judge Duriaswas
not presented as a witness in Civil Case No. CEB-10766 in the Regional Trial Court of Cebu City. Petitioners alleged
that Judge Duriass testimony is a newly-discovered evidence which could not have been discovered prior to the trial
in the court below by the exercise of due diligence.
The appellate court denied both motions in its Resolution dated May 19, 2000. Hence, the instant petition
anchored on the following grounds:[15]
I.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE APRIL 28, 1989 DEED OF
ABSOLUTE SALE WAS A SIMULATED CONTRACT.
A.
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE STATUTORY PRESUMPTIONS OF ACTUAL
AND SUFFICIENT CONSIDERATION FOR, AND OF THE REGULARITY AND TRUTHFULNESS OF, THE
NOTARIZED DEED OF ABSOLUTE SALE.
B.
THE COURT OF APPEALS GRAVELY ERRED IN IMPOSING ON THE PETITIONERS THE BURDEN OF PROVING
PAYMENT, AND IN REFUSING TO RECOGNIZE AND RULE THAT IT WAS THE RESPONDENTS - AS THE
PARTIES ASSAILING THE DEED OF ABSOLUTE SALE - WHO HAD FAILED TO DISCHARGE THEIR BURDEN OF
PROVING THAT THERE WAS NO CONSIDERATION FOR THE TRANSACTION.
C.
THE COURT OF APPEALS GRAVELY ERRED IN REFUSING TO RECEIVE IN EVIDENCE THE THREE (3)
CHECKS, WHICH PROVED BEYOND ANY DOUBT THAT THE PURCHASE PRICE FOR THE LAHUG PROPERTY
HAD BEEN PAID TO CARMEN OZAMIZ, AFTER ASKING FOR THEM AND HAVING THEM PRESENTED TO IT IN
OPEN COURT, THUS COOPERATING WITH RESPONDENTS EFFORTS TO SUPPRESS THE CHECKS (WHICH
THE COURT ITSELF AND RESPONDENTS CHALLENGED PETITIONERS TO PRODUCE).
II.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT CARMEN OZAMIZS MENTAL FACULTIES WERE
SERIOUSLY IMPAIRED WHEN SHE EXECUTED THE DEED OF ABSOLUTE SALE ON APRIL 28, 1989.
A.
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE STATUTORY PRESUMPTION THAT CARMEN
OZAMIZ WAS OF SOUND MIND AND HAD THE REQUISITE CAPACITY TO CONTRACT WHEN SHE EXECUTED
THE DEED OF ABSOLUTE SALE, AND IN REFUSING TO RULE THAT IT WAS THE RESPONDENTS - AS THE
PARTIES ALLEGING MENTAL INCAPACITY- WHO HAD FAILED TO DISCHARGE THEIR BURDEN OF
REBUTTING THAT PRESUMPTION.

B.
THE COURT OF APPEALS GRAVELY ERRED IN REFUSING TO ACCEPT AND GIVE DUE AND PREPONDERANT
WEIGHT TO UNREFUTED EVIDENCE, INCLUDING THE UNREFUTED TESTIMONIES OF THE INSTRUMENTAL
WITNESSES AND OF THE NOTARY PUBLIC, THAT CARMEN OZAMIZ EXECUTED THE DEED OF
ABSOLUTE SALE FREELY, VOLUNTARILY, KNOWINGLY, AND INTELLIGENTLY.
C.
THE COURT OF APPEALS GRAVELY ERRED IN GIVING WEIGHT TO THE HEARSAY TESTIMONY OF DR.
FAITH GO ON THE MENTAL CONDITION OF CARMEN OZAMIZ ON THE DATE SHE EXECUTED THE DEED OF
ABSOLUTE SALE.
D.
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING, AND IN REFUSING TO RECEIVE IN EVIDENCE,
JUDGE TEODORICO DURIASS TESTIMONY (THAT CARMEN OZAMIZ WAS OF SOUND MIND WHEN SHE
EXECUTED ANOTHER CONTRACT BARELY A MONTH BEFORE SHE EXECUTED THE DEED OF
ABSOLUTE SALE) ON THE GROUND THAT THATTESTIMONY WAS FORGOTTEN EVIDENCE.
We shall first rule on the issue of whether to consider the testimony of Judge Durias as newly discovered
evidence. A motion for new trial upon the ground of newly discovered evidence is properly granted only where there
is concurrence of the following requisites, namely: (a) the evidence had been discovered after trial; (b) the evidence
could not have been discovered and produced during trial even with the exercise of reasonable diligence; and (c) the
evidence is material and not merely corroborative, cumulative or impeaching and is of such weight that if admitted,
would probably alter the result. All three (3) requisites must characterize the evidence sought to be introduced at the
new trial.
We find that the requirement of reasonable diligence has not been met by the petitioners. As early as the pretrial of the case at bar, the name of Judge Durias has already cropped up as a possible witness for the defendants,
herein respondents. That the respondents chose not to present him is not an indicia per se of suppression of
evidence, since a party in a civil case is free to choose who to present as his witness. Neither can Judge Durias
testimony in another case be considered as newly discovered evidence since the facts to be testified to by
JudgeDurias which were existing before and during the trial, could have been presented by the petitioners at the trial
below.[16] The testimony of Judge Durias has been in existence waiting only to be elicited from him by questioning.[17]
It has been held that a lack of diligence is exhibited where the newly discovered evidence was necessary or
proper under the pleadings, and its existence must have occurred to the party in the course of the preparation of the
case, but no effort was made to secure it; there is a failure to make inquiry of persons who were likely to know the
facts in question, especially where information was not sought from co-parties; there is a failure to seek evidence
available through public records; there is a failure to discover evidence that is within the control of the complaining
party; there is a failure to follow leads contained in other evidence; and, there is a failure to utilize available discovery
procedures.[18] Thus, the testimony of Judge Duriascannot be considered as newly discovered evidence to warrant a
new trial.
In this petition at bench, herein petitioners essentially take exception to two (2) main factual findings of the
appellate court, namely, (a) that the notarized Deed of Absolute Sale datedApril 28, 1989 was a simulated contract,
and (b) that Carmen Ozamizs mental faculties were seriously impaired when she executed the said contract on April
28, 1989. The petitioners allege that both conclusions are contrary or opposed to well-recognized statutory
presumptions of regularity enjoyed by a notarized document and that a contracting party to a notarized contract is of
sound and disposing mind when she executes the contract.

The respondents posit a different view. They contend that clear and convincing evidence refuted the
presumptions on regularity of execution of the Deed of Absolute Sale and existence of consideration thereof. Relying
upon the testimonies of Paz O. Montalvan, Concepcion Agac-ac, Carolina Lagura and Dr. Faith Go, they aver that
they were able to show that Carmen Ozamiz was already physically and mentally incapacitated since the latter part
of 1987 and could not have executed the said Deed of Absolute Sale on April 28, 1989 covering the
disputed Lahug property. They also alleged that no error is ascribable to the appellate court for not considering the
allegedly rehearsed testimonies of the instrumental witnesses and the notary public.
Factual findings of the appellate court are generally conclusive on this Court which is not a trier of facts. It is not
the function of the Supreme Court to analyze or weigh evidence all over again. However, this rule is not without
exception. If there is a showing that the appellate courts findings of facts complained of are totally devoid of support
in the record or that they are so glaringly erroneous as to constitute grave abuse of discretion, this Court must
discard such erroneous findings of facts.[19] We find that the exception applies in the case at bench.
Simulation is defined as the declaration of a fictitious will, deliberately made by agreement of the parties, in
order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different
from what that which was really executed.[20] The requisites of simulation are: (a) an outward declaration of will
different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c)
the purpose is to deceive third persons.[21] None of these were clearly shown to exist in the case at bar.
Contrary to the erroneous conclusions of the appellate court, a simulated contract cannot be inferred from the
mere non-production of the checks. It was not the burden of the petitioners to prove so. It is significant to note that
the Deed of Absolute Sale dated April 28, 1989 is a notarized document duly acknowledged before a notary
public. As such, it has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it
with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to
full faith and credit upon its face.[22]
Payment is not merely presumed from the fact that the notarized Deed of Absolute Sale dated April 28,
1989 has gone through the regular procedure as evidenced by the transfer certificates of title issued in petitioners
names by the Register of Deeds. In other words, whosoever alleges the fraud or invalidity of a notarized document
has the burden of proving the same by evidence that is clear, convincing, and more than merely preponderant.
[23]
Therefore, with this well-recognized statutory presumption, the burden fell upon the respondents to prove their
allegations attacking the validity and due execution of the said Deed of Absolute Sale. Respondents failed to
discharge that burden; hence, the presumption in favor of the said deed stands. But more importantly, that notarized
deed shows on its face that the consideration of One Million Forty Thousand Pesos (P1,040,000.00) was
acknowledged to have been received by Carmen Ozamiz.
Simulation cannot be inferred from the alleged absence of payment based on the testimonies
of Concepcion Agac-ac, assistant of Carmen Ozamiz, and Nelfa Perdido, part-time bookkeeper of Carmen Ozamiz.
The testimonies of these two (2) witnesses are unreliable and inconsistent.
While Concepcion Agac-ac testified that she was aware of all the transactions of Carmen Ozamiz, she also
admitted that not all income of Carmen Ozamiz passed through her since Antonio Mendezona, as appointed
administrator, directly reported to Carmen Ozamiz.[24] With respect to Nelfa Perdido, she testified that most of the
transactions that she recorded refer only to rental income and expenses, and the amounts thereof were reported to
her by Concepcion Agac-ac only, not by Carmen Ozamiz. She does not record deposits or withdrawals in the bank
accounts of Carmen Ozamiz.[25] Their testimonies hardly deserve any credit and, hence, the appellate court misplaced
reliance thereon.
Considering that Carmen Ozamiz acknowledged, on the face of the notarized deed, that she received the
consideration at One Million Forty Thousand Pesos (P1,040,000.00), the appellate court should not have placed too
much emphasis on the checks, the presentation of which is not really necessary. Besides, the burden to prove
alleged non-payment of the consideration of the sale was on the respondents, not on the petitioners. Also, between
its conclusion based on inconsistent oral testimonies and a duly notarized document that enjoys presumption of

regularity, the appellate court should have given more weight to the latter. Spoken words could be notoriously
unreliable as against a written document that speaks a uniform language.[26]
Furthermore, the appellate court erred in ruling that at the time of the execution of the Deed of Absolute Sale
on April 28, 1989 the mental faculties of Carmen Ozamiz were already seriously impaired.[27] It placed too much
reliance upon the testimonies of the respondents witnesses. However, after a thorough scrutiny of the transcripts of
the testimonies of the witnesses, we find that the respondents core witnesses all made sweeping statements which
failed to show the true state of mind of Carmen Ozamiz at the time of the execution of the disputed document. The
testimonies of the respondents witnesses on the mental capacity of Carmen Ozamiz are far from being clear and
convincing, to say the least.
Carolina Lagura, a househelper of Carmen Ozamiz, testified that when Carmen Ozamiz was confronted by Paz
O. Montalvan in January 1989 with the sale of the Lahug property, Carmen Ozamiz denied the same. She testified
that Carmen Ozamiz understood the question then.[28] However, this declaration is inconsistent with her (Carolinas)
statement that since 1988 Carmen Ozamiz could not fully understand the things around her, that she was physically
fit but mentally could not carry a conversation or recognize persons who visited her. [29]Furthermore, the disputed sale
occurred on April 28, 1989 or three (3) months after this alleged confrontation in January 1989. This inconsistency
was not explained by the respondents.
The revelation of Dr. Faith Go did not also shed light on the mental capacity of Carmen Ozamiz on the relevant
day - April 28, 1989 when the Deed of Absolute Sale was executed and notarized. At best, she merely revealed that
Carmen Ozamiz was suffering from certain infirmities in her body and at times, she was forgetful, but there was no
categorical statement that Carmen Ozamiz succumbed to what the respondents suggest as her alleged second
childhood as early as 1987. The petitioners rebuttal witness, Dr. William Buot, a doctor of neurology, testified that no
conclusion of mental incapacity at the time the said deed was executed can be inferred from Dr. Faith Gos clinical
notes nor can such fact be deduced from the mere prescription of a medication for episodic memory loss.
It has been held that a person is not incapacitated to contract merely because of advanced years or by reason
of physical infirmities. Only when such age or infirmities impair her mental faculties to such extent as to prevent her
from properly, intelligently, and fairly protecting her property rights, is she considered incapacitated. [30] The
respondents utterly failed to show adequate proof that at the time of the sale on April 28, 1989 Carmen Ozamiz had
allegedly lost control of her mental faculties.
We note that the respondents sought to impugn only one document, namely, the Deed of Absolute Sale
dated April 28, 1989, executed by Carmen Ozamiz. However, there are nine (9) other important documents that
were, signed by Carmen Ozamiz either before or after April 28, 1989 which were not assailed by the respondents.
[31]
Such is contrary to their assertion of complete incapacity of Carmen Ozamiz to handle her affairs since 1987. We
agree with the trial courts assessment that it is unfair for the [respondents] to claim soundness of mind of
Carmen Ozamiz when it benefits them and otherwise when it disadvantages them. [32] A person is presumed to be of
sound mind at any particular time and the condition is presumed to continue to exist, in the absence of proof to the
contrary.[33] Competency and freedom from undue influence, shown to have existed in the other acts done or
contracts executed, are presumed to continue until the contrary is shown.[34]
All the foregoing considered, we find the instant petition to be meritorious and the same should be granted.
WHEREFORE, the instant petition is hereby GRANTED and the assailed Decision and Resolution of the Court
of Appeals are hereby REVERSED and SET ASIDE. The Decision datedSeptember 23, 1992 of
the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-10766 is REINSTATED. No pronouncement
as to costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

G.R. No. L-55201 February 3, 1994

MARIANO T. LIM, JAIME T. LIM, JOSE T. LIM, JOVITA T. LIM, ANACORITA T. LIM, ANTONIETTA T. LIM, RUBEN
T. LIM, BENJAMIN T. LIM, ET AL., petitioners,
vs.
COURT OF APPEALS, LORENZO O. TAN and HERMOGENES O. TAN, respondents.
Eulogio E. Gatdula for petitioners.
Miles L. Ludovice for private respondents.

PUNO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. No. 51340-R entitled "Mariano T. Lim,
et al., vs. Lorenzo O. Tan, et al., dated July 28, 1908. 1
The case involves the partition of the properties of the deceased spouse Tan Quico and Josefa Oraa. The former
died on May 11, 1932 and the latter on August 6, 1932. Both died intestate. They left some ninety six (96) hectares of
land located in the municipality of Guinobatan and Camalig Albay. 2
The late spouses were survived by four (4) children: Cresencia, Lorenzo, Hermogenes and Elias. Elias died on May
2, 1935 without issue. Cresencia died on December 20, 1967. 3 She was survived by her husband, Lim Chay
Sing, 4 and children, Mariano, Jaime, Jose Jovita, Anacoreta, Antonietta, Ruben, Benjamin and Rogelio. They are the
petitioners in the case at bench.
The sad spectacle of the heirs squalling over the properties of their deceased parents was again replayed in the case
at bench. The protagonists were the widower and children of Cresencia on one side, and Lorenzo and Hermogenes
on the other side.
The late Cresencia and Lorenzo had contrasting educational background. Cresencia only reached the second grade
of elementary school. She could not read or write in English. On the other hand, Lorenzo is a lawyer and a CPA.
Petitioners, heirs of Cresencia, alleged that since the demise of the spouses Tan Quico and Josefa Oraa, the subject
properties had been administered by respondent Lorenzo. They claimed that before her death, Cresencia had
demanded their partition from Lorenzo. 5 After Cresencia's death, they likewise clamored for their partition. 6 Their
efforts proved fruitless. They failed Civil Case No. 3676.
Respondent Lorenzo and Hermogenes adamant stance against partition is based on various contentions. Principally,
they urge: (1) that the properties had already been partitioned, albeit, orally; and (2) during her lifetime, the late
Cresencia had sold and conveyed all her interests in said properties to respondent Lorenzo. They cited as evidence
the "Deed of Confirmation of Extra Judicial Settlement of the Estate of Tan Quico and Josefa Oraa" 7 and a receipt of
payment. 8

The trial court decided in favor of the petitioners. It rejected the alleged oral petition in light of the contrary testimony
of respondent Hermogenes. It voided the "Deed of Confirmation of Extra Judicial Settlement of the Estate of Tan
Quico and Josefa Oraa and Sale" 9 on the ground that it was not understood by the late Cresencia when she signed
it.
On appeal, the respondent Court of Appeals, voting 4-1, reversed. It held there was evidence to establish that the
subject properties had been previously partitioned. It ruled that respondent Lorenzo was not shown to have exercised
any undue influence over the late Crescencia when she signed the said Deed of Confirmation, etc.
Dissatisfied, petitioners filed this petition for review by certiorari. They submit:
I. THE FINDING OR CONCLUSION DRAWN BY THE HONORABLE COURT OF APPEALS THAT

THE EVIDENCE ON RECORD ALSO SHOWS THAT THE TERMS OF EXH. "E"
(ALSO EXH. "1" IN ENGLISH) WERE READ TO CRESENCIANA O. TAN IN THE
BICOL DIALECT, EXPLAINED TO AND UNDERSTOOD BY HER, BEFORE SHE
SIGNED THE SAME.
BASED ON THE FACTS STATED IN THE JUDGMENT QUOTING "THE PERTINENT
TESTIMONIES ON THIS POINT" OR BOTH DEFENDANTS IS MANIFESTLY INCORRECT, AS
THE SAME FALL FAR SHORT OF THE MANDATORY REQUIREMENT OF ART. 1332, CIVIL
CODE, THAT THE TERMS THEREOF SHOULD BE FULLY EXPLAINED TO THE ILLITERATE
CRESENCIA O. TAN WHO DID NOT KNOW HOW TO READ AND WRITE IN ENGLISH.
II. THE CONCLUSION DRAWN BY THE HONORABLE COURT OF APPEALS THAT THERE WAS
NO UNDUE INFLUENCE EXERTED ON CRESENCIA O. TAN BY HER (LAWYER-CPA)
BROTHER LORENZO O. TAN BASED ON FACTS STATED IN THE QUESTIONED JUDGMENT
IS CLEARLY INCORRECT, AS IT IS CONTRARY TO THE PROVISION OF ART. 1337, CIVIL
CODE.
III. THE FINDING AND DECLARATION OF THE HONORABLE COURT OF APPEALS THAT
LORENZO O. TAN IS THE LAWFUL OWNER OF THE PROPERTIES PERTAINING TO THE
SHARE OF SAID ILLITERATE OR PARTY AT A DISADVANTAGE, CRESENCIA O. TAN BY
VIRTUE OF SAID DOCUMENT (EXH. "E"; ALSO EXH. "1") IS CONTRARY TO LAW, AS THE
LATTER'S CONSENT WAS GIVEN BY MISTAKE, UNDUE INFLUENCE AND/OR FRAUD.
IV. THE FINDING OF THE HONORABLE COURT OF APPEALS THAT THERE WAS AN ORAL
PARTITION BY AND AMONG CRESENCIA O. TAN AND HER TWO BROTHERS LORENZO O.
TAN AND HERMOGENES O. TAN IS CONTRARY TO THE ORAL ADMISSION OF
HERMOGENES O. TAN HIMSELF WHO TESTIFIED THAT
WE DID NOT HAVE EXACTLY A PARTITION IN 1930.
AS WELL AS SERIOUSLY CONTRADICTED BY CLEAR, COMPETENT AND CREDIBLE
DOCUMENTARY EVIDENCE AND THEREFORE SHOULD BE DISREGARDED.

We grant the petition.

The general rule is that factual findings of lower courts are accorded great respect by this court on review of their
decisions. In the petition at bench, we are constrained to re-examine these findings considering the contrarieties in
the findings made by the appellate court and the trial court. Indeed, even the Decision of the appellate court is not a
unanimous but a mere majority decision.
The first issue is whether or not the subject properties had already been partitioned among the heirs of tan Quico and
Josefa Oraa. The private respondents alleged that the properties had been orally partitioned in 1930. 10Their
evidence on this score, however, leaves much to be desired. It is only respondent Lorenzo who stubbornly insisted
that the said properties had already been divided. However, brother Hermogenes, the other respondent, gave a
different testimony. We quote his testimony:
xxx xxx xxx
Court:
Q Never mind your sister, we are talking about your parents. During their lifetime
in 1930 you said that the properties would be divided, so, in 1930, there was no
actual division because it would only be divided?
A We did not have exactly a partition in 1930.
Q You did not have a partition in 1930?
A No, your Honor. 11
The documentary evidence likewise support the conclusion that there was no such partition. Exhibit "2", the receipt
dated April 20, 1966 thumbmarked by the late Crescencia and presented by the petitioners themselves reads:
RECEIPT FOR P8,970.00
Received from LORENZO O. TAN, on various dates, the total sum of EIGHT THOUSAND NINE
HUNDRED SEVENTY (P8,970.00) PESOS as partial payment for the sale of my pro-indiviso share
on the properties inherited by me from my deceased parents.
As guarantee for the payment, I put up as security my pro-indiviso one-third share on the
properties inherited by me from my deceased parents.
Signed this 20th day of April, 1966 at Quezon City, Philippines.
(SGD.) CRESENCIA O. TAN
Witness: (SGD.) ANTONIETTA T. LIM
Note: Amount of P8,970 includes P6,700 paid to acquire Lot No. 202-54-41-T from Pedro L.
Morada who transferred his right to Jovita Lim.

The receipt speaks of the late Cresencia's pro-indiviso share of the subject properties or her share before division.
We also note that the subject lots are still covered by tax declarations 12 in the name of their parents. If these lots had
already been partitioned to the different heirs and then occupied by them, it appears strange that their tax
declarations have not been adjusted to reflect their ownership considering the long time that has elapsed since 1930.
Respondent Lorenzo testified that he took possession of the lot supposed to belong to the late Crescencia in
1966, 13 yet, he himself did not cause any change in its tax declaration. Similarly corrosive of the claim of private
respondents is their own Exhibit "E" or "1", entitled "Deed of Confirmation of Extra Judicial Settlement of the Estate of
Tan Quico and Josefa Oraa." Nowhere in the text of this document prepared by no less than respondent Lorenzo, is
there any intimation that the subject why Exhibit was entitled Deed of Confirmation, respondent Lorenzo explained;
". . . . we want to put it in black and white, the separation of the properties which was in existence since 1930 to
1932. . ." (TSN, March 2, 1970, p. 40). To say the least, the omission buttresses the conclusion that the properties
have not been partitioned.
We now determine the next crucial issue of fact, i. e., whether or not the above mentioned Deed of Confirmation of
Extra Judicial Settlement of the estate of Tan Quico and Josefa Oraa (Exhibit "E" or "1") is valid. The respondent
court, reversing the trial court, held that the evidence failed to establish that it was signed by the late Crescencia as a
result of fraud, mistake or undue influence. We hold this ruling erroneous. In calibrating the credibility of the
witnesses on this issue, we take our mandate from Article 1332 of the Civil Code which provides: "When one of the
parties is unable to read, or if the contract is in language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have been fully explained to the former." this
substantive law came into being due to the finding of the Code Commission that there is still a fairly large number of
illiterates in this country, and documents are usually drawn up in English or Spanish. 14 It is also in accord with our
state policy of promoting social
justice. 15 It also supplements Article 24 of the Civil Code which calls on court to be vigilant in the protection of the
rights of those who are disadvantaged in life. in the petition at bench, the questioned Deed is written in English, a
language not understood by the late Crescencia, an illiterate. It was prepared by the respondent Lorenzo, a lawyer
and CPA. For reasons difficult to divine, respondent Lorenzo did not cause the notarization of the deed. Petitioners
alleged that the Deed was signed by the late Crescencia due to mistake, fraud or undue influence. They postulated
that respondent Lorenzo took advantage of the late Crescencia's trust and confidence. Testifying on the trust of the
late Crescencia on respondent Lorenzo, petitioner Jose Lim declared: 16
xxx xxx xxx
Q Now, will you tell the Court how the relation between your mother and your
uncle Lorenzo Tan before September 1967?
A My mother was so close to his brother, Lorenzo Tan. My mother always asked
him advice because he is considered by my mother as God to her. . . .
Considering these circumstances, the burden was on private respondents to prove that the content of the Deed was
explained to the illiterate Crescencia before she signed it. 17 In this regard, the evidence adduced by the respondents
failed to discharge their burden. On one hand, respondent Lorenzo testified that he and his brother, respondent
Hermogenes, explained in Bicolano, the meaning of the deed to the late Crescencia, viz: 18
ATTY. LUDOVICE:
Q Who read the document to her?

A I and my brother.
Q Who is that brother?
A Hermogenes Tan.
COURT:
Q Who read that document?
A I prepared it.
Q You prepared it yourself?
A Yes, sir.
Q Why do you have to prepare the document?
A Because I have all the details.
COURT:
All right.
ATTY. LUDOVICE:
Q In what language did you read this document to Crescencia O. Tan?
A First it was in English then it was in Bicol so as to clarify things, they were my
sister and my brother and to other persons who is going to witness the document
Q Did your sister understand the Bicol dialect when the contents of this was
read?
A Yes and before that, my sister knows everything what is going on.
ATTY. GATDULA:
I moved to strike out the last portion of the answer.
COURT:
Strike it out.
Respondent Hermogenes, however, gave a different testimony. He declared it was respondent Lorenzo alone who
read the text of the Deed in Bicolano to the late Crescencia. We quote his testimony, viz: 19

Q You presented this document, EXHIBIT 1 for the defendants, to Crescencia

Tan?
A It was presented by my brother Lorenzo Tan.
Q On what occasion was that on August 15, 1967 was this presented?
A August 16 coincide with the fiesta in our town, Guinobatan.
Q Was this read to your sister by your brother Lorenzo?
A Yes, sir, that was read.
Q In what language was it read to her?
A It was read in Bicol.
Q Did your sister understand the contents of the document?
A Yes, sir.
Q Who read the document to her?
A Lorenzo Tan read the document.
This variance in testimony on a material matter works against the credibility of private respondents. Nor are we
prepared to give full faith and credit to the testimony that respondent Lorenzo alone explained the text of the deed to
the late Crescencia. Respondent Lorenzo has too much of a material stake on the dispute. His testimony on the
issue is, therefore, not free from bias and prejudice. Indeed, the preparation and alleged signing of the said Deed
leave a lot of questions unanswered. For one, the Deed as important as it is, was not caused to be notarized by
respondent Lorenzo. The need for notarization could not have escaped respondent Lorenzo, a lawyer by profession.
Article 1358 of the Civil Code requires that the Deed should appear in a public document. For another, respondent
Lorenzo prepared the Deed in English language when he knew all along that the late Cresencia would not be able to
comprehend its meaning. For still another, none of the alleged witnesses to the Deed was presented to testify on
whether it was signed by the late Crescencia voluntarily and with clear comprehension of its content. Last but not the
least, it is strange that the Crescencia signed the said Deed with full freedom and complete understanding of its legal
significance.
Finally, we come to the issue of whether or not the late Crescencia sold her inheritance share in favor of the
respondent Lorenzo. In taking the stance that there was indeed a sale, private respondents point to the receipt, Exh.
"2" dated April 20, 1966 as evidence. The significance of this receipt, Exh. "2" was well analyzed by the trial court and
we approve its ruling, viz:
Said defendant likewise presented in evidence a receipt (Exhibit 2) purports to show that on April
20, 1966, Cresencia O. Tan had already received the aggregate amount of P8,970.00 from
defendant Lorenzo O. Tan as "partial payment for the sale of my (Cresenciana O. Tan's) proindiviso share on the properties inherited by me from my deceased parents.

It is contended, by these exhibits, that Cresenciana O. Tan wanted to buy Lot 202-5-41-T at No. 53
Bignay, Project 2, Quezon City, with the proceeds of the sale to defendant Lorenzo O. Tan of a
portion of Lot 7671 located in Singtan, Guinobatan, Albay, which is alleged to be the share of said
Cresenciana O. Tan.
However, the same receipt Exhibit 2 recites at the bottom thereof that the amount of P8,970.00
includes the amount of P6,700.00 paid to purchase the lot of certain Pedro L. Morada who
transferred his right to Jovita Lim. This statement in Exhibit 2 belies defendant's contention that
Cresenciana O. Tan is the buyer of the lot in Quezon City.
IN VIEW WHEREOF, the petition for review on certiorari is granted and the Decision of the respondent appellate
court in Ca-G.R. No. 51340-R dated July 28, 1980 is reversed and set aside. In its lieu, the Decision of the then CFI
of Albay, 10th Judicial District, Br. II in Civil Case No. 3676 is reinstated. Costs against private respondents.
SO ORDERED.
Narvasa, C.J., Padilla and Regalado, JJ., concur.
Nocon, J., is on leave.
_______________________________________________________________________________

[G.R. No. 146942. April 22, 2003]

CORAZON G. RUIZ, petitioner, vs. COURT OF APPEALS and CONSUELO TORRES, respondents.
DECISION
PUNO, J.:
On appeal is the decision[1] of the Court of Appeals in CA-G.R. CV No. 56621 dated 25 August 2000, setting
aside the decision[2] of the trial court dated 19 May 1997 and lifting the permanent injunction on the foreclosure sale
of the subject lot covered by TCT No. RT-96686, as well as its subsequent Resolution [3] dated 26 January 2001,
denying petitioners Motion for Reconsideration.
The facts of the case are as follows:
Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry. [4] She obtained loans from
private
respondent
Consuelo
Torres
on
different
occasions,
in
the
following
amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.[5] Prior to their maturity, the loans were
consolidated under one (1) promissory note dated March 22, 1995, which reads as follows:[6]
P750,000.00

Quezon City, March 22, 1995

PROMISSORY NOTE

For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in solidum, jointly and severally
promise to pay to the order of CONSUELO P. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS
(P750,000.00) Philippine Currency, to earn an interest at the rate of three per cent (3%) a month, for thirteen months,
payable every _____ of the month, and to start on April 1995 and to mature on April 1996, subject to renewal.
If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of the principal loan, for every month
default, shall be collected.
Remaining balance as of the maturity date shall earn an interest at the rate of ten percent a month, compounded
monthly.
It is finally agreed that the principal and surety in solidum, shall pay attorneys fees at the rate of twenty-five percent
(25%) of the entire amount to be collected, in case this note is not paid according to the terms and conditions set
forth, and same is referred to a lawyer for collection.
In computing the interest and surcharge, a fraction of the month shall be considered one full month.
In the event of an amicable settlement, the principal and surety in solidum shall reimburse the expenses of the
plaintiff.
(Sgd.) Corazon Ruiz
Principal

__________________
Surety

The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-square meter lot in New
Haven Village, Novaliches, Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-96686, and registered
in the name of petitioner.[7] The mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her
husband Rogelio. It was executed on 20 March 1995, or two (2) days before the execution of the subject promissory
note.[8]
Thereafter, petitioner obtained three (3) more loans from private respondent, under the following promissory
notes: (1) promissory note dated 21 April 1995, in the amount ofP100,000.00;[9] (2) promissory note dated May 23,
1995, in the amount of P100,000.00;[10] and (3) promissory note dated December 21, 1995, in the amount
of P100,000.00.[11] These combined loans of P300,000.00 were secured by P571,000.00 worth of jewelry pledged by
petitioner to private respondent.[12]
From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the P750,000.00 loan,
amounting to P270,000.00.[14] After March 1996, petitioner was unable to make interest payments as she had
difficulties collecting from her clients in her jewelry business.[15]
[13]

Due to petitioners failure to pay the principal loan of P750,000.00, as well as the interest payment for April
1996, private respondent demanded payment not only of the P750,000.00 loan, but also of the P300,000.00 loan.
[16]
When petitioner failed to pay, private respondent sought the extra-judicial foreclosure of the aforementioned real
estate mortgage.[17]
On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy Sheriff In-Charge
Rolando G. Acal and Supervising Sheriff Silverio P. Bernas issued a Notice of Sheriffs Sale of subject lot. The public
auction was scheduled on October 8, 1996.[18]
On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a complaint with the RTC of
Quezon City docketed as Civil Case No. Q-96-29024, with a prayer for the issuance of a Temporary Restraining
Order to enjoin the sheriff from proceeding with the foreclosure sale and to fix her indebtedness to private respondent

to P706,000.00. The computed amount of P706,000.00 was based on the aggregate loan of P750,000.00, covered
by the March 22, 1995 promissory note, plus the other loans of P300,000.00, covered by separate promissory notes,
plus interest, minus P571,000.00 representing the amount of jewelry pledged in favor of private respondent.[19]
The trial court granted the prayer for the issuance of a Temporary Restraining Order, [20] and on 29 October
1996, issued a writ of preliminary injunction.[21] In its Decision dated May 19, 1997, it ordered the Clerk of Court and
Ex-Officio Sheriff to desist with the foreclosure sale of the subject property, and it made permanent the writ of
preliminary injunction. It held that the real estate mortgage is unenforceable because of the lack of the participation
and signature of petitioners husband. It noted that although the subject real estate mortgage stated that petitioner
was attorney-in-fact for herself and her husband, the Special Power of Attorney was never presented in court during
the trial.[22]
The trial court further held that the promissory note in question is a unilateral contract of adhesion drafted by
private respondent. It struck down the contract as repugnant to public policy because it was imposed by a dominant
bargaining party (private respondent) on a weaker party (petitioner).[23] Nevertheless, it held that petitioner still has an
obligation to pay the private respondent. Private respondent was further barred from imposing on petitioner the
obligation to pay the surcharge of one percent (1%) per month from March 1996 onwards, and interest of ten percent
(10%) a month, compounded monthly from September 1996 to January 1997. Petitioner was thus ordered to pay the
amount of P750,000.00 plus three percent (3%) interest per month, or a total of P885,000.00, plus legal interest from
date of [receipt of] the decision until the total amount of P885,000.00 is paid.[24]
Aside from the foregoing, the trial court took into account petitioners proposal to pay her other obligations to
private respondent in the amount of P392,000.00.[25]
The trial court also recognized the expenses borne by private respondent with regard the foreclosure sale and
attorneys fees. As the notice of the foreclosure sale has already been published, it ordered the petitioner to
reimburse private respondent the amount of P15,000.00 plus attorneys fees of the same amount.[26]
Thus, the trial court computed petitioners obligation to private respondent, as follows:
Principal Loan . P 750,000.00
Interest.. 135,000.00
Other Loans..392,000.00
Publication Fees.15,000.00
Attorneys Fees

15,000.00

TOTAL P1,307,000.00
with legal interest from date of receipt of decision until payment of total amount of P1,307,000.00 has been made.[27]
Private respondents motion for reconsideration was denied in an Order dated July 21, 1997.
Private respondent appealed to the Court of Appeals. The appellate court set aside the decision of the trial
court. It ruled that the real estate mortgage is valid despite the non-participation of petitioners husband in its
execution because the land on which it was constituted is paraphernal property of petitioner-wife. Consequently, she
may encumber the lot without the consent of her husband. [28] It allowed its foreclosure since the loan it secured was
not paid.

Nonetheless, the appellate court declared as invalid the 10% compounded monthly interest [29] and the 10%
surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995, [30] and so too the
1% compounded monthly interest stipulated in the promissory note dated 21 April 1995, [31] for being excessive,
iniquitous, unconscionable, and contrary to morals. It held that the legal rate of interest of 12% per annum shall
apply after the maturity dates of the notes until full payment of the entire amount due, and that the only permissible
rate of surcharge is 1% per month, without compounding. [32] The appellate court also granted attorneys fees in the
amount of P50,000.00, and not the stipulated 25% of the amount due, following the ruling in the case of Medel v.
Court of Appeals.[33]
Now, before this Court, petitioner assigns the following errors:
(1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PROMISSORY NOTE
OF P750,000.00 IS NOT A CONTRACT OF ADHESION DESPITE THE CLEAR SHOWING THAT THE SAME IS A
READY-MADE CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND DID NOT REFLECT
THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR OF RESPONDENT AND AGAINST PETITIONER.
(2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE PROPERTY
COVERED BY THE SUBJECT DEED OF MORTGAGE OF MARCH 20, 1995 IS A PARAPHERNAL PROPERTY OF
THE PETITIONER AND NOT CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER OR NOT THE
MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER RAISED, NOR DISCUSSED AND ARGUED BEFORE
THE TRIAL COURT.
(3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE TRIAL COURTS
COMPUTATION OF THE ACTUAL OBLIGATIONS OF THE PETITIONER WITH (THE) RESPONDENT TORRES
EVEN THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT.
The pertinent issues to be resolved are:
(1) Whether the promissory note of P750,000.00 is a contract of adhesion;
(2) Whether the real property covered by the subject deed of mortgage dated March 20, 1995 is paraphernal
property of petitioner; and
(3) Whether the rates of interests and surcharges on the obligation of petitioner to private respondent are valid.
I
We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet Lines, Inc. vs.
Teves,[34] this Court discussed the nature of a contract of adhesion as follows:
. . . there are certain contracts almost all the provisions of which have been drafted only by one party, usually a
corporation. Such contracts are called contracts of adhesion, because the only participation of the other party is the
signing of his signature or his adhesion thereto. Insurance contracts, bills of lading, contracts of sale of lots on the
installment plan fall into this category.[35]
. . . it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other
party . . . who cannot change the same and who are thus made to adhere hereto on the take it or leave it basis . . .
[36]
In said case of Sweet Lines,[37] the conditions of the contract on the 4 x 6 inches passenger ticket are in fine
print. Thus we held:

 . . . it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested
counters, more often than not during rush hours, for conditions that may be printed thereon, much less charge them
with having consented to the conditions, so printed, especially if there are a number of such conditions in fine print,
as in this case.[38]
We further stressed in the said case that the questioned Condition No. 14 was prepared solely by one party
which was the corporation, and the other party who was then a passenger had no say in its preparation. The
passengers have no opportunity to examine and consider the terms and conditions of the contract prior to the
purchase of their tickets.[39]
In the case at bar, the promissory note in question did not contain any fine print provision which could not have
been examined by the petitioner. Petitioner had all the time to go over and study the stipulations embodied in the
promissory note. Aside from the March 22, 1995 promissory note for P750,000.00, three other promissory notes of
different dates and amounts were executed by petitioner in favor of private respondent. These promissory notes
contain similar terms and conditions, with a little variance in the terms of interests and surcharges. The fact that
petitioner and private respondent had entered into not only one but several loan transactions shows that petitioner
was not in any way compelled to accept the terms allegedly imposed by private respondent. Moreover, petitioner, in
her complaint[40] dated October 7, 1996 filed with the trial court, never claimed that she was forced to sign the subject
note. Paragraph five of her complaint states:
That on or about March 22, 1995 plaintiff was required by the defendant Torres to execute a promissory note
consolidating her unpaid principal loan and interests which said defendant computed to be in the sum of P750,000.00
. . .
To be required is certainly different from being compelled. She could have rejected the conditions made by private
respondent. As an experienced business- woman, she ought to understand all the conditions set forth in the subject
promissory note. As held by this Court in Lee, et al. vs. Court of Appeals, et al.,[41] it is presumed that a person
takes ordinary care of his concerns. [42] Hence, the natural presumption is that one does not sign a document without
first informing himself of its contents and consequences. This presumption acquires greater force in the case at bar
where not only one but several documents were executed at different times by petitioner in favor of private
respondent.
II
We also affirm the ruling of the appellate court that the real property covered by the subject deed of mortgage is
paraphernal property. The property subject of the mortgage is registered in the name of Corazon G. Ruiz, of legal
age, married to Rogelio Ruiz, Filipinos. Thus, title is registered in the name of Corazon alone because the phrase
married to Rogelio Ruiz is merely descriptive of the civil status of Corazon and should not be construed to mean
that her husband is also a registered owner. Furthermore, registration of the property in the name of Corazon G.
Ruiz, of legal age, married to Rogelio Ruiz is not proof that such property was acquired during the marriage, and
thus, is presumed to be conjugal. The property could have been acquired by Corazon while she was still single, and
registered only after her marriage to Rogelio Ruiz. Acquisition of title and registration thereof are two different acts.
[43]
The presumption under Article 116 of the Family Code that properties acquired during the marriage are presumed
to be conjugal cannot apply in the instant case. Before such presumption can apply, it must first be established that
the property was in fact acquired during the marriage. In other words, proof of acquisition during the marriage is a
condition sine qua non for the operation of the presumption in favor of conjugal ownership. [44] No such proof was
offered nor presented in the case at bar. Thus, on the basis alone of the certificate of title, it cannot be presumed that
said property was acquired during the marriage and that it is conjugal property. Since there is no showing as to when
the property in question was acquired, the fact that the title is in the name of the wife alone is determinative of its
nature as paraphernal, i.e., belonging exclusively to said spouse. [45] The only import of the title is that Corazon is the
owner of said property, the same having been registered in her name alone, and that she is married to Rogelio Ruiz.
[46]

III
We now resolve the issue of whether the rates of interests and surcharges on the obligation of petitioner to
private respondent are legal.
The four (4) unpaid promissory notes executed by petitioner in favor of private respondent are in the following
amounts and maturity dates:
(1) P750,000.00, dated March 22, 1995 matured on April 21, 1996;
(2) P100,000.00, dated April 21, 1995 matured on August 21, 1995;
(3) P100,000.00, dated May 23, 1995 matured on November 23, 1995; and
(4) P100,000.00, dated December 21, 1995 matured on March 1, 1996.
The P750,000.00 promissory note dated March 22, 1995 has the following provisions:
(1) 3% monthly interest, from the signing of the note until its maturity date;
(2) 10% compounded monthly interest on the remaining balance at maturity date;
(3) 1% surcharge on the principal loan for every month of default; and
(4) 25% attorneys fees.
The P100,000.00 promissory note dated April 21, 1995 has the following provisions:
(1) 3% monthly interest, from the signing of the note until its maturity date;
(2) 10% monthly interest on the remaining balance at maturity date;
(3) 1% compounded monthly surcharge on the principal loan for every month of default; and
(4) 10% attorneys fees.
The two (2) other P100,000.00 promissory notes dated May 23, 1995 and December 1, 1995 have the
following provisions:
(1) 3% monthly interest, from the signing of the note until its maturity date;
(2) 10% compounded monthly interest on the remaining balance at maturity date;
(3) 10% surcharge on the principal loan for every month of default; and
(4) 10% attorneys fees.
We affirm the ruling of the appellate court, striking down as invalid the 10% compounded monthly interest, the
10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995, and the 1%
compounded monthly interest stipulated in the promissory note dated April 21, 1995. The legal rate of interest of
12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due. Also, the
only permissible rate of surcharge is 1% per month, without compounding. We also uphold the award of the
appellate court of attorneys fees, the amount of which having been reasonably reduced from the stipulated 25% (in
the March 22, 1995 promissory note) and 10% (in the other three promissory notes) of the entire amount due, to a
fixed amount of P50,000.00. However, we equitably reduce the 3% per month or 36% per annum interest present in
all four (4) promissory notes to 1% per month or 12% per annum interest.
The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals,[47] Garcia vs.
Court of Appeals,[48] Bautista vs. Pilar Development Corporation,[49]and the recent case of Spouses Solangon
vs. Salazar.[50] This Court invalidated a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan
in Medel[51] and a 6% per month or 72% per annum interest on a P60,000.00 loan in Solangon[52] for being

excessive, iniquitous, unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per
annum. We held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective
on January 1, 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate, still
stipulated interest rates are illegal if they are unconscionable. Nothing in the said circular grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging
of their assets.[53] On the other hand, in Bautista vs. Pilar Development Corp.,[54] this Court upheld the validity of a
21% per annum interest on a P142,326.43 loan, and in Garcia vs. Court of Appeals, sustained the agreement of
the parties to a 24% per annum interest on anP8,649,250.00 loan. It is on the basis of these cases that we reduce
the 36% per annum interest to 12%. An interest of 12% per annum is deemed fair and reasonable. While it is true
that this Court invalidated a much higher interest rate of 66% per annum in Medel[55] and 72% in Solangon[56] it has
sustained the validity of a much lower interest rate of 21% in Bautista[57]and 24% in Garcia.[58] We still find the 36%
per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2)
aforecited cases.
The 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated
in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil
Code, and is separate and distinct from interest payment. [59] Also referred to as a penalty clause, it is expressly
recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of
breach of an obligation.[60] The obligor would then be bound to pay the stipulated amount of indemnity without the
necessity of proof on the existence and on the measure of damages caused by the breach. [61] Although the courts
may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless,
may be equitably reduced if it is iniquitous or unconscionable.[62] In the instant case, the 10% surcharge per month
stipulated in the promissory notes dated May 23, 1995 and December 1, 1995 was properly reduced by the appellate
court.
In sum, petitioner shall pay private respondent the following:
1. Principal of loan under promissory note dated
March 22, 1995 ... P750,000.00
a.
b.

1% interest per month on principal from March 22, 1995 until fully paid,
less P270,000.00 paid by petitioner as interest from April 1995 to March 1996
1% surcharge per month on principal from May 1996 until fully paid

2. Principal of loan under promissory note dated

April 21, 1995 .. P100,000.00
a.

1% interest per month on principal from April 21, 1995 until fully paid

b.

1% surcharge per month on principal from September 1995 until fully paid

3. Principal of loan under promissory note dated

May 23, 1995 .... P100,000.00
a.

1% interest per month on principal from May 23, 1995 until fully paid

b.

1% surcharge per month on principal from December 1995 until fully paid

4. Principal of loan under promissory note dated

December 1, 1995 ... P100,000.00
a.

1% interest per month on principal from December 1, 1995 until fully paid

b.

1% surcharge per month on principal from April 1996 until fully paid

5. Attorneys fees...P 50,000.00

Hence, since the mortgage is valid and the loan it secures remains unpaid, the foreclosure proceedings may
now proceed.
IN VIEW WHEREOF, the appealed Decision of the Court of Appeals is AFFIRMED, subject to the
MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12 % per annum.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

[G.R. No. 163770. February 17, 2005]

EPIFANIA DELA CRUZ, substituted by LAUREANA V. ALBERTO, petitioner, vs. SPS. EDUARDO C. SISON and
EUFEMIA S. SISON, respondents.
DECISION
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision dated
April 20, 2004,[1] of the Court of Appeals in CA-G.R. CV No. 55006, which reversed and set aside the Decision dated
March 20, 1996,[2] of the Regional Trial Court of Lingayen, Pangasinan, Branch 38, declaring as valid the Deed of
Absolute Sale dated November 24, 1989, executed by the deceased petitioner in favor of the respondents.
Initially, the complainant in this case was Epifania S. Dela Cruz (Epifania), but she died on November 1, 1996,
while the case was pending in the Court of Appeals. Upon her demise, she was substituted by her niece, Laureana
V. Alberto.
Epifania claimed that sometime in 1992, she discovered that her rice land in Salomague Sur, Bugallon,
Pangasinan, has been transferred and registered in the name of her nephew, Eduardo C. Sison, without her
knowledge and consent, purportedly on the strength of a Deed of Sale she executed on November 24, 1989.
Epifania thus filed a complaint before the Regional Trial Court of Lingayen, Pangasinan, to declare the deed of
sale null and void. She alleged that Eduardo tricked her into signing the Deed of Sale, by inserting the deed among

the documents she signed pertaining to the transfer of her residential land, house and camarin, in favor of Demetrio,
her foster child and the brother of Eduardo.
Respondents, spouses Eduardo and Eufemia Sison (Spouses Sison), denied that they employed fraud or
trickery in the execution of the Deed of Sale. They claimed that they purchased the property from Epifania for
P20,000.00. They averred that Epifania could not have been deceived into signing the Deed of Absolute Sale
because it was duly notarized before Notary Public Maximo V. Cuesta, Jr.; and they have complied with all requisites
for its registration, as evidenced by the Investigation Report by the Department of Agrarian Reform (DAR), [3]Affidavit
of Seller/Transferor,[4] Affidavit of Buyer/Transferee,[5] Certification issued by the Provincial Agrarian Reform Officer
(PARO),[6] Letter for the Secretary of Agrarian Reform,[7]Certificate Authorizing Payment of Capital Gains Tax,[8] and
the payment of the registration fees. Some of these documents even bore the signature of Epifania, proof that she
agreed to the transfer of the property.
Respondents asserted that they have been in open, continuous, and peaceful possession of the land since
November 24, 1989; in fact, they have been receiving the fruits and produce of the land since they purchased the
same, as corroborated by Manuel C. Rafon, the caretaker of the property.[9]
On March 20, 1996, the trial court rendered judgment in favor of Epifania, the dispositive portion of which reads:
Wherefore, in view of the considerations discussed above, the court hereby renders judgment in favor of the plaintiff
and against the defendants.
1.

Declaring the deed of sale marked exhibit A not valid and without legal force and effect;

2.
Ordering and enjoining the defendants from disturbing the plaintiffs possession over the land covered by
exhibit A;
3.
Ordering the defendants to pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as attys fee and
Two Thousand (P2,000.00) Pesos as litigation expenses and to further pay the costs of the proceedings.
All other claims are denied for lack of basis.
SO ORDERED.[10]
The trial court found that Eduardo deceived Epifania into signing the assailed deed by interspersing the same
with the documents executed by the latter in favor of her foster son, Demetrio Sison. [11] The trial court noted that two
sets of residence certificates were used by Epifania for the year 1989, for which the respondents gave no
explanation. It also observed that there was no reason for Epifania to sell her properties as she was not financially
hard-up at the time of the sale.
Dissatisfied with the trial courts decision, the spouses Sison appealed to the Court of Appeals, which disposed
of the appeal as follows:
WHEREFORE, premises considered, the appealed judgment is REVERSED and SET ASIDE, and a new one
entered DECLARING as valid the Deed of Absolute Sale dated November 24, 1989 executed by the plaintiff-appellee
in favor of the defendants-appellants.
SO ORDERED.[12]
In reversing the trial court, the Court of Appeals declared that Epifanias allegation of trickery and fraud in the
execution of the questioned deed of sale, was bare and unsupported. Taken alone, it did not constitute the required

convincing proof as would overcome the presumption that a private document duly acknowledged before a notary
public, except a last will and testament, is a public instrument which will also serve as evidence of the fact which
gave rise to its execution as well as its date.[13]
Hence, this petition, raising the following errors:
I.
THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING THE PRESUMPTION OF DUE EXECUTION OF
THE QUESTIONED DEED OF SALE.
II.
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE QUESTIONED DEED OF SALE IS VALID.
III.
THE COURT OF APPEALS GRAVELY ERRED IN NOT UPHOLDING THE CONCLUSIONS AND FINDINGS OF
FACT BY THE TRIAL COURT.[14]
The sole issue for resolution is whether the deed of absolute sale is valid.
The issue of whether fraud attended the execution of a contract is factual in nature. Normally, this Court is
bound by the appellate courts findings, unless they are contrary to those of the trial court, in which case we may
wade into the factual dispute to settle it with finality. [15] After a careful perusal of the records, we sustain the Court of
Appeals ruling that the Deed of Absolute Sale dated November 24, 1989 is valid.
Petitioner asserts that the presumption of due execution of the questioned deed of sale does not apply in the
instant case, Epifania being 79 years old at the time she signed the questioned deed of sale and unable to read and
understand the English language used therein. Petitioner cites Article 1332 of the Civil Code, which states:
ART. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former.
During her testimony, Epifania insisted that she cannot read,[16] and yet, her avowal is inconsistent with her own
complaint where she alleged:
7.
She only read the document on top of the other several copies and found the same to be the deed in favor of
Demetrio C. Sison and being made to believe by Eduardo C. Sison that the other copies are the same as the deed in
favor of Demetrio C. Sison, she signed all the other copies which Eduardo made her sign;[17] (Emphasis supplied)
To us, these contradictory statements do not establish the fact that Epifania was unable to read and understand
the English language. There being no evidence adduced to support her bare allegations, thus, Epifania failed to
satisfactorily establish her inability to read and understand the English language. It is well settled that a party who
alleges a fact has the burden of proving it.[18] Consequently, the provisions of Art. 1332 does not apply.
Although Epifania was 79 years old at the time of the execution of the assailed contract, her age did not impair
her mental faculties as to prevent her from properly and intelligently protecting her rights. Even at 83 years, she
exhibited mental astuteness when she testified in court. It is, therefore, inconceivable for her to sign the assailed
documents without ascertaining their contents, especially if, as she alleges, she did not direct Eduardo to prepare the
same.

A comparison of the deed of sale in favor of Demetrio and the deed of sale in favor Eduardo, draws out the
conclusion that there was no trickery employed. One can readily see that the first deed of sale is in all significant
respects different from the second deed of sale. A casual perusal, even by someone as old as Epifania, would
enable one to easily spot the differences. Epifania could not have failed to miss them. The Court of Appeals
observed, thus:
Exhibit 14 was prepared using a different type writer with much bigger font, lending weight to the claim that it was
executed on a later date, December 14, 1989. That it bore a different residence certificate number, 14416455J, may
be said to have caused by an inadvertent error, but which error was likely committed in the earlier deed in favor of
Eduardo itself, which shows the number 14416456J hand-printed along with the date of issue of November 23,
1989. The error in the date of the certificate, November 23, 1989 instead of January 23, 1989, may likely be because
the deed of sale to Eduardo was executed in November. Surely any deliberate trickery by Eduardo could not have
gone as far as creating these differences and errors, which could not conceivably have helped him conceal his
alleged surreptitious insertion of copies of the deed in his favor into the sheaves of documents he presented for
signing by appellee.[19]
Indeed, if the intention was to deceive, both deeds of sale should have been mirror images as to mislead
Epifania into thinking that she was signing what appeared to be the same document.
In addition, the questioned deed of sale was duly notarized. It is a settled rule that one who denies the due
execution of a deed where ones signature appears has the burden of proving that, contrary to the recital in the jurat,
one never appeared before the notary public and acknowledged the deed to be a voluntary act.[20] Epifania never
claimed her signatures as forgeries. In fact, Epifania never questioned the deed of sale in favor of Demetrio,
accepting it as a valid and binding document. It is only with respect to the deed of sale in favor of Eduardo that she
denies knowledge of affixing her signature. Unfortunately, for both parties, the notary public, Atty. Maximo V. Cuesta,
Jr. before whom they appeared, died prior to the filing of the case.
Hence, we apply the rule that documents acknowledged before notaries public are public documents which are
admissible in evidence without necessity of preliminary proof as to their authenticity and due execution. They have in
their favor the presumption of regularity, and to contradict the same, there must be evidence that is clear, convincing
and more than merely preponderant.[21] The burden of proof to overcome the presumption of due execution of a
notarial document lies on the one contesting the same. Petitioner failed to discharge this burden.
It does not follow that since Epifania maintained bank deposits, that she never intended to sell the rice land. As
respondents have pointed out, Epifania had stopped making bagoong at the time of the execution of the deed of sale.
[22]
It is thus logical for a 79-year old woman with no means of income to find other ways to support herself. Notably,
petitioner herself pointed out that as of August 16, 1990, her deposit decreased from P1,005,857.66 to P346,760.58,
which only shows that she needed money between 1988-1990.[23] The possibility that she sold her property to acquire
additional cash is therefore not remote, especially if we take into account that, twenty days after the sale to Eduardo,
Epifania also sold to Demetrio her residential land, house and camarin.
We uphold the findings of the Court of Appeals that the series of official acts and processes leading to the
transfer of the tax declaration in the name of Eduardo lend credence to the due execution of the questioned deed of
sale, thus:
Defendants then have every reason to maintain that they are now the absolute owners of the subject land. The
series of subsequent official acts and processes pertinent to the transfer thereof to appellant can only lend credence
to the due execution of the questioned deed of sale. By virtue of said deed, Tax Declaration No. 57 in plaintiffappellees name was cancelled and Tax Declaration No. 4754 was issued in the names of defendants-spouses (Exh.
2). As to whether defendants are now the possessors of the land and have been receiving their share of the produce
since 1989 up to the present, there is the affidavit to that effect of Manuel Rafon, a long-time tenant of the land in
question (Exh. 3), as well as an earlier affidavit by him also dated November 24, 1989 that he continued to till the

subject land as tenant (Exh.13). We also cannot ignore the investigation report of the DAR (Exh. 4) in regard to
appellants application for transfer of ownership, wherein the MARO, Erlinda R. Lomibao, found that the appellant
was entitled to the necessary certification or clearance.
Significantly, it must also be mentioned that the appellee also contemporaneously executed a notarized Affidavit of
Seller/Transferor (Exh. 5), acknowledging that she has sold 1.45 hectares of her OLT retention area to appellant
Eduardo Sison. Said instrument is also a public document, to overcome which appellee failed also to adduce
convincing evidence. Then there is the certification or clearance issued by the Provincial Agrarian Reform Office for
purposes of registration of the lot in the name of the defendants-appellants (Exh. 6). The Revenue District Officer
Dante Canullas also approved the transfer to appellant when he issued a certificate authorizing registration (Exh. 7).
There is even the letter of the appellee to the Secreatry of Agrarian Reform that the area from which she sold a
portion to Eduardo came from her retention limit under PD 27. The obvious purpose of her letter was to facilitate the
transfer to Eduardo.[24]
The testimony of Municipal Agrarian Reform Officer Erlinda Lomibao demonstrates the intent of Epifania to sell
her land to the former. According to Lomibao, both Epifania and Eduardo appeared before her twice, to facilitate the
issuance of the clearance over the transfer of the property. The DAR visitors logbook showed the names and
signatures of both parties written one after the other.[25]
These overwhelming documentary evidence presented by the respondents prove that the spouses Sison
bought the property from Epifania. These documents are too varied from each other to have been accomplished
through trickery and fraud. She could not have signed all these documents, including that of Demetrios and not
inquire as to the contents thereof, if as she alleged, the questioned deed of sale was surreptitiously inserted with that
intended for Demetrio.
Incidentally, even Demetrio himself admitted that the subject property was sold by Epifania to Eduardo and that
the latter had been in open and continuous possession thereof since November 1989.
WHEREFORE, in view of the foregoing, the petition is DENIED. The decision dated April 20, 2004 of the Court
of Appeals in CA-G.R. CV No. 55006, reversing the March 20, 1996 decision of the Regional Trial Court, Branch 38
of Lingayen, Pangasinan, in Civil Case No. 17245, is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.

[1]

Rollo, pp. 34-44; penned by Associate Justice Eliezer R. De Los Santos, with Associate Justices Conrado M.
Vasquez, Jr. and Rosalinda Asuncion-Vicente concurring.

[2]

Records, pp. 100-108; penned by Judge Antonio M. Belen.

[G.R. No. 110672. September 14, 1999]

RURAL BANK OF STA. MARIA, PANGASINAN, petitioner vs. THE HONORABLE COURT OF APPEALS, ROSA
RIO R. RAYANDAYAN, CARMEN R.ARCEO, respondents.
[G.R. No. 111201. September 14, 1999]

ROSARIO R. RAYANDAYAN and CARMEN R. ARCEO, petitioners vs. COURT OF APPEALS, HALSEMA INC.
and RURAL BANK OF STA. MARIA,PANGASINAN, INC., respondents.
DECISION
GONZAGA_REYES, J.:
Before us are two consolidated[1] petitions for review on certiorari under Rule 45 of the Revised Rules of
Court. In G.R. No. 110672, petitioner Rural Bank of Sta. Maria, Pangasinan, assails portions of the Decision dated
March 17, 1993, and the Resolution dated January 25, 1993, of the Court of Appeals [2] in CA-G.R. CV No. 21918,
which affirmed with modification the Decision of the Regional Trial Court (Branch 6, Baguio City) [3] in Civil Case No.
890-R entitled Rosario R. Rayandayan and Carmen R. Arceo versus Rural Bank of Sta. Maria, Pangasinan and
Halsema, Inc. In G.R. No. 111201, petitioners Rosario R. Rayandayan and Carmen R. Arceo likewise assail
portions of said Decision adverse to it.
The facts as found by the trial court and adopted by the Court of Appeals insofar as pertinent to the instant
petitions are as follows:
xxx, the Court Finds that a parcel of land of about 49,969 square meters, located in Residence Section J, Camp 7,
Baguio City, covered by TCT T-29817 (land for short) is registered in the name of Manuel Behis, married to Cristina
Behis (Exhibit B). Said land originally was part of a bigger tract of land owned by Behis (one name), father of
Manuel Behis, covered by OCT-0-33 (Exhibit 26, Halsema, for history of the land). And upon the latters death on
September 24, 1971, his children, namely: Saro Behis, Marcelo Behis, Manuel Behis, Lucia Behis, Clara Behis and
Arana Behis, in an extrajudicial settlement with Simultaneous Sale of Inheritance dated September 28, 1978, agreed
to sell the land to Manuel Behis, married to Cristina Behis (Exhibit `2, Halsema) but which subsequently was
explained as only an arrangement adopted by them to facilitate transactions over the land in a Confirmation of Rights
of Co-Ownership over real Property dated September 26, 1983, showing that the Behis brothers and sisters,
including Manuel Behis, are still co-owners thereof (Exhibit `30, Halsema, Exhibit `AA).
Manuel Behis mortgaged said land in favor of the Bank in a Real Estate Mortgage dated October 23, 1978 (Exhibit
`Q-1) as security for loans obtained, covered by six promissory notes and trust receipts under the Supervised Credit
Program in the total sum of P156,750.00 (Exhibit `Q-2 to `Q-7, Exhibits `4-A to `4-F, Halsema) and annotated at the
back of the title on February 13, 1979 as Entry No. 85538-10-231 (Exhibit 1-A-1, Halsema). The mortgage, the
promissory notes and trust receipts bear the signatures of both Manuel Behis and Cristina Behis.
Unfortunately thereafter, Manuel Behis was delinquent in paying his debts.
On January 9, 1985, Manuel Behis sold the land to the plaintiffs[4] in a Deed of Absolute Sale with Assumption of
Mortgage for the sum of P250,000.00 (Exhibit `A) which bears the signature of his wife Cristina Behis. Manuel Behis
took it upon himself to secure the signature of his wife and came back with it. On the same date of January 9, 1985,
plaintiffs and Manuel Behis simultaneously executed another Agreement (Exhibit `15) whereby plaintiffs are indebted
to Manuel Behis for the sum of P2,400,000.00 payable in installments with P10,000.00 paid upon signing and in case
of default in the installments, Manuel Behis shall have legal recourse to the portions of the land equivalent to the
unpaid balance of the amounts in installments. Obviously, the real consideration of the sale of the land of Manuel
Behis to the plaintiffs is contained in this Agreement (Exhibit `15).

Plaintiffs did not present to the Register of Deeds of Baguio said two contracts and ask that the title, TCT T-29817 in
the name of Manuel Behis be cancelled and a new one issued in their name which normally a buyer does. Neither
did plaintiffs annotate at the back of the title the aforesaid two contracts. Nor did they immediately go to the Bank
and present said two contracts. Thus, the title to the land, TCT No. T-29817, remained in the name of Manuel Behis.
Pursuant to their two contracts with Manuel Behis, plaintiffs paid him during his lifetime the sum of P10,000.00 plus
P50,000.00 plus P145,800.00 (Exhibit `U as stipulated in the hearing), and the sum of P21,353.75 for the
hospitalization, medical and burial expenses of Manuel Behis when he died on June 21, 1985 (Exhibit `II, `JJ, `KK,
`LL, `PP, `OO, and `RR). Obviously, from the above payments, the plaintiffs were unable to complete their full
payment to Manuel Behis of the sale of the land as it is nowhere near P2,400,000.00.
Meantime, the loan in the name of Manuel Behis with the Bank secured by the Real Estate Mortgage on the land
continued to accumulate being delinquent. By May 30, 1985, in a Statement of Account (Exhibit `D) sent to Manuel
Behis by the Bank thru the Paredes Law Office for collection, the debt of P150,750.00 has ballooned into
P316,368.13, with interest and other charges. In fact, the Bank, thru its President, Vicente Natividad, initiated
foreclosure proceedings. But after the usual publication, the same was discontinued since many parties were
interested to buy the land outside the said procedure but none materialized.
On June 19, 1985, Atty. William Arceo, in behalf of Manuel Behis, wrote a letter asking for a more detailed
Statement of Account from the Bank broken down as to principal, interest and other charges (Exhibit `E).
Thereafter, plaintiffs finally presented the Deed of Absolute Sale with Assumption of Mortgage (Exhibit `A) to the
Bank when negotiating with its principal stockholder, Engr. Edilberto Natividad, in Manila, but did not show to the
latter the Agreement (Exhibit `15) with Manuel Behis providing for the real consideration of P2,400,000.00. And thus,
on August 1, 1985, a Memorandum of Agreement (Exhibit `F) was entered into between plaintiffs, as assignees of
Manuel Behis, and the Bank, the salient features of which are:
`x x x

xxx

xxx

`3.
That during the lifetime of Manuel Behis he had executed a Deed of Absolute Sale with Assumption of
Mortgage in favor of Carmen Arceo and Rosario Rayandayan;
`4.

That the total obligation of the late Manuel Behis to the Bank amounts to P343,782.22;

`5.
That the assignees hereby offer to redeem the aforesaid real property and the Bank hereby agrees to
release the mortgage thereon under the following terms and conditions:
(a).
That the amount of P35,000.00 shall be paid by the assignees to the Bank upon execution of this
Agreement;
(b).
That the amount of P108,000.00 shall be paid by the assignees to the Bank at the rate of P36,000.00 a
month payable on September 15, 1985, October 15, 1985 and November 15, 1985;
(c).
That the balance of P200,000.00 shall be renewed for one year and shall be secured by another mortgage
over the same property which is renewable every year upon payment of interests and at least 10 percent of the
principal;

(d).
That the bank shall release the mortgage of Manuel Behis and a new mortgage shall be executed by the
assignees and the bank shall give its consent for the transfer of the title under the name of the assignees.
x x x.
Plaintiffs did not annotate the Memorandum of Agreement in the title, TCT T-29817.
Pursuant to the Memorandum of Agreement, plaintiffs paid the Bank the following:
(1) P35,000.00 on August 1, 1985 as initial deposit when the Agreement was signed (Exhibits `G and `H);
(2) P15,000.00 on September 16, 1985 (Exhibit `I) and P21,000.00 on September 20, 1985 (Exhibit `J) to
cover the obligation of P36,000.00 on September 15, 1985;
(3) P20,000.00 on October 17, 1985 (Exhibit `K) and P16,000.00 on October 25, 1985 (Exhibit `L) to
cover the obligation to pay P36,000.00 on October 15, 1985;
(4) P36,000.00 in the form of dollars remitted to Engr. Edilberto Natividad on December 18, 1985 (Exhibit
`N) to cover the obligation to pay P36,000.00 on November 15, 1985.
After the last payment of P36,000.00 on December 18, 1985, received in dollars (Exhibit `N) which completed the
P143,000.00 under paragraphs 5 (a) and 5 (b) of the Memorandum of Agreement Engr. Edilberto Natividad, wrote a
letter (Exhibit M) to Vicente Natividad, with instructions that payment be duly credited and Atty. Arceo will
communicate about the transfer of title to them and to consult the Banks counsel on the matter, and with instructions
also to Ana Acosta of the Rural Bank of Tuba to debit said amount from the savings of Edilberto Natividad. xxx.
From the above payments made, the total amount of P143,000.00 as required by paragraphs 5 (a) and 5 (b) of the
Memorandum of Agreement was fully paid by plaintiffs although they were not paid on time.
Meanwhile, on September 5, 1985, Cristina Behis, widow of Manuel Behis, wrote a letter to the Bank (Exhibit `3,
Halsema) claiming the Real Estate mortgage was without her signature. And in another letter dated October 28,
1985 to the Bank (Exhibit 4, Halsema), Cristina Behis stressed she did not authorize anybody to redeem the property
in her behalf as one of the mortgagors of the land.
On January 7, 1986, plaintiffs demanded in a letter (Exhibit `O) that the Bank comply with its obligation under the
Memorandum of Agreement to (1) release the mortgage of Manuel Behis, (2) give its consent for the transfer of title
in the name of the plaintiffs, and (3) execute a new mortgage with plaintiffs for the balance of P200,000.00 over the
same land.
Meanwhile on January 18, 1986, Cristina Behis went to the Bank inquiring about her protest about her
signature. The Bank told her it did not receive her two letters and instead advised her to write the Bank again as well
as the plaintiffs about her objections.
In a reply letter dated February 11, 1986, (Exhibit `B) to the demand of the plaintiffs, the Bank said it cannot comply
because of supervening circumstances, enclosing the two letters of Cristina Behis dated September 5, 1985 and
October 28, 1985 which they said were both self explanatory, and suggested that plaintiffs take up the matter with
Mrs. Cristina Behis.

On February 15, 1986, as suggested by the Bank, Cristina Behis wrote another letter to the Bank claiming this time
that she was not a party to the Deed of Absolute Sale with Assumption of Mortgage and her signature was forged
(Exhibit 5, Halsema) and requesting the Bank not to release the title with copy furnished to the plaintiffs (Exhibit `5B, Halsema).
Then, months passed, and nothing was heard from the plaintiffs by the Bank. On the first week of July, 1986,
Teodoro Verzosa, President of Halsema, Inc., heard about the land and got interested and had preliminary talks with
Vicente Natividad, President of the Bank, and with Edilberto Natividad, the principal stockholder of the bank.
x x x.
xxx, upon suggestion of the lawyer of Halsema, an Assignment of Mortgage was entered into on July 28, 1986
between Halsema and the Bank for the consideration of P520,765.45 (Exhibit `1, Bank) which amount was the total
indebtedness of Manuel Behis with the Bank at the time (Exhibit `7-A, Halsema). Note however, that what was
assigned was the Mortgage made originally by Manuel Behis and not the Mortgage as assumed by plaintiffs under a
restructured and liberalized terms.
As explained by Halsema lawyer, she suggested the Assignment of Mortgage as the cheapest and fastest way for
Halsema to acquire the property of Manuel Behis as (1) they assume the role of the Bank as Mortgagee with the
assignment of mortgage credit, (2) they acquire the property for the amount only of the mortgage debt at the time, (3)
after execution thereof, the Bank is out of the picture, and (4) in case of foreclosure, Halsema controls the foreclosure
proceedings and is assured of its legality.
In turn, the Bank explained it entered into the Assignment of Mortgage because at the time it considered the
Memorandum of Agreement cancelled as first, plaintiffs failed to settle the objections of Cristina Behis aforesaid on
her signature being forged in the Deed of Sale with Assumption of Mortgage despite the lapse of time from February,
1986 to July, 1986. Second, the terms of the Memorandum of Agreement have not been fully complied with as the
payments were not made on time on the dates fixed therein; and third, their consent to the Memorandum of
Agreement was secured by the plaintiffs thrufraud as the Bank was not shown the Agreement containing the real
consideration of P2,400,000.00 of the sale of the land of Manuel Behis to plaintiffs.
On the same date of July 28, 1986, Vicente Natividad of the Bank sent notice of the Assignment of Mortgage to the
debtor mortgagor, Manuel Behis (already dead at the time) and Cristina Behis. Notice of the Assignment of Mortgage
was not sent to plaintiffs for as aforesaid what was assigned was the Mortgage originally made by Manuel Behis and
not the Mortgage as assumed by plaintiffs under the restructured and liberalized terms in the Memorandum of
Agreement which was considered by the Bank as cancelled.
xxx xxx

xxx.

After the assignment of mortgage, the Bank returned the P143,000.00 to plaintiffs (Exhibit `13, Bank). But the latter
rejected the same maintaining the Memorandum of Agreement is valid until annulled by Court Action. Subsequently,
however, the Bank paid plaintiffs P143,000.00 and P90,000.00 interest in settlement of the criminal case of Estafa
against Edilberto Natividad and Vicente Natividad (Exhibit `14, Bank).
In the meantime, since the account of the late Manuel Behis has been delinquent and his widow, Cristina Behis, and
his brothers and sisters could not pay as in fact they have already assigned their rights to redeem, Halsema as
Mortgage Creditor in place of the Bank instituted foreclosure proceedings by filing an Application for Foreclosure of

Real Estate Mortgage in the Office of the Sheriff on July 31, 1986(Exhibit `37, Halsema) setting the public auction
sale on September 2, 1986 and was published and posted as required by law. A Notice of Foreclosure was sent
directly to the mortgagor (Exhibit `38, Halsema) and the public auction sale was held on September 2, 1986 at 10:00
a.m. at the City Hall, Baguio City, with Halsema as the only bidder to whom accordingly the Sheriffs Certificate of
Sale was issued (Exhibit `8, Halsema).
At the auction sale, the lawyer of Halsema was approached by the plaintiff Rosario Rayandayan who told the former
that the land foreclosed was also sold to the plaintiffs. Since plaintiffs could not do anything anymore, they registered
and annotated on the title, TCT T-29817, their adverse claim on September 3, 1986.[5]
Since the Bank could not comply with the Memorandum of Agreement, petitioners Rayandayan and Arceo
instituted Civil Case No. 890-R before the Regional Trial Court of Baguio City (Branch 6) against the Rural Bank of
Sta. Maria, Pangasinan and Halsema, Inc. for Specific Performance, Declaration of Nullity and/or Annulment of
Assignment of Mortgage and Damages on September 5, 1986, and caused a notice of lis pendens annotated at the
back of the title, TCT T-29817, on the same date. On March 6, 1989, judgment was rendered, the dispositive portion
of the decision pertinent to this case reads:
WHEREFORE, in view of All the Foregoing, Judgment is hereby rendered, as follows:
1. xxx

xxx

xxx;

2. Declaring the Deed of Sale with assumption of Mortgage (Exhibit A) and the Agreement (Exhibit 15)
taken together valid until annulled or cancelled;
3. Ordering the Bank to pay the plaintiffs the sum of P30,000.00 as Moral Damages, P10,000.00 as
Exemplary Damages, P20,000.00 as Attorneys fees and P5,000.00 as litigation expenses for their bad
faith in violating the Memorandum of Agreement which took place while the Memorandum of
Agreement was still valid there being no court action first filed to nullify it before entering into the
Assignment of Mortgage;
4. Ordering the plaintiffs to pay the Bank the sum of P30,000.00 as Moral Damages, P10,000.00 as
Exemplary Damages, P20,000.00 as Attorneys fees and P5,000.00 as litigation expenses for plaintiffs
bad faith in deceiving the Bank to enter into the Memorandum of Agreement;
5. Ordering the setting off in compensation the Damages awarded to plaintiffs and the Bank.
6. xxx

xxx

xxx;

7. Declaring the Memorandum of Agreement as annulled due to the fraud of plaintiffs;

8. xxx

xxx

xxx;

9. xxx

xxx

xxx;

10.

xxx

xxx

xxx,

Without pronouncement as to costs.

SO ORDERED.[6]
From the decision, plaintiffs Rayandayan and Arceo and defendant Halsema, Inc. appealed. Defendant Rural
Bank of Sta. Maria, Pangasinan did not appeal.[7] The Court of Appeals rendered herein assailed decision, the
dispositive portion insofar as pertinent to this case reads:
WHEREFORE, premises considered, decision is hereby rendered:
1. xxx

xxx

xxx;

2. xxx

xxx

xxx;

3. xxx

xxx

xxx;

4. Declaring the Deed of Absolute Sale with Assumption of Mortgage, Exhibit A and the Memorandum of
Agreement, Exhibit F, valid as between the parties thereto;
5. Ordering and sentencing defendant Rural Bank of Sta. Maria, Pangasinan to pay plaintiffs-appellant the
sum of P229,135.00 as actual damages, the sum of P30,000.00 as moral damages, P10,000.00 as
exemplary damages, P20,000.00 as attorneys fees and P5,000.00 as litigation expenses;
6. Affirming the dismissal of all other counterclaims for damages;
7. Reversing and setting aside all other dispositions made by the trial court inconsistent with this decision;
8. There is no pronouncement as to costs.
SO ORDERED.[8]
In sum, the Court of Appeals in its assailed decision: (1) affirmed the validity of the Memorandum of Agreement
between the parties thereto; (2) reversed and set aside the finding of the trial court on the bad faith of Rayandayan
and Arceo in concealing the real purchase price of the land sold to them by Manuel Behis during negotiations with
the bank on the assumption of the mortgage debt; (3) modified the trial courts finding as to the damages due
Rayandayan and Arceo from the bank by adding P229,135.00 as actual damages; (4) dismissed the counterclaim
for damages by the bank and deleted the portion on the set-off of damages due between the bank on the one hand,
and Rayandayan and Arceo on the other.
Motions for reconsideration were filed by plaintiffs-appellants Rayandanan and Arceo and defendant Rural
Bank of Sta. Maria, Pangasinan which were denied for lack of merit.[9]
Hence, the instant consolidated petitions.
In a Resolution dated August 25, 1993, this Court denied the petition for review on certiorari (G.R. No. 111201)
filed by Rayandayan and Arceo for having been filed out of time and for late payment of docket fees.[10] Petitioners
Rayandayan and Arceo moved to reconsider; this Court in a Resolution dated November 22, 1993, resolved to deny
the same with finality considering petitioners failed to show any compelling reason and to raise any substantial
argument which would warrant a modification of the said resolution.[11]

What remains for resolution then is G.R. No. 110672, wherein petitioner Rural Bank of Sta. Maria, Pangasinan,
contends that:
I
THE MEMORANDUM OF AGREEMENT (EXH. F) ENTERED INTO BETWEEN PRIVATE RESPONDENTS, AS
ALLEGED ASSIGNEES OF MANUEL BEHIS, AND PETITIONER BANK IS VOIDABLE AND MUST BE ANNULLED.
II
PRIVATE RESPONDENTS ARE IN BAD FAITH, HENCE, THEY ARE NOT ENTITLED TO THE SUMS OF
P30,000.00 AS MORAL DAMAGES; P10,000.00 AS EXEMPLARY DAMAGES; P20,000.00 AS ATTORNEYS FEES;
AND P5,000.00 AS LITIGATION EXPENSES.[12]
The petition is devoid of merit.
Briefly, the antecedents material to this appeal are as follows: A Deed of Absolute Sale with Assumption of
Mortgage was executed between Manuel Behis as vendor/assignor and Rayandayan and Arceo as
vendees/assignees for the sum of P250,000.00. On the same day, Rayandayan and Arceo together with Manuel
Behis executed another Agreement embodying the real consideration of the sale of the land in the sum of
P2,400,000.00. Thereafter, Rayandayan and Arceo negotiated with the principal stockholder of the bank, Engr.
Edilberto Natividad in Manila, for the assumption of the indebtedness of Manuel Behis and the subsequent release of
the mortgage on the property by the bank. Rayandayan and Arceo did not show to the bank the Agreement with
Manuel Behis providing for the real consideration of P2,400,000.00 for the sale of the property to the
former. Subsequently, the bank consented to the substitution of plaintiffs as mortgage debtors in place of Manuel
Behis in a Memorandum of Agreement between private respondents and the bank with restructured and liberalized
terms for the payment of the mortgage debt. Instead of the bank foreclosing immediately for non-payment of the
delinquent account, petitioner bank agreed to receive only a partial payment of P143,000.00 by installment on
specified dates. After payment thereof, the bank agreed to release the mortgage of Manuel Behis; to give its consent
to the transfer of title to the private respondents; and to the payment of the balance of P200,000.00 under new terms
with a new mortgage to be executed by the private respondents over the same land.
This brings us to the first issue raised by petitioner bank that the Memorandum of Agreement is voidable on the
ground that its consent to enter said agreement was vitiated by fraud because private respondents withheld from
petitioner bank the material information that the real consideration for the sale with assumption of mortgage of the
property by Manuel Behis to Rayandayan and Arceo is P2,400,000.00, and not P250,000.00 as represented to
petitioner bank. According to petitioner bank, had it known of the real consideration for the sale, i.e. P2.4 million, it
would not have consented into entering the Memorandum of Agreement with Rayandayan and Arceo as it was put
in the dark as to the real capacity and financial standing of private respondents to assume the mortgage from Manuel
Behis. Petitioner bank pointed out that it would not have assented to the agreement, as it could not expect the
private respondents to pay the bank the approximately P343,000.00 mortgage debt when private respondents have
to pay at the same time P2,400,000.00 to Manuel Behis on the sale of the land.
The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by one of
the contracting parties to induce the other to enter into a contract which without them he would not have agreed to.
[13]
Simply stated, the fraud must be the determining cause of the contract, or must have caused the consent to be
given. It is believed that the non-disclosure to the bank of the purchase price of the sale of the land between private

respondents and Manuel Behis cannot be the fraud contemplated by Article 1338 of the Civil Code. [14] From the sole
reason submitted by the petitioner bank that it was kept in the dark as to the financial capacity of private respondent,
we cannot see how the omission or concealment of the real purchase price could have induced the bank into giving
its consent to the agreement; or that the bank would not have otherwise given its consent had it known of the real
purchase price.
First of all, the consideration for the purchase of the land between Manuel Behis and herein private respondents
Rayandayan and Arceo could not have been the determining cause for the petitioner bank to enter into the
memorandum of agreement. To all intents and purposes, the bank entered into said agreement in order to effect
payment on the indebtedness of Manuel Behis. As correctly ruled by the Court of Appeals:
xxx. The real consideration for the sale with assumption of mortgage, or the non-disclosure thereof, was not the
determining influence on the consent of the bank.
The bank received payments due under the Memorandum of Agreement, even if delayed. It initially claimed that the
sale with assumption of mortgage was invalid not because of the concealment of the real consideration
of P2,400,000.00 but because of the information given by Cristina Behis, the widow of the mortgagor Manuel Behis
that her signature on the deed of absolute sale with assumption of mortgage was forged. Thus, the alleged nullity of
the Memorandum of Agreement, Exhibit F, is a clear aftertought. It was raised by defendant bank, by way of
counterclaim only after it was sued.
The deceit which avoids the contract exists where the party who obtains the consent does so by means of concealing
or omitting to state material facts, with intent to deceive, by reason of which omission or concealment the other party
was induced to give a consent which he would not otherwise have given (Tolentino, Commentaries and
Jurisprudence on the Civil Code, Vol. IV, p. 480). In this case, the consideration for the sale with assumption of
mortgage was not the inducement to defendant bank to give a consent which it would not otherwise have given.
Indeed, whether the consideration of the sale with assumption of mortgage was P250,000.00 as stated in Exhibit A,
or P2,400,000.00 as stated in the Agreement, Exhibit 15, should not be of importance to the bank. Whether it was
P250,000.00 or P2,400.000.00 the banks security remained unimpaired.
The stipulation in Exhibit 15, reading in case of default in all of the above, Manuel Behis shall have legal recourse to
the portion of the parcel of land under TCT No. T-29817 equivalent to the unpaid balance of the amount subject of
this Agreement, obviously even if revealed would not have induced defendant bank to withhold its consent. The
legal recourse to TCT No. T-29817 given to Manuel Behis, under the Agreement, is subordinate and inferior to the
mortgage to the bank.
We are, therefore, constrained to uphold the validity of the Memorandum of Agreement, Exhibit F, and reverse and
set aside the ruling declaring the same annulled allegedly due to fraud of plaintiffs-appellants (paragraph 7,
dispositive portion).
With the above conclusion reached, the award of moral and exemplary damages, attorneys fees and expenses of
litigation in favor of defendant bank and against plaintiffs-appellants in paragraph 4 of the dispositive portion of the
decision of the trial court must likewise be reversed and set aside; and similarly, paragraph 5. The basis for the
award, which we quote for plaintiffs bad faith in deceiving the Bank to enter into the Memorandum of Agreement is
not correct as we have discussed.[15]

Secondly, pursuant to Article 1339 0f the Civil Code, [16] silence or concealment, by itself, does not constitute
fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages of
commerce the communication should be made. Verily, private respondents Rayandayan and Arceo had no duty,
and therefore did not act in bad faith, in failing to disclose the real consideration of the sale between them and
Manuel Behis.
Thirdly, the bank had other means and opportunity of verifying the financial capacity of private respondents and
cannot avoid the contract on the ground that they were kept in the dark as to the financial capacity by the nondisclosure of the purchase price. As correctly pointed out by respondent court, the bank security remained
unimpaired regardless of the consideration of the sale. Under the terms of the Memorandum of Agreement, the
property remains as security for the payment of the indebtedness, in case of default of payment. Thus, petitioner
bank does not and can not even allege that the agreement was operating to its disadvantage. If fact, the bank admits
that no damages has been suffered by it. [17]
Consequently, not all elements of fraud vitiating consent for purposes of annulling a contract concur, to wit: (a) It
was employed by a contracting party upon the other; (b) It induced the other party to enter into the contract; (c) It was
serious; and; (d) It resulted in damages and injury to the party seeking annulment. [18] Petitioner bank has not
sufficiently shown that it was induced to enter into the agreement by the non-disclosure of the purchase price, and
that the same resulted in damages to the bank. Indeed, the general rule is that whosoever alleges fraud or mistake
in any transaction must substantiate his allegation, since it is presumed that a person takes ordinary care for his
concerns and that private transactions have been fair and regular. Petitioner bank's allegation of fraud and deceit
have not been established sufficiently and competently to rebut the presumption of regularity and due execution of
the agreement.
Based on the foregoing, the second issue raised by petitioner bank must likewise fail. Petitioner bank's
imputation of bad faith to private respondents premised on the same non-disclosure of the real purchase price of the
sale so as to preclude their entitlement to damages must necessarily be resolved in the negative. Petitioner bank
does not question the actual damages awarded to private respondents in the amount of P229,135.00, but only the
moral damages of P30,000.00, exemplary damages of P10,000.00, attorney's fees of P20,000.00 and litigation
expenses of P5,000.00. We may no longer examine the amounts awarded by the trial court and affirmed by the
appellate court as petitioner bank did not appeal from the decision of the trial court. It is well-settled that a party who
does not appeal from the decision may not obtain any affirmative relief from the appellate court other than what he
has obtained from the lower court, if any, whose decision is brought up on appeal.[19]
WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals, dated March 17, 1993
is AFFIRMED. No cost.
SO ORDERED.
Melo, (Chairman), Vitug, and Purisima, JJ., concur.
Panganiban, J., took no part being a former counsel of a party.
G.R. No. 190823

April 4, 2011

DOMINGO CARABEO, Petitioner,

vs.
SPOUSES NORBERTO and SUSAN DINGCO, Respondents.
DECISION
CARPIO MORALES, J.:
On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as "Kasunduan sa Bilihan ng
Karapatan sa Lupa"1 (kasunduan) with Spouses Norberto and Susan Dingco (respondents) whereby petitioner
agreed to sell his rights over a 648 square meter parcel of unregistered land situated in Purok III, Tugatog, Orani,
Bataan to respondents for P38,000.
Respondents tendered their initial payment of P10,000 upon signing of the contract, the remaining balance to be paid
on September 1990.
Respondents were later to claim that when they were about to hand in the balance of the purchase price, petitioner
requested them to keep it first as he was yet to settle an on-going "squabble" over the land.
Nevertheless, respondents gave petitioner small sums of money from time to time which totaled P9,100, on
petitioners request according to them; due to respondents inability to pay the amount of the remaining balance in
full, according to petitioner.
By respondents claim, despite the alleged problem over the land, they insisted on petitioners acceptance of the
remaining balance of P18,900 but petitioner remained firm in his refusal, proffering as reason therefor that he would
register the land first.
Sometime in 1994, respondents learned that the alleged problem over the land had been settled and that petitioner
had caused its registration in his name on December 21, 1993 under Transfer Certificate of Title No. 161806. They
thereupon offered to pay the balance but petitioner declined, drawing them to file a complaint before the Katarungan
Pambarangay. No settlement was reached, however, hence, respondent filed a complaint for specific performance
before the Regional Trial Court (RTC) of Balanga, Bataan.
Petitioner countered in his Answer to the Complaint that the sale was void for lack of object certain, the kasunduan
not having specified the metes and bounds of the land. In any event, petitioner alleged that if the validity of the
kasunduan is upheld, respondents failure to comply with their reciprocal obligation to pay the balance of the
purchase price would render the action premature. For, contrary to respondents claim, petitioner maintained that they
failed to pay the balance of P28,000 on September 1990 to thus constrain him to accept installment payments
totaling P9,100.
After the case was submitted for decision or on January 31, 2001,2 petitioner passed away. The records do not show
that petitioners counsel informed Branch 1 of the Bataan RTC, where the complaint was lodged, of his death and
that proper substitution was effected in accordance with Section 16, Rule 3, Rules of Court.3
By Decision of February 25, 2001,4 the trial court ruled in favor of respondents, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering:

1. The defendant to sell his right over 648 square meters of land pursuant to the contract dated July 10,
1990 by executing a Deed of Sale thereof after the payment of P18,900 by the plaintiffs;
2. The defendant to pay the costs of the suit.
SO ORDERED.5
Petitioners counsel filed a Notice of Appeal on March 20, 2001.
By the herein challenged Decision dated July 20, 2009,6 the Court of Appeals affirmed that of the trial court.
Petitioners motion for reconsideration having been denied by Resolution of January 8, 2010, the present petition for
review was filed by Antonio Carabeo, petitioners son,7 faulting the appellate court:
(A)
in holding that the element of a contract, i.e., an object certain is present in this case.
(B)
in considering it unfair to expect respondents who are not lawyers to make judicial consignation after
herein petitioner allegedly refused to accept payment of the balance of the purchase price.
(C)
in upholding the validity of the contract, "Kasunduan sa Bilihan ng Karapatan sa Lupa," despite the lack
of spousal consent, (underscoring supplied)
and proffering that
(D)
[t]he death of herein petitioner causes the dismissal of the action filed by respondents; respondents cause
of action being an action in personam. (underscoring supplied)
The petition fails.
The pertinent portion of the kasunduan reads:8
xxxx
Na ako ay may isang partial na lupa na matatagpuan sa Purok 111, Tugatog, Orani Bataan, na may sukat na 27 x 24
metro kuwadrado, ang nasabing lupa ay may sakop na dalawang punong santol at isang punong mangga, kayat ako
ay nakipagkasundo sa mag-asawang Norby Dingco at Susan Dingco na ipagbili sa kanila ang karapatan ng nasabing
lupa sa halagang P38,000.00.
x x x x (underscoring supplied)

That the kasunduan did not specify the technical boundaries of the property did not render the sale a nullity. The
requirement that a sale must have for its object a determinate thing is satisfied as long as, at the time the contract is
entered into, the object of the sale is capable of being made determinate without the necessity of a new or further
agreement between the parties.9 As the above-quoted portion of the kasunduan shows, there is no doubt that the
object of the sale is determinate.
Clutching at straws, petitioner proffers lack of spousal consent. This was raised only on appeal, hence, will not be
considered, in the present case, in the interest of fair play, justice and due process.10
Respecting the argument that petitioners death rendered respondents complaint against him dismissible, Bonilla v.
Barcena11 enlightens:
The question as to whether an action survives or not depends on the nature of the action and the damage sued for.
In the causes of action which survive, the wrong complained [of] affects primarily and principally property and
property rights, the injuries to the person being merely incidental, while in the causes of action which do not survive,
the injury complained of is to the person, the property and rights of property affected being incidental. (emphasis and
underscoring supplied)
In the present case, respondents are pursuing a property right arising from the kasunduan, whereas petitioner is
invoking nullity of the kasunduan to protect his proprietary interest. Assuming arguendo, however, that the kasunduan
is deemed void, there is a corollary obligation of petitioner to return the money paid by respondents, and since the
action involves property rights,12 it survives.1avvphi1
It bears noting that trial on the merits was already concluded before petitioner died. Since the trial court was not
informed of petitioners death, it may not be faulted for proceeding to render judgment without ordering his
substitution. Its judgment is thus valid and binding upon petitioners legal representatives or successors-in-interest,
insofar as his interest in the property subject of the action is concerned.13
In another vein, the death of a client immediately divests the counsel of authority.14 Thus, in filing a Notice of Appeal,
petitioners counsel of record had no personality to act on behalf of the already deceased client who, it bears
reiteration, had not been substituted as a party after his death. The trial courts decision had thereby become final
and executory, no appeal having been perfected.
WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. L-24732

April 30, 1968

PIO SIAN MELLIZA, petitioner,

vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents.
Cornelio P. Ravena for petitioner.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:

Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in Iloilo City
registered in her name under Original Certificate of Title No. 3462. Said parcels of land were known as Lots Nos. 2, 5
and 1214. The total area of Lot No. 1214 was 29,073 square meters.
On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot 1214, to serve as
site for the municipal hall. 1 The donation was however revoked by the parties for the reason that the area donated
was found inadequate to meet the requirements of the development plan of the municipality, the so-called "Arellano
Plan". 2
Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B. And still later,
Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the Bureau of
Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot 1214-B; Lot 1214-B-2, with 6,653 square
meters, was designated as Lot 1214-C; and Lot 1214-B-13, with 4,135 square meters, became Lot 1214-D.
On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the following:
Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS (P6,422.00),
moneda filipina que por la presente declaro haber recibido a mi entera satisfaccion del Gobierno Municipal
de Iloilo, cedo y traspaso en venta real y difinitiva a dicho Gobierno Municipal de Iloilo los lotes y porciones
de los mismos que a continuacion se especifican a saber: el lote No. 5 en toda su extension; una porcion de
7669 metros cuadrados del lote No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del
piano de subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una porcion de 10,788
metros cuadrados del lote No. 1214 cuya porcion esta designada como sub-lotes Nos. 1214-B-2 y 1214B-3 del mismo plano de subdivision.
Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta difinitiva, y que para
la mejor identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago constar
que dichos lotes y porciones son los que necesita el Gobierno Municipal de Iloilo para la construccion de
avenidas, parques y City Hall site del Municipal Government Center de iloilo, segun el plano Arellano.
On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva who
thereafter obtained her own registered title thereto, under Transfer Certificate of Title No. 18178. Remedios in turn on
November 4, 1946 transferred her rights to said portion of land to Pio Sian Melliza, who obtained Transfer Certificate
of Title No. 2492 thereover in his name. Annotated at the back of Pio Sian Melliza's title certificate was the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-B-2 and 1214B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated November 15,
1932....
On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site together
with the building thereon, to the University of the Philippines (Iloilo branch). The site donated consisted of Lots Nos.
1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters, more or less.
Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza
thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot (Lot
1214-B). No recovery was obtained, because as alleged by plaintiff, the City did not have funds (p. 9, Appellant's
Brief.)

The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three lots,
Nos. 1214-B, 1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against Iloilo City and
the University of the Philippines for recovery of Lot 1214-B or of its value.
The defendants answered, contending that Lot 1214-B was included in the public instrument executed by Juliana
Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial, the Court of First Instance rendered its
decision on August 15, 1957, dismissing the complaint. Said court ruled that the instrument executed by Juliana
Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B. In support of this conclusion, it referred
to the portion of the instrument stating:
Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta difinitiva, y que para
la major identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago constar
que dichos lotes y porciones son los que necesita el Gobierno municipal de Iloilo para la construccion de
avenidas, parques y City Hall site del Municipal Government Center de Iloilo, segun el plano Arellano.
and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such other portions of
lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it held that Iloilo City had the right to
donate Lot 1214-B to the U.P.
Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of Appeals affirmed the
interpretation of the Court of First Instance, that the portion of Lot 1214 sold by Juliana Melliza was not limited to the
10,788 square meters specifically mentioned but included whatever was needed for the construction of avenues,
parks and the city hall site. Nonetheless, it ordered the remand of the case for reception of evidence to determine the
area actually taken by Iloilo City for the construction of avenues, parks and for city hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the public
instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square meters were the
portions of Lot 1214 included in the sale; that the purpose of the second paragraph, relied upon for a contrary
interpretation, was only to better identify the lots sold and none other; and that to follow the interpretation accorded
the deed of sale by the Court of Appeals and the Court of First Instance would render the contract invalid because
the law requires as an essential element of sale, a "determinate" object (Art. 1445, now 1448, Civil Code).
Appellees, on the other hand, contend that the present appeal improperly raises only questions of fact. And, further,
they argue that the parties to the document in question really intended to include Lot 1214-B therein, as shown by the
silence of the vendor after Iloilo City exercised ownership thereover; that not to include it would have been absurd,
because said lot is contiguous to the others admittedly included in the conveyance, lying directly in front of the city
hall, separating that building from Lots 1214-C and 1214-D, which were included therein. And, finally, appellees argue
that the sale's object was determinate, because it could be ascertained, at the time of the execution of the contract,
what lots were needed by Iloilo municipality for avenues, parks and city hall site "according to the Arellano Plan",
since the Arellano plan was then already in existence.
The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932. And
interpretation of such contract involves a question of law, since the contract is in the nature of law as between the
parties and their successors-in-interest.

At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to Iloilo municipality
included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was included, in the instrument
subsequently executed by Juliana Melliza of her remaining interest in Lot 1214 to Remedios Sian Villanueva, who in
turn sold what she thereunder had acquired, to Pio Sian Melliza. It should be stressed, also, that the sale to
Remedios Sian Villanueva from which Pio Sian Melliza derived title did not specifically designate Lot 1214-B,
but only such portions of Lot 1214 as were not included in the previous sale to Iloilo municipality (Stipulation of Facts,
par. 5, Record on Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to Iloilo
municipality, then it was excluded from the sale to Remedios Sian Villanueva and, later, to Pio Sian Melliza.
The point at issue here is then the true intention of the parties as to the object of the public instrument Exhibit "D".
Said issue revolves on the paragraph of the public instrument aforequoted and its purpose, i.e., whether it was
intended merely to further describe the lots already specifically mentioned, or whether it was intended to cover other
lots not yet specifically mentioned.
First of all, there is no question that the paramount intention of the parties was to provide Iloilo municipality with lots
sufficient or adequate in area for the construction of the Iloilo City hall site, with its avenues and parks. For this
matter, a previous donation for this purpose between the same parties was revoked by them, because of inadequacy
of the area of the lot donated.
Secondly, reading the public instrument in toto, with special reference to the paragraphs describing the lots included
in the sale, shows that said instrument describes four parcels of land by their lot numbers and area; and then it goes
on to further describe, not only those lots already mentioned, but the lots object of the sale, by stating that said lots
are the ones needed for the construction of the city hall site, avenues and parks according to the Arellano plan. If the
parties intended merely to cover the specified lots Lots 2, 5, 1214-C and 1214-D, there would scarcely have been
any need for the next paragraph, since these lots are already plainly and very clearly described by their respective lot
number and area. Said next paragraph does not really add to the clear description that was already given to them in
the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other portions of land contiguous to
the lots aforementioned that, by reference to the Arellano plan, will be found needed for the purpose at hand, the
construction of the city hall site.
Appellant however challenges this view on the ground that the description of said other lots in the aforequoted
second paragraph of the public instrument would thereby be legally insufficient, because the object would allegedly
not be determinate as required by law.
Such contention fails on several counts. The requirement of the law that a sale must have for its object a determinate
thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made
determinate without the necessity of a new or further agreement between the parties (Art. 1273, old Civil Code; Art.
1460, New Civil Code). The specific mention of some of the lots plus the statement that the lots object of the sale are
the ones needed for city hall site, avenues and parks, according to the Arellano plan, sufficiently provides a basis, as
of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further
agreement of the parties.
The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city hall site on
November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under said Arellano plan. Appellant
claims that although said plan existed, its metes and bounds were not fixed until 1935, and thus it could not be a

basis for determining the lots sold on November 15, 1932. Appellant however fails to consider that thearea needed
under that plan for city hall site was then already known; that the specific mention of some of the lots covered by the
sale in effect fixed the corresponding location of the city hall site under the plan; that, therefore, considering the said
lots specifically mentioned in the public instrument Exhibit "D", and the projected city hall site, with its area, as then
shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of the portions of land contiguous
to those specifically named, were needed for the construction of the city hall site.
And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D, admittedly
covered by the public instrument. It is stipulated that, after execution of the contract Exhibit "D", the Municipality of
Iloilo possessed it together with the other lots sold. It sits practically in the heart of the city hall site. Furthermore, Pio
Sian Melliza, from the stipulation of facts, was the notary public of the public instrument. As such, he was aware of its
terms. Said instrument was also registered with the Register of Deeds and such registration was annotated at the
back of the corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio
Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of them; that knowing so,
he should have examined the Arellano plan in relation to the public instrument Exhibit "D"; that, furthermore, he
should have taken notice of the possession first by the Municipality of Iloilo, then by the City of Iloilo and later by the
University of the Philippines of Lot 1214-B as part of the city hall site conveyed under that public instrument, and
raised proper objections thereto if it was his position that the same was not included in the same. The fact remains
that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest, did not object to said
possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as
laches, estoppel, and equity, said lot must necessarily be deemed included in the conveyance in favor of Iloilo
municipality, now Iloilo City.
WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First Instance, and the
complaint in this case is dismissed. No costs. So ordered.
Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion , C.J., is on leave.
ANTHONY ORDUA, DENNIS ORDUA, and
ANTONITA ORDUA,
Petitioners,
- versus EDUARDO J. FUENTEBELLA, MARCOS S. CID,
BENJAMIN F. CID, BERNARD G. BANTA, and
ARMANDO GABRIEL, JR.,
Respondents.

G.R. No. 176841

Present:
CORONA, C.J., Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.
Promulgated:

June 29, 2010

x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:

In this Petition for Review[1] under Rule 45 of the Rules of Court, Anthony Ordua, Dennis Ordua and
Antonita Ordua assail and seek to set aside the Decision[2] of the Court of Appeals (CA) dated December 4, 2006 in
CA-G.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which affirmed the May 26, 2003
Decision[3] of the Regional Trial Court (RTC), Branch 3 in Baguio City, in Civil Case No. 4984-R, a suit for annulment
of title and reconveyance commenced by herein petitioners against herein respondents.
Central to the case is a residential lot with an area of 74 square meters located at Fairview Subdivision,
Baguio City, originally registered in the name of Armando Gabriel, Sr. (Gabriel Sr.) under Transfer Certificate of Title
(TCT) No. 67181 of the Registry of Deeds of Baguio City.[4]
As gathered from the petition, with its enclosures, and the comments thereon of four of the five respondents,
[5]

the Court gathers the following relevant facts:

Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Ordua (Antonita),

but no formal deed was executed to document the sale. The contract price was apparently payable in installments as
Antonita remitted from time to time and Gabriel Sr. accepted partial payments. One of the Orduas would later testify
that Gabriel Sr. agreed to execute a final deed of sale upon full payment of the purchase price.[6]
As early as 1979, however, Antonita and her sons, Dennis and Anthony Ordua, were already occupying
the subject lot on the basis of some arrangement undisclosed in the records and even constructed their house
thereon. They also paid real property taxes for the house and declared it for tax purposes, as evidenced by Tax
Declaration No. (TD) 96-04012-111087[7] in which they place the assessed value of the structure at PhP 20,090.
After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T71499[8] over the subject lot and continued accepting payments from the petitioners. On December 12, 1996, Gabriel
Jr. wrote Antonita authorizing her to fence off the said lot and to construct a road in the adjacent lot. [9] On December
13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from petitioners. [10] Through a letter[11] dated
May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far made an aggregate payment of PhP 65,000, leaving
an outstanding balance of PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000
payment.
Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta (Bernard)
obviously without the knowledge of petitioners, as later developments would show.

As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected against the following
backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP 50,000, payable in two
weeks at a fixed interest rate, with the further condition that the subject lot would answer for the loan in case of
default. Gabriel Jr. failed to pay the loan and this led to the execution of a Deed of Sale [12] dated June 30, 1999 and
the issuance later of TCT No. T-72782[13] for subject lot in the name of Bernard upon cancellation of TCT No. 71499 in
the name of Gabriel, Jr. As the RTC decision indicated, the reluctant Bernard agreed to acquire the lot, since he had
by then ready buyers in respondents Marcos Cid and Benjamin F. Cid (Marcos and Benjamin or the Cids).
Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of Absolute Sale
of a Registered Land[14] dated January 19, 2000, the Cids were able to cancel TCT No. T-72782 and secure TCT No.
72783[15] covering the subject lot. Just like in the immediately preceding transaction, the deed of sale between
Bernard and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of the instrumental witnesses.
Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute Sale [16] dated
May 11, 2000. Thus, the consequent cancellation of TCT No. T-72782 and issuance on May 16, 2000 of TCT No. T3276[17] over subject lot in the name of Eduardo.
As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo, checked,
so each claimed, the title of their respective predecessors-in-interest with the Baguio Registry and discovered said
title to be free and unencumbered at the time each purchased the property. Furthermore, respondent Eduardo,
before buying the property, was said to have inspected the same and found it unoccupied by the Orduas.[18]
Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent a
letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically occupying the
subject lot vacate the premises or face the prospect of being ejected.[19]
Learning of Eduardos threat, petitioners went to the residence of Gabriel Jr. at No. 34 Dominican
Hill, Baguio City. There, they met Gabriel Jr.s estranged wife, Teresita, who informed them about her having filed an
affidavit-complaint against her husband and the Cids for falsification of public documents on March 30, 2000.
According to Teresita, her signature on the June 30, 1999 Gabriel Jr.Bernard deed of sale was a forgery. Teresita
further informed the petitioners of her intent to honor the aforementioned 1996 verbal agreement between Gabriel Sr.
and Antonita and the partial payments they gave her father-in-law and her husband for the subject lot.
On July 3, 2001, petitioners, joined by Teresita, filed a Complaint [20] for Annulment of Title, Reconveyance
with Damages against the respondents before the RTC, docketed as Civil Case No. 4984-R, specifically praying that
TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be annulled. Corollary to this prayer, petitioners

pleaded that Gabriel Jr.s title to the lot be reinstated and that petitioners be declared as entitled to acquire ownership
of the same upon payment of the remaining balance of the purchase price therefor agreed upon by Gabriel Sr. and
Antonita.
While impleaded and served with summons, Gabriel Jr. opted not to submit an answer.
Ruling of the RTC
By Decision dated May 26, 2003, the RTC ruled for the respondents, as defendants a quo, and against the
petitioners, as plaintiffs therein, the dispositive portion of which reads:
WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit. The four (4)
plaintiffs are hereby ordered by this Court to pay each defendant (except Armando Gabriel, Jr.,
Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Moral
Damages of Twenty Thousand (P20,000.00) Pesos, so that each defendant shall receive Moral
Damages of Eighty Thousand (P80,000.00) Pesos each. Plaintiffs shall also pay all defendants
(except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on
these damages), Exemplary Damages of Ten Thousand (P10,000.00) Pesos each so
that each defendant shall receive Forty Thousand (P40,000.00) Pesos as Exemplary
Damages. Also, plaintiffs are ordered to pay each defendant (except Armando Gabriel, Jr.,
Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Fifty
Thousand (P50,000.00) Pesos as Attorneys Fees, jointly and solidarily.
Cost of suit against the plaintiffs.[21]

On the main, the RTC predicated its dismissal action on the basis of the following grounds and/or premises:

1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision of Article 1544 [22] of
the Civil Code, which provides that in case of double sale, the party in good faith who is able to register the property
has better right over the property;
2. Under Arts. 1356[23] and 1358[24] of the Code, conveyance of real property must be in the proper form, else
it is unenforceable;
3. The verbal sale had no adequate consideration; and

4. Petitioners right of action to assail Eduardos title prescribes in one year from date of the issuance of
such title and the one-year period has already lapsed.
From the above decision, only petitioners appealed to the CA, their appeal docketed as CA-G.R. CV No.
79680.
The CA Ruling
On December 4, 2006, the appellate court rendered the assailed Decision affirming the RTC
decision. The fallo reads:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the 26
May 2003 Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No. 4989-R is
hereby AFFIRMED.
SO ORDERED.[25]

Hence, the instant petition on the submission that the appellate court committed reversible error of law:
1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY
ARMANDO GABRIEL, SR. AND RESPONDENT ARMANDO GABRIEL, JR. TO THE
PETITIONERS IS UNENFORCEABLE.
2. xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT BY
RESPONDENT ARMANDO GABRIEL, JR. TO RESPONDENT BERNARD BANTA AND
ITS SUBSEQUENT SALE BY THE LATTER TO HIS CO-RESPONDENTS ARE NULL
AND VOID.
3.

xxx IN NOT FINDING THAT THE RESPONDENTS ARE BUYERS IN BAD

FAITH
4. xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT BETWEEN
GABRIEL, SR. AND RESPONDENT GABRIEL, JR. AND THE PETITIONERS HAS NO
ADEQUATE CONSIDERATION.
5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY
PRESCRIBED.
6. xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE LIABLE FOR
MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES.[26]

The Courts Ruling

The core issues tendered in this appeal may be reduced to four and formulated as follows, to wit: first,
whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of
Frauds; second, whether or not such sale has adequate consideration; third, whether the instant action has already
prescribed; and, fourth, whether or not respondents are purchasers in good faith.
The petition is meritorious.
Statute of Frauds Inapplicable
to Partially Executed Contracts

It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the purchase price
payable on installment basis. Gabriel Sr. appeared to have been a recipient of some partial payments. After his
death, his son duly recognized the sale by accepting payments and issuing what may be considered as receipts
therefor. Gabriel Jr., in a gesture virtually acknowledging the petitioners dominion of the property, authorized them to
construct a fence around it. And no less than his wife, Teresita, testified as to the fact of sale and of payments
received.
Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying the
house they earlier constructed thereon. They later declared the property for tax purposes, as evidenced by the
issuance of TD 96-04012-111087 in their or Antonitas name, and paid the real estates due thereon, obviously as sign
that they are occupying the lot in the concept of owners.
Given the foregoing perspective, Eduardos assertion in his Answer that persons appeared in the
property[27] only after he initiated ejectment proceedings[28] is clearly baseless. If indeed petitioners entered and
took possession of the property after he (Eduardo) instituted the ejectment suit, how could they explain the fact that
he sent a demand letter to vacate sometime in May 2000?
With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of Frauds
bars the enforcement of the verbal sale contract between Gabriel Sr. and Antonita.
The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the Statute of
Frauds.
We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in Article 1403,
par. (2),[29] of the Civil Code applies only to executory contracts, i.e., those where no performance has yet been made.
Stated a bit differently, the legal consequence of non-compliance with the Statute does not come into play where the
contract in question is completed, executed, or partially consummated.[30]

The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest
therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by
the party or his agent. However, where the verbal contract of sale has been partially executed through the partial
payments made by one party duly received by the vendor, as in the present case, the contract is taken out of the
scope of the Statute.
The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to
be evidenced by a writing signed by the party to be charged.[31] The Statute requires certain contracts to be
evidenced by some note or memorandum in order to be enforceable. The term Statute of Frauds is descriptive of
statutes that require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right
to contract with respect to the matters therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable.[32]

Since contracts are generally obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present, [33] the Statute simply provides the method by which the contracts
enumerated in Art. 1403 (2) may be proved but does not declare them invalid because they are not reduced to
writing. In fine, the form required under the Statute is for convenience or evidentiary purposes only.

There can be no serious argument about the partial execution of the sale in question. The records show
that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial payments of
the purchase price. These payments were duly receipted by Gabriel Jr. To recall, in his letter of May 1, 1997,
Gabriel, Jr. acknowledged having received the aggregate payment of PhP 65,000 from petitioners with the balance of
PhP 60,000 still remaining unpaid. But on top of the partial payments thus made, possession of the subject of the
sale had been transferred to Antonita as buyer. Owing thus to its partial execution, the subject sale is no longer within
the purview of the Statute of Frauds.
Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of benefits
under the contract.[34] Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial payments made by
the petitioners. Thus, neither Gabriel Jr. nor the other respondentssuccessive purchasers of subject lotscould
plausibly set up the Statute of Frauds to thwart petitioners efforts towards establishing their lawful right over the
subject lot and removing any cloud in their title. As it were, petitioners need only to pay the outstanding balance of
the purchase price and that would complete the execution of the oral sale.

There was Adequate Consideration

Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since in its
own words: x x x for more than a decade, [petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that
the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate consideration.
The trial courts posture, with which the CA effectively concurred, is patently flawed. For starters, they
equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are
different civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise valid
and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting
aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience.[35]
The Court to be sure takes stock of the fact that the contracting parties to the 1995 or 1996 sale agreed to a
purchase price of PhP 125,000 payable on installments. But the original lot owner, Gabriel Sr., died before full
payment can be effected. Nevertheless, petitioners continued remitting payments to Gabriel, Jr., who sold the subject
lot to Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with the property only for PhP 50,000. On the
other hand, Bernard sold it for PhP 80,000 to Marcos and Benjamin. From the foregoing price figures, what is
abundantly clear is that what Antonita agreed to pay Gabriel, Sr., albeit in installment, was very much more than what
his son, for the same lot, received from his buyer and the latters buyer later. The Court, therefore, cannot see its
way clear as to how the RTC arrived at its simplistic conclusion about the transaction between Gabriel Sr. and
Antonita being without adequate consideration.
The Issues of Prescription and the Bona
Fides of the Respondents as Purchasers

Considering the interrelation of these two issues, we will discuss them jointly.
There can be no quibbling about the fraudulent nature of the conveyance of the subject lot effected by
Gabriel Jr. in favor of Bernard. It is understandable that after his fathers death, Gabriel Jr. inherited subject lot and for
which he was issued TCT No. No. T-71499. Since the Gabriel Sr. Antonita sales transaction called for payment of
the contract price in installments, it is also understandable why the title to the property remained with the Gabriels.
And after the demise of his father, Gabriel Jr. received payments from the Orduas and even authorized them to
enclose the subject lot with a fence. In sum, Gabriel Jr. knew fully well about the sale and is bound by the contract as
predecessor-in-interest of Gabriel Sr. over the property thus sold.

Yet, the other respondents (purchasers of subject lot) still maintain that they are innocent purchasers for
value whose rights are protected by law and besides which prescription has set in against petitioners action for
annulment of title and reconveyance.
The RTC and necessarily the CA found the purchaser-respondents thesis on prescription correct stating in
this regard that Eduardos TCT No. T-3276 was issued on May 16, 2000 while petitioners filed their complaint for
annulment only on July 3, 2001. To the courts below, the one-year prescriptive period to assail the issuance of a
certificate of title had already elapsed.
We are not persuaded.
The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered piece of
residential land. Having possession of the subject lot, petitioners right to the reconveyance thereof, and the
annulment of the covering title, has not prescribed or is not time-barred. This is so for an action for annulment of title
or reconveyance based on fraud is imprescriptible where the suitor is in possession of the property subject of the
acts,[36] the action partaking as it does of a suit for quieting of title which is imprescriptible. [37] Such is the case in this
instance. Petitioners have possession of subject lots as owners having purchased the same from Gabriel, Sr. subject
only to the full payment of the agreed price.
The prescriptive period for the reconveyance of fraudulently registered real property is 10 years, reckoned
from the date of the issuance of the certificate of title, if the plaintiff is not in possession, but imprescriptible if he is in
possession of the property.[38] Thus, one who is in actual possession of a piece of land claiming to be the owner
thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right.
[39]

As it is, petitioners action for reconveyance is imprescriptible.

This brings us to the question of whether or not the respondent-purchasers, i.e., Bernard, Marcos and
Benjamin, and Eduardo, have the status of innocent purchasers for value, as was the thrust of the trial courts
disquisition and disposition.
We are unable to agree with the RTC.
It is the common defense of the respondent-purchasers that they each checked the title of the subject lot
when it was his turn to acquire the same and found it clean, meaning without annotation of any encumbrance or
adverse third party interest. And it is upon this postulate that each claims to be an innocent purchaser for value, or

one who buys the property of another without notice that some other person has a right to or interest in it, and who
pays therefor a full and fair price at the time of the purchase or before receiving such notice.[40]
The general rule is that one dealing with a parcel of land registered under the Torrens System may safely
rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond the certificate.
[41]

Where, in other words, the certificate of title is in the name of the seller, the innocent purchaser for value has the

right to rely on what appears on the certificate, as he is charged with notice only of burdens or claims on the res as
noted in the certificate. Another formulation of the rule is that (a) in the absence of anything to arouse suspicion or (b)
except where the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man
to make such inquiry or (c) when the purchaser has knowledge of a defect of title in his vendor or of sufficient facts to
induce a reasonably prudent man to inquire into the status of the title of the property, [42] said purchaser is without
obligation to look beyond the certificate and investigate the title of the seller.
Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent
purchasers for value or purchasers in good faith. For each knew or was at least expected to know that somebody
else other than Gabriel, Jr. has a right or interest over the lot. This is borne by the fact that the initial seller, Gabriel
Jr., was not in possession of subject property. With respect to Marcos and Benjamin, they knew as buyers that
Bernard, the seller, was not also in possession of the same property. The same goes with Eduardo, as buyer, with
respect to Marcos and Benjamin.
Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other than the
seller must be wary and should investigate the rights of those in possession. Otherwise, without such inquiry, the
buyer can hardly be regarded as a buyer in good faith. When a man proposes to buy or deal with realty, his duty is to
read the public manuscript, i.e., to look and see who is there upon it and what his rights are. A want of caution and
diligence which an honest man of ordinary prudence is accustomed to exercise in making purchases is, in
contemplation of law, a want of good faith. The buyer who has failed to know or discover that the land sold to him is
in adverse possession of another is a buyer in bad faith.[43]
Where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond
the certificates of title and make inquiries concerning the rights of the actual possessor. [44] And where, as in the
instant case, Gabriel Jr. and the subsequent vendors were not in possession of the property, the prospective vendees
are obliged to investigate the rights of the one in possession. Evidently, Bernard, Marcos and Benjamin, and
Eduardo did not investigate the rights over the subject lot of the petitioners who, during the period material to this
case, were in actual possession thereof. Bernard, et al. are, thus, not purchasers in good faith and, as such, cannot
be accorded the protection extended by the law to such purchasers. [45] Moreover, not being purchasers in good faith,
their having registered the sale, will not, as against the petitioners, carry the day for any of them under Art. 1544 of
the

Civil

Code

prescribing

rules

on

preference

in

case

of

double

sales

of

immovable

property. Occea v. Esponilla[46] laid down the following rules in the application of Art. 1544: (1) knowledge by the first
buyer of the second sale cannot defeat the first buyers rights except when the second buyer first register in good
faith the second sale; and (2) knowledge gained by the second buyer of the first sale defeats his rights even if he is
first to register, since such knowledge taints his registration with bad faith.
Upon the facts obtaining in this case, the act of registration by any of the three respondent-purchasers was
not coupled with good faith. At the minimum, each was aware or is at least presumed to be aware of facts which
should put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title
of his vendor.
The award by the lower courts of damages and attorneys fees to some of the herein respondents was
predicated on the filing by the original plaintiffs of what the RTC characterized as an unwarranted suit. The basis of
the award, needless to stress, no longer obtains and, hence, the same is set aside.
WHEREFORE, the petition is hereby GRANTED. The appealed December 4, 2006 Decision and the March
6, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 79680 affirming the May 26, 2003 Decision of the
Regional Trial Court, Branch 3 in Baguio City are hereby REVERSED and SET ASIDE. Accordingly, petitioner
Antonita Ordua is hereby recognized to have the right of ownership over subject lot covered by TCT No. T-3276 of
the Baguio Registry registered in the name of Eduardo J. Fuentebella. The Register of Deeds of Baguio City is
hereby ORDERED to cancel said TCT No. T-3276 and to issue a new one in the name of Armando Gabriel, Jr. with
the proper annotation of the conditional sale of the lot covered by said title in favor of Antonita Ordua subject to the
payment of the PhP 50,000 outstanding balance. Upon full payment of the purchase price by Antonita Ordua,
Armando Gabriel, Jr. is ORDERED to execute a Deed of Absolute Sale for the transfer of title of subject lot to the
name of Antonita Ordua, within three (3) days from receipt of said payment.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 114950 December 19, 1995
RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLINARIO, RAYMUND,
MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed SUNTAY, petitioners,
vs.
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.

HERMOSISIMA, JR., J.:

Grave danger of destitution and ruin or irretrievable loss of property awaits those who practise or condone
accommodation in order to circumvent the law or to hide from it. This case involving Federico Suntay, a wealthy
landowner from Bulacan, is in point. He is here pitted against his own lawyer, unfortunately his own nephew, Rafael
Suntay, in whose favor he signed and executed a deed of sale of a parcel of valuable and productive real property for
a measly P20,000.00. Federico claims that the sale was merely simulated and has been executed only for purposes
of accommodation. Rafael Suntay, to the consternation or Federico, insists that the transaction was a veritable sale.
Under what showing may the sale be deemed susceptible of nullification for being simulated? Do we thereby
abandon every reverence we have hitherto reposed on instruments notarized before notaries public?
Before us is a Petition for Review on Certiorari of the Amended Decision 1 of respondent Court of Appeals 2 and of its
Resolution 3 denying petitioner's motion for reconsideration.
These are the pertinent facts:
Respondent Federico Suntay was the registered 4 owner of a parcel of land with an area of 5,118 square meters,
more or less, situated in Sto. Nio, Hagonoy, Bulacan. On the land may be found: a rice mill, a warehouse, and other
improvements. A rice miller, Federico, in a letter, dated September 30, 1960, applied as a miller-contractor of the then
National Rice and Corn Corporation (NARIC). He informed the NARIC that he had a daily rice mill output of 400
cavans of palay and warehouse storage capacity of 150,000 cavans of palay. 5 His application, although prepared by
his nephew-lawyer, petitioner Rafael Suntay, 6 was disapproved, 7 obviously because at that time he was tied up with
several unpaid loans. For purposes of circumvention, he had thought of allowing Rafael to make the application for
him. Rafael prepared 8an absolute deed of sale 9 whereby Federico, for and in consideration of P20,000.00 conveyed
to Rafael said parcel of land with all its existing structures. Said deed was notarized as Document No. 57 and
recorded on Page 13 of Book 1, Series of 1962, of the Notarial Register of Atty. Herminio V. Flores. 10 Less than three
months after this conveyance, a counter sale11 was prepared 12 and signed 13 by Rafael who also caused its
delivery 14 to Federico. Through this counter conveyance, the same parcel of land with all its existing structures was
sold by Rafael back to Federico for the same consideration of P20,000.00. 15 Although on its face, this second deed
appears to have been notarized as Document No. 56 and recorded on Page 15 of Book 1, Series of 1962, 16 of the
notarial register of Atty. Herminio V. Flores, an examination thereof will show that, recorded as Document No. 56 on
Page 13, is not the said deed of sale but a certain "real estate mortgage on a parcel of land with TCT No. 16157 to
secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of the same notarial register
could be found any entry pertaining to Rafael's deed of sale. 17 Testifying on this irregularity, Atty. Flores admitted that
he failed to submit to the Clerk of Court a copy of the second deed. Neither was he able to enter the same in his
notarial register. 18 Even Federico himself alleged in his Complaint that, when Rafael delivered the second deed to
him, it was neither dated nor notarized. 19
Upon the execution and registration of the first deed, Certificate of Title No. 0-2015 in the name of Federico was
cancelled and in lieu thereof, TCT No. T-36714 was issued in the name of Rafael. Even after the execution of the
deed, Federico remained in possession of the property sold in concept of owner. Significantly, notwithstanding the
fact that Rafael became the titled owner of said land and rice mill, he never made any attempt to take possession
thereof at any time, 20 while Federico continued to exercise rights of absolute ownership over the property. 21
In a letter, 22 dated August 14, 1969, Federico, through his new counsel, Agrava & Agrava, requested that Rafael
deliver his copy of TCT No. T-36714 so that Federico could have the counter deed of sale in his favor registered in
his name. The request having been obviously turned down, Agrava & Agrava filed a petition 23 with the Court of First

Instance of Bulacan24 asking Rafael to surrender his owner's duplicate certificate of TCT No. T-36714. In opposition
thereto, Rafael chronicled the discrepancy in the notarization of the second deed of sale upon which said petition was
premised and ultimately concluded that said deed was a counterfeit or "at least not a public document which is
sufficient to transfer real rights according to law." 25 On September 8, 1969, Agrava & Agrava filed a motion 26 to
withdraw said petition, and, on September 13, 1969, the Court granted the same. 27
On July 8, 1970, Federico filed a complaint 28 for reconveyance and damages against Rafael. He alleged, among
others, that:
xxx xxx xxx
2.2 Sometime around May, 1962, defendant approached plaintiff and asked plaintiff, purely as an
accommodation and in order only to help defendant in an application that defendant had then filed
or intended to file with the Rice and Corn Administration to be licensed as a rice dealer, to clause
the title over the land and improvement described above to be placed in defendant's name, but with
the clear and express understanding that ownership, possession, use, enjoyment and all other
incidents of title would remain vested in plaintiff; and that, at any time that plaintiff needed or
desired that the title be restored to plaintiff's name, defendant would execute whatever deed and
take whatever steps would be necessary to do so; to which request, in view of their relationship as
uncle and nephew, plaintiff acceded.
2.3 Accordingly, defendant prepared a deed entitled "Deed of Absolute Sale" over the land and
improvements . . . which purported to be a sale thereof by plaintiff to defendant in consideration of
P20,000.00; which document plaintiff signed on or about May 19, 1962. . . .
2.4 Defendant never paid or delivered, and plaintiff never demanded or received, the sum of
P20,000.00 or any other valuable consideration for executing the aforesaid "Deed of Absolute
Sale", since the same was and is an absolutely simulated or fictitious transaction, intended solely
to accommodate and assist defendant . . .
2.5 Defendant registered the "Deed of Absolute Sale" . . . with the Register of Deeds of Bulacan,
and as a result, O.C.T. No. 0-2015 in plaintiff's name was cancelled and T.C.T. No. 36714 was
issued in defendant's name.
2.6 After the Deed of Absolute Sale . . . had been registered, defendant prepared and delivered to
plaintiff a counter-deed likewise entitled "Deed of Absolute Sale", duly signed by him, in which he
purported to sell back to plaintiff the same land and improvements . . . for the same consideration
of P20,000.00. . . .
2.7 At the time defendant delivered the counter-deed . . . to plaintiff it was signed by defendant, but
not dated or notarized, as defendant told plaintiff that he was delivering the signed counter-deed as
a recognition of the fictitious character of the Deed . . . and authorized plaintiff to date the deed and
cause it to be notarized at any time that plaintiff deemed it necessary or convenient to do so . . .
2.8 From the time plaintiff acquired the land and improvements
. . . from his parents, continuously until the present, plaintiff has been in open, public possession,
use and enjoyment of the land, rice mill, warehouse and other improvements . . . for his sole and

exclusive benefit, and has paid all taxes thereon; and, in fact, from May 19, 1962, the date of the
simulated "Deed of Absolute Sale" . . . until the present, defendant has not exercise a single act of
ownership, possession, use or enjoyment of the said land and improvements.
2.9 During the months of June to August, 1969, desiring to expand his rice mill and warehouse
business located on the land in question, because of government efforts to stimulate rice
production, plaintiff requested defendant to deliver to him the owner's duplicate of the transfer
certificate of title over the properties in question, in order that plaintiff might register the counterdeed . . . and use the property as collateral in securing a bank loan to finance the expansion of the
rice mill and warehouse facilities; but defendant failed and refused, and continues to fail and refuse
to do so, without just cause or legal reason. 29
In his answer, Rafael scoffed at the attack against the validity and genuineness of the sale to him of Federico's land
and rice mill. Rafael insisted that said property was "absolutely sold and conveyed . . . for a consideration of
P20,000.00, Philippine currency, and for other valuable consideration". 30 Accordingly, he raised the following
affirmative and/or special defenses:
xxx xxx xxx
2.2 Plaintiff is now estopped from questioning the validity, genuineness, valuable consideration and
due execution of the Deed of Absolute Sale, Annex "A" of the Complaint, since he admitted the
same in his Petition in L.R. Case No. 1356 . . . . pertinent portions of which are quoted hereunder:
. . . On August 12, 1962, Rafael G. Suntay sold the property above-described to
petitioner through a Deed of Absolute Sale . . . .
and likewise, plaintiff admitted the validity, genuineness, valuable consideration and due execution
of aforesaid Deed of Absolute Sale . . . as evidenced by the letter of plaintiff's counsel, Attorneys
Agrava and
Agrava . . .
3. . . . Sometime in 1962, plaintiff informed defendant that he would repurchase aforesaid property
and requested the defendant to prepare the necessary document. Considering the trust and
confidence that defendant had in plaintiff and pursuant to said request, defendant prepared the
proposed Deed of Sale . . . signed the same and delivered it to the plaintiff with the clear and
express understanding that the owner's duplicate Transfer Certificate of Title would be delivered to
the plaintiff only upon full payment of the agreed repurchase price of P20,000.00 after which said
proposed Deed of Sale would be duly notarized. The amount of P20,000.00 was stated in said
proposed Deed of Sale upon request of plaintiff in view of the fact that was the same amount
appearing in the Deed of Absolute Sale, Annex "A" of the Complaint. The plaintiff; not only failed to
pay to defendant the agreed repurchase price of (sic) any portion thereof but even caused the
falsification of the proposed Deed of Sale by making it appear, in connivance with Attorney
Herminio Flores, that defendant acknowledged said document before said Attorney Flores, when in
truth and in fact as plaintiff and Attorney Flores very well knew at the time that defendant never
appeared, much less acknowledged, before Attorney Flores said document . . . 31

At the initial hearing on April 7, 1971, Federico took the stand and, when asked why title to the property was no
longer in his name, Rafael's counsel objected thereto upon the ground that Federico, in the petition wherein he asked
Rafael to surrender his owner's duplicate of TCT No. T-36714, had alleged that he sold the land to Rafael, which
allegation, Rafael contends, constitutes as a judicial admission which may not be subject to contradiction, unless
previously shown to have been made through palpable mistake. 32 Rafael's counsel, in effect, was assailing the
admissibility of Federico's anticipated answer which would most likely tend to establish the simulated nature of the
sale executed by Federico in favor of Rafael. Judge Emmanuel Muoz overruled the objection and reset the case for
hearing on June 9, 1971.
On June 7, 1971, Rafael, obviously for the purpose of delay on account of its pettiness,
instituted certiorariproceedings in the Court of Appeals in order to have the aforecited ruling nullified and set aside.
Rafael was naturally rebuffed by the Appellate Court. Considering that the petition for Rafael to surrender his owner's
duplicate of TCT No. T-36714 had been withdrawn upon motion of Federico, the alleged admission of Federico as to
the questioned deed's validity in effect disappeared from the record and had ceased to have any standing as a
judicial admission. 33 Dissatisfied with the ruling, Rafael elevated the matter to the Supreme Court via a petition for
review on certiorari. This was summarily denied by us for lack of merit. 34
Whereupon, Rafael's counsel moved, as he often did previously, for continuation of trial of the main case. 35 After a
thirteen-year trial with no less than six different Presiding Judges; 36 numerous changes of lawyers; countless
incidents; and a mountain-pile or pleadings a decision in the case was finally rendered on April 30, 1984.
Resolving the sole issue of whether or not the deed of sale executed by Federico in favor of Rafael was simulated
and without consideration, the trial court ruled:
The following documents undisputedly show the admission of the plaintiff that the deed of absolute
sale (Exh. A) is not a simulated or fictitious document but is a genuine deed of absolute sale he
executed in favor of the defendant, to wit:
(a) . . . a demand letter of Attys. Agrava & Agrava, counsel of the plaintiff, the pertinent portion of
which is quoted as follows:
"On May 19, 1972, our client, Federico C. Suntay sold to your goodself for
P20,000.00 a parcel of land situated at Hagonoy, Bulacan . . ."
(b) . . . a Petition for the Surrender of Owner's Duplicate Certificate of Title an/or Cancellation and
Issuance of Substitute Owner's Copy of Transfer Certificate of Title filed in Court on August 19,
1969 by the plaintiff against the defendant docketed as LRC Case No. 1356 . . . hereby quoted as
follows:
"2. Petitioner is the vendee of a parcel of land, together with the improvements
existing thereon situated in the Barrio of Sto. Nio, Hagonoy, Bulacan . . . title to
which is still . . . issued in the name of the vendor Rafael G. Suntay . . . .
3. On August 12, 1962, Rafael G. Suntay sold the property . . . to petitioner . . . ."
(c) . . . a notice of adverse claim filed by the plaintiff in the Registry of Decision of Bulacan on the
land in question . . . admitting the ownership of the defendant of said land, which is quoted as
follows:

"That the property has been sold to me by Rafael G. Suntay through an Absolute
Deed of Sale . . . ."
These documents alone are more than sufficient evidence to conclude that Exhibit A is not a
simulated Deed of Absolute Sale but a genuine Deed of Absolute Sale which transferred the
ownership of the property in question from the plaintiff to the defendant. The mere allegation of the
plaintiff that the Deed of Sale (Exh. A) is simulated and without consideration cannot prevail over
his aforesaid admissions.
. . . In addition thereto is the fact that this Deed of Absolute Sale (Exh. A) was duly recorded in the
Notarial Registry of Notary Public Herminio V. Flores . . . thus showing the regularity and due
execution of the aforesaid document . . . .
The mere fact that plaintiff is in continuous possession of the property in question, pays realty taxes
thereon and have introduced several improvements despite the execution of Deed of Absolute Sale
(Exh. A) is not sufficient basis to conclude that Exh. A is just a simulated sale in the light of the
admissions of fire plaintiff in the aforementioned documentary evidences and furthermore it was
explained by the defendant that plaintiff has been in possession of the property in question and
paid taxes thereon because it was their express understanding that plaintiff would subsequently
repurchase the property in question and all the fruits thus enjoyed by plaintiff and taxes thus paid
by him would be accounted for . . . This is borne out by the receipts of payment of realty taxes
which expressly show that plaintiff paid the taxes for and in the name of defendant Rafael
Suntay. 37
While the trial court upheld the validity and genuineness of the deed of sale executed by Federico in favor of
Rafael, which deed is referred to above as Exhibit A, it ruled that the counter-deed, referred to as Exhibit B,
executed by Rafael in favor of Federico, was simulated and without consideration, hence, null and voidab
initio.
The trial court ratiocinated that:
The Deed of Absolute Sale (Exh. B) which is a resale of the property in question executed by the
defendant in favor of the plaintiff was signed by the defendant but at the time it was handed to the
plaintiff it was not dated, not notarized and above all it has no consideration because plaintiff did
not pay defendant the consideration of the sale in the sum of P20,000.00. . . .
Although Exh. B was subsequently notarized, the fact remained that defendant did not appear and
acknowledge the same before the Notary Public . . . and did not receive the consideration of the
aforesaid Exh. B . . . Consequently (sic), this Exh B for want of consideration and not having been
acknowledged by defendant before the Notary Public is therefore null and void and hence did not
transfer ownership of the property in question to the defendant.
A contract of purchase and sale is void and produces no effect whatsoever
where the same is without cause or consideration in that the purchase price,
which appears thereon as paid, has in fact never been paid by the purchaser to
the vendor (Mapalo vs. Mapalo . . . 17 SCRA 114). 38

While the trial court adjudged Rafael as the owner of the property in dispute, it did not go to the extent of
ordering Federico to pay back rentals for the use of the property as the court made the evidential finding that
Rafael simply allowed his uncle to have continuous possession of the property because or their
understanding that Federico would subsequently repurchase the same. The decretal portion of the decision
of the trial court reads:
WHEREFORE, a decision is hereby rendered:
1. Dismissing this complaint filed by plaintiff against herein defendant;
2. Declaring the Deed absolute Sale (Exh. A) executed by the plaintiff in favor of the defendant of a
parcel of land covered by OCT No. 0-2015-Bulacan Registry as a genuine and valid document;
3. Ordering the defendant to pay the Government of the Republic of the Philippines thru the Office
of the Register of Deeds of Bulacan the true and correct registration fees for the Deed of Absolute
Sale (Exh. A) on the basis of the true consideration of the sale as admitted by the defendant which
is P20,000.00 as staled in the document plus his unpaid attorney's fees in the sum of P114,000.00
within fifteen (15) days from the finality of this decision;
4. Declaring the Deed of Sale (Exh. B) executed by the defendant in favor of the plaintiff of a parcel
of land covered by TCT No. T-36714-Bulacan Registry as null and void ab initio;
5. The prayer for P500.00/month rental from May, 1962 is hereby denied for lack of merit;
6. With costs against the plaintiff. 39
From the aforecited decision of the trial court, both Federico and Rafael appealed. Before the Court of Appeals both
pleaded invariably the same arguments which they had raised before the trial court. On January 27, 1993, the Court
of Appeals rendered judgment in affirmance of the trial court's decision, with a modification. Federico was ordered to
surrender the possession of the disputed property to Rafael. 40
The Court of Appeals ruled:
After a careful examination of the evidence on record, we are inclined to agree with the lower court
that Exhibit "A" is indeed a genuine deed of absolute sale which transferred to Rafael the full
ownership of the litigated property, including the improvements found thereon.
For one, it immediately strikes us as rather unusual for Federico to wait until 1969, or after a period
of more than seven (7) years from May 19, 1962 when he executed Exhibit "A", to seek the
restoration of his title over the same property. Were Federico to be believed, he executed Exhibit
"A" simply to accommodate his nephew in connection with the latter's alleged application as rice
dealer of RCA. There is nothing in the record, however, that Rafael ever became a licensed rice
dealer of RCA from 1962 to 1969. . . .
. . . Prudence if not common sense should have cautioned Federico of the dangers attendant to his
inaction to assert immediately his alleged unaffected ownership over the same property. It is simply
unthinkable that Federico could not have considered the possibility that an innocent purchaser for

value may acquire the property from Rafael. Such a thought alone is enough reason for Federico to
be wary of the situation which he allowed to continue for seven (7) years.
Nor can Federico draw comfort from his continued physical possession of the property even after
the same was sold to Rafael. As plausibly explained by Rafael, he allowed Federico to remain in
the premises and enjoy the fruits thereof because of their express understanding that Federico
may subsequently repurchase the property and all the fruits thus enjoyed by the plaintiff and the
taxes paid by him would be accounted for at the time of the repurchase . . . Indeed, the receipts of
payment of realty taxes clearly show on their face that Federico paid the taxes for and in behalf of
Rafael . . . .
Independent of the foregoing, documents are on record which are replete with Federico's
admissions showing that Exhibit "A" could not have been a simulated or fictitious deed of sale. . . .
Finally, it is not disputed that Exhibit "A" was duly recorded in the Notarial Register of Notary Public
Herminio V. Flores . . . who testified on the due execution of the same . . .; Against this
overwhelming evidence, Federico's self-serving declaration that Exhibit "A" is a fictitious and
simulated contract must certainly fall.
This brings us to the Deed of Absolute Sale (Exh. "B") executed by Rafael in favor of Federico over
the same property.
We cannot add more to what the court a quo has said in declaring that Exhibit "B" is null and void,
for which reason it could not have transferred the ownership of the same property to
Federico. . . . 41
Counsel of Federico filed a motion for reconsideration of the aforecited decision. While the motion was pending
resolution, Atty. Ricardo M. Fojas entered his appearance in behalf of the heirs of Rafael who had passed away on
November 23, 1988. Atty. Fojas prayed that said heirs be substituted as defendants-appellants in the case. The
prayer for substitution was duly noted by the court in a resolution dated April 6, 1993. Thereafter, Atty. Fojas filed in
behalf of the heirs an opposition to the motion for reconsideration. The parties to the case were heard on oral
argument on October 12, 1993.
On December 15, 1993, the Court of Appeals reversed itself and rendered an amended judgment, pertinent portions
of which read:
. . . this Court is convinced that the desired reconsideration is impressed with compelling merit. For
truly, certain premises stand out in the chain of evidence, the interplay of which supports the
conclusion that the parties meant Exhibit "A" to be a mere accommodation arrangement executed
without any consideration and therefore simulated contract of sale. Consider the following:
1. Two (2) instruments were executed closely one after the other involving transfer and re-transfer
of the same property at exactly the same price;
2. The existing close relationship between the parties; and

3. The value and location of the property purportedly sold, which project in bold relief the gross
inadequacy of the stated contractual consideration therefor.
xxx xxx xxx
There is more. Similarly looming large to attest to the simulated character of Exhibit "A" which, in
hindsight, was unjudiciously brushed aside is the undisputed fact that the physical possession,
enjoyment and use of the property in question remained through the years and up to the present in
the hands of Federico. Rafael, as records show, never assumed the benefits, let alone the burden,
of ownership. He did not even include the property in his statement of assets and liabilities . . . nor
paid the taxes therefor. This factor, juxtaposed with Rafael's execution of the counter deed of sale
(Exh. "B"), cannot but unmistakably indicate that the parties never meant to regard Exhibit "A" as
producing actual transfer of ownership and/or rights attached to ownership. Doubtless, Exhibit "B"
manifested, and is an affirmation of, such intention.
We are thus inclined to agree with Federico's main submission that Exhibit "A" is merely a fragment
of the intended transaction, that is, an accommodation loan of title to Rafael and its subsequent
return to Federico. The counter deed of sale executed by Rafael (Exh. "B"), completed it. Stated
differently, the first instrument merely recited a portion of the entire accommodation transaction; the
second, as a complementary part, and, in addition to the first, integrated and made clear the
simulated character of the entire agreement.
It is true that in the Decision under consideration, this Court took stock, as Rafael urges, of
Federico's admission in the letter dated August 14, 1969 of the Agrava and Agrava Law office . . . in
Federico's petition for registration . . . and in his affidavit/notice of adverse claim. Viewed in its
proper perspective, however, we are now inclined to consider such admission as no more than a
recognition on the part of Federico of the factual existence of Exhibit "A", by virtue of which his
OCT No. 0-2015 was cancelled and a new title (TCT No. T-36714) issued in the name of
Rafael. . . .
In fine, this Court rules and so holds that the Deed of Absolute Sale executed on May 19, 1962 by
plaintiff-appellant Federico Suntay in favor of his nephew Rafael G. Suntay (Exh. "A"), is absolutely
simulated and fictitious. As such, it is void and is not susceptible of ratification (Art. 1409, Civil
Code), produces no legal effects (Cario vs. Court of Appeals, 152 SCRA 529), and does not
convey property rights nor in any way alter the juridical situation of the parties (Tongay vs. Court of
Appeals, 100 SCRA 99). Along the same vein, the counter deed of sale (Exh. "B"), executed by
Rafael in favor of his uncle Federico, purportedly re-selling to the latter the very same property
earlier fictitiously conveyed by Federico is likewise infected with the same infirmity that vitiates
Exhibit "A". Like the latter document Exhibit "B" is also simulated and therefore it, too, is incapable
of producing legal effects. In short, if was as if no contract of sale was ever executed by Federico in
favor of Rafael, on the one hand, and by Rafael in favor of Federico, on the other hand, although
the sad reality must be acknowledged that on account of Exhibit "A", Federico's title to the property
was cancelled and replaced by a new one in the name of Rafael whose change of heart brought
about Federico's travails. 42
We cannot but uphold the foregoing findings and conclusions of the Court of Appeals. While the rule is that factual
findings of the Court of Appeals are binding on us, we endeavored, however, to scrutinize the case records and read

and examined the pleadings and transcripts submitted before the trial court 43 because the factual findings of the
Court of Appeals and that of the trial court are contrary to each other. 44
The sole issue in this case concerns the validity and integrity of the aforedescribed deed of sale in favor of Rafael
Suntay. We necessarily begin with two veritable legal presumptions: first, that there was sufficient consideration for
the contract 45 and, second, that it was the result of a fair and regular private transaction. 46 These presumptions if
shown to hold, infer prima facie the transaction's validity, except that it must yield to the evidence adduced. 47
In the aggregate, the evidence on record demonstrate a combination of circumstances from which may be
reasonably inferred certain badges of simulation that attach themselves to the deed of sale in question.
I
The late Rafael Suntay and private respondent Federico Suntay were relatives, undisputedly, whose blood relation
was the foundation of their professional and business relationship. The late Rafael testified that he had completely
trusted Federico and so he signed and delivered the counter-deed of sale even without prior payment of the alleged
repurchase price of P20,000.00. Federico had such faith and confidence in the late Rafael, as nephew and counsel,
that he blindly signed and executed the sale in question. He had recommended Rafael as legal counsel and
corporate secretary of the Hagonoy Rural Bank of which he was founder and once President. He had entrusted to
Rafael many of his business documents and personal papers, the return of which he did not demand even upon
termination of their professional relationship. It was precisely because of this relationship that Federico consented to
what he alleged as a loan of title over his land and rice mill in favor of the late Rafael. We are all too familiar with the
practice in the typical Filipino family where the patriarch with the capital and business standing takes into his fold the
young, upcoming, inexperienced but brilliant and brashly ambitious son, nephew or godchild who, in turn, becomes to
his father, uncle, or godparent, the jack of all trades, trouble shooter and most trusted liaison officer cum adviser. He
wittingly serves his patron without the security of a formal contract and without clarifying the matter of compensation.
The record is replete with circumstances that establish the closeness, mutual trust and business and professional
interdependence between the late Rafael and private respondent. When their relationship turned sour, the late
Rafael, in all probability knew where to hit Federico where it really hurt because he had been privy to most of
Federico's business and personal dealings and transactions. The documentary evidence alone proffered by the late
Rafael showed the extent of Rafael's knowledge and involvement in both the business and private affairs of Federico,
his wife, his son, and even his wife's relatives. Rafael admitted in open court that he had come into the possession
thereof in the course of rendering legal services to his uncle. These documents on record and the testimonies of the
late Rafael and private respondent establish the existence of, not only the facts therein stated, but also the
circumstance pertaining to the nature of the relationship between private respondent and the late Rafael. The Court
of Appeals simply took a second look at the evidence on record as was its bounden duty upon the filing of a motion
for reconsideration and could no longer ignore that the close relationship between the late Rafael and private
respondent was indeed a badge of simulation.
There are at least three distinguishable classes of so-called circumstances in evidence which,
however, cannot safely be interpreted in the same way. One class of circumstances, often referred
to in trials at law, includes all outside and related incidents, conditions and happenings which are
described by witnesses and necessarily are subject to all of the dangers and defects of oral and
memory testimony. There are also circumstances which are admitted, or which arise from the
nature of the case itself, which cannot be denied, and lastly there are tangible and visible facts

before
court . . . . which are the basis for a judgment . . . .
. . . The law, as well as logic, makes a distinction between surroundings, conditions, and
"circumstances" as compared with real and tangible facts. . . . A bungling, overwritten, traced
signature, as well as a coat with a bullet-hole in the breast are both . . . "silent circumstances" that
do not commit perjury. Though silent they often are eloquent. . . .
All these quite distinct classes of evidence form the basis of legal verdicts and judgments. The
great mass of legal evidence consists of testimony of oral witnesses which has force in proportion
as it is believed, but in many important cases a verdict must be based mainly upon the second or
the third class of evidence . . . Circumstances and facts must be interpreted and illustrated in order
to show whether a definite conclusion can be based on them. In many cases a particular
conclusion is
irresistible. 48
The history and relationship of trust, interdependence and intimacy between the late Rafael and Federico is
an unmistakable token of simulation. It has been observed that fraud is generally accompanied by
trust. 49Hardly is it inconsistent with practical experience, especially in the context of the Filipino family's way
of life, that Federico, the uncle, would almost naively lend his land title to his nephew and agree to its
cancellation in his nephew's favor because Federico, in the first place, trusted his nephew; was well aware
of his power over him as uncle, client, and patron; and was actually in possession of the land and rice mill.
No one could even conceive of the possibility of ejecting Federico therefrom on the basis of the sham
transaction. The late Rafael never attempted to physically dispossess his uncle or actually take over the rice
mill during his lifetime.
II
The late Rafael insisted that the sale to him of his uncle's property was in fact a "dacion en pago" in satisfaction of
Federico's unpaid attorney's fees, 50 What prominently stands out from the mass of records, however, is the fact that
this claim of the late Rafael was only raised in 1976 when he testified on direct examination. The answer that he filed
in 1970 in response to Federico's complaint never mentioned nor even alluded to any standing liability on the part of
Federico as regards unpaid attorney's fees. Neither did the late Rafael deny or refute Federico's testimony that they
did not have a clear-cut compensation scheme and that Federico gave him money at times, which compensation
enabled the late Rafael to purchase his first car. The late Rafael even affirmed Federico's testimony respecting his
appointment as the legal counsel and corporate secretary of the Hagonoy Rural Bank for which he received
compensation as well.
Equally significant is the admission of the late Rafael that he did not inform Federico that he considered the transfer
to be in consideration of his alleged unpaid attorney's fees. 51 Apparently, it is true, as Federico claimed, that no
accounting was undertaken between uncle-client and nephew-lawyer in order to arrive at the definite amount of the
alleged unpaid attorney's fees. Strange and irregular as this matter seems to be, the same may only become
comprehensible when considered as or grave symptom of simulation.
III

Indeed the most protuberant index of simulation is the complete absence of an attempt in any manner on the part of
the late Rafael to assert his rights of ownership over the land and rice mill in question. After the sale, he should have
entered the land and occupied the premises thereof. He did not even attempt to. If he stood as owner, he would have
collected rentals from Federico for the use and occupation of the land and its improvements. All that the late Rafael
had was a title in his name.
If is to be emphasized that the private respondents never parted with the ownership and
possession of that portion of Lot No 785 . . . nor did the petitioners ever enter into possession
thereof. As earlier stated, the issuance of TCT No. T-1346 did not operate to vest upon the latter
ownership over the private respondents' property. That act has never been recognized as a mode
of acquiring ownership. As a matter of fact, even the original registration of immovable property
does not vest title thereto; it is merely evidence of such title over a particular property. The Torrens
system of land registration should not be used as a means to perpetrate fraud against the rightful
owner of real property. 52
The failure of the late Rafael to take exclusive possession of the property allegedly sold to him is a clear
badge of fraud. 53 The fact that, notwithstanding the title transfer, Federico remained in actual possession,
cultivation and occupation of the disputed lot from the time the deed of sale was executed until the present,
is a circumstance which is unmistakably added proof of the fictitiousness of the said transfer, 54 the same
being contrary to the principle of ownership. 55
Of course, according to the late Rafael, he allowed Federico to remain in the premises and enjoy the fruits
thereof because of their understanding that Federico may subsequently repurchase the property. Contrary
to what Rafael thought, this in fact is added reason for simulation. The idea of allowing a repurchase goes
along the same lines posed by the theory of Federico.
If it were true that the first sale transaction was actually a "dacion en pago" in satisfaction of Federico's
alleged unpaid attorney's fees, it does strain the logical mind that Rafael had agreed to allow the repurchase
of the property three months thereafter. Federico was obviously financially liquid. Had he intended to pay
attorney's fees, he would have paid Rafael in cash and not part with valuable income-producing real
property.
IV
The late Rafael, at the very outset, made much of an uproar over the alleged admissions made by Federico in
several documents executed by him or in his behalf.
On the whole, it was the late Rafael's inflexible stand that Federico admitted in various documents that he
bad absolutely sold his land and rice mill to him and could not, thus, subsequently deny or attack that sale.
Upon our examination of such documents, however, we find that neither the letter of Agrava & Agrava, nor
the petition to compel delivery of the owner's duplicate of title and the notice of adverse claim, supports the
late Rafael's posture. Nowhere is it stated in the aforesaid petition and notice of adverse claim that Federico
sold the subject properly to the late Rafael. What was alleged was that Rafael resold to Federico the said
property, and not the other way around, precisely because both documents were assertions of remedies
resorted to by Federico upon the refusal by the late Rafael to tender his owner's duplicate title.
V

Neither does the undisputed fact that the deed of sale executed by Federico in favor of the late Rafael, is a notarized
document, justify the conclusion that said sale is undoubtedly a true conveyance to which the parties thereto are
irrevocably and undeniably bound.
Conduct, to be given jural effects, must be jural in its subject . . . i.e. must concern jural relations,
not relations of friendship or other non-jural relations. The father who promises to bring home a box
of tools for his boy is not bound in contract, though the same promise to his neighbor may be
binding. The friend who invites one with an offer of a dinner is not legally liable, though he who
agrees with a restaurant-keeper for a banquet to be spread there is under a contract of liability. . . .
In all such cases, therefore, the conduct is jurally ineffective, or void. In the traditional phraseology
of the parole evidence rule, then, it may always be shown that the transaction was understood by
the parties not to have jural effect.
(1) Ordinarily, the bearing of this principle is plain enough on the circumstances. It has been
judicially applied to household services rendered by a member of the family, and to a writing
representing merely a family understanding. . . .
When the document is to serve the purpose of a mere sham, this principle in strictness exonerates
the makers. . . . 56
The cumulative effect of the evidence on record as chronicled aforesaid identified badges of simulation proving that
the sale by Federico to his deceased nephew of his land and rice mill, was not intended to have any legal effect
between them. Though the notarization of the deed of sale in question vests in its favor the presumption of regularity,
it is not the intention nor the function of the notary public to validate and make binding an instrument never, in the first
place, intended to have any binding legal effect upon the parties thereto. The intention of the parties still and always
is the primary consideration in determining the true nature of a contract.
VI
While the late Rafael vehemently upholds the validity and effectiveness of the deed of sale in question, this posture is
eroded by his admission, on cross-examination during trial that he never declared his ownership of the subject
property in his annual Statement Of Assets And Liabilities. The fact that the late Rafael denied both intention and
knowledge involving the sham sale and firmly maintained the validity and genuineness thereof has become
incongruous because it is irreconcilable with the circumstance that he apparently never considered the disputed
property as one of his assets over which he had rights of absolute ownership.
The allegation of Rafael that the lapse of seven (7) years before Federico sought the issuance of a new title in his
name necessarily makes Federico's claim stale and unenforceable does not hold water. Federico's title was not in the
hands of a stranger or mere acquaintance; it was in the possession of his nephew who, being his lawyer, had served
him faithfully for many years. Federico had been all the while in possession of the land covered by his title and so
there was no pressing reason for Federico to have a title in his name issued. Even when the relationship between the
late Rafael and Federico deteriorated, and eventually ended, it is not at all strange for Federico to have been
complacent and unconcerned about the status of his title over the disputed property since he has been possessing
the same actually, openly, and adversely, to the exclusion of Rafael. It was only when Federico needed the title in
order to obtain a collaterized loan 57 that Federico began to attend to the task of obtaining a title in his name over the
subject land and rice mill.

We, therefore, hold that the deed of sale executed by Federico in favor of his now deceased nephew, Rafael, is
absolutely simulated and fictitious and, hence, null and void, said parties having entered into a sale transaction to
which they did not intend to be legally bound. As no property was validly conveyed under the deed, the second deed
of sale executed by the late Rafael in favor of his uncle, should be considered ineffective and unavailing.
WHEREFORE, the Amended Decision promulgated by the Court of Appeals on December 15, 1993 in CA-G.R CV
No. 08179 is hereby AFFIRMED IN TOTO. Petitioners, the heirs of Rafael G. Suntay, are hereby ordered to reconvey
to private respondent Federico G. Suntay the property described in paragraph 2.1 of the complaint, within ten (10)
days from the finality of this Decision, and to surrender to him within the same period the owner's duplicate copy of
Transfer Certificate of Title No. T-36714 of the Registry of Deeds of the Province of Bulacan. In the event that the
petitioners fail or refuse to execute the necessary deed of reconveyance as herein directed, the Clerk of Court of the
Regional Trial Court of Bulacan is hereby ordered to execute the same at the expense of the aforesaid heirs.
Costs against petitioners.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.
[G.R. No. 120465. September 9, 1999]
WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF APPEALS, HON. ROBERT BALAO and
NATIONAL HOUSING AUTHORITY, respondents.
DECISION
KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners
thereof. By virtue of such authority, petitioners offered to sell the lands, located in Tuba, Tadiangan, Benguet to
respondent National Housing Authority (NHA) to be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said lands, with
an area of 31.8231 hectares, at the cost of P23.867 million, pursuant to which the parties executed a series of Deeds
of Absolute Sale covering the subject lands. Of the eight parcels of land, however, only five were paid for by the NHA
because of the report[1] it received from the Land Geosciences Bureau of the Department of Environment and Natural
Resources (DENR) that the remaining area is located at an active landslide area and therefore, not suitable for
development into a housing project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the three parcels of
land. The NHA, through Resolution No. 2394, subsequently offered the amount of P1.225 million to the landowners
as daos perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City a Complaint for
Damages against NHA and its General Manager Robert Balao.

After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court
nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same amount initially offered by NHA to
petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one
dismissing the complaint. It held that since there was sufficient justifiable basis in cancelling the sale, it saw no
reason for the award of damages. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and,
therefore, not the real parties-in-interest in the action before the trial court.
xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to be sellers agents for several owners of the 8
lots subject matter of the case. Obviously, William Uy and Rodel Roxas in filing this case acted as attorneys-in-fact
of the lot owners who are the real parties in interest but who were omitted to be pleaded as party-plaintiffs in the
case. This omission is fatal. Where the action is brought by an attorney-in-fact of a land owner in his name, (as in
our present action) and not in the name of his principal, the action was properly dismissed (Ferrer vs. Villamor, 60
SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175) because the rule is that every action must be prosecuted in
the name of the real parties-in-interest (Section 2, Rule 3, Rules of Court).
When plaintiffs Uy and Roxas sought payment of damages in their favor in view of the partial rescission of Resolution
No. 1632 and the Deed of Absolute Sale covering TCT Nos. 10998, 10999 and 11292 (Prayer complaint, page 5,
RTC records), it becomes obviously indispensable that the lot owners be included, mentioned and named as partyplaintiffs, being the real party-in-interest. Uy and Roxas, as attorneys-in-fact or apoderados, cannot by themselves
lawfully commence this action, more so, when the supposed special power of attorney, in their favor, was never
presented as an evidence in this case. Besides, even if herein plaintiffs Uy and Roxas were authorized by the lot
owners to commence this action, the same must still be filed in the name of the pricipal, (Filipino Industrial
Corporation vs. San Diego, 23 SCRA 706 [1968]). As such indispensable party, their joinder in the action is
mandatory and the complaint may be dismissed if not so impleaded (NDC vs. CA, 211 SCRA 422 [1992]).[2]
Their motion for reconsideration having been denied, petitioners seek relief from this Court contending that:
I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN DECLARING THAT RESPONDENT NHA HAD ANY
LEGAL BASIS FOR RESCINDING THE SALE INVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA
RESOLUTION NO. 1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS TO RESCIND THE SUBJECT
SALE, THE RESPONDENT CA NONETHELESS ERRED IN DENYING HEREIN PETITIONERS CLAIM TO
DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF THE CIVIL CODE.
III.
THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT FINDING THAT THE
PETITIONERS FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-OWNERS.[3]
We first resolve the issue raised in the third assignment of error.
Petitioners claim that they lodged the complaint not in behalf of their principles but in their own name as agents
directly damaged by the termination of the contract. The damages prayed for were intended not for the benefit of
their principals but to indemnify petitioners for the losses they themselves allegedly incurred as a result of such
termination. These damages consist mainly of unearned income and advances. [4] Petitioners, thus, attempt to
distinguish the case at bar from those involving agents or apoderados instituting actions in their own name but in

behalf of their principals.[5] Petitioners in this case purportedly brought the action for damages in their own name
and in their own behalf.
We find this contention unmeritorious.
Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the
name of the real party-in-interest. The real party-in-interest is the party who stands to be benefited or injured by the
judgment or the party entitled to the avails of the suit. Interest, within the meaning of the rule, means material
interest, an interest in the issue and to be affected by the decree, as distinguished from mere interest in the question
involved, or a mere incidental interest.[6] Cases construing the real party-in-interest provision can be more easily
understood if it is borne in mind that the true meaning of real party-in-interest may be summarized as follows: An
action shall be prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced.[7]
Do petitioners, under substantive law, possess the right they seek to enforce? We rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code, which states:
Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. x x
x.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third
person. (Underscoring supplied.)
Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of
the owners of the land subject of the sale. As agents, they only render some service or do something in
representation or on behalf of their principals.[8] The rendering of such service did not make them parties to the
contracts of sale executed in behalf of the latter. Since a contract may be violated only by the parties thereto as
against each other, the real parties-in-interest, either as plaintiff or defendant, in an action upon that contract must,
generally, either be parties to said contract.[9]
Neither has there been any allegation, much less proof, that petitioners are the heirs of their principals.

[10]

Are petitioners assignees to the rights under the contracts of sale? In McMicking vs. Banco Espaol-Filipino,
we held that the rule requiring every action to be prosecuted in the name of the real party-in-interest

x x x recognizes the assignments of rights of action and also recognizes that when one has a right of action assigned
to him he is then the real party in interest and may maintain an action upon such claim or right. The purpose of [this
rule] is to require the plaintiff to be the real party in interest, or, in other words, he must be the person to whom the
proceeds of the action shall belong, and to prevent actions by persons who have no interest in the result of the
same. xxx
Thus, an agent, in his own behalf, may bring an action founded on a contract made for his principal, as an
assignee of such contract. We find the following declaration in Section 372 (1) of the Restatement of the Law on
Agency (Second):[11]

Section 372. Agent as Owner of Contract Right

(1) Unless otherwise agreed, an agent who has or who acquires an interest in a contract which he makes on behalf
of his principal can, although not a promisee, maintain such action thereon as might a transferee having a similar
interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf of another may become an assignee of the contract
and bring suit against the other party to it, as any other transferee. The customs of business or the course of conduct
between the principal and the agent may indicate that an agent who ordinarily has merely a security interest is a
transferee of the principals rights under the contract and as such is permitted to bring suit. If the agent has settled
with his principal with the understanding that he is to collect the claim against the obligor by way of reimbursing
himself for his advances and commissions, the agent is in the position of an assignee who is the beneficial owner of
the chose in action. He has an irrevocable power to sue in his principals name. x x x. And, under the statutes
which permit the real party in interest to sue, he can maintain an action in his own name. This power to sue is not
affected by a settlement between the principal and the obligor if the latter has notice of the agents interest. x x
x. Even though the agent has not settled with his principal, he may, by agreement with the principal, have a right to
receive payment and out of the proceeds to reimburse himself for advances and commissions before turning the
balance over to the principal. In such a case, although there is no formal assignment, the agent is in the position of a
transferee of the whole claim for security; he has an irrevocable power to sue in his principals name and, under
statutes which permit the real party in interest to sue, he can maintain an action in his own name.
Petitioners, however, have not shown that they are assignees of their principals to the subject contracts. While
they alleged that they made advances and that they suffered loss of commissions, they have not established any
agreement granting them the right to receive payment and out of the proceeds to reimburse [themselves] for
advances and commissions before turning the balance over to the principal[s].
Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under the second
paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of the Deeds of Absolute Sale
clearly and deliberately conferring a favor to any third person.
That petitioners did not obtain their commissions or recoup their advances because of the non-performance of
the contract did not entitle them to file the action below against respondent NHA. Section 372 (2) of the Restatement
of the Law on Agency (Second) states:
(2) An agent does not have such an interest in a contract as to entitle him to maintain an action at law upon it in his
own name merely because he is entilted to a portion of the proceeds as compensation for making it or because he is
liable for its breach.
The following Comment on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will gain or suffer loss by the performance or
nonperformance of the contract by the principal or by the other party thereto does not entitle him to maintain an
action on his own behalf against the other party for its breach. An agent entitled to receive a commission from his
principal upon the performance of a contract which he has made on his principals account does not, from this fact
alone, have any claim against the other party for breach of the contract, either in an action on the contract or

otherwise. An agent who is not a promisee cannot maintain an action at law against a purchaser merely because he
is entitled to have his compensation or advances paid out of the purchase price before payment to the principal. x x
x.
Thus, in Hopkins vs. Ives,[12] the Supreme Court of Arkansas, citing Section 372 (2) above, denied the claim of a
real estate broker to recover his alleged commission against the purchaser in an agreement to purchase property.
In Goduco vs. Court of Appeals,[13] this Court held that:
x x x granting that appellant had the authority to sell the property, the same did not make the buyer liable for the
commission she claimed. At most, the owner of the property and the one who promised to give her a commission
should be the one liable to pay the same and to whom the claim should have been directed. xxx
As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui under the contracts
of sale, they do not, under substantive law, possess the right they seek to enforce. Therefore, they are not the real
parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision rendered herein would be pointless since the
same would not bind the real parties-in-interest.[14]
Nevertheless, to forestall further litigation on the substantive aspects of this case, we shall proceed to rule on
the merits.[15]
Petitioners submit that respondent NHA had no legal basis to rescind the sale of the subject three parcels of
land. The existence of such legal basis, notwithstanding, petitioners argue that they are still entitled to an award of
damages.
Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Article 1191
of the Civil Code. The right of rescission or, more accurately, resolution, of a party to an obligation under Article 1191
is predicated on a breach of faith by the other party that violates the reciprocity between them. [16] The power to
rescind, therefore, is given to the injured party.[17] Article 1191 states:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for the other parties
to the contract, the vendors, did not commit any breach, much less a substantial breach, [18]of their obligation. Their
obligation was merely to deliver the parcels of land to the NHA, an obligation that they fulfilled. The NHA did not
suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was based on the
negation of the cause arising from the realization that the lands, which were the object of the sale, were not suitable
for housing.

Cause is the essential reason which moves the contracting parties to enter into it.[19] In other words, the cause is
the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the
contracting parties.[20] Cause, which is the essential reason for the contract, should be distinguished from motive,
which is the particular reason of a contracting party which does not affect the other party.[21]
For example, in a contract of sale of a piece of land, such as in this case, the cause of the vendor (petitioners
principals) in entering into the contract is to obtain the price. For the vendee, NHA, it is the acquisition of the land.
[22]
The motive of the NHA, on the other hand, is to use said lands for housing. This is apparent from the portion of
the Deeds of Absolute Sale[23] stating:
WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the VENDEE is mandated to focus and
concentrate its efforts and resources in providing housing assistance to the lowest thirty percent (30%) of urban
income earners, thru slum upgrading and development of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of Instruction No. 630, prescribed slum
improvement and upgrading, as well as the development of sites and services as the principal housing strategy for
dealing with slum, squatter and other blighted communities;
xxx
WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated purposes offers to buy and the
VENDORS, in a gesture of their willing to cooperate with the above policy and commitments, agree to sell the
aforesaid property together with all the existing improvements there or belonging to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing premises and the terms and conditions hereinbelow
stipulated, the VENDORS hereby, sell, transfer, cede and convey unto the VENDEE, its assigns, or successors-ininterest, a parcel of land located at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY SIX THOUSAND
EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS, more or less x x x.
Ordinarily, a partys motives for entering into the contract do not affect the contract. However, when the motive
predetermines the cause, the motive may be regarded as the cause. In Liguez vs. Court of Appeals,[24] this Court,
speaking through Justice J.B.L. Reyes, held:
xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642) while maintaining the distinction and
upholding the inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts
from the rule those contracts that are conditioned upon the attainment of the motives of either party.
The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and December 4, 1946,
holding that the motive may be regarded as causa when it predetermines the purpose of the contract.
In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract were
the lands not suitable for housing. In other words, the quality of the land was an implied condition for the NHA to
enter into the contract. On the part of the NHA, therefore, the motive was the cause for its being a party to the sale.
Were the lands indeed unsuitable for the housing as NHA claimed?

We deem the findings contained in the report of the Land Geosciences Bureau dated 15 July 1991 sufficient
basis for the cancellation of the sale, thus:
In Tadiangan, Tuba, the housing site is situated in an area of moderate topography. There [are] more areas of less
sloping ground apparently habitable. The site is underlain by x x x thick slide deposits (4-45m) consisting of huge
conglomerate boulders (see Photo No. 2) mix[ed] with silty clay materials. These clay particles when saturated have
some swelling characteristics which is dangerous for any civil structures especially mass housing development.[25]
Petitioners content that the report was merely preliminary, and not conclusive, as indicated in its title:
MEMORANDUM
TO:

EDWIN G. DOMINGO
Chief, Lands Geology Division

FROM:

ARISTOTLE A. RILLON
Geologist II

SUBJECT:

Preliminary Assessment of Tadiangan Housing Project in Tuba, Benguet[26]

Thus, page 2 of the report states in part:

xxx
Actually there is a need to conduct further geottechnical [sic] studies in the NHA property. Standard Penetration Test
(SPT) must be carried out to give an estimate of the degree of compaction (the relative density) of the slide deposit
and also the bearing capacity of the soil materials. Another thing to consider is the vulnerability of the area to
landslides and other mass movements due to thick soil cover. Preventive physical mitigation methods such as
surface and subsurface drainage and regrading of the slope must be done in the area.[27]
We read the quoted portion, however, to mean only that further tests are required to determine the degree of
compaction, the bearing capacity of the soil materials, and vulnerability of the area to landslides, since the tests
already conducted were inadequate to ascertain such geological attributes. It is only in this sense that the
assessment was preliminary.
Accordingly, we hold that the NHA was justified in cancelling the contract. The realization of the mistake as
regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent.
[28]
Article 1318 of the Civil Code states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (Underscoring supplied.)

Therefore, assuming that petitioners are parties, assignees or beneficiaries to the contract of sale, they would
not be entitled to any award of damages.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.
Davide, C.J., (Chairman), on leave.
Puno, Pardo, and Ynares-Santiago, JJ., concur.

THIRD DIVISION
HICOBLINO M. CATLY (Deceased), Substituted by
his wife,LOURDES A. CATLY,

G.R. No. 167239

Petitioner,

Present:
- versus -

CORONA, J.,
WILLIAM NAVARRO, ISAGANI NAVARRO, BELEN
DOLLETON,
FLORENTINO
ARCIAGA,
BARTOLOME PATUGA, DIONISIO IGNACIO,
BERNARDINO
ARGANA,
AND
ERLINDA
ARGANA-DELA CRUZ, and AYALA LAND, INC.,
Respondents.

Chairperson,
VELASCO, JR.,
NACHURA,
PERALTA, and
MENDOZA, JJ.

Promulgated:

May 5, 2010
x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside
the Decision[1] dated December 13, 2004 of the Regional Trial Court (RTC), Branch 255, Las Pias City in Civil Case
No. 93-3094, entitled William Navarro, Isagani Navarro, Iluminada Legaspi, Belen Dolleton, Florentino Arciaga,
Bartolome Patuga, Dionisio Ignacio, Bernardino Argana, and Erlinda Argana-Dela Cruz [plaintiffs] v. Ayala Land, Inc.
(formerly Las Pias Ventures, Inc.), [defendant], and Estrellita Londonio, Emerita Feolino, Porfirio Daen, and Timoteo
Arciaga [intervenors], stating that petitioner Atty. Hicoblino M. Catly will be entitled only to the reduced amount
of P1,000,000.00 as additional attorneys fees, not the entire amount of P20,000,000.00 as prayed for, and its
Order[2] dated March 1, 2005 denying reconsideration of the said decision.

Respondents Navarro, et al. (therein eight (8) plaintiffs) filed a Complaint[3] dated September 6, 1993 with the
RTC, Branch 147, Makati City, against Las Pias Ventures, Inc. (therein defendant, now substituted by herein
respondent Ayala Land, Inc. [ALI]), for annulment of Transfer Certificate of Title (TCT) No. T-5332 and recovery of
possession with damages. Respondents were represented by petitioner, now deceased and substituted in this case
by his wife, Lourdes A. Catly. In their Complaint, respondents alleged that they owned and occupied 32 hectares of
land which were registered in the name of their predecessors-in-interest in 1920, as evidenced by tax declarations;
that after conducting a relocation survey, a portion of their land was included in a parcel of land covered by TCT No.
T-5332, then registered in the name of Las Pias Ventures, Inc., containing an area of 370,868 square meters, more
or less; that the parcel of land covered by TCT No. T-5332 originated from Original Certificate of Title (OCT) No.
1421, pursuant to Decree No. N-60635 and issued in L.R.C. Record No. 45516, Case No. 976 which, in a Partial
Decision dated September 26, 1986 rendered by the RTC of Pasig, Branch 167, was ordered cancelled and set
aside; that since TCT No. T-5332 belonging to Las Pias Ventures, Inc. originated from OCT No. 1421, the same
must, consequently, be cancelled and declared null and void; that respondents also filed a complaint before the
Commission on the Settlement of Land Problems (COSLAP), docketed as Case No. 027-90, against Las Pias
Ventures, Inc. for deliberately fencing the subject property, including a government road to the area known as Daang
Hari and, thus, depriving them access to their property; that COSLAP noted in its resolution that per Sketch Plan SK004, Lot 10, PSU-80886, AP 4217, the subject property actually contained an area of only 70,868 sq. m., not 370,868
sq. m. which appeared in the title of Las Pias Ventures, Inc.; and that Las Pias Ventures, Inc. and its predecessorsin-interest were in bad faith when they fraudulently, forcibly, and stealthily acquired possession over their property by

cutting and bulldozing 104 fruit-bearing mango trees so as to pave the way for the construction of subdivision
roads. Thus, respondents prayed that TCT No. T-5332 be declared null and void and that Las Pias Ventures, Inc.
be directed to open the gate leading to Daang Hari road, and that Las Pias Ventures, Inc. be ordered to restore
possession of the property to the respondents and to pay the respondents actual and moral damages, attorneys
fees, and expenses of litigation.

On December 3, 1993, respondent ALI filed a Motion for Substitution[4] praying that it be substituted in place of
Las Pias Ventures, Inc. as party-defendant by virtue of the Certificate of Filing of the Articles of Merger,
[5]

dated November 6, 1992, entered into between them. On even date, it also filed a Motion to Dismiss [6] averring

that the trial court has no jurisdiction over the case as the respondents did not pay the proper amount of filing fees,
that their complaint failed to state a cause of action, and that their cause of action had already prescribed.

Meanwhile, respondents sought to declare respondent ALI in default,[7] which the latter opposed. On
December 27, 1993, pending the resolution of the said incidents, respondents filed with the trial court a Motion to
Prosecute Action as Pauper[8] on the ground that their individual gross income did not exceed P4,000.00 a
month. Moreover, respondents moved to admit their Amended Complaint[9] dated December 27, 1993, adding that
respondent ALI was named therein as a party-defendant and the titles sought to be declared null and void would be
TCT Nos. T-36975 to T-36983, instead of TCT No. T-5332, as the land formerly under TCT No. T-5332 had been
subdivided and presently covered by TCT Nos. T-36975 to T-36983 which was duly registered in the name of
respondent ALI.

Thereafter, since the subject properties were located in Las Pias, the case was re-raffled to the RTC of Las
Pias City, Branch 255, then presided by Judge Florentino M. Alumbres.

In its Order[10] dated January 3, 1995, the trial court granted the motion of respondents to prosecute the case
as pauper litigants and exempted them from paying the legal fees.

In an Order[11] dated May 3, 1995, the trial court denied respondent ALIs Motion to Dismiss Amended
Complaint.[12]

In its Order[13] dated July 31, 1995, the trial court denied the motion of respondents to declare respondent ALI in
default for lack of merit.

In its Answer to Amended Complaint[14] dated August 18, 1995, respondent ALI countered that the case
involved a real action where the assessed value of the property, or if there be none, the estimated value thereof,
should have been stated and used as the basis for computation of the filing fees to be paid by respondents; that
respondents did not state the assessed value of the property either in the body or prayer of the Amended Complaint;
that using the conservative figure of P1,000.00 per sq. m., the property claimed by respondents would be
worth P320,000,000.00 and, thus, the filing fees to be paid by them would have been at least P1,602,350.00; that
since respondents failed to pay the proper filing fees, the trial court did not acquire jurisdiction over the case; that the
amended complaint of respondents failed to state a cause of action as the property subject of litigation was not
properly identified; that respondents invoked the September 24, 1986 Partial Decision[15] of therein trial court in favor
of one Jose Velasquez, but the same never became final and executory and was superseded by the December 12,
1986 Judgment,[16] whereby Jose Velasquezs rights were quitclaimed and transferred to International Corporate
Bank and its transferees; that res judicata barred the complaint of respondents, since the proceedings which led to
the issuance of a decree in a land case were proceedings in rem that would bind the whole world and, thus, the
issuance of Decree No. N-60635 in 1957 became binding upon respondents; that respondents cause of action to file
the complaint had prescribed, since an action to annul a decree of registration prescribes in one year after its
issuance, as in the case of Decree No. N-60635 and OCT No. 1421 which were issued in 1957, but the complaint
was filed only in 1993, or more than 30 years later; and that as a consequence of this baseless suit, respondents
should be ordered to pay moral and exemplary damages, including attorneys fees and costs of suit.

Respondents and respondent ALI submitted their respective pre-trial briefs.[17] Respondent ALI filed a Motion
for Production of Documents[18] dated September 18, 1995 for the production of survey plans and tax declarations
alleged by respondents in their amended complaint and Motion to Strike Out Amended Complaint [19] dated January 4,
1996 (which the trial court treated as a third motion to dismiss) due to respondents non-payment of docket fees.

In its Order[20] dated March 4, 1996, the trial court denied respondent ALIs motions for lack of merit and set the
case for pre-trial on April 30, 1996 at 8:30 in the morning with a warning that should respondent ALI file a fourth
motion to dismiss, respondents would be allowed to present their evidence ex-parte, and respondent ALIs counsel
would be cited for contempt of court for delaying the proceedings of the case.

Perceiving bias on the part of the trial judge, respondent ALI filed a Motion to Inhibit [21] on March 25, 1996. The
trial court, in its Order[22] dated May 27, 1996, also denied respondent ALIs Motion to Inhibit then Presiding Judge
Florentino M. Alumbres from hearing the case as the grounds alleged therein did not fall under Section 1 of Rule 137
of the Rules of Court and the filing of the same was solely for the purpose of delay.

On June 17, 1996, respondent ALI filed a Petition for Certiorari[23]with the Court of Appeals (CA) assailing the
trial courts Order dated January 3, 1995 (allowing respondents to litigate as paupers) and Order dated March 4,
1996 (denying respondent ALIs motions). In its Decision dated September 27, 1996, the CA dismissed respondent
ALIs petition and, later, denied the reconsideration thereof.

Respondent ALI then filed a Petition for Review on Certiorari, in G.R. No. 127079, with this Court, alleging
that the CA erred in holding that respondents are pauper-litigants and in sustaining the trial courts Order denying its
motion for inhibition and, later, a Supplemental Petition for Certiorari (with Application for Temporary Restraining
Order and Writ of Preliminary Injunction) dated November 9, 2000 seeking to enjoin the trial court from proceeding
with the case insofar as the complaint-in-intervention of Porfirio A. Daen is concerned.

On May 13, 1997, pending the resolution of respondent ALIs petitions, both parties executed a Memorandum
of Agreement (MOA),[24] where herein 8 respondents and 66 other therein plaintiffs (heirs of Lorenzo dela Cruz,
Florentino Navarro, Jose Dolleton, Patricio dela Cruz, Ignacio Arciaga, Dionisio Dolleton, Leon Argana, Esteban
Patuga, respectively), assisted by petitioner, waive, renounce and cede in favor of respondent ALI, represented by its
Senior Vice-President and General Counsel Mercedita S. Nolledo and Assistant Vice-President Ricardo N. Jacinto,
and assisted by its counsel, any and all rights of exclusive ownership over the subject properties. The said MOA
provides that:

MEMORANDUM OF AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Memorandum of Agreement, made and entered into by and between:

The persons listed in Annex A [herein 8 respondents and 66 other

therein plaintiffs] hereof, all Filipino citizens, and residents of Muntinlupa, Metro
Manila, hereinafter referred to collectively as the Heirs;

and

AYALA LAND, INC., a corporation organized and existing under the laws
of the Philippines, with address at Tower One, Ayala Triangle, Ayala Avenue,
Makati City, Metro Manila, hereinafter referred to as ALI and represented herein
by its Senior Vice-President and General Counsel, Ms. Mercedita S. Nolledo;

WHEREAS, the Heirs represent themselves to be the successors-in-interest of Lorenzo

[dela] Cruz, Jose Dolleton, Patricio [dela] Cruz, Dionisio Dolleton, Esteban Patuga, Florentino
Navarro, Ignacio Arciaga, and Leon Argana (collectively, the Predecessors), with respect to their
claims over Lot 10 of Psu-80886 (Ap 4217), covering an area of approximately 370,868 square
meters, more or less;

WHEREAS, ALI is the registered owner of several parcels of land in Las Pias, Metro
Manila under TCT Nos. T-36975 to T-36983, which titles were derived from TCT No. T-5332 which,
in turn, was derived from OCT No. 1421, as per Decree No. N-60635, L.R.C. Record No. 45516,
Case No. 976;

WHEREAS, Lot 10 of Psu-80886 is now under ALIs TCT Nos.

T-6975 to T-36983;

NOW, THEREFORE, for and in consideration of the mutual covenants hereinbelow specified,
the parties hereto hereby agree as follows:

1. For and in consideration of the sums to be paid by ALI as stated in par. 2 x x x hereof,
the Heirs hereby:

a) Waive, renounce and cede, in favor of ALI, any and all rights to exclusive ownership or
co-ownership, past, present or future, xxx

xxxx

2.1 First Tranche. The first tranche payment shall be in the amount of Ninety-Nine
Million Nine Hundred Ninety-Five Thousand Six Hundred Thirty Pesos and Forty-Six Centavos
(P99,995,630.46), Philippine Currency, which sum shall be, as it is hereby, paid directly to the
Heirs immediately upon execution of this Agreement; and the receipt of which amount said Heirs
hereby so acknowledge to their full satisfaction, thereby rendering immediately operative the
releases and waivers in parcel hereof. Upon the collective request of the said Heirs, the said
payment is hereby broken down as follows.

xxxx

2.2 Second Tranche. The sum of Twenty Million Pesos (P20,000,000.00) shall be
payable to the payees named below ninety (90) days after the date of execution of this
Agreement. Likewise at the request of all the Heirs, the said payment should be broken down as
follows as and when it becomes due.

xxxx

2.3 The Heirs also unqualifiedly declare that their agreement with each other as to the
sharing of the proceeds of the settlement is exclusively between and among themselves, and any
dispute or controversy concerning the same does not affect this Agreement or their Joint Motion for
Judgment Based on Compromise to be signed and filed in court by the parties hereto. Release of
the balance referred to in par. 2.2 hereto by ALI to the Heirs shall completely and absolutely
discharge all of ALIs obligations under the said Joint Motion for Judgment Based on Compromise
to the Heirs.

3. Upon execution hereof, the Heirs and all persons claiming rights under them shall
immediately vacate the area comprising the Property, or any portion thereof which they may still be
occupying, if any. The failure of the Heirs and all persons claiming rights under them to vacate the
Property or any portion thereof which they may still be occupying shall entitle ALI to secure a writ of
execution to eject them from any portion of the Properties.

4. The Heirs have entered into this Agreement in their respective personal capacities and
as successors-in-interest of their Predecessors. They hereby jointly and severally warrant that they
collectively constitute the totality of all the heirs of the Predecessors and that no one has been left
out or otherwise excluded. Any breach of this warranty shall be deemed a substantial breach of
this Agreement and each breach hereof shall be deemed a breach by all the Heirs.

5. The Heirs expressly warrant that they own and possess all of the rights and interests
claimed by the Predecessors to the Properties, and that there are no other claimants to the said
rights and interests.

6. The Heirs warrant that they have not sold, leased, mortgaged or in any way
encumbered in favor of any third party or person whatsoever, nor have they otherwise diminished
their rights to the Properties by any act or omission [including but not limited to the non-payment of
realty taxes].

7. The Heirs expressly warrant that only they, individually and collectively, have any claim
to the Properties arising from the documents and decisions mentioned in pars. 1 (a) and 1 (b)
hereof as they relate to pars. 5 and 6 hereof.

8. All the foregoing warranties are to be treated as perpetual in character.

9. In case of breach of any of their warranties in pars. 5, 6 and 7, above and any of their
covenants elsewhere in this Memorandum of Agreement, the Heirs shall hold ALI, its officers,
stockholders, agents and assigns free and harmless, without regard to the amount of damage or
claims, from any claim or suit lodged or filed against them by third parties claiming to be them or to
be authorized by them, or in any manner claiming rights to the Properties.

10. With the exception of the consideration described in par. 2 hereof, the Heirs
acknowledge that no representation, undertaking, promises or commitment of present or future
fact, opinion or event has been made by ALI to induce this Agreement. The Heirs acknowledge
that they have entered into this Agreement relying solely on their own independent inquiry into all
relevant facts and circumstances and with knowledge, or with full opportunity to obtain such
knowledge, of all the facts relating to the allegations upon which their claims are based.

Accordingly, any law or jurisprudence purporting to give the Heirs the option to either
revive their original demand or enforce this Agreement in the event of breach thereof,
notwithstanding, the Heirs agree that their claims shall remain extinguished in any event and shall
not be revived for any reason and upon any ground whatsoever, and that they shall be barred from
asking for the rescission hereof and from annotating any lis pendens or adverse claim on ALIs
aforementioned titles.

11. On the other hand, ALI has entered into this Memorandum of Agreement relying solely
upon the Heirs representations in pars. 5, 6 and 7 hereof and their waivers, obligations and
undertakings in pars. 1 and 3 hereof. Accordingly, in the event of the falsity of these
representations and/or breach of these waivers, obligations and undertakings, ALI shall, in addition

to its rights under pars. 9 and 10 hereof which shall, in any case, remain effective, have the right to
rescind this Agreement, without however and moreover waiving the releases made by the Heirs in
its favor under par. 1 hereof.

12. The Heirs hereby likewise quitclaim and waive, in favor of ALIs predecessors, any
and all causes of action which they may have against such predecessors.

13. All parties hereto acknowledge that each of them has read and understood this
Memorandum of Agreement or that the same has been read and explained to each of them in a
language that they understand by her/its respective counsel.

14. The Heirs hereby agree to execute such documents as may be required to carry out
the purpose of this Memorandum of Agreement.

IN WITNESS WHEREOF, the parties hereby set their hands this 13 th day of May, 1997
at Makati City, Philippines.[25]

On the same day, May 13, 1997, therein plaintiffs (including herein respondents), as successors-in-interest,
and respondent ALI executed the Joint Motion for Judgment Based on Compromise expressing their desire toward
an amicable settlement. Thus,

JOINT MOTION FOR JUDGMENT

BASED ON COMPROMISE

WHEREAS, the plaintiffs represent themselves to be the sole and exclusive successors-ininterest of Lorenzo dela Cruz, Jose Dolleton, Patricio dela Cruz, Dionisio Dolleton, Esteban
Patuga, Florentino Navarro, Ignacio Arciaga, and Leon Argana (collectively, the Predecessors),
with respect to their claims over Lot 10 of Psu-80886 (Ap 4217), covering an area of approximately
370,868 square meters, more or less;

WHEREAS, Ayala Land, Inc. (ALI) is the registered owner of several parcels of land in Las
Pias, Metro Manila under TCT Nos. T-36975 to T-36983, which titles were derived from TCT No.
T-5332 which, in turn, was derived from OCT No. 1421, as per Decree No. N-60635, L.R.C. Record
No. 45516, Case No. 976;

WHEREAS, Lot 10 of Psu-80886 is now under ALIs TCT Nos. T-36975 to T-36983;

NOW, THEREFORE, plaintiffs and defendant, assisted by their respective counsel[s], and
desiring to put an end to litigation between them, hereby respectfully request the Honorable Court
to render judgment based on the compromise reached by the parties herein, upon the following
terms and conditions:

1. For valuable consideration already fully and completely received, plaintiffs hereby:

a) Waive, renounce and cede, in favor of ALI, any and all rights to
exclusive ownership or co-ownership, past, present or future, which they may
have over those parcels of land known as Lot 10 of Plan Psu-80886 and/or any
amendment thereof, as recorded in Original Certificate of Title (OCT) No. 1421
issued by the Register of Deeds of Rizal on November 26, 1957 pursuant to
Decree No. N-60635, and now under Transfer Certificate of Title (TCT) Nos.
36975 to 36983, and/or any portion of what is now generally known as the Ayala
Southvale Residential Subdivision Project, regardless of the source basis of such
claim. Said Lot 10 and any and all other lots/portions and lands over which
plaintiffs may have any claim (whether or not arising from Psu-80886) are
hereafter referred to as the Properties.

b) Waive, renounce and cede, in favor of ALI, any and all rights of exclusive
ownership or co-ownership, past, present or future, which they may have,
pertaining to the Properties and arising from any and all other judicial or
administrative decisions from which they may derive any rights of ownership or
possession with respect to the Properties.

c) Expressly transfer and assign to ALI all of their rights indicated in items
1, a) and 1, b) above.

d) Expressly acknowledge and affirm, in any case, the validity, efficacy and
superiority of ALI's Torrens Certificates of Title Nos. T-36975 to T-36983 issued
by the Register of Deeds of Las Pias, as well as all their predecessor titles and
any and all derivative titles which in the future may be issued, over the area
covered by Properties, in particular, Lot 10 of Plan Psu-80886, and any
amendment thereof, over the area covered by OCT No. 1421 and any other title
derived therefrom. Plaintiffs' intention herein, is to unqualifiedly declare, that they
have absolutely no other rights, claims, reservations or interests in the lands

covered by ALI's titles and/or any portion of what is now generally referred to as
the Ayala South[v]ale Residential Subdivision Project, whether or not arising out
of said Psu-80886 and/or any amendment thereof;

e) Expressly acknowledge and affirm that they have inspected and

verified the area presently being occupied and possessed by ALI and, by these
presents, unqualifiedly declare that their claim, which is assigned and transferred
to ALI in this Agreement, covers the very same area presently occupied by ALI
and that this Agreement resolves with finality all issues concerning the location of
the Properties vis--vis the area covered by ALI's titles and which area is actually
and physically possessed by ALI.

2. Plaintiffs and all persons claiming rights under them shall immediately vacate the area
comprising the Property, or any portion thereof which they may still be occupying. The failure of
plaintiffs and all persons claiming rights under them to vacate the Property or any portion thereof
which they may still be occupying shall entitle ALI to secure a writ of execution to eject them from
any portion of the Properties.

3. Plaintiffs and their co-heirs have entered into this Agreement in their respective
personal capacities and as successors-in-interest of their Predecessors. They hereby jointly and
severally warrant that they collectively constitute the totality of all the heirs of the Predecessor and
that no one has been left out or otherwise excluded. Any breach of this warranty shall be deemed
a substantial breach of this Agreement, and each breach hereof shall be deemed a breach by all
the Heirs.

4. Plaintiffs expressly warrant that they own and possess all of the rights and interests
claimed by the Predecessors to the Properties, and that there are no other claimants to the said
rights and interests.

5. Plaintiffs warrant that they have not sold, leased, mortgaged or in anyway
encumbered, in favor of any third party or person, or otherwise diminished their rights to the
Properties by any act or omission [including but not limited to the non-payment of realty taxes].

6. Plaintiffs expressly warrant that there are no other claims to the Properties arising from
the documents and decisions mentioned in pars. 1(a) and 1(b) hereof as they relate to pars. 4 and
5 hereof.

7. All the foregoing warranties are perpetual in character.

8. In case of breach of any of their warranties in pars. 4, 5 and 6 above and any of their
covenants in this Joint Motion for Judgment Based on Compromise, plaintiffs shall hold ALI, its
officers, stockholders, agents and assigns free and harmless, without regard to the amount of
damage or claims, from any claim or suit lodged or filed against them by any of the plaintiffs, or
third parties claiming to be authorized by them, or in any manner claiming rights to the Properties.

9. With the exception of the consideration described in par. 1 hereof, plaintiffs

acknowledge that no representation, undertaking, promises, or commitment of present or future
fact, opinion or event has been made by ALI to induce this Agreement. Plaintiffs acknowledge that
they have entered into this Agreement relying solely on their own independent inquiry into all
relevant facts and circumstances and with knowledge, or with full opportunity to obtain such
knowledge, of all the facts relating to the allegations upon which their claims are based.

Accordingly, any law or jurisprudence purporting to give plaintiffs the option to either revive
their original demand or enforce this Agreement in the event of breach thereof, notwithstanding, the
plaintiffs agree that their claims shall remain extinguished in any event and shall not be revived for
any reason and upon any ground whatsoever, and that they shall be barred from asking for the
rescission hereof and from annotating any lis pendens or adverse claim on ALIs aforementioned
titles.

10. On the other hand, ALI has entered into this Agreement relying solely upon plaintiffs
representations in paragraphs 4, 5 and 6 hereof and their waivers, obligations and undertakings in
pars. 1 and 2 hereof. Accordingly, in the event of the falsity of these representations and/or breach
of these waivers, obligations and undertakings, and in addition to its rights under paragraphs 8 and
9 hereof which shall, in any case, remain effective, ALI shall have the right to rescind this
Compromise Agreement, without, however, waiving the releases made by the plaintiffs in its favor
under par. 1 hereof.

11. Plaintiffs hereby likewise quitclaim and waive, in favor of ALI and ALIs predecessors,
any and all causes of action which they may have against such predecessors.

12. All parties hereto acknowledge that each of them has read and understood this
Agreement or that the same has been read and explained to each of them in a language that they
understand by his/her/its respective counsel.

13. Plaintiffs hereby agree to execute such documents as may be required to carry out
the purpose of this Compromise Agreement.

PRAYER

WHEREFORE, it is respectfully prayed that judgment be rendered by this Honorable Court

in accordance with the terms and conditions of the above Compromise Agreement of the parties.

Other reliefs, just and equitable in the premises, are likewise prayed for.

Makati City for Las Pias, 13 May 1997.[26]

On May 14, 1997, petitioner filed a Manifestation and Motion [27] with the trial court alleging that he was not
consulted when therein heirs signed the MOA; that his Contract for Legal and Other Valuable Services [28] dated
September 3, 1993, wherein respondents engaged his services as counsel, be noted on record; that should there be
an amicable settlement of the case, his attorneys fees should be awarded in full as stipulated in the contract to fully
compensate his efforts in representing herein respondents and therein heirs; and that the trial court issued an order
confirming his right to collect his attorneys fees to the exclusion of the other agents and financiers. Petitioner also
appended therein a copy of the Authority to Collect Attorneys Fee[s] as Stipulated in the Contract for Legal Services
and Other Valuable Considerations[29] which stated that should there be an amicable settlement of the case by way of
respondent ALI paying respondents any amount which may be agreed upon by the parties, the respondents
authorize petitioner to directly collect from respondent ALI his 25% attorneys fees and that they authorize
respondent ALI to deduct the 25% attorneys fees from the total amount due them and to pay and deliver the same to
petitioner, his heirs or assigns.

On May 27, 1997, respondents, respondent ALI, and petitioner executed an Amendatory Agreement
incorporating the provision that, in addition to the P10,000,000.00 attorneys fees as previously agreed upon,
petitioner would also be entitled to the amount of Twenty Million (P20,000,000.00) Pesos as additional attorneys
fees, or a total amount of P30,000,000.00, subject to the trial courts approval.

AMENDATORY AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

DIONISIO IGNACIO, WILLIAM NAVARRO, DIONISIO ARCIAGA, ILUMINADA LEGASPI,

BELEN DOLLETON, ISAGANI NAVARRO, BERNARDINO ARGANA, BARTOLOME PATUGA
(collectively, the Heads of the Families), LEOPOLDO ESPIRITU. EMERITA FEOLINO, and
ESPERANZA ESPIRITU (collectively, the Brokers), ATTY. HICOBLINO M. CATLY (Atty. Catly),
and Ayala Land, Inc. (ALI), do hereby declare:

WHEREAS, the Heads of the Families are among the signatories to the 13 May 1997
Memorandum of Agreement (the MOA) with ALI;

WHEREAS, the Heads of the Families and the Brokers are collectively entitled to the sum
of Nineteen Million Pesos (P19,000,000.00) under the Second Tranche payment of the MOA;

WHEREAS, under the terms of the MOA, ALI was authorized by the Heads of the Families
and their co-heirs to pay for their account Atty. Catly an aggregate amount of Ten Million Pesos
(P10,000,000.00) under the First and Second Tranche payments of the MOA;

WHEREAS, Atty. Catly has claimed from the Heirs (as this term is defined in the MOA), an
additional Twenty Million Pesos (P20,000,000.00) for his attorneys fees, which claim is pending
resolution before Branch 255 of the Regional Trial Court of Las Pias (the Las Pias Court) in
Civil Case No. 93-3094 entitled William Navarro, et al. v. Ayala Land, Inc. (Civil Case No. 933094);

NOW, THEREFORE, the parties declare and covenant as follows:

1.
The respective amounts to be received by the following under the First Tranche
provided in Par. 2.1 of the MOA are hereby recomputed and adjusted as follows:
From

To

1.

Dionisio Ignacio

P9,086,345.98

P8,850,245.98

2.

William Navarro

5,079,636.68

4,947,636.68

3.

Dionisio Arciaga

651,333.74

634,433.74

4.

Iluminada Legaspi

1,286,749.30

1,253,349.30

5.

Belen Dolleton

6.

Isagani Navarro

7.

Bernardino Argana

922,224.90

8.

Bartolome Patuga

1,741,572.23

1,415,875.84
3,302,585.86

1,379,075.84
3,216,785.86
898,224.90
1,696,272.23

9.

Leopoldo Espiritu
(financier)

10.

1,461,000.00

750,000.00

730,000.00

1,750,000.00

1,704,500.00

9,000,000.00

10,000,000.00

Leopoldo Espiritu
(agent)

13.

1,500,000.00

Esperanza Espiritu
(agent)

12.

10,714,200.00

Emerita Feolino
(agent)

11.

11,000,000.00

Hicoblino Catly
(attorneys fees)

The recomputed and adjusted amounts set forth under the second column above shall be
in lieu of the amounts provided for under Par. 2.1 of the MOA.

2. The Heads of the Families, the Brokers and Atty. Catly agree to abide by the final
decision or resolution of the Las Pias Court in Civil Case No. 93-3094 on the total amount of
attorneys fees that should be paid to Atty. Catly. They agree to implement the said decision or
resolution, once it attains finality, immediately and without any delay.

3. The provisions of Paragraph 2.2. of the MOA, notwithstanding, the Heads of the
Families and the Brokers authorize ALI to retain the sum of Twenty Million Pesos (P20,000,000.00)
provided under the Second Tranche of the MOA, which sum ALI shall apply to the satisfaction of
the claim of Atty. Catly for attorneys fees once this is finally decided and resolved by the Las Pias
Court and in such amount as such court shall declare. Any balance remaining after the satisfaction
of Atty. Catlys claim in accordance with the decision or resolution of the Las Pias Court shall be
paid by ALI to the Heads of the Families and the Brokers in proportion to the amounts
corresponding to them as set forth in Paragraph 2.2 of the MOA upon the lapse of the 90-day
period referred to in such agreement or the date of the finality of the Las Pias Courts decision or
resolution on Atty. Catlys claim, whichever is later.

4. Atty. Catly accepts the amount set forth in the MOA and such other amount, if any, as
the Las Pias Court may declare, as the final settlement of his claim for attorneys fees and waives
all other claims which he may have in connection with Civil Case No. 93-3094. In acknowledgment
thereof, he shall affix his own signature on the MOA.

5. Upon signing this Amendatory Agreement, the Heads of the Families and Atty. Catly
shall turn over to ALI all documents in their possession, whether original or otherwise, which
support or which they intend to present as evidence in support of their claim in Civil Case No. 933094.

6. By signing this Amendatory Agreement, the Heads of the Families, who are the plaintiffs
in Civil Case No. 93-3094 hereby unconditionally and irrevocably authorize the cancellation of the
notice of lis pendens annotated on ALIs TCT Nos. T-36975 to T-36983 under Entry No. 758-11
dated 16 June 1994, which annotations were made at the instance of Atty. Catly on behalf of the
Heads of the Families. This Amendatory Agreement constitutes an authority to ALI to effect the
cancellation of the said notice of lis pendens on behalf of the plaintiffs in Civil Case No. 93-3094.

7. Nothing herein shall be construed to amend, supersede or revoke to any extent the
terms and conditions of the MOA in any other respect, except as provided herein, and only insofar
as the signatoriers hereto are concerned.

IN WITNESS WHEREOF, we have signed this Declaration and Waiver this ____ day of
May, 1997 at Makati City.

DIONISIO IGNACIO

WILLIAM NAVARRO

DIONISIO ARCIAGA

ILUMINADA LEGASPI

BELEN DOLLETON

ISAGANI NAVARRO

BERNARDINO ARGANA

BARTOLOME PATUGA

LEOPOLDO ESPIRITU

EMERITA FEOLINO

ESPERANZA ESPIRITU

ATTY. HICOBLINO M. CATLY

AYALA LAND, INC.

By:

Sgd.
MERCEDITA S. NOLLEDO

And

Sgd.
RICARDO JACINTO

Assisted by:

POBLADOR BAUTISTA & REYES

5th Floor, SEDCCO I Building
Rada cor. Legaspi Street
Legaspi Village, Makati City
By:
Sgd.
ALEXANDER J. POBLADOR
PTR No. 8002896/Makati/1-13-97
IBP No. 345214/Makati 3-1-93

DINO VIVENCIO A.A. TAMAYO

PTR No. 8003065/Makati/1-13-97
IBP No. 427804/Q.C./1-13-97

In his Motion to Withdraw Manifestation and Motion dated May 27, 1997, filed on July 9, 1997, petitioner
stated that he would be withdrawing all objections to the May 13, 1997 MOA and prayed for the approval of the said
MOA, without prejudice to his claim for attorneys fees.

However, in an Order[30] dated June 10, 1997, the trial court held in abeyance its resolution on the Joint
Motion for Judgment Based on Compromise, pending the action of this Court on respondent ALIs petition.

In its Order[31] dated June 23, 1997, the trial court directed the parties to formally submit a copy of their
amendatory agreement. In compliance therewith, the respondents submitted an unnotarized but signed copy of the
subject document, while respondent ALI later submitted the notarized Amendatory Agreement dated May 27, 1997.

On July 14, 1997, respondent ALI filed a Manifestation and Motion informing the trial court that it agreed to pay
the

respondents

and

66

other

heirs

(or

total

of

74

claimants)

the

total

amount

of P120,000,000.00, P10,000,000.00 of which would be paid to petitioner as attorneys fees. It also stated that as
petitioner claimed for a higher amount of attorneys fees, the parties executed the amendatory agreement with the
understanding that the issue of how much of the additional P20,000,000.00, if any, that petitioner would be entitled to
by way of attorneys fees, would have to be resolved by the trial court.

On July 22, 1997, the trial court (per Judge Florentino M. Alumbres) rendered a Separate Judgment in favor of
the petitioner as follows:

SEPARATE JUDGMENT

Originally submitted to the Court for approval and judgment on June 9, 1997 is the JOINT
MOTION FOR JUDGMENT BASED ON COMPROMISE dated May 13, 1997 of the parties, duly
assisted by their counsels, Atty. Hicoblino M. Catly for the plaintiffs and Atty. Alexander J. Poblador
for the defendant.

During the hearing of the said motion on June 10, 1997, the parties discussed an
AMENDADORY AGREEMENT which relates to attorneys fees of Atty. Catly which they alluded to
as forming part of their compromise agreement, but the said amendatory agreement has not yet
been submitted to the Court. On June 23, 1997, an order was issued directing the parties to
submit the same for approval by the Court.

Thus, on June 27, 1997, in compliance with the said order, the plaintiffs submitted their
copy which is not notarized, while the defendant submitted its, duly notarized, on July 4, 1997.

However, on July 15, 1997, this Court received a copy of defendants MANIFESTATION
AND MOTION dated July 14, 1997 which it filed with the Honorable Supreme Court whereby it

prayed that the Honorable Court itself approve forthwith the parties Joint Motion for Judgment
Based on Compromise dated 13 May 1997, without prejudice to the resolution by the Respondent
Judge of Atty. Catlys claim for attorneys fees. (Underlining supplied for emphasis). With that
relief prayed for before the High Court, what is left to be decided by this Court is on the matter of
the claim for a attorneys fees of Atty. Catly as contained in paragraphs 2, 3 and 4 of the said
Amendatory Agreement.

The AMENDATORY AGREEMENT reads, as follows:

KNOW ALL MEN BY THESE PRESENTS:

DIONISIO IGNACIO, WILLIAM NAVARRO, DIONISIO ARCIAGA, ILUMINADA LEGASPI,

BELEN DOLLETON, ISAGANI NAVARRO, BERNARDINO ARGANA, BARTOLOME PATUGA
(collectively, the Heads of the Families), LEOPOLDO ESPIRITU. EMERITA FEOLINO, and
ESPERANZA ESPIRITU (collectively, the Brokers), ATTY. HICOBLINO M. CATLY (Atty. Catly),
and Ayala Land, Inc. (ALI), do hereby declare:

WHEREAS, the Heads of the Families are among the signatories to the 13 May 1997
Memorandum of Agreement (the MOA) with ALI;

WHEREAS, the Heads of the Families and the Brokers are collectively entitled to the sum
of Nineteen Million Pesos (P19,000,000.00) under the Second Tranche payment of the MOA;

WHEREAS, under the terms of the MOA, ALI was authorized by the Heads of the Families
and their co-heirs to pay for their account Atty. Catly an aggregate amount of Ten Million Pesos
(P10,000,000.00) under the First and Second Tranche payments of the MOA;

WHEREAS, Atty. Catly has claimed from the Heirs (as this term is defined in the MOA), an
additional Twenty Million Pesos (P20,000,000.00) for his attorneys fees, which claim is pending
resolution before Branch 255 of the Regional Trial Court of Las Pias (the Las Pias Court) in
Civil Case No. 93-3094 entitled William Navarro, et al. v. Ayala Land, Inc. (Civil Case No. 933094);

NOW, THEREFORE, the parties declare and covenant as follows:

1.
The respective amounts to be received by the following under the First Tranche
provided in Par. 2.1 of the MOA are hereby recomputed and adjusted as follows:
From

To

14.

Dionisio Ignacio

P9,086,345.98

P8,850,245.98

15.

William Navarro

5,079,636.68

4,947,636.68

16.

Dionisio Arciaga

651,333.74

634,433.74

17.

Iluminada Legaspi

1,286,749.30

1,253,349.30

18.

Belen Dolleton

19.

Isagani Navarro

20.

Bernardino Argana

922,224.90

21.

Bartolome Patuga

1,741,572.23

22.

Leopoldo Espiritu

1,415,875.84

(financier)
23.

1,696,272.23

11,000,000.00

10,714,200.00

1,500,000.00

1,461,000.00

750,000.00

730,000.00

1,750,000.00

1,704,500.00

9,000,000.00

10,000,000.00

Leopoldo Espiritu
(agent)

26.

898,224.90

Esperanza Espiritu
(agent)

25.

3,216,785.86

Emerita Feolino
(agent)

24.

3,302,585.86

1,379,075.84

Hicoblino Catly
(attorneys fees)

The recomputed and adjusted amounts set forth under the second column above shall be
in lieu of the amounts provided for under Par. 2.1 of the MOA.

2. The Heads of the Families, the Brokers and Atty. Catly agree to abide by the final
decision or resolution of the Las Pias Court in Civil Case No. 93-3094 on the total amount of
attorneys fees that should be paid to Atty. Catly. They agree to implement the said decision or
resolution, once it attains finality, immediately and without any delay.

3. The provisions of Paragraph 2.2. of the MOA, notwithstanding, the Heads of the
Families and the Brokers authorize ALI to retain the sum of Twenty Million Pesos (P20,000,000.00)

provided under the Second Tranche of the MOA, which sum ALI shall apply to the satisfaction of
the claim of Atty. Catly for attorneys fees once this is finally decided and resolved by the Las Pias
Court and in such amount as such court shall declare. Any balance remaining after the satisfaction
of Atty. Catlys claim in accordance with the decision or resolution of the Las Pias Court shall be
paid by ALI to the Heads of the Families and the Brokers in proportion to the amounts
corresponding to them as set forth in Paragraph 2.2 of the MOA upon the lapse of the 90-day
period referred to in such agreement or the date of the finality of the Las Pias Courts decision or
resolution on Atty. Catlys claim, whichever is later.

4. Atty. Catly accepts the amount set forth in the MOA and such other amount, if any, as
the Las Pias Court may declare, as the final settlement of his claim for attorneys fees and waives
all other claims which he may have in connection with Civil Case No. 93-3094. In acknowledgment
thereof, he shall affix his own signature on the MOA.

5. Upon signing this Amendatory Agreement, the Heads of the Families and Atty. Catly
shall turn over to ALI all documents in their possession, whether original or otherwise, which
support or which they intend to present as evidence in support of their claim in Civil Case No. 933094.

6. By signing this Amendatory Agreement, the Heads of the Families, who are the plaintiffs
in Civil Case No. 93-3094 hereby unconditionally and irrevocably authorize the cancellation of the
notice of lis pendens annotated on ALIs TCT Nos. T-36975 to T-36983 under Entry No. 758-11
dated 16 June 1994, which annotations were made at the instance of Atty. Catly on behalf of the
Heads of the Families. This Amendatory Agreement constitutes an authority to ALI to effect the
cancellation of the said notice of lis pendens on behalf of the plaintiffs in Civil Case No. 93-3094.

7. Nothing herein shall be construed to amend, supersede or revoke to any extent the
terms and conditions of the MOA in any other respect, except as provided herein, and only insofar
as the signatoriers hereto are concerned.

Finding the terms and conditions set forth under the Amendatory Agreement to be freely
agreed upon, and the same not being contrary to law, morals, public order and public policy, the
same are hereby approved.

WHEREFORE, judgment is hereby rendered on the basis of the terms and conditions
agreed upon under the Amendatory Agreement with emphasis on Paragraphs 2, 3 and 4 thereof,
and in accordance with Section 5, Rule 36 of the Rules of Civil Procedure.

ACCORDINGLY, the defendant [respondent ALI] is directed to immediately release the

sum of Twenty Million (P20,000,000.00) Pesos in favor of Atty. Hicoblino M. Catly representing his
attorneys fees as herein approved by the Court.

SO ORDERED.[32]

On July 28, 1997, petitioner filed an Ex-Parte Motion to Issue Writ for Execution of Judgment [33] with the trial
court to enforce his claim for attorneys fees pursuant to the Separate Judgment dated July 22, 1997 on the premise
that said judgment is immediately executory. This prompted the respondents to file, in G.R. No. 127079, an Urgent
Application for the Issuance of a Temporary Restraining Order [34] with this Court seeking to enjoin the trial court from
enforcing the said Separate Judgment, particularly with regard to the P30,000,000.00 award of attorneys fees in
favor of the petitioner. Respondent ALI also opposed the petitioners ex-parte motion.

In its Order dated August 25, 1997, the trial court held in abeyance the resolution on petitioner's motion for
execution of the trial courts Separate Judgment dated July 22, 1997 until the respondents application for the
issuance of a temporary restraining order shall have been resolved by this Court.

In the meantime, Estrellita Londonio,[35] Emerita Feolino,[36] Porfirio Daen,[37] and Timoteo Arciaga[38] filed their
individual Complaints-in-Intervention raising therein their respective rights and interests with regard to the subject
property. Respondent ALI also filed its Answers-in-Intervention.[39] Likewise, respondents filed a joint Answer-inIntervention.[40] All parties filed their respective Pre-trial Briefs.

In a Decision dated May 7, 2004, this Court (Third Division), in G.R. No. 127079, entitled Ayala Land, Inc. v.
William Navarro, Isagani Navarro, Iluminada Legaspi, Belen Dolleton, Florentino Arciaga, Bartolome Patuga, Dionisio
Ignacio, Bernardino Argana, and Erlinda Argana, dismissed the petition of therein petitioner (herein respondent ALI)
for being moot, and ordered the remand of the records of the case to the trial court for the determination on the
propriety of the award of P30,000,000.00 attorneys fees in favor of petitioner. The pertinent portions of the Decision
state:

We now go back to the issue raised in the instant petition, i.e., whether or not the Court of
Appeals erred (a) in allowing respondents to litigate as paupers; and, (b) in sustaining the trial
courts order denying petitioners motion for inhibition.

Obviously, with the execution of the May 13, 1997 MOA or compromise agreement and
the May 27, 1997 amendatory agreement, the parties resolved to settle their differences and put an
end to the litigation.[41] It bears reiterating that on July 22, 1997, the trial court rendered its
Judgment approving this amendatory agreement.

We have consistently held that a compromise agreement, once approved by final order of
the court, has the force of res judicata between the parties and should not be disturbed except for
vices of consent or forgery. In Armed Forces of the Philippines Mutual Benefit Association v. Court
of Appeals,[42] we also held:

Once stamped with judicial imprimatur, it (compromise agreement)

becomes more than a mere contract binding upon the parties; having the
sanction of the court and entered as its determination of the controversy, it has
the force and effect of any other judgment. It has the effect and authority of res
judicata, although no execution may issue until it would have received the
corresponding approval of the court where the litigation pends and its compliance
with the terms of the agreement is thereupon decreed. A judicial compromise is
likewise circumscribed by the rules of procedure.

Thus, by virtue of the trial courts Judgment approving the parties amendatory agreement
(or amendatory compromise agreement), the instant petition has become moot and academic.

In City of Laoag vs. Public Service Commission,[43] we ruled that a petition may be
dismissed in view of the compromise agreement entered into by the parties.

Relative to Atty. Catlys attorneys fees of P30,000,000.00, while it was agreed upon by
both parties in their MOA and amendatory agreement, however, they are now contesting its
reasonableness. In fact, petitioner filed with the trial court an opposition to Atty. Catlys motion for
execution of Compromise Judgment on the ground that his attorneys fee is excessive and
unconscionable; while respondents filed with this Court a motion for the issuance of a temporary
restraining order to enjoin the trial court from granting Atty. Catlys motion.

The issue of whether or not Atty. Catlys attorneys fee is reasonable should be resolved
by the trial court. For one, this incident stemmed from Atty. Catlys motion for execution of the
compromise Judgment filed with the trial court. As earlier stated, petitioner filed its
opposition, also with the trial court. For another, this incident appears to be factual and is being
raised before us only for the first time. In De Rama v. Court of Appeals,[44] we held that issues or
questions of fact cannot be raised for the first time on appeal.

WHEREFORE, the instant petition, being moot, is DENIED. Nonetheless, let the records
be remanded to the trial court for the purpose of resolving with dispatch the propriety of Atty.
Hicoblino Catlys attorneys fee of P30,000,000.00 being assailed by both parties before that court.

SO ORDERED.[45]

In a Decision dated December 1, 2004, the trial court (per Judge Raul Bautista Villanueva) approved the
parties Joint Motion for Judgment Based on Compromise dated May 13, 1997, dismissed all the complaints-inintervention by therein intervenors, and directed respondents to pay respondent ALI the amount of P563,358.00 by
way of attorneys fees which shall be taken from the second tranche payment and deducted from their prorata share. The salient portions of the said Decision state:

Thereafter, a Memorandum of Agreement (MOA) dated May 13, 1997 (Exh. 6) was entered
into by the plaintiffs and the defendant Ayala Land wherein the latter agreed, among others, to pay
in two (2) tranches the sum of P99,995,630.46 and P20,000,000.00, respectively, or the total
amount of P119,995,630.46, to the plaintiffs and their co-heirs in amounts broken down for each of
them, thus:

xxx

xxx

xxx

2.1 First Tranche. The first tranche payment shall be in the amount of Ninety-Nine Million
Nine Hundred Ninety-Five Thousand Six Hundred Thirty Pesos and Forty-Six Centavos
(P99,995,630.46), Philippine Currency, which sum shall be, as it is hereby, paid directly to the Heirs
immediately upon execution of this Agreement, and the receipt of which amount said Heirs hereby
so acknowledge to their full satisfaction, thereby rendering immediately operative the releases and
waivers in par. 1 hereof. Upon the collective request of the said Heirs, the said payment is hereby
broken down as follows:

Payee

A.

Amount

Heirs of Lorenzo dela Cruz

1.

Dionisio Ignacio

9,086,345.98

2.

Alejandro dela Cruz

5,332,562.30

3.

Lydia Arcega

5,332,562.30

4.

Eugenia Arciaga

5,332,562.30

5.

Melchor dela Cruz

1,185,000.25

6.

Gertrudez dela Cruz

1,185,000.25

B.

Heirs of Florentino Navarro

1.

William Navarro

5,079,636.68

2.

Antonio Navarro

400,000.00

3.

Tanyag Navarro

400,000.00

4.

Isagani Navarro

285,444.44

5.

Rodolfo Navarro

285,444.44

6.

Victoria Navarro

285,444.44

7.

Leonora Navarro

285,444.44

8.

Violeta Navarro

285,444.44

9.

Ramon Navarro

285,444.44

10. Salud Navarro

285,444.44

11. Rosalina Navarro

285,444.44

12. Purita Navarro

500,000.00

13. Bayani Navarro

500,000.00

14. Dakila Navarro

500,000.00

15. Leonila Navarro

100,000.00

16. Johnny Navarro

100,000.00

17. Alexander Navarro

100,000.00

18. Soliman Navarro

2,000,000.00

19. Francis Hernandez

C.

Heirs of Patricio dela Cruz

xxx

D.

2,000,000.00

Heirs of Ignacio Arciaga

xxx

xxx

1.

Iluminada Legaspi

2.

Pedro Arciaga

3.

Julia Bergado

304,722.22

4.

Nieves Jover

304,722.22

5.

Teresita Clamaa

304,722.22

6.

Dolores Arciaga

304,722.22

7.

Ernesto Arciaga

304,722.22

E.

1,286,749.30
304,722.22

Heirs of Dionisio Dolleton

1.

Belen Dolleton

1,415,875.84

2.

Lucila Dolleton

100,000.00

3.

Conrado Dolleton

100,000.00

4.

Jerry Dolleton

100,000.00

5.

Evelyn Dolleton

100,000.00

6.

Susana Dolleton

100,000.00

7.

Estrelita Agnabo

100,000.00

8.

Imelda Dolleton

100,000.00

9.

Mateo Dolleton, Jr.

10. Maria Venus Dolleton Gutierrez

250,000.00
250,000.00

11. Mariano Dolleton

250,000.00

12. Rosalina Dolleton

250,000.00

13. Encarnacion Dolleton

500,000.00

14. Dominga Dolleton

250,000.00

15. Hilardo Dolleton

250,000.00

F.

Heirs of Jose Dolleton

1. Isagani Navarro

3,302,585.86

2. William Navarro

2,263,000.00

3. Tanyag Navarro

100,000.00

4. Antonio A. Navarro

100,000.00

5. Leonora Navarro

500,000.00

6. Salud Navarro

500,000.00

7. Rodolfo Navarro

500,000.00

8. Victoria Navarro

500,000.00

9. Rosalina Navarro

500,000.00

10. Ramon Navarro

500,000.00

11. Violeta Navarro

500,00.000

12. Purita Navarro

182,460.00

13. Dakila Navarro

182,460.00

14. Bayani Navarro

182,460.00

15. Leonila Navarro

36,492.00

16. Alexander Navarro

17. Johnny Navarro
18. Soliman Navarro
19. Francis Hernandez

G.

36,492.00
36,492.00
912,300.00
912,300.00

Heirs of Leon Argana

1. Bernardino Argana

922,244.90

2. Benjamin Arciaga

100,000.00

3. Idelfonso Arciaga

100,000.00

4. Luciana Arciaga

100,000.00

5. Pedro Arciaga

100,000.00

6. Erlinda Arciaga

100,000.00

7. Brigida Argana

500,000.00

8. Renato A. Trozado

83,335.00

9. Natividad Marmeto

83,335.00

10. Josephine Trozado Espiritu

83,335.00

11. Teresita Trozado

83,335.00

12. Crecenciano Trozado Feolino

83,335.00

13. Buenaventura Trozado Espiritu

83,335.00

H.

Heirs of Esteban Patuga

1. Bartolome Patuga

1,741,572.23

2. Rodrigo Patuga

554,555.55

3. Reynaldo Patuga

554,555.55

4. Lolita Patuga

554,555.55

5. Ofelia Patuga

554,555.55

6. Maria Patuga

2,347,151.40

7. Remedios Patuga

293,393.93

8. Melchor Patuga

293,393.93

9. Surbino Patuga

293,393.93

10. Ernesto Patuga

3,227,333.30

I.

Others

1. Leopoldo P. Espiritu (financier)

11,000,000.00

2. Hicoblino Catly (attorneys fees)

9,000,000.00

3. Emerita Feolina (agent)

1,500,000.00

4. Esperanza Espiritu (agent)

5. Leopoldo Espiritu (agent)

750,000.00
1,750,000.00

2.2. Second Tranche. The sum of Twenty Million Pesos (P20,000,000.00) shall be
paid to the payees named below ninety (90) days after the date of execution of this
Agreement. Likewise at the request of all the Heirs, the said payment should be broken down as
follow as and when it becomes due:

Payee

Amount

A.
1. Dionisio Ignacio

2,000,000.00

2. William Navarro

2,000,000.00

3. Dionisio Arciaga

500,000.00

4. Iluminada Legaspi

1,700,000.00

5. Belen Dolleton

1,700,000.00

6. Isagani Navarro

4,900,000.00

7. Bernardino Argana

1,700,000.00

8. Bartolome Patuga

2,000,000.00

B.
1. Leopoldo Espiritu

1,500,000.00

2. Hicoblino Catly

1,000,000.00

3. Emerita Feolino

500,000.00

4. Esperanza Espiritu

250,000.00

5. Leopoldo Espiritu

250,000.00

2.3. the Heirs also unqualifiedly declare that their agreement with each other as to the
sharing of the proceeds of the settlement is exclusively between and among themselves, and any
dispute or controversy concerning the same does not affect this Agreement or the Joint Motion for
Judgment Based on Compromise to be signed and filed in court by the parties hereto. Release of
the balance referred to in par. 2.2 hereof by ALI to the Heirs shall completely and absolutely
discharge all of ALIs obligations under the said Joint Motion for Judgment Based on Compromise
to the Heirs.

xxx

xxx

xxx

For one, and with the Decision of the Third Division of the Supreme Court promulgated
on 07 May 2004 in G.R. No. 127079 in the case entitled Ayala Land, Inc. v. William Navarro, et
al., there is no longer any impediment to the resolution of the Joint Motion for Judgment Based on
Compromise dated 09 June 1997. It must be noted that the Court earlier suspended the approval
of the said joint motion in its Order dated 10 June 1997 (a)s there is no written order yet from the
Supreme Court dismissing the appeal in connection with this case. With the above Decision of the
Supreme Court, the subject Order of the Court is deemed moot and academic.

The Joint Motion for Judgment Based on Compromise dated June 9, 1997 and,
necessarily, the Memorandum of Agreement (MOA) dated 13 May 1997 (as amended by the
Amendatory Agreement) which it implements, are approved, there being no showing that they are
contrary to law, public policy or morals.

xxx

xxx

xxx

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

1. The Joint Motion for Judgment Based on Compromise dated 13 May 1997 is hereby
APPROVED, it reflecting the true, valid and lawful terms of settlement agreed upon by the parties
herein and being based on the Memorandum of Agreement also dated 13 May 1997, as amended
by the Amendatory Agreement, that the plaintiffs and the defendant Ayala Land, Inc. have long
bound themselves with and have, in fact, already substantially implemented. Thus, and by reason
thereof, the complaint of the herein plaintiffs against the said defendant is deemed duly disposed
of. Accordingly, the parties to the above agreements are hereby enjoined to observe its terms,
subject to any necessary modifications arising herefrom;

2. The complaints-in-intervention of intervenors Timoteo Arciaga, Porfirio Daen, Estrellita

Londonio and Emerita Feolino are all DISMISSED, with prejudice, for utter lack of merit.
3. Also, the complaint-in-intervention of the heirs of Leon Navarro is DISMISSED, with
prejudice, for having been abandoned and for failure to prosecute the same; and

4. The plaintiffs William Navarro, Dionisio Ignacio, Dionisio Arciaga, Iluminada Legaspi,
Belen Dolleton, Isagani Navarro, Bernardino Argana and Bartolome Patuga are hereby directed to
pay the defendant Ayala Land, Inc. the sum of P563,358.00 as and by way of attorneys fees which
shall be taken from the Second Tranche payment to be made to them, if any, and shall be
deducted from their share pro-rata.

SO ORDERED.[46]

In a Decision dated December 13, 2004, the trial court (per Judge Raul Bautista Villanueva), acting on
petitioner's claim for additional P20,000,000.00 attorneys fees in his Ex-Parte Motion to Issue Writ for Execution of
Judgment dated July 28, 1997 and Ex-Parte Manifestation and Motion dated May 31, 2004, ruled that petitioner can
execute judgment on the additional attorneys fees, but only up to the amount of P1,000,000.00, not the
entire P20,000,000.00. The trial court explained the rationale as follows:

The Court, after taking into account the foregoing, finds that Atty. Catly is entitled to
additional attorney's fees. For one, the Court is convinced that Atty. Catly has duly served the
plaintiffs and protected their interests. The numerous pleadings he filed before the Court, the Court

of Appeals and Supreme Court shows that he pursued the claims of the plaintiffs before the venues
where these were being litigated or assailed. In fact, he was successful in having the petitions of
the defendant dismissed before the Court of Appeals and, eventually, before the Supreme Court
per the Decision promulgated on 07 May 2004.

xxxx

Of course, with the Amendatory Agreement, the payment due to the said persons in the
second tranche is subject to the final decision or resolution of the Las Pias Court in Civil Case
No. 93-3094 on the total amount of attorney's fees that should be paid to Atty. Catly. In such
event, (a)ny balance remaining after the satisfaction of Atty. Catly's claim in accordance with the
decision or resolution of the Las Pias Court shall be paid by ALI (the defendant Ayala Land) to the
Heads of the Families and the Brokers in proportion to the amounts corresponding to them as set
forth in paragraph 2.2 of the MOA xxx.

However, the above notwithstanding, the Court holds that Atty. Catly is not entitled to the full
amount of P20,000,000.00 as awarded to him in the Separate Judgment dated 22 July 1997. To
begin with, the settlement of the herein case resulting in the plaintiffs and the
defendant Ayala Land executing among others, the MOA wherein the total consideration for the
same under the first and second tranches of payment P119,995,630.46 was not due to his own
efforts. The records show that Atty. Catly had no active participation in the negotiations involving
the parties that resulted in their compromise agreement.

More importantly, and despite the legal work he has done, Atty. Catly has not proven yet the
case of the plaintiffs regarding their supposed claim over the property subject hereof. While the
plaintiffs have documents which they used as basis in claiming ownership of the properties of the
defendant, these have not been formally presented in Court. Of course, this is no longer
necessary since the parties agreed to settle among themselves.

xxxx

Admittedly, the clients of Atty. Catly are the original plaintiffs herein, namely, William
Navarro, Dionisio Ignacio, Dionisio Arciaga, Iluminada Legaspi, Belen Dolleton, Ignacio (or Isagani)
Navarro, Bernardino Argana and Bartolome Patuga. Surely, he does not represent the co-heirs of
the plaintiffs who were also included in the compromise agreement or MOA and who shared in the
above settlement price, as well as the brokers or financiers named therein. Thus, he could not base
his claim on the entire amount of about P119,995,630.46.

The fact that Compromise Agreement dated 02 April 2001 was executed by Atty. Catly and
the alleged attorney-in-fact of the plaintiffs is of no moment. For one, this does not include the
other individuals who were named as payees for the second tranche so their share amounting to
about P2.5 million cannot just be given to him. More importantly, the said agreement was never
approved by the Court. As such, it likewise became subject to the Decision dated 07 May
2004 promulgated by the Supreme Court.

Added to this, Atty. Catly benefited immensely from the settlement of the above case
among the plaintiffs and the defendant Ayala Land. In fact, he received more than what some of
the plaintiffs have received. For him to get a total sum of P30,000,000.00 would be downright
unfair, especially since the settlement price of P119,995,630.46 was not entirely allocated to his
clients.

To the Court, getting an additional P20,000,000.00 is grossly unreasonable and

unconscionable. As mentioned above the 25% should not be imposed on the rounded figure
of P120 million, as the payees under the MOA were not just the original plaintiffs, but also about 66
other persons who are not Atty. Catly's clients. There is no contractual basis by which these third
persons can be said to have agreed to share in Atty. Catly's fees. If at all, only the sums to be
received by the original plaintiffs, in the estimated amount of P41.6 million, should be
counted. Twenty five percent of that is near the P10,000,000.00 Atty. Catly had already been paid
or which he has received.

Clearly, and considering the circumstances obtaining herein, Atty. Catly cannot lay claim to
the entire sum of P20,000,000.00 under the second tranche of payment. Instead, the sharing
provided for in the MOA dated 13 May 1997, Atty. Catly should be the one implemented as this was
what the parties really intended. By doing so, the additional attorney's fees due to Atty. Catly is
readily determined. And to the Court, the amount of P1,000,000.00 appearing therein is the proper
fees still due to him considering the payment of P10,000,000.00 he already received and the legal
work he has done with respect to the herein case.

In the end, the Court sees no cogent reason to deprive the original plaintiffs and those
named as recipients of sums in the second tranche provided for in the MOA dated 13 May 1997 of
what are due them and which they are deserving of.

WHEREFORE, the foregoing considered, the Ex-Parte Manifestation and Motion dated 31
May 2004 and the earlier Ex-Parte Motion to Issue Writ for Execution of Judgment dated 28 July
1997, both filed by Atty. Hicoblino M. Catly, are GRANTED, but only up to the extent of executing
the payment of the additional sum of P1,000,000.00 in his favor.

Consequently, and as to the remaining P19,000,000.00 under the second tranche, the
same is ordered released in favor of the original plaintiffs, namely: Dionisio Ignacio, William
Navarro, Dionisio Arciaga, Iluminada Legaspi, Belen Dolleton, Isagani Navarro, Bernardino Argana
and Bartolome Patuga, as well as those others named therein, such as Leopoldo Espiritu, Emerita
Feolino and Esperanza Espiritu, in the respective amounts earmarked for them.

SO ORDERED.[47]

Respondents filed a Motion to Order Defendant to Comply with the Delivery of the Sum Due to Plaintiffs
dated December 21, 2004 seeking payment from respondent ALI the amount of P15,936,642.00 (according to the
notarized order of payment to be submitted by the respondents to respondent ALI, with a copy thereof furnished to
the trial court), net of the P563,358.00 attorneys fees to be taken from the second tranche of payment withheld by
respondent ALI.

On December 29, 2004, petitioner filed a motion for reconsideration of the trial courts Order dated
December 13, 2004 on the ground that there was no factual or legal basis for the trial court to order the release of
the P19,000,000.00 to the respondents and those persons named in the second tranche as the amendatory
agreement between the respondents and respondent ALI had already been approved.

On March 1, 2005, the trial court issued an Order granting the motion of the respondents and denying
petitioner's motion for reconsideration. The trial court stated that:

As to his assertion that the Supreme Court wanted only the Court to determine as to
whether there had been vices of consent, forgery or irregularity in the preparation of the
AMENDATORY AGREEMENT, this is hardly convincing. On the contrary, it is clear in the Decision
of the Third Division of the Supreme Court promulgated on 07 May 2004 in G.R. No. 127079
entitled Ayala Land, Inc. v. William Navarro, et al. that the issue of whether or not Atty. Catly's
attorney's fees is reasonable should be resolved by the trial court. In effect, the Separate
Judgment dated 22 July 1997 will be implemented only after the Court has determined the
propriety of Atty. Hicoblino's attorney's fees of P30,000,000.00 being assailed by both parties
before that court. Having done so in the questioned Order dated 13 December 2004, what
remains to be done now by the Court is to have the same executed.

On the award of attorney's fees in favor of the defendant per the Decision of the Court
dated 01 December 2004, the attempt of Atty. Catly to question the same is misplaced. For one,

this is not the subject of the Order dated 13 December 2004. More importantly, the original
plaintiffs are not assailing the same so much so that with respect thereto it is binding on them.

xxxx

WHEREFORE, the foregoing considered, the Motion to Order Defendant to Comply with
the Delivery of the Sum Due to Plaintiffs dated 21 December 2004 submitted by the original
plaintiffs, namely: William Navarro, Dionisio Ignacio, Dionisio Arciaga, Iluminada Legaspi, Belen
Dolleton, Isagani Navarro, Bernardino Argana and Bartolome Patuga is hereby GRANTED.
Accordingly, let a writ of execution be issued to implement the Separate Judgment dated 22 July
1997, as modified by the Decision of the Supreme Court on 07 May 2004 in G.R. No. 127079, and
pursuant to the Order dated 13 December 2004 wherein they are entitled to the amount
of P14,936,642.00, not P15,936,642.00 as computed by them since the difference
of P1,000,000.00 pertains to the additional fees of Atty. Hicoblino Catly, and less the sum
of P563,358.00 which they recognize as owing to defendant Ayala Land, Inc., out of
the P20,000,000.00 provided for in the Amendatory Agreement dated 27 May 1997, and directing
the said defendant to immediately pay and deliver the aforesaid amount of P14,936,642.00 to the
herein original plaintiffs.

On the Motion for Reconsideration dated 29 December 2004 filed by Atty. Hicoblino Catly,
the same is hereby DENIED for utter lack of merit.

SO ORDERED.[48]

Meanwhile, in the Resolution of December 3, 2008, the Court resolved, among others, to grant the motion to
substitute Lourdes A. Catly, wife of Atty. Catly, as party petitioner in the present case, in view of the death of Atty.
Catly on April 5, 2008, and to require the counsel for petitioner to comply anew with the Resolution dated March 10,
2008 by submitting the new addresses of the respondents, considering that according to the respondents former
counsel, Atty. Patrocinio S. Palanog, he is no longer the counsel of record of the respondents. In view of petitioners
manifestation, through counsel, that all efforts were exerted to locate the addresses of the respondents but to no
avail, the Court issued a Resolution on June 8, 2009 dispensing with the filing by respondents of their comment on
the petition for review on certiorari.

Hence, this present petition for review on certiorari.[49]

Petitioner anchors on the theory that the trial court, now presided by Judge Raul Bautista Villanueva, acted
with grave abuse of discretion amounting to excess of jurisdiction, and that there is no appeal, or any plain, speedy
and adequate remedy available in the ordinary course of law. Petitioner alleges that the trial court erred in reopening
the judgment on compromise entered into by the parties, which was previously approved by the trial courts then
Presiding Judge Florentino M. Alumbres, and already partially executed in its Separate Judgment dated July 22,
1997. Petitioner argues that said judgment has attained final and executory status as respondents did not appeal
from the said judgment nor did they question the Amendatory Agreement dated May 27, 1997. Thus, petitioner prays
that judgment be rendered by this Court setting aside the trial courts Decision dated December 13, 2004 which
reduced the award of the additional attorneys fees to only P1,000,000.00, instead of P20,000,000.00; directing
respondent ALI to immediately release the sum of P20,000,000.00 as additional attorneys fees of petitioner pursuant
to the July 22, 1997 Separate Judgment; and enjoining the trial court from implementing its Order dated March 1,
2005 which denied petitioners motion for reconsideration.

On the other hand, respondent ALI counters that petitioners petition is improper and fatally defective, whether
treated as a petition for review on certiorari under Rule 45 of the Rules of Court or a petition for certiorari under Rule
65, as petitioner does not raise questions of law and that grave abuse of discretion is not an allowable ground under
a Rule 45 petition. It avers that even if the petition is to be treated as one filed under Rule 65, the petition should be
outrightly dismissed for being proscribed under the doctrine of hierarchy of courts, as the petition should have been
filed first with the Court of Appeals, instead of filing it directly with this Court. Respondent ALI also argues that the
trial court correctly reduced the petitioners claim from P20,000,000.00 to P1,000,000.00 as additional attorneys
fees, because the trial court can control or moderate the amount of attorneys fees to be claimed, especially if the
same is found to be excessive and unreasonable.

I. Procedural misstep in filing the petition

Records show that on December 13, 2004, the trial court rendered a Decision finding that petitioner can
execute judgment on the additional attorneys fees but only up to the extent of P1,000,000.00, not the entire amount
of P20,000,000.00 as prayed for in his petition. Petitioner received a copy of the assailed decision on December 22,
2004. Petitioner moved for reconsideration on December 29, 2004, but the same was denied in the trial courts Order
dated March 1, 2005. Petitioner received a copy of the challenged order on March 7, 2005. On March 17, 2005,

instead of appealing the assailed decision and order of the trial court to the Court of Appeals via a notice of appeal
under Section 2(a) of Rule 41 of the Rules, petitioner filed a petition for review on certiorari directly with this Court,
stating that the trial court acted with grave abuse of discretion amounting to an excess of jurisdiction, and that there is
no appeal, or any plain, speedy and adequate remedy available in the ordinary course of law.

This is a procedural misstep. Although denominated as petition for review on certiorari under Rule 45,
petitioner, in questioning the decision and order of the trial court which were rendered in the exercise of its original
jurisdiction, should have taken the appeal to the Court of Appeals within fifteen (15) days from notice of the trial
courts March 1, 2005 Order, i.e., within 15 days counted from March 7, 2005 (date of receipt of the appealed order),
or until March 22, 2005, by filing a notice of appeal with the trial court which rendered the decision and order
appealed from and serving copies thereof upon the adverse party pursuant to Sections 2(a) and 3 of Rule
41. Clearly, when petitioner sought to assail the decision and order of the trial court, an appeal to the Court of
Appeals was the adequate remedy which he should have availed of, instead of filing a petition directly with this
Court.

Even if the petition will be treated as a petition for certiorari under Rule 65, the same should be
dismissed. In Madrigal Transport, Inc. v. Lapanday HoldingsCorporation,[50] which has been often cited in subsequent
cases,[51] the Court declared that where appeal is available to the aggrieved party, the action for certiorari will not be
entertained. Remedies of appeal (including petitions for review) and certiorari are mutually exclusive, not alternative
or successive. Hence, certiorari is not and cannot be a substitute for an appeal, especially if ones own negligence or
error in ones choice of remedy occasioned such loss or lapse. One of the requisites of certiorari is that there be no
available appeal or any plain, speedy and adequate remedy. Where an appeal is available, certiorari will not prosper,
even if the ground therefor is grave abuse of discretion.

Further, the petition should be denied for violation of hierarchy of courts as prior recourse should have been
made to the Court of Appeals, instead of directly with this Court. A direct invocation of the Courts original jurisdiction
to issue writs of certiorari should be allowed only when there are special and important reasons therefor, clearly and
specifically set out in the petition. This is established policy. It is a policy that is necessary to prevent inordinate
demands upon the Courts time and attention which are better devoted to those matters within its exclusive
jurisdiction, and to prevent over-crowding of the Courts docket.[52] As aptly pronounced in Santiago v. Vasquez,[53] the
observance of the hierarchy of courts should be respected as the Court will not entertain direct resort to it unless the
redress desired cannot be obtained in the appropriate court. Thus,

One final observation. We discern in the proceedings in this case a propensity on the part
of petitioner and, for that matter, the same may be said of a number of litigants who initiate
recourses before us, to disregard the hierarchy of courts in our judicial system by seeking relief
directly from this Court despite the fact that the same is available in the lower courts in the exercise
of their original or concurrent jurisdiction, or is even mandated by law to be sought therein. This
practice must be stopped, not only because of the imposition upon the precious time of this Court
but also because of the inevitable and resultant delay, intended or otherwise, in the adjudication of
the case which often has to be remanded or referred to the lower court as the proper forum under
the rules of procedure, or as better equipped to resolve the issues since this Court is not a trier of
facts. We, therefore, reiterate the judicial policy that this Court will not entertain direct resort to it
unless the redress desired cannot be obtained in the appropriate courts or where exceptional and
compelling circumstances justify availment of a remedy within and calling for the exercise of our
primary jurisdiction.

On the contrary, the direct recourse to this Court as an exception to the rule on hierarchy of courts has been
recognized because it was dictated by public welfare and the advancement of public policy, or demanded by the
broader interest of justice, or the orders complained of were found to be patent nullities, or the appeal was
considered as clearly an inappropriate remedy.[54] Considering the merits of the present case, the Court sees the
need to relax the iron clad policy of strict observance of the judicial hierarchy of courts and, thus, takes cognizance
over the case. The trial court, in its Decisions dated December 1, 2004 and December 13, 2004 (per Presiding
Judge Raul Bautista Villanueva), erred in motu proprio modifying the Separate Judgment dated July 22, 1997 (per
Presiding Judge Florentino M. Alumbres) by reducing the entitlement of petitioners additional attorneys fees
from P20,000,000.00 to P1,000,000.00.

II. Merit of the petition

Petitioner insists that when the amendatory agreement was executed among petitioner, respondents, and
respondent ALI and the same was submitted to the trial court for approval, the primordial consideration of the parties
was to honor the 25% contingent attorneys fees agreement as provided in the retainer contract between the
petitioner and his clients (herein respondents).

This argument has factual and legal bases as the trial courts dispositions, in its December 1,
2004 and December 13, 2004 Decision, are erroneous.

Records show that on May 13, 1997, respondents (including therein plaintiffs) and respondent ALI executed
a MOA whereby they agreed to transfer to respondent ALI their rights of ownership over the subject property for a
consideration of P120,000,000.00, with a stipulation therein that the amount of P10,000,000.00, representing
attorneys fees of petitioner, shall be deducted from the amount of P120,000,000.00. Then, the parties filed a Joint
Motion for Judgment Based on Compromise dated May 13, 1997. On May 27, 1997, petitioner, respondents, and
respondent ALI executed an Amendatory Agreement incorporating a provision that, in addition to the P10,000,000.00
attorneys fees, petitioner would also be entitled to the amount of P20,000,000.00 as additional attorneys fees, or a
total amount of P30,000,000.00, subject to the trial courts approval. In the Separate Judgment dated July 22, 1997,
the trial court (through Judge Florentino M. Alumbres) approved the parties Joint Motion for Judgment Based on
Compromise dated May 13, 1997 as the terms and conditions set forth under the Amendatory Agreement was found
to be freely agreed upon and not contrary to law, morals, public order and public policy, and directed respondent ALI
to immediately release the amount of P20,000,000.00 in favor of petitioner as his additional attorneys fees. On July
28, 1997, petitioner filed an Ex-Parte Motion to Issue Writ for Execution of Judgment alleging that the Separate
Judgment dated July 22, 1997 was immediately executory as there was no appeal from such judgment; that said
judgment was rendered in accordance with a compromise agreement, denominated as amendatory agreement,
which was signed by the parties, with the assistance of their respective counsels, and approved by the trial court; and
that a writ be issued for the immediate execution of the said separate judgment. However, the execution of the
judgment did not come to fruition as this Court (Third Division), in G.R. No. 127079, [55] promulgated a Decision
on May 7, 2004 ordering the remand of the case to the trial court to determine with dispatch whether the award
of P30,000,000.00 as petitioners total attorneys fees would be appropriate.

Said case, G.R. No. 127079, pointed out that with the execution of the May 13, 1997 MOA or compromise
agreement and the May 27, 1997 Amendatory Agreement, the parties resolved to settle their differences and put an
end to the litigation, and the trial court (per Presiding Judge Florentino M. Alumbres) had rendered the July 22, 1997
Separate Judgment approving the said Amendatory Agreement. It also explained that with the Separate Judgment of
the trial court approving the parties Amendatory Agreement, therein respondent ALIs petition was denied for being
moot and academic. The reason why the Court ordered the remand of the case to the trial court was for the purpose
of resolving with dispatch the propriety of petitioners attorneys fees of P30,000,000.00 which was being assailed by
the parties.

On December 1, 2004, instead of conducting a hearing to determine the appropriate amount of attorneys
fees that petitioner should be entitled to, the trial court (per Judge Raul Bautista Villanueva rendered a Decision

stating that it approved the parties Joint Motion for Judgment Based on Compromise dated May 13, 1997, dismissed
therein intervenors complaints-in-intervention, and directed respondents to pay respondent ALI the amount
of P563,358.00 by way of attorneys fees to be taken from the second tranche payment and deducted from their prorata share. It provided that with the approval of the parties Joint Motion for Judgment Based on Compromise
dated May 13, 1997, there exists no hindrance to the execution of the said compromise agreement. It stated that the
said motion reflected the true, valid, and lawful terms of settlement agreed upon by the parties pursuant to the MOA
and the amendatory agreement. Later, on December 13, 2004, the trial court (through Presiding Judge Raul Bautista
Villanueva), acting on petitioner's claim for additional P20,000,000.00 attorneys fees in his Ex-Parte Motion to Issue
Writ for Execution of Judgment dated July 28, 1997 and Ex-Parte Manifestation and Motion dated May 31, 2004,
rendered a Decision stating that petitioner can execute judgment only up to the amount of P1,000,000.00, not the
entire P20,000,000.00.

The said Decisions are erroneous. The trial court misrepresented certain facts by making it appear that the
approval of the parties Joint Motion for Judgment Based on Compromise dated May 13, 1997 was a pending incident
that needs to be resolved so as to define the rights of the parties and, thus, proceeded to include it in its Decision
datedDecember 1, 2004. The ruling that it approved the same was a surplusage and inaccurate. There was no need
for the trial court to include in its disposition that it approved the parties Joint Motion for Judgment Based on
Compromise precisely because the same has been earlier approved in the Separate Judgment dated July 22,
1997.

It bears stressing that the Decision dated May 7, 2004 of the Court, in G.R. No. 127079, expressly
acknowledged the existence of the compromise agreement among the parties, designated as MOA and, later, the
amendatory agreement, and also the validity of their Joint Motion for Judgment Based on Compromise which it gave
judicialimprimatur. It mentioned that as to petitioners attorneys fees of P30,000,000.00, while it was the amount
they agreed upon in their MOA and amendatory agreement; however, they are now contesting its
reasonableness. Respondent ALI opposed petitioners motion to execute the compromise judgment on the ground
that his attorneys fees was excessive and unconscionable, while respondents filed with this Court a motion for the
issuance of a temporary restraining order to enjoin the trial court from granting petitioners motion. We declared in
said G.R. No. 127079 that the issue of whether or not petitioners claim for attorneys fees is reasonable should be
resolved by the trial court. Consequently, We denied respondent ALIs petition for being moot and remanded the case
to the trial court for the purpose of resolving with dispatch the propriety of petitioners attorneys fees
of P30,000,000.00 which was being assailed by both parties.

Clearly, in G.R. No. 127079, the Court ordered the trial court to resolve the issue of whether petitioner
should be entitled to the entire amount of P30,000,000.00 (the sum of P10,000,000.00 was already received by the
petitioner, plus the claim of the additional amount of P20,000,000.00). This directive necessarily requires the duty of
the trial court (through Judge Raul Bautista Villanueva) to determine the appropriate amount of additional attorneys
fees to be awarded to petitioner, whether it should be the entire amount of P20,000,000.00 (as claimed by petitioner)
or a reduced amount (as claimed by respondent ALI). If to the mind of the trial court, despite the Separate Judgment
dated July 22, 1997 (per Judge Florentino M. Alumbres) directing respondent ALI to release the amount
of P20,000,000.00 as additional attorneys fees of petitioner, the said amount appears to be unreasonable, then it
should have forthwith conducted a hearing with dispatch to resolve the issue of the reasonable amount of attorneys
fees on quantum meruitbasis and, accordingly, modify the said Separate Judgment dated July 22, 1997 to be
incorporated in the Decision dated December 1, 2004. This is in consonance with the ruling in Roldan v. Court of
Appeals[56] which states:

As a basic premise, the contention of petitioners that this Court may alter, modify or
change even an admittedly valid stipulation between the parties regarding attorney's fees is
conceded. The high standards of the legal profession as prescribed by law and the Canons of
Professional Ethics regulate if not limit the lawyer's freedom in fixing his professional fees. The
moment he takes his oath, ready to undertake his duties first, as a practitioner in the exercise of his
profession, and second, as an officer of the court in the administration of justice, the lawyer submits
himself to the authority of the court. It becomes axiomatic therefore, that power to determine the
reasonableness or the unconscionable character of attorney's fees stipulated by the parties is a
matter falling within the regulatory prerogative of the courts (Panay Electric Co., Inc. v. Court of
Appeals, 119 SCRA 456 [1982]; De Santos v. City of Manila, 45 SCRA 409 [1972]; Rolando v. Luz,
34 SCRA 337 [1970]; Cruz v. Court of Industrial Relations, 8 SCRA 826 [1963]). And this Court
has consistently ruled that even with the presence of an agreement between the parties, the court
may nevertheless reduce attorney's fees though fixed in the contract when the amount thereof
appears to be unconscionable or unreasonable (Borcena v. Intermediate Appellate Court, 147
SCRA 111 [1987]; Mutual Paper Inc. v. Eastern Scott Paper Co., 110 SCRA 481 [1981]; Gorospe v.
Gochango, 106 Phil. 425 [1959]; Turner v. Casabar, 65 Phil. 490 [1938]; F.M. Yap Tico & Co. v.
Alejano, 53 Phil. 986 [1929]). For the law recognizes the validity of stipulations included in
documents such as negotiable instruments and mortgages with respect to attorney's fees in the
form of penalty provided that they are not unreasonable or unconscionable (Philippine Engineering
Co. vs. Green, 48 Phil. 466). (Italics supplied)

The principle of quantum meruit (as much as he deserves) may be a basis for determining the reasonable
amount of attorneys fees. Quantum meruit is a device to prevent undue enrichment based on the equitable
postulate that it is unjust for a person to retain benefit without paying for it. It is applicable even if there was a formal
written contract for attorneys fees as long as the agreed fee was found by the court to be unconscionable. In fixing a
reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit, factors such as the

time spent, and extent of services rendered; novelty and difficulty of the questions involved; importance of the subject
matter; skill demanded; probability of losing other employment as a result of acceptance of the proferred case;
customary charges for similar services; amount involved in the controversy and the benefits resulting to the client;
certainty of compensation; character of employment; and professional standing of the lawyer, may be considered.
[57]

Indubitably entwined with a lawyers duty to charge only reasonable fee is the power of the Court to reduce the

amount of attorneys fees if the same is excessive and unconscionable in relation to Sec. 24, Rule 138 of the
Rules. Attorneys fees are unconscionable if they affront ones sense of justice, decency or unreasonableness.[58]

Verily, the determination of the amount of reasonable attorneys fees requires the presentation of evidence
and a full-blown trial.[59] It would be only after due hearing and evaluation of the evidence presented by the parties
that the trial court can render judgment as to the propriety of the amount to be awarded. The Decision
dated December 1, 2004 did not mention that there was a hearing conducted or that the parties were required to
appear before the trial court or that they submitted pleadings with regard to the issue of reasonableness of the
petitioners attorneys fees. The important thing that the trial court missed out is the fact that what is suspended is
merely the execution of the Separate Judgment dated July 22, 1997, pending the determination of the propriety of the
petitioners attorneys fees. The Decision in G.R. No. 127079 should never be construed as authorizing the trial court
to amend or modify what the parties have set forth in their compromise agreement (in the MOA and Amendatory
Agreement), which was duly approved in the Separate Judgment dated July 22, 1997.

What petitioner sought in his earlier pleadings, i.e., Ex-Parte Motion to Issue Writ for Execution of Judgment
dated July 28, 1997 and Ex-Parte Manifestation and Motion dated May 31, 2004, was the execution and
implementation of the July 22, 1997 Separate Judgment (per Judge Florentino M. Alumbres) which declared that in
view of the terms and conditions agreed upon by the parties under the Amendatory Agreement dated May 27, 1997,
respondent ALI is directed to immediately release the sum of P20,000,000.00 in favor of the petitioner as his
attorneys fees.
The Court is surprised with the trial courts Decision dated December 13, 2004 justifying the reduction of
attorneys fees by stating that to allow petitioner to get the total sum of P30,000,000.00 would be downright unfair,
especially since the settlement price of P119,995,630.46 was not entirely allocated to his clients. The trial court
should have taken the principle of quantum meruit with regard to engagement of petitioner as respondents
counsel vis--vis the concept of compromise agreement entered into by the parties. The amicable settlement
of P120,000,000.00 was paid not only to the 8 respondents, collectively referred to in the amendatory agreement as
Heads of the Families (who had signed a contract engaging petitioner as their counsel), but also to 66 other
individuals (who had no written contract with petitioner, but was assisted by the petitioner in the execution of the MOA

and the Joint Motion for Judgment Based on Compromise). The respondents, designated as Heads of the
Families, represented all the heirs in the case. There was no need for the trial court, in its Decision dated December
1, 2004, to enumerate individually the heirs being represented by herein respondents. Petitioner actively represented
the 8 respondents in their pleadings and other proceedings with the trial court as stipulated in their Contract for Legal
and Other Valuable Services,[60] dated September 3, 1993, which stated that the 8 respondents engaged petitioner to
be their counsel in connection with the 32 hectare land located at Barangay Pugad Lawin, Las Pias; that the said
parcel of land, covered by TCT No. T-5332, was occupied by Las Pias Ventures, Inc.; that the 8 respondents agreed
to institute legal action for annulment of TCT No. T-5332 and recovery of possession with damages against Las Pias
Ventures, Inc.; and that for and in consideration of the legal services rendered by petitioner, the 8 respondents shall,
in proportion to their respective shares, contribute 25% of the total area recovered from Las Pias Ventures, Inc. or
its equivalent in cash upon successful termination of court litigation; and that all litigation expenses shall be on the
account of the petitioners law firm. Hence, what bothers this Court is the failure of the trial court to hear the parties,
so as to render judgment based on the outcome of the hearing and confirm the reasonableness of the attorneys fees
in favor of petitioner.

WHEREFORE, the petition is GRANTED. The Decisions dated December 1, 2004 and December 13,
2004 and the Order dated March 1, 2005 of the Regional Trial Court, Branch 255, Las Pias City, in Civil Case No.
93-3094, are REVERSED and SET ASIDE. The case is REMANDED to the trial court which shall forthwith conduct
hearings with dispatch to resolve the issue of the amount of reasonable attorneys fees, on quantum meruit basis,
that petitioner Hicoblino M. Catly, now deceased and substituted by his wife, Lourdes A. Catly, would be entitled to.

SO ORDERED.

[G.R. No. 136427. December 17, 2002]

SONIA F. LONDRES, ARMANDO V. FUENTES, CHI-CHITA FUENTES QUINTIA, ROBERTO V. FUENTES,

LEOPOLDO V. FUENTES, OSCAR V. FUENTES and MARILOU FUENTES ESPLANA petitioners, vs.
THE COURT OF APPEALS, THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, THE
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, ELENA ALOVERA SANTOS and
CONSOLACION ALIVIO ALOVERA,respondents.
DECISION
CARPIO, J.:

Before us is a petition for review on certiorari[1] of the March 17, 1997 Decision[2] and the November 16, 1998
Resolution[3] of the Court of Appeals in CA-G.R. CV No. 35540 entitledLondres vs. Alovera. The assailed decision
affirmed the validity of the Absolute Sale dated April 24, 1959 vesting ownership of two parcels of land, Lots 1320 and
1333, to private respondents. The same decision also ordered public respondents to pay just compensation to private
respondents. The questioned resolution denied the motion for reconsideration of petitioners.

The Antecedent Facts

The present case stemmed from a battle of ownership over Lots 1320 and 1333 both located in Barrio Baybay,
Roxas City, Capiz. Paulina Arcenas (Paulina for brevity) originally owned these two parcels of land. After Paulinas
death, ownership of the lots passed to her daughter, Filomena VidaI (Filomena for brevity). The surviving children of
Filomena, namely, Sonia Fuentes Londres (Sonia for brevity), Armando V. Fuentes, Chi-Chita Fuentes Quintia,
Roberto V. Fuentes, Leopoldo V. Fuentes and Marilou Fuentes Esplana (petitioners for brevity) now claim
ownership over Lots 1320 and 1333.
On the other hand, private respondents Consolacion Alivio Alovera (Consolacion for brevity) and Elena
Alovera Santos (Elena for brevity) anchor their right of ownership over Lots 1320 and 1333 on the Absolute Sale
executed by Filomena on April 24, 1959 (Absolute Sale for brevity). Filomena sold the two lots in favor of
Consolacion and her husband, Julian Alovera (Julian for brevity). Elena is the daughter of Consolacion and Julian
(deceased).
On March 30, 1989, petitioners filed a complaint for the declaration of nullity of contract, damages and just
compensation. Petitioners sought to nullify the Absolute Sale conveying Lots 1320 and 1333 and to recover just
compensation from public respondents Department of Public Works and Highways (DPWH for brevity) and
Department of Transportation and Communication (DOTC for brevity). The case was raffled to the Regional Trial
Court, Branch 18, Roxas City, Capiz and docketed as Civil Case No. V-5668.
In their Complaint, petitioners claimed that as the surviving children of Filomena, they are the owners of Lots
1320 and 1333. Petitioners claimed that these two lots were never sold to Julian. Petitioners doubt the validity of the
Absolute Sale because it was tampered. The cadastral lot number of the second lot mentioned in the Absolute Sale
was altered to read Lot 1333 when it was originally written as Lot 2034. Petitioners pointed out that Lot 2034, situated
in Barrio Culasi, Roxas City, Capiz, was also owned by their grandmother, Paulina.
Petitioners alleged that it was only recently that they learned of the claim of private respondents when
Consolacion filed a petition for the judicial reconstitution of the original certificates of title of Lots 1320 and 1333 with
the Capiz Cadastre.[4] Upon further inquiry, petitioners discovered that there exists a notarized Absolute Sale
executed on April 24, 1959 registered only on September 22, 1982 in the Office of the Register of Deeds of Roxas
City. The private respondents copy of the Absolute Sale was tampered so that the second parcel of lot sold, Lot 2034
would read as Lot 1333. However, the Records Management and Archives Office kept an unaltered copy of the
Absolute Sale. This other copy shows that the objects of the sale were Lots 1320 and 2034.
In their Answer, private respondents maintained that they are the legal owners of Lots 1333 and 1320. Julian
purchased the lots from Filomena in good faith and for a valid consideration. Private respondents explained that
Julian was deaf and dumb and as such, was placed in a disadvantageous position compared to Filomena. Julian had
to rely on the representation of other persons in his business transactions. After the sale, Julian and Consolacion
took possession of the lots. Up to now, the spouses successors-in-interest are in possession of the lots in the
concept owners. Private respondents claimed that the alteration in the Absolute Sale was made by Filomena to make
it conform to the description of the lot in the Absolute Sale. Private respondents filed a counterclaim with damages.
The cross-claim of petitioners against public respondents was for the recovery of just compensation. Petitioners
claimed that during the lifetime of Paulina, public respondents took a 3,200-square meter portion of Lot 1320. The

land was used as part of the Arnaldo Boulevard in Roxas City without any payment of just compensation. In 1988,
public respondents also appropriated a 1,786-square meter portion of Lot 1333 as a vehicular parking area for the
Roxas City Airport. Sonia, one of the petitioners, executed a deed of absolute sale in favor of the Republic of the
Philippines over this portion of Lot 1333. According to petitioners, the vendee agreed to pay petitioners P214,320.00.
Despite demands, the vendee failed to pay the stipulated amount.
Public respondents in their Answer raised the following defenses: (1) they have no capacity to sue and be sued
since they have no corporate personality separate and distinct from the Government; (2) they cannot comply with
their undertaking since ownership over the portions of land is disputed by private respondents and until the issue of
ownership is settled, petitioners have no cause of action against public respondents; and (3) they are not proper
parties since they were not parties to the Absolute Sale sought to be nullified.
On May 28, 1991, the trial court issued its decision upholding the validity of the Absolute Sale. The dispositive
portion of the decision reads:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered:
1. Declaring the Absolute Sale executed by Filomina Vidal in favor of spouses Julian Alovera and
Consolacion Alivio on April 24, 1959 over subject Lots 1320 and 1333 (Exh. 4) valid and effective;
2. Declaring private defendants Consolacion Alivio Alovera and Elena Alovera Santos legal owners of
subject Lots 1320 and 1333;
3. Ordering public defendants Department of Public Works and Highways and Department of
Transportation and Communications to pay jointly and severally private defendants Consolacion Alivio
Alovera and Elena Alovera Santos just compensation of the 3,200-square meter portion taken by the
government from subject Lot 1320 used as part of the Arnaldo Boulevard in Roxas City, and the 1,786square meter portion also taken by the government from subject Lot 1333 to be used as vehicle
parking area of the Roxas City Airport; and
4. Ordering the dismissal of the complaint for lack of merit.
The cross-claim of private defendants against public defendants and private defendants counterclaim for damages
against the plaintiffs are likewise ordered dismissed. Costs against plaintiffs.
SO ORDERED.[5]
Petitioners and private respondents appealed. On March 17, 1997, the Court of Appeals promulgated its
decision affirming the decision of the trial court, thus:
PREMISES CONSIDERED, the decision appealed from is hereby AFFIRMED.
SO ORDERED.[6]
On November 16, 1998, the Court of Appeals denied the respective motions for reconsideration of petitioners
and private respondents. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the two motions for reconsideration are hereby DENIED.
SO ORDERED.[7]

The Ruling of the Trial Court

The trial court ruled that the Absolute Sale is valid based on the following facts:
First, the description of subject Lot 1333, as appearing in the Absolute Sale dated April 24, 1959 executed by
Filomena Vidal in favor of spouses Julian Alovera and Consolacion Alivio (Exhs. 24 and 24-A), reads:
2) A parcel of land (Lot No. 1333 of the Cadastral Survey of Capiz), with the improvements thereon, situated in the
Barrio of Baybay, Municipality of Capiz (now Roxas City). Bounded on the N. by the property of Nemesio Fuentes; on
the S. by the property of Rufo Arcenas; on the E. by the property of Mateo Arcenas; and on the W. by the property of
Valeriano Arcenas; containing an area of Eighteen Thousand Five Hundred Fifty Seven (18,557) square meters,
more or less. This parcel of land is all rice land and the boundaries thereon are visible consisting of stone
monuments erected thereon by the Bureau of Lands. It is declared under Tax Dec. No. 336 in the name of Filomena
Vidal and assessed at P930.00.
In the Absolute Sale executed by the same parties on the same date, the above-quoted description is the same
except the lot number, i.e., instead of the figure 1333 what is written therein is the figure 1320;
Second, subject Lot 1333 is situated in Barangay Baybay, Roxas City, whereas Lot 2034 which is the second lot
subject of the questioned absolute sale is situated in Barangay Culasi, Roxas City as evidenced by a certified
true/xerox copy of a sketch plan (Exh. 29) thereby indicating that said Lot 2034 in said Barangay Culasi (Exh. 29-A).
Third, Lot 2034 was previously owned by Jose Altavas (Exhs, 38 and 38-A) and later is owned in common by
Libertad Altavas Conlu, et al. (Exhs. 37 and 37-A) and there is no convincing evidence showing that this lot was ever
owned, at one time or another, by Paulina Arcenas or by Filomena Vidal or by plaintiffs, or their predecessors-ininterest;
Fourth, the two lots have been the subject of the transactions made by their former owner, Filomena Vidal, with some
persons, including spouses Julian Alovera and defendant Consolacion Alivio;
Fifth, the subject two lots have been continuously worked on since the early 1950s up to the present by Alejandro
Berlandino, and later by his son, Zosimo Berlandino, who were instituted therein as tenants by Julian Alovera and the
private defendants;
Sixth, these two lots have never been in the possession of the plaintiffs.[8]
The trial court further noted that while petitioners and private respondents claimed that Lots 1320 and 1333 are
titled, both failed to account for the certificates of title. The trial court then concluded that there is merely a disputable
presumption that Lots 1320 and 1333 are titled and covered by certificates of title. The trial court further declared that
ownership over the two lots can still be acquired by ordinary prescription as in this case.
Private respondents and their predecessors-in-interest have been in continuous possession of Lots 1320 and
1333 for nearly 30 years in good faith and with just title. The tax declarations issued in the name of Consolacion and
the real estate taxes paid by private respondents are strong evidence of ownership over Lots 1320 and 1333.
Petitioners late filing of the complaint, 30 years after the execution of the Absolute Sale or seven years after the
registration of the same, was considered by the trial court as laches.
The trial court gave more credence to the explanation of private respondents as to why the Absolute Sale was
altered. Consolacion noticed that the lot number of the second parcel of and sold to them by Filomena under the
Absolute Sale appeared to be Lot 2034 and not Lot 1333. Together with her husband, Julian, Consolacion went to

Filomena. It was Filomena who erased Lot 2034 in the deed of sale and changed it to Lot 1333. However, the
copies of the document in the custody of the Notary Public were not correspondingly corrected. Consequently, the
copies kept by the Records Management and Archives Office still referred to the second parcel of land sold as Lot
2034.
Based on its factual findings, the trial court held that private respondents are the legal owners of Lots 1320 and
1333. Private respondents are therefore entitled to just compensation for the portions of land taken by public
respondents from the two lots. However, the trial court ruled that private respondents could not recover attorneys
fees since there was no indication that the complaint was maliciously filed and intended to prejudice private
respondents. The trial court held that petitioners filed the action in good faith, believing that they were the real owners
of the two lots.

The Ruling of the Court of Appeals

The Court of Appeals sustained the factual findings of the trial court, specifically the six points enumerated by
the trial court establishing Lots 1320 and 1333 as the objects of the Absolute Sale. Applying Article 1370 of the Civil
Code,[9] the Court of Appeals agreed with the trial court that there could be no room for interpretation as to the
intention of the parties on the objects of their contract.
The Court of Appeals upheld the ruling of the trial court that private respondents are not entitled to attorneys
fees and damages. The Court of Appeals opined that while there might have been incipient greed when the DPWH
and DOTC notified petitioners of the just compensation from the government, there was, however, no evidence that
petitioners filed the complaint in bad faith. There was nothing in the records to indicate that petitioners had actual or
constructive knowledge of the sale of the two lots to Julian. The document on file with the Records Management
archives Office alluded to a parcel of land denominated as Lot 2034 which is different from the property in question,
Lot 1333. It was only during the hearing of the case that it was made clear through the presentation of evidence that
the lot referred to in the Absolute Sale was Lot 1333, not Lot 2034, in addition to Lot 1320.
The Issues
Petitioners thus interposed this appeal, raising the following errors allegedly committed by the Court of Appeals:
I.
THE COURT OF APPEALS ACTED WITH PATENT GRAVE ABUSE OF DISCRETION IN NOT REVERSING THE
DECISION OF THE TRIAL COURT, INSOFAR AS IT DECLARED VALID AND EFFECTIVE AN ABSOLUTE SALE,
PURPORTEDLY EXECUTED BY FILOMENA VIDAL, PREDECESSOR-IN-INTEREST OF PETITIONERS, IN FAVOR
OF PRIVATE RESPONDENT CONSOLACION ALIVIO AND HER SPOUSE, JULIAN ALOVERA, ON 24 APRIL 1959,
OVER SUBJECT LOTS 1320 AND 1333.
II.
THE COURT OF APPEALS ACTED WITH PATENT GRAVE ABUSE OF DISCRETION IN NOT REVERSING THE
DECISION OF THE TRIAL COURT, INSOFAR AS IT DECLARED PRIVATE RESPONDENTS LEGAL OWNERS OF
SUBJECT LOTS 1320 AND 1333.
Ill.
THE COURT OF APPEALS ACTED WITH PATENT GRAVE ABUSE OF DISCRETION IN NOT REVERSING THE
DECISION OF THE TRIAL COURT, INSOFAR AS IT RULED THAT THE COMPENSATION FOR PORTIONS OF

THE SUBJECT LOTS TAKEN BY THE PUBLIC RESPONDENTS BE PAID TO THE PRIVATE RESPONDENTS AND
NOT TO THE PETITIONERS.
IV.
THE COURT OF APPEALS ACTED WITH PATENT GRAVE ABUSE OF DISCRETION IN NOT REVERSING THE
DECISION OF THE TRIAL COURT, INSOFAR AS IT DISMISSED THE COMPLAINT IN CIVIL CASE NO. V-5668,
RTC-ROXAS CITY, BRANCH 18.[10]
The Courts Ruling
At the outset, it must be pointed out that this petition was seasonably filed, contrary to private respondents
contention that it was filed one day late. Petitioners had until January 17, 1999 to file this petition, which was a
Sunday. Since the last day for filing this petition fell on a Sunday, the time to file the petition would not have run until
the next working day.[11]Petitioners filed the petition the next working day, January 18, 1999. Plainly then, the petition
was filed on time.
The petition, however, must fail on substantive grounds.
Petitioners implore the Court to declare the Absolute Sale void for failing to identify with certainty the two
parcels of land sold by Filomena, their mother, to private respondents. However, there is no valid ground for annulling
the Absolute Sale. The Absolute Sale is clear as to the first parcel of lot sold, which is Lot 1320. What raises some
doubt is the identity of the second parcel of lot sold, Is it Lot 2034 as indicated in the registered copy of the Absolute
Sale? Or is it Lot 1333 as made to appear in the copy of the Absolute Sale of private respondents?
In civil cases, the party with the burden of proof must establish his case by a preponderance of evidence. [12] By
preponderance of evidence is meant that the evidence as a whole adduced by one side is superior to that of the
other.[13] Petitioners have the burden of proving that Lot 2034 was the real object of the Absolute Sale and the
alteration of the same instrument was unauthorized, warranting the absolute nullification of the sale. The trial court
and the Court of Appeals found the evidence of private respondents far more convincing in explaining the alteration in
their copy of the Absolute Sale. Both courts ruled that the correction was made by the parties to reflect the true object
of the sale, which was Lot 1333, not Lot 2034. In arriving at this conclusion, the two courts considered
contemporaneous and subsequent acts that indicate that what Filomena actually sold to private respondents were
Lots 1320 and 1333. These factual findings are binding upon the Court.[14]
As a rule, the appellate jurisdiction of the Court is limited only to question of law. [15] There is a question of law in
a given case when the doubt or difference arises as to what the law is given a certain set of facts, and there is a
question of fact when the doubt arises as to the truth or the falsity of the alleged facts. [16] No exceptional
circumstances are present in this case that would justify a re-evaluation of the factual findings of the trial court and
the Court of Appeals, findings that are duly supported by evidence of record.
Petitioners insist that there is serious doubt as to the identity of the objects of the Absolute Sale because the
descriptions of Lots 1320 and 1333 in the Absolute Sale do not correspond to the technical descriptions of the two
lots as found by the Bureau of Lands. Petitioners direct the Courts attention to these discrepancies:
TECHNICAL DESCRIPTION[17]
Lot 1320, Cad-I 33,
C-01 Capiz Cadastre, Ap-06-004023
A PARCEL OF LAND (Lot 1320, Cad-133, C01, Capiz Cadastre, Ap-06-004023, situated in

DESCRIPTION PER ABSOLUTE SALE

1) A parcel of land (Lot No. 1320 of the Cadastral

Survey of Capiz), with the improvements thereon,
situated in the Barrio of Baybay, Municipality of

the barrio of Baybay, municipality of Capiz (Now

Roxas City), province of Capiz, island of Panay.
Bounded on the NE., along line 1-2 by Lot
1327; along line 2-3 by Lot 1328; along line 3-4
by Lot 1329; on the E., along line 4-5 by Lot
1326; on and the S., along line 5-6 by Lot 1325;
along lines 6-7-8 by Lot 1321; on the W., along
line 8-9 by Lot 1295; on the NW., along lines 910-11 by Lot 1319; along line 11-12 by Lot 1318;
along line 12-13 by Lot 1328; on the NE., along
line 13-1 by Lot 1327, all of Cad-133, Capiz
Cadastre.

Capiz(now Roxas City).

Bounded on the N. by the property of Matea Arcenas;
on the S. by the property of Roque Severino; on the E.
by the property of Matea Arcenas; the W. by the
property of Damaso Arches;
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Beginning at point marked 1 on plan being N.

88-28 W., 651.78 meters from BBM No. 12, Cad133, Capiz Cadastre, thence
N. 85-01 E., 23.00 m. to point 2;
N. 83-40E., 19.03m. to point 4;
S. 84-22W., 61.31 m. to point 6;
S. 83-00 W., 145.33 m. to point 8;
N. 87-42 E., 26.49 m. to point 10;
N. 83-07 E., 31.86 m. to point 12;
N. 83-09 E., 76.04 m. to point 13;
S. 07-04E., 41. 88 m. to point 1.
Point of beginning;

Containing an area of TWENTY FIVE THOUSAND

SEVEN HUNDRED SEVENTY FIVE (25,775)
SQUARE METERS, more or less.

TECHNICAL DESCRIPTION[18]
Lot 1333, Cad-I 33, C-01
Capiz Cadastre, Ap-06-004022
A PARCEL OF LAND (Lot 1333, Cad-133, C-01, Capiz
Cadastre, Ap-06-004022, situated in the barrio of
Baybay, municipality of Capiz (now Roxas City),

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containing an area of THIRTY THOUSAND NINE
HUNDRED FORTY FOUR (30,944) SQUARE
METERS, more or less. This parcel of land is all
rice land and the boundaries thereon are visible
consisting of stone monuments erected thereon
by the Bureau of Lands. It is declared under Tax
Dec. No. 4338 in the name of Filomena Vidal and
assessed at P1,550.00.

DESCRIPTION PER ABSOLUTE SALE

2) A parcel of land (Lot No. 1333 of the Cadastral

Survey of Capiz), with the Improvements thereon,
situated in the Barrio of Baybay, Municipality of Capiz

province of Capiz, island of Panay.

(now Roxas City).

Bounded on the SE., along line 1-2 by Lot 1330; on the

W., & NW., along lines2-3-4-5 by Lot 1329; on the NW.,
along line 5-6 by Lot 1334; along line 6-7 by Lot 1335;
on the NE., & SE., along lines 7-8-1 by Lot 1332; all of
Cad-133, Capiz Cadastre.

Bounded on the N. by the property of Nemesio

Fuentes; on the S. by the property of Rufo Arcenas; on
the E. by the property of Matea Arcenas; and on the W.
by the property of Valeriano Arcenas;

Beginning at a point marked 1 on plan being N. 7844., 326.64 meters from BBM No. 12, Cad-133, Capiz
Cadastre, thence
S. 81-42 W., 59.67 meters to point 2;
N. 07-36 W., 46.62 meters to point 3;
N. 82-34 E., 84.29 meters to point 4;
N. 09-13 W., 40-05 meters to point 5;
N. 82-57 E., 59.24 meters to point 6;
N. 81-48 E., 18.71 meters to point 7;
S. 03-30 E., 95.46 meters to point 8;
S. 82-57 W., 94.35 meters to point 1;
Point of beginning.

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Containing an area of TEN THOUSAND

EIGHT HUNDRED SIXTY less.

containing an area of EIGHTEEN THOUSAND FIVE

HUNDRED FIFTY (10,860) SQUARE METERS, more
orSEVEN (18,557) SQUARE METERS, more or less.
This parcel of land is all rice land and the boundaries
thereon are visible consisting of stone monuments
erected thereon by the Bureau of Lands. It is declared
under Tax Dec. No. 4336 in the name of Filomena Vidal
and assessed at P930.00.

We are not persuaded. Petitioners rely on the technical descriptions of Lots 1320 and 1333 that were issued by
the Bureau of Lands on November 8, 1988. It must be pointed out that when private respondents and Filomena
executed the sale in 1959, they based the description of the two lots on the tax declarations of Filomena. Early tax
declarations are, more often than not, based on approximation or estimation rather than on computation.[19] This is

understandably so because of the absence then of technical knowledge in the accurate measurement of lands.
[20]
What really defines a piece of land is not the area mentioned in its description, but the boundaries therein laid
down, as enclosing the land and indicating its limits.[21] In this case, the boundaries of the two lots are sufficiently
designated in the Absolute Sale, leaving no room to doubt the identity of the objects of the sale.
Petitioners anchor their right of ownership over Lots 1320 and 1333 as the sole heirs of their mother, Filomena,
who previously owned the lots. However, Filomena had already ceded her right of ownership over Lots 1320 and
1333 to private respondents when she executed the Absolute Sale. A sale of real property is a contract transferring
dominion and other real rights in the thing sold. [22] Proof of the conveyance of ownership is the fact that from the time
of the sale, or after more than 30 years, private respondents have been in possession of Lots 1320 and 1333.
Petitioners on the other hand have never been in possession of the two lots.
Filomena died sometime in 1985[23] and petitioners instituted the complaint four years after Filomenas death. It
is unthinkable for Filomena to have allowed private respondents to enjoy ownership of Lots 1320 and 1333 if she
never really intended to sell the two lots to private respondents or if she had Lot 2034 in mind when she signed the
Absolute Sale. In the first place, Lot 2034 could not have been contemplated by the parties since this parcel of land
was never owned by Filomena, or by her mother, Paulina. Secondly, Lot 2034 does not fit the description of the
second parcel of lot mentioned in the Absolute Sale. The Absolute Sale describes the second lot as located in
Barangay Baybay, Roxas City. Lot 2034 is situated in Barangay Culasi, Roxas City.
In resolving the similar case of Atilano vs. Atilano,[24] where there was also a mistake in the designation of the
lot number sold, the Court took into account facts and circumstances to uncover the true intentions of the parties. The
Court held that when one sells or buys real property, one sells or buys the property as he sees it, in its actual setting
and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title. As long
as the true intentions of the parties are evident, the mistake will not vitiate the consent of the parties, or affect the
validity and binding effect of the contract between them. In this case, the evidence shows that the designation of the
second parcel of land sold as Lot 2034 was merely an oversight or a typographical error. The intention of the parties
to the Absolute Sale became unmistakably clear when private respondents, as vendees, took possession of Lots
1320 and 1333 in the concept of owners without the objection of Filomena, the vendor.
Petitioners harp on the fact that the notarized and registered copy of the Absolute Sale should have, been
correspondingly corrected. Petitioners believe that the notarized and archived copy should prevail. We disagree. A
contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the
contract and upon the price.[25]Being consensual, a contract of sale has the force of law between the contracting
parties and they are expected to abide in good faith with their respective contractual commitments. [26]Article 1358 of
the Civil Code, which requires certain contracts to be embodied in a public instrument, is only for convenience, and
registration of the instrument is needed only to adversely affect third parties. [27] Formal requirements are, therefore,
for the purpose of binding or informing third parties. [28] Non-compliance with formal requirements does not adversely
affect the validity of the contract or the contractual rights and obligations of the parties.[29]
Petitioners fault the trial court for declaring that Lots 1333 and 1320 can be acquired by prescription even
though these lots are already covered by certificates of title. The real issue in this case is the true intentions of the
parties to the Absolute Sale, not adverse possession. The decisions of the trial court and the Court of Appeals are
clear on this point. In fact, the Court of Appeals no longer dealt with the issue of acquisitive prescription since it was
already convinced that private respondents right over Lots 1333 and 1320 emanates from the Absolute Sale.
In a desperate bid to compel the Court to disregard the evidence of private respondents, petitioners question
the admissibility of the testimony of Consolacion on the ground that it violates the Dead Mans Statute. Petitioners
contend that Consolacions testimony as to how the alteration of the Absolute Sale took place should have been
disregarded since at the time that Consolacion testified, death had already sealed the lips of Filomena, precluding
petitioners from refuting Consolacions version.
The contention is without basis. The Dead Mans Statute then embodied in Section 20 (a) of Rule 130 of the
1988 Rules of Court provides:

SEC. 20. Disqualification by reason of interest or relationship. - The following persons cannot testify as to matters in
which they are interested, directly or indirectly, as herein enumerated:
(a) Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an executor
or administrator or other representative of a deceased person, or against a person of unsound mind, upon a claim or
demand against the estate of such deceased person or against such person of unsound mind, cannot testify as to
any matter of fact occurring before the death of such deceased person or before such person became of unsound
mind;
xxx
The foregoing prohibition applies to a case against the administrator or representative of an estate upon a claim
against the estate of the deceased person.[30] The present case was not filed against the administrator of the estate,
nor was it filed upon claims against the estate since it was the heirs of Filomena who filed the complaint against
private respondents. Even assuming that Consolacions testimony was within the purview of the Dead Mans Statute,
the fact that the counsel of petitioners failed to timely object to the admissibility of Consolacions testimony is a waiver
of the prohibition.[31] The waiver was made more evident when the counsel of petitioners cross-examined
Consolacion.[32] Petitioners cannot now invoke the rule they knowingly waived.
From the time of the execution of the Absolute Sale on April 24, 1959, private respondents became the owners
of Lots 1320 and 1333. The expropriation of any portion of the two lots from the time of the execution of the Absolute
Sale would necessarily entitle private respondents to the payment of just compensation. We cannot, however, agree
with the trial court and the Court of Appeals that public respondents could be ordered to pay private respondents just
compensation in the same suit. Public respondents were impleaded in this case when petitioners filed a cross-claim
against them for just compensation. The cross-claim should have been dismissed, as it does not comply with Section
7 of Rule 6 of the 1988 Rules of Court. The rule provides:
SEC. 7. Cross-claim. A cross-claim is any claim by one party against a co-party arising out of the transaction or
occurrence that is the subject matter either of the original action or of a counterclaim therein. Such cross-claim may
include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a
claim asserted in the action against the cross-claimant.
Based on the foregoing rule, the cross-claim is proper only when:
1. It arises out of the subject matter of the complaint.
2.

It is filed against a co-party.

3.

The cross-claimant stands to be prejudiced by the filing of the action against him.[33]

The three requisites are absent in this case. The cross-claim for just compensation is a new matter raising a
new cause of action that must be litigated in a separate action, not in the same action for the nullification of contract.
The purpose of a cross-claim is to avoid multiplicity of suits. [34] Multiplicity of suits should be avoided if the filing of a
separate and independent action to recover a claim would entail proving exactly the same claim in an existing action.
[35]
However, when the causes of action are distinct and separate from each other, as in this case, the independent
interest should be pursued in another proceeding.[36] Also, petitioners and public respondents are not co-parties as
they are not co-plaintiffs. Lastly, petitioners, as cross-claimants, would not be prejudiced by the filing of the action
since they are the plaintiffs in this case.
At any rate, private respondents are not left without any recourse. They can file their claim for compensation
with the proper government agency. Public respondent DPWH in its Comment points out that it is now public

respondent DOTC that has jurisdiction over the claim for compensation since the portions of the properties subject of
this case were taken to form part of the parking area of the Roxas Airport. [37] In the same Comment, public
respondent DPWH concedes that they have never denied their obligation from the very beginning of this case.
[38]
Public respondents were only constrained to withhold payment of just compensation as the reel owners of the lots
In question were yet to be declared by the Court. Since the issue of ownership has been settled, private respondents
can now rightfully claim just compensation for the portions of Lots 1320 and 1333 taken by the government after the
execution of the Absolute Sale.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 35540 is hereby AFFIRMED with the
MODIFICATION that the cross-claim against public respondents is DISMISSED. Costs against petitioners.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago and Azcuna, JJ., concur.

SPS. ANTONIO & LETICIA VEGA,

G.R. No. 181672

Petitioner,
Present:

CARPIO, J., Chairperson,

- versus -

PERALTA,
BERSAMIN,*
ABAD, and
PEREZ,** JJ.

SOCIAL SECURITY SYSTEM (SSS)

& PILAR DEVELOPMENT

Promulgated:

CORPORATION,
Respondents.

September 20, 2010

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

DECISION
ABAD, J.:

This case is about the lack of authority of a sheriff to execute upon a property that the judgment obligor had
long sold to another although the registered title to the property remained in the name of the former.

The Facts and the Case

Magdalena V. Reyes (Reyes) owned a piece of titled land[1] in Pilar Village, Las Pias City. On August 17,
1979 she got a housing loan from respondent Social Security System (SSS) for which she mortgaged her land. [2] In
late 1979, however, she asked the petitioner spouses Antonio and Leticia Vega (the Vegas) to assume the loan and
buy her house and lot since she wanted to emigrate.[3]

Upon inquiry with the SSS, an employee there told the Vegas that the SSS did not approve of members
transferring their mortgaged homes. The Vegas could, however, simply make a private arrangement with Reyes
provided they paid the monthly amortizations on time. This practice, said the SSS employee, was commonplace.
[4]

Armed with this information, the Vegas agreed for Reyes to execute in their favor a deed of assignment of real

property with assumption of mortgage and paid Reyes P20,000.00 after she undertook to update the amortizations
before leaving the country. The Vegas then took possession of the house in January 1981.[5]

But Reyes did not readily execute the deed of assignment. She left the country and gave her sister, Julieta
Reyes Ofilada (Ofilada), a special power of attorney to convey ownership of the property. Sometime between 1983
and 1984, Ofilada finally executed the deed promised by her sister to the Vegas. Ofilada kept the original and gave
the Vegas two copies. The latter gave one copy to the Home Development Mortgage Fund and kept the other.
[6]

Unfortunately, a storm in 1984 resulted in a flood that destroyed the copy left with them.[7]

In 1992, the Vegas learned that Reyes did not update the amortizations for they received a notice to Reyes
from the SSS concerning it.[8] They told the SSS that they already gave the payment to Reyes but, since it appeared
indifferent, on January 6, 1992 the Vegas updated the amortization themselves and paid P115,738.48 to the SSS,
through Antonio Vegas personal check.[9] They negotiated seven additional remittances and the SSS
accepted P8,681.00 more from the Vegas.[10]

Meanwhile, on April 16, 1993 respondent Pilar Development Corporation (PDC) filed an action for sum of
money against Reyes before the Regional Trial Court (RTC) ofManila in Civil Case 93-6551. PDC claimed that
Reyes borrowed from Apex Mortgage and Loans Corporation (Apex) P46,500.00 to buy the lot and construct a house
on it.[11] Apex then assigned Reyes credit to the PDC on December 29, 1992, [12] hence, the suit by PDC for the
recovery of the unpaid debt. On August 26, 1993 the RTC rendered judgment, ordering Reyes to pay the PDC the
loan of P46,398.00 plus interest and penalties beginning April 11, 1979 as well as attorneys fees and the costs.
[13]

Unable to do so, on January 5, 1994 the RTC issued a writ of execution against Reyes and its Sheriff levied on

the property in Pilar Village.[14]

On February 16, 1994 the Vegas requested the SSS to acknowledge their status as subrogees and to give
them an update of the account so they could settle it in full. The SSS did not reply. Meantime, the RTC sheriff
published a notice for the auction sale of the property on February 24, March 3 and 10, 1994. [15] He also served on
the Vegas notice of that sale on or about March 20, 1994.[16] On April 5, 1994, the Vegas filed an affidavit of third
party claimant and a motion for leave to admit a motion in intervention to quash the levy on the property.[17]

Still, stating that Vegas remedy lay elsewhere, the RTC directed the sheriff to proceed with the execution.
[18]

Meantime, the Vegas got a telegram dated August 29, 1994, informing them that the SSS intended to foreclose

on the property to satisfy the unpaid housing debt of P38,789.58.[19] On October 19, 1994 the Vegas requested the
SSS in writing for the exact computation of the indebtedness and for assurance that they would be entitled to the
discharge of the mortgage and delivery of the proper subrogation documents upon payment. They also sent
a P37,521.95 managers check that the SSS refused to accept.[20]

On November 8, 1994 the Vegas filed an action for consignation, damages, and injunction with application
for preliminary injunction and temporary restraining order against the SSS, the PDC, the sheriff of RTC Branch 19,
and the Register of Deeds before the RTC of Las Pias in Civil Case 94-2943. Still, while the case was pending, on
December 27, 1994 the SSS released the mortgage to the PDC. [21] And on August 22, 1996 the Register of Deeds
issued TCT T-56657 to the PDC.[22] A writ of possession subsequently evicted the Vegas from the property.

On May 8, 2002 the RTC decided Civil Case 94-2943 in favor of the Vegas. It ruled that the SSS was barred
from rejecting the Vegas final payment of P37,521.95 and denying their assumption of Reyes debt, given the SSS
previous acceptance of payments directly from them. The Vegas were subrogated to the rights of Reyes and

substituted her in the SSS housing loan and mortgage contract. That the Vegas had the receipts show that they
were the ones who made those payments. The RTC ordered the PDC to deliver to the Vegas the certificate of title
covering the property. It also held the SSS and PDC solidarily liable to the Vegas for P300,000.00 in moral
damages, P30,000.00 in exemplary damages, and P50,000.00 in attorneys fees and for costs of the suit.[23]

The SSS appealed to the Court of Appeals (CA) in CA G.R. CV 77582. On August 30, 2007 the latter court
reversed the RTC decision[24] for the reasons that the Vegas were unable to produce the deed of assignment of the
property in their favor and that such assignment was not valid as to PDC. Their motion for reconsideration having
been denied, the Vegas filed this petition for review on certiorari under Rule 45.[25]

The Issues Presented

The issues in this case are:

1.

Whether or not the Vegas presented adequate proof of Reyes sale of the subject property to them;

2.

In the affirmative, whether or not Reyes validly sold her SSS-mortgaged property to the Vegas; and

3.
In the affirmative, whether or not the sheriff validly sold the same at public auction to satisfy Reyes
debt to PDC.

The Rulings of the Court

One. The CA ruled that the Vegas were unable to prove that Reyes assigned the subject property to them,
given that they failed to present the deed of assignment in their favor upon a claim that they lost it. [26] But the rule
requiring the presentation of the original of that deed of assignment is not absolute. Secondary evidence of the
contents of the original can be adduced, as in this case, when the original has been lost without bad faith on the part
of the party offering it.[27]

Here, not only did the Vegas prove the loss of the deed of assignment in their favor and what the same
contained, they offered strong corroboration of the fact of Reyes sale of the property to them. They took possession
of the house and lot after they bought it. Indeed, they lived on it and held it in the concept of an owner for 13 years
before PDC came into the picture. They also paid all the amortizations to the SSS with Antonio Vegas personal
check, even those that Reyes promised to settle but did not. And when the SSS wanted to foreclose the property,
the Vegas sent a managers check to it for the balance of the loan. Neither Reyes nor any of her relatives came
forward to claim the property. The Vegas amply proved the sale to them.

Two. Reyes acquired the property in this case through a loan from the SSS in whose favor she executed a
mortgage as collateral for the loan. Although the loan was still unpaid, she assigned the property to the Vegas
without notice to or the consent of the SSS. The Vegas continued to pay the amortizations apparently in Reyes
name. Meantime, Reyes apparently got a cash loan from Apex, which assigned the credit to PDC. This loan was not
secured by a mortgage on the property but PDC succeeded in getting a money judgment against Reyes and had it
executed on the property. Such property was still in Reyes name but, as pointed out above, the latter had disposed
of it in favor of the Vegas more than 10 years before PDC executed on it.

The question is: was Reyes disposal of the property in favor of the Vegas valid given a provision in the
mortgage agreement that she could not do so without the written consent of the SSS?

The CA ruled that, under Article 1237[28] of the Civil Code, the Vegas who paid the SSS amortizations except
the last on behalf of Reyes, without the latters knowledge or against her consent, cannot compel the SSS to
subrogate them in her rights arising from the mortgage. Further, said the CA, the Vegas claim of subrogation was
invalid because it was done without the knowledge and consent of the SSS as required under the mortgage
agreement.[29]

But Article 1237 cannot apply in this case since Reyes consented to the transfer of ownership of the
mortgaged property to the Vegas. Reyes also agreed for the Vegas to assume the mortgage and pay the balance of
her obligation to SSS. Of course, paragraph 4 of the mortgage contract covering the property required Reyes to
secure SSS consent before selling the property. But, although such a stipulation is valid and binding, in the sense
that the SSS cannot be compelled while the loan was unpaid to recognize the sale, it cannot be interpreted as
absolutely forbidding her, as owner of the mortgaged property, from selling the same while her loan remained

unpaid. Such stipulation contravenes public policy, being an undue impediment or interference on the transmission
of property.[30]

Besides, when a mortgagor sells the mortgaged property to a third person, the creditor may demand from
such third person the payment of the principal obligation. The reason for this is that the mortgage credit is a real right,
which follows the property wherever it goes, even if its ownership changes. Article 2129[31] of the Civil Code gives the
mortgagee, here the SSS, the option of collecting from the third person in possession of the mortgaged property in
the concept of owner.[32] More, the mortgagor-owners sale of the property does not affect the right of the registered
mortgagee to foreclose on the same even if its ownership had been transferred to another person. The latter is
bound by the registered mortgage on the title he acquired.

After the mortgage debt to SSS had been paid, however, the latter had no further justification for withholding
the release of the collateral and the registered title to the party to whom Reyes had transferred her right as
owner. Under the circumstance, the Vegas had the right to sue for the conveyance to them of that title, having been
validly subrogated to Reyes rights.

Three. The next question is: was Reyes sale of the property to the Vegas binding on PDC which tried to
enforce the judgment credit in its favor on the property that was then still mortgaged to the SSS?

The CA ruled that Reyes assignment of the property to the Vegas did not bind PDC, which had a judgment
credit against Reyes, since such assignment neither appeared in a public document nor was registered with the
register of deeds as Article 1625 of the Civil Code required. Article 1625 reads:

Art. 1625. An assignment of a credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real property. (1526)

But Article 1625 referred to assignment of credits and other incorporeal rights. Reyes did not assign any credit
or incorporeal right to the Vegas. She sold the Vegas her house and lot. They became owner of the property from
the time she executed the deed of assignment covering the same in their favor. PDC had a judgment for money
against Reyes only. A courts power to enforce its judgment applies only to the properties that are indisputably

owned by the judgment obligor.[33] Here, the property had long ceased to belong to Reyes when she sold it to the
Vegas in 1981.

The PDC cannot take comfort in the fact that the property remained in Reyes name when it bought the
same at the sheriff sale. The PDC cannot assert that it was a buyer in good faith since it had notice of the Vegas
claim on the property prior to such sale.

Under the circumstances, the PDC must reconvey the subject property to the Vegas or, if this is no longer
possible, pay them its current market value as the trial court may determine with interest of 12 percent per annum
from the date of the determination of such value until it is fully paid. Further, considering the distress to which the
Vegas were subjected after the unlawful levy on their property, aggravated by their subsequent ouster from it through
a writ of possession secured by PDC, the RTC was correct in awarding the Vegas moral damages of P300,000.00,
exemplary damages of P30,000.00 and attorneys fees of P50,000.00 plus costs of the suit. But these are to be
borne solely by PDC considering that the SSS had nothing to do with the sheriffs levy on the property. It released
the title to the PDC simply because it had a sheriffs sale in its favor.

The PDC is, however, entitled to reimbursement from the Vegas of the sum of P37,820.15 that it paid to the
SSS for the release of the mortgaged title.

WHEREFORE, the Court GRANTS the petition, REVERSES the assailed decision of the Court of Appeals
in CA-G.R. CV 77582 dated August 30, 2007, and in its place DIRECTS respondent Pilar Development Corporation:

1.

To convey to petitioner spouses Antonio and Leticia Vega the title to and

possession of the property subject of this case, covered by Transfer Certificate of Title 56657 of the
Register of Deeds of Las Pias City, for the issuance of a new title in their names; and

2.

To pay the same petitioner spouses moral damages of P300,000.00, exemplary

damages of P30,000.00, and attorneys fees of P50,000.00.

On the other hand, the Court DIRECTS petitioner spouses to reimburse respondent Pilar Development
Corp. the sum of P37,820.15, representing what it paid the respondent SSS for the release of the mortgaged
certificate of title.

SO ORDERED.

[G.R. No. 109410. August 28, 1996]

CLARA M. BALATBAT, petitioner, vs. COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA
REPUYAN, respondents.
DECISION
TORRES, JR., J.:
Petitioner Clara M. Balatbat instituted this petition for review pursuant to Rule 45 of the Revised Rules of Court
seeking to set aside the decision dated August 12, 1992 of the respondent Court of Appeals in CA-G.R. CV No.
29994 entitled Alejandro Balatbat and Clara Balatbat, plaintiffs-appellants, versus Jose Repuyan and Aurora
Repuyan, defendants-appellees, the dispositive portion of which reads:[1]
WHEREFORE, the judgment appealed from is affirmed with the modification that the awards of P10,000.00 for
attorneys fees and P5,000.00 as costs of litigation are deleted.
SO ORDERED.
The records show the following factual antecedents:
It appears that on June 15, 1977, Aurelio A. Roque filed a complaint for partition docketed as Civil Case No.
109032 against Corazon Roque, Alberto de los Santos, Feliciano Roque, Severa Roque and Osmundo Roque before
the then Court of First Instance of Manila, Branch IX. [2] Defendants therein were declared in default and plaintiff
presented evidence ex-parte. On March 29, 1979, the trial court rendered a decision in favor of plaintiff Aurelio A.
Roque, the pertinent portion of which reads:[3]
From the evidence, it has been clearly established that the lot in question covered by Transfer Certificate of Title No.
51330 was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union and the house
constructed thereon was likewise built during their marital union. Out of their union, plaintiff and Maria Mesina had
four children, who are the defendants in this case. When Maria Mesina died on August 28, 1966, the only conjugal
properties left are the house and lot above stated of which plaintiff herein, as the legal spouse, is entitled to one-half
share pro-indiviso thereof. With respect to the one-half share pro-indiviso now forming the estate of Maria Mesina,
plaintiff and the four children, the defendants here, are each entitled to one-fifth (1/5) share pro-indiviso. The
deceased wife left no debt.
Wherefore, judgment is hereby rendered ordering the partition of the properties, subject matter of this case consisting
of the house and lot, in the following manner:

1. Of the house and lot forming the conjugal properties, plaintiff is entitled to one-half share pro-indiviso thereof while
the other half forms the estate of the deceased Maria Mesina;
2. Of the Estate of deceased Maria Mesina, the same is to be divided into five (5) shares and plaintiff and his four
children are entitled each to one-fifth share thereof pro-indiviso.
Plaintiff claim for moral, exemplary and actual damages and attorneys fees not having been established to the
satisfaction of the Court, the same is hereby denied.
Without pronouncement as to costs.
SO ORDERED.
On June 2, 1979, the decision became final and executory. The corresponding entry of judgment was made on
March 29, 1979.[4]
On October 5, 1979, the Register of Deeds of Manila issued a Transfer Certificate of Title No. 135671 in the
name of the following persons in the following proportions:[5]
Aurelio A. Roque

6/10 share

Severina M. Roque

1/10 share

Osmundo M. Roque

1/10 share

Feliciano M. Roque

1/10 share

Corazon M. Roque

1/10 share

On April 1, 1980, Aurelio A. Roque sold his 6/10 share in T.C.T. No. 135671 to spouses Aurora Tuazon-Repuyan
and Jose Repuyan as evidenced by a Deed of Absolute Sale.[6]
On July 21, 1980, Aurora Tuazon Repuyan caused the annotation of her affidavit of adverse claim [7] on the
Transfer Certificate of Title No. 135671,[8] to wit:
Entry No. 5627/T-135671 - NOTICE OF ADVERSE CLAIM - Filed by Aurora Tuazon Repuyan, married, claiming
among others that she bought 6/10 portion of the property herein described from Aurelio Roque for the amount of
P50,000.00 with a down payment of P5,000.00 and the balance of P45,000.00 to be paid after the partition and
subdivision of the property herein described, other claims set forth in Doc. No. 954, page 18, Book 94 of
_____________________ 64 ________PEDRO DE CASTRO, Notary Public of Manila.
Date of instrument - July 21, 1980
Date of inscription- July 21, 1980 at 3:35 p.m.
TERESITA H. NOBLEJAS
Acting Register of Deeds
By:

RAMON D. MACARICAN
Acting Second Deputy
On August 20, 1980, Aurelio A. Roque filed a complaint for Rescission of Contract docketed as Civil Case No.
134131 against spouses Aurora Tuazon-Repuyan and Jose Repuyan before Branch IV of the then Court of First
Instance of Manila. The complaint is grounded on spouses Repuyans failure to pay the balance of P45,000.00 of the
purchase price.[9] On September 5, 1980, spouses Repuyan filed their answer with counterclaim.[10]
In the meantime, the trial court issued an order in Civil Case No. 109032 (Partition case) dated February 2,
1982, to wit:[11]
In view of all the foregoing and finding that the amount of P100,000.00 as purchase price for the sale of the parcel of
land covered by TCT No. 51330 of the Registry of Deeds of Manila consisting of 84 square meters situated in
Callejon Sulu, District of Santa Cruz, Manila, to be reasonable and fair, and considering the opportunities given
defendants to sign the deed of absolute sale voluntarily, the Court has no alternative but to order, as it hereby orders,
the Deputy Clerk of this Court to sign the deed of absolute sale for and in behalf of defendants pursuant to Sec. 10,
Rule 39 of the Rules of Court, in order to effect the partition of the property involved in this case.
SO ORDERED.
A deed of absolute sale was executed on February 4, 1982 between Aurelio S. Roque, Corazon Roque, Feliciano
Roque, Severa Roque and Osmundo Roque and Clara Balatbat, married to Alejandro Balatbat.[12] On April 14, 1982,
Clara Balatbat filed a motion for the issuance of a writ of possession which was granted by the trial court on
September 14, 1982 subject, however, to valid rights and interest of third persons over the same portion thereof,
other than vendor or any other person or persons privy to or claiming any rights or interest under it. The
corresponding writ of possession was issued on September 20, 1982.[13]
On May 20, 1982, petitioner Clara Balatbat filed a motion to intervene in Civil Case No. 134131 [14] which was
granted as per courts resolution of October 21, 1982. [15] However, Clara Balatbat failed to file her complaint in
intervention.[16] On April 15, 1986, the trial court rendered a decision dismissing the complaint, the pertinent portion of
which reads:[17]
The rescission of contracts are provided for in the laws and nowhere in the provision of the Civil Code under the title
Rescissible Contracts does the circumstances in the case at bar appear to have occurred, hence, the prayer for
rescission is outside the ambit for which rescissible [sic] could be granted.
The Intervenor - Plaintiff, Clara Balatbat, although allowed to intervene, did not file her complaint in intervention.
Consequently, the plaintiff having failed to prove with sufficient preponderance his action, the relief prayed for had to
be denied. The contract of sale denominated as Deed of Absolute Sale (Exh. 7 and sub-markings) being valid and
enforceable, the same pursuant to the provisions of Art. 1159 of the Civil Code which says:
Obligations arising from contracts have the force of law between the contracting parties and should be complied with
in good faith.
has the effect of being the law between the parties and should be complied with. The obligation of the plaintiff under
the contract being to have the land covered by TCT No. 135671 partitioned and subdivided, and title issued in the
name of the defendant buyer (see page 2 par. C of Exh. 7-A) plaintiff had to comply thereto to give effect to the
contract.

WHEREFORE, judgment is rendered against the plaintiff, Aurelio A. Roque, and the plaintiff in intervention, Clara
Balatbat, and in favor of the defendants, dismissing the complaint for lack of merit, and declaring the Deed of
Absolute Sale dated April 1, 1980 as valid and enforceable and the plaintiff is, as he is hereby ordered, to partition
and subdivide the land covered by T.C.T. No. 135671, and to aggregate therefrom a portion equivalent to 6/10
thereof, and cause the same to be titled in the name of the defendants, and after which, the defendants to pay the
plaintiff the sum of P45,000.00. Considering further that the defendants suffered damages since they were forced to
litigate unnecessarily, by way of their counterclaim, plaintiff is hereby ordered to pay defendants the sum of
P15,000.00 as moral damages, attorneys fees in the amount of P5,000.00.
Costs against plaintiff.
SO ORDERED.
On March 3, 1987, petitioner Balatbat filed a notice of lis pendens in Civil Case No. 109032 before the Register
of Deeds of Manila.[18]
On December 9, 1988, petitioner Clara Balatbat and her husband, Alejandro Balatbat filed the instant complaint
for delivery of the owner's duplicate copy of T.C.T. No. 135671 docketed as Civil Case No. 88-47176 before Branch
24 of the Regional Trial Court of Manila against private respondents Jose Repuyan and Aurora Repuyan.[19]
On January 27, 1989, private respondents filed their answer with affirmative defenses and compulsory
counterclaim.[20]
On November 13, 1989, private respondents filed their memorandum[21] while petitioners filed their
memorandum on November 23, 1989.[22]
On August 2, 1990, the Regional Trial Court of Manila, Branch 24, rendered a decision dismissing the
complaint, the dispositive portion of which reads:[23]
Considering all the foregoing, this Court finds that the plaintiffs have not been able to establish their cause of action
against the defendants and have no right to the reliefs demanded in the complaint and the complaint of the plaintiff
against the defendants is hereby DISMISSED. On the counterclaim, the plaintiff are ordered to pay defendants the
amount of Ten Thousand Pesos by way of attorneys fees, Five Thousand Pesos as costs of litigation and further to
pay the costs of the suit.
SO ORDERED.
Dissatisfied, petitioner Balatbat filed on appeal before the respondent Court of Appeals which rendered the
assailed decision on August 12, 1992, to wit:[24]
WHEREFORE, the judgment appealed from is affirmed with the modification that the awards of P10,000.00 for
attorneys fees and P5,000.00 as costs of litigation are deleted.
SO ORDERED.
On March 22, 1993, the respondent Court of Appeals denied petitioners motion for reconsideration.[25]
Hence, this petition for review.
Petitioner raised the following issues for this Courts resolution:
I

WHETHER OR NOT THE ALLEGED SALE TO THE PRIVATE RESPONDENTS WAS MERELY EXECUTORY AND
NOT A CONSUMMATED TRANSACTION?
II
WHETHER OR NOT THERE WAS A DOUBLE SALE AS CONTEMPLATED UNDER ART. 1544 OF THE CIVIL
CODE?
III
WHETHER OR NOT PETITIONER WAS A BUYER IN GOOD FAITH AND FOR VALUE?
IV
WHETHER OR NOT THE COURT OF APPEALS ERRED IN GIVING WEIGHT AND CONSIDERATION TO THE
EVIDENCE OF THE PRIVATE RESPONDENTS WHICH WERE NOT OFFERED?
Petitioner asseverates that the respondent Court of Appeals committed grave abuse of discretion tantamount to
lack or excess of jurisdiction in affirming the appealed judgment considering (1) that the alleged sale in favor of the
private respondents Repuyan was merely executory; (2) that there is no double sale; (3) that petitioner is a buyer in
good faith and for value; and (4) that private respondents did not offer their evidence during the trial.
Contrary to petitioners contention that the sale dated April 1, 1980 in favor of private respondents Repuyan was
merely executory for the reason that there was no delivery of the subject property and that consideration/price was
not fully paid, we find the sale as consummated, hence, valid and enforceable. In a decision dated April 15, 1986 of
the Regional Trial Court of Manila, Branch IV in Civil Case No. 134131, the Court dismissed vendors Aurelio Roque
complaint for rescission of the deed of sale and declared that the sale dated April 1, 1980, as valid and
enforceable. No appeal having been made, the decision became final and executory. It must be noted that herein
petitioner Balatbat filed a motion for intervention in that case but did not file her complaint in intervention. In that case
wherein Aurelio Roque sought to rescind the April 1, 1980 deed of sale in favor of the private respondents for nonpayment of the P45,000.00 balance, the trial court dismissed the complaint for rescision. Examining the terms and
conditions of the Deed of Sale dated April 1, 1980, the P45,000.00 balance is payable only after the property
covered by T.C.T. No. 135671 has been partitioned and subdivided, and title issued in the name of the BUYER
hence, vendor Roque cannot demand payment of the balance unless and until the property has been subdivided and
titled in the name of the private respondents. Devoid of any stipulation that ownership in the thing shall not pass to
the purchaser until he has fully paid the price,[26] ownership in the thing shall pass from the vendor to the vendee
upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid. The
failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the
bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. [27] Non-payment
only creates a right to demand the fulfillment of the obligation or to rescind the contract.
With respect to the non-delivery of the possession of the subject property to the private respondent, suffice it to
say that ownership of the thing sold is acquired only from the time of delivery thereof, either actual or constructive.
[28]
Article 1498 of the Civil Code provides that - when the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary
does not appear or cannot be inferred. [29] The execution of the public instrument, without actual delivery of the thing,
transfers the ownership from the vendor to the vendee, who may thereafter exercise the rights of an owner over the
same.[30] In the instant case, vendor Roque delivered the owners certificate of title to herein private respondent. It is
not necessary that vendee be physically present at every square inch of the land bought by him, possession of the
public instrument of the land is sufficient to accord him the rights of ownership. Thus, delivery of a parcel of land may
be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public

instrument (constructive). The provision of Article 1358 on the necessity of a public document is only for
convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of
land that this be embodied in a public instrument.[31]
A contract of sale being consensual, it is perfected by the mere consent of the parties.[32] Delivery of the thing
brought or payment of the price is not necessary for the perfection of the contract; and failure of the vendee to pay
the price after the execution of the contract does not make the sale null and void for lack of consideration but results
at most in default on the part of the vendee, for which the vendor may exercise his legal remedies.[33]
Article 1544 of the New Civil Code provides:
If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it should be movable property.
Should it be movable 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 the
possession and in the absence thereof, to the person who present the oldest title, provided there is good faith.
Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be
transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default
thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents
the oldest title, provided there is good faith.[34]
In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share in TCT No. 135671 to private
respondents Repuyan on April 1, 1980. Subsequently, the same lot was sold again by vendor Aurelio Roque (6/10)
and his children (4/10), represented by the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on
February 4, 1982. Undoubtedly, this is a case of double sale contemplated under Article 1544 of the New Civil Code.
This is an instance of a double sale of an immovable property hence, the ownership shall vests in the person
acquiring it who in good faith first recorded it in the Registry of Property. Evidently, private respondents Repuyans
caused the annotation of an adverse claim on the title of the subject property denominated as Entry No. 5627/T135671 on July 21, 1980.[35] The annotation of the adverse claim on TCT No. 135671 in the Registry of Property is
sufficient compliance as mandated by law and serves notice to the whole world.
On the other hand, petitioner filed a notice of lis pendens only on February 2, 1982. Accordingly, private
respondents who first caused the annotation of the adverse claim in good faith shall have a better right over herein
petitioner. Moreover, the physical possession of herein petitioners by virtue of a writ of possession issued by the trial
court on September 20, 1982 is subject to the valid rights and interest of third persons over the same portion thereof,
other than vendor or any other person or persons privy to or claiming any rights to interest under it.[36]As between
two purchasers, the one who has registered the sale in his favor, has a preferred right over the other who has not
registered his title even if the latter is in actual possession of the immovable property. [37] Further, even in default of the
first registrant or first in possession, private respondents have presented the oldest title. [38] Thus, private respondents
who acquired the subject property in good faith and for valuable consideration established a superior right as against
the petitioner.
Evidently, petitioner cannot be considered as a buyer in good faith. In the complaint for rescission filed by
vendor Aurelio Roque on August 20, 1980, herein petitioner filed a motion for intervention on May 20, 1982 but did
not file her complaint in intervention, hence, the decision was rendered adversely against her. If petitioner did
investigate before buying the land on February 4, 1982, she should have known that there was a pending case and
an annotation of adverse claim was made in the title of the property before the Register of Deeds and she could have
discovered that the subject property was already sold to the private respondents. It is incumbent upon the vendee of

the property to ask for the delivery of the owners duplicate copy of the title from the vendor. A purchaser of a valued
piece of property cannot just close his eyes to facts which should put a reasonable man upon his guard and then
claim that he acted in good faith and under the belief that there were no defect in the title of the vendor. [39] One who
purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title
thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied
to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. Good faith, or the want of it is not a visible,
tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged of by
actual or fancied tokens or signs.[40]
In fine, petitioner had nobody to blame but herself in dealing with the disputed property for failure to inquire or
discover a flaw in the title to the property, thus, it is axiomatic that - culpa lata dolo aequiparatur - gross negligence is
equivalent to intentional wrong.
IN VIEW OF THE FOREGOING PREMISES, this petition for review is hereby DISMISSED for lack of merit. No
pronouncement as to costs.
IT IS SO ORDERED.
Regalado (Chairman), Romero, Puno, and Mendoza, JJ., concur.

[G. R. No. 128574. September 18, 2002]

UNIVERSAL ROBINA SUGAR
TEVES, respondents.

MILLING

CORPORATION, petitioner,

vs.

HEIRS

OF

ANGEL

DECISION
SANDOVAL-GUTIERREZ, J.:
Andres Abanto owned two parcels of land situated in Campuyo, Manjuyod, Negros Oriental. One lot, consisting
of 55,463 square meters, is registered in his name under Transfer Certificate of Title (TCT) No. H-37 of the Registry
of Deeds of said province. The other lot with an area of 193,789 square meters is unregistered. He died on
February 16, 1973.[1]
On October 19, 1974, Andres Abanto's heirs executed an Extrajudicial Settlement of the Estate of the
Deceased Andres Abanto and Simultaneous Sale.[2] In this document, Abanto's heirs adjudicated unto themselves
the two lots and sold the (a) unregistered lot of 193,789 square meters to the United Planters Sugar Milling Company,
Inc. (UPSUMCO), and (b) theregistered lot covered by TCT No. H-37 to Angel M. Teves, for a total sum of
P115,000.00. The sale was not registered.[3]
Out of respect for his uncle Ignacio Montenegro, who was UPSUMCO's founder and president, Teves verbally
allowed UPSUMCO to use the lot covered by TCT No. H-37 for pier and loading facilities, free of charge, subject to
the condition that UPSUMCO shall shoulder the payment of real property taxes and that its occupation shall be coterminus with its corporate existence.[4] UPSUMCO then built a guesthouse and pier facilities on the property.[5]

Years later, UPSUMCOs properties were acquired by the Philippine National Bank (PNB). Later, PNB
transferred the same properties to the Asset Privatization Trust (APT) which, in turn, sold the same to the Universal
Robina Sugar Milling Corporation (URSUMCO). URSUMCO then took possession of UPSUMCOs
properties, including Teves' lot covered by TCT No. H-37.
Upon learning of URSUMCO's acquisition of his lot, Teves formally asked the corporation to turn over to him
possession thereof or the corresponding rentals. He stated in his demand letters that he merely allowed UPSUMCO
to use his property until its corporate dissolution; and that it was not mortgaged by UPSUMCO with the PNB and,
therefore, not included among the foreclosed properties acquired by URSUMCO.[6]
URSUMCO refused to heed Teves' demand, claiming that it acquired the right to occupy the property from
UPSUMCO which purchased it from Andres Abanto; and that it was merely placed in the name of Angel Teves, as
shown by the Deed of Transfer and Waiver of Rights and Possession dated November 26, 1987. [7] Under this
document, UPSUMCO transferred to URSUMCO its application for agricultural and foreshore lease. The same
document partly states that the lands subject of the foreshore and agricultural lease applications are bounded on the
north by the "titled property of Andres Abanto bought by the transferor (UPSUMCO) but placed in the name of Angel
Teves". URSUMCO further claimed that it was UPSUMCO, not Teves, which has been paying the corresponding
realty taxes.
Consequently, on June 18, 1992, Teves filed with the Regional Trial Court (RTC), Dumaguete City, Branch 43, a
complaint for recovery of possession of real property with damages against URSUMCO, docketed as Civil Case No.
10235.
On September 4, 1992, Teves died[8] and was substituted by his heirs.[9]
On April 6, 1994, the RTC rendered its Decision [10] finding that URSUMCO has no personality to question the
validity of the sale of the property between the heirs of Andres Abanto and Angel Teves since it is not a party thereto;
that Teves' failure to have the sale registered with the Registry of Deeds would not vitiate his right of ownership,
unless a third party has acquired the land in good faith and for value and has registered the subsequent deed; that
the list of properties acquired by URSUMCO from the PNB does not include the disputed lot and, therefore, was not
among those conveyed by UPSUMCO to URSUMCO. The dispositive portion of the Decision reads:
"Wherefore, in view of the foregoing, judgment is hereby rendered:
1. Declaring plaintiff (Teves) the owner of the parcel of land covered by Transfer Certificate of Title No. H37 situated at Campuyo, Manjuyod, Negros Oriental and as such, is entitled to the possession of said
land subject to the provision of Article 448 of the New Civil Code. Accordingly, except where the
immediate premises of the guest house and pier are concerned, defendant (URSUMCO) is directed to
vacate the remaining portion of said property;
2. Declaring defendant as the owner of the guest house and pier and as a builder in good faith of said
guest house and pier;
3. Declaring plaintiff as entitled to the option under Article 448 of the New Civil Code, namely:
(a) To appropriate the guest house and pier as his own upon payment of indemnity under Articles
546 and 548 of the New Civil Code, or

(b) To oblige defendant to buy the land in question unless its value is considerably more than the
improvements (guest house and pier), in which case defendant shall pay reasonable rent.
4. Declaring defendant as entitled to retain possession of the guest house and pier until defendant is
indemnified of the useful and necessary expenses for the preservation of said improvements provided
in Article 546 of the New Civil Code and such other expenses for luxury as may be allowed under
Article 548 of the same Code in case plaintiff takes the option of appropriating for himself the
improvements;
5. Ordering defendant to pay plaintiff reasonable attorneys fees in the amount of P15,000.00;
6. Dismissing all other claims for damages by plaintiff and the counterclaim for lack of merit; and
7. Ordering defendant to pay the costs of this suit.
SO ORDERED."
On appeal by URSUMCO, the Court of Appeals[11] affirmed the RTC decision, holding that the transaction
between Angel Teves and Andres Abanto's heirs is a contract of sale, not one to sell, because ownership was
immediately conveyed to the purchaser upon payment of P115,000.00. The Court of Appeals further held that Teves'
failure to cause the registration of the sale is not fatal since a contract of sale is perfected by mere consent of the
contracting parties and has the force of law between them. Besides, his failure to refer the case to
the barangaycannot affect the jurisdiction already acquired by the court over the subject matter and the person of
"defendant-appellant" URSUMCO.
On October 29, 1996, URSUMCO filed a motion for reconsideration but was denied by the Appellate Court in a
Resolution dated February 10, 1997.[12]
Hence, the instant petition for review on certiorari[13] raising the following legal issues:
1. Whether the respondents have established a cause of action against petitioner;
2. Whether petitioner herein has the legal capacity to question the validity of the sale; and
3. Whether the complaint should have been dismissed for lack of barangay conciliation.
The petition is bereft of merit.
Petitioner URSUMCO contends that respondents have no cause of action because the Extrajudicial Settlement
of the Estate of the Deceased Andres Abanto and Simultaneous Sale is merely a promise to sell and not an absolute
deed of sale, hence, did not transfer ownership of the disputed lot to Angel Teves. Assuming that the document is a
contract of sale, the same is void for lack of consideration because the total price of P115,000.00 does not
specifically refer to the lot covered by TCT No. H-37, making the price uncertain. Furthermore, the transaction, being
unregistered, does not bind third parties.
Petitioner's contentions lack merit. As held by the RTC and the Court of Appeals, the transaction is not merely
a contract to sell but a contract of sale. In a contract of sale, title to the property passes to the vendee upon delivery

of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to
the vendee until full payment of the purchase price.[14] In the case at bar, the subject contract, duly notarized,
provides:[15]
"EXTRA-JUDICIAL SETTLEMENT OF THE ESTATE OF THE DECEASED ANDRES ABANTO
AND SIMULTANEOUS SALE
KNOW ALL MEN BY THESE PRESENTS:
That VICTORINA C. VDA. DE ABANTO, widow, and GUMERSINDA A. ABANTO-MALDO, married to Porferio Maldo,
both of legal age, Filipinos, and residents of Olimpia, Bais City, hereby freely and spontaneously
DECLARE AND MAKE MANIFEST THAT:
1. That they are the only legitimate heirs of the deceased Andres Abanto, being the surviving spouse and the legally
adopted daughter of the deceased Andres Abanto;
2. That the aforementioned deceased died on February 16, 1973 in the City of Bais, which was his residence at the
time of his death;
3. That said decedent died without leaving any will and without debts and his only surviving heirs are the
aforementioned Victorina C. Vda. de Abanto and Gumersinda A. Maldo;
4. That the deceased left as his estate and only real properties, certain parcels of land which are more particularly
described and founded as follows:
PARCEL ONE TCT NO. H-37
"A parcel of agricultural land, with the improvements thereon, containing an area of FIFTY-FIVE THOUSAND FOUR
HUNDRED SIXTY THREE (55,463) SQUARE METERS MORE OR LESS, situated in barrio Campuyo, Manjuyod,
Negros Oriental and bounded on the Northeast by Taon Strait; on the South by the property claimed by Nazario
Acabal; on the west by North Bais Bay, public land and the properties claimed by Fortunato Acabal and Manuel
Gonzales as described in TCT No. H-37."
PARCEL TWO
"A parcel of unregistered land, together with the improvements, accessions and other interests over the said lot,
situated at barrio Campuyo, Municipality of Manjuyod, Province of Negros Oriental, containing an area of ONE
HUNDRED NINETY THREE THOUSAND, SEVEN HUNDRED EIGHTY NINE (193,789) square meters more or less,
as described on plan Psu. 123473 and as amended by PSU 07-01-000 and as declared under Tax Declaration No.
00589 and assessed in said tax declaration for taxation purposes at P24,860.00"
5. That the parties herein have agreed as they hereby agree to adjudicate said parcels of land unto themselves in
accordance with Sec. 1, Rule 74 of the Rules of Court and to sell, transfer and convey for a total sum of ONE
HUNDRED FIFTEEN THOUSAND PESOS (P115,000.00) Philippine currency the above described properties in the
following manner to wit:

1. TO THE UNITED PLANTERS' SUGAR MILLING CO., INC., a domestic corporation duly organized and existing
under the laws of the Philippines, with residence and office address at Alangilanan, Manjuyod, Negros Oriental - That
parcel which is described as parcel two above;
2. TO ANGEL M. TEVES, of legal age, Filipino, married to Elena Teves, a resident of and with postal address at Bais
City - That parcel described as parcel one above.
In witness whereof, we have hereunto affixed our signatures this 19th day of October 1974 at the City of Bais,
Philippines.
(Sgd.)
VICTORINA C. VDA. DE ABANTO
Heir Vendor
(Sgd.)
GUMERSINDA ABANTO-MALDO
Heir Vendor
UNITED PLANTERS' SUGAR MILLING CO., INC.
Vendee
by:
(Sgd.)
IGNACIO VICENTE
President
(Sgd.)
ANGEL M. TEVES
Vendee
_______(Sgd.)______ witnesses ______(Sgd.)_______"
It is clear from the recitals of the above contract that it is an extrajudicial settlement of the estate of the
deceased Andres Abanto, and simultaneous sale of the properties described therein, including the subject
lot. Clearly indicated therein is that the Abanto heirs sold to Teves the lot covered by TCT No. H-37. There is no
showing that the Abanto heirs merely promised to sell the said lot to Teves.

That absolute ownership over the land (TCT No. H-37) was indeed transferred to Teves is further shown by his
acts subsequent to the execution of the contract. As found by the trial court, it was Teves, not Andres Abanto's heirs,
who allowed UPSUMCO to construct pier facilities and guesthouse on the land. When the property was erroneously
included among UPSUMCO's properties that were transferred to petitioner URSUMCO, it was Teves, not the heirs of
Andres Abanto, who informed petitioner that he owns the same and negotiated for an arrangement regarding its
use. Teves even furnished petitioner documents and letters[16] showing his ownership of the lot, such as a copy of the
"Extrajudicial Settlement of the Estate of the Deceased Andres Abanto and Simultaneous Sale" [17] and a certified true
copy of TCT No. H-37 covering the disputed lot.[18] Indeed, the trial court and the Court of Appeals correctly ruled that
Teves purchased the lot from the Abanto heirs, thus:
"1. That Angel Teves was the purchaser of the land in question covered by Transfer Certificate of Title No. H-37 in an
Extrajudicial Settlement of Estate of Andres Abanto and Simultaneous Sale, dated October 19, 1974 (Exhibit "A"),
more particularly described as follows:
"A parcel of agricultural land, with the improvements thereon, containing an area of FIFTY-FIVE THOUSAND FOUR
HUNDRED SIXTY THREE (55,463) SQUARE METERS MORE OR LESS, situated in barrio Campuyo, Manjuyod,
Negros Oriental and bounded on the Northeast by Taon Strait; on the South by the property claimed by Nazario
Acabal; on the west by North Bais Bay, Public land and the properties claimed by Fortunato Acabal and Manuel
Gonzales as described in TCT No. H-37."[19]
If we follow petitioner's posture that the transaction was only a contract to sell, ownership of the lot would have
remained with the Abanto heirs, not with UPSUMCO. Consequently, UPSUMCO would not have transferred any
right over the property to petitioner URSUMCO.
We are likewise unconvinced by petitioner's assertion that the price or consideration of the contract is not
certain. In a contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. [20] The subject of
the sale embodied in the Extrajudicial Settlement of Estate of the Deceased Andres Abanto and Simultaneous Sale
consists of two parcels of land. It is clear from the said instrument that the amount of P115,000.00 refers to the price
for the two lots as a whole. Thus, contrary to petitioner's claim, the price of the subject property is not uncertain.
That the contract of sale was not registered does not affect its validity. Being consensual in nature, it is binding
between the parties, the Abanto heirs and Teves. Article 1358 of the New Civil Code, which requires the
embodiment of certain contracts in a public instrument, is only for convenience, and the registration of the instrument
would merely affect third persons.[21] Formalities intended for greater efficacy or convenience or to bind third persons,
if not done, would not adversely affect the validity or enforceability of the contract between the contracting parties
themselves.[22] Thus, by virtue of the valid sale, Angel Teves stepped into the shoes of the heirs of Andres Abanto and
acquired all their rights to the property.
Anent the second issue, petitioner contends that being an innocent purchaser for value of the lot and its current
possessor, it has the personality to assail the validity of the sale in question.
An innocent purchaser is one who acquired the property for a valuable consideration, not knowing that the title
of the vendor or grantor is null and void.[23] He is also one who buys the property of another without notice that some
other person has a right to, or interest in, such property and pays a full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest of some other persons in the property. [24] The concept
underscores two important factors: (1) the property which is bought for consideration, and (2) the lack of knowledge

or notice of adverse claim or interest prior to the sale. Both factors are not present insofar as petitioner URSUMCO
is concerned.
For one, petitioner acquired almost all of UPSUMCOS properties for a consideration but failed to prove that the
lot covered by TCT No. H - 37 was included therein. In fact, the lot was not among the properties acquired by
petitioner from the APT whose holdings were limited only to those UPSUMCO properties foreclosed by the
PNB. Also, the Deed of Transfer and Waiver of Rights and Possession shows that only the following properties
and rights of UPSUMCO were transferred to petitioner URSUMCO:[25]
1. The guest house and pier at Campuyo site in the Municipality of Manjuyod, Negros Oriental;
2. A parcel of land consisting of twenty five (25) hectares, more or less, leading to the Campuyo pier which is the
subject matter of UPSUMCO's agricultural lease application pending with the Bureau of Lands and Land District
Officer, Dumaguete City; and
3. Pending application for an industrial or foreshore lease of that portion of the adjacent government land
approximately 270,000 square meters, later amended to be 16,000 square meters.
The foregoing list does not specifically include the subject lot. Admittedly, the same Deed of Transfer and
Waiver of Rights and Possession states that a titled property of Andres Abanto bought by the transferor
(UPSUMCO) but placed in the name of Angel Teves is on the northern boundary of the above-mentioned lands
subject of the foreshore and agricultural lease applications.[26] However, such description is insufficient to establish
that the titled property is indeed owned by UPSUMCO.
Petitioner cannot likewise assert that it has no adequate notice of any adverse claim over the lot in
controversy. Teves informed petitioner of his ownership and demanded that he be placed in possession thereof or, in
the alternative, that he be paid the corresponding rentals. Moreover, petitioner should have been sufficiently
forewarned of a probable anomaly or irregularity in the ownership of the subject lot, considering that it was registered
not in the name of UPSUMCO, but in the name of Andres Abanto. A purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there
was no defect in the title of the vendor.[27]
The petition having been stripped of these anchors, both the RTC and the Court of Appeals correctly ruled that
petitioner has no sufficient cause of action against Angel Teves, represented by herein respondents. Not being a
party to the contract of sale between Andres Abanto's heirs and Angel Teves, and not being a subsequent innocent
purchaser for value, petitioner cannot claim any right of possession over the land in question. Surely, petitioner is
proscribed from questioning Teves' ownership.
Regarding the third issue, suffice it to state that being a corporation, petitioner cannot be impleaded as a party
to a barangay conciliation proceeding. Section 1, Rule VI of theKatarungang Pambarangay Rules implementing
the Katarungang Pambarangay Law[28]provides:
"Section 1. Parties. - Only individuals shall be parties to these proceedings either as complainants or
respondents. No complaint by or against corporations, partnerships or other juridical entities shall be filed,
received or acted upon." (emphasis ours)

Incidentally, respondents, in their memorandum, pray that petitioner URSUMCO be declared a recalcitrant
possessor in bad faith and be held liable for damages in the following amounts: (1) P1,060,000.00 as actual
damages; (2) P100,000.00 as moral damages; and (3) P50,000.00 as exemplary damages.
We quote with approval the disquisition of the RTC, affirmed by the Court of Appeals, dismissing respondents'
claim for damages, thus:
"As to the damages claimed by plaintiff (Teves), the Court holds that he is not entitled to any of the damages claimed
considering that Article 448 of the Civil Code does not provide such remedy. Furthermore, there is no evidence
showing that defendant had made use of the land except with respect to the pier and guesthouse which defendant
had validly acquired from the United Planters Sugar Milling Company (Exhibit "3"). However, based on equitable
considerations, considering that plaintiff was compelled to litigate in view of the refusal of defendant despite demand
by the plaintiff (Exhibits "C", "D", "F", "G", "H") to pay rental for the use of the property in question, defendant should
pay plaintiff reasonable attorney's fees in the amount of P15,000.00."[29]
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated September 30,
1996 in CA-G.R. CV No. 46352 is AFFIRMED.
SO ORDERED.
Puno, (Chairman), Panganiban, Corona, and Carpio-Morales, JJ., concur.

[G.R. No. 134873. September 17, 2002]

ADR SHIPPING SERVICES, INC., petitioner, vs. MARCELINO GALLARDO and THE HONORABLE COURT OF
APPEALS, respondents.
DECISION
QUISUMBING, J.:
Petitioner ADR Shipping Services, Inc., seeks to reverse and set aside the decision [1] of the Court of Appeals in
CA-G.R. CV No. 47556 dated October 9, 1996, which affirmed in totothe judgment of the Regional Trial Court of
Manila, Branch 50, in Civil Case No. 88-43931, for sum of money and damages.
Culled from the records, the following are the antecedent facts:
Marcelino Gallardo, a timber concessionaire and log dealer doing business under the name Mar Gallardo
Trading, entered into a charter agreement with ADR Shipping Services, Inc., through its president Abraham
Rodriguez, for the use of the MV Pacific Breeze to transport 60,000 cubic meters of logs to Kaoshung, Taiwan. These
logs were the subject of a sales agreement[2] between Gallardo as seller and Stywood Philippines, Inc., as
buyer. Gallardo paid an advance charter fee of P242,000 representing ten percent of the agreed charter fee,
evidenced by two official receipts[3] issued by ADR to Mar Gallardo Trading. Under the charter agreement, the boat
should be ready to load by February 5, 1988.

MV Pacific Breeze failed to arrive on time. Consequently, Gallardo sent a letter dated February 5, 1988 to ADR
stating:
Kindly be informed that we are cancelling the charter contract we signed in view of the failure of STYWOOD to fulfill
its commitment with us. Since the vessel would be arriving on February 19 or 20 certainly you can still have sufficient
time to notify the owner.
As a consequence of this cancellation, we are constrained to withdraw the amount we deposited on January 28 and
29 of this year in the total amount of P242,000.00
Thank you very much.[4]
Due to ADRs refusal to return the P242,000 already advanced by Gallardo, the latter filed a case for sum of
money and damages, docketed as Civil Case No. 88-43931 in the RTC of Manila, Branch 50. After trial, the trial
court rendered its decision, thus:
WHEREFORE, judgment is hereby rendered ordering defendant ADR Shipping Services, Inc. to pay plaintiff the sum
of P242,000.00 with 6% interest per annum from date of filing of the complaint, plus P20,000.00 as attorneys fees
and the costs of suit.
SO ORDERED.[5]
On appeal, the Court of Appeals affirmed the decision of the trial court in a decision dated October 9,
1996. ADRs motion for reconsideration was denied by the appellate court on July 29, 1998.
Hence, this petition for review anchored on the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN FINDING PRIVATE RESPONDENT
MARCELINO GALLARDO IS (SIC) ENTITLED TO THE REFUND OF THE P210,000.00 AND THE P32,000.00 PAID
TO ADR SHIPPING SERVICES INC. AS 10% ADVANCE FREIGHT OF MV PACIFIC BREEZE.
II
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT PRIVATE RESPONDENT
MARCELINO GALLARDO HAS NO KNOWLEDGE NOR HAVE (SIC) CONSENTED TO THE AGREEMENT THAT
STYWOOD PHILIPPINE INDUSTRIES INC. FORMALLY TAKE OVER THE CHARTER PARTY ON THE MV PACIFIC
BREEZE.
III
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING NOVATION WITH THE TAKE
OVER OF STYWOOD PHILIPPINE INDUSTRIES INC. OF THE CHARTER PARTY ON THE MV PACIFIC BREEZE.
IV
GRANTING, ARGUENDO, THAT THERE WAS NO NOVATION OR SUBSTITUTION OF THE VESSEL TO
PERFORM THE CARGO TRANSPORT REQUIREMENTS OF GALLARDO AND/OR STYWOOD PHIL
INDUSTRIES, INC., THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED THAT BASED ON THE

EVIDENCE AND CHARTER CONTRACT OF MV PACIFIC BREEZE, GALLARDO IS NOT ENTITLED TO ANY
REFUND AFTER HE FILED A NOTICE OF CANCELLATION BEFORE THE CANCELLING DATE OF 16 FEBRUARY
1988.[6]
The issue for resolution is whether or not private respondent Gallardo is entitled to the refund in the sum of
P242,000 representing his deposit for the charter of the ship provided by petitioner ADR.
Petitioner asserts that under the terms of the Charter Party for MV Pacific Breeze, Gallardo as the charterer had
the option to cancel the Charter Party only when the vessel failed to arrive or was not ready to load after February 16,
1988, citing paragraph 10 thereof, which provides:
10. CANCELLING CLAUSE
Should the vessel not be ready to load (whether in berth or not) on or before the date indicated in Box 19 [16
February, 1988], Charterers have the option of cancelling this contract, such option to be declared, if demanded, at
least 48 hours before vessels expected arrival at port of loading. Should the vessel be delayed on account of
average or otherwise. Charterers to be informed as soon as possible, and if the vessel is delayed for more than 10
days after the day she is stated to be expected ready to load, Charterers have the option of cancelling this contract,
unless a cancelling date has been agreed upon.[7](Emphasis ours.)
Petitioner argues, on one hand, that the date 5 February 1988, written in Box No. 9 of the charter party, merely
indicates a reference commencing date from which the chartered vessel is expected and ready to load, and not the
exact date when the vessel has to arrive as indicated in paragraph 10 of the charter party as quoted above. On the
other hand, private respondent contends that the charter party, in Box No. 9 thereof, has unequivocally fixed
February 5, 1998 as the date when MV Pacific Breeze is expected ready to load. In this regard, we are not
persuaded by petitioners argument, and we find in favor of private respondent.
Paragraph 10 of the Gencon Charter Party, in our view, contains a typographical error where Box 19 was
erroneously written instead of Box 9. But more importantly, paragraph 10 presents an ambiguity. Ambiguities in a
contract are interpreted strictly, albeit not unreasonably, against the drafter thereof when justified in light of the
operative facts and surrounding circumstances.[8] In this case, such ambiguity must be construed strictly against
ADR, the party that drafted and caused the inclusion of the subject clause.
More decisive is the stipulation in Box No. 9 of the Charter Party which explicitly states that February 5, 1988 is
the date when the vessel is expected ready to load. [9] February 16, 1988 is merely the cancelling date as
specified in Box 19 of the said contract.[10] That February 5, 1988 is the intended date when the ship is expected
ready to load, is buttressed by the provision of paragraph 1 of the Gencon Charter which states:
1. It is agreed between the party mentioned in Box 3 as Owners of the steamer or motor-vessel named in Box
5, of the gross/net Register tons indicated in Box 6 and carrying about the number of tons of deadweight
cargo stated in Box 7, now in position as stated in Box 8 and expected ready to load under this Charter
about the date indicated in Box 9, [February 5, 1988] and the party mentioned as Charterers in Box 4
that:
The said vessel shall proceed to the loading port or place stated in Box 10 or so near thereto as she may safely
get and lie always afloat, and there load a full and complete cargo .[11] (Emphasis supplied.)
Considering that the subject contract contains the foregoing express provision that February 5, 1988 is the date
when the vessel is expected ready to load, that provision leaves the parties with no other recourse but to apply the
literal meaning of such stipulation. The cardinal rule is that where the terms of the contract are clear, leaving no
doubt as to the intention of the contracting parties, the literal meaning of its stipulations is controlling.[12]

ADR asserts further that a subsequent agreement was forged among ADR, Gallardo and Stywood for Stywood
to take over the charter contract from Gallardo.[13] In support of its claim, petitioner produced in court a copy of the
document embodying the alleged agreement, to wit:
AGREEMENT
TO: ADR SHIPPING SERVICES
Room 304 Ermita Center Building
Roxas Blvd., Manila
This is to certify that I have appointed STYWOOD PHILIPPINE INDUSTRIES with office address of 7 D Vernida 1,
120 Amorsolo St. Legaspi Village Makati Metro Manila, to have full authority to use the Charter Vessel MV PACIFIC
BREEZE Singaporean Flag in case that I cannot push through with my shipment of FALCATA Logs that is expected
to be loaded by February 5,[14] 1988.
This agreement is valid upon if I cannot meet the requirements given to me as stated above and other previous
contracts.
MAR GALLARDO TRADING
(SGD.) Marcelino C. Gallardo
PRESIDENT[15]
On the strength of the above-mentioned agreement, says petitioner, ADR and Stywood entered into a Charter
Party on February 11, 1988,[16] for the loading of the same falcata logs for which the MV Pacific Breeze was initially
engaged, this time on board the MV Adhiguna Dharma. Hence, the P242,000 advanced by Gallardo for the freight of
MV Pacific Breeze was applied to MV Adhiguna Dharma, which is the substitute vessel for MV Pacific Breeze.
[17]
Accordingly, ADR now claims that Gallardo lost his legal personality to file the instant case.
On this point, both the RTC and the CA found no evidence, testimonial or otherwise, to prove the genuineness
and due execution of Exhibit 3, the so-called take-over agreement. Factual findings of the trial court, especially when
affirmed by the appellate court, are binding upon us [18] and entitled to utmost respect.[19] Moreover, nothing on record
has been shown to us by petitioner to warrant a reversal of the CAs conclusion negating the genuineness and due
execution of the disputed document. Such conclusion is supported by the evidence on record.
First, the purported take-over agreement was not notarized. Thus, it is not a public document and, by law, not
entitled to full faith and credit upon its face. Second, said document is undated, creating grave doubt as to its
authenticity. Third, we agree with the appellate courts finding that the alleged signature of respondent Gallardo in
Exhibit 3 is different from his signature appearing in the records of this case, particularly in the Falcata Sales
Agreement,[20] Charter Party,[21] Additional Clauses to Charter Party,[22] and in Gallardos letter of cancellation dated
February 5, 1988.[23] We note that the agreement was purportedly entered into in the presence of a certain Stanley
Ho. Curiously though, petitioner ADR did not present Mr. Ho in court to corroborate its claim. Lastly, Exhibit 3, though
captioned as an agreement, appears to be only a unilateral statement of Mar Gallardo, without the conforme of
Stywood and ADR.
It bears emphasizing also that if indeed the purpose of the February 11, 1988 Charter Party between ADR and
Stywood was to implement the aborted February 5, 1988 Charter Party between ADR and Gallardo, why was the
volume of the cargo reduced? The subject cargo in the earlier (Feb. 5) Charter Party was described as:
6,500 CBM FALCATTA (minimum) 7,000 (maximum) at Owners Option[24]
The subject cargo in the later (Feb. 11) Charter Party was described to be:

5,000 CBM FALCATTA (minimum) UP TO VESSEL MAXIMUM CAPACITY AT CHARTERERS OPTION[25]

The discrepancy creates serious doubt as to the veracity of petitioners assertion that the subject cargoes in the
two contracts are one and the same. Rather, such discrepancy does not strengthen his credibility.
Petitioner makes capital of the admission by respondent Gallardo that Stywood, as the buyer of the falcata logs,
is the beneficiary of the charter agreement for the MV Pacific Breeze, [26]to boost its claim that Stywood and not
Gallardo is the real party-in-interest. Petitioners inference is clearly non sequitur. The Charter Party shows that
there are only two parties to it, namely, petitioner ADR and respondent Gallardo, without any mention of Stywood as
the third-party beneficiary. The fact that Stywood, as buyer of the falcata logs, stands to benefit from the Charter
Party does not, by itself, vest Stywood with the personality to take over the charter agreement. That Stywood is a
stranger to the Charter Party becomes clear in view of the consistent findings of both courts below that there is no
evidence to support the claim concerning the alleged take-over agreement between Stywood and Gallardo.
A final note. The CA took notice of the fact that Stywood chartered a different vessel, [27] the MV Adhiguna
Dharma, in its February 11, 1988 Charter Party with ADR. Assuming that the alleged agreement is
authentic, Stywoods authority, as therein provided, is limited to the use of the Charter Vessel MV Pacific
Breeze. It is, therefore, beyond Stywoods authority to use a vessel other than the MV Pacific Breeze. Further, the
ostensible agreement only empowers Stywood to take over the February 5, 1988 Charter Party and not to enter
into a new one.
The ineluctable conclusion derived from these factual antecedents is that the February 11, 1988 Charter Party
between Stywood and ADR and the February 5, 1988 Charter Party between petitioner and respondent Gallardo are
not in any way linked. To our mind, the alleged take over by Stywood was a mere rationalization if not a ruse used by
petitioner to avoid refunding the P242,000 advanced by private respondent.
Absent clear proof, other than the naked assertion of petitioner, that Gallardo authorized Stywood to take over
its February 5, 1988 charter party with ADR, we need not tarry to delve into the issues as to who is the real party-ininterest in this case and whether or not there was novation of said charter party. Those issues are now academic.
To summarize, we find that no reversible error was committed by the Court of Appeals. For failure of petitioner
to perform its obligation on time, respondent Gallardo is entitled to cancel the Charter Party and to demand
damages. This is pursuant to Article 1191 of the New Civil Code,[28] which provides that 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, and the injured party may rescind the obligation, with payment of damages. As to actual damages, we agree
with the trial courts decision that petitioner is entitled to recover the amount of P242,000 representing the advance
freight to petitioner, as shown in the records.[29] Because the amount due in this case arises from a contract of
affreightment and not from a loan or forbearance of money, the legal interest of six percent (6%) per annum should
be applied.[30]
Finally, the complaint for damages was instituted by Gallardo on March 10, 1988, following the unjustified
refusal of ADR to settle his claim. Considering the fact that respondent was compelled to hire an attorney to protect
and defend his interest, the award of attorneys fees to private respondent in the amount of P20,000 is justified.[31]
WHEREFORE, the petition is hereby DENIED for lack of merit. The appealed decision of the Court of Appeals
in CA-G.R. CV No. 47556 is AFFIRMED. Petitioner ADR Shipping Services, Inc. is hereby ordered to pay
respondent Marcelino Gallardo P242,000.00 with interest at six percent (6%) per annum, from the date of filing the
complaint until fully paid, plus P20,000.00 as attorneys fees. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concur.

THIRD DIVISION
VALENTIN MOVIDO,

G.R. No. 172279

substituted by MARGINITO
MOVIDO,
Petitioner,

Present:

CORONA, J., Chairperson,

VELASCO, JR.,
- versus -

NACHURA,
PERALTA and
MENDOZA, JJ.

LUIS REYES PASTOR,

Respondent.
Promulgated:

February 11, 2010

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

DECISION

CORONA, J.:

Respondent Luis Reyes Pastor filed a complaint for specific performance in the Regional Trial Court (RTC) of
Imus, Cavite, praying that petitioner Valentin Movido[1] be compelled to cause the survey of a parcel of land subject of
their contract to sell.

In his complaint, respondent alleged that he and petitioner executed a kasunduan sa bilihan ng lupa where the
latter agreed to sell a parcel of land located in Paliparan, Dasmarias, Cavite with an area of some 21,000 sq. m. out
of the 22,731 sq. m. covered by Transfer Certificate of Title (TCT) No. 362995 at P400/sq. m. The agreement read:
xxx
1. Na si MOVIDO ang tunay at ganap na may-ari ng isang (1) parselang lupa sa
Paliparan, Dasmarias, Cavite, na ang nasabing lupa sakop ng TRANSFER CERTIFICATE OF
TITLE No. T-362995, na ito ay lalong mailalarawan ng tulad ng sumusunod:

xxx

2. Na ipinagkakasundo ni MOVIDO na ipagbili kay PASTOR ang 21,000 metro

cuadrado humigit-kumulang, ng lupang nakalarawan sa dakong taas sa halagang APAT NA
RAANG PISO (P400.00) bawat metro cuadrado o sa kabuuang halaga na WALONG MILYON AT
APAT NA RAANG LIBONG PISO (P8,400,000.00), na ang nasabing halaga ay babayaran ni
PASTOR kay MOVIDO ng gaya ng sumusunod:

P500,000.00 babayaran sa paglagda ng kasulatang ito;

P500,000.00 babayaran sa loob ng tatlong (3) buwan mula sa petsa ng

unang bayad;

P1,000, 000.00 babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikalawang
bayad;

P1,000, 000.00 babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikatlong
bayad;

P1,000, 000.00 babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikaapat na
bayad;

P1,000, 000.00 babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikalimang
bayad;

P1,000, 000.00 babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikaanim na
bayad;

P2,400, 000.00 babayaran sa loob ng tatlong (3) buwan mula sa petsa ng ikapitong
bayad;
____________

P8,400, 000.00 Kabuuan.

3. Na ang 1,731 metro cuadrado, humigit-kumulang, na hindi kasama sa bilihang ito ay nasasakop
ni Leonardo Cuevas, na ito ay ipapasukat at ipapahiwalay ni MOVIDO sa kabuuan ng nasabing
lupa bago matapos ang huling bayad ng bilihang ito;

4. Na si MOVIDO ang magbabayad ng lahat ng gastos tungkol sa bilihang ito tulad ng capital gains
tax, selyo dokumentaryo, transfer tax, registration fees, bayad sa nagsasaka ng nasabing lupa,
sampu ng komisyon ng mga ahente. Ang babayaran ni MOVIDO na capital gains tax ay hanggang
sa ISANG DAANG PISO (P100.00) lamang;

5. Na kung si PASTOR ay hindi makabayad sa balance sa takdang panahon, ang kalahati ng lahat
ng kanyang naibayad ay mapopornada sa kapakanan ni MOVIDO at ang kasulatang ito ay
mawawalan ng bisa;

6. Na kasabay ng pagbabayad ng huling bayad, si MOVIDO ay lalagda sa kaukulang kasulatan ng

ganap na bilihan (Deed of Absolute Sale) ng lupang dito ay tinutukoy.[2]

Respondent further alleged that another kasunduan was later executed supplementing the kasunduan sa
bilihan ng lupa. It provided that, if a Napocor power line traversed the subject lot, the purchase price would be
lowered to P200/sq. m. beyond the distance of 15 meters on both sides from the center of the power line while the
portion within a distance of 15 meters on both sides from the center of the power line would not be paid. In particular,
the kasunduan provided:
xxx
1. Na ipinagkasundo ni MOVIDO na ipagbili kay PASTOR ang kanyang lupa lupa
sa Paliparan, Dasmarias, Cavite na may sukat na 22731 metro kwadrado at sakop ng Transfer
Certificate of Title No. T-362995.

2. Na kanilang napagkasunduan na kung sakali na ang lupang tinutukoy ay pumailalim sa

linya ng kuryente ng NAPOCOR, ang bahagi ng lupa na hindi hihigit sa layo ng LABING LIMANG
(15) METRO mula sa kailaliman ng linya ng kuryente ay hindi pababayaran ni MOVIDO kay
PASTOR, at ang bahagi ng lupa na pumakabila sa linya ng kuryente mula sa Paliparan Road at
hihigit ng LABING LIMANG (15) METRO mula sa kailaliman ng linya ng kuryente ay pababayaran
ni MOVIDO kay PASTOR sa halagang DALAWANG DAANG PISO bawat metro kwadrado.[3] (italics
supplied)

Respondent likewise claimed that petitioner undertook to cause the survey of the property in order to
determine the portion affected by the Napocor power line.

Lastly, respondent alleged that he already paid petitioner P5 million out of the original purchase price of P8.4
million stated in the kasunduan sa bilihan ng lupa. He was willing and ready to pay the balance of the purchase price
but due to petitioners refusal to have the property surveyed despite incessant demands, his unpaid balance could
not be determined with certainty.

In his answer, petitioner alleged that the original negotiation for the sale of his property involved the entire area
of 22,731 sq. m. However, as respondent was not sure whether a Napocor power line traversed the property, they
then executed the kasunduan. After respondent personally inspected the property, a final agreement
the kasunduan sa bilihan ng lupawas executed where the area to be sold was 21,000 sq. m. for P400/sq. m. for a
total sum of P8.4 million. The final agreement also listed a schedule of payments of the purchase price and included
a penalty clause in case of default.

Petitioner also charged respondent with delay in paying several installments due and did not pay the
7th installment in the amount of P1 million. This was allegedly a material breach because they agreed that the survey
of the property would only be done after respondent would have paid the 7th installment. Due to respondents failure
to fulfill his obligations, petitioner claimed that he had no choice except to rescind the kasunduan sa bilihan ng lupa.
He, however, was willing to reimburse 50% of whatever respondent had paid him so far.

After hearing, the RTC[4] ruled in favor of petitioner and held that the kasunduan preceded the kasunduan sa
bilihan ng lupa. Thus, the RTC dismissed the complaint of respondent for lack of merit and/or cause of action. It also
ordered the rescission of the kasunduan sa bilihan ng lupa as well as the forfeiture of 50% of the amount already
paid by respondent (but ordered petitioner to return to respondent 50% of the amount already paid). The RTC also
directed respondent to pay petitioner P50,000 attorneys fees and costs of suit.

On appeal, the Court of Appeals (CA)[5] reversed the RTC and held that the kasunduan sa bilihan ng lupa was
the first document executed by the parties, not thekasunduan. Thus, the CA ordered respondent to pay the heirs of

petitioner the balance of the purchase price in the amount of P2,796,400. The CA also ordered that, upon complete
payment by respondent, Marginito Movido (the substitute of petitioner) should execute the necessary deed of
absolute sale in favor of respondent and comply with petitioners other obligations under the kasunduan sa bilihan ng
lupa.

Marginito Movidos motion for reconsideration did not have its desired result. [6] Hence, this petition for review
on certiorari,[7] where he insists that it was the kasunduan, not the kasunduan sa bilihan ng lupa, which was first
executed by the parties. He likewise claims that the failure of respondent to pay the 7 th and 8th installments of the
purchase price gave petitioner the right to rescind the contract.

MISGUIDED SEARCH FOR PRIORITY IN TIME

The issue of which of the two contracts was first executed by the parties is immaterial to the resolution of this
case. In the first place, both contracts were executed and notarized on the same day, December 6, 1993. More
importantly, both contracts, even independent of the time of their execution but, taken together, clearly spell out in full
the respective rights and obligations of the parties.

Indeed, a reading of the kasunduan sa bilihan ng lupa and the kasunduan would readily reveal that payment of
the purchase price does not depend on the survey of the property. In other words, the purchase price should be paid
whether or not the property is surveyed. The survey of the property is important only insofar as the right of
respondent to the reduction of the purchase price is concerned.

On the other hand, the survey of the property to determine the metes and bounds of the 1,731 sq. m. portion
that is excluded from the contract as well as the portions covered by the kasunduan which will be subject to reduction

of the purchase price, is also not conditioned on the payment of any installment. Petitioner simply has to do it. In fact,
under the kasunduan sa bilihan ng lupa, the survey should be done before the date of the last installment. Hence, the
survey could have been done anytime after the execution of the agreement.

If respondent pays a higher amount without the property being surveyed first (compared to what he is liable to
pay after the survey of the property) it will not be a problem because the excess of the amount paid can easily be
refunded to him. Such would be the plain application of the provisions of the kasunduan. On the other hand,
petitioner cannot successfully reject respondents demand for petitioner to perform his obligation to have the property
surveyed. Under the kasunduan sa bilihan ng lupa, petitioner is obligated to conduct the survey on or before the due
date of the last installment.

Corollary to this, the CA erred when it proceeded to determine the remaining balance of respondent by
applying a reduced rate on certain portions of the property. In effect, the CA disregarded the agreement of the parties
that petitioner should first cause the survey of the subject property in order to determine the area excluded from the
sale and the portion traversed by the Napocor power line. Petitioner himself admitted that he had this obligation.
Thus, the CAs application of a reduced price in the absence of a survey was without factual or legal basis. It unduly
infringed on the parties liberty to contract.

There are two options to resolve this impasse. First, respondent may be ordered to pay his remaining balance
in the kasunduan sa bilihan ng lupa representing the 7th and 8th installments or the amount of P3.4 million in which
case Marginito will be ordered to immediately conduct the survey of the property and thereafter to refund to
respondent the excess of the amount paid. Second, Marginito may be ordered to have the property surveyed first
within a reasonable period and thereafter respondent will have to pay his corresponding balance (which, naturally,
will be less than P3.4 million).

Prudence dictates that the second option is better as it will prevent further conflict between the parties. Thus,
we adopt the second option.
IMPROPRIETY OF RESCISSION

Rescission is only allowed when the breach is so substantial and fundamental as to defeat the object of the
parties in entering into the contract.[8] We find no such substantial or material breach.

It is true that respondent failed to pay the 7 th and 8th installments of the purchase price. However, considering
the circumstances of the instant case, particularly the provisions of the kasunduan, respondent cannot be deemed to
have committed a serious breach. In the first place, respondent was not in default as petitioner never made a
demand for payment.

Moreover, the kasunduan sa bilihan ng lupa and the kasunduan should both be given effect rather than be
declared conflicting, if there is a way of reconciling them. Petitioner and respondent would not have entered into
either of the agreements if they did not intend to be bound or governed by them. Indeed, taken together, the two
agreements actually constitute a single contract pertaining to the sale of a land to respondent by petitioner. Their
stipulations must therefore be interpreted together, attributing to the doubtful ones that sense that may result from all
of them taken jointly.[9] Their proper construction must be one that gives effect to all.[10]

In this connection, the kasunduan sa bilihan ng lupa contains the general terms and conditions of the
agreement of the parties. On the other hand, the kasunduan refers to a particular or specific matter, i.e., that portion
of the land that is traversed by a Napocor power line. As the kasunduan pertains to a special area of the agreement,
it constitutes an exception to the general provisions of the kasunduan sa bilihan ng lupa, particularly on the purchase
price for that portion. Specialibus derogat generalibus.

Under both the kasunduan sa bilihan ng lupa and the kasunduan, petitioner undertook to cause the survey of
the property in order to determine the portion excluded from the sale, as well as the portion traversed by the Napocor
power line. Despite repeated demands by respondent, however, petitioner failed to perform his obligation. Thus,
considering that there was a breach on the part of petitioner (and no material breach on the part of respondent), he
cannot properly invoke his right to rescind the contract.

WHEREFORE, the petition is hereby DENIED. The July 18, 2005 decision of the Court of Appeals in CAG.R. CV No. 67207 is AFFIRMED with theMODIFICATION that Marginito Movido is ordered to cause the survey of
the subject lot within a period of three months in order to determine the excluded portion of the sale and the portion
traversed by the Napocor power line. If he fails to do so, Luis Reyes Pastor is hereby authorized to have it done with
the cost of the survey charged to Marginito Movido.

Luis Reyes Pastor should thereafter pay the balance of the purchase price, after which, Marginito should
execute the kasulatan ng ganap na bilihan ng lupa (deed of absolute sale) in favor of Luis Reyes Pastor, reflecting as
purchase price the amount actually paid by the latter.

Costs against petitioner.

SO ORDERED.
__________________________________________________________________
TSPIC CORPORATION,
Petitioner,

G.R. No. 163419

Present:

- versus -

QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

TSPIC EMPLOYEES UNION (FFW),

representing MARIA FE FLORES,
FE CAPISTRANO, AMY DURIAS,[1]
CLAIRE EVELYN VELEZ, JANICE
OLAGUIR, JERICO ALIPIT, GLEN
BATULA, SER JOHN HERNANDEZ,
RACHEL NOVILLAS, NIMFA ANILAO,
ROSE SUBARDIAGA, VALERIE
CARBON, OLIVIA EDROSO, MARICRIS
DONAIRE, ANALYN AZARCON,
ROSALIE RAMIREZ, JULIETA ROSETE,
JANICE NEBRE, NIA ANDRADE,
CATHERINE YABA, DIOMEDISA
ERNI,[2] MARIO SALMORIN, LOIDA
COMULLO,[3] MARIE ANN DELOS
SANTOS,[4] JUANITA YANA, and
Promulgated:
SUZETTE DULAY,
Respondents.
February 13, 2008
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:

The path towards industrial peace is a two-way street. Fundamental fairness and protection to labor should
always govern dealings between labor and management. Seemingly conflicting provisions should be harmonized to
arrive at an interpretation that is within the parameters of the law, compassionate to labor, yet, fair to management.
In this Petition for Review on Certiorari under Rule 45, petitioner TSPIC Corporation (TSPIC) seeks to annul
and set aside the October 22, 2003 Decision [5] and April 23, 2004 Resolution[6] of the Court of Appeals (CA) in CAG.R. SP No. 68616, which affirmed the September 13, 2001 Decision [7] of Accredited Voluntary Arbitrator Josephus
B. Jimenez in National Conciliation and Mediation Board Case No. JBJ-AVA-2001-07-57.
TSPIC is engaged in the business of designing, manufacturing, and marketing integrated circuits to serve the
communication, automotive, data processing, and aerospace industries. Respondent TSPIC Employees Union
(FFW) (Union), on the other hand, is the registered bargaining agent of the rank-and-file employees of TSPIC. The
respondents, Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn Velez, Janice Olaguir, Jerico Alipit, Glen
Batula, Ser John Hernandez, Rachel Novillas, Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso,
Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba,
Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay, are all
members of the Union.

In 1999, TSPIC and the Union entered into a Collective Bargaining Agreement (CBA)[8] for the years 2000 to
2004. The CBA included a provision on yearly salary increases starting January 2000 until January 2002. Section 1,
Article X of the CBA provides, as follows:
Section 1. Salary/ Wage Increases.Employees covered by this Agreement shall be granted
salary/wage increases as follows:
a)

Effective January 1, 2000, all employees on regular status and within the bargaining
unit on or before said date shall be granted a salary increase equivalent to ten
percent (10%) of their basic monthly salary as of December 31, 1999.
b) Effective January 1, 2001, all employees on regular status and within the bargaining
unit on or before said date shall be granted a salary increase equivalent to twelve
(12%) of their basic monthly salary as of December 31, 2000.
c) Effective January 1, 2002, all employees on regular status and within the bargaining
unit on or before said date shall be granted a salary increase equivalent to eleven
percent (11%) of their basic monthly salary as of December 31, 2001.
The wage salary increase of the first year of this Agreement shall be over and above the
wage/salary increase, including the wage distortion adjustment, granted by the COMPANY
onNovember 1, 1999 as per Wage Order No. NCR-07.
The wage/salary increases for the years 2001 and 2002 shall be deemed inclusive of the
mandated minimum wage increases under future Wage Orders, that may be issued after Wage
Order No. NCR-07, and shall be considered as correction of any wage distortion that may have
been brought about by the said future Wage Orders. Thus the wage/salary increases in 2001 and
2002 shall be deemed as compliance to future wage orders after Wage Order No. NCR-07.
Consequently, on January 1, 2000, all the regular rank-and-file employees of TSPIC received a 10%
increase in their salary. Accordingly, the following nine (9) respondents (first group) who were already regular
employees received the said increase in their salary: Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn
Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez, and Rachel Novillas.[9]
The CBA also provided that employees who acquire regular employment status within the year but after the
effectivity of a particular salary increase shall receive a proportionate part of the increase upon attainment of their
regular status. Sec. 2 of the CBA provides:
SECTION 2. Regularization Increase.A covered daily paid employee who acquires regular
status within the year subsequent to the effectivity of a particular salary/wage increase mentioned
in Section 1 above shall be granted a salary/wage increase in proportionate basis as follows:
Regularization Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

Equivalent Increase
100%
75%
50%
25%

Thus, a daily paid employee who becomes a regular employee covered by this Agreement
only on May 1, 2000, i.e., during the second quarter and subsequent to the January 1, 2000 wage
increase under this Agreement, will be entitled to a wage increase equivalent to seventy-five
percent (75%) of ten percent (10%) of his basic pay. In the same manner, an employee who
acquires regular status on December 1, 2000 will be entitled to a salary increase equivalent to
twenty-five percent (25%) of ten percent (10%) of his last basic pay.
On the other hand, any monthly-paid employee who acquires regular status within the term
of the Agreement shall be granted regularization increase equivalent to 10% of his regular basic
salary.

Then on October 6, 2000, the Regional Tripartite Wage and Productivity Board, National Capital Region,
issued Wage Order No. NCR-08[10] (WO No. 8) which raised the daily minimum wage from PhP 223.50 to PhP 250
effective November 1, 2000. Conformably, the wages of 17 probationary employees, namely: Nimfa Anilao, Rose
Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta
Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann
Delos Santos, Juanita Yana, and Suzette Dulay (second group), were increased to PhP 250.00 effective November
1, 2000.
On various dates during the last quarter of 2000, the above named 17 employees attained regular
employment[11] and received 25% of 10% of their salaries as granted under the provision on regularization increase
under Article X, Sec. 2 of the CBA.
In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As a result, the nine
employees (first group), who were senior to the above-listed recently regularized employees, received less wages.
On January 19, 2001, a few weeks after the salary increase for the year 2001 became effective, TSPICs
Human Resources Department notified 24 employees,[12] namely:Maria Fe Flores, Janice Olaguir, Rachel Novillas,
Fe Capistrano, Jerico Alipit, Amy Durias, Glen Batula, Claire Evelyn Velez, Ser John Hernandez, Nimfa Anilao, Rose
Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete,
Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, and Marie Ann Delos
Santos, that due to an error in the automated payroll system, they were overpaid and the overpayment would be
deducted from their salaries in a staggered basis, starting February 2001. TSPIC explained that the correction of the
erroneous computation was based on the crediting provision of Sec. 1, Art. X of the CBA.

The Union, on the other hand, asserted that there was no error and the deduction of the alleged
overpayment from employees constituted diminution of pay. The issue was brought to the grievance machinery, but
TSPIC and the Union failed to reach an agreement.
Consequently, TSPIC and the Union agreed to undergo voluntary arbitration on the solitary issue of whether
or not the acts of the management in making deductions from the salaries of the affected employees constituted
diminution of pay.
On September 13, 2001, Arbitrator Jimenez rendered a Decision, holding that the unilateral deduction made by
TSPIC violated Art. 100[13] of the Labor Code. The falloreads:
WHEREFORE, in the light of the law on the matter and on the facts adduced in evidence,
judgment is hereby rendered in favor of the Union and the named individual employees and
against the company, thereby ordering the [TSPIC] to pay as follows:
1)

to the sixteen (16) newly regularized employees named above, the amount of
P12,642.24 a month or a total of P113,780.16 for nine (9) months or P7,111.26 for each of
them as well as an additional P12,642.24 (for all), or P790.14 (for each), for every month
after 30 September 2001, until full payment, with legal interests for every month of delay;

2)

to the nine (9) who were hired earlier than the sixteen (16); also named above, their
respective amount of entitlements, according to the Unions correct computation, ranging
from P110.22 per month (or P991.98 for nine months) to P450.58 a month (or P4,055.22
for nine months), as well as corresponding monthly entitlements after 30 September 2001,
plus legal interests until full payment,

3)

to Suzette Dulay, the amount of P608.14 a month (or P5,473.26), as well as

corresponding monthly entitlements after 30 September 2001, plus legal interest until full
payment,

4)

Attorneys fees equal to 10% of all the above monetary awards.

The claim for exemplary damages is denied for want of factual basis.

The parties are hereby directed to comply with their joint voluntary commitment to abide
by this Award and thus, submit to this Office jointly, a written proof of voluntary compliance with this
DECISION within ten (10) days after the finality hereof.
SO ORDERED.[14]

TSPIC filed a Motion for Reconsideration which was denied in a Resolution dated November 21, 2001.
Aggrieved, TSPIC filed before the CA a petition for review under Rule 43 docketed as CA-G.R. SP No.
68616. The appellate court, through its October 22, 2003 Decision, dismissed the petition and affirmed in toto the

decision of the voluntary arbitrator. The CA declared TSPICs computation allowing PhP 287 as daily wages to the
newly regularized employees to be correct, noting that the computation conformed to WO No. 8 and the provisions of
the CBA. According to the CA, TSPIC failed to convince the appellate court that the deduction was a result of a
system error in the automated payroll system. The CA explained that when WO No. 8 took effect on November 1,
2000, the concerned employees were still probationary employees who were receiving the minimum wage of PhP
223.50. The CA said that effective November 1, 2000, said employees should have received the minimum wage of
PhP 250. The CA held that when respondents became regular employees on November 29, 2000, they should be
allowed the salary increase granted them under the CBA at the rate of 25% of 10% of their basic salary for the year
2000; thereafter, the 12% increase for the year 2001 and the 10% increase for the year 2002 should also be made
applicable to them.[15]
TSPIC filed a Motion for Reconsideration which was denied by the CA in its April 23, 2004 Resolution.
TSPIC filed the instant petition which raises this sole issue for our resolution: Does the TSPICs decision to
deduct the alleged overpayment from the salaries of the affected members of the Union constitute diminution of
benefits in violation of the Labor Code?
TSPIC maintains that the formula proposed by the Union, adopted by the arbitrator and affirmed by the CA,
was flawed, inasmuch as it completely disregarded the crediting provision contained in the last paragraph of Sec. 1,
Art. X of the CBA.

We find TSPICs contention meritorious.

A Collective Bargaining Agreement is the law between the parties
It is familiar and fundamental doctrine in labor law that the CBA is the law between the parties and they are
obliged to comply with its provisions.[16] We said so inHonda Phils., Inc. v. Samahan ng Malayang Manggagawa sa
Honda:
A collective bargaining agreement or CBA refers to the negotiated contract between a
legitimate labor organization and the employer concerning wages, hours of work and all other
terms and conditions of employment in a bargaining unit. As in all contracts, the parties in a CBA
may establish such stipulations, clauses, terms and conditions as they may deem convenient
provided these are not contrary to law, morals, good customs, public order or public policy. Thus,
where the CBA is clear and unambiguous, it becomes the law between the parties and compliance
therewith is mandated by the express policy of the law. [17]

Moreover, if the terms of a contract, as in a CBA, are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of their stipulations shall control.[18] However, sometimes, as in this case,
though the provisions of the CBA seem clear and unambiguous, the parties sometimes arrive at conflicting
interpretations. Here, TSPIC wants to credit the increase granted by WO No. 8 to the increase granted under the
CBA. According to TSPIC, it is specifically provided in the CBA that the salary/wage increase for the year 2001 shall
be deemed inclusive of the mandated minimum wage increases under future wage orders that may be issued after
Wage Order No. 7. The Union, on the other hand, insists that the crediting provision of the CBA finds no application
in the present case, since at the time WO No. 8 was issued, the probationary employees (second group) were not yet
covered by the CBA, particularly by its crediting provision.
As a general rule, in the interpretation of a contract, the intention of the parties is to be pursued. [19] Littera
necat spiritus vivificat. An instrument must be interpreted according to the intention of the parties. It is the duty of the
courts to place a practical and realistic construction upon it, giving due consideration to the context in which it is
negotiated and the purpose which it is intended to serve. [20] Absurd and illogical interpretations should also be
avoided. Considering that the parties have unequivocally agreed to substitute the benefits granted under the CBA
with those granted under wage orders, the agreement must prevail and be given full effect.
Paragraph (b) of Sec. 1 of Art. X of the CBA provides for the general agreement that, effective January 1, 2001,
all employees on regular status and within the bargaining unit on or before said date shall be granted a salary
increase equivalent to twelve (12%) of their basic monthly salary as of December 31, 2000. The 12% salary increase
is granted to all employees who (1) are regular employees and (2) are within the bargaining unit.
Second paragraph of (c) provides that the salary increase for the year 2000 shall not include the increase in
salary granted under WO No. 7 and the correction of the wage distortion for November 1999.
The last paragraph, on the other hand, states the specific condition that the wage/salary increases for the
years 2001 and 2002 shall be deemed inclusive of the mandated minimum wage increases under future wage
orders, that may be issued after WO No. 7, and shall be considered as correction of the wage distortions that may be
brought about by the said future wage orders. Thus, the wage/salary increases in 2001 and 2002 shall be deemed
as compliance to future wage orders after WO No. 7.
Paragraph (b) is a general provision which allows a salary increase to all those who are qualified. It,
however, clashes with the last paragraph which specifically states that the salary increases for the years 2001 and
2002 shall be deemed inclusive of wage increases subsequent to those granted under WO No. 7. It is a familiar rule
in interpretation of contracts that conflicting provisions should be harmonized to give effect to all. [21] Likewise, when
general and specific provisions are inconsistent, the specific provision shall be paramount to and govern the general
provision.[22] Thus, it may be reasonably concluded that TSPIC granted the salary increases under the condition that

any wage order that may be subsequently issued shall be credited against the previously granted increase. The
intention of the parties is clear: As long as an employee is qualified to receive the 12% increase in salary, the
employee shall be granted the increase; and as long as an employee is granted the 12% increase, the amount shall
be credited against any wage order issued after WO No. 7.
Respondents should not be allowed to receive benefits from the CBA while avoiding the counterpart crediting
provision. They have received their regularization increases under Art. X, Sec. 2 of the CBA and the yearly increase
for the year 2001. They should not then be allowed to avoid the crediting provision which is an accompanying
condition.
Respondents attained regular employment status before January 1, 2001. WO No. 8, increasing the
minimum wage, was issued after WO No. 7. Thus, respondents rightfully received the 12% salary increase for the
year 2001 granted in the CBA; and consequently, TSPIC rightfully credited that 12% increase against the increase
granted by WO No. 8.

Proper formula for computing the salaries for the year 2001
Thus, the proper computation of the salaries of individual respondents is as follows:
(1) With regard to the first group of respondents who attained regular employment status before the
effectivity of WO No. 8, the computation is as follows:
For respondents Jerico Alipit and Glen Batula:[23]
Wage rate before WO No. 8... PhP 234.67
Increase due to WO No. 8
setting the minimum wage at PhP 250.
15.33
Total Salary upon effectivity of WO No. 8. PhP 250.00
Increase for 2001 (12% of 2000 salary)........... PhP 30.00
Less the wage increase under WO No. 8.
15.33
Total difference between the wage increase
for 2001 and the increase granted under WO No. 8.. PhP 14.67
Wage rate by December 2000..... PhP 250.00
Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8..
14.67
Total (Wage rate range beginning January 1, 2001)
PhP 264.67

For respondents Ser John Hernandez and Rachel Novillas:[24]

Wage rate range before WO No. 8.PhP 234.68
Increase due to WO No. 8
setting the minimum wage at PhP 250..
15.32
Total Salary upon effectivity of WO No. 8... PhP 250.00
Increase for 2001 (12% of 2000 salary) PhP 30.00
Less the wage increase under WO No. 8..
15.32
Total difference between the wage increase
for 2001 and the increase granted under WO No. 8. PhP 14.68
Wage rate by December 2000......... PhP 250.00
Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8..
14.68
Total (Wage rate range beginning January 1, 2001) .. PhP 264.68
For respondents Amy Durias, Claire Evelyn Velez, and Janice Olaguir:[25]
Wage rate range before WO No. 8.. PhP 240.26
Increase due to WO No. 8
setting the minimum wage at PhP 250
9.74
Total Salary upon effectivity of WO No. 8. PhP 250.00
Increase for 2001 (12% of 2000 salary). PhP 30.00
Less the wage increase under WO No. 8
9.74
Total difference between the wage increase for 2001
and the increase granted under WO No. 8.. PhP 20.26
Wage rate by December 2000. PhP 250.00
Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8..
20.26
Total (Wage rate range beginning January 1, 2001).. PhP 270.26

For respondents Ma. Fe Flores and Fe Capistrano:[26]

Wage rate range before WO No. 8 PhP 245.85
Increase due to WO No. 8
setting the minimum wage at PhP 250..
4.15
Total Salary upon effectivity of WO No. 8... PhP 250.00
Increase for 2001 (12% of 2000 salary). PhP 30.00
Less the wage increase under WO No. 8...........
4.15
Total difference between the wage increase for 2001
and the increase granted under WO No. 8. PhP 25.85

Wage rate by December 2000. PhP 250.00

Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8..
25.85
Total (Wage rate range beginning January 1, 2001).. PhP 275.85

(2) With regard to the second group of employees, who attained regular employment status after the
implementation of WO No. 8, namely: Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris
Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa
Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay, the proper
computation of the salaries for the year 2001, in accordance with the CBA, is as follows:
Compute the increase in salary after the implementation of WO No. 8 by subtracting the minimum wage before
WO No. 8 from the minimum wage per the wage order to arrive at the wage increase, thus:
Minimum Wage per Wage Order.. PhP 250.00
Wage rate before Wage Order..
223.50
Wage Increase. PhP 26.50
Upon attainment of regular employment status, the employees salaries were increased by 25% of 10% of
their basic salaries, as provided for in Sec. 2, Art. X of the CBA, thus resulting in a further increase of PhP 6.25, for a
total of PhP 256.25, computed as follows:
Wage rate after WO No. 8. PhP 250.00
Regularization increase (25 % of 10% of basic salary).
6.25
Total (Salary for the end of year 2000).. PhP 256.25
To compute for the increase in wage rates for the year 2001, get the increase of 12% of the employees
salaries as of December 31, 2000; then subtract from that amount, the amount increased in salaries as granted
under WO No. 8 in accordance with the crediting provision of the CBA, to arrive at the increase in salaries for the
year 2001 of the recently regularized employees. Add the result to their salaries as of December 31, 2000 to get the
proper salary beginning January 1, 2001, thus:
Increase for 2001 (12% of 2000 salary)... PhP 30.75
Less the wage increase under WO No. 8.
26.50
Difference between the wage increase
for 2001 and the increase granted under WO No. 8.... PhP 4.25
Wage rate after regularization increase... PhP 256.25
Plus total difference between the wage increase and

the increase granted under WO No. 8.

4.25
Total (Wage rate beginning January 1, 2001). PhP 260.50

With these computations, the crediting provision of the CBA is put in effect, and the wage distortion between
the first and second group of employees is cured. The first group of employees who attained regular employment
status before the implementation of WO No. 8 is entitled to receive, starting January 1, 2001, a daily wage
rate within the range of PhP 264.67 to PhP 275.85, depending on their wage rate before the implementation of WO
No. 8. The second group that attained regular employment status after the implementation of WO No. 8 is entitled to
receive a daily wage rate of PhP 260.50 starting January 1, 2001.
Diminution of benefits
TSPIC also maintains that charging the overpayments made to the 16 respondents through staggered
deductions from their salaries does not constitute diminution of benefits.
We agree with TSPIC.
Diminution of benefits is the unilateral withdrawal by the employer of benefits already enjoyed by the
employees. There is diminution of benefits when it is shown that: (1) the grant or benefit is founded on a policy or has
ripened into a practice over a long period; (2) the practice is consistent and deliberate; (3) the practice is not due to
error in the construction or application of a doubtful or difficult question of law; and (4) the diminution or
discontinuance is done unilaterally by the employer.[27]
As correctly pointed out by TSPIC, the overpayment of its employees was a result of an error. This error was
immediately rectified by TSPIC upon its discovery. We have ruled before that an erroneously granted benefit may be
withdrawn without violating the prohibition against non-diminution of benefits. We ruled in Globe-Mackay Cable and
Radio Corp. v. NLRC:
Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for
erroneous application of the law. Payment may be said to have been made by reason of a mistake
in the construction or application of a doubtful or difficult question of law. (Article 2155, in relation
to Article 2154 of the Civil Code). Since it is a past error that is being corrected, no vested right
may be said to have arisen nor any diminution of benefit under Article 100 of the Labor Code may
be said to have resulted by virtue of the correction.[28]

Here, no vested right accrued to individual respondents when TSPIC corrected its error by crediting the
salary increase for the year 2001 against the salary increase granted under WO No. 8, all in accordance with the
CBA.
Hence, any amount given to the employees in excess of what they were entitled to, as computed above,
may be legally deducted by TSPIC from the employees salaries. It was also compassionate and fair that TSPIC
deducted the overpayment in installments over a period of 12 months starting from the date of the initial deduction to
lessen the burden on the overpaid employees. TSPIC, in turn, must refund to individual respondents any amount
deducted from their salaries which was in excess of what TSPIC is legally allowed to deduct from the salaries based
on the computations discussed in this Decision.
As a last word, it should be reiterated that though it is the states responsibility to afford protection to labor,
this policy should not be used as an instrument to oppress management and capital. [29] In resolving disputes between
labor and capital, fairness and justice should always prevail. We ruled in Norkis Union v. Norkis Trading that in the
resolution of labor cases, we have always been guided by the State policy enshrined in the Constitution: social justice
and protection of the working class. Social justice does not, however, mandate that every dispute should be
automatically decided in favor of labor. In any case, justice is to be granted to the deserving and dispensed in the
light of the established facts and the applicable law and doctrine.[30]
WHEREFORE, premises considered, the September 13, 2001 Decision of the Labor Arbitrator in National
Conciliation and Mediation Board Case No. JBJ-AVA-2001-07-57 and the October 22, 2003 CA Decision in CA-G.R.
SP No. 68616 are hereby AFFIRMED with MODIFICATION. TSPIC is hereby ORDERED to pay respondents their
salary increases in accordance with this Decision, as follows:

Name of Employee
Nimfa Anilao
Rose Subardiaga
Valerie Carbon
Olivia Edroso
Maricris Donaire
Analyn Azarcon
Rosalie Ramirez
Julieta Rosete
Janice Nebre
Nia Andrade
Catherine Yaba
Diomedisa Erni

Daily Wage
Rate
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5

No. of Working
Days in a Month
26
26
26
26
26
26
26
26
26
26
26
26

No. of
Months in a
Year
12
12
12
12
12
12
12
12
12
12
12
12

Total Salary for

2001
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00

Mario Salmorin
Loida Camullo
Marie Ann Delos Santos
Juanita Yana
Suzette Dulay
Jerico Alipit
Glen Batula
Ser John Hernandez
Rachel Novillas
Amy Durias
Claire Evelyn Velez
Janice Olaguir
Maria Fe Flores
Fe Capistrano

260.5
260.5
260.5
260.5
260.5
264.67
264.67
264.68
264.68
270.26
270.26
270.26
275.85
275.85

26
26
26
26
26
26
26
26
26
26
26
26
26
26

12
12
12
12
12
12
12
12
12
12
12
12
12
12

81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
82,577.04
82,577.04
82,580.16
82,580.16
84,321.12
84,321.12
84,321.12
86,065.20
86,065.20

The award for attorneys fees of ten percent (10%) of the total award is MAINTAINED.
SO ORDERED.
____________________________________________________________________
SPS. RAFAEL P. ESTANISLAO

G.R. No. 178537

AND ZENAIDA ESTANISLAO,

Petitioners,

Present:

Ynares-Santiago, J. (Chairperson),
- versus -

Austria-Martinez,
Corona,*
Nachura, and
Reyes, JJ.

EAST WEST BANKING

CORPORATION,

Promulgated:
Respondent.
February 11, 2008

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

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review of the Decision [1] of the Court of Appeals dated April 13, 2007 in CA-G.R. CV No.
87114 which reversed and set aside the Decision of theRegional Trial Court of Antipolo City, Branch 73 in Civil Case
No. 00-5731. The appellate court entered a new judgment ordering petitioners spouses Estanislao to pay
respondent East West Banking Corporation P4,275,919.65 plus interest and attorneys fees. Also assailed is the
Resolution[2] dated June 25, 2007 denying the motion for reconsideration.

The facts are as follows:

On July 24, 1997, petitioners obtained a loan from the respondent in the amount of P3,925,000.00
evidenced by a promissory note and secured by two deeds of chattel mortgage dated July 10, 1997: one covering
two dump trucks and a bulldozer to secure the loan amount of P2,375,000.00, and another covering bulldozer and a
wheel loader to secure the loan amount of P1,550,000.00. Petitioners defaulted in the amortizations and the entire
obligation became due and demandable.

On April 10, 2000, respondent bank filed a suit for replevin with damages, praying that the equipment
covered by the first deed of chattel mortgage be seized and delivered to it. In the alternative, respondent prayed that
petitioners be ordered to pay the outstanding principal amount of P3,846,127.73 with 19.5% interest per annum
reckoned from judicial demand until fully paid, exemplary damages of P50,000.00, attorneys fees equivalent to 20%
of the total amount due, other expenses and costs of suit.

The case was filed in the Regional Trial Court of Antipolo and raffled to Branch 73 thereof.

Subsequently, respondent moved for suspension of the proceedings on account of an earnest attempt to
arrive at an amicable settlement of the case. The trial court suspended the proceedings, and during the course of
negotiations, a deed of assignment[3] dated August 16, 2000 was drafted by the respondent, which provides in part,
that:

x x x the ASSIGNOR is indebted to the ASSIGNEE in the aggregate sum of SEVEN

MILLION THREE HUNDRED FIVE THOUSAND FOUR HUNDRED FIFTY NINE PESOS and
FIFTY TWO CENTAVOS (P7,305,459.52), Philippine currency, inclusive of accrued interests
and penalties as of August 16, 2000, and in full payment thereof, the ASSIGNOR does
hereby ASSIGN, TRANSFER and CONVEY unto the ASSIGNEE those motor vehicles, with all
their tools and accessories, more particularly described as follows:

Make

: Isuzu Dump Truck

xxx

Make

: Isuzu Dump Truck

xxx

Make

: x x x Caterpillar Bulldozer x x x

That the ASSIGNEE hereby accepts the assignment in full payment of the abovementioned debt x x x. (Emphasis supplied)

Petitioners affixed their signatures on the deed of assignment. However, for some unknown reason,
respondent banks duly authorized representative failed to sign the deed.

On October 6, 2000 and March 8, 2001, respectively, petitioners completed the delivery of the heavy
equipment mentioned in the deed of assignment two dump trucks and a bulldozer to respondent, which accepted
the same without protest or objection.

However, on June 20, 2001, respondent filed a manifestation and motion to admit an amended complaint for
the seizure and delivery of two more heavy equipment the bulldozer and wheel loader which are covered under
the second deed of chattel mortgage. Respondent claimed that its representative inadvertently failed to include the
second deed of chattel mortgage among the documents forwarded to its counsel when the original complaint was

being drafted. Respondent likewise claimed that petitioners were given a chance to submit a refinancing scheme
that would allow them to keep the remaining two heavy equipment, but they failed to come up with such a scheme
despite repeated promises to do so.

Respondents amended complaint for replevin alleged that petitioners outstanding indebtedness as of June
14, 2001 stood at P4,275,919.61 which is more or less equal to the aggregate value of the additional units of heavy
equipment sought to be recovered. It also prayed that, in the event the two heavy equipment could not be replevied,
petitioners be ordered to pay the outstanding sum of P3,846,127.73 with 19.5% interest per annum reckoned from
January 24, 1998, compound interest, exemplary damages of P50,000.00, attorneys fees equivalent to 20% of the
total amount due, other expenses and costs of suit.

Petitioners sought to dismiss the amended complaint. They alleged that their previous payments on loan
amortizations, the execution of the deed of assignment on August 16, 2000, and respondents acceptance of the
three units of heavy equipment, had the effect of full payment or satisfaction of their total outstanding obligation which
is a bar on respondent bank from recovering any more amounts from them. By way of counterclaim, petitioners
sought the award of nominal damages in the amount of P500,000.00, moral damages in the amount of P500,000.00,
exemplary damages in the amount of P500,000.00, attorneys fees, litigation expenses, interest and costs.

On March 14, 2006, the trial court dismissed the amended complaint for lack of merit. It held that the deed
of assignment and the petitioners delivery of the heavy equipment effectively extinguished petitioners total loan
obligation. It also held that respondent was estopped from further collecting from the petitioners when it accepted,
without any protest, delivery of the three units of heavy equipment as full and complete satisfaction of the petitioners
total loan obligation. Respondent likewise failed to timely rectify its alleged mistake in the original complaint and
deed of assignment, taking almost a year to act.

Respondent bank appealed to the Court of Appeals, which reversed the trial courts decision, the dispositive
portion of which reads:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The

Decision dated March 14, 2006 of the Regional Trial Court of Antipolo City, Branch 73 in Civil Case
No. 00-5731 is hereby REVERSED and SET ASIDE. A new judgment is hereby entered ordering
the defendants-appellees to pay, jointly and severally, plaintiff-appellant East West Banking

Corporation the sum of FOUR MILLION TWO HUNDRED SEVENTY FIVE THOUSAND NINE
HUNDRED NINETEEN and 69/100 (P4,275,919.69) per Statement of Account as of June 14, 2001
(Exh. E, Records, p.328) with interest at 12% per annum from June 15, 2001 until full payment
thereof. Defendants-appellees are likewise ordered to pay the plaintiff-appellant attorneys fees in
the sum equivalent to ten per cent (10%) of the total amount due.

No pronouncement as to costs.

SO ORDERED.[4]

The reversal of the lower courts decision hinges on: (1) the appellate courts finding that the deed of
assignment cannot bind the respondent because it did not sign the same. The appellate court ruled that the
assignment contract was never perfected although it was prepared and drafted by the respondent; (2) respondent
was not estopped by its own declarations in the deed of assignment, because such declarations were the result of
ignorance founded upon an innocent mistake and plain oversight on the part of respondents staff in the banks
loan operations department, who failed to forward the complete documents pertaining to petitioners account to the
banks legal department, such that when the original complaint for replevin was prepared, the second deed of chattel
mortgage covering two other pieces of heavy equipment was inadvertently excluded; (3) petitioners are aware that
there were five pieces of heavy equipment under chattel mortgage for an outstanding balance of over P7 million; and
(4) the appellate court held that even after the delivery of the heavy equipment covered by the deed of assignment,
the petitioners continued to negotiate with the respondent on a possible refinancing scheme that will enable them to
retain the two other units of heavy equipment still in their possession and which are the subject of the second deed of
chattel mortgage.

Petitioners argue that: a) the appellate court erred in ordering the payment of the principal obligation in a
replevin suit which it erroneously treated as a collection case; b) the deed of assignment is binding between the
parties although it was not signed by the respondent, constituting as it did an offer which they validly accepted; and c)
the respondent is estopped from collecting or foreclosing on the second deed of chattel mortgage.

On the other hand, respondent argues that: a) the deed of assignment produced no legal effect between the
parties for failure of the respondent to sign the same; b) the deed was founded on a mistake on its part because it
honestly believed that only one chattel mortgage had been constituted to secure the petitioners obligation; c) the
non-inclusion of the second deed of chattel mortgage in the original complaint was a case of plain oversight on the

part of the loan operations unit of respondent bank, which failed to forward to the legal department the complete
documents pertaining to the petitioners loan account; d) the continued negotiations in August 2001 between the
parties, after delivery of the three units of heavy equipment, proves that petitioners acknowledged their continuing
obligations to respondent under the second deed of mortgage; and, e) the deed of assignment did not have the effect
of novating the original loan obligation.

The issue for resolution is: Did the deed of assignment which expressly provides that the transfer and
conveyance to respondent of the three units of heavy equipment, and its acceptance thereof, shall be in full
payment of the petitioners total outstanding obligation to the latter operate to extinguish petitioners debt to
respondent, such that the replevin suit could no longer prosper?

We find merit in the petition.

The appellate court erroneously denominated the replevin suit as a collection case. A reading of the original
and amended complaints show that what the respondent initiated was a pure replevin suit, and not a collection
case. Recovery of the heavy equipment was the principal aim of the suit; payment of the total obligation was merely
an alternative prayer which respondent sought in the event manual delivery of the heavy equipment could no longer
be made.

Replevin, broadly understood, is both a form of principal remedy and a provisional relief. It may refer either
to the action itself, i.e., to regain the possession of personal chattels being wrongfully detained from the plaintiff by
another, or to the provisional remedy that would allow the plaintiff to retain the thing during the pendency of the action
and hold it pendente lite.[5]

The deed of assignment was a perfected agreement which extinguished petitioners total outstanding
obligation to the respondent. The deed explicitly provides that the assignor (petitioners), in full payment of its
obligation in the amount of P7,305,459.52, shall deliver the three units of heavy equipment to the assignee
(respondent), which accepts the assignment in full payment of the above-mentioned debt. This could only
mean that should petitioners complete the delivery of the three units of heavy equipment covered by the deed,
respondents credit would have been satisfied in full, and petitioners aggregate indebtedness of P7,305,459.52
would then be considered to have been paid in full as well.

The nature of the assignment was a dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money. Such transaction is governed by the law on sales. [6] Even if we were to consider the
agreement as a compromise agreement, there was no need for respondents signature on the same, because with
the delivery of the heavy equipment which the latter accepted, the agreement was consummated. Respondents
approval may be inferred from its unqualified acceptance of the heavy equipment.

Consent to contracts is manifested by the meeting of the offer and the acceptance of the thing and the
cause which are to constitute the contract; the offer must be certain and the acceptance absolute. [7] The acceptance
of an offer must be made known to the offeror, and unless the offeror knows of the acceptance, there is no meeting of
the minds of the parties, no real concurrence of offer and acceptance. [8] Upon due acceptance, the contract is
perfected, and from that moment the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage
and law.[9]

With its years of banking experience, resources and manpower, respondent bank is presumed to be familiar
with the implications of entering into the deed of assignment, whose terms are categorical and left nothing for
interpretation. The alleged non-inclusion in the deed of certain units of heavy equipment due to inadvertence, plain
oversight or mistake, is tantamount to inexcusable manifest negligence, which should not invalidate the juridical tie
that was created.[10] Respondent is presumed to have maintained a high level of meticulousness in its dealings with
petitioners. The business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and
meticulousness in giving irreproachable service.[11]

Besides, respondents protestations of mistake and plain oversight are self-serving. The evidence show that
from August 16, 2000 (date of the deed of assignment) up to March 8, 2001 (the date of delivery of the last unit of
heavy equipment covered under the deed), respondent did not raise any objections nor make any move to question,
invalidate or rescind the deed of assignment. It was not until June 20, 2001 that respondent raised the issue of its
alleged mistake by filing an amended complaint for replevin involving different chattels, although founded on the
same principal obligation.

The legal presumption is always on the validity of contracts. [12] In order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be principally considered.[13] When respondent

accepted delivery of all three units of heavy equipment under the deed of assignment, there could be no doubt that it
intended to be bound under the agreement.

Since the agreement was consummated by the delivery on March 8, 2001 of the last unit of heavy
equipment under the deed, petitioners are deemed to have been released from all their obligations to respondent.

Since there is no more credit to collect, no principal obligation to speak of, then there is no more second
deed of chattel mortgage that may subsist. A chattel mortgage cannot exist as an independent contract since its
consideration is the same as that of the principal contract. Being a mere accessory contract, its validity would
depend on the validity of the loan secured by it.[14] This being so, the amended complaint for replevin should be
dismissed, because the chattel mortgage agreement upon which it is based had been rendered ineffectual.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated April 13, 2007 in CAG.R. CV No. 87114 and its Resolution dated June 25, 2007 are hereby SET ASIDE. The March 14, 2006 decision of
the Regional Trial Court of Antipolo, Branch 73, which dismisses Civil Case No. 00-5731, is hereby REINSTATED.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

RENATO C. CORONA
Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO

Associate
Justice

Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, it is hereby
certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
____________________________________________________________________________________
G.R. No. 166704

December 20, 2006

AGRIFINA AQUINTEY, petitioner,

vs.
SPOUSES FELICIDAD AND RICO TIBONG, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision1 of the Court
of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court
(RTC), Branch 61, Baguio City, and the Resolution3 of the appellate court denying reconsideration thereof.
The Antecedents
On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and
damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured
loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong
failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the
following prayer:
WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice
and hearing, to render judgment ordering defendants to pay plaintiff the following:

a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the

principal obligation of the defendants with the stipulated interests of six (6%) percent per month
from May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from
paragraph two (2) of the complaint.
b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees.
c). Actual expenses representing the filing fee and other charges and expenses to be incurred
during the prosecution of this case.
Further prays for such other relief and remedies just and equitable under the premises.4
Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the
promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts.5
In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The
proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they
had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in
Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They
insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to
pay the balance of their loans had been extinguished.
The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they
did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without any
written receipt.7 They prayed for that the complaint be dismissed.
In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without
the benefit of a written document.8
On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined:
Whether or not plaintiff is entitled to her claim of P773,000.00;
Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and
Whether or not the parties are entitled to their claim for damages.9
The Case for Petitioner
Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to
be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to
Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told
Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use
the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to Felicidad, and each loan
transaction was covered by either a promissory note or an acknowledgment receipt.11Agrifina stated that she had lost
the receipts signed by Felicidad for the following amounts: P100,000.00,P34,000.00 and P2,000.00.12 The particulars
of the transactions are as follows:

Amount

Date Obtained

Interest Per Mo.

Due Date

P 100,000.00

May 11, 1989

6%

August 11, 1989

4,000.00

June 8, 1989

50,000.00

June 13, 1989

6%

On demand

60,000.00

Aug. 16, 1989

7%

January 1990

205,000.00

Oct. 13, 1989

7%

January 1990

128,000.00

Oct. 19, 1989

7%

January 1990

2,000.00

Nov. 12, 1989

6%

April 28, 1990

10,000.00

June 13, 1990

80,000.00

Jan. 4, 1990

34,000.00

6%

October 19, 1989

100,000.00

July 14, 1989

5%

October 198913

According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14
In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount
of P50,000.00 as partial payment.15 However, the check was dishonored for having been drawn against insufficient
funds.16 Agrifina then filed a criminal case against Felicidad in the Office of the City Prosecutor. An Information for

violation of Batas Pambansa Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After
trial, the court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the check.17
In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.18 Agrifina sought the
assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over
Felicidad's debtors. The lawyer also suggested that Felicidad's debtors execute promissory notes in Agrifina's favor,
to "turn over" their loans from Felicidad. This arrangement would facilitate collection of Felicidad's account. Agrifina
agreed to the proposal.19 Agrifina, Felicidad, and the latter's debtors had a conference20 where Atty. A-ayo explained
that Agrifina could apply her collections as payments of Felicidad's account.21
From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly
notarized by Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due
from her debtors.23 In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for their
respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada
and Corazon Dalisay.24 She was furnished copies of the deeds as well as the promissory notes.25
The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to
Agrifina:

Debtors

Juliet & Tommy Tibong

Account

Date of Instrument

P50,000.00 August 7, 1990

Date Payable

November 4, 1990 and February 4,

1991

Corazon Dalisay

8,000.00 August 7, 1990

No date

Rita Chomacog

4,480.00 August 8, 1990

September 23, 1990

Antoinette Manuel

12,000.00 October 19, 1990

March 30, 1991

Rosemarie Bandas

8,000.00 August 8, 1990

February 3, 1991

Fely Cirilo

63,600.00 September 13, 1990

No date

Virginia Morada

62,379.00 August 9, 1990

February 9, 1991

Carmelita Casuga

59,000.00 August 28, 1990

February 28, 1991

Merlinda Gelacio

Total

17,200.00 August 29, 1990

November 29, 199026

P284,659.00

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One
of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of
Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in
behalf of her sister, Fely Cirilo.28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor
sign the promissory note because she was in Taipei, Taiwan.29
Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total
amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's
account, but the latter told her to wait until her debtors had money.31 When Felicidad reneged on her promise, Agrifina
filed a complaint in the Office of the Barangay Captain for the collection of P773,000.00. However, no settlement was
arrived at.32
The Case for Respondents
Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina would
lend her money with monthly interest,34 and she, in turn, would re-lend the money to borrowers at a higher interest
rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was actually
earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay her
account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that she could not
pay yet, as her debtors' loan payments were not yet due.36 Agrifina then came to her store every afternoon to collect
from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested that she indorse
the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and she would
no longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the
sums of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in the presence of
Agrifina.39 Some of the debtors signed the promissory notes which were likewise prepared by the lawyer. Thereafter,
Agrifina personally collected from Felicidad's debtors.40Felicidad further narrated that she received P250,000.00 from
one of her debtors, Rey Rivera, and remitted the payment to Agrifina.41
Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she asked
Felicidad to consolidate her loans in one document, the latter told her to seek the assistance of Atty. A-ayo.42 The
lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds of
assignment to help Felicidad collect from the debtors.44
On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to
pay the plaintiffs (sic) the following amounts:
1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the
said obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated
interest for the same was already paid by the defendant as admitted by the plaintiff in her complaint,

2. P25,000 as attorney's fees,

3. [T]o pay the costs.
SO ORDERED.46
The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory
notes executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to
novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which
could stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she
was able to collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the latter's
accountability.47 Hence, the balance, exclusive of interests, amounted to P472,000.00.
On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes
and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total
principal amount of only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than
Agrifina's bare testimony that she had lost the promissory notes and acknowledgment receipts, she failed to present
competent documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts
of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account,P585,659.00 was covered by the
deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to only P51,341.00.
The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City,
Branch 61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay
the balance of the total indebtedness in the amount of P51,341.00 plus the stipulated interest of 6% per
month from May 11, 1999 until the finality of this decision.
SO ORDERED.48
The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the
deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new
creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no
intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of
the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the
effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such
assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from
Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary
recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes.
The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her
outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the
nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and
legality of the credit at the time of the assignment.
Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December
21, 2004.50
Agrifina, now petitioner, filed the instant petition, contending that

1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the
effect of payment of the original obligation even as it ruled out that the original obligation and the assigned
credit are distinct and separate and can stand independently from each other;
2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and
3. The Honorable Court of Appeals erred in resolving fact not in issue.51
Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to
onlyP637,000.00 (instead of P773,000.00) simply because she lost the promissory notes/receipts which evidenced
the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less
than P773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was
thus proscribed from taking cognizance of the issue.
Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan;
hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by
respondent from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is
whether or not she should be made to pay this amount.
Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of
assignment executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance of
respondents' account was only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs
counter to its holding that the primary recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds
of assignment and promissory notes, only two bore her signature.52 She insists that she is not bound by the deeds
which she did not sign. By assigning the obligation to pay petitioner their loan accounts, Felicidad's debtors merely
assumed the latter's obligation and became co-debtors to petitioner. Respondents were not released from their
obligation under their loan transactions, and she had the option to demand payment from them or their debtors.
Citing the ruling of this Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first debtor is not
released from responsibility upon reaching an agreement with the creditor. The payment by a third person of the first
debtor's obligation does not constitute novation, and the creditor can still enforce the obligation against the original
debtor. Petitioner also cites the ruling of this Court in Guerrero v. Court of Appeals.54
In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of
assignment, and the original debtors' execution of the promissory notes (along with their conformity to the deeds of
assignment with petitioner's consent), their loan accounts with petitioner amounting to P585,659.00 had been
effectively extinguished. Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil
Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors.
Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors. In
fact, petitioner, as the new creditor of respondents' former debtors had been able to collect the latter's loan accounts
which amounted to P301,000.00. The sums received by respondents' debtors were the same loans which they
obliged to pay to petitioner under the promissory notes executed in petitioner's favor.
Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors'
obligation to petitioner as the new creditor. If allowed to collect from them as well as from their original debtors,
petitioner would be enriching herself at the expense of respondents. Thus, despite the fact that petitioner had
collected P172,600.00 from respondents and P301,000.00 from the original debtors, petitioner still sought to
collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by Felicidad and the original
debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor.
In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests.

Respondents also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the
accounts of the original debtors so as to to facilitate the payment of respondents' loan obligation.
The Issues
The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2)
whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished
by the execution of the deeds of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen
Cabang, Antoinette Manuel, and Fely Cirilo in the total amount of P371,000.00.
The Ruling of the Court
We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised
the issue of whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from
the documentary evidence of petitioner in the RTC, the total amount they borrowed was onlyP673,000.00. They
asserted that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55
We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because
petitioner failed to present any document or receipt signed by Felicidad.
Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the
truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon which
he relies to support his denial.56
Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed
admitted.57
The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the
complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support
the denial. The parties are compelled to lay their cards on the table.58
A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become
specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge or
information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged
"ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also
provides that material averments in the complaint other than those as to the amount of unliquidated damages shall
be deemed admitted when not specifically denied.59 Thus, the answer should be so definite and certain in its
allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is
covered by denials of knowledge as sufficient to form a belief.60
In the present case, petitioner alleged the following in her complaint:
2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTYTHREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken
down as follows. The said principal amounts was admitted by the defendants in their counter-affidavit
submitted before the court. Such affidavit is hereby attached as Annex "A;"61
xxxx

H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per
month and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it
was misplaced by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex
"H" for the appreciation of the Honorable court;
I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per
month, obtained on July 14, 1989 and payable on October 14, 1989. Such receipt was lost but admitted by
the defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned
in paragraph one (1); x x x62
In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph
2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad
entered into an agreement for the lending of money to interested borrowers at a higher interest rate. Respondents
failed to declare the exact amount of the loans they had secured from petitioner. They also failed to deny the
allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S.
No. 93-334 where she admitted having secured loans from petitioner in the amount ofP773,000.00. Respondents,
likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured a P34,000.00
loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents
specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely
alleged that "they have not received sums of money from the plaintiff without any receipt therefor."
Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured
aP100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced
by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents
admitted their loan of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the
complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner.
We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount
ofP301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay,
Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from
respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from
respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis,
Fernandez and Ramirez.
There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance
of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong,
Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted
by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to
respondents' accounts.
Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are
extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person
of the debtor.63 The burden to prove the defense that an obligation has been extinguished by novation falls on the
debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar
Soriano, Jr.,65 as follows:
Novation may either be extinctive or modificatory, much being dependent on the nature of the change and
the intention of the parties. Extinctive novation is never presumed; there must be an express intention to
novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve
the old obligation as the moving consideration for the emergence of the new one. Implied novation

necessitates that the incompatibility between the old and new obligation be total on every point such that the
old obligation is completely superseded by the new one. The test of incompatibility is whether they can
stand together, each one having an independent existence; if they cannot and are irreconciliable, the
subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and,
second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3)
the extinguishment of the old obligation; and (4) the birth of a valid new obligation. Novation is merely
modificatory where the change brought about by any subsequent agreement is merely incidental to the main
obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new
agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some
but not all of its provisions.66 (Citations Omitted)
Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be
made even without the knowledge or against the will of the latter but not without the consent of the creditor.
Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor
(delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent
of those three persons is necessary.67 In this kind of novation, it is not enough to extend the juridical relation to a third
person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his
place in the relation.68 Without such release, there is no novation; the third person who has assumed the obligation of
the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new
debtor are considered obligated jointly.69
In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of
novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to
the person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or the
discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue.
In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that
the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with the
creditor, while the latter agrees to accept the new debtor for the old. A novation is not made by showing that the
substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover, the
agreement must be based on the consideration of the creditor's agreement to look to the new debtor instead
of the old. It is not essential that acceptance of the terms of the novation and release of the debtor be shown by
express agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of the parties
may show acceptance as clearly as an express agreement, albeit implied.72
We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with
petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in
favor of petitioner.
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, dation in payment, 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.73 It may be in the form of sale, but at times it may constitute
a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit
he has against a third person.74

In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is
a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. 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 debtor's
obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt
or obligation.76
The requisites for dacion en pago are: (1) there must be a 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); and
(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.77
All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent
Felicidad assigned to petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she
executed the deeds to enable her to make partial payments of her account, since she could not comply with
petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the
latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's
debtors.
Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In
an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof
or lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The
assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise
against the assignee the same defenses he could set up against the assignor78 necessary in order that assignment
may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of
the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee
and not to the original creditor.
The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant
accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the
latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal
notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor
had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the
document of assignment is public, it is evidence even against a third person of the facts which gave rise to its
execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the
moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the
authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or
assignment of the credit.81
As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner
was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged
themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no
longer had any obligation to her.

Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer
attempted to collect from respondents the balance of their accounts. It was only in 1999, or after nine (9) years had
elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from
respondents' debtors the amount of P301,000.00.
While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts,
and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized
petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of
their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by
Felicidad, as assignee, at the time of the assignment.82 Such rights and remedies include the right to collect her
debtors' obligations to her.
Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere
fact that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments
from a third person who has agreed to assume the obligation when there is no agreement that the first debtor would
be released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor.
In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors
were intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be
interpreted or construed in accordance with the rules of construction governing contracts generally, the primary object
being always to ascertain and carry out the intention of the parties. This intention is to be derived from a
consideration of the whole instrument, all parts of which should be given effect, and is to be sought in the words and
language employed.83
Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words
should be construed according to their ordinary meaning, unless something in the assignment indicates that they are
being used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the
instrument, there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the
particular subject matter.84 And surrounding circumstances may be considered in order to understand more perfectly
the intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and
conduct of the parties may be considered in construing the document.
Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the
assignor, the general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved
against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most
strictly against him or her.85 One who chooses the words by which a right is given ought to be held to the strict
interpretation of them, rather than the other who only accepts them.86
Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the
principal amount of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of
respondents' other debtors amounting to P103,500.00, and the P50,000.00 payment made by respondents.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals
are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner
is P33,841.00. No costs.
SO ORDERED.

Austria-Martinez, and Chico-Nazario, JJ., concur.

Panganiban, C.J., retired as of December 7, 2006.
Ynares-Santiago, J., working Chairperson.

[G.R. No. 133643. June 6, 2002]

RITA SARMING, RUFINO SARMING, MANUEL SARMING, LEONORA VDA. DE LOY, ERLINDA DARMING,
NICANDRA SARMING, MANSUETA SARMING, ARTURO CORSAME, FELY CORSAME, FEDERICO
CORSAME, ISABELITA CORSAME, NORMA CORSAME, CESAR CORSAME, RUDY CORSAME,
ROBERTA CORSAME, ARTEMIO CORSAME, ELPIDIO CORSAME, ENRIQUITA CORSAME, and
GUADALUPE CORSAME TAN,petitioners, vs. CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD
FLORES, LUISA FLORES, SATURNINA ORGANISTA, REMEDIOS ORGANISTA, OFELIA ORGANISTA,
LYDIA ORGANISTA, ZOSIMO ORGANISTA, DOMISIANO FLORES, FLORITA FLORES, EDUARDO
FLORES, BENIGNA FLORES, ANGELINA FLORES, MARCIAL FLORES, and MARIO
FLORES, respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the decision [1] dated September 23, 1997 of the Court of Appeals in CA-G.R. CV
No. 39401, which affirmed the decision[2] of the Regional Trial Court, Branch 41 in Negros Oriental, Dumaguete City
and the resolution[3] dated April 21, 1998 denying petitioners motion for reconsideration.
The facts as culled from records are as follows:
Petitioners are the successors-in-interest of original defendant Silveria Flores, while respondents Cresencio Dy
and Ludivina Dy-Chan are the successors-in-interest of the original plaintiff Alejandra Delfino, the buyer of one of the
lots subject of this case. They were joined in this petition by the successors-in-interest of Isabel, Juan, Hilario,
Ruperto, Tomasa, and Luisa and Trinidad themselves, all surnamed Flores, who were also the original plaintiffs in the
lower court. They are the descendants of Venancio[4] and Jose[5], the brothers of the original defendant Silveria
Flores.
In their complaint for reformation of instrument against Silveria Flores, the original plaintiffs alleged that they,
with the exception of Alejandra Delfino, are the heirs of Valentina Unto Flores, who owned, among others, Lot 5734,
covered by OCT 4918-A; and Lot 4163, covered by OCT 3129-A, both located at Dumaguete City.
After the death of Valentina Unto Flores, her three children, namely: Jose, Venancio, and Silveria, took
possession of Lot 5734 with each occupying a one-third portion. Upon their death, their children and grandchildren
took possession of their respective shares. The other parcel, Lot 4163 which is solely registered under the name of
Silveria, was sub-divided between Silveria and Jose. Two rows of coconut trees planted in the middle of this lot
serves as boundary line.
In January 1956, Luisa, Trinidad, Ruperto and Tomasa, grandchildren of Jose and now owners of one-half of
Lot 4163, entered into a contract with plaintiff Alejandra Delfino, for the sale of one-half share of Lot 4163 after
offering the same to their co-owner, Silveria, who declined for lack of money. Silveria did not object to the sale of said
portion to Alejandra Delfino.
Before preparing the document of sale, the late Atty. Deogracias Pinili, Alejandras lawyer, called Silveria and
the heirs of Venancio to a conference where Silveria declared that she owned half of the lot while the other half

belonged to the vendors; and that she was selling her three coconut trees found in the half portion offered to
Alejandra Delfino for P15. When Pinili asked for the title of the land, Silveria Flores, through her daughter, Cristita
Corsame, delivered Original Certificate of Title No. 4918-A, covering Lot No. 5734, and not the correct title covering
Lot 4163. At that time, the parties knew the location of Lot 4163 but not the OCT Number corresponding to said lot.
Believing that OCT No. 4918-A was the correct title corresponding to Lot 4163, Pinili prepared a notarized
Settlement of Estate and Sale (hereinafter deed) duly signed by the parties on January 19, 1956. As a result, OCT
No. 4918-A was cancelled and in lieu thereof, TCT No. 5078 was issued in the names of Silveria Flores and
Alejandra Delfino, with one-half share each. Silveria Flores was present during the preparation and signing of the
deed and she stated that the title presented covered Lot No. 4163.
Alejandra Delfino immediately took possession and introduced improvements on the purchased lot, which was
actually one-half of Lot 4163 instead of Lot 5734 as designated in the deed.
Two years later, when Alejandra Delfino purchased the adjoining portion of the lot she had been occupying, she
discovered that what was designated in the deed, Lot 5734, was the wrong lot. She sought the assistance of Pinili
who approached Silveria and together they inquired from the Registry of Deeds about the status of Lot 4163. They
found out that OCT No. 3129-A covering Lot 4163 was still on file. Alejandra Delfino paid the necessary fees so that
the title to Lot 4163 could be released to Silveria Flores, who promised to turn it over to Pinili for the reformation of
the deed of sale. However, despite repeated demands, Silveria did not do so, prompting Alejandra and the vendors
to file a complaint against Silveria for reformation of the deed of sale with damages before the Regional Trial Court of
Negros Oriental, Branch 41, docketed as Civil Case No. 3457.
In her answer, Silveria Flores claimed that she was the sole owner of Lot 4163 as shown by OCT No. 3129-A
and consequently, respondents had no right to sell the lot. According to her, the contract of sale clearly stated that
the property being sold was Lot 5734, not Lot 4163. She also claimed that respondents illegally took possession of
one-half of Lot 4163. She thus prayed that she be declared the sole owner of Lot 4163 and be immediately placed in
possession thereof. She also asked for compensatory, moral, and exemplary damages and attorneys fees.
The case lasted for several years in the trial court due to several substitutions of parties. The complaint was
amended several times. Moreover, the records had to be reconstituted when the building where they were kept was
razed by fire. But, earnest efforts for the parties to amicably settle the matters among themselves were made by the
trial court to no avail.
On September 29, 1992, the trial court found in favor of herein respondents, who were the plaintiffs below,
decreeing as follows:
WHEREFORE, this Court finds the preponderance of evidence in favor of the plaintiffs and veritably against the
defendants and, as such, renders judgment accordingly, thereby ORDERING the defendants, the heirs of the
deceased-defendant SILVERIA FLORES and her successors-in-interest the following:
1) To enter into the reformation of the subject contract or execute a mutual conveyance of sale, by making the onehalf (1/2) eastern portion of Lot 4163, the subject of the document of sale, in favor of plaintiff, the late Alejandra
Delfino or her heirs and/or successors-in-interest;
2) To sign a document ceding to the heirs of the heirs of Maxima Flores and Venancio Flores the excess of her onethird (1/3) share; and further ordering the heirs of the late Alejandra Delfino to correspondingly sign a document for
the return of the one-half (1/2) portion of Lot 5734 to the original registered owners, in exchange thereby;
3) To pay to the heirs of the late plaintiff Alejandra Delfino, the sum of P5,000.00 as actual damages and the sum
of P10,000.00 as moral damages;
4) To pay P2,000.00 as attorneys fees plus the costs of this suit.

SO ORDERED.[6]
According to the trial court, the claims of herein respondents were anchored on valid grounds. It noted that
Alejandra had been occupying one-half portion of Lot 4163 since 1956 and it was the one pointed to her by the
vendors. Citing the case of Atilano vs. Atilano[7], it ruled that when one sells or buys real property, he sells or buys the
said property as is shown to her and as he sees it, at its actual setting and by its physical metes and bounds, not by
the mere lot number assigned to it in the certificate of title. Thus, it concluded that from the facts and circumstances
of the case, it is clear that the object of the sale, as understood by the parties, was that portion Y of Lot 4163 and
that its designation as Lot 5734 in the document of sale was a simple mistake in the drafting of the document, which
mistake, however, did not vitiate the consent of the parties or affect the validity and the binding effect of the contract
between them. Hence, the remedy of reformation of instrument is proper.[8]
Petitioners appealed the decision to the Court of Appeals, which affirmed the ruling of the trial court as follows:
WHEREFORE, the appealed decision is hereby AFFIRMED. Costs against defendants-appellants.
SO ORDERED.[9]
In affirming the decision of the trial court, the Court of Appeals agreed that the real intention of the parties was
for the sale of Lot 4163 which Alejandra Delfino had been occupying, and the designation of Lot 5734 in the deed
was a mistake in the preparation of the document. It noted that Silveria Flores did not object when Alejandra Delfino
took possession of one-half portion of Lot 4163 immediately after the sale, considering that it was Silverias son,
Michael Corsame, who developed the area purchased by Alejandra.[10]
Aggrieved but undeterred, the successors-in-interest of defendant Silveria Flores seasonably filed their petition
for review under Rule 45 of the Rules of Court. They assail the decision of the Court of Appeals on the following
grounds:
1. THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT FAILED TO ORDER THE
DISMISSAL OF CIVIL CASE NO. 3457 FOR LACK OF CAUSE OF ACTION.
2. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN LAW
AND JURISPRUDENCE WHEN IT FAILED TO RULE THAT, BASED ON THE UNDISPUTED
EVIDENCE ON RECORD AND THE SETTLEMENT OF ESTATE AND SALE ITSELF, THE
PLAINTIFFS HAVE NO CAUSE OF ACTION AGAINST SILVERIA FLORES BECAUSE SHE DID NOT
SELL HER LAND TO ALEJANDRA DELFINO. HENCE SILVERIA FLORES CANNOT BE BOUND
NOR PREJUDICED BY THE CONTRACT OF SALE ENTERED BY ALEJANDRA DELFINO AND HER
CO-PLAINTIFFS (CAPITOL INSURANCE & SURETY CO INC. V. CENTRAL AZUCARERA DEL
DAVAO, 221 SCRA 98; OZAETA V. CA, 228 SCRA 350).
3. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR WHEN
IT FAILED TO PRONOUNCE THAT SILVERIA FLORES WHO IS NOT A PARTY TO THE CONTRACT
OF SALE INVOLVING LOT NO. 5734 COVERED BY OCT NO. 4918-A CANNOT BE LEGALLY
COMPELLED BY ALEJANDRA DELFINO THRU AN ACTION FOR REFORMATION OF CONTRACT
TO EXECUTE A CONVEYANCE OF SALE INVOLVING LOT NO. 4163 COVERED BY OCT NO.
3129-A OWNED AND REGISTERED SOLELY IN THE NAME OF SILVERIA FLORES.
4. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS
WHEN IT RULED THAT THE OBJECT OF THE CONTRACT OF SALE WAS LOT NO. 4163
COVERED BY OCT NO. 3129-A, DESPITE THE UNASSAILABLE FACT THAT THE OBJECT OF THE
SETTLEMENT AND SUBJECT OF THE CONTRACT OF SALE WAS LOT NO. 5734 COVERED BY
OCT NO. 4918-A.

5. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS IN
NOT UPHOLDING THAT THERE WAS NO MISTAKE IN THE DRAFTING OF THE DOCUMENT AS
WELL AS IN THE OBJECT OF THE SETTLEMENT OF ESTATE AND SALE BECAUSE THE
DOCUMENT WAS PREPARED BY ATTY. DEOGRACIAS PINILI, THE LAWYER OF ALEJANDRA
DELFINO.
6. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS
WHEN IT RULED THAT THE GRANDCHILDREN OF JOSE FLORES ARE OWNERS AND COULD
SELL THE ONE-HALF (1/2) PORTION OF LOT NO. 4163 TO ALEJANDRA DELFINO DESPITE THE
INCONTROVERTIBLE EVIDENCE THAT LOT NO. 4163 COVERED BY OCT NO. 3129-A IS
REGISTERED AND SOLELY OWNED BY SILVERIA FLORES WHO IS PAYING THE REAL
PROPERTY TAXES.
7. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN LAW
WHEN IT DISREGARDED ARTICLE 1370 OF THE CIVIL CODE OF THE PHILIPPINES AND
PERTINENT JURISPRUDENCE RELEVANT TO THIS CASE EVEN IF THE TERMS OF THE
SETTLEMENT OF ESTATE AND SALE ARE CLEAR AND LEAVE NO DOUBT ON THE INTENTION
OF THE CONTRACTING PARTIES.
8. THE COURT OF APPEALS AND THE TRIAL COURT GRAVELY ERRED IN DISREGARDING
SETTLED JURISPRUDENCE THAT A PUBLIC DOCUMENT EXECUTED AND ATTESTED
THROUGH THE INTERVENTION OF A NOTARY PUBLIC IS EVIDENCE OF THE FACTS IN CLEAR,
UNEQUIVOCAL MANNER AND TO CONTRADICT IT THERE MUST BE CLEAR AND CONVINCING
EVIDENCE NOT MERELY PREPONDERANT EVIDENCE (GEVERO VS. INTERMEDIATE
APPELLATE COURT, G.R. NO. 77029, AUGUST 30, 1990; ZAMBO V. COURT OF APPEALS, 224
SCRA 855; REBULDEDA V. IAC, 155 SCRA 520; CHILIANCHIN V. COQUINCO, 84 PHIL.
714; CENTENERA V. GARCIA PALICIO, 29 PHIL. 470).
9. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR WHEN
IT SUBSTITUTED, REVISED AND MODIFIED THE AGREEMENT OF THE PARTIES DESPITE THE
ABSENCE OF FRAUD, MISTAKE, INEQUITABLE CONDUCT OR ACCIDENT.
10.

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT FAILED

TO RULE ON THE ISSUE OF WHETHER THE TRIAL COURT GRAVELY ERRED IN ORDERING
THE HEIRS OF SILVERIA FLORES TO PAY ACTUAL AND MORAL DAMAGES AS WELL AS
ATTORNEYS FEES TO THE HEIRS OF ALEJANDRA DELFINO.[11]

After careful consideration, we find the following relevant issues for our resolution: (1) whether or not there is a
cause of action for reformation of instrument against Silveria Flores, and consequently the petitioners; (2) whether or
not reformation of the subject deed is proper by reason of mistake in designating the correct lot number; and (3)
whether or not the heirs of Alejandra Delfino are entitled to actual and moral damages including attorneys fees.
In seeking the reversal of the appellate courts decision, the heirs of Silveria Flores, herein petitioners, ascribe
to the appellate court several errors: first, the Court of Appeals committed error in failing to appreciate that there is no
cause of action against Silveria as she was never a party to the contract of sale; second, the appellate court erred in
giving probative value to the biased testimony of Trinidad Flores to the effect that Lot No. 4163 was subdivided into
two, one-half of which is occupied by her and her siblings; and third, the appellate court erred in not considering the
fact that Silveria is the only registered owner of Lot 4163. Petitioners submit that the evidence adduced is insufficient
to sustain a decision in respondents favor.
Respondents, for their part, maintain that the present petition is pro forma as it does not raise any new matter
worth considering. They also assert that the arguments and issues raised by petitioners have been more than
adequately and exhaustively discussed by the trial court as well as the Court of Appeals.[12]

On the first issue, petitioners contend that there is no cause of action against them and their predecessor-ininterest, Silveria Flores, because she and they were not parties to the contract sought to be reformed.
However, a close perusal of the deed would show that Silveria Flores was a party to the contract. She is not
only the seller of the coconut trees worth P15 but she was also one of the heirs entitled to the estate of Venancio and
Maxima, one of the heirs of Jose Flores. Her name did not appear as one of the sellers of one-half lot to Alejandra
Delfino because she never sold her share. What was sold was the one-half share of Jose Flores, as represented by
his heirs. It is also established that it was Silveria Flores herself who delivered the subject lot to the vendee
Alejandra Delfino. Said the lower court:
The truth of the matter, is that what the plaintiffs-vendors really intended to sell and what Alejandra Delfino intended
to buy, of which both of the parties agreed to be the subject of the transaction, was actually that parcel of land, with
two rows of coconut trees as the dividing line, and which lot is known as Lot 4163. This lot, on the western portion,
was the very portion which was pointed to and delivered to Alejandra Delfino by the original defendant Silveria Flores
and her two children, together with the vendors on January 19, 1956. When the title to the said property was
delivered to the notary public, for the preparation of the document of sale, the title that was delivered was for Lot
5734. So, the document, that was executed, was done by reason of mistake, inequitable conduct and accident,
because the said document did not express the true and real agreement and intention of the contracting
parties. What was made to appear in the said document was the sale of the one-half portion of another lot. Lot
5734, when in truth and in fact, the subject property sold was Lot 4163.[13] (Underscoring and italics supplied.)
Through her actions, Silveria Flores had made the parties to the deed believe that the lot intended to be the
object of the contract was the same lot described in the deed. Thus, by mistake or accident, as well as inequitable
conduct, neither she nor her successors-in-interest could deny involvement in the transaction that resulted in a deed
that now ought to be reformed.
Worth stressing, the existence of a cause of action is not determined by ones involvement in a
contract. Participation in a contract is not an element to determine the existence of a cause of action. The rule is
that only the allegations in the complaint may properly be considered in ascertaining the existence of a cause of
action. Lack of cause of action must appear on the face of the complaint and its existence may be determined only
by the allegations of the complaint. Consideration of other facts is proscribed and any attempt to prove extraneous
circumstances is not allowed.[14]
The test of sufficiency of the facts found in a complaint as constituting a cause of action is whether or not,
admitting the facts alleged, the court can render a valid judgment upon the same in accordance with the prayer in the
complaint.[15] An examination of the complaint[16] shows herein respondents, as plaintiffs in the trial court, are entitled
to the relief of reformation of instrument if the following factual allegations of respondents are deemed admitted, to
wit: (1) that Silveria is a co-owner of Lots No. 5734 and 4163, in different shares; (2) that the heirs of Jose, her coowner in Lot No. 4163, offered to sell to her their one-half share but she declined for lack of money; (3) that said
share was later sold to Alejandra; (4) that Silveria was asked to deliver the title of Lot No. 4163 but instead she
delivered the title of Lot No. 5734; (5) that after the sale, Alejandra occupied one-half portion of Lot No. 4163 while
Lot No. 5734 was still in the possession of Venancio and the heirs of Maxima and Silveria; (6) that it was only when
Alejandra was about to buy the adjacent lot that she realized that what was indicated in the Settlement of Estate and
Sale was Lot No. 5734 and not 4163. In sum, we find that the original plaintiffs in the trial court alleged sufficient
facts in the complaint that properly constituted a cause of action against the defendants.
On the second issue, petitioners contend respondents failed to show, specifically, a cause of action for the
reformation of the instrument in question. Reformation is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the parties. [17] As provided in
Article 1359 of the Civil Code:

Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment of the contract.
An action for reformation of instrument under this provision of law may prosper only upon the concurrence of
the following requisites: (1) there must have been a meeting of the minds of the parties to the contact; (2) the
instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true
intention of the parties is due to mistake, fraud, inequitable conduct or accident.[18]
All of these requisites, in our view, are present in this case. There was a meeting of the minds between the
parties to the contract but the deed did not express the true intention of the parties due to mistake in the designation
of the lot subject of the deed. There is no dispute as to the intention of the parties to sell the land to Alejandra Delfino
but there was a mistake as to the designation of the lot intended to be sold as stated in the Settlement of Estate and
Sale.
While intentions involve a state of mind which may sometimes be difficult to decipher, subsequent and
contemporaneous acts of the parties as well as the evidentiary facts as proved and admitted can be reflective of
ones intention. The totality of the evidence clearly indicates that what was intended to be sold to Alejandra Delfino
was Lot 4163 and not Lot 5734. As found by both courts below, there are enough bases to support such
conclusion. We particularly note that one of the stipulated facts during the pre-trial is that one-half of Lot 4163 is in
the possession of plaintiff Alejandra Delfino since 1956 up to the present. [19] Now, why would Alejandra occupy and
possess one-half of said lot if it was not the parcel of land which was the object of the sale to her? Besides, as found
by the Court of Appeals, if it were true that Silveria Flores was the sole owner of Lot 4163, then she should have
objected when Alejandra Delfino took possession of one-half thereof immediately after the sale. Additionally, we find
no cogent reason to depart from the conclusion of both the Court of Appeals and the trial court, based on the
evidence on record, that Silveria Flores owns only one-half of Lot 4163. The other half belongs to her brother Jose,
represented now by his grandchildren successors-in-interest. As such, the latter could rightfully sell the land to
Alejandra Delfino.
Furthermore, on record, it has been shown that a spot investigation conducted by a duly licensed surveyor
revealed that Lot 4163 is subdivided into two portions, one belonging to Silveria Flores and the other to the heirs of
Jose Flores.[20] As found by the trial court, if indeed it was Lot 5734 that was sold, then Silveria Flores was occupying
more than her share of the inherited lot. Thus:
x x x That, with respect to Lot No. 5734 and Lot No. 4292, in an on-the-spot investigation, made by a licensed
surveyor, Mr. Rilthe Dorado, his findings thereon show that Silveria Flores is in possession on the western portion of
Lot 5734, with an area of more than one-half and, to be exact, with an area of 2,462, in spite of the fact that she is the
registered owner only of a one-third (1/3) share; and admitting, for the sake of argument, that it was the one-half
portion, of Lot 5734, that was sold, why should Silveria Flores possess more than 2,190 square meters, which is the
1/2 of Lot 5734, Isabel Flores, the daughter of Venancio Flores is possessing the middle portion, with an area of only
884 square meters; and Trinidad Flores Nodado, in representation of her aunt, Maxima Flores, is possessing an area
of 1,034 sq. m.[21]
As a matter of fact, the trial court also found that in spite of her title over Lot 4163, Silveria recognized the right
of Joses grandchildren over one-half portion of the property. [22] The trial court gave credence to the testimony of
Trinidad Flores, one of the grandchildren, who testified as follows:

Q: During the lifetime of Jose and Silveria when they were possessing Lot 4163, did they subdivide it because
they were possessing it in common?
A: They subdivided it into two halves.
xxx
Q: And after Jose and Silveria subdivided Lot 4163, they possessed their respective shares of Lot 4163?
A: Yes.
xxx
Q: Now you said that you are the heirs of Jose and Roman Flores (father and son) and so when they died this
portion of Lot 4163 devolved on you, did you ever take possession of Lot 4163?
A: Yes, we, the brothers and sisters immediately took possession of it.[23]
On cross-examination, Trinidad sufficiently explained why the title to Lot No. 4163 is in the name of Silveria
Flores alone. Thus:
Q: Now, this Lot No. 4163, do you know if this lot is also titled?
A: Yes, it was titled, only in the name of Silveria Flores because my aunt was not able to go with her; only my
aunt was alone at that time.[24]
xxx
Q: And as you have stated earlier, that what you are intending to sell was Lot 4163 to plaintiff Alejandra Delfino,
and during this time that you sold this intended lot 4163, you were not aware this particular lot 4163 was
titled exclusively in the name of Silveria Flores, is that correct?
A: I knew already that the said lot was already titled, but it was titled only in the name of Silveria Flores because
she was the only one who went there to have it titled in her name. And at the time of the sale of the lot, we
demanded for the title from Silveria Flores, and what she delivered was the 5734 (sic).[25]
Petitioners now claim that the foregoing testimony of Trinidad Flores was biased. But we note that the appellate
court sustained the trial courts reliance on her testimony, which both found to be credible. As consistently held,
factual findings of the trial court, especially when affirmed by the appellate court, are binding upon this Court [26] and
entitled to utmost respect.[27] Considering these findings, we see no reason to disturb the trial courts finding, affirmed
by the Court of Appeals, that the object of the contract of sale, as intended and understood by the parties, was Lot
4163 covered by OCT 3129-A which Alejandra, and now her heirs, have been occupying. The designation of the lot
in the deed of sale as Lot 5734, covered by OCT 4918-A, was a mistake in the preparation of the document. Thus,
we concur in the conclusion reached by the courts a quo that reformation of the instrument is proper.
However, on the matter of damages, the award of actual damages in the amount of P5,000 lacks evidentiary
support. Actual damages if not supported by the evidence on record cannot be granted.[28]Moral damages
for P10,000 was also improperly awarded, absent a specific finding and pronouncement from the trial court that
petitioners acted in bad faith or with malice. However, the award of attorneys fees for P2,000 is justified under Article
2208(2) of the Civil Code,[29] in view of the trial courts finding that the unjustified refusal of petitioners to reform or to
correct the document of sale compelled respondents to litigate to protect their interest.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39401 is AFFIRMED with
MODIFICATION. It is hereby ordered that the document entitled Settlement of Estate and Sale be reformed by
changing the phrase Lot 5734 to Lot 4163 found in the sixth paragraph of the deed, thereby ceding in favor of
respondents one-half portion of Lot 4163 instead of Lot 5734. The award to respondents of attorneys fees in the
amount of P2,000 is affirmed. However, the award of actual damages in the amount of P5,000 and of moral
damages in the amount of P10,000 are both SET ASIDE. No pronouncement as to costs.

SO ORDERED.
Bellosillo, (Acting C.J.,), (Chairman), Mendoza, De Leon, Jr., and Corona, JJ., concur.

[G.R. No. 107199. July 22, 2003]

CEBU CONTRACTORS CONSORTIUM CO., petitioner, vs. COURT OF APPEALS and MAKATI LEASING &
FINANCE CORPORATION, respondents.
DECISION
AZCUNA, J.:
The instant Petition for Review on Certiorari stems from a complaint for collection of a sum of money with
replevin[1] filed by respondent Makati Leasing and Finance Corporation (MLFC) against petitioner Cebu Contractors
Consortium Company (CCCC) before the Regional Trial Court of Makati.[2]
MLFC alleges that on August 25, 1976 a lease agreement [3] relating to various equipment was entered into
between MLFC, as lessor, and CCCC, as lessee. The terms and conditions of the lease were defined in said
agreement and in two lease schedules of payment.[4] To secure the lease rentals, a chattel mortgage, and a
subsequent amendment thereto, were executed in favor of MLFC over other various equipment owned by CCCC.[5]
On June 30, 1977, CCCC began defaulting on the lease rentals, [6] prompting MLFC to send demand letters.
[7]
When the demand letters were not heeded, MLFC filed a complaint for the payment of the rentals due and prayed
that a writ of replevin be issued in order to obtain possession of the equipment leased and to foreclose on the
equipment mortgaged.[8]
For its part, CCCC alleges[9] that it had a contract with the then Ministry of Public Highways [10] for the
construction of the Iligan-Cagayan de Oro-Butuan Road. Being in need of additional capital, it approached MLFC for
the purpose of securing a loan. MLFC agreed to extend financial assistance to CCCC but, instead of a customary
loan covered by a security, MLFC induced CCCC to adopt and apply a sale and lease back scheme. The
arrangement provided for the equipment of CCCC to be made to appear as sold to MLFC and then leased back to
CCCC which will then pay lease rentals to MLFC. The rentals will be treated as installment payments to repurchase
the equipment. It is CCCCs claim that the arrangement is nothing more than an equitable mortgage.
Pursuant to the sale and lease back scheme, CCCC executed two deeds of sale over its equipment in favor of
MLFC, which were then leased back to CCCC. [11] To facilitate payment of the rentals, MLFC required CCCC to
execute a deed of assignment of its collectibles from the Ministry of Public Highways.[12] In addition, CCCC was also
required to execute a chattel mortgage over its other properties as a security.
CCCCs position is that it is no longer indebted to MLFC because the total amounts collected by the latter from
the Ministry of Public Highways, by virtue of the deed of assignment, and from the proceeds of the foreclosed
chattels were more than enough to cover CCCCs liabilities. Finally, CCCC submits that, in any event, the deed of
assignment itself already freed CCCC from its obligation to MLFC.

The trial court rendered a decision[13] upholding the lease agreement and finding CCCC liable to MLFC
for P1,067,861.79 in lease rentals plus 25% attorneys fees and P486,442.28 in litigation expenses.[14] On
appeal[15] by CCCC, the appellate court affirmed the trial courts decision but reduced the attorneys fees to 10% and
totally eliminated the awarded litigation expenses.[16] CCCC is now before this Court seeking to reverse the decision
of the Court of Appeals.[17]
CCCC presents the following assigned errors:
I. WITH DUE RESPECT, THE RESPONDENT COURT ERRED IN UPHOLDING THE SO-CALLED
SALE-LEASE BACK SCHEME OF THE PRIVATE RESPONDENT WHEN THE SAME IS IN REALITY
NOTHING BUT AN EQUITABLE MORTGAGE.
II. WITH DUE RESPECT, THE RESPONDENT COURT ERRED IN [NOT] HOLDING THAT THE DEED
OF ASSIGNMENT EXECUTED BY PETITIONER IN FAVOR OF PRIVATE RESPONDENT FOR THE
LATTER TO COLLECT FROM THE MINISTRY OF HIGHWAYS COMPLETELY FREED PETITIONER
OF ITS OBLIGATION TO THE PRIVATE RESPONDENT.
III. WITH DUE RESPECT, THE RESPONDENT COURT ERRED IN FINDING PETITIONER STILL
LIABLE TO THE PRIVATE RESPONDENT DESPITE THE FACT THAT PETITIONER HAD ALREADY
OVER-PAID SAID RESPONDENT.
IV. WITH DUE RESPECT, THE RESPONDENT COURT ERRED IN NOT GRANTING PETITIONERS
CLAIM FOR DAMAGES AGAINST THE PRIVATE RESPONDENT.
With respect to the first assigned error, this Court finds in favor of CCCC.
It is clear that the transaction between CCCC and MLFC is what is popularly known as a financial leasing or
financing lease. Transactions of this sort are not new to the commercial world and have been recognized as
genuine or legitimate contracts, accorded with statutory and administrative recognition.[18]
In Beltran v. PAIC Finance Corporation,[19] this Court had occasion to discuss the nature of a financing lease:
A financing lease may be seen to be a contract sui generis, possessing some but not necessarily all the elements of
an ordinary or civil law lease. Thus, legal title to the equipment leased is lodged in the financial lessor. The financial
lessee is entitled to the possession and use of the leased equipment. At the same time, the financial lessee is
obligated to make periodic payments denominated as lease rentals, which enable the financial lessor to recover the
purchase price of the equipment which had been paid to the supplier thereof.
MLFCs own evidence discloses that it offers two types of financing lease: a direct lease and a sale-lease back.
A direct lease is one where the client buys equipment through a financing company. MLFC would, in effect, initially
purchase equipment that is needed by the client and then lease it to the latter. In a sale-lease back, the client
already has the equipment but needs working capital. The client sells to MLFC equipment that it owns, which will be
leased back to him. The transaction between CCCC and MLFC involved the second type of financing lease.[20]
CCCC argues that the sale and lease back scheme is nothing more than an equitable mortgage and,
consequently, asks for its reformation.

Section 3 (d) of Republic Act No. 5980,[21] otherwise known as the Financing Company Act, defines Financial
leasing as:
a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires,
at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and
other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of
money sufficient to amortize at least seventy percent (70%) of the purchase price or acquisition cost, including any
incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the
lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to the lessor
and bears the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option on
his part to purchase the leased property from the owner-lessor at the end of the lease contract.[22]
The above definition was originally found in Section 1 (i) of the Revised Rules and Regulations implementing
the original Republic Act No. 5980. When Republic Act No. 8556 was enacted, amending Republic Act No. 5980, the
definition was given a statutory nature.
In Investors Finance Corporation v. Court of Appeals,[23] the Court, applying the definition of financial leasing,
differentiated between a true financial leasing and an ordinary loan with mortgage in the guise of a lease. It was
explained that the definition contemplates the extension of credit to assist a buyer in acquiring movable property
which he can use and eventually own. Thus, in a true financial leasing, a finance company purchases on behalf of
or at the instance of the lessee the equipment which the latter is interested to buy but has insufficient funds for the
purpose. The finance company therefore leases the equipment to the lessee in consideration of the periodic payment
by the lessee of a fixed amount of rental. However, where the client already owns the equipment but needs
additional working capital and the finance company purchases such equipment with the intention of leasing it back to
him, the lease agreement is simulated to disguise the true transaction that is a loan with security. In that instance, it
is clear that the intention of the parties was not to enable the client to acquire and use the equipment, but to extend to
him a loan.
Going back to the case at bar, MLFC admits that the transaction with CCCC involved the purchase of alreadyowned equipment. Consequently, there can be no doubt that the transaction between the parties is not one of
financial leasing, as defined by law, but simply a loan secured by a chattel mortgage over CCCCs equipment.
When the true intention of the parties to a contract is not expressed in the instrument purporting to embody their
agreement by reason of mistake, fraud, inequitable conduct or accident, the remedy of the aggrieved party is to ask
for reformation of the instrument under Articles 1359 and 1362 of the Civil Code, to the end that their true agreement
may be expressed therein.[24] Under Article 1144 of the Civil Code, the prescriptive period for actions based upon a
written contract and for reformation of an instrument is ten years.[25] The right of action for reformation accrued from
the date of execution of the contract of lease in 1976. [26] This was properly exercised by CCCC when it filed its
answer with counterclaim to MLFCs complaint in 1978 and asked for the reformation of the lease contract.[27]
Moving on to the second assigned error, CCCC claims that it had assigned to MLFC its collectibles from the
Ministry of Public Highways, amounting to P2,469,142.50. The assignment was duly approved by the Ministry of
Public Highways. Consequently, CCCC argues that MLFC should be barred from suing because the obligation had
been transferred to and assumed by the Ministry of Public Highways.
This Court finds that the execution of the deed of assignment in favor of MLFC did not completely free CCCC
from its obligations to MLFC under the lease agreement. On its face, the deed speaks of an assignment. However, in

light of the circumstances obtaining at the time of the execution of said deed of assignment, this Court cannot regard
the transaction as an absolute conveyance. In the interpretation of contracts, if the terms are clear and leave no
doubt as to the intention of the contracting parties, the literal meaning of the stipulations shall control. But when the
words appear contrary to the evident intention of the parties, the latter shall prevail over the former. In order to judge
the intention of the parties, their contemporaneous and subsequent acts shall principally be considered.[28]
The deed of assignment was dated August 27, 1976. CCCC, by its own evidence, [29] was shown to have made
partial payments on the obligation, apart from those obtained by MLFC from the Ministry of Public Highways. These
partial payments were made after the execution of the deed of assignment. Since subsequent payments were made
by CCCC itself, it follows that the execution of the deed of assignment did not extinguish its obligation.
In addition, the fact that a chattel mortgage was executed after the execution of the deed of assignment further
confirms the existence of CCCCs obligation under the lease agreement. If indeed the deed of assignment
extinguished the obligation, there was no reason to execute a chattel mortgage. Evidently, the only conceivable
reason for the execution of a chattel mortgage was because the obligation under the lease agreement subsisted.
In Citizens Surety and Insurance Co., Inc. v. Court of Appeals,[30] this Court was faced with the same issue.
Petitioner in that case, a surety company, issued two surety bonds in behalf of respondent therein to guaranty the
fulfillment of an obligation under a contract of sale the latter had entered into with the Singer Sewing Machine
Company. In consideration of the bonds, two indemnity agreements were executed by said respondent followed by a
deed of assignment executed on the same date. After respondents failure to comply with its obligation under the
contract of sale, petitioner was compelled to pay under the surety bonds. When respondent failed to reimburse it,
petitioner filed a collection suit. Respondent opposed the money claim, and asserted that the surety bonds and the
indemnity agreements had been extinguished by the execution of the deed of assignment.
The Court held therein that the deed of assignment cannot be regarded as an absolute conveyance whereby
the obligation under the surety bonds was automatically extinguished. Respondents subsequent acts showed that
the deed of assignment was intended merely as a security for the issuance of the two bonds. The Court found that
partial payments were made after the execution of the deed of assignment to satisfy the obligation under the two
surety bonds. Moreover, a second real estate mortgage in favor of petitioner was executed by respondent. These
circumstances showed that no debt was extinguished upon the execution of the deed of assignment, which was
intended merely as another security for the issuance of the surety bonds.
This Court now comes to the issue of overpayment. While the lease agreement is in reality an equitable
mortgage, the records show that the equipment have already been sold by MLFC, [31] and that the proceeds from the
sale were credited to CCCCs account.
The Court of Appeals ruled that CCCC is indebted to MLFC in the amount of P1,048,655.00 and disregarded
CCCCs own computation showing an alleged overpayment. This Court agrees with this finding. CCCCs computation
proved to be incomplete and unreliable. Noticeably absent from the computation are the penalties incurred by CCCC,
when it defaulted on the lease rentals, which would have the effect of substantially increasing CCCCs debt.
[32]
Moreover, the Court of Appeals computation is part of the findings of fact made by the appellate court. Such
findings and conclusions should not be disturbed on appeal, in the absence of any showing that these are unfounded
or arbitrarily arrived at or that the Court of Appeals had failed to consider an important evidence to the contrary.[33]
Finding that CCCC is still indebted to MLFC, the formers claim for damages must also fail.

WHEREFORE, the decision appealed from is hereby AFFIRMED. No costs.

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