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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-2659

October 12, 1950

In the matter of the testate estate of Emil Maurice Bachrach, deceased. MARY McDONALD
BACHRACH,petitioner-appellee,
vs.
SOPHIE SEIFERT and ELISA ELIANOFF, oppositors-appellants.
Ross, Selph, Carrascoso and Janda for appellants.
Delgado and Flores for appellee.

OZAETA, J.:
Is a stock dividend fruit or income, which belongs to the usufructuary, or is it capital or part of the
corpus of the estate, which pertains to the remainderman? That is the question raised in the appeal.
The deceased E. M. Bachrach, who left no forced heir except his widow Mary McDonald Bachrach,
in his last will and testament made various legacies in cash and willed the remainder of his estate as
follows:
Sixth: It is my will and do herewith bequeath and devise to my beloved wife Mary McDonald
Bachrach for life all the fruits and usufruct of the remainder of all my estate after payment of
the legacies, bequests, and gifts provided for above; and she may enjoy said usufruct and
use or spend such fruits as she may in any manner wish.
The will further provided that upon the death of Mary McDonald Bachrach, one-half of the all his
estate "shall be divided share and share alike by and between my legal heirs, to the exclusion of my
brothers."
The estate of E. M. Bachrach, as owner of 108,000 shares of stock of the Atok-Big Wedge Mining
Co., Inc., received from the latter 54,000 shares representing 50 per cent stock dividend on the said
108,000 shares. On June 10, 1948, Mary McDonald Bachrach, as usufructuary or life tenant of the
estate, petitioned the lower court to authorize the Peoples Bank and Trust Company as administrator
of the estate of E. M. Bachrach, to her the said 54,000 share of stock dividend by endorsing and
delivering to her the corresponding certificate of stock, claiming that said dividend, although paid out
in the form of stock, is fruit or income and therefore belonged to her as usufructuary or life tenant.
Sophie Siefert and Elisa Elianoff, legal heirs of the deceased, opposed said petition on the ground
that the stock dividend in question was not income but formed part of the capital and therefore

belonged not to the usufructuary but to the remainderman. And they have appealed from the order
granting the petition and overruling their objection.
While appellants admits that a cash dividend is an income, they contend that a stock dividend is not,
but merely represents an addition to the invested capital. The so-called Massachusetts rule, which
prevails in certain jurisdictions in the United States, supports appellants' contention . It regards cash
dividends, however large, as income, and stock dividends, however made, as capital. (Minot vs.
Paine, 99 Mass., 101; 96 Am. Dec., 705.) It holds that a stock dividend is not in any true sense any
true sense any dividend at all since it involves no division or severance from the corporate assets of
the dividend; that it does not distribute property but simply dilutes the shares as they existed before;
and that it takes nothing from the property of the corporation, and nothing to the interests of the
shareholders.
On the other hand, so called Pennsylvania rule, which prevails in various other jurisdictions in the
United States, supports appellee's contention. This rule declares that all earnings of the corporation
made prior to the death of the testator stockholder belong to the corpus of the estate, and that all
earnings, when declared as dividends in whatever form, made during the lifetime of the usufructuary
or life tenant. (Earp's Appeal, 28 Pa., 368.)
. . . It is clear that testator intent the remaindermen should have only the corpus of the estate
he left in trust, and that all dividends should go the life tenants. It is true that profits realized
are not dividends until declared by the proper officials of the corporation, but distribution of
profits, however made, in dividends, and the form of the distribution is immaterial. (In
re Thompson's Estate, 262 Pa., 278; 105 Atl. 273, 274.)
In Hite vs. Hite (93 Ky., 257; 20 S. W., 778, 780), the Court of Appeals of Kentucky, speaking thru its
Chief Justice, said:
. . . Where a dividend, although declared in stock, is based upon the earnings of the
company, it is in reality, whether called by one name or another, the income of the capital
invested in it. It is but a mode of distributing the profit. If it be not income, what is it? If it is,
then it is rightfully and equitably the property of the life tenant. If it be really profit, then he
should have it, whether paid in stock or money. A stock dividend proper is the issue of new
shares paid for by the transfer of a sum equal to their par value from the profits and loss
account to that representing capital stock; and really a corporation has no right to a dividend,
either in cash or stock, except from its earnings; and a singular state of case it seems to
us, an unreasonable one is presented if the company, although it rests with it whether it
will declare a dividend, can bind the courts as to the proper ownership of it, and by the mode
of payment substitute its will for that of that of the testator, and favor the life tenants or the
remainder-men, as it may desire. It cannot, in reason, be considered that the testator
contemplated such a result. The law regards substance, and not form, and such a rule might
result not only in a violation of the testator's intention, but it would give the power to the
corporation to beggar the life tenants, who, in this case, are the wife and children of the
testator, for the benefit of the remainder-men, who may perhaps be unknown to the testator,
being unborn when the will was executed. We are unwilling to adopt a rule which to us
seems so arbitrary, and devoid of reason and justice. If the dividend be in fact a profit,

although declared in stock, it should be held to be income. It has been so held in


Pennsylvania and many other states, and we think it the correct rule. Earp's Appeal, 28 Pa.
St. 368; Cook, Stocks & S. sec. 554. . . .
We think the Pennsylvania rule is more in accord with our statutory laws than the Massachusetts
rule. Under section 16 of our Corporation Law, no corporation may make or declare any dividend
except from the surplus profits arising from its business. Any dividend, therefore, whether cash or
stock, represents surplus profits. Article 471 of the Civil Code provides that the usufructuary shall be
entitled to receive all the natural, industrial, and civil fruits of the property in usufruct. And articles
474 and 475 provide as follows:
ART. 474. Civil fruits are deemed to accrue day by day, and belong to the usufructuary in
proportion to the time the usufruct may last.
ART. 475. When a usufruct is created on the right to receive an income or periodical
revenue, either in money or fruits, or the interest on bonds or securities payable to bearer,
each matured payment shall be considered as the proceeds or fruits such right.
When it consists of the enjoyment of the benefits arising from an interest in an industrial or
commercial enterprise, the profits of which are not distributed at fixed periods, such profits
shall have the same consideration.
lawphil.net

In either case they shall be distributed as civil fruits, and shall be applied in accordance with
the rules prescribed by the next preceding article.
The 108,000 shares of stock are part of the property in usufruct. The 54,000 shares of stock
dividend are civil fruits of the original investment. They represent profits, and the delivery of the
certificate of stock covering said dividend is equivalent to the payment of said profits. Said shares
may be sold independently of the original shares, just as the offspring of a domestic animal may be
sold independently of its mother.
The order appealed from, being in accordance with the above-quoted provisions of the Civil Code,
his hereby affirmed, with costs against the appellants.
Moran, C. J., Paras, Feria, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 107132 October 8, 1999

MAXIMA HEMEDES, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND CONSTRUCTION
CORPORATION, ENRIQUE D. HEMEDES and R & B INSURANCE CORPORATION, respondents.
G.R. No. 108472 October 8, 1999
R & B INSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND CONSTRUCTION
CORPORATION, ENRIQUE D. HEMEDES and MAXIMA HEMEDES, respondents.
GONZAGA-REYES, J.:
Assailed in these petitions for review on certiorari is the decision 1 of the eleventh division of the Court
of Appeals in CA-G.R. CV No. 22010 promulgated on September 11, 1992 affirming in toto the decision of
Branch 24 of the Regional Trial Court of Laguna in Civil Case No. B-1766 dated February 22, 1989, 2 and
the resolution dated December 29, 1992 denying petitioner R & B Insurance Corporation's (R & B
Insurance) motion for reconsideration. As the factual antecedents and issues are the same, we shall
decide the petitions jointly.
The instant controversy involves a question of ownership over an unregistered parcel of land,
identified as Lot No. 6, plan Psu-111331, with an area of 21,773 square meters, situated in Sala,
Cabuyao, Laguna. It was originally owned by the late Jose Hemedes, father of Maxima Hemedes
and Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a document entitled
"Donation Inter Vivos With Resolutory Conditions" 3 whereby he conveyed ownership over the subject
land, together with all its improvements, in favor of his third wife, Justa Kauapin, subject to the following
resolutory conditions:
(a) Upon the death or remarriage of the DONEE, the title to the property donated
shall revert to any of the children, or their heirs, of the DONOR expressly designated
by the DONEE in a public document conveying the property to the latter; or
(b) In absence of such an express designation made by the DONEE before her death
or remarriage contained in a public instrument as above provided, the title to the
property shall automatically revert to the legal heirs of the DONOR in common.
Pursuant to the first condition above mentioned, Justa Kausapin executed on September 27, 1960 a
"Deed of Conveyance of Unregistered Real Property by Reversion" 4 conveying to Maxima Hemedes
the subject property under the following terms
That the said parcel of land was donated unto me by the said Jose Hemedes, my
deceased husband, in a deed of "DONATION INTER VIVOS WITH RESOLUTORY
CONDITIONS" executed by the donor in my favor, and duly accepted by me on
March 22, 1947, before Notary Public Luis Bella in Cabuyao, Laguna;
That the donation is subject to the resolutory conditions appearing in the said deed of
"DONATION INTER VIVOS WITH RESOLUTORY CONDITIONS," as follows:
(a) Upon the death or remarriage of the DONEE, the title to the
property donated shall revert to any of the children, or their heirs, of

the DONOR expressly designated by the DONEE in a public


document conveying the property to the latter; or
(b) In absence of such an express designation made by the DONEE
before her death or remarriage contained in a public instrument as
above provided, the title to the property shall automatically revert to
the legal heirs of the DONOR in common.
That, wherefore, in virtue of the deed of donation above mentioned and in the
exercise of my right and privilege under the terms of the first resolutory condition
therein contained and hereinabove reproduced, and for and in consideration of my
love and affection, I do hereby by these presents convey, transfer, and deed unto my
designee, MAXIMA HEMEDES, of legal age, married to RAUL RODRIGUEZ, Filipino
and resident of No. 15 Acacia Road, Quezon City, who is one of the children and
heirs of my donor, JOSE HEMEDES, the ownership of, and title to the property
hereinabove described, and all rights and interests therein by reversion under the
first resolutory condition in the above deed of donation; Except the possession and
enjoyment of the said property which shall remain vested in me during my lifetime, or
widowhood and which upon my death or remarriage shall also automatically revert
to, and be transferred to my designee, Maxima Hemedes.
Maxima Hemedes, through her counsel, filed an application for registration and confirmation of title
over the subject unregistered land. Subsequently, Original Certificate of Title (OCT) No. (0-941) 0198 5 was issued in the name of Maxima Hemedes married to Raul Rodriguez by the Registry of Deeds of
Laguna on June 8, 1962, with the annotation that "Justa Kausapin shall have the usufructuary rights over
the parcel of land herein described during her lifetime or widowhood."
It is claimed by R & B Insurance that on June 2, 1964, Maxima Hemedes and her husband Raul
Rodriguez constituted a real estate mortgage over the subject property in its favor to serve as
security for a loan which they obtained in the amount of P6,000.00. On February 22, 1968, R & B
Insurance extrajudicially foreclosed the mortgage since Maxima Hemedes failed to pay the loan
even after it became due on August 2, 1964. The land was sold at a public auction on May 3, 1968
with R & B Insurance as the highest bidder and a certificate of sale was issued by the sheriff in its
favor. Since Maxima Hemedes failed to redeem the property within the redemption period, R & B
Insurance executed an Affidavit of Consolidation dated March 29, 1974 and on May 21, 1975 the
Register of Deeds of Laguna cancelled OCT No. (0-941) 0-198 and issued Transfer Certificate of
Title (TCT) No. 41985 in the name of R & B Insurance. The annotation of usufruct in favor of Justa
Kausapin was maintained in the new title. 6
Despite the earlier conveyance of the subject land in favor of Maxima Hemedes, Justa Kausapin
executed a "Kasunduan" on May 27, 1971 whereby she transferred the same land to her stepson
Enrique D. Hemedes, pursuant to the resolutory condition in the deed of donation executed in her
favor by her late husband Jose Hemedes. Enrique D. Hemedes obtained two declarations of real
property in 1972, and again, in 1974, when the assessed value of the property was raised. Also,
he has been paying the realty taxes on the property from the time Justa Kausapin conveyed the
property to him in 1971 until 1979. In the cadastral survey of Cabuyao, Laguna conducted from
September 8, 1974 to October 10, 1974, the property was assigned Cadastral No. 2990, Cad. 455D, Cabuyao Cadastre, in the name of Enrique Hemedes. Enrique Hemedes is also the named owner
of the property in the records of the Ministry of Agrarian Reform office at Calamba, Laguna.
On February 28, 1979, Enriques D. Hemedes sold the property to Dominium Realty and
Construction Corporation (Dominium). On April 10, 1981, Justa Kausapin executed an affidavit

affirming the conveyance of the subject property in favor of Enrique D. Hemedes as embodied in the
"Kasunduan" dated May 27, 1971, and at the same time denying the conveyance made to Maxima
Hemedes.
On May 14, 1981, Dominium leased the property to its sister corporation Asia Brewery, Inc. (Asia
Brewery) who, even before the signing of the contract of lease, constructed two warehouses made
of steel and asbestos costing about P10,000,000.00 each. Upon learning of Asia Brewery's
constructions upon the subject property, R & B Insurance sent it a letter on March 16, 1981 informing
the former of its ownership of the property as evidenced by TCT No. 41985 issued in its favor and of
its right to appropriate the constructions since Asia Brewery is a builder in bad faith. On March 27,
1981, a conference was held between R & B Insurance and Asia Brewery but they failed to arrive at
an amicable settlement.
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On May 8, 1981, Maxima Hemedes also wrote a letter addressed to Asia Brewery wherein she
asserted that she is the rightful owner of the subject property by virtue of OCT No. (0-941) 0-198 and
that, as such, she has the right to appropriate Asia Brewery's constructions, to demand its
demolition, or to compel Asia Brewery to purchase the land. In another letter of the same date
addressed to R & B Insurance, Maxima Hemedes denied the execution of any real estate mortgage
in favor of the latter.
On August 27, 1981, Dominium and Enrique D. Hemedes filed a
complaint 7 with the Court of First Instance of Binan, Laguna for the annulment of TCT No. 41985 issued
in favor of R & B Insurance and/or the reconveyance to Dominium of the subject property. Specifically, the
complaint alleged that Dominium was the absolute owner of the subject property by virtue of the February
28, 1979 deed of sale executed by Enrique D. Hemedes, who in turn obtained ownership of the land from
Justa Kausapin, as evidenced by the "Kasunduan" dated May 27, 1971. The plaintiffs asserted that Justa
Kausapin never transferred the land to Maxima Hemedes and that Enrique D. Hemedes had no
knowledge of the registration proceedings initiated by Maxima Hemedes.
After considering the merits of the case, the trial court rendered judgment on February 22, 1989 in
favor of plaintiffs Dominium and Enrique D. Hemedes, the dispositive portion of which states
WHEREFORE, judgment is hereby rendered:
(a) Declaring Transfer Certificate of Title No. 41985 of the Register of
Deeds of Laguna null and void and ineffective;
(b) Declaring Dominium Realty and Construction Corporation the
absolute owner and possessor of the parcel of land described in
paragraph 3 of the complaint;
(c) Ordering the defendants and all persons acting for and/or under
them to respect such ownership and possession of Dominium Realty
and Construction Corporation and to forever desist from asserting
adverse claims thereon nor disturbing such ownership and
possession; and
(d) Directing the Register of Deeds of Laguna to cancel said Transfer
Certificate of Title No. 41985 in the name of R & B Insurance
Corporation, and in lieu thereof, issue a new transfer certificate of title
in the name of Dominium Realty and Construction Corporation. No
pronouncement as to costs and attorney's fees. 8

Both R & B Insurance and Maxima Hemedes appealed from the trial court's decision. On September
11, 1992 the Court of Appeals affirmed the assailed decision in toto and on December 29, 1992, it
denied R & B Insurance's motion for reconsideration. Thus, Maxima Hemedes and R & B Insurance
filed their respective petitions for review with this Court on November 3, 1992 and February 22,
1993, respectively.
In G.R. No. 107132 9, petitioner Maxima Hemedes makes the following assignment of errors as regards
public respondent's ruling
I
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN APPLYING ARTICLE
1332 OF THE NEW CIVIL CODE IN DECLARING AS SPURIOUS THE DEED OF
CONVEYANCE OF UNREGISTERED REAL PROPERTY BY REVERSION
EXECUTED BY JUSTA KAUSAPIN IN FAVOR OF PETITIONER MAXIMA
HEMEDES.
II
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT FINDING AS
VOID AND OF NO LEGAL EFFECT THE "KASUNDUAN" DATED 27 MAY 1971
EXECUTED BY JUSTA KAUSAPIN IN FAVOR OF RESPONDENT ENRIQUE
HEMEDES AND THE SALE OF THE SUBJECT PROPERTY BY RESPONDENT
ENRIQUE HEMEDES IN FAVOR OF RESPONDENT DOMINIUM REALTY AND
CONSTRUCTION CORPORATION.
III
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT FINDING
RESPONDENTS ENRIQUE AND DOMINIUM IN BAD FAITH.
IV
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT
ORIGINAL CERTIFICATE OF TITLE NO. (0-941) 0-198 ISSUED IN THE NAME OF
PETITIONER MAXIMA HEMEDES NULL AND VOID.
V
RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT NO LOAN
WAS OBTAINED BY PETITIONER MAXIMA HEMEDES FROM RESPONDENT R &
B INSURANCE CORPORATION.
VI
RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT NO REAL
ESTATE MORTGAGE OVER THE SUBJECT PROPERTY WAS EXECUTED BY
PETITIONER MAXIMA HEMEDES IN FAVOR OF RESPONDENT R & B
INSURANCE CORPORATION.
VII

RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT THE VALID


TITLE COVERING THE SUBJECT PROPERTY IS THE ORIGINAL CERTIFICATE
OF TITLE NO. (0-941) 0-198 IN THE NAME OF PETITIONER MAXIMA HEMEDES
AND NOT THE TRANSFER CERTIFICATE OF TITLE (TCT) NO. 41985 IN THE
NAME OF R & B INSURANCE CORPORATION. 10
Meanwhile, in G.R. No. 108472 11, petitioner R & B Insurance assigns almost the same errors, except
with regards to the real estate mortgage allegedly executed by Maxima Hemedes in its favor. Specifically,
R & B Insurance alleges that:
I
RESPONDENT COURT ERRONEOUSLY ERRED IN APPLYING ARTICLE 1332 OF
THE CIVIL CODE.
II
RESPONDENT COURT SERIOUSLY ERRED IN GIVING CREDENCE ON (sic) THE
KASUNDUAN BY AND BETWEEN JUSTA KAUSAPIN AND ENRIQUE
NOTWITHSTANDING THE FACT THAT JUSTA KAUSAPIN BY WAY OF A DEED OF
CONVEYANCE OF UNREGISTERED REAL PROPERTY BY REVERSION CEDED
THE SUBJECT PROPERTY TO MAXIMA SOME ELEVEN (11) YEARS EARLIER.
III
RESPONDENT COURT SERIOUSLY ERRED IN GIVING CREDENCE ON (sic) THE
AFFIDAVIT OF REPUDIATION OF JUSTA KAUSAPIN NOTWITHSTANDING THE
FACT THAT SHE IS A BIAS (sic) WITNESS AND EXECUTED THE SAME SOME
TWENTY-ONE (21) YEARS AFTER THE EXECUTION OF THE DEED OF
CONVEYANCE IN FAVOR OF MAXIMA.
IV
RESPONDENT COURT SERIOUSLY ERRED IN NOT FINDING THAT THE
COMPLAINT OF ENRIQUE AND DOMINIUM HAS PRESCRIBED AND/OR THAT
ENRIQUE AND DOMINIUM WERE GUILTY OF LACHES.
V
RESPONDENT COURT SERIOUSLY ERRED IN FINDING
R & B AS A MORTGAGEE NOT IN GOOD FAITH.
VI
RESPONDENT COURT SERIOUSLY ERRED IN NOT GRANTING THE DAMAGES
PRAYED FOR BY R & B IN ITS COUNTERCLAIM AND CROSSCLAIM. 12
The primary issue to be resolved in these consolidated petitions is which of the two conveyances by
Justa Kausapin, the first in favor of Maxima Hemedes and the second in favor of Enrique D.
Hemedes, effectively transferred ownership over the subject land.

The Register of Deeds of Laguna issued OCT No. (0-941) 0-198 in favor of Maxima Hemedes on the
strength of the "Deed of Conveyance of Unregistered Real Property by Reversion" executed by
Justa Kausapin. Public respondent upheld the trial court's finding that such deed is sham and
spurious and has "no evidentiary value under the law upon which claimant Maxima Hemedes may
anchor a valid claim of ownership over the property." In ruling thus, it gave credence to the April 10,
1981 affidavit executed by Justa Kausapin repudiating such deed of conveyance in favor of Maxima
Hemedes and affirming the authenticity of the "Kasunduan" in favor of Enrique D. Hemedes. Also, it
considered as pivotal the fact that the deed of conveyance in favor of Maxima Hemedes was in
English and that it was not explained to Justa Kausapin, although she could not read nor understand
English; thus, Maxima Hemedes failed to discharge her burden, pursuant to Article 1332 of the Civil
Code, to show that the terms thereof were fully explained to Justa Kausapin. Public respondent
concluded by holding that the registration of the property on the strength of the spurious deed of
conveyance is null and void and does not confer any right of ownership upon Maxima Hemedes. 13
Maxima Hemedes argues that Justa Kausapin's affidavit should not be given any credence since
she is obviously a biased witness as it has been shown that she is dependent upon Enrique D.
Hemedes for her daily subsistence, and she was most probably influenced by Enrique D. Hemedes
to execute the "Kasunduan" in his favor. She also refutes the applicability of article 1332. It is her
contention that for such a provision to be applicable, there must be a party seeking to enforce a
contract; however, she is not enforcing the "Deed of Conveyance of Unregistered Real Property by
Reversion" as her basis in claiming ownership, but rather her claim is anchored upon OCT No. (0941) 0-198 issued in her name, which document can stand independently from the deed of
conveyance. Also, there exist various circumstances which show that Justa Kausapin did in fact
execute and understand the deed of conveyance in favor of Maxima Hemedes. First, the "Donation
Intervivos With Resolutory Conditions" executed by Jose Hemedes in favor of Justa Kausapin was
also in English, but she never alleged that she did not understand such document. Secondly, Justa
Kausapin failed to prove that it was not her thumbmark on the deed of conveyance in favor of
Maxima Hemedes and in fact, both Enrique D. Hemedes and Dominium objected to the request of
Maxima Hemedes' counsel to obtain a specimen thumbmark of Justa Kausapin. 14
Public respondent's finding that the "Deed of Conveyance of Unregistered Real Property By
Reversion" executed by Justa Kausapin in favor of Maxima Hemedes is spurious is not supported by
the factual findings in this case. It is grounded upon the mere denial of the same by Justa Kausapin.
A party to a contract cannot just evade compliance with his contractual obligations by the simple
expedient of denying the execution of such contract. If, after a perfect and binding contract has been
executed between the parties, it occurs to one of them to allege some defect therein as a reason for
annulling it, the alleged defect must be conclusively proven, since the validity and fulfillment of
contracts cannot be left to the will of one of the contracting parties. 15
Although a comparison of Justa Kausapin's thumbmark with the thumbmark affixed upon the deed of
conveyance would have easily cleared any doubts as to whether or not the deed was forged, the
records do not show that such evidence was introduced by private respondents and the lower court
decisions do not make mention of any comparison having been made. 16 It is a legal presumption that
evidence willfully suppressed would be adverse if produced. 17 The failure of private respondents to refute
the due execution of the deed of conveyance by making a comparison with Justa Kausapin's thumbmark
necessarily leads one to conclude that she did in fact affix her thumbmark upon the deed of donation in
favor of her stepdaughter.
Moreover, public respondent's reliance upon Justa Kausapin's repudiation of the deed of
conveyance is misplaced for there are strong indications that she is a biased witness. The trial court
found that Justa Kausapin was dependent upon Enrique D. Hemedes for financial
assistance. 18 Justa Kausapin's own testimony attests to this fact

Atty. Conchu:
Q: Aling Justa, can you tell the Honorable Court why you donated this
particular property to Enrique Hemedes?
A: Because I was in serious condition and he was the one supporting
me financially.
Q: As of today, Aling Justa are you continuing to receive any
assistance from Enrique Hemedes?
A: Yes Sir.
(TSN pp. 19 and 23, November 17, 1981)

19

Even Enrique Hemedes admitted that Justa Kausapin was dependent upon him for financial
support. The transcripts state as follows:
Atty. Mora:
Now you said that Justa Kausapin has been receiving from you
advances for food, medicine & other personal or family needs?
E. Hemedes:
A: Yes.
Q: Was this already the practice at the time this "Kasunduan" was
executed?
A: No that was increased, no, no, after this document.
xxx xxx xxx
Q: And because of these accommodations that you have given to
Justa Kausapin; Justa Kausapin has in turn treated you very well
because she's very grateful for that, is it not?
A: I think that's human nature.
Q: Answer me categorically, Mr. Hemedes she's very grateful?
A: Yes she might be grateful but not very grateful.
(TSN, p. 34, June 15, 1984) 20
A witness is said to be biased when his relation to the cause or to the parties is such that he has an
incentive to exaggerate or give false color to his statements, or to suppress or to pervert the truth, or
to state what is false. 21 At the time the present case was filed in the trial court in 1981, Justa Kausapin
was already 80 years old, suffering from worsening physical infirmities and completely dependent upon

her stepson Enrique D. Hemedes for support. It is apparent that Enrique D. Hemedes could easily have
influenced his aging stepmother to donate the subject property to him. Public respondent should not have
given credence to a witness that was obviously biased and partial to the cause of private respondents.
Although it is a well-established rule that the matter of credibility lies within the province of the trial court,
such rule does not apply when the witness' credibility has been put in serious doubt, such as when there
appears on the record some fact or circumstance of weight and influence, which has been overlooked or
the significance of which has been
misinterpreted. 22

Finally, public respondent was in error when it sustained the trial court's decision to nullify the "Deed
of Conveyance of Unregistered Real Property by Reversion" for failure of Maxima Hemedes to
comply with article 1332 of the Civil Code, which states:
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.
Art. 1332 was intended for the protection of a party to a contract who is at a disadvantage due to his
illiteracy, ignorance, mental weakness or other handicap. 23 This article contemplates a situation
wherein a contract has been entered into, but the consent of one of the parties is vitiated by mistake or
fraud committed by the other contracting party. 24This is apparent from the ordering of the provisions
under Book IV, Title II, Chapter 2, section 1 of the Civil Code, from which article 1332 is taken. Article
1330 states that
A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable.
This is immediately followed by provisions explaining what constitutes mistake, violence,
intimidation, undue influence, or fraud sufficient to vitiate consent. 25 In order that mistake may
invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to
those conditions which have principally moved one or both parties to enter into the contract. 26 Fraud, on
the other hand, is present when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have agreed
to.27 Clearly, article 1332 assumes that the consent of the contracting party imputing the mistake or fraud
was given, although vitiated, and does not cover a situation where there is a complete absence of
consent.
1wphi1.nt

In this case, Justa Kausapin disclaims any knowledge of the "Deed of Conveyance of Unregistered
Real Property by Reversion" in favor of Maxima Hemedes. In fact, she asserts that it was only during
the hearing conducted on December 7, 1981 before the trial court that she first caught a glimpse of
the deed of conveyance and thus, she could not have possibly affixed her thumbmark thereto. 28 It is
private respondents' own allegations which render article 1332 inapplicable for it is useless to determine
whether or not Justa Kausapin was induced to execute said deed of conveyance by means of fraud
employed by Maxima Hemedes, who allegedly took advantage of the fact that the former could not
understand English, when Justa Kausapin denies even having seen the document before the present
case was initiated in 1981.
It has been held by this Court that ". . . mere preponderance of evidence is not sufficient to
overthrow a certificate of a notary public to the effect that the grantor executed a certain document
and acknowledged the fact of its execution before him. To accomplish this result, the evidence must
be so clear, strong and convincing as to exclude all reasonable controversy as to the falsity of the
certificate, and when the evidence is conflicting, the certificate will be
upheld." 29 In the present case, we hold that private respondents have failed to produce clear, strong, and

convincing evidence to overcome the positive value of the "Deed Conveyance of Unregistered Real
Property by Reversion" a notarized document. The mere denial of its execution by the donor will not
suffice for the purpose.

In upholding the deed of conveyance in favor of Maxima Hemedes, we must concomitantly rule that
Enrique D. Hemedes and his transferee, Dominium, did not acquire any rights over the subject
property. Justa Kausapin sought to transfer to her stepson exactly what she had earlier transferred to
Maxima Hemedes the ownership of the subject property pursuant to the first condition stipulated
in the deed of donation executed by her husband. Thus, the donation in favor of Enrique D.
Hemedes is null and void for the purported object thereof did not exist at the time of the transfer,
having already been transferred to his sister. 30 Similarly, the sale of the subject property by Enrique D.
Hemedes to Dominium is also a nullity for the latter cannot acquire more rights than its predecessor-ininterest and is definitely not an innocent purchaser for value since Enrique D. Hemedes did not present
any certificate of title upon which it relied.
The declarations of real property by Enrique D. Hemedes, his payment of realty taxes, and his being
designated as owner of the subject property in the cadastral survey of Cabuyao, Laguna and in the
records of the Ministry of Agrarian Reform office in Calamba, Laguna cannot defeat a certificate of
title, which is an absolute and indefeasible evidence of ownership of the property in favor of the
person whose name appears therein. 31 Particularly, with regard to tax declarations and tax receipts, this
Court has held on several occasions that the same do not by themselves conclusively prove title to
land. 32
We come now to the question of whether or not R & B Insurance should be considered an innocent
purchaser of the land in question. At the outset, we note that both the trial court and appellate court
found that Maxima Hemedes did in fact execute a mortgage over the subject property in favor of R &
B Insurance. This finding shall not be disturbed because, as we stated earlier, it is a rule that the
factual findings of the trial court, especially when affirmed by the Court of Appeals, are entitled to
respect, and should not be disturbed on
appeal. 33
In holding that R & B Insurance is not a mortgagee in good faith, public respondent stated that the
fact that the certificate of title of the subject property indicates upon its face that the same is subject
to an encumbrance, i.e. usufructuary rights in favor of Justa Kausapin during her lifetime or
widowhood, should have prompted R & B Insurance to ". . . investigate further the circumstances
behind this encumbrance on the land in dispute," but which it failed to do. Also, public respondent
considered against R & B Insurance the fact that it made it appear in the mortgage contract that the
land was free from all liens, charges, taxes and encumbrances. 34
R & B Insurance alleges that, contrary to public respondent's ruling, the presence of an
encumbrance on the certificate of title is not reason for the purchaser or a prospective mortgagee to
look beyond the face of the certificate of title. The owner of a parcel of land may still sell the same
even though such land is subject to a usufruct; the buyer's title over the property will simply be
restricted by the rights of the usufructuary. Thus, R & B Insurance accepted the mortgage subject to
the usufructuary rights of Justa Kausapin. Furthermore, even assuming that R & B Insurance was
legally obliged to go beyond the title and search for any hidden defect or inchoate right which could
defeat its right thereto, it would not have discovered anything since the mortgage was entered into in
1964, while the "Kasunduan" conveying the land to Enrique D. Hemedes was only entered into in
1971 and the affidavit repudiating the deed of conveyance in favor of Maxima Hemedes was
executed by Justa Kausapin in 1981.35
We sustain petitioner R & B Insurance's claim that it is entitled to the protection of a mortgagee in
good faith.

It is a well-established principle that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued and the law will in no way oblige him to go behind the
certificate to determine the condition of the property. 36 An innocent purchaser for value 37 is 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 of another person. 38
The annotation of usufructuary rights in favor of Justa Kausapin upon Maxima Hemedes' OCT dose
not impose upon R & B Insurance the obligation to investigate the validity of its mortgagor's title.
Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and
substance. 39 The usufructuary is entitled to all the natural, industrial and civil fruits of the property 40 and
may personally enjoy the thing in usufruct, lease it to another, or alienate his right of usufruct, even by a
gratuitous title, but all the contracts he may enter into as such usufructuary shall terminate upon the
expiration of the usufruct. 41
Clearly, only the jus utendi and jus fruendi over the property is transferred to the usufructuary. 42 The
owner of the property maintains the jus disponendi or the power to alienate, encumber, transform, and
even destroy the same. 43 This right is embodied in the Civil Code, which provides that the owner of
property the usufruct of which is held by another, may alienate it, although he cannot alter the property's
form or substance, or do anything which may be prejudicial to the usufructuary. 44
There is no doubt that the owner may validly mortgage the property in favor of a third person and the
law provides that, in such a case, the usufructuary shall not be obliged to pay the debt of the
mortgagor, and should the immovable be attached or sold judicially for the payment of the debt, the
owner shall be liable to the usufructuary for whatever the latter may lose by reason thereof. 45
Based on the foregoing, the annotation of usufructuary rights in favor of Justa Kausapin is not
sufficient cause to require R & B Insurance to investigate Maxima Hemedes' title, contrary to public
respondent's ruling, for the reason that Maxima Hemedes' ownership over the property remained
unimpaired despite such encumbrance. R & B Insurance had a right to rely on the certificate of title
and was not in bad faith in accepting the property as a security for the loan it extended to Maxima
Hemedes.
Even assuming in gratia argumenti that R & B Insurance was obligated to look beyond the certificate
of title and investigate the title of its mortgagor, still, it would not have discovered any better rights in
favor of private respondents. Enrique D. Hemedes and Dominium base their claims to the property
upon the "Kasunduan" allegedly executed by Justa Kausapin in favor of Enrique Hemedes. As we
have already stated earlier, such contract is a nullity as its subject matter was inexistent. Also, the
land was mortgaged to R & B Insurance as early as 1964, while the "Kasunduan" was executed only
in 1971 and the affidavit of Justa Kausapin affirming the conveyance in favor of Enrique D. Hemedes
was executed in 1981. Thus, even if R & B Insurance investigated the title of Maxima Hemedes, it
would not have discovered any adverse claim to the land in derogation of its mortgagor's title. We
reiterate that at no point in time could private respondents establish any rights or maintain any claim
over the land.
It is a well-settled principle that where innocent third persons rely upon the correctness of a
certificate of title and acquire rights over the property, the court cannot just disregard such rights.
Otherwise, public confidence in the certificate of title, and ultimately, the Torrens system, would be
impaired for everyone dealing with registered property would still have to inquire at every instance
whether the title has been regularly or irregularly issued. 46Being an innocent mortgagee for value, R &
B Insurance validly acquired ownership over the property, subject only to the usufructuary rights of Justa
Kausapin thereto, as this encumbrance was properly annotated upon its certificate of title.

The factual findings of the trial court, particularly when affirmed by the appellate court, carry great
weight and are entitled to respect on appeal, except under certain circumstances. 47 One such
circumstance that would compel the Court to review the factual findings of the lower courts is where the
lower courts manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion. 48 Also, it is axiomatic that the drawing of the proper legal
conclusions from such factual findings are within the peculiar province of this Court. 49
As regards R & B Insurance's prayer that Dominium be ordered to demolish the warehouses or that
it be declared the owner thereof since the same were built in bad faith, we note that such
warehouses were constructed by Asia Brewery, not by Dominium. However, despite its being a
necessary party in the present case, the lower courts never acquired jurisdiction over Asia Brewery,
whether as a plaintiff or defendant, and their respective decisions did not pass upon the
constructions made upon the subject property. Courts acquire jurisdiction over a party plaintiff upon
the filing of the complaint, while jurisdiction over the person of a party defendant is acquired upon
the service of summons in the manner required by law or by his voluntary appearance. As a rule, if a
defendant has not been summoned, the court acquires no jurisdiction over his person, and any
personal judgment rendered against such defendant is null and void. 50 In the present case, since Asia
Brewery is a necessary party that was not joined in the action, any judgment rendered in this case shall
be without prejudice to its rights. 51
As to its claim for moral damages, we hold that R & B Insurance is not entitled to the same for it has
not alleged nor proven the factual basis for the same. Neither is it entitled to exemplary damages,
which may only be awarded if the claimant is entitled to moral, temperate, liquidated or
compensatory damages. 52 R & B Insurance's claim for attorney's fees must also fail. The award of
attorney's fees is the exception rather than the rule and counsel's fees are not to be awarded every time a
party wins a suit. Its award pursuant to article 2208 of the Civil Code demands factual, legal and equitable
justification and cannot be left to speculation and conjecture. 53 Under the circumstances prevailing in the
instant case, there is no factual or legal basis for an award of attorney's fees.
WHEREFORE, the assailed decision of public respondent and its resolution dated February 22,
1989 are REVERSED. We uphold petitioner R & B Insurance's assertion of ownership over the
property in dispute, as evidenced by TCT No. 41985, subject to the usufructuary rights of Justa
Kausapin, which encumbrance has been properly annotated upon the said certificate of title. No
pronouncement as to costs.
SO ORDERED.
Panganiban and Purisima, JJ., concur.
Melo, J., please see dissenting opinion.
Vitug, J., please see separate (concurring) opinion.
Separate Opinions

VITUG, J., separate opinion;


I share the opinion expressed by my esteemed colleague, Mme. Justice Minerva P. Gonzaga-Reyes,
in herponencia.
I just would like to add that a donation would not be legally feasible if the donor has neither
ownership nor real right that he can transmit to the donee. Unlike an ordinary contract, a donation,

under Article 712, in relation to Article 725, of the Civil Code is also a mode of acquiring and
transmitting ownership and other real rights by an act of liberality whereby a person disposes
gratuitously that ownership or real right in favor of another who accepts it. It would be an
inefficacious process if the donor would have nothing to convey at the time it is made.
Art. 744 of the Civil Code states that the "donation of the same thing to two or more different donees
shall be governed by the provisions concerning the sale of the same thing to two or more
persons," i.e., by Article 1544 of the same Code, as if so saying that there can be a case of "double
donations" to different donees with opposing interest. Article 744 is a new provision, having no
counterpart in the old Civil Code, that must have been added unguardedly. Being a mode of
acquiring and transmitting ownership or other real rights, a donation once perfected would deny the
valid execution of a subsequent inconsistent donation (unless perhaps if the prior donation has
provided a suspensive condition which still pends when the later donation is made).
In sales, Article 1544, providing for the rules to resolve the conflicting rights of two or more buyers, is
appropriate since the law does not prohibit but, in fact, sanctions the perfection of a sale by a nonowner, such as the sale of future things or a short sale, for it is only at the consummation stage of
the sale, i.e., delivery of the thing sold, that ownership would be deemed transmitted to the buyer. In
the meanwhile, a subsequent sale to another of the same thing by the same seller can still be a legal
possibility. This rule on double sales finds no relevance in an ordinary donation where the law
requires the donor to have ownership of the thing or the real right he donates at the time of its
perfection (see Article 750, Civil Code) since a donation constitutes a mode, not just a title, in an
acquisition and transmission of ownership.
MELO, J., dissenting opinion;
I find myself unable to join the majority. The opinion written by my esteemed colleague, Madame
Justice Minerva Gonzaga-Reyes, will have far-reaching ramifications on settled doctrines concerning
the finality and conclusiveness of the factual findings of the trial court in view of its unique advantage
of being able to observe at first-hand the demeanor and deportment of witnesses, and especially
when such findings of facts are affirmed by the Court of Appeals, which is the final arbiter of
questions of fact (People vs. Edao, 64 SCRA 675 [1975]; People vs. Tala, 141 SCRA 240; People
vs. Canada and Dondoy, 144 SCRA 121 [1986]; People vs. Clore, 184 SCRA 638 [1990]; Binalay vs.
Manalo, 195 SCRA 374 [1991]; People vs. Miscala, 202 SCRA 26 [1991]; People vs. Lagrosa, 230
SCRA. 298 [1994]). All these conditions are present in the case at bar, and I have grave reservations
about the propriety of setting aside time-tested principles in favor of a finding that hinges principally
on the credibility of a single witness, whom we are asked to disbelieve on the basis merely of her
recorded testimony without the benefit of the advantage that the trial court had, disregarding in the
process another long-established rule that mere relationship of a witness to a party does not
discredit his testimony in court (U.S. vs. Mante, 27 Phil 124; People vs. Pagaduan, 37 Phil 90;
People vs. Reyes, 69 SCRA 474 [1976]; People vs. Padiernos, 69 SCRA 484 [1976]; Borromeo vs.
Court of Appeals, 70 SCRA 329 [1976]; People vs. Estocada, 75 SCRA 295 [1977]; People vs. Ciria,
106 SCRA 381 [1981]; People vs. Ramo, 132 SCRA 174 [1984]; People vs. Atencio, 156 SCRA 242
[1987]; People vs. Gutierrez. Jr., 158 SCRA 614 [1988]; People vs. Bandoquillo, 167 SCRA 549
[1988]; People vs. Suitos, 220 SCRA 419 [1993]).
The primordial issue is whether or not the "Deed of Conveyance of Unregistered Real Property by
Reversion" dated September 27, 1960 conveying the subject property to Maxima Hemedes is valid.
If the transfer is not valid, no title passed to her successor-in-interest, R & B Insurance Corporation.
The Court of Appeals, confirming and summarizing the findings of fact and law made by the trial
court, declared:

We sustain the findings of the trial court.


To begin with, the "Deed of Conveyance of Unregistered Real Property by
Reversion" was nullified by the trial court on two (2) grounds:
First, MAXIMA failed to comply with the requirements laid down by Article 1332 of the
Civil Code. Said provision reads:
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.
In her testimony, MAXIMA admitted the entire document was written in English, a
language not known to Justa Kausapin (TSN, 17 November 1981, pp. 7-8;
Deposition of Justa Kausapin). Yet, MAXIMA failed to introduce sufficient evidence
that would purportedly show that the deed of conveyance was explained to Justa
Kausapin before the latter allegedly affixed her thumbmark. On the contrary, she
admitted having failed to translate the deed of conveyance to Justa Kausapin
because according to her, the latter has "no voice" anyway insofar as the property is
concerned. Her testimony reads:
Q In connection with this deed of conveyance which has been
marked as Exh. "2-Maxima," we note that this is written in English, do
you know, Mrs. Hernandez (MAXIMA), whether this document was
ever translated to Justa Kausapin?
A Justa Kausapin has no voice because that's the order of my
father, so anyway. . .
Court Answer the question, you were only asked whether that was
translated.
A No. (TSN 26 November, 1984, pp. 36-37, Maxima Hemedes).
Second, MAXIMA failed to repudiate the allegation of Justa Kausapin disclaiming
knowledge of her having executed such a deed. As a matter of fact, Justa Kausapin
claimed that it was only during the hearing conducted on 07 December 1981 that she
first caught glimpse of the deed of conveyance (TSN, 07 December 1981, pp. 2223, ibid.) She therefore could not have possibly affixed her thumbmark therein. In the
light of such a denial, the burden of proving that the deed of conveyance was indeed
genuine laid on MAXIMA. After all, any party who asserts the affirmative of the issue
has the burden of presenting evidence required to obtain a favorable judgment
(Republic v. Court of Appeals, 182 SCRA 290).
1wphi1.nt

Instead, what was clearly established from the deposition of Justa Kausapin is the
fact that she never executed any document donating the property to anybody else
except ENRIQUE. This can be readily gleaned from her testimony, reading:
Q From the time, Aling Justa, that your husband Jose Hemedes
donated the property to you up to the time you in turn donated the

same to Enrique Hemedes in 1971, do you recall having executed


any document donating this particular property to anybody else?
A None, Sir. (TSN, 17 November 1981, p. 21)

(pp. 63-64,Rollo
There is no dispute that Justa Kausapin twice repudiated the conveyance in favor of Maxima
Hemedes. As found by the trial court:
In an Affidavit dated April 10, 1981 executed by Justa Kausapin before three
witnesses (Exh. D-Dominium), said affiant disowned the alleged "Deed of
Conveyance of Unregistered Real Property by Reversion" invoked by defendant
Maxima Hemedes, and expressly stated that she never granted any right over the
property to Maxima Hemedes, whether as owner or mortgagor, that she never
allowed her to use the land as security or collateral for a loan. In the same affidavit,
Justa Kausapin affirmed the authenticity of the "Kasunduan" whereby she transferred
ownership of the disputed land to Enrique Hemedes, her stepson and reliable source
of assistance throughout the years that she was in need of help. The testimony of
Justa Kausapin was also taken by deposition on November 17, December 7 and 14,
1981 and on January 14, 1982, wherein all the contending parties were represented
and had the opportunity to cross-examine her. In her testimony (the entire transcript
of which has been submitted as Exh. K-Enrique), Justa Kausapin reiterated her
repudiation of the Deed of Conveyance in favor of Maxima Hemedes and re-affirmed
the validity of the "Kasunduan" in favor of Enrique Hemedes, as well as the
subsequent sale of the land by Enrique Hemedes to Dominium.
(pp. 83-84, Rollo.)
The majority would hold that the twin repudiations cannot be given credence because the witness is
biased in favor of Enrique Hemedes, who, by providing support and financial assistance to the
witness before, during and after the execution of the "Kasunduan," is said to have influenced her into
signing the same. This issue refers to the credibility of witnesses which, as stated earlier, is best left
for determination by the trial court (People vs. Oliano, 287 SCRA 158 [1998], citing People vs.
Pontillar, Jr., 275 SCRA 338 [1997]; People vs. Rubio, 257 SCRA 528 [1996]; People vs. Del Prado,
253 SCRA 731 [1996]). I am not prepared to substitute my judgment for that of the trial court on the
credibility of Justa Kausapin on the basis alone of the relationship between her and Enrique
Hemedes. To reiterate, the rule is: "Mere relationship of a witness to a party does not discredit his
testimony in court." (U.S. vs. Mante, supra; Aznar vs. Court of Appeals, 70 SCRA 329 [1976]; People
vs. Letigio, 268 SCRA 227, 243 [1997]).
I cannot infer from the mere circumstance that Justa Kausapin was receiving support and
sustenance from Enrique Hemedes that she had any improper motives to testify in favor of Enrique
and against Maxima. It must be remembered that Justa Kausapin had a legal right to such financial
assistance, not only from respondent Enrique Hemedes, but also from Maxima Hemedes, who are
both her stepchildren. If one must impute improper motives in favor of Enrique, one could just as
easily ascribe these to Maxima. Furthermore, it must be noted that Justa Kausapin's entitlement to
support flowed from her usufructuary rights contained in the "Donation Inter Vivos with Resolutory
Conditions" executed by her late husband, Jose Hemedes, the common father of petitioner Maxima
and respondent Enrique Hemedes. In supporting his stepmother, Enrique was, therefore, merely
performing a legal or contractual duty in favor of Justa Kausapin. There was nothing improper in
Justa Kausapin's repudiation of the conveyance in favor of Maxima, especially so if one considers

the fact that the latter did not adduce any other evidence to defeat the presumption that Justa
Kausapin was stating the truth when she said that she never conveyed the property to Justa
Maxima. As the trial court found:
. . . The actuation of Enrique Hemedes towards Justa Kausapin is legally and morally
justified. It must be remembered that Justa Kausapin is the stepmother of Enrique
Hemedes; she was also the usufructuary of the property in dispute. It is only natural
and in keeping with law and custom, or Filipino tradition, for a son to support his
mother (even if she happens to be a stepmother); and form a legal standpoint, the
naked owner Enrique Hemedes was bound to support Justa Kausapin by way of
giving her what she was entitled to as usufructuary.
(p. 104, Rollo.)
The trial court's ruling on the invalidity of the title of Maxima is not based solely on Justa Kausapin's
repudiation of the deed of conveyance, but likewise on the very acts of Maxima and her transferee R
& B Surety and Insurance. The factual findings of the trial court are to the effect that despite the
alleged transfer of ownership from Justa Kausapin to Maxima Hemedes on September 27, 1960 and
the subsequent transfer to R & B Insurance on May 3, 1968 by way of foreclosure and public auction
sale, neither do these petitioners exercised their rights of ownership over the disputed property,
never even asserting their supposed ownership rights until it was too late. The following findings of
the trial court stand unassailed:
There are other indications which led this Court to believe that neither defendant
Maxima Hemedes nor defendant R & B INSURANCE consider themselves the owner
of the property in question. Both of these claimants never declared themselves as
owners of the property for tax purposes; much less did they pay a single centavo in
real estate taxes. The argument that since Justa Kausapin was in possession of the
property as usufructuary she should pay the taxes contravenes the clear provision of
the Civil Code that the taxes which may be imposed directly on the capital during the
usufruct, in this case the realty taxes, shall be at the expense of the owner (Article
597, Civil Code). If Maxima Hemedes and R & B INSURANCE were convinced that
they were the owners of the property, why did they not pay taxes for the same? This
attitude is not consistent with that of an owner in good faith. The Court has noted that
the very owner of R & B INSURANCE has admitted in her testimony that they
declared the property as one of the assets of R & B INSURANCE only in 1976, which
is eight years after they supposedly bought it at public auction in 1968 (TSN, July 6,
1987, pp. 22-23) (Decision, pp. 32-33).
(pp. 101-02, Rollo.)
Faced with the categorical and straightforward repudiations of the conveyance supposedly made in
her favor, Maxima Hemedes could only gratuitously assert otherwise, as no other testimonial or
documentary evidence was adduced in support thereof. Maxima's self-serving assertions, however,
are legally infirm in view of her admission that the deed of conveyance in her favor was written in a
language unknown to the person who supposedly executed the same and the terms thereof were
not fully explained to the person who executed the same. These are the facts as found by the trial
court:
Questioned about the execution of the "Deed of Conveyance of Unregistered Real
Property by Reversion" which is the basis of her claim, defendant Maxima Hemedes
admitted that the document which is in English was not translated or explained to

Justa Kausapin before the latter supposedly affixed her thumbmark to the document
(TSN, November 26, 1984, p. 34; TSN, December 10, 1984, p. 9). The Court has
noted from the records that the Notary Public before whom the said document was
notarized was not presented as a wittiness by defendant Maxima Hemedes, if only to
attest to the execution of said document by Justa Kausapin, considering that the
latter is an illiterate when it comes to documents written in English. Maxima
explained the non-translation of the Deed of Conveyance into a language understood
by Justa Kausapin with the statement that the latter (Justa Kausapin) "has no voice"
anyway in so far as the property is concerned (TSN, November 26, 1984, p. 36) . . .
the Notary Public before whom the said document was supposed to have been
axknowledged was also not presented as a witness, and there was no explanation as
to why he was not also presented. In the face of such an admission and failure on
the part of defendant Maxima Hemedes, coupled with the straightforward repudiation
by Justa Kausapin herself of the document relied upon by said defendant the Court
finds and so concludes that the "Deed of Conveyance of Unregistered Real Property
by Reversion" is not a credible and convincing evidence and is of no evidentiary
value under the law upon which claimant Maxima Hemedes may anchor a valid claim
of ownership over the property subject of this action.
(pp. 91-93, Rollo.)
It is argued that private respondents failed to have the thumbmarks of Justa Kausapin appearing on
the deeds executed in favor of Maxima and Enrique compared and this failure may be taken as wilful
suppression of evidence that is presumed to be adverse if produced (Rules of Court, Rule 131, Sec.
3(e). The applicability of this rule presupposes that the suppressed evidence is not available to the
other party for production in court (People vs. Padiernos, 69 SCRA 484 [1976]; People vs. Silvestre,
279 SCRA 474, 495 [1997]). This is not the case here for the same documents were available to
petitioners. In fact, the records show that counsel for Maxima Hemedes pledged to submit the
document which will be compared with the specimen thumbmark to be obtained from Justa
Kausapin (TSN, December 7, 1981, p. 28). The records, however, do not show that said counsel
persisted in his request for comparison of Kausapin's thumbmarks. If petitioners were convinced that
the specimen thumbprint of Justa Kausapin was of crucial importance to their cause, they should
have insisted on presenting her as a witness and, thereupon, obtaining her thumbprint. Their own
failure to pursue the production of the specimen thumbprint of Justa Kausapin negated any belated
claim that the said specimen was suppressed (People vs. Tulop, citing People vs. Pagal, 272 SCRA
443 [1998]; Commissioner of Internal Revenue vs. Tokyo Shipping Company, Ltd., 244 SCRA 332
[1995]; citing Nicolas vs. Nicolas, 52 Phil 265 [1928] and Ang Seng Quiem vs. Te Chico, 7 Phil 541
[1907]).
1wphi1.nt

The two courts below were, to my mind, most perceptive when they held that proof of authenticity of
the thumbprint of Justa Kausapin would not render valid an otherwise void document in light of the
admission of Maxima Hemedes that she did not explain the English contents thereof to Justa
Kausapin in a language understood by her.
On the other hand, the validity of the conveyance to Enrique Hemedes is amply proven by the
evidence on record. Thus, largely uncontested are the following findings of fact of the trial court:
Enough has already been said hereinabove concerning the claim of ownership of
plaintiff Enrique. From an overall evaluation of the facts found by the Court to be
substantiated by the evidence on record, the Court is convinced and so holds that
the three conflicting claimants, it is party plaintiffs, Enrique Hemedes and now
DOMINIUM, who have both law and equity on their side. Plaintiff Enrique Hemedes'

title to the property in question by virtue of the "Kasunduan" dated May 27, 1971 was
confirmed twice by his grantor, Justa Kausapin; he complied with his obligations as
naked owner by giving Justa Kausapin her usufructuary rights in the form of financial
and other assistance; he declared his ownership of the property openly and
adversely to other claimants by recording the same in the appropriate government
agencies, namely, the Municipal and Provincial Assessor's Office, the Ministry of
Agrarian Reform and the Bureau of Lands; he was openly known in the community
where the property is located as the owner thereof; he paid the taxes on the property
conscientiously from the time he acquired the same to the time he sold the same to
co-plaintiff DOMINIUM; he was in continuous possession of the property during the
said period; he paid the tenant, Nemesio Marquez, the disturbance fee required
under the Land Reform Law.
(pp., 102-103, Rollo.)
The Court of Appeals, therefore, did not err in holding that since the deed of conveyance to Maxima
was found to be spurious, it necessarily follows that OCT No. (0-941) 0-198 issued in her name is
null and void. This is because the registration will not invalidate a forged or invalid document.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-123

December 12, 1945

JOSEFA FABIE, petitioner,


vs.
JOSE GUTIERREZ DAVID, Judge of First Instance of Manila, NGO BOO SOO and JUAN
GREY, respondents.
Sancho Onocencio for petitioner.
Serverino B. Orlina for respondent Ngo Soo.
No appearance for other respondents.

OZAETA, J.:
The petitioner Josefa Fabie is the usufructuary of the income of certain houses located at 372-376
Santo Cristo, Binondo, and 950-956 Ongpin, Santa Cruz, Manila, under the ninth clause of the will of
the deceased Rosario Fabie y Grey, which textually reads as follows:
NOVENO. Lego a mi ahijada menor de edad, Maria Josefa de la Paz Fabie, en usufructo
vitalicio las rentas de las fincas situadas en la Calle Santo Cristo Numeros 372 al 376 del
Disrito de Binondo, de esta Ciudad de Manila, descrita en el Certificado Original de Titulo
No. 3824; y en la Calle Ongpin, Numeros 950 al 956 del Distrito de Santa Cruz, Manila

descrita en el Certificado Original de Titulo No. 5030, expedidos por el Registrador de Titulos
de Manila, y prohibo enajene, hipoteque, permute o transfiera de algun modo mientras que
ella sea menor de edad. Nombro a Serafin Fabie Macario, mi primo por linea paterna tutor
de la persona y bienes de mi ahijada menor, Maria Josefa de la Paz Fabie.
The owner of Santo Cristo property abovementioned is the respondent Juan Grey, while those of the
Ongpin property are other person not concern herein. Previous to September 1944 litigation arose
between Josefa Fabie as plaintiff and Juan Grey as defendant and the owner of the Ongpin property
as intervenors, involving the administration of the houses mentioned in clause 9 of the will above
quoted (civil case No. 1659 of the Court of First Instance of Manila). That suit was decided by the
court on September 2, 1944, upon a stipulation in writing submitted by the parties to and approved
by the court. The pertinent portions of said stipulation read as follows:
(4) Heretofore, the rent of said properties have been collected at times by the respective
owners of the properties, at other times by the usufructuary, and lastly by the defendant Juan
Grey as agent under a written agreement dated March 31, 1942, between the owners of both
properties and the usufructuary.
(5) When the rents were collected by the owners, the net amounts thereof were duly paid to
the usufructuary after the expenses for real estate taxes, repairs and insurance premiums,
including the documentary stamps, on the properties and the expenses of collecting the
rents had been deducted, and certain amount set aside as a reserve for contingent liabilities.
When the rents were collected by the usufructuary, she herself paid the expenses aforesaid.
When the rents are collected by the defendant Juan Grey under the agreement of March 31,
1942, the net amounts thereof were duly paid to the usufructuary, after deducting and setting
aside the items aforesaid, monthly, until the month of October 1943, when the usufructuary
refused to continue with the agreement of March 31, 1942.
xxx

xxx

xxx

II. The parties hereto jointly petition the Court to render judgment adopting the foregoing as
finding of facts and disposing that:
(8) Beginning with the month of September 1944, the usufructuary shall collect all the rents
of the both the Sto. Cristo and the Ongpin properties.
(9) The usufructuary shall, at her own cost and expense, pay all the real estate taxes, special
assessments, and insurance premiums, including the documentary stamps, and make all the
necessary repairs on each of the properties, promptly when due or, in the case of repairs,
when the necessary, giving immediate, written notice to the owner or owners of the property
concerned after making such payment or repairs. In case of default on the part of the
usufructuary, the respective owners of the properties shall have the right to make the
necessary payment, including penalties and interest, if any, on the taxes and special
assessments, and the repairs and in that event the owner or owners shall entitled to collect
all subsequent rents of the property concerned until the amount paid by him or them and the

expenses of collection are fully covered thereby, after which the usufructuary shall again
collect the rents in accordance herewith.
(10) The foregoing shall be in effect during the term of the usufruct and shall be binding on
the successors and assigns of each of the parties.
(11) Nothing herein shall be understood as affecting any right which the respective owners of
the properties have or may have as such and which is not specifically the subject of this
stipulation.
In June 1945 Josefa Fabie commenced an action of unlawful detainer against the herein respondent
Ngo Boo Soo (who says that his correct name is Ngo Soo), alleging in her amended complaint that
the defendant is occupying the premises located at 372-376 Santo Cristo on a month-to month rental
payable in advance not latter than the 5th of each month; that she is the administratrix and
usufructuary of said premises; "that the defendant offered to pay P300 monthly rent payable in
advance not later than the 5th of every month, beginning the month of April 1945, for the said of
premises including the one door which said defendant, without plaintiff's consent and contrary to
their agreement, had subleased to another Chinese, but plaintiff refused, based on the fact that the
herein plaintiff very badly needs the said house to live in, as her house was burned by the Japanese
on the occasion of the entry of the American liberators in the City and which was located then at No.
38 Flores, Dominga, Pasay; that defendant was duly notified on March 24 and April 14, 1945, to
leave the said premises, but he refused"; and she prayed for judgment of eviction and for unpaid
rentals.
The defendant answered alleging that he was and since 1908 had been a tenant of the premises in
question, which he was using and had always used principally as a store and secondarily for living
quarters; that he was renting it from its owner and administrator Juan Grey; "that plaintiff is merely
the usufructuary of the income therefrom, and by agreement between her and said owner, which is
embodied in a final judgment of the Court of First Instance of Manila, her only right as usufructuary
of the income is to receive the whole of such income; that she has no right or authority to eject
tenants, such right being in the owner and administrator of the house, the aforesaid Juan Grey, who
has heretofore petitioned this Court for permission to intervene in this action; that plaintiff herein has
never had possession of said property; that defendant's lease contract with the owner of the house is
for 5-year period, with renewal option at the end of each period, and that his present lease due to
expire on December 31, 1945 . . .; that on June 1, 1945, defendant made a written offer to plaintiff to
compromise and settle the question of the amount of rent to be paid by defendant . . . but said
plaintiff rejected the same for no valid reason whatever and instituted the present action; that the
reason plaintiff desires to eject defendant from the property is that she wishes to lease the same to
other persons for a higher rent, ignoring the fact that as usufructuary of the income of the property
she has no right to lease the property; that the defendant has subleased no part of the house to any
person whomsoever.
Juan Grey intervened in the unlawful detainer suit, alleging in his complaint in intervention that he is
the sole and absolute owner of the premises in question; that the plaintiff Josefa Fabie is the
usufructuary of the income of said premises; by virtue of a contract between him and the intervenor
which will expire on December 31, 1945, with the option to renew it for another period of five years

from and after said date; that under the agreement between the intervenor and plaintiff Josefa Fabie
in civil case No. 1659 of the Court of First Instance of Manila, which was approved by the court and
incorporated in its decision of September 2, 1944, the only right recognized in favor of Josefa Fabie
as usufructuary of the income of said premises is to receive the rents therefrom when due; and that
as usufructuary she has no right nor authority to administer the said premises nor to lease them nor
to evict tenants, which right and authority are vested in the intervenor as owner of the premises.
The municipal court (Judge Mariano Nable presiding) found that under paragraph 9 of the stipulation
incorporated in the decision of the Court First Instance of Manila in civil; case No. 1659, the plaintiff
usufructuary is the administratrix of the premises in question, and that the plaintiff had proved her
cause. Judgment was accordingly rendered ordering the defendant Ngo Soo to vacate the premises
and to pay the rents at the rate of P137.50 a month beginning April 1, 1945. The complaint in
intervention was dismissed.
Upon appeal to the Court of First Instance of Manila the latter (thru Judge Arsenio P. Dizon)
dismissed the case for the following reason: "The main issue *** is not a mere question of
possession but precisely who is entitled to administer the property subject matter of this case and
who should be the tenant, and the conditions of the lease. These issues were beyond the jurisdiction
of the municipal court. This being case, this Court, as appellate court, is likewise without jurisdiction
to take cognizance of the present case." A motion for reconsideration filed by the plaintiff was denied
by Judge Jose Gutierrez David, who sustained the opinion of Judge Dizon.
lawphi1.net

The present original action was instituted in this Court by Josefa Fabie to annul the order of the
dismissal and to require to the Court of First Instance to try and decide the case on the merits. The
petitioner further prays that the appeal of the intervenor Juan Grey be declared out of time on the
ground that he receive copy of the decision on August 3 but did not file his notice of appeal until
August 25, 1945.
1. The first question to determine is whether the action instituted by the petitioner Josefa Fabie in the
municipal court is a purely possessory action and as such within the jurisdiction of said court, or an
action founded on property right and therefore beyond the jurisdiction of the municipal court. In other
words, is it an action of unlawful detainer within the purview of section 1 of Rule 72, or an action
involving the title to or the respective interests of the parties in the property subject of the litigation?
Said section 1 of Rule 72 provides that "a landlord, vendor, vendee, or other person against whom
the possession of any land or building is unlawfully withheld after the expiration or termination of the
right to hold possession, by virtue of any contract, express or implied, or the legal representatives or
assigns of any such landlord, vendor vendee, or other person, may, at any time within one year after
such unlawful deprivation of withholding of possession, bring an action in the proper inferior court
against the person or persons unlawfully withholding or depriving of possession, or any person or
persons claiming under them, for the restitution of such possession, together with the damages and
costs."
It is admitted by the parties that the petitioner Josefa Fabie is the usufructuary of the income of the
property in question and that the respondent Juan Grey is the owner thereof. It is likewise admitted
that by virtue of a final judgment entered in civil case No. 1659 of the Court of First Instance of

Manila between the usufructuary and the owner, the former has the right to collect all the rents of
said property for herself with the obligation on her part to pay all the real estate taxes, special
assessments, and insurance premiums, and make all necessary repairs thereon, and in case default
on her part the owner shall have the right to do all those things, in which event he shall be entitled to
collect all subsequent rents of the property concerned until the amount paid by him and the
expenses of collection are fully satisfied, after which the usufructuary shall again collect the rents.
There is therefore no dispute as to the title to or the respective interests of the parties in the property
in question. The naked title to the property is to admittedly in the respondent Juan Grey, but the right
to all the rents thereof, with the obligation to pay the taxes and insurance premiums and make the
necessary repairs, is, also admittedly, vested in the usufructuary, the petitioner Josefa Fabie, during
her lifetime. The only question between the plaintiff and the intervenor is: Who has the right to
manage or administer the property to select the tenant and to fix the amount of the rent? Whoever
has that right has the right to the control and possession of the property in question, regardless of
the title thereto. Therefore, the action is purely possessory and not one in any way involving the title
to the property. Indeed, the averments and the prayer of the complaint filed in the municipal court so
indicate, and as a matter of fact the defendant Ngo Soo does not pretend to be the owner of the
property, but on the contrary admits to be a mere tenant thereof. We have repeatedly held that in
determining whether an action of this kind is within the original jurisdiction of the municipal court or of
the Court of First Instance, the averments of the complaint and the character of the relief sought are
primarily to be consulted; that the defendant in such an action cannot defeat the jurisdiction of the
justice of the peace or municipal court by setting up title in himself; and that the factor which defeats
the jurisdiction of said court is the necessity to adjudicate the question of title.
(Mediran vs. Villanueva, 37 Phil., 752, 759; Medel vs.Militante, 41 Phil., 526, 529;
Sevilla vs. Tolentino, 51 Phil., 333; Supia and Batioco vs. Quintero and Ayala, 59 Phil., 312;
Lizo vs. Carandang, G.R. No. 47833, 2 Off. Gaz., 302; Aguilar vs. Cabrera and Flameo, G.R. No.
49129.)
The Court of First Instance was evidently confused and led to misconstrue the real issue by the
complaint in intervention of Juan Grey, who, allying himself with the defendant Ngo Soo, claimed that
he is the administrator of the property with the right to select the tenant and dictate the conditions of
the lease, thereby implying that it was he and not the plaintiff Josefa Fabie who had the right to bring
the action and oust the tenant if necessary. For the guidance of that court and to obviate such
confusion in its disposal of the case on the merits, we deem it necessary and proper to construe the
judgment entered by the Court of First Instance of Manila in civil case No. 1659, entitled "Josefa
Fabie and Jose Carandang, plaintiffs, vs. Juan Grey, defendant, and Nieves G. Vda. de Grey, et al.,
intervenors-defendants" which judgment was pleaded by the herein respondents Juan Grey and Ngo
Soo in the municipal court. According the decision, copy of which was submitted to this Court as
Appendix F of the petition and as Annex 1 of the answer, there was an agreement, dated March 31,
1942, between the usufructuary Josefa Fabie and the owner Juan Grey whereby the latter as
agent collected the rents of the property in question and delivered the same to the usufructuary after
deducting the expenses for taxes, repairs, insurance premiums and the expenses of collection; that
in the month of October 1943 the usufructuary refused to continue with the said agreement of March
31, 1942, and thereafter the said case arose between the parties, which by stipulation approved by
the court was settled among them in the following manner: Beginning with the month of September
1944 the usufructuary shall collect all the rents of the property in question; shall, at her own cost and
expense, pay all the real estate taxes, special assessments, and insurance premiums, including the

documentary stamps, and make all the necessary repairs on the property; and in case of default on
her part the owner shall the right to do any or all of those things, in which event he shall be entitled
to collect all subsequent rents until the amounts paid by him are fully satisfied, after which the
usufructuary shall again collect the rents. It was further stipulated by the parties and decreed by the
court that "the foregoing shall be in effect during the term of the usufruct and shall be binding on the
successors and assigns of each of the parties."
Construing said judgment in the light of the ninth clause of the will of the deceased Rosario Fabie y
Grey, which was quoted in the decision and by which Josefa Fabie was made by the usufructuary
during her lifetime of the income of the property in question, we find that the said usufructuary has
the right to administer the property in question. All the acts of administration to collect the rents for
herself, and to conserve the property by making all necessary repairs and paying all the taxes,
special assessments, and insurance premiums thereon were by said judgment vested in the
usufructuary. The pretension of the respondent Juan Grey that he is the administrator of the property
with the right to choose the tenants and to dictate the conditions of the lease is contrary to both the
letter and the spirit of the said clause of the will, the stipulation of the parties, and the judgment of
the court. He cannot manage or administer the property after all the acts of management and
administration have been vested by the court, with his consent, in the usufructuary. He admitted that
before said judgment he had been collecting the rents as agent of the usufructuary under an
agreement with the latter. What legal justification or valid excuse could he have to claim the right to
choose the tenant and fix the amount of the rent when under the will, the stipulation of the parties,
and the final judgment of the court it is not he but the usufructuary who is entitled to said rents? As
long as the property is properly conserved and insured he can have no cause for complaint, and his
right in that regard is fully protected by the terms of the stipulation and the judgment of the court
above mentioned. To permit him to arrogate to himself the privilege to choose the tenant, to dictate
the conditions of the lease, and to sue when the lessee fails to comply therewith, would be to place
the usufructuary entirely at his mercy. It would place her in the absurd situation of having a certain
indisputable right without the power to protect, enforce, and fully enjoy it.
One more detail needs clarification. In her complaint for desahucio Josefa Fabie alleges that she
needs the premises in question to live in, as her former residence was burned. Has she the right
under the will and the judgment in question to occupy said premises herself? We think that, as a
corollary to her right to all the rent, to choose the tenant, and to fix the amount of the rent, she
necessarily has the right to choose herself as the tenant thereof, if she wishes to; and, as she fulfills
her obligation to pay the taxes and insure and conserve the property properly, the owner has no
legitimate cause to complain. As Judge Nable of the municipal court said in his decision, "the
pretension that the plaintiff, being a mere usufructuary of the rents, cannot occupy the property, is
illogical if it be taken into account that that could not have been the intention of the testatrix."
We find that upon the pleadings, the undisputed facts, and the law the action instituted in the
municipal court by the petitioner Josefa Fabie against the respondent Ngo Soo is one of unlawful
detainer, within the original jurisdiction of said court, and that therefore Judges Dizon and Gutierrez
David of the Court of First Instance erred in holding otherwise and in quashing the case upon
appeal.

2. The next question to determine is the propriety of the remedy availed of by the petitioner in this
Court. Judging from the allegations and the prayer of the petition, it is in the nature
of certiorari and mandamus, to annul the order of dismissal and to require the Court of First Instance
to try and decide the appeal on the merits. Under section 3 of Rule 67, when any tribunal unlawfully
neglects the performance of an act which the law specifically enjoins as a duty resulting from an
office, and there is no other plain, speedy, and adequate remedy in the ordinary course of law, it may
be compelled by mandamus to do the act required to be done to protect the rights of the petitioner.
If, as we find, the case before the respondent judge is one of unlawful detainer, the law specifically
requires him to hear and decide that case on the merits, and his refusal to do so would constitute an
unlawful neglect in the performance of that duty within section 3 of Rule 67. Taking into consideration
that the law requires that an unlawful detainer case be promptly decided (sections 5 and 8, Rule
72),it is evident that an appeal from the order of dismissal would not be a speedy and adequate
remedy; and under the authority of Cecilio vs. Belmonte (48 Phil., 243, 255), and Aguilar vs. Cabrera
and Flameo (G.R. No. 49129), we hold that mandamus lies in this case.
3. The contention of the petitioner that the appeal of the intervenor Juan Grey was filed out of time is
not well founded. Although said respondent received copy of the decision of the municipal court on
August 3, 1945, according to the petitioner (on August 6, 1945, according to the said respondent), it
appears from the sworn answer of the respondent Ngo Soo in this case that on August 8 he filed a
motion for reconsideration, which was granted in part on August 18. Thus, if the judgment was
modified on August 18, the time for the intervenor Juan Grey to appeal therefrom did not run until he
was notified of said judgment as modified, and since he filed his notice of appeal on August 23, it
would appear that his appeal was filed on time. However, we observe in this connection that said
appeal of the intervenor Juan Grey, who chose not to answer the petition herein, would be academic
in view of the conclusions we have reached above that the rights between him as owner and Josefa
Fabie as usufructuary of the property in question have been definitely settled by final judgment in
civil case No. 1659 of the Court of First Instance of Manila in the sense that the usufructuary has the
right to administer and possess the property in question, subject to certain specified obligations on
her part.
The orders of dismissal of the respondent Court of First Instance, dated September 22 and October
31, 1945, in thedesahucio case (No. 71149) are set aside that court is directed to try and decide the
said case on the merits; with the costs hereof against the respondent Ngo Soo.
Moran, C.J., Paras, Jaranilla, Feria, De Joya, Pablo, Perfecto, Bengzon, and Briones, JJ., concur.

Separate Opinions

HILADO, J., concurring:


I concur on the sole ground that, in my opinion, the amended complaint, dated July 12, 1945, filed by
plaintiff in the Municipal Court of Manila, expressly alleges an agreement between her and
defendant Ngo Boo Soo regarding the leasing of the premises in question, and that said amended
complaint contains further allegations which, together with the allegations of said agreement, under
a liberal construction (Rule 1, section 2, Rules of the Court), would constitute a prima facie showing
that the case is one of unlawful detainer. Of course, this is only said in view of the allegations of the
amended complaint, without prejudice to the evidence which the parties may adduce at the trial in
the merits, in view of which the court will judge whether or not, in point of fact, the case is one of
unlawful detainer.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION

G.R. No. L-51333 February 19, 1991


RAMONA R. LOCSIN, accompanied by her husband RENATO L. LOCSIN; TERESITA R.
GUANZON, accompanied by her husband ROMEO R. GUANZON; CELINA R. SIBUG
accompanied by her husband CARLOS V. SIBUG; MA. LUISA R. PEREZ, accompanied by her
husband JOSE V. PEREZ; EDITHA R. YLANAN, accompanied by her husband CARLOS W.
YLANAN; and ANA MARIE R. BENEDICTO, accompanied by her husband JOSE LUIS U.
BENEDICTO, petitioners,
vs.
HONORABLE JUDGE VICENTE P. VALENZUELA, Judge of the Court of First Instance of
Negros Occidental, Branch III and SPOUSES JOSEPH SCHON and HELEN BENNETT
SCHON, respondents.

G.R. No. L-52289 February 19, 1991


RAMONA R. LOCSIN, accompanied by her husband RENATO R. LOCSIN; TERESITA R.
GUANZON, accompanied by her husband ROMEO G. GUANZON; CELINA R. SIBUG,
accompanied by her husband CARLOS V. SIBUG; MA. LUISA R. PEREZ, accompanied by her
husband JOSE V. PEREZ; EDITHA R. YLANAN, accompanied by her husband CARLOS W.
YLANAN; and ANA MARIE R. BENEDICTO, accompanied by her husband JOSE LUIS U.
BENEDICTO, petitioners,
vs.
CARLOS PANALIGAN, AMADO MARQUEZ, HERBERT PEDROS, ANTONIO FELICIANO, JR.,
HUGO AGUILOS, ALBERTO GUBATON, JULIA VDA. DE ESQUELITO, SERAFIN
JANDOQUELE, SEREFIAS ESQUESIDA, CARLOS DELA CRUZ, ELISEO GELONGOS,

ESPINDION JOCSON, SALVADOR MUNUN, ULFIANO ALEGRIA, and IRINEO BALERA, and the
Spouses JOSEPH SCHON and HELEN BENNETT SCHONrespondents.
Mirano, Mirano & Associates Law Offices for petitioners.
Jose V. Valmayor and Samuel SM Lezama for respondents in 51333.
Ledesma, Guinez, Causing, Espino & Serftno Law Office for private respondents in G.R. No. 51333.
Bonifacio R. Cruz for private respondents in G.R. No. 52289.

FELICIANO, J.:p
There are two (2) petitions for review before us: (1) G.R. No. 51333 which asks for review of the
decision of the then Court of First Instance CFI of Negros Occidental, Branch 3, in Civil Case No.
13823; and (2) G.R. No. 52289 which seeks review of the decision of the then Court of Agrarian
Relations ("CAR"), 11th Judicial District, in CAR Case No. 76. Both the CFI of Negros Occidental
and the CAR dismissed petitioners' complaint for lack of jurisdiction. The Supreme Court, in a
Resolution dated 16 June 1982, consolidated G.R. Nos. 51333 and 52289.
In a Resolution 1 dated 18 May 1989, the Court partly resolved the consolidated petitions by declaring
that the appropriate Regional Trial Court had jurisdiction over the two (2) cases.
The facts relevant for resolution of the remaining substantive aspects of the CFI case and the CAR
case, may be summarized from the Court's Resolution of 18 May 1989
Petitioner Ramona R. Locsin, Teresita Guanzon, Celia R. Sibug, Maria Rosa R.
Perez, Editha Ylanan and Ana Marie R. Benedicto were co-owners of a large tract of
agricultural land known as "Hacienda Villa Regalado" located in Barrio Panubigan
Canlaon City, Negros Occidental. The tract of land was covered by Transfer
Certificate of Title No. T-494 and there more particularly described in the following
terms:
TRANSFER CERTIFICATE OF TITLE NO. T-494
A parcel of land . . . containing an area of THREE MILLION THIRTYTHREE THOUSAND AND FORTY-EIGHT (3,033,048) square
meters, more or less. (Rollo, of G.R. No. 52289, p. 31.)
A portion of this land, known as Lot No. 2-C-A-3 and consisting of an area of
60.07464 hectares, was subject to the lifetime usufructuary rights of respondent
Helen Schon. The bulk of this lot was cultivated by the following lessees-tenants who
customarily delivered the rentals to Helen Schon:
xxx xxx xxx
(Rollo, of G.R. No. 51333, p. 4.)

On 22 October 1972, after the onset of the martial law administration of former
President Marcos, Presidential Decree No. 27 was promulgated, decreeing the
"Emancipation of Tenants." The tract of land owned in common by petitioners,
including the portion thereof subject to Helen Schon's usufructuary rights, fell within
the scope of the "Operation Land Transfer". In consequence, staff members of the
Department of Agrarian Relations advised the tenants-tillers of said land, and the
necessary parcellary map sketch was made and submitted to the Bureau of Land
Office in Dumaguete City. (Rollo, of G.R. No. 51333, Annex "A" of Petition, pp. 19-20)
Petitioners through counsel sought the opinion of the DAR as to who (petitioners or
respondent Helen Schon) should be entitled to receive the rental payments which
continued to be made by the respondent tenants to Helen Schon. The DAR District
Officer rendered an opinion on 13 May 1977 that the rental payments as of October
1972 were properly considered as amortization payments for the land and as such
should pertain to the landowners and not to the usufructuary. (Id., p. 5)
1. Civil Case No. 13828, Court of First Instance, Negros Occidental.
On 22 May 1978, petitioners filed against spouses Joseph and Helen Schon Civil
Case No. 13828 . . ., for collection of rentals plus damages with prayer for
preliminary injunction. There petitioners claimed that since the land subject to Helen
Schon's usufructuary rights was among the parcels of land which collectively had
been declared by the DAR as a land reform area pursuant to Presidential Decree No.
27, the rental payments which the respondent spouses had been collecting from the
tenants really pertained and should be delivered to the petitioners, beginning from 21
October 1972, as constituting or forming part of the amortization payments for the
land to be made by the tenants. Petitioners sought in that case to recover from the
Schons all such rentals or the money value thereof, and prayed for injunction to
prevent respondents from collecting any further rental payments from the tenants of
the land involved.
Upon the other hand, in the Answer filed on 12 July 1978, the respondents Schon
contended that . . ., upon the assumption arguendo that the Court of First Instance
did have jurisdiction, Article 609 of the Civil Code must in any case be applied by that
court in resolving the case.
2. CAR Case No. 76, Court of agrarian Relations
Approximately five (5) months after filing their complaint before the Negros
Occidental Court of First Instance, petitioners filed a second complaint on 13 October
1978, this time with the Court of Agrarian Relations, 11th Judicial District, San Carlos
City. In this complaint before the Agrarian Court, petitioners impleaded as
corespondents of the spouses Schon the tenants who were cultivating the land
burdened with the usufruct of Helen Schon. Petitioners prayed that the respondent
tenants be required to pay to petitioners (rather than to the spouses Schon) all future
rentals beginning with the crop year of 1978 and every year thereafter, until full
payment of the amortization payment computed by the DAR. In their Answer, the
respondents Schon once again asserted lack of jurisdiction over the subject matter of
the case, this time on the part of the Court of Agrarian Relations. . . .
The respondent tenants, for their part, agreed with the Schons that there was no
tenancy relationship existing in respect of the land cultivated by them, since such
land had already been brought within the ambit of "Operation Land Transfer", and

prayed that the petitioners and the usufructuary be required to litigate among
themselves their respective rights before the proper court. 2
As noted earlier, the Agrarian Court rendered a decision dismissing petitioners' complaint in CAR
Case No. 76, declaring itself as bereft of jurisdiction to decide that case.
On appeal by petitioners, the Court of Appeals ruled that since the only issue presented in
the appeal was whether or not the CAR had subject matter jurisdiction over the case, the
appeal raised "a pure question of law" and certified the case to this Court for disposition.
On 16 March 1979, the CFI of Negros Occidental dismissed petitioners' complaint upon the
ground that jurisdiction to hear and decide that case was vested in the CAR. This order was
brought directly to this Court by petitioners.
In our Resolution dated 18 May 1989, the Court, after declaring that jurisdiction over the two
(2) cases was lodged in the appropriate Regional Trial Court by virtue of the provisions of
Section 19 (7) of Batas Pambansa Blg. 129, required the petitioners and private respondents
in G.R. Nos. 51333 and 52289 to file simultaneous memoranda on the remaining nonjurisdiction issues. At the same time, the Court directed the Solicitor General to file a motion
for intervention on behalf of the Government and to submit a memorandum on the same
issues. Both parties and the Solicitor-General complied.
The substantive issues to be resolved here are the following:
(1) As between the naked owners and the usufructuary, who should be entitled to the
amounts paid by the tenants beginning 21 October 1972? and
(2) What is the legal character of the payments made by the tenants beginning 21
October 1972 payments on the price of the land itself or civil fruits of the land?
The two (2) above issues are obviously interrelated and the Court will discuss them together.
Petitioners insist that the payments made by private respondent tenants to private respondent Helen
Schon beginning on 21 October 1972 should be considered as amortization payments for the price
of the land and as such should belong to the landowners and not to the usufructuary. Upon the other
hand, private respondent Helen Schon urges that those amounts should pertain to her considering
that her rights as usufructuary persist during her lifetime and have not been extinguished by
operation of the Land Reform Law. the further argues that assuming her usufructuary rights had
been extinguished, the provisions of Article 609 of the Civil Code should be applied, and that
thereunder she would be entitled either to replacement of the land burdened with her usufruct (the
fruits of which would then be payable to her) or payment of legal interest on the amount of the
purchase price of the land.
Presidential Decree No. 27, issued on 21 October 1972, declared the "emancipation of tenants"
tilling agricultural lands primarily devoted to rice and corn. It stated that:
xxx xxx xxx
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by
virtue of the powers in me vested by the Constitution as Commander-in-Chief of the
Armed Forces of the Philippines, and pursuant to Proclamation No. 1081, dated

September 21, 1972, and General Order No. 1 dated September 22, 1972 as
amended do hereby decree and order the emancipation of all tenant farmers as of
this day, October 21, 1972;
This shall apply to tenant farmers of private agricultural lands primarily devoted to
rice and corn under a system of sharecrop or lease-tenancy, whether classified as
landed estate or not;
The tenant-farmer, whether in land classified, as landed estate or not, shall be
deemed owner of a portion constituting a family size farm of five (5) hectares if not
irrigated and three (3) hectares if irrigated;
In all cases, the landowner may retain an area of not more than seven (7) hectares if
such landowner is cultivating such area or will now cultivate it;
For the purpose of determining the cost of the land to be transferred to the tenantfarmer pursuant to this Decree, the value of the land shall be equivalent to two and
one-half (2 1/2) times the average harvest of three normal crop years immediately
preceding the promulgation of this Decree;
The total cost of the land, including interest at the rate of six (6) percentum per
annum, shall be paid by the tenant in fifteen (15) years [in] fifteen equal annual
amortizations;
xxx xxx xxx
(Emphasis supplied)
Presidential Decree No. 57, dated 19 November 1972, amended Presidential Decree No. 27 and
prescribed in part as follows:
P.D. No. 57.
xxx xxx xxx
SECTION 1. To further accelerate the attainment of objectives set forth in
Presidential Decree No. 27, the following provisions are hereby corporated, to wit:
1. Landowner shall be exempt from the capital gains tax on the proceeds of the
amortization paid him by the tenant-purchaser and likewise from income tax due on
the accruing interests paid as an addition to the total cost of the land.
xxx xxx xxx
It is also important to adduce Department Circular No. 8, dated 1 April 1975, issued by the
Department of Agrarian Reform pursuant to Presidential Decree No. 27 and which constitutes
contemporaneous administrative construction of Presidential Decrees Nos. 27 and 57. Department
Circular No. 8 stated that:
xxx xxx xxx

3. Tenant-farmers are deemed owners of the land they till as of October 21,
1972, subject to the rules and regulations to be hereafter promulgated. On lands
already covered by Operation Land Transfer,the leasehold system shall be
provisionally maintained and the lease rentals paid by the tenant-farmersto the
landowner [shall] be credited as amortization payments. Payment of rentals shall be
stopped when the Land Bank shall have paid the cost of land. On lands not yet
covered by Operation Land Transfer, leasehold shall continue to govern the
relationship between the landowner and his tenant-tillers. (Emphasis supplied)
Finally, after the effective date of the 1987 Constitution, Executive Order No. 228 dated 17 July 1987
was promulgated and provided in part as follows:
SECTION 1. All qualified farmer beneficiaries are now deemed full owners as of
October 21, 1972 of the land they acquired by virtue of Presidential Decree No.
27 (hereinafter referred to as P.D. No. 27).
SECTION 2. Henceforth, the valuation of rice and corn lands covered by P.D. No. 27
shall be based on the average gross production determined by the Barangay
Committee on Land Production in accordance with Department Memorandum
Circular No. 26, series of 1973, and related issuances and regulations of the
Department of Agrarian Reform. The average gross production per hectare shall be
multiplied by two and a half (2.5), the product of which shall be multiplied by Thirty
Five Pesos (P35.00), the government support price for one cavan of 50 Kilos of palay
on October 21, 1972, or Thirty One Pesos (P31.00), the government support price for
one cavan of 50 kilos of corn on October 21, 1972, and the amount arrived at shall
be the value of the rice and corn land, as the case may be, for the purpose of
determining its cost to the farmer and compensation to the landowner, pursuant to
Department of Agrarian Reform Memorandum Circular No. 26, series of 1973, and
other pertinent issuances. In the event a party questions in court the resolution of the
dispute, the landowner's compensation claim shall still be processed for payment
and the proceeds shall be held in trust by the Trust Department of the Land Bank in
accordance with the provisions of Section 5 hereof, pending the resolution of the
dispute before the court. (Emphasis supplied)
Reading the foregoing provisions together, we observe that under Presidential Decree No. 2, the
basic statute, the tenant-farmer became owner of a family-size farm of five (5) hectares or, if the land
was irrigated, three (3) hectares, and that the tenant-owner had to pay for the cost of the land within
fifteen (15) years by paying fifteen (15) equal annual amortization payments. Thus, it appears clear
that ownership over lands (like Lot No. 2-C-A-3) subjected to Operation Land Transfer moved from
the registered owner (the old landowner) to the tenants (the new landowners). The fifteen (15)
annual amortizations to be paid by the tenants-owners were intended to replace the landholdings
which the old landowners gave up in favor of the new landowners, the tenants-owners. 3 It follows
that in respect of land subjected to Operation Land Transfer, the tenants-farmers became owners of the
land they tilled as of the effective date of Presidential Decree No. 27, i.e., 21 October 1972. Pending full
payment of the cost of the land to the old landowner by the Land Bank of the Philippines, the leasehold
system was "provisionally maintained" but the "lease rentals" paid by the tenants-farmers prior to such full
payment by the Land Bank to the old landowner, would be credited no longer as rentals but rather
as "amortization payments" of the price of the land, the un-amortized portion being payable by the Land
Bank. In respect of lands brought within the coverage of Operation Land Transfer, the leasehold system
was legally and effectively terminated immediately on 21 October 1972 (notwithstanding the curious
statement in Department Circular No. 8 that it was "provisionally maintained"). It was in respect of lands
not yet subjected to the terms and effects of Operation Land Transfer that the leasehold system did
continue to govern the relationship between the "landowner and his tenant-tillers".

The exemption of the old landowner from the capital gains tax on the amortization payments made
to him by the tenants-purchasers, under Presidential Decree No. 57 (supra), underscores the fact,
referred to above, that ownership or dominion over the land moved immediately from landowner to
tenant-farmer, rather than upon completion of payment of the price of the land. In general, capital
gains are realized only when the owner disposes of his property.
We believe and so hold that Lot No. 2-C-A-3 having been declared part of the land reform area and
subjected to Operation Land Transfer, the payments made on and after 21 October 1972 by the
private respondent tenants-farmers constituted amortization payments on the cost of the land that
they were required to pay under Presidential Decree No. 27. These payments, therefore, legally
pertain to petitioners, the former landowners as part of the compensation for the dominion over land
of which they were deprived by operation of Presidential Decree No. 27. Those payments can not be
characterized as rentals like those which had been paid to Helen Schon as usufructuary prior to the
promulgation of Presidential Decree No. 27 and prior to the effectivity of Operation Land Transfer.
We turn to the question of what rights, if any, were retained by Helen Schon as a usufructuary, after
the effectivity of Presidential Decree No. 27. We believe that the usufruct which had therefore
existed as a jus in re aliena in favor of Helen Schon was effectively extinguished by Presidential
Decree No. 27. To hold, as private respondent Helen Schon apparently urges, that her usufruct was
not extinguished but rather remained impressed upon the land passing on to the new owners, would
obviously defeat the very purpose of the land reform statute. Presidential Decree No. 27 was
enacted to "emancipate" the tenants from the "bondage of the soil" by giving to tenants-farmers
ownership of the land which they were cultivating upon the assumption that they would work harder
to improve their lot in life if they became landowners rather than mere tillers of somebody else's land.
To hold Helen Schon as entitled to continue enjoying, as usufructuary, the natural or civil fruits of Lot
No. 2-C-A-3, would be to set at naught the major purpose projected by Presidential Decree No. 27
and maintained by Executive Order No. 228.
This is not to say that respondent Helen Schon lost any and all rights upon the promulgation of
Presidential Decree No. 27. In a legal, technical sense, it may be difficult to hold that Presidential
Decree No. 27 resulted in the lands brought within the scope of Operation Land Transfer being
"expropriated for public use", as this term is used in Article 609 of the Civil Code, which reads thus:
Art. 609. Should the thing in usufruct be expropriated for public use, the owner shall
be obliged either to replace it with another thing of the same value and of similar
conditions, or to pay the usufructuary the legal interest on the amount of the
indemnity for the whole period of the usufruct. If the owner chooses the latter
alternative, he shall give security for the payment of the interest.
For it was not the Government or any of its agencies which took over ownership of the land
nor was such land devoted subsequently to "public use", since ownership was transferred
directly from former landowner to the tenant-tiller as new landowner, for the use and benefit
exclusively of the new landowner. While, however, Article 609 of the Civil Code may not be
strictly applicable, we believe that the situation contemplated in Article 609 is sufficiently
close to that which resulted from application of Presidential Decree No. 27 to the land here
involved. Bearing in mind that refusal to decide an otherwise unavoidable issue upon the
ground ofnon liquet ("it is not clear") is not a permissible response by a court where there is
no provision of law clearly and specifically applicable to the facts at hand, 4 we believe that
Article 609 should be applied to the present set of facts by analogy.
It follows that respondent Helen Schon, so long as her rights as usufructuary persist under the
instrument which gave birth to such rights, would be entitled to a replacement reasonably equivalent

to the land previously burdened with her usufructuary right, or to legal interest on the amount of the
indemnity or cost of the land paid by private respondent tenants-farmers and the Land Bank. While
the option or choice belongs to petitioners, considering that Helen Schon had already received part
of the purchase price of the land previously owned by petitioners from private respondent tenantsfarmers, and in the interest of expeditious justice, we consider it the second alternative that should
be given effect. Thus, from the monies that she actually received from private respondent tenantsfarmers on and after 21 October 1972, respondent Helen Schon is entitled to retain an amount
equivalent to the legal interest on said amounts for every year that the usufruct would by its own
terms have continued to exist had it not been extinguished by operation of Presidential Decree No.
27; the balance of such amounts received by her shall be turned over to petitioners. She is also
entitled to the same right in respect of the balance of the price of the land petitioners presumably
received from the Land Bank.
WHEREFORE, for all the foregoing, private respondent spouses Joseph and Helen Schon are
hereby DIRECTED to deliver to petitioners the amounts paid to them by private respondent tenantsfarmers beginning on 21 October 1972, after deducting therefrom an amount equivalent to simple
legal interest thereon computed at six (6%) percentper annum on the amount received each year.
No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.
Davide, Jr., J., took no part.

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