G.R. No.
166862 December 20, 2006 respondent PNB informed petitioner that the request had been referred to its Pasay City
MANILA METAL CONTAINER CORPORATION, petitioner,
REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA)
in CA-G.R. No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC),
Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution 3 denying the motion for
reconsideration filed by petitioner Manila Metal Container Corporation (MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now
a City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No.
332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from
respondent Philippine National Bank (PNB), petitioner executed a real estate mortgage over
the lot. Respondent PNB later granted petitioner a new credit accommodation of
P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment 4 of Real
Estate Mortgage over its property. On March 31, 1981, petitioner secured another loan of
P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus
interests and other charges.5
On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real
estate mortgage and sought to have the property sold at public auction for P911,532.21,
petitioner's outstanding obligation to respondent PNB as of June 30, 1982, 6 plus interests and
attorney's fees.
After due notice and publication, the property was sold at public auction on September 28,
1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The
Certificate of Sale7 issued in its favor was registered with the Office of the Register of Deeds
of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the
period to redeem the property was to expire on February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted
an extension of time to redeem/repurchase the property.8 In its reply dated August 30, 1983,
Branch for appropriate action and recommendation.9
In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension
from February 17, 1984 within which to redeem/repurchase the property on installment basis.
It reiterated its request to repurchase the property on installment.11 Meanwhile, some PNB
Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not
accept "partial redemption."12
Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098
on June 1, 1984, and issued a new title in favor of respondent PNB. 13 Petitioner's offers had
not yet been acted upon by respondent PNB.
Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of
account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This
included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances
on realty taxes, registration expenses, miscellaneous expenses and publication cost.14 When
apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as
"deposit to repurchase," and Official Receipt No. 978191 was issued to it.15
In the meantime, the SAMD recommended to the management of respondent PNB that
petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November
14, 1984, the PNB management informed petitioner that it was rejecting the offer and the
recommendation of the SAMD. It was suggested that petitioner purchase the property for
P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December
15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the
property would be sold to other interested buyers.16
Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another
letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a
letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the
property for P2,660,000.00. PNB again informed petitioner that it would return the deposit
should petitioner desire to withdraw its offer to purchase the property. 17 On February 25,
1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28,
1984. Petitioner declared that it had already agreed to the SAMD's offer to purchase the
property for P1,574,560.47, and that was why it had paid P725,000.00. Petitioner warned
respondent PNB that it would seek judicial recourse should PNB insist on the position.18
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had
accepted petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the
P725,000.00 already deposited with it.19 On page two of the letter was a space above the
typewritten name of petitioner's President, Pablo Gabriel, where he was to affix his signature.
However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had
received it.20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30,
1988 to submit an amended offer to repurchase.
Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that
respondent PNB had agreed to sell the property for P1,574,560.47, and that since its
P725,000.00 downpayment had been accepted, respondent PNB was proscribed from
increasing the purchase price of the property.21 Petitioner averred that it had a net balance
payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer
to pay the balance of P643,452.34 in a letter dated August 1, 1989.22
On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of
Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with
Damages." To support its cause of action for specific performance, it alleged the following:
34. As early as June 25, 1984, PNB had accepted the down payment from Manila
Metal in the substantial amount of P725,000.00 for the redemption/repurchase price
of P1,574,560.47 as approved by its SMAD and considering the reliance made by
Manila Metal and the long time that has elapsed, the approval of the higher
management of the Bank to confirm the agreement of its SMAD is clearly a
potestative condition which cannot legally prejudice Manila Metal which has acted
and relied on the approval of SMAD. The Bank cannot take advantage of a condition
which is entirely dependent upon its own will after accepting and benefiting from
the substantial payment made by Manila Metal.
35. PNB approved the repurchase price of P1,574,560.47 for which it accepted
P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and
long inaction in demanding a higher amount based on unilateral computation of
interest rate without the consent of Manila Metal.
Petitioner later filed an amended complaint and supported its claim for damages with the
following arguments:
36. That in order to protect itself against the wrongful and malicious acts of the
defendant Bank, plaintiff is constrained to engage the services of counsel at an
agreed fee of P50,000.00 and to incur litigation expenses of at least P30,000.00,
which the defendant PNB should be condemned to pay the plaintiff Manila Metal.
37. That by reason of the wrongful and malicious actuations of defendant PNB,
plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is
liable for moral damages of at least P50,000.00.
38. That for the wrongful and malicious act of defendant PNB which are highly
reprehensible, exemplary damages should be awarded in favor of the plaintiff by
way of example or correction for the public good of at least P30,000.00.23
Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and
without any legal force and effect.
b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over
plaintiff's property and setting it for auction sale null and void.
c) Ordering the defendant Register of Deeds to cancel the new title issued in the
name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of
the Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to
cancel the annotation of the mortgage in question at the back of the TCT No. 37025
described in paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical possession of the
TCT No. 37025 described in paragraph 4 of this Complaint to the plaintiff Manila
Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages,
moral and exemplary damages in the aggregate amount of not less than P80,000.00
as may be warranted by the evidence and fixed by this Honorable Court in the
exercise of its sound discretion, and attorney's fees of P50,000.00 and litigation
expenses of at least P30,000.00 as may be proved during the trial, and costs of suit.
Plaintiff likewise prays for such further reliefs which may be deemed just and
equitable in the premises.24
In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense,
that it had acquired ownership over the property after the period to redeem had elapsed. It
claimed that no contract of sale was perfected between it and petitioner after the period to
redeem the property had expired.
During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of
facts.25 The parties agreed to limit the issues to the following:
1. Whether or not the June 4, 1985 letter of the defendant approving/accepting
plaintiff's offer to purchase the property is still valid and legally enforceable.
2. Whether or not the plaintiff has waived its right to purchase the property when it
failed to conform with the conditions set forth by the defendant in its letter dated
June 4, 1985.
3. Whether or not there is a perfected contract of sale between the parties.26
While the case was pending, respondent PNB demanded, on September 20, 1989, that
petitioner vacate the property within 15 days from notice,27 but petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The
offer was however rejected by respondent PNB, in a letter dated April 13, 1993. According to
it, the prevailing market value of the property was approximately P30,000,000.00, and as a
matter of policy, it could not sell the property for less than its market value.29 On June 21,
1993, petitioner offered to purchase the property for P4,250,000.00 in cash.30 The offer was
again rejected by respondent PNB on September 13, 1993. 31
On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and
respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit
petitioner had made.32 The trial court ruled that there was no perfected contract of sale
between the parties; hence, petitioner had no cause of action for specific performance against
respondent. The trial court declared that respondent had rejected petitioner's offer to
repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the
June 4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per
its letter of July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which
respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner
to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or earnest money.
On appeal to the CA, petitioner made the following allegations:
I
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S
LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-
APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT
VALID AND ENFORCEABLE.
II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT
AND DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT
WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT
FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-
APPELLEE IN ITS LETTER DATED 4 JUNE 1985.
IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS
THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT
IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE
OF THEIR PURCHASE PRICE.
V dismissed by the court a quo for no evidence was presented to support it. Respondent PNB's
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE
WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT
CONTRACT OF REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED
AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT
OF PLAINTIFF-APPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT
ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES
AND LITIGATION EXPENSES.33
Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004,
where it waived, assigned and transferred its rights over the property covered by TCT No.
33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors. 34 Thereafter,
Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management
of the property in favor of Reynaldo Tolentino, who later moved for leave to intervene as
plaintiff-appellant. On July 14, 1993, the CA issued a resolution granting the motion,35 and
likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-
appellant, and his motion to withdraw as intervenor.36
The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared
that petitioner obviously never agreed to the selling price proposed by respondent PNB
(P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered
to P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as
to the price or consideration of the sale.
The CA ratiocinated that petitioner's original offer to purchase the subject property had not
been accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985
letter specifically on the selling price; petitioner did not agree to the counter-offer; and the
negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase
price within the sixty-day period set in the June 4, 1985 letter of respondent PNB.
Consequently, there was no perfected contract of sale, and as such, there was no contract to
rescind.
According to the appellate court, the claim for damages and the counterclaim were correctly
letter dated June 30, 1988 cannot revive the failed negotiations between the parties.
Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While
petitioner reiterated its request for a lower selling price and that the balance of the repurchase
be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
Thus, petitioner filed the instant petition for review on certiorari, alleging that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN
THE PETITIONER AND RESPONDENT.
II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER
IS NOT AN EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO
SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE 4,
1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY
ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT
NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF
THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985,
WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES
NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE
BETWEEN THE PARTIES.
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT
THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND
JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT
DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED
CONTRACT OF SALE.38
The threshold issue is whether or not petitioner and respondent PNB had entered into a
perfected contract for petitioner to repurchase the property from respondent.
Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell
the property for P1,574,560.00. When the acceptance was made in its letter dated June 25,
1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt
No. 978194 which respondent had issued. Petitioner avers that the SAMD's acceptance of the
deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the
letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's
offer to purchase the property. It claims that this was the suspensive condition, the fulfillment
of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer
to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected
contract of sale; it was obliged to remit to respondent the balance of the original purchase
price of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the
property to petitioner, conformably with Article 1159 of the New Civil Code.
Petitioner posits that respondent was proscribed from increasing the interest rate after it had
accepted respondent's offer to sell the property for P1,574,560.00. Consequently, respondent
could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property.
It likewise maintains that, although the P725,000.00 was considered as "deposit for the
repurchase of the property" in the receipt issued by the SAMD, the amount constitutes earnest
money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of
this Court in Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40
Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent
and its failure to pay the balance of the price as fixed by respondent within the 60-day period
from notice was to protest respondent's breach of its obligation to petitioner. It did not amount
to a rejection of respondent's offer to sell the property since respondent was merely seeking to
enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option
either to accept the balance of the offered price or to cause the rescission of the contract.
Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency
of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute
separate offers to repurchase the property. Such offer to compromise should not be taken
against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court.
For its part, respondent contends that the parties never graduated from the "negotiation stage"
as they could not agree on the amount of the repurchase price of the property. All that
transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a
definite agreement on the amount and manner of payment of the price are essential elements in
the formation of a binding and enforceable contract of sale. There was no such agreement in
this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain
event upon the fulfillment of which the obligation becomes effective. It clearly presupposes
the existence of a valid and binding agreement, the effectivity of which is subordinated to its
fulfillment. Since there is no perfected contract in the first place, there is no basis for the
application of the principles governing "suspensive conditions."
According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984
cannot be classified as a counter-offer; it is simply a recital of its total monetary claims against
petitioner. Moreover, the amount stated therein could not likewise be considered as the
counter-offer since as admitted by petitioner, it was only recommendation which was subject
to approval of the PNB Board of Directors.
Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected
sale contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the
court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit
to repurchase the property. The deposit of P725,000.00 was accepted by respondent on the
condition that the purchase price would still be approved by its Board of Directors.
Respondent maintains that its acceptance of the amount was qualified by that condition, thus
not absolute. Pending such approval, it cannot be legally claimed that respondent is already
bound by any contract of sale with petitioner.
According to respondent, petitioner knew that the SAMD has no capacity to bind respondent
and that its authority is limited to administering, managing and preserving the properties and
other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of,
or otherwise alienate the assets, since the power to do so must emanate from its Board of
Directors. The SAMD was not authorized by respondent's Board to enter into contracts of sale
with third persons involving corporate assets. There is absolutely nothing on record that
respondent authorized the SAMD, or made it appear to petitioner that it represented itself as
having such authority.
Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been
approved by the Board subject to the condition, among others, "that the selling price shall be
the total bank's claim as of documentation date x x x payable in cash (P725,000.00 already
deposited)
within 60 days from notice of approval." A new Statement of Account was attached therein
indicating the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or
P1,206,389.00. Furthermore, while respondent's Board of Directors accepted petitioner's offer
to repurchase the property, the acceptance was qualified, in that it required a higher sale price
and subject to specified terms and conditions enumerated therein. This qualified acceptance
was in effect a counter-offer, necessitating petitioner's acceptance in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected contract of sale between the
parties on June 4, 1985 is correct.
A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. 41 Under Article 1318 of the
New Civil Code, there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract. 42 Once
perfected, they bind other contracting parties and the obligations arising therefrom have the
form of law between the parties and should be complied with in good faith. The parties are
bound not only to the fulfillment of what has been expressly stipulated but also to the
consequences which, according to their nature, may be in keeping with good faith, usage and
law.43
By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.44 The absence of any of the essential elements will negate the
existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines
v. Manalo:45
A definite agreement as to the price is an essential element of a binding agreement to
sell personal or real property because it seriously affects the rights and obligations of
the parties. Price is an essential element in the formation of a binding and
enforceable contract of sale. The fixing of the price can never be left to the decision
of one of the contracting parties. But a price fixed by one of the contracting parties,
if accepted by the other, gives rise to a perfected sale.46
A contract of sale is consensual in nature and is perfected upon mere meeting of the minds.
When there is merely an offer by one party without acceptance of the other, there is no
contract.47 When the contract of sale is not perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation between the parties.48
In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a
contract of sale are as follows: (1) negotiation, covering the period from the time the
prospective contracting parties indicate interest in the contract to the time the contract is
perfected; (2) perfection, which takes place upon the concurrence of the essential elements of
the sale which are the meeting of the minds of the parties as to the object of the contract and
upon the price; and (3) consummation, which begins when the parties perform their respective
undertakings under the contract of sale, culminating in the extinguishment thereof.
A negotiation is formally initiated by an offer, which, however, must be certain. 50 At any time
prior to the perfection of the contract, either negotiating party may stop the negotiation. At this
stage, the offer may be withdrawn; the withdrawal is effective immediately after its
manifestation. To convert the offer into a contract, the acceptance must be absolute and must
not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without
variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,51 the
Court ruled that:
x x x The rule is that except where a formal acceptance is so required, although the
acceptance must be affirmatively and clearly made and must be evidenced by some
acts or conduct communicated to the offeror, it may be shown by acts, conduct, or
words of the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance may be shown by
 the acts, conduct, or words of a party recognizing the existence of the contract of
sale.52
A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a
rejection of the original offer. A counter-offer is considered in law, a rejection of the original
offer and an attempt to end the negotiation between the parties on a different basis. 53
Consequently, when something is desired which is not exactly what is proposed in the offer,
such acceptance is not sufficient to guarantee consent because any modification or variation
from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects
with that of the offer so as to produce consent or meeting of the minds.
In this case, petitioner had until February 17, 1984 within which to redeem the property.
However, since it lacked the resources, it requested for more time to redeem/repurchase the
property under such terms and conditions agreed upon by the parties. 55 The request, which
was made through a letter dated August 25, 1983, was referred to the respondent's main
branch for appropriate action.56 Before respondent could act on the request, petitioner again
wrote respondent as follows:
1. Upon approval of our request, we will pay your goodselves ONE HUNDRED &
FIFTY THOUSAND PESOS (P150,000.00);
2. Within six months from date of approval of our request, we will pay another
FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and
3. The remaining balance together with the interest and other expenses that will be
incurred will be paid within the last six months of the one year grave period
requested for.57
When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a
letter to respondent's President reiterating its offer to purchase the property. 59 There was no
response to petitioner's letters dated February 10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net claim of respondent as of
June 25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance to
petitioner's offer to purchase the property. The statement is but a computation of the amount
which petitioner was obliged to pay in case respondent would later agree to sell the property,
including interests, advances on insurance premium, advances on realty taxes, publication cost,
registration expenses and miscellaneous expenses.
There is no evidence that the SAMD was authorized by respondent's Board of Directors to
accept petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the
SAMD of petitioner's offer would not bind respondent. As this Court ruled in AF Realty
Development, Inc. vs. Diesehuan Freight Services, Inc.:60
Section 23 of the Corporation Code expressly provides that the corporate powers of
all corporations shall be exercised by the board of directors. Just as a natural person
may authorize another to do certain acts in his behalf, so may the board of directors
of a corporation validly delegate some of its functions to individual officers or
agents appointed by it. Thus, contracts or acts of a corporation must be made either
by the board of directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not in the course of,
or connected with the performance of authorized duties of such director, are held not
binding on the corporation.
Thus, a corporation can only execute its powers and transact its business through its Board of
Directors and through its officers and agents when authorized by a board resolution or its by-
laws.61
It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's
offer to repurchase the property even beyond the one-year period; it recommended that
petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price.
Respondent later approved the recommendation that the property be sold to petitioner. But
instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had
previously conformed, respondent set the purchase price at P2,660,000.00. In fine,
respondent's acceptance of petitioner's offer was qualified, hence can be at most considered as
a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of sale would
have arisen; as it turns out, however, petitioner merely sought to have the counter-offer
reconsidered. This request for reconsideration would later be rejected by respondent.
We do not agree with petitioner's contention that the P725,000.00 it had remitted to
respondent was "earnest money" which could be considered as proof of the perfection of a
contract of sale under Article 1482 of the New Civil Code. The provision reads:
ART. 1482. Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract.
This contention is likewise negated by the stipulation of facts which the parties entered into in
the trial court:
8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB
prepared an updated Statement of Account showing MMCC's total liability to PNB
as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the
repurchase price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the
property. The deposit of P725,000 was accepted by PNB on the condition that the
purchase price is still subject to the approval of the PNB Board.62
Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container
property, in the event that respondent would approve the recommendation of SAMD for Corporation.
respondent to accept petitioner's offer to purchase the property for P1,574,560.47. Unless and
SO ORDERED.
until the respondent accepted the offer on these terms, no perfected contract of sale would
arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the
giving of earnest money cannot establish the existence of a perfected contract of sale. 63

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

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

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

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

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

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

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

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

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

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

G.R. No. L-116650 May 23, 1995
TOYOTA SHAW, INC., petitioner,
vs.
COURT OF APPEALS and LUNA L. SOSA, respondents.
DAVIDE, JR., J.:
At the heart of the present controversy is the document marked Exhibit "A" 1 for the private
respondent, which was signed by a sales representative of Toyota Shaw, Inc. named
Popong Bernardo. The document reads as follows:89
AGREEMENTS BETWEEN MR. SOSA
& POPONG BERNARDO OF TOYOTA
SHAW, INC.
1. all necessary documents will be submitted to TOYOTA SHAW, INC.
(POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the
Province (Marinduque) where the unit will be used on the 19th of June.
2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15,
1989.
3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic]
and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.
. service fee
Was this document, executed and signed by the petitioner's sales representative, a perfected
contract of sale, binding upon the petitioner, breach of which would entitle the private
respondent to damages and attorney's fees? The trial court and the Court of Appeals took the
affirmative view. The petitioner disagrees. Hence, this petition for review on certiorari.
The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals,
as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent
Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa
wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty
finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was
told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to
the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo,
a sales representative of Toyota.
Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because
he, his family, and a balikbayan guest would use it on 18 June 1989 to go to Marinduque, his
home province, where he would celebrate his birthday on the 19th of June. He added that if he
does not arrive in his hometown with the new car, he would become a "laughing stock."
Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989.
Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of
Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase
price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf
of his father, signed the documents of Toyota and B.A. Finance pertaining to the application
for financing.
The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of
P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal
(VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This
document shows that the customer's name is "MR. LUNA SOSA" with home address
at No. 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is
a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be
financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as
follows:
a) downpayment P 53,148.00
b) insurance P 13,970.00
c) BLT registration fee P 1,067.00
CHMO fee P 2,715.00
P 500.00
accessories P 29,000.00
and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for
"Delivery Terms" were not filled-up. It also contains the following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without prior notice, Price prevailing
and in effect at time of selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle
would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that
same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa,
Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for
about an hour, Bernardo told them that the car could not be delivered because "nasulot ang
unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the
disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that
a particular unit had already been reserved and earmarked for Sosa but could not be released
due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa
the option to purchase the unit by paying the full purchase price in cash but Sosa refused.
After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his
downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank
check for the full amount of P100,000.00, 4 the receipt of which was shown by a check
voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our
future claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by
him, he demanded the refund, within five days from receipt, of the downpayment of
P100,000.00 plus interest from the time he paid it and the payment of damages with a warning
that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The
second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel,
demanded one million pesos representing interest and damages, again, with a
warning that legal action would be taken if payment was not made within three days.
7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to
accede to the demands of Sosa. But even before this answer was made and received
by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial
Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19
and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia,
that:
9. As a result of defendant's failure and/or refusal to deliver the vehicle to
plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental
anguish and sleepless nights because: (i) he and his family were
constrained to take the public transportation from Manila to Lucena City
on their way to Marinduque; (ii) his balikbayan-guest canceled his
scheduled first visit to Marinduque in order to avoid the inconvenience of
taking public transportation; and (iii) his relatives, friends, neighbors and
other provincemates, continuously irked him about "his Brand-New
Toyota Lite Ace that never was." Under the circumstances, defendant
should be made liable to the plaintiff for moral damages in the amount of
One Million Pesos (P1,000,000.00). 10
In its answer to the complaint, Toyota alleged that no sale was entered into between it and
Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that
Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it
alleged that: the VSP did not state date of delivery; Sosa had not completed the documents
required by the financing company, and as a matter of policy, the vehicle could not and would
not be released prior to full compliance with financing requirements, submission of all
documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and
received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of
action against it. It also interposed compulsory counterclaims.
After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered
on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the
"AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid
perfected contract of sale between Sosa and Toyota which bound Toyota to deliver
the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in
selling to another the unit already reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the
trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for
as testified to by Quirante, "they do not volunteer any information as to the company's sales
policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the
beginning of the transaction up to its consummation when the downpayment was
made by the plaintiff, the defendants had made known to the plaintiff the impression
that Popong Bernardo is an authorized sales executive as it permitted the latter to do
acts within the scope of an apparent authority holding him out to the public as
possessing power to do these acts." 14 Bernardo then "was an agent of the
defendant Toyota Shaw, Inc. and hence bound the defendants." 15
The court further declared that "Luna Sosa proved his social standing in the community and
suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to
be compensated." 16 Accordingly, it disposed as follows:
WHEREFORE, viewed from the above findings, judgment is hereby
rendered in favor of the plaintiff and against the defendant:
1. ordering the defendant to pay to the plaintiff the sum
of P75,000.00 for moral damages;
2. ordering the defendant to pay the plaintiff the sum of
P10,000.00 for exemplary damages;
3. ordering the defendant to pay the sum of P30,000.00
attorney's fees plus P2,000.00 lawyer's transportation
fare per trip in attending to the hearing of this case;
 4. ordering the defendant to pay the plaintiff the sum of
P2,000.00 transportation fare per trip of the plaintiff in
attending the hearing of this case; and
5. ordering the defendant to pay the cost of suit.
SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case
was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the
Court of Appeals affirmed in toto the appealed decision.
Toyota now comes before this Court via this petition and raises the core issue stated at the
beginning of the ponencia and also the following related issues: (a) whether or not the
standard VSP was the true and documented understanding of the parties which would have led
to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to
the delivery of the vehicle despite the non-payment of the consideration and the non-approval
of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it
did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for
damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a
perfected contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
and Article 1475 specifically provides when it is deemed perfected:
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to
see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a
determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor
a price certain appears therein. The provision on the downpayment of P100,000.00 made no
specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only
refer to a sale on installment basis, as the VSP executed the following day confirmed. But
nothing was mentioned about the full purchase price and the manner the installments were to
be paid.
This Court had already ruled that a definite agreement on the manner of payment of the price
is an essential element in the formation of a binding and enforceable contract of sale. 18 This
is so because the agreement as to the manner of payment goes into the price such
that a disagreement on the manner of payment is tantamount to a failure to agree on
the price. Definiteness as to the price is an essential element of a binding agreement
to sell personal property. 19
Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa.
For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title,
written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG
BERNARDO OF TOYOTA SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and that the latter did not
misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was
only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent
upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of
Bernardo's authority as an
20
agent in respect of contracts to sell Toyota's vehicles. A person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of the agent.
21
At the most, Exhibit "A" may be considered as part of the initial phase of the generation or
negotiation stage of a contract of sale. There are three stages in the contract of sale, namely:
(a) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement of the
parties;
(b) perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the
terms agreed upon in the contract. 22
The second phase of the generation or negotiation stage in this case was the execution of the
VSP. It must be emphasized that thereunder, the downpayment of the purchase price was
P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance
Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota,
otherwise it should not have mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No.
1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the
Central Bank of the Philippines, the Insurance Commission and the Cooperatives
Administration Office, which are primarily organized for the purpose of extending credit
facilities to consumers and to industrial, commercial, or agricultural enterprises, either by
discounting or factoring commercial papers or accounts receivables, or by buying and selling
contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor
vehicles, heavy equipment and industrial machinery, business and office machines and
equipment, appliances and other movable property." 23
Accordingly, in a sale on installment basis which is financed by a financing company, three
parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the
price of the thing purchased on installment, the seller who assigns the notes or discounts them
with a financing company, and the financing company which is subrogated in the place of the
seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve
Sosa's application, there was then no meeting of minds on the sale on installment
basis.
We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application
for which reason it suggested to Sosa that he pay the full purchase price. When the latter
refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that
the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another
who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is
claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the
Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of
17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states:
Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless
nights when the van was not delivered. The van became the subject matter of talks during his
celebration that he may not have paid for it, and this created an impression against his business
standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego.
He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be
able to pay the full purchase price. It was he who brought embarrassment upon himself by
bragging about a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated,
or compensatory damages, he is likewise not entitled to exemplary damages. Under Article
2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or compensatory
damages.
Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the
body of the decision, and not only in the dispositive portion thereof, the legal reason for the
award of attorney's fees. 26 No such explicit determination thereon was made in the
body of the decision of the trial court. No reason thus exists for such an award.
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of
Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court
of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in
Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED.
No pronouncement as to costs.
SO ORDERED.

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales
representative, Mr. Popong Bernardo, called plaintiff's house and informed
the plaintiff's son that the vehicle will not be ready for pick-up at 10:00
a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his
son went to defendant's office on June 17 1989 at 2:00 p.m. in order to
pick-up the vehicle but the defendant for reasons known only to its
representatives, refused and/or failed to release the vehicle to the plaintiff.
Plaintiff demanded for an explanation, but nothing was given; . . .
(Emphasis supplied). 25

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that
the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him,
and its non-delivery did not cause any legally indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and costs of suit is
without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that
since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered into
by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and
obligations the present defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA
AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA,
FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE
VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the
Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice them at the same price he has fixed for
sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25
per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall
order the beds by the dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a
period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and
the freight, insurance, and cost of unloading from the vessel at the point where the
beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said
payment when made shall be considered as a prompt payment, and as such a
deduction of 2 per cent shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons
may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any
alteration in price which he may plan to make in respect to his beds, and agrees that
if on the date when such alteration takes effect he should have any order pending to
be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the
price thereby be lowered, but shall not be affected by said alteration if the price
thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to
invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the benefit of
both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga
assumes the obligation to offer and give the preference to Mr. Parsons in case
anyone should apply for the exclusive agency for any island not comprised with the
Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of
"Quiroga" beds in all the towns of the Archipelago where there are no exclusive
agents, and shall immediately report such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by
either of the contracting parties on a previous notice of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and both substantially amount to the averment that
the defendant violated the following obligations: not to sell the beds at higher prices than those
of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep
the beds on public exhibition, and to pay for the advertisement expenses for the same; and to
order the beds by the dozen and in no other manner. As may be seen, with the exception of the
obligation on the part of the defendant to order the beds by the dozen and in no other manner,
none of the obligations imputed to the defendant in the two causes of action are expressly set
forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of
his beds in Iloilo, and that said obligations are implied in a contract of commercial agency.
The whole question, therefore, reduced itself to a determination as to whether the defendant,
by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff
for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the contract
in question, what was essential, as constituting its cause and subject matter, is that the plaintiff
was to furnish the defendant with the beds which the latter might order, at the price stipulated,
and that the defendant was to pay the price in the manner stipulated. The price agreed upon
was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of
from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these
last two cases an additional discount was to be allowed for prompt payment. These are
precisely the essential features of a contract of purchase and sale. There was the obligation on
the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price.
These features exclude the legal conception of an agency or order to sell whereby the
mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the
principal the price he obtains from the sale of the thing to a third person, and if he does not
succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within requested the plaintiff's prior consent with respect to said beds, which shows that it was not
the term fixed, without any other consideration and regardless as to whether he had or had not considered that the defendant had a right, by virtue of the contract, to make this return. As
sold the beds. regards the shipment of beds without previous notice, it is insinuated in the record that these
brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff
It would be enough to hold, as we do, that the contract by and between the defendant and the
agreed to their return. And with respect to the so-called commissions, we have said that they
plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a
merely constituted a discount on the invoice price, and the reason for applying this benefit to
commission on sales, as the plaintiff claims it was, for these contracts are incompatible with
the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant
each other. But, besides, examining the clauses of this contract, none of them is found that
obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds,
substantially supports the plaintiff's contention. Not a single one of these clauses necessarily
such sales were to be considered as a result of that advertisement.
conveys the idea of an agency. The words commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. In respect to the defendant's obligation to order by the dozen, the only one expressly imposed
The word agency, also used in articles 2 and 3, only expresses that the defendant was the only by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders
one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining which the defendant might place under other conditions; but if the plaintiff consents to fill
clauses, the least that can be said is that they are not incompatible with the contract of them, he waives his right and cannot complain for having acted thus at his own free will.
purchase and sale.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the the defendant was one of purchase and sale, and that the obligations the breach of which is
defendant corporation and who established and managed the latter's business in Iloilo. It alleged as a cause of action are not imposed upon the defendant, either by agreement or by law.
appears that this witness, prior to the time of his testimony, had serious trouble with the
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
defendant, had maintained a civil suit against it, and had even accused one of its partners,
Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit
A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied
that it was to be an agent for his beds and to collect a commission on sales. However,
according to the defendant's evidence, it was Mariano Lopez Santos, a director of the
corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the
truth, his statement as to what was his idea in contracting with the plaintiff is of no importance,
inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute,
as we have said, a contract of purchase and sale, and not one of commercial agency. This only
means that Ernesto Vidal was mistaken in his classification of the contract. But it must be
understood that a contract is what the law defines it to be, and not what it is called by the
contracting parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not
sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and
that the defendant received its commission for the beds sold by the plaintiff directly to persons
in Iloilo. But all this, at the most only shows that, on the part of both of them, there was
mutual tolerance in the performance of the contract in disregard of its terms; and it gives no
right to have the contract considered, not as the parties stipulated it, but as they performed it.
Only the acts of the contracting parties, subsequent to, and in connection with, the execution
of the contract, must be considered for the purpose of interpreting the contract, when such
interpretation is necessary, but not when, as in the instant case, its essential agreements are
clearly set forth and plainly show that the contract belongs to a certain kind and not to another.
Furthermore, the return made was of certain brass beds, and was not effected in exchange for
the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1,
G.R. No. L-27044 June 30, 1975
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF
TAX APPEALS, respondents.
G.R. No. L-27452 June 30, 1975
ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX
APPEALS, respondent.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H. Montalino for
Commissioner of Internal Revenue, etc.
Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R.
Balonkita for Engineering and Supply Company.
ESGUERRA, J.:
Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case No.
681, dated November 29, 1966, assessing a compensating tax of P174,441.62 on the
Engineering Equipment and Supply Company.
As found by the Court of Tax Appeals, and as established by the evidence on record, the facts
of this case are as follows:
Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an
engineering and machinery firm. As operator of an integrated engineering shop, it is engaged,
among others, in the design and installation of central type air conditioning system, pumping
plants and steel fabrications. (Vol. I pp. 12-16 T.S.N. August 23, 1960)
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of
Internal Revenue denouncing Engineering for tax evasion by misdeclaring its imported articles
and failing to pay the correct percentage taxes due thereon in connivance with its foreign
suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering was likewise denounced to the
Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting on these
denunciations, a raid and search was conducted by a joint team of Central Bank, (CB),
National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on
September 27, 1956, on which occasion voluminous records of the firm were seized and
confiscated. (pp. 173-177 T.S.N.)
On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended
to the then Collector, now Commissioner, of Internal Revenue (hereinafter referred to as
Commissioner) that Engineering be assessed for P480,912.01 as deficiency advance sales tax
on the theory that it misdeclared its importation of air conditioning units and parts and
accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code,
instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This
assessment was revised on January 23, 1959, in line with the observation of the
Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency
advance sales tax and manufacturers sales tax, inclusive of the 25% and 50%
surcharges. (pp. 72-80 BIR rec. Vol. I)
On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering
payment of the increased amount and suggested that P10,000 be paid as compromise in
extrajudicial settlement of Engineering's penal liability for violation of the Tax Code. The firm,
however, contested the tax assessment and requested that it be furnished with the details and
particulars of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I)
The Commissioner replied that the assessment was in accordance with law and the facts of the
case.
On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the
pendency of the case the investigating revenue examiners reduced Engineering's deficiency
tax liabilities from P916,362.65 to P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.),
based on findings after conferences had with Engineering's Accountant and Auditor.
On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive
portion of which reads as follows:
For ALL THE FOREGOING CONSIDERATIONS, the decision of
respondent appealed from is hereby modified, and petitioner, as a
contractor, is declared exempt from the deficiency manufacturers sales tax
covering the period from June 1, 1948. to September 2, 1956. However,
petitioner is ordered to pay respondent, or his duly authorized collection
agent, the sum of P174,141.62 as compensating tax and 25% surcharge for
the period from 1953 to September 1956. With costs against petitioner.
The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to
this Court on January 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on
January 4, 1967, filed with the Court of Tax Appeals a motion for reconsideration of the
decision abovementioned. This was denied on April 6, 1967, prompting Engineering to file
also with this Court its appeal, docketed as G.R. No. L-27452.
Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and
issues, We have decided to consolidate and jointly decide them.
Engineering in its Petition claims that the Court of Tax Appeals committed the following
errors:
 1. That the Court of Tax Appeals erred in holding Engineering Equipment
& Supply Company liable to the 30% compensating tax on its importations
of equipment and ordinary articles used in the central type air conditioning
systems it designed, fabricated, constructed and installed in the buildings
and premises of its customers, rather than to the compensating tax of only
7%;
2. That the Court of Tax Appeals erred in holding Engineering Equipment
& Supply Company guilty of fraud in effecting the said importations on
the basis of incomplete quotations from the contents of alleged photostat
copies of documents seized illegally from Engineering Equipment and
Supply Company which should not have been admitted in evidence;
3. That the Court of Tax Appeals erred in holding Engineering Equipment
& Supply Company liable to the 25% surcharge prescribed in Section 190
of the Tax Code;
4. That the Court of Tax Appeals erred in holding the assessment as not
having prescribed;
5. That the Court of Tax Appeals erred in holding Engineering Equipment
& Supply Company liable for the sum of P174,141.62 as 30%
compensating tax and 25% surcharge instead of completely absolving it
from the deficiency assessment of the Commissioner.
The Commissioner on the other hand claims that the Court of Tax Appeals erred:
1. In holding that the respondent company is a contractor and not a
manufacturer.
2. In holding respondent company liable to the 3% contractor's tax
imposed by Section 191 of the Tax Code instead of the 30% sales tax
prescribed in Section 185(m) in relation to Section 194(x) both of the same
Code;
3. In holding that the respondent company is subject only to the 30%
compensating tax under Section 190 of the Tax Code and not to the 30%
advance sales tax imposed by section 183 (b), in relation to section 185(m)
both of the same Code, on its importations of parts and accessories of air
conditioning units;
4. In not holding the company liable to the 50% fraud surcharge under
Section 183 of the Tax Code on its importations of parts and accessories of
air conditioning units, notwithstanding the finding of said court that the
respondent company fraudulently misdeclared the said importations;
5. In holding the respondent company liable for P174,141.62 as
compensating tax and 25% surcharge instead of P740,587.86 as deficiency
advance sales tax, deficiency manufacturers tax and 25% and 50%
surcharge for the period from June 1, 1948 to December 31, 1956.
The main issue revolves on the question of whether or not Engineering is a manufacturer of air
conditioning units under Section 185(m), supra, in relation to Sections 183(b) and 194 of the
Code, or a contractor under Section 191 of the same Code.
The Commissioner contends that Engineering is a manufacturer and seller of air conditioning
units and parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax
prescribed by Section 185(m) of the Tax Code, in relation to Section 194 of the same, which
defines a manufacturer as follows:
Section 194. Words and Phrases Defined. In applying the provisions
of this Title, words and phrases shall be taken in the sense and extension
indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by physical or chemical
process alters the exterior texture or form or inner substance of any raw
material or manufactured or partially manufactured products in such
manner as to prepare it for a special use or uses to which it could not have
been put in its original condition, or who by any such process alters the
quality of any such material or manufactured or partially manufactured
product so as to reduce it to marketable shape, or prepare it for any of the
uses of industry, or who by any such process combines any such raw
material or manufactured or partially manufactured products with other
materials or products of the same or of different kinds and in such manner
that the finished product of such process of manufacture can be put to
special use or uses to which such raw material or manufactured or partially
manufactured products in their original condition could not have been put,
and who in addition alters such raw material or manufactured or partially
manufactured products, or combines the same to produce such finished
products for the purpose of their sale or distribution to others and not for
his own use or consumption.
In answer to the above contention, Engineering claims that it is not a manufacturer and setter
of air-conditioning units and spare parts or accessories thereof subject to tax under Section
185(m) of the Tax Code, but a contractor engaged in the design, supply and installation of the
central type of air-conditioning system subject to the 3% tax imposed by Section 191 of the
same Code, which is essentially a tax on the sale of services or labor of a contractor rather
than on the sale of articles subject to the tax referred to in Sections 184, 185 and 186 of the
Code.
The arguments of both the Engineering and the Commissioner call for a clarification of the
term contractor as well as the distinction between a contract of sale and contract for furnishing
services, labor and materials. The distinction between a contract of sale and one for work,
labor and materials is tested by the inquiry whether the thing transferred is one not in existence
and which never would have existed but for the order of the party desiring to acquire it, or a
thing which would have existed and has been the subject of sale to some other persons even if
the order had not been given. 2 If the article ordered by the purchaser is exactly such as
the plaintiff makes and keeps on hand for sale to anyone, and no change or
modification of it is made at defendant's request, it is a contract of sale, even though it
may be entirely made after, and in consequence of, the defendants order for it. 3
Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of
work thus:
Art. 1467. A contract for the delivery at a certain price of an article which
the vendor in the ordinary course of his business manufactures or procures
for the general market, whether the same is on hand at the time or not, is a
contract of sale, but if the goods are to be manufactured specially for the
customer and upon his special order and not for the general market, it is a
contract for a piece of work.
The word "contractor" has come to be used with special reference to a person who, in the
pursuit of the independent business, undertakes to do a specific job or piece of work for other
persons, using his own means and methods without submitting himself to control as to the
petty details. (Araas, Annotations and Jurisprudence on the National Internal Revenue Code,
p. 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon
Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs.
Trinidad, 43, Phil. 816, 819, would seem to be that he renders service in the course of an
independent occupation, representing the will of his employer only as to the result of his work,
and not as to the means by which it is accomplished.
With the foregoing criteria as guideposts, We shall now examine whether Engineering really
did "manufacture" and sell, as alleged by the Commissioner to hold it liable to the advance
sales tax under Section 185(m), or it only had its services "contracted" for installation
purposes to hold it liable under section 198 of the Tax Code.
I easy reference:
After going over the three volumes of stenographic notes and the voluminous record of the
BIR and the CTA as well as the exhibits submitted by both parties, We find that Engineering
did not manufacture air conditioning units for sale to the general public, but imported some
items (as refrigeration compressors in complete set, heat exchangers or coils, t.s.n. p. 39)
which were used in executing contracts entered into by it. Engineering, therefore, undertook
negotiations and execution of individual contracts for the design, supply and installation of air
conditioning units of the central type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L",
and "M"), taking into consideration in the process such factors as the area of the space to be air
conditioned; the number of persons occupying or would be occupying the premises; the
purpose for which the various air conditioning areas are to be used; and the sources of heat
gain or cooling load on the plant such as sun load, lighting, and other electrical appliances
which are or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering also testified during the
hearing in the Court of Tax Appeals that relative to the installation of air conditioning system,
Engineering designed and engineered complete each particular plant and that no two plants
were identical but each had to be engineered separately.
As found by the lower court, which finding 4 We adopt
Engineering, in a nutshell, fabricates, assembles, supplies and installs in
the buildings of its various customers the central type air conditioning
system; prepares the plans and specifications therefor which are distinct
and different from each other; the air conditioning units and spare parts or
accessories thereof used by petitioner are not the window type of air
conditioner which are manufactured, assembled and produced locally for
sale to the general market; and the imported air conditioning units and
spare parts or accessories thereof are supplied and installed by petitioner
upon previous orders of its customers conformably with their needs and
requirements.
The facts and circumstances aforequoted support the theory that Engineering is a contractor
rather than a manufacturer.
The Commissioner in his Brief argues that "it is more in accord with reason and sound
business management to say that anyone who desires to have air conditioning units installed in
his premises and who is in a position and willing to pay the price can order the same from the
company (Engineering) and, therefore, Engineering could have mass produced and stockpiled
air conditioning units for sale to the public or to any customer with enough money to buy the
same." This is untenable in the light of the fact that air conditioning units, packaged, or what
we know as self-contained air conditioning units, are distinct from the central system which
Engineering dealt in. To Our mind, the distinction as explained by Engineering, in its Brief,
quoting from books, is not an idle play of words as claimed by the Commissioner, but a
significant fact which We just cannot ignore. As quoted by Engineering Equipment & Supply
Co., from an Engineering handbook by L.C. Morrow, and which We reproduce hereunder for
... there is a great variety of equipment in use to do this job (of air
conditioning). Some devices are designed to serve a specific type of space;
others to perform a specific function; and still others as components to be
assembled into a tailor-made system to fit a particular building. Generally,
however, they may be grouped into two classifications unitary and
central system.
The unitary equipment classification includes those designs such as room
air conditioner, where all of the functional components are included in one
 or two packages, and installation involves only making service connection
such as electricity, water and drains. Central-station systems, often referred
to as applied or built-up systems, require the installation of components at
different points in a building and their interconnection.
The room air conditioner is a unitary equipment designed specifically for a
room or similar small space. It is unique among air conditioning
equipment in two respects: It is in the electrical appliance classification,
and it is made by a great number of manufacturers.
There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical
Engineer, who was once the Chairman of the Board of Examiners for Mechanical Engineers
and who was allegedly responsible for the preparation of the refrigeration and air conditioning
code of the City of Manila, who said that "the central type air conditioning system is an
engineering job that requires planning and meticulous layout due to the fact that usually
architects assign definite space and usually the spaces they assign are very small and of
various sizes. Continuing further, he testified:
I don't think I have seen central type of air conditioning machinery room
that are exactly alike because all our buildings here are designed by
architects dissimilar to existing buildings, and usually they don't
coordinate and get the advice of air conditioning and refrigerating
engineers so much so that when we come to design, we have to make use
of the available space that they are assigning to us so that we have to
design the different component parts of the air conditioning system in such
a way that will be accommodated in the space assigned and afterwards the
system may be considered as a definite portion of the building. ...
Definitely there is quite a big difference in the operation because the
window type air conditioner is a sort of compromise. In fact it cannot
control humidity to the desired level; rather the manufacturers, by hit and
miss, were able to satisfy themselves that the desired comfort within a
room could be made by a definite setting of the machine as it comes from
the factory; whereas the central type system definitely requires an
intelligent operator. (t.s.n. pp. 301-305, Vol. II)
The point, therefore, is this Engineering definitely did not and was not engaged in the
manufacture of air conditioning units but had its services contracted for the installation of a
central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs.
Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99
Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point.
Neither are they applicable because the facts in all the cases cited are entirely different. Take
for instance the case of Celestino Co where this Court held the taxpayer to be a manufacturer
rather than a contractor of sash, doors and windows manufactured in its factory. Indeed, from
the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc.
as it did register a special trade name for its sash business and ordered company stationery
carrying the bold print "ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY,
PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors,
Windows ... ." Likewise, Celestino Co never put up a contractor's bond as required by Article
1729 of the Civil Code. Also, as a general rule, sash factories receive orders for doors and
windows of special design only in particular cases, but the bulk of their sales is derived from
ready-made doors and windows of standard sizes for the average home, which "sales" were
reflected in their books of accounts totalling P118,754.69 for the period from January, 1952 to
September 30, 1952, or for a period of only nine (9) months. This Court found said sum
difficult to have been derived from its few customers who placed special orders for these items.
Applying the abovestated facts to the case at bar, We found them to he inapposite.
Engineering advertised itself as Engineering Equipment and Supply Company, Machinery
Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila (Exh. "B"
and "15" BIR rec. p. 186), and not as manufacturers. It likewise paid the contractors tax on all
the contracts for the design and construction of central system as testified to by Mr. Rey
Parker, its President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did not
have ready-made air conditioning units for sale but as per testimony of Mr. Parker upon
inquiry of Judge Luciano of the CTA
Q Aside from the general components, which go
into air conditioning plant or system of the central type
which your company undertakes, and the procedure
followed by you in obtaining and executing contracts
which you have already testified to in previous hearing,
would you say that the covering contracts for these
different projects listed ... referred to in the list, Exh.
"F" are identical in every respect? I mean every plan or
system covered by these different contracts are
identical in standard in every respect, so that you can
reproduce them?
A No, sir. They are not all standard. On the contrary,
none of them are the same. Each one must be designed
and constructed to meet the particular requirements,
whether the application is to be operated. (t.s.n. pp.
101-102)
What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co. vs.
McFarland, Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355
SW 2d, 100, 101, "where the cause presents the question of whether one engaged in the
business of contracting for the establishment of air conditioning system in buildings, which
work requires, in addition to the furnishing of a cooling unit, the connection of such unit with
electrical and plumbing facilities and the installation of ducts within and through walls,
ceilings and floors to convey cool air to various parts of the building, is liable for sale or use
tax as a contractor rather than a retailer of tangible personal property. Appellee took the
Position that appellant was not engaged in the business of selling air conditioning equipment
as such but in the furnishing to its customers of completed air conditioning systems pursuant
to contract, was a contractor engaged in the construction or improvement of real property, and
as such was liable for sales or use tax as the consumer of materials and equipment used in the
consummation of contracts, irrespective of the tax status of its contractors. To transmit the
warm or cool air over the buildings, the appellant installed system of ducts running from the
basic units through walls, ceilings and floors to registers. The contract called for completed air
conditioning systems which became permanent part of the buildings and improvements to the
realty." The Court held the appellant a contractor which used the materials and the equipment
upon the value of which the tax herein imposed was levied in the performance of its contracts
with its customers, and that the customers did not purchase the equipment and have the same
installed.
Applying the facts of the aforementioned case to the present case, We see that the supply of air
conditioning units to Engineer's various customers, whether the said machineries were in hand
or not, was especially made for each customer and installed in his building upon his special
order. The air conditioning units installed in a central type of air conditioning system would
not have existed but for the order of the party desiring to acquire it and if it existed without the
special order of Engineering's customer, the said air conditioning units were not intended for
sale to the general public. Therefore, We have but to affirm the conclusion of the Court of Tax
Appeals that Engineering is a contractor rather than a manufacturer, subject to the contractors
tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by Section
185(m) in relation to Section 194 of the same Code. Since it has been proved to Our
satisfaction that Engineering imported air conditioning units, parts or accessories thereof for
use in its construction business and these items were never sold, resold, bartered or exchanged,
Engineering should be held liable to pay taxes prescribed under Section 190 5 of the Code.
This compensating tax is not a tax on the importation of goods but a tax on the use of
imported goods not subject to sales tax. Engineering, therefore, should be held liable
to the payment of 30% compensating tax in accordance with Section 190 of the Tax
Code in relation to Section 185(m) of the same, but without the 50% mark up
provided in Section 183(b).
II
We take up next the issue of fraud. The Commissioner charged Engineering with
misdeclaration of the imported air conditioning units and parts or accessories thereof so as to
make them subject to a lower rate of percentage tax (7%) under Section 186 of the Tax Code,
when they are allegedly subject to a higher rate of tax (30%) under its Section 185(m). This
charge of fraud was denied by Engineering but the Court of Tax Appeals in its decision found
adversely and said"
... We are amply convinced from the evidence presented by respondent
that petitioner deliberately and purposely misdeclared its importations.
This evidence consists of letters written by petitioner to its foreign
suppliers, instructing them on how to invoice and describe the air
conditioning units ordered by petitioner. ... (p. 218 CTA rec.)
Despite the above findings, however, the Court of Tax Appeals absolved Engineering from
paying the 50% surcharge prescribe by Section 183(a) of the Tax Code by reasoning out as
follows:
The imposition of the 50% surcharge prescribed by Section 183(a) of the
Tax Code is based on willful neglect to file the monthly return within 20
days after the end of each month or in case a false or fraudulent return is
willfully made, it can readily be seen, that petitioner cannot legally be held
subject to the 50% surcharge imposed by Section 183(a) of the Tax Code.
Neither can petitioner be held subject to the 50% surcharge under Section
190 of the Tax Code dealing on compensating tax because the provisions
thereof do not include the 50% surcharge. Where a particular provision of
the Tax Code does not impose the 50% surcharge as fraud penalty we
cannot enforce a non-existing provision of law notwithstanding the
assessment of respondent to the contrary. Instances of the exclusion in the
Tax Code of the 50% surcharge are those dealing on tax on banks, taxes on
receipts of insurance companies, and franchise tax. However, if the Tax
Code imposes the 50% surcharge as fraud penalty, it expressly so provides
as in the cases of income tax, estate and inheritance taxes, gift taxes,
mining tax, amusement tax and the monthly percentage taxes. Accordingly,
we hold that petitioner is not subject to the 50% surcharge despite the
existence of fraud in the absence of legal basis to support the importation
thereof. (p. 228 CTA rec.)
We have gone over the exhibits submitted by the Commissioner evidencing fraud committed
by Engineering and We reproduce some of them hereunder for clarity.
As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co. (Exh. "3-
K" pp. 152-155, BIR rec.) viz:
Your invoices should be made in the name of Madrigal & Co., Inc., Manila,
Philippines, c/o Engineering Equipment & Supply Co., Manila, Philippines
forwarding all correspondence and shipping papers concerning this
order to us only and not to the customer.
When invoicing, your invoices should be exactly as detailed in the
customer's Letter Order dated March 14th, 1953 attached. This is in
accordance with the Philippine import licenses granted to Madrigal & Co.,
Inc. and such details must only be shown on all papers and shipping
documents for this shipment. No mention of words air conditioning
equipment should be made on any shipping documents as well as on the
cases. Please give this matter your careful attention, otherwise great
difficulties will be encountered with the Philippine Bureau of Customs
 when clearing the shipment on its arrival in Manila. All invoices and cases
should be marked "THIS EQUIPMENT FOR RIZAL CEMENT CO."
The same instruction was made to Acme Industries, Inc., San Francisco, California in a letter
dated March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.)
On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York, U.S.A.
(Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter from mentioning or referring to the
term 'air conditioning' and to describe the goods on order as Fiberglass pipe and pipe fitting
insulation instead. Likewise on April 30, 1953, Engineering threatened to discontinue the
forwarding service of Universal Transcontinental Corporation when it wrote Trane Co. (Exh.
"3-H" p. 146, BIR rec.):
It will be noted that the Universal Transcontinental Corporation is not
following through on the instructions which have been covered by the
above correspondence, and which indicates the necessity of discontinuing
the use of the term "Air conditioning Machinery or Air Coolers". Our
instructions concerning this general situation have been sent to you in
ample time to have avoided this error in terminology, and we will ask that
on receipt of this letter that you again write to Universal Transcontinental
Corp. and inform them that, if in the future, they are unable to cooperate
with us on this requirement, we will thereafter be unable to utilize their
forwarding service. Please inform them that we will not tolerate another
failure to follow our requirements.
And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another
letter, viz:
In the past, we have always paid the air conditioning tax on climate
changers and that mark is recognized in the Philippines, as air conditioning
equipment. This matter of avoiding any tie-in on air conditioning is very
important to us, and we are asking that from hereon that whoever takes
care of the processing of our orders be carefully instructed so as to avoid
again using the term "Climate changers" or in any way referring to the
equipment as "air conditioning."
And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting a
solution, viz:
We feel that we can probably solve all the problems by following the
procedure outlined in your letter of March 25, 1953 wherein you stated
that in all future jobs you would enclose photostatic copies of your import
license so that we might make up two sets of invoices: one set describing
equipment ordered simply according to the way that they are listed on the
import license and another according to our ordinary regular methods of
order write-up. We would then include the set made up according to the
import license in the shipping boxes themselves and use those items as our
actual shipping documents and invoices, and we will send the other regular
invoice to you, by separate correspondence. (Exh- No. "3-F-1", p. 144 BIR
rec.)
Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p. 141 BIR
rec.)
In the process of clearing the shipment from the piers, one of the Customs
inspectors requested to see the packing list. Upon presenting the packing
list, it was discovered that the same was prepared on a copy of your
letterhead which indicated that the Trane Co. manufactured air
conditioning, heating and heat transfer equipment. Accordingly, the
inspectors insisted that this equipment was being imported for air
conditioning purposes. To date, we have not been able to clear the
shipment and it is possible that we will be required to pay heavy taxes on
equipment.
The purpose of this letter is to request that in the future, no documents of
any kind should be sent with the order that indicate in any way that the
equipment could possibly be used for air conditioning.
It is realized that this a broad request and fairly difficult to accomplish and
administer, but we believe with proper caution it can be executed. Your
cooperation and close supervision concerning these matters will be
appreciated. (Emphasis supplied)
The aforequoted communications are strongly indicative of the fraudulent intent of
Engineering to misdeclare its importation of air conditioning units and spare parts or
accessories thereof to evade payment of the 30% tax. And since the commission of fraud is
altogether too glaring, We cannot agree with the Court of Tax Appeals in absolving
Engineering from the 50% fraud surcharge, otherwise We will be giving premium to a plainly
intolerable act of tax evasion. As aptly stated by then Solicitor General, now Justice, Antonio
P. Barredo: 'this circumstance will not free it from the 50% surcharge because in any case
whether it is subject to advance sales tax or compensating tax, it is required by law to truly
declare its importation in the import entries and internal revenue declarations before the
importations maybe released from customs custody. The said entries are the very documents
where the nature, quantity and value of the imported goods declared and where the customs
duties, internal revenue taxes, and other fees or charges incident to the importation are
computed. These entries, therefore, serve the same purpose as the returns required by Section
183(a) of the Code.'
Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court of Tax
Appeals and hold Engineering liable for the same. As held by the lower court:
 At first blush it would seem that the contention of petitioner that it is not however reveals that Engineering did file a tax return or declaration with the Bureau of
subject to the delinquency, surcharge of 25% is sound, valid and tenable. Customs before it paid the advance sales tax of 7%. And the declaration filed reveals that it
However, a serious study and critical analysis of the historical provisions did in fact misdeclare its importations. Section 332 of the Tax Code which provides:
of Section 190 of the Tax Code dealing on compensating tax in relation to
Section 332. Exceptions as to period of limitation of assessment and
Section 183(a) of the same Code, will show that the contention of
collection of taxes.
petitioner is without merit. The original text of Section 190 of
Commonwealth Act 466, otherwise known as the National Internal (a) In the case of a false or fraudulent return with intent to evade tax or of a
Revenue Code, as amended by Commonwealth Act No. 503, effective on failure to file a return, the tax may be assessed, or a proceeding in court for
October 1, 1939, does not provide for the filing of a compensation tax the collection of such tax may be begun without assessment at any time
return and payment of the 25 % surcharge for late payment thereof. Under within ten years after the discovery of the falsity, fraud or omission.
the original text of Section 190 of the Tax Code as amended by
Commonwealth Act No. 503, the contention of the petitioner that it is not is applicable, considering the preponderance of evidence of fraud with the intent to evade the
subject to the 25% surcharge appears to be legally tenable. However, higher rate of percentage tax due from Engineering. The, tax assessment was made within the
Section 190 of the Tax Code was subsequently amended by the Republic period prescribed by law and prescription had not set in against the Government.
Acts Nos. 253, 361, 1511 and 1612 effective October 1, 1946, July 1, 1948, WHEREFORE, the decision appealed from is affirmed with the modification that Engineering
June 9, 1949, June 16, 1956 and August 24, 1956 respectively, which is hereby also made liable to pay the 50% fraud surcharge.
invariably provides among others, the following:
SO ORDERED.
... If any article withdrawn from the customhouse or
the post office without payment of the compensating
tax is subsequently used by the importer for other
purposes, corresponding entry should be made in the
books of accounts if any are kept or a written notice
thereof sent to the Collector of Internal Revenue and
payment of the corresponding compensating tax made
within 30 days from the date of such entry or notice
and if tax is not paid within such period the amount of
the tax shall be increased by 25% the increment to be a
part of the tax.

Since the imported air conditioning units-and spare parts or accessories thereof are subject to
the compensating tax of 30% as the same were used in the construction business of
Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of
Section 190 of the Code, by posting in its books of accounts or notifying the Collector of
Internal Revenue that the imported articles were used for other purposes within 30 days. ...
Consequently; as the 30% compensating tax was not paid by petitioner within the time
prescribed by Section 190 of the Tax Code as amended, it is therefore subject to the 25%
surcharge for delinquency in the payment of the said tax. (pp. 224-226 CTA rec.)

III

Lastly the question of prescription of the tax assessment has been put in issue. Engineering
contends that it was not guilty of tax fraud in effecting the importations and, therefore, Section
332(a) prescribing ten years is inapplicable, claiming that the pertinent prescriptive period is
five years from the date the questioned importations were made. A review of the record
G.R. No. 167884 January 20, 2009
ENRICO S. EULOGIO, Petitioner,
vs.
SPOUSES CLEMENTE APELES1 and LUZ APELES, Respondents.
DECISION
CHICO-NAZARIO, J.:
Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court assailing the Decision2 dated 20 December 2004 of the
Court of Appeals in CA-G.R. CV No. 76933 which reversed the Decision3 dated 8 October
2002 of the Regional Trial Court (RTC) of Quezon City, Branch 215, in Civil Case No. Q-99-
36834. The RTC directed respondents, spouses Clemente and Luz Apeles (spouses Apeles) to
execute a Deed of Sale over a piece of real property in favor of Enrico after the latters
payment of full consideration therefor.
The factual and procedural antecedents of the present case are as follows:
The real property in question consists of a house and lot situated at No. 87 Timog Avenue,
Quezon City (subject property). The lot has an area of 360.60 square meters, covered by
Transfer Certificate of Title No. 253990 issued by the Registry of Deeds of Quezon City in the
names of the spouses Apeles.4
In 1979, the spouses Apeles leased the subject property to Arturo Eulogio (Arturo), Enricos
father. Upon Arturos death, his son Enrico succeeded as lessor of the subject property. Enrico
used the subject property as his residence and place of business. Enrico was engaged in the
business of buying and selling imported cars.5
On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a Contract of Lease 6
with Option to Purchase involving the subject property. According to the said lease contract,
Luz Apeles was authorized to enter into the same as the attorney-in-fact of her husband,
Clemente, pursuant to a Special Power of Attorney executed by the latter in favor of the
former on 24 January 1979. The contract purportedly afforded Enrico, before the expiration of
the three-year lease period, the option to purchase the subject property for a price not
exceeding P1.5 Million. The pertinent provisions of the Contract of Lease are reproduced
below:
3. That this Contract shall be effective commencing from January 26, 1987 and shall
remain valid and binding for THREE (3) YEARS from the said date. The LESSOR
hereby gives the LESSEE under this Contract of Lease the right and option to buy
the subject house and lot within the said 3-year lease period.
4. That the purchase price or total consideration of the house and lot subject of this
Contract of Lease shall, should the LESSEE exercise his option to buy it on or
before the expiration of the 3-year lease period, be fixed or agreed upon by the
LESSOR and the LESSEE, Provided, that the said purchase price, as it is hereby
agreed, shall not be more than ONE MILLION FIVE HUNDRED THOUSAND
PESOS (P1,500,000.00) and, provided further, that the monthly rentals paid by the
LESSEE to the LESSOR during the 3-year lease period shall form part of or be
deducted from the purchase price or total consideration as may hereafter be mutually
fixed or agreed upon by the LESSOR and the LESSEE.
5. That if the LESSEE shall give oral or written notice to the LESSOR on or before
the expiry date of the 3-year lease period stipulated herein of his desire to exercise
his option to buy or purchase the house and lot herein leased, the LESSOR upon
receipt of the purchase price/total consideration as fixed or agreed upon less the total
amount of monthly rentals paid the LESSEE during the 3-year lease period shall
execute the appropriate Deed to SELL, TRANSFER and CONVEY the house and
lot subject of this Contract in favor of the LESSEE, his heirs, successors and assigns,
together with all the fixtures and accessories therein, free from all liens and
encumbrances.
Before the expiration of the three-year lease period provided in the lease contract, Enrico
exercised his option to purchase the subject property by communicating verbally and in
writing to Luz his willingness to pay the agreed purchase price, but the spouses Apeles
supposedly ignored Enricos manifestation. This prompted Enrico to seek recourse from the
barangay for the enforcement of his right to purchase the subject property, but despite several
notices, the spouses Apeles failed to appear before the barangay for settlement proceedings.
Hence, the barangay issued to Enrico a Certificate to File Action.7
In a letter dated 26 January 1997 to Enrico, the spouses Apeles demanded that he pay his
rental arrears from January 1991 to December 1996 and he vacate the subject property since it
would be needed by the spouses Apeles themselves.
Without heeding the demand of the spouses Apeles, Enrico instituted on 23 February 1999 a
Complaint for Specific Performance with Damages against the spouses Apeles before the RTC,
docketed as Civil Case No. Q-99-36834. Enricos cause of action is founded on paragraph 5 of
the Contract of Lease with Option to Purchase vesting him with the right to acquire ownership
of the subject property after paying the agreed amount of consideration.
Following the pre-trial conference, trial on the merits ensued before the RTC.
Enrico himself testified as the sole witness for his side. He narrated that he and Luz entered
into the Contract of Lease with Option to Purchase on 26 January 1987, with Luz signing the
said Contract at Enricos office in Timog Avenue, Quezon City. The Contract was notarized
on the same day as evidenced by the Certification on the Notary Publics Report issued by the
Clerk of Court of the RTC of Manila.8
On the other hand, the spouses Apeles denied that Luz signed the Contract of Lease with
Option to Purchase, and posited that Luzs signature thereon was a forgery. To buttress their
contention, the spouses Apeles offered as evidence Luzs Philippine Passport which showed
that on 26 January 1987, the date when Luz allegedly signed the said Contract, she was in the
United States of America. The spouses Apeles likewise presented several official documents
bearing her genuine signatures to reveal their remarkable discrepancy from the signature
appearing in the disputed lease contract. The spouses Apeles maintained that they did not
intend to sell the subject property. 9
After the spouses Apeles established by documentary evidence that Luz was not in the country
at the time the Contract of Lease with Option to Purchase was executed, Enrico, in rebuttal,
retracted his prior declaration that the said Contract was signed by Luz on 26 January 1996.
Instead, Enrico averred that Luz signed the Contract after she arrived in the Philippines on 30
May 1987. Enrico further related that after Luz signed the lease contract, she took it with her
for notarization, and by the time the document was returned to him, it was already
notarized.10
On 8 October 2002, the RTC rendered a Decision in Civil Case No. Q-99-36834 in favor of
Enrico. Since none of the parties presented a handwriting expert, the RTC relied on its own
examination of the specimen signatures submitted to resolve the issue of forgery. The RTC
found striking similarity between Luzs genuine signatures in the documents presented by the
spouses Apeles themselves and her purportedly forged signature in the Contract of Lease with
Option to Purchase. Absent any finding of forgery, the RTC bound the parties to the clear and
unequivocal stipulations they made in the lease contract. Accordingly, the RTC ordered the
spouses Apeles to execute a Deed of Sale in favor of Enrico upon the latters payment of the
agreed amount of consideration. The fallo of the RTC Decision reads:
WHEREFORE, this Court finds [Enricos] complaint to be substantiated by preponderance of
evidence and accordingly orders
(1) [The spouses Apeles] to comply with the provisions of the Contract of Lease
with Option to Purchase; and upon payment of total consideration as stipulated in
the said CONTRACT for [the spouses Apeles] to execute a Deed of Absolute Sale in
favor of [Enrico], over the parcel of land and the improvements existing thereon
located at No. 87 Timog Avenue, Quezon City.
(2) [The spouses Apeles] to pay [Enrico] moral and exemplary damages in the
respective amounts of P100,000.00 and P50,000.00.
(3) [The spouses Apeles] to pay attorneys fees of P50,000.00 and costs of the
suit.11
The spouses Apeles challenged the adverse RTC Decision before the Court of Appeals and
urged the appellate court to nullify the assailed Contract of Lease with Option to Purchase
since Luzs signature thereon was clearly a forgery. The spouses Apeles argued that it was
physically impossible for Luz to sign the said Contract on 26 January 1987 since she was not
in the Philippines on that date and returned five months thereafter. The spouses Apeles called
attention to Enricos inconsistent declarations as to material details involving the execution of
the lease contract, thereby casting doubt on Enricos credibility, as well as on the presumed
regularity of the contract as a notarized document.
On 20 December 2004, the Court of Appeals rendered a Decision in CA-G.R. CV No. 76933
granting the appeal of the spouses Apeles and overturning the judgment of the RTC. In
arriving at its assailed decision, the appellate court noted that the Notary Public did not
observe utmost care in certifying the due execution of the Contract of Lease with Option to
Purchase. The Court of Appeals chose not to accord the disputed Contract full faith and
credence. The Court of Appeals held, thus:
WHEREFORE, the foregoing premises considered, the appealed decision dated October 8,
2002 of the Regional Trial Court of Quezon City, Branch 215 in Civil Case No. Q-99-36834
for specific performance with damages is hereby REVERSED and a new is one entered
dismissing [Enricos] complaint.12
Enricos Motion for Reconsideration was denied by the Court of Appeals in a Resolution 13
dated 25 April 2005.
Enrico is presently before this Court seeking the reversal of the unfavorable judgment of the
Court of Appeals, assigning the following errors thereto:
I.
THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR
WHEN IT BRUSHED ASIDE THE RULING OF THE COURT A QUO
UPHOLDING THE VALIDITY OF THE CONTRACT OF LEASE WITH
OPTION TO PURCHASE AND IN LIEU THEREOF RULED THAT THE
SAID CONTRACT OF LEASE WAS A FORGERY AND THUS, NULL
AND VOID.
II.
THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR
WHEN CONTRARY TO THE FINDINGS OF THE COURT A QUO IT
RULED THAT THE DEFENSE OF FORGERY WAS SUBSTANTIALLY
AND CONVINCINGLY PROVEN BY COMPETENT EVIDENCE.
Simply, Enrico faults the Court of Appeals for disturbing the factual findings of the RTC in
disregard of the legal aphorism that the factual findings of the trial court should be accorded
great weight and respect on appeal.
We do not agree.
Enricos insistence on the infallibility of the findings of the RTC seriously impairs the
discretion of the appellate tribunal to make independent determination of the merits of the case
appealed before it. Certainly, the Court of Appeals cannot swallow hook, line, and sinker the
factual conclusions of the trial court without crippling the very office of review. Although we
have indeed held that the factual findings of the trial courts are to be accorded great weight
and respect, they are not absolutely conclusive upon the appellate court.14
The reliance of appellate tribunals on the factual findings of the trial court is based on the
postulate that the latter had firsthand opportunity to hear the witnesses and to observe their
conduct and demeanor during the proceedings. However, when such findings are not anchored
on their credibility and their testimonies, but on the assessment of documents that are available
to appellate magistrates and subject to their scrutiny, reliance on the trial court finds no
application.15
Moreover, appeal by writ of error to the Court of Appeals under Rule 41 of the Revised Rules
of Court, the parties may raise both questions of fact and/or of law. In fact, it is imperative for
the Court of Appeals to review the findings of fact made by the trial court. The Court of
Appeals even has the power to try cases and conduct hearings, receive evidence and perform
any and all acts necessary to resolve factual issues raised in cases falling within its original
and appellate jurisdiction.16
Enrico assiduously prays before this Court to sustain the validity of the Contract of Lease with
Option to Purchase. Enrico asserts that the said Contract was voluntarily entered into and
signed by Luz who had it notarized herself. The spouses Apeles should be obliged to respect
the terms of the agreement, and not be allowed to renege on their commitment thereunder and
frustrate the sanctity of contracts.
Again, we are not persuaded. We agree with the Court of Appeals that in ruling out forgery,
the RTC heavily relied on the testimony proffered by Enrico during the trial, ignoring blatant
contradictions that destroy his credibility and the veracity of his claims. On direct examination,
Enrico testified that Luz signed the Contract of Lease with Option to Purchase on 26 January
1987 in his presence,17 but he recanted his testimony on the matter after the spouses Apeles
established by clear and convincing evidence that Luz was not in the Philippines on that
date.18 In rebuttal, Enrico made a complete turnabout and claimed that Luz signed the
Contract in question on 30 May 1987 after her arrival in the country. 19 The inconsistencies in
Enricos version of events have seriously impaired the probative value of his testimony and
cast serious doubt on his credibility. His contradictory statements on important details simply
eroded the integrity of his testimony.
While it is true that a notarized document carries the evidentiary weight conferred upon it with
respect to its due execution, and has in its favor the presumption of regularity, this
presumption, however, is not absolute. It may be rebutted by clear and convincing evidence to
the contrary.20 Enrico himself admitted that Luz took the document and had it notarized
without his presence. Such fact alone overcomes the presumption of regularity since a notary
public is enjoined not to notarize a document unless the persons who signed the same are the
very same persons who executed and personally appeared before the said notary public to
attest to the contents and truth of what are stated therein.
Although there is no direct evidence to prove forgery, preponderance of evidence inarguably
favors the spouses Apeles. In civil cases, the party having the burden of proof must establish
his case by a preponderance of evidence. Preponderance of evidence is the weight, credit, and
value of the aggregate evidence on either side and is usually considered to be synonymous
with the term "greater weight of the evidence" or "greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in the last analysis, means probability of the
truth. It is evidence which is more convincing to the court as worthier of belief than that which
is offered in opposition thereto.21 In the case at bar, the spouses Apeles were able to
overcome the burden of proof and prove by preponderant evidence in disputing the
authenticity and due execution of the Contract of Lease with Option to Purchase. In contrast,
Enrico seemed to rely only on his own self-serving declarations, without asserting any proof
of corroborating testimony or circumstantial evidence to buttress his claim.
Even assuming for the sake of argument that we agree with Enrico that Luz voluntarily
entered into the Contract of Lease with Option to Purchase and personally affixed her
signature to the said document, the provision on the option to purchase the subject property
incorporated in said Contract still remains unenforceable.
There is no dispute that what Enrico sought to enforce in Civil Case No. Q-99-36834 was his
purported right to acquire ownership of the subject property in the exercise of his option to
purchase the same under the Contract of Lease with Option to Purchase. He ultimately wants
to compel the spouses Apeles to already execute the Deed of Sale over the subject property in
his favor.
An option is a contract by which the owner of the property agrees with another person that the
latter shall have the right to buy the formers property at a fixed price within a certain time. It
is a condition offered or contract by which the owner stipulates with another that the latter
shall have the right to buy the property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions; or which gives to the owner of the property the
right to sell or demand a sale.22 An option is not of itself a purchase, but merely secures the
privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a
contract by which the owner of the property agrees with another person that he shall have the
right to buy his property at a fixed price within a certain time. He does not sell his land; he
does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at
the election or option of the other party. Its distinguishing characteristic is that it imposes no
binding obligation on the person holding the option, aside from the consideration for the
offer.23
It is also sometimes called an "unaccepted offer" and is sanctioned by Article 1479 of the Civil
Code:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally and jurisprudence explicitly dictate that for the option contract to be valid, it must be
demandable. supported by a consideration separate and distinct from the price.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is In Bible Baptist Church v. Court of Appeals,27 we stressed that an option contract needs to be
binding upon the promissor if the promise is supported by a consideration distinct from the supported by a separate consideration. The consideration need not be monetary but could
price. consist of other things or undertakings. However, if the consideration is not monetary, these
The second paragraph of Article 1479 provides for the definition and consequent rights and must be things or undertakings of value, in view of the onerous nature of the option contract.
obligations under an option contract. For an option contract to be valid and enforceable against Furthermore, when a consideration for an option contract is not monetary, said consideration
must be clearly specified as such in the option contract or clause.
the promissor, there must be a separate and distinct consideration that supports it. 24
In the present case, it is indubitable that no consideration was given by Enrico to the spouses
In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and
Apeles for the option contract. The absence of monetary or any material consideration keeps
Pacific Co.,25 we declared that for an option contract to bind the promissor, it must be this Court from enforcing the rights of the parties under said option contract.
supported by consideration:
WHEREFORE, in view of the foregoing, the instant Petition is DENIED. The Decision dated
There is no question that under Article 1479 of the new Civil Code "an option to sell," or "a 20 December 2004 and Resolution dated 25 April 2005 of the Court of Appeals in CA-G.R.
promise to buy or to sell," as used in said article, to be valid must be "supported by a CV No. 76933 are hereby AFFIRMED. No costs.
consideration distinct from the price." This is clearly inferred from the context of said article
that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a SO ORDERED.
consideration. In other words, "an accepted unilateral promise" can only have a binding
effect if supported by a consideration, which means that the option can still be
withdrawn, even if accepted, if the same is not supported by any consideration. Here it is
not disputed that the option is without consideration. It can therefore be withdrawn
notwithstanding the acceptance made of it by appellee. (Emphasis supplied.)

The doctrine requiring the payment of consideration in an option contract enunciated in

Southwestern Sugar is resonated in subsequent cases and remains controlling to this day.
Without consideration that is separate and distinct from the purchase price, an option contract
cannot be enforced; that holds true even if the unilateral promise is already accepted by the
optionee.

The consideration is "the why of the contracts, the essential reason which moves the
contracting parties to enter into the contract." This definition illustrates that the consideration
contemplated to support an option contract need not be monetary. Actual cash need not be
exchanged for the option. However, by the very nature of an option contract, as defined in
Article 1479, the same is an onerous contract for which the consideration must be something
of value, although its kind may vary.26

We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the
pleadings submitted by the parties, and their testimonies in open court, for any direct evidence
or evidence aliunde to prove the existence of consideration for the option contract, but we
have found none. The only consideration agreed upon by the parties in the said Contract is the
supposed purchase price for the subject property in the amount not exceeding P1.5 Million,
which could not be deemed to be the same consideration for the option contract since the law
G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and
effect the orders of execution of the trial court, dated 30 August 1991 and 27 September 1991,
in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance
was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu
Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court,
Branch 31, Manila in Civil Case No. 87-41058, alleging, among others,
that plaintiffs are tenants or lessees of residential and commercial spaces
owned by defendants described as Nos. 630-638 Ongpin Street, Binondo,
Manila; that they have occupied said spaces since 1935 and have been
religiously paying the rental and complying with all the conditions of the
lease contract; that on several occasions before October 9, 1986,
defendants informed plaintiffs that they are offering to sell the premises
and are giving them priority to acquire the same; that during the
negotiations, Bobby Cu Unjieng offered a price of P6-million while
plaintiffs made a counter offer of P5-million; that plaintiffs thereafter
asked the defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs wrote them
on October 24, 1986 asking that they specify the terms and conditions of
the offer to sell; that when plaintiffs did not receive any reply, they sent
another letter dated January 28, 1987 with the same request; that since
defendants failed to specify the terms and conditions of the offer to sell
and because of information received that defendants were about to sell the
property, plaintiffs were compelled to file the complaint to compel
defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary
judgment which was granted by the lower court. The trial court found that
defendants' offer to sell was never accepted by the plaintiffs for the reason
that the parties did not agree upon the terms and conditions of the proposed
sale, hence, there was no contract of sale at all. Nonetheless, the lower
court ruled that should the defendants subsequently offer their property for
sale at a price of P11-million or below, plaintiffs will have the right of first
refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor
of the defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned
condition that if the defendants subsequently decide to
offer their property for sale for a purchase price of
Eleven Million Pesos or lower, then the plaintiffs has
the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven
Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by Justices
Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with
modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between
the parties concerning the sale of the property. Absent
such requirement, the claim for specific performance
will not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no
justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as
to any material fact and the moving party is entitled to
a judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but
subject to the following modification: The court a quo
in the aforestated decision gave the plaintiffs-
 appellants the right of first refusal only if the property
is sold for a purchase price of Eleven Million pesos or
lower; however, considering the mercurial and
uncertain forces in our market economy today. We find
no reason not to grant the same right of first refusal to
herein appellants in the event that the subject property
is sold for a price in excess of Eleven Million pesos.
No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition
for review on certiorari. The Supreme Court denied the appeal on May 6,
1991 "for insufficiency in form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed of
Sale (Annex D, Petition) transferring the property in question to herein
petitioner Buen Realty and Development Corporation, subject to the
following terms and conditions:
1. That for and in consideration of the sum of
FIFTEEN MILLION PESOS (P15,000,000.00), receipt
of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and
in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property
with all the improvements found therein including all
the rights and interest in the said property free from all
liens and encumbrances of whatever nature, except the
pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary
Stamp Tax, registration fees for the transfer of title in
his favor and other expenses incidental to the sale of
above-described property including capital gains tax
and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the
Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816
was issued in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote
a letter to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that
petitioner brought the property subject to the notice of lis pendens
regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881
in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the
Decision in Civil Case No. 87-41058 as modified by the Court of Appeals
in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition)
quoted as follows:
Presented before the Court is a Motion for Execution
filed by plaintiff represented by Atty. Antonio Albano.
Both defendants Bobby Cu Unjieng and Rose Cu
Unjieng represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly notified in
today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the
Motion for Execution.
The gist of the motion is that the Decision of the Court
dated September 21, 1990 as modified by the Court of
Appeals in its decision in CA G.R. CV-21123, and
elevated to the Supreme Court upon the petition for
review and that the same was denied by the highest
tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the
Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final
and executory.
It is the observation of the Court that this property in
dispute was the subject of the Notice of Lis Pendens
and that the modified decision of this Court
promulgated by the Court of Appeals which had
become final to the effect that should the defendants
decide to offer the property for sale for a price of P11
Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the
same right of first refusal to herein plaintiffs/appellants
in the event that the subject property is sold for a price
in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to
execute the necessary Deed of Sale of the property in
litigation in favor of plaintiffs Ang Yu Asuncion, Keh
 Tiong and Arthur Go for the consideration of P15
Million pesos in recognition of plaintiffs' right of first
refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen
Realty Corporation, is hereby set aside as having been
executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the
dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in
the above-entitled case directing the Deputy Sheriff
Ramon Enriquez of this Court to implement said Writ
of Execution ordering the defendants among others to
comply with the aforesaid Order of this Court within a
period of one (1) week from receipt of this Order and
for defendants to execute the necessary Deed of Sale of
the property in litigation in favor of the plaintiffs Ang
Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15,000,000.00 and ordering the
Register of Deeds of the City of Manila, to cancel and
set aside the title already issued in favor of Buen
Realty Corporation which was previously executed
between the latter and defendants and to register the
new title in favor of the aforesaid plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and
declared without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held
bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No.
195816 issued in the name of Buen Realty, at the time of the latter's purchase of the property
on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such arrangements
as the right of first refusal, a purchase option and a contract to sell. For ready reference, we
might point out some fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The
vinculum juris or juridical tie which is the efficient cause established by the various sources of
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the
subject-persons who, viewed from the demandability of the obligation, are the active (obligee)
and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting
of minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code). A contract undergoes various
stages that include its negotiation or preparation, its perfection and, finally, its consummation.
Negotiation covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded (perfected). The perfection of the
contract takes place upon the concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of minds, i.e., the
concurrence of offer and acceptance, on the object and on the cause thereof. A contract which
requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or
commodatum, is commonly referred to as a real contract. In a solemn contract, compliance
with certain formalities prescribed by law, such as in a donation of real property, is essential in
order to make the act valid, the prescribed form being thereby an essential element thereof.
The stage of consummation begins when the parties perform their respective undertakings
under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation. In sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably
the ownership of the thing sold is retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory force. 2 In Dignos vs.
Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed
of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso
that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless
the price is paid. Ownership will then be transferred to the buyer upon actual or
constructive delivery (e.g., by the execution of a public document) of the property sold.
Where the condition is imposed upon the perfection of the contract itself, the failure of
the condition would prevent such perfection. 3 If the condition is imposed on the
obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate
and the price is fixed, can be obligatory on the parties, and compliance therewith may
accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid,
when coupled with a valuable consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract is legally binding, and in sales,
it conforms with the second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the
right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer
is accepted before a breach of the option, a bilateral promise to sell and to buy
ensues and both parties are then reciprocally bound to comply with their respective
undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments. Thus, at any time prior
to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at
this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation,
such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico
vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer,
the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still
free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been
made, before the offeror's coming to know of such fact, by communicating that withdrawal to
the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying
the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art.
1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code
which ordains that "every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be distinguished from the projected
main agreement (subject matter of the option) which is obviously yet to be concluded. If, in
fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by
the optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for breach of the option. In these cases,
care should be taken of the real nature of the consideration given, for if, in fact, it has been
intended to be part of the consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a similar instance would be
an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil
Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se
be brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or
an offer would require, among other things, 10 a clear certainty on both the object and
the cause or consideration of the envisioned contract. In a right of first refusal, while
the object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously are yet to
be later firmed up. Prior thereto, it can at best be so described as merely belonging to
a class of preparatory juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and inconclusive) but
by, among other laws of general application, the pertinent scattered provisions of the
Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment,
like here, its breach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of consensuality in the
perfection of contracts. 11 It is not to say, however, that the right of first refusal would
be inconsequential for, such as already intimated above, an unjustified disregard
thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil
Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a
"right of first refusal" in favor of petitioners. The consequence of such a declaration entails no
more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners
are aggrieved by the failure of private respondents to honor the right of first refusal, the
remedy is not a writ of execution on the judgment, since there is none to execute, but an action
for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in
any case, be considered bound to respect the registration of the lis pendens in Civil Case No.
87-41058 are matters that must be independently addressed in appropriate proceedings. Buen
Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the
writ of execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that
the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later
affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:

Finally, the questioned writ of execution is in variance with the decision of

the trial court as modified by this Court. As already stated, there was
nothing in said decision 13 that decreed the execution of a deed of
sale between the Cu Unjiengs and respondent lessees, or the fixing
of the price of the sale, or the cancellation of title in the name of
petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod
ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have
decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned
Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against
petitioners.

SO ORDERED.
G.R. No. 145330 October 14, 2005 20 June 1980 P200 (for June 1980)

SPOUSES GOMER and LEONOR RAMOS, Petitioners,

vs. 8 October 1980 P500 (for July, August and part of September
1980)
SPOUSES SANTIAGO and MINDA HERUELA, SPOUSES CHERRY and RAYMOND
PALLORI, Respondents.
5 March 1981 P400 (for October and November 1980)
DECISION

CARPIO, J.: 18 December 1981 P300 (for December 1980 and part of January
1981)
The Case
The spouses Heruela further allege that the 306 square meters specified in the contract was
Before the Court is a petition for review1 assailing the Decision2 dated 23 August 2000 and reduced to 282 square meters because upon subdivision of the land, 24 square meters became
the Order dated 20 September 2000 of the Regional Trial Court ("trial court") of Misamis part of the road. The spouses Heruela claim that in March 1982, they expressed their
Oriental, Branch 21, in Civil Case No. 98-060. The trial court dismissed the plaintiffs action willingness to pay the balance of P11,300 but the spouses Ramos refused their offer.
for recovery of ownership with damages.
The Ruling of the Trial Court
The Antecedent Facts

The spouses Gomer and Leonor Ramos ("spouses Ramos") own a parcel of land, consisting of
1,883 square meters, covered by Transfer Certificate of Title ("TCT") No. 16535 of the
Register of Deeds of Cagayan de Oro City. On 18 February 1980, the spouses Ramos made an
agreement with the spouses Santiago and Minda Heruela ("spouses Heruela")3 covering 306
square meters of the land ("land"). According to the spouses Ramos, the agreement is a
contract of conditional sale. The spouses Heruela allege that the contract is a sale on
installment basis.
On 27 January 1998, the spouses Ramos filed a complaint for Recovery of Ownership with
Damages against the spouses Heruela. The case was docketed as Civil Case No. 98-060. The
spouses Ramos allege that out of the P15,3004 consideration for the sale of the land, the
spouses Heruela paid only P4,000. The last installment that the spouses Heruela paid was on
18 December 1981. The spouses Ramos assert that the spouses Heruelas unjust refusal to pay
the balance of the purchase price caused the cancellation of the Deed of Conditional Sale. In
June 1982, the spouses Ramos discovered that the spouses Heruela were already occupying a
portion of the land. Cherry and Raymond Pallori ("spouses Pallori"), daughter and son-in-law,
respectively, of the spouses Heruela, erected another house on the land. The spouses Heruela
and the spouses Pallori refused to vacate the land despite demand by the spouses Ramos.
In its Decision5 dated 23 August 2000, the trial court ruled that the contract is a sale by
installment. The trial court ruled that the spouses Ramos failed to comply with Section 4 of
Republic Act No. 6552 ("RA 6552"),6 as follows:
SEC. 4. In case where less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due. If
the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial act.
The dispositive portion of the Decision reads:
WHEREFORE, the complaint is hereby dismissed and plaintiff[s] are ordered to execute the
corresponding Deed of Sale in favor of defendants after the latter have paid the remaining
balance of Eleven Thousand and Three Hundred Pesos (P11,300.00).
Plaintiffs are further ordered to pay defendants the sum of P20,000.00, as Attorneys fees and
P10,000.00 as litigation expenses.
SO ORDERED.7

The spouses Heruela allege that the contract is a sale on installment basis. They paid P2,000 as In an Order8 dated 20 September 2000, the trial court denied the spouses Ramos motion for
down payment and made the following installment payments: reconsideration.

31 March 1980 P200 Hence, this petition.

The Issues
2 May 1980 P400 (for April and May 1980)
The spouses Ramos raise the following issues:
I. Whether RA 6552 is applicable to an absolute sale of land;
II. Whether Articles 1191 and 1592 of the Civil Code are applicable to the present case;
III. Whether the spouses Ramos have a right to cancel the sale;
IV. Whether the spouses Heruela have a right to damages.9
The Ruling of the Court
The petition is partly meritorious.
The Agreement is a Contract to Sell
In its Decision, the trial court ruled on whether the contract made by the parties is a
conditional sale or a sale on installment. The spouses Ramos premise is that since the trial
court ruled that the contract is a sale on installment, the trial court also in effect declared that
the sale is an absolute sale. The spouses Ramos allege that RA 6552 is not applicable to an
absolute sale.
Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional.
A contract of sale is absolute when title to the property passes to the vendee upon delivery of
the thing sold.10 A deed of sale is absolute when there is no stipulation in the contract that
title to the property remains with the seller until full payment of the purchase price.11 The sale
is also absolute if there is no stipulation giving the vendor the right to cancel unilaterally the
contract the moment the vendee fails to pay within a fixed period.12 In a conditional sale, as
in a contract to sell, ownership remains with the vendor and does not pass to the vendee until
full payment of the purchase price.13 The full payment of the purchase price partakes of a
suspensive condition, and non-fulfillment of the condition prevents the obligation to sell from
arising.14
In this case, the agreement of the parties is embodied in a one-page, handwritten document.15
The document does not contain the usual terms and conditions of a formal deed of sale. The
original document, elevated to this Court as part of the Records, is torn in part. Only the words
"LMENT BASIS" is legible on the title. The names and addresses of the parties and the
identity of the property cannot be ascertained. The agreement only provides for the following
terms of the sale:
TERM[S] OF SALE:
PRICE PER SQM P50.00 X 306 SQM P 15,300.00
DOWN PAYMENT (TWO THOUSAND PESOS) 2,000.00
BALANCE PAYABLE AT MINIMUM OF P200.00 P 13,300.00
PER MONTH UNTIL FULLY PAID =======
In Manuel v. Rodriguez, et al.,16 the Court ruled that to be a written contract, all the terms
must be in writing, so that a contract partly in writing and partly oral is in legal effect an oral
contract. The Court reiterated the Manuel ruling in Alfonso v. Court of Appeals:17
xxx In Manuel, "only the price and the terms of payment were in writing," but the most
important matter in the controversy, the alleged transfer of title was never "reduced to any
written document.["] It was held that the contract should not be considered as a written but an
oral one; not a sale but a promise to sell; and that "the absence of a formal deed of
conveyance" was a strong indication "that the parties did not intend immediate transfer of title,
but only a transfer after full payment of the price." Under these circumstances, the Court ruled
Article 1504 of the Civil Code of 1889 (Art. 1592 of the present Code) to be inapplicable to
the contract in controversy a contract to sell or promise to sell "where title remains with
the vendor until fulfillment of a positive suspensive condition, such as full payment of the
price x x [x].
The records show that the spouses Heruela did not immediately take actual, physical
possession of the land. According to the spouses Ramos, in March 1981, they allowed the
niece of the spouses Heruela to occupy a portion of the land. Indeed, the spouses Ramos
alleged that they only discovered in June 1982 that the spouses Heruela were already
occupying the land. In their answer to the complaint, the spouses Heruela and the spouses
Pallori alleged that their occupation of the land is lawful because having made partial
payments of the purchase price, "they already considered themselves owners" of the land. 18
Clearly, there was no transfer of title to the spouses Heruela. The spouses Ramos retained their
ownership of the land. This only shows that the parties did not intend the transfer of ownership
until full payment of the purchase price.
RA 6552 is the Applicable Law
The trial court did not err in applying RA 6552 to the present case.
Articles 119119 and 159220 of the Civil Code are applicable to contracts of sale. In contracts
to sell, RA 6552 applies. In Rillo v. Court of Appeals,21 the Court declared:
xxx Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of
real estate (industrial, commercial, residential) the right of the seller to cancel the contract
upon non-payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force. It also provides the right
of the buyer on installments in case he defaults in the payment of succeeding installments xxx.
Sections 3 and 4 of RA 6552 provide:
Sec. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine,
where the buyer has paid at least two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him, which is hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty per cent of the total payments made and, after
five years of installments, an additional five per cent every year but not to exceed ninety per
cent of the total payments made: Provided, That the actual cancellation of the contract shall
take place after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of
the total number of installments made.
Sec. 4. In case where less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due. If
the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial act.
In this case, the spouses Heruela paid less than two years of installments. Thus, Section 4 of
RA 6552 applies. However, there was neither a notice of cancellation nor demand for
rescission by notarial act to the spouses Heruela. In Olympia Housing, Inc. v. Panasiatic
Travel Corp.,22 the Court ruled that the vendor could go to court to demand judicial rescission
in lieu of a notarial act of rescission. However, an action for reconveyance is not an action for
rescission. The Court explained in Olympia:
The action for reconveyance filed by petitioner was predicated on an assumption that its
contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded.
The records would show that, indeed, no such cancellation took place at any time prior to the
institution of the action for reconveyance. xxx
xxx
xxx Not only is an action for reconveyance conceptually different from an action for rescission
but that, also, the effects that flow from an affirmative judgment in either case would be
materially dissimilar in various respects. The judicial resolution of a contract gives rise to
mutual restitution which is not necessarily the situation that can arise in an action for
reconveyance. Additionally, in an action for rescission (also often termed as resolution),
unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by
notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the
fixing of a period.23
In the present case, there being no valid rescission of the contract to sell, the action for
reconveyance is premature. Hence, the spouses Heruela have not lost the statutory grace
period within which to pay. The trial court should have fixed the grace period to sixty days
conformably with Section 4 of RA 6552.
The spouses Heruela are not entirely fault-free. They have been remiss in performing their
obligation. The trial court found that the spouses Heruela offered once to pay the balance of
the purchase price. However, the spouses Heruela did not consign the payment during the
pendency of the case. In the meanwhile, the spouses Heruela enjoyed the use of the land.
For the breach of obligation, the court, in its discretion, and applying Article 2209 of the Civil
Code,24 may award interest at the rate of 6% per annum on the amount of damages. 25 The
spouses Heruela have been enjoying the use of the land since 1982. In 1995, they allowed their
daughter and son-in-law, the spouses Pallori, to construct a house on the land. Under the
circumstances, the Court deems it proper to award interest at 6% per annum on the balance of
the purchase price.
The records do not show when the spouses Ramos made a demand from the spouses Heruela
for payment of the balance of the purchase price. The complaint only alleged that the spouses
Heruelas "unjust refusal to pay in full the purchase price xxx has caused the Deed of
Conditional Sale to be rescinded, revoked and annulled."26 The complaint did not specify
when the spouses Ramos made the demand for payment. For purposes of computing the legal
interest, the reckoning period should be the filing on 27 January 1998 of the complaint for
reconveyance, which the spouses Ramos erroneously considered an action for rescission of the
contract.
The Court notes the reduction of the land area from 306 square meters to 282 square meters.
Upon subdivision of the land, 24 square meters became part of the road. However, Santiago
Heruela expressed his willingness to pay for the 306 square meters agreed upon despite the
reduction of the land area.27 Thus, there is no dispute on the amount of the purchase price
even with the reduction of the land area.
On the Award of Attorneys Fees and Litigation Expenses
The trial court ordered the spouses Ramos to pay the spouses Heruela and the spouses Pallori
the amount of P20,000 as attorneys fees and P10,000 as litigation expenses. Article 220828 of
the Civil Code provides that subject to certain exceptions, attorneys fees and expenses of
litigation, other than judicial costs, cannot be recovered in the absence of stipulation. None of
the enumerated exceptions applies to this case. Further, the policy of the law is to put no
premium on the right to litigate.29 Hence, the award of attorneys fees and litigation expenses
should be deleted.
WHEREFORE, we AFFIRM the Decision dated 23 August 2000 of the Regional Trial Court
of Misamis Oriental, Branch 21, dismissing the complaint for Recovery of Ownership with
Damages, with the following MODIFICATION:

1. The spouses Heruela shall pay the spouses Ramos P11,300 as balance of the purchase price
plus interest at 6% per annum from 27 January 1998. The spouses Heruela shall pay within 60
days from finality of this Decision;

2. Upon payment, the spouses Ramos shall execute a deed of absolute sale of the land and
deliver the certificate of title in favor of the spouses Heruela;

3. In case of failure to thus pay within 60 days from finality of this Decision, the spouses
Heruela and the spouses Pallori shall immediately vacate the premises without need of further
demand, and the down payment and installment payments of P4,000 paid by the spouses
Heruela shall constitute rental for the land;

4. The award of P20,000 as attorneys fees and P10,000 as litigation expenses in favor of the
spouses Heruela and the spouses Pallori is deleted.

SO ORDERED.
G.R. No. 158646 June 23, 2005
HEIRS OF JESUS M. MASCUANA, represented by JOSE MA. R. MASCUANA,
petitioners,
vs.
COURT OF APPEALS, AQUILINO BARTE, and SPOUSES RODOLFO and
CORAZON LAYUMAS, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 53117 affirming the Decision2 of the Regional Trial Court (RTC) of San
Carlos City, Negros Occidental, which ordered the dismissal of the petitioners complaint for
recovery of possession and damages.
The Antecedents
Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land identified
as Lot No. 124 of the San Carlos City, Negros Occidental Cadastre, with an area of 1,729
square meters and covered by Transfer Certificate of Title (TCT) No. 1453-R (T-29937)-38.3
Over time, Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares, or a
total area of 741 square meters, to Jesus Mascuana. The latter then sold a portion of his 140-
square-meter undivided share of the property to Diosdado Sumilhig. Mascuana later sold an
additional 160-square-meter portion to Sumilhig on April 7, 1961. However, the parties agreed
to revoke the said deed of sale and, in lieu thereof, executed a Deed of Absolute Sale on
August 12, 1961. In the said deed, Mascuana, as vendor, sold an undivided 469-square-meter
portion of the property for P4,690.00, with P3,690.00 as down payment, and under the
following terms of payment:
That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE
unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the
name of the VENDEE and all papers pertinent and necessary to the issuance of a separate
Certificate of Title in the name of the VENDEE shall have been prepared. 4
On December 31, 1961, Mascuana and Jose G. Estabillo executed a Deed of Exchange and
Absolute Sale of Real Estate,5 in which Estabillo deeded to Mascuana a portion of his
property abutting that of Sumilhig on the southeast.
In the meantime, a survey was conducted for the co-owners of Lot No. 124 on July 9, 1962.
The subdivision plan of the said lot was approved by the Director of Lands on August 2, 1962.
The portion of the property deeded to Sumilhig was identified in the said plan as Lot No. 124-
B.6
Meanwhile, Mascuana died intestate on April 20, 1965 and was survived by his heirs, Eva M.
Ellisin, Renee Hewlett, Carmen Vda. de Opea, Marilou Dy and Jose Ma. R. Mascuana.
On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property7 on a portion of Lot
No. 124-B with an area of 469 square meters and the improvements thereon, in favor of
Corazon Layumas, the wife of Judge Rodolfo Layumas, for the price of P11,000.00. The
spouses Layumas then had the property subdivided into two lots: Lot No. 124-B-2 with an
area of 71 square meters under the name of Jesus Mascuana, and Lot No. 124-B-1, with an
area of 469 square meters under their names.8 The spouses Layumas took possession of the
property and caused the cutting of tall grasses thereon. Upon the plea of a religious
organization, they allowed a chapel to be constructed on a portion of the property. 9 In January
1985, the spouses Layumas allowed Aquilino Barte to stay on a portion of the property to
ward off squatters.10 Barte and his kin, Rostom Barte, then had their houses constructed on
the property.
On October 1, 1985, the spouses Layumas received a Letter11 from the counsel of Renee
Tedrew, offering to buy their share of the property for US$1,000.00. For her part, Corazon
Layumas wrote Pepito Mascuana, offering to pay the amount of P1,000.00, the balance of the
purchase price of the property under the deed of absolute sale executed by Mascuana and
Sumilhig on August 12, 1961.12 However, the addressee refused to receive the mail matter.13
Unknown to the spouses Layumas, TCT No. 898614 was issued over Lot No. 124-B in the
name of Jesus Mascuana on March 17, 1986.
On November 17, 1986, the heirs of Mascuana filed a Complaint15 for recovery of
possession of Lot No. 124-B and damages with a writ of preliminary injunction, alleging that
they owned the subject lot by virtue of successional rights from their deceased father. They
averred that Barte surreptitiously entered the premises, fenced the area and constructed a
house thereon without their consent. Attached as annexes to the complaint were TCT No. 8986
and a certification16 from the Office of the City Treasurer, Land Tax Division, vouching that
the property in question was owned by the petitioners and that they had paid the taxes thereon
until 1992.
In his answer to the complaint, Barte admitted having occupied a portion of Lot No. 124-B,
but claimed that he secured the permission of Rodolfo Layumas, the owner of the subject
property. He added that he did not fence the property, and that the petitioners did not use the
same as a passageway in going to Broce Street from their house. Barte raised the following
special defenses: (a) the petitioners were estopped from asserting ownership over the lot in
question because they did not object when he occupied the said portion of the lot; (b) neither
did the petitioners protest when a church was built on the property, or when residential houses
were constructed thereon; (c) the petitioners still asked Barte and the other occupants whether
they had notified Rodolfo Layumas of the constructions on the property; and (d) the heirs of
Mascuana, through the lawyer of Mrs. Renee M. Tedrew, even wrote a letter17 to Rodolfo
Layumas on October 1, 1985, expressing her willingness to buy the subject property for
US$1,000.00.
On April 8, 1991, the spouses Layumas filed a Motion for Leave to Intervene, 18 alleging
therein that they had a legal interest in Lot No. 124-B-1 as its buyers from Sumilhig, who in
turn purchased the same from Mascuana. In their answer in intervention, 19 the spouses
Layumas alleged that they were the true owners of the subject property and that they had
wanted to pay the taxes thereon, but the Land Tax clerk refused to receive their payments on
account that the petitioners had already made such payment. The spouses Layumas further
maintained that the petitioners had no cause of action against Barte, as they had authorized
him to occupy a portion of Lot No. 124-B-1. The spouses Layumas also averred that the
petitioners were estopped from denying their right of ownership and possession of the subject
lot, as one of them had even offered to repurchase a portion of Lot No. 124-B via letter. The
said spouses interposed a counterclaim for damages, claiming ownership over the property,
and prayed, thus:
WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render
judgment in favor of the Intervenors and the defendant Aquilino Barte, ordering:
1. That the complaint against Aquilino Barte be dismissed with costs against the
plaintiff;
2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A. Layumas
be declared as the legal and true owners of Lot 124-B;
3. That the plaintiffs should deliver immediately to the Intervenors, TCT No. 8986
which is in their possession;
4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY
THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00)
PESOS attorneys fees plus THREE HUNDRED (P300.00) PESOS as appearance
fee per hearing.
Intervenors pray for such other relief and remedies as may be deemed by this Honorable Court
as just and equitable in the premises.
At the trial, intervenor Rodolfo Layumas testified that he and his wife bought the subject
property in 1968, and that nobody objected to their possession of the land, including the
petitioners. In 1970, a religious organization asked his permission to construct a chapel on the
disputed lot; he allowed the construction since the same would be used for the fiesta. He
further declared that part of the chapel still stood on the property. In 1985, a fire razed the
towns public market, thereby dislocating numerous people. Barte was one of the fire victims,
who also happened to be a good friend and political supporter of Rodolfo. Out of goodwill,
Barte was allowed to occupy a portion of the said lot, along with some other fire victims.
Rodolfo clarified that the others were to stay there only on a temporary basis, but admitted that
Bartes children also stayed in the subject property.20
Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the petitioners-heirs,
Pepito Mascuana, requesting that the title of the lot be transferred in Sumilhigs name so that
they could likewise arrange for the conveyance of the title in their names. Pepito failed to
claim the letter, and thereafter, filed a case of ejectment against Barte and Rodolfo Layumas
brother-in-law, Pepito Antonio. The case, the witness added, was dismissed as against the two
parties. Offered in evidence were the following: a Sworn Statement on the Current and Fair
Market Value of the Real Property issued in 1973 as required by Presidential Decree No. 76,
and tax receipts.21
Rodolfo Layumas admitted on cross-examination that at the time they bought the property
from Sumilhig, the title was still in the possession of the Wuthrich family. He added that he
filed an adverse claim before the Register of Deeds of San Carlos City, Negros Occidental, on
Lot No. 124-B in January 1986, or after the case had already been filed in court. Lastly, the
witness deposed that he did not fence the property after buying the same, but that his brother-
in-law constructed a coco-lumber yard thereon upon his authority.22
On January 30, 1996, the trial court rendered judgment in favor of Barte and the spouses
Layumas. The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Intervenors-
counterclaimants and defendant and against plaintiffs-counterclaim defendants ordering as
follows:
1. The dismissal of the plaintiffs complaint with costs against them;
2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge
Rodolfo S. Layumas and Corazon A. Layumas:
(a) P10,000.00 for attorneys fees; and
(b) P30,000.00 as moral damages;
3. The plaintiffs, as counterclaim defendants, to comply with the above-stated
obligation of their late father, Mr. Jesus Mascuana, under the Deed of Absolute
Sale, Exh. "3", pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuana, including the
desegragation (sic) survey to desegregate the 469-square-meter portion of said Lot
No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado Sumilhig, if
the same has not yet been done despite what has been said herein earlier to said
effect, and the execution of the Final Deed of Sale in their capacity as the heirs and
successors-in-interest of the late Mr. Jesus Mascuana, thru Mr. Jose Mascuana,
covering the 469-square-meter desegregated portion of said Lot No. 124-B, within
sixty (60) days counted from the finality of this Decision, in favor of the
Intervenors-spouses, after which the said Intervenors-spouses shall pay them, thru
Mr. Jose Mascuana, the P1,000.00 balance due to them as successors-in-interest of
the late Mr. Jesus Mascuana;
 4. In case plaintiffs fail to comply with what are herein ordered for them to do, the
Clerk of Court V of this Court to do all that they were to do as herein ordered in the
text and dispositive portion hereof, at the expense of Intervenors spouses to be later
reimbursed by plaintiffs, including the desegragation (sic) survey of said 469-
square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre, Negros
Occidental, if the same has not yet been done and the execution of the Final Deed of
Sale on behalf of all the plaintiffs as heirs and successors-in-interest of the late Mr.
Jesus Mascuana covering the said desegregated portion of 469 square meters of the
aforesaid lot, in favor of Intervenors spouses, to the end that separate title therefor
may be issued in their names, after they shall have paid the P1,000.00 balance due
plaintiffs under said Deed of Absolute Sale, Exh. "3."
SO ORDERED.23
Forthwith, the petitioners appealed the case to the CA, raising the following issues of fact and
law:
a. Whether or not the contract of alienation of Lot No. 124-B in favor of Diosdado
Sumilhig in 1961 was a contract to sell or a contract of sale;
b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor of
intervenor Corazon Layumas in 1968.24
On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the contract
between the petitioners father and Sumilhig was one of sale. Foremost, the CA explained, the
contract was denominated as a "Deed of Absolute Sale." The stipulations in the contract
likewise revealed the clear intention on the part of the vendor (Mascuana) to alienate the
property in favor of the vendee (Sumilhig). In three various documents, the late Mascuana
even made declarations that Sumilhig was already the owner of the disputed land. The CA
added that the admission may be given in evidence against Mascuana and his predecessors-
in-interest under Section 26, Rule 130 of the Revised Rules on Evidence. As to the argument
that the contract between Mascuana and Sumilhig was not effective because it was subject to
a suspensive condition that did not occur, the CA ruled that the condition referred to by the
petitioners refers only to the payment of the balance of the purchase price and not to the
effectivity of the contract.1avvphi1.zw+
As to the petitioners contention that even if the contract were one of sale, ownership cannot
be transferred to Sumilhig because Mascuana was not yet the owner of the lot at the time of
the alleged sale, the appellate court ruled that the registration of the land to be sold is not a
prerequisite to a contract of sale.
The Present Petition
Aggrieved, the petitioners filed the instant petition for review on certiorari with this Court,
where the following lone legal issue was raised:
WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUANA
IN FAVOR OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR
CONTRACT OF SALE?25
We note that the original action of the petitioners against Aquilino Barte was one for recovery
of possession of Lot No. 124-B. With the intervention of the respondents Rodolfo and
Corazon Layumas who claimed ownership over the property, and the acquiescence of the
parties, evidence was adduced to prove who, between the petitioners (as plaintiffs) and the
respondents (as defendants-intervenors) were the lawful owners of the subject property and
entitled to its possession.
The petitioners resolutely contend that the Deed of Absolute Sale dated August 12, 1961
between their father and Sumilhig was a mere contract to sell because at the time of the said
sale, the late Mascuana was not yet the registered owner of Lot No. 124 or any of its portions.
They assert that Sumilhig could not have acquired any rights over the lot due to the fact that a
person can only sell what he owns or is authorized to sell, and the buyer can acquire no more
than what the seller can transfer legally. Finally, the petitioners insist that the document in
controversy was subject to a suspensive condition, not a resolutory condition, which is a
typical attribute of a contract of sale.
The petition is denied for lack of merit.
The issues raised by the petitioners in this case are factual, and under Rule 45 of the Rules of
Court, only questions of law may be raised in this Court, the reason being that this Court is not
a trier of facts. It is not to re-examine the evidence on record and to calibrate the same.
Moreover, the findings and conclusions of the trial court as affirmed by the CA are conclusive
on the Court, absent of any evidence that the trial court, as well as the CA ignored,
misinterpreted and misconstrued facts and circumstances of substance which, if considered,
would alter or reverse the outcome of the case.26
We have reviewed the records and find no justification for a reversal or even a modification of
the assailed decision of the CA.
Even on the merits of the petition, the Court finds that the decision of the trial court as well as
the ruling of the CA are based on the evidence on record and the applicable law.
The petitioners reiterated their pose that the deed of absolute sale over the property executed
by their father, Jesus Mascuana, as vendor, and Diosdado Sumilhig as vendee, was a contract
to sell and not a contract of sale. They assert that on its face, the contract appears to be a
contract to sell, because the payment of the P1,000.00 balance of the purchase price was
subject to a suspensive condition: the survey of the property, the segregation of the portion
thereof subject of the sale, and the completion of the documents necessary for the issuance of
a Torrens title over the property to and in the name of Sumilhig who was the vendee. The
petitioners assert that Sumilhig never paid the aforesaid amount to the vendor; hence, the
obligation of the latter and his predecessors-in-interest (herein petitioners) to execute a final
deed of sale never arose. As such, they aver, title to the property remained reserved in the
vendor and his heirs even after his death. There was no need for the vendor to rescind the deed
or collect the said amount of P1,000.00 under Article 1191 of the New Civil Code because
such a remedy applies only to contracts of sale. The petitioners insist that Sumilhig never
acquired title over the property; he could not have transferred any title to the respondents.
Sumilhig could not have transferred that which he did not own.
The petitioners contention has no factual and legal bases.
The deed of absolute sale executed by Jesus Mascuana and Sumilhig, provides, thus:
That the VENDOR is the true and absolute owner of a parcel of land known as Lot No. 124 of
the Cadastral Survey of San Carlos, situated at Broce Street and is free from liens and
encumbrances, and covered by O.C.T. No. T-299[3]7 (R-1453) of Reg. of Deeds, Negros Occ.
That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED NINETY
PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in the manner
hereinafter stated, the VENDOR does hereby sell, transfer, cede and convey, a portion of the
above-described property containing an area of 469 square meters, the sketch of which can be
found at the back of this document and having a frontage at Broce Street of around 14 meters,
and from the Broce Street to the interior on its Southwest side with a length of 30.9 meters,
with a length of 24.8 meters on its Northeast side where it turned to the right with a length of
2.8 meters and continuing to Northwest with a length of 6.72 meters, the backyard dimension
is 17.5 meters to the Northwest, unto the VENDEE, his heirs and assigns, by way of Absolute
Sale, upon the receipt of the down payment of THREE THOUSAND SIX HUNDRED
NINETY PESOS (P3,690.00), which is hereby acknowledged by the VENDOR as received by
him.lawphil.net
That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE
unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the
name of the VENDEE and all papers pertinent and necessary to the issuance of a separate
Certificate of Title in the name of the VENDEE shall have been prepared.
The evidence on record shows that during the lifetime of vendor Jesus Mascuana, and even
after his death, his heirs, the petitioners herein, unequivocably declared that Diosdado
Sumilhig was the owner of the property subject of this case, and that the respondents acquired
title over the property, having purchased the same via a deed of absolute sale from Diosdado
Sumilhig. Thus, on December 31, 1961, Jesus Mascuana and Jose Estabillo executed a Deed
of Exchange and Absolute Sale of Real Estate, in which both parties declared that they were
co-owners of portions of Lot No. 124 abutted by the property owned by Diosdado Sumilhig. 27
In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land Surveyor,
following his survey of Lot No. 124 on July 9, 1962 for and in behalf of Jesus Mascuana, et
al., it appears that Lot No. 124-B with an area of 540 square meters belonged to Diosdado
Sumilhig,28 which is abutted by Lot No. 124-C, owned by Jesus Mascuana.
On October 1, 1985, long after the death of Jesus Mascuana, one of his heirs, petitioner
Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas offering to buy the
property occupied by his overseer Aquilino Barte for US$1,000.00:
ATTY. RODOLFO S. LAYUMAS
San Carlos City
Negros Occidental
Dear Atty. Layumas:
This has reference to the lot located at Broce Street, portions of which are
presently occupied by Mr. Barte.
Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would
like to offer the amount of $1,000.00 to buy your share of the said lot.
If you are amenable, kindly inform the undersigned for him to communicate
[with] Mrs. Tedrew in California.
Very truly yours,
SAMUEL SM LEZAMA29
It was only after the respondents rejected the proposal of petitioner Renee Tedrew that the
petitioners secured title over the property on March 17, 1986 in the name of Jesus Mascuana
(already deceased at the time), canceling TCT No. 967 issued on July 6, 1962 under the name
of Jesus Mascuana, who appears to be a co-owner of Lot No. 124 with an undivided two-
seventh (2/7) portion thereof.30
While it is true that Jesus Mascuana executed the deed of absolute sale over the property on
August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6,
1962 that TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124,
Diosdado Sumilhig and the respondents nevertheless acquired ownership over the property.
The deed of sale executed by Jesus Mascuana in favor of Diosdado Sumilhig on August 12,
1961 was a perfected contract of sale over the property. It is settled that a perfected contract of
sale cannot be challenged on the ground of the non-transfer of ownership of the property sold
at that time of the perfection of the contract, since it is consummated upon delivery of the
property to the vendee. It is through tradition or delivery that the buyer acquires ownership of
the property sold. As provided in Article 1458 of the New Civil Code, when the sale is made
through a public instrument, the execution thereof is equivalent to the delivery of the thing
which is the object of the contract, unless the contrary appears or can be inferred. The record
of the sale with the Register of Deeds and the issuance of the certificate of title in the name of
the buyer over the property merely bind third parties to the sale. As between the seller and the
buyer, the transfer of ownership takes effect upon the execution of a public instrument
covering the real property.31 Long before the petitioners secured a Torrens title over the
property, the respondents had been in actual possession of the property and had designated
Barte as their overseer.
Article 1458 of the New Civil Code provides:
By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
Thus, there are three essential elements of sale, to wit:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.32
In this case, there was a meeting of the minds between the vendor and the vendee, when the
vendor undertook to deliver and transfer ownership over the property covered by the deed of
absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the
vendee to the vendor as down payment. The vendor undertook to have the property sold,
surveyed and segregated and a separate title therefor issued in the name of the vendee, upon
which the latter would be obliged to pay the balance of P1,000.00. There was no stipulation in
the deed that the title to the property remained with the vendor, or that the right to unilaterally
resolve the contract upon the buyers failure to pay within a fixed period was given to such
vendor. Patently, the contract executed by the parties is a deed of sale and not a contract to sell.
As the Court ruled in a recent case:
In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a
"Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso
that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the
price is paid. Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g. by the execution of a public document) of the property sold. Where the condition
is imposed upon the perfection of the contract itself, the failure of the condition would prevent
such perfection. If the condition is imposed on the obligation of a party which is not fulfilled,
the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545,
Civil Code)
Thus, in one case, when the sellers declared in a "Receipt of Down Payment" that they
received an amount as purchase price for a house and lot without any reservation of title until
full payment of the entire purchase price, the implication was that they sold their property. In
Peoples Industrial and Commercial Corporation v. Court of Appeals, it was stated:
A deed of sale is considered absolute in nature where there is neither a stipulation in the deed
that title to the property sold is reserved in the seller until full payment of the price, nor one
giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to
pay within a fixed period.
Applying these principles to this case, it cannot be gainsaid that the contract of sale between
the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation
providing for a unilateral rescission by either party. In fact, the sale was consummated upon
the delivery of the lot to respondent. Thus, Art. 1477 provides that the ownership of the thing
sold shall be transferred to the vendee upon the actual or constructive delivery thereof. 33
The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the
vendee as soon as the property sold shall have been surveyed in the name of the vendee and all
papers pertinent and necessary to the issuance of a separate certificate of title in the name of
the vendee shall have been prepared is not a condition which prevented the efficacy of the
contract of sale. It merely provides the manner by which the total purchase price of the
property is to be paid. The condition did not prevent the contract from being in full force and
effect:
The stipulation that the "payment of the full consideration based on a survey shall be due and
payable in five (5) years from the execution of a formal deed of sale" is not a condition which
affects the efficacy of the contract of sale. It merely provides the manner by which the full
consideration is to be computed and the time within which the same is to be paid. But it does
not affect in any manner the effectivity of the contract. 34
In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee
until full payment of the price. Such payment is a positive suspensive condition, the failure of
which is not a breach of contract but simply an event that prevented the obligation from
acquiring binding force.35
It bears stressing that in a contract of sale, the non-payment of the price is a resolutory
condition which extinguishes the transaction that, for a time, existed and discharges the
obligation created under the transaction.36 A seller cannot unilaterally and extrajudicially
rescind a contract of sale unless there is an express stipulation authorizing it. In such case, the
vendor may file an action for specific performance or judicial rescission.37
Article 1169 of the New Civil Code provides that in reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him; from the moment one of the parties fulfills his obligation, delay
by the other begins. In this case, the vendor (Jesus Mascuana) failed to comply with his
obligation of segregating Lot No. 124-B and the issuance of a Torrens title over the property
in favor of the vendee, or the latters successors-in-interest, the respondents herein. Worse,
petitioner Jose Mascuana was able to secure title over the property under the name of his
deceased father.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.
G.R. No. 97347 July 6, 1999
JAIME G. ONG, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and
ALEJANDRO M. ROBLES, respondents.
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari from the judgment rendered by the Court of
Appeals which, except as to the award of exemplary damages, affirmed the decision of the
Regional Trial Court of Lucena City, Branch 60, setting aside the "Agreement of Purchase and
Sale" entered into by herein petitioner and private respondent spouses in Civil Case No. 85-
85.1wphi1.nt
On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K.
Robles and Alejandra Robles, on the other hand, executed an "Agreement of Purchase and
Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. The terms
and conditions of the contract read:"
1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS
(P2,000,000.00), Philippine currency, the mode and manner of payment is as follows:
A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as verbally
agreed by the parties, shall be broken down as follows:
1. P103,499.91 shall be paid, and as already paid by the BUYER to the SELLERS on March 22,
1983, as stipulated under the Certification of undertaking dated March 22, 1983 and covered
by a check of even date.
2. That the sum of P496,500.09 shall be paid directly by the BUYER to the Bank of Philippine
Islands to answer for the loan of the SELLERS which as of March 15, 1983 amounted to
P537,310.10, and for the interest that may accrued (sic) from March 15, 1983, up to the time
said obligation of the SELLERS with the said bank has been settled, provided however that the
amount in excess of P496,500.09, shall be chargeable from the time deposit of the SELLERS
with the aforesaid bank.
B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND (P1,400,000.00)
PESOS shall be paid by the BUYER to the SELLERS in four (4) equal quarterly installments of
THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00), the first to be due and
payable on June 15, 1983, and every quarter thereafter, until the whole amount is fully paid,
by these presents promise to sell to said BUYER the two (2) parcels of agricultural land
including the rice mill and the piggery which are the most notable mprovements thereon,
situated at Barangay Puri, San Antonio Quezon, . . .
2. That upon the payment of the total purchase price by the BUYER the SELLERS bind
themselves to deliver to the former a good and sufficient deed of sale and conveyance for the
described two (2) parcels of land, free and clear from all liens and encumbrances.
3. That immediately upon the execution of this document, the SELLERS shall deliver,
surrender and transfer possession of the said parcels of land including all the improvements
that may be found thereon, to the BUYER, and the latter shall take over from the SELLER the
possession, operation, control and management of the RICEMILL and PIGGERY found on
the aforesaid parcels of land.
4. That all payments due and payable under this contract shall be effected in the residence of
the SELLERS located at Barangay Puri, San Antonio, Quezon unless another place shall have
been subsequently designated by both parties in writing.
xxx xxx xxx 1
On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with
the piggery, building, ricemill, residential house and other improvements thereon.
Pursuant to the contract they executed, petitioner paid respondent spouses the sum of
P103,499.91 2 by depositing it with the United Coconut Planters Bank. Subsequently,
petitioner deposited sums of money with the Bank of Philippine Islands (BPI), 3 in
accordance with their stipulation that petitioner pay the loan of respondents with BPI.
To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank
checks payable to respondent spouses in the amount of P350,0000.00 each, namely: Check No.
157708 dated June 15, 1983, 4 Check No. 157709 dated September 15, 1983, 5 Check
No. 157710 dated December 15, 1983 6 and Check No. 157711 dated March 15,
1984. 7 When presented for payment, however, the checks were dishonored due to
insufficient funds. Petitioner promised to replace the checks but failed to do so. To
make matters worse, out of the P496,500.00 loan of respondent spouses with the
Bank of the Philippine Islands, which petitioner, as per agreement, should have paid,
petitioner only managed to dole out no more than P393,679.60. When the bank
threatened to foreclose the respondent spouses' mortgage, they sold three
transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation
with said bank, with the knowledge and conformity of petitioner. 8 Petitioner, in return,
voluntarily gave the spouses authority to operate the rice mill. 9 He, however,
continued to be in possession of the two parcels of land while private respondents
were forced to use the rice mill for residential purposes.
On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter
asking for the return of the properties. Their demand was left unheeded, so, on September 2,
1985, they filed with the Regional Trial Court of Lucena City, Branch 60, a complaint for
rescission of contract and recovery of properties with damages. Later, while the case was still
pending with the trial court, petitioner introduced major improvements on the subject
properties by constructing a complete fence made of hollow blocks and expanding the piggery.
These prompted the respondent spouses to ask for a writ of preliminary injunction. 10 The
trial court granted the application and enjoined petitioner from introducing
improvements on the properties except for repairs. 11
On June 1, 1989 the trial court rendered a decision, the dispositive portion of which reads as
follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered:
a) Ordering that the contract entered into by plaintiff spouses Miguel K.
Robles and Alejandra M. Robles and the defendant, Jaime Ong captioned
"Agreement of Purchase and Sale," marked as Exhibit "A" set aside;
b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land
which are the subject matter of Exhibit "A" together with the
improvements thereon to the spouses Miguel K. Robles and Alejandro M.
Robles;
c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to
return to Jaime Ong the sum of P497,179.51;
d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of
P100,000.00 as exemplary damages; and
e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K.
Robles and Alejandra Robles the sum of P20,000.00 as attorney's fees and
litigation expenses.
The motion of the plaintiff spouses Miguel K. Roles and Alejandra Robles
for the appointment of receivership is rendered moot and academic.
SO ORDERED. 12
From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of
the Regional Trial Court but deleted the award of exemplary damages. In affirming the
decision of the trial court, the Court of Appeals noted that the failure of petitioner to
completely pay the purchase price is a substantial breach of his obligation which entitles the
private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence,
the instant petition.
At the outset, it must be stated that the issues raised by the petitioner are generally factual in
nature and were already passed upon by the Court of Appeals and the trial court. Time and
again, we have stated that it is not the function of the Supreme Court to assess and evaluate all
over again the evidence, testimonial and documentary, adduced by the parties to an appeal,
particularly where, such as in the case at bench, the findings of both the trial court and the
appellate court on the matter coincide. There is no cogent reason shown that would justify the
court to discard the factual findings of the two courts below and to superimpose its own. 13
The only pertinent legal issues raised which are worthy of discussion are (1) whether the
contract entered into by the parties may be validly rescinded under Article 1191 of the New
Civil Code; and (2) whether the parties had novated their original contract as to the time and
manner of payment.
Petitioner contends that Article 1191 of the New Civil Code is not applicable since he has
already paid respondent spouses a considerable sum and has therefore substantially complied
with his obligation. He cites Article 1383 instead, to the effect that where specific performance
is available as a remedy, rescission may not be resorted to.
A discussion of the aforesaid articles is in order.
Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy
granted by law to the contracting parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be valid, by restoration of things to
their condition at the moment prior to the celebration of the contract. 14 It implies a contract,
which even if initially valid, produces a lesion or a pecuniary damage to someone. 15
On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to
reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and
in which each party is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. 16 They are to be performed simultaneously
such that the performance of one is conditioned upon the simultaneous fulfillment of
the other. Rescission of reciprocal obligations under Article 1191 of the New Civil
Code should be distinguished from rescission of contracts under Article 1383.
Although both presuppose contracts validly entered into and subsisting and both
require mutual restitution when proper, they are not entirely identical.
While Article 1191 uses the term "rescission," the original term which was used in the old
Civil Code, from which the article was based, was "resolution. 17" Resolution is a principal
action which is based on breach of a party, while rescission under Article 1383 is a
subsidiary action limited to cases of rescission for lesion under Article 1381 of the
New Civil Code, which expressly enumerates the following rescissible contracts:
1. Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more
than one fourth of the value of the things which are the
object thereof;
2. Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
 3. Those undertaken in fraud of creditors when the
latter cannot in any manner collect the claims due them;
4. Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority;
5. All other contracts specially declared by law to be
subject to rescission.
Obviously, the contract entered into by the parties in the case at bar does
not fall under any of those mentioned by Article 1381. Consequently,
Article 1383 is inapplicable.
May the contract entered into between the parties, however, be rescinded
based on Article 1191?
A careful reading of the parties' "Agreement of Purchase and Sale" shows
that it is in the nature of a contract to sell, as distinguished from a contract
of sale. In a contract of sale, the title to the property passes to the vendee
upon the delivery of the thing sold; while in a contract to sell, ownership is,
by agreement, reserved in the vendor and is not to pass to the vendee until
full payment of the purchase price. 18 In a contract to sell, the payment
of the purchase price is a positive suspensive condition, the failure
of which is not a breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring
an obligatory force. 19
Respondents in the case at bar bound themselves to deliver a deed of
absolute sale and clean title covering the two parcels of land upon full
payment by the buyer of the purchase price of P2,000,000.00. This
promise to sell was subject to the fulfillment of the suspensive condition of
full payment of the purchase price by the petitioner. Petitioner, however,
failed to complete payment of the purchase price. The non-fulfillment of
the condition of full payment rendered the contract to sell ineffective and
without force and effect. It must be stressed that the breach contemplated
in Article 1191 of the New Civil Code is the obligor's failure to comply
with an obligation. 20 Failure to pay, in this instance, is not even a
breach but merely an event which prevents the vendor's obligation
to convey title from acquiring binding force. 21 Hence, the
agreement of the parties in the case at bench may be set aside, but
not because of a breach on the part of petitioner for failure to
complete payment of the purchase price. Rather, his failure to do so
brought about a situation which prevented the obligation of
respondent spouses to convey title from acquiring an obligatory
force.
Petitioner insists, however, that the contract was novated as to the manner
and time of payment.
We are not persuaded. Article 1292 of the New Civil Code states that, "In
order that an obligation may be extinguished by another which substitutes
the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with
each other."
Novation is never presumed, it must be proven as a fact either by express
stipulation of the parties or by implication derived from an irreconcilable
incompatibility between the old and the new obligation. 22 Petitioner
cites the following instances as proof that the contract was novated:
the retrieval of the transformers from petitioner's custody and their
sale by the respondents to MERALCO on the condition that the
proceeds thereof be accounted for by the respondents and
deducted from the price of the contract; the take-over by the
respondents of the custody and operation of the rice mill; and the
continuous and regular withdrawals by respondent Miguel Robles of
installment sums per vouchers (Exhs. "8" to "47") on the condition
that these installments be credited to petitioner's account and
deducted from the balance of the purchase price.
Contrary to petitioner's claim, records show that the parties never even
intended to novate their previous agreement. It is true that petitioner paid
respondents small sums of money amounting to P48,680.00, in
contravention of the manner of payment stipulated in their contract. These
installments were, however, objected to by respondent spouses, and
petitioner replied that these represented the interest of the principal amount
which he owed them. 23 Records further show that petitioner agreed
to the sale of MERALCO transformers by private respondents to
pay for the balance of their subsisting loan with the Bank of
Philippine Islands. Petitioner's letter of authorization reads:
xxx xxx xxx
Under this authority, it is mutually understood that whatever payment
received from MERALCO as payment to the transfromers will be
considered as partial payment of the undersigned's obligation to Mr. and
Mrs. Miguel K. Robles.
The same will be utilized as partial payment to existing loan with the Bank
of Philippine Islands.
It is also mutually understood that this payment to the Bank of Philippine
Islands will be reimbursed to Mr. and Mrs. Miguel K. Robles by the
undersigned. [Emphasis supplied] 24
It should be noted that while it was. agreed that part of the purchase price
in the sum of P496,500.00 would be directly deposited by petitioner to the
Bank of Philippine Islands to answer for the loan of respondent spouses,
petitioner only managed to deposit P393,679.60. When the bank
threatened to foreclose the properties, petitioner apparently could not even
raise the sum needed to forestall any action on the part of the bank.
Consequently, he authorized respondent spouses to sell the three (3)
transformers. However, although the parties agreed to credit the proceeds
from the sale of the transformers to petitioner's obligation, he was
supposed to reimburse the same later to respondent spouses. This can only
mean that there was never an intention on the part of either of the parties to
novate petitioner's manner of payment.
well that he has not paid the consideration of the contract in full and over
the vigorous objections of respondent spouses. Moreover, petitioner
introduced major improvements on the premises even while the case
against him was pending before the trial court.
The award of exemplary damages was correctly deleted by the Court of
Appeals in as much as no moral, temperate, liquidated or compensatory
damages in addition to exemplary damages were awarded.
WHEREFORE, the decision rendered by the Court of Appeals is hereby
AFFIRMED with the MODIFICATION that respondent spouses are
ordered to return to petitioner the sum of P48,680.00 in addition to the
amounts already awarded. Costs against petitioner.1wphi1.nt
SO ORDERED.

Petitioner contends that the parties verbally agreed to novate the manner of
payment when respondent spouses proposed to operate the rice mill on the
condition that they will account for its earnings. We find that this is
unsubstantiated by the evidenced on the record. The tenor of his letter
dated August 12, 1984 to respondent spouses, in fact, shows that petitioner
had a "little misunderstanding" with respondent spouses whom he was
evidently trying to appease by authorizing them to continue temporarily
with the operation of the rice mill. Clearly, while petitioner might have
wanted to novate the original agreement as to his manner of payment, the
records are bereft of evidence that respondent spouses willingly agreed to
modify their previous arrangement.

In order for novation to take place, the concurrence of the following

requisites is indispensable: (1) there must be a previous valid obligation; (2)
there must be an agreement of the parties concerned to a new contract; (3)
there must be the extinguishment of the old contract; and (4) there must be
the validity of the new contract. 25 The aforesaid requisites are not
found in the case at bench. The subsequent acts of the parties
hardly demonstrate their intent to dissolve the old obligation as a
consideration for the emergence of the new one. We repeat to the
point of triteness, novation is never presumed, there must be an
express intention to novate.

As regards the improvements introduced by petitioner to the premises and

for which he claims reimbursement, we see no reason to depart from the
ruling of the trial court and the appellate court that petitioner is a builder in
bad faith. He introduced the improvements on the premises knowing fully
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,
ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as
attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and
CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA
PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, respondents.
MELO, J.:p
The petition before us has its roots in a complaint for specific performance to compel herein
petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a
parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered
into by the parties sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al.
(hereinafter referred to as Coronels) executed a document entitled "Receipt
of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia
Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment
P1,190,000.00 Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City,
the sum of Fifty Thousand Pesos purchase price of our inherited house and
lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City,
in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased
father, Constancio P. Coronel, the transfer certificate of title immediately
upon receipt of the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately
execute the deed of absolute sale of said property and Miss Ramona
Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00)
Pesos upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the
property registered in the name of their deceased father upon receipt of the
Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels
will execute the deed of absolute sale in favor of Ramona and the latter
will pay the former the whole balance of One Million One Hundred Ninety
Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D.
Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid
the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh.
"2").
On February 6, 1985, the property originally registered in the name of the
Coronels' father was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by TCT No.
327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred
to as Catalina) for One Million Five Hundred Eighty Thousand
(P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand
(P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A")
with Ramona by depositing the down payment paid by Concepcion in the
bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific
performance against the Coronels and caused the annotation of a notice of
lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of adverse
claim covering the same property with the Registry of Deeds of Quezon
City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over
the subject property in favor of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued in the
name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the
parties agreed to submit the case for decision solely on the basis of documentary exhibits.
Thus, plaintiffs therein (now private respondents) proffered their documentary evidence
accordingly marked as Exhibits "A" through "J", inclusive of their corresponding submarkings.
Adopting these same exhibits as their own, then defendants (now petitioners) accordingly
offered and marked them as Exhibits "1" through "10", likewise inclusive of their
corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30)
days within which to simultaneously submit their respective memoranda, and an additional 15
days within which to submit their corresponding comment or reply thereof, after which, the
case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who
was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On
March 1, 1989, judgment was handed down by Judge Roura from his regular bench at
Macabebe, Pampanga for the Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered
ordering defendant to execute in favor of plaintiffs a deed of absolute sale
covering that parcel of land embraced in and covered by Transfer
Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of
Deeds for Quezon City, together with all the improvements existing
thereon free from all liens and encumbrances, and once accomplished, to
immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the said document of sale to plaintiffs and upon receipt
thereof, the plaintiffs are ordered to pay defendants the whole balance of
the purchase price amounting to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the Registry of Deeds for Quezon City
in the name of intervenor is hereby canceled and declared to be without
force and effect. Defendants and intervenor and all other persons claiming
under them are hereby ordered to vacate the subject property and deliver
possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's
fees, as well as the counterclaims of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the new presiding judge of the
Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and
to render anew decision by the undersigned Presiding Judge should be
denied for the following reasons: (1) The instant case became submitted
for decision as of April 14, 1988 when the parties terminated the
presentation of their respective documentary evidence and when the
Presiding Judge at that time was Judge Reynaldo Roura. The fact that they
were allowed to file memoranda at some future date did not change the
fact that the hearing of the case was terminated before Judge Roura and
therefore the same should be submitted to him for decision; (2) When the
defendants and intervenor did not object to the authority of Judge
Reynaldo Roura to decide the case prior to the rendition of the decision,
when they met for the first time before the undersigned Presiding Judge at
the hearing of a pending incident in Civil Case No. Q-46145 on November
11, 1988, they were deemed to have acquiesced thereto and they are now
estopped from questioning said authority of Judge Roura after they
received the decision in question which happens to be adverse to them; (3)
While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at
this Branch of the Court, he was in all respects the Presiding Judge with
full authority to act on any pending incident submitted before this Court
during his incumbency. When he returned to his Official Station at
Macabebe, Pampanga, he did not lose his authority to decide or resolve
such cases submitted to him for decision or resolution because he
continued as Judge of the Regional Trial Court and is of co-equal rank
with the undersigned Presiding Judge. The standing rule and supported by
jurisprudence is that a Judge to whom a case is submitted for decision has
the authority to decide the case notwithstanding his transfer to another
branch or region of the same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated
March 1, 1989 rendered in the instant case, resolution of which now
pertains to the undersigned Presiding Judge, after a meticulous
examination of the documentary evidence presented by the parties, she is
convinced that the Decision of March 1, 1989 is supported by evidence
and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or
to Annul Decision and Render Anew Decision by the Incumbent Presiding
Judge" dated March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals
(Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the
trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading, private
respondents' Reply Memorandum, was filed on September 15, 1993. The case was, however,
re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of
the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of respondent
court in the affirmance of the trial court's decision, we definitely find the instant petition bereft
of merit.
The heart of the controversy which is the ultimate key in the resolution of the other issues in
the case at bar is the precise determination of the legal significance of the document entitled
"Receipt of Down Payment" which was offered in evidence by both parties. There is no
dispute as to the fact that said document embodied the binding contract between Ramona
Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other,
pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article
1305 of the Civil Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render
some service.
While, it is the position of private respondents that the "Receipt of Down Payment" embodied
a perfected contract of sale, which perforce, they seek to enforce by means of an action for
specific performance, petitioners on their part insist that what the document signified was a
mere executory contract to sell, subject to certain suspensive conditions, and because of the
absence of Ramona P. Alcaraz, who left for the United States of America, said contract could
not possibly ripen into a contract absolute sale.
Plainly, such variance in the contending parties' contentions is brought about by the way each
interprets the terms and/or conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available on record, this, Court, as were the
courts below, is now called upon to adjudge what the real intent of the parties was at the time
the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership
in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because
the first essential element is lacking. In a contract to sell, the prospective seller explicity
reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not
as yet agree or consent to transfer ownership of the property subject of the contract to sell until
the happening of an event, which for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the
subject property when the entire amount of the purchase price is delivered to him. In other
words the full payment of the purchase price partakes of a suspensive condition, the non-
fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained
by the prospective seller without further remedies by the prospective buyer. In Roque vs.
Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent
was a contract to sell where the ownership or title is retained by the seller
and is not to pass until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach, casual
or serious, but simply an event that prevented the obligation of the vendor
to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, the prospective seller's obligation to sell the subject property by entering
into a contract of sale with the prospective buyer becomes demandable as provided in Article
1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract
of sale where the seller may likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional contract of sale, the first
element of consent is present, although it is conditioned upon the happening of a contingent
event which may or may not occur. If the suspensive condition is not fulfilled, the perfection
of the contract of sale is completely abated (cf. Homesite and housing Corp. vs. Court of
Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had already been previous delivery of
the property subject of the sale to the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment
of the purchase price, ownership will not automatically transfer to the buyer although the
property may have been previously delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of sale
specially in cases where the subject property is sold by the owner not to the party the seller
contracted with, but to a third person, as in the case at bench. In a contract to sell, there being
no previous sale of the property, a third person buying such property despite the fulfillment of
the suspensive condition such as the full payment of the purchase price, for instance, cannot be
deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance
of the property. There is no double sale in such case. Title to the property will transfer to the
buyer after registration because there is no defect in the owner-seller's title per se, but the
latter, of course, may be used for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the
sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there
had been previous delivery of the subject property, the seller's ownership or title to the
property is automatically transferred to the buyer such that, the seller will no longer have any
title to transfer to any third person. Applying Article 1544 of the Civil Code, such second
buyer of the property who may have had actual or constructive knowledge of such defect in
the seller's title, or at least was charged with the obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is
issued to the second buyer, the first buyer may seek reconveyance of the property subject of
the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering the real
nature of the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be given their
natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of
Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of
Down Payment" that they
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City,
the sum of Fifty Thousand Pesos purchase price of our inherited house
and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon
City, in the total amount of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the
natural and ordinary idea conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest
that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the
transfer certificate of title was still in the name of petitioner's father, they could not fully effect
such transfer although the buyer was then willing and able to immediately pay the purchase
price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names
from that of their father, after which, they promised to present said title, now in their names, to
the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the
entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein made no
express reservation of ownership or title to the subject parcel of land. Furthermore, the
circumstance which prevented the parties from entering into an absolute contract of sale
pertained to the sellers themselves (the certificate of title was not in their names) and not the
full payment of the purchase price. Under the established facts and circumstances of the case,
the Court may safely presume that, had the certificate of title been in the names of petitioners-
sellers at that time, there would have been no reason why an absolute contract of sale could
not have been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to
sell the properly to private respondent upon the fulfillment of the suspensive condition. On the
contrary, having already agreed to sell the subject property, they undertook to have the
certificate of title changed to their names and immediately thereafter, to execute the written
deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance
by the buyer with certain terms and conditions, promised to sell the property to the latter.
What may be perceived from the respective undertakings of the parties to the contract is that
petitioners had already agreed to sell the house and lot they inherited from their father,
completely willing to transfer full ownership of the subject house and lot to the buyer if the
documents were then in order. It just happened, however, that the transfer certificate of title
was then still in the name of their father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they undertook to cause the issuance
of a new transfer of the certificate of title in their names upon receipt of the down payment in
the amount of P50,000.00. As soon as the new certificate of title is issued in their names,
petitioners were committed to immediately execute the deed of absolute sale. Only then will
the obligation of the buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered into so as to
protect the seller against a buyer who intends to buy the property in installment by
withholding ownership over the property until the buyer effects full payment therefor, in the
contract entered into in the case at bar, the sellers were the one who were unable to enter into a
contract of absolute sale by reason of the fact that the certificate of title to the property was
still in the name of their father. It was the sellers in this case who, as it were, had the
impediment which prevented, so to speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that when the said
"Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al.,
the parties had agreed to a conditional contract of sale, consummation of which is subject only
to the successful transfer of the certificate of title from the name of petitioners' father,
Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6,
1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between
petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required
for the consummation thereof being the delivery of the property by means of the execution of
the deed of absolute sale in a public instrument, which petitioners unequivocally committed
themselves to do as evidenced by the "Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the
case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From the moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a certificate of title in
petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties
under the contract of sale became mutually demandable, that is, petitioners, as sellers, were
obliged to present the transfer certificate of title already in their names to private respondent
Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the
buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to
P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition, petitioners
conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the transfer
in our names from our deceased father Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of the downpayment above-
stated". The sale was still subject to this suspensive condition. (Emphasis
supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject to a
suspensive condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there could be no
perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for Article 1186 of the Civil
Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and
indisputably fulfilled on February 6, 1985, when a new title was issued in the names of
petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by the document
denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a
contract of sale subject only to the suspensive condition that the sellers shall effect the
issuance of new certificate title from that of their father's name to their names and that, on
February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which pertinently provides
Art. 1187. The effects of conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the
obligation . . .
In obligation to do or not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale
became mutually due and demandable as of the time of fulfillment or occurrence of
the suspensive condition on February 6, 1985. As of that point in time, reciprocal
obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because they
were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as
follows:
Art. 774. Succession is a mode of acquisition by virtue of which the
property, rights and obligations to be extent and value of the inheritance of
a person are transmitted through his death to another or others by his will
or by operation of law.
 Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by
operation of law. Thus, at the point their father drew his last breath, petitioners
stepped into his shoes insofar as the subject property is concerned, such that any
rights or obligations pertaining thereto became binding and enforceable upon them.
It is expressly provided that rights to the succession are transmitted from the
moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90
Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be declared unless the creditors
have been paid is rendered moot by the fact that they were able to effect the transfer of the title
to the property from the decedent's name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter
into an agreement at that time and they cannot be allowed to now take a posture contrary to
that which they took when they entered into the agreement with private respondent Ramona P.
Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.
Having represented themselves as the true owners of the subject property at the time
of sale, petitioners cannot claim now that they were not yet the absolute owners
thereof at that time.
Petitioners also contend that although there was in fact a perfected contract of sale between
them and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered
impossible the consummation thereof by going to the United States of America, without
leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15,
Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for
which reason, so petitioners conclude, they were correct in unilaterally rescinding rescinding
the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of sale in the
instant case. We note that these supposed grounds for petitioners' rescission, are mere
allegations found only in their responsive pleadings, which by express provision of the rules,
are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised
Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate
petitioners' allegations. We have stressed time and again that allegations must be proven by
sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2
SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376
[1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on
February 6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially
rescinding the contract of sale, there being no express stipulation authorizing the sellers to
extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba
vs. Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz
because although the evidence on record shows that the sale was in the name of Ramona P.
Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's
mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed,
the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh.
"B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no evidence showing that
petitioners ever questioned Concepcion's authority to represent Ramona P. Alcaraz when they
accepted her personal check. Neither did they raise any objection as regards payment being
effected by a third person. Accordingly, as far as petitioners are concerned, the physical
absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her
obligation to pay the full purchase price is concerned. Petitioners who are precluded from
setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained
offered no proof whatsoever to show that they actually presented the new transfer certificate of
title in their names and signified their willingness and readiness to execute the deed of
absolute sale in accordance with their agreement. Ramona's corresponding obligation to pay
the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due
and demandable and, therefore, she cannot be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal
obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfill his
obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between petitioners
and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave
rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
 Should if be immovable property, the ownership shall belong to the person In a case of double sale, what finds relevance and materiality is not whether or not the second
acquiring it who in good faith first recorded it in Registry of Property. buyer was a buyer in good faith but whether or not said second buyer registers such second
sale in good faith, that is, without knowledge of any defect in the title of the property sold.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof to As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good
the person who presents the oldest title, provided there is good faith. faith, registered the sale entered into on February 18, 1985 because as early as February 22,
1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of
of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At
the second contract of sale was registered with the Registry of Deeds of Quezon City giving
the time of registration, therefore, petitioner Mabanag knew that the same property had
rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5,
already been previously sold to private respondents, or, at least, she was charged with
1985. Thus, the second paragraph of Article 1544 shall apply.
knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag
The above-cited provision on double sale presumes title or ownership to pass to the first buyer, cannot close her eyes to the defect in petitioners' title to the property at the time of the
the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the registration of the property.
first buyer, and (b) should there be no inscription by either of the two buyers, when the second
This Court had occasions to rule that:
buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the
second buyer satisfies these requirements, title or ownership will not transfer to him to the If a vendee in a double sale registers that sale after he has acquired
prejudice of the first buyer. knowledge that there was a previous sale of the same property to a third
party or that another person claims said property in a pervious sale, the
In his commentaries on the Civil Code, an accepted authority on the subject, now a
registration will constitute a registration in bad faith and will not confer
distinguished member of the Court, Justice Jose C. Vitug, explains:
upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing
The governing principle is prius tempore, potior jure (first in time, Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil.
stronger in right). Knowledge by the first buyer of the second sale cannot 554; Fernandez vs. Mercader, 43 Phil. 581.)
defeat the first buyer's rights except when the second buyer first registers
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz,
in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33).
perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on
Conversely, knowledge gained by the second buyer of the first sale defeats
February 18, 1985, was correctly upheld by both the courts below.
his rights even if he is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. Although there may be ample indications that there was in fact an agency between Ramona as
58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June principal and Concepcion, her mother, as agent insofar as the subject contract of sale is
1984, 129 SCRA 656), it has held that it is essential, to merit the protection concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-
of Art. 1544, second paragraph, that the second realty buyer must act in buyer is not squarely raised in the instant petition, nor in such assumption disputed between
good faith in registering his deed of sale (citing Carbonell vs. Court of mother and daughter. Thus, We will not touch this issue and no longer disturb the lower
Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September courts' ruling on this point.
1992).
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p.
appealed judgment AFFIRMED.
604).
SO ORDERED.
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of
the subject property only on February 22, 1985, whereas, the second sale between petitioners
Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18,
1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the
property under a clean title, she was unaware of any adverse claim or previous sale, for which
reason she is buyer in good faith.

We are not persuaded by such argument.


G.R. No. 161318 November 25, 2009
JULIE NABUS,* MICHELLE NABUS* and BETTY TOLERO, Petitioners,
vs.
JOAQUIN PACSON and JULIA PACSON, Respondents.
DECISION
PERALTA, J.:
This is a petition for review on certiorari 1 of the Decision2 of the Court of Appeals in CA-
G.R. CV No. 44941 dated November 28, 2003. The Court of Appeals affirmed with
modification the Decision of the Regional Trial Court of La Trinidad, Benguet, Branch 10,
ordering petitioner Betty Tolero to execute a deed of absolute sale in favor of respondents,
spouses Joaquin and Julia Pacson, over the lots covered by Transfer Certificate of Title (TCT)
Nos. T-18650 and T-18651 upon payment to her by respondents of the sum of P57,544.[8]4
representing the balance due for the full payment of the property subject of this case; and
ordering petitioner Betty Tolero to surrender to respondents her owners duplicate copy of
TCT Nos. T-18650 and T-18651.
The facts, as stated by the trial court,3 are as follows:
The spouses Bate and Julie Nabus were the owners of parcels of land with a total area of 1,665
square meters, situated in Pico, La Trinidad, Benguet, duly registered in their names under
TCT No. T-9697 of the Register of Deeds of the Province of Benguet. The property was
mortgaged by the Spouses Nabus to the Philippine National Bank (PNB), La Trinidad Branch,
to secure a loan in the amount of P30,000.00.
On February 19, 1977, the Spouses Nabus executed a Deed of Conditional Sale 4 covering
1,000 square meters of the 1,665 square meters of land in favor of respondents Spouses
Pacson for a consideration of P170,000.00, which was duly notarized on February 21, 1977.
The consideration was to be paid, thus:
THAT, the consideration of the amount of P170,000.00 will be paid by the VENDEE herein in
my favor in the following manner:
a. That the sum of P13,000.00, more or less, on or before February 21, 1977 and
which amount will be paid directly to the PNB, La Trinidad Branch, and which will
form part of the purchase price;
b. That after paying the above amount to the PNB, La Trinidad, Benguet branch, a
balance of about P17,500.00 remains as my mortgage balance and this amount will
be paid by the VENDEE herein at the rate of not less than P3,000.00 a month
beginning March 1977, until the said mortgage balance is fully liquidated, and that
all payments made by the VENDEE to the PNB, La Trinidad, Benguet branch, shall
form part of the consideration of this sale;
c. That, as soon as the mortgage obligation with the PNB as cited above is fully paid,
then the VENDEE herein hereby obligates himself, his heirs and assigns, to pay the
amount of not less than P2,000.00 a month in favor of the VENDOR, his heirs and
assigns, until the full amount of P170,000.00 is fully covered (including the
payments cited in Pars. a and b above);
THAT, as soon as the full consideration of this sale has been paid by the VENDEE, the
corresponding transfer documents shall be executed by the VENDOR to the VENDEE for the
portion sold;
THAT, the portion sold is as shown in the simple sketch hereto attached as Annex "A" and
made part hereof;
THAT, a segregation survey for the portion sold in favor of the VENDEE and the portion
remaining in favor of the VENDOR shall be executed as soon as possible, all at the expense of
the VENDEE herein;
THAT, it is mutually understood that in as much as there is a claim by other persons of the
entire property of which the portion subject of this Instrument is only a part, and that this
claim is now the subject of a civil case now pending before Branch III of the Court of First
Instance of Baguio and Benguet, should the VENDOR herein be defeated in the said civil
action to the end that he is divested of title over the area subject of this Instrument, then he
hereby warrants that he shall return any and all monies paid by the VENDEE herein whether
paid to the PNB, La Trinidad, Benguet Branch, or directly received by herein VENDOR, all
such monies to be returned upon demand by the VENDEE;
THAT, [a] portion of the parcel of land subject of this instrument is presently in the possession
of Mr. Marcos Tacloy, and the VENDOR agrees to cooperate and assist in any manner
possible in the ouster of said Mr. Marcos Tacloy from said possession and occupation to the
end that the VENDEE herein shall make use of said portion as soon as is practicable;
THAT, finally, the PARTIES hereby agree that this Instrument shall be binding upon their
respective heirs, successors or assigns.5
Pursuant to the Deed of Conditional Sale, respondents paid PNB the amount of P12,038.86 on
February 22, 19776 and P20,744.30 on July 17, 19787 for the full payment of the loan.
At the time of the transaction, Mr. Marcos Tacloy had a basket-making shop on the property,
while the spouses Delfin and Nelita Flores had a store. Tacloy and the Spouses Flores vacated
the property after respondents paid them P4,000.00 each.
Thereafter, respondents took possession of the subject property. They constructed an 80 by 32-
feet building and a steel-matting fence around the property to house their truck body-building
shop which they called the "Emiliano Trucking Body Builder and Auto Repair Shop."
On December 24, 1977, before the payment of the balance of the mortgage amount with PNB,
Bate Nabus died. On August 17, 1978, his surviving spouse, Julie Nabus, and their minor
daughter, Michelle Nabus, executed a Deed of Extra Judicial Settlement over the registered
land covered by TCT No. 9697. On the basis of the said document, TCT No. T- 177188 was
issued on February 17, 1984 in the names of Julie Nabus and Michelle Nabus.
Meanwhile, respondents continued paying their balance, not in installments of P2,000.00 as
agreed upon, but in various, often small amounts ranging from as low as P10.009 to as high as
P15,566.00,10 spanning a period of almost seven years, from March 9, 197711 to January 17,
1984.12
There was a total of 364 receipts of payment,13 which receipts were mostly signed by Julie
Nabus, who also signed as Julie Quan when she remarried. The others who signed were Bate
Nabus; PNB, La Trinidad Branch; Maxima Nabus; Sylvia Reyes; Michelle Nabus and the
second husband of Julie Nabus, Gereon Quan. Maxima Nabus is the mother of Bate Nabus,
while Sylvia Reyes is a niece.
The receipts showed that the total sum paid by respondents to the Spouses Nabus was
P112,455.16,14 leaving a balance of P57,544.84. The sum of P30,000.00 which was the value
of the pick-up truck allegedly sold and delivered in 1978 to the Spouses Nabus, was not
considered as payment because the registration papers remained in the name of its owner,
Dominga D. Pacson, who is the sister of Joaquin Pacson. The vehicle was also returned to
respondents.
During the last week of January 1984, Julie Nabus, accompanied by her second husband,
approached Joaquin Pacson to ask for the full payment of the lot. Joaquin Pacson agreed to
pay, but told her to return after four days as his daughter, Catalina Pacson, would have to go
over the numerous receipts to determine the balance to be paid. When Julie Nabus returned
after four days, Joaquin sent her and his daughter, Catalina, to Atty. Elizabeth Rillera for the
execution of the deed of absolute sale. Since Julie was a widow with a minor daughter, Atty.
Rillera required Julie Nabus to return in four days with the necessary documents, such as the
deed of extrajudicial settlement, the transfer certificate of title in the names of Julie Nabus and
minor Michelle Nabus, and the guardianship papers of Michelle. However, Julie Nabus did not
return.
Getting suspicious, Catalina Pacson went to the Register of Deeds of the Province of Benguet
and asked for a copy of the title of the land. She found that it was still in the name of Julie and
Michelle Nabus.
After a week, Catalina Pacson heard a rumor that the lot was already sold to petitioner Betty
Tolero. Catalina Pacson and Atty. Rillera went to the Register of Deeds of the Province of
Benguet, and found that Julie Nabus and her minor daughter, Michelle Nabus, represented by
the formers mother as appointed guardian by a court order dated October 29, 1982, had
executed a Deed of Absolute Sale in favor of Betty Tolero on March 5, 1984, covering the
whole lot comprising 1,665 square meters.15 The property was described in the deed of sale as
comprising four lots: (1) Lot A-2-A, with an area of 832 square meters; (2) Lot A-2-B, 168
square meters; (3) Lot A-2-C, 200 square meters; and (4) Lot A-2-D, 465 square meters. Lots
A-2-A and A-2-B, with a combined area of 1,000 square meters, correspond to the lot
previously sold to Joaquin and Julia Pacson in the Deed of Conditional Sale.
Catalina Pacson and Atty. Rillera also found that the Certificate of Title over the property in
the name of Julie and Michelle Nabus was cancelled on March 16, 1984, and four titles to the
fours lots were issued in the name of Betty Tolero, namely: TCT No. T-1865016 for Lot A-2-
A; TCT No. 1865117 for Lot A-2-B; TCT No. T-1865218 for Lot A-2-C; and T-1865319 for
Lot A-2-D.
On March 22, 1984, the gate to the repair shop of the Pacsons was padlocked. A sign was
displayed on the property stating "No Trespassing."20
On March 26, 1984, Catalina Pacson filed an affidavit-complaint regarding the padlocking
incident of their repair shop with the police station at La Trinidad, Benguet.
On March 28, 2008, respondents Joaquin and Julia Pacson filed with the Regional Trial Court
of La Trinidad, Benguet (trial court) a Complaint21 for Annulment of Deeds, with damages
and prayer for the issuance of a writ of preliminary injunction.22 They sought the annulment
of (1) the Extra-judicial Settlement of Estate, insofar as their right to the 1,000-square-meter
lot subject of the Deed of Conditional Sale23 was affected; (2) TCT No. T-17718 issued in the
names of Julie and Michelle Nabus; and (3) the Deed of Absolute Sale 24 in favor of Betty
Tolero and the transfer certificates of title issued pursuant thereto. They also prayed for the
award of actual, moral and exemplary damages, as well as attorneys fees.
In their Answer,25 Julie and Michelle Nabus alleged that respondent Joaquin Pacson did not
proceed with the conditional sale of the subject property when he learned that there was a
pending case over the whole property. Joaquin proposed that he would rather lease the
property with a monthly rental of P2,000.00 and apply the sum of P13,000.00 as rentals, since
the amount was already paid to the bank and could no longer be withdrawn. Hence, he did not
affix his signature to the second page of a copy of the Deed of Conditional Sale.26 Julie Nabus
alleged that in March 1994, due to her own economic needs and those of her minor daughter,
she sold the property to Betty Tolero, with authority from the court.
During the hearing on the merits, Julie Nabus testified that she sold the property to Betty
Tolero because she was in need of money. She stated that she was free to sell the property
because the Deed of Conditional Sale executed in favor of the Spouses Pacson was converted
into a contract of lease. She claimed that at the time when the Deed of Conditional Sale was
being explained to them by the notary public, Joaquin Pacson allegedly did not like the portion
of the contract stating that there was a pending case in court involving the subject property.
Consequently, Joaquin Pacson did not continue to sign the document; hence, the second page
of the document was unsigned.27 Thereafter, it was allegedly their understanding that the
Pacsons would occupy the property as lessees and whatever amount paid by them would be
considered rentals.
Betty Tolero put up the defense that she was a purchaser in good faith and for value. She
testified that it was Julie Nabus who went to her house and offered to sell the property
consisting of two lots with a combined area of 1,000 square meters. She consulted Atty.
Aurelio de Peralta before she agreed to buy the property. She and Julie Nabus brought to Atty.
De Peralta the pertinent papers such as TCT No. T-17718 in the names of Julie and Michelle
Nabus, the guardianship papers of Michelle Nabus and the blueprint copy of the survey plan
showing the two lots. After examining the documents and finding that the title was clean, Atty.
De Peralta gave her the go-signal to buy the property.
Tolero testified that upon payment of the agreed price of P200,000.00, the Deed of Absolute
Sale was executed and registered, resulting in the cancellation of the title of Julie and Michelle
Nabus and the issuance in her name of TCT Nos. T-18650 and T-1865128 corresponding to
the two lots. Thereafter, she asked her common-law husband, Ben Ignacio, to padlock the gate
to the property and hang the "No Trespassing" sign.
Tolero also testified that as the new owner, she was surprised and shocked to receive the
Complaint filed by the Spouses Pacson. She admitted that she knew very well the Spouses
Pacson, because they used to buy vegetables regularly from her. She had been residing along
the highway at Kilometer 4, La Trinidad, Benguet since 1971. She knew the land in question,
because it was only 50 meters away across the highway. She also knew that the Spouses
Pacson had a shop on the property for the welding and body-building of vehicles. She was not
aware of the Deed of Conditional Sale executed in favor of the Pacsons, and she saw the
document for the first time when Joaquin Pacson showed it to her after she had already bought
the property and the title had been transferred in her name. At the time she was buying the
property, Julie Nabus informed her that the Pacsons were merely renting the property. She did
not bother to verify if that was true, because the Pacsons were no longer in the property for
two years before she bought it.
In a Decision dated September 30, 1993, the trial court ruled in favor of respondents. The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs,
ordering defendant Betty Tolero to execute a deed of absolute sale in favor of the Spouses
Joaquin and Julia Pacson over the lots covered by Transfer Certificates of Title Nos. T-18650
and T-18651 upon payment to her by the plaintiffs of the sum of P57,544.[8]4 representing the
balance due for the full payment of the property subject of this case. In addition to the
execution of a deed of absolute sale, defendant Betty Tolero shall surrender to the plaintiffs
her owners duplicate copy of Transfer Certificates of Title Nos. T-18650 and T-18651.
Defendants Julie Nabus, Michelle Nabus, and Betty Tolero shall also pay the plaintiffs
damages as follows: P50,000.00 for moral damages; P20,000.00 for exemplary damages; and
P10,000.00 for attorneys fees and expenses for litigation.29
Two issues determined by the trial court were: (1) Was the Deed of Conditional Sale between
the Spouses Pacson and the Nabuses converted into a contract of lease? and (2) Was Betty
Tolero a buyer in good faith?
The trial court held that the Deed of Conditional Sale was not converted into a contract of
lease because the original copy of the contract30 showed that all the pages were signed by all
the parties to the contract. By the presumption of regularity, all other carbon copies must have
been duly signed. The failure of Joaquin Pacson to sign the second page of one of the carbon
copies of the contract was by sheer inadvertence. The omission was of no consequence since
the signatures of the parties in all the other copies of the contract were complete. Moreover, all
the receipts of payment expressly stated that they were made in payment of the lot. Not a
single receipt showed payment for rental.
Further, the trial court held that Betty Tolero was not a purchaser in good faith as she had
actual knowledge of the Conditional Sale of the property to the Pacsons.
The trial court stated that the Deed of Conditional Sale contained reciprocal obligations
between the parties, thus:
THAT, as soon as the full consideration of this sale has been paid by the VENDEE, the
corresponding transfer documents shall be executed by the VENDOR to the VENDEE for the
portion sold;
xxxx
THAT, finally, the PARTIES hereby agree that this Instrument shall be binding upon their
respective heirs, successors or assigns.31
In other words, the trial court stated, when the vendees (the Spouses Pacson) were already
ready to pay their balance, it was the corresponding obligation of the vendors (Nabuses) to
execute the transfer documents.
The trial court held that "[u]nder Article 1191 of the Civil Code, an injured party in a
reciprocal obligation, such as the Deed of Conditional Sale in the case at bar, may choose
between the fulfillment [or] the rescission of the obligation, with the payment of damages in
either case." It stated that in filing the case, the Spouses Pacson opted for fulfillment of the
obligation, that is, the execution of the Deed of Absolute Sale in their favor upon payment of
the purchase price.
Respondents appealed the decision of the trial court to the Court of Appeals.
In the Decision dated November 28, 2003, the Court of Appeals affirmed the trial courts
decision, but deleted the award of attorneys fees. The dispositive portion of the Decision
reads:
WHEREFORE, finding no reversible error in the September 30, 1993 Decision of the
Regional Trial Court of La Trinidad, Benguet, Branch 10, in Civil Case No. 84-CV-0079, the
instant appeal is hereby DISMISSED for lack of merit, and the assailed Decision is hereby
AFFIRMED and UPHELD with the modification that the award of attorneys fees is
deleted.32
Petitioners filed this petition raising the following issues:
I APPEALS, G.R. NO. 63745.33
THE [COURT OF APPEALS] ERRED IN CONSIDERING THE
CONTRACT ENTERED INTO BETWEEN THE SPOUSES BATE NABUS
AND JULIE NABUS AND SPOUSES JOAQUIN PACSON AND JULIA
PACSON TO BE A CONTRACT OF SALE.
II
THE COURT A QUO ERRED IN FINDING THAT THERE ARE ONLY
TWO ISSUES IN THE CASE ON APPEAL AND THEY ARE: WHETHER
THE DEED OF CONDITIONAL SALE WAS CONVERTED INTO A
CONTRACT OF LEASE; AND THAT [WHETHER] PETITIONER BETTY
TOLERO WAS A BUYER IN GOOD FAITH.
III
THAT THE TRIAL COURT ERRED IN HOLDING THAT
[RESPONDENTS] BALANCE TO THE SPOUSES NABUS UNDER THE
CONDITIONAL SALE IS ONLY P57,544.[8]4.
IV
THAT ASSUMING WITHOUT ADMITTING THAT PETITIONER BETTY
TOLERO WAS AWARE OF THE EXISTENCE OF THE DEED OF
CONDITIONAL SALE, THE TRIAL COURT, AS WELL AS THE [COURT
OF APPEALS], ERRED IN ORDERING PETITIONER BETTY TOLERO
TO EXECUTE A DEED OF ABSOLUTE SALE IN FAVOR OF THE
[RESPONDENTS] AND TO SURRENDER THE OWNER'S DUPLICATE
COPY OF TCT NOS. T-18650 AND T-18651, WHICH WAS NOT PRAYED
FOR IN THE PRAYER IN THE COMPLAINT.
V
THAT THE [COURT OF APPEALS] ERRED IN FINDING BETTY
TOLERO [AS] A BUYER [WHO] FAILED TO TAKE STEPS IN
INQUIRING FROM THE [RESPONDENTS] THE STATUS OF THE
PROPERTY IN QUESTION BEFORE HER PURCHASE, CONTRARY TO
FACTS ESTABLISHED BY EVIDENCE.
VI
THE [COURT OF APPEALS] ERRED IN CONSIDERING PETITIONER
BETTY TOLERO A BUYER IN BAD FAITH, IGNORING THE
APPLICATION OF THE DOCTRINE IN THE RULING OF THE SUPREME
COURT IN THE CASE OF RODOLFO ALFONSO, ET AL. VS. COURT OF
The main issues to be resolved are:
1) Whether or not the Deed of Conditional Sale was converted into a contract of
lease;
2) Whether the Deed of Conditional Sale was a contract to sell or a contract of sale.
As regards the first issue, the Deed of Conditional Sale entered into by the Spouses Pacson
and the Spouses Nabus was not converted into a contract of lease. The 364 receipts issued to
the Spouses Pacson contained either the phrase "as partial payment of lot located in Km. 4" or
"cash vale" or "cash vale (partial payment of lot located in Km. 4)," evidencing sale under the
contract and not the lease of the property. Further, as found by the trial court, Joaquin
Pacsons non-signing of the second page of a carbon copy of the Deed of Conditional Sale was
through sheer inadvertence, since the original contract34 and the other copies of the contract
were all signed by Joaquin Pacson and the other parties to the contract.
On the second issue, petitioners contend that the contract executed by the respondents and the
Spouses Nabus was a contract to sell, not a contract of sale. They allege that the contract was
subject to the suspensive condition of full payment of the consideration agreed upon before
ownership of the subject property could be transferred to the vendees. Since respondents failed
to pay the full amount of the consideration, having an unpaid balance of P57,544.84, the
obligation of the vendors to execute the Deed of Absolute Sale in favor of respondents did not
arise. Thus, the subsequent Deed of Absolute Sale executed in favor of Betty Tolero, covering
the same parcel of land was valid, even if Tolero was aware of the previous deed of
conditional sale.
Moreover, petitioners contend that respondents violated the stipulated condition in the contract
that the monthly installment to be paid was P2,000.00, as respondents gave meager amounts as
low as P10.00.
Petitioners also assert that respondents allegation that Julie Nabus failure to bring the
pertinent documents necessary for the execution of the final deed of absolute sale, which was
the reason for their not having paid the balance of the purchase price, was untenable, and a
lame and shallow excuse for violation of the Deed of Conditional Sale. Respondents could
have made a valid tender of payment of their remaining balance, as it had been due for a long
time, and upon refusal to accept payment, they could have consigned their payment to the
court as provided by law. This, respondents failed to do.
The Court holds that the contract entered into by the Spouses Nabus and respondents was a
contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Ramos v. Heruela35 differentiates a contract of absolute sale and a contract of conditional sale
as follows:
Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional.
A contract of sale is absolute when title to the property passes to the vendee upon delivery of
the thing sold. A deed of sale is absolute when there is no stipulation in the contract that title
to the property remains with the seller until full payment of the purchase price. The sale is also
absolute if there is no stipulation giving the vendor the right to cancel unilaterally the contract
the moment the vendee fails to pay within a fixed period. In a conditional sale, as in a contract
to sell, ownership remains with the vendor and does not pass to the vendee until full payment
of the purchase price. The full payment of the purchase price partakes of a suspensive
condition, and non-fulfillment of the condition prevents the obligation to sell from arising. 36
Coronel v. Court of Appeals37 distinguished a contract to sell from a contract of sale, thus:
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because
the first essential element is lacking. In a contract to sell, the prospective seller explicitly
reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not
as yet agree or consent to transfer ownership of the property subject of the contract to sell until
the happening of an event, which for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell
the subject property when the entire amount of the purchase price is delivered to him. In other
words, the full payment of the purchase price partakes of a suspensive condition, the non-
fulfilment of which prevents the obligation to sell from arising and, thus, ownership is retained
by the prospective seller without further remedies by the prospective buyer.
xxxx
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, the prospective sellers obligation to sell the subject property by entering
into a contract of sale with the prospective buyer becomes demandable as provided in Article
1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the
price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract
of sale where the seller may likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional contract of sale, the first
element of consent is present, although it is conditioned upon the happening of a contingent
event which may or may not occur. If the suspensive condition is not fulfilled, the perfection
of the contract of sale is completely abated. However, if the suspensive condition is fulfilled,
the contract of sale is thereby perfected, such that if there had already been previous delivery
of the property subject of the sale to the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment
of the purchase price, ownership will not automatically transfer to the buyer although the
property may have been previously delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of absolute sale.38
Further, Chua v. Court of Appeals39 cited this distinction between a contract of sale and a
contract to sell:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not
to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract
of sale, the vendor loses ownership over the property and cannot recover it until and unless the
contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor
until full payment of the price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the obligation
of the vendor to convey title from becoming effective. 40
It is not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties. In this case, the contract entitled "Deed of Conditional
Sale" is actually a contract to sell. The contract stipulated that "as soon as the full
consideration of the sale has been paid by the vendee, the corresponding transfer documents
shall be executed by the vendor to the vendee for the portion sold."41 Where the vendor
promises to execute a deed of absolute sale upon the completion by the vendee of the payment
of the price, the contract is only a contract to sell."42 The aforecited stipulation shows that the
vendors reserved title to the subject property until full payment of the purchase price.
If respondents paid the Spouses Nabus in accordance with the stipulations in the Deed of
Conditional Sale, the consideration would have been fully paid in June 1983. Thus, during the
last week of January 1984, Julie Nabus approached Joaquin Pacson to ask for the full payment
of the lot. Joaquin Pacson agreed to pay, but told her to return after four days as his daughter,
Catalina Pacson, would have to go over the numerous receipts to determine the balance to be
paid.
When Julie Nabus returned after four days, Joaquin Pacson sent Julie Nabus and his daughter,
Catalina, to Atty. Elizabeth Rillera for the execution of the deed of sale. Since Bate Nabus had
already died, and was survived by Julie and their minor daughter, Atty. Rillera required Julie
Nabus to return in four days with the necessary documents such as the deed of extrajudicial
settlement, the transfer certificate of title in the names of Julie Nabus and minor Michelle
Nabus, and the guardianship papers of Michelle. However, Julie Nabus did not return.
As vendees given possession of the subject property, the ownership of which was still with the
vendors, the Pacsons should have protected their interest and inquired from Julie Nabus why
she did not return and then followed through with full payment of the purchase price and the
execution of the deed of absolute sale. The Spouses Pacson had the legal remedy of
consigning their payment to the court; however, they did not do so. A rumor that the property
had been sold to Betty Tolero prompted them to check the veracity of the sale with the
Register of Deeds of the Province of Benguet. They found out that on March 5, 1984, Julie
Nabus sold the same property to Betty Tolero through a Deed of Absolute Sale, and new
transfer certificates of title to the property were issued to Tolero.1avvphi1
Thus, the Spouses Pacson filed this case for the annulment of the contract of absolute sale
executed in favor of Betty Tolero and the transfer certificates of title issued in her name.
Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their
favor was merely a contract to sell, the obligation of the seller to sell becomes demandable
only upon the happening of the suspensive condition.43 The full payment of the purchase
price is the positive suspensive condition, the failure of which is not a breach of contract, but
simply an event that prevented the obligation of the vendor to convey title from acquiring
binding force.44 Thus, for its non-fulfilment, there is no contract to speak of, the obligor
having failed to perform the suspensive condition which enforces a juridical relation. 45 With
this circumstance, there can be no rescission or fulfilment of an obligation that is still non-
existent, the suspensive condition not having occurred as yet.46 Emphasis should be made that
the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to
comply with an obligation already extant, not a failure of a condition to render binding that
obligation.47
The trial court, therefore, erred in applying Article 1191 of the Civil Code48 in this case by
ordering fulfillment of the obligation, that is, the execution of the deed of absolute sale in
favor of the Spouses Pacson upon full payment of the purchase price, which decision was
affirmed by the Court of Appeals. Ayala Life Insurance, Inc. v. Ray Burton Development
Corporation49 held:
Evidently, before the remedy of specific performance may be availed of, there must be a
breach of the contract.
Under a contract to sell, the title of the thing to be sold is retained by the seller until the
purchaser makes full payment of the agreed purchase price. Such payment is a positive
suspensive condition, the non-fulfillment of which is not a breach of contract but merely an
event that prevents the seller from conveying title to the purchaser. The non-payment of the
purchase price renders the contract to sell ineffective and without force and effect. Thus, a
cause of action for specific performance does not arise.50
Since the contract to sell was without force and effect, Julie Nabus validly conveyed the
subject property to another buyer, petitioner Betty Tolero, through a contract of absolute sale,
and on the strength thereof, new transfer certificates of title over the subject property were
duly issued to Tolero.51
The Spouses Pacson, however, have the right to the reimbursement of their payments to the
Nabuses, and are entitled to the award of nominal damages. The Civil Code provides:
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in article 1157, or in every case where any property right has been invaded.
As stated by the trial court, under the Deed of Conditional Sale, respondents had the right to
demand from petitioners Julie and Michelle Nabus that the latter execute in their favor a deed
of absolute sale when they were ready to pay the remaining balance of the purchase price. The
Nabuses had the corresponding duty to respect the respondents right, but they violated such
right, for they could no longer execute the document since they had sold the property to Betty
Tolero.52 Hence, nominal damages in the amount of P10,000.00 are awarded to respondents.
Respondents are not entitled to moral damages because contracts are not referred to in Article
221953 of the Civil Code, which enumerates the cases when moral damages may be recovered.
Article 222054 of the Civil Code allows the recovery of moral damages in breaches of
contract where the defendant acted fraudulently or in bad faith. However, this case involves a
contract to sell, wherein full payment of the purchase price is a positive suspensive condition,
the non-fulfillment of which is not a breach of contract, but merely an event that prevents the
seller from conveying title to the purchaser. Since there is no breach of contract in this case,
respondents are not entitled to moral damages.
In the absence of moral, temperate, liquidated or compensatory damages, exemplary damages
cannot be granted for they are allowed only in addition to any of the four kinds of damages
mentioned.55
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R.
CV No. 44941, dated November 28, 2003, is REVERSED and SET ASIDE. Judgment is
hereby rendered upholding the validity of the sale of the subject property made by petitioners
Julie Nabus and Michelle Nabus in favor of petitioner Betty Tolero, as well as the validity of
Transfer Certificates of Title Nos. T-18650 and T-18651 issued in the name of Betty Tolero.
Petitioners Julie Nabus and Michelle Nabus are ordered to reimburse respondents spouses
Joaquin and Julia Pacson the sum of One Hundred Twelve Thousand Four Hundred Fifty-Five
Pesos and Sixteen Centavos (P112,455.16), and to pay Joaquin and Julia Pacson nominal
damages in the amount of Ten Thousand Pesos (P10,000.00), with annual interest of twelve
percent (12%) until full payment of the amounts due to Joaquin and Julia Pacson.
No costs.
SO ORDERED.
G.R. No. 125585 June 8, 2005
HEIRS OF EDUARDO MANLAPAT, represented by GLORIA MANLAPAT-BANAAG
and LEON M. BANAAG, JR., Petitioners,
vs.
HON. COURT OF APPEALS, RURAL BANK OF SAN PASCUAL, INC., and JOSE B.
SALAZAR, CONSUELO CRUZ and ROSALINA CRUZ-BAUTISTA, and the
REGISTER OF DEEDS of Meycauayan, Bulacan, Respondents.
DECISION
Tinga, J.:
Before this Court is a Rule 45 petition assailing the D E C I S I O N1 dated 29 September 1994
of the Court of Appeals that reversed the D E C I S I O N2 dated 30 April 1991 of the
Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos. The trial court declared Transfer
Certificates of Title (TCTs) No. T-9326-P(M) and No. T-9327-P(M) as void ab initio and
ordered the restoration of Original Certificate of Title (OCT) No. P-153(M) in the name of
Eduardo Manlapat (Eduardo), petitioners predecessor-in-interest.
The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters,
located at Panghulo, Obando, Bulacan. The property had been originally in the possession of
Jose Alvarez, Eduardos grandfather, until his demise in 1916. It remained unregistered until 8
October 1976 when OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free
patent issued in Eduardos name3 that was entered in the Registry of Deeds of Meycauayan,
Bulacan.4 The subject lot is adjacent to a fishpond owned by one
Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz and Rosalina
Cruz-Bautista (Cruzes).5
On 19 December 1954, before the subject lot was titled, Eduardo sold a portion thereof with
an area of 553 square meters to Ricardo. The sale is evidenced by a deed of sale entitled
"Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo (Kasulatan)"6 which was signed
by Eduardo himself as vendor and his wife Engracia Aniceto with a certain Santiago Enriquez
signing as witness. The deed was notarized by Notary Public Manolo Cruz.7 On 4 April 1963,
the Kasulatan was registered with the Register of Deeds of Bulacan.8
On 18 March 1981, another Deed of Sale9 conveying another portion of the subject lot
consisting of 50 square meters as right of way was executed by Eduardo in favor of Ricardo in
order to reach the portion covered by the first sale executed in 1954 and to have access to his
fishpond from the provincial road.10 The deed was signed by Eduardo himself and his wife
Engracia Aniceto, together with Eduardo Manlapat, Jr. and Patricio Manlapat. The same was
also duly notarized on 18 July 1981 by Notary Public Arsenio Guevarra.11
In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law
Eduardo, executed a mortgage with the Rural Bank of San Pascual, Obando Branch (RBSP),
for P100,000.00 with the subject lot as collateral. Banaag deposited the owners duplicate
certificate of OCT No. P-153(M) with the bank.
On 31 August 1986, Ricardo died without learning of the prior issuance of OCT No. P-153(M)
in the name of Eduardo.12 His heirs, the Cruzes, were not immediately aware of the
consummated sale between Eduardo and Ricardo.
Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia Aniceto, his
spouse; and children, Patricio, Bonifacio, Eduardo, Corazon, Anselmo, Teresita and Gloria, all
surnamed Manlapat.13 Neither did the heirs of Eduardo (petitioners) inform the Cruzes of the
prior sale in favor of their predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came
to learn about the sale and the issuance of the OCT in the name of Eduardo.
Upon learning of their right to the subject lot, the Cruzes immediately tried to confront
petitioners on the mortgage and obtain the surrender of the OCT. The Cruzes, however, were
thwarted in their bid to see the heirs. On the advice of the Bureau of Lands, NCR Office, they
brought the matter to the barangay captain of Barangay Panghulo, Obando, Bulacan. During
the hearing, petitioners were informed that the Cruzes had a legal right to the property covered
by OCT and needed the OCT for the purpose of securing a separate title to cover the interest
of Ricardo. Petitioners, however, were unwilling to surrender the OCT. 14
Having failed to physically obtain the title from petitioners, in July 1989, the Cruzes instead
went to RBSP which had custody of the owners duplicate certificate of the OCT, earlier
surrendered as a consequence of the mortgage. Transacting with RBSPs manager, Jose
Salazar (Salazar), the Cruzes sought to borrow the owners duplicate certificate for the
purpose of photocopying the same and thereafter showing a copy thereof to the Register of
Deeds. Salazar allowed the Cruzes to bring the owners duplicate certificate outside the bank
premises when the latter showed the Kasulatan.15 The Cruzes returned the owners duplicate
certificate on the same day after having copied the same. They then brought the copy of the
OCT to Register of Deeds Jose Flores (Flores) of Meycauayan and showed the same to him to
secure his legal opinion as to how the Cruzes could legally protect their interest in the property
and register the same.16 Flores suggested the preparation of a subdivision plan to be able to
segregate the area purchased by Ricardo from Eduardo and have the same covered by a
separate title.17
Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla), Land
Registration Officer, Director III, Legal Affairs Department, Land Registration Authority at
Quezon City, who agreed with the advice given by Flores. 18 Relying on the suggestions of
Flores and Arandilla, the Cruzes hired two geodetic engineers to prepare the corresponding
subdivision plan. The subdivision plan was presented to the Land Management Bureau,
Region III, and there it was approved by a certain Mr. Pambid of said office on 21 July 1989.
After securing the approval of the subdivision plan, the Cruzes went back to RBSP and again
asked for the owners duplicate certificate from Salazar. The Cruzes informed him that the
presentation of the owners duplicate certificate was necessary, per advise of the Register of
Deeds, for the cancellation of the OCT and the issuance in lieu thereof of two separate titles in
the names of Ricardo and Eduardo in accordance with the approved subdivision plan.19
Before giving the owners duplicate certificate, Salazar required the Cruzes to see Atty.
Renato Santiago (Atty. Santiago), legal counsel of RBSP, to secure from the latter a clearance
to borrow the title. Atty. Santiago would give the clearance on the condition that only Cruzes
put up a substitute collateral, which they did.20 As a result, the Cruzes got hold again of the
owners duplicate certificate.
After the Cruzes presented the owners duplicate certificate, along with the deeds of sale and
the subdivision plan, the Register of Deeds cancelled the OCT and issued in lieu thereof TCT
No. T-9326-P(M) covering 603 square meters of Lot No. 2204 in the name of Ricardo and
TCT No. T-9327-P(M) covering the remaining 455 square meters in the name of Eduardo.21
On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No.
9327-P(M) in the name of Eduardo and retrieved the title they had earlier given as substitute
collateral. After securing the new separate titles, the Cruzes furnished petitioners with a copy
of TCT No. 9327-P(M) through the barangay captain and paid the real property tax for
1989.22
The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director, Supervision Sector,
Department III of the Central Bank of the Philippines, inquiring whether they committed any
violation of existing bank laws under the circumstances. A certain Zosimo Topacio, Jr. of the
Supervision Sector sent a reply letter advising the Cruzes, since the matter is between them
and the bank, to get in touch with the bank for the final settlement of the case. 23
In October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage
obligation. It was only then that he learned of the dealings of the Cruzes with the bank which
eventually led to the subdivision of the subject lot and the issuance of two separate titles
thereon. In exchange for the full payment of the loan, RBSP tried to persuade petitioners to
accept TCT No. T-9327-P(M) in the name of Eduardo.24
As a result, three (3) cases were lodged, later consolidated, with the trial court, all involving
the issuance of the TCTs, to wit:
(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the heirs of
Eduardo Manlapat against Consuelo Cruz, Rosalina Cruz-Bautista, Rural Bank of
San Pascual, Jose Salazar and Jose Flores, in his capacity as Deputy Registrar,
Meycauayan Branch of the Registry of Deeds of Bulacan;
(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against Consuelo
Cruz, et. [sic] al.; and
(3) Civil Case No. 644-M-89, for declaration of nullity of title with damages filed by
Rural Bank of San Pascual, Inc. against the spouses Ricardo Cruz and Consuelo
Cruz, et al.25
After trial of the consolidated cases, the RTC of Malolos rendered a decision in favor of the
heirs of Eduardo, the dispositive portion of which reads:
WHEREFORE, premised from the foregoing, judgment is hereby rendered:
1.Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M) as
void ab initio and ordering the Register of Deeds, Meycauayan Branch to cancel said
 titles and to restore Original Certificate of Title No. P-153(M) in the name of
plaintiffs predecessor-in-interest Eduardo Manlapat;
2.-Ordering the defendants Rural Bank of San Pascual, Jose Salazar, Consuelo Cruz
and Rosalina Cruz-Bautista, to pay the plaintiffs Heirs of Eduardo Manlapat, jointly
and severally, the following:
a)P200,000.00 as moral damages;
b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.
3.Dismissing the counterclaims.
SO ORDERED."26
The trial court found that petitioners were entitled to the reliefs of reconveyance and damages.
On this matter, it ruled that petitioners were bona fide mortgagors of an unclouded title
bearing no annotation of any lien and/or encumbrance. This fact, according to the trial court,
was confirmed by the bank when it accepted the mortgage unconditionally on 25 November
1981. It found that petitioners were complacent and unperturbed, believing that the title to
their property, while serving as security for a loan, was safely vaulted in the impermeable
confines of RBSP. To their surprise and prejudice, said title was subdivided into two portions,
leaving them a portion of 455 square meters from the original total area of 1,058 square meters,
all because of the fraudulent and negligent acts of respondents and RBSP. The trial court
ratiocinated that even assuming that a portion of the subject lot was sold by Eduardo to
Ricardo, petitioners were still not privy to the transaction between the bank and the Cruzes
which eventually led to the subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-
9327-P(M), clearly to the damage and prejudice of petitioners. 27
Concerning the claims for damages, the trial court found the same to be bereft of merit. It
ruled that although the act of the Cruzes could be deemed fraudulent, still it would not
constitute intrinsic fraud. Salazar, nonetheless, was clearly guilty of negligence in letting the
Cruzes borrow the owners duplicate certificate of the OCT. Neither the bank nor its manager
had business entrusting to strangers titles mortgaged to it by other persons for whatever reason.
It was a clear violation of the mortgage and banking laws, the trial court concluded.
The trial court also ruled that although Salazar was personally responsible for allowing the
title to be borrowed, the bank could not escape liability for it was guilty of contributory
negligence. The evidence showed that RBSPs legal counsel was sought for advice regarding
respondents request. This could only mean that RBSP through its lawyer if not through its
manager had known in advance of the Cruzes intention and still it did nothing to prevent the
eventuality. Salazar was not even summarily dismissed by the bank if he was indeed the sole
person to blame. Hence, the banks claim for damages must necessarily fail. 28
The trial court granted the prayer for the annulment of the TCTs as a necessary consequence
of its declaration that reconveyance was in order. As to Flores, his work being ministerial as
Deputy Register of the Bulacan Registry of Deeds, the trial court absolved him of any liability
with a stern warning that he should deal with his future transactions more carefully and in the
strictest sense as a responsible government official.29
Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes appealed to the
Court of Appeals. The appellate court, however, reversed the decision of the RTC. The
decretal text of the decision reads:
THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and set aside,
with costs against the appellees.
SO ORDERED.30
The appellate court ruled that petitioners were not bona fide mortgagors since as early as 1954
or before the 1981 mortgage, Eduardo already sold to Ricardo a portion of the subject lot with
an area of 553 square meters. This fact, the Court of Appeals noted, is even supported by a
document of sale signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of
Eduardo, and registered with the Register of Deeds of Bulacan. The appellate court also found
that on 18 March 1981, for the second time, Eduardo sold to Ricardo a separate area
containing 50 square meters, as a road right-of-way.31 Clearly, the OCT was issued only after
the first sale. It also noted that the title was given to the Cruzes by RBSP voluntarily, with
knowledge even of the banks counsel.32 Hence, the imposition of damages cannot be
justified, the Cruzes themselves being the owners of the property. Certainly, Eduardo misled
the bank into accepting the entire area as a collateral since the 603-square meter portion did
not anymore belong to him. The appellate court, however, concluded that there was no
conspiracy between the bank and Salazar.33
Hence, this petition for review on certiorari.
Petitioners ascribe errors to the appellate court by asking the following questions, to wit: (a)
can a mortgagor be compelled to receive from the mortgagee a smaller portion of the
originally encumbered title partitioned during the subsistence of the mortgage, without the
knowledge of, or authority derived from, the registered owner; (b) can the mortgagee question
the veracity of the registered title of the mortgagor, as noted in the owners duplicate
certificate, and thus, deliver the certificate to such third persons, invoking an adverse, prior,
and unregistered claim against the registered title of the mortgagor; (c) can an adverse prior
claim against a registered title be noted, registered and entered without a competent court
order; and (d) can belief of ownership justify the taking of property without due process of
law?34
The kernel of the controversy boils down to the issue of whether the cancellation of the OCT
in the name of the petitioners predecessor-in-interest and its splitting into two separate titles,
one for the petitioners and the other for the Cruzes, may be accorded legal recognition given
the peculiar factual backdrop of the case. We rule in the affirmative.
Private respondents (Cruzes) own
the portion titled in their names
Consonant with law and justice, the ultimate denouement of the property dispute lies in the
determination of the respective bases of the warring claims. Here, as in other legal disputes,
what is written generally deserves credence.
A careful perusal of the evidence on record reveals that the Cruzes have sufficiently proven
their claim of ownership over the portion of Lot No. 2204 with an area of 553 square meters.
The duly notarized instrument of conveyance was executed in 1954 to which no less than
Eduardo was a signatory. The execution of the deed of sale was rendered beyond doubt by
Eduardos admission in his Sinumpaang Salaysay dated 24 April 1963.35 These documents
make the affirmance of the right of the Cruzes ineluctable. The apparent irregularity, however,
in the obtention of the owners duplicate certificate from the bank, later to be presented to the
Register of Deeds to secure the issuance of two new TCTs in place of the OCT, is another
matter.
Petitioners argue that the 1954 deed of sale was not annotated on the OCT which was issued in
1976 in favor of Eduardo; thus, the Cruzes claim of ownership based on the sale would not
hold water. The Court is not persuaded.
Registration is not a requirement for validity of the contract as between the parties, for the
effect of registration serves chiefly to bind third persons.36 The principal purpose of
registration is merely to notify other persons not parties to a contract that a transaction
involving the property had been entered into. Where the party has knowledge of a prior
existing interest which is unregistered at the time he acquired a right to the same land, his
knowledge of that prior unregistered interest has the effect of registration as to him. 37
Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the
rule. The conveyance shall not be valid against any person unless registered, except (1) the
grantor, (2) his heirs and devisees, and (3) third persons having actual notice or knowledge
thereof.38 Not only are petitioners the heirs of Eduardo, some of them were actually parties to
the Kasulatan executed in favor of Ricardo. Thus, the annotation of the adverse claim of the
Cruzes on the OCT is no longer required to bind the heirs of Eduardo, petitioners herein.
Petitioners had no right to constitute
mortgage over disputed portion
The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil
Code, viz:
ART. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of
their property, and in the absence thereof, that they be legally authorized for the
purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging
or mortgaging their own property. (emphasis supplied)
For a person to validly constitute a valid mortgage on real estate, he must be the absolute
owner thereof as required by Article 2085 of the New Civil Code. 39 The mortgagor must be
the owner, otherwise the mortgage is void.40 In a contract of mortgage, the mortgagor remains
to be the owner of the property although the property is subjected to a lien.41 A mortgage is
regarded as nothing more than a mere lien, encumbrance, or security for a debt, and passes no
title or estate to the mortgagee and gives him no right or claim to the possession of the
property.42 In this kind of contract, the property mortgaged is merely delivered to the
mortgagee to secure the fulfillment of the principal obligation.43 Such delivery does not
empower the mortgagee to convey any portion thereof in favor of another person as the right
to dispose is an attribute of ownership.44 The right to dispose includes the right to donate, to
sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of the property, cannot
dispose of the whole or part thereof nor cause the impairment of the security in any manner
without violating the foregoing rule.45 The mortgagee only owns the mortgage credit, not the
property itself.46
Petitioners submit as an issue whether a mortgagor may be compelled to receive from the
mortgagee a smaller portion of the lot covered by the originally encumbered title, which lot
was partitioned during the subsistence of the mortgage without the knowledge or authority of
the mortgagor as registered owner. This formulation is disingenuous, baselessly assuming, as
it does, as an admitted fact that the mortgagor is the owner of the mortgaged property in its
entirety. Indeed, it has not become a salient issue in this case since the mortgagor was not the
owner of the entire mortgaged property in the first place.
Issuance of OCT No. P-153(M), improper
It is a glaring fact that OCT No. P-153(M) covering the property mortgaged was in the name
of Eduardo, without any annotation of any prior disposition or encumbrance. However, the
property was sufficiently shown to be not entirely owned by Eduardo as evidenced by the
Kasulatan. Readily apparent upon perusal of the records is that the OCT was issued in 1976,
long after the Kasulatan was executed way back in 1954. Thus, a portion of the property
registered in Eduardos name arising from the grant of free patent did not actually belong to
him. The utilization of the Torrens system to perpetrate fraud cannot be accorded judicial
sanction.
Time and again, this Court has ruled that the principle of indefeasibility of a Torrens title does
not apply where fraud attended the issuance of the title, as was conclusively established in this
case. The Torrens title does not furnish a shied for fraud.47 Registration does not vest title. It
is not a mode of acquiring ownership but is merely evidence of such title over a particular
property. It does not give the holder any better right than what he actually has, especially if the
registration was done in bad faith. The effect is that it is as if no registration was made at
all.48 In fact, this Court has ruled that a decree of registration cut off or extinguished a right
acquired by a person when such right refers to a lien or encumbrance on the landnot to the
right of ownership thereofwhich was not annotated on the certificate of title issued
thereon.49
Issuance of TCT Nos. T-9326-P(M)
and T-9327-P(M), Valid
The validity of the issuance of two TCTs, one for the portion sold to the predecessor-in-
interest of the Cruzes and the other for the portion retained by petitioners, is readily apparent
from Section 53 of the Presidential Decree (P.D.) No. 1529 or the Property Registration
Decree. It provides:
SEC 53. Presentation of owners duplicate upon entry of new certificate. No voluntary
instrument shall be registered by the Register of Deeds, unless the owners duplicate
certificate is presented with such instrument, except in cases expressly provided for in this
Decree or upon order of the court, for cause shown.
The production of the owners duplicate certificate, whenever any voluntary instrument
is presented for registration, shall be conclusive authority from the registered owner to
the Register of Deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instrument, and the new certificate or memorandum
shall be binding upon the registered owner and upon all persons claiming under him, in favor
of every purchaser for value and in good faith.
In all cases of registration procured by fraud, the owner may pursue all his legal and equitable
remedies against the parties to such fraud without prejudice, however, to the rights of any
innocent holder of the decree of registration on the original petition or application, any
subsequent registration procured by the presentation of a forged duplicate certificate of title, or
a forged deed or instrument, shall be null and void. (emphasis supplied)
Petitioners argue that the issuance of the TCTs violated the third paragraph of Section 53 of
P.D. No. 1529. The argument is baseless. It must be noted that the provision speaks of forged
duplicate certificate of title and forged deed or instrument. Neither instance obtains in this
case. What the Cruzes presented before the Register of Deeds was the very genuine owners
duplicate certificate earlier deposited by Banaag, Eduardos attorney-in-fact, with RBSP.
Likewise, the instruments of conveyance are authentic, not forged. Section 53 has never been
clearer on the point that as long as the owners duplicate certificate is presented to the Register
of Deeds together with the instrument of conveyance, such presentation serves as conclusive
authority to the Register of Deeds to issue a transfer certificate or make a memorandum of
registration in accordance with the instrument.
The records of the case show that despite the efforts made by the Cruzes in persuading the
heirs of Eduardo to allow them to secure a separate TCT on the claimed portion, their
ownership being amply evidenced by the Kasulatan and Sinumpaang Salaysay where Eduardo
himself acknowledged the sales in favor of Ricardo, the heirs adamantly rejected the notion of
separate titling. This prompted the Cruzes to approach the bank manager of RBSP for the
purpose of protecting their property right. They succeeded in persuading the latter to lend the
owners duplicate certificate. Despite the apparent irregularity in allowing the Cruzes to get
hold of the owners duplicate certificate, the bank officers consented to the Cruzes plan to
register the deeds of sale and secure two new separate titles, without notifying the heirs of
Eduardo about it.
Further, the law on the matter, specifically P.D. No. 1529, has no explicit requirement as to the
manner of acquiring the owners duplicate for purposes of issuing a TCT. This led the Register
of Deeds of Meycauayan as well as the Central Bank officer, in rendering an opinion on the
legal feasibility of the process resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply
requires the production of the owners duplicate certificate, whenever any voluntary
instrument is presented for registration, and the same shall be conclusive authority from the
registered owner to the Register of Deeds to enter a new certificate or to make a memorandum
of registration in accordance with such instrument, and the new certificate or memorandum
shall be binding upon the registered owner and upon all persons claiming under him, in favor
of every purchaser for value and in good faith.
Quite interesting, however, is the contention of the heirs of Eduardo that the surreptitious
lending of the owners duplicate certificate constitutes fraud within the ambit of the third
paragraph of Section 53 which could nullify the eventual issuance of the TCTs. Yet we cannot
subscribe to their position.
Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes went to the bank
where the property was mortgaged. Through its manager and legal officer, they were assured
of recovery of the claimed parcel of land since they are the successors-in-interest of the real
owner thereof. Relying on the bank officers opinion as to the legality of the means sought to
be employed by them and the suggestion of the Central Bank officer that the matter could be
best settled between them and the bank, the Cruzes pursued the titling of the claimed portion
in the name of Ricardo. The Register of Deeds eventually issued the disputed TCTs.
The Cruzes resorted to such means to protect their interest in the property that rightfully
belongs to them only because of the bank officers acquiescence thereto. The Cruzes could not
have secured a separate TCT in the name of Ricardo without the banks approval. Banks, their
business being impressed with public interest, are expected to exercise more care and
prudence than private individuals in their dealings, even those involving registered lands. 50
The highest degree of diligence is expected, and high standards of integrity and performance
are even required of it.51
Indeed, petitioners contend that the mortgagee cannot question the veracity of the registered
title of the mortgagor as noted in the owners duplicate certificate, and, thus, he cannot deliver
the certificate to such third persons invoking an adverse, prior, and unregistered claim against
the registered title of the mortgagor. The strength of this argument is diluted by the peculiar
factual milieu of the case.
A mortgagee can rely on what appears on the certificate of title presented by the mortgagor
and an innocent mortgagee is not expected to conduct an exhaustive investigation on the
history of the mortgagors title. This rule is strictly applied to banking institutions. A
mortgagee-bank must exercise due diligence before entering into said contract. Judicial notice
is taken of the standard practice for banks, before approving a loan, to send representatives to
the premises of the land offered as collateral and to investigate who the real owners thereof
are.52
Banks, indeed, should exercise more care and prudence in dealing even with registered lands,
than private individuals, as their business is one affected with public interest. Banks keep in
trust money belonging to their depositors, which they should guard against loss by not
committing any act of negligence that amounts to lack of good faith. Absent good faith, banks
would be denied the protective mantle of the land registration statute, Act 496, which extends
only to purchasers for value and good faith, as well as to mortgagees of the same character and
description.53 Thus, this Court clarified that the rule that persons dealing with registered lands
can rely solely on the certificate of title does not apply to banks.54
Bank Liable for Nominal Damages
Of deep concern to this Court, however, is the fact that the bank lent the owners duplicate of
the OCT to the Cruzes when the latter presented the instruments of conveyance as basis of
their claim of ownership over a portion of land covered by the title. Simple rationalization
would dictate that a mortgagee-bank has no right to deliver to any stranger any property
entrusted to it other than to those contractually and legally entitled to its possession. Although
we cannot dismiss the banks acknowledgment of the Cruzes claim as legitimized by
instruments of conveyance in their possession, we nonetheless cannot sanction how the bank
was inveigled to do the bidding of virtual strangers. Undoubtedly, the banks cooperative
stance facilitated the issuance of the TCTs. To make matters worse, the bank did not even
notify the heirs of Eduardo. The conduct of the bank is as dangerous as it is unthinkably
negligent. However, the aspect does not impair the right of the Cruzes to be recognized as
legitimate owners of their portion of the property.
Undoubtedly, in the absence of the banks participation, the Register of Deeds could not have
issued the disputed TCTs. We cannot find fault on the part of the Register of Deeds in issuing
the TCTs as his authority to issue the same is clearly sanctioned by law. It is thus ministerial
on the part of the Register of Deeds to issue TCT if the deed of conveyance and the original
owners duplicate are presented to him as there appears on theface of the instruments no badge
of irregularity or nullity.55 If there is someone to blame for the shortcut resorted to by the
Cruzes, it would be the bank itself whose manager and legal officer helped the Cruzes to
facilitate the issuance of the TCTs.1avvphi1
The bank should not have allowed complete strangers to take possession of the owners
duplicate certificate even if the purpose is merely for photocopying for a danger of losing the
same is more than imminent. They should be aware of the conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank which would
necessarily hold it liable for damages under Article 1170 and other relevant provisions of the
Civil Code.56
In the absence of evidence, the damages that may be awarded may be in the form of nominal
damages. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.57 This award rests on the
mortgagors right to rely on the banks observance of the highest diligence in the conduct of
its business. The act of RBSP of entrusting to respondents the owners duplicate certificate
entrusted to it by the mortgagor without even notifying the mortgagor and absent any prior
investigation on the veracity of respondents claim and
character is a patent failure to foresee the risk created by the act in view of the provisions of
Section 53 of P.D. No. 1529. This act runs afoul of every banks mandate to observe the
highest degree of diligence in dealing with its clients. Moreover, a mortgagor has also the right
to be afforded due process before deprivation or diminution of his property is effected as the
OCT was still in the name of Eduardo. Notice and hearing are indispensable elements of this
right which the bank miserably ignored.
Under the circumstances, the Court believes the award of P50,000.00 as nominal damages is
appropriate.
Five-Year Prohibition against alienation
or encumbrance under the Public Land Act
One vital point. Apparently glossed over by the courts below and the parties is an aspect
which is essential, spread as it is all over the record and intertwined with the crux of the
controversy, relating as it does to the validity of the dispositions of the subject property and
the mortgage thereon. Eduardo was issued a title in 1976 on the basis of his free patent
application. Such application implies the recognition of the public dominion character of the
land and, hence, the five (5)-year prohibition imposed by the Public Land Act against
alienation or encumbrance of the land covered by a free patent or homestead58 should have
been considered.
The deed of sale covering the fifty (50)-square meter right of way executed by Eduardo on 18
March 1981 is obviously covered by the proscription, the free patent having been issued on 8
October 1976. However, petitioners may recover the portion sold since the prohibition was
imposed in favor of the free patent holder. In Philippine National Bank v. De los Reyes,59 this
Court ruled squarely on the point, thus:

While the law bars recovery in a case where the object of the contract is contrary to law and
one or both parties acted in bad faith, we cannot here apply the doctrine of in pari delicto
which admits of an exception, namely, that when the contract is merely prohibited by law, not
illegal per se, and the prohibition is designed for the protection of the party seeking to recover,
he is entitled to the relief prayed for whenever public policy is enhanced thereby. Under the
Public Land Act, the prohibition to alienate is predicated on the fundamental policy of the
State to preserve and keep in the family of the homesteader that portion of public land which
the State has gratuitously given to him, and recovery is allowed even where the land acquired
under the Public Land Act was sold and not merely encumbered, within the prohibited
period.60

The sale of the 553 square meter portion is a different story. It was executed in 1954, twenty-
two (22) years before the issuance of the patent in 1976. Apparently, Eduardo disposed of the
portion even before he thought of applying for a free patent. Where the sale or transfer took
place before the filing of the free patent application, whether by the vendor or the vendee, the
prohibition should not be applied. In such situation, neither the prohibition nor the rationale
therefor which is to keep in the family of the patentee that portion of the public land which the
government has gratuitously given him, by shielding him from the temptation to dispose of his
landholding, could be relevant. Precisely, he had disposed of his rights to the lot even before
the government could give the title to him.

The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was
forged in December 1981 a few months past the period of prohibition.

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the

modifications herein. Respondent Rural Bank of San Pascual is hereby ORDERED to PAY
petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages. Respondents
Consuelo Cruz and Rosalina Cruz-Bautista are hereby DIVESTED of title to, and respondent
Register of Deeds of Meycauayan, Bulacan is accordingly ORDERED to segregate, the
portion of fifty (50) square meters of the subject Lot No. 2204, as depicted in the approved
plan covering the lot, marked as Exhibit "A", and to issue a new title covering the said portion
in the name of the petitioners at the expense of the petitioners. No costs.

SO ORDERED.
G.R. No. 161136 November 16, 2006
WILFREDO T. VAGILIDAD and LOLITA A. VAGILIDAD, Petitioners,
vs.
GABINO VAGILIDAD, Jr. and DOROTHY VAGILIDAD, Respondents.
DECISION
PUNO, J.:
This is a Petition for Review on Certiorari of the Decision 1 and Resolution2 of the Court of
Appeals in CA-G.R. No. CV-68318 dated March 19, 2003 and November 13, 2003,
respectively, reversing and setting aside the decision of the Regional Trial Court of Antique,
Sixth Judicial Region, Branch II, in Civil Case No. 2825 dated January 26, 1999.
The facts are stated in the assailed Decision3 of the appellate court, viz.:
A parcel of land, Lot No. 1253, situated in Atabay, San Jose, Antique, measuring 4,280 square
meters, was owned by Zoilo [Labiao] (hereafter ZOILO) as per Original Certificate of Title
No. RO-2301 issued on March 3, 1931. Sometime in 1931, ZOILO died. Subsequently, on
May 12, 1986, Loreto Labiao (hereafter LORETO), son of ZOILO, sold to Gabino Vagilidad
Jr. (hereafter GABINO JR.) a portion of Lot No. 1253 (hereafter Lot 1253-B), measuring
1,604 square meters as evidenced by the Deed of Absolute Sale executed by LORETO.
In view of the death of ZOILO, his children, LORETO, Efren Labiao (hereafter EFREN) and
Priscilla Espanueva (hereafter PRISCILLA) executed an Extrajudicial x x x Settlement of
Estate dated January 20, 1987, adjudicating the entire Lot No. 1253, covering 4,280 square
meters, to LORETO. On January 29, 1987, Transfer Certificate of Title (TCT) No. T-16693
was issued in favor of LORETO, EFREN and PRISCILLA, but on even date, TCT No. T-
16693 was cancelled and TCT No. T-16694, covering the said property, was issued in the
name of LORETO alone.
On July 31, 1987, GABINO JR., as petitioner, filed a Petition for the Surrender of TCT No. T-
16694, covering Lot No. 1253, with the Regional Trial Court of San Jose City, Sixth Judicial
Region, against LORETO, docketed as Cadastral Case No. 87-731-A. The plaintiff alleged
that, being the owner of x x x Lot No. 1253-B, under TCT No. T-16694, by virtue of the sale
that took place on May 12, 1986, he is entitled to ask for the surrender of the owners copy of
TCT No. T-16694 to the Register of Deeds of Antique in order to effect the transfer of title to
the name of the petitioner. However, as per motion of both counsels[,] since the parties
seemed to have already reached an amicable settlement without the knowledge of their
counsels, the trial court issued an Order dated March 21, 1994 sending the case to the archives.
On September 21, 1988, [GABINO JR.] paid real estate taxes on the land he bought from
LORETO as per Tax Declaration No. 1038 where the property was specified as Lot No. 1253-
B. GABINO JR. thereafter sold the same lot to Wilfredo Vagilidad (hereafter WILFREDO) as
per Deed of Absolute Sale dated December 7, 1989. On even date, Deed of Absolute Sale of a
Portion of Land involving the opt-described property was also executed by LORETO in favor
of WILFREDO. The aforementioned deeds, which were both executed on December 7, 1989
[and] notarized by Atty. Warloo Cardenal[,] [appear] to have been given the same entry
number in his notarial books as both contained the designation "Document No. 236, Page No.
49, Book No. XI, Series of 1989[."]
Corollarily, on February 14, 1990, the sale of Lot No. 1253-B to WILFREDO was registered
with the Registry of Deeds of the Province of Antique under Entry No. 180425. Consequently,
TCT No. T-18023, cancelling TCT No. 16694, was issued in favor of WILFREDO pursuant to
the Deed of Absolute Sale dated December 7, 1989.
On October 24, 1991, spouses WILFREDO and LOLITA obtained a loan from the Philippine
National Bank (PNB for brevity) in the amount of P150,000.00 and mortgaged Lot No. 1253-
B as collateral of the said loan and the transaction was inscribed at the back of TCT No. 18023
as Entry No. 186876. Subsequently, the xxx real estate mortgage was cancelled under Entry
No. 191053 as per inscription dated November 17, 1992 in xxx TCT No. 18023.
Subsequently, WILFREDO obtained another loan from Development Bank of the Philippines
(DBP for brevity) in the amount of P200,000.00 and mortgaged Lot No. 1253-B as collateral
of the xxx loan and the transaction was inscribed at the back of TCT No. 18023 as Entry No.
196268. The said loan was paid and, consequently, the mortgage was cancelled as Entry No.
202500.
On September 29, 1995, spouses GABINO and Ma. Dorothy Vagilidad (hereafter
DOROTHY), as plaintiffs, filed a Complaint for Annulment of Document, Reconveyance and
Damages, with the Regional Trial Court of Antique, Sixth Judicial Region, Branch 11, against
spouses WILFREDO and Lolita Vagilidad (hereafter LOLITA), docketed as Civil Case No.
2825. The plaintiffs claimed that they are the lawful owners of Lot No. 1253-B which was
sold to him by LORETO in 1986. They alleged that [GABINO JR.] is a nephew of defendant
WILFREDO. They likewise raised that when GABINO SR. died, defendant WILFREDO
requested GABINO JR. to transfer the ownership of Lot No. 1253-B in defendant
WILFREDOs name for loaning purposes with the agreement that the land will be returned
when the plaintiffs need the same. They added that, pursuant to the mentioned agreement,
plaintiff GABINO JR., without the knowledge and consent of his spouse, DOROTHY,
executed the Deed of Sale dated December 7, 1989 in favor of defendant WILFREDO
receiving nothing as payment therefor. They pointed out that after defendant WILFREDO was
able to mortgage the property, plaintiffs demanded the return of the property but the
defendants refused to return the same. The plaintiffs claimed that the same document is null
and void for want of consideration and the same does not bind the non-consenting spouse.
They likewise prayed that the defendant be ordered to pay the plaintiffs not less than
P100,000.00 as actual and moral damages, P10,000.00 as attorneys fees and P5,000.00 as
litigation expenses.
For their part, the defendants, on January 15, 1996, filed their Answer, denying the material
allegations of the plaintiffs. Defendants claimed that they are the lawful owners of Lot No.
1253-B. They alleged that LORETO, with conformity of his wife, sold to them Lot No. 1253
on December 7, 1989 for P5,000.00 and the transaction was registered with the Register of
Deeds of the Province of Antique under Entry No. 180425. They added that, subsequently,
TCT No. T-18023, covering Lot No. 1253-B, was issued in favor of the defendants. Hence,
they claimed that the plaintiffs be directed to pay the defendants P200,000.00 as moral
damages, P50,000.00 as exemplary damages, P20,000.00 as attorneys fees and P30,000.00
for litigation expenses.4
The trial court ruled in favor of petitioners WILFREDO and LOLITA and held that LORETO
did not validly convey Lot No. 1253-B to GABINO, JR. on May 12, 1986 since at that time,
the heirs of ZOILO had not partitioned Lot No. 1253.5 It ruled that LORETO could only sell
at that time his aliquot share in the inheritance. He could not have sold a divided part thereof
designated by metes and bounds. Thus, it held that LORETO remained the owner of the
subject lot when he sold it to WILFREDO on December 7, 1989. It further found that there
was no proof that WILFREDO knew of the sale that took place between LORETO and
GABINO, JR. on May 12, 1986. The dispositive portion of the decision states:
WHEREFORE, in view of the foregoing pronouncements and a preponderance of evidence,
judgment is hereby rendered:
1. FINDING the defendants WILFREDO VAGILIDAD and LOLITA VAGILIDAD
to have duly acquired ownership of Lot No. 1253-B containing an area of 1,604
square meters, more or less, situated in San Jose, Antique;
2. SUSTAINING the validity of Transfer Certificate of Title No. T-18023 covering
the subject Lot No. 1253-B and issued in the name of the defendant WILFREDO
VAGILIDAD, married to the defendant LOLITA VAGILIDAD;
3. DISMISSING the complaint of the plaintiffs GABINO VAGILIDAD, JR. and
MA. DOROTHY VAGILIDAD, as well as the counterclaims of the defendants
WILFREDO VAGILIDAD and LOLITA VAGILIDAD and of the defendants
LORETO LABIAO and FRANCISCA LABIAO; and
4. PRONOUNCING no cost.6
GABINO, JR. and DOROTHY filed an appeal with the Court of Appeals. The appellate court
reversed and set aside the decision of the court a quo, viz.:
WHEREFORE, premises considered, the Decision dated January 26, 1999 of the Regional
Trial Court of Antique, Sixth Judicial Region, Branch 11, in Civil Case No. 2825, is hereby
REVERSED and SET ASIDE and a new one is entered: (1) declaring the Deed of Absolute
Sale [of Portion of Land] dated December 7, 1989 executed by appellee LORETO in favor of
appellee WILFREDO null and void; (2) ordering the defendants-appellees WILFREDO and
LOLITA to reconvey Lot No. 1253-B to plaintiffs-appellants GABINO, JR. and DOROTHY;
and (3) ordering the defendants-appellees to pay the plaintiffs-appellants P100,000.00 as
moral damages, P10,000.00 as attorneys fees and P5,000.00 as litigation expenses.7
The appellate court ruled that the sale made by LORETO in favor of GABINO, JR. on May 12,
1986 is valid. The rights of LORETO to succession are transmitted from the moment of
ZOILOs death in 1931. Thus, when LORETO sold the 1,604-square meter portion of Lot No.
1253 to GABINO JR., he already had the right as co-owner to his share to Lot No. 1253, even
if at that time the property had not yet been partitioned. Consequently, the sale made by
LORETO in favor of WILFREDO on December 7, 1989 is void because LORETO and
FRANCISCA were no longer the owners of Lot No. 1253-B as of that time. The appellate
court also held WILFREDO and LOLITA liable for moral damages for falsifying the fictitious
deeds of sale on December 7, 1989.
WILFREDO and LOLITA moved for reconsideration but the motion was denied in the
questioned Resolution dated November 13, 2003. Hence, this petition for review on certiorari
raising the following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING
ARTICLE 1349 AND ARTICLE 1460 OF THE NEW CIVIL CODE IN THE CASE
AT BAR.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE
PROVISION OF ARTICLE 1544 OF THE NEW CIVIL CODE AND THE
DOCTRINE OF DOUBLE SALE THAT THE BUYER WHO IS IN POSSESSION
OF THE TORRENS TITLE AND HAD THE DEED OF SALE REGISTERED
MUST PREVAIL.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING
ARTICLE 1391 OF THE NEW CIVIL CODE AND THE DOCTRINE THAT IN
CASE OF FRAUD, ACTION FOR RECONVEYANCE MUST BE BROUGHT
WITHIN FOUR (4) YEARS FROM THE DISCOVERY OF THE FRAUD.
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PRIVATE
RESPONDENT MORAL DAMAGES, ATTORNEYS FEES AND LITIGATION
EXPENSES.8
We deny the petition.
I
First, petitioners contend that the Deed of Absolute Sale between LORETO and GABINO, JR.
does not have a determinate object. They anchor their claim on the following discrepancies: (1)
the object of the Deed of Absolute Sale between LORETO and GABINO, JR. is Lot No. 1253
with an area of 1,604 square meters; (2) the object of the Deed of Absolute Sale of Portion of
Land between LORETO and WILFREDO is a portion of Lot No. 1253, known as Lot No.
1253-B, also with an area of 1,604 square meters;9 (3) the Deed of Absolute Sale between
LORETO and GABINO, JR. shows that its object, Lot No. 1253, is not registered under the
Land Registration Act nor under the Spanish Mortgage Law; and (4) the property subject of
this action, Lot No. 1253-B, was taken from Lot No. 1253 containing an area of 4,280 square
meters previously registered in the name of ZOILO under Original Certificate of Title (OCT)
No. RO-2301.10 With these discrepancies, petitioners contend that either the Deed of
Absolute Sale between LORETO and GABINO, JR. does not have a determinate object or that
Lot No. 1253-B, the subject parcel, is not the object thereof. Hence, absent a determinate
object, the contract is void. They rely on Articles 1349 and 1460 of the Civil Code, viz.:
Art. 1349. The object of every contract must be determinate, as to its kind. The fact that the
quantity is not determinate shall not be an obstacle to the existence of the contract, provided it
is possible to determine the same, without the need of a new contract between the parties.
Art. 1460. A thing is determinate when it is particularly designated or physically segregated
from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into,
the thing is capable of being made determinate without the necessity of a new or further
agreement between the parties.
Petitioners err. The evidence on record shows that Lot No. 1253-B, the subject parcel, and the
lot described as Lot No. 1253 in the Deed of Absolute Sale of May 12, 1986 between
LORETO and GABINO, JR., are the same. In the Deed of Absolute Sale, Lot No. 1253 is
described, viz.:
A parcel of land (Lot No. 1253 of the Cadastral Survey of San Jose), with the improvements
thereon. Bounded on the North [by] 1254 and 1255; on the South by road; on the East by 1253
and road on the West by 1240-Angel Salazar; containing an area of 1,604 square meters more
or less declared under Tax Declaration No. 4159.11
In the Deed of Absolute Sale of Portion of Land of December 7, 1989 between LORETO and
WILFREDO, the subject parcel is described, viz.:
A parcel of land (Lot No. 1253. Ap-06-00271) of the Cadastral Survey of San Jose, LRC Cad.
Rec. No. 936), situated at Atabay, San Jose, Antique. Bounded on the N. and E. along lines 1-
2-3 by lot 1255; San Jose Cadastre; on the S. along line 3-4 by Road; on the W. along line 4-5
by Lot 1240; San Jose Cadastre; and on the N. along line 5-1 by Lot 1254, San Jose Cadastre
containing an area of [Four] Thousand Two Hundred Eighty (4,280) square meters, more or
less.
of which a portion of land subject of this sale is hereinbelow (sic) particularly described as
follows, to wit:
A portion of Lot No. 1253-B of the Cadastral Survey of San Jose, situated at Atabay, San Jose,
Antique. Bounded on the North by Lot No. 1254; South by Road; West by Lot 1253-A; and on
the East by Lot No. 1253-C; containing an area of 1,604 square meters, more or less.12
The description of Lot No. 1253, the object of the Deed of Absolute Sale, as "not registered
under Act No. 196[,] otherwise known as the Land Registration Act, nor under the Spanish
Mortgage Law"13 is a stray description of the subject parcel. It is uncorroborated by any
evidence in the records. This description solely appears on the Deed of Absolute Sale and the
discrepancy was not explained by LORETO who signed the Deed of Absolute Sale as vendor.
LORETO does not, in fact, deny the existence of the Deed of Absolute Sale. He merely
counters that the Deed of Absolute Sale was purportedly a mortgage. However, LORETOs
claim that it was one of mortgage is clearly negated by a Certification14 issued by the Bureau
of Internal Revenue dated May 12, 1986. It certified that LORETO was not required to pay the
capital gains tax on the transfer of Lot No. 1253 to GABINO, JR. because the property was
classified as an ordinary asset.
To be sure, petitioners could have easily shown that LORETO owned properties other than
Lot No. 1253 to bolster their claim that the object of the Deed of Absolute Sale was different
from Lot No. 1253-B which is the object described in the Deed of Absolute Sale of Portion of
Land. They did not proffer any evidence.
The trial court itself comprehensively traced the origin of Lot No. 1253-B. It clearly
demonstrated that the subject parcel was originally part of the registered lot of ZOILO. It also
showed how the subject parcel was eventually bounded by Lot No. 1253-A on the West and
by Lot No. 1253-C on the East, as the lot would be later described in the Deed of Absolute
Sale of Portion of Land.
The trial court found that ZOILO previously owned Lot No. 1253 under OCT No. RO-2301
issued on March 3, 1931. On November 14, 1986, Entry No. 167922 was inscribed in the
certificate of title, per Order dated March 30, 1978 of Judge Noli Ma. Cortes of the then Court
of First Instance of Antique, stating that it was a reconstituted certificate of title. 15 Lot No.
1253 was subdivided by virtue of a subdivision plan dated June 19, 1987. On January 20, 1987,
an Extrajudicial Settlement of Estate executed by LORETO, EFREN and PRISCILLA was
entered as Entry No. 170722. The OCT of ZOILO was cancelled by TCT No. T-16693 in the
names of LORETO, EFREN and PRISCILLA on January 29, 1987. TCT No. T-16693 was
cancelled on the same day by TCT No. T-16694 in the name of LORETO alone. The TCT was
partially cancelled by the issuance of TCTs covering Lot Nos. 1253-A, 1253-C and 1253-D.
The TCT of Lot No. 1253-B was issued in the name of WILFREDO married to LOLITA on
February 15, 1990. WILFREDOs TCT No. T-18023 appears to be a transfer from LORETOs
TCT No. T-16694.
II
Next, petitioners contend that the appellate court should have upheld the title of WILFREDO
under Article 1544 of the Civil Code and the doctrine of double sale where the buyer who is in
possession of the Torrens Title must prevail.16 First, petitioners title was issued pursuant to
the purported Deed of Absolute Sale of Portion of Land dated December 7, 1989. Second,
WILFREDO did not see any encumbrance at the back of the title of the subject lot when he
purchased it from LORETO on December 7, 1989. Thus, since he is not bound to go beyond
the certificate of title, he has acquired the subject property in due course and in good faith.
We disagree. Article 1544 of the Civil Code states, viz.:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
Petitioners reliance on Article 1544 is misplaced. While title to the property was issued in
WILFREDOs name on February 15, 1990, the following circumstances show that he
registered the subject parcel with evident bad faith.
First, the Deed of Absolute Sale of Portion of Land dated December 7, 1989 between
LORETO and WILFREDO is tainted with blatant irregularities. It is a fact that the Deed of
Absolute Sale of Portion of Land and the Deed of Absolute Sale between GABINO, JR. and
WILFREDO are of even date. Both Deeds had the same object Lot No. 1253-B. Both deeds
were notarized by Atty. Warloo Cardenal and bear the same entry in his notarial register:
Document No. 236, Page No. 49, Book No. XI, Series of 1989.
Second, the testimony of a disinterested witness, Febe Mabuhay, established the irregularity.
Mabuhay used to work as secretary for Atty. Cardenal and co-signed as witness in both Deeds.
She stated that Atty. Cardenal instructed her to prepare the two documents in the last week of
November 1989. She was present when GABINO, JR. signed the Deed of Absolute Sale. She
testified that after GABINO, JR. left, LORETO and his wife FRANCISCA arrived and signed
the Deed of Absolute Sale of Portion of Land.17 The Decision of the court a quo further states,
viz.:
[Mabuhay testified that when she prepared the two documents, she] noticed the similarity of
Lot No. 1253 as technically described in both documents but she did not call the attention of
Atty. Warlo[o] Cardenal. [She likewise stated that Atty. Cardenal] specifically instructed her
to assign the same document number to the two documents notarized on December 7, 1989.18
Third, the testimony of Atty. Ernesto Estoya, then Clerk of Court of the Regional Trial Court
of Antique, supports the claim that there was bad faith in the execution of the Deed of
Absolute Sale of Portion of Land. Atty. Estoya brought the notarial record of Atty. Cardenal
for the year 1989 pursuant to a subpoena. He stated that he had not brought both Deeds as
required in the subpoena because "Doc. No. 236; Page No. 49; Book No. XI; Series of 1989"
as entered in the notarial register of Atty. Cardenal could not be found in the files. He further
explained that the last document on page 48 of the notarial register of Atty. Cardenal is
Document No. 235, while the first document on page 49 is Document No. 239, leaving three
unexplained gaps for document numbers 236, 237 and 238. Atty. Estoya stated that he was not
the one who received the 1989 notarial register of Atty. Cardenal when the latter surrendered it
since he assumed office only in 1994.19
Fourth, we give credence to the testimony of GABINO, JR. that LORETO and WILFREDO
had employed the scheme to deprive him and his wife of their lawful title to the subject
property. The facts speak for themselves. WILFREDO knew that he could not use the Deed of
Absolute Sale executed in his favor by GABINO, JR. because the latter had no title to transfer.
Without a title, WILFREDO could not use the subject property as collateral for a bank loan.
Hence, LORETO, who had refused to surrender the title to GABINO, JR. and in whose name
the land remained registered, had to execute the Deed of Absolute Sale of Portion of Land in
favor of WILFREDO. Hence, it was convenient for WILFREDO to deny the existence of the
Deed of Absolute Sale of December 7, 1989 between him and GABINO, JR. But the evidence
on record shows that after he was able to register the subject property in his name on February
15, 1990, WILFREDO used the title as collateral in the loans that he contracted with the
Philippine National Bank on October 24, 1991 and the Development Bank of the Philippines
on December 1, 1993. This supports the claim of GABINO, JR. that WILFREDO needed the
lot for loaning purposes.
With these corroborating circumstances and the following irrefragable documents on record,
the evidence preponderates in favor of GABINO, JR. One, he acquired Lot No.1253-B from
LORETO on May 12, 198620 by virtue of the Deed of Absolute Sale. Two, the Bureau of
Internal Revenue issued a Certification, also on May 12, 1986, for the exemption from the
payment of capital gains tax when LORETO sold to him the subject parcel. Three, GABINO,
JR. paid the real estate tax on the subject parcel in 1987. Four, he filed a Petition for the
Surrender of LORETOs title on July 31, 1987 so he could transfer the title of the property in
his name.
Petitioners likewise err in their argument that the contract of sale between LORETO and
GABINO, JR. is void on the ground that at the time of the sale on May 12, 1986, LORETO
had a right to dispose only an aliquot part of the yet undivided property of ZOILO. The subject
parcel, being an inherited property, is subject to the rules of co-ownership under the Civil
Code.
Co-ownership is the right of common dominion which two or more persons have in a spiritual
part of a thing, not materially or physically divided. 21 Before the partition of the property held
in common, no individual or co-owner can claim title to any definite portion thereof. All that
the co-owner has is an ideal or abstract quota or proportionate share in the entire property. 22
LORETO sold the subject property to GABINO, JR. on May 12, 1986 as a co-owner.
LORETO had a right, even before the partition of the property on January 19, 1987, 23 to
transfer in whole or in part his undivided interest in the lot even without the consent of his co-
heirs. This right is absolute in accordance with the well-settled doctrine that a co-owner has
full ownership of his pro-indiviso share and has the right to alienate, assign or mortgage it, and
substitute another person for its enjoyment.24 Thus, what GABINO, JR. obtained by virtue of
the sale on May 12, 1986 were the same rights as the vendor LORETO had as co-owner, in an
ideal share equivalent to the consideration given under their transaction. 25
LORETO sold some 1,604 square meters of Lot No. 1253 to GABINO, JR. Consequently,
when LORETO purportedly sold to WILFREDO on December 7, 1989 the same portion of the
lot, he was no longer the owner of Lot No. 1253-B. Based on the principle that "no one can
give what he does not have,"26 LORETO could not have validly sold to WILFREDO on
December 7, 1989 what he no longer had. As correctly pointed out by the appellate court, the
sale made by LORETO in favor of WILFREDO is void as LORETO did not have the right to
transfer the ownership of the subject property at the time of sale.
III
Petitioners contend that since the subdivision plan of Lot No. 1253 was only approved on
January 19, 1987, the appellate court can not presume
that the aliquot part of LORETO was the parcel designated as Lot 1253-B.27
Petitioners err. The mere fact that LORETO sold a definite portion of the co-owned lot by
metes and bounds before partition does not, per se, render the sale a nullity. We held in Lopez
v. Vda. De Cuaycong28 that the fact that an agreement purported to sell a concrete portion of
a co-owned property does not render the sale void, for it is well-established that the binding
force of a contract must be recognized as far as it is legally possible to do so. 29
In the case at bar, the contract of sale between LORETO and GABINO, JR. on May 12, 1986
could be legally recognized.1wphi1 At the time of sale, LORETO had an aliquot share of
one-third of the 4,280-square meter property or some 1,42630 square meters but sold some
1,604 square meters to GABINO, JR. We have ruled that if a co-owner sells more than his
aliquot share in the property, the sale will affect only his share but not those of the other co-
owners who did not consent to the sale.31 Be that as it may, the co-heirs of LORETO waived
all their rights and interests over Lot No. 1253 in favor of LORETO in an Extrajudicial
Settlement of Estate dated January 20, 1987. They declared that they have previously received
their respective shares from the other estate of their parents ZOILO and PURIFICACION. 32
The rights of GABINO, JR. as owner over Lot No. 1253-B are thus preserved. These rights
were not effectively transferred by LORETO to WILFREDO in the Deed of Absolute Sale of
Portion of Land. Nor were these rights alienated from GABINO, JR. upon the issuance of the
title to the subject property in the name of WILFREDO. Registration of property is not a
means of acquiring ownership.33 Its alleged incontrovertibility cannot be successfully invoked
by WILFREDO because certificates of title cannot be used to protect a usurper from the true
owner or be used as a shield for the commission of fraud.34
IV
On the issue of prescription, petitioners contend that the appellate court failed to apply the rule
that an action for reconveyance based on fraud prescribes after the lapse of four years. 35 They
cite Article 139136 of the Civil Code and the case of Gerona v. De Guzman.37
We disagree. This Court explained in Salvatierra v. Court of Appeals,38 viz.:
An action for reconveyance based on an implied or constructive trust must perforce prescribe
in ten years and not otherwise. A long line of decisions of this Court, and of very recent
vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action for
reconveyance based on an implied or constructive trust prescribes in ten years from the
issuance of the Torrens title over the property. The only discordant note, it seems, is Balbin
v. Medalla, which states that the prescriptive period for a reconveyance action is four
years. However, this variance can be explained by the erroneous reliance on Gerona v.
de Guzman. But in Gerona, the fraud was discovered on June 25, 1948, hence Section
43(3) of Act No. 190 was applied, the New Civil Code not coming into effect until August
30, 1950 xxx. It must be stressed, at this juncture, that Article 1144 and Article 1456 are
new provisions. They have no counterparts in the old Civil Code or in the old Code of
Civil Procedure, the latter being then resorted to as legal basis of the four-year
prescriptive period for an action for reconveyance of title of real property acquired
under false pretenses.39
[Thus,] under the present Civil Code, xxx just as an implied or constructive trust is an
offspring of xxx Art. 1456, xxx so is the corresponding obligation to reconvey the property
and the title thereto in favor of the true owner. In this context, and vis--vis prescription,
Article 1144 of the Civil Code is applicable[, viz.:]
Art. 1144. The following actions must be brought within ten years from the time the right of
action accrues:
1) Upon a written contract;
2) Upon an obligation created by law;
3) Upon a judgment.40 (emphases supplied)
Thus, in the case at bar, although the TCT of WILFREDO became indefeasible after the lapse
of one year from the date of registration, the attendance of fraud in its issuance created an
implied trust in favor of GABINO, JR. under Article 1456 41 of the Civil Code. Being an
implied trust, the action for reconveyance of the subject property therefore prescribes within a
period of ten years from February 15, 1990. Thus, when respondents filed the instant case with
the court a quo on September 26, 1995, it was well within the prescriptive period.

On the issue of damages, petitioners contend that the grant is erroneous and the alleged
connivance between Atty. Cardenal and WILFREDO lacks basis.

We disagree. The evidence on record is clear that petitioners committed bad faith in the
execution of the purported Deed of Absolute Sale of Portion of Land dated December 7, 1989
between LORETO and WILFREDO. As stated by the appellate court, viz.:

xxxx From the series of events, it can be reasonably inferred that appellees WILFREDO,
LORETO and Atty. Cardenal connived in attempting to deprive appellants of Lot No. 1253-B,
hence, the appellants entitlement to moral damages. Further, it is a well-settled rule that
attorneys fees are allowed to be awarded if the claimant is compelled to litigate with third
persons or to incur expenses to protect his interest by reason of an unjustified act or omission
of the party for whom it is sought. xxxx To protect themselves, the appellants engaged the
services of counsel and incurred expenses in the course of litigation. Hence, we deem it
equitable to award attorneys fees to the appellant xxx.42

IN VIEW WHEREOF, the petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. No. CV-68318 dated March 19, 2003 and November 13, 2003,
respectively, are AFFIRMED in toto. Costs against petitioners.

SO ORDERED.
G.R. No. 74470 March 8, 1989
NATIONAL GRAINS AUTHORITY and WILLLAM CABAL, petitioners
vs.
THE INTERMEDIATE APPELLATE COURT and LEON SORIANO, respondents.
Cordoba, Zapanta, Rola & Garcia for petitioner National Grains Authority.
Plaridel Mar Israel for respondent Leon Soriano.
MEDIALDEA, J.:
This is a petition for review of the decision (pp. 9-21, Rollo) of the Intermediate Appellate
Court (now Court of Appeals) dated December 23, 1985 in A.C. G.R. CV No. 03812 entitled,
"Leon Soriano, Plaintiff- Appellee versus National Grains Authority and William Cabal,
Defendants Appellants", which affirmed the decision of the Court of First Instance of Cagayan,
in Civil Case No. 2754 and its resolution (p. 28, Rollo) dated April 17, 1986 which denied the
Motion for Reconsideration filed therein.
The antecedent facts of the instant case are as follows:
Petitioner National Grains Authority (now National Food Authority, NFA for short) is a
government agency created under Presidential Decree No. 4. One of its incidental functions is
the buying of palay grains from qualified farmers.
On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to the NFA,
through William Cabal, the Provincial Manager of NFA stationed at Tuguegarao, Cagayan. He
submitted the documents required by the NFA for pre-qualifying as a seller, namely: (1)
Farmer's Information Sheet accomplished by Soriano and certified by a Bureau of Agricultural
Extension (BAEX) technician, Napoleon Callangan, (2) Xerox copies of four (4) tax
declarations of the riceland leased to him and copies of the lease contract between him and
Judge Concepcion Salud, and (3) his Residence Tax Certificate. Private respondent Soriano's
documents were processed and accordingly, he was given a quota of 2,640 cavans of palay.
The quota noted in the Farmer's Information Sheet represented the maximum number of
cavans of palay that Soriano may sell to the NFA.
In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano
delivered 630 cavans of palay. The palay delivered during these two days were not rebagged,
classified and weighed. when Soriano demanded payment of the 630 cavans of palay, he was
informed that its payment will be held in abeyance since Mr. Cabal was still investigating on
an information he received that Soriano was not a bona tide farmer and the palay delivered by
him was not produced from his farmland but was taken from the warehouse of a rice trader,
Ben de Guzman. On August 28, 1979, Cabal wrote Soriano advising him to withdraw from the
NFA warehouse the 630 cavans Soriano delivered stating that NFA cannot legally accept the
said delivery on the basis of the subsequent certification of the BAEX technician, Napoleon
Callangan that Soriano is not a bona fide farmer.
Instead of withdrawing the 630 cavans of palay, private respondent Soriano insisted that the
palay grains delivered be paid. He then filed a complaint for specific performance and/or
collection of money with damages on November 2, 1979, against the National Food Authority
and Mr. William Cabal, Provincial Manager of NFA with the Court of First Instance of
Tuguegarao, and docketed as Civil Case No. 2754.
Meanwhile, by agreement of the parties and upon order of the trial court, the 630 cavans of
palay in question were withdrawn from the warehouse of NFA. An inventory was made by the
sheriff as representative of the Court, a representative of Soriano and a representative of NFA
(p. 13, Rollo).
On September 30, 1982, the trial court rendered judgment ordering petitioner National Food
Authority, its officers and agents to pay respondent Soriano (as plaintiff in Civil Case No.
2754) the amount of P 47,250.00 representing the unpaid price of the 630 cavans of palay plus
legal interest thereof (p. 1-2, CA Decision). The dispositive portion reads as follows:
WHEREFORE, the Court renders judgment in favor of the plaintiff and
against the defendants National Grains Authority, and William Cabal and
hereby orders:
1. The National Grains Authority, now the National Food Authority, its
officers and agents, and Mr. William Cabal, the Provincial Manager of the
National Grains Authority at the time of the filing of this case, assigned at
Tuguegarao, Cagayan, whomsoever is his successors, to pay to the plaintiff
Leon T. Soriano, the amount of P47,250.00, representing the unpaid price
of the palay deliveries made by the plaintiff to the defendants consisting of
630 cavans at the rate Pl.50 per kilo of 50 kilos per cavan of palay;
2. That the defendants National Grains Authority, now National Food
Authority, its officer and/or agents, and Mr. William Cabal, the Provincial
Manager of the National Grains Authority, at the time of the filing of this
case assigned at Tuguegarao, Cagayan or whomsoever is his successors,
are likewise ordered to pay the plaintiff Leon T. Soriano, the legal interest
at the rate of TWELVE (12%) percent per annum, of the amount of P
47,250.00 from the filing of the complaint on November 20, 1979, up to
the final payment of the price of P 47,250.00;
3. That the defendants National Grains Authority, now National Food
Authority, or their agents and duly authorized representatives can now
withdraw the total number of bags (630 bags with an excess of 13 bags)
now on deposit in the bonded warehouse of Eng. Ben de Guzman at
Tuguegarao, Cagayan pursuant to the order of this court, and as appearing
in the written inventory dated October 10, 1980, (Exhibit F for the plaintiff
and Exhibit 20 for the defendants) upon payment of the price of P
47,250.00 and TWELVE PERCENT (12%) legal interest to the plaintiff,
 4. That the counterclaim of the defendants is hereby dismissed;
5. That there is no pronouncement as to the award of moral and exemplary
damages and attorney's fees; and
6. That there is no pronouncement as to costs.
SO ORDERED (pp. 9-10, Rollo)
Petitioners' motion for reconsideration of the decision was denied on December 6, 1982.
Petitioners' appealed the trial court's decision to the Intermediate Appellate Court. In a
decision promulgated on December 23, 1986 (pp. 9-21, Rollo) the then Intermediate Appellate
Court upheld the findings of the trial court and affirmed the decision ordering NFA and its
officers to pay Soriano the price of the 630 cavans of rice plus interest. Petitioners' motion for
reconsideration of the appellate court's decision was denied in a resolution dated April 17,
1986 (p. 28, Rollo).
Hence, this petition for review filed by the National Food Authority and Mr. William Cabal on
May 15, 1986 assailing the decision of the Intermediate Appellate Court on the sole issue of
whether or not there was a contract of sale in the case at bar.
Petitioners contend that the 630 cavans of palay delivered by Soriano on August 23, 1979 was
made only for purposes of having it offered for sale. Further, petitioners stated that the
procedure then prevailing in matters of palay procurement from qualified farmers were: firstly,
there is a rebagging wherein the palay is transferred from a private sack of a farmer to the
NFA sack; secondly, after the rebagging has been undertaken, classification of the palay is
made to determine its variety; thirdly, after the determination of its variety and convinced that
it passed the quality standard, the same will be weighed to determine the number of kilos; and
finally, it will be piled inside the warehouse after the preparation of the Warehouse Stock
Receipt (WSP) indicating therein the number of kilos, the variety and the number of bags.
Under this procedure, rebagging is the initial operative act signifying acceptance, and
acceptance will be considered complete only after the preparation of the Warehouse Stock
Receipt (WSR). When the 630 cavans of palay were brought by Soriano to the Carig
warehouse of NFA they were only offered for sale. Since the same were not rebagged,
classified and weighed in accordance with the palay procurement program of NFA, there was
no acceptance of the offer which, to petitioners' mind is a clear case of solicitation or an
unaccepted offer to sell.
The petition is not impressed with merit.
Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the
contracting parties obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other party to pay therefore a price certain in money or its equivalent. A contract,
on the other hand, is a meeting of minds between two (2) persons whereby one binds himself,
with respect to the other, to give something or to render some service (Art. 1305, Civil Code
of the Philippines). The essential requisites of contracts are: (1) consent of the contracting
parties, (2) object certain which is the subject matter of the contract, and (3) cause of the
obligation which is established (Art. 1318, Civil Code of the Philippines.
In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to
NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a
quota of 2,640 cavans, there was already a meeting of the minds between the parties. The
object of the contract, being the palay grains produced in Soriano's farmland and the NFA was
to pay the same depending upon its quality. The fact that the exact number of cavans of palay
to be delivered has not been determined does not affect the perfection of the contract. Article
1349 of the New Civil Code provides: ". . .. The fact that the quantity is not determinate shall
not be an obstacle to the existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties." In this case, there was no need
for NFA and Soriano to enter into a new contract to determine the exact number of cavans of
palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed
2,640 cavans.
In its memorandum (pp. 66-71, Rollo) dated December 4, 1986, petitioners further contend
that there was no contract of sale because of the absence of an essential requisite in contracts,
namely, consent. It cited Section 1319 of the Civil Code which states: "Consent is manifested
by the meeting of the offer and the acceptance of the thing and the cause which are to
constitute the contract. ... " Following this line, petitioners contend that there was no consent
because there was no acceptance of the 630 cavans of palay in question.
The above contention of petitioner is not correct Sale is a consensual contract, " ... , there is
perfection when there is consent upon the subject matter and price, even if neither is
delivered." (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560) This is provided
by Article 1475 of the Civil Code which states:
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
xxx
The acceptance referred to which determines consent is the acceptance of the offer of one
party by the other and not of the goods delivered as contended by petitioners.
From the moment the contract of sale is perfected, it is incumbent upon the parties to comply
with their mutual obligations or "the parties may reciprocally demand performance" thereof.
(Article 1475, Civil Code, 2nd par.).
The reason why NFA initially refused acceptance of the 630 cavans of palay delivered by
Soriano is that it (NFA) cannot legally accept the said delivery because Soriano is allegedly
not a bona fide farmer. The trial court and the appellate court found that Soriano was a bona
fide farmer and therefore, he was qualified to sell palay grains to NFA.
Both courts likewise agree that NFA's refusal to accept was without just cause. The above
factual findings which are supported by the record should not be disturbed on appeal.
ACCORDINGLY, the instant petition for review is DISMISSED. The assailed decision of the
then Intermediate Appellate Court (now Court of Appeals) is affirmed. No costs.
SO ORDERED
G.R. No. 104482 January 22, 1996
BELINDA TAEDO, for herself and in representation of her brothers and sisters, and
TEOFILA CORPUZ TAEDO, representing her minor daughter VERNA TAEDO,
petitioners,
vs.
THE COURT OF APPEALS, SPOUSES RICARDO M. TAEDO AND TERESITA
BARERA TAEDO, respondents.
DECISION
PANGANIBAN, J.:
Is a sale of future inheritance valid? In multiple sales of the same real property, who has
preference in ownership? What is the probative value of the lower court's finding of good faith
in registration of such sales in the registry of property? These are the main questions raised in
this Petition for review on certiorari under Rule 45 of the Rules of Court to set aside and
reverse the Decision1 of the Court of Appeals2 in CA-G.R. CV NO. 24987 promulgated on
September 26, 1991 affirming the decision of the Regional Trial Court, Branch 63, Third
Judicial Region, Tarlac, Tarlac in Civil Case No. 6328, and its Resolution denying
reconsideration thereof, promulgated on May 27, 1992.
By the Court's Resolution on October 25, 1995, this case (along with several others) was
transferred from the First to the Third Division and after due deliberation, the Court assigned it
to the undersigned ponente for the writing of this Decision.
The Facts
On October 20, 1962, Lazardo Taedo executed a notarized deed of absolute sale in favor of
his eldest brother, Ricardo Taedo, and the latter's wife, Teresita Barera, private respondents
herein, whereby he conveyed to the latter in consideration of P1,500.00, "one hectare of
whatever share I shall have over Lot No. 191 of the cadastral survey of Gerona, Province of
Tarlac and covered by Title T-13829 of the Register of Deeds of Tarlac", the said property
being his "future inheritance" from his parents (Exh. 1). Upon the death of his father Matias,
Lazaro executed an "Affidavit of Conformity" dated February 28, 1980 (Exh. 3) to "re-affirm,
respect, acknowledge and validate the sale I made in 1962." On January 13, 1981, Lazaro
executed another notarized deed of sale in favor of private respondents covering his
"undivided ONE TWELVE (1/12) of a parcel of land known as Lot 191 . . . " (Exh. 4). He
acknowledged therein his receipt of P10,000.00 as consideration therefor. In February 1981,
Ricardo learned that Lazaro sold the same property to his children, petitioners herein, through
a deed of sale dated December 29, 1980 (Exh. E). On June 7, 1982, private respondents
recorded the Deed of Sale (Exh. 4) in their favor in the Registry of Deeds and the
corresponding entry was made in Transfer Certificate of Title No. 166451 (Exh. 5).
Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the deeds of
sale executed by Lazaro in favor of private respondents covering the property inherited by
Lazaro from his father.
Petitioners claimed that their father, Lazaro, executed an "Absolute Deed of Sale" dated
December 29, 1980 (Exit. E). Conveying to his ten children his allotted portion tinder the
extrajudicial partition executed by the heirs of Matias, which deed included the land in
litigation (Lot 191).
Petitioners also presented in evidence: (1) a private writing purportedly prepared and signed
by Matias dated December 28, 1978, stating that it was his desire that whatever inheritance
Lazaro would receive from him should be given to his (Lazaro's) children (Exh. A); (2) a
typewritten document dated March 10, 1979 signed by Lazaro in the presence of two
witnesses, wherein he confirmed that he would voluntarily abide by the wishes of his father,
Matias, to give to his (Lazaro's) children all the property he would inherit from the latter (Exh.
B); and (3) a letter dated January 1, 1980 of Lazaro to his daughter, Carmela, stating that his
share in the extrajudicial settlement of the estate of his father was intended for his children,
petitioners herein (Exh. C).
Private respondents, however presented in evidence a "Deed of Revocation of a Deed of Sale"
dated March 12, 1981 (Exh. 6), wherein Lazaro revoked the sale in favor of petitioners for the
reason that it was "simulated or fictitious without any consideration whatsoever".
Shortly after the case a quo was filed, Lazaro executed a sworn statement (Exh. G) which
virtually repudiated the contents of the Deed of Revocation of a Deed of Sale (Exh. 6) and the
Deed of Sale (Exh. 4) in favor of private respondents. However, Lazaro testified that he sold
the property to Ricardo, and that it was a lawyer who induced him to execute a deed of sale in
favor of his children after giving him five pesos (P5.00) to buy a "drink" (TSN September 18,
1985, pp. 204-205).
The trial court decided in favor of private respondents, holding that petitioners failed "to
adduce a proponderance of evidence to support (their) claim." On appeal, the Court of Appeals
affirmed the decision of the trial court, ruling that the Deed of Sale dated January 13, 1981
(Exh. 9) was valid and that its registration in good faith vested title in said respondents.
The Issues
Petitioners raised the following "errors" in the respondent Court, which they also now allege
in the instant Petition:
 I. The trial court erred in concluding that the Contract of Sale of October 20, 1962
(Exhibit 7, Answer) is merely voidable or annulable and not void ab initio pursuant
to paragraph 2 of Article 1347 of the New Civil Code involving as it does a "future
inheritance".
II. The trial court erred in holding that defendants-appellees acted in good faith in
registering the deed of sale of January 13, 1981 (Exhibit 9) with the Register of
Deeds of Tarlac and therefore ownership of the land in question passed on to
defendants-appellees.
III. The trial court erred in ignoring and failing to consider the testimonial and
documentary evidence of plaintiffs-appellants which clearly established by
preponderance of evidence that they are indeed the legitimate and lawful owners of
the property in question.
IV. The decision is contrary to law and the facts of the case and the conclusions
drawn from the established facts are illogical and off-tangent.
From the foregoing, the issues may be restated as follows:
1. Is the sale of a future inheritance valid?
2. Was the subsequent execution on January 13, 1981 (and registration with the
Registry of Property) of a deed of sale covering the same property to the same
buyers valid?
3. May this Court review the findings of the respondent Court (a) holding that the
buyers acted in good faith in registering the said subsequent deed of sale and (b) in
"failing to consider petitioners' evidence"? Are the conclusions of the respondent
Court "illogical and off-tangent"?
The Court's Ruling
At the outset, let it be clear that the "errors" which are reviewable by this Court in this petition
for review on certiorari are only those allegedly committed by the respondent Court of
Appeals and not directly those of the trial court, which is not a party here. The "assignment of
errors" in the petition quoted above are therefore totally misplaced, and for that reason, the
petition should be dismissed. But in order to give the parties substantial justice we have
decided to delve into the issues as above re-stated. The errors attributed by petitioners to the
latter (trial) court will be discussed only insofar as they are relevant to the appellate court's
assailed Decision and Resolution.
The sale made in 1962 involving future inheritance is not really at issue here. In context, the
assailed Decision conceded "it may be legally correct that a contract of sale of anticipated
future inheritance is null and void."3
But to remove all doubts, we hereby categorically rule that, pursuant to Article 1347 of the
Civil Code, "(n)o contract may be entered into upon a future inheritance except in cases
expressly authorized by law."
Consequently, said contract made in 1962 is not valid and cannot be the source of any right
nor the creator of any obligation between the parties.
Hence, the "affidavit of conformity" dated February 28, 1980, insofar as it sought to validate
or ratify the 1962 sale, is also useless and, in the words of the respondent Court, "suffers from
the same infirmity." Even private respondents in their memorandum4 concede this.
However, the documents that are critical to the resolution of this case are: (a) the deed of sale
of January 13, 1981 in favor of private respondents covering Lazaro's undivided inheritance of
one-twelfth (1/12) share in Lot No. 191, which was subsequently registered on June 7, 1982;
and (b) the deed of sale dated December 29, 1980 in favor of petitioners covering the same
property. These two documents were executed after the death of Matias (and his spouse) and
after a deed of extra-judicial settlement of his (Matias') estate was executed, thus vesting in
Lazaro actual title over said property. In other words, these dispositions, though conflicting,
were no longer infected with the infirmities of the 1962 sale.
Petitioners contend that what was sold on January 13, 1981 was only one-half hectare out of
Lot No. 191, citing as authority the trial court's decision. As earlier pointed out, what is on
review in these proceedings by this Court is the Court of Appeals' decision which correctly
identified the subject matter of the January 13, 1981 sale to be the entire undivided 1/12 share
of Lazaro in Lot No. 191 and which is the same property disposed of on December 29, 1980 in
favor of petitioners.
Critical in determining which of these two deeds should be given effect is the registration of
the sale in favor of private respondents with the register of deeds on June 7, 1982.
Article 1544 of the Civil Code governs the preferential rights of vendees in cases of multiple
sales, as follows:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
The property in question is land, an immovable, and following the above-quoted law,
ownership shall belong to the buyer who in good faith registers it first in the registry of
property. Thus, although the deed of sale in favor of private respondents was later than the one
in favor of petitioners, ownership would vest in the former because of the undisputed fact of
registration. On the other hand, petitioners have not registered the sale to them at all.
Petitioners contend that they were in possession of the property and that private respondents
never took possession thereof. As between two purchasers, the one who registered the sale in
his favor has a preferred right over the other who has not registered his title, even if the latter
is in actual possession of the immovable property.5
As to third issue, while petitioners conceded the fact of registration, they nevertheless
contended that it was done in bad faith. On this issue, the respondent Court ruled;
Under the second assignment of error, plaintiffs-appellants contend that defendants-
appellees acted in bad faith when they registered the Deed of Sale in their favor as
appellee Ricardo already knew of the execution of the deed of sale in favor of the
plaintiffs; appellants cite the testimony of plaintiff Belinda Taedo to the effect that
defendant Ricardo Taedo called her up on January 4 or 5, 1981 to tell her that he
was already the owner of the land in question "but the contract of sale between our
father and us were (sic) already consumated" (pp. 9-10, tsn, January 6, 1984). This
testimony is obviously self-serving, and because it was a telephone conversation, the
deed of sale dated December 29, 1980 was not shown; Belinda merely told her uncle
that there was already a document showing that plaintiffs are the owners (p. 80).
Ricardo Taedo controverted this and testified that he learned for the first time of the
deed of sale executed by Lazaro in favor of his children "about a month or sometime
in February 1981" (p. 111, tsn, Nov. 28, 1984). . . . 6
The respondent Court, reviewing the trial court's findings, refused to overturn the latter's
assessment of the testimonial evidence, as follows;
We are not prepared to set aside the finding of the lower court upholding Ricardo
Taedo's testimony, as it involves a matter of credibility of witnesses which the trial
judge, who presided at the hearing, was in a better position to resolve. (Court of
Appeals' Decision, p. 6.)
In this connection, we note the tenacious allegations made by petitioners, both in their basic
petition and in their memorandum, as follows:
1. The respondent Court allegedly ignored the claimed fact that respondent Ricardo
"by fraud and deceit and with foreknowledge" that the property in question had
already been sold to petitioners, made Lazaro execute the deed of January 13, 1981;
2. There is allegedly adequate evidence to show that only 1/2 of the purchase price
of P10,000.00 was paid at the time of the execution of the deed of sale, contrary to
the written acknowledgment, thus showing bad faith;
3. There is allegedly sufficient evidence showing that the deed of revocation of the
sale in favor of petitioners "was tainted with fraud or deceit."
4. There is allegedly enough evidence to show that private respondents "took undue
advantage over the weakness and unschooled and pitiful situation of Lazaro
Taedo . . ." and that respondent Ricardo Taedo "exercised moral ascendancy over
his younger brother he being the eldest brother and who reached fourth year college
of law and at one time a former Vice-Governor of Tarlac, while his younger brother
only attained first year high school . . . ;
5. The respondent Court erred in not giving credence to petitioners' evidence,
especially Lazaro Taedo's Sinumpaang Salaysay dated July 27, 1982 stating that
Ricardo Taedo deceived the former in executing the deed of sale in favor of private
respondents.
To be sure, there are indeed many conflicting documents and testimonies as well as arguments
over their probative value and significance. Suffice it to say, however, that all the above
contentions involve questions of fact, appreciation of evidence and credibility of witnesses,
which are not proper in this review. It is well-settled that the Supreme Court is not a trier of
facts. In petitions for review under Rule 45 of the Revised Rules of Court, only questions of
law may be raised and passed upon. Absent any whimsical or capricious exercise of judgment,
and unless the lack of any basis for the conclusions made by the lower courts be amply
demonstrated, the Supreme Court will not disturb their findings. At most, it appears that
petitioners have shown that their evidence was not believed by both the trial and the appellate
courts, and that the said courts tended to give more credence to the evidence presented by
private respondents. But this in itself is not a reason for setting aside such findings. We are far
from convinced that both courts gravely abused their respective authorities and judicial
prerogatives.
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction
and Development Corp.7
The Court has consistently held that the factual findings of the trial court, as well as the Court
of Appeals, are final and conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts found by the lower courts is allowed
are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures;
when the inference made is manifestly absurd, mistaken or impossible; when there is grave
abuse of discretion in the appreciation of facts; when the judgment is premised on a
misapprehension of facts; when the findings went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee. After a careful study of the case
at bench, we find none of the above grounds present to justify the re-evaluation of the findings
of fact made by the courts below.
In the same vein, the ruling in the recent case of South Sea Surety and Insurance Company,
Inc. vs. Hon. Court of Appeals, et al.8 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court. . . .
(I)t is not the function of this Court to assess and evaluate all over again the evidence,
 testimonial and documentary, adduced by the parties, particularly where, such as
here, the findings of both the trial court and the appellate court on the matter
coincide. (emphasis supplied)
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals is
AFFIRMED. No Costs.
SO ORDERED.
G.R. No. 131679 February 1, 2000
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY,
petitioners,
vs.
SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS,
respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR
CV No. 42315 and the order dated December 9, 1997 denying petitioners' motion for
reconsideration.
The following facts are not in dispute.
Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC)
are banking institutions duly organized and existing under Philippine laws. On or about June
15, 1983, a certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB,
to secure which he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma,
Quezon City and covered by TCT No. 300809 registered in his name. As Guansing defaulted
in the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale held on
March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing
failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name.
TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588
was issued in the name of CDB.1wphi1.nt
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios
Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed
by Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma,
Quezon City for P300,000.00 under the following terms and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal occupants or
tenants.
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as
Option Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by
CDB. However, after some time following up the sale, Lim discovered that the subject
property was originally registered in the name of Perfecto Guansing, father of mortgagor
Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having the property
registered in his name under TCT No. 300809, the same title he mortgaged to CDB and from
which the latter's title (TCT No. 355588) was derived. It appears, however, that the father,
Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon
City, for the cancellation of his son's title. On March 23, 1984, the trial court rendered a
decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT No. 300809
on the ground that the latter was fraudulently secured by Rodolfo. This decision has since
become final and executory.
Aggrieved by what she considered a serious misrepresentation by CDB and its mother-
company, FEBTC, on their ability to sell the subject property, Lim, joined by her husband,
filed on August 29, 1989 an action for specific performance and damages against petitioners in
the Regional Trial Court, Branch 96, Quezon City, where it was docketed as Civil Case No. Q-
89-2863. On April 20, 1990, the complaint was amended by impleading the Register of Deeds
of Quezon City as an additional defendant.
On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled
that: (1) there was a perfected contract of sale between Lim and CDB, contrary to the latter's
contention that the written offer to purchase and the payment of P30,000.00 were merely pre-
conditions to the sale and still subject to the approval of FEBTC; (2) performance by CDB of
its obligation under the perfected contract of sale had become impossible on account of the
1984 decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor
Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite the
impossibility of performance, because they could not credibly disclaim knowledge of the
cancellation of Rodolfo Guansing's title without the admitting their failure to discharge their
duties to the public as reputable banking institutions; and (4) CDB and FEBTC are liable for
damages for the prejudice caused against the Lims.3 Based on the foregoing findings, the trial
court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount
of P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It
also ordered petitioners to pay private respondents, jointly and severally, the amounts of
P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's
fees, and the costs of the suit.4
Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed
in toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but
their motion was denied by the appellate court on December 9, 1997. Hence, this petition.
Petitioners contend that
 1. The Honorable Court of Appeals erred when it held that petitioners CDB and
FEBTC were aware of the decision dated March 23, 1984 of the Regional Trial
Court of Quezon City in Civil Case No. Q-39732.
2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on
the deposit of THIRTY THOUSAND PESOS (P30,000.00) by applying Article
2209 of the New Civil Code.
3. The Honorable Court of Appeals erred in ordering petitioners to pay moral
damages, exemplary damages, attorney's fees and costs of suit.
I.
At the outset, it is necessary to determine the legal relation, if any, of the parties.
Petitioners deny that a contract of sale was ever perfected between them and private
respondent Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of
P30,000,00 was given as option money, not as earnest money. 5 They thus conclude that the
contract between CDB and Lim was merely an option contract, not a contract of sale.
The contention has no merit. Contracts are not defined by the parries thereto but by principles
of law.6 In determining the nature of a contract, the courts are not bound by the name or title
given to it by the contracting parties.7 In the case at bar, the sum of P30,000.00, although
denominated in the offer to purchase as "option money," is actually in the nature of earnest
money or down payment when considered with the other terms of the offer. In Carceler v.
Court of Appeals,8 we explained the nature of an option contract, viz.
An option contract is a preparatory contract in which one party grants to the other,
for a fixed period and under specified conditions, the power to decide, whether or
not to enter into a principal contract, it binds the party who has given the option not
to enter into the principal contract with any other person during the period;
designated, and within that period, to enter into such contract with the one to whom
the option was granted, if the latter should decide to use the option. It is a separate
agreement distinct from the contract to which the parties may enter upon the
consummation of the option.
An option contract is therefore a contract separate from and preparatory to a contract of sale
which, if perfected, does not result in the perfection or consummation of the sale. Only when
the option is exercised may a sale be perfected.
In this case, however, after the payment of the 10% option money, the Offer to Purchase
provides for the payment only of the balance of the purchase price, implying that the "option
money" forms part of the purchase price. This is precisely the result of paying earnest money
under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered
into a contract of sale, partially consummated as to the payment of the price. Moreover, the
following findings of the trial court based on the testimony of the witnesses establish that
CDB accepted Lim's offer to purchase:
It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as
good and no longer subject to a final approval. In his testimony for the defendants on
February 13, 1992, FEBTC's Leomar Guzman stated that he was then in the
Acquired Assets Department of FEBTC wherein plaintiffs' offer to purchase was
endorsed thereto by Myoresco Abadilla, CDB's senior vice-president, with a
recommendation that the necessary petition for writ of possession be filed in the
proper court; that the recommendation was in accord with one of the conditions of
the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12);
that, in compliance with the request, a petition for writ of possession was thereafter
filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the
banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p.
17); which was not a normal procedure, and neither did the banks return the amount
of P30,000.00 to the plaintiffs.9
Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was
perfected and, indeed, partially executed because of the partial payment of the purchase price.
There is, however, a serious legal obstacle to such sale, rendering it impossible for CDB to
perform its obligation as seller to deliver and transfer ownership of the property.
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not
have. In applying this precept to a contract of sale, a distinction must be kept in mind between
the "perfection" and "consummation" stages of the contract.
A contract of sale is perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price.10 It is, therefore, not required that, at the
perfection stage, the seller be the owner of the thing sold or even that such subject matter of
the sale exists at that point in time.11 Thus, under Art. 1434 of the Civil Code, when a person
sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such
title passes by operation of law to the buyer or grantee. This is the same principle behind the
sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the
time of delivery or consummation stage of the sale, it is required that the seller be the owner of
the thing sold. Otherwise, he will not be able to comply with his obligation to transfer
ownership to the buyer. It is at the consummation stage where the principle of nemo dat quod
non habet applies.
In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the
subject land were no longer the owners of the same because of a prior sale.13 Again, in Nool v.
Court of Appeals,14 we ruled that a contract of repurchase, in which the seller does not have
any title to the property sold, is invalid:
 We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable
only to valid and enforceable contracts. The Regional Trial Court and the Court of
Appeals rules that the principal contract of sale contained in Exhibit C and the
auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the
two lower courts appears to find support in Dignos v. Court of Appeals, where the
Court held:
Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is
null and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of
land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was
dependent on the validity of Exhibit C, it is itself void. A void contract cannot give
rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a) contract
which is the direct result of a previous illegal contract, is also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a "sale is
null and void" where the sellers "were no longer the owners" of the property. Such a
situation (where the sellers were no longer owners) does not appear to be one of the
void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil
Code itself recognizes a sale where the goods are to be acquired . . . by the seller
after the perfection of the contract of sale, clearly implying that a sale is possible
even if the seller was not the owner at the time of sale, provided he acquires title to
the property later on.
In the present case, however, it is likewise clear that the sellers can no longer deliver
the object of the sale to the buyers, as the buyers themselves have already acquired
title and delivery thereof from the rightful owner, the DBP. Thus, such contract may
be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of
Article 1409 of the Civil Code: Those which contemplate an impossible service.
Article 1459 of the Civil Code provides that "the vendor must have a right to transfer
the ownership thereof [subject of the sale] at the time it is delivered." Here, delivery
of ownership is no longer possible. It has become impossible.15
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing
must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To
be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue
of which, the property had been awarded to CDB as highest bidder, is likewise void since the
mortgagor was not the owner of the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art.
1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes
obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged
to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller
must be the owner of the thing sold also applies in a foreclosure sale. This is the reason Art.
208516 of the Civil Code, in providing for the essential requisites of the contract of mortgage
and pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner
of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the
mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale
arising therefrom are given effect by reason of public policy. This is the doctrine of "the
mortgagee in good faith" based on the rule that all persons dealing with property covered by a
Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what
appears on the face of the title.17 The public interest in upholding the indefeasibility of a
certificate of title, as evidence of the lawful ownership of the land or of any encumbrance
thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the
face of the certificate of title.
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to
make a detailed investigation of the history of the title of the property given as security before
accepting a mortgage.
We are not convinced, however, that under the circumstances of this case, CDB can be
considered a mortgagee in good faith. While petitioners are not expected to conduct an
exhaustive investigation on the history of the mortgagor's title, they cannot be excused from
the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas,18
we noted that it is standard practice for banks, before approving a loan, to send representatives
to the premises of the land offered as collateral and to investigate who are real owners thereof,
noting that banks are expected to exercise more care and prudence than private individuals in
their dealings, even those involving registered lands, for their business is affected with public
interest. We held thus:
We, indeed, find more weight and vigor in a doctrine which recognizes a better right
for the innocent original registered owner who obtained his certificate of title
through perfectly legal and regular proceedings, than one who obtains his certificate
from a totally void one, as to prevail over judicial pronouncements to the effect that
one dealing with a registered land, such as a purchaser, is under no obligation to
look beyond the certificate of title of the vendor, for in the latter case, good faith has
yet to be established by the vendee or transferee, being the most essential condition,
coupled with valuable consideration, to entitle him to respect for his newly acquired
title even as against the holder of an earlier and perfectly valid title. There might be
circumstances apparent on the face of the certificate of title which could excite
suspicion as to prompt inquiry, such as when the transfer is not by virtue of a
voluntary act of the original registered owner, as in the instant case, where it was by
means of a self-executed deed of extra-judicial settlement, a fact which should be
noted on the face of Eusebia Tomas certificate of title. Failing to make such inquiry
 would hardly be consistent with any pretense of good faith, which the appellant bank
invokes to claim the right to be protected as a mortgagee, and for the reversal of the
judgment rendered against it by the lower court.19
In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the
validity of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent
title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it
appear that he and Perfecto Guansing were the only surviving heirs entitled to the property,
and that Perfecto had waived all his rights thereto. This self-executed deed should have placed
CDB on guard against any possible defect in or question as to the mortgagor's title. Moreover,
the alleged ocular inspection report20 by CDB's representative was never formally offered in
evidence. Indeed, petitioners admit that they are aware that the subject land was being
occupied by persons other than Rodolfo Guansing and that said persons, who are the heirs of
Perfecto Guansing, contest the title of Rodolfo.21
II.
The sale by CDB to Lim being void, the question now arises as to who, if any, among the
parties was at fault for the nullity of the contract. Both the trial court and the appellate court
found petitioners guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to
pay the 10% option money, CDB already knew that it was no longer the owner of the said
property, its title having been cancelled.22 Petitioners contend that: (1) such finding of the
appellate court is founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC
was a party in the case where the mortgagor's title was cancelled; (3) CDB is not privy to any
problem among the Guansings; and (4) the final decision cancelling the mortgagor's title was
not annotated in the latter's title.
As a rule, only questions of law may be raised in a petition for review, except in circumstances
where questions of fact may be properly raised.23 Here, while petitioners raise these factual
issues, they have not sufficiently shown that the instant case falls under any of the exceptions
to the above rule. We are thus bound by the findings of fact of the appellate court. In any case,
we are convinced of petitioners' negligence in approving the mortgage application of Rodolfo
Guansing.
III.
We now come to the civil effects of the void contract of sale between the parties. Article
1412(2) of the Civil Code provides:
If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
xxx xxx xxx
(2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he has
given without any obligation to comply with his promise.
Private respondents are thus entitled to recover the P30,000,00 option money paid by them.
Moreover, since the filing of the action for damages against petitioners amounted to a demand
by respondents for the return of their money, interest thereon at the legal rate should be
computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17,
1988, when petitioners accepted the payment. This is in accord with our ruling in Castillo v.
Abalayan24 that in case of avoid sale, the seller has no right whatsoever to keep the money
paid by virtue thereof and should refund it, with interest at the legal rate, computed from the
date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the
non-guilty party "may demand the return of what he has given" clearly implies that without
such prior demand, the obligation to return what was given does not become legally
demandable.
Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts.
21 and 2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages
may be recovered even if a bank's negligence is not attended with malice and bad faith. We
find, however, that the sum of P250,000.00 awarded by the trial court is excessive. Moral
damages are only intended to alleviate the moral suffering undergone by private respondent,
not to enrich them at the expenses of the petitioners.26 Accordingly, the award of moral
damages must be reduced to P50,000.00.
Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232
of the Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00
attorney's fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be
reduced to P20,000.00.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
MODIFICATION as to the award of damages as above stated.1wphi1.nt
SO ORDERED.
G.R. No. 131679 February 1, 2000
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY,
petitioners,
vs.
SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS,
respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR
CV No. 42315 and the order dated December 9, 1997 denying petitioners' motion for
reconsideration.
The following facts are not in dispute.
Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC)
are banking institutions duly organized and existing under Philippine laws. On or about June
15, 1983, a certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB,
to secure which he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma,
Quezon City and covered by TCT No. 300809 registered in his name. As Guansing defaulted
in the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale held on
March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing
failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name.
TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588
was issued in the name of CDB.1wphi1.nt
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios
Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed
by Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma,
Quezon City for P300,000.00 under the following terms and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal occupants or
tenants.
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as
Option Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by
CDB. However, after some time following up the sale, Lim discovered that the subject
property was originally registered in the name of Perfecto Guansing, father of mortgagor
Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having the property
registered in his name under TCT No. 300809, the same title he mortgaged to CDB and from
which the latter's title (TCT No. 355588) was derived. It appears, however, that the father,
Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon
City, for the cancellation of his son's title. On March 23, 1984, the trial court rendered a
decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT No. 300809
on the ground that the latter was fraudulently secured by Rodolfo. This decision has since
become final and executory.
Aggrieved by what she considered a serious misrepresentation by CDB and its mother-
company, FEBTC, on their ability to sell the subject property, Lim, joined by her husband,
filed on August 29, 1989 an action for specific performance and damages against petitioners in
the Regional Trial Court, Branch 96, Quezon City, where it was docketed as Civil Case No. Q-
89-2863. On April 20, 1990, the complaint was amended by impleading the Register of Deeds
of Quezon City as an additional defendant.
On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled
that: (1) there was a perfected contract of sale between Lim and CDB, contrary to the latter's
contention that the written offer to purchase and the payment of P30,000.00 were merely pre-
conditions to the sale and still subject to the approval of FEBTC; (2) performance by CDB of
its obligation under the perfected contract of sale had become impossible on account of the
1984 decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor
Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite the
impossibility of performance, because they could not credibly disclaim knowledge of the
cancellation of Rodolfo Guansing's title without the admitting their failure to discharge their
duties to the public as reputable banking institutions; and (4) CDB and FEBTC are liable for
damages for the prejudice caused against the Lims.3 Based on the foregoing findings, the trial
court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount
of P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It
also ordered petitioners to pay private respondents, jointly and severally, the amounts of
P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's
fees, and the costs of the suit.4
Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed
in toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but
their motion was denied by the appellate court on December 9, 1997. Hence, this petition.
Petitioners contend that
1. The Honorable Court of Appeals erred when it held that petitioners CDB and
FEBTC were aware of the decision dated March 23, 1984 of the Regional Trial
Court of Quezon City in Civil Case No. Q-39732.
2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on
the deposit of THIRTY THOUSAND PESOS (P30,000.00) by applying Article
2209 of the New Civil Code.
3. The Honorable Court of Appeals erred in ordering petitioners to pay moral
damages, exemplary damages, attorney's fees and costs of suit.
 I.
At the outset, it is necessary to determine the legal relation, if any, of the parties.
Petitioners deny that a contract of sale was ever perfected between them and private
respondent Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of
P30,000,00 was given as option money, not as earnest money. 5 They thus conclude that the
contract between CDB and Lim was merely an option contract, not a contract of sale.
The contention has no merit. Contracts are not defined by the parries thereto but by principles
of law.6 In determining the nature of a contract, the courts are not bound by the name or title
given to it by the contracting parties.7 In the case at bar, the sum of P30,000.00, although
denominated in the offer to purchase as "option money," is actually in the nature of earnest
money or down payment when considered with the other terms of the offer. In Carceler v.
Court of Appeals,8 we explained the nature of an option contract, viz.
An option contract is a preparatory contract in which one party grants to the other,
for a fixed period and under specified conditions, the power to decide, whether or
not to enter into a principal contract, it binds the party who has given the option not
to enter into the principal contract with any other person during the period;
designated, and within that period, to enter into such contract with the one to whom
the option was granted, if the latter should decide to use the option. It is a separate
agreement distinct from the contract to which the parties may enter upon the
consummation of the option.
An option contract is therefore a contract separate from and preparatory to a contract of sale
which, if perfected, does not result in the perfection or consummation of the sale. Only when
the option is exercised may a sale be perfected.
In this case, however, after the payment of the 10% option money, the Offer to Purchase
provides for the payment only of the balance of the purchase price, implying that the "option
money" forms part of the purchase price. This is precisely the result of paying earnest money
under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered
into a contract of sale, partially consummated as to the payment of the price. Moreover, the
following findings of the trial court based on the testimony of the witnesses establish that
CDB accepted Lim's offer to purchase:
It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as
good and no longer subject to a final approval. In his testimony for the defendants on
February 13, 1992, FEBTC's Leomar Guzman stated that he was then in the
Acquired Assets Department of FEBTC wherein plaintiffs' offer to purchase was
endorsed thereto by Myoresco Abadilla, CDB's senior vice-president, with a
recommendation that the necessary petition for writ of possession be filed in the
proper court; that the recommendation was in accord with one of the conditions of
the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12);
that, in compliance with the request, a petition for writ of possession was thereafter
filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the
banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p.
17); which was not a normal procedure, and neither did the banks return the amount
of P30,000.00 to the plaintiffs.9
Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was
perfected and, indeed, partially executed because of the partial payment of the purchase price.
There is, however, a serious legal obstacle to such sale, rendering it impossible for CDB to
perform its obligation as seller to deliver and transfer ownership of the property.
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not
have. In applying this precept to a contract of sale, a distinction must be kept in mind between
the "perfection" and "consummation" stages of the contract.
A contract of sale is perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price.10 It is, therefore, not required that, at the
perfection stage, the seller be the owner of the thing sold or even that such subject matter of
the sale exists at that point in time.11 Thus, under Art. 1434 of the Civil Code, when a person
sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such
title passes by operation of law to the buyer or grantee. This is the same principle behind the
sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the
time of delivery or consummation stage of the sale, it is required that the seller be the owner of
the thing sold. Otherwise, he will not be able to comply with his obligation to transfer
ownership to the buyer. It is at the consummation stage where the principle of nemo dat quod
non habet applies.
In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the
subject land were no longer the owners of the same because of a prior sale.13 Again, in Nool v.
Court of Appeals,14 we ruled that a contract of repurchase, in which the seller does not have
any title to the property sold, is invalid:
We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable
only to valid and enforceable contracts. The Regional Trial Court and the Court of
Appeals rules that the principal contract of sale contained in Exhibit C and the
auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the
two lower courts appears to find support in Dignos v. Court of Appeals, where the
Court held:
Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is
null and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of
land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was
 dependent on the validity of Exhibit C, it is itself void. A void contract cannot give
rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a) contract
which is the direct result of a previous illegal contract, is also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a "sale is
null and void" where the sellers "were no longer the owners" of the property. Such a
situation (where the sellers were no longer owners) does not appear to be one of the
void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil
Code itself recognizes a sale where the goods are to be acquired . . . by the seller
after the perfection of the contract of sale, clearly implying that a sale is possible
even if the seller was not the owner at the time of sale, provided he acquires title to
the property later on.
In the present case, however, it is likewise clear that the sellers can no longer deliver
the object of the sale to the buyers, as the buyers themselves have already acquired
title and delivery thereof from the rightful owner, the DBP. Thus, such contract may
be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of
Article 1409 of the Civil Code: Those which contemplate an impossible service.
Article 1459 of the Civil Code provides that "the vendor must have a right to transfer
the ownership thereof [subject of the sale] at the time it is delivered." Here, delivery
of ownership is no longer possible. It has become impossible.15
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing
must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To
be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue
of which, the property had been awarded to CDB as highest bidder, is likewise void since the
mortgagor was not the owner of the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art.
1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes
obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged
to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller
must be the owner of the thing sold also applies in a foreclosure sale. This is the reason Art.
208516 of the Civil Code, in providing for the essential requisites of the contract of mortgage
and pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner
of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the
mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale
arising therefrom are given effect by reason of public policy. This is the doctrine of "the
mortgagee in good faith" based on the rule that all persons dealing with property covered by a
Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what
appears on the face of the title.17 The public interest in upholding the indefeasibility of a
certificate of title, as evidence of the lawful ownership of the land or of any encumbrance
thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the
face of the certificate of title.
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to
make a detailed investigation of the history of the title of the property given as security before
accepting a mortgage.
We are not convinced, however, that under the circumstances of this case, CDB can be
considered a mortgagee in good faith. While petitioners are not expected to conduct an
exhaustive investigation on the history of the mortgagor's title, they cannot be excused from
the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas,18
we noted that it is standard practice for banks, before approving a loan, to send representatives
to the premises of the land offered as collateral and to investigate who are real owners thereof,
noting that banks are expected to exercise more care and prudence than private individuals in
their dealings, even those involving registered lands, for their business is affected with public
interest. We held thus:
We, indeed, find more weight and vigor in a doctrine which recognizes a better right
for the innocent original registered owner who obtained his certificate of title
through perfectly legal and regular proceedings, than one who obtains his certificate
from a totally void one, as to prevail over judicial pronouncements to the effect that
one dealing with a registered land, such as a purchaser, is under no obligation to
look beyond the certificate of title of the vendor, for in the latter case, good faith has
yet to be established by the vendee or transferee, being the most essential condition,
coupled with valuable consideration, to entitle him to respect for his newly acquired
title even as against the holder of an earlier and perfectly valid title. There might be
circumstances apparent on the face of the certificate of title which could excite
suspicion as to prompt inquiry, such as when the transfer is not by virtue of a
voluntary act of the original registered owner, as in the instant case, where it was by
means of a self-executed deed of extra-judicial settlement, a fact which should be
noted on the face of Eusebia Tomas certificate of title. Failing to make such inquiry
would hardly be consistent with any pretense of good faith, which the appellant bank
invokes to claim the right to be protected as a mortgagee, and for the reversal of the
judgment rendered against it by the lower court.19
In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the
validity of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent
title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it
appear that he and Perfecto Guansing were the only surviving heirs entitled to the property,
and that Perfecto had waived all his rights thereto. This self-executed deed should have placed
CDB on guard against any possible defect in or question as to the mortgagor's title. Moreover,
the alleged ocular inspection report20 by CDB's representative was never formally offered in
evidence. Indeed, petitioners admit that they are aware that the subject land was being
occupied by persons other than Rodolfo Guansing and that said persons, who are the heirs of such prior demand, the obligation to return what was given does not become legally
Perfecto Guansing, contest the title of Rodolfo.21 demandable.

II.
The sale by CDB to Lim being void, the question now arises as to who, if any, among the
parties was at fault for the nullity of the contract. Both the trial court and the appellate court
found petitioners guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to
pay the 10% option money, CDB already knew that it was no longer the owner of the said
property, its title having been cancelled.22 Petitioners contend that: (1) such finding of the
appellate court is founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC
was a party in the case where the mortgagor's title was cancelled; (3) CDB is not privy to any
problem among the Guansings; and (4) the final decision cancelling the mortgagor's title was
not annotated in the latter's title.
As a rule, only questions of law may be raised in a petition for review, except in circumstances
where questions of fact may be properly raised.23 Here, while petitioners raise these factual
issues, they have not sufficiently shown that the instant case falls under any of the exceptions
to the above rule. We are thus bound by the findings of fact of the appellate court. In any case,
we are convinced of petitioners' negligence in approving the mortgage application of Rodolfo
Guansing.
Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts.
21 and 2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages
may be recovered even if a bank's negligence is not attended with malice and bad faith. We
find, however, that the sum of P250,000.00 awarded by the trial court is excessive. Moral
damages are only intended to alleviate the moral suffering undergone by private respondent,
not to enrich them at the expenses of the petitioners.26 Accordingly, the award of moral
damages must be reduced to P50,000.00.
Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232
of the Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00
attorney's fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be
reduced to P20,000.00.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
MODIFICATION as to the award of damages as above stated.1wphi1.nt
SO ORDERED.

III.

We now come to the civil effects of the void contract of sale between the parties. Article
1412(2) of the Civil Code provides:

If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

xxx xxx xxx

(2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he has
given without any obligation to comply with his promise.

Private respondents are thus entitled to recover the P30,000,00 option money paid by them.
Moreover, since the filing of the action for damages against petitioners amounted to a demand
by respondents for the return of their money, interest thereon at the legal rate should be
computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17,
1988, when petitioners accepted the payment. This is in accord with our ruling in Castillo v.
Abalayan24 that in case of avoid sale, the seller has no right whatsoever to keep the money
paid by virtue thereof and should refund it, with interest at the legal rate, computed from the
date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the
non-guilty party "may demand the return of what he has given" clearly implies that without
G.R. No. 167320 January 30, 2007
HEIRS OF SALVADOR HERMOSILLA, namely: ADELAIDA H. DOLLETON,
RUBEN HERMOSILLA, LOLITA H. DE LA VEGA, ERLINDA H. INOVIO, CELIA H.
VIVIT, ZENAIDA H. ACHOY, PRECILLA H. LIMPIAHOY, and EDGARDO
HERMOSILLA, Petitioners,
vs.
Spouses JAIME REMOQUILLO and LUZ REMOQUILLO, Respondents.
DECISION
CARPIO MORALES, J.:
Petitioners Heirs of Salvador Hermosilla, namely: Adelaida H. Dolleton, Ruben Hermosilla,
Lolita H. de la Vega, Erlinda H. Inovio,1 Celia2 H. Vivit, Zenaida H. Achoy, Precilla3 H.
Limpiahoy, and Edgardo Hermosilla, assail the Court of Appeals Decision 4 dated September
29, 2004 which reversed the trial courts decision in their favor and accordingly dismissed
their complaint.
Subject of the controversy is a 65-square meter portion of a lot located in Poblacion, San
Pedro, Laguna.
On August 31, 1931, the Republic of the Philippines acquired through purchase the San Pedro
Tunasan Homesite.
Apolinario Hermosilla (Apolinario), who was occupying a lot in San Pedro Tunasan Homesite
until his death in 1964, caused the subdivision of the lot into two, Lot 12 with an area of 341
square meters, and Lot 19 with an area of 341 square meters of which the 65 square meters
subject of this controversy form part.
On April 30, 1962, Apolinario executed a Deed of Assignment transferring possession of Lot
19 in favor of his grandson, herein respondent Jaime Remoquillo (Jaime). As the Land Tenure
Administration (LTA) later found that Lot 19 was still available for disposition to qualified
applicants, Jaime, being its actual occupant, applied for its acquisition before the LTA on May
10, 1963.
On July 8, 1963, Apolinario conveyed Lot 12 to his son Salvador Hermosilla (Salvador),
Jaimes uncle.
Salvador later filed an application to purchase Lot 12 which was awarded to him by the
defunct Land Authority on December 16, 1971.
On February 10, 1972, Jaime and his uncle Salvador forged a "Kasunduan ng Paglipat Ng
Karapatan sa Isang Lagay na Lupang Solar" (Kasunduan) whereby Jaime transferred
ownership of the 65 square meters (the questioned property) in favor of Salvador.
After Apolinario died, his daughter Angela Hermosilla filed a protest before the Land
Authority, which became the National Housing Authority (NHA), 5 contending that as an heir
of the deceased, she is also entitled to Lots 12 and 19. By Resolution of June 10, 1981, the
NHA dismissed the protest.
The NHA later awarded on March 16, 1986 Lot 19 to Jaime for which he and his wife were
issued a title, Transfer Certificate of Title No. T-156296, on September 15, 1987.6
On May 25, 1992, petitioners filed an action for Annulment of Title on the ground of fraud
with damages against Jaime and his spouse, together with the Register of Deeds, before the
Regional Trial Court (RTC) of Bian, Laguna, alleging that by virtue of the Kasunduan
executed in 1972, Jaime had conveyed to his uncle Salvador the questioned propertypart of
Lot 19 covered by TCT No. T-156296 which was issued in 1987.
By Decision7 of May 11, 1999, the RTC of Bian, Laguna, Branch 25, found the Kasunduan a
perfected contract of sale, there being a meeting of the minds upon an identified object and
upon a specific price, and that ownership over the questioned property had already been
transferred and delivered to Salvador.
On the alleged failure of consideration of the Kasunduan, the trial court held that the same did
not render the contract void, but merely allowed an action for specific performance. The
dispositive portion of the trial courts Decision reads:
WHEREFORE, judgment is hereby rendered declaring plaintiffs as co-owners of the 65
square meters of the 341 square meters covered by TCT T-156296, registered in the name of
defendants. The Court hereby directs the Register of Deeds of Laguna, Calamba Branch, to
cancel said Transfer Certificate of Title, and in lieu thereof, to issue another [to] plaintiffs [as]
co-owners of the above portion.
No pronouncement as to costs.
SO ORDERED.8 (Underscoring supplied)
The Court of Appeals, reversing the decision of the trial court, held that the Kasunduan was
void because at the time of its execution in 1972, the Republic of the Philippines was still the
owner of Lot 19, hence, no right thereover was transmitted by Jaime who was awarded the Lot
in 1986, and consequently no right was transmitted by Salvador through succession to
petitioners. And it found no evidence of fraud in Jaimes act of having Lot 19, including the
questioned property, registered in his and his wifes name in 1987.
At all events, the appellate court held that the action had prescribed, it having been filed in
1992, more than four years from the issuance to Jaime and his wife of the Transfer Certificate
of Title.
Hence, the present petition for review on certiorari.
Petitioners argue that the application of the law on prescription would perpetrate fraud and
spawn injustice, they citing Cometa v. Court of Appeals;9 and that at any rate, prescription
does not lie against a co-owner. Cometa involves a different factual milieu concerning the
right of redemption, however. And petitioners contention that prescription does not lie against
a co-owner fails because only the title covering the questioned property, which petitioners
claim to solely own, is being assailed.
While this Court finds that the action is, contrary to the appellate courts ruling, not barred by
the statute of limitations, it is still dismissible as discussed below.
Albeit captioned as one for Annulment of Title, the Complaint ultimately seeks the
reconveyance of the property.
From the allegations of the Complaint, petitioners seek the reconveyance of the property based
on implied trust. The prescriptive period for the reconveyance of fraudulently registered real
property is 10 years, reckoned from the date of the issuance of the certificate of title, 10 if the
plaintiff is not in possession, but imprescriptible if he is in possession of the property.
An action for reconveyance based on an implied trust prescribes in ten years. The ten-year
prescriptive period applies only if there is an actual need to reconvey the property as when
the plaintiff is not in possession of the property. However, if the plaintiff, as the real owner
of the property also remains in possession of the property, the prescriptive period to recover
the title and possession of the property does not run against him. In such a case, an action for
reconveyance, if nonetheless filed, would be in the nature of a suit for quieting of title, an
action that is imprescriptible.11 (Emphasis and underscoring supplied)
It is undisputed that petitioners houses occupy the questioned property and that respondents
have not been in possession thereof.12 Since there was no actual need to reconvey the
property as petitioners remained in possession thereof, the action took the nature of a suit for
quieting of title, it having been filed to enforce an alleged implied trust after Jaime refused to
segregate title over Lot 19. One who is in actual possession of a piece of land claiming to be
the owner thereof may wait until his possession is disturbed or his title is attacked before
taking steps to vindicate his right.13 From the body of the complaint, this type of action
denotes imprescriptibility.
As priorly stated, however, when the Kasunduan was executed in 1972 by Jaime in favor of
Salvador petitioners predecessor-in-interest Lot 19, of which the questioned property
forms part, was still owned by the Republic. Nemo dat quod non habet.14 Nobody can give
what he does not possess. Jaime could not thus have transferred anything to Salvador via the
Kasunduan.
Claiming exception to the rule, petitioners posit that at the time the Kasunduan was executed
by Jaime in 1972, his application which was filed in 1963 for the award to him of Lot 19 was
still pending, hence, the Kasunduan transferred to Salvador Jaimes vested right to purchase
the same, in support of which they cite a law on estoppel, Art. 1434 of the Civil Code, which
provides that "[w]hen a person who is not the owner of a thing sells or alienates and delivers it
and later, the seller or grantor acquires title thereto, such title passes by operation of law to the
buyer or grantee."15
Petitioners reliance on Article 1434 of the Civil Code does not lie. The principles of estoppel
apply insofar as they are not in conflict with the provisions of the Civil Code, the Code of
Commerce, the Rules of Court and special laws.161avvphi1.net
Land Authority Administrative Order No. 4 (1967), "Rules and Regulations governing
Disposition of the Laguna Settlement Project in San Pedro, Laguna," proscribes the
conveyance of the privilege or preference to purchase a land from the San Pedro Tunasan
project before it is awarded to a tenant or bona fide occupant, thus:
SEC. 6. Privilege of Preference to Purchase Intransferable; Waiver or Forfeiture Thereof.
From the date of acquisition of the estate by the Government and before issuance of the Order
of Award, no tenant or bona fide occupant in whose favor the land may be sold shall transfer
or encumber the privilege or preference to purchase the land, and any transfer or
encumbrance made in violation hereof shall be null and void: Provided, however, That
such privilege or preference may be waived or forfeited only in favor of the Land
Authority . . .17 (Italics in the original, emphasis and underscoring supplied)
Petitioners insistence on any right to the property under the Kasunduan thus fails.
[T]he transfer "became one in violation of law (the rules of the PHHC being promulgated in
pursuance of law have the force of law) and therefore void ab initio." Hence, appellant
acquired no right over the lot from a contract void ab initio, no rights are created. Estoppel, as
postulated by petitioner, will not apply for it cannot be predicated on an illegal act. It is
generally considered that as between the parties to a contract, validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy.18 (Emphasis and underscoring
supplied)
Petitioners go on to postulate that if the Kasunduan is void, it follows that the 1962 Deed of
Assignment executed by Apolinario in favor of Jaime is likewise void to thus deprive the latter
of any legal basis for his occupation and acquisition of Lot 19.
Petitioners position fails. Petitioners lose sight of the fact that, as reflected above, Jaime
acquired Lot 19 in his own right, independently of the Deed of Assignment.
In another vein, since the property was previously a public land, petitioners have no
personality to impute fraud or misrepresentation against the State or violation of the law.19 If
the title was in fact fraudulently obtained, it is the State which should file the suit to recover
the property through the Office of the Solicitor General. The title originated from a grant by
the government, hence, its cancellation is a matter between the grantor and the grantee. 20
At all events, for an action for reconveyance based on fraud to prosper, the plaintiff must prove by clear
and convincing evidence not only his title to the property but also the fact of fraud. Fraud is never
presumed. Intentional acts to deceive and deprive another of his right, or in some manner injure him must
be specifically alleged and proved by the plaintiff by clear and convincing evidence. 21 Petitioners failed
to discharge this burden, however.WHEREFORE, the petition is, in light of the foregoing ratiocination,
DENIED.
G.R. No. 176474 November 27, 2008
HEIRS OF ARTURO REYES, represented by Evelyn R. San Buenaventura, petitioners,
vs.
ELENA SOCCO-BELTRAN, respondent.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
Decision1 dated 31 January 2006 rendered by the Court of Appeals in CA-G.R. SP No. 87066,
which affirmed the Decision2 dated 30 June 2003 of the Office of the President, in O.P. Case
No. 02-A-007, approving the application of respondent Elena Socco-Beltran to purchase the
subject property.
The subject property in this case is a parcel of land originally identified as Lot No. 6-B,
situated in Zamora Street, Dinalupihan, Bataan, with a total area of 360 square meters. It was
originally part of a larger parcel of land, measuring 1,022 square meters, allocated to the
Spouses Marcelo Laquian and Constancia Socco (Spouses Laquian), who paid for the same
with Japanese money. When Marcelo died, the property was left to his wife Constancia. Upon
Constancias subsequent death, she left the original parcel of land, along with her other
property, with her heirs her siblings, namely: Filomena Eliza Socco, Isabel Socco de
Hipolito, Miguel R. Socco, and Elena Socco-Beltran.3 Pursuant to an unnotarized document
entitled "Extrajudicial Settlement of the Estate of the Deceased Constancia R. Socco,"
executed by Constancias heirs sometime in 1965, the parcel of land was partitioned into three
lotsLot No. 6-A, Lot No. 6-B, and Lot No. 6-C.4 The subject property, Lot No. 6-B, was
adjudicated to respondent, but no title had been issued in her name.
On 25 June 1998, respondent Elena Socco-Beltran filed an application for the purchase of Lot
No. 6-B before the Department of Agrarian Reform (DAR), alleging that it was adjudicated in
her favor in the extra-judicial settlement of Constancia Soccos estate.5
Petitioners herein, the heirs of the late Arturo Reyes, filed their protest to respondents petition
before the DAR on the ground that the subject property was sold by respondents brother,
Miguel R. Socco, in favor of their father, Arturo Reyes, as evidenced by the Contract to Sell,
dated 5 September 1954, stipulating that:6
That I am one of the co-heirs of the Estate of the deceased Constancia Socco; and
that I am to inherit as such a portion of her lot consisting of Four Hundred Square
Meters (400) more or less located on the (sic) Zamora St., Municipality of
Dinalupihan, Province of Bataan, bounded as follows:
xxxx
That for or in consideration of the sum of FIVE PESOS (P5.00) per square meter,
hereby sell, convey and transfer by way of this conditional sale the said 400 sq.m.
more or less unto Atty. Arturo C. Reyes, his heirs, administrator and assigns x x x.
(Emphasis supplied.)
Petitioners averred that they took physical possession of the subject property in 1954 and had
been uninterrupted in their possession of the said property since then.
Legal Officer Brigida Pinlac of the DAR Bataan Provincial Agrarian Reform Office conducted
an investigation, the results of which were contained in her Report/ Recommendation dated 15
April 1999. Other than recounting the afore-mentioned facts, Legal Officer Pinlac also made
the following findings in her Report/Recommendation:7
Further investigation was conducted by the undersigned and based on the
documentary evidence presented by both parties, the following facts were gathered:
that the house of [the] Reyes family is adjacent to the landholding in question and
portion of the subject property consisting of about 15 meters [were] occupied by the
heirs of Arturo Reyes were a kitchen and bathroom [were] constructed therein; on
the remaining portion a skeletal form made of hollow block[s] is erected and
according to the heirs of late Arturo Reyes, this was constructed since the year (sic)
70s at their expense; that construction of the said skeletal building was not
continued and left unfinished which according to the affidavit of Patricia Hipolito
the Reyes family where (sic) prevented by Elena Socco in their attempt of
occupancy of the subject landholding; (affidavit of Patricia Hipolito is hereto
attached as Annex "F"); that Elena Socco cannot physically and personally occupy
the subject property because of the skeletal building made by the Reyes family who
have been requesting that they be paid for the cost of the construction and the same
be demolished at the expense of Elena Socco; that according to Elena Socco, [she] is
willing to waive her right on the portion where [the] kitchen and bathroom is (sic)
constructed but not the whole of Lot [No.] 6-B adjudicated to her; that the Reyes
family included the subject property to the sworn statement of value of real
properties filed before the municipality of Dinalupihan, Bataan, copies of the
documents are hereto attached as Annexes "G" and "H"; that likewise Elena Socco
has been continuously and religiously paying the realty tax due on the said property.
In the end, Legal Officer Pinlac recommended the approval of respondents petition for
issuance of title over the subject property, ruling that respondent was qualified to own the
subject property pursuant to Article 1091 of the New Civil Code. 8 Provincial Agrarian Reform
Officer (PARO) Raynor Taroy concurred in the said recommendation in his Indorsement dated
22 April 1999.9
In an Order dated 15 September 1999, DAR Regional Director Nestor R. Acosta, however,
dismissed respondents petition for issuance of title over the subject property on the ground
that respondent was not an actual tiller and had abandoned the said property for 40 years;
hence, she had already renounced her right to recover the same.10 The dispositive part of the
Order reads:
1. DISMISSING the claims of Elena Socco-Beltran, duly represented by Myrna
Socco for lack of merit;
2. ALLOCATING Lot No. 6-B under Psd-003-008565 with an area of 360 square
meters, more or less, situated Zamora Street, Dinalupihan, Bataan, in favor of the
heirs of Arturo Reyes.
3. ORDERING the complainant to refrain from any act tending to disturb the
peaceful possession of herein respondents.
4. DIRECTING the MARO of Dinalupihan, Bataan to process the pertinent
documents for the issuance of CLOA in favor of the heirs of Arturo Reyes.11
Respondent filed a Motion for Reconsideration of the foregoing Order, which was denied by
DAR Regional Director Acosta in another Order dated 15 September 1999.12
Respondent then appealed to the Office of the DAR Secretary. In an Order, dated 9 November
2001, the DAR Secretary reversed the Decision of DAR Regional Director Acosta after
finding that neither petitioners predecessor-in-interest, Arturo Reyes, nor respondent was an
actual occupant of the subject property. However, since it was respondent who applied to
purchase the subject property, she was better qualified to own said property as opposed to
petitioners, who did not at all apply to purchase the same. Petitioners were further disqualified
from purchasing the subject property because they were not landless. Finally, during the
investigation of Legal Officer Pinlac, petitioners requested that respondent pay them the cost
of the construction of the skeletal house they built on the subject property. This was construed
by the DAR Secretary as a waiver by petitioners of their right over the subject property. 13 In
the said Order, the DAR Secretary ordered that:
WHEREFORE, premises considered, the September 15, 1999 Order is hereby SET
ASIDE and a new Order is hereby issued APPROVING the application to purchase
Lot [No.] 6-B of Elena Socco-Beltran.14
Petitioners sought remedy from the Office of the President by appealing the 9 November 2001
Decision of the DAR Secretary. Their appeal was docketed as O.P. Case No. 02-A-007. On 30
June 2003, the Office of the President rendered its Decision denying petitioners appeal and
affirming the DAR Secretarys Decision.15 The fallo of the Decision reads:
WHEREFORE, premises considered, judgment appealed from is AFFIRMED and
the instant appeal DISMISSED.16
Petitioners Motion for Reconsideration was likewise denied by the Office of the President in
a Resolution dated 30 September 2004.17 In the said Resolution, the Office of the President
noted that petitioners failed to allege in their motion the date when they received the Decision
dated 30 June 2003. Such date was material considering that the petitioners Motion for
Reconsideration was filed only on 14 April 2004, or almost nine months after the
promulgation of the decision sought to be reconsidered. Thus, it ruled that petitioners Motion
for Reconsideration, filed beyond fifteen days from receipt of the decision to be reconsidered,
rendered the said decision final and executory.
Consequently, petitioners filed an appeal before the Court of Appeals, docketed as CA-G.R.
SP No. 87066. Pending the resolution of this case, the DAR already issued on 8 July 2005 a
Certificate of Land Ownership Award (CLOA) over the subject property in favor of the
respondents niece and representative, Myrna Socco-Beltran.18 Respondent passed away on
21 March 2001,19 but the records do not ascertain the identity of her legal heirs and her
legatees.
Acting on CA-G.R. SP No. 87066, the Court of Appeals subsequently promulgated its
Decision, dated 31 January 2006, affirming the Decision dated 30 June 2003 of the Office of
the President. It held that petitioners could not have been actual occupants of the subject
property, since actual occupancy requires the positive act of occupying and tilling the land, not
just the introduction of an unfinished skeletal structure thereon. The Contract to Sell on which
petitioners based their claim over the subject property was executed by Miguel Socco, who
was not the owner of the said property and, therefore, had no right to transfer the same.
Accordingly, the Court of Appeals affirmed respondents right over the subject property,
which was derived form the original allocatees thereof.20 The fallo of the said Decision reads:
WHEREFORE, premises considered, the instant PETITION FOR REVIEW is
DISMISSED. Accordingly, the Decision dated 30 June 2003 and the Resolution
dated 30 December 2004 both issued by the Office of the President are hereby
AFFIRMED in toto.21
The Court of Appeals denied petitioners Motion for Reconsideration of its Decision in a
Resolution dated 16 August 2006.22
Hence, the present Petition, wherein petitioners raise the following issues:
I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
AFFIRMING THE FINDINGS OF THE OFFICE OF THE PRESIDENT THAT
THE SUBJECT LOT IS VACANT AND THAT PETITIONERS ARE NOT
ACTUAL OCCUPANTS THEREOF BY DENYING THE LATTERS CLAIM
THAT THEY HAVE BEEN IN OPEN, CONTINUOUS, EXCLUSIVE,
NOTORIOUS AND AVDERSE POSSESSION THEREOF SINCE 1954 OR FOR
MORE THAN THIRTY (30) YEARS.
II
 WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT HELD
THAT PETITIONERS "CANNOT LEGALLY ACQUIRE THE SUBJECT
PROPERTY AS THEY ARE NOT CONSIDERED LANDLESS AS EVIDENCED
BY A TAX DECLARATION."
III
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT
"WHATEVER RESERVATION WE HAVE OVER THE RIGHT OF MYRNA
SOCCO TO SUCCEED WAS ALREADY SETTLED WHEN NO LESS THAN
MIGUEL SOCCO (PREDECESSOR-IN INTEREST OF HEREIN PETITIONERS)
EXECUTED HIS WAIVER OF RIGHT DATED APRIL 19, 2005 OVER THE
SUBJECT PROPERTY IN FAVOR OF MYRNA SOCCO.
IV
WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT DENIED
PETITIONERS MOTION FOR NEW TRIAL THEREBY BRUSHING ASIDE
THE FACT THAT MYRNA V. SOCCO-ARIZO GROSSLY MISREPRESENTED
IN HER INFORMATION SHEET OF BENEFICIARIES AND APPLICATION TO
PURCHASE LOT IN LANDED ESTATES THAT SHE IS A FILIPINO CITIZEN,
WHEN IN TRUTH AND IN FACT, SHE IS ALREADY AN AMERICAN
NATIONAL.23
The main issue in this case is whether or not petitioners have a better right to the subject
property over the respondent. Petitioners claim over the subject property is anchored on the
Contract to Sell executed between Miguel Socco and Arturo Reyes on 5 September 1954.
Petitioners additionally allege that they and their predecessor-in-interest, Arturo Reyes, have
been in possession of the subject lot since 1954 for an uninterrupted period of more than 40
years.
The Court is unconvinced.
Petitioners cannot derive title to the subject property by virtue of the Contract to Sell. It was
unmistakably stated in the Contract and made clear to both parties thereto that the vendor,
Miguel R. Socco, was not yet the owner of the subject property and was merely expecting to
inherit the same as his share as a co-heir of Constancias estate.24 It was also declared in the
Contract itself that Miguel R. Soccos conveyance of the subject to the buyer, Arturo Reyes,
was a conditional sale. It is, therefore, apparent that the sale of the subject property in favor of
Arturo Reyes was conditioned upon the event that Miguel Socco would actually inherit and
become the owner of the said property. Absent such occurrence, Miguel R. Socco never
acquired ownership of the subject property which he could validly transfer to Arturo Reyes.
Under Article 1459 of the Civil Code on contracts of sale, "The thing must be licit and the
vendor must have a right to transfer ownership thereof at the time it is delivered." The law
specifically requires that the vendor must have ownership of the property at the time it is
delivered. Petitioners claim that the property was constructively delivered to them in 1954 by
virtue of the Contract to Sell. However, as already pointed out by this Court, it was explicit in
the Contract itself that, at the time it was executed, Miguel R. Socco was not yet the owner of
the property and was only expecting to inherit it. Hence, there was no valid sale from which
ownership of the subject property could have transferred from Miguel Socco to Arturo Reyes.
Without acquiring ownership of the subject property, Arturo Reyes also could not have
conveyed the same to his heirs, herein petitioners.
Petitioners, nevertheless, insist that they physically occupied the subject lot for more than 30
years and, thus, they gained ownership of the property through acquisitive prescription, citing
Sandoval v. Insular Government 25 and San Miguel Corporation v. Court of Appeals. 26
In Sandoval, petitioners therein sought the enforcement of Section 54, paragraph 6 of Act No.
926, otherwise known as the Land Registration Act, which required -- for the issuance of a
certificate of title to agricultural public lands -- the open, continuous, exclusive, and notorious
possession and occupation of the same in good faith and under claim of ownership for more
than ten years. After evaluating the evidence presented, consisting of the testimonies of
several witnesses and proof that fences were constructed around the property, the Court in the
afore-stated case denied the petition on the ground that petitioners failed to prove that they
exercised acts of ownership or were in open, continuous, and peaceful possession of the whole
land, and had caused it to be enclosed to the exclusion of other persons. It further decreed that
whoever claims such possession shall exercise acts of dominion and ownership which cannot
be mistaken for the momentary and accidental enjoyment of the property. 27
In San Miguel Corporation, the Court reiterated the rule that the open, exclusive, and
undisputed possession of alienable public land for the period prescribed by law creates the
legal fiction whereby land ceases to be public land and is, therefore, private property. It
stressed, however, that the occupation of the land for 30 years must be conclusively
established. Thus, the evidence offered by petitioner therein tax declarations, receipts, and
the sole testimony of the applicant for registration, petitioners predecessor-in-interest who
claimed to have occupied the land before selling it to the petitioner were considered
insufficient to satisfy the quantum of proof required to establish the claim of possession
required for acquiring alienable public land.28
As in the two aforecited cases, petitioners herein were unable to prove actual possession of the
subject property for the period required by law. It was underscored in San Miguel Corporation
that the open, continuous, exclusive, and notorious occupation of property for more than 30
years must be no less than conclusive, such quantum of proof being necessary to avoid the
erroneous validation of actual fictitious claims of possession over the property that is being
claimed.29
In the present case, the evidence presented by the petitioners falls short of being conclusive.
Apart from their self-serving statement that they took possession of the subject property, the
only proof offered to support their claim was a general statement made in the letter 30 dated 4
February 2002 of Barangay Captain Carlos Gapero, certifying that Arturo Reyes was the
occupant of the subject property "since peace time and at present." The statement is rendered
doubtful by the fact that as early as 1997, when respondent filed her petition for issuance of
title before the DAR, Arturo Reyes had already died and was already represented by his heirs,
petitioners herein.
Moreover, the certification given by Barangay Captain Gapero that Arturo Reyes occupied the
premises for an unspecified period of time, i.e., since peace time until the present, cannot
prevail over Legal Officer Pinlacs more particular findings in her Report/Recommendation.
Legal Officer Pinlac reported that petitioners admitted that it was only in the 1970s that they
built the skeletal structure found on the subject property. She also referred to the averments
made by Patricia Hipolito in an Affidavit,31 dated 26 February 1999, that the structure was
left unfinished because respondent prevented petitioners from occupying the subject property.
Such findings disprove petitioners claims that their predecessor-in-interest, Arturo Reyes, had
been in open, exclusive, and continuous possession of the property since 1954. The adverted
findings were the result of Legal Officer Pinlacs investigation in the course of her official
duties, of matters within her expertise which were later affirmed by the DAR Secretary, the
Office of the President, and the Court of Appeals. The factual findings of such administrative
officer, if supported by evidence, are entitled to great respect. 32
in the subject land to the respondent is valid, there is clearly no need for the respondent to
purchase the subject property, despite the application for the purchase of the property
erroneously filed by respondent. The only act which remains to be performed is the issuance
of a title in the name of her legal heirs, now that she is deceased.
Moreover, the Court notes that the records have not clearly established the right of
respondents representative, Myrna Socco-Arizo, over the subject property. Thus, it is not
clear to this Court why the DAR issued on 8 July 2005 a CLOA36 over the subject property in
favor of Myrna Socco-Arizo. Respondents death does not automatically transmit her rights to
the property to Myrna Socco-Beltran. Respondent only authorized Myrna Socco-Arizo,
through a Special Power of Attorney37 dated 10 March 1999, to represent her in the present
case and to administer the subject property for her benefit. There is nothing in the Special
Power of Attorney to the effect that Myrna Socco-Arizo can take over the subject property as
owner thereof upon respondents death. That Miguel V. Socco, respondents only nephew, the
son of the late Miguel R. Socco, and Myrna Socco-Arizos brother, executed a waiver of his
right to inherit from respondent, does not automatically mean that the subject property will go
to Myrna Socco-Arizo, absent any proof that there is no other qualified heir to respondents
estate. Thus, this Decision does not in any way confirm the issuance of the CLOA in favor of
Myrna Socco-Arizo, which may be assailed in appropriate proceedings.

In contrast, respondents claim over the subject property is backed by sufficient evidence. Her IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed Decision
predecessors-in-interest, the spouses Laquian, have been identified as the original allocatees of the Court of Appeals in CA-G.R. SP No. 87066, promulgated on 31 January 2006, is
who have fully paid for the subject property. The subject property was allocated to respondent AFFIRMED with MODIFICATION. This Court withholds the confirmation of the validity
in the extrajudicial settlement by the heirs of Constancias estate. The document entitled of title over the subject property in the name of Myrna Socco-Arizo pending determination of
"Extra-judicial Settlement of the Estate of the Deceased Constancia Socco" was not notarized respondents legal heirs in appropriate proceedings. No costs.
and, as a private document, can only bind the parties thereto. However, its authenticity was
SO ORDERED.
never put into question, nor was its legality impugned. Moreover, executed in 1965 by the
heirs of Constancia Socco, or more than 30 years ago, it is an ancient document which appears
to be genuine on its face and therefore its authenticity must be upheld. 33 Respondent has
continuously paid for the realty tax due on the subject property, a fact which, though not
conclusive, served to strengthen her claim over the property.34

From the foregoing, it is only proper that respondents claim over the subject property be
upheld. This Court must, however, note that the Order of the DAR Secretary, dated 9
November 2001, which granted the petitioners right to purchase the property, is flawed and
may be assailed in the proper proceedings. Records show that the DAR affirmed that
respondents predecessors-in-interest, Marcelo Laquian and Constancia Socco, having been
identified as the original allocatee, have fully paid for the subject property as provided under
an agreement to sell. By the nature of a contract or agreement to sell, the title over the subject
property is transferred to the vendee upon the full payment of the stipulated consideration.
Upon the full payment of the purchase price, and absent any showing that the allocatee
violated the conditions of the agreement, ownership of the subject land should be conferred
upon the allocatee.35 Since the extrajudicial partition transferring Constancia Soccos interest