G.R. No.

188288 January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,
vs.
CONTINENTAL AIRLINES, INC.,
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision1 of
the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled
"Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion of which
states:
WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding
US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997
until fully paid, [₱]100,000.00 as moral damages, [₱]50,000.00 as exemplary damages, [₱]40,000.00 as
attorney’s fees and costs of suit to plaintiffs-appellees is hereby REVERSED and SET ASIDE.
Defendant-appellant’s counterclaim is DENIED.
Costs against plaintiffs-appellees.
SO ORDERED.2
On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision,
giving due course to the complaint for sum of money and damages filed by petitioners Fernando Viloria
(Fernando) and Lourdes Viloria (Lourdes), collectively called Spouses Viloria, against respondent
Continental Airlines, Inc. (CAI). As culled from the records, below are the facts giving rise to such
complaint.
On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife,
Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on board
Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency called
"Holiday Travel" and was attended to by a certain Margaret Mager (Mager). According to Spouses
Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were no available
seats at Amtrak, an intercity passenger train service provider in the United States. Per the tickets, Spouses
Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on August 21,
1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August
6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully booked
and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for
a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando opted to request
for a refund. Mager, however, denied his request as the subject tickets are non-refundable and the only
option that Continental Airlines can offer is the re-issuance of new tickets within one (1) year from the
date the subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station
where he saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats
available and he can travel on Amtrak anytime and any day he pleased. Fernando then purchased two (2)
tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling
her that she had misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak
was already fully booked. Fernando reiterated his demand for a refund but Mager was firm in her position
that the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a
refund and alleging that Mager had deluded them into purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had
been referred to the Customer Refund Services of Continental Airlines at Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and
advised him that he may take the subject tickets to any Continental ticketing location for the re-issuance
of new tickets within two (2) years from the date they were issued. Continental Micronesia informed
Fernando that the subject tickets may be used as a form of payment for the purchase of another
Continental ticket, albeit with a re-issuance fee.5
On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have
the subject tickets replaced by a single round trip ticket to Los Angeles, California under his name.
Therein, Fernando was informed that Lourdes’ ticket was non-transferable, thus, cannot be used for the
purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was
US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego to Newark
round trip ticket.
In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer
wished to have them replaced. In addition to the dubious circumstances under which the subject tickets
were issued, Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket to
Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use Lourdes’ ticket,
breached its undertaking under its March 24, 1998 letter.6
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to
refund the money they used in the purchase of the subject tickets with legal interest from July 21, 1997
and to pay ₱1,000,000.00 as moral damages, ₱500,000.00 as exemplary damages and ₱250,000.00 as
attorney’s fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject
tickets are non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes’ name for the
purchase of a round trip ticket to Los Angeles since the same is non-transferable; (c) as Mager is not a
CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents did not act in bad
faith as to entitle Spouses Viloria to moral and exemplary damages and attorney’s fees. CAI also invoked
the following clause printed on the subject tickets:
3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier
are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s conditions of
carriage and related regulations which are made part hereof (and are available on application at the offices
of carrier), except in transportation between a place in the United States or Canada and any place outside
thereof to which tariffs in force in those countries apply.8
According to CAI, one of the conditions attached to their contract of carriage is the non-transferability
and non-refundability of the subject tickets.
The RTC’s Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria
are entitled to a refund in view of Mager’s misrepresentation in obtaining their consent in the purchase of
the subject tickets.9 The relevant portion of the April 3, 2006 Decision states:
Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in
presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via
AMTRAK, but defendant’s agent misled him into purchasing Continental Airlines tickets instead on the
fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant Airline did not specifically
denied (sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline
tickets on Ms. Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further
relied on and exploited plaintiff Fernando’s need and told him that they must book a flight immediately or
risk not being able to travel at all on the couple’s preferred date. Unfortunately, plaintiffs spouses fell
prey to the airline’s and its agent’s unethical tactics for baiting trusting customers."10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence, bound
by her bad faith and misrepresentation. As far as the RTC is concerned, there is no issue as to whether
Mager was CAI’s agent in view of CAI’s implied recognition of her status as such in its March 24, 1998
letter.
The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code
provisions on agency:
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without
authority.
Agency may be oral, unless the law requires a specific form.
As its very name implies, a travel agency binds itself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. This court takes judicial
notice of the common services rendered by travel agencies that represent themselves as such, specifically
the reservation and booking of local and foreign tours as well as the issuance of airline tickets for a
commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997
were no different from those offered in any other travel agency. Defendant airline impliedly if not
expressly acknowledged its principal-agent relationship with Ms. Mager by its offer in the letter dated
March 24, 1998 – an obvious attempt to assuage plaintiffs spouses’ hurt feelings.11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the
subject tickets within two (2) years from their date of issue when it charged Fernando with the amount of
US$1,867.40 for a round trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes’
ticket. Specifically:
Tickets may be reissued for up to two years from the original date of issue. When defendant airline still
charged plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the
unused tickets when the same were presented within two (2) years from date of issue, defendant airline
exhibited callous treatment of passengers.12
The Appellate Court’s Ruling
On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable for
Mager’s act in the absence of any proof that a principal-agent relationship existed between CAI and
Holiday Travel. According to the CA, Spouses Viloria, who have the burden of proof to establish the fact
of agency, failed to present evidence demonstrating that Holiday Travel is CAI’s agent. Furthermore,
contrary to Spouses Viloria’s claim, the contractual relationship between Holiday Travel and CAI is not
an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent
of Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this
premise, they contend that Continental Airlines should be held liable for the acts of Mager. The trial court
held the same view.
We do not agree. By the contract of agency, a person binds him/herself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter. The
elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative
and not for him/herself; and (4) the agent acts within the scope of his/her authority. As the basis of agency
is representation, there must be, on the part of the principal, an actual intention to appoint, an intention
naturally inferable from the principal’s words or actions. In the same manner, there must be an intention
on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is
generally no agency. It is likewise a settled rule that persons dealing with an assumed agent are bound at
their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it. Agency is never presumed, neither is it created by the mere use of the word in a trade or
business name. We have perused the evidence and documents so far presented. We find nothing except
bare allegations of plaintiffs-appellees that Mager/Holiday Travel was acting in behalf of Continental
Airlines. From all sides of legal prism, the transaction in issue was simply a contract of sale, wherein
Holiday Travel buys airline tickets from Continental Airlines and then, through its employees, Mager
included, sells it at a premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was
clearly printed on the face of the subject tickets, which constitute their contract with CAI. Therefore, the
grant of their prayer for a refund would violate the proscription against impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher
amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no
compulsion for CAI to charge the lower amount of US$856.00, which Spouses Viloria claim to be the fee
charged by other airlines. The matter of fixing the prices for its services is CAI’s prerogative, which
Spouses Viloria cannot intervene. In particular:
It is within the respective rights of persons owning and/or operating business entities to peg the premium
of the services and items which they provide at a price which they deem fit, no matter how expensive or
exhorbitant said price may seem vis-à-vis those of the competing companies. The Spouses Viloria may
not intervene with the business judgment of Continental Airlines.14
The Petitioners’ Case
In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latter’s
reversal of the RTC’s April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria
claim that CAI acted in bad faith when it required them to pay a higher amount for a round trip ticket to
Los Angeles considering CAI’s undertaking to re-issue new tickets to them within the period stated in
their March 24, 1998 letter. CAI likewise acted in bad faith when it disallowed Fernando to use Lourdes’
ticket to purchase a round trip to Los Angeles given that there is nothing in Lourdes’ ticket indicating that
it is non-transferable. As a common carrier, it is CAI’s duty to inform its passengers of the terms and
conditions of their contract and passengers cannot be bound by such terms and conditions which they are
not made aware of. Also, the subject contract of carriage is a contract of adhesion; therefore, any
ambiguities should be construed against CAI. Notably, the petitioners are no longer questioning the
validity of the subject contracts and limited its claim for a refund on CAI’s alleged breach of its
undertaking in its March 24, 1998 letter.
The Respondent’s Case
In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its willingness
to issue new tickets to them and to credit the value of the subject tickets against the value of the new
ticket Fernando requested. CAI argued that Spouses Viloria’s sole basis to claim that the price at which
CAI was willing to issue the new tickets is unconscionable is a piece of hearsay evidence – an
advertisement appearing on a newspaper stating that airfares from Manila to Los Angeles or San
Francisco cost US$818.00.15 Also, the advertisement pertains to airfares in September 2000 and not to
airfares prevailing in June 1999, the time when Fernando asked CAI to apply the value of the subject
tickets for the purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses
Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation was to
apply the value of the subject tickets to the purchase of the newly issued tickets.
With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject tickets
and that the terms and conditions that are printed on them are ambiguous, CAI denies any ambiguity and
alleged that its representative informed Fernando that the subject tickets are non-transferable when he
applied for the issuance of a new ticket. On the other hand, the word "non-refundable" clearly appears on
the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency
relationship exists between them. As an independent contractor, Holiday Travel was without capacity to
bind CAI.
Issues
To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses
Viloria have the right to the reliefs they prayed for, this Court deems it necessary to resolve the following
issues:
a. Does a principal-agent relationship exist between CAI and Holiday Travel?
b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the
acts of Holiday Travel’s agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the
representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the
consent of Spouse Viloria in the purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?
e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by
Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of
the subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes’ ticket
and in charging a higher price for a round trip ticket to Los Angeles?
This Court’s Ruling
I. A principal-agent relationship exists between CAI and Holiday Travel.
With respect to the first issue, which is a question of fact that would require this Court to review and re-
examine the evidence presented by the parties below, this Court takes exception to the general rule that
the CA’s findings of fact are conclusive upon Us and our jurisdiction is limited to the review of questions
of law. It is well-settled to the point of being axiomatic that this Court is authorized to resolve questions
of fact if confronted with contrasting factual findings of the trial court and appellate court and if the
findings of the CA are contradicted by the evidence on record.17
According to the CA, agency is never presumed and that he who alleges that it exists has the burden of
proof. Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short of
indubitably demonstrating the existence of such agency.
We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday Travel is
one of its agents. Furthermore, in erroneously characterizing the contractual relationship between CAI
and Holiday Travel as a contract of sale, the CA failed to apply the fundamental civil law principles
governing agency and differentiating it from sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency
and spelled out the essential elements thereof:
Out of the above given principles, sprung the creation and acceptance of the relationship of agency
whereby one party, called the principal (mandante), authorizes another, called the agent (mandatario), to
act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there
is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of
a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself, and
(4) the agent acts within the scope of his authority.1avvphi1
Agency is basically personal, representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within
the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself."19
Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second
elements are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby
Holiday Travel would enter into contracts of carriage with third persons on CAI’s behalf. The third
element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity
and it is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday
Travel on its behalf. The fourth element is also present considering that CAI has not made any allegation
that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently maintains the
validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager
was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to
enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March
24, 1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel
with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the
subject tickets, CAI did not deny that Holiday Travel is its authorized agent.
Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel
the power and authority to conclude contracts of carriage on its behalf. As clearly extant from the records,
CAI recognized the validity of the contracts of carriage that Holiday Travel entered into with Spouses
Viloria and considered itself bound with Spouses Viloria by the terms and conditions thereof; and this
constitutes an unequivocal testament to Holiday Travel’s authority to act as its agent. This Court cannot
therefore allow CAI to take an altogether different position and deny that Holiday Travel is its agent
without condoning or giving imprimatur to whatever damage or prejudice that may result from such
denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in recognition of Holiday
Travel’s authority. Estoppel is primarily based on the doctrine of good faith and the avoidance of harm
that will befall an innocent party due to its injurious reliance, the failure to apply it in this case would
result in gross travesty of justice.20 Estoppel bars CAI from making such denial.
As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied
from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority."
Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar
that the CA had branded the contractual relationship between CAI and Holiday Travel as one of sale. The
distinctions between a sale and an agency are not difficult to discern and this Court, as early as 1970, had
already formulated the guidelines that would aid in differentiating the two (2) contracts. In Commissioner
of Internal Revenue v. Constantino,21 this Court extrapolated that the primordial differentiating
consideration between the two (2) contracts is the transfer of ownership or title over the property subject
of the contract. In an agency, the principal retains ownership and control over the property and the agent
merely acts on the principal’s behalf and under his instructions in furtherance of the objectives for which
the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the
delivery of the property will effect a relinquishment of title, control and ownership in such a way that the
recipient may do with the property as he pleases.
Since the company retained ownership of the goods, even as it delivered possession unto the dealer for
resale to customers, the price and terms of which were subject to the company's control, the relationship
between the company and the dealer is one of agency, tested under the following criterion:
"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to
the establishment of rules by the application of which this difficulty may be solved. The decisions say the
transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such
transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as
a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale,
the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his
property, but as the property of the principal, who remains the owner and has the right to control sales, fix
the price, and terms, demand and receive the proceeds less the agent's commission upon sales made. 1
Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1."
(Salisbury v. Brooks, 94 SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a
sale is certainly confounding, considering that CAI is the one bound by the contracts of carriage
embodied by the tickets being sold by Holiday Travel on its behalf. It is undisputed that CAI and not
Holiday Travel who is the party to the contracts of carriage executed by Holiday Travel with third persons
who desire to travel via Continental Airlines, and this conclusively indicates the existence of a principal-
agent relationship. That the principal is bound by all the obligations contracted by the agent within the
scope of the authority granted to him is clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s
employees if it has been established by preponderance of evidence that the principal was also at fault or
negligent or that the principal exercise control and supervision over them.
Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the fault
or negligence of Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23
CAI argues that it cannot be held liable for the actions of the employee of its ticketing agent in the
absence of an employer-employee relationship.
An examination of this Court’s pronouncements in China Air Lines will reveal that an airline company is
not completely exonerated from any liability for the tort committed by its agent’s employees. A prior
determination of the nature of the passenger’s cause of action is necessary. If the passenger’s cause of
action against the airline company is premised on culpa aquiliana or quasi-delict for a tort committed by
the employee of the airline company’s agent, there must be an independent showing that the airline
company was at fault or negligent or has contributed to the negligence or tortuous conduct committed by
the employee of its agent. The mere fact that the employee of the airline company’s agent has committed
a tort is not sufficient to hold the airline company liable. There is no vinculum juris between the airline
company and its agent’s employees and the contractual relationship between the airline company and its
agent does not operate to create a juridical tie between the airline company and its agent’s employees.
Article 2180 of the Civil Code does not make the principal vicariously liable for the tort committed by its
agent’s employees and the principal-agency relationship per se does not make the principal a party to
such tort; hence, the need to prove the principal’s own fault or negligence.
On the other hand, if the passenger’s cause of action for damages against the airline company is based on
contractual breach or culpa contractual, it is not necessary that there be evidence of the airline company’s
fault or negligence. As this Court previously stated in China Air Lines and reiterated in Air France vs.
Gillego,24 "in an action based on a breach of contract of carriage, the aggrieved party does not have to
prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of
the contract and the fact of its non-performance by the carrier."
Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is clearly
one of tort or quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it
was incumbent upon Spouses Viloria to prove that CAI was equally at fault.
However, the records are devoid of any evidence by which CAI’s alleged liability can be substantiated.
Apart from their claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel
is CAI’s agent, Spouses Viloria did not present evidence that CAI was a party or had contributed to
Mager’s complained act either by instructing or authorizing Holiday Travel and Mager to issue the said
misrepresentation.
It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and
conditions of the subject contracts, which Mager entered into with them on CAI’s behalf, in order to deny
Spouses Viloria’s request for a refund or Fernando’s use of Lourdes’ ticket for the re-issuance of a new
one, and simultaneously claim that they are not bound by Mager’s supposed misrepresentation for
purposes of avoiding Spouses Viloria’s claim for damages and maintaining the validity of the subject
contracts. It may likewise be argued that CAI cannot deny liability as it benefited from Mager’s acts,
which were performed in compliance with Holiday Travel’s obligations as CAI’s agent.
However, a person’s vicarious liability is anchored on his possession of control, whether absolute or
limited, on the tortfeasor. Without such control, there is nothing which could justify extending the
liability to a person other than the one who committed the tort. As this Court explained in Cangco v.
Manila Railroad Co.:25
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it
is competent for the legislature to elect — and our Legislature has so elected — to limit such liability to
cases in which the person upon whom such an obligation is imposed is morally culpable or, on the
contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral
culpability, so as to include responsibility for the negligence of those persons whose acts or
omissions are imputable, by a legal fiction, to others who are in a position to exercise an absolute or
limited control over them. The legislature which adopted our Civil Code has elected to limit extra-
contractual liability — with certain well-defined exceptions — to cases in which moral culpability can be
directly imputed to the persons to be charged. This moral responsibility may consist in having failed to
exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of
one's agent or servants, or in the control of persons who, by reasons of their status, occupy a position of
dependency with respect to the person made liable for their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by
preponderant evidence. The existence of control or supervision cannot be presumed and CAI is under no
obligation to prove its denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v.
Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment
relationship. The defendant is under no obligation to prove the negative averment. This Court said:
"It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff,
and that if he fails satisfactorily to show the facts upon which he bases his claim, the defendant is under
no obligation to prove his exceptions. This [rule] is in harmony with the provisions of Section 297 of the
Code of Civil Procedure holding that each party must prove his own affirmative allegations, etc."29
(citations omitted)
Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s employees
or that CAI was equally at fault, no liability can be imposed on CAI for Mager’s supposed
misrepresentation.
III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are
not entitled to a refund. Mager’s statement cannot be considered a causal fraud that would justify the
annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the
money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting
parties was obtained through fraud, the contract is considered voidable and may be annulled within four
(4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged
under Article 1398 of the same Code to restore to each other the things subject matter of the contract,
including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the
subject contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that
their demand for a refund is tantamount to seeking for an annulment of the subject contracts on the
ground of vitiated consent.
Whether the subject contracts are annullable, this Court is required to determine whether Mager’s alleged
misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency, whether
fraud attended the execution of a contract is factual in nature and this Court, as discussed above, may
scrutinize the records if the findings of the CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract which, without them, he would
not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente), inducement to the making of the contract.30 In Samson v. Court of
Appeals,31 causal fraud was defined as "a deception employed by one party prior to or simultaneous to
the contract in order to secure the consent of the other."32
Also, fraud must be serious and its existence must be established by clear and convincing evidence. As
ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not
adequate:
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been
employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear,
and convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The
fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case
should be considered, taking into account the personal conditions of the victim."34
After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has
not been satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In
fact, Spouses Viloria failed to prove by clear and convincing evidence that Mager’s statement was
fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats at
Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with Mager on July 21, 1997;
(b) Mager knew about this; and (c) that she purposely informed them otherwise.
This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an Amtrak
had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed
out and as Fernando admitted, it was possible that during the intervening period of three (3) weeks from
the time Fernando purchased the subject tickets to the time he talked to said Amtrak employee, other
passengers may have cancelled their bookings and reservations with Amtrak, making it possible for
Amtrak to accommodate them. Indeed, the existence of fraud cannot be proved by mere speculations and
conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is
presumed that "a person is innocent of crime or wrong" and that "private transactions have been fair and
regular."35 Spouses Viloria failed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts.
Even assuming that Mager’s representation is causal fraud, the subject contracts have been impliedly
ratified when Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of
new ones. Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a voidable
contract."
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the
person who has a right to invoke it should execute an act which necessarily implies an intention to waive
his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval
or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.36
Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses
Viloria likewise asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking to
replace the subject tickets with a round trip ticket from Manila to Los Angeles.
In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on
contractual breach. Resolution, the action referred to in Article 1191, is based on the defendant’s breach
of faith, a violation of the reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao
Corrugated Carton Corporation,38 this Court ruled that a claim for a reimbursement in view of the other
party’s failure to comply with his obligations under the contract is one for rescission or resolution.
However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2)
inconsistent remedies. In resolution, all the elements to make the contract valid are present; in annulment,
one of the essential elements to a formation of a contract, which is consent, is absent. In resolution, the
defect is in the consummation stage of the contract when the parties are in the process of performing their
respective obligations; in annulment, the defect is already present at the time of the negotiation and
perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191,
the Vilorias had impliedly admitted the validity of the subject contracts, forfeiting their right to demand
their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the
same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent
positions.39
V. Contracts cannot be rescinded for a slight or casual breach.
CAI cannot insist on the non-transferability of the subject tickets.
Considering that the subject contracts are not annullable on the ground of vitiated consent, the next
question is: "Do Spouses Viloria have the right to rescind the contract on the ground of CAI’s supposed
breach of its undertaking to issue new tickets upon surrender of the subject tickets?"
Article 1191, as presently worded, states:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused
to apply the value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los Angeles and in
requiring him to pay an amount higher than the price fixed by other airline companies.
In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of payment
toward the purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for
tickets purchased prior to October 30, 1997)."
Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the non-
transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter supports
the position of Spouses Viloria, that each of them can use the ticket under their name for the purchase of
new tickets whether for themselves or for some other person.
Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject
tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed that
he cannot use the ticket in Lourdes’ name as payment.
Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain
reading of the provision printed on the subject tickets stating that "[t]o the extent not in conflict with the
foregoing carriage and other services performed by each carrier are subject to: (a) provisions contained in
this ticket, x x x (iii) carrier’s conditions of carriage and related regulations which are made part hereof
(and are available on application at the offices of carrier) x x x." As a common carrier whose business is
imbued with public interest, the exercise of extraordinary diligence requires CAI to inform Spouses
Viloria, or all of its passengers for that matter, of all the terms and conditions governing their contract of
carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of carriage to impute
knowledge on its passengers of and demand compliance with a certain condition or undertaking that is not
clearly stipulated. Since the prohibition on transferability is not written on the face of the subject tickets
and CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket
as payment for Fernando’s purchase of a new ticket.
CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a casual
breach.
Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The
general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for
such substantial and fundamental violations as would defeat the very object of the parties in making the
agreement.40 Whether a breach is substantial is largely determined by the attendant circumstances.41
While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of
a new ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it
cannot, however be considered substantial. The endorsability of the subject tickets is not an essential part
of the underlying contracts and CAI’s failure to comply is not essential to its fulfillment of its undertaking
to issue new tickets upon Spouses Viloria’s surrender of the subject tickets. This Court takes note of
CAI’s willingness to perform its principal obligation and this is to apply the price of the ticket in
Fernando’s name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes’ name as full or partial payment as the case may be for the
purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAI’s willingness
to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its
erroneous insistence that Lourdes’ ticket is non-transferable.
Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the
fact that their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria
have no right to insist that a single round trip ticket between Manila and Los Angeles should be priced at
around $856.00 and refuse to pay the difference between the price of the subject tickets and the amount
fixed by CAI. The petitioners failed to allege, much less prove, that CAI had obliged itself to issue to
them tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its March
24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be used as a form of payment
toward the purchase of another Continental ticket"42 and there is nothing in it suggesting that CAI had
obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the surrender
of the subject tickets will be considered as full payment for any ticket that the petitioners intend to buy
regardless of actual price and destination. The CA was correct in holding that it is CAI’s right and
exclusive prerogative to fix the prices for its services and it may not be compelled to observe and
maintain the prices of other airline companies.43
The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not
preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it
deems proper and which does not provide Spouses Viloria an excuse not to pay such price, albeit subject
to a reduction coming from the value of the subject tickets. It cannot be denied that Spouses Viloria had
the concomitant obligation to pay whatever is not covered by the value of the subject tickets whether or
not the subject tickets are transferable or not.1avvphi1
There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged
with a higher rate. The only evidence the petitioners presented to prove that the price of a round trip ticket
between Manila and Los Angeles at that time was only $856.00 is a newspaper advertisement for another
airline company, which is inadmissible for being "hearsay evidence, twice removed." Newspaper
clippings are hearsay if they were offered for the purpose of proving the truth of the matter alleged. As
ruled in Feria v. Court of Appeals,:44
[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only
inadmissible but without any probative value at all whether objected to or not, unless offered for a
purpose other than proving the truth of the matter asserted. In this case, the news article is admissible only
as evidence that such publication does exist with the tenor of the news therein stated.45 (citations
omitted)
The records of this case demonstrate that both parties were equally in default; hence, none of them can
seek judicial redress for the cancellation or resolution of the subject contracts and they are therefore
bound to their respective obligations thereunder. As the 1st sentence of Article 1192 provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties
first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.
(emphasis supplied)
Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of
Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount,
which is not covered by the subject tickets. Moreover, the contract between them remains, hence, CAI is
duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the
subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the
subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:
Since both parties were in default in the performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his ₱17,000.00 debt within 3 years as stipulated,
they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule
that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the
liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue ₱17,000.00 debt. x x x.47
Another consideration that militates against the propriety of holding CAI liable for moral damages is the
absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code
requires evidence of bad faith and fraud and moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven.48 The award of exemplary damages is likewise not
warranted. Apart from the requirement that the defendant acted in a wanton, oppressive and malevolent
manner, the claimant must prove his entitlement to moral damages.49
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.

G.R. No. 174118 April 11, 2012

THE ROMAN CATHOLIC CHURCH, represented by the Archbishop of Caceres, Petitioner,
vs.
REGINO PANTE, Respondent.
DECISION
BRION, J.:
Through a petition for review on certiorari,1 the petitioner Roman Catholic Church (Church) seeks to set
aside the May 18, 2006 decision2 and the August 11, 2006 resolution3 of the Court of Appeals (CA) in
CA-G.R.-CV No. 65069. The CA reversed the July 30, 1999 decision4 of the Regional Trial Court (RTC)
of Naga City, Branch 24, in Civil Case No. 94-3286.
THE FACTUAL ANTECEDENTS
The Church, represented by the Archbishop of Caceres, owned a 32-square meter lot that measured 2x16
meters located in Barangay Dinaga, Canaman, Camarines Sur.5 On September 25, 1992, the Church
contracted with respondent Regino Pante for the sale of the lot (thru a Contract to Sell and to Buy6 ) on
the belief that the latter was an actual occupant of the lot. The contract between them fixed the purchase
price at ₱11,200.00, with the initial ₱1,120.00 payable as down payment, and the remaining balance
payable in three years or until September 25, 1995.
On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi (spouses Rubi) a 215-
square meter lot that included the lot previously sold to Pante. The spouses Rubi asserted their ownership
by erecting a concrete fence over the lot sold to Pante, effectively blocking Pante and his family’s access
from their family home to the municipal road. As no settlement could be reached between the parties,
Pante instituted with the RTC an action to annul the sale between the Church and the spouses Rubi,
insofar as it included the lot previously sold to him.7
The Church filed its answer with a counterclaim, seeking the annulment of its contract with Pante. The
Church alleged that its consent to the contract was obtained by fraud when Pante, in bad faith,
misrepresented that he had been an actual occupant of the lot sold to him, when in truth, he was merely
using the 32-square meter lot as a passageway from his house to the town proper. It contended that it was
its policy to sell its lots only to actual occupants. Since the spouses Rubi and their predecessors-in-interest
have long been occupying the 215-square meter lot that included the 32-square meter lot sold to Pante, the
Church claimed that the spouses Rubi were the rightful buyers.
During pre-trial, the following admissions and stipulations of facts were made:
1. The lot claimed by Pante is a strip of land measuring only 2x16 meters;
2. The lot had been sold by the Church to Pante on September 25, 1992;
3. The lot was included in the sale to the spouses Rubi by the Church; and
4. Pante expressly manifested and represented to the Church that he had been actually occupying the lot
he offered to buy.8
In a decision dated July 30, 1999,9 the RTC ruled in favor of the Church, finding that the Church’s
consent to the sale was secured through Pante’s misrepresentation that he was an occupant of the 32-
square meter lot. Contrary to his claim, Pante was only using the lot as a passageway; the Church’s
policy, however, was to sell its lots only to those who actually occupy and reside thereon. As the
Church’s consent was secured through its mistaken belief that Pante was a qualified "occupant," the RTC
annulled the contract between the Church and Pante, pursuant to Article 1390 of the Civil Code.10
The RTC further noted that full payment of the purchase price was made only on September 23, 1995,
when Pante consigned the balance of ₱10,905.00 with the RTC, after the Church refused to accept the
tendered amount. It considered the three-year delay in completing the payment fatal to Pante’s claim over
the subject lot; it ruled that if Pante had been prompt in paying the price, then the Church would have
been estopped from selling the lot to the spouses Rubi. In light of Pante’s delay and his admission that the
subject lot had been actually occupied by the spouses Rubi’s predecessors, the RTC upheld the sale in
favor of the spouses Rubi.
Pante appealed the RTC’s decision with the CA. In a decision dated May 18, 2006,11 the CA granted
Pante’s appeal and reversed the RTC’s ruling. The CA characterized the contract between Pante and the
Church as a contract of sale, since the Church made no express reservation of ownership until full
payment of the price is made. In fact, the contract gave the Church the right to repurchase in case Pante
fails to pay the installments within the grace period provided; the CA ruled that the right to repurchase is
unnecessary if ownership has not already been transferred to the buyer.
Even assuming that the contract had been a contract to sell, the CA declared that Pante fulfilled the
condition precedent when he consigned the balance within the three-year period allowed under the
parties’ agreement; upon full payment, Pante fully complied with the terms of his contract with the
Church.
After recognizing the validity of the sale to Pante and noting the subsequent sale to the spouses Rubi, the
CA proceeded to apply the rules on double sales in Article 1544 of the Civil Code:
Article 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. [Emphasis ours.]
Since neither of the two sales was registered, the CA upheld the full effectiveness of the sale in favor of
Pante who first possessed the lot by using it as a passageway since 1963.
The Church filed the present petition for review on certiorari under Rule 45 of the Rules of Court to
contest the CA’s ruling.
THE PETITION
The Church contends that the sale of the lot to Pante is voidable under Article 1390 of the Civil Code,
which states:
Article 1390. The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of
ratification. [Emphasis ours.]
It points out that, during trial, Pante already admitted knowing that the spouses Rubi have been residing
on the lot. Despite this knowledge, Pante misrepresented himself as an occupant because he knew of the
Church’s policy to sell lands only to occupants or residents thereof. It thus claims that Pante’s
misrepresentation effectively vitiated its consent to the sale; hence, the contract should be nullified.
For the Church, the presence of fraud and misrepresentation that would suffice to annul the sale is the
primary issue that the tribunals below should have resolved. Instead, the CA opted to characterize the
contract between the Church and Pante, considered it as a contract of sale, and, after such
characterization, proceeded to resolve the case in Pante’s favor. The Church objects to this approach, on
the principal argument that there could not have been a contract at all considering that its consent had
been vitiated.
THE COURT’S RULING
The Court resolves to deny the petition.
No misrepresentation existed vitiating the
seller’s consent and invalidating the contract
Consent is an essential requisite of contracts12 as it pertains to the meeting of the offer and the acceptance
upon the thing and the cause which constitute the contract.13 To create a valid contract, the meeting of
the minds must be free, voluntary, willful and with a reasonable understanding of the various obligations
the parties assumed for themselves.14 Where consent, however, is given through mistake, violence,
intimidation, undue influence, or fraud, the contract is deemed voidable.15 However, not every mistake
renders a contract voidable. The Civil Code clarifies the nature of mistake that vitiates consent:
Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both
parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction. [Emphasis ours.]
For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur:
1. the mistake must be either with regard to the identity or with regard to the qualification of one of the
contracting parties; and
2. the identity or qualification must have been the principal consideration for the celebration of the
contract.16
In the present case, the Church contends that its consent to sell the lot was given on the mistaken
impression arising from Pante’s fraudulent misrepresentation that he had been the actual occupant of the
lot. Willful misrepresentation existed because of its policy to sell its lands only to their actual occupants
or residents. Thus, it considers the buyer’s actual occupancy or residence over the subject lot a
qualification necessary to induce it to sell the lot.
Whether the facts, established during trial, support this contention shall determine if the contract between
the Church and Pante should be annulled. In the process of weighing the evidentiary value of these
established facts, the courts should consider both the parties’ objectives and the subjective aspects of the
transaction, specifically, the parties’ circumstances – their condition, relationship, and other attributes –
and their conduct at the time of and subsequent to the contract. These considerations will show what
influence the alleged error exerted on the parties and their intelligent, free, and voluntary consent to the
contract.17
Contrary to the Church’s contention, the actual occupancy or residency of a buyer over the land does not
appear to be a necessary qualification that the Church requires before it could sell its land. Had this been
indeed its policy, then neither Pante nor the spouses Rubi would qualify as buyers of the 32-square meter
lot, as none of them actually occupied or resided on the lot. We note in this regard that the lot was only a
2x16-meter strip of rural land used as a passageway from Pante’s house to the municipal road.
We find well-taken Pante’s argument that, given the size of the lot, it could serve no other purpose than as
a mere passageway; it is unthinkable to consider that a 2x16-meter strip of land could be mistaken as
anyone’s residence. In fact, the spouses Rubi were in possession of the adjacent lot, but they never
asserted possession over the 2x16-meter lot when the 1994 sale was made in their favor; it was only then
that they constructed the concrete fence blocking the passageway.
We find it unlikely that Pante could successfully misrepresent himself as the actual occupant of the lot;
this was a fact that the Church (which has a parish chapel in the same barangay where the lot was located)
could easily verify had it conducted an ocular inspection of its own property. The surrounding
circumstances actually indicate that the Church was aware that Pante was using the lot merely as a
passageway.
The above view is supported by the sketch plan,18 attached to the contract executed by the Church and
Pante, which clearly labeled the 2x16-meter lot as a "RIGHT OF WAY"; below these words was written
the name of "Mr. Regino Pante." Asked during cross-examination where the sketch plan came from,
Pante answered that it was from the Archbishop’s Palace; neither the Church nor the spouses Rubi
contradicted this statement.19
The records further reveal that the sales of the Church’s lots were made after a series of conferences with
the occupants of the lots.20 The then parish priest of Canaman, Fr. Marcaida, was apparently aware that
Pante was not an actual occupant, but nonetheless, he allowed the sale of the lot to Pante, subject to the
approval of the Archdiocese’s Oeconomous. Relying on Fr. Marcaida’s recommendation and finding
nothing objectionable, Fr. Ragay (the Archdiocese’s Oeconomous) approved the sale to Pante.
The above facts, in our view, establish that there could not have been a deliberate, willful, or fraudulent
act committed by Pante that misled the Church into giving its consent to the sale of the subject lot in his
favor. That Pante was not an actual occupant of the lot he purchased was a fact that the Church either
ignored or waived as a requirement. In any case, the Church was by no means led to believe or do so by
Pante’s act; there had been no vitiation of the Church’s consent to the sale of the lot to Pante.
From another perspective, any finding of bad faith, if one is to be made, should be imputed to the Church.
Without securing a court ruling on the validity of its contract with Pante, the Church sold the subject
property to the spouses Rubi. Article 1390 of the Civil Code declares that voidable contracts are binding,
unless annulled by a proper court action. From the time the sale to Pante was made and up until it sold the
subject property to the spouses Rubi, the Church made no move to reject the contract with Pante; it did
not even return the down payment he paid. The Church’s bad faith in selling the lot to Rubi without
annulling its contract with Pante negates its claim for damages.
In the absence of any vitiation of consent, the contract between the Church and Pante stands valid and
existing. Any delay by Pante in paying the full price could not nullify the contract, since (as correctly
observed by the CA) it was a contract of sale. By its terms, the contract did not provide a stipulation that
the Church retained ownership until full payment of the price.21 The right to repurchase given to the
Church in case Pante fails to pay within the grace period provided22 would have been unnecessary had
ownership not already passed to Pante.
The rule on double sales
The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale that called for the
application of the rules in Article 1544 of the Civil Code:
Article 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. [Emphasis ours.]
As neither Pante nor the spouses Rubi registered the sale in their favor, the question now is who, between
the two, was first in possession of the property in good faith.1âwphi1
Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual physical
delivery and constructive delivery.23 Under either mode of delivery, the facts show that Pante was the
first to acquire possession of the lot.
Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee.24
Pante claimed that he had been using the lot as a passageway, with the Church’s permission, since
1963.1âwphi1 After purchasing the lot in 1992, he continued using it as a passageway until he was
prevented by the spouses Rubi’s concrete fence over the lot in 1994. Pante’s use of the lot as a
passageway after the 1992 sale in his favor was a clear assertion of his right of ownership that preceded
the spouses Rubi’s claim of ownership.
Pante also stated that he had placed electric connections and water pipes on the lot, even before he
purchased it in 1992, and the existence of these connections and pipes was known to the spouses Rubi.25
Thus, any assertion of possession over the lot by the spouses Rubi (e.g., the construction of a concrete
fence) would be considered as made in bad faith because works had already existed on the lot indicating
possession by another. "[A] buyer of real property in the possession of persons other than the seller must
be wary and should investigate the rights of those in possession. Without such inquiry, the buyer can
hardly be regarded as a buyer in good faith and cannot have any right over the property."26
Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states that:
Article 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the contract, if from the deed the contrary does not
appear or cannot clearly be inferred.
Under this provision, the sale in favor of Pante would have to be upheld since the contract executed
between the Church and Pante was duly notarized, converting the deed into a public instrument.27 In
Navera v. Court of Appeals,28 the Court ruled that:
[A]fter the sale of a realty by means of a public instrument, the vendor, who resells it to another, does not
transmit anything to the second vendee, and if the latter, by virtue of this second sale, takes material
possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against
the rights of the thing lawfully acquired by the first vendee.
Thus, under either mode of delivery, Pante acquired prior possession of the lot.
WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision of the Court of
Appeals dated May 18, 2006, and its resolution dated August 11, 2006, issued in CA-G.R.-CV No.
65069. Costs against the Roman Catholic Church

Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al.,

FACTS:

Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8hectare industrial compound
at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was covered by TCT No.
241597.Pursuant to a P2 million, 10-year 14% per annum loan agreement with Manphil Investment
Corporation (Manphil) dated April 6, 1983, the said lot was subdivided into11 lots, with Manphil
retaining four lots as mortgage security.

The other seven lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI. In
July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of its
boiler machine, to prevent its repossession by the seller. PCRI, also family-owned corporation licensed
since 1980 to engage in money lending, was represented by Domingo Ang (“Domingo”) its president, and
his son Caleb, vice-president. The parties knew each other because they belonged to the same
familyassociation, the Lioc Kui Tong Fraternity.

On the basis only of his interview with Enrique, feedback from the stockholders and the Chinese
community, as well as information given by his own father Domingo, and without further checking on the
background of Enrique and his business and requiring him to submit a company profile and a feasibility
study of MFI, Caleb recommended the approval of the P3.44 million with an interest ranging from 24% to
26% per annum and a term of between five and ten years (Decision, p. 5).
According to the court, it sufficed for Caleb that Enrique was a well-respected Chinese businessman, that
he was the presidentof their Chinese family association, and that he had other personal businesses aside
fromMFI, such as the Africa Trading.However, in September 1984, the first amortization check bounced
for insufficient fund due to MFI’s continuing business losses. It was then that the appellees allegedly
learnedthat PCRI had filled up the 24 blank checks with dates and amounts that reflected a 35%interest
rate per annum, instead of just 24%, and a two year repayment period, instead of10 years.

On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated August 29, 1986, announcing
the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of P10.5 million. Vicky
(daughter of owner of MFI, because their father went into a coma because of intense pressure from the
foreclosure) insisted that prior to the auction notice, they never received any statement or demand letter
from the defendants to pay P10.5 million, nor did the defendants inform them of the intended foreclosure.

ISSUES: Was the Mortgage Contract VOID?

HELD:
No. As the records show, petitioners really agreed to mortgage their properties as security for their loan,
and signed the deed of mortgage for the purpose. Thereafter, they delivered the TCTs of the properties
subject of the mortgage to respondents. Consequently, petitioners’ contention of absence of consent had
no firm moorings. It remained unproved. To begin with, they neither alleged nor established that they had
been forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for the
loan, executed the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to
their modified defense of absence of consent, Vicky Ang’s testimony tended at best to prove the
vitiation of their consent through insidious words, machinations or misrepresentations amounting
to fraud, which showed that the contract was voidable.

Where the consent was given through fraud, the contract was voidable, not void ab initio. This is because
a voidable or annullable contract is existent, valid and binding, although it can be annulled due to want of
capacity or because of the vitiated consent of one of the parties. Article 1390, in relation to Article 1391
of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the
contract is considered voidable and may be annulled within four years from the time of the discovery of
the fraud.

According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through
insidious words or machinations, induces the other to enter into the contract that, without the inducement,
he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely
the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals,
causal fraud is defined as “a deception employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other.”

.R. No. L-55048 May 27, 1981

SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO SOTTO, petitioners,
vs.
HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte, DELY RODRIGUEZ, FELIPE ANG
CRUZ, CONSTANCIA NOGAR, MANUEL GO, INOCENTES DIME, WILLY JULIO, JAIME YU,
OSCAR DY, DY CHIU SENG, BENITO YOUNG, FERNANDO YU, SEBASTIAN YU, CARLOS UY,
HOC CHUAN and MANUEL DY, respondents.

BARREDO, J.:1äwphï1.ñët
Petition for certiorari and prohibition to declare void for being in grave abuse of discretion the orders of
respondent judge dated November 2, 1978 and August 29, 1980, in Civil Case No. 5759 of the Court of
First Instance of Leyte, which denied the motion filed by petitioners to dismiss the complaint of private
respondents for specific performance of an alleged agreement of sale of real property, the said motion
being based on the grounds that the respondents' complaint states no cause of action and/or that the claim
alleged therein is unenforceable under the Statute of Frauds.
Finding initially prima facie merit in the petition, We required respondents to answer and We issued a
temporary restraining order on October 7, 1980 enjoining the execution of the questioned orders.
In essence, the theory of petitioners is that while it is true that they did express willingness to sell to
private respondents the subject property for P6,500,000 provided the latter made known their own
decision to buy it not later than July 31, 1978, the respondents' reply that they were agreeable was not
absolute, so much so that when ultimately petitioners' representative went to Cebu City with a prepared
and duly signed contract for the purpose of perfecting and consummating the transaction, respondents and
said representative found variance between the terms of payment stipulated in the prepared document and
what respondents had in mind, hence the bankdraft which respondents were delivering to petit loners'
representative was returned and the document remained unsigned by respondents. Hence the action below
for specific performance.
To be more specific, the parties do not dispute that on July 12, 1978, petitioners, thru a certain Pedro C.
Gamboa, sent to respondents the following letter:
Mr. Yao King Ong
Life Bakery
Tacloban City
Dear Mr. Yao: 1äwphï1.ñët
This refers to the Sotto property (land and building) situated at Tacloban City. My clients are willing to
sell them at a total price of P6,500,000.00.
While there are other parties who are interested to buy the property, I am giving you and the other
occupants the preference, but such priority has to be exercised within a given number of days as I do not
want to lose the opportunity if you are not interested. I am therefore gluing you and the rest of the
occupants until July 31, 1978 within it which to decide whether you want to buy the property. If I do not
hear from you by July 31, I will offer or close the deal with the other interested buyer.
Thank you so much for the hospitality extended to me during my last trip to Tacloban, and I hope to hear
from you very soon. 1äwphï1.ñët
Very truly yours,
Pedro C. Gamboa 1
(Page 9, Record.)
Reacting to the foregoing letter, the following telegram was sent by "Yao King Ong & tenants" to Atty.
Pedro Gamboa in Cebu City:
Atty. Pedro Gamboa
Room 314, Maria Cristina Bldg.
Osmeña Boulevard, Cebu City
Reurlet dated July 12 inform Dra. Yuvienco we agree to buy property proceed Tacloban to negotiate
details 1äwphï1.ñët
Yao King Ong & tenants
(Page 10, Record.)
Likewise uncontroverted is the fact that under date of July 27, 1978, Atty. Gamboa wired Yao King Ong
in Tacloban City as follows:
NLT
YAO KING ONG
LIFE BAKERY
TACLOBAN CITY
PROPOSAL ACCEPTED ARRIVING TUESDAY MORNING WITH CONTRACT PREPARE
PAYMENT BANK DRAFT 1äwphï1.ñët
ATTY. GAMBOA
(Page 10, Id.)
Now, Paragraph 10 of the complaint below of respondents alleges: 1äwphï1.ñët
10. That on August 1, 1978, defendant Pedro Gamboa arrived Tacloban City bringing with him the
prepared contract to purchase and to sell referred to in his telegram dated July 27, 1978 (Annex 'D'
hereof) for the purpose of closing the transactions referred to in paragraphs 8 and 9 hereof, however, to
the complete surprise of plaintiffs, the defendant (except def. Tacloban City Ice Plant, Inc.) without
giving notice to plaintiffs, changed the mode of payment with respect to the balance of P4,500,000.00 by
imposing upon plaintiffs to pay same amount within thirty (30) days from execution of the contract
instead of the former term of ninety (90) days as stated in paragraph 8 hereof. (Pp. 10-11, Record.)
Additionally and to reenforce their position, respondents alleged further in their complaint: 1äwphï1.ñët
8. That on July 12, 1978, defendants (except defendant Tacloban City Ice Plant, Inc.) finally sent a
telegram letter to plaintiffs- tenants, through same Mr. Yao King Ong, notifying them that defendants are
willing to sell the properties (lands and building) at a total price of P6,500,000.00, which herein plaintiffs-
tenants have agreed to buy the said properties for said price; a copy of which letter is hereto attached as
integral part hereof and marked as Annex 'C', and plaintiffs accepted the offer through a telegram dated
July 25, 1978, sent to defendants (through defendant Pedro C. Gamboa), a copy of which telegram is
hereto attached as integral part hereof and marked as Annex C-1 and as a consequence hereof. plaintiffs
except plaintiff Tacloban - merchants' Realty Development Corporation) and defendants (except
defendant Tacloban City Ice Plant. Inc.) agreed to the following terms and conditions respecting the
payment of said purchase price, to wit: 1äwphï1.ñët
P2,000,000.00 to be paid in full on the date of the execution of the contract; and the balance of
P4,500,000.00 shall be fully paid within ninety (90) days thereafter;
9. That on July 27, 1978, defendants sent a telegram to plaintiff- tenants, through the latter's
representative Mr. Yao King Ong, reiterating their acceptance to the agreement referred to in the next
preceding paragraph hereof and notifying plaintiffs-tenants to prepare payment by bank drafts; which the
latter readily complied with; a copy of which telegram is hereto attached as integral part hereof and
marked as Annex "D"; (Pp 49-50, Record.)
It was on the basis of the foregoing facts and allegations that herein petitioners filed their motion to
dismiss alleging as main grounds: 1äwphï1.ñët
I. That plaintiff, TACLOBAN MERCHANTS' REALTY DEVELOPMENT CORPORATION, amended
complaint, does not state a cause of action and the claim on which the action is founded is likewise
unenforceable under the provisions of the Statute of Frauds.
II. That as to the rest of the plaintiffs, their amended complaint does not state a cause of action and the
claim on which the action is founded is likewise unenforceable under the provisions of the Statute of
Frauds. (Page 81, Record.)
With commendable knowledgeability and industry, respondent judge ruled negatively on the motion to
dismiss, discoursing at length on the personality as real party-in-interest of respondent corporation, while
passing lightly, however, on what to Us are the more substantial and decisive issues of whether or not the
complaint sufficiently states a cause of action and whether or not the claim alleged therein is
unenforceable under the Statute of Frauds, by holding thus: 1äwphï1.ñët
The second ground of the motion to dismiss is that plaintiffs' claim is unenforceable under the Statute of
Frauds. The defendants argued against this motion and asked the court to reject the objection for the
simple reason that the contract of sale sued upon in this case is supported by letters and telegrams
annexed to the complaint and other papers which will be presented during the trial. This contention of the
defendants is not well taken. The plaintiffs having alleged that the contract is backed up by letters and
telegrams, and the same being a sufficient memorandum, the complaint states a cause of action and they
should be given a day in court and allowed to substantiate their allegations (Paredes vs. Espino, 22 SCRA
1000).
To take a contract for the sale of land out of the Statute of Frauds a mere note or memorandum in writing
subscribed by the vendor or his agent containing the name of the parties and a summary statement of the
terms of the sale either expressly or by reference to something else is all that is required. The statute does
not require a formal contract drawn up with technical exactness for the language of Par. 2 of Art. 1403 of
the Philippine Civil Code is' ... an agreement ... or some note or memorandum thereof,' thus recognizing a
difference between the contract itself and the written evidence which the statute requires (Berg vs.
Magdalena Estate, Inc., 92 Phil. 110; Ill Moran, Comments on the Rules of Court, 1952 ed. p. 187). See
also Bautista's Monograph on the Statute of Frauds in 21 SCRA p. 250. (Pp. 110-111, Record)
Our first task then is to dwell on the issue of whether or not in the light of the foregoing circumstances,
the complaint in controversy states sufficiently a cause of action. This issue necessarily entails the
determination of whether or not the plaintiffs have alleged facts adequately showing the existence of a
perfected contract of sale between herein petitioners and the occupant represented by respondent Yao
King Ong.
In this respect, the governing legal provision is, of course, Article 1319 of the Civil Code which
provides:1äwphï1.ñët
ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are constitute the contract. The offer must be certain the acceptance absolute. A qualified
acceptance constitute a counter-offer.
Acceptance made by letter or telegram does not bind offerer except from the time it came to his
knowledge. The contract, in a case, is presumed to have been entered into in the place where the offer was
made.
In the instant case, We can lay aside, for the moment, petitioners' contention that the letter of July 12,
1978 of Atty. Pedro C. Gamboa to respondents Yao King Ong and his companions constitute an offer that
is "certain", although the petitioners claim that it was a mere expression of willingness to sell the subject
property and not a direct offer of sale to said respondents. What We consider as more important and truly
decisive is what is the correct juridical significance of the telegram of respondents instructing Atty.
Gamboa to "proceed to Tacloban to negotiate details." We underline the word "negotiate" advisedly
because to Our mind it is the key word that negates and makes it legally impossible for Us to hold that
respondents' acceptance of petitioners' offer, assuming that it was a "certain" offer indeed, was the
"absolute" one that Article 1319 above-quoted requires.
Dictionally, the implication of "to negotiate" is practically the opposite of the Idea that an agreement has
been reached. Webster's Third International Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine
copyright) gives the meaning of negotiate as "to communicate or confer with another so as to arrive at the
settlement of some matter; meet with another so as to arrive through discussion at some kind of
agreement or compromise about something; — to arrange for or bring about through conference or
discussion; work at or arrive at or settle upon by meetings and agreements or compromises — ".
Importantly, it must be borne in mind that Yao King Ong's telegram simply says "we agree to buy
property". It does not necessarily connote acceptance of the price but instead suggests that the details
were to be subject of negotiation.
Respondents now maintain that what the telegram refers to as "details" to be "negotiated" are mere
"accidental elements", not the essential elements of the contract. They even invite attention to the fact that
they have alleged in their complaint (Par. 6) that it was as early as "in the month of October, 1977 (that)
negotiations between plaintiffs and defendants for the purchase and sale (in question) — were made, thus
resulting to offers of same defendants and counter-offer of plaintiffs". But to Our mind such alleged facts
precisely indicate the failure of any meeting of the minds of the parties, and it is only from the letter and
telegrams above-quoted that one can determine whether or not such meeting of the minds did materialize.
As We see it, what such allegations bring out in bold relief is that it was precisely because of their past
failure to arrive at an agreement that petitioners had to put an end to the uncertainty by writing the letter
of July 12, 1978. On the other hand, that respondents were all the time agreeable to buy the property may
be conceded, but what impresses Us is that instead of "absolutely" accepting the "certain" offer — if there
was one — of the petitioners, they still insisted on further negotiation of details. For anyone to read in the
telegram of Yao that they accepted the price of P6,500,000.00 would be an inference not necessarily
warranted by the words "we agree to buy" and "proceed Tacloban to negotiate details". If indeed the
details being left by them for further negotiations were merely accidental or formal ones, what need was
there to say in the telegram that they had still "to negotiate (such) details", when, being unessential per
their contention, they could have been just easily clarified and agreed upon when Atty. Gamboa would
reach Tacloban?
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted earlier above, We gather that it was in
answer to the telegram of Yao. Considering that Yao was in Tacloban then while Atty. Gamboa was in
Cebu, it is difficult to surmise that there was any communication of any kind between them during the
intervening period, and none such is alleged anyway by respondents. Accordingly, the claim of
respondents in paragraph 8 of their complaint below that there was an agreement of a down payment of
P2 M, with the balance of P4.5M to be paid within 90 days afterwards is rather improbable to imagine to
have actually happened.
Respondents maintain that under existing jurisprudence relative to a motion to dismiss on the ground of
failure of the complaint to state a cause of action, the movant-defendant is deemed to admit the factual
allegations of the complaint, hence, petitioners cannot deny, for purposes of their motion, that such terms
of payment had indeed been agreed upon.
While such is the rule, those allegations do not detract from the fact that under Article 1319 of the Civil
Code above-quoted, and judged in the light of the telegram-reply of Yao to Atty. Gamboa's letter of July
12, 1978, there was not an absolute acceptance, hence from that point of view, petitioners' contention that
the complaint of respondents state no cause of action is correct.
Nonetheless, the alleged subsequent agreement about the P2 M down and P4.5 M in 90 days may at best
be deemed as a distinct cause of action. And placed against the insistence of petitioners, as demonstrated
in the two deeds of sale taken by Atty. Gamboa to Tacloban, Annexes 9 and 10 of the answer of herein
respondents, that there was no agreement about 90 days, an issue of fact arose, which could warrant a trial
in order for the trial court to determine whether or not there was such an agreement about the balance
being payable in 90 days instead of the 30 days stipulated in Annexes 9 and 10 above-referred to. Our
conclusion, therefore, is that although there was no perfected contract of sale in the light of the letter of
Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being doubtful whether or not, under
Article 1319 of the Civil Code, the said letter may be deemed as an offer to sell that is "certain", and
more, the Yao telegram is far from being an "absolute" acceptance under said article, still there appears to
be a cause of action alleged in Paragraphs 8 to 12 of the respondents' complaint, considering it is alleged
therein that subsequent to the telegram of Yao, it was agreed that the petitioners would sell the property to
respondents for P6.5 M, by paving P2 M down and the balance in 90 days and which agreement was
allegedly violated when in the deeds prepared by Atty. Gamboa and taken to Tacloban, only 30 days were
given to respondents.
But the foregoing conclusion is not enough to carry the day for respondents. It only brings Us to the
question of whether or not the claim for specific performance of respondents is enforceable under the
Statute of Frauds. In this respect, We man, view the situation at hand from two angles, namely, (1) that
the allegations contained in paragraphs 8 to 12 of respondents' complaint should be taken together with
the documents already aforementioned and (2) that the said allegations constitute a separate and distinct
cause of action. We hold that either way We view the situation, the conclusion is inescapable e that the
claim of respondents that petitioners have unjustifiably refused to proceed with the sale to them of the
property v in question is unenforceable under the Statute of Frauds.
It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there is any writing or
memorandum, much less a duly signed agreement to the effect that the price of P6,500,000 fixed by
petitioners for the real property herein involved was agreed to be paid not in cash but in installments as
alleged by respondents. The only documented indication of the non-wholly-cash payment extant in the
record is that stipulated in Annexes 9 and 10 above-referred to, the deeds already signed by the petitioners
and taken to Tacloban by Atty. Gamboa for the signatures of the respondents. In other words, the 90-day
term for the balance of P4.5 M insisted upon by respondents choices not appear in any note, writing or
memorandum signed by either the petitioners or any of them, not even by Atty. Gamboa. Hence, looking
at the pose of respondents that there was a perfected agreement of purchase and sale between them and
petitioners under which they would pay in installments of P2 M down and P4.5 M within ninety 90) days
afterwards it is evident that such oral contract involving the "sale of real property" comes squarely under
the Statute of Frauds (Article 1403, No. 2(e), Civil Code.)
On the other score of considering the supposed agreement of paying installments as partly supported by
the letter and t telegram earlier quoted herein, His Honor declared with well studied ratiocination, albeit
legally inaccurate, that: 1äwphï1.ñët
The next issue relate to the State of Frauds. It is contended that plaintiffs' action for specific performance
to compel the defendants to execute a good and sufficient conveyance of the property in question (Sotto
land and building) is unenforceable because there is no other note memorandum or writing except
annexes "C", "C-l" and "D", which by themselves did not give birth to a contract to sell. The argument is
not well founded. The rules of pleading limit the statement of the cause of action only to such operative
facts as give rise to the right of action of the plaintiff to obtain relief against the wrongdoer. The details of
probative matter or particulars of evidence, statements of law, inferences and arguments need not be
stated. Thus, Sec. 1 of Rule 8 provides that 'every pleading shall contain in a methodical and logical form,
a plain concise and direct statement of the ultimate facts on which the party pleading relies for his claim
or defense, as the case may be, omitting the statement of mere evidentiary facts.' Exhibits need not be
attached. The contract of sale sued upon in this case is supported by letters and telegrams annexed to the
complaint and plaintiffs have announced that they will present additional evidences during the trial to
prove their cause of action. The plaintiffs having alleged that the contract is backed up by letters and
telegrams, and the same being sufficient memorandum, the complaint states a cause of action and they
should be given their day in court and allowed to substantiate their allegations (Parades vs. Espino, 22
SCRA 1000). (Pp 165-166, Record.)
The foregoing disquisition of respondent judge misses at least two (2) juridical substantive aspects of the
Statute of Frauds insofar as sale of real property is concerned. First, His Honor assumed that the
requirement of perfection of such kind of contract under Article 1475 of the Civil Code which provides
that "(t)he contract of sale is perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price", the Statute would no longer apply as long as the
total price or consideration is mentioned in some note or memorandum and there is no need of any
indication of the manner in which such total price is to be paid.
We cannot agree. In the reality of the economic world and the exacting demands of business interests
monetary in character, payment on installments or staggered payment of the total price is entirely a
different matter from cash payment, considering the unpredictable trends in the sudden fluctuation of the
rate of interest. In other words, it is indisputable that the value of money - varies from day to day, hence
the indispensability of providing in any sale of the terms of payment when not expressly or impliedly
intended to be in cash.
Thus, We hold that in any sale of real property on installments, the Statute of Frauds read together with
the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense
that the idea of payment on installments must be in the requisite of a note or memorandum therein
contemplated. Stated otherwise, the inessential elements" mentioned in the case of Parades vs. Espino, 22
SCRA 1000, relied upon by respondent judge must be deemed to include the requirement just discussed
when it comes to installment sales. There is nothing in the monograph re — the Statute of Frauds
appearing in 21 SCRA 250 also cited by His Honor indicative of any contrary view to this ruling of Ours,
for the essence and thrust of the said monograph refers only to the form of the note or memorandum
which would comply with the Statute, and no doubt, while such note or memorandum need not be in one
single document or writing and it can be in just sufficiently implicit tenor, imperatively the separate notes
must, when put together', contain all the requisites of a perfected contract of sale. To put it the other way,
under the Statute of Frauds, the contents of the note or memorandum, whether in one writing or in
separate ones merely indicative for an adequate understanding of all the essential elements of the entire
agreement, may be said to be the contract itself, except as to the form.
Secondly, We are of the considered opinion that under the rules on proper pleading, the ruling of the trial
court that, even if the allegation of the existence of a sale of real property in a complaint is challenged as
barred from enforceability by the Statute of Frauds, the plaintiff may simply say there are documents,
notes or memoranda without either quoting them in or annexing them to the complaint, as if holding an
ace in the sleeves is not correct. To go directly to the point, for Us to sanction such a procedure is to
tolerate and even encourage undue delay in litigation, for the simple reason that to await the stage of trial
for the showing or presentation of the requisite documentary proof when it already exists and is asked to
be produced by the adverse party would amount to unnecessarily postponing, with the concomitant waste
of time and the prolongation of the proceedings, something that can immediately be evidenced and
thereby determinable with decisiveness and precision by the court without further delay.
In this connection, Moran observes that unlike when the ground of dismissal alleged is failure of the
complaint to state a cause of action, a motion to dismiss invoking the Statute of Frauds may be filed even
if the absence of compliance does not appear an the face of the complaint. Such absence may be the
subject of proof in the motion stage of the proceedings. (Moran, Comment on the Rules of Court, Vol. 1,
p. 494, 1979 ed.) It follows then that when such a motion is filed and all the documents available to
movant are before the court, and they are insufficient to comply with the Statute, it becomes incumbent
upon the plaintiff, for the reasons of policy We have just' indicated regarding speedy administration of
justice, to bring out what note or memorandum still exists in his possession in order to enable the court to
expeditiously determine then and there the need for further proceedings. In other words, it would be
inimical to the public interests in speedy justice for plaintiff to play hide and seek at his own convenience,
particularly, when, as is quite apparent as in the instant case that chances are that there are no more
writings, notes or memoranda of the installment agreement alleged by respondents. We cannot divine any
reason why any such document would be withheld if they existed, except the unpermissible desire of the
respondents to force the petitioners to undergo the ordeals, time, effort and expenses of a futile trial.
In the foregoing premises, We find no alternative than to render judgment in favor of petitioners in this
certiorari and prohibition case. If at all, appeal could be available if the petitioners subjected themselves
to the trial ruled to be held by the trial court. We foresee even at this point, on the basis of what is both
extant and implicit in the records, that no different result can be probable. We consider it as sufficiently a
grave abuse of discretion warranting the special civil actions herein the failure of respondent judge to
properly apply the laws on perfection of contracts in relation to the Statute of Frauds and the pertinent
rules of pleading and practice, as We have discussed above.
ACCORDINGLY, the impugned orders of respondent judge of November 2, 1978 and August 29, 1980
are hereby set aside and private respondents' amended complaint, Annex A of the petition, is hereby
ordered dismissed and the restraining order heretofore issued by this Court on October 7, 1980 is declared
permanent. Costs against respondents.

BENJAMIN CORONEL v. FLORENTINO CONSTANTINO +

DECISION
445 Phil. 97

AUSTRIA-MARTINEZ, J.:
This refers to the petition for review on certiorari of the decision of the Court of Appeals, dated March 27,
1995, in CA-G.R. CV No. 44023[1] which affirmed the decision of the Regional Trial Court of Bulacan,
Branch 8, dated April 12, 1993 in Civil Case No. 105-M-91[2]; and the resolution of said appellate court,
dated July 4, 1995, denying the motion for reconsideration of its decision.

The factual background of the case is as follows:

The subject property consists of two parcels of land situated in Sta. Monica, Hagonoy, Bulacan,
designated as Cadastral Lots Nos. 5737 and 5738. The property is originally owned by Honoria
Aguinaldo. One-half (1/2) of it was inherited by Emilia Meking Vda. de Coronel together with her sons
Benjamin, Catalino and Ceferino, all surnamed Coronel. The other half was inherited by Florentino
Constantino and Aurea Buensuceso.
On February 20, 1991, Constantino and Buensuceso filed a complaint for declaration of ownership,
quieting of title and damages with prayer for writ of mandatory and/or prohibitory injunction with the
Regional Trial Court of Bulacan (Branch 8) against Benjamin, Emilia and John Does, docketed as Civil
Case No. 105-M-91. Plaintiffs allege that: on April 23, 1981, Jess C. Santos and Priscilla Bernardo
purchased the property belonging to Emilia and her sons by virtue of a deed of sale signed by Emilia; on
June 21, 1990, Santos and Bernardo in turn sold the same to Constantino and Buensuceso by virtue of a
compromise agreement in Civil Case No. 8289-M; they are the owners of the subject property and
defendants have illegally started to introduce construction on the premises in question; and pray that
"defendants respect, acknowledge and confirm the right of ownership of the plaintiffs to the share, interest
and participation of the one-third (1/3) portion of the above described property".

After defendants filed their Answer, pre-trial ensued wherein the parties stipulated that: (1) the property in
question was previously owned by Honoria Aguinaldo, one-half (1/2) of which was inherited by the
defendants while the other half was inherited by the plaintiffs from the same predecessor; (2) it was
admitted by counsel for the defendants that there was a sale between Jess Santos and the plaintiffs
covering the subject property; and (3) that there was no evidence presented in Civil Case No. 8289-M by
either of the parties and that the decision therein was based on a compromise agreement.[3]

After trial on the merits, the trial court rendered a decision in favor of the plaintiffs, the decretal portion of
which reads as follows:
"WHEREFORE, judgment is hereby made in favor of plaintiffs, the Court hereby declares plaintiffs as
the sole and absolute owners of the properties covered by Tax Declarations Nos. 28960 and 28961 of
Hagonoy, Bulacan, and orders the defendants to respect, acknowledge and confirm the right of ownership
of plaintiffs over the whole property described above, to remove whatever improvements introduced by
them thereon, and to pay the plaintiffs, solidarily and severally P10,000.00 as attorney's fees and costs of
suit.

"SO ORDERED."[4]
On appeal brought by defendants, the Court of Appeals affirmed the decision of the lower court and
denied defendants' motion for reconsideration.

Hence, herein petition brought by defendants, raising the following issues:

"I.

WHETHER OR NOT THE CONTRACT [OF] SALE EXECUTED BY A PARENT-CO-OWNER, IN

HER OWN BEHALF, IS UNENFORCEABLE WITH RESPECT TO THE SHARES OF HER CO-
HEIRS-CHILDREN;

"II.

WHETHER OR NOT THE MINOR CHILDREN CAN RATIFY UNAUTHORIZED ACTIONS OF

THEIR PARENTS;

"III.

WHETHER OR NOT THE CO-HEIRS ARE INDISPENSABLE DEFENDANTS IN AN ACTION FOR

DECLARATION OF OWNERSHIP AND QUIETING OF TITLE;

"IV.
WHETHER OR NOT THE DEED OF SALE WHICH IS A PRIVATE DOCUMENT WAS
SUFFICIENTLY ESTABLISHED WHEN THE COUNSEL FOR THE DEFENDANTS-PETITIONERS
ADMITTED ONLY ITS EXISTENCE BUT NOT ITS CONTENTS."[5]
The third issue was raised by the petitioners for the first time with the Court of Appeals. They claim that
the complaint should have been dismissed because private respondents failed to implead the heirs of
Ceferino and Catalino who died in 1983 and 1990,[6] respectively, in their complaint as indispensable
parties. We do not agree.

A careful reading of the "Kasulatan ng Bilihang Patuluyan" which is a private document, not having been
duly notarized, shows that only the share of Emilia in the subject property was sold because Benjamin did
not sign the document and the shares of Ceferino and Catalino were not subject of the sale. Pertinent
portions of the document read as follows:
"KASULATAN NG BILIHANG PATULUYAN

"PANIWALAAN NG LAHAT:

"Kaming mag-iinang Emilia Micking Vda. Coronel at Benjamin M. Coronel kapwa may sapat na gulang,
Pilipino, naninirahan sa nayon ng Sta. Monica, Hagonoy, Bulacan, sa kasulatang ito ay malaya naming:

"P I N A T U T U N A Y A N

"Na, kami ay tunay na nagmamay-ari ng isang lagay na lupang Bakuran na minana namin sa aming
Lolong yumaong Mauricio Coronel, na ang ayos, takal at kalagayan ay ang sumusunod:

"ORIGINAL CERTIFICATE OF TITLE NO. 5737

"Bakuran sa nayon ng Sta. Monica, Hagonoy, Bulacan na may sukat na 416 Square Meters ang kabuuan
208 Square Meters Lot A-1 ang kalahati nito na kanilang ipinagbibili.

"x x x xxx xxx

"Na, dahil at alang-alang sa halagang DALAWAMPU'T LIMANG LIBONG PISO (P25,000) salaping
Pilipino, na aming tinanggap sa kasiyahang loob namin, buhat sa mag-asawang Jess C. Santos at Prescy
Bernardo, kapwa may sapat na gulang, Pilipino at naninirahan sa nayon ng Sta. Monica, Hagonoy,
Bulacan, sa bisa ng kasulatang ito, ay aming isinasalin, inililipat at ipinagbibili ng bilihang patuluyan ang
lahat ng aming dapat na makaparte sa lupang Bakuran Nakasaad sa dakong unahan nito, sa nabanggit na
Jess C. Santos at Prescy Bernardo o sa kanilang tagapagmana at kahalili.

"Na, ako namang Jess C. Santos, bilang nakabili, ay kusang loob ding nagsasaysay sa kasulatang ito na
ako ay kasangayon sa lahat ng dito'y nakatala, bagaman ang lupang naturan ay hindi pa nahahati sa dapat
magmana sa yumaong Honoria Aguinaldo.

"Na, sa aming kagipitan inari naming ipagbili ang aming karapatan o kaparte na minana sa yumaong
Guillermo Coronel ay napagkasunduan namin mag-iina na ipagbili ang bakurang ito na siyang
makalulunas sa aming pangangailangan x x x."

"Na, kaming nagbili ang magtatanggol ng katibayan sa pagmamayari sa lupang naturan, sakaling may
manghihimasok.

SA KATUNAYAN NITO, kami ay lumagda sa kasulatang ito sa bayan ng Malabon, Rizal ngayong ika-
23 ng Abril, 1981.
 (Signed) (Signed)
EMILIA MICKING Vda.
JESS C. SANTOS
CORONEL
Nagbili
Nagbili

(Unsigned) (Signed)
BENJAMIN M. CORONEL PRISCILLA BERNARDO
Nagbili Nakabili"[7]

Thus, it is clear, as already stated, that petitioner Benjamin did not sign the document and that the shares
of Catalino and Ceferino in the subject property were not sold by them.

Since the shares of Catalino and Ceferino were not sold, plaintiffs Constantino and Buensuceso have no
cause of action against them or against any of their heirs. Under Rule 3, Section 7 of the 1997 Rules of
Civil Procedure, indispensable parties are parties in interest without whom no final determination can be
had of an action. In the present case, the heirs of Catalino and Ceferino are not indispensable parties
because a complete determination of the rights of herein petitioners and respondents can be had even if
the said heirs are not impleaded.

Besides, it is undisputed that petitioners never raised before the trial court the issue of the private
respondents' failure to implead said heirs in their complaint. Instead, petitioners actively participated in
the proceedings in the lower court and raised only the said issue on appeal with the Court of Appeals. It is
a settled rule that jurisdictional questions may be raised at any time unless an exception arises where
estoppel has supervened.[8] In the present case, petitioners' participation in all stages of the case during
trial, without raising the issue of the trial court's lack of jurisdiction over indispensable parties, estops
them from challenging the validity of the proceedings therein.

Further, the deed of sale is not a competent proof that petitioner Benjamin had sold his own share of the
subject property. It cannot be disputed that Benjamin did not sign the document and therefore, it is
unenforceable against him.

Emilia executed the instrument in her own behalf and not in representation of her three children.

Article 493 of the Civil Code states:

"Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto,
and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment,
except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to
the co-owners, shall be limited to the portion which may be allotted to him in the division upon the
termination of the co-ownership."
Consequently, the sale of the subject property made by Emilia in favor of Santos and Bernardo is limited
to the portion which may be allotted to her upon the termination of her co-ownership over the subject
property with her children.

As to the first, second and fourth issues it has been established that at the time of execution of the
"Kasulatan ng Bilihang Patuluyan" on April 23, 1981[9], the subject property was co-owned, pro-
indiviso, by petitioner Emilia together with her petitioner son Benjamin, and her two other sons, Catalino
and Ceferino. No proof was presented to show that the co-ownership that existed among the heirs of
Ceferino and Catalino and herein petitioners has ever been terminated.

Applying Articles 1317 and 1403 of the Civil Code, the Court of Appeals ruled that through their inaction
and silence, the three sons of Emilia are considered to have ratified the aforesaid sale of the subject
property by their mother.

Articles 1317 and 1403 (1) of the Civil Code provide:

"Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him.

"A contract entered into in the name of another by one who has no authority or legal representation or
who has acted "beyond his powers shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.

"Art. 1403. The following contracts are unenforceable, unless they are ratified:

"(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers.

xxx xxx x x x"

We do not agree with the appellate court. The three sons of Emilia did not ratify the sale. In Maglucot-Aw
vs. Maglucot[10] we held that:
"Ratification means that one under no disability voluntarily adopts and gives sanction to some
unauthorized act or defective proceeding, which without his sanction would not be binding on him. It is
this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore
unauthorized, and becomes the authorized act of the party so making the ratification.
No evidence was presented to show that the three brothers were aware of the sale made by their mother.
Unaware of such sale, Catalino, Ceferino and Benjamin could not be considered as having voluntarily
remained silent and knowingly chose not to file an action for the annulment of the sale. Their alleged
silence and inaction may not be interpreted as an act of ratification on their part.

We also find no concrete evidence to show that Ceferino, Catalino and Benjamin benefited from the sale.
It is true that private respondent Constantino testified that Benjamin took money from Jess Santos but this
is mere allegation on the part of Constantino. No other evidence was presented to support such allegation.
Bare allegations, unsubstantiated by evidence, are not equivalent to proof under our Rules of Court.[11]
Neither do the records show that Benjamin admitted having received money from Jess Santos. Even
granting that Benjamin indeed received money from Santos, Constantino's testimony does not show that
the amount received was part of the consideration for the sale of the subject property.

To repeat, the sale is valid insofar as the share of petitioner Emilia Meking Vda. de Coronel is concerned.
The due execution of the "Kasulatan ng Bilihang Patuluyan" was duly established when petitioners,
through their counsel, admitted during the pre-trial conference that the said document was signed by
Emilia.[12] While petitioners claim that Emilia erroneously signed it under the impression that it was a
contract of mortgage and not of sale, no competent evidence was presented to prove such allegation.

Hence, Jess C. Santos and Priscilla Bernardo, who purchased the share of Emilia, became co-owners of
the subject property together with Benjamin and the heirs of Ceferino and Catalino. As such, Santos and
Bernardo could validly dispose of that portion of the subject property pertaining to Emilia in favor of
herein private respondents Constantino and Buensuceso.

However, the particular portions properly pertaining to each of the co-owners are not yet defined and
determined as no partition in the proper forum or extrajudicial settlement among the parties has been
effected among the parties. Consequently, the prayer of respondents for a mandatory or prohibitory
injunction lacks merit.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with the
following MODIFICATIONS:
Plaintiffs-private respondents Florentino Constantino and Aurea Buensuceso are declared owners of one-
half (1/2) undivided portion of the subject property plus the one-fourth (¼) undivided share of defendant-
petitioner Emilia Meking Vda. de Coronel; and, defendant-petitioner Benjamin Coronel together with the
heirs of Catalino Coronel and the heirs of Ceferino Coronel are declared owners of one-fourth (¼) share
each of the other one-half (1/2) portion of the subject property, without prejudice to the parties entering
into partition of the subject property, judicial or otherwise.

The order of removal of the improvements and the award of the amount of Ten Thousand Pesos
(P10,000.00) as attorney's fees and costs of suit are DELETED.

REGAL FILMS v. GABRIEL CONCEPCION +

DECISION
414 Phil. 807

VITUG, J.:
The case involves a compromise judgment issued by the Regional Trial Court of Quezon City, later
affirmed by the Court of Appeals, and now being assailed in the instant petition for review.

Culled from the records, the facts that led to the controversy would not appear to be in serious dispute.

In 1991, respondent Gabriel "Gabby" Concepcion, a television artist and movie actor, through his
manager Lolita Solis, entered into a contract with petitioner Regal Films, Inc., for services to be rendered
by respondent in petitioner's motion pictures. Petitioner, in turn, undertook to give two parcels of land to
respondent, one located in Marikina and the other in Cavite, on top of the "talent fees" it had agreed to
pay.

In 1993, the parties renewed the contract, incorporating the same undertaking on the part of petitioner to
give respondent the two parcels of land mentioned in the first agreement. Despite the appearance of
respondent in several films produced by petitioner, the latter failed to comply with its promise to convey
to respondent the two aforementioned lots.

On 30 May 1994, respondent and his manager filed an action against petitioner before the Regional Trial
Court of Quezon City, docketed Civil Case No. Q-94-20714 and raffled to Branch 76, for rescission of
contract with damages. In his complaint, respondent contended that he was entitled to rescind the
contract, plus damages, and to be released from further commitment to work exclusively for petitioner
owing to the latter's failure to honor the agreement.
Instead of filing an answer to the complaint, petitioner moved for its dismissal on the allegation that the
parties had settled their differences amicably. Petitioner averred that both parties had executed an
agreement, dated 17 June 1994, which was to so operate as an addendum to the 1991 and 1993 contracts
between them. The agreement was signed by a representative of petitioner and by Solis purportedly
acting for and in behalf of respondent Concepcion.

The preliminary conference held by the trial court failed to produce a settlement between the parties;
thereupon, the trial court ordered Solis and respondent to comment on petitioner's motion to dismiss.

On 30 September 1994, Solis filed a motion to dismiss the complaint reiterating that she, acting for
herself and for respondent Concepcion, had already settled the case amicably with petitioner. On 17
October 1994, respondent Concepcion himself opposed the motion to dismiss contending that the
addendum, containing provisions grossly disadvantageous to him, was executed without his knowledge
and consent. Respondent stated that Solis had since ceased to be his manager and had no authority to sign
the addendum for him.

During the preliminary conference held on 23 June 1995, petitioner intimated to respondent and his
counsel its willingness to allow respondent to be released from his 1991 and 1993 contracts with
petitioner rather than to further pursue the addendum which respondent had challenged.

On 03 July 1995, respondent filed a manifestation with the trial court to the effect that he was now willing
to honor the addendum to the 1991 and 1993 contracts and to have it considered as a compromise
agreement as to warrant a judgment in accordance therewith. The manifestation elicited a comment from
both petitioner and Solis to the effect that the relationship between the parties had by then become
strained, following the notorious Manila Film Festival scam involving respondent, but that it was still
willing to release respondent from his contract.

On 24 October 1995, the trial court issued an order rendering judgment on compromise based on the
subject addendum which respondent had previously challenged but later agreed to honor pursuant to his
manifestation of 03 July 1995.

Petitioner moved for reconsideration; having been denied, it then elevated the case to the Court of
Appeals arguing that the trial court erred in treating the addendum of 17 June 1994 as being a
compromise agreement and in depriving it of its right to procedural due process.

On 30 July 1999, the appellate court rendered judgment affirming the order of the trial court of 24
October 1995; it ruled:

"In the instant case, there was an Addendum to the contract signed by Lolita and Regal Films'
representative to which addendum Concepcion through his Manifestation expressed his
conformity. There was, therefore, consent of all the parties.

"The addendum/compromise agreement was perfected and is binding on the parties and may not later be
disowned simply because of a change of mind of Regal Films and/or Lolita by claiming, in their
Opposition/Reply to Concepcion's Manifestation, that after the 1995 Metro Manila Films Festival
scam/fiasco in which Concepcion was involved, the relationship between the parties had become bitter to
render compliance with the terms and conditions of the Addendum no longer possible and consequently
release Concepcion from the 1991 and 1993 contracts."[1]

Dissatisfied, petitioner appealed to this Court claiming in its petition for review that -
"I.

THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S ACTION IN

RENDERING JUDGMENT ON A COMPROMISE BASED ON THE ADDENDUM WHEN
PETITIONER REGAL FILMS SUBMITTED THIS DOCUMENT TO THE TRIAL COURT MERELY
TO SERVE AS BASIS FOR ITS MOTION TO DISMISS;

"II.

THE COURT OF APPEALS ERRED IN RENDERING JUDGMENT ON A COMPROMISE WHEN

THE PARTIES DID NOT AGREE TO SUCH A COMPROMISE;

"III.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE MINDS OF THE PARTIES HAD
MET TO ELEVATE THE PREVIOUSLY REJECTED ADDENDUM TO THE LEVEL OF A
JUDGMENT ON A COMPROMISE."[2]

The petition is meritorious.

Petitioner argues that the subject addendum could not be the basis of the compromise judgment. The
Court agrees.

A compromise is an agreement between two or more persons who, for preventing or putting an end to a
lawsuit, adjust their respective positions by mutual consent in the way they feel they can live
with. Reciprocal concessions are the very heart and life of every compromise agreement,[3] where each
party approximates and concedes in the hope of gaining balanced by the danger of losing.[4] It is, in
essence, a contract. Law and jurisprudence recite three minimum elements for any valid contract - (a)
consent; (b) object certain which is the subject matter of the contract; and (c) cause of the obligation
which is established.[5] Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the agreement. The offer, however, must be certain and the
acceptance seasonable and absolute; if qualified, the acceptance would merely constitute a counter-
offer.[6]

In this instance, the addendum was flatly rejected by respondent on the theses (a) that he did not give his
consent thereto nor authorized anyone to enter into the agreement, and (b) that it contained provisions
grossly disadvantageous to him. The outright rejection of the addendum made known to the other ended
the offer. When respondent later filed his Manifestation, stating that he was, after all, willing to honor the
addendum, there was nothing to still accept.

Verily, consent could be given not only by the party himself but by anyone duly authorized and acting for
and in his behalf. But by respondent's own admission, the addendum was entered into without his
knowledge and consent. A contract entered into in the name of another by one who ostensibly might have
but who, in reality, had no real authority or legal representation, or who, having such authority, acted
beyond his powers, would be unenforceable.[7] The addendum, let us then assume, resulted in an
unenforceable contract, might it not then be susceptible to ratification by the person on whose behalf it
was executed? The answer would obviously be in the affirmative; however, that ratification should be
made before its revocation by the other contracting party.[8] The adamant refusal of respondent to accept
the terms of the addendum constrained petitioner, during the preliminary conference held on 23 June
1995, to instead express its willingness to release respondent from his contracts prayed for in his
complaint and to thereby forego the rejected addendum. Respondent's subsequent attempt to ratify the
addendum came much too late for, by then, the addendum had already been deemed revoked by
petitioner.

WHEREFORE, the petition is GRANTED, and the appealed judgment of the Court of Appeals
affirming that of the trial court is SET ASIDE, and the case is remanded to the trial court for further
proceedings. No costs

NATIONAL POWER CORPORATION, Plaintiff-Appellant, v. NATIONAL MERCHANDISING

CORPORATION and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, Defendants-
Appellants.

The Solicitor General, for Plaintiff-Appellant.

Sycip, Salazar, Luna Manalo & Feliciano, for Defendants-Appellants.

SYNOPSIS

Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National Merchandising
Corporation (NAMERCO), the Philippine representative of New York-based International Commodities
Corporation, executed a contract of sale of sulfur with a stipulation for liquidated damages in case of
breach. Defendant-appellant Domestic Insurance Company executed a performance bond in favor of NPC
to guarantee the seller’s obligation. In entering into the contract, Namerco, however, did not disclose to
NPC that Namerco’s principal, in a cabled instruction, stated that the sale was subject to availability of a
steamer, and contrary to its principal’s instruction, Namerco agreed that non-availability of a steamer was
not a justification for non-payment of liquidated damages. The New York supplier was not able to deliver
the sulfur due to its inability to secure shipping space. Consequently, the Government Corporate Counsel
rescinded the contract of sale due to the supplier’s non-performance of its obligations, and demanded
payment of liquidated damages from both Namerco and the surety. Thereafter, NPC sued for recovery of
the stipulated liquidated damages. After trial, the Court of First Instance rendered judgment ordering
defendants-appellants to pay solidarity to the NPC reduced liquidated damages with interest.

The Supreme Court held that Namerco is liable fur damages because under Article 1897 of the Civil Code
the agent who exceeds the limits of his authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such party. The Court, however, further reduced the
solidary liability of defendants-appellants for liquidated damages.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT WHO EXCEEDS THE
LIMITS OF HIS AUTHORITY IS PERSONALLY LIABLE. — Under Article 1897 of the Civil Code
the agent who exceeds the limits of his authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such party.

2. ID.; ID.; ID.; ID.; CASE AT BAR. — In the present case, Namerco, the agent of a New York-based
principal, entered into a contract of sale with the National Power Corporation without disclosing to the
NPC the limits of its powers and, contrary to its principal’s prior cabled instructions that the sale should
be subject to availability of a steamer, it agreed that non-availability of a steamer was not a justification
for nonpayment of the liquidated damages. Namerco. therefore, is liable for damages.

3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN AGENT IS PUT UPON
AN INQUIRY AND MUST DISCOVER UPON HIS PERIL THE AUTHORITY OF THE AGENT IS
NOT APPLICABLE WHERE THE AGENT, NOT THE PRINCIPAL, IS SOUGHT TO BE HELD
LIABLE ON THE CONTRACT. — The rule that every person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent would apply only in cases where the principal
is sought to be held liable on the contract entered into by the agent. The said rule is not applicable in the
instant case since it is the agent, not the principal, that is sought to be held liable on the contract of sale
which was expressly repudiated by the principal because the agent took chances, it exceeded its authority
and, in effect. it acted in its own name.

4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO ACTED BEYOND HIS
POWERS IS UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL BUT NOT AGAINST THE
AGENT AND ITS SURETY. — Article 1403 of the Civil Code which provides that a contract entered
into in the name of another person by one who has acted beyond his powers is unenforceable, refers to the
unenforceability of the contract against the principal. In the instant case, the contract containing the
stipulation for liquidated damages is not being enforced against its principal but against the agent and its
surety. It being enforced against the agent because Article 1897 implies that the agent who acts in excess
of his authority is personally liable to the party with whom he contracted. And that rule is complimented
by Article 1898 of the Civil Code which provides that "if the agent contracts, in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the
party with whom the agent contracted is aware of the limits of the powers granted by the principal."
Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that reason and
because Namerco exceeded the limits of its authority, it virtually acted in its own name and not as agent
and it is, therefore, bound by the contract of sale which, however, it not enforceable against its principal.
If, as contemplated in Articles 1897 and 1898, Namerco is bound under the contract of sale, then it
follows that it is bound by the stipulation for liquidated damages in that contract.

ENATO CENIDO (DECEASED), REPRESENTED BY VICTORIA CENIDOSA, PETITIONER, VS.

SPOUSES AMADEO APACIONADO AND HERMINIA STA. ANA, RESPONDENTS.

DECISION
PUNO, J.:
In this petition for review, petitioner Renato Cenido seeks to reverse and set aside the decision of the
Court of Appeals[1] in CA-G.R. CV No. 41011 which declared the private respondents as the owners of a
house and lot in Binangonan, Rizal.[2]

The antecedent facts are as follows:

On May 22, 1989, respondent spouses Amadeo Apacionado and Herminia Sta. Ana filed with the
Regional Trial Court, Branch 70, Rizal a complaint against petitioner Renato Cenido for "Declaration of
Ownership, Nullity, with Damages."[3] The spouses alleged that: (1) they are the owners of a parcel of
unregistered land, 123 square meters in area and located at Rizal Street, Barrio Layunan, Binangonan,
Rizal, more particularly described as follows:

"x x x that certain parcel of land located at Rizal, St., Layunan, Binangonan, Rizal, with an area of 123
square meters, more or less, bounded on the North by Gavino Aparato; on the East by Rizal St., on the
South by Tranquilino Manuzon; and on the West by Simplicio Aparato, and the residential house standing
thereon."[4]
(2) this house and lot were purchased by the spouses from its previous owner, Bonifacio Aparato, now
deceased, who lived under the spouses' care and protection for some twenty years prior to his death; (3)
while he was alive, Bonifacio Aparato mortgaged the said property twice, one to the Rural Bank of
Binangonan and the other to Linda C. Ynares, as security for loans obtained by him; (4) the loans were
paid off by the spouses thereby securing the release and cancellation of said mortgages; (5) the spouses
also paid and continue to pay the real estate taxes on the property; (6) from the time of sale, they have
been in open, public, continuous and uninterrupted possession of the property in the concept of owners;
(7) that on January 7, 1987, petitioner Renato Cenido, claiming to be the owner of the subject house and
lot, filed a complaint for ejectment against them with the Municipal Trial Court, Branch 2, Binangonan,
Rizal; (8) through fraudulent and unauthorized means, Cenido was able to cause the issuance in his name
of Tax Declaration No. 02-0368 over the subject property, which fact the spouses learned only upon the
filing of the ejectment case; (9) although the ejectment case was dismissed by the Municipal Trial Court
(MTC), Branch 2, the tax declaration in Cenido's name was not cancelled and still subsisted; (10) the
spouses have referred the matter to the barangay for conciliation but Cenido unjustifiably refused to
appear thereat. The spouses thus prayed that:

"WHEREFORE, it is respectfully prayed of the Honorable Court that judgment issue in the case:

1. Declaring them (plaintiffs) the true and absolute owners of the house and lot now covered by Tax
Declaration No. 02-0368;

2. Declaring Tax Declaration No. 02-0368 in the name of defendant Renato Cenido as null and void and
directing the Provincial Assessor of Rizal and the Municipal Assessor of Binangonan, Rizal to register
and to declare the house and lot covered by the same in their names (plaintiffs) for purposes of taxation;

3. Ordering defendant to pay them in the least amount of P50,000.00 as and for moral damages suffered;

4. Ordering defendant to pay them the amount of P10,000.00 as and for attorney's fees;

5. Ordering payment by defendant of exemplary damages in such amount which the Honorable Court
may deem just and equitable in the premises;

6. Ordering defendant to pay the costs of suit; and

Plaintiffs pray for such other and further relief which the Honorable Court may deem just and equitable
considering the foregoing premises."[5]

Petitioner Cenido answered claiming that: (1) he is the illegitimate son of Bonifacio Aparato, the
deceased owner of the subject property; (2) as Aparato's sole surviving heir, he became the owner of the
property as evidenced by the cancellation of Tax Declaration No. 02-0274 in Bonifacio's name and the
issuance of Tax Declaration No. 02-0368 in his name; (3) his ownership over the house and lot was also
confirmed in 1985 by the Municipal Trial Court, Branch 1, Binangonan in Case No. 2264 which
"adjudicated various claims involving the same subject property wherein plaintiffs were privy to the said
case;" (4) that in said case, the Apacionado spouses participated in the execution of the compromise
agreement partitioning the deceased's estate among his heirs, which agreement was adopted by the
Municipal Trial Court as its judgment; (5) that the Apacionado spouses were allowed to stay in his
father's house temporarily; (6) the mortgages on the property were obtained by his father upon request of
the Apacionados who used the proceeds of the loans exclusively for themselves; (7) the real estate taxes
on the property were paid for by his father, the principal, and the spouses were merely his agents; (8) the
instrument attesting to the alleged sale of the house and lot by Bonifacio Aparato to the spouses is not a
public document; (8) petitioner Cenido was never summoned to appear before the barangay for
conciliation proceedings.[6]

Respondent spouses replied that: (1) Cenido is not the illegitimate son of Bonifacio, Cenido's claim of
paternity being spurious; (2) the ownership of the property was not the proper subject in Civil Case No.
2264 before the MTC, Branch I, nor were the spouses parties in said case.[7]

The parties went to trial. Respondent spouses presented four (4) witnesses, namely, respondent Herminia
Sta. Ana Apacionado; Rolando Nieves, the barangay captain; Norberto Aparato, the son of Gavino
Aparato, Bonifacio's brother; and Carlos Inabayan, one of the two witnesses to the deed of sale between
Bonifacio Aparato and the spouses over the property. Petitioner Cenido presented only himself as
witness.

On March 30, 1993, the trial court rendered judgment. The court upheld petitioner Cenido's ownership
over the property by virtue of the recognition made by Bonifacio's then surviving brother, Gavino, in the
compromise judgment of the MTC. Concomitantly, the court also did not sustain the deed of sale between
Bonifacio and the spouses because it was neither notarized nor signed by Bonifacio and was intrinsically
defective. The court ordered thus:

"WHEREFORE, in the light of the foregoing considerations, the Court believes that preponderance of
evidence is on the side of defendant and so the complaint could not be given due course. Accordingly, the
case is, as it should be, dismissed. No attorney's fees or damages is being awarded as no evidence to this
effect had been given by defendant. With costs against plaintiffs.

SO ORDERED."[8]

Respondent spouses appealed to the Court of Appeals. In a decision dated September 30, 1997, the
appellate court found the appeal meritorious and reversed the decision of the trial court. It held that the
recognition of Cenido's filiation by Gavino, Bonifacio's brother, did not comply with the requirements of
the Civil Code and the Family Code; that the deed between Bonifacio and respondent spouses was a valid
contract of sale over the property; and Cenido's failure to object to the presentation of the deed before the
trial court was a waiver of the defense of the Statute of Frauds. The Court of Appeals disposed of as
follows:

"WHEREFORE, the appealed Decision is hereby REVERSED and SET ASIDE. Plaintiffs-Appellants
Spouses Amadeo Apacionado and Herminia Sta. Ana are declared owners of the subject house and lot
now covered by Tax Declaration No. 02-6368."[9]

Hence, this recourse. Petitioner Cenido alleges that:

"1. The unsigned, unnotarized and highly doubtful private document designated as "Pagpapatunay"
which is solely relied upon by the respondents in support of their case is not sufficient to vest ownership
of and transfer the title, rights and interest over the subject property to the respondents.

x x x.

2. The Court of Appeals departed from the accepted and usual course of judicial proceedings in that it
ruled against the petitioner in view of the alleged weakness of his defense rather than evaluate the case
based on the strength of the respondents' evidence, thereby necessitating this Honorable Court's exercise
of its power of supervision."[10]
Victoria Cenidosa, in representation of petitioner Cenido, has manifested, through counsel, that petitioner
died in September 1993; that on December 18, 1985, eight years before his death, Cenido sold the subject
house and lot to Maria D. Ojeda for the sum of P70,000.00; that Maria D. Ojeda is now old and sickly,
and is thus being represented in the instant case by her daughter, Victoria O. Cenidosa.[11]

In the same vein, respondent Herminia Sta. Ana Apacionado also manifested that her husband, Amadeo
Apacionado, died on August 11, 1989. Amadeo is now being represented by his compulsory heirs.[12]

Before ruling on petitioner's arguments, it is necessary to establish certain facts essential for a proper
adjudication of the case.

The records reveal that the late Bonifacio Aparato had two siblings-- a sister named Ursula and a brother
named Gavino.[13] Ursula died on March 1, 1979,[14] Bonifacio on January 3, 1982[15] and Gavino,
sometime after Bonifacio's death. Both Ursula and Bonifacio never married and died leaving no
legitimate offspring. Gavino's son, Norberto, however, testified that there was a fourth sibling, a sister,
who married but also died; as to when she died or whether she left any heirs, Norberto did not know.[16]
What is clear and undisputed is that Bonifacio was survived by Gavino who also left legitimate heirs.

Both Bonifacio and Ursula lived in the subject property under the care and protection of the
Apacionados. Herminia Sta. Ana Apacionado started living with them in 1976. She took care of
Bonifacio and Ursula, who died three years later. Herminia married Amado Apacionado, whose paternal
grandmother was a sister of Bonifacio.[17] Amadeo moved into Bonifacio's house and assisted Herminia
in taking care of the old man until his demise.

Shortly after Bonifacio's death, Civil Case No. 2264 was instituted by petitioner Cenido against Gavino
Aparato before the Municipal Trial Court, Branch 1, Binangonan. The records do not reveal the nature of
this action.[18] Nevertheless, three years after filing of the case, the parties entered into a compromise
agreement. The parties listed the properties of Bonifacio comprising two parcels of land: one parcel was
the residential house and lot in question and the other was registered agricultural land with an area of
38,641 square meters; Gavino Aparato expressly recognized Renato Cenido as the sole illegitimate son of
his brother, likewise, Cenido recognized Gavino as the brother of Bonifacio; as Bonifacio's heirs, they
partitioned his estate among themselves, with the subject property and three portions of the agricultural
land as Cenido's share, and the remaining 15,309 square meters of the agricultural land as Gavino's; both
parties agreed to share in the documentation, registration and other expenses for the transfer of their
shares. This compromise agreement was adopted as the decision of the MTC on January 31, 1985.[19]

In the same year, petitioner Cenido obtained in his name Tax Declaration No. 02-6368 over the subject
property. Two years later, in January 1987, he filed an ejectment case against respondent spouses who
continued occupying the property in question. This case was dismissed.

Respondent spouses' claim of ownership over the subject property is anchored on a one-page typewritten
document entitled "Pagpapatunay," executed by Bonifacio Aparato. The "Pagpapatunay" reads as
follows:

"PAGPAPATUNAY

DAPAT MALAMAN NG LAHAT:

Akong si BONIFACIO APARATO, binata, Pilipino, husto sa gulang, at kasalukuyang naninirahan sa

Layunan, Binangonan, Rizal, ay nagpapatunay nitong mga sumusunod:
Una: -- Na, ako ang siyang nagmamay-ari ng isang lagay na lupang SOLAR at Bahay Tirahan na
nakatirik sa nabanggit na solar na makikita sa lugar ng Rizal St., Layunan, Binangonan, Rizal;

Ikalawa: -- Na, sapagkat ang nagalaga sa akin hanggang sa ako'y tuluyang kunin ng Dakilang Maykapal
ay walang iba kungdi ang mag-asawang AMADEO APACIONADO at HERMINIA STA. ANA
APACIONADO;

Ikatlo: -- Na, pinatutunayan ko sa mga maykapangyarihan at kanginumang tao na ang nabanggit na

SOLAR at bahay tirahan ay ipinagbili ko sa nabanggit na mag-asawa sa halagang SAMPUNG LIBONG
(P10,000.00) PISO, bilang pakunsuwelo sa kanilang pagmamalasakit sa aking pagkatao at kalalagayan;

Na, patunay na ito ay aking nilagdaan ng maliwanag ang aking isip at nalalaman ko ang lahat ng
nilalaman nito.

SA KATUNAYAN NG LAHAT, lumagda ako ng aking pangalan at apelyido ngayong ika-10 ng

Disyembre 1981, dito sa Layunan, Binangonan, Rizal.

(Thumbmarked)
BONIFACIO APARATO
Nagpatunay

NILAGDAAN SA HARAP
NINA:

(SGD.) (SGD.)
Virgilio O. Cenido Carlos Inabayan
- Saksi - - Saksi -"[20]

On its face, the document "Pagpapatunay" attests to the fact that Bonifacio Aparato was the owner of the
house and lot in Layunan, Rizal; that because the Apacionado spouses took care of him until the time of
his death, Bonifacio sold said property to them for the sum of P10,000.00; that he was signing the same
document with a clear mind and with full knowledge of its contents; and as proof thereof, he was affixing
his signature on said document on the tenth day of December 1981 in Layunan, Binangonan, Rizal.
Bonifacio affixed his thumbmark on the space above his name; and this was witnessed by Virgilio O.
Cenido and Carlos Inabayan.

Petitioner Cenido disputes the authenticity and validity of the "Pagpapatunay." He claims that it is not a
valid contract of sale and its genuineness is highly doubtful because: (1) it was not notarized and is
merely a private instrument; (2) it was not signed by the vendor, Bonifacio; (3) it was improbable for
Bonifacio to have executed the document and dictated the words "lumagda ako ng aking pangalan at
apelyido" because he was paralyzed and could no longer sign his name at that time; and (4) the phrase
"ang nag-alaga sa akin hanggang sa ako'y tuluyang kunin ng Dakilang Maykapal" speaks of an already
departed Bonifacio and could have been made only by persons other than the dead man himself.[21]

To determine whether the "Pagpapatunay" is a valid contract of sale, it must contain the essential
requisites of contracts, viz: (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.[22]

The object of the "Pagpapatunay" is the house and lot. The consideration is P10,000.00 for the services
rendered to Aparato by respondent spouses. According to respondent Herminia Apacionado, this
P10,000.00 was not actually paid to Bonifacio because the amount merely quantified the services they
rendered to the old man. It was the care the spouses voluntarily gave that was the cause of the sale.[23]
The cause therefore was the service remunerated.[24]

Petitioner alleges that Bonifacio did not give his consent to the deed because he did not affix his
signature, but merely his thumbmark, on the document. Bonifacio was a literate person who could legibly
sign his full name, and his signature is evident in several documents such as his identification card as
member of the Anderson Fil-American Guerillas;[25] the "Kasulatan ng Palasanglaan" dated July 25,
1974 where he and his two other siblings mortgaged the subject property for P2,000.00 to one Linda Y.
Cenido;[26] "Padagdag sa Sanglaan" dated June 16, 1976;[27] and another "Padagdag sa Sanglaan" dated
March 2, 1979.[28]

Respondent Herminia Sta. Ana Apacionado testified that Bonifacio Aparato affixed his thumbmark
because he could no longer write at the time of execution of the document. The old man was already 61
years of age and could not properly see with his eyes. He was stricken by illness a month before and was
paralyzed from the waist down. He could still speak, albeit in a garbled manner, and be understood. The
contents of the "Pagpapatunay" were actually dictated by him to one Leticia Bandola who typed the same
on a typewriter she brought to his house.[29]

That Bonifacio was alive at the time of execution of the contract and voluntarily gave his consent to the
instrument is supported by the testimony of Carlos Inabayan, the lessee of Bonifacio's billiard hall at the
ground floor of the subject property. Inabayan testified that on December 10, 1981, he was summoned to
go up to Bonifacio's house. There, he saw Bonifacio, respondent Apacionados, and a woman and her
husband. He was given a sheet of paper to read. He read the paper and understood that it was a deed of
sale of the house and lot executed by Bonifacio in favor of the Apacionados. Thereafter, Bonifacio
requested him to sign the document as witness. Reexamining the "Pagpapatunay," Inabayan saw that
Bonifacio affixed his thumbmark on the space above his name. Inabayan thus signed the document and
returned to the billiard hall.[30]

Inabayan's testimony has not been rebutted by petitioner. Petitioner, through counsel, waived his right to
do so, finding no need to cross-examine the witness.[31] This waiver was granted by the court in the order
of September 23, 1992.[32]

One who alleges any defect or the lack of a valid consent to a contract must establish the same by full,
clear and convincing evidence, not merely by preponderance thereof.[33] Petitioner has not alleged that
the old man, by his physical or mental state, was incapacitated to give his consent at the time of execution
of the "Pagpapatunay." Petitioner has not shown that Bonifacio was insane or demented or a deaf-mute
who did not know how to write.[34] Neither has petitioner claimed, at the very least, that the consent of
Bonifacio to the contract was vitiated by mistake, violence, intimidation, undue influence or fraud.[35] If
by assailing the intrinsic defects in the wordage of the "Pagpapatunay" petitioner Cenido seeks to
specifically allege the exercise of extrinsic fraud and undue influence on the old man, these defects are
not substantial as to render the entire contract void. There must be clear and convincing evidence of what
specific acts of undue influence[36] or fraud[37] were employed by respondent spouses that gave rise to
said defects. Absent such proof, Bonifacio's presumed consent to the "Pagpapatunay" remains.

The "Pagpapatunay," therefore, contains all the essential requisites of a contract. Its authenticity and due
execution have not been disproved either. The finding of the trial court that the document was prepared
by another person and the thumbmark of the dead Bonifacio was merely affixed to it is pure
conjecture. On the contrary, the testimonies of respondent Herminia Sta. Ana and Carlos Inabayan prove
that the document is authentic and was duly executed by Bonifacio himself.

The "Pagpapatunay" is undisputably a private document. And this fact does not detract from its validity.
The Civil Code, in Article 1356 provides:

"Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all
the essential requisites for their validity are present. However, when the law requires that a contract be in
some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the right of the parties stated in the following
article cannot be exercised."

Generally, contracts are obligatory, in whatever form such contracts may have been entered into, provided
all the essential requisites for their validity are present. When, however, the law requires that a contract
be in some form for it to be valid or enforceable, that requirement must be complied with.

A certain form may be prescribed by law for any of the following purposes: for validity, enforceability, or
greater efficacy of the contract.[38] When the form required is for validity, its non-observance renders the
contract void and of no effect.[39] When the required form is for enforceability, non-compliance
therewith will not permit, upon the objection of a party, the contract, although otherwise valid, to be
proved or enforced by action.[40] Formalities intended for greater efficacy or convenience or to bind third
persons, if not done, would not adversely affect the validity or enforceability of the contract between the
contracting parties themselves.[41]

Article 1358 of the Civil Code requires that:

"Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest therein are
governed by Articles 1403, No. 2 and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of
gains;

(3) The power to administer property, or any other power which has for its object an act appearing or
which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and
1405."
Acts and contracts which create, transmit, modify or extinguish real rights over immovable property
should be embodied in a public document. Sales of real property are governed by the Statute of Frauds
which reads:

"Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) x x x

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed and by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

xxx

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of
an interest therein;

(3) x x x."

The sale of real property should be in writing and subscribed by the party charged for it to be
enforceable. The "Pagpapatunay" is in writing and subscribed by Bonifacio Aparato, the vendor; hence, it
is enforceable under the Statute of Frauds. Not having been subscribed and sworn to before a notary
public, however, the "Pagpapatunay" is not a public document, and therefore does not comply with
Article 1358, paragraph 1 of the Civil Code.

The requirement of a public document in Article 1358 is not for the validity of the instrument but for its
efficacy.[42] Although a conveyance of land is not made in a public document, it does not affect the
validity of such conveyance.[43] Article 1358 does not require the accomplishment of the acts or
contracts in a public instrument in order to validate the act or contract but only to insure its efficacy,[44]
so that after the existence of said contract has been admitted, the party bound may be compelled to
execute the proper document.[45] This is clear from Article 1357, viz:

"Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated
in the following article [Article 1358], the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the action
upon the contract."

The private conveyance of the house and lot is therefore valid between Bonifacio Aparato and respondent
spouses. The question of whether the "Pagpapatunay" is sufficient to transfer and convey title to the
land for purposes of original registration[46] or the issuance of a real estate tax declaration in respondent
spouses' names, as prayed for by respondent spouses,[47] is another matter altogether.[48] For greater
efficacy of the contract, convenience of the parties and to bind third persons, respondent spouses have the
right to compel the vendor or his heirs to execute the necessary document to properly convey the
property.[49]

Anent petitioner's second assigned error, the fact that the Court of Appeals sustained the validity of the
"Pagpapatunay" was not a conclusion that necessarily resulted from the weakness of petitioner's claim of
filiation to Bonifacio Aparato. Of and by itself, the "Pagpapatunay" is a valid contract of sale between the
parties and the Court of Appeals did not err in upholding its validity.

The issue of petitioner's paternity, however, is essential to determine whether Tax Declaration No. 02-
6368 in the name of petitioner Cenido should be nullified, as prayed for by respondent spouses in their
complaint.

Tax Declaration No. 02-6368[50] in petitioner Cenido's name was issued pursuant to the compromise
judgment of the MTC where Gavino Aparato, Bonifacio's brother, expressly recognized petitioner Cenido
as Bonifacio's sole illegitimate son. The compromise judgment was rendered in 1985, three years after
Bonifacio's demise.

Under the Civil Code,[51] natural children and illegitimate children other than natural are entitled to
support and successional rights only when recognized or acknowledged by the putative parent.[52] Unless
recognized, they have no rights whatsoever against their alleged parent or his estate.[53]

The filiation of illegitimate children may be proved by any of the forms of recognition of natural
children.[54] This recognition may be made in three ways:[55] (1) voluntarily, which must be express
such as that in a record of birth, a will, a statement before a court of record, or in any authentic
writing;[56] (2) legally, i.e., when a natural child is recognized, such recognition extends to his or her
brothers and sisters of the full blood;[57] and (3) judicially or compulsorily, which may be demanded by
the illegitimate child of his parents.[58] The action for compulsory recognition of the illegitimate child
must be brought during the lifetime of the presumed parents. This is explicitly provided in Article 285 of
the Civil Code, viz:

"Art. 285. The action for the recognition of natural children may be brought only during the lifetime of
the presumed parents, except in the following cases:

(1) If the father or mother died during the minority of the child, in which case the latter may file the action
before the expiration of four years from the attainment of his majority;

(2) If after the death of the father or of the mother a document should appear of which nothing had been
heard and in which either or both parents recognize the child.

In this case, the action must be commenced within four years from the finding of the document."

The illegitimate child can file an action for compulsory recognition only during the lifetime of the
presumed parent. After the parent's death, the child cannot bring such action, except, however, in only
two instances: one is when the supposed parent died during the minority of the child, and the other is
when after the death of the parent, a document should be discovered in which the parent recognized the
child as his. The action must be brought within four years from the attainment of majority in the first
case, and from the discovery of the document in the second case. The requirement that the action be filed
during the parent's lifetime is to prevent illegitimate children, on account of strong temptations to large
estates left by dead persons, to claim part of this estate without giving the alleged parent personal
opportunity to be heard.[59] It is vital that the parent be heard for only the parent is in a position to reveal
the true facts surrounding the claimant's conception.[60]

In the case at bar, petitioner Cenido did not present any record of birth, will or any authentic writing to
show he was voluntarily recognized by Bonifacio as his illegitimate son. In fact, petitioner admitted on
the witness stand that he had no document to prove Bonifacio's recognition, much less his filiation.[61]
The voluntary recognition of petitioner's filiation by Bonifacio's brother before the MTC does not qualify
as a "statement in a court of record." Under the law, this statement must be made personally by the parent
himself or herself, not by any brother, sister or relative; after all, the concept of recognition speaks of a
voluntary declaration by the parent, or if the parent refuses, by judicial authority, to establish the
paternity or maternity of children born outside wedlock.[62]

The compromise judgment of the MTC does not qualify as a compulsory recognition of petitioner. In the
first place, when he filed this case against Gavino Aparato, petitioner was no longer a minor. He was
already pushing fifty years old.[63] Secondly, there is no allegation that after Bonifacio's death, a
document was discovered where Bonifacio recognized petitioner Cenido as his son. Thirdly, there is
nothing in the compromise judgment that indicates that the action before the MTC was a settlement of
Bonifacio's estate with a gross value not exceeding P20,000.00.[64] Definitely, the action could not have
been for compulsory recognition because the MTC had no jurisdiction over the subject matter.[65]

The Real Property Tax Code provides that real property tax be assessed in the name of the person
"owning or administering" the property on which the tax is levied.[66] Since petitioner Cenido has not
proven any successional or administrative rights to Bonifacio's estate, Tax Declaration No. 02-6368 in
Cenido's name must be declared null and void.

IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 41011 are affirmed. Tax Declaration No. 02-6368 in the name of petitioner Renato
Cenido is declared null and void

R. No. 107624 January 28, 1997

GAMALIEL C. VILLANUEVA and IRENE C. VILLANUEVA, petitioners,
vs.
COURT OF APPEALS, SPOUSES JOSE and LEONILA DELA CRUZ, and SPOUSES GUIDO and
FELICITAS PILE, respondents.

PANGANIBAN, J.:
The main issue here is whether a contract of sale has been perfected under the attendant facts and
circumstances.
The petition filed on December 18, 1992 assails the Decision1 of respondent Court of Appeals
promulgated on October 23, 1992 in CA-G.R. CV No. 30741 rendered by the Eleventh Division2
dismissing the appeal of petitioners and affirming the decision in Civil Case No. Q-50844 dated
December 28, 1990 of the Regional Trial Court, Branch 83 of Quezon City, presided by Judge Estrella T.
Estrada. The dispositive portion of the affirmed decision of the RTC reads:3
WHEREFORE, judgment is hereby rendered dismissing plaintiff's instant action for specific performance.
However, defendant Jose de la Cruz is hereby ordered to refund or re imburse the amount of Ten
Thousand Pesos (P10,000.00) to plaintiff Irene Villanueva.
The parties' other claims for damages and attorney's fees are also hereby dismissed for being necessary
consequences of litigation.
No pronouncement as to costs.
The Facts
The factual antecedents of this case as found by the trial court were reproduced in the assailed Decision,4
as follows:5
. . .plaintiff (and now petitioner) Gamaliel Villanueva has been a tenant-occupant of a unit in the 3-door
apartment building erected on a parcel of land owned by defendants-spouses (now private respondents)
Jose Dela Cruz and Leonila dela Cruz, with an area of 403 square meters, more or less, located at Short
Horn, Project 8, Quezon City (Exhibit "L"), having succeeded in the occupancy of said unit from the
previous tenant Lolita Santos sometime in 1985. About February of 1986, defendant Jose dela Cruz
offered said parcel of land with the 3-door apartment building for sale and plaintiffs, son and mother,
showed interest in the property. As an initial step, defendant Jose dela Cruz gave plaintiff Irene
Villanueva a letter of authority dated February 12, 1986 (Exhibit "A") for her to inspect the subject
property. Because said property was in arrears in the payment of the realty taxes, defendant Jose dela
Cruz approached plaintiff Irene Villanueva and asked for a certain amount to pay for the taxes so that the
property would be cleared of any incumbrance (sic). Plaintiff Irene Villanueva gave P10,000.00 on two
occasions — P5,000.00 on July 15, 1986 (Exhibit "F") and another P5,000.00 on October 17, 1986
(Exhibit "D"). It was agreed by them that said P10,000.00 would form part of the sale price of
P550,000.00. Sometime thereafter, defendant Jose dela Cruz went to plaintiff Irene Villanueva bringing
with him Mr. Ben Sabio, a tenant of one of the units in the 3-door apartment building located on the
subject property, and requested her and her son to allow said Ben Sabio to purchase one-half (1/2) of the
property where the unit occupied by him pertained to which the plaintiffs consented, so that they would
just purchase the other half portion and would be paying only P265,000.00, they having already given an
amount of P10,000.00 used for paying the realty taxes in arrears. Accordingly the property was
subdivided and two (2) separate titles were secured by defendants Dela Cruz. Mr. Ben Sabio immediately
made payments by installments.
Sometime in March, 1987 or more specifically on March 6, 1987, defendants Dela Cruz executed in favor
of their co-defendants, the spouses Guide Pili (sic) and Felicitas Pili (sic), a Deed of Assignment of the
other one-half portion of the parcel of land wherein plaintiff Gamaliel Villanueva's apartment unit is
situated, designated as Lot 3-A of the Subdivision Plan (LRC) Psd-337290, Block 24, Pcs-4865, with an
area of 201.50 square meters, more or less, and covered by Transfer Certificate of Title 332445,
purportedly as full payment and satisfaction of an indebtedness (sic) obtained from defendants Pili (sic)
(Exhibit "G"; Exhibit "3"). Consequently, Transfer Certificate of Title No. 356040 was issued in the name
of defendants Pili (sic) also on March 6, 1987. Immediately thereafter, the plaintiffs came to know of such
assignment and transfer and issuance of a new certificate of title in favor of defendants Pili (sic) so that
plaintiff Gamaliel Villanueva complained to the barangay captain of Bahay Turo, Quezon City, on the
ground that there was already an agreement between defendants Dela Cruz and themselves that said
portion of the parcel of land owned by defendants Dela Cruz would be sold to him. As there was no
settlement arrived at, the plaintiffs elevated their complaint to this Court through the instant action.
The trial court rendered its decision in favor of private respondents. An appeal was duly brought to public
respondent which as earlier stated affirmed the said decision. Hence, this petition for review on certiorari
under Rule 45 of the Rules of Court.
The Issues
The following errors are alleged to have been committed by public respondent:6
I
The Court of Appeals erred in failing to find that there is a perfected contract of sale of subject property
between petitioners and respondents spouses Dela Cruz.
II
The Court of Appeals erred in applying the Statute of Frauds in this case when it is a contract of sale that
was partly executed
III
The Court of Appeals erred in not finding that this being a case of double sale of immovable property,
although respondents spouses Pili (sic) recorded the deed of assignment to them in the Registry of Deeds
they were not in good faith while (sic) petitioners as purchasers thereof were in prior possession in good
faith of the property
IV
The Court of Appeals erred in failing to reverse and set aside the appealed judgment of the trial court and
rendering a judgment for petitioners
In the opinion of this Court, these four issues may be summed up in a single question: Under the factual
circumstances of this case, was there a perfected contract of sale?
Petitioners contend that the adopted findings of facts of public respondent are contradicted by its ruling
that there is no agreement as to the price of the apartments. They argue that on the basis of the facts found
by public respondent, "the conclusion is ineluctable that there was a perfected contract of sale of the
subject property."7 According to petitioners, private respondents had to secure their consent to enable
"Sabio to buy the one-half portion of the property where the unit Sabio was renting pertains so that
petitioners will pay only the balance of P265,000.00 for the purchase of the other half after deducting the
P10,000.00 petitioners advanced." 8 Public respondent's conclusion that the P10,000.00 paid to
petitioners was not intended as part of the purchase price allegedly "collides" with its quoted findings, as
follows:9
It was agreed by them that said P10,000.00 would form part of the sale price of P550,000.00. . . .
defendant Jose de la Cruz . . . requested her and her son to allow said Ben Sabio to purchase one-half
(1/2) of the property where the unit occupied by him pertained to which plaintiffs consented, so they
would purchase the other half portion and would be paying only P265.000.00 they having already given
an amount of P10,000.00 used for paying the realty taxes in arrears. . . . (Emphasis in the petition).
The Court's Ruling
The arguments of petitioners do not persuade us. While it is true that respondent Court adopted the
recitation of facts of the trial court, it nonetheless later corrected the relevant portions thereof as it found
that no perfected contract of sale was agreed upon. Thus, public respondent explained: 10
Appellants' theory of earnest money cannot be sustained in view of the catena of circumstance showing
that the P10,000.00 given to appellees was not intended to form part of the purchase price. As the great
commentator Manresa observes that the delivery of part of the purchase price should not be understood as
constituting earnest money unless it be shown that such was the intention of the parties (Manresa
Commentaries on the Civil Code, 2d ed., Vol. 10, p. 85). Moreover, as can be gleaned from the records
there was no concrete agreement to the price and manner of payment:
Q Will you tell us why your transaction with plaintiffs (petitioners herein) did not materialize?
A Because I have been returning to Mrs. Villanueva and in fact we have executed a Deed of Sale which
was in fact not signed.
Q Why did you not sign the Deed of Sale you mentioned?
A The Villanuevas told me to prepare the documents involved in this transaction because according to her
(sic) she (sic) was only waiting for the money to come but because I was then being pressed by Felicitas
Pile for the payment of my loan. I was constrained to assign the property to her.
Q What are your other reasons?
A Aside from that we were still huggling (sic) for the purchase price then and since I was being pressed
by my creditor, I was forced to make the assignment.
The most that public respondent can be faulted with is its failure to expressly state that although its
conclusion of law was correct, the trial court erred in its statement of the facts.
Was There a Perfected Contract of Sale?
Petitioners contend that private respondents' counsel admitted that "P10,000 is partial or advance payment
of the property (TSN, June 14 [should be 15], 4 (sic) 1990, pages 6 to 7)." Necessarily then, there must
have been an agreement as to price. They cite Article 1482 of the Civil Code which provides that
"(w)henever 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." 11
Private respondents contradict this claim with the argument that "(w)hat was clearly agreed (upon)
between petitioners and respondents Dela Cruz was that the P10,000.00 primarily intended as payment for
realty tax was going to form part of the consideration of the sale if and when the transaction would finally
be consummated." 12 Private respondents insist that there "was no clear agreement as to the true amount
of consideration." 13
Generally, the findings of fact of the lower courts are entitled to great weight and not disturbed except for
cogent reasons. 14 Indeed, they should not be changed on appeal in the absence of a clear showing that
the trial court overlooked, disregarded, or misinterpreted some facts of weight and significance, which if
considered would have altered the result of the case. 15 In this case, and subject to the above clarification
made by the appellate court, petitioners have failed to convince us to alter such findings.
In fact, a review of the evidence merely strengthens the conclusions of public respondent. We scoured the
transcripts but we found that respondent dela Cruz never testified that he (or his spouse Leonila) had
agreed to a definite price for the subject property. In fact, his testimony during the cross-examination
firmly negated any price agreement with petitioners because he and his wife quoted the price of
P575,000.00 and did not agree to reduce it to P550,000.00 as claimed by petitioner: 16
Q And despite the fact that the property was mortgaged with Development Bank of Rizal you still
contrated (sic) Sandiego (sic) for the purpose of selling the property?
A Yes, sir.
Q And did Sandiego (sic) agree as agent in selling the property despite the fact that it was mortgaged with
the Development Bank of Rizal?
A Yes, sir.
Q Can you recall the condition you offered to Sandiego (sic) to act as your agent in selling the same?
A He will get certain commission for the same.
Q Will you state the price and conditions set forth in selling the property?
A P575 thousand, sir.
Q That is the same offer that was given to you by plaintiff Mrs. Villanueva?
A I can not recall, I think so.
Q And you will agree with me that 1/2 of P575 thousand is how much (sic)?
ATTY. MANZO:
There (is) nothing to agree with you counsel.
ATTY. GUPIT:
And the offer to you, the agreed price between you and Mrs. Villanueva is P275 thousand as stated in the
agreement that was prepared?
ATTY. MANZO:
Counsel is again assuming that there was an agreement made already.
(ATTY. GUPIT:)
He answered there is a document between Villanueva and Dela Cruz.
ATTY. (MANZO):
Let the witness be confronted by the document.
We are not unmindful of petitioner Irene Villanueva's claim that the parties agreed on the sum of
P550,000.00 follows: 17
ATTY. GUPIT
What was the result of the negotiations?
WITNESS (Irene Villanueva):
We agreed that he would sell the land to us for the sum of, the amount of P550,000.00
xxx xxx xxx
WITNESS
After the Deed of Sale relative to the purchase of the property was prepared, Mr. dela Cruz (private
respondent Jose) came to me and told me that he talked with one of the tenants and he offered to buy the
portion he was occupying if I will agree and I will cause the partition of the property between us.
ATTY. GUPIT
Did you agree with the proposal of Mr. dela Cruz that the portion of the property will be sold to one of the
ten-ants?
WITNESS
Yes(,) sir. I agreed because we are (sic) both tenants.
ATTY. GUPIT
How about the price? How much are (sic) you supposed to pay in order to complete your payments?
WITNESS
We are (sic) supposed to divide the amount of P550,000.00.
To settle the above conflicting claims of the parties, petitioners could have presented the contract of sale
allegedly prepared by private respondent Jose dela Cruz. Unfortunately, the contract was not presented in
evidence. However, petitioners aver that even if the unsigned deed of sale was not produced, private
respondent Jose dela Cruz "admitted preparing (said) deed in accordance with their agreement." 18 This
"judicial admission" is allegedly the "best proof of its existence." 19 Further it was "impossible" for
petitioners to produce the same "since it was and remained in the possession" of private respondent Jose
dela Cruz. 20
We do not agree with petitioners. Assuming arguendo that such draft deed existed, it does not necessarily
follow that there was already a definite agreement as to the price. If there was, why then did private
respondent Jose de la Cruz not sign it? If indeed the draft deed of sale was that important to petitioners'
cause, they should have shown some effort to procure it. They could have secured it through a subpoena
duces tecum or thru the use of one of the modes of discovery. But petitioners made no such effort. And
even if produced, it would not have commanded any probative value as it was not signed.
As has been said in an old case, the price of the leased land not having been fixed, the essential elements
which give life to the contract were lacking. It follows that the lessee cannot compel the lessor to sell the
leased land to him. 21 The price must be certain, it must be real, not fictitious. 22 It is not necessary that
the certainty of the price be actual or determined at the time of executing the contract. The fact that the
exact amount to be paid therefor is not precisely fixed, is no bar to an action to recover such
compensation, provided the contract, by its terms, furnishes a basis or measure for ascertaining the
amount agreed upon. 23 The price could be made certain by the application of known factors; where, in a
sale of coal, a basic price was fixed, but subject to modification "in proportion to variations in calories
and ash content, and not otherwise," the price was held certain. 24 A contract of sale is not void for
uncertainty when the price, though not directly stated in terms of pesos and centavos, can be made certain
by reference to existing invoices identified in the agreement. In this respect, the contract of sale is
perfected. 25 The price must be certain, otherwise there is no true consent between the parties. 26 There
can be no sale without a price. 27 In the instant case, however, what is dramatically clear from the
evidence is that there was no meeting of mind as to the price, expressly or impliedly, directly or
indirectly.
Sale is a consensual contract. He who alleges it must show its existence by competent proof. Here, the
very essential element of price has not been proven.
Lastly, petitioners' claim that they are ready to pay private respondents 28 is immaterial and irrelevant as
the latter cannot be forced to accept such payment, there being no perfected contract of sale in the first
place.
Applicability of Statute of Frauds and the Law on Double Sale
Petitioners contend that the statute of frauds does not apply because such statute applies only to executory
contracts whereas in this case the contract of sale had already been partly executed. 29 Further,
petitioners, citing Article 1544 of the Civil Code asseverate that being in possession of the property in
good faith therefore they should be deemed the lawful owners thereof. 30 On the other hand, private
respondents counter that the contract in this case is a "mere executory contract and not a completed or
executed contract." 31
Both contentions are inaccurate. True, the statute of frauds applies only to executory contracts and not to
partially or completely executed ones. 32 However, there is no perfected contract in this case, therefore
there is no basis for the application of the statute of frauds. The application of such statute presupposes
the existence of a perfected contract and requires only that a note or memorandum be executed in order to
compel judicial enforcement thereof. Also, the civil law rule on double sale finds no application because
there was no sale at all to begin with.
At bottom, what took place was only a prolonged negotiation to buy and to sell, and at most, an offer and
a counter-offer but no definite agreement was reached by the parties. Hence, the rules on perfected
contract of sale, statute of frauds and double sale find no relevance nor application.
WHEREFORE, the Petition is DENIED and the assailed Decision is AFFIRMED. Costs against
petitioners.

MUNICIPALITY OF HAGONOY v. SIMEON P. DUMDUM +

DECISION
630 Phil. 305

PERALTA, J.:
This is a Joint Petition[1] under Rule 45 of the Rules of Court brought by the Municipality of Hagonoy,
Bulacan and its former chief executive, Mayor Felix V. Ople in his official and personal capacity, from
the January 31, 2005 Decision[2] and the May 23, 2005 Resolution[3] of the Court of Appeals in CA-
G.R. SP No. 81888. The assailed decision affirmed the October 20, 2003 Order[4] issued by the Regional
Trial Court of Cebu City, Branch 7 in Civil Case No. CEB-28587 denying petitioners' motion to dismiss
and motion to discharge/dissolve the writ of preliminary attachment previously issued in the case. The
assailed resolution denied reconsideration.

The case stems from a Complaint[5] filed by herein private respondent Emily Rose Go Ko Lim Chao
against herein petitioners, the Municipality of Hagonoy, Bulacan and its chief executive, Felix V. Ople
(Ople) for collection of a sum of money and damages. It was alleged that sometime in the middle of the
year 2000, respondent, doing business as KD Surplus and as such engaged in buying and selling surplus
trucks, heavy equipment, machinery, spare parts and related supplies, was contacted by petitioner Ople.
Respondent had entered into an agreement with petitioner municipality through Ople for the delivery of
motor vehicles, which supposedly were needed to carry out certain developmental undertakings in the
municipality. Respondent claimed that because of Ople's earnest representation that funds had already
been allocated for the project, she agreed to deliver from her principal place of business in Cebu City
twenty-one motor vehicles whose value totaled P5,820,000.00. To prove this, she attached to the
complaint copies of the bills of lading showing that the items were consigned, delivered to and received
by petitioner municipality on different dates.[6] However, despite having made several deliveries, Ople
allegedly did not heed respondent's claim for payment. As of the filing of the complaint, the total
obligation of petitioner had already totaled P10,026,060.13 exclusive of penalties and damages. Thus,
respondent prayed for full payment of the said amount, with interest at not less than 2% per month, plus
P500,000.00 as damages for business losses, P500,000.00 as exemplary damages, attorney's fees of
P100,000.00 and the costs of the suit.

On February 13, 2003, the trial court issued an Order[7] granting respondent's prayer for a writ of
preliminary attachment conditioned upon the posting of a bond equivalent to the amount of the claim. On
March 20, 2003, the trial court issued the Writ of Preliminary Attachment[8] directing the sheriff "to
attach the estate, real and personal properties" of petitioners.

Instead of addressing private respondent's allegations, petitioners filed a Motion to Dismiss[9] on the
ground that the claim on which the action had been brought was unenforceable under the statute of frauds,
pointing out that there was no written contract or document that would evince the supposed agreement
they entered into with respondent. They averred that contracts of this nature, before being undertaken by
the municipality, would ordinarily be subject to several preconditions such as a public bidding and prior
approval of the municipal council which, in this case, did not obtain. From this, petitioners impress upon
us the notion that no contract was ever entered into by the local government with respondent.[10] To
address the claim that respondent had made the deliveries under the agreement, they advanced that the
bills of lading attached to the complaint were hardly probative, inasmuch as these documents had been
accomplished and handled exclusively by respondent herself as well as by her employees and agents.[11]

Petitioners also filed a Motion to Dissolve and/or Discharge the Writ of Preliminary Attachment Already
Issued,[12] invoking immunity of the state from suit, unenforceability of the contract, and failure to
substantiate the allegation of fraud.[13]
On October 20, 2003, the trial court issued an Order[14] denying the two motions. Petitioners moved for
reconsideration, but they were denied in an Order[15] dated December 29, 2003.

Believing that the trial court had committed grave abuse of discretion in issuing the two orders,
petitioners elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65. In it,
they faulted the trial court for not dismissing the complaint despite the fact that the alleged contract was
unenforceable under the statute of frauds, as well as for ordering the filing of an answer and in effect
allowing private respondent to prove that she did make several deliveries of the subject motor vehicles.
Additionally, it was likewise asserted that the trial court committed grave abuse of discretion in not
discharging/dissolving the writ of preliminary attachment, as prayed for in the motion, and in effect
disregarding the rule that the local government is immune from suit.

On January 31, 2005, following assessment of the parties' arguments, the Court of Appeals, finding no
merit in the petition, upheld private respondent's claim and affirmed the trial court's order.[16] Petitioners
moved for reconsideration, but the same was likewise denied for lack of merit and for being a mere scrap
of paper for having been filed by an unauthorized counsel.[17] Hence, this petition.

In their present recourse, which raises no matter different from those passed upon by the Court of
Appeals, petitioners ascribe error to the Court of Appeals for dismissing their challenge against the trial
court's October 20 and December 29, 2003 Orders. Again, they reason that the complaint should have
been dismissed at the first instance based on unenforceability and that the motion to dissolve/discharge
the preliminary attachment should have been granted.[18]

Commenting on the petition, private respondent notes that with respect to the Court of Appeals' denial of
the certiorari petition, the same was rightly done, as the fact of delivery may be properly and adequately
addressed at the trial of the case on the merits; and that the dissolution of the writ of preliminary
attachment was not proper under the premises inasmuch as the application for the writ sufficiently alleged
fraud on the part of petitioners. In the same breath, respondent laments that the denial of petitioners'
motion for reconsideration was rightly done by the Court of Appeals, because it raised no new matter that
had not yet been addressed.[19]

After the filing of the parties' respective memoranda, the case was deemed submitted for decision.

We now rule on the petition.

To begin with, the Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code,[20] requires
for enforceability certain contracts enumerated therein to be evidenced by some note or memorandum.
The term "Statute of Frauds" is descriptive of statutes that require certain classes of contracts to be in
writing; and that do not deprive the parties of the right to contract with respect to the matters therein
involved, but merely regulate the formalities of the contract necessary to render it enforceable.[21]

In other words, the Statute of Frauds only lays down the method by which the enumerated contracts may
be proved. But it does not declare them invalid because they are not reduced to writing inasmuch as, by
law, contracts are obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present.[22] The object is to prevent fraud and perjury in the enforcement
of obligations depending, for evidence thereof, on the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.[23] The effect of noncompliance with this requirement is simply that no action can be enforced
under the given contracts.[24] If an action is nevertheless filed in court, it shall warrant a dismissal under
Section 1(i),[25] Rule 16 of the Rules of Court, unless there has been, among others, total or partial
performance of the obligation on the part of either party.[26]
It has been private respondent's consistent stand, since the inception of the instant case that she has
entered into a contract with petitioners. As far as she is concerned, she has already performed her part of
the obligation under the agreement by undertaking the delivery of the 21 motor vehicles contracted for by
Ople in the name of petitioner municipality. This claim is well substantiated -- at least for the initial
purpose of setting out a valid cause of action against petitioners -- by copies of the bills of lading attached
to the complaint, naming petitioner municipality as consignee of the shipment. Petitioners have not at any
time expressly denied this allegation and, hence, the same is binding on the trial court for the purpose of
ruling on the motion to dismiss. In other words, since there exists an indication by way of allegation that
there has been performance of the obligation on the part of respondent, the case is excluded from the
coverage of the rule on dismissals based on unenforceability under the statute of frauds, and either party
may then enforce its claims against the other.

No other principle in remedial law is more settled than that when a motion to dismiss is filed, the material
allegations of the complaint are deemed to be hypothetically admitted.[27] This hypothetical admission,
according to Viewmaster Construction Corporation v. Roxas[28] and Navoa v. Court of Appeals,[29]
extends not only to the relevant and material facts well pleaded in the complaint, but also to inferences
that may be fairly deduced from them. Thus, where it appears that the allegations in the complaint furnish
sufficient basis on which the complaint can be maintained, the same should not be dismissed regardless of
the defenses that may be raised by the defendants.[30] Stated differently, where the motion to dismiss is
predicated on grounds that are not indubitable, the better policy is to deny the motion without prejudice to
taking such measures as may be proper to assure that the ends of justice may be served.[31]

It is interesting to note at this point that in their bid to have the case dismissed, petitioners theorize that
there could not have been a contract by which the municipality agreed to be bound, because it was not
shown that there had been compliance with the required bidding or that the municipal council had
approved the contract. The argument is flawed. By invoking unenforceability under the Statute of Frauds,
petitioners are in effect acknowledging the existence of a contract between them and private respondent --
only, the said contract cannot be enforced by action for being non-compliant with the legal requisite that it
be reduced into writing. Suffice it to say that while this assertion might be a viable defense against
respondent's claim, it is principally a matter of evidence that may be properly ventilated at the trial of the
case on the merits.

Verily, no grave abuse of discretion has been committed by the trial court in denying petitioners' motion
to dismiss this case. The Court of Appeals is thus correct in affirming the same.

We now address the question of whether there is a valid reason to deny petitioners' motion to discharge
the writ of preliminary attachment.

Petitioners, advocating a negative stance on this issue, posit that as a municipal corporation, the
Municipality of Hagonoy is immune from suit, and that its properties are by law exempt from execution
and garnishment. Hence, they submit that not only was there an error committed by the trial court in
denying their motion to dissolve the writ of preliminary attachment; they also advance that it should not
have been issued in the first place. Nevertheless, they believe that respondent has not been able to
substantiate her allegations of fraud necessary for the issuance of the writ.[32]

Private respondent, for her part, counters that, contrary to petitioners' claim, she has amply discussed the
basis for the issuance of the writ of preliminary attachment in her affidavit; and that petitioners' claim of
immunity from suit is negated by Section 22 of the Local Government Code, which vests municipal
corporations with the power to sue and be sued. Further, she contends that the arguments offered by
petitioners against the writ of preliminary attachment clearly touch on matters that when ruled upon in the
hearing for the motion to discharge, would amount to a trial of the case on the merits.[33]

The general rule spelled out in Section 3, Article XVI of the Constitution is that the state and its political
subdivisions may not be sued without their consent. Otherwise put, they are open to suit but only when
they consent to it. Consent is implied when the government enters into a business contract, as it then
descends to the level of the other contracting party; or it may be embodied in a general or special law[34]
such as that found in Book I, Title I, Chapter 2, Section 22 of the Local Government Code of 1991, which
vests local government units with certain corporate powers --one of them is the power to sue and be sued.

Be that as it may, a difference lies between suability and liability. As held in City of Caloocan v.
Allarde,[35] where the suability of the state is conceded and by which liability is ascertained judicially,
the state is at liberty to determine for itself whether to satisfy the judgment or not. Execution may not
issue upon such judgment, because statutes waiving non-suability do not authorize the seizure of property
to satisfy judgments recovered from the action. These statutes only convey an implication that the
legislature will recognize such judgment as final and make provisions for its full satisfaction. Thus, where
consent to be sued is given by general or special law, the implication thereof is limited only to the
resultant verdict on the action before execution of the judgment.[36]

Traders Royal Bank v. Intermediate Appellate Court,[37] citing Commissioner of Public Highways v. San
Diego,[38] is instructive on this point. In that case which involved a suit on a contract entered into by an
entity supervised by the Office of the President, the Court held that while the said entity opened itself to
suit by entering into the subject contract with a private entity; still, the trial court was in error in ordering
the garnishment of its funds, which were public in nature and, hence, beyond the reach of garnishment
and attachment proceedings. Accordingly, the Court ordered that the writ of preliminary attachment
issued in that case be lifted, and that the parties be allowed to prove their respective claims at the trial on
the merits. There, the Court highlighted the reason for the rule, to wit:

The universal rule that where the State gives its consent to be sued by private parties either by general or
special law, it may limit claimant's action "only up to the completion of proceedings anterior to the stage
of execution" and that the power of the Courts ends when the judgment is rendered, since government
funds and properties may not be seized under writs of execution or garnishment to satisfy such judgments,
is based on obvious considerations of public policy. Disbursements of public funds must be covered by
the corresponding appropriations as required by law. The functions and public services rendered by the
State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate
and specific objects. x x x[39]

With this in mind, the Court holds that the writ of preliminary attachment must be dissolved and, indeed,
it must not have been issued in the very first place. While there is merit in private respondent's position
that she, by affidavit, was able to substantiate the allegation of fraud in the same way that the fraud
attributable to petitioners was sufficiently alleged in the complaint and, hence, the issuance of the writ
would have been justified. Still, the writ of attachment in this case would only prove to be useless and
unnecessary under the premises, since the property of the municipality may not, in the event that
respondent's claim is validated, be subjected to writs of execution and garnishment -- unless, of course,
there has been a corresponding appropriation provided by law.[40]

Anent the other issues raised by petitioners relative to the denial of their motion to dissolve the writ of
attachment, i.e., unenforceability of the contract and the veracity of private respondent's allegation of
fraud, suffice it to say that these pertain to the merits of the main action. Hence, these issues are not to be
taken up in resolving the motion to discharge, lest we run the risk of deciding or prejudging the main case
and force a trial on the merits at this stage of the proceedings.[41]
There is one final concern raised by petitioners relative to the denial of their motion for reconsideration.
They complain that it was an error for the Court of Appeals to have denied the motion on the ground that
the same was filed by an unauthorized counsel and, hence, must be treated as a mere scrap of paper.[42]

It can be derived from the records that petitioner Ople, in his personal capacity, filed his Rule 65 petition
with the Court of Appeals through the representation of the law firm Chan Robles & Associates. Later on,
municipal legal officer Joselito Reyes, counsel for petitioner Ople, in his official capacity and for
petitioner municipality, filed with the Court of Appeals a Manifestation with Entry of Appearance[43] to
the effect that he, as counsel, was "adopting all the pleadings filed for and in behalf of [Ople's personal
representation] relative to this case."[44]

It appears, however, that after the issuance of the Court of Appeals' decision, only Ople's personal
representation signed the motion for reconsideration. There is no showing that the municipal legal officer
made the same manifestation, as he previously did upon the filing of the petition.[45] From this, the Court
of Appeals concluded that it was as if petitioner municipality and petitioner Ople, in his official capacity,
had never moved for reconsideration of the assailed decision, and adverts to the ruling in Ramos v. Court
of Appeals[46] and Municipality of Pililla, Rizal v. Court of Appeals[47] that only under well-defined
exceptions may a private counsel be engaged in lawsuits involving a municipality, none of which
exceptions obtains in this case.[48]

The Court of Appeals is mistaken. As can be seen from the manner in which the Manifestation with Entry
of Appearance is worded, it is clear that petitioner municipality's legal officer was intent on adopting, for
both the municipality and Mayor Ople, not only the certiorari petition filed with the Court of Appeals,
but also all other pleadings that may be filed thereafter by Ople's personal representation, including the
motion for reconsideration subject of this case. In any event, however, the said motion for reconsideration
would warrant a denial, because there seems to be no matter raised therein that has not yet been
previously addressed in the assailed decision of the Court of Appeals as well as in the proceedings below,
and that would have otherwise warranted a different treatment of the issues involved.

WHEREFORE, the Petition is GRANTED IN PART. The January 31, 2005 Decision of the Court of
Appeals in CA-G.R. SP No. 81888 is AFFIRMED insofar as it affirmed the October 20, 2003 Decision
of the Regional Trial Court of Cebu City, Branch 7 denying petitioners' motion to dismiss in Civil Case
No. CEB-28587. The assailed decision is REVERSED insofar as it affirmed the said trial court's denial
of petitioners' motion to discharge the writ of preliminary attachment issued in that case. Accordingly, the
August 4, 2003 Writ of Preliminary Attachment issued in Civil Case No. CEB-28587 is ordered lifted.

CASE DIGEST: VDA. DE OUANO VS. REPUBLIC

G.R. No. 168770 : February 9, 2011

ANUNCIACION VDA. DE OUANO, MARIO P. OUANO, LETICIA OUANO ARNAIZ, and CIELO
OUANO MARTINEZ,Petitioners, v. THE REPUBLIC OF THE PHILIPPINES, THE MACTAN-CEBU
INTERNATIONAL AIRPORT AUTHORITY, and THE REGISTER OF DEEDS FOR THE CITY OF
CEBU, Respondents.

FACTS:
In 1949, the National Airport Corporation (NAC), MCIAA’s predecessor agency, pursued a program to
expand the Lahug Airport in Cebu City. Through its team of negotiators, NAC met and negotiated with
the owners of the properties situated around the airport.

The landowners claim the government negotiating team, as a sweetener, assured them that they could
repurchase their respective lands should the Lahug Airport expansion project do not push through or once
the Lahug Airport closes or its operations transferred to Mactan-Cebu Airport.

On February 8, 1996, Ricardo L. Inocian and four others (all children of Isabel Limbaga who originally
owned six [6] of the lots expropriated); and Aletha Suico Magat and seven others, successors-in-interest
of Santiago Suico, the original owner of two (2) of the condemned lots (collectively, the Inocians), filed
before the RTC in Cebu City a complaint for reconveyance of real properties and damages against
MCIAA. The RT rendered a decision directing MCIAA to reconvey the lands.

Soon after the MCIAA jettisoned the Lahug Airport expansion project, informal settlers entered and
occupied Lot No. 763-A which, before its expropriation, belonged to the Ouanos.

Soon after the MCIAA jettisoned the Lahug Airport expansion project, informal settlers entered and
occupied Lot No. 763-A which, before its expropriation, belonged to the Ouanos. The Ouanos then
formally asked to be allowed to exercise their right to repurchase the aforementioned lot, but the MCIAA
ignored the demand.

The RTC dismissed the Ouanos’ complaint for reconveyance. The CA denied their appeal.

ISSUE: Whether or not the testimonial evidence of the petitioners proving the promises, assurances and
representations by the airport officials and lawyers are inadmissbale under the Statute of Frauds.

HELD:

The petition is meritorious.

CIVIL LAW: Condominium and Subdivision

Under the rule on the Statute of Frauds, as expressed in Article 1403 of the Civil Code, a contract for the
sale or acquisition of real property shall be unenforceable unless the same or some note of the contract be
in writing and subscribed by the party charged. Subject to defined exceptions, evidence of the agreement
cannot be received without the writing, or secondary evidence of its contents.

MCIAA’s invocation of the Statute of Frauds is misplaced primarily because the statute applies only to
executory and not to completed, executed, or partially consummated contracts.

Petition is GRANTED.

1. SUBSTANTIAL FACTS
As alleged by plaintiff-appellant are two causes of action:
upon request of the Deudors, plaintiff made permanent improvements valued at P30,400.00 on
the said land having an area of more or less 20 quinones and for which he also incurred expenses.
in 1952, defendants availed of plaintiff’s services as an intermediary with the Deudors to work of
the amicable settlement of a civil case involving 50 quinones of land, of which the 20 quinones
were a part of. On March 16, 1963, a compromise agreement was reached between the Deudors
and the defendants. As a result, defendants promised to convey to the plaintiff 3,000 square
 meters within ten years from and after date of signing of the compromise agreement as
consideration for his services. The defendant’s refused to comply with this promise.
4.2. PROCEDURAL HISTORY
CFI Quezon City
On January 24, 1964, Plaintiff-appellant filed a complaint on the merits above, praying that for
the first cause of action, he be reimbursed for the total amount of expenses and improvements
made upon the property; and that for the second cause of action, he be conveyed the 3,000 square
meters of property promised to him.
Defendants filed separate motions to dismiss on the following grounds:
The complaint states no cause of action, the agreement regarding the same having been
made with the Deudors and not with the defendants, hence the theory of plaintiff based
on Article 2142 of the Civil Code on unjust enrichment is untenable
The promise to convey to him 3,000 square meters of land is unenforceable under the
Statute of Frauds, there being nothing in writing about it.
The action of plaintiff to compel such conveyance has already prescribed.
Plaintiff opposed the motion
Article 2142 of the Civil Code is applicable to his case
The Statute of Frauds cannot be invoked by defendants
Article 1403 refers only to "sale of real property of an interest therein" and not to
promises to convey real property
he has already performed part of the agreement, hence the agreement has already
been partly executed and not merely executory within the contemplation of the
Statute
His action has not prescribed
defendants had ten years to comply and only after said ten years did his cause of
action accrue
that is, ten years after March 16, 1963 was the date of the approval of the
compromise agreement
January 24, 1964 was the date he filed the complaint.
On August 13, 1964, the trial court dismissed the complaint, affirming defendant’s motion to
dismiss.
On the issue of the complaint has no cause of action, the court affirmed, as the defendants
are not parties to the supposed express contract entered into by and between the plaintiff
and the Deudors.
On the issue of statute of fraud, the court affirmed, as under the provisions of Sec. 2(e) of
Article 1403 of the Civil Code, such agreement is not enforceable as it is not in writing
and subscribed by the party charged
On the issue of statute of limitations, the court affirmed, as the action has prescribed.
The agreement entered between him and the defendants was on 1952 and
approved on April 11, 1953.
The action was instituted on January 24, 1964, having prescribed.
On August 22, 1964, plaintiff’s counsel filed a motion for reconsideration
Defendants filed an opposition
On September 7, 1964, the trial court denied the motion for reconsideration.
Supreme Court
On September 24, 1964, plaintiff filed his record on appeal
4.3. ISSUES
Whether the Statute of Frauds was erroneously applied?
Whether the claim over the 3,000 square meters was barred by the Statute of Limitations?
Whether the complaint sufficiently constitute a cause of action?
4.4. RATIO/S
Whether the Statute of Frauds was erroneously applied?
YES
We agree with appellant that the Statute refers to specific kinds of transactions and that it cannot
apply to any that is not enumerated therein. And the only agreements or contracts covered thereby
are [those enumerated in Article 1403 of the Civil Code].
In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square
meters of land which he claims defendants promised to do in consideration of his services as
mediator or intermediary in effecting a compromise of the civil action, Civil Case No. 135,
between the defendants and the Deudors, in no sense may such alleged contract be considered as
being a "sale of real property or of any interest therein." Indeed, not all dealings involving interest
in real property come under the Statute.

G.R. No. 176841 June 29, 2010

ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA ORDUÑA, Petitioners,
vs.
EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and
ARMANDO GABRIEL, JR., Respondents.
DECISION
VELASCO, JR., J.:
In this Petition for Review1 under Rule 45 of the Rules of Court, Anthony Orduña, Dennis Orduña and
Antonita Orduña assail and seek to set aside the Decision2 of the Court of Appeals (CA) dated December
4, 2006 in CA-G.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which affirmed the
May 26, 2003 Decision3 of the Regional Trial Court (RTC), Branch 3 in Baguio City, in Civil Case No.
4984-R, a suit for annulment of title and reconveyance commenced by herein petitioners against herein
respondents.
Central to the case is a residential lot with an area of 74 square meters located at Fairview Subdivision,
Baguio City, originally registered in the name of Armando Gabriel, Sr. (Gabriel Sr.) under Transfer
Certificate of Title (TCT) No. 67181 of the Registry of Deeds of Baguio City.4
As gathered from the petition, with its enclosures, and the comments thereon of four of the five
respondents,5 the Court gathers the following relevant facts:
Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Orduña
(Antonita), but no formal deed was executed to document the sale. The contract price was apparently
payable in installments as Antonita remitted from time to time and Gabriel Sr. accepted partial payments.
One of the Orduñas would later testify that Gabriel Sr. agreed to execute a final deed of sale upon full
payment of the purchase price.6
As early as 1979, however, Antonita and her sons, Dennis and Anthony Orduña, were already occupying
the subject lot on the basis of some arrangement undisclosed in the records and even constructed their
house thereon. They also paid real property taxes for the house and declared it for tax purposes, as
evidenced by Tax Declaration No. (TD) 96-04012-1110877 in which they place the assessed value of the
structure at PhP 20,090.
After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T-714998
over the subject lot and continued accepting payments from the petitioners. On December 12, 1996,
Gabriel Jr. wrote Antonita authorizing her to fence off the said lot and to construct a road in the adjacent
lot.9 On December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from
petitioners.10 Through a letter11 dated May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far
made an aggregate payment of PhP 65,000, leaving an outstanding balance of PhP 60,000. A receipt
Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment.
Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta
(Bernard) obviously without the knowledge of petitioners, as later developments would show.
As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected against the
following backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP
50,000, payable in two weeks at a fixed interest rate, with the further condition that the subject lot would
answer for the loan in case of default. Gabriel Jr. failed to pay the loan and this led to the execution of a
Deed of Sale12 dated June 30, 1999 and the issuance later of TCT No. T-7278213 for subject lot in the
name of Bernard upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As the RTC decision
indicated, the reluctant Bernard agreed to acquire the lot, since he had by then ready buyers in
respondents Marcos Cid and Benjamin F. Cid (Marcos and Benjamin or the Cids).
Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of Absolute
Sale of a Registered Land14 dated January 19, 2000, the Cids were able to cancel TCT No. T-72782 and
secure TCT No. 7278315 covering the subject lot. Just like in the immediately preceding transaction, the
deed of sale between Bernard and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of the
instrumental witnesses.
Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute Sale16 dated
May 11, 2000. Thus, the consequent cancellation of TCT No. T-72782 and issuance on May 16, 2000 of
TCT No. T-327617 over subject lot in the name of Eduardo.
As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo,
checked, so each claimed, the title of their respective predecessors-in-interest with the Baguio Registry
and discovered said title to be free and unencumbered at the time each purchased the property.
Furthermore, respondent Eduardo, before buying the property, was said to have inspected the same and
found it unoccupied by the Orduñas.18
Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent
a letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically
occupying the subject lot vacate the premises or face the prospect of being ejected.19
Learning of Eduardo’s threat, petitioners went to the residence of Gabriel Jr. at No. 34 Dominican Hill,
Baguio City. There, they met Gabriel Jr.’s estranged wife, Teresita, who informed them about her having
filed an affidavit-complaint against her husband and the Cids for falsification of public documents on
March 30, 2000. According to Teresita, her signature on the June 30, 1999 Gabriel Jr.–Bernard deed of
sale was a forgery. Teresita further informed the petitioners of her intent to honor the aforementioned
1996 verbal agreement between Gabriel Sr. and Antonita and the partial payments they gave her father-in-
law and her husband for the subject lot.
On July 3, 2001, petitioners, joined by Teresita, filed a Complaint20 for Annulment of Title,
Reconveyance with Damages against the respondents before the RTC, docketed as Civil Case No. 4984-
R, specifically praying that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be annulled.
Corollary to this prayer, petitioners pleaded that Gabriel Jr.’s title to the lot be reinstated and that
petitioners be declared as entitled to acquire ownership of the same upon payment of the remaining
balance of the purchase price therefor agreed upon by Gabriel Sr. and Antonita.
While impleaded and served with summons, Gabriel Jr. opted not to submit an answer.
Ruling of the RTC
By Decision dated May 26, 2003, the RTC ruled for the respondents, as defendants a quo, and against the
petitioners, as plaintiffs therein, the dispositive portion of which reads:
WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit. The four (4) plaintiffs are
hereby ordered by this Court to pay each defendant (except Armando Gabriel, Jr., Benjamin F. Cid, and
Eduardo J. Fuentebella who did not testify on these damages), Moral Damages of Twenty Thousand
(P20,000.00) Pesos, so that each defendant shall receive Moral Damages of Eighty Thousand
(P80,000.00) Pesos each. Plaintiffs shall also pay all defendants (except Armando Gabriel, Jr., Benjamin
F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Exemplary Damages of Ten
Thousand (P10,000.00) Pesos each so that each defendant shall receive Forty Thousand (P40,000.00)
Pesos as Exemplary Damages. Also, plaintiffs are ordered to pay each defendant (except Armando
Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Fifty
Thousand (P50,000.00) Pesos as Attorney’s Fees, jointly and solidarily.
Cost of suit against the plaintiffs.21
On the main, the RTC predicated its dismissal action on the basis of the following grounds and/or
premises:
1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision of Article 154422
of the Civil Code, which provides that in case of double sale, the party in good faith who is able to
register the property has better right over the property;
2. Under Arts. 135623 and 135824 of the Code, conveyance of real property must be in the proper form,
else it is unenforceable;
3. The verbal sale had no adequate consideration; and
4. Petitioners’ right of action to assail Eduardo’s title prescribes in one year from date of the issuance of
such title and the one-year period has already lapsed.
From the above decision, only petitioners appealed to the CA, their appeal docketed as CA-G.R. CV No.
79680.
The CA Ruling
On December 4, 2006, the appellate court rendered the assailed Decision affirming the RTC decision. The
fallo reads:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the 26 May 2003
Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No. 4989-R is hereby
AFFIRMED.
SO ORDERED.25
Hence, the instant petition on the submission that the appellate court committed reversible error of law:
1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY ARMANDO GABRIEL, SR.
AND RESPONDENT ARMANDO GABRIEL, JR. TO THE PETITIONERS IS UNENFORCEABLE.
2. xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT BY RESPONDENT ARMANDO
GABRIEL, JR. TO RESPONDENT BERNARD BANTA AND ITS SUBSEQUENT SALE BY THE
LATTER TO HIS CO-RESPONDENTS ARE NULL AND VOID.
3. xxx IN NOT FINDING THAT THE RESPONDENTS ARE BUYERS IN BAD FAITH
4. xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT BETWEEN GABRIEL, SR. AND
RESPONDENT GABRIEL, JR. AND THE PETITIONERS HAS NO ADEQUATE CONSIDERATION.
5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY PRESCRIBED.
6. xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY’S FEES.26
The Court’s Ruling
The core issues tendered in this appeal may be reduced to four and formulated as follows, to wit: first,
whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of
Frauds; second, whether or not such sale has adequate consideration; third, whether the instant action has
already prescribed; and, fourth, whether or not respondents are purchasers in good faith.
The petition is meritorious.
Statute of Frauds Inapplicable to Partially Executed Contracts
It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the purchase
price payable on installment basis. Gabriel Sr. appeared to have been a recipient of some partial
payments. After his death, his son duly recognized the sale by accepting payments and issuing what may
be considered as receipts therefor. Gabriel Jr., in a gesture virtually acknowledging the petitioners’
dominion of the property, authorized them to construct a fence around it. And no less than his wife,
Teresita, testified as to the fact of sale and of payments received.
Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying the
house they earlier constructed thereon. They later declared the property for tax purposes, as evidenced by
the issuance of TD 96-04012-111087 in their or Antonita’s name, and paid the real estates due thereon,
obviously as sign that they are occupying the lot in the concept of owners.
Given the foregoing perspective, Eduardo’s assertion in his Answer that "persons appeared in the
property"27 only after "he initiated ejectment proceedings"28 is clearly baseless. If indeed petitioners
entered and took possession of the property after he (Eduardo) instituted the ejectment suit, how could
they explain the fact that he sent a demand letter to vacate sometime in May 2000?
With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of Frauds
bars the enforcement of the verbal sale contract between Gabriel Sr. and Antonita.
The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the Statute of
Frauds.
We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in Article 1403,
par. (2),29 of the Civil Code applies only to executory contracts, i.e., those where no performance has yet
been made. Stated a bit differently, the legal consequence of non-compliance with the Statute does not
come into play where the contract in question is completed, executed, or partially consummated.30
The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest
therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and
subscribed by the party or his agent. However, where the verbal contract of sale has been partially
executed through the partial payments made by one party duly received by the vendor, as in the
present case, the contract is taken out of the scope of the Statute.
The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be charged.31 The Statute requires certain
contracts to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of
Frauds" is descriptive of statutes that require certain classes of contracts to be in writing. The Statute does
not deprive the parties of the right to contract with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render it enforceable.32
Since contracts are generally obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present,33 the Statute simply provides the method by which
the contracts enumerated in Art. 1403 (2) may be proved but does not declare them invalid because they
are not reduced to writing. In fine, the form required under the Statute is for convenience or evidentiary
purposes only.
There can be no serious argument about the partial execution of the sale in question. The records show
that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial
payments of the purchase price. These payments were duly receipted by Gabriel Jr. To recall, in his letter
of May 1, 1997, Gabriel, Jr. acknowledged having received the aggregate payment of PhP 65,000 from
petitioners with the balance of PhP 60,000 still remaining unpaid. But on top of the partial payments thus
made, possession of the subject of the sale had been transferred to Antonita as buyer. Owing thus to its
partial execution, the subject sale is no longer within the purview of the Statute of Frauds.
Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of
benefits under the contract.34 Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial
payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondents—successive
purchasers of subject lots—could plausibly set up the Statute of Frauds to thwart petitioners’ efforts
towards establishing their lawful right over the subject lot and removing any cloud in their title. As it
were, petitioners need only to pay the outstanding balance of the purchase price and that would complete
the execution of the oral sale.

G.R. No. 179597 February 3, 2014

IGLESIA FILIPINA INDEPENDIENTE, Petitioner,
vs.
HEIRS of BERNARDINO TAEZA, Respondents.
DECISION
PERALTA, J.:
This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the
Decision1 of the Court of Appeals (CA), promulgated on June 30, 2006, and the Resolution2 dated
August 23, 2007, denying petitioner's motion for reconsideration thereof, be reversed and set aside.
The CA's narration of facts is accurate, to wit:
The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious
corporation, was the owner of a parcel of land described as Lot 3653, containing an area of 31,038 square
meters, situated at Ruyu (now Leonarda), Tuguegarao, Cagayan, and covered by Original Certificate of
Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B, 3653-C, and 3653-D.
Between 1973 and 1974, the plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga, sold
Lot 3653-D, with an area of 15,000 square meters, to one Bienvenido de Guzman.
On February 5, 1976, Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, were
likewise sold by Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-appellee, to the
defendant Bernardino Taeza, for the amount of ₱100,000.00, through installment, with mortgage to secure
the payment of the balance. Subsequently, the defendant allegedly completed the payments.
In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with Mortgage was filed by
the Parish Council of Tuguegarao, Cagayan, represented by Froilan Calagui and Dante Santos, the
President and the Secretary, respectively, of the Laymen's Committee, with the then Court of First
Instance of Tuguegarao, Cagayan, against their Supreme Bishop Macario Ga and the defendant
Bernardino Taeza.
The said complaint was, however, subsequently dismissed on the ground that the plaintiffs therein lacked
the personality to file the case.
After the expiration of Rev. Macario Ga's term of office as Supreme Bishop of the IFI on May 8, 1981,
Bishop Abdias dela Cruz was elected as the Supreme Bishop. Thereafter, an action for the declaration of
nullity of the elections was filed by Rev. Ga, with the Securities and Exchange Commission (SEC).
In 1987, while the case with the SEC is (sic) still pending, the plaintiff-appellee IFI, represented by
Supreme Bishop Rev. Soliman F. Ganno, filed a complaint for annulment of the sale of the subject
parcels of land against Rev. Ga and the defendant Bernardino Taeza, which was docketed as Civil Case
No. 3747. The case was filed with the Regional Trial Court of Tuguegarao, Cagayan, Branch III, which in
its order dated December 10, 1987, dismissed the said case without prejudice, for the reason that the issue
as to whom of the Supreme Bishops could sue for the church had not yet been resolved by the SEC.
On February 11, 1988, the Securities and Exchange Commission issued an order resolving the leadership
issue of the IFI against Rev. Macario Ga.
Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land. Consequently,
Transfer Certificate of Title Nos. T-77995 and T-77994 were issued in his name.
The defendant then occupied a portion of the land. The plaintiff-appellee allegedly demanded the
defendant to vacate the said land which he failed to do.
In January 1990, a complaint for annulment of sale was again filed by the plaintiff-appellee IFI, this time
through Supreme Bishop Most Rev. Tito Pasco, against the defendant-appellant, with the Regional Trial
Court of Tuguegarao City, Branch 3.
On November 6, 2001, the court a quo rendered judgment in favor of the plaintiff-appellee.1âwphi1 It
held that the deed of sale executed by and between Rev. Ga and the defendant-appellant is null and void.3
The dispositive portion of the Decision of Regional Trial Court of Tuguegarao City (RTC) reads as
follows:
WHEREFORE, judgment is hereby rendered:
1) declaring plaintiff to be entitled to the claim in the Complaint;
2) declaring the Deed of Sale with Mortgage dated February 5, 1976 null and void;
3) declaring Transfer Certificates of Title Numbers T-77995 and T-77994 to be null and void ab initio;
4) declaring the possession of defendant on that portion of land under question and ownership thereof as
unlawful;
5) ordering the defendant and his heirs and successors-in-interest to vacate the premises in question and
surrender the same to plaintiff; [and]
6) condemning defendant and his heirs pay (sic) plaintiff the amount of ₱100,000.00 as
actual/consequential damages and ₱20,000.00 as lawful attorney's fees and costs of the amount (sic).4
Petitioner appealed the foregoing Decision to the CA. On June 30, 2006, the CA rendered its Decision
reversing and setting aside the RTC Decision, thereby dismissing the complaint.5 The CA ruled that
petitioner, being a corporation sole, validly transferred ownership over the land in question through its
Supreme Bishop, who was at the time the administrator of all properties and the official representative of
the church. It further held that "[t]he authority of the then Supreme Bishop Rev. Ga to enter into a
contract and represent the plaintiff-appellee cannot be assailed, as there are no provisions in its
constitution and canons giving the said authority to any other person or entity."6
Petitioner then elevated the matter to this Court via a petition for review on certiorari, wherein the
following issues are presented for resolution:
A.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY
5, 1976 DEED OF SALE WITH MORTGAGE AS NULL AND VOID;
B.) ASSUMING FOR THE SAKE OF ARGUMENT THAT IT IS NOT VOID, WHETHER OR NOT
THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976 DEED OF SALE
WITH MORTGAGE AS UNENFORCEABLE, [and]
C.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT
TAEZA HEREIN AS BUYER IN BAD FAITH.7
The first two issues boil down to the question of whether then Supreme Bishop Rev. Ga is authorized to
enter into a contract of sale in behalf of petitioner.
Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga had no
authority to give such consent. It emphasized that Article IV (a) of their Canons provides that "All real
properties of the Church located or situated in such parish can be disposed of only with the approval and
conformity of the laymen's committee, the parish priest, the Diocesan Bishop, with sanction of the
Supreme Council, and finally with the approval of the Supreme Bishop, as administrator of all the
temporalities of the Church." It is alleged that the sale of the property in question was done without the
required approval and conformity of the entities mentioned in the Canons; hence, petitioner argues that
the sale was null and void.
In the alternative, petitioner contends that if the contract is not declared null and void, it should
nevertheless be found unenforceable, as the approval and conformity of the other entities in their church
was not obtained, as required by their Canons.
Section 113 of the Corporation Code of the Philippines provides that:
Sec. 113. Acquisition and alienation of property. - Any corporation sole may purchase and hold real estate
and personal property for its church, charitable, benevolent or educational purposes, and may receive
bequests or gifts for such purposes. Such corporation may mortgage or sell real property held by it upon
obtaining an order for that purpose from the Court of First Instance of the province where the property is
situated; x x x Provided, That in cases where the rules, regulations and discipline of the religious
denomination, sect or church, religious society or order concerned represented by such corporation sole
regulate the method of acquiring, holding, selling and mortgaging real estate and personal property, such
rules, regulations and discipline shall control, and the intervention of the courts shall not be necessary.8
Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons of the
Philippine Independent Church,9 that "[a]ll real properties of the Church located or situated in such parish
can be disposed of only with the approval and conformity of the laymen's
committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally with
the approval of the Supreme Bishop, as administrator of all the temporalities of the Church."
Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the
Supreme Bishop but also the concurrence of the laymen's committee, the parish priest, and the Diocesan
Bishop, as sanctioned by the Supreme Council. However, petitioner's Canons do not specify in what form
the conformity of the other church entities should be made known. Thus, as petitioner's witness stated, in
practice, such consent or approval may be assumed as a matter of fact, unless some opposition is
expressed.10
Here, the trial court found that the laymen's committee indeed made its objection to the sale known to the
Supreme Bishop.11 The CA, on the other hand, glossed over the fact of such opposition from the
laymen's committee, opining that the consent of the Supreme Bishop to the sale was sufficient, especially
since the parish priest and the Diocesan Bishop voiced no objection to the sale.12
The Court finds it erroneous for the CA to ignore the fact that the laymen's committee objected to the sale
of the lot in question. The Canons require that ALL the church entities listed in Article IV (a) thereof
should give its approval to the transaction. Thus, when the Supreme Bishop executed the contract of sale
of petitioner's lot despite the opposition made by the laymen's committee, he acted beyond his powers.
This case clearly falls under the category of unenforceable contracts mentioned in Article 1403, paragraph
(1) of the Civil Code, which provides, thus:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
In Mercado v. Allied Banking Corporation,13 the Court explained that:
x x x Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they
are ratified, because either they are entered into without or in excess of authority or they do not comply
with the statute of frauds or both of the contracting parties do not possess the required legal capacity. x x
x.14
Closely analogous cases of unenforceable contracts are those where a person signs a deed of extrajudicial
partition in behalf of co-heirs without the latter's authority;15 where a mother as judicial guardian of her
minor children, executes a deed of extrajudicial partition wherein she favors one child by giving him
more than his share of the estate to the prejudice of her other children;16 and where a person, holding a
special power of attorney, sells a property of his principal that is not included in said special power of
attorney.17
In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had already
obtained a transfer certificate of title in his name over the property in question. Since the person
supposedly transferring ownership was not authorized to do so, the property had evidently been acquired
by mistake. In Vda. de Esconde v. Court of Appeals,18 the Court affirmed the trial court's ruling that the
applicable provision of law in such cases is Article 1456 of the Civil Code which states that "[i]f property
is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property comes." Thus, in Aznar Brothers
Realty Company v. Aying,19 citing Vda. de Esconde,20 the Court clarified the concept of trust involved
in said provision, to wit:
Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court
stated:
A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust,
confidence is reposed in one person who is named a trustee for the benefit of another who is called the
cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A
constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While
in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a
constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee
neither accepts any trust nor intends holding the property for the beneficiary.
The concept of constructive trusts was further elucidated in the same case, as follows:
. . . implied trusts are those which, without being expressed, are deducible from the nature of the
transaction as matters of intent or which are superinduced on the transaction by operation of law as
matters of equity, independently of the particular intention of the parties. In turn, implied trusts are either
resulting or constructive trusts. These two are differentiated from each other as follows:
Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title
determines the equitable title or interest and are presumed always to have been contemplated by the
parties. They arise from the nature of circumstances of the consideration involved in a transaction
whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal
title for the benefit of another. On the other hand, constructive trusts are created by the construction of
equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to
intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to
property which he ought not, in equity and good conscience, to hold. (Italics supplied)
A constructive trust having been constituted by law between respondents as trustees and petitioner as
beneficiary of the subject property, may respondents acquire ownership over the said property? The Court
held in the same case of Aznar,21 that unlike in express trusts and resulting implied trusts where a trustee
cannot acquire by prescription any property entrusted to him unless he repudiates the trust, in constructive
implied trusts, the trustee may acquire the property through prescription even if he does not repudiate the
relationship. It is then incumbent upon the beneficiary to bring an action for reconveyance before
prescription bars the same.
In Aznar,22 the Court explained the basis for the prescriptive period, to wit:
x x x under the present Civil Code, we find that just as an implied or constructive trust is an offspring of
the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the title
thereto in favor of the true owner. In this context, and vis-á-vis prescription, Article 1144 of the Civil
Code is applicable.
Article 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.
xxx xxx xxx
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.
It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the
deed or the date of the issuance of the certificate of title over the property, x x x.23
Here, the present action was filed on January 19, 1990,24 while the transfer certificates of title over the
subject lots were issued to respondents' predecessor-in-interest, Bernardino Taeza, only on February 7,
1990.25
Clearly, therefore, petitioner's complaint was filed well within the prescriptive period stated above, and it
is only just that the subject property be returned to its rightful owner.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30, 2006,
and its Resolution dated August 23, 2007, are REVERSED and SET ASIDE. A new judgment is hereby
entered:
(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of the lots
covered by Transfer Certificates of Title Nos. T-77994 and T-77995;
(2) ORDERING respondents to execute a deed reconveying the aforementioned lots to petitioner;
(3) ORDERING respondents and successors-in-interest to vacate the subject premises and surrender the
same to petitioner; and
(4) Respondents to PAY costs of suit.

R. No. 141877 August 13, 2004

GREGORIO F. AVERIA and SYLVANNA A. VERGARA, representing the absentee heir TERESA
AVERIA, petitioners,
vs.
DOMINGO AVERIA, ANGEL AVERIA, FELIPE AVERIA, and the Heirs of FELIMON F. AVERIA,
respondents.

DECISION

CARPIO-MORALES, J.:
Macaria Francisco (Macaria) and Marcos Averia contracted marriage which bore six issues, namely:
Gregorio, Teresa, Domingo, Angel, Felipe and Felimon.
Macaria was widowed and she contracted a second marriage with Roberto Romero (Romero) which bore
no issue.
Romero died on February 28, 1968,1 leaving three adjoining residential lots located at Sampaloc, Manila.
In a Deed of Extrajudicial Partition and Summary Settlement of the Estate of Romero, the house and lot
containing 150 square meters at 725 Extremadura Street, Sampaloc was apportioned to Macaria.
Transfer Certificate of Title (TCT) No. 93310 covering the Extremadura property was accordingly issued
in the name of Macaria.2
Alleging that fraud was employed by her co-heirs in the partition of the estate of Romero, Macaria filed
on June 1, 1970 an action for annulment of title and damages before the Court of First Instance of Manila
against her co-heirs Domingo Viray, et al., docketed as Civil Case No. 79955. Macaria was represented in
the case by Atty. Mario C. R. Domingo. The case was pending litigation for about ten years until the
decision of the Court of Appeals which adjudged Macaria as entitled to an additional 30 square meters of
the estate of Romero became final and executory.
Macaria’s son Gregorio and his family and daughter Teresa’s family lived with her at Extremadura until
her death on March 28, 1983.3
Close to six years after Macaria’s demise or on January 19, 1989, her children Domingo, Angel and
Felipe, along with Susan Pelayo vda. de Averia (widow of Macaria’s deceased son Felimon), filed before
the Regional Trial Court (RTC) of Manila a complaint against their brother Gregorio and niece Sylvanna
Vergara "representing her absentee mother" Teresa Averia, for judicial partition of the Extremadura
property inclusive of the 30 square meters judicially awarded.4 The case which was docketed as Civil
Case No. 89-47554 is now the subject of the present decision.
The defendants Gregorio and Sylvanna Vergara, in their February 8, 1989 Answer to the Complaint,
countered that Gregorio and his late wife Agripina spent for the litigation expenses in Civil Case No.
79955, upon the request of Macaria, and the couple spent not less P20,000.00 for the purpose "which
amount due to the inflation of the Philippine peso is now equivalent to more or less P200,000.00;" that
from 1974 to 1983, Macaria was bedridden and it was Gregorio’s wife Agripina who nursed and took care
of her; that before Macaria died, she in consideration of the court and other expenses which were defrayed
by Gregorio and his wife in prosecuting Civil Case No. 79955 and of "the kindness of the said couple in
caring for her," verbally sold to the spouses Gregorio and Agripina one-half (½) of her Extremadura
property.
Gregorio and Sylvanna further countered that the plaintiff Domingo sold and assigned to the spouses
Gregorio and Agripina his one sixth (1/6) share in the remaining ½ portion of the Extremadura property.
Gregorio and Sylvanna concluded in their Answer that the plaintiffs are not co-owners of the
Extremadura property as ½ thereof is solely owned by Gregorio and 1/6 of the other half representing
Domingo’s share thereof had already been sold and assigned by him (Domingo) to Gregorio and his wife
who died on May 20, 1987.5
During the pendency of the case or on June 7, 1989, Macaria’s son Felipe executed a Waiver-Affidavit6
waiving his "share" in the property subject of litigation in favor of his co-heirs.
After trial, the trial court, Branch 31 RTC of Manila, rendered a decision of July 19, 19917 crediting the
version of the defendants in this wise, quoted verbatim:
The defendant Gregorio Averia, Sr. had established that he had paid plaintiff Domingo Averia P10,000.00
although denied by the latter but Domingo Averia did not deny receiving the amount of P5,000.00 on July
10, 1983 given by Gregorio Averia’s wife Agrifina. According to the testimony of defendant’s witness,
plaintiff Domingo Averia sold on July 10, 1983 his inheritance share in the property [consisting of a]
house and lot located at 725 Extremadura because he was in . . . need of money and that he was paid
P5,000.00 on July 10, 1983 by Agrifina Averia and another P5,000.00 by Major Gregorio Averia inside
his room at the Makati Police Department three (3) days later. The reason why Domingo Averia became
insistent in claiming his inheritance is the fact that Gregorio Averia refused the request of Domingo
Averia and his children to occupy the portion of subject house which was sold to him by their mother and
it was for this reason that they sought the assistance of the Citizens Legal Assistance Office (CLAO),
Atty. Benjamin Roxas in writing defendant Gregorio Averia to allow him (Domingo Averia) to occupy a
portion of subject house but plaintiff Domingo Averia did not tell his brothers and sisters that he had
already sold his 1/6 share of the inheritance although verbally in favor of Gregorio Averia and his wife.
In the light of the foregoing, the Court, after a circumspect assessment of the evidence presented by both
parties, hereby declares, that defendant Gregorio Averia then a major of police precinct in Makati was the
person responsible for the expenses in litigation in Civil Case No. 79955, involving the property and their
mother had indeed awarded him with ½ portion of the property and that Domingo Averia sold 1/6 of [his]
share of the remaining ½ portion of the property to defendant Gregorio. (Underscoring supplied)
Accordingly, the trial court disposed as follows, quoted verbatim:
WHEREFORE, the remaining 5/6 of ½ of the property may still be subject of partition among the
remaining heirs but the summary settlement of the remaining estate of the 5/6 remaining portion of the
estate . . . may be sold and the proceeds thereof be distributed among the heirs in accordance with the
aliquot portions of each and every heir of the deceased Macaria Francisco.
Both parties are hereby ordered to shoulder their respective expenses for attorney’s fees and litigation
costs. (Underscoring supplied)
On appeal to the Court of Appeals (CA) wherein the plaintiffs Domingo et al. assigned two errors, to wit:
A. THE TRIAL COURT ERRED IN ITS FINDING THAT THERE WAS A SALE OF ONE-HALF OF
THE DECEASED MACARIA F. AVERIA’S INTEREST AND OWNERSHIP OVER THE SUBJECT
PROPERTY IN FAVOR OF DEFENDANT-APPELLEE GREGORIO AVERIA.
B. THE TRIAL COURT ERRED IN ALLOWING THE RECEPTION OF PAROL EVIDENCE TO THE
EFFECT THAT PLAINTIFF-APPELLANT DOMINGO AVERIA HAD ALREADY DISPOSED OF
HIS ONE SIXTH (1/6) SHARE OF THE SUBJECT PROPERTY IN FAVOR OF DEFENDANT-
APPELLEE GREGORIO AVERIA8 (Emphasis supplied),
the appellate court reversed the decision of the trial court.
In reversing the trial court, the appellate court, noting that the alleged transfers made by Macaria and
Domingo in favor of Gregorio were bereft of any written memoranda, held that it was error for the trial
court to rely solely on the evidence adduced by the defendants consisting of the testimonies of Gregorio,
Veronica Bautista, Sylvanna Vergara Clutario, Atty. Mario C.R. Domingo, Felimon Dagondon and
Gregorio Averia, Jr. The CA explained its ruling in this wise:
[T]he alleged conveyances purportedly made by Macaria Francisco and plaintiff-appellant Domingo
Averia are unenforceable as the requirements under the Statute of Frauds have not been complied with.
Article 1403, 2(e) of the New Civil Code is explicit:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) x x x
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement thereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party charged, or by this agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
(a) x x x;
(b) x x x;
(e) an agreement for the leasing for a longer period than one year, or for the sale of real property or of an
interest therein;
(f) x x x"
The two (2) transactions in question being agreements for the sale of real property or of an interest therein
are in clear contravention of the prescription that it must be in writing and subscribed by the party charged
or by an agent thereof. Hence, the strong insistence by defendants-appellees on the verbal conveyances
cannot be made the basis for the alleged ownership over the undivided interests claimed by Gregorio
Averia.
The parol evidence upon which the trial court anchored its award in favor of defendant-appellee Gregorio
Averia is irregular as such kind of evidence is foreclosed by Article 1403 of the Civil Code that no
evidence of the alleged agreements can be received without the writing of secondary evidence which
embodies the sale of the real property. The introduction of the testimonies of Gregorio Averia’s witnesses
were timely objected to by plaintiffs-appellants. Since the testimonies of defendants-appellees’ witnesses
are inadmissible, then such exclusion has pulled the rug under the assailed decision of the trial court and it
has no more leg to stand on.
In the vain attempt to salvage the situation, defendants-appellees however argue that the Article 1403 or
the Statute of Frauds does not apply because the same only refers to purely executory contracts and not to
partially or completely executed contracts.
This contention is untenable. It was not amply demonstrated how such alleged transfers were executed
since plaintiffs-appellants have vigorously objected and opposed the claims of ownership by defendants-
appellees. He who asserts a fact or the affirmative of an issue has the burden of proving it. Defendants-
appellees miserably failed in this respect.
While this Court cannot discount the fact that either defendant-appellee Gregorio Averia or plaintiff-
appellant Domingo Averia may have valid claims against the estate of Macaria Francsico, such matter can
best be threshed out in the proceedings for partition before the court a quo bearing in mind that such
partition is subject to the payment of the debts of the deceased under Article 1078 of the Civil Code.9
(Citations omitted; Emphasis and underscoring supplied)
The appellate court thus remanded the case to the trial court.
WHEREFORE, the decision dated July 19, 1991 is reversed and set aside. The case is remanded to the
court a quo which is directed to effect the partition of the subject property or if not, possible, sell the
entire lot and distribute the proceeds of the sale based on equal shares among the children of the late
Macaria Francisco after debts of the said deceased are paid or settled pursuant to Article 1078 of the Civil
Code.10 (Underscoring supplied)
Gregorio and Sylvanna’s motion for reconsideration having been denied by the appellate court, they
lodged the Petition for Review on Certiorari at bar upon the following assignment of errors:
I. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THERE WAS
NO SALE OF ONE-HALF (1/2) OF THE DECEASED MACARIA F. AVERIA’S INTEREST AND
OWNERSHIP OVER THE SUBJECT PROPERTY IN FAVOR OF PETITIONER GREGORIO F.
AVERIA.
II. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT THE
RECEPTION OF PAROL EVIDENCE TO THE EFFECT THAT RESPONDENT DOMINGO AVERIA
HAD ALREADY SOLD HIS ONE SIXTH (1/6) SHARE IN THE SUBJECT PROPERTY IN FAVOR
OF PETITIONER GREGORIO AVERIA IS NOT IN ACCORDANCE WITH LAW.11
Petitioners contend that contrary to the findings of the Court of Appeals, they were able to amply
establish, by the testimonies of credible witnesses, the conveyances to Gregorio of ½ of the Sampaloc
property and 1/6 of the remaining half representing the share of Domingo.12
With respect to the application by the appellate court of the Statute of Frauds, petitioners contend that the
same refers only to purely executory contracts and not to partially or completely executed contracts as in
the instant case. The finding of the CA that the testimonies of petitioners’ witnesses were timely objected
to by respondents is not, petitioners insist, borne out in the records of the case except with respect to the
testimony of Gregorio.13
Petitioners thus conclude that respondents waived any objection to the admission of parol evidence,
hence, it is admissible and enforceable14 following Article 140515 of the Civil Code.16
The Court finds for petitioner.
Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him by Macaria of
the property, the testimonies of petitioners’ witnesses Sylvanna Vergara Clutario and Flora Lazaro Rivera
bearing on the same matter were not objected to by respondents. Just as the testimonies of Gregorio, Jr.
and Veronica Bautista bearing on the receipt by respondent Domingo on July 23, 1983 from Gregorio’s
wife of P5,000.00 representing partial payment of the P10,000.00 valuation of his (Domingo’s) 1/6 share
in the property, and of the testimony of Felimon Dagondon bearing on the receipt by Domingo of
P5,000.00 from Gregorio were not objected to. Following Article 1405 of the Civil Code,17 the contracts
which infringed the Statute of Frauds were ratified by the failure to object to the presentation of parol
evidence, hence, enforceable.
ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
xxx
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of
an interest therein;
x x x (Emphasis and underscoring supplied),
Contrary then to the finding of the CA, the admission of parol evidence upon which the trial court
anchored its decision in favor of respondents is not irregular and is not foreclosed by Article 1405.
In any event, the Statute of Frauds applies only to executory contracts and not to contracts which are
either partially or totally performed.18 In the case at bar, petitioners claimed that there was total
performance of the contracts, full payment of the objects thereof having already been made and the
vendee Gregorio having, even after Macaria’s death in 1983, continued to occupy the property until and
after the filing on January 19, 1989 of the complaint subject of the case at bar as in fact he is still
occupying it.
In proving the fact of partial or total performance, oral evidence may be received as what the trial court in
the case at bar did. Noted civilist Arturo M. Tolentino elucidates on the matter:
The statute of frauds is not applicable to contracts which are either totally or partially performed, on the
theory that there is a wide field for the commission of frauds in executory contracts which can only be
prevented by requiring them to be in writing, a fact which is reduced to a minimum in executed contracts
because the intention of the parties becomes apparent by their execution, and execution concludes, in
most cases, the rights of the parties. However it is not enough for a party to allege partial
performance in order to render the Statute of Frauds inapplicable; such partial performance must
be duly proved. But neither is such party required to establish such partial performance by
documentary proof before he could have the opportunity to introduce oral testimony on the
transaction. The partial performance may be proved by either documentary or oral evidence.19
(Emphasis, underscoring and italics supplied)
The testimonies of petitioners’ witnesses being credible and straightforward, the trial court did not err in
giving them credence.
The testimony of Sylvana Vergara Clutario, daughter of Teresa, in fact was more than sufficient to prove
the conveyance of half of the subject property by Macaria to Gregorio.
ATTY. DOMINGO:
Q: Are you the same Sylvana Vergara representing the defendant Teresa Averia in this case?
WITNESS:
A: Yes, sir.
Q: Now on February 28, 1972, about 5:30 in the afternoon, where were you?
A: As far as I can remember, I was inside my residence at 725 Extremadura at that date, and time.
Q: On that date and time, where were you residing?
A: At said address, 725 Extremadura Street, that time and date at 5:30 in the afternoon.
Q: Who were your companions if you have any?
A: I was there with my brothers and sisters and Uncle Gregorio and Auntie Agripina and the children and
my grand mother and also the lady who is leading in the prayers because on that date it is the anniversary
of the death of my grandfather.
Q: What is the name of your grandmother?
A: Macaria Averia, sir.
Q: Now, this Gregorio Averia whom you identified to be your Uncle, is he the same Gregorio Averia who
is also the defendant in this case?
WITNESS:
A: The same, sir.
Q: What is the name of your grandfather whom you said whose death anniversary you are then
celebrating on that date?
A: Roberto Romero, sir.
Q: What actually you were doing that time 5:30?
A: We had a gathering and merienda in recollection of the celebration (sic) of the death of my
grandfather, sir.
Q: When you said you were eating then, where were you eating then?
A: It was beside my grandmother.
Q: Where?
A: At the dining room, sir.
Q: So you were sitting at the dining table all of you?
A: Yes, sir the others were a little bit near the table.
Q: Who were seated in the dining table?
A: The Spouses Gregorio and Agripina, my sister Beth and my cousins and my Lola Macaria.
Q: When you were then seated in taking that ginatan as you stated what transpired?
A: Somebody called up and the one who called up was the Secretary of a lawyer and they were asking for
[payment of] expenses in connection with . . . [Criminal Case No. 79955].
Q: You said that it was Agripina who was the one who answered that telephone call. After answering it,
what did she say to anyone seated in that table?
A: Agripina said if Gregorio has some money, he will pay them but Gregorio said he will be responsible
for the expenses.
Q: Did you come to know how much was amount being asked?
A: P500.00, sir.
Q: What else happened after Gregorio said that he would answer for the expenses to be sent to the
lawyer?
A: My Lola said that she was embarrassed and ashame[d] because at that time she d[id] not have any
money and it was the couple who was taking the expenses of the case.
Q: When you said "Lola," you are referring to Macaria Averia?
A: Yes, sir.
Q: What else transpired?
A: Because of her embarrassment, she told [them that] one half (1/2) of the House and Lot will be given
to the couple to cover the expenses of the case.
ATTY. DOMINGO:
Q: To whom did your grandmother say this?
A: Well, she said that to Gregorio and Agripina and Gregorio told her, if that is what you wish, I will
agree to your proposal.
Q: What was the reply of your grand mother?
A: My Lola told Gregorio that since you agree, you better prepare all the documents and we will make
ready the documents for the division or partition.
Q: Do you know what House and Lot one half (1/2) of which your grand mother was given (sic) to your
Uncle and Auntie . . .?
A: She is referring to the House and Lot where I used to live before.
Q: You are referring to the House and Lot located at 725 Extremadura Street, Sampaloc, Manila.
A: Yes, sir.
x x x20 (Emphasis and underscoring supplied)
Not only on account of Sylvana’s manner of testifying that her testimony should be given weight. Her
testimony was against the interest of her mother Teresa whom she represented, her mother being also an
heir of Macaria. If the transfer by Macaria to Gregorio of ½ of the property is upheld as valid and
enforceable, then the share of the other heirs including Sylvanna’s mother would considerably be reduced.
That Atty. Mario C. R. Domingo who was admittedly Macaria’s counsel in Civil Case No. 79955 (which,
as priorly reflected, entailed a period of ten years in court), affirmed on the witness stand that Gregorio
and his wife were the ones who paid for his attorney’s fees amounting to P16,000.0021 should no doubt
strongly lend credence to Gregorio’s claim to that effect.
As to the sale of Domingo’s 1/6 share to Gregorio, petitioners were able to establish said transaction by
parol evidence, consisting of the testimonies of Gregorio Averia, Jr.,22 Veronica Averia23 and Felimon
Dagondon24 the presentation of which was, it bears repeating, not objected to.
Albeit Domingo never denied having received the total amount of P10,000.00 from Gregorio and his
wife, he denied having sold to Gregorio his interest over the property. Such disclaimer cannot, however,
prevail over the categorical, positive statements of petitioners’ above-named witnesses.
In sum, not only did petitioners’ witnesses prove, by their testimonies, the forging of the contracts of sale
or assignment. They proved the full performance or execution of the contracts as well.
WHEREFORE, the petition is hereby GRANTED. The January 31, 2000 Decision of the Court of
Appeals in CA-G.R. No. 44704 is hereby SET ASIDE.
The case is hereby remanded to the trial court, Branch 31 of the RTC of Manila, for appropriate action,
following Section 2 of Rule 69 of the Rules of Civil Procedure

Philippine Banking Corporation vs. Lui She

G.R. No. L-17587 September 12, 1967

CASTRO, J.

Parties of the Case:

PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON
FAUSTINO, deceased, (plaintiff-appellant)
LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng, deceased,
(defendant-appellant)

Keyword: Leasing, lease for 50 years, lease for 99 years

Summary: Justina Santos leased her land in favor of Wong for 50 years and an option to sell it to him
once he acquired philippine citizenship.

Facts: Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of
land in Manila. This parcel, with an area of 2,582.30 square meters, is located on Rizal Avenue and opens
into Florentino Torres street at the back and Katubusan street on one side. In it are two residential houses
with entrance on Florentino Torres street and the Hen Wah Restaurant with entrance on Rizal Avenue.
The sisters lived in one of the houses, while Wong Heng, a Chinese, lived with his family in the
restaurant. Wong had been a long-time lessee of a portion of the property, paying a monthly rental of
P2,620.

On September 22, 1957 Justina Santos became the owner of the entire property as her sister died with no
other heir. Then already well advanced in years, being at the time 90 years old, blind, crippled and an
invalid, she was left with no other relative to live with. Her only companions in the house were her 17
dogs and 8 maids. Her otherwise dreary existence was brightened now and then by the visits of Wong's
four children who had become the joy of her life. Wong himself was the trusted man to whom she
delivered various amounts for safekeeping, including rentals from her property at the corner of Ongpin
and Salazar streets and the rentals which Wong himself paid as lessee of a part of the Rizal Avenue
property. Wong also took care of the payment; in her behalf, of taxes, lawyers' fees, funeral expenses,
masses, salaries of maids and security guard, and her household expenses.

Justina Santos then executed on a contract of lease in favor of Wong, covering the portion then already
leased to him and another portion fronting Florentino Torres street. The lease was for 50 years, although
the lessee was given the right to withdraw at any time from the agreement.

On December 21 she executed another contract giving Wong the option to buy the leased premises for
P120,000, payable within ten years at a monthly installment of P1,000. The option, written in Tagalog,
imposed on him the obligation to pay for the food of the dogs and the salaries of the maids in her
household, the charge not to exceed P1,800 a month. The option was conditioned on his obtaining
Philippine citizenship, a petition for which was then pending in the Court of First Instance of Rizal.

It appears, however, that this application for naturalization was withdrawn when it was discovered that he
was not a resident of Rizal. On October 28, 1958 she filed a petition to adopt him and his children on the
erroneous belief that adoption would confer on them Philippine citizenship. The error was discovered and
the proceedings were abandoned.

In two wills executed on August 24 and 29, 1959, she bade her legatees to respect the contracts she had
entered into with Wong, but in a codicil of a later date (November 4, 1959) she appears to have a change
of heart. Claiming that the various contracts were made by her because of machinations and inducements
practiced by him, she now directed her executor to secure the annulment of the contracts.

Issue: Whether or not the contracts with Wong were valid

Held: NO.

Ratio: the contracts show nothing that is necessarily illegal, but considered collectively, they reveal an
insidious pattern to subvert by indirection what the Constitution directly prohibits. To be sure, a
lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real
property on condition that he is granted Philippine citizenship.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of
which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself
in stages not only of the right to enjoy the land but also of the right to dispose of it— rights the sum total
of which make up ownership. If this can be done, then the Constitutional ban against alien landholding in
the Philippines, is indeed in grave peril.

Ruling: ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land
subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented by the
Philippine Banking Corporation; Wong Heng (as substituted by the defendant-appellant Lui She) is
ordered to pay the Philippine Banking Corporation the sum of P56,564.35, with legal interest from the
date of the filing of the amended complaint; and the amounts consigned in court by Wong Heng shall be
applied to the payment of rental from November 15, 1959 until the premises shall have been vacated by
his heirs. Costs against the defendant-appellant.

Doctrine: Even if the contract appears to be valid, if the provisions is against a constitutional prohibition,
the same should be considered null and void.
JULIAN FRANCISCO et.al. vs. PASTOR HERRERA
[G.R. No. 139982; November 21, 2002] Obligations and Contracts| Voidable Contracts| Ratification
FACTS:
Eligio Herrera, Sr., father of respondent Pastor Herrera, owned two parcels of land consisting of 500 sq.
m. and 451 sq. m. located at Cainta, Rizal. The two parcels of land was sold at 1M and 750K to the
petitioner. Pastor, contending that the contract price for the two parcels of land was grossly inadequate
tried to negotiate with petitioner to increase the purchase price. When petitioner refused, respondent then
filed a complaint for annulment of sale. Pastor alleged that the contract of sale was null and void on the
ground that Eligio, Sr., at that time, was already afflicted with senile dementia. Petitioner, on the other
hand, contended that respondent had effectively ratified both contracts of sales, by receiving the
consideration offered in each transaction.
RTC ruled that the contract of sale is null and void. CA affirmed, hence, this petition.
ISSUE:
Are the assailed contracts of sale void or merely voidable and hence capable of being ratified?
HELD:
In the present case, vendor Eligio, Sr. entered into an agreement with petitioner, but that the former’s
capacity to consent was vitiated by senile dementia. Hence, it was ruled that the assailed contracts are not
void or inexistent per se; rather, these are contracts that are valid and binding unless annulled through a
proper action filed in court.
An annullable contract may be rendered perfectly valid by ratification, which can be express or implied.
Implied ratification may take the form of accepting and retaining the benefits of a contract. As in this
case, respondent negotiated for the increase of the purchase price while receiving the installment
payments from the petitioner. Clearly, respondent was agreeable to the contract. Further, there is no
showing that respondent returned the payments or made an offer to do so. This bolsters the view that
indeed there was ratification.
Petition is GRANTED. The two contracts of sale is declared VALID

Agan v PIATCO G.R. No. 155001. May 5, 2003

7/6/2010
0 Comments

Facts: In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether the
present airport can cope with the traffic development up to the year 2010.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of Asia's Emerging
Dragon Corp. (unsolicited proposal dated Oct. 5, 1994) to the National Economic and Development
Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to NEDA on December
13, 1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) — Technical
Board favorably endorsed the project to the ICC — Cabinet Committee which approved the same, subject
to certain conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution
No. 2 which approved the NAIA IPT III Project.

On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made.
Upon the request of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the
PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the BOT
Law, only the proposed Annual Guaranteed Payment submitted by the challengers would be revealed to
AEDC, and that the challengers' technical and financial proposals would remain confidential. The PBAC
also clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents was merely
indicative and that other revenue sources may be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges denominated as Public
Utility Fees would be subject to regulation, and those charges which would be actually deemed Public
Utility Fees could still be revised, depending on the outcome of PBAC's query on the matter with the
Department of Justice.

On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the
Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that
Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification
purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the
operation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised
by the latter, and that based on the documents submitted by Paircargo and the established prequalification
criteria, the PBAC had found that the challenger, Paircargo, had prequalified to undertake the project. The
Secretary of the DOTC approved the finding of the PBAC.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial proposals. Both proponents offered to build the NAIA
Passenger Terminal III for at least $350 million at no cost to the government and to pay the government:
5% share in gross revenues for the first five years of operation, 7.5% share in gross revenues for the next
ten years of operation, and 10% share in gross revenues for the last ten years of operation, in accordance
with the Bid Documents.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure to
match the proposal. AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.

On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-
Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III" (1997
Concession Agreement). The Government granted PIATCO the franchise to operate and maintain the said
terminal during the concession period and to collect the fees, rentals and other charges in accordance with
the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement provided that the
concession period shall be for twenty-five (25) years commencing from the in-service date, and may be
renewed at the option of the Government for a period not exceeding twenty-five (25) years. At the end of
the concession period, PIATCO shall transfer the development facility to MIAA.

During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November
29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacañang Palace, stated that she
will not "honor (PIATCO) contracts which the Executive Branch's legal offices have concluded (as) null
and void."

Issue: Whether the petitioners and the petitioners-in-intervention have standing;

Whether this Court has jurisdiction; and
 Whether the BOT and contracts therein are unconstitutional.

Held: YES.
Ratio: Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs. Agan et al. and
Messrs. Lopez et al.) are confronted with the prospect of being laid off from their jobs and losing their
means of livelihood when their employer-companies are forced to shut down or otherwise retrench and
cut back on manpower. Such development would result from the imminent implementation of certain
provisions in the contracts that tend toward the creation of a monopoly in favor of Piatco, its subsidiaries
and related companies.

Petitioners-in-intervention are service providers in the business of furnishing airport-related services to

international airlines and passengers in the NAIA and are therefore competitors of Piatco as far as that
line of business is concerned. On account of provisions in the Piatco contracts, petitioners-in-intervention
have to enter into a written contract with Piatco so as not to be shut out of NAIA Terminal III and barred
from doing business there. Since there is no provision to ensure or safeguard free and fair competition,
they are literally at its mercy. They claim injury on account of their deprivation of property (business) and
of the liberty to contract, without due process of law.

By way of background, two monopolies were actually created by the Piatco contracts. The first and
more obvious one refers to the business of operating an international passenger terminal in Luzon, the
business end of which involves providing international airlines with parking space for their aircraft, and
airline passengers with the use of departure and arrival areas, check-in counters, information systems,
conveyor systems, security equipment and paraphernalia, immigrations and customs processing areas; and
amenities such as comfort rooms, restaurants and shops.

In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III will be
the only facility to be operated as an international passenger terminal; that NAIA Terminals I and II will
no longer be operated as such; and that no one (including the government) will be allowed to compete
with Piatco in the operation of an international passenger terminal in the NAIA Complex. Given that, at
this time, the government and Piatco are the only ones engaged in the business of operating an
international passenger terminal, I am not acutely concerned with this particular monopolistic situation.

There was however another monopoly within the NAIA created by the subject contracts for Piatco —
in the business of providing international airlines with the following: groundhandling, in-flight catering,
cargo handling, and aircraft repair and maintenance services. These are lines of business activity in which
are engaged many service providers (including the petitioners-in-intervention), who will be adversely
affected upon full implementation of the Piatco Contracts, particularly Sections 3.01(d) and (e) of both
the ARCA and the CA.

Should government pay at all for reasonable expenses incurred in the construction of the Terminal?
Indeed it should, otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular,
its funders, contractors and investors — both local and foreign. After all, there is no question that the
State needs and will make use of Terminal III, it being part and parcel of the critical infrastructure and
transportation-related programs of government.

The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the
cases at bar. The said rule may be relaxed when the redress desired cannot be obtained in the appropriate
courts or where exceptional and compelling circumstances justify availment of a remedy within and
calling for the exercise of this Court's primary jurisdiction. Thus, considering the nature of the
controversy before the Court, procedural bars may be lowered to give way for the speedy disposition of
the instant cases.
 In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo
Consortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for the
construction, operation and maintenance of the NAIA IPT III is null and void.

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-
qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to
meet the financial capability required under the BOT Law and the Bid Documents. They allege that in
computing the ability of the Paircargo Consortium to meet the minimum equity requirements for the
project, the entire net worth of Security Bank, a member of the consortium, should not be considered.
R.A. No. 337, as amended or the General Banking Act that a commercial bank cannot invest in any single
enterprise in an amount more than 15% of its net worth.

We agree with public respondents that with respect to Security Bank, the entire amount of its net worth
could not be invested in a single undertaking or enterprise, whether allied or non-allied in accordance
with the provisions of R.A. No. 337
The PBAC should not be allowed to speculate on the future financial ability of the bidder to undertake
the project on the basis of documents submitted. This would open doors to abuse and defeat the very
purpose of a public bidding.

Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it
contains provisions that substantially depart from the draft Concession Agreement included in the Bid
Documents. They maintain that a substantial departure from the draft Concession Agreement is a
violation of public policy and renders the 1997 Concession Agreement null and void.

If the winning bidder is allowed to later include or modify certain provisions in the contract awarded
such that the contract is altered in any material respect, then the essence of fair competition in the public
bidding is destroyed. A public bidding would indeed be a farce if after the contract is awarded; the
winning bidder may modify the contract and include provisions which are favorable to it that were not
previously made available to the other bidders.

With respect to terminal fees that may be charged by PIATCO, as shown earlier, this was included
within the category of "Public Utility Revenues" under the 1997 Concession Agreement. This
classification is significant because under the 1997 Concession Agreement, "Public Utility Revenues" are
subject to an "Interim Adjustment" of fees upon the occurrence of certain extraordinary events specified
in the agreement. However, under the draft Concession Agreement, terminal fees are not included in the
types of fees that may be subject to "Interim Adjustment."

Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are
denominated in US Dollars while payments to the Government are in Philippine Pesos. In the draft
Concession Agreement, no such stipulation was included. By stipulating that "Public Utility Revenues"
will be paid to PIATCO in US Dollars while payments by PIATCO to the Government are in Philippine
currency under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of
the Philippine Peso, while being effectively insulated from the detrimental effects of exchange rate
fluctuations.
 Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who
have provided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption
by the Government of these liabilities. In fact, nowhere in the said contract does default of PIATCO's
loans figure in the agreement. Such default does not directly result in any concomitant right or obligation
in favor of the Government.

It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its
loan obligations, is obligated to pay "all amounts recorded and from time to time outstanding from the
books" of PIATCO which the latter owes to its creditors. These amounts include "all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other related expenses." This
obligation of the Government to pay PIATCO's creditors upon PIATCO's default would arise if the
Government opts to take over NAIA IPT III. It should be noted, however, that even if the Government
chooses the second option, which is to allow PIATCO's unpaid creditors operate NAIA IPT III, the
Government is still at a risk of being liable to PIATCO's creditors should the latter be unable to designate
a qualified operator within the prescribed period. In effect, whatever option the Government chooses to
take in the event of PIATCO's failure to fulfill its loan obligations, the Government is still at a risk of
assuming PIATCO's outstanding loans.

As such the Government is virtually at the mercy of PIATCO (that it would not default on its loan
obligations to its Senior Lenders), the Senior Lenders (that they would appoint a qualified nominee or
transferee or agree to some other arrangement with the Government) and the existence of a qualified
nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT III.

G.R. No. 153201 January 26, 2005

JOSE MENCHAVEZ, JUAN MENCHAVEZ JR., SIMEON MENCHAVEZ, RODOLFO
MENCHAVEZ, CESAR MENCHAVEZ, REYNALDO, MENCHAVEZ, ALMA MENCHAVEZ,
ELMA MENCHAVEZ, CHARITO M. MAGA, FE M. POTOT, THELMA M. REROMA, MYRNA M.
YBAÑEZ, and SARAH M. VILLABER, petitioners,
vs.
FLORENTINO TEVES JR., respondent.
DECISION
PANGANIBAN, J.:
Avoid contract is deemed legally nonexistent. It produces no legal effect. As a general rule, courts leave
parties to such a contract as they are, because they are in pari delicto or equally at fault. Neither party is
entitled to legal protection.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 28, 2001
Decision2 and the April 16, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 51144.
The challenged Decision disposed as follows:
"WHEREFORE, the assailed decision is hereby MODIFIED, as follows:
"1. Ordering [petitioners] to jointly and severally pay the [respondent] the amount of ₱128,074.40 as
actual damages, and ₱50,000.00 as liquidated damages;
"2. Dismissing the third party complaint against the third party defendants;
"3. Upholding the counterclaims of the third party defendants against the [petitioners. Petitioners] are
hereby required to pay [the] third party defendants the sum of ₱30,000.00 as moral damages for the
clearly unfounded suit;
"4. Requiring the [petitioners] to reimburse the third party defendants the sum of ₱10,000.00 in the
concept of attorney’s fees and appearance fees of ₱300.00 per appearance;
"5. Requiring the [petitioners] to reimburse the third party defendants the sum of ₱10,000.00 as
exemplary damages pro bono publico and litigation expenses including costs, in the sum of ₱5,000.00."4
The assailed Resolution denied petitioners’ Motion for Reconsideration.
The Facts
On February 28, 1986, a "Contract of Lease" was executed by Jose S. Menchavez, Juan S. Menchavez
Sr., Juan S. Menchavez Jr., Rodolfo Menchavez, Simeon Menchavez, Reynaldo Menchavez, Cesar
Menchavez, Charito M. Maga, Fe M. Potot, Thelma R. Reroma, Myrna Ybañez, Sonia S. Menchavez,
Sarah Villaver, Alma S. Menchavez, and Elma S. Menchavez, as lessors; and Florentino Teves Jr. as
lessee.l^vvphi1.net The pertinent portions of the Contract are herein reproduced as follows:
"WHEREAS, the LESSORS are the absolute and lawful co-owners of that area covered by FISHPOND
APPLICATION No. VI-1076 of Juan Menchavez, Sr., filed on September 20, 1972, at Fisheries Regional
Office No. VII, Cebu City covering an area of 10.0 hectares more or less located at Tabuelan, Cebu;
xxxxxxxxx
"NOW, THEREFORE, for and in consideration of the mutual covenant and stipulations hereinafter set
forth, the LESSORS and the LESSEE have agreed and hereby agree as follows:
"1. The TERM of this LEASE is FIVE (5) YEARS, from and after the execution of this Contract of
Lease, renewable at the OPTION of the LESSORS;
"2. The LESSEE agrees to pay the LESSORS at the residence of JUAN MENCHAVEZ SR., one of the
LESSORS herein, the sum of FORTY THOUSAND PESOS (₱40,000.00) Philippine Currency, annually
x x x;
"3. The LESSORS hereby warrant that the above-described parcel of land is fit and good for the intended
use as FISHPOND;
"4. The LESSORS hereby warrant and assure to maintain the LESSEE in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract;
"5. The LESSORS hereby further warrant that the LESSEE can and shall enjoy the intended use of the
leased premises as FISHPOND FOR THE ENTIRE DURATION OF THE CONTRACT;
"6. The LESSORS hereby warrant that the above-premises is free from all liens and encumbrances, and
shall protect the LESSEE of his right of lease over the said premises from any and all claims whatsoever;
"7. Any violation of the terms and conditions herein provided, more particularly the warranties above-
mentioned, the parties of this Contract responsible thereof shall pay liquidated damages in the amount of
not less than ₱50,000.00 to the offended party of this Contract; in case the LESSORS violated therefor,
they bound themselves jointly and severally liable to the LESSEE;"
x x x x x x x x x.5
On June 2, 1988, Cebu RTC Sheriffs Gumersindo Gimenez and Arturo Cabigon demolished the fishpond
dikes constructed by respondent and delivered possession of the subject property to other parties.6 As a
result, he filed a Complaint for damages with application for preliminary attachment against petitioners.
In his Complaint, he alleged that the lessors had violated their Contract of Lease, specifically the peaceful
and adequate enjoyment of the property for the entire duration of the Contract. He claimed ₱157,184.40
as consequential damages for the demolition of the fishpond dikes, ₱395,390.00 as unearned income, and
an amount not less than ₱100,000.00 for rentals paid.7
Respondent further asserted that the lessors had withheld from him the findings of the trial court in Civil
Case No. 510-T, entitled "Eufracia Colongan and Paulino Pamplona v. Juan Menchavez Sr. and Sevillana
S. Menchavez." In that case involving the same property, subject of the lease, the Menchavez spouses
were ordered to remove the dikes illegally constructed and to pay damages and attorney’s fees.8
Petitioners filed a Third Party Complaint against Benny and Elizabeth Allego, Albino Laput, Adrinico
Che and Charlemagne Arendain Jr., as agents of Eufracia Colongan and Paulino Pamplona. The third-
party defendants maintained that the Complaint filed against them was unfounded. As agents of their
elderly parents, they could not be sued in their personal capacity. Thus, they asserted their own
counterclaims.9
After trial on the merits, the RTC ruled thus:
"[The court must resolve the issues one by one.] As to the question of whether the contract of lease
between Teves and the [petitioners] is valid, we must look into the present law on the matter of fishponds.
And this is Pres. Decree No. 704 which provides in Sec. 24:
‘Lease of fishponds-Public lands available for fishpond development including those earmarked for
family-size fishponds and not yet leased prior to November 9, 1972 shall be leased only to qualified
persons, associations, cooperatives or corporations, subject to the following conditions.
‘1. The lease shall be for a period of twenty five years (25), renewable for another twenty five years;
‘2. Fifty percent of the area leased shall be developed and be producing in commercial scale within three
years and the remaining portion shall be developed and be producing in commercial scale within five
years; both periods begin from the execution of the lease contract;
‘3. All areas not fully developed within five years from the date of the execution of the lease contract
shall automatically revert to the public domain for disposition of the bureau; provided that a lessee who
failed to develop the area or any portion thereof shall not be permitted to reapply for said area or any
portion thereof or any public land under this decree; and/or any portion thereof or any public land under
this decree;
‘4. No portion of the leased area shall be subleased.’
The Constitution, (Sec. 2 & 3, Art. XII of the 1987 Constitution) states:
‘Sec. 2 - All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, forests, or timber, wild life, flora and fauna and other natural
resources are owned by the state.
‘Sec. 3 - Lands of the public domain are classified into agricultural, forest or timber, mineral lands and
national parks. Agricultural lands of the public domain may be further classified by law according to the
uses to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural
lands x x x.’
"As a consequence of these provisions, and the declared public policy of the State under the Regalian
Doctrine, the lease contract between Florentino Teves, Jr. and Juan Menchavez Sr. and his family is a
patent nullity. Being a patent nullity, [petitioners] could not give any rights to Florentino Teves, Jr. under
the principle: ‘NEMO DAT QUOD NON HABET’ - meaning ONE CANNOT GIVE WHAT HE DOES
NOT HAVE, considering that this property in litigation belongs to the State and not to [petitioners].
Therefore, the first issue is resolved in the negative, as the court declares the contract of lease as invalid
and void ab-initio.
"On the issue of whether [respondent] and [petitioners] are guilty of mutual fraud, the court rules that the
[respondent] and [petitioners] are in pari-delicto. As a consequence of this, the court must leave them
where they are found. x x x.
xxxxxxxxx
"x x x. Why? Because the defendants ought to have known that they cannot lease what does not belong to
them for as a matter of fact, they themselves are still applying for a lease of the same property under
litigation from the government.
"On the other hand, Florentino Teves, being fully aware that [petitioners were] not yet the owner[s], had
assumed the risks and under the principle of VOLENTI NON FIT INJURIA NEQUES DOLUS - He who
voluntarily assumes a risk, does not suffer damage[s] thereby. As a consequence, when Teves leased the
fishpond area from [petitioners]- who were mere holders or possessors thereof, he took the risk that it may
turn out later that his application for lease may not be approved.
"Unfortunately however, even granting that the lease of [petitioners] and [their] application in 1972 were
to be approved, still [they] could not sublease the same. In view therefore of these, the parties must be left
in the same situation in which the court finds them, under the principle IN PARI DELICTO NON
ORITOR ACTIO, meaning[:] Where both are at fault, no one can found a claim.
"On the third issue of whether the third party defendants are liable for demolishing the dikes pursuant to a
writ of execution issued by the lower court[, t]his must be resolved in the negative, that the third party
defendants are not liable.l^vvphi1.net First, because the third party defendants are mere agents of Eufracia
Colongan and Eufenio Pamplona, who are the ones who should be made liable if at all, and considering
that the demolition was pursuant to an order of the court to restore the prevailing party in that Civil Case
510-T, entitled: Eufracia Colongan v. Menchavez.
"After the court has ruled that the contract of lease is null and void ab-initio, there is no right of the
[respondent] to protect and therefore[,] there is no basis for questioning the Sheriff’s authority to
demolish the dikes in order to restore the prevailing party, under the principle VIDETUR NEMO
QUISQUAM ID CAPERE QUOD EI NECESSE EST ALII RESTITUERE - He will not be considered as
using force who exercise his rights and proceeds by the force of law.
"WHEREFORE, in view of all foregoing [evidence] and considerations, this court hereby renders
judgment as follows:
"1. Dismissing the x x x complaint by the [respondent] against the [petitioners];
"2. Dismissing the third party complaint against the third party defendants;
"3. Upholding the counterclaims of the third party defendants against the [petitioners. The petitioners] are
hereby required to pay third party defendants the sum of ₱30,000.00 as moral damages for this clearly
unfounded suit;
"4. Requiring the [petitioners] to reimburse the third party defendants the sum of ₱10,000.00 in the
concept of attorney’s fees and appearance fees of ₱300.00 per appearance;
"5. Requiring the [petitioners] to pay to the third party defendants the sum of ₱10,000.00 as exemplary
damages probono publico and litigation expenses including costs, in the sum of ₱5,000.00."10
(Underscoring in the original)
Respondent elevated the case to the Court of Appeals, where it was docketed as CA-GR CV No. 51144.
Ruling of the Court of Appeals
The CA disagreed with the RTC’s finding that petitioners and respondent were in pari delicto. It
contended that while there was negligence on the part of respondent for failing to verify the ownership of
the subject property, there was no evidence that he had knowledge of petitioners’ lack of ownership.11 It
held as follows:
"x x x. Contrary to the findings of the lower court, it was not duly proven and established that Teves had
actual knowledge of the fact that [petitioners] merely usurped the property they leased to him. What
Teves admitted was that he did not ask for any additional document other than those shown to him, one of
which was the fishpond application. In fact, [Teves] consistently claimed that he did not bother to ask the
latter for their title to the property because he relied on their representation that they are the lawful owners
of the fishpond they are holding for lease. (TSN, July 11, 1991, pp. 8-11)"121awphi1.nét
The CA ruled that respondent could recover actual damages in the amount of ₱128,074.40. Citing Article
135613 of the Civil Code, it further awarded liquidated damages in the amount of ₱50,000,
notwithstanding the nullity of the Contract.14
Hence, this Petition.15
The Issues
Petitioners raise the following issues for our consideration:
"1. The Court of Appeals disregarded the evidence, the law and jurisprudence when it modified the trial
court’s decision when it ruled in effect that the trial court erred in holding that the respondent and
petitioners are in pari delicto, and the courts must leave them where they are found;
"2. The Court of Appeals disregarded the evidence, the law and jurisprudence in modifying the decision
of the trial court and ruled in effect that the Regional Trial Court erred in dismissing the respondent’s
Complaint."16
The Court’s Ruling
The Petition has merit.
Main Issue:
Were the Parties in Pari Delicto?
The Court shall discuss the two issues simultaneously.
In Pari Delicto Rule on Void Contracts
The parties do not dispute the finding of the trial and the appellate courts that the Contract of Lease was
void.17 Indeed, the RTC correctly held that it was the State, not petitioners, that owned the fishpond. The
1987 Constitution specifically declares that all lands of the public domain, waters, fisheries and other
natural resources belong to the State.18 Included here are fishponds, which may not be alienated but only
leased.19 Possession thereof, no matter how long, cannot ripen into ownership.20
Being merely applicants for the lease of the fishponds, petitioners had no transferable right over them.
And even if the State were to grant their application, the law expressly disallowed sublease of the
fishponds to respondent.21 Void are all contracts in which the cause, object or purpose is contrary to law,
public order or public policy.22
A void contract is equivalent to nothing; it produces no civil effect.23 It does not create, modify or
extinguish a juridical relation.24 Parties to a void agreement cannot expect the aid of the law; the courts
leave them as they are, because they are deemed in pari delicto or "in equal fault."25 To this rule,
however, there are exceptions that permit the return of that which may have been given under a void
contract.26 One of the exceptions is found in Article 1412 of the Civil Code, which states:
"Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
"(1) When the fault is on the part of both contracting parties, neither may recover what he has given by
virtue of the contract, or demand the performance of the other’s undertaking;
"(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."
On this premise, respondent contends that he can recover from petitioners, because he is an innocent party
to the Contract of Lease.27 Petitioners allegedly induced him to enter into it through serious
misrepresentation

R. No. 116635 July 24, 1997

CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner,
vs.
COURT OF APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.

PANGANIBAN, J.:
A contract of repurchase arising out of a contract of sale where the seller did not have any title to the
property "sold" is not valid. Since nothing was sold, then there is also nothing to repurchase.
Statement of the Case
This postulate is explained by this Court as it resolves this petition for review on certiorari assailing the
January 20, 1993 Decision1 of Respondent Court of Appeals2 in CA-G.R. CV No. 36473, affirming the
decision3 of the trial court4 which disposed as follows:5
WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of action, and hereby:
1. Declaring the private writing, Exhibit "C", to be an option to sell, not binding and considered validly
withdrawn by the defendants for want of consideration;
2. Ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest thereon at the
legal rate, from the time of filing of defendants' counterclaim until the same is fully paid;
3. Ordering the plaintiffs to deliver peaceful possession of the two hectares mentioned in paragraph 7 of
the complaint and in paragraph 31 of defendants' answer (counterclaim);
4. Ordering the plaintiffs to pay reasonable rents on said two hectares at P5,000.00 per annum or at
P2,500.00 per cropping from the time of judicial demand mentioned in paragraph 2 of the dispositive
portion of this decision, until the said two hectares shall have been delivered to the defendants; and
5. To pay the costs.
SO ORDERED.
The Antecedent Facts
The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as follows:
Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare. It was
formerly owned by Victorino Nool and covered by Transfer Certificate of Title No. T-74950. With an
area of 3.0880 hectares, the other parcel was previously owned by Francisco Nool under Transfer
Certificate of Title No. T-100945. Both parcel's are situated in San Manuel, Isabela. The plaintiff spouses,
Conchita Nool and Gaudencio Almojera, now the appellants, seek recovery of the aforementioned parcels
of land from the defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre, now the
appellees.
In their complaint, plaintiff-appellants alleged inter alia that they are the owners of subject parcels of
land, and they bought the same from Conchita's other brothers, Victorino Nool and Francisco Nool; that
as plaintiffs were in dire need of money, they obtained a loan from the Ilagan Branch of the Development
Bank of the Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels of land,
which were still registered in the names of Victorino Nool and Francisco Nool, at the time, and for the
failure of plaintiffs to pay the said loan, including interest and surcharges, totaling P56,000.00, the
mortgage was foreclosed; that within the period of redemption, plaintiffs contacted defendant Anacleto
Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the
titles of the two (2) parcels of land in question were transferred to Anacleto Nool; that as part of their
arrangement or understanding, Anacleto Nool agreed to buy from plaintiff Conchita Nool the two (2)
parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to
Conchita, and upon payment of the balance of P14,000.00, plaintiffs were to regain possession of the two
(2) hectares of land, which amounts defendants failed to pay, and the same day the said arrangement6 was
made; another covenant7 was entered into by the parties, whereby defendants agreed to return to plaintiffs
the lands in question, at anytime the latter have the necessary amount; that plaintiffs asked the defendants
to return the same but despite the intervention of the Barangay Captain of their place, defendants refused
to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to court for
relief.
In their Answer, defendants-appellees theorized that they acquired the lands in question from the
Development Bank of the Philippines, through negotiated sale, and were misled by plaintiffs when
defendant Anacleto Nool signed the private writing, agreeing to return subject lands when plaintiffs have
the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister,
Conchita, still had the right to redeem the said properties.
The pivot of inquiry here, as aptly observed below, is the nature and significance of the private document,
marked Exhibit "D" for plaintiffs, which document has not been denied by the defendants, as defendants
even averred in their Answer that they gave an advance payment of P30,000.00 therefor, and
acknowledged that they had a balance of P14,000.00 to complete their payment. On this crucial issue, the
lower court adjudged the said private writing (Exhibit "D") as an option to sell not binding upon and
considered the same validly withdrawn by defendants for want of consideration; and decided the case in
the manner above-mentioned.
There is no quibble over the fact that the two (2) parcels of land in dispute were mortgaged to the
Development Bank of the Philippines, to secure a loan obtained by plaintiffs from DBP (Ilagan Branch),
Ilagan, Isabela. For the non-payment of said loan, the mortgage was foreclosed and in the process,
ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP
became the absolute owner of the two parcels of land, defendants negotiated with DBP and succeeded in
buying the same. By virtue of such sale by DBP in favor of defendants, the titles of DBP were cancelled
and the corresponding Transfer Certificates of Title (Annexes "C" and "D" to the Complaint) issued to the
defendants.8
It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the one-year
redemption period was from March 16, 1982 up to March 15, 1983 and that the mortgagors' right of
redemption was not exercised within this period.9 Hence, DBP became the absolute owner of said parcels
of land for which it was issued new certificates of title, both entered on May 23, 1983 by the Registry of
Deeds for the Province of Isabela. 10 About two years thereafter, on April 1, 1985, DBP entered into a
Deed of Conditional Sale 11 involving the same parcels of land with Private Respondent Anacleto Nool
as vendee. Subsequently, the latter was issued new certificates of title on February 8, 1988. 12
The Court of Appeals ruled: 13
WHEREFORE, finding no reversible error infirming it, the appealed Judgment is hereby AFFIRMED in
toto. No pronouncement as to costs.
The Issues
Petitioners impute to Respondent Court the following alleged "errors":
1. The Honorable Court of Appeals, Second Division has misapplied the legal import or meaning of
Exhibit "C" in a way contrary to law and existing jurisprudence in stating that it has no binding effect
between the parties and considered validly withdrawn by defendants-appellees for want of consideration.
2. The Honorable Court of Appeals, Second Division has miserably failed to give legal significance to the
actual possession and cultivation and appropriating exclusively the palay harvest of the two (2) hectares
land pending the payment of the remaining balance of fourteen thousand pesos (P14,000.00) by
defendants-appellees as indicated in Exhibit "C".
3. The Honorable Court of Appeals has seriously erred in affirming the decision of the lower court by
awarding the payment of rents per annum and the return of P30,000.00 and not allowing the plaintiffs-
appellants to re-acquire the four (4) hectares, more or less upon payment of one hundred thousand pesos
(P100,000.00) as shown in Exhibit "D". 14
The Court's Ruling
Second Issue: No Estoppel in Impugning the
Validity of Void Contracts
Petitioners argue that "when Anacleto Nool took the possession of the two hectares, more or less, and let
the other two hectares to be occupied and cultivated by plaintiffs-appellant, Anacleto Nool cannot later on
disclaim the terms or contions (sic) agreed upon and his actuation is within the ambit of estoppel . . . 28
We disagree. The private respondents cannot be estopped from raising the defense of nullity of contract,
specially in this case where they acted in good faith, believing that indeed petitioners could sell the two
parcels of land in question. Article 1410 of the Civil Code mandates that "(t)he action or defense for the
declaration of the inexistence of a contract does not prescribe." It is a well-settled doctrine that "as
between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or it is
against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what
public policy by law seeks to preserve." 29 Thus, it is immaterial that private respondents initially acted to
implement the contract of sale, believing in good faith that the same was valid. We stress that a contract
void at inception cannot be validated by ratification or prescription and certainly cannot be binding on or
enforceable against private respondents. 30

GREGORIO R. VIGILAR, SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND

HIGHWAYS (DPWH), DPWH UNDERSECRETARIES TEODORO E. ENCARNACION AND
EDMUNDO E. ENCARNACION AND EDMUNDO V. MIR, DPWH ASSISTANT SECRETARY
JOEL L. ALTEA, DPWH REGIONAL DIRECTOR VICENTE B. LOPEZ, DPWH DISTRICT
ENGINEER ANGELITO M. TWAÑO, FELIX A. DESIERTO OF THE TECHNICAL WORKING
GROUP VALIDATION AND AUDITING TEAM, AND LEONARDO ALVARO, ROMEO N. SUPAN,
VICTORINO C. SANTOS OF THE DPWH PAMPANGA 2ND ENGINEERING DISTRICT,
Petitioners,
vs.
ARNULFO D. AQUINO, Respondent.
DECISION
SERENO, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the
Decision2 of the Court of Appeals in C.A.-G.R. CV No. 82268, dated 25 September 2006.
The antecedent facts are as follows:
On 19 June 1992, petitioner Angelito M. Twaño, then Officer-in-Charge (OIC)-District Engineer of the
Department of Public Works and Highways (DPWH) 2nd Engineering District of Pampanga sent an
Invitation to Bid to respondent Arnulfo D. Aquino, the owner of A.D. Aquino Construction and Supplies.
The bidding was for the construction of a dike by bulldozing a part of the Porac River at Barangay
Ascomo-Pulungmasle, Guagua, Pampanga.
Subsequently, on 7 July 1992, the project was awarded to respondent, and a "Contract of Agreement" was
thereafter executed between him and concerned petitioners for the amount of PhP1,873,790.69, to cover
the project cost.
By 9 July 1992, the project was duly completed by respondent, who was then issued a Certificate of
Project Completion dated 16 July 1992. The certificate was signed by Romeo M. Yumul, the Project
Engineer; as well as petitioner Romeo N. Supan, Chief of the Construction Section, and by petitioner
Twaño.
Respondent Aquino, however, claimed that PhP1,262,696.20 was still due him, but petitioners refused to
pay the amount. He thus filed a Complaint3 for the collection of sum of money with damages before the
Regional Trial Court of Guagua, Pampanga. The complaint was docketed as Civil Case No. 3137.
Petitioners, for their part, set up the defense4 that the Complaint was a suit against the state; that
respondent failed to exhaust administrative remedies; and that the "Contract of Agreement" covering the
project was void for violating Presidential Decree No. 1445, absent the proper appropriation and the
Certificate of Availability of Funds.5
On 28 November 2003, the lower court ruled in favor of respondent, to wit:
WHEREFORE, premises considered, defendant Department of Public Works and Highways is hereby
ordered to pay the plaintiff Arnulfo D. Aquino the following:
1. PhP1,873,790.69, Philippine Currency, representing actual amount for the completion of the project
done by the plaintiff;
2. PhP50,000.00 as attorney’s fee and
3. Cost of this suit.
SO ORDERED. 6
It is to be noted that respondent was only asking for PhP1,262,696.20; the award in paragraph 1 above,
however, conforms to the entire contract amount.
On appeal, the Court of Appeals reversed and set aside the Decision of the lower court and disposed as
follows:
WHEREFORE, premises considered, the appeal is GRANTED. The "CONTRACT AGREEMENT"
entered into between the plaintiff-appellee’s construction company, which he represented, and the
government, through the Department of Public Works and Highway (DPWH) – Pampanga 2nd
Engineering District, is declared null and void ab initio.
The assailed decision of the court a quo is hereby REVERSED AND SET ASIDE.
In line with the pronouncement in Department of Health vs. C.V. Canchela & Associates, Architects,7
the Commission on Audit (COA) is hereby ordered to determine and ascertain with dispatch, on a
quantum meruit basis, the total obligation due to the plaintiff-appellee for his undertaking in
implementing the subject contract of public works, and to allow payment thereof, subject to COA Rules
and Regulations, upon the completion of the said determination.
No pronouncement as to costs.
SO ORDERED.8
Dissatisfied with the Decision of the Court of Appeals, petitioners are now before this Court, seeking a
reversal of the appellate court’s Decision and a dismissal of the Complaint in Civil Case No. G-3137. The
Petition raises the following issues:
1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT THE DOCTRINE
OF NON-SUABILITY OF THE STATE HAS NO APPLICATION IN THIS CASE.
2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT DISMISSING THE
COMPLAINT FOR FAILURE OF RESPONDENT TO EXHAUST ALL ADMINISTRATIVE
REMEDIES.
3. WHETHER OR NOT THE COURT OF APPEALS ERRED IN ORDERING THE COA TO ALLOW
PAYMENT TO RESPONDENT ON A QUANTUM MERUIT BASIS DESPITE THE LATTER’S
FAILURE TO COMPLY WITH THE REQUIREMENTS OF PRESIDENTIAL DECREE NO. 1445.
After a judicious review of the case, the Court finds the Petition to be without merit.
Firstly, petitioners claim that the Complaint filed by respondent before the Regional Trial Court was done
without exhausting administrative remedies. Petitioners aver that respondent should have first filed a
claim before the Commission on Audit (COA) before going to the courts. However, it has been
established that the doctrine of exhaustion of administrative remedies and the doctrine of primary
jurisdiction are not ironclad rules. In Republic of the Philippines v. Lacap,9 this Court enumerated the
numerous exceptions to these rules, namely: (a) where there is estoppel on the part of the party invoking
the doctrine; (b) where the challenged administrative act is patently illegal, amounting to lack of
jurisdiction; (c) where there is unreasonable delay or official inaction that will irretrievably prejudice the
complainant; (d) where the amount involved is relatively so small as to make the rule impractical and
oppressive; (e) where the question involved is purely legal and will ultimately have to be decided by the
courts of justice; (f) where judicial intervention is urgent; (g) where the application of the doctrine may
cause great and irreparable damage; (h) where the controverted acts violate due process; (i) where the
issue of non-exhaustion of administrative remedies has been rendered moot; (j) where there is no other
plain, speedy and adequate remedy; (k) where strong public interest is involved; and (l) in quo warranto
proceedings. In the present case, conditions (c) and (e) are present.
The government project contracted out to respondent was completed almost two decades ago. To delay
the proceedings by remanding the case to the relevant government office or agency will definitely
prejudice respondent. More importantly, the issues in the present case involve the validity and the
enforceability of the "Contract of Agreement" entered into by the parties. These are questions purely of
law and clearly beyond the expertise of the Commission on Audit or the DPWH. In Lacap, this Court
said:
... It does not involve an examination of the probative value of the evidence presented by the parties.
There is a question of law when the doubt or difference arises as to what the law is on a certain state of
facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be resolved only
tentatively by the administrative authorities. The final decision on the matter rests not with them but with
the courts of justice. Exhaustion of administrative remedies does not apply, because nothing of an
administrative nature is to be or can be done. The issue does not require technical knowledge and
experience but one that would involve the interpretation and application of law. (Emphasis supplied.)
Secondly, in ordering the payment of the obligation due respondent on a quantum meruit basis, the Court
of Appeals correctly relied on Royal Trust Corporation v. COA,10 Eslao v. COA,11 Melchor v. COA,12
EPG Construction Company v. Vigilar,13 and Department of Health v. C.V. Canchela & Associates,
Architects.14 All these cases involved government projects undertaken in violation of the relevant laws,
rules and regulations covering public bidding, budget appropriations, and release of funds for the projects.
Consistently in these cases, this Court has held that the contracts were void for failing to meet the
requirements mandated by law; public interest and equity, however, dictate that the contractor should be
compensated for services rendered and work done.
Specifically, C.V. Canchela & Associates is similar to the case at bar, in that the contracts involved in
both cases failed to comply with the relevant provisions of Presidential Decree No. 1445 and the Revised
Administrative Code of 1987. Nevertheless, "(t)he illegality of the subject Agreements proceeds, it bears
emphasis, from an express declaration or prohibition by law, not from any intrinsic illegality. As such, the
Agreements are not illegal per se, and the party claiming thereunder may recover what had been paid or
delivered."15
The government project involved in this case, the construction of a dike, was completed way back on 9
July 1992. For almost two decades, the public and the government benefitted from the work done by
respondent. Thus, the Court of Appeals was correct in applying Eslao to the present case. In Eslao, this
Court stated:
...the Court finds that the contractor should be duly compensated for services rendered, which were for the
benefit of the general public. To deny the payment to the contractor of the two buildings which are almost
fully completed and presently occupied by the university would be to allow the government to unjustly
enrich itself at the expense of another. Justice and equity demand compensation on the basis of quantum
meruit. (Emphasis supplied.)
Neither can petitioners escape the obligation to compensate respondent for services rendered and work
done by invoking the state’s immunity from suit. This Court has long established in Ministerio v. CFI of
Cebu,16 and recently reiterated in Heirs of Pidacan v. ATO,17 that the doctrine of governmental
immunity from suit cannot serve as an instrument for perpetrating an injustice to a citizen. As this Court
enunciated in EPG Construction:181avvphi1
To our mind, it would be the apex of injustice and highly inequitable to defeat respondent’s right to be
duly compensated for actual work performed and services rendered, where both the government and the
public have for years received and accepted benefits from the project and reaped the fruits of respondent’s
honest toil and labor.
xxx xxx xxx
Under these circumstances, respondent may not validly invoke the Royal Prerogative of Dishonesty and
conveniently hide under the State's cloak of invincibility against suit, considering that this principle yields
to certain settled exceptions. True enough, the rule, in any case, is not absolute for it does not say that
the state may not be sued under any circumstance.
xxx xxx xxx
Although the Amigable and Ministerio cases generously tackled the issue of the State's immunity from
suit vis a vis the payment of just compensation for expropriated property, this Court nonetheless finds the
doctrine enunciated in the aforementioned cases applicable to the instant controversy, considering that
the ends of justice would be subverted if we were to uphold, in this particular instance, the State's
immunity from suit.
To be sure, this Court — as the staunch guardian of the citizens' rights and welfare — cannot sanction an
injustice so patent on its face, and allow itself to be an instrument in the perpetration thereof. Justice and
equity sternly demand that the State's cloak of invincibility against suit be shred in this particular instance,
and that petitioners-contractors be duly compensated — on the basis of quantum meruit — for
construction done on the public works housing project. (Emphasis supplied.)
WHEREFORE, in view of the foregoing, the Petition is DENIED for lack of merit. The assailed
Decision of the Court of Appeals in CA-G.R. No. 82268 dated 25 September 2006 is AFFIRMED.
SO ORDERED.

G.R. No. 191667 April 17, 2013

LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
EDUARDO M. CACAYURAN, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this Petition for Review on Certiorari1 is the March 26, 2010 Decision2 of the Court of
Appeals (CA) in CA-G.R. CV. No. 89732 which affirmed with modification the April 10, 2007 Decision3
of the Regional Trial Court (RTC) of Agoo, La Union, Branch 31, declaring inter alia the nullity of the
loan agreements entered into by petitioner Land Bank of the Philippines (Land Bank) and the
Municipality of Agoo, La Union (Municipality).
The Facts
From 2005 to 2006, the Municipality’s Sangguniang Bayan (SB) passed certain resolutions to implement
a multi-phased plan (Redevelopment Plan) to redevelop the Agoo Public Plaza (Agoo Plaza) where the
Imelda Garden and Jose Rizal Monument were situated.
To finance phase 1 of the said plan, the SB initially passed Resolution No. 68-20054 on April 19, 2005,
authorizing then Mayor Eufranio Eriguel (Mayor Eriguel) to obtain a loan from Land Bank and incidental
thereto, mortgage a 2,323.75 square meter lot situated at the southeastern portion of the Agoo Plaza
(Plaza Lot) as collateral. To serve as additional security, it further authorized the assignment of a portion
of its internal revenue allotment (IRA) and the monthly income from the proposed project in favor of
Land Bank.5 The foregoing terms were confirmed, approved and ratified on October 4, 2005 through
Resolution No. 139-2005.6 Consequently, on November 21, 2005, Land Bank extended a ₱4,000,000.00
loan in favor of the Municipality (First Loan),7 the proceeds of which were used to construct ten (10)
kiosks at the northern and southern portions of the Imelda Garden. After completion, these kiosks were
rented out.8
On March 7, 2006, the SB passed Resolution No. 58-2006,9 approving the construction of a commercial
center on the Plaza Lot as part of phase II of the Redevelopment Plan. To finance the project, Mayor
Eriguel was again authorized to obtain a loan from Land Bank, posting as well the same securities as that
of the First Loan. All previous representations and warranties of Mayor Eriguel related to the negotiation
and obtention of the new loan10 were ratified on September 5, 2006 through Resolution No. 128-2006.11
In consequence, Land Bank granted a second loan in favor of the Municipality on October 20, 2006 in the
principal amount of ₱28,000,000.00 (Second Loan).12
Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center at the Agoo Plaza
was vehemently objected to by some residents of the Municipality. Led by respondent Eduardo
Cacayuran (Cacayuran), these residents claimed that the conversion of the Agoo Plaza into a commercial
center, as funded by the proceeds from the First and Second Loans (Subject Loans), were "highly
irregular, violative of the law, and detrimental to public interests, and will result to wanton desecration of
the said historical and public park."13 The foregoing was embodied in a Manifesto,14 launched through a
signature campaign conducted by the residents and Cacayuran.
In addition, Cacayuran wrote a letter15 dated December 8, 2006 addressed to Mayor Eriguel, Vice Mayor
Antonio Eslao (Vice Mayor Eslao), and the members of the SB namely, Violeta Laroya-Balbin, Jaime
Boado, Jr., Rogelio De Vera, James Dy, Crisogono Colubong, Ricardo Fronda, Josephus Komiya, Erwina
Eriguel, Felizardo Villanueva, and Gerard Mamuyac (Implicated Officers), expressing the growing public
clamor against the conversion of the Agoo Plaza into a commercial center. He then requested the
foregoing officers to furnish him certified copies of various documents related to the aforementioned
conversion including, among others, the resolutions approving the Redevelopment Plan as well as the
loan agreements for the sake of public information and transparency.
Unable to get any response, Cacayuran, invoking his right as a taxpayer, filed a Complaint16 against the
Implicated Officers and Land Bank, assailing, among others, the validity of the Subject Loans on the
ground that the Plaza Lot used as collateral thereof is property of public dominion and therefore, beyond
the commerce of man.17
Upon denial of the Motion to Dismiss dated December 27, 2006,18 the Implicated Officers and Land
Bank filed their respective Answers.
For its part, Land Bank claimed that it is not privy to the Implicated Officers’ acts of destroying the Agoo
Plaza. It further asserted that Cacayuran did not have a cause of action against it since he was not privy to
any of the Subject Loans.19
During the pendency of the proceedings, the construction of the commercial center was completed and the
said structure later became known as the Agoo’s People Center (APC).
On May 8, 2007, the SB passed Municipal Ordinance No. 02-2007,20 declaring the area where the APC
stood as patrimonial property of the Municipality.
The Ruling of the RTC
In its Decision dated April 10, 2007,21 the RTC ruled in favor of Cacayuran, declaring the nullity of the
Subject Loans.22 It found that the resolutions approving the said loans were passed in a highly irregular
manner and thus, ultra vires; as such, the Municipality is not bound by the same.23 Moreover, it found
that the Plaza Lot is proscribed from collateralization given its nature as property for public use.24
Aggrieved, Land Bank filed its Notice of Appeal on April 23, 2007.25 On the other hand, the Implicated
Officers’ appeal was deemed abandoned and dismissed for their failure to file an appellants’ brief despite
due notice.26 In this regard, only Land Bank’s appeal was given due course by the CA.
Ruling of the CA
In its Decision dated March 26, 2010,27 the CA affirmed with modification the RTC’s ruling, excluding
Vice Mayor Eslao from any personal liability arising from the Subject Loans.28
It held, among others, that: (1) Cacayuran had locus standi to file his complaint, considering that (a) he
was born, raised and a bona fide resident of the Municipality; and (b) the issue at hand involved public
interest of transcendental importance;29 (2) Resolution Nos. 68-2005, 139-2005, 58-2006, 128-2006 and
all other related resolutions (Subject Resolutions) were invalidly passed due to the SB’s non-compliance
with certain sections of Republic Act No. 7160, otherwise known as the "Local Government Code of
1991" (LGC); (3) the Plaza Lot, which served as collateral for the Subject Loans, is property of public
dominion and thus, cannot be appropriated either by the State or by private persons;30 and (4) the Subject
Loans are ultra vires because they were transacted without proper authority and their collateralization
constituted improper disbursement of public funds.
Dissatisfied, Land Bank filed the instant petition.
Issues Before the Court
The following issues have been raised for the Court’s resolution: (1) whether Cacayuran has standing to
sue; (2) whether the Subject Resolutions were validly passed; and (3) whether the Subject Loans are ultra
vires.

C. Ultra vires nature of the Subject

Loans
Neither can Land Bank claim that the Subject Loans do not constitute ultra vires acts of the officers who
approved the same.
Generally, an ultra vires act is one committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the powers conferred upon it by law.43 There
are two (2) types of ultra vires acts. As held in Middletown Policemen's Benevolent Association v.
Township of Middletown:44
There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation and the
irregular exercise of a basic power under the legislative grant in matters not in themselves jurisdictional.
The former are ultra vires in the primary sense and void; the latter, ultra vires only in a secondary sense
which does not preclude ratification or the application of the doctrine of estoppel in the interest of equity
and essential justice. (Emphasis and underscoring supplied)
In other words, an act which is outside of the municipality’s jurisdiction is considered as a void ultra vires
act, while an act attended only by an irregularity but remains within the municipality’s power is
considered as an ultra vires act subject to ratification and/or validation. To the former belongs municipal
contracts which (a) are entered into beyond the express, implied or inherent powers of the local
government unit; and (b) do not comply with the substantive requirements of law e.g., when expenditure
of public funds is to be made, there must be an actual appropriation and certificate of availability of
funds; while to the latter belongs those which (a) are entered into by the improper department, board,
officer of agent; and (b)do not comply with the formal requirements of a written contract e.g., the Statute
of Frauds.45
Applying these principles to the case at bar, it is clear that the Subject Loans belong to the first class of
ultra vires acts deemed as void.
Records disclose that the said loans were executed by the Municipality for the purpose of funding the
conversion of the Agoo Plaza into a commercial center pursuant to the Redevelopment Plan. However,
the conversion of the said plaza is beyond the Municipality’s jurisdiction considering the property’s
nature as one for public use and thereby, forming part of the public dominion. Accordingly, it cannot be
the object of appropriation either by the State or by private persons.46 Nor can it be the subject of lease or
any other contractual undertaking.47 In Villanueva v. Castañeda, Jr.,48 citing Espiritu v. Municipal
Council of Pozorrubio,49 the Court pronounced that:
x x x Town plazas are properties of public dominion, to be devoted to public use and to be made available
to the public in general. They are outside the commerce of man and cannot be disposed of or even leased
by the municipality to private parties.1âwphi1
In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose is contrary to
law, morals, good customs, public order or public policy is considered void50 and as such, creates no
rights or obligations or any juridical relations.51 Consequently, given the unlawful purpose behind the
Subject Loans which is to fund the commercialization of the Agoo Plaza pursuant to the Redevelopment
Plan, they are considered as ultra vires in the primary sense thus, rendering them void and in effect, non-
binding on the Municipality.
At this juncture, it is equally observed that the land on which the Agoo Plaza is situated cannot be
converted into patrimonial property – as the SB tried to when it passed Municipal Ordinance No. 02-
200752 – absent any express grant by the national government.53 As public land used for public use, the
foregoing lot rightfully belongs to and is subject to the administration and control of the Republic of the
Philippines.54 Hence, without the said grant, the Municipality has no right to claim it as patrimonial
property.
Nevertheless, while the Subject Loans cannot bind the Municipality for being ultra vires, the officers who
authorized the passage of the Subject Resolutions are personally liable. Case law states that public
officials can be held personally accountable for acts claimed to have been performed in connection with
official duties where they have acted ultra vires,55 as in this case.
WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010 Decision of the Court of
Appeals in CA-G.R. CV. No. 89732 is hereby AFFIRMED.

R. No. 160600 January 15, 2014

DOMINGO GONZALO, Petitioner,
vs.
JOHN TARNATE, JR., Respondent.
DECISION
BERSAMIN, J.:
The doctrine of in pari delicto which stipulates that the guilty parties to an illegal contract are not entitled
to any relief, cannot prevent a recovery if doing so violates the public policy against unjust enrichment.
Antecedents
After the Department of Public Works and Highways (DPWH) had awarded on July 22, 1997 the contract
for the improvement of the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road in the
total amount of 7 014 963 33 to his company, Gonzalo Construction,1 petitioner Domingo Gonzalo
(Gonzalo) subcontracted to respondent John Tarnate, Jr. (Tarnate) on October 15, 1997, the supply of
materials and labor for the project under the latter s business known as JNT Aggregates. Their agreement
stipulated, among others, that Tarnate would pay to Gonzalo eight percent and four percent of the contract
price, respectively, upon Tarnate s first and second billing in the project.2
In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment whereby he,
as the contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the
DPWH for the project. This 10% retention fee (equivalent to ₱233,526.13) was the rent for Tarnate’s
equipment that had been utilized in the project. In the deed of assignment, Gonzalo further authorized
Tarnate to use the official receipt of Gonzalo Construction in the processing of the documents relative to
the collection of the 10% retention fee and in encashing the check to be issued by the DPWH for that
purpose.3 The deed of assignment was submitted to the DPWH on April 15, 1999. During the processing
of the documents for the retention fee, however, Tarnate learned that Gonzalo had unilaterally rescinded
the deed of assignment by means of an affidavit of cancellation of deed of assignment dated April 19,
1999 filed in the DPWH on April 22, 1999;4 and that the disbursement voucher for the 10% retention fee
had then been issued in the name of Gonzalo, and the retention fee released to him.5
Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he brought this
suit against Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in Mountain Province to
recover the retention fee of ₱233,526.13, moral and exemplary damages for breach of contract, and
attorney’s fees.6
In his answer, Gonzalo admitted the deed of assignment and the authority given therein to Tarnate, but
averred that the project had not been fully implemented because of its cancellation by the DPWH, and
that he had then revoked the deed of assignment. He insisted that the assignment could not stand
independently due to its being a mere product of the subcontract that had been based on his contract with
the DPWH; and that Tarnate, having been fully aware of the illegality and ineffectuality of the deed of
assignment from the time of its execution, could not go to court with unclean hands to invoke any right
based on the invalid deed of assignment or on the product of such deed of assignment.7
Ruling of the RTC
On January 26, 2001, the RTC, opining that the deed of assignment was a valid and binding contract, and
that Gonzalo must comply with his obligations under the deed of assignment, rendered judgment in favor
of Tarnate as follows:
WHEREFORE, premises considered and as prayed for by the plaintiff, John Tarnate, Jr. in his Complaint
for Sum of Money, Breach of Contract With Damages is hereby RENDERED in his favor and against the
above-named defendant Domingo Gonzalo, the Court now hereby orders as follows:
1. Defendant Domingo Gonzalo to pay the Plaintiff, John Tarnate, Jr., the amount of TWO HUNDRED
THIRTY THREE THOUSAND FIVE HUNDRED TWENTY SIX and 13/100 PESOS (₱233,526.13)
representing the rental of equipment;
2. Defendant to pay Plaintiff the sum of THIRTY THOUSAND (₱30,000.00) PESOS by way of
reasonable Attorney’s Fees for having forced/compelled the plaintiff to litigate and engage the services of
a lawyer in order to protect his interest and to enforce his right. The claim of the plaintiff for attorney’s
fees in the amount of FIFTY THOUSAND PESOS (₱50,000.00) plus THREE THOUSAND PESOS
(₱3,000.00) clearly appears to be unconscionable and therefore reduced to Thirty Thousand Pesos
(₱30,000.00) as aforestated making the same to be reasonable;
3. Defendant to pay Plaintiff the sum of FIFTEEN THOUSAND PESOS (₱15,000.00) by way of
litigation expenses;
4. Defendant to pay Plaintiff the sum of TWENTY THOUSAND PESOS (₱20,000.00) for moral
damages and for the breach of contract; and
5. To pay the cost of this suit.
Award of exemplary damages in the instant case is not warranted for there is no showing that the
defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner analogous to the case
of Xentrex Automotive, Inc. vs. Court of Appeals, 291 SCRA 66.8
Gonzalo appealed to the Court of Appeals (CA).
Decision of the CA
On February 18, 2003, the CA affirmed the RTC.9
Although holding that the subcontract was an illegal agreement due to its object being specifically
prohibited by Section 6 of Presidential Decree No. 1594; that Gonzalo and Tarnate were guilty of entering
into the illegal contract in violation of Section 6 of Presidential Decree No. 1594; and that the deed of
assignment, being a product of and dependent on the subcontract, was also illegal and unenforceable, the
CA did not apply the doctrine of in pari delicto, explaining that the doctrine applied only if the fault of
one party was more or less equivalent to the fault of the other party. It found Gonzalo to be more guilty
than Tarnate, whose guilt had been limited to the execution of the two illegal contracts while Gonzalo had
gone to the extent of violating the deed of assignment. It declared that the crediting of the 10% retention
fee equivalent to ₱233,256.13 to his account had unjustly enriched Gonzalo; and ruled, accordingly, that
Gonzalo should reimburse Tarnate in that amount because the latter’s equipment had been utilized in the
project.
Upon denial of his motion for reconsideration,10 Gonzalo has now come to the Court to seek the review
and reversal of the decision of the CA.
Issues
Gonzalo contends that the CA erred in affirming the RTC because: (1) both parties were in pari delicto;
(2) the deed of assignment was void; and (3) there was no compliance with the arbitration clause in the
subcontract.
Gonzalo submits in support of his contentions that the subcontract and the deed of assignment, being
specifically prohibited by law, had no force and effect; that upon finding both him and Tarnate guilty of
violating the law for executing the subcontract, the RTC and the CA should have applied the rule of in
pari delicto, to the effect that the law should not aid either party to enforce the illegal contract but should
leave them where it found them; and that it was erroneous to accord to the parties relief from their
predicament.11
Ruling
We deny the petition for review, but we delete the grant of moral damages, attorney’s fees and litigation
expenses.
There is no question that every contractor is prohibited from subcontracting with or assigning to another
person any contract or project that he has with the DPWH unless the DPWH Secretary has approved the
subcontracting or assignment. This is pursuant to Section 6 of Presidential Decree No. 1594, which
provides:
Section 6. Assignment and Subcontract. – The contractor shall not assign, transfer, pledge, subcontract or
make any other disposition of the contract or any part or interest therein except with the approval of the
Minister of Public Works, Transportation and Communications, the Minister of Public Highways, or the
Minister of Energy, as the case may be. Approval of the subcontract shall not relieve the main contractor
from any liability or obligation under his contract with the Government nor shall it create any contractual
relation between the subcontractor and the Government.
Gonzalo, who was the sole contractor of the project in question, subcontracted the implementation of the
project to Tarnate in violation of the statutory prohibition. Their subcontract was illegal, therefore,
because it did not bear the approval of the DPWH Secretary. Necessarily, the deed of assignment was also
illegal, because it sprung from the subcontract. As aptly observed by the CA:
x x x. The intention of the parties in executing the Deed of Assignment was merely to cover up the
illegality of the sub-contract agreement. They knew for a fact that the DPWH will not allow plaintiff-
appellee to claim in his own name under the Sub-Contract Agreement.
Obviously, without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The
illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment because the rule is
that an illegal agreement cannot give birth to a valid contract. To rule otherwise is to sanction the act of
entering into transaction the object of which is expressly prohibited by law and thereafter execute an
apparently valid contract to subterfuge the illegality. The legal proscription in such an instance will be
easily rendered nugatory and meaningless to the prejudice of the general public.12
Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a
void or inexistent contract. As such, a void contract cannot produce a valid one.13 To the same effect is
Article 1422 of the Civil Code, which declares that "a contract, which is the direct result of a previous
illegal contract, is also void and inexistent."
We do not concur with the CA’s finding that the guilt of Tarnate for violation of Section 6 of Presidential
Decree No. 1594 was lesser than that of Gonzalo, for, as the CA itself observed, Tarnate had voluntarily
entered into the agreements with Gonzalo.14 Tarnate also admitted that he did not participate in the
bidding for the project because he knew that he was not authorized to contract with the DPWH.15 Given
that Tarnate was a businessman who had represented himself in the subcontract as "being financially and
organizationally sound and established, with the necessary personnel and equipment for the performance
of the project,"16 he justifiably presumed to be aware of the illegality of his agreements with Gonzalo.
For these reasons, Tarnate was not less guilty than Gonzalo.
According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot recover
from one another and are not entitled to an affirmative relief because they are in pari delicto or in equal
fault. The doctrine of in pari delicto is a universal doctrine that holds that no action arises, in equity or at
law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and
where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the
other.17
Nonetheless, the application of the doctrine of in pari delicto is not always rigid.1âwphi1 An accepted
exception arises when its application contravenes well-established public policy.18 In this jurisdiction,
public policy has been defined as "that principle of the law which holds that no subject or citizen can
lawfully do that which has a tendency to be injurious to the public or against the public good."19
Unjust enrichment exists, according to Hulst v. PR Builders, Inc.,20 "when a person unjustly retains a
benefit at the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience." The prevention of unjust enrichment is a
recognized public policy of the State, for Article 22 of the Civil Code explicitly provides that "[e]very
person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the same to
him." It is well to note that Article 22 "is part of the chapter of the Civil Code on Human Relations, the
provisions of which were formulated as basic principles to be observed for the rightful relationship
between human beings and for the stability of the social order; designed to indicate certain norms that
spring from the fountain of good conscience; guides for human conduct that should run as golden threads
through society to the end that law may approach its supreme ideal which is the sway and dominance of
justice."21
There is no question that Tarnate provided the equipment, labor and materials for the project in
compliance with his obligations under the subcontract and the deed of assignment; and that it was
Gonzalo as the contractor who received the payment for his contract with the DPWH as well as the 10%
retention fee that should have been paid to Tarnate pursuant to the deed of assignment.22 Considering
that Gonzalo refused despite demands to deliver to Tarnate the stipulated 10% retention fee that would
have compensated the latter for the use of his equipment in the project, Gonzalo would be unjustly
enriched at the expense of Tarnate if the latter was to be barred from recovering because of the rigid
application of the doctrine of in pari delicto. The prevention of unjust enrichment called for the exception
to apply in Tarnate’s favor. Consequently, the RTC and the CA properly adjudged Gonzalo liable to pay
Tarnate the equivalent amount of the 10% retention fee (i.e., ₱233,526.13).
Gonzalo sought to justify his refusal to turn over the ₱233,526.13 to Tarnate by insisting that he
(Gonzalo) had a debt of ₱200,000.00 to Congressman Victor Dominguez; that his payment of the 10%
retention fee to Tarnate was conditioned on Tarnate paying that debt to Congressman Dominguez; and
that he refused to give the 10% retention fee to Tarnate because Tarnate did not pay to Congressman
Dominguez.23 His justification was unpersuasive, however, because, firstly, Gonzalo presented no proof
of the debt to Congressman Dominguez; secondly, he did not competently establish the agreement on the
condition that supposedly bound Tarnate to pay to Congressman Dominguez;24 and, thirdly, burdening
Tarnate with Gonzalo’s personal debt to Congressman Dominguez to be paid first by Tarnate would
constitute another case of unjust enrichment.
The Court regards the grant of moral damages, attorney’s fees and litigation expenses to Tarnate to be
inappropriate. We have ruled that no damages may be recovered under a void contract, which, being
nonexistent, produces no juridical tie between the parties involved.25 It is notable, too, that the RTC and
the CA did not spell out the sufficient factual and legal justifications for such damages to be granted.
Lastly, the letter and spirit of Article 22 of the Civil Code command Gonzalo to make a full reparation or
compensation to Tarnate. The illegality of their contract should not be allowed to deprive Tarnate from
being fully compensated through the imposition of legal interest. Towards that end, interest of 6% per
annum reckoned from September 13, 1999, the time of the judicial demand by Tarnate, is imposed on the
amount of ₱233,526.13. Not to afford this relief will make a travesty of the justice to which Tarnate was
entitled for having suffered too long from Gonzalo’s unjust enrichment.
WHEREFORE, we AFFIRM the decision promulgated on February 18, 2003, but DELETE the awards of
moral damages, attorney’s fees and litigation expenses; IMPOSE legal interest of 6% per annum on the
principal oL₱233,526.13 reckoned from September 13, 1999; and DIRECT the petitioner to pay the costs
of suit.
SO ORDERED.

G.R. No. 195670 December 3, 2012

WILLEM BEUMER, Petitioner,
vs.
AVELINA AMORES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of CoLlli assailing the
October 8, 2009 Decision2 and January 24, 2011 Resolution3 of the court of Appeals (CA) in CA-G.R.
CV No. 01940, which affirmed the February 28, 2007 Decision4 of the Regional Trial Court (RTC) of
Negros Oriental, Branch 34 in Civil Case No. I 2884. The foregoing rulings dissolved the conjugal
partnership of gains of Willem Beumer (petitioner) and Avelina Amores (respondent) and distributed the
properties forming part of the said property regime.
The Factual Antecedents
Petitioner, a Dutch National, and respondent, a Filipina, married in March 29, 1980. After several years,
the RTC of Negros Oriental, Branch 32, declared the nullity of their marriage in the Decision5 dated
November 10, 2000 on the basis of the former’s psychological incapacity as contemplated in Article 36 of
the Family Code.
Consequently, petitioner filed a Petition for Dissolution of Conjugal Partnership6 dated December 14,
2000 praying for the distribution of the following described properties claimed to have been acquired
during the subsistence of their marriage, to wit:
By Purchase:
a. Lot 1, Block 3 of the consolidated survey of Lots 2144 & 2147 of the Dumaguete Cadastre, covered by
Transfer Certificate of Title (TCT) No. 22846, containing an area of 252 square meters (sq.m.), including
a residential house constructed thereon.
b. Lot 2142 of the Dumaguete Cadastre, covered by TCT No. 21974, containing an area of 806 sq.m.,
including a residential house constructed thereon.
c. Lot 5845 of the Dumaguete Cadastre, covered by TCT No. 21306, containing an area of 756 sq.m.
d. Lot 4, Block 4 of the consolidated survey of Lots 2144 & 2147 of the Dumaguete Cadastre, covered by
TCT No. 21307, containing an area of 45 sq.m.
By way of inheritance:
e. 1/7 of Lot 2055-A of the Dumaguete Cadastre, covered by TCT No. 23567, containing an area of 2,635
sq.m. (the area that appertains to the conjugal partnership is 376.45 sq.m.).
f. 1/15 of Lot 2055-I of the Dumaguete Cadastre, covered by TCT No. 23575, containing an area of 360
sq.m. (the area that appertains to the conjugal partnership is 24 sq.m.).7
In defense,8 respondent averred that, with the exception of their two (2) residential houses on Lots 1 and
2142, she and petitioner did not acquire any conjugal properties during their marriage, the truth being that
she used her own personal money to purchase Lots 1, 2142, 5845 and 4 out of her personal funds and
Lots 2055-A and 2055-I by way of inheritance.9 She submitted a joint affidavit executed by her and
petitioner attesting to the fact that she purchased Lot 2142 and the improvements thereon using her own
money.10 Accordingly, respondent sought the dismissal of the petition for dissolution as well as payment
for attorney’s fees and litigation expenses.11
During trial, petitioner testified that while Lots 1, 2142, 5845 and 4 were registered in the name of
respondent, these properties were acquired with the money he received from the Dutch government as his
disability benefit12 since respondent did not have sufficient income to pay for their acquisition. He also
claimed that the joint affidavit they submitted before the Register of Deeds of Dumaguete City was
contrary to Article 89 of the Family Code, hence, invalid.13
For her part, respondent maintained that the money used for the purchase of the lots came exclusively
from her personal funds, in particular, her earnings from selling jewelry as well as products from Avon,
Triumph and Tupperware.14 She further asserted that after she filed for annulment of their marriage in
1996, petitioner transferred to their second house and brought along with him certain personal properties,
consisting of drills, a welding machine, grinders, clamps, etc. She alleged that these tools and equipment
have a total cost of P500,000.00.15
The RTC Ruling
On February 28, 2007, the RTC of Negros Oriental, Branch 34 rendered its Decision, dissolving the
parties’ conjugal partnership, awarding all the parcels of land to respondent as her paraphernal properties;
the tools and equipment in favor of petitioner as his exclusive properties; the two (2) houses standing on
Lots 1 and 2142 as co-owned by the parties, the dispositive of which reads:
WHEREFORE, judgment is hereby rendered granting the dissolution of the conjugal partnership of gains
between petitioner Willem Beumer and respondent Avelina Amores considering the fact that their
marriage was previously annulled by Branch 32 of this Court. The parcels of land covered by Transfer
Certificate of Titles Nos. 22846, 21974, 21306, 21307, 23567 and 23575 are hereby declared paraphernal
properties of respondent Avelina Amores due to the fact that while these real properties were acquired by
onerous title during their marital union, Willem Beumer, being a foreigner, is not allowed by law to
acquire any private land in the Philippines, except through inheritance.
The personal properties, i.e., tools and equipment mentioned in the complaint which were brought out by
Willem from the conjugal dwelling are hereby declared to be exclusively owned by the petitioner.
The two houses standing on the lots covered by Transfer Certificate of Title Nos. 21974 and 22846 are
hereby declared to be co-owned by the petitioner and the respondent since these were acquired during
their marital union and since there is no prohibition on foreigners from owning buildings and residential
units. Petitioner and respondent are, thereby, directed to subject this court for approval their project of
partition on the two houses aforementioned.
The Court finds no sufficient justification to award the counterclaim of respondent for attorney’s fees
considering the well settled doctrine that there should be no premium on the right to litigate. The prayer
for moral damages are likewise denied for lack of merit.
No pronouncement as to costs.
SO ORDERED.16
It ruled that, regardless of the source of funds for the acquisition of Lots 1, 2142, 5845 and 4, petitioner
could not have acquired any right whatsoever over these properties as petitioner still attempted to acquire
them notwithstanding his knowledge of the constitutional prohibition against foreign ownership of private
lands.17 This was made evident by the sworn statements petitioner executed purporting to show that the
subject parcels of land were purchased from the exclusive funds of his wife, the herein respondent.18
Petitioner’s plea for reimbursement for the amount he had paid to purchase the foregoing properties on
the basis of equity was likewise denied for not having come to court with clean hands.
The CA Ruling
Petitioner elevated the matter to the CA, contesting only the RTC’s award of Lots 1, 2142, 5845 and 4 in
favor of respondent. He insisted that the money used to purchase the foregoing properties came from his
own capital funds and that they were registered in the name of his former wife only because of the
constitutional prohibition against foreign ownership. Thus, he prayed for reimbursement of one-half (1/2)
of the value of what he had paid in the purchase of the said properties, waiving the other half in favor of
his estranged ex-wife.19
On October 8, 2009, the CA promulgated a Decision20 affirming in toto the judgment rendered by the
RTC of Negros Oriental, Branch 34. The CA stressed the fact that petitioner was "well-aware of the
constitutional prohibition for aliens to acquire lands in the Philippines."21 Hence, he cannot invoke equity
to support his claim for reimbursement.
Consequently, petitioner filed the instant Petition for Review on Certiorari assailing the CA Decision due
to the following error:
UNDER THE FACTS ESTABLISHED, THE COURT ERRED IN NOT SUSTAINING THE
PETITIONER’S ATTEMPT AT SUBSEQUENTLY ASSERTING OR CLAIMING A RIGHT OF HALF
OR WHOLE OF THE PURCHASE PRICE USED IN THE PURCHASE OF THE REAL PROPERTIES
SUBJECT OF THIS CASE.22 (Emphasis supplied)
The Ruling of the Court
The petition lacks merit.
The issue to be resolved is not of first impression. In In Re: Petition For Separation of Property-Elena
Buenaventura Muller v. Helmut Muller23 the Court had already denied a claim for reimbursement of the
value of purchased parcels of Philippine land instituted by a foreigner Helmut Muller, against his former
Filipina spouse, Elena Buenaventura Muller. It held that Helmut Muller cannot seek reimbursement on
the ground of equity where it is clear that he willingly and knowingly bought the property despite the
prohibition against foreign ownership of Philippine land24 enshrined under Section 7, Article XII of the
1987 Philippine Constitution which reads:
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except
to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.
Undeniably, petitioner openly admitted that he "is well aware of the above-cited constitutional
prohibition"25 and even asseverated that, because of such prohibition, he and respondent registered the
subject properties in the latter’s name.26 Clearly, petitioner’s actuations showed his palpable intent to
skirt the constitutional prohibition. On the basis of such admission, the Court finds no reason why it
should not apply the Muller ruling and accordingly, deny petitioner’s claim for reimbursement.
As also explained in Muller, the time-honored principle is that he who seeks equity must do equity, and
he who comes into equity must come with clean hands. Conversely stated, he who has done inequity shall
not be accorded equity. Thus, a litigant may be denied relief by a court of equity on the ground that his
conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful.27
In this case, petitioner’s statements regarding the real source of the funds used to purchase the subject
parcels of land dilute the veracity of his claims: While admitting to have previously executed a joint
affidavit that respondent’s personal funds were used to purchase Lot 1,28 he likewise claimed that his
personal disability funds were used to acquire the same. Evidently, these inconsistencies show his
untruthfulness. Thus, as petitioner has come before the Court with unclean hands, he is now precluded
from seeking any equitable refuge.
In any event, the Court cannot, even on the grounds of equity, grant reimbursement to petitioner given
that he acquired no right whatsoever over the subject properties by virtue of its unconstitutional purchase.
It is well-established that equity as a rule will follow the law and will not permit that to be done indirectly
which, because of public policy, cannot be done directly.29 Surely, a contract that violates the
Constitution and the law is null and void, vests no rights, creates no obligations and produces no legal
effect at all.30 Corollary thereto, under Article 1412 of the Civil Code,31 petitioner cannot have the
subject properties deeded to him or allow him to recover the money he had spent for the purchase thereof.
The law will not aid either party to an illegal contract or agreement; it leaves the parties where it finds
them.32 Indeed, one cannot salvage any rights from an unconstitutional transaction knowingly entered
into.
Neither can the Court grant petitioner’s claim for reimbursement on the basis of unjust enrichment.33 As
held in Frenzel v. Catito, a case also involving a foreigner seeking monetary reimbursement for money
spent on purchase of Philippine land, the provision on unjust enrichment does not apply if the action is
proscribed by the Constitution, to wit:
Futile, too, is petitioner's reliance on Article 22 of the New Civil Code which reads:
Art. 22. Every person who through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall return
the same to him.1âwphi1
The provision is expressed in the maxim: "MEMO CUM ALTERIUS DETER DETREMENTO
PROTEST" (No person should unjustly enrich himself at the expense of another). An action for recovery
of what has been paid without just cause has been designated as an accion in rem verso. This provision
does not apply if, as in this case, the action is proscribed by the Constitution or by the application of the
pari delicto doctrine. It may be unfair and unjust to bar the petitioner from filing an accion in rem verso
over the subject properties, or from recovering the money he paid for the said properties, but, as Lord
Mansfield stated in the early case of Holman v. Johnson: "The objection that a contract is immoral or
illegal as between the plaintiff and the defendant, sounds at all times very ill in the mouth of the
defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general
principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him
and the plaintiff."34 (Citations omitted)
Nor would the denial of his claim amount to an injustice based on his foreign citizenship.35 Precisely, it
is the Constitution itself which demarcates the rights of citizens and non-citizens in owning Philippine
land. To be sure, the constitutional ban against foreigners applies only to ownership of Philippine land
and not to the improvements built thereon, such as the two (2) houses standing on Lots 1 and 2142 which
were properly declared to be co-owned by the parties subject to partition. Needless to state, the purpose of
the prohibition is to conserve the national patrimony36 and it is this policy which the Court is duty-bound
to protect.
WHEREFORE, the petition is DENIED. Accordingly, the assailed October 8, 2009 Decision and January
24, 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 01940 are AFFIRMED

R. No. 193747 June 5, 2013

JOSELITO C. BORROMEO, Petitioner,
vs.
JUAN T. MINA, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the April 30, 2010 Decision2 and September 13,
2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 101185, dismissing petitioner Joselito
C. Borromeo’s petitions which identically prayed for the exemption of his landholding from the coverage
of the government’s Operation Land Transfer (OLT) program as well as the cancellation of respondent
Juan T. Mina’s title over the property subject of the said landholding.
The Facts
Subject of this case is a 1.1057 hectare parcel of agriculture land, situated in Barangay Magsaysay,
Naguilian, Isabela, denominated as Lot No. 5378 and covered by Transfer Certificate of Title (TCT) No.
EP-43526,4 registered in the name of respondent (subject property). It appears from the foregoing TCT
that respondent’s title over the said property is based on Emancipation Patent No. 393178 issued by the
Department of Agrarian Reform (DAR) on May 2, 1990.5
Petitioner filed a Petition dated June 9, 20036 before the Provincial Agrarian Reform Office (PARO) of
Isabela, seeking that: (a) his landholding over the subject property (subject landholding) be exempted
from the coverage of the government’s OLT program under Presidential Decree No. 27 dated October 21,
19727 (PD 27); and (b) respondent’s emancipation patent over the subject property be consequently
revoked and cancelled.8 To this end, petitioner alleged that he purchased the aforesaid property from its
previous owner, one Serafin M. Garcia (Garcia), as evidenced by a deed of sale notarized on February 19,
1982 (1982 deed of sale). For various reasons, however, he was not able to effect the transfer of title in
his name. Subsequently, to his surprise, he learned that an emancipation patent was issued in respondent’s
favor without any notice to him. He equally maintained that his total agricultural landholdings was only
3.3635 hectares and thus, within the landowner's retention limits under both PD 27 and Republic Act No.
6647, otherwise known as the "Comprehensive Agrarian Reform Law of 1988." In this regard, he claimed
that the subject landholding should have been excluded from the coverage of the government’s OLT
program.9
Petitioner filed a subsequent Petition dated September 1, 200310 also with the PARO which contained
identical allegations as those stated in his June 9, 2003 Petition (PARO petitions) and similarly prayed for
the cancellation of respondent’s emancipation patent.
After due investigation, the Municipal Agrarian Reform Officer (MARO) Joey Rolando M. Unblas issued
a Report dated September 29, 2003,11 finding that the subject property was erroneously identified by the
same office as the property of petitioner’s father, the late Cipriano Borromeo. In all actuality, however,
the subject property was never owned by Cipriano Borromeo as its true owner was Garcia – notably, a
perennial PD 27 landowner12– who later sold the same to petitioner.
Based on these findings, the MARO recommended that: (a) the subject landholding be exempted from the
coverage of the OLT; and (b) petitioner be allowed to withdraw any amortizations deposited by
respondent with the Land Bank of the Philippines (LBP) to serve as rental payments for the latter’s use of
the subject property.13
The Ruling of the PARO
In an undated Resolution, the PARO adopted the recommendation of the MARO and accordingly (a)
cancelled respondent's emancipation patent; (b) directed petitioner to allow respondent to continue in the
peaceful possession and cultivation of the subject property and to execute a leasehold contract over the
same pursuant to the provisions of Republic Act No. 3844 (RA 3844), otherwise known as the
"Agricultural Land Reform Code"; and (c) authorized petitioner to withdraw from the LBP all
amortizations deposited by respondent as rental payments for the latter's use of the said property.14
Aggrieved, respondent filed an administrative appeal to the DAR Regional Director.
The Ruling of the DAR Regional Director
On November 30, 2004, DAR Regional Director Renato R. Navata issued an Order,15 finding that
petitioner, being the true owner of the subject property, had the right to impugn its coverage from the
government’s OLT program. Further, considering that the subject property was erroneously identified as
owned by Cipriano Borromeo, coupled with the fact that petitioner's total agricultural landholdings was
way below the retention limits prescribed under existing agrarian laws, he declared the subject
landholding to be exempt from OLT coverage.
While affirming the PARO's Decision, the DAR Regional Director did not, however, order the
cancellation of respondent’s emancipation patent. He merely directed petitioner to institute the proper
proceedings for such purpose before the DAR Adjudication Board (DARAB).
Consequently, respondent moved for reconsideration,16 challenging petitioner's ownership of the subject
property for lack of sufficient basis to show that his averred predecessor-in-interest, Garcia, was its actual
owner. In addition, respondent pointed out that petitioner never filed a protest against the issuance of an
emancipation patent in his favor. Hence, petitioner should be deemed to have slept on his rights on
account of his inaction for 21 years.
The aforesaid motion was, however, denied in the Resolution dated February 10, 2006,17 prompting
respondent to elevate the matter to the DAR Secretary.
The Ruling of the DAR Secretary
On September 12, 2007, then DAR Secretary Nasser C. Pagandaman issued DARCO Order No. EXC-
0709-333, series of 2007,18 affirming in toto the DAR Regional Director’s ruling. It upheld the latter’s
findings that the subject landholding was improperly placed under the coverage of the government’s OLT
program on account of the erroneous identification of the landowner,19 considering as well the fact that
petitioner’s total agricultural landholdings, i.e., 3.3635 hectares, was way below the retention limits under
existing agrarian laws.20
Undaunted, respondent filed a petition for review with the CA.
The Ruling of the CA
In a Decision dated April 30, 2010,21 the CA reversed and set aside the DAR Secretary's ruling. It
doubted petitioner’s claim of ownership based on the 1982 deed of sale due to the inconsistent allegations
regarding the dates of its notarization divergently stated in the two (2) PARO Petitions, this alongside the
fact that a copy of the same was not even attached to the records of the case for its examination. In any
case, the CA found the said sale to be null and void for being a prohibited transaction under PD 27 which
forbids the transfers or alienation of covered agricultural lands after October 21, 1972 except to the
tenant-beneficiaries thereof, of which petitioner was not.22 It also held23 that petitioner cannot mount
any collateral attack against respondent’s title to the subject property as the same is prohibited under
Section 48 of the Presidential Decree No. 1529 (PD 1529), otherwise known as the "Property Registration
Decree."
Petitioner moved for reconsideration which was, however, denied in a Resolution dated September 13,
2010.24
Hence, this petition.
The Petition
Petitioner contends that the CA erred in declaring the sale between him and Garcia as null and void. In
this connection, he avers that there was actually an oral sale entered into by him and Garcia (through his
son Lorenzo Garcia) in 1976. The said oral sale was consummated on the same year as petitioner had
already occupied and tilled the subject property and started paying real estate taxes thereon. He further
alleges that he allowed respondent to cultivate and possess the subject property in 1976 only out of mercy
and compassion since the latter begged him for work. The existing sale agreement had been merely
formalized by virtue of the 1982 deed of sale which in fact, expressly provided that the subject property
was not tenanted and that the provisions of law on pre-emption had been complied with.25 In this regard,
petitioner claims that respondent cannot be considered as a tenant and as such, the issuance of an
emancipation patent in his favor was erroneous. Likewise, petitioner claims that his right to due process
was violated by the issuance of the aforesaid emancipation patent without any notice on his part.
In his Comment,26 respondent counters that petitioner cannot change his theory regarding the date of sale
between him and Garcia nor even raise the same factual issue on appeal before the Court.27 Moreover, he
asserts that the 1982 deed of sale was not registered and therefore, does not bind him. In any event, he
posits that the sale between petitioner and Garcia was null and void.28 Finally, he argues that petitioner’s
PARO petitions constitute collateral attacks to his title to the subject property which are disallowed under
PD 1529.29
The Court's Ruling

B. Validity of the sale of the

subject property to petitioner
PD 27 prohibits the transfer of ownership over tenanted rice and/or corn lands after October 21, 1972
except only in favor of the actual tenanttillers thereon. As held in the case of Sta. Monica Industrial and
Development Corporation v. DAR Regional Director for Region III,36 citing Heirs of Batongbacal v.
CA:37
x x x P.D. No. 27, as amended, forbids the transfer or alienation of covered agricultural lands after
October 21, 1972 except to the tenant-beneficiary. x x x.
In Heirs of Batongbacal v. Court of Appeals, involving the similar issue of sale of a covered agricultural
land under P.D. No. 27, this Court held:
Clearly, therefore, Philbanking committed breach of obligation as an agricultural lessor.1âwphi1 As the
records show, private respondent was not informed about the sale between Philbanking and petitioner,
and neither was he privy to the transfer of ownership from Juana Luciano to Philbanking. As an
agricultural lessee, the law gives him the right to be informed about matters affecting the land he tills,
without need for him to inquire about it.
xxxx
In other words, transfer of ownership over tenanted rice and/or corn lands after October 21, 1972 is
allowed only in favor of the actual tenant-tillers thereon. Hence, the sale executed by Philbanking on
January 11, 1985 in favor of petitioner was in violation of the aforequoted provision of P.D. 27 and its
implementing guidelines, and must thus be declared null and void. (Emphasis and underscoring supplied)
Records reveal that the subject landholding fell under the coverage of PD 27 on October 21, 197238 and
as such, could have been subsequently sold only to the tenant thereof, i.e., the respondent. Notably, the
status of respondent as tenant is now beyond dispute considering petitioner’s admission of such fact.39
Likewise, as earlier discussed, petitioner is tied down to his initial theory that his claim of ownership over
the subject property was based on the 1982 deed of sale. Therefore, as Garcia sold the property in 1982 to
the petitioner who is evidently not the tenant-beneficiary of the same, the said transaction is null and void
for being contrary to law.40
In consequence, petitioner cannot assert any right over the subject landholding, such as his present claim
for landholding exemption, because his title springs from a null and void source. A void contract is
equivalent to nothing; it produces no civil effect; and it does not create, modify or extinguish a juridical
relation.41 Hence, notwithstanding the erroneous identification of the subject landholding by the MARO
as owned by Cipriano Borromeo, the fact remains that petitioner had no right to file a petition for
landholding exemption since the sale of the said property to him by Garcia in 1982 is null and void.
Proceeding from this, the finding that petitioner’s total agricultural landholdings is way below the
retention limits set forth by law thus, becomes irrelevant to his claim for landholding exemption precisely
because he has no right over the aforementioned landholding.
In view of the foregoing disquisition, the Court sees no reason to delve on the issue regarding the
cancellation of respondent’s emancipation patent, without prejudice to petitioner’s right to raise his other
claims and objections thereto through the appropriate action filed before the proper forum.42
WHEREFORE, the petition is DENIED. The assailed April 30, 2010 Decision and September 13, 2010
Resolution of the Court of Appeals in CA-G.R. SP No. 101185 are hereby AFFIRMED.

. Nos. 162335 & 162605 March 6, 2012

SEVERINO M. MANOTOK IV, FROILAN M. MANOTOK, FERNANDO M. MANOTOK III, MA.
MAMERTA M. MANOTOK, PATRICIA L. TIONGSON, PACITA L. GO, ROBERTO LAPERAL III,
MICHAEL MARSHALL V. MANOTOK, MARYANN MANOTOK, FELISA MYLENE V.
MANOTOK, IGNACIO V. MANOTOK, JR., MILAGROS V. MANOTOK, SEVERINO MANOTOK
III, ROSA R. MANOTOK, MIGUEL A.B. SISON, GEORGE M. BOCANEGRA, MA. CRISTINA E.
SISON, PHILIPP L. MANOTOK, JOSE CLEMENTE L. MANOTOK, RAMON SEVERINO L.
MANOTOK, THELMA R. MANOTOK, JOSE MARIA MANOTOK, JESUS JUDE MANOTOK, JR.
and MA. THERESA L. MANOTOK, represented by their Attorney- in-fact, Rosa R. Manotok,
Petitioners,
vs.
HEIRS OF HOMER L. BARQUE, represented by TERESITA BARQUE HERNANDEZ, Respondents.
RESOLUTION
VILLARAMA, JR., J.:
At bar are the motions for reconsideration separately filed by the Manotoks, Barques and Manahans of
our Decision promulgated on August 24, 2010, the dispositive portion of which reads:
WHEREFORE, the petitions filed by the Manotoks under Rule 45 of the 1997 Rules of Civil Procedure,
as amended, as well as the petition-in-intervention of the Manahans, are DENIED. The petition for
reconstitution of title filed by the Barques is likewise DENIED. TCT No. RT-22481 (372302) in the name
of Severino Manotok IV, et al., TCT No. 210177 in the name of Homer L. Barque and Deed of
Conveyance No. V-200022 issued to Felicitas B. Manahan, are all hereby declared NULL and VOID. The
Register of Deeds of Caloocan City and/or Quezon City are hereby ordered to CANCEL the said titles.
The Court hereby DECLARES that Lot 823 of the Piedad Estate, Quezon City legally belongs to the
NATIONAL GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, without prejudice to the
institution of REVERSION proceedings by the State through the Office of the Solicitor General.
With costs against the petitioners.
SO ORDERED.
The Manotoks raised the following grounds in their motion for reconsideration with motion for oral
arguments:
1. It is unjust and oppressive to deprive the Manotoks of property they have long held and acquired from
the State, on consideration fully paid and received, and under registered title issued by the State itself, on
nothing more than the assumed failure of the State’s agents to inscribe a ministerial "approval" on the
transaction deeds.
2. The annulment of Friar Land sales, simply because physical evidence of the Secretary’s ministerial
approval can no longer be found, may void transactions involving thousands of hectares of land, and
affect possibly millions of people to whom the lands may have since been parceled out, sold and resold.
3. The Manotoks were given no due notice of the issue of reversion, which this case on appeal did not
include, and which was thrust upon the Manotoks only in the final resolution disposing of the appeal.
It would be error for the Honorable Court to let this matter go without a serious and full re-examination.
This can be accomplished, among others, by allowing this motion for reconsideration to be heard on oral
argument, to try to permit all pertinent considerations to be aired before the Court and taken into account.
4. These G.R. Nos. 162335 and 162605 were an appeal from administrative reconstitution proceedings
before LRA Reconstitution officer Benjamin Bustos. But the Resolution dated 18 December 2008 which
finally reversed the CA’s rulings, affirmed the denial by Bustos of the application for administrative
reconstitution of the Barques’ purported transfer certificate of title, and terminated the appeal introduced a
new "case" on the Manotok property. It ordered evidence-taking at the CA, on which the Supreme Court
proposed itself to decide, in the first instance, an alleged ownership controversy over the Manotok
property.
5. The Manotoks objected to the "remand" on jurisdictional and due process grounds. The original and
exclusive jurisdiction over the subject matter of the case is vested by law on the regional trial courts.
6. The Honorable Court erred in proceeding to judgment divesting the Manotoks of their title to Lot 823
of the Piedad Estate, without a trial in the courts of original and exclusive jurisdiction, and in disregard of
process which the law accords to all owners-in-possession.
7. The Honorable Court erred in concluding that the Manotoks, despite being owners in possession under
a registered title, may be compelled to produce the deeds by which the Government had transferred the
property to them, and "failing" which can be divested of their ownership in favor of the Government,
even if the latter has not demanded a reversion or brought suit for that purpose.
8. The Honorable Court erred in imposing on the Manotoks, contrary to Art. 541 of the Civil Code, the
obligation to prove their ownership of the subject property, and in awarding their title to the Government
who has not even sued to contest that ownership.
9. The Honorable Court erred in finding that Sale Certificate No. 1054, which Severino Manotok acquired
by assignment in 1923, was not approved by the Director of Lands and the Secretary of Agriculture and
Natural Resources, and in finding that a Sale Certificate without the Secretary’s approval is void.
10. The Honorable Court erred in concluding that the Manotoks had no valid Deed of Conveyance of Lot
823 from the Government The original of Deed of Conveyance No. 29204 gave the register of deeds the
authority to issue the transfer certificate of title in the name of the buyer Severino Manotok, which is
required by law to be filed with and retained in the custody of the register of deeds.We presume that the
copy thereof actually transmitted to and received by the register of deeds did contain the Secretary’s
signature because he in fact issued the TCT. And we rely on this presumption because the document itself
can no longer be found.
11. Assuming arguendo that the original Deed of Conveyance No. 29204 the register of deeds received
did not bear the Department Secretary’s signature, DENR Memorandum Order No. 16-05 dated October
27, 2005 cured the defect. To deny the Manotoks the benefit of ratification under said MO, on the
erroneous interpretation that it covered only those found in the records of the "field offices" of the DENR
and LMB, would be discriminatory. The Department Secretary’s (assumed) failure to affix his signature
on the deed of conveyance could not defeat the Manotoks’ right to the lot after they had fully paid for it.
Republic Act No. 9443 must be applied, mutatis mutandis, to the Manotoks and the Piedad Estate.
12. The Honorable Court erred in denying their right to be informed of the CA’s report and be heard
thereon prior to judgment, as basic requirements of due process.
The Barques anchor their motion for reconsideration on the following:
I
THE HONORABLE SUPREME COURT GRAVELY ERRED IN DENYING THE PETITION FOR
RECONSTITUTION FILED BY RESPONDENTS HEIRS OF BARQUE WITHOUT STATING THE
GROUNDS FOR SUCH DENIAL.
II
THE HONORABLE SUPREME COURT GRAVELY ERRED IN INSTANTLY DECLARING IN THE
DISPOSITIVE PORTION OF THE DECISION THAT ALONG WITH FELICITAS B. MANAHAN’S
TITLE, RESPONDENTS HEIRS OF BARQUE’S TITLE TCT NO. 210177 IS LIKEWISE NULL AND
VOID, WITHOUT STATING A CLEAR AND DEFINITE BASIS THEREFOR.
III
THE HONORABLE SUPREME COURT GRAVELY ERRED IN DECLARING TRANSFER
CERTIFICATE OF TITLE NO. 210177 IN THE NAME OF HOMER L. BARQUE NULL AND VOID.
IV
THE HONORABLE COURT OF APPEALS’ FACTUAL FINDINGS, ADOPTED BY THE
HONORABLE SUPREME COURT IN THE DECISION DATED 24 AUGUST 2010, ARE
CONTRARY TO THE EVIDENCE PRESENTED.
V
THE HONORABLE SUPREME COURT’S FINDINGS IN THE DECISION DATED 24 AUGUST 2010
ARE CONTRARY TO LAW.
As to the Manahans, they seek a partial reconsideration and to allow further reception of evidence, stating
the following grounds:
I. As the original of Sale Certificate No. 511 could not be found in the files of the LMB or the DENR-
NCR at the time of the hearings before the Commissioners, the existence of the certificate was proven by
secondary evidence. The Commissioners erred in ignoring secondary evidence of the contents of Sale
Certificate No. 511 because of mere doubt and suspicion as to its authenticity and in the absence of
contradicting evidence.
II. The OSG which has been tasked by the Honorable Court to obtain documents from the LMB and
DENR-NCR relative to the conveyance of Lot 823, Piedad Estate, furnished intevenors with a certified
true copy of Sale Certificate No. 511 which it obtained from the DENR-NCR on September 11, 2010,
together with the explanation of DENR-NCR why the document is available only now. (Certified true
copy of Sale Certificate No. 511 and Sworn Explanation of Evelyn G. Celzo attached as Annexes "I" and
"II".
III. When Valentin Manahan offered to purchase Lot 823, Piedad Estate, being the "actual settler and
occupant" who under the law enjoyed preference to buy the lot, his status as "actual settler and occupant"
must have been verified by the Bureau of Public Lands because the presumption is that official duty has
been regularly performed. The administrative determination of the status of Valentin Manahan as "actual
settler and occupant" can not now be reviewed after the lapse of about eight (8) decades when parties,
witnesses, documents and other evidence are hardly or no longer available.
IV. Abundant evidence was submitted by intervenors that they and their predecessors-in-interest occupied
and possessed Lot 823 up to 1948 when they were dispossessed by armed men. It was error for the
Commissioners to ignore the evidence of the intervenors, there being no contradicting proof.
V. The Commissioners committed palpable error in not according evidentiary value to the Investigation
Report of Evelyn dela Rosa because it is allegedly "practically a replica or summation of Felicitas B.
Manahan’s allegations embodied in her petition." Examination of the dates of the documents will show
that the Investigation Report preceded the Petition. The Petition, therefore, is based on the Investigation
Report, and not the other way around.
VI. The pronouncement of the Commissioners that Sale Certificate No. 511 is stale is incorrect.
Intervenors made continuing efforts to secure a deed of conveyance based on Sale Certificate No. 511.
Defense of staleness or laches belongs to the party against whom the claim is asserted; it is only that party
who can raise it. It can also be waived, as in this case when the LMB which had the sole authority under
Act No. 1120 to convey friar lands, issued to intervenor Felicitas B. Manahan Deed of Conveyance No.
V-2000-22.
VII. The requirement of Act No. 1120 that a deed of conveyance of friar land must be signed by the
Secretary of Interior was dispensed with pursuant to law and Presidential issuances which have the force
of law.
VIII. Deeds of conveyance lacking the signature of the Department Secretary were ratified by President
Joseph Estrada and DENR Secretary Michael T. Defensor.
The motions are bereft of merit.
Upon the theory that this Court had no power to cancel their certificate of title over Lot 823, Piedad Estate
in the resolution of the present controversy, the Manotoks contend that our Resolution of December 18,
2008 terminated the appeal from the Land Registration Authority (LRA) administrative reconstitution
proceedings by reversing the CA’s rulings and affirming the denial by LRA Reconstitution Officer
Benjamin M. Bustos of the application for administrative reconstitution of the Barques’ Transfer
Certificate of Title (TCT) No. 210177. The appeal having been terminated, the Manotoks argued that the
remand to the CA for evidence-taking had introduced a new "case" in which this Court will decide, in the
first instance, an "alleged" ownership issue over the property. Such action is legally infirm since the law
has vested exclusive original jurisdiction over civil actions involving title to real property on the trial
courts.
The argument is untenable.
In our December 18, 2008 Resolution, we set aside the December 12, 2005 Decision rendered by the First
Division and recalled the entry of judgment. We ruled that neither the CA nor the LRA had jurisdiction to
cancel the Manotok title, a relief sought by the Barques in the administrative reconstitution proceedings.
The Court En Banc proceeded with the reevaluation of the cases on a pro hac vice basis. During the oral
arguments, there were controversial factual matters which emerged as the parties fully ventilated their
respective claims, in the course of which the Barques’ claim of ownership was found to be exceedingly
weak. Indeed, both the LRA and CA erred in ruling that the Barques had the right to seek reconstitution
of their purported title. Reevaluation of the evidence on record likewise indicated that the Manotoks’
claim to title is just as flawed as that of the Barques. Following the approach in Alonso v. Cebu Country
Club, Inc.1 also involving a Friar Land, Republic v. Court of Appeals2 and Manotok Realty Inc. v. CLT
Realty Development Corporation,3 the majority resolved to remand this case for reception of evidence on
the parties’ competing claims of ownership over Lot 823 of the Piedad Estate. Given the contentious
factual issues, it was necessary for this Court to resolve the same for the complete determination of the
present controversy involving a huge tract of friar land. It was thus not the first time the Court had
actually resorted to referring a factual matter pending before it to the CA.
Maintaining their objection to the order for reception of evidence on remand, the Manotoks argue that as
owners in possession, they had no further duty to defend their title pursuant to Article 541 of the Civil
Code which states that: "[a] possessor in the concept of owner has in his favor the legal presumption that
he possesses with a just title and he cannot be obliged to show or prove it." But such presumption is prima
facie, and therefore it prevails until the contrary is proved.4 In the light of serious flaws in the title of
Severino Manotok which were brought to light during the reconstitution proceedings, the Court deemed it
proper to give all the parties full opportunity to adduce further evidence, and in particular, for the
Manotoks to prove their presumed just title over the property also claimed by the Barques and the
Manahans. As it turned out, none of the parties were able to establish by clear and convincing evidence a
valid alienation from the Government of the subject friar land. The declaration of ownership in favor of
the Government was but the logical consequence of such finding.
We have ruled that the existence of Sale Certificate No. 1054 in the records of the DENR-LMB was not
duly established. No officer of the DENR-NCR or LMB having official custody of sale certificates
covering friar lands testified as to the issuance and authenticity of Exh. 10 submitted by the Manotoks.
And even assuming that Exh. 10 was actually sourced from the DENR-LMB, there was no showing that it
was duly issued by the Director of Lands and approved by the Secretary of Agriculture and Natural
Resources (DENR). On this point, the Manotoks hinted that the LMB’s certifying the document (Exh. 10)
at the Manotoks’ request was a deliberate fraud in order to give them either a false document, the usual
unsigned copy of the signed original, or a fake copy.
The Manotoks further assert that this would imply that the LMB either did not produce the genuine
article, or could not produce it. This could only mean that the document which the NBI "found" to be fake
or spurious, if this Court accepts that finding, was "planted evidence"or evidence inserted in the LMB
files to discredit the Manotok title. Nonetheless, the Manotoks insist there were independent evidence
which supposedly established the prior existence of Sale Certificate No. 1054. These documents are: (a)
photocopy of Assignment of Sale Certificate No. 1054 dated 1929; (b) official receipt of payment for said
certified copy; (c) photocopies of the other assignment deeds dated 1923; (d) official receipts of
installment payments on Lot 823 issued to Severino Manotok; (e) file copies in the National Archives of
the Deed of Conveyance No. 29204; and (f) the notarial registers in which the said Deed of Conveyance,
as well as the assignment documents, were entered.
The contentions have no merit, and at best speculative. As this Court categorically ruled in Alonso v.
Cebu Country Club, Inc.,5 "approval by the Secretary of Agriculture and Commerce of the sale of friar
lands is indispensable for its validity, hence, the absence of such approval made the sale null and void ab
initio." In that case, the majority declared that no valid titles can be issued on the basis of the sale or
assignment made in favor of petitioner’s father due to the absence of signature of the Director of Lands
and the Secretary of the Interior, and the approval of the Secretary of Natural Resources in the Sale
Certificate and Assignment of Sale Certificate. Applying the Alonso ruling to these cases, we thus held
that no legal right over the subject friar land can be recognized in favor of the Manotoks under the
assignment documents in the absence of the certificate of sale duly signed by the Director of Lands and
approved by the Secretary of Agriculture and Natural Resources.
That a valid certificate of sale was issued to Severino Manotok’s assignors cannot simply be presumed
from the execution of assignment documents in his favor. Neither can it be deduced from the alleged
issuance of the half-torn TCT No. 22813, itself a doubtful document as its authenticity was not
established, much less the veracity of its recitals because the name of the registered owner and date of
issuance do not appear at all. The Manotoks until now has not offered any explanation as to such
condition of the alleged title of Severino Manotok; they assert that it is the Register of Deeds himself
"who should be in a position to explain that condition of the TCT in his custody." But then, no Register of
Deeds had testified and attested to the fact that the original of TCT No. 22813 was under his/her custody,
nor that said certificate of title in the name of Severino Manotok existed in the files of the Registry of
Deeds of Caloocan or Quezon City. The Manotoks consistently evaded having to explain the
circumstances as to how and where TCT No. 22813 came about. Instead, they urge this Court to validate
their alleged title on the basis of the disputable presumption of regularity in the performance of official
duty. Such stance hardly satisfies the standard of clear and convincing evidence in these cases. Even the
existence of the official receipts showing payment of the price to the land by Severino Manotok does not
prove that the land was legally conveyed to him without any contract of sale having been executed by the
government in his favor. Neither did the alleged issuance of TCT No. 22183 in his favor vest ownership
upon him over the land nor did it validate the alleged purchase of Lot 283, which is null and void. The
absence of the Secretary’s approval in Certificate of Sale No. 1054 made the supposed sale null and void
ab initio.6
In the light of the foregoing, the claim of the Barques who, just like the Manahans, were unable to
produce an authentic and genuine sale certificate, must likewise fail. The Decision discussed extensively
the findings of the CA that the Barques’ documentary evidence were either spurious or irregularly
procured, which even buttressed the earlier findings mentioned in the December 18, 2008 Resolution. The
CA’s findings and recommendations with respect to the claims of all parties, have been fully adopted by
this Court, as evident in our disquisitions on the indispensable requirement of a validly issued Certificate
of Sale over Lot 823, Piedad Estate.
As to the motion of the Manahans to admit an alleged certified true copy of Sale Certificate No. 511 dated
June 23, 1913 in the name of Valentin Manahan which, as alleged in the attached Sworn Explanation of
Evelyn G. Celzo, the latter hadinadvertently failed to attach to her Investigation Report forwarded to the
CENRO, this Court cannot grant said motion.
This belatedly submitted copy of Sale Certificate No. 511 was not among those official documents which
the Office of the Solicitor General (OSG) offered as evidence, as in fact no copy thereof can be found in
the records of either the DENR-NCR or LMB. Moreover, the sudden emergence of this unauthenticated
document is suspicious, considering that Celzo who testified, as witness for both the OSG and the
Manahans, categorically admitted that she never actually saw the application to purchase and alleged Sale
Certificate No. 511 of the Manahans. The relevant portions of the transcript of stenographic notes of the
cross- examination of said witness during the hearing before the CA are herein quoted:
ATTY. SAN JUAN:
How about this part concerning Valentin Manahan having applied for the purchase of the land? Did you
get this from the neighbors or from Felicitas Manahan?
xxxx
WITNESS:
No, sir. Only the Records Section, sir, that Valentin Manahan applied, sir.
ATTY. SAN JUAN:
You did not see Valentin Manahan’s application but only the Records Section saw it?
WITNESS:
Yes, sir.
ATTY. SAN JUAN:
Did they tell you that they saw the application?
WITNESS:
I did not go further, sir.
xxxx
ATTY. SAN JUAN:
And this report of yours says that Valentin Manahan was issued Sale Certificate No. 511 after completing
the payment of the price of P2,140?
WITNESS:
Yes, sir.
ATTY. SAN JUAN:
You also got this from the records of the LMB, is that correct?
WITNESS:
Yes, sir.
ATTY. SAN JUAN:
You actually saw the sale certificate that was issued to Valentin Manahan after he paid the price of
P2,140?
WITNESS:
No, sir. I did not go further.
ATTY. SAN JUAN:
You did not see the sale certificate?
WITNESS:
Yes, Sir, but I asked only.
ATTY. SAN JUAN:
Who did you ask?
WITNESS:
The records officer, sir.
ATTY. SAN JUAN:
Whose name you can no longer recall, correct?
WITNESS:
I can no longer recall, sir.
ATTY. SAN JUAN:
And the information to you was the Sale Certificate No. 511 was issued after the price was fully paid?
WITNESS:
Yes, sir.
ATTY. SAN JUAN:
And it was only after he applied for the purchase of the lot sometime after the survey of 1939 that he was
issued sale certificate No. 511?
WITNESS:
I am not aware of the issuance of sale certificate. I am aware only of the deed of assignment, Sir.
x x x x7 (Emphasis supplied.)
In view of the above admission, Celzo’s explanation that the copy of Sale Certificate No. 511 signed by
the Director of Lands and Secretary of the Interior was originally attached to her Investigation Report,
cannot be given credence. Even her testimony regarding the conduct of her investigation of Lot 823,
Piedad Estate and the Investigation Report she submitted thereafter, failed to impress the CA on the
validity of the Manahans’ claim. Indeed, records showed that Celzo’s findings in her report were merely
based on what Felicitas Manahan told her about the alleged occupation and possession by Valentin
Manahan of the subject land.
In their Offer of Additional Evidence, the Manahans submitted a photocopy of a letter dated December
21, 2010 allegedly sent by Atty. Allan V. Barcena (OIC, Director) to their counsel, Atty. Romeo C. dela
Cruz, which reads:
This has reference to your letter dated August 20, 2010 addressed to the Secretary of the Department of
Environment and Natural Resources (DENR) requesting that Deed of Conveyance No. V-200022 issued
on October 30, 2000 over Lot 823 of the Piedad Estate in favor of Felicitas B. Manahan be ratified or
confirmed for reasons stated therein. The Office of the DENR Secretary in turn referred the letter to us for
appropriate action.
Records of this Office on Lot 823 of the Piedad Estate, show that the Deed of Conveyance No. V-200022
covering said lot in favor of Felicitas Manahan was issued by then Director of the Land Management
Bureau (LMB), now Undersecretary Ernesto D. Adobo, Jr., on October 30, 2000. The Deed was issued
based on General Memorandum Order (GMO) No. 1 issued by then Secretary Jose J. Leido, Jr. of the
Department of Natural Resources on January 17, 1977, which authorized the Director of Lands, now
Director of LMB, to approve contracts of sale and deeds of conveyance affecting Friar Lands.
It is stressed that the confirmation of the Deed by this office is only as to the execution and issuance based
on the authority of LMB Director under GMO No. 1. This is without prejudice to the final decision of the
Supreme Court as to its validity in the case of "Severino Manotok IV, et al. versus Heirs of Homer L,
Barque" (G.R. No. 162335 & 162605).
Please be guided accordingly.8 (Emphasis supplied.)
However, in the absence of a valid certificate of sale duly signed by the Secretary of Interior or
Agriculture and Natural Resources, such alleged confirmation of the execution and issuance by the
DENR-LMB of Deed of Conveyance No V-00022 in favor of Felicitas Manahan on October 30, 2000 is
still insufficient to prove the Manahans’ claim over the subject land.
In a Supplemental Manifestation dated November 18, 2010, the Manotoks submitted an affidavit
supposedlyexecuted on November 11, 2010 by former DENR Secretary Michael T. Defensor("Defensor
Affidavit") clarifying that MO 16-05 applies to all Deeds of Conveyance that do not bear the signature of
the Secretary of Natural Resources, contrary to the CA and this Court’s statement that said issuance refers
only to those deeds of conveyance on file with the records of the DENR field offices.
By its express terms, however, MO 16-05 covered only deeds of conveyances and not unsigned
certificates of sale. The explanation of Secretary Defensor stated theavowed purpose behind the issuance,
which is "to remove doubts or dispel objections as to the validity of all Torrens transfer certificates of title
issued over friar lands" thereby "ratifying the deeds of conveyance to the friar land buyers who have fully
paid the purchase price, and are otherwise not shown to have committed any wrong or illegality in
acquiring such lands."
The Manahans propounded the same theory that contracts of sale over friar lands without the approval of
the Secretary of Natural Resources may be subsequently ratified, but pointed out that unlike the
Manotoks’ Deed of Conveyance No. 29204 (1932), their Deed of Conveyance No. V-2000-22 (2000) was
issued and approved by the Director of Lands upon prior authority granted by the Secretary.
In their Consolidated Memorandum dated December 19, 2010, the Manahans reiterated their earlier
argument that the LMB Director himself had the authority to approve contracts of sale and deeds of
conveyance over friar lands on the basis of General Memorandum Order No. 1 issued in 1977 by then
Secretary of Natural Resources Jose J. Leido, Jr. delegating such function to the Director of Lands. This
delegated power can also be gleaned from Sec. 15, Chapter 1, Title XIV of the Administrative Code of
1987 which provides that the Director of Lands shall "perform such other functions as may be provided
by law or assigned by the Secretary." Moreover, former President Corazon C. Aquino issued Executive
Order No. 131 dated January 20, 1987 reorganizing the LMB and providing that the LMB Director shall,
among others, perform other functions as may be assigned by the Minister of Natural Resources.
On the basis of Art. 13179 of the Civil Code, the Manahans contend that deeds of conveyance not bearing
the signature of the Secretary can also be ratified. Further, they cite Proclamation No. 172 issued by
former President Joseph Ejercito Estrada which declared that there should be no legal impediment for the
LMB to issue such deeds of conveyance since the applicants/purchasers have already paid the purchase
price of the lot, and as sellers in good faith, it is the obligation of the Government to deliver to said
applicants/purchasers the friar lands sold free of any lien or encumbrance whatsoever. Eventually, when
MO 16-05 was issued by Secretary Defensor, all these deeds of conveyance lacking the signature of the
Secretary of Natural Resources are thus deemed signed or otherwise ratified. The CA accordingly erred in
holding that MO 16-05 cannot override Act No. 1120 which requires that a deed of conveyance must be
signed by the Secretary, considering that MO 16-05 is based on law and presidential issuances,
particularly EO 131, which have the force of law.
Meanwhile, in compliance with our directive, the Solicitor General filed his Comment on the Defensor
Affidavit submitted by the Manotoks. The Solicitor General contends that said document is hearsay
evidence, hence inadmissible and without probative value. He points out that former DENR Secretary
Defensor was not presented as a witness during the hearings at the CA, thus depriving the parties
including the government of the right to cross-examine him regarding his allegations therein. And even
assuming arguendo that such affidavit is admissible as evidence, the Solicitor General is of the view that
the Manotoks, Barques and Manahans still cannot benefit from the remedial effect of MO 16-05 in view
of the decision rendered by this Court which ruled that none of the parties in this case has established a
valid alienation from the Government of Lot 823 of the Piedad Estate, and also because the curative effect
of MO 16-05 is intended only for friar land buyers whose deeds of conveyance lack the signature of the
Secretary of the Interior or Agriculture and Natural Resources, have fully paid the purchase price and are
otherwise not shown to have committed any wrong or illegality in acquiring the friar lands. He then
emphasizes that this Court has ruled that it is not only the deed of conveyance which must be signed by
the Secretary but also the certificate of sale itself. Since none of the parties has shown a valid disposition
to any of them of Lot 823 of the Piedad Estate, this Court therefore correctly held that said friar land is
still part of the patrimonial property of the national government.
The Court is not persuaded by the "ratification theory" espoused by the Manotoks and Manahans.
The argument that the Director of Lands had delegated authority to approve contracts of sale and deeds of
conveyances over friar landsignores the consistent ruling of this Court in controversies involving friar
lands. The aforementioned presidential/executive issuances notwithstanding, this Court held in Solid State
Multi-Products Corporation v. CA,10 Liao v. Court of Appeals,11 and Alonso v. Cebu Country Club12
that approval of the Secretary of Agriculture and Commerce (later the Natural Resources) is indispensable
to the validity of sale of friar land pursuant to Sec. 18 of Act No. 1120 and that the procedure laid down
by said law must be strictly complied with.
As to the applicability of Art. 1317 of the Civil Code, we maintain that contracts of sale lacking the
approval of the Secretary fall under the class of void and inexistent contracts enumerated in Art. 140913
which cannot be ratified. Section 18 of Act No. 1120 mandated the approval by the Secretary for a sale of
friar land to be valid.
In his dissenting opinion, Justice Antonio T. Carpio disagreed with the majority’s interpretation of
Section 18 of Act No. 1120, and proposed that based on Section 12 of the same Act, it is the Deed of
Conveyance that must bear the signature of the Secretary of Interior/Agriculture and Natural Resources
"because it is only when the final installment is paid that the Secretary can approve the sale, the purchase
price having been fully paid." It was pointed out that the majority itself expressly admit that "it is only a
ministerial duty on the part of the Secretary to sign the Deed of Conveyance once the applicant had made
full payment on the purchase price of the land", citing jurisprudence to the effect that "notwithstanding
the failure of the government to issue the proper instrument of conveyance when the purchaser finally
pays the final installment of the purchase price, the purchase of the friar land still acquired ownership.
We are unable to agree with the view that it is only the Director of Lands who signs the Certificate of
Sale.
The official document denominated as "Sale Certificate" clearly required both the signatures of the
Director of Lands who issued such sale certificate to an applicant settler/occupant and the Secretary of the
Interior/Agriculture and Natural Resources indicating his approval of the sale. These forms had been
prepared and issued by the Chief of the Bureau of Public Lands under the supervision of the Secretary of
the Interior, consistent with Act No. 1120 "as may be necessary x x x to carry into effect all the provisions
[thereof] that are to be administered by or under [his] direction, and for the conduct of all proceedings
arising under such provisions."14
We reiterate that Section 18 of Act No. 1120, as amended, is plain and categorical in stating that:
SECTION 18. No lease or sale made by the Chief of the Bureau of Public Lands under the provisions of
this Act shall be valid until approved by the Secretary of the Interior.
Section 12 did not mention the requirement of signature or approval of the Secretary in the sale certificate
and deed of conveyance.
SECTION 12. It shall be the duty of the Chief of the Bureau of Public Lands by proper investigation to
ascertain what is the actual value of the parcel of land held by each settler and occupant, taking into
consideration the location and quality of each holding of land, and any other circumstances giving [it]
value. The basis of valuation shall likewise be, so far as practicable, such [as] the aggregate of the values
of all the holdings included in each particular tract shall be equal to the cost to the Government to the
entire tract, including the cost of surveys, administration and interest upon the purchase money to the time
of sale. When the cost thereof shall have been thus ascertained, the Chief of the Bureau of Public Lands
shall give the said settler and occupant a certificate which shall set forth in detail that the Government has
agreed to sell to such settler and occupant the amount of land so held by him, at the price so fixed,
payable as provided in this Act at the office of the Chief of Bureau of Public Lands, in gold coin of the
United States or its equivalent in Philippine currency, and that upon the payment of the final installment
together with [the] accrued interest the Government will convey to such settler and occupant the said land
so held by him by proper instrument of conveyance, which shall be issued and become effective in the
manner provided in section one hundred and twenty-two of the Land Registration Act. The Chief of the
Bureau of Public Lands shall, in each instance where a certificate is given to the settler and occupant of
any holding, take his formal receipt showing the delivery of such certificate, signed by said settler and
occupant.
On the other hand, the first paragraph of Section 15 provides for the reservation of title in the Government
only for the purpose of ensuring payment of the purchase price, which means that the sale was subject
only to the resolutory condition of non-payment, while the second paragraph states that the purchaser
thereby acquires "the right of possession and purchase" by virtue of a certificate of sale "signed under the
provisions [thereof]." The certificate of sale evidences the meeting of the minds between the Government
and the applicant regarding the price, the specific parcel of friar land, and terms of payment. In Dela
Torre v. Court of Appeals,15 we explained that the non-payment of the full purchase price is the only
recognized resolutory condition in the case of sale of friar lands. We have also held that it is the execution
of the contract to sell and delivery of the certificate of sale that vests title and ownership to the purchaser
of friar land.16 Where there is no certificate of sale issued, the purchaser does not acquire any right of
possession and purchase, as implied from Section 15. By the mandatory language of Section 18, the
absence of approval of the Secretary of Interior/Agriculture and Natural Resources in the lease or sale of
friar land would invalidate the sale. These provisions read together indicate that the approval of the
Secretary is required in both the certificate of sale and deed of conveyance, although the lack of signature
of the Secretary in the latter may not defeat the rights of the applicant who had fully paid the purchase
price.
Justice Conchita Carpio Morales’ dissent asserted that case law does not categorically state that the
required "approval" must be in the form of a signature on the Certificate of Sale, and that there is no
statutory basis for the requirement of the Secretary’s signature on the Certificate of Sale "apart from a
strained deduction of Section 18."
As already stated, the official forms being used by the Government for this purpose clearly show that the
Director of Lands signs every certificate of sale issued covering a specific parcel of friar land in favor of
the applicant/purchaser while the Secretary of Interior/Natural Resources signs the document indicating
that the sale was approved by him. To approve is to be satisfied with; to confirm, ratify, sanction, or
consent to some act or thing done by another; to sanction officially.17 The Secretary of Interior/Natural
Resources signs and approves the Certificate of Sale to confirm and officially sanction the conveyance of
friar lands executed by the Chief of the Bureau of Public Lands (later Director of Lands). It is worth
mentioning thatSale Certificate No. 651 in the name of one Ambrosio Berones dated June 23, 1913,18
also covering Lot 823 of the Piedad Estate and forming part of the official documents on file with the
DENR-LMB which was formally offered by the OSG as part of the official records on file with the
DENR and LMB pertaining to Lot 823, contains the signature of both the Director of Lands and Secretary
of the Interior. The Assignment of Sale Certificate No. 651 dated April 19, 1930 was also signed by the
Director of Lands.19
Following the dissent’s interpretation that the Secretary is not required to sign the certificate of sale while
his signature in the Deed of Conveyance may also appear although merely a ministerial act, it would
result in the absurd situation wherein thecertificate of sale and deed of conveyance both lacked the
signature and approval of the Secretary, and yet the purchaser’s ownership is ratified, courtesy of DENR
Memorandum Order (MO) No. 16-05. It is also not farfetched that greater chaos will arise from
conflicting claims over friar lands, which could not be definitively settled until the genuine and official
manifestation of the Secretary’s approval of the sale is discerned from the records and documents
presented. This state of things is simply not envisioned under the orderly and proper distribution of friar
lands to bona fide occupants and settlers whom the Chief of the Bureau of Public Lands was tasked to
identify.20
The existence of a valid certificate of sale therefore must first be established with clear and convincing
evidence before a purchaser is deemed to have acquired ownership over a friar land notwithstanding the
non-issuance by the Government, for some reason or another, of a deed of conveyance after completing
the installment payments. In the absence of such certificate of sale duly signed by the Secretary, no right
can be recognized in favor of the applicant. Neither would any assignee or transferee acquire any right
over the subject land.
In Alonso v. Cebu Country Club, Inc.,21 the Court categorically ruled that the absence of approval by the
Secretary of Agriculture and Commerce in the sale certificate and assignment of sale certificate made the
sale null and void ab initio. Necessarily, there can be no valid titles issued on the basis of such sale or
assignment.22
Justice Carpio, however, opined that the ruling in Alonso "was superseded with the issuance by then
Department of [Environment] and Natural Resources (DENR) Secretary Michael T. Defensor of DENR
Memorandum Order No. 16-05." It was argued that the majority had construed a "limited application"
when it declared that the Manotoks could not benefit from said memorandum order because the latter
refers only to deeds of conveyance "on file with the records of the DENR field offices".
We disagree with the view that Alonso is no longer applicable to this controversy after the issuance of
DENR MO No. 16-05 which supposedly cured the defect in the Manotoks’ title.
First, DENR MO No. 16-05 explicitly makes reference only to Deeds of Conveyances, not to Sale
Certificates by which, under the express language of Section 15, the purchaser of friar land acquires the
right of possession and purchase pending final payment and the issuance of title, such certificate being
duly signed under the provisions of Act No. 1120. Although the whereas clause of MO No. 16-05
correctly stated that it was only a ministerial duty on the part of the Secretary to sign the Deed of
Conveyance once the applicant had made full payment on the purchase price of the land, it must be
stressed that in those instances where the formality of the Secretary’s approval and signature is dispensed
with, there was a valid certificate of sale issued to the purchaser or transferor. In this case, there is no
indication in the records that a certificate of sale was actually issued to the assignors of Severino
Manotok, allegedly the original claimants of Lot 823, Piedad Estate.
Second, it is basic that an administrative issuance like DENR Memorandum Order No. 16-05 must
conform to and not contravene existing laws. In the interpretation and construction of the statutes
entrusted to them for implementation, administrative agencies may not make rules and regulations which
are inconsistent with the statute it is administering, or which are in derogation of, or defeat its purpose. In
case of conflict between a statute and an administrative order, the former must prevail.23 DENR
Memorandum Order No. 16-05 cannot supersede or amend the clear mandate of Section 18, Act No. 1120
as to dispense with the requirement of approval by the Secretary of the Interior/Agriculture and Natural
Resources of every lease or sale of friar lands.
But what is worse, as the dissent suggests, is that MO 16-05 would apply even to those deeds of
conveyances not found in the records of DENR or its field offices, such as the Manotoks’ Deed of
Conveyance No. 29204 sourced from the National Archives. It would then cover cases of claimants who
have not been issued any certificate of sale but were able to produce a deed of conveyance in their names.
The Bureau of Lands was originally charged with the administration of all laws relative to friar lands,
pursuant to Act No. 2657 and Act No. 2711. Under Executive Order No. 192,24 the functions and powers
previously held by the Bureau of Lands were absorbed by the Lands Management Bureau (LMB) of the
DENR, while those functions and powers not absorbed by the LMB were transferred to the regional field
offices.25 As pointed out by the Solicitor General in the Memorandum submitted to the CA, since the
LMB and DENR-NCR exercise sole authority over friar lands, they are naturally the "sole repository of
documents and records relative to Lot No. 823 of the Piedad Estate."26
Third, the perceived disquieting effects on titles over friar lands long held by generations of landowners
cannot be invoked as justification for legitimizing any claim or acquisition of these lands obtained
through fraud or without strict compliance with the procedure laid down in Act No. 1120. This Court, in
denying with finality the motion for reconsideration filed by petitioner in Alonso v. Cebu Country Club,
Inc.27 reiterated the settled rule that "[a]pproval by the Secretary of the Interior cannot simply be
presumed or inferred from certain acts since the law is explicit in its mandate."28 Petitioners failed to
discharge their burden of proving their acquisition of title by clear and convincing evidence, considering
the nature of the land involved.
As consistently held by this Court, friar lands can be alienated only upon proper compliance with the
requirements of Act No. 1120. The issuance of a valid certificate of sale is a condition sine qua non for
acquisition of ownership under the Friar Lands Act. Otherwise, DENR Memorandum Order No. 16-05
would serve as administrative imprimatur to holders of deeds of conveyance whose acquisition may have
been obtained through irregularity or fraud.
Contrary to the dissent of Justice Maria Lourdes P. A. Sereno that our decision has "created dangers for
the system of property rights in the Philippines", the Court simply adhered strictly to the letter and spirit
of the Friar Lands Act and jurisprudence interpreting its provisions. Such imagined scenario of instability
and chaos in the established property regime, suggesting several other owners of lands formerly
comprising the Piedad Estate who are supposedly similarly situated, remains in the realm of speculation.
Apart from their bare allegations, petitioners (Manotoks) failed to demonstrate how the awardees or
present owners of around more than 2,000 hectares of land in the Piedad Estate can be embroiled in legal
disputes arising from unsigned certificates of sale.
On the other hand, this Court must take on the task of scrutinizing even certificates of title held for
decades involving lands of the public domain and those lands which form part of the Government’s
patrimonial property, whenever necessary in the complete adjudication of the controversy before it or
where apparent irregularities and anomalies are shown by the evidence on record. There is nothing
sacrosanct about the landholdings in the Piedad Estate as even prior to the years when Lot 823 could have
been possibly "sold" or disposed by the Bureau of Lands, there were already reported anomalies in the
distribution of friar lands in general.29
Significantly, subsequent to the promulgation of our decision in Alonso, Republic Act No. (RA) 9443
was passed by Congress confirming and declaring, subject to certain exceptions, the validity of existing
TCTs and reconstituted certificates of title covering the Banilad Friar Lands Estate situated in Cebu.
Alonso involved a friar land already titled but without a sale certificate, and upon that ground we declared
the registered owner as not having acquired ownership of the land. RA 9443 validated the titles
"notwithstanding the lack of signatures and/or approval of the then Secretary of Interior (later Secretary of
Agriculture and Natural Resources) and/or the then Chief of the Bureau of Public lands (later Director of
Public Lands) in the copies of the duly executed Sale Certificate and Assignments of Sale Certificates, as
the case may be, now on file with the Community Environment and Natural Resources Office (CENRO),
Cebu City".
The enactment of RA 9443 signifies the legislature’s recognition of the statutory basis of the Alonso
ruling to the effect that in the absence of signature and/or approval of the Secretary of Interior/Natural
Resources in the Certificates of Sale on file with the CENRO, the sale is not valid and the purchaser has
not acquired ownership of the friar land. Indeed, Congress found it imperative to pass a new law in order
to exempt the already titled portions of the Banilad Friar Lands Estate from the operation of Section 18.
This runs counter to the dissent’s main thesis that a mere administrative issuance (DENR MO No. 16-05)
would be sufficient to cure the lack of signature and approval by the Secretary in Certificate of Sale No.
1054 covering Lot 823 of the Piedad Estate.
In any event, the Manotoks now seek the application of RA 9443 to the Piedad Estate, arguing that for
said law to be constitutionally valid, its continued operation must be interpreted in a manner that does not
collide with the equal protection clause. Considering that the facts in Alonso from which RA 9443 sprung
are similar to those in this case, it is contended that there is no reason to exclude the Piedad Estate from
the ambit of RA 9443.
Justice Carpio’s dissent concurs with this view, stating that to limit its application to the Banilad Friar
Lands Estate will result in class legislation. RA 9443 supposedly should be extended to lands similarly
situated, citing the case of Central Bank Employees Association, Inc. v. Bangko Sentral ng Pilipinas.30
In the aforesaid case, the Court extended the benefits of subsequent laws exempting all rank-and-file
employees of other government financing institutions (GFIs) from the Salary Standardization Law (SSL)
to the rank-and-file employees of the BSP. We upheld the position of petitioner association that the
continued operation of Section 15 (c), Article II of RA 7653 (the New Central Bank Act), which provides
that the compensation and wage structure of employees whose position fall under salary grade 19 and
below shall be in accordance with the rates prescribed under RA 6758 (SSL), constitutes "invidious
discrimination on the 2,994 rank-and-file employees of the [BSP]". Thus, as regards the exemption from
the SSL, we declared that there were no characteristics peculiar only to the seven GFIs or their rank-and-
file so as to justify the exemption from the SSL which BSP rank-and-file employees were denied. The
distinction made by the law is superficial, arbitrary and not based on substantial distinctions that make
real differences between BSP rank-and-file and the seven other GFIs.31
We are of the opinion that the provisions of RA 9443 may not be applied to the present case as to cure the
lack of signature of the Director of Lands and approval by the Secretary of Agriculture and Natural
Resources in Sale Certificate No. 1054.
The Court has explained the nature of equal protection guarantee in this manner:
The equal protection of the law clause is against undue favor and individual or class privilege, as well as
hostile discrimination or the oppression of inequality. It is not intended to prohibit legislation which is
limited either in the object to which it is directed or by territory within which it is to operate. It does not
demand absolute equality among residents; it merely requires that all persons shall be treated alike, under
like circumstances and conditions both as to privileges conferred and liabilities enforced. The equal
protection clause is not infringed by legislation which applies only to those persons falling within a
specified class, if it applies alike to all persons within such class, and reasonable grounds exist for making
a distinction between those who fall within such class and those who do not.32 (Emphasis and
underscoring supplied.)
Section 1 of RA 9443 provides:
Section 1. All existing Transfer Certificates of Title and Reconstituted Certificates of Title duly issued by
the Register of Deeds of Cebu Province and/or Cebu City covering any portion of the Banilad Friar Lands
Estate, notwithstanding the lack of signatures and/or approval of the then Secretary of the Interior (later
Secretary of Agriculture and Natural Resources) and/or the then Chief of the Bureau of Public Lands
(later Director of Public Lands) in the copies of the duly executed Sale Certificates and Assignments of
Sales Certificates, as the case may be, now on file with the Community Environment and Natural
Resources Office (CENRO), Cebu City, are hereby confirmed and declared as valid titles and the
registered owners recognized as absolute owners thereof.
This confirmation and declaration of validity shall in all respects be entitled to like effect and credit as a
decree of registration, binding the land and quieting the title thereto and shall be conclusive upon and
against all persons, including the national government and al1 branches thereof; except when, in a given
case involving a certificate of title or areconstituted certificate of title, there is clear evidence that such
certificate of title or reconstituted certificate of title was obtained through fraud, in which case the
solicitor general or his duly designated representative shall institute the necessary judicial proceeding to
cancel the certificate of title or reconstituted certificate of title as the case may be, obtained through such
fraud.(Emphasis supplied.)
Without ruling on the issue of violation of equal protection guarantee if the curative effect of RA 9443 is
not made applicable to all titled lands of the Piedad Estate, it is clear that the Manotoks cannot invoke this
law to "confirm" and validate their alleged title over Lot 823. It must be stressed that the existence and
due issuance of TCT No. 22813 in the name of Severino Manotok was not established by the evidence on
record. There is likewise no copy of a "duly executed certificate of sale" "on file" with the DENR regional
office. In the absence of an existing certificate of title in the name of the predecessor-in-interest of the
Manotoks and certificate of sale on file with the DENR/CENRO, there is nothing to confirm and validate
through the application of RA 9443.
Moreover, RA 9443 expressly excludes from its coverage those cases involving certificates of title which
were shown to have been fraudulently or irregularly issued. As the reconstitution and remand proceedings
in these cases revealed, the Manotoks’ title to the subject friar land, just like the Barques and Manahans,
is seriously flawed. The Court cannot allow them now to invoke the benefit of confirmation and
validation of ownership of friar lands under duly executed documents, which they never had in the first
place. Strict application by the courts of the mandatory provisions of the Friar Lands Act is justified by
the laudable policy behind its enactment -- to ensure that the lands acquired by the government would go
to the actual occupants and settlers who were given preference in their distribution.33
The dissent reiterates that the existence of Sale Certificate No. 1054 was clearly and convincingly
established by the original of Assignment of Sale Certificate No. 1054 dated May 4, 1923 between M.
Teodoro and Severino Manotok as assignors and Severino Manotok as assignee (approved by the Director
of Lands on June 23, 1923), which is on file with the LMB, as well as the Deed of Conveyance No. 29204
secured from the National Archives which is the repository of government and official documents, the
original of Official Receipt No. 675257 dated 20 February 1920 for certified copy of Assignment of Sale
Certificate No. 1054 on Lot 823 and the original of the Provincial Assessor’s declaration of title in
Severino Manotok’s name for tax purposes on August 9, 1933 assessing him beginning with the year
1933. The dissent further listed some of those alleged sale certificates, assignment deeds and deeds of
conveyance either signed by the Director of Lands only or unsigned by both Director of Lands and
Secretary of Interior/Natural Resources, gathered by the Manotoks from the LMB. It was stressed that if
MO 16-05 is not applied to these huge tracts of land within and outside Metro Manila, "[H]undreds of
thousands, if not millions, of landowners would surely be dispossessed of their lands in these areas," "a
blow to the integrity of our Torrens system and the stability of land titles in this country."
The Court has thoroughly examined the evidence on record and exhaustively discussed the merits of the
Manotoks’ ownership claim over Lot 823, in the light of established precedents interpreting the
provisions of the Friar Lands Act. The dissent even accused the majority of mistakenly denigrating the
records of the National Archives which, under R.A. No. 9470 enacted on May 21, 2007, is mandated to
store and preserve "any public archive transferred to the National Archives" and tasked with issuing
certified true copies or certifications on public archives and for extracts thereof.
The Friar Lands Act mandated a system of recording all sale contracts to be implemented by the Director
of Lands, which has come to be known as the Friar Lands Sales Registry.
SEC. 6. The title, deeds and instruments of conveyance pertaining to the lands in each province, when
executed and delivered by said grantors to the Government and placed in the keeping of the Chief of the
Bureau of Public Lands, as above provided, shall be by him transmitted to the register of deeds of each
province in which any part of said lands lies, for registration in accordance with law. But before
transmitting the title, deeds, and instruments of conveyance in this section mentioned to the register
of deeds of each province for registration, the Chief of the Bureau of Public Lands shall record all
such deeds and instruments at length in one or more books to be provided by him for that purpose
and retained in the Bureau of Public Lands, when duly certified by him shall be received in all courts
of the Philippine Islands as sufficient evidence of the contents of the instrument so recorded whenever it
is not practicable to produce the originals in court. (Section 1, Act No. 1287).
It is thus the primary duty of the Chief of the Bureau of Public Lands to record all these deeds and
instruments in sales registry books which shall be retained in the Bureau of Public Lands. Unfortunately,
the LMB failed to produce the sales registry book in court, which could have clearly shown the names of
claimants, the particular lots and areas applied for, the sale certificates issued and other pertinent
information on the sale of friar lands within the Piedad Estate. Witness Teresita J. Reyes, a retired
Assistant Chief of the Records Management Division (RMD), LMB who was presented by the Manahans,
testified that when the LMB was decentralized, the sales registry books pertaining to friar lands were
supposedly turned over to the regional offices. These consisted of copies of the appropriate pages of the
sales registry books in the LMB RMD main office which has an inventory of lots subject of deeds of
conveyance and sales certificates. However, Reyes said that the sales registry book itself is no longer with
the RMD. On the other hand, the alleged affidavit of Secretary Defensor dated November 11, 2010 states
that MO 16-05 was intended to address situations when deeds of conveyance lacked the signature of the
Secretary of Agriculture and Commerce, or such deeds or records from which the Secretary’s signature or
approval may be verified were lost or unavailable.
Whether the friar lands registry book is still available in the LMB or properly turned over to the regional
offices remains unclear. With the statutorily prescribed record-keeping of sales of friar lands apparently in
disarray, it behooves on the courts to be more judicious in settling conflicting claims over friar lands.
Titles with serious flaws must still be carefully scrutinized in each case. Thus, we find that the approach
in Alonso remains as the more rational and prudent course than the wholesale ratification introduced by
MO 16-05.1âwphi1
The prospect of litigants losing friar lands they have possessed for years or decades had never deterred
courts from upholding the stringent requirements of the law for a valid acquisition of these lands. The
court’s duty is to apply the law. Petitioners’ concern for other landowners which may be similarly
affected by our ruling is, without doubt, a legitimate one. The remedy though lies elsewhere -- in the
legislature, as what R.A. 9443 sought to rectify.
WHEREFORE, the present motions for reconsideration are all hereby DENIED withFINALITY.The
motions for oral arguments and further reception of evidence are likewise DENIED.

R. No. 183444 February 8, 2012

DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, Petitioner,
vs.
RONALDO E. QUIWA, doing business under the name "R.E.Q. Construction," EFREN N. RIGOR,
doing business under the name "Chiara Construction," ROMEO R. DIMATULAC, doing business under
the name "Ardy Construction," and FELICITAS C. SUMERA, doing business under the name "F.C.S.
Construction," represented by her attorney-in-fact ROMEO M. DE LEON, Respondents.
RESOLUTION
SERENO, J.:
Assailed in this Motion for Partial Reconsideration dated 8 November 2011 filed by petitioner
Department of Public Works and Highways (DPWH) is the 12 October 2011 Decision of the Court,
primarily affirming the trial and the appellate courts’ judgments in favor of respondents’ entitlement to
compensation.
To recall, after the Mt. Pinatubo tragedy in 1991, DPWH engaged a number of contractors, including the
respondents, for the urgent rehabilitation of the affected river systems. Save for Chiara Construction and
Ardy Construction, respectively owned by Efren N. Rigor and Romeo R. Dimatulac, the contractors
signed written agreements with Engineer Philip Meñez, Project Manager II of the DPWH.
It is undisputed that the contractors have completed their assigned rehabilitation works.1 But DPWH
refused to pay the contractors for the reason that the contracts were invalid due to non-compliance with
legal requirements.2 As such, respondents filed an action for a sum of money against DPWH.3 The
Regional Trial Court (RTC) of Manila, in Civil Case No. 96-77180, held that the contracts were valid and
thus directed payment of compensation to the contractors.4 DPWH appealed to the Court of Appeals
(CA), which like the RTC, ruled that the respondents are entitled to their claim of compensation.5
Petitioner appealed by certiorari before this Court. In the questioned 12 October 2011 Decision, the Court
primarily affirmed the trial and the appellate courts’ judgments in favor of respondents’ entitlement to
compensation against petitioner DPWH.
On 10 November 2011, petitioner filed a Motion for Partial Reconsideration6 assailing the
aforementioned Decision.
Petitioner’s main contention is that respondents did not come to court with clean hands to assert their
money claims against petitioner in view of their failure to comply with the legal requirements concerning
government contracts and in ascertaining the extent of authority of the public official with whom they
contracted.7 These omissions made the contracts void ab initio and, as a consequence, petitioner should
not be made to suffer by paying respondents huge sums of money arising from void contracts.8
We deny the motion.
Petitioner unsuccessfully established the applicability of the clean hands doctrine. Citing Muller v.
Muller, petitioner points out that "a litigant may be denied relief by a court of equity on the ground that
his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in
issue."9
However, respondents’ purported omissions, standing alone, cannot be construed as fraudulent or
deceitful. Petitioner did not present evidence of actual fraud and merely inferred that because of the
omissions, the respondent contractors were in bad faith. "Fraud is never presumed but must be established
by clear and convincing evidence. The strongest suspicion cannot sway judgment or overcome the
presumption of regularity."10
Parties who do not come to court with clean hands cannot be allowed to profit from their own
wrongdoing.11 The action (or inaction) of the party seeking equity must be "free from fault, and he must
have done nothing to lull his adversary into repose, thereby obstructing and preventing vigilance on the
part of the latter."12 Neither the trial court nor the appellate court found any design to defraud on the part
of the respondent contractors.
While petitioner is correct in saying that one who seeks equity must do equity, and one who comes into
equity must come with clean hands,13 it is equally true that an allegation of fraud and dishonesty to come
within the doctrine’s purview must be substantiated:
Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked, and that is why they are never presumed.
They amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging
them.14
This court recognizes that certain omissions will qualify as "acting with unclean hands." The omission,
though, must be such as to give rise to a confusion that leads to an undesirable state of things.15
Here, even with the respondents’ supposed failure to ascertain the validity of the contract and the
authority of the public official involved in the construction agreements, there is no such confusion as to
the matter of the contract’s validity and the equivalent compensation. As found by the court a quo,
petitioner had assured the contractors that they would be paid for the work that they would do, as even
DPWH Undersecretary Teodoro T. Encarnacion had told them to "fast-track" the project.16 Hence,
respondents cannot by any stretch of logic, be deprived of compensation for their services when - despite
their ostensible omissions - they only heeded the assurance of DPWH and proceeded to work on the
urgent project.
Lest it be forgotten, our courts are courts of both law and equity.17 The petitioner merely claims that the
omissions of respondents amount to fraud, while the records show that the public benefitted from the
services of respondents. Given these, this Court will remain true to the rule of substantial justice and
direct the payment of compensation to the contractors, who have completed their services for the
government’s Mt. Pinatubo Rehabilitation Project. Otherwise, urgent actions for emergency work in the
future would be discouraged.
After the unfounded clean hands doctrine resorted to by petitioner DPWH is cleared up, all that remains is
its repeated arguments. Petitioner reiterates that the contracts are void, without legal effect, and cannot be
cured by ratification.18 In the same Motion, it claims that the contracts were unenforceable, as they were
entered into beyond the authority of Engineer Meñez.19 Petitioner also stresses that since the construction
contracts with Rigor and Dimatulac are unwritten, DPWH cannot be held liable.20 It raises the point that
the writing of government contracts is a requirement for existence, validity and enforceability. Citing the
treatise of Bartolome C. Fernandez,21 petitioner DPWH further asserts that the government, being an
artificial person, cannot verbally consent to the contract.22
These arguments have already been ruled upon, and we find no reason to disturb the rulings. To reiterate,
it has been settled in several cases that payment for services done on account of the government, but
based on a void contract, cannot be avoided.23 The government is unjustified in denying what it owes to
contractors and in leaving them uncompensated after it has benefitted from the already completed
work.24 Jurisprudence recognizes the principle of quantum meruit. Accordingly, in the interest of
substantial justice, the contractor’s entitlement to compensation has been and is hereby directed.25
IN VIEW THEREOF, the 8 November 2011 Motion for Partial Reconsideration of the 12 October 2011
Decision of this Court’s Second Division is denied for lack of merit

G.R. No. 188417 September 24, 2012

MILAGROS DE BELEN VDA. DE CABALU, MELITON CABALU, SPS. ANGELA CABALU and
RODOLFO TALAVERA, and PATRICIO ABUS, Petitioners,
vs.
SPS. RENATO DOLORES TABU and LAXAMANA, Municipal Trial Court in Cities, Tarlac City,
Branch II, Respondents.
DECISION
MENDOZA, J.:
This is a "Petition for Review on Certiorari (under Rule 45)" of the Rules of Court assailing the June 16,
2009 Decision1 of the Court of Appeals (CA) in CA-GR. CV No. 81469 entitled "Milagros De Belen Vda
de Cabalu v. Renato Tabu."
The Facts
The property subject of the controversy is a 9,000 square meter lot situated in Mariwalo, Tarlac, which
was a portion of a property registered in the name of the late Faustina Maslum (Faustina) under Transfer
Certificate of Title (TCT) No. 16776 with a total area of 140,211 square meters.2
On December 8, 1941, Faustina died without any children. She left a holographic will, dated July 27,
1939, assigning and distributing her property to her nephews and nieces. The said holographic will,
however, was not probated. One of the heirs was the father of Domingo Laxamana (Domingo), Benjamin
Laxamana, who died in 1960. On March 5, 1975, Domingo allegedly executed a Deed of Sale of
Undivided Parcel of Land disposing of his 9,000 square meter share of the land to Laureano Cabalu.3
On August 1, 1994, to give effect to the holographic will, the forced and legitimate heirs of Faustina
executed a Deed of Extra-Judicial Succession with Partition. The said deed imparted 9,000 square meters
of the land covered by TCT No. 16776 to Domingo. Thereafter, on December 14, 1995, Domingo sold
4,500 square meters of the 9,000 square meters to his nephew, Eleazar Tabamo. The document was
captioned Deed of Sale of a Portion of Land. On May 7, 1996, the remaining 4,500 square meters of
Domingo’s share in the partition was registered under his name under TCT No. 281353.4
On August 4, 1996, Domingo passed away.
On October 8, 1996, two months after his death, Domingo purportedly executed a Deed of Absolute Sale
of TCT No. 281353 in favor of respondent Renato Tabu (Tabu). The resultant transfer of title was
registered as TCT No. 286484. Subsequently, Tabu and his wife, Dolores Laxamana (respondent
spouses), subdivided the said lot into two which resulted into TCT Nos. 291338 and 291339.5
On January 15, 1999, respondent Dolores Laxamana-Tabu, together with Julieta Tubilan-Laxamana,
Teresita Laxamana, Erlita Laxamana, and Gretel Laxamana, the heirs of Domingo, filed an unlawful
detainer action, docketed as Civil Case No. 7106, against Meliton Cabalu, Patricio Abus, Roger Talavera,
Jesus Villar, Marcos Perez, Arthur Dizon, and all persons claiming rights under them. The heirs claimed
that the defendants were merely allowed to occupy the subject lot by their late father, Domingo, but, when
asked to vacate the property, they refused to do so. The case was ruled in favor of Domingo’s heirs and a
writ of execution was subsequently issued.6
On February 4, 2002, petitioners Milagros de Belen Vda. De Cabalu, Meliton Cabalu, Spouses Angela
Cabalu and Rodolfo Talavera, and Patricio Abus (petitioners), filed a case for Declaration of Nullity of
Deed of Absolute Sale, Joint Affidavit of Nullity of Transfer Certificate of Title Nos. 291338 and 291339,
Quieting of Title, Reconveyance, Application for Restraining Order, Injunction and Damages (Civil Case
No. 9290) against respondent spouses before the Regional Trial Court, Branch 63, Tarlac City (RTC).7
In their complaint, petitioners claimed that they were the lawful owners of the subject property because it
was sold to their father, Laureano Cabalu, by Domingo, through a Deed of Absolute Sale, dated March 5,
1975. Hence, being the rightful owners by way of succession, they could not be ejected from the subject
property.8
In their Answer, respondent spouses countered that the deed of sale from which the petitioners anchored
their right over the 9,000 square meter property was null and void because in 1975, Domingo was not yet
the owner of the property, as the same was still registered in the name of Faustina. Domingo became the
owner of the property only on August 1, 1994, by virtue of the Deed of Extra-Judicial Succession with
Partition executed by the forced heirs of Faustina. In addition, they averred that Domingo was of unsound
mind having been confined in a mental institution for a time.9
On September 30, 2003, the RTC dismissed the complaint as it found the Deed of Absolute Sale, dated
March 5, 1975, null and void for lack of capacity to sell on the part of Domingo. Likewise, the Deed of
Absolute Sale, dated October 8, 1996, covering the remaining 4,500 square meters of the subject property
was declared ineffective having been executed by Domingo two months after his death on August 4,
1996. The fallo of the Decision10 reads:
WHEREFORE, in view of the foregoing, the complaint is hereby DISMISSED, and the decision is
hereby rendered by way of:
1. declaring null and void the Deed of Absolute Sale dated March 5, 1975, executed by Domingo
Laxamana in favor of Laureano Cabalu;
2. declaring null and void the Deed of Absolute Sale dated October 8, 1996, executed by Domingo
Laxamana in favor of Renato Tabu, and that TCT Nos. 293338 and 291339, both registered in the name
of Renato Tabu, married to Dolores Laxamana be cancelled;
3. restoring to its former validity, TCT No. 16770 in the name of Faustina Maslum subject to partition by
her lawful heirs.
Costs de oficio.
SO ORDERED.11
Not in conformity, both parties appealed to the CA. Petitioners contended that the RTC erred in declaring
void the Deed of Absolute Sale, dated March 5, 1975. They claimed that Domingo owned the property,
when it was sold to Laureano Cabalu, because he inherited it from his father, Benjamin, who was one of
the heirs of Faustina. Being a co-owner of the property left by Benjamin, Domingo could dispose of the
portion he owned, notwithstanding the will of Faustina not being probated.
Respondent spouses, on the other hand, asserted that the Deed of Sale, dated March 5, 1975, was spurious
and simulated as the signature, PTR and the document number of the Notary Public were different from
the latter’s notarized documents. They added that the deed was without consent, Domingo being of
unsound mind at the time of its execution. Further, they claimed that the RTC erred in canceling TCT No.
266583 and insisted that the same should be restored to its validity because Benjamin and Domingo were
declared heirs of Faustina.
On June 16, 2009, the CA rendered its decision and disposed as follows:
WHEREFORE, in the light of the foregoing, the instant appeal is partially GRANTED in that the decision
of the trial court is AFFIRMED WITH MODIFICATION that sub-paragraphs 2 & 3 of the disposition,
which reads:
"2. declaring null and void the Deed of Absolute Sale dated October 8, 1996, executed by Domingo
Laxamana in favor of Renato Tabu, and that TCT Nos. 291338 and 291339, both registered in the name
of Renato Tabu, married to Dolores Laxamana be cancelled;
3. restoring to its former validity, TCT No. 16776 in the name of Faustina Maslum subject to partition by
her lawful heirs," are DELETED.
IT IS SO ORDERED.12
In finding Domingo as one of the heirs of Faustina, the CA explained as follows:
It appears from the records that Domingo was a son of Benjamin as apparent in his Marriage Contract and
Benjamin was a nephew of Faustina as stated in the holographic will and deed of succession with
partition. By representation, when Benjamin died in 1960, Domingo took the place of his father in
succession. In the same vein, the holographic will of Faustina mentioned Benjamin as one of her heirs to
whom Faustina imparted 9,000 square meters of her property. Likewise, the signatories to the Deed of
Extra-judicial Succession with Partition, heirs of Faustina, particularly declared Domingo as their co-heir
in the succession and partition thereto. Furthermore, the parties in this case admitted that the relationship
was not an issue.13
Although the CA found Domingo to be of sound mind at the time of the sale on March 5, 1975, it
sustained the RTC’s declaration of nullity of the sale on the ground that the deed of sale was simulated.
The CA further held that the RTC erred in canceling TCT No. 266583 in the name of Domingo and in
ordering the restoration of TCT No. 16770, registered in the name of Faustina, to its former validity,
Domingo being an undisputed heir of Faustina.
Hence, petitioners interpose the present petition before this Court anchored on the following:
GROUNDS
(A)
THE DEED OF SALE OF UNDIVIDED PARCEL OF LAND EXECUTED ON MARCH 5, 1975 BY
DOMINGO LAXAMANA IN FAVOR OF LAUREANO CABALU IS VALID BECAUSE IT SHOULD
BE ACCORDED THE PRESUMPTION OF REGULARITY AND DECLARED VALID FOR ALL
PURPOSES AND INTENTS.
(B)
THE SUBPARAGRAPH NO. 2 OF THE DECISION OF THE REGIONAL TRIAL COURT SHOULD
STAY BECAUSE THE HONORABLE COURT OF APPEALS DID NOT DISCUSS THE ISSUE AND
DID NOT STATE THE LEGAL BASIS WHY SAID PARAGRAPH SHOULD BE DELETED FROM
THE SEPTEMBER 30, 2003 DECISION OF THE REGIONAL TRIAL COURT.14
The core issues to be resolved are 1) whether the Deed of Sale of Undivided Parcel of Land covering the
9,000 square meter property executed by Domingo in favor of Laureano Cabalu on March 5, 1975, is
valid; and 2) whether the Deed of Sale, dated October 8, 1996, covering the 4,500 square meter portion of
the 9,000 square meter property, executed by Domingo in favor of Renato Tabu, is null and void.
Petitioners contend that the Deed of Absolute Sale executed by Domingo in favor of Laureano Cabalu on
March 5, 1975 should have been declared valid because it enjoyed the presumption of regularity.
According to them, the subject deed, being a public document, had in its favor the presumption of
regularity, and to contradict the same, there must be clear, convincing and more than preponderant
evidence, otherwise, the document should be upheld. They insist that the sale transferred rights of
ownership in favor of the heirs of Laureano Cabalu.
They further argue that the CA, in modifying the decision of the RTC, should not have deleted the portion
declaring null and void the Deed of Absolute Sale, dated October 8, 1996, executed by Domingo in favor
of Renato Tabu, because at the time of execution of the said deed of sale, the seller, Domingo was already
dead. Being a void document, the titles originating from the said instrument were also void and should be
cancelled.
Respondent spouses, in their Comment15 and Memorandum,16 counter that the issues raised are not
questions of law and call for another calibration of the whole evidence already passed upon by the RTC
and the CA. Yet, they argue that petitioners’ reliance on the validity of the March 5, 1975 Deed of Sale of
Undivided Parcel of Land, based on presumption of regularity, was misplaced because both the RTC and
the CA, in the appreciation of evidence on record, had found said deed as simulated.
It is well to note that both the RTC and the CA found that the evidence established that the March 5, 1975
Deed of Sale of Undivided Parcel of Land executed by Domingo in favor of Laureano Cabalu was a
fictitious and simulated document. As expounded by the CA, viz:
Nevertheless, since there are discrepancies in the signature of the notary public, his PTR and the
document number on the lower-most portion of the document, as well as the said deed of sale being found
only after the plaintiffs-appellants were ejected by the defendants-appellants; that they were allegedly not
aware that the said property was bought by their father, and that they never questioned the other half of
the property not occupied by them, it is apparent that the sale dated March 5, 1975 had the earmarks of a
simulated deed written all over it. The lower court did not err in pronouncing that it be declared null and
void.17
Petitioners, in support of their claim of validity of the said document of deed, again invoke the legal
presumption of regularity. To reiterate, the RTC and later the CA had ruled that the sale, dated March 5,
1975, had the earmarks of a simulated deed, hence, the presumption was already rebutted. Verily and as
aptly noted by the respondent spouses, such presumption of regularity cannot prevail over the facts
proven and already established in the records of this case.
Even on the assumption that the March 5, 1975 deed was not simulated, still the sale cannot be deemed
valid because, at that time, Domingo was not yet the owner of the property. There is no dispute that the
original and registered owner of the subject property covered by TCT No. 16776, from which the subject
9,000 square meter lot came from, was Faustina, who during her lifetime had executed a will, dated July
27, 1939. In the said will, the name of Benjamin, father of Domingo, appeared as one of the heirs. Thus,
and as correctly found by the RTC, even if Benjamin died sometime in 1960, Domingo in 1975 could not
yet validly dispose of the whole or even a portion thereof for the reason that he was not the sole heir of
Benjamin, as his mother only died sometime in 1980.
Besides, under Article 1347 of the Civil Code, "No contract may be entered into upon future inheritance
except in cases expressly authorized by law." Paragraph 2 of Article 1347, characterizes a contract
entered into upon future inheritance as void. The law applies when the following requisites concur: (1) the
succession has not yet been opened; (2) the object of the contract forms part of the inheritance; and (3) the
promissor has, with respect to the object, an expectancy of a right which is purely hereditary in nature.18
In this case, at the time the deed was executed, Faustina’s will was not yet probated; the object of the
contract, the 9,000 square meter property, still formed part of the inheritance of his father from the estate
of Faustina; and Domingo had a mere inchoate hereditary right therein.1âwphi1
Domingo became the owner of the said property only on August 1, 1994, the time of execution of the
Deed of Extrajudicial Succession with Partition by the heirs of Faustina, when the 9,000 square meter lot
was adjudicated to him.
The CA, therefore, did not err in declaring the March 5, 1975 Deed of Sale null and void.
Domingo’s status as an heir of Faustina by right of representation being undisputed, the RTC should have
maintained the validity of TCT No. 266583 covering the 9,000 square meter subject property. As
correctly concluded by the CA, this served as the inheritance of Domingo from Faustina.
Regarding the deed of sale covering the remaining 4,500 square meters of the subject property executed
in favor of Renato Tabu, it is evidently null and void. The document itself, the Deed of Absolute Sale,
dated October 8, 1996, readily shows that it was executed on August 4, 1996 more than two months after
the death of Domingo. Contracting parties must be juristic entities at the time of the consummation of the
contract. Stated otherwise, to form a valid and legal agreement it is necessary that there be a party capable
of contracting and a party capable of being contracted with. Hence, if any one party to a supposed
contract was already dead at the time of its execution, such contract is undoubtedly simulated and false
and, therefore, null and void by reason of its having been made after the death of the party who appears as
one of the contracting parties therein. The death of a person terminates contractual capacity.19
The contract being null and void, the sale to Renato Tabu produced no legal effects and transmitted no
rights whatsoever. Consequently, TCT No. 286484 issued to Tabu by virtue of the October 8, 1996 Deed
of Sale, as well as its derivative titles, TCT Nos. 291338 and 291339, both registered in the name of Rena
to Tabu, married to Dolores Laxamana, are likewise void.
The CA erred in deleting that portion in the RTC decision declaring the Deed of Absolute Sale, dated
October 8, 1996, null and void and canceling TCT Nos. 291338 and 291339.
WHEREFORE, the petition is partially GRANTED. The decretal portion of the June 16, 2009 Decision
of the Court of Appeals is hereby MODIFIED to read as follows:
1. The Deed of Absolute Sale, dated March 5, 1975, executed by Domingo Laxamana in favor of
Laureano Cabalu, is hereby declared as null and void.
2. The Deed of Absolute Sale, dated October 8, 1996, executed by Domingo Laxamana in favor of Renato
Tabu, and TCT No. 286484 as well as the derivative titles TCT Nos. 291338 and 291339, both registered
in the name of Renato Tabu, married to Dolores Laxamana, are hereby declared null and void and
cancelled.
3. TCT No. 281353 in the name of Domingo Laxamana is hereby ordered restored subject to the partition
by his lawful heirs.

Jacobs Bernhard Hulst- petitioner vs. PR Builders Inc. – respondent

FACTS:
a.) Petitioner and his spouse (Ida) dutch nationals entered into a contract to sell with PR Builders Inc. for
the purchase of a 210 sq m residential unit in respondent town house in Niyugan, Laurel, Batangas.
b.) June 1995, the petitioner filed rescission of contract before housing and land Use Regulatory Board
(HLURB) for respondent’s failure to comply.
c.) April 22, 1997, HLURB arbiter Ma. Perpetua y Aquino(arbiter) rendered a decision in favor of
petitioner. contract is rescinded. (reimburst complaint the sum of P3,187, 500.00 PLUS 12% per anum
from time complaint was filed).
d.) Spouses Hulst divorced, Ida assigned her rights over the purchased property to petitioner and alone
pursued the case.
e.) August 21, 1997, HLURB arbiter issued a writ of execution addressed to ex-officio shrift of RTC of
Tanuan, Batangas diredcting the latter to execute its judgment.
f.) April 13, 1998, The ex-officio sherift proceed to implement the writ of execution. Respondent filed
complaint with CA on Petition for Certiorary and prohibition, levy made by the sheriff was set aside,
requiring the sheriff to levy first on respondents personal properties.
g.) January 26, 1999, upon petitioner’s motion, HLURB issued an alias writ of execution.
h.) March 23, 1999, the sheriff levied on respondent’s 15 parcels of land covered by 13 transfer of title in
Brgy. Niyugan, Laurel , Batangas.
i.) March 27, 200, Noticed of sale , the sheriff set the public auction of the levied properties on April 28,
2000 at 10 am.
j.) April 26, 2000, respondent filed an urgent motion to quash writ of levy with HLURB on the ground
that sheriff made a overlevy.
k.) Public Auction was conducted and the sum of P5,313,040.00 from Holly Properties Realty
Corp(winning bidder) was turned over to petitioner after deducting the legal fees.
l.) September 27, 2000, petitioner filed a petition for certiorari and prohibition with CA(SEC 1(N) RULE
IV of 1996HLURB)- Motion for recon is prohibited).
m.) October 30,2002, CA dismissed the petition, held that when there is a right to redeem inadequacy of
price should not be material holds no water as what is obtaining in this case but an inadequacy that shock
the senses.
n.) Petitioner took the present recourse on the sole ground that the honorable CA gravely erred in
affirming the arbiter’s order setting aside the levy made by the sheriff on the subject properties.
ISSUE:
Whether or not that the foreign nationals were proscribed to own real property under the rules, but is
entitled to recover only the amount paid representing the purchase upon the rescission of the contract.
HELD:
Yes thus exception finds application in this case, under article 1414, one who repudiates the agreement
and demand his money before the illegal act has taken place is entitled to recover. Petitioner is therefore
entitled to recover what he has paid, although the basis of his claim for rescission, which was granted by
the HLURB Was not the fact that he is not allowed to acquire private land under the Phil. Consti. but
petitioner is entitled to the recovery only the amount of P3,187,500.00 representing the purchase price
paid to respondent. No damages may be recovered on the basis of void contract; being nonexistent, the
agreement produces no judicial tie between the parties involved. Further , petitioner is not entitled to
actual as well as interest thereon, moral and exemplary damages and atty’s fees.
A sense of justice and fairness demands that petitioner should not be allowed to benefit from his act of
entering into a contract to sell that violates the constitutional prescription.
The instant Petition is granted. The decision dated Oct. 30, 2002 of CA is reversed and set aside. The
order dated August 28,2000 of HLURB Arbiter and director Ceniza is declared null and void.
Petitioner is ordered to return to respondent the amount of P2,125,540 without interest in excess of the
proceeds of the auction sale delivered to petitioner.