THIRD DIVISION

FRANCISCO MUOZ, JR.,

G.R. No. 156125

Petitioner,
Present:

CARPIO MORALES, J., Chairperson,

BRION,
-

versus

BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

ERLINDA RAMIREZ and ELISEO

CARLOS,

Promulgated:

Respondents.
August 25, 2010
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DECISION

BRION, J.:

We resolve the present petition for review on certiorari1[1] filed by petitioner Francisco Muoz, Jr.
(petitioner) to challenge the decision2[2] and the resolution3[3] of the Court of Appeals (CA) in CA-G.R. CV
No. 57126.4[4] The CA decision set aside the decision5[5] of the Regional Trial Court (RTC), Branch 166,

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Pasig City, in Civil Case No. 63665. The CA resolution denied the petitioners subsequent motion for
reconsideration.
FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

Subject of the present case is a seventy-seven (77)-square meter residential house and lot
located at 170 A. Bonifacio Street, Mandaluyong City (subject property), covered by Transfer Certificate
of Title (TCT) No. 7650 of the Registry of Deeds of Mandaluyong City in the name of the petitioner. 6[6]

The residential lot in the subject property was previously covered by TCT No. 1427, in the name
of Erlinda Ramirez, married to Eliseo Carlos (respondents).7[7]

On April 6, 1989, Eliseo, a Bureau of Internal Revenue employee, mortgaged TCT No. 1427, with
Erlindas consent, to the Government Service Insurance System (GSIS) to secure a P136,500.00
housing loan, payable within twenty (20) years, through monthly salary deductions of P1,687.66.8[8]
The respondents then constructed a thirty-six (36)-square meter, two-story residential house on the
lot.

On July 14, 1993, the title to the subject property was transferred to the petitioner by virtue of a
Deed of Absolute Sale, dated April 30, 1992, executed by Erlinda, for herself and as attorney-in-fact of
Eliseo, for a stated consideration of P602,000.00.9[9]

On September 24, 1993, the respondents filed a complaint with the RTC for the nullification of
the deed of absolute sale, claiming that there was no sale but only a mortgage transaction, and the
documents transferring the title to the petitioners name were falsified.

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The respondents alleged that in April 1992, the petitioner granted them a P600,000.00 loan, to
be secured by a first mortgage on TCT No. 1427; the petitioner gave Erlinda a P200,000.0010[10] advance
to cancel the GSIS mortgage, and made her sign a document purporting to be the mortgage contract;
the petitioner promised to give the P402,000.00 balance when Erlinda surrenders TCT No. 1427 with the
GSIS mortgage cancelled, and submits an affidavit signed by Eliseo stating that he waives all his rights
to the subject property; with the P200,000.00 advance, Erlinda paid GSIS P176,445.2711[11] to cancel the
GSIS mortgage on TCT No. 1427;12[12] in May 1992, Erlinda surrendered to the petitioner the clean TCT
No. 1427, but returned Eliseos affidavit, unsigned; since Eliseos affidavit was unsigned, the
petitioner refused to give the P402,000.00 balance and to cancel the mortgage, and demanded that
Erlinda return the P200,000.00 advance; since Erlinda could not return the P200,000.00 advance
because it had been used to pay the GSIS loan, the petitioner kept the title; and in 1993, they
discovered that TCT No. 7650 had been issued in the petitioners name, cancelling TCT No.1427 in
their name.

The petitioner countered that there was a valid contract of sale. He alleged that the respondents
sold the subject property to him after he refused their offer to mortgage the subject property because
they lacked paying capacity and were unwilling to pay the incidental charges; the sale was with the
implied promise to repurchase within one year,13[13] during which period (from May 1, 1992 to April 30,
1993), the respondents would lease the subject property for a monthly rental of P500.00;14[14] when the
respondents failed to repurchase the subject property within the one-year period despite notice, he
caused the transfer of title in his name on July 14, 1993; 15[15] when the respondents failed to pay the
monthly rentals despite demand, he filed an ejectment case 16[16] against them with the Metropolitan
Trial Court (MeTC), Branch 60, Mandaluyong City, on September 8, 1993, or sixteen days before the
filing of the RTC case for annulment of the deed of absolute sale.

During the pendency of the RTC case, or on March 29, 1995, the MeTC decided the ejectment
case. It ordered Erlinda and her family to vacate the subject property, to surrender its possession to the
petitioner, and to pay the overdue rentals.17[17]

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In the RTC, the respondents presented the results of the scientific examination 18[18] conducted by
the National Bureau of Investigation of Eliseos purported signatures in the Special Power of
Attorney19[19] dated April 29, 1992 and the Affidavit of waiver of rights dated April 29, 1992, 20[20] showing
that they were forgeries.

The petitioner, on the other hand, introduced evidence on the paraphernal nature of the subject
property since it was registered in Erlindas name; the residential lot was part of a large parcel of land
owned by Pedro Ramirez and Fructuosa Urcla, Erlindas parents; it was the subject of Civil Case No.
50141, a complaint for annulment of sale, before the RTC, Branch 158, Pasig City, filed by the surviving
heirs of Pedro against another heir, Amado Ramirez, Erlindas brother; and, as a result of a
compromise agreement, Amado agreed to transfer to the other compulsory heirs of Pedro, including
Erlinda, their rightful shares of the land.21[21]

THE RTC RULING

In a Decision dated January 23, 1997, the RTC dismissed the complaint. It found that the
subject property was Erlindas exclusive paraphernal property that was inherited from her father. It
also upheld the sale to the petitioner, even without Eliseos consent as the deed of absolute sale bore
the genuine signatures of Erlinda and the petitioner as vendor and vendee, respectively. It concluded
that the NBI finding that Eliseos signatures in the special power of attorney and in the affidavit were
forgeries was immaterial because Eliseos consent to the sale was not necessary.22[22]

The respondents elevated the case to the CA via an ordinary appeal under Rule 41 of the
Revised Rules of Court.

THE CA RULING

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The CA decided the appeal on June 25, 2002. Applying the second paragraph of Article 158 23[23]
of the Civil Code and Calimlim-Canullas v. Hon. Fortun,24[24] the CA held that the subject property,
originally Erlindas exclusive paraphernal property, became conjugal property when it was used as
collateral for a housing loan that was paid through conjugal funds Eliseos monthly salary
deductions; the subject property, therefore, cannot be validly sold or mortgaged without Eliseos
consent, pursuant to Article 12425[25] of the Family Code. Thus, the CA declared void the deed of
absolute sale, and set aside the RTC decision.

When the CA denied26[26] the subsequent motion for reconsideration,27[27] the petitioner filed the
present petition for review on certiorari under Rule 45 of the Revised Rules of Court.

THE PETITION

The petitioner argues that the CA misapplied the second paragraph of Article 158 of the Civil
Code and Calimlim-Canullas28[28] because the respondents admitted in the complaint that it was the
petitioner who gave the money used to cancel the GSIS mortgage on TCT No. 1427; Article 120 29[29] of
the Family Code is the applicable rule, and since the value of the house is less than the value of the lot,
then Erlinda retained ownership of the subject property. He also argues that the contract between the
parties was a sale, not a mortgage, because (a) Erlinda did not deny her signature in the document; 30[30]
(b) Erlinda agreed to sign a contract of lease over the subject property; 31[31] and, (c) Erlinda executed a
letter, dated April 30, 1992, confirming the conversion of the loan application to a deed of sale. 32[32]

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THE CASE FOR THE RESPONDENTS

The respondents submit that it is unnecessary to compare the respective values of the house
and of the lot to determine ownership of the subject property; it was acquired during their marriage
and, therefore, considered conjugal property. They also submit that the transaction between the parties
was not a sale, but an equitable mortgage because (a) they remained in possession of the subject
property even after the execution of the deed of absolute sale, (b) they paid the 1993 real property
taxes due on the subject property, and (c) they received P200,000.00 only of the total stated price of
P602,000.00.

THE ISSUE

The issues in the present case boil down to (1) whether the subject property is paraphernal or
conjugal; and, (2) whether the contract between the parties was a sale or an equitable mortgage.

OUR RULING

We deny the present Petition but for reasons other than those advanced by the CA.

This Court is not a trier of facts. However, if the inference, drawn by the CA, from the facts is
manifestly mistaken, as in the present case, we can review the evidence to allow us to arrive at the
correct factual conclusions based on the record. 33[33]

First Issue:

Paraphernal or Conjugal?

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As a general rule, all property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal
unless the contrary is proved.34[34]

In the present case, clear evidence that Erlinda inherited the residential lot from her father has
sufficiently rebutted this presumption of conjugal ownership.35[35] Pursuant to Articles 9236[36] and 10937[37]
of the Family Code, properties acquired by gratuitous title by either spouse, during the marriage, shall
be excluded from the community property and be the exclusive property of each spouse. 38[38] The
residential lot, therefore, is Erlindas exclusive paraphernal property.

The CA, however, held that the residential lot became conjugal when the house was built
thereon through conjugal funds, applying the second paragraph of Article 158 of the Civil Code and
Calimlim-Canullas.39[39] Under the second paragraph of Article 158 of the Civil Code, a land that
originally belonged to one spouse becomes conjugal upon the construction of improvements thereon at
the expense of the partnership. We applied this provision in Calimlim-Canullas,40[40] where we held that
when the conjugal house is constructed on land belonging exclusively to the husband, the land ipso
facto becomes conjugal, but the husband is entitled to reimbursement of the value of the land at the
liquidation of the conjugal partnership.

The CA misapplied Article 158 of the

Civil Code and Calimlim-Canullas

We cannot subscribe to the CAs misplaced reliance on Article 158 of the Civil Code and
Calimlim-Canullas.

As the respondents were married during the effectivity of the Civil Code, its provisions on
conjugal partnership of gains (Articles 142 to 189) should have governed their property relations.
However, with the enactment of the Family Code on August 3, 1989, the Civil Code provisions on

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conjugal partnership of gains, including Article 158, have been superseded by those found in the Family
Code (Articles 105 to 133). Article 105 of the Family Code states:

The provisions of this Chapter [on the Conjugal Partnership of Gains] shall also
apply to conjugal partnerships of gains already established between spouses
before the effectivity of this Code, without prejudice to vested rights already
acquired in accordance with the Civil Code or other laws, as provided in Article 256.

Thus, in determining the nature of the subject property, we refer to the provisions of the Family Code,
and not the Civil Code, except with respect to rights then already vested.

Article 120 of the Family Code, which supersedes Article 158 of the Civil Code, provides the
solution in determining the ownership of the improvements that are made on the separate property of
the spouses, at the expense of the partnership or through the acts or efforts of either or both spouses.
Under this provision, when the cost of the improvement and any resulting increase in value are more
than the value of the property at the time of the improvement, the entire property of one of the
spouses shall belong to the conjugal partnership, subject to reimbursement of the value of the property
of the owner-spouse at the time of the improvement; otherwise, said property shall be retained in
ownership by the owner-spouse, likewise subject to reimbursement of the cost of the improvement. 41[41]

In the present case, we find that Eliseo paid a portion only of the GSIS loan through monthly
salary deductions. From April 6, 198942[42] to April 30, 1992,43[43] Eliseo paid about P60,755.76,44[44] not
the entire amount of the GSIS housing loan plus interest, since the petitioner advanced the
P176,445.2745[45] paid by Erlinda to cancel the mortgage in 1992. Considering the P136,500.00 amount
of the GSIS housing loan, it is fairly reasonable to assume that the value of the residential lot is
considerably more than the P60,755.76 amount paid by Eliseo through monthly salary deductions.

Thus, the subject property remained the exclusive paraphernal property of Erlinda at the time
she contracted with the petitioner; the written consent of Eliseo to the transaction was not necessary.
The NBI finding that Eliseos signatures in the special power of attorney and affidavit were forgeries
was immaterial.

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Nonetheless, the RTC and the CA apparently failed to consider the real nature of the contract
between the parties.

Second Issue:

Sale or Equitable Mortgage?

Jurisprudence has defined an equitable mortgage "as one which although lacking in some
formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as security for a debt, there being no impossibility nor
anything contrary to law in this intent." 46[46]

Article 1602 of the Civil Code enumerates the instances when a contract, regardless of its
nomenclature, may be presumed to be an equitable mortgage: (a) when the price of a sale with right to
repurchase is unusually inadequate; (b) when the vendor remains in possession as lessee or
otherwise; (c) when upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed; (d) when the purchaser
retains for himself a part of the purchase price; (e) when the vendor binds himself to pay
the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall secure the payment of a debt or
the performance of any other obligation. These instances apply to a contract purporting to be an
absolute sale.47[47]

For the presumption of an equitable mortgage to arise under Article 1602 of the Civil Code, two
(2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of
sale; and, (b) that their intention was to secure an existing debt by way of a mortgage. Any of the
circumstances laid out in Article 1602 of the Civil Code, not the concurrence nor an overwhelming
number of the enumerated circumstances, is sufficient to support the conclusion that a contract of sale
is in fact an equitable mortgage.48[48]

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Contract is an equitable mortgage

In the present case, there are four (4) telling circumstances pointing to the existence of an
equitable mortgage.

First, the respondents remained in possession as lessees of the subject property; the parties, in
fact, executed a one-year contract of lease, effective May 1, 1992 to April 30, 1993. 49[49]

Second, the petitioner retained part of the purchase price, the petitioner gave a
P200,000.00 advance to settle the GSIS housing loan, but refused to give the P402,000.00 balance
when Erlinda failed to submit Eliseos signed affidavit of waiver of rights.

Third, respondents paid the real property taxes on July 8, 1993, despite the alleged sale on April
30, 1992;50[50] payment of real property taxes is a usual burden attaching to ownership and when, as
here, such payment is coupled with continuous possession of the property, it constitutes evidence of
great weight that the person under whose name the realty taxes were declared has a valid and rightful
claim over the land.51[51]

Fourth, Erlinda secured the payment of the principal debt owed to the petitioner with the subject
property. The records show that the petitioner, in fact, sent Erlinda a Statement of Account showing
that as of February 20, 1993, she owed P384,660.00, and the daily interest, starting February 21, 1993,
was P641.10.52[52] Thus, the parties clearly intended an equitable mortgage and not a contract of sale.

That the petitioner advanced the sum of P200,000.00 to Erlinda is undisputed. This advance,
in fact, prompted the latter to transfer the subject property to the petitioner. Thus, before the

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respondents can recover the subject property, they must first return the amount of P200,000.00 to the
petitioner, plus legal interest of 12% per annum, computed from April 30, 1992.

We cannot sustain the ballooned obligation of P384,660.00, claimed in the Statement of Account
sent by the petitioner,53[53] sans any evidence of how this amount was arrived at. Additionally, a daily
interest of P641.10 or P19,233.00 per month for a P200,000.00 loan is patently unconscionable. While
parties are free to stipulate on the interest to be imposed on monetary obligations, we can step in to
temper the interest rates if they are unconscionable.54[54]

In Lustan v. CA,55[55] where we established the reciprocal obligations of the parties under an
equitable mortgage, we ordered the reconveyance of the property to the rightful owner therein upon
the payment of the loan within ninety (90) days from the finality of the decision. 56[56]

WHEREFORE, in light of all the foregoing, we hereby DENY the present petition. The assailed
decision and resolution of the Court of Appeals in CA-G.R. CV No. 57126 are AFFIRMED with the
following MODIFICATIONS:

1. The Deed of Absolute Sale dated April 30, 1992 is hereby declared an equitable mortgage;
and

2. The petitioner is obligated to RECONVEY to the respondents the property covered by Transfer
Certificate of Title No. 7650 of the Register of Deeds of Mandaluyong City, UPON THE PAYMENT OF
P200,000.00, with 12% legal interest from April 30, 1992, by respondents within NINETY DAYS FROM
THE FINALITY OF THIS DECISION.

Costs against the petitioner.

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SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182435

August 13, 2012

LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON, REMO BA YLON, JOSE BA YLON, ERIC BA
YLON, FLORENTINO BA YLON, and MA. RUBY BA YLON, Petitioners,
vs.
FLORANTE BA YLON, Respondent.
VILLARAMA, JR.,*
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision1 dated October 26, 2007 rendered by the Court of Appeals (CA) in CAG.R. CV No. 01746. The assailed decision partially reversed and set aside the Decision 2 dated October
20, 2005 issued ~y the Regional Trial Court (RTC), Tan jay City, Negros Oriental, Branch 43 in Civil Case
No. 11657.
The Antecedent Facts
This case involves the estate of spouses Florentino Baylon and Maximina Elnas Baylon (Spouses Baylon)
who died on November 7, 1961 and May 5, 1974, respectively. 3 At the time of their death, Spouses
Baylon were survived by their legitimate children, namely, Rita Baylon (Rita), Victoria Baylon (Victoria),
Dolores Baylon (Dolores), Panfila Gomez (Panfila), Ramon Baylon (Ramon) and herein petitioner Lilia B.
Ada (Lilia).

Dolores died intestate and without issue on August 4, 1976. Victoria died on November 11, 1981 and
was survived by her daughter, herein petitioner Luz B. Adanza. Ramon died intestate on July 8, 1989
and was survived by herein respondent Florante Baylon (Florante), his child from his first marriage, as
well as by petitioner Flora Baylon, his second wife, and their legitimate children, namely, Ramon, Jr. and
herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby, all surnamed Baylon.
On July 3, 1996, the petitioners filed with the RTC a Complaint 4 for partition, accounting and damages
against Florante, Rita and Panfila. They alleged therein that Spouses Baylon, during their lifetime,
owned 43 parcels of land5 all situated in Negros Oriental. After the death of Spouses Baylon, they
claimed that Rita took possession of the said parcels of land and appropriated for herself the income
from the same. Using the income produced by the said parcels of land, Rita allegedly purchased two
parcels of land, Lot No. 47096 and half of Lot No. 4706,7 situated in Canda-uay, Dumaguete City. The
petitioners averred that Rita refused to effect a partition of the said parcels of land.
In their Answer,8 Florante, Rita and Panfila asserted that they and the petitioners co-owned 22 9 out of
the 43 parcels of land mentioned in the latters complaint, whereas Rita actually owned 10 parcels of
land10 out of the 43 parcels which the petitioners sought to partition, while the remaining 11 parcels of
land are separately owned by Petra Cafino Adanza,11 Florante,12 Meliton Adalia,13 Consorcia Adanza,14
Lilia15 and Santiago Mendez.16 Further, they claimed that Lot No. 4709 and half of Lot No. 4706 were
acquired by Rita using her own money. They denied that Rita appropriated solely for herself the income
of the estate of Spouses Baylon, and expressed no objection to the partition of the estate of Spouses
Baylon, but only with respect to the co-owned parcels of land.
During the pendency of the case, Rita, through a Deed of Donation dated July 6, 1997, conveyed Lot
No. 4709 and half of Lot No. 4706 to Florante. On July 16, 2000, Rita died intestate and without any
issue. Thereafter, learning of the said donation inter vivos in favor of Florante, the petitioners filed a
Supplemental Pleading17 dated February 6, 2002, praying that the said donation in favor of the
respondent be rescinded in accordance with Article 1381(4) of the Civil Code. They further alleged that
Rita was already sick and very weak when the said Deed of Donation was supposedly executed and,
thus, could not have validly given her consent thereto.
Florante and Panfila opposed the rescission of the said donation, asserting that Article 1381(4) of the
Civil Code applies only when there is already a prior judicial decree on who between the contending
parties actually owned the properties under litigation.18
The RTC Decision
On October 20, 2005, the RTC rendered a Decision,19 the decretal portion of which reads:
Wherefore judgment is hereby rendered:
(1) declaring the existence of co-ownership over parcels nos. 1, 2, 3, 5, 7, 10, 13, 14, 16, 17, 18,
26, 29, 30, 33, 34, 35, 36, 40 and 41 described in the complaint;
(2) directing that the above mentioned parcels of land be partitioned among the heirs of
Florentino Baylon and Maximina Baylon;

(3) declaring a co-ownership on the properties of Rita Baylon namely parcels no[s]. 6, 11, 12, 20,
24, 27, 31, 32, 39 and 42 and directing that it shall be partitioned among her heirs who are the
plaintiffs and defendant in this case;
(4) declaring the donation inter vivos rescinded without prejudice to the share of Florante Baylon
to the estate of Rita Baylon and directing that parcels nos. 1 and 2 paragraph V of the complaint
be included in the division of the property as of Rita Baylon among her heirs, the parties in this
case;
(5) excluding from the co-ownership parcels nos. 20, 21, 22, 9, 43, 4, 8, 19 and 37.
Considering that the parties failed to settle this case amicably and could not agree on the partition, the
parties are directed to nominate a representative to act as commissioner to make the partition. He shall
immediately take [his] oath of office upon [his] appointment. The commissioner shall make a report of
all the proceedings as to the partition within fifteen (15) days from the completion of this partition. The
parties are given ten (10) days within which to object to the report after which the Court shall act on
the commissioner report.
SO ORDERED.20 (Emphasis ours)
The RTC held that the death of Rita during the pendency of the case, having died intestate and without
any issue, had rendered the issue of ownership insofar as parcels of land which she claims as her own
moot since the parties below are the heirs to her estate. Thus, the RTC regarded Rita as the owner of
the said 10 parcels of land and, accordingly, directed that the same be partitioned among her heirs.
Nevertheless, the RTC rescinded the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in
favor of Florante. In rescinding the said donation inter vivos, the RTC explained that:
However, with respect to lot nos. 4709 and 4706 which [Rita] had conveyed to Florante Baylon by way
of donation inter vivos, the plaintiffs in their supplemental pleadings (sic) assailed the same to be
rescissible on the ground that it was entered into by the defendant Rita Baylon without the knowledge
and approval of the litigants [or] of competent judicial authority. The subject parcels of lands are
involved in the case for which plaintiffs have asked the Court to partition the same among the heirs of
Florentino Baylon and Maximina Elnas.
Clearly, the donation inter vivos in favor of Florante Baylon was executed to prejudice the plaintiffs
right to succeed to the estate of Rita Baylon in case of death considering that as testified by Florante
Baylon, Rita Baylon was very weak and he tried to give her vitamins x x x. The donation inter vivos
executed by Rita Baylon in favor of Florante Baylon is rescissible for the reason that it refers to the
parcels of land in litigation x x x without the knowledge and approval of the plaintiffs or of this Court.
However, the rescission shall not affect the share of Florante Baylon to the estate of Rita Baylon. 21
Florante sought reconsideration of the Decision dated October 20, 2005 of the RTC insofar as it
rescinded the donation of Lot No. 4709 and half of Lot No. 4706 in his favor. 22 He asserted that, at the
time of Ritas death on July 16, 2000, Lot No. 4709 and half of Lot No. 4706 were no longer part of her
estate as the same had already been conveyed to him through a donation inter vivos three years

earlier. Thus, Florante maintained that Lot No. 4709 and half of Lot No. 4706 should not be included in
the properties that should be partitioned among the heirs of Rita.
On July 28, 2006, the RTC issued an Order23 which denied the motion for reconsideration filed by
Florante.
The CA Decision
On appeal, the CA rendered a Decision24 dated October 26, 2007, the dispositive portion of which reads:
WHEREFORE, the Decision dated October 20, 2005 and Order dated July 28, 2006 are REVERSED and
SET ASIDE insofar as they decreed the rescission of the Deed of Donation dated July 6, 1997 and the
inclusion of lot no. 4709 and half of lot no. 4706 in the estate of Rita Baylon. The case is REMANDED to
the trial court for the determination of ownership of lot no. 4709 and half of lot no. 4706.
SO ORDERED.25
The CA held that before the petitioners may file an action for rescission, they must first obtain a
favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to the estate of
Spouses Baylon and not to Rita. Until then, the CA asserted, an action for rescission is premature.
Further, the CA ruled that the petitioners action for rescission cannot be joined with their action for
partition, accounting and damages through a mere supplemental pleading. Thus:
If Lot No. 4709 and half of Lot No. 4706 belonged to the Spouses estate, then Rita Baylons donation
thereof in favor of Florante Baylon, in excess of her undivided share therein as co-heir, is void. Surely,
she could not have validly disposed of something she did not own. In such a case, an action for
rescission of the donation may, therefore, prosper.
If the lots, however, are found to have belonged exclusively to Rita Baylon, during her lifetime, her
donation thereof in favor of Florante Baylon is valid. For then, she merely exercised her ownership right
to dispose of what legally belonged to her. Upon her death, the lots no longer form part of her estate as
their ownership now pertains to Florante Baylon. On this score, an action for rescission against such
donation will not prosper. x x x.
Verily, before plaintiffs-appellees may file an action for rescission, they must first obtain a favorable
judicial ruling that lot no. 4709 and half of lot no. 4706 actually belonged to the estate of Spouses
Florentino and Maximina Baylon, and not to Rita Baylon during her lifetime. Until then, an action for
rescission is premature. For this matter, the applicability of Article 1381, paragraph 4, of the New Civil
Code must likewise await the trial courts resolution of the issue of ownership.
Be that as it may, an action for rescission should be filed by the parties concerned independent of the
proceedings below. The first cannot simply be lumped up with the second through a mere supplemental
pleading.26 (Citation omitted)
The petitioners sought reconsideration27 of the Decision dated October 26, 2007 but it was denied by
the CA in its Resolution28 dated March 6, 2008.

Hence, this petition.

Issue
The lone issue to be resolved by this Court is whether the CA erred in ruling that the donation inter
vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may only be rescinded if there is
already a judicial determination that the same actually belonged to the estate of Spouses Baylon.
The Courts Ruling
The petition is partly meritorious.
Procedural Matters
Before resolving the lone substantive issue in the instant case, this Court deems it proper to address
certain procedural matters that need to be threshed out which, by laxity or otherwise, were not raised
by the parties herein.
Misjoinder of Causes of Action
The complaint filed by the petitioners with the RTC involves two separate, distinct and independent
actions partition and rescission. First, the petitioners raised the refusal of their co-heirs, Florante, Rita
and Panfila, to partition the properties which they inherited from Spouses Baylon. Second, in their
supplemental pleading, the petitioners assailed the donation inter vivos of Lot No. 4709 and half of Lot
No. 4706 made by Rita in favor of Florante pendente lite.
The actions of partition and
rescission cannot be joined in a
single action.
By a joinder of actions, or more properly, a joinder of causes of action is meant the uniting of two or
more demands or rights of action in one action, the statement of more than one cause of action in a
declaration. It is the union of two or more civil causes of action, each of which could be made the basis
of a separate suit, in the same complaint, declaration or petition. A plaintiff may under certain
circumstances join several distinct demands, controversies or rights of action in one declaration,
complaint or petition.29
The objectives of the rule or provision are to avoid a multiplicity of suits where the same parties and
subject matter are to be dealt with by effecting in one action a complete determination of all matters in
controversy and litigation between the parties involving one subject matter, and to expedite the
disposition of litigation at minimum cost. The provision should be construed so as to avoid such
multiplicity, where possible, without prejudice to the rights of the litigants. 30
Nevertheless, while parties to an action may assert in one pleading, in the alternative or otherwise, as
many causes of action as they may have against an opposing party, such joinder of causes of action is

subject to the condition, inter alia, that the joinder shall not include special civil actions governed by
special rules.31
Here, there was a misjoinder of causes of action. The action for partition filed by the petitioners could
not be joined with the action for the rescission of the said donation inter vivos in favor of Florante. Lest
it be overlooked, an action for partition is a special civil action governed by Rule 69 of the Rules of
Court while an action for rescission is an ordinary civil action governed by the ordinary rules of civil
procedure. The variance in the procedure in the special civil action of partition and in the ordinary civil
action of rescission precludes their joinder in one complaint or their being tried in a single proceeding to
avoid confusion in determining what rules shall govern the conduct of the proceedings as well as in the
determination of the presence of requisite elements of each particular cause of action. 32
A misjoined cause of action, if not
severed upon motion of a party or
by the court sua sponte, may be
adjudicated by the court together
with the other causes of action.
Nevertheless, misjoinder of causes of action is not a ground for dismissal. Indeed, the courts have the
power, acting upon the motion of a party to the case or sua sponte, to order the severance of the
misjoined cause of action to be proceeded with separately. 33 However, if there is no objection to the
improper joinder or the court did not motu proprio direct a severance, then there exists no bar in the
simultaneous adjudication of all the erroneously joined causes of action. On this score, our disquisition
in Republic of the Philippines v. Herbieto34 is instructive, viz:
This Court, however, disagrees with petitioner Republic in this regard. This procedural lapse committed
by the respondents should not affect the jurisdiction of the MTC to proceed with and hear their
application for registration of the Subject Lots.
xxxx
Considering every application for land registration filed in strict accordance with the Property
Registration Decree as a single cause of action, then the defect in the joint application for registration
filed by the respondents with the MTC constitutes a misjoinder of causes of action and parties. Instead
of a single or joint application for registration, respondents Jeremias and David, more appropriately,
should have filed separate applications for registration of Lots No. 8422 and 8423, respectively.
Misjoinder of causes of action and parties do not involve a question of jurisdiction of the court to hear
and proceed with the case. They are not even accepted grounds for dismissal thereof. Instead, under
the Rules of Court, the misjoinder of causes of action and parties involve an implied admission of the
courts jurisdiction. It acknowledges the power of the court, acting upon the motion of a party to the
case or on its own initiative, to order the severance of the misjoined cause of action, to be proceeded
with separately (in case of misjoinder of causes of action); and/or the dropping of a party and the
severance of any claim against said misjoined party, also to be proceeded with separately (in case of
misjoinder of parties).35 (Citations omitted)

It should be emphasized that the foregoing rule only applies if the court trying the case has jurisdiction
over all of the causes of action therein notwithstanding the misjoinder of the same. If the court trying
the case has no jurisdiction over a misjoined cause of action, then such misjoined cause of action has to
be severed from the other causes of action, and if not so severed, any adjudication rendered by the
court with respect to the same would be a nullity.
Here, Florante posed no objection, and neither did the RTC direct the severance of the petitioners
action for rescission from their action for partition. While this may be a patent omission on the part of
the RTC, this does not constitute a ground to assail the validity and correctness of its decision. The RTC
validly adjudicated the issues raised in the actions for partition and rescission filed by the petitioners.
Asserting a New Cause of Action in a Supplemental Pleading
In its Decision dated October 26, 2007, the CA pointed out that the said action for rescission should
have been filed by the petitioners independently of the proceedings in the action for partition. It opined
that the action for rescission could not be lumped up with the action for partition through a mere
supplemental pleading.
We do not agree.
A supplemental pleading may raise
a new cause of action as long as it
has some relation to the original
cause of action set forth in the
original complaint.
Section 6, Rule 10 of the Rules of Court reads:
Sec. 6. Supplemental Pleadings. Upon motion of a party the court may, upon reasonable notice and
upon such terms as are just, permit him to serve a supplemental pleading setting forth transactions,
occurrences or events which have happened since the date of the pleading sought to be supplemented.
The adverse party may plead thereto within ten (10) days from notice of the order admitting the
supplemental pleading.
In Young v. Spouses Sy,36 this Court had the opportunity to elucidate on the purpose of a supplemental
pleading. Thus:
As its very name denotes, a supplemental pleading only serves to bolster or add something to the
primary pleading. A supplement exists side by side with the original. It does not replace that which it
supplements. Moreover, a supplemental pleading assumes that the original pleading is to stand and
that the issues joined with the original pleading remained an issue to be tried in the action. It is but a
continuation of the complaint. Its usual office is to set up new facts which justify, enlarge or change the
kind of relief with respect to the same subject matter as the controversy referred to in the original
complaint.

The purpose of the supplemental pleading is to bring into the records new facts which will enlarge or
change the kind of relief to which the plaintiff is entitled; hence, any supplemental facts which further
develop the original right of action, or extend to vary the relief, are available by way of supplemental
complaint even though they themselves constitute a right of action. 37 (Citations omitted and emphasis
ours)
Thus, a supplemental pleading may properly allege transactions, occurrences or events which had
transpired after the filing of the pleading sought to be supplemented, even if the said supplemental
facts constitute another cause of action.
Admittedly, in Leobrera v. Court of Appeals,38 we held that a supplemental pleading must be based on
matters arising subsequent to the original pleading related to the claim or defense presented therein,
and founded on the same cause of action. We further stressed therein that a supplemental pleading
may not be used to try a new cause of action.
However, in Planters Development Bank v. LZK Holdings and Development Corp., 39 we clarified that,
while a matter stated in a supplemental complaint should have some relation to the cause of action set
forth in the original pleading, the fact that the supplemental pleading technically states a new cause of
action should not be a bar to its allowance but only a matter that may be considered by the court in the
exercise of its discretion. In such cases, we stressed that a broad definition of "cause of action" should
be applied.
Here, the issue as to the validity of the donation inter vivos of Lot No. 4709 and half of Lot No. 4706
made by Rita in favor of Florante is a new cause of action that occurred after the filing of the original
complaint. However, the petitioners prayer for the rescission of the said donation inter vivos in their
supplemental pleading is germane to, and is in fact, intertwined with the cause of action in the partition
case. Lot No. 4709 and half of Lot No. 4706 are included among the properties that were sought to be
partitioned.
The petitioners supplemental pleading merely amplified the original cause of action, on account of the
gratuitous conveyance of Lot No. 4709 and half of Lot No. 4706 after the filing of the original complaint
and prayed for additional reliefs, i.e., rescission. Indeed, the petitioners claim that the said lots form
part of the estate of Spouses Baylon, but cannot be partitioned unless the gratuitous conveyance of the
same is rescinded. Thus, the principal issue raised by the petitioners in their original complaint
remained the same.
Main Issue: Propriety of Rescission
After having threshed out the procedural matters, we now proceed to adjudicate the substantial issue
presented by the instant petition.
The petitioners assert that the CA erred in remanding the case to the RTC for the determination of
ownership of Lot No. 4709 and half of Lot No. 4706. They maintain that the RTC aptly rescinded the said
donation inter vivos of Lot No. 4709 and half of Lot No. 4706 pursuant to Article 1381(4) of the Civil
Code.

In his Comment,40 Florante asserts that before the petitioners may file an action for rescission, they
must first obtain a favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged
to the estate of Spouses Baylon. Until then, Florante avers that an action for rescission would be
premature.
The petitioners contentions are well-taken.
The resolution of the instant dispute is fundamentally contingent upon a determination of whether the
donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may be rescinded
pursuant to Article 1381(4) of the Civil Code on the ground that the same was made during the
pendency of the action for partition with the RTC.
Rescission is a remedy to address
the damage or injury caused to the
contracting parties or third
persons.
Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure
the reparation of damages caused to them by a contract, even if it should be valid, by means of the
restoration of things to their condition at the moment prior to the celebration of said contract. 41 It is a
remedy to make ineffective a contract, validly entered into and therefore obligatory under normal
conditions, by reason of external causes resulting in a pecuniary prejudice to one of the contracting
parties or their creditors.42
Contracts which are rescissible are valid contracts having all the essential requisites of a contract, but
by reason of injury or damage caused to either of the parties therein or to third persons are considered
defective and, thus, may be rescinded.
The kinds of rescissible contracts, according to the reason for their susceptibility to rescission, are the
following: first, those which are rescissible because of lesion or prejudice; 43 second, those which are
rescissible on account of fraud or bad faith;44 and third, those which, by special provisions of law,45 are
susceptible to rescission.46
Contracts which refer to things
subject of litigation is rescissible
pursuant to Article 1381(4) of the
Civil Code.
Contracts which are rescissible due to fraud or bad faith include those which involve things under
litigation, if they have been entered into by the defendant without the knowledge and approval of the
litigants or of competent judicial authority. Thus, Article 1381(4) of the Civil Code provides:
Art. 1381. The following contracts are rescissible:
xxxx

(4) Those which refer to things under litigation if they have been entered into by the defendant without
the knowledge and approval of the litigants or of competent judicial authority.
The rescission of a contract under Article 1381(4) of the Civil Code only requires the concurrence of the
following: first, the defendant, during the pendency of the case, enters into a contract which refers to
the thing subject of litigation; and second, the said contract was entered into without the knowledge
and approval of the litigants or of a competent judicial authority. As long as the foregoing requisites
concur, it becomes the duty of the court to order the rescission of the said contract.
The reason for this is simple. Article 1381(4) seeks to remedy the presence of bad faith among the
parties to a case and/or any fraudulent act which they may commit with respect to the thing subject of
litigation.
When a thing is the subject of a judicial controversy, it should ultimately be bound by whatever
disposition the court shall render. The parties to the case are therefore expected, in deference to the
courts exercise of jurisdiction over the case, to refrain from doing acts which would dissipate or debase
the thing subject of the litigation or otherwise render the impending decision therein ineffectual.
There is, then, a restriction on the disposition by the parties of the thing that is the subject of the
litigation. Article 1381(4) of the Civil Code requires that any contract entered into by a defendant in a
case which refers to things under litigation should be with the knowledge and approval of the litigants
or of a competent judicial authority.
Further, any disposition of the thing subject of litigation or any act which tends to render inutile the
courts impending disposition in such case, sans the knowledge and approval of the litigants or of the
court, is unmistakably and irrefutably indicative of bad faith. Such acts undermine the authority of the
court to lay down the respective rights of the parties in a case relative to the thing subject of litigation
and bind them to such determination.
It should be stressed, though, that the defendant in such a case is not absolutely proscribed from
entering into a contract which refer to things under litigation. If, for instance, a defendant enters into a
contract which conveys the thing under litigation during the pendency of the case, the conveyance
would be valid, there being no definite disposition yet coming from the court with respect to the thing
subject of litigation. After all, notwithstanding that the subject thereof is a thing under litigation, such
conveyance is but merely an exercise of ownership.
This is true even if the defendant effected the conveyance without the knowledge and approval of the
litigants or of a competent judicial authority. The absence of such knowledge or approval would not
precipitate the invalidity of an otherwise valid contract. Nevertheless, such contract, though considered
valid, may be rescinded at the instance of the other litigants pursuant to Article 1381(4) of the Civil
Code.
Here, contrary to the CAs disposition, the RTC aptly ordered the rescission of the donation inter vivos of
Lot No. 4709 and half of Lot No. 4706 in favor of Florante. The petitioners had sufficiently established
the presence of the requisites for the rescission of a contract pursuant to Article 1381(4) of the Civil
Code. It is undisputed that, at the time they were gratuitously conveyed by Rita, Lot No. 4709 and half

of Lot No. 4706 are among the properties that were the subject of the partition case then pending with
the RTC. It is also undisputed that Rita, then one of the defendants in the partition case with the RTC,
did not inform nor sought the approval from the petitioners or of the RTC with regard to the donation
inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of land in favor of Florante was valid, the
donation inter vivos of the same being merely an exercise of ownership, Ritas failure to inform and
seek the approval of the petitioners or the RTC regarding the conveyance gave the petitioners the right
to have the said donation rescinded pursuant to Article 1381(4) of the Civil Code.
Rescission under Article 1381(4) of
the Civil Code is not preconditioned
upon the judicial determination as
to the ownership of the thing
subject of litigation.
In this regard, we also find the assertion that rescission may only be had after the RTC had finally
determined that the parcels of land belonged to the estate of Spouses Baylon intrinsically amiss. The
petitioners right to institute the action for rescission pursuant to Article 1381(4) of the Civil Code is not
preconditioned upon the RTCs determination as to the ownership of the said parcels of land.
It bears stressing that the right to ask for the rescission of a contract under Article 1381(4) of the Civil
Code is not contingent upon the final determination of the ownership of the thing subject of litigation.
The primordial purpose of Article 1381(4) of the Civil Code is to secure the possible effectivity of the
impending judgment by a court with respect to the thing subject of litigation. It seeks to protect the
binding effect of a courts impending adjudication vis--vis the thing subject of litigation regardless of
which among the contending claims therein would subsequently be upheld. Accordingly, a definitive
judicial determination with respect to the thing subject of litigation is not a condition sine qua non
before the rescissory action contemplated under Article 1381(4) of the Civil Code may be instituted.
Moreover, conceding that the right to bring the rescissory action pursuant to Article 1381(4) of the Civil
Code is preconditioned upon a judicial determination with regard to the thing subject litigation, this
would only bring about the very predicament that the said provision of law seeks to obviate. Assuming
arguendo that a rescissory action under Article 1381(4) of the Civil Code could only be instituted after
the dispute with respect to the thing subject of litigation is judicially determined, there is the possibility
that the same may had already been conveyed to third persons acting in good faith, rendering any
judicial determination with regard to the thing subject of litigation illusory. Surely, this paradoxical
eventuality is not what the law had envisioned.
Even if the donation inter vivos is
validly rescinded, a determination
as to the ownership of the subject
parcels of land is still necessary.

Having established that the RTC had aptly ordered the rescission of the said donation inter vivos in
favor of Florante, the issue that has to be resolved by this Court is whether there is still a need to
determine the ownership of Lot No. 4709 and half of Lot No. 4706.
In opting not to make a determination as to the ownership of Lot No. 4709 and half of Lot No. 4706, the
RTC reasoned that the parties in the proceedings before it constitute not only the surviving heirs of
Spouses Baylon but the surviving heirs of Rita as well. As intimated earlier, Rita died intestate during
the pendency of the proceedings with the RTC without any issue, leaving the parties in the proceedings
before the RTC as her surviving heirs. Thus, the RTC insinuated, a definitive determination as to the
ownership of the said parcels of land is unnecessary since, in any case, the said parcels of land would
ultimately be adjudicated to the parties in the proceedings before it.
We do not agree.
Admittedly, whoever may be adjudicated as the owner of Lot No. 4709 and half of Lot No. 4706, be it
Rita or Spouses Baylon, the same would ultimately be transmitted to the parties in the proceedings
before the RTC as they are the only surviving heirs of both Spouses Baylon and Rita. However, the RTC
failed to realize that a definitive adjudication as to the ownership of Lot No. 4709 and half of Lot No.
4706 is essential in this case as it affects the authority of the RTC to direct the partition of the said
parcels of land. Simply put, the RTC cannot properly direct the partition of Lot No. 4709 and half of Lot
No. 4706 until and unless it determines that the said parcels of land indeed form part of the estate of
Spouses Baylon.
It should be stressed that the partition proceedings before the RTC only covers the properties co-owned
by the parties therein in their respective capacity as the surviving heirs of Spouses Baylon. Hence, the
authority of the RTC to issue an order of partition in the proceedings before it only affects those
properties which actually belonged to the estate of Spouses Baylon.
In this regard, if Lot No. 4709 and half of Lot No. 4706, as unwaveringly claimed by Florante, are indeed
exclusively owned by Rita, then the said parcels of land may not be partitioned simultaneously with the
other properties subject of the partition case before the RTC. In such case, although the parties in the
case before the RTC are still co-owners of the said parcels of land, the RTC would not have the authority
to direct the partition of the said parcels of land as the proceedings before it is only concerned with the
estate of Spouses Baylon.
WHEREFORE, in consideration of the foregoing disquisitions, the petition is PARTIALLY GRANTED.
The Decision dated October 26, 2007 issued by the Court of Appeals in CA-G.R. CV No. 01746 is
MODIFIED in that the Decision dated October 20, 2005 issued by the Regional Trial Court, Tanjay City,
Negros Oriental, Branch 43 in Civil Case No. 11657, insofar as it decreed the rescission of the Deed of
Donation dated July 6, 1997 is hereby REINSTATED. The case is REMANDED to the trial court for the
determination of the ownership of Lot No. 4709 and half of Lot No. 4706 in accordance with this
Decision.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 140479 March 8, 2001
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO MAGBANUA and
LIZZA TIANGCO, respondents.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the
Decision1 of the Court of Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals
decision reversed and set aside the Decision2 dated May 13, 1996 of Branch 217 of the Regional Trial
Court of Quezon City in Civil Case No. Q-93-18582.1wphi1.nt
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo and Federico
Bantugan, herein respondents, against Rosencor Development Corporation (hereinafter "Rosencor"),
Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was one for annulment of absolute deed
of sale but was later amended to one for rescission of absolute deed of sale. A complaint-for
intervention was thereafter filed by respondents Fernando Magbanua and Danna Lizza Tiangco. The
complaint-in-intervention was admitted by the trial court in an Order dated May 4, 1994. 3
The facts of the case, as stated by the trial court and adopted by the appellate court, are as follows:
"This action was originally for the annulment of the Deed of Absolute Sale dated September 4,
1990 between defendants Rosencor and Eufrocina de Leon but later amended (sic) praying for
the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-story
residential apartment located at No. 150 Tomas Morato Ave., Quezon City covered by TCT No.
96161 and owned by spouses Faustino and Cresencia Tiangco. The lease was not covered by
any contract. The lessees were renting the premises then for P150.00 a month and were

allegedly verbally granted by the lessors the pre-emptive right to purchase the property if ever
they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was
adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had
knowledge that this right was extended to the former by the late spouses Tiangcos. The lessees
continued to stay in the premises and allegedly spent their own money amounting from
P50,000.00 to P100,000.00 for its upkeep. These expenses were never deducted from the
rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate
the premises so that the demolition of the building be undertaken. They refused to leave the
premises. In that same month, de Leon refused to accept the lessees rental payment claiming
that they have run out of receipts and that a new collector has been assigned to receive the
payments. Thereafter, they received a letter from Eufrocina de Leon offering to sell to them the
property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De Leon
told them that she will be submitting the offer to the other heirs. Since then, no answer was
given by de Leon as to their offer to buy the property. However, in November 1990, Rene Joaquin
came to the leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from Atty. Aguila demanding that they
vacate the premises. A month thereafter, the lessees received a letter from de Leon advising
them that the heirs of the late spouses Tiangcos have already sold the property to Rosencor. The
following month Atty. Aguila wrote them another letter demanding the rental payment and
introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she and the
late Tiangcos have promised them. They also asked for a copy of the deed of sale between her
and the new owners thereof but she refused to heed their request. In the same manner, when
they asked Rene Joaquin a copy of the deed of sale, the latter turned down their request and
instead Atty. Aguila wrote them several letters demanding that they vacate the premises. The
lessees offered to tender their rental payment to de Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the Building Official, the barangay
interceded between the parties herein after which Rosencor raised the issue as to the rental
payment of the premises. It was also at this instance that the lessees were furnished with a copy
of the Deed of Sale and discovered that they were deceived by de Leon since the sale between
her and Rene Joaquin/Rosencor took place in September 4, 1990 while de Leon made the offer to
them only in October 1990 or after the sale with Rosencor had been consummated. The lessees
also noted that the property was sold only for P726,000.00.

The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional
P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer was refused, they
filed the present action praying for the following: a) rescission of the Deed of Absolute Sale
between de Leon and Rosencor dated September 4, 1990; b) the defendants Rosencor/Rene
Joaquin be ordered to reconvey the property to de Leon; and c) de Leon be ordered to reimburse
the plaintiffs for the repairs of the property, or apply the said amount as part of the price for the
purchase of the property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a Decision 5 dated May 13, 1996 dismissing
the complaint. The trial court held that the right of redemption on which the complaint. The trial court
held that the right of redemption on which the complaint was based was merely an oral one and as
such, is unenforceable under the law. The dispositive portion of the May 13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs and
plaintiffs-intervenors are hereby ordered to pay their respective monthly rental of P1,000.00 per
month reckoned from May 1990 up to the time they leave the premises. No costs.
SO ORDERED."6
Not satisfied with the decision of the trial court, respondents herein filed a Notice of Appeal dated June
3, 1996. On the same date, the trial court issued an Order for the elevation of the records of the case to
the Court of Appeals. On August 8, 1997, respondents filed their appellate brief before the Court of
Appeals.
On June 25, 1999, the Court of Appeals rendered its decision 7 reversing the decision of the trial court.
The dispositive portion of the June 25, 1999 decision is as follows:
"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the Regional
Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby REVERSED and SET
ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed between the appellees on
September 4, 1990;
(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon, to
afford the appellants thirty days within which to exercise their right of first refusal by
paying the amount of ONE MILLION PESOS (P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the
time this decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8

Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but the
same was denied in a Resolution dated October 15, 1999. 9
Hence, this petition for review on certiorari where petitioners Rosencor Development Corporation and
Rene Joaquin raise the following assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE
ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN MANDATING THAT EUFROCINA DE
LEON AFFORD RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE PETITIONERS RELIANCE ON THEIR
DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia Tiangco, did not
appeal the decision of the Court of Appeals.
At the onset, we not that both the Court of Appeals and the Regional Trial Court relied on Article 1403 of
the New Civil Code, more specifically the provisions on the statute of frauds, in coming out with their
respective decisions. The trial court, in denying the petition for reconveyance, held that right of first
refusal relied upon by petitioners was not reduced to writing and as such, is unenforceable by virtue of
the said article. The Court of Appeals, on the other hand, also held that the statute of frauds governs
the "right of first refusal" claimed by respondents. However, the appellate court ruled that respondents
had duly proven the same by reason of petitioners waiver of the protection of the statute by reason of
their failure to object to the presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to discuss, however, the threshold issue of whether or
not a right of first refusal is indeed covered by the provisions of the New Civil Code on the statute of
frauds. The resolution of the issue on the applicability of the statute of frauds is important as it will
determine the type of evidence which may be considered by the trial court as proof of the alleged right
of first refusal.
The term "statute of frauds" is descriptive of statutes which require certain classes of contracts to be in
writing. This 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. Thus, they are included in the provisions of the New Civil Code regarding unenforceable
contracts, more particularly Art. 1403, paragraph 2. Said article provides, as follows:

"Art. 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:
a) An agreement that by its terms is not to be performed within a year from the making
thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to
marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of purchasers and person on whose account
the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real
property or of an interest therein;
f) A representation to the credit of a third person."
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. 11 Moreover, the
statute of frauds refers to specific kinds of transactions and cannot apply to any other transaction that
is not enumerated therein.12 The application of such statute presupposes the existence of a perfected
contract.13
The question now is whether a "right of first refusal" is among those enumerated in the list of contracts
covered by the Statute of Frauds. More specifically, is a right of first refusal akin to "an agreement for
the leasing of a longer period than one year, or for the sale of real property or of an interest therein" as
contemplated by Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements "affecting land" must be put into writing to attain
enforceability.14 Thus, we have held that the setting up of boundaries,15 the oral partition of real
property16, and an agreement creating a right of way17 are not covered by the provisions of the statute

of frauds. The reason simply is that these agreements are not among those enumerated in Article 1403
of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the statute of frauds.
Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the existence
of a perfected, albeit unwritten, contract of sale.18 A right of first refusal, such as the one involved in the
instant case, is not by any means a perfected contract of sale of real property. At best, it is a
contractual grant, not of the sale of the real property involved, but of the right of first refusal over the
property sought to be sold19.
It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal.
As such, a right of first refusal need not be written to be enforceable and may be proven by oral
evidence.
The next question to be ascertained is whether or not respondents have satisfactorily proven their right
of first refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990
between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals that respondents have
adequately proven the existence of their right of first refusal. Federico Bantugan, Irene Guillermo, and
Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and
Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were
currently leasing should they decide to sell the same. Moreover, respondents presented a letter20
dated October 9, 1990 where Eufrocina de Leon, the representative of the heirs of the spouses Tiangco,
informed them that they had received an offer to buy the disputed property for P2,000,000.00 and
offered to sell the same to the respondents at the same price if they were interested. Verily, if Eufrocina
de Leon did not recognize respondents right of first refusal over the property they were leasing, then
she would not have bothered to offer the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the trial court contradicting the
existence of the right of first refusal of respondents over the disputed property. They only presented
petitioner Rene Joaquin, the vice-president of petitioner Rosencor, who admitted having no personal
knowledge of the details of the sales transaction between Rosencor and the heirs of the spouses
Tiangco21. They also dispensed with the testimony of Eufrocina de Leon 22 who could have denied the
existence or knowledge of the right of first refusal. As such, there being no evidence to the contrary,
the right of first refusal claimed by respondents was substantially proven by respondents before the
lower court.
Having ruled upon the question as to the existence of respondents right of first refusal, the next issue
to be answered is whether or not the Court of Appeals erred in ordering the rescission of the Deed of
Absolute Sale dated September 4, 1990 between Rosencor and Eufrocina de Leon and in decreeing that
the heirs of the spouses Tiangco should afford respondents the exercise of their right of first refusal. In
other words, may a contract of sale entered into in violation of a third partys right of first refusal be
rescinded in order that such third party can exercise said right?

The issue is not one of first impression.

In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the decision of a lower court ordering
the rescission of a deed of sale which violated a right of first refusal granted to one of the parties
therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the Civil
Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury
to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies
for they had substantial interests that were prejudiced by the sale of the subject property to the
petitioner without recognizing their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even
to third persons, to secure reparations for damages caused to them by a contract, even if this
should be valid, by means of the restoration of things to their condition at the moment prior to
the celebration of said contract. It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract may cause, or to protect
some incompatible and preferent right created by the contract. Rescission implies a contract
which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its
invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an
obstacle to the action for its rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act in bad faith. However, this rule
is not applicable in the case before us because the petitioner is not considered a third party in
relation to the Contract of Sale nor may its possession of the subject property be regarded as
acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically
admitted that it was aware of the lease in favor of the Bonnevies, who were actually occupying
the subject property at the time it was sold to it. Although the occupying the subject property at
the time it was sold to it. Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot
deny actual knowledge of such lease which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without notice
that some other person has a right to or interest in such property without and pays a full and fair
price for the same at the time of such purchase or before he has notice of the claim or interest
of some other person in the property. Good faith connotes an honest intention to abstain from
taking unconscientious advantage of another. Tested by these principles, the petitioner cannot
tenably claim to be a buyer in good faith as it had notice of the lease of the property by the
Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own interests."

Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.25, the Court, en
banc, with three justices dissenting,26 ordered the rescission of a contract entered into in violation of a
right of first refusal. Using the ruling in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis, the Court
decreed that since respondent therein had a right of first refusal over the said property, it could only
exercise the said right if the fraudulent sale is first set aside or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair
will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed
that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell
the said property in 1974. There was an exchange of letters evidencing the offer and counteroffers made by both parties. Carmelo, however, did not pursue the exercise to its logical end.
While it initially recognized Mayfairs right of first refusal, Carmelo violated such right when
without affording its negotiations with Mayfair the full process to ripen to at least an interface of
a definite offer and a possible corresponding acceptance within the "30-day exclusive option"
time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and
then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in
question, rescissible. We agree with respondent Appellate Court that the records bear out the
fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale,
studied the said contracts. As such, Equatorial cannot tenably claim that to be a purchaser in
good faith, and, therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract or lease prior to the sale. Equatorials
knowledge of the stipulations therein should have cautioned it to look further into the
agreement to determine if it involved stipulations that would prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent sale is
first set aside or rescinded. All of these matters are now before us and so there should be no
piecemeal determination of this case and leave festering sores to deteriorate into endless
litigation. The facts of the case and considerations of justice and equity require that we order
rescission here and now. Rescission is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract may cause or to protect
some incompatible and preferred right by the contract. The sale of the subject real property
should now be rescinded considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulate
periond.27

In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court held that the allegations in a
complaint showing violation of a contractual right of "first option or priority to buy the properties
subject of the lease" constitute a valid cause of action enforceable by an action for specific
performance. Summarizing the rulings in the two previously cited cases, the Court affirmed the nature
of and concomitant rights and obligations of parties under a right of first refusal. Thus:
"We hold however, that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the amount of
P9,000,000.00, the price for which they were finally sold to respondent Raymundo, should have
likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations
under, a right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. In that case,
under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of
first priority" to purchase the leased property in case the lessor (Reynoso) decided to sell. The
selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage
lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by
Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance
was to be paid only when the property was cleared of occupants. We held that even if the
Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not
sell it to another for a lower price and under more favorable terms and conditions without first
offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to
exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to
others, and only under the same terms and conditions previously offered to the Bonnevies.
XXX
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc.
which was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that
Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR
should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to
seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the
30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its
entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00
without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad
faith: Carmelo or knowingly violating the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract stipulation. In addition to rescission
of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at
the same price of P11,300,000.00.

In the recent case of Litonjua vs L&R Corporation,29 the Court, also citing the case of Guzman, Bocaling
& Co. vs. Bonnevie, held that the sale made therein in violation of a right of first refusal embodied in a
mortgage contract, was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their mortgage contract, they appear
to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L&R
Corporation the right of first refusal over the mortgaged property in the event the mortgagor
decides to sell the same. We see nothing wrong in this provision. The right of first refusal has
long been recognized as valid in our jurisdiction. The consideration for the loan mortgage
includes the consideration for the right of first refusal. L&R Corporation is in effect stating that it
consents to lend out money to the spouses Litonjua provided that in case they decide to sell the
property mortgaged to it, then L&R Corporation shall be given the right to match the offered
purchase price and to buy the property at that price. Thus, while the spouses Litonjua had every
right to sell their mortgaged property to PWHAS without securing the prior written consent of
L&R Corporation, they had the obligation under paragraph 9, which is a perfectly valid provision,
to notify the latter of their intention to sell the property and give it priority over other buyers. It
is only upon the failure of L&R Corporation to exercise its right of first refusal could the spouses
Litonjua validly sell the subject properties to the others, under the same terms and conditions
offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporations
contractual right of first refusal? On this score, we agree with the Amended Decision of the Court
of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling & Co. v.
Bonnevie is instructive on this point.
XXX
It was then held that the Contract of Sale there, which violated the right of first refusal, was
rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R
Corporation over the subject properties since the Deed of Real Estate Mortgage containing such
a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have
been notified thereof by registration, which equates to notice to the whole world.
XXX
All things considered, what then are the relative rights and obligations of the parties? To
recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporations prior written consent thereto. Inasmuch as the sale to PWHAS
was valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of
the spouses Litonjua, within the one-year period should have been accepted as valid by the L &
R Corporation. However, while the sale is, indeed, valid, the same is rescissible because it
ignored L & R Corporations right of first refusal."

Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into in
violation of a right of first refusal of another person, while valid, is rescissible.
There is, however, a circumstance which prevents the application of this doctrine in the case at bench.
In the cases cited above, the Court ordered the rescission of sales made in violation of a right of first
refusal precisely because the vendees therein could not have acted in good faith as they were aware or
should have been aware of the right of first refusal granted to another person by the vendors therein.
The rationale for this is found in the provisions of the New Civil Code on rescissible contracts. Under
Article 1381 of the New Civil Code, paragraph 3, a contract validly agreed upon may be rescinded if it is
"undertaken in fraud of creditors when the latter cannot in any manner collect the claim due them."
Moreover, under Article 1385, rescission shall not take place "when the things which are the object of
the contract are legally in the possession of third persons who did not act in bad faith." 30
It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the
instant case was an oral one given to respondents by the deceased spouses Tiangco and subsequently
recognized by their heirs. As such, in order to hold that petitioners were in bad faith, there must be
clear and convincing proof that petitioners were made aware of the said right of first refusal either by
the respondents or by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence is adduced. 31 A purchaser in
good faith is one who buys the property of another without notice that some other person has a right or
interest in such a property and pays a full and fair price at the time of the purchase or before he has
notice of the claim or interest of some other person in the property.32 In this regard, the rule on
constructive notice would be inapplicable as it is undisputed that the right of first refusal was an oral
one and that the same was never reduced to writing, much less registered with the Registry of Deeds.
In fact, even the lease contract by which respondents derive their right to possess the property
involved was an oral one.
On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in
entering into the deed of sale over the disputed property with the heirs of the spouses Tiangco.
Respondents failed to present any evidence that prior to the sale of the property on September 4, 1990,
petitioners were aware or had notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 199033 as indicative of petitioners knowledge of the said
right. In this letter, a certain Atty. Erlinda Aguila demanded that respondent Irene Guillermo vacate the
structure they were occupying to make way for its demolition.
We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is
made of the right of first refusal granted to respondents. The name of petitioner Rosencor or any of it
officers did not appear on the letter and the letter did not state that Atty. Aguila was writing in behalf of
petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the heirs of the
spouses Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in behalf of petitioner
Rosencor, there is no showing that Rosencor was aware at that time that such a right of first refusal
existed.

Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified
Rosencor or Atty. Aguila of their right of first refusal over the property. Respondents did not try to
communicate with Atty. Aguila and inform her about their preferential right over the disputed property.
There is even no showing that they contacted the heirs of the spouses Tiangco after they received this
letter to remind them of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she
recognized the right of first refusal of respondents, as indicative of the bad faith of petitioners. We do
not agree. Eufrocina de Leon wrote the letter on her own behalf and not on behalf of petitioners and, as
such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of first refusal. It
does not show that petitioners were likewise aware of the existence of the said right. Moreover, the
letter was made a month after the execution of the Deed of Absolute Sale on September 4, 1990
between petitioner Rosencor and the heirs of the spouses Tiangco. There is no showing that prior to the
date of the execution of the said Deed, petitioners were put on notice of the existence of the right of
first refusal.
Clearly, if there was any indication of bad faith based on respondents evidence, it would only be on the
part of Eufrocina de Leon as she was aware of the right of first refusal of respondents yet she still sold
the disputed property to Rosencor. However, bad faith on the part of Eufrocina de Leon does not mean
that petitioner Rosencor likewise acted in bad faith. There is no showing that prior to the execution of
the Deed of Absolute Sale, petitioners were made aware or put on notice of the existence of the oral
right of first refusal. Thus, absent clear and convincing evidence to the contrary, petitioner Rosencor
will be presumed to have acted in good faith in entering into the Deed of Absolute Sale over the
disputed property.
Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals
thus erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between
petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by Rosencor of the property
subject of the right of first refusal is an obstacle to the action for its rescission where, as in this case, it
was shown that Rosencor is in lawful possession of the subject of the contract and that it did not act in
bad faith.34
This does not mean however that respondents are left without any remedy for the unjustified violation
of their right of first refusal. Their remedy however is not an action for the rescission of the Deed of
Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the unjustified
disregard of their right of first refusal35.
WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999 is
REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City Regional Trial Court,
Branch 217 is hereby REINSTATED insofar as it dismisses the action for rescission of the Deed of
Absolute Sale dated September 4, 1990 and orders the payment of monthly rentals of P1,000.00 per
month reckoned from May 1990 up to the time respondents leave the premises.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 180269

February 20, 2013

JOSE Z. CASILANG, SR., substituted by his heirs, namely: FELICIDAD CUD lAMA T VDA. DE
CASILANG, JOSE C. CASILANG, JR., RICARDO C. CASILANG, MARIA LOURDES C. CASILANG,
CHRISTOPHER C. CASILANG, BEN C. CASILANG, DANTE C. CASILANG, GREGORIO C.
CASILANG, HERALD C. CASILANG; and FELICIDAD Z. CASILANG, MARCELINA Z. CASILANG,
JACINTA Z. CASILANG, BONIFACIO Z. CASILANG, LEONORA Z. CASILANG, and FLORA Z.
CASILANG, Petitioners,
vs.
ROSARIO Z. CASILANG-DIZON, MARIO A. CASILANG, ANGELO A. CASILANG, RODOLFO A.
CASILANG, and ATTY. ALICIA B. FABIA, in her capacity as Clerk of Court and Ex-Officio Sheriff
of Pangasinan and/or her duly authorized representative, Respondents.
DECISION
REYES, J.:

Before us is a petition for review of the Decision1 dated July 19, 2007 of the Court of Appeals (CA) in CAG.R. CV No. 79619, which reversed and set aside the Decision 2 dated April 21, 2003 of the Regional Trial
Court (RTC) of Dagupan City, Branch 41, in Civil Case No. 98-02371-D.
Antecedent Facts
The late spouses Liborio Casilang (Liborio) and Francisca Zacarias (Francisca) had eight (8) children,
namely: Felicidad Casilang (Felicidad), Ireneo Casilang (Ireneo), Marcelina Casilang (Marcelina), Jacinta
Casilang (Jacinta), Bonifacio Casilang (Bonifacio), Leonora Casilang (Leonora), Jose Casilang (Jose) and
Flora Casilang (Flora). Liborio died intestate on October 11, 1982 at the age of 83, followed not long
after by his wife Francisca on December 25, 1982. Their son Bonifacio also died in 1986, survived by his
child Bernabe Casilang (Bernabe), while son Ireneo died on June 11, 1992, survived by his four (4)
children, namely: Mario Casilang (Mario), Angelo Casilang (Angelo), Rosario Casilang-Dizon (Rosario)
and Rodolfo Casilang (Rodolfo), herein respondents.
The estate of Liborio, which left no debts, consisted of three (3) parcels of land located in Barangay
Talibaew, Calasiao, Pangasinan, namely: (1) Lot No. 4676, with an area of 4,164 square meters; (2) Lot
No. 4704, containing 1,164 sq m; and (3) Lot No. 4618, with 897 sq m.
On May 26, 1997, respondent Rosario filed with the Municipal Trial Court (MTC) of Calasiao, Pangasinan
a complaint for unlawful detainer, docketed as Civil Case No. 847, to evict her uncle, petitioner Jose
from Lot No. 4618. Rosario claimed that Lot No. 4618 was owned by her father Ireneo, as evidenced by
Tax Declaration (TD) No. 555 issued in 1994 under her fathers name. On April 3, 1997, the respondents
executed a Deed of Extrajudicial Partition with Quitclaim3 whereby they adjudicated Lot No. 4618 to
themselves. In the same instrument, respondents Mario, Angelo and Rodolfo renounced their respective
shares in Lot No. 4618 in favor of Rosario.
In his Answer, Jose raised the defense that he was the "lawful, absolute, exclusive owner and in actual
possession" of the said lot, and that he acquired the same "through intestate succession from his late
father."4 For some reason, however, he and his lawyer, who was from the Public Attorneys Office, failed
to appear at the scheduled pre-trial conference, and Jose was declared in default; thus, the adverse
judgment against him.5
On February 18, 1998, the MTC rendered judgment finding Rosario to be the owner of Lot No. 4618, and
ordering Jose to remove his house, vacate Lot No. 4618, and pay Rosario P500.00 in monthly rentals
from the filing of the complaint until she was placed in possession, plus attorneys fees of P5,000.00,
litigation expenses and costs. On March 23, 1998, the MTC issued a writ of execution; and on August
28, 1998, a Writ of Demolition6 was issued.
On June 2, 1998, the petitioners, counting 7 of the 8 children of Liborio and Francisca, 7 filed with the
RTC of Dagupan City a Complaint,8 docketed as Civil Case No. 98-02371-D for "Annulment of
Documents, Ownership and Peaceful Possession with Damages" against the respondents. On June 10,
1998, the petitioners moved for the issuance of a writ of preliminary injunction or temporary restraining
order, which the RTC however denied on June 23, 1998.

Among the documents sought to be annulled was the 1997 Deed of Extrajudicial Partition executed by
Ireneos children over Lot No. 4618, as well as TD No. 555, and by necessary implication its derivatives,
TD No. 15177 (for the lot) and TD No. 15176 (for the house), both of which were issued in 1998 in the
name of Rosario Casilang-Dizon.9
The petitioners alleged in their complaint that all eight (8) children of Liborio entered into a verbal
partition of his estate, pursuant to which Jose was allotted Lot No. 4618 as his share; that Ireneo never
claimed ownership of Lot No. 4618, nor took possession of it, because his share was the southwestern
1/5 portion of Lot No. 4676, containing an area of 1,308 sq m, 10 of which he took exclusive possession
during his lifetime; that Jose has always resided in Lot No. 4618 since childhood, where he built his
familys semi-concrete house just a few steps away from his parents old bamboo hut; that he took in
and cared for his aged parents in his house until their deaths in 1982; that one of his children has also
built a house on the lot.11 Jose, said to be the most educated of the Casilang siblings, worked as an
insurance agent.12 The complete disposition of the intestate estate of Liborio per the parties verbal
partition appears as follows:
1. Lot No. 4676, with 4,164 sq m, declared under TD No. 534 in Liborios name, 13 was verbally
partitioned among Marcelina (236 sq m), Leonora (1,965 sq m), Flora (655 sq m), and Ireneo,
represented by his children, the herein respondents-defendants (1,308 sq m), as shown in a
Deed of Extrajudicial Partition with Quitclaim dated January 8, 1998, subsequently executed by
all the Casilang siblings and their representatives.
2. Lot No. 4704, with 1,164 sq m, declared under TD No. 276 in Liborios name, 14 was divided
among Jacinta and Bonifacio, who died in 1986 and is now represented by his son Bernabe; and
3. Lot No. 4618, containing 897 sq m, declared since 1994 under TD No. 555 in Ireneos name, 15
is now the subject of the controversy below. Jose insists that he succeeded to it per verbal
partition, and that he and his family have always occupied the same peacefully, adversely and
exclusively even while their parents were alive.16
For her part, Rosario alleged in her answer with counterclaim, 17 which she filed on September 15, 1998,
that:
a) She is the actual and lawful owner of Lot No. 4618 with an area of 897 square meters, having
acquired the same by way of a Deed of Extra judicial Partition with Quitclaim dated 3 April 1997
which was duly executed among herein Appellant ROSARIO and her brothers, namely, MARIO,
ANGELO and RODOLFO, all surnamed CASILANG;
b) Her ownership over subject property could be traced back to her late father IR[E]NEO which
the latter inherited by way of intestate succession from his deceased father LIBORIO sometime
in 1992; that the residential house described in herein Appellee JOSEs complaint is an illegal
structure built by him in 1997 without her (ROSARIOs) knowledge and consent; that in fact, an
ejectment suit was filed against Appellee JOSE with the Municipal Trial Court in Calasiao,
Pangasinan in Civil Case No. 847;

c) The subject lot is never a portion of Appellee JOSEs share from the intestate of his deceased
father, LIBORIO; that on the contrary, the lot is his deceased brother IR[E]NEOs share from the
late LIBORIOs intestate estate; that in fact, the property has long been declared in the name of
the late IRENEO as shown by Tax Declaration No. 555 long before his children ROSARIO DIZON,
MARIO, ANGELO and RODOLFO, all surnamed CASILANG, executed the Deed of Partition dated
18 February 1998; that Appellee JOSE had actually consumed his shares which he inherited from
his late father, and after a series of sales and dispositions of the same made by him, he now
wants to take Appellants property;
d) Appellee JOSE is never the rightful owner of the lot in question and has not shown any
convincing proof of his supposed ownership; that the improvements introduced by him,
specifically the structures he cited are the subject of a Writ of Demolition dated 28 August 1998
pursuant to the Order dated 17 August 1998 of the MTC of Calasiao, Pangasinan;
e) No protestation or objection was ever made by Appellee JOSE in Civil Case No. 847 (Unlawful
Detainer case) where he was the defendant; that the truth was that his possession of the subject
property was upon the tolerance and benevolence of his late brother IRENEO during the latters
lifetime and that Appellant ROSARIO;
f) The RTC Clerk of Court and Ex-officio Provincial Sheriff would just be doing her job if she and
her deputies would implement the writ of execution/demolition issued by the MTC of Calasiao,
Pangasinan since it is its ministerial duty to do so;
g) The Appellees have no cause of action; not having shown in their complaint the basis, the
reason and the very core of their claim as to why the questioned document should be nullified. 18
(Citation omitted)
In their reply19 to Rosarios aforesaid answer, the petitioners asserted that the MTC committed a grave
error in failing to consider a material fact-that Jose had long been in prior possession under a claim of
title which he obtained by partition.
At the pre-trial conference in Civil Case No. 98-02371-D, the parties entered into the following
stipulations:
1. That the late LIBORIO is the father of FELICIDAD, MARCELINA, JUANITA, LEONORA, FLORA and
IRENEO, all surnamed CASILANG;
2. That the late LIBORIO died in 1982; That the late LIBORIO and his family resided on Lot [No.]
4618 up to his death in 1982; That the house of the late LIBORIO is located on Lot [No.] 4618;
3. That Plaintiff JOSE used to reside on the lot in question because there was a case for
ejectment filed against him;
4. That the house which was demolished is the family house of the late LIBORIO and FRANCISCA
ZACARIAS with the qualification that it was given to the defendants;

5. That the action involves members of the same family; and

6. That no earnest efforts were made prior to the institution of the case in court. 20
Ruling of the RTC
After a full trial on the merits, the RTC in its Decision 21 dated April 21, 2003 decreed as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against
the defendants as follows:
1. Declaring the Deed of Extrajudicial Partition with Quitclaim dated April 3, 1997 null and void;
2. Declaring plaintiff Jose Z. Casilang Sr. as the lawful owner and possessor of the subject Lot No.
4618 and as such, entitled to the peaceful possession of the same;
3. Ordering the defendants to pay to plaintiff Jose Z. Casilang Sr. attorneys fees in the amount
of P20,000.00 and litigation expenses in the amount of P5,000.00, and to pay the costs of suit.
SO ORDERED.22
The RTC affirmed Joses ownership and possession of Lot No. 4618 by virtue of the oral partition of the
estate of Liborio by all the siblings. In the Deed of Extrajudicial Partition with Quitclaim23 dated January
8, 1998, subsequently executed by all the eight (8) Casilang siblings and their legal
representativeswith Ireneo represented by his four (4) children, and Bonifacio by his son
Bernabepetitioners Jose, Felicidad, Jacinta and Bernabe, acknowledged that they had already
received their respective shares of inheritance in advance,"24 and therefore, renounced their claims
over Lot No. 4676 in favor of co-heirs Marcelina, Leonora, Flora and Ireneo, as follows:
We hereby RENOUNCED, WAIVED AND QUITCLAIM, all our rights, interests and participations over the
WHOLE parcel of land [Lot No. 4676], left by the late, LIBORIO CASILANG, in favor of our coheirs,
namely: MARCELINA Z. CASILANG-PARAYNO, LEONORA Z. CASILANG-SARMIENTO, FLORA Z. CASILANG,
MARIO A. CASILANG, ANGELO A. CASILANG, ROSARIO A. CASILANGDIZON AND RODOLFO A.
CASILANG.25
Thus, Jose expressly renounced his share in Lot No. 4676, which has an area of 4,164 sq m, because he
had already received in advance his share in his fathers estate, Lot No. 4618 with 897 sq m:
To the mind of the court, Jose Casilang could have not [sic] renounced and waived his rights and
interests over Lot [No.] 4676 if he believes that Lot [No.] 4618 is not his, while the other lot, Lot [No.]
470[4], was divided between sister Jacinta Casilang and brother Bonifacio Casilang[,] Sr., who was
represented by his son. In the same [way] as testified to by plaintiffs Felicidad Casilang and Jacinta
Casilang, they signed the Deed of Extrajudicial Partition with Quitclaim wherein they waived and
renounced their rights and interests over Lot [No.] 4676 because they have already received their
share, which is Lot [No.] 470[4].26

The RTC found baseless the claim of Rosario that Lot No. 4618 was an inheritance of her father Ireneo
considering that a tax declaration is not conclusive proof of ownership. The RTC even noted that the tax
declaration of Ireneo started only in 1994, although he had been dead since 1992. "Such being the
case, the heirs of Ir[e]neo Casilang has [sic] no basis in adjudicating unto themselves Lot No. 4618 and
partitioning the same by executing the Deed of Extrajudicial Partition with Quitclaim." 27
Appeal to the CA
Undeterred, Rosario appealed to the CA averring that: (1) the lower court erred in declaring the Deed of
Extrajudicial Partition with Quitclaim dated April 3, 1997 as null and void; and (2) the lower court erred
in declaring Jose as the lawful owner and possessor of the subject Lot No. 4618. 28
In the now assailed decision, the CA reversed the RTC by relying mainly on the factual findings and
conclusions of the MTC in Civil Case No. 847, viz:
Per the records, the above described property was subject of Civil Case No. 847 decided by the MTC of
Calasiao, First Judicial Region, Province of Pangasinan which rendered a judgment, supra, in favor of
Appellant ROSARIO ordering herein Appellee JOSE and all persons claiming rights under him to vacate
the land of Appellant ROSARIO. It was found by the MTC that the latter is the owner of the subject
parcel of land located at Talibaew, Calasiao, Pangasinan; that the former owner of the land is the late
IRENEO (who died on 11 June 1992), father of Appellant ROSARIO; that Extra Judicial Partition with
Quitclaim was executed by and among the heirs of the late IRENEO; that MAURO [sic], ANGELO and
RODOLFO, all surnamed CASILANG waived and quitclaimed their respective shares over the subject
property in favor of Appellant ROSARIO; that Appellee JOSE was allowed by the late IRENEO during his
lifetime to occupy a portion of the land without a contract of lease and no rentals being paid by the
former; that Appellant ROSARIO allowed Appellee JOSE to continue occupying the land after the Extra
Judicial Partition with Quitclaim was executed.29
Moreover, noting that the decision in Civil Case No. 847 in favor of Rosario was issued on February 18,
1998 while the petitioners complaint in Civil Case No. 98-02371-D was filed on June 2, 1998, the CA
concluded that the latter case was a mere afterthought:
If the latter has really a strong and valid reason to question the validity of the Deed of Extra Judicial
Partition with Quitclaim, supra, he could have done it soon after the said Deed was executed on 3 April
1997. However, curiously enough, it was only when the MTC ordered his eviction from the subject
property that he decided to file the instant case against the Appellants. 30
Petition for Review in the Supreme Court
Now in this petition for review on certiorari, petitioners maintain that:
IN UPHOLDING THE LEGALITY [OF] THE DEED OF EXTRAJUDICIAL PARTITION AND QUITCLAIM DATED
APRIL 3, 1997, THE HONORABLE COURT OF APPEALS GROSSLY VIOLATED THE SUBSTANTIVE RIGHT OF
JOSE Z. CASILANG, SR. AS DIRECT COMPULSORY HEIR. 31
Our Ruling and Discussions

There is merit in the petition.

Inferior courts are empowered to rule on the question of ownership raised by the defendant
in an ejectment suit, but only to resolve the issue of possession; its determination is not
conclusive on the issue of ownership.
It is well to be reminded of the settled distinction between a summary action of ejectment and a
plenary action for recovery of possession and/or ownership of the land. What really distinguishes an
action for unlawful detainer from a possessory action (accion publiciana) and from a reinvindicatory
action (accion reinvindicatoria) is that the first is limited to the question of possession de facto.
Unlawful detainer suits (accion interdictal) together with forcible entry are the two forms of ejectment
suit that may be filed to recover possession of real property. Aside from the summary action of
ejectment, accion publiciana or the plenary action to recover the right of possession and accion
reinvindicatoria or the action to recover ownership which also includes recovery of possession, make up
the three kinds of actions to judicially recover possession. 32
Under Section 3 of Rule 70 of the Rules of Court, the Summary Procedure governs the two forms of
ejectment suit, the purpose being to provide an expeditious means of protecting actual possession or
right to possession of the property. They are not processes to determine the actual title to an estate. If
at all, inferior courts are empowered to rule on the question of ownership raised by the defendant in
such suits, only to resolve the issue of possession and its determination on the ownership issue is not
conclusive.33 As thus provided in Section 16 of Rule 70:
Sec. 16. Resolving defense of ownership.When the defendant raises the defense of ownership in his
pleadings and the question of possession cannot be resolved without deciding the issue of ownership,
the issue of ownership shall be resolved only to determine the issue of possession.
It is apropos, then, to note that in contrast to Civil Case No. 847, which is an ejectment case, Civil Case
No. 98-02371-D is for "Annulment of Documents, Ownership and Peaceful Possession;" it is an accion
reinvindicatoria, or action to recover ownership, which necessarily includes recovery of possession 34 as
an incident thereof. Jose asserts his ownership over Lot No. 4618 under a partition agreement with his
co-heirs, and seeks to invalidate Ireneos "claim" over Lot No. 4618 and to declare TD No. 555 void, and
consequently, to annul the Deed of Extrajudicial Partition and Quitclaim executed by Ireneos heirs.
It is imperative to review the CAs factual conclusions since they are entirely contrary to
those of the RTC, they have no citation of specific supporting evidence, and are premised
on the supposed absence of evidence, particularly on the parties verbal partition, but are
directly contradicted by the evidence on record.
It must be noted that the factual findings of the MTC, which the CA adopted without question, were
obtained through Summary Procedure and were based solely on the complaint and affidavits of Rosario,
after Jose had been declared in default. But since a full trial was had in Civil Case No. 98-02371-D, the
CA should have pointed out the specific errors and weaknesses in the RTCs factual conclusions before
it could rule that Jose was unable to present "any evidentiary support" to establish his title, and that his
continued possession of Lot No. 4618 was by mere tolerance of Rosario. At most, however, the CA only

opined that it was conjectural for the RTC to conclude, that Jose had already received his inheritance
when he renounced his share in Lot No. 4676. It then ruled that the RTC erred in not considering the
findings of the MTC in Civil Case No. 847-that Joses possession over subject property was by mere
tolerance. Said the appellate court:
Given the claim of the Appellee that Lot [No.] 4618 was orally given/assigned to him by his deceased
father LIBORIO, or that his claim was corroborated by his sisters (his co-plaintiffs-Appellees), or that
their claim is indubitably tied up with the Deed of Extrajudicial Partition with Quitclaim over Lot No.
4676, still We cannot fully agree with the pronouncement of the court a quo that Appellee JOSE could
not have renounced and waived his rights and interest over Lot [No.] 4676 if he believes that Lot [No.]
4618 is not his. Wanting any evidentiary support, We find this stance as conjectural being
unsubstantiated by law or convincing evidence. At the most and taking the factual or legal
circumstances as shown by the records, We hold that the court a quo erred in not considering the
findings of the MTC in Civil Case No. 847 ruling that herein Appellee JOSEs possession over subject
property was by mere tolerance. Based as it is on mere tolerance, Appellee JOSEs possession therefore
could not, in any way, ripen into ownership.35 (Citations omitted)
By relying solely on the MTCs findings, the CA completely ignored the testimonial, documentary and
circumstantial evidence of the petitioners, obtained by the RTC after a full trial on the merits. More
importantly, the CA did not point to any evidence of Rosario that Ireneo had inherited Lot No. 4618 from
Liborio. All it did was adopt the findings of the MTC.
The Supreme Court is not a trier of facts, and unless the case falls under any of the well-defined
exceptions, the Supreme Court will not delve once more into the findings of facts. In Sps. Sta. Maria v.
CA,36 this Court stated:
Settled is the rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals
via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the latter are
conclusive, except in the following instances: (1) when the findings are grounded entirely on
speculation, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings
the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the petitioners main and reply briefs are not
disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record. 37 (Citation omitted)
In the instant case, the factual findings of the CA and the RTC are starkly contrasting. Moreover, we find
that the CA decision falls under exceptions (7), (8) and (10) above, which warrants another review of its
factual findings.
The evidence supporting Rosarios claim of sole ownership of Lot No. 4618 is the Deed of Extrajudicial
Partition with Quitclaim, which she executed with her brothers Mario, Angelo and Rodolfo. There is no

question that by itself, the said document would have fully conveyed to Rosario whatever rights her
brothers might have in Lot No. 4618. But what needs to be established first is whether or not Ireneo did
in fact own Lot No. 4618 through succession, as Rosario claims. And here now lies the very crux of the
controversy.
A review of the parties evidence shows that they entered into an oral partition, giving Lot
No. 4618 to Jose as his share, whereas Rosario presented no proof whatsoever that her
father inherited Lot No. 4618 from his father Liborio.
Rosarios only proof of Ireneos ownership is TD No. 555, issued in his name, but she did not bother to
explain why it was dated 1994, although Ireneo died on June 11, 1992. Liborios ownership of Lot No.
4618 is admitted by all the parties, but it must be asked whether in his lifetime Liborio did in fact
transmit it to Ireneo, and if not, whether it was conveyed to him by Liborios heirs. It is imperative for
Rosario to have presented proof of this transfer to Ireneo, in such a form as would have vested
ownership in him. We find, instead, a preponderance of contrary evidence.
1. In his testimony, Jose claimed that his parents bamboo house in Lot No. 4618 disintegrated
from wear and tear; so he took them in to his semi-concrete house in the same lot, which was
just a few steps away, and he cared for them until they died; shortly before Liborios death, and
in the presence of all his siblings, his father Liborio assigned Lot No. 4618 to him as his
inheritance; his house was demolished in 1998 as a result of the ejectment case filed against
him; but his family continued to live thereat after reconstructing the house; Ireneo and his family
did not live in Lot No. 4618; although Joses job as an insurance agent took him around
Pangasinan, he always came home to his family in his house in Lot No. 4618, which he used as
his permanent address; only Lot No. 4676 was included in the Deed of Extrajudicial Partition
dated January 8, 1998 because Lot No. 4618 had already been distributed to Jose, and Lot No.
4704 had already been assigned to Jacinta and Bonifacio as their share in their fathers estate. 38
2. Joses testimony was corroborated by petitioners Felicidad, 39 Jacinta,40 Leonora,41 and Flora,42
who all confirmed that their brother Jose has always resided in Lot No. 4618 from his childhood
up to the present, that he took their aged parents into his house after their bamboo house was
destroyed, and he attended to their needs until they died in 1982. The sisters were also one in
saying that their father Liborio verbally willed Lot No. 4618 to Jose as his share in his estate, and
that their actual partition affirmed their fathers dispositions. Jacinta claimed that she and
Bonifacio have since taken possession of Lot No. 4704 pursuant to their partition, and have also
declared their respective portions for tax purposes.43 Flora corroborated Jacinta on their taking
possession of Lot No. 4704, as well as that Jose built his house on Lot No. 4618 next to his
parents and they came to live with him in their old age. Flora affirmed that Exhibit "F" correctly
reflects their verbal partition of Lot No. 4676, and that she was fully in accord with it. She added
that Felicidad and Marcelina had since constructed their own houses on the portions of Lot No.
4676 assigned to them.44 Felicidad mentioned that in their partition, Ireneo was given a portion
of Lot No. 4676, while Lot No. 4704 was divided between Jacinta and Bonifacio, and Jose alone
got Lot No. 4618. Leonora confirmed that they were all present when their father made his
above dispositions of his estate.

3. Benjamin Lorenzo, a long-time neighbor of the Casilangs testified that Joses house stands on
Lot No. 4618 and Ireneo did not live with his family on the said lot but was a tenant in another
farm some distance away.45
4. For her part, Rosario merely asserted that her father Ireneo succeeded to Lot No. 4618 from
Liborio, as shown in TD No. 555 (Exhibit "1"); that she and her brothers extra-judicially settled
Ireneos estate, and that they each waived their shares in her favor; and, that she has been
paying taxes on Lot No. 4618. Rosario admitted, however, that Jose has lived in the lot since he
was a child, and he has reconstructed his house thereon after its court-ordered demolition. 46 But
Rosario on cross-examination backtracked by claiming that it was her father Ireneo and
grandfather Liborio who built the old house in Lot No. 4618, where Ireneo resided until his death;
he even planted various fruit trees. Yet, there is no mention whatsoever to this effect by any of
the witnesses. Rosario also contradicted herself when she denied that Jose lived there because
his job as insurance agent took him away often and yet admitted that Joses house stands there,
which he reconstructed after it was ordered demolished by the MTC. Inexplicably, Rosario
disclaimed knowledge of Ireneos share in Lot No. 4676, although she was a signatory, along
with her brothers and all the petitioners, in the deed of partition of the said lot, whereby she got
1,308 sq m. Rosario also admitted that taxes were paid on the lot only beginning in 1997, not
before.47
5. Benjamin Dizon, husband of Rosario, testified that Rosario was losing appetite and sleep
because of the case filed by Jose; that Ireneo died in another farm; that Ireneo had a house in
Lot No. 4618 but Jose took over the house after he died in 1992. 48 Respondent Angelo, brother of
Rosario, claimed that when he was 13 or 14 years old, he heard his grandfather tell his father
Ireneo that he would inherit Lot No. 4618. On cross-examination, Angelo insisted that his father
had always lived with his family in his grandfathers house in Lot No. 4618, that Jose did not live
there but was given another lot, although he could not say which lot it was; he admitted that his
grandmother lived with Jose when she died, and Ireneos share was in Lot No. 4676. 49
6. On rebuttal, Jose recounted that after his four children were married, Ireneo lived as a tenant
in another farm; that during a period of illness he lived in Manila for some time, and later
resided in Cagayan with his two married sons; and lastly on his return, worked as a tenant of the
Maningding family for about 10 years in Calasiao, staying in a hut one kilometer away. Jose also
claimed that Ireneo had asked Liborio for a portion of Lot No. 4676, a lot which is bigger than Lot
No. 4618 by several hundreds of square meters.50
7. On sur-rebuttal, Rosario claimed that her grandparents, father and mother lived in Lot No.
4618 when she was a child until she married and left in 1976; that her uncle Jose asked
permission from Liborio to be allowed to stay there with his family. She admitted that Jose built
his house in 1985, three years after Liborio died, but as if to correct herself, she also claimed
that Jose built his house in Lot No. 4676, and not in Lot No. 4618. (Contrarily, her aunt Leonora
testified that Jose built his house in Lot No. 4618 while their parents were alive.) 51 Moreover, if
such was the case, Rosario did not explain why she filed Civil Case No. 847, if she thought her
uncle built his house in Lot No. 4676, and not in Lot No. 4618. 52 Rosario also claimed that Ireneo
always came home in the evenings to his father Liborios house from the Maningding farm,

which he tenanted for 10 years, but obviously, by then Liborios house had long been gone.
Again, confusedly, Rosario denied that she knew of her fathers share in Lot No. 4676.
From the testimonies of the parties, we are convinced that the conclusion of the RTC is well-supported
that there was indeed a verbal partition among the heirs of Liborio, pursuant to which each of his eight
children received his or her share of his estate, and that Joses share was Lot No. 4618.
The parties verbal partition is valid, and has been ratified by their taking possession of
their respective shares.
The validity of an oral partition is well-settled in our jurisdiction. In Vda. de Espina v. Abaya,53 this Court
declared that an oral partition is valid:
Anent the issue of oral partition, We sustain the validity of said partition. "An agreement of partition
may be made orally or in writing. An oral agreement for the partition of the property owned in common
is valid and enforceable upon the parties. The Statute of Frauds has no operation in this kind of
agreements, for partition is not a conveyance of property but simply a segregation and designation of
the part of the property which belong to the co-owners."54
In Maestrado v. CA,55 the Supreme Court upheld the partition after it found that it conformed to the
alleged oral partition of the heirs, and that the oral partition was confirmed by the notarized quitclaims
executed by the heirs subsequently.56 In Maglucot-Aw v. Maglucot,57 the Supreme Court elaborated on
the validity of parol partition:
On general principle, independent and in spite of the statute of frauds, courts of equity have enforce
[sic] oral partition when it has been completely or partly performed.
Regardless of whether a parol partition or agreement to partition is valid and enforceable at law, equity
will [in] proper cases, where the parol partition has actually been consummated by the taking of
possession in severalty and the exercise of ownership by the parties of the respective portions set off to
each, recognize and enforce such parol partition and the rights of the parties thereunder. Thus, it has
been held or stated in a number of cases involving an oral partition under which the parties went into
possession, exercised acts of ownership, or otherwise partly performed the partition agreement, that
equity will confirm such partition and in a proper case decree title in accordance with the possession in
severalty.
In numerous cases it has been held or stated that parol partition may be sustained on the ground of
estoppel of the parties to assert the rights of a tenant in common as to parts of land divided by parol
partition as to which possession in severalty was taken and acts of individual ownership were exercised.
And a court of equity will recognize the agreement and decree it to be valid and effectual for the
purpose of concluding the right of the parties as between each other to hold their respective parts in
severalty.
A parol partition may also be sustained on the ground that the parties thereto have acquiesced in and
ratified the partition by taking possession in severalty, exercising acts of ownership with respect
thereto, or otherwise recognizing the existence of the partition.

A number of cases have specifically applied the doctrine of part performance, or have stated that a part
performance is necessary, to take a parol partition out of the operation of the statute of frauds. It has
been held that where there was a partition in fact between tenants in common, and a part
performance, a court of equity would have regard to and enforce such partition agreed to by the
parties.58
Joses possession of Lot No. 4618 under a claim of ownership is well borne out by the records. It is also
consistent with the claimed verbal partition with his siblings, and fully corroborated by his sisters
Felicidad, Jacinta, Leonora, and Flora, who further testified that they each had taken possession of their
own shares and built their houses thereon.
A possessor of real estate property is presumed to have title thereto unless the adverse claimant
establishes a better right.59 Moreover, under Article 541 of the Civil Code, one who possesses 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. Similarly, Article 433 of the Civil Code provides that actual
possession under a claim of ownership raises a disputable presumption of ownership. Thus, actual
possession and exercise of dominion over definite portions of the property in accordance with an
alleged partition are considered strong proof of an oral partition 60 which the Court will not hesitate to
uphold.
Tax declarations and tax receipts are not conclusive evidence of ownership.
It is settled that tax declarations and tax receipts alone are not conclusive evidence of ownership. They
are merely indicia of a claim of ownership,61 but when coupled with proof of actual possession of the
property, they can be the basis of claim of ownership through prescription. 62 In the absence of actual,
public and adverse possession, the declaration of the land for tax purposes does not prove ownership. 63
We have seen that there is no proof that Liborio, or the Casilang siblings conveyed Lot No. 4618 to
Ireneo. There is also no proof that Ireneo himself declared Lot No. 4618 for tax purposes, and even if he
or his heirs did, this is not enough basis to claim ownership over the subject property. The Court notes
that TO No. 555 was issued only in 1994, two years after Ireneo's death. Rosario even admitted that
she began paying taxes only in 1997.64 More impmiantly, Ireneo never claimed Lot No. 4618 nor took
possession of it in the concept of owner.
WHEREFORE, premises considered, the Petition is GRANTED. The Decision dated July 19, 2007 of the
Court of Appeals in CA-G.R. CV No. 79619 is hereby REVERSED and SET ASIDE, and the Decision
dated April 21, 2003 of the Regional Trial Court of Dagupan City, Branch 41 in Civil Case No. 98-02371D is REINSTATED.

Republic of the Philippines

SUPREME COURT
THIRD DIVISION
G.R. No. 145849. July 22, 2005
SPOUSES JOSE BEJOC and JOVITA CAPUTOL BEJOC, Petitioners,
vs.
PRIMA CALDERON CABREROS and COURT OF APPEALS, Respondents.
DECISION
CORONA, J.:

Assailed in this petition for review under Rule 45 of the Rules of Court 1 are the decision2 and resolution3
of the Court of Appeals4 which affirmed the trial courts judgment5 declaring respondent the lawful
owner of two parcels of agricultural land, the subject of this petition.
The original owner of the disputed parcels of land was Maura Caputol, the mother-in-law of respondent.
On November 7, 1975, Maura Caputol executed a deed of donation inter vivos in favor of her son,
Domingo Cabreros. The latter accepted the donation in the same instrument.
Domingo and his wife, respondent Prima Cabreros, took physical possession of the lots. In 1976, they
had the tax declarations in the name of Maura Caputol cancelled and transferred to them. 6
When the new owners and Maura Caputol migrated to Hawaii, they left the charge and administration
of the land to petitioner spouses. Aside from being the uncle and aunt of Domingo, they were chosen as
caretakers because they had been the overseers of the properties even before the donation to
Domingo.
As caretakers, the petitioners were tasked to deliver the harvest to Lucinda Calderon, 7 the mother of
respondent Prima Calderon Cabreros. They were also responsible for paying the taxes due thereon, to
be taken from the proceeds of the sale of the crops.
When Domingo died in Hawaii in 1979, his forced heirs, respondent Prima and a minor daughter,
succeeded to his estate.8
Sometime in October 1989, respondent Prima made a visit to the Philippines and went to Danao City,
Cebu. She heard rumors that petitioner spouses were exercising acts of ownership over the disputed
land. With her mother-in law Maura Caputol, she confronted petitioners about the rumors but the latter
initially denied the accusations. Later on, however, they claimed that Maura Caputol gave the
properties to them, an allegation disclaimed by Maura who said it was no longer possible for her to give
the properties to her younger sister, petitioner Jovita, because she had already donated them to her
son Domingo in 1975.
Respondent also found out that petitioners stopped delivering the harvest to her mother since 1984.
Moreover, she discovered that in 1981, Tax Declaration (TD) No. 19470 in the name of Domingo
Cabreros issued in 1980 for the first parcel of land (parcel 1) was mysteriously cancelled and changed
by TD No. 25472. This new tax declaration was issued in the name of Maura Caputol on the basis of a
quitclaim allegedly executed before notary public Leonardo Garcillano in 1971, annotated therein. The
same thing happened to the second parcel of land (parcel 2). The property was declared in the name of
Domingo Cabreros in 1980 under TD No. 19471. Yet, in 1983, this TD was cancelled and changed by TD
No. 25473 issued in the name of Maura Caputol, based on the same quitclaim.
In 1984, TD No. 25472 for parcel 1 and TD No. 25473 for parcel 2, both in the name of Maura Caputol,
were cancelled by TD No. 24007 and 15-26009, respectively. These new declarations were now in the
name of petitioner Jovita Caputol, based on a deed of confirmation of sale dated May 18, 1984
annotated therein. This document was allegedly executed by Maura Caputol in favor of petitioner Jovita.

Respondent further found that the petitioner spouses applied for a free patent on the properties. On
October 17, 1984, Original Certificate of Title (OCT) No. 26947 was issued to petitioner Jose Bejoc by
virtue of free patent no. (VII-5)17844 which he was able to obtain.
Earnest efforts to have the controversy settled out of court were unsuccessful as petitioners even dared
respondent to sue them in court. Consequently, the respondent filed an action for reconveyance
against the petitioner spouses on February 1, 1990 before Branch 17, Regional Trial Court (RTC) of
Cebu.
In their answer, petitioners alleged that they had been in possession of the parcels of land as
administrators since 1974 and as absolute owners since 1978. They claimed that Maura Caputol never
donated the parcels of land to her son Domingo.
On December 24, 1978, Maura Caputol allegedly sold the subject properties to petitioners for P5,000 in
a deed of sale. This sale was later on confirmed in another document dated May 18, 1984. From then
on, they exercised their rights as owners of the land and paid the taxes due beginning 1979. They also
successfully applied for a free patent on the properties. In 1984, they were issued an original certificate
of title.
Lastly, they contended that, even assuming the truth of respondents allegations, the action for
reconveyance was already barred by prescription.
From the evidence adduced, the trial court ruled:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the defendants
hereby declaring the plaintiff as the true, absolute and lawful owner of the two parcels of land in
question; ordering the defendants to reconvey the aforesaid properties in favor of the plaintiff; ordering
the defendants to jointly and severally pay plaintiff the sum of Three Thousand (P3,000.00) Pesos a
year from 1978 with legal rate of interest until the two parcels of land shall have been reconveyed and
delivered to the plaintiff plus costs of this action.9
The Court of Appeals affirmed the trial courts judgment in a decision dated September 20, 1999. 10 The
motion for reconsideration was likewise denied on October 13, 2000. 11
Hence, petitioner spouses are now before us via a petition for review under Rule 45 of the Revised
Rules of Court.
The sole issue raised in this petition is whether or not respondents action for reconveyance has
prescribed.
Petitioner spouses contend that respondents action for reconveyance was based on fraud, not implied
trust, as found by the trial and appellate courts. Respondents allegation was that petitioner spouses
conspired to transfer the tax declarations in their names and obtained title for the parcels of land by
fabricating the quitclaim, contract of sale and deed of confirmation of sale. Since the fraud committed
by petitioners not implied trust was the basis of the action, the prescriptive period was 4 years
and not 10 years as enunciated in Millena v. Court of Appeals.12 This period should be reckoned either

from the time that petitioners committed unequivocal acts of repudiation in 1978 or from the time the
OCT was issued in their names in 1984. Considering that more than four years had passed in either
case, it was clear error for the Court of Appeals to hold that respondents action for reconveyance had
not yet prescribed when it was filed in 1990.
We find no merit in the petition.
An implied trust is one that, without being express, is deducible from the nature of the transaction as a
matter of intent or which is superinduced on the transaction by operation of law as a matter of equity,
independently of the particular intention of the parties.13 It may either be resulting or constructive trust.
A resulting trust is presumed to have been contemplated by the parties, the intention as to which is to
be found in the nature of their transaction but not expressed in the deed itself. 14 It is based on the
equitable doctrine that valuable consideration, not legal title, determines the equitable title or
interest.15
A constructive trust is created, not by any word evincing a direct intention to create a trust, but by
operation of law in order to satisfy the demands of justice and to prevent unjust enrichment. It arises
contrary to an agreement or 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.16 A constructive trust is illustrated in Article 1456 of the Civil Code:
ARTICLE 1456. If the 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.
It is on this ground that we find no error in the trial and appellate courts findings that an implied trust
was created in favor of respondent when petitioners transferred the properties to their names in
violation of the trust placed in them as overseers. Records show that, while the properties were under
their administration, they transferred the tax declarations in the name of Domingo Cabreros to Maura
Caputol on the basis of a fake quitclaim purportedly executed in 1971. These tax declarations were in
turn transferred to petitioner Jovita Caputol on the strength of a fraudulent deed of confirmation of sale
supposedly executed by Maura Caputol on May 18, 1984.
All these documents, including a deed of sale allegedly executed in 1978, were denounced as spurious
by Maura Caputol. She explained that she had donated the properties to her only son Domingo
Cabreros on November 7, 1975. There was no way she could have sold these properties thereafter,
considering that she no longer owned them. Also, at the time of the alleged confirmation of sale, Maura
Caputol was already 78 years old and living alone. At that age, she could have been easily manipulated
by her sister, petitioner Jovita, into signing just about any document.
Telling is her testimony regarding the deed of confirmation of sale:
Q: Now Mrs. Caputol, I will show to you this document evidencing the confirmation of sale from you to
your sister. In fact they have the signature of Maura Caputol marked on their exhibit. Can you identify
that signature?

A: I signed the document just to confirm that they are the one staying [in] the house and over-seeing
the property and I did not sell the property and in fact I even wanted to buy some more. 17 (emphasis
ours)
Moreover, the quitclaim and the deed of sale, upon which petitioners based their claim, were never
presented. Considering that they were the ones who had been asserting the existence of these
documents, it was incumbent upon them to present said documents to prove that the properties had
indeed been sold to them by Maura Caputol. The fundamental rule is that he who alleges must prove. 18
Petitioners failure to do so was therefore fatal to their cause.
More telling is the fact that OCT No. 26947 was issued in the name of petitioner Jose Bejoc on October
17, 1984 by virtue of Free Patent No. (VII-5) 17844. Undoubtedly, the patent and title were obtained by
the petitioner spouses in flagrant breach of the confidence reposed in them by Maura Caputol, and
Domingo Cabreros and his wife, respondent Prima. The evidence was that petitioners knew all along
that the properties were not theirs. They, in fact, admitted that they were mere overseers thereof.
We have already held that simple possession of a certificate of title is not necessarily conclusive of a
holders true ownership of property. If a person obtains title that includes land to which he has no legal
right, that person does not, by virtue of said certificate alone, become the owner of the land illegally or
erroneously included.19 It has been held time and again that the rule on indefeasibility of title cannot be
used for the perpetration of fraud against the real owner. 20
In Viral v. Anore, et al.

21

we ruled that:

While under ordinary circumstances the statute of limitations may bar an action to cancel a Torrens title
issued upon a free patent, yet where the registered owner x x x knew that the parcel of land described
in the patent and in the Torrens title actually belonged to another person, such statute barring action
will not apply. It may be the better procedure, however, that the true owner bring an action to have the
ownership or title to the land judicially settled, and the court in the exercise of its equity jurisdiction,
without ordering the cancellation of the Torrens title issued upon the patent, may direct the registered
owner to reconvey the land to the rightful owner. (emphasis ours)
The right to seek reconveyance based on an implied or constructive trust is not absolute. It is subject to
extinctive prescription.22 On this point, petitioners insist that the action prescribed in 4 years as held in
the case of Millena v. Court of Appeals.23 Petitioners insistence is, however, misplaced. The 4-year
prescriptive period is not applicable in the present case because the action was not based exclusively
on fraud but on implied trust. Significantly, petitioners overlooked the well-settled rule, reiterated in the
same case, that an action for reconveyance based on implied or constructive trust prescribes in 10
years.
This period is reckoned from the date of the issuance of the original certificate of title or transfer
certificate of title. Since such issuance operates as a constructive notice to the whole world, 24 the
discovery of the fraud is deemed to have taken place at that time. Here, the title was issued on October
17, 1984. The action for reconveyance was, on the other hand, filed 6 years later, on February 1, 1990.

Clearly, prescription had not yet attached. The suit was brought well within the 10-year prescriptive
period for implied trusts.
WHEREFORE, the petition is hereby DENIED. The assailed decision and resolution of the Court of
Appeals are hereby AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 162033

May 8, 2009

HEIRS OF TRANQUILINO LABISTE (also known as Tranquilino Laviste) represented by:

(1) GERARDO LABISTE, representing the Heirs of Gregorio Labiste;
(2) OBDULLIA LABISTE GABUAN, representing the heirs of Juan Labiste;
(3) VICTORIA G. CHIONG, representing the Heirs of Eulalia Labiste;
(4) APOLINARIA LABISTE YLAYA, representing the Heirs of Nicolasa Labiste;
(5) DEMOSTHENES LABISTE, representing the Heirs of Gervacio Labiste;
(6) ALEJANDRA LABISTE; representing the Heirs of SINFROCIO LABISTE, and
(7) CLOTILDE LABISTE CARTA, representing the Heirs of Andres Labiste, Petitioners,
vs.
HEIRS OF JOSE LABISTE, survived by his children,
(1) ZACARIAS LABISTE, deceased and survived by his children, namely: CRESENCIA LABISTE
and EUFRONIO LABISTE;
(2) BERNARDINO LABISTE, deceased and survived by his children, namely: POLICARPIO
LABISTE, BONIFACIO LABISTE, FELIX LABISTE, GABINA LABISTE, CAYETANA LABISTE and
ISABEL LABISTE;
(3) LUCIA LABISTE, deceased and survived by her children, namely: ISAAC LABISTE, GENARO
LABISTE, BRAULIA LABISTE, BRAULIO LABISTE, ASUNCION LABISTE, ALFONSO LABISTE and
CLAUDIA LABISTE;
(4) EPIFANIO LABISTE and CLAUDIA LABISTE; deceased and survived by his children, namely
SILVESTRE LABISTE, PAULA LABISTE and GERARDA LABISTE;
(5) ANA LABISTE, deceased and survived by her children, namely: MAXIMO LABISTE, MOISES
LABISTE, GERVACIO LABISTE, SATURNINA LABISTE and QUIRINO LABISTE;
(6) SEVERO LABISTE, deceased and survived by his children, Namely: FELIX LABISTE,
RUFINA LABISTE, SIMPLICIO LABISTE, VICENTE LABISTE and PATRICIO LABISTE, Respondents.
DECISION
TINGA, J.:

This is a petition for review1 under Rule 45 of the Rules of Court of the Court of Appeals Decision dated
30 June 20032 in CA-G.R. CV No. 65829. reversing the decision of the Regional Trial Court (RTC) of Cebu
City, Branch 9. The appellate court denied petitioners3 motion for reconsideration in a Resolution dated
15 January 2004.
The factual antecedents are as follows:
On 29 September 1919, the late Epifanio Labiste (Epifanio), on his own and on behalf of his brothers
and sisters who were the heirs of Jose Labiste (Jose), purchased from the Bureau of Lands Lot No. 1054
of the Banilad Friar Lands Estate, with an area of 13,308 square meters, located at Guadalupe, Cebu
City for P36.00.4 Subsequently, on 9 June 1924, then Bureau of Lands Director Jorge B. Vargas executed
Deed of Conveyance No. 12536 selling and ceding Lot No. 1054 to Epifanio and his brothers and sisters
who were the heirs of Jose.5
After full payment of the purchase price but prior to the issuance of the deed of conveyance, Epifanio
executed an Affidavit6 (Affidavit of Epifanio) in Spanish on 10 July 1923 affirming that he, as one of the
heirs of Jose, and his uncle and petitioners predecessor-in-interest, Tranquilino Labiste (Tranquilino),
then co-owned Lot No. 1054 because the money that was paid to the government came from the two of
them. Tranquilino and the heirs of Jose continued to hold the property jointly.
Sometime in 1928, the Register of Deeds of Cebu City issued Original Certificate of Title No. 3878 for
Lot No. 1054. On 2 May 1928, Engineer Espiritu Bunagan (Engr. Bunagan), Deputy Public Land
Surveyor, subdivided Lot No. 1054 into two lots: Lot No. 1054-A with an area of 6,664 square meters for
Tranquilino and Lot No. 1054-B with an area of 6,664 square meters for Epifanio. The subdivision plan
prepared by Engr. Bunagan was approved by Jose P. Dans, Acting Director of Lands on 28 October
1928.7
Subsequently, on 18 October 1939, the heirs of Tranquilino8 purchased the one-half (1/2) interest of the
heirs of Jose9 over Lot No. 1054 for P300.00, as evidenced by the Calig-onan sa Panagpalit10 executed
by the parties in the Visayan dialect. The heirs of Tranquilino immediately took possession of the entire
lot.
When World War II broke out, the heirs of Tranquilino fled Cebu City and when they came back they
found their homes and possessions destroyed. The records in the Office of the Register of Deeds, Office
of the City Assessor and other government offices were also destroyed during the war. Squatters have
practically overrun the entire property, such that neither petitioners nor respondents possess it.
In October 1993, petitioners learned that one of the respondents, 11 Asuncion Labiste, had filed on 17
September 1993 a petition for reconstitution of title over Lot No. 1054. Petitioners opposed the petition
at first but by a compromise agreement between the parties dated 25 March 1994, petitioners withdrew
their opposition to expedite the reconstitution process. Under the compromise agreement, petitioners
were to be given time to file a complaint so that the issues could be litigated in an ordinary action and
the reconstituted title was to be deposited with the Clerk of Court for a period of sixty (60) days to allow
petitioners to file an action for reconveyance and to annotate a notice of lis pendens. The Register of
Deeds of Cebu City issued the reconstituted title, TCT No. RT-7853, 12 in the name of "Epifanio Labiste,

married to Tomasa Mabitad, his brothers and sisters, heirs of Jose Labiste" on 14 December 1994.
However, respondents did not honor the compromise agreement.
Petitioners filed a complaint13 for annulment of title seeking the reconveyance of property and damages
on 13 January 1995, docketed as Civil Case No. CEB-16943, with the RTC of Cebu City. Respondents
claimed that the Affidavit of Epifanio and the Calig-onan sa Panagpalit were forgeries and that
petitioners action had long prescribed or barred by laches. 14
The RTC in a Decision dated 23 August 199915 ruled in favor of petitioners. After evaluating the
documents presented by petitioners, the RTC found that they are genuine and authentic as ancient
documents and that they are valid and enforceable.16 Moreover, it held that the action had not
prescribed as the complaint was filed about a year after the reconstitution of the title by respondents.
The judicial reconstitution was even opposed by petitioners until a compromise agreement was reached
by the parties and approved by the RTC which ordered the reconstitution. The RTC further held that the
reconstituted title did not give any more right to respondents than what their predecessors-in-interest
actually had as it is limited to the reconstitution of the certificate as it stood at the time of its loss or
destruction.17
On appeal, the Court of Appeals, while affirming petitioners right to the property, nevertheless
reversed the RTCs decision on the ground of prescription and laches. It affirmed the RTCs findings that
the Affidavit and the Calig-onan sa Panagpalit are genuine and authentic, and that the same are valid
and enforceable documents.18 Citing Article 1144 of the Civil Code, it held that petitioners cause of
action had prescribed for the action must be brought within ten (10) years from the time the right of
action accrues upon the written contract which in this case was when petitioners predecessors-ininterest lost possession over the property after World War II. Also, the lapse of time to file the action
constitutes neglect on petitioners part so the principle of laches is applicable. 19
Hence, the present petition.
The genuineness and authenticity of the Affidavit of Epifanio and the Calig-onan sa Panagpalit are
beyond cavil. As we have ruled in a litany of cases, resort to judicial review of the decisions of the Court
of Appeals under Rule 45 is confined only to errors of law. 20 The findings of fact by the lower court are
conclusive absent any palpable error or arbitrariness.21 The Court finds no reason to depart from this
principle. Moreover, it is a long settled doctrine that findings of fact of the trial court, when affirmed by
the Court of Appeals, are binding upon the Court. It is not the function of the Supreme Court to weigh
anew the evidence already passed upon by the Court of Appeals for these are deemed final and
conclusive and may not be reviewed on appeal.22
The sole issue that the Court has to resolve is whether or not petitioners cause of action has
prescribed.
The Court of Appeals erred in applying the rules on prescription and the principle of laches because
what is involved in the present case is an express trust.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It
is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the

beneficiary.23 Trust relations between parties may either be express or implied. An express trust is
created by the intention of the trustor or of the parties. An implied trust comes into being by operation
of law.24
Express trusts are created by direct and positive acts of the parties, by some writing or deed, or will, or
by words either expressly or impliedly evincing an intention to create a trust. 25 Under Article 1444 of
the Civil Code, "[n]o particular words are required for the creation of an express trust, it being sufficient
that a trust is clearly intended." The Affidavit of Epifanio is in the nature of a trust agreement. Epifanio
affirmed that the lot brought in his name was co-owned by him, as one of the heirs of Jose, and his
uncle Tranquilino. And by agreement, each of them has been in possession of half of the property. Their
arrangement was corroborated by the subdivision plan prepared by Engr. Bunagan and approved by
Jose P. Dans, Acting Director of Lands.
As such, prescription and laches will run only from the time the express trust is repudiated. The Court
has held that for acquisitive prescription to bar the action of the beneficiary against the trustee in an
express trust for the recovery of the property held in trust it must be shown that: (a) the trustee has
performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such
positive acts of repudiation have been made known to the cestui que trust, and (c) the evidence
thereon is clear and conclusive.26
http://sc.judiciary.gov.ph/jurisprudence/2007/november2007/148788.htm - _ftn Respondents cannot rely
on the fact that the Torrens title was issued in the name of Epifanio and the other heirs of Jose. It has
been held that a trustee who obtains a Torrens title over property held in trust by him for another
cannot repudiate the trust by relying on the registration.27 The rule requires a clear repudiation of the
trust duly communicated to the beneficiary. The only act that can be construed as repudiation was
when respondents filed the petition for reconstitution in October 1993. And since petitioners filed their
complaint in January 1995, their cause of action has not yet prescribed, laches cannot be attributed to
them.
It is hornbook doctrine that laches is a creation of equity and its application is controlled by equitable
considerations. Laches cannot be used to defeat justice or perpetrate fraud and injustice. 28 Neither
should its application be used to prevent the rightful owners of a property from
recovering what has been fraudulently registered in the name of
another.http://sc.judiciary.gov.ph/jurisprudence/2006/mar2006/G.R. No. 157954.htm - _ftn 29 The
equitable remedy of laches is, therefore, unavailing in this case.
However, to recover the other half of the property covered by the private Calig-onan sa Panagpalit and
to have it registered on the title of the property, petitioners should have filed an action to compel 30
respondents, as heirs of the sellers in the contract,31 to execute a public deed of sale. A conveyance of
land made in a private document does not affect its validity. Article 1358,like its forerunner Article 1280
of the Civil Code of Spain, 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, 32
so that after the existence of said contract has been admitted, the party bound may be compelled to

execute the proper document.33 But even assuming that such action was filed by petitioners, the same
had already prescribed.1avvphi1
It is settled that only laws existing at the time of the execution of a contract are applicable thereto and
not later statutes, unless the latter are specifically intended to have retroactive effect. 34 Consequently,
it is the Old Code of Civil Procedure (Act No. 190) which applies in this case since the Calig-onan sa
Panagpalit was executed on 18 October 1939 while the New Civil Code took effect only on 30 August
1950. And section 43 of Act No. 190, like its counterpart Article 1144 of the New Civil Code, provides
that action upon a written contract must be filed within ten years. 35
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals dated 30 June
2003 in CA-G.R. CV No. 65829 is REVERSED and SET ASIDE and the Decision of the Regional Trial
Court of Cebu City, Branch 9 dated 23 August 1999 is
REINSTATED with MODIFICATION in petitioners are hereby DECLARED the absolute owners of onehalf of Lot No. 1054 or Lot No. 1054-A under TCT No. RT-7853. The Register of Deeds of Cebu City is
hereby ORDERED to CANCEL TCT No. RT-7853 in part and issue a new Transfer Certificate of Title to
petitioners, heirs of Tranquilino Labiste, covering Lot No. 1054-A. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 191696

April 10, 2013

ROGELIO DANTIS, Petitioner,

vs.
JULIO MAGHINANG, JR., Respondent.
DECISION

MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the January 25, 2010
Decision1 and the March 23, 2010 Resolution2 of the Court of Appeals (CA). in CA-G.R. CV No. 85258,
reversing the March 2, 2005 Decision3 of the Regional Trial Court, Branch 18, Malolos, Bulacan (RTC), in
an action for quieting of title and recovery of possession with damages.
The Facts
The case draws its origin from a complaint4 for quieting of title and recovery of possession with
damages filed by petitioner Rogelio Dantis (Rogelio) against respondent Julio Maghinang, Jr. (Julio, Jr.)
before the RTC, docketed as Civil Case No. 280-M-2002. Rogelio alleged that he was the registered
owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-125918, with an area of
5,657 square meters, located in Sta. Rita, San Miguel, Bulacan; that he acquired ownership of the
property through a deed of extrajudicial partition of the estate of his deceased father, Emilio Dantis
(Emilio), dated December 22, 1993; that he had been paying the realty taxes on the said property; that
Julio, Jr. occupied and built a house on a portion of his property without any right at all; that demands
were made upon Julio, Jr. that he vacate the premises but the same fell on deaf ears; and that the acts
of Julio, Jr. had created a cloud of doubt over his title and right of possession of his property. He, thus,
prayed that judgment be rendered declaring him to be the true and real owner of the parcel of land
covered by TCT No. T-125918; ordering Julio, Jr. to deliver the possession of that portion of the land he
was occupying; and directing Julio, Jr. to pay rentals from October 2000 and attorneys fees of
P100,000.00.
He added that he was constrained to institute an ejectment suit against Julio, Jr. before the Municipal
Trial Court of San Miguel, Bulacan (MTC), but the complaint was dismissed for lack of jurisdiction and
lack of cause of action.
In his Answer,5 Julio, Jr. denied the material allegations of the complaint. By way of an affirmative
defense, he claimed that he was the actual owner of the 352 square meters (subject lot) of the land
covered by TCT No. T-125918 where he was living; that he had been in open and continuous possession
of the property for almost thirty (30) years; the subject lot was once tenanted by his ancestral relatives
until it was sold by Rogelios father, Emilio, to his father, Julio Maghinang, Sr. (Julio, Sr.); that later, he
succeeded to the ownership of the subject lot after his father died on March 10, 1968; and that he was
entitled to a separate registration of the subject lot on the basis of the documentary evidence of sale
and his open and uninterrupted possession of the property.
As synthesized by the RTC from the respective testimonies of the principal witnesses, their
diametrically opposed positions are as follows:
Plaintiff Rogelio Dantis testified that he inherited 5,657 square meters of land, identified as Lot 6-D-1 of
subdivision plan Psd-031421-054315, located at Sta. Rita, San Miguel, Bulacan, through an Extrajudicial
Partition of Estate of Emilio Dantis, executed in December 1993 which land was titled later on under his
name, Rogelio Dantis, married to Victoria Payawal, as shown by copy of Transfer Certificate of Title No.
T-125918, issued by the Register of Deeds of Bulacan on September 29, 1998, declared for taxation

purposes as Tax Declaration with ARP No. C20-22-043-07-046. According to him, defendant and his
predecessor-in-interest built the house located on said lot. When he first saw it, it was only a small hut
but when he was about 60 years old, he told defendant not to build a bigger house thereon because he
would need the land and defendant would have to vacate the land. Plaintiff, however, has not been in
physical possession of the premises.
Defendant Julio Maghinang, Jr., presented by plaintiff as adverse witness, testified that he has no title
over the property he is occupying. He has not paid realty taxes thereon. He has not paid any rental to
anybody. He is occupying about 352 square meters of the lot. He presented an affidavit executed on
September 3, 1953 by Ignacio Dantis, grandfather of Rogelio Dantis and the father of Emilio Dantis. The
latter was, in turn, the father of Rogelio Dantis.
The affidavit, according to affiant Ignacio Dantis, alleged that Emilio Dantis agreed to sell 352 square
meters of the lot to Julio Maghinang on installment. Defendant was then 11 years old in 1952.
Defendant Julio Maghinang, Jr. likewise testified for the defendants case as follows: He owns that house
located at Sta. Rita, San Miguel, Bulacan, on a 352 square meter lot. He could not say that he is the
owner because there is still question about the lot. He claimed that his father, Julio Maghinang (Sr.),
bought the said lot from the parents of Rogelio Dantis. He admitted that the affidavit was not signed by
the alleged vendor, Emilio Dantis, the father of Rogelio Dantis. The receipt he presented was admittedly
a mere photocopy. He spent P50,000.00 as attorneys fees. Since 1953, he has not declared the
property as his nor paid the taxes thereon because there is a problem. 6
On March 2, 2005, the RTC rendered its decision declaring Rogelio as the true owner of the entire
5,657-square meter lot located in Sta. Rita, San Miguel, Bulacan, as evidenced by his TCT over the
same. The RTC did not lend any probative value on the documentary evidence of sale adduced by Julio,
Jr. consisting of: 1) an affidavit allegedly executed by Ignacio Dantis (Ignacio), Rogelios grandfather,
whereby said affiant attested, among others, to the sale of the subject lot made by his son, Emilio, to
Julio, Sr. (Exhibit "3")7; and 2) an undated handwritten receipt of initial downpayment in the amount of
100.00 supposedly issued by Emilio to Julio, Sr. in connection with the sale of the subject lot (Exhibit
"4").8 The RTC ruled that even if these documents were adjudged as competent evidence, still, they
would only serve as proofs that the purchase price for the subject lot had not yet been completely paid
and, hence, Rogelio was not duty-bound to deliver the property to Julio, Jr. The RTC found Julio, Jr. to be
a mere possessor by tolerance. The dispositive portion of the RTC decision reads:
WHEREFORE, Judgment is hereby rendered as follows:
1. quieting the title and removing whatever cloud over the title on the parcel of land, with area of 5,647
sq. meters, more or less, located at Sta. Rita, San Miguel, Bulacan, covered by Transfer Certificate of
Title No. T-125918 issued by the Register of Deeds of Bulacan in the name of "Rogelio Dantis, married
to Victoria Payawal";
2. declaring that Rogelio Dantis, married to Victoria Payawal, is the true and lawful owner of the
aforementioned real property; and

3. ordering defendant Julio Maghinang, Jr. and all persons claiming under him to peacefully vacate the
said real property and surrender the possession thereof to plaintiff or latters successors-in-interest.
No pronouncement as to costs in this instance.
SO ORDERED.9
Julio, Jr. moved for a reconsideration of the March 2, 2005 Decision, but the motion was denied by the
RTC in its May 3, 2005 Order.10 Feeling aggrieved, Julio, Jr. appealed the decision to the CA.
On January 25, 2010, the CA rendered the assailed decision in CA-G.R. CV NO. 85258, finding the
appeal to be impressed with merit. It held that Exhibit "4" was an indubitable proof of the sale of the
352-square meter lot between Emilio and Julio, Sr. It also ruled that the partial payment of the purchase
price, coupled with the delivery of the res, gave efficacy to the oral sale and brought it outside the
operation of the statute of frauds. Finally, the court a quo declared that Julio, Jr. and his predecessors-ininterest had an equitable claim over the subject lot which imposed on Rogelio and his predecessors-ininterest a personal duty to convey what had been sold after full payment of the selling price. The
decretal portion of the CA decision reads:
IN VIEW OF THE FOREGOING, the decision appealed from is reversed. The heirs of Julio Maghinang Jr.
are declared the owners of the 352-square meter portion of the lot covered by TCT No. T-125968 where
the residence of defendant Julio Maghinang is located, and the plaintiff is ordered to reconvey the
aforesaid portion to the aforesaid heirs, subject to partition by agreement or action to determine the
exact metes and bounds and without prejudice to any legal remedy that the plaintiff may take with
respect to the unpaid balance of the price.
SO ORDERED.11
The motion for reconsideration12 filed by Rogelio was denied by the CA in its March 23, 2010 Resolution.
Unfazed, he filed this petition for review on certiorari before this Court.
Issues:
The fundamental question for resolution is whether there is a perfected contract of sale between Emilio
and Julio, Sr. The determination of this issue will settle the rightful ownership of the subject lot.
Rogelio submits that Exhibit "3" and Exhibit "4" are devoid of evidentiary value and, hence, deserve
scant consideration. He stresses that Exhibit "4" is inadmissible in evidence being a mere photocopy,
and the existence and due execution thereof had not been established. He argues that even if Exhibit
"4" would be considered as competent and admissible evidence, still, it would not be an adequate proof
of the existence of the alleged oral contract of sale because it failed to provide a description of the
subject lot, including its metes and bounds, as well as its full price or consideration. 13
Rogelio argues that while reconveyance may be availed of by the owner of a real property wrongfully
included in the certificate of title of another, the remedy is not obtainable herein since he is a
transferee in good faith, having acquired the land covered by TCT No. T-125918, through a Deed of

Extrajudicial Partition of Estate.14 He asserts that he could not be considered a trustee as he was not
privy to Exhibit "4." In any event, he theorizes that the action for reconveyance on the ground of
implied trust had already prescribed since more than 10 years had lapsed since the execution of Exhibit
"4" in 1953. It is the petitioners stance that Julio, Jr. did not acquire ownership over the subject lot by
acquisitive prescription contending that prescription does not lie against a real property covered by a
Torrens title. He opines that his certificate of title to the subject lot cannot be collaterally attacked
because a Torrens title is indefeasible and must be respected unless challenged in a direct proceeding. 15
The Courts Ruling
In the case at bench, the CA and the RTC reached different conclusions on the question of whether or
not there was an oral contract of sale. The RTC ruled that Rogelio Dantis was the sole and rightful owner
of the parcel of land covered by TCT No. T-125918 and that no oral contract of sale was entered into
between Emilio Dantis and Julio Maghinang, Sr. involving the 352-square meter portion of the said
property. The CA was of the opposite view. The determination of whether there existed an oral contract
of sale is essentially a question of fact.
In petitions for review under Rule 45, the Court, as a general rule, does not venture to re-examine the
evidence presented by the contending parties during the trial of the case considering that it is not a
trier of facts and the findings of fact of the CA are conclusive and binding upon this Court. The rule,
however, admits of several exceptions. One of which is when the findings of the CA are contrary to
those of the trial court.16 Considering the incongruent factual conclusions of the CA and the RTC, this
Court is constrained to reassess the factual circumstances of the case and reevaluate them in the
interest of justice.
The petition is meritorious.
It is an age-old rule in civil cases that he who alleges a fact has the burden of proving it and a mere
allegation is not evidence.17 After carefully sifting through the evidence on record, the Court finds that
Rogelio was able to establish a prima facie case in his favor tending to show his exclusive ownership of
the parcel of land under TCT No. T-125918 with an area of 5,657 square meters, which included the
352-square meter subject lot. From the records, it appears that TCT No. T-125918 is a derivative of TCT
No. T-256228, which covered a bigger area of land measuring 30,000 square meters registered in the
name of Emilio Dantis; that Emilio died intestate on November 13, 1952; that Emilios five heirs,
including Rogelio, executed an extra-judicial partition of estate on December 22, 1993 and divided
among themselves specific portions of the property covered by TCT No. T-256228, which were already
set apart by metes and bounds; that the land known as Lot 6-D-1 of the subdivision plan Psd-031421054315 with an area of 5,657 sq. m. went to Rogelio, the property now covered by TCT No. T-125918;
and that the property was declared for realty tax purpose in the name of Rogelio for which a tax
declaration was issued in his name; and that the same had not been transferred to anyone else since
its issuance.
In light of Rogelios outright denial of the oral sale together with his insistence of ownership over the
subject lot, it behooved upon Julio, Jr. to contravene the formers claim and convince the court that he

had a valid defense. The burden of evidence shifted to Julio, Jr. to prove that his father bought the
subject lot from Emilio Dantis. In Jison v. Court of Appeals, 18 the Court held:
Simply put, he who alleges the affirmative of the issue has the burden of proof, and upon the plaintiff in
a civil case, the burden of proof never parts. However, in the course of trial in a civil case, once plaintiff
makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to
controvert plaintiffs prima facie case, otherwise, a verdict must be returned in favor of plaintiff.
Moreover, in civil cases, the party having the burden of proof must produce a preponderance of
evidence thereon, with plaintiff having to rely on the strength of his own evidence and not upon the
weakness of the defendants. The concept of "preponderance of evidence" refers to evidence which is
of greater weight, or more convincing, that which is offered in opposition to it; at bottom, it means
probability of truth.19
Julio, Jr. failed to discharge this burden. His pieces of evidence, Exhibit "3" and Exhibit "4," cannot
prevail over the array of documentary and testimonial evidence that were adduced by Rogelio. The
totality of Julio, Jr.s evidence leaves much to be desired.
To begin with, Exhibit "3," the affidavit of Ignacio, is hearsay evidence and, thus, cannot be accorded
any evidentiary weight. Evidence is hearsay when its probative force depends on the competency and
credibility of some persons other than the witness by whom it is sought to be produced. The exclusion
of hearsay evidence is anchored on three reasons: 1) absence of cross-examination; 2) absence of
demeanor evidence; and 3) absence of oath.20
Jurisprudence dictates that an affidavit is merely hearsay evidence where its affiant/maker did not take
the witness stand.21 The sworn statement of Ignacio is of this kind. The affidavit was not identified and
its averments were not affirmed by affiant Ignacio. Accordingly, Exhibit "3" must be excluded from the
judicial proceedings being an inadmissible hearsay evidence. It cannot be deemed a declaration against
interest for the matter to be considered as an exception to the hearsay rule because the declarant was
not the seller (Emilio), but his father (Ignacio). Exhibit "4," on the other hand, is considered secondary
evidence being a mere photocopy which, in this case, cannot be admitted to prove the contents of the
purported undated handwritten receipt. The best evidence rule requires that the highest available
degree of proof must be produced. For documentary evidence, the contents of a document are best
proved by the production of the document itself to the exclusion of secondary or substitutionary
evidence, pursuant to Rule 130, Section 322.
A secondary evidence is admissible only upon compliance with Rule 130, Section 5, which states that:
when the original has been lost or destroyed, or cannot be produced in court, the offeror, upon proof of
its execution or existence and the cause of its unavailability without bad faith on his part, may prove its
contents by a copy, or by a recital of its contents in some authentic document, or by the testimony of
witnesses in the order stated. Accordingly, the offeror of the secondary evidence is burdened to
satisfactorily prove the predicates thereof, namely: (1) the execution or existence of the original; (2) the
loss and destruction of the original or its non-production in court; and (3) the unavailability of the
original is not due to bad faith on the part of the proponent/offeror. Proof of the due execution of the
document and its subsequent loss would constitute the basis for the introduction of secondary
evidence.23 In MCC Industrial Sales Corporation v. Ssangyong Corporation,24 it was held that where the

missing document is the foundation of the action, more strictness in proof is required than where the
document is only collaterally involved.
Guided by these norms, the Court holds that Julio, Jr. failed to prove the due execution of the original of
Exhibit "4" as well as its subsequent loss. A nexus of logically related circumstance rendered Julio, Jr.s
evidence highly suspect. Also, his testimony was riddled with improbabilities and contradictions which
tend to erode his credibility and raise doubt on the veracity of his evidence.
First, the claim of Julio, Jr. that Emilio affixed his signature on the original of Exhibit "4" in 1953 is highly
improbable because record shows that Emilio died even before that year, specifically, on November 13,
1952. Excerpts from Julio, Jr.s testimony relative to this matter are as follows:
Atty. Vicente Millora
(On Cross-examination)
Q: You dont remember how old you were when this according to you you witnessed Emilio Dantis
signed this?
A: Eleven years old, Sir.
Q: So that was 1953?
A: Yes, Sir.
Q: And you were then?
A: I was born October 1942, Sir.
Q: You were eleven (11) years old?
A: Yes, Sir.
Q: And you mean to say that you witnessed the signing allegedly of the original of Exhibit "4" when you
were eleven (11) years old?
A: Yes, Sir.
Q: And you remember what was signed in this receipt. From your memory can you tell the title of this
Exhibit "4"?
A: What I can say that it is a Sale, Sir.
Q: So, when you said that you witnessed an alleged sale you are referring to Exhibit "4"?
A: Yes, Sir.25 (Emphasis supplied)

Second, Julio, Jr.s testimony pertinent to the alleged loss of the original of Exhibit "4" is laden with
inconsistencies that detract from his credibility. His testimony bears the earmarks of falsehood and,
hence, not reliable. Julio, Jr. testified in this wise:
Atty. Roldan Villacorta
(On Direct examination)
Q: Mr. Witness, I noticed that this document marked as Exhibit "4" is only a photocopy, where is the
original of this document?
A: The original was with the safekeeping of my parents because of the lapse of time the original was
misplaced, Sir.26
The above testimony of Julio, Jr. tends to give the impression that the original of the document was lost
while it was in the possession of his parents. During cross-examination, however, he testified that it was
lost while it was in his possession.
Atty. Vicente Millora
(On Cross-examination)
Q: x x x Where did you keep that document?
A: I was the one keeping that document because I live in different places, [the said] it was lost or
misplaced, Sir.
Q: In other words, it was lost while the same was in your possession??
A: Yes, Sir.27 (Emphasis supplied)
Still, later, Julio, Jr. claimed that his sister was the one responsible for the loss of the original of Exhibit
"4" after borrowing the same from him. Atty. Vicente Millora
(On Cross-examination)
Q: So, who is your sister to whom you gave the original?
A: Benedicta Laya, Sir.
Q: In other words now, you did not lost the document or the original of Exhibit "4" but you gave it to
your sister, am I correct?
A: I just lent to her the original copy, Sir.
Q: So, you lent this original of Exhibit "4" to your sister and your sister never returned the same to you?
A: Yes, Sir, because it was lost, that was the only one left in her custody.

Interpreter:
Witness referring to the xerox copy.
Atty. Vicente Millora
Q: In other words, it was your sister who lost the original, is that correct?
A: Yes, Sir, when I lent the original.28 (Emphasis supplied)
The Court also notes the confused narration of Julio, Jr. regarding the last time he saw the original of
Exhibit "4."
Atty. Vicente Millora
(On Cross-examination)
Q: And when did you last see the original?
A: When my mother died in 1993 that was the last time I tried to see the original of the document after
her interment, Sir.
Q: Where did you see this document?
A: From the safekeeping of my mother, Sir.29
xxxx
Q: When did you get this Exhibit "4" now, the photocopy from your sister?
A: When the interment of my mother in September 1993, Sir.
Q: Now, let us reform. Which one did you get after the interment of your mother, this Exhibit "4" or the
original?
A: I asked that xerox copy because I have lost the original and I could not find the same, Sir.
Q: So, from the safe of your mother after her interment, what used you found and got this Exhibit "4"?
A: Yes, Sir, from my sister.
Q: So, not from your mother safe?
A: The original was taken from the safe of my mother, Sir.
Q: So after your mothers death you never saw the original?
A: I did not see it anymore because the original was lost before she died, Sir. 30 (Underscoring supplied)

Third, it is quite strange that two receipts were prepared for the initial payment of 100.00 in
connection with the sale of the subject lot. The Court notes that the contents of Exhibit "4" were similar
to those of Annex "A"31 of Julio, Jr.s Answer, dated June 9, 2002. Annex "A," however, was typewritten
and the name of the recipient indicated therein was a certain Cornelio A. Dantis, whose identity and
participation in the alleged sale was never explained.
Fourth, apart from the lone testimony of Julio, Jr., no other witness who knew or read Exhibit "4," much
less saw it executed, was presented. In the absence of any shred of corroborative evidence, the Court
cannot help but entertain doubts on the truthfulness of Julio, Jr.s naked assertion.
Assuming, in gratia argumenti, that Exhibit "4" is admissible in evidence, there will still be no valid and
perfected oral contract for failure of Julio, Jr. to prove the concurrence of the essential requisites of a
contract of sale by adequate and competent evidence.
By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of,
and to deliver, a determinate thing, and the other to pay therefor a price certain in money or its
equivalent.32 A contract of sale is a consensual contract and, thus, is perfected by mere consent which
is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are
to constitute the contract.33 Until the contract of sale is perfected, it cannot, as an independent source
of obligation, serve as a binding juridical relation between the parties. 34 The essential elements of a
contract of sale are: a) consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price; b) determinate subject matter; and c) price certain in money or its equivalent. 35
The absence of any of the essential elements shall negate the existence of a perfected contract of
sale.36
Seemingly, Julio, Jr. wanted to prove the sale by a receipt when it should be the receipt that should
further corroborate the existence of the sale. At best, his testimony only alleges but does not prove the
existence of the verbal agreement. Julio, Jr. miserably failed to establish by preponderance of evidence
that there was a meeting of the minds of the parties as to the subject matter and the purchase price.
The chief evidence of Julio, Jr. to substantiate the existence of the oral contract of sale is Exhibit "4." For
a better understanding and resolution of the issue at hand, Exhibit "4" is being reproduced here:
Alamin ng sino mang
Makababasa
Akong si Emilio Dantis may sapat na Gulang may asawa naninirahan sa Sta Rita San Miguel Bul. ay
kusang nagsasasay ng sumosunod.
Na ako Tumanggap Kay Julio Maghinang ng P100.00 peso cuartang Pilipino, bilang paunang bayad sa
Lupa niyang nilote sa akin 400 apat na raan mahigit na metro cudrado.
Testigo Tumangap,
Emilio a Dantis

A perusal of the above document would readily show that it does not specify a determinate subject
matter. Nowhere does it provide a description of the property subject of the sale, including its metes
and bounds, as well as its total area. The Court notes that while Julio, Jr. testified that the land subject
of the sale consisted of 352 square meters, Exhibit "4," however, states that its more than 400 square
meters. Moreover, Exhibit "4" does not categorically declare the price certain in money. Neither does it
state the mode of payment of the purchase price and the period for its payment.
In Swedish Match, AB v. Court of Appeals,37 the Court ruled that the manner of payment of the purchase
price was an essential element before a valid and binding contract of sale could exist. Albeit the Civil
Code does not explicitly provide that the minds of the contracting parties must also meet on the terms
or manner of payment of the price, the same is needed, otherwise, there is no sale. 38 An agreement
anent the manner of payment goes into the price so much so that a disagreement on the manner of
payment is tantamount to a failure to agree on the price.39 Further, in Velasco v. Court of Appeals,40
where the parties already agreed on the object of sale and on the purchase price, but not on how and
when the downpayment and the installment payments were to be paid, this Court ruled:
Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between
the parties had been perfected over the lot in question. Indeed, this Court has already ruled before that
a definite agreement on the manner of payment of the purchase price is an essential element in the
formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners
delivered to the respondent the sum of P10,000.00 as part of the down-payment that they had to pay
cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between
the parties herein under Art. 1482 of the new Civil Code, as the petitioners themselves admit that some
essential matter - the terms of payment - still had to be mutually covenanted. 41
The CA held that partial performance of the contract of sale- giving of a downpayment coupled with the
delivery of the res - took the oral contract out of the scope of the Statute of Frauds. This conclusion
arose from its erroneous finding that there was a perfected contract of sale. The above disquisition,
however, shows that there was none. There is, therefore, no basis for the application of the Statute of
Frauds. The application of the Statute of Frauds presupposes the existence of a perfected contract. 42 As
to the delivery of the res, it does not appear to be a voluntary one pursuant to the purported sale. If
Julio, Jr. happened to be there, it was because his ancestors tenanted the land. It must be noted that
when Julio, Jr. built his house, Rogelio protested.
WHEREFORE, the petition is GRANTED. The assailed January 25, 2010 Decision and the March 23, 2010
Resolution of the Court Appeals, in CA-G.R. CV No. 85258, are REVERSED and SET ASIDE. The March 2,
2005 Decision of the Regional Trial Court of Malolos, Bulacan, Branch 18, in Civil Case No. 280-M-2002,
is REINSTATED.SO OR
Republic of the Philippines
SUPREME COURT
Baguio
SECOND DIVISION
G.R. No. 163125

April 18, 2012

JOSE ABELGAS, JR. and LETECIA JUSAYAN DE ABELGAS, Petitioners,

vs.
SERVILLANO COMIA, RURAL BANK OF SOCORRO INC. And RURAL BANK OF PINAMALAYAN,
INC. Respondents.
DECISION
SERENO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court,
seeking to review the Court of Appeals (CA) 20 March 2003 Decision and 31 March 2004 Resolution in
CA-G.R. CV No. 46241. The assailed Decision nullified the Deed of Relinquishment, Renunciation of
Rights and Quitclaim executed by respondent Servillano Comia in favor of petitioner spouses Jose
Abelgas, Jr. and Letecia Jusayan de Abelgas, as well as the encumbrances executed by the spouses in
favor of respondent banks.
The pertinent facts are as follows:
On 4 April 1971, Comia obtained a free patent over Lot No. 919-B situated in Pinamalayan, Oriental
Mindoro with an area of 6,790 square meters.1 Pursuant to this free patent, Lot No. 919-B was originally
registered on 26 April 1976 as Original Certificate of Title (OCT) No. P-8553.
Subsequently, on 1 May 1971, by virtue of a notarized Deed of Relinquishment, Renunciation of Rights
and Quitclaim, Comia voluntarily conveyed a 3,000-square-meter (3,000-sqm) portion of Lot No. 919-B
to the spouses Abelgas. It was stated in the said Deed that the subject portion was the sole property of
the spouses; and that it had only been included in the title of Comia for it adjoined his land. Indeed,
based on the Subdivision Survey, the 3,000-sqm portion of Lot No. 919-B bordered Lot No. 919-E owned
by Jose Abelgas, Jr.2
By virtue of this subsequent voluntary dealing over the property, the Register of Deeds cancelled OCT
No. P-8553 in the name of Comia and Transfer Certificate of Title (TCT) No. T-46030 3 was issued on 3
May 1971 in the names of "CO-OWNERS, (1) SERVILLANO COMIA, married to Estelita Amaria, and (2)
SPS. JOSE ABELGAS, JR. AND LETECIA JUSAYAN DE ABELGAS"4 as co-owners of Lot No. 919-B. There is no
explanation in the records on how TCT No. T-46030 came about to be recorded in the names of these
people when the subject portion should have been, as a consequence of the 1971 Deed of
Relinquishment, Renunciation of Rights and Quitclaim, in the name of the spouses Abelgas only.
Thereafter, the spouses subdivided their 3,000-sqm portion into twelve (12) lots as evidenced by TCT
Nos. T-46374 to 46375.5 Using their TCTs, they used the lots to secure their loan obligations with Rural
Bank of Pinamalayan, Inc. (RBPI), Rural Bank of Socorro, Inc. (RBSI), and the Philippine National Bank
(PNB).
Specifically, on 6 July 1971, the spouses Abelgas constituted a mortgage on TCT No. 46366 to secure a
loan for P 1,000. Then, to secure another loan for P 600, the spouses mortgaged on 23 August 1971 the
lot covered by TCT No. T-46367. Petitioners defaulted on their obligations and hence, the lots were sold
at a public auction, wherein RBPI prevailed as the winning bidder. 6 After the lapse of the redemption
period, TCT Nos. T-17448 and T-17445 were issued in the name of RBPI. 7
As for the remaining lots, the spouses mortgaged most8 of these to RBSI in 1971 to 1972 as security for
the spouses various loans. Petitioners defaulted on their obligations, and, thus, the mortgagee bank
foreclosed the securities wherein it emerged as the winning bidder. Thus: 9
TCT Nos.

Security Date

Auction Date

Loan (P )

46364

04 September 1971

19 December 1974

800

46365

15 June 1971

26 January 1976

1,000

46369 & 46370

13 November 1971

21 December 1973

1,000

46372 & 46373

19 April 1972

21 December 1973

2,000

Of these properties, lots covered by TCT Nos. 46369 and 46370 had certificates that were cancelled and
a new one, TCT No. 71198,10 was issued in RBSIs name.

Comia contested the issuance of these titles. He claimed that he was the sole owner of Lot No. 919-B;
and that the Deed of Relinquishment, Renunciation of Rights and Quitclaim, which resulted in the
issuance of TCT Nos. T-46030, and T-4634 to 46375, is fictitious and nonexisting. 11 Thus, Comia
demanded the recovery of Lot No. 919-B under OCT No. P-8553 and the cancellation of the subsequent
titles.12
He pursued his action before the Regional Trial Court (RTC) by filing a Complaint for cancellation and
recovery of, and/or quieting of title to real property and damages against the Abelgas spouses, RBPI,
RBSI, and PNB.13 For their answer, the spouses asserted that they had been in possession of the 3,000sqm portion of Lot No. 919-B.14 During trial, Jose Abelgas Jr. testified that before 1971, he had already
purchased the said portion from respondent.15
In turn, the mortgagee banks, RBPI and RBSI, filed cross-claims against the spouses for them to pay
their obligations in the event that the TCTs offered as security for their loans would be declared as null
and void. Respondent assailed the encumbrances in favor of the mortgagee banks as void ab initio and
obtained in bad faith as these were executed within the period of prohibition to dispose lands subject of
a free patent under Section 118 of the Public Land Act (CA 141). Claiming lack of notice of any defect in
the certificates, both banks denied Comias allegations.
Section 118 of CA 14116 prohibits the alienation of lands subject to a free patent within five years from
the issuance of the grant. Additionally, any disposition made after the prohibited period must be with
the consent of the Secretary of Environment and Natural Resources. Evidently, the Deed and the
mortgages were executed within the prohibited period and without the Secretarys consent.
The RTC dismissed the Complaint of Comia. 17 It found that the Deed as signed by him voluntarily
relinquished the subject parcel of land in favor of its rightful owner and possessors the spouses
Abelgas.18 The trial court also upheld the validity of the mortgages, since encumbrances made in favor
of banks are exempted according to the amendatory laws of the Public Land Act. 19 Moreover, based on
Decolongon v. CA,20 the approval of the Secretary of Environment and Natural Resources is only
directory.
Accordingly, the dispositive portion reads:21
WHEREFORE, premises considered, judgment is hereby rendered in favor of defendants spouses JOSE
ABELGAS, Jr. and LETECIA JUSAYAN DE ABELGAS; RURAL BANKS OF SOCORRO, INC. and RURAL BANK OF
PINAMALAYAN, INC., against plaintiff SERVILLANO COMIA, as follows:
1. Dismissing plaintiffs Amended Complaint;
2. Declaring Transfer Certificate of Title No. T-46030, and Transfer Certificates of Title Nos. T46364 to T-46375 and subsequent certificates of title thereto in the name of defendants Rural
Bank of Socorro, Inc. or defendant Rural Bank of Pinamalayan, Inc. as valid and existing;
3. Ordering the plaintiff to pay the following:
(a) Defendants spouse (sic) Jose Abelgas, Jr. and Letecia Jusayan de Abelgas the sum of P
5,000.00 as attorneys fees;
(b) Defendant Rural Bank of Socorro, Inc., the sum of P 50,000.00 as damages for
besmirched reputation being a bank institution with good standing; P 2,000.00 as
attorneys fee, and P 1,000.00 as litigation expenses;
(c) Defendant Rural Bank of Pinamalayan, Inc., the sum of P 50,000.00 as damages for
besmirched reputation being a bank institution with good standing; P 2,000.00 as
attorneys fee, and P 1,000.00 as litigation expenses; and
4. The costs.
SO ORDERED.
Comia appealed to the CA, which modified the RTCs Decision. While the appellate court sustained the
due execution of the Deed of Relinquishment, Renunciation of Rights and Quitclaim, it construed the
document as an alienation prohibited by CA 141. The CA pronounced that in an attempt to circumvent

the law, it was made to appear that the 3,000 square meters adjoining the land of Comia was owned by
the spouses. However, based on testimonial evidence, Abelgas purchased the said portion contrary to
law.22
Likewise, the CA nullified the mortgages, as the exemption of the banks had been removed by
Commonwealth Act 45623 amending Section 118 of Commonwealth Act 141, which took effect on 8 June
1939.24 Nevertheless, the banks may recover the value of the loans with interest. 25
In view of the Deeds nullity, and in the absence of escheat proceedings, the CA restored to Comia Lot
No. 919-B. The appellate court ruled thus: 26
WHEREFORE, the Decision appealed from is REVERSED and SET ASIDE, and another one entered as
follows:
1. Declaring the deed of relinquishment and renunciation of rights and quitclaim as null and
void;
2. Declaring the deeds of real estate mortgage executed by defendants-appellees Jose Abelgas,
Jr. and Letecia Jusayan de Abelgas in favor of Rural Bank Pinamalayan, Inc. and Rural Bank of
Socorro, Inc., as well as the foreclosure proceedings and certificates of sale, null and void;
3. Ordering the Register of Deeds of the Province of Oriental Mindoro to cancel TCT nos. T-46030,
465364 to 465375, 46821, 71171 and 71198 and to reinstate OCT No. P-8553 in the name of
plaintiff-appellant Servillano Comia;
4. Ordering defendants-appellees Jose Abelgas, Jr. and Letecia Jusayan de Abelgas to pay Rural
Bank of Pinamalayan, Inc., their indebtedness in the total amount of P 1,600.00 plus interest
thereon at the legal rate from the date of maturity of promissory notes, attached as Annexes "1A", and "2-A" to its cross-claim, and the amount of P 3,000.00 as attorneys fees.
5. Ordering defendants-appellees Jose Abelgas, Jr. and Letecia Jusayan de Abelgas to pay Rural
Bank of Socorro, Inc. their indebtedness in the total amount of P 5,600.00, plus interest thereon
at the legal rate from the date of maturity of the promissory notes, attached as Annexes "1",
"2," "3" and "4" to its cross-claim, and the amount of P 3,000.00 as attorneys fees.
SO ORDERED.
Hence, the central issue in this Petition filed by the aggrieved spouses is whether the CA gravely erred
in declaring the Deed of Relinquishment, Renunciation of Rights and Quitclaim and the mortgages in
favor of mortgagee banks, as null and void for being contrary to the provisions of CA 141 and its
amendatory laws.
Section 118 of CA 14127 requires that before the five year prohibition applies, there should be an
alienation or encumbrance of the land acquired under free patent or homestead.
Section 118. Except in favor of the Government or any of its branches, units, or institutions, lands
acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation
from the date of the approval of the application and for a term of five years from and after the date of
issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted
prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or
pledged to qualified persons, associations, or corporations.
No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years
after issuance of title shall be valid without the approval of the Secretary of Agriculture and Commerce,
which approval shall not be denied except on constitutional and legal grounds.
Thus, to ascertain the correctness of the CAs Decision, there is a need to verify whether in executing
the Deed of Relinquishment, Renunciation of Rights and Quitclaim, Comia alienated the 3,000-sqm
portion after the grant of the free patent. Although this is a finding of fact generally beyond this Courts
jurisdiction,28 this Court will consider the issue, considering the conflicting factual and legal conclusions
of the lower courts.

In real property law, alienation is defined as the transfer of the property and possession of lands,
tenements, or other things from one person to another. It is the "act by which the title to real estate is
voluntarily resigned by one person to another and accepted by the latter, in the forms prescribed by
law."29 In this case, Comia did not transfer, convey or cede the property; but rather, he relinquished,
renounced and "quitclaimed" the property considering that the property already belonged to the
spouses. The voluntary renunciation by Comia of that portion was not an act of alienation, but an act of
correcting the inclusion of the property in his free patent.
The evidence on record reveals that prior the grant of the free patent, the spouses already owned the
property. This fact can be inferred from the following testimony of Jose Abelgas, Jr.: 301wphi1
A: It was in 1971 when he (Servillano Comia) went to our house bringing with him an Original Certificate
of Title issued to him by the Bureau of Lands.
Q: What was his purpose of bringing to you Original Certificate of Title (sic) issued by the Bureau of
Lands?
A: He wants to segregate the 3,000 square meters out of 6,790 square meters from the Original
Certificate of Title which I bought from him, sir. (Emphasis supplied.)
This testimony was not contested or objected to by Comia. Neither did he put in evidence that he sold
the property during the period of the prohibition as he would have been deemed to be in violation of
the law. Rather, his argument has always been the non-existence of the said Deed which both lower
courts have already concluded otherwise.31
More important, Comia failed to dispute by clear and convincing evidence 32 the presumption that the
spouses owned the property prior to the grant of his free patent. This presumption is present in this
case since the Deed of Relinquishment and Renunciation of Right was annotated in a public document,
specifically, the original certificate of title. Documents consisting of entries in public records made in
the performance of a duty by a public officer are prima facie evidence of the facts therein stated. 33
Entry No. 81908 annotating OCT No. P-8553 reads as:34
MEMORANDUM OF INCUMBRANCES (sic)
Entry No. 81908; Doc. No. xxx [not legible] RENUNCIATION OF RIGHTS AND QUITCLAIMS In favor of the
espouses (sic): JOSE ABELGAS JR. AND LETECIA JUSAYAN DE ABELGAS, of legal age, filipinos, (sic) and
residing at Poblacion, Gloria, Oriental Mindoro, Philippines, - covering this Original Certificate of Title No.
P-8553, in conformity with the conditions stipulated in the Deed of Renunciation of Rights and Quitclaim
executed by SERVILLANO COMIA married to ESTELITA AIMARIA, of legal age, filipino, (sic) and residing
at Socorro, Oriental Mindoro, Philippines, on file in this registry.
Date of Instrument ------------------------- May 1, 1971
Date of Inscription ------------------------- May 3, 1971 at 8:10 a.m.
(Sgd.)
REYNALDO M. MAMBIL
REGISTER OF DEEDS
The Deed of Relinquishment, Renunciation of Rights and Quitclaim, as referred in the title, recognizes
the ownership of the spouses. Comia explicitly declared in the said Deed that the subject portion
belonging to the spouses Abelgas had been included in his title for it adjoins his land. The Deed reads
thus: 35
That I hereby relinquish, renounce, and quitclaim, and by these presents have RELINQUISHED,
RENOUNCED, and QUITCLAIMED, all my rights, interests, possession, occupation, and participation of a
portion of THREE THOUSAND (3,000) SQUARE METERS, of the parcel of land described above, free from
all liens and encumbrances, together with all its existing improvements that may be found there unto
the ESPOUSES (sic) JOSE A. ABELGAS Jr. and LETECIA JUSAYAN DE ABELGAS, likewise of legal ages,
filipinos (sic) and a resident of Poblacion, Gloria, Province of Oriental Mindoro, Philippines, their heirs,
executors, administrators, and assigns, and agreeing further to warrant and forever defend the title and
peaceful possession of the herein espouses (sic): JOSE A. ABELGAS JR. and LETECIA JUSAYAN DE

ABELGAS, their heirs, executors, administrators, and assigns against the just and lawful claims of any or
all persons whomsoever.
That the above described property, with an area of THREE THOUSAND (3000) SQ. METERS, is the sole
property of the above described espouses (sic) and it had only been included in my title for it adjoins
my land situated in the barrio of Quinabigan, Pinamalayan Oriental Mindoro and it was not my fault
therefore so it being not mine (sic). I have voluntarily renounced the area of three thousand (3000)
square meters, in favor of the said Jose Abelgas Jr. and LETECIA JUSAYAN DE ABELGAS. (Emphasis and
underscoring in the original).
In support of the fact that the alienation transpired prior to the grant of a free patent, it is remarkable
that Comia never contested that the spouses had been in actual possession of the subject portion even
before his patent application. The private ownership of land as when there is a prima facie proof of
ownership like a duly registered possessory information or a clear showing of open, continuous,
exclusive, and notorious possession is not affected by the issuance of a free patent over the same
land.36
A prima facie proof of ownership is not necessarily defeated by a free patent, especially if the title
covers a portion not belonging to the grantee. Where an applicant has illegally included portions of an
adjoining land that does not form part of the applicants homestead, the title issued by virtue thereof
should be cancelled.37 In Angeles v. Samia38, this Court explained that:
The Land Registration Act as well as the Cadastral Act protects only the holders of a title in good faith
and does not permit its provisions to be used as a shield for the commission of fraud, or that one should
enrich himself at the expense of another (Gustilo vs. Maravilla, 48 Phil., 442; Angelo vs. Director of
Lands, 49 Phil., 838). The above-stated Acts do not give anybody, who resorts to the provisions thereof,
a better title than he really and lawfully has. If he happened to obtain it by mistake or to secure, to the
prejudice of his neighbor, more land than he really owns, with or without bad faith on his part, the
certificate of title, which may have been issued to him under the circumstances, may and should be
cancelled or corrected (Legarda and Prieto vs. Saleeby, 31 Phil., 590). (Emphasis supplied.)
Seeing that there is no alienation to begin with, this Court finds that the prohibition is not applicable.
Thus, the Deed of Relinquishment, Renunciation of Rights and Quitclaim is not null and void for being
contrary to the Public Land Act.
In a similar case, in Heirs of Manlapat v. Court of Appeals, this Court held that where the alienation or
transfer took place before the filing of a free patent application, the prohibition should not be applied.
In that situation, "neither the prohibition nor the rationale therefor which is to keep in the family of the
patentee that portion of the public land which the government has gratuitously given him, by shielding
him from the temptation to dispose of his landholding, could be relevant." 39
Consequently, this Court rules against the cancellation of TCT Nos. T-46030, and T-46364 to 46375.
Indeed, these subsequent certificates were issued based on a duly executed instrument sanctioned by
law.
As for the encumbrances, Comia also unsuccessfully assailed the mortgages by virtue of an alleged
violation of the Public Land Act.
For the prohibition in Section 118 of CA 141 to apply, the subject property must be acquired by virtue of
either a free patent or a homestead patent. In this case, the 3,000-sqm portion subdivided into twelve
(12) lots as evidenced by TCT Nos. T-4634 to 46375 has not been shown to be under a free patent. As it
appears, what was submitted to the mortgagee banks were TCTs not derived from a free patent.
Thus, the encumbrances thereon are not null and void, as these do not fall within the ambit of the
prohibition. This being the case, it cannot be said that the banks were in bad faith for accepting the
encumbered properties that did not originate from a free patent. In any event, at the time of the
mortgage, the Rural Banks Act (Republic Act No. 720), as amended by Republic Act No. 5939, 40 already
allows banks to accept free patents as security for loan obligations. 41
Absent any finding of nullity, we sustain the RTCs ruling that the alienation and encumbrances are
valid. Consequently, there is no cause to cancel the subsequent TCTs and the resulting mortgages
thereon.

IN VIEW THEREOF, the Petition is GRANTED and the assailed 20 March 2003 Decision and 31 March
2004 Resolution of the Court of Appeals are REVERSED and SET ASIDE.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD Division
G.R. No. 165748

September 14, 2011

HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA, MACARIO B. URETA,

GLORIA URETA-GONZALES, ROMEO B. URETA, RITA URETA-SOLANO, NENA URETA-TONGCUA,
VENANCIO B. URETA, LILIA URETA-TAYCO, and HEIRS OF POLICRONIO B. URETA, JR., namely:
MIGUEL T. URETA, RAMON POLICRONIO T. URETA, EMMANUEL T. URETA, and BERNADETTE T.
URETA, Petitioners,
vs.
HEIRS OF LIBERATO M. URETA, namely: TERESA F. URETA, AMPARO URETA-CASTILLO,
IGNACIO F. URETA, SR., EMIRITO F. URETA, WILKIE F. URETA, LIBERATO F. URETA, JR., RAY F.
URETA, ZALDY F. URETA, and MILA JEAN URETA CIPRIANO; HEIRS OF PRUDENCIA URETA
PARADERO, namely: WILLIAM U. PARADERO, WARLITO U. PARADERO, CARMENCITA P.
PERLAS, CRISTINA P. CORDOVA, EDNA P. GALLARDO, LETICIA P. REYES; NARCISO M. URETA;
VICENTE M. URETA; HEIRS OF FRANCISCO M. URETA, namely: EDITA T. URETA-REYES and
LOLLIE T. URETA-VILLARUEL; ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF
INOCENCIO M. URETA, namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V.
URETA, and ENRIQUE V. URETA; MERLINDA U. RIVERA; JORGE URETA; ANDRES URETA,
WENEFREDA U. TARAN; and BENEDICT URETA, Respondents.
x - - - - - - - - - - - - - - - -x
G.R. No. 165930
HEIRS OF LIBERATO M. URETA, namely: TERESA F. URETA, AMPARO URETA-CASTILLO,
IGNACIO F. URETA, SR., EMIRITO F. URETA, WILKIE F. URETA, LIBERATO F. URETA, JR., RAY F.
URETA, ZALDY F. URETA, and MILA JEAN URETA CIPRIANO; HEIRS OF PRUDENCIA URETA
PARADERO, namely: WILLIAM U. PARADERO, WARLITO U. PARADERO, CARMENCITA P.
PERLAS, CRISTINA P. CORDOVA, EDNA P. GALLARDO, LETICIA P. REYES; NARCISO M. URETA;
VICENTE M. URETA; HEIRS OF FRANCISCO M. URETA, namely: EDITA T. URETA-REYES and
LOLLIE T. URETA-VILLARUEL; ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF

INOCENCIO M. URETA, namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V.
URETA, and ENRIQUE V. URETA; MERLINDA U. RIVERA; JORGE URETA; ANDRES URETA,
WENEFREDA U. TARAN; and BENEDICT URETA,Petitioners,
vs.
HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA, MACARIO B. URETA,
GLORIA URETA-GONZALES, ROMEO B. URETA, RITA URETA-SOLANO, NENA URETA-TONGCUA,
VENANCIO B. URETA, LILIA URETA-TAYCO, and HEIRS OF POLICRONIO B. URETA, JR., namely:
MIGUEL T. URETA, RAMON POLICRONIO T. URETA, EMMANUEL T. URETA, and BERNADETTE T.
URETA, Respondents.
DECISION
MENDOZA, J.:
These consolidated petitions for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure assail the April 20, 2004 Decision1 of the Court of Appeals (CA), and its October 14, 2004
Resolution2 in C.A.-G.R. CV No. 71399, which affirmed with modification the April 26, 2001 Decision 3 of
the Regional Trial Court, Branch 9, Kalibo, Aklan (RTC) in Civil Case No. 5026.
The Facts
In his lifetime, Alfonso Ureta (Alfonso) begot 14 children, namely, Policronio, Liberato, Narciso,
Prudencia, Vicente, Francisco, Inocensio, Roque, Adela, Wenefreda, Merlinda, Benedicto, Jorge, and
Andres. The children of Policronio (Heirs of Policronio), are opposed to the rest of Alfonsos children and
their descendants (Heirs of Alfonso).
Alfonso was financially well-off during his lifetime. He owned several fishpens, a fishpond, a sari-sari
store, a passenger jeep, and was engaged in the buying and selling of copra. Policronio, the eldest, was
the only child of Alfonso who failed to finish schooling and instead worked on his fathers lands.
Sometime in October 1969, Alfonso and four of his children, namely, Policronio, Liberato, Prudencia,
and Francisco, met at the house of Liberato. Francisco, who was then a municipal judge, suggested that
in order to reduce the inheritance taxes, their father should make it appear that he had sold some of his
lands to his children. Accordingly, Alfonso executed four (4) Deeds of Sale covering several parcels of
land in favor of Policronio,4 Liberato,5 Prudencia,6 and his common-law wife, Valeriana Dela Cruz.7 The
Deed of Sale executed on October 25, 1969, in favor of Policronio, covered six parcels of land, which are
the properties in dispute in this case.
Since the sales were only made for taxation purposes and no monetary consideration was given,
Alfonso continued to own, possess and enjoy the lands and their produce.
When Alfonso died on October 11, 1972, Liberato acted as the administrator of his fathers estate. He
was later succeeded by his sister Prudencia, and then by her daughter, Carmencita Perlas. Except for a
portion of parcel 5, the rest of the parcels transferred to Policronio were tenanted by the Fernandez
Family. These tenants never turned over the produce of the lands to Policronio or any of his heirs, but to
Alfonso and, later, to the administrators of his estate.

Policronio died on November 22, 1974. Except for the said portion of parcel 5, neither Policronio nor his
heirs ever took possession of the subject lands.
On April 19, 1989, Alfonsos heirs executed a Deed of Extra-Judicial Partition, 8 which included all the
lands that were covered by the four (4) deeds of sale that were previously executed by Alfonso for
taxation purposes. Conrado, Policronios eldest son, representing the Heirs of Policronio, signed the
Deed of Extra-Judicial Partition in behalf of his co-heirs.
After their fathers death, the Heirs of Policronio found tax declarations in his name covering the six
parcels of land. On June 15, 1995, they obtained a copy of the Deed of Sale executed on October 25,
1969 by Alfonso in favor of Policronio.
Not long after, on July 30, 1995, the Heirs of Policronio allegedly learned about the Deed of ExtraJudicial Partition involving Alfonsos estate when it was published in the July 19, 1995 issue of the Aklan
Reporter.
Believing that the six parcels of land belonged to their late father, and as such, excluded from the Deed
of Extra-Judicial Partition, the Heirs of Policronio sought to amicably settle the matter with the Heirs of
Alfonso. Earnest efforts proving futile, the Heirs of Policronio filed a Complaint for Declaration of
Ownership, Recovery of Possession, Annulment of Documents, Partition, and Damages 9 against the
Heirs of Alfonso before the RTC on November 17, 1995 where the following issues were submitted: (1)
whether or not the Deed of Sale was valid; (2) whether or not the Deed of Extra-Judicial Partition was
valid; and (3) who between the parties was entitled to damages.
The Ruling of the RTC
On April 26, 2001, the RTC dismissed the Complaint of the Heirs of Policronio and ruled in favor of the
Heirs of Alfonso in a decision, the dispositive portion of which reads:
WHEREFORE, the Court finds that the preponderance of evidence tilts in favor of the defendants, hence
the instant case is hereby DISMISSED.
The counterclaims are likewise DISMISSED.
With costs against plaintiffs.
SO ORDERED.
The RTC found that the Heirs of Alfonso clearly established that the Deed of Sale was null and void. It
held that the Heirs of Policronio failed to rebut the evidence of the Heirs of Alfonso, which proved that
the Deed of Sale in the possession of the former was one of the four (4) Deeds of Sale executed by
Alfonso in favor of his 3 children and second wife for taxation purposes; that although tax declarations
were issued in the name of Policronio, he or his heirs never took possession of the subject lands except
a portion of parcel 5; and that all the produce were turned over by the tenants to Alfonso and the
administrators of his estate and never to Policronio or his heirs.

The RTC further found that there was no money involved in the sale. Even granting that there was, as
claimed by the Heirs of Policronio, 2,000.00 for six parcels of land, the amount was grossly
inadequate. It was also noted that the aggregate area of the subject lands was more than double the
average share adjudicated to each of the other children in the Deed of Extra-Judicial Partition; that the
siblings of Policronio were the ones who shared in the produce of the land; and that the Heirs of
Policronio only paid real estate taxes in 1996 and 1997. The RTC opined that Policronio must have been
aware that the transfer was merely for taxation purposes because he did not subsequently take
possession of the properties even after the death of his father.
The Deed of Extra-Judicial Partition, on the other hand, was declared valid by the RTC as all the heirs of
Alfonso were represented and received equal shares and all the requirements of a valid extra-judicial
partition were met. The RTC considered Conrados claim that he did not understand the full significance
of his signature when he signed in behalf of his co-heirs, as a gratutitous assertion. The RTC was of the
view that when he admitted to have signed all the pages and personally appeared before the notary
public, he was presumed to have understood their contents.
Lastly, neither party was entitled to damages. The Heirs of Alfonso failed to present testimony to serve
as factual basis for moral damages, no document was presented to prove actual damages, and the
Heirs of Policronio were found to have filed the case in good faith.
The Ruling of the CA
Aggrieved, the Heirs of Policronio appealed before the CA, which rendered a decision on April 20, 2004,
the dispositive portion of which reads as follows:
WHEREFORE, the appeal is PARTIALLY GRANTED. The appealed Decision, dated 26 April 2001, rendered
by Hon. Judge Dean R. Telan of the Regional Trial Court of Kalibo, Aklan, Branch 9, is hereby AFFIRMED
with MODIFICATION:
1.) The Deed of Sale in favor of Policronio Ureta, Sr., dated 25 October 1969, covering six (6)
parcels of land is hereby declared VOID for being ABSOLUTELY SIMULATED;
2.) The Deed of Extra-Judicial Partition, dated 19 April 1989, is ANNULLED;
3.) The claim for actual and exemplary damages are DISMISSED for lack of factual and legal
basis.
The case is hereby REMANDED to the court of origin for the proper partition of ALFONSO URETAS
Estate in accordance with Rule 69 of the 1997 Rules of Civil Procedure. No costs at this instance.
SO ORDERED.
The CA affirmed the finding of the RTC that the Deed of Sale was void. It found the Deed of Sale to be
absolutely simulated as the parties did not intend to be legally bound by it. As such, it produced no
legal effects and did not alter the juridical situation of the parties. The CA also noted that Alfonso
continued to exercise all the rights of an owner even after the execution of the Deed of Sale, as it was

undisputed that he remained in possession of the subject parcels of land and enjoyed their produce
until his death.
Policronio, on the other hand, never exercised any rights pertaining to an owner over the subject lands
from the time they were sold to him up until his death. He never took or attempted to take possession
of the land even after his fathers death, never demanded delivery of the produce from the tenants,
and never paid realty taxes on the properties. It was also noted that Policronio never disclosed the
existence of the Deed of Sale to his children, as they were, in fact, surprised to discover its existence.
The CA, thus, concluded that Policronio must have been aware that the transfer was only made for
taxation purposes.
The testimony of Amparo Castillo, as to the circumstances surrounding the actual arrangement and
agreement between the parties prior to the execution of the four (4) Deeds of Sale, was found by the
CA to be unrebutted. The RTCs assessment of the credibility of her testimony was accorded respect,
and the intention of the parties was given the primary consideration in determining the true nature of
the contract.
Contrary to the finding of the RTC though, the CA annulled the Deed of Extra-Judicial Partition due to
the incapacity of one of the parties to give his consent to the contract. It held that before Conrado
could validly bind his co-heirs to the Deed of Extra-Judicial Partition, it was necessary that he be clothed
with the proper authority. The CA ruled that a special power of attorney was required under Article 1878
(5) and (15) of the Civil Code. Without a special power of attorney, it was held that Conrado lacked the
legal capactiy to give the consent of his co-heirs, thus, rendering the Deed of Extra-Judicial Partition
voidable under Article 1390 (1) of the Civil Code.
As a consequence, the CA ordered the remand of the case to the RTC for the proper partition of the
estate, with the option that the parties may still voluntarily effect the partition by executing another
agreement or by adopting the assailed Deed of Partition with the RTCs approval in either case.
Otherwise, the RTC may proceed with the compulsory partition of the estate in accordance with the
Rules.
With regard to the claim for damages, the CA agreed with the RTC and dismissed the claim for actual
and compensatory damages for lack of factual and legal basis.
Both parties filed their respective Motions for Reconsideration, which were denied by the CA for lack of
merit in a Resolution dated October 14, 2004.
In their Motion for Reconsideration, the Heirs of Policronio argued that the RTC violated the best
evidence rule in giving credence to the testimony of Amparo Castillo with regard to the simulation of
the Deed of Sale, and that prescription had set in precluding any question on the validity of the
contract.
The CA held that the oral testimony was admissible under Rule 130, Section 9 (b) and (c), which
provides that evidence aliunde may be allowed to explain the terms of the written agreement if the
same failed to express the true intent and agreement of the parties thereto, or when the validity of the
written agreement was put in issue. Furthermore, the CA found that the Heirs of Policronio waived their

right to object to evidence aliunde having failed to do so during trial and for raising such only for the
first time on appeal. With regard to prescription, the CA ruled that the action or defense for the
declaration of the inexistence of a contract did not prescribe under Article 1410 of the Civil Code.
On the other hand, the Heirs of Alfonso argued that the Deed of Extra-Judicial Partition should not have
been annulled, and instead the preterited heirs should be given their share. The CA reiterated that
Conrados lack of capacity to give his co-heirs consent to the extra-judicial settlement rendered the
same voidable.
Hence, the present Petitions for Review on Certiorari.
The Issues
The issues presented for resolution by the Heirs of Policronio in G.R. No. 165748 are as follows:
I.
Whether the Court of Appeals is correct in ruling that the Deed of Absolute Sale of 25
October 1969 is void for being absolutely fictitious and in relation therewith, may
parol evidence be entertained to thwart its binding effect after the parties have both
died?
Assuming that indeed the said document is simulated, whether or not the parties
thereto including their successors in interest are estopped to question its validity,
they being bound by Articles 1412 and 1421 of the Civil Code?
II.
Whether prescription applies to bar any question respecting the validity of the Deed
of Absolute Sale dated 25 October 1969? Whether prescription applies to bar any
collateral attack on the validity of the deed of absolute sale executed 21 years
earlier?
III.
Whether the Court of Appeals correctly ruled in nullifying the Deed of Extrajudicial
Partition because Conrado Ureta signed the same without the written authority from
his siblings in contravention of Article 1878 in relation to Article 1390 of the Civil
Code and in relation therewith, whether the defense of ratification and/or preterition
raised for the first time on appeal may be entertained?
The issues presented for resolution by the Heirs of Alfonso in G.R. No. 165930 are as follows:
I.
Whether or not grave error was committed by the Trial Court and Court of Appeals in
declaring the Deed of Sale of subject properties as absolutely simulated and null and

void thru parol evidence based on their factual findings as to its fictitious nature, and
there being waiver of any objection based on violation of the parol evidence rule.
II.
Whether or not the Court of Appeals was correct in holding that Conrado Uretas lack
of capacity to give his co-heirs consent to the Extra-Judicial Partition rendered the
same voidable.
III.
Granting arguendo that Conrado Ureta was not authorized to represent his co-heirs
and there was no ratification, whether or not the Court of Appeals was correct in
ordering the remand of the case to the Regional Trial Court for partition of the estate
of Alfonso Ureta.
IV.
Since the sale in favor of Policronio Ureta Sr. was null and void ab initio, the
properties covered therein formed part of the estate of the late Alfonso Ureta and
was correctly included in the Deed of Extrajudicial Partition even if no prior action for
nullification of the sale was filed by the heirs of Liberato Ureta.
V.
Whether or not the heirs of Policronio Ureta Sr. can claim that estoppel based on
Article 1412 of the Civil Code as well as the issue of prescription can still be raised on
appeal.
These various contentions revolve around two major issues, to wit: (1) whether the Deed of Sale is
valid, and (2) whether the Deed of Extra-Judicial Partition is valid. Thus, the assigned errors shall be
discussed jointly and in seriatim.
The Ruling of the Court
Validity of the Deed of Sale
Two veritable legal presumptions bear on the validity of the Deed of Sale: (1) that there was sufficient
consideration for the contract; and (2) that it was the result of a fair and regular private transaction. If
shown to hold, these presumptions infer prima facie the transactions validity, except that it must yield
to the evidence adduced.10
As will be discussed below, the evidence overcomes these two presumptions.
Absolute Simulation

First, the Deed of Sale was not the result of a fair and regular private transaction because it was
absolutely simulated.
The Heirs of Policronio argued that the land had been validly sold to Policronio as the Deed of Sale
contained all the essential elements of a valid contract of sale, by virtue of which, the subject
properties were transferred in his name as evidenced by the tax declaration. There being no
invalidation prior to the execution of the Deed of Extra-Judicial Partition, the probity and integrity of the
Deed of Sale should remain undiminished and accorded respect as it was a duly notarized public
instrument.
The Heirs of Policronio posited that his loyal services to his father and his being the eldest among
Alfonsos children, might have prompted the old man to sell the subject lands to him at a very low price
as an advance inheritance. They explained that Policronios failure to take possession of the subject
lands and to claim their produce manifests a Filipino family practice wherein a child would take
possession and enjoy the fruits of the land sold by a parent only after the latters death. Policronio
simply treated the lands the same way his father Alfonso treated them - where his children enjoyed
usufructuary rights over the properties, as opposed to appropriating them exclusively to himself. They
contended that Policronios failure to take actual possession of the lands did not prove that he was not
the owner as he was merely exercising his right to dispose of them. They argue that it was an error on
the part of the CA to conclude that ownership by Policronio was not established by his failure to possess
the properties sold. Instead, emphasis should be made on the fact that the tax declarations, being
indicia of possession, were in Policronios name.
They further argued that the Heirs of Alfonso failed to appreciate that the Deed of Sale was clear
enough to convey the subject parcels of land. Citing jurisprudence, they contend that there is a
presumption that an instrument sets out the true agreement of the parties thereto and that it was
executed for valuable consideration,11 and where there is no doubt as to the intention of the parties to a
contract, the literal meaning of the stipulation shall control. 12 Nowhere in the Deed of Sale is it indicated
that the transfer was only for taxation purposes. On the contrary, the document clearly indicates that
the lands were sold. Therefore, they averred that the literal meaning of the stipulation should control.
The Court disagrees.
The Court finds no cogent reason to deviate from the finding of the CA that the Deed of Sale is null and
void for being absolutely simulated. The Civil Code provides:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement.
Valerio v. Refresca13 is instructive on the matter of simulation of contracts:

In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. The main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical
situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties
may recover from each other what they may have given under the contract. However, if the parties
state a false cause in the contract to conceal their real agreement, the contract is relatively simulated
and the parties are still bound by their real agreement. Hence, where the essential requisites of a
contract are present and the simulation refers only to the content or terms of the contract, the
agreement is absolutely binding and enforceable between the parties and their successors in interest.
Lacking, therefore, in an absolutely simulated contract is consent which is essential to a valid and
enforceable contract.14 Thus, where a person, in order to place his property beyond the reach of his
creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and
control of the property; hence, the deed of transfer is but a sham. 15 Similarly, in this case, Alfonso
simulated a transfer to Policronio purely for taxation purposes, without intending to transfer ownership
over the subject lands.
The primary consideration in determining the true nature of a contract is the intention of the parties. If
the words of a contract appear to contravene the evident intention of the parties, the latter shall
prevail. Such intention is determined not only from the express terms of their agreement, but also from
the contemporaneous and subsequent acts of the parties.16 The true intention of the parties in this case
was sufficiently proven by the Heirs of Alfonso.
The Heirs of Alfonso established by a preponderance of evidence 17 that the Deed of Sale was one of the
four (4) absolutely simulated Deeds of Sale which involved no actual monetary consideration, executed
by Alfonso in favor of his children, Policronio, Liberato, and Prudencia, and his second wife, Valeriana,
for taxation purposes.
Amparo Castillo, the daughter of Liberato, testified, to wit:
Q: Now sometime in the year 1969 can you recall if your grandfather and his children [met] in your
house?
A: Yes sir, that was sometime in October 1969 when they [met] in our house, my grandfather, my late
uncle Policronio Ureta, my late uncle Liberato Ureta, my uncle Francisco Ureta, and then my auntie
Prudencia Ureta they talk[ed] about, that idea came from my uncle Francisco Ureta to [sell] some
parcels of land to his children to lessen the inheritance tax whatever happened to my grandfather,
actually no money involved in this sale.
Q: Now you said there was that agreement, verbal agreement. [W]here were you when this Alfonso
Ureta and his children gather[ed] in your house?
A: I was near them in fact I heard everything they were talking [about]
xxx

Q: Were there documents of sale executed by Alfonso Ureta in furtherance of their verbal agreement?
A: Yes sir.
Q: To whom in particular did your grandfather Alfonso Ureta execute this deed of sale without money
consideration according to you?
A: To my uncle Policronio Ureta and to Prudencia Ureta Panadero.
Q: And who else?
A: To Valeriana dela Cruz.
Q: How about your father?
A: He has.18
The other Deeds of Sale executed by Alfonso in favor of his children Prudencia and Liberato, and second
wife Valeriana, all bearing the same date of execution, were duly presented in evidence by the Heirs of
Alfonso, and were uncontested by the Heirs of Policronio. The lands which were the subject of these
Deeds of Sale were in fact included in the Deed of Extra-Judicial Partition executed by all the heirs of
Alfonso, where it was expressly stipulated:
That the above-named Amparo U. Castillo, Prudencia U. Paradero, Conrado B. Ureta and Merlinda U.
Rivera do hereby recognize and acknowledge as a fact that the properties presently declared in their
respective names or in the names of their respective parents and are included in the foregoing
instrument are actually the properties of the deceased Alfonso Ureta and were transferred only for the
purpose of effective administration and development and convenience in the payment of taxes and,
therefore, all instruments conveying or affecting the transfer of said properties are null and void from
the beginning.19
As found by the CA, Alfonso continued to exercise all the rights of an owner even after the execution of
the Deeds of Sale. It was undisputed that Alfonso remained in possession of the subject lands and
enjoyed their produce until his death. No credence can be given to the contention of the Heirs of
Policrionio that their father did not take possession of the subject lands or enjoyed the fruits thereof in
deference to a Filipino family practice. Had this been true, Policronio should have taken possession of
the subject lands after his father died. On the contrary, it was admitted that neither Policronio nor his
heirs ever took possession of the subject lands from the time they were sold to him, and even after the
death of both Alfonso and Policronio.
It was also admitted by the Heirs of Policronio that the tenants of the subject lands never turned over
the produce of the properties to Policronio or his heirs but only to Alfonso and the administrators of his
estate. Neither was there a demand for their delivery to Policronio or his heirs. Neither did Policronio
ever pay real estate taxes on the properties, the only payment on record being those made by his heirs
in 1996 and 1997 ten years after his death. In sum, Policronio never exercised any rights pertaining to
an owner over the subject lands.

The most protuberant index of simulation of contract is the complete absence of an attempt in any
manner on the part of the ostensible buyer to assert rights of ownership over the subject properties.
Policronios failure to take exclusive possession of the subject properties or, in the alternative, to collect
rentals, is contrary to the principle of ownership. Such failure is a clear badge of simulation that renders
the whole transaction void.

20

It is further telling that Policronio never disclosed the existence of the Deed of Sale to his children. This,
coupled with Policronios failure to exercise any rights pertaining to an owner of the subject lands, leads
to the conclusion that he was aware that the transfer was only made for taxation purposes and never
intended to bind the parties thereto.
As the above factual circumstances remain unrebutted by the Heirs of Policronio, the factual findings of
the RTC, which were affirmed by the CA, remain binding and conclusive upon this Court. 21
It is clear that the parties did not intend to be bound at all, and as such, the Deed of Sale produced no
legal effects and did not alter the juridical situation of the parties. The Deed of Sale is, therefore, void
for being absolutely simulated pursuant to Article 1409 (2) of the Civil Code which provides:
Art. 1409. The following contracts are inexistent and void from the beginning:
xxx
(2) Those which are absolutely simulated or fictitious;
xxx
For guidance, the following are the most fundamental characteristics of void or inexistent contracts:
1) As a general rule, they produce no legal effects whatsoever in accordance with the principle
"quod nullum est nullum producit effectum."
2) They are not susceptible of ratification.
3) The right to set up the defense of inexistence or absolute nullity cannot be waived or
renounced.
4) The action or defense for the declaration of their inexistence or absolute nullity is
imprescriptible.
5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose
interests are not directly affected.22
Since the Deed of Sale is void, the subject properties were properly included in the Deed of ExtraJudicial Partition of the estate of Alfonso.
Absence and Inadequacy of Consideration

The second presumption is rebutted by the lack of consideration for the Deed of Sale.
In their Answer,23 the Heirs of Alfonso initially argued that the Deed of Sale was void for lack of
consideration, and even granting that there was consideration, such was inadequate. The Heirs of
Policronio counter that the defenses of absence or inadequacy of consideration are not grounds to
render a contract void.
The Heirs of Policronio contended that under Article 1470 of the Civil Code, gross inadequacy of the
price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the
parties really intended a donation or some other act or contract. Citing jurisprudence, they argued that
inadequacy of monetary consideration does not render a conveyance inexistent as liberality may be
sufficient cause for a valid contract, whereas fraud or bad faith may render it either rescissible or
voidable, although valid until annulled. 24 Thus, they argued that if the contract suffers from inadequate
consideration, it remains valid until annulled, and the remedy of rescission calls for judicial intervention,
which remedy the Heirs of Alfonso failed to take.
It is further argued that even granting that the sale of the subject lands for a consideration of 2,000.00
was inadequate, absent any evidence of the fair market value of the land at the time of its sale, it
cannot be concluded that the price at which it was sold was inadequate. 25 As there is nothing in the
records to show that the Heirs of Alfonso supplied the true value of the land in 1969, the amount of
2,000.00 must thus stand as its saleable value.
On this issue, the Court finds for the Heirs of Alfonso.
For lack of consideration, the Deed of Sale is once again found to be void. It states that Policronio paid,
and Alfonso received, the 2,000.00 purchase price on the date of the signing of the contract:
That I, ALFONSO F. URETA, x x x for and in consideration of the sum of TWO THOUSAND (2,000.00)
PESOS, Philippine Currency, to me in hand paid by POLICRONIO M. URETA, x x x, do hereby CEDE,
TRANSFER, and CONVEY, by way of absolute sale, x x x six (6) parcels of land x x x. 26 [Emphasis ours]
Although, on its face, the Deed of Sale appears to be supported by valuable consideration, the RTC
found that there was no money involved in the sale.27 This finding was affirmed by the CA in ruling that
the sale is void for being absolutely simulated. Considering that there is no cogent reason to deviate
from such factual findings, they are binding on this Court.
It is well-settled in a long line of cases that where a deed of sale states that the purchase price has
been paid but in fact has never been paid, the deed of sale is null and void for lack of consideration. 28
Thus, although the contract states that the purchase price of 2,000.00 was paid by Policronio to
Alfonso for the subject properties, it has been proven that such was never in fact paid as there was no
money involved. It must, therefore, follow that the Deed of Sale is void for lack of consideration.
Given that the Deed of Sale is void, it is unnecessary to discuss the issue on the inadequacy of
consideration.
Parol Evidence and Hearsay

The Heirs of Policronio aver that the rules on parol evidence and hearsay were violated by the CA in
ruling that the Deed of Sale was void.
They argued that based on the parol evidence rule, the Heirs of Alfonso and, specifically, Amparo
Castillo, were not in a position to prove the terms outside of the contract because they were not parties
nor successors-in-interest in the Deed of Sale in question. Thus, it is argued that the testimony of
Amparo Castillo violates the parol evidence rule.
Stemming from the presumption that the Heirs of Alfonso were not parties to the contract, it is also
argued that the parol evidence rule may not be properly invoked by either party in the litigation against
the other, where at least one of the parties to the suit is not a party or a privy of a party to the written
instrument in question and does not base a claim on the instrument or assert a right originating in the
instrument or the relation established thereby.29
Their arguments are untenable.
The objection against the admission of any evidence must be made at the proper time, as soon as the
grounds therefor become reasonably apparent, and if not so made, it will be understood to have been
waived. In the case of testimonial evidence, the objection must be made when the objectionable
question is asked or after the answer is given if the objectionable features become apparent only by
reason of such answer.30 In this case, the Heirs of Policronio failed to timely object to the testimony of
Amparo Castillo and they are, thus, deemed to have waived the benefit of the parol evidence rule.
Granting that the Heirs of Policronio timely objected to the testimony of Amparo Castillo, their
argument would still fail.
Section 9 of Rule 130 of the Rules of Court provides:
Section 9. Evidence of written agreements. When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and there can be, between the parties
and their successors in interest, no evidence of such terms other than the contents of the written
agreement.
However, a party may present evidence to modify, explain or add to the terms of written agreement if
he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties
thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.
The term "agreement" includes wills.

[Emphasis ours]
Paragraphs (b) and (c) are applicable in the case at bench.
The failure of the Deed of Sale to express the true intent and agreement of the parties was clearly put
in issue in the Answer31 of the Heirs of Alfonso to the Complaint. It was alleged that the Deed of Sale
was only made to lessen the payment of estate and inheritance taxes and not meant to transfer
ownership. The exception in paragraph (b) is allowed to enable the court to ascertain the true intent of
the parties, and once the intent is clear, it shall prevail over what the document appears to be on its
face.32 As the true intent of the parties was duly proven in the present case, it now prevails over what
appears on the Deed of Sale.
The validity of the Deed of Sale was also put in issue in the Answer, and was precisely one of the issues
submitted to the RTC for resolution.33 The operation of the parol evidence rule requires the existence of
a valid written agreement. It is, thus, not applicable in a proceeding where the validity of such
agreement is the fact in dispute, such as when a contract may be void for lack of consideration. 34
Considering that the Deed of Sale has been shown to be void for being absolutely simulated and for
lack of consideration, the Heirs of Alfonso are not precluded from presenting evidence to modify,
explain or add to the terms of the written agreement.
The Heirs of Policronio must be in a state of confusion in arguing that the Heirs of Alfonso may not
question the Deed of Sale for not being parties or successors-in-interest therein on the basis that the
parol evidence rule may not be properly invoked in a proceeding or litigation where at least one of the
parties to the suit is not a party or a privy of a party to the written instrument in question and does not
base a claim on the instrument or assert a right originating in the instrument or the relation established
thereby. If their argument was to be accepted, then the Heirs of Policronio would themselves be
precluded from invoking the parol evidence rule to exclude the evidence of the Heirs of Alfonso.
Indeed, the applicability of the parol evidence rule requires that the case be between parties and their
successors-in-interest.35 In this case, both the Heirs of Alfonso and the Heirs of Policronio are
successors-in-interest of the parties to the Deed of Sale as they claim rights under Alfonso and
Policronio, respectively. The parol evidence rule excluding evidence aliunde, however, still cannot apply
because the present case falls under two exceptions to the rule, as discussed above.
With respect to hearsay, the Heirs of Policronio contended that the rule on hearsay was violated when
the testimony of Amparo Castillo was given weight in proving that the subject lands were only sold for
taxation purposes as she was a person alien to the contract. Even granting that they did not object to
her testimony during trial, they argued that it should not have been appreciated by the CA because it
had no probative value whatsoever.36
The Court disagrees.
It has indeed been held that hearsay evidence whether objected to or not cannot be given credence for
having no probative value.37 This principle, however, has been relaxed in cases where, in addition to the
failure to object to the admissibility of the subject evidence, there were other pieces of evidence

presented or there were other circumstances prevailing to support the fact in issue. In Top-Weld
Manufacturing, Inc. v. ECED S.A.,38 this Court held:
Hearsay evidence alone may be insufficient to establish a fact in an injunction suit (Parker v. Furlong, 62
P. 490) but, when no objection is made thereto, it is, like any other evidence, to be considered and
given the importance it deserves. (Smith v. Delaware & Atlantic Telegraph & Telephone Co., 51 A 464).
Although we should warn of the undesirability of issuing judgments solely on the basis of the affidavits
submitted, where as here, said affidavits are overwhelming, uncontroverted by competent evidence
and not inherently improbable, we are constrained to uphold the allegations of the respondents
regarding the multifarious violations of the contracts made by the petitioner.
In the case at bench, there were other prevailing circumstances which corroborate the testimony of
Amparo Castillo. First, the other Deeds of Sale which were executed in favor of Liberato, Prudencia, and
Valeriana on the same day as that of Policronios were all presented in evidence. Second, all the
properties subject therein were included in the Deed of Extra-Judicial Partition of the estate of Alfonso.
Third, Policronio, during his lifetime, never exercised acts of ownership over the subject properties (as
he never demanded or took possession of them, never demanded or received the produce thereof, and
never paid real estate taxes thereon). Fourth, Policronio never informed his children of the sale.
As the Heirs of Policronio failed to controvert the evidence presented, and to timely object to the
testimony of Amparo Castillo, both the RTC and the CA correctly accorded probative weight to her
testimony.
Prior Action Unnecessary
The Heirs of Policronio averred that the Heirs of Alfonso should have filed an action to declare the sale
void prior to executing the Deed of Extra-Judicial Partition. They argued that the sale should enjoy the
presumption of regularity, and until overturned by a court, the Heirs of Alfonso had no authority to
include the land in the inventory of properties of Alfonsos estate. By doing so, they arrogated upon
themselves the power of invalidating the Deed of Sale which is exclusively vested in a court of law
which, in turn, can rule only upon the observance of due process. Thus, they contended that
prescription, laches, or estoppel have set in to militate against assailing the validity of the sale.
The Heirs of Policronio are mistaken.
A simulated contract of sale is without any cause or consideration, and is, therefore, null and void; in
such case, no independent action to rescind or annul the contract is necessary, and it may be treated
as non-existent for all purposes.39 A void or inexistent contract is one which has no force and effect
from the beginning, as if it has never been entered into, and which cannot be validated either by time
or ratification. A void contract produces no effect whatsoever either against or in favor of anyone; it
does not create, modify or extinguish the juridical relation to which it refers. 40 Therefore, it was not
necessary for the Heirs of Alfonso to first file an action to declare the nullity of the Deed of Sale prior to
executing the Deed of Extra-Judicial Partition.
Personality to Question Sale

The Heirs of Policronio contended that the Heirs of Alfonso are not parties, heirs, or successors-ininterest under the contemplation of law to clothe them with the personality to question the Deed of
Sale. They argued that under Article 1311 of the Civil Code, contracts take effect only between the
parties, their assigns and heirs. Thus, the genuine character of a contract which personally binds the
parties cannot be put in issue by a person who is not a party thereto. They posited that the Heirs of
Alfonso were not parties to the contract; neither did they appear to be beneficiaries by way of
assignment or inheritance. Unlike themselves who are direct heirs of Policronio, the Heirs of Alfonso are
not Alfonsos direct heirs. For the Heirs of Alfonso to qualify as parties, under Article 1311 of the Civil
Code, they must first prove that they are either heirs or assignees. Being neither, they have no legal
standing to question the Deed of Sale.
They further argued that the sale cannot be assailed for being barred under Article 1421 of the Civil
Code which provides that the defense of illegality of a contract is not available to third persons whose
interests are not directly affected.
Again, the Court disagrees.
Article 1311 and Article 1421 of the Civil Code provide:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, x x x
Art. 1421. The defense of illegality of contracts is not available to third persons whose interests are not
directly affected.
The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in the
case of annullable or voidable contracts; it is extended to third persons who are directly affected by the
contract. Thus, where a contract is absolutely simulated, even third persons who may be prejudiced
thereby may set up its inexistence.41 The Heirs of Alfonso are the children of Alfonso, with his deceased
children represented by their children (Alfonsos grandchildren). The Heirs of Alfonso are clearly his
heirs and successors-in-interest and, as such, their interests are directly affected, thereby giving them
the right to question the legality of the Deed of Sale.
Inapplicability of Article 842
The Heirs of Policronio further argued that even assuming that the Heirs of Alfonso have an interest in
the Deed of Sale, they would still be precluded from questioning its validity. They posited that the Heirs
of Alfonso must first prove that the sale of Alfonsos properties to Policronio substantially diminished
their successional rights or that their legitimes would be unduly prejudiced, considering that under
Article 842 of the Civil Code, one who has compulsory heirs may dispose of his estate provided that he
does not contravene the provisions of the Civil Code with regard to the legitime of said heirs. Having
failed to do so, they argued that the Heirs of Alfonso should be precluded from questioning the validity
of the Deed of Sale.
Still, the Court disagrees.
Article 842 of the Civil Code provides:

Art. 842. One who has no compulsory heirs may dispose by will of all his estate or any part of it in favor
of any person having capacity to succeed.
One who has compulsory heirs may dispose of his estate provided he does not contravene the
provisions of this Code with regard to the legitime of said heirs.
This article refers to the principle of freedom of disposition by will. What is involved in the case at
bench is not a disposition by will but by Deed of Sale. Hence, the Heirs of Alfonso need not first prove
that the disposition substantially diminished their successional rights or unduly prejudiced their
legitimes.
Inapplicability of Article 1412
The Heirs of Policronio contended that even assuming that the contract was simulated, the Heirs of
Alfonso would still be barred from recovering the properties by reason of Article 1412 of the Civil Code,
which provides that if the act in which the unlawful or forbidden cause does not constitute a criminal
offense, and the fault is both on the contracting parties, neither may recover what he has given by
virtue of the contract or demand the performance of the others undertaking. As the Heirs of Alfonso
alleged that the purpose of the sale was to avoid the payment of inheritance taxes, they cannot take
from the Heirs of Policronio what had been given to their father.
On this point, the Court again disagrees.
Article 1412 of the Civil Code is as follows:
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 others 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.
Article 1412 is not applicable to fictitious or simulated contracts, because they refer to contracts with
an illegal cause or subject-matter.42 This article presupposes the existence of a cause, it cannot refer to
fictitious or simulated contracts which are in reality non-existent. 43 As it has been determined that the
Deed of Sale is a simulated contract, the provision cannot apply to it.
Granting that the Deed of Sale was not simulated, the provision would still not apply. Since the subject
properties were included as properties of Alfonso in the Deed of Extra-Judicial Partition, they are
covered by corresponding inheritance and estate taxes. Therefore, tax evasion, if at all present, would
not arise, and Article 1412 would again be inapplicable.
Prescription

From the position that the Deed of Sale is valid and not void, the Heirs of Policronio argued that any
question regarding its validity should have been initiated through judicial process within 10 years from
its notarization in accordance with Article 1144 of the Civil Code. Since 21 years had already elapsed
when the Heirs of Alfonso assailed the validity of the Deed of Sale in 1996, prescription had set in.
Furthermore, since the Heirs of Alfonso did not seek to nullify the tax declarations of Policronio, they
had impliedly acquiesced and given due recognition to the Heirs of Policronio as the rightful inheritors
and should, thus, be barred from laying claim on the land.
The Heirs of Policronio are mistaken.
Article 1410 of the Civil Code provides:
Art. 1410. The action for the declaration of the inexistence of a contract does not prescribe.
This is one of the most fundamental characteristics of void or inexistent contracts. 44
As the Deed of Sale is a void contract, the action for the declaration of its nullity, even if filed 21 years
after its execution, cannot be barred by prescription for it is imprescriptible. Furthermore, the right to
set up the defense of inexistence or absolute nullity cannot be waived or renounced. 45 Therefore, the
Heirs of Alfonso cannot be precluded from setting up the defense of its inexistence.
Validity of the Deed of Extra-Judicial Partition
The Court now resolves the issue of the validity of the Deed of Extra-Judicial Partition.
Unenforceability
The Heirs of Alfonso argued that the CA was mistaken in annulling the Deed of Extra-Judicial Partition
due to the incapacity of Conrado to give the consent of his co-heirs for lack of a special power of
attorney. They contended that what was involved was not the capacity to give consent in behalf of the
co-heirs but the authority to represent them. They argue that the Deed of Extra-Judicial Partition is not
a voidable or an annullable contract under Article 1390 of the Civil Code, but rather, it is an
unenforceable or, more specifically, an unauthorized contract under Articles 1403 (1) and 1317 of the
Civil Code. As such, the Deed of Extra-Judicial Partition should not be annulled but only be rendered
unenforceable against the siblings of Conrado.
They further argued that under Article 1317 of the Civil Code, when the persons represented without
authority have ratified the unauthorized acts, the contract becomes enforceable and binding. They
contended that the Heirs of Policronio ratified the Deed of Extra-Judicial Partition when Conrado took
possession of one of the parcels of land adjudicated to him and his siblings, and when another parcel
was used as collateral for a loan entered into by some of the Heirs of Policronio. The Deed of ExtraJudicial Partition having been ratified and its benefits accepted, the same thus became enforceable and
binding upon them.
The Heirs of Alfonso averred that granting arguendo that Conrado was not authorized to represent his
co-heirs and there was no ratification, the CA should not have remanded the case to the RTC for

partition of Alfonsos estate. They argued that the CA should not have applied the Civil Code general
provision on contracts, but the special provisions dealing with succession and partition. They contended
that contrary to the ruling of the CA, the extra-judicial parition was not an act of strict dominion, as it
has been ruled that partition of inherited land is not a conveyance but a confirmation or ratification of
title or right to the land.46 Therefore, the law requiring a special power of attorney should not be applied
to partitions.
On the other hand, the Heirs of Policronio insisted that the CA pronouncement on the invalidity of the
Deed of Extra-Judicial Partition should not be disturbed because the subject properties should not have
been included in the estate of Alfonso, and because Conrado lacked the written authority to represent
his siblings. They argued with the CA in ruling that a special power of attorney was required before
Conrado could sign in behalf of his co-heirs.
The Heirs of Policronio denied that they ratified the Deed of Extra-Judicial Partition. They claimed that
there is nothing on record that establishes that they ratified the partition. Far from doing so, they
precisely questioned its execution by filing a complaint. They further argued that under Article 1409 (3)
of the Civil Code, ratification cannot be invoked to validate the illegal act of including in the partition
those properties which do not belong to the estate as it provides another mode of acquiring ownership
not sanctioned by law.
Furthermore, the Heirs of Policronio contended that the defenses of unenforceability, ratification, and
preterition are being raised for the first time on appeal by the Heirs of Alfonso. For having failed to raise
them during the trial, the Heirs of Alfonso should be deemed to have waived their right to do so.
The Court agrees in part with the Heirs of Alfonso.
To begin, although the defenses of unenforceability, ratification and preterition were raised by the Heirs
of Alfonso for the first time on appeal, they are concomitant matters which may be taken up. As long as
the questioned items bear relevance and close relation to those specifically raised, the interest of
justice would dictate that they, too, must be considered and resolved. The rule that only theories raised
in the initial proceedings may be taken up by a party thereto on appeal should refer to independent,
not concomitant matters, to support or oppose the cause of action.47
In the RTC, the Heirs of Policronio alleged that Conrados consent was vitiated by mistake and undue
influence, and that he signed the Deed of Extra-Judicial Partition without the authority or consent of his
co-heirs.
The RTC found that Conrados credibility had faltered, and his claims were rejected by the RTC as
gratuitous assertions. On the basis of such, the RTC ruled that Conrado duly represented his siblings in
the Deed of Extra-Judicial Partition.
On the other hand, the CA annulled the Deed of Extra-Judicial Partition under Article 1390 (1) of the
Civil Code, holding that a special power of attorney was lacking as required under Article 1878 (5) and
(15) of the Civil Code. These articles are as follows:
Art. 1878. Special powers of attorney are necessary in the following cases:

xxx
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
xxx
(15) Any other act of strict dominion.
Art. 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.
This Court finds that Article 1878 (5) and (15) is inapplicable to the case at bench. It has been held in
several cases48 that partition among heirs is not legally deemed a conveyance of real property resulting
in change of ownership. It is not a transfer of property from one to the other, but rather, it is a
confirmation or ratification of title or right of property that an heir is renouncing in favor of another heir
who accepts and receives the inheritance. It is merely a designation and segregation of that part which
belongs to each heir. The Deed of Extra-Judicial Partition cannot, therefore, be considered as an act of
strict dominion. Hence, a special power of attorney is not necessary.
In fact, as between the parties, even an oral partition by the heirs is valid if no creditors are affected.
The requirement of a written memorandum under the statute of frauds does not apply to partitions
effected by the heirs where no creditors are involved considering that such transaction is not a
conveyance of property resulting in change of ownership but merely a designation and segregation of
that part which belongs to each heir.49
Neither is Article 1390 (1) applicable. Article 1390 (1) contemplates the incapacity of a party to give
consent to a contract. What is involved in the case at bench though is not Conrados incapacity to give
consent to the contract, but rather his lack of authority to do so. Instead, Articles 1403 (1), 1404, and
1317 of the Civil Code find application to the circumstances prevailing in this case. They are as follows:
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;
Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X
of this Book.

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.
Such was similarly held in the case of Badillo v. Ferrer:
The Deed of Extrajudicial Partition and Sale is not a voidable or an annullable contract under Article
1390 of the New Civil Code. Article 1390 renders a contract voidable if one of the parties is incapable of
giving consent to the contract or if the contracting partys consent is vitiated by mistake, violence,
intimidation, undue influence or fraud. x x x
The deed of extrajudicial parition and sale is an unenforceable or, more specifically, an unauthorized
contract under Articles 1403(1) and 1317 of the New Civil Code. 50
Therefore, Conrados failure to obtain authority from his co-heirs to sign the Deed of Extra-Judicial
Partition in their behalf did not result in his incapacity to give consent so as to render the contract
voidable, but rather, it rendered the contract valid but unenforceable against Conrados co-heirs for
having been entered into without their authority.
A closer review of the evidence on record, however, will show that the Deed of Extra-Judicial Partition is
not unenforceable but, in fact, valid, binding and enforceable against all the Heirs of Policronio for
having given their consent to the contract. Their consent to the Deed of Extra-Judicial Partition has
been proven by a preponderance of evidence.
Regarding his alleged vitiated consent due to mistake and undue influence to the Deed of Extra-Judicial
Partition, Conrado testified, to wit:
Q: Mr. Ureta you remember having signed a document entitled deed of extra judicial partition consisting
of 11 pages and which have previously [been] marked as Exhibit I for the plaintiffs?
A: Yes sir.
Q: Can you recall where did you sign this document?
A: The way I remember I signed that in our house.
Q: And who requested or required you to sign this document?
A: My aunties.
Q: Who in particular if you can recall?
A: Nay Pruding Panadero.

Q: You mean that this document that you signed was brought to your house by your Auntie Pruding
Pa[r]adero [who] requested you to sign that document?
A: When she first brought that document I did not sign that said document because I [did] no[t] know
the contents of that document.
Q: How many times did she bring this document to you [until] you finally signed the document?
A: Perhaps 3 times.
Q: Can you tell the court why you finally signed it?
A: Because the way she explained it to me that the land of my grandfather will be partitioned.
Q: When you signed this document were your brothers and sisters who are your co-plaintiffs in this case
aware of your act to sign this document?
A: They do not know.
xxx
Q: After you have signed this document did you inform your brothers and sisters that you have signed
this document?
No I did not.

51

xxx
Q: Now you read the document when it was allegedly brought to your house by your aunt Pruding
Pa[r]adero?
A: I did not read it because as I told her I still want to ask the advise of my brothers and sisters.
Q: So do I get from you that you have never read the document itself or any part thereof?
A: I have read the heading.
xxx
Q: And why is it that you did not read all the pages of this document because I understand that you
know also how to read in English?
A: Because the way Nay Pruding explained to me is that the property of my grandfather will be
partitioned that is why I am so happy.
xxx

Q: You mean to say that after you signed this deed of extra judicial partition up to the present you
never informed them?
A: Perhaps they know already that I have signed and they read already the document and they have
read the document.
Q: My question is different, did you inform them?
A: The document sir? I did not tell them.
Q: Even until now?
A: Until now I did not inform them.52
This Court finds no cogent reason to reverse the finding of the RTC that Conrados explanations were
mere gratuitous assertions not entitled to any probative weight. The RTC found Conrados credibility to
have faltered when he testified that perhaps his siblings were already aware of the Deed of ExtraJudicial Partition. The RTC was in the best position to judge the credibility of the witness testimony. The
CA also recognized that Conrados consent was not vitiated by mistake and undue influence as it
required a special power of attorney in order to bind his co-heirs and, as such, the CA thereby
recognized that his signature was binding to him but not with respect to his co-heirs. Findings of fact of
the trial court, particularly when affirmed by the CA, are binding to this Court. 53
Furthermore, this Court notes other peculiarities in Conrados testimony. Despite claims of undue
influence, there is no indication that Conrado was forced to sign by his aunt, Prudencia Paradero. In
fact, he testified that he was happy to sign because his grandfathers estate would be partitioned.
Conrado, thus, clearly understood the document he signed. It is also worth noting that despite the
document being brought to him on three separate occasions and indicating his intention to inform his
siblings about it, Conrado failed to do so, and still neglected to inform them even after he had signed
the partition. All these circumstances negate his claim of vitiated consent. Having duly signed the Deed
of Extra-Judicial Partition, Conrado is bound to it. Thus, it is enforceable against him.
Although Conrados co-heirs claimed that they did not authorize Conrado to sign the Deed of ExtraJudicial Partition in their behalf, several circumstances militate against their contention.
First, the Deed of Extra-Judicial Partition was executed on April 19, 1989, and the Heirs of Policronio
claim that they only came to know of its existence on July 30, 1995 through an issue of the Aklan
Reporter. It is difficult to believe that Conrado did not inform his siblings about the Deed of ExtraJudicial Partition or at least broach its subject with them for more than five years from the time he
signed it, especially after indicating in his testimony that he had intended to do so.
Second, Conrado retained possession of one of the parcels of land adjudicated to him and his co-heirs
in the Deed of Extra-Judicial Partition.
Third, after the execution of the partition on April 19, 1989 and more than a year before they claimed to
have discovered the existence of the Deed of Extra-Judicial Partition on July 30, 1995, some of the Heirs

of Policronio, namely, Rita Solano, Macario Ureta, Lilia Tayco, and Venancio Ureta executed on June 1,
1994, a Special Power of Attorney54 in favor of their sister Gloria Gonzales, authorizing her to obtain a
loan from a bank and to mortgage one of the parcels of land adjudicated to them in the Deed of ExtraJudicial Partition to secure payment of the loan. They were able to obtain the loan using the land as
collateral, over which a Real Estate Mortgage55 was constituted. Both the Special Power of Attorney and
the Real Estate Mortgage were presented in evidence in the RTC, and were not controverted or denied
by the Heirs of Policronio.
Fourth, in the letter dated August 15, 1995, sent by the counsel of the Heirs of Policronio to the Heirs of
Alfonso requesting for amicable settlement, there was no mention that Conrados consent to the Deed
of Extra-Judicial Partition was vitiated by mistake and undue influence or that they had never
authorized Conrado to represent them or sign the document on their behalf. It is questionable for such
a pertinent detail to have been omitted. The body of said letter is reproduced hereunder as follows:
Greetings:
Your nephews and nieces, children of your deceased brother Policronio Ureta, has referred to me for
appropriate legal action the property they inherited from their father consisting of six (6) parcels of land
which is covered by a Deed of Absolute Sale dated October 25, 1969. These properties ha[ve] already
been transferred to the name of their deceased father immediately after the sale, machine copy of the
said Deed of Sale is hereto attached for your ready reference.
Lately, however, there was published an Extra-judicial Partition of the estate of Alfonso Ureta, which to
the surprise of my clients included the properties already sold to their father before the death of said
Alfonso Ureta. This inclusion of their property is erroneous and illegal because these properties were
covered by the Deed of Absolute Sale in favor of their father Policronio Ureta no longer form part of the
estate of Alfonso Ureta. Since Policronio Ureta has [sic] died in 1974 yet, these properties have passed
by hereditary succession to his children who are now the true and lawful owners of the said properties.
My clients are still entitled to a share in the estate of Alfonso Ureta who is also their grandfather as they
have stepped into the shoes of their deceased father Policronio Ureta. But this estate of Alfonso Ureta
should already exclude the six (6) parcels of land covered by the Deed of Absolute Sale in favor of
Policronio Ureta.
My clients cannot understand why the properties of their late father [should] be included in the estate
of their grandfather and be divided among his brothers and sisters when said properties should only be
divided among themselves as children of Policronio Ureta.
Since this matter involves very close members of the same family, I have counseled my clients that an
earnest effort towards a compromise or amicable settlement be first explored before resort to judicial
remedy is pursued. And a compromise or amicable settlement can only be reached if all the parties
meet and discuss the problem with an open mind. To this end, I am suggesting a meeting of the parties
on September 16, 1995 at 2:00 P.M. at B Place Restaurant at C. Laserna St., Kalibo, Aklan. It would be
best if the parties can come or be represented by their duly designated attorney-in-fact together with
their lawyers if they so desire so that the problem can be discussed unemotionally and intelligently.

I would, however, interpret the failure to come to the said meeting as an indication that the parties are
not willing to or interested in amicable settlement of this matter and as a go signal for me to resort to
legal and/or judicial remedies to protest the rights of my clients.
Thank you very much.56
Based on the foregoing, this Court concludes that the allegation of Conrados vitiated consent and lack
of authority to sign in behalf of his co-heirs was a mere afterthought on the part of the Heirs of
Policronio. It appears that the Heirs of Policronio were not only aware of the existence of the Deed of
Extra-Judicial Partition prior to June 30, 1995 but had, in fact, given Conrado authority to sign in their
behalf. They are now estopped from questioning its legality, and the Deed of Extra-Judicial Partition is
valid, binding, and enforceable against them.
In view of the foregoing, there is no longer a need to discuss the issue of ratification.
Preterition
The Heirs of Alfonso were of the position that the absence of the Heirs of Policronio in the partition or
the lack of authority of their representative results, at the very least, in their preterition and not in the
invalidity of the entire deed of partition. Assuming there was actual preterition, it did not render the
Deed of Extra-Judicial Partition voidable. Citing Article 1104 of the Civil Code, they aver that a partition
made with preterition of any of the compulsory heirs shall not be rescinded, but the heirs shall be
proportionately obliged to pay the share of the person omitted. Thus, the Deed of Extra-Judicial
Partition should not have been annulled by the CA. Instead, it should have ordered the share of the
heirs omitted to be given to them.
The Heirs of Alfonso also argued that all that remains to be adjudged is the right of the preterited heirs
to represent their father, Policronio, and be declared entitled to his share. They contend that remand to
the RTC is no longer necessary as the issue is purely legal and can be resolved by the provisions of the
Civil Code for there is no dispute that each of Alfonsos heirs received their rightful share. Conrado, who
received Policronios share, should then fully account for what he had received to his other co-heirs and
be directed to deliver their share in the inheritance.
These arguments cannot be given credence.
Their posited theory on preterition is no longer viable. It has already been determined that the Heirs of
Policronio gave their consent to the Deed of Extra-Judicial Partition and they have not been excluded
from it. Nonetheless, even granting that the Heirs of Policronio were denied their lawful participation in
the partition, the argument of the Heirs of Alfonso would still fail.
Preterition under Article 854 of the Civil Code is as follows:
Art. 854. The preterition or omission of one, some, or all of the compulsory heirs in the direct line,
whether living at the time of the execution of the will or born after the death of the testator, shall annul
the institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious.

If the omitted compulsory heirs should die before the testator, the institution shall be effectual, without
prejudice to the right of representation.
Preterition has been defined as the total omission of a compulsory heir from the inheritance.1wphi1 It
consists in the silence of the testator with regard to a compulsory heir, omitting him in the testament,
either by not mentioning him at all, or by not giving him anything in the hereditary property but without
expressly disinheriting him, even if he is mentioned in the will in the latter case. 57 Preterition is thus a
concept of testamentary succession and requires a will. In the case at bench, there is no will involved.
Therefore, preterition cannot apply.
Remand Unnecessary
The Deed of Extra-Judicial Partition is in itself valid for complying with all the legal requisites, as found
by the RTC, to wit:
A persual of the Deed of Extra-judicial Partition would reveal that all the heirs and children of Alfonso
Ureta were represented therein; that nobody was left out; that all of them received as much as the
others as their shares; that it distributed all the properties of Alfonso Ureta except a portion of parcel 29
containing an area of 14,000 square meters, more or less, which was expressly reserved; that Alfonso
Ureta, at the time of his death, left no debts; that the heirs of Policronio Ureta, Sr. were represented by
Conrado B. Ureta; all the parties signed the document, was witnessed and duly acknowledged before
Notary Public Adolfo M. Iligan of Kalibo, Aklan; that the document expressly stipulated that the heirs to
whom some of the properties were transferred before for taxation purposes or their children, expressly
recognize and acknowledge as a fact that the properties were transferred only for the purpose of
effective administration and development convenience in the payment of taxes and, therefore, all
instruments conveying or effecting the transfer of said properties are null and void from the beginning
(Exhs. 1-4, 7-d).58
Considering that the Deed of Sale has been found void and the Deed of Extra-Judicial Partition valid,
with the consent of all the Heirs of Policronio duly given, there is no need to remand the case to the
court of origin for partition.1vvph!1
WHEREFORE, the petition in G.R. No. 165748 is DENIED. The petition in G.R. No. 165930 is GRANTED.
The assailed April 20, 2004 Decision and October 14, 2004 Resolution of the Court of Appeals in CA-G.R.
CV No. 71399, are hereby MODIFIED in this wise:
(1) The Deed of Extra-Judicial Partition, dated April 19, 1989, is VALID, and
(2) The order to remand the case to the court of origin is hereby DELETED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 176625
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY and AIR TRANSPORTATION OFFICE,
Petitioners,
vs.
BERNARDO L. LOZADA, SR., and the HEIRS OF ROSARIO MERCADO, namely, VICENTE
LOZADA, MARIO M. LOZADA, MARCIA L. GODINEZ, VIRGINIA L. FLORES, BERNARDO LOZADA,
JR., DOLORES GACASAN, SOCORRO CAFARO and ROSARIO LOZADA, represented by MARCIA
LOZADA GODINEZ, Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse, annul,
and set aside the Decision1 dated February 28, 2006 and the Resolution2 dated February 7, 2007 of the
Court of Appeals (CA) (Cebu City), Twentieth Division, in CA-G.R. CV No. 65796.
The antecedent facts and proceedings are as follows:
Subject of this case is Lot No. 88-SWO-25042 (Lot No. 88), with an area of 1,017 square meters, more or
less, located in Lahug, Cebu City. Its original owner was Anastacio Deiparine when the same was

subject to expropriation proceedings, initiated by the Republic of the Philippines (Republic), represented
by the then Civil Aeronautics Administration (CAA), for the expansion and improvement of the Lahug
Airport. The case was filed with the then Court of First Instance of Cebu, Third Branch, and docketed as
Civil Case No. R-1881.
As early as 1947, the lots were already occupied by the U.S. Army. They were turned over to the
Surplus Property Commission, the Bureau of Aeronautics, the National Airport Corporation and then to
the CAA.
During the pendency of the expropriation proceedings, respondent Bernardo L. Lozada, Sr. acquired Lot
No. 88 from Deiparine. Consequently, Transfer Certificate of Title (TCT) No. 9045 was issued in Lozadas
name.
On December 29, 1961, the trial court rendered judgment in favor of the Republic and ordered the
latter to pay Lozada the fair market value of Lot No. 88, adjudged at P3.00 per square meter, with
consequential damages by way of legal interest computed from November 16, 1947the time when
the lot was first occupied by the airport. Lozada received the amount of P3,018.00 by way of payment.
The affected landowners appealed. Pending appeal, the Air Transportation Office (ATO), formerly CAA,
proposed a compromise settlement whereby the owners of the lots affected by the expropriation
proceedings would either not appeal or withdraw their respective appeals in consideration of a
commitment that the expropriated lots would be resold at the price they were expropriated in the event
that the ATO would abandon the Lahug Airport, pursuant to an established policy involving similar
cases. Because of this promise, Lozada did not pursue his appeal. Thereafter, Lot No. 88 was
transferred and registered in the name of the Republic under TCT No. 25057.
The projected improvement and expansion plan of the old Lahug Airport, however, was not pursued.
Lozada, with the other landowners, contacted then CAA Director Vicente Rivera, Jr., requesting to
repurchase the lots, as per previous agreement. The CAA replied that there might still be a need for the
Lahug Airport to be used as an emergency DC-3 airport. It reiterated, however, the assurance that
"should this Office dispose and resell the properties which may be found to be no longer necessary as
an airport, then the policy of this Office is to give priority to the former owners subject to the approval
of the President."
On November 29, 1989, then President Corazon C. Aquino issued a Memorandum to the Department of
Transportation, directing the transfer of general aviation operations of the Lahug Airport to the Mactan
International Airport before the end of 1990 and, upon such transfer, the closure of the Lahug Airport.
Sometime in 1990, the Congress of the Philippines passed Republic Act (R.A.) No. 6958, entitled "An Act
Creating the Mactan-Cebu International Airport Authority, Transferring Existing Assets of the Mactan
International Airport and the Lahug Airport to the Authority, Vesting the Authority with Power to
Administer and Operate the Mactan International Airport and the Lahug Airport, and For Other
Purposes."

From the date of the institution of the expropriation proceedings up to the present, the public purpose
of the said expropriation (expansion of the airport) was never actually initiated, realized, or
implemented. Instead, the old airport was converted into a commercial complex. Lot No. 88 became the
site of a jail known as Bagong Buhay Rehabilitation Complex, while a portion thereof was occupied by
squatters.3 The old airport was converted into what is now known as the Ayala I.T. Park, a commercial
area.1avvphi1
Thus, on June 4, 1996, petitioners initiated a complaint for the recovery of possession and
reconveyance of ownership of Lot No. 88. The case was docketed as Civil Case No. CEB-18823 and was
raffled to the Regional Trial Court (RTC), Branch 57, Cebu City. The complaint substantially alleged as
follows:
(a) Spouses Bernardo and Rosario Lozada were the registered owners of Lot No. 88 covered by
TCT No. 9045;
(b) In the early 1960s, the Republic sought to acquire by expropriation Lot No. 88, among
others, in connection with its program for the improvement and expansion of the Lahug Airport;
(c) A decision was rendered by the Court of First Instance in favor of the Government and
against the land owners, among whom was Bernardo Lozada, Sr. appealed therefrom;
(d) During the pendency of the appeal, the parties entered into a compromise settlement to the
effect that the subject property would be resold to the original owner at the same price when it
was expropriated in the event that the Government abandons the Lahug Airport;
(e) Title to Lot No. 88 was subsequently transferred to the Republic of the Philippines (TCT No.
25057);
(f) The projected expansion and improvement of the Lahug Airport did not materialize;
(g) Plaintiffs sought to repurchase their property from then CAA Director Vicente Rivera. The
latter replied by giving as assurance that priority would be given to the previous owners, subject
to the approval of the President, should CAA decide to dispose of the properties;
(h) On November 29, 1989, then President Corazon C. Aquino, through a Memorandum to the
Department of Transportation and Communications (DOTC), directed the transfer of general
aviation operations at the Lahug Airport to the Mactan-Cebu International Airport Authority;
(i) Since the public purpose for the expropriation no longer exists, the property must be returned
to the plaintiffs.4
In their Answer, petitioners asked for the immediate dismissal of the complaint. They specifically denied
that the Government had made assurances to reconvey Lot No. 88 to respondents in the event that the
property would no longer be needed for airport operations. Petitioners instead asserted that the
judgment of condemnation was unconditional, and respondents were, therefore, not entitled to recover
the expropriated property notwithstanding non-use or abandonment thereof.

After pretrial, but before trial on the merits, the parties stipulated on the following set of facts:
(1) The lot involved is Lot No. 88-SWO-25042 of the Banilad Estate, situated in the City of Cebu,
containing an area of One Thousand Seventeen (1,017) square meters, more or less;
(2) The property was expropriated among several other properties in Lahug in favor of the
Republic of the Philippines by virtue of a Decision dated December 29, 1961 of the CFI of Cebu
in Civil Case No. R-1881;
(3) The public purpose for which the property was expropriated was for the purpose of the Lahug
Airport;
(4) After the expansion, the property was transferred in the name of MCIAA; [and]
(5) On November 29, 1989, then President Corazon C. Aquino directed the Department of
Transportation and Communication to transfer general aviation operations of the Lahug Airport
to the Mactan-Cebu International Airport Authority and to close the Lahug Airport after such
transfer[.]5
During trial, respondents presented Bernardo Lozada, Sr. as their lone witness, while petitioners
presented their own witness, Mactan-Cebu International Airport Authority legal assistant Michael
Bacarisas.
On October 22, 1999, the RTC rendered its Decision, disposing as follows:
WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the plaintiffs,
Bernardo L. Lozada, Sr., and the heirs of Rosario Mercado, namely, Vicente M. Lozada, Marcia L.
Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario M.
Lozada, represented by their attorney-in-fact Marcia Lozada Godinez, and against defendants CebuMactan International Airport Authority (MCIAA) and Air Transportation Office (ATO):
1. ordering MCIAA and ATO to restore to plaintiffs the possession and ownership of their land, Lot
No. 88 Psd-821 (SWO-23803), upon payment of the expropriation price to plaintiffs; and
2. ordering the Register of Deeds to effect the transfer of the Certificate of Title from
defendant[s] to plaintiffs on Lot No. [88], cancelling TCT No. 20357 in the name of defendant
MCIAA and to issue a new title on the same lot in the name of Bernardo L. Lozada, Sr. and the
heirs of Rosario Mercado, namely: Vicente M. Lozada, Mario M. Lozada, Marcia L. Godinez,
Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario M.
Lozada.
No pronouncement as to costs.
SO ORDERED.6
Aggrieved, petitioners interposed an appeal to the CA. After the filing of the necessary appellate briefs,
the CA rendered its assailed Decision dated February 28, 2006, denying petitioners appeal and

affirming in toto the Decision of the RTC, Branch 57, Cebu City. Petitioners motion for reconsideration
was, likewise, denied in the questioned CA Resolution dated February 7, 2007.
Hence, this petition arguing that: (1) the respondents utterly failed to prove that there was a
repurchase agreement or compromise settlement between them and the Government; (2) the
judgment in Civil Case No. R-1881 was absolute and unconditional, giving title in fee simple to the
Republic; and (3) the respondents claim of verbal assurances from government officials violates the
Statute of Frauds.
The petition should be denied.
Petitioners anchor their claim to the controverted property on the supposition that the Decision in the
pertinent expropriation proceedings did not provide for the condition that should the intended use of
Lot No. 88 for the expansion of the Lahug Airport be aborted or abandoned, the property would revert
to respondents, being its former owners. Petitioners cite, in support of this position, Fery v. Municipality
of Cabanatuan,7 which declared that the Government acquires only such rights in expropriated parcels
of land as may be allowed by the character of its title over the properties
If x x x land is expropriated for a particular purpose, with the condition that when that purpose is ended
or abandoned the property shall return to its former owner, then, of course, when the purpose is
terminated or abandoned the former owner reacquires the property so expropriated. If x x x land is
expropriated for a public street and the expropriation is granted upon condition that the city can only
use it for a public street, then, of course, when the city abandons its use as a public street, it returns to
the former owner, unless there is some statutory provision to the contrary. x x x. If, upon the contrary,
however, the decree of expropriation gives to the entity a fee simple title, then, of course, the land
becomes the absolute property of the expropriator, whether it be the State, a province, or municipality,
and in that case the non-user does not have the effect of defeating the title acquired by the
expropriation proceedings. x x x.
When land has been acquired for public use in fee simple, unconditionally, either by the exercise of
eminent domain or by purchase, the former owner retains no right in the land, and the public use may
be abandoned, or the land may be devoted to a different use, without any impairment of the estate or
title acquired, or any reversion to the former owner. x x x.8
Contrary to the stance of petitioners, this Court had ruled otherwise in Heirs of Timoteo Moreno and
Maria Rotea v. Mactan-Cebu International Airport Authority,9 thus
Moreover, respondent MCIAA has brought to our attention a significant and telling portion in the
Decision in Civil Case No. R-1881 validating our discernment that the expropriation by the predecessors
of respondent was ordered under the running impression that Lahug Airport would continue in
operation
As for the public purpose of the expropriation proceeding, it cannot now be doubted. Although Mactan
Airport is being constructed, it does not take away the actual usefulness and importance of the Lahug
Airport: it is handling the air traffic both civilian and military. From it aircrafts fly to Mindanao and
Visayas and pass thru it on their flights to the North and Manila. Then, no evidence was adduced to

show how soon is the Mactan Airport to be placed in operation and whether the Lahug Airport will be
closed immediately thereafter. It is up to the other departments of the Government to determine said
matters. The Court cannot substitute its judgment for those of the said departments or agencies. In the
absence of such showing, the Court will presume that the Lahug Airport will continue to be in operation
(emphasis supplied).
While in the trial in Civil Case No. R-1881 [we] could have simply acknowledged the presence of public
purpose for the exercise of eminent domain regardless of the survival of Lahug Airport, the trial court in
its Decision chose not to do so but instead prefixed its finding of public purpose upon its understanding
that "Lahug Airport will continue to be in operation." Verily, these meaningful statements in the body of
the Decision warrant the conclusion that the expropriated properties would remain to be so until it was
confirmed that Lahug Airport was no longer "in operation." This inference further implies two (2) things:
(a) after the Lahug Airport ceased its undertaking as such and the expropriated lots were not being
used for any airport expansion project, the rights vis--vis the expropriated Lots Nos. 916 and 920 as
between the State and their former owners, petitioners herein, must be equitably adjusted; and (b) the
foregoing unmistakable declarations in the body of the Decision should merge with and become an
intrinsic part of the fallo thereof which under the premises is clearly inadequate since the dispositive
portion is not in accord with the findings as contained in the body thereof. 10
Indeed, the Decision in Civil Case No. R-1881 should be read in its entirety, wherein it is apparent that
the acquisition by the Republic of the expropriated lots was subject to the condition that the Lahug
Airport would continue its operation. The condition not having materialized because the airport had
been abandoned, the former owner should then be allowed to reacquire the expropriated property. 11
On this note, we take this opportunity to revisit our ruling in Fery, which involved an expropriation suit
commenced upon parcels of land to be used as a site for a public market. Instead of putting up a public
market, respondent Cabanatuan constructed residential houses for lease on the area. Claiming that the
municipality lost its right to the property taken since it did not pursue its public purpose, petitioner Juan
Fery, the former owner of the lots expropriated, sought to recover his properties. However, as he had
admitted that, in 1915, respondent Cabanatuan acquired a fee simple title to the lands in question,
judgment was rendered in favor of the municipality, following American jurisprudence, particularly City
of Fort Wayne v. Lake Shore & M.S. RY. Co.,12 McConihay v. Theodore Wright,13 and Reichling v.
Covington Lumber Co.,14 all uniformly holding that the transfer to a third party of the expropriated real
property, which necessarily resulted in the abandonment of the particular public purpose for which the
property was taken, is not a ground for the recovery of the same by its previous owner, the title of the
expropriating agency being one of fee simple.
Obviously, Fery was not decided pursuant to our now sacredly held constitutional right that private
property shall not be taken for public use without just compensation. 15 It is well settled that the taking
of private property by the Governments power of eminent domain is subject to two mandatory
requirements: (1) that it is for a particular public purpose; and (2) that just compensation be paid to the
property owner. These requirements partake of the nature of implied conditions that should be
complied with to enable the condemnor to keep the property expropriated. 16

More particularly, with respect to the element of public use, the expropriator should commit to use the
property pursuant to the purpose stated in the petition for expropriation filed, failing which, it should
file another petition for the new purpose. If not, it is then incumbent upon the expropriator to return the
said property to its private owner, if the latter desires to reacquire the same. Otherwise, the judgment
of expropriation suffers an intrinsic flaw, as it would lack one indispensable element for the proper
exercise of the power of eminent domain, namely, the particular public purpose for which the property
will be devoted. Accordingly, the private property owner would be denied due process of law, and the
judgment would violate the property owners right to justice, fairness, and equity.
In light of these premises, we now expressly hold that the taking of private property, consequent to the
Governments exercise of its power of eminent domain, is always subject to the condition that the
property be devoted to the specific public purpose for which it was taken. Corollarily, if this particular
purpose or intent is not initiated or not at all pursued, and is peremptorily abandoned, then the former
owners, if they so desire, may seek the reversion of the property, subject to the return of the amount of
just compensation received. In such a case, the exercise of the power of eminent domain has become
improper for lack of the required factual justification.17
Even without the foregoing declaration, in the instant case, on the question of whether respondents
were able to establish the existence of an oral compromise agreement that entitled them to repurchase
Lot No. 88 should the operations of the Lahug Airport be abandoned, we rule in the affirmative.
It bears stressing that both the RTC, Branch 57, Cebu and the CA have passed upon this factual issue
and have declared, in no uncertain terms, that a compromise agreement was, in fact, entered into
between the Government and respondents, with the former undertaking to resell Lot No. 88 to the
latter if the improvement and expansion of the Lahug Airport would not be pursued. In affirming the
factual finding of the RTC to this effect, the CA declared
Lozadas testimony is cogent. An octogenarian widower-retiree and a resident of Moon Park, California
since 1974, he testified that government representatives verbally promised him and his late wife while
the expropriation proceedings were on-going that the government shall return the property if the
purpose for the expropriation no longer exists. This promise was made at the premises of the airport. As
far as he could remember, there were no expropriation proceedings against his property in 1952
because the first notice of expropriation he received was in 1962. Based on the promise, he did not hire
a lawyer. Lozada was firm that he was promised that the lot would be reverted to him once the public
use of the lot ceases. He made it clear that the verbal promise was made in Lahug with other lot
owners before the 1961 decision was handed down, though he could not name the government
representatives who made the promise. It was just a verbal promise; nevertheless, it is binding. The
fact that he could not supply the necessary details for the establishment of his assertions during crossexamination, but that "When it will not be used as intended, it will be returned back, we just believed in
the government," does not dismantle the credibility and truthfulness of his allegation. This Court notes
that he was 89 years old when he testified in November 1997 for an incident which happened decades
ago. Still, he is a competent witness capable of perceiving and making his perception known. The minor
lapses are immaterial. The decision of the competency of a witness rests primarily with the trial judge
and must not be disturbed on appeal unless it is clear that it was erroneous. The objection to his
competency must be made before he has given any testimony or as soon as the incompetency

becomes apparent. Though Lozada is not part of the compromise agreement, 18 he nevertheless
adduced sufficient evidence to support his claim.19
As correctly found by the CA, unlike in Mactan Cebu International Airport Authority v. Court of Appeals, 20
cited by petitioners, where respondent therein offered testimonies which were hearsay in nature, the
testimony of Lozada was based on personal knowledge as the assurance from the government was
personally made to him. His testimony on cross-examination destroyed neither his credibility as a
witness nor the truthfulness of his words.
Verily, factual findings of the trial court, especially when affirmed by the CA, are binding and conclusive
on this Court and may not be reviewed. A petition for certiorari under Rule 45 of the Rules of Court
contemplates only questions of law and not of fact.21 Not one of the exceptions to this rule is present in
this case to warrant a reversal of such findings.
As regards the position of petitioners that respondents testimonial evidence violates the Statute of
Frauds, suffice it to state that the Statute of Frauds operates only with respect to executory contracts,
and does not apply to contracts which have been completely or partially performed, the rationale
thereof being as follows:
In executory contracts there is a wide field for fraud because unless they be in writing there is no
palpable evidence of the intention of the contracting parties. The statute has precisely been enacted to
prevent fraud. However, if a contract has been totally or partially performed, the exclusion of parol
evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits
already delivered by him from the transaction in litigation, and, at the same time, evade the
obligations, responsibilities or liabilities assumed or contracted by him thereby.22
In this case, the Statute of Frauds, invoked by petitioners to bar the claim of respondents for the
reacquisition of Lot No. 88, cannot apply, the oral compromise settlement having been partially
performed. By reason of such assurance made in their favor, respondents relied on the same by not
pursuing their appeal before the CA. Moreover, contrary to the claim of petitioners, the fact of Lozadas
eventual conformity to the appraisal of Lot No. 88 and his seeking the correction of a clerical error in
the judgment as to the true area of Lot No. 88 do not conclusively establish that respondents absolutely
parted with their property. To our mind, these acts were simply meant to cooperate with the
government, particularly because of the oral promise made to them.
The right of respondents to repurchase Lot No. 88 may be enforced based on a constructive trust
constituted on the property held by the government in favor of the former. On this note, our ruling in
Heirs of Timoteo Moreno is instructive, viz.:
Mactan-Cebu International Airport Authority is correct in stating that one would not find an express
statement in the Decision in Civil Case No. R-1881 to the effect that "the [condemned] lot would return
to [the landowner] or that [the landowner] had a right to repurchase the same if the purpose for which
it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug
Airport." This omission notwithstanding, and while the inclusion of this pronouncement in the judgment
of condemnation would have been ideal, such precision is not absolutely necessary nor is it fatal to the

cause of petitioners herein. No doubt, the return or repurchase of the condemned properties of
petitioners could be readily justified as the manifest legal effect or consequence of the trial courts
underlying presumption that "Lahug Airport will continue to be in operation" when it granted the
complaint for eminent domain and the airport discontinued its activities.
The predicament of petitioners involves a constructive trust, one that is akin to the implied trust
referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of property is made in order to
secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is
established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may
demand the reconveyance of the property to him." In the case at bar, petitioners conveyed Lots No.
916 and 920 to the government with the latter obliging itself to use the realties for the expansion of
Lahug Airport; failing to keep its bargain, the government can be compelled by petitioners to reconvey
the parcels of land to them, otherwise, petitioners would be denied the use of their properties upon a
state of affairs that was not conceived nor contemplated when the expropriation was authorized.
Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not
perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of trusts:
"The only problem of great importance in the field of constructive trust is to decide whether in the
numerous and varying fact situations presented to the courts there is a wrongful holding of property
and hence a threatened unjust enrichment of the defendant." Constructive trusts are fictions of equity
which are bound by no unyielding formula when they are used by courts as devices to remedy any
situation in which the holder of legal title may not in good conscience retain the beneficial interest.
In constructive trusts, the arrangement is temporary and passive in which the trustees sole duty is to
transfer the title and possession over the property to the plaintiff-beneficiary. Of course, the "wronged
party seeking the aid of a court of equity in establishing a constructive trust must himself do equity."
Accordingly, the court will exercise its discretion in deciding what acts are required of the plaintiffbeneficiary as conditions precedent to obtaining such decree and has the obligation to reimburse the
trustee the consideration received from the latter just as the plaintiff-beneficiary would if he proceeded
on the theory of rescission. In the good judgment of the court, the trustee may also be paid the
necessary expenses he may have incurred in sustaining the property, his fixed costs for improvements
thereon, and the monetary value of his services in managing the property to the extent that plaintiffbeneficiary will secure a benefit from his acts.
The rights and obligations between the constructive trustee and the beneficiary, in this case,
respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the Civil
Code, "When the conditions have for their purpose the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall return to each other what they have received x x x
In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article shall be applied to the party who is bound to return x x
x."23
On the matter of the repurchase price, while petitioners are obliged to reconvey Lot No. 88 to
respondents, the latter must return to the former what they received as just compensation for the

expropriation of the property, plus legal interest to be computed from default, which in this case runs
from the time petitioners comply with their obligation to respondents.
Respondents must likewise pay petitioners the necessary expenses they may have incurred in
maintaining Lot No. 88, as well as the monetary value of their services in managing it to the extent that
respondents were benefited thereby.
Following Article 118724 of the Civil Code, petitioners may keep whatever income or fruits they may
have obtained from Lot No. 88, and respondents need not account for the interests that the amounts
they received as just compensation may have earned in the meantime.
In accordance with Article 119025 of the Civil Code vis--vis Article 1189, which provides that "(i)f a
thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor x
x x," respondents, as creditors, do not have to pay, as part of the process of restitution, the
appreciation in value of Lot No. 88, which is a natural consequence of nature and time. 26
WHEREFORE, the petition is DENIED. The February 28, 2006 Decision of the Court of Appeals, affirming
the October 22, 1999 Decision of the Regional Trial Court, Branch 87, Cebu City, and its February 7,
2007 Resolution are AFFIRMED with MODIFICATION as follows:
1. Respondents are ORDERED to return to petitioners the just compensation they received for
the expropriation of Lot No. 88, plus legal interest, in the case of default, to be computed from
the time petitioners comply with their obligation to reconvey Lot No. 88 to them;
2. Respondents are ORDERED to pay petitioners the necessary expenses the latter incurred in
maintaining Lot No. 88, plus the monetary value of their services to the extent that respondents
were benefited thereby;
3. Petitioners are ENTITLED to keep whatever fruits and income they may have obtained from
Lot No. 88; and
4. Respondents are also ENTITLED to keep whatever interests the amounts they received as just
compensation may have earned in the meantime, as well as the appreciation in value of Lot No.
88, which is a natural consequence of nature and time;
In light of the foregoing modifications, the case is REMANDED to the Regional Trial Court, Branch 57,
Cebu City, only for the purpose of receiving evidence on the amounts that respondents will have to pay
petitioners in accordance with this Courts decision. No costs.
SO ORDERED.

THIRD DIVISION
[G.R. No. 125485. September 13, 2004]

RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, petitioners, vs. COURT OF APPEALS, and TEODORO
SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIAN, assisted by ANDRES MARCELO; PEDAD
SEBASTIAN, HEIRS OF EDUVIGIS SEBASTIAN, namely: EDUARDO S. TENORLAS, ABELARDO J. TENORLAS,
ADELA S. and SOLEDAD S. TENORLAS, represented by EDUARDO S. TENORLAS, and HEIRS OF
DOMINADOR, namely: NAPOLEON SEBASTIAN, RUPERTO SEBASTIAN, ADORACION SEBASTIAN,
PRISCILLA SEBASTIAN, LITA SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN, represented by
NAPOLEON SEBASTIAN; EVELYN SEBASTIAN; AURORA SEBASTIAN; and JULIETA SEBASTIAN, respondents.
DECISION
CORONA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking to reverse and set aside the
decision[1] of the Court of Appeals which in turn affirmed the judgment[2] of Branch 57, Regional Trial
Court (RTC) of San Carlos City, dismissing for lack of cause of action the complaint filed by petitioner
against private respondents for declaration of nullity of the extrajudicial settlement of the estate of Jose
Sebastian and Tomasina Paul.
Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and Balbino
Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late Eduvigis and
Dominador, all surnamed Sebastian, are the illegitimate children of Tomasina with Jose Sebastian after
she separated from Balbino Leonardo.
In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina Paul and Jose
Sebastian before Branch 57, RTC of San Carlos City, Pangasinan, petitioner alleged that, on June 24,
1988, at around 5:00 p.m., private respondent Corazon Sebastian and her niece Julieta Sebastian, and a
certain Bitang, came to petitioners house to persuade her to sign a deed of extrajudicial partition of
the estate of Tomasina Paul and Jose Sebastian. Before signing the document, petitioner allegedly
insisted that they wait for her husband Jose Ramos so he could translate the document which was
written in English. Petitioner, however, proceeded to sign the document even without her husband and
without reading the document, on the assurance of private respondent Corazon Sebastian that
petitioners share as a legitimate daughter of Tomasina Paul was provided for in the extrajudicial
partition. Petitioner then asked private respondent Corazon and her companions to wait for her
husband so he could read the document. When petitioners husband arrived, however, private
respondent Corazon and her companions had left without leaving a copy of the document. It was only
when petitioner hired a lawyer that they were able to secure a copy and read the contents thereof.
Petitioner refuted[3] private respondents claim that they were the legitimate children and sole heirs
of Jose Sebastian and Tomasina Paul. Despite the (de facto) separation of petitioners father Balbino
Leonardo and Tomasina Paul, the latter remained the lawful wife of Balbino. Petitioner maintained that
no joint settlement of the estate of Jose Sebastian and Tomasina Paul could be effected since what
existed between them was co-ownership, not conjugal partnership. They were never married to each
other. The extrajudicial partition was therefore unlawful and illegal.

Petitioner also claimed that her consent was vitiated because she was deceived into signing the
extrajudicial settlement. She further denied having appeared before Judge Juan Austria of the Municipal
Trial Court (MTC) of Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the execution of the
extrajudicial partition.
Private respondents, in their answer with counterclaim,[4] raised the defense of lack of cause of action.
They insisted that the document in question was valid and binding between the parties. According to
them, on July 27, 1988, they personally appeared before Judge Austria of the MTC of Urbiztondo, who
read and explained the contents of the document which all of them, including petitioner, voluntarily
signed.
Private respondents contended that their declaration that they were legitimate children of Jose
Sebastian and Tomasina Paul did not affect the validity of the extrajudicial partition. Petitioners act
of signing the document estopped her to deny or question its validity. They moreover averred that the
action filed by petitioner was incompatible with her complaint. Considering that petitioner claimed
vitiation of consent, the proper action was annulment and not declaration of nullity of the instrument.
On July 27, 1989, petitioner filed an amended complaint[5] to include parties to the extrajudicial
partition who were not named as defendants in the original complaint.
During the August 23, 1990 pre-trial conference,[6] no amicable settlement was reached and the
parties agreed that the only issue to be resolved was whether petitioners consent to the extrajudicial
partition was voluntarily given.
In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan rendered a decision[7]
dismissing the complaint as well as the counterclaim. The court a quo ruled that the element of duress
or fraud that vitiates consent was not established and that the proper action was the reformation of the
instrument, not the declaration of nullity of the extrajudicial settlement of estate. By way of obiter
dictum, the trial court stated that, being a legitimate child, petitioner was entitled to one-half (or
19,282.5 sq.m.) of Tomasina Pauls estate as her legitime. The 7,671.75 square meters allotted to her
in the assailed extrajudicial partition was therefore less than her correct share as provided by law.
On appeal, the Court of Appeals affirmed the judgment of the trial court in its May 23, 1996 decision.[8]
Hence, this petition for review on certiorari under Rule 45.
The sole issue in this case is whether the consent given by petitioner to the extrajudicial settlement of
estate was given voluntarily.
We hold that it was not.
The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by
one of the offer made by the other. It is the concurrence of the minds of the parties on the object and
the cause which constitutes the contract.[9] The area of agreement must extend to all points that the
parties deem material or there is no consent at all.[10]

To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact
notion of the matter to which it refers; (b) it should be free and (c) it should be spontaneous.
Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; and
spontaneity by fraud.[11]
In determining the effect of an alleged error, the courts must consider both the objective and subjective
aspects of the case which is the intellectual capacity of the person who committed the mistake.[12]
Mistake, on the other hand, in order to invalidate consent 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.[13]
According to the late civil law authority, Arturo M. Tolentino, the (old) rule that a party is presumed to
know the import of a document to which he affixes his signature and is bound thereby, has been altered
by Art. 1332 of the Civil Code. The provision states that [w]hen one of the parties is unable to read,
or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former.
Article 1332 was a provision taken from american law, necessitated by the fact that there continues to
be a fair number of people in this country without the benefit of a good education or documents have
been written in English or Spanish.[14] The provision was intended to protect a party to a contract
disadvantaged by illiteracy, ignorance, mental weakness or some other handicap. It contemplates a
situation wherein a contract is entered into but the consent of one of the contracting parties is vitiated
by mistake or fraud committed by the other.[15]
Thus, in case one of the parties to a contract is unable to read and fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former.[16]
Where a party is unable to read, and he expressly pleads in his reply that he signed the voucher in
question without knowing (its) contents which have not been explained to him, this plea is
tantamount to one of mistake or fraud in the execution of the voucher or receipt in question and the
burden is shifted to the other party to show that the former fully understood the contents of the
document; and if he fails to prove this, the presumption of mistake (if not fraud) stands unrebutted and
controlling.[17]
Contracts where consent is given by mistake or because of violence, intimidation, undue influence or
fraud are voidable.[18] These circumstances are defects of the will, the existence of which impairs the
freedom, intelligence, spontaneity and voluntariness of the party in giving consent to the agreement.
In determining whether consent is vitiated by any of the circumstances mentioned in Art. 1330 of the
Civil Code, courts are given a wide latitude in weighing the facts or circumstances in a given case and
in deciding in favor of what they believe actually occurred, considering the age, physical infirmity,
intelligence, relationship and the conduct of the parties at the time of making the contract and
subsequent thereto, irrespective of whether the contract is in a public or private writing.[19]
Although under Art. 1332 there exists a presumption of mistake or error accorded by the law to those
who have not had the benefit of a good education, 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 of evidence.[20] Hence, even as the burden of proof shifts to the defendants to rebut
the presumption of mistake, the plaintiff who alleges such mistake (or fraud) must show that his
personal circumstances warrant the application of Art. 1332.
In this case, the presumption of mistake or error on the part of petitioner was not sufficiently rebutted
by private respondents. Private respondents failed to offer any evidence to prove that the extrajudicial
settlement of estate was explained in a language known to the petitioner, i.e. the Pangasinan dialect.
Clearly, petitioner, who only finished Grade 3, was not in a position to give her free, voluntary and
spontaneous consent without having the document, which was in English, explained to her in the
Pangasinan dialect. She stated in open court that she did not understand English. Her testimony,
translated into English, was as follows:
Q: While you were there is your house at barangay Angatel, Urbiztondo, Pangasinan, what
happened?
A: On June 24, 1988, I was in our house because I got sick, sir.
Q: What happened?
A: When the time was about 5:00 oclock, I was awaken by my daughter-in-law, Rita Ramos, and
told me that my half sister Corazon would like to tell us something, sir.
Q: What did you do?
A: I let them come in, sir.
Q: Did they come in?
A: Yes, sir.
Q: Who was the companion of your half sister Corazon Sebastian when she arrived in your house?
A: Julita Sebastian and her daughter Bitang, sir.
Q: And who is this Julita Sebastian to you?
A: She is my niece, sir.
Q: And then when they got inside the house, what happened?
A: I asked them their purpose, sir.
Q: Did they tell you their purpose?
A: I asked their purpose in coming to our house and they told me, I came here because I have a
partition executed so that the share of each one of us will be given, she said sir.

Q: Did you see that document?

A: Yes, sir.
ATTY. L. TULAGAN
Q: Did you read the document?
A: No, sir because I was waiting for my husband to have that document read or translated to me
because I could not understand, sir.
Q: What could you not understand?
A: I can not understand English, sir.
Q: But anyway, can you read?
A: Yes, sir in Pangasinan.
Q: Now, that document which according to you was brought by your half sister Corazon Sebastian,
what happened to that document?
A: Corazon Sebastian request(ed) me to sign, sir.
Q: Did you sign immediately?
A: Yes, sir, because according to her, all my shares were embodied in that document as a legal
daughter.[21]
Petitioners wish to wait for her husband, Jose T. Ramos, to explain to her the contents of the
document in the Pangasinan dialect was a reasonable and prudent act that showed her uncertainty
over what was written. Due to her limited educational attainment, she could not understand the
document in English. She wanted to seek assistance from her husband who was then out of the house.
However, due to the misrepresentation, deception and undue pressure of her half-sister Corazon
Sebastian, petitioner signed the document. Corazon assured petitioner that she would receive her
legitimate share in the estate of their late mother.
Later on, when petitioners husband examined the extrajudicial partition agreement, he found out that
petitioner was deprived of her full legitime. Under the law, petitioners share should have been onehalf of her mothers estate, comprising a total area of 19,282.50 square meters. Under the defective
extrajudicial settlement of estate, however, petitioner was to receive only 7,671.75 square meters. This
was a substantial mistake clearly prejudicial to the substantive interests of petitioner in her mothers
estate. There is no doubt that, given her lack of education, petitioner is protected by Art. 1332 of the
Civil Code. There is reason to believe that, had the provisions of the extrajudicial agreement been
explained to her in the Pangasinan dialect, she would not have consented to the significant and
unreasonable diminution of her rights.

MTC Judge Austria, the officer who notarized the extrajudicial settlement, stated that he explained the
contents to all the parties concerned. Granting arguendo, however, that Judge Austria did indeed
explain the provisions of the agreement to them, the records do not reflect that he explained it to
petitioner in a language or dialect known to her. Judge Austria never stated in his testimony before
the court a quo what language or dialect he used in explaining the contents of the document to the
parties.[22] Significantly, he was not even certain if the parties to the agreement were present during
the notarization of the document:
ATTY. TULAGAN
Q: Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom belongs
(sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas.
ATTY. D. TULAGAN
(continuing)
The Philippines on July, 1989, will you please educate us now Judge Austria on this
document?
ATTY. O. DE GUZMAN
That will be improper, your Honor.
COURT
What is the question, you repeat the question.
INTERPRETER:
Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom
belongs (sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas, in your just concluded
testimony, you said that everyone of them appeared with you, we have here a documented evidence
coming from the Department of Justice, Bureau of Immigration and Deportation, Manila, certifying that
Piedad Paul Sebastian and Eduardo Sebastian Tenorlas did not arrive in the Philippines or departed from
the Philippines on July, 1998, will you please educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN:
Your Honor please, before the witness answer, may we examine the certification first and
may we state for the record that the month of July, 1998 does not specify any date.
ATTY. L. TULAGAN:
July.
ATTY. O. DE GUZMAN:

 But not a particular date, for the record.

ATTY. L. TULAGAN:
For the whole month of July, no departure and no arrival. This is a certificate from the Bureau of
Immigration, Manila. I do not know about this, as a matter of fact, I do not even know this person
personally
WITNESS:
Somebody that kind of name appeared before me.
ATTY. L. TULAGAN:
Q: Since you do not know everybody from Urbiztondo, Pangasinan it is possible that another person
appeared and signed for that name?
A: Yes, possible.[23]
Therefore, the presumption of mistake under Article 1332 is controlling, having remained unrebutted by
private respondents. The evidence proving that the document was not fully explained to petitioner in a
language known to her, given her low educational attainment, remained uncontradicted by private
respondents. We find that, in the light of the circumstances presented by the testimonies of the
witnesses for both parties, the consent of petitioner was invalidated by a substantial mistake or error,
rendering the agreement voidable. The extrajudicial partition between private respondents and
petitioner should therefore be annulled and set aside on the ground of mistake.
In Rural Bank of Caloocan, Inc. v. Court of Appeals,[24] we ruled that a contract may be annulled on the
ground of vitiated consent, even if the act complained of is committed by a third party without the
connivance or complicity of one of the contracting parties. We found that a substantial mistake arose
from the employment of fraud or misrepresentation. The plaintiff in that case was a 70-year-old
unschooled and unlettered woman who signed an unauthorized loan obtained by a third party on her
behalf. The Court annulled the contract due to a substantial mistake which invalidated her consent.
By the same reasoning, if it is one of the contracting parties who commits the fraud or
misrepresentation, such contract may all the more be annulled due to substantial mistake.
In Remalante v. Tibe,[25] this Court ruled that misrepresentation to an illiterate woman who did not
know how to read and write, nor understand English, is fraudulent. Thus, the deed of sale was
considered vitiated with substantial error and fraud. This Court further held:[26]
Since it has been established by uncontradicted evidence that the plaintiff is practically unschooled and
illiterate, not knowing how to read, write and understand the English language in which Exhibit 22 was
drafted, it would have been incumbent upon the defendant to show that the terms there of have been
fully explained to the plaintiff. The evidence is entirely lacking at this point, and the lack of it is fatal to
the cause of the defendant for his failure to discharge the burden of proof.

Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only
questions of law and not issues of fact.[27] This rule, however, is inapplicable in cases such as the one
at bar where the factual findings complained of are absolutely devoid of support in the records or the
assailed judgment of the appellate court is based on a misapprehension of facts.[28] Thus, this case is
an exception to the general rule on the conclusiveness of facts, the evidence pointing to no other
conclusion but the existence of vitiated consent, given the diminished intellectual capacity of the
petitioner and the misrepresentation of private respondent Corazon Sebastian on the contents of the
extrajudicial partition.
Private respondents also maintain that petitioner has no cause of action since the remedy that should
be pursued is an action for annulment and not for declaration of nullity. Private respondents therefore
pray for the dismissal of this petition on the ground of lack of cause of action.
Before ruling on this procedural matter, a distinction between an action for annulment and one for
declaration of nullity of an agreement is called for.
An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of
one of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud.[29] By its
very nature, annulment contemplates a contract which is voidable, that is, valid until annulled. Such
contract is binding on all the contracting parties until annulled and set aside by a court of law. It may
be ratified. An action for annulment of contract has a four-year prescriptive period.[30]
On the other hand, an action for declaration of nullity of contract presupposes a void contract or one
where all of the requisites prescribed by law for contracts are present but the cause, object or purpose
is contrary to law, morals, good customs, public order or public policy, prohibited by law or declared by
law to be void.[31] Such contract as a rule produces no legal and binding effect even if it is not set
aside by direct legal action. Neither may it be ratified. An action for the declaration of nullity of
contract is imprescriptible.[32]
The petitioners pleading was for the declaration of nullity of the extrajudicial settlement of estate.
However, this did not necessarily mean the automatic dismissal of the case on the ground of lack of
cause of action.
Granting that the action filed by petitioner was incompatible with her allegations, it is not the caption of
the pleading but the allegations that determine the nature of the action.[33] The court should grant the
relief warranted by the allegations and the proof even if no such relief is prayed for.[34] In this case, the
allegations in the pleading and the evidence adduced point to no other remedy but to annul the
extrajudicial settlement of estate because of vitiated consent.
WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED. The
extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian is hereby ANNULLED and SET
ASIDE. No cost.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 145017

January 28, 2005

DR. JOSE and AIDA YASON, petitioners,

vs.
FAUSTINO ARCIAGA, FELIPE NERI ARCIAGA, DOMINGO ARCIAGA, and ROGELIO ARCIAGA,
respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assailing the Amended Decision1 of the Court of Appeals dated September 13, 2000 in CA
G.R. CV No. 55668, entitled "Faustino Arciaga, et. al. vs. Dr. Jose Yason and Aida Yason."
The factual antecedents as borne by the records are:
Spouses Emilio and Claudia Arciaga were owners of Lot No. 303-B situated in Barangay Putatan,
Muntinlupa City, with an area of 5,274 square meters covered by TCT No. 40913 of the Registry of
Deeds of Makati City. On March 28, 1983, they executed a Deed of Conditional Sale whereby they sold
Lot No. 303-B for P265,000.00 to spouses Dr. Jose and Aida Yason, petitioners. They tendered an initial
payment of P150,000.00. On April 19, 1983, upon payment of the balance of P115,000.00, spouses
Emilio and Claudia Arciaga executed a Deed of Absolute Sale. That day, Claudia died. She was survived
by her spouse and their six (6) children, namely: Faustino, Felipe Neri, Domingo, Rogelio, Virginia, and
Juanita.
Petitioners had the Deed of Absolute Sale registered in the Registry of Deeds of Makati City. They
entrusted its registration to one Jesus Medina to whom they delivered the document of sale and the
amount of P15,000.00 as payment for the capital gains tax. Without their knowledge, Medina falsified
the Deed of Absolute Sale and had the document registered in the Registry of Deeds of Makati City. He
made it appear that the sale took place on July 2, 1979, instead of April 19, 1983, and that the price of
the lot was only P25,000.00, instead of P265,000.00. On the basis of the fabricated deed, TCT No.
40913 in the names of spouses Arciaga was cancelled and in lieu thereof, TCT No. 120869 was issued in
the names of petitioners.

Subsequently, petitioners had Lot No. 303-B subdivided into 23 smaller lots. Thus, TCT No. 120869 was
cancelled and in lieu thereof, TCT Nos. 132942 to 132964 were issued. Petitioners then sold several lots
to third persons, except the 13 lots covered by TCT Nos. 132942, 132943, 132945, 132946, 132948,
132950, 132951, 132953, 132954, 132955, 132958, 132962 and 132963, which they retained.
Sometime in April 1989, spouses Arciagas children learned of the falsified document of sale. Four of
them, namely: Faustino, Felipe Neri, Domingo and Rogelio, herein respondents, caused the filing with
the Office of the Provincial Prosecutor of Makati City a complaint for falsification of documents against
petitioners, docketed as I.S No. 89-1966. It was only after receiving the subpoena in April 1989 when
they learned that the Deed of Absolute Sale was falsified. However, after the preliminary investigation,
the Provincial Prosecutor dismissed the complaint for falsification for lack of probable cause.
Undaunted, respondents, on October 12, 1989, filed with the Regional Trial Court (RTC), Branch 62,
Makati City, a complaint for annulment of the 13 land titles, mentioned earlier, against petitioners.
Respondents alleged inter alia that the Deed of Absolute Sale is void ab initio considering that (1)
Claudia Arciaga did not give her consent to the sale as she was then seriously ill, weak, and unable to
talk and (2) Jesus Medina falsified the Deed of Absolute Sale; that without Claudias consent, the
contract is void; and that the 13 land titles are also void because a forged deed conveys no title.
In their answer, petitioners specifically denied the allegations in the complaint and averred that they
validly acquired the property by virtue of the notarized Deed of Conditional Sale and the Deed of
Absolute Sale executed by spouses Emilio and Claudia Arciaga, respondents parents. The Deed of
Absolute Sale was duly signed by the parties in the morning of April 19, 1983 when Claudia was still
alive. It was in the evening of the same day when she died. Hence, the contract of sale is valid.
Furthermore, they have no participation in the falsification of the Deed of Absolute Sale by Medina. In
fact, they exerted efforts to locate him but to no avail.
On August 29, 1995, the trial court rendered a Decision dismissing respondents complaint and
sustaining the validity of the Deed of Conditional Sale and the Deed of Absolute Sale. The dispositive
portion reads:
"WHEREFORE, Premises Considered, the COMPLAINT is hereby ordered DISMISSED, without
pronouncement as to costs.
SO ORDERED."
In their appeal to the Court of Appeals, respondents alleged that the trial court clearly overlooked vital
and significant facts which, if considered, would alter the result. Likewise, the trial court erred in
concluding that the Deed of Absolute Sale forged by Medina transferred ownership to the vendees,
being buyers in good faith; and in finding that Claudia Arciaga consented to the sale of the lots to
petitioner spouses.2
Initially, the Court of Appeals in its Decision dated February 21, 2000 affirmed the trial courts ruling.
But upon respondents motion for reconsideration, the Appellate Court reconsidered its Decision. In its
Amended Decision, it declared the Deed of Absolute Sale void, thus:

"WHEREFORE, Our decision dated February 21, 2000 is hereby SET ASIDE. The Deed of Absolute Sale
dated April 19, 1983 is hereby declared null and void. The Registry of Deeds for Makati City is hereby
ordered to cancel TCT Nos. 132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953,
132954, 132955, 132958, 132962 and 132963 issued in the name of Jose Yason and to reinstate TCT
No. 40913 in the name of Emilio Arciaga.
SO ORDERED."
In reversing its own Decision, the Appellate Court held:
"There is no evidence showing that said July 2, 1979 Deed of Absolute Sale covering the subject
property was ever executed by the parties. The appellees themselves who were supposedly the
vendees did not even know of the existence of such sale. What the appellees were claiming was that
they entrusted to one Jesus Medina the original copies of the purported Deed of Absolute Sale dated
April 19, 1983 and the owners copy of TCT No. 40913 together with the amount of P15,000.00 for
capital gains tax and expenses for registration.
xxx
It turned out that Medina did not use the Deed of Sale dated April 19, 1983 but fabricated a Deed of
Absolute Sale dated July 2, 1979 with a reduced consideration of P25,000.00.
xxx
Being a forged document, the July 2, 1979 Deed of Absolute Sale is indeed null and void.
It appears, however, that a Deed of Conditional Sale dated March 28, 1983 (Exh. 1, Record, p. 289) and
a Deed of Absolute Sale dated April 19, 1983 (Exh. 2, Record, p. 290) were purportedly executed by
Emilio Arciaga and the appellees and that the said property was allegedly sold for P265,000.00.
xxx
The curious part about the controversial deeds is the date of their supposed execution, especially the
date of the Absolute Deed of Sale which coincides with the date of the death of Claudia Arciaga. Also
intriguing is the fact that only a thumbmark and not a signature of Claudia Arciaga was affixed on the
supposed deeds, when in fact she could definitely read and write.
Appellants claimed that their mother Claudia Rivera never gave her consent to the sale. They said that
the thumbmark of their mother Claudia Arciaga was allegedly fixed on the Deed of Conditional Sale, if
indeed it was prepared before the death of their mother on April 19, 1983, when she was already very
ill and bedridden and could not anymore give her consent thereto, and the Deed of Absolute Sale was
thumbmarked when she was already dead.
xxx

As between the testimony of the appellants and their sister Virginia Arciaga-Reyes, We are inclined to
believe the claim of the former that their mother Claudia Rivera Arciaga died at around 10:00 in the
morning.
xxx
The time when Claudia Rivera Arciaga actually died, to Us, is crucial if only to determine the credibility
of witnesses.
As between Virginia Arciaga Reyes and Jacklyn de Mesa, the latter is more credible.l^vvphi1.net She did
not have any interest in the controverted property, unlike the appellants and Virginia Reyes, who are
the children of Claudia Rivera Arciaga. The cardinal rule in the law of evidence is that the testimony
must not only proceed from the mouth of a credible witness but must also be credible in itself (People
vs. Serdan, G.R. 87318, September 2, 1992).
xxx
We certainly cannot believe the testimony of Virginia Arciaga Reyes that her mother Claudia went to
the house of Atty. Fresnedi for the execution of the Deed of Conditional Sale. A person who is physically
fit to travel can definitely write his signature, as only minimal effort is needed to perform this simple
mechanical act. But what appeared in the deed was only a purported thumb mark of Claudia. Even
Virginia Reyes said that her mother could write. Her testimony only supports the claim of the appellants
that Claudia Rivera Arciaga was already very ill and weak when the Deed of Conditional Sale was
purportedly executed, and was already dead when she was made to affix her thumb mark on the Deed
of Absolute Sale.
xxx
In sum, the inconsistent testimonies of the appellee and his witnesses, particularly that of Virginia
Arciaga Reyes, clearly show that Claudia Rivera Arciaga did not voluntarily affix her thumb mark on the
Deed of Conditional Sale and Deed of Absolute Sale."
Hence, this petition for review on certiorari alleging that the Court of Appeals erred in declaring the
Deed of Absolute Sale void for lack of consent on the part of Claudia Arciaga and because the same
document was forged by Medina.
The petition is impressed with merit.
The rule is that only questions of law may be raised in a petition for review on certiorari; and that the
factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are final and
conclusive on this Court.3 However, there are exceptions, such as when the findings of the Court of
Appeals are contrary to those of the trial court,4 as in this case.
In determining whether the Deed of Absolute Sale dated April 19, 1983 is valid, 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. 5 A contract of

sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of
the contract and upon the price.6 Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.7 To enter into a
valid legal agreement, the parties must have the capacity to do so.
The law presumes that every person is fully competent to enter into a contract until satisfactory proof
to the contrary is presented. The burden of proof is on the individual asserting a lack of capacity to
contract, and this burden has been characterized as requiring for its satisfaction clear and convincing
evidence.
The Appellate Court, in its Amended Decision, held that the Deed of Absolute Sale is void for lack of
consent on the part of Claudia Arciaga who could not have affixed her thumbmark thereon since she
was very ill then. In fact, she died a few hours thereafter.
Thus, the basic issue for our resolution is whether Claudia Arciaga voluntarily affixed her thumbmark on
the documents of sale.
Respondents contend that Claudia did not give her consent to the contracts of sale. Since she knew
how to read and write, she should have signed each document instead of merely affixing her
thumbmark thereon.
Domingo Arciaga, one of the respondents, testified that her mother Claudia was 82 years old when she
died on April 19, 1983 due to "old age" and illness for four (4) months. On March 28, 1983, when the
Conditional Deed of Sale was allegedly executed, she was already very weak and thin and could no
longer speak. Considering her physical condition, she could not have affixed her thumbmark on the
Conditional Deed of Sale that day.8
Domingo further testified that their mother Claudia, at the time of her death, was being attended to by
his sisters Juanita and Virginia Arciaga; that he saw Virginia holding the thumb of their mother to enable
her to affix her thumbmark on the Deed of Absolute Sale, then being held by Juanita, thus:
"Q: Now, you have examined the document entitled Deed of Sale dated April 19, 1983, when for
the first time did you see this document?
A: When my mother died.
Q: When?
A: April 19, 1983.
Q: At what particular occasion or will you please tell the Honorable Court the circumstances how
you were able to see this document on April 19, 1983?
A: This is like this. While my mother was being attended, I went over to the porch and I saw Mr.
Rogelio Arciaga. We talked with each other. After that I went inside the house wherein I saw

Juliana Arciaga holding that document, the Deed of Sale, and Virginia Arciaga was holding the
thumb of mother affixing said thumb to the document.
Q: Who is Virginia Arciaga?
A: My sister.
Q: How about Juanita Arciaga?
A: My sister also.
Q: How about Rogelio Arciaga?
A: I have also a brother named Rogelio Arciaga but the one I mentioned has the same name as
my brother.
Q: After that what happened?
A: I asked, what is that? And they told me that one parcel of land was sold already by us and
they said that this is the Deed of Absolute Sale as proof that we have sold that parcel of land. I
asked them: Why did you do that? It cannot be! Our mother is a good mother, why still permit
her to commit a sin.
Q: After that what happened next?
A: They told me that they are not going to pursue with it and I told them it cannot be really
done."9
Domingos testimony was corroborated by his brother Felipe Arciaga who testified that their mother
was already dead when her thumbmark was affixed on the document of sale, thus:
"Q: Did you hear any conversation between Domingo and your sisters holding the document?
A: Yes, sir.
Q: What was the conversation that you heard?
A: My brother said that it should not be thumbmarked since my mother is already dead. My
sisters Virginia and Juanita replied that the thumb marking will no longer proceed." 10
Upon the other hand, petitioners maintain that Claudia voluntarily affixed her thumbmark on the
Deeds of Conditional and Absolute Sale which were notarized by Atty. Jaime Fresnedi. and
Absolute Sale which were notarized by Atty. Jaime Fresnedi. Virginia Arciaga Andres, daughter of
Claudia, testified that she took care of her mother. Five (5) months prior to the execution of the
Conditional Deed of Sale on March 28, 1983, her parents informed her and her siblings that they
would sell their land. After the sale, her brother Felipe Neri borrowed P50,000.00 from their
father. Her father signed the two documents of sale, while her mother affixed her thumbmark

thereon. Then Atty. Jaime Fresnedi notarized the Conditional Deed of Sale in his office, while the
Deed of Absolute Sale was notarized in her house. Her brothers (respondents herein) were all
notified of the sale.111awphi1.nt
Atty. Jaime Fresnedi testified that he notarized the subject documents and knew that Claudia
affixed her thumbmark thereon, thus:
"Q: What is the importance of the signatures in these two (2) documents?
A: That the parties who executed these documents appeared before me, your Honor.
xxx
Q: And when did you notarize the said document, this Deed of Absolute Sale dated April 19,
1983?
A: It was notarized in the same date.
Q: Where was it notarized?
A: It was also notarized in my office.
A: Yes, sir.12
xxx
Q: Do you know personally Claudia Arciaga, the wife of Emilio Arciaga?
A: No, I do not know her personally.
xxx
Q: Prior to the execution of this document, Absolute Deed of Sale dated April 19, 1983, have you
not met Claudia Rivera?
A: I cannot remember.
xxx
Q: When you notarized this document on April 19, 1983, did you talk to Claudia Rivera?
A: I cannot remember.13
xxx
COURT:

Q: Did you ascertain whether the person who affixed that thumbmark was really CLAUDIA
ARCIAGA?
A: Yes, your Honor.
Q: What means did you take to ascertain that the one who affixed that thumbmark was CLAUDIA
ARCIAGA?
A: Because, your Honor, when there is a party, not necessarily your Honor in this case,
whenever a party would request me to prepare a document and notarize such document, I
asked his name and he answered. Let us say for example, this Mr. dela Cruz, he says he is Mr.
dela Cruz or Mrs. Arciaga. That thru that introduction I knew that they were the ones who affixed
their signatures or affix their thumbmarks.
Q: In this particular case, did you do that?
A: Yes, your Honor."14
The Court of Appeals, reversing the trial court, held that respondents were able to prove that Claudia
Arciaga could not have affixed her thumbmark voluntarily on the Conditional Deed of Sale as "she was
already very ill and bedridden and could not anymore give her consent thereto;" and that "the Absolute
Deed of Sale was thumbmarked when she was already dead."
While it is true that Claudia was sick and bedridden, respondents failed to prove that she could no
longer understand the terms of the contract and that she did not affix her thumbmark thereon.
Unfortunately, they did not present the doctor or the nurse who attended to her to confirm that indeed
she was mentally and physically incapable of entering into a contract. Mere weakness of mind alone,
without imposition of fraud, is not a ground for vacating a contract. 15 Only if there is unfairness in the
transaction, such as gross inadequacy of consideration, the low degree of intellectual capacity of the
party, may be taken into consideration for the purpose of showing such fraud as will afford a ground for
annulling a contract.16 Hence, a person is not incapacitated to enter into a contract merely because of
advanced years or by reason of physical infirmities, unless such age and infirmities impair his mental
faculties to the extent that he is unable to properly, intelligently and fairly understand the provisions of
said contract. Respondents failed to show that Claudia was deprived of reason or that her condition
hindered her from freely exercising her own will at the time of the execution of the Deed of Conditional
Sale.
Also, it is of no moment that Claudia merely affixed her thumbmark on the document. The signature
may be made by a persons cross or mark even though he is able to read and write and is valid if the
deed is in all other respects a valid one.17
Significantly, there is no evidence showing that Claudia was forced or coerced in affixing her
thumbmark on the Deed of Conditional Sale.

Respondents insist that their mother died in the morning of April 19, 1983, hence, she could no longer
affix her thumbmark on the Deed of Absolute Sale. Petitioners, however, maintain that she died in the
evening of that day and that she affixed her thumbmark on the deed in the morning of that same day.
Respondents should have offered in evidence the Certificate of Death of Claudia to show the exact date
and time of her death. Again, they should have presented the attending physician to testify whether or
not Claudia could still affix her thumbmark then.
As earlier mentioned, the burden is on the respondents to prove the lack of capacity on the part of
Claudia to enter into a contract. And in proving this, they must offer clear and convincing evidence. This
they failed to do.
The Court of Appeals also held that there is inconsistency in the testimonies of Virginia Arciaga and
Atty. Jaime Fresnedi. While Virginia testified that the Deed of Absolute Sale was notarized in her house
where Claudia lived, Atty. Fresnedi declared on the witness stand that he notarized the document in his
office. The Appellate Court concluded that such inconsistency clearly shows that Claudia did not
voluntarily affix her thumbmark on the document of absolute sale.
Records disclose, however, that when Atty. Fresnedi testified in court, nine (9) years had passed from
the time he notarized the Deed of Absolute Sale. Considering the length of time that passed and the
numerous documents he must have notarized, his failure to remember exactly where he notarized the
contract of sale is understandable. Thus, we cannot sustain the finding and conclusion of the Court of
Appeals on this point.l^vvphi1.net
In Chilianchin vs. Coquinco,18 this Court held that a notarial document must be sustained in full force
and effect so long as he who impugns it does not present strong, complete, and conclusive proof of its
falsity or nullity on account of some flaws or defects provided by law. Here, respondents failed to
present such proof.
It bears emphasis that a notarized Deed of Absolute Sale has in its favor the presumption of regularity,
and it carries the evidentiary weight conferred upon it with respect to its execution. 19
All told, we are convinced and so hold that there was consent on the part of Claudia Arciaga when she
executed the Conditional Deed of Sale and the Deed of Absolute Sale being assailed by respondents.
These documents, therefore, are valid.
WHEREFORE, the challenged Decision of the Court of Appeals in CA-G.R. CV No. 55668 is REVERSED.
The Decision of the RTC, Branch 62, Makati City dismissing respondents complaint is AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 155810

August 13, 2004

LYDIA SUMIPAT, LAURITO SUMIPAT, ALEJANDRO SUMIPAT, ALICIA SUMIPAT, and LIRAFE
SUMIPAT, petitioners,
vs.
BRIGIDO BANGA, HERMINIGILDO TABOTABO, VIVIANO TABOTABO, BERNARDITA ANION, and
LEONIDA TABOTABO, respondents.

DECISION

TINGA, J.:
This is a Petition for Review on Certiorari1 of the Decision2 of the Court of Appeals which reversed and
set aside the decision3 of the Regional Trial Court (RTC) and partially annulled the Deed of Absolute
Transfer and/or Quitclaim (the deed) subject of this case.
We quote the appellate courts findings of fact:
The spouses Placida Tabo-tabo and Lauro Sumipat, who contracted marriage on July 20, 1939,
acquired three parcels of land two of which were covered by Original Certificate of Title No. P17842 and Transfer Certificate of Title No. T-15826.
The couple was childless.
Lauro Sumipat, however, sired five illegitimate children out of an extra-marital affair with Pedra
Dacola, namely: herein defendants-appellees Lydia, Laurito, Alicia, Alejandro and Lirafe, all
surnamed Sumipat.
On January 5, 1983, Lauro Sumipat executed a document denominated "DEED OF ABSOLUTE
TRANSFER AND/OR QUIT-CLAIM OVER REAL PROPERTIES" (the assailed document) in favor of
defendants-appellees covering the three parcels of land (the properties). On the document
appears the signature of his wife Placida which indicates that she gave her marital consent
thereto.
It appears that on January 5, 1983 when the assailed document was executed, Lauro Sumipat
was already very sick and bedridden; that upon defendant-appellee Lydias request, their
neighbor Benjamin Rivera lifted the body of Lauro Sumipat whereupon Lydia guided his (Lauro
Sumipats) hand in affixing his signature on the assailed document which she had brought; that
Lydia thereafter left but later returned on the same day and requested Lauros unlettered wife
Placida to sign on the assailed document, as she did in haste, even without the latter getting a
responsive answer to her query on what it was all about.
After Lauro Sumipats death on January 30, 1984, his wife Placida, hereinafter referred to as
plaintiff-appellant, and defendants-appellees jointly administered the properties 50% of the
produce of which went to plaintiff-appellant.
As plaintiff-appellants share in the produce of the properties dwindled until she no longer
received any and learning that the titles to the properties in question were already
transferred/made in favor of the defendants-appellees, she filed a complaint for declaration of
nullity of titles, contracts, partition, recovery of ownership now the subject of the present
appeal.
Defendant-appellee Lydia disclaims participation in the execution of the assailed document, she
claiming to have acquired knowledge of its existence only on January 10, 1983 or five days after
its execution when Lauro Sumipat gave the same to her.

Branch 6 of the Regional Trial Court of Dipolog City decided the case in favor of defendantsappellees, it holding that by virtue of the assailed document the due execution of which was not
contested by plaintiff-appellant, the properties were absolutely transferred to defendantsappellees.4
The trial court found that the subject properties are conjugal having been acquired during the marriage
of Lauro Sumipat and Placida Tabotabo (Placida). However, because Placida failed to question the
genuineness and due execution of the deed and even admitted having affixed her signature thereon,
the trial court declared that the entirety of the subject properties, and not just Lauro Sumipats conjugal
share, were validly transferred to the defendants, the petitioners herein. 5
On appeal,6 the appellate court held that since Placida was unlettered, 7 the appellees, the petitioners
herein, as the parties interested in enforcing the deed, have the burden of proving that the terms
thereof were fully explained to her.8 This they failed to do.
Under the Civil Code, a contract where consent is given through mistake, violence, intimidation, undue
influence or fraud is voidable.9 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.10
The appellate court found that Placida did not understand the full import of the deed because the terms
thereof were not explained to her either by the petitioners or by the notary public before whom the
deed was acknowledged. According to the appellate court, Judge Pacifico Garcia (Judge Garcia), before
whom the deed was acknowledged, did not identify Placida as having appeared before him on January
5, 1983 to acknowledge the deed. The jurat indicates that it was only Lauro Sumipat who appeared
before Judge Garcia and to whom he explained the contents of the deed. Further, the appellate court
noted that Judge Garcia himself was under the impression that the deed conveyed the exclusive
properties of Lauro Sumipat. Hence, he could not have explained to Placida that the deed actually
transferred the conjugal properties of Lauro Sumipat and Placida.11
The Court of Appeals, therefore, annulled the deed insofar as it covers Placidas conjugal share in the
subject properties because the latters consent thereto was vitiated by mistake when she affixed her
signature on the document.
The petitioners filed a Motion for Reconsideration on the grounds of estoppel, absence of fraud and
prescription. The appellate court denied the Motion for Reconsideration in its Resolution12 dated
October 16, 2002 ruling that the grounds relied upon have been addressed in its Decision dated April
11, 2002. Anent the ground of prescription, the appellate court held that since the properties were
acquired through fraud or mistake, the petitioners are considered trustees of an implied trust for the
benefit of Placida. Citing jurisprudence,13 the Court of Appeals ruled that actions based on implied or
constructive trust prescribe 10 years from the issuance of a Torrens Title over the property. Since two
(2) of the subject properties were issued Transfer Certificates of Title (TCT) Numbered T-40037 14 and T4003815 under the petitioners names on August 18, 1987, the Complaint for declaration of nullity of
titles, partition, recovery of ownership and possession, reconveyance, accounting and damages, which
was filed on March 3, 1993, was filed well within the prescriptive period.
The petitioners are now before this Court principally claiming that Placida freely consented to the
execution of the deed and that they did not commit fraudulent acts in connection with its execution.
They also reiterate their argument that the Court of Appeals should have dismissed the case on the
ground of prescription. It is their contention that the present action being one to annul a contract on the
ground of fraud, it should have been filed within four (4) years from the discovery of fraud or
registration of the instrument with the Registry of Deeds.
The respondents filed their Comment16 dated February 7, 2003, essentially echoing the findings of the
Court of Appeals on the matter of Placidas consent. According to them, Placida was deceived and
misled into affixing her signature on the deed. They further claim that Placida did not actually appear
before the notary public to acknowledge the instrument.
In their Reply17 dated April 29, 2003, the petitioners insist that Placida was not illiterate and that Lauro
Sumipat validly transferred the titles over the properties in question to them. They also argue that if
Placida did not understand the import of the deed, she could have questioned Lauro Sumipat about it
since the deed was executed a year before the latter died.

The trial court and the Court of Appeals are in agreement that the subject properties are conjugal,
having been acquired during the marriage of Lauro Sumipat and Placida. They came out, however, with
disparate denouements. While the trial court upheld the validity of the deed as an instrument of
transfer of all the litigated parcels of land in their entirety on the ground that Placida failed to question
its authenticity and due execution, the appellate court struck the deed down insofar as the conjugal
share of Placida is concerned based on its finding that her consent was vitiated by mistake.
At bottom, the crux of the controversy is whether the questioned deed by its terms or under the
surrounding circumstances has validly transferred title to the disputed properties to the petitioners.
A perusal of the deed reveals that it is actually a gratuitous disposition of property a donation
although Lauro Sumipat imposed upon the petitioners the condition that he and his wife, Placida, shall
be entitled to one-half (1/2) of all the fruits or produce of the parcels of land for their subsistence and
support. The preliminary clauses of the deed read:
That conscious of my advanced age and failing health, I feel that I am not capable anymore of
attending to and maintaining and keeping in continuous cultivation my above described
properties;
That my children are all desirous of taking over the task of maintaining my properties and have
demonstrated since childhood the needed industry and hard work as they have in fact
established possession over my real properties and introduced more improvements over my
lands, the fruit of which through their concerted efforts and labors, I myself and my family have
enjoyed;
That it would be to the best interest of my above mentioned children that the ownership over
my above described properties be transferred in their names, thereby encouraging them more in
developing the lands to its fullest productivity.18
The deed covers three (3) parcels of land. 19 Being a donation of immovable property, the requirements
for validity set forth in Article 749 of the Civil Code should have been followed, viz:
Art. 749. In order that the donation of the immovable may be valid, it must be made in a public
document, specifying therein the property donated and the value of the charges which the
donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document,
but it shall not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an
authentic form, and this step shall be noted in both instruments.
Title to immovable property does not pass from the donor to the donee by virtue of a deed of donation
until and unless it has been accepted in a public instrument and the donor duly notified thereof. The
acceptance may be made in the very same instrument of donation. If the acceptance does not appear
in the same document, it must be made in another. Where the deed of donation fails to show the
acceptance, or where the formal notice of the acceptance, made in a separate instrument, is either not
given to the donor or else not noted in the deed of donation and in the separate acceptance, the
donation is null and void.20
In this case, the donees acceptance of the donation is not manifested either in the deed itself or in a
separate document. Hence, the deed as an instrument of donation is patently void.
We also note the absence of any proof of filing of the necessary return, payment of donors taxes on the
transfer, or exemption from payment thereof. Under the National Internal Revenue Code of 1977, the
tax code in force at the time of the execution of the deed, an individual who makes any transfer by gift
shall make a return and file the same within 30 days after the date the gift is made with the Revenue
District Officer, Collection Agent or duly authorized Treasurer of the municipality in which the donor was
domiciled at the time of the transfer. 21 The filing of the return and payment of donors taxes are
mandatory. In fact, the registrar of deeds is mandated not to register in the registry of property any
document transferring real property by way of gifts inter vivos unless a certification that the taxes fixed
and actually due on the transfer had been paid or that the transaction is tax exempt from the
Commissioner of Internal Revenue, in either case, is presented. 22

Neither can we give effect to the deed as a sale, barter or any other onerous conveyance, in the
absence of valid cause or consideration and consent competently and validly given. 23 While it is true
that the appellate court found Placidas consent to have been vitiated by mistake, her testimony on the
matter actually makes out a case of total absence of consent, not merely vitiation thereof. She testified
in this regard, thus:
Q- What have you been doing on that day on January 5, 1983?
A- I was at home boiling water.
Q- While you were boiling water in the house, at that time who arrived, if there was any?
A- Lydia Sumipat arrived.
Court:-(To the witness)
Q- Who is this Lydia Sumipat?
A- The daughter of my husband with his paramour.
Q- How old was she?
A- I did not know if she was already 30 years old at that time because he was born in 1950.
Atty. Legorio:-(To the witness)
Q- When you said Lydia Sumipat, you are referring to one of the defendants in this case?
A- Yes, sir. She is the one.
Q- This Lydia Sumipat you are referring to as one of the principal defendant and daughter of
your husband with his paramour, in January, 1983 what was her educational attainment, if you
know?
A- She has already finished schooling.
Q- Do you know what she obtained?
A- Teacher.
Q- You said she arrived in the afternoon of January 5, 1983 in your house while you were boiling
water. What did she do when she arrived there?
A- She brought with her a paper.
Q- What did she say to you?
A- She told me to sign that paper immediately because there is the witness waiting and so I
asked from her what was that paper I am going to sign. I asked her because I am unlettered but
she said never mind just sign this immediately.
Q- By the way, what is your highest educational attainment?
A- I have never gone to school.
Q- Do you know how to read or to write?
A- I know how to write only my name.
Q- You know how to write your name only?

A- Yes, sir.
Q- You said she told you to sign that piece of paper and you asked her what was that and she
told you "you just sign that", what did you do then?
A- She was in a hurry to let me sign that document so I signed it without knowing what was that.
Q- Did she tell you that piece of paper was a document wherein the land including your land in
Siayan were to be given to them?
A- I did not give my land.24
During cross-examination, Placida again denied any knowledge of the nature of the deed:
q You are aware that the titles over these lots had already been transferred in the name of the
defendants?
a They surreptitiously transferred the title in their names, I do not know about it.
q You mean to say you signed a document transferring them in their names?
a There was a piece of paper brought to me to be signed by Lydia; I asked whats all about but
she did not tell me; I was forced to sign considering that according to her somebody was waiting
for it.
q What do you mean that you are force to sign?
a She told me to sign that paper immediately because there is a witness waiting that paper but
she was alone when she came to me.
q So you signed that paper?
a I signed it because she was in a hurry.
q That was done during the lifetime of your husband?
a Yes, sir.
q And your husband also signed that paper?
a I do not know because I have not seen my husband signed, Lydia only came to me to let me
sign that paper.
q Is it not a fact that you and your husband were brought before the office of Judge Pacifico
Garcia of Manukan, and in the office you signed that document?
a I have not gone to the Municipal building of Manukan and I do not know Judge Garcia.
q But what you know now that the titles are transferred in the name of the defendants?
a It was Lydia who caused the transfer of the titles in their names.
q And you know that fact when you signed that paper?
a At the time I signed the paper, I do not know yet that the title would be transferred, it was only
at the time when I requested my niece to follow it up because according to them I am no longer
entitled to the land.25
In Baranda v. Baranda,26 this Court declared that the deeds of sale questioned therein are not merely
voidable (as intimated by the plaintiffs themselves in their complaint for annulment of the deeds and
reconveyance of the lots) but null and void ab initio as the supposed seller declared under oath that

she signed the deeds without knowing what they were. The significant circumstance meant, the Court
added, that her consent was not merely marred by vices of consent so as to make the contracts
voidable, but that she had not given her consent at all.
Parenthetically, as Placidas Complaint is entitled Declaration of Nullity of Titles; Contracts; Partition,
Recovery of Ownership and Possession; Reconveyance; Accounting and Damages with Prayer for
Preliminary Injunction and Receivership, the validity of the deed was directly assailed, but its absolute
nullity was not specifically raised as an issue. Nevertheless, both the RTC and the appellate court took
the cue from Placidas theory that the deed is merely voidable as regards her conjugal share of the
properties. However, since the real issue is whether the questioned deed has validly transferred
ownership of the litigated properties, it is appropriate for the Court to inquire into the form of the deed
and the existence of valid consent thereto to ascertain the validity or nullity of the deed.
From the substantive and procedural standpoints, the objectives to write finis to a protracted litigation
and avoid multiplicity of suits are worth pursuing at all times. Conformably, we have ruled in a number
of cases that an appellate court is accorded broad discretionary power to consider even errors not
assigned. We have applied this tenet, albeit as a matter of exception, in the following instances: (1)
grounds not assigned as errors but affecting jurisdiction over the subject matter; (2) matters not
assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (3)
matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing
piecemeal justice; (4) matters not specifically assigned as errors on appeal but raised in the trial court
and are matters of record having some bearing on the issue submitted which the parties failed to raise
or which the lower court ignored; (5) matters not assigned as errors on appeal but closely related to an
error assigned; and (6) matters not assigned as errors on appeal but upon which the determination of a
question properly assigned is dependent.27
In the instant case, the validity of the deed was directly assailed although both parties are of the view
that it is not an absolute nullity. The correct characterization of the deed is, therefore, determinative of
the present controversy. Elsewise framed, the issue of validity or nullity is interwoven with the positions
adopted by the parties and the rulings made by the courts below. Hence, we shall be resolute in striking
down the deed especially as it appears on its face to be a patent nullity.
Having said this, we shall now proceed to the issue of prescription. Being an absolute nullity, both as a
donation and as a sale, the deed is subject to attack at any time, in accordance with the rule in Article
1410 of the Civil Code that an action to declare the inexistence of a void contract does not prescribe.
We are thus unimpressed by the petitioners contention that the appellate court should have dismissed
Placidas appeal on the ground of prescription. Passage of time cannot cure the fatal flaw in an
inexistent and void contract.28 The defect of inexistence of a contract is permanent and incurable;
hence, it cannot be cured either by ratification or by prescription. 29
Turning now to the effects of the absolute nullity of the deed, it is well-settled that when there is a
showing of illegality, the property registered is deemed to be simply held in trust for the real owner by
the person in whose name it is registered, and the former then has the right to sue for the
reconveyance of the property. The action for the purpose is also imprescriptible. As long as the land
wrongfully registered under the Torrens system is still in the name of the person who caused such
registration, an action in personam will lie to compel him to reconvey the property to the real owner. 30
One final note. After this Decision shall have become final and executory, the parties may either
extrajudicially divide the estates of Lauro Sumipat and Placida Tabotabo pursuant to Rule 74 of the
Rules of Court or judicially settle the estates pursuant to Rules 78, et seq., in accordance with this
Decision and the law.
WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Regional Trial
Court dated September 29, 1997 and the Decision of the Court of Appeals dated April 11, 2002, as well
as its Resolution dated October 16, 2002, are VACATED. In lieu thereof, judgment is hereby rendered in
favor of the respondents, to wit: (i) DECLARING the Deed of Absolute Transfer and/or Quitclaim dated
January 5, 1983 NULL AND VOID; and (ii) ORDERING the CANCELLATION of Transfer Certificates of Title
Numbered T-40037 and T-40038 (Zamboanga del Norte) and the tax declaration covering the
unregistered parcel of land, all issued in the names of the petitioners Lydia, Laurito, Alicia, Alejandro
and Lirafe, all surnamed Sumipat, and the REINSTATEMENT of Original Certificate of Title No. P-17842
(Zamboanga del Norte) Transfer Certificate Title No. T-15826 (Zamboanga del Norte) and the tax

declaration covering the unregistered parcel of land, all in the name of "Lauro Sumipat . . . married to
Placida Tabotabo."
Costs against the petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 152168

December 10, 2004

HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE; Namely, ANTONIO T.
BALITE, FLOR T. BALITE-ZAMAR, VISITACION T. BALITE-DIFUNTORUM, PEDRO T. BALITE,
PABLO T. BALITE, GASPAR T. BALITE, CRISTETA T. BALITE and AURELIO T. BALITE JR., All
Represented by GASPAR T. BALITE, petitioners,
vs.
RODRIGO N. LIM, respondent.

DECISION

PANGANIBAN, J.:
A deed of sale that allegedly states a price lower than the true consideration is nonetheless binding
between the parties and their successors in interest. Furthermore, a deed of sale in which the parties
clearly intended to transfer ownership of the property cannot be presumed to be an equitable mortgage
under Article 1602 of the Civil Code. Finally, an agreement that purports to sell in metes and bounds a
specific portion of an unpartitioned co-owned property is not void; it shall effectively transfer the
sellers ideal share in the co-ownership.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 11, 2002
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 65395. The decretal portion of the Decision
reads as follows:

"IN THE LIGHT OF ALL THE FOREGOING, the Decision of the Court a quo subject of the
appeal is hereby SET ASIDE AND REVERSED and another Decision is hereby rendered as
follows:
1. The "Deed of Absolute Sale" (Exhibit "A") is valid only insofar as the pro indiviso share of
Esperanza Balite over the property covered by Original Certificate of Title No. 10824 is
concerned;
2. The Register of Deeds is hereby ordered to cancel Transfer Certificate of Title No. 6683 and to
issue another over the entirety of the property covered by Original Certificate of Title No. 10824,
upon the payment of the capital gains tax due, as provided for by law, (based on the purchase
price of the property in the amount of P1,000,000.00), with the following as co-owners, over the
property described therein:
a) Each of the [petitioners] over an undivided portion of 975 square meters;
b) The [respondent], with an undivided portion of 9,751 square meters.
3. The [respondent] is hereby ordered to pay to the [petitioners] the amount of P120,000.00,
within a period of five (5) months from the finality of the Decision of this Court;
4. In the event that the [respondent] refuses or fails to remit the said amount to the [petitioner]
within the period therefor, the rights and obligations of the parties shall be governed by Republic
6552 (Maceda Law)."3
The Facts
The CA summarized the facts in this manner:
"The spouses Aurelio x x x and Esperanza Balite were the owners of a parcel of land, located [at]
Poblacion (Barangay Molave), Catarman, Northern Samar, with an area of seventeen thousand
five hundred fifty-one (17,551) square meters, [and] covered by Original Certificate of Title
[OCT] No. 10824. When Aurelio died intestate [in 1985, his wife], Esperanza Balite, and their
children, x x x [petitioners] Antonio Balite, Flor Balite-Zamar, Visitacion Balite-Difuntorum, Pedro
Balite, Pablo Balite, Gaspar Balite, Cristeta (Tita) Balite and Aurelio Balite, Jr., inherited the
[subject] property and became co-owners thereof, with Esperanza x x x inheriting an undivided
[share] of [9,751] square meters.
"In the meantime, Esperanza x x x [became] ill and was in dire need of money for her hospital
expenses x x x. She, through her daughter, Cristeta, offered to sell to Rodrigo Lim, [her]
undivided share x x x for the price of P1,000,000.00. x x x Esperanza x x x and Rodrigo x x x
agreed that, under the "Deed of Absolute Sale", to be executed by Esperanza x x x over the
property, it will be made to appear that the purchase price of the property would be
P150,000.00, although the actual price agreed upon by them for the property was
P1,000,000.00.
"On April 16, 1996, Esperanza x x x executed a "Deed of Absolute Sale" in favor of Rodrigo N.
Lim over a portion of the property, covered by [OCT] No. 10824, with an area of 10,000 square
meters, for the price of P150,000.00 x x x.
[They] also executed, on the same day, a "Joint Affidavit" under which they declared that the
real price of the property was P1,000,000.00, payable to Esperanza x x x, by installments, as
follows:
1. P30,000.00 upon signing today of the document of sale.
2. P170,000.00 payable upon completion of the actual relocation survey of the land sold
by a Geodetic Engineer.
3. P200,000.00 payable on or before May 15, 1996.
4. P200,000.00 payable on or before July 15, 1996.

5. P200,000.00 payable on or before September 15, 1996.

6. P200,000.00 payable on or before December 15, 1996.
"Only Esperanza and two of her children, namely, Antonio x x x and Cristeta x x x, knew about
the said transaction. x x x Geodetic Engineer Bonifacio G. Tasic conducted a subdivision survey
of the property and prepared a "Sketch Plan" showing a portion of the property, identified as Lot
243 with an area of 10,000 square meters, under the name Rodrigo N. Lim.
"The "Sketch Plan" was signed by Rodrigo x x x and Esperanza. Thereafter, Rodrigo x x x took
actual possession of the property and introduced improvements thereon. He remitted to
Esperanza x x x and Cristeta x x x sums of money in partial payments of the x x x property for
which he signed "Receipts".
"Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. x x x learned of the sale, and on August 21, 1996,
they wrote a letter to the Register of Deeds [RD] of Northern Samar, [saying] that they [were]
not x x x informed of the sale of a portion of the said property by their mother x x x nor did they
give their consent thereto, and requested the [RD] to:
"x x x hold in abeyance any processal or approval of any application for registration of
title of ownership in the name of the buyer of said lot, which has not yet been partitioned
judicially or extrajudicially, until the issue of the legality/validity of the above sale has
been cleared."
"On August 24, 1996, Antonio x x x received from Rodrigo x x x, the amount of P30,000.00 in
partial payment of [the] property and signed a "Receipt" for the said amount, declaring therein
that "the remaining balance of P350,000.00 shall personally and directly be released to my
mother, Esperanza Balite, only." However, Rodrigo x x x drew and issued RCBC Check No.
309171, dated August 26, 1996, [payable] to the order of Antonio Balite in the amount of
P30,000.00 in partial payment of the property.
"On October 1, 1996, Esperanza x x x executed a "Special Power of Attorney" appointing her
son, Antonio, to collect and receive, from Rodrigo, the balance of the purchase price of the x x x
property and to sign the appropriate documents therefor.
"On October 23, 1996, Esperanza signed a letter addressed to Rodrigo informing the latter that
her children did not agree to the sale of the property to him and that she was withdrawing all
her commitments until the validity of the sale is finally resolved:
xxx

xxx

xxx

"On October 31, 1996, Esperanza died intestate and was survived by her aforenamed children.
"[Meanwhile], Rodrigo caused to be published, in the Samar Reporter, on November 14, 21 and
28, 1996, the aforesaid "Deed of Absolute Sale". Earlier, on November 21, 1996, Antonio
received the amount of P10,000.00 from Rodrigo for the payment of the estate tax due from the
estate of Esperanza.
"Also, the capital gains tax, in the amount of P14,506.25, based on the purchase price of
P150,000.00 appearing on the "Deed of Absolute Sale", was paid to the Bureau of Internal
Revenue which issued a "Certification" of said payments, on March 5, 1997, authorizing the
registration of the "Deed of Absolute Sale" x x x. However, the [RD] refused to issue a title over
the property to and under the name of Rodrigo unless and until the owners duplicate of OCT No.
10824 was presented to [it]. Rodrigo filed a "Petition for Mandamus" against the RD with the
Regional Trial Court of Northern Samar (Rodrigo Lim versus Fernando Abella, Special Civil
Case No. 48). x x x. On June 13, 1997, the court issued an Order to the RD to cancel OCT No.
10824 and to issue a certificate of title over Lot 243 under the name of Rodrigo.
"On June 27, 1997, [petitioners] filed a complaint against Rodrigo with the Regional Trial Court of
Northern Samar, entitled and docketed as "Heirs of the Spouses Aurelio Balite, et al.
versus Rodrigo Lim, Civil Case No. 920, for "Annulment of Sale, Quieting of Title,
Injunction and Damages x x x, [the origin of the instant case.]

xxx

xxx

xxx

"The [petitioners] had a "Notice of Lis Pendens", dated June 23, 1997, annotated, on June 27,
1997, at the dorsal portion of OCT No. 10824.
"In the meantime, the RD cancelled, on July 10, 1997, OCT No. 10824 and issued Transfer
Certificate of Title [TCT] No. 6683 to and under the name of Rodrigo over Lot 243. The "Notice of
Lis Pendens" x x x was carried over in TCT No. 6683.
"Subsequently, Rodrigo secured a loan from the Rizal Commercial Banking Corporation in the
amount of P2,000,000.00 and executed a "Real Estate Mortgage" over the [subject] property as
security therefor.
"On motion of the [petitioners], they were granted x x x leave to file an "Amended Complaint"
impleading the bank as [additional] party-defendant. On November 26, 1997, [petitioners] filed
their "Amended Complaint".
The [respondent] opposed the "Amended Complaint" x x x contending that it was improper for
[petitioners] to join, in their complaint, an ordinary civil action for the nullification of the "Real
Estate Mortgage" executed by the respondent in favor of the Bank as the action of the
petitioners before the court was a special civil action.
"On March 30, 1998, the court issued an Order rejecting the "Amended Complaint" of the
petitioners on the grounds that: (a) the Bank cannot be impleaded as party-defendant under
Rule 63, Section 1 of the 1997 Rules of Civil Procedure; (b) the "Amended Complaint" constituted
a collateral attack on TCT No. 6683. The [petitioners] did not file any motion for the
reconsideration of the order of the court."4
The trial court dismissed the Complaint and ordered the cancellation of the lis pendens annotated at
the back of TCT No. 6683. It held that, pursuant to Article 493 of the Civil Code, a co-owner has the
right to sell his/her undivided share. The sale made by a co-owner is not invalidated by the absence of
the consent of the other co-owners. Hence, the sale by Esperanza of the 10,000-square-meter portion
of the property was valid; the excess from her undivided share should be taken from the undivided
shares of Cristeta and Antonio, who expressly agreed to and benefited from the sale.
Ruling of the Court of Appeals
The CA held that the sale was valid and binding insofar as Esperanza Balites undivided share of the
property was concerned. It affirmed the trial courts ruling that the lack of consent of the co-owners did
not nullify the sale. The buyer, respondent herein, became a co-owner of the property to the extent of
the pro indiviso share of the vendor, subject to the portion that may be allotted to him upon the
termination of the co-ownership. The appellate court disagreed with the averment of petitioners that
the registration of the sale and the issuance of TCT No. 6683 was ineffective and that they became the
owners of the share of Esperanza upon the latters death.
The CA likewise rejected petitioners claim that the sale was void allegedly because the actual purchase
price of the property was not stated in the Deed of Absolute Sale. It found that the true and correct
consideration for the sale was P1,000,000 as declared by Esperanza and respondent in their Joint
Affidavit. Applying Article 13535 of the Civil Code, it held that the falsity of the price or consideration
stated in the Deed did not render it void. The CA pointed out, however, that the State retained the right
to recover the capital gains tax based on the true price of P1,000,000.
The appellate court rejected petitioners contention that, because of the allegedly unconscionably low
and inadequate consideration involved, the transaction covered by the Deed was an equitable
mortgage under Article 1602 of the Civil Code. Observing that the argument had never been raised in
the court a quo, it ruled that petitioners were proscribed from making this claim, for the first time, on
appeal.
The CA further held that the remaining liability of respondent was P120,000. It relied on the Receipt
dated August 24, 1996, which stated that his outstanding balance for the consideration was P350,000.
It deducted therefrom the amounts of P30,000 received by Antonio on August 27, 1996; and P200,000,
which was the amount of the check dated September 15, 1996, issued by respondent payable to
Esperanza.

Finally, the appellate court noted that the mortgage over the property had been executed after the
filing of the Complaint. What petitioners should have filed was a supplemental complaint instead of an
amended complaint. Contrary to respondents argument, it also held that the bank was not an
indispensable party to the case; but was merely a proper party. Thus, there is no necessity to implead it
as party-defendant, although the court a quo had the option to do so. And even if it were not
impleaded, the appellate court ruled that the bank would still have been bound by the outcome of the
case, as the latter was a mortgagee pendente lite over real estate that was covered by a certificate of
title with an annotated lis pendens.
Hence, this Petition.6
Issues
In their Memorandum, petitioners present the following issues:
"A
"Whether or not the [CA] seriously erred in not deciding that the Deed of Absolute Sale dated
April 16, 1996 is null and void on the grounds that it is falsified; it has an unlawful cause; and it
is contrary to law and/or public policy.
"B
"Whether or not the [CA] gravely erred in not finding that the amount paid by [respondent] is
only three hundred twenty thousand (P320,000.00) pesos and that respondents claim that he
has paid one million pesos except P44,000.00 as balance, is fraudulent and false.
"C
"Whether or not the [CA] seriously erred in not deciding that at the time the Deed of Sale was
registered x x x on May 30, 1997, said Deed of Sale can no longer bind the property covered by
OCT No. 10824 because said land had already become the property of all the petitioners upon
the death of their mother on October 31, 1996 and therefore such registration is functus of[f]icio
involving a null and void document.
"D
"Whether or not the [CA] seriously erred in not ruling that petitioners amended complaint dated
November 27, 1997 was proper and admissible and deemed admitted to conform to evidence
presented.
"E
"Whether or not the [CA] seriously erred in not declaring that TCT No. T-6683 in the name of
Respondent Rodrigo N. Lim is null and void and all dealings involving the same are likewise null
and void and/or subject to the decision of the case at bar in view of the notice of lis pendens
annotated therein.
"F
"Even assuming but without admitting that the Deed of Sale is enforceable, the respondent
court seriously erred in not deciding that the consideration is unconscionably low and
inadequate and therefore the transaction between the executing parties constitutes an
equitable mortgage.
"G
"The [CA] greatly erred in not rendering judgment awarding damages and attorneys fee[s] in
favor of petitioners among others."7
In sum, the issues raised by petitioners center on the following: 1) whether the Deed of Absolute Sale is
valid, and 2) whether there is still any sum for which respondent is liable.

The Courts Ruling

The Petition has no merit.
First Issue:
Validity of the Sale
Petitioners contend that the Deed of Absolute Sale is null and void, because the undervalued
consideration indicated therein was intended for an unlawful purpose -- to avoid the payment of higher
capital gains taxes on the transaction. According to them, the appellate courts reliance on Article 1353
of the Civil Code was erroneous. They further contend that the Joint Affidavit is not proof of a true and
lawful cause, but an integral part of a scheme to evade paying lawful taxes and registration fees to the
government.
We have before us an example of a simulated contract. Article 1345 of the Civil Code provides that the
simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable
contract but without any substance, because the parties have no intention to be bound by it. An
absolutely simulated contract is void, and the parties may recover from each other what they may have
given under the "contract."8 On the other hand, if the parties state a false cause in the contract to
conceal their real agreement, such a contract is relatively simulated. Here, the parties real agreement
binds them.9
In the present case, the parties intended to be bound by the Contract, even if it did not reflect the
actual purchase price of the property. That the parties intended the agreement to produce legal effect
is revealed by the letter of Esperanza Balite to respondent dated October 23, 1996 10 and petitioners
admission that there was a partial payment of P320,000 made on the basis of the Deed of Absolute
Sale. There was an intention to transfer the ownership of over 10,000 square meters of the property .
Clear from the letter is the fact that the objections of her children prompted Esperanza to unilaterally
withdraw from the transaction.
Since the Deed of Absolute Sale was merely relatively simulated, it remains valid and enforceable. All
the essential requisites prescribed by law for the validity and perfection of contracts are present.
However, the parties shall be bound by their real agreement for a consideration of P1,000,000 as
reflected in their Joint Affidavit.11
The juridical nature of the Contract remained the same. What was concealed was merely the actual
price. Where the essential requisites are present and the simulation refers only to the content or terms
of the contract, the agreement is absolutely binding and enforceable 12 between the parties and their
successors in interest.
Petitioners cannot be permitted to unmake the Contract voluntarily entered into by their predecessor,
even if the stated consideration was included therein for an unlawful purpose. "The binding force of a
contract must be recognized as far as it is legally possible to do so." 13 However, as properly held by the
appellate court, the government has the right to collect the proper taxes based on the correct purchase
price.
Being onerous, the Contract had for its cause or consideration the price of P1,000,000. Both this
consideration as well as the subject matter of the contract -- Esperanzas share in the property covered
by OCT No. 10824 -- are lawful. The motives of the contracting parties for lowering the price of the sale
-- in the present case, the reduction of capital gains tax liability -- should not be confused with the
consideration.14 Although illegal, the motives neither determine nor take the place of the consideration.
15

Deed of Sale not an

Equitable Mortgage
Petitioner further posits that even assuming that the deed of sale is valid it should only be deemed an
equitable mortgage pursuant to Articles 1602 and 1604 of the Civil Code, because the price was clearly
inadequate. They add that the presence of only one of the circumstances enumerated under Article
1602 would be sufficient to consider the Contract an equitable mortgage. We disagree.

For Articles 1602 and 1604 to apply, two requisites must concur: one, the parties entered into a
contract denominated as a contract of sale; and, two, their intention was to secure an existing debt by
way of mortgage.16
Indeed, the existence of any of the circumstances enumerated in Article 1602, not a concurrence or an
overwhelming number thereof, suffices to give rise to the presumption that a contract purporting to be
an absolute sale is actually an equitable mortgage.17 In the present case, however, the Contract does
not merely purport to be an absolute sale. The records and the documentary evidence introduced by
the parties indubitably show that the Contract is, indeed, one of absolute sale. There is no clear and
convincing evidence that the parties agreed upon a mortgage of the subject property.
Furthermore, the voluntary, written and unconditional acceptance of contractual commitments negates
the theory of equitable mortgage. There is nothing doubtful about the terms of, or the circumstances
surrounding, the Deed of Sale that would call for the application of Article 1602. The Joint Affidavit
indisputably confirmed that the transaction between the parties was a sale.
When the words of a contract are clear and readily understandable, there is no room for construction.
Contracts are to be interpreted according to their literal meaning and should not be interpreted beyond
their obvious intendment.18 The contract is the law between the parties.
Notably, petitioners never raised as an issue before the trial court the fact that the document did not
express the true intent and agreement of the contracting parties. They raised mere suppositions on the
inadequacy of the price, in support of their argument that the Contract should be considered as an
equitable mortgage.
We find no basis to conclude that the purchase price of the property was grossly inadequate. Petitioners
did not present any witness to testify as to the market values of real estate in the subjects locale. They
made their claim on the basis alone of the P2,000,000 loan that respondent had been able to obtain
from the Rizal Commercial Banking Corporation. This move did not sufficiently show the alleged
inadequacy of the purchase price. A mortgage is a mere security for a loan. There was no showing that
the property was the only security relied upon by the bank; or that the borrowers had no credit
worthiness, other than the property offered as collateral.
Co-Ownership
The appellate court was correct in affirming the validity of the sale of the property insofar as the pro
indiviso share of Esperanza Balite was concerned.
Article 493 of the Civil Code19 gives the owner of an undivided interest in the property the right to freely
sell and dispose of such interest. The co-owner, however, has no right to sell or alienate a specific or
determinate part of the thing owned in common, because such right over the thing is represented by an
aliquot or ideal portion without any physical division. Nonetheless, the mere fact that the deed purports
to transfer a concrete portion does not per se render the sale void.20 The sale is valid, but only with
respect to the aliquot share of the selling co-owner. Furthermore, the sale is subject to the results of the
partition upon the termination of the co-ownership.
Hence, the transaction between Esperanza Balite and respondent could be legally recognized only in
respect to the formers pro indiviso share in the co-ownership. As a matter of fact, the Deed of Absolute
Sale executed between the parties expressly referred to the 10,000-square-meter portion of the land
sold to respondent as the share of Esperanza in the conjugal property. Her clear intention was to sell
merely her ideal or undivided share in it. No valid objection can be made against that intent. Clearly
then, the sale can be given effect to the extent of 9,751 square meters, her ideal share in the property
as found by both the trial and the appellate courts.
Transfer of Property
During her lifetime, Esperanza had already sold to respondent her share in the subject parcel; hence
her heirs could no longer inherit it. The property she had transferred or conveyed no longer formed part
of her estate to which her heirs may lay claim at the time of her death. The transfer took effect on April
16, 1996 (the date the Deed of Absolute Sale was executed), and not on May 30, 1997, when the Deed
of Absolute Sale was registered. Thus, petitioners claim that the property became theirs upon the
death of their mother is untenable.

Second Issue:
Respondents Liability
Petitioners insist that the appellate court erred in holding that respondents outstanding liability on the
Deed of Sale was P120,000, when the Receipts on record show payments in the total amount of
P320,000 only. They argue that the August 24, 1996 Receipt, on which the appellate court based its
conclusion, was unreliable.
To begin with, this Court is not a trier of facts. 21 It is not its function to examine and determine the
weight of the evidence. Well-entrenched is the doctrine that only errors of law, 22 and not of facts, are
reviewable by this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of
Court. Philippine Airlines, Inc. v. Court of Appeals23 has held that factual findings of the Court of Appeals
are binding and conclusive upon the Supreme Court. These findings may be reviewed 24 only under
exceptional circumstances such as, among others, when the inference is manifestly mistaken; 25 the
judgment is based on a misapprehension of facts;26 findings of the trial court contradict those of the
CA;27 or the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion.28
Although the factual findings of the two lower courts were not identical, we hold that in the present
case, the findings of the CA are in accord with the documents on record. The trial court admitted in
evidence the August 24, 1996 Receipt signed by Antonio Balite. Interestingly, he was never presented
in the lower court to dispute the veracity of the contents of that Receipt, particularly the second
paragraph that had categorically stated the outstanding balance of respondent as of August 24, 1996,
to be P350,000. Furthermore, the evidence shows that subsequent payments of P30,000 and P200,000
were made by the latter. Thus, we affirm the CAs Decision holding that the remaining unpaid balance
of the price was P120,000.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against the
petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 162421

August 31, 2007

NELSON CABALES and RITO CABALES, Petitioners,

vs.
COURT OF APPEALS, JESUS FELIANO and ANUNCIACION FELIANO, Respondents.
DECISION
PUNO, C.J.:
This is a petition for review on certiorari seeking the reversal of the decision 1 of the Court of Appeals
dated October 27, 2003, in CA-G.R. CV No. 68319 entitled "Nelson Cabales and Rito Cabales v. Jesus
Feliano and Anunciacion Feliano," which affirmed with modification the decision 2 of the Regional Trial
Court of Maasin, Southern Leyte, Branch 25, dated August 11, 2000, in Civil Case No. R-2878. The
resolution of the Court of Appeals dated February 23, 2004, which denied petitioners motion for
reconsideration, is likewise herein assailed.
The facts as found by the trial court and the appellate court are well established.
Rufino Cabales died on July 4, 1966 and left a 5,714-square meter parcel of land located in Brgy. Rizal,
Sogod, Southern Leyte, covered by Tax Declaration No. 17270 to his surviving wife Saturnina and
children Bonifacio, Albino, Francisco, Leonora, Alberto and petitioner Rito.
On July 26, 1971, brothers and co-owners Bonifacio, Albino and Alberto sold the subject property to Dr.
Cayetano Corrompido for P2,000.00, with right to repurchase within eight (8) years. The three (3)
siblings divided the proceeds of the sale among themselves, each getting a share of P666.66.
The following month or on August 18, 1971, Alberto secured a note ("vale") from Dr. Corrompido in the
amount of P300.00.
In 1972, Alberto died leaving his wife and son, petitioner Nelson.

On December 18, 1975, within the eight-year redemption period, Bonifacio and Albino tendered their
payment of P666.66 each to Dr. Corrompido. But Dr. Corrompido only released the document of sale
with pacto de retro after Saturnina paid for the share of her deceased son, Alberto, including his "vale"
of P300.00.
On even date, Saturnina and her four (4) children Bonifacio, Albino, Francisco and Leonora sold the
subject parcel of land to respondents-spouses Jesus and Anunciacion Feliano for P8,000.00. The Deed of
Sale provided in its last paragraph, thus:
It is hereby declared and understood that the amount of TWO THOUSAND TWO HUNDRED EIGHTY SIX
PESOS (P2,286.00) corresponding and belonging to the Heirs of Alberto Cabales and to Rito Cabales
who are still minors upon the execution of this instrument are held
in trust by the VENDEE and to be paid and delivered only to them upon reaching the age of 21.
On December 17, 1985, the Register of Deeds of Southern Leyte issued Original Certificate of Title No.
17035 over the purchased land in the names of respondents-spouses.
On December 30, 1985, Saturnina and her four (4) children executed an affidavit to the effect that
petitioner Nelson would only receive the amount of P176.34 from respondents-spouses when he
reaches the age of 21 considering that Saturnina paid Dr. Corrompido P966.66 for the obligation of
petitioner Nelsons late father Alberto, i.e., P666.66 for his share in the redemption of the sale with
pacto de retro as well as his "vale" of P300.00.
On July 24, 1986, 24-year old petitioner Rito Cabales acknowledged receipt of the sum of P1,143.00
from respondent Jesus Feliano, representing the formers share in the proceeds of the sale of subject
property.
In 1988, Saturnina died. Petitioner Nelson, then residing in Manila, went back to his fathers hometown
in Southern Leyte. That same year, he learned from his uncle, petitioner Rito, of the sale of subject
property. In 1993, he signified his intention to redeem the subject land during a barangay conciliation
process that he initiated.
On January 12, 1995, contending that they could not have sold their respective shares in subject
property when they were minors, petitioners filed before the Regional Trial Court of Maasin, Southern
Leyte, a complaint for redemption of the subject land plus damages.
In their answer, respondents-spouses maintained that petitioners were estopped from claiming any
right over subject property considering that (1) petitioner Rito had already received the amount
corresponding to his share of the proceeds of the sale of subject property, and (2) that petitioner
Nelson failed to consign to the court the total amount of the redemption price necessary for legal
redemption. They prayed for the dismissal of the case on the grounds of laches and prescription.
No amicable settlement was reached at pre-trial. Trial ensued and on August 11, 2000, the trial court
ruled against petitioners. It held that (1) Alberto or, by his death, any of his heirs including petitioner
Nelson lost their right to subject land when not one of them repurchased it from Dr. Corrompido; (2)

Saturnina was effectively subrogated to the rights and interests of Alberto when she paid for Albertos
share as well as his obligation to Dr. Corrompido; and (3) petitioner Rito had no more right to redeem
his share to subject property as the sale by Saturnina, his legal guardian pursuant to Section 7, Rule 93
of the Rules of Court, was perfectly valid; and it was shown that he received his share of the proceeds
of the sale on July 24, 1986, when he was 24 years old.
On appeal, the Court of Appeals modified the decision of the trial court. It held that the sale by
Saturnina of petitioner Ritos undivided share to the property was unenforceable for lack of authority or
legal representation but that the contract was effectively ratified by petitioner Ritos receipt of the
proceeds on July 24, 1986. The appellate court also ruled that petitioner Nelson is co-owner to the
extent of one-seventh (1/7) of subject property as Saturnina was not subrogated to Albertos rights
when she repurchased his share to the property. It further directed petitioner Nelson to pay the estate
of the late Saturnina Cabales the amount of P966.66, representing the amount which the latter paid for
the obligation of petitioner Nelsons late father Alberto. Finally, however, it denied petitioner Nelsons
claim for redemption for his failure to tender or consign in court the redemption money within the
period prescribed by law.
In this petition for review on certiorari, petitioners contend that the Court of Appeals erred in (1)
recognizing petitioner Nelson Cabales as co-owner of subject land but denied him the right of legal
redemption, and (2) not recognizing petitioner Rito Cabales as co-owner of subject land with similar
right of legal redemption.
First, we shall delineate the rights of petitioners to subject land.
When Rufino Cabales died intestate, his wife Saturnina and his six (6) children, Bonifacio, Albino,
Francisco, Leonora, Alberto and petitioner Rito, survived and succeeded him. Article 996 of the New
Civil Code provides that "[i]f a widow or widower and legitimate children or descendants are left, the
surviving spouse has in the succession the same share as that of each of the children." Verily, the
seven (7) heirs inherited equally on subject property. Petitioner Rito and Alberto, petitioner Nelsons
father, inherited in their own rights and with equal shares as the others.
But before partition of subject land was effected, Alberto died. By operation of law, his rights and
obligations to one-seventh of subject land were transferred to his legal heirs his wife and his son
petitioner Nelson.
We shall now discuss the effects of the two (2) sales of subject land to the rights of the parties.
The first sale with pacto de retro to Dr. Corrompido by the brothers and co-owners Bonifacio, Albino and
Alberto was valid but only as to their pro-indiviso shares to the land. When Alberto died prior to
repurchasing his share, his rights and obligations were transferred to and assumed by his heirs, namely
his wife and his son, petitioner Nelson. But the records show that it was Saturnina, Albertos mother,
and not his heirs, who repurchased for him. As correctly ruled by the Court of Appeals, Saturnina was
not subrogated to Albertos or his heirs rights to the property when she repurchased the share.
In Paulmitan v. Court of Appeals,3 we held that a co-owner who redeemed the property in its entirety
did not make her the owner of all of it. The property remained in a condition of co-ownership as the

redemption did not provide for a mode of terminating a co-ownership. 4 But the one who redeemed had
the right to be reimbursed for the redemption price and until reimbursed, holds a lien upon the subject
property for the amount due.5 Necessarily, when Saturnina redeemed for Albertos heirs who had then
acquired his pro-indiviso share in subject property, it did not vest in her ownership over the pro-indiviso
share she redeemed. But she had the right to be reimbursed for the redemption price and held a lien
upon the property for the amount due until reimbursement. The result is that the heirs of Alberto, i.e.,
his wife and his son petitioner Nelson, retained ownership over their pro-indiviso share.
Upon redemption from Dr. Corrompido, the subject property was resold to respondents-spouses by the
co-owners. Petitioners Rito and Nelson were then minors and as indicated in the Deed of Sale, their
shares in the proceeds were held in trust by respondents-spouses to be paid and delivered to them
upon reaching the age of majority.
As to petitioner Rito, the contract of sale was unenforceable as correctly held by the Court of Appeals.
Articles 320 and 326 of the New Civil Code6 state that:
Art. 320. The father, or in his absence the mother, is the legal administrator of the property pertaining
to the child under parental authority. If the property is worth more than two thousand pesos, the father
or mother shall give a bond subject to the approval of the Court of First Instance.
Art. 326. When the property of the child is worth more than two thousand pesos, the father or mother
shall be considered a guardian of the childs property, subject to the duties and obligations of guardians
under the Rules of Court.
In other words, the father, or, in his absence, the mother, is considered legal administrator of the
property pertaining to the child under his or her parental authority without need of giving a bond in
case the amount of the property of the child does not exceed two thousand pesos. 7 Corollary to this,
Rule 93, Section 7 of the Revised Rules of Court of 1964, applicable to this case, automatically
designates the parent as legal guardian of the child without need of any judicial appointment in case
the latters property does not exceed two thousand pesos,8 thus:
Sec. 7. Parents as guardians. When the property of the child under parental authority is worth two
thousand pesos or less, the father or the mother, without the necessity of court appointment, shall be
his legal guardian x x x x9
Saturnina was clearly petitioner Ritos legal guardian without necessity of court appointment
considering that the amount of his property or one-seventh of subject property was P1,143.00, which is
less than two thousand pesos. However, Rule 96, Sec. 110 provides that:
Section 1. To what guardianship shall extend. A guardian appointed shall have the care and custody of
the person of his ward, and the management of his estate, or the management of the estate only, as
the case may be. The guardian of the estate of a nonresident shall have the management of all the
estate of the ward within the Philippines, and no court other than that in which such guardian was
appointed shall have jurisdiction over the guardianship.

Indeed, the legal guardian only has the plenary power of administration of the minors property. It does
not include the power of alienation which needs judicial authority. 11 Thus, when Saturnina, as legal
guardian of petitioner Rito, sold the latters pro-indiviso share in subject land, she did not have the legal
authority to do so.
Article 1403 of the New Civil Code 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;
xxxx
Accordingly, the contract of sale as to the pro-indiviso share of petitioner Rito was unenforceable.
However, when he acknowledged receipt of the proceeds of the sale on July 24, 1986, petitioner Rito
effectively ratified it. This act of ratification rendered the sale valid and binding as to him.
With respect to petitioner Nelson, on the other hand, the contract of sale was void. He was a minor at
the time of the sale. Saturnina or any and all the other co-owners were not his legal guardians with
judicial authority to alienate or encumber his property. It was his mother who was his legal guardian
and, if duly authorized by the courts, could validly sell his undivided share to the property. She did not.
Necessarily, when Saturnina and the others sold the subject property in its entirety to respondentsspouses, they only sold and transferred title to their pro-indiviso shares and not that part which
pertained to petitioner Nelson and his mother. Consequently, petitioner Nelson and his mother retained
ownership over their undivided share of subject property.12
But may petitioners redeem the subject land from respondents-spouses? Articles 1088 and 1623 of the
New Civil Code are pertinent:
Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all
of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the
sale, provided they do so within the period of one month from the time they were notified in writing of
the sale by the vendor.
Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days
from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of
sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor
that he has given written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
Clearly, legal redemption may only be exercised by the co-owner or co-owners who did not part with his
or their pro-indiviso share in the property held in common. As demonstrated, the sale as to the
undivided share of petitioner Rito became valid and binding upon his ratification on July 24, 1986. As a
result, he lost his right to redeem subject property.

However, as likewise established, the sale as to the undivided share of petitioner Nelson and his mother
was not valid such that they were not divested of their ownership thereto. Necessarily, they may
redeem the subject property from respondents-spouses. But they must do so within thirty days from
notice in writing of the sale by their co-owners vendors. In reckoning this period, we held in Alonzo v.
Intermediate Appellate Court,13 thus:
x x x we test a law by its results; and likewise, we may add, by its purposes. It is a cardinal rule that, in
seeking the meaning of the law, the first concern of the judge should be to discover in its provisions the
intent of the lawmaker. Unquestionably, the law should never be interpreted in such a way as to cause
injustice as this is never within the legislative intent. An indispensable part of that intent, in fact, for we
presume the good motives of the legislature, is to render justice.
Thus, we interpret and apply the law not independently of but in consonance with justice. Law and
justice are inseparable, and we must keep them so. x x x x
x x x x While we may not read into the law a purpose that is not there, we nevertheless have the right
to read out of it the reason for its enactment. In doing so, we defer not to "the letter that killeth" but to
"the spirit that vivifieth," to give effect to the lawmakers will.
In requiring written notice, Article 1088 (and Article 1623 for that matter) 14 seeks to ensure that the
redemptioner is properly notified of the sale and to indicate the date of such notice as the starting time
of the 30-day period of redemption. Considering the shortness of the period, it is really necessary, as a
general rule, to pinpoint the precise date it is supposed to begin, to obviate the problem of alleged
delays, sometimes consisting of only a day or two.1awph!1
In the instant case, the right of redemption was invoked not days but years after the sale was made in
1978. We are not unmindful of the fact that petitioner Nelson was a minor when the sale was perfected.
Nevertheless, the records show that in 1988, petitioner Nelson, then of majority age, was informed of
the sale of subject property. Moreover, it was noted by the appellate court that petitioner Nelson was
likewise informed thereof in 1993 and he signified his intention to redeem subject property during a
barangay conciliation process. But he only filed the complaint for legal redemption and damages on
January 12, 1995, certainly more than thirty days from learning about the sale.
In the face of the established facts, petitioner Nelson cannot feign ignorance of the sale of subject
property in 1978. To require strict proof of written notice of the sale would be to countenance an
obvious false claim of lack of knowledge thereof, thus commending the letter of the law over its
purpose, i.e., the notification of redemptioners.
The Court is satisfied that there was sufficient notice of the sale to petitioner Nelson. The thirty-day
redemption period commenced in 1993, after petitioner Nelson sought the barangay conciliation
process to redeem his property. By January 12, 1995, when petitioner Nelson filed a complaint for legal
redemption and damages, it is clear that the thirty-day period had already expired.
As in Alonzo, the Court, after due consideration of the facts of the instant case, hereby interprets the
law in a way that will render justice.15

Petitioner Nelson, as correctly held by the Court of Appeals, can no longer redeem subject property. But
he and his mother remain co-owners thereof with respondents-spouses. Accordingly, title to subject
property must include them.
IN VIEW WHEREOF, the petition is DENIED. The assailed decision and resolution of the Court of Appeals
of October 27, 2003 and February 23, 2004 are AFFIRMED WITH MODIFICATION. The Register of Deeds
of Southern Leyte is ORDERED to cancel Original Certificate of Title No. 17035 and to issue in lieu
thereof a new certificate of title in the name of respondents-spouses Jesus and Anunciacion Feliano for
the 6/7 portion, and petitioner Nelson Cabales and his mother for the remaining 1/7 portion, pro
indiviso.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 133638

April 15, 2005

PERPETUA VDA. DE APE, Petitioner,

vs.
THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA. DE LUMAYNO,
Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No.
45886 entitled, "Generosa Cawit de Lumayno, accompanied by her husband Braulio Lumayno v.
Fortunato Ape, including his wife Perpetua de Ape."
The pertinent facts are as follows:
Cleopas Ape was the registered owner of a parcel of land particularly known as Lot No. 2319 of the
Escalante Cadastre of Negros Occidental and covered by Original Certificate of Title (OCT) No. RP 1379
(RP-154 [300]).2 Upon Cleopas Ape's death sometime in 1950, the property passed on to his wife, Maria
Ondoy, and their eleven (11) children, namely: Fortunato, Cornelio, Bernalda, Bienvenido, Encarnacion,
Loreta, Lourdes, Felicidad, Adela, Dominador, and Angelina, all surnamed Ape.
On 15 March 1973, Generosa Cawit de Lumayno (private respondent herein), joined by her husband,
Braulio,3 instituted a case for "Specific Performance of a Deed of Sale with Damages" against Fortunato
and his wife Perpetua (petitioner herein) before the then Court of First Instance of Negros Occidental. It
was alleged in the complaint that on 11 April 1971, private respondent and Fortunato entered into a
contract of sale of land under which for a consideration of P5,000.00, Fortunato agreed to sell his share
in Lot No. 2319 to private respondent. The agreement was contained in a receipt prepared by private
respondent's son-in-law, Andres Flores, at her behest. Said receipt was attached to the complaint as
Annex "A" thereof and later marked as Exhibit "G" for private respondent. The receipt states:

April 11, 1971

TO WHOM IT MAY CONCERN:

This date received from Mrs. Generosa Cawit de Lumayno the sum of THIRTY PESOS ONLY as
Advance Payment of my share in Land Purchased, for FIVE THOUSAND PESOS LOT #2319.

(Signed)
FORTUNATO APE

P30.00 WITNESS:
(Illegible)4
As private respondent wanted to register the claimed sale transaction, she supposedly demanded that
Fortunato execute the corresponding deed of sale and to receive the balance of the consideration.
However, Fortunato unjustifiably refused to heed her demands. Private respondent, therefore, prayed
that Fortunato be ordered to execute and deliver to her "a sufficient and registrable deed of sale
involving his one-eleventh (1/11) share or participation in Lot No. 2319 of the Escalante Cadastre; to
pay P5,000.00 in damages; P500.00 reimbursement for litigation expenses as well as additional
P500.00 for every appeal made; P2,000.00 for attorney's fees; and to pay the costs. 5
Fortunato and petitioner denied the material allegations of the complaint and claimed that Fortunato
never sold his share in Lot No. 2319 to private respondent and that his signature appearing on the
purported receipt was forged. By way of counterclaim, the defendants below maintained having
entered into a contract of lease with respondent involving Fortunato's portion of Lot No. 2319. This
purported lease contract commenced in 1960 and was supposed to last until 1965 with an option for
another five (5) years. The annual lease rental was P100.00 which private respondent and her husband
allegedly paid on installment basis. Fortunato and petitioner also assailed private respondent and her
husband's continued possession of the rest of Lot No. 2319 alleging that in the event they had acquired
the shares of Fortunato's co-owners by way of sale, he was invoking his right to redeem the same.
Finally, Fortunato and petitioner prayed that the lease contract between them and respondent be
ordered annulled; and that respondent be ordered to pay them attorney's fees; moral damages; and
exemplary damages.6
In their reply,7 the private respondent and her husband alleged that they had purchased from
Fortunato's co-owners, as evidenced by various written instruments, 8 their respective portions of Lot
No. 2319. By virtue of these sales, they insisted that Fortunato was no longer a co-owner of Lot No.
2319 thus, his right of redemption no longer existed.
Prior to the resolution of this case at the trial court level, Fortunato died and was substituted in this
action by his children named Salodada, Clarita, Narciso, Romeo, Rodrigo, Marieta, Fortunato, Jr., and
Salvador, all surnamed Ape.9
During the trial, private respondent testified that she and her husband acquired the various portions of
Lot No. 2319 belonging to Fortunato's co-owners. Thereafter, her husband caused the annotation of an
adverse claim on the certificate of title of Lot No. 2319. 10 The annotation states:
Entry No. 123539 Adverse claim filed by Braulio Lumayno. Notice of adverse claim filed by Braulio
Lumayno affecting the lot described in this title to the extent of 77511.93 square meters, more or less,
the aggregate area of shares sold to him on the basis of (alleged) sales in his possession. Doc. No. 157,
Page No. 33, Book No. XI, Series of 1967 of Alexander Cawit of Escalante, Neg. Occ. Date of instrument.
June 22, 1967 at 8:30 a.m. (SGD) FEDENCIORRAZ, Actg. Register of Deeds. 11
In addition, private respondent claimed that after the acquisition of those shares, she and her husband
had the whole Lot No. 2319 surveyed by a certain Oscar Mascada who came up with a technical
description of said piece of land.12 Significantly, private respondent alleged that Fortunato was present
when the survey was conducted.13
Also presented as evidence for private respondent were pictures taken of some parts of Lot No. 2319
purportedly showing the land belonging to Fortunato being bounded by a row of banana plants thereby
separating it from the rest of Lot No. 2319.14
As regards the circumstances surrounding the sale of Fortunato's portion of the land, private
respondent testified that Fortunato went to her store at the time when their lease contract was about to
expire. He allegedly demanded the rental payment for his land but as she was no longer interested in
renewing their lease agreement, they agreed instead to enter into a contract of sale which Fortunato
acceded to provided private respondent bought his portion of Lot No. 2319 for P5,000.00. Thereafter,
she asked her son-in-law Flores to prepare the aforementioned receipt. Flores read the document to
Fortunato and asked the latter whether he had any objection thereto. Fortunato then went on to affix
his signature on the receipt.
For her part, petitioner insisted that the entire Lot No. 2319 had not yet been formally subdivided; 15
that on 11 April 1971 she and her husband went to private respondent's house to collect past rentals
for their land then leased by the former, however, they managed to collect only thirty pesos; 16 that

private respondent made her (petitioner's) husband sign a receipt acknowledging the receipt of said
amount of money;17 and that the contents of said receipt were never explained to them. 18 She also
stated in her testimony that her husband was an illiterate and only learned how to write his name in
order to be employed in a sugar central.19 As for private respondent's purchase of the shares owned by
Fortunato's co-owners, petitioner maintained that neither she nor her husband received any notice
regarding those sales transactions.20 The testimony of petitioner was later on corroborated by her
daughter-in-law, Marietta Ape Dino.21
After due trial, the court a quo rendered a decision 22 dismissing both the complaint and the
counterclaim. The trial court likewise ordered that deeds or documents representing the sales of the
shares previously owned by Fortunato's co-owners be registered and annotated on the existing
certificate of title of Lot No. 2319. According to the trial court, private respondent failed to prove that
she had actually paid the purchase price of P5,000.00 to Fortunato and petitioner. Applying, therefore,
the provision of Article 1350 of the Civil Code,23 the trial court concluded that private respondent did
not have the right to demand the delivery to her of the registrable deed of sale over Fortunato's portion
of the Lot No. 2319.
The trial court also rejected Fortunato and petitioner's claim that they had the right of redemption over
the shares previously sold to private respondent and the latter's husband, reasoning as follows:
Defendants in their counterclaim invoke their right of legal redemption under Article 1623 of the New
Civil Code in view of the alleged sale of the undivided portions of the lot in question by their co-heirs
and co-owners as claimed by the plaintiffs in their complaint. They have been informed by the plaintiff
about said sales upon the filing of the complaint in the instant case as far back as March 14, 1973.
Defendant themselves presented as their very own exhibits copies of the respective deeds of sale or
conveyance by their said co-heirs and co-owners in favor of the plaintiffs or their predecessors-ininterest way back on January 2, 1992 when they formally offered their exhibits in the instant case;
meaning, they themselves acquired possession of said documentary exhibits even before they formally
offered them in evidence. Under Art. 1623 of the New Civil Code, defendants have only THIRTY (30)
DAYS counted from their actual knowledge of the exact terms and conditions of the deeds of sale or
conveyance of their co-heirs' and co-owners' share within which to exercise their right of legal
redemption.24
Within the reglementary period, both parties filed their respective notices of appeal before the trial
court with petitioner and her children taking exception to the finding of the trial court that the period
within which they could invoke their right of redemption had already lapsed. 25 For her part, private
respondent raised as errors the trial court's ruling that there was no contract of sale between herself
and Fortunato and the dismissal of their complaint for specific performance. 26
The Court of Appeals, in the decision now assailed before us, reversed and set aside the trial court's
dismissal of the private respondent's complaint but upheld the portion of the court a quo's decision
ordering the dismissal of petitioner and her children's counterclaim. The dispositive portion of the
appellate court's decision reads:
WHEREFORE, the decision dated March 11, 1994, is hereby REVERSED and SET ASIDE insofar as
the dismissal of plaintiffs-appellants' complaint is concerned, and another one is entered
ordering the defendant-appellant Fortunato Ape and/or his wife Perpetua de Ape and successorsin-interest to execute in favor of plaintiff-appellant Generosa Cawit de Lumayno a Deed of
Absolute Sale involving the one-eleventh (1/11) share or participation of Fortunato Ape in Lot No.
2319, Escalante Cadastre, containing an area of 12,527.19 square meters, more or less, within
(30) days from finality of this decision, and in case of non-compliance with this Order, that the
Clerk of Court of said court is ordered to execute the deed on behalf of the vendor. The decision
is AFFIRMED insofar as the dismissal of defendants-appellants' counterclaim is concerned.
Without pronouncement as to costs.27
The Court of Appeals upheld private respondent's position that Exhibit "G" had all the earmarks of a
valid contract of sale, thus:
Exhibit G is the best proof that the P5,000.00 representing the purchase price of the 1/11 th share of
Fortunato Ape was not paid by the vendee on April 11, 1971, and/or up to the present, but that does
not affect the binding force and effect of the document. The vendee having paid the vendor an
advance payment of the agreed purchase price of the property, what the vendor can exact from the
vendee is full payment upon his execution of the final deed of sale. As is shown, the vendee precisely

instituted this action to compel the vendor Fortunato Ape to execute the final document, after she was
informed that he would execute the same upon arrival of his daughter "Bala" from Mindanao, but
afterwards failed to live up to his contractual obligation (TSN, pp. 11-13, June 10, 1992).
It is not right for the trial court to expect plaintiff-appellant to pay the balance of the purchase price
before the final deed is executed, or for her to deposit the equivalent amount in court in the form of
consignation. Consignation comes into fore in the case of a creditor to whom tender of payment has
been made and refuses without just cause to accept it (Arts. 1256 and 1252, N.C.C.; Querino vs.
Pelarca, 29 SCRA 1). As vendee, plaintiff-appellant Generosa Cawit de Lumayno does not fall within the
purview of a debtor.
We, therefore, find and so hold that the trial court should have found that exhibit G bears all the
earmarks of a private deed of sale which is valid, binding and enforceable between the parties, and that
as a consequence of the failure and refusal on the part of the vendor Fortunato Ape to live up to his
contractual obligation, he and/or his heirs and successors-in-interest can be compelled to execute in
favor of, and to deliver to the vendee, plaintiff-appellant Generosa Cawit de Lumayno a registerable
deed of absolute sale involving his one-eleventh (1/11th) share or participation in Lot No. 2319,
Escalante Cadastre, containing an area of 12,527.19 square meters, more or less, within 30 days from
finality of this decision, and, in case of non-compliance within said period, this Court appoints the Clerk
of Court of the trial court to execute on behalf of the vendor the said document. 28
The Court of Appeals, however, affirmed the trial court's ruling on the issue of petitioner and her
children's right of redemption. It ruled that Fortunato's receipt of the Second Owner's Duplicate of OCT
(RP) 1379 (RP-154 ([300]), containing the adverse claim of private respondent and her husband,
constituted a sufficient compliance with the written notice requirement of Article 1623 of the Civil Code
and the period of redemption under this provision had long lapsed.
Aggrieved by the decision of the appellate court, petitioner is now before us raising, essentially, the
following issues: whether Fortunato was furnished with a written notice of sale of the shares of his coowners as required by Article 1623 of the Civil Code; and whether the receipt signed by Fortunato
proves the existence of a contract of sale between him and private respondent.
In her memorandum, petitioner claimed that the Court of Appeals erred in sustaining the court a quo's
pronouncement that she could no longer redeem the portion of Lot No. 2319 already acquired by
private respondent for no written notice of said sales was furnished them. According to her, the Court
of Appeals unduly expanded the scope of the law by equating Fortunato's receipt of Second Owner's
Duplicate of OCT (RP) 1379 (RP-154 ([300]) with the written notice requirement of Article 1623. In
addition, she argued that Exhibit "G" could not possibly be a contract of sale of Fortunato's share in Lot
No. 2319 as said document does not contain "(a) definite agreement on the manner of payment of the
price."29 Even assuming that Exhibit "G" is, indeed, a contract of sale between private respondent and
Fortunato, the latter did not have the obligation to deliver to private respondent a registrable deed of
sale in view of private respondent's own failure to pay the full purchase price of Fortunato's portion of
Lot No. 2319. Petitioner is also of the view that, at most, Exhibit "G" merely contained a unilateral
promise to sell which private respondent could not enforce in the absence of a consideration distinct
from the purchase price of the land. Further, petitioner reiterated her claim that due to the illiteracy of
her husband, it was incumbent upon private respondent to show that the contents of Exhibit "G" were
fully explained to him. Finally, petitioner pointed out that the Court of Appeals erred when it took into
consideration the same exhibit despite the fact that only its photocopy was presented before the court.
On the other hand, private respondent argued that the annotation on the second owner's certificate
over Lot No. 2319 constituted constructive notice to the whole world of private respondent's claim over
the majority of said parcel of land. Relying on our decision in the case of Cabrera v. Villanueva,30
private respondent insisted that when Fortunato received a copy of the second owner's certificate, he
became fully aware of the contracts of sale entered into between his co-owners on one hand and
private respondent and her deceased husband on the other.
Private respondent also averred that "although (Lot No. 2319) was not actually partitioned in a survey
after the death of Cleopas Ape, the land was partitioned in a 'hantal-hantal' manner by the heirs. Each
took and possessed specific portion or premises as his/her share in land, farmed their respective
portion or premises, and improved them, each heir limiting his/her improvement within the portion or
premises which were his/her respective share."31 Thus, when private respondent and her husband
purchased the other parts of Lot No. 2319, it was no longer undivided as petitioner claims.
The petition is partly meritorious.

Article 1623 of the Civil Code provides:

The right of legal pre-emption or redemption shall not be exercised except within thirty days from the
notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale
shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that
he has given written notice thereof to all possible redemptioners.
Despite the plain language of the law, this Court has, over the years, been tasked to interpret the
"written notice requirement" of the above-quoted provision. In the case Butte v. Manuel Uy & Sons,
Inc.,32 we declared that
In considering whether or not the offer to redeem was timely, we think that the notice given by the
vendee (buyer) should not be taken into account. The text of Article 1623 clearly and expressly
prescribes that the thirty days for making the redemption are to be counted from notice in writing by
the vendor. Under the old law (Civ. Code of 1889, Art. 1524), it was immaterial who gave the notice; so
long as the redeeming co-owner learned of the alienation in favor of the stranger, the redemption
period began to run. It is thus apparent that the Philippine legislature in Article 1623 deliberately
selected a particular method of giving notice, and that method must be deemed exclusive. (39 Am. Jur.,
237; Payne vs. State, 12 S.W. 2(d) 528). As ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in 75
Law Ed. [U.S.] 275)
why these provisions were inserted in the statute we are not informed, but we may assume until
the contrary is shown, that a state of facts in respect thereto existed, which warranted the
legislature in so legislating.
The reasons for requiring that the notice should be given by the seller, and not by the buyer, are easily
divined. The seller of an undivided interest is in the best position to know who are his co-owners that
under the law must be notified of the sale. Also, the notice by the seller removes all doubts as to fact
of the sale, its perfection; and its validity, the notice being a reaffirmation thereof, so that the party
notified need not entertain doubt that the seller may still contest the alienation. This assurance would
not exist if the notice should be given by the buyer.33
The interpretation was somehow modified in the case of De Conejero, et al. v. Court of Appeals, et al.34
wherein it was pointed out that Article 1623 "does not prescribe a particular form of notice, nor any
distinctive method for notifying the redemptioner" thus, as long as the redemptioner was notified in
writing of the sale and the particulars thereof, the redemption period starts to run. This view was
reiterated in Etcuban v. The Honorable Court of Appeals, et al.,35 Cabrera v. Villanueva,36 Garcia, et al. v.
Calaliman, et al.,37 Distrito, et al. v. The Honorable Court of Appeals, et al.,38 and Mariano, et al. v. Hon.
Court of Appeals, et al.39
However, in the case of Salatandol v. Retes,40 wherein the plaintiffs were not furnished any written
notice of sale or a copy thereof by the vendor, this Court again referred to the principle enunciated in
the case of Butte. As observed by Justice Vicente Mendoza, such reversion is only sound, thus:
Art. 1623 of the Civil Code is clear in requiring that the written notification should come from the
vendor or prospective vendor, not from any other person. There is, therefore, no room for
construction. Indeed, the principal difference between Art. 1524 of the former Civil Code and Art. 1623
of the present one is that the former did not specify who must give the notice, whereas the present one
expressly says the notice must be given by the vendor. Effect must be given to this change in statutory
language.41
In this case, the records are bereft of any indication that Fortunato was given any written notice of
prospective or consummated sale of the portions of Lot No. 2319 by the vendors or would-be vendors.
The thirty (30)-day redemption period under the law, therefore, has not commenced to run.
Despite this, however, we still rule that petitioner could no longer invoke her right to redeem from
private respondent for the exercise of this right "presupposes the existence of a co-ownership at the
time the conveyance is made by a co-owner and when it is demanded by the other co-owner or coowners."42 The regime of co-ownership exists when ownership of an undivided thing or right belongs to
different persons.43 By the nature of a co-ownership, a co-owner cannot point to specific portion of the
property owned in common as his own because his share therein remains intangible. 44 As legal
redemption is intended to minimize co-ownership,45 once the property is subdivided and distributed
among the co-owners, the community ceases to exist and there is no more reason to sustain any right
of legal redemption.46

In this case, records reveal that although Lot No. 2319 has not yet been formally subdivided, still, the
particular portions belonging to the heirs of Cleopas Ape had already been ascertained and they in fact
took possession of their respective parts. This can be deduced from the testimony of petitioner herself,
thus:
Q

When the plaintiffs leased the share of your husband, were there any metes and bounds?

It was not formally subdivided. We have only a definite portion. (hantal-hantal)

Q
This hantal-hantal of your husband, was it also separate and distinct from the hantalhantal or the share of the brothers and sisters of your husband?
A

Well, this property in question is a common property.

Q
To the north, whose share was that which is adjacent to your husband's assumed
partition?
A

I do not know what [does] this "north" [mean].

COURT
(To Witness)
Q

To the place from where the sun rises, whose share was that?

The shares of Cornelia, Loreta, Encarnacion and Adela.

How could you determine their own shares?

They were residing in their respective assumed portions.

How about determining their respective boundaries?

A
It could be determined by stakes and partly a row of banana plantations planted by my
son-in-law.
Q

Who is this son-in-law you mentioned?

Narciso Ape.

ATTY. CAWIT
(Continuing)
Q
You said that there were stakes to determine the hantal-hantal of your husband and the
hantal-hantal of the other heirs, did I get you right?
ATTY. TAN
Admitted, Your Honor.

ATTY. CAWIT
Q

Mrs. Ape, in 1960, Cleopas Ape was already dead, is that correct?

Certainly, since he died in 1950.

Q
By the manifestation of your counsel that the entire land (13 hectares) of your father-inlaw, Cleopas Ape, was leased to Generosa Lumayno, is this correct?
A
No, it is only the assumed portion of my husband [which] was leased to Generosa
Lumayno.
Q
For clarification, it was only the share of your husband [which] was leased to Generosa
Cawit Lumayno?
A

Yes.47

ATTY. CAWIT
Q
My question: is that portion which you said was leased by your husband to the
Lumayno[s] and which was included to the lease by your mother-in-law to the Lumayno[s], when
the Lumayno[s] returned your husband['s] share, was that the same premises that your husband
leased to the Lumayno[s]?
A

The same.

Q
In re-possessing this portion of the land corresponding to the share of your husband, did
your husband demand that they should re-possess the land from the Lumayno[s] or did the
Lumayno[s] return them to your husband voluntarily?
A

They just returned to us without paying the rentals.

COURT
Q
Was the return the result of your husband's request or just voluntarily they returned it to
your husband?
A
No, sir, it was just returned voluntarily, and they abandoned the area but my husband
continued farming.48
Similarly telling of the partition is the stipulation of the parties during the pre-trial wherein it was
admitted that Lot No. 2319 had not been subdivided nevertheless, "Fortunato Ape had possessed a
specific portion of the land ostensibly corresponding to his share." 49
From the foregoing, it is evident that the partition of Lot No. 2319 had already been effected by the
heirs of Cleopas Ape. Although the partition might have been informal is of no moment for even an oral
agreement of partition is valid and binding upon the parties. 50 Likewise, the fact that the respective
shares of Cleopas Ape's heirs are still embraced in one and the same certificate of title and have not
been technically apportioned does not make said portions less determinable and identifiable from one
another nor does it, in any way, diminish the dominion of their respective owners. 51
Turning now to the second issue of the existence of a contract of sale, we rule that the records of this
case betray the stance of private respondent that Fortunato Ape entered into such an agreement with
her.
A contract of sale is a consensual contract, thus, it is perfected by mere consent of the parties. It is
born from the moment there is a meeting of minds upon the thing which is the object of the sale and
upon the price.52 Upon its perfection, the parties may reciprocally demand performance, that is, the
vendee may compel the transfer of the ownership and to deliver the object of the sale while the vendor
may demand the vendee to pay the thing sold. 53 For there to be a perfected contract of sale, however,
the following elements must be present: consent, object, and price in money or its equivalent. In the
case of Leonardo v. Court of Appeals, et al.,54 we explained the element of consent, to wit:
The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by
one of the offer made by the other. It is the concurrence of the minds of the parties on the object and
the cause which constitutes the contract. The area of agreement must extend to all points that the
parties deem material or there is no consent at all.

To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact
notion of the matter to which it refers; (b) it should be free and (c) it should be spontaneous.
Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence;
spontaneity by fraud.55
In this jurisdiction, the general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary care for his concerns and
that private dealings have been entered into fairly and regularly. 56 The exception to this rule is provided
for under Article 1332 of the Civil Code which provides that "[w]hen one of the parties is unable to read,
or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former."
In this case, as private respondent is the one seeking to enforce the claimed contract of sale, she bears
the burden of proving that the terms of the agreement were fully explained to Fortunato Ape who was
an illiterate. This she failed to do. While she claimed in her testimony that the contents of the receipt
were made clear to Fortunato, such allegation was debunked by Andres Flores himself when the latter
took the witness stand. According to Flores:
ATTY. TAN
Q

Mr. Witness, that receipt is in English, is it not?

Yes, sir.

Q
When you prepared that receipt, were you aware that Fortunato Ape doesn't know how to
read and write English?
A

Yes, sir, I know.

Q
Mr. Witness, you said you were present at the time of the signing of that alleged receipt
of P30.00, correct?
A

Yes, sir.

Where, in what place was this receipt signed?

At the store.

Q
At the time of the signing of this receipt, were there other person[s] present aside from
you, your mother-in-law and Fortunato Ape?
A

In the store, yes, sir.

Q
When you signed that document of course you acted as witness upon request of your
mother-in-law?
A

No, this portion, I was the one who prepared that document.

Q
Without asking of (sic) your mother-in-law, you prepared that document or it was your
mother-in-law who requested you to prepare that document and acted as witness?
A
She requested me to prepare but does not instructed (sic) me to act as witness. It was
our opinion that whenever I prepared the document, I signed it as a witness.
Q
Did it not occur to you to ask other witness to act on the side of Fortunato Ape who did
not know how to read and write English?
A

It occurred to me.

Q
But you did not bother to request a person who is not related to your mother-in-law,
considering that Fortunato Ape did not know how to read and write English?

A
The one who represented Fortunato Ape doesn't know also how to read and write
English. One a maid.
Q
You mentioned that there [was another] person inside the store, under your previous
statement, when the document was signed, there [was another] person in the store aside from
you, your mother-in-law and Fortunato Ape, is not true?
A

That is true, there is one person, but that person doesn't know how to read also.

Q
Of course, Mr. Witness, since it occurred to you that there was need for other witness to
sign that document for Fortunato Ape, is it not a fact that the Municipal Building is very near
your house?
A

Quite (near).

Q
But you could readily proceed to the Municipal Building and request one who is
knowledgeable in English to act as witness?
A

I think there is no need for that small receipt. So I don't bother myself to go.

You did not consider that receipt very important because you said that small receipt?

Yes, I know.57

As can be gleaned from Flores's testimony, while he was very much aware of Fortunato's inability to
read and write in the English language, he did not bother to fully explain to the latter the substance of
the receipt (Exhibit "G"). He even dismissed the idea of asking somebody else to assist Fortunato
considering that a measly sum of thirty pesos was involved. Evidently, it did not occur to Flores that
the document he himself prepared pertains to the transfer altogether of Fortunato's property to his
mother-in-law. It is precisely in situations such as this when the wisdom of Article 1332 of the Civil
Code readily becomes apparent which is "to protect a party to a contract disadvantaged by illiteracy,
ignorance, mental weakness or some other handicap."58
In sum, we hold that petitioner is no longer entitled to the right of redemption under Article 1632 of the
Civil Code as Lot No. 2319 had long been partitioned among its co-owners. This Court likewise annuls
the contract of sale between Fortunato and private respondent on the ground of vitiated consent.
WHEREFORE, premises considered, the decision dated 25 March 1998 of the Court of Appeals is
hereby REVERSED and SET ASIDE and the decision dated 11 March 1994 of the Regional Trial Court,
Branch 58, San Carlos City, Negros Occidental, dismissing both the complaint and the counterclaim, is
hereby REINSTATED. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 148116

April 14, 2004

ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners,

vs.
MARY ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO
T. ELEOSIDA, HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T.
FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC
TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE DOES, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No.
64940, which reversed and set aside the June 23, 1999 Decision 2 of the Regional Trial Court of Pasig
City, Branch 68, in Civil Case No. 65629, as well as its Resolution dated April 30, 2001 denying the
petitioners motion for reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon3 are the owners of a parcel of land located in San Pablo City, covered by
Transfer Certificate of Title (TCT) No. T-36766 of the Register of Deeds of San Pablo City. 4 On the other
hand, the heirs of Paz Ticzon Eleosida, represented by Gregorio T. Eleosida, are the owners of a parcel
of land located in San Pablo City, covered by TCT No. 36754, also of the Register of Deeds of San Pablo
City.5
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers, offered
to sell to the petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of land covered by
TCT Nos. 36754 and 36766. The petitioners were shown a locator plan and copies of the titles showing
that the owners of the properties were represented by Mary Mediatrix Fernandez and Gregorio T.
Eleosida, respectively. The brokers told the petitioners that they were authorized by respondent
Fernandez to offer the property for sale. The petitioners, thereafter, made two ocular inspections of the
property, in the course of which they saw some people gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met with respondent Fernandez and the two
brokers at the petitioners office in Mandaluyong City. 6 The petitioners and respondent Fernandez
agreed that the petitioners would buy the property consisting of 36,742 square meters, for the price of
P150 per square meter, or the total sum of P5,098,500. They also agreed that the owners would
shoulder the capital gains tax, transfer tax and the expenses for the documentation of the sale. The
petitioners and respondent Fernandez also agreed to meet on December 8, 1995 to finalize the sale. It
was also agreed upon that on the said date, respondent Fernandez would present a special power of
attorney executed by the owners of the property, authorizing her to sell the property for and in their
behalf, and to execute a deed of absolute sale thereon. The petitioners would also remit the purchase
price to the owners, through respondent Fernandez. However, only Agapito Fisico attended the
meeting. He informed the petitioners that respondent Fernandez was encountering some problems with
the tenants and was trying to work out a settlement with them. 7 After a few weeks of waiting, the
petitioners wrote respondent Fernandez on January 5, 1995, demanding that their transaction be
finalized by January 30, 1996.8
When the petitioners received no response from respondent Fernandez, the petitioners sent her
another Letter9 dated February 1, 1996, asking that the Deed of Absolute Sale covering the property be
executed in accordance with their verbal agreement dated November 27, 1995. The petitioners also

demanded the turnover of the subject properties to them within fifteen days from receipt of the said
letter; otherwise, they would have no option but to protect their interest through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February 14, 1996 10
and clarified her stand on the matter in this wise:
1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc. I
do not recall we ever discussed about them. Nonetheless, I made an assurance at that time that
there was no liens/encumbrances and tenants on my property (TCT 36755).
2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of
Absolute Sale. The truth of the matter is that you were the one who emphatically stated that you
would prepare a Contract to Sell and requested us to come back first week of December as you
would be leaving the country then. In fact, what you were demanding from us was to apprise
you of the status of the property, whether we would be able to ascertain that there are really no
tenants. Ms. Alimario and I left your office, but we did not assure you that we would be back on
the first week of December.
Unfortunately, some people suddenly appeared and claiming to be "tenants" for the entire
properties (including those belonging to my other relatives.) Another thing, the Barangay
Captain now refuses to give a certification that our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that due to the
appearance of "alleged tenants" who are demanding for a one-hectare share, my cousin and I
have thereby changed our mind and that the sale will no longer push through. I specifically
instructed her to inform you thru your broker that we will not be attending the meeting to be
held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property
until all problems are fully settled. We have not demanded and received from you any earnest
money, thereby, no obligations exist. In the meantime, we hope that in the future we will
eventually be able to transact business since we still have other properties in San Pablo City. 11
Appended thereto was a copy of respondent Fernandez letter to the petitioners dated January 16,
1996, in response to the latters January 5, 1996 letter.12
On April 12, 1996, the petitioners filed the instant Complaint for specific performance with damages 13
against respondent Fernandez and the registered owners of the property. In their complaint, the
petitioners alleged, inter alia, the following:
4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land covered
by Transfer Certificates of Title Nos. 36766 and 36754 measuring a total of 36,742 square
meters in Barrio Concepcion, San Pablo City. After a brief negotiation, defendants committed
and specifically agreed to sell to plaintiffs 33,990 square meters of the two (2) aforementioned
parcels of land at P150.00 per square meter.
5. The parties also unequivocally agreed to the following:
(a) The transfer tax and all the other fees and expenses for the titling of the subject property in
plaintiffs names would be for defendants account.
(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the aforementioned
33,990 square meters of land in plaintiffs office on 8 December 1995.
6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free
from all liens and encumbrances and that no squatters or tenants occupied them.
7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants,
pursued the purchase of the subject parcels of lands. On 5 January 1996, plaintiffs sent a letter
of even date to defendants, setting the date of sale and payment on 30 January 1996.
7.1 Defendants received the letter on 12 January 1996 but did not reply to it.

8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding
execution of the Deed of Sale.
8.1 Defendants received the same on 6 February 1996. Again, there was no reply.
Defendants thus reneged on their commitment a second time.
9. On 14 February 1996, defendant Fernandez sent a written communication of the same date to
plaintiffs enclosing therein a copy of her 16 January 1996 letter to plaintiffs which plaintiffs
never received before. Defendant Fernandez stated in her 16 January 1996 letter that despite
the meeting of minds among the parties over the 33,990 square meters of land for P150.00 per
square meter on 27 November 1995, defendants suddenly had a change of heart and no longer
wished to sell the same. Paragraph 6 thereof unquestionably shows defendants previous
agreement as above-mentioned and their unjustified breach of their obligations under it.
10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfected contract to
sell.
11. Plaintiffs intended to use the subject property for their subdivision project to support
plaintiffs quarry operations, processing of aggregate products and manufacture of construction
materials. Consequently, by reason of defendants failure to honor their just obligations,
plaintiffs suffered, and continue to suffer, actual damages, consisting in unrealized profits and
cost of money, in the amount of at least P5 Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on account of defendants
fraudulent actuations for which reason defendants are liable to plaintiffs for moral damages in
the amount of at least P1.5 Million.
13. By reason of defendants above-described fraudulent actuations, plaintiffs, despite their
willingness and ability to pay the agreed purchase price, have to date been unable to take
delivery of the title to the subject property. Defendants acted in a wanton, fraudulent and
malevolent manner in violating the contract to sell. By way of example or correction for the
public good, defendants are liable to plaintiff for exemplary damages in the amount of
P500,000.00.
14. Defendants bad faith and refusal to honor their just obligations to plaintiffs constrained the
latter to litigate and to engage the services of undersigned counsel for a fee in the amount of at
least P250,000.00.14
The petitioners prayed that, after due hearing, judgment be rendered in their favor ordering the
respondents to
(a) Secure at defendants expense all clearances from the appropriate government agencies
that will enable defendants to comply with their obligations under the Contract to Sell;
(b) Execute a Contract to Sell with terms agreed upon by the parties;
(c) Solidarily pay the plaintiffs the following amounts:
1. P5,000,000.00 in actual damages;
2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;
4. P250,000.00 in attorneys fees.15
On July 5, 1996, respondent Fernandez filed her Answer to the complaint. 16 She claimed that while the
petitioners offered to buy the property during the meeting of November 27, 1995, she did not accept
the offer; thus, no verbal contract to sell was ever perfected. She specifically alleged that the said
contract to sell was unenforceable for failure to comply with the statute of frauds. She also maintained
that even assuming arguendo that she had, indeed, made a commitment or promise to sell the

property to the petitioners, the same was not binding upon her in the absence of any consideration
distinct and separate from the price. She, thus, prayed that judgment be rendered as follows:
1. Dismissing the Complaint, with costs against the plaintiffs;
2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral damages in the amount of
not less than P2,000,000.00 and exemplary damages in the amount of not less than
P500,000.00 and attorneys fees and reimbursement expenses of litigation in the amount of
P300,000.00.17
On September 24, 1997, the trial court, upon motion of the petitioners, declared the other respondents
in default for failure to file their responsive pleading within the reglementary period. 18 At the pre-trial
conference held on March 2, 1998, the parties agreed that the following issues were to be resolved by
the trial court: (1) whether or not there was a perfected contract to sell; (2) in the event that there was,
indeed, a perfected contract to sell, whether or not the respondents breached the said contract to sell;
and (3) the corollary issue of damages.19
Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of the
properties in San Pablo City "on a best offer basis." She was later informed by Alimario that the
petitioners were interested to buy the properties. On November 27, 1995, along with Alimario and
another person, she met with the petitioners in the latters office and told them that she was at the
conference merely to hear their offer, that she could not bind the owners of the properties as she had
no written authority to sell the same. The petitioners offered to buy the property at P150 per square
meter. After the meeting, respondent Fernandez requested Joy Marquez to secure a barangay clearance
stating that the property was free of any tenants. She was surprised to learn that the clearance could
not be secured. She contacted a cousin of hers, also one of the owners of the property, and informed
him that there was a prospective buyer of the property but that there were tenants thereon. Her cousin
told her that he was not selling his share of the property and that he was not agreeable to the price of
P150 per square meter. She no longer informed the other owners of the petitioners offer. Respondent
Fernandez then asked Alimario to apprise the petitioners of the foregoing developments, through their
agent, Agapito Fisico. She was surprised to receive a letter from the petitioners dated January 5, 1996.
Nonetheless, she informed the petitioners that she had changed her mind in pursuing the negotiations
in a Letter dated January 18, 1996. When she received petitioners February 1, 1996 Letter, she sent a
Reply-Letter dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in favor of the petitioners on June 23, 1999, 20
the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of plaintiffs
ANTONIO K. LITONJUA and AURELIO K. LITONJUA and against defendants MARY MEDIATRIX T.
FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN
DOES and JANE DOES; HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T.
FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC
TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE DOES, ordering defendants to:
1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms agreed upon
by the parties and to secure all clearances from the concerned government agencies and
removal of any tenants from the subject property at their expense to enable defendants
to comply with their obligations under the perfected agreement to sell; and
2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000.00) Pesos as and by way
of attorneys fees.21
On appeal to the Court of Appeals, the respondents ascribed the following errors to the court a quo:
I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A PERFECTED CONTRACT OF SALE
OF THE TWO LOTS ON NOVEMBER 27, 1995.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBAL CONTRACT OF SALE AS
CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND AURELIO LITONJUA WAS
UNENFORCEABLE.

III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OF DEFENDANT-APPELLANT
FERNANDEZ DATED JANUARY 16, 1996 WAS A CONFIRMATION OF THE PERFECTED SALE AND
CONSTITUTED AS WRITTEN EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIAL POWER OF ATTORNEY WAS
REQUIRED IN ORDER THAT DEFENDANT-APPELLANT FERNANDEZ COULD NEGOTIATE THE SALE
ON BEHALF OF THE OTHER REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING ATTORNEYS FEES IN THE DISPOSITIVE PORTION OF
THE DECISION WITHOUT STATING THE BASIS IN THE TEXT OF SAID DECISION. 22
On February 28, 2001, the appellate court promulgated its decision reversing and setting aside the
judgment of the trial court and dismissing the petitioners complaint, as well as the respondents
counterclaim.23 The appellate court ruled that the petitioners failed to prove that a sale or a contract to
sell over the property between the petitioners and the private respondent had been perfected.
Hence, the instant petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The petitioners submit the following issues for the Courts resolution:
A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE STATUTE OF
FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE BENEFITED BY THE
ASSAILED DECISION OF THE COURT OF APPEALS. 24
The petition has no merit.
The general rule is that the Courts jurisdiction under Rule 45 of the Rules of Court is limited to the
review of errors of law committed by the appellate court. As the findings of fact of the appellate court
are deemed continued, this Court is not duty-bound to analyze and calibrate all over again the evidence
adduced by the parties in the court a quo.25 This rule, however, is not without exceptions, such as
where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory. 26
Indeed, in this case, the findings of the trial court and its conclusion based on the said findings
contradict those of the appellate court. However, upon careful review of the records of this case, we
find no justification to grant the petition. We, thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners assert that there was a perfected contract
of sale between the petitioners as buyers and the respondents-owners, through respondent Fernandez,
as sellers. The petitioners contend that the perfection of the said contract is evidenced by the January
16, 1996 Letter of respondent Fernandez.27 The pertinent portions of the said letter are as follows:
[M]y cousin and I have thereby changed our mind and that the sale will no longer push
through. I specifically instructed her to inform you thru your broker that we will not be attending
the meeting to be held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property
until all problems are fully settled. We have not demanded and received from you any earnest
money, thereby, no obligations exist28
The petitioners argue that the letter is a sufficient note or memorandum of the perfected contract,
thus, removing it from the coverage of the statute of frauds. The letter specifically makes reference to a
sale which respondent Fernandez agreed to initially, but which the latter withdrew because of the
emergence of some people who claimed to be tenants on both parcels of land. According to the
petitioners, the respondents-owners, in their answer to the complaint, as well as respondent Fernandez
when she testified, admitted the authenticity and due execution of the said letter. Besides, when the
petitioner Antonio Litonjua testified on the contract of sale entered into between themselves and the
respondents-owners, the latter did not object thereto. Consequently, the respondents-owners thereby
ratified the said contract of sale. The petitioners thus contend that the appellate courts declaration
that there was no perfected contract of sale between the petitioners and the respondents-owners is
belied by the evidence, the pleadings of the parties, and the law.

The petitioners contention is bereft of merit. In its decision, the appellate court ruled that the Letter of
respondent Fernandez dated January 16, 1996 is hardly the note or memorandum contemplated under
Article 1403(2)(e) of the New Civil Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they are ratified:

(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 secondary evidence of its contents:

(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.29
The appellate court based its ruling on the following disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be said
to constitute the note or memorandum evidencing the agreement of the parties to enter into a
contract of sale as it is very clear that defendant-appellant as seller did not accept the condition
that she will be the one to pay the registration fees and miscellaneous expenses and therein
also categorically denied she had already committed to execute the deed of sale as claimed by
the plaintiffs-appellees. The letter, in fact, stated the reasons beyond the control of the
defendant-appellant, why the sale could no longer push through because of the problem with
tenants. The trial court zeroed in on the statement of the defendant-appellant that she and her
cousin changed their minds, thereby concluding that defendant-appellant had unilaterally
cancelled the sale or backed out of her previous commitment. However, the tenor of the letter
actually reveals a consistent denial that there was any such commitment on the part of
defendant-appellant to sell the subject lands to plaintiffs-appellees. When defendant-appellant
used the words "changed our mind," she was clearly referring to the decision to sell the property
at all (not necessarily to plaintiffs-appellees) and not in selling the property to herein plaintiffsappellees as defendant-appellant had not yet made the final decision to sell the property to said
plaintiffs-appellees. This conclusion is buttressed by the last paragraph of the subject letter
stating that "we are no longer selling the property until all problems are fully settled." To read a
definite previous agreement for the sale of the property in favor of plaintiffs-appellees into the
contents of this letter is to unduly restrict the freedom of the contracting parties to negotiate
and prejudice the right of every property owner to secure the best possible offer and terms in
such sale transactions. We believe, therefore, that the trial court committed a reversible error in
finding that there was a perfected contract of sale or contract to sell under the foregoing
circumstances. Hence, the defendant-appellant may not be held liable in this action for specific
performance with damages.30
In Rosencor Development Corporation vs. Court of Appeals,31 the term "statute of frauds" is descriptive
of statutes which 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. The purpose of the statute is to prevent
fraud and perjury in the enforcement of obligations, depending for their existence 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. The statute is satisfied or, as it is often stated, a contract or
bargain is taken within the statute by making and executing a note or memorandum of the contract
which is sufficient to state the requirements of the statute.32 The application of such statute
presupposes the existence of a perfected contract. However, for a note or memorandum to satisfy the
statute, it must be complete in itself and cannot rest partly in writing and partly in parol. The note or
memorandum must contain the names of the parties, the terms and conditions of the contract and a
description of the property sufficient to render it capable of identification. 33 Such note or memorandum
must contain the essential elements of the contract expressed with certainty that may be ascertained
from the note or memorandum itself, or some other writing to which it refers or within which it is
connected, without resorting to parol evidence.34 To be binding on the persons to be charged, such note
or memorandum must be signed by the said party or by his agent duly authorized in writing.35

In City of Cebu v. Heirs of Rubi,36 we held that the exchange of written correspondence between the
parties may constitute sufficient writing to evidence the agreement for purposes of complying with the
statute of frauds.
In this case, we agree with the findings of the appellate court that there was no perfected contract of
sale between the respondents-owners, as sellers, and the petitioners, as buyers.
There is no documentary evidence on record that the respondents-owners specifically authorized
respondent Fernandez to sell their properties to another, including the petitioners. Article 1878 of the
New Civil Code provides that a special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration,37 or to create or convey real rights over immovable property,38 or for any other act of
strict dominion.39 Any sale of real property by one purporting to be the agent of the registered owner
without any authority therefor in writing from the said owner is null and void. 40 The declarations of the
agent alone are generally insufficient to establish the fact or extent of her authority. 41 In this case, the
only evidence adduced by the petitioners to prove that respondent Fernandez was authorized by the
respondents-owners is the testimony of petitioner Antonio Litonjua that respondent Fernandez openly
represented herself to be the representative of the respondents-owners, 42 and that she promised to
present to the petitioners on December 8, 1996 a written authority to sell the properties. 43 However,
the petitioners claim was belied by respondent Fernandez when she testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?
A I told them that I was there representing myself as one of the owners of the properties, and I
was just there to listen to his proposal because that time, we were just looking for the best offer
and I did not have yet any written authorities from my brother and sisters and relatives. I cannot
agree on anything yet since it is just a preliminary meeting, and so, I have to secure authorities
and relate the matters to my relatives, brother and sisters, sir.
Q And what else was taken up?
A Mr. Antonio Litonjua told me that they will be leaving for another country and he requested me
to come back on the first week of December and in the meantime, I should make an assurance
that there are no tenants in our properties, sir.44
The petitioners cannot feign ignorance of respondent Fernandez lack of authority to sell the properties
for the respondents-owners. It must be stressed that the petitioners are noted businessmen who ought
to be very familiar with the intricacies of business transactions, such as the sale of real property.
The settled rule is that persons dealing with an assumed agent are bound at their peril, and 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 prove it. 45 In this
case, respondent Fernandez specifically denied that she was authorized by the respondents-owners to
sell the properties, both in her answer to the complaint and when she testified. The Letter dated
January 16, 1996 relied upon by the petitioners was signed by respondent Fernandez alone, without any
authority from the respondents-owners. There is no evidence on record that the respondents-owners
ratified all the actuations of respondent Fernandez in connection with her dealings with the petitioners.
As such, said letter is not binding on the respondents as owners of the subject properties.
Contrary to the petitioners contention, the letter of January 16, 1996 46 is not a note or memorandum
within the context of Article 1403(2) because it does not contain the following: (a) all the essential
terms and conditions of the sale of the properties; (b) an accurate description of the property subject of
the sale; and, (c) the names of the respondents-owners of the properties. Furthermore, the letter made
reference to only one property, that covered by TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the specific area of the properties they
were seeking to buy. In their complaint, they alleged to have agreed to buy from the respondentsowners 33,990 square meters of the total acreage of the two lots consisting of 36,742 square meters. In
their Letter to respondent Fernandez dated January 5, 1996, the petitioners stated that they agreed to
buy the two lots, with a total area of 36,742 square meters.47 However, in their Letter dated February 1,
1996, the petitioners declared that they agreed to buy a portion of the properties consisting of 33,990
square meters.48 When he testified, petitioner Antonio Litonjua declared that the petitioners agreed to
buy from the respondents-owners 36,742 square meters at P150 per square meter or for the total price
of P5,098,500.49

The failure of respondent Fernandez to object to parol evidence to prove (a) the essential terms and
conditions of the contract asserted by the petitioners and, (b) her authority to sell the properties for the
respondents-registered owners did not and should not prejudice the respondents-owners who had been
declared in default.50
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the appellate court is
AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160488

September 3, 2004

FELOMINA1 ABELLANA, petitioner,

vs.
SPOUSES ROMEO PONCE and LUCILA PONCE and the REGISTER OF DEEDS of BUTUAN CITY,
respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari assailing the June 16, 2003 decision 2 of the Court of Appeals in
CA-G.R. CV No. 69213, which reversed and set aside the August 28, 2000 decision 3 of the Regional Trial
Court of Butuan City, Branch 2, in Civil Case No. 4270.
The facts as testified to by petitioner Felomina Abellana are as follows:
On July 15, 1981, Felomina, a spinster, pharmacist and aunt of private respondent Lucila Ponce,
purchased from the late Estela Caldoza-Pacres a 44,2974 square meter agricultural lot5 with the
intention of giving said lot to her niece, Lucila. Thus, in the deed of sale, 6 the latter was designated as
the buyer of Lot 3, Pcs-10-000198, covered by Original Certificate of Title No. P-27, Homestead Patent
No. V-1551 and located at Los Angeles, Butuan City.7 The total consideration of the sale was
P16,500.00, but only P4,500.00 was stated in the deed upon the request of the seller. 8

Subsequently, Felomina applied for the issuance of title in the name of her niece. On April 28, 1992,
Transfer Certificate of Title (TCT) No. 28749 over the subject lot was issued in the name of Lucila.10 Said
title, however, remained in the possession of Felomina who developed the lot through Juanario Torreon 11
and paid real property taxes thereon.12
The relationship between Felomina and respondent spouses Romeo and Lucila Ponce, however, turned
sour. The latter allegedly became disrespectful and ungrateful to the point of hurling her insults and
even attempting to hurt her physically. Hence, Felomina filed the instant case for revocation of implied
trust to recover legal title over the property.13
Private respondent spouses Lucila, also a pharmacist, and Romeo, a marine engineer, on the other
hand, claimed that the purchase price of the lot was only P4,500.00 and that it was them who paid the
same. The payment and signing of the deed of sale allegedly took place in the office of Atty. Teodoro
Emboy in the presence of the seller and her siblings namely, Aquilino Caldoza and the late Lilia
Caldoza.14
A year later, Juanario approached Lucila and volunteered to till the lot, to which she agreed. 15 In 1987,
the spouses consented to Felominas proposal to develop and lease the lot. They, however, shouldered
the real property taxes on the lot, which was paid through Felomina. In 1990, the spouses demanded
rental from Felomina but she refused to pay because her agricultural endeavor was allegedly not
profitable.16
When Lucila learned that a certificate of title in her name had already been issued, she confronted
Felomina who claimed that she already gave her the title. Thinking that she might have misplaced the
title, Lucila executed an affidavit of loss which led to the issuance of another certificate of title in her
name.17
On August 28, 2000, the trial court rendered a decision holding that an implied trust existed between
Felomina and Lucila, such that the latter is merely holding the lot for the benefit of the former. It thus
ordered the conveyance of the subject lot in favor of Felomina. The dispositive portion thereof, reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered declaring, directing and
ordering that:
a) An implied trust was created with plaintiff as trustor and private defendant
Lucila A. Ponce married to private defendant Engr. Romeo D. Ponce as trustee
pursuant to Article 1448 of the New Civil Code;
b) The implied trust, having been created without the consent of the trustee and
without any condition, is revoked;
c) The private defendants, who are spouses, execute the necessary deed of
conveyance in favor of the plaintiff of the land, covered by and embraced in TCT
NO. T-2874, in controversy and in the event private defendants refuse to execute
the deed of conveyance, the public defendant City Register of Deeds of Butuan to
cancel TCT No. T-2874 and issue a new one in lieu thereof in the name of the
plaintiff;
d) The private defendants spouses to pay jointly and severally plaintiff the sum of
PhP25,000.00 as attorneys fees and PhP4,000.00 as expenses of litigation;
e) The dismissal of the counterclaim of private defendants spouses[;] and
f) The private defendants to pay the costs.
SO ORDERED.18
Private respondent spouses appealed to the Court of Appeals which set aside the decision of the trial
court ruling that Felomina failed to prove the existence of an implied trust and upheld respondent
spouses ownership over the litigated lot. The appellate court further held that even assuming that
Felomina paid the purchase price of the lot, the situation falls within the exception stated in Article
1448 of the Civil Code which raises a disputable presumption that the property was purchased by

Felomina as a gift to Lucila whom she considered as her own daughter. The decretal portion thereof,
states
WHEREFORE, premises considered, the appealed decision of the Regional Trial Court,
Branch 2, Butuan City, in Civil Case No. 4270, is hereby REVERSED AND SET ASIDE. A
new one is heretofore rendered dismissing the complaint below of plaintiff-appellee,
F[e]lomina Abellana.
SO ORDERED.19
Felomina filed a motion for reconsideration but the same was denied. 20 Hence, the instant petition.
The issue before us is: Who, as between Felomina and respondent spouses, is the lawful owner of the
controverted lot? To resolve this issue, it is necessary to determine who paid the purchase price of the
lot.
After a thorough examination of the records and transcript of stenographic notes, we find that it was
Felomina and not Lucila who truly purchased the questioned lot from Estela. The positive and consistent
testimony of Felomina alone, that she was the real vendee of the lot, is credible to debunk the contrary
claim of respondent spouses. Indeed, the lone testimony of a witness, if credible, is sufficient as in the
present case.21 Moreover, Aquilino Caldoza, brother of the vendor and one of the witnesses 22 to the
deed of sale, categorically declared that Felomina was the buyer and the one who paid the purchase
price to her sister, Estela.23
Then too, Juanario, who was allegedly hired by Lucila to develop the lot, vehemently denied that he
approached and convinced Lucila to let him till the land. According to Juanario, he had never spoken to
Lucila about the lot and it was Felomina who recruited him to be the caretaker of the litigated
property.24
The fact that it was Felomina who bought the lot was further bolstered by her possession of the
following documents from the time of their issuance up to the present, to wit: (1) the transfer certificate
of title25 and tax declaration in the name of Lucila;26 (2) the receipts of real property taxes in the name
of Felomina Abellana for the years 1982-1984, 1992-1994 and 1995; 27 and (3) the survey plan of the
lot.28
Having determined that it was Felomina who paid the purchase price of the subject lot, the next
question to resolve is the nature of the transaction between her and Lucila.
It appears that Felomina, being of advanced age29 with no family of her own, used to purchase
properties and afterwards give them to her nieces. In fact, aside from the lot she bought for Lucila
(marked as Exhibit "R-2"), she also purchased 2 lots, one from Aquilino Caldoza (marked as Exhibit "R1") and the other from Domiciano Caldoza (marked as Exhibit "R-3"), which she gave to Zaida Bascones
(sister of Lucila), thus:
Q I am showing to you again Exhibit R, according to you[,] you bought Exhibits R-1, R-2
and R-3, do you remember that?
A Yes sir.
xxx

xxx

xxx

Q Aquilin[o] Caldoza conveyed this land in Exhibit R-1 to you?

A Yes, sir.
Q Is this now titled in your name?
A No. I was planning to give this land to my nieces. One of which [was] already given to
Mrs. [Lucila] Ponce.
Q I am talking only about this lot in Exhibit R-1[.]

A Not in my name.
Q In whose name was this lot in Exhibit R-1 now?
A In the name of Zaida Bascones.
Q Who prepared the deed of sale?
A At the start it was in the name of Rudy [Torreon].30 Because Rudy [Torreon] knew that
there is some trouble already about that lot he made a deed of sale to the name of Zaida
Bascones, which I planned to give that land to her (sic).
Q As regards Exhibit R-1, you bought it actually?
A Yes, sir.
Q But the original deed of sale was in the name of Rudolfo [Torreon]?
A Yes, sir.
Q And later on Rudolfo [Torreon] again transferred it to Zaida Bascones?
A Yes, sir.31
Likewise, in the case of Lucila, though it was Felomina who paid for the lot, she had Lucila designated in
the deed as the vendee thereof and had the title of the lot issued in Lucilas name. It is clear therefore
that Felomina donated the land to Lucila. This is evident from her declarations, viz:
Witness
A In 1981 there was a riceland offered so I told her that I will buy that land and I
will give to her later (sic), because since 1981 up to 1992 Mrs. Lucila Ponce has no job.
Q Where is the land located?
A In Los Angeles, Butuan City.
Q Who was the owner of this land?
A The owner of that land is Mrs. Estela Caldoza-Pacr[e]s.
The husband is Pacr[e]s.
xxx

xxx

xxx

Q What did you do with this land belonging to Mrs. Estela-Caldoza- Pacr[e]s?
A I paid the lot, then worked the lot, since at the start of my buying the lot until now (sic).
Q You said that you told Lucila Ponce that you would give the land to her later
on, what did you do in connection with this intention of yours to give the land
to her?
A So I put the name of the title in her name in good faith (sic).
Q You mean to tell the court that when you purchased this land located at Los Angeles,
Butuan City, the instrument of sale or the deed of sale was in the name of Lucila Ponce?
A Yes, sir.32

xxx

xxx

xxx

Q Did you not ask your adviser Rudolfo [Torreon] whether it was wise for you to place the
property in the name of Lucila Ponce when you are the one who is the owner?
A Because we have really the intention to give it to her.33
Generally, contracts are obligatory in whatever form they 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 in order that it may be valid, that requirement is absolute and indispensable. Its nonobservance renders the contract void and of no effect.34 Thus, under Article 749 of the Civil Code
Article 749. In order that the donation of an immovable property may be valid, it must be
made in a public document, specifying therein the property donated and the value of the
charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but it
shall not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic
form, and this step shall be noted in both instruments.
In the instant case, what transpired between Felomina and Lucila was a donation of an immovable
property which was not embodied in a public instrument as required by the foregoing article. Being an
oral donation, the transaction was void.35 Moreover, even if Felomina enjoyed the fruits of the land with
the intention of giving effect to the donation after her demise, the conveyance is still a void donation
mortis causa, for non-compliance with the formalities of a will.36 No valid title passed regardless of the
intention of Felomina to donate the property to Lucila, because the naked intent to convey without the
required solemnities does not suffice for gratuitous alienations, even as between the parties inter se.37
At any rate, Felomina now seeks to recover title over the property because of the alleged ingratitude of
the respondent spouses.
Unlike ordinary contracts (which are perfected by the concurrence of the requisites of consent, object
and cause pursuant to Article 131838 of the Civil Code), solemn contracts like donations are perfected
only upon compliance with the legal formalities under Articles 748 39 and 749.40 Otherwise stated,
absent the solemnity requirements for validity, the mere intention of the parties does not give rise to a
contract. The oral donation in the case at bar is therefore legally inexistent and an action for the
declaration of the inexistence of a contract does not prescribe. 41 Hence, Felomina can still recover title
from Lucila.
Article 144842 of the Civil Code on implied trust finds no application in the instant case. The concept of
implied trusts is that from the facts and circumstances of a given case, the existence of a trust
relationship is inferred in order to effect the presumed intention of the parties. 43 Thus, one of the
recognized exceptions to the establishment of an implied trust is where a contrary intention is proved, 44
as in the present case. From the testimony of Felomina herself, she wanted to give the lot to Lucila as a
gift. To her mind, the execution of a deed with Lucila as the buyer and the subsequent issuance of title
in the latters name were the acts that would effectuate her generosity. In so carrying out what she
conceived, Felomina evidently displayed her unequivocal intention to transfer ownership of the lot to
Lucila and not merely to constitute her as a trustee thereof. It was only when their relationship soured
that she sought to revoke the donation on the theory of implied trust, though as previously discussed,
there is nothing to revoke because the donation was never perfected.
In declaring Lucila as the owner of the disputed lot, the Court of Appeals applied, among others, the
second sentence of Article 1448 which states
"x x x However, if the person to whom the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor of the child."
Said presumption also arises where the property is given to a person to whom the person paying the
price stands in loco parentis or as a substitute parent.45

The abovecited provision, however, is also not applicable here because, first, it was not established that
Felomina stood as a substitute parent of Lucila; and second, even assuming that she did, the donation
is still void because the transfer and acceptance was not embodied in a public instrument. We note that
said provision merely raised a presumption that the conveyance was a gift but nothing therein exempts
the parties from complying with the formalities of a donation. Dispensation of such solemnities would
give rise to anomalous situations where the formalities of a donation and a will in donations inter vivos,
and donations mortis causa, respectively, would be done away with when the transfer of the property is
made in favor of a child or one to whom the donor stands in loco parentis. Such a scenario is clearly
repugnant to the mandatory nature of the law on donation.
While Felomina sought to recover the litigated lot on the ground of implied trust and not on the
invalidity of donation, the Court is clothed with ample authority to address the latter issue in order to
arrive at a just decision that completely disposes of the controversy. 46 Since rules of procedure are mere
tools designed to facilitate the attainment of justice, they must be applied in a way that equitably and
completely resolve the rights and obligations of the parties. 47
As to the trial courts award of attorneys fees and litigation expenses, the same should be deleted for
lack of basis. Aside from the allegations in the complaint, no evidence was presented in support of said
claims. The trial court made these awards in the dispositive portion of its decision without stating any
justification therefor in the ratio decidendi. Their deletion is therefore proper. 48
Finally, in deciding in favor of Felomina, the trial court ordered respondent spouses to execute a deed of
sale over the subject lot in favor of Felomina in order to effect the transfer of title to the latter. The
proper remedy, however, is provided under Section 10 (a), Rule 39 of the Revised Rules of Civil
Procedure which provides that "x x x [i]f real or personal property is situated within the Philippines, the
court in lieu of directing a conveyance thereof may by an order divest the title of any party and vest it
in others, which shall have the force and effect of a conveyance executed in due form of law."
WHEREFORE, in view of all the foregoing, the petition is GRANTED and the June 16, 2003 decision of
the Court of Appeals in CA-G.R. CV No. 69213 is REVERSED and SET ASIDE. The August 28, 2000
decision of the Regional Trial Court of Butuan City, Branch 2, in Civil Case No. 4270, is REINSTATED
with the following MODIFICATIONS:
(1) Declaring petitioner Felomina Abellana as the absolute owner of Lot 3, Pcs-10000198;
(2) Ordering the Register of Deeds of Butuan City to cancel TCT No. T-2874 in the name
of respondent Lucila Ponce and to issue a new one in the name of petitioner Felomina
Abellana; and
(3) Deleting the awards of attorneys fees and litigation expenses for lack of basis.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 155208

March 27, 2007

NENA LAZALITA* TATING, Petitioner,

vs.
FELICIDAD TATING MARCELLA, represented by SALVADOR MARCELLA, CARLOS TATING, and
the COURT OF APPEALS, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Assailed in the Special Civil Action for Certiorari before the Court are the Decision1 dated February 22,
2002 and the Resolution dated August 22, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 64122,
which affirmed the Decision2 of the Regional Trial Court (RTC) of Cadiz City, Negros Occidental, Branch
60.
The present case arose from a controversy involving a parcel of land denominated as Lot 56 of
Subdivision plan Psd-31182, located at Abelarde St., Cadiz City, Negros Occidental. The subject lot,
containing an area of 200 square meters, was owned by Daniela Solano Vda. de Tating (Daniela) as
evidenced by Transfer Certificate of Title (TCT) No. T-4393 issued by the Registry of Deeds of the City of
Cadiz.3
On October 14, 1969, Daniela sold the subject property to her granddaughter, herein petitioner Nena
Lazalita Tating (Nena). The contract of sale was embodied in a duly notarized Deed of Absolute Sale
executed by Daniela in favor of Nena.4 Subsequently, title over the subject property was transferred in
the name of Nena.5 She declared the property in her name for tax purposes and paid the real estate
taxes due thereon for the years 1972, 1973, 1975 to 1986 and 1988. 6 However, the land remained in
possession of Daniela.
On December 28, 1977, Daniela executed a sworn statement claiming that she had actually no
intention of selling the property; the true agreement between her and Nena was simply to transfer title
over the subject property in favor of the latter to enable her to obtain a loan by mortgaging the subject
property for the purpose of helping her defray her business expenses; she later discovered that Nena
did not secure any loan nor mortgage the property; she wants the title in the name of Nena cancelled
and the subject property reconveyed to her.7
Daniela died on July 29, 19888 leaving her children as her heirs, namely: Ricardo, Felicidad, Julio, Carlos
and Cirilo who predeceased Daniela and was represented by herein petitioner.
In a letter dated March 1, 1989, Carlos informed Nena that when Daniela died they discovered the
sworn statement she executed on December 28, 1977 and, as a consequence, they are demanding
from Nena the return of their rightful shares over the subject property as heirs of Daniela. 9 Nena did not
reply. Efforts to settle the case amicably proved futile.
Hence, on September 6, 1989, Carlos and Felicidad, represented by her son Salvador, filed a complaint
with the RTC of Cadiz City, Negros Occidental against Nena praying for the nullification of the Deed of

Absolute Sale executed by Daniela in her favor, cancellation of the TCT issued in the name of Nena, and
issuance of a new title and tax declaration in favor of the heirs of Daniela. 10 The complaint also prayed
for the award of moral and exemplary damages as well as attorneys fees and litigation expenses. On
March 19, 1993, the plaintiffs filed an amended complaint with leave of court for the purpose of
excluding Ricardo as a party plaintiff, he having died intestate and without issue in March 1991. 11 He
left Carlos, Felicidad, Julio, and Nena as his sole heirs.
In her Answer, Nena denied that any fraud or misrepresentation attended the execution of the subject
Deed of Absolute Sale. She also denied having received the letter of her uncle, Carlos. She prayed for
the dismissal of the complaint, and in her counterclaim, she asked the trial court for the award of
actual, exemplary and moral damages as well as attorneys fees and litigation expenses. 12
Trial ensued. On November 4, 1998, the RTC rendered judgment with the following dispositive portion:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the plaintiffs and
against the defendant, and hereby declaring the document of sale dated October 14, 1969 (Exh. "Q")
executed between Daniela Solano Vda. de Tating and Nena Lazalita Tating as NULL and VOID and
further ordering:
1. The Register of Deeds of Cadiz City to cancel TCT No. 5975 and in lieu thereof to issue a new
title in the names of Carlos Tating, Pro-indiviso owner of one-fourth () portion of the property;
Felicidad Tating Marcella, Pro-indiviso owner of one-fourth () portion; Julio Tating, Pro-indiviso
owner of one-fourth () portion and Nena Lazalita Tating, Pro-indiviso owner of one-fourth ()
portion, all of lot 56 after payment of the prescribed fees;
2. The City Assessor of the City of Cadiz to cancel Tax Declaration No. 143-00672 and in lieu
thereof issue a new Tax Declaration in the names of Carlos Tating, Pro-indiviso portion;
Felicidad Tating Marcella, Pro-indiviso portion; Julio Tating, Pro-indiviso portion; and Nena
Lazalita Tating, Pro-indiviso portion, all of lot 56 as well as the house standing thereon be
likewise declared in the names of the persons mentioned in the same proportions as abovestated after payment of the prescribed fees;
3. The defendant is furthermore ordered to pay plaintiffs the sum of P20,000.00 by way of moral
damages, P10,000.00 by way of exemplary damages, P5,000.00 by way of attorneys fees and
P3,000.00 by way of litigation expenses; and to
4. Pay the costs of suit.
SO ORDERED.13
Nena filed an appeal with the CA. On February 22, 2002, the CA rendered its Decision affirming the
judgment of the RTC.14
Nenas Motion for Reconsideration was denied by the CA in its Resolution dated August 22, 2002. 15

Hence, herein petition for certiorari anchored on the ground that the CA "has decided the instant case
without due regard to and in violation of the applicable laws and Decisions of this Honorable Court and
also because the Decision of the Regional Trial Court, which it has affirmed, is not supported by and is
even against the evidence on record."16
At the outset, it must be stated that the filing of the instant petition for certiorari under Rule 65 of the
Rules of Court is inappropriate. Considering that the assailed Decision and Resolution of the CA finally
disposed of the case, the proper remedy is a petition for review under Rule 45 of the Rules of Court.
The Court notes that while the instant petition is denominated as a Petition for Certiorari under Rule 65
of the Rules of Court, there is no allegation that the CA committed grave abuse of discretion. On the
other hand, the petition actually avers errors of judgment, rather than of jurisdiction, which are the
proper subjects of a petition for review on certiorari. Hence, in accordance with the liberal spirit
pervading the Rules of Court and in the interest of justice, the Court decided to treat the present
petition for certiorari as having been filed under Rule 45, especially considering that it was filed within
the reglementary period for filing the same.17
As to the merits of the case, petitioner contends that the case for the private respondents rests on the
proposition that the Deed of Absolute Sale dated October 14, 1969 is simulated because Danielas
actual intention was not to dispose of her property but simply to help petitioner by providing her with a
collateral. Petitioner asserts that the sole evidence which persuaded both the RTC and the CA in holding
that the subject deed was simulated was the Sworn Statement of Daniela dated December 28, 1977.
However, petitioner argues that said Sworn Statement should have been rejected outright by the lower
courts considering that Daniela has long been dead when the document was offered in evidence,
thereby denying petitioner the right to cross-examine her.
Petitioner also contends that while the subject deed was executed on October 14, 1969, the Sworn
Statement was purportedly executed only on December 28, 1977 and was discovered only after the
death of Daniela in 1994.18 Petitioner argues that if the deed of sale is indeed simulated, Daniela would
have taken action against the petitioner during her lifetime. However, the fact remains that up to the
time of her death or almost 20 years after the Deed of Absolute Sale was executed, she never uttered a
word of complaint against petitioner.
Petitioner further asserts that the RTC and the CA erred in departing from the doctrine held time and
again by the Supreme Court that clear, strong and convincing evidence beyond mere preponderance is
required to show the falsity or nullity of a notarial document. Petitioner also argues that the RTC and the
CA erred in its pronouncement that the transaction between Daniela and petitioner created a trust
relationship between them because of the settled rule that where the terms of a contract are clear, it
should be given full effect.
In their Comment and Memorandum, private respondents contend that petitioner failed to show that
the CA or the RTC committed grave abuse of discretion in arriving at their assailed judgments; that
Danielas Sworn Statement is sufficient evidence to prove that the contract of sale by and between her
and petitioner was merely simulated; and that, in effect, the agreement between petitioner and Daniela
created a trust relationship between them.

The Court finds for the petitioner.

The CA and the trial court ruled that the contract of sale between petitioner and Daniela is simulated. A
contract is simulated if the parties do not intend to be bound at all (absolutely simulated) or if the
parties conceal their true agreement (relatively simulated). 19 The primary consideration in determining
the true nature of a contract is the intention of the parties.20 Such intention is determined from the
express terms of their agreement as well as from their contemporaneous and subsequent acts. 21
In the present case, the main evidence presented by private respondents in proving their allegation
that the subject deed of sale did not reflect the true intention of the parties thereto is the sworn
statement of Daniela dated December 28, 1977. The trial court admitted the said sworn statement as
part of private respondents evidence and gave credence to it. The CA also accorded great probative
weight to this document.
There is no issue in the admissibility of the subject sworn statement. However, the admissibility of
evidence should not be equated with weight of evidence.22 The admissibility of evidence depends on its
relevance and competence while the weight of evidence pertains to evidence already admitted and its
tendency to convince and persuade.23 Thus, a particular item of evidence may be admissible, but its
evidentiary weight depends on judicial evaluation within the guidelines provided by the rules of
evidence.24 It is settled that affidavits are classified as hearsay evidence since they are not generally
prepared by the affiant but by another who uses his own language in writing the affiants statements,
which may thus be either omitted or misunderstood by the one writing them. 25 Moreover, the adverse
party is deprived of the opportunity to cross-examine the affiant.26 For this reason, affidavits are
generally rejected for being hearsay, unless the affiants themselves are placed on the witness stand to
testify thereon.27 The Court finds that both the trial court and the CA committed error in giving the
sworn statement probative weight. Since Daniela is no longer available to take the witness stand as she
is already dead, the RTC and the CA should not have given probative value on Danielas sworn
statement for purposes of proving that the contract of sale between her and petitioner was simulated
and that, as a consequence, a trust relationship was created between them.
Private respondents should have presented other evidence to sufficiently prove their allegation that
Daniela, in fact, had no intention of disposing of her property when she executed the subject deed of
sale in favor of petitioner. As in all civil cases, the burden is on the plaintiff to prove the material
allegations of his complaint and he must rely on the strength of his evidence and not on the weakness
of the evidence of the defendant.28 Aside from Danielas sworn statement, private respondents failed to
present any other documentary evidence to prove their claim. Even the testimonies of their witnesses
failed to establish that Daniela had a different intention when she entered into a contract of sale with
petitioner.
In Suntay v. Court of Appeals,29 the Court ruled that the most protuberant index of simulation is the
complete absence, on the part of the vendee, of any attempt in any manner to assert his rights of
ownership over the disputed property.30 In the present case, however, the evidence clearly shows that
petitioner declared the property for taxation and paid realty taxes on it in her name. Petitioner has
shown that from 1972 to 1988 she religiously paid the real estate taxes due on the said lot and that it
was only in 1974 and 1987 that she failed to pay the taxes thereon. While tax receipts and declarations

and receipts and declarations of ownership for taxation purposes are not, in themselves,
incontrovertible evidence of ownership, they constitute at least proof that the holder has a claim of title
over the property.31 The voluntary declaration of a piece of property for taxation purposes manifests not
only ones sincere and honest desire to obtain title to the property and announces his adverse claim
against the State and all other interested parties, but also the intention to contribute needed revenues
to the Government.32 Such an act strengthens ones bona fide claim of acquisition of ownership. 33 On
the other hand, private respondents failed to present even a single tax receipt or declaration showing
that Daniela paid taxes due on the disputed lot as proof that she claims ownership thereof. The only Tax
Declaration in the name of Daniela, which private respondents presented in evidence, refers only to the
house standing on the lot in controversy.34 Even the said Tax Declaration contains a notation that herein
petitioner owns the lot (Lot 56) upon which said house was built.
Moreover, the Court agrees with petitioner that if the subject Deed of Absolute Sale did not really
reflect the real intention of Daniela, why is it that she remained silent until her death; she never told
any of her relatives regarding her actual purpose in executing the subject deed; she simply chose to
make known her true intentions through the sworn statement she executed on December 28, 1977, the
existence of which she kept secret from her relatives; and despite her declaration therein that she is
appealing for help in order to get back the subject lot, she never took any concrete step to recover the
subject property from petitioner until her death more than ten years later.
It is true that Daniela retained physical possession of the property even after she executed the subject
Absolute Deed of Sale and even after title to the property was transferred in petitioners favor. In fact,
Daniela continued to occupy the property in dispute until her death in 1988 while, in the meantime,
petitioner continued to reside in Manila. However, it is well-established that ownership and possession
are two entirely different legal concepts.35 Just as possession is not a definite proof of ownership,
neither is non-possession inconsistent with ownership. The first paragraph of Article 1498 of the Civil
Code states that when the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred. Possession, along with ownership, is transferred to the
vendee by virtue of the notarized deed of conveyance.36 Thus, in light of the circumstances of the
present case, it is of no legal consequence that petitioner did not take actual possession or occupation
of the disputed property after the execution of the deed of sale in her favor because she was already
able to perfect and complete her ownership of and title over the subject property.
As to Danielas affidavit dated June 9, 1983, submitted by petitioner, which confirmed the validity of the
sale of the disputed lot in her favor, the same has no probative value, as the sworn statement earlier
adverted to, for being hearsay. Naturally, private respondents were not able to cross-examine the
deceased-affiant on her declarations contained in the said affidavit.
However, even if Danielas affidavit of June 9, 1983 is disregarded, the fact remains that private
respondents failed to prove by clear, strong and convincing evidence beyond mere preponderance of
evidence37 that the contract of sale between Daniela and petitioner was simulated. The legal
presumption is in favor of the validity of contracts and the party who impugns its regularity has the
burden of proving its simulation.38 Since private respondents failed to discharge the burden of proving

their allegation that the contract of sale between petitioner and Daniela was simulated, the
presumption of regularity and validity of the October 14, 1969 Deed of Absolute Sale stands.
Considering that the Court finds the subject contract of sale between petitioner and Daniela to be valid
and not fictitious or simulated, there is no more necessity to discuss the issue as to whether or not a
trust relationship was created between them.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 64122, affirming the Decision of the Regional Trial Court of Cadiz City, Negros
Occidental, Branch 60, in Civil Case No. 278-C, are REVERSED AND SET ASIDE. The complaint of the
private respondents is DISMISSED.
No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 150925

May 27, 2004

SPOUSES JAMES TAN and FLORENCE TAN, petitioners,

vs.
CARMINA, REYNALDO, YOLANDA and ELISA, all surnamed MANDAP, respondents.

DECISION
QUISUMBING, J.:
For review on certiorari is the decision1 dated August 10, 2001, of the Court of Appeals, in CA-G.R. CV
No. 59694, which affirmed in toto the decision,2 dated March 25, 1998, of the Regional Trial Court (RTC)
of Manila, Branch 34, in Civil Case No. 89-50263. The trial court declared the sale of properties between
Dionisio Mandap, Sr., and the spouses Crispulo and Elenita Vasquez simulated and thus void, and
hence, the subsequent sale between the Vasquez spouses and petitioners herein, the spouses James
and Florence Tan, similarly void. Likewise assailed by the petitioners is the resolution 3 dated November
23, 2001 of the appellate court, denying their motion for reconsideration.
The pertinent facts, as found by the trial court, are as follows:
The respondents are the legitimate children of the marriage of Dionisio Mandap, Sr., and Maria
Contreras Mandap. When the Mandap spouses parted ways, their children opted to stay with
Maria. To help support the children, Maria filed Civil Case No. E-02380 in the former Juvenile and
Domestic Relations Court of Manila for the dissolution and separation of the conjugal
partnership.
Two separate lots, each with an area of 88 square meters covered by TCT Nos. 44730 and 55847,
respectively, located in Felix Huertas Street, Sta. Cruz, Manila, with improvements thereon, were
adjudicated by the Juvenile and Domestic Relations Court in favor of Dionisio Mandap, Sr.
Meanwhile, Dionisio Mandap, Sr., until his death on October 2, 1991 at age 64, lived with Diorita
Dojoles, with whom he had two children. He suffered from diabetes since 1931, became totally blind in
1940, and was crippled for about 10 years until his death. However, before his death on May 25, 1989,
he conveyed the subject properties to his common-law wifes sister, Elenita Dojoles Vasquez; and her
husband, Crispulo Vasquez. As a result of this sale, TCT Nos. 44730 and 55847 were cancelled and TCT
Nos. 186748 and 186749 covering the subject properties were issued in the name of Elenita Vasquez
married to Crispulo Vasquez.
On September 11, 1989, the Vasquez spouses conveyed the parcel of land covered by TCT No. 186748
in favor of petitioners. TCT No. 188862 covering the subject lot was then issued in favor of the latter.
On September 5, 1989, prior to the sale to petitioners, the respondents filed an action for cancellation
of title with damages, before the RTC of Manila against Diorita Dojoles and the Vasquez spouses,
alleging that the sale of subject properties by their father was fictitious, and without any consideration.
Further, the consent of their father was vitiated due to his physical infirmities. The action was docketed
as Civil Case No. 89-50263.
On February 15, 1991, respondents filed a supplemental complaint, this time against the spouses Tan,
for the nullification of the sale to the latter of subject lot.
On March 25, 1998, the trial court decided Civil Case No. 89-50263 in favor of the herein respondents.
The decretal part of its judgment reads as follows:

WHEREFORE, premises considered judgment is hereby rendered as follows:

IN CIVIL CASE NO. 89-50263
1. Declaring the Deeds of Sale (Exh. "A" and "A-1"; "B" and "B-1") both dated May 25,
1989 executed in favor of Elenita Vasquez married to Crispulo Vasquez as null and void
and of no legal force and effect whatsoever;
2. Ordering the Register of Deeds of Manila to cancel TCT No. 186748 (Exh. "K" to "K-2")
and TCT No. 186749 (Exh. "L" and "L-1") registered in the name of Elenita Vasquez
married to Crispulo Vasquez having been issued thru a void and inexistent contract;
further ordering the reconveyance of said title to the Estate of Dionisio Mandap, Sr.;
3. Ordering the plaintiffs or the Estate of Dionisio Mandap, Sr., to reimburse or return the
sum of P570,000.00 representing the purchase price of the subject lot, plus legal rate of
interest starting from the rendition of this decision until fully paid;
4. Ordering the defendants Spouses Crispulo and Elenita Vasquez and Diorita Dojoles to
jointly and severally reimburse or return the fruits or earnings in the mentioned lots in
the form of rentals which is hereby fixed at P10,000.00 per month from the date this
complaint was filed until defendants restore and/or surrender the subject premises to the
Estate of Dionisio Mandap, Sr.;
5. Ordering the defendants Spouses Crispulo and Elenita Vasquez and Diorita Dojoles to
pay attorneys fees in the amount of P50,000.00 and to pay the costs of this suit.
IN THE SUPPLEMENTAL COMPLAINT AGAINST SPOUSES JAMES AND FLORENCE TAN
1. Declaring the Deed of Sale dated September 11, 1989 (Exh. "Q" and "7", Tan)
executed by Elenita Vasquez married to Crispulo Vasquez as null and void and of no force
and effect whatsoever, the vendor having no valid title to dispose of the same;
2. Ordering the Register of Deeds of Manila to cancel TCT No. 188862 issued in the name
of James Tan, the source of which having been declared null and void;
3. Ordering Spouses Crispulo and Elenita Vasquez to return the sum of P1,000,000.00
representing the purchase price of the lot covered by TCT No. 188862 with legal rate of
interest from the date of this decision;
4. Ordering defendants James and Florence Tan to jointly and severally pay the sum of
P15,000.00 as and for attorneys fees.
IN BOTH CASES THE COUNTERCLAIMS INTERPOSED BY THE DEFENDANTS ARE DISMISSED FOR
LACK OF MERIT.
SO ORDERED.4

From the above judgment, petitioners appealed to the Court of Appeals in CA-G.R. CV No. 59694 on the
ground that the trial court erred in not declaring them to be buyers in good faith and in not sustaining
the validity of their title, TCT No. 188862.
In its decision dated August 10, 2001, the Court of Appeals found the appeal bereft of merit and
affirmed in toto the lower court decision, thus:
WHEREFORE, the appeals interposed by appellants Dojoles, Sps. Vasquez and Sps. James and
Florence Tan is without merit; the Decision of the lower court dated March 25, 1998 is AFFIRMED
in toto.
Costs against appellants.
SO ORDERED.5
Petitioners seasonably moved for reconsideration, but it was denied by the appellate court.
Hence, this petition for review, submitting the following issues for our resolution:
I
WHETHER OR NOT PETITIONERS HAVE THE LEGAL PERSONALITY TO BRING THE INSTANT
PETITION.
II
WHETHER OR NOT THE SALE BETWEEN MANDAP SR. AND THE VASQUEZES IS VALID.
III
WHETHER OR NOT THE SALE BETWEEN THE VASQUEZES AND PETITIONERS IS VALID.
IV
WHETHER OR NOT THE AWARD OF ATTORNEYS [FEES] HAS LEGAL BASIS. 6
Anent the first issue, the petitioners submit that having been made parties-defendants by respondents
via the supplemental complaint in Civil Case No. 89-50263, they have the right to appeal to this Court
the adverse ruling of the appellate court against them, even if their co-defendants did not appeal the
said ruling of the Court of Appeals.
Respondents counter that petitioners have no legal personality to appeal the decision of the appellate
court voiding the sale between Dionisio Mandap, Sr., and the Vasquez spouses. They contend that
inasmuch as the latter did not appeal the questioned decision, it had become final and executory.
Respondents contend that petitioners, not being privy to said sale, cannot invoke its validity.

We find for petitioners on this issue. The trial court voided the petitioners sale of subject lot, and on
appeal that decision was affirmed by the Court of Appeals. Hence, as aggrieved parties, petitioners may
elevate to the Supreme Court the controversy within the prescriptive period for appeal. 7 They possess
locus standi, or legal personality, to seek a review by this Court of the decision by the appellate court
which they assail. Note that while petitioners elevated the trial courts decision to the appellate court,
their co-defendants in Civil Case No. 89-50263 did not do so. Thus, the trial courts decision became
final and executory only as to petitioners co-defendants in the trial court who did not appeal, namely
Diorita Dojoles and the Vasquez spouses.
With regard to the second issue, the petitioners insist the essential requisites of a contract of sale have
been satisfied, namely, (1) consent of the contracting parties, (2) object certain, and (3) cause or
consideration therefor. They have been satisfied first in the sale by Mandap, Sr., of the lots to the
Vasquez spouses and subsequently, in the sale by the Vasquezes to petitioners. Hence, petitioners
contend that it was error for the appellate court to declare the sale to them of the subject lot null and
void.
After careful consideration of the submission of the parties, we find in favor of respondents. Petitioners
contentions lack merit.
At the time Dionisio Mandap, Sr., purportedly sold the lots in question to the Vasquez spouses, he was
already totally blind and paralyzed. He could not possibly have read the contents of the deeds of sale.
He could not have consented to a contract whose terms he never knew nor understood. It cannot be
presumed Mandap, Sr., knew the contents of the deeds of sale disposing of his properties. Article 1332
of the Civil Code is applicable in these circumstances, to wit:
ART. 1332. When one of the parties is unable to read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former.
As the party seeking to enforce the contract, the petitioners should have presented evidence showing
that the terms of the deeds of sale to the Vasquez spouses were fully explained to Mandap, Sr. But
petitioners failed to comply with the strict requirements of Article 1332, thereby casting doubt on the
alleged consent of the vendor. Since the vendor in this case was totally blind and crippled at the time of
the sale, entirely dependent on outside support, every care to protect his interest conformably with
Article 24 of the Civil Code must be taken. Article 24 is clear on this.
ART. 24. In all contractual, property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental weakness, tender age or other
handicap, the courts must be vigilant for his protection.
Petitioners presented no evidence disproving that (1) Mandap, Sr. was totally blind and suffering from
acute diabetes such that he could no longer discern the legal consequences of his acts, and (2) that
undue influence was exerted upon him, which vitiated his consent.
It is true that he who alleges a fact bears the burden of proving it. However, since fraud and undue
influence are alleged by respondents, the burden shifts8 to petitioners to prove that the contents of the

contract were fully explained to Mandap, Sr. Nothing, however, appears on record to show that this
requirement was complied with. Thus, the presumption of fraud and undue influence was not rebutted.
More important, evidence on record, in our view, prove the existence of fraud. On August 1, 1990,
commissioners appointed by the lower court conducted an ocular inspection concerning the physical
condition of Mandap, Sr. He stated on that occasion that he received P550,000 as first payment,
another P550,000 as second payment, and P1,550,000 the remaining balance of the total selling price
of what was loaned to the vendees. However, in the deeds of sale covering the subject properties, the
prices indicated were P250,000 and P320,000, respectively or a total of only P570,000. This
inconsistency in the amount of the consideration is unexplained. They point to fraud in the sale of the
subject properties, to the prejudice of Mandap, Sr.
Petitioners do not dispute the fact that the notary public who notarized the deeds of sale was not duly
commissioned. But they contend the deeds validity were not affected. However, it bears stressing that
even an apparently valid notarization of a document does not guarantee its validity. 9 The crucial point
here is that while Mandap, Sr., testified that he executed the deeds of sale in Las Pias, the said
documents were actually notarized in Manila. Mandap, Sr., did not personally appear before a notary
public. Yet the documents stated the contrary. Such falsity raises doubt regarding the genuineness of
the vendors alleged consent to the deeds of sale.
Petitioners also claim the purchase price was not grossly inadequate so as to invalidate the sale of
subject properties. True, mere inadequacy of the price does not necessarily void a contract of sale.
However, said inadequacy may indicate that there was a defect in the vendors consent. 10 More
important, it must be pointed out that the trial court and the Court of Appeals voided the sale of the
subject properties not because the price was grossly inadequate, but because the presumptions of
fraud and undue influence exerted upon the vendor had not been overcome by petitioners, the parties
interested in enforcing the contract.
On the third issue, petitioners argue that since the sale of subject properties by Mandap, Sr. to the
Vasquez spouses is valid, it follows that the subsequent sale of the property by the latter to petitioners
is also valid. But this contention cannot be sustained, since we find that based on the evidence on
record, the sale in favor of the Vasquez spouses is void. Hence, it follows that the sale to petitioners is
also void, because petitioners merely stepped into the shoes of the Vasquez spouses. Since the
Vasquezes as sellers had no valid title over the parcel of land they sold, petitioners as buyers thereof
could not claim that the contract of sale is valid.
On the last issue, petitioners contest the award of attorneys fees. Indeed, no premium should be
placed on the right to litigate, and not every winning party is entitled to an automatic grant of
attorneys fees.11 The party must show that he falls under one of the instances enumerated in Article
2208 of the Civil Code, to wit:
ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(11) In any other case where the court deems it just and equitable that attorneys fees
and expenses of litigation should be recovered.

In this particular case, the award of attorneys fees is just and equitable, considering the circumstances
herein. The court a quos order to pay P15,000 as attorneys fees does not appear to us unreasonable
but just and equitable.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated August 10,
2001 in CA-G.R. CV No. 59694, which sustained the decision dated March 25, 1998 of the Regional Trial
Court of Manila, Branch 34, is AFFIRMED. Costs against petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
SECOND DIVISION
G.R. No. 132887. August 11, 2005
THE MANILA BANKING CORPORATION, Petitioners,
vs.
EDMUNDO S. SILVERIO and THE COURT OF APPEALS, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before the Court is a petition for review on certiorari of the Decision1 and Resolution2 of the Court of
Appeals reversing the dismissal by the Regional Trial Court (RTC) of Makati City of the petition of private
respondent for cancellation of notice of levy on attachment and writ of attachment on two (2) parcels of
land located in Paraaque City.
The facts that gave rise to the present controversy are as follows:

Purificacion Ver was the registered owner of two parcels of land located at La Huerta, Paraaque City,
covered by Transfer Certificates of Title (TCTs) No. 31444 (452448) and No. 45926 (452452) of the
Registry of Deeds of Paraaque City.3
On 16 April 1979, Purificacion Ver sold the properties to Ricardo C. Silverio, Sr. (Ricardo, Sr.) for
P1,036,475.00.4 The absolute deed of sale evidencing the transaction was not registered; hence, title
remained with the seller, Purificacion Ver.
On 22 February 1990, herein petitioner, The Manila Banking Corporation (TMBC), filed a complaint with
the RTC of Makati City for the collection of a sum of money with application for the issuance of a writ of
preliminary attachment against Ricardo, Sr. and the Delta Motors Corporation docketed as Civil Case
No. 90-513.5 On 02 July 1990, by virtue of an Order of Branch 62 of the RTC of Makati City, notice of
levy on attachment of real property and writ of attachment were inscribed on TCTs No. 31444 (452448)
and No. 45926 (452452).6 On 29 March 1993, the trial court rendered its Decision in favor of TMBC and
against Ricardo, Sr. and the Delta Motors Corporation.7 The Decision was brought up to the Court of
Appeals for review.8
In the meantime, on 22 July 1993, herein private respondent, Edmundo S. Silverio (Edmundo), the
nephew9 of judgment debtor Ricardo, Sr., requested TMBC to have the annotations on the subject
properties cancelled as the properties were no longer owned by Ricardo, Sr. 10 This letter was referred to
the Bangko Sentral Ng Pilipinas, TMBCs statutory receiver. 11 No steps were taken to have the
annotations cancelled.12 Thus, on 17 December 1993, Edmundo filed in the RTC of Makati City a case for
"Cancellation of Notice of Levy on Attachment and Writ of Attachment on Transfer Certificates of Title
Nos. 452448 and 452452 of the Office of the Registrar of Land Titles and Deeds of Paraaque, Metro
Manila." In his petition, Edmundo alleged that as early as 11 September 1989, the properties, subject
matter of the case, were already sold to him by Ricardo, Sr. As such, these properties could not be
levied upon on 02 July 1990 to answer for the debt of Ricardo, Sr. who was no longer the owner thereof.
In its Answer with Compulsory Counterclaim, TMBC alleged, among other things, that the sale in favor
of Edmundo was void, therefore, the properties levied upon were still owned by Ricardo, Sr., the debtor
in Civil Case No. 90-513.
On 02 May 1995, after trial on the merits, the lower court rendered its Decision dismissing Edmundos
petition. TMBCs counterclaim was likewise dismissed for lack of sufficient merit. The trial court held:
After a careful study of the facts proven in the instant case, the Court is compelled to rule that the
petitioner is not entitled to a cancellation of the annotations/inscriptions of the notice of levy on
attachment and writ of attachment appearing on Transfer Certificates of Title Nos. 45228 31444 and
(452452) 45926 of the Registry of Deeds of Paraaque, Metro Manila. The Court is inclined to agree
with the contention of oppositor that the supposed deed of sale in favor of herein petitioner is fictitious
and simulated and thus void ab initio. The all-important factor that what appears in the notarial register
of the notary public, albeit in loose form, is not a deed of sale but a mere affidavit of a different person
Maria J. Segismundo --, as shown in Exhibit 10-A, is sufficient to prove that no effective, valid and legal
sale of the properties in question was executed between the Silverio uncle and nephew. There being no
valid sale to him, petitioner has no right at all to ask for the cancellation of the aforementioned
annotations.

WHEREFORE, the instant petition is hereby dismissed, with costs against petitioner. Oppositors
counterclaim is ordered dismissed for lack of sufficient merit. 13
The Court of Appeals, upon reviewing the case at the instance of Edmundo, reversed and set aside the
trial courts ruling. The dispositive portion of its Decision reads:
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET-ASIDE. A new
one is rendered ORDERING the Register of Deeds of Paraaque City to cancel the Notice of Levy on
Attachment and the Writ of Attachment made on TCT Nos. 452448 and 452452.
Costs against oppositor-appellee.14
The motion for reconsideration filed by TMBC was denied for lack of merit in a Resolution dated 25
February 1998.15
Hence, the present petition, TMBC imputing upon the Court of Appeals grave error in:
I.
. . . HOLDING THAT PETITIONER TMBC CANNOT QUESTION THE VALIDITY OF THE SALE OF THE
PROPERTIES COVERED BY TCT NO. 31444 (452448) AND 45926 (452452); UNDER ARTICLE 1421 OF THE
CIVIL CODE, THE DEFENSE OF NULLITY OF A CONTRACT IS AVAILABLE TO THIRD PERSONS WHOSE
INTERESTS ARE DIRECTLY AFFECTED.
II.
ORDERING THE CANCELLATION OF THE NOTICE OF LEVY ON ATTACHMENT AND THE WRIT OF
ATTACHMENT MADE ON TCT NO. 452448 AND 452452 SINCE AS AGAINST TWO (2) TRANSACTIONS
CONCERNING THE SAME LAND, THE REGISTERED TRANSACTION PREVAILS OVER THE ALLEGED EARLIER
UNREGISTERED RIGHT.
III.
FINDING THAT PETITIONER TMBC IS GUILTY OF BAD FAITH IN FAILING TO MAKE INQUIRIES ON THE
RIGHTS OF RICARDO SILVERIO, SR. OVER THE SUBJECT PROPERTIES.
Basic is the rule that only properties belonging to the debtor can be attached, and an attachment and
sale of properties belonging to a third party are void. 16 At the pith of the controversy, therefore, is the
issue of ownership of the subject properties at the time of the levy thereof as the right of petitioner
TMBC, as creditor, depends on whether such properties were still owned by its debtor, Ricardo, Sr., and
not by Edmundo, who is concededly not a debtor of TMBC. If the properties were validly transferred to
Edmundo before the levy thereof then cancellation of the annotation is in order. If, however, the sale
was absolutely simulated and was entered into between uncle and nephew for the lone reason of
removing the properties from the reach of TMBC, then the annotation should stay.
The issue of whether the contract is simulated or real is factual in nature, and the Court eschews
factual examination in a petition for review under Rule 45 of the Rules of Court. 17 This rule, however, is

not without exceptions, one of which is when there exists a conflict between the factual findings of the
trial court and of the appellate court,18 as in the case at bar.
The trial court, in ruling that TMBC was well within its rights to cause the levy of the properties through
a writ of preliminary attachment, held that the sale between Ricardo, Sr. and his nephew, Edmundo,
ostensibly effected before the levy of the subject properties, was void for being absolutely simulated.
The fictitious nature of the sale between the uncle and nephew, according to the trial court, is made
evident by the "all-important factor that what appears in the notarial register of the notary public, albeit
in loose form, is not a deed of sale but a mere affidavit of a different person Maria J. Segismundo -- as
shown in Exhibit 10-A." The trial court thus concluded that as the sale was void, the properties were still
owned by Ricardo, Sr. at the time the levy thereon was effected.
In reversing the trial court, the Court of Appeals reasoned, among other things, that the sale between
Ricardo, Sr. and Edmundo was not void and that assuming it to be void, only the parties to the sale
and/or their assigns can impugn or assail its validity. Moreover, assailing the validity of a sale for being
in fraud of creditors is a remedy of last resort, i.e., accion pauliana can be availed of only after the
creditor has had exhausted all the properties of the debtor not exempt from execution. 19 In herein case,
it does not appear that TMBC sought other properties of Ricardo, Sr. other than the subject properties
alleged to have been transferred in fraud of creditors. Thus, as the sale of the subject properties was
not void, it rightfully transferred ownership to Edmundo who is not a debtor of TMBC. Consequently,
TMBC could not legally attach the same under Section 5, Rule 57 of the Rules of Civil Procedure.
The validity of the contract of sale being the focal point in the two courts decision, we begin our
analysis into the matter with two veritable presumptions: first, that there was sufficient consideration of
the contract20 and, second, that it was the result of a fair and regular private transaction. 21 As we held
in Suntay v. Court of Appeals,22 if shown to hold, these presumptions infer prima facie the transactions
validity, except that it must yield to the evidence adduced.
Between the disparate positions of the trial court and the Court of Appeals, we find those of the trial
court to be more in accord with the evidence on hand and the laws applicable thereto.
It will be noted that the Court of Appeals never justified its ruling that the lower court erred in finding
the subject sale was void. On the other hand, the evidence is overwhelming that the sale dated 11
September 1989 between Ricardo Sr. and Edmundo was absolutely simulated and that it was nonexistent prior to its initial appearance on 22 July 1993 when the latter wrote TMBC to cause the
cancellation of its lien.
An absolutely simulated contract, under Article 1346 of the Civil Code, is void. 23 It takes place when the
parties do not intend to be bound at all.24 The characteristic of simulation is the fact that the apparent
contract is not really desired or intended to produce legal effects or in any way alter the juridical
situation of the parties.25 Thus, where a person, in order to place his property beyond the reach of his
creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and
control of the property; hence, the deed of transfer is but a sham. 26 Lacking, therefore, in a fictitious
and simulated contract is consent which is essential to a valid and enforceable contract. 27

In herein case, badges of fraud and simulation permeate the whole transaction, thus, we cannot but
refuse to give the sale validity and legitimacy. Consider the following circumstances:
1) There is no proof that the said sale took place prior to the date of the attachment. The notarized
deed of sale, which would have served as the best evidence of the transaction, did not materialize until
22 July 1993, or three (3) years after TMBC caused the annotation of its lien on the titles subject matter
of the alleged sale. Mr. Jerry Tanchuan, Archivist 1 of the Records Management of the Archives Office
(RMAO), testified that the procedure being followed with respect to notarized documents is that the
Records Section of the RTC will transmit to the RMAO copies in its possession of the original documents
notarized by a notary public together with the Notarial Registry Book. 28 In herein case, the RTC did not
transmit any book of Atty. Anacleto T. Lacanilao, Jr., the notary public who allegedly notarized the deed
of sale between Ricardo, Sr. and Edmundo for the year 1989.29 Instead, what the RMAO was in
possession of was only a loose leaf entry form for "Document No. 444, Page 90, Book No. 17, Series of
1989" which is an affidavit of one Maria J. Segismundo dated 11 September 1989. 30 The RMAO did not
have available in its file the particular deed of sale acknowledged by Atty. Lacanilao as Document No.
444, Page 90, Book No. 17, Series of 1989.31 In Tala Realty Services Corporation v. Banco Filipino
Savings and Mortgage Bank,32 as reiterated in two other Tala cases,33 the Court rejected a notarized
deed that was not reported to the Clerk of Court of the RTC by the notary public who notarized it. The
Court held that this fact militates against the use of the document as basis to uphold the petitioners
claim. The same is true in this case. The fact that the assailed deed of sale is not one of those
submitted by Atty. Lacanilao to the Clerk of Court of the RTC of Makati City 34 renders it virtually
worthless in the absence of corroboration as to its due execution other than petitioner (now private
respondent) Edmundos self-serving statements. This being the case, Edmundo could simply have
presented the witnesses to the transaction (his wife and his lawyer), Atty. Lacanilao or the seller
himself, Ricardo Sr., to testify as to the execution of the contract of sale on 11 September 1989. This he
did not do, thus lending more credence to the theory of TMBC that the sale was entered into only as an
afterthought, hatched to prevent the transfer of the properties to TMBC after the latter had already
annotated its lien thereon.
2) Edmundo, to say the least, was very evasive when questioned regarding details of the alleged sale.
The deed of sale mentioned Three Million One Hundred Nine Thousand and Four Hundred Twenty-Five
pesos (P3,109,425.00) as the contract price paid by hand during the execution of the contract, yet,
when asked on cross-examination, Edmundo could not remember if he paid directly to Ricardo, Sr. 35
Worse, he could not remember where Ricardo, Sr. was at the time of the sale. 36 Thus:
Q: Now, Mr. Silverio, there is on page 2 marked as Exhibit "D-1" a signature over the typewritten name
Edmundo S. Silverio, will you please tell us whose signature is that?
A. My signature.
Q. And again, there is a signature over the typewritten name Ricardo Silverio, vendor, will you please
tell us whose signature is that?
A: That is the signature of the seller.

Q: And why do you say or how did you know that this is the signature of Ricardo Silverio?
A: Because the Deed of Absolute Sale was executed and signed infront of me. 37
...
Q: And Mr. Witness, at the time of the Deed of Sale on September 11, 1989, was Ricardo Silverio in the
country at that time?
A: I cannot give the exact presence of him. I cannot remember now.
Q: But at the time of the Deed of Sale on September 11, 1989, you know if he was in the country or
not?
A: I cannot remember.
Q: With respect to the consideration for the purchase of subject parcels of land, what was the manner
of payment for said consideration?
A: It is already mentioned in the Deed of Absolute Sale.
Q: In the deed of Absolute Sale there is mentioned made by hand, can you explain that?
A: The Deed of Absolute Sale clearly specified already the payment on which the payment was made.
Q: The Deed of Absolute Sale mentioned by hand, what does that mean that you personally handed
the payment to Mr. Silverio?
A: Payment was made to him.
Q: By hand you mean he was present?
A: When you said date, there was an exemption of payments made.
Q: But you gave the payment personally to Mr. Silverio?
A: I have to recall.
Q: So you cannot recall?
A: I cannot recall.38
If it were true that money indeed changed hands on 11 September 1989 as evidenced by the assailed
deed of sale, then, at the very least, Edmundo, as buyer, would definitely not have forgotten personally
handing P3,109,425.00 to the seller, Ricardo, Sr. It goes against ordinary human experience for a
person to simply forget the details of the day when he became poorer by P3,109,425.00 cash. The only
logical conclusion is that there was actually no consideration for the said sale. Verily, a deed of sale in
which the stated consideration has not in fact been paid is a false contract that is void ab initio.39

Likewise, "a contract of purchase and sale is null and void and produces no effect whatsoever where it
appears that [the] same is without cause or consideration which should have been the motive thereof,
or the purchase price appears thereon as paid but which in fact has never been paid by the purchaser
to the vendor."

40

3) As correctly pointed out by TMBC, an indication of simulation of contract is the complete absence of
an attempt in any manner on the part of the ostensible buyer to assert rights of ownership over the
subject properties. In herein case, Edmundo did not attempt to have the 1989 deed of sale registered
until 1993.41 He was not in possession of the properties.42 He did not have a contract of lease with the
actual occupant of the properties.43 As late as 1991, it was Ricardo, Sr. who was claiming to be the
rightful owner of the properties in connection with an ejectment case he filed against third persons. 44
When asked to explain why it was Ricardo, Sr. who was asserting ownership over the properties,
Edmundo lamely replied "because I am asking him so."45
Taken together with the other circumstances surrounding the sale, Edmundos failure to exercise acts of
dominium over the subject properties buttresses TMBCs position that the former did not at all intend to
be bound by the contract of sale. In Suntay,46 as reiterated in such cases as Santiago v. Court of
Appeals,47 Cruz v. Bancom Finance Corporation48 and Ramos v. Heirs of Ramos, Sr.,49 we held that "the
most proturberant index of simulation is the complete absence of an attempt in any manner on the part
of the [ostensible buyer] to assert his rights of ownership over the [properties] in question." The
supposed buyers failure to take exclusive possession of the property allegedly sold or, in the
alternative, to collect rentals, is contrary to the principle of ownership. 50 Such failure is a clear badge of
simulation that renders the whole transaction void pursuant to Article 1409 of the Civil Code. 51
When a contract is void, the right to set-up its nullity or non-existence is available to third persons
whose interests are directly affected thereby.52 The material interest of TMBC need not be belabored.
Suffice it to say that as judgment creditor of Ricardo, Sr., it has the right to protect its lien acquired
through a writ of preliminary attachment as security for the satisfaction of any judgment in its favor.
The Court of Appeals, however, erroneously ruled that TMBC should first go after the properties of its
debtor, Ricardo, Sr., and, failing therein would be the only time it will acquire a material interest over
the subject properties, thus:
Article 117 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the
acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of
in the absence of any other legal remedy to obtain reparation for the injury. Otherwise stated, the right
of accion pauliana can be availed of only AFTER the creditor have exhausted all the properties of the
debtor not exempt from executions.
This fact is not present in this case. Not a single proof was offered to show that oppositor-appellee had
exhausted all the properties of Ricardo Silverio before it tried to question the validity of the contract of
sale. In fact, oppositor-appellee never alleged in its pleadings that it had exhausted all the properties of
Ricardo Silverio before it impugned the validity of the sale made by Ricardo Silverio to petitionerappellant.

This being the case, oppositor-appellee cannot and is not in the proper position to question the validity
of the sale of the subject properties by Ricardo Silverio to petitioner-appellant. Oppositor-appellee has
not shown that it has the material interest to question the sale. 53
Contrary to the position taken by the Court of Appeals, TMBC need not look farther than the subject
properties to protect its rights. The remedy of accion pauliana is available when the subject matter is a
conveyance, otherwise valid undertaken in fraud of creditors.54 Such a contract is governed by the
rules on rescission which prescribe, under Art. 1383 of the Civil Code, that such action can be instituted
only when the party suffering damage has no other legal means to obtain reparation for the same. The
contract of sale before us, albeit undertaken as well in fraud of creditors, is not merely rescissible but is
void ab initio for lack of consent of the parties to be bound thereby. A void or inexistent contract is one
which has no force and effect from the very beginning, as if it had never been entered into; it produces
no effect whatsoever either against or in favor of anyone.55 Rescissible contracts, on the other hand, are
not void ab initio, and the principle, "quod nullum est nullum producit effectum," in void and inexistent
contracts is inapplicable.56 Until set aside in an appropriate action, rescissible contracts are respected
as being legally valid, binding and in force.57 Tolentino, a noted civilist, distinguished between these two
types of contracts entered into in fraud of creditors, thus:
Absolute simulation implies that there is no existing contract, no real act executed; while fraudulent
alienation means that there is a true and existing transfer or contract. The former can be attacked by
any creditor, including one subsequent to the contract; while the latter can be assailed only by the
creditors before the alienation. In absolute simulation, the insolvency of the debtor making the
simulated transfer is not a prerequisite to the nullity of the contract; while in fraudulent alienation, the
action to rescind, or accion pauliana, requires that the creditor cannot recover in any other manner
what is due him. Finally, the action to declare a contract absolutely simulated does not prescribe
(articles 1409 and 1410); while the accion pauliana to rescind a fraudulent alienation prescribes in four
years (article 1389).58
IN SUM, considering that an absolutely simulated contract is not a recognized mode of acquiring
ownership,59 the levy of the subject properties on 02 July 1990 pursuant to a writ of preliminary
attachment duly issued by the RTC in favor of TMBC and against its debtor, Ricardo, Sr., was validly
made as the properties were invariably his. Consequently, Edmundo, who has no legal interest in these
properties, cannot cause the cancellation of the annotation of such lien for the reasons stated in his
petition.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 17 October 1997 and
its Resolution dated 25 February 1998 are hereby REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Makati City, Branch 145, dated 02 May 1995, is REINSTATED, dismissing the
petition for Cancellation of Notice of Levy on Attachment and Writ of Attachment on Transfer
Certificates of Title No. 31444 (452448) and No. 45926 (452452) of the Registry of Deeds of Paraaque
City. With costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 161298

January 31, 2006

Spouses ANTHONY and PERCITA OCO, Petitioners,

vs.
VICTOR LIMBARING, Respondent.
DECISION
PANGANIBAN, CJ.:
Basic in procedural law is the rule that every action must be prosecuted or defended in the name of the
real party in interest. In the present case, the respondent, who was not a party to the contracts being
sued upon, was not able to prove material interest in the litigation. For his failure to do so, the trial
court cannot be faulted for dismissing the action to rescind the contracts. His status as trustor
remained a bare allegation, as he had failed to rebut the legal presumption: that there is absence of a
trust when the purchase price in a deed of sale is paid by a parent in favor of a child. Here, the prima
facie presumption is "that there is a gift in favor of the child." Any allegation to the contrary must be
proven by clear and satisfactory evidence, a burden that was not discharged by the plaintiff.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the August 26, 2003
Decision2 and the November 25, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 69386.
The challenged Decision disposed as follows:
"WHEREFORE, the order dated October 2, 2000 of the Regional Trial Court, Branch 15, Ozami[s] City in
Civil Case No. OZC 99-14 is hereby REVERSED. The agreement entered upon by plaintiff-appellant and
defendant-appellee Percita L. Oco is hereby RESCINDED. After returning the agreed purchase amount of
P60,000.00 to defendants-appellees, the Register of Deeds of Ozami[s] City shall issue the new Transfer
Certificates of Title in the name of plaintiff-appellant thereby canceling the TCT Nos. T-22073 and T22072."4
The Facts
The pertinent facts are not disputed. Sometime in 1996, Sabas Limbaring subdivided his Lot 2325-D,
covered by Transfer Certificate of Title (TCT) No. 5268, into two lots denominated as Lot Nos. 2325-D-1
and 2325-D-2.5 He then executed in favor of Jennifer Limbaring a Deed of Sale for Lot 2325-D-2 for
P60,000; and, in favor of Sarah Jane Limbaring, another Deed for Lot 2325-D-1 for P14,440. Accordingly,
TCT No. 5268 was cancelled and TCT Nos. T-21921 and T-21920 were issued in the names of Jennifer
and Sarah Jane, respectively.6

Sensing some irregularities in the transaction, Percita Oco, the daughter of Sabas Limbaring, left Puerto
Princesa City and went to Ozamis City.7 She then filed a case of perjury and falsification of documents
against respondent, her uncle who was the father of Jennifer and Sarah Jane. During the pre-litigation
conference called by City Prosecutor Luzminda Uy on July 1, 1996, the parties agreed that the two
parcels of land should be reconveyed to Percita, who was to pay respondent all the expenses that had
been and would be incurred to transfer the titles to her name. 8
Respondent demanded P30,000 for the estimated expenses for documentation, capital gains, and
documentary stamp taxes; registration fees for the Register of Deeds; and other incidental expenses for
clearances from the Department of Agrarian Reform (DAR). 9 Percita succeeded in lowering the amount
to P25,000, for which she executed an undertaking worded as follows:
"I, Percita Oco, of legal age, and residing at Puerto Princesa, do hereby undertake to give the full
amount of Twenty Five Thousand (P25,000.00) Pesos to my uncle Victor Limbaring after document No.
230, series of 1996; Transfer Certificate of Title No. T-21920 and Transfer Certificate of Title No. T-21921
shall have been cancelled and revoked.
"Ozamis City, Philippines, July 1, 1996."10
Pursuant to their agreement, respondent facilitated the transfer of the titles to her from the names of
his daughters. After the transfer had been effected on July 12, 1996, Percita left for Puerta Princesa on
July 17, 1996, without paying the P25,000. Several demands were made, but she refused to pay.
On April 6, 1999, respondent filed against Spouses Anthony and Percita Oco a Complaint for the
rescission of the sales contracts, with recovery of possession and ownership of the two parcels of land. 11
Among others, he claimed 1) that he was the actual buyer of the lots, but the vendees whose names
appeared on the Deeds were his daughters; 2) that he initially refused to reconvey the properties
because he had paid for them with his hard-earned money, which was partly used by Sabas Limbaring
for medical expenses; 3) that Percita had prepared the two Deeds of Sale, which his daughters signed
despite receiving no consideration as stated in the Deeds; 4) that because she refused to pay the
P25,000, the Limbaring clan held a meeting on October 26, 1996, during which it was agreed that
P1,000 per month would be given to respondent from the rentals of Sabas Limbarings house; and 5)
that the agreement was not implemented, because Percita had failed to cooperate. 12
On May 27, 1999, Spouses Oco filed a Motion to Dismiss on the ground that the plaintiff (herein
respondent) was not the real party in interest.13 In his Opposition to the Motion to Dismiss, respondent
contended that he was a trustor, whose property was being held in trust by his daughters. 14 He also
averred that, on the assumption that he was not the real party in interest, he was entitled to an
amendment of the pleadings.15
On August 30, 1999, the RTC issued an Order denying the Motion to Dismiss. It ruled that evidence was
required to resolve the parties respective allegations.16
On October 4, 1999, Spouses Oco filed an Answer with Counterclaim, alleging in the main: 1) that
respondent had tried to secure a DAR clearance and to have a certificate of title issued in his name, but
failed because Republic Act (RA) 6657 prohibited the acquisition of more than five hectares of

agricultural land; 2) that through deceit and manipulation, respondent was able to convince Sabas
Limbaring to execute the two Deeds of Sale, notwithstanding the lack of any consideration; 3) that
Sabas informed Percita that the agricultural land had never been sold; 4) that she refused to pay the
P25,000, because the suspensive conditions stated in the Promissory Note had not been complied with;
5) that she paid for all the expenses incurred in their transaction; 6) that for her alleged failure to pay
the P25,000 and for "other deceits," respondent filed a criminal Complaint docketed as Criminal Case
No. 2985; 7) that respondent was guilty of forum shopping for filing that case despite the institution of
the civil aspect in the criminal case; 8) that respondent was not the real party in interest and had no
legal standing to sue; 9) that the lots, which were acquired by Jennifer and Sarah Jane without paying
any consideration, should be returned to Percita without any consideration; and 10) that the Deeds of
Sale reconveying the lots acknowledged receipt of consideration. 17
Respondent testified on his behalf. He then formally offered his exhibits. 18 After filing their Comments to
Plaintiffs Formal Offer of Exhibits, Spouses Oco filed a Demurrer to Evidence, to which he filed his
Opposition.19
On October 2, 2000, the RTC granted the demurrer and dismissed the Complaint and Counterclaim, 20 on
the ground that respondent was not the real party in interest. The trial court also held that Jennifer and
Sarah Jane had already acknowledged receipt of the consideration for the reconveyance of the lots. It
added that the P25,000 was an independent obligation for the reimbursement of the expenses incurred
for the transfer of the titles.21
Ruling of the Court of Appeals
The CA held that a trust relationship was created when respondent purchased the lots in favor of his
daughters.22 Thus, he was a real party in interest.
The appellate court also ruled that the P25,000 was part of the consideration for the reconveyance of
the two parcels of land.23 The CA held that, since Percita had admitted her failure to pay the amount,
respondent had the right to rescind the contracts of reconveyance. 24
The assailed November 25, 2003 CA Resolution denied reconsideration. Hence, this Petition.

25

The Issues
Petitioners state the issues in this wise:
"I. The Honorable Court of Appeals gravely erred in finding respondent the trustor of the subject
properties and in declaring respondent the real party in interest for the rescission of the two deeds of
absolute sale executed by Jennifer Limbaring and Sarah Jane Limbaring in favor of the petitioners.
"II. The Honorable Court of Appeals gravely erred in declaring that respondent has fully complied [with]
his obligation in the undertaking executed by petitioner after the ownership of the subject properties
were transferred to petitioners.

"III. The Honorable Court of Appeals gravely erred and gravely abused [its] discretion in ordering the
rescission of the Deed of Absolute Sale executed by Jennifer Limbaring and Sarah Jane Limbaring in
favor of the petitioners involving the subject properties.
"IV. The Honorable Court of Appeals gravely abused [its] discretion when it ignored the pending case
before the Fourth Division of the Honorable Court of Appeals with the same transaction, essential facts
and circumstances in this case."26
The threshold issue is whether respondent, who was the plaintiff in the trial court, was a real party in
interest in the suit to rescind the Deeds of Reconveyance.
The Courts Ruling
The Petition is meritorious.
Main Issue:
Real Party in Interest
Petitioners contend that respondent was not a trustor, and therefore not the real party in interest and
had no legal right to institute the suit. 27 The real parties in interest were Jennifer and Sarah Jane, to
whom the subject properties had been given as gifts.28
The controversy centers on Rule 3 of the Rules of Court, specifically an elementary rule in remedial law,
which is quoted as follows:
"Sec. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured by
the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended in the name of the real party in
interest."
As applied to the present case, this provision has two requirements: 1) to institute an action, the
plaintiff must be the real party in interest; and 2) the action must be prosecuted in the name of the real
party in interest.29 Necessarily, the purposes of this provision are 1) to prevent the prosecution of
actions by persons without any right, title or interest in the case; 2) to require that the actual party
entitled to legal relief be the one to prosecute the action; 3) to avoid a multiplicity of suits; and 4) to
discourage litigation and keep it within certain bounds, pursuant to sound public policy. 30
Interest within the meaning of the Rules means material interest or an interest in issue to be affected
by the decree or judgment of the case, as distinguished from mere curiosity about the question
involved.31 One having no material interest to protect cannot invoke the jurisdiction of the court as the
plaintiff in an action.32 When the plaintiff is not the real party in interest, the case is dismissible on the
ground of lack of cause of action.33
Action on Contracts

The parties to a contract are the real parties in interest in an action upon it, as consistently held by the
Court.34 Only the contracting parties are bound by the stipulations in the contract; 35 they are the ones
who would benefit from and could violate it.36 Thus, one who is not a party to a contract, and for whose
benefit it was not expressly made, cannot maintain an action on it. One cannot do so, even if the
contract performed by the contracting parties would incidentally inure to ones benefit. 37
As an exception, parties who have not taken part in a contract may show that they have a real interest
affected by its performance or annulment.38 In other words, those who are not principally or subsidiarily
obligated in a contract, in which they had no intervention, may show their detriment that could result
from it.39 Contracts pour autrui are covered by this exception. 40 In this latter instance, the law requires
that the "contracting parties must have clearly and deliberately conferred a favor upon a third person."
A "mere incidental benefit is not enough."
Action on the Contracts
Presently Involved
Respondents Complaint, entitled "Rescission of Contract & Recovery of Possession & Ownership of Two
Parcels of Land," is clearly an action on a contract. The agreements sought to be rescinded 41 clearly
show that the parties to the Deeds of Absolute Sale were Jennifer and Sarah Jane Limbaring 42 as
vendors and Percita Oco as vendee. Clearly then, the action upon the contracts may -- as a rule -- be
instituted only by Jennifer and Sarah Jane against Percita.
Respondent is not a real party in interest. He was not a party to the contracts and has not
demonstrated any material interest in their fulfillment. Evidently, the allegations in the Complaint do
not show that the properties would be conveyed to him, even if Percita were to be proven to have
committed a breach of the subject agreements.
Trust Relationship
To show material interest, respondent argues that a trust was created when he purchased the
properties from Sabas Limbaring in favor of his daughters. As trustor, he allegedly stands to be
benefited or injured by any decision in the case.43
Trust is the legal relationship between one person who has equitable ownership of a property and
another who owns the legal title to the property. 44 The trustor is the one who establishes the trust; the
beneficiary, the person for whose benefit the trust was created; and the trustee, the one in whom, by
conferment of a legal title, confidence has been reposed as regards the property of the beneficiary. 45
Trusts may be either express or implied.46 Express trusts are those created by direct and positive acts of
the parties, such as by some writing, deed or will; or by words either expressly or impliedly evidencing
an intention to create a trust. Implied trusts are those that, without being expressed, are deducible
from the nature of the transaction as matters of intent; or that are super-induced in the transaction by
operation of law as a matter of equity, independently of the particular intention of the parties. 47

Respondent has presented only bare assertions that a trust was created. Noting the need to prove the
existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and
such proof must be clear and satisfactorily show the existence of the trust and its elements. While
implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by the
courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral evidence can easily be fabricated." 48
On this point, the Civil Code states as follows:
"ART. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party
but the price is paid by another for the purpose of having the beneficial interest of the property. The
former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is
conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied
by law, it being disputably presumed that there is a gift in favor of the child."
Under the last sentence of Article 1448, respondents alleged acts -- paying the price of the subject
properties and, in the titles, naming his children as owners -- raise the presumption that a gift was
effected in their favor. Respondent failed to rebut this presumption. Absent any clear proof that a trust
was created, he cannot be deemed a real party in interest. 49 That he should be deemed a trustor on the
basis merely of having paid the purchase price is plainly contradicted by the presumption based on
Article 1448 of the Civil Code "that there is a gift in favor of the child," not a trust in favor of the parent.
Other Issues
Having found that respondent is not a real party in interest, this Court deems it no longer necessary to
rule on the other issues raised by petitioner.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution are SET ASIDE. Civil
Case No. OZC99-14, entitled "Victor Limbaring v. Spouses Percita L. Oco and Anthony Oco," is
DISMISSED. No pronouncement as to costs.SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 169975

March 18, 2010

PAN PACIFIC SERVICE CONTRACTORS, INC. and RICARDO F. DEL ROSARIO, Petitioners,
vs.
EQUITABLE PCI BANK (formerly THE PHILIPPINE COMMERCIAL INTERNATIONAL BANK),
Respondent.
DECISION
CARPIO, J.:
The Case
Pan Pacific Service Contractors, Inc. and Ricardo F. Del Rosario (petitioners) filed this Petition for
Review1 assailing the Court of Appeals (CA) Decision2 dated 30 June 2005 in CA-G.R. CV No. 63966 as
well as the Resolution3 dated 5 October 2005 denying the Motion for Reconsideration. In the assailed
decision, the CA modified the 12 April 1999 Decision4 of the Regional Trial Court of Makati City, Branch
59 (RTC) by ordering Equitable PCI Bank5 (respondent) to pay petitioners P1,516,015.07 with interest at
the legal rate of 12% per annum starting 6 May 1994 until the amount is fully paid.
The Facts
Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting mechanical works on
airconditioning system. On 24 November 1989, Pan Pacific, through its President, Ricardo F. Del Rosario
(Del Rosario), entered into a contract of mechanical works (Contract) with respondent for P20,688,800.
Pan Pacific and respondent also agreed on nine change orders for P2,622,610.30. Thus, the total
consideration for the whole project was P23,311,410.30.6 The Contract stipulated, among others, that
Pan Pacific shall be entitled to a price adjustment in case of increase in labor costs and prices of
materials under paragraphs 70.17 and 70.28 of the "General Conditions for the Construction of PCIB
Tower II Extension" (the escalation clause).9
Pursuant to the contract, Pan Pacific commenced the mechanical works in the project site, the PCIB
Tower II extension building in Makati City. The project was completed in June 1992. Respondent
accepted the project on 9 July 1992.10
In 1990, labor costs and prices of materials escalated. On 5 April 1991, in accordance with the
escalation clause, Pan Pacific claimed a price adjustment of P5,165,945.52. Respondents appointed
project engineer, TCGI Engineers, asked for a reduction in the price adjustment. To show goodwill, Pan
Pacific reduced the price adjustment to P4,858,548.67.11
On 28 April 1992, TCGI Engineers recommended to respondent that the price adjustment should be
pegged at P3,730,957.07. TCGI Engineers based their evaluation of the price adjustment on the
following factors:
1. Labor Indices of the Department of Labor and Employment.
2. Price Index of the National Statistics Office.

PD 1594 and its Implementing Rules and Regulations as amended, 15 March 1991.
Shipping Documents submitted by PPSCI.
Sub-clause 70.1 of the General Conditions of the Contract Documents. 12
Pan Pacific contended that with this recommendation, respondent was already estopped from
disclaiming liability of at least P3,730,957.07 in accordance with the escalation clause. 13
Due to the extraordinary increases in the costs of labor and materials, Pan Pacifics operational capital
was becoming inadequate for the project. However, respondent withheld the payment of the price
adjustment under the escalation clause despite Pan Pacifics repeated demands. 14 Instead, respondent
offered Pan Pacific a loan of P1.8 million. Against its will and on the strength of respondents promise
that the price adjustment would be released soon, Pan Pacific, through Del Rosario, was constrained to
execute a promissory note in the amount of P1.8 million as a requirement for the loan. Pan Pacific also
posted a surety bond. The P1.8 million was released directly to laborers and suppliers and not a single
centavo was given to Pan Pacific.15
Pan Pacific made several demands for payment on the price adjustment but respondent merely kept on
promising to release the same. Meanwhile, the P1.8 million loan matured and respondent demanded
payment plus interest and penalty. Pan Pacific refused to pay the loan. Pan Pacific insisted that it would
not have incurred the loan if respondent released the price adjustment on time. Pan Pacific alleged that
the promissory note did not express the true agreement of the parties. Pan Pacific maintained that the
P1.8 million was to be considered as an advance payment on the price adjustment. Therefore, there
was really no consideration for the promissory note; hence, it is null and void from the beginning. 16
Respondent stood firm that it would not release any amount of the price adjustment to Pan Pacific but it
would offset the price adjustment with Pan Pacifics outstanding balance of P3,226,186.01, representing
the loan, interests, penalties and collection charges.17
Pan Pacific refused the offsetting but agreed to receive the reduced amount of P3,730,957.07 as
recommended by the TCGI Engineers for the purpose of extrajudicial settlement, less P1.8 million and
P414,942 as advance payments.18
On 6 May 1994, petitioners filed a complaint for declaration of nullity/annulment of the promissory
note, sum of money, and damages against the respondent with the RTC of Makati City, Branch 59. On
12 April 1999, the RTC rendered its decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against
the defendant as follows:
1. Declaring the promissory note (Exhibit "B") null and void;
Ordering the defendant to pay the plaintiffs the following amounts:

a. P1,389,111.10 representing unpaid balance of the adjustment price, with interest

thereon at the legal rate of twelve (12%) percent per annum starting May 6, 1994, the
date when the complaint was filed, until the amount is fully paid;
P100,000.00 representing moral damages;
P50,000.00 representing exemplary damages; and
P50,000.00 as and for attorneys fees.
2. Dismissing defendants counterclaim, for lack of merit; and
With costs against the defendant.
SO ORDERED.19
On 23 May 1999, petitioners partially appealed the RTC Decision to the CA. On 26 May 1999,
respondent appealed the entire RTC Decision for being contrary to law and evidence. In sum, the
appeals of the parties with the CA are as follows:
1. With respect to the petitioners, whether the RTC erred in deducting the amount of
P126,903.97 from the balance of the adjusted price and in awarding only 12% annual interest on
the amount due, instead of the bank loan rate of 18% compounded annually beginning
September 1992.
2. With respect to respondent, whether the RTC erred in declaring the promissory note void and
in awarding moral and exemplary damages and attorneys fees in favor of petitioners and in
dismissing its counterclaim.
In its decision dated 30 June 2005, the CA modified the RTC decision, with respect to the principal
amount due to petitioners. The CA removed the deduction of P126,903.97 because it represented the
final payment on the basic contract price. Hence, the CA ordered respondent to pay P1,516,015.07 to
petitioners, with interest at the legal rate of 12% per annum starting 6 May 1994. 20
On 26 July 2005, petitioners filed a Motion for Partial Reconsideration seeking a reconsideration of the
CAs Decision imposing the legal rate of 12%. Petitioners claimed that the interest rate applicable
should be the 18% bank lending rate. Respondent likewise filed a Motion for Reconsideration of the CAs
decision. In a Resolution dated 5 October 2005, the CA denied both motions.
Aggrieved by the CAs Decision, petitioners elevated the case before this Court.
The Issue
Petitioners submit this sole issue for our consideration: Whether the CA, in awarding the unpaid balance
of the price adjustment, erred in fixing the interest rate at 12% instead of the 18% bank lending rate.
Ruling of the Court

We grant the petition.

This Court notes that respondent did not appeal the decision of the CA. Hence, there is no longer any
issue as to the principal amount of the unpaid balance on the price adjustment, which the CA correctly
computed at P1,516,015.07. The only remaining issue is the interest rate applicable for respondents
delay in the payment of the balance of the price adjustment.
The CA denied petitioners claim for the application of the bank lending rate of 18% compounded
annually reasoning, to wit:
Anent the 18% interest rate compounded annually, while it is true that the contract provides for an
interest at the current bank lending rate in case of delay in payment by the Owner, and the promissory
note charged an interest of 18%, the said proviso does not authorize plaintiffs to unilaterally raise the
interest rate without the other partys consent. Unlike their request for price adjustment on the basic
contract price, plaintiffs never informed nor sought the approval of defendant for the imposition of 18%
interest on the adjusted price. To unilaterally increase the interest rate of the adjusted price would be
violative of the principle of mutuality of contracts. Thus, the Court maintains the legal rate of twelve
percent per annum starting from the date of judicial demand. Although the contract provides for the
period when the recommendation of the TCGI Engineers as to the price adjustment would be binding on
the parties, it was established, however, that part of the adjusted price demanded by plaintiffs was
already disbursed as early as 28 February 1992 by defendant bank to their suppliers and laborers for
their account.21
In this appeal, petitioners allege that the contract between the parties consists of two parts, the
Agreement22 and the General Conditions,23 both of which provide for interest at the bank lending rate
on any unpaid amount due under the contract. Petitioners further claim that there is nothing in the
contract which requires the consent of the respondent to be given in order that petitioners can charge
the bank lending rate.24 Specifically, petitioners invoke Section 2.5 of the Agreement and Section 60.10
of the General Conditions as follows:
Agreement
2.5 If any payment is delayed, the CONTRACTOR may charge interest thereon at the current bank
lending rates, without prejudice to OWNERS recourse to any other remedy available under existing
law.25
General Conditions
60.10 Time for payment
The amount due to the Contractor under any interim certificate issued by the Engineer pursuant to this
Clause, or to any term of the Contract, shall, subject to clause 47, be paid by the Owner to the
Contractor within 28 days after such interim certificate has been delivered to the Owner, or, in the case
of the Final Certificate referred to in Sub-Clause 60.8, within 56 days, after such Final Certificate has
been delivered to the Owner. In the event of the failure of the Owner to make payment within the times
stated, the Owner shall pay to the Contractor interest at the rate based on banking loan rates

prevailing at the time of the signing of the contract upon all sums unpaid from the date by which the
same should have been paid. The provisions of this Sub-Clause are without prejudice to the
Contractors entitlement under Clause 69.26 (Emphasis supplied)
Petitioners thus submit that it is automatically entitled to the bank lending rate of interest from the
time an amount is determined to be due thereto, which respondent should have paid. Therefore, as
petitioners have already proven their entitlement to the price adjustment, it necessarily follows that the
bank lending interest rate of 18% shall be applied.27
On the other hand, respondent insists that under the provisions of 70.1 and 70.2 of the General
Conditions, it is stipulated that any additional cost shall be determined by the Engineer and shall be
added to the contract price after due consultation with the Owner, herein respondent. Hence, there
being no prior consultation with the respondent regarding the additional cost to the basic contract
price, it naturally follows that respondent was never consulted or informed of the imposition of 18%
interest rate compounded annually on the adjusted price.28
A perusal of the assailed decision shows that the CA made a distinction between the consent given by
the owner of the project for the liability for the price adjustments, and the consent for the imposition of
the bank lending rate. Thus, while the CA held that petitioners consulted respondent for price
adjustment on the basic contract price, petitioners, nonetheless, are not entitled to the imposition of
18% interest on the adjusted price, as petitioners never informed or sought the approval of respondent
for such imposition.29
We disagree.
It is settled that the agreement or the contract between the parties is the formal expression of the
parties rights, duties, and obligations. It is the best evidence of the intention of the parties. Thus, when
the terms of an agreement have been reduced to writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and their successors in interest, no evidence of
such terms other than the contents of the written agreement.30
The escalation clause of the contract provides:
CHANGES IN COST AND LEGISLATION
70.1 Increase or Decrease of Cost
There shall be added to or deducted from the Contract Price such sums in respect of rise or fall in the
cost of labor and/or materials or any other matters affecting the cost of the execution of the Works as
may be determined.
70.2 Subsequent Legislation
If, after the date 28 days prior to the latest date of submission of tenders for the Contract there occur in
the country in which the Works are being or are to be executed changes to any National or State
Statute, Ordinance, Decree or other Law or any regulation or bye-law (sic) of any local or other duly

constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation
or bye-law (sic) which causes additional or reduced cost to the contractor, other than under Sub-Clause
70.1, in the execution of the Contract, such additional or reduced cost shall, after due consultation with
the Owner and Contractor, be determined by the Engineer and shall be added to or deducted from the
Contract Price and the Engineer shall notify the Contractor accordingly, with a copy to the Owner. 31
In this case, the CA already settled that petitioners consulted respondent on the imposition of the price
adjustment, and held respondent liable for the balance of P1,516,015.07. Respondent did not appeal
from the decision of the CA; hence, respondent is estopped from contesting such fact.
However, the CA went beyond the intent of the parties by requiring respondent to give its consent to
the imposition of interest before petitioners can hold respondent liable for interest at the current bank
lending rate. This is erroneous. A review of Section 2.6 of the Agreement and Section 60.10 of the
General Conditions shows that the consent of the respondent is not needed for the imposition of
interest at the current bank lending rate, which occurs upon any delay in payment.
When the terms of a contract are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs. In these cases, courts have no authority to alter
a contract by construction or to make a new contract for the parties. The Courts duty is confined to the
interpretation of the contract which the parties have made for themselves without regard to its wisdom
or folly as the court cannot supply material stipulations or read into the contract words which it does
not contain. It is only when the contract is vague and ambiguous that courts are permitted to resort to
construction of its terms and determine the intention of the parties. 32
The escalation clause must be read in conjunction with Section 2.5 of the Agreement and Section 60.10
of the General Conditions which pertain to the time of payment. Once the parties agree on the price
adjustment after due consultation in compliance with the provisions of the escalation clause, the
agreement is in effect an amendment to the original contract, and gives rise to the liability of
respondent to pay the adjusted costs. Under Section 60.10 of the General Conditions, the respondent
shall pay such liability to the petitioner within 28 days from issuance of the interim certificate. Upon
respondents failure to pay within the time provided (28 days), then it shall be liable to pay the
stipulated interest.1avvphi1
This is the logical interpretation of the agreement of the parties on the imposition of interest. To provide
a contrary interpretation, as one requiring a separate consent for the imposition of the stipulated
interest, would render the intentions of the parties nugatory.
Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest
shall be due unless it has been expressly stipulated in writing. Therefore, payment of monetary interest
is allowed only if:
(1) there was an express stipulation for the payment of interest; and
(2) the agreement for the payment of interest was reduced in writing. The concurrence of the
two conditions is required for the payment of monetary interest. 33

We agree with petitioners interpretation that in case of default, the consent of the respondent is not
needed in order to impose interest at the current bank lending rate.
Applicable Interest Rate
Under Article 2209 of the Civil Code, the appropriate measure for damages in case of delay in
discharging an obligation consisting of the payment of a sum of money is the payment of penalty
interest at the rate agreed upon in the contract of the parties. In the absence of a stipulation of a
particular rate of penalty interest, payment of additional interest at a rate equal to the regular
monetary interest becomes due and payable. Finally, if no regular interest had been agreed upon by
the contracting parties, then the damages payable will consist of payment of legal interest which is 6%,
or in the case of loans or forbearances of money, 12% per annum. 34 It is only when the parties to a
contract have failed to fix the rate of interest or when such amount is unwarranted that the Court will
apply the 12% interest per annum on a loan or forbearance of money. 35
The written agreement entered into between petitioners and respondent provides for an interest at the
current bank lending rate in case of delay in payment and the promissory note charged an interest of
18%.
To prove petitioners entitlement to the 18% bank lending rate of interest, petitioners presented the
promissory note36 prepared by respondent bank itself. This promissory note, although declared void by
the lower courts because it did not express the real intention of the parties, is substantial proof that the
bank lending rate at the time of default was 18% per annum. Absent any evidence of fraud, undue
influence or any vice of consent exercised by petitioners against the respondent, the interest rate
agreed upon is binding on them.37
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision and Resolution of the Court of Appeals
in CA-G.R. CV No. 63966. We ORDER respondent to pay petitioners P1,516,015.07 with interest at the
bank lending rate of 18% per annum starting 6 May 1994 until the amount is fully paid.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174978

July 31, 2013

SALLY YOSHIZAKI, Petitioner,

vs.
JOY TRAINING CENTER OF AURORA, INC., Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner Sally Yoshizaki to challenge the
February 14, 2006 Decision2 and the October 3, 2006 Resolution3 of the Court of Appeals (CA) in CAG.R. CV No. 83773.
The Factual Antecedents
Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock, non-profit religious
educational institution. It was the registered owner of a parcel of land and the building thereon (real
properties) located in San Luis Extension Purok No. 1, Barangay Buhangin, Baler, Aurora. The parcel of
land was designated as Lot No. 125-L and was covered by Transfer Certificate of Title (TCT) No. T25334.4
On November 10, 1998, the spouses Richard and Linda Johnson sold the real properties, a Wrangler
jeep, and other personal properties in favor of the spouses Sally and Yoshio Yoshizaki. On the same
date, a Deed of Absolute Sale5 and a Deed of Sale of Motor Vehicle6 were executed in favor of the
spouses Yoshizaki. The spouses Johnson were members of Joy Trainings board of trustees at the time of
sale. On December 7, 1998, TCT No. T-25334 was cancelled and TCT No. T-26052 7 was issued in the
name of the spouses Yoshizaki.
On December 8, 1998, Joy Training, represented by its Acting Chairperson Reuben V. Rubio, filed an
action for the Cancellation of Sales and Damages with prayer for the issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction against the spouses Yoshizaki and the spouses
Johnson before the Regional Trial Court of Baler, Aurora (RTC). 8 On January 4, 1999, Joy Training filed a
Motion to Amend Complaint with the attached Amended Complaint. The amended complaint impleaded
Cecilia A. Abordo, officer-in-charge of the Register of Deeds of Baler, Aurora, as additional defendant.
The RTC granted the motion on the same date.9
In the complaint, Joy Training alleged that the spouses Johnson sold its properties without the requisite
authority from the board of directors.10 It assailed the validity of a board resolution dated September 1,

199811 which purportedly granted the spouses Johnson the authority to sell its real properties. It averred
that only a minority of the board, composed of the spouses Johnson and Alexander Abadayan,
authorized the sale through the resolution. It highlighted that the Articles of Incorporation provides that
the board of trustees consists of seven members, namely: the spouses Johnson, Reuben, Carmencita
Isip, Dominador Isip, Miraflor Bolante, and Abelardo Aquino.12
Cecilia and the spouses Johnson were declared in default for their failure to file an Answer within the
reglementary period.13 On the other hand, the spouses Yoshizaki filed their Answer with Compulsory
Counterclaims on June 23, 1999. They claimed that Joy Training authorized the spouses Johnson to sell
the parcel of land. They asserted that a majority of the board of trustees approved the resolution. They
maintained that the actual members of the board of trustees consist of five members, namely: the
spouses Johnson, Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the corporate secretary,
issued a certification dated February 20, 199814 authorizing the spouses Johnson to act on Joy Trainings
behalf. Furthermore, they highlighted that the Wrangler jeep and other personal properties were
registered in the name of the spouses Johnson.15 Lastly, they assailed the RTCs jurisdiction over the
case. They posited that the case is an intra-corporate dispute cognizable by the Securities and
Exchange Commission (SEC).16
After the presentation of their testimonial evidence, the spouses Yoshizaki formally offered in evidence
photocopies of the resolution and certification, among others.17 Joy Training objected to the formal offer
of the photocopied resolution and certification on the ground that they were not the best evidence of
their contents.18 In an Order19 dated May 18, 2004, the RTC denied the admission of the offered copies.
The RTC Ruling
The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real properties.
However, it held that the sale was valid because Joy Training authorized the spouses Johnson to sell the
real properties. It recognized that there were only five actual members of the board of trustees;
consequently, a majority of the board of trustees validly authorized the sale. It also ruled that the sale
of personal properties was valid because they were registered in the spouses Johnsons name. 20
Joy Training appealed the RTC decision to the CA.
The CA Ruling
The CA upheld the RTCs jurisdiction over the case but reversed its ruling with respect to the sale of real
properties. It maintained that the present action is cognizable by the RTC because it involves recovery
of ownership from third parties.
It also ruled that the resolution is void because it was not approved by a majority of the board of
trustees. It stated that under Section 25 of the Corporation Code, the basis for determining the
composition of the board of trustees is the list fixed in the articles of incorporation. Furthermore,
Section 23 of the Corporation Code provides that the board of trustees shall hold office for one year and
until their successors are elected and qualified. Seven trustees constitute the board since Joy Training
did not hold an election after its incorporation.

The CA did not also give any probative value to the certification. It stated that the certification failed to
indicate the date and the names of the trustees present in the meeting. Moreover, the spouses
Yoshizaki did not present the minutes that would prove that the certification had been issued pursuant
to a board resolution.21 The CA also denied22 the spouses Yoshizakis motion for reconsideration,
prompting Sally23 to file the present petition.
The Petition
Sally avers that the RTC has no jurisdiction over the case. She points out that the complaint was
principally for the nullification of a corporate act. The transfer of the SECs original and exclusive
jurisdiction to the RTC24 does not have any retroactive application because jurisdiction is a substantive
matter.
She argues that the spouses Johnson were authorized to sell the parcel of land and that she was a
buyer in good faith because she merely relied on TCT No. T-25334. The title states that the spouses
Johnson are Joy Trainings representatives.
She also argues that it is a basic principle that a party dealing with a registered land need not go
beyond the certificate of title to determine the condition of the property. In fact, the resolution and the
certification are mere reiterations of the spouses Johnsons authority in the title to sell the real
properties. She further claims that the resolution and the certification are not even necessary to clothe
the spouses Johnson with the authority to sell the disputed properties. Furthermore, the contract of
agency was subsisting at the time of sale because Section 108 of Presidential Decree No. (PD) 1529
requires that the revocation of authority must be approved by a court of competent jurisdiction and no
revocation was reflected in the certificate of title.25
The Case for the Respondent
In its Comment26 and Memorandum,27 Joy Training takes the opposite view that the RTC has jurisdiction
over the case. It posits that the action is essentially for recovery of property and is therefore a case
cognizable by the RTC. Furthermore, Sally is estopped from questioning the RTCs jurisdiction because
she seeks to reinstate the RTC ruling in the present case.
Joy Training maintains that it did not authorize the spouses Johnson to sell its real properties. TCT No. T25334 does not specifically grant the authority to sell the parcel of land to the spouses Johnson. It
further asserts that the resolution and the certification should not be given any probative value
because they were not admitted in evidence by the RTC. It argues that the resolution is void for failure
to comply with the voting requirements under Section 40 of the Corporation Code. It also posits that the
certification is void because it lacks material particulars.
The Issues
The case comes to us with the following issues:
1) Whether or not the RTC has jurisdiction over the present case; and

2) Whether or not there was a contract of agency to sell the real properties between Joy Training
and the spouses Johnson.
3) As a consequence of the second issue, whether or not there was a valid contract of sale of the
real properties between Joy Training and the spouses Yoshizaki.
Our Ruling
We find the petition unmeritorious.
The RTC has jurisdiction over disputes concerning the application of the Civil Code
Jurisdiction over the subject matter is the power to hear and determine cases of the general class to
which the proceedings before a court belong.28 It is conferred by law. The allegations in the complaint
and the status or relationship of the parties determine which court has jurisdiction over the nature of an
action.29 The same test applies in ascertaining whether a case involves an intra-corporate controversy. 30
The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks to nullify
the sale of the real properties on the ground that there was no contract of agency between Joy Training
and the spouses Johnson. This was beyond the ambit of the SECs original and exclusive jurisdiction
prior to the enactment of Republic Act No. 8799 which only took effect on August 3, 2000. The
determination of the existence of a contract of agency and the validity of a contract of sale requires the
application of the relevant provisions of the Civil Code. It is a well-settled rule that "disputes concerning
the application of the Civil Code are properly cognizable by courts of general jurisdiction." 31 Indeed, no
special skill requiring the SECs technical expertise is necessary for the disposition of this issue and of
this case.
The Supreme Court may review questions of fact in a petition for review on certiorari when the findings
of fact by the lower courts are conflicting
We are aware that the issues at hand require us to review the pieces of evidence presented by the
parties before the lower courts. As a general rule, a petition for review on certiorari precludes this Court
from entertaining factual issues; we are not duty-bound to analyze again and weigh the evidence
introduced in and considered by the lower courts. However, the present case falls under the recognized
exception that a review of the facts is warranted when the findings of the lower courts are conflicting. 32
Accordingly, we will examine the relevant pieces of evidence presented to the lower court.
There is no contract of agency between Joy Training and the spouses Johnson to sell the parcel of land
with its improvements
Article 1868 of the Civil Code defines a contract of agency as a contract whereby 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." It 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.

As a general rule, a contract of agency may be oral. However, it must be written when the law requires
a specific form.33 Specifically, Article 1874 of the Civil Code provides that the contract of agency must
be written for the validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall
be void. A related provision, Article 1878 of the Civil Code, states that special powers of attorney are
necessary to convey real rights over immovable properties.
The special power of attorney mandated by law must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the authorized act. We unequivocably declared in Cosmic
Lumber Corporation v. Court of Appeals34 that a special power of attorneymust express the powers of
the agent in clear and unmistakable language for the principal to confer the right upon an agent to sell
real estate. When there is any reasonable doubt that the language so used conveys such power, no
such construction shall be given the document. The purpose of the law in requiring a special power of
attorney in the disposition of immovable property is to protect the interest of an unsuspecting owner
from being prejudiced by the unwarranted act of another and to caution the buyer to assure himself of
the specific authorization of the putative agent. 35
In the present case, Sally presents three pieces of evidence which allegedly prove that Joy Training
specially authorized the spouses Johnson to sell the real properties: (1) TCT No. T-25334, (2) the
resolution, (3) and the certification. We quote the pertinent portions of these documents for a thorough
examination of Sallys claim. TCT No. T-25334, entered in the Registry of Deeds on March 5, 1998,
states:
A parcel of land x x x is registered in accordance with the provisions of the Property Registration Decree
in the name of JOY TRAINING CENTER OF AURORA, INC., Rep. by Sps. RICHARD A. JOHNSON and LINDA
S. JOHNSON, both of legal age, U.S. Citizen, and residents of P.O. Box 3246, Shawnee, Ks 66203, U.S.A. 36
(emphasis ours)
On the other hand, the fifth paragraph of the certification provides:
Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY for ALL SIGNATORY purposes for
the corporation on ANY and all matters and decisions regarding the property and ministry here. They
will follow guidelines set forth according to their appointment and ministerial and missionary training
and in that, they will formulate and come up with by-laws which will address and serve as governing
papers over the center and corporation. They are to issue monthly and quarterly statements to all
members of the corporation.37 (emphasis ours)
The resolution states:
We, the undersigned Board of Trustees (in majority) have authorized the sale of land and building
owned by spouses Richard A. and Linda J. Johnson (as described in the title SN No. 5102156 filed with
the Province of Aurora last 5th day of March, 1998. These proceeds are going to pay outstanding loans
against the project and the dissolution of the corporation shall follow the sale. This is a religious, nonprofit corporation and no profits or stocks are issued.38 (emphasis ours)
The above documents do not convince us of the existence of the contract of agency to sell the real
properties. TCT No. T-25334 merely states that Joy Training is represented by the spouses Johnson. The

title does not explicitly confer to the spouses Johnson the authority to sell the parcel of land and the
building thereon. Moreover, the phrase "Rep. by Sps. RICHARD A. JOHNSON and LINDA S. JOHNSON" 39
only means that the spouses Johnson represented Joy Training in land registration.
The lower courts should not have relied on the resolution and the certification in resolving the
case.1wphi1 The spouses Yoshizaki did not produce the original documents during trial. They also
failed to show that the production of pieces of secondary evidence falls under the exceptions
enumerated in Section 3, Rule 130 of the Rules of Court.40 Thus, the general rule that no evidence
shall be admissible other than the original document itself when the subject of inquiry is the contents of
a document applies.41
Nonetheless, if only to erase doubts on the issues surrounding this case, we declare that even if we
consider the photocopied resolution and certification, this Court will still arrive at the same conclusion.
The resolution which purportedly grants the spouses Johnson a special power of attorney is negated by
the phrase "land and building owned by spouses Richard A. and Linda J. Johnson." 42 Even if we disregard
such phrase, the resolution must be given scant consideration. We adhere to the CAs position that the
basis for determining the board of trustees composition is the trustees as fixed in the articles of
incorporation and not the actual members of the board. The second paragraph of Section 25 43 of the
Corporation Code expressly provides that a majority of the number of trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate business.
Moreover, the certification is a mere general power of attorney which comprises all of Joy Trainings
business.44 Article 1877 of the Civil Code clearly states that "an agency couched in general terms
comprises only acts of administration, even if the principal should state that he withholds no power or
that the agent may execute such acts as he may consider appropriate, or even though the agency
should authorize a general and unlimited management."45
The contract of sale is unenforceable
Necessarily, the absence of a contract of agency renders the contract of sale unenforceable; 46 Joy
Training effectively did not enter into a valid contract of sale with the spouses Yoshizaki. Sally cannot
also claim that she was a buyer in good faith. She misapprehended the rule that persons dealing with a
registered land have the legal right to rely on the face of the title and to dispense with the need to
inquire further, except when the party concerned has actual knowledge of facts and circumstances that
would impel a reasonably cautious man to make such inquiry.47 This rule applies when the ownership of
a parcel of land is disputed and not when the fact of agency is contested.
At this point, we reiterate the established principle that persons dealing with an agent must ascertain
not only the fact of agency, but also the nature and extent of the agents authority. 48 A third person with
whom the agent wishes to contract on behalf of the principal may require the presentation of the power
of attorney, or the instructions as regards the agency.49 The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover on his own peril the authority of the
agent.50 Thus, Sally bought the real properties at her own risk; she bears the risk of injury occasioned
by her transaction with the spouses Johnson.

WHEREFORE, premises considered, the assailed Decision dated February 14, 2006 and Resolution dated
October 3, 2006 of the Court of Appeals are hereby AFFIRMED and the petition is hereby DENIED for
lack of merit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Baguio City
FIRST DIVISION
G.R. No. 179781

April 7, 2010

SPOUSES BASILIO and NORMA HILAGA, Petitioners,

vs.
RURAL BANK OF ISULAN (Cotabato, Inc., as represented by its Manager), Respondent.
DECISION
VILLARAMA, JR., J.:
Petitioners appeal from the Decision1 dated May 25, 2007 and Resolution2 dated August 6, 2007 of the
Court of Appeals (CA) in C.A.-G.R. CV No. 81979 which had reversed the August 8, 2003 Judgment 3 of
the Regional Trial Court of Surallah, South Cotabato, Branch 26 in Civil Case No. 666-N for "Redemption
of Foreclosed Mortgaged Property Under [Act No.] 3135." The appellate court held that petitioners right
to redeem the foreclosed property from the respondent bank had expired.
The following facts are established:
Petitioners Basilio and Norma B. Hilaga were the owners of a parcel of land, identified as Lot No. 172-A,
Pls-212-D-7, located at Barrio Lopez Jaena, Municipality of Norala, Province of South Cotabato and
containing an area of 46,868 square meters, more or less.
On March 16, 1970, petitioners obtained a loan from respondent Rural Bank of Isulan (Cotabato) Inc., in
the amount of P2,500.00. To secure the loan, they executed a Real Estate Mortgage 4 over the abovementioned property which was then covered only by Tax Declaration No. 5537. 5 When petitioners failed
to pay their obligation when it became due on March 19, 1971, the respondent bank initiated
foreclosure proceedings. The subject property was sold at a public auction by the Provincial Sheriff on
April 20, 1977 and a Certificate of Extrajudicial Sale 6 was issued in favor of the Rural Bank of Isulan
(Cotabato) Inc. as the highest bidder. The respondent bank then took possession of the foreclosed
property. Meanwhile, unknown to respondent bank, a Free Patent title 7 (Original Certificate of Title No.
P-19766) had been issued in favor of petitioners on August 4, 1976 or before the foreclosure sale.
On September 21, 1994, or more than seventeen (17) years after the foreclosure sale, petitioner Basilio
Hilaga sent a letter8 to the respondent banks lawyer, the late Atty. Ismail Arceno, conveying his desire
to redeem the subject property. When the letter remained unanswered, petitioners, through their

counsel, again sent a letter9 dated May 4, 1999, seeking to redeem the foreclosed property. The second
letter, however, also remained unheeded.
Thus, on June 3, 1999, petitioners filed a complaint 10 for Redemption of Foreclosed Mortgaged Property
Under [Act No. 3135] before the Regional Trial Court of Surallah, South Cotabato, Branch 26, seeking to
redeem the subject property from the respondent bank under the provisions of Act No. 3135. In their
complaint, petitioners alleged that the mortgage and subsequent foreclosure of the subject property
had not been annotated on the title nor registered with the Register of Deeds. Also, no annotation and
consolidation of ownership was made in favor of the respondent bank. Thus, the one (1)-year
redemption period under Act No. 3135, which commences from the date of registration of the sale, has
not yet started. They insisted that, indeed, their right of redemption has not yet expired because under
Section 119 of Commonwealth Act No. 141 or the Public Land Act, a homesteader whose homestead
has been sold at a public auction by virtue of an extrajudicial foreclosure, may repurchase said land
within five (5) years from the date of registration of the sale. Thus, they can still exercise their right of
redemption. They signified their willingness to redeem or repurchase the foreclosed property by
depositing the amount of P10,000.00 with the court.
In its Answer with Counterclaim,11 the respondent bank averred that when the real estate mortgage in
its favor was executed, the parcel of land was merely covered by a tax declaration. That unknown to
the respondent bank, petitioners proceeded to apply for and cause the issuance in 1976 of a free
patent and torrens title to the land; hence, they are estopped to claim that the parcel of land
mortgaged is covered by a free patent and torrens title. They likewise cannot avail of the benefits
afforded to a grantee of a public land under the Homestead and Free Patent Laws because they violated
the terms and conditions of their application to avail of a grant by homestead or free patent when they
mortgaged the land.1avvphi1
As aforesaid, the trial court rendered judgment in favor of petitioners. The trial court ruled that because
the certificate of sale was not registered, petitioners can still redeem the subject property. The
dispositive portion of the trial courts decision reads-IN VIEW OF THE FOREGOING PREMISES, judgment is hereby rendered in favor of the Plaintiffs,
thereby ordering the defendant Bank:
1) to allow the plaintiffs to exercise their right of redemption under Act 3135 over the foreclosed
property described above in the amount corresponding to the principal obligation, plus the
corresponding interest accruing from the date of the filing of this case[; and]
2) to pay attorneys fees in the amount of FIVE THOUSAND PESOS (PH 5,000.00).
SO ORDERED.12
On appeal, the CA reversed the trial court. According to the CA, the right of petitioners to redeem their
foreclosed property can only be exercised within two (2) years from the date of foreclosure, as provided
under Republic Act No. 72013 or the Rural Banks Act, as amended by Republic Act No. 2670. The CA
also ruled that petitioners are guilty of laches.

On August 6, 2007, the CA denied petitioners motion for reconsideration.

Hence, this appeal.
Petitioners alleged that-I
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR OF LAW IN HOLDING THAT THE APPLICABLE
LAW IS ACT NO. 3135, AS AMENDED BY ACT NO. 4118 IN CONJUNCTION WITH REPUBLIC ACT NO. 720 AS
AMENDED BY REPUBLIC ACT NO. 2670 (RURAL BANK ACT).
II
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR OF LAW AND GRAVE ABUSE OF DISCRETION
IN HOLDING THAT PETITIONERS HAS ONLY TWO YEARS TO REDEEM THEIR PROPERTY FROM THE
ISSUANCE OF CERTIFICATE OF SALE AFTER THE SAME WAS FORECLOSED.
III
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR OF LAW AND GRAVE ABUSE OF DISCRETION
IN DECLARING THAT PETITIONERS ARE GUILTY OF LACHES. 14
Essentially, the issue is whether petitioners can still redeem their foreclosed property.
Petitioners assail the CAs ruling that they only have two (2) years from the time the certificate of sale
was issued to the respondent bank to redeem the property. Petitioners submit that they can still
redeem their foreclosed property from respondent bank since under the provisions of Act No. 3135, as
amended, the one (1)-year redemption period should start from the date of registration of the
certificate of sale with the Register of Deeds.
They admit that when the property was mortgaged, the property was covered by a mere tax
declaration. However, they point out that even though a free patent title was later issued to them,
respondent bank still opted to foreclose the property under Act No. 3135, as amended, and not under
Republic Act No. 720 or the Rural Banks Act, nor under Act No. 3344 or the Spanish Mortgage Law.
Thus, under the provisions of Act No. 3135, they have one (1) year from the date of the registration of
the sale to redeem the mortgaged property. Because no registration of the sale was effected, they can
still redeem the property from the respondent bank.
The petition has no merit.
Section 5 of Republic Act No. 720, as amended by Republic Act Nos. 2670 and 5939, specifically
provides for the redemption period for lands foreclosed by rural banks. It provides in part as follows:
Sec. 5. x x x

Loans may be granted by rural banks on the security of lands without Torrens titles where the owner of
private property can show five years or more of peaceful, continuous and uninterrupted possession in
the concept of an owner; x x x or of homesteads or free patent lands pending the issuance of titles but
already approved, the provisions of any law or regulations to the contrary notwithstanding: Provided,
That when the corresponding titles are issued the same shall be delivered to the register of
deeds of the province where such lands are situated for the annotation of the
encumbrance: x x x
x x x Provided, That when a homestead or free patent land is foreclosed, the homesteader or free
patent holder, as well as their heirs shall have the right to redeem the same within two years from the
date of foreclosure in case of a land not covered by a Torrens title or two years from the date of the
registration of the foreclosure in case of a land covered by a Torrens title x x x.
In Sta. Ignacia Rural Bank, Inc. v. Court of Appeals,15 we summarized the rules on redemption in the
case of an extrajudicial foreclosure of land acquired under our free patent or homestead statutes as
follows. If the land is mortgaged to a rural bank under Republic Act No. 720, as amended, the
mortgagor may redeem the property within two (2) years from the date of foreclosure or
from the registration of the sheriffs certificate of sale at such foreclosure if the property is
not covered or is covered, respectively, by a Torrens title. If the mortgagor fails to exercise such
right, he or his heirs may still repurchase the property within five (5) years from the expiration of the
two (2)-year redemption period pursuant to Section 119 of the Public Land Act (C.A. No. 141). If the land
is mortgaged to parties other than rural banks, the mortgagor may redeem the property within one (1)
year from the registration of the certificate of sale pursuant to Act No. 3135. If he fails to do so, he or
his heirs may repurchase the property within five (5) years from the expiration of the redemption period
also pursuant to Section 119 of the Public Land Act.
In the present case, petitioners admit that when the property was mortgaged, only the tax declaration
was presented. Although a free patent title was subsequently issued in their favor on August 4, 1976,
petitioners failed to inform the creditor rural bank of such issuance. As a result, the certificate of sale
was not registered or annotated on the free patent title. Petitioners are estopped from redeeming the
property based on the free patent title which was not presented during the foreclosure sale nor
delivered to the Register of Deeds for annotation of the certificate of sale as required under Section 5 of
Republic Act No. 720, as amended. Estoppel in pais arises when one, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on
such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts. 16
Petitioners cannot fault respondent for the non-registration of the certificate of sale because petitioners
did not inform the respondent bank that a Torrens title had already been acquired by them on August 4,
1976. By their silence and inaction, petitioners misled the respondent bank to believe that their only
proof of ownership was the tax declaration. Thus, the two (2)-year redemption period shall be reckoned
from the date of the foreclosure. Apropos is the CAs ruling on this matter:
It is undisputed that the foreclosed property was not yet covered by a Torrens title, being merely
covered by a Tax Declaration, when appellees mortgaged their property. Clearly, the right of appellees

to redeem their foreclosed property can only be exercised within two (2) years from the date of
foreclosure, as provided for under R.A. No. 720, as amended by R.A. No. 2670. When the instant suit
commenced on 31 May 1999, appellees right to redeem had already lapsed since they had only until
1979 to exercise their right of redemption or within two (2) years from the foreclosure proceedings in
1977.17
For the same reason, petitioners assertion that they will have five (5) years from the date of
registration of the sale to redeem the foreclosed property under Section 119 of the Public Land Act has
no merit, the reckoning period for the redemption period being properly from the date of sale.
But even assuming arguendo that petitioners can avail of the five (5)-year redemption period provided
under Section 119 of the Public Land Act, they still failed to exercise their right of redemption within the
reglementary period provided by law. As mentioned earlier, Section 119 of said Act expressly provides
that where the land involved is acquired as a homestead or under a free patent, if the mortgagor fails
to exercise the right of redemption, he or his heirs may still repurchase the property within five (5)
years from the expiration of the two (2)-year redemption period. The auction sale having been
conducted on April 20, 1977, petitioners had until April 20, 1984 within which to redeem the mortgaged
property. Since petitioner only filed the instant suit in 1999, their right to redeem had already lapsed. It
took petitioners twenty-two (22) years before instituting an action for redemption. The considerable
delay in asserting ones right before a court of justice is strongly persuasive of the lack of merit in
petitioners claim, since it is human nature for a person to enforce his right when the same is
threatened or invaded.18
WHEREFORE, the petition for review on certiorari is hereby DENIED, for lack of merit. The Decision and
Resolution of the Court of Appeals dated May 25, 2007 and August 6, 2007, respectively, in C.A.-G.R.
CV No. 81979 are AFFIRMED.
With cost against the petitioners.SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168289

March 22, 2010

THE MUNICIPALITY OF HAGONOY, BULACAN, represented by the HON. FELIX V. OPLE,

Municipal Mayor, and FELIX V. OPLE, in his personal capacity, Petitioners,
vs.
HON. SIMEON P. DUMDUM, JR., in his capacity as the Presiding Judge of the REGIONAL TRIAL
COURT, BRANCH 7, CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO SHERIFF of the
REGIONAL TRIAL COURT of CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO SHERIFF of the
REGIONAL TRIAL COURT of BULACAN and his DEPUTIES; and EMILY ROSE GO KO LIM CHAO,
doing business under the name and style KD SURPLUS, Respondents.

DECISION
PERALTA, J.:
This is a Joint Petition1 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 Decision2 and the May 23, 2005 Resolution3 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 Complaint5 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 Oples 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 respondents 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,
attorneys fees of P100,000.00 and the costs of the suit.
On February 13, 2003, the trial court issued an Order7 granting respondents 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 respondents 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 Order14 denying the two motions. Petitioners moved for
reconsideration, but they were denied in an Order15 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 respondents claim and affirmed the trial courts 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
courts 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 respondents 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 respondents 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 claimants 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 x39
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 respondents
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 respondents claim is validated, be subjected to writs of execution and garnishment
unless, of course, there has been a corresponding appropriation provided by law. 401avvphi1
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 respondents 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 [Oples personal
representation] relative to this case."44
It appears, however, that after the issuance of the Court of Appeals decision, only Oples 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 Appeals46 and Municipality of Pililla, Rizal v. Court of Appeals47 that only under welldefined 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 municipalitys 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 Oples 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 courts 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.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 167213

October 31, 2006

DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY BAUTISTA, MARION BAUTISTA, DANNY

BOY CORDERO, LADYLYN CORDERO and BELEN CORDERO, petitioners,

vs.
F.S. MANAGEMENT & DEVELOPMENT CORPORATION, respondent.

DECISION

CARPIO MORALES, J.:

Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. CV No. 66198, Decision 1
dated April 29, 2004 which set aside the decision of Branch 260 of the Regional Trial Court (RTC) of
Paraaque in Civil Case No. 97-067, and Resolution dated February 21, 2005 denying petitioners
motion for reconsideration.
On or about October 27, 1994,2 petitioner Belen Cordero (Belen), in her own behalf and as attorney-infact of her co-petitioners Darrel Cordero, Egmedio Bautista, Rosemay Bautista, Marion Bautista, Danny
Boy Cordero and Ladylyn Cordero, entered into a contract to sell 3 with respondent, F.S. Management
and Development Corporation, through its chairman Roberto P. Tolentino over five (5) parcels of land
located in Nasugbu, Batangas described in and covered by TCT Nos. 62692, 62693, 62694, 62695 and
20987. The contract to sell contained the following terms and conditions:
1. That the BUYER will buy the whole lots above described from the OWNER consisting of 50
hectares more or less at P25/sq.m. or with a total price of P12,500,000.00;
2. That the BUYER will pay the OWNER the sum of P500,000.00 as earnest money which will
entitle the latter to enter the property and relocate the same, construct the necessary paths and
roads with the help of the necessary parties in the area;
3. The BUYER will pay the OWNER the sum of THREE MILLION FIVE HUNDRED THOUSAND PESOS
ONLY (P3,500,000.00) on or before April 30, 1995 and the remaining balance will be paid within
18 mons. (sic) from the date of payment of P3.5 Million pesos in 6 equal quarterly payments or
P1,411,000.00 every quarter;
4. The title will be transferred by the OWNER to the BUYER upon complete payment of the
agreed purchase price. Provided that any obligation by the OWNER brought about by
encumbrance or mortgage with any bank shall be settled by the OWNER or by the BUYER which
shall be deducted the total purchase price;
5. Provided, the OWNER shall transfer the titles to the BUYER even before the complete payment
if the BUYER can provide post dated checks which shall be in accordance with the time frame of
payments as above stated and which shall be guaranteed by a reputable bank;
6. Upon the payment of the earnest money and the down payment of 3.5 Million pesos the
BUYER can occupy and introduce improvements in the properties as owner while owner is
guaranteeing that the properties will have no tenants or squatters in the properties and
cooperate in the development of any project or exercise of ownerships by the BUYER;
7. Delay in the payment by the BUYER in the agreed due date will entitle the SELLER for the
legal interest.4
Pursuant to the terms and conditions of the contract to sell, respondent paid earnest money in the
amount of P500,000 on October 27, 1994.5 She likewise paid P1,000,000 on June 30, 1995 and another
P1,000,000 on July 6, 1995. No further payments were made thereafter. 6
Petitioners thus sent respondent a demand letter dated November 28, 19967 informing her that they
were revoking/canceling the contract to sell and were treating the payments already made as payment
for damages suffered as a result of the breach of contract, and demanding the payment of the amount
of P10 Million Pesos for actual damages suffered due to loss of income by reason thereof. Respondent
ignored the demand, however.

Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact of her copetitioners, filed before the RTC of Paraaque a complaint for rescission of contract with damages 8
alleging that respondent failed to comply with its obligations under the contract to sell, specifically its
obligation to pay the downpayment of P3.5 Million by April 30, 1995, and the balance within 18 months
thereafter; and that consequently petitioners are entitled to rescind the contract to sell as well as
demand the payment of damages.
In its Answer,9 respondent alleged that petitioners have no cause of action considering that they were
the first to violate the contract to sell by preventing access to the properties despite payment of P2.5
Million Pesos; petitioners prevented it from complying with its obligation to pay in full by refusing to
execute the final contract of sale unless additional payment of legal interest is made; and petitioners
refusal to execute the final contract of sale was due to the willingness of another buyer to pay a higher
price.
In its Pre-trial Order10 of June 9, 1997, the trial court set the pre-trial conference on July 8, 1997 during
which neither respondents representative nor its counsel failed to appear. And respondent did not
submit a pre-trial brief, hence, it was declared as in default by the trial court which allowed the
presentation of evidence ex parte by petitioners.11
Petitioners presented as witnesses petitioner Belen and one Ma. Cristina Cleofe. Belen testified on the
execution of the contract to sell; the failure of respondent to make the necessary payments in
compliance with the contract; the actual and moral damages sustained by petitioners as a result of the
breach, including the lost opportunity to sell the properties for a higher price to another buyer, Ma.
Cristina Cleofe; and the attorneys fees incurred by petitioners as a result of the suit. 12 Ma. Cristina
Cleofe, on the other hand, testified on the offer she made to petitioners to buy the properties at
P35.00/sq.m.13 which was, however, turned down in light of the contract to sell executed by petitioners
in favor of the respondent.14
Respondent filed a motion to set aside the order of default15 which was denied by the trial court by
Order dated September 12, 1997.16 Via petition for certiorari, respondent challenged the said order, but
it was denied by the Court of Appeals.17
Meanwhile, the trial court issued its decision18 on November 18, 1997, finding for petitioners and
ordering respondent to pay damages and attorneys fees. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the contract to sell between the Plaintiffs and the Defendant
is hereby declared as rescinded and the defendant is likewise ordered to pay the plaintiff:
(1) P4,500,000.00 computed as follows: P5,000,000.00 in actual damages and P2,000,000.00 in
moral and exemplary damages, less defendants previous payment of P2,500,000.00 under the
contract to sell; and
(2) P800,000.00 by way of attorneys fees as well as the costs of suit.
SO ORDERED. (Underscoring supplied)
Before the Court of Appeals to which respondent appealed the trial courts decision, it raised the
following errors:
3.01. The Regional Trial Court erred when it awarded plaintiffs-appellees Five Million Pesos
(P5,000,000.00) as actual damages. Corollary thereto, the Regional Trial Court erred in declaring
defendant-appellant to have acted in wanton disregard of its obligations under the Contract to
Sell.
3.02. The Regional Trial Court erred when it awarded plaintiffs-appellees Two Million Pesos
(P2,000,000.00) as moral and exemplary damages.
3.03. The Regional Trial Court erred when it awarded plaintiffs-appellees Eight Hundred
Thousand Pesos (P800,000.00) as attorneys fees.19
In the assailed decision,20 the Court of Appeals set aside the contract to sell, it finding that petitioners
obligation thereunder did not arise for failure of respondent to pay the full purchase price. It also set
aside the award to petitioners of damages for not being duly proven. And it ordered petitioners to

return "the amount received from [respondent]." Thus the dispositive portion of the appellate courts
decision reads:
WHEREFORE, the Decision dated 18 November 1997 of the Regional Trial Court, Branch 260 of
Paraaque City in Civil Case No. 97-067 is hereby VACATED. A NEW DECISION is ENTERED
ordering the SETTING-ASIDE of the Contract to Sell WITHOUT payment of damages. Plaintiffsappellees are further ORDERED TO RETURN THE AMOUNTS RECEIVED from defendant-appellant.
(Underscoring supplied)
SO ORDERED.
Their motion for reconsideration having been denied, petitioners filed the present petition for review
which raises the following issues:
1. Whether the Court of Appeals erred in ruling on the nature of the contract despite the fact
that it was not raised on appeal.
2. Whether or not a contract to sell may be subject to rescission under Article 1191 of the Civil
Code.
3. Whether or not the Court of Appeals erred in setting aside the award of damages.
Petitioners contend that the Court of Appeals erred in ruling on the nature of the contract to sell and
the propriety of the remedy of rescission under Article 1191 of the Civil Code, these matters not having
been raised by respondents in the assigned errors. In any event, petitioners claim that the contract to
sell involves reciprocal obligations, hence, it falls within the ambit of Article 1191. 21
While a party is required to indicate in his brief an assignment of errors and only those assigned shall
be considered by the appellate court in deciding the case, appellate courts have ample authority to rule
on matters not assigned as errors in an appeal if these are indispensable or necessary to the just
resolution of the pleaded issues.22 Thus this Court has allowed the consideration of other grounds or
matters not raised or assigned as errors, to wit: 1) grounds affecting jurisdiction over the subject
matter; 2) matters which are evidently plain or clerical errors within the contemplation of the law; 3)
matters the consideration of which is necessary in arriving at a just decision and complete resolution of
the case or to serve the interest of justice or to avoid dispensing piecemeal justice; 4) matters of record
which were raised in the trial court and which have some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored; 5) matters closely related to an error assigned;
and 6) matters upon which the determination of a question properly assigned is dependent. 23
In the present case, the nature as well as the characteristics of a contract to sell is determinative of the
propriety of the remedy of rescission and the award of damages. As will be discussed shortly, the trial
court committed manifest error in applying Article 1191 of the Civil Code to the present case, a
fundamental error which "lies at the base and foundation of the proceeding, affecting the judgment
necessarily," or, as otherwise expressed, "such manifest error as when removed destroys the
foundation of the judgment."24 Hence, the Court of Appeals correctly ruled on these matters even if
they were not raised in the appeal briefs.
Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the
agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which
is not a breach of contract but merely an event that prevents the seller from conveying title to the
purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without
force and effect.25
Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the
purchase price, Article 1191 of the Civil Code would have no application.
Rayos v. Court of Appeals26 explained:
Construing the contracts together, it is evident that the parties executed a contract to sell and
not a contract of sale. The petitioners retained ownership without further remedies by the
respondents until the payment of the purchase price of the property in full. Such payment is a
positive suspensive condition, failure of which is not really a breach, serious or

otherwise, but an event that prevents the obligations of the petitioners to convey
title from arising, in accordance with Article 1184 of the Civil Code. x x x
The non-fulfillment by the respondent of his obligation to pay, which is a suspensive
condition to the obligation of the petitioners to sell and deliver the title to the
property, rendered the contract to sell ineffective and without force and effect. The
parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil
Code will not apply because it presupposes an obligation already extant. There can
be no rescission of an obligation that is still non-existing, the suspensive condition
not having happened. [Emphasis and underscoring supplied; citations omitted]
The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to the
buyer (respondent) upon complete payment of the agreed purchase price." 27 Since respondent failed to
fully pay the purchase price, petitioners obligation to convey title to the properties did not arise. While
rescission does not apply in this case, petitioners may nevertheless cancel the contract to sell, their
obligation not having arisen.28 This brings this Court to Republic Act No. 6552 (THE REALTY
INSTALLMENT BUYER PROTECTION ACT). In Ramos v. Heruela29 this Court held:
Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell,
RA 6552 applies. In Rillo v. Court of Appeals,30 the Court declared:
x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds
of real estate (industrial, commercial, residential) the right of the seller to cancel the
contract upon non-payment of an installment by the buyer, which is simply an event
that prevents the obligation of the vendor to convey title from acquiring binding
force. It also provides the right of the buyer on installments in case he defaults in the payment
of succeeding installments x x x. [Emphasis supplied]
The properties subject of the contract having been intended for commercial, and not for residential,
purposes,31 petitioners are entitled to retain the payments already made by respondent. RA 6552
expressly recognizes the vendors right to cancel contracts to sell on installment basis industrial and
commercial properties with full retention of previous payments. 32 But even assuming that the properties
were not intended for commercial or industrial purpose, since respondent paid less than two years of
installments, it is not entitled to any refund. 33 It is on this score that a modification of the challenged
issuances of the appellate court is in order.
Respecting petitioners claim for damages, failure to make full payment of the purchase price in a
contract to sell is not really a breach, serious or otherwise, but, as priorly stated, an event that prevents
the obligation of the vendor to convey title to the property from arising. 34 Consequently, the award of
damages is not warranted in this case.
With regard to attorneys fees, Article 220835 of the Civil Code provides that subject to certain
exceptions, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered in
the absence of stipulation. None of the enumerated exceptions in Article 2208 is present in this case. It
bears stressing that the policy of the law is to put no premium on the right to litigate. 36
WHEREFORE, the assailed Court of Appeals Decision dated April 29, 2004 and the Resolution dated
February 21, 2005 in CA-G.R. CV No. 66198 are AFFIRMED with the MODIFICATION that petitioners
are entitled to retain the payments already received from respondent.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 151035

June 3, 2004

ANDREA MAYOR and VERGEL ROMULO, petitioners,

vs.
LOURDES MASANGKAY BELEN and LEONARDO BELEN, respondents.
DECISION
YNARES-SANTIAGO, J.:
The crux of the controversy in this petition for review is whether or not the execution of the Kasulatan
ng Bilihang Tuluyan and Kasulatan ng Sanglaan covering a 179 square meter lot on which stands the
house where respondents live is tainted with irregularity. Petitioners claim that said contracts are
binding on respondents because the latter freely and voluntarily executed them. The respondents,
however, contend that the execution of the documents was procured through fraud and undue
influence. The trial court sustained respondents. The ruling of the lower court was affirmed on appeal
with modifications by the appellate tribunal. Aggrieved, petitioners elevated their cause by way of this
proceeding to this Court.
The undisputed facts as culled from the factual findings of the appellate court 1 are as follows:
Petitioner Andrea Mayor was the original owner of the a parcel of land located at Bonifacio
Street, San Pablo City measuring about 179 square meters, more or less. On November 27,
1979, respondent Lourdes M. Belen purchased the subject property from Andrea Mayor in
consideration of P18,000.00 payable in installments. Lourdes M. Belen was able to pay
P11,445.00 out of the P18,000.00 purchase price leaving a balance of P6,555.00.
On June 17, 1980, Lourdes M. Belen sold back the subject property to Andrea Mayor in consideration of
P18,000.00. For this purpose, Lourdes M. Belen executed the Kasulatan ng Bilihang Tuluyan in favor of
Andrea Mayor.

On June 19, 1980, to secure a loan in the amount of P12,000.00 obtained from Lourdes M. Belen,
Andrea Mayor executed a real estate mortgage over the subject property denominated as Kasulatan ng
Sanglaan in favor of the former.
On August 4, 1980, Lourdes M. Belen filed a civil suit against Andrea Mayor, docketed as Civil Case No.
SP-1755, for annulment of the Kasulatang Bilihang Tuluyan and Kasulatan ng Sanglaan.
In the complaint, Lourdes alleged, among others, that petitioner Andrea Mayor, through co-petitioner
Vergel Romulo a.k.a. Virgilio Romulo, made her believe that the sale in her favor by Andrea is void
because the deed of conveyance did not reflect the true agreement of the parties as to the mode of
payment of the purchase price, i.e., the purchase price was made on installments and not in cash as
stipulated in the document. Lourdes further averred that she was also made to believe that she might
lose what she had already paid which amounted to 70% of the purchase price. She was convinced by
the representations of Andrea and Romulo that it would be best for the latter to make it appear that
Andrea was merely mortgaging the subject property to her. Lourdes readily agreed to the scheme
believing that it was for the protection of her rights. It turned out that the scheme was in fact a ruse
employed by Romulo and Andrea to re-acquire the property, thus, Lourdess consent in the execution of
the Kasulatan ng Bilihang Tuluyan and Kasulatan ng Sanglaan was obtained through fraud and undue
influence.
In her answer with counterclaim, Andrea Mayor denied the material allegations of the complaint
insisting, in sum, that Lourdes M. Belen freely and voluntarily executed the subject contracts and the
same is binding on the parties thereto.
On August 11, 1980, Leonardo Belen filed a complaint for Annulment of Deed of Absolute Sale and Real
Estate Mortgage against Andrea Mayor and Lourdes Masangkay a.k.a Lourdes M. Belen. In the
complaint, docketed as Civil Case No. SP-1756, he averred that he is living with Lourdes M. Belen
without benefit of marriage. Lourdes bought the subject property from Andrea Mayor using their
common fund. On account of the fraudulent acts of Andrea Mayor in connivance with Virgilio Romulo,
Lourdes M. Belen agreed to execute the Kasulatan ng Bilihang Tuluyan and the Kasulatan ng Sanglaan.
For lack of his approval or consent thereto, as co-owner of the property, the said documents are null
and void.
Denying the allegations of the complaint, Andrea Mayor in her answer with counterclaim averred that
Leonardo Belen did not have a cause of action because he was neither a party nor a privy to any of the
subject contracts. Andrea also alleged that the execution thereof was Lourdess free and voluntary act.
Subsequently on February 16, 1981, Leonardo Belen and Lourdes M. Belen filed a complaint for
Damages against Virgilio Romulo. In the complaint, docketed as Civil Case No. SP-1821, Lourdes and
Leonardo averred that they sustained damages for Virgilios fraudulent acts of inducing Lourdes to sign
the subject contracts.
In his answer, Virgilio Romulo insisted that he never had any transaction with Lourdes M. Belen and
Leonardo Belen. For instituting a baseless action against him, Lourdes and Leonardo should be held
liable for damages.

The three cases were consolidated and jointly tried. After trial, the court a quo rendered judgment in
favor of the Belens, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered declaring the Kasulatan ng Bilihang Tuluyan dated
June 17, 1980 and the Kasulatan ng Sanglaan dated June 19, 1980 null and void and ordering:
1. the defendants to jointly and severally pay to the plaintiffs Leonardo Belen and
Lourdes Masangkay Belen the sum of P15,000.00 for their attorneys fees and costs of
litigation in these three cases.
2. Virgilio Romulo to pay the plaintiffs the sum of P20,000.00 as moral damages.
Dissatisfied, petitioners elevated their cause to the Court of Appeals which rendered judgment 2
affirming the assailed decision but deleting the award of attorneys fees. A motion for reconsideration
was subsequently denied.3
Hence, the instant petition filed by petitioners who argue:
THAT WITH DUE RESPECT TO THE FINDINGS MADE BY PUBLIC RESPONDENT HONORABLE COURT
OF APPEALS, THE PRIVATE RESPONDENTS WERE NOT ABLE TO PROVE THE FRAUD AND UNDUE
INFLUENCE THEY CLAIMED TO HAVE BEEN EXERTED ON THEM BY THE PETITIONER IN THE
EXECUTION OF THE QUESTIONED KASULATAN NG BILIHAN AND KASULATAN NG SANGLAAN.
The issue for resolution is whether or not fraud attended the execution of the Kasulatan ng Bilihan and
Kasulatan ng Sanglaan.
The Civil Code provides that
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.
As defined, fraud refers to all kinds of deception, whether through insidious machination, manipulation,
concealment or misrepresentation to lead another party into error. 4 The deceit employed must be
serious. It must be sufficient to impress or lead an ordinarily prudent person into error, taking into
account the circumstances of each case.5
In support of their cause, petitioners intone the shopworn legal maxim that fraus est odiosa et non
praesumenda and argue that to establish the claim of fraud, evidence must be clear and more than
merely preponderant. They contend, in sum, that the two deeds were duly executed by the parties
thereto in accordance with the formalities required by law and as public documents the evidence to
overcome their recitals is wanting.
We disagree.

Impressive as the arguments petitioners have advanced in support of their cause may be, the fatal flaw
lies in their inability to convincingly substantiate their claim that Lourdes M. Belen signed the contracts
freely and voluntarily.
This brings to the fore Lourdes M. Belens limited educational attainment. While indeed petitioners point
out that the deeds denominated as Kasulatan ng Bilihang Tuluyan and Kasulatan ng Sanglaan were
executed in Tagalog, a close scrutiny thereof shows that they are practically literal translations of their
English counterparts. Thus, the mere fact that the documents were executed in the vernacular neither
clarified nor simplified matters for Lourdes who admitted on cross-examination that she merely finished
Grade 3, could write a little, and understand a little of the Tagalog language.6
The appellate court could not then be faulted when it invoked Article 1332 of the Civil Code which
states:
ART. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the former.
As aptly pointed out by the Court of Appeals, the principle that a party is presumed to know the
import of a document to which he affixes his signature is modified by the foregoing article.
Under the said article, where a party is unable to read or when the contract is in a language not
understood by a party and mistake or fraud is alleged, the obligation to show that the terms of
the contract had been fully explained to said party who is unable to read or understand the
language of the contract devolves on the party seeking to enforce it. The burden rests upon the
party who seeks to enforce the contract to show that the other party fully understood the
contents of the document. If he fails to discharge this burden, the presumption of mistake, if not,
fraud, stands unrebutted and controlling. 7
In this case, petitioners alleged that Lourdes M. Belen affixed her signature on the questioned contracts
freely and voluntarily. We have assiduously scoured the record but like the appellate court we have not
come across convincing evidence to support their allegations. In civil cases, he who alleges a fact has
the burden of proving it by a preponderance of evidence.8 Suffice it to state that such self-serving
claims are not enough to rebut the presumption of fraud provided for in Article 1332 of the Civil Code.
As the party claiming affirmative relief from the court, it is incumbent upon petitioners to convincingly
prove their claim. This they failed to do. Bare allegations, unsubstantiated by evidence are not
equivalent to proof under our Rules.9 In short, mere allegations are not evidence.10
Concededly, both the Kasulatan ng Bilihang Tuluyan and the Kasulatan ng Sanglaan are public
documents and there is no dispute that generally, a notarized document carries the evidentiary weight
conferred upon it with respect to its due execution. In addition, documents acknowledged before a
notary public have in their favor the presumption of regularity. However, the presumption is not
absolute and may be rebutted by clear and convincing evidence to the contrary. 11 The presumption
cannot be made to apply in this case because the regularity in the execution of the documents were
challenged in the proceedings below where their prima facie validity was overthrown by the highly
questionable circumstances pointed out by both trial and appellate courts. Furthermore, notarization

per se is not a guarantee of the validity of the contents of a document. Indeed, as stated by the
Supreme Court in Nazareno v. CA:12
The fact that the deed of sale was notarized is not a guarantee of the validity of its contents. As
held in Suntay v. Court of Appeals:13
Though the notarization of the deed of sale in question vests in its favor the presumption
of regularity, it is not the intention nor the function of the notary public to validate and
make binding an instrument never, in the first place, intended to have any binding legal
effect upon the parties thereto. The intention of the parties still and always is the primary
consideration in determining the true nature of the contract.
The impugned documents cannot be presumed as valid because of the direct challenge posed thereto
by respondents, which is precisely the reason for the commencement of this case: to bring to the fore
the irregularity in their execution.
There are, moreover, other factual circumstances pointed out by both the trial and appellate courts
which militate against the contention of petitioners. The evidence on record shows that the
respondents Belens intended to stay and occupy the subject land for a considerable length of time. As
borne out by the records, respondents bought from Celita Bordeos the house standing on the subject
land then owned by Andrea Mayor.14 Four years later or on November 27, 1979, respondents bought the
subject land from petitioner Andrea Mayor. 15
They bought the said land through installments and already paid P11,445.00 of the P18,000.00
purchase price. They also caused the transfer in their names of the tax declarations over the subject
land and house. This they did even before they could have completed the payment of the purchase
price. In short, their intention and desire to stay on the property is very evident. Petitioners suggestion,
therefore, that respondents made a sudden volte face and decided to resell the property to them
seven months from the date of the propertys acquisition, after payment of almost two-thirds of the
purchase price and transferring the tax declarations thereof in respondents names, borders on the
absurd and the incredible. It simply is contrary to human experience for respondents to have had a
hasty change of heart to dispose of the land on which they intend to make their home and upon which
they had invested so much.
Petitioners advance the excuse that respondents wanted to immediately dispose of the subject
property because the area would be soon converted into a park. If this were so, why would Lourdes
Belen thereafter accept the very same property as security knowing fully well that it would revert to the
public domain?
A mortgage subjects the property upon which it is imposed, whoever the possessor may be, to the
fulfillment of the obligation whose security it was constituted. 16 Thus, in case of non-payment, the
creditor may proceed against the property for the fulfillment of the obligation. No creditor would accept
property as security for the fulfillment of the obligation knowing that the property offered as security
would soon be out of the commerce of man.17

Finally, the non-presentation of petitioner Andrea Mayor on the witness stand is likewise not lost on us
and adds to the weakness of petitioners cause. While it is true that the non-presentation of a witness is
not a reason for discrediting a partys defense, still we are inclined to take this omission against them in
view of the numerous loopholes in their defense.18
All told, we see no reason in overturning the findings of the appellate court. As has often been stated,
"[t]he jurisdiction of this Court over cases brought to it from the Court of Appeals is limited to a review
of questions of law since the factual conclusions thereon are conclusive. There are of course exceptions
to this rule, but none obtain in the case at bar to warrant a scrutiny of the Court of Appeals conclusions
which are supported by the evidence on record and carry more weight, it having affirmed the trial
courts factual conclusions."19
WHEREFORE, in view of all the foregoing, the petition is DENIED and the decision dated April 3, 2001
of the Court of Appeals in CA-G.R. CV No. 48646, is AFFIRMED in toto.
SO ORDERED.