Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

142618 July 12, 2007

PCI LEASING AND FINANCE, INC., Petitioner, vs. GIRAFFE-X CREATIVE IMAGING, INC., Respondent. DECISION GARCIA, J.: On a pure question of law involving the application of Republic Act (R.A.) No. 5980, as amended by R.A. No. 8556 in relation to Articles 1484 and 1485 of the Civil Code, petitioner PCI Leasing and Finance, Inc. (PCI LEASING, for short) has directly come to this Court via this petition for review under Rule 45 of the Rules of Court to nullify and set aside the Decision and Resolution dated December 28, 1998 and February 15, 2000, respectively, of the Regional Trial Court (RTC) of Quezon City, Branch 227, in its Civil Case No. Q-98-34266, a suit for a sum of money and/or personal property with prayer for a writ of replevin, thereat instituted by the petitioner against the herein respondent, Giraffe-X Creative Imaging, Inc. (GIRAFFE, for brevity). The facts: On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement,1whereby the former leased out to the latter one (1) set of Silicon High Impact Graphics and accessories worthP3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10 worth P6,500,000.00. In connection with this agreement, the parties subsequently signed two (2) separate documents, each denominated as Lease Schedule.2Likewise forming parts of the basic lease agreement were two (2) separate documents denominated Disclosure Statements of Loan/Credit Transaction (Single Payment or Installment Plan)3 that GIRAFFE also executed for each of the leased equipment. These disclosure statements inter alia described GIRAFFE, vis--vis the two aforementioned equipment, as the "borrower" who acknowledged the "net proceeds of the loan," the "net amount to be financed," the "financial charges," the "total installment payments" that it must pay monthly for thirty-six (36) months, exclusive of the 36% per annum "late payment charges." Thus, for the Silicon High Impact Graphics, GIRAFFE agreed to pay P116,878.21 monthly, and for Oxberry Cinescan, P181.362.00 monthly. Hence, the total amount GIRAFFE has to pay PCI LEASING for 36 months of the lease, exclusive of monetary penalties imposable, if proper, is as indicated below: P116,878.21 @ month (for the Silicon High Impact Graphics) x 36 months = P 4,207,615.56 -- PLUS-P181,362.00 @ month (for the Oxberry Cinescan) x 36 months = Total Amount to be paid by GIRAFFE P 6,529,032.00

(or the NET CONTRACT AMOUNT) P 10,736,647.56

By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount of P3,120,000.00 by way of "guaranty deposit," a sort of performance and compliance bond for the two equipment. Furthermore, the same agreement embodied a standard acceleration clause, operative in the event GIRAFFE fails to pay any rental and/or other accounts due. A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment obligations. And following a three-month default, PCI LEASING, through one Atty. Florecita R. Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter4 dated February 24, 1998 to GIRAFFE. The demand went unheeded. Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case against GIRAFFE. In its complaint,5 docketed in said court as Civil Case No. 98-34266 and raffled to Branch 2276 thereof, PCI LEASING prayed for the issuance of a writ of replevin for the recovery of the leased property, in addition to the following relief: 2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and against the defendant [GIRAFFE], as follows: a. Declaring the plaintiff entitled to the possession of the subject properties; b. Ordering the defendant to pay the balance of rental/obligation in the total amount of P8,248,657.47 inclusive of interest and charges thereon; c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit. (Words in bracket added.) Upon PCI LEASINGs posting of a replevin bond, the trial court issued a writ of replevin, paving the way for PCI LEASING to secure the seizure and delivery of the equipment covered by the basic lease agreement. Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing that the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action. Expounding on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of personal property, PCI LEASING is barred from further pursuing any claim arising from the lease agreement and the companion contract documents, adding that the agreement between the parties is in reality a lease of movables with option to buy. The given situation, GIRAFFE continues, squarely brings into applicable play Articles 1484 and 1485 of the Civil Code, commonly referred to as the Recto Law. The cited articles respectively provide: ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. (Emphasis added.) ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. It is thus GIRAFFEs posture that the aforequoted Article 1484 of the Civil Code applies to its contractual relation with PCI LEASING because the lease agreement in question, as supplemented by the schedules documents, is really a lease with option to buy under the companion article, Article 1485. Consequently, so GIRAFFE argues, upon the seizure of the leased equipment pursuant to the writ of replevin, which seizure is equivalent to foreclosure, PCI LEASING has no further recourse against it. In brief, GIRAFFE asserts in its Motion to Dismiss that the civil complaint filed by PCI LEASING is proscribed by the application to the case of Articles 1484 and 1485, supra, of the Civil Code. In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with GIRAFFE is a straight lease without an option to buy. Prescinding therefrom, PCI LEASING rejects the applicability to the suit of Article 1484 in relation to Article 1485 of the Civil Code, claiming that, under the terms and conditions of the basic agreement, the relationship between the parties is one between an ordinary lessor and an ordinary lessee. In a decision7 dated December 28, 1998, the trial court granted GIRAFFEs motion to dismiss mainly on the interplay of the following premises: 1) the lease agreement package, as memorialized in the contract documents, is akin to the contract contemplated in Article 1485 of the Civil Code, and 2) GIRAFFEs loss of possession of the leased equipment consequent to the enforcement of the writ of replevin is "akin to foreclosure, the condition precedent for application of Articles 1484 and 1485 [of the Civil Code]." Accordingly, the trial court dismissed Civil Case No. Q-98-34266, disposing as follows: WHEREFORE, premises considered, the defendant [GIRAFFE] having relinquished any claim to the personal properties subject of replevin which are now in the possession of the plaintiff [PCI LEASING], plaintiff is DEEMED fully satisfied pursuant to the provisions of Articles 1484 and 1485 of the New Civil Code. By virtue of said provisions, plaintiff is DEEMED estopped from further action against the defendant, the plaintiff having recovered thru (replevin) the personal property sought to be payable/leased on installments, defendants being under protection of said RECTO LAW. In view thereof, this case is hereby DISMISSED. With its motion for reconsideration having been denied by the trial court in its resolution of February 15, 2000,8petitioner has directly come to this Court via this petition for review raising the sole legal issue of whether or not the underlying Lease Agreement, Lease Schedules and the Disclosure Statements that embody the financial leasing arrangement between the parties are covered by and subject to the consequences of Articles 1484 and 1485 of the New Civil Code. As in the court below, petitioner contends that the financial leasing arrangement it concluded with the respondent represents a straight lease covered by R.A. No. 5980, the Financing Company Act, as last amended by R.A. No. 8556, otherwise known as Financing Company Act of 1998, and is

outside the application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines and authorizes its existence and business. The recourse is without merit. R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or regulatory legislation, merely providing a regulatory framework for the organization, registration, and regulation of the operations of financing companies. As couched, it does not specifically define the rights and obligations of parties to a financial leasing arrangement. In fact, it does not go beyond defining commercial or transactional financial leasing and other financial leasing concepts. Thus, the relevancy of Article 18 of the Civil Code which reads: Article 18. - In matters which are governed by special laws, their deficiency shall be supplied by the provisions of this [Civil] Code. Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment sales of movable property, does not apply to a financial leasing agreement because such agreement, by definition, does not confer on the lessee the option to buy the property subject of the financial lease. To the petitioner, the absence of an option-to-buy stipulation in a financial leasing agreement, as understood under R.A. No. 8556, prevents the application thereto of Articles 1484 and 1485 of the Civil Code. We are not persuaded. The Court can allow that the underlying lease agreement has the earmarks or made to appear as a financial leasing,9 a term defined in Section 3(d) of R.A. No. 8556 as a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the lease contract. In its previous holdings, however, the Court, taking into account the following mix: the imperatives of equity, the contractual stipulations in question and the actuations of parties vis--vis their contract, treated disguised transactions technically tagged as financing lease, like here, as creating a different contractual relationship. Notable among the Courts decisions because of its parallelism with this case is BA Finance Corporation v. Court of Appeals10 which involved a motor vehicle. Thereat, the Court has treated a purported financial lease as actually a sale of a movable property on installments and prevented recovery beyond the buyers arrearages. Wrote the Court in BA Finance: The transaction involved is one of a "financial lease" or "financial leasing," where a financing company would, in effect, initially purchase a mobile equipment and turn around to lease it to a client who gets, in addition, an option to purchase the property at the expiry of the lease period. xxx. xxx xxx xxx

The pertinent provisions of [RA] 5980, thus implemented, read:

"'Financing companies,' are primarily organized for the purpose of extending credit facilities to consumers either by leasing of motor vehicles, and office machines and equipment, and other movable property." "'Credit' shall mean any loan, any contract to sell, or sale or contract of sale of property or service, under which part or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; .;" The foregoing provisions indicate no less than a mere financing scheme extended by a financing company to a client in acquiring a motor vehicle and allowing the latter to obtain the immediate possession and use thereof pending full payment of the financial accommodation that is given. In the case at bench, xxx. [T]he term of the contract [over a motor vehicle] was for thirty six (36) months at a "monthly rental" (P1,689.40), or for a total amount of P60,821.28. The contract also contained [a] clause [requiring the Lessee to give a guaranty deposit in the amount of P20,800.00] xxx After the private respondent had paid the sum of P41,670.59, excluding the guaranty deposit of P20,800.00, he stopped further payments. Putting the two sums together, the financing company had in its hands the amount of P62,470.59 as against the total agreed "rentals" of P60,821.28 or an excess of P1,649.31. The respondent appellate court considered it only just and equitable for the guaranty deposit made by the private respondent to be applied to his arrearages and thereafter to hold the contract terminated. Adopting the ratiocination of the court a quo, the appellate court said: xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant should and must be credited in his favor, in the interest of fairness, justice and equity. The plaintiff should not be allowed to unduly enrich itself at the expense of the defendant. xxx This is even more compelling in this case where although the transaction, on its face, appear ostensibly, to be a contract of lease, it is actually a financing agreement, with the plaintiff financing the purchase of defendant's automobile . The Court is constrained, in the interest of truth and justice, to go into this aspect of the transaction between the plaintiff and the defendant with all the facts and circumstances existing in this case, and which the court must consider in deciding the case, if it is to decide the case according to all the facts. xxx. xxx xxx xxx

Considering the factual findings of both the court a quo and the appellate court, the only logical conclusion is that the private respondent did opt, as he has claimed, to acquire the motor vehicle, justifying then the application of the guarantee deposit to the balance still due and obligating the petitioner to recognize it as an exercise of the option by the private respondent. The result would thereby entitle said respondent to the ownership and possession of the vehicle as the buyer thereof. We, therefore, see no reversible error in the ultimate judgment of the appellate court.11 (Italics in the original; underscoring supplied and words in bracket added.) In Cebu Contractors Consortium Co. v. Court of Appeals,12 the Court viewed and thus declared a financial lease agreement as having been simulated to disguise a simple loan with security, it appearing that the financing company purchased equipment already owned by a capital-strapped client, with the intention of leasing it back to the latter.

In the present case, petitioner acquired the office equipment in question for their subsequent lease to the respondent, with the latter undertaking to pay a monthly fixed rental therefor in the total amount of P292,531.00, or a total of P10,531,116.00 for the whole 36 months. As a measure of good faith, respondent made an up-front guarantee deposit in the amount of P3,120,000.00. The basic agreement provides that in the event the respondent fails to pay any rental due or is in a default situation, then the petitioner shall have cumulative remedies, such as, but not limited to, the following:13 1. Obtain possession of the property/equipment; 2. Retain all amounts paid to it. In addition, the guaranty deposit may be applied towards the payment of "liquidated damages"; 3. Recover all accrued and unpaid rentals; 4. Recover all rentals for the remaining term of the lease had it not been cancelled, as additional penalty; 5. Recovery of any and all amounts advanced by PCI LEASING for GIRAFFEs account xxx; 6. Recover all expenses incurred in repossessing, removing, repairing and storing the property; and, 7. Recover all damages suffered by PCI LEASING by reason of the default. In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit shall be forfeited in the event the respondent, for any reason, returns the equipment before the expiration of the lease. At bottom, respondent had paid the equivalent of about a years lease rentals, or a total of P3,510,372.00, more or less. Throw in the guaranty deposit (P3,120,000.00) and the respondent had made a total cash outlay ofP6,630,372.00 in favor of the petitioner. The replevin-seized leased equipment had, as alleged in the complaint, an estimated residual value of P6,900.000.00 at the time Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all cash advances thus made to the residual value of the equipment, the total value which the petitioner had actually obtained by virtue of its lease agreement with the respondent amounts to P13,530,372.00 (P3,510,372.00 + P3,120,000.00 + P6,900.000.00 = P13,530,372.00). The acquisition cost for both the Silicon High Impact Graphics equipment and the Oxberry Cinescan was, as stated in no less than the petitioners letter to the respondent dated November 11, 199614 approving in the latters favor a lease facility, was P8,100,000.00. Subtracting the acquisition cost of P8,100,000.00 from the total amount, i.e.,P13,530,372.00, creditable to the respondent, it would clearly appear that petitioner realized a gross income ofP5,430,372.00 from its lease transaction with the respondent. The amount of P5,430,372.00 is not yet a final figure as it does not include the rentals in arrears, penalties thereon, and interest earned by the guaranty deposit. As may be noted, petitioners demand letter15 fixed the amount of P8,248,657.47 as representing the respondents "rental" balance which became due and demandable consequent to the application of the acceleration and other clauses of the lease agreement. Assuming, then, that the respondent may be compelled to pay P8,248,657.47, then it would end up paying a total of P21,779,029.47 (P13,530,372.00 + P8,248,657.47 =P21,779,029.47) for its use - for a year and two months at the most - of the equipment. All in all, for an investment of P8,100,000.00, the petitioner stands to make

in a years time, out of the transaction, a total of P21,779,029.47, or a net of P13,679,029.47, if we are to believe its outlandish legal submission that the PCI LEASING-GIRAFFE Lease Agreement was an honest-to-goodness straight lease. A financing arrangement has a purpose which is at once practical and salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate financing companies operations with the end in view of strengthening their critical role in providing credit and services to small and medium enterprises and to curtail acts and practices prejudicial to the public interest, in general, and to their clienteles, in particular.16 As a regulated activity, financing arrangements are not meant to quench only the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has made that abundantly clear. We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and obligations, as between each other, of the financial lessor and the lessee. In determining the respective responsibilities of the parties to the agreement, courts, therefore, must train a keen eye on the attendant facts and circumstances of the case in order to ascertain the intention of the parties, in relation to the law and the written agreement. Likewise, the public interest and policy involved should be considered. It may not be amiss to state that, normally, financing contracts come in a standard prepared form, unilaterally thought up and written by the financing companies requiring only the personal circumstances and signature of the borrower or lessee; the rates and other important covenants in these agreements are still largely imposed unilaterally by the financing companies. In other words, these agreements are usually one-sided in favor of such companies. A perusal of the lease agreement in question exposes the many remedies available to the petitioner, while there are only the standard contractual prohibitions against the respondent. This is characteristic of standard printed form contracts. There is more. In the adverted February 24, 1998 demand letter17 sent to the respondent, petitioner fashioned its claim in the alternative: payment of the full amount of P8,248,657.47, representing the unpaid balance for the entire 36-month lease period or the surrender of the financed asset under pain of legal action. To quote the letter: Demand is hereby made upon you to pay in full your outstanding balance in the amount of P8,248,657.47 on or before March 04, 1998 OR to surrender to us the one (1) set Silicon High Impact Graphics and one (1) unit Oxberry Cinescan 6400-10 We trust you will give this matter your serious and preferential attention. (Emphasis added). Evidently, the letter did not make a demand for the payment of the P8,248,657.47 AND the return of the equipment; only either one of the two was required. The demand letter was prepared and signed by Atty. Florecita R. Gonzales, presumably petitioners counsel. As such, the use of "or" instead of "and" in the letter could hardly be treated as a simple typographical error, bearing in mind the nature of the demand, the amount involved, and the fact that it was made by a lawyer. Certainly Atty. Gonzales would have known that a world of difference exists between "and" and "or" in the manner that the word was employed in the letter. A rule in statutory construction is that the word "or" is a disjunctive term signifying dissociation and independence of one thing from other things enumerated unless the context requires a different interpretation.18 In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an alternative. It often connects a series of words or propositions indicating a choice of either. When "or" is used, the various members of the enumeration are to be taken separately.19

The word "or" is a disjunctive term signifying disassociation and independence of one thing from each of the other things enumerated.20 The demand could only be that the respondent need not return the equipment if it paid the P8,248,657.47 outstanding balance, ineluctably suggesting that the respondent can keep possession of the equipment if it exercises its option to acquire the same by paying the unpaid balance of the purchase price. Stated otherwise, if the respondent was not minded to exercise its option of acquiring the equipment by returning them, then it need not pay the outstanding balance. This is the logical import of the letter: that the transaction in this case is a lease in name only. The so-called monthly rentals are in truth monthly amortizations of the price of the leased office equipment. On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease agreement is in reality a lease with an option to purchase the equipment. This has been made manifest by the actions of the petitioner itself, foremost of which is the declarations made in its demand letter to the respondent. There could be no other explanation than that if the respondent paid the balance, then it could keep the equipment for its own; if not, then it should return them. This is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply. The present case reflects a situation where the financing company can withhold and conceal - up to the last moment - its intention to sell the property subject of the finance lease, in order that the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that the basic "lease agreement" does not contain a "purchase option" clause. The absence, however, does not necessarily argue against the idea that what the parties are into is not a straight lease, but a lease with option to purchase. This Court has, to be sure, long been aware of the practice of vendors of personal property of denominating a contract of sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully paid. As this Court noted in Vda. de Jose v. Barrueco:21 Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of the bargain, in the transfer of title to the lessee. In another old but still relevant case of U.S. Commercial v. Halili,22 a lease agreement was declared to be in fact a sale of personal property by installments. Said the Court: . . . There can hardly be any question that the so-called contracts of lease on which the present action is based were veritable leases of personal property with option to purchase, and as such come within the purview of the above article [Art. 1454-A of the old Civil Code on sale of personal property by installment]. xxx Being leases of personal property with option to purchase as contemplated in the above article, the contracts in question are subject to the provision that when the lessor in such case "has chosen to deprive the lessee of the enjoyment of such personal property," "he shall have no further action" against the lessee "for the recovery of any unpaid balance" owing by the latter, "agreement to the contrary being null and void."

In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the petitioner waived its right to bring an action to recover unpaid rentals on the said leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are hereunder rereproducing, cannot be any clearer. ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: xxx xxx xxx

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals,23 the remedies provided for in Article 1484 of the Civil Code are alternative, not cumulative. The exercise of one bars the exercise of the others. This limitation applies to contracts purporting to be leases of personal property with option to buy by virtue of the same Article 1485. The condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Article 1485 was fulfilled in this case by the filing by petitioner of the complaint for a sum of money with prayer for replevin to recover possession of the office equipment.24 By virtue of the writ of seizure issued by the trial court, the petitioner has effectively deprived respondent of their use, a situation which, by force of the Recto Law, in turn precludes the former from maintaining an action for recovery of "accrued rentals" or the recovery of the balance of the purchase price plus interest. 25 The imperatives of honest dealings given prominence in the Civil Code under the heading: Human Relations, provide another reason why we must hold the petitioner to its word as embodied in its demand letter. Else, we would witness a situation where even if the respondent surrendered the equipment voluntarily, the petitioner can still sue upon its claim. This would be most unfair for the respondent. We cannot allow the petitioner to renege on its word. Yet more than that, the very word "or" as used in the letter conveys distinctly its intention not to claim both the unpaid balance and the equipment. It is not difficult to discern why: if we add up the amounts paid by the respondent, the residual value of the property recovered, and the amount claimed by the petitioner as sued upon herein (for a total of P21,779,029.47), then it would end up making an instant killing out of the transaction at the expense of its client, the respondent. The Recto Law was precisely enacted to prevent this kind of aberration. Moreover, due to considerations of equity, public policy and justice, we cannot allow this to happen. Not only to the respondent, but those similarly situated who may fall prey to a similar scheme.
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WHEREFORE, the instant petition is DENIED and the trial courts decision is AFFIRMED. Costs against petitioner. SO ORDERED. CANCIO C. GARCIA Associate Justice

WE CONCUR: REYNATO S. PUNO Chief Justice Chairperson (On leave) ANGELINA SANDOVAL-GUTIERREZ* Associate Justice RENATO C. CORONA Associate Justice

ADOLFO S. AZCUNA Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

epublic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 141480 November 29, 2006

CARLOS B. DE GUZMAN, Petitioner, vs. TOYOTA CUBAO, INC., Respondent. DECISION AZCUNA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul the Order,1 dated September 9, 1999, of the Regional Trial Court of Quezon City (the RTC), Branch 105, which dismissed the complaint for damages filed by petitioner Carlos B. De Guzman against respondent Toyota Cubao, Inc. On November 27, 1997, petitioner purchased from respondent a brand new white Toyota Hi-Lux 2.4 SS double cab motor vehicle, 1996 model, in the amount of P508,000. Petitioner made a down payment of P152,400, leaving a balance of P355,600 which was payable in 36 months with 54% interest. The vehicle was delivered to petitioner two days later. On October 18, 1998, petitioner demanded the replacement of the engine of the vehicle because it developed a crack after traversing Marcos Highway during a heavy rain. Petitioner asserted that respondent should replace the engine with a new one based on an implied warranty. Respondent countered that the alleged damage on the engine was not covered by a warranty. On April 20, 1999, petitioner filed a complaint for damages2 against respondent with the RTC. Respondent moved to dismiss the case on the ground that under Article 1571 of the Civil Code, the petitioners cause of action had prescribed as the case was filed more than six months from the date the vehicle was sold and/or delivered. In an Order dated September 9, 1999, the RTC granted respondents motion and dismissed the complaint, thus: For the Courts consideration are: (1) defendants Motion to Dismiss; (2) plaintiffs Opposition thereto; (3) defendants Reply; and (4) plaintiffs Rejoinder. The Court agrees with the plaintiffs counsel that the subject pick-up is a consumer product because it is used for personal, family or agricultural purposes, contrary to defendant counsels claim that it is not because it is a non-consumable item. Since no warranty card or agreement was attached to the complaint, the contract of sale of the subject pick-up carried an implied warranty that it was free from any hidden faults or defects, or any

charge or encumbrance not declared or known to the buyer. The prescriptive period thereof is six (6) months under the Civil Code (Art. 1571). Under RA No. 7394, the provisions of the Civil Code on conditions and warranties shall govern all contracts of sale with condition and warranties (Art. 67). The duration of the implied warranty (not accompanied by an express warranty) shall endure not less than sixty days nor more than one (1) year following the sale of new consumer products (Art. 68, par. [e]). The two (2) year prescriptive period under Art. 169 cannot prevail over Art. 68 because the latter is the specific provision on the matter. The Court has noted that the prescriptive period for implied and express warranties cannot be the same. In the Civil Code, a redhibitory action for violation of an implied warranty against hidden defects prescribes in six (6) months, while if it based on an express warranty[,] the action prescribes in four (4) years. Under RA No. 7394, the implied warranty cannot be more than one (1) year; however, the implied warranty can only be of equal duration to that an express warranty when the implied warranty of merchantability accompanies an express warranty (Art. 68, par. [e]). Therefore, the prescriptive period of two years under Art. 169 does not cover an implied warranty, which is not accompanied by an express warranty. It is applicable to cases where there is an express warranty in the sale of the consumer product. Relative to plaintiffs argument that the claim for moral and exemplary damages and attorneys fees is based on quasi-delict or breach of contract, such are merely ancillary to the main cause of action which is based on warranty against hidden defects. Without the latter, the former cannot stand alone. Based on the record, the subject vehicle was purchased on 27 November 1997 and delivered on 29 November 1997. This case was filed only on 20 April 1999 or almost nineteen (19) months from [the] sale and/or delivery. Applying Art. 1571 of Civil Code, the action is barred by prescription because the complaint was filed more than six (6) months after the sale and/or delivery of the vehicle. In addition, the duration of the implied warranty of not more than one (1) year under Art. 68, par (e) of RA No. 7394 has already elapsed. Accordingly, defendants Motion is granted and the plaintiffs Complaint is ordered dismissed. SO ORDERED3 On December 21, 1999, the RTC denied petitioners motion for reconsideration, as follows: Submitted for resolution are: (1) plaintiffs Motion for Reconsideration; (2) defendants Opposition; and (3) plaintiffs Reply. Although plaintiffs motion was filed beyond the ten-day period, the Court is convinced that it was not for the purpose of delay; hence, it cannot be considered as a mere scrap of paper. After a thorough study, the Court resolves that while reference to Art. 68, par. (e) of RA No. 7394 may have been misplaced, yet the subject sale carried an implied warranty whose prescriptive period is six (6) months under Art. 1571 of the Civil Code. Accordingly, plaintiffs Motion for Reconsideration is DENIED. SO ORDERED.4

Petitioner thereupon filed a petition for review on certiorari with this Court. The petition should be denied. First, on procedural grounds, the petition should forthwith be denied for violation of the hierarchy of courts. Petitioner states that the present petition is an "appeal by certiorari on pure questions of law, from the final Order of Branch 105 of the Regional Trial Court of Quezon City in Civil Case No. Q-9937381 under Rule 45 of the Rules of Court." Upon receipt of the Order of the RTC, dated September 9, 1999, on September 21, 1999, petitioner filed a motion for reconsideration on September 28, 1999. On December 21, 1999, the RTC denied petitioners motion. When petitioner received a copy of the said order on January 18, 2000, he had fifteen (15) days from receipt within which to appeal to the Court of Appeals by filing a notice of appeal under Section 2(a) of Rule 41, from an order of the RTC issued in the exercise of its original jurisdiction. The RTCs order dated September 9, 1999 and its subsequent order dated December 21, 1999 partake of the nature of a final disposition of the case. Hence, the appropriate remedy petitioner should have taken was to file a notice of appeal from the RTC to the Court of Appeals, not a petition for review on certiorari directly with this Court. Although petitioner intended his petition, filed on February 2, 2000, to be one filed under Rule 45 and he filed it well within the 15-day reglementary period counted from January 18, 2000, the same was in effect a petition forcertiorari under Rule 65, and is therefore dismissible for violation of the hierarchy of courts under Section 4 thereof. Petitioner failed to show that special and important reasons or exceptional and compelling circumstances exist to justify a direct filing of the petition with this Court instead of first taking an appeal to the Court of Appeals.5Likewise, petitioner cannot find refuge in the argument that he was raising pure questions of law. The sole matter petitioner assails in this action is the RTCs order of dismissal of his complaint for damages on the ground of prescription which was tantamount to an adjudication on the merits. Again, petitioner should have resorted to the remedy of appealing the case to the Court of Appeals by filing a notice of appeal with the RTC. Second, even if the Court were to disregard the procedural infirmity, the petition should be denied for lack of merit. In his complaint, petitioner alleged and prayed, thus: 2. Last 27 November 1997, the plaintiff purchased from the defendant a brand new Toyota Hilux 2.4 motor vehicle with [E]ngine [N]o. 2-L-9514743. It was delivered to the plaintiff on 29 November 1997. Copies of the Vehicle Sales Invoice and Vehicle Delivery Note issued by the defendant are hereto attached as Annexes "A" and "B," respectively. 3. Last 18 October 1998, after only 12,000 kilometers of use, the vehicles engine cracked. Although it was previously driven through a heavy rain, it didnt pass through flooded streets high enough to stop sturdy and resistant vehicles. Besides, vehicles of this class are advertised as being capable of being driven on flooded areas or rugged terrain. 4. As plaintiff knows no reason why the vehicles engine would crack just like that, the same could only be due to the fact that said engine and/or the vehicle itself was defective even from the time it was bought. 5. Brought to the attention, defendant refused to answer for this defect saying it is not covered by the vehicles warranty. It refused to replace the vehicle as plaintiff demanded (or at least its engine, or even repair the damage).

6. As a result of defendants actions, plaintiff suffered mental anxiety and sleepless nights for which he demands an award of P200,000.00 moral damages. 7. By way of example for the public good, plaintiff should also be awarded exemplary damages in the amount of P200,000.00. 8. Forced to litigate to enforce his rights, plaintiff incurred, and shall further incur, litigationrelated expenses (including those for his counsels fees) in the total estimated sum of P100,000. WHEREFORE, it is respectfully prayed that judgment be rendered ordering defendant: a. to replace the subject vehicle with a brand new one or at least to replace its engine all at defendants cost; b. pay the plaintiff: i. P200,000 moral damages; ii. P200,000 exemplary damages; iii. P200,000 attorneys fees and litigation expenses; and iv. the costs of suit. Other reliefs just and equitable are, likewise, prayed for.6 Petitioner contends that the dismissal on the ground of prescription was erroneous because the applicable provision is Article 169 of Republic Act No. 7394 (otherwise known as "The Consumer Act of the Philippines" which was approved on April 13, 1992), and not Article 1571 of the Civil Code. Petitioner specifies that in his complaint, he neither asked for a rescission of the contract of sale nor did he pray for a proportionate reduction of the purchase price. What petitioner claims is the enforcement of the contract, that is, that respondent should replace either the vehicle or its engine with a new one. In this regard, petitioner cites Article 169 of Republic Act No. 7394 as the applicable provision, so as to make his suit come within the purview of the two-year prescriptive period. Tangentially, petitioner also justifies that his cause of action has not yet prescribed because this present suit, which was an action based on quasi-delict, prescribes in four years. On the other hand, respondent maintains that petitioners cause of action was already barred by the statute of limitations under Article 1571 of the Civil Code for having been filed more than six months from the time the vehicle was purchased and/or delivered. Respondent reiterates that Article 169 of Republic Act No. 7394 does not apply. Petitioners argument is erroneous. Article 1495 of the Civil Code states that in a contract of sale, the vendor is bound to transfer the ownership of and to deliver the thing that is the object of sale. Corollarily, the pertinent provisions of the Code set forth the available remedies of a buyer against the seller on the basis of a warranty against hidden defects: Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not

have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of this trade or profession, should have known them. (Emphasis supplied) Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated and the vendor was not aware of the hidden faults or defects in the thing sold. Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months from the delivery of the thing sold. (Emphasis supplied) Under Article 1599 of the Civil Code, once an express warranty is breached, the buyer can accept or keep the goods and maintain an action against the seller for damages. In the absence of an existing express warranty on the part of the respondent, as in this case, the allegations in petitioners complaint for damages were clearly anchored on the enforcement of an implied warranty against hidden defects, i.e., that the engine of the vehicle which respondent had sold to him was not defective. By filing this case, petitioner wants to hold respondent responsible for breach of implied warranty for having sold a vehicle with defective engine. Such being the case, petitioner should have exercised this right within six months from the delivery of the thing sold.7 Since petitioner filed the complaint on April 20, 1999, or more than nineteen months counted from November 29, 1997 (the date of the delivery of the motor vehicle), his cause of action had become time-barred. Petitioner contends that the subject motor vehicle comes within the context of Republic Act No. 7394. Thus, petitioner relies on Article 68 (f) (2) in relation to Article 169 of Republic Act No. 7394. Article 4 (q) of the said law defines "consumer products and services" as goods, services and credits, debts or obligations which are primarily for personal, family, household or agricultural purposes, which shall include, but not limited to, food, drugs, cosmetics, and devices. The following provisions of Republic Act No. 7394 state: Art. 67. Applicable Law on Warranties. The provisions of the Civil Code on conditions and warranties shall govern all contracts of sale with conditions and warranties. Art. 68. Additional Provisions on Warranties. In addition to the Civil Code provisions on sale with warranties, the following provisions shall govern the sale of consumer products with warranty: e) Duration of warranty. The seller and the consumer may stipulate the period within which the express warranty shall be enforceable. If the implied warranty on merchantability accompanies an express warranty, both will be of equal duration.
1w phi 1

Any other implied warranty shall endure not less than sixty (60) days nor more than one (1) year following the sale of new consumer products. f) Breach of warranties xxx xxx

2) In case of breach of implied warranty, the consumer may retain in the goods and recover damages, or reject the goods, cancel the contract and recover from the seller so much of the purchase price as has been paid, including damages. (Emphasis supplied.) Consequently, even if the complaint is made to fall under the Republic Act No. 7394, the same should still be dismissed since the prescriptive period for implied warranty thereunder, which is one year, had likewise lapsed. WHEREFORE, the petition is DENIED for being in violation of the hierarchy of courts, and in any event, for lack of merit. No costs. SO ORDERED. ADOLFO S. AZCUNA Associate Justice WE CONCUR: REYNATO S. PUNO Chairperson Associate Justice ANGELINA SANDOVAL-GUTIERREZ Associate Justice CANCIO C. GARCIA Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice RENATO C. CORONA Associate Justice

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 152695 July 25, 2011

VICTORIA CLARAVALL, assisted by her husband, LORETO CLARAVALL, Petitioner, vs. RICARDO LIM, ROBERTO LIM, and ROGELIO LIM, Respondents. DECISION PERALTA, J.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court which seeks to set aside the Decision1 of the Court of Appeals (CA) dated March 18, 2002 in CA-G.R. CV No. 38859. The assailed CA Decision affirmed the Decision2 of the Regional Trial Court (RTC) of Isabela, Branch 17, in Civil Case No. 2583. The instant petition arose from a Complaint for Consolidation of Ownership of Real Properties filed by herein respondents against herein petitioner, alleging as follows: xxxx 3. That sometime on December 3, 1976, the defendant, with the marital consent of her husband, executed a DEED OF SALE WITH THE RIGHT OF REPURCHASE SELLING AND CONVEYING unto the plaintiffs the following described properties, to wit: A COMMERCIAL LOT located in the Centro of Ilagan, Isabela x x x. A DWELING HOUSE with a ground area of 108 square meters, more or less, constructed with wooden materials and with G.I. roofing, erected on the above-described commercial lot x x x. 4. That the consideration of the sale is TWO HUNDRED FIFTY THOUSAND PESOS (P250,000.00), Philippine Currency paid by the plaintiffs to the defendant; 5. That the condition of said sale is that the defendant reserved the right to repurchase, within two (2) years from said date, said commercial lot and dwelling house by paying and returning unto the plaintiffs the purchase [price] of P250,000.00 stipulated in the Deed, a copy of which is hereto attached and made part hereof marked Annex "A"; that within [six] (6) months before the expiration of the date of repurchase, the defendant is under obligation to give plaintiffs written notice that she is in a position to repurchase said properties before the expiration of said period; and for failure to give such notice, the plaintiffs who arevendees-aretro shall automatically become the absolute owners thereof upon the expiration of said period;

6. That defendant never gave written notice to plaintiffs that she was in a position to repurchase said commercial lot and dwelling house as described above; neither did defendant offer to repurchase the same upon the expiration of said period; and that after notifying the defendant that she may still repurchase said properties three months after the expiration of said period, she failed to repurchase the same; 7. That considering that the dwelling house is already an old house and has depreciated a lot, the purchase price of the building and house indicated in the deed justly represents the fair market value of said properties; 8. That considering that the defendant failed to repurchase the dwelling house and commercial lot described in paragraph 3 hereof on or before December 3, 1976, the plaintiffs are now entitled to the consolidation of their ownership of the same. x x x x3 In her Answer with Counterclaim, petitioner denied the material allegations of the Complaint and raised the following Special and Affirmative Defenses: 1 That on December 3, 1976, the plaintiffs and the defendant entered into a contract of sale with right of repurchase over the properties mentioned and described in the deed x x x for a consideration and/or price of Two Hundred Fifty Thousand Pesos (P250,000.00), x x x; 2 That after the plaintiffs have paid to the defendant One Hundred Fifty Thousand Pesos (P150,000.00), out of the stipulated consideration and/or price of Two Hundred Fifty Thousand Pesos (P250,000.00), the former demanded and/or required upon the latter as additional obligation to require her brother-in-law, Francisco alias Enrique alias Igme Claravall from whom the dwelling house was bought by her in 1967, to execute another deed of sale over the same dwelling house in their (plaintiffs') favor, with right of repurchase of the former; 3 That upon the failure and/or refusal of the defendant to comply with the additional obligation imposed upon her by the plaintiffs mentioned in the next preceding paragraph, the latter also refused and/or failed to pay their balance of One Hundred Thousand Pesos (P100,000.00), to the former, although said plaintiffs, on the occasions of their refusal to pay said balance, promised to the defendant that should she win her case then pending before the Court of Appeals, involving another bigger residential lot, with a very much bigger and concrete house thereon, also situated in Centro, Ilagan, Isabela, the former shall be ready and willing to cancel the said contract of sale with right of repurchase and instead and/or in lieu thereof, to execute with the latter, another contract of sale with right of repurchase over said bigger residential lot with a bigger and concrete dwelling house thereon, for a consideration and/or price of Five Hundred Thousand Pesos (P500,000.00), in addition to the One Hundred Fifty Thousand Pesos (P150,000.00) already paid by them under the deed, x x x and for a longer period of five (5) years within which to repurchase; 4 That when the defendant refused to agree to the promise and/or proposal of the plaintiffs mentioned in the next preceding paragraph, the latter insisted on their refusal to pay their balance of One Hundred Thousand Pesos (P100,000.00) x x x; 5 That by reason of the refusal of the plaintiffs to pay to the defendant their balance of One Hundred Thousand Pesos (P100,000.00), and/or for having retained the same for themselves, the latter, on December 1, 1978, executed a "Cautionary Notice", addressed to

the Register of Deeds and Provincial Assessor of Isabela, registering and/or manifesting her opposition to any consolidation of ownership which may be made by the plaintiffs in connection with the Deed of Sale with Right of Repurchase x x x; 6 That considering the fact that the plaintiffs, as vendees, retained for themselves One Hundred Thousand Pesos (P100,000.00), which is a part of the consideration and/or price of the contract of sale with right of repurchase and that the defendant, as vendor, retained possession of the properties sold, the document executed by and between the parties plaintiffs and defendant on December 3, 1976, x x x, is consequently presumed to be a mere equitable mortgage; x x x x.4 After the issues were joined, trial on the merits ensued. On August 5, 1991, the RTC rendered a Decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiffs and against the defendant: 1. Declaring the plaintiffs to be the absolute owners of the commercial lot and dwelling house described in par. 3 of the Complaint; 2. Declaring the defendant to have waived her right to repurchase said properties; 3. Ordering the defendant to pay attorney's fees of P2,000.00; and 4. Ordering the defendant to pay costs of this suit. SO ORDERED.5 Aggrieved by the judgment of the RTC, petitioner filed an appeal with the CA. On March 18, 2002, the CA promulgated the presently assailed Decision affirming the judgment of the RTC. Hence, the instant petition with the following assignment of errors: A. THE RESPONDENT COURT SERIOUSLY ERRED IN NOT FINDING THAT THE POSSESSION OF THE PROPERTY SUBJECT OF THE DEED OF SALE WITH RIGHT TO REPURCHASE, REMAINED WITH PETITIONER VICTORIA CLARAVALL, AS LESSOR, TO ENRIQUE CLARAVALL, AS LESSEE; B. THE RESPONDENT COURT GRAVELY ERRED IN NOT FINDING THAT BY CLEAR INFERENCE RESPONDENTS EXTENDED THE PERIOD OF PETITIONER VICTORIA H. CLARAVALL TO EXERCISE HER RIGHT TO REPURCHASE THE PROPERTY WHICH IS THE SUBJECT OF THE DEED OF SALE WITH RIGHT TO REPURCHASE (EXHIBIT A); C. THE RESPONDENT COURT GRAVELY ERRED IN NOT FINDING THAT BY THE UNASSAILABLE RECEIPTS, RESPONDENTS PAID ONLY ONE HUNDRED [FIFTY]

THOUSAND (P150,000.00) PESOS AND REFUSED TO PAY THE BALANCE OF ONE HUNDRED THOUSAND PESOS; D. THE RESPONDENT COURT SERIOUSLY ERRED IN NOT FINDING THAT THE DEED OF SALE WITH RIGHT TO REPURCHASE (EXH. A) IS AN EQUITABLE MORTGAGE; AND E. EVEN ASSUMING THAT EXHIBIT A IS A BONA FIDE DEED OF SALE WITH RIGHT TO REPURCHASE, THE RESPONDENT COURT SERIOUSLY ERRED IN NOT GRANTING PETITIONER VICTORIA CLARAVALL'S RIGHT TO EXERCISE HER RIGHT TO REPURCHASE WITHIN THIRTY (30) DAYS FROM THE TIME OF FINAL JUDGMENT PURSUANT TO ARTICLE 1606 OF THE CIVIL CODE.6 At the outset, it bears to reiterate the well-settled rule that, in a petition for review on certiorari under Rule 45 of the Rules of Court, only questions of law may be raised by the parties and passed upon by this Court.7 This restriction of the review to questions of law has been institutionalized in Section 1, Rule 45 of the Rules of Court, the second sentence of which provides that the petition shall raise only questions of law which must be distinctly set forth. Indeed, in the exercise of its power of review, the Court is not a trier of facts and, subject to certain exceptions,8 which the Court finds to be absent in the instant case, it does not normally undertake the re-examination of the evidence presented by the contending parties during the trial.9 Perforce, the findings of fact by the CA, affirming that of the RTC, are conclusive and binding on the Court.10 In the instant case, a perusal of petitioner's first four assigned errors would readily show that the issues raised are factual in nature; thus, necessitating a review of the evidence presented by the parties. Without doubt, the following questions raised in the instant petition, to wit: (1) whether the property subject of the instant case is in the possession of petitioner; (2) whether petitioner's right to repurchase is extended; (3) whether respondents were only able to pay a portion of the purchase price for the subject property, and (4) whether the subject deed of sale with right of repurchase is actually an equitable mortgage, are all questions of fact which are beyond the province of a petition for review oncertiorari. Even granting, arguendo, that the foregoing issues of fact can be validly raised in the instant petition, the Court still finds petitioner's arguments to be without merit. Echoing her arguments raised before the CA, petitioner's bone of contention in the present petition is that the contract she entered into with respondents is an equitable mortgage, claiming that: (1) she remained in possession of the subject property; (2) her right to repurchase has not yet expired; and (3) respondents retained a portion of the purchase price. Petitioner argues that, under Article 1602 of the Civil Code,11 these circumstances indicate that her contract with respondents is an equitable mortgage. However, the Court finds no cogent reason to depart from the findings of both the CA and the RTC that petitioner failed to substantiate her claims and that the subject contract is, in fact, one of sale with right of repurchase. The CA correctly held as follows: The person in actual possession of the property at the time of the execution of the deed of sale with right to repurchase was Enrique Claravall, a lessee of the dwelling unit located on the commercial lot. In the case ofIgnacio vs. CA, the Supreme Court held the transaction between the petitioner and respondent to be a sale with a right to repurchase observing that "private respondents have not been in actual possession of the subject property. They had been leasing it out at the time the deed was executed." x x x xxxx

The fact that plaintiff instituted the action for consolidation of ownership five months after December 3, 1978, the expiry date of the right to repurchase, should not be construed as an extension of the period for defendant to exercise her right to repurchase the subject property. Any extension for the exercise of the right to repurchase must be expressly provided in another document to give rise to the presumption of equitable mortgage, and not merely implied from any act or omission.12 The Court likewise quotes, with approval, the disquisition of the RTC disposing of the issue on respondents' supposed failure to pay the full amount of the purchase price, thus: Admittedly, there is no dispute as to the existence and due execution of the Contract embodied in said Exhibits "A", "A-1" and "A-2". However, defendant [herein petitioner] anchored her evidence on the theory that although she had affixed her signature on said Deed of Sale with Right to Repurchase as could be gleaned in the aforesaid exhibits, the consideration of P250,000.00 has not yet been fully paid by plaintiffs. This argument is obviously defective and will only merit scant consideration by the Court. The circumstances obtaining in the instant case argue against such contention. The Contract is, undeniably, executed in accordance with the formalities required by law and as correctly observed by plaintiffs, its contents are clear and couched in unambiguous terms which would leave no room for interpretation. x x x Likewise, the Court cannot just lose sight of the fact that the signature of defendant's husband Loreto Claravall, showing his marital conformity to the same, will certainly negate such claim for the balance of P100,000.00 as defendant would insist. Besides, there are two competent witnesses, namely, Gaudencio Talaue, defendant's driver herself and Estenelie B. Salvador. These witnesses could have been utilized by defendant to buttress her theory had her story been based on facts and the truth. Failing this, the Court can hardly rely on her oral claim[s] which are obviously inconclusive and incredible, if not purely conjectural. By affixing her signature therein, defendant is now estopped in plainly denying having received the whole amount as exactly stated. Furthermore, even without going deeper into the evidence presented by the parties, defendant's theory is highly inconceivable, considering the value of the property and the big amount of money involved therewith. The Court is not inclined to believe that a vendor-a-retro would affix her signature therein if the consideration thereof is fixed but not yet fully paid, much less if said balance as hereto claimed involves a big amount of money. Suffice it to say that had plaintiffs still under obligation to pay the balance of One Hundred Thousand (P100,000.00) Pesos, as theorized by the defendant, the latter would certainly have initiated an action to recover the balance or rescind the contract altogether. Unfortunately, not even a single proof demanding the balance, if any, was adduced by the defendant. As a matter of fact, even the letters sent by defendant to plaintiffs on June 2, 1978 and November 27, 1978 (Exhibits "4" and "5", defendant) did not mention, much less disclose, any claim to that effect other than defendant's intention to repurchase said properties. xxxx Concededly, while the defendant served plaintiffs written notice of her desire to repurchase said properties, defendant never made any tender of payment of the repurchase price representing the amount of the sale she received from plaintiffs at the time the contract was executed on December 3, 1976. x x x x x x x13 Indeed, petitioner failed to present any competent evidence, documentary or otherwise, to prove her claim that the subject contract is an equitable mortgage and not a sale with right of repurchase. It is settled that the party alleging a fact has the burden of proving it and mere allegation is not

evidence.14 In fact, it appears from all indications that petitioner's claim of equitable mortgage is simply an afterthought subsequent to her realization that she cannot repurchase the subject property within the period stipulated in her contract with petitioners. It is plainly a ploy to resurrect a right which has already expired. With respect to the last assigned error, the Court's discussion in Felicen, Sr. v. Orias,15 as reiterated in the subsequent cases of Heirs of Vda. de Macoy v. Court of Appeals16 and Agan v. Heirs of the Spouses Andres Nueva and Diosdada Nueva,17 with respect to the rationale behind the provisions of Article 1606 of the Civil Code,18 is instructive, to wit: Article 1606 is intended to cover suits where the seller claims that the real intention was a loan with equitable mortgage but decides otherwise. The seller, however, must entertain a good faith belief that the contract is an equitable mortgage. In Felicen, Sr., et al. v. Orias, et al., cited by petitioner, the Court explained: The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must appear that there was a belief on his part, founded on facts attendant upon the execution of the sale withpacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or obligation. In that event, if the matter of the real nature of the contract is submitted for judicial resolution, the application of the rule is meet and proper: that the vendor a retro be allowed to repurchase the property sold within 30 days from rendition of final judgment declaring the contract to be a true sale with right to repurchase. Conversely, if it should appear that the parties agreement was really one of sale transferring ownership to the vendee, but accompanied by a reservation to the vendor of the right to repurchase the property and there are no circumstances that may reasonably be accepted as generating some honest doubt as to the parties intention, theproviso is inapplicable. The reason is quite obvious. If the rule were otherwise, it would be within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an expired right of repurchase, by simply instituting an action to reform the contract known to him to be in truth a sale with pacto de retro into an equitable mortgage. As postulated by the petitioner, "to allow herein private respondent to repurchase the property by applying said paragraph x x x to the case at bar despite the fact that the stipulated redemption period had already long expired when they instituted the present action, would in effect alter or modify the stipulation in the contract as to the definite and specific limitation of the period for repurchase (2 years from the date of sale or only until June 25, 1958) thereby not simply increasing but in reality resuscitating the expired right to repurchase x x x and likewise the already terminated and extinguished obligation to resell by herein petitioner." The rule would thus be made a tool to spawn, protect and even reward fraud and bad faith, a situation surely never contemplated or intended by the law. This court has already had occasion to rule on the proper interpretation of the provision in question. In Adorable v. Inacala, where the proofs established that there could be no honest doubt as to the parties intention, that the transaction was clearly and definitely a sale with pacto de retro, the Court adjudged the vendor a retro not to be entitled to the benefit of the third paragraph of Article 1606. As earlier discussed, the Court finds no error in the conclusions reached by both the CA and the RTC that the unmistakable and definite intention of petitioner and respondents was that the transaction they entered into is one of sale with right of repurchase. Hence, petitioner is not entitled to the reprieve provided for under the third paragraph of Article 1606 of the Civil Code. WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals, dated March 18, 2002 in CA-G.R. CV No. 38859, is AFFIRMED.

SO ORDERED. DIOSDADO M. PERALTA Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice ROBERTO A. ABAD Associate Justice

JOSE CATRAL MENDOZA Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. PRESBITERO J. VELASCO, JR. Associate Justice Third Division, Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 155716 October 2, 2009

ROCKVILLE EXCEL INTERNATIONAL EXIM CORPORATION, Petitioner, vs. SPOUSES OLIGARIO CULLA and BERNARDITA MIRANDA, Respondents. DECISION BRION, J.: Whether a Deed of Absolute Sale is really an absolute sale of real property or an equitable mortgage is the main issue now before us. Petitioner Rockville Excel International Exim Corporation (Rockville) prays in this petition1that we reverse the October 9, 2002 decision2 of the Court of Appeals (CA) in CA G.R. SP No. 66070, denying its appeal and affirming the decision of the Regional Trial Court (RTC), Batangas City, Branch 2 in Civil Case No. 4789, which dismissed their complaint for specific performance against the respondents Spouses Oligario (Oligario) and Bernardita Culla. BACKGROUND FACTS The spouses Oligario and Bernardita (Sps. Culla) are the registered owners of a parcel of land covered by Transfer Certificate of Title (TCT) No. 5416. They mortgaged this property to PS Bank to secure a loan ofP1,400,000.00. Sometime in 1993, the Office of the Clerk of Court and the Ex-Officio Sheriff issued a Sheriffs Notice of Sale for the extrajudicial foreclosure of the property. To prevent the foreclosure, Oligario approached Rockville represented by its president and chairman, Diana Young for financial assistance. Rockville accommodated Oligarios request and extended him a loan of P1,400,000.00. This amount was increased by P600,000.00 for the cash advances Oligario requested, for a total loan amount of P2,000,000.00. According to Rockville, when Oligario failed to pay the P2,000,000.00 loan after repeated demands and promises to pay, the Sps. Culla agreed to pay their indebtedness by selling to Rockville another property the spouses owned in Brgy. Calicanto, Batangas City (property). The property has an area of approximately 7,074 square meters and is covered by TCT No. T19538. Since a survey of the surrounding properties revealed that the property is worth more than the Sps. Cullas P2,000,000.00 loan, the parties agreed to fix the purchase price atP3,500,000.00. As narrated by Rockville, it accepted the offer for a dacion en pago; on June 25, 1994, Rockville and Oligario executed a Deed of Absolute Sale over the property. While the property was a

conjugal property of the Sps. Culla, only Oligario signed the Deed of Absolute Sale. Rockville asserted that, by agreement with the Sps. Culla, Rockville would pay the additional P1,500,000.00 after Bernardita affixes her signature to the Deed of Absolute Sale. Rockville claimed that it had always been ready and willing to comply with its obligation to deliver theP1,500,000.00. In fact, Rockville initially deposited this whole amount with May Bank of Malaysia, with notice to Oligario, which amount was subsequently transferred to Rockvilles law firm. However, when Bernardita continued to refuse to sign the Deed of Absolute Sale, Rockville caused the annotation of an adverse claim on TCT No. T-19538 in order to protect its interest in the property. Furthermore, Rockville tried to transfer the title of the property in its name but the Registry of Deeds refused to carry out the transfer, given the absence of Bernarditas signature in the Deed of Absolute Sale. On February 4, 1997, Rockville filed a complaint for Specific Performance and Damages before the Regional Trial Court (RTC) of Batangas City, Branch 2 against the Sps. Culla, praying that the lower court order Bernardita to sign the Deed of Absolute Sale or, in the alternative, to authorize the sale even without Bernarditas signature. In their Answer, the Sps. Culla alleged that the purported Deed of Absolute Sale failed to reflect their true intentions, as the deed was meant only to guarantee the debt to Diana Young, not to Rockville. Contrary to Rockvilles contention, the agreement was that the P1,500,000.00 had to be paid before Bernardita would sign the Deed of Absolute Sale. When neither Rockville nor Diana Young paid the P1,500,000.00, the Sps. Culla volunteered to repay the P2,000,000.00 and opted to rescind the sale. On October 26, 1999, the RTC decided the case in the respondents favor,3 dismissing Rockvilles complaint after finding that the transaction between the parties was in reality an equitable mortgage, not an absolute sale. The dispositive portion of the RTC decision states: WHEREFORE, in view of all the foregoing, the complaint filed by the plaintiff, Rockville Excel International Exim Corporation against defendants Oligario Culla and Bernardita Miranda is hereby DISMISSED. The Absolute Deed of Sale executed between the said plaintiff and defendants on June 25, 1994 is hereby declared as an equitable mortgage and, defendants are hereby entitled to redeem the mortgaged property upon full payment of their mortgaged debt to the plaintiff in the total amount of two million pesos (P2,000,000.00) with legal rate of interest from June 25, 1994, the time the loan matured, until it is fully satisfied. With costs against the plaintiff. SO ORDERED. THE CA DECISION Rockville appealed to the CA. In the assailed October 9, 2002 decision, the CA concluded that the purported contract of sale between Rockville and the Sps. Culla was in reality an equitable mortgage based on the following factual circumstances: (a) the glaring inadequacy in the consideration for the sale and the actual market value of the property; (b) the fact that the Sps. Culla remained in possession of the property even after the execution of the Deed of Absolute Sale; (c) the fact that Rockville never paid the Sps. Culla the agreed P1,500,000.00 balance in the purchase price; and (d) Rockvilles continuous grant of extensions to the Sps. Culla to pay their loan despite the execution of the deed of sale.

THE PETITION The present petition filed after the CA denied Rockvilles motion for reconsideration asks us to resolve whether the parties agreement is an absolute sale or an equitable mortgage of real property. Rockville submits that the CA erred in finding that the contract of sale with the Sps. Culla was an equitable mortgage, insisting that the transaction was a dacion en pago. Rockville points out that the Sps. Culla themselves admitted that they agreed to sell the property as payment for the P2,000,000.00 loan and for the additional payment of P1,500,000.00 Rockville was to pay. Rockville further argues that even without Bernarditas signature on the Deed of Absolute Sale, the document is still binding as Oligario represented the spouses in the transaction. Since Bernardita benefited from the transaction, with the P1,400,000.00 of the purchase price having been used to redeem the mortgaged conjugal property, Rockville posits that Bernardita impliedly and effectively ratified the sale. The Sps. Culla, on the other hand, maintain the contrary view and insist that the RTC and the CA were correct in holding that the sale was in fact an equitable mortgage. THE COURTS RULING We find the petitioners arguments to be legally flawed, and therefore deny the petition for lack of merit. No dacion en pago Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an existing obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent to the payment of an outstanding debt.4For dacion en pago to exist, the following elements must concur: (a) existence of a money obligation; (b) the alienation to the creditor of a property by the debtor with the consent of the former; and (c) satisfaction of the money obligation of the debtor.5 Rockville mainly contends that the Sps. Culla sold their property to pay their due and demandable P2,000,000.00 debt; the transaction is therefore a dacion en pago. It also repeatedly emphasized that Bernardita admitted in her testimony that she would have signed the Deed of Absolute Sale if Rockville had paid the P1,500,000.00. Rockvilles arguments would have been telling and convincing were it not for the undisputed fact that even after the execution of the Deed of Absolute Sale, Rockville still granted Oligario time to repay his P2,000,000.00 indebtedness. In fact, as Diana Young admitted in her testimony, Rockville gave Oligario the chance to pay off the loan on the same day that the deed was executed. As Diana Young stated:
Q. Why, he was asking for the extension of P2 million pesos that he barrowed (sic) from you to be paid by him? A. He asked me for the extension of time to pay.

Q. After the execution of the deed of sale (Exhibit "C")? A. On the very day. Yes, after the lapse of the six (6) months to pay back the property. Q. So what appears was a document of sale Exhibit "C" was executed signed by the defendant, Oligario Culla, signed by you and then notarized by a Notary Public. A. Yes, sir. Q. On same occasion he asked from you that he be given an extension of six (6) months within which to pay the loan of P2 million pesos? A. Yes, sir.6

If the parties had truly intended a dacion en pago transaction to extinguish the Sps. Cullas P2,000,000.00 loan and Oligario had sold the property in payment for this debt, it made no sense for him to continue to ask for extensions of the time to pay the loan. More importantly, Rockville would not have granted the requested extensions to Oligario if payment through a dacion en pago had taken place. That Rockville granted the extensions simply belied its contention that they had intended a dacion en pago. On several occasions, we have decreed that in determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating an agreement is the intention of the parties, as shown, not necessarily by the terminology used in the contract but, by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement.7 Thus, to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered. Once the intention of the parties is duly ascertained, that intent is deemed as integral to the contract as its originally expressed unequivocal terms.8 Thus, we agree with the factual findings of the RTC and the CA that no agreement of sale was perfected between Rockville and the Sps. Culla. On the contrary, what they denominated as a Deed of Absolute Sale was in fact an equitable mortgage. Definition of equitable mortgage An equitable mortgage has been defined "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."9 A contract of sale is presumed to be an equitable mortgage when any of the following circumstances, enumerated in Article 1602 of the Civil Code, is present: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise;

(3) 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; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) 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.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. [Emphasis supplied.] The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.10 For the presumption of an equitable mortgage to arise under Article 1602, 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, 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.11 In several cases, we have not hesitated to declare a purported contract of sale to be an equitable mortgage based solely on one of the enumerated circumstances under Article 1602.12This approach follows the rule that when doubt exists on the nature of the parties transaction, the law favors the least transmission of property rights.13 Indicators of equitable mortgage In the present case, three attendant circumstances indicate that the purported sale was in fact an equitable mortgage. First, the Sps. Culla retained possession of the property. Second, Rockville kept a part of the purchase price. Third, as previously discussed, Rockville continued to give the Sps. Culla extensions on the period to repay their loan even after the parties allegedly agreed to a dacion en pago. These circumstances, coupled with the clear and unequivocal testimonies of Oligario and Bernardita that the purpose of the Deed of Absolute Sale was merely to guarantee their loan, clearly reveal the parties true intention to execute an equitable mortgage and not a contract of sale. That a contract where the vendor remains in physical possession of the land, as lessee or otherwise, is an equitable mortgage is well-settled.14 The reason for this rule lies in the legal reality that in a contract of sale, the legal title to the property is immediately transferred to the vendee; retention by the vendor of the possession of the property is inconsistent with the vendees acquisition of ownership under a true sale.15 It discloses, in the alleged vendee, a lack of interest in the property that belies the truthfulness of the sale.16 According to Rockville, it took possession of the property, albeit constructively and not through actual occupation. Rockville contends, too, that its possession of the title to the property and its subsequent attempt to register the property in its name are clear indicators of its intent to enforce the contract of sale.

We cannot agree with these positions. In the first place, the Sps. Culla retained actual possession of the property and this was never disputed. Rockville itself admits this in its petition, but claims in justification that since the property is contiguous to the site of the Sps. Cullas family home, it would have been impossible for Rockville to obtain actual possession of the property. Regardless of where the property is located, however, if the transaction had really been a sale as Rockville claimed, it should have asserted its rights for the immediate delivery and possession of the lot instead of allowing the Sps. Culla to freely stay in the premises. Its failure to do so suggests that Rockville did not truly intend to enforce the contract of sale. Moreover, we observe that while Rockville did take steps to register the property in its name, it did so more than two years after the Deed of Absolute Sale was executed, and only after Oligarios continued failure to pay theP2,000,000.00 loan. In addition, Rockville admitted that it never paid the P1,500,000.00 balance to the Sps. Culla. As found by the RTC, while Rockville claims that it deposited this amount with May Bank of Malaysia and notified Oligario of the deposit, no evidence was presented to support this claim. Besides, even if this contention had been true, the deposit in a foreign bank was neither a valid tender of payment nor an effective consignation.
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Lastly, the numerous extensions granted by Rockville to Oligario to pay his debt after the execution of the Deed of Sale convince us that the parties never intended to enter into a contract of sale; instead, the intent was merely to secure the payment of Oligarios loan. All told, we see no reason to depart from the findings and conclusions of both the trial court and the Court of Appeals. WHEREFORE, premises considered, we DENY the petition for lack of merit; the assailed Decision dated October 9, 2002 in CA G.R. SP No. 66070 is thus AFFIRMED. Costs against the petitioner. SO ORDERED. ARTURO D. BRION Associate Justice WE CONCUR: CONCHITA CARPIO-MORALES Associate Justice Acting Chairperson
CONSUELO YNARES-SANTIAGO Associate Justice MARIANO C. DEL CASTILLO Associate Justice

ROBERTO A. ABAD Associate Justice ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONCHITA CARPIO-MORALES Associate Justice Acting Chairperson

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 186269 February 15, 2012

SPOUSES ROMAN A. PASCUAL and MERCEDITA R. PASCUAL, FRANCISCO A. PASCUAL, MARGARITA CORAZON D. MARIANO, EDWIN D. MARIANO and DANNY R. MARIANO Petitioners, vs. SPOUSES ANTONIO BALLESTEROS and LORENZA MELCHOR-BALLESTEROS, Respondents. RESOLUTION REYES, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by the spouses Roman A. Pascual and Mercedita R. Pascual (Spouses Pascual), Francisco A. Pascual (Francisco), Margarita Corazon D. Mariano (Margarita), Edwin D. Mariano and Danny R. Mariano (petitioners) assailing the Decision1 dated July 29, 2008 and Resolution2 dated January 30, 2009 issued by the Court of Appeals (CA) in CA-G.R. CV No. 89111. The instant case involves a 1,539 square meter parcel of land (subject property) situated in Barangay Sta. Maria, Laoag City and covered by Transfer Certificate of Title (TCT) No. T-303753 of the Laoag City registry. The subject property is owned by the following persons, with the extent of their respective shares over the same: (1) the spouses Albino and Margarita Corazon Mariano, 330 square meters; (2) Angela Melchor (Angela), 466.5 square meters; and (3) the spouses Melecio and Victoria Melchor (Spouses Melchor), 796.5 square meters. Upon the death of the Spouses Melchor, their share in the subject property was inherited by their daughter Lorenza Melchor Ballesteros (Lorenza). Subsequently, Lorenza and her husband Antonio Ballesteros (respondents) acquired the share of Angela in the subject property by virtue of an Affidavit of Extrajudicial Settlement with Absolute Sale4 dated October 1, 1986. On August 11, 2000, Margarita, then already widowed, together with her children, sold their share in the subject property to Spouses Pascual and Francisco.5 Subsequently, Spouses Pascual and Francisco caused the cancellation of TCT No. 30375 and, thus, TCT No. T-325226 was then issued in their names together with Angela and Spouses Melchor. Consequently, the respondents, claiming that they did not receive any written notice of the said sale in favor of Spouses Pascual and Francisco, filed with the Regional Trial Court (RTC) of Laoag City a Complaint 7 for legal redemption against the petitioners. The respondents claimed that they are entitled to redeem the portion of the subject property sold to Spouses Pascual and Francisco being co-owners of the same. For their part, the petitioners claimed that there was no co-ownership over the subject property considering that the shares of the registered owners thereof had been particularized, specified and subdivided and, hence, the respondents has no right to redeem the portion of the subject property that was sold to them.8 On January 31, 2007, the RTC rendered a decision9 dismissing the complaint for legal redemption filed by the respondents. In disposing of the said complaint, the RTC summed up the issues raised therein as follows: (1) whether the respondents herein and the predecessors-in-interest of the petitioners are co-owners of the subject property who have the right of redemption under Article 1620 of the Civil Code; and (2) if so, whether that right was seasonably exercised by the respondents within the 30-day redemption period under Article 1623 of the Civil Code. On the first issue, the RTC held that the respondents and the predecessors-in-interest of the petitioners are co-owners of the subject property considering that the petitioners failed to adduce any evidence showing that the respective shares of each of the registered owners thereof were indeed particularized, specified and subdivided. On the second issue, the RTC ruled that the respondents failed to seasonably exercise their right of redemption within the 30-day period pursuant to Article 1623 of the Civil Code. Notwithstanding the lack of a written notice of the sale of a portion of the subject property to Spouses Pascual and

Francisco, the RTC asserted that the respondents had actual notice of the said sale. Failing to exercise their right of redemption within 30 days from actual notice of the said sale, the RTC opined that the respondents can no longer seek for the redemption of the property as against the petitioners. Thereupon, the respondents appealed from the January 31, 2007 decision of the RTC of Laoag City with the CA. On July 29, 2008, the CA rendered the herein assailed Decision10 the decretal portion of which reads: WHEREFORE, the appeal is GRANTED and the appealed January 31, 2007 Decision is, accordingly, REVERSED and SET ASIDE. In lieu thereof, another is entered approving [respondents] legal redemption of the portion in litigation. The rest of their monetary claims are, however, DENIED for lack of factual and/or legal bases. SO ORDERED.11 In allowing the respondents to exercise their right of redemption, the CA held that the 30-day period within which to exercise the said right had not yet lapsed considering the absence of a written notice of the said sale. Thus, the CA stated that "[t]he mandatory nature of the written notice requirement is such that, notwithstanding the actual knowledge of the sale, written notice from the seller is still necessary in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status." 12 The petitioners sought for a reconsideration of the said July 29, 2008 Decision, but it was denied by the CA in its Resolution13 dated January 30, 2009. Undaunted, the petitioners instituted the instant petition for review on certiorari before this Court essentially asserting the following arguments: (1) their predecessors-in-interest and the respondents are not co-owners of the subject property since their respective shares therein had already been particularized, specified and subdivided; and (2) even if such co-ownership exists, the respondents could no longer exercise their right of redemption having failed to exercise the same within 30 days from actual knowledge of the said sale. The petition is denied. Primarily, Section 1, Rule 45 of the Rules of Court categorically states that the petition filed shall raise only questions of law, which must be distinctly set forth. A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. 14 The first issue raised by the petitioners is a factual question as it entails a determination of whether the subject property was indeed co-owned by the respondents and the predecessors-in-interest of the petitioners. Such determination would inevitably necessitate a review of the probative value of the evidence adduced in the case below. In any case, it ought to be stressed that both the RTC and the CA found that the subject property was indeed co-owned by the respondents and the predecessors-in-interest of the petitioners. Thus, in the absence of any exceptional circumstances to warrant the contrary, this Court must abide by the prevailing rule that findings of fact of the trial court, more so when affirmed by the CA, are binding and conclusive upon it.15 Anent the second issue asserted by the petitioners, we find no reversible error on the part of the CA in ruling that the 30-day period given to the respondents within which to exercise their right of redemption has not commenced in view of the absence of a written notice. Verily, despite the respondents actual knowledge of the sale to the respondents, a written notice is still mandatory and indispensable for purpo ses of the commencement of the 30-day period within which to exercise the right of redemption. Article 1623 of the Civil Code succinctly provides that: Article 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. (emphasis supplied) The indispensability of the "written notice requirement" for purposes of the exercise of the right of redemption was explained by this Court in Barcellano v. Baas,16 thus: Nothing in the records and pleadings submitted by the parties shows that there was a written notice sent to the respondents. Without a written notice, the period of thirty days within which the right of legal pre-emption may be exercised, does not start. The indispensability of a written notice had long been discussed in the early case of Conejero v. Court of Appeals, penned by Justice J.B.L. Reyes: With regard to the written notice, we agree with petitioners that such notice is indispensable, and that, in view of the terms in which Article of the Philippine Civil Code is couched, mere knowledge of the sale, acquired in some other manner by the redemptioner, does not satisfy the statute. The written notice was obviously exacted by the Code to remove all uncertainty as to the sale, its terms and its validity, and to quiet any doubts that the alienation is not definitive. The statute not having provided for any alternative, the method of notification prescribed remains exclusive.

This is the same ruling in Verdad v. Court of Appeals: The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. Lately, in Gosiengfiao Guillen v. The Court of Appeals , this Court again emphasized the mandatory character of a written notice in legal redemption: From these premises, we ruled that "[P]etitioner-heirs have not lost their right to redeem, for in the absence of a written notification of the sale by the vendors, the 30-day period has not even begun to run." These premises and conclusion leave no doubt about the thrust of Mariano: The right of the petitioner-heirs to exercise their right of legal redemption exists, and the running of the period for its exercise has not even been triggered because they have not been notified in writing of the fact of sale. xxxx Justice Edgardo Paras, referring to the origins of the requirement, would explain in his commentaries on the New Civil Code that despite actual knowledge, the person having the right to redeem is STILL entitled to the written notice. Both the letter and the spirit of the New Civil Code argue against any attempt to widen the scope of the "written notice" by including therein any other kind of notice such as an oral one, or by registration. If the intent of the law has been to include verbal notice or any other means of information as sufficient to give the effect of this notice, there would have been no necessity or reason to specify in the article that said notice be in writing, for under the old law, a verbal notice or mere information was already deemed sufficient. Time and time again, it has been repeatedly declared by this Court that where the law speaks in clear and categorical language, there is no room for interpretation. There is only room for application. Where the language of a statute is clear and unambiguous, the law is applied according to its express terms, and interpretation should be resorted to only where a literal interpretation would be either impossible or absurd or would lead to an injustice. x x x (citations omitted)
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Here, it is undisputed that the respondents did not receive a written notice of the sale in favor of the petitioners. Accordingly, the 30-day period stated under Article 1623 of the Civil Code within which to exercise their right of redemption has not begun to run. Consequently, the respondents may still redeem from the petitioners the portion of the subject property that was sold to the latter. WHEREFORE, in consideration of the foregoing disquisitions, the petition is DENIED. The assailed Decision dated July 29, 2008 and Resolution dated January 30, 2009 issued by the Court of Appeals in CA-G.R. CV No. 89111 are AFFIRMED. SO ORDERED. BIENVENIDO L. REYES Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice MARTIN S. VILLARAMA, JR.* Associate Justice

JOSE PORTUGAL PEREZ Associate Justice

MARIA LOURDES P. A. SERENO Associate Justice ATTESTATION I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA Chief Justice