G.R. No.

199648

January 28, 2015

FIRST OPTIMA REALTY CORPORATION, Petitioner,

vs.
SECURITRON SECURITY SERVICES, INC., Respondent.

Ponente: Del Castillo, J.

Facts:
Desiring to expand business and add to its existing offices,
Securitron Security Services (Securitron) through its General
Manager, Antonio Eleazea, sent a letter to Carolina Young, the
Executive Vice-President of First Optima Realty Corporation (First
Optima), owner of the lot adjacent to the offices of Securitron,
offering to buy the property at P6,000.00 per square meter.
Although a series of telephone calls were made between Elazaer
ang Youngs secretary, no direct negotiation occurred between
Young or the board or directors, and Eleazar.
Subsequently,
Eleazer went directly to First Optimas office offering to pay the
property in cash which he brought with him, but Young refused to
accept the payment, averring that she still need to secure her
sisters advice. She also informed him that prior approval of the
Board of Directors is required for the sale. Eleazar then told her he
will await the approval.
By letter dated February 4, 2005,
Securiton sent a letter to First Optima, enclosing therewith a check
for P100,000.00 payable to the latter. It stated that As agreed
upon, we are making a deposit of ONE HUNDRED THOUSAND
PESOS (Php 100,000.00) as earnest money for your property at the
corner of Layug St., & Lim-An St., Pasay City as per TCT No. 125318
with an area of 256 sq. m. at 6,000.00/ sq. m. for a total of ONE
MILLION FIVE HUNDRED THIRTY SIX THOUSAND PESOS (Php
1,536,000.00). Full payment upon clearing of the tenants at said
property and signing of the Deed of Sale.. The letter was received
by an ordinary receiving clerk/receipt who issued a Provisional
Receipt for the same with an annotation This is issued to
transactions not yet cleared but subsequently an Official Receipt
will be issued. x x x.
Despite the delicate nature of the

transaction or the large amount of cash, Securitron did not course

the payment directly to Young or the companys board of directors.
The check was eventually deposited in First Optimas account.
Securtiron then sent a letter demanding that First Optima proceed
with the sale of the property, which the latter answered, denying
that the money received was earnest money as the company have
yet to decide on the sale of the property. It then proceeded to
reject the offer to buy the property. Because of the refusal of First
Optima to sell the property, Securitron then filed a complaint for
specific performance with damages to compel First Optima to
proceed with the sale of the property.
In the Answer with
Compulsory Counterclaim, First Optima denied that it agreed to sell
the subject property; that its board of directors did not authorize
the sale thereof to respondent, as no corresponding board
resolution to such effect was issued; that the P100,000.00 check
payment cannot be considered as earnest money for the subject
property, since said payment was merely coursed through
petitioners receiving clerk, who was forced to accept the same;
and that respondent was simply motivated by a desire to acquire
the subject property at any cost. After trial, the RTC ruled in favour
of Securitron and opined that there was a perfected contract of
sale between the parties with First Optimas acceptance of the
P100,00.00 check; nor was there any showing that harassment or
intimidation attended the receipt of the check by the clerk; for the
sale of the property, no board resolution is required since Young
was free to represent the corporation. The Court of Appeals
affirmed the RTC decision, hence First Optima filed the instant
petition for review on certiorari to assail the CA ruling.
Issue:
Whether or not there was a perfected contract of sale between
First Optima and Securitron.
Ruling:
The Court grants the Petition. The trial and appellate
courts erred materially in deciding the case; they overlooked
important facts that should change the complexion and outcome of
the case.
It cannot be denied that there were negotiations between
the parties conducted after the respondents December 9, 2004

letter-offer and prior to the February 4, 2005 letter.

These
negotiations culminated in a meeting between Eleazar and Young
whereby the latter declined to enter into an agreement and accept
cash payment then being tendered by the former. Instead, Young
informed Eleazar during said meeting that she still had to confer
with her sister and petitioners board of directors; in turn, Eleazar
told Young that respondent shall await the necessary approval.
Thus, the trial and appellate courts failed to appreciate
that respondents offer to purchase the subject property was never
accepted by the petitioner at any instance, even after negotiations
were held between them. Thus, as between them, there is no sale
to speak of. When there is merely an offer by one party without
acceptance of the other, there is no contract.1
To borrow a
pronouncement in a previously decided case,
The stages of a contract of sale are: (1) negotiation,
starting from the time the prospective contracting parties indicate
interest in the contract to the time the contract is perfected; (2)
perfection, which takes place upon the concurrence of the essential
elements of the sale; and (3) consummation, which commences
when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment of the contract.
In the present case, the parties never got past the
negotiation stage. Nothing shows that the parties had agreed on
any final arrangement containing the essential elements of a
contract of sale, namely, (1) consent or the meeting of the minds
of the parties; (2) object or subject matter of the contract; and (3)
price or consideration of the sale.2
Respondents subsequent sending of the February 4, 2005
letter and check to petitioner without awaiting the approval of
petitioners board of directors and Youngs decision, or without
making a new offer constitutes a mere reiteration of its original
offer which was already rejected previously; thus, petitioner was
under no obligation to reply to the February 4, 2005 letter. It would
be absurd to require a party to reject the very same offer each and
every time it is made; otherwise, a perfected contract of sale could
simply arise from the failure to reject the same offer made for the
hundredth time.
Thus, said letter cannot be considered as
evidence of a perfected sale, which does not exist in the first place;
no binding obligation on the part of the petitioner to sell its

property arose as a consequence. The letter made no new offer

replacing the first which was rejected.
Since there is no perfected sale between the parties,
respondent had no obligation to make payment through the check;
nor did it possess the right to deliver earnest money to petitioner
in order to bind the latter to a sale. As contemplated under Art.
1482 of the Civil Code, there must first be a perfected contract of
sale before we can speak of earnest money.3 Where the parties
merely exchanged offers and counter-offers, no contract is
perfected since they did not yet give their consent to such offers.
Earnest money applies to a perfected sale.4
This Court is inclined to accept petitioners explanation that
since the check was mixed up with all other checks and
correspondence sent to and received by the corporation during the
course of its daily operations, Young could not have timely
discovered respondents check payment; petitioners failure to
return the purported earnest money cannot mean that it agreed to
respondents offer. Besides, respondents payment of supposed
earnest money was made under dubious circumstances and in
disregard of sound business practice and common sense. Indeed,
respondent must be faulted for taking such a course of action that
is irregular and extraordinary: common sense and logic dictate that
if any payment is made under the supposed sale transaction, it
should have been made directly to Young or coursed directly
through her office, since she is the officer directly responsible for
negotiating the sale, as far as respondent is concerned and
considering the amount of money involved; no other ranking officer
of petitioner can be expected to know of the ongoing talks covering
the subject property. Respondent already knew, from Eleazars
previous meeting with Young, that it could only effectively deal
with her; more than that, it should know that corporations work
only through the proper channels. By acting the way it did
coursing the February 4, 2005 letter and check through petitioners
mere receiving clerk or receptionist instead of directly with Youngs
office, respondent placed itself under grave suspicion of putting
into effect a premeditated plan to unduly bind petitioner to its
rejected offer, in a manner which it could not achieve through
negotiation and employing normal business practices. It impresses
the Court that respondent attempted to secure the consent needed
for the sale by depositing part of the purchase price and under the
false pretense that an agreement was already arrived at, even

though there was none. Respondent achieved the desired effect

up to this point, but the Court will not be fooled.
Thus, as between respondents irregular and improper
actions and petitioners failure to timely return the P100,000.00
purported earnest money, this Court sides with petitioner. In a
manner of speaking, respondent cannot fault petitioner for not
making a refund since it is equally to blame for making such
payment under false pretenses and irregular circumstances, and
with improper motives. Parties must come to court with clean
hands, as it were.
In a potential sale transaction, the prior payment of
earnest money even before the property owner can agree to sell
his property is irregular, and cannot be used to bind the owner to
the obligations of a seller under an otherwise perfected contract of
sale; to cite a well-worn clich, the carriage cannot be placed
before the horse. The property owner-prospective seller may not
be legally obliged to enter into a sale with a prospective buyer
through the latters employment of questionable practices which
prevent the owner from freely giving his consent to the
transaction; this constitutes a palpable transgression of the
prospective sellers rights of ownership over his property, an
anomaly which the Court will certainly not condone. An agreement
where the prior free consent of one party thereto is withheld or
suppressed will be struck down, and the Court shall always
endeavor to protect a property owners rights against devious
practices that put his property in danger of being lost or unduly
disposed without his prior knowledge or consent. As this ponente
has held before, [t]his Court cannot presume the existence of a
sale of land, absent any direct proof of it.5
Nor will respondents supposed payment be treated as a
deposit or guarantee; its actions will not be dignified and must be
called for what they are: they were done irregularly and with a view
to acquiring the subject property against petitioners consent.
Finally, since there is nothing in legal contemplation which
petitioner must perform particularly for the respondent, it should
follow that Civil Case No. 06-0492 CFM for specific performance
with damages is left with no leg to stand on; it must be dismissed.
With the foregoing view, there is no need to resolve the
other specific issues and arguments raised by the petitioner, as

they do not materially affect the rights and obligations of the

parties the Court having declared that no agreement exists
between them; nor do they have the effect of altering the outcome
of the case.
WHEREFORE, the Petition is GRANTED. The September 30, 2011
Decision and December 9, 2011 Resolution of the Court of Appeals
in CA-G.R. CV No. 93715, as well as the February 16, 2009 Decision
of the Regional Trial Court of Pasay City, Branch 115 in Civil Case
No. 06-0492 CFM are REVERSED and SET ASIDE. Civil Case No. 060492 CFM is ordered DISMISSED.
Petitioner First Optima Realty Corporation is ordered to REFUND the
amount of P100,000.00 to respondent Securitron Security Services,
Inc. without interest, unless petitioner has done so during the
course of the proceedings.
SO ORDERED.

G.R. No. 199852

November 12, 2014

SPS. FELIPE SOLITARIOS and JULIA TORDA, Petitioners,

vs.
SPS. GASTON JAQUE and LILIA JAQUE, Respondents.

In spite of the sale, the Jaques, supposedly out of pity for

the spouses Solitarios, allowed the latter to retain possession of Lot
4089, subject only to the condition that the spouses Solitarios will
regularly deliver a portion of the propertys produce. In an alleged
breach of their agreement, however, the spouses Solitarios
stopped delivering any produce sometime in 2000. Worse, the
spouses Solitarios even claimed ownership over Lot 4089. Thus,
the Jaques filed the adverted complaint with the RTC.
For their defense, defendants spouses Solitarios denied
selling Lot 4089 and explained that they merely mortgaged the
same to the Jaques after the latter helped them redeem the land
from the Philippine National Bank (PNB).
Issue:
Whether or not there was an equitable mortgage.

Ponente: Velasco, Jr., J.

Facts:
Plaintiffs Sps. Gaston Jaque and Lilia Jaque initiated a
Complaint for Ownership and Recovery of Possession against
Defendants Sps. Felipe Solitarios and Julia Torda.
Plaintiffs alleged that they purchased Lot 4089 from the
[defendants], spouses Solitarios in stages. According to [plaintiffs],
they initially bought one-half of Lot No. 4089 for 7,000.00. This sale
is allegedly evidenced by a notarized Deed of Sale dated May 8,
1981. Two months later, the spouses Solitarios supposedly
mortgaged the remaining half of Lot 4089 to the Jaques via a Real
Estate Mortgage (REM) dated July 15, 1981, to secure a loan
amounting to 3,000.00 After almost two (2) years, the spouses
Solitarios finally agreed to sell the mortgaged half. However,
instead of executing a separate deed of sale for the second half,
they executed a Deed of Sale dated April 26, 1983 for the whole lot
to save on taxes, by making it appear that the consideration for
the sale of the entire lot was only 12,000.00 when the Jaques
actually paid 19,000.00 in cash and condoned the spouses
Solitarios 3,000.00 loan. As a result, the tile was transferred and
registered from defendants to plaintiffs.

Held:
The parties entered into an equitable mortgage over the
lot, and not an absolute contract of sale. Thus, the transaction
between the parties of the present case is actually one of equitable
mortgage pursuant to the foregoing provisions of the Civil Code. It
has never denied by respondents that the petitioners, the spouses
Solitarios, have remained in possession of the subject property and
exercised acts of ownership over the said lot even after the
purported absolute sale of Lot 4089. This fact is immediately
apparent from the testimonies of the parties and the evidence
extant on record, showing that the real intention of the parties was
for the transaction to secure the payment of a debt. Nothing
more.
It was more evident during proceedings. During pre-trial,
the Jaques admitted that the spouses Solitarios were in possession
of the subject property. Gaston Jaque likewise confirmed that
petitioners were allowed to produce copra and till the rice field,
which comprise one-half of the lot that was previously covered by
the real estate mortgage, after said portion was allegedly sold to
them.
Citing a previous case, it was held that a purported
contract of sale where the vendor remains in physical possession
of the land, as lessee or otherwise, is an indicium of an equitable
mortgage 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. Thus, retention by the vendor of the

possession of the property is inconsistent with the vendees
acquisition of ownership under a true sale. It discloses, in the
alleged vendee, a lack of interest in the property that belies the
truthfulness of the sale.

Moreover, it is a rule that when doubt exists as to the true

nature of the parties transaction, courts must construe such
transaction purporting to be a sale as an equitable mortgage, as
the latter involves a lesser transmission of rights and interests over
the property in controversy.

Further, the plaintiffs have never asserted ownership for a

long period of time. During the period material to the present
controversy, the petitioners, spouses Solitarios, retained actual
possession of the property. This was never disputed. If the
transaction had really been one of sale, as the Jaques claim, they
should have asserted their rights for the immediate delivery and
possession of the lot instead of allowing the spouses Solitarios to
freely stay in the premises for almost seventeen (17) years from
the time of the purported sale until their filing of the complaint.
Human conduct and experience reveal that an actual owner of a
productive land will not allow the passage of a long period of time,
as in this case, without asserting his rights of ownership.

In view thereof, the transfer of ownership of Lot 4098 to

the Jacques was invalidated. To do so would amount to condoning
the prohibited practice of pactum comissorium. Article 2088 of the
Civil Code clearly provides that a creditor cannot appropriate or
consolidate ownership over a mortgaged property merely upon
failure of the mortgagor to pay a debt obligation.

As provided for in Article 1602(6) of the Civil Code, a

transaction is presumed to be an equitable mortgage 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. This provision finds
application in this case. First, the very testimony of Gaston Jaque
and the documents he presented establish the existence of two
loans, which the Jaques extended to the spouses Solitarios, that
were secured by the subject property; and, second, the testimonies
of the parties reveal that they came to an agreement as to how
these loans would be paid.
The rule on equitable mortgage is primarily designed for
the protection of the unlettered such as the spouses Solitarios, who
are penurious vis--vis their creditors. In this case, the parties
were negotiating on unequal footing. As opposed to the
uneducated and impoverished farmer, Felipe Solitarios, Gaston
Jaque, was a 2nd Lieutenant of the Armed Forces of the Philippines
when he retired. Further, Felipe Solitarios was constantly in
financial distress. He was constantly in debt and in dire financial
need. That he borrowed money from the PNB twice, first in 1975
then in 1976, and mortgaged the subject property to the Jaques
suggest as much.

Lastly, the mortgage debt of the spouses Solitarios had

been fully paid. This holds true whether the amount of the debt is
12,000.00, as found by the RTC or 22,000.00, the amount which
the Jaques claim they paid for the subject property. Article 1602 of
the Civil Code states: 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. As applied by the trial court, from 1976 to 2000,
defendants were giving the one-half share of the plaintiffs from
the proceeds of the copras and rice land to plaintiffs alleged
caretaker, Yaning. So, if the produce of the land in question as
claimed by the plaintiffs is about Php50,000.00 a year, one-half
(1/2) of it would be Php25,000.00 which is 25 times higher than the
Php1,000.00 interest at 12% per year for the alleged purchase
price of Php12,000.00 of the land in question. The Php24,000.00
excess interest would have already been sufficient to pay even the
principal of Php12,000.00. Thus, clearly, the Php12,000.00
purchase price of the land should now be considered fully paid.

2. Ceferino died in 1954, while Juana died in 1972.

a. They had five children, namely: Dorotea (deceased), Cenon,
Severino, Victoriano and Antero.
G.R. No. 159611

April 22, 2015

b. Dorotea is survived by Romeo and Sergio.

HEIRS OF ANTERO SOLIVA, Petitioner,

vs.
SEVERINO, JOEL, GRACE, CENON, JR., RENATO, EDUARDO,
HILARIO, all surnamed SOLIVA, ROGELIO V. ROLEDA, and
SANVIC ENTERPRISES, INC., represented by its Manager,
SANTOS PORAQUE, Respondents.

Ponente: Brion, J.

3. Earlier or on June 22, 1949, Mancol sold to Cenon the 1,600square meter portion of Parcel 2 through a notarized deed entitled
"Escritura de Compra-Venta Absoluta."

4. As Cenon then lived in Manila, he left the possession and

enjoyment of this portion to his parents.
a. However, when Ceferino died in 1954, Cenon took over the
administration of the entire estate, including Parcel 1.

Facts:
1. The Spouses Ceferino (also known as Rufino) Soliva and Juana
Endeza possessed and owned, during their lifetime, three parcels
of land in Calbayog City, specifically:
(1) a 1.436-hectare lot (Parcel 1) under Tax Declaration
(TD) No. 42753;
(2) a 9,447-square meter lot (Parcel 2) under TD No.
24419, (a 1,600-square meter portion of this lot, however,
was owned by Brigida Mancol which the spouses held for
Mancol as her tenants); and
(3) a 5,136-square meter Riceland under TD No. 14298.

5. In March 1959, Severino received as his share in their parents

estate the 5,136-square meter rice land covered by TD No. 14298.
a. Severino subsequently sold this lot through a Deed of Absolute
Sale9 to Fortunato Calagos on April 30, 1959.

6. On November 13, 1970, Juana sold to Cenon Parcel 2 through a

Deed of Conditional Sale with Pacto A Retro (1970 Pacto de Retro
Sale).

a. In 1975, TD No. 24419 covering Parcel 2 was cancelled and TD

No. 38009 was issued in the name of Cenon.

Romeo as
defendant.

7. On January 21, 1986, Cenon sold to Roleda a 4,092-square

meter portion of Parcel 2.

b. Antero, et al. prayed the RTC to: (1) declare the 1970 Pacto de
Retro Sale as an equitable mortgage; (2) order the partition of
Parcels 1 and 2; (3) order Cenons heirs to account for the proceeds
of the sale of the portion of Parcel 2 which Cenon sold to Roleda,
with legal interest to be counted from 1986; and (4) order SEI to
vacate the premises and to pay rentals in the amount of 500.00 a
month until the termination of the action.

a. TD No. 38009 was subsequently cancelled and TD No. 4778was

issued in Roledas name.

8. On August 14, 1991, Roleda sold to SEI, through Poraque, the

4,092-square meter portion which he bought from Cenon, along
with Lot 2-C of the Plan of Land which Roleda acquired from a
certain Silverio Agura.

8. Meanwhile, Cenon died in 1987;

plaintiffs,

and

impleading

the

SEI

as

additional

10. Proceedings before the RTC

a. On May 14, 1992, the RTC appointed retired Deputy Sheriff
Eufrocenio Olifernes as Commissioner to relocate the two parcels of
land described in the complaint Parcels 1 and 2 and to
determine the exact portion of Parcel 2 which Cenon allegedly sold
to Roleda.

a. he was survived by his children, namely: Joel, Grace, Cenon,

Renato, Eduardo and Hilario.

b. On June 22, 1992, the appointed Commissioner submitted his

Report13 increasing to 10,906 square meters, from 9,447 square
meters as stated in the complaint, the area covered by Parcel 2.
The Report attributed the discrepancy to an error made in the
Cadastral Survey.

9. On November 22, 1991, Antero instituted the Complaint for

Partition and Accounting, originally against Severino, Victoriano,
Joel, Grace, Cenon, Renato, Eduardo, Hilario, Sergio, Romeo, and
Roleda.

c. On January 13, 1993, and in the course of the trial on the

merits, the RTC and the parties agreed to a second relocation
survey of the property. For purposes of this relocation survey, the
RTC appointed Geodetic Engineers Felimon Mancol and Felomino
Unga as Commissioners. Based on the testimonies and
declarations of the claimants, the Commissioners prepared and
submitted the Plan of Land (as outlined above) together with their
Report14 that reflected a total area of 14,609 square meters for
Parcel 2.

a. He subsequently amended the complaint, twice on April 8,

19926 and on August 12, 19927 joining Victoriano, Sergio and

d. As the defendants disputed only the plaintiffs a quos claim of

ownership over Parcel 2, the RTC rendered a partial decision on
December 14, 1994.15 It declared Parcel 1 as owned in common by
the plaintiffs and the defendants.

Victoriano confirmed and agreed to the "sale of the land as part of

the real estatead judicated and given to Severino x x x as his share
in the inheritance." In fact, this 5,136-square meter parcel of land
far exceeds the portion he would have received as share in Parcel
2. Hence, he is no longer entitled to participate in its partition.

e. The January 25, 1997 RTC Decision:

(1) Lots 2-A (3,305 square meters), 2-B (877 square
meters) and 2-C (952 square meters) of the Plan of Land
are exclusive properties of SEI;
(2) Lots 1, 3 and 5 of the Plan of Land are owned in
common by Antero, Victoriano, and Romeo and Sergio
(Doroteas heirs);
(3) Lot 4 (3,140 square meters) of the Plan of Land,
occupied by the National Highway, forms part of Parcel 2
covered by TD No. 24419; and
(4) Severino and the heirs of Cenon are excluded from any
share in the remaining portion of Parcel 2 after deducting,
from its total area of 14,609 square meters, the area
corresponding to Lots 2-A and 2-B sold to SEI.
The RTC ruled that: first, Lot 2-C lies at the west of, and,
therefore, not part of Parcel 2. The RTC upheld SEIs claim over Lot
2-C as none of the parties disputed such claim.
Second, Roledas claim over Lot 1 of the Plan of Land,
which he allegedly bought from Esteban Ultra, is not supported by
evidence.
Third, Severino is excluded from the partition of Parcel 2 as
he had already received his share in their parents inheritance
the 5,136-square meter parcel of Riceland covered by TD No.
14298. As stated in the 1959 Deed of Absolute Sale between
Severino and Fortunato Calagos, Juana, Cenon, Antero and

Fourth and last, Cenon is likewise excluded from the

partition of Parcel 2 as he likewise already received his share in
their parents inheritance. Per the records, Cenon purchased from
Mancol only a 1,600-square meter portion of Parcel 2. This is clear
from the word "tigkapatan" used in the "Escritura de Compra-Venta
Absoluta" which, per the local vernacular, means an area of 40 by
40arms length equivalent to 1,600 square arms length, or 1,600square meters, more or less. Moreover, the Deed of Absolute Sale
between Cenon and Roleda described the portion which Cenon sold
to the latter as only a portion, not the whole of Parcel 2.
In short, Cenon could validly sell to Roleda only the 1,600square meter portion which he bought from Mancol. When he sold
to Roleda 4,092 square meters (or 4,182 square meters per the
Plan of Land) of Parcel 2, he effectively sold an extra 2,582-square
meter portion which rightfully pertains to the heirs of Ceferino and
Juana as pro indiviso owners.
Accordingly, this 2,582-square meter portion should be
treated as his share in their parents estate that bars him from
further participating in the partition of the remaining portion of
Parcel 2. Antero and the defendants a quo, except for SEI and
Roleda, separately appealed the RTCs January 25, 1994 decision
with the CA.

11. CA: modified the RTCs decision. It declared the plaintiffs a

quo Antero, Victoriano, Romeo, Sergio and the defendants a quo
Joel, Grace, Cenon, Eduardo, Renato, Hilario and SEI as coowners of Parcel 2.

a. The CA agreed that the 1,600-square meter portion of Parcel 2

belongs exclusively to Cenon. Additionally, it pointed out that the
"Escritura de Compra-Venta Absoluta," which Mancol executed in
favor of Cenon, was duly notarized and therefore a public
document that has in its favor the presumption of regularity. As
Antero, et al.failed to show convincing contradictory evidence, this
document proves the clear and unequivocal facts alleged therein,
i.e., that Mancol previously owned the 1,600-square meter portion
which she sold to Cenon in 1949.
Pursuant to the "Escritura de Compra-Venta Absoluta,"
Ceferino had no right whatsoever over the 1,600-square meter
portion of Parcel 2; his right covered only the 13,009-squaremeter
portion (14,609-1,600) not affected by this document. Thus, when
he died in 1954, he transferred to his heirs only the rights which he
had over the 13,009-squaremeter portion.
Likewise, the CA agreed that the 1970 Pacto de Retro Sale
between Juana and Cenon is not an equitable mortgage; none of
the circumstances or conditions that serve as badges of
anequitable mortgageunder Article 1602 of the Civil Code was
present. Thus, it is a valid and effective Deed of Sale; but, only as
regards the portion of Parcel 2 over which she has an alienable title
or interest.
In these lights, Cenon validly acquired ownership over a
total area of 10,706.3 square meters of Parcel 2. As owner, he had
all the right to alienate it, either in its entirety or only its portion.
Accordingly, his sale to Roleda of the 4,092.8-square meter portion
was valid as it falls well within his total property ownership.
Consequently, Roledas saleto SEI of the same 4,092.8-square
meter portion in 1991 was also valid.
Cenons remaining 6,613.5 square meters share of Parcel 2
shall, in turn, be divided equally among his heirs.
As for Ceferinos other heirs, they each acquired a pro
indiviso share over the remaining 3,902.7 square meters of Parcel

2. But, since Severino had already received his share in 1959, only
Victoriano, Antero and Dorotea, as represented by her heirs Sergio
and Romeo, are entitled to participate in its partition.

12. The CA denied, in its August 20, 2003 resolution, 19 Anteros

motion for reconsideration.

13. While this case was pending before the Court, Antero Soliva
died on February 15, 2004.20 He was survived by his wife, Erlinda C.
Soliva, and nine (9) children namely: Peter, Susan, Antonio, Antero,
Jr., Marlen, Garry, and Annerliza (all surnamed Soliva), Yolanda S.
Ibay, and Rosalinda S. Tindogan.

Issues:
Whether Cenon validly acquired ownership of Parcel 2 by virtue of
the "Escritura de Compra-Venta Absoluta."
Whether the CA correctly applied the concept of accretion, under
Article 1015 of the Civil Code, in distributing Severinos supposed
share in Parcel 2 in favor of Ceferinos other heirs.
Whether the 1970 Pacto de Retro sale was an equitable mortgage
under Article 1602 of the Civil Code.
Assuming that the 1970 Pacto de Retro sale was a true sale, not an
equitable mortgage, whether it covered only Juanas 6/10 share in
Parcel 2; and whether Ceferinos heirs still have 30 days from
finality of the RTC decision to repurchase the property.
Whether Roleda and SEI were buyers in bad faith.

Held:

There was no accretion of inheritance

within the terms of Article 1015 of the Civil
Code
Article 1015 of the Civil Code provides:

We DENY the petition for lack of merit.

Cenon validly acquired ownership, by

virtue of the "Escritura de Compra-Venta
Absoluta," over Parcel 2 but only with
respect to the specific portion sold.
The "Escritura de Compra-Venta Absoluta," which Mancol
executed in favor of Cenon, was duly notarized. A notarized
document is a public document that carries with it not only the
presumption of regularity in its due execution. 24 It also serves, in
the absence of sufficiently contradictory evidence, as clear and
convincing proof of the unequivocal facts stated therein. 25
But more than these, we find nothing in the records which
put into question the validity of this document or the
circumstances surrounding its execution, or which otherwise casts
doubt on the authority of the notarizing officer. In fact, Severino
narrated in detail how the document was executed and the persons
involved; as witness to the actual execution, Severinos testimony
further strengthens the validity of the document.
Accordingly, as Antero, et al. failed to show evidence
sufficiently contradicting these presumptions, the "Escritura de
Compra-Venta Absoluta" proves the clear and unequivocal fact that
Mancol previously owned the 1,600-squaremeter portion of Parcel
2 and that she sold this portion to Cenon in 1949.

Art. 1015. Accretion is a right by virtue of which, when two or more

persons are called to the same inheritance, devise or legacy, the
part assigned to the one who renounces or cannot receive his
share, or who died before the testator, is added or incorporated to
that of his coheirs, co-devisees, or co-legatees. [Emphases
supplied.]
Assailing the CAs decision, Antero argues that the CA
erroneously applied Article 1015 inasmuch as Severino did not
repudiate the share in their parents inheritance which he received
in 1959.
In this regard, the CA said:
However, inasmuch as it is undisputed that Severino is no longer
entitled to any share of parcel 2 since he was already given a
separate parcel of land x x x on 30 April 1959, his supposed share
shall be added to those of Juana Endesa, Victoriano, Cenon,
Dorotea and Antero increasing their respective share to 1,300
square meters each, instead of 1,084 square meters. [Emphases
and underscoring supplied.]
We disagree with Anteros argument. He obviously
misinterprets the CAs ruling as he views this "adding" of share
within the terms of Article 1015 of the Civil Code.
A careful reading of this CA ruling would show that the
share of Severino was "added" to the shares of Juana, Victoriano,
Cenon, Dorotea and Antero, not pursuant to the provisions of
Article 1015 of the Civil Code. The CA decision, for one, did not use
the term "accretion;" neither did it mention, in any of its portions,

Article 1015, or that the CA was adding Severinos supposed share

in accordance with this article.
On the contrary, the CA added Severinos share to those of
the other heirs because it recognized the fact that Severino has
already received his share of the estate in 1959. Thus, rather than
receiving an area of 1,084 square meters each, the remaining five
heirs of Ceferino Juana, Cenon, Victoriano, Dorotea and Antero
would each receive a total area of 1,300.9 square meters of
Ceferinos inheritance in Parcel 2, as Severino was no longer
entitled to share in its partition.
In effect, the CA simply provided for a clearer and detailed
picture of how this distributable portion of Parcel 2 should be
computed and how its partition should be effected.
For greater clarity, we illustrate below in clearer terms the
manner by which the CA arrived at the parties respective shares.

And third, Ceferinos 6,504.5-square meter share in Parcel

2 should be distributed to his six heirs, namely: Juana, Victoriano,
Severino, Cenon, Dorotea and Antero. Thus, each heir would be
entitled to a 1/6 shareof Ceferinos inheritance or a 1,084-square
meter portion each of Parcel 2.
Under this formulation, Parcel 2 would have been divided
and partitioned among Ceferinos heirs in the following manner:
1. Juana - 7,588.5 square meters27
2. Severino - 1,084 square meters
3. Victoriano - 1,084 square meters
4. Cenon - 2,684 square meters28
5. Dorotea - 1,084 square meters
6. Antero - 1,084 square meters

a. Had Severino not received any share in their parents estate in

1959:
First, the 1,600-square meter portion which Cenon
purchased from Mancol in 1949 should first be deducted from the
total area of Parcel 2 as stated in the Plan of Land. Thus, 14,609
square meters less 1,600 square meters equals 13,009 square
meters.26
Second, the remaining 13,009-square meter area of Parcel
2 should be divided into 2 equal portions one portion for Juana, as
her share in the conjugal partnership, and the other for Ceferino.
Thus, each would receive a 6,504.5-square meter portion share of
Parcel 2.

b. Partition of Parcel 2 that excludes Severino

First, similarly with the above computation, the 1,600square meter portion which Cenon purchased from Mancol in 1949
should first be deducted from the total area of Parcel 2. This leaves
an area of 13,009 square meters.
Second, Juanas one-half conjugal partnership share in
Parcel 2 should likewise first be deducted, leaving a total
distributable area of 6,504.5 square meters.
And third, Ceferinos 6,504.5-square meter portion share of
Parcel 2 should be distributed to his heirs, excluding Severino.
Thus, each heir Juana, Victoriano, Cenon, Dorotea and Antero

would be entitled to a 1/5 share of Ceferinos inheritance or

1,300.9 square meters each of Parcel 2.
Under this formulation, Parcel 2 was divided and
partitioned by the CA among Ceferinos heirs in the following
manner:
1. Juana - 7,805.4 square meters29
2. Victoriano - 1,300.9 square meters
3. Cenon - 2,900 square meters30
4. Dorotea - 1,300.9 square meters
5. Antero - 1,300.9 square meters
Under the first formulation above, Severino would have
received a total of 1,084 square meters as his share. Considering,
however, that he had already received his share in his parents
estate in 1959, the CA "added" this supposed share to those of
Severinos co-heirs Juana, Cenon, Victoriano, Dorotea and Antero.
In effect, each of these heirs would be receiving an
additional 216.8 square meters in their respective shares or a total
of 1,300.9 square meters. This is precisely the same area which
each heir, except Severino, would be receiving under the second
formulation.
In short, the CAs computation of the parties respective
interests in Parcel 2 already excludes Severino one of the ends
which Antero seek in this petition. For these reasons, we find
Anteros argument on this point to be completely without basis.

The 1970 Conditional Sale with Pacto de

Retro is a true sale, not an equitable
mortgage under Article 1602 of the Civil
Code
An equitable mortgage is one which, although lacking the
proper formalities, form or words, or other requisites prescribed by
law for a mortgage, nonetheless shows the real intention of the
parties to make the property subject of the contract as security for
debt and contains nothing impossible or anything contrary to law
in this intent.31
A contract of sale, whether an absolute sale or with a right
of repurchase, is presumed by law to be an equitable mortgage
under any of the following circumstances:32
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.33 For the presumption of an equitable mortgage to arise
under any of the circumstances enumerated in Article1602,
however, two 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
mortgage.34
The CA debunked Anteros argument that the 1970 Pacto
de Retro Sale was an equitable mortgage because it found nothing
which supports his theory that the "sale with right to repurchase
was executed to secure a debt."35Moreover, it pointed out that
Cenons administration of the property from 1962 up to his death
in 1987 indubitably shows that he had, all the while, been in
constructive possession of the property.
We uphold these findings of the CA as we equally find
nothing on the records that supports a contrary conclusion. 36 More
than this, we uphold the CAs ruling on this issue for the following
reasons:
First, Cenon immediately declared in his name the property sold
and had continuously paid taxes for it, sourced from the propertys
income. As an owner, Cenon has the right to the propertys fruits
and income which he could freely dispose of according to his
discretion. Thus, contrary to Anteros claim, Cenons payment of
the taxes from the propertys income is in fact consistent with his
exercise of ownership rights over the property.
Second, Cenon and his children benefited from the propertys
produce.

Third, Juana, as the vendor a retro, never questioned the nature of

the 1970 Pacto de Retro sale as a mortgage, nor argued that in
reality it was intended to secure a debt.
Fourth, other than his bare allegation, Antero (with the plaintiffs a
quo) did not present any evidence to prove that what the parties to
the 1970 Sale a Retro actually intended was to secure a debt,
instead of a true sale. Neither did they prove that she entered into
the Pacto de Retro sale believing in good faith that it was one of
mortgage.
Further, the records show that Cenon entered into the Pacto de
Retro sale to prevent Juana from continuously mortgaging and
encumbering the property.37 Antero never controverted this fact.
And fifth, Antero (or the plaintiffs a quo) failed to prove bad faith on
Cenons part in entering into the Pacto de Retro sale with Juana.
Absent factual and legal basis, we cannot simply accept Anteros
bad faith argument. Bad faith is never presumed, while good faith
is always presumed; on Antero rested the burden of proving bad
faith on Cenons part, a burden which he failed to discharge. 38
Of course, we did not fail to notice the clause in the 1970
Deed stating that "after the lapse of said period the parties may
execute another document for any extension of the right of
repurchase."39 Antero equates this with Article 1602 (3) of the Civil
Code which states that "[w]hen upon or after the expiration of the
right to repurchase, another instrument extending the period of
redemption or granting a new period is executed."
This clause alone, however, did not and cannot sufficiently
give the 1970 Pacto de Retro sale the character of an equitable
mortgage.1wphi1 Note that the clause used the word "may" in
allowing the parties to execute another contract to extend the right
of repurchase. "May" is a permissive word which simply provides
for a situational possibility of extending Juanas exercise of her
repurchase right that, in this case did not even materialize.

Thus, in the absence of any evidence which shows intent,

on the part of Juana and Cenon, to enter into a mortgage or to use
the property sold to secure a debt; or of any fact or circumstance
which may reasonably lead this Court to conclude the existence of
such intent, we cannot but be convinced that the transaction
covered by the 1970 Deed is a true and valid sale, not an equitable
mortgage.
Finally, we are not unaware of the equitable-mortgage
presumption that the law accords in situations when doubt exists
as to the true intent of the parties to the contract. 40 This legal
presumption, however, applies only when doubt, in fact, exists as
to the nature of the agreement of the parties.
When no doubt exists from the facts and the evidence, and
the parties to the transaction (specifically Juana as the vendor a
retro in this case), never questioned the nature of their agreement
as one of mortgage, then this legal presumption shall not and
cannot apply. After all, the contract is the law between them and
where its terms are clear and leaves no doubt on their intention,
the courts would have no choice but to uphold them.41

The Pacto de Retro Sale covered only

Juanas 6/10 portion-share over Parcel 2
While the 1970 Pacto de Retro sale is a true sale, its
validity affects only the 6/10 portion of Parcel 2 that rightfully
belongs to Juana. This conclusion follows the rule that a person can
convey only such property (or right or interest over property)
which, at the time it is to be delivered, he or she has such right to
convey it.42
Interestingly, Antero faults the CA for "not holding that the
deed of conditional sale with Pacto de retro dated November 30,
1970 executed by Juana Endeza covered only her 6/10 share in

parcel 2."43 Antero obviously failed to appreciate the import of the

CAs ruling as the 7,805.4 square meters which the CA declared as
Juanas share represents exactly her 6/10 share in Parcel 2. Clearly,
the CA did not commit any error in its determination.
Thus, we find no reason to disturb the CAs findings that
the 1970 Pacto de Retro is valid but only as regards Juanas
7,805.4-square meter share or 6/10 share over Parcel 2.

Antero (including the other heirs) has

already lost the right to redeem the portion
sold; the 30-day redemption period granted
under Article 1606 of the Civil Code does
not apply
The Pacto de Retro sale states that Juana, as vendor a
retro, reserves for "herself, her heirs, or assigns the right of
repurchase the property described above within a period of TEN
(10) YEARS, from and after the date of this instrument, x x x."
This Deed was executed in 1970, while Antero filed the
complaint in 1991. Between these dates 1970 and 1991 none of
the heirs exercised, or at the least attempted to exercise, this right
of repurchase granted to them under the contract. Obviously, at
the time Antero, et al. filed the complaint in 1991, the 10-year
repurchase period under the contract had already lapsed.
Thus, we agree with the CA that Antero, with the other
heirs, had already lost whatever right they may have had to
redeem the portion which Juana sold to Cenon by virtue of the
1970 Pacto de Retro sale.
In this regard, we likewise agree with the CA that
paragraph 3, Article 1606 of the Civil Code cannot apply to
Anteros case. This is because paragraph 3 of Article 1606 covers

only a situation where the alleged vendor a retro claims, in good

faith, that their (the vendor and the vendee) real intention (to the
contract) was a loan with mortgage.
In Claravall v. Lim,44 the Court explained:
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 with pacto 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, the proviso is inapplicable. x x x
If the rule were otherwise, it would be within the power of every
vendor a retroto 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. x x x 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.

x x x 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. (Emphases and underscoring supplied.)
As we have established and explained above, the real
intention of Juana and Cenon in this case was to enter into a Pacto
de Retro sale, not an equitable mortgage. Obviously, therefore,
Anteros reliance on paragraph 3, Article 1606 of the Civil Code is
misplaced and his argument on this point cannot prosper.

Roleda and SEI are buyers in good faith

In light of the above and consistent with our findings on the
validity of the "Escritura de Compra-Venta Absoluta" and the 1970
Pacto de Retro Sale, we find that Roleda and SEI are buyers in good
faith.
A buyer is in good faith if he buys the property of another,
without notice that some other person has a right to, or interest in
such property and pays full and fair price for it at the time of the
purchase, or before he has notice of the claim or interest of some
other person in the property. 45 He buys with the well-founded belief
that the person from he receives the property had title to it and
had the capacity to convey it.46
In Roleda and SEIs case, the facts do not show that they
had notice of some other persons interest or right over the 4,092square meter portion; nor was there any fact or circumstance that
could have put them on notice of some other persons right or
interest over it. For one, Roleda, and subsequently SEI, bought the
4,092-square meter portion from its owner Cenon. At the time
Cenon sold this portion, he owned a total of 10,706.3 square
meters share of Parcel 2. Clearly, the portion which he sold to

Roleda fell well within his share in Parcel 2 which, consistent with
his ownership, he had every right to dispose of.
Additionally, Cenon presented
property, which were all in his name.

several

TDs,

for

the

Then too, prior to their purchase, they inspected the

property and inquired from the adjoining property owners the
status of the propertys ownership who all confirmed the absence
of any controversy affecting the property.
Lastly, no one, not even Antero, et al., interfered with or
complained of Roledas land extraction activities, or of SEIs
construction of buildings over the property.
In short, at the time of Roleda and SEIs purchase, the facts
unequivocally point to Cenon (and subsequently to Roleda) as the
exclusive owner of the 4,092-square meter portion of Parcel 2.

Overall, we find no reason to disturb the findings of the CA as it

affirms with modification the decision of the RTC. And, in view of
what we have discussed above, we find no further reason to
address the other issues and ancillary matters raised in this
petition.

WHEREFORE, in light of these considerations, we hereby DENY the

petition. We AFFIRM the decision dated May 23, 2003 and the
resolution dated August 20, 2003 of the Court of Appeals in CAG.R. CV No. 56681, with the MODIFICATION that the share of
petitioner Antero Soliva shall be divided in equal shares among his
heirs, namely: his wife, Erlinda, and nine (9) children

Yolanda, Peter, Susan, Antonio, Antero, Jr., Rosalinda, Marlen, Garry

and Annerliza. No costs. SO ORDERED.

transferred its school site elsewhere, worded in the Deed of Sale as

follows:chanroblesvirtuallawlibrary
That the Vendee herein, SUDLON AGRICULTURAL HIGH SCHOOL,
hereby obligates itself to use the aforementioned Lot No. 1064, for
school purposes only, and it is the condition attached to this
contract that the aforementioned Vendee obligates itself to give
the Vendor herein, the right to repurchase the said lot by paying to
the Vendee herein the aforementioned consideration of P9,130.00
only, after the aforementioned SUDLON AGRICULTURAL HIGH
SCHOOL shall (have) ceased to exist or shall have transferred its
school site elsewhere.3cralawlawlibrary
Consequently, on May 22, 1957, TCT No. 13086 was cancelled, and
in lieu thereof, TCT No. 15959 was issued in the name of SAHS,
with the vendor's right to repurchase annotated at its dorsal
portion.
2. On March 18, 1960, the Provincial Board of Cebu donated 41
parcels of land, covering 104.5441 hectares of the Banilad Friar
Lands Estate to the SAHS subject to two (2) conditions: (1) that if
the SAHS ceases to operate, the ownership of the lots would
automatically revert to the province, and (2) that the SAHS could
not alienate, lease or encumber the properties.4
G.R. No. 179025, June 17, 2015
CEBU STATE COLLEGE OF SCIENCE AND TECHNOLOGY
(CSCST),
REPRESENTED
BY
ITS
INCUMBENT
PRESIDENT, Petitioner, v. LUIS S. MISTERIO, GABRIEL S.
MISTERIO, FRANCIS S. MISTERIO, THELMA S. MISTERIO, AND
ESTELA S. MISTERIO-TAGIMACRUZ, Respondent.
Ponente: Peralta, J.
Facts:
1. On December 31, 1956, the late Asuncion Sadaya, mother of
herein respondents, executed a Deed of Sale covering a parcel of
land denominated as Lot 1064, consisting of an area of 4,563
square meters, located at Lahug, Cebu City, and covered by
Transfer Certificate of Title (TCT) No. 13086 of the Register of
Deeds, Cebu Province, in favor of Sudlon Agricultural High School
(SAHS).
a. The sale was subject to the right of the vendor to repurchase
the property after SAHS shall have ceased to exist, or shall have

3. On June 10, 1983, Batas Pambansa (BP) Blg. 412, entitled "An
Act Converting the Cebu School of Arts and Trades in Cebu City into
a Chartered College to be Known as the Cebu State College of
Science and Technology, Expanding its Jurisdiction and Curricular
Programs" took effect.
a. It incorporated and consolidated several schools in the Province
of Cebu, including the SAITS, as part of the Cebu State College of
Science and Technology (CSCST).
b. The law also transferred all personnel, properties, including
buildings, sites, and improvements, records, obligations, monies
and
appropriations
of
SAITS
to
the
CSCST.
4. In the meantime, the Province of Cebu sought to recover the 41
parcels of land it previously donated to SALIS on the basis of an
initial report of its provincial attorney that SAHS had no personality
to accept the donation, and thus, the deed it executed was void.
5.
On August 19, 1988, respondents Luis, Gabriel, Francis,
Thelma,-all surnamed Misterio, and Estella S. Misterio-Tagimacruz,
as heirs of the late Asuncion Sadaya, informed the then Governor
of the Province of Cebu, Emilio Osmena, through a tetter, of their

intention to repurchase the subject property as stipulated in the

Deed of Sale.7
6. Thereafter, on March 13, 1990, respondents, through their
counsel, Atty. Ricardo Padilla, informed petitioner of their 'intention
to exercise their right to repurchase under the Deed of Sale on the
ground that the SAHS had ceased to exist.
7. However, petitioner's Vocational School Superintendent II, Jesus
T. Bonilla, informed respondents that SAHS still existed as only the
name
of
the
school
was
changed. 8
8. On December 23, 1993, respondents filed a Complaint 9 before
the RTC of Cebu City for Nullity of Sale and/or Redemption against
CSCST, its chairman, Armand Fabella, and president, Dr. Mussolini
Barillo,
alleging
the
following
causes
of
action:chanroblesvirtuallawlibrary
1. That SAHS, at the time of the execution of the deed of sale on
December 31, 1956, had no juridical personality. As such, it cannot
acquire and possess any property, including the subject parcel of
land. Hence, the Deed of Sale is null and void; and
2. That with the enactment of BP Blg. 412, SAHS had ceased to
exist. Thus, the right to repurchase the subject property became
operative.
9. On November 29, 1995, the RTC rendered judgment in favor of
the plaintiffs and against the defendants declaring the Deed of
Sale entered into by and between Asuncion Sadaya and Sudlon
Agricultural High School as null and void for the latter's lack of
juridical personality to acquire real property or to enter into such
transaction or having ceased to exist and ordering the Cebu State
College of Science and Technology being the actual possessor of
the land, Lot 1064, to deliver and reconvey the same to plaintiffs
upon payment of the aforementioned purchased price.
10. Petitioner appealed the aforesaid decision to the CA.
a. During the pendency thereof, respondents filed a Manifestation
and Motion for Injunction,12 amending their complaint and cause of
action to include, petitioner's intent to abandon the subject
property and to no longer use the same for school site purposes.
11. On October 3, 1997, petitioner and the Province of Cebu
executed a Deed for Reversion, by virtue of which petitioner ceded

to the Province of Cebu the subject property covered by TCT No.

15959.
a. Consequently, the Register of Deeds issued TCT No. 146351 in
the name of the Province of Cebu, with a notice annotated at the
dorsal portion thereof of the pending, cases before the RTC and the
CA.14
12. On July 31, 2000, the CA reversed the decision of the RTC,
ruling that while it agrees with the trial court's finding that the
SAHS had ceased to exist when BP Blg. 412 took effect,
respondents are barred by prescription from exercising their right
to repurchase the subject property, which expired in June 1987, or
four years from the effectivity of BP Blg. 412, as provided by Article
160615 of
the
New
Civil
Code.
13. On June 23, 2005, this Court affirmed the decision of the CA
and denied the petition for review filed by respondents, reiterating
that conformably to the condition in the deed of sale, and under
Article 1606 of the New Civil Code, the right of respondents as
successors-in-interest of the vendor a retrocommenced to run on
June 10, 1983.
a. Hence, they had until June 10, 1987 within which to repurchase
the property.
b. However, they failed to do so.
c. It was held that the four-year period for the respondents to
repurchase the property was not suspended merely and solely
because there was a divergence of opinion between the
petitioners, on the one hand, and the respondents, on the other, as
to the precise meaning of the phrase "after the SAHS shall cease to
exist" in the deed of sale. Verily, the existence,of the respondents'
right to repurchase the property was not suspended for being
dependent upon the prior final interpretation by the court of the
said phrase.16
14. However, on February 5, 2001, during the pendency of their
appeal with this Court, respondents again filed an Amended
Complaint with the RTC of Cebu City, this time, impleading the
Province of Cebu and the Register of Deeds, essentially alleging
that pursuant to petitioner's transfer of its school site, their right of
redemption on said condition became operative.
a.
In support thereof, respondents claim the existence of
newspaper reports stating that SAHS will be transferred to Barili,
Cebu, that petitioner and the Province of Cebu entered into a
Memorandum of Agreement facilitating such transfer, and that

pursuant to a Deed of Reversion, ownership of the subject property

had already been transferred in the name of the Province of Cebu.
b. Thus, respondents assert their right to redeem the subject
property and pray that the title in the name of-the Province of Cebu
be
cancelled.
15. In its Answer, petitioner averred that when respondents failed
to include the ground of transfer of school site in their previous
complaint, they are deemed to have waived the same; that
respondents should not split a single cause of action by multiple
suits; that the case was dismissible for being barred by litis
pendentia; that appellants were guilty of forum shopping; and, that
the action was likewise barred by prescription.
16. On October 1, 2002, the RTC dismissed respondents' Amended
Complaint in Civil Case and held that the action was barred by litis
pendentia where being another case which is pending between the
same
parties
for
the
same
cause.
a. Plaintiffs are likewise guilty of forum shopping, there being
substantial identity of parties, rights of action and reliefs sought for
in the instant case.
17. On appeal, however, the CA reversed the decision of the RTC
holding that the case is not barred by litis pendentia for while there
is an identity of parties and reliefs prayed for between the two
complaints filed by respondents, there exists no identity of causes
of action.
a. It bears stressing that the right to repurchase as stated in the
deed of sale can only be exercised on the occurrence of either of
the
two
suspensive
conditions,
to
wit:
1. if SAHS shall have ceased to exists; or
2. if SAHS shall have transferred its school site elsewhere.
b. In Civil Case No. Ceb-15267, which was appealed to this Court
and docketed as CA-G.R. CV No. 53592, the cause of action of
herein appellants (appellees therein) was based on the first
suspensive condition, the fact that SAHS, by virtue of Batas
Pambansa Blg. 412, enacted on June 10, 1983, has ceased to exist.
On the other hand, the cause of action, in the instant case is based
on the second suspensive condition, the fact that the school site
was transferred to another location. Apparently, though the reliefs
sought in both cases are the same, they are not founded on the
same facts which give rise to two different causes of action.
Issue:

Whether the land may be reconveyed back to respondents.

Held:
Notwithstanding the preceding discussion, respondents'
cause of action in their second complaint based on petitioner's
transfer of its school site must nonetheless fail.
In cases of conventional redemption when the vendor a
retro reserves the right to repurchase the property sold, 27 the
parties to the sale must observe the parameters set forth by Article
1606 of the New Civil Code, which states:
Art. 1606. The right referred to in Article 1601, in the absence of an
express agreement, shall last four years from the date of the
contract.
Should
exceed ten

there

be

an

agreement,

the

period

cannot
years.

However, the vendor may still exercise the right to

repurchase within thirty days from the time final judgment was
rendered in a civil action on the basis that the contract was a true
sale with right to repurchase. (Emphasis supplied)
Thus, depending on whether the parties have agreed upon
a specific period within which the vendor a retro may exercise his
right to repurchase, the property subject of the sale may be
redeemed only within the limits prescribed by the aforequoted
provision.
In the Decision dated June 23, 2005, this Court ruled that
since, petitioner and respondents in this case did not agree on any
period for the exercise of the right to repurchase the property
herein, respondents may use said right within four (4) years from
the happening of the allocated conditions contained in their Deed
of Sale: (a) the cessation of the existence of the SAHS, or (b) the
transfer of the school to other site.28 However, due to respondents'
failure to exercise their right to redeem the property within the
required four (4) years from the time when SAHS had ceased to
exist, or from June 10, 1983, the date of effectivity of BP Blg. 412,
this Court held that respondents are barred by prescription.
Despite this, respondents nevertheless insist on the
redemption of the subject property pursuant to the second

suspensive condition, namely, petitioner's transfer of its school

site. Applicable law and jurisprudence, however, runs contrary to
respondents' stance.
As early as 1913, this Court had already enunciated an
unfavourable notion against a prolonged uncertainty with respect
to the ownership and tenure of real property, to wit:
Under the Partidas, as under the Roman Law, no attempt was
made to limit the duration of contracts with pacto de retro. Unless
limited by the contract of the parties, it was generally held that the
right to repurchase was perpetual. By its decision of May 12, 1875,
the supreme court of Spain first .attempted to place a restriction
upon the length of such contracts by holding that they gave rise to
a personal action of prescription in accordance with the law on
prescription of actions. (23 Scaevola. 767.)In the recent times,
however, practically all those countries where such sales
arc recognized have found it advisable to limit the time
within which the right of redemption can be exercised. (4
Bond's Com. on the Civil Code, 519.) As stated inYadao vs.
Yadao (20 Phil. Rep., 260): "A pacto de retro is, in a certain aspect,
the suspension of the title to the land involved. We are of the
opinion that it was the intention of the legislature to limit
the continuance of such a condition, with the purpose that
the title to the real estate in question should be definitely
placed, it being, in the opinion of the legislature, against
public policy to permit such an uncertain condition relative
to the title to real estate to continue for more than ten
years."29cralawlawlibrary
Consistent with such view, this Court frowned upon
agreements indicating indefinite stipulations for the exercise of the
right to repurchase and restricted the redemption period to ten
(10) years from the date of the contract of sale, in consonance with
the provisions of the Civil Code. Accordingly, when vendors a
retro were granted the right to repurchase properties sold "at any
time they have the money," "in the month of March of any year,"
or "at any time after the first year," this Court had not hesitated in
imposing the ten (10)-year period, the expiration of which
effectively bars redemption of the subject properties. 30 Similarly,
there have been numerous occasions 31 wherein We invalidated
stipulations permitting the repurchase of property only after the
lapse of at least ten (10) years from the date of the execution of
the contract for being in contravention of the limitation mandated
by the Civil Code provision. Waivers of such period were likewise

held

to

be

void

for

being

against

public

policy. 32

Furthermore, this Court deemed it necessary to keep within

the ten-year period those instances where parties agree to
suspend the right until the occurrence of a certain time, event, or
condition, insofar as the application of the four (4)-year period in
the first paragraph of Article 1606 Civil Code would prolong the
exercise of the right beyond ten (10) years. Thus, in Rosales v.
Reyes,33 We held that in cases where the four (4)-year period would
extend the life of the contract beyond ten (10) years, the vendor a
retro will only have the remainder of the said ten (lO)-year period
to redeem the property, in line with the manifest spirit of the
law.34 When, for instance, the contract provides that the right may
only be exercised after seven (7), eight (8), or nine (9) years after
the execution of the sale, the vendor a retro may only redeem the
property before the expiration of the ten (lO)-year period from the
date of the sale. In line with this, Umale v. Fernandez, et.
al.35 pronounces that the period of redemption agreed upon by the
parties may be extended after the four (4)-year period so long as
the total period does not exceed ten (10) years from the date of
the contract.
As elucidated in Badayos v. Court of Appeals:
While .the counting of this four-year period shall begin
from the execution of the contract, where the right is
suspended by agreement until after a certain time, event
or condition, the period shall be counted from the time
such right could be exercised, but not exceeding ten (10)
years from the execution of the contract. Applying the
provision to the instant case, the period to repurchase the property
must be deemed to be four (4) years from 9 March 1975 or until 9
March 1979.37cralawlawlibrary
In the instant case, while the four (4)-year period was
counted from the time the right to repurchase could be exercised
or when the SAHS ceased to exist, even beyond ten (10) years
from the execution of the deed of sale, one must not nevertheless
lose sight of the fundamental spirit and intent of the law which
have been upheld in jurisprudence, time and time again, viz.: The
question of the period within which the repurchase may be made is
unanimously considered as a question of public interest. It is not
a good thing that the title to property should be left for a
long period of time subject to indefinite conditions of this
nature. For this reason, the intention of the law is

restrictive

and

limitative. (10

Manresa)

A long term for redemption renders the tenure of

property uncertain and redounds to its detriment, for
neither does the precarious holder cultivate the ground
with the same interest as the owner, nor does he properly
attend to the preservation of the building, and owing to the
fact that his enjoyment of the property is temporary, he
endeavours above all to derive the greatest benefit
therefrom, economizing to that end even the most
essential expenses.
Hence, while the occurrence of the second suspensive
condition may give rise to a separate cause of action, the same
must always be taken in conjunction with the periods prescribed by
law insofar as they frown upon the uncertainty of titles to real
property. Otherwise, vendors may simply impose several resolutory
conditions, the happening of each will practically extend the life of
the contract beyond the parameters set forth by the Civil Code.
This is certainly not in line with the spirit and intent of the law. To
permit respondents to exercise their right to repurchase upon the
happening of the second resolutory condition, when they utterly
failed to timely exercise the same upon the happening of the first,
would effectively result in a circumvention of the periods expressly
mandated
by
law.
To repeat, Article 1606 expressly provides that in the
absence of an agreement as to the period within which the
vendor a retro may exercise his right to repurchase, the same must
be done within four (4) years from the execution of the contract. In
the event the contract specifies a period, the same cannot exceed
ten (10) years. Thus, whether it be for a period of four (4) or ten
(10) years, this Court consistently implements the law and limits
the period within which the right to repurchase may be exercised,
adamantly striking down as illicit stipulations providing for an
unlimited right to repurchase. Indubitably, it would be rather
absurd to permit respondents to repurchase the subject property
upon the occurrence of the second suspensive condition,
particularly, the relocation of SAHS on October 3, 1997, the time
when petitioner ceded the property to the Province of Cebu, which
is nearly forty-one (41) years after the execution of the Deed of
Sale on December 31, 1956. This Court must, therefore, place it
upon itself to suppress these kinds of attempts in keeping with the
fundamentally
accepted
principles
of
law.

Indeed, the freedom to contract is not absolute. The

contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public
policy.39 When the conditions in a contract manifest an effective
circumvention of existing law and jurisprudence, it is incumbent
upon the courts to construe the same in accordance with its
ultimate
spirit
and
intent.cralawred
WHEREFORE, premises
considered,
the
instant
petition
is GRANTED. The Decision dated July 25, 2007 of the Court
Appeals in CA-G.R. CV No. 77329 is REVERSED and SET ASIDE.
SO ORDERED.chanroblesvirtuallawlibrary

G.R. No. 160107

October 22, 2014

SPOUSES
JAIME
SEBASTIAN
AND
EVANGELINE
SEBASTIAN, Petitioners,
vs.
BPI FAMILY BANK, INC., CARMELITA ITAPO AND BENJAMIN
HAO, Respondents.

Ponenete: Bersamin, J.

Facts:
1. The petitioners are spouses who used to work for BPI Family.
a. At the time material to this case, Jaime was the Branch Manager
of BPI Familys San Francisco del Monte Branch in Quezon City and
Evangeline was a bank teller at the Blumentritt Branch in Manila.

2. On October 30, 1987, they availed themselves of a housing loan

from BPI Family as one of the benefits extended to its employees.
a. Their loan amounted to P273,000.00,
b. and was covered by a Loan Agreement, 2 whereby they agreed
that the loan would be payable in 108 equal monthly amortizations
of P3,277.57 starting on January 10, 1988 until December 10,
1996;3
c. and that the monthly amortizations would be deducted from his
monthly salary.4

In connection with the loan extended to me by BPI Family

Bank, I hereby authorize you to automatically deduct an amount
from my salary or any money due to me to be applied to my loan,
more particularly described as follows:
xxxx
This authority is irrevocable and shall continue to exist until
my loan is fully paid. I hereby declare that I have signed this
authority fully aware of the circumstances leading to the loan
extended to me by BPI Family Bank and with full knowledge of the
rights, obligations, and liabilities of a borrower under the law.
I am an employee of BPI Family Bank and I acknowledge
that BPI Family Bank has granted to me the above-mentioned loan
in consideration of this relationship. In the event I leave, resign or
am discharged from the service of BPI Family Bank or my
employment with BPI Family Bank is otherwise terminated, I also
authorize you to apply any amount due me from BPI Family Bank to
the payment of the outstanding principal amount of the aforesaid
loan and the interest accrued thereon which shall thereupon
become entirely due and demandable on the effective date of such
discharge, resignation or termination without need of notice of
demand, and to do such other acts as may be necessary under the
circumstances. (Bold emphasis added)
x x x x.

3. To secure the payment of the loan, they executed a real estate

mortgage in favor of BPI Family 5 over the property situated in Bo.
Ibayo, Marilao, Bulacan and covered by TCT No. T-30.827 (M) of the
Register of Deeds of Bulacan.6
5. The petitioners monthly loan amortizations were regularly
deducted from Jaimes monthly salary since January 10, 1988.
4. Apart from the loan agreement and the real estate mortgage,
Jaime signed an undated letter-memorandum addressed to BPI
Family,7 stating as follows:

6. On December 14, 1989, however, Jaime received a notice of

termination from BPI Familys Vice President, Severino P.
Coronacion,8 informing him that he had been terminated from
employment due to loss of trust and confidence resulting from his
wilful non-observance of standard operating procedures and
banking laws.

10. They replied through their counsel on February 12, 1991. 13

11. In the meantime, BPI Family instituted a petition for the

foreclosure of the real estate mortgage.14
7. Evangeline also received a notice of termination dated February
23, 1990,9 telling her of the cessation of her employment on the
ground of abandonment.

a. The petitioners received on March 6, 1991 the notice of

extrajudicial foreclosure of mortgage dated February 21, 1991.

8. Both notices contained a demand for the full payment of their

outstanding loans from BPI Family, viz:

12. To prevent the foreclosure of their property, the petitioners

filed against the respondents their complaint for injunction and
damages with application for preliminary injunction and restraining
order15 in the Regional Trial Court (RTC) in Malolos, Bulacan. 16

Demand is also made upon you to pay in full whatever

outstanding obligations by way of Housing Loans,Salary Loans, etc.
that you may have with the bank. You are well aware that said
obligations become due and demandable upon your separation
from the service of the bank.10 (Emphasis supplied.)
Immediately, the petitioners filed a complaint for illegal
dismissal against BPI Family in the National Labor Relations
Commission (NLRC).11

9. About a year after their termination from employment, the

petitioners received a demand letter dated January 28, 1991 from
BPI Familys counsel requiring them to pay their total outstanding
obligation amounting toP221,534.50.12
a. It stated that their entire outstanding balance had become due
and demandable upon their separation from BPI Family.

a. They therein alleged that their obligation was not yet due and
demandable considering that the legality of their dismissal was still
pending resolution by the labor court; hence, there was yet no
basis for the foreclosure of the mortgaged property; and that the
property sought to be foreclosed was a family dwelling in which
they and their four children resided.

13. In its answer with counterclaim, 17 BPI Family asserted that the
loan extended to the petitioners was a special privilege granted to
its employees; that the privilege was coterminous with the tenure
of the employees with the company; and that the foreclosure of the
mortgaged property was justified by the petitioners failure to pay
their past due loan balance.

14. On June 27, 1995, the RTC rendered judgment dismissing their
case as well as the defendant banks counterclaim without any
pronouncement as to costs.

15. On November 21, 2002, the CA promulgated its assailed

decision affirming the judgment of the RTC in toto.

When the petitioners appealed the RTC decision to the CA,

their appellants brief limited the issues to the following:
(a) Whether or not appellee bank wrongfully refused to
accept payments by appellants of their monthly
amortizations.
(b) Whether or not the foreclosure of appellants real estate
mortgage was premature.25

16. The petitioners then filed their motion for reconsideration, 22 in

which they contended for the first timethat their rights under
Republic Act No. 6552 (Realty Installment Buyer Protection Act) had
been disregarded, considering that Section 3 of the law entitled
them to a grace period within which to settle their unpaid
installments without interest; and that the loan agreement was in
the natureof a contract of adhesion that must be construed strictly
against the one who prepared it, that is, BPI Family itself.

17. On September 18, 2003, the CA denied the petitioners motion

for reconsideration.23

Issue:
Whether the foreclosure of the real estate mortgage on the
petitioners family home is in order.

The CA confined its resolution to these issues. Accordingly,

the petitioners could not raise the applicability of Republic Act No.
6552, or the strict construction of the loan agreement for being a
contract of adhesion as issues for the first time either in their
motion for reconsideration or in their petition filed in this Court. To
allow them to do so would violate the adverse parties right to
fairness and due process. As the Court held in S.C. Megaworld
Construction and Development Corporation v. Parada:26
It is well-settled that no question will be entertained on
appeal unless it has been raised in the proceedings below. Points of
law, theories, issues and arguments not brought to the attention of
the lower court, administrative agency or quasi-judicial body, need
not be considered by the viewing court, as they cannot be raised
for the first time at that late stage. Basic considerations of fairness
and due process impel this rule. Any issue raised for the first time
on appeal is barred by estoppel.
The procedural misstep of the petitioners notwithstanding,
the Court finds no substantial basis to reverse the judgments of the
lower courts.

Held:
The petition for review has no merit.

Republic Act No. 6552 was enacted to protect buyers of

real estate on installment payments against onerous and
oppressive conditions.27 The protections accorded to the buyers
were embodied in Sections 3, 4 and 5 of the law, to wit:
Section 3. In all transactions or contracts, involving the sale or
financing of real estateon installment payments, including
residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act
Numbered Thirty-Eight hundred forty-four as amended byRepublic
Act Sixty-three hundred eighty-nine, where the buyer has paid
atleast two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him which is hereby fixed at that rate of one month grace
period for every one year of installment payments made;
provided, That this right shall be exercised by the Buyer
only once in every five years of the life of the contract and
its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the
property equivalent to fifty percent of the total payments
made, and, after five years of installments, an additional
five per cent every year but not to exceed ninety per cent
of the total payments made; Provided, That the actual
cancellation or the demand for rescission of the contract by
a notarial act and upon full payment of the cash surrender
value to the buyer.

Down payments, deposits or options on the contract shall

be included in the computation of the total number of installment
payments made.

SECTION 4. In case where less than two years of installments were

paid, the seller shall give the buyers a grace period of not less than
sixty days from the date the installment become due.
If the buyer fails to pay the installments due at the expiration of
the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
SECTION 5. Under Section 3 and 4,the buyer shall have the right to
sell his rights or assign the same to another person or to reinstate
the contract by updating the account during the grace period and
before actual cancellation of the contract. The deed of sale or
assignment shall be done by notarial act.

Having paid monthly amortizations for two years and four

months, the petitioners now insist that they were entitled to the
grace period within which to settle the unpaid amortizations
without interest provided under Section 3, supra. 28 Otherwise, the
foreclosure of the mortgaged property should be deemed
premature inasmuch as their obligation was not yet due and
demandable.29

The petitioners insistence would have been correct if the

monthly amortizations being paid to BPI Family arose from a sale or
financing of real estate. In their case, however, the monthly
amortizations represented the installment payments of a housing
loan that BPI Family had extended to them as an employees
benefit. The monthly amortizations they were liable for was derived
from a loan transaction, not a sale transaction, thereby giving rise
to a lender-borrower relationship between BPI Family and the
petitioners. It bears emphasizing that Republic Act No. 6552 aimed
to protect buyers of real estate on installment payments, not

borrowers or mortgagors who obtained a housing loan to pay the

costs of their purchase of real estate and used the real estate
assecurity for their loan. The "financing of real estate in installment
payments" referred to in Section 3, supra, should be construed
only as a mode of payment vis--vis the seller of the real estate,
and excluded the concept of bank financing that was a type of
loan. Accordingly, Sections 3, 4 and 5, supra, must be read as to
grant certain rights only to defaulting buyers of real estate on
installment, which rights are properly demandable only against the
seller of real estate.

recognizes and reaffirms the Vendor's right unqualifiedly to cancel

the sale upon the buyer's default.

Thus, in Luzon Brokerage Co., Inc. v.Maritime Building Co.,

Inc.,30 the Court held:

Apart from relying on the grace period provided in Republic

Act No. 6552 to assert the prematurity of the foreclosure of the
mortgage,32 the petitioners argue that the foreclosure of the
mortgage was null and void because BPI Familys acceptance of
their late payments estopped it from invoking sanctions against
them.33 They further argue that the printed conditions appearing at
the back of BPI Familys official receipt, 34 which the CA cited to
affirm the validity of the foreclosure, partook of a contract of
adhesion that must be strictly construed against BPI Family as the
party who prepared the same.35

Congress in enacting in September 1972 Republic Act 6552 (the

Maceda law), has by law which is its proper and exclusive province
(and not that of this Court which is not supposed to legislate
judicially) has taken care of Justice Barredos concern over "the
unhappy and helpless plight of thousands upon thousands of
subdivision buyers" of residential lots.

The Act even in residential properties recognizes and

reaffirms the vendor's right to cancel the contractto sell upon
breach and non-payment of the stipulated installments but
requires a grace period after at least two years of regular
installment payments (of one month for every one year of
installment payments made, but to be exercise by the buyer only
once in every five years of the life of the contract) with a refund of
certain percentages of payments made on account of the cancelled
contract (starting with fifty percent with gradually increasing
percentages after five years of installments). In case of industrial
and commercial properties, as in the case at bar, the Act

The petitioners purchased the realestate from PHILVILLE

Realty,31 not from BPI Family. Without the buyer-seller relationship
between them and BPI Family, the provisions of Republic Act No.
6552 were inapplicable and could not be invoked by them against
BPI Family.

The petitioners arguments do not persuade. To reiterate,

their reliance on Republic Act No. 6552 was misplaced because its
provisions could not extend to a situation bereft of any seller-buyer
relationship. Hence, they could not escape the consequences of
the maturity of their obligation by invoking the grace period
provided in Section 3, supra.

The CA correctly found that there was basis to declare the

petitioners entire outstanding loan obligation matureas to warrant

the foreclosure of their mortgage. It is settled that foreclosure is

valid only when the debtor is in default in the payment of his
obligation.36 Here, the records show that the petitioners were
defaulting borrowers, a fact that the CA thoroughly explained in the
following manner:
Appellants insist that there was no valid ground for appellee bank
to institute the foreclosure proceedings because they still have a
pending case for illegal dismissal before the NLRC. They argue that
the reason for the banks foreclosure is their dismissal from
employment. As they are still questioning the illegality of their
dismissal, the bank has no legal basis in foreclosing the property.

not in the course of the testimony of appellant Jaime Sebastian,

this was done during the hearing of the case when the trial judge
propounded the question to him. Hence, this constitute (sic)
judicial admission. An admission, verbal or written, made by a
party in the course of the trial or other proceedings in the same
case does not require proof. The admission may be contradicted
only by showing that it was made through palpable mistake or that
no such admission is made. Judicial admissions are those made
voluntarily by a party, which appear on record in the proceedings
of the court. Formal acts done by a party or his attorney in court on
the trial of a cause for the purpose of dispensing with proof by the
opposing party of some fact claimed by the latter to be true.

xxxx

xxxx

The arguments fail to persuade Us.

Fourth, the terms and conditions of the loan agreement,

promissory notes and the real estate mortgage contract, do not
partake of a contract of adhesion. It must be noted that appellants
are personnel of the bank.

First, appellants cannot rely on the mere possibility that if the

decision of the NLRC will be in their favor, part of the reliefs prayed
for would be reinstatement without loss of seniority and other
privilege. Such argument is highly speculative. On the contrary, in
a thirteen-page decision, the Labor Arbiter exhaustively discussed
the validity of appellant Jaime Sebastians termination. x x x
xxxx
Moreover, appellants appealed the Labor Arbiters decision as early
as January 10, 1994. To date, however, nothing has been heard
from appellants if they obtained a favorable judgment from the
NLRC.
Second, even if it turns out the appellants were not validly
terminated from their employment, there is valid reason to
foreclose the mortgaged property.
Appellants themselves admit that they were in arrears when they
made the late payments in March, 1991. While this admission was

Jaime Sebastian was then a branch manager while his wife

Evangeline was a bank teller. It is safe to conclude that they are
familiar with the documents they signed, including the conditions
stated therein. It is also presumed that they take ordinary care of
their concerns and that they voluntarily and knowingly signed the
contract.

Appellant Jaime Sebastian, in his letter addressed to

appellee bank, even acknowledged that "in the event of
resignation or otherwise terminated from his employment, the
principal as well as the interest due shall become entirely due and
demandable" (Exh. "E"). The freedom to enter into contracts is
protected by law and the courts are not quick to interfere with such

freedom unless the contract is contrary to law, morals, good

customs, public policy or public order. Courts are not authorized to
extricate parties from the necessary consequences of their acts,
and the fact that the contractual stipulations may turn out to be
financially disadvantageous will not relieve parties thereto of their
obligations,

Fifth, We cannot also buy appellants argument that

appellee refused to accept the subsequent payments made by
them. It is settled that an issue which was not raised during the
trial in the court below could not be raised for the first time on
appeal, as to do so, would be offensive to the basic rules of fair
play, justice and due process. Here, appellant Jaime Sebastian
twice testified before the Court, first, during the hearing on the
preliminary injunction and on the trial proper. Nothing was
mentioned about the refusal on the part of the bank to accept their
subsequent payments.

Assuming, arguendo, that appellee bank indeed refused to

accept the subsequent payment from appellants, they could have
consigned the same before the Court. They failed to do so. There
was no effort on their part to continue paying their obligations.

Thus, having signed a deed of mortgage in favor of

appellee bank, appellants should have foreseen thatwhen their
principal obligation was not paid when due, the mortgagee has the
right to foreclose the mortgage and to have the property seized
and sold with a view to applying the proceeds to the payment ofthe
principal obligation.37

Equally notable was that Jaimes undated

memorandum to BPI Family expressly stated the following:

letter-

x x x In the event I leave, resign or amdischarged from the service

of BPI Family Bank or my employment with BPI Family Bank is
otherwise terminated, I also authorize you to apply any amount
due me from BPI Family Bank to the payment of the outstanding
principal amount of the aforesaid loan and the interest accrued
thereon which shall there upon become entirely due and
demandable on the effective date of such discharge, resignation or
termination without need of notice of demand, and to do such
other acts as may be necessary under the circumstances. 38
(Bold emphasis supplied.)

The petitioners thereby explicitly acknowledged that BPI

Family Bank had granted the housing loan inconsideration of their
employer employee relationship. They were thus presumed to
understand the conditions for the grant of their housing loan.
Considering that the maturity of their loan obligation did not
depend on the legality of their termination from employment, their
assertion that the resolution of their labor complaint for illegal
dismissal was prejudicial to the ripening of BPI Familys cause of
action was properly rejected. Indeed, a finding of illegal dismissal
in their favor would not automatically and exclusively result in their
reinstatement. As fittingly ruled in Bani Rural Bank, Inc. v. De
Guzman:39
By jurisprudence derived from this provision, separation pay may
[also] be awarded to an illegally dismissed employee in lieu of
reinstatement." Section 4(b), Rule I of the Rules Implementing
Book VI of the Labor Code provides the following instances when
the award of separation pay, in lieu of reinstatement to an illegally
dismissed employee, is proper: (a) when reinstatement is no longer
possible, in cases where the dismissed employee s position is no
longer available; (b) the continued relationship between the

employer and the employee is no longer viable due to the strained

relations between them; and(c) when the dismissed employee
opted not to be reinstated, or the payment of separation benefits
would be for the best interest of the parties involved. In these
instances, separation pay is the alternative remedy to
reinstatement in addition to the award of backwages. The payment
of separation pay and reinstatement are exclusive remedies. The
payment of separation pay replaces the legal consequences of
reinstatement to an employee who was illegally dismissed.

Nonetheless, it is noteworthy that the Labor Arbiter

ultimately ruled that Jaimes dismissal was valid and legal. Such
ruling affirmed the legality of the termination of James from BPI
Familys employment. Under the circumstances, the entire unpaid
balance of the housing loan extended to him by BPI Family became
due and demandable upon such termination in accordance with
Jaimes express and written commitment to BPI Family. Even if we
were to disregard this condition, their admission of default in their
monthly amortizations constituted an event of default within the
context of Section 7 of the loan agreement that produced the same
effect of rendering any outstanding loan balance due and
demandable. Section 7 the loan agreement reads as follows:
SECTION 7. EVENTS OF DEFAULT
If any of the following Events of Default shall have occurred and be
continuing:
a) The Borrower shall fail to pay when due the Loan(s) any
installment thereof, or any other amount payable under this
Agreement the Note(s) or under the Collateral; or
xxxx

then, and in any such event, the Bank may by written notice to the
Borrower cancel the Commitment and/or declare all amounts owing
to the Bank under this Agreement and the Note(s), whether of
principal, interest or otherwise, to be forthwith due and payable,
whereupon all such amounts shall become immediately due and
payable without demand or other notice of any kind, all of which
are expressly waived by the Borrower. The Borrower shall pay on
demand by the Bank, in respect of any amount or principal paid in
advance of stated maturity pursuant to this Section 7, a
prepayment penalty equal to the rate mentioned in Section 2.07
(c).40

With demand, albeit unnecessary, having been made on

the petitioners, they were undoubtedly in default in their
obligations.

The foreclosure of a mortgage is but the necessary

consequence of the non-payment of an obligation secured by the
mortgage.1wphi1 Where the parties have stipulated in their
agreement, mortgage contract and promissory note that the
mortgagee is authorized to foreclose the mortgage upon the
mortgagor's default, the mortgagee has a clear right to the
foreclosure in case of the mortgagor's default. Thereby, the
issuance of a writ of preliminary injunction upon the application of
the mortgagor to prevent the foreclosure will be improper. 41 As
such, the lower courts did not err in dismissing the injunction
complaint of the petitioners.

WHEREFORE, the Court DENIES the petition for review on certiorari;

AFFIRMS the decision promulgated on November 21, 2002; and
ORDERS the petitioners to pay the costs of suit.

SO ORDERED.