CONTRACTS
- 11690437
International Corporate Bank v. Gueco
351 SCRA 516
FACTS:
The respondents obtained a loan from the petitioner to purchase a motor vehicle (car).
The respondents defaulted in payment of installments. A civil case was filed by the
petitioner which resulted later into negotiations in lowering the remaining unpaid balance
from P184,000.00 to P150,000.00, detaining the car until payment thereof. Respondent
delivered a manager’s check but petitioner insisted on the signing of “Joint Motion to
Dismiss”, still holding the motor vehicle. Respondent initiated civil action for damages
before MTC but the case was dismissed for lack of merit. On appeal to RTC, the decision
of MTC was reversed ordering herein petitioners to indemnify the respondents. The Court
of Appeals likewise affirmed the decision of the RTC.
ISSUE:
Whether or not the respondents are entitled of indemnification for damages.
RULING:
NO. Petitioner’s act of requiring respondents to sign the Joint Motion to Dismiss can not
be said to be a deliberate attempt on the part of petitioner to renege on the compromise
agreement of the parties. The law presumes good faith. In fact, the act of petitioner bank
in lowering the debt of respondent from P184,000.00 to P150,000.00 is indicative of its
good faith and sincere desire to settle the case.
The decision of the Court of Appeals affirming the decision of the RTC was set
aside. Respondents were ordered to pay the original obligation amounting to P150,000.00
to the petitioner upon surrender or cancellation of the manager’s check in the latter’s
possession, after which, petitioner is to return the subject motor vehicle in good working
condition.
TANKEH v. DEV’T BANK OF THE PHILIPPINES
GR No. 171428, Nov. 11, 2013
SONGCO VS. SELLNER
Legal Doctrine: A misinterpretation upon a mere matter of opinion is not an actionable
deceit, nor is it a sufficient ground for avoiding a contract as fraudulent. For a false
representation relating to the subject matter of a contract be rendered void, it must be as
to matters of fact substantially affecting the buyer's interest, not as to matters of opinion,
judgment, probability, or expectation.
Facts:
Dec. 1915 – George Sellner and Lamberto Songco owned adjoining farms.
Sellner desired to mill his cane at a central. However, the owners of the central were not
sure they could mill his cane and would not promise to take it.
Sellner, learning that the central was going to mill Songco's cane, conceived the idea of
buying the cane of the latter, expecting to run his own cane in that same time the other
should be milled. Also, he wanted to get a right of way over Songco's land for converting
his own sugar to the central.
He bought Songco's cane as it stood in the fields for the agreed sum of P12,000 and
executed three promissory notes of P4,000 each. Only the first 2 notes were paid.
Sellner refused to pay the third, alleging that promissory note was obtained from him by
means of certain false and fraudulent representations.
Songco estimated that the uncut cane would produce 3,000 piculs of the sugar and that
Sellner bought the crop believing this estimate to be substantially correct. As the crop
turned out, it produced 2,017 piculs, gross, and after the toll for milling was deducted the
net left to Sellner was very much less. In the course of negotiations, Sellner requested
Songco to guarantee the quantity which the latter claimed to be in fields but he would not
do so.
Issue: W/N Sellner is liable for the remaining promissory note.
pg. 1
CONTRACTS - 11690437
Held: YES.
Ratio:
Songco knew at the time he made the representation in question that he was greatly
exaggerating the probable produce of his fields, and it is impossible to believe that his
estimate honestly reflected his true opinion.
The representation in question can only be considered matter of opinion as the cane was
still standing in the field, and the quantity of the sugar it would produce could not be
known with certainty until it should be harvested and milled.
A misinterpretation upon a mere matter of opinion is not an actionable deceit, nor is it a
sufficient ground for avoiding a contract as fraudulent.
The law allows considerable latitude to seller's statements, or dealer's talk; and experience
teaches that it is exceedingly risky to accept it at its face value. The
refusal of the seller to warrant his estimate should have admonished the purchaser that
that estimate was put forth as a mere opinion
Assertions concerning the property which is the subject of a contract of sale, or in regard
to its qualities and characteristics, are the usual and ordinary means used by sellers to
obtain a high price and are always understood as affording to buyers no ground for
omitting to make inquiries. A man who relies upon such an affirmation made by a person
whose interest might so readily prompt him to exaggerate the value of his property does
so at his peril, and must take the consequences of his own imprudence.
For a false representation relating to the subject matter of a contract be rendered void, it
must be as to matters of fact substantially affecting the buyer's interest, not as to matters
of opinion, judgment, probability, or expectation.
Where one party to a contract, having special or expert knowledge, takes advantage of
the ignorance of another to impose upon him, the false representation may afford ground
for relief, though otherwise the injured party would be bound. The fact that Songco was
an experienced farmer, while Sellner was, as he claims, a mere novice in the business,
does not bring this case within that exception.
BLANCO VS. QUASHA
Legal Doctrine: In order to find out a WON a contract is simulated one has to look at
the intent of the parties and find out if the parties intended to be bound by the contract.
Facts:
Mary Ruth Elizalde, an American, owned a house and lot in Forbes Park under TCT No.
106110. On 5/22/75, she sold the said property to Parex Realty for PHP 625,000 payable
in 25 annual installments of PHP 25,000 to end on May 22, 1999. As a result of the said
sale, TCT No. S 6798 was issued to Parex. On the same date, (May 22m, 1975)Parex
executed a Contract of Lease with Mary Elizalde, whereby they leased the same parcel of
land to Elizalde also for PHP 25K. The rental payment shall be credited to and applied in
reduction of the agree yearly instalments of the purchase price of the property.
By virtue of the sale the previous TCT (106110) was cancelled and a new one (TCT 6798)
was issued in the name of Parex Corp on May, 27, 1975.
Oct 17, 1975 M.R. Elizalde executed a Confirmation & Ratification of the Deed of Sale
executed on her behalf by her atty-in-fact, Don Manuel Elizalde.
But until her death, Mr. Elizalde still paid the Forbes Park Assoc dues and garbages fees;
the realty tax on the property during the term of the lease pursuant to the Contract of
Lease.
On March 26, 1990, Elizalde passed away. Herein petitioner Blanco, the special
administrator of the estate of Elizalde, demanded the reconveyance of the title to the
estate of Elizalde or the assignment of all shares of Parex to Elizalde’s estate. Blanco claims
that the aforesaid sale of the property by Elizalde to Parex was absolutely simulated and
fictitious and thus null and void.
pg. 2
CONTRACTS - 11690437
Issue/Held/ Ratio:
WON the sale executed by M.R. Elizalde in favor of Parex Realty Corp. is fictitious and
simulated. NO
In order to find out a WON a contract is simulated one has to look at the intent of the
parties and find out if the parties intended to be bound by the contract. (This is a question
of fact, not of law and therefore not properly discussed by the SC. SC affirmed the findings
of the CA.)
The deed of sale in May 22, 1975 was properly executed in accordance to CC 1498. The
transfer of the ownership (done by Elizalde thru her atty-in-fact knowing that she cannot
own real property) was implemented by the cancellation of Elizalde’s TCT and the issuance
of a new one in the name of Parex under TCT No. S6798.
There was also an obligation on both parties to pay a price certain for the property. There
was no actual exchange of money made but the payment was effected between the
vendee and the vendor by mutual arrangement where the monthly rentals which was due
Elizalde was paid from the annual installment due from Parex pursuant to the lease
contract execute between them. The SC finds that there is nothing in this mutual
arrangement that is contrary to law, morals, good customs, public order or public policy
(CC 1306)
Elizalde, it must be stressed, never contested the sale of her property and even went on
to confirm and ratify the same in an instrument acknowledged before a notary public.
Elizalde, likewise, never questioned the cancellation of her TCT and the issuance of the
new one in favor of Parex. While she may have continued paying the real estate taxes,
this was stipulated in the Contract of Lease. The preponderance of evidence clearly
indicates that the deed of sale executed by Elizalde in favor of Parex is valid and binding.
While it may be true that Elizalde did not receive any monetary amount. Her continued
occupancy of the premises even after she sold it to Parex constitutes valuable
consideration which she received as compensation for the sale.
Dispositive: CA affirmed. Petition Dismissed.
Notes:
Simulation of a contract may be absolute or relative. Absolute simulation takes place when
the parties do not intend to be bound at all. Relative simulation is when the parties conceal
their true agreement. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person
and is not intended for any purpose contrary to the law, morals, good customs, public
policy binds the parties to their real agreement.
CRUZ VS. BANCOM FINANCE CORPORATION
G.R. No. 147788 March 19, 2002
Facts: Norma Sulit was introduced by Candelaria Sanchez to Edilberto and Simplicio
Cruz and offered to purchase the parcel of land owned by the Cruz brothers. The asking-
price for the land was P700, 000, but Sulit had only P25,000 which Edilberto accepted as
earnest money with the agreement that title would pass to Sulit on the payment of the
balance. Sulit failed to pay the balance. Capitalizing on the close relationship of Sanchez
with the brothers, Sulit succeeded in having the brothers execute a document of sale in
favor of Sanchez who would then obtain a bank loan in her name using the said land as
collateral. On the same day, Sanchez executed another Deed of Absolute Sale in favor of
Sulit. Sulit assumed all the obligations of Sanchez to the original owners of the land in a
Special Agreement. Unknown to the brothers, Sulit managed to obtain a loan from
Bancom secured by a mortgage over the land. Because Sulit failed to pay the purchase
price stipulated in the Special Agreement, the brothers filed a complaint for
reconveyance. Sulit also defaulted in her payment to the Bank and her mortgage was
foreclosed. At the auction sale, Bancom was declared the highest bidder.
Issue: Whether or not the Deeds of Sale were valid and binding.
Held: Simulation takes place when the parties do not really want the contract they have
executed to produce the legal effects expressed by its wordings. Art. 1345 states that
“simulation of a contract may be absolute or relative.” The former takes place when the
parties conceal their true agreement” while Art. 1346 states that “an absolutely
pg. 3
CONTRACTS - 11690437
simulated contract is void. A relative stimulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law, morals, good customs,
public order or pubic policy binds the parties to their agreement.” The Deeds of Sale
were executed merely to facilitate the use of the property as collateral to secure a loan
from a bank. Although the Deed of Sale between the brothers and Sanchez stipulated a
consideration, there was actually no exchange of money. Moreover, the failure of Sulit to
take possession of the property sold to her was a clear badge of simulation that
rendered the whole transaction void and without force and effect.
JLT AGRO V BALANSAG
Facts: The controversy involves a parcel of land registered in the name of conjugal
partnership of Don Julian and Antonia (first wife). When Antonia died an action for
partition of properties including the said land was filed. A compromise agreement was
reached in which in the event of death of Don Julian the properties adjudicated to Josefa
Teves and Emilio Teves shall be understood as including not only their ½ share which they
inherited from their mother but also the legitimes and other successional rights which
would correspond to them of the other half belonging to their father meaning, the
properties selected and adjudicated to Julian Teves shall exclusively be adjudicated to the
wife of second marriage. On the other hand the second wife took possession of the same
land in controversy and entered a lease agreement with the spouses respondent which
subsequently bought the same. While trying to register the deed of absolute sale,
respondent discovered that it was registered in the name of the petitioner. Thus seeking
declaration of nullity and cancellation of petitioner’s title. Trial court however dismissed
the case but was reversed by the court of Appeals when it ruled that the adjudication in
favor of the heirs from the second marriage became automatically operative upon the
approval of the Compromise Agreement, thereby vesting them the right to validly dispose
the lot in question in favor of the respondents.
Issue: Whether Don Julian had validly transferred ownership of the subject lot during his
lifetime.
Held: The lower court ruled that he had done so through the Supplemental Deed. The
appellate court disagreed holding that the supplemental deed is not valid, containing as it
does a prohibited preterition of Don Julian’s heirs from the second marriage. Petitioner
contends that the ruling of the Court of Appeals is erroneous. The contention is well-
founded. Don Julian did not execute a will since what he resorted to was a partition inter
vivos making it premature if not irrelevant to speak of preterition prior to the death of Don
Julian in the absence of a will depriving a legal heir of his legitime. Besides, there are
other properties which the heirs from the second marriage could inherit from Don Julian
upon his death. However, on the facts involving the proper transfer of title thru the
supplemental deed, the appellate court was upheld in taking into consideration the process
done in registering the land in the petitioner’s name where even if it be considered a
donation inter vivos and the deed was in a public instrument, the absence of the
acceptance by the done in the same deed or even in a separate document is a glaring
violation of the requirement. Thus court of appeals decision is affirmed.
J.L.T. AGRO, INC. v. BALANSAG
G.R. No. 141882, March 11, 2005
Don Julian Teves contracted two marriages, first with Antonia Baena and had
two kids namely Josefa and Emilio. After her death, he married Milagros Teves and they
had four children namely: Maria Teves, Jose Teves, Milagros Teves and Pedro
Teves. Thereafter, the parties to the case entered into a Compromise Agreement.
When Antonia died an action for partition was instituted where the parties
entered into a Compromise Agreement which embodied the partition of all the
properties of Don Julian. On the basis of the compromise agreement, the CFI declared
a tract of land known as Hacienda Medalla Milagrosa as property owned in common by
Don Julian and his two children of the first marriage. The property was to remain
undivided during the lifetime of Don Julian. Josefa and Emilio likewise were given other
properties at Bais, including the electric plant, the “movie property,” the commercial
areas, and the house where Don Julian was living. The remainder of the properties was
retained by Don Julian.
On 16 November 1972, Don Julian, Emilio and Josefa executed a Deed of
Assignment of Assets with Assumption of Liabilities in favor of J.L.T. Agro, Inc.
(petitioner). Later, Don Julian, Josefa and Emilio also executed an instrument
pg. 4
CONTRACTS - 11690437
entitled Supplemental to the Deed of Assignment of Assets with the Assumption of
Liabilities (Supplemental Deed) dated 31 July 1973. This instrument transferred
ownership over Lot No. 63, among other properties, in favor of petitioner. The appellate
court ruled that the supplemental deed, conveying ownership to JLT agro is not valid
because the Compromise Agreement reserved the properties to Don Julian’s two sets
of heirs their future legitimes. The two sets of heirs acquired full ownership and
possession of the properties respectively adjudicated to them and Don Julian himself
could no longer dispose of the same. The appellate court in holding that the Supplemental
Deed is not valid, added that it contained a prohibited preterition of
Don Julian’s heirs from the second marriage.
ISSUE: (A.) Was there preterition in the case? (B) Whether or not the future legitime
can be determined, adjudicated and reserved prior to the death of Don Julian
(A) None. Manresa defines preterition as the omission of the heir in the will.
In the case at bar, Don Julian did not execute a will since what he resorted to was a
partition inter vivos of his properties, as evidenced by the court approved Compromise
Agreement. Thus, it is premature if not irrelevant to speak of preterition prior to the
death of Don Julian in the absence of a will depriving a legal heir of his
legitime. Besides, there are other properties which the heirs from the second marriage
could inherit from Don Julian upon his death.
(B) As a general rule, No. Well-entrenched is the rule that all things, even
future ones, which are not outside the commerce of man may be the object of a
contract. The exception is that no contract may be entered into with respect
to future inheritance, and the exception to the exception is partition inter vivos referred to
in Article 1080.
The partition inter vivos of the properties of Don Julian is undoubtedly valid pursuant to
Article 1347. However, considering that it would become legally operative only upon the
death of Don Julian, the right of his heirs from the second marriage to the properties
adjudicated to him under the compromise agreement was but a mere expectancy. It was
a bare hope of succession to the property of their father. Being the prospect of
a future acquisition, the interest by its nature was inchoate. Evidently, at the time of the
execution of the supplemental deed in favor of petitioner, Don Julian remained the owner
of the property since ownership over the subject lot would only pass to his heirs from the
second marriage at the time of his death.
DAUDEN-HERNAEZ VS. DELOS ANGELES
Legal Doctrine: A contract where the amount involved exceeds P500 must appear in
writing but it does not necessarily follow that it is invalid or unenforceable if it is not in
writing.
Facts:
Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against the
respondents, Hollywood Far East Productions and its President and General Manager to
recover the balance for her services as leading actress in the in two motion pictures
produced by the company including damages.
The respondent court dismissed Hernaez’s complaint because there is no written document
that was presented as evidence. The complaint was also said to be defective on its face
for violating Civil code Article 1356 because the contract was not in writing. Article 1358
of the civil code was also violated because the writing was absolute and indispensable
because the amount involved exceeds five hundred pesos. The said complaint was also
said to be containing defective allegations.
Her motion for reconsideration and admission of an amended complaint were denied by
the court. The second motion for reconsideration was also denied for being pro forma, or
having allegations that are more or less the same as the first motion.
Issues:
1. Whether the court abused its discretion in ruling that the contract (an oral one)
for the actress’ services was invalid or unenforceable under the last paragraph of
Article 1358 of Civil Code? 

2. Whether the petitioner was within her rights in filing her second motion for
reconsideration? 

pg. 5
CONTRACTS - 11690437
3. Whether the second motion for reconsideration 
was merely pro forma? 
 G.R. No. 162930
Held/ Ratio:
1. Yes. The ruling was a misunderstanding of the role of the written form in
contracts. Under Articles 1315 and 1356, contracts are valid and binding from
their perfection regardless of form, whether they be oral or written. A contract is
generally valid and obligatory once the three elements of (1) consent, (2) proper
subject matter and (3) consideration or cause for the obligation assumed, are
present. The contract sued upon by the petitioner does not fall under the those
types of contracts that has to be in writing in order to be valid and enforceable
nor in those contracts that the law requires to be proved in some writing. Though
article 1358 states that “all other contracts where the amount involved exceeds
P500 must appear in writing”, it does not state that the absence of written form
will make the agreement invalid or unenforceable. 
A contract is only required to
be in writing under the following exceptions in order to be valid and enforceable:
donations of immovable property, donations of movables worth more than P5000,
contracts to pay interest on loans; agreements contemplated under articles 1744,
1773, 1874 and 2134 of the Civil Code. 
 The facts, as stated by the Court of Appeals and the trial court, are as follows:
2. Yes. It is error for the court to dismiss the complaint without giving the party plaintiff an
opportunity to amend his complaint if he so chooses. 
 Respondent Beatriz Miranda is the cousin of Alberto Zamora, while respondent Rose
3. No. The second motion for reconsideration was addressed to the court’s refusal to
allow an amendment to original complaint. This ground was not invoked in the
first motion for reconsideration.
December 5, 2012
LAGRIMAS DE JESUS ZAMORA, Petitioner,
vs.
SPOUSES BEATRIZ ZAMORA HIDALGO MIRANDA and ARTURO MIRANDA, ROSE
MARIE MIRANDA GUANIO, MARY JULIE CRISTINA S. ANG, JESSIE JAY S. ANG,
JASPER JOHN S. ANG and the REGISTER OF DEEDS for Davao City, Respondents.
DECISION
PERALTA, J.:
This is a petition for review on certiorari1 of the Court of Appeals Decision dated
September 17, 2003 in CA-G.R. CV No. 74156, and its Resolution dated February 9,
2004, denying petitioner's motion for reconsideration.
The Court of Appeals affirmed the decision of the Regional Trial Court (RTC) of Davao
City, Branch 12, which dismissed petitioner's complaint for specific performance,
annulment of sale and certificate of title and damages.
Petitioner is the widow of the late Fernando Zamora, the son of Alberto Zamora.
Marie Miranda-Guanio is the daughter of respondent Beatriz Miranda.
Respondent Beatriz Miranda was the registered owner of the property in question, which
is a parcel of land, with an area of more or less 5,090 square meters, covered by
Transfer Certificate of Title (TCT) No. 1594 of the Register of Deeds for the City of
Davao. The said parcel of land is located at Carmelite, Bajada, Davao City.
According to petitioner, her father-in-law, Alberto Zamora, through an encargado,
Eduardo Cecilio, was in possession of the property in question. In 1952, she (petitioner)
was designated by Alberto Zamora as his assistant on land matters. The property in
question was turned over to her and she was introduced to Eduardo Cecilio. After the
year 1952, Alberto Zamora told her that the property in question was owned by
respondent Beatriz Miranda whose family was permanently residing in Manila.
pg. 6
CONTRACTS - 11690437
Petitioner allegedly contacted respondent Beatriz Miranda, and petitioner was given a
calling card and was told to see her (Beatriz). In October 1972, petitioner claimed that
she went to the residence of respondent Beatriz Miranda in Quezon City. While there,
they talked about the property in question and respondent Beatriz Miranda drew a sketch
depicting the location of the property.2 Thereafter, petitioner alleged that respondent
Beatriz Miranda sold to her the said property for the sum of P50,000.00. An
acknowledgment3 of the receipt of the amount of P50,000.00 was prepared, and
respondent Beatriz Miranda allegedly signed4 the same. The receipt was dated October
23, 1972.5 In the sketch, and acknowledgment of the receipt of P50,000.00, marked as
Exhibit "B,"6 there is a notation "Documents for Agdao Property follows." This notation
referred to the property in Agdao, which was the subject of negotiation. Petitioner
prepared the document relative to the Agdao property.7
Petitioner further claimed that after 1972, she rented out portions of the property in
question. Eduardo Cecilio allegedly continued to be her encargado as there were
squatters on the property. In January 1996, the tenants reported to her that there were
two men who went to the property in question. On the first week of February 1996, she
(petitioner) met Atty. Cabebe and Mr. Joe Ang. She informed them that she was the
owner of the property in question as she bought it in 1972. After sometime, she
(petitioner) learned that the occupants of the property in question were being harassed
and were told to vacate. She (petitioner) went to Manila and confronted respondent
Beatriz Miranda, and told her that she would file a case in court.
On June 14, 1996, petitioner filed with the RTC of Davao City, Branch 12 (trial court) an
action for specific performance, annulment of sale and certificate of title, damages, with
preliminary injunction and temporary restraining order.8
Petitioner prayed that the Court render judgment nullifying the deed of sale between
respondents Beatriz Miranda and Ang involving the property covered by TCT No. T-
1594; declaring petitioner to be the owner of the parcel of land covered by TCT No. T-
1594 and ordering respondent Beatriz Miranda to execute the corresponding deed of
sale in her favor; and ordering respondents, except the Registrar of Deeds, to pay her
(petitioner) damages, including litigation expenses and attorney's fees.
On June 17, 1996, a Temporary Restraining Order was issued. The said Temporary
Restraining Order was extended for 15 days pursuant to the Order dated June 24, 1996.
On July 1, 1996, a Status Quo Order was issued. Petitioner claimed that respondents did
not respect the court orders as they caused the demolition of the structures on the
property in question. The property was levelled and, thereafter, improvements were
introduced thereon by respondents.
Respondent Rose Marie Miranda-Guanio declared that before the year 1941, her
mother, respondent Beatriz Miranda, was a resident of Davao City. Her mother left
Davao City in 1942 and resided in Manila, and she went to Davao City for vacation only.
Her mother owned the property in question. When her mother (Beatriz) left Davao City,
she did not appoint anyone to administer or take care of her property. She (Rose Marie)
disputed the claim of petitioner that the latter visited her mother in 1972. She alleged that
on June 26, 1972, she gave birth to her first child and that she and her mother, Beatriz,
took care of her child. She declared that the signature on the receipt dated October 23,
19729 was not the signature of her mother, Beatriz Miranda. She identified the genuine
signatures of her mother (Beatriz) which were reflected on the Voter's Affidavit (Exhibits
"1" - "24"); the 1973 Residence Certificate (Exhibits "3"-"20"); the 1980 Residence
Certificate (Exhibits "4"-"21"); the 1981 Residence Certificate (Exhibits "5"-"22"); the
1974 expired passport (Exhibits "6"-"17").10 She also alleged that because of this case
she suffered damages and incurred expenses of litigation.
Mr. Arcadio Ramos, Chief Document Examiner and Chief, Questioned Documents
Division of the National Bureau of Investigation (NBI), Manila, was presented to
determine whether or not the signature of respondent Beatriz Miranda appearing on the
receipt dated October 23, 1972 was her genuine signature per the Order dated
November 17, 1997.
After samples of the genuine signatures of respondent Beatriz Miranda (Exhibits "1" to
"7" and "12" to "28") and the original copy of the receipt dated October 23, 1972 were
submitted to Mr. Ramos, he prepared two reports with the following findings and
conclusions:
FINDINGS:
Scientific comparative examination of the specimens submitted under the stereoscopic
microscope, with the aid of hand lens and photographic enlargements (comparison
chart), reveal significant differences in handwriting characteristics existing between the
questioned and the sample signatures "Beatriz H. Miranda" to wit:
- manner of execution of strokes;
pg. 7
CONTRACTS - 11690437
- structural pattern of letters; and
- other identifying minute details.
The questioned and the sample signatures "Beatriz H. Miranda" were NOT WRITTEN by
one and the same person.11
Atty. George Cabebe testified for respondents Mary Julie Cristina Ang, Jessie Jay Ang
and Jasper John Ang. He declared that as the lawyer of Mr. Jose Ang, the father of
respondents Ang, his advice was sought regarding the purchase of the property in
question, which was registered in the name of respondent Beatriz Miranda. He asked for
the copy of the title (TCT No. T-1594) in the name of Beatriz Miranda, and verified from
the Register of Deeds whether or not there was an encumbrance. When he found no
encumbrance annotated on the title, he inspected the property in question and found
thereon several squatters, who agreed to vacate the premises provided they were given
financial assistance. With these findings, he recommended to respondents Ang to
proceed in purchasing the property of Beatriz Miranda. Thus, respondents Ang
purchased the property in question, and they were issued TCT No. T-258316.12 The
squatters/occupants of the property in question, including Eduardo Cecilio, the
alleged encargado of petitioner, were given financial assistance13 and they vacated the
property in question.
As agreed upon by the parties during the pre-trial conference, the issues that had to be
resolved were as follows: (1) whether or not the Deed of Sale executed by defendant
(respondent) Beatriz Miranda in favor of defendants (respondents) Ang on February 26,
1996 was valid; (2) whether or not the plaintiff (petitioner) can recover the claims in the
complaint; (3) whether or not defendants (respondents) can recover the claims in their
counterclaims; and (4) whether or not defendants (respondents) Ang can recover the
claims in the cross-claim.
14
On February 4, 2002, the trial court rendered a Decision, the dispositive portion of
which reads:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered dismissing the
complaint.
All claims of the contending parties are disallowed.
Costs against the plaintiff.15
The trial court dismissed petitioner's complaint on the ground that the receipt dated
October 23, 1972 which was the basis of petitioner's claim of ownership over the subject
property, was a worthless piece of paper, because it was established by Mr. Arcadio
Ramos, an NBI handwriting expert, that the signature appearing on the receipt was not
the signature of respondent Beatriz Miranda, as vendor of the property, and the
testimony of Mr. Ramos was not controverted.
The trial court observed that petitioner was an astute businesswoman knowledgeable in
transactions involving real estate. She would not have been designated by her father-in-
law as his assistant on land matters if she did not know anything about transactions
involving real estate. Thus, if the property in question was really sold to petitioner by
respondent Beatriz Miranda in 1972, she should have taken the appropriate action to
perfect her title over the said property. She should have asked for the delivery of the
owner's duplicate copy of the title. The fact that the owner's duplicate copy of the title
remained in the possession of Beatriz Miranda until she sold the property in question to
respondents Ang only showed that the property was not sold to petitioner. It also
appeared that for more than 20 years, petitioner did nothing to perfect her title to the
property allegedly sold to her.
The trial court found that the Deed of Sale16 dated February 26, 1996, executed by
respondent Rose Marie Miranda-Guanio, as attorney-in-fact of Beatriz Miranda, in favor
of respondents Ang, involving the property in question, was valid. All the requisites of a
valid sale were present when the deed was executed. The sale was registered in the
Register of Deeds and a new transfer certificate of title17 was issued in the name of
respondents Ang. The trial court declared that the certificate of title in the names of
respondents Ang was a conclusive evidence of ownership.
Petitioner appealed the trial court's decision to the Court of Appeals.
Petitioner alleged that the trial court erred in finding that the receipt evidencing the sale
of the subject property was a worthless piece of paper which could not be made the
basis of her claim of ownership over the land in question; and that the trial court erred in
dismissing the case.
pg. 8
CONTRACTS - 11690437
On September 17, 2003, the Court of Appeals rendered a decision, the dispositive
portion of which reads:
IN VIEW OF THE FOREGOING, the appealed decision is AFFIRMED in toto. Costs
against appellant.18
The Court of Appeals stated that as the receipt presented by petitioner was a private
document, it could not be made the basis of her claim of ownership over the property in
question. More so, when the NBI handwriting expert, Mr. Arcadio Ramos, found the
signature of respondent Beatriz Miranda on the receipt to be forged, as he concluded
that the questioned and the sample signatures presented were not written by one and
the same person.
Moreover, the Court of Appeals stated that even on the implausible assumption that
respondent Beatriz Miranda's signature on the disputed document was not forged, and
was therefore valid, such fact cannot be successfully invoked to invalidate the title
subsequently issued to respondents Ang. At the time respondents purchased the land in
question from attorney-in-fact Rose Marie Miranda-Guanio on February 26, 1996, TCT
No. T-1594 was in the name of respondent Beatriz Miranda. The Court of Appeals stated
that settled is the rule that where the certificate of title is in the name of the vendor when
the land is sold, the vendee for value has a right to rely on what appears on the
certificate of title. Thus, when innocent third persons, such as respondents Ang, relying
on the correctness of the certificate thus issued, acquire rights over the property, the
courts cannot disregard such rights.19
Petitioner filed this petition raising these issues:
I WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OF JURISDICTION
WHEN IT RULED THAT THE RECEIPT DATED OCTOBER 23, 1972,
EVIDENCING THE SALE OF THE LAND BY RESPONDENT BEATRIZ
ZAMORA HIDALGO MIRANDA TO PETITIONER LAGRIMAS DE JESUS
ZAMORA, BEING A PRIVATE DOCUMENT IS NOT VALID AND BINDING AND
CANNOT BE MADE A BASIS OF SAID PETITIONER'S CLAIM OVER THE
PROPERTY IN QUESTION.
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OF JURISDICTION
WHEN IT FOUND THAT THE SIGNATURE OF RESPONDENT BEATRIZ
ZAMORA HIDALGO MIRANDA ON THE RECEIPT OR NOTE EVIDENCING
THE SALE OF THE LAND BY SAID RESPONDENT TO THE PETITIONER
LAGRIMAS DE JESUS ZAMORA IS FORGED, CONSIDERING THE ABSENCE
OF EVIDENCE TO SUPPORT SUCH FINDING AND, CONSIDERING
FURTHER THAT UNDER THE RULES SHE IS DEEMED TO HAVE ADMITTED
THE GENUINENESS AND DUE EXECUTION OF SAID RECEIPT OR NOTE
FOR HER FAILURE TO SPECIFICALLY DENY THEM UNDER OATH IN HER
ANSWER.
III
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OF JURISDICTION
WHEN IT FOUND THAT RESPONDENTS "ANGS" ARE PURCHASERS IN
GOOD FAITH AND FOR VALUE OF THE LAND IN DISPUTE EVEN IF THEY
HAD ACTUAL KNOWLEDGE OF THE PREVIOUS SALE OF THE LAND BY
RESPONDENT BEATRIZ HIDALGO MIRANDA TO THE PETITIONER
LAGRIMAS DE JESUS ZAMORA WHO WAS IN POSSESSION THEREOF,
TOGETHER WITH HER ENCARGADO AND TENANTS.
IV
GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OF
JURISDICTION WHEN IT FOUND PETITIONER LAGRIMAS DE JESUS
ZAMORA GUILTY OF LACHES, INSTEAD OF FINDING THAT SINCE THE
ACTION OF SAID PETITIONER, WHO WAS IN POSSESSION OF THE LAND,
IS ACTUALLY ONE FOR QUIETING OF TITLE OF REAL PROPERTY, AND
RESPONDENT BEATRIZ ZAMORA HIDALGO MIRANDA, RECOGNIZING THE
EXISTENCE OF THE RIGHT OF SAID PETITIONER TO THE EXECUTION OF
THE DEED OF SALE, HAD FROM TIME TO TIME PROMISED TO EXECUTE
pg. 9
CONTRACTS - 11690437
THE DEED OF SALE, THE ACTION OF SAID PETITIONER DID NOT
PRESCRIBE NOR [WAS IT] BARRED BY LACHES.
V Beatriz H. Miranda
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION
IN DISMISSING THE CASE INSTEAD OF (1) ANNULLING THE SALE
BETWEEN RESPONDENT BEATRIZ ZAMORA HIDALGO MIRANDA AND THE
RESPONDENTS "ANGS"; (2) DECLARING THE PETITIONER LAGRIMAS DE
JESUS ZAMORA TO BE THE OWNER OF THE PROPERTY IN DISPUTE; (3)
DIRECTING THE RESPONDENT BEATRIZ ZAMORA HIDALGO MIRANDA TO
EXECUTE THE DEED OF SALE IN A PUBLIC INSTRUMENT IN FAVOR OF
SAID PETITIONER TO ENABLE THE LATTER TO REGISTER THE SALE; AND
(4) ORDERING ALL THE RESPONDENTS, EXCEPT THE REGISTER OF
DEEDS, TO PAY DAMAGES AND ATTORNEY'S FEES IN SUCH SUMS AS
THE HONORABLE COURT MAY FIX.20
The Court notes that the issues raised by petitioner alleged grave abuse of discretion by
the Court of Appeals, which is proper in a petition for certiorari under Rule 65 of the
Rules of Court, but not in the present petition for review on certiorari under Rule 45 of the
Rules of Court.
The main issue in this case is whether or not the Court of Appeals erred in affirming the
decision of the trial court, dismissing the complaint for specific performance, annulment
of sale and certificate of title and damages.
As stated by the trial court, petitioner principally prays that she be declared the owner of
the subject property; that respondent Beatriz Miranda be ordered to execute a deed of
sale in her (petitioner's) favor; and that the sale of the subject property in favor of
respondents Ang be nullified.
The sole evidence relied upon by petitioner to prove her claim of ownership over the
subject property is the receipt dated October 23, 197221 which states:
Rec'd the amount of fifty thousand (P50,000) pesos from Lagrimas Zamora as payment
for the property at Carmelite, Bajada, Davao City.
Documents for Agdao property follows.
(signed)
Can the receipt dated October 23, 1972 evidencing sale of real property, being a private
document, be a basis of petitioner's claim over the subject property?
Article 135822 of the Civil Code provides that acts and contracts which have for their
object the transmission of real rights over immovable property or the sale of real property
must appear in a public document. If the law requires a document or other special form,
the contracting parties may compel each other to observe that form, once the contract
has been perfected.23
In Fule v. Court of Appeals,24 the Court held that Article 1358 of the Civil Code, which
requires the embodiment of certain contracts in a public instrument, is only for
convenience, and registration of the instrument only adversely affects third parties.
Formal requirements are, therefore, for the benefit of third parties.25 Non-compliance
therewith does not adversely affect the validity of the contract nor the contractual rights
and obligations of the parties thereunder.26
However, in this case, the trial court dismissed petitioner's complaint on the ground that
the receipt dated October 23, 1972 (Exhibit "B") is a worthless piece of paper, which
cannot be made the basis of petitioner’s claim of ownership over the property as Mr.
Arcadio Ramos, an NBI handwriting expert, established that the signature appearing on
the said receipt is not the signature of respondent Beatriz Miranda.
The Court of Appeals affirmed the trial court's dismissal of the complaint.
The Court sustains the decision of the Court of Appeals.
The receipt dated October 23, 1972 cannot prove ownership over the subject property as
respondent Beatriz Miranda's signature on the receipt, as vendor, has been found to be
forged by the NBI handwriting expert, the trial court and the Court of Appeals. It is a
settled rule that the factual findings of the Court of Appeals affirming those of the trial
court are final and conclusive and may not be reviewed on appeal, except under any of
the following circumstances: (1) the conclusion is grounded on speculations, surmises or
pg. 10
CONTRACTS - 11690437
conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is
grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5)
the findings of fact are conflicting; (6) there is no citation of specific evidence on which
the factual findings are based; (7) the finding of absence of facts is contradicted by the
presence of evidence on record; (8) the findings of the CA are contrary to those of the
trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of the CA are
beyond the issues of the case; and ( 11) such findings are contrary to the admissions of
both parties.27
Considering that the aforementioned excepti~ms are not present in this case, the factual
finding of the Court of Appeals that the signature of respondent Beatriz Miranda on the
receipt dated October 23, 1972 is forged is final and conclusive upon this
Court.1âwphi1 Consequently, the complaint of petitioner has no leg to stand on and was
properly dismissed by the trial court.
As the receipt dated October 23, 1972 has no evidentiary value to prove petitioner's
claim of ownership over the property in question, there is no need to discuss the other
issues. raised by petitioner based on the assumption that she has a valid claim over the
subject property.
In fine, the Court of Appeals did not err in affirming the decision of the trial court
dismissing the complaint.
WHEREFORE, the petition is DENIED. Tl~te Court of Appeals' Decision dated
September 17, 2003 in CA-G.R. CV No. 74156, and its Resolution dated February 9,
2004, are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
San Miguel Properties vs. BF Homes
G.R. No. 169343 August 5, 2015
BF Homes represented by Orendain (receiver) sold to SMPI 130 parcels of land the latter
with an area of 44,345 sqm for the aggregate consideration of P106, 247,701.00, and had
completed the payments in December1995. BF Homes only delivered 110 TCTs out of 130.
SMPI demanded the delivery of the 20 TCTs. BF Homes failed to deliver. SMPI filed a
Complaint for specific performance with damages. BF Homes alleged that the Deeds of
Absolute Sale executed in 1992 to 1993 were entered into by Orendain in his personal
capacity and without authority, as his appointment as rehabilitation receiver was revoked
by the SEC on May 17, 1989 and that the consideration paid by SMPI for the 130 lots was
inadequate and disadvantageous to BF Homes; and that the Deeds of Absolute Sale were
undated and not notarized.
ISSUE: Whether or not SMPI is entitled to the delivery of the remaining 20 TCTs for the
lots it purchased from BF Homes.
RULING: YES. Sec. 25of Presidential Decree No. 957 explicitly mandates that "[t]he
owner or developer shall deliver the title of the [subdivision] lot or [condominium] unit
to the buyer upon full payment of the lot or unit." SMPI submitted adequate proof showing
full payment to and receipt by BF Homes of the purchase price. BF Homes expressly
admitted receipt of some payments. Upon full payment by SMPI of the purchase price for
the 130 lots to BF Homes, it became mandatory upon BF Homes to deliver the TCTs for
said lots to SMPI.
The contracts of sale of the 130 lots between BF Homes and SMPI were actually
reduced into writing into the three Deeds of Absolute Sale which were signed. The only
defect was that the Deeds were not notarized and, therefore, were not public documents
as required by Article 1358(1) of the Civil Code. The requirement of a public document
in Article 1358 is not for the validity of the instrument but for its efficacy. Although
a conveyance of land is not made in a public document, it does not affect the validity of
such conveyance. Article 1358 does not require the accomplishment of the acts or
contracts in a public instrument in order to validate the act or contract but only to insure
its efficacy, so that after the existence of said contract has been admitted, the party
bound may be compelled to execute the proper document.
pg. 11
CONTRACTS - 11690437
G.R. No. 208984, September 16, 2015
WT CONSTRUCTION, INC., Petitioner, v. THE PROVINCE OF
CEBU, Respondent.
G.R. No. 209245
PROVINCE OF CEBU, Petitioner, v. WT CONSTRUCTION,
INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Before this Court are consolidated petitions for review on certiorari1 assailing
the Decision2 dated December 19, 2012 and the Resolution3 dated August 8,
2013 of the Court of Appeals (CA) in CA-G.R. CEB-CV No. 03791, which
affirmed the Order4 dated September 22, 2009 of the Regional Trial Court of
Cebu City, Branch 6 (RTC) in Civil Case No. CEB-34012 finding the Province
of Cebu liable to pay WT Construction, Inc. (WTCI) the amount of
P257,413,911.73, but reduced the legal interest rate imposable thereon from
12% to 6% per annum.
The Facts
Sometime in 2005, the Province of Cebu was chosen by former President
Gloria Macapagal-Arroyo to host the 12th Association of Southeast Asian
Nations (ASEAN) Summit scheduled on December 10, 2006. To cater to the
event, it decided to construct the Cebu International Convention Center
(CICC or the project) at the New Mandaue Reclamation Area, Mandaue City,
Cebu, which would serve as venue for the ASEAN Summit.5
Accordingly, the Province of Cebu conducted a public bidding for the project
and, on February 22, 2006, WTCI emerged as the winning bidder for the
construction of Phase I thereof which consists of the substructure of CICC. On
July 26, 2006, after completing Phase I and receiving payment therefor,
WTCI again won the bidding for Phase II of the project involving the adjacent
works on CICC.6
As Phase II neared completion, the Province of Cebu caused WTCI to perform
additional works on the project which included site development, and
additional structural, architectural, electric, and plumbing works (additional
works). Cognizant of the need to complete the project in time for the ASEAN
Summit, and with the repeated assurances that it would be promptly paid,
WTCI agreed to perform the additional works notwithstanding the lack of
public bidding.7
In November 2006, weeks before the scheduled ASEAN Summit, WTCI
completed the project, including the additional works and, accordingly,
demanded payment therefor.8 In a letter9 dated February 8, 2007, WTCI
billed the Province of Cebu the amount of P175,951,478.69 corresponding to
the added cost for the site development and extended structural and
architectural works. In a separate letter dated February 12, 2007,10 WTCI
billed the Province of Cebu the amount of P85,266,407.97 representing the
cost for the additional electrical and plumbing works. The Province of Cebu,
however, refused to pay,11 thereby prompting WTCI to send a Final
Billing12 dated February 21, 2007 where it demanded payment of the
aggregate sum of P261,217,886.66.
In the letters dated March 20, 200713 and September 11, 2007,14 WTCI again
reiterated its demand for payment but the Province of Cebu still refused to
pay. Thus, on January 22, 2008, WTCI filed a complaint15 for collection of
sum of money before the RTC which was docketed as Civil Case No. CEB-
34012.
For its defense, the Province of Cebu admitted the existence of the additional
works but maintained that there was no contract between it and WTCI
therefor. It also claimed that the additional works did not undergo public
bidding as required by Republic Act No. (RA) 9184,16 otherwise known as the
pg. 12
CONTRACTS - 11690437
"Government Procurement Reform Act."17 Upon joint verification by the
parties, the value of the additional works was pegged at P263,263,261.41.18
The RTC Ruling
In a Judgment19 dated May 20, 2009, the RTC ruled in favor of WTCI and
ordered the Province of Cebu to pay the following amounts: (a)
P263,263,261.41 representing the cost of the additional works, with legal
interest at the rate of 12% per annum computed from the filing of the
complaint on January 22, 2008 until fully paid; (b) P50,000.00 as attorney's
fees; and (c) costs of suit.20 The RTC found that there was a perfected oral
contract between the parties for the additional works on CICC, and that WTCI
must be duly compensated therefor under the doctrine of quantum meruit;
otherwise, the Province of Cebu would be unjustly enriched.21
The Province of Cebu sought a reconsideration22 of the foregoing and argued
that its valuation of the additional works was only
P257,413,911.73.23 Further, it maintained that it was not liable to pay
interests as WTCI performed the additional works at its own risk, given that
there was no public bidding.24
WTCI, on the other hand, neither filed an appeal nor a motion for
reconsideration of the May 20, 2009 Judgment of the RTC.
In an Order25 dated September 22, 2009, the RTC granted in part the motion
for reconsideration and reduced the amount of actual damages from
P263,263,261.41 to P257,413,911.73, in accordance with the cost standards
for the year 2006 provided by the Commission on Audit (COA), the National
Statistics Office (NSO), the Department of Trade and Industry (DTI), and the
Province of Cebu itself. On all other points, including the award of 12% legal
interest from the filing of the complaint, as well as the award of attorney's
fees and costs of suit, the RTC sustained its earlier ruling.26
Dissatisfied, the Province of Cebu appealed27 to the CA.
The CA Ruling
In a Decision28 dated December 19, 2012, the CA affirmed the RTC's Order
dated September 22, 2009 but reduced the interest rate to 6% per
annum.29 It remarked that the issue of whether or not a contract existed
between the parties for the additional works has been rendered immaterial in
view of the admission by the Province of Cebu that it was liable for the
amount of P257,413,911.73, and that it had paid the same to WTCI; hence,
only the award of interest, attorney's fees, and costs of suit are at issue.30 In
this regard, the CA pointed out that the reduction of the interest rate from
12% to 6% per annum is warranted given that the liability of the Province of
Cebu did not arise from a loan or forbearance of money but from the
non¬payment of services rendered by WTCI.31 Anent the award of attorney's
fees and costs of suit, the CA affirmed the same after finding that the
Province of Cebu acted maliciously and in bad faith when it refused to pay the
value of the additional works.32
On January 24, 2013, the Province of Cebu moved for reconsideration33 which
was, however, denied by the CA in a Resolution34 dated August 8, 2013.
WTCI, on the other hand, did not seek for a reconsideration of the CA's
December 19, 2012 Decision but filed, on November 13, 2013, a petition for
review on certiorari35 before this Court, docketed as G.R. No. 208984. In said
petition, WTCI maintained that the obligation is one for forbearance of money
since its performance of the additional works was a mere financial
accommodation to the Province of Cebu, thereby warranting the imposition of
legal interest at the rate of 12% per annum, as originally decreed by the
RTC.36 It further claimed that the interest should be computed from the date
of extrajudicial demand, i.e., from the date of receipt of the Province of Cebu
of its February 8 and 12, 2007 billing letters.37
On November 13, 2013, the Province of Cebu filed its own petition for review
on certiorari38 before this Court, docketed as G.R. No. 209245. It contended
that there was no perfected contract between the parties and that even if
there was, the same is void for lack of public bidding as required under RA
9184.39 While it admitted paying P257,413,911.73 to WTCI, the Province of
Cebu averred that it did so only under the principle of quantum
pg. 13
CONTRACTS - 11690437
meruit,40 adding too that it could not be held liable for interest, attorney's
fees, and costs of suit because there was no valid contract and that, at any
rate, even if it wanted to pay WTCI sooner, it could not do so owing to the
lack of documentation.41
In a Resolution42 dated December 4, 2013, the Court consolidated the
present petitions.
The Issues Before the Court
The issues for the resolution of the Court are: (a) whether or not the liability
of the Province of Cebu is in the nature of a loan or forbearance of money;
and (b) whether or not the interest due should be computed from the date of
the filing of the complaint or from the time extrajudicial demand was made.
The Court's Ruling
At the outset, it must be pointed out that a determination of whether or not
there wras a perfected oral contract between the Province of Cebu and WTCI
is a question of fact which is beyond the scope of the Court's power in a
petition for review on certiorari, subject to certain exceptions which do not
obtain in this case. It is a settled rule that questions of law may be brought
before this Court on petition for review on certiorari under Rule 45 of the
Rules of Court. This Court is not a trier of facts and factual findings of the
RTC, when affirmed by the CA, as in this case, are entitled to great weight
and respect by this Court and are deemed final and conclusive when
supported by the evidence on record.43 Accordingly, the Court affirms the
liability of the Province of Cebu to WTCI in the amount of P257,413,911.73
which corresponds to the value of the additional works.
The Court now proceeds to determine the nature of the liability of the
Province of Cebu to WTCI.
There is no question that the present case does not involve an obligation
arising from a loan; what is at issue is whether the liability of the Province of
Cebu involves a forbearance of money, based on WTCI's claim that it merely
advanced the cost of the additional works. In Sunga-Chan v. CA,44 the Court
characterized a transaction involving forbearance of money as follows:
The term "forbearance," within the context of usury law, has been described
as a contractual obligation of a lender or creditor to refrain, during a given
period of time, from requiring the borrower or debtor to repay the loan or
debt then due and payable.45
In Estores v. Supangan,46 the Court explained that forbearance of money,
goods, or credit refers to arrangements other than loan agreements where a
person acquiesces to the temporary use of his money, goods or credits
pending the happening of certain events or fulfilment of certain conditions
such that if these conditions are breached, the said person is entitled not only
to the return of the principal amount given, but also to compensation for the
use of his money equivalent to the legal interest since the use or deprivation
of funds is akin to a loan.47
Applying the foregoing standards to the case at hand, the Court finds that the
liability of the Province of Cebu to WTCI is not in the nature of a forbearance
of money as it does not involve an acquiescence to the temporary use of
WTCI's money, goods or credits. Rather, this case involves WTCI's
performance of a particular service, i.e., the performance of additional works
on CICC, consisting of site development, additional structural, architectural,
plumbing, and electrical works thereon.
Verily, the Court has repeatedly recognized that liabilities arising from
construction contracts do not partake of loans or forbearance of money but
are in the nature of contracts of service. In Federal Builders, Inc. v.
Foundation Specialists, Inc.,48 the Court ruled that the liability arising from
the non-payment for the construction works, specifically the construction of a
diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza in
Makati City, do not partake of a loan or forbearance of money but is more in
the nature of a contract of service.49 The Court, therefore, sustains the CA's
ruling that the rate of legal interest imposable on the liability of the Province
of Cebu to WTCI is 6% per annum, in accordance with the guidelines laid
down in Eastern Shipping Lines, Inc. v. Court of Appeals50 (Eastern Shipping
Lines, Inc.), viz.:
pg. 14
CONTRACTS - 11690437
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:chanRoblesvirtualLawlibrary
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.51 (Emphases supplied)
The foregoing guidelines have been updated in Nacar v. Gallery
Frames52 (Nacar), pursuant to Bangko Sentral ng Pilipinas (BSP) Circular No.
799, series of 2013, which reduced the rate of legal interest for loans or
transactions involving forbearance of money, goods, or credit from 12% to
6% per annum.53Nevertheless, the rate of legal interest for obligations not
constituting loans or forbearance such as the one subject of this case remains
unchanged at 6% per annum.
Coming now to the issue of whether the RTC and the CA erred in computing
the interest due WTCI from the time of the filing of the complaint, the Court
finds merit in WTCI's argument that the same should be reckoned from the
time WTCI made the extrajudicial demand for the payment of the
principal, i.e., upon receipt of the Province of Cebu of WTCI's February 8,
2007 and February 12, 2007 letters demanding payment for the additional
structural and architectural works, and additional electrical and plumbing
works, respectively. The Court observes, however, that WTCI neither
appealed from nor sought a reconsideration of the May 20, 2009
Judgment of the RTC which awarded interest to it computed from the time of
the filing of the complaint on January 22, 2008. Accordingly, the RTC's
determination of the interest's reckoning point had already become final as
against WTCI since it was not one of the assigned errors considered on
appeal. It is settled that a decision becomes final as against a party who does
not appeal the same.54 Consequently, the present petition of WTCI
questioning the RTC's determination on the reckoning point of the legal
interest awarded can no longer be given due course. The Court is, therefore,
constrained to uphold the rulings of the RTC and the CA that the legal interest
shall be computed from the time of the filing of the complaint.
Lastly, the Court agrees with the CA that the legal interest rate of 6% shall
be imposed from the finality of the herein judgment until satisfaction thereof.
This is in view of the principle that in the interim, the obligation assumes the
nature of a forbearance of credit which, pursuant to Eastern Shipping Lines,
Inc.as modified by Nacar, is subject to legal interest at the rate of 6% per
annum.
WHEREFORE, the petitions are DENIED. The Decision dated December 19,
2012 and the Resolution dated August 8, 2013 of the Court of Appeals in CA-
G.R. CEB-CV No. 03791 are hereby AFFIRMED.
SO ORDERED.
pg. 15
CONTRACTS - 11690437
G.R. No. L-23126 March 17, 1925
In the matter of intestate estate of the deceased Juana Servando.
JOSE P. TINSAY, administrator-appellee,
vs.
JOVITA YUSAY and PETRA YUSAY, heirs-appellants.
Block, Johnston and Greenbaum for appellants.
Clemente M. Zulueta for appellee.
OSTRAND, J.:
It appears from the record that one Juan Yusay died some time before the year 1909,
leaving a widow Juana Servando and five children, Candido, Numeriana, Jovito, Jovita
and Petra. As far as the record shows his estate consisted of his interest in a track of
land situated in the town of Iloilo, divided into two lots by Calle Aldeguer and which was
community property of his marriage to Juana Servando. In 1909 Jovito Yusay purchased
the interests of Candido and Numeriana in the land, thus acquiring a three- fifths interest
in the same.
Jovito Yusay appears to have died some time between the years 1909 and 1911, leaving
a widow, Perpetua Sian, and five minor children, Juana, Elena, Aurea, Elita and Antonia
Yusay. In 1911 Perpetua Sian for herself and in representation of her children entered
into an agreement in writing (Exhibit 1) with Jovita and Petra Yusay which purported to
provide for the partition of the land mentioned and whereby Perpetua Sian and her
children were to occupy the portion to the northeast of Calle Aldeguer and Jovita and
Petra were to have the portion or lot to the southwest of this street.
The document is very imperfectly drawn and is in some respects somewhat ambiguous
in its terms but it is, nevertheless, quite clear that in its final clause Jovita and Petra
Yusay expressly relinquish in favor of the children of Jovito Yusay any and all rights
which they, Jovita and Petra, might have in the land assigned to Perpetua Sian and her
children in the partition.
Subsequently a cadastral survey was made of the section of Iloilo in which the land in
question is situated. In this survey the portion alloted to Perpetua Sian and her children
was designated as lot No. 241, with a narrow strip set aside for the widening of Calle
Aldeguer and described as lot No. 713. The portion which under the partition of 1911 fell
to the share of Jovita and Petra Yusay was given the lot number 283; a narrow strip of
the same portion along Calle Aldeguer is numbered 744.
At the trial of the cadastral case lots Nos. 241 and 713 were claimed by Perpetua Sian
on behalf of her children and the lots were adjudicated to the latter without opposition.
Lots Nos. 283 and 744 were claimed by Jovita and Petra And adjudicated to them, also
without opposition.
Shortly thereafter, on August 10, 1915, Juana Servando filed a petition in the cadastral
case asking for the reopening of the case as to lots Nos. 241 and 713 on the ground that
she was the owner of a one-half interest in said lots, but that at the time of the trial of the
case Perpetua Sian had falsely lead her to believe that a claim had been presented in
her behalf for her interest in the land. The petition for reopening was granted, the former
judgment set aside and the two lots Nos. 241 and 713 were thereupon decreed in favor
of Juana Servando and the children of Jovito Yusay in the proportions of an undivided
half interest in favor of Juana Servando and the remaining one-half interest in favor of
the children of Perpetua Sian in equal shares, the court holding in substance that Juana
Servando not having been a party to the partition made in 1911, her interests were not
affected thereby. The case was appealed to this court and the decision of the lower court
affirmed.1
It may be noted that Juana laid no claim to lots Nos. 283 and 744 decreed in favor of
Jovita and Petra Yusay who therefore remained the registered owners of said lots.
pg. 16
CONTRACTS - 11690437
On April 12, 1919, after the death of Juana Servando, the appellee Jose P. Tinsay was
appointed administrator of her estate. In July and October, 1922, Jovita and Petra Yusay
sold lot No. 283 to one Vicente Tad-Y for the sum of P20,000. On March 22, 1924, the
administrator of the estate of Juana Servando filed an amended inventory in which the
P20,000 received by Jovita and Petra from the sale of lot No. 283 was included as bien
colacionable. On the same day a scheme for the distribution of the estate was submitted
to the court in which the aforesaid P20,000 were brought into collation with the result that
the total value of the estate being only P28,900, according to inventory, no further share
in the estate was assigned to Jovita and Petra Yusay.
The scheme of partition was opposed by Jovita and Petra and the matter set down for
hearing, at which hearing the opponents introduced in evidence Exhibit A, a certificate of
the register of deeds of the Province of Iloilo showing that the deceased Juana Servando
was the registered owner of a half interest in lots Nos. 241 and 713 and that Jovita and
Petra Yusay were the exclusive registered owners of lots Nos. 283 and 744.
The administrator presented in evidence Exhibits 1 to 6, inclusive. Exhibit 1 is the
document of partition between Perpetua Sian and Jovita and Petra Yusay executed in
1911; Exhibits 2 and 3 are deeds executed by Numeriana and Candido Yusay
transferring their interests in all of the lots above-mentioned to Jovito Yusay; Exhibits 4
and 5 are the deeds for lot No. 283 executed by Jovita and Petra Yusay in favor of
Vicente Tad-Y; and Exhibit 6 evidences a lease from Jovita Yusay of one-half of lot No.
283 in favor of Yap Angching and dated July 29, 1911. The admission of these exhibits
was objected to by opponents and the objections were sustained by the court, to which
ruling counsel for the administrator excepted. The result of the exclusion of the exhibits is
that there in reality is no evidence for the appellee properly before the court; the
introductory statement made by counsel in offering the exhibits and in which he briefly
stated their support, is no evidence. In making the foregoing statement of facts we have,
however, drawn freely upon all of the exhibits in order to bring the issues involved in the
case into clear relief.
The court approved the scheme of partition and declared the proceeds of the sale of lots
Nos. 283 and 744 "fictitiously collationable" and held that this being in excess of their
share of the inheritance, Jovita and Petra Yusay could claim no further participation in
the other property described in the inventory and in the scheme of partition. In the same
order the court declared Exhibits 4 and 5 admissible notwithstanding the fact that they
had been ruled out at the hearing, but maintained its original ruling in regard to Exhibits
1, 2, 3 and 6. From this order Jovita and Petra Yusay appeal.
The appellants make seven assignments of error and in their brief the discussion has
taken a rather wide range. The matter in controversy may, however, be reduced to very
simple terms. It is, of course, clear that the court below erred in taking into consideration
in its decision evidence which it had ruled out at the trial of the case; if, after the close of
the trial, the court upon more mature reflection arrived at the conclusion that some of its
rulings were erroneous, it should have reopened the case before reversing them. We are
also of the opinion that it was error to exclude Exhibits 1, 2 and 3. Exhibit 6 may be of
some value to show the interpretation given Exhibit 1 by the parties and might properly
have been admitted in evidence.
We also agree with counsel for the appellants that the case involves no question of this
kind of colacion provided for in articles 1035-1050 of the Civil Code, nor are we here
dealing with advancements to lineal heirs under section 760 of the Code of Civil
Procedure in force at the time of the execution of Exhibit 1. As far as we can see, the
appellee must rest his case upon entirely different principles.
The decision appealed from being based on evidence not properly before the trial court,
must be reversed, but inasmuch as the errors committed by that court are of such a
character as to have worked what amounts to a mistrial, it will be necessary to remand
the case for a new trial.
For the guidance of the court as well as of counsel at this new trial, we shall briefly state
our view of the principles upon which, in our opinion, the controversy must be determined
in the hope of saving further appeals.
Juana Servando not being a party to the partition agreement Exhibit 1, the agreement
standing alone was, of course, ineffective as against her. The attempt to partition her
land among her heirs, constituting a partition of a future inheritance was invalid under the
second paragraph of article 1271 of the Civil Code and for the same reason the
renunciation of all interest in the land which now constitutes lots Nos. 241 and 713 made
by the appellants in favor of the children of Jovito Yusay would likewise be of no binding
force as to the undivided portion which belonged to Juana Servando. But if the parties
entered into the partition agreement in good faith and treated all of the land as a present
inheritance, and if the appellants on the strength of the agreement obtained their Torrens
title to the land alloted to them therein, and if Perpetua Sian in reliance on the appellants'
renunciation of all interest claimed by her on behalf of her children in the cadastral case
refrained from presenting any opposition to the appellants' claim to the entire fee in the
land assigned to them in the partition agreement and if the appellants after the death of
pg. 17
CONTRACTS - 11690437
Juana Servando continued to enjoy the benefits of the agreement refusing to
compensate the heirs of Jovito Yusay for the latter's loss of their interest in lots Nos. 283
and 744 through the registration of the lots in the name of the appellants and the
subsequent alienation of the same to innocent third parties, said appellants are now
estopped from repudiating the partition agreement of 1911 and from claiming any further
interest in lots Nos. 241 and 713. There is, however, no reason why they should not be
allowed to share in the distribution of the other property left by Juana Servando.
We may say further that if a case of estoppel should not be established, the appellants
might still, under article 1303 in relation with article 1073 of the Civil Code, be compelled
to restore to the estate of Juana Servando one- half of the amount received by them from
the sale of lots Nos. 283 and 744, unless it is shown that Juana's interest in the lot was
transferred to them either by sale or by valid donation. The registration of land does not
necessarily extinguish obligations of that character.
For the reasons stated, the order appealed from is reversed and the case remanded to
the court below for a new trial upon the issues herein suggested. No costs in this
instance. So ordered.
Johnson, Malcolm, Villamor, Johns, and Romualdez, JJ., concur.
DIZON VS. GABORRO
Facts:
Dizon was the owner of the three parcels of land in Pampanga. He had a first mortgage
lien in favor DBP in order to secure a loan in the sum of P38,000.00. He had a second
mortgage lien in favor of PNB to cure his indebtedness to said bank in the amount of
P93,831.91. Having defaulted in the payment of his debt, DBP foreclosed the mortgage
and bought the land afterwards.
A few months after Gaborro met Dizon. Gaborro became interested in the lands of Dizon.
Dizon originally intended to lease to Gaborro the property which had been lying idle for
some time. But as the mortgage was already foreclosed by the DPB the bank in fact
purchased the lands at the foreclosure sale a few months prior, they abandoned the
projected lease.
Gaborro and Dizon entered into a contract of “Deed of Sale with Assumption of Mortgage”.
The contract stated that Gaborro would buy Dizon's 3 parcels of land for P131,831.91 and
would assume the entire mortgage indebtedness with both DBP and PNB. The contract
was in the nature of an absolute sale.
A second contract was executed the same day called “Option to Purchase Real Estate”.
The contract stated that Dizon had the right to repurchase the 3 parcels of land from Jan.
1965 to Dec. 31, 1970, for the amount of P131.831.91 plus 8% interest. In the event that
Dizon finds a purchaser on or before the fifth year from the date of execution of the
contract, Gaborro shall be refunded the aggregate amount which was paid to DBP and
PNB plus 8% interest.
Take note that the P131,831.91 paid by Gaborro went to the aggregate debts of the
petitioner with DBP and PNB. After the execution of said contracts, Alfredo G. Gaborro
took possession of the three parcels of land in question.
The following day, Gaborro wrote to DBP stating that he’d pay for the indebtedness
through 10 equal annual amortizations as he needed to cultivate the land first. DBP agreed.
On July 5, 1961, Dizon wrote to Gaborro offering to reimburse the latter of what he paid
to the banks but without, however, tendering any cash, and demanded an accounting of
the property's income. However, Gaborro refused, prompting Dizon to file a complaint.
Dizon claims that two deeds he executed with Gaborro actually consist not of an absolute
sale, but an equitable mortgage or conveyance by way of security for the reimbursement
or refund by Dizon to Gaborro. (Aka that Gaborro assumes Dizon's debts in return for
enjoyment of the Dizon's land, until Dizon can reimburse Gaborro for the amounts paid to
DBP and PNB.) Dizon asks that Gaborro be ordered to accept Dizon’s offer to reimburse
him of what he paid to the banks; to surrender the possession of the lands to plaintiff; to
make an accounting of all the fruits, produce, harvest and other income which he had
received from the three parcels of land; and to pay Dizon for the loss of two barns and for
damages.
DBP reply: Denied the complaint:
Dizon was no longer the owner of the land in question because the DBP acquired them at
the extrajudicial foreclosure sale
Only right which plaintiff possessed was a mere right to redeem the lands.
pg. 18
CONTRACTS - 11690437
Gaborro’s reply: Denied the complaint:
The "Deed of Sale with Assumption of Mortgage" (1st Contract) expresses the true
agreement of the parties "fully, truthfully and religiously"
The “Option to Purchase Real Estate" (2nd Contract) does not express the true intention
of the parties because it was made only to protect the reputation of the plaintiff among
his townmates, and even in the supposition that said option is valid, the action is
premature.
Issue: What was the nature of the contract entered? Was it an absolute sale of the three
parcels of land to Gaborro? OR Was it that Gaborro would assume Dizon's debts in return
for enjoyment of the Dizon's land, until Dizon can reimburse Gaborro for the amounts paid
to DBP and PNB.
Held: Gaborro assumes Dizon's debts in return for enjoyment of the Dizon's land, until
Dizon can reimburse Gaborro for the amounts paid to DBP and PNB.
Ratio:
On DBP’s claim that they owned the property as they bought it in the foreclosure sale
According to Act 3135, properties extrajudicially foreclosed shall be available for
redemption by any person having a lien on the property within one year from the date of
sale. According to Rule 39, of ROC, The judgment debtor remains in possession of the
property during the period of redemption, and may transfer his right of redemption to
anyone. The purchaser is entitled to a deed of conveyance only after the redemption
period when no redemption has been made.
What right was conveyed on Gaborro? Sale or rights to redemption?
In this case, the only rights Dizon could have conveyed to Gaborro were the right to
redemption and the possession, use, and enjoyment of the land during the redemption
period. Therefore, the instrument that the two executed cannot be considered a real and
unconditional sale because Dizon had lost his full right to dispose of the lands by the time
the instrument was executed.
Based on the purpose of the parties (the payment of the bank obligations, the productivity
of the lands for Gaborro's benefit, and assurance for Dizon that the land would return to
him), their agreement is therefore one of those “innominate” contracts under Art. 1307,
CC, where both parties agree to give and to do certain rights and obligations with respect
to the lands and mortgage debts.
The reformation of an instrument when the true intention of the parties is not expressed
in the instrument is allowed when there is a mutual mistake of the parties (Art. 1359, CC).
In this case, it was a mistake for the parties to execute a deed of sale with option to
repurchase.
GARCIA VS. BISAYA
Legal Doctrine: A complaint for reformation that does not state cause of action shall be
dismissed.
Facts:
In a deed of sale issued by defendants to plaintiff, the parcel of land there described was
erroneously designated as an unregistered land when in truth the said land is a portion of
a big mass of land that is registered in the Register of Deeds. Because the defendants
continuously refuse to correct the error, the plaintiff filed this case.
Defendants denied having executed the alleged deed of sale and pleaded prescription as
a defense. They also stated that they do not know about the error and that they only
discovered it recently.
Issues:
1. Whether the appellant’s complaint states a cause of action? 

2. Whether the court could reform the instrument based from the complaint? 

3. Whether the action for the deed of sale already prescribed? 

pg. 19
CONTRACTS - 11690437
Held/ Ratio:
1. No. The complaint fails to allege that the instrument to be reformed does not express
the real agreement or intention of the parties. It does not even allege what the real
agreement or intention was.
2. No. Courts do not reform instruments merely for the sake of reforming them. There was
no cause of action stated in the complaint.
3. No. The Prescription of ten years shall be counted from the day it could have been
instituted, which is the date when the error was discovered. There is nothing in the
pleadings to show that the error was discovered more than ten years before the present
action.
Note: The real grievance perhaps of the appellant is that the defendants committed fraud
when it issued the deed of sale because they were made to believe that the land they
were buying is unregistered. The proper remedy for fraud is not reformation but annulment
of contract.
BENTIR VS. LEANDE
Summary: The remedy of reformation of an instrument is grounded on the principle of
equity where, in order to express the true intention of the contracting parties, an
instrument already executed is allowed by law to be reformed. In the case at bar, In the
case at bar, respondent corporation had ten (10) years from 1968, the time when the
contract of lease was executed, to file an action for reformation but it did so only on May
15, 1992 or twenty-four (24) years after the cause of action accrued, hence, its cause of
action has become stale, hence, time-barred.
Facts:
Respondent Leyte Gulf Traders, Inc. filed a complaint for reformation of instrument,
specific performance, annulment of conditional sale and damages with prayer for writ of
injunction against petitioners Yolanda Rosello- Bentir and the spouses Samuel and Charito
Pormida.
Respondent corporation alleged that it entered into a contract of lease of a parcel of land
with petitioner Bentir for a period of twenty (20) years starting May 5, 1968. According to
respondent corporation, the lease was extended for another four (4) years or until May
31, 1992.
On May 5, 1989, petitioner Bentir sold the leased premises to petitioner spouses Samuel
Pormada and Charito Pormada. Respondent corporation questioned the sale alleging that
it had a right of first refusal. Rebuffed, it filed a case seeking the reformation of the expired
contract of lease on the ground that its lawyer inadvertently omitted to incorporate in the
contract of lease executed in 1968, the verbal agreement or understanding between the
parties that in the event petitioner Bentir leases or sells the lot after the expiration of the
lease, respondent corporation has the right to equal the highest offer.
In due time, petitioners filed their answer alleging that the inadvertence of the lawyer who
prepared the lease contract is not a ground for reformation. They further contended that
respondent corporation is guilty of laches for not bringing the case for reformation of the
lease contract within the prescriptive period of ten (10) years from its execution.
Issue: WON complaint for reformation of instrument has prescribed
Held/Ratio:
pg. 20
CONTRACTS - 11690437
Yes. The remedy of reformation of an instrument is grounded on the principle of equity
where, in order to express the true intention of the contracting parties, an instrument
already executed is allowed by law to be reformed. The right of reformation is necessarily
an invasion or limitation of the parol evidence rule since, when a writing is reformed, the
result is that an oral agreement is by court decree made legally effective. Consequently,
the courts, as the agencies authorized by law to exercise the power to reform an
instrument, must necessarily exercise that power sparingly and with great caution and
zealous care.
Moreover, the remedy, being an extraordinary one, must be subject to limitations as may
be provided by law. Our law and jurisprudence set such limitations, among which is laches.
A suit for reformation of an instrument may be barred by lapse of time. The prescriptive
period for actions based upon a written contract and for reformation of an instrument is
ten (10) years under Article 1144 of the Civil Code. Prescription is intended to suppress
stale and fraudulent claims arising from transactions like the one at bar which facts had
become so obscure from the lapse of time or defective memory. In the case at bar,
respondent corporation had ten (10) years from 1968, the time when the contract of lease
was executed, to file an action for reformation. Sadly, it did so only on May 15, 1992 or
twenty-four (24) years after the cause of action accrued, hence, its cause of action has
become stale, hence, time-barred.
SARMING VS. CRESENCIO DY
Legal Doctrine: Reformation is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the
parties.
Facts:
Petitioner are the successor in interest of original defendant Silveria, while the respondents
are the successor in interest of the original plaintiff Alejandra. In their complaint for
reformation of instrument against Silveria, the original plaintiffs alleged that they are the
heirs of Valentina who owned several lots in Dumaguete City.
After the death of Valentina, her three children, namely: Jose, Venancio, & Silveria, took
possession of one of her lots. Upon their death, their children & grandchildren took over.
The other parcel, which is solely registered under the name of Silveria, was sub-divided
between Jose & Silveria.
Grandchildren of Jose, now owners of one-half of the subdivided lot, entered into a
contract with plaintiff Alejandra, for the sale of one-half share of the lot, after offering the
same to their co-owner, Silveria, who declined for lack of money. Silveria did not object to
the sale.
In a conference between Alejandra’s lawyer & Silveria she agreed to sell her three coconut
trees to Alejandra for P15. Silveria through her daughter, Cristita, delivered the Original
Certificate of Title not of the object lot but of another lot.
Believing that the OCT was correct, Alejandra’s lawyer prepared a notarized Deed of Sale
duly signed by the parties. As a result, the OCT was cancelled & a TCT was issued in the
names of Silveria & Alejandra, with one-half share each.
Alejandra took possession & introduced improvements on the purchased lot, which was
actually one-half of Lot 4163 instead of Lot 5734 as designated in the deed. When
Alejandra purchased the adjoining portion of the lot, she discovered that what was
designated in the deed was the wrong lot.
Alejandra filed a complaint against Silveria for reformation of the deed of sale with
damages. In her answer, Silveria claimed that she was the sole owner of the object lot &
respondents had no right to sell it. According to her, the contract of sale clearly stated that
the property being sold was Lot 5734, not Lot 4163. She also claimed that respondents
illegally took possession of one-half of Lot 4163.
Issues/Held:
1. Is there a cause of action for reformation of instrument against Silveria & the
petitioners? YES 

2. Is reformation of the deed proper by reason of mistake in designating the
pg. 21
CONTRACTS - 11690437
correct lot number? YES 
 3. Third issue: In the matter of damages, the award of actual damages in the amount of
3. Are the heirs of Alejandra are entitled to actual & moral damages? NO 
 record cannot be granted. Moral damages was also improperly awarded, absent a specific
Ratio:
1. First issue: However, the deed showed that Silveria was a party to the contract. She
was one of the heirs entitled to the estate of Jose. What was sold was the one-half share
of Jose, as represented by his heirs. It was Silveria herself who delivered the subject lot
to the vendee Alejandra.
Through her actions, Silveria Flores had made the parties to the deed believe that the lot
intended to be the object of the contract was the same lot described in the deed. Thus,
by mistake or accident, as well as inequitable conduct, neither she nor her successors-in-
interest could deny involvement in the transaction that resulted in a deed that now ought
to be reformed.
Participation in a contract is not an element to determine the existence of a cause of
action. The test of sufficiency of the facts as constituting a cause of action is whether or
not, admitting the facts alleged, the court can render a valid judgment upon the same.
2. Second issue: Reformation is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the
parties. CC 1359. When, there having been a meeting of the minds of the parties to a
contract, their true intention is not expressed in the instrument purporting to embody the
agreement by reason of mistake, fraud, inequitable conduct or accident, one of the parties
may ask for the reformation of the instrument to the end that such true intention may be
expressed. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of
the minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract.
There was a meeting of the minds between the parties to the contract but the deed did
not express the true intention of the parties due to mistake in the designation of the lot
subject of the deed. There is no dispute as to the intention of the parties to sell the land
to Alejandra but there was a mistake as to the designation of the lot intended to be sold.
P5, 000 lacks evidentiary support. Actual damages if not supported by the evidence on
finding & pronouncement from the trial court that petitioners acted in bad faith or with
malice.
AUGUSTO COSIO and BEATRIZ DE RAMA, petitioners, vs. CHERIE PALILEO,
respondent.
Recto Law Offices for petitioners.
Bengzon, Villegas & Zarraga for respondent.
DECISION
REGALA, J p:
Petitioners have filed a motion for reconsideration of the decision in this case in so far as
it declares petitioner Cosio de Rama to be possessor in bad faith of a house, with obligation
to pay rental for its use.
Petitioners contend, first of all, that Cosio de Rama could have known that she was not
entitled to the possession of the house before the decision in Palileo v. Cosio, 97 Phil. 919
(1955), because even Palileo herself referred to Cosio de Rama as the owner of the house.
For instance, the following portion of a letter, written by Palileo to Sor Consuelo of the
Hospicio de San Jose, dated February 17, 1952, is cited.
"I am in receipt of your letter today and wish to explain the situation about the lot and
house. ". . . Everyone who sees my house falls in love with it and so instead of my offer
to mortgage the house, the other party wanted a conditional sale for one (1) year. This
means that Miss Cosio is the temporary owner of my house until December 31, 1952 or
until I can pay her back P12,000 before that date."
Another letter is cited in which the Hospicio de San Jose made the statement that Palileo
had "sold the house to Miss B. Cosio" and it is said that Palileo's failure to deny this
statement was in effect an admission of the truth of that statement. Finally, it is contended
that when the house was burning, respondent Palileo called Cosio de Rama and told her:
"Betty, your house is burning!" All this is shown to prove that before their transaction was
declared to be an equitable mortgage, Cosio de Rama had a right to the possession of the
house.
pg. 22
CONTRACTS - 11690437
Palileo may indeed have called the transaction a "sale" and referred to Cosio de Rama as
"owner" of the house, but that is no reason for inferring that the parties understood their
contract to be one of sale. For that matter, they entitled their contract "Conditional Sale
of Residential Building" and it was doubtless in the context of that contract that Palileo
referred to Cosio de Rama as the "temporary owner of my house until December 31, 1952
or until I can pay her back P12,000 before that time." Because the parties referred to their
contract as a "conditional sale," should we then have held that Cosio de Rama was the
"temporary owner" with a right to the possession of the house?
A transaction is determined by the nature thereof. The nature of the agreement being
inherent in the agreement itself, exists from the very moment the transaction was entered
into. Thus: "Except as to bona fide city purchasers without notice and those standing in
similar relations, on the reformation of an instrument the general rule is that it relates
back to and takes effect from the time of its original execution, especially as between the
parties themselves . . ." (76 C.J.S. par. 93, citing cases therein)
The fact is that in Palileo v. Cosio, supra, this Court found Cosio de Rama to be a mere
mortgagee of the house and that decision is now final. It was merely to pursue the logical
implication of that decision that we ruled in this case that if the parties' true agreement
was to make the house a security for a loan, then Cosio de Rama, as mortgagee must
have known that she was not at all entitled to the possession of the house. This, because
the function of reformation is not to make a new contract for the parties but only to make
the instrument speak their genuine intention.
Changing their position, petitioners now maintain that Cosio de Rama was given
possession of the house and the proposition is now advanced that a mortgagee may be
given possession is now advanced that a mortgagee may be given possession of the
property mortgaged "without thereby altering the nature of the contract," petitioners citing
Legaspi v. Celestial, 66 Phil. 372 (1938) for authority. A complete statement of the rule
laid down in Legaspi reads:
"In a contract of mortgage, the mortgagor, as a general rule, retains the possession of the
property mortgaged as security for the payment of the sum borrowed from the mortgagee,
and pays the latter a certain per cent thereof as interest on his principal by way of
compensation for his sacrifice in depriving himself of the use of said money and the
enjoyment of its fruits, in order to give them to the mortgagor. Inasmuch as it is not an
essential requisite of the contract of mortgage that the property mortgaged remain in the
possession of the mortgagor (Article 1857 of the Civil Code) the latter may deliver said
property to the mortgagee, without thereby altering the nature of the contract. It not
being an essential requisite of said contract of mortgage that the principal of the mortgage
credit bear interest, or that the interest, as compensation for the use of the principal and
enjoyment of its fruits, be in the form of a certain per cent thereof, such interest may be
in the form of fruits of the mortgaged property, without the contract's losing thereby its
character of a mortgage contract. (At 377-378)
We may mention, at this point, that this ruling was made in answer to the contention of
the appellant in that case that the contract was an antichresis and not a mortgage. Of
course in other cases the rule has been laid down that where by agreement the mortgaged
property is delivered to the mortgagee, such mortgagee in possession is subject to the
obligation of an antichretic creditor to apply the fruits to the payment, first, of the interest
and, later, of the principal. (Diego vs. Fernando, G.R. No. L-15128, August 25, 1960;
Macapinlac v. Gutierrez Repide, 43 Phil. 770 [1992].) Thus it was held in Macapinlac v.
Gutierrez Repide, supra, at 786-87:
"The respective rights and obligations of the parties to a contract of antichresis, under the
Civil Code, appear to be similar and in many respects identical with those recognized in
the equity jurisprudence of England and America as incident to the position of a mortgagee
in possession in reference to which the following propositions may be taken to be
established, namely, that if the mortgagee in possession in reference to which the
following propositions may be taken to be established, namely, that if the mortgagee
acquires possession in any lawful manner, he is entitled to retain such possession until the
indebtedness is satisfied and the property redeemed; that the non-payment of the debt
within the term agreed does not vest the ownership of the property in the creditor; that
the general duty of the mortgagee in possession towards the premises is that of the
ordinary prudent owner; that the mortgagee must account for the rents and profits of the
land, or its value for purposes of use and occupation, any amount thus realized going
towards the discharge of the mortgage debt; that if the mortgagee remains in possession
after the mortgage debt has been satisfied, he becomes a trustee for the mortgagor as to
the excess of the rents and profits over such debt; and, lastly, that the mortgagor can only
enforce his rights to the land by an equitable action for an account and to redeem." (3
Pomeroy Equity Jurisprudence, secs. 1215-1218)
Now, was there an agreement in this case to permit Cosio de Rama to have possession of
the house in lieu of the payment of interest?Quite the contrary, the parties stipulated that
pg. 23
CONTRACTS - 11690437
interest (in the form of rent) was to be paid at the rate of P250 a month, an amount which
we found to be excessive. For petitioners, therefore, to espouse the theory of a mortgagee
in possession would be for them to admit unwittingly that doubly excessive interest was
collected for a loan of P12,000 which Cosio de Rama had extended to Palileo.
Nor would it improve petitioner's position to argue that since Palileo remained in
possession of the house as lessee, her possession was that of Cosio de Rama on the
principle that a lessee's possession is the lessor's possession. Precisely, we held in the
earlier case of Palileo v. Cosio, supra, that there was no lease contract between the parties,
because the so-called rents were in reality interests. Indeed, Article 1602 of the Civil Code
states that "The contract shall be presumed to be an equitable mortgage . . . (2) When
the vendor remains in possession as lessee or otherwise."
Furthermore, it is error to say that the possession of the premises of the house was
delivered to the petitioner for the period of the consideration of the transaction because
the transaction having been found to be an equitable mortgage the respondent, as
mortgagor, retained possession of the premises, under the general principle of law as
elsewhere stated, and therefore there was actually no legal possession that was
transferred from the mortgagor (respondent) to the mortgagee (petitioner) by virtue of
the aforesaid transaction.
Still, it is insisted that when petitioners entered the premises, they acted well within their
right.
For this purpose, petitioners submit three propositions: (1) their right as mortgagee to
take possession of the house; (2) their right as mortgagee to take possession of the house
because it was abandoned; (3) their right as mortgagee, who may, "if [they] can make a
peaceable entry upon the mortgaged premises after condition [is] broken, . . . maintain
such possession against the mortgagor," petitioners citing Cook v. Cooper, 18 Or. 142, 22
P. 945 (1989) for the last proposition.
The first proposition is contrary to settled law, according to which a simple mortgage does
not give the mortgagee the right to the possession of the mortgaged property unless the
contract contains some special provision (Alvano v. Batoon, 25 Phil. 178 [1913]); the
second proposition is contrary to the facts as found by both the trial and the appellate
courts to the effect that, at the time of the fire, the house was being rented by Mary Icard
as tenant of Palileo. If at the time petitioners entered the premises no own was in actual
possession of the house, it was because of the fire that destroyed part of it. This fact did
not certainly give petitioners a right to enter the premises. The third proposition is non-
sequiturfor at the time petitioners took possession of the house,nocondition of the loan
had been broken. At any rate, after claiming the right to possession as incident of
ownership, petitioners should not claim the right of possession as mortgagee. A mortgagee
in possession is one "who has lawfully acquired actual or constructive possession of the
premises mortgaged to him, standing upon his rights as mortgagee and not claiming under
another title, for the purpose of enforcing his security upon such property or making its
income help to pay his debt." (Diaz v. de Mendezona, 48 Phil. 666, 669 [1926])
In Palileo v. Cosio, supra we upheld Cosio de Rama's right to the proceeds of the fire
insurance even as we held that her claim against Palileo on the loan of P12,000 was to be
deemed assigned to the insurer, the Associated Insurance & Surety Company. It is now
contended that, with the decision in this case, the right of Cosio de Rama as adjudged in
the earlier case would be lost. More specifically, it is claimed that under the decision in
this case, Palileo would "not only find herself in effect absolved from paying her mortgage
indebtedness but she gets, in addition, at absolutely no expense to her, a completed house
plus several thousand pesos in the form of rentals for the house which fire destroyed and
which she did not rebuild."
This is a gross misrepresentation. Nowhere in the decision in this case do we "in effect"
absolve Palileo from her indebtedness on the loan. If the point which petitioners wish to
make is that after offsetting Palileo's obligation on the loan with the amount of rentals due
her (which according to petitioners now total P46,800) there would still be left a balance
in her favor, then the situation is one that cannot be questioned. A possessor in bad faith
is liable for rent during all the time he deprived the owner of the use of the property.
(Lerma v. De la Cruz, 7 Phil. 580 [1907].)
Independently of the foregoing, it is logical to presume that for about the same period
that she has been deprived of the use of the property the respondent may have suffered
damages by way of the rentals she may have paid for the premises she has occupied to
settle herself in the meantime. On that basis, whatever amount the respondent will
therefore receive from the petitioner as rentals for the property in question would but be
a reimbursement of what she had paid as rentals for another place.
pg. 24
CONTRACTS - 11690437
Parenthetically, and on the point that Palileo would in effect be "absolved" from paying
the loan, we note that the petitioner had already collected the insurance proceeds from
the Associated Insurance & Surety Company which should be deemed in payment of the
loan. Aside therefrom, the petitioner may again collect the amount of P12,297.00 with
legal interest thereon, this time from the respondent by virtue of the assignment of the
credit (originally P13,107.00 but reduced by P8,100.00 paid thereon) which was assigned
to the petitioner by the Associated Insurance & Surety Company for P1.00 (Exh. "T") which
assignment we have upheld by affirming the decision of the Court of Appeals on the
matter.
In the letter Exhibit "L", the "Associated Insurance & Surety Company considers the
payment made of the insurance policy as insurance risk and therefore its policy precludes
it from recovering what has been paid on account of the risk attaching to an insurance
policy." It would therefore appear that the petitioner would be collecting the mortgage
indebtedness twice since it is apparent from the letter Exhibit "L", pertinent portion of
which is quoted above, and from the deed of assignment Exhibit "T" that the only
consideration for the assigned credit is P1.00.
Nor is it fair to say that the decision in this case would hand over to Palileo a "completed
house" at absolutely "noexpense to her" considering that the decision orders Palileo to
reimburse Cosio de Rama the expenses incurred by the latter in repairing the house.
It is finally contended that at any rate rents should run up to June 1958 only when Cosio
de Rama died, because bad faith is personal and intransmissible (Civil Code, Art. 534).
The short answer to this would be that, under the Code, it is presumed that possession
continues to be enjoyed in the same character in which it was acquired, until the contrary
is proved (Art. 529). We have already shown that petitioner's possession has been in bad
faith and we have not been shown the contrary.
Moreover, the finding on the liability for the payment of rental is applicable not only to the
deceased Cosio de Rama but also to the petitioner Augusto Cosio during all the time that
the respondent has been deprived of the possession of the premises in question.
In any case, and in so far as petitioner Beatriz Cosio de Rama is concerned, since the
latter's estate should be deemed in possession of the premises and is enjoying the benefit
of such possession, it (the estate) should be held liable for the rental of the house. Whether
part of the rentals accrued during the lifetime of the petitioner Cosio de Rama and the
other part, to her estate, would be of no serious consequence since the ultimate result will
practically be the same, namely, the total amount of the rentals should now be paid by
Beatriz Cosio de Rama's estate. It would be an empty formality to require the respondent
Palileo to file a separate claim for the rentals that accrued after the death of petitioner
Beatriz Cosio de Rama against the latter's estate instead of joining said rentals as all due
under the instant case since it will be the same estate that will pay for it.
The motion for reconsideration is denied.
Bengzon, C.J., Bautista Angelo and Zaldivar, JJ.,
concur. J.P. Bengzon and Sanchez, JJ., took no part.
Separate Opinions MAKALINTAL, J., dissenting:
I am for reconsidering the decision by eliminating therefrom the adjudication of rents in
favor of respondent Cherie Palileo at the rate of P300.00. To date the aggregate amount
of such rents is over P46,000.00 and it seems to me that to award it to her is in effect to
put a premium on her own default, for if she had paid her indebtedness on time (within
one year from December 18, 1951) she would not have had such rents at all.
The main ground upon which petitioner Beatriz Cosio de Rama's liability is based is that
she was a possessor of the house in bad faith, and this finding in turn is based on the
decision of this Court in the first case between the parties (Palileo vs. Cosio, 97 Phil. 919)
that their contract executed on December 18, 1951, while denominated a sale with the
right of repurchase, was in reality an equitable mortgage. That case was for reformation
of instrument, filed sometime towards the end of 1952. I do
not believe, in view of the circumstances, that just because the transaction was held to be
an equitable mortgage petitioner Cosio de Rama necessarily had no right to the possession
of the house and was aware of it from the very moment the instrument was executed.
The obvious, and to my mind the only, effect of that decision is that non- payment of the
obligation within the period stipulated — one year from December 18, 1951 — did not
preclude redemption of the property ostensibly sold nor result in the consolidation of the
ownership thereof in the vendee. The agreement concerning possession of the house —
explicit in the contract and implicit in the contemporaneous acts of the parties — was in
no wise affected by our decision.
The deed of sale itself, of course, presupposed delivery of the house to the vendee. Such
delivery was confirmed simultaneously by the lease of the house to the vendor, pursuant
to which the latter remained in occupancy as tenant for five (5) months, leaving the place
in May, 1952. The day after the sale, that is, on December 19, 1951 petitioner Cosio de
Rama insured the house for her own account and paid the corresponding premium on the
policy. She likewise secured a new contract of lease with the Hospicio de San Jose, owner
of the lot on which the house was situated, and paid the rents therefor in the sum of
pg. 25
CONTRACTS - 11690437
P135.00 a quarter. On February 17, 1952 respondent wrote a letter to Sor Consuelo of the
Hospicio de San Jose, stating that under her contract with petitioner, "Miss Cosio is the
temporary owner of my house until December 31, 1952 or until I can pay her back
P12,000.00 before that time."
After the house was partially burned on October 25, 1952, it was petitioner who
reconstructed it. Nobody was then in occupancy. It was entirely proper that petitioner
should take charge to protect her interest. If she knew or thought then that she had no
right to be in possession, as the decision under consideration says, there would be no
point in reconstructing the house at all: she had collected the insurance proceeds and the
loan she had extended to respondent was still outstanding and therefore supposed to be
collectible, even if the property set up as guaranty had been damaged. Indeed, respondent
herself considered it the duty of petitioner to rebuild the house as shown by a pleading
she filed in the first case, wherein she complained that ". . . defendant (Cosio de Rama)
did not rebuild said building notwithstanding that she had received the aforesaid sum of
P13,107.00 from the insurance company," and alleged that she was willing to pay her
indebtedness of P12,000 "provided the defendant first rebuild the building in question to
its original condition before its destruction by fire."
The inference as to possession that might be derived from the judicial construction of the
sale as an equitable mortgage cannot, in my opinion, overthrow the clear agreement of
the parties, implemented by their conduct, that such possession should be in the vendee
(equitable mortgage); and to make her pay rents would be rewarding the defaulting debtor
unjustly, since it was precisely her default which assured her of such rents months after
month for many years without having to comply with the obligations of a lessor with
respect to the maintenance of the house in good condition, and to the payment of taxes,
of premiums on the insurance and of the rents of the lot on which the said house is
situated.
Concepcion, J.B.L. Reyes and Dizon, JJ., concur.
RESOLUTION ON SECOND MOTION FOR
RECONSIDERATION
November 28, 1966.
REGALA, J p:
Petitioners have filed a second motion for reconsideration based on substantially the same
grounds advanced by them in their first motion for reconsideration, grounds which were
already considered in both the resolution of May 20, 1966 and in the dissenting opinion of
Mr. Justice Makalintal. Thus, the following circumstances are cited as basis for petitioners'
claim of good faith in taking possession of the house.
1. The agreement of the parties whereby respondent Palileo was allowed to remain in
possession of the house, ostensibly as lessee, after it was allegedly sold to petitioner Cosio
de Rama.
2. The alleged impression of the parties that their transaction was one of conditional sale,
by virtue of which petitioner Cosio de Rama became the "temporary owner" of the house,
evident in the act of petitioner Cosio de Rama of insuring the house against fire, renewing
the lease of the land on which it was built and repairing the house when it was partly
destroyed by fire.
But, as already stated in the prior case of Palileo v. Cosio, 97 Phil. 919 (1955), as well as
in the main decision in this case, the agreement to permit respondent Palileo to remain in
possession of the house as lessee thereof was merely a device to enable the collection of
excessive interests in the guise of monthly rentals. It is precisely schemes such as these
which the law presumes to be equitable mortgages (Civil Code, Art. 1606
[2]) and it was on this score that this Court declared the parties' contract to be a mortgage.
The second has already been answered also in the resolution of May 20, 1966. Consistently
with the design to conceal the true nature of their agreement which they styled a
"Conditional Sale of a Residential House," it was not unlikely for the parties to act the way
parties to act the way parties to a real sale might act. This probably explains why petitioner
Cosio de Rama renewed the lease on the land when it expired, although, with respect to
the insurance which she took, it might be said that even a mere mortgagee has an
insurable interest in the thing mortgaged. This is the ruling in the first case of Palileo vs.
Cosio, supra, and it was on the basis of this ruling that petitioner Cosio de Rama's right to
the proceeds of the fire insurance was upheld.
However, realizing that the issues in this case are such that even members of the Court
are divided and considering that mistake upon difficult questions of law may be the basis
of good faith (Civil Code, Art. 526), we have decided to give petitioners the benefit of the
doubt. For this reason, petitioners must now be deemed to have taken possession of the
house in good faith, in the honest belief that they were entitled to doe so, and that it was
only after the decision in Palileo vs. Cosio, supra, became final on December 15, 1955 that
petitioners' bad faith started, because it was from that date only that they became aware
of the flaw in their title (Art. 528). Petitioners' liability for rent must accordingly be deemed
to begin from December 15, 1955 only but their right to reimbursement for necessary
expenses as declared in our original decisions in this case, is reaffirmed. Such
reimbursement, in the amount of P12,000 may be deducted from the rents due the
respondent.
pg. 26
CONTRACTS - 11690437
Wherefore, the dispositive portion of the original decision is hereby modified to read as
follows:
"WHEREFORE, with the modification that petitioner Cosio de Rama should be reimbursed
her necessary expenses in the amount of P12,000 by respondent Palileo, and that
petitioners, for their possession of the house, are ordered to pay respondent Palileo a
monthly rental of P300 starting from the time the decision in Palileo v. Cosio, 96 Phil. 919
[1955] became final on December 15, 1955 the judgment of the Court of Appeals is
affirmed in all other respects, without any pronouncement as to costs."
J.B.L. Reyes, Dizon and Zaldivar, JJ., concur.
J.P. Bengzon, Sanchez and Castro did not take part. Separate Opinions
MAKALINTAL, J., dissenting:
I have set forth, in my dissent from this Court's resolution denying petitioner's first motion
for reconsideration, the reasons why they should not be held liable for rents on the house
in question, which under the decision would not aggregate approximately P50,000.00, at
P300.00 a month since December 1952. The resolution on petitioner's second motion for
reconsideration now modifies the judgment in the sense that their liability for such rents
should start only from December 15, 1955, when our decision in the present case of Palileo
vs. Cosio, 97 Phil. 919, became final. The modification is based on the proposition that
"petitioners must be deemed to have taken possession of the house in good faith, in the
honest belief that they were entitled to do so, 1 and that it was only after the decision in
Palileo vs. Cosio,supra, became final on December 15, 1955 that petitioners' bad faith
started, because it was from that date only that they became aware of the flaw in their
title (Art. 528)."
I am still unable to accept this new development. If petitioner's original possession of the
house was in good faith — and I am convinced it was and has since continued to be so —
even the alleged change in the character of that possession by virtue of the 1955 decision
would not render them liable for rents thereafter. As possessors in good faith they incurred
necessary expenses on the house when they reconstructed it after the fire in 1952,
spending the amount of P12,000.00 for that purpose. And under Article 546 of the Civil
Code a possessor in good faith has the right of retention until such necessary expenses
have been refunded. I believe, under the facts and circumstances of this case, that to
grant respondent Palileo's claim for rents without her having made reimbursement — not
to say without having paid her original indebtedness, which has been assigned back to the
petitioners by the insurance company — would be to allow said respondent to enrich
herself unjustly at petitioner's expense. For petitioners could very well have put the
P12,000.00 to some other lucrative use than the reconstruction of the mortgaged house
and received, by way of income, the equivalent of the rental value thereof. As it is,
however, under the present resolution of this Court respondent would in effect receive the
income from capital which
she has not invested; and petitioners in turn would be virtually penalized for having spent
their money in reconstructing the house, because if they had not done so the house would
hardly command any rental value, having been almost totally destroyed. I do not think the
whole setup is equitable and just.
Concepcion, J., concurs.
||| (Cosio v. Palileo, G.R. No. L-18452, [May 20, 1966])
EMILIO V RAPAL
CARPIO MORALES, J.:
Flordeliza Emilio (petitioner), by virtue of a grant from the National Housing Authority
(NHA), became the registered owner of a parcel of land with an area of 196 square
meters (sq. m.) situated in Caloocan City and covered by TCT No. C-345262 whereon
she built a house which occupied an area of 27 sq. m.
Since 1989, Bilma Rapal (respondent) had been leasing a portion of the house. In 1993,
she leased an adjoining room in the house.
In early 1996, petitioner borrowed ₱10,000 from respondent. By petitioner’s claim, she
accepted respondent’s offer to extend her an additional ₱60,000.00 loan upon the
condition that respondent would not pay the monthly rentals from February 1996 until
December 1998, as the total amount of ₱70,000.00 would serve as advance rentals.
Atty. Patricio Balao-Ga (Atty. Balao-Ga) of the Public Attorney’s Office (PAO) notarized a
document entitled "Sale and Transfer of Rights over a Portion of a Parcel of
Land"1 executed by petitioner whereby she sold to respondent 27 sq. m. of her lot,
together with the house constructed thereon, for a consideration of ₱90,000.00.
Petitioner was later to claim that she signed the deed, without its contents having been
explained to her. She thus filed a complaint2 on July 11, 2002 with the Regional Trial
Court (RTC) of Caloocan, for reformation of document, docketed as Civil Case No. C-
20148, alleging that the deed of sale and transfer must be reformed, there being no
pg. 27
CONTRACTS - 11690437
intention on her part to sell the property as she could not do so without the consent of the
NHA.
Respondent moved to dismiss the complaint on the ground of lack of cause of action and
prescription, averring that while the complaint was denominated as one for reformation of
document, it was actually one for annulment of contract which was executed on February
2, 1996, hence, the action had prescribed when it was filed on July 11, 2002.
Respondent’s motion was denied, and as the Answer filed by respondent was found to
have been filed way out of time, Branch 131 of the
RTC granted petitioner’s motion to declare respondent in default, and to allow her to, as
she did, present evidence ex parte.3
By Decision4 of January 26, 2005, the trial court ruled in favor of petitioner, declaring that
the deed of sale is null and void as it did not reflect the true intention of the parties, the
intention being one of loan.
On respondent’s appeal, the Court of Appeals, by Decision5 of September 27,
2007, reversed the decision of the trial court. The appellate court held that while
petitioner’s cause of action is one for reformation of instrument and, as such, it had not
yet prescribed, she failed to discharge the burden of proving that fraud attended the
execution of the deed to warrant its reformation.
The appellate court brushed aside petitioner’s claim that she did not understand the
contents of the deed, absent proof that she does not know how to read or that the deed
was written in a language not known to her.
Petitioner timely filed a motion for reconsideration of the appellate court’s decision to
which she attached a Motion to Admit an October 16, 2007 "Sinumpaang
Salaysay"6 executed by her daughter Armi Munsayac. In said affidavit, Armi stated
that, from what she knows, her mother was not able to finish her elementary school
studies and could not fully understand English; and that, also from what she knows, her
mother did not sell the property to respondent.
Petitioner’s motion was denied by Resolution7 of February 27, 2008, hence, the present
petition for review on certiorari.
Respondent disputes petitioner’s claim that petitioner did not understand the contents of
the deed, given that in her (petitioner’s) pleadings which are in English, petitioner stated
under oath that she read and understood the same; and that petitioner testified in court in
English as borne by the Transcript of Stenographic Notes, and her request/demand
letters dated September 6, 2004 and November 4, 2004 addressed to the Barangay
Captain were also written in English.8
The petition fails.
For an action for reformation of instrument to prosper, the following requisites must
concur: (1) there must have been a meeting of the minds of the parties to the contract;
(2) the instrument does not express the true intention of the parties; and (3) the failure of
the instrument to express the true intention of the parties is due to mistake, fraud,
inequitable conduct or accident.9
Petitioner having admitted the existence and execution of the instrument, what remains
to be resolved is whether the contract expressed the true intention of the parties; if not,
whether it was due to mistake, fraud, inequitable conduct or accident. The onus
probandi is upon the party who insists that the contract should be reformed.10
Notarized documents, like the deed in question, enjoy the presumption of regularity
which can be overturned only by clear, convincing and more than merely preponderant
evidence. This petitioner failed to discharge.11
The October 16, 2007 "Sinumpaang Salaysay" of petitioner’s daughter, which was
submitted only when petitioner was moving for reconsideration of the appellate court’s
decision and, therefore, not procedurally in order, does not convince. In any event, it is
clearly hearsay as the affiant’s "what I know" statements indicate.
Petitioner could have presented PAO lawyer-notary public Atty. Balao-Ga or the
witnesses to the deed, but she failed to do so. Atty. Balao-Ga, in fact, in a
Certification12 dated April 28, 2006, stated that the deed was one of sale, not a real
estate mortgage.
WHEREFORE, the petition is DENIED.
SO ORDERED.
pg. 28
CONTRACTS - 11690437
CONCHITA CARPIO MORALES
Associate Justice
SPOUSES PARAS vs. KIMWA CONSTRUCTION AND DEVOLPMENT CORP
G.R. No. 171601 April 8, 2015
Leonen, J.
FACTS:
Lucia Paras was a concessionaire of a sand and gravel permit at Kabulihan, Toledo
City. Kimwa is a construction firm that sells concrete aggregates to contractors and haulers
in Cebu. Lucia and Kimwa entered into a contract denominated "Agreement for Supply of
Aggregates" where 40,000 cubic meters of aggregates were allotted by Lucia as supplier
to Kimwa. Kimwa was to pick up the allotted aggregates at Lucia's permitted area in Toledo
City at P240.00 per truckload. Pursuant to the Agreement, Kimwa hauled 10,000 cubic
meters of aggregates. However, after this Kimwa stopped hauling aggregates and
allegedly transferred to the concession area of a certain Mrs. Remedios dela Torre in
violation of their Agreement.
Spouses Paras sent demand letters to Kimwa. As these went unheeded, Spouses
Paras filed a complaint for breach of contract with damages against Kimwa. In its Answer,
Kimwa alleged that it never committed to obtain 40,000 cubic meters of aggregates. It
argued that the 40,000 cubic meters represented is only the maximum quantity that it
could haul. Kimwa asserted that the May 15, 1995 which was the expiration of the Special
Permit of Lucia was never set as a deadline. Invoking the Parol Evidence Rule, it insisted
that Spouses Paras were barred from introducing evidence which would show that the
parties had agreed differently.
The RTC rendered the Decision in favor of Spouses Paras. On appeal, CA reversed
the RTC's Decision.
ISSUES:
1. Whether or not the RTC erred for basing its findings on the basis of evidence
presented in violation of the parol evidence rule.
2. Whether or not Kimwa is liable to petitioners Spouses Paras for Breach of
Contract.
RULING:
(1) No. Rule 130, Section 9 of the Revised Rules on Evidence provides that "When
the terms of an agreement have been reduced to writing, it is considered as containing all
the terms agreed upon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of
written agreement if he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake
or imperfection in the written agreement; (b) The failure of the written agreement to
express the true intent and agreement of the parties thereto; (c) The validity of the written
agreement; (d) The existence of other terms agreed to by the parties or their successors
in interest after the execution of the written agree.
There are 2 things must be established for parol evidence to be admitted: first,
that the existence of any of the 4 exceptions has been put in issue in a party's pleading or
has not been objected to by the adverse party; and second, that the parol evidence sought
to be presented serves to form the basis of the conclusion proposed by the presenting
party.
In the present case petitioners pleaded in the Complaint they filed before the trial
court a mistake or imperfection in the Agreement, as well as the Agreement's failure to
express the true intent of the parties. Further, respondent Kimwa, through its Answer, also
responded to petitioners Spouses Paras' pleading of these issues. This is , thus, an
exceptional case allowing admission of parol evidence.
Proof of how petitioners Spouses Paras successfully pleaded and put this in issue
in their Complaint is how respondent Kimwa felt it necessary to respond to it or address it
in its Answer. Thus, the testimonial and documentary parol evidence sought to be
introduced by petitioners Spouses Paras, which attest to these supposed flaws and what
they aver to have been the parties' true intent, may be admitted and considered.
pg. 29
CONTRACTS - 11690437

(2) Yes. Petitioners have established that respondent Kimwa was obliged to haul
40,000 cubic meters of aggregates on or before May 15, 1995. Considering its admission
that it did not haul 30,000 cubic meters of aggregates, respondent Kimwa is liable to
petitioners.

Having been admittedly furnished a copy of this Special Permit, respondent Kimwa
was well aware that a total of only about 40,000 cubic meters of aggregates may be
extracted by petitioner Lucia from the permitted area, and that petitioner Lucia Paras'
operations cannot extend beyond May 15, 1995, when the Special Permit expires.

The condition that the Special Permit shall be valid for only six (6) months from
November 14, 1994 lends credence to petitioners Spouses Paras' assertion that, in entering
into the Agreement with respondent Kimwa, petitioner Lucia Paras did so because of
respondent Kimwa's promise that hauling can be completed by May 15, 1995. Bound as
she was by the Special Permit, petitioner Lucia Paras needed to make it eminently clear to
any party she was transacting with that she could supply aggregates only up to May 15,
1995 and that the other party's hauling must be completed by May 15, 1995. She was
merely acting with due diligence, for otherwise, any contract she would enter into would
be negated; any commitment she would make beyond May 15, 1995 would make her
guilty of misrepresentation, and any prospective income for her would be rendered
illusory.

pg. 30