FERNANDO A.
GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO.,
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because the claims
involved aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself
or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan
Group, situated in the municipality of Jose Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier
constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful
attorney-in-fact to enter into a contract with any individual or juridical person for the
exploration and development of the mining claims aforementioned on a royalty basis of
not less than P0.50 per ton of ore that might be extracted therefrom. On March 19,
1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19)
conveying the development and exploitation of said mining claims into the Larap Iron
Mines, a single proprietorship owned solely by and belonging to him, on the same
royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the
development and exploitation of the mining claims in question, opening and paving
roads within and outside their boundaries, making other improvements and installing
facilities therein for use in the development of the mines, and in time extracted
therefrom what he claim and estimated to be approximately 24,000 metric tons of iron
ore.
For some reason or another, Isabelo Fonacier decided to revoke the authority granted
by him to Gaite to exploit and develop the mining claims in question, and Gaite
assented thereto subject to certain conditions. As a result, a document entitled
"Revocation of Power of Attorney and Contract" was executed on December 8, 1954
(Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00,
plus 10% of the royalties that Fonacier would receive from the mining claims, all his
rights and interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all
the records and documents relative to the mines. In the same document, Gaite
transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore,
more or less" that the former had already extracted from the mineral claims, in
consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the signing
of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid
from and out of the first letter of credit covering the first shipment of iron ores
and of the first amount derived from the local sale of iron ore made by the
Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in
interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised to
execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered
to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal
and the Larap Mines and Smelting Co. and its stockholders George Krakower,
Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties
(Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by
Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A",
on December 8, 1954, he refused to sign said Exhibit "A" unless another bond under
written by a bonding company was put up by defendants to secure the payment of the
P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims.
Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed by
the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and
Insurance Co. as additional surety, but it provided that the liability of the surety company
would attach only when there had been an actual sale of iron ore by the Larap Mines
& Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the
liability of said surety company would automatically expire on December 8, 1955. Both
bonds were attached to the "Revocation of Power of Attorney and Contract", Exhibit
"A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the
two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit
"A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and
conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit,
and explore the mining claims in question, together with the improvements therein and
the use of the name "Larap Iron Mines" and its good will, in consideration of certain
royalties. Fonacier likewise transferred, in the same document, the complete title to the
approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap &
Smelting Co., in consideration for the signing by the company and its stockholders of
the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far
Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of
iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the
P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his
sureties payment of said amount, on the theory that they had lost right to make use of
the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C"
to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite,
the latter filed the present complaint against them in the Court of First Instance of Manila
(Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the
ore, consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that the
obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00
would be payable out of the first letter of credit covering the first shipment of iron ore
and/or the first amount derived from the local sale of the iron ore by the Larap Mines &
Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron
ore had been made, hence the condition had not yet been fulfilled; and that
consequently, the obligation was not yet due and demandable. Defendant Fonacier
also contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him
by Gaite was actually delivered, and counterclaimed for more than P200,000.00
damages.
At the trial of the case, the parties agreed to limit the presentation of evidence to two
issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00
become due and demandable when the defendants failed to renew the surety bond
underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which
expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant
Fonacier were actually in existence in the mining claims when these parties executed
the "Revocation of Power of Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of the defendants to pay
plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron
ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore
by defendants, such sale to be effected within one year or before December 8, 1955;
that the giving of security was a condition precedent to Gait's giving of credit to
defendants; and that as the latter failed to put up a good and sufficient security in lieu
of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the
obligation became due and demandable under Article 1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff Gaite did have
approximately 24,000 tons of iron ore at the mining claims in question at the time of the
execution of the contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to
pay him, jointly and severally, P65,000.00 with interest at 6% per annum from
December 9, 1955 until payment, plus costs. From this judgment, defendants jointly
appealed to this Court.
During the pendency of this appeal, several incidental motions were presented for
resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and
George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss
the appeal as having become academic and a motion for new trial and/or to take judicial
notice of certain documents, filed by appellee Gaite. The motion for contempt is
unmeritorious because the main allegation therein that the appellants Larap Mines &
Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly
is "property in litigation", has not been substantiated; and even if true, does not make
these appellants guilty of contempt, because what is under litigation in this appeal is
appellee Gaite's right to the payment of the balance of the price of the ore, and not the
iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary
to resolve these motions in view of the results that we have reached in this case, which
we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay
appellee Gaite the P65,000.00 (balance of the price of the iron ore in question)is one
with a period or term and not one with a suspensive condition, and that the term expired
on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5 tons in the
stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the contract Exhibit
"A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F.
Fonacier all his rights and interests over the 24,000 tons of iron ore, more or
less, above-referred to together with all his rights and interests to operate the
mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS
(P75,000.00) which the latter binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this
agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid
from and out of the first letter of credit covering the first shipment of iron ore
made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or
successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale
of the iron ore is not a condition precedent (or suspensive) to the payment of the
balance of P65,000.00, but was only a suspensive period or term. What characterizes
a conditional obligation is the fact that its efficacy or obligatory force (as distinguished
from its demandability) is subordinated to the happening of a future and uncertain
event; so that if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed. That the parties to the contract Exhibit
"A" did not intend any such state of things to prevail is supported by several
circumstances:
1) The words of the contract express no contingency in the buyer's obligation to pay:
"The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first
letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty
that the payment will have to be made sooner or later; what is undetermined is merely
the exact date at which it will be made. By the very terms of the contract, therefore, the
existence of the obligation to pay is recognized; only its maturity or demandability is
deferred.
2) A contract of sale is normally commutative and onerous: not only does each one of
the parties assume a correlative obligation (the seller to deliver and transfer ownership
of the thing sold and the buyer to pay the price),but each party anticipates performance
by the other from the very start. While in a sale the obligation of one party can be
lawfully subordinated to an uncertain event, so that the other understands that he
assumes the risk of receiving nothing for what he gives (as in the case of a sale of
hopes or expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear. Nothing is found
in the record to evidence that Gaite desired or assumed to run the risk of losing his right
over the ore without getting paid for it, or that Fonacier understood that Gaite assumed
any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines &
Smelting Co., and the company's stockholders, but also on one by a surety company;
and the fact that appellants did put up such bonds indicates that they admitted the
definite existence of their obligation to pay the balance of P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or
shipment of the ore as a condition precedent, would be tantamount to leaving the
payment at the discretion of the debtor, for the sale or shipment could not be made
unless the appellants took steps to sell the ore. Appellants would thus be able to
postpone payment indefinitely. The desireability of avoiding such a construction of the
contract Exhibit "A" needs no stressing.
4) Assuming that there could be doubt whether by the wording of the contract the
parties indented a suspensive condition or a suspensive period (dies ad quem) for the
payment of the P65,000.00, the rules of interpretation would incline the scales in favor
of "the greater reciprocity of interests", since sale is essentially onerous. The Civil Code
of the Philippines, Article 1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
and there can be no question that greater reciprocity obtains if the buyer' obligation is
deemed to be actually existing, with only its maturity (due date) postponed or deferred,
that if such obligation were viewed as non-existent or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore to Fonacier was a
sale on credit, and not an aleatory contract where the transferor, Gaite, would assume
the risk of not being paid at all; and that the previous sale or shipment of the ore was
not a suspensive condition for the payment of the balance of the agreed price, but was
intended merely to fix the future date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier and his
sureties, still have the right to insist that Gaite should wait for the sale or shipment of
the ore before receiving payment; or, in other words, whether or not they are entitled to
take full advantage of the period granted them for making the payment.
We agree with the court below that the appellant have forfeited the right court below
that the appellants have forfeited the right to compel Gaite to wait for the sale of the ore
before receiving payment of the balance of P65,000.00, because of their failure to
renew the bond of the Far Eastern Surety Company or else replace it with an equivalent
guarantee. The expiration of the bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as creditor for the unpaid
P65,000.00, a security that Gaite considered essential and upon which he had insisted
when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case
squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the
Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or securities which
he has promised.
(3) When by his own acts he has impaired said guaranties or securities after
their establishment, and when through fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its expiration
plainly impaired the securities given to the creditor (appellee Gaite), unless immediately
renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance of the surety
company's bond with full knowledge that on its face it would automatically expire within
one year was a waiver of its renewal after the expiration date. No such waiver could
have been intended, for Gaite stood to lose and had nothing to gain barely; and if there
was any, it could be rationally explained only if the appellants had agreed to sell the
ore and pay Gaite before the surety company's bond expired on December 8, 1955.
But in the latter case the defendants-appellants' obligation to pay became absolute
after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted within his rights
in demanding payment and instituting this action one year from and after the contract
(Exhibit "A") was executed, either because the appellant debtors had impaired the
securities originally given and thereby forfeited any further time within which to pay; or
because the term of payment was originally of no more than one year, and the balance
of P65,000.00 became due and payable thereafter.
Coming now to the second issue in this appeal, which is whether there were really
24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier,
and whether, if there had been a short-delivery as claimed by appellants, they are
entitled to the payment of damages, we must, at the outset, stress two things: first, that
this is a case of a sale of a specific mass of fungible goods for a single price or a lump
sum, the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit
"A," being a mere estimate by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties had actually measured
of weighed the mass, so that they both tried to arrive at the total quantity by making an
estimate of the volume thereof in cubic meters and then multiplying it by the estimated
weight per ton of each cubic meter.
The sale between the parties is a sale of a specific mass or iron ore because no
provision was made in their contract for the measuring or weighing of the ore sold in
order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by
the parties based upon any such measurement.(see Art. 1480, second par., New Civil
Code). The subject matter of the sale is, therefore, a determinate object, the mass, and
not the actual number of units or tons contained therein, so that all that was required of
the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass,
notwithstanding that the quantity delivered is less than the amount estimated by them
(Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872,
applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that
Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims
in questions; Gaite had, therefore, complied with his promise to deliver, and appellants
in turn are bound to pay the lump price.
exact quantity in tons found in the mass. It must not be forgotten that the contract
Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River
Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle appellants to
the payment of damages, nor could Gaite have been guilty of any fraud in making any
misrepresentation to appellants as to the total quantity of ore in the stockpiles of the
mining claims in question, as charged by appellants, since Gaite's estimate appears to
be substantially correct.
WHEREFORE, finding no error in the decision appealed from, we hereby affirm the
same, with costs against appellants.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not
a definite mass, but approximately 24,000 tons of ore, so that any substantial difference
in this quantity delivered would entitle the buyers to recover damages for the short-
delivery, was there really a short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or
weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties
predicate their respective claims only upon an estimated number of cubic meters of ore
multiplied by the average tonnage factor per cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the
stockpiles of ore that he sold to Fonacier, while appellants contend that by actual
measurement, their witness Cirpriano Manlañgit found the total volume of ore in the
stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic
meter, the parties are again in disagreement, with appellants claiming the correct
tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the
correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the
tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of
the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado
to the States and a mining engineering graduate of the Universities of Nevada and
California, with almost 22 years of experience in the Bureau of Mines. This witness
placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as
minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to
the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and
FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the
mining claims involved at the request of appellant Krakower, precisely to make an
official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles
made by appellant's witness Cipriano Manlañgit is correct, if we multiply it by the
average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which
is not very far from the estimate of 24,000 tons made by appellee Gaite, considering
that actual weighing of each unit of the mass was practically impossible, so that a
reasonable percentage of error should be allowed anyone making an estimate of the
SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN,
SPOUSES JUANITO EDRA and NORA JOAQUIN, SPOUSES RUFINO
VALDOZ and EMMA JOAQUIN, and NATIVIDAD JOAQUIN, petitioners,
vs. COURT OF APPEALS, SPOUSES LEONARDO JOAQUIN and
FELICIANA LANDRITO, SPOUSES FIDEL JOAQUIN and CONCHITA
BERNARDO, SPOUSES TOMAS JOAQUIN and SOLEDAD ALCORAN,
SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES, SPOUSES
ALEXANDER MENDOZA and CLARITA JOAQUIN, SPOUSES
TELESFORO CARREON and FELICITAS JOAQUIN, SPOUSES DANILO
VALDOZ and FE JOAQUIN, and SPOUSES GAVINO JOAQUIN and LEA
ASIS, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] to annul the Decision[2] dated 26 June 1996 of
the Court of Appeals in CA-G.R. CV No. 41996. The Court of Appeals affirmed the
Decision[3]dated 18 February 1993 rendered by Branch 65 of the Regional Trial Court
of Makati (trial court) in Civil Case No. 89-5174. The trial court dismissed the case after
it found that the parties executed the Deeds of Sale for valid consideration and that the
plaintiffs did not have a cause of action against the defendants.
The Facts
The Court of Appeals summarized the facts of the case as follows:
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of
plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants Fidel,
Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The
married Joaquin children are joined in this action by their respective spouses.
Sought to be declared null and void ab initio are certain deeds of sale of real property
executed by defendant parents Leonardo Joaquin and Feliciana Landrito in favor of
their co-defendant children and the corresponding certificates of title issued in their
names, to wit:
1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC)
Psd-256395 executed on 11 July 1978, in favor of defendant Felicitas
Joaquin, for a consideration of P6,000.00 (Exh. C), pursuant to which
TCT No. [36113/T-172] was issued in her name (Exh. C-1);
2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC)
Psd-256394 executed on 7 June 1979, in favor of defendant Clarita
Joaquin, for a consideration of P1[2],000.00 (Exh. D), pursuant to which
TCT No. S-109772 was issued in her name (Exh. D-1);
3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-
256394 executed on 12 May 1988, in favor of defendant spouses Fidel
Joaquin and Conchita Bernardo, for a consideration of P54,[3]00.00
(Exh. E), pursuant to which TCT No. 155329 was issued to them (Exh.
E-1);
4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC)
Psd-256394 executed on 12 May 1988, in favor of defendant spouses
Artemio Joaquin and Socorro Angeles, for a consideration
of P[54,3]00.00 (Exh. F), pursuant to which TCT No. 155330 was issued
to them (Exh. F-1); and
5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan
(LRC) Psd-256395 executed on 9 September 1988, in favor of Tomas
Joaquin, for a consideration of P20,000.00 (Exh. G), pursuant to which
TCT No. 157203 was issued in her name (Exh. G-1).
[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC)
Psd-256395 executed on 7 October 1988, in favor of Gavino Joaquin,
for a consideration of P25,000.00 (Exh. K), pursuant to which TCT No.
157779 was issued in his name (Exh. K-1).]
In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of
title, plaintiffs, in their complaint, aver:
The deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are, are
NULL AND VOID AB INITIO because
a) Firstly, there was no actual valid consideration for the deeds of sale xxx
over the properties in litis;
b) Secondly, assuming that there was consideration in the sums reflected in
the questioned deeds, the properties are more than three-fold times
more valuable than the measly sums appearing therein;
c) Thirdly, the deeds of sale do not reflect and express the true intent of the
parties (vendors and vendees); and
d) Fourthly, the purported sale of the properties in litis was the result of a
deliberate conspiracy designed to unjustly deprive the rest of the
compulsory heirs (plaintiffs herein) of their legitime.
Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos.
36113/T-172, S-109772, 155329, 155330, 157203 [and 157779] issued by the
Registrar of Deeds over the properties in litis xxx are NULL AND VOID AB INITIO.
Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action
against them as well as the requisite standing and interest to assail their titles over the
properties in litis; (2) that the sales were with sufficient considerations and made by
defendants parents voluntarily, in good faith, and with full knowledge of the
consequences of their deeds of sale; and (3) that the certificates of title were issued
with sufficient factual and legal basis.[4] (Emphasis in the original)
The Ruling of the Trial Court
Before the trial, the trial court ordered the dismissal of the case against defendant
spouses Gavino Joaquin and Lea Asis.[5] Instead of filing an Answer with their co-
defendants, Gavino Joaquin and Lea Asis filed a Motion to Dismiss. [6] In granting the
dismissal to Gavino Joaquin and Lea Asis, the trial court noted that compulsory heirs
have the right to a legitime but such right is contingent since said right commences only
from the moment of death of the decedent pursuant to Article 777 of the Civil Code of
the Philippines.[7]
After trial, the trial court ruled in favor of the defendants and dismissed the
complaint. The trial court stated:
In the first place, the testimony of the defendants, particularly that of the xxx father will
show that the Deeds of Sale were all executed for valuable consideration. This
assertion must prevail over the negative allegation of plaintiffs.
And then there is the argument that plaintiffs do not have a valid cause of action against
defendants since there can be no legitime to speak of prior to the death of their
parents. The court finds this contention tenable. In determining the legitime, the value
of the property left at the death of the testator shall be considered (Art. 908 of the New
Civil Code). Hence, the legitime of a compulsory heir is computed as of the time of the
death of the decedent. Plaintiffs therefore cannot claim an impairment of their legitime
while their parents live.
All the foregoing considered, this case is DISMISSED.
In order to preserve whatever is left of the ties that should bind families together, the
counterclaim is likewise DISMISSED.
No costs.
SO ORDERED.[8]
The Ruling of the Court of Appeals
The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:
To the mind of the Court, appellants are skirting the real and decisive issue in this case,
which is, whether xxx they have a cause of action against appellees.
Upon this point, there is no question that plaintiffs-appellants, like their defendant
brothers and sisters, are compulsory heirs of defendant spouses, Leonardo Joaquin
and Feliciana Landrito, who are their parents. However, their right to the properties of
their defendant parents, as compulsory heirs, is merely inchoate and vests only upon
the latters death. While still alive, defendant parents are free to dispose of their
properties, provided that such dispositions are not made in fraud of creditors.
Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither
do they claim to be creditors of their defendant parents. Consequently, they cannot be
considered as real parties in interest to assail the validity of said deeds either for gross
inadequacy or lack of consideration or for failure to express the true intent of the
parties. In point is the ruling of the Supreme Court in Velarde, et al. vs. Paez, et al., 101
SCRA 376, thus:
The plaintiffs are not parties to the alleged deed of sale and are not principally or
subsidiarily bound thereby; hence, they have no legal capacity to challenge their
validity.
Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by
the dispositions made by their defendant parents in favor of their defendant brothers
and sisters. But, as correctly held by the court a quo, the legitime of a compulsory heir
is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim
an impairment of their legitime while their parents live.
With this posture taken by the Court, consideration of the errors assigned by plaintiffs-
appellants is inconsequential.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against
plaintiffs-appellants.
SO ORDERED.[9]
Hence, the instant petition.
Issues
Petitioners assign the following as errors of the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
CONVEYANCE IN QUESTION HAD NO VALID CONSIDERATION.
2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN
ASSUMING THAT THERE WAS A CONSIDERATION, THE SAME IS
GROSSLY INADEQUATE.
3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
DEEDS OF SALE DO NOT EXPRESS THE TRUE INTENT OF THE
PARTIES.
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED
AT UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE
SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF
THEIR INTEREST OVER THE SUBJECT PROPERTIES.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
PETITIONERS HAVE A GOOD, SUFFICIENT AND VALID CAUSE OF
ACTION AGAINST THE PRIVATE RESPONDENTS.[10]
The Ruling of the Court
We find the petition without merit.
We will discuss petitioner’s legal interest over the properties subject of the Deeds of
Sale before discussing the issues on the purported lack of consideration and gross
inadequacy of the prices of the Deeds of Sale.
Whether Petitioners have a legal interest over the properties subject of the Deeds
of Sale
Petitioners Complaint betrays their motive for filing this case. In their Complaint,
petitioners asserted that the purported sale of the properties in litis was the result of a
deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs
(plaintiffs herein) of their legitime. Petitioners strategy was to have the Deeds of Sale
declared void so that ownership of the lots would eventually revert to their respondent
parents. If their parents die still owning the lots, petitioners and their respondent siblings
will then co-own their parents estate by hereditary succession.[11]
It is evident from the records that petitioners are interested in the properties subject of
the Deeds of Sale, but they have failed to show any legal right to the properties. The
trial and appellate courts should have dismissed the action for this reason alone. An
action must be prosecuted in the name of the real party-in-interest.[12]
[T]he question as to real party-in-interest is whether he is the party who would be
benefitted or injured by the judgment, or the party entitled to the avails of the suit.
xxx
In actions for the annulment of contracts, such as this action, the real parties are those
who are parties to the agreement or are bound either principally or subsidiarily or are
prejudiced in their rights with respect to one of the contracting parties and can show
the detriment which would positively result to them from the contract even though they
did not intervene in it (Ibaez v. Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.
These are parties with a present substantial interest, as distinguished from a mere
expectancy or future, contingent, subordinate, or consequential interest. The phrase
present substantial interest more concretely is meant such interest of a party in the
subject matter of the action as will entitle him, under the substantive law, to recover if
the evidence is sufficient, or that he has the legal title to demand and the defendant will
be protected in a payment to or recovery by him.[13]
Petitioners do not have any legal interest over the properties subject of the Deeds of
Sale. As the appellate court stated, petitioners right to their parents properties is merely
inchoate and vests only upon their parents death. While still living, the parents of
petitioners are free to dispose of their properties. In their overzealousness to safeguard
their future legitime, petitioners forget that theoretically, the sale of the lots to their
siblings does not affect the value of their parents’’ estate. While the sale of the lots
reduced the estate, cash of equivalent value replaced the lots taken from the estate.
Whether the Deeds of Sale are voidfor lack of consideration
Petitioners assert that their respondent siblings did not actually pay the prices stated in
the Deeds of Sale to their respondent father. Thus, petitioners ask the court to declare
the Deeds of Sale void.
A contract of sale is not a real contract, but a consensual contract. As a consensual
contract, a contract of sale becomes a binding and valid contract upon the meeting of
the minds as to price. If there is a meeting of the minds of the parties as to the price,
the contract of sale is valid, despite the manner of payment, or even the breach of that
manner of payment. If the real price is not stated in the contract, then the contract of
sale is valid but subject to reformation. If there is no meeting of the minds of the parties
as to the price, because the price stipulated in the contract is simulated, then the
contract is void.[14] Article 1471 of the Civil Code states that if the price in a contract of
sale is simulated, the sale is void.
It is not the act of payment of price that determines the validity of a contract of
sale. Payment of the price has nothing to do with the perfection of the
contract. Payment of the price goes into the performance of the contract. Failure to pay
the consideration is different from lack of consideration. The former results in a right to
demand the fulfillment or cancellation of the obligation under an existing valid contract
while the latter prevents the existence of a valid contract.[15]
Petitioners failed to show that the prices in the Deeds of Sale were absolutely
simulated. To prove simulation, petitioners presented Emma Joaquin Valdozs
testimony stating that their father, respondent Leonardo Joaquin, told her that he would
transfer a lot to her through a deed of sale without need for her payment of the purchase
price.[16] The trial court did not find the allegation of absolute simulation of price
credible. Petitioners failure to prove absolute simulation of price is magnified by their
lack of knowledge of their respondent siblings financial capacity to buy the questioned
lots.[17] On the other hand, the Deeds of Sale which petitioners presented as evidence
plainly showed the cost of each lot sold. Not only did respondents minds meet as to the
purchase price, but the real price was also stated in the Deeds of Sale. As of the filing
of the complaint, respondent siblings have also fully paid the price to their respondent
father.[18]
Whether the Deeds of Sale are void for gross inadequacy of price
Petitioners ask that assuming that there is consideration, the same is grossly
inadequate as to invalidate the Deeds of Sale.
Articles 1355 of the Civil Code states:
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue
influence. (Emphasis supplied)
Article 1470 of the Civil Code further provides:
Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as
may indicate a defect in the consent, or that the parties really intended a donation or
some other act or contract. (Emphasis supplied)
Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of
the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there
is no requirement that the price be equal to the exact value of the subject matter of
sale. All the respondents believed that they received the commutative value of what
they gave. As we stated in Vales v. Villa:[19]
Courts cannot follow one every step of his life and extricate him from bad bargains,
protect him from unwise investments, relieve him from one-sided contracts, or annul
the effects of foolish acts. Courts cannot constitute themselves guardians of persons
who are not legally incompetent. Courts operate not because one person has been
defeated or overcome by another, but because he has been defeated or
overcome illegally. Men may do foolish things, make ridiculous contracts, use
miserable judgment, and lose money by them indeed, all they have in the world; but
not for that alone can the law intervene and restore. There must be, in addition,
a violation of the law, the commission of what the law knows as an actionable wrong,
before the courts are authorized to lay hold of the situation and remedy it. (Emphasis
in the original)
Moreover, the factual findings of the appellate court are conclusive on the parties and
carry greater weight when they coincide with the factual findings of the trial court. This
Court will not weigh the evidence all over again unless there has been a showing that
the findings of the lower court are totally devoid of support or are clearly erroneous so
as to constitute serious abuse of discretion.[20] In the instant case, the trial court found
that the lots were sold for a valid consideration, and that the defendant children actually
paid the purchase price stipulated in their respective Deeds of Sale. Actual payment of
the purchase price by the buyer to the seller is a factual finding that is now conclusive
upon us.
WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.
CELESTINO CO & COMPANY, petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE, respondent.
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General
Guillermo E. Torres and Solicitor Federico V. Sian for respondent.
BENGZON, J.:
Appeal from a decision of the Court of Tax Appeals.
Celestino Co & Company is a duly registered general copartnership doing business
under the trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage
taxes of 7 per cent on the gross receipts of its sash, door and window factory, in
accordance with section one hundred eighty-six of the National Revenue Code
imposing taxes on sale of manufactured articles. However in 1952 it began to claim
liability only to the contractor's 3 per cent tax (instead of 7 per cent) under section 191
of the same Code; and having failed to convince the Bureau of Internal Revenue, it
brought the matter to the Court of Tax Appeals, where it also failed. Said the Court:
To support his contention that his client is an ordinary contractor . . . counsel
presented . . . duplicate copies of letters, sketches of doors and windows and
price quotations supposedly sent by the manager of the Oriental Sash Factory
to four customers who allegedly made special orders to doors and window
from the said factory. The conclusion that counsel would like us to deduce
from these few exhibits is that the Oriental Sash Factory does not manufacture
ready-made doors, sash and windows for the public but only upon special
order of its select customers. . . . I cannot believe that petitioner company
would take, as in fact it has taken, all the trouble and expense of registering a
special trade name for its sash business and then orders company stationery
carrying the bold print "Oriental Sash Factory (Celestino Co & Company,
Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all
kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-
dried lumber, of the best quality workmanships" solely for the purpose of
supplying the needs for doors, windows and sash of its special and limited
customers. One ill note that petitioner has chosen for its tradename and has
offered itself to the public as a "Factory", which means it is out to do business,
in its chosen lines on a big scale. As a general rule, sash factories receive
orders for doors and windows of special design only in particular cases but
the bulk of their sales is derived from a ready-made doors and windows of
standard sizes for the average home. Moreover, as shown from the
investigation of petitioner's book of accounts, during the period from January
1, 1952 to September 30, 1952, it sold sash, doors and windows worth
P188,754.69. I find it difficult to believe that this amount which runs to six
figures was derived by petitioner entirely from its few customers who made
special orders for these items.
Even if we were to believe petitioner's claim that it does not manufacture
ready-made sash, doors and windows for the public and that it makes these
articles only special order of its customers, that does not make it a contractor
 within the purview of section 191 of the national Internal Revenue Code. there
are no less than fifty occupations enumerated in the aforesaid section of the
national Internal Revenue Code subject to percentage tax and after reading
carefully each and every one of them, we cannot find under which the
business of manufacturing sash, doors and windows upon special order of
customers fall under the category of "road, building, navigation, artesian well,
water workers and other construction work contractors" are those who alter or
repair buildings, structures, streets, highways, sewers, street railways
railroads logging roads, electric lines or power lines, and includes any other
work for the construction, altering or repairing for which machinery driven by
mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880,
179 Okl. 68).
Having thus eliminated the feasibility off taxing petitioner as a contractor under
191 of the national Internal Revenue Code, this leaves us to decide the
remaining issue whether or not petitioner could be taxed with lesser strain and
more accuracy as seller of its manufactured articles under section 186 of the
same code, as the respondent Collector of Internal Revenue has in fact been
doing the Oriental Sash Factory was established in 1946.
The percentage tax imposed in section 191 of our Tax Code is generally a tax
on the sales of services, in contradiction with the tax imposed in section 186
of the same Code which is a tax on the original sales of articles by the
manufacturer, producer or importer. (Formilleza's Commentaries and
Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The
fact that the articles sold are manufactured by the seller does not exchange
the contract from the purview of section 186 of the National Internal Revenue
Code as a sale of articles.
There was a strong dissent; but upon careful consideration of the whole matter are
inclines to accept the above statement of the facts and the law. The important thing to
remember is that Celestino Co & Company habitually makes sash, windows and doors,
as it has represented in its stationery and advertisements to the public. That it
"manufactures" the same is practically admitted by appellant itself. The fact that
windows and doors are made by it only when customers place their orders, does not
alter the nature of the establishment, for it is obvious that it only accepted such orders
as called for the employment of such material-moulding, frames, panels-as it ordinarily
manufactured or was in a position habitually to manufacture.
Perhaps the following paragraph represents in brief the appellant's position in this
Court:
Since the petitioner, by clear proof of facts not disputed by the respondent,
manufacturers sash, windows and doors only for special customers and upon
their special orders and in accordance with the desired specifications of the
persons ordering the same and not for the general market: since the doors
ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence
and which never would have existed but for the order of the party desiring it;
and since petitioner's contractual relation with his customers is that of a
contract for a piece of work or since petitioner is engaged in the sale of
services, it follows that the petitioner should be taxed under section 191 of the
Tax Code and NOT under section 185 of the same Code." (Appellant's brief,
p. 11-12).
But the argument rests on a false foundation. Any builder or homeowner, with sufficient
money, may order windows or doors of the kind manufactured by this appellant.
Therefore it is not true that it serves special customers only or confines its services to
them alone. And anyone who sees, and likes, the doors ordered by Don Toribio
Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he
pays the price. Surely, the appellant will not refuse, for it can easily duplicate or even
mass-produce the same doors-it is mechanically equipped to do so.
That the doors and windows must meet desired specifications is neither here nor there.
If these specifications do not happen to be of the kind habitually manufactured by
appellant — special forms for sash, mouldings of panels — it would not accept the order
— and no sale is made. If they do, the transaction would be no different from a
purchasers of manufactured goods held is stock for sale; they are bought because they
meet the specifications desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance with the peculiar
specifications of a customer-sizes not previously held in stock for sale to the public-it
thereby becomes an employee or servant of the customer,1 not the seller of lumber.
The same consideration applies to this sash manufacturer.
The Oriental Sash Factory does nothing more than sell the goods that it mass-produces
or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and
combining them in such forms as its customers may desire.
On the other hand, petitioner's idea of being a contractor doing construction jobs is
untenable. Nobody would regard the doing of two window panels a construction work
in common parlance.2
Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in
filing orders for windows and doors according to specifications, it did not sell, but merely
contracted for particular pieces of work or "merely sold its services".
Said article reads as follows:
A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not, is a contract of sale,
but if the goods are to be manufactured specially for the customer and upon
his special order, and not for the general market, it is contract for a piece of
work.
It is at once apparent that the Oriental Sash Factory did not merely sell its services to
Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials.
The truth of the matter is that it sold materials ordinarily manufactured by it — sash,
panels, mouldings — to Teodoro & Co., although in such form or combination as suited
the fancy of the purchaser. Such new form does not divest the Oriental Sash Factory
of its character as manufacturer. Neither does it take the transaction out of the category
of sales under Article 1467 above quoted, because although the Factory does not, in
the ordinary course of its business, manufacture and keep on stock doors of the
kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings
and panels it used therefor (some of them at least).
In our opinion when this Factory accepts a job that requires the use of extraordinary or
additional equipment, or involves services not generally performed by it-it thereby
contracts for a piece of work — filing special orders within the meaning of Article 1467.
The orders herein exhibited were not shown to be special. They were merely orders for
work — nothing is shown to call them special requiring extraordinary service of the
factory.
The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders
previously made, such orders should not be called special work, but regular work.
Would a factory do business performing only special, extraordinary or peculiar
merchandise?
Anyway, supposing for the moment that the transactions were not sales, they were
neither lease of services nor contract jobs by a contractor. But as the doors and
windows had been admittedly "manufactured" by the Oriental Sash Factory, such
transactions could be, and should be taxed as "transfers" thereof under section 186 of
the National Revenue Code.
The appealed decision is consequently affirmed. So ordered.
G.R. No. L-27044 June 30, 1975
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX
APPEALS, respondents.
G.R. No. L-27452 June 30, 1975
ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX
APPEALS, respondent.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General
Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel
H. Montalino for Commissioner of Internal Revenue, etc.
Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and
J.R. Balonkita for Engineering and Supply Company.
ESGUERRA, J.:
Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case
No. 681, dated November 29, 1966, assessing a compensating tax of P174,441.62 on
the Engineering Equipment and Supply Company.
As found by the Court of Tax Appeals, and as established by the evidence on record,
the facts of this case are as follows:
Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation,
is an engineering and machinery firm. As operator of an integrated engineering shop,
it is engaged, among others, in the design and installation of central type air
conditioning system, pumping plants and steel fabrications. (Vol. I pp. 12-16 T.S.N.
August 23, 1960)
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner,
of Internal Revenue denouncing Engineering for tax evasion by misdeclaring its
imported articles and failing to pay the correct percentage taxes due thereon in
connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering was
likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar
allocations. Acting on these denunciations, a raid and search was conducted by a joint
team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of
Internal Revenue (BIR) agents on September 27, 1956, on which occasion voluminous
records of the firm were seized and confiscated. (pp. 173-177 T.S.N.)
On September 30, 1957, revenue examiners Quesada and Catudan reported and
recommended to the then Collector, now Commissioner, of Internal Revenue
(hereinafter referred to as Commissioner) that Engineering be assessed for
P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its
importation of air conditioning units and parts and accessories thereof which are subject
to tax under Section 185(m)1 of the Tax Code, instead of Section 186 of the same Code.
(Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised on January 23, 1959,
in line with the observation of the Chief, BIR Law Division, and was raised to
P916,362.56 representing deficiency advance sales tax and manufacturers sales tax,
inclusive of the 25% and 50% surcharges. (pp. 72-80 BIR rec. Vol. I)
On March 3, 1959. the Commissioner assessed against, and demanded upon,
Engineering payment of the increased amount and suggested that P10,000 be paid as
compromise in extrajudicial settlement of Engineering's penal liability for violation of the
Tax Code. The firm, however, contested the tax assessment and requested that it be
furnished with the details and particulars of the Commissioner's assessment. (Exh. "B"
and "15", pp. 86-88 BIR rec. Vol. I) The Commissioner replied that the assessment was
in accordance with law and the facts of the case.
On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and
during the pendency of the case the investigating revenue examiners reduced
Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86 (Exhs. "R" and
"9" pp. 162-170, BIR rec.), based on findings after conferences had with Engineering's
Accountant and Auditor.
On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive
portion of which reads as follows:
For ALL THE FOREGOING CONSIDERATIONS, the decision of
respondent appealed from is hereby modified, and petitioner, as a
contractor, is declared exempt from the deficiency manufacturers
sales tax covering the period from June 1, 1948. to September 2,
1956. However, petitioner is ordered to pay respondent, or his duly
authorized collection agent, the sum of P174,141.62 as
compensating tax and 25% surcharge for the period from 1953 to
September 1956. With costs against petitioner.
The Commissioner, not satisfied with the decision of the Court of Tax Appeals,
appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other hand,
Engineering, on January 4, 1967, filed with the Court of Tax Appeals a motion for
reconsideration of the decision abovementioned. This was denied on April 6, 1967,
prompting Engineering to file also with this Court its appeal, docketed as G.R. No. L-
27452.
Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties
and issues, We have decided to consolidate and jointly decide them.
Engineering in its Petition claims that the Court of Tax Appeals committed the following
errors:
1. That the Court of Tax Appeals erred in holding Engineering
Equipment & Supply Company liable to the 30% compensating tax
on its importations of equipment and ordinary articles used in the
central type air conditioning systems it designed, fabricated,
constructed and installed in the buildings and premises of its
customers, rather than to the compensating tax of only 7%;
2. That the Court of Tax Appeals erred in holding Engineering
Equipment & Supply Company guilty of fraud in effecting the said
importations on the basis of incomplete quotations from the contents
of alleged photostat copies of documents seized illegally from
Engineering Equipment and Supply Company which should not have
been admitted in evidence;
3. That the Court of Tax Appeals erred in holding Engineering
Equipment & Supply Company liable to the 25% surcharge
prescribed in Section 190 of the Tax Code;
4. That the Court of Tax Appeals erred in holding the assessment as
not having prescribed;
5. That the Court of Tax Appeals erred in holding Engineering
Equipment & Supply Company liable for the sum of P174,141.62 as
30% compensating tax and 25% surcharge instead of completely
absolving it from the deficiency assessment of the Commissioner.
The Commissioner on the other hand claims that the Court of Tax Appeals erred:
1. In holding that the respondent company is a contractor and not a
manufacturer.
2. In holding respondent company liable to the 3% contractor's tax
imposed by Section 191 of the Tax Code instead of the 30% sales
tax prescribed in Section 185(m) in relation to Section 194(x) both of
the same Code;
3. In holding that the respondent company is subject only to the 30%
compensating tax under Section 190 of the Tax Code and not to the
30% advance sales tax imposed by section 183 (b), in relation to
section 185(m) both of the same Code, on its importations of parts
and accessories of air conditioning units;
4. In not holding the company liable to the 50% fraud surcharge
under Section 183 of the Tax Code on its importations of parts and
accessories of air conditioning units, notwithstanding the finding of
said court that the respondent company fraudulently misdeclared the
said importations;
5. In holding the respondent company liable for P174,141.62 as
compensating tax and 25% surcharge instead of P740,587.86 as
deficiency advance sales tax, deficiency manufacturers tax and 25%
and 50% surcharge for the period from June 1, 1948 to December
31, 1956.
The main issue revolves on the question of whether or not Engineering is a
manufacturer of air conditioning units under Section 185(m), supra, in relation to
Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the same
Code.
The Commissioner contends that Engineering is a manufacturer and seller of air
conditioning units and parts or accessories thereof and, therefore, it is subject to the
30% advance sales tax prescribed by Section 185(m) of the Tax Code, in relation to
Section 194 of the same, which defines a manufacturer as follows:
Section 194. — Words and Phrases Defined. — In applying the
provisions of this Title, words and phrases shall be taken in the sense
and extension indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by physical or
chemical process alters the exterior texture or form or inner
substance of any raw material or manufactured or partially
manufactured products in such manner as to prepare it for a special
use or uses to which it could not have been put in its original
condition, or who by any such process alters the quality of any such
material or manufactured or partially manufactured product so as to
reduce it to marketable shape, or prepare it for any of the uses of
industry, or who by any such process combines any such raw
material or manufactured or partially manufactured products with
other materials or products of the same or of different kinds and in
such manner that the finished product of such process of
manufacture can be put to special use or uses to which such raw
material or manufactured or partially manufactured products in their
original condition could not have been put, and who in addition alters
such raw material or manufactured or partially manufactured
products, or combines the same to produce such finished products
for the purpose of their sale or distribution to others and not for his
own use or consumption.
In answer to the above contention, Engineering claims that it is not a manufacturer and
setter of air-conditioning units and spare parts or accessories thereof subject to tax
under Section 185(m) of the Tax Code, but a contractor engaged in the design, supply
and installation of the central type of air-conditioning system subject to the 3% tax
imposed by Section 191 of the same Code, which is essentially a tax on the sale of
services or labor of a contractor rather than on the sale of articles subject to the tax
referred to in Sections 184, 185 and 186 of the Code.
The arguments of both the Engineering and the Commissioner call for a clarification of
the term contractor as well as the distinction between a contract of sale and contract
for furnishing services, labor and materials. The distinction between a contract of sale
and one for work, labor and materials is tested by the inquiry whether the thing
transferred is one not in existence and which never would have existed but for the order
of the party desiring to acquire it, or a thing which would have existed and has been
the subject of sale to some other persons even if the order had not been given. 2 If the
article ordered by the purchaser is exactly such as the plaintiff makes and keeps on
hand for sale to anyone, and no change or modification of it is made at defendant's
request, it is a contract of sale, even though it may be entirely made after, and in
consequence of, the defendants order for it.3
Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece
of work thus:
Art. 1467. A contract for the delivery at a certain price of an article
which the vendor in the ordinary course of his business manufactures
or procures for the general market, whether the same is on hand at
the time or not, is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special order
and not for the general market, it is a contract for a piece of work.
The word "contractor" has come to be used with special reference to a person who, in
the pursuit of the independent business, undertakes to do a specific job or piece of
work for other persons, using his own means and methods without submitting himself
to control as to the petty details. (Arañas, Annotations and Jurisprudence on the
National Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a
contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad, 43, Phil.
803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819, would
seem to be that he renders service in the course of an independent occupation,
representing the will of his employer only as to the result of his work, and not as to the
means by which it is accomplished.
With the foregoing criteria as guideposts, We shall now examine whether Engineering
really did "manufacture" and sell, as alleged by the Commissioner to hold it liable to the
advance sales tax under Section 185(m), or it only had its services "contracted" for
installation purposes to hold it liable under section 198 of the Tax Code.
I
After going over the three volumes of stenographic notes and the voluminous record of
the BIR and the CTA as well as the exhibits submitted by both parties, We find that
Engineering did not manufacture air conditioning units for sale to the general public,
but imported some items (as refrigeration compressors in complete set, heat
exchangers or coils, t.s.n. p. 39) which were used in executing contracts entered into
by it. Engineering, therefore, undertook negotiations and execution of individual
contracts for the design, supply and installation of air conditioning units of the central
type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into
consideration in the process such factors as the area of the space to be air conditioned;
the number of persons occupying or would be occupying the premises; the purpose for
which the various air conditioning areas are to be used; and the sources of heat gain
or cooling load on the plant such as sun load, lighting, and other electrical appliances
which are or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering also testified during
the hearing in the Court of Tax Appeals that relative to the installation of air conditioning
system, Engineering designed and engineered complete each particular plant and that
no two plants were identical but each had to be engineered separately.
As found by the lower court, which finding4 We adopt —
Engineering, in a nutshell, fabricates, assembles, supplies and
installs in the buildings of its various customers the central type air
conditioning system; prepares the plans and specifications therefor
which are distinct and different from each other; the air conditioning
units and spare parts or accessories thereof used by petitioner are
not the window type of air conditioner which are manufactured,
assembled and produced locally for sale to the general market; and
the imported air conditioning units and spare parts or accessories
thereof are supplied and installed by petitioner upon previous orders
of its customers conformably with their needs and requirements.
The facts and circumstances aforequoted support the theory that Engineering is a
contractor rather than a manufacturer.
The Commissioner in his Brief argues that "it is more in accord with reason and sound
business management to say that anyone who desires to have air conditioning units
installed in his premises and who is in a position and willing to pay the price can order
the same from the company (Engineering) and, therefore, Engineering could have
mass produced and stockpiled air conditioning units for sale to the public or to any
customer with enough money to buy the same." This is untenable in the light of the fact
that air conditioning units, packaged, or what we know as self-contained air conditioning
units, are distinct from the central system which Engineering dealt in. To Our mind, the
distinction as explained by Engineering, in its Brief, quoting from books, is not an idle
play of words as claimed by the Commissioner, but a significant fact which We just
cannot ignore. As quoted by Engineering Equipment & Supply Co., from an Engineering
handbook by L.C. Morrow, and which We reproduce hereunder for easy reference:
... there is a great variety of equipment in use to do this job (of air
conditioning). Some devices are designed to serve a specific type of
space; others to perform a specific function; and still others as
components to be assembled into a tailor-made system to fit a
particular building. Generally, however, they may be grouped into
two classifications — unitary and central system.
The unitary equipment classification includes those designs such as
room air conditioner, where all of the functional components are
included in one or two packages, and installation involves only
making service connection such as electricity, water and drains.
Central-station systems, often referred to as applied or built-up
systems, require the installation of components at different points in
a building and their interconnection.
The room air conditioner is a unitary equipment designed specifically
for a room or similar small space. It is unique among air conditioning
equipment in two respects: It is in the electrical appliance
classification, and it is made by a great number of manufacturers.
There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical
Engineer, who was once the Chairman of the Board of Examiners for Mechanical
Engineers and who was allegedly responsible for the preparation of the refrigeration
and air conditioning code of the City of Manila, who said that "the central type air
conditioning system is an engineering job that requires planning and meticulous layout
due to the fact that usually architects assign definite space and usually the spaces they
assign are very small and of various sizes. Continuing further, he testified:
I don't think I have seen central type of air conditioning machinery
room that are exactly alike because all our buildings here are
designed by architects dissimilar to existing buildings, and usually
they don't coordinate and get the advice of air conditioning and
refrigerating engineers so much so that when we come to design, we
have to make use of the available space that they are assigning to
us so that we have to design the different component parts of the air
conditioning system in such a way that will be accommodated in the
space assigned and afterwards the system may be considered as a
definite portion of the building. ...
Definitely there is quite a big difference in the operation because the
window type air conditioner is a sort of compromise. In fact it cannot
control humidity to the desired level; rather the manufacturers, by hit
and miss, were able to satisfy themselves that the desired comfort
within a room could be made by a definite setting of the machine as
it comes from the factory; whereas the central type system definitely
requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II)
The point, therefore, is this — Engineering definitely did not and was not engaged in
the manufacture of air conditioning units but had its services contracted for the
installation of a central system. The cases cited by the Commissioner (Advertising
Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs.
Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City
of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the facts
in all the cases cited are entirely different. Take for instance the case of Celestino Co
where this Court held the taxpayer to be a manufacturer rather than a contractor of
sash, doors and windows manufactured in its factory. Indeed, from the very start,
Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it
did register a special trade name for its sash business and ordered company stationery
carrying the bold print "ORIENTAL SASH FACTORY (CELESTINO CO AND
COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All
Kinds of Doors, Windows ... ." Likewise, Celestino Co never put up a contractor's bond
as required by Article 1729 of the Civil Code. Also, as a general rule, sash factories
receive orders for doors and windows of special design only in particular cases, but the
bulk of their sales is derived from ready-made doors and windows of standard sizes for
the average home, which "sales" were reflected in their books of accounts totalling
P118,754.69 for the period from January, 1952 to September 30, 1952, or for a period
of only nine (9) months. This Court found said sum difficult to have been derived from
its few customers who placed special orders for these items. Applying the abovestated
facts to the case at bar, We found them to he inapposite. Engineering advertised itself
as Engineering Equipment and Supply Company, Machinery Mechanical Supplies,
Engineers, Contractors, 174 Marques de Comillas, Manila (Exh. "B" and "15" BIR rec.
p. 186), and not as manufacturers. It likewise paid the contractors tax on all the
contracts for the design and construction of central system as testified to by Mr. Rey
Parker, its President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering
did not have ready-made air conditioning units for sale but as per testimony of Mr.
Parker upon inquiry of Judge Luciano of the CTA —
Q — Aside from the general components, which
go into air conditioning plant or system of the
central type which your company undertakes, and
the procedure followed by you in obtaining and
executing contracts which you have already
testified to in previous hearing, would you say that
the covering contracts for these different projects
listed ... referred to in the list, Exh. "F" are identical
in every respect? I mean every plan or system
covered by these different contracts are identical
in standard in every respect, so that you can
reproduce them?
A — No, sir. They are not all standard. On the
contrary, none of them are the same. Each one
must be designed and constructed to meet the
particular requirements, whether the application is
to be operated. (t.s.n. pp. 101-102)
What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co.
vs. McFarland, Commissioner of Internal Revenue of the State of Tennessee and
McCanless, 355 SW 2d, 100, 101, "where the cause presents the question of whether
one engaged in the business of contracting for the establishment of air conditioning
system in buildings, which work requires, in addition to the furnishing of a cooling unit,
the connection of such unit with electrical and plumbing facilities and the installation of
ducts within and through walls, ceilings and floors to convey cool air to various parts of
the building, is liable for sale or use tax as a contractor rather than a retailer of tangible
personal property. Appellee took the Position that appellant was not engaged in the
business of selling air conditioning equipment as such but in the furnishing to its
customers of completed air conditioning systems pursuant to contract, was a contractor
engaged in the construction or improvement of real property, and as such was liable
for sales or use tax as the consumer of materials and equipment used in the
consummation of contracts, irrespective of the tax status of its contractors. To transmit
the warm or cool air over the buildings, the appellant installed system of ducts running
from the basic units through walls, ceilings and floors to registers. The contract called
for completed air conditioning systems which became permanent part of the buildings
and improvements to the realty." The Court held the appellant a contractor which used
the materials and the equipment upon the value of which the tax herein imposed was
levied in the performance of its contracts with its customers, and that the customers did
not purchase the equipment and have the same installed.
Applying the facts of the aforementioned case to the present case, We see that the
supply of air conditioning units to Engineer's various customers, whether the said
machineries were in hand or not, was especially made for each customer and installed
in his building upon his special order. The air conditioning units installed in a central
type of air conditioning system would not have existed but for the order of the party
desiring to acquire it and if it existed without the special order of Engineering's
customer, the said air conditioning units were not intended for sale to the general public.
Therefore, We have but to affirm the conclusion of the Court of Tax Appeals that
Engineering is a contractor rather than a manufacturer, subject to the contractors tax
prescribed by Section 191 of the Code and not to the advance sales tax imposed by
Section 185(m) in relation to Section 194 of the same Code. Since it has been proved
to Our satisfaction that Engineering imported air conditioning units, parts or accessories
thereof for use in its construction business and these items were never sold, resold,
bartered or exchanged, Engineering should be held liable to pay taxes prescribed under
Section 1905 of the Code. This compensating tax is not a tax on the importation of
goods but a tax on the use of imported goods not subject to sales tax. Engineering,
therefore, should be held liable to the payment of 30% compensating tax in accordance
with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without
the 50% mark up provided in Section 183(b).
II
We take up next the issue of fraud. The Commissioner charged Engineering with
misdeclaration of the imported air conditioning units and parts or accessories thereof
so as to make them subject to a lower rate of percentage tax (7%) under Section 186
of the Tax Code, when they are allegedly subject to a higher rate of tax (30%) under its
Section 185(m). This charge of fraud was denied by Engineering but the Court of Tax
Appeals in its decision found adversely and said"
... We are amply convinced from the evidence presented by
respondent that petitioner deliberately and purposely misdeclared its
importations. This evidence consists of letters written by petitioner to
its foreign suppliers, instructing them on how to invoice and describe
the air conditioning units ordered by petitioner. ... (p. 218 CTA rec.)
Despite the above findings, however, the Court of Tax Appeals absolved Engineering
from paying the 50% surcharge prescribe by Section 183(a) of the Tax Code by
reasoning out as follows:
The imposition of the 50% surcharge prescribed by Section 183(a)
of the Tax Code is based on willful neglect to file the monthly return
within 20 days after the end of each month or in case a false or
fraudulent return is willfully made, it can readily be seen, that
petitioner cannot legally be held subject to the 50% surcharge
imposed by Section 183(a) of the Tax Code. Neither can petitioner
be held subject to the 50% surcharge under Section 190 of the Tax
Code dealing on compensating tax because the provisions thereof
do not include the 50% surcharge. Where a particular provision of
the Tax Code does not impose the 50% surcharge as fraud penalty
we cannot enforce a non-existing provision of law notwithstanding
the assessment of respondent to the contrary. Instances of the
exclusion in the Tax Code of the 50% surcharge are those dealing
on tax on banks, taxes on receipts of insurance companies, and
 franchise tax. However, if the Tax Code imposes the 50% surcharge
as fraud penalty, it expressly so provides as in the cases of income
tax, estate and inheritance taxes, gift taxes, mining tax, amusement
tax and the monthly percentage taxes. Accordingly, we hold that
petitioner is not subject to the 50% surcharge despite the existence
of fraud in the absence of legal basis to support the importation
thereof. (p. 228 CTA rec.)
We have gone over the exhibits submitted by the Commissioner evidencing fraud
committed by Engineering and We reproduce some of them hereunder for clarity.
As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co.
(Exh. "3-K" pp. 152-155, BIR rec.) viz:
Your invoices should be made in the name of Madrigal & Co., Inc.,
Manila, Philippines, c/o Engineering Equipment & Supply Co.,
Manila, Philippines — forwarding all correspondence and shipping
papers concerning this order to us only and not to the customer.
When invoicing, your invoices should be exactly as detailed in the
customer's Letter Order dated March 14th, 1953 attached. This is in
accordance with the Philippine import licenses granted to Madrigal &
Co., Inc. and such details must only be shown on all papers and
shipping documents for this shipment. No mention of words air
conditioning equipment should be made on any shipping documents
as well as on the cases. Please give this matter your careful
attention, otherwise great difficulties will be encountered with the
Philippine Bureau of Customs when clearing the shipment on its
arrival in Manila. All invoices and cases should be marked "THIS
EQUIPMENT FOR RIZAL CEMENT CO."
The same instruction was made to Acme Industries, Inc., San Francisco, California in
a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.)
On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York,
U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter from mentioning or
referring to the term 'air conditioning' and to describe the goods on order as Fiberglass
pipe and pipe fitting insulation instead. Likewise on April 30, 1953, Engineering
threatened to discontinue the forwarding service of Universal Transcontinental
Corporation when it wrote Trane Co. (Exh. "3-H" p. 146, BIR rec.):
It will be noted that the Universal Transcontinental Corporation is not
following through on the instructions which have been covered by the
above correspondence, and which indicates the necessity of
discontinuing the use of the term "Air conditioning Machinery or Air
Coolers". Our instructions concerning this general situation have
been sent to you in ample time to have avoided this error in
terminology, and we will ask that on receipt of this letter that you
again write to Universal Transcontinental Corp. and inform them that,
if in the future, they are unable to cooperate with us on this
requirement, we will thereafter be unable to utilize their forwarding
service. Please inform them that we will not tolerate another failure
to follow our requirements.
And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another
letter, viz:
In the past, we have always paid the air conditioning tax on climate
changers and that mark is recognized in the Philippines, as air
conditioning equipment. This matter of avoiding any tie-in on air
conditioning is very important to us, and we are asking that from
hereon that whoever takes care of the processing of our orders be
carefully instructed so as to avoid again using the term "Climate
changers" or in any way referring to the equipment as "air
conditioning."
And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting
a solution, viz:
We feel that we can probably solve all the problems by following the
procedure outlined in your letter of March 25, 1953 wherein you
stated that in all future jobs you would enclose photostatic copies of
your import license so that we might make up two sets of invoices:
one set describing equipment ordered simply according to the way
that they are listed on the import license and another according to
our ordinary regular methods of order write-up. We would then
include the set made up according to the import license in the
shipping boxes themselves and use those items as our actual
shipping documents and invoices, and we will send the other regular
invoice to you, by separate correspondence. (Exh- No. "3-F-1", p.
144 BIR rec.)
Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p.
141 BIR rec.)
In the process of clearing the shipment from the piers, one of the
Customs inspectors requested to see the packing list. Upon
presenting the packing list, it was discovered that the same was
prepared on a copy of your letterhead which indicated that the Trane
Co. manufactured air conditioning, heating and heat transfer
equipment. Accordingly, the inspectors insisted that this equipment
was being imported for air conditioning purposes. To date, we have
not been able to clear the shipment and it is possible that we will be
required to pay heavy taxes on equipment.
The purpose of this letter is to request that in the future, no
documents of any kind should be sent with the order that indicate in
 any way that the equipment could possibly be used for air
conditioning.
It is realized that this a broad request and fairly difficult to accomplish
and administer, but we believe with proper caution it can be
executed. Your cooperation and close supervision concerning these
matters will be appreciated. (Emphasis supplied)
The aforequoted communications are strongly indicative of the fraudulent intent of
Engineering to misdeclare its importation of air conditioning units and spare parts or
accessories thereof to evade payment of the 30% tax. And since the commission of
fraud is altogether too glaring, We cannot agree with the Court of Tax Appeals in
absolving Engineering from the 50% fraud surcharge, otherwise We will be giving
premium to a plainly intolerable act of tax evasion. As aptly stated by then Solicitor
General, now Justice, Antonio P. Barredo: 'this circumstance will not free it from the
50% surcharge because in any case whether it is subject to advance sales tax or
compensating tax, it is required by law to truly declare its importation in the import
entries and internal revenue declarations before the importations maybe released from
customs custody. The said entries are the very documents where the nature, quantity
and value of the imported goods declared and where the customs duties, internal
revenue taxes, and other fees or charges incident to the importation are computed.
These entries, therefore, serve the same purpose as the returns required by Section
183(a) of the Code.'
Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court
of Tax Appeals and hold Engineering liable for the same. As held by the lower court:
At first blush it would seem that the contention of petitioner that it is
not subject to the delinquency, surcharge of 25% is sound, valid and
tenable. However, a serious study and critical analysis of the
historical provisions of Section 190 of the Tax Code dealing on
compensating tax in relation to Section 183(a) of the same Code, will
show that the contention of petitioner is without merit. The original
text of Section 190 of Commonwealth Act 466, otherwise known as
the National Internal Revenue Code, as amended by Commonwealth
Act No. 503, effective on October 1, 1939, does not provide for the
filing of a compensation tax return and payment of the 25 %
surcharge for late payment thereof. Under the original text of Section
190 of the Tax Code as amended by Commonwealth Act No. 503,
the contention of the petitioner that it is not subject to the 25%
surcharge appears to be legally tenable. However, Section 190 of
the Tax Code was subsequently amended by the Republic Acts Nos.
253, 361, 1511 and 1612 effective October 1, 1946, July 1, 1948,
June 9, 1949, June 16, 1956 and August 24, 1956 respectively,
which invariably provides among others, the following:
... If any article withdrawn from the customhouse
or the post office without payment of the
compensating tax is subsequently used by the
importer for other purposes, corresponding entry
should be made in the books of accounts if any are
kept or a written notice thereof sent to the Collector
of Internal Revenue and payment of the
corresponding compensating tax made within 30
days from the date of such entry or notice and if
tax is not paid within such period the amount of the
tax shall be increased by 25% the increment to be
a part of the tax.
Since the imported air conditioning units-and spare parts or accessories thereof are
subject to the compensating tax of 30% as the same were used in the construction
business of Engineering, it is incumbent upon the latter to comply with the aforequoted
requirement of Section 190 of the Code, by posting in its books of accounts or notifying
the Collector of Internal Revenue that the imported articles were used for other
purposes within 30 days. ... Consequently; as the 30% compensating tax was not paid
by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it
is therefore subject to the 25% surcharge for delinquency in the payment of the said
tax. (pp. 224-226 CTA rec.)
III
Lastly the question of prescription of the tax assessment has been put in issue.
Engineering contends that it was not guilty of tax fraud in effecting the importations and,
therefore, Section 332(a) prescribing ten years is inapplicable, claiming that the
pertinent prescriptive period is five years from the date the questioned importations
were made. A review of the record however reveals that Engineering did file a tax return
or declaration with the Bureau of Customs before it paid the advance sales tax of 7%.
And the declaration filed reveals that it did in fact misdeclare its importations. Section
332 of the Tax Code which provides:
Section 332. — Exceptions as to period of limitation of assessment
and collection of taxes. —
(a) In the case of a false or fraudulent return with intent to evade tax
or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun
without assessment at any time within ten years after the discovery
of the falsity, fraud or omission.
is applicable, considering the preponderance of evidence of fraud with the intent to
evade the higher rate of percentage tax due from Engineering. The, tax assessment
was made within the period prescribed by law and prescription had not set in against
the Government.
WHEREFORE, the decision appealed from is affirmed with the modification that
Engineering is hereby also made liable to pay the 50% fraud surcharge.
SO ORDERED.
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEÑA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered
into by and between the plaintiff, as party of the first part, and J. Parsons (to whose
rights and obligations the present defendant later subrogated itself), as party of the
second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA
AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN
MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN
THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in
the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the
latter's establishment in Iloilo, and shall invoice them at the same price he has
fixed for sales, in Manila, and, in the invoices, shall make and allowance of a
discount of 25 per cent of the invoiced prices, as commission on the sale; and
Mr. Parsons shall order the beds by the dozen, whether of the same or of
different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within
a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M.
Quiroga, and the freight, insurance, and cost of unloading from the vessel at
the point where the beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment,
said payment when made shall be considered as a prompt payment, and as
such a deduction of 2 per cent shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr.
Parsons may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand
of any alteration in price which he may plan to make in respect to his beds,
and agrees that if on the date when such alteration takes effect he should
have any order pending to be served to Mr. Parsons, such order shall enjoy
the advantage of the alteration if the price thereby be lowered, but shall not
be affected by said alteration if the price thereby be increased, for, in this latter
case, Mr. Quiroga assumed the obligation to invoice the beds at the price at
which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga"
beds.
ART. 2. In compensation for the expenses of advertisement which, for the
benefit of both contracting parties, Mr. Parsons may find himself obliged to
make, Mr. Quiroga assumes the obligation to offer and give the preference to
Mr. Parsons in case anyone should apply for the exclusive agency for any
island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale
of "Quiroga" beds in all the towns of the Archipelago where there are no
exclusive agents, and shall immediately report such action to Mr. Quiroga for
his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated
by either of the contracting parties on a previous notice of ninety days to the
other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and both substantially amount to the
averment that the defendant violated the following obligations: not to sell the beds at
higher prices than those of the invoices; to have an open establishment in Iloilo; itself
to conduct the agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the dozen and in no
other manner. As may be seen, with the exception of the obligation on the part of the
defendant to order the beds by the dozen and in no other manner, none of the
obligations imputed to the defendant in the two causes of action are expressly set forth
in the contract. But the plaintiff alleged that the defendant was his agent for the sale of
his beds in Iloilo, and that said obligations are implied in a contract of commercial
agency. The whole question, therefore, reduced itself to a determination as to whether
the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or
an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the
contract in question, what was essential, as constituting its cause and subject matter,
is that the plaintiff was to furnish the defendant with the beds which the latter might
order, at the price stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the plaintiff for the sale
of these beds in Manila, with a discount of from 20 to 25 per cent, according to their
class. Payment was to be made at the end of sixty days, or before, at the plaintiff's
request, or in cash, if the defendant so preferred, and in these last two cases an
additional discount was to be allowed for prompt payment. These are precisely the
essential features of a contract of purchase and sale. There was the obligation on the
part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their exchange for the price paid for them, but was for other beds of another kind; and for
price. These features exclude the legal conception of an agency or order to sell the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds,
whereby the mandatory or agent received the thing to sell it, and does not pay its price, which shows that it was not considered that the defendant had a right, by virtue of the
but delivers to the principal the price he obtains from the sale of the thing to a third contract, to make this return. As regards the shipment of beds without previous notice,
person, and if he does not succeed in selling it, he returns it. By virtue of the contract it is insinuated in the record that these brass beds were precisely the ones so shipped,
between the plaintiff and the defendant, the latter, on receiving the beds, was and that, for this very reason, the plaintiff agreed to their return. And with respect to the
necessarily obliged to pay their price within the term fixed, without any other so-called commissions, we have said that they merely constituted a discount on the
consideration and regardless as to whether he had or had not sold the beds. invoice price, and the reason for applying this benefit to the beds sold directly by the
plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract
It would be enough to hold, as we do, that the contract by and between the defendant to incur the expenses of advertisement of the plaintiff's beds, such sales were to be
and the plaintiff is one of purchase and sale, in order to show that it was not one made considered as a result of that advertisement.
on the basis of a commission on sales, as the plaintiff claims it was, for these contracts
are incompatible with each other. But, besides, examining the clauses of this contract, In respect to the defendant's obligation to order by the dozen, the only one expressly
none of them is found that substantially supports the plaintiff's contention. Not a single imposed by the contract, the effect of its breach would only entitle the plaintiff to
one of these clauses necessarily conveys the idea of an agency. The disregard the orders which the defendant might place under other conditions; but if the
words commission on sales used in clause (A) of article 1 mean nothing else, as stated plaintiff consents to fill them, he waives his right and cannot complain for having acted
in the contract itself, than a mere discount on the invoice price. The word agency, also thus at his own free will.
used in articles 2 and 3, only expresses that the defendant was the only one that could
sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the For the foregoing reasons, we are of opinion that the contract by and between the
least that can be said is that they are not incompatible with the contract of purchase plaintiff and the defendant was one of purchase and sale, and that the obligations the
and sale. breach of which is alleged as a cause of action are not imposed upon the defendant,
either by agreement or by law.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of
the defendant corporation and who established and managed the latter's business in The judgment appealed from is affirmed, with costs against the appellant. So ordered.
Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble
with the defendant, had maintained a civil suit against it, and had even accused one of
its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted
the contract Exhibit A, and, when questioned as to what was his purpose in contracting
with the plaintiff, replied that it was to be an agent for his beds and to collect a
commission on sales. However, according to the defendant's evidence, it was Mariano
Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea
in contracting with the plaintiff is of no importance, inasmuch as the agreements
contained in Exhibit A which he claims to have drafted, constitute, as we have said, a
contract of purchase and sale, and not one of commercial agency. This only means
that Ernesto Vidal was mistaken in his classification of the contract. But it must be
understood that a contract is what the law defines it to be, and not what it is called by
the contracting parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could
not sell; that, without previous notice, it forwarded to the defendant the beds that it
wanted; and that the defendant received its commission for the beds sold by the plaintiff
directly to persons in Iloilo. But all this, at the most only shows that, on the part of both
of them, there was mutual tolerance in the performance of the contract in disregard of
its terms; and it gives no right to have the contract considered, not as the parties
stipulated it, but as they performed it. Only the acts of the contracting parties,
subsequent to, and in connection with, the execution of the contract, must be
considered for the purpose of interpreting the contract, when such interpretation is
necessary, but not when, as in the instant case, its essential agreements are clearly
set forth and plainly show that the contract belongs to a certain kind and not to another.
Furthermore, the return made was of certain brass beds, and was not effected in
G.R. No. L-47538 June 20, 1941
GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
Feria & Lao for petitioner.
J. W. Ferrier and Daniel Me. Gomez for respondent.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the
purpose of reviewing its Amusement Company (formerly known as Teatro Arco),
plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein petitioner in
the Court of First Instance of Manila to secure a reimbursement of certain amounts
allegedly overpaid by it on account of the purchase price of sound reproducing
equipment and machinery ordered by the petitioner from the Starr Piano Company of
Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and
confirmed by the appellate court, which are admitted by the respondent, are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under the
laws of the Philippine Islands, with its office in Manila, was engaged in the
business of operating cinematographs. In 1930, its name was changed to Arco
Amusement Company. C. S. Salmon was the president, while A. B. Coulette
was the business manager. About the same time, Gonzalo Puyat & Sons, Inc.,
another corporation doing business in the Philippine Islands, with office in
Manila, in addition to its other business, was acting as exclusive agents in the
Philippines for the Starr Piano Company of Richmond, Indiana, U.S. A. It
would seem that this last company dealt in cinematographer equipment and
machinery, and the Arco Amusement Company desiring to equipt its
cinematograph with sound reproducing devices, approached Gonzalo Puyat
& Sons, Inc., thru its then president and acting manager, Gil Puyat, and an
employee named Santos. After some negotiations, it was agreed between the
parties, that is to say, Salmon and Coulette on one side, representing the
plaintiff, and Gil Puyat on the other, representing the defendant, that the latter
would, on behalf of the plaintiff, order sound reproducing equipment from the
Starr Piano Company and that the plaintiff would pay the defendant, in
addition to the price of the equipment, a 10 per cent commission, plus all
expenses, such as, freight, insurance, banking charges, cables, etc. At the
expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr
Piano Company, inquiring about the equipment desired and making the said
company to quote its price without discount. A reply was received by Gonzalo
Puyat & Sons, Inc., with the price, evidently the list price of $1,700 f.o.b.
factory Richmond, Indiana. The defendant did not show the plaintiff the cable
of inquiry nor the reply but merely informed the plaintiff of the price of $1,700.
Being agreeable to this price, the plaintiff, by means of Exhibit "1", which is a
letter signed by C. S. Salmon dated November 19, 1929, formally authorized
the order. The equipment arrived about the end of the year 1929, and upon
delivery of the same to the plaintiff and the presentation of necessary papers,
the price of $1.700, plus the 10 per cent commission agreed upon and plus all
the expenses and charges, was duly paid by the plaintiff to the defendant.
Sometime the following year, and after some negotiations between the same
parties, plaintiff and defendants, another order for sound reproducing
equipment was placed by the plaintiff with the defendant, on the same terms
as the first order. This agreement or order was confirmed by the plaintiff by its
letter Exhibit "2", without date, that is to say, that the plaintiff would pay for the
equipment the amount of $1,600, which was supposed to be the price quoted
by the Starr Piano Company, plus 10 per cent commission, plus all expenses
incurred. The equipment under the second order arrived in due time, and the
defendant was duly paid the price of $1,600 with its 10 per cent commission,
and $160, for all expenses and charges. This amount of $160 does not
represent actual out-of-pocket expenses paid by the defendant, but a mere
flat charge and rough estimate made by the defendant equivalent to 10 per
cent of the price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by one
Fidel Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the
officials of the Arco Amusement Company discovered that the price quoted to
them by the defendant with regard to their two orders mentioned was not the
net price but rather the list price, and that the defendants had obtained a
discount from the Starr Piano Company. Moreover, by reading reviews and
literature on prices of machinery and cinematograph equipment, said officials
of the plaintiff were convinced that the prices charged them by the defendant
were much too high including the charges for out-of-pocket expense. For
these reasons, they sought to obtain a reduction from the defendant or rather
a reimbursement, and failing in this they brought the present action.
The trial court held that the contract between the petitioner and the respondent was
one of outright purchase and sale, and absolved that petitioner from the complaint. The
appellate court, however, — by a division of four, with one justice dissenting — held
that the relation between petitioner and respondent was that of agent and principal, the
petitioner acting as agent of the respondent in the purchase of the equipment in
question, and sentenced the petitioner to pay the respondent alleged overpayments in
the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the
date of the filing of the complaint until said amount is fully paid, as well as to pay the
costs of the suit in both instances. The appellate court further argued that even if the
contract between the petitioner and the respondent was one of purchase and sale, the
petitioner was guilty of fraud in concealing the true price and hence would still be liable
to reimburse the respondent for the overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the appellate
court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que,
segun hechos, entre la recurrente y la recurrida existia una relacion implicita
de mandataria a mandante en la transaccion de que se trata, en vez de la de
vendedora a compradora como ha declarado el Juzgado de Primera Instncia
 de Manila, presidido entonces por el hoy Magistrado Honorable Marcelino
Montemayor.
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que,
suponiendo que dicha relacion fuerra de vendedora a compradora, la
recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto
al precio de $1,700 y $1,600 de las maquinarias y equipos en cuestion, y
condenar a la recurrente ha obtenido de la Starr Piano Company of
Richmond, Indiana.
We sustain the theory of the trial court that the contract between the petitioner and the
respondent was one of purchase and sale, and not one of agency, for the reasons now
to be stated.
In the first place, the contract is the law between the parties and should include all the
things they are supposed to have been agreed upon. What does not appear on the face
of the contract should be regarded merely as "dealer's" or "trader's talk", which can not
bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v.
Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334;
Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent
accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing
equipment subject of its contract with the petitioner, are clear in their terms and admit
no other interpretation that the respondent in question at the prices indicated which are
fixed and determinate. The respondent admitted in its complaint filed with the Court of
First Instance of Manila that the petitioner agreed to sellto it the first sound reproducing
equipment and machinery. The third paragraph of the respondent's cause of action
states:
3. That on or about November 19, 1929, the herein plaintiff (respondent) and
defendant (petitioner) entered into an agreement, under and by virtue of which
the herein defendant was to secure from the United States, and sell and
deliver to the herein plaintiff, certain sound reproducing equipment and
machinery, for which the said defendant, under and by virtue of said
agreement, was to receive the actual cost price plus ten per cent (10%), and
was also to be reimbursed for all out of pocket expenses in connection with
the purchase and delivery of such equipment, such as costs of telegrams,
freight, and similar expenses. (Emphasis ours.)
We agree with the trial judge that "whatever unforseen events might have taken place
unfavorable to the defendant (petitioner), such as change in prices, mistake in their
quotation, loss of the goods not covered by insurance or failure of the Starr Piano
Company to properly fill the orders as per specifications, the plaintiff (respondent) might
still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600."
This is incompatible with the pretended relation of agency between the petitioner and
the respondent, because in agency, the agent is exempted from all liability in the
discharge of his commission provided he acts in accordance with the instructions
received from his principal (section 254, Code of Commerce), and the principal must
indemnify the agent for all damages which the latter may incur in carrying out the
agency without fault or imprudence on his part (article 1729, Civil Code).
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent
(10%) commission, this does not necessarily make the petitioner an agent of the
respondent, as this provision is only an additional price which the respondent bound
itself to pay, and which stipulation is not incompatible with the contract of purchase and
sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)
In the second place, to hold the petitioner an agent of the respondent in the purchase
of equipment and machinery from the Starr Piano Company of Richmond, Indiana, is
incompatible with the admitted fact that the petitioner is the exclusive agent of the same
company in the Philippines. It is out of the ordinary for one to be the agent of both the
vendor and the purchaser. The facts and circumstances indicated do not point to
anything but plain ordinary transaction where the respondent enters into a contract of
purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano
Company in the United States.
It follows that the petitioner as vendor is not bound to reimburse the respondent as
vendee for any difference between the cost price and the sales price which represents
the profit realized by the vendor out of the transaction. This is the very essence of
commerce without which merchants or middleman would not exist.
The respondents contends that it merely agreed to pay the cost price as distinguished
from the list price, plus ten per cent (10%) commission and all out-of-pocket expenses
incurred by the petitioner. The distinction which the respondents seeks to draw between
the cost price and the list price we consider to be spacious. It is to be observed that the
twenty-five per cent (25%) discount granted by the Starr piano Company to the
petitioner is available only to the latter as the former's exclusive agent in the Philippines.
The respondent could not have secured this discount from the Starr Piano Company
and neither was the petitioner willing to waive that discount in favor of the respondent.
As a matter of fact, no reason is advanced by the respondent why the petitioner should
waive the 25 per cent discount granted it by the Starr Piano Company in exchange for
the 10 percent commission offered by the respondent. Moreover, the petitioner was not
duty bound to reveal the private arrangement it had with the Starr Piano Company
relative to such discount to its prospective customers, and the respondent was not even
aware of such an arrangement. The respondent, therefore, could not have offered to
pay a 10 per cent commission to the petitioner provided it was given the benefit of the
25 per cent discount enjoyed by the petitioner. It is well known that local dealers acting
as agents of foreign manufacturers, aside from obtaining a discount from the home
office, sometimes add to the list price when they resell to local purchasers. It was
apparently to guard against an exhorbitant additional price that the respondent sought
to limit it to 10 per cent, and the respondent is estopped from questioning that additional
price. If the respondent later on discovers itself at the short end of a bad bargain, it
alone must bear the blame, and it cannot rescind the contract, much less compel a
reimbursement of the excess price, on that ground alone. The respondent could not
secure equipment and machinery manufactured by the Starr Piano Company except
from the petitioner alone; it willingly paid the price quoted; it received the equipment
and machinery as represented; and that was the end of the matter as far as the
respondent was concerned. The fact that the petitioner obtained more or less profit
than the respondent calculated before entering into the contract or reducing the price
agreed upon between the petitioner and the respondent. Not every concealment is
fraud; and short of fraud, it were better that, within certain limits, business acumen
permit of the loosening of the sleeves and of the sharpening of the intellect of men and [G.R. No. 149420. October 8, 2003]
women in the business world.
SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL.,
The writ of certiorari should be, as it is hereby, granted. The decision of the appellate INC., respondent.
court is accordingly reversed and the petitioner is absolved from the respondent's
complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as DECISION
Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee,"
without pronouncement regarding costs. So ordered. YNARES-SANTIAGO, J.:

Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in

the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the
name and style Sans Enterprises, is a building contractor. On February 22, 1990,
petitioner ordered scaffolding equipments from respondent worth P540,425.80.[1] He
paid a downpayment in the amount of P150,000.00. The balance was made payable
in ten monthly installments.

Respondent delivered the scaffoldings to petitioner. [2] Petitioner was able to pay the
first two monthly installments. His business, however, encountered financial
difficulties and he was unable to settle his obligation to respondent despite oral and
written demands made against him.[3]

On October 11, 1990, petitioner and respondent executed a Deed of

Assignment,[4] whereby petitioner assigned to respondent his receivables in the
amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of the
Deed provide:

WHEREAS, the ASSIGNOR is the contractor for the construction of a residential

house located at Greenmeadow Avenue, Quezon City owned by Jomero Realty
Corporation;

WHEREAS, in the construction of the aforementioned residential house, the

ASSIGNOR purchased on account scaffolding equipments from the ASSIGNEE
payable to the latter;

WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for
the purchase of the aforementioned scaffoldings now in the amount of Three Hundred
Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14);

NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty
Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine
Currency which represents part of the ASSIGNORs collectible from Jomero Realty
Corp., said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE
all collectibles amounting to the said amount of P335, 462.14;

And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns,
the full power and authority to demand, collect, receive, compound, compromise and
give acquittance for the same or any part thereof, and in the name and stead of the
said ASSIGNOR;

And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its
successors and assigns that said debt is justly owing and due to the ASSIGNOR for
Jomero Realty Corporation and that said ASSIGNOR has not done and will not cause
anything to be done to diminish or discharge said debt, or delay or to prevent the
ASSIGNEE, its successors or assigns, from collecting the same;
And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and
expense, execute and do all such further acts and deeds as shall be reasonably
necessary to effectually enable said ASSIGNEE to recover whatever collectibles said
ASSIGNOR has in accordance with the true intent and meaning of these presents.
xxx[5] (Italics supplied)
However, when respondent tried to collect the said credit from Jomero Realty
Corporation, the latter refused to honor the Deed of Assignment because it claimed
that petitioner was also indebted to it.[6] On November 26, 1990, respondent sent a
letter[7] to petitioner demanding payment of his obligation, but petitioner refused to pay
claiming that his obligation had been extinguished when they executed the Deed of
Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum
of money against the petitioner before the Regional Trial Court of Makati, Branch 147,
which was docketed as Civil Case No. 91-074.[8]
During the trial, petitioner argued that his obligation was extinguished with the
execution of the Deed of Assignment of credit. Respondent, for its part, presented the
testimony of its employee, Almeda Baaga, who testified that Jomero Realty refused to
honor the assignment of credit because it claimed that petitioner had an outstanding
indebtedness to it.
On August 25, 1994, the trial court rendered a decision[9] dismissing the complaint on
the ground that the assignment of credit extinguished the obligation. The decretal
portion thereof provides:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor
of the defendant and against the plaintiff, dismissing the complaint and ordering the
plaintiff to pay the defendant attorneys fees in the amount of P25,000.00.
Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the
appellate court rendered a decision,[10] the dispositive portion of which reads:
WHEREFORE, finding merit in this appeal, the court REVERSES the appealed
Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the
plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three
Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14)
with legal interest of 6% per annum from January 10, 1991(filing of the Complaint)
until fully paid and attorneys fees equivalent to 10% of the amount due and costs of
the suit.
SO ORDERED.[11]
In finding that the Deed of Assignment did not extinguish the obligation of the petitioner
to the respondent, the Court of Appeals held that (1) petitioner failed to comply with his
warranty under the Deed; (2) the object of the Deed did not exist at the time of the
transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3)
petitioner violated the terms of the Deed of Assignment when he failed to execute and
do all acts and deeds as shall be necessary to effectually enable the respondent to
recover the collectibles.[12]
Petitioner filed a motion for reconsideration of the said decision, which was denied by
the Court of Appeals.[13]
In this petition for review, petitioner assigns the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN
DECLARING THE DEED OF ASSIGNMENT (EXH. 4) AS NULL AND VOID FOR
LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
DEED OF ASSIGNMENT (EXH. 4) DID NOT EXTINGUISH PETITIONERS
OBLIGATION ON THE WRONG NOTION THAT PETITIONER FAILED TO
COMPLY WITH HIS WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE
DECISION OF THE TRIAL COURT AND IN ORDERING PAYMENT OF
INTERESTS AND ATTORNEYS FEES.[14]
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known
as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation,
and without the consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to enforce it to the same
extent as the assignor could enforce it against the debtor.[15]
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt.[16] In order that there be a valid dation in payment, the following are the requisites:
(1) There must be the performance of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal thing or a real right or a credit against
the third person; (2) There must be some difference between the prestation due and
that which is given in substitution (aliudpro alio); (3) There must be an agreement
between the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due.[17] The undertaking
really partakes in one sense of the nature of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for which is to be charged against the
debtors debt. As such, the vendor in good faith shall be responsible, for the existence
and legality of the credit at the time of the sale but not for the solvency of the debtor, in
specified circumstances.[18]
Hence, it may well be that the assignment of credit, which is in the nature of a sale of
personal property,[19] produced the effects of a dation in payment which may extinguish
the obligation.[20] However, as in any other contract of sale, the vendor or assignor is
bound by certain warranties. More specifically, the first paragraph of Article 1628 of the
Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit
at the time of the sale, unless it should have been sold as doubtful; but not for the
solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or
assignment. When Jomero claimed that it was no longer indebted to petitioner since
the latter also had an unpaid obligation to it, it essentially meant that its obligation to
petitioner has been extinguished by compensation. [21] In other words, respondent
alleged the non-existence of the credit and asserted its claim to petitioners warranty
under the assignment. Therefore, it behooved on petitioner to make good its warranty
and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of
Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and
expense, execute and do all such further acts and deeds as shall be reasonably
necessary to effectually enable said ASSIGNEE to recover whatever collectibles said
ASSIGNOR has in accordance with the true intent and meaning of these
presents.[22] (underscoring ours)
Indeed, by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He
should be held liable to pay to respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay
respondent the sum of P335,462.14 with legal interest thereon. However, we find that
the award by the Court of Appeals of attorneys fees is without factual basis. No
evidence or testimony was presented to substantiate this claim. Attorneys fees, being
in the nature of actual damages, must be duly substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals
dated April 19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent
the sum of P335,462.14 with legal interest of 6% per annum from January 10,
1991 until fully paid is AFFIRMED with MODIFICATION. Upon finality of this Decision,
the rate of legal interest shall be 12% per annum, inasmuch as the obligation shall
thereafter become equivalent to a forbearance of credit. [23] The award of attorneys fees
is DELETED for lack of evidentiary basis.
SO ORDERED.
[G.R. No. 168220. August 31, 2005]
SPS. RUDY PARAGAS and CORAZON B. PARAGAS, petitioners, vs. HRS. OF
DOMINADOR BALACANO, namely: DOMINIC, RODOLFO, NANETTE and CYRIC,
all surnamed BALACANO, represented by NANETTE BALACANO and ALFREDO
BALACANO, respondents.
RESOLUTION
CHICO-NAZARIO, J.:
This petition for review seeks to annul the Decision[1] dated 15 February 2005 of the
Court of Appeals in CA-G.R. CV No. 64048, affirming with modification the 8 March
1999 Decision[2] of the Regional Trial Court (RTC), Branch 21, of Santiago City, Isabela,
in Civil Case No. 21-2313. The petition likewise seeks to annul the Resolution [3] dated
17 May 2005 denying petitioners motion for reconsideration.
The factual antecedents were synthesized by the Court of Appeals in its decision.
Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot
1175-E and Lot 1175-F of the Subd. Plan Psd-38042 [located at Baluarte, Santiago
City, Isabela] covered by TCT No. T-103297 and TCT No. T-103298 of the Registry of
Deeds of the Province of Isabela.
Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all
surnamed Balacano. Lorenza died on December 11, 1991. Gregorio, on the other hand,
died on July 28, 1996.
Prior to his death, Gregorio was admitted at the Veterans General Hospital in
Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He
was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in
Quezon City where he was confined until his death.
Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion
of Lot 1175-E (specifically consisting of 15,925 square meters from its total area of
22,341 square meters) and the whole Lot 1175-F to the Spouses Rudy (Rudy) and
Corazon Paragas (collectively, the Spouses Paragas) for the total consideration
of P500,000.00. This sale appeared in a deed of absolute sale notarized by Atty.
Alexander V. de Guzman, Notary Public for Santiago City, on the same date July 22,
1996 and witnessed by Antonio Agcaoili (Antonio) and Julia Garabiles (Julia).
Gregorios certificates of title over Lots 1175-E and 1175-F were consequently
cancelled and new certificates of title were issued in favor of the Spouses Paragas.
The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting
of 6,416 square meters to Catalino for the total consideration of P60,000.00.
Domingos children (Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano;) filed
on October 22, 1996 a complaint for annulment of sale and partition against Catalino
and the Spouses Paragas. They essentially alleged in asking for the nullification of the
deed of sale that: (1) their grandfather Gregorio could not have appeared before the
notary public on July 22, 1996 at Santiago City because he was then confined at the
Veterans Memorial Hospital in Quezon City; (2) at the time of the alleged execution of
the deed of sale, Gregorio was seriously ill, in fact dying at that time, which vitiated his
consent to the disposal of the property; and (3) Catalino manipulated the execution of
the deed and prevailed upon the dying Gregorio to sign his name on a paper the
contents of which he never understood because of his serious condition. Alternatively,
they alleged that assuming Gregorio was of sound and disposing mind, he could only
transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their
grandmother Lorenza who predeceased Gregorio they claimed that Lots 1175-E and
1175-F form part of the conjugal partnership properties of Gregorio and Lorenza.
Finally, they alleged that the sale to the Spouses Paragas covers only a 5-hectare
portion of Lots 1175-E and 1175-F leaving a portion of 6,416 square meters that
Catalino is threatening to dispose. They asked for the nullification of the deed of sale
executed by Gregorio and the partition of Lots 1175-E and 1175-F. They likewise asked
for damages.
Instead of filing their Answer, the defendants Catalino and the Spouses Paragas moved
to dismiss the complaint on the following grounds: (1) the plaintiffs have no legal
capacity - the Domingos children cannot file the case because Domingo is still alive,
although he has been absent for a long time; (2) an indispensable party is not
impleaded that Gregorios other son, Alfredo was not made a party to the suit; and (3)
the complaint states no cause of action that Domingos children failed to allege a ground
for the annulment of the deed of sale; they did not cite any mistake, violence,
intimidation, undue influence or fraud, but merely alleged that Gregorio was seriously
ill. Domingos children opposed this motion.
The lower court denied the motion to dismiss, but directed the plaintiffs-appellees to
amend the complaint to include Alfredo as a party. Alfredo was subsequently declared
as in default for his failure to file his Answer to the Complaint.
The defendants-appellees filed their Answer with Counterclaim on May 7, 1997,
denying the material allegations of the complaint. Additionally, they claimed that: (1)
the deed of sale was actually executed by Gregorio on July 19 (or 18), 1996 and not
July 22, 1996; (2) the Notary Public personally went to the Hospital in Bayombong,
Nueva Vizcaya on July 18, 1996 to notarize the deed of sale already subject of a
previously concluded covenant between Gregorio and the Spouses Paragas; (3) at the
time Gregorio signed the deed, he was strong and of sound and disposing mind; (4)
Lots 1175-E and 1175-F were Gregorios separate capital and the inscription of
Lorenzas name in the titles was just a description of Gregorios marital status; (5) the
entire area of Lots 1175-E and 1175-F were sold to the Spouses Paragas. They
interposed a counterclaim for damages.
At the trial, the parties proceeded to prove their respective contentions.
Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their
complaint. On Gregorios medical condition, she declared that: (1) Gregorio, who was
then 81 years old, weak and sick, was brought to the hospital in Bayombong, Nueva
Vizcaya on June 28, 1996 and stayed there until the afternoon on July 19, 1996; (2)
thereafter, Gregorio, who by then was weak and could no longer talk and whose
condition had worsened, was transferred in the afternoon of July 19, 1996 to the
Veterans Memorial Hospital in Quezon City where Gregorio died. She claimed that
Gregorio could not have signed a deed of sale on July 19, 1996 because she stayed at
the hospital the whole of that day and saw no visitors. She likewise testified on their
agreement for attorney’s fees with their counsel and the litigation expenses they
incurred.
Additionally, the plaintiffs-appellees presented in evidence Gregorios medical records
and his death certificate.
Defendants-appellees, on the other hand, presented as witnesses Notary Public de
Guzman and instrumental witness Antonio to prove Gregorios execution of the sale
and the circumstances under the deed was executed. They uniformly declared that: (1)
on July 18, 1996, they went to the hospital in Bayombong, Nueva Vizcaya where
Gregorio was confined with Rudy; (2) Atty. De Guzman read and explained the contents
of the deed to Gregorio; (3) Gregorio signed the deed after receiving the money from
Rudy; (4) Julia and Antonio signed the deed as witnesses. Additionally, Atty. De
Guzman explained that the execution of the deed was merely a confirmation of a
previous agreement between the Spouses Paragas and Gregorio that was concluded
at least a month prior to Gregorios death; that, in fact, Gregorio had previously asked
him to prepare a deed that Gregorio eventually signed on July 18, 1996. He also
explained that the deed, which appeared to have been executed on July 22, 1996, was
actually executed on July 18, 1996; he notarized the deed and entered it in his register
only on July 22, 1996. He claimed that he did not find it necessary to state the precise
date and place of execution (Bayombong, Nueva Vizcaya, instead of Santiago City) of
the deed of sale because the deed is merely a confirmation of a previously agreed
contract between Gregorio and the Spouses Paragas. He likewise stated that of the
stated P500,000.00 consideration in the deed, Rudy paid Gregorio P450,000.00 in the
hospital because Rudy had previously paid Gregorio P50,000.00. For his part, Antonio
added that he was asked by Rudy to take pictures of Gregorio signing the deed. He
also claimed that there was no entry on the date when he signed; nor did he remember
reading Santiago City as the place of execution of the deed. He described Gregorio as
still strong but sickly, who got up from the bed with Julias help.
Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-E was
Gregorios separate property. She claimed that Gregorios father (Leon) purchased a
two-hectare lot from them in 1972 while the other lot was purchased from her neighbor.
She also declared that Gregorio inherited these lands from his father Leon; she does
not know, however, Gregorios brothers share in the inheritance. Defendant-appellant
Catalino also testified to corroborate the testimony of witness Luisa Agsalda; he said
that Gregorio told him that he (Gregorio) inherited Lots 1175-E and 1175-F from his
father Leon. He also stated that a portion of Lot 1175-E consisting of 6,416 square
meters was sold to him by the Spouses Paragas and that he will pay the Spouses
Paragas P50,000.00, not as consideration for the return of the land but for the transfer
of the title to his name.
Additionally, the defendants-appellants presented in evidence the pictures taken by
Antonio when Gregorio allegedly signed the deed.[4]
The lower court, after trial, rendered the decision declaring null and void the deed of
sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas
and Corazon Paragas. In nullifying the deed of sale executed by Gregorio, the lower
court initially noted that at the time Gregorio executed the deed, Gregorio was ill. The
lower courts reasoning in declaring the deed of sale null and void and this reasonings
premises may be summarized as follows: (1) the deed of sale was improperly notarized;
thus it cannot be considered a public document that is usually accorded the
presumption of regularity; (2) as a private document, the deed of sales due execution
must be proved in accordance with Section 20, Rule 132 of the Revised Rules on
Evidence either: (a) by anyone who saw the document executed or written; or (b) by
evidence of the genuineness of the signature or handwriting of the maker; and (3) it
was incumbent upon the Spouses Paragas to prove the deed of sales due execution
but failed to do so the lower court said that witness Antonio Agcaoili is not credible while
Atty. Alexander De Guzman is not reliable.[5]
The lower court found the explanations of Atty. De Guzman regarding the erroneous
entries on the actual place and date of execution of the deed of sale as justifications
for a lie. The lower court said
The Court cannot imagine an attorney to undertake to travel to another province to
notarize a document when he must certainly know, being a lawyer and by all means,
not stupid, that he has no authority to notarize a document in that province. The only
logical thing that happened was that Rudy Paragas brought the deed of sale to him on
July 22, 1996 already signed and requested him to notarize the same which he did, not
knowing that at that time the vendor was already in a hospital and [sic] Quezon City.
Of course had he known, Atty. De Guzman would not have notarized the document.
But he trusted Rudy Paragas and moreover, Gregorio Balacano already informed him
previously in June that he will sell his lands to Paragas. In addition [sic, (,) was omitted]
Rudy Paragas also told him that Balacano received an advance of P50,000.00.
The intention to sell is not actual selling. From the first week of June when, according
to Atty. De Guzman, Gregorio Balacano informed him that he will sell his land to Rudy
Paragas, enough time elapsed to the time he was brought to the hospital on June 28,
1996. Had there been a meeting of the minds between Gregorio Balacano and Rudy
Paragas regarding the sale, surely Gregorio Balacano would have immediately
returned to the office of Atty. De Guzman to execute the deed of sale. He did not until
he was brought to the hospital and diagnosed to have liver cirrhosis. Because of the
seriousness of his illness, it is not expected that Gregorio Balacano would be
negotiating a contract of sale. Thus, Rudy Paragas negotiated with Catalino
Balacano, the son of Gregorio Balacano with whom the latter was staying.[6]
The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragass driver,
a convincing witness, concluding that he was telling a rehearsed story. The lower court
said
The only portion of his testimony that is true is that he signed the document. How could
the Court believe that he brought a camera with him just to take pictures of the signing?
If the purpose was to record the proceeding for posterity, why did he not take the picture
of Atty. De Guzman when the latter was reading and explaining the document to
Gregorio Balacano? Why did he not take the picture of both Gregorio Balacano and
Atty. de Guzman while the old man was signing the document instead of taking a picture
of Gregorio Balacano alone holding a ball pen without even showing the document
being signed? Verily there is a picture of a document but only a hand with a ball pen is
shown with it. Why? Clearly the driver Antonio Agcaoili must have only been asked by
Rudy Paragas to tell a concocted story which he himself would not dare tell in Court
under oath.[7]
The lower court likewise noted that petitioner Rudy Paragas did not testify about the
signing of the deed of sale. To the lower court, Rudys refusal or failure to testify raises
a lot of questions, such as: (1) was he (Rudy) afraid to divulge the circumstances of
how he obtained the signature of Gregorio Balacano, and (2) was he (Rudy) afraid to
admit that he did not actually pay the P500,000.00 indicated in the deed of sale as the
price of the land?[8]
The lower court also ruled that Lots 1175-E and 1175-F were Gregorios and Lorenzas
conjugal partnership properties. The lower court found that these lots were acquired
during the marriage because the certificates of title of these lots clearly stated that the
lots are registered in the name Gregorio, married to Lorenza Sumigcay. Thus, the lower
court concluded that the presumption of law (under Article 160 of the Civil Code of the
Philippines) that property acquired during the marriage is presumed to belong to the
conjugal partnership fully applies to Lots 1175-E and 1175-F.[9]
Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered a
Decision[10] in Civil Case No. 21-2313, the dispositive portion of which reads as follows:
WHEREFORE in the light of the foregoing considerations judgment is hereby rendered:
1. DECLARING as NULL and VOID the deed of sale purportedly
executed by Gregorio Balacano in favor of the spouses Rudy
Paragas and Corazon Paragas over lots 1175-E and 1175-F
covered by TCT Nos. T-103297 and T-103298, respectively;
2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041
issued in the name of the spouses Rudy and Corazon Paragas by
virtue of the deed of sale; and
DECLARING the parcel of lands, lots 1175-E and 1175-F as part of the estate of the
deceased spouses Gregorio Balacano and Lorenza Balacano.[11]
In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed the
Decision of the trial court, with the modification that Lots 1175-E and 1175-F were
adjudged as belonging to the estate of Gregorio Balacano. The appellate court
disposed as follows:
WHEREFORE, premises considered, the appeal is hereby DISMISSED. We AFFIRM
the appealed Decision for the reasons discussed above, with the MODIFICATION that
Lots 1175-E and 1175-F belong to the estate of Gregorio Balacano.
Let a copy of this Decision be furnished the Office of the Bar Confidant for whatever
action her Office may take against Atty. De Guzman.[12] (Emphasis in the original.)
Herein petitioners motion for reconsideration was met with similar lack of success when
it was denied for lack of merit by the Court of Appeals in its Resolution[13] dated 17 May
2005.
Hence, this appeal via a petition for review where petitioners assign the following errors
to the Court of Appeals, viz:
 A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY ERRED IN FINDING THAT THERE WAS
NO PERFECTED AND PARTIALLY EXECUTED CONTRACT OF SALE
OVER LOTS 1175-E AND 1175-F PRIOR TO THE SIGNING OF THE
DEED OF SALE.
B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY FAILED TO APPRECIATE THE
SIGNIFICANCE OF THE JUDICIAL ADMISSION ON THE
AUTHENTICITY AND DUE EXECUTION OF THE DEED OF SALE
MADE BY THE RESPONDENTS DURING THE PRE-TRIAL
CONFERENCE.
C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, BASED ITS CONCLUSION THAT GREGORIOS
CONSENT TO THE SALE OF THE LOTS WAS ABSENT MERELY ON
SPECULATIONS AND SURMISES.
D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY ERRED IN NOT RULING ON THE ISSUE
OF RESPONDENTS LACK OF LEGAL CAPACITY TO SUE FOR NOT
BEING THE PROPER PARTIES IN INTEREST.
E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY ERRED IN DISMISSING ATTY.
ALEXANDER DE GUZMAN AND ANTONIO AGCAOILI AS NOT
CREDIBLE WITNESSES.[14]
At bottom is the issue of whether or not the Court of Appeals committed reversible error
in upholding the findings and conclusions of the trial court on the nullity of the Deed of
Sale purportedly executed between petitioners and the late Gregorio Balacano.
To start, we held in Blanco v. Quasha[15] that this Court is not a trier of facts. As such,
it is not its function to examine and determine the weight of the evidence supporting the
assailed decision. Factual findings of the Court of Appeals, which are supported by
substantial evidence, are binding, final and conclusive upon the Supreme Court, [16] and
carry even more weight when the said court affirms the factual findings of the trial court.
Moreover, well- entrenched is the prevailing jurisprudence that only errors of law and
not of facts are reviewable by this Court in a petition for review on certiorari under Rule
45 of the Revised Rules of Court.
The foregoing tenets in the case at bar apply with greater force to the petition under
consideration because the factual findings by the Court of Appeals are in full agreement
with that of the trial court.
Specifically, the Court of Appeals, in affirming the trial court, found that there was no
prior and perfected contract of sale that remained to be fully consummated. The
appellate court explained –
In support of their position, the defendants-appellants argue that at least a month prior
to Gregorios signing of the deed, Gregorio and the Spouses Paragas already agreed
on the sale of Lots 1175-E and 1175-F; and that, in fact, this agreement was partially
executed by Rudys payment to Gregorio of P50,000.00 before Gregorio signed the
deed at the hospital. In line with this position, defendants-appellants posit that
Gregorios consent to the sale should be determined, not at the time Gregorio signed
the deed of sale on July 18, 1996, but at the time when he agreed to sell the property
in June 1996 or a month prior to the deeds signing; and in June 1996, Gregorio was of
sound and disposing mind and his consent to the sale was in no wise vitiated at that
time. The defendants-appellants further argue that the execution or signing of the deed
of sale, however, irregular it might have been, does not affect the validity of the
previously agreed sale of the lots, as the execution or signing of the deed is merely a
formalization of a previously agreed oral contract.
...
In the absence of any note, memorandum or any other written instrument evidencing
the alleged perfected contract of sale, we have to rely on oral testimonies, which in this
case is that of Atty. de Guzman whose testimony on the alleged oral agreement may
be summarized as follows: (1) that sometime in the first week of June 1996, Gregorio
requested him (Atty. de Guzman) to prepare a deed of sale of two lots; (2) Gregorio
came to his firms office in the morning with a certain Doming Balacano, then returned
in the afternoon with Rudy; (3) he (Atty. de Guzman) asked Gregorio whether he really
intends to sell the lots; Gregorio confirmed his intention; (4) Gregorio and Rudy left the
law office at 5:00 p.m., leaving the certificates of title; (5) he prepared the deed a day
after Rudy and Gregorio came. With regard to the alleged partial execution of this
agreement, Atty. de Guzman said that he was told by Rudy that there was already a
partial payment of P50,000.00.
We do not consider Atty. de Guzmans testimony sufficient evidence to establish the
fact that there was a prior agreement between Gregorio and the Spouses Paragas on
the sale of Lots 1175-E and 1175-F. This testimony does not conclusively establish the
meeting of the minds between Gregorio and the Spouses Paragas on the price or
consideration for the sale of Lots 1175-E and 1175-F Atty. de Guzman merely declared
that he was asked by Gregorio to prepare a deed; he did not clearly narrate the details
of this agreement. We cannot assume that Gregorio and the Spouses Paragas agreed
to a P500,000.00 consideration based on Atty. de Guzmans bare assertion that
Gregorio asked him to prepare a deed, as Atty. de Guzman was not personally aware
of the agreed consideration in the sale of the lots, not being privy to the parties
agreement. To us, Rudy could have been a competent witness to testify on the
perfection of this prior contract; unfortunately, the defendants-appellants did not
present Rudy as their witness.
We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely
on his testimony because of his tendency to commit falsity. He admitted in open court
that while Gregorio signed the deed on July 18, 1996 at Bayombong, Nueva Vizcaya,
he nevertheless did not reflect these matters when he notarized the deed; instead he
entered Santiago City and July 22, 1996, as place and date of execution, respectively.
To us, Atty. de Guzmans propensity to distort facts in the performance of his public
functions as a notary public, in utter disregard of the significance of the act of
notarization, seriously affects his credibility as a witness in the present case. In fact,
Atty. de Guzmans act in falsifying the entries in his acknowledgment of the deed of sale
could be the subject of administrative and disciplinary action, a matter that we however
do not here decide.
Similarly, there is no conclusive proof of the partial execution of the contract because
the only evidence the plaintiffs-appellants presented to prove this claim was Atty. de
Guzmans testimony, which is hearsay and thus, has no probative value. Atty. de
Guzman merely stated that Rudy told him that Rudy already gave P50,000.00 to
Gregorio as partial payment of the purchase price; Atty. de Guzman did not personally
see the payment being made.[17]
But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F
when he signed the deed of sale? The trial court as well as the appellate court found in
the negative. In the Court of Appeals rationale-
It is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously
ill, as he in fact died a week after the deeds signing. Gregorio died of complications
caused by cirrhosis of the liver. Gregorios death was neither sudden nor immediate; he
fought at least a month-long battle against the disease until he succumbed to death on
July 22, 1996. Given that Gregorio purportedly executed a deed during the last stages
of his battle against his disease, we seriously doubt whether Gregorio could have read,
or fully understood, the contents of the documents he signed or of the consequences
of his act. We note in this regard that Gregorio was brought to the Veterans Hospital at
Quezon City because his condition had worsened on or about the time the deed was
allegedly signed. This transfer and fact of death not long after speak volumes about
Gregorios condition at that time. We likewise see no conclusive evidence that the
contents of the deed were sufficiently explained to Gregorio before he affixed his
signature. The evidence the defendants-appellants offered to prove Gregorios consent
to the sale consists of the testimonies of Atty. de Guzman and Antonio. As discussed
above, we do not find Atty. de Guzman a credible witness. Thus, we fully concur with
the heretofore-quoted lower courts evaluation of the testimonies given by Atty. de
Guzman and Antonio because this is an evaluation that the lower court was in a better
position to make.
Additionally, the irregular and invalid notarization of the deed is a falsity that raises
doubts on the regularity of the transaction itself. While the deed was indeed signed on
July 18, 1996 at Bayombong, Nueva Vizcaya, the deed states otherwise, as it shows
that the deed was executed on July 22, 1996 at Santiago City. Why such falsity was
committed, and the circumstances under which this falsity was committed, speaks
volume about the regularity and the validity of the sale. We cannot but consider the
commission of this falsity, with the indispensable aid of Atty. de Guzman, an
orchestrated attempt to legitimize a transaction that Gregorio did not intend to be
binding upon him nor on his bounty.
Article 24 of the Civil Code tells us that in all contractual, property or other relations,
when one of the parties is at a disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age or other handicap, the courts must
be vigilant for his protection.[18]Based on the foregoing, the Court of Appeals concluded
that Gregorios consent to the sale of the lots was absent, making the contract null and
void. Consequently, the spouses Paragas could not have made a subsequent transfer
of the property to Catalino Balacano. Indeed, nemo dat quod non habet. Nobody can
dispose of that which does not belong to him.[19]
We likewise find to be in accord with the evidence on record the ruling of the Court of
Appeals declaring the properties in controversy as paraphernal properties of Gregorio
in the absence of competent evidence on the exact date of Gregorios acquisition of
ownership of these lots.
On the credibility of witnesses, it is in rhyme with reason to believe the testimonies of
the witnesses for the complainants vis--vis those of the defendants. In the assessment
of the credibility of witnesses, we are guided by the following well-entrenched rules: (1)
that evidence to be believed must not only spring from the mouth of a credible witness
but must itself be credible, and (2) findings of facts and assessment of credibility of
witness are matters best left to the trial court who had the front-line opportunity to
personally evaluate the witnesses demeanor, conduct, and behavior while testifying. [20]
In the case at bar, we agree in the trial courts conclusion that petitioners star witness,
Atty. De Guzman is far from being a credible witness. Unlike this Court, the trial court
had the unique opportunity of observing the demeanor of said witness. Thus, we affirm
the trial court and the Court of Appeals uniform decision based on the whole evidence
in record holding the Deed of Sale in question to be null and void.
In Domingo v. Court of Appeals,[21] the Court declared as null and void the deed of sale
therein inasmuch as the seller, at the time of the execution of the alleged contract, was
already of advanced age and senile. We held
. . . She died an octogenarian on March 20, 1966, barely over a year when the deed
was allegedly executed on January 28, 1965, but before copies of the deed were
entered in the registry allegedly on May 16 and June 10, 1966. The general rule is that
a person is not incompetent to contract merely because of advanced years or by reason
of physical infirmities. However, when such age or infirmities have impaired the mental
faculties so as to prevent the person from properly, intelligently, and firmly protecting
her property rights then she is undeniably incapacitated. The unrebutted testimony of
Zosima Domingo shows that at the time of the alleged execution of the deed, Paulina
was already incapacitated physically and mentally. She narrated that Paulina played
with her waste and urinated in bed. Given these circumstances, there is in our view
sufficient reason to seriously doubt that she consented to the sale of and the price for
her parcels of land. Moreover, there is no receipt to show that said price was paid to
and received by her. Thus, we are in agreement with the trial courts finding and
conclusion on the matter: . . .
In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed
in the hospital. Gregorio was an octogenarian at the time of the alleged execution of
the contract and suffering from liver cirrhosis at that circumstances which raise grave
doubts on his physical and mental capacity to freely consent to the contract. Adding to
the dubiety of the purported sale and further bolstering respondents claim that their
uncle Catalino, one of the children of the decedent, had a hand in the execution of the
deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E
consisting of 6,416 square meters to Catalino for P60,000.00.[22] One need not stretch
his imagination to surmise that Catalino was in cahoots with petitioners in maneuvering
the alleged sale.
On the whole, we find no reversible error on the part of the appellate court in CA-G.R.
CV No. 64048 that would warrant the reversal thereof.
WHEREFORE, the present petition is hereby DENIED. Accordingly, the G.R. No. L-57499 June 22, 1984
Decision[23] and the Resolution,[24] dated 15 February 2005 and 17 May 2005,
respectively, of the Court of Appeals in CA-G.R. CV No. 64048 are hereby AFFIRMED. MERCEDES CALIMLIM- CANULLAS, petitioner,
No costs. vs.
HON. WILLELMO FORTUN, Judge, Court of First instance of Pangasinan,
Branch I, and CORAZON DAGUINES, respondents.

Fernandez Law Offices for petitioner.

Francisco Pulido for respondents.

MELENCIO-HERRERA, J.:

Petition for Review on certiorari assailing the Decision, dated October 6, 1980, and the
Resolution on the Motion for Reconsideration, dated November 27, 1980, of the then
Court of First Instance of Pangasinan, Branch I, in Civil Case No. 15620 entitled
"Corazon DAGUINES vs. MERCEDES Calimlim-Canullas," upholding the sale of a
parcel of land in favor of DAGUINES but not of the conjugal house thereon'

The background facts may be summarized as follows: Petitioner MERCEDES

Calimlim-Canullas and FERNANDO Canullas were married on December 19, 1962.
They begot five children. They lived in a small house on the residential land in question
with an area of approximately 891 square meters, located at Bacabac, Bugallon,
Pangasinan. After FERNANDO's father died in 1965, FERNANDO inherited the land.

In 1978, FERNANDO abandoned his family and was living with private respondent
Corazon DAGUINES. During the pendency of this appeal, they were convicted of
concubinage in a judgment rendered on October 27, 1981 by the then Court of First
Instance of Pangasinan, Branch II, which judgment has become final.

On April 15, 1980, FERNANDO sold the subject property with the house thereon to
DAGUINES for the sum of P2,000.00. In the document of sale, FERNANDO described
the house as "also inherited by me from my deceased parents."

Unable to take possession of the lot and house, DAGUINES initiated a complaint on
June 19, 1980 for quieting of title and damages against MERCEDES. The latter resisted
and claimed that the house in dispute where she and her children were residing,
including the coconut trees on the land, were built and planted with conjugal funds and
through her industry; that the sale of the land together with the house and
improvements to DAGUINES was null and void because they are conjugal properties
and she had not given her consent to the sale,

In its original judgment, respondent Court principally declared DAGUINES "as the
lawful owner of the land in question as well as the one-half () of the house erected on
said land." Upon reconsideration prayed for by MERCEDES, however, respondent
Court resolved:
 WHEREFORE, the dispositive portion of the Decision of this Court,
promulgated on October 6, 1980, is hereby amended to read as
follows:
(1) Declaring plaintiff as the true and lawful owner of the land in
question and the 10 coconut trees;
(2) Declaring as null and void the sale of the conjugal house to
plaintiff on April 15, 1980 (Exhibit A) including the 3 coconut trees
and other crops planted during the conjugal relation between
Fernando Canullas (vendor) and his legitimate wife, herein
defendant Mercedes Calimlim- Canullas;
xxx xxx xxx
The issues posed for resolution are (1) whether or not the construction of a conjugal
house on the exclusive property of the husband ipso facto gave the land the character
of conjugal property; and (2) whether or not the sale of the lot together with the house
and improvements thereon was valid under the circumstances surrounding the
transaction.
The determination of the first issue revolves around the interpretation to be given to the
second paragraph of Article 158 of the Civil Code, which reads:
xxx xxx xxx
Buildings constructed at the expense of the partnership during the
marriage on land belonging to one of the spouses also pertain to the
partnership, but the value of the land shall be reimbursed to the
spouse who owns the same.
We hold that pursuant to the foregoing provision both the land and the building belong
to the conjugal partnership but the conjugal partnership is indebted to the husband for
the value of the land. The spouse owning the lot becomes a creditor of the conjugal
partnership for the value of the lot, 1 which value would be reimbursed at the liquidation
of the conjugal partnership. 2
In his commentary on the corresponding provision in the Spanish Civil Code (Art. 1404),
Manresa stated:
El articulo cambia la doctrine; los edificios construidos durante el
matrimonio en suelo propio de uno de los conjuges son gananciales,
abonandose el valor del suelo al conj uge a quien pertenezca.
It is true that in the case of Maramba vs. Lozano, 3 relied upon by respondent Judge, it
was held that the land belonging to one of the spouses, upon which the spouses have
built a house, becomes conjugal property only when the conjugal partnership is
liquidated and indemnity paid to the owner of the land. We believe that the better rule
is that enunciated by Mr. Justice J.B.L. Reyes in Padilla vs. Paterno, 3 SCRA 678, 691
(1961), where the following was explained:
As to the above properties, their conversion from paraphernal to
conjugal assets should be deemed to retroact to the time the
conjugal buildings were first constructed thereon or at the very latest,
to the time immediately before the death of Narciso A. Padilla that
ended the conjugal partnership. They can not be considered to have
become conjugal property only as of the time their values were paid
to the estate of the widow Concepcion Paterno because by that time
the conjugal partnership no longer existed and it could not acquire
the ownership of said properties. The acquisition by the partnership
of these properties was, under the 1943 decision, subject to the
suspensive condition that their values would be reimbursed to the
widow at the liquidation of the conjugal partnership; once paid, the
effects of the fulfillment of the condition should be deemed to retroact
to the date the obligation was constituted (Art. 1187, New Civil Code)
...
The foregoing premises considered, it follows that FERNANDO could not have
alienated the house and lot to DAGUINES since MERCEDES had not given her
consent to said sale. 4
Anent the second issue, we find that the contract of sale was null and void for being
contrary to morals and public policy. The sale was made by a husband in favor of a
concubine after he had abandoned his family and left the conjugal home where his wife
and children lived and from whence they derived their support. That sale was
subversive of the stability of the family, a basic social institution which public policy
cherishes and protects. 5
Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or
purpose is contrary to law, morals, good customs, public order, or public policy
are void and inexistent from the very beginning.
Article 1352 also provides that: "Contracts without cause, or with unlawful cause,
produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals,
good customs, public order, or public policy."
Additionally, the law emphatically prohibits the spouses from selling property to each
other subject to certain exceptions.6 Similarly, donations between spouses during
marriage are prohibited. 7 And this is so because if transfers or con conveyances
between spouses were allowed during marriage, that would destroy the system of
conjugal partnership, a basic policy in civil law. It was also designed to prevent the
exercise of undue influence by one spouse over the other, 8 as well as to protect the
institution of marriage, which is the cornerstone of family law. The prohibitions apply to
a couple living as husband and wife without benefit of marriage, otherwise, "the
condition of those who incurred guilt would turn out to be better than those in legal
union." Those provisions are dictated by public interest and their criterion must be
imposed upon the wig of the parties. That was the ruling in Buenaventura vs.
Bautista, also penned by Justice JBL Reyes (CA) 50 O.G. 3679, and cited
in Matabuena vs. Cervantes. 9 We quote hereunder the pertinent dissertation on this
point:
We reach a different conclusion. While Art. 133 of the Civil Code
considers as void a donation between the spouses during the
marriage, policy considerations of the most exigent character as wen
as the dictates of morality require that the same prohibition should
apply to a common-law relationship.
As announced in the outset of this opinion, a 1954 Court of Appeals
decision, Buenaventura vs. Bautista, 50 OG 3679, interpreting a
similar provision of the old Civil Code speaks unequivocally. If the
policy of the law is, in the language of the opinion of the then Justice
J.B.L. Reyes of that Court, 'to prohibit donations in favor of the other
consort and his descendants because of fear of undue influence
and improper pressure upon the donor, a prejudice deeply rooted in
our ancient law, ..., then there is every reason to apply the same
prohibitive policy to persons living together as husband and wife
without benefit of nuptials. For it is not to be doubted that assent to
such irregular connection for thirty years bespeaks greater influence
of one party over the other, so that the danger that the law seeks to
avoid is correspondingly increased'. Moreover, as pointed out by
Ulpian (in his lib 32 ad Sabinum, fr. 1), "It would not be just that such
donations — should subsist, lest the conditions of those who incurred
guilt should turn out to be better." So long as marriage remains the
cornerstone of our family law, reason and morality alike demand that
the disabilities attached to marriage should likewise attach
to concubinage (Emphasis supplied),
WHEREFORE, the Decision of respondent Judge, dated October 6, 1980, and his
Resolution of November 27, 1980 on petitioner's Motion for Reconsideration, are
hereby set aside and the sale of the lot, house and improvements in question, is hereby
declared null and void. No costs.
SO ORDERED.
G.R. No. L-35702 May 29, 1973
DOMINGO D. RUBIAS, plaintiff-appellant,
vs.
ISAIAS BATILLER, defendant-appellee.
Gregorio M. Rubias for plaintiff-appellant.
Vicente R. Acsay for defendant-appellee.
TEEHANKEE, J.:
In this appeal certified by the Court of Appeals to this Court as involving purely legal
questions, we affirm the dismissal order rendered by the Iloilo court of first instance
after pre-trial and submittal of the pertinent documentary exhibits.
Such dismissal was proper, plaintiff having no cause of action, since it was duly
established in the record that the application for registration of the land in question filed
by Francisco Militante, plaintiff's vendor and predecessor interest, had been dismissed
by decision of 1952 of the land registration court as affirmed by final judgment in 1958
of the Court of Appeals and hence, there was no title or right to the land that could be
transmitted by the purported sale to plaintiff.
As late as 1964, the Iloilo court of first instance had in another case of ejectment
likewise upheld by final judgment defendant's "better right to possess the land in
question . having been in the actual possession thereof under a claim of title many
years before Francisco Militante sold the land to the plaintiff."
Furthermore, even assuming that Militante had anything to sell, the deed of sale
executed in 1956 by him in favor of plaintiff at a time when plaintiff was concededly his
counsel of record in the land registration case involving the very land in dispute
(ultimately decided adversely against Militante by the Court of Appeals' 1958 judgment
affirming the lower court's dismissal of Militante's application for registration) was
properly declared inexistent and void by the lower court, as decreed by Article 1409 in
relation to Article 1491 of the Civil Code.
The appellate court, in its resolution of certification of 25 July 1972, gave the following
backgrounder of the appeal at bar:
On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a
suit to recover the ownership and possession of certain portions of
lot under Psu-99791 located in Barrio General Luna, Barotac Viejo,
Iloilo which he bought from his father-in-law, Francisco Militante in
1956 against its present occupant defendant, Isaias Batiller, who
illegally entered said portions of the lot on two occasions — in 1945
and in 1959. Plaintiff prayed also for damages and attorneys fees.
(pp. 1-7, Record on Appeal). In his answer with counter-claim
defendant claims the complaint of the plaintiff does not state a cause
of action, the truth of the matter being that he and his predecessors-
in-interest have always been in actual, open and continuous
possession since time immemorial under claim of ownership of the
portions of the lot in question and for the alleged malicious institution
of the complaint he claims he has suffered moral damages in the
amount of P 2,000.00, as well as the sum of P500.00 for attorney's
fees. ...
On December 9, 1964, the trial court issued a pre-trial order, after a
pre-trial conference between the parties and their counsel which
order reads as follows..
'When this case was called for a pre-trial
conference today, the plaintiff appeared assisted
by himself and Atty. Gregorio M. Rubias. The
defendant also appeared, assisted by his counsel
Atty. Vicente R. Acsay.
A. During the pre-trial conference, the parties have
agreed that the following facts are attendant in this
case and that they will no longer introduced any
evidence, testimonial or documentary to prove
them:
1. That Francisco Militante claimed ownership of a parcel of land
located in the Barrio of General Luna, municipality of Barotac Viejo
province of Iloilo, which he caused to be surveyed on July 18-31,
1934, whereby he was issued a plan Psu-99791 (Exhibit "B"). (The
land claimed contained an area of 171:3561 hectares.)
2. Before the war with Japan, Francisco Militante filed with the Court
of First Instance of Iloilo an application for the registration of the title
of the land technically described in psu-99791 (Exh. "B") opposed by
the Director of Lands, the Director of Forestry and other oppositors.
However, during the war with Japan, the record of the case was lost
before it was heard, so after the war Francisco Militante petitioned
this court to reconstitute the record of the case. The record was
reconstituted on the Court of the First Instance of Iloilo and docketed
as Land Case No. R-695, GLRO Rec. No. 54852. The Court of First
Instance heard the land registration case on November 14, 1952,
and after the trial this court dismissed the application for registration.
The appellant, Francisco Militante, appealed from the decision of this
Court to the Court of Appeals where the case was docketed as CA-
GR No. 13497-R..
3. Pending the disposal of the appeal in CA-GR No. 13497-R and
more particularly on June 18, 1956, Francisco Militante sold to the
plaintiff, Domingo Rubias the land technically described in psu-
99791 (Exh. "A"). The sale was duly recorded in the Office of the
Register of Deeds for the province of Iloilo as Entry No. 13609 on
July 11, 1960 (Exh. "A-1").
(NOTE: As per deed of sale, Exh. A, what Militante purportedly sold
to plaintiff-appellant, his son-in-law,for the sum of P2,000.00 was "a
parcel of untitled land having an area Of 144.9072 hectares ...
surveyed under Psu 99791 ... (and) subject to the exclusions made
by me, under (case) CA-i3497, Land Registration Case No. R-695,
G.L.R.O. No. 54852, Court of First Instance of the province of Iloilo.
These exclusions referred to portions of the original area of over 171
hectares originally claimed by Militante as applicant, but which he
expressly recognized during the trial to pertain to some oppositors,
such as the Bureau of Public Works and Bureau of Forestry and
several other individual occupants and accordingly withdrew his
application over the same. This is expressly made of record in Exh.
A, which is the Court of Appeals' decision of 22 September 1958
confirming the land registration court's dismissal of Militante's
application for registration.)
4. On September 22,1958 the Court of appeals in CA-G.R. No.
13497-R promulgated its judgment confirming the decision of this
Court in Land Case No. R-695, GLRO Rec. No. 54852 which
dismissed the application for Registration filed by Francisco Militante
(Exh. "I").
5. Domingo Rubias declared the land described in Exh. 'B' for
taxation purposes under Tax Dec. No. 8585 (Exh. "C") for 1957; Tax
Dec. Nos. 9533 (Exh. "C-1") and 10019 (Exh. "C-3")for the year
1961; Tax Dec. No. 9868 (Exh. "C-2") for the year 1964, paying the
land taxes under Tax Dec. No. 8585 and 9533 (Exh. "D", "D-1", "G-
6").
6. Francisco Militante immediate predecessor-in-interest of the
plaintiff, has also declared the land for taxation purposes under Tax
Dec. No. 5172 in 1940 (Exh. "E") for 1945; under Tax Dec. No. T-86
(Exh. "E-1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), and paid
the land taxes for 1940 (Exhs. "G" and "G-7"), for 1945 46 (Exh. "G-
1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G-3"), for 1948 (Exh.
"G-4"), and for 1948 and 1949 (Exh. "G-5").
7. Tax Declaration No. 2434 in the name of Liberato Demontaño for
the land described therein (Exh. "F") was cancelled by Tax. Dec. No.
5172 of Francisco Militante (Exh. "E"). Liberato Demontaño paid the
land tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the years
1938 (50%) and 1959 (Exh. "H").
8. The defendant had declared for taxation purposes Lot No. 2 of the
Psu-155241 under Tax Dec. Not. 8583 for 1957 and a portion of Lot
No. 2, Psu-155241, for 1945 under Tax Dec. No. 8584 (Exh. "2-A"
Tax No. 8583 (Exh. "2") was revised by Tax Dec. No. 9498 in the
name of the defendant (Exh. "2-B") and Tax Dec. No. 8584 (Exh. "2-
A") was cancelled by Tax Dec. No. 9584 also in the name of the
defendant (Exh. "2-C"). The defendant paid the land taxes for Lot 2,
 Psu-155241, on Nov. 9, 1960 for the years 1945 and 1946, for the
year 1950, and for the year 1960 as shown by the certificate of the
treasurer (Exh. "3"). The defendant may present to the Court other
land taxes receipts for the payment of taxes for this lot.
9. The land claimed by the defendant as his own was surveyed on
June 6 and 7,1956, and a plan approved by Director of Land on
November 15, 1956 was issued, identified as Psu 155241 (Exh. "5").
10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer
case against Isaias Batiller in the Justice of the Peace Court of
Barotac Viejo Province of Iloilo (Exh. "4") to which the defendant
Isaias Batiller riled his answer on August 29, 1960 (Exh. "4-A").
The Municipal Court of Barotac Viejo after trial, decided the case on
May 10, 1961 in favor of the defendant and against the plaintiff (Exh.
"4-B"). The plaintiff appealed from the decision of the Municipal
Court of Barotac Viejo which was docketed in this Court as Civil Case
No. 5750 on June 3, 1961, to which the defendant, Isaias Batiller, on
June 13, 1961 filed his answer (Exh. "4-C"). And this Court after the
trial. decided the case on November 26, 1964, in favor of the
defendant, Isaias Batiller and against the plaintiff (Exh. "4-D").
(NOTE: As per Exh. 4-B, which is the Iloilo court of first instance
decision of 26 November 1964 dismissing plaintiff's therein
complaint for ejectment against defendant, the iloilo court expressly
found "that plaintiff's complaint is unjustified, intended to harass the
defendant" and "that the defendant, Isaias Batiller, has a better
right to possess the land in question described in Psu 155241 (Exh.
"3"), Isaias Batiller having been in the actual physical
possession thereof under a claim of title many years before
Francisco Militante sold the land to the plaintiff-hereby dismissing
plaintiff's complaint and ordering the plaintiff to pay the defendant
attorney's fees ....")
B. During the trial of this case on the merit, the plaintiff will prove by competent evidence
the following:
1. That the land he purchased from Francisco Militante under Exh.
"A" was formerly owned and possessed by Liberato Demontaño but
that on September 6, 1919 the land was sold at public auction by
virtue of a judgment in a Civil Case entitled "Edw J. Pflieder plaintiff
vs. Liberato Demontaño Francisco Balladeros and Gregorio Yulo,
defendants", of which Yap Pongco was the purchaser (Exh. "1-3").
The sale was registered in the Office of the Register of Deeds of Iloilo
on August 4, 1920, under Primary Entry No. 69 (Exh. "1"), and a
definite Deed of Sale was executed by Constantino A. Canto,
provincial Sheriff of Iloilo, on Jan. 19, 1934 in favor of Yap Pongco
(Exh. "I"), the sale having been registered in the Office of the
Register of Deeds of Iloilo on February 10, 1934 (Exh. "1-1").
2. On September 22, 1934, Yap Pongco sold this land to Francisco
Militante as evidenced by a notarial deed (Exh. "J") which was
registered in the Registry of Deeds on May 13, 1940 (Exh. "J-1").
3. That plaintiff suffered damages alleged in his complaint.
C. Defendants, on the other hand will prove by competent evidence during the trial of
this case the following facts:
1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned
and possessed by Felipe Batiller, grandfather of the defendant
Basilio Batiller, on the death of the former in 1920, as his sole heir.
Isaias Batiller succeeded his father , Basilio Batiller, in the ownership
and possession of the land in the year 1930, and since then up to the
present, the land remains in the possession of the defendant, his
possession being actual, open, public, peaceful and continuous in
the concept of an owner, exclusive of any other rights and adverse
to all other claimants.
2. That the alleged predecessors in interest of the plaintiff have never
been in the actual possession of the land and that they never had
any title thereto.
3. That Lot No. 2, Psu 155241, the subject of Free Patent application
of the defendant has been approved.
4. The damages suffered by the defendant, as alleged in his
counterclaim."'1
The appellate court further related the developments of the case, as follows:
On August 17, 1965, defendant's counsel manifested in open court
that before any trial on the merit of the case could proceed he would
file a motion to dismiss plaintiff's complaint which he did, alleging
thatplaintiff does not have cause of action against him because the
property in dispute which he (plaintiff) allegedly bought from his
father-in-law, Francisco Militante was the subject matter of LRC No.
695 filed in the CFI of Iloilo, which case was brought on appeal to
this Court and docketed as CA-G.R. No. 13497-R in which aforesaid
case plaintiff was the counsel on record of his father-in-law,
Francisco Militante. Invoking Arts. 1409 and 1491 of the Civil Code
which reads:
'Art. 1409. The following contracts are inexistent
and void from the beginning:
xxx xxx xxx
(7) Those expressly prohibited by law.
'ART. 1491. The following persons cannot acquire
any purchase, even at a public auction, either in
person of through the mediation of another: .
xxx xxx xxx
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with the
administration of justice, the property and rights of in litigation or
levied upon an execution before the court within whose jurisdiction
or territory they exercise their respective functions; this prohibition
includes the act of acquiring an assignment and shall apply
to lawyers, with respect to the property and rights which may be the
object of any litigation in which they may take part by virtue of their
profession.'
defendant claims that plaintiff could not have acquired any interest in
the property in dispute as the contract he (plaintiff) had with
Francisco Militante was inexistent and void. (See pp. 22-31, Record
on Appeal). Plaintiff strongly opposed defendant's motion to dismiss
claiming that defendant can not invoke Articles 1409 and 1491 of the
Civil Code as Article 1422 of the same Code provides that 'The
defense of illegality of contracts is not available to third persons
whose interests are not directly affected' (See pp. 32-35 Record on
Appeal).
On October 18, 1965, the lower court issued an order disclaiming
plaintiffs complaint (pp. 42-49, Record on Appeal.) In the aforesaid
order of dismissal the lower court practically agreed with defendant's
contention that the contract (Exh. A) between plaintiff and Francism
Militante was null and void. In due season plaintiff filed a motion for
reconsideration (pp. 50-56 Record on Appeal) which was denied by
the lower court on January 14, 1966 (p. 57, Record on Appeal).
Hence, this appeal by plaintiff from the orders of October 18, 1965
and January 14, 1966.
Plaintiff-appellant imputes to the lower court the following errors:
'1. The lower court erred in holding that the
contract of sale between the plaintiff-appellant and
his father-in-law, Francisco Militante, Sr., now
deceased, of the property covered by Plan Psu-
99791, (Exh. "A") was void, not voidable because
it was made when plaintiff-appellant was the
counsel of the latter in the Land Registration case.
'2. The lower court erred in holding that the
defendant-appellee is an interested person to
question the validity of the contract of sale
between plaintiff-appellant and the deceased,
Francisco Militante, Sr.
'3. The lower court erred in entertaining the motion
to dismiss of the defendant-appellee after he had
already filed his answer, and after the termination
of the pre-trial, when the said motion to dismiss
raised a collateral question.
'4. The lower court erred in dismissing the
complaint of the plaintiff-appellant.'
The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2)
legal posers — (1) whether or not the contract of sale between appellant and his father-
in-law, the late Francisco Militante over the property subject of Plan Psu-99791 was
void because it was made when plaintiff was counsel of his father-in-law in a land
registration case involving the property in dispute; and (2) whether or not the lower
court was correct in entertaining defendant-appellee's motion to dismiss after the latter
had already filed his answer and after he (defendant) and plaintiff-appellant had agreed
on some matters in a pre-trial conference. Hence, its elevation of the appeal to this
Court as involving pure questions of law.
It is at once evident from the foregoing narration that the pre-trial conference held by
the trial court at which the parties with their counsel agreed and stipulated on the
material and relevant facts and submitted their respective documentary exhibits as
referred to in the pre-trial order, supra,2 practically amounted to a fulldress trial which
placed on record all the facts and exhibits necessary for adjudication of the case.
The three points on which plaintiff reserved the presentation of evidence at the-trial
dealing with the source of the alleged right and title of Francisco Militante's
predecessors, supra,3 actually are already made of record in the stipulated
facts and admitted exhibits. The chain of Militante's alleged title and right to the land as
supposedly traced back to Liberato Demontaño was actually asserted by Militante (and
his vendee, lawyer and son-in-law, herein plaintiff) in the land registration case
and rejected by the Iloilo land registration court which dismissed Militante's application
for registration of the land. Such dismissal, as already stated, was affirmed by the final
judgment in 1958 of the Court of Appeals.4
The four points on which defendant on his part reserved the presentation of evidence
at the trial dealing with his and his ancestors' continuous, open, public and peaceful
possession in the concept of owner of the land and the Director of Lands' approval of
his survey plan thereof, supra,5 are likewise already duly established facts of record, in
the land registration case as well as in the ejectment case wherein the Iloilo court of
first instance recognized the superiority of defendant's right to the land as against
plaintiff.
No error was therefore committed by the lower court in dismissing plaintiff's complaint
upon defendant's motion after the pre-trial.
1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of
cause of action and justified the outright dismissal of the complaint. Plaintiff's claim of
ownership to the land in question was predicated on the sale thereof for P2,000.00
made in 1956 by his father-in- law, Francisco Militante, in his favor, at a time when
Militante's application for registration thereof had already been dismissed by the Iloilo
land registration court and was pending appeal in the Court of Appeals.
With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's
application for registration, the lack of any rightful claim or title of Militante to the land
was conclusively and decisively judicially determined. Hence, there was no right or
title to the land that could be transferred or sold by Militante's purported sale in 1956 in
favor of plaintiff.
Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner
of the land and to be restored to possession thereof with damages was bereft of any
factual or legal basis.
2. No error could be attributed either to the lower court's holding that the purchase by
a lawyer of the property in litigation from his client is categorically prohibited by Article
1491, paragraph (5) of the Philippine Civil Code, reproduced supra;6 and that
consequently, plaintiff's purchase of the property in litigation from his client (assuming
that his client could sell the same since as already shown above, his client's claim to
the property was defeated and rejected) was void and could produce no legal effect,
by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts
"expressly prohibited or declared void by law' are "inexistent and that "(T)hese contracts
cannot be ratified. Neither can the right to set up the defense of illegality be waived."
The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that
a sale of property in litigation to the party litigant's lawyer "is not void but voidable at
the election of the vendor" was correctly held by the lower court to have been
superseded by the later 1929 case of Director of Lands vs. Abagat.8 In this later case
of Abagat, the Court expressly cited two antecedent cases involving the same
transaction of purchase of property in litigation by the lawyer which was expressly
declared invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of
our Civil Code of the Philippines is the counterpart) upon challenge thereof not by the
vendor-client but by the adverse parties against whom the lawyer was to enforce his
rights as vendee thus acquired.
These two antecedent cases thus cited in Abagat clearly superseded (without so
expressly stating the previous ruling in Wolfson:
The spouses, Juan Soriano and Vicente Macaraeg, were the owners
of twelve parcels of land. Vicenta Macaraeg died in November, 1909,
leaving a large number of collateral heirs but no descendants.
Litigation between the surviving husband, Juan Soriano, and the
heirs of Vicenta immediately arose, and the herein appellant
Sisenando Palarca acted as Soriano's lawyer. On May 2, 1918,
Soriano executed a deed for the aforesaid twelve parcels of land in
favor of Sisenando Palarca and on the following day, May 3, 1918,
Palarca filed an application for the registration of the land in the
deed. After hearing, the Court of First Instance declared that the
deed was invalid by virtue of the provisions of article 1459 of the Civil
Code, which prohibits lawyers and solicitors from purchasing
property rights involved in any litigation in which they take part by
virtue of their profession. The application for registration was
consequently denied, and upon appeal by Palarca to the Supreme
Court, the judgement of the lower court was affirmed by a decision
promulgated November 16,1925. (G.R. No. 24329, Palarca vs.
Director of Lands, not reported.)
In the meantime cadastral case No. 30 of the Province of Tarlac was
instituted, and on August 21, 1923, Eleuteria Macaraeg, as
administratrix of the estate of Vicente Macaraeg, filed claims for the
parcels in question. Buenaventura Lavitoria administrator of the
estate of Juan Soriano, did likewise and so did Sisenando Palarca.
In a decision dated June 21, 1927, the Court of First Instance, Judge
Carballo presiding, rendered judgment in favor of Palarea and
ordered the registration of the land in his name. Upon appeal to this
court by the administration of the estates of Juan Soriano and
Vicente Macaraeg, the judgment of the court below was reversed
and the land adjudicated to the two estates as conjugal property of
the deceased spouses. (G.R. No. 28226, Director of Lands vs.
Abagat, promulgated May 21, 1928, not reported.)9
In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of
the lawyer's purchase of the land in litigation from his client, ordered the issuance of a
writ of possession for the return of the land by the lawyer to the adverse parties without
reimbursement of the price paid by him and other expenses, and ruled that "the
appellant Palarca is a lawyer and is presumed to know the law. He must, therefore,
from the beginning, have been well aware of the defect in his title and is, consequently,
a possessor in bad faith."
As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the
Civil Code of Spain then adopted here, until it was superseded on August 30, 1950 by
the Civil Code of the Philippines whose counterpart provision is Article 1491.
Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in
its six paragraphs certain persons, by reason of the relation of trust or their peculiar
control over the property, from acquiring such property in their trust or control either
directly or indirectly and "even at a public or judicial auction," as follows: (1) guardians;
(2) agents; (3) administrators; (4) public officers and employees; judicial officers and
employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified
by law.
In Wolfson which involved the sale and assignment of a money judgment by the client
to the lawyer, Wolfson, whose right to so purchase the judgment was being challenged
by the judgment debtor, the Court, through Justice Moreland, then expressly reserved
decision on "whether or not the judgment in question actually falls within the prohibition
of the article" and held only that the sale's "voidability can not be asserted by one not
a party to the transaction or his representative," citing from Manresa 10 that
"(C)onsidering the question from the point of view of the civil law, the view taken by the
code, we must limit ourselves to classifying as void all acts done contrary to the express
prohibition of the statute. Now then: As the code does not recognize such nullity by the
mere operation of law, the nullity of the acts hereinbefore referred to must be asserted
by the person having the necessary legal capacity to do so and decreed by a
competent
court." 11
The reason thus given by Manresa in considering such prohibited acquisitions under
Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of
the vendor and not void — "that the Code does not recognize such nullity de pleno
derecho" — is no longer true and applicable to our own Philippine Civil Code
which does recognize the absolute nullity of contracts "whose cause, object, or purpose
is contrary to law, morals, good customs, public order or public policy" or which are
"expressly prohibited or declared void by law" and declares such contracts "inexistent
and void from the beginning." 12
The Supreme Court of Spain and modern authors have likewise veered from Manresa's
view of the Spanish codal provision itself. In its sentencia of 11 June 1966, the
Supreme Court of Spain ruled that the prohibition of Article 1459 of the Spanish Civil
Code is based on public policy, that violation of the prohibition contract cannot be
validated by confirmation or ratification, holding that:
... la prohibicion que el articulo 1459 del C.C. establece respecto a
los administradores y apoderados, la cual tiene conforme a la
doctrina de esta Sala, contendia entre otras, en S. de 27-5-1959, un
fundamento de orden moral lugar la violacion de esta a la nulidad de
pleno derecho del acto o negocio celebrado, ... y prohibicion legal,
afectante orden publico, no cabe con efecto alguno la
aludida retification ... 13
The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish
Civil Code (Article 1491 of our Civil Code) as a matter of public order and policy as
applied by the Supreme Court of Spain to administrators and agents in its above cited
decision should certainly apply with greater reason to judges, judicial officers, fiscals
and lawyers under paragraph 5 of the codal article.
Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his
"Curso de Derecho Civil, (Contratos Especiales)" (Madrid, 1968) p. 18, affirms that,
with respect to Article 1459, Spanish Civil Code:.
Que caracter tendra la compra que se realice por estas personas?
Porsupuesto no cabe duda de que el caso (art.) 1459, 40 y 50, la
nulidad esabsoluta porque el motivo de la prohibicion es de orden
publico. 14
Perez Gonzales in such view, stating that "Dado el caracter prohibitivo delprecepto, la
consequencia de la infraccion es la nulidad radical y ex lege." 15
Castan, quoting Manresa's own observation that.
"El fundamento do esta prohibicion es clarisimo. No sa trata con este precepto tan solo
de guitar la ocasion al fraude; persiguese, ademasel proposito de rodear a las
personas que intervienen en la administrcionde justicia de todos los retigios que
necesitan pora ejercer su ministerio librandolos de toda suspecha, que aunque fuere
in fundada, redundura endescredito de la institucion." 16 arrives at the contrary and now
accepted view that "Puede considerace en nuestro derecho inexistente 'o radicalmente
nulo el contrato en los siguentes cases: a) ...; b) cuando el contrato se ha celebrado en
violacion de una prescripcion 'o prohibicion legal, fundada sobre motivos de orden
publico (hipotesis del art. 4 del codigo) ..." 17
It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration
of public policy render void and inexistent such expressly prohibited purchase (e.g. by
public officers and employees of government property intrusted to them and by justices,
judges, fiscals and lawyers of property and rights in litigation and submitted to or
handled by them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has
been adopted in a new article of our Civil Code, viz, Article 1409 declaring such
prohibited contracts as "inexistent and void from the beginning." 18
Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be
cured by ratification. The public interest and public policy remain paramount and do not
permit of compromise or ratification. In his aspect, the permanent disqualification of
public and judicial officers and lawyers grounded on public policy differs from the first
three cases of guardians, agents and administrators (Article 1491, Civil Code), as to
whose transactions it had been opined that they may be "ratified" by means of and in
"the form of a new contact, in which cases its validity shall be determined only by the
circumstances at the time the execution of such new contract. The causes of nullity
which have ceased to exist cannot impair the validity of the new contract. Thus, the
object which was illegal at the time of the first contract, may have already become lawful
at the time of the ratification or second contract; or the service which was impossible
may have become possible; or the intention which could not be ascertained may have
been clarified by the parties. The ratification or second contract would then be valid
from its execution; however, it does not retroact to the date of the first contract." 19
As applied to the case at bar, the lower court therefore properly acted upon defendant-
appellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of
the land, since its juridical effects and plaintiff's alleged cause of action founded thereon
were being asserted against defendant-appellant. The principles governing the nullity
of such prohibited contracts and judicial declaration of their nullity have been well
restated by Tolentino in his treatise on our Civil Code, as follows:
Parties Affected. — Any person may invoke the in existence of the
contract whenever juridical effects founded thereon are asserted
against him. Thus, if there has been a void transfer of property, the
transferor can recover it by the accion reinvindicatoria; and any
prossessor may refuse to deliver it to the transferee, who cannot
 enforce the contract. Creditors may attach property of the debtor
which has been alienated by the latter under a void contract; a
mortgagee can allege the inexistence of a prior encumbrance; a
debtor can assert the nullity of an assignment of credit as a defense
to an action by the assignee.
Action On Contract. — Even when the contract is void or inexistent,
an action is necessary to declare its inexistence, when it has already
been fulfilled. Nobody can take the law into his own hands; hence,
the intervention of the competent court is necessary to declare the
absolute nullity of the contract and to decree the restitution of what
has been given under it. The judgment, however, will retroact to the
very day when the contract was entered into.
If the void contract is still fully executory, no party need bring an
action to declare its nullity; but if any party should bring an action to
enforce it, the other party can simply set up the nullity as a
defense. 20
ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in
all instances against plaintiff-appellant. So ordered.
[G.R. No. L-8477. May 31, 1956.]
THE PHILIPPINE TRUST COMPANY, as Guardian of the Property of the minor,
MARIANO L. BERNARDO, Petitioner, vs. SOCORRO ROLDAN, FRANCISCO
HERMOSO, FIDEL C. RAMOS and EMILIO CRUZ, Respondents.
DECISION
BENGZON, J.:
As guardian of the property of the minor Mariano L. Bernardo, the Philippine Trust
Company filed in the Manila court of first instance a complaint to annul two contracts
regarding 17 parcels of land: (a) sale thereof by Socorro Roldan, as guardian of said
minor, to Fidel C. Ramos; (b) sale thereof by Fidel C. Ramos to Socorro Roldan
personally. The complaint likewise sought to annul a conveyance of four out of the said
seventeen parcels by Socorro Roldan to Emilio Cruz.
The action rests on the proposition that the first two sales were in reality a sale by the
guardian to herself — therefore, null and void under Article 1459 of the Civil Code. As
to the third conveyance, it is also ineffective, because Socorro Roldan had acquired no
valid title to convey to Cruz.
The material facts of the case are not complicated. These 17 parcels located in
Guguinto, Bulacan, were part of the properties inherited by Mariano L. Bernardo from
his father, Marcelo Bernardo, deceased. In view of his minority, guardianship
proceedings were instituted, wherein Socorro Roldan was appointed his guardian. She
was the surviving spouse of Marcelo Bernardo, and the stepmother of said Mariano L.
Bernardo.
On July 27, 1947, Socorro Roldan filed in said guardianship proceedings (Special
Proceeding 2485, Manila), a motion asking for authority to sell as guardian the 17
parcels for the sum of P14,700 to Dr. Fidel C. Ramos, the purpose of the sale being
allegedly to invest the money in a residential house, which the minor desired to have
on Tindalo Street, Manila. The motion was granted.
On August 5, 1947 Socorro Roldan, as guardian, executed the proper deed of sale in
favor of her brother-in-law Dr. Fidel C. Ramos (Exhibit A-1), and on August 12, 1947
she asked for, and obtained, judicial confirmation of the sale. On August 13, 1947, Dr.
Fidel C. Ramos executed in favor of Socorro Roldan, personally, a deed of conveyance
covering the same seventeen parcels, for the sum of P15,000 (Exhibit A-2). And on
October 21, 1947 Socorro Roldan sold four parcels out of the seventeen to Emilio Cruz
for P3,000, reserving to herself the right to repurchase (Exhibit A-3).
The Philippine Trust Company replaced Socorro Roldan as guardian, on August 10,
1948. And this litigation, started two months later, seeks to undo what the previous
guardian had done. The step-mother in effect, sold to herself, the properties of her
ward, contends the Plaintiff, and the sale should be annulled because it violates Article
1459 of the Civil Code prohibiting the guardian from purchasing “either in person or
through the mediation of another” the property of her ward.
The court of first instance, following our decision in Rodriguez vs. Mactal, 60 Phil. 13
held the article was not controlling, because there was no proof that Fidel C. Ramos
was a mere intermediary or that the latter had previously agreed with Socorro Roldan
to buy the parcels for her benefit.
However, taking the former guardian at her word - she swore she had repurchased the
lands from Dr. Fidel C. Ramos to preserve it and to give her protege opportunity to
redeem — the court rendered judgment upholding the contracts but allowing the minor
to repurchase all the parcels by paying P15,000, within one year.
The Court of Appeals affirmed the judgment, adding that the minor knew the particulars
of, and approved the transaction, and that “only clear and positive evidence of fraud or
bad faith, and not mere insinuations and inferences will overcome the presumptions
that a sale was concluded in all good faith for value”.
At first glance the resolutions of both courts accomplished substantial justice: the minor
recovers his properties. But if the conveyances are annulled as prayed for, the minor
will obtain a better deal: he receives all the fruits of the lands from the year 1947 (Article
1303 Civil Code) and will return P14,700, not P15,000.
To our minds the first two transactions herein described couldn’t be in a better juridical
situation than if this guardian had purchased the seventeen parcels on the day following
the sale to Dr. Ramos. Now, if she was willing to pay P15,000 why did she sell the
parcels for less? In one day (or actually one week) the price could not have risen so
suddenly. Obviously when, seeking approval of the sale she represented the price to
be the best obtainable in the market, she was not entirely truthful. This is one phase to
consider.
Again, supposing she knew the parcels were actually worth P17,000; then she agreed
to sell them to Dr. Ramos at P14,700; and knowing the realty’s value she offered him
the next day P15,000 or P15,500, and got it. Will there be any doubt that she was
recreant to her guardianship, and that her acquisition should be nullified? Even without
proof that she had connived with Dr. Ramos. Remembering the general doctrine that
guardianship is a trust of the highest order, and the trustee cannot be allowed to have
any inducement to neglect his ward’s interest and in line with the court’s suspicion
whenever the guardian acquires the ward’s property 1 we have no hesitation to declare
that in this case, in the eyes of the law, Socorro Roldan took by purchase her ward’s
parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies.
She acted it may be true without malice; there may have been no previous agreement
between her and Dr. Ramos to the effect that the latter would buy the lands for her. But
the stubborn fact remains that she acquired her protege’s properties, through her
brother-in-law. That she planned to get them for herself at the time of selling them to
Dr. Ramos, may be deduced from the very short time between the two sales (one
week). The temptation which naturally besets a guardian so circumstanced,
necessitates the annulment of the transaction, even if no actual collusion is proved (so
hard to prove) between such guardian and the intermediate purchaser. This would
uphold a sound principle of equity and justice. 2
We are aware of course that in Rodriguez vs. Mactal, 60 Phil. p. 13 wherein the
guardian Mactal sold in January 1926 the property of her ward to Silverio Chioco, and
in March 1928 she bought it from Chioco, this Court said:
“In order to bring the sale in this case within the part of Article 1459, quoted above, it is
essential that the proof submitted establish some agreement between Silverio Chioco
and Trinidad Mactal to the effect that Chioco should buy the property for the benefit of
Mactal. If there was no such agreement, either express or implied, then the sale cannot
be set aside.
However, the underlined portion was not intended to establish a general principle of
law applicable to all subsequent litigations. It merely meant that the subsequent
purchase by Mactal could not be annulled in that particular case because there was no
proof of a previous agreement between Chioco and her. The court then considered
such proof necessary to establish that the two sales were actually part of one scheme
— guardian getting the ward’s property through another person — because two years
had elapsed between the sales. Such period of time was sufficient to dispel the natural
suspicion of the guardian’s motives or actions. In the case at bar, however, only one
week had elapsed. And if we were technical, we could say, only one day had elapsed
from the judicial approval of the sale (August 12), to the purchase by the guardian (Aug.
13).
Attempting to prove that the transaction was beneficial to the minor, Appellee’s attorney
alleges that the money (P14,700) invested in the house on Tindalo Street produced for
him rentals of P2,400 yearly; whereas the parcels of land yielded to his step-mother
only an average of P1,522 per year. 3 The argument would carry some weight if that
house had been built out of the purchase price of P14,700 only. 4 One thing is certain:
the calculation does not include the price of the lot on which the house was erected.
Estimating such lot at P14,700 only, (ordinarily the city lot is more valuable than the
building) the result is that the price paid for the seventeen parcels gave the minor an
income of only P1,200 a year, whereas the harvest from the seventeen parcels netted
his step-mother a yearly profit of P1,522.00. The minor was thus on the losing end.
Hence, from both the legal and equitable standpoints these three sales should not be
sustained: the first two for violation of article 1459 of the Civil Code; and the third
because Socorro Roldan could pass no title to Emilio Cruz. The annulment carries with
is (Article 1303 Civil Code) the obligation of Socorro Roldan to return the 17 parcels
together with their fruits and the duty of the minor, through his guardian to repay
P14,700 with legal interest.
Judgment is therefore rendered:
a. Annulling the three contracts of sale in question;
b. declaring the minor as the owner of the seventeen parcels of land, with the obligation
to return to Socorro Roldan the price of P14,700 with legal interest from August 12,
1947;
c. Ordering Socorro Roldan and Emilio Cruz to deliver said parcels of land to the minor;
d. Requiring Socorro Roldan to pay him beginning with 1947 the fruits, which her
attorney admits, amounted to P1,522 a year;
e. Authorizing the minor to deliver directly to Emilio Cruz, out of the price of P14,700
above mentioned, the sum of P3,000;
f. charging Appellees with the costs.
SO ORDERED.
G.R. No. L-68838 March 11, 1991
FLORENCIO FABILLO and JOSEFA TANA (substituted by their heirs Gregorio
Fabillo, Roman Fabillo, Cristeta F. Maglinte and Antonio Fabillo), petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (Third Civil Case
Division) and ALFREDO MURILLO (substituted by his heirs Fiamita M. Murillo,
Flor M. Agcaoili and Charito M. Babol), respondents.
Francisco A. Tan for petitioners.
Von Kaiser P. Soro for private respondent.
FERNAN, C.J.:
In the instant petition for review on certiorari, petitioners seek the reversal of the
appellate court's decision interpreting in favor of lawyer Alfredo M. Murillo the contract
of services entered into between him and his clients, spouses Florencio Fabillo and
Josefa Taña.
In her last will and testament dated August 16, 1957, Justina Fabillo bequeathed to her
brother, Florencio, a house and lot in San Salvador Street, Palo, Leyte which was
covered by tax declaration No. 19335, and to her husband, Gregorio D. Brioso, a piece
of land in Pugahanay, Palo, Leyte.1 After Justina's death, Florencio filed a petition for
the probate of said will. On June 2, 1962, the probate court approved the project of
partition "with the reservation that the ownership of the land declared under Tax
Declaration No. 19335 and the house erected thereon be litigated and determined in a
separate proceedings."2
Two years later, Florencio sought the assistance of lawyer Alfredo M. Murillo in
recovering the San Salvador property. Acquiescing to render his services, Murillo wrote
Florencio the following handwritten letter:
Dear Mr. Fabillo:
I have instructed my stenographer to prepare the complaint and file the same on
Wednesday if you are ready with the filing fee and sheriffs fee of not less than P86.00
including transportation expenses.
Considering that Atty. Montilla lost this case and the present action is a revival of a lost
case, I trust that you will gladly give me 40% of the money value of the house and lot as
a contigent (sic) fee in case of a success. When I come back I shall prepare the contract
of services for your signature.
Thank you.
Cordially yours,
(Sgd.) Alfredo M. Murillo
Aug. 9, 19643
Thirteen days later, Florencio and Murillo entered into the following contract:
CONTRACT OF SERVICES
KNOW ALL MEN BY THESE PRESENTS:
That I, FLORENCIO FABILLO, married to JOSEFA TANA, of legal
age, Filipino citizen and with residence and postal address at Palo,
Leyte, was the Petitioner in Special Proceedings No. 843, entitled "In
the Matter of the Testate Estate of the late Justina Fabillo, Florencio
Fabillo, Petitioner" of the Court of First Instance of Leyte;
That by reason of the Order of the Court of First Instance of Leyte
dated June 2, 1962, my claim for the house and lot mentioned in
paragraph one (1) of the last will and testament of the late Justina
Fabillo, was denied altho the will was probated and allowed by the
Court;
That acting upon the counsel of Atty. Alfredo M. Murillo, I have
cause(d) the preparation and filing of another case, entitled
"Florencio Fabillo vs. Gregorio D. Brioso," which was docketed as
Civil Case No. 3532 of the Court of First Instance of Leyte;
That I have retained and engaged the services of Atty. ALFREDO M.
MURILLO, married and of legal age, with residence and postal
address at Santa Fe, Leyte to be my lawyer not only in Social
Proceedings No. 843 but also in Civil Case No. 3532 under the
following terms and conditions;
That he will represent me and my heirs, in case of my demise in the
two cases until their successful conclusion or until the case is settled
to my entire satisfaction;
That for and in consideration for his legal services, in the two cases,
I hereby promise and bind myself to pay Atty. ALFREDO M.
MURILLO, in case of success in any or both cases the sum
equivalent to FORTY PER CENTUM (40%) of whatever benefit I may
derive from such cases to be implemented as follows:
If the house and lot in question is finally awarded to me or a part of
the same by virtue of an amicable settlement, and the same is sold,
Atty. Murillo, is hereby constituted as Atty. in-fact to sell and convey
the said house and lot and he shall be given as his compensation for
his services as counsel and as attorney-in-fact the sum equivalent to
forty per centum of the purchase price of the house and lot;
 If the same house and lot is just mortgage(d) to any person, Atty.
Murillo shall be given the sum equivalent to forty per centum (40%)
of the proceeds of the mortgage;
If the house and lot is leased to any person, Atty. Murillo shall be
entitled to receive an amount equivalent to 40% (FORTY PER
CENTUM) of the rentals of the house and lot, or a part thereof;
If the house and lot or a portion thereof is just occupied by the
undersigned or his heirs, Atty. Murillo shall have the option of either
occupying or leasing to any interested party FORTY PER CENT of
the house and lot.
Atty. Alfredo M. Murillo shall also be given as part of his
compensation for legal services in the two cases FORTY PER
CENTUM of whatever damages, which the undersigned can collect
in either or both cases, provided, that in case I am awarded attorney's
fees, the full amount of attorney's fees shall be given to the said Atty.
ALFREDO M. MURILLO;
That in the event the house and lot is (sic) not sold and the same is
maintained by the undersigned or his heirs, the costs of repairs,
maintenance, taxes and insurance premiums shall be for the account
of myself or my heirs and Attorney Murillo, in proportion to our rights
and interest thereunder that is forty per cent shall be for the account
of Atty. Murillo and sixty per cent shall be for my account or my heirs.
IN WITNESS HEREOF, I hereby set unto my signature below this
22nd day of August 1964 at Tacloban City.
(Sgd.) FLORENCIO FABILLO
(Sgd.) JOSEFA T. FABILLO
WITH MY CONFORMITY:
(Sgd.) ALFREDO M. MURILLO
(Sgd.) ROMAN T. FABILLO (Sgd.) CRISTETA F. MAGLINTE
(Witness) (Witness)4
Pursuant to said contract, Murillo filed for Florencio Fabillo Civil Case No. 3532 against
Gregorio D. Brioso to recover the San Salvador property. The case was terminated on
October 29, 1964 when the court, upon the parties' joint motion in the nature of a
compromise agreement, declared Florencio Fabillo as the lawful owner not only of the
San Salvador property but also the Pugahanay parcel of land.
Consequently, Murillo proceeded to implement the contract of services between him
and Florencio Fabillo by taking possession and exercising rights of ownership over 40%
of said properties. He installed a tenant in the Pugahanay property.
Sometime in 1966, Florencio Fabillo claimed exclusive right over the two properties and
refused to give Murillo his share of their produce.5 Inasmuch as his demands for his
share of the produce of the Pugahanay property were unheeded, Murillo filed on March
23, 1970 in the then Court of First Instance of Leyte a complaint captioned "ownership
of a parcel of land, damages and appointment of a receiver" against Florencio Fabillo,
his wife Josefa Taña, and their children Ramon (sic) Fabillo and Cristeta F. Maglinte.6
Murillo prayed that he be declared the lawful owner of forty per cent of the two
properties; that defendants be directed to pay him jointly and severally P900.00 per
annum from 1966 until he would be given his share of the produce of the land plus
P5,000 as consequential damages and P1,000 as attorney's fees, and that defendants
be ordered to pay moral and exemplary damages in such amounts as the court might
deem just and reasonable.
In their answer, the defendants stated that the consent to the contract of services of the
Fabillo spouses was vitiated by old age and ailment; that Murillo misled them into
believing that Special Proceedings No. 843 on the probate of Justina's will was already
terminated when actually it was still pending resolution; and that the contingent fee of
40% of the value of the San Salvador property was excessive, unfair and
unconscionable considering the nature of the case, the length of time spent for it, the
efforts exerted by Murillo, and his professional standing.
They prayed that the contract of services be declared null and void; that Murillo's fee
be fixed at 10% of the assessed value of P7,780 of the San Salvador property; that
Murillo be ordered to account for the P1,000 rental of the San Salvador property which
he withdrew from the court and for the produce of the Pugahanay property from 1965
to 1966; that Murillo be ordered to vacate the portion of the San Salvador property
which he had occupied; that the Pugahanay property which was not the subject of either
Special Proceedings No. 843 or Civil Case No. 3532 be declared as the exclusive
property of Florencio Fabillo, and that Murillo be ordered to pay moral damages and
the total amount of P1,000 representing expenses of litigation and attorney's fees.
In its decision of December 2, 1975,7 the lower court ruled that there was insufficient
evidence to prove that the Fabillo spouses' consent to the contract was vitiated. It noted
that the contract was witnessed by two of their children who appeared to be highly
educated. The spouses themselves were old but literate and physically fit.
In claiming jurisdiction over the case, the lower court ruled that the complaint being one
"to recover real property from the defendant spouses and their heirs or to enforce a lien
thereon," the case could be decided independent of the probate proceedings. Ruling
that the contract of services did not violate Article 1491 of the Civil Code as said
contract stipulated a contingent fee, the court upheld Murillo's claim for "contingent
attorney's fees of 40% of the value of recoverable properties." However, the court
declared Murillo to be the lawful owner of 40% of both the San Salvador and Pugahanay
properties and the improvements thereon. It directed the defendants to pay jointly and
severally to Murillo the amount of P1,200 representing 40% of the net produce of the
Pugahanay property from 1967 to 1973; entitled Murillo to 40% of the 1974 and 1975
income of the Pugahanay property which was on deposit with a bank, and ordered
defendants to pay the costs of the suit.
Both parties filed motions for the reconsideration of said decision: Fabillo, insofar as
the lower court awarded 40% of the properties to Murillo and the latter insofar as it
granted only P1,200 for the produce of the properties from 1967 to 1973. On January
29, 1976, the lower court resolved the motions and modified its decision thus:
ACCORDINGLY, the judgment heretofore rendered is modified to read as
follows:
(a) Declaring the plaintiff as entitled to and the true and lawful owner of forty
percent (40%) of the parcels of land and improvements thereon covered by
Tax Declaration Nos. 19335 and 6229 described in Paragraph 5 of the
complaint;
(b) Directing all the defendants to pay jointly and severally to the plaintiff the
sum of Two Thousand Four Hundred Fifty Pesos (P2,450.00) representing
40% of the net produce of the Pugahanay property from 1967 to 1973;
(c) Declaring the plaintiff entitled to 40% of the 1974 and 1975 income of said
riceland now on deposit with the Prudential Bank, Tacloban City, deposited by
Mr. Pedro Elona, designated receiver of the property;
(d) Ordering the defendants to pay the plaintiff the sum of Three Hundred
Pesos (P 300.00) as attorney's fees; and
(e) Ordering the defendants to pay the costs of this suit.
SO ORDERED.
In view of the death of both Florencio and Justina Fabillo during the pendency of the
case in the lower court, their children, who substituted them as parties to the case,
appealed the decision of the lower court to the then Intermediate Appellate Court. On
March 27, 1984, said appellate court affirmed in toto the decision of the lower court.8
The instant petition for review on certiorari which was interposed by the Fabillo children,
was filed shortly after Murillo himself died. His heirs likewise substituted him in this
case. The Fabillos herein question the appellate court's interpretation of the contract of
services and contend that it is in violation of Article 1491 of the Civil Code.
The contract of services did not violate said provision of law. Article 1491 of the Civil
Code, specifically paragraph 5 thereof, prohibits lawyers from acquiring by purchase
even at a public or judicial auction, properties and rights which are the objects of
litigation in which they may take part by virtue of their profession. The said prohibition,
however, applies only if the sale or assignment of the property takes place during the
pendency of the litigation involving the client's property. 9
Hence, a contract between a lawyer and his client stipulating a contingent fee is not
covered by said prohibition under Article 1491 (5) of the Civil Code because the
payment of said fee is not made during the pendency of the litigation but only after
judgment has been rendered in the case handled by the lawyer. In fact, under the 1988
Code of Professional Responsibility, a lawyer may have a lien over funds and property
of his client and may apply so much thereof as may be necessary to satisfy his lawful
fees and disbursements.10
As long as the lawyer does not exert undue influence on his client, that no fraud is
committed or imposition applied, or that the compensation is clearly not excessive as
to amount to extortion, a contract for contingent fee is valid and
enforceable.11 Moreover, contingent fees were impliedly sanctioned by No. 13 of the
Canons of Professional Ethics which governed lawyer-client relationships when the
contract of services was entered into between the Fabillo spouses and Murillo.12
However, we disagree with the courts below that the contingent fee stipulated between
the Fabillo spouses and Murillo is forty percent of the properties subject of the litigation
for which Murillo appeared for the Fabillos. A careful scrutiny of the contract shows that
the parties intended forty percent of the value of the properties as Murillo's contingent
fee. This is borne out by the stipulation that "in case of success of any or both cases,"
Murillo shall be paid "the sum equivalent to forty per centum of whatever benefit" Fabillo
would derive from favorable judgments. The same stipulation was earlier embodied by
Murillo in his letter of August 9, 1964 aforequoted.
Worth noting are the provisions of the contract which clearly states that in case the
properties are sold, mortgaged, or leased, Murillo shall be entitled respectively to 40%
of the "purchase price," "proceeds of the mortgage," or "rentals." The contract is vague,
however, with respect to a situation wherein the properties are neither sold, mortgaged
or leased because Murillo is allowed "to have the option of occupying or leasing to any
interested party forty per cent of the house and lot." Had the parties intended that
Murillo should become the lawful owner of 40% of the properties, it would have been
clearly and unequivocally stipulated in the contract considering that the Fabillos would
part with actual portions of their properties and cede the same to Murillo.
The ambiguity of said provision, however, should be resolved against Murillo as it was
he himself who drafted the contract.13 This is in consonance with the rule of
interpretation that, in construing a contract of professional services between a lawyer
and his client, such construction as would be more favorable to the client should be
adopted even if it would work prejudice to the lawyer. 14 Rightly so because of the
inequality in situation between an attorney who knows the technicalities of the law on
the one hand and a client who usually is ignorant of the vagaries of the law on the other
hand.15
Considering the nature of the case, the value of the properties subject matter thereof,
the length of time and effort exerted on it by Murillo, we hold that Murillo is entitled to
the amount of Three Thousand Pesos (P3,000.00) as reasonable attorney's fees for
services rendered in the case which ended on a compromise agreement. In so ruling,
we uphold "the time-honored legal maxim that a lawyer shall at all times uphold the
integrity and dignity of the legal profession so that his basic ideal becomes one of
rendering service and securing justice, not money-making. For the worst scenario that
can ever happen to a client is to lose the litigated property to his lawyer in whom all G.R. No. L-22487 May 21, 1969
trust and confidence were bestowed at the very inception of the legal controversy."16
ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by
WHEREFORE, the decision of the then Intermediate Appellate Court is hereby their respective husbands, HILARIO ROMANO, FELIPE BERNARDO, and
reversed and set aside and a new one entered (a) ordering the petitioners to pay Atty. MAXIMO LACANDALO, ISABEL ATILANO and GREGORIO ATILANO, plaintiffs-
Alfredo M. Murillo or his heirs the amount of P3,000.00 as his contingent fee with legal appellees,
interest from October 29, 1964 when Civil Case No. 3532 was terminated until the vs.
amount is fully paid less any and all amounts which Murillo might have received out of LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants.
the produce or rentals of the Pugahanay and San Salvador properties, and (b) ordering
the receiver of said properties to render a complete report and accounting of his Climaco and Azcarraga for plaintiff-appellee.
receivership to the court below within fifteen (15) days from the finality of this decision. T. de los Santos for defendants-appellants.
Costs against the private respondent.
MAKALINTAL, J.:

In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No.
535 of the then municipality of Zamboanga cadastre. The vendee thereafter obtained
transfer certificate of title No. 1134 in his name. In 1920 he had the land subdivided into
five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively.
On May 18 of the same year, after the subdivision had been effected, Eulogio Atilano
I, for the sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his
brother Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129
in his name. Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were
likewise sold to other persons, the original owner, Eulogio Atilano I, retaining for himself
only the remaining portion of the land, presumably covered by the title to lot No. 535-
A. Upon his death the title to this lot passed to Ladislao Atilano, defendant in this case,
in whose name the corresponding certificate (No. T-5056) was issued.

On December 6, 1952, Eulogio Atilano II having become a widower upon the death of
his wife Luisa Bautista, he and his children obtained transfer certificate of title No. 4889
over lot No. 535-E in their names as co-owners. Then, on July 16, 1959, desiring to put
an end to the co-ownership, they had the land resurveyed so that it could properly be
subdivided; and it was then discovered that the land they were actually occupying on
the strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E,
as referred to in the deed, while the land which remained in the possession of the
vendor, Eulogio Atilano I, and which passed to his successor, defendant Ladislao
Atilano, was lot No. 535-E and not lot No. 535-A.

On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased,
filed the present action in the Court of First Instance of Zamboanga, alleging, inter alia,
that they had offered to surrender to the defendants the possession of lot No. 535-A
and demanded in return the possession of lot No. 535-E, but that the defendants had
refused to accept the exchange. The plaintiffs' insistence is quite understandable, since
lot No. 535-E has an area of 2,612 square meters, as compared to the 1,808 square-
meter area of lot No. 535-A.

In their answer to the complaint the defendants alleged that the reference to lot No.
535-E in the deed of sale of May 18, 1920 was an involuntary error; that the intention
of the parties to that sale was to convey the lot correctly identified as lot No. 535-A; that
since 1916, when he acquired the entirety of lot No. 535, and up to the time of his death,
Eulogio Atilano I had been possessing and had his house on the portion designated as WHEREFORE, the judgment appealed from is reversed. The plaintiffs are ordered to
lot No. 535-E, after which he was succeeded in such possession by the defendants execute a deed of conveyance of lot No. 535-E in favor of the defendants, and the latter
herein; and that as a matter of fact Eulogio Atilano I even increased the area under his in turn, are ordered to execute a similar document, covering lot No. 595-A, in favor of
possession when on June 11, 1920 he bought a portion of an adjoining lot, No. 536, the plaintiffs. Costs against the latter.
from its owner Fruto del Carpio. On the basis of the foregoing allegations the
defendants interposed a counterclaim, praying that the plaintiffs be ordered to execute
in their favor the corresponding deed of transfer with respect to lot No. 535-E.

The trial court rendered judgment for the plaintiffs on the sole ground that since the
property was registered under the Land Registration Act the defendants could not
acquire it through prescription. There can be, of course, no dispute as to the
correctness of this legal proposition; but the defendants, aside from alleging adverse
possession in their answer and counterclaim, also alleged error in the deed of sale of
May 18, 1920, thus: "Eulogio Atilano 1.o, por equivocacion o error involuntario, cedio y
traspaso a su hermano Eulogio Atilano 2.do el lote No. 535-E en vez del Lote No. 535-
A."lawphi1.ñet

The logic and common sense of the situation lean heavily in favor of the defendants'
contention. When one sells or buys real property — a piece of land, for example — one
sells or buys the property as he sees it, in its actual setting and by its physical metes
and bounds, and not by the mere lot number assigned to it in the certificate of title. In
the particular case before us, the portion correctly referred to as lot No. 535-A was
already in the possession of the vendee, Eulogio Atilano II, who had constructed his
residence therein, even before the sale in his favor even before the subdivision of the
entire lot No. 535 at the instance of its owner, Eulogio Atillano I. In like manner the latter
had his house on the portion correctly identified, after the subdivision, as lot No. 535-
E, even adding to the area thereof by purchasing a portion of an adjoining property
belonging to a different owner. The two brothers continued in possession of the
respective portions the rest of their lives, obviously ignorant of the initial mistake in the
designation of the lot subject of the 1920 until 1959, when the mistake was discovered
for the first time.

The real issue here is not adverse possession, but the real intention of the parties to
that sale. From all the facts and circumstances we are convinced that the object thereof,
as intended and understood by the parties, was that specific portion where the vendee
was then already residing, where he reconstructed his house at the end of the war, and
where his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-
A; and that its designation as lot No. 535-E in the deed of sale was simple mistake in
the drafting of the document.1âwphi1.ñet The mistake did not vitiate the consent of the
parties, or affect the validity and binding effect of the contract between them. The new
Civil Code provides a remedy for such a situation by means of reformation of the
instrument. This remedy is available when, there having been a meeting of the funds
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
on accident (Art. 1359, et seq.) In this case, the deed of sale executed in 1920 need no
longer reformed. The parties have retained possession of their respective properties
conformably to the real intention of the parties to that sale, and all they should do is to
execute mutual deeds of conveyance.
G.R. No. L-24732 April 30, 1968
PIO SIAN MELLIZA, petitioner,
vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT
APPEALS, respondents.
Cornelio P. Ravena for petitioner.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Juliana Melliza during her lifetime owned, among other properties, three parcels of
residential land in Iloilo City registered in her name under Original Certificate of Title
No. 3462. Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area
of Lot No. 1214 was 29,073 square meters.
On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square
meters of Lot 1214, to serve as site for the municipal hall. 1 The donation was however
revoked by the parties for the reason that the area donated was found inadequate to
meet the requirements of the development plan of the municipality, the so-called
"Arellano Plan". 2
Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-
A and 1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot
1214-B-2 and Lot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B-1 with
4,562 square meters, became known as Lot 1214-B; Lot 1214-B-2, with 6,653 square
meters, was designated as Lot 1214-C; and Lot 1214-B-13, with 4,135 square meters,
became Lot 1214-D.
On November 15, 1932 Juliana Melliza executed an instrument without any caption
containing the following:
Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS
VEINTIDOS PESOS (P6,422.00), moneda filipina que por la presente declaro
haber recibido a mi entera satisfaccion del Gobierno Municipal de Iloilo, cedo
y traspaso en venta real y difinitiva a dicho Gobierno Municipal de Iloilo los
lotes y porciones de los mismos que a continuacion se especifican a saber:
el lote No. 5 en toda su extension; una porcion de 7669 metros cuadrados del
lote No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del
piano de subdivision de dichos lotes preparado por la Certeza Surveying Co.,
Inc., y una porcion de 10,788 metros cuadrados del lote No. 1214 — cuya
porcion esta designada como sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismo
plano de subdivision.
Asimismo nago constar que la cesion y traspaso que ariba se mencionan es
de venta difinitiva, y que para la mejor identificacion de los lotes y porciones
de los mismos que son objeto de la presente, hago constar que dichos lotes
y porciones son los que necesita el Gobierno Municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government
Center de iloilo, segun el plano Arellano.
On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to
Remedios Sian Villanueva who thereafter obtained her own registered title thereto,
under Transfer Certificate of Title No. 18178. Remedios in turn on November 4, 1946
transferred her rights to said portion of land to Pio Sian Melliza, who obtained Transfer
Certificate of Title No. 2492 thereover in his name. Annotated at the back of Pio Sian
Melliza's title certificate was the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now designated as
Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the
Municipality of Iloilo as per instrument dated November 15, 1932....
On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo,
donated the city hall site together with the building thereon, to the University of the
Philippines (Iloilo branch). The site donated consisted of Lots Nos. 1214-B, 1214-C and
1214-D, with a total area of 15,350 square meters, more or less.
Sometime in 1952, the University of the Philippines enclosed the site donated with a
wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the
city authorities for payment of the value of the lot (Lot 1214-B). No recovery was
obtained, because as alleged by plaintiff, the City did not have funds (p. 9, Appellant's
Brief.)
The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No.
7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of
Iloilo against Iloilo City and the University of the Philippines for recovery of Lot 1214-B
or of its value.
The defendants answered, contending that Lot 1214-B was included in the public
instrument executed by Juliana Melliza in favor of Iloilo municipality in 1932. After
stipulation of facts and trial, the Court of First Instance rendered its decision on August
15, 1957, dismissing the complaint. Said court ruled that the instrument executed by
Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B. In
support of this conclusion, it referred to the portion of the instrument stating:
Asimismo hago constar que la cesion y traspaso que arriba se mencionan es
de venta difinitiva, y que para la major identificacion de los lotes y porciones
de los mismos que son objeto de la presente, hago constar que dichos lotes
y porciones son los que necesita el Gobierno municipal de Iloilo para la
construccion de avenidas, parques y City Hall site del Municipal Government
Center de Iloilo, segun el plano Arellano.
and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but
also such other portions of lots as were necessary for the municipal hall site, such as
Lot 1214-B. And thus it held that Iloilo City had the right to donate Lot 1214-B to the
U.P.
Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the
Court of Appeals affirmed the interpretation of the Court of First Instance, that the
portion of Lot 1214 sold by Juliana Melliza was not limited to the 10,788 square meters
specifically mentioned but included whatever was needed for the construction of
avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case
for reception of evidence to determine the area actually taken by Iloilo City for the
construction of avenues, parks and for city hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant
maintains that the public instrument is clear that only Lots Nos. 1214-C and 1214-D
with a total area of 10,788 square meters were the portions of Lot 1214 included in the
sale; that the purpose of the second paragraph, relied upon for a contrary interpretation,
was only to better identify the lots sold and none other; and that to follow the
interpretation accorded the deed of sale by the Court of Appeals and the Court of First
Instance would render the contract invalid because the law requires as an essential
element of sale, a "determinate" object (Art. 1445, now 1448, Civil Code).
Appellees, on the other hand, contend that the present appeal improperly raises only
questions of fact. And, further, they argue that the parties to the document in question
really intended to include Lot 1214-B therein, as shown by the silence of the vendor
after Iloilo City exercised ownership thereover; that not to include it would have been
absurd, because said lot is contiguous to the others admittedly included in the
conveyance, lying directly in front of the city hall, separating that building from Lots
1214-C and 1214-D, which were included therein. And, finally, appellees argue that the
sale's object was determinate, because it could be ascertained, at the time of the
execution of the contract, what lots were needed by Iloilo municipality for avenues,
parks and city hall site "according to the Arellano Plan", since the Arellano plan was
then already in existence.
The appeal before Us calls for the interpretation of the public instrument dated
November 15, 1932. And interpretation of such contract involves a question of law,
since the contract is in the nature of law as between the parties and their successors-
in-interest.
At the outset, it is well to mark that the issue is whether or not the conveyance by
Juliana Melliza to Iloilo municipality included that portion of Lot 1214 known as Lot
1214-B. If not, then the same was included, in the instrument subsequently executed
by Juliana Melliza of her remaining interest in Lot 1214 to Remedios Sian Villanueva,
who in turn sold what she thereunder had acquired, to Pio Sian Melliza. It should be
stressed, also, that the sale to Remedios Sian Villanueva — from which Pio Sian
Melliza derived title — did not specifically designate Lot 1214-B, but only such portions
of Lot 1214 as were not included in the previous sale to Iloilo municipality (Stipulation
of Facts, par. 5, Record on Appeal, p. 23). And thus, if said Lot 1214-B had been
included in the prior conveyance to Iloilo municipality, then it was excluded from the
sale to Remedios Sian Villanueva and, later, to Pio Sian Melliza.
The point at issue here is then the true intention of the parties as to the object of the
public instrument Exhibit "D". Said issue revolves on the paragraph of the public
instrument aforequoted and its purpose, i.e., whether it was intended merely to further
describe the lots already specifically mentioned, or whether it was intended to cover
other lots not yet specifically mentioned.
First of all, there is no question that the paramount intention of the parties was to
provide Iloilo municipality with lots sufficient or adequate in area for the construction of
the Iloilo City hall site, with its avenues and parks. For this matter, a previous donation
for this purpose between the same parties was revoked by them, because of
inadequacy of the area of the lot donated.
Secondly, reading the public instrument in toto, with special reference to the
paragraphs describing the lots included in the sale, shows that said instrument
describes four parcels of land by their lot numbers and area; and then it goes on to
further describe, not only those lots already mentioned, but the lots object of the sale,
by stating that said lots are the ones needed for the construction of the city hall site,
avenues and parks according to the Arellano plan. If the parties intended merely to
cover the specified lots — Lots 2, 5, 1214-C and 1214-D, there would scarcely have
been any need for the next paragraph, since these lots are already plainly and very
clearly described by their respective lot number and area. Said next paragraph does
not really add to the clear description that was already given to them in the previous
one.
It is therefore the more reasonable interpretation, to view it as describing those other
portions of land contiguous to the lots aforementioned that, by reference to the Arellano
plan, will be found needed for the purpose at hand, the construction of the city hall site.
Appellant however challenges this view on the ground that the description of said other
lots in the aforequoted second paragraph of the public instrument would thereby be
legally insufficient, because the object would allegedly not be determinate as required
by law.
Such contention fails on several counts. The requirement of the law that a sale must
have for its object a determinate thing, is fulfilled as long as, at the time the contract is
entered into, the object of the sale is capable of being made determinate without the
necessity of a new or further agreement between the parties (Art. 1273, old Civil Code;
Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement
that the lots object of the sale are the ones needed for city hall site, avenues and
parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the
execution of the contract, for rendering determinate said lots without the need of a new
and further agreement of the parties.
The Arellano plan was in existence as early as 1928. As stated, the previous donation
of land for city hall site on November 27, 1931 was revoked on March 6, 1932 for being
inadequate in area under said Arellano plan. Appellant claims that although said plan
existed, its metes and bounds were not fixed until 1935, and thus it could not be a basis
for determining the lots sold on November 15, 1932. Appellant however fails to consider
that the area needed under that plan for city hall site was then already known; that the
specific mention of some of the lots covered by the sale in effect fixed the corresponding
location of the city hall site under the plan; that, therefore, considering the said lots
specifically mentioned in the public instrument Exhibit "D", and the projected city hall
site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined
which, and how much of the portions of land contiguous to those specifically named,
were needed for the construction of the city hall site.
And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-
C and 1214-D, admittedly covered by the public instrument. It is stipulated that, after
execution of the contract Exhibit "D", the Municipality of Iloilo possessed it together with
the other lots sold. It sits practically in the heart of the city hall site. Furthermore, Pio
Sian Melliza, from the stipulation of facts, was the notary public of the public instrument.
As such, he was aware of its terms. Said instrument was also registered with the
Register of Deeds and such registration was annotated at the back of the
corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be
inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is
chargeable with knowledge of them; that knowing so, he should have examined the
Arellano plan in relation to the public instrument Exhibit "D"; that, furthermore, he should
have taken notice of the possession first by the Municipality of Iloilo, then by the City of
Iloilo and later by the University of the Philippines of Lot 1214-B as part of the city hall
site conveyed under that public instrument, and raised proper objections thereto if it
was his position that the same was not included in the same. The fact remains
that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest,
did not object to said possession, nor exercise any act of possession over Lot 1214-B.
Applying, therefore, principles of civil law, as well as laches, estoppel, and equity, said
lot must necessarily be deemed included in the conveyance in favor of Iloilo
municipality, now Iloilo City.
WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the
Court of First Instance, and the complaint in this case is dismissed. No costs. So
ordered.
G.R. No. 74470 March 8, 1989
NATIONAL GRAINS AUTHORITY and WILLLAM CABAL, petitioners
vs.
THE INTERMEDIATE APPELLATE COURT and LEON SORIANO, respondents.
Cordoba, Zapanta, Rola & Garcia for petitioner National Grains Authority.
Plaridel Mar Israel for respondent Leon Soriano.
MEDIALDEA, J.:
This is a petition for review of the decision (pp. 9-21, Rollo) of the Intermediate
Appellate Court (now Court of Appeals) dated December 23, 1985 in A.C. G.R. CV No.
03812 entitled, "Leon Soriano, Plaintiff- Appellee versus National Grains Authority and
William Cabal, Defendants Appellants", which affirmed the decision of the Court of First
Instance of Cagayan, in Civil Case No. 2754 and its resolution (p. 28, Rollo) dated April
17, 1986 which denied the Motion for Reconsideration filed therein.
The antecedent facts of the instant case are as follows:
Petitioner National Grains Authority (now National Food Authority, NFA for short) is a
government agency created under Presidential Decree No. 4. One of its incidental
functions is the buying of palay grains from qualified farmers.
On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to
the NFA, through William Cabal, the Provincial Manager of NFA stationed at
Tuguegarao, Cagayan. He submitted the documents required by the NFA for pre-
qualifying as a seller, namely: (1) Farmer's Information Sheet accomplished by Soriano
and certified by a Bureau of Agricultural Extension (BAEX) technician, Napoleon
Callangan, (2) Xerox copies of four (4) tax declarations of the riceland leased to him
and copies of the lease contract between him and Judge Concepcion Salud, and (3)
his Residence Tax Certificate. Private respondent Soriano's documents were
processed and accordingly, he was given a quota of 2,640 cavans of palay. The quota
noted in the Farmer's Information Sheet represented the maximum number of cavans
of palay that Soriano may sell to the NFA.
In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano
delivered 630 cavans of palay. The palay delivered during these two days were not
rebagged, classified and weighed. when Soriano demanded payment of the 630
cavans of palay, he was informed that its payment will be held in abeyance since Mr.
Cabal was still investigating on an information he received that Soriano was not a bona
tide farmer and the palay delivered by him was not produced from his farmland but was
taken from the warehouse of a rice trader, Ben de Guzman. On August 28, 1979, Cabal
wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans
Soriano delivered stating that NFA cannot legally accept the said delivery on the basis
of the subsequent certification of the BAEX technician, Napoleon Callangan that
Soriano is not a bona fide farmer.
Instead of withdrawing the 630 cavans of palay, private respondent Soriano insisted
that the palay grains delivered be paid. He then filed a complaint for specific
performance and/or collection of money with damages on November 2, 1979, against
the National Food Authority and Mr. William Cabal, Provincial Manager of NFA with the
Court of First Instance of Tuguegarao, and docketed as Civil Case No. 2754.
Meanwhile, by agreement of the parties and upon order of the trial court, the 630
cavans of palay in question were withdrawn from the warehouse of NFA. An inventory
was made by the sheriff as representative of the Court, a representative of Soriano and
a representative of NFA (p. 13, Rollo).
On September 30, 1982, the trial court rendered judgment ordering petitioner National
Food Authority, its officers and agents to pay respondent Soriano (as plaintiff in Civil
Case No. 2754) the amount of P 47,250.00 representing the unpaid price of the 630
cavans of palay plus legal interest thereof (p. 1-2, CA Decision). The dispositive portion
reads as follows:
WHEREFORE, the Court renders judgment in favor of the plaintiff
and against the defendants National Grains Authority, and William
Cabal and hereby orders:
1. The National Grains Authority, now the National Food Authority,
its officers and agents, and Mr. William Cabal, the Provincial
Manager of the National Grains Authority at the time of the filing of
this case, assigned at Tuguegarao, Cagayan, whomsoever is his
successors, to pay to the plaintiff Leon T. Soriano, the amount of
P47,250.00, representing the unpaid price of the palay deliveries
made by the plaintiff to the defendants consisting of 630 cavans at
the rate Pl.50 per kilo of 50 kilos per cavan of palay;
2. That the defendants National Grains Authority, now National Food
Authority, its officer and/or agents, and Mr. William Cabal, the
Provincial Manager of the National Grains Authority, at the time of
the filing of this case assigned at Tuguegarao, Cagayan or
whomsoever is his successors, are likewise ordered to pay the
plaintiff Leon T. Soriano, the legal interest at the rate of TWELVE
(12%) percent per annum, of the amount of P 47,250.00 from the
filing of the complaint on November 20, 1979, up to the final payment
of the price of P 47,250.00;
3. That the defendants National Grains Authority, now National Food
Authority, or their agents and duly authorized representatives can
now withdraw the total number of bags (630 bags with an excess of
13 bags) now on deposit in the bonded warehouse of Eng. Ben de
Guzman at Tuguegarao, Cagayan pursuant to the order of this court,
and as appearing in the written inventory dated October 10, 1980,
(Exhibit F for the plaintiff and Exhibit 20 for the defendants) upon
payment of the price of P 47,250.00 and TWELVE PERCENT (12%)
legal interest to the plaintiff,
4. That the counterclaim of the defendants is hereby dismissed;
5. That there is no pronouncement as to the award of moral and
exemplary damages and attorney's fees; and
6. That there is no pronouncement as to costs.
SO ORDERED (pp. 9-10, Rollo)
Petitioners' motion for reconsideration of the decision was denied on December 6,
1982.
Petitioners' appealed the trial court's decision to the Intermediate Appellate Court. In a
decision promulgated on December 23, 1986 (pp. 9-21, Rollo) the then Intermediate
Appellate Court upheld the findings of the trial court and affirmed the decision ordering
NFA and its officers to pay Soriano the price of the 630 cavans of rice plus interest.
Petitioners' motion for reconsideration of the appellate court's decision was denied in a
resolution dated April 17, 1986 (p. 28, Rollo).
Hence, this petition for review filed by the National Food Authority and Mr. William
Cabal on May 15, 1986 assailing the decision of the Intermediate Appellate Court on
the sole issue of whether or not there was a contract of sale in the case at bar.
Petitioners contend that the 630 cavans of palay delivered by Soriano on August 23,
1979 was made only for purposes of having it offered for sale. Further, petitioners
stated that the procedure then prevailing in matters of palay procurement from qualified
farmers were: firstly, there is a rebagging wherein the palay is transferred from a private
sack of a farmer to the NFA sack; secondly, after the rebagging has been undertaken,
classification of the palay is made to determine its variety; thirdly, after the
determination of its variety and convinced that it passed the quality standard, the same
will be weighed to determine the number of kilos; and finally, it will be piled inside the
warehouse after the preparation of the Warehouse Stock Receipt (WSP) indicating
therein the number of kilos, the variety and the number of bags. Under this procedure,
rebagging is the initial operative act signifying acceptance, and acceptance will be
considered complete only after the preparation of the Warehouse Stock Receipt
(WSR). When the 630 cavans of palay were brought by Soriano to the Carig warehouse
of NFA they were only offered for sale. Since the same were not rebagged, classified
and weighed in accordance with the palay procurement program of NFA, there was no
acceptance of the offer which, to petitioners' mind is a clear case of solicitation or an
unaccepted offer to sell.
The petition is not impressed with merit.
Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one
of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other party to pay therefore a price certain in money or its
equivalent. A contract, on the other hand, is a meeting of minds between two (2)
persons whereby one binds himself, with respect to the other, to give something or to
render some service (Art. 1305, Civil Code of the Philippines). The essential requisites
of contracts are: (1) consent of the contracting parties, (2) object certain which is the Both courts likewise agree that NFA's refusal to accept was without just cause. The
subject matter of the contract, and (3) cause of the obligation which is established (Art. above factual findings which are supported by the record should not be disturbed on
1318, Civil Code of the Philippines. appeal.

In the case at bar, Soriano initially offered to sell palay grains produced in his farmland ACCORDINGLY, the instant petition for review is DISMISSED. The assailed decision
to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information of the then Intermediate Appellate Court (now Court of Appeals) is affirmed. No costs.
Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the
parties. The object of the contract, being the palay grains produced in Soriano's
farmland and the NFA was to pay the same depending upon its quality. The fact that
the exact number of cavans of palay to be delivered has not been determined does not
affect the perfection of the contract. Article 1349 of the New Civil Code provides: ". . ..
The fact that the quantity is not determinate shall not be an obstacle to the existence
of the contract, provided it is possible to determine the same, without the need of a new
contract between the parties." In this case, there was no need for NFA and Soriano to
enter into a new contract to determine the exact number of cavans of palay to be sold.
Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans.

In its memorandum (pp. 66-71, Rollo) dated December 4, 1986, petitioners further
contend that there was no contract of sale because of the absence of an essential
requisite in contracts, namely, consent. It cited Section 1319 of the Civil Code which
states: "Consent is manifested by the meeting of the offer and the acceptance of the
thing and the cause which are to constitute the contract. ... " Following this line,
petitioners contend that there was no consent because there was no acceptance of the
630 cavans of palay in question.

The above contention of petitioner is not correct Sale is a consensual contract, " ... ,
there is perfection when there is consent upon the subject matter and price, even if
neither is delivered." (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560)
This is provided by Article 1475 of the Civil Code which states:

Art. 1475. The contract of sale is perfected at the moment there is a

meeting of minds upon the thing which is the object of the contract
and upon the price.

xxx

The acceptance referred to which determines consent is the acceptance of the offer of
one party by the other and not of the goods delivered as contended by petitioners.

From the moment the contract of sale is perfected, it is incumbent upon the parties to
comply with their mutual obligations or "the parties may reciprocally demand
performance" thereof. (Article 1475, Civil Code, 2nd par.).

The reason why NFA initially refused acceptance of the 630 cavans of palay delivered
by Soriano is that it (NFA) cannot legally accept the said delivery because Soriano is
allegedly not a bona fide farmer. The trial court and the appellate court found that
Soriano was a bona fide farmer and therefore, he was qualified to sell palay grains to
NFA.
G.R. No. 105387 November 11, 1993
JOHANNES SCHUBACK & SONS PHILIPPINE TRADING
CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, RAMON SAN JOSE, JR., doing business
under the name and style "PHILIPPINE SJ INDUSTRIAL TRADING," respondents.
Hernandez, Velicaria, Vibar & Santiago for petitioner.
Ernesto M. Tomaneng for private respondent.
ROMERO, J.:
In this petition for review on certiorari, petitioner questions the reversal by the Court of
Appeals 1 of the trial court's ruling that a contract of sale had been perfected between
petitioner and private respondent over bus spare parts.
The facts as quoted from the decision of the Court of Appeals are as follows:
Sometime in 1981, defendant 2 established contact with plaintiff 3 through the
Philippine Consulate General in Hamburg, West Germany, because he
wanted to purchase MAN bus spare parts from Germany. Plaintiff
communicated with its trading partner. Johannes Schuback and Sohne
Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare
parts defendant wanted to order.
On October 16, 1981, defendant submitted to plaintiff a list of the parts (Exhibit
B) he wanted to purchase with specific part numbers and description. Plaintiff
referred the list to Schuback Hamburg for quotations. Upon receipt of the
quotations, plaintiff sent to defendant a letter dated 25 November, 1981 (Exh.
C) enclosing its offer on the items listed by defendant.
On December 4, 1981, defendant informed plaintiff that he preferred genuine
to replacement parts, and requested that he be given 15% on all items (Exh.
D).
On December 17, 1981, plaintiff submitted its formal offer (Exh. E) containing
the item number, quantity, part number, description, unit price and total to
defendant. On December, 24, 1981, defendant informed plaintiff of his desire
to avail of the prices of the parts at that time and enclosed Purchase Order
No. 0101 dated 14 December 1981 (Exh. F to F-4). Said Purchase Order
contained the item number, part number and description. Defendant promised
to submit the quantity per unit he wanted to order on December 28 or 29 (Exh.
F).
On December 29, 1981, defendant personally submitted the quantities he
wanted to Mr. Dieter Reichert, General Manager of plaintiff, at the latter's
residence (t.s.n., 13 December, 1984, p. 36). The quantities were written in
ink by defendant in the same Purchase Order previously submitted. At the
bottom of said Purchase Order, defendant wrote in ink above his signature:
"NOTE: Above P.O. will include a 3% discount. The above will serve as our
initial P.O." (Exhs. G to G-3-a).
Plaintiff immediately ordered the items needed by defendant from Schuback
Hamburg to enable defendant to avail of the old prices. Schuback Hamburg
in turn ordered (Order No. 12204) the items from NDK, a supplier of MAN
spare parts in West Germany. On January 4, 1982, Schuback Hamburg sent
plaintiff a proforma invoice (Exhs. N-1 to N-3) to be used by defendant in
applying for a letter of credit. Said invoice required that the letter of credit be
opened in favor of Schuback Hamburg. Defendant acknowledged receipt of
the invoice (t.s.n., 19 December 1984, p. 40).
An order confirmation (Exhs. I, I-1) was later sent by Schuback Hamburg to
plaintiff which was forwarded to and received by defendant on February 3,
1981 (t.s.n., 13 Dec. 1984, p. 42).
On February 16, 1982, plaintiff reminded defendant to open the letter of credit
to avoid delay in shipment and payment of interest (Exh. J). Defendant replied,
mentioning, among others, the difficulty he was encountering in securing: the
required dollar allocations and applying for the letter of credit, procuring a loan
and looking for a partner-financier, and of finding ways 'to proceed with our
orders" (Exh. K).
In the meantime, Schuback Hamburg received invoices from, NDK for partial
deliveries on Order No.12204 (Direct Interrogatories., 07 Oct, 1985, p. 3).
Schuback Hamburg paid NDK. The latter confirmed receipt of payments made
on February 16, 1984 (Exh.C-Deposition).
On October 18, 1982, Plaintiff again reminded defendant of his order and
advised that the case may be endorsed to its lawyers (Exh. L). Defendant
replied that he did not make any valid Purchase Order and that there was no
definite contract between him and plaintiff (Exh. M). Plaintiff sent a rejoinder
explaining that there is a valid Purchase Order and suggesting that defendant
either proceed with the order and open a letter of credit or cancel the order
and pay the cancellation fee of 30% of F.O.B. value, or plaintiff will endorse
the case to its lawyers (Exh. N).
Schuback Hamburg issued a Statement of Account (Exh. P) to plaintiff
enclosing therewith Debit Note (Exh. O) charging plaintiff 30% cancellation
fee, storage and interest charges in the total amount of DM 51,917.81. Said
amount was deducted from plaintiff's account with Schuback Hamburg (Direct
Interrogatories, 07 October, 1985).
Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983
and June 9, 1983 were to no avail (Exhs R and S).
Consequently, petitioner filed a complaint for recovery of actual or compensatory
damages, unearned profits, interest, attorney's fees and costs against private
respondent.
In its decision dated June 13, 1988, the trial court4 ruled in favor of petitioner by ordering
private respondent to pay petitioner, among others, actual compensatory damages in
the amount of DM 51,917.81, unearned profits in the amount of DM 14,061.07, or their
peso equivalent.
Thereafter, private respondent elevated his case before the Court of Appeals. On
February 18, 1992, the appellate court reversed the decision of the trial court and
dismissed the complaint of petitioner. It ruled that there was no perfection of contract
since there was no meeting of the minds as to the price between the last week of
December 1981 and the first week of January 1982.
The issue posed for resolution is whether or not a contract of sale has been perfected
between the parties.
We reverse the decision of the Court of Appeals and reinstate the decision of the trial
court. It bears emphasizing that a "contract of sale is perfected at the moment there is
a meeting of minds upon the thing which is the object of the contract and upon the
price. . . . " 5
Article 1319 of the Civil Code states: "Consent is manifested by the meeting of the offer
and acceptance upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified acceptance constitutes
a counter offer." The facts presented to us indicate that consent on both sides has been
manifested.
The offer by petitioner was manifested on December 17, 1981 when petitioner
submitted its proposal containing the item number, quantity, part number, description,
the unit price and total to private respondent. On December 24, 1981, private
respondent informed petitioner of his desire to avail of the prices of the parts at that
time and simultaneously enclosed its Purchase Order No. 0l01 dated December 14,
1981. At this stage, a meeting of the minds between vendor and vendee has occurred,
the object of the contract: being the spare parts and the consideration, the price stated
in petitioner's offer dated December 17, 1981 and accepted by the respondent on
December 24,1981.
Although said purchase order did not contain the quantity he wanted to order, private
respondent made good, his promise to communicate the same on December 29, 1981.
At this juncture, it should be pointed out that private respondent was already in the
process of executing the agreement previously reached between the parties.
Below Exh. G-3, marked as Exhibit G-3-A, there appears this statement made by
private respondent: "Note. above P.O. will include a 3% discount. The above will serve
as our initial P.O." This notation on the purchase order was another indication of
acceptance on the part of the vendee, for by requesting a 3% discount, he implicitly
accepted the price as first offered by the vendor. The immediate acceptance by the
vendee of the offer was impelled by the fact that on January 1, 1982, prices would go
up, as in fact, the petitioner informed him that there would be a 7% increase, effective
January 1982. On the other hand, concurrence by the vendor with the said discount
requested by the vendee was manifested when petitioner immediately ordered the
items needed by private respondent from Schuback Hamburg which in turn ordered
from NDK, a supplier of MAN spare parts in West Germany.
When petitioner forwarded its purchase order to NDK, the price was still pegged at the
old one. Thus, the pronouncement of the Court Appeals that there as no confirmed
price on or about the last week of December 1981 and/or the first week of January 1982
was erroneous.
While we agree with the trial court's conclusion that indeed a perfection of contract was
reached between the parties, we differ as to the exact date when it occurred, for
perfection took place, not on December 29, 1981. Although the quantity to be ordered
was made determinate only on December 29, 1981, quantity is immaterial in the
perfection of a sales contract. What is of importance is the meeting of the minds as to
the object and cause, which from the facts disclosed, show that as of December 24,
1981, these essential elements had already occurred.
On the part of the buyer, the situation reveals that private respondent failed to open an
irrevocable letter of credit without recourse in favor of Johannes Schuback of Hamburg,
Germany. This omission, however. does not prevent the perfection of the contract
between the parties, for the opening of the letter of credit is not to be deemed a
suspensive condition. The facts herein do not show that petitioner reserved title to the
goods until private respondent had opened a letter of credit. Petitioner, in the course of
its dealings with private respondent, did not incorporate any provision declaring their
contract of sale without effect until after the fulfillment of the act of opening a letter of
credit.
The opening of a etter of credit in favor of a vendor is only a mode of payment. It is not
among the essential requirements of a contract of sale enumerated in Article 1305 and
1474 of the Civil Code, the absence of any of which will prevent the perfection of the
contract from taking place.
To adopt the Court of Appeals' ruling that the contract of sale was dependent on the
opening of a letter of credit would be untenable from a pragmatic point of view because
private respondent would not be able to avail of the old prices which were open to him
only for a limited period of time. This explains why private respondent immediately
placed the order with petitioner which, in turn promptly contacted its trading partner in
Germany. As succinctly stated by petitioner, "it would have been impossible for
respondent to avail of the said old prices since the perfection of the contract would arise
much later, or after the end of the year 1981, or when he finally opens the letter of
credit." 6
WHEREFORE, the petition is GRANTED and the decision of the trial court dated June
13, 1988 is REINSTATED with modification.
SO ORDERED.
[G.R. No. 116635. July 24, 1997]
CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner, vs. COURT OF
APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.
DECISION
PANGANIBAN, J.:
A contract of repurchase arising out of a contract of sale where the seller did not have
any title to the property sold is not valid. Since nothing was sold, then there is also
nothing to repurchase.
Statement of the Case
This postulate is explained by this Court as it resolves this petition for review on
certiorari assailing the January 20, 1993 Decision[1] of Respondent Court of
Appeals[2] in CA-G.R. CV No. 36473, affirming the decision[3] of the trial court[4] which
disposed as follows:[5]
WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of
action, and hereby:
1. Declaring the private writing, Exhibit C, to be an option to sell, not binding and
considered validly withdrawn by the defendants for want of consideration;
2. Ordering the plaintiffs to return to the defendants the sum of P30,000.00
plus interest thereon at the legal rate, from the time of filing of defendants
counterclaim until the same is fully paid;
3. Ordering the plaintiffs to deliver peaceful possession of the two hectares
mentioned in paragraph 7 of the complaint and in paragraph 31 of
defendants answer (counterclaim);
4. Ordering the plaintiffs to pay reasonable rents on said two hectares
at P5,000.00 per annum or at P2,500.00 per cropping from the time of
judicial demand mentioned in paragraph 2 of the dispositive portion of this
decision, until the said two hectares shall have been delivered to the
defendants; and
5. To pay the costs.
SO ORDERED.
The Antecedent Facts
The facts, which appear undisputed by the parties, are narrated by the Court of Appeals
as follows:
Two (2) parcels of land are in dispute and litigated upon here. The first has
an area of 1 hectare . It was formerly owned by Victorino Nool and covered
by Transfer Certificate of Title No. T-74950. With an area of 3.0880 hectares,
the other parcel was previously owned by Francisco Nool under Transfer
Certificate of Title No. T-100945. Both parcels are situated in San Manuel,
Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now
the appellants, seek recovery of the aforementioned parcels of land from the
defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre,
now the appellees.
In their complaint, plaintiff-appellants alleged inter alia that they are the owners of
subject parcels of land, and they bought the same from Conchitas other brothers,
Victorino Nool and Francisco Nool; that as plaintiffs were in dire need of money,
they obtained a loan from the Iligan Branch of the Development Bank of the
Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels
of land, which were still registered in the names of Victorino Nool and Francisco
Nool, at the time, and for the failure of plaintiffs to pay the said loan, including
interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that
within the period of redemption, plaintiffs contacted defendant Anacleto Nool for
the latter to redeem the foreclosed properties from DBP, which the latter did; and
as a result, the titles of the two (2) parcels of land in question were transferred to
Anacleto Nool; that as part of their arrangement or understanding, Anacleto Nool
agreed to buy from the plaintiff Conchita Nool the two (2) parcels of land under
controversy, for a total price of P100,000.00, P30,000.00 of which price was paid
to Conchita, and upon payment of the balance of P14,000.00, plaintiffs were to
regain possession of the two (2) hectares of land, which amounts defendants failed
to pay, and the same day the said arrangement[6] was made; another
covenant[7] was entered into by the parties, whereby defendants agreed to return
to plaintiffs the lands in question, at anytime the latter have the necessary amount;
that plaintiffs asked the defendants to return the same but despite the intervention
of the Barangay Captain of their place, defendants refused to return the said
parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to court for
relief.
In their answer defendants-appellees theorized that they acquired the lands in
question from the Development Bank of the Philippines, through negotiated sale,
and were misled by plaintiffs when defendant Anacleto Nool signed the private
writing agreeing to return subject lands when plaintiffs have the money to redeem
the same; defendant Anacleto having been made to believe, then, that his sister,
Conchita, still had the right to redeem the said properties.
The pivot of inquiry here, as aptly observed below, is the nature and significance
of the private document, marked Exhibit D for plaintiffs, which document has not
been denied by the defendants, as defendants even averred in their Answer that
they gave an advance payment of P30,000.00 therefor, and acknowledged that
they had a balance of P14,000.00 to complete their payment. On this crucial issue,
the lower court adjudged the said private writing (Exhibit D) as an option to sell not
binding upon and considered the same validly withdrawn by defendants for want
of consideration; and decided the case in the manner abovementioned.
There is no quibble over the fact that the two (2) parcels of land in dispute were
mortgaged to the Development Bank of the Philippines, to secure a loan obtained by
plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the non-payment of said loan,
the mortgage was foreclosed and in the process, ownership of the mortgaged lands
was consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP became the
absolute owner of the two parcels of land, defendants negotiated with DBP and
succeeded in buying the same. By virtue of such sale by DBP in favor of defendants,
the titles of DBP were cancelled and corresponding Transfer Certificates of Title
(Annexes C and D to the complaint) issued to the dependants. [8]
It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that
the one-year redemption period was from March 16, 1982 up to March 15, 1983 and
that the Mortgagors right of redemption was not exercised within this period.[9] Hence,
DBP became the absolute owner of said parcels of land for which it was issued new
certificates of title, both entered on May 23, 1983 by the Registry of Deeds for the
Province of Isabela.[10] About two years thereafter, on April 1, 1985, DBP entered into
a Deed of Conditional Sale[11] involving the same parcels of land with Private
Respondent Anacleto Nool as vendee. Subsequently, the latter was issued new
certificates of title on February 8, 1988.[12]
The Court of Appeals ruled:[13]
WHEREFORE, finding no reversible error infirming it, the appealed Judgment is
hereby AFFIRMED in toto. No pronouncement as to costs.
The Issues
Petitioners impute to Respondent Court the following alleged errors:
1. The Honorable Court of Appeals, Second Division has misapplied
the legal import or meaning of Exhibit C in a way contrary to law and
existing jurisprudence in stating that it has no binding effect between
the parties and considered validly withdrawn by defendants-appellees
for want of consideration.
2. The Honorable Court of Appeals, Second Division has miserably
failed to give legal significance to the actual possession and cultivation
and appropriating exclusively the palay harvest of the two (2) hectares
land pending the payment of the remaining balance of fourteen
thousand pesos (P14,000.00) by defendants-appellees as indicated in
Exhibit C.
3. The Honorable Court of Appeals has seriously erred in affirming the
decision of the lower court by awarding the payment of rents per annum
and the return of P30,000.00 and not allowing the plaintiffs-appellants to re-
acquire the four (4) hectares, more or less upon payment of one hundred
thousand pesos (P100,000.00) as shown in Exhibit D.[14]
The Courts Ruling
The petition is bereft of merit.
First Issue: Are Exhibits C and D Valid and Enforceable?
The petitioner-spouses plead for the enforcement of their agreement with private
respondents as contained in Exhibits C and D, and seek damages for the latters alleged
breach thereof. In Exhibit C, which was a private handwritten document labeled by the
parties as Resibo ti Katulagan or Receipt of Agreement, the petitioners appear to have
sold to private respondents the parcels of land in controversy covered by TCT No. T-
74950 and TCT No. T-100945. On the other hand, Exhibit D, which was also a private
handwritten document in Ilocano and labeled as Kasuratan, private respondents
agreed that Conchita Nool can acquire back or repurchase later on said land when she
has the money.[15]
In seeking to enforce her alleged right to repurchase the parcels of land, Conchita
(joined by her co-petitioner-husband) invokes Article 1370 of the Civil Code which
mandates that (i)f the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation shall
control. Hence, petitioners contend that the Court of Appeals erred in affirming the trial
courts finding and conclusion that said Exhibits C and D were not merely voidable but
utterly void and inexistent.
We cannot sustain petitioners view. Article 1370 of the Civil Code is applicable only
to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals
ruled that the principal contract of sale contained in Exhibit C and the auxilliary contract
of repurchase in Exhibit D are both void. This conclusion of the two lower courts
appears to find support in Dignos vs. Court of Appeals,[16] where the Court held:
Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is
null and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of
land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was
dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise
to a valid one.[17] Verily, Article 1422 of the Civil Code provides that (a) contract which
is the direct result of a previous illegal contract, is also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a sale is null
and void where the sellers were no longer the owners of the property. Such a situation
(where the sellers were no longer owners) does not appear to be one of the void
contracts enumerated in Article 1409 of the Civil Code. [18] Moreover, the Civil
Code[19] itself recognizes a sale where the goods are to be acquired x x x by the seller
after the perfection of the contract of sale, clearly implying that a sale is possible even
if the seller was not the owner at the time of sale, provided he acquires title to the
property later on.
In the present case however, it is likewise clear that the sellers can no longer deliver
the object of the sale to the buyers, as the buyers themselves have already acquired
title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be
deemed to be inoperative[20] and may thus fall, by analogy, under item no. 5 of Article
1409 of the Civil Code: Those which contemplate an impossible service. Article 1459
of the Civil Code provides that the vendor must have a right to transfer the ownership
thereof [object of the sale] at the time it is delivered. Here, delivery of ownership is no
longer possible. It has become impossible.
Furthermore, Article 1505 of the Civil Code provides that where goods are sold by a
person who is not the owner thereof, and who does not sell them under authority or
with consent of the owner, the buyer acquires no better title to the goods than the seller
had, unless the owner of the goods is by his conduct precluded from denying the sellers
authority to sell. Here, there is no allegation at all that petitioners were authorized by
DBP to sell the property to the private respondents. Jurisprudence, on the other hand,
teaches us that a person can sell only what he owns or is authorized to sell; the buyer
can as a consequence acquire no more than what the seller can legally transfer. [21] No
one can give what he does not have neno dat quod non habet. On the other hand,
Exhibit D presupposes that petitioners could repurchase the property that they sold to
private respondents. As petitioners sold nothing, it follows that they can also
repurchase nothing. Nothing sold, nothing to repurchase. In this light, the contract of
repurchase is also inoperative and by the same analogy, void.
Contract of Repurchase Dependent on Validity of Sale
As borne out by the evidence on record, the private respondents bought the two parcels
of land directly from DBP on April 1, 1985 after discovering that petitioners did not own
said property, the subject of Exhibits C and D executed on November 30,
1984. Petitioners, however, claim that they can exercise their alleged right to
repurchase the property, after private respondents had acquired the same from
DBP.[22] We cannot accede to this, for it clearly contravenes the intention of the parties
and the nature of their agreement. Exhibit D reads:
WRITING
Nov. 30, 1984
That I, Anacleto Nool have bought from my sister Conchita Nool a land an
area of four hectares (4 has.) in the value of One Hundred Thousand
(100,000.00) Pesos. It is our agreement as brother and sister that she
can acquire back or repurchase later on said land when she has the money.
[Underscoring supplied]
As proof of this agreement we sign as brother and sister this written
document this day of Nov. 30, 1984, at District 4, San Manuel, Isabela.
Sgd ANACLETO NOOL
Anacleto Nool
Sgd Emilio Paron
Witness
Sgd Conchita Nool
Conchita Nool[23]
One repurchases only what one has previously sold. In other words, the right to
repurchase presupposes a valid contract of sale between
the same parties. Undisputedly, private respondents acquired title to the property from
DBP, and not from the petitioners.
Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not
affected by the nullity of the latter, still petitioners do not thereby acquire a right to
repurchase the property. In that scenario, Exhibit D ceases to be a right to repurchase
ancillary and incidental to the contract of sale; rather, it becomes an accepted unilateral
promise to sell. Article 1479 of the Civil Code, however, provides that an accepted
unilateral promise to buy or sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration distinct from the price. In
the present case, the alleged written contract of repurchase contained in Exhibit D is
bereft of any consideration distinct from the price. Accordingly, as an independent
contract, it cannot bind private respondents. The ruling in Diamante vs. CA[24] supports
this. In that case, the Court through Mr. Justice Hilario G. Davide, Jr. explained:
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation
to comply with the provisions of article 1616 and other stipulations
which may have been agreed upon.
In Villarica, et al. Vs. Court of Appeals, et al., decided on 29
November 1968, or barely seven (7) days before the respondent
Court promulgated its decisions in this case, this Court,
interpreting the above Article, held:
The right of repurchase is not a right granted the vendor by the
vendee in a subsequent instrument, but is a right reserved by the
vendor in the same instrument of sale as one of the stipulations of
the contract. Once the instrument of absolute sale is executed, the
vendor can not longer reserve the right to repurchase, and any
right thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other right
like the option to buy in the instant case. x x x.
In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in
1927, this Court had already ruled that an agreement to
repurchase becomes a promise to sell when made after the sale,
because when the sale is made without such an agreement, the
purchaser acquires the thing sold absolutely, and if he afterwards
grants the vendor the right to repurchase, it is a new contract
entered into by the purchaser, as absolute owner already of the
object. In that case the vendor has nor reserved to himself the right
to repurchase.
In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found
another occasion to apply the foregoing principle.
Hence, the Option to Repurchase executed by private respondent in the present
case, was merely a promise to sell, which must be governed by Article 1479 of the
Civil Codewhich reads as follows:
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
 An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
Right to Repurchase Based on Homestead or Trust Non-Existent
Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public
Land Act[25] and (2) an implied trust relation as brother and sister. [26]
Third Issue: Return of P30,000.00 with Interest and Payment of Rent
Petitioners further argue that it would be a miscarriage of justice to order them (1) to
return the sum of P30,000.00 to private respondents when allegedly it was Private
Respondent Anacleto Nool who owed the former a balance of P14,000.00 and (2) to
order petitioners to pay rent when they were allowed to cultivate the said two
hectares.[31]

The Court notes that Victorino Nool and Francisco Nool mortgaged the land to
DBP. The brothers, together with Conchita Nool and Anacleto Nool, were all siblings
and heirs qualified to repurchase the two parcels of land under Sec. 119 of the Public
Land Act which provides that (e)very conveyance of land acquired under the free patent
or homestead provisions, when proper, shall be subject to repurchase by the applicant,
his widow or legal heirs, within a period of five years from the date of
conveyance. Assuming the applicability of this statutory provision to the case at bar, it
is indisputable that Private Respondent Anacleto Nool already repurchased from DBP
the contested properties. Hence, there was no more right of repurchase that his sister
Conchita or brothers Victorino and Francisco could exercise. The properties were
already owned by an heir of the homestead grantee and the rationale of the of the
provision to keep homestead lands within the family of the grantee was thus fulfilled. [27]
The claim of a trust relation is likewise without merit. The records show that private
respondents did not purchase the contested properties from DBP in trust for
petitioners. The former, as previously mentioned, in fact bought the land from DBP
upon realization that the latter could not validly sell the same. Obviously, petitioners
bought it for themselves. There is no evidence at all in the records that they bought the
land in trust for private respondents. The fact that Anacleto Nool was the younger
brother of Conchita Nool and that they signed a contract of repurchase, which as
discussed earlier was void, does not prove the existence of an implied trust in favor of
petitioners.
We are not persuaded. Based on the previous discussion, the balance of P14,000.00
under the void contract of sale may not be enforced. Petitioners are the ones who have
an obligation to return what they unduly and improperly received by reason of the invalid
contract of sale. Since they cannot legally give title to what they sold, they cannot keep
the money paid for the object of the sale. It is basic that (e)very person who through an
act of performance by another, or any other means, acquires or comes into possession
of something at the expense of the latter without just or legal ground, shall return the
same.[32] Thus, if a void contract has already been performed, the restoration of what
has been given is in order.[33] Corollarily and as aptly ordered by respondent appellate
court, interest thereon will run only from the time of private respondents demand for the
return of this amount in their counterclaim.[34] In the same vein, petitioners possession
and cultivation of the two hectares are anchored on private respondents
tolerance. Clearly, the latters tolerance ceased upon their counterclaim and demand
on the former to vacate. Hence, their right to possess and cultivate the land ipso
facto ceased.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of
Appeals affirming that of the trial court is hereby AFFIRMED.
SO ORDERED.

Second Issue: No Estoppel in Impugning the Validity of Void Contracts

Petitioners argue that when Anacleto Nool took the possession of the two hectares,
more or less, and let the other two hectares to be occupied and cultivated by plaintiffs-
appellants, Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed
upon and his actuation is within the ambit of estoppel x x x.[28] We disagree. The private
respondents cannot be estopped from raising the defense of nullity of contract,
specially in this case where they acted in good faith, believing that indeed petitioners
could sell the two parcels of land in question.Article 1410 of the Civil Code mandates
that (t)he action or defense for the declaration of the inexistence of a contract does not
prescribe. It is well-settled doctrine that as between parties to a contract, validity cannot
be given to it by estoppel if it is prohibited by law or it is against public policy (19 Am.
Jur. 802). It is not within the competence of any citizen to barter away what public policy
by law seeks to preserve.[29] Thus, it is immaterial that private respondents initially
acted to implement the contract of sale, believing in good faith that the same was
valid.We stress that a contract void at inception cannot be validated by ratification or
prescription and certainly cannot be binding on or enforceable against private
respondents.[30]
G.R. No. L-21489 and L-21628 May 19, 1966
MIGUEL MAPALO, ET AL., petitioners,
vs.
MAXIMO MAPALO, ET AL., respondents.
Pedro P. Tuason for petitioners.
Primicias and Del Castillo for respondents.
BENGZON, J.P., J.:
The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were
registered owners, with Torrens title certificate O.C.T. No. 46503, of a 1,635-square-
meter residential land in Manaoag, Pangasinan. Said spouses-owners, out of love and
affection for Maximo Mapalo — a brother of Miguel who was about to get married —
decided to donate the eastern half of the land to him. O.C.T. No. 46503 was delivered.
As a result, however, they were deceived into signing, on October 15, 1936, a deed of
absolute sale over the entire land in his favor. Their signatures thereto were procured
by fraud, that is, they were made to believe by Maximo Mapalo and by the attorney who
acted as notary public who "translated" the document, that the same was a deed of
donation in Maximo's favor covering one-half (the eastern half) of their land. Although
the document of sale stated a consideration of Five Hundred (P500.00) Pesos, the
aforesaid spouses did not receive anything of value for the land. The attorney's
misbehaviour was the subject of an investigation but its result does not appear on
record. However we took note of the fact that during the hearing of these cases said
notary public was present but did not take the witness stand to rebut the plaintiffs'
testimony supporting the allegation of fraud in the preparation of the document.
Following the execution of the afore-stated document, the spouses Miguel Mapalo and
Candida Quiba immediately built a fence of permanent structure in the middle of their
land segregating the eastern portion from its western portion. Said fence still exists.
The spouses have always been in continued possession over the western half of the
land up to the present.
Not known to them, meanwhile, Maximo Mapalo, on March 15, 1938, registered the
deed of sale in his favor and obtained in his name Transfer Certificate of Title No. 12829
over the entire land. Thirteen years later on October 20, 1951, he sold for P2,500.00
said entire land in favor of Evaristo, Petronila Pacifico and Miguel all surnamed Narciso.
The sale to the Narcisos was in turn registered on November 5, 1951 and Transfer
Certificate of Title No. 11350 was issued for the whole land in their names.
The Narcisos took possession only of the eastern portion of the land in 1951, after the
sale in their favor was made. On February 7, 1952 they filed suit in the Court of First
Instance of Pangasinan (Civil Case No. 1191) to be declared owners of the entire land,
for possession of its western portion; for damages; and for rentals. It was brought
against the Mapalo spouses as well as against Floro Guieb and Rosalia Mapalo Guieb
who had a house on the western part of the land with the consent of the spouses
Mapalo and Quiba.
The Mapalo spouses filed their answer with a counterclaim on March 17, 1965, seeking
cancellation of the Transfer Certificate of Title of the Narcisos as to the western half of
the land, on the grounds that their (Mapalo spouses) signatures to the deed of sale of
1936 was procured by fraud and that the Narcisos were buyers in bad faith. They asked
for reconveyance to them of the western portion of the land and issuance of a Transfer
Certificate of Title in their names as to said portion.
In addition, the Mapalo spouses filed on December 16, 1957 their own complaint in the
Court of First Instance of Pangasinan (Civil Case No. U-133) against the aforestated
Narcisos and Maximo Mapalo. They asked that the deeds of sale of 1936 and of 1951
over the land in question be declared null and void as to the western half of said land.
Judge Amado Santiago of the Court of First Instance of Pangasinan located in the
municipality of Urdaneta tried the two cases jointly. Said court rendered judgment on
January 18, 1961, as follows:
WHEREFORE, judgment is hereby rendered as follows, to wit:
(a) dismissing the complaint in Civil Case No. 11991;
(b) declaring Exhibit A, plaintiffs in Case No. 11991 and Exhibit 1, defendants
in Case No. U-133 as a donation only over the eastern half portion of the
above-described land, and as null and void with respect to the western half
portion thereof;
(c) declaring as null and void and without legal force and effect Transfer
Certificate of Title No. 12829 issued in favor of Maximo Mapalo as regards the
western half portion of the land covered therein;
(d) declaring as null and void Transfer Certificate of Title No. 11350 in the
names of the Narcisos insofar as the western half portion of the land covered
therein is concerned;
(e) ordering the spouses Mapalo and Quiba and the Narcisos to have the
above-described land be subdivided by a competent land surveyor and that
the expenses incident thereto be borne out by said partiespro rata;
(f) ordering the Register of Deeds of Pangasinan to issue in lieu of Transfer
Certificate of Title No. 11350 two new titles upon completion of the subdivision
plan, one in favor of the spouses Miguel Mapalo and Candida Quiba covering
the western half portion and another for the Narcisos covering the eastern half
portion of the said land, upon payment of the legal fees; meanwhile the right
of the spouses Mapalo and Quiba is hereby ordered to be annotated on the
back of Transfer Certificate of Title No. 11350; and
(g) sentencing Maximo Mapalo and the Narcisos to pay the costs.
IT IS SO ORDERED.
The Narcisos appealed to the Court of Appeals. In its decision on May 28, 1963, the
Court of Appeals reversed the judgment of the Court of First Instance, solely on the
ground that the consent of the Mapalo spouses to the deed of sale of 1936 having been
obtained by fraud, the same was voidable, not void ab initio, and, therefore, the action
to annul the same, within four years from notice of the fraud, had long prescribed. It
reckoned said notice of the fraud from the date of registration of the sale on March 15,
1938. The Court of First Instance and the Court of Appeals are therefore unanimous
that the spouses Mapalo and Quiba were definitely the victims of fraud. It was only on
prescription that they lost in the Court of Appeals.
From said decision of the Court of Appeals, the Mapalo spouses appealed to this Court.
And here appellants press the contention that the document dated October 15, 1936,
purporting to sell the entire land in favor of Maximo Mapalo, is void, not merely voidable,
as to the western portion of the land for being absolutely simulated or fictitious.
Starting with fundamentals, under the Civil Code, either the old or the new, for a
contract to exist at all, three essential requisites must concur: (1) consent, (2) object,
and (3) cause or consideration.1 The Court of Appeals is right in that the element of
consent is present as to the deed of sale of October 15, 1936. For consent was
admittedly given, albeit obtained by fraud. Accordingly, said consent, although
defective, did exist. In such case, the defect in the consent would provide a ground for
annulment of a voidable contract, not a reason for nullity ab initio.
The parties are agreed that the second element of object is likewise present in the deed
of October 15, 1936, namely, the parcel of land subject matter of the same.
Not so, however, as to the third element of cause or consideration. And on this point
the decision of the Court of Appeals is silent.
As regards the eastern portion of the land, the Mapalo spouses are not claiming the
same, it being their stand that they have donated and freely given said half of their land
to Maximo Mapalo. And since they did not appeal from the decision of the trial court
finding that there was a valid and effective donation of the eastern portion of their land
in favor of Maximo Mapalo, the same pronouncement has become final as to them,
rendering it no longer proper herein to examine the existence, validity efficacy of said
donation as to said eastern portion.1äwphï1.ñët
Now, as to the western portion, however, the fact not disputed herein is that no donation
by the Mapalo spouses obtained as to said portion. Accordingly, we start with the fact
that liberality as a cause or consideration does not exist as regards the western portion
of the land in relation to the deed of 1936; that there was no donation with respect to
the same.
It is reduced, then, to the question whether there was an onerous conveyance of
ownership, that is, a sale, by virtue of said deed of October 15, 1936, with respect to
said western portion. Specifically, was there a cause or consideration to support the
existence of a contrary of sale?
The rule under the Civil Code, again be it the old or the new, is that contracts without a
cause or consideration produce no effect whatsoever.2 Nonetheless, under the Old
Civil Code, the statement of a false consideration renders the contract voidable, unless
it is proven that it is supported by another real and licit consideration.3 And it is further
provided by the Old Civil Code that the action for annulment of a contract on the ground
of falsity of consideration shall last four years, the term to run from the date of the
consummation of the contract.4
Accordingly, since the deed of sale of 1936 is governed by the Old Civil Code, it should
be asked whether its case is one wherein there is no consideration, or one with a
statement of a false consideration. If the former, it is void and inexistent; if the latter,
only voidable, under the Old Civil Code. As observed earlier, the deed of sale of 1936
stated that it had for its consideration Five Hundred (P500.00) Pesos. In fact, however,
said consideration was totally absent. The problem, therefore, is whether a deed which
states a consideration that in fact did not exist, is a contract without consideration, and
therefore void ab initio, or a contract with a false consideration, and therefore, at least
under the Old Civil Code, voidable.
According to Manresa, what is meant by a contract that states a false consideration is
one that has in fact a real consideration but the same is not the one stated in the
document. Thus he says:
En primer lugar, nor interesa recordar la diferencia entre simulacion y el
contrato con proposito fraudulento. Este aunque ilicito es real; mas el primero
es falso en realidad, aunque se le presente como verdadero. (Manresa,
Codigo Civil, Tomo VIII, Vol. II, p. 354.)
And citing a decision of the Supreme Court of Spain on the matter, Manresa further
clarifies the difference of false cause and no cause, thus:
Insiste en el distingo con mas detenida descripcion la sentencia de 25 de
mayo de 1944, en la que se argumenta:
Si bien es elemento fundamental de todo negocio, la declaracion de voluntad
substracto de una voluntad efectiva, y la existencia de una causa que
leconfiera significado juridico señalando la finalidad que con este se persigue,
no ha de deducirse de esta doctrina, fundamentalmente recogida en el
articulo 1.261 y concordantes del Codigo civil, que cualquier falta de
adecuacion entre cualquier incongruencia entre la causa expresada y la
verdadera, y, en general, entre la estructuracion y la finalidad economica;
hayan de producir la ineficacia del negocio, pues por el contrario, puede este
ser valido y producir sus efectos tanto en el caso de la mera disonancia entre
el medio juridico adoptado y el fin practico perseguido, por utilizacion de una
via oblicua o combinacion de formas juridicas entrelazadas que permita la
obtencion de un resultado no previsto en los cuadros de la ley — negocios
indirectos y negocios fiduciarlos, validos cuando no envuelven fraude de ley,
como en el caso de la verdadera disconformidad entre la apariencia del acto
y su real contenido, preparada deliberadamente por las partes — negocio
simulado — , ya que, cuando esta divergencia implica no una ausencia total
de voluntad y de acto real, sino mera ocultacion de un negocio verdadero bajo
 la falsa apariencia de un negocio fingido "sirulacion relativa", la ineficacia de
la forma externa simulada, no es obstaculo para la posible validez del negocio
disimulado que contiene, en tanto este ultimo sea licito y reuna no solo los
requisitos generales, sino tambien los que corresponden a su naturaleza
especial, doctrina, en obligada aplicacion de los preceptos de nuestra Ley
civil, especialmente en su art. 1.276, que, al establecer el principio de nulidad
de los contratos en los que se hace expresion de una causa falsa, deja a salvo
el caso de que esten fundados en otra verdadera y licita. (Manresa, Codigo
Civil, Tomo VIII, Vol. II pp. 357-358)
Sanchez Roman says:
Ya hemos dicho que la intervencion de causa en los contratos es necesaria,
y que sin ellos son nulos; solo se concibe que un hombre perturbado en su
razon pueda contratar sin causa. ...
Por la misma razon de la necesidad de la intervencion de causa en el
contrato, es preciso que esta sea verdadera y no supuesta, aparente o
figurada. Que la falsedad de la causa vicia el consentimiento y anula el
contrato, es, no solo doctrina indudable de Derecho Cientifico sino tambien
de antiguo Derecho de Castilla, que en multitud de leyes asi lo declararon.
(Sanchez Roman, Derecho Civil, Tomo IV, p. 206.).
In a clearer exposition of the above distinction, Castan states:
2.º. La causa ha de ser verdadera. La causa falsa puede ser erronea o
simulada. Es erronea como dice Giorgi, la causa que tiene por base la
credulidad en un hecho no existente; y simulada la que tiene lugar cuando se
hace aparecer artificiosamente una distinta de la verdadera. La erronea
produce siempre la inexistencia del contrato; la simulada no siempre produce
este efecto, porque puede suceder que la causa oculta, pero verdadera, baste
para sostener el contrato. De acuerdo con esta doctrina, dice el art. 1.276 de
nuestro Codigo que "la expresion de una causa falsa en los contratos dara
lugar a la nulidad, si no se probase que estaban fundados en otra verdadera
y licita". (Castan Derecho Civil Español, Tomo II, pp. 618-619)
From the foregoing it can be seen that where, as in this case, there was in fact no
consideration, the statement of one in the deed will not suffice to bring it under the rule
of Article 1276 of the Old Civil Code as stating a false consideration. Returning to
Manresa:
Figurando en nuestro Derecho positivo la causa, como un elemento esential
del contrato, es consecuencia ineludible, se reputar simulada la entrega del
precio en la compraventa de autos, el que haya que declararla nula por
inexistente haciendose aplicacion indebida de art. 1.276 por el Tribunal
sentenciador al cohonestar la falta de precio admitiendo se pueda tratar de
una donacion, ya que la recta aplicacion del citado precepto exige que los
negocios simulados, o sea con causa falsa, se justifique la verdadera y licita
en que se funda el acto que las partes han querido ocultar y el cumplimiento
de las formalidades impuestas por la Ley y, cual dice la sentencia de 3 de
marzo de 1932, esta rigurosa doctrina ha de ser especialmente impuesta en
la donaciones puras y simples; de los que deduce que la sentencia recurrida
al no decretar la nulidad instada por falta de causa, incide en la infraccion de
los articulos 1.261, 1.274, 1.275 y 1.276 del Codigo Civil. (Sentencia de 22 de
febrero de 1940). (Manresa, Codigo Civil, Tomo VIII, Vol. II, p. 356)
In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil.
921, is squarely applicable herein. In that case we ruled that a contract of purchase
and sale is null and void and produces no effect whatsoever where the same is without
cause or consideration in that the purchase price which appears thereon as paid has
in fact never been paid by the purchaser to the vendor.
Needless to add, the inexistence of a contract is permanent and incurable and cannot
be the subject of prescription. In the words of Castan: "La inexistencia es perpetua e
insubsanable no pudiendo ser objecto de confirmacion ni prescripcion (Op. cit., p. 644.)
In Eugenio v. Perdido, 97 Phil. 41, 42-43, involving a sale dated 1932, this Court,
speaking through Justice Cesar Bengzon, now Chief Justice, stated:
Under the existing classification, such contract would be "inexisting" and "the
action or defense for declaration" of such inexistence "does not prescribe".
(Art. 1410, New Civil Code). While it is true that this is a new provision of the
New Civil Code, it is nevertheless a principle recognized since Tipton vs.
Velasco, 6 Phil. 67 that "mere lapse of time cannot give efficacy to contracts
that are null and void".
Anent the matter of whether the Narcisos were purchasers in good faith, the trial court
in its decision resolved this issue, thus:
With regard to the second issue, the Narcisos contend that they are the
owners of the above-described property by virtue of the deed of sale (Exh. B,
plaintiffs in 11991 and Exh. 2, defendants in U-133) executed in their favor by
Maximo Mapalo, and further claim that they are purchasers for value and in
good faith. This court, however, cannot also give weight and credit on this
theory of the Narcisos on the following reasons: Firstly, it has been positively
shown by the undisputed testimony of Candida Quiba that Pacifico Narciso
and Evaristo Narciso stayed for some days on the western side (the portion in
question) of the above-described land until their house was removed in 1940
by the spouses Mapalo and Quiba; secondly, Pacifica Narciso admitted in his
testimony in chief that when they bought the property, Miguel Mapalo was still
in the premises in question (western part) which he is occupying and his house
is still standing thereon; and thirdly, said Pacifico Narciso when presented as
a rebuttal and sub-rebuttal witness categorically declared that before buying
the land in question he went to the house of Miguel Mapalo and Candida
Quiba and asked them if they will permit their elder brother Maximo to sell the
property.
Aside from the fact that all the parties in these cases are neighbors, except
Maximo Mapalo the foregoing facts are explicit enough and sufficiently reveal
that the Narcisos were aware of the nature and extent of the interest of
 Maximo Mapalo their vendor, over the above-described land before and at the
time the deed of sale in their favor was executed.
Upon the aforestated declaration of Pacifico Narciso the following question
arises: What was the necessity, purpose and reason of Pacifico Narciso in still
going to the spouses Mapalo and asked them to permit their brother Maximo
to dispose of the above-described land? To this question it is safe to state that
this act of Pacifico Narciso is a conclusive manifestation that they (the
Narcisos) did not only have prior knowledge of the ownership of said spouses
over the western half portion in question but that they also have recognized
said ownership. It also conclusively shows their prior knowledge of the want
of dominion on the part of their vendor Maximo Mapalo over the whole land
and also of the flaw of his title thereto. Under this situation, the Narcisos may
be considered purchasers in value but certainly not as purchasers in good
faith. ... (pp. 97-98, Record on Appeal.)
And said finding — which is one of fact — is found by us not a bit disturbed by the Court
of Appeals. Said the Court of Appeals:
In view of the conclusion thus reached, it becomes unnecessary to pass on
the other errors assigned. Suffice it to say that, on the merits the appealed
decision could have been upheld under Article 1332 of the new Civil Code and
the following authorities: Ayola vs. Valderrama Lumber Manufacturers Co.,
Inc., 49 O.G. 980, 982; Trasporte vs. Beltran, 51 O.G. 1434, 1435; Cortez vs.
Cortez, CA-G.R. No. 18451-R, August 8, 1961; Castillo vs. Laberinto, CA-
G.R. No. 18118-R, December 20, 1961; and 13 C.J. 372-373, as well as the
several facts and circumstances appreciated by the trial court as supporting
appellees' case.
thereby in effect sustaining — barring only its ruling on prescription — the judgment
and findings of the trial court, including that of bad faith on the part of the Narcisos in
purchasing the land in question. We therefore see no need to further remand this case
to the Court of Appeals for a ruling on this point, as appellees request in their brief in
the event we hold the contract of 1936 to be inexistent as regards the western portion
of the land.
In view of defendants' bad faith under the circumstances we deem it just and equitable
to award, in plaintiffs' favor, attorneys' fees on appeal, in the amount of P1,000.00 as
prayed for in the counterclaim.
Wherefore, the decision of the Court of Appeals is hereby reversed and set aside, and
another one is hereby rendered affirming in toto the judgment of the Court of First
Instance a quo, with attorney's fees on appeal in favor of appellants in the amount of
P1,000.00, plus the costs, both against the private appellees. So ordered.
SPOUSES NARCISO RONGAVILLA and DOLORES RONGAVILLA, petitioners,
vs. COURT OF APPEALS AND MERCEDES DELA CRUZ AND FLORENCIA DELA
CRUZ, respondents.
DECISION
QUISUMBING, J.:
For review on appeal by certiorari are the Decision[1] of the Court of Appeals in CA-
G.R. CV No. 06543, promulgated on March 11, 1988, and the Resolution[2] dated June
28, 1988, denying petitioner's motion for reconsideration.
The appealed decision affirmed in toto the judgment of the Regional Trial Court of
Pasay City in Civil Case No. LP-8790-P, which disposed of the controversy as follows:
"WHEREFORE, judgment is hereby rendered declaring void and inexistent the Deed
of Absolute Sale (Exh. "I") dated June 3, 1976 allegedly executed by plaintiffs in favor
of defendant spouses, which document is now particulary identified as Doc, No. 164;
Page no. 34; Book No. I; Series of 1976 in the Notarial Register of Arcadio Espiritu, a
Notary Public for and in Province of Cavite. Further, defendant spouses are hereby
ordered -
a. To reconvey to the plaintiffs, free from all liens and encumbrances, the property
covered by Transfer Certificate of Title No. S-28903 of the Registry of Deeds for the
Province of Rizal;
b. . To pay to plaintiffs the sum of P5,000.00 as attorney's fees; and
c. To pay the cost of the suit."[3]
As gleaned from the record, the private parties are closely related. Plaintiffs below, now
the private respondents, are the aunts of herein petitioner Dolores Rongavilla. Both
spinsters, they earn their livelihood as embroiderers ("magbuburda") and dressmakers;
although unschooled in English, they are however able to read and write in Tagalog.
Since they are of advanced age (Mercedes de la Cruz, 60 and Florencia de la Cruz,
71), their day to day activities were confined mostly close to home.
The property subject of this controversy between kith and kin is a parcel of land, located
in Manuyo, Las Pias, Rizal (now Metro Manila) owned by private respondents, in the
proportion of one-half (1/2) pro-indiviso, with another niece named Juanita Jimenez as
co-owner of the other one-half. The whole parcel consisted of 131 square meters and
was covered by Original Certificate of Title (OCT) No. 5415 of the Register of Deeds of
the Province of Rizal. This OCT, as well as the Transfer Certificate of Title (TCT) No.
S-28903 after the parcel was subdivided, was kept in the possession of Juanita
Jimenez, who is the elder sister of Dolores Rongavilla.
Although the basic fact situation here might appear all too familiar, the legal controversy
itself is notable for having passed through the entire channel of the justice
system.[4] The present petition before us was given due course per Resolution [5] dated
June 26, 1989; but it was denied on September 20, 1989, for non-compliance with
certain requirements;[6] although, upon motion for reconsideration by the petitioners
showing compliance, it was reinstated[7] on September 2, 1991.
Considering the circumstances in this case, including the relationship of the parties, it
behooves this Court now to examine closely and carefully the questioned judgment and
the record below. For the Court could not but be mindful of the codal admonition that:
"In all contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age, or other handicap, the courts must vigilant for his protection."
(Art. 24, Civil Code)
From the facts found below, it appears that in the month of May, 1976, the private
respondents borrowed the amount of two thousand (P2,000) from the petitioners for
the purpose of having their (respondents') dilapidated rooftop repaired.
A month later, petitioner Dolores Rongavilla and her sister Juanita Jimenez visited their
aunt's home, bringing with them a document for the signature of their aunts. The
document is admittedly typewritten in English. When asked in Tagalog by one of the
aunts, respondent Mercedes de la Cruz, what the paper was all about, Dolores
Rongavilla answered also in Tagalog, that it was just a document to show that the
private respondents had a debt amounting to P2,000. On account of that
representation, private respondent signed the document.
In September 1980, or after a lapse of over four years, petitioner Dolores Rongavilla
went to private respondents' place and asked them to vacate the parcel in question,
claiming that she and her husband were already the new owners of the land.
Surprised by petitioners' moves, private respondents with the help of friends went to
the Office of the Register of Deeds of the Province of Rizal to verify the matter. They
discovered that their Certificate of Title had been cancelled and a new one, Transfer
Certificate of Title No. S-28903, had been issued in favor of petitioners. They further
discovered that said parcel of land had been mortgaged with the Cavite Development
Bank by the petitioners. It was only then that the private respondents realized that
the document they had previously been asked by their nieces to sign was a deed of
sale.
On February 3, 1981, private respondents filed with the Court of First Instance, now
Regional Trial Court, of Pasay City the sworn complaint [8] to have the purported deed
of sale declared void and inexistent, for being fictitious and simulated, and secured by
means of fraud and misrepresentation. They alleged that they did not sell their property
in question to the defendants; that they did not receive any consideration on the
supposed sale; that their Original Certificate of Title was cancelled and TCT No. S-
28903 was issued in favor of defendants (herein petitioners), who thereafter mortgaged
said title for a total of P40,000.00 to the damage and prejudice of the plaintiffs. They
also claimed moral and exemplary damages, as the court might determine.
answer[9]
Petitioners duly filed their after the denial of their motion to dismiss, alleging
that plaintiffs (now the private respondents) sold their parcel of land voluntarily, that
there was consent to the deed of sale, that there was sufficient consideration therefor
and that the document on the sale was complete in itself and in due form, enabling the
Register of deeds to cancel their old TCT and issue a new one. Petitioners further
stated that private respondent were fully appraised by the Notary Public, Atty. Arcadio
G. Espiritu, on what the document was all about, and having understood the
explanation made by said Notary Public, they voluntarily affixed their signatures on said
document. Petitioners also asserted as affirmative and/or special defenses that
prescription had set in and that private respondents no longer had a cause of action,
and that the deed of sale contained all the pre-requisites of a contract, namely consent
of the parties, consideration or a price certain, and determinate thing or object; and
could no longer be annulled. They also claimed moral and exemplary damages.
The trial court's judgment, quoted at the outset, being adverse to the petitioners, they
seasonably appealed. And after their rebuff at the appellate level, they come now to
this Court on certiorari under Rule 45 of the Rules of Court, citing the following grounds
for their petition:
"(1) It is clear and patent error of the Court of Appeals to declare as 'void and inexistent
the Deed of Absolute Sale (Exhibit 1) dated June 3, 1976.
(2) The Court of Appeals committed grave error of law in holding that the action to
declare nullity of the Deed of Absolute Sale (Exhibit 1) does not prescribe.
(3) The Court of Appeals committed grave abuse of discretion in relying on a purported
Certificate of Bureau of Internal Revenue which was not offered in evidence.
(4) The Court of Appeals committed grave error of law and abuse of discretion and
grave abuse of discretion amounting to lack or excess of jurisdiction in ordering the
petitioners to reconvey the subject parcel of land to the private respondents." [10]
With a slight variation but consistent with the grounds they have relied on petitioners
raise in their Memorandum[11] the following:
"ISSUES
1. Did the Court of Appeals commit a clear and patent error in declaring as 'void and
inexistent' the Deed of Absolute Sale (Exhibit 1) dated June 3, 1976?
2. Did the Court of Appeals commit grave error in holding that the action to annul the
Deed of Sale (Exhibit 1) does not prescribe?
3. Did the Court of Appeals commit grave abuse of discretion in relying on a purported
Certificate of the Bureau of Internal Revenue which was not offered in
evidence?
4. Did the Court of Appeals commit grave error of law and grave abuse of discretion
amounting to lack of jurisdiction or in excess of jurisdiction in ordering
petitioners to reconvey the subject parcel of land to the private respondents?"
These issues may be synthesized into one: Did the respondent Court of Appeals
commit reversible error when it upheld the trial court's judgment that the disputed Deed
of Sale (Exhibit "1") is void and inexistent?
To resolve this pivotal issue, it must be noted that private respondents, as plaintiffs
below, based their complaint to declare the disputed deed void and inexistent on two
fundamental grounds: (1) lack of consent and (2) want of consideration. Under oath,
they strongly denied selling or even just agreeing to sell, their parcel of land to their
niece and nephew-in-law. During the hearing, they also denied going to and appearing
before the Notary Public who prepared the deed of sale. They also vehemently denied
receiving any consideration for the alleged sale. They added that their signatures on
the purported deed of sale were obtained by fraud and misrepresentation as petitioners
had misled them to believe the document was just a paper to evidence a debt of P2,000
they obtained to buy G.I sheets for the repair of their leaking roof.[12] Private
respondents were shocked and got sick when they were told by petitioners that they
(respondents) were no longer the owners of the land.[13]
On these two points of consent and consideration, the trial court found that:
"x x x. A careful analysis and meticulous evaluation of the evidence on record has
convinced the Court that the sale of their property to the defendants was farthest from
the plaintiffs' minds. The Court believes that when plaintiffs voluntarily signed the
document which turned out to be a deed of sale, they were misled by defendant Dolores
Rongavilla and her sister Juanita Jimenez into believing that what they signed was a
document acknowledging the loan of P2,000.00 extended them by said defendant.
"The Deed of Absolute Sale (Exh. "l") mentions a consideration of P2,000.00. Three
years after the alleged sale, the same property was mortgaged by defendant spouses
with the Cavite Development Bank for P40,000.00. Clearly enough, the gross
inadequacy and unconsciounableness [sic] of the consideration deters the Court from
subscribing to defendants' theory that plaintiffs sold the property to them. It is more
reasonable to assume that the amount of P2,000.00 mentioned in the deed refers to
the loan defendants extended to plaintiffs for the same amount.
"Plaintiffs are now of advanced age. Their only property is the lot in question and the
house erected thereon. x x x.
"As there is no indication that plaintiffs were in dire need of money, except for few [sic]
amount, except for few [sic] amount necessary for the repair of the roof of their house
for which they obtained a loan of P2,000.00 from defendants, there was no reason for
plaintiffs to dispose of their property. To do so would be inconsistent with the regular
norm of human conduct and the natural course of events. It is not in accord with the
natural promptings and instincts of human nature."[14]
To these findings by thetrial court, the Court of Appelas in its own decision asserted. In
addition, it laid stress on the point of lack of consideration by quoting agreeably the trial
judge's holding thereon:
"By more than mere preponderance of evidence of evidence plaintiffs [herein
private respondents] have established the merit of their cause of action. The Court is
of the opinion and so holds that there was fraud exercised by defendant Dolores
Rongavilla and her sister Juanita Jimenez in securing the signature of the Deed of
Absolute Sale (Exh. 'l') and there was no consideration whatsoever dor the alleged
sale. Undoubtedly, the said deed of sale is simulated, fictitious and void." [15]
And before concluding, the appellate court reiterated the proper characterization of the
deed of sale in question, not as an annullable contract, but as a void and inexistent
contract asfound by the trial court:
"x x x. In the case at bar, however, We are dealing not merely with a voidable contract
which is tainted with fraud, mistake, undue influence, violence or intimidation which
may justify the annulment of a contract, but with a contract that is null and void ab initio.
"In the present case, plaintiffs-appellees declared under oath in their complaint that
they signed the alleged document without knowing that said document was a deed of
absolute sale. This means that plaintiffs-appelles consent was not only vitiated, but that
plaintiffs-appealles have not give their consent at all. And since there was no consent,
the deed of absolute sale is, therefore, null and void ab initio. xxx'"[16]
Dissatisfied, petitioners now seek from this Court the reversal of the judgment below.
They insist in their petition before us that the deed is valid; and that because of the
statute of limitations, after the lapse of four years from its execution and registration, it
could no longer be annulled.
They assert that "the presumption that contracts are presumed to be valid and to be
supported by lawful and good consideration of one dollar is just as effectual and
valuable as a larger sum stipulated or paid''.[17]
They further assert that since private respondents signed the Deed of Sale, as a public
instrument, the truth of the recitals therein embodied could only be impugned and
disproved, not by mere preponderance of evidence, but by evidence of the "the clearest
and most satisfactory character, convincing and overwhelming.'" [18] Petitioners further
state that since they have been the ones paying real estate taxes on the property, rather
than their aunts, the latter by their acts had confirmed the deed executed by them. [19]
Despite the petitioners' insistence that the deed of sale is presumed valid and, being
registered, could not be disturbed anymore, we however find their arguments and
ratiocination less than persuasive. While petitioners would not want the deed of sale to
be impugned, they themselves contradict the recitals therein. On the vital point
of consideration, they and their witnesses, namely Juanita Jimenez and Atty. Arcadio
Espiritu repeatedly declared that the true consideration paid for the sale of the land was
not P2,000 as stated in their own Exhibit "l", the Deed of Sale, but in fact P7,800.00.[20]
Petitioner Dolores Rongavilla herself on cross-examination testified as follows:
"Atty. Rodriguez:
Q. You stated that you were present when this was explained by the notary public, how
did the notary public explain this deed of sale in English or Tagalog?
A. It was explained by the notary public that the property is being sold by them to us
and that the consideration was only P2,000.00 as appearing in the document
in order that we may be able to save for the payment of taxes and
documentary stamps.
Q. Did the plaintiffs not say anything when the notary public according to you explained
that instead of P7,800.00, P2,000.00 will be stated in the document?
A. They did not say anything because we gave to them the amount of the consideration
agreed between us the sum of P7,800.00. (t.s.n., Sept. 2, 1982, pp. 9-10)"[21]
By their own testimony, the petitioners are pictured as not exactly averse to bending
the truth, particularly the purported consideration. Sadly, the irony of it is that while they
claimed they were regulary paying taxes on the land in question they had no second
thoughts stating at the trial and later on appeal that they had resorted to doctoring the
price stated in the disputed Deed of Sale, allegedly "to save on taxes". That admission
surely opens the door to questions on the integrity, genuineness and veracity of said
public instrument.
Thus, the trial court could not be said to err in asserting that "while it is true that public
documents are presumed genuine and regular under the provisions of the Rules of
Court, this presumption is a rebuttable presumption which may be overcome by clear,
strong and convincing evidence."[22]
Moreover, Exhibit "l", the deed itself, shows that contrary to the testimony of the notary
public, who appeared as a witness for petitioners, what was originally typed therein was
the amount of "Three Thousand Pesos (P3,000)", which later on was substituted by the
handwritten amount now of Two Thousand Pesos (P2,000)."[23] There is no need to
speculate on the motivation for this alteration. The notary public might have just wanted
to further save on taxes, rather than short-change the coffers of the government. But,
again, the whole fabric of petitioners' claim to the sanctity of the deed as public
instrument had thereby been shredded.
If as petitioners claimed on trial, the price paid was P7,800 while their deed showed
only P2,000, after the amount of P3,000 in the deed was altered, one may well inquire:
which figure could this Court believe? Could one say that the trial and the appellate
courts both erred in holding that no consideration passed from the buyer to the seller?
But petitioners herein would further take to task the appellate court for grave abuse of
discretion, as well as for a reversible error, in having relied on the "purported
Certification of the Bureau of Internal Revenue which was not offered in evidence".
Since this is a petition under Rule 45, however, we will not dwell on the alleged grave
abuse of discretion but limit our observation to the alleged error of law. The BIR
certificate was the subject of the testimony of witnesses at the hearing where both
parties took full advantage of the opportunity for direct and cross-examination as well
as rebuttal and sur-rebuttal.[24] On the witness stand, private respondents as plaintiffs
below denied that they had any tax account number nor even residence certificates.
They were supported by their witnesses, testifying also under oath. They contradicted
the claim of the petitioners' lawyer-notary public, that the disputed deed of sale was
complete and in due form and was signed in his presence by the private respondents.
They further denied even having gone to the office of the lawyer-notary public in
Bacoor, Cavite, on June 3, 1976, the date of execution shown in the deed, or on any
other date. While indeed the BIR certificate was not formally offered in evidence, hence
no longer available on review, the record would show that said BIR certificate was
presented during the testimony on rebuttal of respondent Mercedes de la Cruz: [25]
"ATTY. RODRIGUEZ:
According to the defendants, there was the alleged deed of sale executed by you
and your sister in favor of the defendants before Notary Public Arcadio G.
Espiritu. It appears you have presented Tax Account No. (TAN) 2345-463-6
and your sister Florencia de la Cruz also presented Tax Account No. (TAN)
2345-468-4. Now, do you have any tax account number?
WITNESS:
None, sir.[26]
xxx
ATTY. RODRIGUEZ:
I am showing to you this certification from the "Kawanihan ng Rentas, Quezon City
, dated June 16, 1982, addressed to Miss Florencia de la Cruz and Miss
Mercedes de la Cruz, Las Pias, Metro-Manila, issued by the accounting chief,
stating that in reply to you[r] request dated June 14, 1982,
requesting certification of your TAN, the records of their office do not show
that you were issued any tax account number, what relation has this document
which for purposes of identification, we respectfully request that the same be
marked Exhibit "C" to the certification issued by the BIR?
WITNESS:
"Yes, this is the one."[27]
Now even if the matter of the official certification by the BIR is set aside, the whole
question of the TAN being fake or belonging to somebody else, would boil down to
one of credibility between the two camps. Unfortunately for the petitioners herein, the
trial court found them and their witnesses far from credible. As remarked by the trial
Judge, "the declarations of defendants [herein petitioners] do not inspire rational
belief."[28] It would thus appear that the trial court and the appellate court committed no
grave error of law, that would impel us on this point to override their judgment.
Neither can we give assent to the assertion of petitioners that the appealed Court of
Appeals (CA) decision here as well as the judgment below is "contrary to settled
jurisprudence". This Court in Rivero v. Court of Appeals, 80 SCRA 411 (1977) had
occasion already to affirm a trial court's judgment declaring null and void the questioned
deed of sale where it found:
"The undisputed facts of record support the finding of the trial court that the consent of
Ana Concepcion to the deed of sale was obtained through fraudulent misrepresentation
of [her nephew] Jaime Rivero that the contract she was signing was one of mortgage."
"The land in question is located in the municipality of Polo, Bulacan, very near Manila.
It has an area of 2 hectares, 32 ares and 45 centares. The consideration for the sale of
said land is only P5,000.00 which is not only grossly inadequate but shocking to the
conscience x x x"[29]
In Ocejo, Perez & Co. vs. Flores, 40 Phil. 921 (1920), regarding the sale of land in
Tayabas, Quezon, the Court confronted a similar question:
"The first question presented is whether the contract of sale executed by Isabel Flores
in favor of Joaquin Bas is valid or not.
"By relying upon the documents executed in his favor by Isabel Flores evidencing the
contract of sale, Joaquin Bas insists that there has been a perfect and valid contract of
sale of real estate between them and that he paid to her the consideration of P20,000
mentioned in said documents. x x x.
"Isabel Flores, on the other hand, maintained that there was neither a real sale nor did
she receive a centavo from the defendant, as the price of said sale, x x x." [30]
Concluded the Court, after reviewing the series of transactions on record:
"It is then evident that the contract of sale mentioned in the notarial document of May
7, 1915, lacks cause or consideration and is therefore null and void and without any
effect whatsoever according to Article 1275 of the Civil Code, for it has been
satisfactorily and conclusively proven that the purchaser Joaquin Bas has not paid
Isabel Flores for the price of the lands that the latter has sold to him, and after being
contented with having for a long time given several promises showing that he had no
intention to comply with his contract, he concluded by executing four promissory notes
payable to the vendor, which recite the aforementioned purchase price and which were
not also paid, there appearing in the record facts from which it can be inferred that fraud
has been committed."[31]
This Court in Mapalo v. Mapalo, 17 SCRA 114 (1966) stated:
"The rule under the Civil Code, again be it the old or the new, is that contracts without
a cause or consideration produce no effect whatsoever." [32]
The "problem" before the Court "is whether a deed which states a consideration that in
fact did not exist, is a contract, without consideration, and therefore void ab initio, or a
contract with a false consideration, and therefore, at least under the Old Civil Code,
voidable." This problem arose, as observed by the Court, because the questioned
"deed of sale" between the brothers Magpalo, in 1936, stated that it had for its
consideration Five Hundred (P500.00) Pesos. In fact, however, said "consideration was
totally absent."[33]
Thus, the Court concluded:
"In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil.
921 is squarely applicable herein. In that case we ruled that a contract of purchase and
sale is null and null and void and produces no effect whatsoever where the same
is without cause or consideration in that the purchase price which appears thereon as
paid has in fact never been paid by the puchaser to vendor." [34]
Turning now to the issue of prescription, it follows that once the disputed deed is found
to be inexistent and void, the statute of limitations cannot apply. As the courts below
ruled, the cause of action for its declaration as such is imprescriptible.[35] Petitioners-
spouses contend, however, that this is contrary to settled jurisprudence because the
applicable precedent should be Pangadil v. CFI of Cotabato, 116 SCRA 347 (1982).
But the fact situation of that case differs radically from the present controversy. There
the Court upheld the dismissal of the action to declare a document known as
"Ratificacion de Una Venta" as inexistent and void after finding that it was "not a
contract wherein the parties do not intend to be bound at all;" that no circumstance was
alleged to sustain the contention "that the execution of the aforesaid document is
contrary to public policy;"[36] and that for 27 years the petitioners did not even care to
verify the status of the land in question. "Their inaction for such a considerable period
of time reflects on the credibility of their pretense that they merely intended to confirm
an oral mortgage, instead of sale of the land in question." [37]
Here in the present case, there is no doubt about the credibility of plaintiffs below
(herein private respondents) in pursuing their cause promptly and forcefully. They never
intended to sell, nor acceded to be bound by the sale of their land. Public policy is also
well served in defending the rights of the aged to legal protection, including their right
to property that is their home, as against fraud, misrepresentation, chicanery and abuse
of trust and confidence by those who owed them candor and respect.
More to the point, in our view, is Baranda v. Baranda, 150 SCRA 59 (1987), where this
Court found that:
"This Civil Code provides in Article 1391 that an action to annul a contract on the ground
of vitiated consent must be filed within four years from the discovery of the vice of
consent. In the instant case, however, we are dealing not with a voidable contract
tainted with fraud, mistake, undue influence, violence or intimidation that can justify its
nullification, but with a contract that is null and void ab initio
"Paulina Baranda declared under oath in her complaint that she signed the deeds of
sale without knowing what they were, which means that her consent was not merely
marred by the above-stated vices, so as to make the contracts voidable, but that she
had not given her consent at all. We are also satisfied that there was no valid
consideration either for the alleged transfers, for reasons already discussed. Lack of
consent and consideration made the deeds of sale void altogether [38]and rendered them
subject to attack at any time, conformably to the rule in Article 1410 that an action to
declare the inexistence of void contracts 'does not prescribe'." [39]
And if the passage of time could not cure the fatal flaw in the inexistent and void
contract, neither could an alleged ratification or confirmation thereof. Further, as in the
case before us, reconveyance is proper. "The defect of inexistence of a contract is
permanent and incurable, hence it cannot be cured either by ratification or by
prescription. x x x There is no need of an action to set aside a void or inexistent contract;
in fact such action cannot logically exist. However, an action to declare the non-
existence of the contract can be maintained; and in the same action, the plaintiff may
recover what he has given by virtue of the contract." [40]
Given the circumstances of the case and there being no reversible error in the
challenged decision, we are in accord with the judgment below and find the petitioners'
appeal without merit. For as well said in the Court of Appeals' Decision and Resolution
under review, "We cannot contemplate of the rather absurd situation, which
defendants-appellants would ineluctably lead [u]s to, where plaintiffs-appellees would
sell their only house, in which they have lived for so many years, in order to secure the
measly sum of P2,000.00 to repair the roof of their only house, which would all be lost
to them anyway upon the consummation of the sale. They would then become
homeless, and the repaired roof would be of no use to them."[41] Experience which is
the life of the law -- as well as logic and common sense -- militates against the [G.R. No. 120724-25. May 21, 1998]
petitioners' cause.
FERNANDO T. MATE, petitioner, vs. THE HONORABLE COURT OF APPEALS
WHEREFORE, the instant petition is hereby DENIED. The Decision and the Resolution and INOCENCIO TAN, respondents.
of the Court of Appeals in CA-G.R. CV No. 06543 are hereby AFFIRMED.
Cost against petitioners. DECISION

SO ORDERED. MARTINEZ, J.:

In this petition for review, petitioner assails the Decision[1] of the Court of Appeals dated
August 29, 1994 in CA-G.R. CV No. 28225-26, which affirmed with modification the
decision of the trial court, the dispositive portion of which reads, to wit:

WHEREFORE, this Court finds the Deed of Sale with Right of Repurchase executed
October 6, 1986 valid and binding between plaintiff and defendant (as vendor and
vendee-a-retro respectively); that as the period to redeem has expired, ownership
thereof was consolidated by operation of law, and the Register of Deeds is hereby
ordered to REGISTER this decision consolidating the defendants ownership over the
properties covered by Transfer Certificate of Title No. T-90-71, covering Lot 8; Original
Certificate of Title No. N-311 covering Lot 5370, all of the Tacloban Cadastre, and
issuing to defendant Inocencio Tan his titles after cancellation of the titles presently
registered in plaintiff Fernando T. Mates name and that of his wife.

The plaintiff Fernando Mate is further ordered to pay defendant the sum of ONE
HUNDRED FORTY THOUSAND (P140,000.00) PESOS, for and as attorneys fees.

With costs against the plaintiff Fernando Mate.

SO ORDERED.[2]

The facts of this case, as summarized in the petition, are reproduced hereunder:

On October 6, 1986 Josefina R. Rey (hereafter referred to as Josie for short) and
private respondent went to the residence of petitioner at Tacloban City. Josie who is a
cousin of petitioners wife solicited his help to stave off her and her family’s prosecution
by private respondent for violation of B.P. 22 on account of the rubber checks that she,
her mother, sister and brother issued to private respondent amounting
to P4,432,067.00. She requested petitioner to cede to private respondent his three (3)
lots in Tacloban City in order to placate him. On hearing Josies proposal, he
immediately rejected it as he owed private respondent nothing and he was under no
obligation to convey to him his properties. Furthermore, his lots were not for sale. Josie
explained to him that he was in no danger of losing his properties as he will merely
execute a simulated document transferring them to private respondent but they will be
redeemed by her with her own funds. After a long discussion, he agreed to execute a
fictitious deed of sale with right to repurchase covering his three (3) lots mentioned
above subject to the following conditions:

1. The amount to be stated in the document is P1,400,000.00 with interest thereon at

5% a month;
2. The properties will be repurchased within six (6) months or on or before April 4, 1987;
3. Although it would appear in the document that petitioner is the vendor, it is Josie who
will provide the money for the redemption of the properties with her own funds;
4. Titles to the properties will be delivered to private respondent but the sale will not be
registered in the Register of Deeds and annotated on the titles.
To assure petitioner that Josie will redeem the aforesaid properties, she issued to him
two (2) BPI checks both postdated December 15, 1986. One check was
for P1,400,000.00 supposedly for the selling price and the other was for P420,000.00
corresponding to the interests for 6 months. Immediately thereafter petitioner prepared
the Deed of Sale with Right to Repurchase (Exh. A) and after it has been signed and
notarized, it was given to private respondent together with the titles of the properties
and the latter did not register the transaction in the Register of Deeds as agreed upon.
On January 14, 1987, petitioner deposited the check for P1,400,000.00 (Exh. B) in his
account at the United Coconut Planters Bank and the other check for P420,000.00
(Exh. D) in his account at METROBANK preparatory to the redemption of his
properties. However, both of them were dishonored by the drawee bank for having
been drawn against a closed account.Realizing that he was swindled, he sent Josie a
telegram about her checks and when she failed to respond, he went to Manila to look
for her but she could not be found. So he returned to Tacloban City and filed Criminal
Cases Nos. 8310 and 8312 against her for violation of B.P. 22 but the cases were later
archived as the accused (Josie) could not be found as she went into hiding. To protect
his interest, he filed Civil Case No. 7396 of the Regional Trial Court of Leyte, Branch
VII, entitled `Fernando T. Mate vs. Josefina R. Rey and Inocencio Tan for Annulment
of Contract with Damages. Defendant Josefina R. Rey (Josie) was declared in default
and the case proceeded against private respondent. But during the trial the RTC court
asked private respondent to file an action for consolidation of ownership of the
properties subject of the sale and pursuant thereto he filed Civil Case No. 7587 that
was consolidated with the case he filed earlier which were later decided jointly by the
trial court in favor of private respondent and was subsequently appealed to respondent
Court that affirmed it with modification. Thereupon, petitioner filed a motion to
reconsider the decision but it was denied. Hence, the instant petition for review.[3]
In this petition for review, the petitioner presents as the sole issue the validity of the
Deed of Sale with Right to Repurchase. He contends that it is null and void for lack of
consideration because allegedly no money changed hands when he signed it and the
checks that were issued for redemption of the properties involved in the sale have been
dishonored by the drawee bank for having been drawn against a closed account. [4]
The contention is without merit.
There was a consideration. The respondent court aptly observed that –
In preparing and executing the deed of sale with right of repurchase and in delivering
to Tan the land titles, appellant actually accommodated Josefina so she would not be
charged criminally by Tan. To ensure that he could repurchase his lots, appellant got a
check of P1,400,000.00 from her. Also, by allowing his titles to be in possession of Tan
for a period of six months, appellant secured from her another check
for P420,000.00. With this arrangement, appellant was convinced he had a good
bargain. Unfortunately his expectation crumbled. For this tragic incident, not only
Josefina, but also Tan, according to appellant must be answerable.
xxxxxxxxx
It is plain that consideration existed at the time of the execution of the deed of sale with
right of repurchase. It is not only appellants kindness to Josefina, being his cousin, but
also his receipt of P420,000.00 from her which impelled him to execute such contract. [5]
Furthermore, while petitioner did not receive the P1.4 Million purchase price from
respondent Tan, he had in his possession a postdated check of Josie Rey in an
equivalent amount precisely to repurchase the two lots on or before the sixth month.
As admitted by petitioner, by virtue of the sale with pacto de retro, Josie Rey gave him,
as vendor-a-retro, a postdated check in the amount of P1.4 Million, which represented
the repurchase price of the two (2) lots. Aside from the P1.4 Million check, Josie gave
another postdated check to petitioner in the amount of P420,000.00, ostensibly as
interest for six (6) months but which apparently was his fee for having executed
the pacto de retro document. Josie thus assumed the responsibility of paying the
repurchase price on behalf of petitioner to private respondent.
Unfortunately, the two checks issued by Josie Rey were worthless. Both were
dishonored upon presentment by petitioner with the drawee banks. However, there is
absolutely no basis for petitioner to file a complaint against private respondent Tan and
Josie Rey to annul the pacto de retro sale on the ground of lack of consideration,
invoking his failure to encash the two checks. Petitioners cause of action was to file
criminal actions against Josie Rey under B.P. 22, which he did. The filing of the criminal
cases was a tacit admission by petitioner that there was a consideration of the pacto
de retro sale.
Petitioner further claims that the pacto de retro sale was subject to the condition that in
the event the checks given by Josie Reyes to him for the repurchase of the property
were dishonored, then the document shall be declared null and void for lack of
consideration.
We are not persuaded.
Private respondent Tan was already poised to file criminal cases against Josie Rey and
her family. It would not be logical for respondent Tan to agree to the conditions allegedly
imposed by petitioner. Petitioner knew that he was bound by the deed of sale with right
to repurchase, as evidenced by his filing criminal cases against Josie Rey when the
two checks bounced.
The respondent court further made the candid but true observation that:
If there is anybody to blame for his predicament, it is appellant himself. He is a
lawyer. He was the one who prepared the contract. He knew what he was entering
into. Surely, he must have been aware of the risk involved. When Josefinas checks
bounced, he should have repurchased his lots with his own money. Instead, he sued
not only Josefina but also Tan for annulment of contract on the ground of lack of
consideration and false pretenses on their part.
Petitioner then postulates that it is not only illegal but immoral to require him to
repurchase his own properties with his own money when he did not derive any benefit
from the transaction. Thus, he invokes the case of Singson vs. Isabela Sawmill, 88
SCRA 633, 643, where the Court said that where one or two innocent persons must
suffer, that person who gave occasion for the damages to be caused must bear
consequences. Petitioners reliance on this doctrine is misplaced. He is not an innocent
person. As a matter of fact, he gave occasion for the damage caused by virtue of the
deed of sale with right to repurchase which he prepared and signed. Thus, there is the
equitable maxim that between two innocent parties, the one who made it possible for
the wrong to be done should be the one to bear the resulting loss.[6]
Petitioner further insinuates that private respondent deceived him into signing the deed
of sale with right to repurchase. This is not borne out by the evidence nor by petitioner’s
own statement of facts which we heretofore reproduced. As aptly observed by the
respondent court We are at a loss why herein appellant ascribes false pretenses to Tan
who merely signed the contract.[7] Contrary to petitioners pretension, respondent Tan
did not employ any devious scheme to make the former sign the deed of sale. It is to
be noted that Tan waived his right to collect from Josefina Rey by virtue of the pacto
de retro sale. In turn, Josefina gave petitioner a postdated check in the amount of P1.4
Million to ensure that the latter would not lose his two lots. Petitioner, a lawyer, should
have known that the transaction was fraught with risks since Josefina Rey and family
had a checkered history of issuing worthless checks. But had petitioner not agreed to
the arrangement, respondent Tan would not have agreed to waive prosecution of
Josefina Rey.
Apparently, it was petitioner’s greed for a huge profit that impelled him to accede to the
scheme of Josefina Rey even if he knew it was a dangerous undertaking. When he
drafted the pacto de retro document, he threw caution to the winds forgetting that
prudence might have been the better course of action. We can only sympathize with
petitioners predicament.However, a contract is a contract. Once agreed upon, and
provided all the essential elements are present, it is valid and binding between the
parties.
Petitioner has no one to blame but himself for his misfortune.
WHEREFORE, the Decision of the Court of Appeals dated August 29, 1994 is hereby
AFFIRMED. The petition for review is hereby DENIED DUE COURSE for lack of merit.
SO ORDERED.
[G.R. No. 144735. October 18, 2001]
YU BUN GUAN, petitioner, vs. ELVIRA ONG, respondent.
DECISION
PANGANIBAN, J.:
A simulated deed of sale has no legal effect, and the transfer certificate of title issued
in consequence thereof should be cancelled. Pari delicto does not apply to simulated
sales.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the
April 25, 2000 Decision[1] and the August 31, 2000 Resolution[2] of the Court of
Appeals[3] (CA) in CA-GR CV No. 61364. The decretal portion of the Decision reads as
follows:
We cannot see any justification for the setting aside of the contested Decision.
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED.[4]
The assailed Resolution denied petitioners Supplemental Motion for Reconsideration
with Leave to Submit [Newly] Discovered Evidence.
The CA sustained the Decision of the Regional Trial Court (RTC) of Makati City (Branch
60), which had disposed as follows:[5]
23. WHEREFORE, the Court hereby renders judgment as follows:
23.1. The Deed of Sale dated July 24, 1992 (Exh. EE or Exh. 3) is declared VOID.
23.2. The plaintiff ELVIRA ONG is declared the OWNER of the property covered by
Transfer Certificate of Title No. 217614, Registry of Deeds, Makati (Exh. DD).
23.3. The Register of Deeds, City of Makati is ordered to:
23.2.1. Cancel Transfer Certificate of Title No. 181033 (Exh. HH); and
23.2.2. Issue in lieu thereof, a transfer certificate of title in the name of ELVIRA A. ONG,
of legal age, single, Filipino;
23.[4]. The defendant YU BUN GUAN is ordered to pay to the said plaintiff, the
following:
23.[4].1. P48,631.00 As reimbursement of the capital gains tax (Exh. FF);
23.[4].2. Six (6) percent of P48,631.00 per annum from November 23, 1993, until the
said P48,631.00 is paid as damages
23.[4].3. P100,000.00 - as moral damages;
23.[4].4. P 50,000.00 as exemplary damages;
23.[4].5. P 100,000.00 as attorneys fees.
23.[5]. The COUNTERCLAIM is DISMISSED.
23.[6]. Cost is taxed against the defendant.
24. In Chambers, City of Makati, June 23, 1998.
The Facts
The antecedents of the case are succinctly summarized by the Court of Appeals in this
wise:
[Herein respondent] said that she and [petitioner] are husband and wife, having been
married according to Chinese rites on April 30, 1961. They lived together until she and
her children were abandoned by [petitioner] on August 26, 1992, because of the latters
incurable promiscuity, volcanic temper and other vicious vices; out of the reunion were
born three (3) children, now living with her [respondent].
She purchased on March 20, 1968, out of her personal funds, a parcel of land, then
referred to as the Rizal property, from Aurora Seneris, and supported by Title No.
26795, then subsequently registered on April 17, 1968, in her name.
Also during their marriage, they purchased, out of their conjugal funds, a house and lot,
in 1983, thereafter, registered in their names, under Title No. 118884.
Before their separation in 1992, she reluctantly agreed to the [petitioners] importunings
that she execute a Deed of Sale of the J.P. Rizal property in his favor, but on the
promise that he would construct a commercial building for the benefit of the children. He
suggested that the J.P. Rizal property should be in his name alone so that she would
not be involved in any obligation. The consideration for the simulated sale was that,
after its execution in which he would represent himself as single, a Deed of Absolute
Sale would be executed in favor of the three (3) children and that he would pay the
Allied Bank, Inc. the loan he obtained.
Because of the glib assurances of [petitioner], [respondent] executed a Deed of
Absolute Sale in 1992, but then he did not pay the consideration of P200,000.00,
supposedly the ostensible valuable consideration. On the contrary, she paid for the
capital gains tax and all the other assessments even amounting to not less
than P60,000.00, out of her personal funds.
Because of the sale, a new title (TCT No. 181033) was issued in his name, but to insure
that he would comply with his commitment, she did not deliver the owners copy of the
title to him.
Because of the refusal of [petitioner] to perform his promise, and also because he
insisted on delivering to him the owners copy of the title [to] the JP Rizal property, in
addition to threats and physical violence, she decided executing an Affidavit of Adverse
Claim.
Also to avoid burdening the JP Rizal property with an additional loan amount, she wrote
the Allied Bank, Inc. on August 25, 1992, withdrawing her authority for [petitioner] to
apply for additional loans.
To save their marriage, she even sought the help of relatives in an earnest effort [at]
reconciliation, not to mention a letter to [petitioner] on November 3, 1992.
[Petitioner], on the other hand, filed with the RTC, Makati, in 1993 (Case No. M-2905),
a Petition for Replacement of an owners duplicate title.
Attached to the Petition was the Affidavit of Loss dated March 26, 1993, in which he
falsely made it appear that the owners copy of the title was lost or misplaced, and that
was granted by the court in an Order dated September 17, 1993, following which a new
owners copy of the title was issued to [petitioner].
Upon discovery of the fraudulent steps taken by the [petitioner], [respondent]
immediately executed an Affidavit of Adverse Claim on November 29, 1993.
She precisely asked the court that the sale of the JP Rizal property be declared as null
and void; for the title to be cancelled; payment of actual, moral and exemplary
damages; and attorneys fees.
It was, on the other hand, the version of [petitioner] that sometime in 1968 or before he
became a Filipino, through naturalization, the JP Rizal property was being offered to
him for sale. Because he was not a Filipino, he utilized [respondent] as his dummy and
agreed to have the sale executed in the name of [respondent], although the
consideration was his own and from his personal funds.
When he finally acquired a Filipino citizenship in 1972, he purchased another property
being referred to as the Juno lot out of his own funds. If only to reflect the true ownership
of the JP Rizal property, a Deed of Sale was then executed in 1972. Believing in good
faith that his owners copy of the title was lost and not knowing that the same was
surreptitiously concealed by [respondent], he filed in 1993 a petition for replacement of
the owners copy of the title, in court.
[Petitioner] added that [respondent] could not have purchased the property because
she had no financial capacity to do so; on the other hand, he was financially capable
although he was disqualified to acquire the property by reason of his
nationality. [Respondent] was in pari delicto being privy to the simulated sale.
Before the court a quo, the issues were: who purchased the JP Rizal property? [W]as
the Deed of Sale void? and damages.[6]
Ruling of the Trial Court
After examining the evidence adduced by both parties, the RTC found that the JP Rizal
property was the paraphernal property of respondent, because (1) the title had been
issued in her name; (2) petitioner had categorically admitted that the property was in
her name; (3) petitioner was estopped from claiming otherwise, since he had signed
the Deed of Absolute Sale that stated that she was the absolute and registered owner;
and (4) she had paid the real property taxes thereon.[7]
The trial court further held that the in pari delicto rule found in Articles 1411 and 1412
of the Civil Code was not applicable to the present case, because it would apply only
to existing contracts with an illegal cause or object, not to simulated or fictitious
contracts or to those that were inexistent due to lack of an essential requisite such as
cause or consideration.[8] It likewise voided the Deed of Absolute Sale of the JP Rizal
property for having been simulated and executed during the marriage of the parties. [9]
Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts findings that the JP Rizal property had
been acquired by respondent alone, out of her own personal funds. It ruled thus:
x x x [T]he JP Rizal property was purchased by the [respondent] alone; therefore it is a
paraphernal property. As a matter of fact, the title was issued in her name, Exh.
DD. This was even admitted by [petitioner] in the Answer that the sale was executed in
her name alone. He also signed the sale mentioning [respondent] to be an absolute
owner; therefore, he should be estopped from claiming otherwise. She alone likewise
did the payment of the taxes.[10]
The CA debunked the contention of petitioner that he had purchased the property out
of his own funds and merely used respondent as his dummy. [11] It also held that the
latter was not in pari delicto with him, because the contract was simulated or fictitious
due to the lack of consideration. The contract was deemed void for having been
executed during the couples marriage.[12] The CA likewise affirmed the award of actual,
moral and exemplary damages to respondent.[13]
Hence, this Petition.[14]
Issues
In his Memorandum, petitioner raises the following issues for the Courts consideration:
I purchase the property was at best vague and unclear. At first he maintained that the
Whether or not the Court of Appeals gravely erred in not applying [the] rules on co-
ownership under Article 144 of the New Civil Code in determining the proprietary rights
of the parties herein even as respondent herself expressly declared that the money
with which she allegedly bought the property in question in 1968 came from her funds,
salaries and savings at the time she and petitioner already lived as husband and wife.
II
Whether or not the Court of Appeals likewise palpably erred in declaring the sale of the
subject property to herein petitioner in 1992 to be fictitious, simulated and inexistent.
III
Whether or not the Court of Appeals further erred in not applying the [in] pari delicto
rule to the sale of the subject property in favor of the petitioner in 1992 contrary to the
express declaration to that effect in the very same case it cited (Rodriguez v. Rodriguez;
20 SCRA 908) in the decision herein sought to be reviewed.
IV
Whether or not the Court of Appeals gravely erred in annul[l]ing the title (TCT No.
181033) to the subject property in the name of herein petitioner in the absence of actual
fraud.[15](Underscoring in the original.)
This Court’s Ruling
The Petition is devoid of merit.
First Issue: Nature of the Property
Petitioner contends that the JP Rizal property should be deemed as co-owned,
considering that respondent testified during trial that the money she used in purchasing
it had come from her income, salaries and savings, which are conjugal in nature.
On the other hand, respondent maintains that the finding of the two lower courts that
the property was acquired using funds solely owned by her is binding and supported
by evidence. She further argues that the two defenses of petitioner are contradictory to
each other because, if the property is co-owned, he cannot claim to own it in its entirety.
We find no reason to disturb the findings of the RTC and the CA that the source of the
money used to acquire the property was paraphernal. This issue is factual in nature. It
is axiomatic that factual findings of the trial court, especially when affirmed by the Court
of Appeals, as in this case, are binding and conclusive on the Supreme Court. It is not
the function of this Court to reexamine the lower courts findings of fact. While there are
exceptions to this rule, petitioner has not shown its entitlement to any of them.[16]
The testimony of petitioner as to the source of the money he had supposedly used to
money came from his own personal funds. Then he said that it came from his mother;
and next, from his father. Time and time again, we [have] held that the unnatural and
contradictory testimony of a witness, x x x makes him unreliable x x x. [17] His statement
that the JP Rizal property was bought with his own money can hardly be believed, when
he himself was unsure as to the source of those funds.
On the other hand, the capacity of respondent to purchase the subject property cannot
be questioned. It was sufficiently established during trial that she had the means to do
so. In fact, her testimony that she had purchased several other lots using her personal
funds was not disputed.
Equally without merit is the contention of petitioner that, because he was a Chinese
national at the time, respondent was merely used as a dummy in acquiring the property;
thus, she could not have legally acquired title thereto. He testified that sometime during
the last month of 1968, he had consulted a certain Atty. Flores, who advised him that
the property be registered in the name of respondent. However, TCT No. 217614 had
been issued earlier on April 17, 1968. Thus, it appears that the subject property had
already been bought and registered in the name of respondent, long before Atty. Flores
allegedly advised him to have the property registered in her name.
Instead, the Deed of Sale was executed merely to facilitate the transfer of the property
to petitioner pursuant to an agreement between the parties to enable him to construct
a commercial building and to sell the Juno property to their children. Being merely a
subterfuge, that agreement cannot be taken as the consideration for the sale.
Third Issue: Inapplicability of the in Pari Delicto Principle
The principle of in pari delicto provides that when two parties are equally at fault, the
law leaves them as they are and denies recovery by either one of them. However, this
principle does not apply with respect to inexistent and void contracts. Said this Court in
Modina v. Court of Appeals:[21]

We therefore agree with the CAs affirmation of the RTCs findings that the property had The principle of in pari delicto non oritur actio denies all recovery to the guilty
been acquired using respondents paraphernal property. The CA ruled thus: parties inter se. It applies to cases where the nullity arises from the illegality of the
consideration or the purpose of the contract. When two persons are equally at fault, the
law does not relieve them. The exception to this general rule is when the principle is
The fact however, is that Yu never refuted Elviras testimony that: (a) the money with invoked with respect to inexistent contracts.[22]
which she acquired the JP Rizal property came from: (1) her income as a cashier in the
Hong Kiat Hardware; (2) income from her paraphernal property a lot in Guadalupe; (3) Fourth Issue: Cancellation of TCT
her savings from the money which her parents gave her while she was still a student;
and (4) the money which her sister gave her for helping her run the beauty parlor; (b) Finally, based on the foregoing disquisition, it is quite obvious that the Court of Appeals
her parents were well off they had stores, apartments and beauty parlors from which did not err in ordering the cancellation of TCT No. 181033, because the Deed of
they derived income; (c) before her marriage she bought lots in different places (p. 8, Absolute Sale transferring ownership to petitioner was completely simulated, void and
TSN, Jan. 26, 1998; pp. 22-23, TSN March 10, 1998).[18] without effect. In fact, there was no legal basis for the issuance of the certificate itself.
WHEREFORE, the Petition is hereby DENIED and the assailed
Second Issue: Fictitious, Simulated and Inexistent Sale Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Next, petitioner argues that there was a valid sale between the parties, and that the
consideration consisted of his promise to construct a commercial building for the benefit
of their three children and to pay the loan he had obtained from Allied Bank.
We disagree. In Rongavilla v. Court of Appeals,[19] the Court declared that a deed of
sale, in which the stated consideration had not in fact been paid, is null and void:

The problem before the Court is whether a deed which states a consideration that in
fact did not exist, is a contract, without consideration, and therefore void ab initio, or a
contract with a false consideration, and therefore, at least under the Old Civil Code,
voidable. x x x."

"In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil.
921[,] is squarely applicable herein. In that case we ruled that a contract of purchase
and sale is null and null and void and produces no effect whatsoever where the same
is without cause or consideration in that the purchase price which appears thereon as
paid has in fact never been paid by the purchaser to vendor."[20]

In the present case, it is clear from the factual findings of both lower courts that the
Deed of Sale was completely simulated and, hence, void and without effect. No portion
of the P200,000 consideration stated in the Deed was ever paid. And, from the facts of
the case, it is clear that neither party had any intention whatsoever to pay that amount.
G.R. No. L-67888 October 8, 1985
IMELDA ONG, ET AL., petitioners,
vs.
ALFREDO ONG, ET AL., respondents.
Faustino Y Bautista and Fernando M. Mangubat for private respondent.
RELOVA, J.:
This is a petition for review on certiorari of the decision, dated June 20, 1984, of the
Intermediate Appellate Court, in AC-G.R. No. CV-01748, affirming the judgment of the
Regional Trial Court of Makati, Metro Manila. Petitioner Imelda Ong assails the
interpretation given by respondent Appellate Court to the questioned Quitclaim Deed.
Records show that on February 25, 1976 Imelda Ong, for and in consideration of One
(P1.00) Peso and other valuable considerations, executed in favor of private
respondent Sandra Maruzzo, then a minor, a Quitclaim Deed whereby she transferred,
released, assigned and forever quit-claimed to Sandra Maruzzo, her heirs and assigns,
all her rights, title, interest and participation in the ONE-HALF (½) undivided portion of
the parcel of land, particularly described as follows:
A parcel of land (Lot 10-B of the subdivision plan (LRC) Psd 157841,
being a portion of Lot 10, Block 18, Psd-13288, LRC (GLRC) Record
No. 2029, situated in the Municipality of Makati, Province of Rizal,
Island of Luzon ... containing an area of ONE HUNDRED AND
TWENTY FIVE (125) SQUARE METERS, more or less.
On November 19, 1980, Imelda Ong revoked the aforesaid Deed of Quitclaim and,
thereafter, on January 20, 1982 donated the whole property described above to her
son, Rex Ong-Jimenez.
On June 20, 1983, Sandra Maruzzo, through her guardian (ad litem) Alfredo Ong, filed
with the Regional Trial Court of Makati, Metro Manila an action against petitioners, for
the recovery of ownership/possession and nullification of the Deed of Donation over
the portion belonging to her and for Accounting.
In their responsive pleading, petitioners claimed that the Quitclaim Deed is null and
void inasmuch as it is equivalent to a Deed of Donation, acceptance of which by the
donee is necessary to give it validity. Further, it is averred that the donee, Sandra
Maruzzo, being a minor, had no legal personality and therefore incapable of accepting
the donation.
Upon admission of the documents involved, the parties filed their responsive
memoranda and submitted the case for decision.
On December 12, 1983, the trial court rendered judgment in favor of respondent
Maruzzo and held that the Quitclaim Deed is equivalent to a Deed of Sale and, hence,
there was a valid conveyance in favor of the latter.
Petitioners appealed to the respondent Intermediate Appellate Court. They reiterated
their argument below and, in addition, contended that the One (P1.00) Peso
consideration is not a consideration at all to sustain the ruling that the Deed of Quitclaim
is equivalent to a sale.
On June 20, 1984, respondent Intermediate Appellate Court promulgated its Decision
affirming the appealed judgment and held that the Quitclaim Deed is a conveyance of
property with a valid cause or consideration; that the consideration is the One (P1.00)
Peso which is clearly stated in the deed itself; that the apparent inadequacy is of no
moment since it is the usual practice in deeds of conveyance to place a nominal amount
although there is a more valuable consideration given.
Not satisfied with the decision of the respondent Intermediate Appellate Court,
petitioners came to Us questioning the interpretation given by the former to this
particular document.
On March 15, 1985, respondent Sandra Maruzzo, through her guardian ad
litem Alfredo Ong, filed an Omnibus Motion informing this Court that she has reached
the age of majority as evidenced by her Birth Certificate and she prays that she be
substituted as private respondent in place of her guardian ad litem Alfredo Ong. On
April 15, 1985, the Court issued a resolution granting the same.
A careful perusal of the subject deed reveals that the conveyance of the one- half (½)
undivided portion of the above-described property was for and in consideration of the
One (P 1.00) Peso and the other valuable considerations (emphasis supplied) paid by
private respondent Sandra Maruzzo through her representative, Alfredo Ong, to
petitioner Imelda Ong. Stated differently, the cause or consideration is not the One
(P1.00) Peso alone but also the other valuable considerations. As aptly stated by the
Appellate Court-
... although the cause is not stated in the contract it is presumed that
it is existing unless the debtor proves the contrary (Article 1354 of
the Civil Code). One of the disputable presumptions is that there is a
sufficient cause of the contract (Section 5, (r), Rule 131, Rules of
Court). It is a legal presumption of sufficient cause or consideration
supporting a contract even if such cause is not stated therein (Article
1354, New Civil Code of the Philippines.) This presumption cannot
be overcome by a simple assertion of lack of consideration especially
when the contract itself states that consideration was given, and the
same has been reduced into a public instrument with all due
formalities and solemnities. To overcome the presumption of
consideration the alleged lack of consideration must be shown by
preponderance of evidence in a proper action. (Samanilla vs,
Cajucom, et al., 107 Phil. 432).
The execution of a deed purporting to convey ownership of a realty is in itself prima
facie evidence of the existence of a valuable consideration, the party alleging lack of
consideration has the burden of proving such allegation. (Caballero, et al. vs. Caballero,
et al., (CA), 45 O.G. 2536).
Moreover, even granting that the Quitclaim deed in question is a donation, Article 741
of the Civil Code provides that the requirement of the acceptance of the donation in
favor of minor by parents of legal representatives applies only to onerous and
conditional donations where the donation may have to assume certain charges or
burdens (Article 726, Civil Code). The acceptance by a legal guardian of a simple or
pure donation does not seem to be necessary (Perez vs. Calingo, CA-40 O.G. 53).
Thus, Supreme Court ruled in Kapunan vs. Casilan and Court of Appeals, (109 Phil.
889) that the donation to an incapacitated donee does not need the acceptance by the
lawful representative if said donation does not contain any condition. In simple and pure
donation, the formal acceptance is not important for the donor requires no right to be
protected and the donee neither undertakes to do anything nor assumes any obligation.
The Quitclaim now in question does not impose any condition.
The above pronouncement of respondent Appellate Court finds support in the ruling of
this Court in Morales Development Co., Inc. vs. CA, 27 SCRA 484, which states that
"the major premise thereof is based upon the fact that the consideration stated in the
deeds of sale in favor of Reyes and the Abellas is P1.00. It is not unusual, however, in
deeds of conveyance adhering to the Anglo-Saxon practice of stating that the
consideration given is the sum of P1.00, although the actual consideration may have
been much more. Moreover, assuming that said consideration of P1.00 is suspicious,
this circumstance, alone, does not necessarily justify the inference that Reyes and the
Abellas were not purchasers in good faith and for value. Neither does this inference
warrant the conclusion that the sales were null and void ab initio. Indeed, bad faith and
inadequacy of the monetary consideration do not render a conveyance inexistent, for
the assignor's liberality may be sufficient cause for a valid contract (Article 1350, Civil
Code), whereas fraud or bad faith may render either rescissible or voidable, although
valid until annulled, a contract concerning an object certain entered into with a cause
and with the consent of the contracting parties, as in the case at bar."
WHEREFORE. the appealed decision of the Intermediate Appellate Court should be,
as it is hereby AFFIRMED, with costs against herein petitioners.
SO ORDERED.
G.R. No. L-38498 August 10, 1989
ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS MAXIMINA
BAGNAS, SIXTO BAGNAS and AGATONA ENCARNACION, petitioners,
vs.
HON. COURT OF APPEALS, ROSA L. RETONIL TEOFILO ENCARNACION, and
JOSE B. NAMBAYAN respondents.
Beltran, Beltran & Beltran for petitioners.
Jose M. Legaspi for private respondents.
NARVASA, J.:
The facts underlying this appeal by certiorari are not in dispute. Hilario Mateum of
Kawit, Cavite, died on March 11, 1964, single, without ascendants or descendants, and
survived only by collateral relatives, of whom petitioners herein, his first cousins, were
the nearest. Mateum left no will, no debts, and an estate consisting of twenty-nine
parcels of land in Kawit and Imus, Cavite, ten of which are involved in this appeal. 1
On April 3, 1964, the private respondents, themselves collateral relatives of Mateum
though more remote in degree than the petitioners, 2 registered with the Registry of
Deeds for the Province of Cavite two deeds of sale purportedly executed by Mateum in
their (respondents') favor covering ten parcels of land. Both deeds were in Tagalog,
save for the English descriptions of the lands conveyed under one of them; and each
recited the reconsideration of the sale to be" ... halagang ISANG PISO (Pl.00), salaping
Pilipino, at mga naipaglingkod, ipinaglilingkod sa aking kapakanan ..." ("the sum of
ONE PESO Pl.00), Philippine Currency, and services rendered, being rendered and to
be rendered for my benefit"). One deed was dated February 6,1963 and covered five
parcels of land, and the other was dated March 4, 1963, covering five other parcels,
both, therefore, antedating Mateum's death by more than a year. 3 It is asserted by the
petitioners, but denied by the respondents, that said sales notwithstanding, Mateum
continued in the possession of the lands purportedly conveyed until his death, that he
remained the declared owner thereof and that the tax payments thereon continued to
be paid in his name. 4 Whatever the truth, however, is not crucial. What is not disputed
is that on the strength of the deeds of sale, the respondents were able to secure title in
their favor over three of the ten parcels of land conveyed thereby. 5
On May 22,1964 the petitioners commenced suit against the respondents in the Court
of First Instance of Cavite, seeking annulment of the deeds of sale as fictitious,
fraudulent or falsified, or, alternatively, as donations void for want of acceptance
embodied in a public instrument. Claiming ownership pro indiviso of the lands subject
of the deeds by virtue of being intestate heirs of Hilario Mateum, the petitioners prayed
for recovery of ownership and possession of said lands, accounting of the fruits thereof
and damages. Although the complaint originally sought recovery of all the twenty-nine
parcels of land left by Mateum, at the pre-trial the parties agreed that the controversy
be limited to the ten parcels subject of the questioned sales, and the Trial Court ordered
the exclusion of the nineteen other parcels from the action. 6 Of the ten parcels which
remained in litigation, nine were assessed for purposes of taxation at values
aggregating P10,500 00. The record does not disclose the assessed value of the tenth
parcel, which has an area of 1,443 square meters. 7
In answer to the complaint, the defendants (respondents here) denied the alleged
fictitious or fraudulent character of the sales in their favor, asserting that said sales were
made for good and valuable consideration; that while "... they may have the effect of
donations, yet the formalities and solemnities of donation are not required for their
validity and effectivity, ... that defendants were collateral relatives of Hilario Mateum
and had done many good things for him, nursing him in his last illness, which services
constituted the bulk of the consideration of the sales; and (by way of affirmative
defense) that the plaintiffs could not question or seek annulment of the sales because
they were mere collateral relatives of the deceased vendor and were not bound,
principally or subsidiarily, thereby. 8
After the plaintiffs had presented their evidence, the defendants filed a motion for
dismissal in effect, a demurrer to the evidence reasserting the defense set up in their
answer that the plaintiffs, as mere collateral relatives of Hilario Mateum, had no light to
impugn the latter's disposition of his properties by means of the questioned
conveyances and submitting, additionally, that no evidence of fraud maintaining said
transfers had been presented. 9
The Trial Court granted the motion to dismiss, holding (a) on the authority of Armentia
vs. Patriarca, 10 that the plaintiffs, as mere collateral relatives, not forced heirs, of Hilario
Mateum, could not legally question the disposition made by said deceased during his
lifetime, regardless of whether, as a matter of objective reality, said dispositions were
valid or not; and (b) that the plaintiffs evidence of alleged fraud was insufficient, the fact
that the deeds of sale each stated a consideration of only Pl.00 not being in itself
evidence of fraud or simulation. 11
On appeal by the plaintiffs to the Court of Appeals, that court affirmed, adverting with
approval to the Trial Court's reliance on the Armentia ruling which, it would appear, both
courts saw as denying, without exception, to collaterals, of a decedent, not forced heirs,
the right to impugn the latter's dispositions inter vivos of his property. The Appellate
Court also analyzed the testimony of the plaintiffs' witnesses, declared that it failed to
establish fraud of any kind or that Mateum had continued paying taxes on the lands in
question even after executing the deeds conveying them to the defendants, and closed
with the statement that "... since in duly notarized and registered deeds of sale
consideration is presumed, we do not and it necessary to rule on the alternative
allegations of the appellants that the said deed of sale were (sic) in reality donations. 12
One issue clearly predominates here. It is whether, in view of the fact that, for properties
assuredly worth in actual value many times over their total assessed valuation of more
than P10,000.00, the questioned deeds of sale each state a price of only one peso
(P1.00) plus unspecified past, present and future services to which no value is
assigned, said deeds were void or inexistent from the beginning ("nulo") or merely
voidable, that is, valid until annulled. If they were only voidable, then it is a correct
proposition that since the vendor Mateum had no forced heirs whose legitimes may
have been impaired, and the petitioners, his collateral relatives, not being bound either
principally or subsidiarily to the terms of said deeds, the latter had and have no
actionable right to question those transfers.
On the other hand, if said deeds were void ab initio because to all intents and purposes
without consideration, then a different legal situation arises, and quite another result
obtains, as pointed out by the eminent civil law authority, Mr. Justice J.B.L. Reyes who,
in his concurring opinion in Armentia, said:
I ... cannot bring myself to agree to the proposition that the heirs
intestate would have no legal standing to contest the conveyance
made by the deceased if the same were made without any
consideration, or for a false and fictitious consideration. For under
the Civil Code of the Philippines, Art. 1409, par. 3, contracts with a
cause that did not exist at the time of the transaction are inexistent
and void from the beginning. The same is true of contracts stating a
false cause (consideration) unless the persons interested in
upholding the contract should prove that there is another true and
lawful consideration therefor. (lbid., Art. 1353).
If therefore the contract has no causa or consideration, or
the causa is false and fictitious (and no true hidden causa is proved)
the property allegedly conveyed never really leaves the patrimony of
the transferor, and upon the latter's death without a testament, such
property would pass to the transferor's heirs intestate and be
recoverable by them or by the Administrator of the transferor's
estate. In this particular regard, I think Concepcion vs. Sta. Ana, 87
Phil. 787 and Sobs vs. Chua Pua Hermanos, 50 Phil. 536, do not
correctly state the present law, and must be clarified.
To be sure the quoted passage does not reject and is not to be construed as rejecting
the Concepcion and Solisrulings 13 as outrightly erroneous, far from it. On the contrary,
those rulings undoubtedly read and applied correctly the law extant in their time: Art.
1276 of the Civil Code of 1889 under which the statement of a false cause in a contract
rendered it voidable only, not void ab initio. In observing that they "... do not correctly
state the present law and must be clarified," Justice Reyes clearly had in mind the fact
that the law as it is now (and already was in the time Armentia) no longer deems
contracts with a false cause, or which are absolutely simulated or fictitious, merely
voidable, but declares them void, i.e., inexistent ("nulo") unless it is shown that they are
supported by another true and lawful cause or consideration. 14 A logical consequence
of that change is the juridical status of contracts without, or with a false, cause is that
conveyances of property affected with such a vice cannot operate to divest and transfer
ownership, even if unimpugned. If afterwards the transferor dies the property descends
to his heirs, and without regard to the manner in which they are called to the succession,
said heirs may bring an action to recover the property from the purported transferee.
As pointed out, such an action is not founded on fraud, but on the premise that the
property never leaves the estate of the transferor and is transmitted upon his death to
heirs, who would labor under no incapacity to maintain the action from the mere fact
that they may be only collateral relatives and bound neither principally or subsidiarily
under the deed or contract of conveyance.
In Armentia the Court determined that the conveyance questioned was merely
annullable not void ab initio, and that the plaintiff s action was based on fraud vitiating
said conveyance. The Court said:
 Hypothetically admitting the truth of these allegations (of plaintiffs
complaint), the conclusion is irresistible that the sale is merely
voidable. Because Marta Armentia executed the document, and this
is not controverted by plaintiff. Besides, the fact that the vendees
were minors, makes the contract, at worst, annullable by them, Then
again, inadequacy of consideration does not imply total want of
consideration. Without more, the parted acts of Marta Armentia after
the sale did not indicate that the said sale was void from the being.
The sum total of all these is that, in essence, plaintiffs case is
bottomed on fraud, which renders the contract voidable.
It therefore seems clear that insofar as it may be considered as setting or reaffirming
precedent, Armentia only ruled that transfers made by a decedent in his lifetime, which
are voidable for having been fraudulently made or obtained, cannot be posthumously
impugned by collateral relatives succeeding to his estate who are not principally or
subsidiarily bound by such transfers. For the reasons already stated, that ruling is not
extendible to transfers which, though made under closely similar circumstances, are
void ab initio for lack or falsity of consideration.
The petitioners here argue on a broad front that the very recitals of the questioned
deeds of sale reveal such want or spuriousness of consideration and therefore the void
character of said sales. They:
1. advert to a decision of the Court of Appeals in Montinola vs. Herbosa (59 O.G. No.
47, pp, 8101, 8118) holding that a price of P l.00 for the sale of things worth at least
P20,000.00 is so insignificant as to amount to no price at all, and does not satisfy the
law which, while not requiring for the validity of a sale that the price be adequate,
prescribes that it must be real, not fictitious, stressing the obvious parallel between that
case and the present one in stated price and actual value of the property sold;
2. cite Manresa to the same effect: that true price, which is essential to the validity of a
sale, means existent, real and effective price, that which does not consist in an
insignificant amount as, say, P.20 for a house; that it is not the same as the concept of
a just price which entails weighing and measuring, for economic equivalence, the
amount of price against all the factors that determine the value of the thing sold; but
that there is no need of such a close examination when the immense disproportion
between such economic values is patent a case of insignificant or ridiculous price, the
unbelievable amount of which at once points out its inexistence; 15
3. assert that Art. 1458 of the Civil Code, in prescribing that a sale be for a ... price
certain in money or its equivalent ... requires that "equivalent" be something
representative of money, e.g., a check or draft, again citing Manresa 16 to the effect that
services are not the equivalent of money insofar as said requirement is concerned and
that a contract is not a true sale where the price consists of services or prestations;
4. once more citing Manresa 17 also point out that the "services" mentioned in the
questioned deeds of sale are not only vague and uncertain, but are unknown and not
susceptible of determination without the necessity of a new agreement between the
parties to said deeds.
Without necessarily according all these assertions its full concurrence, but upon the
consideration alone that the apparent gross, not to say enormous, disproportion
between the stipulated price (in each deed) of P l.00 plus unspecified and unquantified
services and the undisputably valuable real estate allegedly sold worth at least
P10,500.00 going only by assessments for tax purposes which, it is well-known, are
notoriously low indicators of actual value plainly and unquestionably demonstrates that
they state a false and fictitious consideration, and no other true and lawful cause having
been shown, the Court finds both said deeds, insofar as they purport to be sales, not
merely voidable, but void ab initio.
Neither can the validity of said conveyances be defended on the theory that their
true causa is the liberality of the transferor and they may be considered in reality
donations 18 because the law 19 also prescribes that donations of immovable property,
to be valid, must be made and accepted in a public instrument, and it is not denied by
the respondents that there has been no such acceptance which they claim is not
required. 20
The transfers in question being void, it follows as a necessary consequence and
conformably to the concurring opinion in Armentia, with which the Court fully agrees,
that the properties purportedly conveyed remained part of the estate of Hilario Mateum,
said transfers notwithstanding, recoverable by his intestate heirs, the petitioners herein,
whose status as such is not challenged.
The private respondents have only themselves to blame for the lack of proof that might
have saved the questioned transfers from the taint of invalidity as being fictitious and
without ilicit cause; proof, to be brief, of the character and value of the services, past,
present, and future, constituting according to the very terms of said transfers the
principal consideration therefor. The petitioners' complaint (par. 6) 21 averred that the
transfers were "... fraudulent, fictitious and/or falsified and (were) ... in reality donations
of immovables ...," an averment that the private respondents not only specifically
denied, alleging that the transfers had been made "... for good and valuable
consideration ...," but to which they also interposed the affirmative defenses that said
transfers were "... valid, binding and effective ...," and, in an obvious reference to the
services mentioned in the deeds, that they "... had done many good things to (the
transferor) during his lifetime, nursed him during his ripe years and took care of him
during his previous and last illness ...," (pars. 4, 6, 16 and 17, their
answer).lâwphî1.ñèt 22 The onus, therefore, of showing the existence of valid and illicit
consideration for the questioned conveyances rested on the private respondents. But
even on a contrary assumption, and positing that the petitioners initially had the burden
of showing that the transfers lacked such consideration as they alleged in their
complaint, that burden was shifted to the private respondents when the petitioners
presented the deeds which they claimed showed that defect on their face and it became
the duty of said respondents to offer evidence of existent lawful consideration.
As the record clearly demonstrates, the respondents not only failed to offer any proof
whatsoever, opting to rely on a demurrer to the petitioner's evidence and upon the
thesis, which they have maintained all the way to this Court, that petitioners, being mere
collateral relatives of the deceased transferor, were without right to the conveyances in G.R. No. L-10141 January 31, 1958
question. In effect, they gambled their right to adduce evidence on a dismissal in the
Trial Court and lost, it being the rule that when a dismissal thus obtained is reversed REPUBLIC OF THE PHILIPPINES, petitioner,
on appeal, the movant loses the right to present evidence in his behalf. 23 vs.
PHILIPPINE RESOURCES DEVELOPMENT CORPORATION and the COURT OF
WHEREFORE, the appealed Decision of the Court of Appeals is reversed. The APPEALS, respondents.
questioned transfers are declared void and of no force or effect. Such certificates of
title as the private respondents may have obtained over the properties subject of said Office of the Solicitor General Ambrosio Padilla, and Solicitor Frine C. Zaballero for
transfers are hereby annulled, and said respondents are ordered to return to the petitioner.
petitioners possession of an the properties involved in tills action, to account to the Vicente L. Santiago for respondent Corporation.
petitioners for the fruits thereof during the period of their possession, and to pay the
costs. No damages, attorney's fees or litigation expenses are awarded, there being no
evidence thereof before the Court. PADILLA, J.:

This is a petition under Rule 46 to review a judgment rendered by the Court of

Appeals,in CA-GR No. 15767-R, Philippine Resources Development Corporation vs.
The Hon. Judge Magno Gatmaitan et al.

The findings of the Court of Appeals are, as follows.

It appears that on May 6, 1955, the Republic of the Philippines in

representation of the Bureau of Prisons instituted against Macario Apostol and
the Empire Insurance Co. a complaint docketed as Civil Case No. 26166 of
the Court of First instance of Manila. The complaint alleges as the first cause
of action, that defendant Apostol submitted the highest bid the amount
P450.00 per ton for the purchase of 100 tons of Palawan Almaciga from the
Bureau of Prisons; that a contract therefor was drawn and by virtue of which,
Apostol obtained goods from the Bureau of Prisons valued P15,878.59; that
of said account, Apostol paid only P691.10 leaving a balane obligation of
P15,187.49. The complaint further averes, as second cause of action, that
Apostol submitted the best bid with the Bureau of Prisons for the purchase of
three million board feet of logs at P88.00 per 1,000 board feet; that a contract
was executed between the Director of Prisons and Apostol pursuant to which
contract Apostol obtained deliveries of logs valued at P65.830.00, and that
Apostol failed to pay a balance account Of P18,827.57. All told, for the total
demand set forth in complaint against Apostol is for P34,015.06 with legal
interests thereon from January 8, 1952. The Empire lnsurance Company was
included in the complaint having executed a performance bond of P10,000.00
in favor of Apostol.

In his answer, Apostol interposed payment as a defense and sought the

dismissal of the complaint.

On July 19, 1955, the Philippine Resources Development Corporation moved

to intervene, appending to its motion, the complaint in the intervention of even
date. The complaint recites that for sometime prior to Apostol's transactions
the corporate had some goods deposited in a warehouse at 1201 Herran,
Manila; that Apostol, then the president of the corporation but without the
knowledge or consent of the stockholders thereof, disposed of said goods by
delivering the same to the Bureau of Prisons of in an attempt to settle his
 personal debts with the latter entity; that upon discovery of Apodol's act, the
corporation took steps to recover said goods by demanding from the Bureau
of Prisons the return thereof; and that upon the refusal of the Bureau to return
said goods, the corporation sought leave to intervene in Civil Case No. 26166.
As aforestated, His Honor denied the motion for intervention and thereby
issued an order to this effect on July 23, 1955. A motion for the reconsideration
of said order was filed by the movant corporation and the same was likewise
denied by His Honor on August 18, 1955 . . . (Annex L.).
On 3 September 1955, in a petition for a writ of certiorari filed in the Court of Appeals,
the herein respondent corporation prayed for the setting aside of the order of the Court
of First Instance that had denied the admission of its complaint-in-intervention and for
an order directing the latter Court to allow the herein respondent corporation to
intervene in the action (Annex G). On 12 December 1955 the Court of Appeals set
aside the order denying the motion to intervene and ordered the respondent court to
admit the herein respondent corporation's complaint-in-intervention with costs against
Macario Apostol.
On 9 January 1956 the Republic of the Philippines filed this petition in this Court for the
purpose stated at the beginning of this opinion.
The Goverment contends that the intervenor has no legal interest in the matter in
litigation, because the action brought in the Court of First Instance of Manila against
Macario Apostol and the Empire Insurance Company (Civil Case No. 26166, Annex A)
is just for the collection from the defendant Apostol of a sum of money, the unpaid
balance of the purchase price of logs and almaciga bought by him from the Bureau of
Prisons, whereas the intervenor seeks to recover ownership and possession of G. I.
sheets, black sheets, M. S. plates, round bars and G. I. pipes that it claims its owns-an
intervention which would change a personal action into one ad rem and would unduly
delay the disposition of the case.
The Court of Appeals held that:
Petitioner ardently claims that the reason behind its motion to intervene is the
desire to protect its rights and interests over some materials purportedly
belonging to it; that said material were unauthorizedly and illegally assigned
and delivered to the Bureau of Prisons by petitioning corporation's president
Macario Apostol in payment of the latter's personal accounts with the said
entity; and that the Bureau of Prisons refused to return said materials despite
petitioner's demands to do so.
Petitioner refers to the particulars recited in Apostol's answer dated July 12,
1955 to the effect that Apostol had paid unto the Bureau of Prisons his
accounts covered, among others, by BPPO 1077 for the sum of P4,638.40
and BPPO 1549 for the amount of P4,398.54. Petitioner moreover, points to
the State of Paid and Unpaid accounts of Apostol dated January 16, 1954
prepared by the accounting of officer of the Bureau of Prisons (Annex B.
Complaint in Intervention), wherein it appears that the aforementioned
accounts covered respectively by BPPO Nos. 1077 for 892 pieces of GI
sheets and 1549 for 399 pieces of GI pipes in the total sum of P9,036.94 have
not been credited to Apostol's account in view of lack of supporting papers;
and that according to the reply letter of the Undersecretary of Justice, said GI
sheets and pipes were delivered by Macario Apostol to the Bureau of Prisons
allegedly in Apostol's capacity as owner and that the black iron sheets were
delivered by Apostol as President of the petitioner corporation.
Respondents, on the other hand, assert that the subject matter of the original
litigation is a sum of money allegedly due to the Bureau of Prisons from
Macario Apostol and not the goods or the materials reportedly turned over by
Apostol as payment of his private debts to the Bureau of Prisons and the
recovery of which is sought by the petitioner; and that for this reason,
petitioner has no legal interest in the very subject matter in litigation as to
entitle it to intervene.
We find no merit in respondents' contention. It is true that the very subject
matter of the original case is a sum of money. But it is likewise true as borne
out by the records, that the materials purportedly belonging to the petitioner
corporation have been assessed and evaluated and their price equivalent in
terms of money have been determined; and that said materials for whatever
price they have been assigned by defendant now respondent Apostol as
tokens of payment of his private debts with the Bureau of Prisons. In view of
these considerations, it becomes enormously plain in the event the
respondent judge decides to credit Macario Apostol with the value of the
goods delivered by the latter to the Bureau of Prisons, the petitioner
corporation stands to be adversely affected by such judgment. The
conclusion, therefore, is inescapable that the petitioner possesses a legal
interest in the matter in litigation and that such interest is of an actual, material,
direct and immediate nature as to entitle petitioner to intervene.
xxx xxx xxx
Section 3 of Rule 13 of the Rules of Court endows the lower Court with
discretion to allow or disapprove the motion for intrvention (Santarromana et
al. vs. Barrios, 63 Phil. 456); and that in the exercise of such discretion, the
court shall consider whether or not the intervention will unduly delay or
prejudice the adjudicatio of the rights of the original parties and whether or not
the intervenors the rights may be fully protected in a separate proceeding. The
petitioner in the instant case positively authorized to a separate action against
any of all the respondents. But considering that the resolution of the issues
raised in and enjoined by the pleadings in the main case, would virtally affect
the rights not only the original parties but also of the berein petitioner: that far
from unduly delaying or prejudicing the adjudication of the rights of the original
parties or bringing about confusion in the original case, the adnission of the
complaint in intervention would help clarify the vital issue of the true and real
ownership of the materials involved, besides preventing an abhorrent
munltiplicity of suit, we believe that the motion to intervene should be given
due to cause.
We find no reason for disturbing the foregoing pronouncements. The Government
argues that "Price . . . is always paid in terms of money and the supposed payment
beeing in kind, it is no payment at all, "citing Article 1458 of the new Civil Code.
However, the same Article provides that the purschaser may pay "a price certain in
money or its equivalent," which means that they meant of the price need not be in
money. Whether the G.I. sheets, black sheets, M. S. Plates, round bars and G. I. pipes
claimed by the respondent corporation to belong to it and delivered to the Bureau of
Prison by Macario Apostol in payment of his account is sufficient payment therefore, is
for the court to pass upon and decide after hearing all the parties in the case. Should
the trial court hold that it is as to credit Apostol with the value or price of the materials
delivered by him, certainly the herein respondent corporation would be affected
adversely if its claim of ownership of such sheets, plates, bars and pipes is true.
Granting that counsel has not been actually authorized by the board of directors to
appear for and in behalf of the respondent corporation, the fact that counsel is the
secretary treasurer of the respondent corporation and member of the board of directors;
and that the other members of the board, namely, Macario Apostol, the president, and
his wife Pacita R. Apostol, who shuold normally initiate the action to protect the
corporate properties and in interest are the ones to be adversely affected thereby, a
single stockholder under such circumstances may sue in behalf of the
corporation.2 Counsel as a stockholder and director of the respondent corporation may
sue in its behalf and file the complaint in intervention in the proper court.
The judgment under review is affirmed, without pronouncements as to costs.

The Government reiterates in its original stand that counsel appearing for the
respondent corporation has no authority to represent it or/and sue in its behalf, the
Court of Appeals held that:

Respondents aver also that petitioner lacks legal capacity to sue and that its
counsel is acting merely in an individual capacity without the benefit of the
corporate act authorizing him to bring sue. In this connection, respondents
invoked among others section 20 of Rule 127 which provision, in our opinion,
squarely disproves their claim as by virtue thereof, the authority of petitioner's
counsel is pressumed. Withal, the claim of the counsel for the petitioner that
a resolution to proceed against Apostol, had been unanonimously adopted by
the stockholders of the corporation, has not been refuted.

Evidently, petitioner is a duly organized corporation with offices at the

Samanillo Building and that as such, it is endowed with a personality distinct
and separate from that of its president or stockholders. It has the right to bring
suit to safeguard its interests and ordinarily, such right is exercised at the
instance of the president. However, under the circumstance now obtaining,
such right properly devolves upon the other officers of the corporations as said
right is sought to be exercised against the president himself who is the very
object of the intended suit.

The power of a corporation to sue and be sued in any court1 is lodged in the board of
directors which exercises it corporater powers,2 and not in the president, as contended
by the Government. The "motion for admission of complaint in intervention" (Annex C)
and the "complaint in intervention" attached thereto, signed by counsel and filed in the
Court of First Instance begin with the following statement: "COMES NOW the above-
name Intervenor, by its undersigned counsel, . . . , "and underneath his typewritten
name is affixed the description" Counsel for the Intervenor." As counsels authority to
appeal for the respondent corporation was newer questioned in the Court of First
Instance, it is to be pressumed that he was properly authorized to file the complaint in
intervention and appeal for his client.1 It was only in the Court of Appeals where his
authority to appear was questioned. As the Court of Appeals was satisfied that counsel
was duly authorized by his client to file the complaint does in intervention and to appear
in its behalf, hte resolution of the Court of Appeals on this point should not be disturbed.
 SPS. JORGE NAVARRA and G.R. No. 172674 auction sale conducted on May 16, 1984. The one-year redemption period expired
CARMELITA BERNARDO NAVARRA without the Navarras having redeemed the foreclosed properties.
and RRRC DEVELOPMENT Present:
CORPORATION, On the other hand, co-petitioner RRRC Development Corporation (RRRC) is a real
Petitioners, PUNO, C.J., Chairperson, estate company owned by the parents of Carmelita Bernardo Navarra. RRRC itself
*SANDOVAL-GUTIERREZ, obtained a loan from Planters Bank secured by a mortgage over another set of
CORONA, properties owned by RRRC. The loan having been likewise unpaid, Planters Bank
- versus - AZCUNA and similarly foreclosed the mortgaged assets of RRRC. Unlike the Navarras, however,
GARCIA, JJ. RRRC was able to negotiate with the Bank for the redemption of its foreclosed
properties by way of a concession whereby the Bank allowed RRRC to refer to it would-
Promulgated: be buyers of the foreclosed RRRC properties who would remit their payments directly
PLANTERS DEVELOPMENT BANK and to the Bank, which payments would then be considered as redemption price for RRRC.
ROBERTO GATCHALIAN REALTY, INC., July 12, 2007 Eventually, the foreclosed properties of RRRC were sold to third persons whose
Respondents. payments therefor, directly made to the Bank, were in excess by P300,000.00 for the
redemption price.

In the meantime, Jorge Navarra sent a letter to Planters Bank, proposing to repurchase
the five (5) lots earlier auctioned to the Bank, with a request that he be given
until August 31, 1985 to pay the down payment of P300,000.00. Dated July 18,
1985 and addressed to then Planters Bank President Jesus Tambunting, the letter
reads in full:
This will formalize my request for your kind consideration in
allowing my brother and me to buy back my house and lot and my
restaurant building and lot together with the adjacent road lot.
DECISION
Since my brother, who is working in Saudi Arabia, has
GARCIA, J.: accepted this arrangement only recently as a result of my urgent offer
to him, perhaps it will be safe for us to set August 31, 1985 as the
Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules last day for the payment of a P300,000.00 downpayment. I hope you
of Court is the decision[1] dated September 27, 2004 of the Court of Appeals (CA) will grant us the opportunity to raise the funds within this period,
in CA-G.R. CV No. 50002, as reiterated in its resolution[2] dated May 8, 2006, denying which includes an allowance for delays.
reconsideration thereof. The challenged decision reversed that of the Regional Trial
Court (RTC) of Makati City, Branch 66, in its Civil Case No. 16917, an action The purchase price, I understand, will be based on the
for Specific Performance and Injunction thereat commenced by the herein petitioners redemption value plus accrued interest at the prevailing rate up to
against the respondents. The Makati RTC ruled that a perfected contract of sale existed the date of our sales contract. Maybe you can give us a long term
in favor of Jorge Navarra and Carmelita Bernardo Navarra (Navarras) over the payment scheme on the basis of my brothers annual savings of
properties involved in the suit and accordingly ordered Planters Development Bank roughly US$30,000.00 everytime he comes home for his home
(Planters Bank) to execute the necessary deed of sale therefor. The CA reversed that leave.
ruling. Hence, this recourse by the petitioners.
I realize that this is not a regular transaction but I am
The facts: seeking your favor to give me a chance to reserve whatever values I
can still recover from the properties and to avoid any legal
The Navarras are the owners of five (5) parcels of land located at B.F. Homes, complications that may arise as a consequence of the total loss of
Paraaque and covered by Transfer Certificates of Title (TCT) Nos. S-58017, S-58011, the Balangay lot. I hope that you will extend to me your favorable
S-51732, S-51733 and A-14574. All these five (5) parcels of land are the subject of this action on this grave matter.
controversy.

On July 5, 1982, the Navarras obtained a loan of P1,200,000.00 from Planters Bank
and, by way of security therefor, executed a deed of mortgage over
their aforementioned five (5) parcels of land. Unfortunately, the couple failed to pay
their loan obligation. Hence, Planters Bank foreclosed on the mortgage and the
mortgaged assets were sold to it for P1,341,850.00, it being the highest bidder in the
In response, Planters Bank, thru its Vice-President Ma. Flordeliza Aguenza, wrote back
Navarra via a letter dated August 16, 1985, thus:
Regarding your letter dated July 18, 1985, requesting that we give
up to August 31, 1985 to buy back your house and lot and restaurant
 and building subject to a P300,000.00 downpayment on the In a decision dated July 10, 1995, the trial court ruled that there was a perfected
purchase price, please be advised that the Collection Committee has contract of sale between the Navarras and Planters Bank, and accordingly rendered
agreed to your request. judgment as follows:

Please see Mr. Rene Castillo, Head, Acquired Assets Unit, WHEREFORE, in view of the foregoing, judgment is hereby rendered
as soon as possible for the details of the transaction so that they may ordering:
work on the necessary documentation.
a) the cancellation of the Deed of Absolute Sale
Accordingly, Jorge Navarra went to the Office of Mr. Rene Castillo on August (Exh. 2) over lot 4137-C between defendant
20, 1985, bringing with him a letter requesting that the excess payment Planters Development Bank and defendant
of P300,000.00 in connection with the redemption made by the RRRC be Roberto Gatchalian Realty Corporation (RGRI)
applied as down payment for the Navarras repurchase of their foreclosed with the vendor bank refunding all the payments
properties. made by the vendee RGRI without interest less
the five percent (5%) brokers commission:
Because the amount of P300,000.00 was sourced from a different transaction between
RRRC and Planters Bank and involved different debtors, the Bank required Navarra to b) the defendant Planters Development Bank to
submit a board resolution from RRRC authorizing him to negotiate for and its behalf execute the Deed of Absolute Sale over the lots
and empowering him to apply the excess amount of P300,000.00 in RRRCs covered by TCT Nos. 97073, 97074, 97075,
redemption payment as down payment for the repurchase of the Navarras foreclosed 97076, and 97077 in favor of all the plaintiffs for a
properties. consideration of ONE MILLION EIGHT
HUNDRED THOUSAND (P1,800,000.00) less the
Meanwhile, titles to said properties were consolidated in the name of Planters Bank, downpayment of P300,000.00 plus interest at the
and on August 27, 1985, new certificates of title were issued in its name, to wit: TCT rate of twenty five percent (25%) per year for five
Nos. 97073, 97074, 97075, 97076 and 97077. (5) years to be paid in full upon the execution of
the contract;
Then, on January 21, 1987, Planters Bank sent a letter to Jorge Navarra informing him
that it could not proceed with the documentation of the proposed repurchase of the c) the defendant Planters Development Bank the
foreclosed properties on account of his non- compliance with the Banks request for the amount of TEN THOUSAND PESOS
submission of the needed board resolution of RRRC. (P10,000.00) by way of attorneys fees.

In his reply-letter of January 28, 1987, Navarra claimed having already delivered copies
of the required board resolution to the Bank. The Bank, however, did not receive said
copies. Thus, on February 19, 1987, the Bank sent a notice to the Navarrras
demanding that they surrender and vacate the properties in question for their failure to
exercise their right of redemption.
Such was the state of things when, on June 31, 1987, in the RTC of Makati City, the
Navarras filed their complaint for Specific Performance with Injunction against Planters
Bank. In their complaint docketed in said court as Civil Case No. 16917 and raffled to
Branch 66 thereof, the Navarras, as plaintiffs, alleged that a perfected contract of sale
was made between them and Planters Bank whereby they would repurchase the
subject properties for P1,800,000.00 with a down payment of P300,000.00.
In its Answer, Planters Bank asserted that there was no perfected contract of sale
because the terms and conditions for the repurchase have not yet been agreed upon.
On September 9, 1988, a portion of the lot covered by TCT No. 97077 (formerly TCT
No. A-14574) was sold by Planters Bank to herein co-respondent Roberto Gatchalian
Realty, Inc. (Gatchalian Realty). Consequently, TCT No. 97077 was cancelled and TCT
No. 12692 was issued in the name of Gatchalian Realty. This prompted the Navarras
to amend their complaint by impleading Gatchalian Realty as additional defendant.
d) No costs.
SO ORDERED.
Therefrom, Planters Bank and Gatchalian Realty separately went on appeal to the CA
whereat their appellate recourse were consolidated and docketed as CA-G.R. CV No.
50002.
As stated at the threshold hereof, the appellate court, in its decision of September 27,
2004, reversed that of the trial court and ruled that there was no perfected contract of
sale between the parties. Partly says the CA in its decision:
The Court cannot go along with the deduction of the trial court that
the response of Planters Bank was favorable to Jorge Navarras
proposal and that the P300,000.00 in its possession is a down
payment and as such sufficient bases to conclude that there was a
valid and perfected contract of sale. Based on the turn of events and
the tenor of the communications between the offerors and the
creditor bank, it appears that there was not even a perfected contract
to sell, much less a perfected contract of sale.
 Article 1319 cited by the trial court provides that the acceptance to
an offer must be absolute. Simply put, there must be unqualified
acceptance and no condition must tag along. But Jorge Navarra in
trying to convince the bank to agree, had himself laid out terms in
offering (1) a downpayment of P300,000.00 and setting (2) as
deadline August 31, 1985 for the payment thereof. Under these
terms and conditions the bank indeed accepted his offer, and these
are essentially the contents of Exhibits J and K.
But was there compliance? According to the evidence on file the
P300,000.00, if at all, was given beyond the agreed period. The court
a quo missed the fact that the said amount came from the excess of
the proceeds of the sale to the Pea spouses which Jorge Navarra
made to appear was made before the deadline he set of August 31,
1985. But this is athwart Exhibits M-1 and N, the Contract to Sell and
the Deed of Sale between RRRC and the Peas, for these were
executed only on September 13, 1985 and October 7,
1985 respectively.
xxx xxx xxx
There were two separate and independent loans secured by distinct
mortgages on different lots and their only commonality is the
relationship of the Navarras and Bernardo families. It is thus difficult
to conceive and to conclude that such Byzantine arrangement was
acquiesced to and provided for in that single and simple letter of the
bank.
With their motion for reconsideration having been denied by the CA in its resolution
of May 8, 2006, petitioners are now with this Court via this recourse on their submission
that the CA erred -
I which includes an allowance for delays.
XXX IN CONCLUDING THAT THERE WAS NO PERFECTED
CONTRACT TO REPURCHASE THE FORECLOSED
PROPERTIES BETWEEN THE PETITIONERS AND THE PRIVATE
RESPONDENT PLANTERS DEVELOPMENT BANK, AS
CORRECTLY FOUND BY THE TRIAL COURT.
II
XXX IN HOLDING THAT THE PARTIES NEVER GOT PAST THE
NEGOTIATION STAGE.
While the question raised is essentially one of fact, of which the Court normally eschews
from, yet, given the conflicting factual findings of the trial and appellate courts, the Court
shall go by the exception[3] to the general rule and proceed to make its own assessment
of the evidence.
We DENY.
Petitioners contend that a perfected contract of sale came into being when respondent
Bank, thru a letter dated August 16, 1985, formally accepted the offer of the Navarras
to repurchase the subject properties.
In general, contracts undergo three distinct stages, to wit: negotiation, perfection or
birth, and consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment of
their agreement. Perfection or birth of the contract takes place when the parties agree
upon the essential elements of the contract, i.e., consent, object and
price. Consummation occurs when the parties fulfill or perform the terms agreed upon
in the contract, culminating in the extinguishment thereof. [4]
A negotiation is formally initiated by an offer which should be certain with respect to
both the object and the cause or consideration of the envisioned contract. In order to
produce a contract, there must be acceptance, which may be express or implied, but it
must not qualify the terms of the offer. The acceptance of an offer must be unqualified
and absolute to perfect the contract. In other words, it must be identical in all respects
with that of the offer so as to produce consent or meeting of the minds.[5]
Here, the Navarras assert that the following exchange of correspondence between
them and Planters Bank constitutes the offer and acceptance, thus:
Letter dated July 18, 1985 of Jorge Navarra:
This will formalize my request for your kind consideration in
allowing my brother and me to buy back my house and lot and my
restaurant building and lot together with the adjacent road lot.
Since my brother, who is working in Saudi Arabia, has
accepted this arrangement only recently as a result of my urgent offer
to him, perhaps it will be safe for us to set August 31, 1985 as the
last day for the payment of a P300,000.00 downpayment. I hope you
will grant us the opportunity to raise the funds within this period,
The purchase price, I understand, will be based on the
redemption value plus accrued interest at the prevailing rate up to
the date of our sales contract. Maybe you can give us a long term
payment scheme on the basis of my brothers annual savings of
roughly US$30,000.00 everytime he comes home for his home
leave.
I realize that this is not a regular transaction but I am
seeking your favor to give me a chance to reserve whatever values I
can still recover from the properties and to avoid any legal
complications that may arise as a consequence of the total loss of
the Balangay lot. I hope that you will extend to me your favorable
action on this grave matter.
Letter dated August 16, 1985 of Planters Bank
Regarding your letter dated July 18, 1985, requesting that we give
up to August 31, 1985 to buy back your house and lot and restaurant
 and building subject to a P300,000.00 downpayment on the
purchase price, please be advised that the Collection Committee has
agreed to your request.
Please see Mr. Rene Castillo, Head, Acquired Assets
Unit, as soon as possible for the details of the transaction so
that they may work on the necessary documentation. (Emphasis
ours)
Given the above, the basic question that comes to mind is: Was the offer certain and
the acceptance absolute enough so as to engender a meeting of the minds between
the parties? Definitely not.
While the foregoing letters indicate the amount of P300,000.00 as down payment, they
are, however, completely silent as to how the succeeding installment payments shall
be made. At most, the letters merely acknowledge that the down payment
of P300,000.00 was agreed upon by the parties. However, this fact cannot lead to the
conclusion that a contract of sale had been perfected. Quite recently, this Court held
that before a valid and binding contract of sale can exist, the manner of payment of the
purchase price must first be established since the agreement on the manner of
payment goes into the price such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price.[6]
Too, the Navarras letter/offer failed to specify a definite amount of the purchase price
for the sale/repurchase of the subject properties. It merely stated that the purchase
price will be based on the redemption value plus accrued interest at the prevailing rate
up to the date of the sales contract. The ambiguity of this statement only bolsters the
uncertainty of the Navarras so-called offer for it leaves much rooms for such questions,
as: what is the redemption value? what prevailing rate of interest shall be followed: is it
the rate stipulated in the loan agreement or the legal rate? when will the date of the
contract of sale be based, shall it be upon the time of the execution of the deed of sale
or upon the time when the last installment payment shall have been made? To our
mind, these questions need first to be addressed, discussed and negotiated upon by
the parties before a definite purchase price can be arrived at.
Significantly, the Navarras wrote in the same letter the following:
Maybe you can give us a long-term payment scheme on the
basis of my brothers annual savings of roughly US$30,000.00 every
time he comes home for his home leave.
Again, the offer was not clear insofar as concerned the exact number of years that will
comprise the long-term payment scheme. As we see it, the absence of a stipulated
period within which the repurchase price shall be paid all the more adds to the
indefiniteness of the Navarras offer.
Clearly, then, the lack of a definite offer on the part of the spouses could not possibly
serve as the basis of their claim that the sale/repurchase of their foreclosed properties
was perfected. The reason is obvious: one essential element of a contract of sale is
wanting: the price certain. There can be no contract of sale unless the following
elements concur: (a) consent or meeting of the minds; (b) determinate subject matter;
and (c) price certain in money or its equivalent. Such contract is born or perfected from
the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price.[7] Here, what is dramatically clear is that there was no
meeting of minds vis-a-vis the price, expressly or impliedly, directly or indirectly.
Further, the tenor of Planters Banks letter-reply negates the contention of the Navarras
that the Bank fully accepted their offer. The letter specifically stated that there is a need
to negotiate on the other details of the transaction[8] before the sale may be formalized.
Such statement in the Banks letter clearly manifests lack of agreement between the
parties as to the terms of the purported contract of sale/repurchase, particularly the
mode of payment of the purchase price and the period for its payment. The law requires
acceptance to be absolute and unqualified. As it is, the Banks letter is not the kind
which would constitute acceptance as contemplated by law for it does not evince any
categorical and unequivocal undertaking on the part of the Bank to sell the subject
properties to the Navarras.
The Navarras attempt to prove the existence of a perfected contract of sale all the more
becomes futile in the light of the evidence that there was in the first place no acceptance
of their offer. It should be noted that aside from their first letter dated July 18, 1985, the
Navarras wrote another letter dated August 20, 1985, this time requesting the Bank
that the down payment of P300,000.00 be instead taken from the excess payment
made by the RRRC in redeeming its own foreclosed properties. The very circumstance
that the Navarras had to make this new request is a clear indication that no definite
agreement has yet been reached at that point. As we see it, this request constitutes a
new offer on the part of the Navarras, which offer was again conditionally accepted by
the Bank as in fact it even required the Navarras to submit a board resolution of RRRC
before it could proceed with the proposed sale/repurchase. The eventual failure of the
spouses to submit the required board resolution precludes the perfection of a contract
of sale/repurchase between the parties. As earlier mentioned, contracts are perfected
when there is concurrence of the parties wills, manifested by the acceptance by one of
the offer made by the other.[9] Here, there was no concurrence of the offer and
acceptance as would result in a perfected contract of sale.
Evidently, what transpired between the parties was only a prolonged negotiation to buy
and to sell, and, at the most, an offer and a counter-offer with no definite agreement
having been reached by them. With the hard reality that no perfected contract of
sale/repurchase exists in this case, any independent transaction between the Planters
Bank and a third-party, like the one involving the Gatchalian Realty, cannot be affected.
WHEREFORE, the petition is DENIED and the assailed decision and resolution of the
Court of Appeals are AFFIRMED.